PACIFIC SELECT FUND
497, 1999-05-05
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PACIFIC SELECT FUND                                PROSPECTUS MAY 1, 1999
 
 
 
                                                   This prospectus tells you about the Pacific Select Fund's 18 portfolios.       
                                                   It's designed to help you choose among the investment options available        
                                                   under your variable annuity contract or variable life insurance policy issued or
                                                   administered by Pacific Life Insurance Company or its subsidiaries.            
                                                                                                                                  
                                                   You'll find details about how your annuity contract or life insurance          
                                                   policy works in the accompanying product prospectus or offering memorandum.    
                                                   Please read these documents carefully, and keep them for future reference.     
                                                   
You should be aware that the                       THE PACIFIC SELECT FUND PORTFOLIOS                                             
Securities and Exchange                            
Commission has not reviewed                        Money Market Portfolio, managed by Pacific Life Insurance Company              
any of these portfolios for their                  
investment merit, and does not                     High Yield Bond Portfolio, managed by Pacific Life Insurance Company           
guarantee that the information                     
in this prospectus is accurate or                  Managed Bond Portfolio, managed by Pacific Investment Management Company       
complete. It is a criminal offense                 
to say otherwise.                                  Government Securities Portfolio, managed by                                    
                                                   
                                                   Pacific Investment Management Company                                          
                                                   
                                                   Growth Portfolio, managed by Capital Guardian Trust Company                    
                                                   
                                                   Aggressive Equity Portfolio, managed by Alliance Capital Management L.P.       
                                                   
                                                   Growth LT Portfolio, managed by Janus Capital Corporation                      
                                                   
                                                   Equity Income Portfolio, managed by J.P. Morgan Investment Management Inc.     
                                                   
                                                   Multi-Strategy Portfolio, managed by J.P. Morgan Investment Management Inc.    
                                                   
                                                   Large-Cap Value Portfolio, managed by Salomon Brothers Asset Management Inc    
                                                   
                                                   Mid-Cap Value Portfolio, managed by Lazard Asset Management                    
                                                   
                                                   Equity Portfolio, managed by Goldman Sachs Asset Management                    
                                                   
                                                   Bond and Income Portfolio, managed by Goldman Sachs Asset Management           
                                                   
                                                   Equity Index Portfolio, managed by Bankers Trust Company                       
                                                   
                                                   Small-Cap Index Portfolio, managed by Bankers Trust Company                    
                                                   
                                                   REIT Portfolio, managed by Morgan Stanley Asset Management                     
                                                   
                                                   International Portfolio, managed by Morgan Stanley Asset Management            

                                                   Emerging Markets Portfolio, managed by Blairlogie Capital Management            


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YOUR GUIDE TO THIS PROSPECTUS
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                                              This prospectus is designed to help you make informed decisions about the           
                                              investments available under your Pacific Life variable annuity contract or          
                                              variable life insurance policy.                                                     
                                                                                                                                  
                                              We've divided the prospectus into five sections to make it easy for you to find     
                                              what you're looking for.                                                            
                                                                                                                                  
Please contact Pacific Life if you have       The first section, An overview of the Pacific Select Fund, contains a summary       
any questions about any of the Pacific        of the objectives, holdings and risks of each of the Pacific Select Fund's 18       
Select Fund portfolios.                       portfolios. It will help you understand the differences between the portfolios,     
                                              the risks associated with each, and how risk and investment objectives relate.      
Call toll-free:                                                                                                                   
Annuities: 1-800-722-2333                     About the portfolios tells you the following important things about each portfolio:
Life insurance: 1-800-800-7681                                                                                                    
                                              . The portfolio's investment goal - what the portfolio is trying to achieve.        
                                                                                                                                  
                                              . What the portfolio invests in - how the portfolio tries to meet its               
                                                investment goal. It tells you the portfolio's principal investments and           
                                                strategies, and any special focus, such as an emphasis on certain countries       
                                                or industry sectors. Some portfolios have policies on the amount they can         
                                                invest in certain kinds of securities. These policies apply at the time the       
                                                investment is made.                                                               
                                                                                                                                  
                                              . Who manages the portfolio - the people who manage each portfolio. Pacific         
                                                Life is the fund's adviser and manages two of the portfolios directly. To         
                                                manage the other portfolios, Pacific Life and the fund have retained other        
                                                portfolio managers. You'll find information about Pacific Life and the other      
                                                managers starting on page 42.                                                     
                                                                                                                                  
                                              . Risks you should be aware of - the principal risks associated with each           
                                                portfolio. Risk is the chance that you'll lose money on an investment, or         
                                                that it will not earn as much as you expect. Every portfolio has some degree of risk
                                                depending on what it invests in and what strategies it uses. One of the most
                                                important investment decisions you'll need to make is how much risk you're willing
                                                to accept in exchange for potential return on an investment.
                                                                                                                                  
                                              . How the portfolio has performed - lets you compare portfolio performance. The     
                                                bar chart and performance table show the portfolio's annual returns and year     
                                                to year performance. Performance tables include a relevant index to allow you to
                                                measure the portfolio's performance against a benchmark. Unlike the portfolios, the
                                                indexes are unmanaged and do not incur any transaction costs.
                                                                                                                                  
                                              . Performance of comparable accounts - the Pacific Select Fund introduced four      
                                                new portfolios on January 4, 1999. Because they are so new, they have no past     
                                                performance to help you with your investment decisions. This section shows        
                                                you how a substantially similar account (or composite of accounts), managed       
                                                by the companies that now manage the new portfolios, have performed in the        
                                                past. It does not show you how the new portfolios have performed or will          
                                                perform.                                                                          
                                                                                                                                  
                                                When showing comparable performance, the portfolio manager generally includes       
                                                all accounts with substantially similar goals and policies. The manager may,        
                                                however, not include accounts that are too small or have too short an               
                                                investment time horizon to accurately reflect the manager's performance, or         
                                                that do not meet other established criteria to be included in a published           
                                                composite.                                                                          
                                                                                                                                  
                                              Turn to the next three sections of the prospectus - Managing the Pacific Select     
                                              Fund, Information for investors and Financial highlights - for information          
                                              about how the portfolios are managed, fees and expenses the fund pays, how          
                                              shares are priced, and fund performance.                                             
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                              An overview of the Pacific Select Fund           4
                              --------------------------------------------------
                              About the portfolios
                              
                              Money Market Portfolio                           6
                              
                              High Yield Bond Portfolio                        8
                              
                              Managed Bond Portfolio                          10
                              
                              Government Securities Portfolio                 12
                              
                              Growth Portfolio                                14
                              
                              Aggressive Equity Portfolio                     16
                              
                              Growth LT Portfolio                             18
                              
                              Equity Income Portfolio                         20
                              
                              Multi-Strategy Portfolio                        22
                              
                              Large-Cap Value Portfolio                       24
                              
                              Mid-Cap Value Portfolio                         26
                              
                              Equity Portfolio                                28
                              
                              Bond and Income Portfolio                       30
                              
                              Equity Index Portfolio                          32
                              
                              Small-Cap Index Portfolio                       34
                              
                              REIT Portfolio                                  36
                              
                              International Portfolio                         38
                              
                              Emerging Markets Portfolio                      40
                              --------------------------------------------------
                              Managing the Pacific Select Fund                42
                              --------------------------------------------------
                              Information for investors                       47
                              --------------------------------------------------
                              Financial highlights                            48
                              --------------------------------------------------
                              Where to go for more information        back cover
                              --------------------------------------------------
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AN OVERVIEW OF THE PACIFIC SELECT FUND

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This table is a summary of the goals,              PORTFOLIO AND MANAGER            THE PORTFOLIO'S INVESTMENT GOAL               
investments and risks of each of the Pa-                                                                                          
cific Select Fund's 18 portfolios.                 Money Market Portfolio           Current income consistent with preservation   
It's designed to help you understand the           Pacific Life Insurance Company   of capital.                                   
differences between the portfolios, the                                                                                           
risks associated with each, and how                High Yield Bond Portfolio        High level of current income.                 
risk and investment goals relate.                  Pacific Life Insurance Company                                                 
                                                                                                                                  
The performance of all of the Pacific Select       Managed Bond Portfolio           Maximize total return consistent with prudent 
Fund portfolios is affected by changes in          Pacific Investment Management    investment management.                        
the economy and financial markets. The              Company                                                                       
portfolios are also affected by other kinds                                                                                       
of risks, depending on the securities they         Government Securities Portfolio  Maximize total return consistent with prudent 
invest in. There's also the possibility that       Pacific Investment Management    investment management.                        
investment decisions portfolio managers make        Company                                                                       
will not accomplish what they were designed                                                                                       
to achieve, or that the portfolio will not         Growth Portfolio                 Growth of capital.                            
achieve its investment goal.                       Capital Guardian Trust Company                                                 
                                                                                                                                  
Based on historical trends, equity                 Aggressive Equity Portfolio      Capital appreciation.                         
securities offer the potential for greater         Alliance Capital Management L.P.                                               
long-term growth than most fixed income                                                                                           
securities, but they also tend to have             Growth LT Portfolio              Long-term growth of capital consistent with the
larger and more frequent changes in price,         Janus Capital Corporation        preservation of capital.                      
which means there's a greater risk you                                                                                            
could lose money over the short term.              Equity Income Portfolio          Long-term growth of capital and income.       
Fixed income securities are affected               J.P. Morgan Investment                                                         
primarily by the financial condition of the         Management Inc.                                                               
companies that have issued them,                                                                                                  
and by changes in interest rates.                  Multi-Strategy Portfolio         High total return.                            
                                                   J.P. Morgan Investment                                                         
You'll find more information about each             Management Inc.                                                               
portfolio's recent strategies and                  
holdings in the most recent report to              Large-Cap Value Portfolio        Long-term growth of capital. Current income   
shareholders, and a more detailed                  Salomon Brothers Asset           is of secondary importance.                   
discussion of each portfolio's investments,         Management Inc                                                                
strategies and risks in the Statement of                                                                                          
Additional Information (SAI). Please turn          Mid-Cap Value Portfolio          Capital appreciation.                         
to the back cover for information about how        Lazard Asset Management                                                        
to get copies of these documents.                                                                                                 
                                                   Equity Portfolio                 Capital appreciation. Current income is of    
Many of the investment techniques and              Goldman Sachs Asset Management   secondary importance.                         
strategies discussed in this prospectus and                                                                                       
in the SAI are discretionary, which means          Bond and Income Portfolio        Total return and income consistent            
that portfolio managers can decide if they         Goldman Sachs Asset Management   with prudent investment management.           
want to use them or not. Portfolio managers                                                                                       
may also use investment techniques or make         Equity Index Portfolio           Investment results that correspond to the total
investments in securities that are not part        Bankers Trust Company            return of common stocks publicly traded in    
of a portfolio's principal investment                                               the U.S.                                      
strategy. A portfolio's stated investment                                                                                         
goal, (as shown in the second column to the        Small-Cap Index Portfolio        Investment results that correspond to the total
right),  cannot be changed without the             Bankers Trust Company            return of an index of small capitalization    
approval of shareholders. Investment                                                companies.                                    
policies may be changed from time to time                                                                                         
by the fund's board of trustees.                   REIT Portfolio                   Current income and long-term capital          
                                                   Morgan Stanley Asset Management  appreciation.                                 
                                                                                                                                  
                                                   International Portfolio          Long-term capital appreciation.               
                                                   Morgan Stanley Asset Management                                                
                                                                                                                                  
                                                   Emerging Markets Portfolio       Long-term growth of capital.                  
                                                   Blairlogie Capital Management                                                   
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THE PORTFOLIO'S MAIN INVESTMENTS                                 THE PORTFOLIO'S MAIN RISKS
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Highest quality money market instruments believed to             Credit and interest rate risks that accompany an investment in
have limited credit risk.                                        high quality short-term instruments. Intended
                                                                 to have the least investment risk of all of the portfolios.

Fixed income securities with lower and                           Credit, interest rate, liquidity and other risks that
medium-quality credit ratings and intermediate                   accompany an investment in lower-quality fixed income
to long terms to maturity.                                       securities. Particularly sensitive to credit risk during
                                                                 economic downturns.

Medium and high-quality fixed income securities with             Credit, interest rate and other risks that accompany an
varying terms to maturity.                                       investment in medium and high-quality fixed income securities
                                                                 and in mortgage related investments.

Fixed income securities that are issued or                       Credit, interest rate and other risks that accompany an
guaranteed by the U.S. government, its agencies or               investment in government bonds and in mortgage related
government-sponsored enterprises.                                investments. Generally has the least credit risk of the bond
                                                                 portfolios.

Equity securities of smaller and medium-sized                    Price volatility and other risks that accompany an investment
companies.                                                       in growth-oriented and smaller and medium-sized companies.
                                                                 Particularly sensitive to price swings during periods of economic
                                                                 uncertainty.

Equity securities of small emerging-growth companies             Price volatility and other risks that accompany an investment
and medium-sized companies.                                      in small emerging-growth companies and medium-sized companies.
                                                                 Particularly sensitive to price swings during periods of
                                                                 economic uncertainty.

Equity securities of a large number of companies of              Price volatility and other risks that accompany an investment
any size.                                                        in equity securities.

Equity securities of large and medium-sized                      Price volatility and other risks that accompany an investment
dividend-paying U.S. companies.                                  in equity securities.

A mix of equity and fixed income securities.                     Price volatility and other risks that accompany an investment
                                                                 in equity securities. Credit, interest rate and other risks 
                                                                 that accompany an investment in fixed income securities.

Equity securities of large U.S. companies.                       Price volatility and other risks that accompany an equity
                                                                 investment in large companies.

Equity securities of medium-sized U.S. companies                 Price volatility and other risks that accompany an equity
believed to be undervalued.                                      investment in medium-sized companies.

Equity securities of large U.S. growth-oriented                  Price volatility and other risks that accompany an equity
companies.                                                       investment in large, growth-oriented companies.

A wide range of fixed income securities with varying             Credit, interest rate, liquidity and other risks that
terms to maturity, with an emphasis on long-term                 accompany an investment in fixed income securities and
bonds.                                                           in mortgage related investments. Particularly sensitive to
                                                                 credit risk during economic downturns. Generally
                                                                 has the most interest rate risk of the bond portfolios.

Equity securities of companies that are included in              Price volatility and other risks that accompany an investment
the Standard & Poor's 500 Composite Stock Price                  in smaller companies. May be particularly susceptible to a
Index.                                                           general decline in the U.S. stock market because it cannot
                                                                 change its investment strategy, even temporarily to protect 
                                                                 it from loss during poor economic conditions.

Equity securities of companies that are included in              Price volatility and other risks that accompany an investment
the Russell 2000 Small Stock Index.                              in smaller companies. May be particularly susceptible to a
                                                                 general decline in the U.S. stock market because it cannot
                                                                 change its investment strategy, even temporarily to protect 
                                                                 it from loss during poor economic conditions.

Equity securities of real estate investment trusts.              Price volatility and the risks associated with the real estate
                                                                 market. Particularly sensitive to price swings because the 
                                                                 portfolio is classified as "non-diversified"--it may hold 
                                                                 securities from a fewer number of issuers than a diversified 
                                                                 portfolio.

Equity securities of companies of any size located               Price volatility and other risks that accompany an investment
in developed countries outside of the U.S.                       in foreign equities. Sensitive to currency exchange rates, 
                                                                 international political and economic conditions and other risks 
                                                                 that affect foreign securities.

Equity securities of companies that are located                  Price volatility and other risks that accompany an investment
in countries generally regarded as "emerging market"             in emerging markets. Sensitive to currency exchange rates,
countries.                                                       international political and economic conditions and other risks 
                                                                 that affect foreign securities. May have greater price swings 
                                                                 than most of the portfolios.
 
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ABOUT THE PORTFOLIOS                               MONEY MARKET PORTFOLIO

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                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                  
The portfolio's investment goal                    This portfolio seeks current income consistent with preservation of capital.   
                                                                                                                                  
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                  
What the portfolio invests in                      This portfolio's principal investment strategy is to invest in money market    
                                                   instruments that the portfolio manager believes have limited credit risk. These
The Money Market Portfolio invests at              investments principally include commercial paper and U.S. government           
least 95% of its assets in money market            obligations. The portfolio may also invest in asset-backed money market        
instruments that have been given the               instruments and foreign money market instruments denominated in U.S. dollars.  
highest credit rating for short-term debt          It is anticipated that the portfolio's dollar-weighted average term to maturity
securities, or have not been rated, but            will not exceed 90 days.                                                       
are of comparable quality.                                                                                                        
                                                   The portfolio manager looks for money market instruments with the highest      
                                                   yields within the highest credit rating categories, based on the evaluation of 
                                                   credit risk and interest rates. The portfolio may also lend some of the        
                                                   portfolio's assets, as long as the loans are secured.                          
                                                                                        
                                                   Unlike many money market funds, the Money Market Portfolio is not managed to   
                                                   maintain a constant net asset value. Instead, the net asset value will change  
                                                   with the value of the investments in the portfolio.                            
                                                                                         
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                  
Risks you should be aware of                       The Money Market Portfolio generally has the least investment risk of the      
                                                   Pacific Select Fund portfolios because its principal investment strategy is to 
An investment in the portfolio is not a            invest in short-term securities that are either government guaranteed or have  
bank deposit, and it is not insured or             very high credit ratings. The value of the portfolio may, however, be affected 
guaranteed by the Federal Deposit                  by the following risks:                                                        
Insurance Corporation or any other                 
government agency. It's possible to                . changes in interest rates - the value of the portfolio's investments may fall
lose money by investing in the portfolio.            when interest rates rise. Short-term money market instruments generally are  
                                                     affected less by changes in interest rates than fixed income securities with 
                                                     longer terms to maturity.                                                    
                                                                                                                                  
                                                   . credit risk - the portfolio could lose money if the issuer of a money market 
                                                     instrument is unable to meet its financial obligations or goes bankrupt.      

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                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
How the portfolio has performed                    Year by year total return (%)                                                   
                                                   as of December 31 each year                                                     
The bar chart shows how the portfolio's                                                                                            
performance has varied over the past               --------------------------------------------------------------------------------
10 years.                                           89      90      91      92      93      94      95      96      97      98     
                                                                                                                                   
The table below the bar chart compares                               [BAR CHART OF TOTAL RETURN APPEARS HERE]                      
the portfolio's performance with the                                                                                               
Merrill Lynch 90-day T-Bill Index.                 8.73    7.92    5.74    3.22    2.58    3.76    5.54    5.07    5.28    5.29    
                                                   --------------------------------------------------------------------------------
Returns do not reflect fees and expenses                                                                                           
associated with any variable annuity               Best and worst quarterly performance during this period:                        
contract or variable life insurance policy,        2nd quarter 1989: 2.35%;  2nd quarter 1993: 0.62%                               
and would be lower if they did.                                                                                                    
                                                   Average annual total return                                                     
Looking at how a portfolio has                     as of December 31, 1998                        1 year      5 years      10 years
performed in the past is important - but           -------------------------------------------------------------------------------- 
it's no guarantee of how it will perform                                                                                            
in the future.                                     Money Market Portfolio                         5.29%       4.99%        5.30%    
                                                   Merrill Lynch 90-day T-Bill Index              5.23%       5.22%        5.68%    
                                                                                                                                    
                                                   7-day yield ending December 31, 1998: 4.81%                                      
                                                                                                                                    
                                                   [SYMBOL] ----------------------------------------------------------------------- 
                                                                                                                                    
Who manages the portfolio                          Raymond Lee is a senior vice president of Pacific Life. He joined the company    
                                                   in 1976, and has been managing the Money Market Portfolio since 1987. He also    
[LOGO OF PACIFIC LIFE APPEARS HERE]                oversees the management of Pacific Life's publicly traded bond portfolio. He     
                                                   has an MBA in finance from the Wharton School of the University of Pennsylvania  
The Money Market Portfolio is managed              and a BA in economics from UCLA.                                                 
by Pacific Life Insurance Company. You'll                                                                                           
find more about Pacific Life on page 42.           Dale Patrick is an investment analyst at Pacific Life. He joined the company in  
                                                   1985, and has assisted in the management of the Money Market Portfolio since     
                                                   1994. He is also responsible for the management of Pacific Life's short-term     
                                                   fixed income securities. Dale has a BA in economics from the University of       
                                                   Colorado.                                                                        
 
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ABOUT THE PORTFOLIOS                               HIGH YIELD BOND PORTFOLIO

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                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
The portfolio's investment goal                    This portfolio seeks a high level of current income.                            
                                                                                                                                   
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
What the portfolio invests in                      This portfolio's principal investment strategy is to invest in fixed income     
                                                   securities with lower and medium-quality credit ratings and intermediate to     
Bonds are given a credit rating based on           long terms to maturity.                                                         
the issuer's ability to pay the quoted                                                                                             
interest rate and maturity value on time.          Securities principally include high yield bonds (often called "junk" bonds) and 
                                                   notes. The portfolio may also invest in fixed income securities that can be     
The High Yield Bond Portfolio invests              converted into equity securities, and preferred stocks and bonds of foreign     
principally in high yield or "junk" bonds,         issuers that are denominated in U.S. dollars.                                   
which are given a low credit rating by                                                                                             
Moody's (Ba and lower), or Standard &              When selecting securities, the portfolio manager focuses on:                    
Poor's (BB and lower), or have not been                                                                                            
rated, but are of comparable quality. High         . seeking high yields while addressing risk by looking for securities that      
yield bonds are considered to be mostly              offer the highest yields for their credit rating.                             
speculative in nature.                                                                                                             
                                                   . seeking gains by looking for securities that may be more creditworthy than    
This gives the portfolio more credit risk            their credit rating indicates. This involves an analysis of each potential    
than the other bond portfolios, but also             security, and may include meeting with the company's management team.         
gives it the potential for higher income.                                                                                          
                                                   . reducing credit risk by investing in many different issuers in a wide range   
                                                     of industries.                                                                
                                                                                                      
                                                   To help the portfolio achieve its investment goal, the portfolio may also lend  
                                                   some of the portfolio's assets, as long as the loans it makes are secured.      
                                                                                                                                   
                                                   The managers may temporarily change these strategies if they believe that       
                                                   economic conditions make it necessary to maintain liquidity or to try to        
                                                   protect the portfolio from potential loss. In this case, the portfolio may      
                                                   invest in U.S. government securities, higher-quality corporate fixed income     
                                                   securities or money market securities.                                          
                                                                                                                                   
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
Risks you should be aware of                       Since the High Yield Bond Portfolio's principal strategy is to invest in low    
                                                   and medium quality fixed income securities, it may be affected by the following 
                                                   risks, among others:                                                            
                                                                                                                                   
                                                   . credit risk - the portfolio could lose money if the issuer of a fixed income  
                                                     security is unable to meet its financial obligations or goes bankrupt. This   
                                                     portfolio may be subject to more credit risk than the other bond portfolios,  
                                                     because it invests in high yield bonds. This is especially true during        
                                                     periods of economic uncertainty or economic downturns.                        
                                                                                                                                   
                                                   . changes in interest rates - the value of the portfolio's investments may fall 
                                                     when interest rates rise. This portfolio may be sensitive to changes in       
                                                     interest rates because it may invest in fixed income securities with          
                                                     intermediate and long terms to maturity.                                      
                                                                                                                                   
                                                   . inability to sell securities - high yield bonds may be less liquid than       
                                                     higher quality investments. The portfolio could lose money if it cannot sell  
                                                     a security at the time and price that would be most beneficial to the         
                                                     portfolio. A security whose credit rating has been lowered may be             
                                                     particularly difficult to sell.                                                

                                                   . risks of foreign investing - foreign investments may be riskier than U.S.    
                                                     investments for many reasons, including changes in currency exchange rates,  
                                                     unstable political and economic conditions, a lack of adequate company       
                                                     information, differences in the way securities markets operate, less secure  
                                                     foreign banks or securities depositories than those in the U.S., and foreign 
                                                     controls on investment.                                                      
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                                                   [SYMBOL] ---------------------------------------------------------------------- 
                                                   
Risks you should be aware of                       . short-term trading - the portfolio can engage in short-term trading, which    
(continued)                                          could result in higher trading costs.                                         
                                                                                      
                                                   [SYMBOL] ----------------------------------------------------------------------- 
                                                                                      
How the portfolio has performed                    Year by year total return (%)                                                   
                                                   as of December 31 each year                                                     
The bar chart shows how the portfolio's                                                                                            
performance has varied over the past               --------------------------------------------------------------------------------
10 years.                                           89      90      91      92      93      94      95      96      97      98     
                                                                                                                                   
The table below the bar chart compares                               [BAR CHART OF TOTAL RETURN APPEARS HERE]                     
the portfolio's performance with the CS                                                                                            
First Boston High Yield Bond Index, an             4.16    0.38   24.58   18.72    18.01    0.42   18.87   11.31   9.44    2.46    
index designed to mirror the performance           --------------------------------------------------------------------------------
of the high-yield bond market.                                                                                                     
                                                   Best and worst quarterly performance during this period:                        
Returns do not reflect fees and expenses           1st quarter 1991: 6.51%;  3rd quarter 1998 : (4.66)%                           
associated with any variable annuity                                                                                               
contract or variable life insurance policy,        Average annual total return                                                     
and would be lower if they did.                    as of December 31, 1998                        1 year      5 years      10 years
                                                   --------------------------------------------------------------------------------
Looking at how a portfolio has performed           High Yield Bond Portfolio                      2.46%       8.30%        10.52%  
in the past is important - but it's no             CS First Boston High Yield Bond Index          0.58%       8.16%        10.74%  
guarantee of how it will perform in the                                                                                            
future.                                            
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                   
Who manages the portfolio                          Simon Lee is a vice president of Pacific Life. He joined the company in 1985    
                                                   and has shared management responsibility for the High Yield Bond Portfolio      
[LOGO OF PACIFIC LIFE APPEARS HERE]                since 1995. He also manages Pacific Life's high yield and convertible bond      
                                                   assets. He has both a BA and an MBA from Loyola Marymount University.           
The High Yield Bond Portfolio is managed           
by Pacific Life Insurance Company. You'll          Michael Long, Assistant Vice President, High Yield Securities, University of    
find more about Pacific Life on page 42.           California, Davis, BA, Economics, 1983. MBA Pepperdine University, 1999. Mr.    
                                                   Long joined Pacific Life in 1994 as an Investment Analyst. He was promoted to   
                                                   his current position in 1998. Mr. Long has 15 years experience in the financial 
                                                   and securities industry, including 6 years in investment analyst positions at   
                                                   Franklin Resources, Inc., Bradford and Marzec, Inc., and Great Northern         
                                                   Annuity, prior to joining Pacific Life.                                         
                                                                                                                                   
                                                   Lori A. Johnstone, Assistant Vice President, High Yield Securities, University  
                                                   of Southern California, BS, Marketing, 1984. San Diego State University, MBA,   
                                                   Finance, 1986. CFA, 1990. Ms. Johnstone joined Pacific Life in 1990 as an       
                                                   Investment Analyst in high yield securities and emerging markets. She was       
                                                   promoted to Assistant Vice President in 1998. Ms. Johnstone has 12 years        
                                                   financial industry experience including experience at a regional broker dealer  
                                                   with a focus on portfolio management and in the high yield bond investment      
                                                   group at Columbia Savings.                                                       

                                                                                                                                   9
</TABLE>      
<PAGE>
 
<TABLE> 
<CAPTION> 
ABOUT THE PORTFOLIOS                               MANAGED BOND PORTFOLIO

<S>                                                <C> 
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
The portfolio's investment goal                    This portfolio seeks to maximize total return consistent with prudent           
                                                   investment management.                                                          
                                                                                                                                   
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                     
What the portfolio invests in                      This portfolio's principal investment strategy is to invest in medium to high-  
                                                   quality, investment grade fixed income securities with varying terms to         
                                                   maturity.                                                                       

                                                   These securities include principally:                                           
Total return is made up of income plus             . U.S. treasury bonds and notes, or options or futures on them                  
any gains in the value of the portfolio's          . mortgage related securities, including stripped mortgage related securities   
securities.                                        . corporate bonds and notes, some of which may be high yield ("junk") bonds     
                                                   . commercial paper and other money market instruments                           
                                                   . fixed income securities issued by foreign governments and companies that are  
                                                     denominated in U.S. dollars or foreign currencies, some of which may be       
                                                     issued by governments in emerging market countries.                           
                                                                                   
                                                   When selecting securities, the portfolio manager:                               
                                                                                   
                                                   . decides what duration the portfolio should maintain. The portfolio manager    
Duration is a mathematical measure of                uses duration management as a fundamental part of the management strategy for 
the average life of a bond that includes its         this portfolio. The portfolio usually maintains an average duration of three  
yield, coupon, final maturity and call               to seven years, varying within this range based on the portfolio manager's    
features. It's often used to measure the             outlook on the economy and interest rates. The portfolio manager then decides 
potential volatility of a bond's price, and is       what proportion of securities in the portfolio should have short,             
considered a more accurate measure                   intermediate and long durations and maturities.                               
than maturity of a security's sensitivity to                                                                                       
changes in interest rates.                         . decides what proportion of securities in the portfolio should be invested in  
                                                     U.S. government securities, foreign bonds, U.S. corporate bonds and U.S       
                                                     mortgage related securities.                                                  
                                                                                      
                                                   . uses an analytical system developed by the portfolio manager to help select   
                                                     government and other securities that meet yield, duration, maturity and other 
                                                     criteria.                                                                     
        
                                                   . chooses companies to invest in by carrying out a credit analysis of each      
                                                     potential investment, which may include meetings or periodic contact with the 
                                                     company's management.                                                         
        
                                                   . frequently uses options, futures and forward contracts and other techniques   
                                                     as a substitute for securities, to try to increase returns or hedge against   
                                                     changes in interest rates. The manager may also use derivatives to hedge      
                                                     against changes in currency exchange rates.                                   
                                                                                                                                   
                                                   To help the portfolio achieve its investment goal, the portfolio may also lend  
                                                   some of the portfolio's assets, as long as the loans it makes are secured.      
                                                                                                                                   
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
Risks you should be aware of                       Since the Managed Bond Portfolio principally invests in fixed income            
                                                   securities, it may be affected by the following risks, among others:            
The price of bonds that are denominated            
in foreign currencies is affected by the           . changes in interest rates - the value of the portfolio's investments may fall 
value of the U.S. dollar. In general, as the         when interest rates rise. Changes in interest rates may have a significant    
value of the U.S. dollar falls, the U.S.             effect on this portfolio, because it may invest in securities with medium or  
dollar price of a foreign bond will rise,            long terms to maturity and may use interest- sensitive derivatives. Bonds     
increasing the value of the bond. As the             with longer durations tend to be more sensitive to changes in interest rates, 
value of the U.S. dollar rises, the U.S.             usually making them more volatile than bonds with shorter durations. The      
dollar value of a foreign bond will fall.            portfolio may also invest in mortgage related securities, which can be paid   
                                                     off early if the owners of underlying mortgages pay off their mortgages       
                                                     sooner than scheduled. If interest rates are falling, the portfolio will be   
                                                     forced to reinvest this money at lower yields. Stripped mortgage related      
                                                     securities can be particularly sensitive to changes in interest rates.         

</TABLE> 
 
10
<PAGE>
 
<TABLE>     
<S>                                                <C> 
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
Risks you should be aware of                       . credit risk - the portfolio could lose money if the issuer of a fixed income  
(continued)                                          security is unable to meet its financial obligations or goes bankrupt. This   
                                                     portfolio may invest in high yield ("junk") bonds, which may make it          
                                                     particularly subject to credit risk, especially during periods of economic    
This portfolio may not invest more than:             uncertainty or during economic downturns.                                     
                                                                                  
 . 10% of its assets in lower-rated, high-yield     . risks of foreign investing - foreign investments may be riskier than U.S.     
  ("junk") bonds                                     investments for many reasons, including changes in currency exchange rates,   
                                                     unstable political and economic conditions, a lack of adequate company        
 . 20% of its assets in foreign investments           information, differences in the way securities markets operate, less secure   
  denominated in foreign currencies.                 foreign banks or securities depositories than those in the U.S., and foreign  
                                                     controls on investment.                                                       
                                                                                                                                   
                                                   . risks of using derivatives - this portfolio frequently uses options, futures  
                                                     and forward contracts and other investment techniques to help it achieve its  
                                                     investment goal. There's always a risk that these techniques could reduce     
                                                     returns or increase the portfolio's volatility.                               
                                                                                      
                                                   . short-term trading - the portfolio may engage in short-term trading, which    
                                                     could result in higher trading costs.                                         
                                                                                      
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                      
How the portfolio has performed                    Year by year total return (%)                                                   
                                                   as of December 31 each year                                                     
The bar chart shows how the portfolio's                                                                                            
performance has varied over the past               --------------------------------------------------------------------------------
10 years.                                            89      90      91      92      93      94      95      96      97      98    
                                                                                                                                   
The table below the bar chart compares                               [BAR CHART OF TOTAL RETURN APPEARS HERE]                      
the portfolio's performance with the                                                                                               
Lehman Brothers Government/Corporate               14.74    8.52   17.03    8.68   11.63   (4.36)   19.04   4.25    9.92    9.20   
Bond Index, an index of government and             --------------------------------------------------------------------------------
corporate fixed income securities.                                                                                                 
                                                   Best and worst quarterly performance during this period:                        
Returns do not reflect fees and expenses           2nd quarter 1989: 8.25%;  1st quarter 1994: (2.98)%                             
associated with any variable annuity                                                                                               
contract or variable life insurance policy,        Average annual total return                                                     
and would be lower if they did.                    as of December 31, 1998                            1 year    5 years    10 years
                                                   --------------------------------------------------------------------------------
Looking at how a portfolio has performed           Managed Bond Portfolio                             9.20%     7.34%      9.68%   
in the past is important - but it's no             Lehman Brothers Government/Corporate Bond Index    9.47%     7.30%      9.34%   
guarantee of how it will perform in the            
future.                                            
                                                   [SYMBOL] -----------------------------------------------------------------------
                           
Who manages the portfolio                          John Hague, managing director and senior member of the portfolio manager group, 
                                                   joined PIMCO in 1987. He has been the portfolio manager for the Managed Bond    
[LOGO OF PIMCO APPEARS HERE]                       Portfolio since 1992. John has 17 years of investment experience, including two 
                                                   years specializing in international fixed income products and mortgage-backed   
The Managed Bond Portfolio is managed              securities with Salomon Brothers, Inc., and three years in credit research with 
by Pacific Investment Management                   Morgan Guarantee. He has a BA in economic analysis from Bowdoin College and an  
Company (PIMCO). You'll find more                  MBA in finance from Stanford University.                                         
about PIMCO on page 45.                      
 
                                                                                                                                  11
</TABLE>      
<PAGE>
 
<TABLE> 
<CAPTION> 
ABOUT THE PORTFOLIOS                               GOVERNMENT SECURITIES PORTFOLIO

<S>                                                <C> 
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
The portfolio's investment goal                    This portfolio seeks to maximize total return consistent with prudent           
                                                   investment management.                                                          
                                                                                                                                   
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                         
What the portfolio invests in                      This portfolio's principal investment strategy is to invest at least 65% of its 
                                                   assets in fixed income securities that are issued or guaranteed by the U.S.     
Total return is made up of income plus             government, its agencies, or government-sponsored enterprises.                  
any gains in the value of the portfolio's          
securities.                                        Specific securities are principally:                                            
                                                   
                                                   . U.S. treasury bonds or other fixed income securities issued or guaranteed by  
                                                     the U.S. government, its agencies, government-sponsored enterprises or        
                                                     options or futures on them.                                                   
                                                                                    
                                                   . mortgage related securities, including stripped mortgage related securities   
                                                                                    
                                                   . other securities, including corporate bonds and notes, money market           
                                                     instruments, and fixed income securities issued by foreign governments or     
                                                     companies that are denominated in U.S. dollars or foreign currencies.         
                                                                                                                                   
                                                   When selecting securities, the portfolio manager:                               
                                                                                                                                   
                                                   . decides what duration the portfolio should maintain. The portfolio manager    
                                                     uses duration management as a fundamental part of the management strategy for 
Duration is a mathematical measure of                this portfolio. The portfolio usually maintains an average duration of three  
the average life of a bond that includes its         to seven years, varying within this range based on the portfolio manager's    
yield, coupon, final maturity and call               outlook on the economy and interest rates. The portfolio manager then decides 
features. It is often used to measure the            what proportion of securities in the portfolio should have short,             
potential volatility of a bond's price, and is       intermediate and long durations and maturities.                               
considered a more accurate measure                   
than maturity of a security's sensitivity to       . decides what proportion of securities in the portfolio should be invested in  
changes in interest rates.                           U.S. government securities, foreign bonds, U.S. corporate bonds and U.S       
                                                     mortgage related securities. The manager uses an analytical system it has     
                                                     developed to help select securities that meet yield, duration, maturity and   
                                                     other criteria.                                                               
                                                     
                                                   . chooses companies to invest in by carrying out a credit analysis of each      
                                                     potential investment, which may include meetings or periodic contact with the 
                                                     company's management.                                                         

                                                   . frequently uses options, futures and forward contracts and other techniques   
                                                     as a substitute for securities, to try to increase returns or hedge against   
                                                     changes in interest rates. The manager may also use derivatives to hedge      
                                                     against changes in currency exchange rates.                                   
                                                                                                                                   
                                                   To help the portfolio achieve its investment goal, the portfolio may also lend  
                                                   some of the portfolio's assets, as long as the loans it makes are secured.      
                                                                                                                                   
                                                   The portfolio manager may temporarily change these strategies if he believes    
                                                   economic conditions make it necessary to try to protect the portfolio from      
                                                   potential loss. In this case, the portfolio may invest more of its assets in    
                                                   money market securities.                                                        
                                                                                                                                   
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
Risks you should be aware of                       Since the Government Securities Portfolio principally invests in fixed income   
                                                   securities, it may be affected by the following risks, among others:            
                                                                                                                                   
                                                   . changes in interest rates - the value of the portfolio may fall when interest 
                                                     rates rise. This portfolio may be particularly sensitive to interest rates    
                                                     because it primarily invests in U.S. government securities, may invest in     
                                                     securities with long terms to maturity, and may use hedging techniques. Bonds 
                                                     with longer durations tend to be more sensitive to changes in interest rates, 
                                                     usually making them more volatile than bonds with shorter durations. 

</TABLE> 
 
12
<PAGE>
 
<TABLE>     
<S>                                                <C> 
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
Risks you should be aware of                         The portfolio may also invest in mortgage related securities, which can be 
(continued)                                          paid off early if the owners of underlying mortgages pay off their mortgages 
                                                     sooner than scheduled. If interest rates are falling, the portfolio will be 
Government bonds tend to have less                   forced to reinvest this money at lower yields. Stripped mortgage related 
credit risk than bonds issued by most                securities can be particularly sensitive to changes in interest rates. 
companies because the U.S. government                                                                                              
is less likely than a company to default on        . credit risk - the portfolio could lose money if the issuer of a fixed income  
a debt. For this reason, government                  security is unable to meet its financial obligations or goes bankrupt. This   
securities generally pay lower rates of              portfolio is subject to less credit risk than the other bond portfolios       
interest than corporate securities with              because it principally invests in fixed income securities issued or           
similar terms to maturity.                           guaranteed by the U.S. government, its agencies and government sponsored      
                                                     enterprises, and in high quality corporate bonds.                             
This portfolio may not invest more than                                                                                            
20% of its assets in foreign investments           . risks of foreign investing - foreign investments may be riskier than U.S.     
denominated in foreign currencies.                   investments for many reasons, including changes in currency exchange rates,   
                                                     unstable political and economic conditions, a lack of adequate company        
                                                     information, differences in the way securities markets operate, less secure   
                                                     foreign banks or securities depositories than those in the U.S., and foreign  
                                                     controls on investment.                                                       
                                                                                                                                   
                                                   . risks of using derivatives - this portfolio frequently uses options, futures  
                                                     and forward contracts and other investment techniques to help it achieve its  
                                                     investment goal. There's always a risk that these techniques could reduce     
                                                     returns or increase the portfolio's volatility.                               
                                                                                       
                                                   . short-term trading - the portfolio may engage in short-term trading, which    
                                                     could result in higher trading costs.                                         
                                                                                       
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                       
How the portfolio has performed                    Year by year total return (%)                                                   
                                                   as of December 31 each year                                                     
The bar chart shows how the portfolio's                                                                                            
performance has varied over the past               --------------------------------------------------------------------------------
10 years.                                            89      90      91      92      93       94      95      96      97      98   
                                                                                                                                   
The table below the bar chart compares                               [BAR CHART OF TOTAL RETURN APPEARS HERE]                      
the portfolio's performance with the                                                                                               
Lehman Brothers Government Bond Index,             14.61    8.01   16.67    7.52   10.79    (5.10)   18.81   2.94    9.48    9.24  
an index of fixed income securities issued         --------------------------------------------------------------------------------
by the U.S. government and its agencies.  
                                                   Best and worst quarterly performance during this period:                        
Returns do not reflect fees and expenses           2nd quarter 1989: 8.42%;  1st quarter 1994: (3.73)%                             
associated with any variable annuity      
contract or variable life insurance policy,        Average annual total return                                                     
and would be lower if they did.                    as of December 31, 1998                        1 year      5 years      10 years
                                                   --------------------------------------------------------------------------------
Looking at how a portfolio has performed           Government Securities Portfolio                9.24%       6.78%        9.09%   
in the past is important - but it's no             Lehman Brothers Government Bond Index          9.85%       7.18%        9.17%   
guarantee of how it will perform in the                                                                                            
future.                                            
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                            
Who manages the portfolio                          John Hague, managing director and senior member of the portfolio manager group, 
                                                   joined PIMCO in 1987. He has been the portfolio manager for the Government      
[LOGO OF PIMCO APPEARS HERE]                       Securities Portfolio since 1987. John has 17 years of investment experience,    
                                                   including two years specializing in international fixed income products and     
The Government Securities Portfolio is             mortgage-backed securities with Salomon Brothers, Inc., and three years in      
managed by Pacific Investment                      credit research with Morgan Guarantee. He has a BA in economic analysis from    
Management Company (PIMCO). You'll                 Bowdoin College and an MBA in finance from Stanford University.                  
find more about PIMCO on page 45.           
 
                                                                                                                                  13
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<PAGE>
 
<TABLE> 
<CAPTION> 
ABOUT THE PORTFOLIOS                               GROWTH PORTFOLIO

<S>                                                <C> 
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
The portfolio's investment goal                    This portfolio seeks growth of capital over the long term. The realization of   
                                                   current income will not be a factor in considering portfolio securities.        
                                                                                      
                                                   This portfolio is not available for:                                            
                                                   . Pacific Corinthian variable annuity contracts                                 
                                                   . variable annuity contracts that were issued on or after January 1, 1994.      
                                                                                      
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                      
What the portfolio invests in                      This portfolio's principal investment strategy is to invest in small to medium- 
                                                   sized companies. It tends to emphasize companies that have a total market       
A company's "capitalization" is a measure          capitalization of between $250 million and $1 billion. It invests principally   
of its size. Capitalization is calculated by       in common stocks. The portfolio may also invest in fixed income securities,     
multiplying the current share price by the         including those that can be converted into equity securities, and foreign       
number of shares held by investors.                securities that are listed on a U.S. stock exchange or over the counter market. 
                                                                                                                                   
A smaller company with a promising                 The portfolio is managed by a team of portfolio managers. The portfolio is      
product or operating in a dynamic field            divided into segments, and each has its own manager who makes independent       
may have greater potential for rapid               decisions within portfolio guidelines and objectives.                           
earnings growth than a larger one.                                                                                                 
However, it may have a harder time                 When assessing companies, the team uses a value-oriented approach in which it   
securing financing and may be more                 tries to identify the difference between the underlying value of a company and  
sensitive to a setback in sales or to              the price of its security. Value is identified in a number of ways, including   
economic downturns than larger, more               the relationship of the stock's current price to earnings, the strength of the  
established companies.                             company's balance sheet, and price-to-book value. The team looks at a number of 
                                                   variables, including the fundamental long-term outlook for the company, the     
                                                   extent to which shares may be considered undervalued and the expectations of    
                                                   the market as a whole.                                                          
                                                   
                                                   The team considers strong company management important, and investment          
                                                   decisions may be based on meetings with the company's senior executives and its 
                                                   competitors, as well as on information from economists, government officials    
                                                   and industry specialists.                                                       
                                                   
                                                   To help it achieve its investment goal, the portfolio may lend some of its      
                                                   assets, as long as the loans it makes are secured.                              
                                                   
                                                   The team may temporarily change these strategies if it believes economic        
                                                   conditions make it necessary to try to protect the portfolio from potential     
                                                   loss. In this case, the portfolio may invest in money market securities, short- 
                                                   term corporate debt, preferred stocks and U.S. government securities.           
                                                                                                                                   
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
Risks you should be aware of                       The Growth Portfolio principally invests in equity securities, which go up or   
                                                   down in value, sometimes rapidly and unpredictably. While equities may offer    
                                                   the potential for greater long-term growth than most fixed income securities,   
                                                   they generally have higher volatility. The portfolio may be affected by the     
                                                   following risk, among others:                                                   
</TABLE> 
 
14
<PAGE>
 
<TABLE>     
<S>                                                <C> 
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
Risks you should be aware of                       . price volatility - the value of the portfolio changes as the prices of its     
(continued)                                          investments go up or down. This portfolio invests in companies with smaller    
                                                     capitalizations, which may give the portfolio a higher risk of price           
                                                     volatility than a portfolio that invests in companies with larger              
                                                     capitalizations.  

                                                   In addition, the securities of smaller companies generally have less liquidity  
                                                   and may be more susceptible to greater price swings than larger companies       
                                                   because they may have fewer financial resources, limited product and market     
                                                   diversification, and many are dependent on a few key managers.                  
                                                                                                                                   
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                      
How the portfolio has performed                    Year by year total return (%)                                                   
                                                   as of December 31 each year                                                     
The bar chart shows how the portfolio's                                                                                            
performance has varied over the past               --------------------------------------------------------------------------------
10 years.                                            89       90       91      92      93      94      95      96      97      98  
                                                                                                                                   
The table below the bar chart compares                                [BAR CHART OF TOTAL RETURN APPEARS HERE]                     
the portfolio's performance with the                                                                                               
Russell 2000 Small Stock Index, an index           34.96   (17.30)   39.15   20.53   21.89   (10.49)  25.75   23.62   30.27   2.69 
of the stocks of approximately 2,000 U.S.          --------------------------------------------------------------------------------
small-capitalization companies.                                                                                                    
                                                   Best and worst quarterly performance during this period:                        
Returns do not reflect fees and expenses           4th quarter 1998: 30.37%;  3rd quarter 1998: (25.65)%                           
associated with any variable annuity                                                                                               
contract or variable life insurance policy,        Average annual total return                                                     
and would be lower if they did.                    as of December 31, 1998                        1 year      5 years      10 years
                                                   --------------------------------------------------------------------------------
Looking at how a portfolio has performed           Growth Portfolio                               2.69%       13.23%       15.56%  
in the past is important - but it's no             Russell 2000 Small Stock Index                (2.55)%      11.86%       12.92%  
guarantee of how it will perform in the            
future.                                            
                                                   [SYMBOL] -----------------------------------------------------------------------
                                        
Who manages the portfolio                          Michael Ericksen, senior vice president of Capital Guardian, is the lead        
                                                   portfolio manager. He has 18 years of experience as an investment professional, 
[LOGO OF CAPITAL GUARDIAN APPEARS HERE]            including 12 years with Capital Guardian or its affiliates.                     
                                                   
The Growth Portfolio is managed by a               Robert Kirby, a senior partner of The Capital Group Partners L.P., has 46 years 
team of portfolio managers at Capital              of experience as an investment professional, including 33 years with Capital    
Guardian Trust Company. You'll find                Guardian or its affiliates.                                                     
more about Capital Guardian on page 44.            
                                                   James Kang, vice president of Capital International Research Inc., has 12 years 
                                                   of experience as an investment professional, including 11 years with Capital    
                                                   Guardian.                                                                        

 
                                                                                                                                  15
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<PAGE>
 
<TABLE> 
<CAPTION> 
ABOUT THE PORTFOLIOS                               AGGRESSIVE EQUITY PORTFOLIO

<S>                                                <C> 
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                  
The portfolio's investment goal                    This portfolio seeks capital appreciation. No consideration is given to income.
                                                                                                                                  
                                                   This portfolio is not available for:                                           
                                                   . Pacific Corinthian variable annuity contracts.                               
                                                                                     
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                     
What the portfolio invests in                      This portfolio's principal investment strategy is to invest in small emerging- 
                                                   growth companies and medium-sized companies, but it may also invest in larger, 
A company's "capitalization" is a measure          more well-established companies. It tends to emphasize companies that have a   
of its size. Capitalization is calculated by       total market capitalization of up to $5 billion. The portfolio focuses         
multiplying the current share price by the         primarily on U.S. companies, but may invest in companies located outside of the
number of shares held by investors.                U.S.                                                                           
                                                                                                                                  
Price to earnings ratio (P/E) is one way of        Investments principally include common stock, as well as preferred stocks,     
measuring the value of a company. It's             fixed income securities, some of which can be converted to equity securities,  
simply the price of a stock divided by its         and warrants.                                                                  
estimated or actual earnings per share. A          
high P/E ratio could indicate a high level         The portfolio management team looks for companies that are expected to meet    
of investor confidence in the company.             growth targets set by the team, and that have a price to earnings ratio that is
                                                   lower than its expected growth rate. Within these guidelines, the team looks   
                                                   for three kinds of companies:                                                  
                                                   
                                                   . undervalued companies, whose shares are being sold at a discount relative to 
                                                     the shares of similar companies, and that the team believes are likely to    
                                                     exceed growth expectations                                                   
                                                                                                                                  
                                                   . companies in cyclical industries, like technology or financial services, that
                                                     the team believes are likely to experience rapid growth in the current       
                                                     economy                                                                      
                                                                                        
                                                   . companies that are experiencing changes, like a change in corporate          
                                                     structure, that the team believes are likely to result in growth.            
                                                                                        
                                                   Before investing in a company, the team usually meets with the company's       
                                                   management team, customers, competitors and suppliers, and may consult with    
                                                   external industry analysts. The team also analyzes the company's cash flow     
                                                   trends to try to determine its financial stability and the reliability of its  
                                                   projected earnings. The portfolio management team may also buy index options to
                                                   try to increase returns, and use options and other derivatives to offset       
                                                   changes in currency exchange rates. The portfolio may lend some of its assets, 
                                                   as long as the loans it makes are secured.                                     
                                                                                                                                  
                                                   The team may temporarily change these strategies if it believes economic       
                                                   conditions make it necessary to try to protect the portfolio from potential    
                                                   loss. In this case, the portfolio may invest in U.S. government securities,    
                                                   higher-quality corporate fixed income securities, mortgage related and asset   
                                                   backed securities, or money market instruments.                                
                                                                                                                                  
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                   
Risks you should be aware of                       The Aggressive Equity Portfolio principally invests in equity securities, which
                                                   may go up or down in value, sometimes rapidly and unpredictably. While equities
                                                   may offer the potential for greater long-term growth than most fixed income    
                                                   securities, they generally have higher volatility. The portfolio may be        
                                                   affected by the following risks, among others:                                 
         
Companies that have recently undergone             . price volatility - the value of the portfolio changes as the prices of its   
a change in corporate structure may have             investments go up or down. This portfolio invests in companies that the team 
a greater degree of price volatility than            thinks have the potential for above average growth, which may give the       
more established companies because                   portfolio a higher risk of price volatility than a portfolio that invests    
there's no guarantee that the new                    principally in equities that are "undervalued."                              
management structure will result in                
growth.                                              Small emerging growth companies may be more susceptible to larger price 
                                                     swings than larger companies because they may have fewer financial resources, 
                                                     limited product and market diversification and many are dependent on a few key
                                                     managers. Emerging growth companies and companies in cyclical industries may 
                                                     be particularly susceptible to rapid price swings during periods of economic
                                                     uncertainty.
</TABLE> 
 
16
<PAGE>
 
<TABLE>     
<S>                                                <C> 
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                                                                   
Risks you should be aware of                       . risks of foreign investing - foreign investments may be riskier than U.S.     
(continued)                                          investments for many reasons, including changes in currency exchange rates,   
                                                     unstable political and economic conditions, a lack of adequate company        
This portfolio may not invest more than              information, differences in the way securities markets operate, less secure   
20% of its assets in foreign investments             foreign banks or securities depositories than those in the U.S., and foreign  
that are principally traded outside the U.S.         controls on investment.                                                       
                                                                                                                                   
                                                   . risks of using derivatives - this portfolio may use index options and other   
                                                     investment techniques to help it achieve its investment goal. There's always  
                                                     a risk that these techniques could reduce returns or increase the portfolio's 
                                                     volatility.                                                                   
                                                                                                                                   
                                                   . short-term trading - the portfolio may engage in short-term trading, which    
                                                     could result in higher trading costs.                                         
                                                                                       
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                                                       
How the portfolio has performed                    Year by year total return (%)                                                   
                                                   as of December 31 each year/1/,/2/                                              
The bar chart shows how the portfolio's                                                                                            
performance has varied since its                   --------------------------------------------------------------------------------
inception.                                                                                                   96       97        98 
                                                                                                                                   
The table below the bar chart compares                               [BAR CHART OF TOTAL RETURN APPEARS HERE]                      
the portfolio's performance with the                                                                                               
Russell 2500 Index, an index of the stocks                                                                  7.86     3.78     13.22
of approximately 2,500 mid-capitalization          --------------------------------------------------------------------------------
U.S. companies.                                                                                                                    
                                                   Best and worst quarterly performance during this period: 4th quarter 1998:      
Returns do not reflect fees and expenses           18.13%;  3rd quarter 1998: (15.27)%                                             
associated with any variable annuity                                                                                               
contract or variable life insurance policy,        Average annual total return                                      Since inception
and would be lower if they did.                    as of December 31, 1998                     1 year               (April 1, 1996)
                                                   --------------------------------------------------------------------------------
Looking at how a portfolio has                     Aggressive Equity Portfolio/2/              13.22%                8.99%         
performed in the past is important - but           Russell 2500 Index                           0.38%               13.12%         
it's no guarantee of how it will perform in                                                                                        
the future.                                        /1/ Total return for 1996 is for the period from April 1, 1996 (commencement of 
                                                       operations) to December 31, 1996.                                           
                                                   /2/ Alliance Capital Management L.P. began managing the portfolio on May 1, 1998
                                                       and some investment policies changed at that time. Another firm managed the 
                                                       portfolio before that date.                                                 

                                                                                        
                                                                                        
                                                   [SYMBOL] -----------------------------------------------------------------------
                                                   
Who manages the portfolio                          Kevin O'Brien is senior vice president of Alliance Capital. He joined Alliance  
                                                   Capital in 1988 and took over management of the Aggressive Equity Portfolio in  
[LOGO OF ALLIANCE CAPITAL MANAGEMENT L.P.          1998. Before joining Alliance Capital, he was a partner at Campbell Advisors    
APPEARS HERE]                                      and a portfolio manager at Connecticut Mutual Life Insurance. He has over 19    
                                                   years of experience in asset management, is a chartered financial analyst and a 
The Aggressive Equity Portfolio is                 member of Phi Beta Kappa. Kevin has a BA from Amherst College and an MA and PhD 
managed by a team of portfolio managers            from Cornell University.                                                        
at Alliance Capital Management L.P. You'll         
find more about Alliance Capital on                Alden Stewart is executive vice president of Alliance Capital. He joined        
page 42.                                           Alliance Capital in 1971 as an analyst following various industry groups, and   
                                                   has been a portfolio manager since 1977. He began managing the Aggressive       
                                                   Equity Portfolio in 1998. Alden has 27 years of investment experience, a BA     
                                                   from the University of Oregon and an MBA from the University of Chicago.        

                                                   Steven M. Barry is vice president of Alliance Capital. He joined Alliance       
                                                   Capital in 1988. Before joining Alliance Capital, he was an assistant vice      
                                                   president and portfolio manager at E.F. Hutton Asset Management. Steven has 14  
                                                   years of investment experience and has a BA from Boston College.                 
                                                                            
                                                                                                                                  17
</TABLE>      
<PAGE>
 
<TABLE> 
<CAPTION> 
ABOUT THE PORTFOLIOS                           GROWTH LT PORTFOLIO

<S>                                            <C>   
                                               [SYMBOL]----------------------------------------------------------------------
 
The portfolio's investment goal                This portfolio seeks long-term growth of capital in a manner consistent with
                                               the preservation of capital.                                                 


                                               [SYMBOL]----------------------------------------------------------------------

What the portfolio invests in                  This portfolio's principal investment strategy is to invest in a large number   
                                               of companies of any size, from small emerging growth to well established     
                                               companies. It principally invests in common stock.                            

This portfolio may invest some of              The portfolio manager looks for companies that have high potential for earnings 
its assets in foreign companies.               growth that may not be recognized by other investors. The portfolio manager     
Investing globally offers greater              generally does not limit security selection to any industry sector or use other 
diversification because the                    defined selection procedures. The realization of income is not a significant    
portfolio can take advantage of                factor in considering portfolio securities. Before investing in a company, the  
investment opportunities that are              portfolio manager may consider:                                                 
not available in the U.S.                                                                                                  
                                               . how much demand there is for the company's products and services              
                                                                                                                           
                                               . how the company is positioned against its competitors                         
                                                                                                                           
                                               . the regulatory environment in which the company operates.                     
                                                                                                                           
                                               When selecting companies located outside the U.S., the portfolio manager may    
                                               also consider:                                                                  
                                                                                                                           
                                               . expected levels of inflation                                                  
                                                                                                                           
                                               . government policies influencing business conditions                           
                                                                                                                           
                                               . the outlook for currency relationships                                        
                                                                                                                           
                                               . prospects for relative economic growth among countries, regions or geographic 
                                                 areas.                                                                        
                                                                                                                           
                                               The portfolio may also invest in fixed income securities, including lower-rated 
                                               "junk" bonds.                                                                   
                                                                                                                           
                                               The Portfolio manager may use options, futures and other techniques to try to   
                                               increase returns or to try to hedge against changes in interest rates or market 
                                               declines. The manager may also use forward foreign currency contracts or        nds
                                               derivatives to hedge against changes in currency exchange rates. The portfolio  
                                               may lend some of its assets, as long as the loans it makes are secured.         
                                                                                                                           
                                               The portfolio may invest in U.S. government securities, higher-quality          
                                               corporate fixed income securities, money market instruments or repurchase       
                                               agreements if the manager believes they have growth potential or cannot find    
                                               equity investments that meet investment criteria. The portfolio manager may     
                                               temporarily change these strategies if he believes economic conditions make it  
                                               necessary to try to protect the portfolio from potential loss.                   


                                               [SYMBOL]---------------------------------------------------------------------- 

Risks you should be aware of                   The Growth LT Portfolio principally invests in equity securities, which may go  
                                               up or down in value, sometimes rapidly and unpredictably. While equities may   
This portfolio may not invest more than:       offer the potential for greater long-term growth than most fixed income        
 . 10% of its assets in lower-rated "junk" bond securities, they generally have higher volatility. The portfolio may also be   
 . 25% of its assets in foreign investments.    affected by the following risks, among others:                                 
                                                                                                                              
                                               . price volatility - the value of the portfolio changes as the prices of its   
                                                 investments go up or down. This portfolio invests in companies that the      
                                                 portfolio manager believes have the potential for rapid growth, which may    
                                                 give the portfolio a higher risk of price volatility than a portfolio that   
                                                 invests in equities that are "undervalued," for example.                      


</TABLE> 

18
<PAGE>
 
<TABLE>    
<S>                                              <C>
                                                 [SYMBOL]---------------------------------------------------------------------------

Risks you should be aware of                       This portfolio may also invest in small and medium-sized companies, which may   
(continued)                                        be more susceptible to greater price swings than larger companies because they 
                                                   may have fewer financial resources, limited product and market diversification 
                                                   and many are dependent on a few key managers.                                   

                                                 . risks of foreign investing - foreign investments may be riskier than U.S.      
                                                   investments for many reasons, including changes in currency exchange rates,    
                                                   unstable political and economic conditions, a lack of adequate company         
                                                   information, differences in the way securities markets operate, less secure    
                                                   foreign banks or securities depositories than those in the U.S., and foreign   
                                                   controls on investment.                                                        
                                                                                                                                  
                                                 . risks of using derivatives - this portfolio may use options, futures           
                                                   contracts and other investment techniques to help it achieve its investment    
                                                   goal. There's always a risk that these techniques could reduce returns or      
                                                   increase the portfolio's volatility.                                           
                                                                                                                                  
                                                 . short-term trading - the portfolio may engage in short-term trading, which     
                                                   could result in higher trading costs.                                           

                                                 [SYMBOL]-------------------------------------------------------------------------

How the portfolio has performed                  Year by year total return (%)     
                                                 as of December 31 each year/1/  
The bar chart shows how the portfolio's          
performance has varied since its                 ---------------------------------------------------------------------------------
inception.                                                                       94        95        96        97        98
                                                                                                                                    
The table below the bar chart compares the                           [BAR CHART OF TOTAL RETURN APPEARS HERE]                       
portfolio's performance with the Russell                                                                                            
2500 ndex, an index of 2,500 U.S. mid-cap                                       13.25     36.75     17.87     10.96     58.29       
companies, and the Standard & Poor's 500         ---------------------------------------------------------------------------------  
Composite Stock Price Index, an index of the                                                                                        
stocks of approximately 500 large-               Best and worst quarterly performance during this period:                           
capitalization U.S. companies.                   4th quarter 1998: 29.59%;  1st quarter 1997: (6.72)%                               
                                                                                                                                    
Returns do not reflect fees and expenses         Average annual total return                                    Since inception     
associated with any variable annuity             as of December 31, 1998                               1 year  (January 4, 1994)/2/ 
contract or variable life insurance policy,      ---------------------------------------------------------------------------------- 
and would be lower if they did.                  Growth LT Portfolio                                   58.29%         26.26%        
                                                 Russell 2500 Index                                     0.38%         14.13%        
Looking at how a portfolio has performed in      Standard & Poor's 500 Composite Stock Price Index     28.58%         24.06%        
the past is important - but it's no guarantee                                                                                       
of how it will perform in the future.            /1/ Total return for 1994 is for the period from January 4, 1994 (commencement     
                                                     of operations) to December 31, 1994.                                           
                                                 /2/ Portfolio total return calculated from inception date through end of           
                                                     period. Index total returns calculated from January 1, 1994 through end of     
                                                     period.                                                                        
                                                                                                                                    
                                                 [SYMBOL]-------------------------------------------------------------------------- 
                                                                                                                                    
Who manages the portfolio                        Warren Lammert, III, vice president of Janus Capital Corporation, joined Janus     
                                                 in 1987 and is portfolio manager and executive vice president of Janus Mercury     
[LOGO OF JANUS APPEARS HERE]                     Fund and executive vice president of Janus Investment Fund. He has also been       
                                                 the portfolio manager of various growth-oriented accounts since 1991. He has a     
The Growth LT Portfolio is managed by Janus      BA in economics from Yale University and an MA in economic history (with           
Capital Corporation. You'll find more about      distinction) from the London School of Economics, and is a chartered financial     
Janus on page 44.                                analyst.                                                                           

                                                                                                                                  19
</TABLE>       
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<TABLE> 
<CAPTION> 
ABOUT THE PORTFOLIOS                       EQUITY INCOME PORTFOLIO
<S>                                        <C> 
                                           [SYMBOL]------------------------------------------------------------------------

The portfolio's investment goal            This portfolio seeks long-term growth of capital and income.

                                           [SYMBOL]------------------------------------------------------------------------ 

What the portfolio invests in              This portfolio's principal investment strategy is to invest in common stocks of
                                           large and medium-sized U.S. companies, but it may invest in small companies or 
The portfolio manager tries to             in companies located outside the U.S. that are listed on a U.S. stock exchange.
achieve gross income of 75% of the                                                                                        
dividend income generated on the           The portfolio is managed by a team of portfolio managers who maintain industry 
stocks included in the Standard and        sector weightings that are similar to those of the Standard & Poor's 500       
Poor's 500 Composite Stock Price           Composite Stock Price Index. The team moderately underweights or overweights   
Index. When selecting stocks,              sectors when it believes this will enhance performance.                        
however, the manager puts more                                                                                            
emphasis on the potential for              The team chooses companies to invest in within these industry sectors using a  
capital appreciation than on current       three-step process:                                                            
dividends.                                                                                                                
                                           Research - the team looks at company prospects over the short term as well as  
                                           over a relatively long period - often as much as five years - to gain insight  
                                           into a company's real growth potential.                                        
                                                                                                                          
                                           Value - the team ranks the companies in each industry group according to their 
                                           relative value using quantitative earnings, cash flow and dividend analysis and
                                           forecasts. The more the team's estimated worth of a company exceeds the current
                                           market price of its stock, the more undervalued it considers the company.      
                                                                                                                          
                                           Stock selection - using the research and valuation rankings as a guide, the    
                                           team buys stocks that are undervalued and considers selling them when they     
                                           appear overvalued. Along with attractive valuation, the team considers a number
                                           of other criteria, including:                                                  
                                           . events that could trigger a rise in a stock's price                          
                                           . high potential reward compared with potential risk                           
                                           . temporary mispricings caused by market overreactions.                        
                                                                                                                          
                                           The portfolio invests principally in dividend-paying common stock. It may also 
                                           invest in other equity securities like non-dividend-paying common stock and    
                                           preferred stock, and in fixed income securities that can be converted into     
                                           equity securities.                                                             
                                                                                                                          
                                           The portfolio may invest in index options, stock index futures and other       
                                           techniques to try to increase returns, to try to gain access to a market or as 
                                           a substitute for buying the securities in the index. The portfolio may also    
                                           lend some of its assets, as long as the loans it makes are secured. The team   
                                           may temporarily change these strategies if it believes economic conditions make
                                           it necessary to try to protect the portfolio from potential loss.               


                                           [SYMBOL]------------------------------------------------------------------------

Risks you should be aware of               The Equity Income Portfolio principally invests in equity securities, which may
                                           go up or down in value, sometimes rapidly and unpredictably. While equities may
                                           offer the potential for greater long-term growth than most fixed income        
                                           securities, they generally have higher volatility. The portfolio may be        
                                           affected by the following risks, among others:                                 
                                                                                                                          
                                           . price volatility - the value of the portfolio changes as the prices of its   
                                             investments go up or down. The portfolio manager tries to control price      
                                             volatility by investing in many different companies in a wide range of       
                                             industries.                                                                  
</TABLE> 
 
20
<PAGE>

<TABLE>     
<S>                                              <C>
                                                 [SYMBOL] -----------------------------------------------------------------------  
                                                                                                                                 
Risks you should be aware of                     . risks of using derivatives - this portfolio may use options, futures          
(continued)                                        contracts and other investment techniques to help it achieve its investment   
                                                   goal. There's always a risk that these techniques could reduce returns or     
                                                   increase the portfolio's volatility.                                           

                                                 . risks of foreign investing - foreign investments may be riskier than U.S.    
                                                   investments for many reasons, including changes in currency exchange rates,  
                                                   unstable political and economic conditions, a lack of adequate company       
                                                   information, differences in the way securities markets operate, less secure  
                                                   foreign banks or securities depositories than those in the U.S., and foreign 
                                                   controls on investment.

                                                 [SYMBOL] -----------------------------------------------------------------------
                                             
How the portfolio has performed                  Year by year total return (%)                                                  
                                                 as of December 31 each year/1/                                                 
The bar chart shows how the portfolio's                                                                                         
performance has varied over the past             --------------------------------------------------------------------------------
10 years.                                         89      90      91      92      93       94       95      96      97        98
                                                                                                                                  
The table below the bar chart compares                             [BAR CHART OF TOTAL RETURNS APPEARS HERE]
the portfolio's performance with the                                                                                              
Standard & Poor's 500 Composite Stock            29.22  (7.54)  31.42    5.36    8.29    (0.28)   31.66   19.43   28.60     24.18
Price Index, an index of the stocks of           -------------------------------------------------------------------------------- 
approximately 500 large-capitalization           
U.S. companies.                                  Best and worst quarterly performance during this period:                          
                                                 4th quarter 1998: 21.81%;  3rd quarter 1990: (16.91)%                              
Returns do not reflect fees and expenses         
associated with any variable annuity             Average annual total return
contract or variable life insurance policy,      as of December 31, 1998                               1 year   5 years  10 years
and would be lower if they did.                  --------------------------------------------------------------------------------
                                                 Equity Income Portfolio/1/                            24.18%   20.15%   16.19% 
Looking at how a portfolio has performed         Standard & Poor's 500 Composite Stock Price Index     28.58%   24.06%   19.19% 
in the past is important - but it's no                                                                                         
guarantee of how it will perform in the          /1/ J.P. Morgan Investment Management Inc. began managing the portfolio on     
future.                                              January 1, 1994, and some investment policies changed at that time. Another 
                                                     firm managed the portfolio before that date.                                
                                                                                                                               
                                                 [SYMBOL] ----------------------------------------------------------------------- 
                                                                                                                                  
Who manages the portfolio                        William Riegel, managing director, is a senior equity portfolio manager in the   
                                                 U.S. equity and balanced accounts group. He started his career with J.P. Morgan    
[LOGO OF J.P. MORGAN INVESTMENT                  in 1979 as an investment research analyst specializing in energy and machinery     
APPEARS HERE]                                    companies, and joined the equity group in 1984. He assumed responsibility for      
                                                 managing convertible portfolios in 1987, and began managing the Equity Income      
The Equity Income Portfolio is managed           Portfolio in 1997. He graduated from Williams College in 1978 and is a             
by a team of portfolio managers at               chartered financial analyst.                                                       
J.P. Morgan Investment Management Inc.                                                                                              
You'll find more about J.P. Morgan on            Henry Cavanna, managing director, is a senior equity portfolio manager in the      
page 44.                                         U.S. equity and balanced accounts group. He joined J.P. Morgan in 1971 and his     
                                                 first assignment was in pension administration. He began managing the Equity       
                                                 Income Portfolio in 1997, and has a BA from Boston College and an LLB from the     
                                                 University of Pennsylvania.                                                      

                                                                                                                                  21
</TABLE>     
<PAGE>

<TABLE>     
<CAPTION> 
ABOUT THE PORTFOLIOS                       MULTI-STRATEGY PORTFOLIO
 
<S>                                        <C> 
                                           [SYMBOL] ------------------------------------------------------------------------ 

The portfolio's investment goal            This portfolio seeks to provide a high total return from a portfolio of equity
                                           and fixed income securities. Total return will consist of income plus realized
                                           and unrealized capital gains and losses.                                       

                                           [SYMBOL] ------------------------------------------------------------------------ 

What the portfolio invests in              This portfolio's principal investment strategy is to invest in a mix of equity 
                                           and fixed income securities.                                                   

                                           Equity securities, which usually make up about 60% of the portfolio, are      
                                           principally the common stock of large and medium-sized U.S. companies. The    
A portfolio that invests in a mix of       portfolio may also invest in preferred stock, warrants, rights and fixed income
fixed income and equity securities         securities that can be converted into equity securities. Fixed income         
tends to be less volatile than a           securities of any credit rating, which usually make up about 40% of the       
portfolio that invests principally in      portfolio, are principally bonds and notes issued by U.S. and foreign companies
equities.                                  and governments, and mortgage related securities including stripped mortgage  
                                           related securities.                                                            
                                         
                                           The portfolio management team allocates assets among equity and fixed income   
                                           securities using a variety of analytical tools, and then periodically         
                                           rebalances the portfolio to try to increase returns and reduce risk. The team 
                                           will vary the percentage allocated to the two types of securities depending on
Duration is a mathematical measure of      its analysis of market conditions.                                            
the average life of a bond that                                                                                          
includes its yield, coupon, final          Within the equity portion of the portfolio, the team uses the same three-step 
maturity and call features. It's           investment process it uses for the Equity Income Portfolio. That process      
often used to measure the potential        includes research, valuation of companies using quantitative dividend analysis,
volatility of a bond's price, and is       and selection of individual stocks based on their relative valuation.         
considered a more accurate measure                                                    
than maturity of a security's              Within the fixed income portion of the portfolio, the team sets duration      
sensitivity to changes in interest         objectives based on the yield curve, allocates assets across a broad range of 
rates.                                     fixed income sectors, and then selects individual securities based on research
                                           by a team of managers, analysts and traders. The average duration of the      
                                           portfolio will usually be within one year of the duration of the Lehman       
                                           Brothers Aggregate Bond Index. The index had an average duration of 4.59 years
                                           on March 31, 1999.                                                            
                                                                                                                         
                                           The team may use options, futures contracts and other techniques to try to    
                                           increase returns or to try to hedge changes in interest rates. The team may   
                                           also use derivatives to hedge against changes in currency exchange rates. The 
                                           portfolio may lend some of its assets, as long as the loans it makes are      
                                           secured.                                                                       

                                           [SYMBOL] ------------------------------------------------------------------------ 

Risks you should be aware of               The Multi-Strategy Portfolio invests in a mix of equity and fixed income       
                                           securities. While equities may offer the potential for greater long-term growth
This portfolio may not invest more         than most fixed income securities, they generally have higher volatility. Fixed
than 10% of its assets in foreign          income securities are affected primarily by the financial condition of the     
fixed income securities.                   company that has issued it, and changes in interest rates. The portfolio may be
                                           affected by the following risks, among others:                                 
                                                                                                                          
                                           . price volatility - the value of the portfolio changes as the prices of its   
                                             investments go up or down. This portfolio invests in large and medium-sized  
                                             companies, which tend to have less volatile prices than smaller companies.   
                                             The portfolio may, however, invest in smaller companies.                     
                                                                                                                          
                                           . changes in interest rates - the portfolio's fixed income investments may make
                                             it sensitive to changes in interest rates. The value of the portfolio may    
                                             fall when interest rates rise.                                               
                                                                                                                          
                                           . credit risk - the portfolio could lose money if the issuer of a fixed income 
                                             security is unable to meet its financial obligations or goes bankrupt.        
</TABLE>      

22
<PAGE>

<TABLE>    
<S>                                        <C> 

                                           [SYMBOL] -----------------------------------------------------------------------   
                                                                                                                              
Risks you should be aware of               . risks of foreign investing - foreign investments may be riskier than U.S.        
(continued)                                  investments for many reasons, including changes in currency exchange rates,      
                                             unstable political and economic conditions, a lack of adequate company           
                                             information, differences in the way securities markets operate, less secure      
                                             foreign banks or securities depositories than those in the U.S., and foreign     
                                             controls on investment.                                                          
                                                                                                                              
                                           . risks of using derivatives - this portfolio may use index options, futures       
                                             contracts and other investment techniques to help it achieve its investment      
                                             goal. There's always a risk that these techniques could reduce returns or        
                                             increase the portfolio's volatility.                                             
                                                                                                                              
                                           . short-term trading - the portfolio can engage in short-term trading, which       
                                             could result in higher trading costs.                                            
                                       
                                           [SYMBOL] -----------------------------------------------------------------------   
                                                                                                                              
How the portfolio has performed            Year by year total return (%)                                                      
                                           as of December 31 each year/1/                                                     
The bar chart shows how the portfolio's   
performance has varied over the past       --------------------------------------------------------------------------------   
10 years.                                   89      90       91      92        93     94      95       96      97      98   
                                                                                                          
The table below the bar chart compares                         [BAR CHART OF TOTAL RETURN APPEARS HERE]                        
the portfolio's performance with the                                                                                           
Standard &  Poor's 500 Composite Stock     23.42    1.47    24.03    5.57    9.25    1.50    25.25    12.56   19.62   18.17    
Price Index, an index of the stocks of     --------------------------------------------------------------------------------    
approximately 500 large-capitalization      
U.S. companies, and the Lehman Brothers    Best and worst quarterly performance during this period:                            
Aggregate Bond Index, an index of fixed    4th quarter 1998: 12.08%;  3rd quarter 1990: (10.11)%                               
income securities.                                                                                                             
                                           Average annual total return                                                         
Returns do not reflect fees and expenses   as of December 31, 1998                    1 year     5 years    10 years           
associated with any variable annuity       --------------------------------------------------------------------------------    
contract or variable life insurance        Multi-Strategy Portfolio/1/                18.17%      14.44%      13.07%           
policy, and would be lower if they did.    Lehman Brothers Aggregate Bond Index        8.67%       7.27%       9.26%           
                                           Standard & Poor's 500 Composite Stock                                              
Looking at how a portfolio has performed   Price Index                               28.58%      24.06%      19.19%           
in the past is important - but it's no                                                                                         
guarantee of how it will perform in the    /1/ J.P. Morgan Investment Management Inc. began managing the portfolio on              
future.                                        January 1, 1994, and some investment policies changed at that time. Another         
                                               firm managed the portfolio before that date.                                         
                                                                                                                                    
                                           [SYMBOL] -----------------------------------------------------------------------    
                                                                                                                               
Who manages the portfolio                  William Riegel, managing director, is a senior equity portfolio manager in the       
                                           equity and balanced accounts group. He started his career with J.P. Morgan in        
[LOGO OF J.P. MORGAN INVESTMENT            1979 as an investment research analyst specializing in energy and machinery          
APPEARS HERE]                              companies, and joined the equity group in 1984. He assumed responsibility for        
                                           managing convertible portfolios in 1987, and began managing the Multi-Strategy       
The Multi-Strategy Portfolio is            Portfolio in 1997. He graduated from Williams College in 1978 and is a               
managed by a team of portfolio             chartered financial analyst.                                                         
managers at J.P. Morgan                                                                                                         
Investment Management Inc. You'll          Henry Cavanna, managing director, is a senior equity portfolio manager in the        
find more about J.P. Morgan on             U.S. equity and balanced accounts group. He joined J.P. Morgan in 1971 and his       
page 44.                                   first assignment was in pension administration. He began managing the Multi-         
                                           Strategy Portfolio in 1997. He has a BA from Boston College and an LLB from the      
                                           University of Pennsylvania.                                                          
                                                                                                                                
                                           William Tennille, vice president, joined J.P. Morgan in 1992. He began managing      
                                           the Multi-Strategy Portfolio in 1997. He is a fixed income portfolio manager         
                                           for pension and institutional accounts and also serves as a mortgage-backed and     
                                           derivatives investment specialist for the fixed income group. He is a graduate     
                                           of the University of North Carolina.                                                
                                           
                                                                                                                                  23
</TABLE>     
<PAGE>

<TABLE>    
<CAPTION> 
ABOUT THE PORTFOLIOS                       LARGE-CAP VALUE PORTFOLIO

<S>                                        <C> 
                                           [SYMBOL] -----------------------------------------------------------------------  
                                                                                                                             
The portfolio's investment goal            This portfolio seeks long-term growth of capital. Current income is of            
                                           secondary importance.                                                             

                                           This portfolio is not available for:                                              

                                           . Pacific Corinthian variable annuity contracts                                   

                                           . Pacific Select variable life insurance policies.                                
                                                                                                                             
                                           [SYMBOL] -----------------------------------------------------------------------  
                                                                                                                             
What the portfolio invests in              This portfolio's principal investment strategy is to invest in common and         
                                           preferred stocks of large U.S. companies. It tends to emphasize companies with    
A company's "capitalization" is a          a total market capitalization of more than $5 billion that are included in the    
measure of its size.                       Standard & Poor's 500 Composite Stock Price Index. It may also invest in          
Capitalization is calculated by            foreign companies and fixed income securities and securities that can be          
multiplying the current share              converted into equity securities.                                                 
price by the number of shares                                                                                                
held by investors.                         The portfolio management team looks for companies that are undervalued or         
                                           expected to grow. It focuses on companies that meet one or more of the            
                                           following criteria:                                                               
                                                                                             
Undervalued companies may be               . companies that are believed to be fundamentally strong, but that aren't fully   
fundamentally strong, but not                recognized by other investors                                                   
fully recognized by investors.                                                                                               
Their shares could be good                 . companies that are experiencing or that are expected to experience internal     
investments because their prices             changes, like changes in corporate structure or capitalization                  
do not reflect the true value of   
the company.                               . companies that are developing new products, expanding into new markets, or      
                                             taking advantage of changes in technology or of other changes in the industry   
                                             or regulatory environment.                                                      
                                                                                                                             
                                           The portfolio manager may use options, futures contracts and other techniques     
                                           to try to increase returns or to try to hedge against changes in interest         
                                           rates. The manager may also use derivatives to hedge changes in currency          
                                           exchange rates. The portfolio may lend some of its assets, as long as the loans   
                                           it makes are secured.                                                             
                                                                                                                             
                                           The portfolio may invest any amount in fixed income securities for current        
                                           income.                                                                           
                                                                                                                             
                                           The team may temporarily change these strategies if it believes economic          
                                           conditions make it necessary to try to protect the portfolio from potential       
                                           loss.                                                                             
                                                                                                                             
                                           [SYMBOL] -----------------------------------------------------------------------  
                                                                                                                             
Risks you should be aware of               The Large-Cap Value Portfolio principally invests in equity securities, which     
                                           may go up or down in value, sometimes rapidly and unpredictably. While equities   
                                           may offer the potential for greater long-term growth than most fixed income       
                                           securities, they generally have higher volatility. The portfolio may be           
                                           affected by the following risks, among others:                                     
                                                                                                                             
                                           . price volatility - the value of the portfolio changes as the prices of the      
                                             investments it holds go up or down. The portfolio invests in large companies,   
                                             which tend to have more stable prices than smaller companies.                   
                                                                                                                             
This portfolio may not invest              . risks of foreign investing - foreign investments may be riskier than U.S.       
more than 20% of its assets in               investments for many reasons, including changes in currency exchange rates,     
foreign securities.                          unstable political and economic conditions, a lack of adequate company          
                                             information, differences in the way securities markets operate, less secure     
                                             foreign banks or securities depositories than those in the U.S., and foreign    
                                             controls on investment.                                                         
                                                                                                                             
                                           . risks of using derivatives - this portfolio may use options, futures            
                                             contracts and other investment techniques to help it achieve its investment     
                                             goal. There's always a risk that these techniques could reduce returns or       
                                             increase the portfolio's volatility.                                             
</TABLE>     
 
24
<PAGE>
<TABLE> 
<CAPTION>  
<S>                                        <C>  
                                           [SYMBOL] ------------------------------------------------------------------------ 
 
Who manages the portfolio                  Jack Cunningham is a portfolio manager and director of SaBAM, and is           
                                           responsible for directing investment policy and strategy. He is a portfolio    
                                           manager of the Salomon Brothers Investors Fund and an equity analyst           
[LOGO OF SALOMON BROTHERS APPEARS HERE]    responsible for covering the food, tobacco, restaurant and real estate         
                                           industries. He has managed the Large-Cap Value Portfolio since it started on   
                                           January 4, 1999. Before joining SaBAM in 1995, Jack worked as an investment    
The Large-Cap Value Portfolio is           banker and financial analyst for Salomon Brothers Energy Group. He holds a BA  
managed by a team of portfolio             in English from the University of Virginia and an MBA from the Amos Tuck School
managers at Salomon Brothers Asset         at Dartmouth College.                                                          
Management Inc (SaBAM). You'll find                                                                                       
more about SaBAM on page 45.               Jack is supported by a team of 18 U.S. equity professionals, each of whom has  
                                           specific fundamental and quantitative research skills relating to all stages of
                                           SaBAM's equity investment process.                                              

PERFORMANCE OF COMPARABLE ACCOUNT  

This portfolio has no historical           This chart does not show you the performance of the Large-Cap Value Portfolio --
performance because it started on          it shows the performance of a similar account managed by SaBAM 
January 4, 1999.                                                                                                        
                                           Annual total returns, and average annual total returns for the periods ending 
The chart to the right shows the           December 31, 1998                                                            
historical performance of the                                                                                               
Salomon Brothers Investors Fund, a         ---------------------------------------------------------------------------------
mutual fund managed by Salomon                                                     Salomon Brothers Investors               
Brothers Asset Management Inc since                                                Fund, adjusted to reflect                
May 1, 1990. This fund has                                      Salomon Brothers   estimated fees and                       
investment objectives, policies and                             Investors Fund,    expenses of the Large-Cap                
strategies that are substantially          Year                 Class O (%)        Value Portfolio (%)           S&P 500 (%)
similar to those of the Large-Cap          ---------------------------------------------------------------------------------
Value Portfolio.                           1998                 15.47              15.32                         28.58      
                                           1997                 26.47              26.56                         33.36      
This information shows the                 1996                 30.55              30.58                         22.96      
historical track record of the             1995                 35.48              35.73                         37.58      
portfolio manager and is not               1994                 (1.26)             (1.46)                         1.32      
intended to imply how the Large-Cap        1993                 15.17              15.08                         10.08      
Value Portfolio has performed or           1992                  7.44               7.30                          7.62      
will perform. Total returns                1991                 29.31              29.32                         30.47      
represent past performance of the          one year             15.47              15.32                         28.58      
Salomon Brothers Investors Fund,           three years          24.00              23.98                         28.27      
and not the Large-Cap Value                five years           20.59              20.59                         24.06      
Portfolio.                                 since inception                                                                  
                                           5/1/90/1/            17.41              17.36                         19.41      
Returns do not reflect fees and            ---------------------------------------------------------------------------------
expenses associated with any                                                                                                 
variable annuity contract or               /1/ Salomon Brothers Investors Fund has been managed by SaBAM since May 1, 1990.   
variable life insurance policy, and            It was managed by another firm prior to that date.                                
would be lower if they did.                                                                                                  
                                           The returns in the first column reflect advisory fees and operating expenses of   
                                           the Salomon Brothers Investors Fund, Class O.                                     
                                                                                                                             
                                           The second column shows the gross performance of the Salomon Brothers Investors       
                                           Fund, Class O, adjusted to reflect estimated fees and expenses of the Large-Cap   
                                           Value Portfolio.                                                                  
                                                                                                                             
                                           The third column shows performance of the S&P 500, an index of the stocks of      
                                           approximately 500 large-capitalization U.S. companies, during the same periods.   
 
                                                                                                                                  25
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<TABLE>    
<CAPTION> 
ABOUT THE PORTFOLIOS                               MID-CAP VALUE PORTFOLIO

<S>                                                <C>
                                                   [SYMBOL] ---------------------------------------------------------------------

The portfolio's investment goal                    This portfolio seeks capital appreciation.        
                                                                                                      
                                                   This portfolio is not available for:              
                                                                                                      
                                                   . Pacific Corinthian variable annuity contracts   
                                                                                                      
                                                   . Pacific Select variable life insurance policies. 
                                                  
                                                   [SYMBOL] ---------------------------------------------------------------------

What the portfolio invests in                      This portfolio's principal investment strategy is to invest at least 80% of its  
                                                   assets in the common stocks of medium-sized U.S. companies in the range of the   
                                                   Russell Midcap Index that are believed to be undervalued based on their return   
                                                   on total capital or equity. The Russell Midcap Index is composed of selected     
                                                   common stocks of medium-sized U.S. companies.    

A company's "capitalization" is a measure of its   The portfolio management team determines a company's value by comparing its 
size. Capitalization is calculated by multiplying  share price with its return on total capital or equity. Companies are       
the current share price by the number of shares    considered undervalued when their share price is lower than their estimated 
held by investors.                                 worth or growth prospects.                                                   
 
                                                   The portfolio management team attempts to identify undervalued securities using  
                                                   traditional measures of value, including low price to earnings ratio, high       
                                                   yield, unrecognized assets, potential for management change and the potential    
                                                   to improve profitability. The team's global investment specialists apply both    
Selling short is the opposite of a typical stock   quantitative and qualitative analysis to securities selection. The team focuses  
market transaction. Instead of buying a stock and  on individual stock selection rather than on forecasting stock market trends. 
then selling it -  hopefully at a higher price -
you sell the stock first, and then buy it,         The team may also invest in equity securities of larger capitalization     
hopefully at a lower price. In a short sale,       companies, investment grade fixed income securities, and foreign equity and
you normally borrow the stock you're selling.      fixed income securities.                                                    

                                                   To help it achieve its investment goal, the portfolio may lend some of its      
                                                   assets, as long as the loans it makes are secured. It may use borrowed money to 
                                                   make investments, which may include short selling securities it doesn't own.    
                                                   The portfolio manager may use options, futures contracts and other techniques   
                                                   to try to increase returns or to try to hedge against changes in interest       
                                                   rates. The manager may also use derivatives to hedge against changes in         
                                                   currency exchange rates.                                                        
                                                                                                                                   
                                                   The team may temporarily change these strategies if it believes economic        
                                                   conditions make it necessary to protect the portfolio from potential loss. In   
                                                   this case, the portfolio may invest any amount in larger companies, short-term
                                                   money market instruments or cash.                                                

                                                   [SYMBOL] -----------------------------------------------------------------------
 
Risks you should be aware of                       The Mid-Cap Value Portfolio principally invests in equity securities, which may 
                                                   go up or down in value, sometimes rapidly and unpredictably. While equities may
                                                   offer the potential for greater long-term growth than most fixed income       
                                                   securities, they generally have higher volatility. The portfolio may also be  
                                                   affected by the following risks, among others:                                
                                                                                                                                 
                                                   . price volatility - the value of the portfolio changes as the prices of the  
                                                     investments it holds go up or down. This portfolio invests in medium-sized  
                                                     companies, which are more susceptible to price swings than larger companies,
                                                     but usually tend to have less volatile price swings than smaller companies. 
                                                                                                                                 
This portfolio may not invest more than            . risks of foreign investing - foreign investments may be riskier than U.S.   
15% of its assets in foreign investments.            investments for many reasons, including changes in currency exchange rates, 
                                                     unstable political and economic conditions, a lack of adequate company      
                                                     information, differences in the way securities markets operate, less secure 
                                                     foreign banks or securities depositories than those in the U.S., and foreign
                                                     controls on investment.                                                     
</TABLE>      

26
<PAGE>

<TABLE>    
<S>                                        <C>  
                                           [SYMBOL] -----------------------------------------------------------------------  
                                                                                                                             
Risks you should be aware of               . risks of using derivatives - this portfolio may use options, futures            
(continued)                                  contracts and other investment techniques to help it achieve its investment     
                                             goal. There's always a risk that these techniques could reduce returns or       
                                             increase the portfolio's volatility.                                            

                                           . risks of leveraging - leveraging, or using borrowed money to buy securities,    
                                             can magnify the gain - and the loss - on the security. The portfolio will be    
                                             charged interest on any money it borrows. The lender will have priority over    
                                             shareholders against the portfolio's assets.                                    
                                                                                              
                                           [SYMBOL] -----------------------------------------------------------------------  
                                                                                              
Who manages the portfolio                  Herbert W. Gullquist, chief investment officer of Lazard and a vice chairman      
                                           and managing director of Lazard Freres & Co. LLC, is responsible for ensuring     
[LOGO OF LAZARD APPEARS HERE]              that all investment activity follows Lazard's investment philosophy and           
                                           guidelines. He has managed the Mid-Cap Value Portfolio since it started on        
The Mid-Cap Value Portfolio is             January 4, 1999. He has 38 years of investment management experience. Before      
managed by a team of portfolio             joining Lazard in 1982, Mr. Gullquist was a general partner of Oppenheimer &      
managers at Lazard Asset                   Company Inc. and a managing director and the chief investment officer of          
Management. You'll find more               Oppenheimer Capital Corp. He has a BA from Northwestern University.               
about Lazard on page 45. 
                                           Eileen D. Alexanderson, managing director of Lazard Freres & Co. LLC, is          
                                           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. She     
                                           has managed the Mid-Cap Value Portfolio since it started on January 4, 1999.      
                                           Ms. Alexanderson joined Lazard in 1979 and has 19 years of investment             
                                           experience. She is a chartered financial analyst and has a BS from St. John's     
                                           University.                                                                        

PERFORMANCE OF COMPARABLE ACCOUNTS        
                                          
This portfolio has no historical           This chart does not show you the performance of the Mid-Cap Value Portfolio --      
performance because it started on          it shows the performance of similar accounts managed by Lazard Asset Management     
January 4, 1999.                           
                                           Annual total returns, and average annual total returns for the periods ending         
The chart to the right shows the           December 31, 1998                                                                     
historical performance of the                                                                                                    
Lazard U.S. Mid-Cap Equity                 --------------------------------------------------------------------------------      
Composite which is made up of six                                                Lazard U.S. Mid-Cap Equity                      
of Lazard's advisory accounts,                                                   Composite, adjusted to                          
including one mutual fund. Each                                                  reflect fees and estimated                      
account in the composite has                                Lazard U.S. Mid-Cap  expenses of the Mid-Cap    Russell Midcap       
investment objectives, policies            Year             Equity Composite (%) Value Portfolio (%)        Index (%)            
and strategies that are                    --------------------------------------------------------------------------------      
substantially similar to those of          1998              3.12                 2.62                      10.10                
the Mid-Cap Value Portfolio,               1997             28.39                27.83                      29.01                
except that leverage has not been          1996             24.66                24.06                      19.00                
a strategy used for the Lazard             one year          3.12                 2.62                      10.10                
accounts.                                  since inception                                                                       
                                           1/1/96           18.17                17.63                      19.12                
This information shows the                 --------------------------------------------------------------------------------      
historical track record of the                                                                                                   
portfolio manager and is not               The results shown above are a composite of actual performance for six advisory        
intended to imply how the Mid-Cap          accounts, including one mutual fund account, calculated according to the              
Value Portfolio has performed or           standards set by the Association for Investment Management and Research (AIMR).       
will perform. Total returns                Five of the accounts in the composite were not subject to the requirements of         
represent past performance of the          the Investment Company Act of 1940 or Subchapter M of the Internal Revenue            
Lazard U.S. Mid-Cap Equity                 Code, which, if imposed, could have affected the performance.                         
Composite and not the Mid-Cap                                                                                                    
Value Portfolio.                           The first column shows performance of the Lazard U.S. Mid-Cap Equity Composite        
                                           after average advisory fees and other expenses charged to the accounts in the         
Returns do not reflect fees and            composite have been deducted. The fees and expenses of the composite include          
expenses associated with any               investment advisory fees, but, for the accounts other than the mutual fund, do        
variable annuity contract or               not include custody fees or other expenses normally paid by mutual funds and          
variable life insurance policy,            which the Mid-Cap Value Portfolio will pay. If these were included, returns           
and would be lower if they did.            would be lower.                                                                       
                                                                                                                                 
                                           The second column shows the gross performance of the composite, adjusted to           
                                           reflect the estimated fees and expenses of the Mid-Cap Value Portfolio.               
                                                                                                                                 
                                           The third column shows performance of the Russell Midcap Index, an index              
                                           consisting of 800 of the smallest companies in the Russell 1000 Index, for the        
                                           same periods. The Russell 1000 Index is an index of the 1,000 largest companies       
                                           in the Russell 3000 Index. The Russell 3000 Index is an index of the 3,000            
                                           largest U.S. companies. Results include reinvested dividends.                          
                                                                                                                                  27
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<TABLE>   
<CAPTION> 
ABOUT THE PORTFOLIOS                       EQUITY PORTFOLIO
<S>                                        <C>                                            

                                           [SYMBOL] ----------------------------------------------------------------------- 
                                                                                                                            
The portfolio's investment goal            This portfolio's primary investment objective is capital appreciation. Current   
                                           income is of secondary importance.                                               
                                                                                                                            
                                           [SYMBOL] ----------------------------------------------------------------------- 
                                                                                                                            
What the portfolio invests in              This portfolio's principal investment strategy is to invest in large             
                                           capitalization U.S. companies that have better prospects for growth than the     
                                           general U.S. economy. It normally invests at least 90% of its assets in equity   
This portfolio is managed using a          securities of U.S. issuers.                                                      
computerized rating system that                                                                                             
seeks to forecast how companies            Investments include principally common stock, but the portfolio may also invest  
will perform based on an analysis          in fixed income securities that can be converted into equity securities, and     
of a broad range of variables              warrants. The portfolio management team uses the Russell 1000 Growth Index as    
that measure their value, growth,          an overall model for the portfolio. The team tries to:                           
momentum and risk, and on the                                                                                               
portfolio managers' outlook on             . maintain industry, style, capitalization and risk characteristics that are     
the market.                                  similar to the index.                                                          
                                                                                                                            
                                           . find companies with capitalizations and earnings growth expectations that are  
                                             above the average of the index and with dividend yields that are below the     
                                             average of the index.                                                          
                                                                                                                            
                                           The team selects individual companies using a proprietary computerized rating    
                                           system, called a "multifactor model," combined with fundamental research.        
                                                                                                                            
                                           The portfolio managers may use options, futures or other techniques for either   
                                           hedging or cross-hedging purposes or to try to increase returns. The portfolio   
                                           may also lend some of its assets, as long as the loans it makes are secured.     
                                                                                                                            
                                           The team may temporarily change its strategies if it believes that economic      
                                           conditions make it necessary to try to protect the portfolio from potential      
                                           loss. In this case, the portfolio may invest in U.S. government securities,      
                                           corporate bonds, repurchase agreements, or money market instruments, which may   
                                           prevent the portfolio from achieving its investment goal.                        
                                                                                                                            
                                           [SYMBOL] ----------------------------------------------------------------------- 
                                                                                                                            
Risks you should be aware of               The Equity Portfolio principally invests in equity securities, which may go up   
                                           or down in value, sometimes rapidly and unpredictably. While equities may offer  
                                           the potential for greater long-term growth than most fixed income securities,    
                                           they generally have higher volatility. The portfolio may be affected by the      
                                           following risks, among others:                                                   
                                                                                                                            
                                           . price volatility - the value of the portfolio changes as the prices of the     
                                             investments it holds go up or down. This portfolio principally invests in      
                                             large companies, which tend to have less volatile prices than smaller          
                                             companies. The portfolio managers also look for companies they think have the  
                                             potential for rapid growth, which may give the portfolio a higher risk of      
                                             price volatility than a portfolio that invests in equities that are            
                                             "undervalued," for example.                                                    
                                                                                                                            
                                           . risks of using derivatives - this portfolio may use options, futures and       
                                             other investment techniques to help it achieve its investment goals. There's   
                                             always a risk that these techniques could reduce returns or increase the       
                                             portfolio's volatility.                                                        
                                                                                                                            
                                           . short-term trading - the portfolio can engage in short-term trading, which     
                                             could result in higher trading costs.                                           
</TABLE>      
 
28
<PAGE>
 
<TABLE>
<S>                                        <C> 
 
                                           [SYMBOL] -----------------------------------------------------------------------
 
How the portfolio has performed            Year by year total return (%)
                                           as of December 31 each year/1/
The bar chart shows how the     
portfolio's performance has                --------------------------------------------------------------------------------        
varied over the past 10 years.              89       90       91       92      93      94      95      96       97      98
                                                                                                                                   
The table below the bar chart                                  [BAR CHART OF TOTAL RETURN APPEARS HERE]
compares the portfolio's                                                                                                           
performance with the Russell 1000          30.12   (2.55)    29.77    6.30   16.06   (2.87)   23.80   28.03   18.18   30.28
Growth Index, an index of large            --------------------------------------------------------------------------------    
companies that have high price-to-                                                                                                 
book ratios and forecasted growth          Best and worst quarterly performance during this period: 
values. It also compares                   4th quarter 1998: 24.50%; 3rd quarter 1998: (15.53)%
performance with the Standard &                                                                                                    
Poor's 500 Composite Stock Price           Average annual total return                                                             
Index, an index of the stocks of           as of December 31, 1998                   1 year     5 years    10 years                
approximately 500 large-                   --------------------------------------------------------------------------------        
capitalization U.S. companies.             Equity Portfolio/1/                       30.28%     18.84%     17.00%                
                                           Russell 1000 Growth Index                 38.71%     25.70%     20.57%                
Returns do not reflect fees and            Standard & Poor's 500 Composite Stock                                                   
expenses associated with any                Price Index                              28.58%     24.06%     19.19%                
variable annuity contract or               --------------------------------------------------------------------------------        
variable life insurance policy,                                                                                                    
and would be lower if they did.            /1/ Goldman Sachs Asset Management began managing the portfolio on May 1, 1998,     
                                               and some investment policies changed at that time. Another firm managed the     
Looking at how a portfolio has                 portfolio before that date. Performance of the Equity Portfolio before 1995 is  
performed in the past is                       based on the performance of the portfolio of the Pacific Corinthian Variable    
important - but it's no guarantee              Fund, which the Pacific Select Fund acquired on December 31, 1994.              
of how it will perform in the              
future.                                    [SYMBOL] -----------------------------------------------------------------------       
                                                                                                                                  
Who manages the portfolio                  Robert Jones, managing director, has 17 years of investment experience. Before         
                                           joining Goldman Sachs in 1989, he provided quantitative research for a major           
[LOGO OF GOLDMAN SACHS                     banking firm and an options consulting firm. His articles on quantitative              
APPEARS HERE]                              techniques have been published in leading financial journals. He has a BA from         
                                           Brown University and an MBA from the University of Michigan, and is a chartered        
The Equity Portfolio is managed            financial analyst. He began managing the Equity Portfolio in 1998.                     
by a team of portfolio managers                                                                                                   
at Goldman Sachs Asset                     Victor Pinter, vice president, was a consultant at Chase Econometrics/IDC and a        
Management. You'll find more               project manager in the Information Technology Division of Goldman Sachs before         
about Goldman Sachs on page 44.            he joined Goldman Sachs in 1985. He has a BS from Brooklyn College and an MBA          
                                           from New York University's Stern School of Business. He joined the quantitative        
                                           equity management team in 1992.                                                        
                                                                                                                                  
                                           Kent Clark, vice president, has a Bachelor of Commerce from the University of          
                                           Calgary and an MBA from the University of Chicago, and is a chartered financial        
                                           analyst. His research has been published in The Journal of Financial and               
                                           Quantitative Analysis. He joined the quantitative equity management team in            
                                           1992.                                                                                  
                                                                                                                                  
                                           Melissa Brown, vice president, is a product manager for the quantitative equity        
                                           group. Before joining Goldman Sachs in 1998, she was the director of                   
                                           quantitative equity research at Prudential Securities for 14 years, was on             
                                           Prudential's investment policy committee, and appeared on Institutional                
                                           Investor Magazine's "All-Star" list every year from 1988 to 1997. She is a             
                                           chartered financial analyst, and has a BS in economics from the Wharton School         
                                           of the University of Pennsylvania and an MBA in finance from New York                  
                                           University.                                                                            

                                                                                                                                  29
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<TABLE>    
<CAPTION> 
 
ABOUT THE PORTFOLIOS                       BOND AND INCOME PORTFOLIO
<S>                                        <C> 

                                           [SYMBOL] ----------------------------------------------------------------------- 
                                                                                                                           
The portfolio's investment goal            This portfolio seeks to provide total return and income consistent with prudent 
                                           investment management.                                                          
                                                                                                                           
                                           [SYMBOL] -----------------------------------------------------------------------
                                                                                                                           
What the portfolio invests in              This portfolio's principal investment strategy is to invest in a wide range of  
                                           fixed income securities with varying terms to maturity, with an emphasis on     
Total return is made up of income          long-term bonds. The portfolio normally invests at least 80% of its assets in   
plus any gains in the value of             securities that are rated investment grade at the time of investment by a       
the portfolio's securities.                credit rating agency, or that have not been rated, but the portfolio management 
                                           team considers to be of comparable quality.                                     
                                                                                        
                                           These principally include:                                                      
                                                                                        
                                           . corporate bonds and notes of U.S. companies, some of which may be high yield  
                                             ("junk") bonds                                                                
                                                                                        
                                           . U.S. treasury bonds and notes, or options or futures on them                  
                                                                                        
Duration is a mathematical                 . fixed income securities issued by foreign companies and governments that are  
measure of the average life of a             denominated in U.S. dollars or foreign currencies, some of which may be       
bond that includes its yield,                issued by governments in emerging market countries                            
coupon, final maturity and call            
features. It is often used to              . municipal securities including private activity bonds or industrial           
measure the potential volatility             development bonds                                                             
of a bond's price, and is                  
considered a more accurate                 . mortgage related securities, including stripped mortgage related securities   
measure than maturity of a                   and other asset-backed securities                                             
security's sensitivity to changes          
in interest rates.                         . fixed income securities with variable interest rates                          
                                                                                                                           
                                           . fixed income securities that can be converted to equity securities.           
                                                                                                                           
                                           The portfolio management team chooses investments that have short, intermediate 
                                           and long terms to maturity. The team uses duration management as a fundamental  
                                           part of the portfolio's strategy. The average duration of the portfolio will    
                                           usually be within one-half year of the duration of the Lehman Brothers          
                                           Government/Corporate Long-Term Bond Index. The index had an average duration of 
                                           10.27 years on March 31, 1999.                                                  
                                                                                                                           
                                           The team may also use options, futures contracts and other hedging techniques   
                                           when necessary to try to offset the effects of changes in interest rates and    
                                           currency exchange rates. The portfolio may lend some of its assets, as long as  
                                           the loans it makes are secured.                                                 
                                                                                                                           
                                           [SYMBOL] -----------------------------------------------------------------------
                                                                                                                           
Risks you should be aware of               Since the Bond and Income Portfolio principally invests in fixed income         
                                           securities of both U.S. and foreign issuers, it may be affected by the          
The Bond and Income Portfolio              following risks, among others:                                                  
tends to have the most interest                                                                                            
rate risk of the Pacific Select            . changes in interest rates - the value of the portfolio may fall when interest 
Fund bond portfolios because it              rates rise. Changes in interest rates may have a significant effect on this   
invests in bonds with longer                 portfolio, because it primarily invests in securities with long terms to      
terms to maturity, and maintains             maturity and may use hedging techniques. Bonds with longer durations tend to  
a longer average portfolio                   be more sensitive to changes in interest rates, making them more volatile     
duration.                                    than bonds with shorter durations. The portfolio may also invest in mortgage  
                                             related securities and fixed income securities with variable interest rates.  
                                             These can reduce returns if interest rates go down. Stripped mortgage related 
                                             securities can be particularly sensitive to changes in interest rates.        
                                                                                                                           
                                           . credit risk - the portfolio could lose money if the issuer of a fixed income  
                                             security is unable to meet its financial obligations or goes bankrupt. This   
                                             portfolio may invest in high yield bonds, which may make it particularly      
                                             subject to credit risk, especially during periods of economic uncertainty or  
                                             during economic downturns.                                                    
</TABLE>                                                                        

30                                                                              
<PAGE>

<TABLE>     
<S>                                        <C>     
                                           [SYMBOL] ------------------------------------------------------------------------
 
Risks you should be aware of               . inability to sell investments - the portfolio could lose money or not realize
(continued)                                  potential gains if it cannot sell an investment at the time and price that   
                                             would be most beneficial to the portfolio. Securities whose credit ratings   
This portfolio may not invest more than:     have been lowered, or that have been issued in emerging market countries, may
                                             be particularly difficult to sell.                                           
 . 20% of its assets in lower-rated                                                                                        
  "junk" bonds, of which 15% may be        . risks of foreign investing - foreign investments may be riskier than U.S.    
  in emerging markets                        investments for many reasons, including changes in currency exchange rates,  
                                             unstable political and economic conditions, a lack of adequate company       
 . 10% of its assets in foreign investments   information, differences in the way securities markets operate, less secure  
  denominated in foreign currencies.         foreign banks or securities depositories than those in the U.S., and foreign 
                                             controls on investment.                                                      
 . 10% of its assets in stripped                                                                                           
  mortgage related securities.             . risks of using derivatives - this portfolio may use options, futures         
                                             contracts and other investment techniques to help it achieve its investment  
                                             goal. There's always a risk that these techniques could reduce returns or    
                                             increase the portfolio's volatility.                                          

                                           [SYMBOL] ------------------------------------------------------------------------ 

How the portfolio has performed            Year by year total return (%)                                                    
                                           as of December 31 each year/1/                                                
The bar chart shows how the                                                                                                      
portfolio's performance has varied         ---------------------------------------------------------------------------------     
over the past 10 years.                    89        90      91       92      93      94       95      96       97      98
                                                                                                                                 
The table below the bar chart                                [BAR CHART OF TOTAL RETURN APPEARS HERE]                            
compares the portfolio's                                                                                                         
performance with the Lehman                17.04    3.27    24.32    8.09    19.39   (8.36)   33.71   (0.80)   16.32    8.97
Brothers Long-Term                         ---------------------------------------------------------------------------------
Government/Corporate Bond Index,                                                                                                 
an index of bonds with maturities          Best and worst quarterly performance during this period:             
of 10 years or more.                       2nd quarter 1995: 11.96%;  1st quarter 1996: (7.22)%
                                                                                                                                 
Returns do not reflect fees and            Average annual total return                                                           
expenses associated with any               as of December 31, 1998                     1 year        5 years        10 years       
variable annuity contract or               --------------------------------------------------------------------------------- 
variable life insurance policy, and        Bond and Income Portfolio/1/                 8.97%         9.03%          11.57%        
would be lower if they did.                Lehman Brothers Long-Term                                                        
                                            Government/Corporate Bond Index            11.76%         9.12%          11.30%        
                                           ---------------------------------------------------------------------------------
Looking at how a portfolio has                                                                                                   
performed in the past is important -       /1/ Goldman Sachs Asset Management began managing the portfolio on May 1, 1998,        
but it's no guarantee of how it will           and some investment policies changed at that time. Another firm managed the        
perform in the future.                         portfolio before that date. Performance of the Bond and Income Portfolio           
                                               before 1995 is based on the performance of the portfolio of the Pacific            
                                               Corinthian Variable Fund, which the Pacific Select Fund acquired on 
                                               December 31, 1994.
                                                                                                                                 
                                                                                                                                 
                                           [SYMBOL] ------------------------------------------------------------------------     
                                                                                                                                 
Who manages the portfolio                  Jonathan Beinner, managing director, is co-head of the U.S. fixed income team,        
                                           and heads the mortgage-backed and asset-backed securities group. He has two BS        
[LOGO OF GOLDMAN SACHS APPEARS HERE]       degrees from the University of Pennsylvania. He worked in the trading and             
                                           arbitrage group of Franklin Savings Associates before joining Goldman Sachs in        
The Bond and Income Portfolio is managed   1990. He began managing the Bond and Income Portfolio in 1998.                        
by a team of portfolio managers at                                                                                               
Goldman Sachs Asset Management. You'll     Richard Lucy, vice president, is a chartered financial analyst and holds BS and       
find more about Goldman Sachs on           MBA degrees from New York University. He managed fixed income assets at Brown          
page 44.                                   Brothers Harriman & Co. for nine years before joining Goldman Sachs in 1992. He       
                                           began managing the Bond and Income Portfolio in 1998.                                 
                                                                                                                                  31
</TABLE>      
<PAGE>

<TABLE>     
<S>                                                  <C> 
ABOUT THE PORTFOLIOS                                 EQUITY INDEX PORTFOLIO
                                                           
                                                     [SYMBOL]-------------------------------------------------------------------

The portfolio's investment goal                      This portfolio seeks to provide investment results that correspond to the 
                                                     total return of common stocks that are publicly traded in the United States.

                                                     [SYMBOL]--------------------------------------------------------------------
                                                        
What the portfolio invests in                        This portfolio's principal investment strategy is to invest in companies that  
                                                     are representative of the Standard & Poor's 500 Composite Stock Price Index as 
                                                     a whole. It principally invests in common stock.   

                                                     The portfolio management team has two objectives: 
                                                                                                                                    
The goal of an index fund is to mirror the           . match the returns of the index before taking into account portfolio costs    
performance of a specific index. Because             The portfolio usually holds between 200 and 450 of the stocks in the index and 
individual investment selection is virtually         tries to match its industry weightings. Since the portfolio generally invests  
eliminated, active portfolio management              in securities that are included in the index, it has similar risk              
is not required.                                     characteristics and performance. The team periodically reviews and rebalances  
                                                     the portfolio's investments to more closely track the performance of the index.
This portfolio invests in companies that are         It will not, however, actively manage the portfolio or carry out a financial   
included in the Standard & Poor's 500 Composite      analysis of its holdings.                                                      
Stock Price Index, an index of the stocks of         
approximately 500 large-capitalization               The team frequently uses index futures as a substitute for securities or to    
U.S. companies.                                      hedge against changes in securities prices.                                    
                                                                                                                                    
                                                     Portfolio returns will likely be lower than the index because of transaction   
                                                     costs and other expenses the portfolio has to pay. The portfolio's ability to  
                                                     match the returns of the index will also depend on the size of the portfolio,  
                                                     its cash flow, and how easy it is to sell the investments it holds.
                                                                                                                                    
                                                     . lower transaction costs                                                      
                                                     This portfolio is expected to have lower transaction costs than actively       
                                                     managed portfolios because it generally makes fewer transactions.              
                                                                                                                                    
                                                     To help it achieve its investment goal, the portfolio may lend some of its     
                                                     assets, as long as the loans it makes are secured. The portfolio may hold
                                                     some cash for liquidity, but the team will not change these strategies at
                                                     any time for any other reason.
  
                                                     [SYMBOL]-----------------------------------------------------------------------
                                                     
Risks you should be aware of                         The Equity Index Portfolio principally invests in equity securities, which may
                                                     go up or down in value, sometimes rapidly and unpredictably. While equities may
                                                     offer the potential for greater long-term growth than most fixed income 
                                                     securities, they generally have higher volatility. The portfolio may be  
                                                     affected by the following risks, among others:                           
                                                                                                                              
                                                     . price volatility - the value of the portfolio changes as the prices of the
                                                       investments it holds go up or down. This portfolio primarily invests in large
                                                       companies, which sometimes have less volatile prices than smaller companies. 
</TABLE>      

32

<PAGE>
 
<TABLE>    
<S>                                        <C> 
 
                                           [SYMBOL] -----------------------------------------------------------------------   
                                                                                                                             
Risks you should be aware of               . stock market risk - The portfolio is not actively managed, and invests in       
(continued)                                  securities included in the index regardless of their investment merit. The      
                                             team cannot change this investment strategy, even temporarily to protect the    
                                             portfolio from loss during poor economic conditions. This means the portfolio   
                                             is susceptible to a general decline in the U.S. stock market.                   
                                                                                                                             
                                           . risks of using derivatives - this portfolio frequently uses index futures and   
                                             other investment techniques to help it achieve its investment goals. There's    
                                             always a risk that these techniques could reduce returns or increase the        
                                             portfolio's volatility.                                                         
                                                                                                                             
                                           [SYMBOL] -----------------------------------------------------------------------  
                                                                                                                             
How the portfolio has performed            Year by year total return (%)                                                     
                                           as of December 31 each year/1/                                                    
The bar chart shows how the                ---------------------------------------------------------------------------------
portfolio's performance has                                 91     92     93     94     95     96     97     98
varied since its inception.                          
                                                     [BAR CHART OF BEST & WORST QUARTERLY  PERFORMANCE APPEARS HERE]        
The table below the bar chart              
compares the portfolio's                                  24.88   6.95   9.38   1.05  36.92   22.36  32.96  28.45  
performance with the Standard &            ---------------------------------------------------------------------------------   
Poor's 500 Composite Stock Price           Best and worst quarterly performance during this period:                            
Index, an index of the stocks of           4th quarter 1998: 21.31%;  3rd                                                      
approximately 500 large-                   quarter 1998: (9.91)%                                                               
capitalization U.S. companies.                                                                                                 
                                           Average annual total return                             Since inception             
Returns do not reflect fees and            as of December 31, 1998         1 year      5 years     (January 30, 1991)/2/       
expenses associated with any               --------------------------------------------------------------------------------    
variable annuity contract or               Equity Index Portfolio          28.45%      23.66%      19.93%                      
variable life insurance policy,            Standard & Poor's 500                                                               
and would be lower if they did.             Composite Stock Price                                                              
                                            Index                          28.58%      24.06%      20.41%                      
Looking at how a portfolio has                                                                                                 
performed in the past is                   /1/Total return for 1991 is for the period from January 30, 1991 (commencement      
important - but it's no guarantee             of operations) to December 31, 1991.                                             
of how it will perform in the              /2/Portfolio total return calculated from inception date through end of period.     
future.                                       Index total return calculated from February 1, 1991 through end of period.       
                                                                                                                               
Who manages the portfolio              [SYMBOL] -----------------------------------------------------------------------         
                                                                                                                           
[LOGO OF BANKERS TRUST                 The Equity Index Portfolio is managed by the Structured Investment Management            
APPEARS HERE]                          Group of Bankers Trust Company. Founded in 1903, Bankers Trust is among the              
                                       largest index fund managers in the world. You'll find more about Bankers Trust           
                                       on page 43.    
</TABLE>

33     
<PAGE>

<TABLE>    
<CAPTION> 

ABOUT THE PORTFOLIOS                       SMALL-CAP INDEX PORTFOLIO
<S>                                        <C> 

                                           [SYMBOL] -----------------------------------------------------------------------  
                                                                                                                             
The portfolio's investment goal            This portfolio seeks investment results that correspond to the total return of    
                                           an index of small capitalization companies.                                       
                                                                                                                             
                                           This portfolio is not available for:                                              
                                           . Pacific Corinthian variable annuity contracts                                   
                                           . Pacific Select variable life insurance policies.                                
                                                                                                                             
                                           [SYMBOL] -----------------------------------------------------------------------   
                                                                                                                             
What the portfolio invests in              This portfolio's principal investment strategy is to invest in companies that     
                                           are included in the Russell 2000 Small Stock Index. It principally invests in     
                                           common stock.                                                                     
                                                                                                                             
                                           The portfolio management team has two objectives:                                 
                                                                                                                             
The goal of an index fund is to            . match the returns of the index before taking into account portfolio costs       
mirror the performance of a                The portfolio can invest in any number of the stocks in the index and tries to    
specific index. Because                    match its industry weightings. Since the portfolio generally invests in           
individual investment selection            securities that are included in the index, it has similar risk characteristics    
is virtually eliminated, active            and performance. The team periodically reviews and rebalances the portfolio's     
portfolio management is not                investments to more closely track the performance of the index. It will not,      
required and transaction costs             however, actively manage the portfolio or carry out a financial analysis of its   
are reduced.                               holdings.                                                                         
                                                                                                                             
This portfolio invests in                  The team frequently uses index futures as a substitute for securities or to       
companies that are included in             hedge against changes in securities prices.                                       
the Russell 2000 Small Stock                                                                                                 
Index, an index of the 2,000               Portfolio returns will likely be lower than the index because of transaction      
smallest companies listed in the           costs and other expenses the portfolio has to pay. The portfolio's ability to     
Russell 3000 Index.                        match the returns of the index will also depend on the size of the portfolio,     
                                           its cash flow, and how easy it is to sell the investments it holds.               
                                                                                                                             
                                           . lower transaction costs                                                         
                                           This portfolio is expected to have lower transaction costs than actively          
                                           managed portfolios because it generally makes fewer transactions.                 
                                                                                                                             
                                           To help it achieve its investment goal, the portfolio may lend some of its        
                                           assets, as long as the loans it makes are secured. The portfolio may hold some    
                                           cash for liquidity, but the team will not change these strategies at any time     
                                           for any other reason.                                                              

                                           [SYMBOL] -----------------------------------------------------------------------   

Risks you should be aware of               The Small-Cap Index Portfolio principally invests in equity securities, which  
                                           may go up or down in value, sometimes rapidly and unpredictably. While equities
                                           may offer the potential for greater long-term growth than most fixed income    
                                           securities, they generally have higher volatility. The portfolio may be        
                                           affected by the following risks, among others:                                 
                                                                                                                       
                                           . price volatility - the value of the portfolio changes as the prices of the   
                                             investments it holds go up or down. This portfolio invests in small-cap      
                                             companies, which tend to have higher price swings than larger companies      
                                             because they have fewer financial resources, limited product and market      
                                             diversification and many are dependent on a few key managers.                 
</TABLE>     
 
34
<PAGE>
 
<TABLE>     
<CAPTION> 
<S>                                     <C> 
                                        [SYMBOL]------------------------------------------------------------------------ 
                                                                                                                       
Risks you should be aware of            . stock market risk - The portfolio is not actively managed, and invests in    
(continued)                               securities included in the index regardless of their investment merit. It    
                                          cannot modify its investment strategy to respond to changes in the economy,  
                                          which means the portfolio is susceptible to a general decline in the U.S.    
                                          stock market.                                                                
                                                                                                                       
                                        . risks of using derivatives - this portfolio frequently uses index options and
                                          other investment techniques to help it achieve its investment goals. There's 
                                          always a risk that these techniques could reduce returns or increase the     
                                          portfolio's volatility.                                                       
                                        
                                        [SYMBOL]------------------------------------------------------------------------ 
                                        
Who manages the portfolio               The Small-Cap Index Portfolio is managed by the Structured Investment         
                                        Management Group of Bankers Trust Company. Founded in 1903, Bankers Trust is 
[LOGO OF BANKERS TRUST APPEARS HERE]    among the largest index fund managers in the world. You'll find more about   
                                        Bankers Trust on page 43.                                                     
                                        
PERFORMANCE OF COMPARABLE ACCOUNT                                         
                                        
This portfolio has no historical        This chart does not show you the performance of the Small-Cap Index Portfolio --   
performance because it started on       it shows the performance of a similar account managed by Bankers Trust Company 
January 4, 1999.                        Annual total returns, and average annual total returns for the periods ending  
                                        December 31, 1998                                                               
                                                                                                                                   
                                        -----------------------------------------------------------------------------------------  
The chart to the right shows the                                                 BT Advisor Small-Cap Index                        
historical performance of the BT                                                 Fund, adjusted                                    
Advisor Small-Cap Index Fund, a                          BT Advisor Small-Cap    to reflect fees and estimated                     
mutual fund managed by Bankers                           Index Fund,             expenses of the Small-        Russell 2000 Small  
Trust. This fund has investment         Year             Institutional Class (%) Cap Index Portfolio (%)       Stock Index (%)     
objectives, policies and strategies     -----------------------------------------------------------------------------------------  
that are substantially similar to       1998             (2.60)                  (2.91)                        (2.55)              
those of the Small-Cap Index            1997             23.00                   23.69                         22.36               
Portfolio.                              1996/1/           9.47                    9.21                         15.66               
                                        one year         (2.60)                  (2.91)                        (2.55)              
This information shows the              since inception                                                                            
historical track record of the          7/10/96/1/       11.58                   11.27                         11.85               
portfolio manager and is not            -----------------------------------------------------------------------------------------  
intended to imply how the Small-                                                                                                    
Cap Index Portfolio has performed       /1/ Fund total returns calculated from inception date through end of period.       
or will perform. Total returns              Index total return calculated from 7/31/96 through end of period.              
represent past performance of the                                                                                                   
BT Advisor Small-Cap Index Fund,        The returns in the first column reflect the advisory fees and operating                     
Institutional Class, and not the        expenses of the BT Advisor Small-Cap Index Fund, Institutional Class.                       
Small-Cap Index Portfolio.                                                                                                          
                                        The second column shows the gross performance of the fund, adjusted to reflect              
Returns do not reflect fees and         estimated fees and expenses of the Small-Cap Index Portfolio.                               
expenses associated with any                                                                                                        
variable annuity contract or            The third column shows performance of the Russell 2000 Small Stock Index, an                
variable life insurance policy, and     index of the 2,000 smallest companies listed in the Russell 3000 Index. Results             
would be lower if they did.             include reinvested dividends.                                                               
 
                                                                                                                                  35
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<TABLE>     
<CAPTION> 
ABOUT THE PORTFOLIOS                               REIT PORTFOLIO
<S>                                                <C>

                                                   [SYMBOL] -----------------------------------------------------------------------
   
The portfolio's investment goal                    This portfolio seeks current income and long-term capital appreciation. 
                                                                                                                            
                                                   This portfolio is not available for:     

                                                   . Pacific Corinthian variable annuity contracts 

                                                   . Pacific Select variable life insurance policies. 

                                                   [SYMBOL] -----------------------------------------------------------------------

What the portfolio invests in                      This portfolio's principal investment strategy is to invest at least 65% of its  
                                                   assets in securities of real estate investment trusts. It may also invest in     
                                                   equity securities of real estate operating companies whose principal business    
                                                   is in the U.S. real estate industry. Some of these companies may be foreign.     
Real estate investment trusts (REITs)              
and real estate operating companies are            The portfolio may also invest in properties, including office and industrial     
entities that own portfolios of real estate.       buildings, apartments, manufactured homes and hotels.                            
REITs invest primarily in properties that         
produce income and in real estate-related          The portfolio management team tries to earn gross income that's higher than the  
loans or interests.                                dividend yield of the Standard & Poor's 500 Composite Stock Price Index.         
                                                   
                                                   The portfolio management team uses a "top-down" process to determine how assets  
                                                   are allocated. The team focuses on key regional criteria that include            
                                                   demographic and macroeconomic factors like population, employment, household     
                                                   formation and income. When selecting securities, the team uses a "bottom-up"     
                                                   process that emphasizes value, and looks at underlying asset values, values per  
                                                   square foot and property yields.                                                 
                                                   
                                                   The team may use options and other techniques to try to increase returns, and    
                                                   futures contracts, interest rate derivative products and structured notes to     
                                                   try to hedge against changes in interest rates. To help it achieve its           
                                                   investment goal, the portfolio may lend some of its assets, as long as the       
                                                   loans it makes are secured.                                                      
                                                   
                                                   The team may change these strategies if it believes economic conditions make it  
                                                   necessary to try to protect the portfolio from a potential loss. In this case,   
                                                   the portfolio may invest any amount in investment grade short- and medium-term   
                                                   fixed income securities or cash. 
        
                                                   [SYMBOL] -----------------------------------------------------------------------

Risks you should be aware of                       The REIT Portfolio principally invests in equity securities, which may go up or
                                                   down in value, sometimes rapidly and unpredictably. While equities may offer   
                                                   the potential for greater long-term growth than most fixed income securities,  
                                                   they generally have higher volatility. The portfolio may also be affected by   
                                                   the following risks, among others:                                             
                                                                                                                                  
The portfolio is considered to be                  . price volatility - the value of the portfolio changes as the prices of the   
"non-diversified" because it may invest in           investments it holds go up or down. This portfolio invests in companies      
securities of a fewer number of issuers than         participating in the real estate industry. The prices of these companies are 
other portfolios. This increases the risk that       affected by real estate cycles, cash flows, availability of mortgage         
its value could go down because of the poor          financing, changes in interest rates, overbuilding, property taxes and       
performance of a single investment.                  operating expenses, environmental regulation and changes in zoning laws and 
                                                     regulations.                                                                
                                                                                                                                 
                                                   . risks of real estate investment trusts (REITs) - REITs expose the portfolio 
                                                     to the risks of the real estate market. For example, some REITs may invest in
                                                     a limited number of properties, in a narrow geographic area, or in a single  
                                                     property type, which increases the risk that the portfolio could be          
                                                     unfavorably affected by the poor performance of a single investment.         
                                                     Borrowers could default on or sell investments the REIT holds, which could   
                                                     reduce the cash flow needed to make distributions to investors. In addition, 
                                                     a REIT may not qualify for preferential tax treatments or exemptions. REITs  
                                                     require specialized management and have to pay management expenses.          
</TABLE>      

36
<PAGE>

<TABLE>     
<S>                                        <C>   
                                           [SYMBOL] ---------------------------------------------------------------------  
 
Risks you should be aware of               . risks of foreign investing - foreign investments may be riskier than U.S.   
(continued)                                  investments for many reasons, including changes in currency exchange rates, 
                                             unstable political and economic conditions, a lack of adequate company      
This portfolio may not invest more           information, differences in the way securities markets operate, less secure 
than 10% of its assets in foreign            foreign banks or securities depositories than those in the U.S., and foreign
investments.                                 controls on investment.                                                     
                                                                                                                         
                                           . risks of using derivatives - this portfolio may use options, futures        
                                             contracts and other investment techniques such as interest-sensitive        
                                             derivative products and structured notes to help it achieve its investment  
                                             goal. There's always a risk that these techniques could reduce returns or   
                                             increase the portfolio's volatility. When it invests in structured notes and
                                             other derivatives, this portfolio is particularly sensitive to the risk that
                                             the other party to the derivative cannot meet its financial obligations to  
                                             pay the portfolio.                                                           

                                           [SYMBOL] ---------------------------------------------------------------------  

Who manages the portfolio                  Theodore Bigman, principal, joined MSAM in 1995 and manages its global real     
                                           estate investment business. He has managed the REIT Portfolio since it started 
[LOGO OF MORGAN STANLEY                    on January 4, 1999. Before joining MSAM, he was a director at CS First Boston, 
 APPEARS HERE]                             where he established and managed the REIT effort, and had primary              
                                           responsibility for $2.5 billion of initial public offerings by real estate     
The REIT Portfolio is managed by           investment trusts. He graduated from Brandeis University in 1983 with a BA in  
Morgan Stanley Asset Management            Economics and received an MBA from Harvard University in 1987.                 
(MSAM). You'll find more about MSAM                                                                                       
on page 45.                                Douglas A. Funke, vice president, joined Morgan Stanley & Co. Incorporated,    
                                           MSAM's affiliate, in 1993 and MSAM in 1995. He is responsible for providing    
                                           research and analytical support for its real estate investment business. He has
                                           been associated with the REIT Portfolio since its inception and was named      
                                           portfolio manager on January 29, 1999. Before joining MSAM, he was a member of 
                                           Morgan Stanley's Interest Rate and Foreign Exchange Risk Management Group,     
                                           where he assisted in more than $3 billion of structured financings and firm-    
                                           related risk management projects. He graduated from the University of Chicago  
                                           in 1993 with a B.A. in Economics and Political Science.                         

PERFORMANCE OF COMPARABLE ACCOUNT  

This portfolio has no historical           This chart does not show you the performance of the REIT Portfolio -- it shows 
performance because it started on          the performance of a similar account managed by Morgan Stanley Asset Management
January 4, 1999.                           Annual total returns and average annual total returns for the periods ending   
                                           December 31, 1998                                                              
The chart to the right shows the                                                                                          
historical performance of the Morgan       -------------------------------------------------------------------------------
Stanley Dean Witter Institutional                                                  Morgan Stanley U.S. Real               
Fund, Inc.--U.S. Real Estate                                                       Estate Fund, adjusted                  
Portfolio (Morgan Stanley U.S. Real                         Morgan Stanley         to reflect estimated                   
Estate Fund), a mutual fund managed                         U.S. Real Estate Fund, fees and expenses         NAREIT Equity
by Morgan Stanley Asset Management.        Year             Class A (%)            of the REIT Portfolio (%) Index (%)    
This fund has investment objectives,       -------------------------------------------------------------------------------
policies and strategies that are           <S>              <C>                    <C>                       <C>          
substantially similar to those of          1998             (12.29)                (12.49)                   (17.50)      
the REIT Portfolio.                        1997              27.62                  27.70                     20.29       
                                           1996              39.56                  39.72                     35.26       
This information shows the                 1995/1/           21.07                  20.83                     14.99       
historical track record of the             one year         (12.29)                (12.49)                   (17.50)      
portfolio manager and is not               since inception                                                                
intended to imply how the REIT             2/24/95           18.00                  17.95                     11.93       
Portfolio has performed or will            -------------------------------------------------------------------------------
perform. Total returns represent                                                                                            
past performance of the Morgan             /1/ Total return is based on the period from February 24, 1995 to December 31,     
Stanley U.S. Real Estate Fund, Class           1995.                                                                         
A and not the REIT Portfolio.              
                                           The returns in the first column reflect advisory fees and expenses of the        
These returns do not reflect fees          Morgan Stanley U.S. Real Estate Fund, Class A.                                   
and expenses associated with any           
variable annuity contract or               The second column shows the gross performance of the Morgan Stanley U.S. Real 
variable life insurance policy, and        Estate Fund, Class A, adjusted to reflect estimated fees and expenses of the 
would be lower if they did.                REIT Portfolio.                                                                       
                                           
                                           The third column shows the gross performance of the North American Real Estate    
                                           Investment Trust (NAREIT) Equity Index, an index of all tax-qualified REITs       
                                           listed on the New York Stock Exchange, American Stock Exchange and NASDAQ, for    
                                           the same periods. Results include reinvested dividends.                            
                                                                                                                                  37

</TABLE>      
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<TABLE> 
<S>                                        <C>   
ABOUT THE PORTFOLIOS                       INTERNATIONAL PORTFOLIO

                                           [SYMBOL] ----------------------------------------------------------------------- 
                                                                                                                           
The portfolio's investment goal            This portfolio seeks long-term capital appreciation primarily through           
                                           investment in equity securities of corporations domiciled in countries with     
                                           developed economies and markets other than the United States. Current income    
                                           from dividends and interest will not be an important consideration.             
                                                                                                                           
                                           [SYMBOL] -----------------------------------------------------------------------
                                                                                                                           
What the portfolio invests in              This portfolio's principal investment strategy is to invest in a broadly        
                                           diversified portfolio of companies located in developed countries outside of    
The Morgan Stanley Capital                 the U.S. It may also invest in securities issued in emerging market countries.  
International Europe,                                                                                                      
Australasia, Far East (EAFE)               It invests at least 70% of its assets in common stock, but it may also invest   
Index is made up of over 1,000             in fixed income securities that can be converted into equity securities.        
stocks from 20 developed markets                                                                                           
in Europe, Australia, New Zealand          MSAM uses a two-step process to manage the portfolio:                           
and Asia. The index reflects the                                                                                           
relative size of each market and           . allocates assets among three geographic regions - MSAM's New York office,     
is a commonly used benchmark for             under the supervision of the portfolio manager, decides on the optimal        
the performance of companies in              allocation of the portfolio's assets principally among Europe, Japan and      
developed countries outside North            developed Asia, including Australia and New Zealand, but may also invest in   
America.                                     other countries. Regional allocation decisions are based on a variety of      
                                             factors, including relative valuations, earnings expectations, macroeconomic  
                                             factors, as well as input from the regional stock selection teams and from    
                                             the firm's asset allocation committee, which is made up of several of the     
                                             company's senior investment professionals.                                    
                                                                                                                           
                                           . invests in companies that are undervalued - once MSAM has determined the      
                                             regional allocation, individual stocks are selected by regional portfolio     
                                             management teams in London, Tokyo and Singapore. Each regional team is        
                                             responsible for buying securities in Europe, Japan and Asia, respectively.    
                                             The regional teams look for stocks with an estimated worth that they believe  
                                             to be higher than their current share price. The regional specialists review  
                                             each company's finances, products and management, and in many cases will meet 
                                             with company management, before buying the stock for the portfolio. The       
                                             portfolio may invest in companies of any size.                                
                                                                                                                           
                                           MSAM may use currency hedging techniques like foreign currency forward          
                                           contracts or options to offset changes in foreign exchange rates. The team may  
                                           also use stock index futures to gain additional exposure to foreign markets. To 
                                           meet cash flow needs, the portfolio may invest some of its assets in cash or    
                                           money market securities denominated in U.S. dollars or foreign currencies. It   
                                           may also lend some of its assets, as long as the loans it makes are secured.    
                                                                                                                           
                                           MSAM may change these strategies if it believes economic conditions make it     
                                           necessary to try to protect the portfolio from a potential loss. In this case,  
                                           the portfolio may invest a portion of its assets in foreign or U.S. fixed       
                                           income securities or money market instruments.                                  
                                                                                                                           
                                           [SYMBOL] -----------------------------------------------------------------------
                                                                                                                           
Risks you should be aware of               The International Portfolio principally invests in equity securities, which may 
                                           go up or down in value, sometimes rapidly and unpredictably. While equities may 
                                           offer the potential for greater long-term growth than most fixed income         
                                           securities, they generally have higher volatility. The portfolio may be         
                                           affected by the following risks, among others:                                  
                                                                                                                           
                                           . price volatility - the value of the portfolio changes as the prices of the    
                                             investments it holds go up or down. Small-cap and mid-cap companies may be    
                                             more susceptible to larger price swings than larger companies because they    
                                             may have fewer financial resources, limited product and market                
                                             diversification and many are dependent on a few key managers.                 
</TABLE>
 
38
<PAGE>
 
<TABLE>      

<S>                                                  <C>
                                                     [SYMBOL]---------------------------------------------------------------------

Risks you should be aware of                         . risks of foreign investing - foreign investments may be riskier than U.S.    
(continued)                                            investments for many reasons, including changes in currency exchange rates,  
                                                       unstable political and economic conditions, a lack of adequate company       
                                                       information, differences in the way securities markets operate, less secure  
                                                       foreign banks or securities depositories than those in the U.S., and foreign 
                                                       controls on investment.

                                                     . risks of using derivatives - this portfolio may invest in foreign currency 
                                                       transactions, forward foreign currency contracts or options, index options
                                                       futures and other investment techniques to help it achieve its investment  
                                                       goals. There's always a risk that these techniques could reduce returns or 
                                                       increase the portfolio's volatility.                                   

                                                     [SYMBOL]---------------------------------------------------------------------- 

How the portfolio has performed                      Year by year total return (%)
                                                     as of December 31 each year/1/
The bar chart shows how the portfolio's              
performance has varied over the past 10 years.       ------------------------------------------------------------------------------
                                                      89       90      91      92      93      94      95      96      97      98
The table below the bar chart compares the                                                                                          
portfolio's performance with the Morgan Stanley                         [BAR CHART OF TOTAL RETURN APPEARS HERE]                    
Capital International Europe, Australasia,                                                                                          
Far East Index (MSCI EAFE Index), an index of        20.51   (13.48)  10.92  (9.78)  30.02    3.01   10.56   21.89    9.28    5.60
stocks from 20 countries in Europe, Australia,       ------------------------------------------------------------------------------
New Zealand and Asia.                                                                                                               
                                                      Best and worst quarterly performance during this period:                      
Returns do not reflect fees and expenses              3rd quarter 1989: 18.42%;  3rd quarter 1990: (20.35)%                         
associated with any variable annuity                                                                                                
contract or variable life insurance policy,           Average annual total return                                                   
and would be lower if they did.                       as of December 31, 1998                   1 year      5 years      10 years
                                                      ----------------------------------------------------------------------------  
Looking at how a portfolio has performed in the       International Portfolio/1/                5.60%       9.88%        8.07%
past is important - but it's no guarantee of how      MSCI EAFE Index                           20.33%      9.50%        5.86%
it will perform in the future.                                                                                                      
                                                      /1/ Morgan Stanley Asset Management began managing this portfolio on June 1,  
                                                          1997. Other firms managed the portfolio before that date.                 
Who manages the portfolio                                                                                                           
                                                     [SYMBOL] --------------------------------------------------------------------  
[LOGO OF MORGAN STANLEY ASSET MANAGEMENT                                                                                            
 APPEARS HERE]                                       Francine Bovich, managing director, has been a portfolio manager at Morgan     
                                                     Stanley Asset Management since April 1993, and began managing the International
The International Portfolio is managed by Morgan     Portfolio in 1997. She serves as the U.S. Representative to the United Nations 
Stanley Asset Management (MSAM). You'll find more    Investment Committee. She graduated from Connecticut College with a BA in      
about MSAM on page 45.                               economics and received her MBA in finance from New York University.  

                                                                                                                                  39
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ABOUT THE PORTFOLIOS                       EMERGING MARKETS PORTFOLIO

                                           [SYMBOL]----------------------------------------------------------------------

The portfolio's investment goal            This portfolio seeks long-term growth of capital.
                                                                                           
                                           This portfolio is not available for:            
                                           . Pacific Corinthian variable annuity contracts. 

                                           [SYMBOL]----------------------------------------------------------------------

What the portfolio invests in              This portfolio's principal investment strategy is to invest in companies that   
                                           are located in countries that are generally regarded as "emerging market"      
Emerging market countries are              countries. It principally invests in common stock.                             
typically less developed                                                                                                  
economically than industrialized           The portfolio manager determines the overall portfolio construction and works  
countries and offer high growth            closely with a portfolio management team. The portfolio manager uses a two-step
potential as well as considerable          process to manage the portfolio:                                               
investment risk. These countries                                                                                          
are generally located in South             . allocates assets among countries that are considered to be undervalued - the 
America, Asia, the Middle East and           portfolio manager analyzes emerging markets around the world and assigns a   
Eastern Europe.                              ranking to each country to reflect those the manager believes to be          
                                             relatively undervalued. He may - but is not required to - use the Morgan     
                                             Stanley Capital International (MSCI) Emerging Markets Free Index as a guide  
                                             when selecting countries to invest in.                                       
                                                                                                                          
                                           . chooses companies within this country allocation using two criteria - the    
                                             portfolio manager then directs the team to look for high quality companies   
                                             that are undervalued and expected to grow. The value of a company is         
                                             determined by comparing its estimated worth with its current market price.   
                                             The quality of a company and its growth potential are determined by its      
                                             growth in earnings and the strength of its balance sheet.                    
                                                                                                                          
                                           The team may use options, futures contracts and other techniques to try to     
                                           increase returns. It may also use derivatives to hedge changes in currency     
                                           exchange rates. The portfolio may lend some of its assets, as long as the loans
                                           it makes are secured.                                                          
                                                                                                                          
                                           The portfolio's policy is to have almost all portfolio assets in common stock  
                                           at all times. The portfolio may, however, invest in U.S. government securities,
                                           high-quality corporate fixed income securities, or money market instruments, to
                                           meet cash flow needs or if the U.S. government ever imposes restrictions on    
                                           foreign investing.                                                              

                                           [SYMBOL]----------------------------------------------------------------------

Risks you should be aware of               The Emerging Markets Portfolio principally invests in equity securities, which 
                                           may go up or down in value, sometimes rapidly and unpredictably. While equities
Companies in emerging markets may be       may offer the potential for greater long-term growth than most fixed income    
especially volatile. The value of          securities, they generally have higher volatility. The portfolio may be        
this portfolio may have greater            affected by the following risks, among others:                                 
price swings than most of the                                                                                             
Pacific Select Fund portfolios.            . price volatility - the value of the portfolio changes as the prices of its   
                                             investments go up or down. This portfolio invests in companies in emerging   
                                             markets, which may be particularly volatile. It also invests in smaller      
                                             companies, which tend to have higher price swings than larger companies      
                                             because they have fewer financial resources, limited product and market      
                                             diversification and many are dependent on a few key managers.                 

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40
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                                           [SYMBOL]----------------------------------------------------------------------- 

Risks you should be aware of               . risks of foreign investing - foreign investments may be riskier than U.S.        
(continued)                                  investments for many reasons, including changes in currency exchange rates,  
                                             unstable political and economic conditions, a lack of adequate company       
                                             information, differences in the way securities markets operate, less secure  
                                             foreign banks or securities depositories than those in the U.S., and foreign 
                                             controls on investment. Investments in emerging markets countries are        
                                             generally riskier than other kinds of foreign investments, partly because    
                                             emerging market countries may be less politically and economically stable    
                                             than other countries. It may also be more difficult to buy and sell          
                                             securities in emerging markets countries.                                    
                                                                                                                          
                                           . risks of using derivatives - this portfolio may invest in foreign currency   
                                             transactions, forward foreign currency contracts or options, futures and use 
                                             other investment techniques to help it achieve its investment goals. There's 
                                             always a risk that these techniques could reduce returns or increase the     
                                             portfolio's volatility.                                                       

                                           [SYMBOL]----------------------------------------------------------------------- 

How the portfolio has performed            Year by year total return (%)                                                    
                                           as of December 31 each year/1/                                                 
The bar chart shows how the                
portfolio's performance has varied         -------------------------------------------------------------------------------
since its inception.                                                                            96        97         98         
                                           
The table below the bar chart                                [BAR CHART OF TOTAL RETURN APPEARS HERE]  
compares the portfolio's performance       
with the Morgan Stanley Capital                                                               (3.23)    (1.69)    (26.83)
International (MSCI) Emerging              -------------------------------------------------------------------------------
Markets Free Index, an index of                                                                                         
approximately 879 stocks from              Best and worst quarterly performance during this period:                                
approximately 26 emerging market           4th quarter 1998: 12.22%; 3rd quarter 1998: (25.07)%                                    
countries.                                                                                                                         
                                           Average annual total return                                    Since inception
Returns do not reflect fees and            as of December 31, 1998                          1 year        (April 1, 1996)
expenses associated with any variable      -------------------------------------------------------------------------------
annuity contract or variable life          Emerging Markets Portfolio                       (26.83)%      (12.32)%
insurance policy, and would be lower if    MSCI Emerging Markets Free Index                 (25.34)%      (14.08)%
they did.                                                                                                                          
                                           /1/ Total return for 1996 is for the period from April 1, 1996 (commencement of          
Looking at how a portfolio has                 operations) to December 31, 1996.                                                    
performed in the past is important -                                                                                               
but it's no guarantee of how it                                                                                                    
will perform in the future.                

                                           [SYMBOL]-----------------------------------------------------------------------
                                                                                                                                   
Who manages the portfolio                  James Smith is a co-founder of Blairlogie, and has been its chief investment            
                                           officer and a managing director since 1992. He is the portfolio manager and is          
[LOGOS OF BLAIRLOGIE APPEARS HERE]         responsible for setting investment policy, asset allocation, and managing a             
                                           team of six professionals who specialize in stocks in Europe, Asia, and the             
The Emerging Markets Portfolio is          Americas, and in currency and derivatives. He has a BA in Economics from London         
managed by a team of portfolio             University and an MBA from Edinburgh University. He began managing the Emerging         
managers at Blairlogie Capital             Markets portfolio in 1996.                                                               
Management. You'll find more about        
Blairlogie on page 43.                     

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MANAGING THE PACIFIC SELECT FUND              

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[LOGO OF PACIFIC LIFE APPEARS HERE]           Founded in 1868, Pacific Life ranks among the 20 largest life insurance             
                                              companies in America based on admitted assets. The Pacific Life family of          
Pacific Life Insurance Company                companies managed $290 billion in assets as of December 31, 1998, making it one    
700 Newport Center Drive                      of the largest financial institutions in America.                                  
Newport Beach, California 92660                                                                                                  
                                              Pacific Life provides life and health insurance products, group employee           
                                              benefits and individual annuities, and offers a variety of investment products     
                                              and services to individuals, businesses and pension plans.                         
                                                                                                                                 
                                              In its role as the fund's investment adviser, Pacific Life supervises the          
                                              management of all of the fund's portfolios. Pacific Life manages two portfolios    
                                              directly: the Money Market Portfolio and the High Yield Bond Portfolio. To         
                                              manage the other portfolios, it has retained other portfolio managers, many of     
                                              which have a worldwide market presence and extensive research capabilities.        
                                              Pacific Life oversees and monitors the performance of these portfolio managers.    
                                                                                       
                                              Pacific Life and the other portfolio managers provide their services under         
                                              agreements that are reviewed by the fund's board of trustees every year after      
                                              the first two years, and can be canceled. Pacific Life and the fund can replace
                                              the other portfolio managers or change their contracts without shareholder         
                                              approval under an exemptive order from the SEC.                                     
                                              
                                              ------------------------------------------------------------------------------------
[LOGO OF ALLIANCE CAPITAL APPEARS HERE]       Alliance Capital Management Corporation, the sole general partner of, and the    
                                              owner of a 1% general partnership interest in Alliance Capital Management L.P.   
Alliance Capital Management L.P.              (Alliance Capital), began managing assets in 1971. Alliance Capital, an          
1345 Avenue of the Americas                   indirect wholly-owned subsidiary of the Equitable Life Assurance Society of the  
New York, New York 10105                      United States (Equitable), manages assets for corporate and individual clients,  
                                              including 31 of the top 100 of America's Fortune 500 companies. Alliance Capital 
                                              employs over 190 investment professionals in 23 offices of affiliates and 
                                              subsidiaries around the world, and had over $286.7 billion in assets under 
                                              management as of December 31, 1998. Equitable is a wholly-owned subsidiary of the 
                                              Equitable Companies Incorporated which in turn is controlled by AXA, a French 
                                              insurance company.
                                                                                                                               
                                              Alliance Capital focuses on individual companies. Its four-person Aggressive     
                                              Growth team, which includes two portfolio managers and two analysts, seeks a     
                                              strong rapport with, and conviction in, the management teams of every company    
                                              Alliance Capital invests in.                                                     
                                                                                                                               
                                              Alliance Capital manages the Aggressive Equity Portfolio.                         
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42
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                                           --------------------------------------------------------------------------------    
                                                                                                                               
[LOGO OF BANKERS TRUST APPEARS HERE]       Founded in 1903, Bankers Trust has over 400 institutional clients around the        
                                           world, and manages more than 26 other mutual fund portfolios. It had over           
                                           $361.9 billion in assets under management as of December 31, 1998. Bankers          
Bankers Trust Company                      Trust specializes in the management of index funds. Its trading strategies -        
130 Liberty Street                         which include extensive trading networks and automated trading systems - help      
New York, New York 10006                   it increase portfolio returns while keeping transaction and custody costs to a      
                                           minimum. Bankers Trust manages the Equity Index Portfolio and the Small-Cap         
                                           Index Portfolio.                                                                    
                                                                                                                               
                                           In November 1998, Deutsche Bank AG entered into an agreement to acquire all         
                                           outstanding shares of the common stock of Bankers Trust Corporation, which owns     
                                           Bankers Trust Company. The acquisition is tentatively scheduled to close in the     
                                           second quarter of 1999, and must be approved by shareholders representing two-      
                                           thirds of all Bankers Trust Corporation common stock shares and by various          
                                           worldwide regulatory authorities. If the acquisition results in a change of         
                                           control under the 1940 Act, new portfolio management agreements with Bankers        
                                           Trust will be required. In anticipation of this, the sole shareholder of the        
                                           Small-Cap Index Portfolio has approved a new agreement in which Bankers Trust       
                                           would continue as the portfolio manager. The new agreement will come into           
                                           effect if the acquisition is completed. The shareholders of the Equity Index        
                                           Portfolio may also be required to vote on a new portfolio management agreement.     
                                           A supplement will be added to this prospectus if the acquisition is not             
                                           completed according to the schedule described above.                                
                                                                                                                               
                                           On March 11, 1999, Bankers Trust announced that it had reached an agreement         
                                           with the United States Attorney's Office in the Southern District of New York       
                                           to resolve an investigation into inappropriate transfers of unclaimed funds and     
                                           related recordkeeping problems that occurred between 1994 and early 1996.           
                                           Pursuant to its agreement with the U.S. Attorney's Office, Bankers Trust            
                                           pleaded guilty to misstating entries in the bank's books and records and agreed     
                                           to pay a $60 million fine to federal authorities. Separately, Bankers Trust         
                                           agreed to pay a $3.5 million fine to the State of New York.                         
                                                                                                                               
                                           The events leading up to the guilty pleas did not arise out of the investment       
                                           advisory or mutual fund management activities of Bankers Trust or its               
                                           affiliates. As a result of the plea, absent an order from the SEC, Bankers          
                                           Trust may not be able to continue to provide investment advisory services to        
                                           the fund. The SEC has granted a temporary order to permit Bankers Trust and its     
                                           affiliates to continue to provide investment advisory services to registered        
                                           investment companies. Bankers Trust has applied to the SEC for a permanent          
                                           order, but there is no assurance that the SEC will grant a permanent order. If      
                                           the SEC does not grant the permanent order, the Board of Trustees would             
                                           consider appropriate action.                                                        
                                                                                                                               
                                           --------------------------------------------------------------------------------    
                                                                                                                               
[LOGO OF BLAIRLOGIE APPEARS HERE]          Blairlogie began operations in 1992 and had over $897 million in assets under       
                                           management as of December 31, 1998. Blairlogie is a subsidiary of Alleghany         
                                           Asset Management, Inc. and its affiliates.                                          
Blairlogie Capital Management                                                                                                  
4th Floor, 125 Princes Street              Based in Scotland, Blairlogie's team of seven investment professionals focuses      
Edinburgh EH2 4AD Scotland                 on a top-down analysis of countries located in Europe, Asia and the Americas.       
                                                                                                                               
                                           Gavin Dobson is a co-founder of Blairlogie, and has been its chief executive        
                                           officer and a managing director since 1992. He is responsible for Blairlogie's      
                                           business development and oversees the relationship between the company and its      
                                           institutional clients. He has 20 years of investment experience, including four     
                                           years as president and chief operating officer of Murray Johnstone                  
                                           International in Chicago, Illinois. He has a BA in economics from Dundee            
                                           University and a degree in Law from Edinburgh University.                           
                                                                                                                               
                                           Blairlogie manages the Emerging Markets Portfolio.                                   
 
                                                                                                                                  43
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MANAGING THE PACIFIC SELECT FUND
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                                                    ------------------------------------------------------------------------------- 
                                                    
[LOGO OF CAPITAL GUARDIAN TRUST                     Capital Guardian Trust Company (CGTC), a wholly-owned subsidiary of The Capital
 COMPANY APPEARS HERE]                              Group Companies, Inc., was established in 1968 as a non-depository trust        
                                                    company. As of December 31, 1998, CGTC managed over $81 billion, primarily for  
Capital Guardian Trust Company                      large institutional clients.                                                   
333 South Hope Street                                                                                                              
Los Angeles, California 90071                       CGTC uses a multiple portfolio management system under which a group of        
                                                    portfolio managers each have investment discretion over a portion of a client's
                                                    account. Portfolio management is supported by the research efforts of over 140 
                                                    investment professionals within the global institutional group of companies    
                                                    within the Capital Group organization in various offices around the world. The 
                                                    global institutional group of companies within the Capital Group organization  
                                                    spends over $80 million a year on its research efforts.                        
                                                                                                                                   
                                                    CGTC manages the Growth Portfolio.
                                              
                                                    --------------------------------------------------------------------------------
                                                    
[LOGO OF GOLDMAN SACHS ASSET                        Created in 1988, Goldman Sachs Asset Management (Goldman Sachs) is a separate   
 MANAGEMENT APPEARS HERE]                           operating division of Goldman, Sachs & Co. Founded in 1869, Goldman, Sachs &    
                                                    Co. is one of the world's largest global financial services firms.              
Goldman Sachs Asset Management                                                                                                      
One New York Plaza                                  The Goldman Sachs Group, L.P., which controls Goldman Sachs Asset Management,   
New York, New York 10004                            announced that it will pursue an initial public offering in the late spring or  
                                                    early summer of 1999. Simultaneously with the offering, the Goldman Sachs       
                                                    Group, L.P. will merge into The Goldman Sachs Group, Inc.                       
                                                                                                                                    
                                                    As of December 31, 1998, Goldman Sachs and its affiliates managed, administered 
                                                    and distributed over $195 billion for institutional and individual investors    
                                                    around the world.                                                               
                                                                                                                                    
                                                    Portfolio management at Goldman Sachs is conducted by teams that are supported  
                                                    by 600 investment research professionals, 20 market strategists and 30          
                                                    economists around the world. The company has more than 10,000 professionals in  
                                                    37 offices worldwide.                                                           
                                                                                                                                    
                                                    Goldman Sachs manages the Equity Portfolio and the Bond and Income Portfolio.

                                                    -------------------------------------------------------------------------------
                                                    
[LOGO OF JANUS APPEARS HERE]                        Formed in 1969, Janus manages accounts for more than 1,000 corporations,        
                                                    individuals, retirement plans and non-profit organizations, and serves as the   
Janus Capital Corporation                           adviser or subadviser to the Janus Funds and other mutual funds. Janus had      
100 Fillmore Street                                 approximately $108 billion in assets under management as of December 31, 1998.  
Denver, Colorado 80206                                                                                                              
                                                    The Janus investment team focuses on individual companies, using an investment  
                                                    process supported by the company's 21 portfolio managers and 23 securities      
                                                    analysts.                                                                       
                                                                                                                                    
                                                    Janus manages the Growth LT Portfolio.                                          
                                                                                                                                    
                                                    -------------------------------------------------------------------------------
 
[LOGO OF J.P. MORGAN INVESTMENT APPEARS HERE]       Formed in 1984, J.P. Morgan Investment Management Inc. manages portfolios for  
                                                    corporations, governments and endowments as well as many of the largest        
J.P. Morgan Investment Management Inc.              corporate retirement plans in the nation. As of December 31, 1998, it had over 
522 Fifth Avenue                                    $310 billion in assets under management.                                       
New York, New York 10036                            
                                                    J.P. Morgan Investment believes that strong portfolio management depends on    
                                                    access to information. It has one of the largest research organizations in the 
                                                    investment management field, with more than 117 analysts who carry out fixed   
                                                    income, equity, capital market, credit and economic research around the world. 
                                                                                                                                   
                                                    J.P. Morgan Investment manages the Equity Income Portfolio and the Multi-      
                                                    Strategy Portfolio.                                                             
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44
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[LOGO OF LAZARD APPEARS HERE]              Formed in 1848, Lazard Freres provides individual investors and institutional    
                                           clients with a wide variety of investment banking, brokerage and related         
Lazard Asset Management,                   services. Lazard has affiliates in Cairo, Frankfurt, London, Paris, Sydney and   
a division of Lazard Freres & Co. LLC      Tokyo, and had, together with its affiliates, approximately $70 billion in       
30 Rockefeller Plaza                       assets under management as of December 31, 1998.                                 
New York, New York 10112                                                                                                    
                                           Teamwork is the foundation of Lazard. Based in New York, Lazard's team of more   
                                           than 125 global analysts drives its bottom-up approach to understanding          
                                           individual companies within the global marketplace.                              
                                                                                                                            
                                           Lazard manages the Mid-Cap Value Portfolio.                                      
                                                                                                                            
                                           -------------------------------------------------------------------------------- 
                                                                                                                            
[LOGO OF MORGAN STANLEY APPEARS HERE]      Formed in 1975, Morgan Stanley Dean Witter Investment Management Inc., doing     
                                           business as Morgan Stanley Asset Management (MSAM), a subsidiary of Morgan       
Morgan Stanley Asset Management            Stanley Dean Witter & Co., conducts a worldwide portfolio management business    
1221 Avenue of the Americas                and provides a broad range of portfolio management services to customers in the  
New York, New York 10020                   U.S. and abroad. MSAM and its institutional investment advisory affiliates       
                                           managed or acted as fiduciary adviser for over $163.4 billion in assets as of    
                                           December 31, 1998.                                                               
                                                                                                                            
                                           MSAM's portfolio managers are supported by a network of experienced research     
                                           professionals based in New York, London, Singapore and Tokyo.                    
                                                                                                                            
                                           MSAM manages the REIT Portfolio and the International Portfolio.                 
                                                                                                                            
                                           -------------------------------------------------------------------------------- 
                                                                                                                            
[LOGO OF PIMCO APPEARS HERE]               Founded in 1971, Pacific Investment Management Company (PIMCO) has nearly        
                                           300 clients, including some of the largest employee benefit plans, endowments    
Pacific Investment Management Company      and foundations in America. PIMCO had over $157 billion in assets under          
840 Newport Center Drive, Suite 300        management as of December 31, 1998.                                              
Newport Beach, California 92660                                                                                             
                                           PIMCO specializes in the management of fixed income portfolios. It has a long-   
                                           term investment philosophy, and uses a variety of techniques, including          
                                           software programs it has developed, to help increase portfolio performance       
                                           while controlling volatility. PIMCO is a subsidiary of PIMCO Advisors, L.P.,     
                                           which is an affiliate of Pacific Life.                                           
                                                                                                                            
                                           PIMCO manages the Managed Bond Portfolio and the Government Securities           
                                           Portfolio.                                                                       
                                                                                                                            
                                           -------------------------------------------------------------------------------- 
                                                                                                                            
[LOGO OF SALOMON BROTHERS APPEARS HERE]    Formed in 1989, Salomon Brothers Asset Management Inc (SaBAM) has affiliates in  
                                           London, Frankfurt, Tokyo and Hong Kong. Together, they provide a broad range of  
Salomon Brothers Asset Management Inc      equity and fixed income investment management services to clients around the     
Seven World Trade Center                   world. SaBAM also provides investment advisory services to other investment      
New York, New York 10048                   companies. As of December 31, 1998, SaBAM and its affiliates had over $29        
                                           billion in assets under management.                                              
                                                                                                                            
                                           As a subsidiary of Citigroup Inc., SaBAM is able to leverage the resources of    
                                           one of the world's largest and most innovative financial services companies.     
                                                                                                                            
                                           SaBAM manages the Large-Cap Value Portfolio.                                     

                                                                                                                                  45
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MANAGING THE PACIFIC SELECT FUND

<S>                                        <C> 
                                           -------------------------------------------------------------------------------- 
                                                                                                                             
Fees and expenses paid by the fund         The fund pays Pacific Life an advisory fee for the services it provides as       
                                           investment adviser. It also pays for all of the costs of its operations, as      
                                           well as for other services Pacific Life provides through a support services      
                                           agreement.                                                                       
                                                                                                                            
                                           The table below shows the advisory fee as an annual percentage of each           
                                           portfolio's average daily net assets. Pacific Life uses part of this fee to pay  
                                           for the services of the portfolio managers.                                      
                                                                                                                            
                                           The table also shows expenses the fund paid in 1998 as an annual percentage of   
                                           each portfolio's average daily net assets. To help limit fund expenses, Pacific  
                                           Life has agreed to waive all or part of its investment advisory fees or          
                                           otherwise reimburse each portfolio for expenses (not including advisory fees,    
                                           additional costs associated with foreign investing and extraordinary expenses)   
                                           that exceed 0.25% of its average daily net assets. It does this voluntarily,     
                                           but does not guarantee that it will continue to do so after December 31, 2000.   
                                           No reimbursement was necessary for 1998.                                         
                                                                                                                            
                                           ---------------------------------------------------------------------------------
                                                                                                  Other            Total   
                                                                                  Advisory fee    expenses         expenses
                                           ---------------------------------------------------------------------------------
                                                                                  As an annual % of average daily net assets
                                           Money Market Portfolio/1/              0.37            0.06             0.43 
                                           High Yield Bond Portfolio/1/           0.60            0.06             0.66 
                                           Managed Bond Portfolio                 0.60            0.06             0.66
                                           Government Securities Portfolio        0.60            0.06             0.66
                                           Growth Portfolio                       0.65            0.05             0.70
                                           Aggressive Equity Portfolio            0.80            0.09             0.89
                                           Growth LT Portfolio                    0.75            0.05             0.80
                                           Equity Income Portfolio/1/             0.65            0.05             0.70
                                           Multi-Strategy Portfolio/1/            0.65            0.06             0.71
                                           Large-Cap Value Portfolio/2/           0.85            0.06             0.91
                                           Mid-Cap Value Portfolio/2/             0.85            0.06             0.91
                                           Equity Portfolio                       0.65            0.06             0.71
                                           Bond and Income Portfolio              0.60            0.10             0.70
                                           Equity Index Portfolio                 0.16            0.05             0.21
                                           Small-Cap Index Portfolio/2/           0.50            0.06             0.56
                                           REIT Portfolio/2/                      1.10            0.06             1.16
                                           International Portfolio                0.85            0.15             1.00
                                           Emerging Markets Portfolio             1.10            0.36             1.46
                                           ---------------------------------------------------------------------------------
                                                                                                          
                                           /1/ Total net expenses for these portfolios in 1998, after deduction of an offset 
                                               for custodian credits were 0.42% for Money Market Portfolio, 0.65% for High 
                                               Yield Bond Portfolio, 0.69% for Equity Income Portfolio, and 0.70% for 
                                               Multi-Strategy Portfolio.
                                           /2/ Expenses are estimated. There were no actual advisory fees or expenses for 
                                               these portfolios in 1998 because the portfolios started on January 4, 1999.

                                           -------------------------------------------------------------------------------- 
                                                                                                                            
How the fund is organized                  The Pacific Select Fund is organized as a Massachusetts business trust. Its      
                                           business and affairs are managed by its board of trustees.                       
                                                                                                                            
                                           Under Massachusetts law, shareholders could, under certain circumstances, be     
                                           held personally liable if the fund is not able to meet its financial             
                                           obligations. It is very unlikely that this will ever happen, and the fund's      
                                           declaration of trust protects shareholders from liability.                       
                                                                                                                            
                                           Each portfolio intends to qualify each year as a regulated investment company    
                                           under Subchapter M of the Internal Revenue Code. Portfolios that qualify do not  
                                           have to pay income tax as long as they distribute sufficient taxable income and  
                                           net capital gains.                                                               
                                                                                                                            
                                           The Pacific Select Fund may discontinue offering shares of any portfolio at any  
                                           time. If a portfolio is discontinued, any allocation to that portfolio will be   
                                           allocated to another portfolio the trustees believe is suitable, as long as any  
                                           required regulatory approvals are met.                                            
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46
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INFORMATION FOR INVESTORS
<S>                                                 <C> 
                                                    ------------------------------------------------------------------------------- 

                                                    The Pacific Select Fund is available only to people who own a variable annuity  
                                                    contract or variable life insurance policy issued or administered by Pacific    
                                                    Life Insurance Company or its subsidiaries. You do not buy, sell or exchange    
                                                    shares of the fund's portfolios - you choose investment options through your    
                                                    annuity contract or life insurance policy. Pacific Life then invests in the     
                                                    portfolios of the Pacific Select Fund according to the investment options       
                                                    you've chosen. You'll find information about how this works in the accompanying 
                                                    product prospectus or offering memorandum.  

                                                    ------------------------------------------------------------------------------- 

How share prices are calculated                     Each Pacific Select Fund portfolio is divided into shares. The price of a 
                                                    portfolio's shares is called its net asset value per share. Net asset value per
                                                    share forms the basis for all transactions involving buying, selling,          
                                                    exchanging or reinvesting shares.                                              

                                                    Each portfolio's net asset value per share is calculated once a day, every day
                                                    the New York Stock Exchange (NYSE) is open, usually at or about 4:00 p.m.       
                                                    Eastern time. Generally, for any transaction, we'll use the next asset value    
                                                    calculated after we receive a request to buy, sell or exchange shares.          
                                                                                                                                    
An example of how we calculate net asset            The net asset value per share is calculated by taking the total value of a
value per share                                     portfolio's assets, subtracting the liabilities, and then dividing by the       
                                                    number of shares that have already been issued. The value of a portfolio's      
$80 million  portfolio's assets                     assets is based on the total market value of all of the securities it holds. In 
- -$3 million  portfolio's liabilities                general, the value of each security is based on its actual or estimated market  
- -----------                                         value, with special provision for assets without readily available market       
$77 million                                         quotes, for short-term debt securities, and for situations where market 
/ 7 million  outstanding shares                     quotations are deemed unreliable or stale. This special provision means a fair
- -----------                                         value for a security is determined under procedures adopted and monitored by the
=       $11  net asset value                        fund's board of trustees. If the NYSE closes early, the portfolio will normally
- -----------                                         consider the closing price of a security to be its price at 4:00 p.m. Eastern
             per share                              time.
                                                                                                                                    
                                                    A delay may happen in any of the following situations:
                          
                                                    . the New York Stock Exchange closes on a day other than a regular holiday or   
                                                      weekend                                                                       
                                                    . trading on the New York Stock Exchange is restricted                          
                                                    . an emergency exists as determined by the SEC, as a result of which the sale   
                                                      of securities is not practicable, or it is not practicable to determine the   
                                                      value of a variable account's assets, or                                      
                                                    . the SEC permits a delay for the protection of shareholders.                   
                                                                                                                                    
                                                    Because foreign securities can be traded on weekends, U.S. holidays and other   
                                                    times when the NYSE is closed, changes in the market value of these securities  
                                                    are not always reflected in the portfolio's net asset value. It's not possible  
                                                    to buy, sell, exchange or reinvest shares on days the NYSE is closed, even if
                                                    there has been a change in the market value of these securities.
                                                                                
                                                    Variable annuity contracts and variable life insurance policies may have other  
                                                    restrictions on buying and selling shares.
                                      
                                                    ------------------------------------------------------------------------------- 

Preparing for the year 2000                         The transition to the year 2000 is a technological challenge for any company 
                                                    that relies on computer systems. The Pacific Select Fund's operations are
These Year 2000 related statements are designated   heavily dependent on computer technology, and the fund also relies on the
as "Year 2000 Readiness Disclosure" pursuant        computer systems of each of the portfolio managers and other service providers.
to the Year 2000 Information Readiness
Disclosure Act, enacted October 19, 1998.           All of the fund's primary service providers have confirmed that they reviewed
                                                    their computer systems and expect to be prepared to deal with the year 2000. In 
                                                    addition, Pacific Life has many efforts underway, and has engaged the services 
                                                    of an outside consultant to test and correct all of its own internal systems.  
                                                                                                                                   
                                                    Many of the companies the portfolios invest in also rely on computer systems.  
                                                    There is no guarantee, however, that the computer systems of all of the fund's 
                                                    service providers, or the computer systems of companies the portfolios invest  
                                                    in, will be ready for the year 2000. If these systems are unable to process and
                                                    calculate date-related information in the year 2000, there will be a negative 
                                                    effect on the fund's operations, and on the value of the securities the       
                                                    portfolios hold.                                                               
                                                    
                                                                                                                                  47
</TABLE> 
<PAGE>
 
FINANCIAL HIGHLIGHTS
<TABLE> 

The financial highlights table is designed to help you understand how the Pacific Select Fund portfolios have performed for the past
five years (or since inception, if shorter). Certain information reflects financial results for a single portfolio share. Total
investment return indicates how much an investment in the portfolio would have earned, assuming all dividends and distributions had
been reinvested. Financial highlights do not appear for the Large-Cap Value, Mid-Cap Value, Small-Cap Index and REIT Portfolios
because these portfolios started on January 4, 1999.
 
The information in the financial highlights tables for the years 1994 through 1998 is included and can be read in conjunction with
the fund's financial statements, which are in the fund's annual report dated as of December 31, 1998. These financial statements
have been audited by Deloitte & Touche LLP, independent auditors. Please turn to the back cover to find out how you can get a copy
of the annual report.
 
                                    Money Market Portfolio                      High Yield Bond Portfolio
                          ----------------------------------------------  ------------------------------------------
                                1994     1995     1996     1997     1998     1994    1995     1996     1997     1998
- ------------------------  ----------------------------------------------  ------------------------------------------
<S>                       <C>         <C>      <C>      <C>      <C>      <C>      <C>     <C>      <C>      <C>
OPERATING PERFORMANCE
Net asset value,
 beginning of year          $   9.99    10.03    10.02    10.04    10.06     9.67    8.91     9.79     9.94     9.98
Plus income from
 investment operations
Net investment income       $   0.33     0.54     0.47     0.51     0.52     0.73    0.76     0.79     0.78     0.78
Net realized and
 unrealized gain (loss)
 on securities              $   0.04        -     0.02     0.01        -    (0.70)   0.88     0.25     0.12    (0.55)
- ------------------------  ----------------------------------------------  ------------------------------------------
Total from investment
 operations                 $   0.37     0.54     0.49     0.52     0.52     0.03    1.64     1.04     0.90     0.23
Less distributions
Dividends (from net
 investment income)         $  (0.33)   (0.55)   (0.47)   (0.50)   (0.53)   (0.73)  (0.76)   (0.79)   (0.77)   (0.78)
Distributions (from
 capital gains)             $      -        -        -        -        -    (0.06)      -    (0.10)   (0.09)   (0.09)
- ------------------------  ----------------------------------------------  ------------------------------------------
Total distributions         $  (0.33)   (0.55)   (0.47)   (0.50)   (0.53)   (0.79)  (0.76)   (0.89)   (0.86)   (0.87)
Net asset value, end of
 year                       $  10.03    10.02    10.04    10.06    10.05     8.91    9.79     9.94     9.98     9.34
- ------------------------  ----------------------------------------------  ------------------------------------------
Total investment
 return/1/                  %   3.76     5.54     5.07     5.28     5.29     0.42   18.87    11.31     9.44     2.46
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
 (in thousands)             $ 94,150   95,949  322,193  451,505  479,121   25,338  84,425  184,744  311,125  389,385
Ratios of expenses to
 average net assets
 . before waivers,
   reimbursements and
   credits                  %   0.64     0.53     0.50     0.44     0.43     0.97    0.77     0.71     0.66     0.66
 . after waivers,
   reimbursements and
   credits                  %   0.64     0.53     0.50     0.44     0.42     0.88    0.77     0.71     0.65     0.65
Ratios of net investment
 income to average net
 assets
 . before waivers,
   reimbursements and
   credits                  %   3.94     5.41     4.93     5.17     5.16     8.04    8.51     8.28     7.89     8.17
 . after waivers,
   reimbursements and
   credits                  %   3.94     5.41     4.93     5.17     5.17     8.13    8.51     8.28     7.89     8.18
Portfolio turnover rate     %    N/A      N/A      N/A      N/A      N/A   141.86  127.31   120.06   103.19    75.27
<CAPTION>
                                    Managed Bond Portfolio                   Government Securities Portfolio
                          ----------------------------------------------  ------------------------------------------
                                1994     1995     1996     1997     1998     1994    1995     1996     1997     1998
- ------------------------  ----------------------------------------------  ------------------------------------------
<S>                       <C>         <C>      <C>      <C>      <C>      <C>      <C>     <C>      <C>      <C>
OPERATING PERFORMANCE
Net asset value,
 beginning of year          $  10.89     9.90    11.10    10.75    11.14    10.64    9.64    10.84    10.38    10.78
Plus income from
 investment operations
Net investment income       $   0.50     0.65     0.59     0.59     0.57     0.44    0.58     0.56     0.53     0.54
Net realized and
 unrealized gain (loss)
 on securities              $  (0.98)    1.19    (0.15)    0.44     0.40    (0.99)   1.19    (0.27)    0.42     0.42
- ------------------------  ----------------------------------------------  ------------------------------------------
Total from investment
 operations                 $  (0.48)    1.84     0.44     1.03     0.97    (0.55)   1.77     0.29     0.95     0.96
Less distributions
Dividends (from net
 investment income)         $  (0.50)   (0.64)   (0.57)   (0.60)   (0.58)   (0.44)  (0.57)   (0.53)   (0.55)   (0.55)
Distributions (from
 capital gains)             $  (0.01)       -    (0.22)   (0.04)   (0.15)   (0.01)      -    (0.22)       -    (0.21)
- ------------------------  ----------------------------------------------  ------------------------------------------
Total distributions         $  (0.51)   (0.64)   (0.79)   (0.64)   (0.73)   (0.45)  (0.57)   (0.75)   (0.55)   (0.76)
Net asset value, end of
 year                       $   9.90    11.10    10.75    11.14    11.38     9.64   10.84    10.38    10.78    10.98
- ------------------------  ----------------------------------------------  ------------------------------------------
Total investment
 return/1/                  %  (4.36)   19.04     4.25     9.92     9.20    (5.10)  18.81     2.94     9.48     9.24
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
 (in thousands)             $ 53,219  126,992  260,270  468,575  765,989   21,489  59,767   97,542  129,900  190,428
Ratios of expenses to
 average net assets
 . before waivers,
   reimbursements and
   credits                  %   0.84     0.76     0.71     0.66     0.66     0.95    0.82     0.72     0.67     0.66
 . after waivers,
   reimbursements and
   credits                  %   0.84     0.76     0.71     0.66     0.66     0.88    0.82     0.72     0.66     0.66
Ratios of net investment
 income to average net
 assets
 . before waivers,
   reimbursements and
   credits                  %   5.04     6.04     5.71     5.72     5.40     4.22    5.58     5.33     5.38     5.16
 . after waivers,
   reimbursements and
   credits                  %   5.04     6.04     5.71     5.72     5.40     4.29    5.58     5.33     5.39     5.16
Portfolio turnover rate     % 127.95   191.39   386.16   230.87   230.99   232.99  298.81   307.13   203.01   266.83
</TABLE>
 
48
<PAGE>
 
<TABLE>
<CAPTION>
                                                                               Growth Portfolio
                                                              -------------------------------------------------
                                                                     1994     1995     1996     1997       1998
- ------------------------------------------------------------  -------------------------------------------------
<S>                                                             <C>          <C>      <C>      <C>        <C>
OPERATING PERFORMANCE
Net asset value, beginning of year                              $   18.20    14.90    18.57    21.45      24.61
Plus income from investment operations
Net investment income (loss)                                    $    0.10     0.15     0.08     0.05       0.02
Net realized and unrealized gain (loss) on securities           $   (2.01)    3.67     4.11     5.65       0.90
- ------------------------------------------------------------  -------------------------------------------------
Total from investment operations                                $   (1.91)    3.82     4.19     5.70       0.92
Less distributions
Dividends (from net investment income)                          $   (0.10)   (0.15)   (0.09)   (0.05)     (0.02)
Distributions (from capital gains)                              $   (1.29)       -    (1.22)   (2.49)     (2.59)
- ------------------------------------------------------------  -------------------------------------------------
Total distributions                                             $   (1.39)   (0.15)   (1.31)   (2.54)     (2.61)
Net asset value, end of year                                    $   14.90    18.57    21.45    24.61      22.92
- ------------------------------------------------------------  -------------------------------------------------
Total investment return/1/                                      %  (10.49)   25.75    23.62    30.27       2.69

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of year (in thousands)                          $  81,451  129,741  167,335  246,555    267,958
Ratios of expenses to average net assets
 . before waivers, reimbursements and credits                   %    0.86     0.79     0.76     0.70       0.70
 . after waivers, reimbursements and credits                    %    0.86     0.79     0.76     0.70       0.70
Ratios of net investment income (loss) to average net assets
 . before waivers, reimbursements and credits                   %    0.58     0.88     0.43     0.21       0.11
 . after waivers, reimbursements and credits                    %    0.58     0.88     0.44     0.22       0.11
Portfolio turnover rate                                         %   40.42    46.76    70.22    52.20      48.48

<CAPTION>
                                                                         Aggressive Equity Portfolio
                                                              -------------------------------------------------
                                                                                 1996/2/      1997      1998/3/
- ------------------------------------------------------------  -------------------------------------------------
<S>                                                                              <C>         <C>        <C> 
OPERATING PERFORMANCE
Net asset value, beginning of year                                                 10.00     10.78        11.18
Plus income from investment operations
Net investment income (loss)                                                        0.01     (0.01)        0.01
Net realized and unrealized gain (loss) on securities                               0.78      0.41         1.47
- ------------------------------------------------------------  -------------------------------------------------
Total from investment operations                                                    0.79      0.40         1.48
Less distributions
Dividends (from net investment income)                                             (0.01)        -            -
Distributions (from capital gains)                                                     -         -            -
- ------------------------------------------------------------  -------------------------------------------------
Total distributions                                                                (0.01)        -            -
Net asset value, end of year                                                       10.78     11.18        12.66
- ------------------------------------------------------------  ------------------------------------------------- 
Total investment return/1/                                                          7.86      3.78        13.22

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of year (in thousands)                                            49,849   122,752      218,712
Ratios of expenses to average net assets
 . before waivers, reimbursements and credits                                       1.03      0.87         0.89
 . after waivers, reimbursements and credits                                        1.02      0.86         0.89
Ratios of net investment income (loss) to average net assets
 . before waivers, reimbursements and credits                                      (0.12)    (0.13)        0.01
 . after waivers, reimbursements and credits                                       (0.11)    (0.13)        0.01
Portfolio turnover rate                                                            79.86    189.21       184.42
 
<CAPTION>
                                                                             Growth LT Portfolio
                                                              -------------------------------------------------
                                                                  1994/4/     1995     1996     1997       1998 
- ------------------------------------------------------------  -------------------------------------------------
<S>                                                             <C>          <C>      <C>      <C>        <C>  
OPERATING PERFORMANCE
Net asset value, beginning of year                              $   10.00    11.11    14.12    16.50      17.31
Plus income from investment operations
Net investment income (loss)                                    $    0.10     0.10     0.14     0.16      (0.04)
Net realized and unrealized gain (loss) on securities           $    1.21     3.96     2.37     1.51       9.86
- ------------------------------------------------------------  -------------------------------------------------
Total from investment operations                                $    1.31     4.06     2.51     1.67       9.82
Less distributions
Dividends (from net investment income)                          $   (0.12)   (0.10)   (0.13)   (0.09)     (0.05)
Distributions (from capital gains)                              $   (0.08)   (0.95)       -    (0.77)     (0.88)
- ------------------------------------------------------------  -------------------------------------------------
Total distributions                                             $   (0.20)   (1.05)   (0.13)   (0.86)     (0.93)
Net asset value, end of year                                    $   11.11    14.12    16.50    17.31      26.20
- ------------------------------------------------------------  -------------------------------------------------
Total investment return/1/                                      %   13.25    36.75    17.87    10.96      58.29

RATIOS AND SUPPLEMENTAL DATA
Net assets, end of year (in thousands)                          $  49,374  200,785  438,154  677,147  1,279,759
Ratios of expenses to average net assets
 . before waivers, reimbursements and credits                   %    1.23     0.94     0.87     0.82       0.80
 . after waivers, reimbursements and credits                    %    1.08     0.94     0.87     0.82       0.80
Ratios of net investment income (loss) to average net assets
 . before waivers, reimbursements and credits                   %    1.17     0.90     0.74     0.52      (0.08)
 . after waivers, reimbursements and credits                    %    1.32     0.90     0.74     0.52      (0.08)
Portfolio turnover rate                                         %  257.20   165.83   147.02   145.17     116.96

<CAPTION>
                                                                             Equity Income Portfolio
                                                              -------------------------------------------------
                                                                  1994        1995     1996     1997       1998
- ------------------------------------------------------------  ------------------------------------------------- 
<S>                                                              <C>         <C>      <C>      <C>        <C> 
OPERATING PERFORMANCE
Net asset value, beginning of year                               15.52       14.05    18.21    20.45      24.47
Plus income from investment operations                                                                         
Net investment income (loss)                                      0.20        0.26     0.24     0.20       0.20
Net realized and unrealized gain (loss) on securities            (0.25)       4.16     3.15     5.35       5.44 
- ------------------------------------------------------------  ------------------------------------------------- 
Total from investment operations                                 (0.05)       4.42     3.39     5.55       5.64  
Less distributions                                                                                               
Dividends (from net investment income)                           (0.20)      (0.26)   (0.24)   (0.20)     (0.20) 
Distributions (from capital gains)                               (1.22)          -    (0.91)   (1.33)     (3.02)  
- ------------------------------------------------------------  ------------------------------------------------- 
Total distributions                                              (1.42)      (0.26)   (1.15)   (1.53)     (3.22)
Net asset value, end of year                                     14.05       18.21    20.45    24.47      26.89  
- ------------------------------------------------------------  ------------------------------------------------- 
Total investment return/1/                                       (0.28)      31.66    19.43    28.60      24.18 

RATIOS AND SUPPLEMENTAL DATA                                                                                    
Net assets, end of year (in thousands)                          75,083     206,653  429,262  806,112  1,262,143 
Ratios of expenses to average net assets                                                                        
 . before waivers, reimbursements and credits                     1.00        0.83     0.75     0.70       0.70 
 . after waivers, reimbursements and credits                      0.94        0.83     0.75     0.70       0.69 
Ratios of net investment income (loss) to average net assets                                                    
 . before waivers, reimbursements and credits                     1.34        1.59     1.31     0.91       0.84 
 . after waivers, reimbursements and credits                      1.39        1.59     1.31     0.91       0.84 
Portfolio turnover rate                                         134.57       86.47    94.95   105.93      80.78  

                                                                                                                                  49
</TABLE>
<PAGE>
 
 
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
                                   Multi-Strategy Portfolio                           Equity Portfolio
                          ----------------------------------------------  ---------------------------------------------
                                1994     1995     1996     1997     1998     1994     1995     1996     1997    1998/5/
- ------------------------  ----------------------------------------------  ---------------------------------------------
<S>                       <C>         <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>       <C>
OPERATING PERFORMANCE
Net asset value,
 beginning of year          $  12.66    11.73    14.20    14.75    16.18    14.94    14.20    17.52    21.07      23.89
Plus income from
 investment operations
Net investment income       $   0.32     0.45     0.48     0.50     0.46     0.32     0.05     0.02     0.14       0.09
Net realized and
 unrealized gain (loss)
 on securities              $  (0.51)    2.47     1.20     2.23     2.34    (0.74)    3.33     4.71     3.58       7.01
- ------------------------  ----------------------------------------------  ---------------------------------------------
Total from investment
 operations                 $  (0.19)    2.92     1.68     2.73     2.80    (0.42)    3.38     4.73     3.72       7.10
Less distributions
Dividends (from net
 investment income)         $  (0.32)   (0.45)   (0.48)   (0.50)   (0.46)   (0.32)   (0.06)   (0.02)   (0.13)     (0.09)
Distributions (from
 capital gains)             $  (0.42)       -    (0.65)   (0.80)   (1.20)       -        -    (1.16)   (0.77)     (1.63)
- ------------------------  ----------------------------------------------  ---------------------------------------------
Total distributions         $  (0.74)   (0.45)   (1.13)   (1.30)   (1.66)   (0.32)   (0.06)   (1.18)   (0.90)     (1.72)
Net asset value, end of
 year                       $  11.73    14.20    14.75    16.18    17.32    14.20    17.52    21.07    23.89      29.27
- ------------------------  ----------------------------------------------  ---------------------------------------------
Total investment
 return/1/                  %  (1.50)   25.25    12.56    19.62    18.17    (2.87)   23.80    28.03    18.18      30.28
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
 (in thousands)             $ 79,147  134,501  225,619  367,128  576,424   73,125  108,136  207,897  318,143    502,629
Ratios of expenses to
 average net assets
 . before waivers,
   reimbursements and
   credits                  %   0.94     0.84     0.78     0.71     0.71     0.96     0.80     0.74     0.70       0.71
 . after waivers,
   reimbursements and
   credits                  %   0.94     0.84     0.78     0.71     0.70     0.96     0.80     0.74     0.70       0.71
Ratios of net investment
 income to average net
 assets
 . before waivers,
   reimbursements and
   credits                  %   2.77     3.49     3.37     3.25     2.81     2.19     0.27     0.05     0.59       0.35
 . after waivers,
   reimbursements and
   credits                  %   2.78     3.49     3.37     3.25     2.81     2.19     0.27     0.05     0.59       0.35
Portfolio turnover rate     % 187.40   176.45   132.94    71.89   102.38   178.63   226.45    90.98   159.88     130.51

<CAPTION>
                                  Bond and Income Portfolio                        Equity Index Portfolio
                          ----------------------------------------------  ---------------------------------------------
                                1994     1995     1996     1997  1998/5/     1994     1995     1996     1997       1998
- ------------------------  ----------------------------------------------  ---------------------------------------------
<S>                       <C>          <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
OPERATING PERFORMANCE
Net asset value,
 beginning of year          $  13.05    10.42    13.02    12.05    12.97    13.24    13.02    17.45    20.42      25.71
Plus income from
 investment operations
Net investment income       $   0.83     0.82     0.79     0.80     0.74     0.30     0.34     0.37     0.37       0.38
Net realized and
 unrealized gain (loss)
 on securities              $  (1.87)    2.59    (0.94)    1.05     0.39    (0.18)    4.43     3.42     6.13       6.83
- ------------------------  ----------------------------------------------  ---------------------------------------------
Total from investment
 operations                 $  (1.04)    3.41    (0.15)    1.85     1.13     0.12     4.77     3.79     6.50       7.21
Less distributions
Dividends (from net
 investment income)         $  (0.83)   (0.81)   (0.79)   (0.76)   (0.78)   (0.30)   (0.34)   (0.37)   (0.37)     (0.37)
Distributions (from
 capital gains)             $  (0.53)       -    (0.03)   (0.17)   (0.02)   (0.04)       -    (0.45)   (0.84)     (0.22)
Return of capital           $  (0.23)       -        -        -        -        -        -        -        -          -
- ------------------------  ----------------------------------------------  ---------------------------------------------
Total distributions         $  (1.59)   (0.81)   (0.82)   (0.93)   (0.80)   (0.34)   (0.34)   (0.82)   (1.21)     (0.59)
Net asset value, end of
 year                       $  10.42    13.02    12.05    12.97    13.30    13.02    17.45    20.42    25.71      32.33
- ------------------------  ----------------------------------------------  ---------------------------------------------
Total investment
 return/1/                  %  (8.36)   33.71    (0.80)   16.32     8.97     1.05    36.92    22.36    32.96      28.45
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
 (in thousands)             $ 34,078   56,853   81,810  112,507  184,538   40,612  137,519  393,412  874,136  1,496,457
Ratios of expenses to
 average net assets
 . before waivers,
   reimbursements and
   credits                  %   0.93     0.80     0.71     0.66     0.70     0.53     0.42     0.31     0.23       0.21
 . after waivers,
   reimbursements and
   credits                  %   0.93     0.80     0.71     0.66     0.70     0.51     0.42     0.31     0.23       0.21
Ratios of net investment
 income to average net
 assets
 . before waivers,
   reimbursements and
   credits                  %   7.25     6.93     6.74     6.62     5.72     2.35     2.26     2.04     1.61       1.33
 . after waivers,
   reimbursements and
   credits                  %   7.25     6.93     6.74     6.62     5.73     2.37     2.26     2.05     1.61       1.33
Portfolio turnover rate     %  31.97    51.84    26.50    15.32   147.00     2.02     7.52    20.28     2.58       2.48

</TABLE>
 
50
<PAGE>
 
<TABLE>
<CAPTION>
                                   International Portfolio                     Emerging Markets Portfolio
                          ----------------------------------------------  ---------------------------------------
                                1994     1995     1996  1997/6/     1998                 1996/2/    1997     1998
- ------------------------  ----------------------------------------------  ---------------------------------------
<S>                         <C>         <C>      <C>    <C>        <C>                   <C>        <C>      <C>
OPERATING PERFORMANCE
Net asset value,
 beginning of year          $  12.09    11.94    12.93    15.40    16.21                   10.00    9.68     9.47
Plus income from
 investment operations
Net investment income
 (loss)                     $   0.07     0.33     0.28     0.41     0.11                   (0.02)   0.06     0.10
Net realized and
 unrealized gain (loss)
 on securities              $   0.30     0.91     2.54     1.00     0.90                   (0.30)  (0.22)   (2.64)
- ------------------------  ----------------------------------------------  ---------------------------------------
Total from investment
 operations                 $   0.37     1.24     2.82     1.41     1.01                   (0.32)  (0.16)   (2.54)
Less distributions
Dividends (from net
 investment income)         $  (0.07)   (0.25)   (0.23)   (0.29)   (0.17)                      -   (0.05)   (0.08)
Distributions (from
 capital gains)             $  (0.45)       -    (0.12)   (0.31)   (1.25)                      -       -        -
- ------------------------  ----------------------------------------------  ---------------------------------------
Total distributions         $  (0.52)   (0.25)   (0.35)   (0.60)   (1.42)                      -   (0.05)   (0.08)
Net asset value, end of
 year                       $  11.94    12.93    15.40    16.21    15.80                    9.68    9.47     6.85
- ------------------------  ----------------------------------------------  ---------------------------------------
Total investment
 return/1/                  %   3.01    10.56    21.89     9.28     5.60                   (3.23)  (1.69)  (26.83)
RATIOS AND SUPPLEMENTAL
 DATA
Net assets, end of year
 (in thousands)             $ 75,971  182,199  454,019  764,036  996,215                  44,083  99,425  106,570
Ratios of expenses to
 average net assets
 . before waivers,
  reimbursements and
  credits                   %   1.22     1.12     1.07     1.03     1.00                    2.22    1.47     1.46
 . after waivers,
  reimbursements and
  credits                   %   1.22     1.12     1.07     1.02     1.00                    2.18    1.46     1.46
Ratios of net investment
 income (loss) to
 average net assets
 . before waivers,
  reimbursements and
  credits                   %   1.28     1.87     2.28     1.79     1.36                   (0.14)   0.79     1.42
 . after waivers,
  reimbursements and
  credits                   %   1.28     1.87     2.28     1.81     1.36                   (0.11)   0.80     1.42
Portfolio turnover rate     %  52.22    16.07    20.87    84.34    45.61                   47.63   69.60    29.82

 
                          /1/Assumes all dividends and distributions have been reinvested. Does not include deductions at the
                             separate account or contract level for fees and charges that may be incurred by a variable annuity
                             contract or variable life insurance policy.
 
                          /2/Information is for the period from April 1, 1996 (commencement of operations) to December 31, 1996. The
                             ratios of expenses to average net assets and the ratios of net investment income (loss) to average net
                             assets are annualized.
 
                          /3/Alliance Capital Management L.P. began managing the portfolio on May 1, 1998. Another firm managed the
                             portfolio before that date.
 
                          /4/Information is for the period from January 4, 1994 (commencement of operations) to December 31, 1994.
                             The ratios of expenses to average net assets and the ratios of net investment income to average net
                             assets are annualized.
 
                          /5/Goldman Sachs Asset Management began managing the portfolio on May 1, 1998. Another firm managed the
                             portfolio before that date.
 
                          /6/Morgan Stanley Asset Management began managing the portfolio on June 1, 1997. Other firms managed the
                             portfolio before that date.
 
                                                                                                                                  51
</TABLE> 
<PAGE>
 
<TABLE>     
<CAPTION>  
PACIFIC SELECT FUND                             WHERE TO GO FOR MORE INFORMATION

<S>                                             <C> 
The Pacific Select Fund is available only       You'll find more information about the Pacific Select Fund in the following    
to people who own a variable annuity            documents:                                                                     
contract or variable life insurance policy                                                                                     
issued or administered by Pacific Life          Annual and semi-annual reports                                                 
Insurance Company or its subsidiaries.          The fund's annual and semi-annual reports list the holdings of the fund's
You'll find out how your annuity contract       portfolios, describe portfolio performance, and tell you how investment        
or life insurance policy works in the           strategies and portfolio performance have responded to recent market conditions
product prospectus or offering memorandum       and economic trends.                                                            
that accompanies this document.                 
                                                Statement of Additional Information (SAI)                                      
                                                The SAI contains detailed information about each portfolio's investments,      
                                                strategies and risks, and is considered to be part of this prospectus because  
                                                it is incorporated by reference.                                               
                                                                                    
Please contact Pacific Life if you have any     You can get a copy of these documents at no charge by calling or writing to    
questions about any of the Pacific Select       Pacific Life. You can also get a copy of these documents by contacting the     
Fund portfolios.                                Securities and Exchange Commission. The SEC may charge you a fee for this      
                                                information.                                                                   
                                                                                                                               
                                                --------------------------------------------------------------------------------
                                                                                                                               
How to contact Pacific Life                     Pacific Life Insurance Company                                                 
                                                700 Newport Center Drive                                                       
                                                Post Office Box 9000                                                           
                                                Newport Beach, California 92660                                                
                                                                                                                               
                                                Annuities: 1-800-722-2333                                                      
                                                Life Insurance: 1-800-800-7681                                                  

                                                --------------------------------------------------------------------------------
                                                                                                                               
How to contact the SEC                          Public Reference Section of the SEC                                            
                                                Washington, D.C. 20549-6009                                                    
                                                1-800-SEC-0330                                                                 
                                                Internet: www.sec.gov                                                           


                                                SEC file number 811-5141
</TABLE>       
<PAGE>
 
 
 
                         [LOGO OF PACIFIC SELECT FUND]
 
                              PACIFIC SELECT FUND
 
                      STATEMENT OF ADDITIONAL INFORMATION
 
                               Date: May 1, 1999
 
                               ----------------
 
  The Pacific Select Fund is an open-end investment management company
currently offering eighteen separate investment portfolios. The following
seventeen of those portfolios are classified as diversified: the Money Market
Portfolio; the High Yield Bond Portfolio; the Managed Bond Portfolio; the
Government Securities Portfolio; the Growth Portfolio; the Aggressive Equity
Portfolio; the Growth LT Portfolio; the Equity Income Portfolio; the Multi-
Strategy Portfolio; the Large-Cap Value Portfolio; the Mid-Cap Value
Portfolio; the Equity Portfolio; the Bond and Income Portfolio; the Equity
Index Portfolio; the Small-Cap Index Portfolio; the International Portfolio;
and the Emerging Markets Portfolio. The REIT Portfolio is classified as
non-diversified. The Fund's Adviser is Pacific Life Insurance Company.
 
  This Statement of Additional Information ("SAI") is intended to supplement
the information provided to investors in the Prospectus dated May 1, 1999, of
the Fund and has been filed with the Securities and Exchange Commission as
part of the Fund's Registration Statement. Investors should note, however,
that this SAI is not itself a prospectus and should be read carefully in
conjunction with the Fund's Prospectus and retained for future reference. The
contents of this SAI are incorporated by reference in the Prospectus in their
entirety. A copy of the Prospectus may be obtained free of charge from the
Fund at the address and telephone numbers listed below.
 
                               ----------------
 
                                 Distributor:
 
                       Pacific Mutual Distributors, Inc.
                           700 Newport Center Drive
                                 P.O. Box 9000
                            Newport Beach, CA 92660
                                (800) 800-7681
 
                                   Adviser:
 
                        Pacific Life Insurance Company
                           700 Newport Center Drive
                                 P.O. Box 9000
                            Newport Beach, CA 92660
                           Annuities (800) 722-2333
                         Life Insurance (800) 800-7681
<PAGE>
 
                               TABLE OF CONTENTS
 
<TABLE>
<S>                                                                          <C>
INTRODUCTION................................................................   1
 
ADDITIONAL INVESTMENT POLICIES OF THE PORTFOLIOS............................   1
  Money Market Portfolio....................................................   1
  High Yield Bond Portfolio.................................................   2
  Managed Bond Portfolio....................................................   2
  Government Securities Portfolio...........................................   3
  Growth Portfolio..........................................................   4
  Aggressive Equity Portfolio...............................................   5
  Growth LT Portfolio.......................................................   5
  Equity Income Portfolio...................................................   6
  Multi-Strategy Portfolio..................................................   7
  Large-Cap Value Portfolio.................................................   7
  Mid-Cap Value Portfolio...................................................   8
  Equity Portfolio..........................................................   9
  Bond and Income Portfolio.................................................  10
  Equity Index Portfolio....................................................  11
  Small-Cap Index Portfolio.................................................  11
  REIT Portfolio............................................................  12
  International Portfolio...................................................  13
  Emerging Markets Portfolio................................................  14
  Diversification Versus Non-Diversification................................  15
 
SECURITIES AND INVESTMENT TECHNIQUES........................................  15
  U.S. Government Securities................................................  15
  Real Estate Investment Trusts.............................................  16
  Mortgage-Related Securities...............................................  16
    Mortgage Pass-Through Securities........................................  16
    GNMA Certificates.......................................................  17
    FNMA and FHLMC Mortgage-Backed Obligations..............................  18
    Collateralized Mortgage Obligations (CMOs)..............................  18
    FHLMC Collateralized Mortgage Obligations...............................  18
    Other Mortgage-Related Securities.......................................  19
    CMO Residuals...........................................................  19
    Stripped Mortgage-Backed Securities.....................................  20
    Mortgage Dollar Rolls...................................................  21
  Other Asset-Backed Securities.............................................  21
  High Yield Bonds..........................................................  21
  Bank Obligations..........................................................  23
  Municipal Securities......................................................  24
  Small Capitalization Stocks...............................................  24
  Corporate Debt Securities.................................................  25
  Variable and Floating Rate Securities.....................................  25
  Commercial Paper..........................................................  26
  Convertible Securities....................................................  27
  Repurchase Agreements.....................................................  28
  Borrowing.................................................................  29
  Reverse Repurchase Agreements and Other Borrowings........................  29
  Firm Commitment Agreements and When-Issued Securities.....................  29
  Loans of Portfolio Securities.............................................  30
  Short Sales...............................................................  30
  Short Sales Against the Box...............................................  31
  Illiquid and Restricted Securities (Private Placements)...................  31
  Precious Metals-Related Securities........................................  31
  Foreign Securities........................................................  32
</TABLE>
 
                                       i
<PAGE>
 
<TABLE>
<S>                                                                          <C>
  Foreign Currency Transactions and Forward Foreign Currency Contracts......  34
  Options...................................................................  36
    Purchasing and Writing Options on Securities............................  36
    Purchasing and Writing Options on Stock Indexes.........................  37
    Risks of Options Transactions...........................................  38
    Spread Transactions.....................................................  39
  Options on Foreign Currencies.............................................  39
  Investments in Other Investment Company Securities........................  40
    SPDRs...................................................................  41
    WEBS and OPALS..........................................................  41
  Futures Contracts and Options on Futures Contracts........................  41
    Interest Rate Futures...................................................  42
    Stock Index Futures.....................................................  42
    Futures Options.........................................................  43
    Limitations.............................................................  44
    Risks Associated with Futures and Futures Options.......................  45
  Foreign Currency Futures and Options Thereon..............................  46
  Swap Agreements and Options on Swap Agreements............................  46
    Risks of Swap Agreements................................................  46
  Structured Notes..........................................................  47
  Warrants and Rights.......................................................  47
  Duration..................................................................  47
 
INVESTMENT RESTRICTIONS.....................................................  49
  Fundamental Investment Restrictions.......................................  49
  Nonfundamental Investment Restrictions....................................  50
 
ORGANIZATION AND MANAGEMENT OF THE FUND.....................................  51
  Trustees and Officers.....................................................  51
  Investment Adviser........................................................  53
  Other Expenses of the Fund................................................  55
  Portfolio Management Agreements...........................................  55
  Distribution of Fund Shares...............................................  64
  Purchases and Redemptions.................................................  64
  Exchanges Among the Portfolios............................................  65
 
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................  65
  Investment Decisions......................................................  65
  Brokerage and Research Services...........................................  65
  Portfolio Turnover........................................................  67
 
NET ASSET VALUE.............................................................  67
 
PERFORMANCE INFORMATION.....................................................  69
 
TAXATION....................................................................  71
  Distributions.............................................................  73
  Hedging Transactions......................................................  73
 
OTHER INFORMATION...........................................................  73
  Concentration Policy......................................................  73
  Capitalization............................................................  73
  Voting Rights.............................................................  74
  Custodian and Transfer Agency and Dividend Disbursing Services............  74
  Financial Statements......................................................  74
  Independent Auditors......................................................  74
  Counsel...................................................................  75
  Registration Statement....................................................  75
 
APPENDIX....................................................................  76
  Description of Bond Ratings...............................................  76
</TABLE>
 
                                       ii
<PAGE>
 
 
 
 
 
                      (THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
 
                                 INTRODUCTION
 
  This SAI is designed to elaborate upon information contained in the
Prospectus, including the discussion of certain securities and investment
techniques. The more detailed information contained herein is intended solely
for investors who have read the Prospectus and are interested in a more
detailed explanation of certain aspects of the Fund's securities and
investment techniques.
 
               ADDITIONAL INVESTMENT POLICIES OF THE PORTFOLIOS
 
  The investment objective and investment policies of each Portfolio are
described in the Prospectus. The following descriptions present more detailed
information on investment policies that apply to each Portfolio, and are
intended to supplement the information provided in the Prospectus.
 
Money Market Portfolio
 
  The Portfolio invests at least 95% of its total assets, measured at the time
of investment, in a diversified portfolio of money market securities that are
in the highest rating category for short-term instruments. The Portfolio may
invest only in U.S. dollar denominated securities that present minimal credit
risk. The Adviser shall determine whether a security presents minimal credit
risk under procedures adopted by the Fund's Board of Trustees that conform to
Securities and Exchange Commission ("SEC") rules for money market funds.
 
  A money market instrument will be considered to be highest quality (1) if
the instrument (or other comparable short-term instrument of the same issuer)
is rated in the highest rating category, (i.e., Aaa or Prime-1 by Moody's
Investors Service, Inc. ("Moody's"), AAA or A-1 by Standard & Poor's Rating
Services ("S&P")) by (i) any two nationally recognized statistical rating
organizations ("NRSROs") or, (ii) if rated by only one NRSRO, by that NRSRO;
(2) an unrated security that is of comparable quality to a security in the
highest rating category as determined by the Adviser; or (3) a U.S. Government
security. With respect to 5% of its total assets, measured at the time of
investment, the Portfolio may also invest in money market instruments that are
in the second-highest rating category for short-term debt obligations (i.e.,
rated Aa or Prime-2 by Moody's or AA or A-2 by S&P). A money market instrument
will be considered to be in the second-highest rating category under the
criteria described above with respect to instruments considered highest
quality, as applied to instruments in the second-highest rating category. The
quality of securities subject to guarantees may be determined based solely on
the quality of the guarantee. Additional eligibility restrictions apply with
respect to guarantees and demand features.
 
  The Portfolio may not invest more than 5% of its total assets, measured at
the time of investment, in securities of any one issuer that are of the
highest quality, except that this limitation shall not apply to U.S.
Government securities and repurchase agreements thereon. The Portfolio may not
invest more than the greater of 1% of its total assets or $1,000,000, measured
at the time of investment, in securities of any one issuer that are in the
second-highest rating category. In addition, securities subject to guarantees
not issued by a person in a control relationship with the issuer of such
securities are not subject to the preceding diversification requirements.
However, the Portfolio must generally, with respect to 75% of its total
assets, invest no more than 10% of its total assets in securities issued by or
subject to guarantees or demand features from the same entity. In the event
that an instrument acquired by the Portfolio is downgraded or otherwise ceases
to be of the quality that is eligible for the Portfolio, the Adviser, under
procedures approved by the Board of Trustees shall promptly reassess whether
such security presents minimal credit risk and determine whether or not to
retain the instrument.
 
  In addition to the securities identified in the Prospectus, the Portfolio
may also invest in short-term corporate debt securities, bank obligations,
savings and loan obligations, and repurchase agreements involving these
securities. The Portfolio may also invest in restricted securities and up to
10% of its net assets in illiquid securities. The Portfolio's investments are
limited to securities that mature within 13 months or less from the date if
purchase (except that securities held subject to repurchase agreements having
terms of 13 months or less from the date of delivery may mature in excess of
13 months from such date). The Portfolio is subject to diversification
standards applicable to money market funds under SEC rules.
 
                                       1
<PAGE>
 
  The Portfolio may be adversely affected by changes in interest rates and by
the risk that the Portfolio could lose money if an issuer of a money market
instrument is unable to meet its financial obligation or goes bankrupt.
 
High Yield Bond Portfolio
 
  The Portfolio invests primarily in fixed-income securities rated Baa or
lower by Moody's, or BBB or lower by S&P, or, if not rated by Moody's or S&P,
of equivalent investment quality as determined by the Adviser. The Portfolio
may also invest in: U.S. Government securities (including securities of U.S.
agencies and instrumentalities); bank obligations; commercial paper; mortgage-
related and asset-backed securities; variable and floating rate debt
securities; firm commitment agreements and when-issued securities; American
Depositary Receipts ("ADRs"); rights; repurchase and reverse repurchase
agreements; foreign securities--U.S. dollar-denominated debt securities issued
by foreign issuers and foreign branches of U.S. banks; dividend-paying common
stocks (including up to 10% of the market value of the Portfolio's total
assets in warrants to purchase common stocks) that are considered by Pacific
Life to be consistent with the investment objective of current income; and
higher quality corporate bonds. The Portfolio may also invest in restricted
securities and up to 15% of its net assets in illiquid securities.
 
  In seeking higher income or a reduction in principal volatility, the
Portfolio may purchase and sell put and call options on debt securities,
purchase or sell interest rate futures contracts and options thereon, and
invest up to 5% of its total assets in spread transactions, which give the
Portfolio the right to sell or receive a security or a cash payment with
respect to an index at a fixed dollar spread or yield spread in relationship
to another security or index which is used as a benchmark. The Portfolio may
also lend its portfolio securities, in an amount not to exceed 25% of the
value of its total assets, to brokers, dealers, and other financial
institutions to earn income, and may borrow money for temporary administrative
or emergency purposes.
 
  In an effort to reduce credit risk, the Portfolio diversifies its holdings
among many issuers. As of December 31, 1998, the Portfolio held securities of
152 corporate issuers, excluding short-term obligations. As of December 31,
1998, the amount of the Portfolio's average total assets, measured on the
basis of month-end values, invested in bonds rated lower than Baa by Moody's
or BBB by S&P or, if not rated by Moody's or S&P, determined to be of
equivalent quality by Pacific Life, was approximately 92.93%. The asset
composition after this time may or may not be the same as shown in 1998.
 
  Since the Portfolio's principal strategy is to invest in low and medium
quality fixed income securities, it may be affected by a number of risks,
including the following factors: First, the Portfolio could lose money if an
issuer of a fixed income security fails to meet its financial obligation or
goes bankrupt. The Portfolio may be subject to more credit risk than other
Portfolios offered by the Fund because it invests in high yield bonds. This is
especially true during periods of economic uncertainty or economic downturns.
Second, the value of the Portfolio's investments may fall when interest rates
rise. Third, the high yield bonds in which the Portfolio invests may be less
liquid than higher quality investments. Fourth, the Portfolio may also be
subject to the risks associated with foreign investments, including changes in
currency exchange rates, unstable political and economic conditions, a lack of
adequate company information, differences in the way securities markets
operate, less secure foreign banks or securities depositories than those in
the United States, and foreign controls on investment.
 
Managed Bond Portfolio
 
  In addition to the securities identified in the Prospectus, the Portfolio
may also invest in obligations issued or guaranteed by the U.S. Government,
its agencies, or instrumentalities; asset-backed securities; variable and
floating rate debt securities; bank obligations; convertible securities; firm
commitment agreements and when-issued securities; ADRs; U.S. dollar-
denominated obligations of international agencies (such as the International
Bank for Reconstruction and Development); and repurchase and reverse
repurchase agreements. The Portfolio may invest up to 20% of its assets in
debt securities of foreign issuers denominated in foreign currencies. The
Portfolio may also invest in restricted securities and up to 15% of its net
assets in illiquid securities.
 
                                       2
<PAGE>
 
  The Portfolio, except as provided below, may invest only in securities rated
Baa or better by Moody's or BBB or better by S&P or, if not rated by Moody's
or S&P, determined by the Portfolio Manager to be of comparable quality. The
dollar-weighted average quality of all fixed income securities held by the
Portfolio will be A or higher as rated by Moody's and S&P. The Portfolio may
also invest up to 10% of its assets in debt securities that are below
investment grade, but rated B or higher by Moody's or S&P, or, if not rated by
Moody's or S&P, of equivalent quality. In the event that a security owned by
the Portfolio is downgraded to below a B rating, the Portfolio may nonetheless
retain the security. See the Appendix for a description of Moody's and S&P
ratings applicable to fixed income securities. For the year ended December 31,
1998, the amount of the Portfolio's average total assets, measured on the
basis of month-end values, invested in debt securities rated less than
investment grade was approximately 6.84%. The asset composition after this
time may or may not be the same as shown in 1998.
 
  In pursuing its investment objective, the Portfolio may purchase and sell
put and call options on debt securities; purchase and sell spread
transactions; and enter into interest rate, interest rate index, and currency
exchange rate swap agreements, and purchase and sell options thereon. The
Portfolio may also purchase or sell interest rate futures contracts and
options thereon. The Portfolio may also lend its portfolio securities, in an
amount not to exceed 25% of the value of its total assets, to brokers,
dealers, and other financial institutions to earn income, and may borrow money
for temporary administrative or emergency purposes.
 
  Furthermore, the Portfolio may engage in forward currency contracts, options
on foreign currency contracts, and foreign currency futures and options
thereon, in anticipation of or to protect itself against fluctuations in
currency exchange rates with respect to investments in securities of foreign
issuers.
 
  Since the Portfolio principally invests in fixed income securities, it may
be affected by a number of risks, including the following: First, changes in
interest rates may have a significant effect on this Portfolio because it may
invest in securities with medium or long terms to maturity and may use
interest-sensitive derivatives. Bonds with longer durations tend to be more
sensitive to changes in interest rates, usually making them more volatile than
bonds with shorter durations. The Portfolio may also invest in mortgage-
related securities, which can be paid off early if the owners of underlying
mortgages pay off their mortgages sooner than scheduled. If interest rates are
falling, the Portfolio will be forced to reinvest this money at lower yields.
Stripped mortgage-backed securities can be particularly sensitive to changes
in interest rates. Second, the Portfolio could lose money if the issuer of a
fixed income security is unable to meet its financial obligation or goes
bankrupt. The Portfolio may invest in high-yield bonds which may make it
particularly subject to credit risk, especially during periods of economic
uncertainty or during economic downturns. Third, the Portfolio may also be
subject to the risks associated with foreign investments, including changes in
currency exchange rates, unstable political and economic conditions, a lack of
adequate company information, differences in the way securities markets
operate, less secure foreign banks or securities depositories than those in
the United States, and foreign controls on investment. Fourth, the Portfolio
frequently uses options, futures, and forward contracts and other investment
techniques to help it achieve its investment goal. These techniques can
potentially reduce returns or increase the Portfolio's volatility. Fifth, the
Portfolio may engage in short-term trading, which could result in higher-
trading costs.
 
Government Securities Portfolio
 
  In addition to its investments in U.S. government securities and related
investments, as described in the Prospectus, the Portfolio may invest up to
35% of its assets in the following: corporate debt securities of domestic
issuers rated Aa or better by Moody's or AA or better by S&P, or, if not rated
by Moody's or S&P, of comparable quality as determined by the Portfolio
Manager; mortgage-related securities, including collateralized mortgage
obligations and mortgage-backed bonds; asset-backed securities; repurchase
agreements and reverse repurchase agreements; bank obligations; convertible
securities; variable and floating rate securities; firm commitment agreements
and when-issued securities; ADRs; and in cash or high quality money market
instruments. The Portfolio may also invest in restricted securities and up to
15% of its net assets in illiquid securities.
 
                                       3
<PAGE>
 
  The Portfolio may also purchase and sell put and call options on debt
securities and spread transactions; enter into interest rate, interest rate
index, and currency exchange rate swap agreements and purchase and sell
options thereon; engage in forward currency contracts, options on foreign
currency contracts, and foreign currency futures and options thereon; and
purchase and sell interest rate futures contracts and options thereon. In
addition, the Portfolio may invest up to 20% of its total assets in debt
securities of foreign issuers, which may be denominated in foreign currencies.
The Portfolio may also lend its portfolio securities, in an amount not to
exceed 25% of the value of its total assets, to brokers, dealers, and other
financial institutions to earn income, and may borrow money for temporary
administrative or emergency purposes.
 
  Since the Portfolio principally invests in fixed income securities, it may
be affected by a number of risks, including the following: First, changes in
interest rates may have a significant effect on this Portfolio because it may
invest in securities with medium or long terms to maturity and may use
interest-sensitive derivatives. Bonds with longer durations tend to be more
sensitive to changes in interest rates, usually making them more volatile than
bonds with shorter durations. The Portfolio may also invest in mortgage-
related securities, which can be paid off early if the owners of underlying
mortgages pay off their mortgages sooner than scheduled. If interest rates are
falling, the Portfolio will be forced to reinvest this money at lower yields.
Stripped mortgage-backed securities can be particularly sensitive to changes
in interest rates. Second, the Portfolio could lose money if the issuer of a
fixed income security is unable to meet its financial obligation or goes
bankrupt. Third, the Portfolio may also be subject to the risks associated
with foreign investments, including changes in currency exchange rates,
unstable political and economic conditions, a lack of adequate company
information, differences in the way securities markets operate, less secure
foreign banks or securities depositories than those in the United States, and
foreign controls on investment. Fourth, the Portfolio frequently uses options,
futures, and forward contracts and other investment techniques to help it
achieve its investment goal. These techniques can potentially reduce returns
or increase the Portfolio's volatility. Fifth, the Portfolio may engage in
short-term trading, which could result in higher-trading costs.
 
Growth Portfolio
 
  This Portfolio is not available for:
 
    . Pacific Corinthian variable annuity contracts
    . variable annuity contracts that were issued on or after January 1,
  1994.
 
  In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may invest in various foreign securities if listed
on a U.S. exchange; commercial paper; repurchase agreements; corporate debt
securities; U.S. Government securities, its agencies or instrumentalities;
ADRs; bank obligations; variable and floating rate securities; firm commitment
agreements and when-issued securities; and may hold a portion of its assets in
cash. The Portfolio may also invest in restricted securities and up to 15% of
its net assets in illiquid securities.
 
  Convertible bonds and other fixed income securities (other than money market
instruments) in which the Portfolio may invest will primarily, at the time of
investment, be rated Baa or better by Moody's or BBB or better by S&P, or, if
not rated by Moody's or S&P, will be of comparable quality as determined by
the Portfolio Manager.
 
  The Portfolio may also lend its portfolio securities, in an amount not to
exceed 25% of the value of its total assets, to brokers, dealers, and other
financial institutions to earn income, and may borrow money for temporary
administrative or emergency purposes.
 
  Because the Portfolio invests principally in equity securities, the value of
its investments can increase or decrease in value, sometimes rapidly and
unpredictably. While equities may offer the potential for greater long-term
growth than most fixed income securities, they generally have higher
volatility. In addition, the Portfolio invests in companies with smaller
market capitalizations, which may give the Portfolio a higher risk of price
volatility than a portfolio that invests in companies with larger
capitalizations.
 
                                       4
<PAGE>
 
Aggressive Equity Portfolio
 
  This Portfolio is not available for:
 
    . Pacific Corinthian variable annuity contracts.
 
  In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest a portion of its assets in high-
quality money market instruments; mortgage related and asset-backed
securities; repurchase agreements and reverse repurchase agreements; ADRs;
rights; U.S. Government securities, its agencies or instrumentalities; bank
obligations; variable and floating rate securities; firm commitment agreements
and when-issued securities; enter into short sales against the box; and
securities of foreign issuers, provided that the Portfolio may not acquire a
security of a foreign issuer principally traded outside the United States if,
at the time of such investment, more than 20% of the Portfolio's total assets
would be invested in such foreign securities. The Portfolio may also invest in
restricted securities and up to 15% of its net assets in illiquid securities.
 
  For hedging purposes, the Portfolio may purchase put and call options on
securities and securities indexes and may write covered call and secured put
options. The Portfolio may also purchase and sell stock index futures
contracts and options thereon. To hedge against the risk of currency
fluctuation associated with investment in foreign securities, the Portfolio
may buy or sell foreign currencies on a spot (cash) basis and enter into
forward foreign currency contracts or options on foreign currencies or foreign
currency futures contracts and options thereon. The Portfolio will not engage
in "short sales against the box," in which the Portfolio sells short a
security it owns, if, at the time of investment, the total market value of all
securities sold short would exceed 25% of the Portfolio's net assets. The
Portfolio may also lend its portfolio securities, in an amount not to exceed
25% of the value of its total assets, to brokers, dealers, and other financial
institutions to earn income, and may borrow for temporary administrative or
emergency purposes.
 
  Because the Portfolio invests principally in equity securities, the value of
its investments can increase or decrease in value, sometimes rapidly and
unpredictably. In addition, the Portfolio invests in companies that the
portfolio management team thinks have the potential for rapid growth, which
may give the Portfolio a higher risk of price volatility than a Portfolio that
invests principally in equities that are "undervalued." Small emerging growth
companies may be more susceptible to larger price swings than larger companies
because they have fewer financial resources, limited product and market
diversification and many are dependent on a few key managers. Emerging growth
companies in cyclical industries may be particularly susceptible to rapid
price swings during periods of economic uncertainty
 
  The Portfolio may also be affected by the following additional risk factors:
First, the Portfolio may also be subject to the risks associated with foreign
investments, including changes in currency exchange rates, unstable political
and economic conditions, a lack of adequate company information, differences
in the way securities markets operate, less secure foreign banks or securities
depositories than those in the United States, and foreign controls on
investment. Second, the Portfolio may use index options and other investment
techniques to help it achieve its investment goal. These techniques can
potentially reduce returns or increase the Portfolio's volatility. Third, the
Portfolio may engage in short-term trading, which could result in higher-
trading costs.
 
Growth LT Portfolio
 
  In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest in warrants; preferred stocks;
certificates of deposit; mortgage related and asset-backed securities;
commercial paper; rights; bank obligations; convertible securities; variable
and floating rate securities; firm commitment agreements and when-issued
securities; and reverse repurchase agreements when the Portfolio Manager
perceives an opportunity for capital growth from such securities or so that
the Portfolio may receive a return on idle cash. The Portfolio may also invest
in money market funds, including those managed by Janus Capital Corporation
("Janus") as a means of receiving a return on idle cash, pursuant to an
exemptive order received by Janus from the SEC. The Portfolio may also invest
up to 10% of its assets, measured at the time of
 
                                       5
<PAGE>
 
investment, in debt securities that are lower rated bonds, i.e., rated below
investment grade by one of the primary rating agencies. The Portfolio may also
invest in restricted securities and up to 15% of its net assets in illiquid
securities.
 
  The Portfolio may invest up to 25% of its assets in foreign securities
denominated in a foreign currency and not publicly traded in the United
States. In addition, the Portfolio may purchase ADRs, European Depositary
Receipts ("EDRs"), and Global Depositary Receipts ("GDRs"), and other types of
receipts evidencing ownership of the underlying foreign securities. In
pursuing its investment objective, the Portfolio may engage in the purchase
and writing of put and call options on securities, stock indexes, and foreign
currencies. In addition, the Portfolio may purchase and sell interest rate,
stock index, and foreign currency futures contracts and options thereon. The
Portfolio may also engage in forward foreign currency contracts. The Portfolio
may also lend its portfolio securities, in an amount not to exceed 25% of the
value of its total assets, to brokers, dealers, and other financial
institutions to earn income, and may borrow money for temporary administrative
or emergency purposes.
 
  Because the Portfolio invests principally in equity securities, the value of
its investments can increase or decrease in value, sometimes rapidly and
unpredictably. In addition, the Portfolio invests in companies that the
portfolio management team thinks have the potential for rapid growth, which
may give the Portfolio a higher risk of price volatility than a Portfolio that
invests principally in equities that are "undervalued." Small and medium-sized
companies may be more susceptible to larger price swings than larger companies
because they have fewer financial resources, limited product and market
diversification and many are dependent on a few key managers.
 
  The Portfolio may also be affected by the following additional risk factors:
First, the Portfolio may also be subject to the risks associated with foreign
investments, including changes in currency exchange rates, unstable political
and economic conditions, a lack of adequate company information, differences
in the way securities markets operate, less secure foreign banks or securities
depositories than those in the United States, and foreign controls on
investment. Second, the Portfolio may use options, futures contracts and other
investment techniques to help it achieve its investment goal. These techniques
can potentially reduce returns or increase the Portfolio's volatility. Third,
the Portfolio may engage in short-term trading, which could result in higher-
trading costs.
 
Equity Income Portfolio
 
  In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest in ADRs and in various foreign
securities if they are listed on a U.S. exchange. To invest temporary cash
balances, to maintain liquidity to meet redemptions or expenses, or for
temporary defensive purposes, the Portfolio may invest in money market
instruments, including U.S. government securities, short term bank obligations
rated in the highest two rating categories by Moody's, S&P, or, if not rated
by Moody's or S&P, determined to be of equal quality by the Portfolio Manager,
certificates of deposit, time deposits and banker's acceptances issued by U.S.
and foreign banks and savings and loan institutions with assets of at least
$500 million as of the end of their most recent fiscal year; and commercial
paper and corporate obligations, including variable and floating rate
securities, that are issued by U.S. and foreign issuers and that are rated in
the highest two rating categories by Moody's or S&P, or if not rated by
Moody's or S&P, determined to be of equal quality by the Portfolio Manager.
The Portfolio may also invest in high yield and convertible bonds; repurchase
agreements; warrants and rights; firm commitment agreements and when-issued
securities; and other fixed income securities including but not limited to
high yield/high risk debt securities. The Portfolio may also invest in
restricted securities and up to 15% of its net assets in illiquid securities.
 
  In addition to the derivatives described in the Prospectus, the Portfolio
may also purchase and sell put and call options on securities and stock
indexes and may purchase or sell stock index futures contracts and options
thereon. The Portfolio may also lend its portfolio securities, in an amount
not to exceed 25% of the value of its total assets, to brokers, dealers, and
other financial institutions to earn income, and may borrow money for
temporary administrative or emergency purposes.
 
                                       6
<PAGE>
 
  Because the Portfolio invests principally in equity securities, the value of
its investments can increase or decrease in value, sometimes rapidly and
unpredictably. The portfolio manager tries to control price volatility by
investing in many different companies in a wide range of industries.
 
  The Portfolio may also be affected by the following additional risk factors:
First, the Portfolio may use options, futures contracts and other investment
techniques to help it achieve its investment goal. These techniques can
potentially reduce returns or increase the Portfolio's volatility. Second, the
Portfolio may also be subject to the risks associated with foreign
investments, including changes in currency exchange rates, unstable political
and economic conditions, a lack of adequate company information, differences
in the way securities markets operate, less secure foreign banks or securities
depositories than those in the United States, and foreign controls on
investment.
 
Multi-Strategy Portfolio
 
  In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may also invest in equity securities of small
companies and foreign issuers; high yield bonds; repurchase agreements; ADRs;
bank obligations; variable and floating rate securities; and firm commitment
agreements and when-issued securities. The Portfolio's equity securities may
or may not pay dividends and may or may not carry voting rights. The Portfolio
may also invest up to 10% of its assets in debt securities of foreign issuers
which may be denominated in foreign currencies. Fixed income securities in
which the portfolio may invest may include debentures, asset-backed securities
and money market instruments. The Portfolio may also invest in restricted
securities and up to 15% of its net assets in illiquid securities.
 
  The Portfolio may purchase and sell put and call options on securities and
stock indexes and may purchase or sell interest rate and stock index futures
contracts and options thereon. The Portfolio may also engage in forward
currency contracts in anticipation of or to protect itself against
fluctuations in currency exchange rates with respect to investments in
securities of foreign issuers. The Portfolio may also lend its portfolio
securities, in an amount not to exceed 25% of the value of its total assets,
to brokers, dealers, and other financial institutions to earn income, and may
borrow money for temporary administrative or emergency purposes.
 
  The equity securities in which the Portfolio invests offer the potential for
greater long-term growth than most fixed-income securities, but they also have
higher volatility. The Portfolio invests mostly in large and medium-sized
companies, which tend to have less volatile prices than smaller companies. The
Portfolio may also invest in small-capitalization companies.
 
  Fixed income securities are affected primarily by the financial condition of
the issuer and changes in interest rates. The value of the Portfolio may fall
when interest rates rise. In addition, the Portfolio could lose money if the
issuer of a fixed income security is unable to meet its financial obligations
or goes bankrupt.
 
  The Portfolio may also be affected by the following additional risk factors.
First, the Portfolio may also be subject to the risks associated with foreign
investments, including changes in currency exchange rates, unstable political
and economic conditions, a lack of adequate company information, differences
in the way securities markets operate, less secure foreign banks or securities
depositories than those in the United States, and foreign controls on
investment. Second, the Portfolio may use index options, futures contracts and
other investment techniques to help it achieve its investment goal. These
techniques can potentially reduce returns or increase the Portfolio's
volatility. Third, the Portfolio may engage in short-term trading, which could
result in higher-trading costs.
 
Large-Cap Value Portfolio
 
  This Portfolio is not available for:
 
  . Pacific Corinthian variable annuity contracts
  . Pacific Select variable life insurance policies.
 
                                       7
<PAGE>
 
  In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may invest a portion of its assets in short-term
fixed income securities, such as repurchase agreements: commercial paper;
U.S. Government securities, its agencies or instrumentalities; bank
obligations; cash or cash equivalents, to meet operating expenses, to serve as
collateral in connection with certain investment techniques, or to meet
anticipated redemption requests. The Portfolio may invest in mortgage-related
securities; ADRs; variable and floating rate securities; firm commitment
agreements and when-issued securities; and up to 20% of its net assets,
measured at the time of investment, in foreign companies. In addition, 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 S&P
or Moody's. The Portfolio may also lend its portfolio securities, in an amount
not to exceed 33 1/3% of the value of its total assets, to brokers, dealers,
and other financial institutions to earn income, and may borrow money for
temporary administrative or emergency purposes.
 
  The Portfolio may also purchase put and call options on securities and
securities indexes and 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 also invest in equity real
estate investment trusts ("REITS"), restricted securities, and up to 15% of
its net assets in illiquid securities.
 
  Because the Portfolio invests principally in equity securities, the value of
its investments can increase or decrease in value, sometimes rapidly and
unpredictably. The Portfolio invests in large companies, which tend to have
more stable prices than smaller companies.
 
  The Portfolio may also be affected by the following additional risk factors:
First, the Portfolio may also be subject to the risks associated with foreign
investments, including changes in currency exchange rates, unstable political
and economic conditions, a lack of adequate company information, differences
in the way securities markets operate, less secure foreign banks or securities
depositories than those in the United States, and foreign controls on
investment. Second, the Portfolio may use options, futures contracts and other
investment techniques to help it achieve its investment goal. These techniques
can potentially reduce returns or increase the Portfolio's volatility.
 
Mid-Cap Value Portfolio
 
  This Portfolio is not available for:
 
  . Pacific Corinthian variable annuity contracts
  . Pacific Select variable life insurance policies.
 
  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, ADRs, and GDRs. The Portfolio may also
invest a portion of its assets in investment grade debt securities, including
U.S. Government Securities, commercial paper; mortgage-related securities;
variable and floating rate securities; and other short-term corporate and bank
obligations.
 
  The Portfolio may borrow for investment purposes in an amount up to 33 1/3%
of the value of its total assets and may enter into reverse repurchase
agreements with banks, brokers or dealers. The Portfolio may also invest up to
15% of its total assets, determined at the time of investment, in foreign
equity or debt securities. The Portfolio will not 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, if, at the
time of investment, the total market value of all securities sold and held
short would exceed 25% of the Portfolio's net assets. The Portfolio may also
lend its portfolio securities, in an amount not to exceed 33 1/3% of the value
of its total assets, to brokers, dealers, and other financial institutions to
earn income.
 
  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
 
                                       8
<PAGE>
 
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: (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 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 firm
commitment agreements and when-issued securities; repurchase agreements;
illiquid securities (up to 15% of its net assets) and restricted securities.
 
  Because the Portfolio invests principally in equity securities, the value of
its investments can increase or decrease in value, sometimes rapidly and
unpredictably. The Portfolio invests in medium-sized companies, which are more
susceptible to price swings than larger companies, but usually have more
stable prices than smaller companies.
 
  The Portfolio may also be affected by the following additional risk factors:
First, the Portfolio may also be subject to the risks associated with foreign
investments, including changes in currency exchange rates, unstable political
and economic conditions, a lack of adequate company information, differences
in the way securities markets operate, less secure foreign banks or securities
depositories than those in the United States, and foreign controls on
investment. Second, the Portfolio may use options, futures contracts and other
investment techniques to help it achieve its investment goal. These techniques
can potentially reduce returns or increase the Portfolio's volatility. Third,
by borrowing money to purchase securities, the Portfolio can magnify the gain
and the loss of the security. The Portfolio will be charged interest on any
money it borrows. The lender will have priority over shareholders against the
Portfolio's assets.
 
Equity Portfolio
 
  In pursuing its investment objective, the Portfolio invests, under normal
circumstances, at least 90% of its total assets in equity securities of U.S.
issuers. The Portfolio may also invest in U.S. government securities;
corporate bonds; money market instruments; precious metals-related securities;
mortgage-related and asset-backed securities; rights; bank obligations;
variable and floating rate securities; firm commitment agreements and when-
issued securities; and enter in repurchase agreements. The Portfolio will not
engage in "short sales against the box," in which the Portfolio sells short a
security it owns, if, at the time of investment, the total market value of all
securities sold and held short would exceed 25% of the Portfolio's net assets.
The Portfolio may also lend its portfolio securities, in an amount not to
exceed 25% of the value of its total assets, to brokers, dealers, and other
financial institutions to earn income, and may borrow money for temporary
administrative or emergency purposes. The Portfolio may also invest in
restricted securities and up to 15% of its net assets in illiquid securities.
 
  The Portfolio may also purchase and sell put and call options on securities
and stock indices and enter into stock index futures contracts and options
thereon. The Portfolio may also purchase Standard & Poor's Depository Receipts
("SPDRs"), which represent ownership interests in the SPDR Trust, a long-term
unit investment trust established to accumulate and hold a portfolio of common
stocks that is intended to track the price performance and dividend yield of
the Standard & Poor's 500 Composite Stock Price Index ("S&P 500").
 
  Because the Portfolio invests principally in equity securities, the value of
its investments can increase or decrease in value, sometimes rapidly and
unpredictably. The Portfolio invests principally in large companies, which
tend to have less volatile prices than smaller companies. In addition, the
Portfolio invests in companies that the portfolio management team thinks have
the potential for rapid growth, which may give the Portfolio a higher risk of
price volatility than a Portfolio that invests principally in equities that
are "undervalued."
 
  The Portfolio may also be affected by the following additional risk factors:
First, the Portfolio may use index options, futures contracts and other
investment techniques to help it achieve its investment goal. These techniques
can potentially reduce returns or increase the Portfolio's volatility. Second,
the Portfolio may engage in short-term trading, which could result in higher-
trading costs.
 
                                       9
<PAGE>
 
Bond and Income Portfolio
 
  The Portfolio normally invests at least 80% of its assets in securities
rated, at the time of acquisition, investment grade by at least one NRSRO
(i.e., Baa or better by Moody's or BBB or better by S&P), or, if not rated by
a NRSRO, of comparable quality as determined by the Portfolio Manager. The
Portfolio may invest up to 20% of its assets in securities that are not rated
investment grade by at least one NRSRO, 15% of which may consist of debt
securities of issuers located in emerging market countries.
 
  In addition to the investment policies and techniques described in the
Prospectus, the Portfolio may invest up to 10% of its assets in non-U.S.
dollar denominated securities. The Portfolio may also invest in ADRs; warrants
and rights; firm commitment agreements and when-issued securities; reverse
repurchase agreements; municipal securities issued by or on behalf of states,
territories and possessions of the U.S. (including the District of Columbia)
and their political subdivisions, agencies, or instrumentalities, which
securities may include private activity bonds or industrial development bonds,
which are issued by or on behalf of public authorities to obtain funds for
privately operated facilities; high-quality short-term instruments, including,
among others, commercial paper, bank instruments, and repurchase agreements;
asset-backed securities; U.S. dollar-denominated obligations of foreign
governmental agencies and international agencies; and preferred stock. The
Portfolio may invest up to 10% of its assets in the following types of
mortgage-related securities: inverse floaters, super floating rate CMO's,
interest only ("IO's") and principal-only ("PO's") tranches of stripped
mortgage-backed securities (including planned amortization class certificates)
and inverse IO's. In addition, the Portfolio may invest in restricted
securities and up to 15% of its net assets in illiquid securities. The
Portfolio may also lend its portfolio securities, in an amount not to exceed
25% of the value of its total assets, to brokers, dealers, and other financial
institutions to earn income, and may borrow money for temporary administrative
or emergency purposes.
 
  For hedging risk or adjusting interest rate exposure, the Portfolio may (but
is not obligated to) use several investment techniques. The Portfolio may
purchase put and call options on securities and on securities indexes and may
write covered call options. The Portfolio may also enter into the following
types of transactions: financial futures contracts and options thereon;
instruments such as interest rate caps, floors, and collars; and interest rate
swaps. To hedge against fluctuations in currency exchange rates that affect
non-U.S. dollar-denominated securities, the Portfolio may enter into spot (or
cash) transactions in currency, forward currency contracts, options on foreign
currency contracts, foreign currency futures and options thereon, and currency
swaps. The Portfolio may invest up to 5% of its assets in structured notes to
hedge interest rate or currency risk. The Portfolio may enter into swaps,
caps, floors, collars, structured notes, and non-exchange traded options only
with counterparties that have outstanding securities rated A or better by
Moody's or S&P or that have outstanding short-term securities rated P-2 or
better by Moody's or A-2 or better by S&P, or, if not rated by Moody's or S&P,
of equivalent quality.
 
  Since the Portfolio principally invests in fixed income securities of both
U.S. and foreign issuers, it may be affected by a number of risks, including
the following: First, the value of the Portfolio may fall when interest rates
rise. Changes in interest rates may have a significant effect on this
Portfolio because it may invest in securities with medium or long terms to
maturity and may use interest-sensitive derivatives. Bonds with longer
durations tend to be more sensitive to changes in interest rates, usually
making them more volatile than bonds with shorter durations. The Portfolio may
also invest in mortgage-related securities, which can be paid off early if the
owners of underlying mortgages pay off their mortgages sooner than scheduled.
If interest rates are falling, the Portfolio will be forced to reinvest this
money at lower yields. Stripped mortgage-backed securities can be particularly
sensitive to changes in interest rates. Second, the Portfolio could lose money
if the issuer of a fixed income security is unable to meet its financial
obligations or goes bankrupt. By investing in high-yield bonds, the Portfolio
may be particularly subject to credit risk, especially during periods of
economic uncertainty or during economic downturns.
 
  The Portfolio may also be affected by the following additional risk factors:
First, the Portfolio could lose money or not realize potential gains if it
cannot sell an investment at the time and price that would be most beneficial
to the Portfolio. Securities whose credit ratings have been lowered, or that
have been issued in
 
                                      10
<PAGE>
 
emerging market countries, may be particularly difficult to sell. Second, the
Portfolio may also be subject to the risks associated with foreign
investments, including changes in currency exchange rates, unstable political
and economic conditions, a lack of adequate company information, differences
in the way securities markets operate, less secure foreign banks or securities
depositories than those in the United States, and foreign controls on
investment. Third, the Portfolio may use options, futures contracts and other
investment techniques to help it achieve its investment goal. These techniques
can potentially reduce returns or increase the Portfolio's volatility.
 
Equity Index Portfolio
 
  The Portfolio may purchase and sell stock index futures, purchase options on
stock indexes, and purchase options on stock index futures that are based on
stock indexes which the Portfolio attempts to track or which tend to move
together with stocks included in the index. The Portfolio may also invest in
foreign equity securities if U.S. exchange listed to the extent included in
the S&P 500; ADRs; convertible securities; firm commitment agreements and
when-issued securities; and reverse repurchase agreements. The Portfolio may
temporarily invest cash balances, maintained for liquidity purposes or pending
investment, in short-term high quality debt instruments, including commercial
paper; variable and floating rate securities; repurchase agreements; bank
obligations; and U.S. Government securities, its agencies and
instrumentalities. Temporary investments are not made for defensive purposes
in the event of or in anticipation of a general decline in the market price of
stocks in which the Portfolio invests. The Portfolio may also lend its
portfolio securities, in an amount not to exceed 25% of the value of its total
assets, to brokers, dealers, and other financial institutions to earn income,
and may borrow for temporary administrative or emergency purposes. The
Portfolio may also invest up to 15% of its net assets in illiquid securities.
 
  The Fund reserves the right to change the index whose performance the
Portfolio will attempt to replicate or for the Portfolio to seek its
investment objective by means other than attempting to replicate an index,
such as by operating the Portfolio as a managed fund, and reserves the right
to do so without seeking shareholder approval, but only if operating the
Portfolio as described above is not permitted under applicable law for an
investment company that serves as an investment medium for variable insurance
contracts, or otherwise involves substantial legal risk.
 
  Because the Portfolio invests principally in equity securities, the value of
its investments can increase or decrease in value, sometimes rapidly and
unpredictably. The Portfolio invests principally in large companies, which
tend to have less volatile prices than smaller companies.
 
  The Portfolio may also be affected by the following additional risk factors:
First, because the Portfolio is not actively managed, and invests in
securities included in the S&P 500 regardless of their investment merit, the
portfolio management team cannot change this investment strategy, even
temporarily to protect the Portfolio from loss during poor economic
conditions. This means the Portfolio is susceptible to a general decline in
the U.S. stock market. Second, the Portfolio frequently uses index options,
futures contracts and other investment techniques to help it achieve its
investment goal. These techniques can potentially reduce returns or increase
the Portfolio's volatility.
 
Small-Cap Index Portfolio
 
  This Portfolio is not available for:
 
    . Pacific Corinthian variable annuity contracts
    . Pacific Select variable life insurance policies.
 
  Under normal conditions, the Portfolio invests at least 80% of the value of
its total assets in the common stock of companies included in the Russell 2000
Small Stock Index ("Russell 2000"). 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.
 
 
                                      11
<PAGE>
 
  In addition to the investment policies and techniques described in the
Prospectus, 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.
 
  The Portfolio may invest in foreign equity securities if U.S. exchange
listed to the extent included in the Russell 2000. The Portfolio is also
permitted to invest in ADRs; repurchase agreements; rights; REITs;
U.S. Government securities, its agencies or instrumentalities; bank
obligations; variable and floating rate securities; firm commitment agreements
and when-issued 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 also lend
its portfolio securities, in an amount not to exceed 33 1/3% of the value of
its total assets, to brokers, dealers, and other financial institutions to
earn income, and may borrow money for temporary administrative or emergency
purposes.
 
  The Portfolio may maintain a portion to 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 prices of stocks in
which the Portfolio invests.
 
  The Fund reserves the right to change the index whose performance the
Portfolio will attempt to replicate or for the Portfolio to seek its
investment objective by means other than attempting to replicate an index,
such as by operating the Portfolio as a managed fund, and reserves the right
to do so without seeking shareholder approval, but only if operating the
Portfolio as described above is not permitted under applicable law for an
investment company that serves as an investment medium for variable insurance
contracts, or otherwise involves substantial legal risk.
 
  Because the Portfolio invests principally in equity securities, the value of
its investments can increase or decrease in value, sometimes rapidly and
unpredictably. The Portfolio invests principally in small-cap companies, which
tend to have higher price swings than larger companies because they have fewer
financial resources, limited product and market diversification and many are
dependent on a few key managers.
 
  The Portfolio may also be affected by the following additional risk factors:
First, because the Portfolio is not actively managed, and invests in
securities included in the Russell 2000 regardless of their investment merit,
the portfolio management team cannot change this investment strategy, even
temporarily to protect the Portfolio from loss during poor economic
conditions. This means the Portfolio is susceptible to a general decline in
the U.S. stock market. Second, the Portfolio frequently uses index options,
futures contracts and other investment techniques to help it achieve its
investment goal. These techniques can potentially reduce returns or increase
the Portfolio's volatility.
 
REIT Portfolio
 
  This Portfolio is not available for:
 
    . Pacific Corinthian variable annuity contracts
    . Pacific Select variable life insurance policies.
 
  The Portfolio is a "non-diversified" portfolio. For purposes of the
Portfolio's investment policies, a company is principally engaged in the real
estate industry if: (1) 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 (2) it has at least 50%
of the fair market value of its assets invested in residential, commercial, or
industrial real estate.
 
  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.
 
                                      12
<PAGE>
 
  The Portfolio may buy and sell put and call options on securities and may
purchase and sell futures contracts on interest rates. The Portfolio may also
invest in the following: ADRs; bank obligations; U.S. Government securities;
convertible securities; variable and floating rate securities; firm commitment
agreements and when-issued securities; foreign securities; preferred stock;
repurchase agreements; interest rate derivative products, such as swaps, caps,
collars and floors; and structured notes. The Portfolio may also lend its
portfolio securities, in an amount not to exceed 33 1/3% of the value of its
total assets, to brokers, dealers, and other financial institutions to earn
income, and may borrow money for administrative or emergency purposes. The
Portfolio may also invest in restricted securities and up to 15% of its net
assets in illiquid securities.
 
  Because the Portfolio invests principally in equity securities, the value of
its investments can increase or decrease in value, sometimes rapidly and
unpredictably. The Portfolio invests in companies investing in the real estate
industry. The prices of these companies are affected by real estate cycles,
cash flows, availability of mortgage financing, changes in interest rates,
overbuilding, property taxes and operating expenses, environmental regulation
and changes in zoning laws and regulations.
 
  The Portfolio may also be affected by the following additional risk factors:
First, by investing in REITs, the Portfolio is exposed to the risks of the
real estate market. For example, some REITs may invest in a limited number of
properties, in a narrow geographic area, or in a single property type, which
increases the risk that the Portfolio could be unfavorably affected by the
poor performance of a single investment. Borrowers could default on or sell
investments the REIT holds, which could reduce the cash flow needed to make
distributions to investors. Second, the Portfolio may also be subject to the
risks associated with foreign investments, including changes in currency
exchange rates, unstable political and economic conditions, a lack of adequate
company information, differences in the way securities markets operate, less
secure foreign banks or securities depositories than those in the United
States, and foreign controls on investment. Third, the Portfolio may use
options, futures contracts and other investment techniques such as interest-
sensitive derivative products and structured notes to help it achieve its
investment goal. These techniques can potentially reduce returns or increase
the Portfolio's volatility. When it invests in structured notes and other
derivatives, the Portfolio is particularly sensitive to the risk that the
other party to the derivative cannot meet its financial obligations to pay the
Portfolio.
 
International Portfolio
 
  Other than when in a defensive posture, at least 70% of the Portfolio's
assets will consist of corporate securities, primarily common stock and, to a
lesser degree, securities convertible into common stock. The Portfolio may
invest up to 5% of its assets, measured at the time of investment, in debt
securities that are rated below investment grade, or if not rated, of
equivalent quality.
 
  The Portfolio may also hold cash (in United States dollars or foreign
currencies) or short-term corporate or U.S. Government obligations and bank
certificates of deposit denominated in such currencies to provide for
redemptions; it is generally not expected that such reserve for redemptions
will exceed 10% of the Portfolio assets. Securities which may be held for
defensive purposes include nonconvertible preferred stock, debt securities,
government securities issued by U.S. and foreign countries and money market
securities. The Portfolio is subject to guidelines for diversification of
foreign security investments that prescribe the minimum number of countries in
which the Portfolio's assets may be invested. These guidelines are discussed
under "Foreign Securities."
 
  The Portfolio may also enter into repurchase agreements and may lend its
portfolio securities, in an amount not to exceed 25% of the value of its total
assets, to brokers, dealers, and other financial institutions to earn income
and may borrow money for administrative or emergency purposes. The Portfolio
may also invest in ADRs; GDRs; EDRs; variable and floating rate securities;
firm commitment agreements and when-issued securities; and may purchase and
sell financial futures contracts, stock index futures contracts, and foreign
currency futures contracts and options thereon. The Portfolio may also engage
in foreign currency transactions
 
                                      13
<PAGE>
 
in anticipation of or to protect itself against fluctuations in currency
exchange rates. The Portfolio may enter into forward currency contracts and
may purchase and write put and call options on foreign currencies. The
portfolio may also invest in restricted securities and up to 15% of its net
assets in illiquid securities.
 
  Because the Portfolio invests principally in equity securities, the value of
its investments can increase or decrease in value, sometimes rapidly and
unpredictably. The Portfolio invests in small-cap and mid-cap companies that
may be more susceptible to larger price swings than larger companies because
they have fewer financial resources, limited product and market
diversification and many are dependent on a few key managers.
 
  The Portfolio may also be affected by the following additional risk factors:
First, the Portfolio may also be subject to the risks associated with foreign
investments, including changes in currency exchange rates, unstable political
and economic conditions, a lack of adequate company information, differences
in the way securities markets operate, less secure foreign banks or securities
depositories than those in the United States, and foreign controls on
investment. Second, the Portfolio may invest in foreign currency transactions,
forward foreign currency contracts or options, index options, futures and
other investment techniques to help it achieve its investment goal. These
techniques can potentially reduce returns or increase the Portfolio's
volatility.
 
Emerging Markets Portfolio
 
  This Portfolio is not available for:
 
    . Pacific Corinthian variable annuity contracts.
 
  The Portfolio's policy of being as fully invested in common stock as
practicable at all times precludes the Portfolio from investing in debt
securities as a defensive investment posture (although the Portfolio may
invest in such securities to provide for payment of expenses and to meet
redemption requests.) The Portfolio is subject to guidelines for
diversification of foreign security investments that prescribe the minimum
number of countries in which the Portfolio's assets may be invested. These
guidelines are discussed under "Foreign Securities."
 
  The types of foreign currency transactions in which the Portfolio may enter
include forward foreign currency contracts, currency exchange transactions on
a spot (i.e., cash) basis, put and call options on foreign currencies, and
foreign exchange futures contracts.
 
  The Portfolio may invest up to 10% of its assets in U.S. government
securities, high quality debt securities, money market obligations, and in
cash. Such money market obligations may include short-term corporate or U.S.
government obligations and bank certificates of deposit. The debt securities
and money market obligations in which the Portfolio invests may be issued by
U.S. and foreign issuers and may be denominated in U.S. dollars or foreign
currencies.
 
  The Portfolio also may engage in transactions in options, futures, and
options on futures contracts on securities and securities indexes. The
Portfolio also may invest in convertible securities; equity index swap
agreements; ADRs; GDRs; EDRs; rights; variable and floating rate securities;
warrants on securities that it is eligible to purchase; preferred stock;
repurchase agreements and reverse repurchase agreements; firm commitment
transactions and when-issued securities. The Portfolio may also lend its
portfolio securities, in an amount not to exceed 25% of the value of its total
assets, to brokers, dealers, and other financial institutions to earn income,
and may borrow money for administrative or emergency purposes. The Portfolio
may also invest in restricted securities and up to 15% of its net assets in
illiquid securities.
 
  Because the Portfolio invests principally in equity securities, the value of
its investments can increase or decrease in value, sometimes rapidly and
unpredictably. The Portfolio invests in emerging markets, which may be
particularly volatile. It also invests in smaller companies, which tend to
have higher price swings than larger companies because they have fewer
financial resources, limited product and market diversification and many are
dependent on a few key managers.
 
 
                                      14
<PAGE>
 
  The Portfolio may also be affected by the following additional risk factors:
First, the Portfolio may also be subject to the risks associated with foreign
investments, including changes in currency exchange rates, unstable political
and economic conditions, a lack of adequate company information, differences
in the way securities markets operate, less secure foreign banks or securities
depositories than those in the United States, and foreign controls on
investment. Investments in emerging market countries are generally riskier
than other kinds of foreign investments, partly because emerging market
countries may be less politically and economically stable than other
countries. It may also be more difficult to buy and sell securities in
emerging market countries. Second, the Portfolio may invest in foreign
currency transactions, forward foreign currency contracts or options, index
options, futures and other investment techniques to help it achieve its
investment goal. These techniques can potentially reduce returns or increase
the Portfolio's volatility.
 
Diversification Versus Non-Diversification
 
  Each of the Portfolios, other than the REIT Portfolio, is diversified, so
that with respect to 75% of each such Portfolio's assets (100% for the Money
Market Portfolio), it may not invest more than 5% of its assets (taken at
market value at the time of investment) in securities of any one issuer,
except that this restriction does not apply to U.S. Government securities.
 
  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, as amended ("1940
Act"). However, to meet Federal tax requirements, the REIT 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 the REIT 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.
 
                     SECURITIES AND INVESTMENT TECHNIQUES
 
  Unless otherwise stated in the prospectus, many investment techniques,
including various hedging techniques and techniques which may be used to help
add incremental income, are discretionary. That means Portfolio Managers may
elect to engage or not to engage in the various techniques at their sole
discretion. Hedging may not be cost-effective or Portfolio Managers may simply
elect not to engage in hedging and have the Portfolio assume full risk of the
investments. Investors should not assume that any Portfolio will be hedged at
all times or that it will be hedged at all; nor should investors assume that
any particular discretionary investment technique or strategy will be employed
at all times, or ever employed.
 
U.S. Government Securities
 
  All Portfolios may invest in U.S. Government securities. U.S. Government
securities are obligations of, or guaranteed by, the U.S. Government, its
agencies, or instrumentalities. Treasury bills, notes, and bonds are direct
obligations of the U.S. Treasury and they differ with respect to certain items
such as coupons, maturities, and dates of issue. Treasury bills have a
maturity of one year or less. Treasury notes have maturities of one to ten
years and Treasury bonds generally have a maturity of greater than ten years.
Securities guaranteed by the U.S. Government include federal agency
obligations guaranteed as to principal and interest by the U.S. Treasury (such
as GNMA certificates (described below) and Federal Housing Administration
debentures). In guaranteed securities, the payment of principal and interest
is unconditionally guaranteed by the U.S. Government, and thus they are of the
highest credit quality. Such direct obligations or guaranteed securities are
subject to variations in market value due to fluctuations in interest rates,
but, if held to maturity, the U.S. Government is obligated to or guarantees to
pay them in full.
 
                                      15
<PAGE>
 
  Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of, nor guaranteed by, the U.S.
Treasury. However, they involve federal sponsorship in one way or another:
some are backed by specific types of collateral; some are supported by the
issuer's right to borrow from the U.S. Treasury; some are supported by the
discretionary authority of the U.S. Treasury to purchase certain obligations
of the issuer; others are supported only by the credit of the issuing
government agency or instrumentality. These agencies and instrumentalities
include, but are not limited to Federal National Mortgage Association, Federal
Home Loan Bank, Federal Land Banks, Farmers Home Administration, Central Bank
for Cooperatives, Federal Intermediate Credit Banks, Federal Financing Bank,
Farm Credit Banks, and the Tennessee Valley Authority.
 
Real Estate Investment Trusts
 
  REITs are primary investments for the REIT Portfolio. The Large-Cap Value,
Mid-Cap Value and Small-Cap Index 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 distributes 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.
REITs also involve risks such as refinancing, changes in property values,
general or specific economic risk on the real estate industry, dependency on
management skills, and other risks similar to small company investing.
 
Mortgage-Related Securities
 
  Mortgage-related securities are interests in pools of mortgage loans made to
residential home buyers, including mortgage loans made by savings and loan
institutions, mortgage banks, commercial banks, and others. Pools of mortgage
loans are assembled as securities for sale to investors by various
governmental, government-related, and private organizations. The High Yield
Bond, Managed Bond, Government Securities, Aggressive Equity, Growth LT,
Multi-Strategy, Large-Cap Value, Mid-Cap Value, Equity, and Bond and Income
Portfolios, and the Money Market Portfolio, subject to its investment
policies, may invest in mortgage-related securities as well as debt securities
which are secured with collateral consisting of mortgage-related securities,
and in other types of mortgage-related securities. For information concerning
the characterization of mortgage-related securities (including collateralized
mortgage obligations) for various purposes including the Fund's policies
concerning diversification and concentration, see "Concentration Policy".
 
  Mortgage Pass-Through Securities. These are securities representing
interests in "pools" of mortgages in which payments of both interest and
principal on the securities are made periodically, in effect "passing
 
                                      16
<PAGE>
 
through" periodic payments made by the individual borrowers on the residential
mortgage loans which underlie the securities (net of fees paid to the issuer
or guarantor of the securities). Early repayment of principal on mortgage
pass-through securities (arising from prepayments of principal due to sale of
the underlying property, refinancing, or foreclosure, net of fees and costs
which may be incurred) may expose a Portfolio to a lower rate of return upon
reinvestment of principal. Payment of principal and interest on some mortgage
pass-through securities may be guaranteed by the full faith and credit of the
U.S. Government (in the case of securities guaranteed by the Government
National Mortgage Association, or "GNMAs"); or guaranteed by agencies or
instrumentalities of the U.S. Government (in the case of securities guaranteed
by the Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC"), which are supported only by the discretionary
authority of the U.S. Government to purchase the agency's obligations).
Mortgage pass-through securities created by nongovernmental issuers (such as
commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers, and other secondary market issuers) may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit, which may be
issued by governmental entities, private insurers, or the mortgage poolers.
 
  GNMA Certificates. GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely
payment of interest and principal is guaranteed by the full faith and credit
of the U.S. Government. GNMA is a wholly-owned U.S. Government corporation
within the Department of Housing and Urban Development. GNMA is authorized to
guarantee, with the full faith and credit of the U.S. Government, the timely
payment of principal and interest on securities issued by institutions
approved by GNMA (such as savings and loan institutions, commercial banks, and
mortgage bankers) and backed by pools of mortgages insured by the Federal
Housing Administration ("FHA"), or guaranteed by the Department of Veterans
Affairs ("VA"). GNMA certificates differ from typical bonds because principal
is repaid monthly over the term of the loan rather than returned in a lump sum
at maturity. Because both interest and principal payments (including
prepayments) on the underlying mortgage loans are passed through to the holder
of the certificate, GNMA certificates are called "pass-through" securities.
 
  Interests in pools of mortgage-related securities differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal payments at maturity or specified call dates.
Instead, these securities provide a periodic payment which consists of both
interest and principal payments. In effect, these payments are a "pass-
through" of the periodic payments made by the individual borrowers on the
residential mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred. Mortgage-related
securities issued by GNMA are described as "modified pass-through" securities.
These securities entitle the holder to receive all interest and principal
payments owed on the mortgage pool, net of certain fees, at the scheduled
payment dates regardless of whether or not the mortgagor actually makes the
payment. Although GNMA guarantees timely payment even if homeowners delay or
default, tracking the "pass-through" payments may, at times, be difficult.
Expected payments may be delayed due to the delays in registering the newly
traded paper securities. The custodian's policies for crediting missed
payments while errant receipts are tracked down may vary. Other mortgage-
backed securities such as those of FHLMC and FNMA trade in book-entry form and
are not subject to the risk of delays in timely payment of income.
 
  Although the mortgage loans in the pool will have maturities of up to 30
years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages will be subject to normal principal
amortization and may be prepaid prior to maturity. Early repayments of
principal on the underlying mortgages may expose a Portfolio to a lower rate
of return upon reinvestment of principal. Prepayment rates vary widely and may
be affected by changes in market interest rates. In periods of falling
interest rates, the rate of prepayment tends to increase, thereby shortening
the actual average life of the GNMA certificates. Conversely, when interest
rates are rising, the rate of prepayment tends to decrease, thereby
lengthening the actual average life of the GNMA certificates. Accordingly, it
is not possible to accurately predict the average life of a particular pool.
Reinvestment of prepayments may occur at higher or lower rates than the
original yield on the certificates.
 
                                      17
<PAGE>
 
Due to the prepayment feature and the need to reinvest prepayments of
principal at current rates, GNMA certificates can be less effective than
typical bonds of similar maturities at "locking in" yields during periods of
declining interest rates, although they may have comparable risks of decline
in value during periods of rising interest rates.
 
  FNMA and FHLMC Mortgage-Backed Obligations. Government-related guarantors
(i.e., not backed by the full faith and credit of the U.S. Government) include
FNMA and FHLMC. FNMA, a federally chartered and privately-owned corporation,
issues pass-through securities representing interests in a pool of
conventional mortgage loans. FNMA guarantees the timely payment of principal
and interest but this guarantee is not backed by the full faith and credit of
the U.S. Government. FNMA is a government sponsored corporation owned entirely
by private stockholders. It is subject to general regulation by the Secretary
of Housing and Urban Development. FNMA purchases conventional (i.e., not
insured or guaranteed by any government agency) residential mortgages from a
list of approved seller/servicers which include state and federally-chartered
savings and loan associations, mutual savings banks, commercial banks and
credit unions, and mortgage bankers. FHLMC, a corporate instrumentality of the
United States, was created by Congress in 1970 for the purpose of increasing
the availability of mortgage credit for residential housing. Its stock is
owned by the 12 Federal Home Loan Banks. FHLMC issues Participation
Certificates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest
and ultimate collection of principal and maintains reserves to protect holders
against losses due to default, but PCs are not backed by the full faith and
credit of the U.S. Government. As is the case with GNMA certificates, the
actual maturity of and realized yield on particular FNMA and FHLMC pass-
through securities will vary based on the prepayment experience of the
underlying pool of mortgages.
 
  Collateralized Mortgage Obligations (CMOs). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may
be collateralized by whole mortgage loans but are more typically
collateralized by portfolios of mortgage pass-through securities guaranteed by
GNMA, FHLMC, or FNMA, and their income streams.
 
  CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments,
generally is first returned to investors holding the shortest maturity class.
Investors holding the longer maturity classes receive principal only after the
first class has been retired. An investor is partially guarded against a
sooner than desired return of principal because of the sequential payments.
 
  In a typical CMO transaction, a corporation ("issuer") issues multiple
series (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond
offering are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The series A, B, and C
Bonds all bear current interest. Interest on the series Z Bond is accrued and
added to principal and a like amount is paid as principal on the series A, B,
or C Bond currently being paid off. When the series A, B, and C Bonds are paid
in full, interest and principal on the series Z Bond begins to be paid
currently. With some CMOs, the issuer serves as a conduit to allow loan
originators (primarily builders or savings and loan associations) to borrow
against their loan portfolios.
 
  FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations
of FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are
made semiannually, as opposed to monthly. The amount of principal payable on
each semiannual payment date is determined in accordance with FHLMC's
mandatory sinking fund schedule, which, in turn, is equal to approximately
100% of FHA prepayment experience applied to the mortgage collateral pool. All
sinking fund
 
                                      18
<PAGE>
 
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's
minimum sinking fund obligation for any payment date are paid to the holders
of the CMOs as additional sinking fund payments. Because of the "pass-through"
nature of all principal payments received on the collateral pool in excess of
FHLMC's minimum sinking fund requirement, the rate at which principal of the
CMOs is actually repaid is likely to be such that each class of bonds will be
retired in advance of its scheduled maturity date.
 
  If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.
 
  Criteria for the mortgage loans in the pool backing the CMOs are identical
to those of FHLMC PCs. FHLMC has the right to substitute collateral in the
event of delinquencies and/or defaults.
 
  Other Mortgage-Related Securities. Commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers, and
other secondary market issuers also create pass-through pools of conventional
residential mortgage loans. Such issuers may, in addition, be the originators
and/or servicers of the underlying mortgage loans as well as the guarantors of
the mortgage-related securities. Pools created by such non-governmental
issuers generally offer a higher rate of interest than government and
government-related pools because there are no direct or indirect government or
agency guarantees of payments in the former pools. However, timely payment of
interest and principal of these pools may be supported by various forms of
insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit. The insurance and guarantees are issued by
governmental entities, private insurers, and the mortgage poolers. Such
insurance and guarantees and the creditworthiness of the issuers thereof will
be considered in determining whether a mortgage-related security meets a
Portfolio's investment quality standards. There can be no assurance that the
private insurers or guarantors can meet their obligations under the insurance
policies or guarantee arrangements. A Portfolio may buy mortgage-related
securities without insurance or guarantees, if, in an examination of the loan
experience and practices of the originator/servicers and poolers, the Adviser
or Portfolio Manager determines that the securities meet a Portfolio's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. A Portfolio will not purchase mortgage-related securities or any
other assets which in the opinion of the Adviser or Portfolio Manager are
illiquid if, as a result, more than 15% of the value of a Portfolio's net
assets (10% for the Money Market Portfolio) will be illiquid. It is expected
that governmental, government-related, or private entities may create mortgage
loan pools and other mortgage-related securities offering mortgage pass-
through and mortgage collateralized investments in addition to those described
above. As new types of mortgage-related securities are developed and offered
to investors, the Adviser or Portfolio Manager will, consistent with a
Portfolio's investment objectives, policies, and quality standards, consider
making investments in such new types of mortgage-related securities.
 
  CMO Residuals. CMO residuals are derivative mortgage securities issued by
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
 
  The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the
CMOs and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess
cash flow remaining after making the foregoing payments. Each payment of such
excess cash flow to a holder of the related CMO residual represents income
and/or a return of capital. The amount of residual cash flow resulting from a
CMO will depend on, among other things, the characteristics of the mortgage
assets, the coupon rate of each class of CMO, prevailing interest rates, the
amount of administrative expenses and the prepayment experience on the
mortgage assets. In particular, the yield to maturity on CMO residuals is
extremely sensitive to prepayments on
 
                                      19
<PAGE>
 
the related underlying mortgage assets, in the same manner as an interest-only
("IO") class of stripped mortgage-backed securities. See "Other Mortgage-
Related Securities--Stripped Mortgage-Backed Securities." In addition, if a
series of a CMO includes a class that bears interest at an adjustable rate,
the yield to maturity on the related CMO residual will also be extremely
sensitive to changes in the level of the index upon which interest rate
adjustments are based. As described below with respect to stripped mortgage-
backed securities, in certain circumstances a Portfolio may fail to recoup
fully its initial investment in a CMO residual.
 
  CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has only very recently developed and CMO residuals currently
may not have the liquidity of other more established securities trading in
other markets. Transactions in CMO residuals are generally completed only
after careful review of the characteristics of the securities in question. CMO
residuals may or, pursuant to an exemption therefrom, may not have been
registered under the Securities Act of 1933, as amended. CMO residuals,
whether or not registered under such Act, may be subject to certain
restrictions on transferability, and may be deemed "illiquid" and subject to a
Portfolio's limitations on investment in illiquid securities.
 
  In addition, the Bond and Income Portfolio may invest in inverse floaters
and "IO" and "PO" tranches of planned amortization class ("PAC") certificates.
PAC certificates are parallel-pay real estate mortgage investment conduit
("REMIC") certificates that generally require that specified amounts of
principal be applied on each payment date to one or more classes of REMIC
certificates, even though all other principal payments and prepayments of the
mortgage assets are then required to be applied to one or more other classes
of the certificates. The scheduled principal payments for the PAC certificates
generally have the highest priority on each payment date after interest due
has been paid to all classes entitled to receive interest currently.
Shortfalls, if any, are added to the amount payable on the next payment date.
The PAC certificate payment schedule is taken into account in calculating the
final distribution date of each class of the PAC certificate. In order to
create PAC Tranches, generally one or more tranches must be created that
absorb most of the volatility in the underlying mortgage assets. These
tranches tend to have market prices and yields that are much more volatile
than other PAC classes.
 
  A PAC IO is a PAC bond that pays an extremely high coupon rate, such as
200%, on its outstanding principal balance, and pays down according to a
designated PAC schedule. Due to their high-coupon interest, PAC IO's are
priced at very high premiums to par. Due to the nature of PAC prepayment bands
and PAC collars, the PAC IO has a greater call (contraction) potential and
thus would be impacted negatively by a sustained increase in prepayment
speeds.
 
  Stripped Mortgage-Backed Securities. Stripped mortgage-backed securities
("SMBS") are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and special
purpose entities of the foregoing.
 
  SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the
interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of the principal. In
the most extreme case, one class will receive all of the interest (the IO
class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is
extremely sensitive to the rate of principal payments (including prepayments)
on the related underlying mortgage assets, and a rapid rate of principal
payments may have a material adverse effect on the Portfolio's yield to
maturity from these securities. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, a Portfolio may fail to
fully recoup its initial investment in these securities even if the security
is in one of the highest rating categories.
 
  Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these
securities were only recently developed. As a result, established trading
 
                                      20
<PAGE>
 
markets have not yet developed and, accordingly, these securities may be
deemed "illiquid" and subject to a Portfolio's limitations on investment in
illiquid securities.
 
  Mortgage Dollar Rolls. The Bond and Income Portfolio may enter into mortgage
"dollar rolls" in which the Portfolio sells securities for delivery in the
current month and simultaneously contracts with the same counterparty to
repurchase substantially similar (same type, coupon and maturity) but not
identical securities on a specified future date. During the roll period, the
Portfolio loses the right to receive principal and interest paid on the
securities sold. However, the Portfolio would benefit to the extent of any
difference between the price received for the securities sold and the lower
forward price for the future purchase or fee income plus the interest earned
on the cash proceeds of the securities sold until the settlement date for the
forward purchase. Unless such benefits exceed the income, capital appreciation
and gain or loss due to mortgage prepayments that would have been realized on
the securities sold as part of the mortgage dollar roll, the use of this
technique will diminish the investment performance of the Portfolio. The
Portfolio will hold and maintain in a segregated account until the settlement
date cash or liquid assets in an amount equal to the forward purchase price.
For financial reporting and tax purposes, the Portfolio treats mortgage dollar
rolls as two separate transactions; one involving the purchase of a security
and a separate transaction involving a sale. The Portfolio does not currently
intend to enter into mortgage dollar rolls that are accounted for as a
financing.
 
Other Asset-Backed Securities
 
  In addition to mortgage-related securities, the High Yield Bond, Managed
Bond, Government Securities, Aggressive Equity, Growth LT, Multi-Strategy,
Equity, and Bond and Income Portfolios, and the Money Market Portfolio,
subject to its investment policies, may invest in other asset-backed
securities which are securities that directly or indirectly represent a
participation interest in, or are secured by and payable from a stream of
payments generated by particular assets such as automobile loans or
installment sales contracts, home equity loans, computer and other leases,
credit card receivables, or other assets. Generally, the payments from the
collateral are passed through to the security holder. Due to the possibility
that prepayments (on automobile loans and other collateral) will alter cash
flow on asset-backed securities, generally it is not possible to determine in
advance the actual final maturity date or average life of many asset-backed
securities. Faster prepayment will shorten the average life and slower
prepayment will lengthen it. However, it may be possible to determine what the
range of that movement could be and to calculate the effect that it will have
on the price of the security. Other risks relate to limited interests in
applicable collateral. For example, credit card debt receivables are generally
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, many of which give such debtors the right to
set off certain amounts on credit card debt thereby reducing the balance due.
Additionally, holders of asset-backed securities may also experience delays in
payments or losses if the full amounts due on underlying sales contracts are
not realized. The securities market for asset-backed securities may not, at
times, offer the same degree of liquidity as markets for other types of
securities with greater trading volume.
 
High Yield Bonds
 
  The High Yield Bond, Managed Bond (up to 10% of its assets), Growth LT (up
to 10% of its assets), Equity Income, Multi-Strategy, Large-Cap Value (no
limit on convertible high yield securities, and up to 5% of its net assets in
non-convertible high yield securities), Bond and Income (up to 20% of its
assets, 15% of which may be invested in debt securities of foreign governments
or their agencies that are from emerging market countries), and International
(up to 5% of its assets) Portfolios, measured at the time of investment, may
invest in high risk debt securities rated lower than Baa or BBB, or, if not
rated by Moody's or S&P, of equivalent quality (although the Managed Bond
Portfolio may not invest in securities rated lower than B) ("high yield
bonds," which are commonly referred to as "junk bonds").
 
  In general, high yield bonds are not considered to be investment grade, and
investors should consider the risks associated with high yield bonds before
investing in the pertinent Portfolio, and in particular the High Yield
 
                                      21
<PAGE>
 
Bond and Bond and Income Portfolios. Investment in such securities generally
provides greater income and increased opportunity for capital appreciation
than investments in higher quality securities, but they also typically entail
greater price volatility and principal and income risk.
 
  Investment in high yield bonds involves special risks in addition to the
risks associated with investments in higher rated debt securities. High yield
bonds are regarded as predominately speculative with respect to the issuer's
continuing ability to meet principal and interest payments. A severe economic
downturn or increase in interest rates might increase defaults in high yield
securities issued by highly leveraged companies. An increase in the number of
defaults could adversely affect the value of all outstanding high yield
securities, thus disrupting the market for such securities. Analysis of the
creditworthiness of issuers of debt securities that are high yield bonds may
be more complex than for issuers of higher quality debt securities, and the
ability of a Portfolio to achieve its investment objective may, to the extent
of investment in high yield bonds, be more dependent upon such
creditworthiness analysis than would be the case if the Portfolio were
investing in higher quality bonds.
 
  Included among the emerging market debt obligations in which the Bond and
Income Portfolio may invest are "Brady Bonds," which are created through the
exchange of existing commercial bank loans to sovereign entities for new
obligations in connection with debt restructuring under a plan introduced by
former U.S. Secretary of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Bonds are not considered U.S. Government securities and are considered
speculative. Brady Bonds have been issued relatively recently, and
accordingly, do not have a long payment history. They may be collateralized or
uncollateralized, or have collateralized or uncollateralized elements, and
issued in various currencies (although most are U.S. dollar- denominated), and
they are traded in the over-the-counter secondary market.
 
  Brady Bonds involve various risk factors including residual risk and the
history of defaults with respect to commercial bank loans by public and
private entities of countries issuing Brady Bonds. There can be no assurance
that Brady Bonds in which the Portfolio may invest will not be subject to
restructuring arrangements or to requests for new credit, which may cause the
Portfolio to suffer a loss of interest or principal on any of its holdings.
 
  High yield bonds may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade bonds. The
prices of high yield bonds have been found to be less sensitive to interest-
rate changes than higher-rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield bond prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If an issuer of high yield bonds
defaults, in addition to risking payment of all or a portion of interest and
principal, a Portfolio may incur additional expenses to seek recovery. In the
case of high yield bonds structured as zero-coupon or pay-in-kind securities,
their market prices are affected to a greater extent by interest rate changes,
and therefore tend to be more volatile than securities which pay interest
periodically and in cash.
 
  The secondary market on which high yield bonds are traded may be less liquid
than the market for higher grade bonds. Less liquidity in the secondary
trading market could adversely affect the price at which a Portfolio could
sell a high yield bond, and could adversely affect and cause large
fluctuations in the daily net asset value of the Portfolio's shares. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield bonds,
especially in a thinly-traded market. When secondary markets for high yield
bonds are less liquid than the market for higher grade bonds, it may be more
difficult to value the securities because such valuation may require more
research, and elements of judgment may play a greater role in the valuation
because there is less reliable, objective data available.
 
  There are also certain risks involved in using credit ratings for evaluating
high yield bonds. For example, credit ratings evaluate the safety of principal
and interest payments, not the market value risk of high yield bonds. Also,
credit rating agencies may fail to timely reflect subsequent events.
 
 
                                      22
<PAGE>
 
Bank Obligations
 
  Bank obligations in which all Portfolios may invest include certificates of
deposit, bankers' acceptances, fixed time deposits, and loans or credit
agreements. Each Portfolio may also hold funds on deposit with its
sub-custodian bank in an interest-bearing account for temporary purposes.
 
  Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on
demand by the investor, but may be subject to early withdrawal penalties which
vary depending upon market conditions and the remaining maturity of the
obligation. There are no contractual restrictions on the right to transfer a
beneficial interest in a fixed time deposit to a third party, although there
is no market for such deposits. A Portfolio will not invest in fixed time
deposits which (i) are not subject to prepayment, or (ii) incur withdrawal
penalties upon prepayment (other than overnight deposits) if, in the
aggregate, more than 15% of its net assets (10% for the Money Market
Portfolio) would be invested in such deposits, repurchase agreements maturing
in more than seven days, and other illiquid assets.
 
  The Portfolio may purchase loans or participation interests in loans made by
U.S. banks and other financial institutions to large corporate customers.
Loans are made by a contract called a credit agreement. Loans are typically
secured by assets pledged by the borrower, but there is no guarantee that the
value of the collateral will be sufficient to cover the loan, particularly in
the case of a decline in value of the collateral. Loans may be floating rate
or amortizing. See "Variable and Floating Rate Securities" below for more
information. Some loans may be traded in the secondary market among banks,
loan funds, and other institutional investors.
 
  A Portfolio will not invest in any security or bank loan/credit agreement
issued by a commercial bank unless: (i) the bank has total assets of at least
U.S. $1 billion (U.S. $500 million in the case of the Equity Income Portfolio
and U.S. $2 billion in the case of the Bond and Income Portfolio), or the
equivalent in other currencies, or, in the case of domestic banks which do not
have total assets of at least U.S. $1 billion, the aggregate investment made
in any one such bank is limited to an amount, currently U.S. $100,000, insured
in full by the Federal Deposit Insurance Corporation ("FDIC"); (ii) in the
case of U.S. banks, it is a member of the FDIC; and (iii) in the case of
foreign banks, the security is, in the opinion of the Adviser or the Portfolio
Manager, of an investment quality comparable with other debt securities of
similar maturities which may be purchased by the Portfolio. These limitations
do not prohibit investments in securities issued by foreign branches of U.S.
banks, provided such U.S. banks meet the foregoing requirements.
 
  All Portfolios may invest in short-term debt obligations of savings and loan
associations provided that the savings and loan association issuing the
security (i) has total assets of at least $1 billion (U.S. $500 million in the
case of the Equity Income Portfolio and U.S. $2 billion in the case of the
Bond and Income Portfolio), or, in the case of savings and loan associations
which do not have total assets of at least $1 billion, the aggregate
investment made in any one savings and loan association is insured in full,
currently up to $100,000, by the Savings Association Insurance Fund ("SAIF");
(ii) the savings and loan association issuing the security is a member of the
Federal Home Loan Bank System; and (iii) the institution is insured by the
SAIF.
 
  A Portfolio will not purchase any security of a small bank or savings and
loan association which is not readily marketable if, as a result, more than
15% of the value of its net assets (10% for the Money Market Portfolio) would
be invested in such securities, other illiquid securities, or securities
without readily available market quotations, such as restricted securities and
repurchase agreements maturing in more than seven days.
 
  The International Portfolio may only invest in obligations of foreign banks
(including U.S. branches of foreign banks) which at the time of investment (i)
have more than U.S. $1 billion, or the equivalent in other currencies, in
total assets; and (ii) in the opinion of the Portfolio Manager, are of an
investment quality comparable to fixed income obligations in which the
Portfolio may invest. The Aggressive Equity and Emerging
 
                                      23
<PAGE>
 
Markets Portfolios may only invest in obligations of foreign banks (including
U.S. branches of foreign banks) which at the time of investment (i) have more
than $10 billion, or the equivalent in other currencies, in total assets; (ii)
in terms of assets are among the 75 largest foreign banks in the world; (iii)
have branches or agencies (limited purpose offices which do not offer all
banking services) in the U.S.; and (iv) in the opinion of the Portfolio
Manager, are of an investment quality comparable to obligations of U.S. banks
in which the Portfolios may invest. There is no limitation on the amount of a
Portfolio's assets which may be invested in obligations of foreign banks if
the bank obligations meet the appropriate conditions set forth above.
 
  Obligations of foreign banks involve somewhat different investment risks
than those affecting obligations of U.S. banks, including: (i) the
possibilities that their liquidity could be impaired because of future
political and economic developments; (ii) their obligations may be less
marketable than comparable obligations of U.S. banks; (iii) a foreign
jurisdiction might impose withholding taxes on interest income payable on
those obligations; (iv) foreign deposits may be seized or nationalized; (v)
foreign governmental restrictions, such as exchange controls, may be adopted
which might adversely affect the payment of principal and interest on those
obligations; and (vi) the selection of those obligations may be more difficult
because there may be less publicly available information concerning foreign
banks or the accounting, auditing, and financial reporting standards,
practices and requirements applicable to foreign banks may differ from those
applicable to U.S. banks. Foreign banks are not generally subject to
examination by any U.S. Government agency or instrumentality.
 
  The International Portfolio's investments in convertible securities,
described below, that are purchased in furtherance of the Portfolio's
investment objective, are not subject to the limitations described above with
respect to bank obligations.
 
Municipal Securities
 
  The Bond and Income Portfolio may invest up to 5% of its net assets in
municipal securities. Municipal securities consist of bonds, notes and other
instruments issued by or on behalf of states, territories and possessions of
the United States (including the District of Columbia) and their political
subdivisions, agencies or instrumentalities, the interest on which is exempt
from regular federal income tax. Municipal securities are often issued to
obtain funds for various public purposes. Municipal securities also include
"private activity bonds" or industrial development bonds, which are issued by
or on behalf of public authorities to obtain funds for privately operated
facilities, such as airports and waste disposal facilities, and, in some
cases, commercial and industrial facilities.
 
  The yields and market values of municipal securities are determined
primarily by the general level of interest rates, the creditworthiness of the
issuers of municipal securities and economic and political conditions
affecting such issuers. Due to their tax exempt status, the yields and market
prices of municipal securities may be adversely affected by changes in tax
rates and policies, which may have less effect on the market for taxable fixed
income securities. Moreover, certain types of municipal securities, such as
housing revenue bonds, involve prepayment risks which could affect the yield
on such securities.
 
  Investments in municipal securities are subject to the risk that the issuer
could default on its obligations. Such a default could result from the
inadequacy of the sources or revenues from which interest and principal
payments are to be made or the assets collateralizing such obligations.
Revenue bonds, including private activity bonds, are backed only by specific
assets or revenue sources and not by the full faith and credit of the
governmental issuer.
 
Small Capitalization Stocks
 
  The Growth, Aggressive Equity, Growth LT. Equity, Small-Cap Index,
International, and Emerging Markets Portfolios, and to a lesser degree, the
Equity Income, Multi-Strategy, Large-Cap Value and Mid-Cap Value Portfolios,
may invest in small capitalization stocks. Investments in larger companies
present certain advantages in that such companies generally have greater
financial resources, more extensive research and development,
 
                                      24
<PAGE>
 
manufacturing, marketing and service capabilities, more stability and greater
depth of management and technical personnel. Investments in smaller, less
seasoned companies may present greater opportunities for growth but also
involve greater risks than customarily are associated with more established
companies. The securities of smaller companies may be subject to more abrupt
or erratic market movements than larger, more established companies. These
companies may have limited product lines, markets or financial resources, or
they may be dependent upon a limited management group. Their securities may be
traded only in the over-the-counter market or on a regional securities
exchange and may not be traded every day or in the volume typical of trading
on a major securities exchange. As a result, the disposition by a Portfolio of
securities to meet redemptions, or otherwise, may require the Portfolio to
sell these securities at a discount from market prices or to sell during a
period when such disposition is not desirable or to make many small sales over
a lengthy period of time.
 
Corporate Debt Securities
 
  All Portfolios may invest in U.S. dollar-denominated corporate debt
securities of domestic issuers and the Money Market, High Yield Bond, Managed
Bond, Government Securities, Aggressive Equity, Growth LT, Multi-Strategy,
Mid-Cap Value, Bond and Income, International and Emerging Markets Portfolios
may invest in U.S. dollar-denominated debt securities of foreign issuers. The
Aggressive Equity, Growth LT, Mid-Cap Value, International, and Emerging
Markets Portfolios, and, to the extent of 20% of their assets, the Managed
Bond and Government Securities Portfolios, and to the extent of 10% of their
assets, the Multi-Strategy, Mid-Cap Value, and Bond and Income Portfolios, may
also invest in debt securities of foreign issuers denominated in foreign
currencies. The debt securities in which any Portfolio, other than the Money
Market Portfolio, may invest are limited to corporate debt securities
(corporate bonds, debentures, notes, and other similar corporate debt
instruments) which meet the minimum ratings criteria set forth for that
particular Portfolio, or, if not so rated, are, in the Portfolio Manager's
opinion, comparable in quality to corporate debt securities in which a
Portfolio may invest. The debt securities in which the Money Market Portfolio
may invest are described in the discussion of the investment objective and
policies of that Portfolio.
 
  The investment return on corporate debt securities reflects interest
earnings and changes in the market value of the security. The market value of
corporate debt obligations may be expected to rise and fall inversely with
interest rates generally. There also exists the risk that the issuers of the
securities may not be able to meet their obligations on interest or principal
payments at the time called for by an instrument.
 
  The High Yield Bond, Managed Bond, Growth, Aggressive Equity, Growth LT,
Equity Income, Multi-Strategy, Bond and Income, International, and Emerging
Markets Portfolios may invest in corporate debt securities rated Baa (Moody's)
or BBB (S&P), or, if not rated by Moody's or S&P, of equivalent quality. Such
securities are considered medium grade, and do not have economic
characteristics that provide the high degree of security with respect to
payment of principal and interest associated with higher rated bonds, and
generally have some speculative characteristics. A bond will be placed in this
rating category where interest payments and principal security appear adequate
for the present, but economic characteristics that provide longer term
protection may be lacking.
 
  The High Yield Bond, Growth, Equity Income and Multi-Strategy Portfolios
and, to the extent of 10% of their assets, the Managed Bond and Growth LT
Portfolios, and, to the extent of 20% of its assets, the Bond and Income
Portfolio and to the extent of 5% of its assets, the Large-Cap Value (no limit
on below investment grade convertible securities) and International
Portfolios, may invest in debt securities rated lower than Baa or BBB
(although the Managed Bond Portfolio may not invest in securities rated lower
than B), or, if not rated by Moody's or S&P, of equivalent quality. Such
securities are not considered to be investment grade, and are regarded as
predominately speculative with respect to the issuer's continuing ability to
meet principal and interest payments. For more information on the risks of
such securities, see the discussion of "High Yield Bonds" above.
 
Variable and Floating Rate Securities
 
  All Portfolios may invest in variable and floating rate securities which
provide for a periodic adjustment in the interest rate paid on obligations.
The terms of such obligations must provide that interest rates are adjusted
 
                                      25
<PAGE>
 
periodically based upon an appropriate interest rate adjustment index as
provided in the respective obligations. The adjustment intervals may be
regular, and range from daily to annually, or may be event based, such as
based on a change in the prime rate.
 
  The interest rate on a floating rate debt instrument ("floater") is a
variable rate which is tied to another interest rate, such as a money market
index or Treasury bill rate. The interest rate on a floater resets
periodically, typically every six months. While, because of the interest rate
reset feature, floaters provide Portfolios with a certain degree of protection
against rises in interest rates, Portfolios investing in floaters will
participate in any declines in interest rates as well.
 
  The interest rate on a leveraged inverse floating rate debt instrument
("inverse floater") resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher degree of leverage inherent in inverse floaters is
associated with greater volatility in their market values. Accordingly,
duration of an inverse floater may exceed its stated final maturity. Certain
inverse floaters may be deemed to be illiquid securities for purposes of a
Portfolio's limitations on investments in such securities.
 
  The Bond and Income Portfolio may invest in super floating rate CMOs ("super
floaters"). A super floater is a leveraged floating-rate tranche in a CMO
issue. At each monthly reset date, a super floater's coupon rate is determined
by a slated formula. Typically, the rate is a multiple of some index minus a
fixed-coupon amount. When interest rates rise, a super floater is expected to
outperform regular floating rate CMOs because of its leveraging factor and
higher lifetime caps. Conversely, when interest rates fall, a super floater is
expected to underperform floating rate CMOs because its coupon rate drops by
the leveraging factor. In addition, a super floater may reach its cap as
interest rates increase and may no longer provide the benefits associated with
increasing coupon rates.
 
Commercial Paper
 
  All of the Portfolios may invest in commercial paper (including variable
amount master demand notes). Each Portfolio, other than the Money Market and
Equity Portfolios may invest in commercial paper denominated in U.S. dollars,
issued by U.S. corporations or foreign corporations and (1) rated at the date
of investment Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P or (2) if not
rated by either Moody's or S&P, issued by a corporation having an outstanding
debt issue rated Aa or better by Moody's or AA or better by S&P or (3) if not
rated, are determined to be of an investment quality comparable to rated
commercial paper in which a Portfolio may invest. If issued by a foreign
corporation, such commercial paper is U.S. dollar-denominated and not subject
at the time of purchase to foreign tax withholding. The Aggressive Equity,
International, and Emerging Markets Portfolios may, however, invest in
commercial paper denominated in foreign currencies. The Money Market Portfolio
may invest in commercial paper that meets the standards for money market
securities that Portfolio may acquire as described in the Prospectus and in
"Additional Investment Policies of the Portfolios" above. The Equity Portfolio
may invest in commercial paper (1) rated at the time of purchase Prime-1 by
Moody's or A-1 by S&P or (2) if not rated by either Moody's or S&P, issued by
a corporation having an outstanding debt issue rated Aa or better by Moody's
or AA or better by S&P.
 
  Commercial paper obligations may include variable amount master demand
notes. These are obligations that permit the investment of fluctuating amounts
at varying rates of interest pursuant to direct arrangements between a
Portfolio, as lender, and the borrower. These notes permit daily changes in
the amounts borrowed. The lender has the right to increase the amount under
the note at any time up to the full amount provided by the note agreement, or
to decrease the amount, and the borrower may prepay up to the full amount of
the note without penalty. Because variable amount master demand notes are
direct lending arrangements between the lender and borrower, it is not
generally contemplated that such instruments will be traded and there is no
secondary market for these notes. However, they are redeemable (and thus
immediately repayable by the borrower) at face value, plus accrued interest,
at any time. In connection with master demand note arrangements, the Adviser
or Portfolio
 
                                      26
<PAGE>
 
Manager will monitor, on an ongoing basis, the earning power, cash flow, and
other liquidity ratios of the borrower and its ability to pay principal and
interest on demand. The Adviser or Portfolio Manager also will consider the
extent to which the variable amount master demand notes are backed by bank
letters of credit. These notes generally are not rated by Moody's or S&P; a
Portfolio, other than the Money Market Portfolio, may invest in them only if
the Adviser or Portfolio Manager believes that at the time of investment the
notes are of comparable quality to the other commercial paper in which the
Portfolio may invest. With respect to the Money Market Portfolio,
determination of eligibility for the Portfolio will be in accordance with the
standards described in the discussion of the Portfolio in the Prospectus and
in "Additional Investment Policies of the Portfolios" above. Master demand
notes are considered by the Portfolio to have a maturity of one day unless the
Adviser or Portfolio Manager has reason to believe that the borrower could not
make immediate repayment upon demand. See the Appendix for a description of
Moody's and S&P ratings applicable to commercial paper.
 
Convertible Securities
 
  All Portfolios except the Money Market Portfolio may invest in convertible
securities. The convertible securities in the Portfolio's portfolios are
fixed-income securities which may be converted or exchanged at a stated
exchange ratio into underlying shares of common stock. The exchange ratio for
any particular convertible security may be adjusted from time to time due to
stock splits, dividends, spin-offs, other corporate distributions, or
scheduled changes in the exchange ratio. Convertible bonds and convertible
preferred stocks, until converted, have general characteristics similar to
both fixed-income and equity securities. Although to a lesser extent than with
fixed-income securities generally, the market value of convertible securities
tends to decline as interest rates increase and, conversely, tends to increase
as interest rates decline. In addition, because of the conversion or exchange
feature, the market value of convertible securities tends to vary with
fluctuations in the market value of the underlying common stocks, and,
therefore, also will react to variations in the general market for equity
securities. A unique feature of convertible securities is that as the market
price of the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis, and so may not experience market value
declines to the same extent as the underlying common stock. When the market
price of the underlying common stock increases, the prices of the convertible
securities tend to rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
 
  As fixed-income securities, convertible securities are investments which
provide for a stable stream of income with generally higher yields than common
stocks. Of course, like all fixed-income securities, there can be no assurance
of current income because the issuers of the convertible securities may
default in their obligations. Convertible securities, however, generally offer
lower interest or dividend yields than non-convertible securities of similar
quality because of the potential for capital appreciation.
 
  A convertible security, in addition to providing fixed-income, offers the
potential for capital appreciation through the conversion feature which
enables the holder to benefit from increases in the market price of the
underlying common stock. In selecting the securities for a Portfolio, the
Adviser or Portfolio Manager gives substantial consideration to the potential
for capital appreciation of the common stock underlying the convertible
securities. However, there can be no assurance of capital appreciation because
securities prices fluctuate.
 
  Convertible securities generally are subordinated to other similar but
nonconvertible securities of the same issuer although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar non-
convertible securities.
 
  A "synthetic convertible" is created by combining distinct securities which
possess the two principal characteristics of a true convertible, i.e., fixed-
income ("fixed-income component") and the right to acquire equity securities
("convertibility component"). This combination is achieved by investing in
nonconvertible fixed-income securities (nonconvertible bonds and preferred
stocks) and in warrants, granting the holder the right to purchase a specified
quantity of securities within a specified period of time at a specified price.
 
 
                                      27
<PAGE>
 
  However, the synthetic convertible differs from the true convertible
security in several respects. Unlike a true convertible, which is a single
security having a unitary market value, a synthetic convertible is comprised
of two distinct securities, each with its own market value. Therefore, the
"market value" of a synthetic convertible is the sum of the values of its
fixed-income component and its convertibility component. For this reason, the
value of a synthetic convertible and a true convertible security will respond
differently to market fluctuations.
 
  More flexibility is possible in the assembly of a synthetic convertible than
in the purchase of a convertible security in that its two components may be
purchased separately. For example, a Portfolio Manager may purchase a warrant
for inclusion in a synthetic convertible but temporarily hold short-term
investments while postponing purchase of a corresponding bond pending
development of more favorable market conditions.
 
  A holder of a synthetic convertible faces the risk that the price of the
stock underlying the convertibility component will decline, causing a decline
in the value of the warrant; should the price of the stock fall below the
exercise price and remain there throughout the exercise period, the entire
amount paid for the warrant would be lost. Since a synthetic convertible
includes the fixed-income component as well, the holder of a synthetic
convertible also faces the risk that interest rates will rise, causing a
decline in the value of the fixed-income instrument.
 
Repurchase Agreements
 
  All Portfolios may invest in repurchase agreements, which entail the
purchase of a portfolio eligible security from a bank or broker-dealer that
agrees to repurchase the security at the Portfolio's cost plus interest within
a specified time (normally one day). Repurchase agreements permit an investor
to maintain liquidity and earn income over periods of time as short as
overnight. If a Portfolio acquires securities from a bank or broker-dealer it
may simultaneously enter into a repurchase agreement with the seller wherein
the seller agrees at the time of sale to repurchase the security at a mutually
agreed upon time and price. The term of such an agreement is generally quite
short, possibly overnight or for a few days, although it may extend over a
number of months (up to one year) from the date of delivery. The resale price
is in excess of the purchase price by an amount which reflects an agreed upon
market rate of return, effective for the period of time the Portfolio is
invested in the security. This results in a fixed rate of return protected
from market fluctuations during the period of the agreement. This rate is not
tied to the coupon rate on the security subject to the repurchase agreement.
 
  If the party agreeing to repurchase should default and if the value of the
securities held by a Portfolio should fall below the repurchase price, a loss
could be incurred. Repurchase agreements will be entered into only where the
underlying security is within the three highest credit categories assigned by
established rating agencies (Aaa, Aa, or A by Moody's or AAA, AA, or A by S&P)
or, if not rated by Moody's or S&P, are of equivalent investment quality as
determined by the Adviser or Portfolio Manager, except that the Money Market
Portfolio will enter into repurchase agreements only where the underlying
securities are of the quality that is eligible for the Portfolio as described
in the discussion of that Portfolio's investment objective and policies.
 
  Under the 1940 Act, repurchase agreements are considered to be loans by the
purchaser collateralized by the underlying securities. The Adviser or
Portfolio Manager to a Portfolio monitors the value of the underlying
securities at the time the repurchase agreement is entered into and at all
times during the term of the agreement to ensure that its value always equals
or exceeds the agreed upon repurchase price to be paid to the Portfolio. The
Adviser or Portfolio Manager, in accordance with procedures established by the
Board of Trustees, also evaluates the creditworthiness and financial
responsibility of the banks and brokers or dealers with which the Portfolio
enters into repurchase agreements.
 
  A Portfolio may not enter into a repurchase agreement having more than seven
days remaining to maturity if, as a result, such agreements, together with any
other securities which are not readily marketable, would exceed 15% of the net
assets of the Portfolio (10% for the Money Market Portfolio). If the seller
should become bankrupt or default on its obligations to repurchase the
securities, a Portfolio may experience delay or difficulties in exercising its
rights to the securities held as collateral and might incur a loss if the
value of the securities
 
                                      28
<PAGE>
 
should decline. A Portfolio also might incur disposition costs in connection
with liquidating the securities. The Equity and Bond and Income Portfolios
may, together with other registered investment companies managed by Goldman
Sachs Asset Management or its affiliates, transfer uninvested cash balances
into a single joint account, the daily aggregate balance of which will be
invested in one or more repurchase agreements.
 
Borrowing
 
  Each Portfolio may borrow up to certain limits. A Portfolio may not borrow
if, as a result of such borrowing, the total amount of all money borrowed by
the Portfolio exceeds 33 1/3% of the value of its total assets (at the time of
such borrowing), including reverse repurchase agreements. This borrowing may
be unsecured. Borrowing may exaggerate the effect on net asset value of any
increase or decrease in the market value of a Portfolio. Money borrowed will
be subject to interest costs which may or may not be recovered by appreciation
of the securities purchased. A Portfolio also may be required to maintain
minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest
rate. Reverse repurchase agreements will be included as borrowing subject to
the borrowing limitations described above.
 
  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.
 
Reverse Repurchase Agreements and Other Borrowings
 
  Among the forms of borrowing in which the High Yield Bond, Managed Bond,
Government Securities, Aggressive Equity, Growth LT, Mid-Cap Value, Bond and
Income, Equity Index, and Emerging Markets Portfolios may engage and enter
into reverse repurchase agreements, which involves the sale of a debt security
held by the Portfolio, with an agreement by that Portfolio to repurchase the
security at a stated price, date and interest payment.
 
  A Portfolio will use the proceeds of a reverse repurchase agreement to
purchase other money market instruments which either mature at a date
simultaneous with or prior to the expiration of the reverse repurchase
agreement or which are held under an agreement to resell maturing as of that
time. The use of reverse repurchase agreements by a Portfolio creates leverage
which increases a Portfolio's investment risk. If the income and gains on
securities purchased with the proceeds of reverse repurchase agreements exceed
the cost of the agreements, the Portfolio's earnings or net asset value will
increase faster than otherwise would be the case; conversely, if the income
and gains fail to exceed the costs, earnings or net asset value would decline
faster than otherwise would be the case. A Portfolio will enter into a reverse
repurchase agreement only when the interest income to be earned from the
investment of the proceeds of the transaction is greater than the interest
expense of the transaction. However, reverse repurchase agreements involve the
risk that the market value of securities retained by the Portfolio may decline
below the repurchase price of the securities sold by the Portfolio which it is
obligated to repurchase.
 
  A Portfolio may enter into reverse repurchase agreements with banks or
broker-dealers. Entry into such agreements with broker-dealers requires the
creation and maintenance of a segregated account consisting of U.S. Government
securities, cash or liquid securities marked-to-market daily at least equal in
value to its obligations in respect of reverse repurchase agreements.
 
Firm Commitment Agreements and When-Issued Securities
 
  All Portfolios may enter into firm commitment agreements for the purchase of
securities at an agreed upon price on a specified future date. A Portfolio may
purchase new issues of securities on a "when-issued" basis,
 
                                      29
<PAGE>
 
whereby the payment obligation and interest rate on the instruments are fixed
at the time of the transaction. Such transactions might be entered into, for
example, when the Adviser or Portfolio Manager to a Portfolio anticipates a
decline in the yield of securities of a given issuer and is able to obtain a
more advantageous yield by committing currently to purchase securities to be
issued or delivered later.
 
  Except for the Mid-Cap Value Portfolio, a Portfolio will not enter into such
a transaction for the purpose of investment leverage. Liability for the
purchase price--and all the rights and risks of ownership of the securities--
accrue to the Portfolio at the time it becomes obligated to purchase such
securities, although delivery and payment occur at a later date. Accordingly,
if the market price of the security should decline, the effect of the
agreement would be to obligate the Portfolio to purchase the security at a
price above the current market price on the date of delivery and payment.
During the time the Portfolio is obligated to purchase such securities it will
maintain in a segregated account U.S. Government securities, cash or liquid
securities marked-to-market daily of an aggregate current value sufficient to
make payment for the securities.
 
Loans of Portfolio Securities
 
  For the purpose of realizing additional income, each Portfolio may make
secured loans of its portfolio securities to broker-dealers or U.S. banks
provided: (i) such loans are secured continuously by collateral consisting of
cash, cash equivalents, or U.S. Government securities maintained on a daily
marked-to-market basis in an amount or at a market value at least equal to the
current market value of the securities loaned; (ii) the Portfolio may at any
time call such loans and obtain the securities loaned; (iii) the Portfolio
will receive an amount in cash at least equal to the interest or dividends
paid on the loaned securities; and (iv) the aggregate market value of
securities loaned will not at any time exceed 25% of the total assets of the
Portfolio except for the Large-Cap Value, the Mid-Cap Value, the Small-Cap
Index, and the REIT Portfolios, each of which may loan portfolio securities in
an amount not to exceed 33 1/3% of the value of its total assets. In addition,
it is anticipated that the Portfolio may share with the borrower some of the
income received on the collateral for the loan or that it will be paid a
premium for the loan. It should be noted that in connection with the lending
of its portfolio securities, the Portfolio is exposed to the risk of delay in
recovery of the securities loaned or possible loss of rights in the collateral
should the borrower become insolvent. The Fund has contracted with State
Street Bank & Trust Company to engage in securities lending of domestic
securities and The Chase Manhattan Bank ("Chase") to engage in securities
lending of foreign securities (collectively, the "Lending Agents"). In
determining whether to lend securities, the Lending Agents consider all
relevant facts and circumstances, including the creditworthiness of the
borrower. Voting rights attached to the loaned securities may pass to the
borrower with the lending of portfolio securities. The Portfolio may recall
securities if the Portfolio Manager wishes to vote on matters put before
shareholders.
 
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 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
 
                                      30
<PAGE>
 
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.
 
Short Sales Against the Box
 
  The Aggressive Equity, Mid-Cap Value and Equity Portfolios may enter into
short sales "against the box." A short sale is "against the box" when a
Portfolio enters into a transaction to sell a security short as described
above, while at all times during which a short position is open, maintaining
an equal amount of such securities, or owning securities giving it the right,
without payment of future consideration, to obtain an equal amount of
securities sold short. The Portfolio's obligation to replace the securities
sold short is then completed by purchasing the securities at their market
price at time of replacement. No more than 15% of the value of a Portfolio's
net assets will be subject to such short sales at any time.
 
Illiquid and Restricted Securities (Private Placements)
 
  All Portfolios may acquire illiquid securities. Generally, a security is
considered illiquid if it cannot be disposed of within seven days. Its
illiquidity might prevent the sale of such security at a time when a Portfolio
Manager might wish to sell, and these securities could have the effect of
decreasing the overall level of a Portfolio's liquidity. Further, the lack of
an established secondary market may make it more difficult to value illiquid
securities, requiring the Fund to rely on judgments that may be somewhat
subjective in determining value, which could vary from the amount that a
Portfolio could realize upon disposition.
 
  All Portfolios except the Equity Index Portfolio may invest in restricted
securities (including privately placed securities) but a Portfolio will not
acquire such securities if they are illiquid and other securities that are
illiquid, such as repurchase agreements maturing in more than seven days, if
as a result they would comprise more than 15% of the value of the Portfolio's
net assets, and in the case of the Money Market Portfolio, 10% of the value of
its Portfolio assets. The privately placed securities in which these
Portfolios may invest are called restricted securities because there are
restrictions or conditions attached to their resale.
 
  Restricted securities may be sold only in a public offering with respect to
which a registration statement is in effect under the Securities Act of 1933
or in a transaction exempt from such registration such as certain privately
negotiated transactions. Where registration is required, the Portfolio may be
obligated to pay all or part of the registration expenses and a considerable
period may elapse between the time of the decision to sell and the time the
Portfolio may be permitted to sell a security under an effective registration
statement. If, during such a period, adverse market conditions were to
develop, the Portfolio might obtain a less favorable price than prevailed when
it decided to sell. Restricted securities will be priced at fair value as
determined in good faith under the direction of the Board of Trustees. If
through the appreciation of restricted securities or the depreciation of
unrestricted securities, the Portfolio should be in a position where more than
15% of the value of its net assets are invested in restricted securities that
are illiquid and other securities that are illiquid, the Portfolio Manager
will consider whether steps should be taken to assure liquidity.
 
  Certain restricted securities may be purchased by certain "qualified
institutional buyers" without the necessity for registration of the
securities. A Portfolio may acquire such a security without the security being
treated as illiquid for purposes of the above-described limitation on
acquisition of illiquid assets if the Portfolio Manager determines that the
security is liquid under guidelines adopted by the Fund's Board of Trustees.
Investing in such restricted securities could have the effect of increasing
the level of the Portfolio's illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities.
 
Precious Metals-Related Securities
 
  The Equity Portfolio, and possibly other Portfolios that invest in equity
securities, may invest in precious metals-related securities. Precious metals-
related securities are considered equity securities of U.S. and foreign
 
                                      31
<PAGE>
 
companies involved in the exploration, mining, development, production, or
distribution of gold or other natural resources, including minerals and metals
such as copper, aluminum, silver, platinum, uranium, strategic metals,
diamonds, coal, oil, and phosphates.
 
  The value of these securities may be affected by worldwide financial and
political factors, and prices may fluctuate sharply over short time periods.
For example, precious metals securities may be affected by changes in
inflation expectations in various countries, metal sales by central banks of
governments or international agencies, governmental restrictions on the
private ownership of certain precious metals or minerals and other factors.
 
Foreign Securities
 
  The Money Market, High Yield Bond, Managed Bond, Government Securities,
Aggressive Equity, Growth LT, Multi-Strategy, Large-Cap Value, Mid-Cap Value,
Bond and Income, REIT, International, and Emerging Markets Portfolios may
invest directly in U.S. dollar-denominated corporate debt securities of
foreign issuers, certain foreign bank obligations and U.S. dollar-denominated
obligations of foreign governments, foreign government agencies and
international agencies. The Growth, Growth LT, Equity Income, Multi-Strategy
and Equity Index Portfolios may invest in equity securities of foreign issuers
if U.S. exchange listed or if otherwise included in the S&P 500. The Growth LT
Portfolio may invest up to 25% of its assets in foreign securities denominated
in a foreign currency and not publicly traded in the United States. The
Aggressive Equity Portfolio may invest in securities of foreign issuers that
are traded in U.S. securities markets and may invest up to 20% of its assets
in securities that are traded principally in securities markets outside of the
United States. The International and Emerging Markets Portfolios may invest in
equity securities of foreign corporations, nonconvertible fixed income
securities denominated in foreign currencies, and in securities represented by
EDRs, GDRs, or other securities convertible into equity securities of foreign
issuers. The Growth LT Portfolio may also invest in EDRs and GDRs and other
types of receipts of shares evidencing ownership of the underlying foreign
securities. The Managed Bond and Government Securities Portfolios may each
invest up to 20% of their assets in non-U.S. dollar-denominated debt
securities of foreign issuers. The Large-Cap Value Portfolio may invest up to
20% of its net assets in securities of foreign companies, the Mid-Cap Value
Portfolio may invest up to 15% of its total assets in foreign equity or debt
securities, and the REIT Portfolio may invest up to 10% of its assets in
foreign equity or debt securities, which may include GDRs. The Multi-Strategy
and Bond and Income Portfolios may invest up to 10% of their assets in non-
U.S. dollar-denominated debt securities of foreign issuers. The Small-Cap
Index Portfolio may invest in foreign equity securities if they are U.S.
exchange listed and if they are included in the Russell 2000 Index. All
Portfolios, except the Equity Portfolio, may purchase ADRs which are dollar-
denominated receipts issued generally by domestic banks and representing the
deposit with the bank of a security of a foreign issuer. ADRs are publicly-
traded on exchanges or over-the-counter in the United States.
 
  Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies.
These risks are intensified with respect to investments in emerging market
countries. These include differences in accounting, auditing and financial
reporting standards, generally higher commission rates on foreign portfolio
transactions, the possibility of expropriation, nationalization, or
confiscatory taxation, adverse changes in investment or exchange control
regulations, trade restrictions, political instability (which can affect U.S.
investments in foreign countries), and potential restrictions on the flow of
international capital. It may be more difficult to obtain and enforce
judgments against foreign entities. Additionally, income (including dividends
and interest) from foreign securities may be subject to foreign taxes,
including foreign withholding taxes, and other foreign taxes may apply with
respect to securities transactions. Transactions on foreign exchanges or over-
the-counter markets may involve greater time from the trade date until
settlement than for domestic securities transactions and, if the securities
are held abroad, may involve the risk of possible losses through the holding
of securities in custodians and depositories in foreign countries. Foreign
securities often trade with less frequency and volume than domestic securities
and therefore may exhibit greater price volatility. Changes in foreign
exchange rates will affect the value of those securities which are denominated
or quoted in currencies other than the U.S. dollar. Investing in ADRs may
involve many of the same special risks associated with investing in securities
of foreign issuers other than liquidity risks.
 
                                      32
<PAGE>
 
  There is generally less publicly available information about foreign
companies comparable to reports and ratings that are published about companies
in the United States. Foreign companies are also generally not subject to
uniform accounting and auditing and financial reporting standards, practices,
and requirements comparable to those applicable to U.S. companies.
 
  It is contemplated that most foreign securities will be purchased in over-
the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign stock markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New
York Stock Exchange, and securities of some foreign companies are less liquid
and more volatile than securities of comparable U.S. companies. Similarly,
volume and liquidity in most foreign bond markets is less than in the United
States and at times, volatility of price can be greater than in the United
States. Fixed commissions on foreign stock exchanges are generally higher than
negotiated commissions on U.S. exchanges, although the Portfolio will endeavor
to achieve the most favorable net results on its portfolio transactions. There
is generally less government supervision and regulation of stock exchanges,
brokers, and listed companies than in the United States.
 
  With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations,
nationalization, expropriation or confiscatory taxation, limitations on the
removal of funds or other assets of the Portfolio, political or social
instability, or diplomatic developments which could affect United States
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the United States' economy in such
respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, and balance of payments position.
 
  The dividends and interest payable on certain of the Portfolios' foreign
portfolio securities may be subject to foreign withholding taxes, thus
reducing the net amount of income available for distribution.
 
  Investors should understand that the expense ratio of the International and
Emerging Markets Portfolios can be expected to be higher than investment
companies investing in domestic securities since the cost of maintaining the
custody of foreign securities and the rate of advisory fees paid by the
Portfolios are higher.
 
  Investment in foreign securities also involves the risk of possible losses
through the holding of securities in custodian banks and securities
depositories in foreign countries. The Fund has entered into a Custody
Agreement with Investors Fiduciary Trust Company ("IFTC"), a trust company
chartered under the laws of Missouri, which has entered into a Subcustodial
Agreement with Chase under which Chase, together with certain of its foreign
branches and agencies and foreign banks and securities depositories acting as
subcustodian to Chase, will maintain custody of the securities and other
assets of foreign issuers for the Fund. Under these agreements, Chase and IFTC
have agreed (i) to use reasonable care in the safekeeping of these securities,
(ii) to indemnify and hold harmless the Fund from and against any loss which
shall occur as a result of the failure of a foreign bank or securities
depository holding such securities and (iii) to exercise reasonable care in
the safekeeping of such securities to the same extent as if the securities
were held in New York. Pursuant to requirements of the SEC, Chase is required
to use reasonable care in the selection of foreign subcustodians, and to
consider the financial strength of the foreign subcustodian, its general
reputation and standing (for depository, its operating history and number of
participants), its ability to provide efficiently the custodial services
required, its relative costs for the services to be rendered, and the Fund's
ability to obtain jurisdiction over the foreign subcustodian to enforce
judgments. No assurance can be given that expropriation, nationalization,
freezes, or confiscation of assets, which would impact assets of the
Portfolio, will not occur, and shareholders bear the risk of losses arising
from these or other events.
 
  The International and Emerging Markets Portfolios may invest in shares of
investment companies organized to invest in foreign countries. Under the 1940
Act, the Portfolio may not own more than 3% of the outstanding
voting stock of an investment company, invest more than 5% of the Portfolio's
total assets in any one investment company, or invest more than 10% of the
Portfolio's total assets in the securities of investment companies.
 
                                      33
<PAGE>
 
  The International and Emerging Markets Portfolios' foreign investments will
be allocated to at least three countries at all times. In addition, each
Portfolio may not invest more than 50% of its assets in any one second tier
country or more than 25% of its assets in any one third tier country. First
tier countries are: Germany, the United Kingdom, Japan, the United States,
France, Canada, and Australia. Second tier countries are all countries not in
the first or third tier. Third tier countries are countries identified as
"emerging" or "developing" by the International Bank for Reconstruction and
Development ("World Bank") or International Finance Corporation. The
Portfolios are not subject to any limit upon investment in issuers domiciled
or primarily traded in the United States. Less diversification among countries
may create an opportunity for higher returns, but may also result in higher
risk of loss because of greater exposure to a market decline in a single
country.
 
Foreign Currency Transactions and Forward Foreign Currency Contracts
 
  Generally, the foreign exchange transactions of the Managed Bond, Government
Securities, Aggressive Equity, Growth LT, Multi-Strategy, Large-Cap Value,
Mid-Cap Value, Bond and Income, International, and Emerging Markets Portfolios
will be conducted on a spot, i.e., cash, basis at the spot rate for purchasing
or selling currency prevailing in the foreign exchange market. This rate,
under normal market conditions, differs from the prevailing exchange rate in
an amount generally less than 0.15 of 1% due to the costs of converting from
one currency to another. However, the Portfolios have authority to deal in
forward foreign exchange as a hedge against possible fluctuations in foreign
exchange rates. This is accomplished through contractual agreements to
purchase or sell a specified currency at a specified future date and price set
at the time of the contract.
 
  A Portfolio's dealings in forward foreign exchange will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward foreign currency
contracts with respect to specific receivables or payables of a Portfolio
arising from the purchase and sale of portfolio securities, the sale and
redemption of shares of a Portfolio, or the payment of dividends and
distributions by a Portfolio. Position hedging is the sale of forward foreign
currency contracts with respect to portfolio security positions denominated in
or exposed to quoted in a foreign currency. In connection with either of these
types of hedging, a Portfolio may also engage in proxy hedging. Proxy hedging
entails entering into a forward contract to buy or sell a currency whose
changes in value are generally considered to be moving in correlation with a
currency or currencies in which portfolio securities are or are expected to be
denominated. Proxy hedging is often used when a currency in which portfolio
securities are denominated is difficult to hedge. The precise matching of a
currency with a proxy currency will not generally be possible and there may be
some additional currency risk in connection with such hedging transactions.
The Portfolios will not speculate in forward foreign exchange.
 
  A Portfolio may enter into forward foreign currency contracts only under the
following circumstances: First, when a Portfolio enters into a contract for
the purchase or sale of a security denominated in or exposed to a foreign
currency, it may desire to "lock in" the U.S. dollar price of the security. By
entering into a forward contract for the purchase or sale of the amount of
foreign currency involved in the underlying security transactions (or a proxy
currency considered to move in correlation with that currency) for a fixed
amount of dollars, a Portfolio may be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
U.S. dollar and the subject foreign currency during the period between the
date the security is purchased or sold and the date on which payment is made
or received. Second, when the Portfolio Manager of a Portfolio believes that
the currency of a particular foreign country may suffer a substantial movement
against another currency, it may enter into a forward contract to sell or buy
the amount of the former foreign currency (or a proxy currency considered to
move in correlation with that currency), approximating the value of some or
all of the Portfolio's portfolio securities denominated in or exposed to such
foreign currency. The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible since the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of those securities between the
date the forward contract is entered into and the date it matures. The
projection of short-term currency market movements is extremely difficult and
the successful execution of a short-term hedging strategy is highly uncertain.
In no event will a Portfolio enter into forward
 
                                      34
<PAGE>
 
contracts under this second circumstance, or maintain a net exposure to such
contracts, where the consummation of the contracts would obligate the
Portfolio to deliver an amount of foreign currency in excess of the value of
that Portfolio's portfolio securities or other assets denominated in or
exposed to that foreign currency (or a proxy currency considered to move in
correlation with that currency). In addition, a Portfolio will not enter into
forward contracts under this second circumstance, if, as a result, the
Portfolio will have more than 25% of the value of its total assets committed
to the consummation of such contracts. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer term investment decisions made with regard to overall
diversification strategies. The Portfolios will cover outstanding forward
currency contracts by maintaining liquid portfolio securities or other assets
denominated in or exposed to the currency underlying the forward contract or
the currency being hedged. To the extent that a Portfolio is not able to cover
its forward currency positions with underlying portfolio securities, the
Portfolio's custodian bank will place cash or liquid equity or debt securities
in a separate account of the Portfolio in an amount equal to the value of the
Portfolio's total assets committed to the consummation of forward foreign
currency exchange contracts. If the value of the securities used to cover a
position or the value of assets placed in the separate account declines, a
Portfolio will find alternative cover or additional cash or securities will be
placed in the account on a daily basis so that the value of the segregated
assets will equal the amount of the Portfolio's commitments with respect to
such contracts.
 
  When a Portfolio Manager of a Portfolio believes that the currency of a
particular foreign country may suffer a decline against the U.S. dollar, that
Portfolio may enter into a forward contract to sell the amount of foreign
currency approximating the value of some or all of the Portfolio's holdings
denominated in or exposed to such foreign currency. At the maturity of the
forward contract to sell, the Portfolio may either sell the portfolio security
and make delivery of the foreign currency or it may retain the security and
terminate its contractual obligation to deliver the foreign currency by
purchasing an "offsetting" contract with the same currency trader obligating
the Portfolio to purchase, on the same maturity date, the same amount of the
foreign currency.
 
  It is impossible to forecast with absolute precision the market value of
portfolio securities at the expiration of the contract. Accordingly, it may be
necessary for a Portfolio to purchase additional foreign currency on the spot
market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency the Portfolio is
obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency. Conversely, it may be necessary to sell on
the spot market some of the foreign currency received upon the sale of the
portfolio security if its market value exceeds the amount of foreign currency
the Portfolio is obligated to deliver.
 
  If a Portfolio retains the portfolio security and engages in an offsetting
transaction, the Portfolio will incur a gain or a loss (as described below) to
the extent that there has been movement in forward contract prices. If the
Portfolio engages in an offsetting transaction, it may subsequently enter into
a new forward contract to sell the foreign currency. Should forward prices
decline during the period between the Portfolio's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Portfolio
will realize a gain to the extent the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should
forward prices increase, the Portfolio will suffer a loss to the extent the
price of the currency it has agreed to purchase exceeds the price of the
currency it has agreed to sell.
 
  A Portfolio's dealings in forward foreign currency exchange contracts will
be limited to the transactions described above. Of course, a Portfolio is not
required to enter into such transactions with regard to their foreign currency
denominated securities and will not do so unless deemed appropriate by its
Portfolio Manager. It also should be realized that this method of protecting
the value of a Portfolio's holdings in securities against a decline in the
value of a currency does not eliminate fluctuations in the underlying prices
of the securities. It simply establishes a rate of exchange which one can
achieve at some future point in time. Additionally, although such contracts
tend to minimize the risk of loss due to a decline in the value of the hedged
currency, at the same time they tend to limit any potential gain which might
result from the value of such currency increase.
 
  Although a Portfolio values its shares in terms of U.S. dollars, it does not
intend to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. It will do so from time to time, and investors should be
 
                                      35
<PAGE>
 
aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they do realize a profit based on the
difference (the "spread") between the prices at which they are buying and
selling various currencies. Thus, a dealer may offer to sell a foreign
currency to a Portfolio at one rate, while offering a lesser rate of exchange
should the Portfolio desire to resell that currency to the dealer.
 
  The Managed Bond, Government Securities, Aggressive Equity, Growth LT,
Large-Cap Value, Mid-Cap Value, Bond and Income, International, and Emerging
Markets Portfolios may also purchase and write options on foreign currencies,
invest in foreign currency futures contracts, and purchase and write options
thereon, as described below.
 
Options
 
  In pursuing their investment objectives, the High Yield Bond, Managed Bond,
Government Securities, Aggressive Equity, Growth LT, Equity Income, Multi-
Strategy, Large-Cap Value, Mid-Cap Value, Equity, Bond and Income, REIT, and
Emerging Markets Portfolios may engage in the purchase and writing of put and
call options on securities. In pursuing their investment objectives, the
Aggressive Equity, Growth LT, Equity Income, Multi-Strategy, Large-Cap Value,
Mid-Cap Value, Equity, Bond and Income, Equity Index, Small-Cap Index,
International and Emerging Markets Portfolios may purchase put and call
options on stock indexes and the Aggressive Equity, Growth LT, Equity Income,
Multi-Strategy, Mid-Cap Value, Equity, Bond and Income, International and
Emerging Markets Portfolios may write put and call options on securities
indexes.
 
  Purchasing and Writing Options on Securities. The High Yield Bond, Managed
Bond, Government Securities, Aggressive Equity, Growth LT, Equity Income,
Multi-Strategy, Large-Cap Value, Mid-Cap Value, Equity, Bond and Income, REIT,
and Emerging Markets Portfolios may purchase and write put and call options on
securities. A Portfolio may purchase and sell (write) (i) both put and call
options on debt or other securities in standardized contracts traded on
national securities exchanges, boards of trade, similar entities, or for which
an established over-the-counter market exists; and (ii) agreements, sometimes
called cash puts, which may accompany the purchase of a new issue of bonds
from a dealer.
 
  An option on a security is a contract that gives the holder of the option,
in return for a premium, the right to buy from (in the case of a call) or sell
to (in the case of a put) the writer of the option the security underlying the
option at a specified exercise price at any time during the term of the
option. The writer of an option on a security has the obligation upon exercise
of the option to deliver the underlying security upon payment of the exercise
price or to pay the exercise price upon delivery of the underlying security. A
Portfolio may purchase put options on securities to protect holdings in an
underlying or related security against a substantial decline in market value.
Securities are considered related if their price movements generally correlate
to one another. For example, the purchase of put options on debt securities
held in a Portfolio will enable a Portfolio to protect, at least partially, an
unrealized gain in an appreciated security without actually selling the
security. In addition, the Portfolio will continue to receive interest income
on such security.
 
  A Portfolio may purchase call options on securities to protect against
substantial increases in prices of securities the Portfolio intends to
purchase pending its ability to invest in such securities in an orderly
manner. A Portfolio may sell put or call options it has previously purchased,
which could result in a net gain or loss depending on whether the amount
realized on the sale is more or less than the premium and other transaction
costs paid on the put or call option which is sold. A Portfolio may also allow
options to expire unexercised.
 
  In order to earn additional income on its portfolio securities or to protect
partially against declines in the value of such securities, a Portfolio may
write covered call options. The exercise price of a call option may be below,
equal to, or above the current market value of the underlying security at the
time the option is written. During the option period, a covered call option
writer may be assigned an exercise notice by the broker-dealer through whom
such call option was sold requiring the writer to deliver the underlying
security against payment of the exercise price. This obligation is terminated
upon the expiration of the option period or at such earlier time in which the
writer effects a closing purchase transaction. Closing purchase transactions
will ordinarily be effected to realize a profit on an outstanding call option,
to prevent an underlying security from being called, to
 
                                      36
<PAGE>
 
permit the sale of the underlying security, or to enable the Portfolio to
write another call option on the underlying security with either a different
exercise price or expiration date or both.
 
  In order to earn additional income or to facilitate its ability to purchase
a security at a price lower than the current market price of such security, a
Portfolio may write secured put options. During the option period, the writer
of a put option may be assigned an exercise notice by the broker-dealer
through whom the option was sold requiring the writer to purchase the
underlying security at the exercise price.
 
  A Portfolio may write call options and put options only if they are
"covered" or "secured." In the case of a call option on a security, the option
is "covered" if the Portfolio owns the security underlying the call or has an
absolute and immediate right to acquire that security without additional cash
consideration (or, if additional cash consideration is required, cash or cash
equivalents in such amount are placed in a segregated account by its
custodian) upon conversion or exchange of other securities held by the
Portfolio, or, if the Portfolio has a call on the same security if the
exercise price of the call held (i) is equal to or less than the exercise
price of the call written or (ii) is greater than the exercise price of the
call written, if the difference is maintained by the Portfolio in cash, U.S.
Government securities or liquid securities marked-to-market daily in a
segregated account with the Fund's custodian. A put is secured if the
Portfolio maintains cash, U.S. Government securities or liquid securities
marked-to-market daily with a value equal to the exercise price in a
segregated account or holds a put on the same underlying security at an equal
or greater exercise price.
 
  Prior to the earlier of exercise or expiration, an option may be closed out
by an offsetting purchase or sale of an option of the same series (type,
exchange, underlying security, exercise price, and expiration). There can be
no assurance, however, that a closing purchase or sale transaction can be
effected when the Portfolio desires.
 
  A Portfolio will realize a capital gain from a closing purchase transaction
if the cost of the closing option is less than the premium received from
writing the option, or, if it is more, the Portfolio will realize a capital
loss. If the premium received from a closing sale transaction is more than the
premium paid to purchase the option, the Portfolio will realize a capital gain
or, if it is less, the Portfolio will realize a capital loss. The principal
factors affecting the market value of a put or a call option include supply
and demand, interest rates, the current market price of the underlying
security in relation to the exercise price of the option, the volatility of
the underlying security, and the time remaining until the expiration date.
 
  The premium paid for a put or call option purchased by a Portfolio is an
asset of the Portfolio. The premium received for an option written by a
Portfolio is recorded as a deferred credit. The value of an option purchased
or written is marked-to-market daily and is valued at the closing price on the
exchange on which it is traded or, if not traded on an exchange or no closing
price is available, at the mean between the last bid and asked prices.
 
  Purchasing and Writing Options on Stock Indexes. The Aggressive Equity,
Growth LT, Equity Income, Multi-Strategy, Large-Cap Value, Mid-Cap Value,
Equity, Bond and Income, Equity Index, International and Emerging Markets
Portfolios may purchase put and call options on stock indexes which are
standardized and traded on a U.S. exchange or board of trade, or for which an
established over-the-counter market exists. The Aggressive Equity, Growth LT,
Equity Income, Multi-Strategy, Mid-Cap Value, Equity, Bond and Income,
International and Emerging Markets Portfolios may sell put and call options on
securities indexes that are exchange traded or traded on over-the-counter
markets. Like other options listed on United States securities exchanges,
index options are issued by the Options Clearing Corporation ("OCC"). The
Small-Cap Index Portfolio may purchase and sell options on stock indexes that
are based on the Russell 2000 or other indexes of small capitalization
companies.
 
  A stock index is a method of reflecting in a single number the market values
of many different stocks or, in the case of value weighted indices that take
into account prices of component stocks and the number of shares outstanding,
the market values of many different companies. Stock indexes are compiled and
published by various sources, including securities exchanges. An index may be
designed to be representative of the stock market as a whole, of a broad
market sector (e.g., industrials), or of a particular industry (e.g.,
electronics). An index may be based on the prices of all, or only a sample, of
the stocks whose value it is intended to represent.
 
                                      37
<PAGE>
 
  A stock index is ordinarily expressed in relation to a "base" established
when the index was originated. The base may be adjusted from time to time to
reflect, for example, capitalization changes affecting component stocks. In
addition, stocks may from time to time be dropped from or added to an index
group. These changes are within the discretion of the publisher of the index.
 
  Different stock indexes are calculated in different ways. Often the market
prices of the stocks in the index group are "value weighted;" that is, in
calculating the index level, the market price of each component stock is
multiplied by the number of shares outstanding. Because of this method of
calculation, changes in the stock prices of larger corporations will generally
have a greater influence on the level of a value weighted (or sometimes
referred to as a capitalization weighted) index than price changes affecting
smaller corporations.
 
  In general, index options are very similar to stock options, and are
basically traded in the same manner. However, when an index option is
exercised, the exercise is settled by the payment of cash--not by the delivery
of stock. The assigned writer of a stock option is obligated to pay the
exercising holder cash in an amount equal to the difference (expressed in
dollars) between the closing level of the underlying index on the exercise
date and the exercise price of the option, multiplied by a specified index
"multiplier." A multiplier of 100, for example, means that a one-point
difference will yield $100.
 
  Gains or losses on the Portfolios' transactions in securities index options
depend primarily on price movements in the stock market generally (or, for
narrow market indexes, in a particular industry or segment of the market)
rather than the price movements of individual securities held by a Portfolio
of the Fund. A Portfolio may sell securities index options prior to expiration
in order to close out its positions in stock index options which it has
purchased. A Portfolio may also allow options to expire unexercised.
 
  Risks of Options Transactions. There are several risks associated with
transactions in options. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. A decision as to whether, when, and how to use options
involves the exercise of skill and judgment, and even a well-conceived
transaction may be unsuccessful to some degree because of market behavior or
unexpected events.
 
  There can be no assurance that a liquid market will exist when a Portfolio
seeks to close out an option position. If a Portfolio were unable to close out
an option it had purchased on a security, it would have to exercise the option
to realize any profit or the option may expire worthless. If a Portfolio were
unable to close out a covered call option it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise. As the writer of a covered call option, a Portfolio forgoes,
during the option's life, the opportunity to profit from increases in the
market value of the security covering the call option above the sum of the
premium and the exercise price of the call.
 
  If trading were suspended in an option purchased by a Portfolio, the
Portfolio would not be able to close out the option. If restrictions on
exercise were imposed, the Portfolio might be unable to exercise an option it
has purchased.
 
  With respect to index options, current index levels will ordinarily continue
to be reported even when trading is interrupted in some or all of the stocks
in an index group. In that event, the reported index levels will be based on
the current market prices of those stocks that are still being traded (if any)
and the last reported prices for those stocks that are not currently trading.
As a result, reported index levels may at times be based on non-current price
information with respect to some or even all of the stocks in an index group.
Exchange rules permit (and in some instances require) the trading of index
options to be halted when the current value of the underlying index is
unavailable or when trading is halted in stocks that account for more than a
specified percentage of the value of the underlying index. In addition, as
with other types of options, an exchange may halt the trading of index options
whenever it considers such action to be appropriate in the interests of
maintaining a fair and orderly market and protecting investors. If a trading
halt occurs, whether for these or for other reasons, holders of index options
may be unable to close out their positions and the options may expire
worthless.
 
                                      38
<PAGE>
 
  Spread Transactions. The High Yield Bond, Managed Bond and Government
Securities Portfolios may enter into spread transactions with securities
dealers. Such spread transactions are not generally exchange listed or traded.
Spread transactions may occur in the form of options, futures, forwards or
swap transactions. The purchase of a spread transaction gives a Portfolio the
right to sell or receive a security or a cash payment with respect to an index
at a fixed dollar spread or fixed yield spread in relationship to another
security or index which is used as a benchmark. The risk to a Portfolio in
purchasing spread transactions is the cost of the premium paid for the spread
transaction and any transaction costs. The sale of a spread transaction
obligates a Portfolio to purchase or deliver a security or a cash payment with
respect to an index at a fixed dollar spread or fixed yield spread in
relationship to another security or index which is used as a benchmark. In
addition, there is no assurance that closing transactions will be available.
The purchase and sale of spread transactions will be used in furtherance of a
Portfolio's objectives and to protect a Portfolio against adverse changes in
prevailing credit quality spreads, i.e., the yield spread between high quality
and lower quality securities. Such protection is only provided during the life
of the spread transaction. The Fund does not consider a security covered by a
spread transaction to be "pledged" as that term is used in the Fund's policy
limiting the pledging or mortgaging of its assets. The sale of spread
transactions will be "covered" or "secured" as described in the "Options",
"Options on Foreign Currencies", "Futures Contracts and Options on Futures
Contracts", and "Swap Agreements and Options on Swap Agreements" sections.
 
Options on Foreign Currencies
 
  The Managed Bond, Government Securities, Aggressive Equity, Growth LT,
Large-Cap Value, Mid-Cap Value, Bond and Income, International, and Emerging
Markets Portfolios may purchase and sell options on foreign currencies for
hedging purposes in a manner similar to that in which futures or forward
contracts on foreign currencies will be utilized. For example, a decline in
the U.S. dollar value of a foreign currency in which portfolio securities are
denominated will reduce the U.S. dollar value of such securities, even if
their value in the foreign currency remains constant. In order to protect
against such diminutions in the value of portfolio securities, a Portfolio may
buy put options on the foreign currency. If the value of the currency
declines, the Portfolio will have the right to sell such currency for a fixed
amount in U.S. dollars and will offset, in whole or in part, the adverse
effect on its portfolio.
 
  Conversely, when a rise in the U.S. dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Portfolio may buy call options thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other types of options,
however, the benefit to the Portfolio from purchases of foreign currency
options will be reduced by the amount of the premium and related transaction
costs. In addition, if currency exchange rates do not move in the direction or
to the extent desired, the Portfolio could sustain losses on transactions in
foreign currency options that would require the Portfolio to forgo a portion
or all of the benefits of advantageous changes in those rates.
 
  A Portfolio may write options on foreign currencies for hedging purposes.
For example, to hedge against a potential decline in the U.S. dollar value of
foreign currency denominated securities due to adverse fluctuations in
exchange rates, the Portfolio could, instead of purchasing a put option, write
a call option on the relevant currency. If the expected decline occurs, the
option will most likely not be executed and the diminution in value of
portfolio securities will be offset by the amount of the premium received.
 
  Similarly, instead of purchasing a call option to hedge against a potential
increase in the U.S. dollar cost of securities to be acquired, the Portfolio
could write a put option on the relevant currency which, if rates move in the
manner projected, will expire unexercised and allow the Portfolio to hedge the
increased cost up to the amount of the premium. As in the case of other types
of options, however, the writing of a foreign currency option will constitute
only a partial hedge up to the amount of the premium. If exchange rates do not
move in the expected direction, the option may be exercised and the Portfolio
would be required to buy or sell the underlying currency at a loss which may
not be offset by the amount of the premium. Through the writing of options on
foreign currencies, the Portfolio also may lose all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
exchange rates.
 
                                      39
<PAGE>
 
  A Portfolio may write covered call and put options on foreign currencies. A
call option written on a foreign currency by the Portfolio is "covered" if the
Portfolio (i) owns the underlying foreign currency covered by the call; (ii)
has an absolute and immediate right to acquire that foreign currency without
additional cash consideration (or for additional cash consideration held in a
segregated account by the Fund's custodian) upon conversion or exchange of
other foreign currency held in its portfolio; (iii) has a call on the same
foreign currency and in the same principal amount as the call written if the
exercise price of the call held (a) is equal to or less than the exercise
price of the call written, or (b) is greater than the exercise price of the
call written, if the difference is maintained by the Portfolio in government
securities, cash or liquid securities marked-to-market daily of that foreign
currency, and/or cash, U.S. Government securities, or liquid securities
marked-to-market daily in a segregated account with the Fund's custodian; or
(iv) cross-hedges the call option by segregating and marking-to-market cash or
liquid assets equal to the value of the underlying foreign currency. A put
option written on a foreign currency by a Portfolio is "covered" if the option
is secured by (i) government securities, cash or liquid securities marked-to-
market daily of that foreign currency, and/or U.S. Government securities, cash
or liquid securities marked-to-market daily at least equal to the exercise
price in a segregated account, or (ii) a put on the same underlying currency
at an equal or greater exercise price.
 
  A Portfolio also may write call options on foreign currencies for cross-
hedging purposes that would not be deemed to be covered. A call option on a
foreign currency is for cross-hedging purposes if it is not covered but is
designed to provide a hedge against a decline due to an adverse change in the
exchange rate in the U.S. dollar value of a security which the Portfolio owns
or has the right to acquire and which is denominated in the currency
underlying the option. In such circumstances, the Portfolio collateralizes the
option by maintaining, in a segregated account with the Fund's custodian,
cash, U.S. Government Securities, and/or liquid securities marked-to-market
daily in an amount not less than the value of the underlying foreign currency
in U.S. dollars marked-to-market daily.
 
  Foreign currency options are subject to the risks of the availability of a
liquid secondary market described above, as well as the risks regarding
adverse market movements, margining of options written, the nature of the
foreign currency market, possible intervention by governmental authorities and
the effects of other political and economic events. In addition, exchange-
traded options on foreign currencies involve certain risks not presented by
the over-the-counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has established
banking relationships in applicable foreign countries for this purpose. As a
result, the OCC may, if it determines that foreign governmental restrictions
or taxes would prevent the orderly settlement of foreign currency option
exercises, or would result in undue burdens on the OCC or its clearing member,
impose special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions on exercise.
 
  In addition, options on foreign currencies may be traded on foreign
exchanges and over-the-counter in foreign countries. Such transactions are
subject to the risk of governmental actions affecting trading in or the prices
of foreign currencies or securities. The value of such positions also could be
adversely affected by (i) other complex foreign political and economic
factors, (ii) lesser availability than in the United States of data on which
to make trading decisions, (iii) delays in a Portfolio's ability to act upon
economic events occurring in foreign markets during non-business hours in the
United States, (iv) the imposition of different exercise and settlement terms
and procedures and margin requirements than in the United States, and (v) low
trading volume.
 
Investments in Other Investment Company Securities
 
  Under the 1940 Act, a Portfolio may not own more than 3% of the outstanding
voting stock of an investment company, invest more than 5% of its total assets
in any one investment company, or invest more than 10% of its total assets in
the securities of investment companies. As the shareholder of another
investment company, a Portfolio would bear, along with other shareholders, its
pro rata portion of the other investment company's expenses, including
advisory fees. Such expenses are in addition to the expenses a Portfolio pays
in connection with its own operations.
 
                                      40
<PAGE>
 
  SPDRs. The Equity Portfolio may also invest in SPDRs in compliance with the
1940 Act. SPDRs are interests in a unit investment trust ("UIT") that may be
obtained from the UIT or purchased in the secondary market (SPDRs are listed
on the American Stock Exchange). The UIT has been established to accumulate
and hold a portfolio of common stocks that is intended to track the price
performance and dividend yields of the S&P 500.
 
  Individual investments in SPDRs are not redeemable, except upon termination
of the UIT. However, large quantities of SPDRs known as "Creation Units" are
redeemable from the sponsor of the UIT. The liquidity of small holdings of
SPDRs, therefore, will depend upon the existence of a secondary market.
 
  The price of SPDRs is derived from and based upon the securities held by the
UIT. Accordingly, the level of risk involved in the purchase or sale of a SPDR
is similar to the risk involved in the purchase or sale of traditional common
stock, with the exception that the pricing mechanism for SPDRs is based on a
basket of stocks. Disruptions in the markets for the securities underlying
SPDRs purchased or sold by the Equity Portfolio could result in losses on
SPDRs. Trading in SPDRs involves risks similar to those risks, described under
"Risks of Options Transactions."
 
  WEBS and OPALS. The Emerging Markets Portfolio may invest in WEBS ("World
Equity Benchmark Shares") and OPALS ("Optimised Portfolios as Listed
Securities"). WEBS have been listed on the American Stock Exchange since 1996
and are issued by Foreign Fund, Inc., an open-end investment company
registered under the 1940 Act. WEBS are designed to replicate the composition
and performance of publicly traded issuers in particular foreign countries.
The market prices of WEBS are expected to fluctuate in accordance with both
changes in the net asset values of their underlying indices and the supply and
demand of WEBS on the American Stock Exchange. Investments in WEBS are managed
by BZW Barclays Global Fund Advisors.
 
  OPALS track the performance of adjustable baskets of stocks owned by Morgan
Stanley Capital (Luxembourg) S.A. (the "Counterparty") until a specified
maturity date. Holders of OPALS will receive semi-annual distributions
corresponding to dividends received on shares contained in the underlying
basket of stocks, net of expenses. On the maturity date of the OPALS, the
holders will receive the physical securities comprising the underlying
baskets. OPALS represent an unsecured obligation and therefore carry with them
the risk that the Counterparty will default and the Portfolio may not be able
to recover the current value of its investment.
 
  Investments in WEBS and OPALS will be limited to the percentage restrictions
set forth above for investments in investment company securities.
 
Futures Contracts and Options on Futures Contracts
 
  The Large-Cap Value and Mid-Cap Value Portfolios may invest in futures
contracts on securities and options thereon. The High Yield Bond, Managed
Bond, Government Securities, Growth LT, Multi-Strategy, Bond and Income, REIT,
and International Portfolios may invest in interest rate futures and options
thereon. The Aggressive Equity, Growth LT, Equity Income, Multi-Strategy,
Large-Cap Value, Mid-Cap Value, Equity, Equity Index, Small-Cap Index,
International, and Emerging Markets Portfolios may invest in stock index
futures and options thereon.
 
  There are several risks associated with the use of futures and futures
options. While a Portfolio hedging transactions may protect the Portfolio
against adverse movements in the general level of interest rates or stock or
currency prices, such transactions could also preclude the opportunity to
benefit from favorable movements in the level of interest rates or stock or
currency prices. A hedging transaction may not correlate perfectly with price
movements in the assets being hedged. An incorrect correlation could result in
a loss on both the hedged assets in a Portfolio and/or the hedging vehicle, so
that the Portfolio's return might have been better had hedging not been
attempted.
 
                                      41
<PAGE>
 
  There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures contract or a futures option position.
Most futures exchanges and boards of trade limit the amount of fluctuation
permitted in futures contract prices during a single day; once the daily limit
has been reached on a particular contract, no trades may be made that day at a
price beyond that limit. In addition, certain of these instruments are
relatively new and lack a deep secondary market. Lack of a liquid market for
any reason may prevent a Portfolio from liquidating an unfavorable position
and the Portfolio would remain obligated to meet margin requirements until the
position is closed.
 
  If a fund buys a futures contract to gain exposure to securities, the fund
is exposed to the risk of change in the value of the futures contract, which
may be caused by a change in the value of the underlying securities.
 
  Interest Rate Futures. (The High Yield Bond, Managed Bond, Government
Securities, Growth LT, Multi-Strategy, Bond and Income, REIT, and
International Portfolios.) An interest rate futures contract is an agreement
between two parties (buyer and seller) to take or make delivery of a specified
quantity of financial instruments (such as GNMA certificates or Treasury
bonds) at a specified price at a future date. In the case of futures contracts
traded on U.S. exchanges, the exchange itself or an affiliated clearing
corporation assumes the opposite side of each transaction (i.e., as buyer or
seller). A futures contract may be satisfied or closed out by delivery or
purchase, as the case may be, of the financial instrument or by payment of the
change in the cash value of the index. Frequently, using futures to effect a
particular strategy instead of using the underlying or related security will
result in lower transaction costs being incurred. A public market exists in
futures contracts covering various financial instruments including U.S.
Treasury bonds, U.S. Treasury notes, GNMA certificates, three month
U.S. Treasury bills, 90 day commercial paper, bank certificates of deposit,
and Eurodollar certificates of deposit.
 
  As a hedging strategy a Portfolio might employ, a Portfolio would purchase
an interest rate futures contract when it is not fully invested in long-term
debt securities but wishes to defer their purchase for some time until it can
orderly invest in such securities or because short-term yields are higher than
long-term yields. Such purchase would enable the Portfolio to earn the income
on a short-term security while at the same time minimizing the effect of all
or part of an increase in the market price of the long-term debt security
which the Portfolio intended to purchase in the future. A rise in the price of
the long-term debt security prior to its purchase either would be offset by an
increase in the value of the futures contract purchased by the Portfolio or
avoided by taking delivery of the debt securities under the futures contract.
 
  A Portfolio would sell an interest rate futures contract in order to
continue to receive the income from a long-term debt security, while
endeavoring to avoid part or all of the decline in market value of that
security which would accompany an increase in interest rates. If interest
rates did rise, a decline in the value of the debt security held by the
Portfolio would be substantially offset by the ability of the Portfolio to
repurchase at a lower price the interest rate futures contract previously
sold. While the Portfolio could sell the long-term debt security and invest in
a short-term security, ordinarily the Portfolio would give up income on its
investment, since long-term rates normally exceed short-term rates.
 
  Stock Index Futures. (The Aggressive Equity, Growth LT, Equity Income,
Multi-Strategy, Large-Cap Value, Mid-Cap Value, Equity, Equity Index, Small-
Cap Index, International, and Emerging Markets Portfolios.) A stock index is a
method of reflecting in a single number the market values of many different
stocks or, in the case of capitalization weighted indices that take into
account both stock prices and the number of shares outstanding, many different
companies. An index fluctuates generally with changes in the market values of
the common stocks so included. A stock index futures contract is a bilateral
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to a specified dollar amount multiplied by the difference
between the stock index value at the close of the last trading day of the
contract and the price at which the futures contract is originally purchased
or sold. No physical delivery of the underlying stocks in the index is made.
 
  A Portfolio may purchase and sell stock index futures contracts to hedge its
securities portfolio. A Portfolio may engage in transactions in futures
contracts only in an effort to protect it against a decline in the value of
the Portfolio's portfolio securities or an increase in the price of securities
that the Portfolio intends to acquire. For
 
                                      42
<PAGE>
 
example, a Portfolio may sell stock index futures to protect against a market
decline in an attempt to offset partially or wholly a decrease in the market
value of securities that the Portfolio intends to sell. Similarly, to protect
against a market advance when the Portfolio is not fully invested in the
securities market, the Portfolio may purchase stock index futures that may
partly or entirely offset increases in the cost of securities that the
Portfolio intends to purchase.
 
  Futures Options. The High Yield Bond, Managed Bond, Government Securities,
Growth LT, Multi-Strategy, Bond and Income, REIT, and International Portfolios
may purchase and sell (write) call and put options on interest rate futures.
Futures options possess many of the same characteristics as options on
securities. A futures option gives the holder the right, in return for the
premium paid, to assume a long position (call) or short position (put) in a
futures contract at a specified exercise price at any time during the period
of the option. Upon exercise of a call option, the holder acquires a long
position in the futures contract and the writer is assigned the opposite short
position. In the case of a put option, the opposite is true.
 
  The Aggressive Equity, Growth LT, Equity Income, Multi-Strategy, Large-Cap
Value, Mid-Cap Value, Equity, Equity Index, Small-Cap Index, International,
and Emerging Markets Portfolios may purchase and sell put and call options on
stock index futures. Options on stock index futures contracts give the
purchaser the right, in return for the premium paid, to assume a position in a
stock index futures contract (a long position if the option is a call and a
short position if the option is a put) at a specified exercise price at any
time during the period of the option. Upon exercise of the option, the
delivery of the futures position by the writer of the option to the holder of
the option will be accompanied by delivery of the accumulated balance in the
writer's futures margin account which represents the amount by which the
market price of the stock index futures contract, at exercise, exceeds (in the
case of a call) or is less than (in the case of a put) the exercise price of
the option on the stock index futures contract. If an option is exercised on
the last trading day prior to the expiration date of the option, the
settlement will be made entirely in cash equal to the difference between the
exercise price of the option and the closing level of the index on which the
futures contract is based on the expiration date. Purchasers of options who
fail to exercise their options prior to the exercise date suffer a loss of the
premium paid. During the option period, the covered call writer (seller) has
given up the opportunity to profit from a price increase in the underlying
securities above the exercise price. The writer of an option has no control
over the time when it may be required to fulfill its obligation as a writer of
the option.
 
  The High Yield Bond, Multi-Strategy, Equity Income, Large-Cap Value, Mid-Cap
Value, Equity, Equity Index and Small-Cap Index Portfolios will only enter
into futures contracts and futures options which are standardized and traded
on a U.S. exchange, board of trade, or similar entity, or in the case of
futures options, for which an established over-the-counter market exists.
 
  If a purchase or sale of a futures contract is made by a Portfolio, the
Portfolio is required to deposit with its custodian (or broker, if legally
permitted) a specified amount of cash or U.S. Government securities ("initial
margin"). The margin required for a futures contract is set by the exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the futures contract which is returned to the Portfolio upon
termination of the contract, assuming all contractual obligations have been
satisfied. Each investing Portfolio expects to earn interest income on its
initial margin deposits. A futures contract held by a Portfolio is valued
daily at the official settlement price of the exchange on which it is traded.
Each day the Portfolio pays or receives cash, called "variation margin," equal
to the daily change in value of the futures contract. This process is known as
"marking-to-market." Variation margin does not represent a borrowing or loan
by a Portfolio but is instead settlement between the Portfolio and the broker
of the amount one would owe the other if the futures contract expired. In
computing daily net asset value, each Portfolio will mark-to-market its open
futures positions.
 
  A Portfolio is also required to deposit and maintain margin with respect to
put and call options on futures contracts written by it. Such margin deposits
will vary depending on the nature of the underlying futures contract (and the
related initial margin requirements), the current market value of the option,
and other futures positions held by the Portfolio.
 
                                      43
<PAGE>
 
  Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security, and delivery month). If an offsetting purchase
price is less than the original sale price, the Portfolio realizes a capital
gain, or if it is more, the Portfolio realizes a capital loss. Conversely, if
an offsetting sale price is more than the original purchase price, the
Portfolio realizes a capital gain, or if it is less, the Portfolio realizes a
capital loss. The transaction costs must also be included in these
calculations.
 
  Limitations. The Fund will comply with certain regulations of the Commodity
Futures Trading Commission ("CFTC") under which an investment company may
engage in futures transactions and qualify for an exclusion from being a
"commodity pool." Under these regulations, a Portfolio may only enter into a
futures contract or purchase an option thereon (1) for bona fide hedging
purposes and (2) for other purposes if, immediately thereafter, the initial
margin deposits for futures contracts held by that Portfolio plus premiums
paid by it for open futures option positions, less the amount by which any
such positions are "in-the-money," would not exceed 5% of the Portfolio's
total assets. A call option is "in-the-money" if the value of the futures
contract that is the subject of the option exceeds the exercise price. A put
option is "in-the-money" if the exercise price exceeds the value of the
futures contract that is the subject of the option.
 
  When purchasing a futures contract, a Portfolio must maintain with its
custodian in a segregated account (or broker, if legally permitted) cash, U.S.
Government securities and/or other liquid securities marked-to-market daily
(including any margin) equal to the market value of such contract or will
"cover" its position by holding a put option permitting the Portfolio to sell
the same futures contract with a strike price equal to or higher than the
price of the futures contract held. When writing a call option on a futures
contract, the Portfolio similarly will maintain with its custodian government
securities, cash and/or liquid securities marked-to-market daily of that
foreign currency, and/or, U.S. Government securities, cash, or other liquid
securities marked-to-market daily (including any margin) equal to the amount
such option is in-the-money until the option expires or is closed out by the
Portfolio or will "cover" its position by (1) owning the same futures contract
at a price no higher than the strike price of the call option, or (2) owning
the commodity (financial or otherwise) underlying the futures contract, or (3)
holding a call option permitting the Portfolio to purchase the same futures
contract at a price no higher than the strike price of the call option sold by
the Portfolio. When selling a futures contract or selling a put option on a
futures contract, the Portfolio is required to maintain with its custodian
government securities, cash and/or liquid securities marked-to-market daily of
that foreign currency, and/or U.S. Government securities, cash, or other
liquid securities marked-to-market daily (including any margin) equal to the
market value of such contract or exercise price of such option or to "cover"
its position, when selling a futures contract, by (1) owning the commodity
(financial or otherwise) underlying the futures contract or (2) holding a call
option permitting the Portfolio to purchase the same futures contract at a
price no higher than the price at which the short position was established,
and, when selling a put option on the futures contract, by (1) selling the
futures contract underlying the put option at the same or higher price than
the strike price of the put option or (2) purchasing a put option, if the
strike price of the purchased option is the same or higher than the strike
price of the put option sold by the Portfolio.
 
  A Portfolio may not maintain open short positions in futures contracts or
call options written on futures contracts if, in the aggregate, the market
value of all such open positions exceeds the current value of its portfolio
securities, plus or minus unrealized gains and losses on the open positions,
adjusted for the historical relative volatility of the relationship between
the Portfolio and the positions. For this purpose, to the extent the Portfolio
has written call options on specific securities it owns, the value of those
securities will be deducted from the current market value of the securities
portfolio.
 
  The Fund reserves the right to engage in other types of futures transactions
in the future and to use futures and related options for other than hedging
purposes to the extent permitted by regulatory authorities. If other types of
options, futures contracts, or futures options are traded in the future, a
Portfolio may also use such investment techniques, provided that the Board of
Trustees determines that their use is consistent with the Portfolio's
investment objective.
 
                                      44
<PAGE>
 
  Risks Associated with Futures and Futures Options. There are several risks
associated with the use of futures contracts and futures options as hedging
techniques. A purchase or sale of a futures contract may result in losses in
excess of the amount invested in the futures contract. There can be
significant differences between the securities and futures markets that could
result in an imperfect correlation between the markets, causing a given hedge
not to achieve its objectives. The degree of imperfection of correlation
depends on circumstances such as variations in speculative market demand for
futures and futures options on securities, including technical influences in
futures trading and futures options, and differences between the portfolio
securities being hedged and the instruments underlying the hedging vehicle in
such respects as interest rate levels, maturities, conditions affecting
particular industries, and creditworthiness of issuers. A decision as to
whether, when, and how to hedge involves the exercise of skill and judgment
and even a well-conceived hedge may be unsuccessful to some degree because of
market behavior or unexpected interest rate trends.
 
  The price of futures contracts may not correlate perfectly with movement in
the underlying security or stock index, due to certain market distortions.
This might result from decisions by a significant number of market
participants holding stock index futures positions to close out their futures
contracts through offsetting transactions rather than to make additional
margin deposits. Also, increased participation by speculators in the futures
market may cause temporary price distortions. These factors may increase the
difficulty of effecting a fully successful hedging transaction, particularly
over a short time frame. With respect to a stock index futures contract, the
price of stock index futures might increase, reflecting a general advance in
the market price of the index's component securities, while some or all of the
portfolio securities might decline. If a Portfolio had hedged its portfolio
against a possible decline in the market with a position in futures contracts
on an index, it might experience a loss on its futures position until it could
be closed out, while not experiencing an increase in the value of its
portfolio securities. If a hedging transaction is not successful, the
Portfolio might experience losses which it would not have incurred if it had
not established futures positions. Similar risk considerations apply to the
use of interest rate and other futures contracts.
 
  Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a
price beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because
the limit may work to prevent the liquidation of unfavorable positions. For
example, futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
 
  The Managed Bond, Government Securities, Aggressive Equity, Growth LT,
Large-Cap Value, Mid-Cap Value, Bond and Income, International, and Emerging
Markets Portfolios may trade futures contracts and options on futures
contracts not only on U.S. domestic markets, but also on exchanges located
outside of the United States. Foreign markets may offer advantages such as
trading in indices that are not currently traded in the United States. Foreign
markets, however, may have greater risk potential than domestic markets.
Unlike trading on domestic commodity exchanges, trading on foreign commodity
exchanges is not regulated by the CFTC and may be subject to greater risk than
trading on domestic exchanges. For example, some foreign exchanges are
principal markets so that no common clearing facility exists and a trader may
look only to the broker for performance of the contract. Trading in foreign
futures or foreign options contracts may not be afforded certain of the
protective measures provided by the Commodity Exchange Act, the CFTC's
regulations, and the rules of the National Futures Association and any
domestic exchange, including the right to use reparations proceedings before
the CFTC and arbitration proceedings provided by the National Futures
Association or any domestic futures exchange. Amounts received for foreign
futures or foreign options transactions may not be provided the same
protection as funds received in respect of transactions on United States
futures exchanges. In addition, any profits that the Portfolio might realize
in trading could be eliminated by adverse changes in the exchange rate of the
 
                                      45
<PAGE>
 
currency in which the transaction is denominated, or the Portfolio could incur
losses as a result of changes in the exchange rate. Transactions on foreign
exchanges may include both commodities that are traded on domestic exchanges
or boards of trade and those that are not.
 
  There can be no assurance that a liquid market will exist at a time when a
Portfolio seeks to close out a futures or a futures option position, and that
Portfolio would remain obligated to meet margin requirements until the
position is closed. In addition, many of the contracts discussed above are
relatively new instruments without a significant trading history. As a result,
there can be no assurance that an active secondary market will develop or
continue to exist.
 
Foreign Currency Futures and Options Thereon
 
  The Managed Bond, Government Securities, Aggressive Equity, Growth LT,
Large-Cap Value, Mid-Cap Value, Bond and Income, International, and Emerging
Markets Portfolios may enter into contracts for the purchase or sale for
future delivery of foreign currencies ("foreign currency futures") and may
purchase and write options on foreign currency futures. In addition, a
Portfolio may engage in cross-hedging activities, which involve the sale of a
futures contract on one foreign currency to hedge against changes in exchange
rates for a different ("proxy") currency if there is an established historical
pattern of correlation between the two currencies. These investment techniques
will be used only to hedge against anticipated future changes in exchange
rates which otherwise might adversely affect the value of the Portfolio's
securities or adversely affect the prices of securities that the Portfolio has
purchased or intends to purchase at a later date. The successful use of
foreign currency futures will usually depend on the Portfolio Manager's
ability to forecast currency exchange rate movements correctly. Should
exchange rates move in an unexpected manner, the Portfolio may not achieve the
anticipated benefits of foreign currency futures or may realize losses.
 
Swap Agreements and Options on Swap Agreements
 
  The Mid-Cap Value and Emerging Markets Portfolio may enter into equity index
swap agreements. The Managed Bond, Government Securities, Mid-Cap Value, and
REIT Portfolios may enter into interest rate, and interest rate index, and/or
currency exchange rate swap agreements, and the Managed Bond, Government
Securities and Mid-Cap Value Portfolios may purchase and sell options thereon.
The Large-Cap Value Portfolio may enter into currency swaps. A Portfolio's
current obligations (or rights) under a swap agreement will generally be equal
only to the net amount to be paid or received under the agreement based on the
relative values of the positions held by each party to the agreement (the "net
amount"). A Portfolio's current obligations under a swap agreement will be
accrued daily (offset against any amounts owing to the Portfolio) and any
accrued but unpaid net amounts owed to a swap counterparty will be covered by
the maintenance of a segregated account consisting of cash, U.S. Government
securities, and/or liquid securities marked-to-market daily, to avoid any
potential leveraging of a Portfolio. The Bond and Income Portfolio may invest
in the following types of swap agreements: (1) "interest rate caps," under
which, in return for a premium, one party agrees to make payments to the other
to the extent that interest rates exceed a specified rate, or "cap"; (2)
"interest rate floors," under which, in return for a premium, one party agrees
to make payments to the other to the extent that interest rates fall below a
certain level, or "floor"; (3) "interest rate collars," under which one party
sells a cap and purchases a floor or vice-versa in an attempt to protect
itself against interest rate movements exceeding given minimum or maximum
levels; and (4) "currency exchange rate swap agreements."
 
  Generally, the swap agreement transactions in which a Portfolio will engage
are not regulated as futures or commodity option transactions under the
Commodity Exchange Act or by the Commodity Futures Trading Commission.
 
  Risks of Swap Agreements. Whether a Portfolio's use of swap agreements will
be successful in furthering its investment objective will depend on a
Portfolio Manager's ability to predict correctly whether certain types of
investments are likely to produce greater returns than other investments.
Because they are two-party contracts and because they may have terms of
greater than seven days, swap agreements may be considered to be illiquid
 
                                      46
<PAGE>
 
investments. It may not be possible to enter into a reverse swap or close out
a swap position prior to its original maturity and, therefore, a Portfolio may
bear the risk of such position until its maturity. Moreover, a Portfolio bears
the risk of loss of the amount expected to be received under a swap agreement
in the event of the default or bankruptcy of a swap agreement counterparty. A
Portfolio will enter into swap agreements only with counterparties that meet
certain standards for creditworthiness (generally, such counterparties would
have to be eligible counterparties under the terms of a Portfolio's repurchase
agreement guidelines unless otherwise specified in the investment policies of
the Portfolio). Certain tax considerations may limit a Portfolio's ability to
use swap agreements. The swaps market is a relatively new market and is
largely unregulated. It is possible that developments in the swaps market,
including potential government regulation, could adversely affect a
Portfolio's ability to terminate existing swap agreements or to realize
amounts to be received under such agreements. See "Taxation".
 
Structured Notes
 
  The Bond and Income and REIT Portfolios may invest in structured notes. The
value of the principal of and/or interest on such securities is determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices, or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the
structured notes may provide that in certain circumstances no principal is due
at maturity and, therefore, result in the loss of a Portfolio's investment.
Structured notes may be positively or negatively indexed, so that appreciation
of the Reference may produce an increase or decrease in the interest rate or
value of the security at maturity. In addition, changes in the interest rates
or the value of the security at maturity may be a multiple of changes in the
value of the Reference. Consequently, structured securities may entail a
greater degree of market risk than other types of fixed-income securities.
Structured notes may also be more volatile, less liquid and more difficult to
accurately price than less complex securities.
 
Warrants and Rights
 
  The High Yield Bond, Growth LT, Equity Income, Multi-Strategy, Mid-Cap
Value, Equity, Bond and Income, Small-Cap Index and REIT Portfolios may invest
in warrants; however, not more than 10% of the market value of a Portfolio's
assets (at the time of purchase), and in the case of the Equity Portfolio 5%,
may be invested in warrants other than warrants acquired in units or attached
to other securities. The Mid-Cap Value Portfolio may invest up to 5% of its
total assets in rights. The Aggressive Equity and Emerging Markets Portfolios
each may invest up to 5% of its net assets in warrants or rights (valued at
the lower of cost or market) to purchase securities, provided that no more
than 2% of its net assets are invested in warrants not listed on the New York
or American Stock Exchanges. Each of these Portfolios may invest in warrants
or rights acquired as part of a unit or attached to securities at the time of
purchase without limitation. Warrants may be considered speculative in that
they have no voting rights, pay no dividends, and have no rights with respect
to the assets of the corporation issuing them. Warrants basically are options
to purchase equity securities at a specific price valid for a specific period
of time. They do not represent ownership of the securities, but only the right
to buy them. Warrants differ from call options in that warrants are issued by
the issuer of the security which may be purchased on their exercise, whereas
call options may be written or issued by anyone. The prices of warrants do not
necessarily move parallel to the prices of the underlying securities.
 
Duration
 
  Duration is a measure of average life of a bond on a present value basis,
which was developed to incorporate a bond's yield, coupons, final maturity and
call features into one measure. Duration is one of the fundamental tools that
may be used by the Adviser or Portfolio Manager in fixed income security
selection. In this discussion, the term "bond" is generally used to connote
any type of debt instrument.
 
                                      47
<PAGE>
 
  Most notes and bonds have provided interest ("coupon") payments in addition
to a final ("par") payment at maturity. Some obligations also feature call
provisions. Depending on the relative magnitude of these payments, debt
obligations may respond differently to changes in the level and structure of
interest rates. Traditionally, a debt security's "term to maturity" has been
used as a proxy for the sensitivity of the security's price to changes in
interest rates (which is the "interest rate risk" or "volatility" of the
security). However, "term to maturity" measures only the time until a debt
security provides its final payment, taking no account of the pattern of the
security's payments prior to maturity.
 
  Duration is a measure of the average life of a fixed-income security on a
present value basis. Duration takes the length of the time intervals between
the present time and the time that the interest and principal payments are
scheduled or, in the case of a callable bond, expected to be received, and
weights them by the present values of the cash to be received at each future
point in time. For any fixed-income security with interest payments occurring
prior to the payment of principal, duration is always less than maturity. In
general, all other things being the same, the lower the stated or coupon rate
of interest of a fixed-income security, the longer the duration of the
security; conversely, the higher the stated or coupon rate of interest of a
fixed-income security, the shorter the duration of the security.
 
  Although frequently used, the "term of maturity" of a bond is not a useful
measure of the longevity of a bond's cash flow because it refers only to the
time remaining to the repayment of principal or corpus and disregards earlier
coupon payments. Thus, for example, three bonds with the same maturity may not
have the same investment characteristics (such as risk or repayment time). One
bond may have large coupon payments early in its life, whereas another may
have payments distributed evenly throughout its life. Some bonds (such as zero
coupon bonds) make no coupon payments until maturity. Clearly, an investor
contemplating investing in these bonds should consider not only the final
payment or sum of payments on the bond, but also the timing and magnitude of
payments in order to make an accurate assessment of each bond. Maturity, or
the term to maturity, does not provide a prospective investor with a clear
understanding of the time profile of cash flows over the life of a bond.
 
  Another way of measuring the longevity of a bond's cash flow is to compute a
simple average time to payment, where each year is weighted by the number of
dollars the bond pays that year. This concept is termed the "dollar-weighted
mean waiting time," indicating that it is a measure of the average time to
payment of a bond's cash flow. The critical shortcoming of this approach is
that it assigns equal weight to each dollar paid over the life of a bond,
regardless of when the dollar is paid. Since the present value of a dollar
decreases with the amount of time which must pass before it is paid, a better
method might be to weight each year by the present value of the dollars paid
that year. This calculation puts the weights on a comparable basis and creates
a definition of longevity which is known as duration.
 
  A bond's duration depends upon three variables: (i) the maturity of the
bond; (ii) the coupon payments attached to the bond; and (iii) the bond's
yield to maturity. Yield to maturity, or investment return as used here,
represents the approximate return an investor purchasing a bond may expect if
he holds that bond to maturity. In essence, yield to maturity is the rate of
interest which, if applied to the purchase price of a bond, would be capable
of exactly reproducing the entire time schedule of future interest and
principal payments.
 
  Increasing the size of the coupon payments on a bond, while leaving the
maturity and yield unchanged, will reduce the duration of the bond. This
follows from the fact that because bonds with higher coupon payments pay
relatively more of their cash flows sooner, they have shorter durations.
Increasing the yield to maturity on a bond (e.g., by reducing its purchase
price), while leaving the terms to maturity and coupon payments unchanged,
also reduces the duration of the bond. Because a higher yield leads to lower
present values for more distant payments relative to earlier payments, and, to
relatively lower weights attached to the years remaining to those payments,
the duration of the bond is reduced.
 
  There are some situations where even the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or
more years; however, their interest rate exposure corresponds to the frequency
of the coupon reset. Another
 
                                      48
<PAGE>
 
example where the interest rate exposure is not properly captured by duration
is mortgage pass-throughs. The stated final maturity is generally 30 years but
current prepayment rates are more critical in determining the securities'
interest rate exposure. In these and other similar situations, the Adviser or
Portfolio Manager to a Portfolio will use more sophisticated analytical
techniques which incorporate the economic life of a security into the
determination of its interest rate exposure.
 
  Futures, options, and options on futures have durations which, in general,
are closely related to the duration of the securities which underlie them.
Holding long futures or call option positions (backed by a segregated account
of cash and cash equivalents) will lengthen the portfolio duration if interest
rates go down and bond prices go up by approximately the same amount that
holding an equivalent amount of the underlying securities would.
 
  Short futures or put option positions have durations roughly equal to the
negative duration of the securities that underlie those positions, and have
the effect of reducing portfolio duration if interest rates go up and bond
prices go down by approximately the same amount that selling an equivalent
amount of the underlying securities would.
 
                            INVESTMENT RESTRICTIONS
 
Fundamental Investment Restrictions
 
  Each Portfolio's investment goal as set forth under "About the Portfolios,"
in the Prospectus, and the investment restrictions as set forth below, are
fundamental policies of each Portfolio and may not be changed with respect to
any Portfolio without the approval of a majority of the outstanding voting
shares of that Portfolio. The vote of a majority of the outstanding voting
securities of a Portfolio means the vote, at an annual or special meeting of
(a) 67% or more of the voting securities present at such meeting, if the
holders of more than 50% of the outstanding voting securities of such
Portfolio are present or represented by proxy; or (b) more than 50% of the
outstanding voting securities of such Portfolio, whichever is the less. Under
these restrictions, a Portfolio may not:
 
  (i) except for the REIT Portfolio, 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 with respect 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;
 
  (ii) with respect to 75% of its total assets (or, in the case of the REIT
Portfolio, with respect to 50% of its assets), invest in a security if, as a
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.
 
  (iii) invest in a security if, as a result of such investment, it would hold
more than 10% (taken at the time of such investment) of the outstanding voting
securities of any one issuer;
 
  (iv) purchase or sell real estate (although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate, or interests therein);
 
  (v) borrow money or pledge, mortgage or hypothecate its assets, except that
a Portfolio may: (a) borrow from banks but only if immediately after each
borrowing and continuing thereafter there is asset coverage of 300%; and (b)
enter into reverse repurchase agreements and transactions in options, futures,
and options on futures as described in the Prospectus and in the Statement of
Additional Information (the deposit of assets in
 
                                      49
<PAGE>
 
escrow in connection with the writing of covered put and call options and the
purchase of securities on a "when-issued" or delayed delivery basis and
collateral arrangements with respect to initial or variation margin deposits
for futures contracts will not be deemed to be pledges of a Portfolio's
assets);
 
  (vi) lend any funds or other assets, except that a Portfolio may, consistent
with its investment objective 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, provided such loans
are made in accordance with applicable guidelines established by the
Securities and Exchange Commission and the Fund's Trustees, except the Large-
Cap Value, Mid-Cap Value, Small-Cap Index, and REIT Portfolios, each of which
may lend its Portfolio securities in an amount not to exceed 33 1/3% of the
value of its total assets;
 
  (vii) act as an underwriter of securities of other issuers, except, when in
connection with the disposition of portfolio securities, it may be deemed to
be an underwriter under the federal securities laws; and
 
  In addition, with respect to the Money Market, High Yield Bond, Managed
Bond, Government Securities, Growth, Growth LT, Equity Income, Multi-Strategy,
Equity Index and International Portfolios, unless otherwise indicated, such
Portfolios may not:
 
  (viii) purchase or sell commodities or commodities contracts, except that,
subject to restrictions described in the Prospectus and in the Statement of
Additional Information (a) the Managed Bond, Equity Index, Government
Securities, High Yield Bond, Growth LT, Equity Income, Multi-Strategy, and
International Portfolios may engage in futures contracts and options on
futures contracts, (b) all Portfolios may enter into foreign forward currency
contracts; and (c) the Equity Index Portfolio may purchase and sell stock
index futures, purchase options on stock indexes, and purchase options on
stock index futures;
 
  (ix) except the Growth LT 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;
 
  (x) except the Growth LT 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.
 
Nonfundamental Investment Restrictions
 
  Each Portfolio is also subject to the following restrictions and policies
(which are not fundamental and may therefore be changed without shareholder
approval) relating to the investment of its assets and activities. Unless
otherwise indicated, a Portfolio may not:
 
  (i) invest for the purpose of exercising control or management;
 
  (ii) sell property short, sell securities short, except the Mid-Cap Value
Portfolio, sell short against the box, except the Aggressive Equity, Equity
and Mid-Cap Value Portfolios;
 
  (iii) purchase warrants if immediately after and as a result of such
purchase more than 10% of the market value of the total assets of the
Portfolio would be invested in such warrants;
 
  (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;
 
                                      50
<PAGE>
 
  (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;
 
  (vi) invest in securities that are illiquid, or in repurchase agreements
maturing in more than seven days, if as a result of such investment, more than
15% of the net assets of the Portfolio (taken at market value at the time of
such investment) would be invested in such securities, and with respect to the
Money Market Portfolio, more than 10% of the total assets of the Portfolio
(taken at market value at the time of such investment) would be invested in
such securities; and
 
  (vii) purchase or sell commodities or commodities contracts, except, (a)
futures contracts and options on futures contracts, (b) forward foreign
currency contracts and (c) stock index futures, options on stock indexes, and
options on stock index futures; subject to any applicable restrictions
described in the Prospectus and in the SAI.
 
  Unless otherwise indicated, as in the restriction for borrowing or
hypothecating assets of a Portfolio, for example, all percentage limitations
listed above apply to each Portfolio only at the time into which a transaction
is entered. Accordingly, if a percentage restriction is adhered to at the time
of investment, a later increase or decrease in the percentage which results
from a relative change in values or from a change in a Portfolio's net assets
will not be considered a violation. For purposes of fundamental restriction
(v) and nonfundamental restriction (vii) as set forth above, an option on a
foreign currency shall not be considered a commodity or commodity contract.
For purposes of nonfundamental restriction (v), a short sale "against the box"
shall not be considered a short position.
 
                    ORGANIZATION AND MANAGEMENT OF THE FUND
 
  The Fund was organized as a Massachusetts business trust on May 4, 1987, and
currently consists of eighteen separate Portfolios. The assets of each
Portfolio are segregated, and your interest is limited to the Portfolio to
which proceeds from your Variable Contract's Accumulated Value is allocated.
The business and affairs of the Fund are managed under the direction of the
Board of Trustees under the Fund's Agreement and Declaration of Trust.
 
Trustees and Officers
 
  The Trustees and Executive Officers of the Fund, their business address, and
principal occupations during the past five years are:
 
<TABLE>
<CAPTION>
                                                  Business Affiliates and
 Name and Address          Position with the Fund Principal Occupations
 ----------------          ---------------------- -----------------------
 <C>                       <C>                    <S>
 Thomas C. Sutton*           Chairman of the      Chairman of the Board,
 700 Newport Center Drive    Board and Trustee    Director and Chief Executive
 Newport Beach, CA 92660                          Officer of Pacific Life,
 Age 56                                           Pacific Mutual Holding
                                                  Company and Pacific
                                                  LifeCorp; and similar
                                                  positions with other
                                                  subsidiaries and affiliates
                                                  of Pacific Life; Director of
                                                  Newhall Land & Farming;
                                                  Director of The Irvine
                                                  Company; Director of Edison
                                                  International; Management
                                                  Board Member of PIMCO
                                                  Advisors L.P.; Former Equity
                                                  Board Member of PIMCO
                                                  Advisors L.P.
 Lucie H. Moore              Trustee              Former Partner with Gibson,
 1825 Port Manleigh Place                         Dunn & Crutcher.
 Newport Beach, CA 92660
 Age 42
</TABLE>
 
                                      51
<PAGE>
 
<TABLE>   
<CAPTION>
                                                  Business Affiliates and
 Name and Address          Position with the Fund Principal Occupations
 ----------------          ---------------------- -----------------------
 <C>                       <C>                    <S>
 Richard L. Nelson             Trustee            Business Consultant; retired
 8 Cherry Hills Lane                              Partner with Ernst & Young
 Newport Beach, CA 92660                          LLP; Director of Wynn's
 Age 69                                           International, Inc.

 Lyman W. Porter               Trustee            Professor Emeritus of
 University of California                         Management in the Graduate
 at Irvine                                        School of Management at the
 Irvine, CA 92717                                 University of California,
 Age 69                                           Irvine. Former Member of the
                                                  Academic Advisory Board of
                                                  the Czechoslovak Management
                                                  Center and of the Board of
                                                  Trustees of the American
                                                  University of Armenia.

 Alan Richards                 Trustee            Retired Chairman of E. F.
 7381 Elegans Place                               Hutton Insurance Group;
 Carlsbad, CA 92009                               Former Director of E. F.
 Age 69                                           Hutton and Company, Inc.;
                                                  Chairman of IBIS Capital,
                                                  LLC; Director of Inspired
                                                  Arts, Inc.; Former Director
                                                  of Western National
                                                  Corporation.

 Glenn S. Schafer              President          President and Director of
 700 Newport Center Drive                         Pacific Life, Pacific Mutual
 Newport Beach, CA 92660                          Holding Company and Pacific
 Age 49                                           LifeCorp and similar
                                                  positions with other
                                                  subsidiaries and affiliates
                                                  of Pacific Life; Management
                                                  Board Member of PIMCO
                                                  Advisors L.P.; Former Equity
                                                  Board Member of PIMCO
                                                  Advisors L.P.

 Brian D. Klemens              Vice President     Vice President and Treasurer
 700 Newport Center Drive      and Treasurer      (12/98 to present); and
 Newport Beach, CA 92660                          Assistant Controller (4/94
 Age 42                                           to 12/98) of Pacific Life.

 Diane N. Ledger               Vice President     Vice President, Variable
 700 Newport Center Drive      and Assistant      Regulatory Compliance,
 Newport Beach, CA 92660       Secretary          Corporate Law of Pacific
 Age 59                                           Life.

 Sharon A. Cheever             Vice President     Vice President and
 700 Newport Center Drive      and General        Investment Counsel of
 Newport Beach, CA 92660       Counsel            Pacific Life.
 Age 43

 Audrey L. Milfs               Secretary          Vice President, Director and
 700 Newport Center Drive                         Corporate Secretary of
 Newport Beach, CA 92660                          Pacific Life; and similar
 Age 53                                           positions with other
                                                  subsidiaries of Pacific
                                                  Life.
</TABLE>    
- --------
*  Mr. Sutton is an "interested person" of the Fund (as that term is defined
   in the Investment Company Act) because of his position with Pacific Life as
   shown above.
 
  Trustees other than those affiliated with Pacific Life Insurance Company
("Pacific Life" or the "Adviser", formerly known as Pacific Mutual Life
Insurance Company) or a Portfolio Manager, currently receive an annual fee of
$15,000 and $1,500 for each Board of Trustees meeting attended, including each
Audit, Policy, or Nominating Committee meeting attended, plus reimbursement of
related expenses. In addition, the Chairman of the Fund's Audit, Policy and
Nominating Committees each receive an additional annual fee of $2,000. The
following table summarizes the aggregate compensation paid by the Fund to each
Trustee who was not affiliated with Pacific Life or a Portfolio Manager in
1998. The table also shows total compensation paid to these Trustees in 1998
by the Fund and PIMCO Funds: Multi-Manager Series, an investment company
managed by an affiliate of Pacific Life for which Messrs. Nelson, Porter, and
Richards (but not Mr. Sutton or Ms. Moore) also serve as trustees
(collectively, "Fund Complex").
 
                                      52
<PAGE>
 
<TABLE>
<CAPTION>
                                              Pension or
                                              Retirement               Total
                                               Benefits  Estimated  Compensation
                                               Accrued     Annual    from Fund
                                  Aggregate   as Part of  Benefits    Complex
                                 Compensation    Fund       Upon      Paid to
Name of Trustee                   from Fund    Expenses  Retirement   Trustees
- ---------------                  ------------ ---------- ---------- ------------
<S>                              <C>          <C>        <C>        <C>
Richard L. Nelson...............   $39,500         0          0       $ 96,500
Lyman W. Porter.................   $39,500         0          0       $ 95,500
Alan Richards...................   $39,500         0          0       $100,500
Lucie H. Moore*.................   $ 8,250         0          0         N/A
</TABLE>
- --------
*  Ms. Moore became a Trustee effective October 1, 1998.
 
  None of the Trustees or Officers directly own shares of the Fund. As of
March 19, 1999, the Trustees and Officers as a group owned Variable Contracts
that entitled them to give voting instructions with respect to less than 1% of
the outstanding shares of the Fund.
 
Investment Adviser
 
  Pacific Life serves as Investment Adviser to the Fund pursuant to an
Investment Advisory Agreement ("Advisory Contract") between Pacific Life and
the Fund.
 
  Pacific Life is a life insurance company that is domiciled in California.
Along with subsidiaries and affiliates, Pacific Life's operations include life
insurance, annuities, pension and institutional products, group employee
benefits, broker-dealer operations and investment advisory services. As of the
end of 1998, Pacific Life had $89.6 billion of individual life insurance in
force and total admitted assets of approximately $37.6 billion. Pacific Life
has been ranked according to admitted assets as the 18th largest life
insurance carrier in the nation based on December 31, 1998 assets. The Pacific
Life family of companies has total assets and funds under management of over
$290 billion as of December 31, 1998. Pacific Life is authorized to conduct
life insurance and annuity business in the District of Columbia and all states
except New York. Its principal offices are located at 700 Newport Center
Drive, Newport Beach, California 92660.
 
  Pacific Life was originally organized on January 2, 1868, under the name
"Pacific Mutual Life Insurance Company of California" and reincorporated as
"Pacific Mutual Life Insurance Company" on July 22, 1936. On September 1,
1997, Pacific Life converted from a mutual life insurance company to a stock
life insurance company ultimately controlled by a mutual holding company.
Pacific Life is a subsidiary of Pacific LifeCorp, a holding company which, in
turn, is a subsidiary of Pacific Mutual Holding Company, a mutual holding
company. Under their respective charters, Pacific Mutual Holding Company must
always hold at least 51% of the outstanding voting stock of Pacific LifeCorp,
and Pacific LifeCorp must always own 100% of the voting stock of Pacific Life.
Owners of Pacific Life's annuity contracts and life insurance policies have
certain membership interests in Pacific Mutual Holding Company, consisting
principally of the right to vote on the election of the Board of Directors of
the mutual holding company and on other matters and certain rights upon
liquidation or dissolutions of the mutual holding company.
 
  Pacific Life is responsible for administering the affairs of and supervising
the investment program for the Fund. Pacific Life also furnishes to the Board
of Trustees, which has overall responsibility for the business and affairs of
the Fund, periodic reports on the investment performance of each Portfolio.
 
  Under the terms of the Advisory Contract, Pacific Life is obligated to
manage the Fund's Portfolios in accordance with applicable laws and
regulations.
 
  The Advisory Contract will continue in effect until December 31, 1999, and
from year to year thereafter, provided such continuance is approved annually
by (i) the holders of a majority of the outstanding voting securities of the
Fund or by the Board of Trustees, and (ii) a majority of the Trustees who are
not parties to such
 
                                      53
<PAGE>
 
Advisory Contract or "interested persons", as defined in the Investment
Company Act of 1940 (the "1940 Act"), of any such party. The Advisory Contract
was originally approved by the Board of Trustees, including a majority of the
Trustees who are not parties to the Advisory Contract, or interested persons
of such parties, at its meeting held on July 21, 1987, and by the shareholders
of the Fund at a Meeting of Shareholders held on October 28, 1988. The
Advisory Contract was also approved by the shareholders of the Equity Index
Portfolio of the Fund at a Meeting of Shareholders of the Equity Index
Portfolio held on April 21, 1992. An Addendum to the Advisory Contract was
approved by the Board of Trustees, including a majority of the Trustees who
are not parties to the Contract, or interested persons of such parties, at a
meeting held on October 28, 1988. An Addendum to the Advisory Contract which
increased the advisory fee schedule with respect to the High Yield Bond,
Managed Bond, Government Securities, Growth, Equity Income, Multi-Strategy,
and International Portfolios, and which included the Growth LT Portfolio as a
Portfolio to which the Adviser will perform services under the Advisory
Contract, was approved by the Board of Trustees, including a majority of the
Trustees who are not parties to the Contract, or interested persons of such
parties, at a meeting held on September 29, 1993, and was approved by
shareholders of the High Yield Bond, Managed Bond, Government Securities,
Growth, Equity Income, Multi-Strategy, and International Portfolios at a
Special Meeting of Shareholders on December 13, 1993. An Addendum to the
Advisory Contract for the Equity and Bond and Income Portfolios was approved
by the Board of Trustees, including a majority of the Trustees who are not
parties to the Advisory Contract or interested persons of such parties, at a
meeting held on August 12, 1994, and by the sole shareholder of those
Portfolios on September 6, 1994. An Addendum to the Advisory Contract for the
Aggressive Equity and Emerging Markets Portfolios was approved by the Board of
Trustees, including a majority of the Trustees who are not parties to the
Advisory Contract or interested persons of such parties, at a meeting held on
November 17, 1995, and by the sole shareholder of those Portfolios on January
30, 1996. An addendum to the Advisory Contract for the Large-Cap Value, Mid-
Cap Value, Small-Cap Index, and REIT Portfolios was approved by the Board of
Trustees, including a majority of the Trustees who are not parties to the
Advisory Contract or interested persons of such parties, at a meeting held on
August 6, 1998, and by the sole shareholder of those Portfolios on December
21, 1998. The Advisory Contract may be terminated without penalty by vote of
the Trustees or the shareholders of the Fund, or by the Adviser, on 60 days'
written notice by either party to the Advisory Contract and will terminate
automatically if assigned.
 
  The Fund pays the Adviser, for its services under the Agreement, a fee based
on an annual percentage of the average daily net assets of each Portfolio. For
the Money Market Portfolio, the Fund pays to the Adviser a fee at an annual
rate of .40% of the first $250 million of the average daily net assets of the
Portfolio, .35% of the next $250 million of the average daily net assets of
the Portfolio, and .30% of the average daily net assets of the Portfolio in
excess of $500 million. For the High Yield Bond, Managed Bond, Government
Securities, and Bond and Income Portfolios, the Fund pays .60% of the average
daily net assets of each of the Portfolios. For the Growth, Equity Income,
Multi-Strategy, and Equity Portfolios, the Fund pays .65% of the average daily
net assets of each of the Portfolios. For the Aggressive Equity Portfolio, the
Fund pays .80% of the average daily net assets of the Portfolio. For the
Growth LT Portfolio, the Fund pays .75% of the average daily net assets of the
Portfolio. For the Equity Index Portfolio, the Fund pays .25% of the first
$100 million of the average daily net assets of the Portfolio, .20% of the
next $100 million of the average daily net assets of the Portfolio, and .15%
of the average daily net assets of the Portfolio in excess of $200 million.
For the Small-Cap Index Portfolio, the Fund pays 0.50% of the average daily
net assets of the Portfolio. For the Large-Cap Value, Mid-Cap Value and
International Portfolios, the Fund pays .85% of the average daily net assets
of the Portfolio. For the REIT and Emerging Markets Portfolios, the Fund pays
to the Adviser a fee at an annual rate of 1.10% of the average daily net
assets of the Portfolio. The fee shall be computed and accrued daily and paid
monthly.
 
  Net advisory fees paid or owed to Pacific Life for 1998 were as follows:
Money Market Portfolio--$1,802,788, High Yield Bond Portfolio--$2,126,319,
Managed Bond Portfolio--$3,687,063, Government Securities Portfolio--$915,619,
Growth Portfolio--$1,647,286, Aggressive Equity Portfolio--$1,301,554, Growth
LT Portfolio--$6,762,035, Equity Income Portfolio--$6,578,365, Multi-Strategy
Portfolio--$2,986,639, Equity Portfolio--$2,577,278, Bond and Income
Portfolio--$867,006, Equity Index Portfolio--$1,888,470, International
Portfolio--$7,820,564, and Emerging Markets Portfolio--$1,135,155.
 
                                      54
<PAGE>
 
  Net advisory fees paid or owed to Pacific Life for 1997 were as follows:
Money Market Portfolio--$1,521,271, High Yield Bond Portfolio--$1,466,135,
Managed Bond Portfolio--$2,055,929, Government Securities Portfolio--$645,820,
Growth Portfolio--$1,355,092, Aggressive Equity Portfolio--$684,226, Growth LT
Portfolio--$4,193,552, Equity Income Portfolio--$4,062,587, Multi-Strategy
Portfolio--$1,866,445, Equity Portfolio--$1,818,664, Bond and Income
Portfolio--$568,647, Equity Index Portfolio--$1,080,856, International
Portfolio--$5,353,459, and Emerging Markets Portfolio--$868,075.
 
  Net advisory fees paid or owed to Pacific Life for 1996 were as follows:
Money Market Portfolio--$625,727, High Yield Bond Portfolio--$783,894, Managed
Bond Portfolio--$1,071,851, Government Securities Portfolio--$483,849, Growth
Portfolio--$962,573, Aggressive Equity Portfolio--$153,495, Growth LT
Portfolio--$2,367,481, Equity Income Portfolio--$1,977,164, Multi-Strategy
Portfolio--$1,107,889, Equity Portfolio--$1,049,649, Bond and Income
Portfolio--$411,129, Equity Index Portfolio--$511,324, International
Portfolio--$2,586,397, and Emerging Markets Portfolio--$203,399.
 
  Pacific Life has agreed, until at least December 31, 2000, to waive its fees
or otherwise 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.
 
Other Expenses of the Fund
 
  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.
 
  Fund expenses directly attributable to a Portfolio are charged to that
Portfolio; other expenses are allocated proportionately among all the
Portfolios in relation to the net assets of each Portfolio.
 
  The Fund paid Pacific Life $229,510 for its services under the Agreement for
Support Services during 1998, $165,000 during 1997, and $108,000 during 1996,
representing 0.003%, 0.004%, and 0.005%, respectively, of the Fund's average
daily net assets and anticipates that fees to be paid for 1999 under said
Agreement will be approximately 0.003% of the Fund's average daily net assets.
 
Portfolio Management Agreements
 
  Pacific Life directly manages both the Money Market and the High Yield Bond
Portfolios. For the other sixteen Portfolios Pacific Life employs other
investment advisory firms as Portfolio Manager, subject to Portfolio
Management Agreements, the terms of which are discussed below.
 
  Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Pacific Investment Management Company ("PIMCO"), 840 Newport Center Drive,
Suite 300, Newport Beach, California 92660, PIMCO is the Portfolio Manager and
provides investment advice and makes and implements investment
 
                                      55
<PAGE>
 
decisions with respect to the Managed Bond Portfolio and Government Securities
Portfolio. For the services provided in 1996, Pacific Life paid PIMCO a fee
based on a percentage of each Portfolio's average daily net assets according
to the following schedule. Effective January 1, 1997, for the services
provided, Pacific Life pays PIMCO a fee based on an annual percentage of the
combined average daily net assets of the Portfolios according to the following
schedule:
 
               Managed Bond and Government Securities Portfolios
 
<TABLE>
<CAPTION>
              Rate %   Break Point (assets)
              ------   --------------------
              <S>      <C>
               .50%    On first $25 million
               .375%   On next $25 million
               .25%    On excess
</TABLE>
 
  PIMCO is an investment counseling firm founded in 1971, and had
approximately $157 billion in assets under management as of December 31, 1998.
PIMCO is a subsidiary partnership of PIMCO Advisors L.P. ("PIMCO Advisors").
The general partners of PIMCO Advisors are PIMCO Partners, G.P. and PIMCO
Advisors Holdings L.P. ("PAH"). PIMCO Partners, G.P. is a general partnership
between PIMCO Holding LLC, a Delaware limited liability company and an
indirect wholly-owned subsidiary of Pacific Life Insurance Company, and PIMCO
Partners LLC, a California limited liability company controlled by the current
Managing Directors and two former Managing Directors of PIMCO. PIMCO Partners,
G.P. is the sole general partner of PAH. PIMCO also provides investment
advisory services to PIMCO Funds and several other mutual fund portfolios and
to private accounts for pension and profit sharing plans. PIMCO is registered
as an investment adviser with the SEC and a commodity trading adviser with the
CFTC. Net fees paid or owed by Pacific Life to PIMCO in 1998 were $1,613,407
for the Managed Bond Portfolio and $400,557 for the Government Securities
Portfolio, in 1997 were $929,041 for the Managed Bond Portfolio and $292,079
for the Government Securities Portfolio, and in 1996 were $541,256 for the
Managed Bond Portfolio and $295,607 for the Government Securities Portfolio.
 
  Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Capital Guardian Trust Company ("Capital Guardian"), a wholly-owned
subsidiary of Capital Group International, Inc., which itself is wholly-owned
by The Capital Group Companies, Inc. all of which are located at 333 South
Hope Street, Los Angeles, California 90071, Capital Guardian is the Portfolio
Manager and provides investment advisory services to the Growth Portfolio. For
the services provided, Pacific Life pays Capital Guardian a fee based on an
annual percentage of the average daily net assets of the Growth Portfolio
according to the following schedule:
 
                               Growth Portfolio
 
<TABLE>
<CAPTION>
              Rate (%)   Break Point (assets)
              --------   --------------------
              <S>        <C>
               .50%      On first $30 million
               .40%      On next $30 million
               .30%      On excess
</TABLE>
 
  Capital Guardian is a California state chartered trust company organized in
1968 which provides fiduciary and investment management services to a limited
number of large accounts such as employee benefit plans, college endowment
funds, foundations, and individuals. Accounts managed by Capital Guardian had
combined assets, as of December 31, 1998, in excess of $81 billion. Capital
Guardian's research activities are conducted by affiliated companies that have
research facilities in Los Angeles, San Francisco, New York, Washington, D.C.,
Atlanta, London, Geneva, Hong Kong, Montreal, Singapore, and Tokyo.
 
  Net fees paid or owed by Pacific Life to Capital Guardian for the Growth
Portfolio in 1998 were $850,462, in 1997 were $716,070, and in 1996 were
$534,580.
 
                                      56
<PAGE>
 
  Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Alliance Capital Management, L.P. ("Alliance Capital"), 1345 Avenue of the
Americas, New York, NY 10105, which became effective May 1, 1998, Alliance
Capital is the Portfolio Manager and provides investment advisory services to
the Aggressive Equity Portfolio. For the services provided, Pacific Life pays
a fee to Alliance Capital based on an annual percentage of the average daily
net assets according to the following schedule:
 
                          Aggressive Equity Portfolio
 
<TABLE>
<CAPTION>
              Rate (%)   Break Point (assets)
              --------   ---------------------
              <S>        <C>
               .60%      On first $100 million
               .45%      On next $400 million
               .40%      On excess
</TABLE>
 
  Alliance Capital is a leading international investment manager supervising
client accounts with assets as of December 31, 1998 totaling $286.7 billion.
Alliance Capital is a Delaware limited partnership. Alliance Capital
Management Corporation ("ACMC") is the general partner of Alliance Capital
(and conducts no other active business). As of June 30, 1997, the Equitable
Life Assurance Society of the United States ("Equitable"), ACMC, Inc. and
Equitable Capital Management Corporation ("ECMC") were the beneficial owners
of approximately 57.1% of the outstanding units of Alliance Capital. ACMC,
ECMC and ACMC, Inc. are wholly owned subsidiaries of The Equitable Companies
Incorporated, a Delaware corporation ("ECI"). As of December 31, 1998, AXA-
UAP, a French insurance holding company, owned approximately 58.5% of the
issued and outstanding shares of the common stock of ECI.
 
  Alliance Capital currently serves as investment adviser to other mutual
funds as well as individual, corporate, retirement, and charitable accounts.
As of December 31, 1998, Alliance Capital was retained as an investment
manager of employee benefit fund assets for 31 of the top 100 of America's
Fortune 500 companies.
 
  From April 1, 1996 through April 30, 1998, pursuant to a Portfolio
Management Agreement between the Fund, the Adviser and Columbus Circle
Investors, Metro Center, One Station Place, 8th Floor, Stamford, Connecticut
06902, Columbus Circle Investors was the Portfolio Manager and provided
investment advisory services to the Aggressive Equity Portfolio.
 
  For the services provided for the year 1997 and from January 1, 1998 through
April 30, 1998, Pacific Life paid a fee to Columbus Circle Investors based on
an annual percentage of the average daily net assets according to the
following schedule:
 
                          Aggressive Equity Portfolio
 
<TABLE>
<CAPTION>
              Rate (%)   Break Point (assets)
              --------   ---------------------
              <S>        <C>
               .55%      On first $100 million
               .50%      On next $150 million
               .45%      On next $250 million
               .40%      On excess
</TABLE>
 
 
  For the services provided, in 1996, Pacific Life paid a fee to Columbus
Circle Investors based on an annual percentage of the Portfolio's average
daily net assets according to the following fee schedule:
 
                          Aggressive Equity Portfolio
 
<TABLE>
<CAPTION>
              Rate (%)    Break Point (assets)
              --------   ---------------------
              <S>        <C>
               .55%      On first $100 million
               .50%      On next $250 million
               .45%      On excess
</TABLE>
 
 
                                      57
<PAGE>
 
  Net fees paid or owed by Pacific Life to Alliance Capital from May 1, 1998
through December 31, 1998 were $622,812. Net fees paid or owed by Pacific Life
to Columbus Circle Investors from January 1, 1998 through April 30, 1998 were
$251,083, in 1997 were $468,441 and from April 1, 1996 (date of commencement
of operations) to December 31, 1996 were $106,272 for the Aggressive Equity
Portfolio.
 
  Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Janus Capital Corporation ("Janus"), 100 Fillmore Street, Denver, Colorado
80206-4928, Janus is the Portfolio Manager and provides investment advisory
services to the Growth LT Portfolio.
 
  Effective January 1, 1997, for the services provided, Pacific Life pays
Janus a fee based on an annual percentage of the average daily net assets of
the Growth LT Portfolio according to the following schedule:
 
                              Growth LT Portfolio
 
<TABLE>
<CAPTION>
              Rate (%)    Break Point (assets)
              --------   ---------------------
              <S>        <C>
               .55%      On first $100 million
               .50%      On next $400 million
               .45%      On excess
</TABLE>
 
  For the services provided in 1996, Pacific Life paid Janus a fee based on an
annual percentage of the average daily net assets of the Growth LT Portfolio
according to the following schedule:
 
                              Growth LT Portfolio
 
<TABLE>
<CAPTION>
              Rate (%)    Break Point (assets)
              --------   ---------------------
              <S>        <C>
               .60%      On first $100 million
               .55%      On excess
</TABLE>
 
  Janus serves as investment adviser to the Janus Funds, as well as other
mutual funds and individual, corporate, charitable, and retirement accounts.
Kansas City Southern Industries, Inc. ("KCSI") owns approximately 82% of the
outstanding voting stock of Janus. KCSI is a publicly traded holding company
whose primary subsidiaries are engaged in transportation and financial
services. Net fees paid or owed by Pacific Life to Janus for the Growth LT
Portfolio in 1998 were $4,364,703, in 1997 were $2,813,259 and in 1996 were
$1,789,724.
 
  Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and J.P. Morgan Investment Management Inc. ("J.P. Morgan Investment"), 522
Fifth Avenue, New York, New York 10036, J.P. Morgan Investment is the
Portfolio Manager and provides investment advisory services to the Equity
Income Portfolio and the Multi-Strategy Portfolio.
 
  Effective January 1, 1997, for the services provided, Pacific Life pays J.P.
Morgan Investment a fee based on an annual percentage of the combined average
daily net assets of the Equity Income and Multi-Strategy Portfolios according
to the following schedule:
 
                  Equity Income and Multi-Strategy Portfolios
 
<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
               .20%      On excess
</TABLE>
 
                                      58
<PAGE>
 
  For the services provided in 1996, Pacific Life paid J.P. Morgan Investment
a fee based on an annual percentage of the combined average daily net assets
of these two Portfolios according to the following schedule:
 
                  Equity Income and Multi-Strategy Portfolios
 
<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 excess
</TABLE>
 
  J.P. Morgan Investment is an investment manager for corporate, public, and
union employee benefit funds, foundations, endowments, insurance companies,
government agencies and the accounts of other institutional investors. A
wholly-owned subsidiary of J.P. Morgan & Co. Incorporated ("Morgan"), J.P.
Morgan Investment was incorporated in the state of Delaware on February 7,
1984 and commenced operations on July 2, 1984. It was formed from the
Institutional Investment Group of Morgan Guaranty Trust Company of New York,
also a subsidiary of Morgan.
 
  Morgan acquired its first tax-exempt client in 1913 and its first pension
account in 1940. As of December 31, 1998, Morgan, through J.P. Morgan
Investment and its other subsidiaries, has assets under management of
approximately $310 billion. With offices around the globe, J.P. Morgan
Investment draws from a worldwide resources base to provide comprehensive
service to an international group of clients.
 
  Net fees paid or owed by Pacific Life to J.P. Morgan Investment in 1998 were
$2,783,163 for the Equity Income Portfolio and $1,263,563 for the Multi-
Strategy Portfolio, in 1997 were $1,998,776 for the Equity Income Portfolio
and $920,564 for the Multi-Strategy Portfolio, and in 1996 were $1,135,557 for
the Equity Income Portfolio and $637,384 for the Multi-Strategy Portfolio.
 
  Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Salomon Brothers Asset Management, Inc. ("SaBAM"), Seven World Trade
Center, New York, New York 10048, which became effective December 18, 1998,
SaBAM is the Portfolio Manager and provides investment advisory services to
the Large-Cap Value Portfolio. For the services provided under this Agreement,
Pacific Life pays a fee to SaBAM based on an annual percentage of the average
daily net assets 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>
 
  SaBAM, a wholly-owned subsidiary of Citigroup, Inc. 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
December 31, 1998, SaBAM and such affiliates managed approximately $29 billion
of assets.
 
  Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Lazard Asset Management ("Lazard"), 30 Rockefeller Plaza, New York, New
York 10112, which became effective
 
                                      59
<PAGE>
 
December 18, 1998 , Lazard is the Portfolio Manager and provides investment
advisory services to the Mid-Cap Value Portfolio. For the services provided
under this Agreement, Pacific Life pays a fee to Lazard based on a percentage
of an annual average daily net assets 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>
 
  Lazard, a division of Lazard Freres & Co. LLC ("Lazard Freres"), a New York
limited liability company, which is registered as an investment adviser with
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 $70 billion as of December 31, 1998. Lazard's clients are both
individuals and institutions, some of whose accounts have investment policies
similar to those of the Portfolio.
 
  Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Goldman Sachs Asset Management ("Goldman Sachs"), One New York Plaza, New
York, New York 10004, which became effective May 1, 1998, Goldman Sachs is the
Portfolio Manager and provides investment advisory services to the Equity and
Bond and Income Portfolios. For these services, Pacific Life pays a fee to
Goldman Sachs based on an annual percentage of the average daily net assets of
each Portfolio according to the following schedule:
 
                     Equity and Bond and Income Portfolios
 
<TABLE>
<CAPTION>
              Rate
              (%)     Break Point (assets)
              ----   ---------------------
              <S>    <C>
               .35%  On first $100 million
               .30%  On next $100 million
               .25%  On next $800 million
               .20%  On excess
</TABLE>
 
  Goldman Sachs is a separate operating division of Goldman, Sachs & Co.
Goldman Sachs and its affiliates are the investment management division of
Goldman, Sachs & Co., which was founded in 1869. As of December 31, 1998,
Goldman Sachs and its affiliates manage, administer and distribute over $195
billion for institutional and individual investors worldwide, including fixed
income assets in excess of $42 billion for which they acted as investment
adviser.
 
  The Goldman Sachs Group, L.P., which controls Goldman Sachs Asset
Management, announced that it will pursue an initial public offering in the
late spring or early summer of 1999. Simultaneously with the offering, the
Goldman Sachs Group, L.P. will merge into The Goldman Sachs Group, Inc.
 
                                      60
<PAGE>
 
  From January 1, 1995 through April 30, 1998, pursuant to a Portfolio
Management Agreement between the Fund, the Adviser, and Greenwich Street
Advisors Division of Smith Barney Mutual Funds Management Inc. ("Greenwich
Street Advisors"), 388 Greenwich Street, 23rd Floor, New York, New York 10048,
Greenwich Street Advisors was the Portfolio Manager and provided investment
advisory service to the Equity Portfolio and Bond and Income Portfolio. For
the services provided, for the year 1997, Pacific Life paid a fee to Greenwich
Street Advisors based on an annual percentage of the combined average daily
net assets of the Equity and Bond and Income Portfolios according to the
following schedule:
 
                     Equity and Bond and Income Portfolios
 
<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 $600 million
               .20%     On excess
</TABLE>
 
  For the services provided in 1996, Pacific Life paid a fee to Greenwich
Street Advisors based on an annual percentage of each Portfolio's average
daily net assets according to the following fee schedules:
 
                               Equity Portfolio
 
<TABLE>
<CAPTION>
              Rate (%)    Break Point (assets)
              --------   ---------------------
              <S>        <C>
               .50%      On first $500 million
               .45%      On next $500 million
               .40%      On excess
 
                           Bond and Income Portfolio
 
<CAPTION>
              Rate (%)    Break Point (assets)
              --------   ---------------------
              <S>        <C>
               .40%      On first $500 million
               .35%      On next $500 million
               .30%      On excess
</TABLE>
 
  Net Fees paid or owed by Pacific Life to Goldman Sachs from May 1, 1998
through December 31, 1998 were $772,931 for the Equity Portfolio and $290,917
for the Bond and Income Portfolio. Net fees paid or owed to Greenwich Street
Advisors from January 1, 1998 through April 30, 1998 were $437,389 for the
Equity Portfolio and $147,029 for the Bond and Income Portfolio, in 1997 were
$1,088,097 for the Equity Portfolio and $368,846 for the Bond and Income
Portfolio, and in 1996 were $808,784 for the Equity Portfolio and $274,358 for
the Bond and Income Portfolio.
 
  Pursuant to a Portfolio Management Agreement between the Fund, the Adviser
and Bankers Trust Company ("BTCo"), a wholly-owned subsidiary of Bankers Trust
Corporation, 130 Liberty Street, New York, New York 10006, BTCo is the
Portfolio Manager and provides investment advisory services to the Equity
Index and Small-Cap Index Portfolios. For these services, Pacific Life pays a
fee to BTCo, at the beginning of each calendar quarter, a fee based on 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 (assets)
              --------   ---------------------
              <S>        <C>
               .08%      On first $100 million
               .04%      On next $100 million
               .02%      On excess
</TABLE>
 
                                      61
<PAGE>
 
  For the services provided, for the years 1997 and 1996 with respect to the
Equity Index Portfolio, Pacific Life paid a quarterly fee in advance to BTCo,
based on the net assets of the Equity Index Portfolio at the beginning of each
calendar quarter at an annual rate in accordance with the following schedule:
 
                            Equity Index Portfolio
 
<TABLE>
<CAPTION>
               Rate (%)    Break Point (assets)
               --------   ---------------------
               <S>        <C>
                .07%      On first $100 million
                .03%      On next $100 million
                .01%      On excess
</TABLE>
 
  As was the case with the current fee, this fee was subject to a minimum
annual fee of $100,000 for the calendar years 1996 and 1997.
 
  BTCo is a wholly-owned subsidiary of Bankers Trust Corporation, the seventh
largest bank holding company in the United States. BTCo is responsible for the
management of the Equity Index Portfolio. As of December 31, 1998, BTCo
managed assets approximating $361.9 billion. BTCo is also the investment
manager to several other mutual fund portfolios and to private accounts for
pension and profit sharing plans.
 
  Net fees paid or owed by Pacific Life to BTCo with respect to the Equity
Index Portfolio in 1998 were $188,793, in 1997 were $135,863, and in 1996 were
$100,000.
 
  Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Morgan Stanley Asset Management ("MSAM"), a subsidiary of Morgan Stanley
Dean Witter & Co., whose address is 1221 Avenue of the Americas, New York, New
York 10020, MSAM is the Portfolio Manager and provides investment advisory
services to the REIT and International Portfolios. On December 1, 1998 Morgan
Stanley Asset Management Inc. changed its name to Morgan Stanley Dean Witter
Investment Management Inc. but continues to do business in certain instances
using the name Morgan Stanley Asset Management.
 
  For the services provided under the Agreement for the International
Portfolio, which became effective June 1, 1997, Pacific Life pays a fee to
MSAM at an annual rate of 0.35% based on the average daily net assets of the
International Portfolio.
 
  From January 1, 1995 through May 31, 1997, pursuant to a Portfolio
Management Agreement between the Fund, the Adviser, and Templeton Investment
Counsel, Inc. ("Templeton"), Broward Financial Centre, Suite 2100, Fort
Lauderdale, Florida 33394-3091, Templeton was the Portfolio Manager and
provided investment advice with respect to the International Portfolio. For
the services provided, for the period January 1, 1997 through May 31, 1997 and
in 1996, Pacific Life paid a fee to Templeton based on an annual percentage of
the Portfolio's average daily net assets according to the following fee
schedule:
 
                            International Portfolio
 
<TABLE>
<CAPTION>
               Rate (%)   Break Point (assets)
               --------   --------------------
               <S>        <C>
                .70%      On first $25 million
                .55%      On next $25 million
                .50%      On next $50 million
                .40%      On excess
</TABLE>
 
  Net fees paid or owed by Pacific Life to MSAM for the International
Portfolio for 1998 were $3,222,413, and from June 1, 1997 through December 31,
1997 were $1,478,065. Net fees paid or owed by Pacific Life to Templeton for
the International Portfolio from January 1, 1997 to May 31, 1997 were
$945,379, and in 1996 were $1,382,217.
 
                                      62
<PAGE>
 
  For the services provided under the Agreement for the REIT Portfolio, which
became effective December 18, 1998, Pacific Life pays a fee to MSAM based on
an annual percentage of the REIT Portfolio's average daily net assets
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>
 
  MSAM, 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 December 31, 1998 MSAM, together with its affiliated institutional asset
management companies, had approximately $163.4 billion in assets under
management as an investment manager or as a fiduciary adviser.
 
  Pursuant to a Portfolio Management Agreement between the Fund, the Adviser
and Blairlogie Capital Management ("Blairlogie"), 4th Floor, 125 Princes
Street, Edinburgh EH2 4AD, Scotland, Blairlogie serves as the Portfolio
Manager and provides investment advisory services to the Emerging Markets
Portfolio. For the services provided, Pacific Life pays a fee to Blairlogie
based on an annual percentage of the Emerging Market Portfolio's average daily
net assets according to the following schedule:
 
                          Emerging Markets Portfolio
 
<TABLE>
<CAPTION>
               Rate (%)   Break Point (assets)
               --------   --------------------
               <S>        <C>
                .85%      On first $50 million
                .75%      On next $50 million
                .70%      On next $50 million
                .65%      On next $50 million
                .60%      On excess
</TABLE>
 
  For the services provided in the year 1996, Pacific Life paid a fee to
Blairlogie based on an annual percentage of the Portfolio's average daily net
assets according to the following fee schedule:
 
                          Emerging Markets Portfolio
 
<TABLE>
<CAPTION>
               Rate (%)   Break Point (assets)
               --------   --------------------
               <S>        <C>
                .85%      On first $50 million
                .75%      On next $50 million
                .70%      On next $50 million
                .65%      On excess
</TABLE>
 
  Blairlogie is a subsidiary of Alleghany Asset Management, Inc. and its
affiliates.
 
  Blairlogie manages a limited number of large accounts, such as employee
benefit plans, college endowment funds and foundations, as well as two funds
in the PIMCO Funds: Equity Advisors Series. As of December 31, 1998,
Blairlogie managed approximately $897 million of assets, including
approximately $447 million of mutual fund assets.
 
  Net fees paid or owed by Pacific Life to Blairlogie in 1998 were $821,133,
in 1997 were $642,976, and from April 1, 1996 (date of commencement of
operations) to December 31, 1996 were $158,193 for the Emerging Markets
Portfolio.
 
                                      63
<PAGE>
 
  The Portfolio Management Agreements are not exclusive, and PIMCO, Capital
Guardian, Alliance Capital, Janus, J.P. Morgan Investment, SaBAM, Lazard,
Goldman Sachs, BTCo, MSAM, and Blairlogie may provide and currently are
providing investment advisory services to other clients, including other
investment companies.
 
Distribution of Fund Shares
 
  Pacific Mutual Distributors, Inc. ("PMD") serves as the Fund's Distributor
pursuant to a Distribution Contract (the "Distribution Contract") with the
Fund. The Distributor is not obligated to sell any specific amount of Fund
shares. PMD bears all expenses of providing services pursuant to the
Distribution Contract including the costs of sales presentations, mailings,
advertising, and any other marketing efforts by PMD in connection with the
distribution or sale of the shares.
 
  The expenses incurred by the Fund with respect to each Portfolio in
connection with the Fund's organization, its registration with the SEC and any
states where registered, and the public offering of its shares were advanced
on behalf of the Fund by the Adviser. These organizational expenses were
deferred and amortized by the Fund's Portfolios over a period of 60 months.
Similarly, the organizational expenses of Portfolios of the Fund that have
been organized after the Fund commenced operations have been advanced on
behalf of the Fund by the Adviser, and are deferred and amortized by the
pertinent Portfolio over a period of 60 months from the commencement of
operations of the Portfolio. See "Financial Statements."
 
  As of March 10, 1999, Pacific Life beneficially owned 0% of the outstanding
shares of the Portfolios of the Fund. Pacific Asset Management LLC ("PAM"), a
wholly-owned subsidiary of Pacific Life, beneficially owned 43.18% of the
outstanding shares of the Large-Cap Value Portfolio, 49.26% of the outstanding
shares of the Mid-Cap Value Portfolio, 43.41% of the outstanding shares of the
Small-Cap Index Portfolio and 64.01% of the outstanding shares of the REIT
Portfolio, including monies paid in connection with the initial capital
advances made to the Fund, and 0%, of the outstanding shares of the other
fourteen Portfolios of the Fund. Pacific Life and PAM would exercise voting
rights attributable to any shares of the Fund owned by them in accordance with
voting instructions received by Owners of the Policies issued by Pacific Life.
To this extent, as of March 10, 1999, Pacific Life did not exercise control
over any Portfolio.
 
Purchases and Redemptions
 
  Shares of the Fund are not sold directly to the general public. Shares of
the Fund are currently offered only for purchase by the Separate Accounts to
serve as an investment medium for the Variable Contracts issued or
administered by Pacific Life or its affiliates. For information on purchase of
a Variable Contract, consult a prospectus for the Separate Account. Shares of
the Growth Portfolio are offered only to Separate Accounts of Pacific Life
that fund (1) variable life insurance policies, and (2) variable annuity
contracts that were issued by Pacific Life prior to January 1, 1994. The
shares of the Large-Cap Value, Mid-Cap Value, Small-Cap Index and REIT
Portfolios are not available for Pacific Select variable universal life
insurance policies. The shares of the Large-Cap Value, Mid-Cap Value, Small-
Cap Index, REIT, Growth, Aggressive Equity and Emerging Markets Portfolios are
not available for Pacific Corinthian variable annuity contracts.
 
  Shares of any Portfolio may be redeemed on any business day upon receipt of
a request for redemption from the insurance company whose separate account
owns the shares. Redemptions are effected at the per share net asset value
next determined after receipt of the redemption request. Redemption proceeds
will ordinarily be paid within seven days following receipt of instructions in
proper form, or sooner, if required by law. The right of redemption may be
suspended by the Fund or the payment date postponed beyond seven days when the
New York Stock Exchange is closed (other than customary weekend and holiday
closings) or for any period during which trading thereon is restricted because
an emergency exists, as determined by the SEC, making disposal of portfolio
securities or valuation of net assets not reasonably practicable, and whenever
the SEC has by order permitted such suspension or postponement for the
protection of shareholders. If the Board of Trustees should determine that it
would be detrimental to the best interests of the remaining shareholders of a
Portfolio to make payment wholly or partly in cash, the Portfolio may pay the
redemption price in whole or part by a
 
                                      64
<PAGE>
 
distribution in kind of securities from the Portfolio, in lieu of cash, in
conformity with applicable rules of the SEC. If shares are redeemed in kind,
the redeeming shareholder might incur brokerage costs in converting the assets
into cash. Under the Investment Company Act of 1940, the Fund is obligated to
redeem shares solely in cash up to the lesser of $250,000 or 1 percent of its
net assets during any 90-day period for any one shareholder. The Fund may
suspend the right of redemption of shares of any Portfolio and may postpone
payment for more than seven days for any period: (i) during which the New York
Stock Exchange is closed other than customary weekend and holiday closings or
during which trading on the New York Stock Exchange is restricted; (ii) when
the SEC determines that a state of emergency exists which may make payment or
transfer not reasonably practicable; (iii) as the SEC may by order permit for
the protection of the security holders of the Fund; or (iv) at any other time
when the Fund may, under applicable laws and regulations, suspend payment on
the redemption of its shares. If the Board of Trustees should determine that
it would be detrimental to the best interests of the remaining shareholders of
a Portfolio to make payment wholly or partly in cash, the Portfolio may pay
the redemption price in whole or in part by a distribution in kind of
securities from the portfolio of the Portfolio, in lieu of cash, in conformity
with applicable rules of the SEC. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage costs in converting the assets
into cash.
 
Exchanges Among the Portfolios
 
  Variable Contract Owners do not deal directly with the Fund to purchase,
redeem, or exchange shares of a Portfolio, and Variable Contract Owners should
refer to the Prospectus for the applicable Separate Account for information on
the allocation of premiums and on transfers of accumulated value among options
available under the contract.
 
                     PORTFOLIO TRANSACTIONS AND BROKERAGE
 
Investment Decisions
 
  Investment decisions for the Fund and for the other investment advisory
clients of the Adviser, or applicable Portfolio Manager, are made with a view
to achieving their respective investment objectives. Investment decisions are
the product of many factors in addition to basic suitability for the
particular client involved (including the Fund). Thus, a particular security
may be bought or sold for certain clients even though it could have been
bought or sold for other clients at the same time. It also sometimes happens
that two or more clients simultaneously purchase or sell the same security, in
which event each day's transactions in such security are, insofar as possible,
averaged as to price and allocated between such clients in a manner which in
the opinion of the Adviser or Portfolio Manager is equitable to each and in
accordance with the amount being purchased or sold by each. There may be
circumstances when purchases or sales of portfolio securities for one or more
clients will have an adverse effect on other clients.
 
Brokerage and Research Services
 
  The Adviser or Portfolio Manager for a Portfolio places all orders for the
purchase and sale of portfolio securities, options, and futures contracts and
other investments for a Portfolio through a substantial number of brokers and
dealers or futures commission merchants selected at its discretion. In
executing transactions, the Adviser or Portfolio Manager will attempt to
obtain the best net results for a Portfolio taking into account such factors
as price (including the applicable brokerage commission or dollar spread),
size of order, the nature of the market for the security, the timing of the
transaction, the reputation, experience and financial stability of the broker-
dealer involved, the quality of the service, the difficulty of execution and
operational facilities of the firms involved, and the firm's risk in
positioning a block of securities. In transactions on stock exchanges in the
United States, payments of brokerage commissions are negotiated. In effecting
purchases and sales of portfolio securities in transactions on United States
stock exchanges for the account of the Fund, the Adviser or Portfolio Manager
may pay higher commission rates than the lowest available when the Adviser or
Portfolio Manager believes it is
 
                                      65
<PAGE>
 
reasonable to do so in light of the value of the brokerage and research
services provided by the broker effecting the transaction. In the case of
securities traded on some foreign stock exchanges, brokerage commissions may
be fixed and the Adviser or Portfolio Manager may be unable to negotiate
commission rates for these transactions. In the case of securities traded on
the over-the-counter markets, there is generally no stated commission, but the
price includes an undisclosed commission or markup. Consistent with the policy
of obtaining the best net results, a portion of a Portfolio's brokerage and
futures transactions, including transactions on a national securities
exchange, may be conducted through an affiliated broker. The brokerage
commissions paid to an affiliated broker will not exceed 25% of the brokerage
commission incurred per year by the Portfolio.
 
  There is generally no stated commission in the case of fixed-income
securities, which are traded in the over-the-counter markets, but the price
paid by the Fund usually includes an undisclosed dealer commission or mark-up.
In underwritten offerings, the price paid by the Fund includes a disclosed,
fixed commission or discount retained by the underwriter or dealer.
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Fund of negotiated brokerage commissions. Such commissions vary
among different brokers. Also, a particular broker may charge different
commissions according to such factors as the difficulty and size of the
transaction. In the case of securities traded on some foreign stock exchanges,
brokerage commissions may be fixed and the Adviser or Portfolio Manager may be
unable to negotiate commission rates for these transactions.
 
  Some securities considered for investment by the Fund's Portfolios may also
be appropriate for other clients served by the Adviser or Portfolio Manager.
If a purchase or sale of securities consistent with the investment policies of
a Portfolio and one or more of these clients served by the Adviser or
Portfolio Manager is considered at or about the same time, transactions in
such securities will be allocated among the Portfolio and clients in a manner
deemed fair and reasonable by the Adviser or Portfolio Manager. Although there
is no specified formula for allocating such transactions, the various
allocation methods used by the Adviser or Portfolio Manager, and the results
of such allocations, are subject to periodic review by the Fund's Adviser and
Board of Trustees.
 
  It has for many years been a common practice in the investment advisory
business for advisers of investment companies and other institutional
investors to receive research services from broker-dealers which execute
portfolio transactions for the clients of such advisers. Consistent with this
practice, the Adviser or Portfolio Manager for a Portfolio may receive
research services from many broker-dealers with which the Adviser or Portfolio
Manager places the Portfolio's portfolio transactions. These services, which
in some cases may also be purchased for cash, include such matters as general
economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services may be of value to the Adviser or Portfolio
Manager in advising its various clients (including the Portfolio), although
not all of these services are necessarily useful and of value in managing a
Portfolio. The advisory fee paid by the Portfolio is not reduced because the
Adviser or Portfolio Manager and its affiliates receive such services.
 
  As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Adviser or Portfolio Manager may cause a Portfolio to pay a broker-dealer,
which provides "brokerage and research services" (as defined in the Act) to
the Adviser or Portfolio Manager, an amount of disclosed commission for
effecting a securities transaction for the Portfolio in excess of the
commission which another broker-dealer would have charged for effecting that
transaction.
 
  During the years 1998, 1997 and 1996, respectively, the following Portfolios
incurred brokerage commissions as follows: the High Yield Bond Portfolio--
$2,720, $2,500 and $1,700, the Managed Bond Portfolio--$122,103, $41,315 and
$33,718, the Government Securities Portfolio--$29,467, $21,349 and $16,819,
the Growth Portfolio--$251,753, $225,232 and $242,837, the Aggressive Equity
Portfolio--$855,826, $296,940 and $59,113, the Growth LT Portfolio--
$1,517,836, $1,057,621 and $559,163, the Equity Income Portfolio--$1,529,206,
$1,162,083 and $746,412, the Multi-Strategy Portfolio--$455,757, $283,791 and
$231,844, the Equity Portfolio--$725,654, $706,250 and $286,596 of which
$6,900 (0.95%), $61,512 (8.71%) and $60,498 (21.11%) was paid to Smith Barney
Inc. and $4,500 (0.62%), $23,700 (3.36%) and $11,100 (3.87%)
 
                                      66
<PAGE>
 
was paid to Robinson Humphrey Co., Inc., affiliates of Greenwich Street
Advisors, and $8,633 (1.2%) was paid to Goldman, Sachs & Co. in 1998, an
affiliate of Goldman Sachs Asset Management, the Bond and Income Portfolio--
$14,193, $0 and $0, of which $14,193 (100%) was paid to Goldman, Sachs & Co.
in 1998, an affiliate of Goldman Sachs Asset Management, the Equity Index
Portfolio--$140,167, $157,624 and $137,980, the International Portfolio--
$2,177,935, $1,606,247 and $883,241 of which $41,033 (1.88%) and $39,617
(2.47%) was paid to Morgan Stanley & Co. in 1998 and 1997, respectively, an
affiliate of Morgan Stanley Asset Management and the Emerging Markets
Portfolio--$373,834, $712,505 and $302,384.
 
  On December 31, 1998, the Government Securities Portfolio held securities of
Goldman, Sachs & Co. and Merrill Lynch & Co. valued at $5,385,717 and
$2,889,814, respectively; the Managed Bond Portfolio held securities of
Donaldson Lufkin & Jenrette, Goldman, Sachs & Co., Lehman Brothers Inc.,
Salomon Brothers Inc., Salomon Brothers Mortgage Securities, and Paine Webber
Group Inc., valued at $2,192,268, $7,973,368, $19,041,058, $1,010,690,
$2,829,926, and $1,703,321, respectively; the Equity Income Portfolio held
securities of BankAmerica Corp. and CitiGroup Inc. valued at $33,142,583 and
$26,277,075, respectively; the Multi-Strategy Portfolio held securities of
Donaldson Lufkin & Jenrette, Morgan Stanley Dean Witter, and CitiGroup Inc.
valued at $79,654, $986,581, and $7,672,500, respectively; the International
Portfolio held securities of UBS AG valued at $1,223,001; the Equity Index
Portfolio held securities of Morgan Stanley Dean Witter and CitiGroup Inc.
valued at $6,160,954 and $16,676,996, respectively; the Equity Portfolio held
securities of CIT Group Inc., Chase Manhattan Corp., Lehman Brothers Inc.,
Merrill Lynch & Co., and Morgan Stanley Dean Witter valued at $709,419,
$1,898,944, $1,330,687, $1,588,650 and $6,666,900, respectively; and the Bond
and Income Portfolio held securities of Bear Stearns, Citicorp., and J. P.
Morgan valued at $2,594,888, $3,959,795 and $598,925, respectively, each of
which is a broker or dealer regularly used for brokerage transactions by that
Portfolio.
 
Portfolio Turnover
 
  For reporting purposes, each Portfolio's portfolio turnover rate is
calculated by dividing the value of the lesser of purchases or sales of
portfolio securities for the fiscal year by the monthly average of the value
of portfolio securities owned by the Portfolio during the fiscal year. In
determining such portfolio turnover, long-term U.S. Government securities are
included. Short-term U.S. Government securities and all other securities whose
maturities at the time of acquisition were one year or less are excluded. A
100% portfolio turnover rate would occur, for example, if all of the
securities in the portfolio (other than short-term securities) were replaced
once during the fiscal year. The portfolio turnover rate for each of the
Portfolios will vary from year to year, depending on market conditions.
 
  The portfolio turnover rates are not expected to exceed: 0% for the Money
Market Portfolio; 400% for the Managed Bond and Government Securities
Portfolios; and 150% for all other Portfolios. For the Portfolios other than
the Money Market Portfolio, portfolio turnover could be greater in periods of
unusual market movement and volatility.
 
                                NET ASSET VALUE
 
  Shares of each Portfolio are sold at their respective net asset values
(without a sales charge) computed after receipt of a purchase order. Net asset
value of a share is determined by dividing the value of a Portfolio's net
assets by the number of its shares outstanding. That determination is made
once each business day, Monday through Friday, exclusive of federal holidays
usually at or about 4:00 p.m. Eastern time, on each day that the New York
Stock Exchange is open for trading. The New York Stock Exchange and other
exchanges usually close for trading at 4:00 p.m. Eastern time. In the event
that the New York Stock Exchange or other exchanges close early, the Fund
normally will deem the closing price of each Portfolio's assets to be the
price of those assets at 4:00 p.m., Eastern time. Net asset value will not be
determined on the following holidays: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. To calculate a Portfolio's net asset
value, a Portfolio's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. In general, the value of assets is based on actual or
estimated market value, with special provisions for assets not having readily
available market quotations and short-term debt securities. With respect to
the Portfolios that invest in foreign securities, the value of foreign
securities
 
                                      67
<PAGE>
 
that are traded on stock exchanges outside the United States are based upon
the price on the exchange as of the close of business of the exchange
immediately preceding the time of valuation. Securities traded in over-the-
counter markets outside the United States are valued at the last available
price in the over-the-counter market prior to the time of valuation. Trading
in securities on exchanges and over-the-counter markets in European and
Pacific Basin countries is normally completed well before 4:00 P.M., Eastern
time. In addition, European and Pacific Basin securities trading may not take
place on all business days in New York. Furthermore, trading takes place in
Japanese markets on certain Saturdays and in various foreign markets on days
which are not business days in New York and on which the Fund's net asset
value is not calculated. Quotations of foreign securities in foreign
currencies are converted to U.S. dollar equivalents using the foreign exchange
quotation in effect at the time net asset value is computed. The calculation
of the net asset value of any Portfolio which invests in foreign securities
which are principally traded in a foreign market may not take place
contemporaneously with the determination of the prices of portfolio securities
of foreign issuers used in such calculation. Further, under the Fund's
procedures, the prices of foreign securities are determined using information
derived from pricing services and other sources every day that the Fund values
its shares. Prices derived under these procedures will be used in determining
net asset value. Information that becomes known to the Fund or its agents
after the time that net asset value is calculated on any business day (which
may be after 4:00 p.m. Eastern time) may be assessed in determining net asset
value per share after the time of receipt of the information, but will not be
used to retroactively adjust the price of the security so determined earlier
or on a prior day. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the time a Portfolio's
net asset value is determined may not be reflected in the calculation of net
asset value. If events materially affecting net asset value occur during such
period, the securities would be valued at fair market value as determined by
the management and approved in good faith by the Board of Trustees of the
Fund. In determining the fair value of securities, the Fund may consider
available information including information that becomes known after 4:00 p.m.
Eastern time, and the values that are determined will be deemed to be the
price at 4:00 p.m. Eastern time.
 
  The Money Market Portfolio's portfolio securities are valued using the
amortized cost method of valuation. This involves valuing a security at cost
on the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity, regardless of the impact of
fluctuating interest rates on the market value of the instrument. While this
method provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Portfolio would receive if it sold the instrument. During such periods the
yield to investors in the Portfolio may differ somewhat from that obtained in
a similar investment company which uses available market quotations to value
all of its portfolio securities.
 
  The Commission's regulations require the Money Market Portfolio to adhere to
certain conditions. The Portfolio is required to maintain a dollar-weighted
average portfolio maturity of 90 days or less, to limit its investments to
instruments having remaining maturities of 13 months or less (except
securities held subject to repurchase agreements having 13 months or less to
maturity) and to invest only in securities that meet specified quality and
credit criteria.
 
  All other Portfolios are valued as follows:
 
  Portfolio securities for which market quotations are readily available are
stated at market value. Market value is determined on the basis of last
reported sales price, or, if no sales are reported, the mean between
representative bid and asked quotations obtained from a quotation reporting
system or from established market makers. In other cases, securities are
valued at their fair value as determined in good faith by the Board of
Trustees of the Fund, although the actual calculations may be made by persons
acting under the direction of the Board. Money market instruments are valued
at market value, except that instruments maturing in sixty days or less are
valued using the amortized cost method of valuation.
 
  The value of a foreign security is determined in its national currency based
upon the price on the foreign exchange as of its close of business immediately
preceding the time of valuation. Securities traded in over-the-counter markets
outside the United States are valued at the last available price in the over-
the-counter market prior to the time of valuation.
 
                                      68
<PAGE>
 
  Debt securities, including those to be purchased under firm commitment
agreements (other than obligations having a maturity of sixty days or less at
their date of acquisition), are normally valued on the basis of quotes
obtained from brokers and dealers or pricing services, which take into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data. Debt obligations having a maturity of
sixty days or less are generally valued at amortized cost unless the amortized
cost value does not approximate market value. Certain debt securities for
which daily market quotations are not readily available may be valued,
pursuant to guidelines established by the Board of Trustees, with reference to
debt securities whose prices are more readily obtainable and whose durations
are comparable to the securities being valued.
 
  When a Portfolio writes a put or call option, the amount of the premium is
included in the Portfolio's assets and an equal amount is included in its
liabilities. The liability thereafter is adjusted to the current market value
of the option. The premium paid for an option purchased by the Portfolio is
recorded as an asset and subsequently adjusted to market value. The values of
futures contracts are based on market prices. Quotations of foreign securities
in foreign currency are converted to U.S. dollar equivalents at the prevailing
market rates quoted by the custodian on the morning of valuation.
 
                            PERFORMANCE INFORMATION
 
  The Fund may, from time to time, include the yield and effective yield of
its Money Market Portfolio, the yield of the remaining Portfolios, and the
total return of all Portfolios in advertisements, sales literature, or reports
to shareholders or prospective investors. Total return information for the
Fund will not be advertised or included in sales literature unless accompanied
by comparable performance information for a Separate Account to which the Fund
offers its shares.
 
  Current yield for the Money Market Portfolio will be based on the change in
the value of a hypothetical investment (exclusive of capital charges) over a
particular 7-day period, less a pro-rata share of Portfolio expenses accrued
over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The
base period return is then annualized by multiplying by 365/7, with the
resulting yield figure carried to at least the nearest hundredth of one
percent. "Effective yield" for the Money Market Portfolio assumes that all
dividends received during an annual period have been reinvested. Calculation
of "effective yield" begins with the same "base period return" used in the
calculation of yield, which is then annualized to reflect weekly compounding
pursuant to the following formula:
 
    Effective Yield = [(Base Period Return + 1) (To the power of 365/7)]-1
   
  For the 7-day period ending December 31, 1998, the current yield of the
Money Market Portfolio was 4.81% and the effective yield of the Portfolio was
4.92%.     
 
  Quotations of yield for the remaining Portfolios will be based on all
investment income per share earned during a particular 30-day period
(including dividends and interest), less expenses accrued during the period
("net investment income"), and are computed by dividing net investment income
by the maximum offering price per share on the last day of the period,
according to the following formula:
 
                    2[(a-b + 1) (To the power of 6) - 1]
                       ---
                       cd 
   where
 
    a = dividends and interest earned during the period,
 
    b = expenses accrued for the period (net of reimbursements),
 
    c = the average daily number of shares outstanding during the period
        that were entitled to receive dividends, and
 
    d = the maximum offering price per share on the last day of the period.
 
                                      69
<PAGE>
 
  For the 30 day period ended December 31, 1998, the yield of the remaining
Portfolios that had commenced operations on or before that date was as
follows: 8.37% for the High Yield Bond Portfolio, 5.39% for the Managed Bond
Portfolio, 4.87% for the Government Securities Portfolio, (0.09)% for the
Growth Portfolio, (0.38)% for the Aggressive Equity Portfolio, 0.04% for the
Growth LT Portfolio, 0.70% for the Equity Income Portfolio, 2.27% for the
Multi-Strategy Portfolio, (0.05)% for the Equity Portfolio, 5.15% for the Bond
and Income Portfolio, 1.14% for the Equity Index Portfolio, 1.43% for the
International Portfolio, and 1.58% for the Emerging Markets Portfolio.
 
  Quotations of average annual total return for a Portfolio will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in the Portfolio over certain periods that will include a period of
one year (or, if less, up to the life of the Portfolio), calculated pursuant
to the following formula: P (1 + T) To the power of n = ERV (where P = a
hypothetical initial payment of $1,000, T = the total return for the period, n =
the number of periods, and ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the period). Quotations of total return
may also be shown for other periods. All total return figures reflect the
deduction of a proportional share of Portfolio expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid.
 
  For the one year period ended December 31, 1998, the total return for each
Portfolio that had commenced operations on or before that date was as follows:
5.29% for the Money Market Portfolio, 2.46% for the High Yield Bond Portfolio,
9.20% for the Managed Bond Portfolio, 9.24% for the Government Securities
Portfolio, 2.69% for the Growth Portfolio, 13.22% for the Aggressive Equity
Portfolio, 58.29% for the Growth LT Portfolio, 24.18% for the Equity Income
Portfolio, 18.17% for the Multi-Strategy Portfolio, 30.28% for the Equity
Portfolio, 8.97% for the Bond and Income Portfolio, 28.45% for the Equity
Index Portfolio, 5.60% for the International Portfolio, and (26.83)% for the
Emerging Markets Portfolio. The Large-Cap Value, Mid-Cap Value, Small-Cap
Index and REIT Portfolios did not begin operations until January 4, 1999.
 
  For the five year period ended December 31, 1998, the average annual total
return for each Portfolio that had commenced operations on or before that date
was as follows: 4.99% for the Money Market Portfolio, 8.30% for the High Yield
Bond Portfolio, 7.34% for the Managed Bond Portfolio, 6.78% for the Government
Securities Portfolio, 13.23% for the Growth Portfolio, 20.15% for the Equity
Income Portfolio, 14.44% for the Multi-Strategy Portfolio, 18.84% for the
Equity Portfolio, 9.03% for the Bond and Income Portfolio, 23.66% for the
Equity Index Portfolio and 9.88% 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 December 31, 1998, the average annual total
returns for each Portfolio, except the Growth LT, Aggressive Equity, Equity
Index and Emerging Markets Portfolios, was as follows: 5.30% for the Money
Market Portfolio, 10.52% for the High Yield Bond Portfolio, 9.68% for the
Managed Bond Portfolio, 9.09% for the Government Securities Portfolio, 15.56%
for the Growth Portfolio, 16.19% for the Equity Income Portfolio, 13.07% for
the Multi-Strategy Portfolio, 17.00% for the Equity Portfolio, 11.57% for the
Bond and Income Portfolio, and 8.07% for the International Portfolio. Based
upon the period from the commencement of operations of the Growth LT Portfolio
on January 4, 1994 until December 31, 1998, the average annual total return
for the Growth LT Portfolio was 26.26%. Based upon the period from the
commencement of operations of the Equity Index Portfolio on January 30, 1991
until December 31, 1998, the average annual total return for the Equity Index
Portfolio was 19.93%. Based upon the period from the commencement of
operations of the Aggressive Equity and Emerging Markets Portfolios on April
1, 1996 until December 31, 1998, the average annual total return for each of
these Portfolios was 8.99% and (12.32)%, respectively.
 
  The performance results for the Aggressive Equity, Equity Income, Multi-
Strategy, Equity, Bond and Income, and International Portfolios are based, in
part, on performance results when these Portfolios were advised by different
Portfolio Managers. Alliance Capital began serving as Portfolio Manager to the
Aggressive Equity Portfolio on May 1, 1998, J.P. Morgan Investment began
serving as Portfolio Manager to the Equity Income and Multi-Strategy
Portfolios on January 1, 1994, Morgan Stanley began serving as Portfolio
Manager to the International Portfolio on June 1, 1997, and Goldman Sachs
began serving as Portfolio Manager to the
 
                                      70
<PAGE>
 
Equity and Bond and Income Portfolios on May 1, 1998. The performance results
for the Equity Portfolio and Bond and Income Portfolio 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.
 
  Performance information for a Portfolio may be compared, in advertisements,
sales literature, and reports to shareholders to (i) various indices so that
investors may compare a Portfolio's results with those of a group of unmanaged
securities widely regarded by investors as representative of the securities
markets in general; (ii) other groups of mutual funds tracked by Lipper
Analytical Services Inc., a widely used independent research firm which ranks
mutual funds by overall performance, investment objectives, and assets, or
tracked by other services, companies, publications, or persons who rank mutual
funds on overall performance or other criteria; and (iii) the Consumer Price
Index (measure for inflation) to assess the real rate of return from an
investment in the Portfolio. Unmanaged indexes may assume the reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs and expenses.
 
  Quotations of yield or total return for the Fund will not take into account
charges and deductions against any Separate Accounts to which the Fund shares
are sold or charges and deductions against the Contracts issued or
administered by Pacific Life. The Portfolio's yield and total return should
not be compared with mutual funds that sell their shares directly to the
public since the figures provided do not reflect charges against the Separate
Accounts or the Contracts. Performance information for any Portfolio reflects
only the performance of a hypothetical investment in the Portfolio during the
particular time period on which the calculations are based. Performance
information should be considered in light of the Portfolio's investment
objectives and policies, characteristics and quality of the portfolios and the
market conditions during the given time period, and should not be considered
as a representation of what may be achieved in the future.
 
                                   TAXATION
 
  Each Portfolio intends to qualify annually and to elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986 (the
"Code").
 
  To qualify as a regulated investment company, each Portfolio generally must,
among other things: (i) derive in each taxable year at least 90% of its gross
income from dividends, interest, payments with respect to securities loans,
and gains from the sale or other disposition of stock, securities or foreign
currencies, or other income derived with respect to its business of investing
in such stock, securities or currencies; (ii) diversify its holdings so that,
at the end of each quarter of the taxable year, (a) at least 50% of the market
value of the Portfolio's assets is represented by cash, U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Portfolio's total assets and 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies); and
(iii) distribute at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest, and net short-term capital
gains in excess of any net long-term capital losses) each taxable year.
 
  As a regulated investment company, a Portfolio generally will not be subject
to U.S. federal income tax on its investment company taxable income and net
capital gains (any net long-term capital gains in excess of the sum of net
short-term capital losses and capital loss carryovers from prior years), if
any, that it distributes to shareholders. Each Portfolio intends to distribute
to its shareholders, at least annually, substantially all of its investment
company taxable income and any net capital gains. In addition, amounts not
distributed by a Portfolio on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
avoid the tax, a Portfolio must distribute (or be deemed to have distributed)
during each calendar year, (i) at least 98% of its ordinary income (not taking
into account any capital gains or losses) for the calendar year, (ii) at least
98% of its capital gains in excess of its capital losses for the twelve month
period ending on
 
                                      71
<PAGE>
 
October 31 of the calendar year (adjusted for certain ordinary losses), and
(iii) all ordinary income and capital gains for previous years that were not
distributed during such years. To avoid application of the excise tax, each
Portfolio intends to make its distributions in accordance with the calendar
year distribution requirement. A distribution will be treated as paid on
December 31 of the calendar year if it is declared by a Portfolio during
October, November, or December of that year to shareholders of record on a
date in such a month and paid by the Portfolio during January of the following
calendar year. Such distributions will be taxable to shareholders (the
Separate Accounts) for the calendar year in which the distributions are
declared, rather than the calendar year in which the distributions are
received.
 
  Each Portfolio also intends to comply with diversification regulations under
Section 817(h) of the Code, that apply to mutual funds underlying variable
contracts. Generally, a Portfolio will be required to diversify its
investments so that on the last day of each quarter of a calendar year no more
than 55% of the value of its total assets is represented by any one
investment, no more than 70% is represented by any two investments, no more
than 80% is represented by any three investments, and no more than 90% is
represented by any four investments. For this purpose, securities of a given
issuer generally are treated as one investment, but each U.S. Government
agency and instrumentality is treated as a separate issuer. Compliance with
the diversification rules under Section 817(h) of the Code generally will
limit the ability of any Portfolio, and in particular, the Government
Securities Portfolio, to invest greater than 55% of its total assets in direct
obligations of the U.S. Treasury (or any other issuer) or to invest primarily
in securities issued by a single agency or instrumentality of the
U.S. Government.
 
  If a Portfolio invests in shares of a foreign investment company, the
Portfolio may be subject to U.S. federal income tax on a portion of an "excess
distribution" from, or of the gain from the sale of part or all of the shares
in, such company. In addition, an interest charge may be imposed with respect
to deferred taxes arising from such distributions or gains. The Portfolio may
be eligible to elect alternative tax treatment that would mitigate the effects
of owning foreign investment company stock.
 
  Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time a Portfolio accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time that Portfolio actually collects such receivables or
pays such liabilities generally are treated as ordinary income or ordinary
loss. Similarly, on disposition of debt securities denominated in a foreign
currency and on disposition of certain futures contracts, forward contracts,
and options, gains or losses attributable to fluctuations in the value of
foreign currency between the date of acquisition of the security or contract
and the date of disposition also are treated as ordinary gain or loss. These
gains or losses, referred to under the Code as "Section 988" gains or losses,
may increase or decrease the amount of a Portfolio's investment company
taxable income to be distributed to its shareholders as ordinary income.
 
  The Treasury Department announced that it would issue future regulations or
rulings addressing the circumstances in which a variable contract owner's
control of the investments of a separate account may cause the contract owner,
rather than the insurance company, to be treated as the owner of the assets
held by the separate account. If the contract owner is considered the owner of
the securities underlying the separate account, income and gains produced by
those securities would be included currently in the contract owner's gross
income. It is not known what standards will be set forth in the regulations or
rulings.
 
  In the event that the rules or regulations are adopted there can be no
assurance that the Portfolios will be able to operate as currently described
in the Prospectus, or that the Trust will not have to change any Portfolio's
investment objective or investment policies. While each Portfolio's investment
objective is fundamental and may be changed only by a vote of a majority of
its outstanding shares, the Trustees have reserved the right to modify the
investment policies of the Portfolios as necessary to prevent any such
prospective rules and regulations from causing the contract owners to be
considered the owners of the shares of the Portfolios underlying the Separate
Accounts.
 
                                      72
<PAGE>
 
Distributions
 
  Distributions by a Portfolio of any investment company taxable income (which
includes, among other items, dividends, interest, and any net realized short-
term capital gains in excess of net realized long-term capital losses),
whether received in cash or reinvested in additional Portfolio shares, will be
treated as ordinary income for tax purposes in the hands of a shareholder (a
Separate Account). Distributions of net capital gains (the excess of any net
long-term capital gains over net short-term capital losses), whether received
in cash or reinvested in additional Portfolio shares, will generally be
treated by a Separate Account as either "20% Rate Gain" or "28% Rate Gain,"
depending upon the Portfolio's holding period for the assets sold, regardless
of the length of time a Separate Account has held Portfolio shares.
 
Hedging Transactions
 
  The diversification requirements applicable to a Portfolio's assets may
limit the extent to which a Portfolio will be able to engage in transactions
in options, futures contracts, or forward contracts.
 
                               OTHER INFORMATION
 
Concentration Policy
 
  Under each Portfolio's investment restrictions, except the REIT Portfolio's,
a Portfolio may not 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 securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities (or repurchase agreements with respect thereto).
Mortgage-related securities, including CMOs, that are issued or guaranteed by
the U.S. Government, its agencies or instrumentalities ("government issued")
are considered government securities. The Portfolios take the position that
mortgage-related securities, whether government issued or privately issued, do
not represent interests in any particular "industry" or group of industries,
and therefore, the concentration restriction noted above does not apply to
such securities. For purposes of complying with this restriction, the Fund, in
consultation with its Portfolio Managers, utilizes its own industry
classifications.
 
Capitalization
 
  The Fund is a Massachusetts business trust established under a Declaration
of Trust dated May 4, 1987. The capitalization of the Fund consists solely of
an unlimited number of shares of beneficial interest with a par value of
$0.001 each. The Board of Trustees may establish additional Portfolios (with
different investment objectives and fundamental policies) at any time in the
future. Establishment and offering of additional Portfolios will not alter the
rights of the Fund's shareholders. When issued, shares are fully paid,
redeemable, freely transferable, and non-assessable by the Fund. Shares do not
have preemptive rights or subscription rights. In liquidation of a Portfolio
of the Fund, each shareholder is entitled to receive his pro rata share of the
net assets of that Portfolio.
 
  Under Massachusetts law, shareholders could under certain circumstances, be
held personally liable for the obligations of the Fund. However, the
Declaration of Trust disclaims liability of the shareholders, Trustees, or
officers of the Fund for acts or obligations of the Fund, which are binding
only on the assets and property of the Fund and requires that notice of the
disclaimer be given in each contract or obligation entered into or executed by
the Fund or the Trustees. The Declaration of Trust provides for
indemnification out of Fund property for all loss and expense of any
shareholder held personally liable for the obligations of the Fund. The risk
of a shareholder incurring financial loss on account of shareholder liability
is limited to circumstances in which the Fund itself would be unable to meet
its obligations and thus should be considered remote.
 
  Expenses incurred in connection with the Fund's organization and
establishment of the Aggressive Equity Portfolio (1996), Growth LT Portfolio
(1994), and Emerging Markets Portfolio (1996) and the public offering of the
shares of those Portfolios, aggregated approximately $23,410, $3,952, and
$23,410, respectively. These costs
 
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have been deferred by the Aggressive Equity, Growth LT, and Emerging Markets
Portfolios and are being amortized by them over a period of five years from
the beginning of operations of each of those Portfolios.
 
  Expenses incurred in connection with the Fund's organization and
establishment of the Large-Cap Value, Mid-Cap Value, Small-Cap Index and REIT
Portfolios in 1998 and the public offering of the shares of those Portfolios,
aggregated approximately $21,015 per Portfolio. These costs will be expensed
and charged separately to each of the Portfolios during each Portfolio's first
year of operations.
 
Voting Rights
 
  Shareholders of the Fund are given certain voting rights. Each share of each
Portfolio will be given one vote, unless a different allocation of voting
rights is required under applicable law for a mutual fund that is an
investment medium for variable insurance products.
 
  Under the Declaration of Trust and Massachusetts business trust law, the
Fund is not required to hold annual meetings of Fund shareholders to elect
Trustees or for other purposes. It is not anticipated that the Fund will hold
shareholders' meetings unless required by law, although special meetings may
be called for a specific Portfolio, or for the Fund as a whole, for purposes
such as electing or removing Trustees, changing fundamental policies, or
approving a new or amended advisory contract or portfolio management
agreement. In this regard, the Fund will be required to hold a meeting to
elect Trustees to fill any existing vacancies on the Board if, at any time,
fewer than a majority of the Trustees have been elected by the shareholders of
the Fund. In addition, the Declaration of Trust provides that the holders of
not less than two-thirds of the outstanding shares or other voting interests
of the Fund may remove a person serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of a person serving
as Trustee, if requested in writing to do so by the holders of not less than
10% of the outstanding shares or other voting interests of the Fund. In
accordance with current laws, it is anticipated that an insurance company
issuing a Variable Contract that participates in the Fund will request voting
instructions from Variable Contract Owners and will vote shares or other
voting interests in the Separate Account in proportion to the voting
instructions received. The Fund's shares do not have cumulative voting rights.
 
Custodian and Transfer Agency and Dividend Disbursing Services
 
  Investors Fiduciary Trust Company ("IFTC") serves as Custodian for assets of
the Fund. The address of IFTC is 801 Pennsylvania, Kansas City, MO 64105-1716.
Pursuant to a sub-custody agreement between IFTC and Chase, Chase serves as
subcustodian of the Fund for the custody of the foreign securities acquired by
the Fund. Under the agreement, and in accordance with applicable regulations,
Chase may hold the foreign securities at its principal office at 270 Park
Avenue, New York, New York 10081, at Chase's branches, at a foreign branch of
a qualified U.S. bank, an eligible foreign subcustodian, or an eligible
foreign securities depository. Pursuant to rules or other exemptions under the
1940 Act, the Fund may maintain foreign securities and cash for the Fund in
the custody of certain eligible foreign banks and securities depositories.
 
  Pacific Life provides dividend disbursing and transfer agency services to
the Fund.
 
Financial Statements
 
  The financial statements of the Fund as of December 31, 1998, including the
notes thereto, are incorporated by reference in this Statement of Additional
Information from the Annual Report of the Fund dated as of December 31, 1998.
The financial statements have been audited by Deloitte & Touche LLP,
independent auditors.
 
Independent Auditors
 
  Deloitte & Touche LLP serves as the independent auditors for the Fund. The
address of Deloitte & Touche LLP is 695 Town Center Drive, Suite 1200, Costa
Mesa, California 92626.
 
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Counsel
 
  Dechert Price & Rhoads, 1775 Eye Street, N.W., Washington, D.C. 20006-2401,
passes upon certain legal matters in connection with the shares offered by the
Fund and also acts as outside counsel to the Fund.
 
Registration Statement
 
  This Statement of Additional Information and the Prospectus do not contain
all the information included in the Fund's Registration Statement filed with
the SEC under the Securities Act of 1933 with respect to the securities
offered hereby, certain portions of which have been omitted pursuant to the
rules and regulations of the SEC. The Registration Statement, including the
exhibits filed therewith, may be examined at the offices of the SEC in
Washington, D.C.
 
  Statements contained herein and in the Prospectus as to the contents of any
contract or other documents referred to are not necessarily complete, and, in
each instance, reference is made to the copy of such contract or other
documents filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
 
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                                   APPENDIX
 
Description of Bond Ratings
 
  Corporate Bonds: Bonds rated Aa by Moody's are judged by Moody's to be of
high quality by all standards. Together with bonds rated Aaa (Moody's highest
rating) they comprise what are generally known as high-grade bonds. Aa bonds
are rated lower than Aaa bonds because margins of protection may not be as
large as those of Aaa bonds, or fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the long-
term risks appear somewhat larger than those applicable to Aaa securities.
Bonds which are rated A by Moody's possess many favorable investment
attributes and are to be considered as upper medium-grade obligations. Factors
giving security to principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime
in the future.
 
  Moody's Baa rated bonds are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
 
  Bonds rated AA by Standard & Poor's are judged by Standard & Poor's to be
high-grade obligations and in the majority of instances differ only in small
degree from issues rated AAA (Standard & Poor's highest rating). Bonds rated
AAA are considered by Standard & Poor's to be the highest grade obligations
and possess the ultimate degree of protection as to principal and interest.
With AA bonds, as with AAA bonds, prices move with the long-term money market.
 
  Bonds rated A by Standard & Poor's, regarded as upper medium grade, have a
strong capacity and interest, although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions.
 
  Standard & Poor's BBB rated bonds, or medium-grade category bonds, are
borderline between definitely sound obligations and those where the
speculative element begins to predominate. These bonds have adequate asset
coverage and normally are protected by satisfactory earnings. Their
susceptibility to changing conditions, particularly to depressions,
necessitates constant watching. These bonds generally are more responsive to
business and trade conditions than to interest rates. This group is the lowest
which qualifies for commercial bank investment.
 
  The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the rating categories.
 
  Moody's Ba rated bonds are judged to have speculative elements; their future
cannot be considered as well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds rated Ba. Bonds which are rated B by Moody's generally
lack characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any
long period of time may be small.
 
  Bonds rated Caa by Moody's are considered to be of poor standing. Such
issues may be in default or there may be elements of danger with respect to
principal or interest. Bonds rated Ca are considered by Moody's to be
speculative in a high degree, often in default. Bonds rated C, the lowest
class of bonds under Moody's bond ratings, are regarded by Moody's as having
extremely poor prospects.
 
  Moody's also applies numerical indicators 1, 2 and 3 to rating categories.
The modifier 1 indicates that the security is in the higher end of its rating
category; 2 indicates a mid-range ranking; and 3 indicates a ranking toward
the lower end of the category.
 
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  A bond rated BB, B, CCC, and CC by Standard & Poor's is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
 
  Commercial Paper: The Prime rating is the highest commercial paper rating
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation
of the issuer's products in relation to competition and customer acceptance;
(4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings
over a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by management
of obligations which may be present or may arise as a result of public
interest questions and preparations to meet such obligations. Issuers with
this Prime category may be given ratings 1, 2 or 3, depending on the relative
strengths of these factors.
 
  Commercial paper rated A by Standard & Poor's has the following
characteristics: (i) liquidity ratios are adequate to meet cash requirements;
(ii) long-term senior debt rating should be A or better, although in some
cases BBB credits may be allowed if other factors outweigh the BBB rating,
(iii) the issuer should have access to at least two additional channels of
borrowing; (iv) basic earnings and cash flow should have an upward trend with
allowances made for unusual circumstances; and (v) typically the issuer's
industry should be well established and the issuer should have a strong
position within its industry and the reliability and quality of management
should be unquestioned. Issuers rated A are further referred to by use of
numbers 1, 2 and 3 to denote relative strength with this highest
classification.
 
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Form No. 15-17595-15
Form No. 484-9A


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