<PAGE>
As filed with the Securities and Exchange Commission on February 15, 2000
Registration No. 33-13954
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ________ [ ]
Post-Effective Amendment No. 27 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 28 [X]
(Check appropriate box or boxes)
Pacific Select Fund
(Exact Name of Registrant as Specified in Charter)
700 Newport Center Drive, P.O. Box 7500, Newport Beach, CA 92660
(Address of Principal Executive Offices ) (Zip Code)
Registrant's Telephone Number, including Area Code: (949) 219-6767
Robin Yonis Sandlaufer
Assistant Vice President and Investment Counsel of
Pacific Life Insurance Company
700 Newport Center Drive
Post Office Box 9000
Newport Beach, CA 92660
(Name and Address of Agent for Service)
Copies to:
Jeffrey S. Puretz, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Approximate Date of Proposed Public Offering ___________________________________
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[_] on May 1, 1999 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[X] on May 1, 2000 pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
================================================================================
<PAGE>
PROSPECTUS
<PAGE>
PACIFIC SELECT FUND PROSPECTUS MAY 1, 2000
This prospectus tells you about the Pacific Select Fund's
21 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.
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<S> <C>
You should be aware THE PACIFIC SELECT FUND PORTFOLIOS AND PORTFOLIO MANAGERS
that the Securities (listed alphabetically by portfolio manager)
and Exchange
Commission has not Aggressive Equity Portfolio Alliance Capital Management L.P.
reviewed any of Emerging Markets Portfolio Alliance Capital Management L.P.
these portfolios Diversified Research Portfolio Capital Guardian Trust Company
for their Small-Cap Equity Portfolio Capital Guardian Trust Company
investment merit, International Large-Cap Portfolio Capital Guardian Trust Company
and does not Bond and Income Portfolio Goldman Sachs Asset Management
guarantee that the Equity Portfolio Goldman Sachs Asset Management
information in this I-Net Tollkeeper Portfolio Goldman Sachs Asset Management
prospectus is Multi-Strategy Portfolio J.P. Morgan Investment Management Inc.
accurate or Equity Income Portfolio J.P. Morgan Investment Management Inc.
complete. It is a Growth LT Portfolio Janus Capital Corporation
criminal offense Mid-Cap Value Portfolio Lazard Asset Management
to say otherwise. Equity Index Portfolio Mercury Asset Management US
Small-Cap Index Portfolio Mercury Asset Management US
REIT Portfolio Morgan Stanley Asset Management
International Value Portfolio Morgan Stanley Asset Management
Government Securities Portfolio Pacific Investment Management Company
Managed Bond Portfolio Pacific Investment Management Company
Money Market Portfolio Pacific Life Insurance Company
High Yield Bond Portfolio Pacific Life Insurance Company
Large-Cap Value Portfolio Salomon Brothers Asset Management Inc
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A registration statement relating to shares of the I-Net Tollkeeper Portfolio
has been filed with the Securities and Exchange Commission, but has not yet
become effective. The information in this prospectus is not complete and may be
changed. Shares of the I-Net Tollkeeper Portfolio may not be sold until the
registration statement is effective. This prospectus is not an offer to sell
shares of this Portfolio and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
<PAGE>
YOUR GUIDE TO THIS PROSPECTUS
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 The first section, An overview of the Pacific Select
Pacific Life if you Fund, contains a summary of the objectives, holdings
have any questions and risks of each of the Pacific Select Fund's 21
about any of the portfolios. It will help you understand the differences
Pacific Select Fund between the portfolios, the risks associated with each,
portfolios. and how risk and investment objectives relate.
Call toll-free: About the portfolios tells you the following important
Annuities: things about each portfolio:
1-800-722-2333
Life insurance: . The portfolio's investment goal - what the portfolio
1-800-800-7681 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 48.
. 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 shows you how a
substantially similar account (or composite of accounts),
managed by the companies that now manage the portfolios
have performed in the past. It does not show you how the
fund's portfolios have performed or will perform. Three
portfolios (I-Net Tollkeeper, Diversified Research and
International Large-Cap) are so new that they have no
past performance to help you with your investment
decision. Four portfolios (Mid-Cap Value, Large-Cap
Value, Small-Cap Index and REIT) have only one year of
performance, and one portfolio (Emerging Markets) has had
a new manager since January 1, 2000. For the three new
portfolios, Performance of comparable accounts may be
found immediately following each portfolio's description
in About the portfolios. For the other five portfolios,
this information may be found following the section
Managing the Pacific Select Fund.
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 two sections of the prospectus -
Information for investors and Financial highlights - for
information about fees and expenses the fund pays, how
shares are priced, and fund performance.
2
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An overview of the Pacific Select Fund 4
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About the portfolios
Aggressive Equity Portfolio 6
Emerging Markets Portfolio 8
Diversified Research Portfolio 10
Small-Cap Equity Portfolio (formerly called
Growth Portfolio) 12
International Large-Cap Portfolio 14
Bond and Income Portfolio 16
Equity Portfolio 18
I-Net Tollkeeper Portfolio 20
Multi-Strategy Portfolio 22
Equity Income Portfolio 24
Growth LT Portfolio 26
Mid-Cap Value Portfolio 28
Equity Index Portfolio 30
Small-Cap Index Portfolio 32
REIT Portfolio 34
International Value Portfolio (formerly called
International Portfolio) 36
Government Securities Portfolio 38
Managed Bond Portfolio 40
Money Market Portfolio 42
High Yield Bond Portfolio 44
Large-Cap Value Portfolio 46
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Managing the Pacific Select Fund 48
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Performance of comparable accounts 53
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Information for investors 56
-------------------------------------------------------------
Financial highlights 57
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Where to go for more information back cover
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3
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<CAPTION>
AN OVERVIEW OF THE PACIFIC SELECT FUND
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This table is a summary of PORTFOLIO AND MANAGER THE PORTFOLIO'S INVESTMENT GOAL
the goals, investments and
risks of each of the Pacific Aggressive Equity Portfolio Capital appreciation.
Select Fund's 21 portfolios. Alliance Capital Management L.P.
It's designed to help you
understand the differences Emerging Markets Portfolio Long-term growth of capital.
between the portfolios, the Alliance Capital Management L.P.
risks associated with each,
and how risk and investment Diversified Research Portfolio Long-term growth of capital.
goals relate. Capital Guardian Trust Company
The performance of all of Small-Cap Equity Portfolio Growth of capital.
the Pacific Select Fund (formerly called Growth Portfolio)
portfolios is affected by Capital Guardian Trust Company
changes in the economy and
financial markets. The International Large-Cap Portfolio Long-term growth of capital.
portfolios are also affected Capital Guardian Trust Company
by other kinds of risks,
depending on the types of Bond and Income Portfolio Total return and income consistent
securities they invest in. Goldman Sachs Asset Management with prudent investment management.
There's also the possibility
that investment decisions Equity Portfolio Capital appreciation. Current income is of
portfolio managers make will Goldman Sachs Asset Management secondary importance.
not accomplish what they were
designed to achieve, or that I-Net Tollkeeper Portfolio Long-term growth of capital.
the portfolio will not Goldman Sachs Asset Management
achieve its investment goal.
Multi-Strategy Portfolio High total return.
Equity securities historically J.P. Morgan Investment Management Inc.
have offered the potential for
greater long-term growth than Equity Income Portfolio Long-term growth of capital and income.
most fixed income securities, J.P. Morgan Investment Management Inc.
but they also tend to have
larger and more frequent Growth LT Portfolio Long-term growth of capital consistent with the
changes in price, which means Janus Capital Corporation preservation of capital.
there's a greater risk you
could lose money over the Mid-Cap Value Portfolio Capital appreciation.
short term. Fixed income Lazard Asset Management
securities are affected
primarily by the financial Equity Index Portfolio Investment results that correspond to the total
condition of the companies Mercury Asset Management US return of common stocks publicly traded in the U.S.
that have issued them, and by
changes in interest rates. Small-Cap Index Portfolio Investment results that correspond to the total
Mercury Asset Management US return of an index of small capitalization companies.
You'll find more information
about each portfolio's recent REIT Portfolio Current income and long-term
strategies and holdings in the Morgan Stanley Asset Management capital appreciation.
most recent report to
shareholders, and a more International Value Portfolio Long-term capital appreciation primarily through
detailed discussion of each (formerly called International Portfolio) investment in equity securities of corporations
portfolio's investments, Morgan Stanley Asset Management domiciled in countries other than the United States.
strategies and risks in the
Statement of Additional Government Securities Portfolio Maximize total return consistent with prudent
Information (SAI). Please turn Pacific Investment Management Company investment management.
to the back cover for
information about how to get Managed Bond Portfolio Maximize total return consistent with prudent
copies of these documents. Pacific Investment Management Company investment management.
Many of the investment Money Market Portfolio Current income consistent with preservation
techniques and strategies Pacific Life Insurance Company of capital.
discussed in this prospectus
and in the SAI are High Yield Bond Portfolio High level of current income.
discretionary, which means Pacific Life Insurance Company
that portfolio managers can
decide if they want to use Large-Cap Value Portfolio Long-term growth of capital. Current income
them or not. Portfolio Salomon Brothers Asset Management Inc is of secondary importance.
managers may also use
investment techniques or make
investments in securities that
are not part of a portfolio's
principal investment strategy.
A portfolio's stated
investment goal, (as shown in
the second column to the
right), cannot be changed
without the approval of
shareholders. Investment
policies may be changed from
time to time by the fund's
board of trustees.
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4
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THE PORTFOLIO'S MAIN INVESTMENTS THE PORTFOLIO'S MAIN RISKS
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Equity securities of small emerging-growth companies Price volatility and other risks that accompany an
and medium-sized companies. investment in small emerging-growth companies and medium-
sized companies. Particularly sensitive to price swings
during periods of economic uncertainty.
Equity securities of companies that are located Price volatility and other risks that accompany an
in countries generally regarded as "emerging market" investment in emerging markets. Sensitive to currency
countries. exchange rates, international political and economic
conditions and other risks that affect foreign securities.
May have greater price swings than most of the portfolios.
Equity securities of U.S. companies and securities Price volatility and other risks that accompany an
whose principal markets are in the U.S. investment in equity securities.
Equity securities of smaller and medium-sized Price volatility and other risks that accompany an
companies. investment in growth-oriented and smaller and medium-
sized companies. Particularly sensitive to price swings
during periods of economic uncertainty.
Equity securities of non-U.S. companies and Price volatility and other risks that accompany an
securities whose principal markets are outside of investment in foreign equities. Sensitive to currency
the U.S. exchange rates, international political and economic
conditions and other risks that affect foreign securities.
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 large U.S. growth-oriented Price volatility and other risks that accompany an equity
companies. investment in large, growth-oriented companies.
Equity securities of companies which use, support, Price volatility and other risks that accompany an
or relate directly or indirectly to use of the investment in equity securities in technology companies.
Internet. Such companies include those in the media, Particularly sensitive to price swings because the portfolio
telecommunications, and technology sectors. is classified as "non-diversified" - it may hold securities
from a fewer number of issuers than a diversified portfolio.
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 and medium-sized Price volatility and other risks that accompany an
dividend-paying U.S. companies. investment in equity securities.
Equity securities of a large number of companies of Price volatility and other risks that accompany an
any size. investment in equity securities.
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 companies that are included in Price volatility and other risks that accompany an
the Standard & Poor's 500 Composite Stock Price investment in equity securities. May be particularly
Index. 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 companies that are included in Price volatility and other risks that accompany an
the Russell 2000 Small Stock Index. investment 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
in developed countries outside of the U.S. investment in foreign equities. Sensitive to currency
exchange rates, international political and economic
conditions and other risks that affect foreign securities.
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.
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.
Highest quality money market instruments believed to Credit and interest rate risks that accompany an investment
have limited credit risk. in high quality short-term instruments. Intended to have the
least investment risk of all of the portfolios.
Fixed income securities with lower and medium- Credit, interest rate, liquidity and other risks that
quality credit ratings and intermediate to long accompany an investment in lower-quality fixed income
terms to maturity. securities. Particularly sensitive to credit risk during
economic downturns.
Equity securities of large U.S. companies. Price volatility and other risks that accompany an equity
investment in large companies.
5
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<PAGE>
ABOUT THE PORTFOLIOS AGGRESSIVE EQUITY PORTFOLIO
[SYMBOL] -----------------------------------------------
The portfolio's This portfolio seeks capital appreciation. No
investment goal consideration is given to income.
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts.
[SYMBOL] ---------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in small emerging-growth companies and medium-
sized companies, but it may also invest in larger, more
well-established companies. It tends to emphasize
A company's companies that have a total market capitalization of up
"capitalization" is to $5 billion. The portfolio focuses primarily on U.S.
a measure of its companies, but may invest in companies located outside
size. Capitalization of the U.S.
is calculated by
multiplying the Investments principally include common stock, as well
current share price as preferred stocks, fixed income securities, some of
by the number of which can be converted to equity securities, and
shares held by warrants.
investors.
The portfolio management team looks for companies that
Price to earnings are expected to meet growth targets set by the team,
ratio (P/E) is one and that have a price to earnings ratio that is lower
way of measuring than its expected growth rate. Within these guidelines,
the value of a the team looks for three kinds of companies:
company. It's
simply the price of . undervalued companies, whose shares are being sold at
a stock divided by a discount relative to the shares of similar
its estimated or companies, and that the team believes are likely to
actual earnings per exceed growth expectations
share. A high P/E
ratio could . companies in cyclical industries, like technology or
indicate a high financial services, that the team believes are likely
level of investor to experience rapid growth in the current economy
confidence in the
company. . 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 The Aggressive Equity Portfolio principally invests in
aware of 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 . price volatility - the value of the portfolio changes
recently undergone as the prices of its investments go up or down. This
a change in portfolio invests in companies that the team thinks
corporate structure have the potential for above average growth, which
may have a greater may give the portfolio a higher risk of price
degree of price volatility than a portfolio that invests principally
volatility than in equities that are "undervalued."
more established
companies because Small emerging growth companies may be more
there's no susceptible to larger price swings than larger
guarantee that the companies because they may have fewer financial
new management resources, limited product and market diversification
structure will and many are dependent on a few key managers. Emerging
result in growth. growth companies and companies in cyclical industries
may be particularly susceptible to rapid price swings
during periods of economic uncertainty.
6
<PAGE>
[SYMBOL] ----------------------------------------------
Risks you should be . risks of foreign investing - foreign investments may
aware of be riskier than U.S. investments for many reasons,
(continued) including changes in currency exchange rates,
unstable political and economic conditions, a lack of
adequate company information, differences in the way
This portfolio may securities markets operate, less secure foreign banks
not invest more or securities depositories than those in the U.S.,
than 20% of its and foreign controls on investment.
assets in foreign
investments that . risks of using derivatives - this portfolio may use
are principally index options and other investment techniques to help
traded outside the it achieve its investment goal. There's always a risk
U.S. 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 Year by year total return (%)
has performed as of December 31 each year/1/,/2/
The bar chart shows [GRAPH OF AGGRESSIVE EQUITY PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 96 97 98 99
varied since its ---- ---- ----- ----
inception. 7.86 3.78 13.22
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return Since inception
the Russell 2500 as of December 31, 1999 1 year (April 1, 1996)
Index, an index of ---------------------------------------------------------
the stocks of Aggressive Equity Portfolio/2/ % %
approximately 2,500 Russell 2500 Index % %
mid-capitalization
U.S. companies. /1/ Total return for 1996 is for the period from April
1, 1996 (commencement of operations) to December 31,
Returns do not 1996.
reflect fees and /2/ Alliance Capital Management L.P. began managing the
expenses associated portfolio on May 1, 1998 and some investment
with any variable policies changed at that time. Another firm managed
annuity contract or the portfolio before that date.
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ----------------------------------------------
Who manages the Alden Stewart is executive vice president of Alliance
portfolio Capital. He joined Alliance Capital in 1971 as an
analyst following various industry groups, and has been
[LOGO OF ALLIANCE a portfolio manager since 1977. He began managing the
CAPITAL APPEARS HERE] Aggressive Equity Portfolio in 1998. Alden has 28 years
of investment experience, a BA from the University of
The Aggressive Oregon and an MBA from the University of Chicago.
Equity Portfolio is
managed by a team Randall Haase is senior vice president of Alliance
of portfolio Capital. He joined Alliance Capital in 1993. Before
managers at joining Alliance Capital he was an analyst with
Alliance Capital Equitable Capital. Randall has 13 years of investment
Management L.P. experience, a BA from Lehigh University and an MBA from
You'll find more New York University.
about Alliance
Capital on page 48. Aryeh Glatter is vice president of Alliance Capital. He
joined Alliance Capital in 1993. Before joining
Alliance Capital he was an analyst with Equitable
Capital. Aryeh has 10 years of investment experience, a
BA from Brooklyn College and an MBA from New York
University.
7
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ABOUT THE PORTFOLIOS EMERGING MARKETS PORTFOLIO
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital.
investment goal
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts.
[SYMBOL] ----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in companies that are located in countries that
are generally regarded as "emerging market" countries.
It principally invests in common stock.
Emerging market The portfolio manager seeks securities that meet its
countries are selection criteria and allocates assets geographically.
typically less The portfolio manager uses a two-step process to manage
developed the portfolio:
economically than
industrialized . looks for companies that it believes will provide
countries and may superior growth at attractive prices - the portfolio
offer high growth manager uses fundamental company analysis to try to
potential as well identify opportunities for increasing earnings growth
as considerable and good return on equity, and favors companies whose
investment risk. stocks trade at attractive valuations relative to
These countries are their global or regional peers. The portfolio manager
generally located pays attention to corporate governance, and prefers
in South America, management teams that have a track record for
Asia, the Middle increasing shareholder value.
East and Eastern
Europe. . allocates assets among countries in three broad
regions - the portfolio manager allocates assets
among Asia, Latin America, and Eastern Europe/Middle
East/Africa. The portfolio manager normally allocates
assets among these regions in amounts that
approximate the weightings of the Morgan Stanley
Capital International (MSCI) Emerging Markets Free
Index, although the portfolio manager may deviate
from the index if it believes there is an investment
opportunity or for defensive reasons.
The team may use options, futures contracts and other
techniques to try to increase returns. It may also use
derivatives and other management techniques to hedge
and manage changes in currency exchange rates. The
portfolio may also cross-hedge between two non-U.S.
currencies. 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 The Emerging Markets Portfolio principally invests in
aware of 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 in . price volatility - the value of the portfolio changes
emerging markets as the prices of its investments go up or down. This
may be especially portfolio invests in companies in emerging markets,
volatile. The value which may be particularly volatile. It also invests
of this portfolio in smaller companies, which tend to have higher price
may have greater swings than larger companies because they have fewer
price swings than financial resources, limited product and market
most of the Pacific diversification and many are dependent on a few key
Select Fund managers.
portfolios.
. 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. 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.
8
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[SYMBOL] -------------------------------------------------
Risks you should be . risks of using derivatives - this portfolio may
aware of invest in foreign currency transactions, forward
(continued) foreign currency contracts, 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.
. emerging countries risk - compared to developed foreign
markets, emerging market countries (such as many in Asia,
Latin America, Eastern Europe and Africa):
. are generally subject to greater price volatility
. may have a higher degree of political and economic
instability
. often have smaller market capitalizations
. have less governmental regulation
. are not subject to as extensive and frequent
accounting, financial and other reporting requirements.
Investment in securities of Eastern European countries,
including in particular, Russia, and other emerging market
countries, also involve risk of loss resulting from
problems in share registration and custody.
[SYMBOL] ------------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF EMERGING MARKETS PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 96 97 98 99
varied since its ------ ------ ------- ----
inception. (3.23) (1.69) (26.83)
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return Since inception
the Morgan Stanley as of December 31, 1999 1 year (April 1, 1996)
Capital -----------------------------------------------------------
International Emerging Markets Portfolio/2/ % %
(MSCI) Emerging MSCI Emerging Markets Free Index % %
Markets Free Index,
an index of /1/ Total return for 1996 is for the period from April 1,
approximately 879 1996 (commencement of operations) to December 31,
stocks from 1996.
approximately 26 /2/ Alliance Capital Management L.P. began managing this
emerging market portfolio on January 1, 2000. Another firm managed
countries. the portfolio before that date.
Returns do not
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed
in the past is
important - but
it's no guarantee
of how it will
perform in the
future.
For information on
how Alliance
Capital has managed
substantially
similar accounts,
see page 53.
[SYMBOL] ------------------------------------------------
Who manages the Edward D. Baker III, Senior Vice President at Alliance
portfolio Capital, will be the primary portfolio manager. He is
the head of the emerging markets equity portfolio
[LOGO OF ALLIANCE management team and he coordinated the investment
CAPITAL APPEARS activities of Alliance Capital's non-U.S. joint
HERE] ventures. He is Chairman of Alliance Capital Management
Australia, Chairman and CEO of Alliance Capital
The Emerging Management Canada and Vice Chairman of Alliance Capital
Markets Portfolio Investments Trust Management Co. in Japan. He is also a
is managed by a member of the Board of Directors of New Alliance in
team of portfolio Hong Kong. Prior to joining Alliance Capital in 1995,
managers at Mr. Baker worked for BARRA, Inc., an investment
Alliance Capital technology firm. Mr. Baker is supported by a team of
Management L.P. four other portfolio managers, each of whom has
You'll find more experience in investing in emerging market countries.
about Alliance
Capital on page 48.
9
<PAGE>
ABOUT THE PORTFOLIOS DIVERSIFIED RESEARCH PORTFOLIO
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital.
investment goal
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
[SYMBOL] ----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in common stocks of U.S. companies and common
stocks of foreign companies with significant markets in
A company's "market the U.S. The portfolio invests primarily in companies
capitalization" is with a total market capitalization of more than $1
a measure of its billion. Stocks of foreign companies with significant
size. markets in the U.S. include American Depositary
Capitalization is Receipts (ADRs) and foreign securities registered in
calculated by the U.S. The portfolio principally invests in common
multiplying the stock, but it may also invest in securities convertible
current share price into common stock, warrants, rights and non-convertible
by the number of preferred stock.
shares held by
investors. The portfolio is managed by a team of analysts. The
portfolio is divided into segments, and each has its
own analyst who makes independent decisions within
portfolio guidelines and objectives. Sector weightings
are the result of individual security selections,
although the portfolio manager expects major industry
sectors to typically be represented in the
portfolio.
The portfolio may invest up to 15% of its total assets
in securities of companies domiciled outside the U.S.
that are not included in the Standard & Poor's 500
Composite Stock Price Index.
Although the portfolio managers do not intend to seek
short-term profits, they may sell securities whenever
they believe appropriate, without regard to the length
of time a security has been held.
The portfolio management 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
a substantial portion of its assets in high-quality
debt securities, including short-term obligations.
[SYMBOL] ----------------------------------------------
Risks you should be The Diversified Research Portfolio principally invests
aware of 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 and down. The
portfolio invests in large to medium size companies,
which tend to have more stable prices than smaller
companies.
. 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.
10
<PAGE>
[SYMBOL] -----------------------------------------------
Who manages the Andrew F. Barth, is President and Research Director-U.S.
portfolio of Capital International Research, Inc., the research arm
and a subsidiary of Capital Guardian. He is also a
[LOGO OF CAPITAL Director of Capital Guardian and member of its
GUARDIAN TRUST Executive Committee and Global Institution Group North
APPEARS HERE] American Committee. As the Research Coordinator for the
portfolio, Mr. Barth facilitates the communication and
The Diversified comparison of investment ideas and allocates the
Research Portfolio portfolio's assets among the analysts. The analysts
is managed by a have an average of 13 years investment experience and
team of analysts, an average of 10 years with Capital Guardian or its
led by the Research affiliates.
Coordinator, at
Capital Guardian
Trust Company.
You'll find more
about Capital
Guardian on page
48.
- --------------------------------------------------------------------------------
PERFORMANCE OF COMPARABLE ACCOUNTS
- --------------------------------------------------------------------------------
This portfolio has This chart does not show you the performance of the
no historical Diversified Research Portfolio -- it shows the
performance to performance of similar accounts managed by Capital
report because it Guardian Trust Company.
started on January 1,
2000. Annual total returns, and average annual total returns
for the periods ending December 31, 1999.
The chart to the
right shows the ---------------------------------------------------------
historical Capital Guardian
performance of a U.S. Equity
composite of 3 Diversified
accounts managed by Research Composite,
Capital Guardian adjusted to
using its U.S. reflect fees and
Equity Diversified Capital Guardian estimated expenses
Research strategy, U.S. Equity of the
calculated Diversified Diversified
according to the Research Research S&P 500
standards set by Year Composite (%) Portfolio (%) Index (%)
the Association for ---------------------------------------------------------
Investment 1999
Management and 1998 28.40 28.14 28.58
Research (AIMR). 1997 30.91 30.66 33.36
Each account in the 1996 21.92 21.63 22.96
composite has 1995 39.63 39.43 37.58
investment 1994 4.41 4.04 1.27
objectives, 1 Year
policies and 5 Years
strategies that are since
substantially inception
similar to those of 3/31/93
the Diversified ---------------------------------------------------------
Research Portfolio.
The accounts in the composite were not subject to the
This information requirements of the Investment Company Act of 1940 or
shows the Subchapter M of the Internal Revenue Code, which, if
historical track imposed, could have adversely affected the performance.
record of the
portfolio manager The first column (after "Year") shows performance of
and is not intended the Capital Guardian U.S. Equity Diversified Research
to imply how the Composite after the highest advisory fees charged to
Diversified accounts within the composite have been deducted.
Research Portfolio Custody fees or other expenses normally paid by mutual
has performed or funds and which the Diversified Research Portfolio will
will perform. Total pay have not been deducted. If those expenses were
returns represent deducted, returns would be lower.
past performance of
the Capital The second column shows gross performance of the
Guardian U.S. Capital Guardian composite, adjusted to reflect the
Equity Diversified estimated fees and expenses of the Diversified Research
Research Composite Portfolio.
and not the
Diversified The third column shows performance of the S&P 500
Research Portfolio. Index, an index of the stocks of approximately
500 large-capitalization U.S. companies, for the same
Returns do not periods. Results include reinvested dividends.
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
11
<PAGE>
ABOUT THE PORTFOLIOS SMALL-CAP EQUITY PORTFOLIO
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks growth of capital over the long
investment goal 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
[SYMBOL] ----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in small to medium-sized companies. It tends to
emphasize companies that have a total market
capitalization of between $50 million and $1.5 billion.
It invests principally in common stocks. The portfolio
may also invest in fixed income securities, including
those that can be converted into equity securities, and
A company's foreign securities that are listed on a U.S. stock
"capitalization" is exchange or over the counter market.
a measure of its
size. The portfolio is managed by a team of portfolio
Capitalization is managers. The portfolio is divided into segments, and
calculated by each has its own manager who makes independent
multiplying the decisions within portfolio guidelines and objectives.
current share price
by the number of When assessing companies, the team uses a value-oriented
shares held by approach in which it tries to identify the difference
investors. between the underlying value of a company and the market
price of its security. Value is identified in a number of
ways, including the relationship of the stock's current
price to earnings, the strength of the company's balance
sheet, and price-to-book value. The team looks at a
A smaller company number of variables, including the fundamental long-term
with a promising outlook for the company, the extent to which shares may
product or be considered undervalued and the expectations of the
operating in a market as a whole.
dynamic field may
have greater The team considers strong company management important,
potential for rapid and investment decisions may be based on meetings with
earnings growth the company's senior executives and its competitors, as
than a larger one. well as on information from economists, government
However, it may officials and industry specialists.
have a harder time
securing financing To help it achieve its investment goal, the portfolio
and may be more may lend some of its assets, as long as the loans it
sensitive to a makes are secured.
setback in sales or
to economic The team may temporarily change these strategies if it
downturns than believes economic conditions make it necessary to try
larger, more to protect the portfolio from potential loss. In this
established case, the portfolio may invest in money market
companies. securities, short-term corporate debt, preferred stocks
and U.S. government securities.
[SYMBOL] ----------------------------------------------
Risks you should be The Small-Cap Equity Portfolio principally invests in
aware of 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:
12
<PAGE>
[SYMBOL] -------------------------------------------------
Risks you should be . price volatility - the value of the portfolio changes
aware of as the prices of its investments go up or down. This
(continued) 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 Year by year total return (%)
has performed as of December 31 each year
The bar chart shows [GRAPH OF SMALL-CAP EQUITY PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94 95 96 97 98 99
varied over the ------- ----- ----- ----- ------- ----- ----- ----- ---- --
past 10 years. (17.30) 39.15 20.53 21.89 (10.49) 25.75 23.62 30.27 2.69
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return
the Russell 2000 as of December 31, 1999 1 year 5 years 10 years
Small Stock Index, -----------------------------------------------------------
an index of the Small-Cap Equity Portfolio % % %
stocks of Russell 2000 Small Stock Index % % %
approximately 2,000
U.S. small-
capitalization
companies.
Returns do not
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] -------------------------------------------------
Who manages the Michael Ericksen, senior vice president of Capital
portfolio Guardian, is the lead portfolio manager. He has 18 years of
experience as an investment professional, including 12
[LOGO OF CAPITAL years with The Capital Organization.
GUARDIAN TRUST
COMPANY APPEARS Robert Kirby, a senior partner of The Capital Group
HERE] Partners L.P., has 46 years of experience as an
investment professional, including 33 years with The
The Small-Cap Capital Organization.
Equity Portfolio is
managed by a team James Kang, vice president of Capital International
of portfolio Research Inc., has 12 years of experience as an
managers at Capital investment professional, including 11 years with The
Guardian Trust Capital Organization.
Company. You'll
find more about Karen A. Miller, vice president of Capital International
Capital Guardian Research Inc., has 11 years of research/investment
on page 48. experience, including 9 years with The Capital
Organization.
Lawrence R. Solomon, senior vice president of Capital
International Research Inc., has 16 years of experience as
an investment professional, including 15 years with The
Capital Organization.
<PAGE>
ABOUT THE PORTFOLIOS INTERNATIONAL LARGE-CAP PORTFOLIO
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital.
investment goal
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest at least 80% of its assets in companies located
outside the U.S. The portfolio principally invests in
common stock, but it may also invest in securities
convertible into common stock, warrants, rights and
non-convertible preferred stock.
The portfolio is managed by a team of managers. The
portfolio management team normally emphasizes
investments in securities of companies located in
Europe, Canada, Australia, Asia and the Far East, but
may also invest in other countries and regions,
including developing countries. Regional and country
allocation decisions are based on a variety of factors,
including economic, social, and political developments,
currency risks and the liquidity of various national
markets.
Although the portfolio managers do not intend to seek
short-term profits, they may sell securities whenever
they believe appropriate, without regard to the length
of time a security has been held.
The portfolio managers may use currency hedging and
other investment management techniques, such as forward
foreign currency contracts. The portfolio may also
cross-hedge between two non-U.S. currencies.
The portfolio management team may temporarily change
these 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 a substantial portion of its
assets in short-term obligations.
[SYMBOL] ------------------------------------------------
Risks you should be The International Large-Cap Portfolio invests in equity
aware of 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 to medium size
companies, which tend to have more stable prices than
smaller companies.
. 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 currency derivatives - this portfolio may
enter into foreign currency transactions, forward
foreign currency contracts 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.
. emerging countries risk - compared to developed
foreign markets, emerging market countries (such as
many in Asia, Latin America, Eastern Europe and
Africa):
. are generally subject to greater price volatility
. may have a higher degree of political and economic
instability
14
<PAGE>
[SYMBOL] -----------------------------------------------
Risks you should be . often have smaller market capitalizations
aware of
(continued) . have less governmental regulation
. are not subject to as extensive and frequent
accounting, financial and other reporting
requirements.
Investment in securities of Eastern European
countries, including in particular, Russia, and other
emerging market countries, also involve risk of loss
resulting from problems in share registration and
custody.
[SYMBOL] -----------------------------------------------
Who manages the The portfolio is managed by a team of managers with an
portfolio average of 21 years with Capital Guardian or its
affiliates and 25 years investment experience. Each
[LOGO OF CAPITAL portfolio manager is individually responsible for the
GUARDIAN TRUST portion of the portfolio assigned to them. Each manager
COMPANY APPEARS HERE] then invests his or her portion of the portfolio in
accordance with their investment convictions within
The International portfolio guidelines and objectives. The portfolio
Large-Cap Portfolio management team is supported by over 28 research
is managed by a analysts who also manage a portion of the portfolio.
team of portfolio
managers at Capital
Guardian Trust
Company. You'll
find more about
Capital Guardian on
page 48.
- --------------------------------------------------------------------------------
PERFORMANCE OF COMPARABLE ACCOUNTS
- --------------------------------------------------------------------------------
This portfolio has This chart does not show you the performance of the
no historical International Large-Cap Portfolio -- it shows the
performance to performance of similar accounts managed by Capital
report because it Guardian Trust Company.
started on January
1, 2000. Annual total returns, and average annual total returns
for the periods ending December 31, 1999.
The chart to the ------------------------------------------------------
right shows the Capital Guardian
historical Non-U.S. Equity
performance of the Composite,
Capital Guardian adjusted to
Non-U.S. Equity reflect fees and
Composite, estimated
calculated expenses of the
according to the Capital Guardian International
standards set by Non-U.S. Equity Large-Cap MSCI EAFE
the Association for Year Composite (%) Portfolio (%) Index (%)
Investment ------------------------------------------------------
Management and 1999
Research (AIMR). 1998 17.14 16.81 20.33
Each of the 92 1997 8.78 8.39 1.78
accounts in the 1996 15.40 15.06 6.04
composite has 1995 13.50 13.14 11.21
investment 1994 3.25 2.83 7.80
objectives, 1993 35.90 35.70 32.60
policies and 1992 (3.58) (4.06) (12.20)
strategies that are 1991 16.98 16.64 12.50
substantially 1990 (13.62) (14.17) (23.20)
similar to those of 1989 21.75 21.45 10.50
the International 1 year
Large-Cap 5 years
Portfolio. 10 years
------------------------------------------------------
This information
shows the The accounts in the composite were not subject to the
historical track requirements of the Investment Company Act of 1940 or
record of the Subchapter M of the Internal Revenue Code, which, if
portfolio manager imposed, could have adversely affected the performance.
and is not intended
to imply how the The first column (after "Year") shows performance of
International the Capital Guardian Non-U.S. Equity Composite after
Large-Cap Portfolio the highest advisory fees charged to the accounts
has performed or within the composite have been deducted. Custody fees
will perform. Total or other expenses normally paid by mutual funds and
returns represent which the International Large-Cap Portfolio will pay
past performance of have not been deducted. If those expenses were
the Capital included, returns would be lower.
Guardian Non-U.S.
Equity Composite The second column shows gross performance of the
and not the Capital Guardian composite, adjusted to reflect the
International estimated fees and expenses of the International Large-
Large-Cap Cap Portfolio.
Portfolio.
The third column shows performance of the Morgan
Returns do not Stanley Capital International EAFE Index, an unmanaged
reflect fees and market value-weighted average of the performance of
expenses associated over 1,000 securities listed on the stock exchanges of
with any variable countries in Europe, Australia, Asia, and the Far East,
annuity contract or for the same periods. Results include reinvested
variable life dividends.
insurance policy,
and would be lower
if they did.
15
<PAGE>
ABOUT THE PORTFOLIOS BOND AND INCOME PORTFOLIO
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks to provide total return and income
investment goal consistent with prudent investment management.
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in a wide range of fixed income securities with
varying terms to maturity, with an emphasis on long-
term bonds. The portfolio normally invests at least 80%
Total return is of its assets in securities that are rated investment
made up of income grade at the time of investment by a credit rating
plus any gains in agency, or that have not been rated, but the portfolio
the value of the management team considers to be of comparable quality.
portfolio's
securities. These principally include:
. corporate bonds and notes of U.S. companies, some of
Duration is a which may be high yield ("junk") bonds
mathematical
measure of the . U.S. treasury bonds and notes, or options or futures
average life of a on them
bond that includes
its yield, coupon, . fixed income securities issued by foreign companies
final maturity and and governments that are denominated in U.S. dollars
call features. It or foreign currencies, some of which may be issued by
is often used to governments in emerging market countries
measure the
potential . municipal securities including private activity bonds
volatility of a or industrial development bonds
bond's price, and
is considered a . mortgage related securities, including stripped
more accurate mortgage related securities and other asset-backed
measure than securities
maturity of a
security's . fixed income securities with variable interest rates
sensitivity to
changes in interest . fixed income securities that can be converted to
rates. 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 Long-Term
Government/Corporate Bond Index. The index had an
average duration of years on March 31, 2000.
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 Since the Bond and Income Portfolio principally invests
aware of in fixed income securities of both U.S. and foreign
issuers, it may be affected by the following risks,
among others:
The Bond and Income
Portfolio tends to . changes in interest rates - the value of the
have the most portfolio may fall when interest rates rise. Changes
interest rate risk in interest rates may have a significant effect on
of the Pacific this portfolio, because it primarily invests in
Select Fund bond securities with long terms to maturity and may use
portfolios because hedging techniques. Bonds with longer durations tend
it invests in bonds to be more sensitive to changes in interest rates,
with longer terms making them more volatile than bonds with shorter
to maturity, and durations. The portfolio may also invest in mortgage
maintains a longer related securities and fixed income securities with
average portfolio variable interest rates. These can reduce returns if
duration. 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.
16
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be . inability to sell investments - the portfolio could
aware of lose money or not realize potential gains if it
(continued) cannot sell an investment at the time and price that
would be most beneficial to the portfolio. Securities
This portfolio may not whose credit ratings have been lowered, or that have
invest more than: been issued in emerging market countries, may be
. 20% of its assets particularly difficult to sell.
in lower-rated
"junk" bonds, of . risks of foreign investing - foreign investments may
which 15% may be be riskier than U.S. investments for many reasons,
in emerging including changes in currency exchange rates,
markets unstable political and economic conditions, a lack of
. 10% of its assets adequate company information, differences in the way
in foreign securities markets operate, less secure foreign banks
investments or securities depositories than those in the U.S.,
denominated in and foreign controls on investment.
foreign
currencies. . risks of using derivatives - this portfolio may use
. 10% of its assets options, futures contracts and other investment
in stripped techniques to help it achieve its investment goal.
mortgage related There's always a risk that these techniques could
securities. reduce returns or increase the portfolio's volatility.
[SYMBOL] ------------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF BOND AND INCOME PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94 95 96 97 98 99
varied over the ---- ----- ---- ----- ------ ----- ------ ----- ---- ----
past 10 years. 3.27 24.32 8.09 19.39 (8.36) 33.71 (0.80) 16.32 8.97
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return
the Lehman Brothers as of December 31, 1999 1 year 5 years 10 years
Long-Term ---------------------------------------------------------
Government/Corporate Bond and Income Portfolio/1/ % % %
Bond Index, an Lehman Brothers Long-Term
index of bonds with Government/Corporate Bond Index % % %
maturities of 10
years or more. /1/ Goldman Sachs Asset Management began managing the
portfolio on May 1, 1998, and some investment
Returns do not policies changed at that time. Another firm managed
reflect fees and the portfolio before that date. Performance of the
expenses associated Bond and Income Portfolio before 1995 is based on
with any variable the performance of the portfolio of the Pacific
annuity contract or Corinthian Variable Fund, which the Pacific Select
variable life Fund acquired on December 31, 1994.
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ----------------------------------------------
Who manages the Jonathan Beinner, managing director, is co-head of the
portfolio U.S. fixed income team, and heads the mortgage-backed
and asset-backed securities group. He has two BS
[LOGO OF GOLDMAN degrees from the University of Pennsylvania. He worked
SACHS APPEARS HERE] in the trading and arbitrage group of Franklin Savings
Associates before joining Goldman Sachs in 1990. He
The Bond and Income began managing the Bond and Income Portfolio in 1998.
Portfolio is
managed by a team Richard Lucy, managing director, is a chartered
of portfolio financial analyst and holds BS and MBA degrees from New
managers at Goldman York University. He managed fixed income assets at
Sachs Asset Brown Brothers Harriman & Co. for nine years before
Management. You'll joining Goldman Sachs in 1992. He began managing the
find more about Bond and Income Portfolio in 1998.
Goldman Sachs on
page 49.
17
<PAGE>
ABOUT THE PORTFOLIOS EQUITY PORTFOLIO
[SYMBOL] --------------------------------------------
The portfolio's This portfolio's primary investment objective is
investment goal capital appreciation. Current income is of secondary
importance.
[SYMBOL] --------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in 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 securities of U.S. issuers.
This portfolio is Investments include principally common stock, but the
managed using a portfolio may also invest in fixed income securities
computerized rating that can be converted into equity securities, and
system that seeks warrants. The portfolio management team uses the
to forecast how Russell 1000 Growth Index as an overall model for the
companies will portfolio. The team tries to:
perform based on an
analysis of a broad . maintain industry, style, capitalization and risk
range of variables characteristics that are similar to the index.
that measure their
value, growth, . find companies with capitalizations and earnings
momentum and risk, growth expectations that are above the average of the
and on the index and with dividend yields that are below the
portfolio managers' average of the index.
outlook on the
market. 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 The Equity Portfolio principally invests in equity
aware of 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.
18
<PAGE>
[SYMBOL] -------------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF EQUITY PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94 95 96 97 98 99
varied over the ------ ----- ---- ----- ------ ----- ----- ----- ----- ----
past 10 years. (2.55) 29.77 6.30 16.06 (2.87) 23.80 28.03 18.18 30.28
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return
the Russell 1000 as of December 31, 1999 1 year 5 years 10 years
Growth Index, an -----------------------------------------------------------
index of large Equity Portfolio/1/ % % %
companies that have Russell 1000 Growth Index % % %
high price-to-book Standard & Poor's 500
ratios and Composite Stock Price Index % % %
forecasted growth
values. It also /1/ Goldman Sachs Asset Management began managing the
compares portfolio on May 1, 1998, and some investment
performance with policies changed at that time. Another firm managed
the Standard & the portfolio before that date. Performance of the
Poor's 500 Equity Portfolio before 1995 is based on the
Composite Stock performance of the portfolio of the Pacific
Price Index, an Corinthian Variable Fund, which the Pacific Select
index of the stocks Fund acquired on December 31, 1994.
of approximately
500 large-
capitalization U.S.
companies.
Returns do not
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] -------------------------------------------------
Who manages the Robert Jones, managing director, has 18 years of
portfolio investment experience. Before joining Goldman Sachs in
1989, he provided quantitative research for a major
[LOGO OF GOLDMAN banking firm and an options consulting firm. His
SACHS APPEARS HERE] articles on quantitative techniques have been published
in leading financial journals. He has a BA from Brown
The Equity University and an MBA from the University of Michigan,
Portfolio is and is a chartered financial analyst. He began managing
managed by a team the Equity Portfolio in 1998.
of portfolio
managers at Goldman Victor Pinter, vice president, was a consultant at
Sachs Asset Chase Econometrics/IDC and a project manager in the
Management. You'll Information Technology Division of Goldman Sachs before
find more about he joined Goldman Sachs in 1985. He has a BS from
Goldman Sachs on Brooklyn College and an MBA from New York University's
page 49. Stern School of Business. He joined the quantitative
equity management team in 1992.
Kent Clark, managing director, 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.
19
<PAGE>
ABOUT THE PORTFOLIOS I-NET TOLLKEEPER PORTFOLIO
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital.
investment goal
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest at least 65% of its assets in publicly traded
U.S. equity securities of "I-Net Tollkeeper" companies,
which are media, telecommunications, technology and
The management team Internet companies that provide access, infrastructure,
believes that one content and services to Internet companies and Internet
way to invest in users, and which have developed, or are seeking to
the Internet is to develop, predictable, sustainable or recurring revenue
invest in those streams by increasing "traffic," or customers and
businesses sales, and raising "tolls," or prices in connection with
participating in the growth of the Internet.
the growth of the
Internet that may Examples of I-Net Tollkeeper companies may include:
have long-lasting
strategic . Access providers that enable individuals and
advantages businesses to connect to the Internet through, for
including: dominant example, cable systems or the telephone network;
market share;
strong brand names; . Infrastructure companies that provide items such as
recurring revenue servers, routers, software and storage necessary for
streams; cost companies to participate in the Internet;
advantages;
economies of scale; . Media content providers that own copyrights,
financial strength; distribution networks and/or programming who may
technological benefit from increased advertising by Internet
advantages; and companies and/or from having new distribution
strong experienced channels;
management teams.
. Service providers that may facilitate transactions,
communications, security, computer programming and
back-office functions for Internet businesses.
Normally, the portfolio invests at least 90% of its
assets in equity securities, primarily in publicaly-
traded U.S. securities. The portfolio may invest up to
35% of its assets in non-I-Net Tollkeeper companies which
may use the internet to enhance their cost structure,
revenue opportunities or competitive advantage. The
portfolio may also invest in Internet-based companies
(that are not I-Net Tollkeeper companies) that the
portfolio manager believes exhibit a sustainable business
model.
The management 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, commercial paper, bank
instruments, and non-convertible corporate bonds with a
remaining maturity of less than one year.
[SYMBOL] ------------------------------------------------
Risks you should be
aware of The I-Net Tollkeeper Portfolio principally invests in
equity securities, which may go up or down in value,
sometimes rapidly and unpredictably. While equities may
Because the portfolio offer the potential for greater long-term growth than
concentrates its most fixed income securities, they generally have
investments in higher volatility. The portfolio may be affected by the
Internet Tollkeeper following risks, among others:
companies, the
portfolio's . industry concentration risk - the portfolio is subject
performance may be to greater risk of loss as a result of adverse
substantially economic, business or other developments than if its
different from the investments were diversified across different industry
returns of the broader sectors.
stock market and of
"pure" Internet funds. . Internet risk - the risk that the stock prices of
Internet and Internet-related companies will experience
significant price movements as a result of intense
worldwide competition, consumer preferences, product
compatibility, product obsolescence, government
regulation, excessive investor optimism or pessimism,
or other factors.
. price volatility - the value of the portfolio changes
as the prices of its investments go up and down. This
portfolio invests in companies participating in the
growth of the Internet, which may give the portfolio
higher volatility than a portfolio that invests in
equities of other industries, or a broader spectrum
of industries. The prices of these companies may be
affected by intense competition, changing
technologies, consumer preferences, problems with
product compatibility, government regulation,
interest rates, and investor optimism or pessimism
with little or no basis in traditional economic
analysis.
20
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be . risks of foreign investing - foreign investments may
aware of be riskier than U.S. investments for many reasons,
(continued) including changes in currency exchange rates,
unstable political and economic conditions, a lack of
The portfolio may adequate company information, differences in the way
not invest more than: securities markets operate, less secure foreign banks
. 25% of its assets in or securities depositories than those in the U.S.,
foreign securities, and foreign controls on investment.
including up to 10%
in securities of . emerging countries risk - compared to developed foreign
emerging market markets, emerging market countries (such as many in
countries. Asia, Latin America, Eastern Europe and Africa):
. are generally subject to greater price volatility
. may have a higher degree of political and economic
instability
. often have smaller market capitalizations
. have less governmental regulation
. are not subject to as extensive and frequent
accounting, financial and other reporting
requirements.
Investment in securities of Eastern European countries,
including in particular, Russia, and other emerging
market countries, also involve risk of loss resulting
from problems in share registration and custody.
[SYMBOL] ------------------------------------------------
Who manages the David G. Shell, Vice President and senior portfolio
portfolio manager, will be the primary portfolio manager. He
joined Goldman Sachs as a portfolio manager in 1997.
[LOGO OF GOLDMAN Before then, he was a portfolio manager at Liberty and
SACHS APPEARS HERE] its predecessor. Mr. Shell is supported by a team of
seven other portfolio managers.
The I-Net Tollkeeper
Portfolio is managed
by a team of
portfolio managers at
Goldman Sachs Asset
Management. You'll
find more about
Goldman Sachs on
page 49.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PERFORMANCE OF A COMPARABLE ACCOUNT
- ----------------------------------------------------------------------------------------------------------
<S> <C>
This portfolio has This chart does not show you the performance of the I-Net Tollkeeper Portfolio--it
no historical shows the performance of a similar account managed by Goldman Sachs Asset
performance because Management.
it started on May 1,
2000. Annual total returns, and average annual total returns for the periods ending
, 2000.
The chart to the
right shows the -----------------------------------------------------------------------------------
historical Goldman Sachs
performance of an Internet Tollkeeper
account managed by Fund(SM), adjusted to
Goldman Sachs, Goldman Sachs reflect fees and estimated
calculated Internet Tollkeeper expenses of the I-Net S&P 500
according to the Year Fund(SM) (%) Tollkeeper Portfolio (%) Index (%)
standards set by -----------------------------------------------------------------------------------
the Association for 1999/1/
Investment -----------------------------------------------------------------------------------
Management and Time Period Average Annual Average Annual Average Annual
Research (AIMR). (through / / ) Total Return (%) Total Return (%) Total Return (%)
The account has -----------------------------------------------------------------------------------
investment Since Inception
objectives, policies (October 1, 1999)
and strategies that -----------------------------------------------------------------------------------
are substantially
similar to those of /1/ Total returns through , , not annualized. The fund's participation
the I-Net Tollkeeper in the initial public offering (IPO) market during its initial start-up phase
Portfolio. may have had a magnified impact on the fund's performance because of its
relatively small asset base. As the fund's assets grow, it is probable that the
This information shows effect of IPO investments on the fund's future performance will not be as
the historical track significant. Note that performance shown is for a very short time - only six
record of the months. Long-term performance may vary significantly.
portfolio manager
and is not intended The returns in the first column (after Year) reflect the advisory fees and
to imply how the operating expenses of the Goldman Sachs Internet Tollkeeper Fund(SM).
I-Net Tollkeeper
Portfolio has The second column shows gross performance of the Goldman Sachs Internet Tollkeeper
performed or will Fund(SM), adjusted to reflect the estimated fees and expenses of the I-Net
perform. Total Tollkeeper Portfolio.
returns represent
past performance of The third column shows performance of the S&P 500 Index, an index of the stocks of
the Goldman Sachs approximately 500 large-capitalization U.S. companies, for the same periods. Results
Internet Tollkeeper include reinvested dividends.
Fund(SM) and not the
I-Net Tollkeeper
Portfolio. You may
lose money even if
the fund's past
returns have been
positive.
Returns do not reflect
fees and expenses
associated with any
variable annuity
contract or variable
life insurance
policy, and would be
lower if they did.
</TABLE>
21
<PAGE>
ABOUT THE PORTFOLIOS MULTI-STRATEGY PORTFOLIO
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks to provide a high total return
investment goal 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 This portfolio's principal investment strategy is to
invests in invest in a mix of equity and fixed income securities.
Equity securities, which usually make up about 60% of
A portfolio that the portfolio, are principally the common stock of
invests in a mix of large and medium-sized U.S. companies. The portfolio
fixed income and may also invest in preferred stock, warrants, rights
equity securities and fixed income securities that can be converted into
tends to be less equity securities. Fixed income securities of any
volatile than a credit rating, which usually make up about 40% of the
portfolio that portfolio, are principally bonds and notes issued by
invests principally U.S. and foreign companies and governments, and
in equities. mortgage related securities including stripped mortgage
related securities.
Duration is a The portfolio management team allocates assets among
mathematical equity and fixed income securities using a variety of
measure of the analytical tools, and then periodically rebalances the
average life of a portfolio to try to increase returns and reduce risk.
bond that includes The team will vary the percentage allocated to the two
its yield, coupon, types of securities depending on its analysis of market
final maturity and conditions.
call features. It's
often used to Within the equity portion of the portfolio, the team
measure the uses the same three-step investment process it uses for
potential the Equity Income Portfolio. That process includes
volatility of a research, valuation of companies using quantitative
bond's price, and dividend analysis, and selection of individual stocks
is considered a based on their relative valuation.
more accurate
measure than Within the fixed income portion of the portfolio, the
maturity of a team sets duration objectives based on the yield curve,
security's allocates assets across a broad range of fixed income
sensitivity to sectors, and then selects individual securities based
changes in interest on research by a team of managers, analysts and
rates. 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 years on March 31, 2000.
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 The Multi-Strategy Portfolio invests in a mix of equity
aware of and fixed income securities. While equities may offer
the potential for greater long-term growth than most
This portfolio may fixed income securities, they generally have higher
not invest more volatility. Fixed income securities are affected
than 10% of its primarily by the financial condition of the company
assets in foreign that has issued it, and changes in interest rates. The
fixed income portfolio may be affected by the following risks, among
securities. 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.
22
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be . risks of foreign investing - foreign investments may
aware of be riskier than U.S. investments for many reasons,
(continued) 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 Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF MULTI-STRATEGY PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94 95 96 97 98 99
varied over the ------ ----- ---- ---- ------ ----- ----- ----- ----- ----
past 10 years. (1.47) 24.03 5.57 9.25 (1.50) 25.25 12.56 19.62 18.17
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return
the Standard & as of December 31, 1999 1 year 5 years 10 years
Poor's 500 ---------------------------------------------------------
Composite Stock Multi-Strategy Portfolio/1/ % % %
Price Index, an Lehman Brothers Aggregate Bond
index of the stocks Index % % %
of approximately Standard & Poor's 500 Composite
500 large- Stock Price Index % % %
capitalization U.S.
companies, and the /1/ J.P. Morgan Investment Management Inc. began
Lehman Brothers managing the portfolio on January 1, 1994, and some
Aggregate Bond investment policies changed at that time. Another
Index, an index of firm managed the portfolio before that date.
fixed income
securities.
Returns do not
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in
the past is
important - but
it's no guarantee
of how it will
perform in the
future.
[SYMBOL] ---------------------------------------------
Who manages the Henry Cavanna, managing director, is a senior equity
portfolio portfolio manager in the U.S. equity and balanced
accounts group. He joined J.P. Morgan in 1971 and his
[LOGO OF J.P. first assignment was in pension administration. He
MORGAN INVESTMENT began managing the Multi-Strategy Portfolio in 1997. He
APPEARS HERE] has a BA from Boston College and an LLB from the
University of Pennsylvania.
The Multi-Strategy
Portfolio is William Tennille, vice president, joined J.P. Morgan in
managed by a team 1992. He began managing the Multi-Strategy Portfolio in
of portfolio 1997. He is a fixed income portfolio manager for
managers at pension and institutional accounts and also serves as a
J.P. Morgan mortgage-backed and derivatives investment specialist
Investment for the fixed income group. He is a graduate of the
Management Inc. University of North Carolina.
You'll find more
about J.P. Morgan Peggy Adams, vice president, is a portfolio manager in
on page 49. the U.S. equity and balanced accounts group. She joined
J.P. Morgan in 1989 and has had assignments in
corporate finance, risk arbitrage, and institutional
equity sales. She holds a BA from Brown University and
an MBA from the Yale School of Management.
23
<PAGE>
ABOUT THE PORTFOLIOS EQUITY INCOME PORTFOLIO
[SYMBOL] ------------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital and
investment goal income.
[SYMBOL] ------------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in common stocks of large and medium-sized U.S.
companies, but it may invest in small companies or in
companies located outside the U.S. that are listed on a
U.S. stock exchange.
The portfolio The portfolio is managed by a team of portfolio
manager tries to managers who maintain industry sector weightings that
achieve gross are similar to those of the Standard & Poor's 500
income of 75% of Composite Stock Price Index. The team moderately
the dividend income underweights or overweights sectors when it believes
generated on the this will enhance performance.
stocks included in
the Standard and The team chooses companies to invest in within these
Poor's 500 industry sectors using a three-step process:
Composite Stock
Price Index. When Research - the team looks at company prospects over the
selecting stocks, short term as well as over a relatively long period -
however, the often as much as five years - to gain insight into a
manager puts more company's real growth potential.
emphasis on the
potential for Valuation - the team ranks the companies in each
capital industry group according to their relative value using
appreciation than quantitative earnings, cash flow and dividend analysis
on current and forecasts. The more the team's estimated worth of a
dividends. 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 The Equity Income Portfolio principally invests in
aware of 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.
24
<PAGE>
[SYMBOL] ------------------------------------------------
Risks you should be . risks of using derivatives - this portfolio may use
aware of options, futures contracts and other investment
(continued) 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 Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF EQUITY INCOME PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94 95 96 97 98 99
varied over the ------ ----- ---- ---- ------ ----- ----- ----- ----- ---
past 10 years. (7.54) 31.42 5.36 8.29 (0.28) 31.66 19.43 28.60 24.18
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return
the Standard & as of December 31, 1999 1 year 5 years 10 years
Poor's 500 ---------------------------------------------------------
Composite Stock Equity Income Portfolio/1/ % % %
Price Index, an Standard & Poor's 500 Composite
index of the stocks Stock Price Index % % %
of approximately
500 large- /1/ J.P. Morgan Investment Management Inc. began
capitalization U.S. managing the portfolio on January 1, 1994, and some
companies. investment policies changed at that time. Another
firm managed the portfolio before that date.
Returns do not
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ------------------------------------------------
Who manages the Henry Cavanna, managing director, is a senior equity
portfolio portfolio manager in the U.S. equity and balanced
accounts group. He joined J.P. Morgan in 1971 and his
[LOGO OF J.P. MORGAN first assignment was in pension administration. He
INVESTMENT APPEARS began managing the Equity Income Portfolio in 1997, and
HERE] has a BA from Boston College and an LLB from the
University of Pennsylvania.
The Equity Income
Portfolio is Peggy Adams, vice president, is a portfolio manager in
managed by a team the U.S. equity and balanced accounts group. She joined
of portfolio J.P. Morgan in 1989 and has had assignments in
managers at corporate finance, risk arbitrage, and institutional
J.P. Morgan equity sales. She holds a BA from Brown University and
Investment an MBA from the Yale School of Management.
Management Inc.
You'll find more
about J.P. Morgan
on page 49.
25
<PAGE>
ABOUT THE PORTFOLIOS GROWTH LT PORTFOLIO
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital in a
investment goal manner consistent with the preservation of capital.
[SYMBOL] ----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in a large number of companies of any size, from
small emerging growth to well established companies. It
principally invests in common stock.
The portfolio manager looks for companies that have
This portfolio may high potential for earnings growth that may not be
invest some of its recognized by other investors. The portfolio manager
assets in foreign generally does not limit security selection to any
companies. industry sector or use other defined selection
Investing globally procedures. The realization of income is not a
offers greater significant factor in considering portfolio securities.
diversification Before investing in a company, the portfolio manager
because the may consider:
portfolio can take
advantage of . how much demand there is for the company's products
investment and services
opportunities that
are not available . how the company is positioned against its competitors
in the U.S.
. 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 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 The Growth LT Portfolio principally invests in equity
aware of 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
This portfolio may income securities, they generally have higher
not invest more than: volatility. The portfolio may also be affected by the
. 10% of its assets following risks, among others:
in lower-rated
"junk" bonds . price volatility - the value of the portfolio changes
. 25% of its assets as the prices of its investments go up or down. This
in foreign portfolio invests in companies that the portfolio
investments. 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.
26
<PAGE>
[SYMBOL] ----------------------------------------------
Risks you should be This portfolio may also invest in small and medium-
aware of sized companies, which may be more susceptible to
(continued) 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 Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF GROWTH LT PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 94 95 96 97 98 99
varied since its ----- ----- ----- ----- ----- -----
inception. 13.25 36.75 17.87 10.96 58.29
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return Since inception
the Russell 2500 as of December 31, 1999 1 year (January 4, 1994)/2/
Index, an index of ---------------------------------------------------------
2,500 U.S. mid-cap Growth LT Portfolio % %
companies, and the Russell 2500 Index % %
Standard & Poor's Standard & Poor's 500
500 Composite Stock Composite Stock Price Index % %
Price Index, an
index of the stocks /1/ Total return for 1994 is for the period from January
of approximately 4, 1994 (commencement of operations) to December 31,
500 large- 1994.
capitalization U.S.
companies. /2/ Portfolio total return calculated from inception
date through end of period. Index total returns
Returns do not calculated from January 1, 1994 through end of
reflect fees and period.
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ----------------------------------------------
Who manages the Warren Lammert, III, vice president of Janus Capital
portfolio Corporation, joined Janus in 1987 and is portfolio
manager and executive vice president of Janus Mercury
[LOGO OF JANUS Fund and executive vice president of Janus Investment
CAPITAL CORPORATION Fund. He has also been the portfolio manager of various
APPEARS HERE] growth-oriented accounts since 1991. He has a BA in
economics from Yale University and an MA in economic
The Growth LT history (with distinction) from the London School of
Portfolio is Economics, and is a chartered financial analyst.
managed by Janus
Capital
Corporation. You'll
find more about
Janus on page 49.
27
<PAGE>
ABOUT THE PORTFOLIOS MID-CAP VALUE PORTFOLIO
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks capital appreciation.
investment goal
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
[SYMBOL] ----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in 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
A company's selected common stocks of medium-sized U.S. companies.
"capitalization" is
a measure of its The portfolio management team determines a company's
size. Capitalization value by comparing its share price with its return on
is calculate by total capital or equity. Companies are considered
multiplying the undervalued when their share price is lower than their
current share price estimated worth or growth prospects.
by the number of
shares held by The portfolio management team attempts to identify
investors. 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 quantitative and qualitative analysis to securities
the opposite of a selection. The team focuses on individual stock
typical stock selection rather than on forecasting stock market
market transaction. trends.
Instead of buying a
stock and then The team may also invest in equity securities of larger
selling it - capitalization companies, investment grade fixed income
hopefully at a securities, and foreign equity and fixed income
higher price - you securities.
sell the stock
first, and then buy To help it achieve its investment goal, the portfolio
it, hopefully at a may lend some of its assets, as long as the loans it
lower price. In a makes are secured. It may use borrowed money to make
short sale, you investments, which may include short selling securities
normally borrow the it doesn't own. The portfolio manager may use options,
stock you're futures contracts and other techniques to try to
selling. 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 The Mid-Cap Value Portfolio principally invests in
aware of 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 . risks of foreign investing - foreign investments may
not invest more be riskier than U.S. investments for many reasons,
than 15% of its including changes in currency exchange rates,
assets in foreign unstable political and economic conditions, a lack of
investments. 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.
28
<PAGE>
[SYMBOL] ----------------------------------------------
Risks you should be . risks of using derivatives - this portfolio may use
aware of options, futures contracts and other investment
(continued) 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] ----------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year
The bar chart shows [GRAPH OF MID-CAP VALUE PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 99
varied since its ----
inception.
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return Since inception
the Russell Midcap as of December 31, 1999 1 year (January 3, 1999)
Index, an index of ---------------------------------------------------------
800 of the smallest Mid-Cap Value Portfolio/1/ % %
companies in the Russell Midcap Index % %
Russell 1000 Index.
/1/ Total return for 1999 is for the period from January
Returns do not 3, 1999 (commencement of operations) to December 31,
reflect fees and 1999.
expenses associated /2/ Portfolio total return calculated from inception
with any variable date through end of period. Index total returns
annuity contract or calculated from January 1, 1999 through end of
variable life period.
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ----------------------------------------------
Who manages the Herbert W. Gullquist, chief investment officer of
portfolio Lazard and a vice chairman and managing director of
Lazard Freres & Co. LLC, is responsible for ensuring
[LOGO OF LAZARD that all investment activity follows Lazard's
APPEARS HERE] investment philosophy and guidelines. He has managed
the Mid-Cap Value Portfolio since it started on January
4, 1999. He has 38 years of investment management
The Mid-Cap Value experience. Before joining Lazard in 1982, Mr.
Portfolio is Gullquist was a general partner of Oppenheimer &
managed by a team Company Inc. and a managing director and the chief
of portfolio investment officer of Oppenheimer Capital Corp. He has
managers at Lazard a BA from Northwestern University.
Asset Management.
You'll find more Eileen D. Alexanderson, managing director of Lazard
about Lazard on Freres & Co. LLC, is responsible for U.S./global equity
page 49. 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.
29
<PAGE>
ABOUT THE PORTFOLIOS EQUITY INDEX PORTFOLIO
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks to provide investment results that
investment goal correspond to the total return of common stocks that
are publicly traded in the United States.
[SYMBOL] ----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in 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 . match the returns of the index before taking into
index fund is to account portfolio costs
mirror the The portfolio usually holds between 400 and 500 of the
performance of a stocks in the index and tries to match its industry
specific index. weightings. Since the portfolio generally invests in
Because individual securities that are included in the index, it has
investment similar risk characteristics and performance. The team
selection is periodically reviews and rebalances the portfolio's
virtually investments to more closely track the performance of
eliminated, active the index. It will not, however, actively manage the
portfolio portfolio or carry out a financial analysis of its
management is not holdings.
required.
The team frequently uses index futures as a substitute
This portfolio for securities or to hedge against changes in
invests in securities prices.
companies that are
included in the Portfolio returns will likely be lower than the index
Standard & Poor's because of transaction costs and other expenses the
500 Composite Stock portfolio has to pay. The portfolio's ability to match
Price Index, an the returns of the index will also depend on the size
index of the stocks of the portfolio, its cash flow, and how easy it is to
of approximately sell the investments it holds.
500 large-
capitalization U.S. . lower transaction costs
companies. 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 The Equity Index Portfolio principally invests in
aware of 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.
30
<PAGE>
[SYMBOL] -----------------------------------------------
Risks you should be . stock market risk - The portfolio is not actively
aware of managed, and invests in securities included in the
(continued) 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 Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF EQUITY INDEX PORTFOLIO]
how the portfolio's
performance has 91 92 93 94 95 96 97 98 99
varied since its ----- ---- ---- ---- ----- ----- ----- ----- ----
inception. 24.88 6.95 9.38 1.05 36.92 22.36 32.96 28.45
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Since inception
the Standard & Average annual total return (January 30,
Poor's 500 as of December 31, 1999 1 year 5 years 1991)/2/
Composite Stock ---------------------------------------------------------
Price Index, an Equity Index Portfolio/3/ % % %
index of the stocks Standard & Poor's 500
of approximately Composite Stock Price
500 large- Index % % %
capitalization U.S.
companies. /1/ Total return for 1991 is for the period from January
30, 1991 (commencement of operations) to
Returns do not December 31, 1991.
reflect fees and /2/ Portfolio total return calculated from inception
expenses associated date through end of period. Index total return
with any variable calculated from February 1, 1991 through end of
annuity contract or period.
variable life /3/ Mercury Asset Management US began managing the
insurance policy, portfolio on January 1, 2000. Another firm managed
and would be lower the portfolio before that date.
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] -----------------------------------------------
Who manages the The Equity Index Portfolio is managed by the
portfolio Quantitative Strategies Division of Mercury Asset
Management US. You'll find more about Mercury on page 50.
[LOGO OF MERCURY
ASSET MANAGEMENT
APPEARS HERE]
World Financial
Center
225 Liberty Street
New York, NY 10080
31
<PAGE>
ABOUT THE PORTFOLIOS SMALL-CAP INDEX PORTFOLIO
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks investment results that correspond
investment goal 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 This portfolio's principal investment strategy is to
invests in 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 . match the returns of the index before taking into
index fund is to account portfolio costs
mirror the The portfolio can invest in any number of the stocks in
performance of a the index and tries to match its industry weightings.
specific index. Since the portfolio generally invests in securities
Because individual that are included in the index, it has similar risk
investment characteristics and performance. The team periodically
selection is reviews and rebalances the portfolio's investments to
virtually more closely track the performance of the index. It
eliminated, active will not, however, actively manage the portfolio or
portfolio carry out a financial analysis of its holdings.
management is not
required and The team frequently uses index futures as a substitute
transaction costs for securities or to hedge against changes in
are reduced. securities prices.
This portfolio Portfolio returns will likely be lower than the index
invests in because of transaction costs and other expenses the
companies that are portfolio has to pay. The portfolio's ability to match
included in the the returns of the index will also depend on the size
Russell 2000 Small of the portfolio, its cash flow, and how easy it is to
Stock Index, an sell the investments it holds.
index of the 2,000
smallest companies . lower transaction costs
listed in the This portfolio is expected to have lower transaction
Russell 3000 Index. 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 The Small-Cap Index Portfolio principally invests in
aware of 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.
32
<PAGE>
[SYMBOL] ----------------------------------------------
Risks you should be . stock market risk - The portfolio is not actively
aware of managed, and invests in securities included in the
(continued) 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] ----------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF SMALL-CAP INDEX PORTFOLIO HERE]
how the portfolio's
performance has 99
varied since its ----
inception.
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return Since inception
the Russell 2000 as of December 31, 1999 1 year (January 3, 1999)/2/
Small Stock Index, ---------------------------------------------------------
an index of the Small-Cap Index Portfolio/1/ % %
2000 smallest Russell 2000 Small Stock Index % %
companies listed in
the Russell 3000 /1/ Total return for 1999 is for the period from January
Index. 3, 1999 (commencement of operations) to December 31,
1999.
Returns do not
reflect fees and /2/ Portfolio total return calculated from inception
expenses associated date through end of period. Index total return
with any variable calculated from January 1, 1999 through end of
annuity contract or period.
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ----------------------------------------------
Who manages the The Equity Index Portfolio is managed by the
portfolio Quantitative Strategies Division of Mercury Asset
Management US. You'll find more about Mercury on page
[LOGO OF MERCURY 50.
ASSET MANAGEMENT
APPEARS HERE]
World Financial
Center
225 Liberty Street
New York, NY 10080
33
<PAGE>
ABOUT THE PORTFOLIOS REIT PORTFOLIO
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks current income and long-term
investment goal capital appreciation.
This portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
[SYMBOL] ----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in 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 The portfolio may also invest in properties, including
(REITs) and real office and industrial buildings, apartments,
estate operating manufactured homes and hotels.
companies are
entities that own The portfolio management team tries to earn gross
portfolios of real income that's higher than the dividend yield of the
estate. REITs Standard & Poor's 500 Composite Stock Price Index.
invest primarily in
properties that The portfolio management team uses a "top-down" process
produce income and to determine how assets are allocated. The team focuses
in real estate- on key regional criteria that include demographic and
related loans or macroeconomic factors like population, employment,
interests. 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 The REIT Portfolio principally invests in equity
aware of 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 . price volatility - the value of the portfolio changes
considered to be as the prices of the investments it holds go up or
"non-diversified" down. This portfolio invests in companies
because it may participating in the real estate industry. The prices
invest in of these companies are affected by real estate
securities of a cycles, cash flows, availability of mortgage
fewer number of financing, changes in interest rates, overbuilding,
issuers than other property taxes and operating expenses, environmental
portfolios. This regulation and changes in zoning laws and
increases the risk regulations.
that its value
could go down . risks of real estate investment trusts (REITs) -
because of the poor REITs expose the portfolio to the risks of the real
performance of a estate market. For example, some REITs may invest in
single investment. 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.
34
<PAGE>
[SYMBOL] -----------------------------------------------
Risks you should be . risks of foreign investing - foreign investments may
aware of be riskier than U.S. investments for many reasons,
(continued) including changes in currency exchange rates,
unstable political and economic conditions, a lack of
This portfolio may adequate company information, differences in the way
not invest more securities markets operate, less secure foreign banks
than 10% of its or securities depositories than those in the U.S.,
assets in foreign and foreign controls on investment.
investments.
. 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] -----------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF REIT PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 99
varied since its ----
inception.
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return Since inception
the North American as of December 31, 1999 1 year (January 3, 1999)/2/
Real Estate ---------------------------------------------------------
Investment Trust REIT Portfolio/1/ % %
(NAREIT) Equity NAREIT Equity Index % %
Index, an index of
all tax-qualified /1/ Total return for 1999 is for the period from January
REITs listed on the 3, 1999 (commencement of operations) to December 31,
New York Stock 1999.
Exchange, American /2/ Portfolio total return calculated from inception
Stock Exchange and date through end of period. Index total returns
NASDAQ. calculated from January 1, 1999 through end of
period.
Returns do not
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] -----------------------------------------------
Who manages the Theodore Bigman, managing director, joined MSAM in 1995
portfolio and manages its global real estate securities investment
business. He has managed the REIT Portfolio since it
[LOGO OF MORGAN started on January 4, 1999. Before joining MSAM, he was
STANLEY ASSET a director at CS First Boston, where he established and
MANAGEMENT APPEARS managed the firm's REIT effort, and had primary
HERE] responsibility for $2.5 billion of initial public
offerings by REITs. He graduated from Brandeis
The REIT Portfolio University in 1983 with a BA in Economics and received
is managed by an MBA from Harvard University in 1987.
Morgan Stanley
Asset Management Douglas A. Funke, vice president, joined Morgan Stanley
(MSAM). You'll find & Co. Incorporated, MSAM's affiliate, in 1993 and MSAM
more about MSAM on in 1995. He is responsible for providing research and
page 50. analytical support for its real estate securities
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.
35
<PAGE>
ABOUT THE PORTFOLIOS INTERNATIONAL VALUE PORTFOLIO
[SYMBOL] -----------------------------------------------
The portfolio's This portfolio seeks long-term capital appreciation
investment goal 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 This portfolio's principal investment strategy is to
invests in invest in a broadly diversified portfolio of companies
located in developed countries outside of the U.S. It
The Morgan Stanley may also invest in securities issued in emerging market
Capital International countries.
Europe, Australasia,
Far East (EAFE) Index It invests at least 70% of its assets in common stock,
is made up of over but it may also invest in fixed income securities that
1,000 stocks from 20 can be converted into equity securities.
developed markets in
Europe, Australia, MSAM uses a two-step process to manage the portfolio:
New Zealand and Asia.
The index reflects . allocates assets among three geographic regions -
the relative size of MSAM's New York office, under the supervision of the
each market and is a portfolio manager, decides on the optimal allocation
commonly used of the portfolio's assets principally among Europe,
benchmark for the Japan and developed Asia, including Australia and New
performance of Zealand, but may also invest in other countries.
companies in Regional allocation decisions are based on a variety
developed countries of factors, including relative valuations, earnings
outside North expectations, macroeconomic factors, as well as input
America. 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 The International Value Portfolio principally invests
aware of 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.
36
<PAGE>
[SYMBOL] -----------------------------------------------
Risks you should be . risks of foreign investing - foreign investments may
aware of be riskier than U.S. investments for many reasons,
(continued) 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 Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF INTERNATIONAL VALUE PORTFOLIO HERE]
how the portfolio's
performance has 90 91 92 93 94 95 96 97 98 99
varied over the ------- ----- ------ ----- ---- ----- ----- ---- ---- ---
past 10 years. (13.48) 10.92 (9.78) 30.02 3.01 10.56 21.89 9.28 5.60
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return
the Morgan Stanley as of December 31, 1999 1 year 5 years 10 years
Capital International ---------------------------------------------------------
Europe, Australasia, International Portfolio/1/ % % %
Far East Index (MSCI MSCI EAFE Index % % %
EAFE Index), an index
of stocks from 20 /1/ Morgan Stanley Asset Management began managing this
countries in Europe, portfolio on June 1, 1997. Other firms managed the
Australia, New portfolio before that date.
Zealand and Asia.
Returns do not reflect
fees and expenses
associated with any
variable annuity
contract or variable
life insurance policy,
and would be lower if
they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no guarantee
of how it will perform
in the future.
[SYMBOL] -----------------------------------------------
Who manages the Francine Bovich, managing director, has been a portfolio
portfolio manager at Morgan Stanley Asset Management since April
1993, and began managing the International Portfolio in
[LOGO OF MORGAN 1997. She serves as the U.S. Representative to the United
STANLEY ASSET Nations Investment Committee. She graduated from
MANAGEMENT APPEARS Connecticut College with a BA in economics and received
HERE] her MBA in finance from New York University.
The International
Value Portfolio is
managed by Morgan
Stanley Asset
Management (MSAM).
You'll find more
about MSAM on page
50.
37
<PAGE>
ABOUT THE PORTFOLIOS GOVERNMENT SECURITIES PORTFOLIO
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks to maximize total return
investment goal consistent with prudent investment management.
[SYMBOL] ----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest at least 65% of its assets in fixed income
securities that are issued or guaranteed by the U.S.
government, its agencies, or government-sponsored
Total return is enterprises, including options or futures thereon,
made up of income measured with reference to the notional amount of such
plus any gains in instruments.
the value of the
portfolio's Specific securities are principally:
securities.
. 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:
Duration is a . decides what duration the portfolio should maintain.
mathematical The portfolio manager uses duration management as a
measure of the fundamental part of the management strategy for this
average life of a portfolio. The portfolio usually maintains an average
bond that includes duration of three to seven years, varying within this
its yield, coupon, range based on the portfolio manager's outlook on the
final maturity and economy and interest rates. The portfolio manager
call features. It then decides what proportion of securities in the
is often used to portfolio should have short, intermediate and long
measure the durations and maturities.
potential
volatility of a . decides what proportion of securities in the
bond's price, and portfolio should be invested in U.S. government
is considered a securities, foreign bonds, U.S. corporate bonds and
more accurate U.S mortgage related securities. The manager uses an
measure than analytical system it has developed to help select
maturity of a securities that meet yield, duration, maturity and
security's other criteria.
sensitivity to
changes in interest . chooses companies to invest in by carrying out a
rates. 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 Since the Government Securities Portfolio principally
aware of 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.
38
<PAGE>
[SYMBOL] ----------------------------------------------
Risks you should be The portfolio may also invest in mortgage related
aware of securities, which can be paid off early if the owners
(continued) of underlying mortgages pay off their mortgages sooner
than scheduled. If interest rates are falling, the
Government bonds portfolio will be forced to reinvest this money at
tend to have less lower yields. Stripped mortgage related securities can
credit risk than be particularly sensitive to changes in interest
bonds issued by rates.
most companies
because the U.S. . credit risk - the portfolio could lose money if the
government is less issuer of a fixed income security is unable to meet
likely than a its financial obligations or goes bankrupt. This
company to default portfolio is subject to less credit risk than the
on a debt. For this other bond portfolios because it principally invests
reason, government in fixed income securities issued or guaranteed by
securities the U.S. government, its agencies and government
generally pay lower sponsored enterprises, and in high quality corporate
rates of interest bonds.
than corporate
securities with . risks of foreign investing - foreign investments may
similar terms to be riskier than U.S. investments for many reasons,
maturity. including changes in currency exchange rates,
unstable political and economic conditions, a lack of
This portfolio may adequate company information, differences in the way
not invest more securities markets operate, less secure foreign banks
than 20% of its or securities depositories than those in the U.S.,
assets in foreign and foreign controls on investment.
investments
denominated in . risks of using derivatives - this portfolio
foreign currencies. 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 Year by year total return (%)
has performed as of December 31 each year
The bar chart shows [GRAPH OF GOVERNMENT SECURITIES PORTFOLIO HERE]
how the portfolio's
performance has 90 91 92 93 94 95 96 97 98 99
varied over the ---- ----- ---- ----- ------ ----- ---- ---- ---- ----
past 10 years. 8.01 16.67 7.52 10.79 (5.10) 18.81 2.94 9.48 9.24
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return
the Lehman Brothers as of December 31, 1999 1 year 5 years 10 years
Government Bond --------------------------------------------------------
Index, an index of Government Securities Portfolio % % %
fixed income Lehman Brothers Government Bond
securities issued Index % % %
by the U.S.
government and its
agencies.
Returns do not
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ----------------------------------------------
Who manages the John Hague, managing director and senior member of the
portfolio portfolio manager group, joined PIMCO in 1987. He has
been the portfolio manager for the Government
[LOGO OF PIMCO Securities Portfolio since 1987. John has 18 years of
APPEARS HERE] investment experience, including two years specializing
in international fixed income products and mortgage-
The Government backed securities with Salomon Brothers, Inc., and
Securities three years in credit research with Morgan Guarantee.
Portfolio is He has a BA in economic analysis from Bowdoin College
managed by Pacific and an MBA in finance from Stanford University.
Investment
Management Company
(PIMCO). You'll
find more about
PIMCO on page 50.
39
<PAGE>
ABOUT THE PORTFOLIOS MANAGED BOND PORTFOLIO
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks to maximize total return
investment goal consistent with prudent investment management.
[SYMBOL] ----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in medium to high-quality, investment grade
fixed income securities with varying terms to maturity.
Total return is These securities include principally:
made up of income . U.S. treasury bonds and notes, or options or futures
plus any gains in on them
the value of the . mortgage related securities, including stripped
portfolio's 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:
Duration is a . decides what duration the portfolio should maintain.
mathematical The portfolio manager uses duration management as a
measure of the fundamental part of the management strategy for this
average life of a portfolio. The portfolio usually maintains an average
bond that includes duration of three to seven years, varying within this
its yield, coupon, range based on the portfolio manager's outlook on the
final maturity and economy and interest rates. The portfolio manager
call features. It's then decides what proportion of securities in the
often used to portfolio should have short, intermediate and long
measure the durations and maturities.
potential
volatility of a . decides what proportion of securities in the
bond's price, and portfolio should be invested in U.S. government
is considered a securities, foreign bonds, U.S. corporate bonds and
more accurate U.S mortgage related securities.
measure than
maturity of a . uses an analytical system developed by the portfolio
security's manager to help select government and other
sensitivity to securities that meet yield, duration, maturity and
changes in interest other criteria.
rates.
. 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 Since the Managed Bond Portfolio principally invests in
aware of fixed income securities, it may be affected by the
following risks, among others:
The price of bonds
that are . changes in interest rates - the value of the
denominated in portfolio's investments may fall when interest rates
foreign currencies rise. Changes in interest rates may have a
is affected by the significant effect on this portfolio, because it may
value of the U.S. invest in securities with medium or long terms to
dollar. In general, maturity and may use interest- sensitive derivatives.
as the value of the Bonds with longer durations tend to be more sensitive
U.S. dollar falls, to changes in interest rates, usually making them
the U.S. dollar more volatile than bonds with shorter durations. The
price of a foreign portfolio may also invest in mortgage related
bond will rise, securities, which can be paid off early if the owners
increasing the of underlying mortgages pay off their mortgages
value of the bond. sooner than scheduled. If interest rates are falling,
As the value of the the portfolio will be forced to reinvest this money
U.S. dollar rises, at lower yields. Stripped mortgage related securities
the U.S. dollar can be particularly sensitive to changes in interest
value of a foreign rates.
bond will fall.
40
<PAGE>
[SYMBOL] -----------------------------------------------
Risks you should be . credit risk - the portfolio could lose money if the
aware of issuer of a fixed income security is unable to meet
(continued) its financial obligations or goes bankrupt. This
portfolio may invest in high yield ("junk") bonds,
which may make it particularly subject to credit
This portfolio may risk, especially during periods of economic
not invest more uncertainty or during economic downturns.
than:
. 10% of its assets . risks of foreign investing - foreign investments may
in lower-rated, be riskier than U.S. investments for many reasons,
high-yield ("junk") including changes in currency exchange rates,
bonds unstable political and economic conditions, a lack of
. 20% of its assets adequate company information, differences in the way
in foreign securities markets operate, less secure foreign banks
investments or securities depositories than those in the U.S.,
denominated in and foreign controls on investment.
foreign currencies.
. 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 Year by year total return (%)
has performed as of December 31 each year
The bar chart shows [GRAPH OF MANAGED BOND PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94 95 96 97 98 99
varied over the ---- ----- ---- ----- ------ ----- ---- ---- ---- ----
past 10 years. 8.52 17.03 8.68 11.63 (4.36) 19.04 4.25 9.92 9.20
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return
the Lehman Brothers as of December 31, 1999 1 year 5 years 10 years
Government/Corporate --------------------------------------------------------
Bond Index, an Managed Bond Portfolio % % %
index of government Lehman Brothers
and corporate fixed Government/Corporate Bond Index % % %
income securities.
Returns do not
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] -----------------------------------------------
Who manages the John Hague, managing director and senior member of the
portfolio portfolio manager group, joined PIMCO in 1987. He has
been the portfolio manager for the Managed Bond
[LOGO OF PIMCO Portfolio since 1992. John has 18 years of investment
APPEARS HERE] experience, including two years specializing in
international fixed income products and mortgage-backed
The Managed Bond securities with Salomon Brothers, Inc., and three years
Portfolio is in credit research with Morgan Guarantee. He has a BA
managed by Pacific in economic analysis from Bowdoin College and an MBA in
Investment finance from Stanford University.
Management Company
(PIMCO). You'll
find more about
PIMCO on page 50.
41
<PAGE>
ABOUT THE PORTFOLIOS MONEY MARKET PORTFOLIO
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks current income consistent with
investment goal preservation of capital.
[SYMBOL] ----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in money market instruments that the portfolio
manager believes have limited credit risk. These
investments principally include commercial paper and
U.S. government obligations. The portfolio may also
The Money Market invest in asset-backed money market instruments and
Portfolio invests foreign money market instruments denominated in U.S.
at least 95% of its dollars. It is anticipated that the portfolio's dollar-
assets in money weighted average term to maturity will not exceed 90
market instruments days.
that have been
given the highest The portfolio manager looks for money market
credit rating for instruments with the highest yields within the highest
short-term debt credit rating categories, based on the evaluation of
securities, or have credit risk and interest rates. The portfolio may also
not been rated, but lend some of the portfolio's assets, as long as the
are of comparable loans are secured.
quality.
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 The Money Market Portfolio generally has the least
aware of investment risk of the Pacific Select Fund portfolios
because its principal investment strategy is to invest
in short-term securities that are either government
guaranteed or have very high credit ratings. The value
An investment in of the portfolio may, however, be affected by the
the portfolio is following risks:
not a bank deposit,
and it is not . changes in interest rates - the value of the
insured or portfolio's investments may fall when interest rates
guaranteed by the rise. Short-term money market instruments generally
Federal Deposit are affected less by changes in interest rates than
Insurance fixed income securities with longer terms to
Corporation or any maturity.
other government
agency. It's . credit risk - the portfolio could lose money if the
possible to lose issuer of a money market instrument is unable to meet
money by investing its financial obligations or goes bankrupt.
in the portfolio.
42
<PAGE>
[SYMBOL] ----------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year
The bar chart shows [GRAPH OF MONEY MARKET PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94 95 96 97 98 99
varied over the ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
past 10 years. 7.92 5.74 3.22 2.58 3.76 5.54 5.07 5.28 5.29
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return
the Merrill Lynch as of December 31, 1999 1 year 5 years 10 years
90-day T-Bill ---------------------------------------------------------
Index. Money Market Portfolio % % %
Merrill Lynch 90-day T-Bill Index % % %
Returns do not
reflect fees and 7-day yield ending December 31, 1999: %
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ----------------------------------------------
Who manages the Raymond Lee is a senior vice president of Pacific Life.
portfolio He joined the company in 1976, and has been managing
the Money Market Portfolio since 1987. He also oversees
[LOGO OF PACIFIC the management of Pacific Life's publicly traded bond
LIFE APPEARS HERE] portfolio. He has an MBA in finance from the Wharton
School of the University of Pennsylvania and a BA in
The Money Market economics from UCLA.
Portfolio is
managed by Pacific Dale Patrick is an investment analyst at Pacific Life.
Life Insurance He joined the company in 1985, and has assisted in the
Company. You'll management of the Money Market Portfolio since 1994. He
find more about is also responsible for the management of Pacific
Pacific Life on Life's short-term fixed income securities. Dale has a
page 48. BA in economics from the University of Colorado.
43
<PAGE>
ABOUT THE PORTFOLIOS HIGH YIELD BOND PORTFOLIO
[SYMBOL] -----------------------------------------------
The portfolio's This portfolio seeks a high level of current income.
investment goal
[SYMBOL] -----------------------------------------------
What the portfolio This portfolio's principal investment strategy is to
invests in invest in fixed income securities with lower and
medium-quality credit ratings and intermediate to long
Bonds are given a terms to maturity.
credit rating based
on the issuer's Securities principally include high yield bonds (often
ability to pay the called "junk" bonds) and notes. The portfolio may also
quoted interest invest in fixed income securities that can be converted
rate and maturity into equity securities, and preferred stocks and bonds
value on time. of foreign issuers that are denominated in U.S.
dollars.
The High Yield Bond
Portfolio invests When selecting securities, the portfolio manager
principally in high focuses on:
yield or "junk"
bonds, which are . seeking high yields while addressing risk by looking
given a low credit for securities that offer the highest yields for
rating by Moody's their credit rating.
(Ba and lower), or
Standard & Poor's . seeking gains by looking for securities that may be
(BB and lower), or more creditworthy than their credit rating indicates.
have not been This involves an analysis of each potential security,
rated, but are of and may include meeting with the company's management
comparable quality. team.
High yield bonds
are considered to . reducing credit risk by investing in many different
be mostly issuers in a wide range of industries.
speculative in
nature. To help the portfolio achieve its investment goal, the
portfolio may also lend some of the portfolio's assets,
This gives the as long as the loans it makes are secured.
portfolio more
credit risk than The managers may temporarily change these strategies if
the other bond they believe that economic conditions make it necessary
portfolios, but to maintain liquidity or to try to protect the
also gives it the portfolio from potential loss. In this case, the
potential for portfolio may invest in U.S. government securities,
higher income. higher-quality corporate fixed income securities or
money market securities.
[SYMBOL] -----------------------------------------------
Risks you should be Since the High Yield Bond Portfolio's principal
aware of 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.
. short-term trading - the portfolio can engage in
short-term trading, which could result in higher
trading costs.
44
<PAGE>
[SYMBOL] -----------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year
The bar chart shows [GRAPH OF HIGH YIELD BOND PORTFOLIO APPEARS HERE]
how the portfolio's
performance has 90 91 92 93 94 95 96 97 98 99
varied over the ---- ----- ----- ----- ---- ----- ----- ---- ---- ----
past 10 years. 0.38 24.58 18.72 18.01 0.42 18.87 11.31 9.44 2.49
The table below the Best and worst quarterly performance during this period:
bar chart compares quarter : %; quarter : %
the portfolio's
performance with Average annual total return
the CS First Boston as of December 31, 1999 1 year 5 years 10 years
High Yield Bond ---------------------------------------------------------
Index, an index High Yield Bond Portfolio % % %
designed to mirror CS First Boston Global High Yield
the performance of Bond Index % % %
the high-yield bond
market.
Returns do not
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no guarantee
of how it will
perform in the future.
[SYMBOL] ----------------------------------------------
Who manages the Simon Lee is a vice president of Pacific Life. He
portfolio joined the company in 1985 and has shared management
responsibility for the High Yield Bond Portfolio since
[LOGO OF PACIFIC 1995. He also manages Pacific Life's high yield and
LIFE APPEARS HERE] convertible bond assets. He has both a BA and an MBA
from Loyola Marymount University.
The High Yield Bond
Portfolio is Michael Long, Assistant Vice President, High Yield
managed by Pacific Securities, University of California, Davis, BA,
Life Insurance Economics, 1983. MBA Pepperdine University, 1999. Mr.
Company. You'll Long joined Pacific Life in 1994 as an Investment
find more about Analyst. He was promoted to his current position in
Pacific Life on 1998. Mr. Long has 16 years experience in the financial
page 48. 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 13
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.
45
<PAGE>
ABOUT THE PORTFOLIOS LARGE-CAP VALUE PORTFOLIO
[SYMBOL] ----------------------------------------------
The portfolio's This portfolio seeks long-term growth of capital.
investment goal 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 This portfolio's principal investment strategy is to
invests in invest in common and preferred stocks of large U.S.
companies. It tends to emphasize companies with a total
A company's market capitalization of more than $5 billion that are
"capitalization" is included in the Standard & Poor's 500 Composite Stock
a measure of its Price Index. It may also invest in foreign companies
size. and fixed income securities and securities that can be
Capitalization is converted into equity securities.
calculated by
multiplying the The portfolio management team looks for companies that
current share price are undervalued or expected to grow. It focuses on
by the number of companies that meet one or more of the following
shares held by criteria:
investors.
. companies that are believed to be fundamentally
Undervalued strong, but that aren't fully recognized by other
companies may be investors
fundamentally
strong, but not . companies that are experiencing or that are expected
fully recognized by to experience internal changes, like changes in
investors. Their corporate structure or capitalization
shares could be
good investments . companies that are developing new products, expanding
because their into new markets, or taking advantage of changes in
prices do not technology or of other changes in the industry or
reflect the true regulatory environment.
value of the
company. 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 The Large-Cap Value Portfolio principally invests in
aware of 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 . risks of foreign investing - foreign investments may
not invest more be riskier than U.S. investments for many reasons,
than 20% of its including changes in currency exchange rates,
assets in foreign unstable political and economic conditions, a lack of
securities. 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.
46
<PAGE>
[SYMBOL] ----------------------------------------------
How the portfolio Year by year total return (%)
has performed as of December 31 each year/1/
The bar chart shows [GRAPH OF LARGE-CAP VALUE PORTFOLIO APPEARS HERE]
how the portfolio's 99
performance has ----
varied since its
inception.
Best and worst quarterly performance during this period:
The table below the quarter : %; quarter : %
bar chart compares
the portfolio's Average annual total return Since inception
performance with as of December 31, 1999 1 year (January 3, 1999)/2/
the Standard & -------------------------------------------------------
Poor's 500 Large-Cap Value Portfolio/1/ % %
Composite Stock Standard & Poor's 500
Price Index, an Composite Stock Price Index % %
index of the stocks
of approximately /1/ Total return for 1999 is for the period from January
500 large- 3, 1999 (commencement of operations) to December 31,
capitalization U.S. 1999.
companies.
/2/ Portfolio total return calculated from inception
Returns do not date through end of period. Index total returns
reflect fees and calculated from January 1, 1999 through end of
expenses associated period.
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
Looking at how a
portfolio has
performed in the
past is important -
but it's no
guarantee of how it
will perform in the
future.
[SYMBOL] ----------------------------------------------
Who manages the Jack Cunningham is a portfolio manager and director of
portfolio SaBAM, and is responsible for directing investment
policy and strategy. He is a portfolio manager of the
[LOGO OF SALOMON Salomon Brothers Investors Fund and an equity analyst
BROTHERS ASSET responsible for covering the food, tobacco, restaurant
MANAGEMENT APPEARS and real estate industries. He has managed the Large-
HERE] Cap Value Portfolio since it started on January 4,
1999. Before joining SaBAM in 1995, Jack worked as an
The Large-Cap Value investment banker and financial analyst for Salomon
Portfolio is managed Brothers Energy Group. He holds a BA in English from
by a team of the University of Virginia and an MBA from the Amos
portfolio managers Tuck School at Dartmouth College.
at Salomon Brothers
Asset Management Jack is supported by a team of 18 U.S. equity
Inc (SaBAM). You'll professionals, each of whom has specific fundamental
find more about and quantitative research skills relating to all stages
SaBAM on page 50. of SaBAM's equity investment process.
47
<PAGE>
MANAGING THE PACIFIC SELECT FUND
--------------------------------------------------------
[LOGO OF PACIFIC Founded in 1868, Pacific Life provides life and health
LIFE APPEARS HERE] insurance products, individual annuities and group
employee benefits, and offers to individuals,
Pacific Life businesses and pension plans a variety of investment
Insurance Company products and services. Over the past five years, the
700 Newport Center company has grown from the 26th to the 18th largest
Drive life insurance company in the nation. The Pacific Life
Newport Beach, family of companies manages $300 billion in assets,
California 92660 making it one of the largest financial institutions in
America, and currently counts 65 of the 100 largest
U.S. companies as clients. Additional information about
Pacific Life can be obtained at its Web site,
www.PacificLife.com.
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, subject to the review of the Fund's
Board, has ultimate responsibility to oversee the other
portfolio managers. Under an exemptive order from the
Securities and Exchange Commission, Pacific Life and
Pacific Select Fund can hire, terminate and replace the
portfolio managers (except, as a general matter,
portfolio managers affiliated with Pacific Life or
Pacific Select Fund) without shareholder approval.
Within 90 days of the hiring of any new portfolio
manager, shareholders of the affected portfolio will be
sent information about the change.
--------------------------------------------------------
[LOGO OF ALLIANCE Alliance Capital is a leading global investment adviser
CAPITAL APPEARS supervising client accounts with assets as of December
HERE] 31, 1999 totaling $ billion. Alliance Capital and
its affiliates have 8 offices in the U.S. and 24
Alliance Capital offices worldwide. Alliance Capital's clients are
Management L.P. primarily major corporate employee benefit funds,
1345 Avenue of the public employee retirement systems, investment
Americas companies, foundations and endowment funds.
New York, New York
10105 Alliance Capital is an affiliate of The Equitable Life
Assurance Society of the United States and AXA
Financial, Inc.
Alliance Capital manages the Aggressive Equity
Portfolio and the Emerging Markets Portfolio.
--------------------------------------------------------
[LOGO OF CAPITAL Capital Guardian Trust Company (CGTC), a wholly-owned
GUARDIAN TRUST subsidiary of Capital Group International, Inc., which
COMPANY APPEARS is in turn a subsidiary of The Capital Group Companies,
HERE] Inc., was established in 1968 as a non-depository trust
company. As of December 31, 1999, CGTC managed over $
Capital Guardian billion, primarily for large institutional clients.
Trust Company
333 South Hope CGTC uses a multiple portfolio management system under
Street which a group of portfolio managers each have
Los Angeles, investment discretion over a portion of a client's
California 90071 account. Portfolio management is supported by the
research efforts of over 140 investment professionals.
Capital Group International, Inc. spends over $80
million a year on its research efforts.
CGTC manages the Small-Cap Equity Portfolio,
Diversified Research Portfolio and International Large-
Cap Portfolio.
48
<PAGE>
--------------------------------------------------------
[LOGO OF GOLDMAN Created in 1988, Goldman Sachs Asset Management (Goldman
SACHS APPEARS HERE] Sachs) is, as of September 1, 1999, a unit of the
Investment Management Division (IMD), a new operating
Goldman Sachs Asset division of Goldman, Sachs & Co. Goldman Sachs provides
Management a wide range of discretionary investment advisory
32 Old Slip services, quantitatively driven and actively managed to
New York, New York U.S. and international equity portfolios, U.S. and
10005 global fixed-income portfolios, commodity and currency
products and money market accounts. As of December 31,
1999, Goldman Sachs, along with other units of IMD, had
assets under management of $ billion.
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 14,500
professionals in 41 offices worldwide.
Goldman Sachs manages the Bond and Income Portfolio,
the Equity Portfolio and the I-Net Tollkeeper
Portfolio.
--------------------------------------------------------
[LOGO OF JANUS Formed in 1969, Janus manages accounts for more than
APPEARS HERE] 1,000 corporations, individuals, retirement plans and
non-profit organizations, and serves as the adviser or
Janus Capital subadviser to the Janus Funds and other mutual funds.
Corporation Janus had approximately $ billion in assets under
100 Fillmore Street management as of December 31, 1999.
Denver, Colorado
80206 The Janus investment team focuses on individual
companies, using an investment process supported by the
company's 20 portfolio managers and 31 securities
analysts.
Janus manages the Growth LT Portfolio.
--------------------------------------------------------
[LOGO OF J.P. Formed in 1984, J.P. Morgan Investment Management Inc.
MORGAN INVESTMENT manages portfolios for corporations, governments and
APPEARS HERE] endowments as well as many of the largest corporate
retirement plans in the nation. As of December 31,
J.P. Morgan 1999, it had over $ billion in assets under
Investment management.
Management Inc.
522 Fifth Avenue J.P. Morgan Investment believes that strong portfolio
New York, New York management depends on access to information. It has one
10036 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.
--------------------------------------------------------
[LOGO OF LAZARD Formed in 1848, Lazard Freres provides individual
APPEARS HERE] investors and institutional clients with a wide variety
of investment banking, brokerage and related services.
Lazard Asset Lazard has affiliates in Cairo, Frankfurt, London,
Management, a Paris, Sydney and Tokyo, and had, together with its
division of Lazard affiliates, approximately $ billion in assets under
Freres & Co. LLC management as of December 31, 1999.
30 Rockefeller Plaza
New York, New York Teamwork is the foundation of Lazard. Based in New
10112 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.
49
<PAGE>
MANAGING THE PACIFIC SELECT FUND
--------------------------------------------------------
[LOGO OF MERCURY Mercury is a subsidiary of Merrill Lynch & Company,
ASSET MANAGEMENT Inc. ("Merrill"). Merrill's Asset Management Group
APPEARS HERE] ("AMG") is the world's third largest active global
investment management organization, managing $
World Financial billion in assets as of December 31, 1999. AMG has both
Center experience and expertise to offer a broad range of
225 Liberty Street investment services to many diversified market
New York, NY 10080 segments. AMG is comprised of various divisions and
subsidiaries including Fund Asset Management, L.P.,
doing business as Mercury Asset Management US.
Mercury/AMG have a dedicated Quantitative Strategies
Division, which includes a five-member senior
management team from the firm that served as portfolio
manager prior to January 1, 2000, which had been
responsible for portfolio management of the fund's
Equity Index and Small-Cap Index Portfolios since
January 30, 1991 and January 1, 1999, respectively,
until July 2, 1999.
Mercury manages the Equity Index Portfolio and the
Small-Cap Index Portfolio.
--------------------------------------------------------
[LOGO OF MORGAN Formed in 1975, Morgan Stanley Dean Witter Investment
STANLEY ASSET Management Inc., doing business as Morgan Stanley Asset
MANAGEMENT APPEARS Management (MSAM), a subsidiary of Morgan Stanley Dean
HERE] Witter & Co., conducts a worldwide portfolio management
business and provides a broad range of portfolio
Morgan Stanley management services to customers in the U.S. and
Asset Management abroad. MSAM and its institutional investment advisory
1221 Avenue of the affiliates managed or acted as fiduciary adviser for
Americas over $ billion in assets as of December 31, 1999.
New York, New York
10020 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
Value Portfolio.
--------------------------------------------------------
[LOGO OF PIMCO Founded in 1971, Pacific Investment Management Company
APPEARS HERE] (PIMCO) has nearly 300 clients, including some of the
largest employee benefit plans, endowments and
Pacific Investment foundations in America. PIMCO had over $ billion in
Management Company assets under management as of December 31, 1999.
840 Newport Center
Drive, Suite 300 PIMCO specializes in the management of fixed income
Newport Beach, portfolios. It has a long-term investment philosophy,
California 92660 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.
On October 31, 1999, PIMCO Advisors, PIMCO Advisors
Holdings L.P. ("PAH") and Allianz AG ("Allianz")
announced that they had reached a definitive agreement
under which Allianz would acquire majority ownership of
PIMCO Advisors and its subsidiaries (the "Allianz
Transaction"). PIMCO is a subsidiary of PIMCO Advisors.
The Allianz Transaction is expected to be completed by
April, 2000, and is subject to various regulatory and
shareholder approvals.
PIMCO manages the Managed Bond Portfolio and the
Government Securities Portfolio.
--------------------------------------------------------
[LOGO OF SALOMON Formed in 1989, Salomon Brothers Asset Management Inc
BROTHERS ASSET (SaBAM) has affiliates in London, Frankfurt, Tokyo and
MANAGEMENT APPEARS Hong Kong. Together, they provide a broad range of
HERE] equity and fixed income investment management services
to clients around the world. SaBAM also provides
Salomon Brothers investment advisory services to other investment
Asset Management Inc companies. As of December 31, 1999, SaBAM and its
Seven World Trade affiliates had over $ billion in assets under
Center management.
New York, New York
10048 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.
50
<PAGE>
------------------------------------------------------------
Fees and expenses The fund pays Pacific Life an advisory fee for the
paid by the fund 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 1999 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, 2001. In 1999, Pacific Life reimbursed .
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Other Total
Advisory fee expenses expenses
------------------------------------------------------------------------------------
As an annual % of average daily net assets
<S> <C> <C> <C>
Aggressive Equity Portfolio 0.80
Emerging Markets Portfolio 1.10
Diversified Research Portfolio/2/ 0.90
Small-Cap Equity Portfolio 0.65
International Large-Cap Portfolio/2/ 1.05
Bond and Income Portfolio 0.60
Equity Portfolio 0.65
I-Net Tollkeeper Portfolio/3/ 0.95
Multi-Strategy Portfolio/1/ 0.65
Equity Income Portfolio/1/ 0.65
Growth LT Portfolio 0.75
Mid-Cap Value Portfolio 0.85
Equity Index Portfolio 0.25
Small-Cap Index Portfolio 0.50
REIT Portfolio 1.10
International Value Portfolio 0.85
Government Securities Portfolio 0.60
Managed Bond Portfolio 0.60
Money Market Portfolio/1/
High Yield Bond Portfolio/1/ 0.60
Large-Cap Value Portfolio 0.85
------------------------------------------------------------------------------------
/1/ Total net expenses for these portfolios in 1999, after deduction of an offset
for custodian credits were % for Money Market Portfolio, % for High
Yield Bond Portfolio, % for Equity Income Portfolio, and % for Multi-
Strategy Portfolio.
/2/ Expenses are estimated. There were no actual advisory fees or expenses for
these portfolios in 1999 because the portfolios started on January 3, 2000.
/3/ Expenses are estimated. There were no actual advisory fees or expenses for this
portfolio in 1999 because the portfolio started on May 1, 2000.
/4/ Effective January 1, 2000, the fund will implement a brokerage enhancement
12b-1 plan, under which brokerage transactions may be placed with broker-
dealers in return for credits that may be used to help promote distribution of
fund shares. There are no fees or charges to any portfolio under this plan,
although the fund's distributor may defray expenses of up to approximately
$300,000 for the year 2000, which it might otherwise incur for distribution.
If such defrayed amount were considered a fund expense, it would represent
approximately .0023% or less of any portfolio's average daily net assets.
51
</TABLE>
<PAGE>
MANAGING THE PACIFIC SELECT FUND
--------------------------------------------------------
How the fund is The Pacific Select Fund is organized as a Massachusetts
organized 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.
52
<PAGE>
PERFORMANCE OF COMPARABLE ACCOUNTS
<TABLE>
<CAPTION>
ALLIANCE CAPITAL MANAGEMENT L.P.
<S> <C>
The chart to the This chart shows you the performance of a composite of accounts managed by Alliance
right shows the Capital that are comparable to the Emerging Markets Portfolio, the performance of the
historical Emerging Markets Portfolio and performance of a benchmark index.
performance of a
composite of two Annual total returns since 1992 and average annual total returns for the periods ending
advisory accounts December 31, 1999.
managed by Alliance -----------------------------------------------------------------------------------------
Capital, calculated Alliance Emerging
according to the Markets Equity
standards set by Alliance Composite, Adjusted to Emerging Markets
the Association for Emerging Markets Reflect Expenses of the Portfolio (%)/3/ MSCI Emerging
Investment Equity Emerging (under prior Markets Free
Management and Year Composite (%)/1/ Markets Portfolio (%)/2/ manager) Index (%)
Research (AIMR). -----------------------------------------------------------------------------------------
The accounts have 1999
investment 1998 (28.85) (29.52) (26.83) (25.34)
objectives, 1997 (9.35) (9.88) (1.69) (11.59)
policies and 1996 21.38 20.35 -- 6.03
strategies that are 1995 (4.04) (4.52) -- (5.21)
substantially 1994 (13.12) (13.68) -- (7.32)
similar to those of 1993 63.44 63.44 -- 74.84
the Emerging 1992 16.38 16.05 -- 11.41
Markets Portfolio. 1 year
3 years
This information 5 years
shows the Since Inception
historical track (10/01/91)
record of the -----------------------------------------------------------------------------------------
portfolio manager
and is not intended /1/ Composite results are asset weighted and calculated on a monthly basis. Quarterly and
to imply how the annual composite performance figures are computed by linking monthly returns.
Emerging Markets Performance figures for each account are calculated monthly. Monthly market values
Portfolio has include income accruals.
performed or will /2/ In calculating returns, the Emerging Markets Portfolio's actual expense rates were
perform. Total used for 1996 to present; and the 1997/98 expense rate was used for prior years.
returns represent /3/ The portfolio commenced operations on April 1, 1996. The total return for the
past performance of portfolio for the period April 1, 1996 to December 31, 1996 was (3.23)%. The MSCI
the Alliance Emerging Markets Free Index total return for the same period was (0.20)%. The average
Emerging Markets annual total return for the portfolio since inception through , 1999 was
Equity Composite %.
only and not the
Emerging Markets The accounts in the composite were not subject to the requirements of the Investment
Portfolio. Company Act of 1940 or Subchapter M of the Internal Revenue Code, which, if imposed,
could have adversely affected the performance.
The returns do not
reflect fees and The first column (after "Year") shows performance of Alliance Emerging Markets Equity
expenses associated Composite after the deduction of investment management fees. The fees and expenses of the
with any variable Composite do not include custody fees or other expenses normally paid by mutual funds and
annuity contract or which the Emerging Markets Portfolio pays. If these fees were included, returns would be
variable life lower.
insurance policy,
and would be lower The second column shows gross performance of the Alliance Composite adjusted to reflect
if they did. the fees and expenses of the Emerging Markets Portfolio.
The third column shows the actual performance of the Emerging Markets Portfolio.
The fourth column shows the performance of the MSCI Emerging Markets Free Index. Results
include reinvested dividends.
53
</TABLE>
<PAGE>
PERFORMANCE OF COMPARABLE ACCOUNTS
LAZARD ASSET MANAGEMENT
<TABLE>
<S> <C>
The chart to the This chart does not show you the performance of the Mid-Cap Value Portfolio--
right shows the it shows the performance of similar accounts managed by Lazard Asset Management
historical Annual total returns, and average annual total returns for the periods ending
performance of the December 31, 1999
Lazard U.S. Mid-Cap -------------------------------------------------------------------------------
Equity Composite Lazard U.S. Mid-Cap Equity
which is made up of Composite, adjusted to
six of Lazard's reflect fees and estimated
advisory accounts, Lazard U.S. Mid-Cap expenses of the Mid-Cap Russell Midcap
including one Year Equity Composite (%) Value Portfolio (%) Index (%)
mutual fund. Each -------------------------------------------------------------------------------
account in the 1999
composite has 1998 3.12 2.62 10.10
investment 1997 28.39 27.83 29.01
objectives, 1996 24.66 24.06 19.00
policies and one year
strategies that are since inception
substantially 1/1/96
similar to those of -------------------------------------------------------------------------------
the Mid-Cap Value The results shown above are a composite of actual performance for six advisory
Portfolio, except accounts, including one mutual fund account, calculated according to the
that leverage has standards set by the Association for Investment Management and Research (AIMR).
not been a strategy Five of the accounts iN the composite were not subject to the requirements of
used for the Lazard the Investment Company Act of 1940 or Subchapter M of the Internal Revenue
accounts. Code, which, if imposed, could have adversely affected the performance.
This information The first column shows performance of the Lazard U.S. Mid-Cap Equity Composite
shows the after average advisory fees and other expenses charged to the accounts in the
historical track composite have been deducted. The fees and expenses of the composite include
record of the investment advisory fees, but, for the accounts other than the mutual fund,
portfolio manager do not include custody fees or other expenses normally paid by mutual funds
and is not intended and which the Mid-Cap Value Portfolio will pay. If these were included,
to imply how the returns would be lower.
Mid-Cap Value
Portfolio has The second column shows the gross performance of the composite, adjusted to
performed or will reflect the estimated fees and expenses of the Mid-Cap Value Portfolio.
perform. Total
returns represent The third column shows performance of the Russell Midcap Index, an index
past performance of consisting of 800 of the smallest companies in the Russell 1000 Index,
the Lazard U.S. for the same periods. The Russell 1000 Index is an index of the 1,000
Mid-Cap Equity largest companies in the Russell 3000 Index. The Russell 3000 Index is
Composite and not an index of the 3,000 largest U.S. companies. Results include reinvested
the Mid-Cap Value dividends.
Portfolio.
Returns do not
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
BANKERS TRUST COMPANY
The chart to the This chart does not show you the performance of the Small-Cap Index Portfolio --
right shows the it shows the performance of a similar account managed by Bankers Trust Company
historical
performance of the Annual total returns, and average annual total returns for the periods ending
BT Advisor Small- December 31, 1999
Cap Index Fund, a
mutual fund managed -----------------------------------------------------------------------------------
by Bankers Trust. BT Advisor Small-Cap
This fund has Index Fund, adjusted to
investment reflect fees and
objectives, BT Advisor Small-Cap estimated expenses of
policies and Index Fund, the Small-Cap Index Russell 2000 Small
strategies that are Year Institutional Class (%) Portfolio (%) Stock Index (%)
substantially -----------------------------------------------------------------------------------
similar to those of
the Small-Cap Index 1999
Portfolio. 1998 (2.60) (2.91) (2.55)
1997 23.00 23.69 22.36
1996/1/ 9.47 9.21 15.66
one year
since inception
7/10/96/1/
-----------------------------------------------------------------------------------
This information /1/ Fund total returns calculated from inception date through end of period. Index
shows the total return calculated from 7/31/96 through end of period.
historical track
record of the The returns in the first column (after Year) reflect the advisory fees and
portfolio manager operating expenses of the BT Advisor Small-Cap Index Fund, Institutional Class.
and is not intended
to imply how the The second column shows the gross performance of the fund, adjusted to reflect
Small-Cap Index estimated fees and expenses of the Small-Cap Index Portfolio.
Portfolio has
performed or will The third column shows performance of the Russell 2000 Small Stock Index, an index
perform. Total of the 2,000 smallest companies listed in the Russell 3000 Index. Results include
returns represent reinvested dividends.
past performance of
the BT Advisor
Small-Cap Index
Fund, Institutional
Class, and not the
Small-Cap Index
Portfolio.
Returns do not
reflect fees and
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
</TABLE>
54
<PAGE>
MORGAN STANLEY ASSET MANAGEMENT
<TABLE>
<S> <C>
The chart to the This chart does not show you the performance of the
right shows the REIT Portfolio -- it shows the performance of a similar
historical account managed by Morgan Stanley Asset Management
performance of the
Morgan Stanley Dean Annual total returns and average annual total returns for the periods ending
Witter December 31, 1999
Institutional Fund, -------------------------------------------------------------------------------
Inc. - U.S. Real Morgan Stanley U.S. Real
Estate Portfolio Estate Fund, adjusted
(Morgan Stanley Morgan Stanley to reflect estimated
U.S. Real Estate U.S. Real Estate Fund, fees and expenses NAREIT Equity
Fund), a mutual Year Class A (%) of the REIT Portfolio (%) Index (%)
fund managed by -------------------------------------------------------------------------------
Morgan Stanley 1999
Asset Management. 1998 (12.29) (12.49) (17.50)
This fund has 1997 27.62 27.70 20.29
investment 1996 39.56 39.72 35.26
objectives, 1995/1/ 21.07 20.83 14.99
policies and one year
strategies that are since inception
substantially 2/24/95
similar to those of -------------------------------------------------------------------------------
the REIT Portfolio.
/1/ Total return is based on the period from February 24, 1995 to December 31,
This information 1995.
shows the
historical track The returns in the first column reflect advisory fees and expenses of the
record of the Morgan Stanley U.S. Real Estate Fund, Class A.
portfolio manager
and is not intended The second column shows the gross performance of the Morgan Stanley U.S. Real
to imply how the Estate Fund, Class A, adjusted to reflect estimated fees and expenses of the
REIT Portfolio has REIT Portfolio.
performed or will
perform. Total The third column shows the gross performance of the North American Real Estate
returns represent Investment Trust (NAREIT) Equity Index, an index of all tax-qualified REITs
past performance of listed on the New York Stock Exchange, American Stock Exchange and NASDAQ,
the Morgan Stanley for the same periods. Results include reinvested dividends.
U.S. Real Estate
Fund, Class A and
not the REIT
Portfolio.
These returns do
not reflect fees
and expenses
associated with any
variable annuity
contract or
variable life
insurance policy,
and would be lower
if they did.
SALOMON BROTHERS ASSET MANAGEMENT INC
The chart to the This chart does not show you the performance of the
right shows the Large-Cap Value Portfolio -- it shows the performance
historical of a similar account managed by SaBAM
performance of the
Salomon Brothers Annual total returns, and average annual total returns for the periods
Investors Fund, a ending December 31, 1999
mutual fund managed ------------------------------------------------------------------------
by Salomon Brothers Salomon Brothers Investors
Asset Management Fund, adjusted to reflect
Inc since May 1, Salomon Brothers estimated fees and
1990. This fund has Investors Fund, expenses of the Large-Cap
investment Year Class O (%) Value Portfolio (%) S&P 500 (%)
objectives, ------------------------------------------------------------------------
policies and 1999
strategies that are 1998 15.47 15.32 28.58
substantially 1997 26.47 26.56 33.36
similar to those of 1996 30.55 30.58 22.96
the Large-Cap Value 1995 35.48 35.73 37.58
Portfolio. 1994 (1.26) (1.46) 1.32
1993 15.17 15.08 10.08
This information 1992 7.44 7.30 7.62
shows the 1991 29.31 29.32 30.47
historical track one year
record of the three years
portfolio manager five years
and is not intended since inception
to imply how the 5/1/90/1/
Large-Cap Value ------------------------------------------------------------------------
Portfolio has /1/ Salomon Brothers Investors Fund has been managed by SaBAM since
performed or will May 1, 1990. It was managed by another firm prior to that date.
perform. Total
returns represent The returns in the first column reflect advisory fees and operating
past performance of expenses of the Salomon Brothers Investors Fund, Class O.
the Salomon
Brothers Investors The second column shows the gross performance of the Salomon Brothers
Fund, and not the Investors Fund, Class O, adjusted to reflect estimated fees and
Large-Cap Value expenses of the Large-Cap Value Portfolio.
Portfolio.
The third column shows performance of the S&P 500, an index of the
Returns do not stocks of approximately 500 large-capitalization U.S. companies,
reflect fees and during the same periods.
expenses associated
with any variable
annuity contract or
variable life
insurance policy,
and would be lower
if they did.
</TABLE>
55
<PAGE>
INFORMATION FOR INVESTORS
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 Each Pacific Select Fund portfolio is divided into
are calculated 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.
An example of how Each portfolio's net asset value per share is
we calculate net calculated once a day, every day the New York Stock
asset value per Exchange (NYSE) is open, usually at or about 4:00 p.m.
share 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.
$80 million The net asset value per share is calculated by taking
portfolio's the total value of a portfolio's assets, subtracting
assets the liabilities, and then dividing by the number of
- - $3 million shares that have already been issued. The value of a
portfolio's portfolio's assets is based on the total market value
liabilities of all of the securities it holds. In general, the
- ------------- value of each security is based on its actual or
$77 million estimated market value, with special provision for
/ 7 million assets without readily available market quotes, for
outstanding short-term debt securities, and for situations where
shares market quotations are deemed unreliable or stale. This
- ------------- special provision means a fair value for a security is
= $11 net determined under procedures adopted and monitored by
- ------------- asset the fund's board of trustees. If the NYSE closes early,
value the portfolio will normally consider the closing price
per of a security to be its price at 4:00 p.m. Eastern
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.
--------------------------------------------------------
Brokerage The fund has adopted a brokerage enhancement plan,
enhancement plan under which the fund, through its distributor, Pacific
Mutual Distributors, Inc., can ask Pacific Life and
The brokerage each of the fund's portfolio managers to allocate
enhancement plan brokerage transactions to particular brokers or
was adopted by the dealers, subject to best price and execution, to help
Fund pursuant to promote the distribution of the fund's shares. In
Rule 12b-1 under return for brokerage transactions, certain brokers and
the Investment dealers may give the fund brokerage credits or other
Company Act of benefits or services. The fund, through the
1940, and may be distributor, could use these credits with broker-
considered a dealers to help obtain certain distribution-related
distribution plan activities or services. These credits generally will
because it uses a not take the form of a cash payment or a rebate to the
fund asset - fund, but rather as a "credit" towards another service
brokerage - to help or benefit provided by a broker or dealer such as, (but
promote distribution not limited to), the ability to promote the fund at a
of the fund's shares. conference or meeting sponsored by the broker-dealer.
The plan is not expected to increase brokerage costs to
a portfolio. The granting of brokerage credits may be a
factor considered by a portfolio manager or the adviser
in allocating brokerage. In addition, a portfolio
manager or the adviser is always free to consider the
sale of fund shares or variable contracts in allocating
brokerage.
56
<PAGE>
FINANCIAL HIGHLIGHTS
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
Diversified Research and International Large-Cap Portfolios because these
portfolios started on January 1, 2000 or for the I-Net Tollkeeper Portfolio
because this portfolio started on May 1, 2000.
<TABLE>
<CAPTION>
Aggressive Equity Portfolio Emerging Markets Portfolio
----------------------------------------------- -------------------------------------------
1996/2/ 1997 1998/3/ 1999 1996/2/ 1997 1998 1999
- ------------------------ ----------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 10.00 10.78 11.18 10.00 9.68 9.47
Plus income from
investment operations
Net investment income
(loss) $ 0.01 (0.01) 0.01 (0.02) 0.06 0.10
Net realized and
unrealized gain (loss)
on securities $ 0.78 0.41 1.47 (0.30) (0.22) (2.64)
- ------------------------ ----------------------------------------------- -------------------------------------------
Total from investment
operations $ 0.79 0.40 1.48 (0.32) (0.16) (2.54)
Less distributions
Dividends (from net
investment income) $ (0.01) - - - (0.05) (0.08)
Distributions (from
capital gains) $ - - - - - -
- ------------------------ ----------------------------------------------- -------------------------------------------
Total distributions $ (0.01) - - - (0.05) (0.08)
Net asset value, end of
year $ 10.78 11.18 12.66 9.68 9.47 6.85
- ------------------------ ----------------------------------------------- -------------------------------------------
Total investment
return/1/ % 7.86 3.78 13.22 (3.23) (1.69) (26.83)
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 49,849 122,752 218,712 44,083 99,425 106,570
Ratios of expenses to
average net assets
. before waivers,
reimbursements and
credits % 1.03 0.87 0.89 2.22 1.47 1.46
. after waivers,
reimbursements and
credits % 1.02 0.86 0.89 2.18 1.46 1.46
Ratios of net investment
income (loss) to
average net assets
. before waivers,
reimbursements and
credits % (0.12) (0.13) 0.01 (0.14) 0.79 1.42
. after waivers,
reimbursements and
credits % (0.11) (0.13) 0.01 (0.11) 0.80 1.42
Portfolio turnover rate % 79.86 189.21 184.42 47.63 69.60 29.82
<CAPTION>
Small-Cap Equity Portfolio Bond and Income Portfolio
----------------------------------------------- -------------------------------------------
1995 1996 1997 1998 1999 1995 1996 1997 1998/5/ 1999
- ------------------------ ----------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 14.90 18.57 21.45 24.61 10.42 13.02 12.05 12.97
Plus income from
investment operations
Net investment income $ 0.15 0.08 0.05 0.02 0.82 0.79 0.80 0.74
Net realized and
unrealized gain (loss)
on securities $ 3.67 4.11 5.65 0.90 2.59 (0.94) 1.05 0.39
- ------------------------ ----------------------------------------------- -------------------------------------------
Total from investment
operations $ 3.82 4.19 5.70 0.92 3.41 (0.15) 1.85 1.13
Less distributions
Dividends (from net
investment income) $ (0.15) (0.09) (0.05) (0.02) (0.81) (0.79) (0.76) (0.78)
Distributions (from
capital gains) $ - (1.22) (2.49) (2.59) - (0.03) (0.17) (0.02)
- ------------------------ ----------------------------------------------- -------------------------------------------
Total distributions $ (0.15) (1.31) (2.54) (2.61) (0.81) (0.82) (0.93) (0.80)
Net asset value, end of
year $ 18.57 21.45 24.61 22.92 13.02 12.05 12.97 13.30
- ------------------------ ----------------------------------------------- -------------------------------------------
Total investment
return/1/ % 25.75 23.62 30.27 2.69 33.71 (0.80) 16.32 8.97
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 129,741 167,335 246,555 267,958 56,853 81,810 112,507 184,538
Ratios of expenses to
average net assets
. before waivers,
reimbursements and
credits % 0.79 0.76 0.70 0.70 0.80 0.71 0.66 0.70
. after waivers,
reimbursements and
credits % 0.79 0.76 0.70 0.70 0.80 0.71 0.66 0.70
Ratios of net investment
income to average net
assets
. before waivers,
reimbursements and
credits % 0.88 0.43 0.21 0.11 6.93 6.74 6.62 5.72
. after waivers,
reimbursements and
credits % 0.88 0.44 0.22 0.11 6.93 6.74 6.62 5.73
Portfolio turnover rate % 46.76 70.22 52.20 48.48 51.84 26.50 15.32 147.00
57
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
The information in the financial highlights tables for the years 1995 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.
<TABLE>
<CAPTION>
Equity Portfolio Multi-Strategy Portfolio
------------------------------------------------- ---------------------------------------------
1995 1996 1997 1998/5/ 1999 1995 1996 1997 1998 1999
- ------------------------ ------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 14.20 17.52 21.07 23.89 11.73 14.20 14.75 16.18
Plus income from
investment operations
Net investment income $ 0.05 0.02 0.14 0.09 0.45 0.48 0.50 0.46
Net realized and
unrealized gain on
securities $ 3.33 4.71 3.58 7.01 2.47 1.20 2.23 2.34
- ------------------------ ------------------------------------------------- ---------------------------------------------
Total from investment
operations $ 3.38 4.73 3.72 7.10 2.92 1.68 2.73 2.80
Less distributions
Dividends (from net
investment income) $ (0.06) (0.02) (0.13) (0.09) (0.45) (0.48) (0.50) (0.46)
Distributions (from
capital gains) $ - (1.16) (0.77) (1.63) - (0.65) (0.80) (1.20)
- ------------------------ ------------------------------------------------- ---------------------------------------------
Total distributions $ (0.06) (1.18) (0.90) (1.72) (0.45) (1.13) (1.30) (1.66)
Net asset value, end of
year $ 17.52 21.07 23.89 29.27 14.20 14.75 16.18 17.32
- ------------------------ ------------------------------------------------- ---------------------------------------------
Total investment
return/1/ % 23.80 28.03 18.18 30.28 25.25 12.56 19.62 18.17
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 108,136 207,897 318,143 502,629 134,501 225,619 367,128 576,424
Ratios of expenses to
average net assets
. before waivers,
reimbursements and
credits % 0.80 0.74 0.70 0.71 0.84 0.78 0.71 0.71
. after waivers,
reimbursements and
credits % 0.80 0.74 0.70 0.71 0.84 0.78 0.71 0.70
Ratios of net investment
income to average net
assets
. before waivers,
reimbursements and
credits % 0.27 0.05 0.59 0.35 3.49 3.37 3.25 2.81
. after waivers,
reimbursements and
credits % 0.27 0.05 0.59 0.35 3.49 3.37 3.25 2.81
Portfolio turnover rate % 226.45 90.98 159.88 130.51 176.45 132.94 71.89 102.38
<CAPTION>
Equity Income Portfolio Growth LT Portfolio
------------------------------------------------- ---------------------------------------------
1995 1996 1997 1998 1999 1995 1996 1997 1998 1999
- ------------------------ ------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 14.05 18.21 20.45 24.47 11.11 14.12 16.50 17.31
Plus income from
investment operations
Net investment income
(loss) $ 0.26 0.24 0.20 0.20 0.10 0.14 0.16 (0.04)
Net realized and
unrealized gain on
securities $ 4.16 3.15 5.35 5.44 3.96 2.37 1.51 9.86
- ------------------------ ------------------------------------------------- ---------------------------------------------
Total from investment
operations $ 4.42 3.39 5.55 5.64 4.06 2.51 1.67 9.82
Less distributions
Dividends (from net
investment income) $ (0.26) (0.24) (0.20) (0.20) (0.10) (0.13) (0.09) (0.05)
Distributions (from
capital gains) $ - (0.91) (1.33) (3.02) (0.95) - (0.77) (0.88)
- ------------------------ ------------------------------------------------- ---------------------------------------------
Total distributions $ (0.26) (1.15) (1.53) (3.22) (1.05) (0.13) (0.86) (0.93)
Net asset value, end of
year $ 18.21 20.45 24.47 26.89 14.12 16.50 17.31 26.20
- ------------------------ ------------------------------------------------- ---------------------------------------------
Total investment
return/1/ % 31.66 19.43 28.60 24.18 36.75 17.87 10.96 58.29
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 206,653 429,262 806,112 1,262,143 200,785 438,154 677,147 1,279,759
Ratios of expenses to
average net assets
. before waivers,
reimbursements and
credits % 0.83 0.75 0.70 0.70 0.94 0.87 0.82 0.80
. after waivers,
reimbursements and
credits % 0.83 0.75 0.70 0.69 0.94 0.87 0.82 0.80
Ratios of net investment
income (loss) to
average net assets
. before waivers,
reimbursements and
credits % 1.59 1.31 0.91 0.84 0.90 0.74 0.52 (0.08)
. after waivers,
reimbursements and
credits % 1.59 1.31 0.91 0.84 0.90 0.74 0.52 (0.08)
Portfolio turnover rate % 86.47 94.95 105.93 80.78 165.83 147.02 145.17 116.96
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
Mid-Cap Value Portfolio Equity Index Portfolio
------------------------------------------- ---------------------------------------------
1999 1995 1996 1997 1998 1999
- ------------------------ ------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 13.02 17.45 20.42 25.71
Plus income from
investment operations
Net investment income $ 0.34 0.37 0.37 0.38
Net realized and
unrealized gain on
securities $ 4.43 3.42 6.13 6.83
- ------------------------ ------------------------------------------- ---------------------------------------------
Total from investment
operations $ 4.77 3.79 6.50 7.21
Less distributions
Dividends (from net
investment income) $ (0.34) (0.37) (0.37) (0.37)
Distributions (from
capital gains) $ - (0.45) (0.84) (0.22)
- ------------------------ ------------------------------------------- ---------------------------------------------
Total distributions $ (0.34) (0.82) (1.21) (0.59)
Net asset value, end of
year $ 17.45 20.42 25.71 32.33
- ------------------------ ------------------------------------------- ---------------------------------------------
Total investment
return/1/ % 36.92 22.36 32.96 28.45
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 137,519 393,412 874,136 1,496,457
Ratios of expenses to
average net assets
. before waivers,
reimbursements and
credits % 0.42 0.31 0.23 0.21
. after waivers,
reimbursements and
credits % 0.42 0.31 0.23 0.21
Ratios of net investment
income to average net
assets
. before waivers,
reimbursements and
credits % 2.26 2.04 1.61 1.33
. after waivers,
reimbursements and
credits % 2.26 2.05 1.61 1.33
Portfolio turnover rate % 7.52 20.28 2.58 2.48
<CAPTION>
Small-Cap Index Portfolio REIT Portfolio
------------------------------------------- ---------------------------------------------
1999 1999
- ------------------------ ------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $
Plus income from
investment operations
Net investment income $
Net realized and
unrealized gain on
securities $
- ------------------------ ------------------------------------------- ---------------------------------------------
Total from investment
operations $
Less distributions
Dividends (from net
investment income) $
Distributions (from
capital gains) $
- ------------------------ ------------------------------------------- ---------------------------------------------
Total distributions $
Net asset value, end of
year $
- ------------------------ ------------------------------------------- ---------------------------------------------
Total investment
return/1/ %
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $
Ratios of expenses to
average net assets
. before waivers,
reimbursements and
credits %
. after waivers,
reimbursements and
credits %
Ratios of net investment
income to average net
assets
. before waivers,
reimbursements and
credits %
. after waivers,
reimbursements and
credits %
Portfolio turnover rate %
59
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
International Value Portfolio Government Securities Portfolio
---------------------------------------------- -----------------------------------------
1995 1996 1997/6/ 1998 1999 1995 1996 1997 1998 1999
- ------------------------ ---------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 11.94 12.93 15.40 16.21 9.64 10.84 10.38 10.78
Plus income from
investment operations
Net investment income $ 0.33 0.28 0.41 0.11 0.58 0.56 0.53 0.54
Net realized and
unrealized gain (loss)
on securities $ 0.91 2.54 1.00 0.90 1.19 (0.27) 0.42 0.42
- ------------------------ ---------------------------------------------- -----------------------------------------
Total from investment
operations $ 1.24 2.82 1.41 1.01 1.77 0.29 0.95 0.96
Less distributions
Dividends (from net
investment income) $ (0.25) (0.23) (0.29) (0.17) (0.57) (0.53) (0.55) (0.55)
Distributions (from
capital gains) $ - (0.12) (0.31) (1.25) - (0.22) - (0.21)
- ------------------------ ---------------------------------------------- -----------------------------------------
Total distributions $ (0.25) (0.35) (0.60) (1.42) (0.57) (0.75) (0.55) (0.76)
Net asset value, end of
year $ 12.93 15.40 16.21 15.80 10.84 10.38 10.78 10.98
- ------------------------ ---------------------------------------------- -----------------------------------------
Total investment
return/1/ % 10.56 21.89 9.28 5.60 18.81 2.94 9.48 9.24
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 182,199 454,019 764,036 996,215 59,767 97,542 129,900 190,428
Ratios of expenses to
average net assets
. before waivers,
reimbursements and
credits % 1.12 1.07 1.03 1.00 0.82 0.72 0.67 0.66
. after waivers,
reimbursements and
credits % 1.12 1.07 1.02 1.00 0.82 0.72 0.66 0.66
Ratios of net investment
income to average net
assets
. before waivers,
reimbursements and
credits % 1.87 2.28 1.79 1.36 5.58 5.33 5.38 5.16
. after waivers,
reimbursements and
credits % 1.87 2.28 1.81 1.36 5.58 5.33 5.39 5.16
Portfolio turnover rate % 16.07 20.87 84.34 45.61 298.81 307.13 203.01 266.83
<CAPTION>
Managed Bond Portfolio Money Market Portfolio
---------------------------------------------- -----------------------------------------
1995 1996 1997 1998 1999 1995 1996 1997 1998 1999
- ------------------------ ---------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 9.90 11.10 10.75 11.14 10.03 10.02 10.04 10.06
Plus income from
investment operations
Net investment income $ 0.65 0.59 0.59 0.57 0.54 0.47 0.51 0.52
Net realized and
unrealized gain (loss)
on securities $ 1.19 (0.15) 0.44 0.40 - 0.02 0.01 -
- ------------------------ ---------------------------------------------- -----------------------------------------
Total from investment
operations $ 1.84 0.44 1.03 0.97 0.54 0.49 0.52 0.52
Less distributions
Dividends (from net
investment income) $ (0.64) (0.57) (0.60) (0.58) (0.55) (0.47) (0.50) (0.53)
Distributions (from
capital gains) $ - (0.22) (0.04) (0.15) - - - -
- ------------------------ ---------------------------------------------- -----------------------------------------
Total distributions $ (0.64) (0.79) (0.64) (0.73) (0.55) (0.47) (0.50) (0.53)
Net asset value, end of
year $ 11.10 10.75 11.14 11.38 10.02 10.04 10.06 10.05
- ------------------------ ---------------------------------------------- -----------------------------------------
Total investment
return/1/ % 19.04 4.25 9.92 9.20 5.54 5.07 5.28 5.29
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 126,992 260,270 468,575 765,989 95,949 322,193 451,505 479,121
Ratios of expenses to
average net assets
. before waivers,
reimbursements and
credits % 0.76 0.71 0.66 0.66 0.53 0.50 0.44 0.43
. after waivers,
reimbursements and
credits % 0.76 0.71 0.66 0.66 0.53 0.50 0.44 0.42
Ratios of net investment
income to average net
assets
. before waivers,
reimbursements and
credits % 6.04 5.71 5.72 5.40 5.41 4.93 5.17 5.16
. after waivers,
reimbursements and
credits % 6.04 5.71 5.72 5.40 5.41 4.93 5.17 5.17
Portfolio turnover rate % 191.39 386.16 230.87 230.99 N/A N/A N/A N/A
60
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
High Yield Bond Portfolio Large-Cap Value Portfolio
---------------------------------------------- ---------------------------------------
1995 1996 1997 1998 1999 1999
- ------------------------ ---------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING PERFORMANCE
Net asset value,
beginning of year $ 8.91 9.79 9.94 9.98
Plus income from
investment operations
Net investment income $ 0.76 0.79 0.78 0.78
Net realized and
unrealized gain (loss)
on securities $ 0.88 0.25 0.12 (0.55)
- ------------------------ ---------------------------------------------- ---------------------------------------
Total from investment
operations $ 1.64 1.04 0.90 0.23
Less distributions
Dividends (from net
investment income) $ (0.76) (0.79) (0.77) (0.78)
Distributions (from
capital gains) $ - (0.10) (0.09) (0.09)
- ------------------------ ---------------------------------------------- ---------------------------------------
Total distributions $ (0.76) (0.89) (0.86) (0.87)
Net asset value, end of
year $ 9.79 9.94 9.98 9.34
- ------------------------ ---------------------------------------------- ---------------------------------------
Total investment
return/1/ % 18.87 11.31 9.44 2.46
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of year
(in thousands) $ 84,425 184,744 311,125 389,385
Ratios of expenses to
average net assets
. before waivers,
reimbursements and
credits % 0.77 0.71 0.66 0.66
. after waivers,
reimbursements and
credits % 0.77 0.71 0.65 0.65
Ratios of net investment
income to average net
assets
. before waivers,
reimbursements and
credits % 8.51 8.28 7.89 8.17
. after waivers,
reimbursements and
credits % 8.51 8.28 7.89 8.18
Portfolio turnover rate % 127.31 120.06 103.19 75.27
/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.
</TABLE>
61
<PAGE>
PACIFIC SELECT FUND WHERE TO GO FOR MORE INFORMATION
The Pacific Select You'll find more information about the Pacific Select
Fund is available Fund in the following documents:
only to people who
own a variable Annual and semi-annual reports
annuity contract or The fund's annual and semi-annual reports list the
variable life holdings of the fund's portfolios, describe portfolio
insurance policy performance, and tell you how investment strategies and
issued or portfolio performance have responded to recent market
administered by conditions and economic trends.
Pacific Life
Insurance Company Statement of Additional Information (SAI)
or its The SAI contains detailed information about each
subsidiaries. portfolio's investments, strategies and risks, and is
You'll find out how considered to be part of this prospectus because it is
your annuity incorporated by reference.
contract or life
insurance policy You can get a copy of these documents at no charge by
works in the calling or writing to Pacific Life. You can also get a
product prospectus copy of these documents by contacting the Securities
or offering and Exchange Commission. The SEC may charge you a fee
memorandum that for this information.
accompanies this
document.
Please contact
Pacific Life if you
have any questions
about any of the
Pacific Select Fund
portfolios.
-------------------------------------------------------
How to contact Pacific Life Insurance Company
Pacific Life 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 Public Reference Section of the SEC
the SEC Washington, D.C. 20549-6009
1-800-SEC-0330
Internet: www.sec.gov
Form No. 15-15756-14
Form No. 483-10A SEC file number 811-5141
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
[LOGO OF PACIFIC SELECT FUND]
PACIFIC SELECT FUND
STATEMENT OF ADDITIONAL INFORMATION
Date: May 1, 2000
----------------
The Pacific Select Fund is an open-end investment management company
currently offering twenty-one separate investment portfolios. The following
twenty of those portfolios are classified as diversified: the Aggressive
Equity Portfolio; the Emerging Markets Portfolio; the Diversified Research
Portfolio; the Small-Cap Equity Portfolio; the International Large-Cap
Portfolio; the Bond and Income Portfolio; the Equity Portfolio; the I-Net
TollKeeper Portfolio; the Multi-Strategy Portfolio; the Equity Income
Portfolio; the Growth LT Portfolio; the Mid-Cap Value Portfolio; the Equity
Index Portfolio; the Small-Cap Index Portfolio; the International Value
Portfolio; the Government Securities Portfolio; the Managed Bond Portfolio;
the Money Market Portfolio; the High Yield Portfolio; the Large-Cap Value
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, 2000, 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
A registration statement relating to shares of the I-Net Tollkeeper
Portfolio has been filed with the Securities and Exchange Commission, but has
not yet become effective. The information in this statement of additional
information is not complete and may be changed. Shares of the I-Net Tollkeeper
Portfolio may not be sold until the registration statement is effective. This
statement of additional information is not an offer to sell shares of this
Portfolio and is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION................................................................ 1
ADDITIONAL INVESTMENT POLICIES OF THE PORTFOLIOS............................ 1
Aggressive Equity Portfolio............................................... 1
Emerging Markets Portfolio................................................ 2
Diversified Research Portfolio............................................ 3
Small-Cap Equity Portfolio................................................ 3
International Large-Cap Portfolio......................................... 3
Bond and Income Portfolio................................................. 3
Equity Portfolio.......................................................... 5
I-Net Tollkeeper Portfolio................................................ 5
Multi-Strategy Portfolio.................................................. 6
Equity Income Portfolio................................................... 7
Growth LT Portfolio....................................................... 8
Mid-Cap Value Portfolio................................................... 9
Equity Index Portfolio.................................................... 9
Small-Cap Index Portfolio................................................. 10
REIT Portfolio............................................................ 11
International Value Portfolio............................................. 12
Government Securities Portfolio........................................... 13
Managed Bond Portfolio.................................................... 13
Money Market Portfolio.................................................... 14
High Yield Bond Portfolio................................................. 15
Large-Cap Value Portfolio................................................. 16
Diversification Versus Non-Diversification................................ 17
SECURITIES AND INVESTMENT TECHNIQUES........................................ 17
U.S. Government Securities................................................ 17
Real Estate Investment Trusts............................................. 18
Mortgage-Related Securities............................................... 18
Mortgage Pass-Through Securities........................................ 18
GNMA Certificates....................................................... 19
FNMA and FHLMC Mortgage-Backed Obligations.............................. 20
Collateralized Mortgage Obligations (CMOs).............................. 20
FHLMC Collateralized Mortgage Obligations............................... 20
Other Mortgage-Related Securities....................................... 21
CMO Residuals........................................................... 21
Stripped Mortgage-Backed Securities..................................... 22
Mortgage Dollar Rolls................................................... 23
Other Asset-Backed Securities............................................. 23
High Yield Bonds.......................................................... 23
Bank Obligations.......................................................... 24
Municipal Securities...................................................... 26
Small Capitalization Stocks............................................... 26
Corporate Debt Securities................................................. 27
Variable and Floating Rate Securities..................................... 27
Commercial Paper.......................................................... 28
Convertible Securities.................................................... 29
Repurchase Agreements..................................................... 30
Borrowing................................................................. 31
</TABLE>
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Reverse Repurchase Agreements and Other Borrowings........................ 31
Firm Commitment Agreements and When-Issued Securities..................... 31
Loans of Portfolio Securities............................................. 32
Short Sales............................................................... 32
Short Sales Against the Box............................................... 33
Illiquid and Restricted Securities (Private Placements)................... 33
Precious Metals-Related Securities........................................ 33
Foreign Securities........................................................ 34
Foreign Currency Transactions and Forward Foreign Currency Contracts...... 36
Options................................................................... 38
Purchasing and Writing Options on Securities............................ 39
Purchasing and Writing Options on Stock Indexes......................... 40
Risks of Options Transactions........................................... 41
Spread Transactions..................................................... 41
Options on Foreign Currencies............................................. 42
Investments in Other Investment Company Securities........................ 43
SPDRs................................................................... 43
WEBS and OPALS.......................................................... 44
Futures Contracts and Options on Futures Contracts........................ 44
Interest Rate Futures................................................... 45
Stock Index Futures..................................................... 45
Futures Options......................................................... 46
Limitations............................................................. 47
Risks Associated with Futures and Futures Options....................... 47
Foreign Currency Futures and Options Thereon.............................. 49
Swap Agreements and Options on Swap Agreements............................ 49
Risks of Swap Agreements................................................ 49
Structured Notes.......................................................... 50
Warrants and Rights....................................................... 50
Duration.................................................................. 50
INVESTMENT RESTRICTIONS..................................................... 52
Fundamental Investment Restrictions....................................... 52
Nonfundamental Investment Restrictions.................................... 53
ORGANIZATION AND MANAGEMENT OF THE FUND..................................... 54
Trustees and Officers..................................................... 54
Investment Adviser........................................................ 55
Other Expenses of the Fund................................................ 58
Portfolio Management Agreements........................................... 58
Distribution of Fund Shares............................................... 67
Purchases and Redemptions................................................. 67
Exchanges Among the Portfolios............................................ 68
PORTFOLIO TRANSACTIONS AND BROKERAGE........................................ 68
Investment Decisions...................................................... 68
Brokerage and Research Services........................................... 68
Portfolio Turnover........................................................ 70
NET ASSET VALUE............................................................. 70
PERFORMANCE INFORMATION..................................................... 72
</TABLE>
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TAXATION.................................................................... 75
Distributions............................................................. 76
Hedging Transactions...................................................... 76
OTHER INFORMATION........................................................... 76
Concentration Policy...................................................... 76
Brokerage Enhancement Plan................................................ 77
Capitalization............................................................ 77
Voting Rights............................................................. 78
Custodian and Transfer Agency and Dividend Disbursing Services............ 78
Financial Statements...................................................... 78
Independent Auditors...................................................... 79
Counsel................................................................... 79
Registration Statement.................................................... 79
APPENDIX.................................................................... 80
Description of Bond Ratings............................................... 80
</TABLE>
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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
Unless otherwise noted, a Portfolio may invest up to 5% of its net assets
(taken at market value at the time of such investment) in any type of security
that the Investment Adviser or Portfolio Manager reasonably believes is
compatible with the investment objectives and policies of the Portfolio. Any
reference to a condition that the aggregate market value of the securities
loaned by a Portfolio may not at any time exceed 25% of the total assets of
the portfolio is changed to allow Portfolios to lend up to 33 1/3% of the
aggregate market value of their securities.
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.
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
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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.
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.
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.
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Diversified Research Portfolio
This Portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
In addition to the risk factors described in the Prospectus, the Portfolio
may be affected by the following additional risk factors. The Portfolio uses a
growth oriented approach to stock selection. The price of growth stocks may be
more sensitive to changes in current or expected earnings than the prices of
other stocks. The price of growth stocks also is subject to the risk that the
stock price of one or more companies will fall or will fail to appreciate as
anticipated by the Portfolio Manager, regardless of performance of the
securities markets.
Small-Cap 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 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. The Portfolio may invest up to 5% of
its assets in convertible bonds and other fixed income securities (other than
money market instruments).
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.
International Large-Cap Portfolio
This Portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
In addition to its investments in securities of non-U.S. issuers, the
Portfolio may invest in high quality debt securities rated, at the time of
purchase, within the top three quality categories by Moody's or S&P (or
unrated securities of equivalent quality), repurchase agreements, and short-
term debt obligations denominated in U.S. dollars or foreign currencies.
In addition to the risk factors described in the Prospectus, the Portfolio's
investments in currency derivatives can significantly increase its exposure to
market risk or credit risk of the counterparty. Derivatives also involve the
risk of mispricing or improper valuation and the risk that changes in value of
the derivatives may not correlate perfectly with the relevant assets, rates
and indices.
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
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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 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,
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<PAGE>
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 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.
I-Net Tollkeeper Portfolio
In addition to the securities identified in the Prospectus, the Portfolio
may invest in preferred stocks; interests in real estate investment trusts;
mortgage-related securities; high-yield bonds; convertible debt obligations;
convertible preferred stocks; equity interests in trusts; partnerships; joint
ventures; limited liability companies and similar enterprises; warrants and
stock purchase rights. Securities may be sold when the portfolio management
team believes that the market price fully reflects or exceeds the securities'
fundamental valuation or when other more attractive investments are
identified.
Because the Portfolio invests principally in equity securities, the value of
its investments can increase or decrease in value, sometimes rapidly and
unpredictably. While equity securities may offer the potential for greater
long-term growth than most fixed-income securities, they generally have higher
volatility. In addition, the Portfolio may invest in companies that may be
unseasoned, which may give the Portfolio a higher risk of price volatility,
than a portfolio that invests in companies with a longer operating record.
Because the Portfolio invests in equity securities of Internet companies and
Internet related companies such as those in the media, telecommunications, and
technology sectors, the Portfolio may be affected by a number of
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<PAGE>
risks, including the following factors. First, the legal obligations of online
service providers is unclear under both United States and foreign law with
respect to freedom of expression, defamation, libel, invasion of privacy,
advertising, copyright or trademark infringement, information security, or
other areas based on the nature and content of the materials disseminated
through online service providers. Moreover, legislation has been proposed that
imposes liability for, or prohibits the transmission over, the Internet of
certain types of information. It is possible that now or in the future,
related claims could be made against online services companies. These
liability issues, as well as possibly other legal issues, could impact the
growth of Internet use.
For example, it is possible that laws and regulations may be adopted with
respect to the Internet or other online service providers with respect to the
imposition of sales tax collection obligations on Internet companies and the
use of personal user information. The nature of this governmental action and
the manner in which it may be interpreted and enforced cannot be predicted.
Changes to existing laws or the passage or proposed passage of new laws
intended to address these and other issues, could create uncertainty in the
marketplace that could reduce demand for the services of an Internet company
or increase the costs of doing business as a result of actual or anticipated
litigation costs or increased service delivery costs, or could in some other
manner have a material adverse effect on an Internet company's business,
results of operations and financial condition.
The success of many Internet companies depends, in large part, upon the
development and maintenance of the infrastructure of the World Wide Web for
providing reliable Web access and services. There can be no assurances that
the infrastructure or complementary products or services necessary to make the
Web a viable commercial marketplace for the long term will be developed, or,
if they are developed, that the Web will become a viable commercial
marketplace for services such as those offered by Internet companies.
The market for the purchase of products and services over the Internet is a
new and emerging market. If acceptance and growth of Internet use does not
occur, an Internet company's business and financial performance may suffer.
Although there has been substantial interest in the commercial possibilities
for the Internet, many businesses and consumers have been slow to purchase
Internet access services for a number of reasons, including inconsistent
quality of service, lack of availability of cost-effective, high-speed
service, a limited number of local access points for corporate users,
inability to integrate business applications on the Internet, the need to deal
with multiple and frequently incompatible vendors, inadequate protection of
the confidentiality of stored data and information moving across the Internet
and a lack of tools to simplify Internet access and use. It is possible that a
sufficiently broad base of consumers may not adopt, or continue to use, the
Internet as a medium of commerce.
Despite the implementation of security measures, an Internet company's
networks may be vulnerable to unauthorized access, computer viruses and other
disruptive problems. Internet companies have in the past experienced, and may
in the future experience, interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees or others. Unauthorized access could also potentially jeopardize the
security of confidential information stored in the computer systems of a
company and its subscribers. These events may result in liability of the
company to its subscribers and also may deter potential subscribers.
The I-Net Tollkeeper Portfolio may invest in companies which have operated
less than three years. The securities of such companies may have limited
liquidity, which can result in their being priced higher or lower than might
otherwise be the case. In addition, investments in unseasoned companies are
more speculative and entail greater risk than do investments in companies with
an established operating record.
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
6
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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.
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.
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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.
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 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.
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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 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 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
9
<PAGE>
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.
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.
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<PAGE>
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.
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
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<PAGE>
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 Value Portfolio
Other than when in a defensive posture, at least 70% of the Portfolio's
assets will consist of equity 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 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 may invest 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
12
<PAGE>
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.
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.
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.
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.
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<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.
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
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<PAGE>
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.
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
15
<PAGE>
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.
Large-Cap Value Portfolio
This Portfolio is not available for:
. Pacific Corinthian variable annuity contracts
. Pacific Select variable life insurance policies.
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.
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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.
Diversification Versus Non-Diversification
Each of the Portfolios, other than the REIT Portfolio, are 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.
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
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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,
International Large-Cap, Mid-Cap Value, Diversified Research, and Small-Cap
Index Portfolios may also invest in equity REITs. The I-Net Tollkeeper
Portfolio may invest in equity, mortgage or hybrid 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, I-Net Tollkeeper, 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 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
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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. Due to the prepayment feature and the need
to reinvest prepayments of principal at current rates, GNMA
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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 payments in the CMOs are allocated to the retirement of the
individual classes of bonds in the order of their
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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 the related underlying mortgage assets,
in the same manner as an interest-only ("IO") class of stripped
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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. The I-Net Tollkeeper Portfolio also may invest in
REMIC certificates.
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
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.
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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, I-Net Tollkeeper, 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), I-Net Tollkeeper
(no limit), and International Value (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 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.
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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.
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.
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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 Value 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 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
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Portfolio Manager, are of an investment quality comparable to obligations of
U.S. banks in which the Portfolios may invest. The I-Net Tollkeeper Portfolio
may invest in obligations issued or guaranteed by U.S. or foreign banks. 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 Value 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 Small-Cap Equity, Aggressive Equity, Growth LT. Equity, Small-Cap Index,
International Value, 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,
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
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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, International Large-Cap, Aggressive Equity,
Growth LT, Multi-Strategy, Mid-Cap Value, Bond and Income, International
Value, Emerging Markets and Diversified Research, Portfolios may invest in
U.S. dollar-denominated debt securities of foreign issuers. The Aggressive
Equity, Growth LT, Mid-Cap Value, International Value, 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, Aggressive Equity, Growth LT, Equity
Income, Multi-Strategy, Bond and Income, International Value, 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, 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), International Value and I-Net Tollkeeper
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, except for the Diversified Research and International Large-
Cap 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
periodically based upon
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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 Value, International Large-Cap, 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
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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.
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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 should decline. A Portfolio also might incur
disposition costs in connection with liquidating the securities. The
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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, Emerging Markets, Diversified Research and International
Large-Cap Portfolios may engage and enter into are reverse repurchase
agreements. Reverse repurchase agreements which involve 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, whereby the
payment obligation and interest rate on the instruments are fixed at the time
of the transaction. Such
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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 33 1/3% of the total assets of
the Portfolio. 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 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.
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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
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.
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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 Value, 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 Small-Cap Equity, 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 Value 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 I-Net Tollkeeper Portfolio may
invest up to 25% of its assets in foreign securities, of which 10% may be in
securities of issuers in emerging countries. 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. The Diversified Research Portfolio may invest in foreign
issuers whose principal markets are in the U.S., which include American
Depositary Receipts and foreign securities registered in the U.S., and up to
15% of its total assets in companies domiciled outside the U.S. and not
included in the S&P 500. The International Large-Cap Portfolio normally
invests at least 80% of its net assets in companies located outside the U.S.
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. The
I-Net Tollkeeper Portfolio also may invest in GDRs, EDRs or other similar
instruments representing securities of foreign issuers. EDRs and GDRs are
receipts evidencing an arrangement with a non-U.S. bank similar to that for
ADRs and are designed for use in the non-U.S. securities markets. EDRs and
GDRs are not necessarily quoted in the same currency as the underlying
security.
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.
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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, EDRs and GDRs may involve many of the
same special risks associated with investing in securities of foreign issuers
other than liquidity risks.
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
Value, International Large-Cap 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.
Each of the emerging countries, including Asia and Eastern Europe, may be
subject to a substantially greater degree of economic, political and social
instability and disruption than is the case in the United States, Japan and
most Western European countries. This instability may result from, among other
things, the following: (i) authoritarian governments or military involvement
in political and economic decision making, including changes or attempted
changes in governments through extra-constitutional means; (ii) popular unrest
associated with demands for improved political, economic or social conditions;
(iii) internal insurgencies; (iv) hostile relations with neighboring
countries; (v) ethnic, religious and racial disaffection or conflict; and (vi)
the absence of developed legal structures governing foreign private
investments and private property. Such economic, political and social
instability could disrupt the principal financial markets in which the
Portfolios may invest and adversely affect the value of the Portfolios'
assets. A Portfolio's investments could in the future be adversely affected by
any increase in taxes or by political, economic or diplomatic developments.
The I-Net Tollkeeper Portfolio may seek investment opportunities within former
"east bloc" countries in Eastern Europe. All or a substantial portion of such
investments may be considered "not readily marketable" for purposes of the
limitation on illiquid securities set forth above.
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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 Value, International Large-Cap, 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.
Furthermore, there are greater risks involved in investing in emerging
market countries and/or their securities markets, such as less diverse and
less mature economic structures, less stable political systems, more
restrictive foreign investment policies, smaller-sized securities markets and
low trading volumes. Such risks can make investments illiquid and more
volatile than investments in developed countries and such securities may be
subject to abrupt and severe price declines. The Year 2000 problem also may be
especially acute in emerging market countries, which may adversely affect the
value of the Portfolio's investments. Moreover, securities issued by European
issuers may be adversely impacted by the use of the "Euro" as a common
currency in 11 European Monetary Union member states. The Euro may result in
various legal and accounting differences, tax treatments, the creation and
implementation of suitable clearing and settlement systems and other
operational problems, that may cause market disruptions that could adversely
affect investments quoted in the Euro.
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 Value, I-Net Tollkeeper,
Emerging Markets, Diversified Research, and International Large-Cap 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 transactions to hedge and manage currency exposure
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 transactions may include
hedging involving either specific transactions or portfolio positions. A
Portfolio may purchase and sell forward foreign currency contracts
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in combination with other transactions in order to gain exposure to an
investment in lieu of actually purchasing such investment. 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 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 contracts 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 holdings denominated in or exposed to that
foreign currency (or a proxy currency considered to move in correlation with
that currency), or exposed to a particular securities market, or futures
contracts, options or other derivatives on such holdings. In addition, in no
event will a Portfolio 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
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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 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 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 Value, I-Net
Tollkeeper, Emerging Markets, Diversified Research, and International
Large-Cap 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,
Emerging Markets, Diversified Research, and International Large-Cap Portfolios
may engage in the purchase and writing of put and call options on securities.
The I-Net Tollkeeper Portfolio may write covered call and put options on any
securities in which it may invest. 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 Value, Emerging Markets, Diversified Research, and International
Large-Cap Portfolios may purchase put and call options on stock indexes and
the Aggressive
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Equity, Growth LT, Equity Income, Multi-Strategy, Mid-Cap Value, Equity, Bond
and Income, International Value, I-Net Tollkeeper 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,
Emerging Markets, Diversified Research, and International Large-Cap 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 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
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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 Value Emerging Markets,
Diversified Research, and International Large-Cap 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 Value,
Emerging Markets, Diversified Research, and International Large-Cap Portfolios
may sell put and call options on securities indexes that are exchange traded
or traded on over-the-counter markets. The I-Net Tollkeeper Portfolio may
write covered call and put options on any securities index consisting of
securities in which it may invest. 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.
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.
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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.
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
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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 Value, I-Net
Tollkeeper, Emerging Markets, Diversified Research, and International Large
Cap 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.
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
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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.
SPDRs. The Equity and the I-Net Tollkeeper Portfolios 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.
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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, and the I-Net Tollkeeper Portfolios
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, Mid-Cap Value, I-Net Tollkeeper, and Emerging Markets
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 Value 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 Value, I-Net Tollkeeper, 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.
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.
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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, I-Net
Tollkeeper, and International Value 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 Value, I-Net Tollkeeper, 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 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.
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Futures Options. The High Yield Bond, Managed Bond, Government Securities,
Growth LT, Multi-Strategy, Bond and Income, REIT, and International Value
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
Value, I-Net Tollkeeper, 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.
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.
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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 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 price 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 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 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.
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
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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 Value, I-Net
Tollkeeper, 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
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.
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Foreign Currency Futures and Options Thereon
The Managed Bond, Government Securities, Aggressive Equity, Growth LT,
Multi-Strategy, Large-Cap Value, Mid-Cap Value, Bond and Income, International
Value, I-Net Tollkeeper, Emerging Markets, Diversified Research, and
International Large-Cap 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
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
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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, REIT, Diversified Research,
and International Large-Cap 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. The I-Net Tollkeeper Portfolio may invest in
warrants or rights without restriction. 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.
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.
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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 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.
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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 and the I-Net Tollkeeper 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. This restriction also does not apply to the I-Net Tollkeeper
Portfolio, which will normally invest more than 25% of its total assets in
Internet Companies, or the media, telecommunications or technology industries;
(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, and does not apply to the I-Net Tollkeeper Portfolio;
(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 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);
52
<PAGE>
(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 to the
extent permitted under applicable law;
(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
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,
I-Net Tollkeeper 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, except for the Diversified
Research, I-Net Tollkeeper, and International Large-Cap Portfolios;
(iv) except the Growth LT, I-Net Tollkeeper, and Mid-Cap Value Portfolios,
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;
(v) except the Growth LT and Mid-Cap Value Portfolios, 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 that
subject to restrictions described in the Prospectus and in the SAI, (a) each
Portfolio other than the Money Market and Small-Cap Equity Portfolios may
engage in futures contracts and options on futures contracts; and (b) all
Portfolios may enter into foreign forward currency contracts.
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.
53
<PAGE>
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, Director and Chief
700 Newport Center Drive Board and Trustee Executive Officer of Pacific Life, Pacific Mutual
Newport Beach, CA 92660 Holding Company and Pacific LifeCorp; and similar
Age 57 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, Dunn & Crutcher.
1825 Port Manleigh Place
Newport Beach, CA 92660
Age 43
Richard L. Nelson Trustee Business Consultant; retired Partner with Ernst &
8 Cherry Hills Lane Young LLP; Director of Wynn's International, Inc.
Newport Beach, CA 92660
Age 70
Lyman W. Porter Trustee Professor Emeritus of Management in the Graduate
University of California School of Management at the University of
at Irvine California, Irvine. Former Member of the Academic
Irvine, CA 92717 Advisory Board of the Czechoslovak Management
Age 69 Center and of the Board of Trustees of the American
University of Armenia.
Alan Richards Trustee Retired Chairman of E. F. Hutton Insurance Group;
7381 Elegans Place Former Director of E. F. Hutton and Company, Inc.;
Carlsbad, CA 92009 Chairman of IBIS Capital, LLC; Director of Inspired
Age 69 Arts, Inc.; Former Director of Western National
Corporation.
Glenn S. Schafer President President and Director of Pacific Life, Pacific
700 Newport Center Drive Mutual Holding Company and Pacific LifeCorp and
Newport Beach, CA 92660 similar positions with other subsidiaries and
Age 50 affiliates of Pacific Life; Management Board
Member of PIMCO Advisors L.P.; Former Equity
Board Member of PIMCO Advisors L.P.
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Business Affiliates and
Name and Address Position with the Fund Principal Occupations
- ---------------- ---------------------- -----------------------
<C> <C> <S>
Brian D. Klemens Vice President Vice President and Treasurer (12/98 to present); and
700 Newport Center Drive and Treasurer Assistant Controller (4/94 to 12/98) of Pacific Life.
Newport Beach, CA 92660 Vice President and Treasurer with other subsidiaries
Age 43 and affiliates of Pacific Life.
Diane N. Ledger Vice President Vice President, Variable Regulatory Compliance,
700 Newport Center Drive and Assistant Corporate Law of Pacific Life.
Newport Beach, CA 92660 Secretary
Age 60
Sharon A. Cheever Vice President Vice President and Investment Counsel of Pacific
700 Newport Center Drive and General Life.
Newport Beach, CA 92660 Counsel
Age 44
Audrey L. Milfs Secretary Vice President, Director and Corporate Secretary of
700 Newport Center Drive Pacific Life; and similar positions with other
Newport Beach, CA 92660 subsidiaries of Pacific Life.
Age 54
</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
1999. The table also shows total compensation paid to these Trustees in 1999
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").
<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............... $ 0 0 $
Lyman W. Porter................. $ 0 0 $
Alan Richards................... $ 0 0 $
Lucie H. Moore.................. $ 0 0 N/A
</TABLE>
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
55
<PAGE>
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 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, Small-Cap Equity, Equity
Income, Multi-Strategy, and International Value 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, Small-Cap Equity, Equity Income, Multi-Strategy, and
International Value 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
56
<PAGE>
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. An Addendum to the Advisory Contract
for the Diversified Research and International Large-Cap 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 27, 1999, and by the sole shareholder of
those Portfolios on December 14, 1999. An Addendum to the Advisory Contract
for the I-Net Tollkeeper Portfolio 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 January
28, 2000 and by the sole shareholder of the Portfolio on . 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 $500 million. For the High Yield Bond, Managed Bond, Government
Securities, and Bond and Income Portfolios, the Fund pays .60% of the average
daily net assets of each of the Portfolios. For the Small-Cap Equity, Equity
Income, Multi-Strategy, and Equity Portfolios, the Fund pays .65% of the
average daily net assets of each of the Portfolios. For the Aggressive Equity
Portfolio, the Fund pays .80% of the average daily net assets of the
Portfolio. For the Growth LT Portfolio, the Fund pays .75% of the average
daily net assets of the Portfolio. For the Equity Index Portfolio, the Fund
pays .25% of the average daily net assets of the Portfolio. For the
Diversified Research Portfolio, the Fund pays .90% of the average daily net
assets of the Portfolio. For the International Large-Cap Portfolio, the Fund
pays 1.05% of the average daily net assets of the Portfolio. For the Small-Cap
Index Portfolio, the Fund pays 0.50% of the average daily net assets of the
Portfolio. For the Large-Cap Value, Mid-Cap Value and International Value
Portfolios, the Fund pays .85% of the average daily net assets of the
Portfolio. For the REIT and Emerging Markets Portfolios, the Fund pays to the
Adviser a fee at an annual rate of 1.10% of the average daily net assets of
the Portfolio. For the I-Net Tollkeeper Portfolio, the Fund pays to the
Advisor a fee at an annual rate of 1.50% of the average daily net assets of
the Portfolio. The fee shall be computed and accrued daily and paid monthly.
Net advisory fees paid or owed to Pacific Life for 1999 were as follows:
Aggressive Equity Portfolio--$ , Emerging Markets Portfolio--$ ,
Small-Cap Equity Portfolio--$ , Bond and Income Portfolio--$ ,
Equity Portfolio--$ , Multi-Strategy Portfolio--$ , Equity Income
Portfolio--$ , Growth LT Portfolio--$ , Mid-Cap Value Portfolio--
$ , Equity Index Portfolio--$ , Small-Cap Index Portfolio--
$ , REIT Portfolio--$ , International Value Portfolio--$ ,
Government Securities Portfolio--$ , Managed Bond Portfolio--$ ,
Money Market Portfolio--$ , High Yield Bond Portfolio--$ , and
Large-Cap Value Portfolio--$ .
Net advisory fees paid or owed to Pacific Life for 1998 were as follows:
Aggressive Equity Portfolio--$1,301,554, Emerging Markets Portfolio--
$1,135,155, Small-Cap Equity Portfolio--$1,647,286, Bond and Income
Portfolio--$867,006, Equity Portfolio--$2,577,278, Multi-Strategy Portfolio--
$2,986,639, Equity Income Portfolio--$6,578,365, Growth LT Portfolio--
$6,762,035, Equity Index Portfolio--$1,888,470, International Value
Portfolio--$7,820,564, Government Securities Portfolio--$915,619, Managed Bond
Portfolio--$3,687,063, Money Market Portfolio--$1,802,788 and High Yield Bond
Portfolio--$2,126,319.
Net advisory fees paid or owed to Pacific Life for 1997 were as follows:
Aggressive Equity Portfolio--$684,226, Emerging Markets Portfolio--$868,075,
Small-Cap Equity Portfolio--$1,355,092, Bond and Income Portfolio--$568,647,
Equity Portfolio--$1,818,664, Multi-Strategy Portfolio--$1,866,445, Equity
Income
57
<PAGE>
Portfolio--$4,062,587, Growth LT Portfolio--$4,193,552, Equity Index
Portfolio--$1,080,856, International Value Portfolio--$5,353,459, Government
Securities Portfolio--$645,820, Managed Bond Portfolio--$2,055,929, Money
Market Portfolio--$1,521,271 and High Yield Bond Portfolio--$1,466,135.
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 $ for its services under the Agreement for
Support Services during 1999, $229,510 during 1998, and $165,000 during 1997,
representing %, 0.003%, and 0.004%, respectively, of the Fund's average
daily net assets and anticipates that fees to be paid for 2000 under said
Agreement will be approximately % 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 nineteen 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 decisions with
respect to the Managed Bond Portfolio and Government Securities Portfolio. For
the services provided in 1997, 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>
58
<PAGE>
On October 31, 1999, PIMCO Advisors, PAH and Allianz AG ("Allianz")
announced that they had reached a definitive agreement under which Allianz
would acquire majority ownership of PIMCO Advisors and its subsidiaries (the
"Allianz Transaction"). PIMCO is a subsidiary of PIMCO Advisors. The Allianz
Transaction is expected to be completed by April 2000. Under the terms of the
transaction, Allianz would acquire all of PAH, the publicly traded general
partner of PIMCO Advisors. Pacific Life would retain an approximate 30%
interest in PIMCO Advisors. After the Allianz Transaction is completed, the
Allianz Group (which includes Allianz and PIMCO) would collectively have over
$650 billion in assets under management.
Once the Transaction is consummated, absent an order from the SEC or other
relief, the Managed Bond and Government Securities Portfolios generally cannot
engage in principal transactions with "Affiliated Brokers" of Allianz,
including Dresdner Bank AG, Deutsche Bank AG, Bankers Trust Company, BT Alex
Brown, Inc., and certain other affiliated entities. As a result, the
Portfolios' ability to purchase securities underwritten by an Affiliated
Broker or to utilize the Affiliated Brokers for agency transactions will be
subject to regulatory restrictions. PIMCO has advised that it does not believe
that the above restrictions on transactions with the Affiliated Brokers would
materially adversely affect its ability to provide services to the Portfolios,
the Portfolios' ability to take advantage of market opportunities, or their
overall performance.
PIMCO is an investment counseling firm founded in 1971, and had
approximately $157 billion in assets under management as of December 31, 1999.
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 1999 were $
for the Managed Bond Portfolio and $ for the Government Securities
Portfolio, in 1998 were $1,613,407 for the Managed Bond Portfolio and $400,557
for the Government Securities Portfolio, and in 1997 were $929,041 for the
Managed Bond Portfolio and $292,079 for the Government Securities Portfolio.
Pursuant to Portfolio Management Agreements 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 Small-Cap Equity
Portfolio, Diversified Research Portfolio and International Large-Cap
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 Small-Cap
Equity Portfolio, Diversified Research Portfolio, and International Large-Cap
Portfolio according to the following schedules:
Small-Cap Equity Portfolio
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- --------------------
<S> <C>
.50% On first $30 million
.40% On next $30 million
.30% On excess
</TABLE>
59
<PAGE>
Diversified Research Portfolio
<TABLE>
<CAPTION>
Rate (%) Break-Point (assets)
-------- ---------------------
<S> <C>
.50% On first $150 million
.45% On next $150 million
.35% On next $200 million
.30% On next $500 million
.275% On next $1 billion
.25% On excess
</TABLE>
International Large-Cap Portfolio
<TABLE>
<CAPTION>
Rate (%) Break-Point (assets)
-------- ---------------------
<S> <C>
.65% On first $150 million
.55% On next $150 million
.45% On next $200 million
.40% On next $500 million
.375% On next $1 billion
.35% 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, 1999, in excess of $ 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 Small-Cap
Equity Portfolio in 1999 were $ , in 1998 were $850,462, and in 1997 were
$716,070.
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>
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>
60
<PAGE>
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser
and Alliance Capital as described above, which became effective January 1,
2000, Alliance Capital is the Portfolio Manager and provides investment
advisory services to the Emerging Markets Portfolio. For these services,
Pacific Life pays to Alliance Capital a monthly fee based on the average daily
net assets of the Emerging Markets Portfolio at an annual rate, 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>
From April 1, 1996 to December 31, 1999, 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 served as the Portfolio Manager and provided investment advisory
services to the Emerging Markets Portfolio. For the services provided in 1998
and 1999, Pacific Life paid a monthly 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>
Alliance Capital Management Corporation ("ACMC") is the general partner of
Alliance and a wholly owned subsidiary of The Equitable Life Assurance Society
of the United States ("Equitable"). As of November 1, 1999, Equitable and its
subsidiaries were the beneficial owners of an approximately 55.38% partnership
interest in Alliance, and Alliance Capital Management Holding L.P. ("Alliance
Holding") owned an approximately 41.87% partnership interest in Alliance.
Equity interests in Alliance Holding are traded on the New York Stock Exchange
in the form of units. Approximately 98% of Alliance Holding's units are owned
by the public and management or employees of Alliance and approximately 2% are
owned by Equitable. The general partner of Alliance Holding is ACMC.
Equitable, a New York life insurance company, has total assets as at June 30,
1999 of approximately US$93.9 billion and is a wholly owned subsidiary of AXA
Financial, Inc. ("AXA Financial"), a Delaware corporation whose shares are
traded on the New York Stock Exchange. As of June 30, 1999, AXA, a French
insurance holding company, owned approximately 58.2% of the issued and
outstanding shares of the common stock of AXA Financial.
Alliance Capital currently serves as investment adviser to other mutual
funds as well as individual, corporate, retirement, and charitable accounts.
As of December 31, 1999, 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.
Net fees paid or owed by Pacific Life to Alliance Capital for the Emerging
Markets Portfolio in 1999 were $ . Net fees paid or owed by Pacific Life
to Blairlogie for the Emerging Markets Portfolio in 1998 were $821,133, and in
1997 were $642,976.
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<PAGE>
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.
Net fees paid or owed by Pacific Life to Alliance Capital in 1999 were
$ , 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.
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>
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") indirectly through its wholly-
owned subsidiary, Stilwell Financial, Inc., 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. KCSI has announced its intention to separate its transportation and
financial services businesses. KCSI anticipates the separation to be completed
in the first half of 2000. Net fees paid or owed by Pacific Life to Janus for
the Growth LT Portfolio in 1999 were $ , in 1998 were $4,364,703 and in
1997 were $2,813,259.
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>
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.
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<PAGE>
Morgan acquired its first tax-exempt client in 1913 and its first pension
account in 1940. As of December 31, 1999, Morgan, through J.P. Morgan
Investment and its other subsidiaries, has assets under management of
approximately $ 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 1999 were
$ for the Equity Income Portfolio and $ for the Multi-Strategy
Portfolio, in 1998 were $2,783,163 for the Equity Income Portfolio and
$1,263,563 for the Multi-Strategy Portfolio, and in 1997 were $1,998,776 for
the Equity Income Portfolio and $920,564 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, 1999, SaBAM and such affiliates managed approximately $ billion
of assets.
Net fees paid or owed by Pacific Life to SaBAM for the Large-Cap Value
Portfolio in 1999 were $ .
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 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,
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<PAGE>
brokerage and related services. Lazard and its affiliates provide investment
management services to client discretionary accounts with assets totaling
approximately $ billion as of December 31, 1999. Lazard's clients are both
individuals and institutions, some of whose accounts have investment policies
similar to those of the Portfolio.
Net fees paid or owed by Pacific Life to Lazard for the Mid-Cap Value
Portfolio in 1999 were $ .
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser,
and Goldman Sachs Asset Management ("Goldman Sachs"), 32 Old Slip, New York,
New York 10005, 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. Pursuant to a Portfolio Management Agreement
between the Fund, the Adviser, and Goldman Sachs, which became effective May
1, 2000, Goldman Sachs is the Portfolio Manager and provides investment
advisory services to the I-Net Tollkeeper Portfolio. For these services,
Pacific Life pays a fee to Goldman Sachs based on an annual percentage of the
average daily net assets of the Equity Portfolio, Bond and Income Portfolio
and I-Net Tollkeeper 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>
I-Net Tollkeeper Portfolio
<TABLE>
<CAPTION>
Rate (%) Break Point (assets)
-------- ---------------------
<S> <C>
.95% On first $1 billion
.90% On excess
</TABLE>
Goldman Sachs, a unit of the Investment Management 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, 1999, Goldman Sachs and its affiliates manage, administer and
distribute over $ billion for institutional and individual investors
worldwide, including fixed income assets in excess of $ billion for which
they acted as investment adviser.
The Goldman Sachs Group, L.P., which controlled Goldman Sachs Asset
Management, merged into the Goldman Sachs Group, Inc. as a result of an
initial public offering.
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>
Net Fees paid or owed by Pacific Life to Goldman Sachs in 1999 was $
for the Equity Portfolio and $ for the Bond and Income Portfolio, from
May 1, 1998 through December 31, 1998 were $772,931
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<PAGE>
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 and in 1997 were $1,088,097 for the Equity Portfolio
and $368,846 for the Bond and Income Portfolio.
Pursuant to a Portfolio Management Agreement between the Fund, the Adviser
and Fund Asset Management, L.P., doing business as Mercury Asset Management US
("Mercury"), a subsidiary of Merrill Lynch & Company, Inc., World Financial
Center, 225 Liberty Street, New York, NY 10080, which became effective January
1, 2000, Mercury is the Portfolio Manager and provides investment advisory
services to the Equity Index and Small-Cap Index Portfolios. For these
services, Pacific Life pays to Mercury a monthly fee based on an annual
percentage of the combined average daily net assets of the Equity Index and
Small-Cap Index Portfolios, according to the following schedule:
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>
From January 30, 1991, in the case of the Equity Index Portfolio, and
January 1, 1999, in the case of the Small-Cap Index Portfolio, through
December 31, 1999, pursuant to a Portfolio Management Agreement between the
Fund, the Adviser and Bankers Trust Company ("BTCo"), a wholly-owned-
subsidiary of Bankers Trust Corporation, and an indirect subsidiary of
Deutsche Bank AG, 130 Liberty Street, New York, New York 10006, BTCo was the
Portfolio Manager and provided investment advisory services to the Equity
Index and Small-Cap Index Portfolios. For the services provided in 1998 and
1999, Pacific Life paid 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 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>
For the services provided, for the year 1997 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 year 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, 1999, BTCo
managed assets approximating $ billion. BTCo is also the investment
manager to several other mutual fund portfolios and to private accounts for
pension and profit sharing plans.
65
<PAGE>
Net fees paid or owed by Pacific Life to BTCo for the Equity Index Portfolio
in 1999 were $ , and for the Small-Cap Index Portfolio were $ . Net
fees paid or owed by Pacific Life to BTCo for the Equity Index Portfolio in
1998 were $188,793, and in 1997 were $135,863.
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 Value 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 Value
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 Value 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 Value Portfolio.
For the services provided, for the period January 1, 1997 through May 31,
1997, 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 Value 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 Value
Portfolio in 1999 were $ , in 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 Value Portfolio from January
1, 1997 to May 31, 1997 were $945,379.
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>
Net fees paid or owed by Pacific Life to MSAM for the REIT Portfolio in 1999
were $ .
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
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<PAGE>
United States and abroad. As of December 31, 1999 MSAM, together with its
affiliated institutional asset management companies, had approximately $
billion in assets under management as an investment manager or as a fiduciary
adviser.
The Portfolio Management Agreements are not exclusive, and PIMCO, Capital
Guardian, Alliance Capital, Janus, J.P. Morgan Investment, SaBAM, Lazard,
Goldman Sachs, MSAM, and Mercury 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 , 2000, 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 % of the
outstanding shares of the Large-Cap Value Portfolio, % of the outstanding
shares of the Mid-Cap Value Portfolio, % of the outstanding shares of the
Small-Cap Index Portfolio, % of the outstanding shares of the REIT
Portfolio, % of the outstanding shares of the Diversified Research
Portfolio, and % of the outstanding shares of the International Large-Cap
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. As of , 2000, Pacific Life owned 100%
of the outstanding shares of the I-Net Tollkeeper Portfolio. 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 , 2000, 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. The shares
of the Large-Cap Value, Mid-Cap Value, Small-Cap Index, Diversified Research,
International Large-Cap, 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, Small-Cap Equity, Aggressive
Equity, Emerging Markets, Diversified Research, and International Large-Cap
Portfolios are not available for Pacific Corinthian variable annuity
contracts.
Currently, each Portfolio offers shares of a single class. However, the Fund
is authorized to offer up to four additional classes of shares for each
Portfolio. These classes may be offered in the future to investors in
connection with individual retirement accounts, and certain other types of
qualified plans.
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
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<PAGE>
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
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
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<PAGE>
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
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.
69
<PAGE>
During the years 1999, 1998, and 1997, respectively, the following
Portfolios incurred brokerage commissions as follows: the High Yield Bond
Portfolio--$ , $2,720 and $2,500, the Managed Bond Portfolio--$ ,
$122,103 and $41,315, the Government Securities Portfolio--$ , $29,467 and
$21,349, the Small-Cap Equity Portfolio--$ , $251,753 and $225,232, the
Aggressive Equity Portfolio--$ , $855,826 and $296,940, the Growth LT
Portfolio--$ , $1,517,836 and $1,057,621, the Equity Income Portfolio--
$ , $1,529,206 and $1,162,083, the Multi-Strategy Portfolio--$ ,
$455,757 and $283,791, the Equity Portfolio--$ , $725,654 and $706,250
of which $ ( %) and $8,633 (1.2%) was paid to Goldman, Sachs & Co. in
1999 and 1998 respectively, an affiliate of Goldman Sachs Asset Management,
and $6,900 (0.95%) and $61,512 (8.71%) was paid to Smith Barney Inc. and
$4,500 (0.62%) and $23,700 (3.36%) was paid to Robinson Humphrey Co., Inc., in
1998 and 1997 respectively, affiliates of Greenwich Street Advisors, the Bond
and Income Portfolio--$ , $14,193 and $0, of which $ and $14,193 (100%)
was paid to Goldman, Sachs & Co. in 1999 and 1998 respectively, an affiliate
of Goldman Sachs Asset Management, the Equity Index Portfolio--$ ,
$140,167 and $157,624, the International Value Portfolio--$ , $2,177,935
and $1,606,247 of which $ ( %), $41,033 (1.88%) and $39,617 (2.47%) was
paid to Morgan Stanley & Co., respectively, an affiliate of Morgan Stanley
Asset Management and the Emerging Markets Portfolio--$ , $373,834 and
$712,505.
On December 31, 1999, the Government Securities Portfolio held securities of
valued at ; the Managed Bond Portfolio held securities of
valued at ; the Equity Income Portfolio held securities of
valued at ; the Multi-Strategy Portfolio held securities of
valued at ; the International Value Portfolio held securities
of valued at ; the Equity Index Portfolio held securities of
valued at ; the Equity Portfolio held securities of
valued at ; and the Bond and Income Portfolio held securities of
valued at , 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
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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 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.
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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.
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, 1999, the current yield of the
Money Market Portfolio was % and the effective yield of the Portfolio was
%.
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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.
For the 30 day period ended December 31, 1999, the yield of the remaining
Portfolios that had commenced operations on or before that date was as
follows: % for the High Yield Bond Portfolio, % for the Managed Bond
Portfolio, % for the Government Securities Portfolio, % for the Small-
Cap Equity Portfolio, % for the Aggressive Equity Portfolio, % for
the Growth LT Portfolio, % for the Equity Income Portfolio, % for the
Multi-Strategy Portfolio, % for the Equity Portfolio, % for the Bond
and Income Portfolio, % for the Equity Index Portfolio, % for the
International Value Portfolio, and % 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)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, 1999, the total return for each
Portfolio that had commenced operations on or before that date was as follows:
% for the Money Market Portfolio, % for the High Yield Bond Portfolio,
% for the Managed Bond Portfolio, % for the Government Securities
Portfolio, % for the Small-Cap Equity Portfolio, % for the Aggressive
Equity Portfolio, % for the Growth LT Portfolio, % for the Equity
Income Portfolio, % for the Multi-Strategy Portfolio, % for the
Equity Portfolio, % for the Bond and Income Portfolio, % for the
Equity Index Portfolio, % for the International Value Portfolio, %
for the Large-Cap Value Portfolio, % for the Mid-Cap Value Portfolio,
% for the Small-Cap Index Portfolio and % for the REIT Portfolio,
and % for the Emerging Markets Portfolio. The Diversified Research and
the International Large-Cap Portfolios did not begin operations until January
3, 2000 and the I-Net Tollkeeper Portfolio did not begin operations until May
1, 2000.
For the five year period ended December 31, 1999, the average annual total
return for each Portfolio that had commenced operations on or before that date
was as follows: % for the Money Market Portfolio, % for the High Yield
Bond Portfolio, % for the Managed Bond Portfolio, % for the Government
Securities Portfolio, % for the Small-Cap Equity Portfolio, % for
the Equity Income Portfolio, % for the Multi-Strategy Portfolio, %
for the Equity Portfolio, % for the Bond and Income Portfolio, % for
the Equity Index Portfolio, % for the Growth LT Portfolio, and % for
the International Value Portfolio. The Aggressive Equity and Emerging Markets
Portfolios did not begin operations until April 1, 1996. The Large-Cap Value,
Mid-Cap Value, Small-Cap Index and REIT Portfolios did not begin operations
until January 4, 1999. The Diversified Research and the International Large-
Cap Portfolios did not begin operations until January 3, 2000 and the I-Net
Tollkeeper Portfolio did not begin operations until May 1, 2000.
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For the ten year period ended December 31, 1999, the average annual total
returns for each Portfolio, except the Growth LT, Aggressive Equity, Equity
Index and Emerging Markets Portfolios, was as follows: % for the Money
Market Portfolio, % for the High Yield Bond Portfolio, % for the
Managed Bond Portfolio, % for the Government Securities Portfolio, %
for the Small-Cap Equity Portfolio, % for the Equity Income Portfolio,
% for the Multi-Strategy Portfolio, % for the Equity Portfolio,
% for the Bond and Income Portfolio, and % for the International
Value Portfolio. Based upon the period from the commencement of operations of
the Growth LT Portfolio on January 4, 1994 until December 31, 1999, the
average annual total return for the Growth LT Portfolio was %. Based upon
the period from the commencement of operations of the Equity Index Portfolio
on January 30, 1991 until December 31, 1999, the average annual total return
for the Equity Index Portfolio was %. Based upon the period from the
commencement of operations of the Aggressive Equity and Emerging Markets
Portfolios on April 1, 1996 until December 31, 1999, the average annual total
return for each of these Portfolios was % and %, respectively. Based
upon the period from the commencement of operations of the Large-Cap Value,
Mid-Cap Value, Small-Cap Index and REIT Portfolios on January 4, 1999 until
December 31, 1999, the average annual total return for each of these
Portfolios was %, %, % and %, respectively. The
Diversified Research and the International Large-Cap Portfolios did not begin
operations until January 3, 2000 and the I-Net Tollkeeper Portfolio did not
begin operations until May 1, 2000.
The performance results for the Aggressive Equity, Equity Income, Multi-
Strategy, Equity, Bond and Income, and International Value 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 Value Portfolio on June 1, 1997, and
Goldman Sachs began serving as Portfolio Manager to the 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.
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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 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.
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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.
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 and the I-
Net Tollkeeper Portfolios', 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
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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.
Brokerage Enhancement Plan
The Fund has adopted a Brokerage Enhancement Plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act, under which the Fund may enter into agreements
or arrangements with brokers or dealers, pursuant to which brokerage
transactions can be directed on behalf of a Portfolio to the participating
broker-dealer to execute the transaction in return for credits or other types
of benefits to be awarded to the Portfolio. These credits generally will not
take the form of a cash payment or a rebate to the Fund, but rather as a
"credit" towards another service or benefit provided by the broker-dealer.
The directed-brokerage and other credits or benefits earned by each
Portfolio can be used in a number of ways to promote the distribution of the
Fund's shares. These ways include placing securities trades with a broker-
dealer that: (i) permits PMD to participate in or sponsor seminars, sales
meetings, conferences, and other events held by the broker-dealer; (ii) is
conducting due diligence on the Fund or the variable contracts (to help that
broker-dealer defray the expenses of its due diligence); (iii) is
disseminating sales literature about the Fund or the variable contracts (to
help defray its related expenses); or (iv) is placing the Fund or the variable
contracts on a list of eligible funds or variable contracts that may be
offered by that broker-dealer's registered representatives (to help compensate
it for the associated expenses).
PMD can indirectly benefit from the Plan in that securities brokerage
allocated to a broker-dealer may help defray, in whole or in part,
distribution expenses that otherwise would be borne by PMD or an affiliate.
The Plan also permits credits generated by securities transactions from one
Portfolio to inure to the benefits of that Portfolio, of any other Portfolio,
or to the Fund as a whole.
The Plan provides that it is subject to annual renewal by the Board,
including those Trustees of the Fund who are not "interested persons" of the
Fund (as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of the Plan or any agreements related to it (the
"Rule 12b-1 Trustees"), and that PMD provide the Trustees with a written
report of securities transactions directed under the Plan, currently on a
quarterly basis. The Plan also provides that it may be terminated at any time
by the vote of a majority of the Rule 12b-1 Trustees, and that all material
Plan amendments must be approved by a vote of the Rule 12b-1 Trustees.
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.
77
<PAGE>
Expenses incurred in connection with the Fund's organization and
establishment of the Aggressive Equity Portfolio (1996), 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 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 Diversified Research and International Large-Cap
Portfolios in 1999 and the public offering of the shares of those Portfolios,
aggregated approximately $60,000 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, 1999, 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, 1999.
The financial statements have been audited by Deloitte & Touche LLP,
independent auditors.
78
<PAGE>
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.
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.
79
<PAGE>
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.
80
<PAGE>
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.
81
<PAGE>
Form No. 15-17595-16
Form No. 484-10A
<PAGE>
PACIFIC SELECT FUND
Part C: OTHER INFORMATION
Item 23. Exhibits
--------
(a)(1) Agreement and Declaration of Trust
(a)(2) Establishment and Designation of Shares of
Beneficial Interest in the Equity Index Series/1/
(b) By-Laws of Registrant
(c) Instruments Defining Rights of Holders of
Securities/1/
(d)(1) Investment Advisory Agreement/1/
(d)(2) Portfolio Management Agreement - Capital Guardian
Trust Company/1/
(d)(3) Form of Addendum to Goldman Sachs Portfolio
Management Agreement
(d)(4) Portfolio Management Agreement - J.P. Morgan
Investment Management Inc./1/
(d)(5) Portfolio Management Agreement - Janus Capital
Corporation/1/
(d)(6) Portfolio Management Agreement - Morgan Stanley
Asset Management/4/
(d)(7) Portfolio Management Agreement - Alliance Capital
Management L.P./5/
(d)(8) Portfolio Management Agreement - Goldman Sachs
Asset Management/5/
II-1
<PAGE>
(d)(9) Portfolio Management Agreement - Pacific
Investment Management Company/1/
(d)(10) Addendum to Advisory Agreement - Large-Cap,
Mid-Cap, Small-Cap Index, REIT/6/
(d)(11) Addendum to Portfolio Management Agreement -
Janus Capital Corporation/3/
(d)(12) Addendum to Portfolio Management Agreement -
J.P. Morgan Investment Management Inc./3/
(d)(13) Addendum to Portfolio Management Agreement -
Pacific Investment Management Company/3/
(d)(14) Addendum to Advisory Agreement - International
Large-Cap and Diversified Research
(d)(15) Portfolio Management Agreement - Salomon Brothers
Asset Management Inc./6/
(d)(16) Portfolio Management Agreement - Lazard Asset
Management/6/
(d)(17) Addendum to Portfolio Management Agreement -
Morgan Stanley Asset Management/6/
(d)(18) Form of Addendum to Advisory Agreement - I-Net
Tollkeeper
(d)(19) Portfolio Management Agreement - Capital Guardian
Trust Company
(d)(20) Portfolio Management Agreement - Mercury
Asset Management US
(d)(21) Addendum to Portfolio Management
Agreement - Alliance Capital Management L.P.
(e)(1) Distribution Agreement
(e)(2) Form of Addendum to Distribution Agreement -
I-Net Tollkeeper Portfolio
(f) Not Applicable
(g)(1) Custodian Agreement/1/
(g)(2) Custodian Agreement Fee Schedule/3/
(g)(3) Addendum to Custodian Agreement - Large-Cap,
Mid-Cap, Small-Cap Index, REIT/6/
(g)(4) Addendum to Custodian Agreement - International
Large-Cap and Diversified Research
(g)(5) Form of Addendum to Custodian Agreement - I-Net
Tollkeeper
(h)(1) Agency Agreement/1/
(h)(2) Form of Participation Agreement
(h)(3) Agreement for Support Services/2/
(h)(4) Addendum to Agency Agreement - Large-Cap,
Mid-Cap, Small-Cap Index, REIT/6/
(h)(5) Addendum to Agency Agreement - International
Large-Cap and Diversified Research
(h)(6) Form of Addendum to Agency Agreement - I-Net
Tollkeeper
(h)(7) Form of Addendum to Participation Agreement -
I-Net Tollkeeper
(i) Opinion and Consent of Counsel/1/
(j) Not Applicable
(k) Not Applicable
(l) Not Applicable
(m) Form of Brokerage Enhancement Plan/7/
(n) Not Applicable
(o) Not Applicable
(p) Code of Ethics
- ------------
/1/ Included in Registrant's Form Type N1A/A, Accession No. 0000898430-95-
002464 filed on November 22, 1995 and incorporated by reference herein.
/2/ Included in Registrant's Form Type N1A/A, Accession No. 0000898430-96-
000275 filed on February 1, 1996 and incorporated by reference herein.
/3/ Included in Registrant's Form Type N1A/B, Accession No. 0001017062-97-
000728 filed on April 25, 1997 and incorporated by reference herein.
/4/ Included in Registrant's Form Type N1A/A, Accession No. 0001017062-97-
001012 filed on May 16, 1997 and incorporated by reference herein.
/5/ Included in Registrant's Form Type N1A/A, Accession No. 0001017062-98-
000424 filed on March 2, 1998 and incorporated by reference herein.
/6/ Included in Registrant's Form Type N1A/A, Accession No. 0001017062-98-
001954 filed on September 4, 1998 and incorporated by reference herein.
/7/ Included in Registrant's Form Type NIA/A, Accession Number 0001017062-99-
001714 filed on October 8, 1999 and incorporated by reference herein.
Item 24. Persons Controlled by or Under Common Control with the Fund
-----------------------------------------------------------
Pacific Life Insurance Company ("Pacific Life"), on its own behalf and on
behalf of its Separate Account A, Separate Account B, Pacific Select Variable
Annuity, Pacific Select Exec, Pacific COLI, Pacific COLI II, Pacific COLI III,
Pacific Select, and Pacific Corinthian Variable Account Separate Accounts
("Separate Accounts"), owns of record the outstanding shares of the Series of
Registrant. Pacific Life Insurance Company will vote fund shares in accordance
with instructions received from Policy Owners having interests in the Variable
Accounts of its Separate Accounts.
Item 25. Indemnification
---------------
II-2
<PAGE>
Reference is made to Article V of the Registrant's Declaration of
Trust.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("Act") may be permitted to trustees, officers and controlling persons
of the Registrant by the Registrant pursuant to the Declaration of Trust or
otherwise, the Registrant is aware that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and, therefore, is unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by trustees, officers or controlling
persons of the Registrant in connection with the successful defense of any act,
suit or proceeding) is asserted by such trustees, officers or controlling
persons in connection with the shares being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issues.
Item 26. Business and Other Connections of the Investment Adviser
--------------------------------------------------------
Each investment adviser, and the trustees or directors and officers of each
investment adviser and their business and other connections are as follows:
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Pacific Life Insurance Company
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Pacific Life Thomas C. Sutton Director, Chairman of the Board and Chief
Executive Officer of Pacific Life Insurance
Company, January 1990 to present; Director,
Chairman of the Board and Chief Executive
Officer of Pacific Mutual Holding Company and
Pacific LifeCorp, August 1997 to present;
Director of: Mutual Service Corporation,
Pacific Life & Annuity Company (formerly PM
Group Life Insurance Co.); PM Realty Advisors,
Inc., Pacific Financial Products, Inc., and
similar positions with various affiliated
companies of Pacific Life Insurance Company;
Director of: Newhall Land & Farming; Edison
International; The Irvine Company and Former
Immediate Past Chairman of the American
Council of Life Insurance; and Former Director
of: Pacific Corinthian Life Insurance Company,
Cadence Capital Management Corporation, NFJ
Investment Group, Inc., Pacific Financial Asset
Management Corporation, Pacific Investment
Management Company, Pacific Mutual Distributors,
Inc., and Management Board member of PIMCO
Advisors L.P.
Pacific Life Glenn S. Schafer Director (November 1994 to present) and President
(January 1995 to present) of Pacific Life Insurance
Company; Director and President of Pacific Mutual
Holding Company and Pacific LifeCorp, August 1997
to present; Director of: PL&A (formerly PM Group
Life Insurance Company); Mutual Service Corporation;
PM Realty Advisors, Inc.; United Planners Group,
Inc.; and similar positions with various affiliated
companies of Pacific Life Insurance Company; Former
Director of Pacific Corinthian Life Insurance
Company; Pacific Mutual Distributors, Inc.; and
Management Board member of PIMCO Advisors L.P.
Pacific Life David R. Carmichael Director (since August 1997), Senior Vice President
and General Counsel of Pacific Life Insurance
Company, April 1992 to present; Senior Vice
President and General Counsel of Pacific Mutual
Holding Company and Pacific LifeCorp, August 1997
to present; Senior Vice President and General
Counsel of PL&A (formerly PM Group Life Insurance
Company), July 1998 to present; Director of PL&A
(formerly PM Group Life Insurance Company);
Association of California Health and Life
Insurance Companies; and Association of Life
Insurance Counsel; Former Director of Pacific
Corinthian Life Insurance Company
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Pacific Life Audrey L. Milfs Director (since August 1997), Vice President
and Corporate Secretary of Pacific Life
Insurance Company, March 1991 to present;
Vice President and Secretary of Pacific
Mutual Holding Company and Pacific LifeCorp,
August 1997 to present; Director of PL&A
(formerly PM Group Life Insurance Company);
Pacific Financial Products, Inc.; PM Realty
Advisors, Inc.; Vice President and Secretary
to several affiliated companies of Pacific
Life Insurance Company
Pacific Life Khanh T. Tran Director (since August 1997), Senior Vice President
and Chief Financial Officer of
Pacific Life Insurance Company, June 1996 to
present; Vice President and Treasurer of
Pacific Life Insurance Company, November 1991
to June 1996; Senior Vice President and Chief
Financial Officer to several affiliated companies of
Pacific Life Insurance Company, 1990 to present
Pacific Life Edward R. Byrd Vice President and Controller of Pacific
Life Insurance Company, August 1992 to present;
Vice President and Treasurer of Pacific Life
Insurance Company, November 1991 to June 1996;
Director (since January 1998), CFO and
Treasurer of Pacific Mutual Distributors, Inc.;
Vice President and Controller of Pacific Mutual
Holding Company and Pacific LifeCorp, August
1997 to present; and similar positions with
various affiliated companies of Pacific Life
Insurance Company.
Pacific Life Brian D. Klemens Vice President and Treasurer of Pacific Life
Insurance Company, December 1998 to Present; and
Assistant Vice President and Assistant Controller
of Pacific Life Insurance Company, April 1994 to
December 1998; Vice President and Treasurer of
several affiliated companies of Pacific Life
Insurance Company (February 1999 to present)
Pacific Life Larry J. Card Executive Vice President of Pacific Life Insurance
Company, January 1995 to present; Executive Vice
President of Pacific Mutual Holding Company and
Pacific LifeCorp, August 1997 to present and
similar positions with various affiliated
companies of Pacific Life Insurance Company.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ---------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Pacific Investment Investment Adviser
Management
Company
("PIMCO")
PIMCO Augustine Ariza, Jr. Vice President
PIMCO Michael R. Asay Senior Vice President
PIMCO George C. Allan Senior Vice President
PIMCO Tamara J. Arnold, CFA Senior Vice President
PIMCO Brian P. Baker Vice President (SINGAPORE)
PIMCO Leslie A. Barbi Executive Vice President
PIMCO Stephen B. Beaumont Vice President
PIMCO William R. Benz, CFA Managing Director
PIMCO Gregory A. Bishop Vice President
PIMCO Andrew Brick Senior Vice President
PIMCO John B. Brynjolfsson Senior Vice President
PIMCO Robert W. Burns Managing Director
PIMCO Sabrina C. Callin Vice President
PIMCO Marcia K. Clark Vice President
PIMCO Jerry L. Coleman Vice President
PIMCO Cyrille Conseil Vice President
PIMCO Douglas Cummings Vice President
PIMCO Wendy W. Cupps Senior Vice President
PIMCO Chris P. Dialynas Managing Director
PIMCO David J. Dorff Vice President
PIMCO Michael G. Dow Senior Vice President
PIMCO Anita Dunn Vice President
PIMCO Sandra Durn Vice President
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ---------------------- ----------------------- --------------------------------------------
<S> <C> <C>
PIMCO A. Benjamin Ehlert, CFA, Executive Vice President
CIC
PIMCO Mohamed A. El-Erian Managing Director
PIMCO Robert A. Ettl Executive Vice President
PIMCO Stephanie D. Evans Vice President
PIMCO Robert M. Fitzgerald Chief Financial Officer, Treasurer (PALP)
PIMCO Teri Frisch Vice President
PIMCO Steve A. Foulke Vice President
PIMCO Yuri P. Garbuzov Vice President
PIMCO William H. Gross, CFA Managing Director
PIMCO John L. Hague Managing Director
PIMCO Gordon C. Hally, CIC Executive Vice President
PIMCO Pasi M. Hamalainen Managing Director
PIMCO John P. Hardaway Senior Vice President
PIMCO Brent R. Harris, CFA Managing Director
PIMCO Joseph Hattesohl Vice President
PIMCO Raymond C. Hayes Vice President
PIMCO David C. Hinman Senior Vice President
PIMCO Lisa Hocson Vice President
PIMCO Douglas M. Hodge, CFA Executive Vice President
PIMCO Brent L. Holden, CFA Managing Director
PIMCO Dwight F. Holloway, Jr., Senior Vice President (LONDON)
CFA, CIC
PIMCO Mark T. Hudoff Senior Vice President
PIMCO Margaret E. Isberg Managing Director
PIMCO Thomas J. Kelleher Vice President
PIMCO James M. Keller Senior Vice President
PIMCO Raymond G. Kennedy, CFA Senior Vice President
PIMCO Mark R. Kiesel Vice President
PIMCO Sharon K. Kilmer Executive Vice President
PIMCO Steven Kirkbaumer Vice President
PIMCO John S. Loftus, CFA Managing Director
PIMCO David Lown Vice President
PIMCO Laura M. Lyon Vice President
PIMCO Joseph McDevitt Executive Vice President
PIMCO Andre J. Mallegol Vice President
PIMCO Scott W. Martin Vice President
PIMCO Michael E. Martini Vice President
PIMCO Scott A. Mather Senior Vice President
PIMCO Benjamin L. Mayer Vice President
PIMCO Dean S. Meiling, CFA Managing Director
PIMCO Jonathan D. Moll Vice President
PIMCO Mark E. Metsch Vice President
PIMCO Kristen M. Monson Senior Vice President
PIMCO James F. Muzzy, CFA Managing Director
PIMCO Doris Nakamura Vice President
PIMCO Mark D. Nellemann Vice President
PIMCO Vinh T. Nguyen Controller (PALP)
PIMCO Douglas J. Ongaro Vice President
PIMCO Thomas J. Otterbein, CFA Senior Vice President
PIMCO Kumar N. Palghat Vice President
PIMCO Keith Perez Vice President
PIMCO Mohan V. Phansalkar Senior Vice President, Senior
Legal Counsel
PIMCO Elizabeth M. Philipp Vice President
PIMCO David J. Pittman Vice President
PIMCO William F. Podlich III Managing Director
PIMCO William C. Powers Managing Director
PIMCO Terry A. Randall Vice President
PIMCO Mark Romano Vice President
PIMCO Scott L. Roney, CFA Senior Vice President (JAPAN)
PIMCO Michael J. Rosborough Senior Vice President
PIMCO Cathy T. Rowe Vice President
PIMCO Seth R. Ruthen Vice President
PIMCO Jeffrey M. Sargent Vice President
PIMCO Ernest L. Schmider Managing Director, Secretary,
Chief Administrative and Legal Officer
PIMCO Leland T. Scholey, CFA Senior Vice President
PIMCO Stephen O. Schulist Vice President
PIMCO Iwona E. Scibisz Vice President
PIMCO Denise C. Seliga Vice President
PIMCO Rita J. Seymour Vice President
PIMCO Christopher Sullivan, CFA Vice President
PIMCO Kyle J. Theodore Vice President
PIMCO Lee Thomas Managing Director
PIMCO William S. Thompson, Chief Executive Officer and Managing
Jr. Director
PIMCO Ronaele K. Trinidad Vice President
PIMCO Benjamin L. Trosky, CFA Managing Director
PIMCO Richard E. Tyson Vice President
PIMCO Peter A. Van de Zilver Vice President
PIMCO Koichi Watanabe Vice President (JAPAN)
PIMCO Marilyn Wegener Vice President
PIMCO Richard M. Weil Assistant Secretary, General Counsel
PIMCO Paul C. Westhead Vice President, Managing Director,
Director of Corporate Services and General Counsel
PIMCO George H. Wood, CFA Executive Vice President
PIMCO Michael A. Yetter Senior Vice President
PIMCO David Young Vice President (LONDON)
PIMCO Changhong Zhu Vice President
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Capital Guardian Trust Investment Adviser
Company
Capital Guardian Trust Timothy D. Amour Director, Capital Guardian Trust Company,
Company Capital Research and Management Company and
Capital Management Services, Inc.; Chairman
and Chief Executive Officer, Capital Research
Company.
Capital Guardian Trust Donnalisa Barnum Senior Vice President, Capital
Company Guardian Trust Company; Vice
President, Capital International
Limited and Capital International, Inc.
Capital Guardian Trust Andrew F. Barth Director, Capital Guardian Trust Company and
Company Capital Research and Management Company;
Director and Research Director, Capital
International Research, Inc.; President, Capital
Guardian Research Company; Formerly Director and
Executive Vice President, Capital Guardian
Research Company.
Capital Guardian Trust Michael D. Beckman Senior Vice President, Treasurer and Director,
Company Capital Guardian Trust Company; Director,
Capital Guardian Trust Company of Nevada;
Treasurer, Capital International Research, Inc.
and Capital Guardian Research Company; Director
and Treasurer, Capital Guardian (Canada), Inc.;
Formerly Chairman and Director, Capital
International Asia Pacific Management Company.
Capital Guardian Trust Michael A. Burik Senior Counsel, The Capital Group Companies,
Company Inc.; Senior Vice President, Capital Guardian
Trust Company.
Capital Guardian Trust Elizabeth A. Burns Senior Vice President, Capital Guardian
Company Trust Company
Capital Guardian Trust Larry P. Clemmensen Director of Capital Guardian Trust
Company Company, American Funds Distributors, Inc.;
Chairman of the Board, and Director of American
Funds Service Company; Director and President,
The Capital Group Companies, Inc. and Capital
Management Services, Inc.; Senior Vice
President and Director, Capital Research and
Management Company; Treasurer, Capital
Strategy Research, Inc.;
Capital Guardian Trust Kevin G. Clifford Director and President, American Funds
Company Distributors, Inc.; Director, Capital
Guardian Trust Company
Capital Guardian Trust Roberta A. Conroy Senior Vice President, Director and Counsel,
Company Capital Guardian Trust Company; Senior Vice
President and Secretary, Capital
International, Inc.; Assistant General
Counsel, The Capital Group Companies, Inc.,
Secretary, Capital Guardian International,
Inc.; Formerly, Secretary, Capital Management
Services, Inc.
Capital Guardian Trust John B. Emerson Senior Vice President, Capital Guardian Trust
Company Company; Director, Capital Guardian Trust
Company, a Nevada Corporation.
Capital Guardian Trust Michael R. Ericksen Senior Vice President, Capital Guardian
Company Trust Company; Senior Vice President and
Director, Capital International, Limited
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- ----------------------------------------------
<S> <C> <C>
Capital Guardian Trust David I. Fisher Vice Chairman and Director, Capital
Company International, Inc., Capital International
Limited and Capital International K.K.;
Chairman and Director, Capital International
S. A. and Capital Guardian Trust Company;
Director and President, Capital International
Limited (Bermuda); Director, The Capital Group
Companies, Inc., Capital International
Research, Inc., Capital Group Research, Inc.
and Capital Research and Management Company.
Capital Guardian Trust Richard N. Havas Senior Vice President, Capital Guardian Trust
Company, Capital International, Inc. and
Capital International Limited; Director and
Senior Vice President, Capital International
Research, Inc.; Director and Senior Vice
President Capital Guardian (Canada), Inc.
Capital Guardian Trust Frederick M. Hughes, Jr. Senior Vice President, Capital
Company Guardian Trust Company
Capital Guardian Trust William H. Hurt Senior Vice President and Director, Capital
Company Guardian Trust Company; Chairman and Director,
Capital Guardian Trust Company, a Nevada
Corporation and Capital Strategy Research,
Inc.; Formerly, Director, The Capital Group
Companies, Inc.
Capital Guardian Trust Peter C. Kelly Senior Vice President, Capital Guardian Trust
Company Company; Assistant General Counsel, The
Capital Group Companies, Inc.; Director and
Senior Vice President, Capital International,
Inc.
Capital Guardian Trust Robert G. Kirby Chairman Emeritus, Capital Guardian Trust
Company; Senior Partner, The Capital Group
Companies, Inc.
Capital Guardian Trust Nancy J. Kyle Senior Vice President and Director,
Company Capital Guardian Trust Company; President, and
Director, Capital Guardian (Canada), Inc.
Capital Guardian Trust Karin L. Larson Director, The Capital Group Companies, Inc.,
Company Capital Group Research, Inc., Capital Guardian
Trust Company, Director and Chairman, Capital
Guardian Research Company and Capital
International Research, Inc., Formerly,
Director and Senior Vice President, Capital
Guardian Research Company.
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Capital Guardian Trust James R. Mulally Senior Vice President and Director,
Company Capital Guardian Trust Company; Senior
Vice President, Capital International
Limited; Vice President, Capital Research
Company; Formerly, Director, Capital Guardian
Research Company
Capital Guardian Trust Shelby Notkin Senior Vice President, Capital
Company Guardian Trust Company; Director, Capital
Guardian Trust Company, a Nevada Corporation
Capital Guardian Trust Mary M. O'Hern Senior Vice President, Capital
Company Guardian Trust Company and Capital
International Limited; Vice President,
Capital International, Inc.
Capital Guardian Trust Jeffrey C. Paster Senior Vice President, Capital Guardian
Company Trust Company
Capital Guardian Trust Robert V. Pennington Senior Vice President, Capital Guardian
Company Trust Company; President and Director, Capital
Guardian Trust Company, a Nevada Corporation
Capital Guardian Trust Jason M. Pilalas Director, Capital Guardian Trust Company; Senior
Company Vice President and Director, Capital
International Research, Inc.; Formerly,
Director and Senior Vice President, Capital
Guardian Research Company.
Capital Guardian Trust Robert Ronus President and Director, Capital Guardian Trust
Company Company; Chairman and Director, Capital
Guardian (Canada), Inc., Director, Capital
International, Inc. and Capital Guardian
Research Company; Senior Vice President,
Capital International, Inc.; Capital
International Limited and Capital
International S.A.; Formerly, Chairman,
Capital Guardian International Research
Company and Director, Capital International,
Inc.
Capital Guardian Trust James F. Rothenberg Director, American Funds Distributors, Inc.,
Company American Funds Service Company, The Capital
Group Companies, Inc., Capital Group Research,
Inc., Capital Guardian Trust Company and
Capital Management Services, Inc.; Director
and President, Capital Research and
Management, Inc.; Formerly, Director of
Capital Guardian Trust Company, a Nevada
Corporation, and Capital Research Company.
Capital Guardian Trust Theodore R. Samuels Senior Vice President and Director, Capital
Company Guardian Trust Company; Director, Capital
International Research, Inc.; Formerly,
Director, Capital Guardian Research Company
Capital Guardian Trust Lionel A. Sauvage Senior Vice President, Capital Guardian
Company Trust Company; Vice President,
Capital International Research, Inc.;
Formerly, Director, Capital Guardian
Research Company
Capital Guardian Trust John H. Seiter Executive Vice President and Director,
Company Capital Guardian Trust Company; Senior Vice
President, Capital Group International, Inc.;
Vice President, The Capital Group Companies,
Inc.
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Capital Guardian Trust Eugene P. Stein Executive Vice President and Director,
Company Capital Guardian Trust Company; Formerly,
Director, Capital Guardian Research
Company
Capital Guardian Trust Karen Skinner-Twoney Vice President, Capital Guardian Trust
Company Company; Director, Vice President and
Treasurer, Capital Guardian Trust Company, a
Nevada Corporation.
Capital Guardian Trust Philip A. Swan Senior Vice President, Capital Guardian
Company Trust Company
Capital Guardian Trust Shaw B. Wagener Director, Capital Guardian Trust Company,
Company Capital International Asia Pacific Management
Company S.A., Capital Research and Management
Company and Capital International Management
Company S.A.; President and Director, Capital
International, Inc.; Senior Vice President,
Capital Group International, Inc.
Capital Guardian Trust Eugene M. Waldron Senior Vice President, Capital Guardian Trust
Company Company
Capital Guardian Trust Joanne Weckbacher Senior Vice President, Capital Guardian Trust
Company Company.
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
J.P. Morgan Investment Adviser
Investment
Management Inc.
J.P. Morgan Keith M. Schappert President, Director and Managing Director,
Investment J.P. Morgan Investment Management Inc.;
Management Inc. Managing Director, Morgan Guaranty Trust
Company of New York
J.P. Morgan Jeff M. Garrity Director and Managing Director,
Investment J.P. Morgan Investment Management
Management Inc. Inc.; Managing Director, Morgan
Guaranty Trust Company of New York
J.P. Morgan Isabel H. Sloane Director and Managing Director, J.P. Morgan
Investment Investment Management Inc.; Managing Director,
Management Inc. Morgan Guaranty Trust Company of New York
J.P. Morgan Gilbert Van Hassel Director and Managing Director, J.P.
Investment Morgan Investment Management Inc.;
Management Inc. Managing Director, Morgan Guaranty
Trust Company of New York
J.P. Morgan Hendrik Van Riel Director and Managing Director,
Investment J.P. Morgan Investment Management Inc.;
Management Inc. Managing Director, Morgan Guaranty
Trust Company of New York
J.P. Morgan Kenneth W. Anderson Director and Managing Director, J.P. Morgan
Investment Investment Management Inc.; Managing
Management Inc. Director, Morgan Guaranty Trust Company
of New York
J.P. Morgan John W. Schmidlin Chief Operating Officer, Director, Managing
Investment Director, J.P. Morgan Investment Management
Management Inc. Inc.; Managing Director, Morgan Guaranty
Trust Company of New York
J.P. Morgan Anthony Della Pietra Chief Legal Officer and Managing Director,
Investment J.P. Morgan Investment Management Inc.;
Management Inc. Managing Director, Morgan Guaranty Trust
Company of New York
J.P. Morgan Thomas J. Smith Chief Compliance Officer, Vice President;
Investment Vice President, Morgan Guaranty Trust
Management Inc. Company of New York
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- --------------------------------------------
<S> <C> <C>
Janus Capital Investment Adviser
Corporation
Janus Capital Thomas H. Bailey President, Director, Chairman of the
Corporation Board and Chief Executive Officer
Janus Capital James P. Craig, III Director, Vice Chairman and Chief Investment
Corporation Officer
Janus Capital Steven R. Goodbarn Vice President of Finance, Treasurer and CFO
Corporation
Janus Capital Thomas A. Early Vice President, General Counsel and
Corporation Secretary
Janus Capital Michael E. Herman Director
Corporation
Janus Capital Thomas A. McDonnell Director
Corporation
Janus Capital Landon H. Rowland Director
Corporation
Janus Capital Michael Stolper Director
Corporation
Janus Capital Mark B. Whiston Vice President and Chief Marketing
Corporation Officer
Janus Capital Marjorie G. Hurd Vice President and Chief Operations Officer
Corporation
Janus Capital Steven R. Goodbarn Treasurer and Chief Financial
Corporation Officer, 1992 to present, Vice
President of Finance, June 1995
to present
</TABLE>
II-13
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ----------------------- ---------------------- ------------------------------
<S> <C> <C>
Morgan Stanley Asset Investment Adviser
Management
Morgan Stanley Asset Barton M. Biggs Director, Chairman and
Management Managing Director
Morgan Stanley Asset Peter Dominic Managing Director and Member
Management Caldecott of Executive Committee
Morgan Stanley Asset Marna C. Whittington Chief Operating Officer,
Management Managing Director, and Member
of Executive Committee
Morgan Stanley Asset Donald P. Ryan Principal and Compliance Officer
Management
Morgan Stanley Asset Harold J. Schaaff, Jr. Managing Director, General Counsel
Management and Secretary
Morgan Stanley Asset Alexander C. Frank Treasurer
Management
Morgan Stanley Asset Richard B. Worley President, Director, Portfolio
Management Manager and Member of Executive
Committee
Morgan Stanley Asset Thomas L. Bennett Member of Executive Committee
Management and Portfolio Manager
Morgan Stanley Asset Alan E. Goldberg Member of Executive Committee
Management
</TABLE>
II-14
<PAGE>
<TABLE>
<CAPTION>
Name of Adviser Name of Individual Business and Other Connections
- ------------------------- ----------------------- ---------------------------------------------
<S> <C> <C>
Goldman Sachs Asset Investment Adviser
Management
Goldman Sachs Asset Robert J. Hurst Vice Chairman, Goldman, Sachs & Co.
Management
Goldman Sachs Asset Henry M. Paulson, Jr. Chief Executive Officer and Chairman,
Management Goldman, Sachs & Co.
Goldman Sachs Asset John A. Thain President and Co-Chief Operating Officer,
Management Goldman, Sachs & Co.
Goldman Sachs Asset John L. Thornton President and Co-Chief Operating Officer,
Management Goldman, Sachs & Co.
</TABLE>
II-15
<PAGE>
<TABLE>
<CAPTION>
Adviser and Governing
Board of Directors Name of Individual Business and Other Connections
- -------------------------------- ------------------------------- ---------------------------------------------------------
<S> <C> <C>
Alliance Capital Management L.P. Investment Adviser
Alliance Capital Management L.P. Dave H. Williams Director; Chairman of the Board, Alliance Capital
Management Corporation; Director of The Equitable
Companies Incorporated; Director of The Equitable Life
Assurance Society of the United States; Senior Vice
President of AXA (husband of Reba W. Williams)
Alliance Capital Management L.P. Michael Hegarty Director; Vice Chairman and Chief Operating Officer;
The Equitable Companies Incorporated; President, Chief
Operating Officer and Director, The Equitable Life
Assurance Society of the U.S.
Alliance Capital Management L.P. Benjamin D. Holloway Director; Consultant to the Continental Companies;
Director Emeritus of the Duke University Management
Corporation, Chairman of the Touro National Heritage
Trust, a Regent of The Cathedral of St. John the Divine
and a Trustee of Duke University (Emeritus) and the
American Academy in Rome
Alliance Capital Management L.P. Denis Duverne Director; Senior Vice President - International Life,
AXA; Director of various subsidiaries of the AXA Group;
Director of Donaldson Lufkin & Jenrette and The
Equitable Life Assurance Society of the United States
Alliance Capital Management L.P. Herve Hatt Director; Senior Vice President, AXA
Alliance Capital Management L.P. Frank Savage Director; Chairman of Alliance Capital Management
International, a division of Alliance Capital Management
LP; Director of Alliance Capital Finance Group
Incorporated, a subsidiary of the Partnership; Senior
Vice President of The Equitable Life Assurance Society
of the United States
Alliance Capital Management L.P. Luis J. Bastida Director; Chief Financial Officer and Member of the
Executive Committee of Banco Bilbao Vizcaya, S.A.
Alliance Capital Management L.P. Henri de la Croix de la Castries Director; Senior Executive Vice President - Financial
Services and Life Insurance Activities of AXA
Alliance Capital Management L.P. Kevin C. Dolan Director; Chief Executive Officer, AXA Investment
Managers Paris
Alliance Capital Management L.P. Reba W. Williams Director; Director of Special Projects at Alliance
Capital Management Corporation (wife of Dave H. Williams)
Alliance Capital Management L.P. Peter D. Noris Director; Executive Vice President and Chief Investment
Officer of The Equitable Companies Incorporated,
Executive Vice President and Chief Investment Officer of
The Equitable Life Assurance Society of the U.S.
Alliance Capital Management L.P. Robert B. Zoellick Director; President and CEO of the Center for Strategic
and International Studies, an independent non-profit
public policy institute; Director of Janus Intercable,
Said Holdings, the Advisory Council of Enron Corp., and
several non-profit entities, including the Council on
Foreign Relations, the German Marshall Fund, the Eurasia
Foundation, the European Institute, the American Council
on Germany, the National Bureau of Asian Research and the
Overseas Development Council
Alliance Capital Management L.P. Donald H. Brydon Director; Chairman and Chief Executive Officer, AXA
Investment Managers S.A.
Alliance Capital Management L.P. Edward D. Miller Director; President, Chief Executive Officer and Director
of The Equitable Companies Incorporated; Chairman of the
Board and Chief Executive Officer of The Equitable Life
Assurance Society of the United States; Senior Executive
Vice President, AXA
Alliance Capital Management L.P. Stanley B. Tulin Director; Executive Vice President and Chief Financial
Officer, The Equitable Companies Incorporated; Vice
Chairman and Chief Financial Officer, The Equitable Life
Assurance Society of the U.S.; Director of Donaldson,
Lufkin & Jenrette and the Jewish Theological Seminary;
Fellow of the Society of Actuaries, member and Treasurer
of the American Academy of Actuaries
Alliance Capital Management L.P. John D. Carifa Director, President and Chief Operating Officer
Alliance Capital Management L.P. Bruce W. Calvert Director and Chief Executive Officer
Alliance Capital Management L.P. Alfred Harrison Director and Vice Chairman
Alliance Capital Management L.P. David R. Brewer, Jr. Senior Vice President and General Counsel
Alliance Capital Management L.P. Robert H. Joseph, Jr. Senior Vice President and Chief Financial Officer
Alliance Capital Management L.P. Mark R. Manley Senior Vice President, Counsel, Compliance Officer and
Assistant Secretary
</TABLE>
Salomon Brothers Asset Management Inc. ("SABAM")
SABAM, an indirect, wholly-owned subsidiary of Citigroup, is an investment
adviser registered under the Investment Advisers Act of 1940 (the "Advisers
Act") and renders investment advice to a wide variety of individual,
institutional and investment advisory clients.
The list required by this Item 26 of officers and directors of SABAM, together
with information as to any other business, profession, vocation or employment of
a substantial nature engaged in by such officers and directors during the past
two years, is hereby incorporated by reference to Schedules A and D of Form ADV
filed by SABAM pursuant to the Advisers Act (SEC File No. 801-32046).
II-16
<PAGE>
<TABLE>
<CAPTION>
Adviser and Governing
Board of Directors Name of Individual Business and Other Connections
- ----------------------- -------------------------- ---------------------------------------------------------
<S> <C> <C>
Lazard Asset Management Investment Adviser
("Lazard")
Lazard John C. Adams General Member
Lazard Eileen D. Alexanderson General Member
Lazard William Araskog General Member
Lazard Robert A. Baer, Jr. General Member
Lazard F. Harlan Batrus General Member; Director of Mutual of America Capital Management Corp.;
Director of Ryan Labs, Inc.; owner of A.J. Technologies
Lazard Gerardo Braggiotti General Member; Managing Director of Lazard SpA; Managing Director of Lazard
Brothers & Co. Ltd.; Former director Centrale, Sec Generale of Centrale of
Mediobanca S.P.A.; Vice President, Lazard Vitale Borghesi SPA; General
Partner, Lazard Freres et Cie; General Partner, Maison Lazard et Cie; General
Partner, Partena
Lazard Patrick J. Callahan, Jr. General Member; Director of Berry Metal Co.; Director of Michigan Wheel Corp.;
Director of Rotation Dynamics Corp.; Director of BT Capital Corp.
Lazard Michel David-Weill General Member; Director of The Dannon Company, Inc.; President and Chairman
of the Board of Eurafrance; Director of Exor Group; Director of Euralux;
Director of Group Danone; Director of ITT Industries, Inc.; Director of La
France S.A.; Deputy Chairman of Lazard Brothers & Co., Limited; Former
Director of Pearson plc; Director of Publicis S.A.; Director of S.A. de la Rue
Imperiale de Lyon; Chairman of Lazard Freres & Co. LLC; General Partner of
Lazard Freres & Cie; Chairman of Lazard Partners L.P.; Member of Investment
Advisory Board of Corporate Advisers, L.P.; Permanent rep. of LFC (Director)
of Compagnie De Credit; Director of Maison Lazard S.A.; General Partner of
Maison Lazard & Cie; Chairman of Maison Lazard Developpement; Gerant (Partner)
of Parteger; Gerant (Partner) of Parteman; General Partner of Partemiel;
General Partner of Partena; Former Director of IFI SpA; Director of IFIL SpA;
Director of Fonds Partenaires - Gestion Investments
Lazard John V. Doyle General Member
Lazard Thomas F. Dunn General Member
Lazard Norman Eig General Member; Vice Chairman of Lazard Freres & Co. LLC; Chairman and
Director of The Lazard Funds, Inc.; Chairman and Director of Lazard Retirement
Series, Inc.; Director of Lazard Investment Funds Limited; Director and Chief
Investment Officer and Treasurer of Lazard Pension Management, Inc.; Director
of Lazard Asset Management Holdings Limited; Director of Lazard Asset
Management Pacific Co.; Director of Lazard Asset Management Limited; Member of
the Supervisory Board of Lazard Asset Management (Deutschland) GmbH; Managing
Director of Lazard Asset Management (Deutschland) Gesellschaft; Director of
Lazard Asset Management (CI) Holdings Ltd.
Lazard Richard P. Emerson General Member
Lazard Peter R. Ezersky General Member; Board Member of Cakewalk LLC
Lazard Eli H. Fink General Member; Former Partner & Vice Chairman of Deloitte & Touche LLP
Lazard Jonathan F. Foster General Member; Director, Cakewalk LLC
Lazard Albert H. Garner General Member
Lazard James S. Gold General Member; Director of Smart & Final Inc.; Director of The Hain Food
Group
Lazard Jeffrey A. Golman General Member
Lazard Steven J. Golub General Member; Chief Financial Officer of Lazard Freres & Co. LLC; Director
of Mineral Technologies Inc.
Lazard Robert L. Goodman General Member
Lazard Herbert W. Gullquist General Member; Vice Chairman of Lazard Freres & Co. LLC; President and
Director of The Lazard Funds, Inc.; President and Director of Lazard
Retirement Series, Inc.; Director of Lazard Far East Investors Limited;
President and Director of Lazard Pension Management, Inc.; Director of Lazard
Asset Management Holdings Limited; Director and President of Lazard Asset
Management (Canada), Inc.; Director and Chairman of Lazard Asset Management
Pacific Co.; Director of Lazard Asset Management Limited; Member of the
Supervisory Board of Lazard Asset Management (Deutschland) GmbH; Managing
Director of Lazard Asset Management (Deutschland) Gesallschaft); Member of the
Advisory Board of The Egypt Trust; Board Member of Lazard Asset Management
Egypt
Lazard Thomas R. Haack General Member
Lazard Paul J. Haigney Managing Director
Lazard Ira O. Handler General Member
Lazard Yasushi Hatakeyama General Member
Lazard Melvin L. Heineman General Member; Director of Lazard Freres & Co., Ltd; Director of Lazard
Asset Management Pacific Co.; Director & Vice President of Lazard Pension
Management, Inc.
Lazard Scott D. Hoffman General Member
Lazard Robert E. Hougie General Member
Lazard Kenneth M. Jacobs General Member; Director of ARV Assisted Living, Inc.
Lazard James L. Kempner General Member
Lazard Larry A. Kohn General Member
Lazard Lee O. Kraus General Member
Lazard Sandra A. Lamb Director, Fortress Group, Inc.; General Member
Lazard Robert C. Larson General Member; Chairman, Lazard Real Estate Investors LLC; Non-Executive
Director, Bass plc.; Non-Executive Director, Lifestyle Furnishings
International Ltd.; Non-Executive Director, Commonwealth Atlantic Properties,
Inc.
Lazard William R. Loomis, Jr. General Member; Director of Englehard Corp.; Former Director of Minorco S.A.;
Former Director of Minorco (U.S.A.) Inc.; Director & Chairman of Terra
Industries, Inc.; Director of Ripplewood Holdings LLC
Lazard J. Robert Lovejoy General Member
Lazard Matthew J. Lustig Board Member, Brandywine Realty Trust; General Member
Lazard Thomas E. Lynch General Member
Lazard Mark T. McMaster General Member
Lazard Michael G. Medzigian General Member; President and CEO, Lazard Real Estate Investors LLC; Director,
Arnold Palmer Golf Management; Director, President and CEO, Park Plaza Hotels
& Resorts
Lazard Richard W. Moore Jr. General Member
Lazard Robert P. Morgenthau General Member; Director and Vice President of Lazard Asset Management
(Canada) Inc.; Director of Lazard Investment Funds limited; Director of Lazard
Fund Manager (CI) Limited; Director of Lazard Global Bond Fund plc; Director
of Lazard Global Equity Fund plc; Director of Lazard Global Liquidity Fund
plc; Director of Lazard Strategic Yield Fund plc; Director of Global Funds
Management Plc; Director of Lazard Asset Management (CI) Holdings Ltd;
Director of Lazard Asset Management (CI) Ltd.; Director of Lazard Investment
Funds (CI) Ltd.; Director of Lazard Funds Administration Services (CI) Ltd.;
Director of Lazard Fund Managers (CI) Ltd. Guernsey; Director of Lazard Global
Bond Fund; Director of Lazard Investment Funds Ltd. Guernsey; Director of
Bitterroot Enterprises
Lazard Steven J. Niemczyk General Member
Lazard Hamish W. M. Norton General Member
Lazard James A. Paduano General Member; Director of Donovan Data Systems, Inc.; Director of Secure
Products Inc.
Lazard Louis Perlmutter General Member
Lazard Russell E. Planitzer General Member; Former Director of Intensolv, Inc.
Lazard Steven L. Ratner Director, Lazard Asia Limited; Chairman, Educational Broadcasting Corp.;
Director, New York Outward Bound Center; General Member
Lazard John R. Reinsberg General Member; Executive Vice President and Director of Lazard Asset
Management Pacific Co.; Member of the Supervisory Board of Lazard Asset
Management (Deutschland) GmbH
Lazard Louis G. Rice General Member
Lazard Barry W. Ridings General Member; Director, Noodle Kidoodle; Director, Furr's Bishop's Inc.;
Director, New Valley Corp.; Director, Siem Industries; Director, Seaman's
Furniture
Lazard Luis E. Rinaldini General Member
Lazard Bruno M. Roger Director, Sovaciux S.A., Board Member, Thomson S.A.; General Member;
Supervisory Board Member of AXA; Supervisory Board Member of CAP Gemini
Sogeti; Board Member of Compaigne De Credit; Board Member of Compagnie De
Saint-Gobain; Vice Chairman & CEO of Eurafrance; Chairman & CEO of Financiere
et Industrelle Gaz at Eaux; Director, Fonds Partenaires Gestion (F.P.G.);
General Partner of Lazard Freres & Cie; Director without Power of vote of
LVMH-Moet hennesy Louis Vuitton; Director, Permanent Representative of Marine-
Wendel; Supervisory Board Member of Pinault-Printemps-Redoute; Director,
Permanent Representative of Sidel; Board Member of Sofina (Belgique); Board
Member of Thomson CSF; Director, Permanent Representative of Societe Francoise
Generale Immobiliere (S.F.G.I.)
Lazard Michael S. Rome General Member
Lazard Stephen H. Sands Director and Co-Chairman, National Imaging Associates, Inc.; General Member;
Director of Isogen LLC; Former Director of Skila, Inc.
Lazard Frank A. Savage General Member
Lazard Gary S. Shedlin General Member
Lazard David A. Tanner Director, Scientific Learning Corp.; Director, Container and Pallet Services,
Inc.; Director, Children First, Inc.; Director, Employment Law Training, Inc.;
General Member; Former Managing Director of E.M. Warburg, Pincus & Co. LLC;
Former Director of Golden Books Family Entertainment Inc.; Former Director of
Renaissance Re Holdins Ltd.; Director of Poseidon Resources Inc.; Director of
Charter Financial, Inc.; Former Director of Classic Sports, Inc.; Former
Director of Information Ventures LLC
Lazard David L. Tashjian General Member
Lazard J. Mikesell Thomas General Member
Lazard Michael P. Triguboff General Member; Managing Director of Lazard Asset Management Pacific Co.;
Director of Lazard Japan Asset Management K.K.; Director, Triguboff Management
Pty Ltd.
Lazard Donald A. Wagner General Member
Lazard Ali E. Wambold General Member; Former Director of The Albert Fisher Group plc; Director of
Lazard Freres & Co., Ltd.; Director of Tomkins PLC; Member of Investment
Advisory Board of Corporate Advisors L.P.; Former Director of Lazard S.P.A.;
Director of Lazard & Co. GmbH
Lazard Michael A. Weinstock General Member
Lazard Antonio F. Weiss General Member; Director, Lazard Vitale Borghesi SPA
Lazard Alexander E. Zagoreos General Member; Director of The Egypt Trust; Director of Flemings Continental
European Investment Trust plc; Director of Gartmore Emerging Pacific
Investment Trust plc; Director of Greek Progress Fund; Director of Jupiter
International Green Investment Trust plc; Director of New Zealand Investment
Trust plc; Director of Taiwan Opportunities Fund Ltd; Director of The World
Trust Fund; Director of Lazard Select Investment Trust Ltd.; Director of
Ermitage Selz Fund; Director of Lazard Asset Management Egypt; Director of
Latin American Investment Trust, plc; Director of Taiwan American Fund Limited
Mercury Asset Jeffrey M. Peek President of Mercury; President of Merrill Lynch Asset Management, L.P.
Management US ("MLAM"); President and Director of Princeton Services; Executive Vice
President of ML & Co.; Managing Director and Co-Head of the Investment Banking
Division of Merrill Lynch in 1997
Mercury Asset Terry K. Glenn Executive Vice President of Mercury; Executive Vice President of MLAM;
Management US Executive Vice President and Director of Princeton Services; President and
Director of Princeton Funds Distributor, Inc.; Director of FDS; President of
Princeton Administrators, L.P.
Mercury Asset Gregory A. Bundy Chief Operating Officer and Managing Director of Mercury; Chief Operating
Management US Officer and Managing Director of MLAM; Chief Operating Officer and Managing
Director of Princeton Services; Co-CEO of Merrill Lynch Australia from 1997 to
1999
Mercury Asset Donald C. Burke Senior Vice President and Treasurer of Mercury; Senior Vice President and
Management US Treasurer of MLAM since 1999; Senior Vice President and Treasurer of Princeton
Services; Vice President of Princeton Funds Distributor, Inc.; First Vice
President of MLAM from 1997 to 1999; Vice President of MLAM from 1990 to 1997;
Director of Taxation of MLAM since 1990
Mercury Asset Michael G. Clark Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services; Director and Treasurer of Princeton Funds
Distributor, Inc.
Mercury Asset Robert C. Doll Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services; Chief Investment Officer of Oppenheimer
Funds, Inc. in 1999 and Executive Vice President thereof from 1991 to 1999
Mercury Asset Linda L. Federici Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services
Mercury Asset Vincent R. Giordano Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services
Mercury Asset Michael J. Hennewinkel Senior Vice President, Secretary and General Counsel of Mercury; Senior Vice
Management US President, Secretary and General Counsel of MLAM; Senior Vice President of
Princeton Services
Mercury Asset Philip L. Kirstein Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President, General Counsel, Director and Secretary of Princeton Services
Mercury Asset Debra W. Landsman-Yaros Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services; Vice President of Princeton Funds
Distributor, Inc.
Mercury Asset Joseph T. Monagle, Jr. Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services
Mercury Asset Brian A. Murdock Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services; Director of Princeton Funds Distributor, Inc.
Mercury Asset Gregory D. Upah Senior Vice President of Mercury; Senior Vice President of MLAM; Senior Vice
Management US President of Princeton Services
</TABLE>
II-17
<PAGE>
Item 27. Principal Underwriters
----------------------
(a) Pacific Mutual Distributors, Inc. ("PMD") member, NASD & SIPC
serves as Distributor of Shares of Pacific Select Fund. PMD is a
subsidiary of Pacific Life.
(b)
<TABLE>
<CAPTION>
Name and Principal/8/ Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
- ------------------------- ------------------------- ---------------------
<S> <C> <C>
Audrey L. Milfs Secretary Secretary
Edward R. Byrd Director, Vice President None
and Chief Financial
Officer, and Treasurer
Philip M. Gainsborough Director None
Gerald W. Robinson Director, Chairman and CEO None
John L. Dixon Director and President None
Thomas H. Oliver Director None
John W. Poff Vice President, Operations None
Patricia A. Thompson Assistant Vice President, None
Compliance
Jane M. Guon Assistant Secretary Assistant Secretary
</TABLE>
Item 28. Location of Accounts and Records
--------------------------------
The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940
and the rules under that section will be maintained by Pacific Life at
700 Newport Center Drive, Newport Beach, California 92660.
Item 29. Management Services
-------------------
Not applicable
Item 30. Undertakings
------------
The registrant hereby undertakes:
Not applicable
- -----------------
/8/ Principal business address for all individuals listed is 700 Newport
Center Drive, Newport Beach, California 92660
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement under Rule
485(a)(2) under the Securities Act and has duly caused this Post-Effective
Amendment No. 27 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Newport Beach, and State
of California, on this 15th day of February, 2000.
PACIFIC SELECT FUND
By:
__________________________________
Glenn S. Schafer*
President
*By: /s/ DAVID R. CARMICHAEL
_______________________________
David R. Carmichael
as attorney-in-fact
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 27 to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Chairman and Trustee , 2000
- ------------------------------------ (Chief Executive Officer) -----------
Thomas C. Sutton*
Vice President and Treasurer , 2000
- ------------------------------------ (Vice President) -----------
Brian D. Klemens*
President , 2000
- ------------------------------------ (President) -----------
Glenn S. Schafer*
Trustee , 2000
- ------------------------------------ ----------
Richard L. Nelson*
Trustee , 2000
- ------------------------------------ ----------
Lyman W. Porter*
Trustee , 2000
- ------------------------------------ ----------
Alan Richards*
Trustee , 2000
- ------------------------------------ ----------
Lucie H. Moore*
* By: /s/ DAVID R. CARMICHAEL February 15, 2000
- ------------------------------------
David R. Carmichael
as attorney-in-fact
</TABLE>
PART C
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
above constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye, and Robin Yonis Sandlaufer his or her
true and lawful attorney-in-fact and agent, each with full power of substitution
and resubstitution for him or her in his or her name, place and stead, in any
and all Registration Statements applicable to Pacific Select Fund and any
amendments or supplements thereto, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent, or his or her substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
*(Powers of Attorney are contained in Registrant's Form Type N1A/A, Accession
No. 0000898430-95-002463 filed on November 22, 1995, Power of Attorney for Mr.
Klemens is contained in Registrant's Form Type N1A/B, Accession No. 0001017062-
97-000728 filed on April 25, 1997. Power of Attorney for Mr. Schafer is
contained in Registrant's Form Type N1A/A, Accession No. 0001017062-98-000424
filed on March 2, 1998 and Power of Attorney for Lucie H. Moore is contained in
Registrant's Form Type N1A/A, Accession No. 0001017062-99-000192 filed on
February 12, 1999.)
II-20
<PAGE>
EXHIBIT (a)(1)
PACIFIC SELECT FUND
AMENDED AND RESTATED
AGREEMENT AND
DECLARATION OF TRUST
October 28, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE I -- THE TRUST
<S> <C> <C>
Section 1.1 Name.......................................................... 1
Section 1.2 Definitions................................................... 2
ARTICLE II -- TRUSTEES
Section 2.1 Management of the Trust....................................... 3
Section 2.2 Election of Trustees.......................................... 3
Section 2.3 Term of Office of Trustees.................................... 3
Section 2.4 Termination of Service and Appointment of Trustees............ 4
Section 2.5 Temporary Absence of Trustee.................................. 4
Section 2.6 Number of Trustees............................................ 4
Section 2.7 Effect of Death, Resignation, etc. of the Trustee............. 4
Section 2.8 No Accounting................................................. 4
Section 2.9 Ownership of the Trust........................................ 5
ARTICLE III -- POWERS OF TRUSTEES
Section 3.1 General....................................................... 5
Section 3.2 Investments................................................... 5
Section 3.3 Legal Title................................................... 6
Section 3.4 Issuance and Repurchase of Securities......................... 6
Section 3.5 Borrow Money.................................................. 6
Section 3.6 Officers; Delegation; Committees.............................. 6
Section 3.7 Collection and Payment........................................ 7
Section 3.8 Expenses...................................................... 7
Section 3.9 Manner of Acting; By-laws..................................... 7
Section 3.10 Voting Trusts................................................. 7
Section 3.11 Miscellaneous Powers.......................................... 7
Section 3.12 Further Powers................................................ 8
ARTICLE IV -- ADVISORY, MANAGEMENT AND DISTRIBUTION ARRANGEMENTS
Section 4.1 Advisory and Management Arrangements.......................... 8
Section 4.2 Distribution Arrangements..................................... 9
Section 4.3 Parties to Contract........................................... 9
Section 4.4 Provisions and Amendments..................................... 9
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE V -- LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS
Section 5.1 Trustees, Shareholders, etc. Not Personally Liable; Notice.... 9
Section 5.2 Trustee's Good Faith Action; Expert Advice; No Bond or Surety. 10
Section 5.3 Indemnification of Shareholders............................... 10
Section 5.4 Indemnification of Trustees, Officers, etc.................... 11
Section 5.5 Compromise Payment............................................ 11
Section 5.6 Indemnification Not Exclusive, etc............................ 12
Section 5.7 Liability of Third Persons Dealing with Trustees.............. 12
ARTICLE VI -- SHARES OF BENEFICIAL INTEREST
Section 6.1 Beneficial Interest........................................... 12
Section 6.2 Series Designation............................................ 12
Section 6.3 Class Designation............................................. 14
Section 6.4 Rights of Shareholders........................................ 15
Section 6.5 Trust Only.................................................... 16
Section 6.6 Issuance of Shares............................................ 16
Section 6.7 Register of Shares............................................ 16
Section 6.8 Transfer Agent and Registrar.................................. 16
Section 6.9 Transfer of Shares............................................ 17
Section 6.10 Notice........................................................ 17
ARTICLE VII -- CUSTODIANS
Section 7.1 Appointment and Duties........................................ 17
Section 7.2 Action Upon Termination of Custodian Agreement................ 18
Section 7.3 Central Certificate System.................................... 18
Section 7.4 Acceptance of Receipts in Lieu of Certificates................ 18
ARTICLE VIII -- REDEMPTION
Section 8.1 Redemptions................................................... 19
Section 8.2 Redemptions of Accounts of Less than a Minimum Dollar Amount.. 19
ARTICLE IX -- DETERMINATION OF NET ASSET VALUE, NET INCOME AND DISTRIBUTIONS
Section 9.1. Net Asset Value............................................... 19
Section 9.2. Distributions to Shareholders................................. 19
Section 9.3. Power to Modify Foregoing Procedures.......................... 20
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
ARTICLE X -- SHAREHOLDERS
<S> <C> <C>
Section 10.1 Voting Powers................................................. 20
Section 10.2 Meetings...................................................... 21
Section 10.3 Quorum and Required Vote...................................... 21
Section 10.4 Record Date for Meetings...................................... 21
Section 10.5 Proxies....................................................... 21
Section 10.6 Additional Provisions......................................... 21
Section 10.7 Reports....................................................... 21
Section 10.8 Shareholder Action by Written Consent......................... 22
ARTICLE XI -- DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS; ETC.
Section 11.1 Duration...................................................... 22
Section 11.2 Termination................................................... 22
Section 11.3 Reorganization................................................ 23
Section 11.4 Amendment Procedure........................................... 24
Section 11.5 Incorporation................................................. 24
ARTICLE XII -- MISCELLANEOUS
Section 12.1 Filing........................................................ 25
Section 12.2 Resident Agent................................................ 25
Section 12.3 Governing Law................................................. 25
Section 12.4 Counterparts.................................................. 25
Section 12.5 Reliance by Third Parties..................................... 26
Section 12.6 Provisions in Conflict with Law or Regulations................ 26
</TABLE>
iii
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND
DECLARATION OF TRUST
OF
PACIFIC SELECT FUND
THE AMENDED AND RESTATED AGREEMENT AND DECLARATION OF TRUST of Pacific
Select Fund made this 28th day of October, 1999 by the parties signatory hereto,
as trustees (such persons, so long as they shall continue in office in
accordance with the terms of this Amended and Restated Agreement and Declaration
of Trust, and all other persons who at the time in question have been duly
elected or appointed as trustees in accordance with the provisions of this
Amended and Restated Agreement and Declaration of Trust and are then in office,
being hereinafter called the "Trustees") and by the holders of shares of
beneficial interest issued and to be issued in the future hereunder hereinafter
provided.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the trust was formed on May 4, 1987 as a trust fund under the
laws of the Commonwealth of Massachusetts for the investment and reinvestment of
funds contributed thereto;
WHEREAS, an Agreement and Declaration of Trust dated May 4, 1987, and
several amendments and restatements thereto (collectively, the "Trust
Investment") have been executed by the then-current Trustees of the Trust;
WHEREAS, it is desire of the Trustees that the beneficial interest in
the trust assets continue to be divided into transferable shares of beneficial
interest, which may, at the discretion of the Trustees, be divided into separate
series as hereinafter provided;
WHEREAS, the Trustees desire to permit the trust assets to be divided
into separate classes of separate series;
NOW, THEREFORE, the Trustees hereby declare that they will continue to
hold in trust all money and property contributed to the trust fund (and each
series and class thereof) to manage and dispose of the same for the benefit of
the holders from time to time of the shares of beneficial interest issued
hereunder and subject to the provisions hereof, to wit:
ARTICLE I
The Trust
1.1. Name. The name of the trust created hereby (the "Trust"), which
---- ----
term shall be deemed to include any series of the Trust when the context
requires, shall be "Pacific Select Fund," and so far as may be practicable the
Trustees shall conduct the activities of the Trust, execute all documents and
sue or be sued under that name, which name (and the word
<PAGE>
"Trust" wherever hereinafter used) shall refer to the Trustees as Trustees, and
not individually, and shall not refer to the officers, agents, employees or
shareholders of the Trust or any Series thereof. Each Series or Class of the
Trust which shall be established and designated by the Trustees pursuant to
Section 6.2 and Section 6.3, respectively, shall conduct its activities under
such name as the Trustees shall determine and set forth in the resolution
establishing such Series or Class. Should the Trustees determine that the use of
the name of the Trust, or any Series or Class thereof, is not advisable, they
may select such other name for the Trust, or such Series or Class thereof, as
they deem proper and the Trust, or such Series or Class thereof, may conduct its
activities under such other name. Any name change shall be effected by
resolution of a majority of the then Trustees. Any such resolution, which shall
be reduced to writing and certified by any officer of the Trust, shall have the
status of an amendment to this Amended and Restated Declaration of Trust. The
address of the Trust's principal office is 700 Newport Center Drive, Newport
Beach, California 92660-6397. The addresses of the Trustees are in care of the
resident agent of the Trust the address of which is provided in Section 12.2.
1.2. Definitions. As used in this Agreement and Declaration of Trust,
---- -----------
the following terms shall have the following meanings:
The "1940 Act" refers to the Investment Company Act of 1940 and the
--------
regulations promulgated thereunder, as amended from time to time.
The terms "Affiliated Person", "Assignment", "Commission", "Interested
----------------- ---------- ---------- ----------
Person", "Majority Shareholder Vote" (the 67% or 50% requirement of the third
- ------ -------------------------
sentence of Section 2(a)(42) of the 1940 Act, whichever may be applicable) and
"Principal Underwriter" shall have the meanings given them in the 1940 Act.
- ----------------------
"Commission" shall mean the U.S. Securities and Exchange Commission.
"Class" shall mean any separate Class of a Series that may be
-----
established and designated by the Trustees from time to time pursuant to Section
6.3.
"Declaration" or "Declaration of Trust" shall mean this Amended and
-------------------------------------
Restated Agreement and Declaration of Trust as amended from time to time.
References in this Declaration to "Declaration", "hereof", "herein" and
----------- ------ ------
"hereunder" shall be deemed to refer to the Declaration rather than the article
- ----------
or section in which such words appear.
"Fundamental Policies" shall mean the investment objective for each
--------------------
Series and the investment restrictions set forth in the registration statement
for the Trust on Form N-1A and designated as fundamental policies therein.
"Person" shall mean and include individuals, corporations,
------
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
"Prospectus" shall mean the currently effective prospectus of any
----------
Series of the Trust under the Securities Act of 1933, as amended.
-2-
<PAGE>
"Series" shall mean any separate Series that may be established and
------
designated by the Trustees from time to time pursuant to Section 6.2.
"Shareholders" shall mean as of any particular time all holders of
------------
record of outstanding Shares at such time.
"Shares" shall mean the equal proportionate transferable units of
------
interest into which the beneficial interest in any Series and Class of the Trust
shall be divided from time to time and includes fractions of Shares as well as
whole Shares. All references to Shares shall be deemed to be Shares of any or
all Series and/or any or all Classes as the context may require.
"Trustees" shall mean the signatories to this Declaration, so long as
--------
they shall continue in office in accordance with the terms hereof, and all other
persons who at the time in question have been duly elected or appointed and have
qualified as Trustees in accordance with the provisions hereof and are then in
office, and each such person is herein referred to as the "Trustee", and
reference in this Declaration to a Trustee or Trustees shall refer to such
person or persons in their capacity as Trustees hereunder.
"Trust Property" shall mean as of any particular time any and all
--------------
property, real or personal, tangible or intangible, which at such time in owned
or hold by or for the account of the Trust, any Series or Class thereof, or the
Trustees.
ARTICLE II
Trustees
2.1. Management of the Trust. The business and affairs of the Trust
---- -----------------------
shall be managed by the Trustees, and they shall have all powers necessary and
desirable to carry out that responsibility. The Trustees named herein (or their
successors appointed hereunder) shall serve until the election of Trustees at
the first meeting of Shareholders of the Trust.
2.2. Election of Trustees. Except for any Trustees appointed to fill
---- --------------------
vacancies pursuant to Section 2.4 hereof, the Shareholders of the Trust shall
elect Trustees at Shareholder meetings called for that purpose to the extent
required by the 1940 Act. The Trustees need not be elected annually or at
regular intervals. Except as provided in Section 10.2, the Trustees shall not be
required to call a meeting of Shareholders for the purpose of electing Trustees,
provided, however, that in the event that at any time, other than the time
preceding the first meeting of Shareholders for the purpose of electing
Trustees, less than a majority of the Trustees holding office at that time were
elected by the Shareholders, a meeting of the Shareholders for the purpose of
electing Trustees shall be held promptly and in any event within 60 days (unless
the Commission shall by order extend such period). No election of a Trustee
shall become effective, however, until the person elected shall have accepted
such election and agreed in writing to be bound by the terms of this
Declaration. If re-elected, a Trustee may succeed himself or herself. Trustees
need not own shares.
-3-
<PAGE>
2.3. Term of Office of Trustees. A Trustee duly appointed or elected
---- --------------------------
hereunder shall hold office until the occurrence of any of the following: (a)
the Trustee may resign his or her trust by written instrument signed by him or
her and delivered to the other Trustees, which shall take effect upon such
delivery or upon such later date as is specified therein; (b) the Trustee may be
removed at any time by written instrument signed by at least two-thirds of the
number of Trustees prior to such removal, specifying the date when such removal
shall become effective; (c) the Trustee who requests in writing to be retired or
who has become mentally or physically incapacitated may be retired by written
instrument signed by a majority of the other Trustees, specifying the date of
his retirement; and (d) the Trustee may be removed at any meeting of
Shareholders of the Trust by a vote of two-thirds of the outstanding Shares or
by a written declaration executed, without a meeting, by the holders of not less
than two-thirds of the outstanding Shares.
2.4. Termination of Service and Appointment of Trustees. In case of
---- --------------------------------------------------
the death, resignation, retirement, removal or mental or physical incapacity of
any of the Trustees, or in case a vacancy shall, by reason of an increase in
number, or for any other reason, exist, the remaining Trustees may (but need not
unless required by the 1940 Act, so long as there are at least two remaining
Trustees) fill such vacancy by appointing for the remaining term of the
predecessor Trustee such other person as they in their discretion shall see fit.
Such appointment shall be effective upon the signing of a written instrument by
a majority of the Trustees in office and the written acceptance of this
Declaration by the appointee. An appointment of a Trustee may be made by the
Trustees then in office in anticipation of a vacancy to occur by reason of
retirement, resignation or increase in number of Trustees effective at a later
date, provided that said appointment shall become effective only at or after the
effective date of said retirement, resignation or increase in number of Trustees
and the written acceptance of this Declaration by the appointee. As soon as any
Trustee so appointed shall have accepted this Trust, the trust estate shall vast
in the new Trustee or Trustees, together with the continuing Trustees, without
any further act or conveyance, and he or she shall be deemed a Trustee
hereunder. Any appointment authorized by this Section 2.4 is subject to the
provisions of Section 16(a) of the 1940 Act.
2.5. Temporary Absence of Trustee. Any Trustee may, by power of
---- ----------------------------
attorney, delegate his or her power for a period not exceeding six months at any
one time to any other Trustee or Trustees, provided that in no case shall less
than two of the Trustees personally exercise the power hereunder except as
herein otherwise expressly provided.
2.6. Number of Trustees. The number of Trustees serving hereunder at
---- ------------------
any time shall be determined by the Trustees themselves, but shall not be less
than two (2) or more than fifteen (15).
2.7. Effect of Death, Resignation, etc. of a Trustee. The death,
---- -----------------------------------------------
resignation, retirement, removal, or mental or physical incapacity of the
Trustees, or any one of them, shall not operate to annul or terminate the Trust
or any Series or Class hereunder or to revoke or terminate any existing agency
or contract created pursuant to the terms of this Declaration, and until such
vacancy is filled, the Trustees in office, regardless of their number, shall
have all of the
-4-
<PAGE>
powers granted to the Trustees and shall discharge all the duties imposed upon
them by this Declaration.
2.8. No Accounting. Except to the extent required by the 1940 Act or
---- -------------
under circumstances which would justify his or her removal for cause, no person
ceasing to be a Trustee as a result of his death, resignation, retirement,
removal or incapacity (nor the estate of any such person) shall be required to
make an accounting to the shareholders or remaining Trustees upon such
cessation.
2.9. Ownership of the Trust. The assets of the Trust shall be held
---- ----------------------
separate and apart from any assets now or hereafter held in any capacity other
than as Trustee hereunder by the Trustees or by any successor Trustees. All of
the assets of the Trust shall at all times be considered as vested in the
Trustees. No Shareholder shall be deemed to have a severable ownership in any
individual asset of the Trust or any right of partition or possession thereof,
but each Shareholder shall have a proportionate undivided beneficial interest in
the Trust.
ARTICLE III
Powers of Trustees
3.1. General. The Trustees in all instances shall act as principals,
---- -------
and are and shall be free from the control of the Shareholders. The Trustees
shall have full power and authority to do any and all acts and to make and
execute any and all contracts and instruments that they may consider necessary
or appropriate in connection with the management of the Trust. The Trustees
shall not be bound or limited by present or future laws or customs with regard
to investment by trustees or fiduciaries, but shall have full authority and
absolute power and control over the Trust Property and business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, including such authority, power and control to
do all acts and things as they, in their uncontrolled discretion, shall deem
proper to accomplish the purposes of this Trust. The enumeration of any specific
power herein shall not be construed as limiting the aforesaid powers.
3.2. Investments. The Trustees shall have power, subject to the
---- -----------
Fundamental Policies, to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, lend, exchange,
mortgage, hypothecate, lease, distribute or otherwise deal in or
dispose of common stocks, preferred stocks, bonds, debentures,
warrants and rights to purchase securities, mortgage related
securities such as mortgage-backed securities and collateralized
mortgage obligations, options on securities, futures contracts and
options on futures contracts, covered spread options, certificates of
beneficial interest, negotiable or non-negotiable instruments, bank
obligations, evidences of indebtedness,
-5-
<PAGE>
privately placed debt securities, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, reverse
repurchase agreements, firm commitment agreements and "when-issued"
securities and other securities, including, without limitation, those
issued, guaranteed or sponsored by any state, territory or possession
of the United States and the District of Columbia and their political
subdivisions, agencies and instrumentalities, or by the United States
Government or its agencies or instrumentalities, or international
instrumentalities, or by any bank, savings institution, corporation or
other business entity organized under the laws of the United States
and, to the extent provided in the Prospectus and not prohibited by
the Fundamental Policies of the Trust, foreign securities of issuers
or governments organized under foreign laws, and any other securities,
instruments, assets, or obligations; and to exercise any and all
rights, powers and privileges of ownership or interest in respect of
any and all such investments of every kind and description, with power
to designate one or more persons, firms, associations or corporations
to exercise any of said rights, powers and privileges in respect of
any of said instruments; and the Trustees shall be deemed to have the
foregoing powers with respect to any additional securities in which
any Series of the Trust may invest should the investment policies set
forth in the Prospectus or the Fundamental Policies be amended.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust or any Series or Class thereof.
3.3. Legal Title. Legal title to all the Trust Property shall be
---- -----------
vested in the Trustees as joint tenants except that the Trustees shall have
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust or any Series thereof,
or in the name of any other Person as nominee, on such terms as the Trustees may
determine, provided that the interest of the Trust or any Series thereof is
appropriately protected.
3.4. Issuance and Repurchase of Securities. The Trustees shall have
---- -------------------------------------
the power to issue, sell, repurchase, redeem, retire, cancel, acquire, hold,
resell, reissue, dispose of, transfer, and otherwise deal in, Shares, including
shares in fractional denominations, and, subject to the more detailed provisions
set forth in Articles VIII and IX, to apply to any such repurchase, redemption,
retirement, cancellation or acquisition of Shares any funds or property of the
applicable Series of the Trust whether capital or surplus or otherwise, to the
full extent now or hereafter permitted by the laws of the Commonwealth of
Massachusetts governing business corporations.
3.5. Borrow Money. Subject to the Fundamental Policies, the Trustees
---- ------------
shall have power to borrow money or otherwise obtain credit and to secure the
same by mortgaging, pledging or otherwise subjecting as security the assets of
the Trust or any Series thereof, including the lending of portfolio securities,
and to endorse, guarantee or undertake the performance of any obligation,
contract or engagement of any other person, form, association or corporation.
-6-
<PAGE>
3.6. Officers; Delegation; Committees. The Trustees may, as they
---- --------------------------------
consider appropriate, elect and remove officers and appoint and terminate agents
and consultants and hire and terminate employees, any one or more of the
foregoing of whom may be a Trustee and may provide for the compensation of all
of the foregoing. The Trustees shall have power, consistent with their
continuing exclusive authority over the management of the Trust and the Trust
Property, to delegate from time to time to such of their number or to officers,
employees or agents of the Trust the doing of such things and the execution of
such instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient. The Trustees may appoint from
their number and terminate any one or more committees consisting of two or more
Trustees, including without implied limitation an Executive Committee which may,
when the Trustees are not in session and subject to the 1940 Act, exercise some
or all of the powers and authority of the Trustees as the Trustees may
determine.
3.7. Collection and Payment. The Trustees shall have power to collect
---- ----------------------
all property due to the Trust or any Series thereof; to pay all claims,
including taxes, against the Trust Property; to prosecute, defend, compromise,
arbitrate or abandon any claims relating to the Trust Property; to foreclose any
security interest securing any obligations, by virtue of which any property is
owed to the Trust or any Series thereof; and to enter into releases, agreements
and other instruments.
3.8. Expenses. The Trustees shall have power to incur and pay any
---- --------
expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of the Trust, or any Series or Class thereof, and
to pay reasonable compensation from the funds of the Trust to themselves as
Trustees. The Trustees shall fix the compensation of all officers, employees and
Trustees. The Trustees may pay themselves such compensation for special
services, including legal, underwriting, syndicating and brokerage services, as
they in good faith may deem reasonable and reimbursement for expenses reasonably
incurred by themselves on behalf of the Trust.
3.9. Manner of Acting; By-laws. Except as otherwise provided herein
---- -------------------------
or in the By-laws or required by the 1940 Act, any action to be taken by the
Trustees may be taken by a majority of the Trustees present at a meeting of the
Trustees (a quorum being present), including any meeting held by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, or by written consents
of a majority of Trustees then in office (or such larger or different number as
may be required by the 1940 Act or other applicable law). The Trustees may adopt
and from time to time amend or repeal the By-laws for the conduct of the
business of the Trust.
3.10. Voting Trusts. The Trustees shall have power and authority for
----- -------------
and on behalf of the Trust to join with other holders of any securities or debt
instruments in acting through a committee, depositary, voting trustee or
otherwise, and in that connection to deposit any security or debt instrument
with, or transfer any security or debt instrument to, any such committee,
depositary or trustee, and to delegate to them such power and authority with
relation to any security or debt instrument (whether or not so deposited or
transferred) as the Trustees
-7-
<PAGE>
shall deem proper, and to agree to pay, and to pay, such portion of the expenses
and compensation of such committee, depositary or trustee as the Trustees shall
deem proper.
3.11. Miscellaneous Powers. The Trustees shall have the power to:
----- --------------------
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust or any Series or Class thereof; (b)
enter into joint ventures, partnership and any other combinations or
associations; (c) purchase, and pay for out of Trust Property, insurance as they
deem necessary or appropriate for the conduct of the business, including without
limitation, policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, distributors, selected dealers or independent
contractors of the Trust, or any Series or Class thereof, against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not constituting
negligence, or whether or not the Trust would have the power to indemnify such
Person against such liability; (d) establish pension, profit-sharing, share
purchase, and other retirement, incentive and benefit plans for any Trustees,
officers, employees and agents of the Trust; (e) make donations, irrespective of
benefit to the Trust, for charitable, religious, educational, scientific, civic
or similar purposes; (f) to the extent permitted by law, indemnify any Person
with whom the Trust, or any Series or Class thereof, has dealings, including any
adviser, administrator, manager, distributor and selected dealers with respect
to any Series or Class, to such extent as the Trustees shall determine; (g)
guarantee indebtedness or contractual obligations of others; (h) determine and
change the fiscal year of the Trust and the method in which its accounts shall
be kept; and (i) adopt a seal for the Trust, provided that the absence of such
seal shall not impair the validity of any instrument executed on behalf of the
Trust.
3.12. Further Powers. The Trustees shall have power to conduct the
----- --------------
business of the Trust or any Series or Class thereof, carry on its operations
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust or any Series or Class thereof although such things are
not herein specifically mentioned. Any determination as to what is in the
interests of the Trust or any Series or Class thereof made by the Trustees in
good faith shall be conclusive. In construing the provisions of this
Declaration, the presumption shall be in favor of a grant of power to the
Trustees. The Trustees will not be required to obtain any court order to deal
with the Trust Property. No Trustee shall be required to give any bond or other
security for the performance of any of his or her duties hereunder.
ARTICLE IV
Advisory, Management and Distribution Arrangements
4.1. Advisory and Management Arrangements. Subject to a Majority
---- ------------------------------------
Shareholder Vote, if required by law, of the applicable Series or Class, the
Trustees may in their discretion from time to time enter into advisory,
administrative or management contracts
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whereby the other party to such contract shall undertake to furnish to the
Trustees such advisory, administrative and management services, with respect to
a Series or a Class as the Trustees shall from time to time consider desirable
and all upon such terms and conditions as the Trustees may in their discretion
determine. Subject to a Majority Shareholder Vote if required by law, the
investment adviser may engage one or more firms to serve as Portfolio Manager to
a Series pursuant to a sub-investment advisory contract in which the Portfolio
Manager makes all determinations with respect to the purchase and sale of
portfolio securities and places, in the names of the Series all orders for
execution of the Series' portfolio transactions upon such terms and conditions
and for such compensation as the Trustees may in their discretion approve. A
Portfolio Manager may, in turn, engage its own sub-adviser in managing a
particular Series. Notwithstanding any provisions of this Declaration, the
Trustees may authorize any adviser, portfolio manager, administrator or manager
(subject to such general or specific instructions as the Trustees may from time
to time adopt) to effect purchases, sales, loans or exchanges of portfolio
securities of any Series of the Trust on behalf of the Trustees or may authorize
any officer, employee or Trustee to effect such purchases, sales, loans or
exchanges pursuant to recommendations of any such adviser, portfolio manager,
administrator or manager (and all without further action by the Trustees). Any
such purchases, sales, loans or exchanges shall be deemed to have been
authorized by all of the Trustees.
4.2. Distribution Arrangements. The Trustees may in their discretion
---- -------------------------
from time to time enter into a contract, providing for the sale of the Shares of
the Trust, or any Series or any Class hereof, whereby the Trust may either agree
to sell such Shares to the other party to the contract or appoint such other
party as its sales agent for such Shares. In either case, the contract shall be
on such terms and conditions as the Trustees may in their discretion determine
to be not inconsistent with the provisions of this Article IV or the By-laws;
and such contract may also provide for the repurchase or sale of Shares by such
other party as principal or as agent of the Trust and may provide that such
other party may enter into selected dealer agreements with registered securities
dealers to further the purpose of the distribution or repurchase of the Shares.
The Trustees may adopt a Distribution Plan or related plan pursuant to Rule 12b-
1 of the 1940 Act and may authorize the Trust to make payments from its assets
pursuant to such Plan.
4.3. Parties to Contract. Any contract of the character described in
---- -------------------
Sections 4.1 and 4.2 of this Article IV or in Article VII hereof may be entered
into with any corporation, firm, trust or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, Trustee,
shareholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any person holding such relationship be liable merely by
reason of such relationship for any loss or expense to the Trust under or by
reason of said contract or accountable for any profit realized directly or
indirectly therefrom. The same person (including a firm, corporation, trust or
association) may be the other party to contracts entered into pursuant to
Sections 4.1 and 4.2 above or Article VII, and any individual may be financially
interested or otherwise affiliated with persons who are parties to any or all of
the contracts mentioned in this Section 4.3.
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4.4. Provisions and Amendments. Any contract entered into pursuant to
---- -------------------------
Sections 4.1 and 4.2 of this Article IV shall be consistent with and subject to
the requirements of Section 15 of the 1940 Act with respect to its continuance
in effect, its termination, and the method of authorization and approval of such
contract or renewal thereof, and no amendment to any contract entered into
pursuant to Section 4.1 shall be effective unless consented to by a Majority
Shareholder Vote of the applicable Series if required by law.
ARTICLE V
Limitations of Liability of Shareholders, Trustees and Others
5.1. Trustees, Shareholders, etc. Not Personally Liable; Notice. All
---- ----------------------------------------------------------
persons extending credit to, contracting with or having any claim against the
Trust shall look only to the assets of the Series or Class with which such
person dealt for payment under such credit, contract or claim; and neither the
Shareholders of any Series or Class nor the Trustees, nor any of the Trust's
officers, employees or agents, whether past, present or future, nor any other
Series shall be personally liable therefore. Every note, bond, contract,
instrument, certificate or undertaking and every other act or thing whatsoever
executed or done by or on behalf of the Trust, any Series or Class thereof, or
the Trustees or any of them in connection with the Trust shall be conclusively
deemed to have been executed or done only by or for the Trust (or the Series or
Class) or the Trustees and not personally. Nothing in this Declaration shall
protect any Trustee or officer against any liability to the Trust or the
Shareholders to which such Trustee or officer would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of Trustee or of such
officer.
Every note, bond, contract, instrument, certificate, share or
undertaking made or issued by the Trustees or by any officers or officer shall
give notice that this Declaration is on file with the Secretary of the
Commonwealth of Massachusetts and shall recite to the effect that the same was
executed or made by or on behalf of the Trust or by them as Trustees or Trustee
or as officers or officer and not individually and that the obligations of such
instrument are not binding upon any of them or the Shareholders individually but
are binding only upon the assets and property of the Trust, or the particular
Series or Class in question, as the case may be, but the omission thereof shall
not operate to bind any Trustees or Trustee or officers or officer or
Shareholders or Shareholder individually.
5.2. Trustee's Good Faith Action; Expert Advice; No Bond or Surety.
---- -------------------------------------------------------------
The exercise by the Trustees of their powers and discretion hereunder shall be
binding upon everyone interested. A Trustee shall be liable for his own willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office of Trustee, and for nothing else, and
shall not be liable for errors of judgment or mistakes of fact or law. Subject
to the foregoing, (a) the Trustees shall not be responsible or liable in any
event for any neglect or wrongdoing of any officer, agent, employee, consultant,
adviser, administrator, distributor or principal underwriter, custodian or
transfer, dividend disbursing, Shareholder servicing or accounting agent of the
Trust, nor shall any Trustee be responsible for the act or omission of any other
Trustee; (b) the Trustees may take advice of counsel or other experts with
respect to the
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<PAGE>
meaning and operation of this Declaration and their duties as Trustees, and
shall be under no liability for any act or omission in accordance with such
advice or for failing to follow such advice; and (c) in discharging their
duties, the Trustees, when acting in good faith, shall be entitled to rely upon
the books of account of the Trust and upon written reports made to the Trustees
by any officer appointed by them, any independent public accountant, and (with
respect to the subject matter of the contract involved) any officer, partner or
responsible employee of any adviser, administrator, manager, distributor,
selected dealer, appraiser or other expert, consultant or agent. The Trustees as
such shall not be required to give any bond or surety or any other security for
the performance of their duties.
5.3. Indemnification of Shareholders. In case any Shareholder (or
---- -------------------------------
former Shareholder) of any Series of the Trust shall be charged or held to be
personally liable for any obligation or liability of the Trust solely by reason
of being or having been a Shareholder and not because of such Shareholder's acts
or omissions or for some other reason, said series (upon proper and timely
request by the Shareholder) shall assume the defense against such charge and
satisfy any judgment thereons and the Shareholder or former Shareholder (or his
heirs, executors, administrators or other legal representatives or in the case
of a corporation or other entity, its corporate or other general successor)
shall be entitled out of the assets of said Series' estate to be held harmless
from and indemnified against all loss and expense arising from such liability.
5.4. Indemnification of Trustees, Officers, etc. The Trust shall
---- ------------------------------------------
indemnify (from the assets of the Series or Series in question or, if
appropriate and permitted, from the assets of a Class or Classes) each of its
Trustees and officers (including persons who serve at the Trust's request as
directors, officers or trustees of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) [hereinafter referred to
as a "Covered Person"] against all liabilities, including but not limited to
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and expenses, including reasonable accountants' and counsel fees,
incurred by any Covered Person in connection with the defense or disposition of
any action, suit or other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which such Covered Person may be
or may have been involved as a party or otherwise or with which such person may
be or may have been threatened, while in office or thereafter, by reason of
being or having been such a Trustee or officer, director or trustee, except with
respect to any matter as to which it has been determined that such Covered
Person (i) did not act in good faith in the reasonable belief that such Covered
Person's action was in or not opposed to the best interests of the Trust or (ii)
had acted with willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such Covered Person's office
(either and both of the conduct described in (i) and (ii) being referred to
hereafter as "Disabling Conduct"). A determination that the Covered Person is
entitled to indemnification may be made by (i) a final decision on the merits by
a court or other body before whom the proceeding was brought that the person to
be indemnified was not liable by reason of Disabling Conduct, (ii) dismissal of
a court action or an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the indemnitee was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Trust as defined in section
2(a)(19) of the 1940 Act nor parties to the proceeding, or (b) an
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independent legal counsel in a written opinion. Expenses, including accountants'
and counsel fees so incurred by any such Covered Person (but excluding amounts
paid in satisfaction of judgments, in compromise or as fines or penalties), may
be paid from time to time by the Series or Class in question in advance of the
final disposition of any such action, suit or proceeding, provided that the
Covered Person shall have undertaken to repay the amounts so paid to the Series
or Class in question if it is ultimately determined that indemnification of such
expenses is not authorized under this Article V and (i) the Covered Person shall
have provided security for such undertaking, (ii) the Trust shall be insured
against losses arising by reason of any lawful advances, or (iii) a majority of
a quorum of the disinterested Trustees who are not a party to the proceeding, or
an independent legal counsel in a written opinion, shall have determined, based
on a review of readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the Covered Person ultimately
will be found entitled to indemnification.
5.5. Compromise Payment. As to any matter disposed of by a compromise
---- ------------------
payment by any such Covered Person referred to in Section 5.4, pursuant to a
consent decree or otherwise, no such indemnification either for said payment or
for any other expenses shall be provided unless such indemnification shall be
approved (a) by a majority of the disinterested Trustees who are not parties to
the proceeding or (b) by an independent legal counsel in a written opinion.
Approval by the Trustees pursuant to clause (a) or by independent legal counsel
pursuant to clause (b) shall not prevent the recovery from any Covered Person of
any amount paid to such Covered Person in accordance with any of such clauses as
indemnification if such Covered Person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that such Covered Person's action was in or not opposed to the best interests of
the Trust or to have been liable to the Trust or its Shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's office.
5.6. Indemnification Not Exclusive. etc, The right of indemnification
---- ----------------------------------
provided by this Article V shall not be exclusive of or affect any other rights
to which any such Covered Person may be entitled. As used in this Article V,
"Covered Person" shall include such person's heirs, executors and
administrators; "interested Covered Person" is one against whom the action, suit
or other proceeding in question or another action, suit or other proceeding on
the same or similar grounds is then or has been pending or threatened, and a
"disinterested" person is a person against whom none of such actions, suits or
other proceedings or another action, suit or other proceeding on the same or
similar grounds is then or has been pending or threatened. Nothing contained in
this Article shall affect any rights to indemnification to which personnel of
the Trust, other than Trustees and officers, and other persons may be entitled
by contract or otherwise under law, nor the power of the Trust to purchase and
maintain liability insurance on behalf of any such person.
5.7. Liability of Third Persons Dealing with Trustees. No person
---- ------------------------------------------------
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
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ARTICLE VI
Shares of Beneficial Interest
6.1. Beneficial Interest. The interest of the beneficiaries hereunder
---- -------------------
shall be divided into transferable shares of beneficial interest with par value
$.001 per share. The number of such shares of beneficial interest authorized
hereunder is unlimited. All Shares issued hereunder including, without
limitation, Shares issued in connection with a dividend in Shares or a split of
Shares, shall be fully paid and nonassessable.
6.2. Series Designation. The Trustees, in their discretion from time
---- ------------------
to time, may authorize the division of Shares into one or more Series, each such
Series relating to a separate portfolio of investments.
The first twenty of such Series have been established and designated
and are as follows:
Money Market Portfolio
High Yield Bond Portfolio
Managed Bond Portfolio
Government Securities Portfolio
Small-Cap Equity Portfolio* (formerly, the Growth Portfolio)
Aggressive Equity Portfolio
Growth LT Portfolio
Equity Income Portfolio
Multi-Strategy Portfolio
Large-Cap Value Portfolio
Mid-Cap Value Portfolio
Equity Portfolio
Bond and Income Portfolio
Equity Index Portfolio
Small-Cap Index Portfolio
REIT Portfolio
International Value Portfolio* (formerly the International
Portfolio)
Emerging Markets Portfolio
Diversified Research Portfolio*
International Large-Cap Portfolio*
* Effective as of January 1, 2000.
Different Series may be established and designated and variations in
the relative rights and preferences as between the different Series shall be
fixed and determined by the Trustees; provided that all Shares shall be
identical except as provided for by Section 6.3 and except that there may be
variations between different Series as to investment policies, securities
portfolios, purchase price, determination of net asset value, the price, terms
and manner of
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<PAGE>
redemption, special and relative rights as to dividends and on liquidation,
conversion rights, and conditions under which the several Series shall have
separate voting rights.
The following provisions shall be applicable to all series:
(a) The number of Shares of each Series that may be issued shall be
unlimited. The Trustees may classify or reclassify any unissued Shares or any
Shares previously issued and required of any Series into one or more Series that
may be established and designated from time to time. The Trustees may hold as
treasury Shares (of the same or some other Series), reissue for such
consideration and on such terms as they may determine, or cancel any Shares of
any Series reacquired by the Trust at their discretion from time to time.
(b) The power of the Trustees to invest and reinvest the Trust
Property of each Series that has been or that may be established shall be
governed by Section 3.2 of this Declaration.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular Series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that Series for all purposes, subject only to the rights
of creditors, and shall be so recorded upon the books of account of the Trust.
In the event that there are any assets, income, earnings, profits and proceeds
thereof, funds or payments which are not readily identifiable as belonging to
any particular Series, the Trustees shall allocate them among any one or more of
the Series established and designated from time to time in such manner and on
such basis as they, in their sole discretion, deem fair and equitable. Each such
allocation by the Trustees shall be conclusive and binding upon the Shareholders
of all Series for all purposes.
(d) The assets belonging to each particular Series shall be charged
with the liabilities of the Trust in respect of that Series and all expenses,
costs, charges and reserves attributable to that Series, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series shall be allocated
and charged by the Trustees to and among any one or more of the Series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all Series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital; and each such determination and allocation shall be conclusive and
binding upon the Shareholders.
(e) The power of the Trustees to pay dividends and make distributions
with respect to any one or more Series shall be governed by Section 9.2 of this
Trust. Dividends and distributions on Shares of a particular Series may be paid
with such frequency as the Trustees may determine, which may be daily or
otherwise, pursuant to a standing resolution or resolutions adopted only once or
with such frequency as the Trustees may determine, to the holders of
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<PAGE>
Shares of that Series, from such of the income and capital gains, accrued
liabilities belonging to that Series. All dividends and distributions on Shares
of a particular Series shall be distributed pro rata to the holders of that
Series in proportion to the number of Shares of that Series held by such holders
at the date and time of record established for the payment of such dividends or
distributions.
(f) The establishment and designation of any Series of Shares shall be
effected by resolution of the Board of Trustees. Upon such establishment and
designation of any new Series, an officer of the Trust shall reduce any such
resolution to writing, certify to the contents of the resolution, and file with
the Commonwealth of Massachusetts an appropriate notification of such newly
established and designated Series. The failure to file a notification regarding
the establishment and designation of any Series with the Commonwealth of
Massachusetts shall not affect the validity of the establishment and designation
of such Series.
6.3. Class Designation. The Trustees, in their discretion, may
---- -----------------
authorize the division of the Shares of any Series of the Trust into two or more
Classes, and the different Classes shall be established and designated, and the
variations in the relative rights and preferences as between the different
Classes shall be fixed and determined, by the Trustees; provided, that all
Shares of a particular Class of any Series shall be identical to all other
Shares of the same Series as the case may be, except that there may be
variations between different Classes as to distribution and service arrangements
and related expenses, allocation of expenses, rights of redemption, special and
relative rights as to dividends and on liquidation, conversion rights, and
conditions under which the several classes shall have separate voting rights.
If the Trustees shall divide the Shares of any Series into two or more Classes,
the following provisions shall be applicable.
(a) All provisions herein relating to the Trust, or any Series of the
Trust, shall apply equally to each Class of Shares of the Trust or of
any Series of the Trust, except as the context requires otherwise.
(b) The number of Shares of each Class that may be issued shall be
unlimited. The Trustees may classify or reclassify any Shares or any
Series of any Shares into one or more Classes that may be established
and designated from time to time. The Trustees may hold as treasury
Shares (of the same or some other Class), reissue for such
consideration and on such terms as they may determine, or cancel any
Shares of any Class reacquired by the Trust at their discretion from
time to time.
(c) Liabilities, expenses, costs, charges and reserves related to the
distribution of, and other identified expenses that should properly be
allocated to, the Shares of a particular Class may be charged to and
borne solely by such Class and the bearing of expenses solely by a
Class of Shares may be appropriately reflected (in a manner determined
by the Trustees) and cause differences in the net asset value
attributable to, and the dividend, redemption and liquidation rights
of, the Shares of different classes. Each allocation of liabilities,
expenses, costs, charges and
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<PAGE>
reserves by the Trustees shall be conclusive and binding upon the
Shareholders of all Classes for all purposes.
(d) The establishment and designation of any new Class of Shares shall
be effected by a resolution of the Board of Trustees. Upon such
establishment and designation of any new Class, an officer of the
Trust shall reduce any such resolution to writing, certify to the
content of the resolution, and file with the Commonwealth of
Massachusetts an appropriate notification of such newly established
and designated Class. The failure to file a notification regarding
the establishment and designation of any Class with the Commonwealth
of Massachusetts shall not affect the validity of the establishment
and designation of such Class.
6.4. Rights of Shareholders. The ownership of the Trust Property of
---- ----------------------
every description and the right to conduct any business hereinbefore described
are vested exclusively in the Trustees, and the Shareholders shall have no
interest therein other than the beneficial interest conferred by their Shares
with respect to a particular Series, and they shall have no right to call for
any partition or division of any property, profits, rights or interests of the
Trust nor can they be called upon to share or assume any losses of the Trust, or
suffer an assessment of any kind by virtue of their ownership of Shares. The
Shares shall be personal property giving only the rights in this Declaration
specifically set forth. The Shares shall not entitle the holder to preference,
preemptive, appraisal, conversion or exchange rights (except for rights to
exchange Shares of one Series for Shares of another Series as set forth in the
Prospectus).
6.5. Trust Only. It is the intention of the Trustees to create only
---- ----------
the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration shall be construed to make the Shareholders, either
by themselves or with the Trustees, partners or members of a joint stock
association.
6.6. Issuance of Shares. The Trustees, in their discretion, may from
---- ------------------
time to time without a vote of the Shareholders issue Shares with respect to any
Series or Class that may have been established and designated pursuant to
Section 6.2. and Section 6.3., respectively, in addition to the then issued and
outstanding Shares and Shares held in the treasury, to such party or parties and
for such amount not less than the then current net asset value of said Shares
and type of consideration, including cash or property, at such time or times and
on such terms as the Trustee may deem best, and may in such manner acquire other
assets (including the acquisition of assets subject to, and in connection with
the assumption of, liabilities) and businesses. In connection with any issuance
of Shares, the Trustees may issue fractional Shares. The Trustees may from time
to time divide or combine the Shares of any Series or Class into a greater or
lesser number without thereby changing the proportionate beneficial interests in
such Series of the Trust. Contributions to the Trust may be accepted for, and
Shares shall be redeemed as, whole Shares and/or 1/1,000ths of a Share or
multiples thereof.
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6.7. Register of Shares. A register shall be kept at the Trust or the
---- ------------------
offices of any transfer agent duly appointed by the Trustees under the direction
of the Trustees which shall contain the names and addresses of the Shareholders
and the number of Shares (with respect to each Series that may have been
established) held by them respectively and a record of all transfers thereof.
Separate registers shall be established and maintained for each Series and Class
of the Trust. Each such register shall be conclusive as to who are the holders
of the Shares of the applicable Series and Classes thereof, and who shall be
entitled to receive dividends or distributions or otherwise to exercise or enjoy
the rights of Shareholders. No Shareholder shall be entitled to receive payment
of any dividend or distribution, nor to have notice given to him as herein
provided, until he has given his address to a transfer agent or such other
officer or agent of the Trustees as shall keep the register for entry thereon.
The Trust shall not be required to issue certificates for the Shares; however,
the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
6.8. Transfer Agent and Registrar. The Trustee shall have power to
---- ----------------------------
employ a transfer agent or transfer agents, and a registrar or registrars, with
respect to each Class of Shares of the various Series. The transfer agent may
keep the applicable register and record therein the original issues and
transfers, if any, of the said Shares of the applicable Series. Any such
transfer agent and registrar shall perform the duties usually performed by
transfer agents and registrars of certificates of stock in a corporation, except
as modified by the Trustees.
6.9. Transfer of Shares. Shares shall be transferable on the records
---- ------------------
of the Trust only by the record holder thereof or by his agent thereto duly
authorized in writing, upon delivery to the Trustees or a transfer agent of the
Trust of a duly executed instrument of transfer, together with such evidence of
the genuineness of each such execution and authorization and of other matters as
may reasonably be required. Upon such delivery, the transfer shall be recorded
on the applicable register of the Trust. Until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereof and neither the Trustees nor any transfer agent or registrar nor
any officer, employee or agent of the Trust shall be affected by any notice of
the proposed transfer.
Any person becoming entitled to any Shares in consequence of the
death, bankruptcy or incompetence of any Shareholder, or otherwise by operation
of law, shall be recorded on the applicable register of Shares as the holder of
such Shares upon production of the proper evidence thereof to the Trustees or a
transfer agent of the Trust, but until such record is made, the Shareholder of
record shall be deemed to be the holder of such Shares for all purposes hereof
and neither the Trustees nor any transfer agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death bankruptcy or
incompetence, or other operation of law.
6.10. Notice. Any and all notices to which any Shareholder hereunder
----- ------
may be entitled and any and all communications shall be deemed duly served or
given if mailed, postage prepaid, addressed to any Shareholder of record at his
last known address as recorded on the applicable register of the Trust.
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ARTICLE VII
Custodians
7.1. Appointment and Duties. The Trustees shall at all times employ,
---- ----------------------
as custodian with respect to each Series of the Trust, a custodian or
custodians, each of which shall meet the qualifications for custodians for
portfolio securities of investment companies contained in the 1940 Act. It is
contemplated that separate custodians may be employed for the different Series
of the Trust. Any custodian, acting with respect to one or more Series, shall
have authority as agent of the Trust or the Series with respect to which it is
acting, but subject to such restrictions, limitations and other requirements, if
any, as may be contained in the By-laws of the Trust and the 1940 Act:
(1) to hold the securities owned by the Trust or the Series and
deliver the same upon written order;
(2) to receive any receipt for any monies due to the Trust or the
Series and deposit the same in its own banking department (if a bank)
or elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and accounts of
the Trust or the Series and furnish clerical and accounting services;
and
(5) if authorized to do so by the Trustees, to compute the net income
and the value of the net assets of the Trust or the Series;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. If so directed by a Majority Shareholder Vote of the Series
with respect to which the custodian is acting, the custodian shall deliver and
pay over all property of the Trust held by it as specified in such vote.
The Trustees may also authorize each custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions, as may be agreed upon between the
custodian and such sub-custodian, provided that in every case such sub-custodian
shall meet the qualifications for custodians contained in the 1940 Act.
7.2. Action Upon Termination of Custodian Agreement. Upon termination
---- ----------------------------------------------
of any custodian agreement with respect to any Series or inability of any
custodian to continue to serve, the Trustees shall promptly appoint a successor
custodian or take such other action as the Trustees deem appropriate. If so
directed by vote of the holders of a majority of the Shares of such Series
outstanding and entitled to vote, the custodian shall deliver and pay over all
Trust Property held by it an specified in such vote.
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<PAGE>
7.3. Central Certificate System. Subject to such rules, regulations
---- --------------------------
and orders as the Commission may adopt or issue, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust or the
Series in a system for the central handling of securities established by a
national securities exchange or a national securities association registered
with the Commission under the Securities Exchange Act of 1934, or such other
person as may be permitted by the Commission, or otherwise in accordance with
the 1940 Act, pursuant to which system all securities of any particular class or
series of any issuer deposited within the system are treated as fungible and may
be transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
7.4. Acceptance of Receipts in Lieu of Certificates. Subject to such
---- ----------------------------------------------
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
ARTICLE VIII
Redemption
8.1. Redemptions. All outstanding Shares of any Class of any Series
---- -----------
of the Trust may be redeemed at the option of the holders thereof, upon and
subject to the terms and conditions provided in this Article VIII. The Trust
shall, upon application of any Shareholder or pursuant to authorization from any
Shareholder of a particular Series, redeem or repurchase from such Shareholder
outstanding Shares of such Series at the net asset value of such Shares as
provided in the 1940 Act. If so authorized by the Trustees, the Trust may, at
any time and from time to time, charge fees or deferred sales charges for
effecting such redemption, at such rates an the Trustees may establish, as and
to the extent permitted under the 1940 Act, and may, at any time and from time
to time, pursuant to such Act, suspend such right of redemption. The procedures
for effecting redemption shall be as set forth in the Prospectus with respect to
the applicable Series, as such Prospectus may be amended from time to time.
8.2. Redemptions of Accounts of Less than a Minimum Dollar Amount.
---- ------------------------------------------------------------
The Trustees shall have the power to redeem shares at a redemption price
determined in accordance with Section 8.1 if at any time the total investment in
such account does not have a minimum dollar value determined from time to time
by the Trustees in their sole discretion; provided, however, that the Trustees
may exercise such power with respect to Shares of any Series or Class of any
Series only to the extent the Prospectus describes such power with respect to
such Series or Class of such Series. In the event the Trustees determine to
exercise their power to redeem Shares provided in this Section 8.2, Shareholders
shall be notified that the value of their account is less than the then
effective minimum dollar amount and allowed 60 days to make an additional
investment before redemption in processed.
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<PAGE>
ARTICLE IX
Determination of Net Asset Value, Net Income and Distributions
9.1. Net Asset Value. The net asset value of each outstanding Share
---- ---------------
of each Series of the Trust shall be determined with respect to each Series at
such time or times on such days as the Trustees may determine, in accordance
with the 1940 Act. The method of determination of the net asset value shall be
determined by the Trustees. The power and duty to make the daily calculations
for any Series may be delegated by the Trustees to the adviser, administrator,
manager, custodian, transfer agent or such other person as the Trustees may
determine. The Trustees may suspend the daily determination of net asset value
to the extent permitted by the 1940 Act.
9.2. Distributions to Shareholders. The Trustees from time to time
---- -----------------------------
shall distribute ratably among the Shareholders of the Trust or a Series such
proportion of the net profits, surplus (including paid-in surplus), capital, or
assets of the Trust or such Series held by the Trustees as they may deem proper.
Such distributions may be made in cash or property (including without limitation
any type of obligations of the Trust or such Series or any assets thereof), and
the Trustees may distribute ratably among the Shareholders additional Shares of
the Trust or such Series issuable hereunder in such manner, at such times, and
on such terms as the Trustees may deem proper. The Trustees may retain and not
reinvest from the net profits such amounts as they may deem necessary to pay the
debts or expenses of the Trust or to meet obligations of the Trust, or as they
may deem desirable to use in the conduct of its affairs or to retain for future
requirements or extensions of the business.
9.3. Power to Modify Foregoing Procedures. Notwithstanding any of the
---- ------------------------------------
foregoing provisions of this Article IX, the Trustees may prescribe, in their
absolute discretion, such other bases and times for determining the per share
net asset value of the Trust's Shares or net income, or the declaration and
payment of dividends and distributions as they may deem necessary or desirable
to enable the Trust to comply with any provision of the 1940 Act, or any
securities association registered under the Securities Exchange Act of 1934, or
any order of exemption issued by said Commission, all as in effect now or
hereafter amended or modified.
ARTICLE X
Shareholders
10.1. Voting Powers. The Shareholders shall have the power to vote
----- -------------
(i) for the election of Trustees as provided in Article II, Section 2.2; (ii)
for the removal of Trustees as provided in Article II, Section 2.3(d); (iii)
with respect to any investment adviser as provided in Article IV, Section 4.1;
(iv) with respect to the merger, consolidation and sale of assets of the Trust
as provided in Article XI, Section 11.3; (v) with respect to the amendment of
this Declaration as provided in Article XI, Section 11.4; (vi) to the same
extent as the Shareholders of a Massachusetts business corporation as to whether
or not a court action, proceeding or claim should be brought or maintained
derivatively or as a class action on behalf of the Trust or any
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<PAGE>
Series or Class thereof or the Shareholders (provided, however, that a
shareholder of a particular Series or Class shall not be entitled to a
derivative or class action on behalf of any other Series or Class (or
shareholders of any other Series) of the Trust); and (vii) with respect to such
additional matters relating to the Trust as may be required by law, by this
Declaration, or the By-laws of the Trust or any regulation of the Trust, by the
Commission or any State, or as the Trustees may consider desirable. Any matter
affecting a particular Series, or Class including without limitation, matters
affecting the investment advisory arrangements or investment policies or
restrictions of a Series, if required by law, shall not be deemed to have been
effectively acted upon unless approved by the required vote of the Shareholders
of such Series or Class if required by law. Unless otherwise required by law,
each whole Share shall be entitled to one vote as to any matter on which it is
entitled to vote, and each fractional Share shall be entitled to a proportionate
fractional vote. There shall be no cumulative voting in the election of
Trustees. Until Shares are issued, the Trustees may exercise all rights of
Shareholders and may take any action to be taken by Shareholders which is
required or permitted by law, this Declaration or any By-laws of the Trust.
10.2. Meetings. Shareholder meetings shall be held as specified in
----- --------
Article I of the By-laws and in Section 2.2 hereof at the principal office of
the Trust or at such other place as the Trustees may designate. No annual or
regular meetings of shareholders are required. Meetings of the Shareholders may
be called by the Trustees and shall be held at such times, on such day and at
such hour an the Trustees may from time to time determine, for the purposes
specified in Section 2.2 and for such other purposes as may be specified by the
Trustees.
10.3. Quorum and Required Vote. Except as otherwise provided by law,
----- ------------------------
the holders of thirty percent of the outstanding Shares of each Series or Class
present in person or by proxy shall constitute a quorum for the transaction of
any business at any meeting of Shareholders. If a quorum, as above defined,
shall not be present for the purpose of any vote that may properly come before
the meeting, the Shareholders present in person or by proxy and entitled to vote
at such meeting on such matter holding a majority of the Shares present entitled
to vote on such matter may by vote adjourn the meeting from time to time to be
held at the same place without further notice than by announcement to be given
at the meeting until a quorum, as above defined, entitled to vote an such matter
shall be present, whereupon any such matter may be voted upon at the meeting as
though held when originally convened. Subject to any applicable requirement of
law, this Declaration or the By-laws, a plurality of the votes cast shall elect
a Trustee and all other matters shall be decided by a majority of the votes cast
entitled to vote thereon.
10.4. Record Date for Meetings. For the purpose of determining the
----- ------------------------
shareholders who are entitled to notice of and to vote at any meeting, or to
participate in any distribution, or for the purpose of any other action, the
Trustees may from time to time close the transfer books for such period, not
exceeding 30 days, as the Trustees may determine; or without closing the
transfer books the Trustees may fix a date not more than 180 days prior to the
date of any meeting of Shareholders or declaration of dividends or other action
as a record date for the determination of the persons to be treated as
Shareholders of record for such purposes, except for dividend payments which
shall be governed by Section 9.2 hereof.
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<PAGE>
10.5. Proxies. Any vote by a Shareholder of the Trust may be made in
----- -------
person or by proxy. Pursuant to a resolution of a majority of the Trustees,
proxies may be solicited in the name of one or more Trustees or one or more
officers of the Trust or other persons designated by the Trustees. Only
Shareholders of record shall be entitled to vote, but this shall not prevent a
Shareholder of record from seeking voting instructions from persons having a
beneficial interest in the Trust's shares. A proxy purporting to be executed by
or on behalf of a Shareholder shall be deemed valid unless challenged at or
prior to its exercise, and the burden of proving invalidity shall rest on the
challenger. A proxy with respect to shares held in the name of two or more
persons shall be valid if executed by any one of them unless at or prior to
exercise of the proxy the Trust receives a specific written notice to the
contrary from any one of them.
10.6. Additional Provisions. The By-laws may include further
----- ---------------------
provisions for Shareholders' votes, meetings and related matters.
10.7. Reports. The Trustees shall cause to be prepared with respect
----- -------
to each Series and, to the extent deemed appropriate by the Trustees or an
officer of the Trust, each Class at least annually a report of operations
containing a balance sheet and statement of income and undistributed income of
the applicable Series (and Class) of the Trust prepared in conformity with
generally accepted accounting principles and an opinion of an independent public
accountant on such financial statements. It is contemplated that separate
reports may be prepared for the various Series and, to the extent deemed
appropriate by the Trustees or an officer of the Trust, Classes. Copies of such
reports shall be mailed to all Shareholders of record of the applicable Series
and Classes within the time required by the 1940 Act. The Trustees shall, in
addition, furnish to the Shareholders such other reports as required by
applicable law or deemed appropriate by the Trustees.d
10.8. Shareholder Action by Written Consent. Any action which may be
----- -------------------------------------
taken by Shareholders may be taken without a meeting if a majority of
Shareholders of each Series or Class, as the circumstance may require, entitled
to vote on the matter (or such larger proportion thereof as shall be required by
any express provision of this Declaration) consent to the action in writing and
the written consents are filed with the records of the meetings of Shareholders.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
ARTICLE XI
Duration; Termination of Trust; Amendment; Mergers; Etc.
11.1. Duration. Subject to the provisions of Sections 11.2 and 11.3
----- --------
hereof, this Trust shall continue without limitation of time.
11.2. Termination.
----- -----------
(a) The Trust, or any Series or Class thereof, may be terminated
by the affirmative vote of a majority of the Trustees. Upon the
termination of the Trust or any Series or Class :
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<PAGE>
(i) the Trust or such Series or Class shall carry on no
business except for the purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the affairs of
the Trust or such Series or Class and all of the powers of the
Trustees under this Declaration shall continue until the affairs of
the Trust or such Series or Class shall have been wound up, including
the power to fulfill or discharge the contracts of the Trust or such
series, collect its assets, sell, convey, assign, exchange, transfer
or otherwise dispose of all or any part of the remaining Trust
Property to one or more persons at public or private sale for
consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchanger
transfer or other disposition of all or substantially all the Trust
Property shall require approval of the principal terms of the
transaction and the nature and amount of the consideration by vote or
consent of the holders of a majority of the Shares entitled to vote;
and
(iii) after payment or adequately providing for the payment
of all liabilities, and upon receipt of such releases, indemnities and
refunding agreements as they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property of any Series or
Class, in cash or in kind or partly each, among the Shareholders of
such Series according to their respective rights.
(b) After termination of the Trust or any Series or Class and
distribution to the Shareholders as herein provided, a majority of the
Trustees shall execute and lodge among the records of the Trust an
instrument in writing setting forth the fact of such termination. Upon
termination of the Trust, the Trustees shall thereupon be discharged
from all further liabilities and duties hereunder, and the rights and
interests of all Shareholders shall thereupon cease. Upon termination
of any Series or Class, the Trustees thereunder shall be discharged
from any further liabilities and duties with respect to such Series or
Class, and the rights and interests of all Shareholders of such Series
or Class shall thereupon cease.
11.3. Reorganization. The Trustees may sell, convey and transfer the
----- --------------
assets of the Trust, or the assets belonging to any one or more Series, to
another trust, partnership, association or corporation organized under the laws
of any state of the United States, or to the Trust to be held as assets
belonging to another Series of the Trust, in exchange for cash, shares or other
securities (including, in the case of a transfer to another Series of the Trust,
Shares of such other Series) with such transfer either (1) being made subject
to, or with the assumption by the transferee of, the liabilities belonging to
each Series the assets of which are so transferred, or (2) not being made
subject to, or not with the assumption of, any or all such liabilities;
provided, however, that no assets belonging to any particular Series shall be so
transferred unless the terms
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<PAGE>
of such transfer shall have first been approved at a meeting called for the
purpose by a Majority Shareholder Vote of that Series. Following such transfer,
the Trustees shall distribute such cash, shares or other securities (giving due
effect to the assets and liabilities belonging to and any other differences
among the various Series the assets belonging to which have so been transferred)
among the Shareholders of the Series the assets belonging to which have been so
transferred; and if all of the assets of the Trust have been so transferred, the
Trust shall be terminated.
The Trust, or any one or more Series, may either as the successor,
survivor, or non-survivor, (1) consolidate with one or more other trusts,
partnerships, associations or corporations organized under the laws of the
Commonwealth of Massachusetts or any other state of the United States, to form a
new consolidated trust, partnership, association, or corporation under the laws
of which any one of the constituent entities is organized, or (2) merge into one
or more other trusts, partnerships, associations or corporations organized under
the laws of the Commonwealth of Massachusetts of any other state of the United
States, or have one or more such trusts, partnerships, associations or
corporations merged into it, any such consolidation or merger to be upon such
terms and conditions as are specified in an agreement and plan of reorganization
entered into by the Trust, or one or more Series as the case may be, in
connection therewith. Any such consolidation or merger shall require the
approval of a Majority Shareholder Vote of each Series affected thereby. The
terms "merge" or "merger" as used herein shall not include the purchase or
acquisition of any assets of any other trust, partnership, association or
corporation which is an investment company organized under the laws of the
Commonwealth of Massachusetts or any other state of the United States.
Shareholders shall have no right to demand payment for their shares or
to any other rights of dissenting shareholders in the event the Trust or any
Series participates in any transaction which would give rise to appraisal or
dissenters' rights by a shareholder of a corporation organized under Chapter
156B of the General Laws of the Commonwealth of Massachusetts.
11.4. Amendment Procedure. All rights granted to the Shareholders
----- -------------------
under this Declaration are granted subject to the reservation of the right to
amend this Declaration as herein provided, except that no amendment shall repeal
the limitations on personal liability of any Shareholder or Trustee or repeal
the prohibition of assessment upon the Shareholders without the express consent
of each Shareholder or Trustee involved. Subject to the foregoing, the
provisions of this Declaration (whether or not related to the rights of
Shareholders) may be amended at any time, so long as such amendment does not
materially adversely affect the rights of any Shareholder with respect to which
such amendment is or purports to be applicable and so long as such amendment is
not in contravention of applicable law, including the 1940 Act, by an instrument
in writing signed by a majority of the then Trustees (or by an officer of the
Trust pursuant to the vote of a majority of such Trustees). Any amendment to
this Declaration that materially adversely affects the rights of Shareholders
may be adopted at any time by an instrument in writing signed by a majority of
the then Trustees (or by an officer of the Trust pursuant to a vote of a
majority of such Trustees) subject to the approval of a majority of the Shares
entitled to vote. Subject to the foregoing, any such amendment shall be
effective as provided in the instrument containing the terms of such amendment
or, if there is no provision
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<PAGE>
therein with respect to effectiveness, upon the execution of such instrument and
of a certificate (which may be a part of such instrument) executed by a Trustee
or officer of the Trust to the effect that such amendment has been duly adopted.
Notwithstanding the foregoing, the Trustees may amend this Declaration
without the vote or consent of Shareholders if they deem it necessary to conform
this Declaration to the requirements of applicable federal or state laws or
regulations or the requirements of the regulated investment company provisions
of the Internal Revenue Code, but the Trustees shall not be liable for failing
so to do. The Trustees may also amend this Declaration without the vote or
consent of Shareholders if they deem it necessary or desirable to change the
name of the Trust or any Series or Class thereof, to supply any omission, or to
cure, correct or supplement any ambiguous, defective or inconsistent provision
hereof.
11.5. Incorporation. With the approval of the holders of a majority
----- -------------
of the Shares, the Trustees may cause to be organized or assist in organizing a
corporation or corporations under the laws of any jurisdiction or any other
trust, partnership, association or other organization to take over all of the
Trust Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, association or organization in exchange
for the shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization, or any
corporation, trust, partnership, association or organization in which the Trust
holds or is about to acquire shares or any other interest. The Trustees may also
cause a merger or consolidation between the Trust or any successor thereto and
any such corporation, trust, partnership, association or other organization if
and to the extent permitted by law, as provided under the law then in effect.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organizations or entities.
ARTICLE XII
Miscellaneous
12.1. Filing. This Declaration and any amendment hereto shall be
----- ------
filed in the office of the Secretary of the Commonwealth of Massachusetts and in
such other places as may be required under the laws of Massachusetts and also
may be filed or recorded in such other places as the Trustees deem appropriate.
Each amendment so filed shall be accompanied by a certificate signed and
acknowledged by a Trustee or officer of the Trust stating that such action was
duly taken in a manner provided herein, and unless such amendment or such
certificate sets forth some later time for the effectiveness of such amendment,
such amendment shall be effective as provided in Section 11.4. A restated
Declaration, containing the original Declaration and all amendments theretofore
made, may be executed from time to time by a majority of the Trustees and shall,
upon filing with the Secretary of the Commonwealth of Massachusetts, be
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<PAGE>
conclusive evidence of all amendments contained therein and may thereafter be
referred to in lieu of the original Declaration and the various amendments
thereto.
12.2. Resident Agent. The Trust shall maintain a resident agent in
----- --------------
the Commonwealth of Massachusetts, which agent shall initially be CT Corporation
System, 2 Oliver Street, Boston, Massachusetts 02109. The Trustees may designate
a successor resident agent, provided, however, that such appointment shall not
become effective until written notice thereof is delivered to the office of the
Secretary of the Commonwealth of Massachusetts.
12.3. Governing Law. This Declaration is executed by the Trustees and
----- -------------
delivered in the Commonwealth of Massachusetts and with reference to the laws
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said Commonwealth and reference shall be specifically made to the business
corporation law of the Commonwealth of Massachusetts as to the construction of
matters not specifically covered herein or as to which an ambiguity exists but
the reference to said business corporation law is not intended to give the
Trust, Trustees, Shareholders or any other person, any right, power, authority
or responsibility only to or in connection with an entity organized in corporate
form.
12.4. Counterparts. This Declaration may be simultaneously executed
----- ------------
in several counterparts, each of which shall be deemed to be an original, and
such counterparts, together, shall constitute one and the same instrument, which
shall be sufficiently evidenced by any such original counterpart.
12.5. Reliance by Third Parties. Any certificate executed by an
----- -------------------------
individual who, according to the records of the Trust or of any recording office
in which this Declaration may be recorded, appears to be a Trustee hereunder,
certifying to: (a) the number or identity of Trustees or Shareholders; (b) the
name of the Trust, or any Series or any Class thereof; (c) the due authorization
of the execution of any instrument or writing; (d) the form of any vote passed
at a meeting of Trustees or Shareholders; (e) the fact that the number of
Trustees or Shareholders present at any meeting or executing any written
instrument satisfies the requirements of this Declaration; (f) the form of any
By-laws adopted by or the identity of any officers elected by the Trustees; (g)
the existence of any fact or facts which in any manner relate to the affairs of
the Trust, or any Series or any Class thereof; or (h) the establishment of any
Series or any Class, shall be conclusive evidence as to the matters so certified
in favor of any person dealing with the Trustees and their successors.
12.6. Provisions in Conflict with Law or Regulations.
----- ----------------------------------------------
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Declaration; provided, however, that such determination shall not
affect any of the remaining provisions of this Declaration or render invalid or
improper any action taken or omitted prior to such determination.
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<PAGE>
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amended and
Restated Agreement and Declaration of Trust to be executed as of the day and
year first above written.
/s/ Thomas C. Sutton /s/ Lucie H. Moore
- -------------------- ------------------
Thomas C. Sutton Lucie H. Moore
Trustee Trustee
/s/ Richard L. Nelson /s/ Lyman W. Porter
- --------------------- -------------------
Richard L. Nelson Lyman W. Porter
Trustee Trustee
/s/ Alan Richards
- -----------------
Alan Richards
Trustee
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EXHIBIT (b)
PACIFIC SELECT FUND
BY-LAWS
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I -- SHAREHOLDER MEETINGS
Section 1.1. Calling of Meetings....................................... 1
Section 1.2. Notices................................................... 1
Section 1.3. Place of Meeting.......................................... 1
Section 1.4. Chairman.................................................. 1
Section 1.5. Proxies: Voting........................................... 1
Section 1.6. Closing of Transfer Books and Fixing Record Dates......... 2
Section 1.7 Inspectors of Election.................................... 2
ARTICLE II -- TRUSTEES
Section 2.1. The Trustees.............................................. 2
Section 2.2 Regular and Special Meetings.............................. 3
Section 2.3. Notice.................................................... 3
Section 2.4. Records................................................... 3
Section 2.5. Quorum and Vote........................................... 3
Section 2.6. Telephone Meeting......................................... 4
Section 2.7. Special Action............................................ 4
Section 2.8. Action by Consent......................................... 4
Section 2.9. Compensation of Trustees.................................. 4
ARTICLE III -- OFFICERS
Section 3.1. Officers of the Trust..................................... 4
Section 3.2. Election and Tenure....................................... 4
Section 3.3. Removal of Officers....................................... 5
Section 3.4. Bonds and Surety.......................................... 5
Section 3.5. Chairman President and Vice-Presidents.................... 5
Section 3.6. Secretary................................................. 6
Section 3.7. Treasurer................................................. 6
Section 3.8. Other officers and Duties................................. 7
ARTICLE IV -- POWER AND DUTIES OF TH EXECUTIVE AND OTHER COMMITTEES
Section 4.1. Executive and other Committees............................ 7
Section 4.2. Vacancies in Executive Committee.......................... 7
Section 4.3. Executive Committee to Report to Trustees................. 7
Section 4.4. Procedure of Executive Committee.......................... 7
Section 4.5. Powers of Executive Committee............................. 7
Section 4.6. Compensation.............................................. 8
Section 4.7. Informal Action by Executive Committee or other Committee. 8
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE V -- SHARES OF BENEFICIAL INTEREST
Section 5.1. Book Entry Shares......................................... 8
Section 5.2. Transfer Agents, Registrars and the Like.................. 8
Section 5.3. Transfer of Shares........................................ 8
Section 5.4. Registered Shareholders................................... 9
ARTICLE VI -- AMENDMENT OF BY-LAWS.................................................. 9
ARTICLE VIII -- INSPECTION OF BOOKS................................................. 9
ARTICLE VIII -- AGREEMENTS, CHECK, DRAFTS, ENDORSEMENTS, ETC
Section 8.1. Agreements, Etc........................................... 9
Section 8.2. Checks, Drafts, Etc....................................... 10
Section 8.3. Endorsements, Assignments and Transfer of Securities...... 10
Section 8.4. Evidence of Authority..................................... 10
ARTICLE IX -- SEAL.................................................................. 10
ARTICLE X FISCAL YEAR........................................................... 10
ARTICLE XI WAIVERS OF NOTICE..................................................... 11
ARTICLE XII BOOKS AND RECORDS..................................................... 11
</TABLE>
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PACIFIC SELECT FUND
BY-LAWS
These By-laws are made and adopted pursuant to Section 3.9 of the
Agreement and Declaration of Trust establishing PACIFIC SELECT FUND ("Trust")
dated May 4, 1987, as from time to time amended (hereinafter called the
"Declaration"). All words and terms capitalized in these By-laws shall have the
meaning or meanings set forth for such words or terms in the Declaration.
ARTICLE I
Shareholder Meetings
Section 1.1. Calling of Meetings. Meetings of the Shareholders shall
-------------------
be held as provided in Section 10.2 of the Declaration at such place within or
without the Commonwealth of Massachusetts as the Trustees shall designate.
Section 1.2. Notices. Notice of all meetings of Shareholders, stating
-------
the time, place and purposes of the meeting, shall be given by mail to each
Shareholder at his registered address as recorded on the register of the Trust,
mailed at least 10 days and not more than sixty (60) days before the meeting.
Any adjourned meeting shall be held as adjourned without further notice. No
notice need be given to any Shareholder who shall have failed to inform the
Trust of his current address or if a written waiver of notice, executed before
or after the meeting by the Shareholder or his attorney, thereunto authorized,
is filed with the records of the meeting.
Section 1.3. Place of Meeting. Meetings of the Shareholders of the
----------------
Trust shall be held at such place within or without the Commonwealth of
Massachusetts as may be fixed from time to time by resolution of the Trustees.
Section 1.4. Chairman. The Chairman, if any, shall act as Chairman at
--------
all meetings of the Shareholders; in his absence, the President shall act as
Chairman; and in the absence of the Chairman and the President, the Trustee or
Trustees present at each meeting may elect a temporary Chairman for the meeting,
who may be one of themselves.
Section 1.5. Proxies: Voting. Shareholders may vote either in person
---------------
or by duly executed proxy and, unless otherwise required by applicable law, each
full share represented at the meeting shall have one vote, and each fractional
share shall have a proportionate fractional vote all as provided in Article X of
the Declaration. No proxy shall be valid after eleven (11) months from the date
of its execution, unless a longer period is expressly stated in such proxy.
Section 1.6. Closing of Transfer Books and Fixing Record Dates. For
-------------------------------------------------
the purpose of determining the Shareholders who are entitled to notice of or to
vote or act at any meeting, including any adjournment thereof, or who are
entitled to participate in any dividends, or for any other proper purpose, the
Trustees may from time to time close the transfer books or fix a record date in
the manner provided in Section 10.4 of the Declaration. If the Trustees do
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<PAGE>
not, prior to any meeting of Sharehol ders, so fix a record date or close the
transfer books, then an officer of the Trust shall determine a date which shall
be not more than 180 days prior to the date of the meeting or the date upon
which the dividend is declared, as the case may be, and such date shall be the
record date.
Section 1.7. Inspectors of Election. In advance of any meeting of
----------------------
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the Chairman, if any, of any meeting of Shareholders may, and on the
request of any Shareholder or his proxy shall, appoint Inspectors of Election of
the meeting. The number of Inspectors shall be either one or three. If appointed
at the meeting on the request of one or more Shareholders or proxies, a majority
of Shares present shall determine whether one or three Inspectors are to be
appointed, but failure to allow such determination by the Shareholders shall not
affect the validity of the appointment of Inspectors of Election. In case any
person appointed as Inspector fails to appear or fails or refuses to act, the
vacancy may be filled by appointment made by the Trustees in advance of the
convening of the meeting or at the meeting by the person acting as Chairman. The
Inspectors of Election shall ascertain and monitor the number of Shares
outstanding, the Shares represented at the meeting, the existence of a quorum,
the authenticity, validity and effect of proxies, shall receive votes, ballots
or consents, shall hear and determine all challenges and questions in any way
arising in connection with the right to vote, shall count and tabulate all votes
or consents, determine the results, and do such other acts as may be proper to
conduct the election or vote with fairness to all Shareholders. If there are
three Inspectors of Election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all. On request
of the Chairman, if any, of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
ARTICLE II
Trustees
Section 2.1. The Trustees. The Trustees shall be responsible for the
-----------
management of the Trust; they may retain such authority to direct the business
affairs of the Trust as they deem advisable, but, subject to the Declaration and
the provisions of applicable law, they may delegate any of the various functions
involved in the management of the Trust to its officers and/or agents as they
deem fit. The term of office of each Trustee shall continue until the Trustee
resigns, is removed, retires, or is retired pursuant to Section 2.3 of the
Declaration. Subject to the provisions of Sections 2.2 and 2.4 of the
Declaration, all persons to serve as Trustees of the Trust shall be elected at
each meeting of the Shareholders of the Trust called for that purpose.
Section 2.2. Regular and Special Meetings. Regular meetings of the
---------------------------
Trustees may be held without call or notice at such place or places and times as
the Trustees may determine from time to time Special Meetings of the Trustees
shall be held upon the call of the Chairman, if any, the President, the
Secretary or any two Trustees, at such time, on such day, and at. such place, as
shall be designated in the notice of the meeting.
-4-
<PAGE>
Section 2.3. Notice. Notice of a meeting shall be given by mail or by
------
telegram (which term shall include a cablegram) or delivered personally. If
notice is given by mail, it shall be mailed not later than 24 hours preceding
the meeting and if given by telegram or personally, such telegram shall be sent
or delivered not later than 24 hours preceding the meeting, unless otherwise
subject to the provisions of the 1940 Act. Notice by telephone shall constitute
personal delivery for these purposes. Notice of a meeting of Trustees may be
waived before, or after any meeting by signed written waiver. Neither the
business to be transacted at, nor the purpose of, any meeting of the Trustees
need be stated in the notice or waiver of notice of such meeting, and no notice
need be given of action proposed to be taken by unanimous written consent. The
attendance of a Trustee at a meeting shall constitute a waiver of notice of such
meeting except where a Trustee attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
Section 2.4. Records. The results of all actions taken at a meeting of
-------
the Trustees, or by unanimous written consent of the Trustees, shall be recorded
by the Secretary or Assistant Secretary.
Section 2.5. Quorum and Vote. A majority of the Trustees shall
---------------
constitute a quorum for the transaction of business. The act of a majority of
the Trustees present at any meeting at which a quorum is present shall be the
act of the Trustees unless a greater proportion is required by the Declaration
or these By-laws or applicable law. In the absence of a quorum, a majority of
the Trustees present may adjourn the meeting from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given.
Section 2.6. Telephone Meeting. Subject to compliance with the
-----------------
provisions of the 1940 Act, the Trustees may meet by means of a conference
telephone or similar equipment by means of which all persons participating in
the meeting can hear each other.
Section 2.7. Special Action. When all the Trustees shall be present at
--------------
any meeting, however called or whenever held, or shall assent to the holding of
the meeting without notice, or after the meeting shall sign a written assent
thereto on the record of such meeting, the acts of such meeting shall be valid
as if such meeting had been regularly held.
Section 2.8. Action by Consent. Subject to compliance with the
-----------------
provisions of the 1940 Act, any action by the Trustees may be taken without a
meeting if a written consent thereto is signed by a majority of the Trustees
then in office and filed with the records of the Trustees' meetings. Such
consent shall be treated as a vote of the Trustees for all purposes.
Section 2.9. Compensation of Trustees. The Trustees may receive a
------------------------
stated salary for their services as Trustees, and by resolution of the Trustees
a fixed fee and expense of attendance may be allowed for attendance at each
meeting. Nothing herein contained shall be construed to preclude any Trustee
from serving the Trust in any other capacity, as an. officer, agent or
otherwise, and receiving compensation therefor.
-5-
<PAGE>
ARTICLE III
Officers
Section 3.1. Officers of the Trust. The officers of the Trust may
---------------------
consist of a Chairman, if one shall be appointed by the Trustees, and shall
consist of a President, a Secretary, a Treasurer and such other officers or
assistant officers, including Vice-Presidents, as may be elected by the
Trustees. Any two or more of the offices may be held by the same person, except
that the same person may not be both President and Secretary. The Trustees may
designate a Vice-President as an Executive Vice-President and may designate the
order in which the other Vice-Presidents may act. The Chairman and the President
shall be Trustees, but no other officer of the Trust need be a Trustee.
Section 3.2. Election and Tenure. At the initial organizational
-------------------
meeting and at least once a year thereafter the Trustees shall elect the
Chairman, if any, the President, Secretary, Treasurer and such other officers as
the Trustees shall deem necessary or appropriate in order to carry out the
business of the Trust. Such officers shall hold the office until their
successors have been duly elected and qualified. The Trustees may fill any
vacancy in office or add any additional officers at any time.
Section 3.3. Removal of Officers. Any officer may be removed at any
-------------------
time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the Chairman, if any, President, or
Secretary, and such resignation shall take effect immediately upon receipt by
the Chairman, if any, President, or Secretary, or at a later date according to
the terms of such notice in writing.
Section 3.4. Bonds and Surety. Any officer may be required by the
----------------
Trustees to be bonded for the faithful performance of his duties in such amount
and with such sureties as the Trustees may determine.
Section 3.5. Chairman President and Vice-Presidents. The Chairman, if
--------------------------------------
any, shall, if present, preside at all meetings of the Shareholders and of the
Trustees and shall exercise and perform such other powers and duties as may be
from time to time assigned to him by the Trustees. Subject to such supervisory
powers, if any, as may be given by the Trustees to the Chairman, if any, the
President shall be the chief executive officer of the Trust, and, subject to the
control of the Trustees, shall have general supervision, direction and control
of the business of the Trust and of its employees and shall exercise such
general powers of management as are usually vested in the office of President of
a corporation. In the absence of the Chairman, if any, the President shall
preside at all meetings of the Shareholders and of the Trustees. The President
shall be, ex officio, a member of all outstanding committees (except the Audit
----------
Committee or any other Committee that consists only of Trustees who are not
interested persons of the Trust or its Investment Adviser). Subject to direction
of the Trustees, the Chairman, if any, and the President shall each have power
in the name and on behalf of the Trust to execute any and all loan documents,
contracts, agreements, deeds, mortgages and other instruments in writing, and to
-6-
<PAGE>
employ and discharge employees and agents of the Trust. Unless otherwise
directed by the Trustees, the Chairman, if any, and the President shall each
have full authority and power, on behalf of all of the Trustees, to attend and
to act and to vote, on behalf of the Trust at any meetings of the business
organizations in which the Trust holds an interest, or to confer such powers
upon any other persons, by executing any proxies duly authorizing such persons.
The Chairman, if any, and the President shall have such further authorities and
duties as the Trustees shall from time to time determine. In the absence or
disability of the President, the Vice-Presidents in order of their rank as fixed
by the Trustees or, if more than one and not ranked, the Vice-President
designated by the Trustees, shall perform all of the duties of the President,
and when so acting shall have all the powers of and be subject to all of the
restrictions upon the President. Subject to the direction of the Trustees, and
of the President, each Vice-President shall have the power in the name and on
behalf of the Trust to execute any and all loan documents, contracts,
agreements, deeds, mortgages and other instruments in writing, and, in addition,
shall have such other duties and powers as shall be designated from time to time
by the Trustees or by the President.
Section 3.6. Secretary. The Secretary shall keep the minutes of all
---------
meetings of, and record all votes of, Shareholders, Trustees and the Executive
Committee, if any. He shall be custodian of the seal of the Trust, if any, and
he (and any other person so authorized by the Trustees) shall affix the seal or,
if permitted, a facsimile thereof, to any instrument executed by the Trust which
would be sealed by a Massachusetts corporation executing the same or a similar
instrument and shall attest to the seal and the signature or signatures of the
officer or officers executing such instrument on behalf of the Trust. The
Secretary shall also perform any other duties commonly incident to such office
in a Massachusetts business corporation, and shall have such other authorities
and duties as the Trustees shall from time to time determine. Any of the duties
of the Secretary may be performed by an Assistant Secretary duly appointed by
the Trustees.
Section 3.7. Treasurer. Except as otherwise directed by the Trustees,
---------
the Treasurer shall have the general supervision of the monies, funds,
securities, notes receivable and other valuable papers and documents of the
Trust, and shall have and exercise under the supervision of the Trustees and of
the President all powers and duties normally incident to his office. He may
endorse for deposit or collection all notes, checks and other instruments
payable to the Trust or to its order. He shall deposit all funds of the Trust in
such depositories as the Trustees shall designate. He shall be responsible for
such disbursement of the funds of the Trust as may be ordered by the Trustees or
the President. He shall keep accurate account of the books of the Trust's
transactions which shall be the property of the Trust, and which together with
all other property of the Trust in his possession, shall be subject at all times
to the inspection and control of the Trustees. Unless the Trustees shall
otherwise determine, the Treasurer shall be the principal accounting officer of
the Trust and shall also be the principal financial officer of the Trust. He
shall have such other duties and authorities as the Trustees shall from time to
time determine. Notwithstanding anything to the contrary herein contained, the
Trustees may authorize any adviser, administrator, manager or transfer agent to
maintain bank accounts and deposit and disburse funds of any Series of the Trust
on behalf of such Series.
Section 3.8. Other officers and Duties. The Trustees may elect such
-------------------------
other officers and assistant officers as they shall from time to time determine
to be necessary or
-7-
<PAGE>
desirable in order to conduct the business of the Trust. Assistant
officers shall act generally in the absence of the officer whom they assist and
shall assist that officer in the duties of his office. Each officer, employee
and agent of the Trust shall have such other duties and authority as may be
conferred upon him by the Trustees or delegated to him by the President.
ARTICLE IV
Power and Duties of the
Executive and Other Committees
Section 4.1. Executive and other Committees. The Trustees may, but
------------------------------
shall not be required to, elect from their own number an Executive Committee to
consist of not less than two members, which number shall include the President,
who shall, ex officio, be a member thereof. The Executive Committee shall be
----------
elected by a resolution passed by a vote of at least a majority of the Trustees
then in office. The Trustees may also elect from their own number other
committees from time to time, the number composing such committees and the
powers conferred upon the same to be determined by vote of the Trustees.
Section 4.2. Vacancies in Executive Committee. Vacancies occurring in
--------------------------------
the Executive Committee from any cause shall be filled by the Trustees by a
resolution passed by the vote of at least a majority of the Trustees then in
office.
Section 4.3. Executive Committee to Report to Trustees. All action by
-----------------------------------------
the Executive Committee shall be reported to the Trustees at their meeting next
succeeding such action.
Section 4.4. Procedure of Executive Committee. The Executive Committee
--------------------------------
shall fix its own rules of procedures not inconsistent with these By-laws or
with any directions of the Trustees. It shall meet at such times and places and
upon such notice as shall be provided by such rules or by resolution of the
Trustees. The presence of a majority shall constitute a quorum for the
transaction of business, and in every case an affirmative vote of a majority of
all the members of the Committee present shall be necessary for the taking of
any action.
Section 4.5. Powers of Executive Committee. During the intervals
-----------------------------
between the meetings of the Trustees, the Executive Committee, except as limited
by the By-laws of the Trust or by specific directions of the Trustees, shall
possess and may exercise all the powers of the Trustees in the management and
direction of the business and conduct of the affairs of the Trust in such manner
as the Executive Committee shall deem for the best interests of the Trust, and
shall have power to authorize the seal of the Trust to be affixed to all
instruments and documents requiring same. Notwithstanding the foregoing, the
Executive Committee shall not have the power to elect Trustees, increase or
decrease the number of Trustees, elect or remove any officer, declare dividends,
issue shares or recommend to Shareholders any action requiring Shareholder
approval.
Section 4.6. Compensation. The members of any duly appointed committee
------------
shall receive such compensation and/or fees as from time to time may be fixed by
the Trustees.
-8-
<PAGE>
Section 4.7. Informal Action by Executive Committee or other
-----------------------------------------------
Committee. Any action required or permitted to be taken at any meeting of the
- ---------
Executive Committee or any other duly appointed Committee may be taken without a
meeting if a consent in writing setting forth such action is signed by all
members of such committee and such consent is filed with the records of the
Trust.
ARTICLE V
Shares of Beneficial Interest
Section 5.1. Book Entry Shares. No certificates will be issued to
-----------------
represent shares in the Trust unless the Trustees, in their discretion, may so
authorize. The Trust may issue certificates in any fixed denomination of shares,
or alternatively, may issue to all investors certificates evidencing ownership
of shares of beneficial interest in the Trust which will not evidence ownership
of a fixed number of shares but will indicate on its face that it represents all
Trust shares of beneficial interest for which the investor is the record owner
as shown on the books of record of the Transfer Agent of the Trust. The Trust
shall maintain adequate records to determine the holdings of each Shareholder of
record, and such records shall be deemed the equivalent of a certificate
representing the shares for all purposes.
Section 5.2. Transfer Agents, Registrars and the Like. As provided in
----------------------------------------
Section 6.7 of the Declaration, the Trustees shall have authority to employ and
compensate such transfer agents and registrars with respect to the Shares of the
various Series of the Trust as the Trustees shall deem necessary or desirable.
In addition, the Trustees shall have power to employ and compensate such
dividend disbursing agents, warrant agents and agents for the reinvestment of
dividends as they shall deem necessary or desirable. Any of such agents shall
have such power and authority as is delegated to any of them by the Trustees.
Section 5.3. Transfer of Shares. The shares of the Trust shall be
------------------
transferable on the books of the Trust only upon delivery to the Trustees or a
transfer agent of the Trust of proper documentation as provided in Section 6.9
of the Declaration. The Trust, or its transfer agents, shall be authorized to
refuse any transfer unless and until there is presented such evidence as may be
reasonably required to show that the requested transfer is proper.
Section 5.4. Registered Shareholders. The Trust may deem and treat the
-----------------------
holder of record of any Share as the absolute owner thereof for all purposes and
shall not be required to take any notice of any right or claim of right of any
other person, unless otherwise required by applicable law.
ARTICLE VI
Amendment of By-laws
In accordance with Section 3.9 of the Declaration, the Trustees shall
have the power to alter, amend or repeal the By-laws or adopt new By-laws at any
time. Action by the Trustees with respect to the By-laws shall be taken by an
affirmative vote of a majority of the
-9-
<PAGE>
Trustees. The Trustees shall in no event adopt By-laws which are in conflict
with the Declaration, and any apparent inconsistency shall be construed in favor
of the related provisions in the Declaration.
The Agreement and Declaration of Trust establishing Pacific Select
Fund, dated May 4, 1987, a copy of which, together with all amendments thereto,
(the "Declaration"), is on file in the office of the Secretary of the
Commonwealth of Massachusetts, provides that the name Pacific Select Fund refers
to the Trustees. under the Declaration collectively as Trustees, but not as
individuals or personally; and no Trustee, Shareholder, officer, employee or
agent of Pacific Select Fund shall be held to any personal liability, nor shall
resort be had to their private property for the satisfaction of any obligation
or claim or otherwise in connection with the affairs of said Pacific Select Fund
but the Trust Estate only shall be liable.
ARTICLE VII
Inspection of Books
The Trustees shall from time to time determine whether and to what
extent, and at what times and places, and under what conditions and regulations
the accounts and books of the Trust or any of then shall be open to the
inspection of the Shareholders; and no Shareholder shall have any right to
inspect an account or book or document of the Trust except as conferred by law
or authorized by the Trustees or by resolution of the Shareholders.
ARTICLE VIII
Agreements, Checks, Drafts, Endorsements, Etc.
Section 8.1. Agreements. Etc. The Trustees or the Executive Committee
----------
may authorize any officer or officers, or agent or agents of the Trust to enter
into any agreement or execute and deliver any instrument in the name of and on
behalf of the Trust, and such authority may be general or confined to specific
instances; and, unless so authorized by the Trustees or by the Executive
Committee or by these By-laws, no officer, agent or employee shall have any
power or authority to bind the Trust by any agreement or engagement or to pledge
its credit or to render it liable for any purpose or in any amount.
Section 8.2. Checks, Drafts. Etc. All checks, drafts, or orders for
-------------------
the payment of money, notes and other evidences of indebtedness shall be signed
by such officer or officers, employee or employees, or agent or agents, as shall
from time to time be designated by the Trustees or the Executive Committee, if
any, or as may be specified in or pursuant to the agreement it between the Trust
and any bank or trust company appointed as custodian depository pursuant to the
provisions of the Declaration.
Section 8.3. Endorsements. Assignments and Transfer of Securities. All
----------------------------------------------------
endorsements, assignments, stock powers or other instruments of transfer of
securities standing in the name of the Trust or its nominees or directions for
the transfer of securities belonging to
-10-
<PAGE>
the Trust shall be made by such officer or officers, employee or employees, or
agent or agents as may be authorized by the Trustees or the Executive Committee,
if any.
Section 8.4. Evidence of Authority. Anyone dealing with the Trust shall be
---------------------
fully justified in relying on a copy of a resolution of the Trustees or of any
committee thereof empowered to act in the premises which is certified as true by
the Secretary or an Assistant Secretary under the seal of the Trust.
ARTICLE IX
Seal
The seal of the Trust shall be circular in form, bearing the
inscription:
Pacific Select Fund - 1987 - Massachusetts
ARTICLE X
Fiscal Year
The fiscal year of the Trust shall be the period of twelve months
ending on December 31 of each calendar year.
ARTICLE XI
Waivers of Notice
Whenever any notice whatsoever is required to be given under the
provisions of any statute of the Commonwealth of Massachusetts, or under the
provisions of the Declaration or these By-laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice whether before or after
the time stated therein, shall be deemed equivalent thereto. A notice shall be
deemed to have been given if telegraphed, cabled or sent by wireless when it has
been delivered to a representative of any telegraph, cable or wireless company
with instructions that it be telegraphed, cabled or sent by wireless. Any
notice, if mailed, shall be deemed to be given at the time when the same shall
be deposited in the mail.
ARTICLE XII
Books and Records
The books and records of the Trust, including the stock ledger or ledgers, may
be kept in or outside the Commonwealth of Massachusetts at such office or agency
of the Trust as may be from time to time determined by the Trustees.
-11-
<PAGE>
EXHIBIT (d)(3)
FORM OF ADDENDUM TO THE PORTFOLIO MANAGEMENT AGREEMENT
The Portfolio Management Agreement ("Agreement") made the 1st day of May,
1998, between Pacific Life Insurance Company ("Pacific Life"), a life insurance
company domiciled in California, Goldman Sachs Asset Management, a separate
operating division of Goldman Sachs & Co. ("Goldman Sachs", "Portfolio
Manager"), a partnership organized and existing under the laws of the State of
New York, and Pacific Select Fund (the "Fund"), a Massachusetts Business Trust,
is hereby amended as set forth in this Addendum to the Portfolio Management
Agreement, which is dated as of January 28, 2000.
WHEREAS, the Fund is registered with the Securities and Exchange Commission
as an open-end management investment company; and
WHEREAS, the Fund will offer shares in the I-Net Tollkeeper Portfolio,
effective May 1, 2000,
NOW THEREFORE, in consideration of the mutual premises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
1. The Fee Schedule of the Agreement is amended to read as follows:
<PAGE>
PACIFIC SELECT FUND
FEE SCHEDULE
GOLDMAN SACHS ASSET MANAGEMENT
Portfolios: Equity and I-Net Tollkeeper Portfolios
Fee:
The Adviser will pay to the Portfolio Manager a monthly fee based on the average
daily net assets of the pertinent Portfolio at the following annual rate:
Equity Portfolio: .35% of the first $100 million
.30% on the next $100 million
.25% on the next $800 million
.20% on excess
I-Net Tollkeeper
Portfolio: .95% of the first $1 billion
.90% on excess
These fees for services shall be prorated for any portion of a year in which the
Agreement is not effective.
However, the rate or rates shown above will be reduced if the Portfolio Manager
is paid lower fees by another portfolio advised or sub-advised by the Portfolio
Manager or any of its affiliates where such other portfolio underlies variable
annuity and/or variable life insurance contracts and has comparable investment
policies to the Equity or I-Net Tollkeeper Portfolios. The fee or fees set forth
above shall be automatically reduced so that the fee or fees paid to Portfolio
Manager for services under this Agreement are at a rate equal to the most
favorable rate paid to Portfolio Manager or any of its affiliates by such
portfolio or portfolios.
This Addendum shall take effect on May 1, 2000.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed as of the date first indicated above.
PACIFIC LIFE INSURANCE COMPANY
Attest:_____________________ By:_______________________
Title: Title:
GOLDMAN SACHS ASSET MANAGEMENT,
A DIVISION OF GOLDMAN SACHS &
COMPANY
Attest:_____________________ By:_______________________
Title: Title:
PACIFIC SELECT FUND
Attest:_____________________ By:_______________________
Title: Title:
3
<PAGE>
EXHIBIT (d)(14)
ADDENDUM TO ADVISORY AGREEMENT
The Advisory Agreement made the 9th day of November, 1987, and subsequently
amended on January 17, 1989, January 4, 1994, August 15, 1994, November 20,
1995, and December 18, 1998 between the PACIFIC SELECT FUND (the "Fund"), a
Massachusetts business trust, and PACIFIC LIFE INSURANCE COMPANY (the
"Adviser"), a corporation organized under the laws of California, (the
"Agreement") is hereby amended by the addition of the provisions set forth in
this Addendum to the Agreement ("Addendum", which is made this 15th day of
December 1999.
WITNESSETH:
WHEREAS, the Fund is authorized to issue an unlimited number of shares of
beneficial interest ("Beneficial Interest") in separate series with each such
series representing interests in a separate portfolio of securities and other
assets; and
WHEREAS, the Fund currently consists of eighteen series designated as the
Money Market Portfolio, Managed Bond Portfolio, High Yield Bond Portfolio,
Government Securities Portfolio, Growth Portfolio, Equity Income Portfolio,
Multi-Strategy Portfolio, International Portfolio, Equity Index Portfolio,
Growth LT Portfolio, Equity Portfolio, Bond and Income Portfolio, Emerging
Markets Portfolio, Aggressive Equity Portfolio, Mid-Cap Value Portfolio, Large-
Cap Value Portfolio, Small-Cap Index Portfolio, and REIT Portfolio (each
referred to as a "Series" in the Agreement, and hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund intends to establish two additional Portfolios to be
designated as the Diversified Research Portfolio and International Large-Cap
Portfolio; and
WHEREAS, the Fund desires to appoint the Adviser as manager and investment
adviser to the Diversified Research Portfolio and International Large-Cap
Portfolio under the provisions set forth in the Agreement and in this Addendum;
and
WHEREAS, the Adviser is willing to accept such appointment;
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
1. In addition to its responsibilities as specified in the Agreement, the
Fund hereby appoints the Adviser to act as manager and investment
adviser with respect to the Diversified Research Portfolio and
International Large-Cap Portfolio which, in addition to all other
Portfolios previously established, shall be deemed one of the
Portfolios under the Agreement, subject to the terms and conditions as
specified in the Agreement, including section six (6),
"Compensation", as amended by this Addendum.
------------
<PAGE>
2. Section six (6) ("Compensation") of the Agreement is amended by
------------
replacing the first paragraph with the following language:
"6. Compensation. For the services provided and the expenses
------------
borne by the Adviser pursuant to this Agreement, the Fund will pay to
the Adviser a fee at an annual rate on the Money Market Portfolio 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; on the Managed Bond, High
Yield Bond, Government Securities and Bond and Income Portfolios of
.60% of the average daily net assets of the Portfolios; on the Growth,
Equity Income, Equity and Multi-Strategy Portfolios of .65% of the
average daily net assets of the Portfolios; on the Growth LT Portfolio
of .75% of the average daily net assets of the Portfolio; on the
International, Large-Cap Value and Mid-Cap Value Portfolios of .85% of
the average daily net assets of the Portfolios; on the Equity Index
Portfolio of .25% of the average daily net assets of the Portfolio; on
the Emerging Markets and REIT Portfolios of 1.10% of the average daily
net assets of the Portfolio; on the Aggressive Equity Portfolio of
.80% of the average daily net assets of the Portfolio; on the Small-
Cap Index Portfolio of .50% of the average daily net assets of the
Portfolio; on the Diversified Research Portfolio of .90% of the
average daily net assets of the Portfolio; and on the International
Large-Cap Portfolio of 1.05% of the average daily net assets of the
Portfolio. This fee shall be computed and accrued daily and paid
monthly."
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
PACIFIC SELECT FUND
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
- ----------------------------- --------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Chairman of the Board &
Trustee
PACIFIC LIFE INSURANCE COMPANY
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
- --------------------------- --------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board &
Chief Executive Officer
<PAGE>
EXHIBIT (d)(18)
FORM OF ADDENDUM TO ADVISORY AGREEMENT
The Advisory Agreement made the 9th day of November, 1987, and subsequently
amended on January 17, 1989, January 4, 1994, August 15, 1994, November 20,
1995, December 18, 1998, and December 15, 1999 between the PACIFIC SELECT FUND
(the "Fund"), a Massachusetts business trust, and PACIFIC LIFE INSURANCE COMPANY
(the "Adviser"), a corporation organized under the laws of California, (the
"Agreement") is hereby amended by the addition of the provisions set forth in
this Addendum to the Agreement ("Addendum"), which is made this 28th day of
January 2000, and effective May 1, 2000.
WITNESSETH:
WHEREAS, the Fund is authorized to issue an unlimited number of shares of
beneficial interest ("Beneficial Interest") in separate series with each such
series representing interests in a separate portfolio of securities and other
assets; and
WHEREAS, the Fund currently consists of twenty series designated as the
Money Market Portfolio, Managed Bond Portfolio, High Yield Bond Portfolio,
Government Securities Portfolio, Growth Portfolio, Equity Income Portfolio,
Multi-Strategy Portfolio, International Portfolio, Equity Index Portfolio,
Growth LT Portfolio, Equity Portfolio, Bond and Income Portfolio, Emerging
Markets Portfolio, Aggressive Equity Portfolio, Mid-Cap Value Portfolio, Large-
Cap Value Portfolio, Small-Cap Index Portfolio, REIT Portfolio, Diversified
Research Portfolio, and International Large-Cap Portfolio (each referred to as a
"Series" in the Agreement, and hereinafter referred to as a "Portfolio"); and
WHEREAS, the Fund intends to add the I-Net Tollkeeper Portfolio as a new
series representing interests in a separate portfolio of securities and assets;
and
WHEREAS, the Fund and the Adviser wish to change the terms under which the
Adviser serves as manager and investment adviser to the I-Net Tollkeeper
Portfolio under the provisions set forth in the Agreement and in this Addendum;
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
1. Section six (6) ("Compensation") of the Agreement is amended by
replacing the first paragraph with the following language:
<PAGE>
"6. Compensation. For the services provided and the expenses
------------
borne by the Adviser pursuant to this Agreement, the Fund will pay to
the Adviser a fee at an annual rate on the Money Market Portfolio 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; on the Managed Bond, High
Yield Bond, Bond and Income, and Government Securities Portfolios, of
.60% of the average daily net assets of the Portfolios; on the Growth,
Equity Income, Equity and Multi-Strategy Portfolios of .65% of the
average daily net assets of the Portfolios; on the Growth LT Portfolio
of .75% of the average daily net assets of the Portfolio; on the
International, Large-Cap Value and Mid-Cap Value Portfolios of .85% of
the average daily net assets of the Portfolios; on the Equity Index
Portfolio of .25% of the average daily net assets of the Portfolio; on
the Emerging Markets and REIT Portfolios of 1.10% of the average daily
net assets of the Portfolio; on the Aggressive Equity Portfolio of
.80% of the average daily net assets of the Portfolio; on the Small-
Cap Index Portfolio of .50% of the average daily net assets of the
Portfolio; on the Diversified Research Portfolio of .90% of the
average daily net assets of the Portfolio; on the International Large-
Cap Portfolio of 1.05% of the average daily net assets of the
Portfolio; and on the I-Net Tollkeeper Portfolio of 1.50% of the
average daily net assets of the Portfolio. This fee shall be computed
and accrued daily and paid monthly."
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
PACIFIC SELECT FUND
Attest:_______________________ By:____________________________
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board & Trustee
PACIFIC LIFE INSURANCE COMPANY
Attest:_______________________ By:____________________________
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board & Chief
Executive Officer
<PAGE>
EXHIBIT (d)(19)
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 28 day of December, 1999 between Pacific Life Insurance
Company, ("Adviser"), a California corporation, and Capital Guardian Trust
Company ("Capital Guardian"), ("Portfolio Manager"), a California Corporation,
and Pacific Select Fund (the "Fund"), a Massachusetts Business Trust.
WHEREAS, the Fund is registered with the Securities and Exchange
Commission ("SEC") as an open-end, management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund is authorized to issue shares of beneficial interest
("Shares") in separate portfolios, with each such portfolio representing
interests in a separate portfolio;
WHEREAS, the Fund currently offers multiple Portfolios, one of which is
designated as the Diversified Research and International Large-Cap Portfolios,
such Portfolio together with any other Portfolios subsequently established by
the Fund, with respect to which the Fund and Adviser desire to retain the
Portfolio Manager to render investment advisory services hereunder, and with
respect to which the Portfolio Manager is willing to do so, being herein
collectively referred to also as the "Portfolios"; and
WHEREAS, the Portfolio Manager is registered with the SEC as an investment
adviser under the Advisers Act;
WHEREAS, Capital Guardian represents and warrants that it is a "bank" as
that term is defined in the 1940 Act and the Advisers Act;
WHEREAS, the Fund has retained the Adviser to render investment advisory
services to the Portfolios pursuant to an Advisory Agreement, as amended, and
such Agreement authorizes the Adviser to engage Portfolio Manager to discharge
the Adviser's responsibilities with respect to the investment management of the
Portfolio, a copy of which has been provided to the Portfolio Manager and is
incorporated by reference herein; and
WHEREAS, the Fund and the Adviser desire to retain the Portfolio Manager to
furnish investment advisory services to one or more Portfolios of the Fund, and
the Portfolio Manager is willing to furnish such services to such Portfolio and
the Adviser in the manner and on the terms hereinafter set forth; and
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, it is agreed between the Fund, the Adviser, and the Portfolio Manager
as follows:
1. Appointment. The Fund and the Adviser hereby appoint Capital Guardian
------------
to act as Portfolio Manager to the Diversified Research and International Large-
Cap Portfolios ("the Portfolios") for the periods and on the terms set forth in
this Agreement. The Portfolio Manager accepts such appointment and agrees to
furnish the services herein set forth for the compensation herein provided.
1
<PAGE>
In the event the Adviser wishes to retain the Portfolio Manager to render
investment advisory services to one or more portfolios other than the Portfolio,
the Adviser shall notify the Portfolio Manager in writing. If the Portfolio
Manager is willing to render such services, it shall notify the Fund and Adviser
in writing, whereupon such portfolio shall become a Portfolio hereunder, and be
subject to this Agreement.
2. Portfolio Manager Duties. Subject to the supervision of the Fund's
-------------------------
Board of Trustees and the Adviser, the Portfolio Manager will provide a
continuous investment program for the Portfolio and determine the composition of
the assets of the Portfolio, including determination of the purchase, retention,
or sale of the securities, cash, and other investments, including futures
contracts and options thereon, for the Portfolio. The Portfolio Manager will
provide investment research and analysis, which may consist of computerized
investment methodology, and will conduct a continuous program of evaluation,
investment, sales, and reinvestment of the Portfolio's assets by determining the
securities and other investments that shall be purchased, entered into, sold,
closed, or exchanged for the Portfolio, when these transactions should be
executed, and what portion of the assets of the Portfolio should be held in the
various securities and other investments in which it may invest, and the
Portfolio Manager is hereby authorized to execute and perform such services on
behalf of the Portfolio. To the extent permitted by the investment policies of
the Portfolio, the Portfolio Manager shall make decisions for the Portfolio as
to foreign currency matters and make determinations as to the retention or
disposition of foreign currencies or securities or other instruments denominated
in foreign currencies, or derivative instruments based upon foreign currencies,
including forward foreign currency contracts and options and futures on foreign
currencies and shall execute and perform the same on behalf of the Portfolio.
The Portfolio Manager is authorized to exercise tender offers, exchange offers
and to vote proxies on behalf of the Fund, each as the Portfolio Manager
determines is in the best interest of the Fund. In performing these duties, the
Portfolio Manager:
(a) Will (1) manage the Portfolio so that it will qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code and
(2) manage the Portfolio so as to ensure compliance by the Portfolio with the
diversification requirements of Section 817(h) of the Internal Revenue Code and
Regulations issued thereunder. The Adviser will notify the Portfolio Manager of
any amendments to the Section 817(h) of the Internal Revenue Code and
Regulations issued thereunder. In managing the Portfolio in accordance with
these requirements, the Portfolio Manager shall be entitled to receive and act
upon advice of counsel to the Fund, counsel to the Adviser, or counsel to the
Portfolio Manager that is also acceptable to the Adviser.
(b) Shall conform with (1) the 1940 Act and all rules and regulations
thereunder, and releases and interpretations related thereto (including any no-
action letters and exemptive orders which have been granted by the SEC to the
Fund, the Adviser or the Portfolio Manager), (2) with all other applicable
federal and state laws and regulations pertaining to investment vehicles
underlying variable annuity and/or variable life insurance contracts, (3) with
any applicable procedures, policies and guidelines adopted by the Fund's Board
of Trustees, (4) with the Portfolio's objectives, investment policies and
investment restrictions as stated in the Fund's Prospectus and Statement of
Additional Information, and (5) with the provisions of the Fund's Registration
Statement filed on Form N-1A under the Securities Act of 1933 (the "1933 Act")
and the 1940 Act, as supplemented or amended from time to time. Until the
Adviser delivers any supplements or amendments to the Portfolio Manager, the
Portfolio Manager shall
2
<PAGE>
be fully protected in relying on the Fund's Registration Statement previously
furnished to the Portfolio Manager by the Adviser.
(c) Will: (i) use its best efforts to identify each position in the
Portfolio that constitutes stock in a Passive Foreign Investment Company
("PFIC"), as that term is defined in Section 1296 of the Internal Revenue Code,
and (ii) make such determinations and inform the Adviser at least annually, (or
more often and by such date(s) as the Adviser shall request), of any stock in a
PFIC.
(d) Is responsible, in connection with its responsibilities under this
Section 2, for decisions to buy and sell securities and other investments for
the Portfolio, for broker-dealer and futures commission merchant ("FCM")
selection, and for negotiation of commission rates. The Portfolio Manager's
primary consideration in effecting a security or other transaction will be to
obtain the best execution for the Portfolio, taking into account the factors
specified in the Prospectus and Statement of Additional Information for the
Fund, as they may be amended or supplemented from time to time. Subject to such
policies as the Board of Trustees may determine and consistent with Section
28(e) of the Securities Exchange Act of 1934, the Portfolio Manager shall not be
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Portfolio to
pay a broker or dealer, acting as agent, for effecting a portfolio transaction
at a price in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Portfolio Manager determines
in good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer,
viewed in terms of either that particular transaction or the Portfolio Manager's
(or its affiliates) overall responsibilities with respect to the Portfolio and
to its other clients as to which it exercises investment discretion. To the
extent consistent with these standards, and in accordance with Section 11(a) of
the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and subject
to any other applicable laws and regulations including Section 17(e) of the 1940
Act, the Portfolio Manager is further authorized to place orders on behalf of
the Portfolio through the Portfolio Manager if the Portfolio Manager is
registered as a broker or dealer with the SEC or as a FCM with the Commodities
Futures Trading Commission ("CFTC"), to any of its affiliates that are brokers
or dealers or FCMs or such other entities which provide similar services in
foreign countries, or to such brokers and dealers that also provide research or
statistical research and material, or other services to the Portfolio or the
Portfolio Manager. Such allocation shall be in such amounts and proportions as
the Portfolio Manager shall determine consistent with the above standards, and,
upon request, the Portfolio Manager will report on said allocation to the
Adviser and Board of Trustees of the Fund, indicating the brokers, dealers or
FCMs to which such allocations have been made and the basis therefor.
(e) May, on occasions when the purchase or sale of a security is deemed
to be in the best interest of a Portfolio as well as any other investment
advisory clients, to the extent permitted by applicable laws and regulations,
but shall not be obligated to, aggregate the securities to be so sold or
purchased with those of its other clients where such aggregation is not
inconsistent with the policies set forth in the Fund's Registration Statement.
In such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Portfolio Manager in a
manner that is fair and equitable in the judgment of the Portfolio Manager in
the exercise of its fiduciary obligations to the Fund and to such other clients.
3
<PAGE>
(f) Will, in connection with the purchase and sale of securities for
the Portfolio, together with the Adviser, arrange for the transmission to the
custodian and recordkeeping agent for the Fund, on a daily basis, such
confirmation(s), trade tickets, and other documents and information, including,
but not limited to, Cusip, Sedol, or other numbers that identify securities to
be purchased or sold on behalf of the Portfolio, as may be reasonably necessary
to enable the custodian and recordkeeping agent to perform its administrative
and recordkeeping responsibilities with respect to the Portfolio, and with
respect to portfolio securities to be purchased or sold through the Depository
Trust Company, will arrange for the automatic transmission of the confirmation
of such trades to the Fund's custodian, and recordkeeping agent, and, if
required, the Adviser.
(g) Will assist the custodian and recordkeeping agent for the Fund in
determining or confirming, consistent with the procedures and policies stated in
the Registration Statement for the Fund, the value of any portfolio securities
or other assets of the Portfolio for which the custodian and recordkeeping agent
seeks assistance from the Portfolio Manager or identifies for review by the
Portfolio Manager. Portfolio Manager agrees that it will maintain the following
records and ledgers and will preserve the following records in the form and for
the period prescribed under the 1940 Act:
1. Journals (or other records of original entry) containing an itemized
daily record in detail of all purchases and sales of securities. Such
records shall show for each such transaction the name and quantity of
securities, the unit and aggregate purchase or sale price, commission
paid, the market on which effected, the trade date, the settlement
date, and the name of the person through or from whom purchased or
received or to whom sold or delivered.
2. Records of securities borrowed and securities loaned by Portfolio
Manager.
3. Records of monies borrowed and loaned (together with a record of the
collateral therefor and substitutions in such collateral).
4. Records for each transaction in portfolio securities indicating the
broker-dealer, bank or other person with or through which such
transactions are effected, including details as to the date of the
purchase or sale, the quantity and unit and aggregate price of such
securities, and the commissions or other compensation paid to such
persons. Purchases or sales effected during the same day at the same
price may be aggregated.
5. A record of each brokerage order given by or in behalf of each
Portfolio for, or in connection with, the purchase or sale of
securities, whether executed or unexecuted. Such record shall include
the name of the broker, the terms and conditions of the order and of
any modification or cancellation thereof, the time of entry or
cancellation, the price at which executed, and the time of receipt of
report of execution. The record shall indicate the name of the person
who placed the order in behalf of each Portfolio.
4
<PAGE>
6. A record of all other portfolio purchases or sales showing details
comparable to those prescribed in paragraph 5 above.
7. A record of puts, calls, spreads, straddles, and other options in which
the series has any direct or indirect interest or which the series has
granted or guaranteed; and a record of any contractual commitments to
purchase, sell, receive or deliver securities or other property (but
not including open orders placed with broker-dealers for the purchase
or sale of securities, which may be cancelled by the Fund on notices
without penalty or cost of any kind); containing, at least, an
identification of the security, the number of units involved, the
option price, the date of maturity, the date of issuance, and the
person to whom issued.
8. A record for each fiscal quarter, which shall be completed within ten
days after the end of such quarter, showing specifically the basis or
bases upon which the allocation of orders for the purchase and sale of
portfolio securities to named brokers or dealers and the division of
brokerage commissions or other compensation on such purchase and sale
orders among named persons were made during such quarter for each
Portfolio. The record shall indicate the consideration given to (i)
sales of shares of the Fund by brokers or dealers, (ii) the supplying
of services or benefits by brokers or dealers to the Fund, its
investment adviser or principal underwriter or any persons affiliated
therewith, and (iii) any other considerations other than the technical
qualifications of the brokers and dealers as such. The record shall
show the nature of the services or benefits made available, and shall
describe in detail the application of any general or specific formula
or other determinant used in arriving at such allocation of purchase
and sale orders and such division of brokerage commissions or other
compensation. The record shall also include the identities of the
persons responsible for the determination of such allocation and such
division of brokerage commissions or other compensation.
9. A record in the form of an appropriate memorandum identifying the
person or persons, committees, or groups authorizing the purchase or
sale of portfolio securities. Where an authorization is made by a
committee or group, a record shall be kept of the names of its members
who participated in the authorization. There shall be retained as part
of the record required by this paragraph any memorandum,
recommendation, or instruction supporting or authorizing the purchase
or sale of portfolio securities.
(h) Will make available to the Fund and the Adviser promptly upon
request, any of the Portfolio's investment records and ledgers maintained by the
Portfolio Manager (which shall not include the records and ledgers maintained by
the custodian and recordkeeping agent for the Fund), as are necessary to assist
the Fund and the Adviser to comply with requirements of the 1940 Act and the
Advisers Act, as well as other applicable laws, and will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with such services which may be requested in order to ascertain
whether the operations of the Fund are being conducted in a manner consistent
with applicable laws and regulations.
5
<PAGE>
(i) Will regularly report to the Fund's Board of Trustees on the
investment program for the Portfolio and the issuers and securities represented
in the Portfolio's portfolio, and will furnish the Fund's Board of Trustees with
respect to the Portfolio such periodic and special reports as the Trustees and
the Adviser may reasonably request, including, but not limited to, the monthly
compliance checklist, monthly tax compliance worksheet, reports regarding
compliance with the Fund's procedures pursuant to Rules 17e-1, 17a-7, 10f-3 and
12d3-1 under the Investment Company Act of 1940, fundamental investment
restrictions, procedures for opening brokerage accounts and commodity trading
accounts, liquidity determination of securities purchased pursuant to Rule 144A
and 4(2) commercial paper, and compliance with the Portfolio Manager's Code of
Ethics, and such other procedures or requirements that the Adviser may request
from time to time.
(j) Will not disclose or use any records or information obtained
pursuant to this Agreement (excluding investment research and investment
advice) in any manner whatsoever except as expressly authorized in this
Agreement or in the ordinary course of business in connection with placing
orders for the purchase and sale of securities or obtaining investment licenses
in various countries or the opening of custody accounts and dealing with
settlement agents in various countries, and will keep confidential any
information obtained pursuant to the Agreement, and disclose such information
only if the Board of Trustees of the Fund has authorized such disclosure, or if
such disclosure is required by applicable federal or state law or regulations or
regulatory authorities having the requisite authority. The Fund and the Adviser
will not disclose or use any records or information respecting the Portfolio
Manager obtained pursuant to this Agreement in any manner whatsoever except as
expressly authorized in this Agreement, and will keep confidential any
information obtained pursuant to this Agreement, and disclose such information
only as expressly authorized in this Agreement, if the Board of Trustees of the
Fund has authorized such disclosure, or if such disclosure is required by
applicable federal or state law or regulations or regulatory authorities having
the requisite authority.
(k) Shall not permit any employee of the Portfolio Manager to have any
material connection with the handling of the Portfolio if such employee has:
(i) been, within the last ten (10) years, convicted of or
acknowledged commission of any felony or misdemeanor (i) involving the purchase
or sale of any security, (ii) involving embezzlement, fraudulent conversion, or
misappropriation of funds or securities, (iii) involving sections 1341, 1342 or
1343 of Title 18 of the U.S. Code, or (iv) arising out of such person's conduct
as an underwriter, broker, dealer, investment adviser, municipal securities
dealer, government securities broker, government securities dealer, transfer
agent, or entity or person required to be registered under the Commodity
Exchange Act, or as an affiliated person, salesman, or employee or officer or
director of any investment company, bank, insurance company, or entity or person
required to be registered under the Commodity Exchange Act.
(ii) been permanently or temporarily enjoined by reason of any
misconduct, by order, judgment, or decree of any court of competent jurisdiction
from acting as an underwriter, broker, dealer, investment adviser, municipal
securities dealer, government securities broker, government securities dealer,
transfer agent, or entity or person required to be registered under the
Commodity Exchange Act, or as an affiliated person, salesman or employee of any
investment company, bank, insurance company, or entity or person required to be
6
<PAGE>
registered under the Commodity Exchange Act, or from engaging in or continuing
any conduct or practice in connection with any such activity or in connection
with the purchase or sale of any security.
(l) Shall provide to Adviser a copy of Portfolio Manager's Form ADV
as filed with the Securities and Exchange Commission and a list of persons who
Portfolio Manager wishes to have authorized to give written and/or oral
instructions to Custodians of Fund assets for the Portfolio.
3. Disclosure about Portfolio Manager. The Portfolio Manager has
----------------------------------
reviewed the current Registration Statement for the Fund filed with the SEC and
represents and warrants that, with respect to the disclosure about the Portfolio
Manager or information relating, directly or indirectly, to the Portfolio
Manager, such Registration Statement contains, as of the date hereof, no untrue
statement of any material fact and does not omit any statement of a material
fact which was required to be stated therein or necessary to make the statements
contained therein not misleading. The Portfolio Manager further represents and
warrants that it is a duly registered investment adviser under the Advisers Act
and a duly registered investment adviser in all states in which the Portfolio
Manager is required to be registered. The Adviser has received a current copy
of the Portfolio Manager's Uniform Application for Investment Adviser
Registration on Form ADV, as filed with the SEC. On an annual basis, (or more
frequently if requested by the Adviser or the Fund's Board of Trustees) the
Portfolio Manager agrees to provide the Adviser with current copies of the
Portfolio Manager's Form ADV, and any supplements or amendments thereto, as
filed with the SEC.
4. Expenses. During the term of this Agreement, the Portfolio Manager
--------
will pay all expenses incurred by it and its staff and for their activities in
connection with its services under this Agreement. The Portfolio Manager shall
not be responsible for any of the following:
(a) Expenses of all audits by the Fund's independent public
accountants;
(b) Expenses of the Fund's transfer agent, registrar, dividend
disbursing agent, and shareholder recordkeeping services;
(c) Expenses of the Fund's custodial services including recordkeeping
services provided by the custodian;
(d) Expenses of the Fund's recordkeeping services provided by the
recordkeeping agent;
(e) Expenses of obtaining quotations for calculating the value of the
Portfolio's net assets;
(f) Expenses of obtaining portfolio activity reports for each
Portfolio;
(g) Expenses of maintaining the Fund's tax records;
(h) Salaries and other compensation of any of the Fund's executive
officers and employees, if any, who are not officers, directors, stockholders,
or employees of the
7
<PAGE>
Portfolio Manager or its subsidiaries or affiliates (except that the Adviser, or
any of its subsidiaries or affiliates, shall bear the expense with respect to
executive officers and employees, if any, who are officers, directors,
stockholders or employees of the Adviser or of its subsidiaries or affiliates);
(i) Taxes, if any, levied against the Fund or any of its Portfolios;
(j) Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for the Portfolio;
(k) Costs, including the interest expenses, of borrowing money;
(l) Costs and/or fees incident to meetings of the Fund's shareholders,
the preparation and mailings of proxy statements, prospectuses, statements of
additional information and reports of the Fund to its shareholders, the filing
of reports with regulatory bodies, the maintenance of the Fund's existence, and
the registration of shares with federal and state securities or insurance
authorities;
(m) The Fund's legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for sale;
(n) Costs of printing "share" stock certificates, if any, representing
shares of the Fund;
(o) Trustees' fees and expenses of Trustees of the Fund who are not
officers, employees, or stockholders of the Portfolio Manager or any affiliate
thereof (except that the Adviser shall bear the expense of any trustee who is an
officer, employee, or stockholder of the Adviser or any affiliate thereof);
(p) The Fund's fidelity bond required by Section 17(g) of the 1940
Act, or other insurance premiums;
(q) Association membership dues;
(r) Extraordinary expenses of the Fund as may arise including expenses
incurred in connection with litigation, proceedings and other claims and the
legal obligations of the Fund to indemnify its trustees, officers, employees,
shareholders, distributors, and agents with respect thereto (unless Portfolio
Manager is responsible for such expenses under Section 14 of this Agreement);
and
(s) Organizational and offering expenses and, if applicable,
reimbursement (with interest) of underwriting discounts and commissions.
5. Compensation. For the services provided and the expenses borne by
------------
the Portfolio Manager pursuant to this Agreement, the Adviser will pay to the
Portfolio Manager a fee in accordance with the Fee Schedule attached to this
Agreement. This fee will be computed and accrued daily and payable monthly.
These fees for services shall be prorated for any portion of a year in which the
Agreement is not effective.
8
<PAGE>
6. Seed Money. The Adviser agrees that the Portfolio Manager shall not
----------
be responsible for providing money for the initial capitalization of any
Portfolio.
7. Compliance.
----------
(a) The Portfolio Manager agrees that it shall immediately notify the
Adviser and the Fund in the event (i) that the SEC has censured the Portfolio
Manager; placed limitations upon its activities, functions or operations;
suspended or revoked its registration as an investment adviser; or has commenced
proceedings or an investigation that can reasonably be expected to result in any
of these actions, (ii) upon having a reasonable basis for believing that a
Portfolio has ceased to qualify or might not qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code, and (iii) upon having a
reasonable basis for believing that the Portfolio has ceased to comply with the
diversification provisions of Section 817(h) of the Internal Revenue Code or the
Regulations thereunder. The Portfolio Manager further agrees to notify the
Adviser and the Fund immediately of any material fact known to the Portfolio
Manager respecting or relating to the Portfolio Manager that is not contained in
the Registration Statement or prospectus for the Fund, or any amendment or
supplement thereto, or of any statement contained therein that becomes untrue in
any material respect.
(b) The Adviser agrees that it shall immediately notify the Portfolio
Manager in the event (i) that the SEC has censured the Adviser or the Fund;
placed limitations upon either of their activities, functions, or operations;
suspended or revoked the Adviser's registration as an investment adviser; or has
commenced proceedings or an investigation that may result in any of these
actions, (ii) upon having a reasonable basis for believing that a Portfolio has
ceased to qualify or might not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and (iii) upon having a reasonable
basis for believing that the Portfolio has ceased to comply with the
diversification provisions of Section 817(h) of the Internal Revenue Code or the
Regulations thereunder.
8. Independent Contractor. The Portfolio Manager shall for all purposes
----------------------
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided herein or authorized by the Adviser from time to time, have
no authority to act for or represent the Adviser in any way or otherwise be
deemed its agent. The Portfolio Manager understands that unless provided herein
or authorized from time to time by the Fund, the Portfolio Manager shall have no
authority to act for or represent the Fund in any way or otherwise be deemed the
Fund's Agent.
9. Books and Records. In compliance with the requirements of Rule 31a-3
-----------------
under the 1940 Act, the Portfolio Manager hereby agrees that all records which
it maintains for the Portfolio are the property of the Fund and further agrees
to surrender promptly to the Fund any of such records upon the Fund's or the
Adviser's request, although the Portfolio Manager may, at its own expense, make
and retain a copy of such records. The Portfolio Manager further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act and to preserve the
records required by Rule 204-2 under the Advisers Act for the period specified
in the Rule.
9
<PAGE>
10. Cooperation. Each party to this Agreement agrees to cooperate with
-----------
each other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the SEC and state
insurance authorities) in connection with any investigation or inquiry relating
to this Agreement or the Fund.
11. Responsibility and Control. Notwithstanding any other provision of
--------------------------
this Agreement, it is understood and agreed that the Fund shall at all times
retain the ultimate responsibility for and control of all functions performed
pursuant to this Agreement and reserves the right to direct, approve or
disapprove any action hereunder taken on its behalf by the Portfolio Manager.
12. Services Not Exclusive. It is understood that the services of the
----------------------
Portfolio Manager are not exclusive, and nothing in this Agreement shall
prevent the Portfolio Manager (or its affiliates) from providing similar
services to other clients, including investment companies (whether or not their
investment objectives and policies are similar to those of the Portfolio) or
from engaging in other activities.
13. Liability. Except as provided in Section 14 and as may otherwise be
---------
required by the 1940 Act or the rules thereunder or other applicable law, the
Fund and the Adviser agree that the Portfolio Manager, any affiliated person of
the Portfolio Manager, and each person, if any, who, within the meaning of
Section 15 of the 1933 Act, controls the Portfolio Manager shall not be liable
for, or subject to any damages, expenses, or losses in connection with, any act
or omission connected with or arising out of any services rendered under this
Agreement, except by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the Portfolio Manager's duties, or by reason of
reckless disregard of the Portfolio Manager's obligations and duties under this
Agreement. Notwithstanding the foregoing, the Portfolio Manager may be liable
to the Fund for acts of good faith and nothing contained in this Agreement shall
constitute a waiver or limitation of rights that the Fund may have under federal
or state securities laws.
10
<PAGE>
14. Indemnification.
---------------
(a) The Portfolio Manager agrees to indemnify and hold harmless, the
Adviser, any affiliated person within the meaning of Section 2(a)(3) of the 1940
Act ("affiliated person") of the Adviser, and each person, if any, who, within
the meaning of Section 15 of the 1933 Act, controls ("controlling person") the
Adviser (collectively, "PL Indemnified Persons") against any and all losses,
claims, damages, liabilities or litigation (including legal and other expenses),
to which the Adviser or such affiliated person or controlling person may become
subject under the 1933 Act, 1940 Act, the Advisers Act, under any other statute,
at common law or otherwise, arising out of the Portfolio Manager's
responsibilities to the Trust which (i) may be based upon any willful
misfeasance, bad faith, or gross negligence of, or by reckless disregard of, the
Portfolio Manager's obligations and/or duties under this Agreement by the
Portfolio Managers or by any of its directors, officers or employees, or any
affiliate acting on behalf of the Portfolio Manager (other than a PL Indemnified
Person), or (ii) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or prospectus
covering the Shares of the Trust or any Fund, or any amendment thereof or any
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such a statement or omission was made in reliance
upon information furnished in writing to the Adviser, the Trust, or any
affiliated person of the Trust by the Portfolio Manager or any affiliated person
of the Portfolio Manager (other than a PL Indemnified Person); provided,
however, that in no case is the Portfolio Manager's indemnity in favor of the
Adviser or any affiliated person or controlling person of the Adviser deemed to
protect such person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his duties, or by reason of his reckless
disregard of obligation and duties under this Agreement.
(b) The Adviser agrees to indemnify and hold harmless the Portfolio
Manager, any affiliated person within the meaning of Section 2(a)(3) of the 1940
Act of the Portfolio Manager and each person, if any, who, within the meaning of
Section 15 of the 1933 Act controls ("controlling person") the Portfolio Manager
(collectively, "Portfolio Manager Indemnified Persons") against any and all
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which a Portfolio Manager Indemnified Person may become subject
under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute, at
common law or otherwise, arising out of the Adviser's responsibilities as
adviser of the Fund which (i) may be based upon any willful misfeasance, bad
faith or gross negligence by the Adviser, any of its employees or any affiliate
acting on behalf of the Adviser (other than a Portfolio Manager Indemnified
Person) or (ii) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or
prospectus covering Shares of the Fund or any Portfolio, or any amendment
thereof or any supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statement therein not misleading, unless such statement or omission was made in
reliance upon written information furnished to the Fund or the Adviser or any
affiliated person of the Adviser by a Portfolio Manager Indemnified Person
(other than an Adviser Indemnified Person); provided however, that in no case is
the indemnity of the Adviser in favor of the Portfolio Manager Indemnified
Persons deemed to protect such person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance,
11
<PAGE>
bad faith, or gross negligence in the performance of his duties, or by reason of
his reckless disregard of obligations and duties under this Agreement.
15. Duration and Termination. This Agreement shall become effective as of
------------------------
the date of execution first written above, and shall continue in effect for two
years from such date and continue thereafter on an annual basis with respect to
the Portfolio; provided that such annual continuance is specifically approved at
least annually (a) by the vote of a majority of the Board of Trustees of the
Fund, or (b) by the vote of a majority of the outstanding voting shares of each
Portfolio, and provided that continuance is also approved by the vote of a
majority of the Board of Trustees of the Fund who are not parties to this
Agreement or "interested persons" (as such term is defined in the 1940 Act) of
the Fund, the Adviser, or the Portfolio Manager, cast in person at a meeting
called for the purpose of voting on such approval. This Agreement may not be
materially amended without a majority vote of the outstanding shares (as defined
in the 1940 Act) of the Portfolio. This Agreement may be terminated:
(a) by the Fund at any time with respect to the services provided by
the Portfolio Manager, without the payment of any penalty, forfeiture,
compulsory buyout amount, or performance of any other obligation which could
deter termination, by vote of a majority of the entire Board of Trustees of the
Fund or by a vote of a majority of the outstanding voting shares of the Fund or,
with respect to a particular Portfolio, by vote of a majority of the outstanding
voting shares of such Portfolio, on 60 days' written notice to the Portfolio
Manager and the Adviser;
(b) by the Portfolio Manager at any time, without the payment of any
penalty, forfeiture, compulsory buyout amount or performance of any other
obligation which could deter termination, upon 60 days' written notice to the
Adviser and the Fund.
(c) by the Adviser at any time, without the payment of any penalty,
forfeiture, compulsory buyout amount or performance of any other obligation
which could deter termination, upon 60 days' written notice to the Portfolio
Manager and the Fund.
However, any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act) of a particular Portfolio shall
be effective to continue this Agreement with respect to such Portfolio
notwithstanding (a) that this Agreement has not been approved by the holders of
a majority of the outstanding shares of any other Portfolio or (b) that this
Agreement has not been approved by the vote of a majority of the outstanding
shares of the Fund, unless such approval shall be required by any other
applicable law or otherwise. In the event of termination for any reason, all
records of the Portfolio shall promptly be returned to the Adviser or the Fund,
free from any claim or retention of rights in such record by the Portfolio
Manager, although the Portfolio Manager may, at its own expense, make and retain
a copy of such records. This Agreement will terminate automatically in event of
its assignment (as that term is defined in the 1940 Act), but shall not
terminate in connection with any transaction not deemed an assignment within the
meaning of Rules 2a-6 under the 1940 Act, or any other rule adopted by the SEC
regarding transactions not deemed to be assignments. In the event this Agreement
is terminated or is not approved in the manner described above, the Sections or
Paragraphs numbered 2(h), 2(j), 9, 10, 11, 13, 14 and 16 of this Agreement as
well as any applicable provision of this Paragraph numbered 15 shall remain in
effect.
12
<PAGE>
16. Use of Name.
-----------
(a) It is understood that the name "Pacific Life Insurance Company" or
"Pacific Life", or "Pacific Select Fund" or any derivative thereof or logo
associated with that name is the valuable property of the Adviser and its
affiliates, and that the Portfolio Manager has the right to use such name (or
derivative or logo) only with the approval of the Adviser and only so long as
the Adviser is an investment adviser to the Fund and/or the Portfolio. Upon
termination of the Investment Advisory Agreement between the Fund and the
Adviser, the Portfolio Manager shall forthwith cease to use such name (or
derivative or logo).
(b) It is understood that the name "Capital Guardian Trust Company" or
any derivative thereof or logo associated with that name is the valuable
property of the Portfolio Manager and that the Adviser has the right to use such
name (or derivative or logo), in offering materials of the Fund and/or Portfolio
with the approval of the Portfolio Manager and for so long as the Portfolio
Manager is a Portfolio Manager to the Fund and/or the Portfolio. Upon
termination of this Agreement between the Fund, the Adviser and the Portfolio
Manager, the Fund and the Adviser shall forthwith cease to use such name (or
derivative or logo).
(c) Neither the Fund nor the Advisers shall use the Portfolio
Manager's name in promotional or sales related materials prepared by or on
behalf of the Adviser or the Fund, without prior review and approval by the
Portfolio Manager, which may not be unreasonably withheld.
17. Limitation of Liability. A copy of the Amended and Restated
-----------------------
Agreement and Declaration of Trust for the Fund is on file with the Secretary of
the Commonwealth of Massachusetts. The Agreement and Declaration of Trust has
been executed on behalf of the Trust by a Trustee of the Trust in his capacity
as Trustee of the Trust and not individually. The obligations of this Agreement
shall be binding upon the assets and property of the Fund and shall not be
binding upon any Trustee, officer, employee, agent or shareholder, whether past,
present, or future, of the Fund individually.
18. Miscellaneous.
-------------
(a) This Agreement shall be governed by the laws of California,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act, the Investment Advisers Act of 1940 or rules or orders of the SEC
thereunder. The term "affiliate" or "affiliated person" as used in this
Agreement shall mean "affiliated person" as defined in Section 2(a)(3) of the
1940 Act.
(b) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
(c) To the extent permitted under Section 15 of this Agreement, this
Agreement may only be assigned by any party with prior written consent of the
other parties.
(d) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected
13
<PAGE>
thereby, and to this extent, the provisions of this Agreement shall be deemed to
be severable. To the extent that any provision of this Agreement shall be held
or made invalid by a court decision, statute, rule or otherwise with regard to
any party hereunder, such provisions with respect to other parties hereto shall
not be affected thereby.
(e) This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original, and all such counterparts shall
together constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed as of the day and year first written above.
PACIFIC LIFE INSURANCE COMPANY
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
- --------------------------- ------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board &
Chief Executive Officer
CAPITAL GUARDIAN TRUST COMPANY
Attest: /s/ Wendy Shiroma By: /s/ Stephen E. Embs
- ------------------------- ------------------------
Title: Vice President Title: Vice President
PACIFIC SELECT FUND
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
- --------------------------- ------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board & Trustee
14
<PAGE>
PACIFIC SELECT FUND
FEE SCHEDULE
The Adviser will pay to the Portfolio Manager a monthly fee based on the average
daily net assets of each Portfolio at an annual rate equal to:
Diversified Research Portfolio
First $150 million 0.500%
Next $150 million 0.450%
Next $200 million 0.350%
Next $500 million 0.300%
Next $1 billion 0.275%
Excess 0.250%
International Large-Cap Portfolio
First $150 million 0.650%
Next $150 million 0.550%
Next $200 million 0.450%
Next $500 million 0.400%
Next $1 billion 0.375%
Excess 0.350%
15
<PAGE>
EXHIBIT (d)(20)
PORTFOLIO MANAGEMENT AGREEMENT
AGREEMENT made this 15th day of December, 1999 between Pacific Life
Insurance Company, ("Adviser"), a California corporation, and Fund Asset
Management, L.P., doing business as Mercury Asset Management US ("Mercury or
Portfolio Manager"), a Delaware Limited Partnership, and Pacific Select Fund
(the "Fund"), a Massachusetts Business Trust.
WHEREAS, the Fund is registered with the Securities and Exchange
Commission ("SEC") as an open-end, management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund is authorized to issue shares of beneficial interest
("Shares") in separate portfolios, with each such portfolio representing
interests in a separate portfolio; and
WHEREAS, the Fund currently offers multiple Portfolios, two of which are
designated as the Equity Index and Small-Cap Index Portfolios, such Portfolios
together with any other Portfolios subsequently established by the Fund, with
respect to which the Fund and Adviser desire to retain the Portfolio Manager to
render investment advisory services hereunder, and with respect to which the
Portfolio Manager is willing to do so, being herein collectively referred to
also as the "Portfolios"; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940 ("Advisers Act"); and
WHEREAS, the Portfolio Manager is registered with the SEC as an investment
adviser under the Advisers Act; and
WHEREAS, the Fund has retained the Adviser to render investment advisory
services to the Portfolios pursuant to an Advisory Agreement, as amended, and
such Agreement authorizes the Adviser to engage Portfolio Manager to discharge
the Adviser's responsibilities with respect to the investment management of the
Portfolio, a copy of which has been provided to the Portfolio Manager and is
incorporated by reference herein; and
WHEREAS, the Fund and the Adviser desire to retain the Portfolio Manager to
furnish investment advisory services to one or more Portfolios of the Fund, and
the Portfolio Manager is willing to furnish such services to such Portfolios and
the Adviser in the manner and on the terms hereinafter set forth; and
NOW THEREFORE, in consideration of the premises and the promises and mutual
covenants herein contained, it is agreed between the Fund, the Adviser, and the
Portfolio Manager as follows:
1
<PAGE>
1. Appointment. The Fund and the Adviser hereby appoint Mercury to act as
------------
Portfolio Manager to the Equity Index and Small-Cap Index Portfolios ("the
Portfolios") for the periods and on the terms set forth in this Agreement. The
Portfolio Manager accepts such appointment and agrees to furnish the services
herein set forth for the compensation herein provided.
In the event the Adviser wishes to retain the Portfolio Manager to render
investment advisory services to one or more portfolios other than the
Portfolios, the Adviser shall notify the Portfolio Manager in writing. If the
Portfolio Manager is willing to render such services, it shall notify the Fund
and Adviser in writing, whereupon such portfolio shall become a Portfolio
hereunder, and be subject to this Agreement.
2. Portfolio Manager Duties. Subject to the supervision of the Fund's
-------------------------
Board of Trustees and the Adviser, the Portfolio Manager will provide a
continuous investment program for the Portfolios and determine the composition
of the assets of the Portfolios, including determination of the purchase,
retention, or sale of the securities, cash, and other investments, including
futures contracts and options thereon, for the Portfolios. The Portfolio
Manager will provide investment research and analysis, which may consist of
computerized investment methodology, and will conduct a continuous program of
evaluation, investment, sales, and reinvestment of the Portfolio's assets by
determining the securities and other investments that shall be purchased,
entered into, sold, closed, or exchanged for the Portfolios, when these
transactions should be executed, and what portion of the assets of the
Portfolios should be held in the various securities and other investments in
which it may invest, and the Portfolio Manager is hereby authorized to execute
and perform such services on behalf of the Portfolios. To the extent permitted
by the investment policies of the Portfolios, the Portfolio Manager shall make
decisions for the Portfolios as to foreign currency matters and make
determinations as to the retention or disposition of foreign currencies or
securities or other instruments denominated in foreign currencies, or derivative
instruments based upon foreign currencies, including forward foreign currency
contracts and options and futures on foreign currencies and shall execute and
perform the same on behalf of the Portfolios. The Portfolio Manager is
authorized to exercise tender offers, exchange offers and to vote proxies on
behalf of the Fund, each as the Portfolio Manager determines is in the best
interest of the Fund. In performing these duties, the Portfolio Manager:
(a) Will (1) manage the Portfolios in a manner that complies with
requirements imposed upon regulated investment companies under Subchapter M of
the Internal Revenue Code and (2) manage the Portfolios so as to ensure
compliance by the Portfolios with the diversification requirements of Section
817(h) of the Internal Revenue Code and Regulations issued thereunder. The
Adviser will notify the Portfolio Manager of any amendments to the Section
817(h) of the Internal Revenue Code and Regulations issued thereunder. In
managing the Portfolios in accordance with these requirements, the Portfolio
Manager shall be entitled to receive and act upon advice of counsel to the Fund,
counsel to the Adviser, or counsel to the Portfolio Manager that is also
acceptable to the Adviser.
2
<PAGE>
(b) Shall conform with (1) the 1940 Act and all rules and regulations
thereunder, and releases and interpretations related thereto (including any no-
action letters and exemptive orders which have been granted by the SEC to the
Fund, the Adviser or the Portfolio Manager), (2) with all other applicable
federal and state laws and regulations pertaining to investment vehicles
underlying variable annuity and/or variable life insurance contracts, (3) with
any applicable procedures, policies and guidelines adopted by the Fund's Board
of Trustees, (4) with the Portfolio's objectives, investment policies and
investment restrictions as stated in the Fund's Prospectus and Statement of
Additional Information, and (5) with the provisions of the Fund's Registration
Statement filed on Form N-1A under the Securities Act of 1933 (the "1933 Act")
and the 1940 Act, as supplemented or amended from time to time. Until the
Adviser delivers any supplements or amendments to the Portfolio Manager, the
Portfolio Manager shall be fully protected in relying on the Fund's Registration
Statement previously furnished to the Portfolio Manager by the Adviser.
(c) Will: (i) use its best efforts to identify each position in the
Portfolios that constitutes stock in a Passive Foreign Investment Company
("PFIC"), as that term is defined in Section 1296 of the Internal Revenue Code,
and (ii) make such determinations and inform the Adviser at least annually, (or
more often and by such date(s) as the Adviser shall request), of any stock in a
PFIC.
(d) Is responsible, in connection with its responsibilities under this
Section 2, for decisions to buy and sell securities and other investments for
the Portfolios, for broker-dealer and futures commission merchant ("FCM")
selection, and for negotiation of commission rates. The Portfolio Manager's
primary consideration in effecting a security or other transaction will be to
obtain the best execution for the Portfolios, taking into account the factors
specified in the Prospectus and Statement of Additional Information for the
Fund, as they may be amended or supplemented from time to time. Subject to such
policies as the Board of Trustees may determine and consistent with Section
28(e) of the Securities Exchange Act of 1934, the Portfolio Manager shall not be
deemed to have acted unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused the Portfolio to
pay a broker or dealer, acting as agent, for effecting a portfolio transaction
at a price in excess of the amount of commission another broker or dealer would
have charged for effecting that transaction, if the Portfolio Manager determines
in good faith that such amount of commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer,
viewed in terms of either that particular transaction or the Portfolio Manager's
(or its affiliates) overall responsibilities with respect to the Portfolios and
to its other clients as to which it exercises investment discretion. To the
extent consistent with these standards, and in accordance with Section 11(a) of
the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder, and subject
to any other applicable laws and regulations including Section 17(e) of the 1940
Act, the Portfolio Manager is further authorized to place orders on behalf of
the Portfolios through the Portfolio Manager if the Portfolio Manager is
registered as a broker or dealer with the SEC or as a FCM with the Commodities
Futures Trading Commission ("CFTC"), to any of its affiliates that are brokers
or dealers or FCMs or such other entities which provide similar services in
foreign countries, or to such brokers and dealers that also provide research or
statistical research and material, or other services to the Portfolios or the
Portfolio Manager. Such allocation shall be in such amounts and proportions as
the Portfolio Manager shall
3
<PAGE>
determine consistent with the above standards, and, upon request, the Portfolio
Manager will report on said allocation to the Adviser and Board of Trustees of
the Fund, indicating the brokers, dealers or FCMs to which such allocations have
been made and the basis therefor.
(e) May, on occasions when the purchase or sale of a security is deemed to
be in the best interest of a Portfolio as well as any other investment advisory
clients, to the extent permitted by applicable laws and regulations, but shall
not be obligated to, aggregate the securities to be so sold or purchased with
those of its other clients where such aggregation is not inconsistent with the
policies set forth in the Fund's Registration Statement. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Portfolio Manager in a manner
that is fair and equitable in the judgment of the Portfolio Manager in the
exercise of its fiduciary obligations to the Fund and to such other clients.
(f) Will, in connection with the purchase and sale of securities for the
Portfolios, together with the Adviser, arrange for the transmission to the
custodian and recordkeeping agent for the Fund, on a daily basis, such
confirmation(s), trade tickets, and other documents and information, including,
but not limited to, Cusip, Sedol, or other numbers that identify securities to
be purchased or sold on behalf of the Portfolio, as may be reasonably necessary
to enable the custodian and recordkeeping agent to perform its administrative
and recordkeeping responsibilities with respect to the Portfolios, and with
respect to portfolio securities to be purchased or sold through the Depository
Trust Company, will arrange for the automatic transmission of the confirmation
of such trades to the Fund's custodian, and recordkeeping agent, and, if
required, the Adviser.
(g) Will assist the custodian and recordkeeping agent for the Fund in
determining or confirming, consistent with the procedures and policies stated in
the Registration Statement for the Fund, the value of any portfolio securities
or other assets of the Portfolios for which the custodian and recordkeeping
agent seeks assistance from the Portfolio Manager or identifies for review by
the Portfolio Manager.
(h) Will make available to the Fund and the Adviser promptly upon request,
any of the Portfolio's investment records and ledgers maintained by the
Portfolio Manager (which shall not include the records and ledgers maintained by
the custodian and recordkeeping agent for the Fund), as are necessary to assist
the Fund and the Adviser to comply with requirements of the 1940 Act and the
Advisers Act, as well as other applicable laws, and will furnish to regulatory
authorities having the requisite authority any information or reports in
connection with such services which may be requested in order to ascertain
whether the operations of the Fund are being conducted in a manner consistent
with applicable laws and regulations.
(i) Will regularly report to the Fund's Board of Trustees on the investment
program for the Portfolios and the issuers and securities represented in the
Portfolios' portfolios, and will furnish the Fund's Board of Trustees with
respect to the Portfolios such periodic and special reports as the Trustees and
the Adviser may reasonably request, including, but not limited to, the monthly
compliance checklist, monthly tax compliance worksheet, reports regarding
4
<PAGE>
compliance with the Fund's procedures pursuant to Rules 17e-1, 17a-7, 10f-3 and
12d3-1 under the Investment Company Act of 1940, fundamental investment
restrictions, procedures for opening brokerage accounts and commodity trading
accounts, liquidity determination of securities purchased pursuant to Rule 144A
and 4(2) commercial paper, and compliance with the Portfolio Manager's Code of
Ethics, and such other procedures or requirements that the Adviser may request
from time to time.
(j) Will not disclose or use any records or information obtained pursuant
to this Agreement (excluding investment research and investment advice) in any
manner whatsoever except as expressly authorized in this Agreement or in the
ordinary course of business in connection with placing orders for the purchase
and sale of securities or obtaining investment licenses in various countries or
the opening of custody accounts and dealing with settlement agents in various
countries, and will keep confidential any information obtained pursuant to the
Agreement, and disclose such information only if the Board of Trustees of the
Fund has authorized such disclosure, or if such disclosure is required by
applicable federal or state law or regulations or regulatory authorities having
the requisite authority. The Fund and the Adviser will not disclose or use any
records or information respecting the Portfolio Manager obtained pursuant to
this Agreement in any manner whatsoever except as expressly authorized in this
Agreement, and will keep confidential any information obtained pursuant to this
Agreement, and disclose such information only as expressly authorized in this
Agreement, if the Board of Trustees of the Fund has authorized such disclosure,
or if such disclosure is required by applicable federal or state law or
regulations or regulatory authorities having the requisite authority.
(k) Shall not permit any employee of the Portfolio Manager to have any
material connection with the handling of the Portfolios if such employee has:
(i) been convicted, in the last ten (10) years, of any felony or
misdemeanor involving the purchase or sale of any security or arising out of
such person's conduct as an underwriter, broker, dealer, investment adviser,
municipal securities dealer, government securities broker, government securities
dealer, transfer agent, or entity or person required to be registered under the
Commodity Exchange Act, or as an affiliated person, salesman, or employee of any
investment company, bank, insurance company, or entity or person required to be
registered under the Commodity Exchange Act; or
(ii) been permanently or temporarily enjoined by reason of any
misconduct, by order, judgment, or decree of any court of competent jurisdiction
from acting as an underwriter, broker, dealer, investment adviser, municipal
securities dealer, government securities broker, government securities dealer,
transfer agent, or entity or person required to be registered under the
Commodity Exchange Act, or as an affiliated person, salesman or employee of any
investment company, bank, insurance company, or entity or person required to be
registered under the Commodity Exchange Act, or from engaging in or continuing
any conduct or practice in connection with any such activity or in connection
with the purchase or sale of any security.
5
<PAGE>
(l) Shall provide to Adviser a copy of Portfolio Manager's Form ADV as
filed with the Securities and Exchange Commission and a list of persons who
Portfolio Manager wishes to have authorized to give written and/or oral
instructions to Custodians of Fund assets for the Portfolios.
3. Disclosure about Portfolio Manager. The Portfolio Manager has reviewed
----------------------------------
the current Registration Statement for the Fund filed with the SEC and
represents and warrants that, with respect to the disclosure about the Portfolio
Manager or information relating, directly or indirectly, to the Portfolio
Manager, such Registration Statement contains, as of the date hereof, no untrue
statement of any material fact and does not omit any statement of a material
fact which was required to be stated therein or necessary to make the statements
contained therein not misleading. The Portfolio Manager further represents and
warrants that it is a duly registered investment adviser under the Advisers Act
and a duly registered investment adviser in all states in which the Portfolio
Manager is required to be registered. The Adviser has received a current copy
of the Portfolio Manager's Uniform Application for Investment Adviser
Registration on Form ADV, as filed with the SEC. On an annual basis, (or more
frequently if requested by the Adviser or the Fund's Board of Trustees) the
Portfolio Manager agrees to provide the Adviser with current copies of the
Portfolio Manager's Form ADV, and any supplements or amendments thereto, as
filed with the SEC.
4. Expenses. During the term of this Agreement, the Portfolio Manager
--------
will pay all expenses incurred by it and its staff and for their activities in
connection with its services under this Agreement. The Portfolio Manager shall
not be responsible for any of the following:
(a) Expenses of all audits by the Fund's independent public
accountants;
(b) Expenses of the Fund's transfer agent, registrar, dividend
disbursing agent, and shareholder recordkeeping services;
(c) Expenses of the Fund's custodial services including recordkeeping
services provided by the custodian;
(d) Expenses of the Fund's recordkeeping services provided by the
recordkeeping agent;
(e) Expenses of obtaining quotations for calculating the value of the
Portfolio's net assets;
(f) Expenses of obtaining portfolio activity reports for each
Portfolio;
(g) Expenses of maintaining the Fund's tax records;
(h) Salaries and other compensation of any of the Fund's executive
officers and employees, if any, who are not officers, directors, stockholders,
or employees of the Portfolio Manager or its subsidiaries or affiliates (except
that the Adviser, or any of its subsidiaries or affiliates, shall bear the
expense with respect to executive officers and employees,
6
<PAGE>
if any, who are officers, directors, stockholders or employees of the Adviser
or of its subsidiaries or affiliates);
(i) Taxes, if any, levied against the Fund or any of its Portfolios;
(j) Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for the Portfolios;
(k) Costs, including the interest expenses, of borrowing money;
(l) Costs and/or fees incident to meetings of the Fund's shareholders,
the preparation and mailings of proxy statements, prospectuses, statements of
additional information and reports of the Fund to its shareholders, the filing
of reports with regulatory bodies, the maintenance of the Fund's existence, and
the registration of shares with federal and state securities or insurance
authorities;
(m) The Fund's legal fees, including the legal fees related to the
registration and continued qualification of the Fund's shares for sale;
(n) Costs of printing "share" stock certificates, if any, representing
shares of the Fund;
(o) Trustees' fees and expenses of Trustees of the Fund who are not
officers, employees, or stockholders of the Portfolio Manager or any affiliate
thereof (except that the Adviser shall bear the expense of any trustee who is an
officer, employee, or stockholder of the Adviser or any affiliate thereof);
(p) The Fund's fidelity bond required by Section 17(g) of the 1940 Act,
or other insurance premiums;
(q) Association membership dues;
(r) Extraordinary expenses of the Fund as may arise including expenses
incurred in connection with litigation, proceedings and other claims and the
legal obligations of the Fund to indemnify its trustees, officers, employees,
shareholders, distributors, and agents with respect thereto (unless Portfolio
Manager is responsible for such expenses under Section 14 of this Agreement);
and
(s) Organizational and offering expenses and, if applicable,
reimbursement (with interest) of underwriting discounts and commissions.
5. Compensation. For the services provided and the expenses borne by the
------------
Portfolio Manager pursuant to this Agreement, the Adviser will pay to the
Portfolio Manager a fee in accordance with the Fee Schedule attached to this
Agreement. This fee will be computed and accrued daily and payable monthly.
These fees for services shall be prorated for any portion of a year in which the
Agreement is not effective.
7
<PAGE>
6. Seed Money. The Adviser agrees that the Portfolio Manager shall not be
----------
responsible for providing money for the initial capitalization of any Portfolio.
7. Compliance.
----------
(a) The Portfolio Manager agrees that it shall immediately notify the
Adviser and the Fund in the event (i) that the SEC has censured the Portfolio
Manager; placed limitations upon its activities, functions or operations;
suspended or revoked its registration as an investment adviser; or has commenced
proceedings or an investigation that can reasonably be expected to result in any
of these actions, (ii) upon having a reasonable basis for believing that a
Portfolio has ceased to qualify or might not qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code, and (iii) upon having a
reasonable basis for believing that the Portfolio has ceased to comply with the
diversification provisions of Section 817(h) of the Internal Revenue Code or the
Regulations thereunder. The Portfolio Manager further agrees to notify the
Adviser and the Fund immediately of any material fact known to the Portfolio
Manager respecting or relating to the Portfolio Manager that is not contained in
the Registration Statement or prospectus for the Fund, or any amendment or
supplement thereto, or of any statement contained therein that becomes untrue in
any material respect.
(b) The Adviser agrees that it shall immediately notify the Portfolio
Manager in the event (i) that the SEC has censured the Adviser or the Fund;
placed limitations upon either of their activities, functions, or operations;
suspended or revoked the Adviser's registration as an investment adviser; or has
commenced proceedings or an investigation that may result in any of these
actions, (ii) upon having a reasonable basis for believing that a Portfolio has
ceased to qualify or might not qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, and (iii) upon having a reasonable
basis for believing that the Portfolio has ceased to comply with the
diversification provisions of Section 817(h) of the Internal Revenue Code or the
Regulations thereunder.
8. Independent Contractor. The Portfolio Manager shall for all purposes
----------------------
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided herein or authorized by the Adviser from time to time, have
no authority to act for or represent the Adviser in any way or otherwise be
deemed its agent. The Portfolio Manager understands that unless provided herein
or authorized from time to time by the Fund, the Portfolio Manager shall have no
authority to act for or represent the Fund in any way or otherwise be deemed the
Fund's Agent.
9. Books and Records. In compliance with the requirements of Rule 31a-3
-----------------
under the 1940 Act, the Portfolio Manager hereby agrees that all records which
it maintains for the Portfolios are the property of the Fund and further agrees
to surrender promptly to the Fund any of such records upon the Fund's or the
Adviser's request, although the Portfolio Manager may, at its own expense, make
and retain a copy of such records. The Portfolio Manager further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
required to be maintained by Rule 31a-1 under the 1940 Act and to preserve the
records required by Rule 204-2 under the Advisers Act for the period specified
in the Rule.
8
<PAGE>
10. Cooperation. Each party to this Agreement agrees to cooperate with
-----------
each other party and with all appropriate governmental authorities having the
requisite jurisdiction (including, but not limited to, the SEC and state
insurance authorities) in connection with any investigation or inquiry relating
to this Agreement or the Fund.
11. Responsibility and Control. Notwithstanding any other provision of
--------------------------
this Agreement, it is understood and agreed that the Fund shall at all times
retain the ultimate responsibility for and control of all functions performed
pursuant to this Agreement and reserves the right to direct, approve or
disapprove any action hereunder taken on its behalf by the Portfolio Manager.
12. Services Not Exclusive. It is understood that the services of the
----------------------
Portfolio Manager are not exclusive, and nothing in this Agreement shall prevent
the Portfolio Manager (or its affiliates) from providing similar services to
other clients, including investment companies (whether or not their investment
objectives and policies are similar to those of the Portfolios) or from engaging
in other activities.
13. Liability. Except as provided in Section 14 and as may otherwise be
---------
required by the 1940 Act or the rules thereunder or other applicable law, the
Fund and the Adviser agree that the Portfolio Manager, any affiliated person of
the Portfolio Manager, and each person, if any, who, within the meaning of
Section 15 of the 1933 Act, controls the Portfolio Manager shall not be liable
for, or subject to any damages, expenses, or losses in connection with, any act
or omission connected with or arising out of any services rendered under this
Agreement, except by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the Portfolio Manager's duties, or by reason of
reckless disregard of the Portfolio Manager's obligations and duties under this
Agreement. Notwithstanding the foregoing, the Portfolio Manager may be liable
to the Fund for acts of good faith and nothing contained in this Agreement shall
constitute a waiver or limitation of rights that the Fund may have under federal
or state securities laws.
14. Indemnification.
---------------
(a) The Portfolio Manager agrees to indemnify and hold harmless, the
Adviser, any affiliated person within the meaning of Section 2(a)(3) of the 1940
Act ("affiliated person") of the Adviser, and each person, if any, who, within
the meaning of Section 15 of the 1933 Act, controls ("controlling person") the
Adviser (collectively, "PL Indemnified Persons") against any and all losses,
claims, damages, liabilities or litigation (including legal and other expenses),
to which the Adviser or such affiliated person or controlling person may become
subject under the 1933 Act, 1940 Act, the Advisers Act, under any other statute,
at common law or otherwise, arising out of the Portfolio Manager's
responsibilities to the Trust which (i) may be based upon any willful
misfeasance, bad faith, or gross negligence of, or by reckless disregard of, the
Portfolio Manager's obligations and/or duties under this Agreement by the
Portfolio Managers or by any of its directors, officers or employees, or any
affiliate acting on behalf of the Portfolio Manager (other than a PL Indemnified
Person), or (ii) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or prospectus
covering the Shares of the Trust or any Fund, or any amendment thereof or any
9
<PAGE>
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if such a statement or omission was made in reliance
upon information furnished in writing to the Adviser, the Trust, or any
affiliated person of the Trust by the Portfolio Manager or any affiliated person
of the Portfolio Manager (other than a PL Indemnified Person); provided,
however, that in no case is the Portfolio Manager's indemnity in favor of the
Adviser or any affiliated person or controlling person of the Adviser deemed to
protect such person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his duties, or by reason of his reckless
disregard of obligation and duties under this Agreement.
(b) The Adviser agrees to indemnify and hold harmless the Portfolio
Manager, any affiliated person within the meaning of Section 2(a)(3) of the 1940
Act of the Portfolio Manager and each person, if any, who, within the meaning of
Section 15 of the 1933 Act controls ("controlling person") the Portfolio Manager
(collectively, "Portfolio Manager Indemnified Persons") against any and all
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which a Portfolio Manager Indemnified Person may become subject
under the 1933 Act, the 1940 Act, the Advisers Act, under any other statute, at
common law or otherwise, arising out of the Adviser's responsibilities as
adviser of the Fund which (i) may be based upon any willful misfeasance, bad
faith or gross negligence by the Adviser, any of its employees or any affiliate
acting on behalf of the Adviser (other than a Portfolio Manager Indemnified
Person) or (ii) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or
prospectus covering Shares of the Fund or any Portfolio, or any amendment
thereof or any supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statement therein not misleading, unless such statement or omission was made in
reliance upon written information furnished to the Fund or the Adviser or any
affiliated person of the Adviser by a Portfolio Manager Indemnified Person
(other than an Adviser Indemnified Person); provided however, that in no case is
the indemnity of the Adviser in favor of the Portfolio Manager Indemnified
Persons deemed to protect such person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties, or by reason of his
reckless disregard of obligations and duties under this Agreement.
15. Duration and Termination. This Agreement shall become effective as of
------------------------
the date of execution first written above, and shall continue in effect for two
years from such date and continue thereafter on an annual basis with respect to
the Portfolios; provided that such annual continuance is specifically approved
at least annually (a) by the vote of a majority of the Board of Trustees of the
Fund, or (b) by the vote of a majority of the outstanding voting shares of each
Portfolio, and provided that continuance is also approved by the vote of a
majority of the Board of Trustees of the Fund who are not parties to this
Agreement or "interested persons" (as such term is defined in the 1940 Act) of
the Fund, the Adviser, or the Portfolio Manager, cast in person at a meeting
called for the purpose of voting on such approval. This Agreement may not be
materially amended without a majority vote of the outstanding shares (as defined
in the 1940 Act) of the Portfolios. This Agreement may be terminated:
10
<PAGE>
(a) by the Fund at any time with respect to the services provided by
the Portfolio Manager, without the payment of any penalty, forfeiture,
compulsory buyout amount, or performance of any other obligation which could
deter termination, by vote of a majority of the entire Board of Trustees of the
Fund or by a vote of a majority of the outstanding voting shares of the Fund or,
with respect to a particular Portfolio, by vote of a majority of the outstanding
voting shares of such Portfolio, on 60 days' written notice to the Portfolio
Manager and the Adviser;
(b) by the Portfolio Manager at any time, without the payment of any
penalty, forfeiture, compulsory buyout amount or performance of any other
obligation which could deter termination, upon 60 days' written notice to the
Adviser and the Fund.
(c) by the Adviser at any time, without the payment of any penalty,
forfeiture, compulsory buyout amount or performance of any other obligation
which could deter termination, upon 60 days' written notice to the Portfolio
Manager and the Fund.
However, any approval of this Agreement by the holders of a majority of the
outstanding shares (as defined in the 1940 Act) of a particular Portfolio shall
be effective to continue this Agreement with respect to such Portfolio
notwithstanding (a) that this Agreement has not been approved by the holders of
a majority of the outstanding shares of any other Portfolio or (b) that this
Agreement has not been approved by the vote of a majority of the outstanding
shares of the Fund, unless such approval shall be required by any other
applicable law or otherwise. In the event of termination for any reason, all
records of the Portfolios shall promptly be returned to the Adviser or the Fund,
free from any claim or retention of rights in such record by the Portfolio
Manager, although the Portfolio Manager may, at its own expense, make and retain
a copy of such records. This Agreement will terminate automatically in event
of its assignment (as that term is defined in the 1940 Act), but shall not
terminate in connection with any transaction not deemed an assignment within the
meaning of Rules 2a-6 under the 1940 Act, or any other rule adopted by the SEC
regarding transactions not deemed to be assignments. In the event this
Agreement is terminated or is not approved in the manner described above, the
Sections or Paragraphs numbered 2(h), 2(j), 9, 10, 11, 13, 14 and 16 of this
Agreement as well as any applicable provision of this Paragraph numbered 15
shall remain in effect.
16. Use of Name.
-----------
(a) It is understood that the name "Pacific Life Insurance Company" or
"Pacific Life", or "Pacific Select Fund" or any derivative thereof or logo
associated with that name is the valuable property of the Adviser and its
affiliates, and that the Portfolio Manager has the right to use such name (or
derivative or logo) only with the approval of the Adviser and only so long as
the Adviser is an investment adviser to the Fund and/or the Portfolios. Upon
termination of the Investment Advisory Agreement between the Fund and the
Adviser, the Portfolio Manager shall forthwith cease to use such name (or
derivative or logo).
(b) It is understood that the name "Mercury" or any derivative thereof
or logo associated with that name is the valuable property of the Portfolio
Manager and that the Adviser has the right to use such name (or derivative or
logo), in offering materials of the Fund and/or
11
<PAGE>
Portfolios with the approval of the Portfolio Manager and for so long as the
Portfolio Manager is a Portfolio Manager to the Fund and/or the Portfolios. Upon
termination of this Agreement between the Fund, the Adviser and the Portfolio
Manager, the Fund and the Adviser shall forthwith cease to use such name (or
derivative or logo).
(c) Neither the Fund nor the Advisers shall use the Portfolio
Manager's name in promotional or sales related materials prepared by or on
behalf of the Adviser or the Fund, without prior review and approval by the
Portfolio Manager, which may not be unreasonably withheld.
17. Limitation of Liability. A copy of the Amended and Restated Agreement
-----------------------
and Declaration of Trust for the Fund is on file with the Secretary of the
Commonwealth of Massachusetts. The Agreement and Declaration of Trust has been
executed on behalf of the Trust by a Trustee of the Trust in his capacity as
Trustee of the Trust and not individually. The obligations of this Agreement
shall be binding upon the assets and property of the Fund and shall not be
binding upon any Trustee, officer, employee, agent or shareholder, whether past,
present, or future, of the Fund individually.
18. Miscellaneous.
-------------
(a) This Agreement shall be governed by the laws of California,
provided that nothing herein shall be construed in a manner inconsistent with
the 1940 Act, the Investment Advisers Act of 1940 or rules or orders of the SEC
thereunder. The term "affiliate" or "affiliated person" as used in this
Agreement shall mean "affiliated person" as defined in Section 2(a)(3) of the
1940 Act.
(b) The captions of this Agreement are included for convenience only
and in no way define or limit any of the provisions hereof or otherwise affect
their construction or effect.
(c) To the extent permitted under Section 15 of this Agreement, this
Agreement may only be assigned by any party with prior written consent of the
other parties.
(d) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby, and to this extent, the provisions of this
Agreement shall be deemed to be severable. To the extent that any provision of
this Agreement shall be held or made invalid by a court decision, statute, rule
or otherwise with regard to any party hereunder, such provisions with respect to
other parties hereto shall not be affected thereby.
(e) This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original, and all such counterparts shall
together constitute one and the same Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first written above.
PACIFIC LIFE INSURANCE COMPANY
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
- --------------------------- ---------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board & Chief
Executive Officer
FUND ASSET MANAGEMENT, L.P.
Attest: /s/ Dean D'onofrio By: /s/ Richard J. Vella
- --------------------------- ---------------------
Name: Dean D'onofrio Name: Richard J. Vella
Title: Managing Director Title: Managing Director
PACIFIC SELECT FUND
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
- --------------------------- ---------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board & Trustee
13
<PAGE>
PACIFIC SELECT FUND
FEE SCHEDULE
Portfolio: Equity Index and Small-Cap Index Portfolios
Fee:
The Adviser will pay to the Portfolio Manager a monthly fee based on the
combined average daily net assets of these Portfolios at an annual rate equal
to:
0.08% on the first $100 million
0.04% on the next $100 million
0.02% on the excess
14
<PAGE>
EXHIBIT (d)(21)
ADDENDUM TO THE PORTFOLIO MANAGEMENT AGREEMENT
The Portfolio Management Agreement ("Agreement") made the 1st day of May,
1999, between Pacific Life Insurance Company ("Pacific Life"), a life insurance
company domiciled in California, Alliance Capital Management L.P. ("Alliance
Capital", "Portfolio Manager"), a Limited Partnership organized and existing
under the laws of the state of Delaware, and Pacific Select Fund (the "Fund"), a
Massachusetts Business Trust, is hereby amended as set forth in this Addendum to
the Portfolio Management Agreement, which is dated as of December 15, 1999.
WHEREAS, the Fund is registered with the Securities and Exchange Commission
as an open-end management investment company; and
WHEREAS, the Fund offers shares in several Portfolios, one of which is
designated the Emerging Markets Portfolio; and
WHEREAS, pursuant to the Agreement, Pacific Life and the Fund have
appointed Alliance Capital as Portfolio Manager to the Emerging Markets
Portfolio and Alliance Capital has accepted such appointment; and
WHEREAS, Pacific Life and the Fund desire to appoint Alliance Capital as
Portfolio Manager to the Emerging Markets Portfolio under the provisions set
forth in the Agreement and in this Addendum; and
WHEREAS, the Portfolio Manager is willing to accept such appointment;
NOW THEREFORE, in consideration of the mutual premises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
1. In addition to its responsibilities as specified in the Agreement, the
Fund hereby appoints the Portfolio Manager to act as Portfolio Manager
with respect to the Emerging Markets Portfolio which, in addition to
all other Portfolios previously established, shall be deemed one of
the Portfolios under the Agreement, subject to the terms and
conditions as specified in the Agreement, including the Fee Schedule
of the Agreement as amended by this Addendum.
2. The Fee Schedule of the Agreement is amended to read as follows:
1
<PAGE>
PACIFIC SELECT FUND
FEE SCHEDULE
ALLIANCE CAPITAL MANAGEMENT L.P.
Portfolio: Emerging Markets Portfolio
The Adviser will pay to the Portfolio Manager a monthly fee based on the
average daily net assets of the Emerging Markets Portfolio at an annual rate
equal to:
0.85% on the first $50 million
0.75% on the next $50 million
0.70% on the next $50 million
0.65% on the next $50 million
0.60% on excess of $200 million
These fees for services shall be prorated for any portion of a year in
which the Agreement is not effective.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed as of the date first indicated above.
PACIFIC LIFE INSURANCE COMPANY
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
- --------------------------- ---------------------
Title: Secretary Title: Chairman of the Board & Chief
Name: Audrey L. Milfs Exec. Officer
Name: Thomas C. Sutton
ALLIANCE CAPITAL MANAGEMENT L.P.
Attest: /s/ Aileen Doherty By: /s/ Mark Manley
- -------------------------- ---------------
Title: Assistant Vice President Title: Senior Vice President
PACIFIC SELECT FUND
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
- --------------------------- --------------------
Title: Secretary Title: Chairman of the Board & Trustee
Name: Audrey L. Milfs Name: Thomas C. Sutton
3
<PAGE>
EXHIBIT (e)(1)
DISTRIBUTION AGREEMENT
This Agreement ("Agreement") is made on the 15th day of December,
1999, by and between Pacific Select Fund (the "Fund") and Pacific Mutual
Distributors, Inc. ("PMD").
WHEREAS, the Fund is an open-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Fund is authorized to issue shares of beneficial interest
("Shares") in separate series (each a "Portfolio" and collectively the
"Portfolios") with each such Portfolio representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a
Brokerage Enhancement Plan (the "Brokerage Plan"), under which the Fund may
direct Pacific Life or any sub-adviser of a Portfolio ("Portfolio Manager") to
allocate brokerage in a manner intended to increase the distribution of the
Fund's shares; and
WHEREAS, under the Brokerage Plan, the Fund may enter into agreements or
arrangements with broker-dealers or banks (each, a "broker-dealer") that will
enable the Fund to receive, in addition to the execution of brokerage
transactions, credits, benefits, or other services ("directed brokerage
credits") from a broker-dealer that the Fund may use to finance activities that
are intended to result in the sale of the Fund's share; and
WHEREAS, the Fund intends, on behalf of each existing Portfolio together
with all other Portfolios subsequently established by the Fund, as set forth in
Exhibit A (attached hereto) which may from time to time be amended, to retain
Pacific Mutual Distributors, Inc. ("PMD"); and
WHEREAS, PMD wishes to render the services hereunder;
NOW THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties hereto agree as follows:
1. Appointment and Acceptance. The Fund hereby appoints PMD as
--------------------------
distributor of the Shares of the Portfolios on the terms and for the period set
forth in this Agreement, and PMD hereby accepts such appointment and agrees to
render the services and undertake the duties set forth herein.
2. General Provisions.
------------------
(a) In performing its duties as distributor, PMD will act in conformity
with the registration statement of the Fund on Form N-1A ("the Prospectus"), as
amended from time to time and with any instructions received from the Board of
Trustees of the Fund (the "Board"), the requirements of the Securities Act of
1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the 1940 Act, and all other applicable federal and
state laws and regulations.
<PAGE>
(b) PMD holds itself available to receive orders for the purchase or
redemption of Shares and will accept or reject orders to purchase such Shares on
behalf of the Fund in accordance with the provisions of the Prospectus, and will
transmit such orders as are so accepted to the Fund's transfer agent promptly
for processing.
(c) PMD shall not be obligated to sell any certain number of Shares.
Except as provided in this Agreement, no commission or other fee will be paid to
PMD in connection with the sale of Shares.
3. PMD Expenses. During the term of this Agreement, PMD will bear all its
------------
expenses in complying with this Agreement including the following expenses:
(a) costs of sales presentations, preparation and delivery of advertising
and sales literature, and any other marketing efforts by PMD in connection with
the distribution or sale of Shares; and
(b) any compensation paid to employees of PMD in connection with the
distribution or sale of the Shares.
4. Fund Expenses. The Fund shall bear all of its other expenses
-------------
including, but not limited to:
(a) preparation and setting in type, printing and distributing reports
and other communications, proxies, prospectuses and statements of additional of
information to existing shareholders;
(b) registration of the Fund's Shares with the Securities and Exchange
Commission, and registration or notification of the sale of the Shares with any
applicable state securities commissioners; and
(c) qualification of the Fund's Shares for sale in jurisdictions
designated by PMD.
5. Sale of Shares to Distributor and Sales by Distributor.
------------------------------------------------------
(a) All orders through PMD shall be subject to acceptance and confirmation
by the Fund.
(b) Prior to the time of transfer of any Shares by the Fund to, or on the
order of, PMD or any introducing broker, participating broker or other financial
intermediary, PMD shall pay or cause to be paid to the Fund or to its order an
amount in federal funds equal to the applicable net asset value of the Shares.
Upon receipt of registration instructions in proper form, PMD will transmit or
cause to be transmitted such instructions to the Fund or its agent for
registration of the Shares purchased.
2
<PAGE>
6. Use of Directed Brokerage Credits. The Fund may direct PMD to take
---------------------------------
appropriate actions to effect the purposes of the Brokerage Plan, as may be
amended from time to time, and PMD, when so directed by the Fund, shall take
such actions, which may include, but are not necessarily limited to, the
following:
(a) directing, on behalf of the Fund or a Portfolio and subject to the
standards described in the Brokerage Plan, Pacific Life or a Portfolio Manager
to allocate transactions for the purchase or sale of portfolio securities in a
manner intended to increase the distribution of the Fund's shares; and
(b) using any directed brokerage credits earned by a Portfolio to
compensate a broker-dealer for the cost and expense of certain distribution-
related activities or procuring from a broker-dealer or otherwise inducing a
broker-dealer to provide services, where such activities or services are
intended to promote the sale of a Portfolio's shares, all on behalf of the Fund
or a Portfolio, as described in the Brokerage Plan.
7. Fees. PMD shall receive no fee from the Fund for services as
----
distributor of the Shares.
8. Reservation of Right Not to Sell. The Fund reserves the right to refuse
--------------------------------
at any time or times to sell any of its Shares for any reason deemed adequate by
it.
9. Liability and Indemnification.
-----------------------------
(a) PMD shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which this
Agreement relates, except a loss resulting from its willful misfeasance, bad
faith or negligence in the performance of its duties under this Agreement. Any
person, even though also an officer, employee or agent of PMD, who may be or
become an officer, director, employee or agent of the Fund shall be deemed, when
rendering services to the Fund or acting in any business of the Fund, to be
rendering such services to or acting solely for the Fund and not as an officer,
partner, employee or agent or one under the control or direction of PMD even
though paid by PMD.
(b). PMD hereby agrees to indemnify and hold harmless the Fund and its
officers and Trustees against any and all losses, liabilities, damages and
claims arising out of or based upon any untrue or alleged untrue statement or
representation made (except for such statements made in reliance on any
prospectus, registration statement or sales material supplied by the Fund), any
failure to deliver a currently effective prospectus, or the use of any
unauthorized sales literature by any officer, employee or agent of PMD in
connection with the offer or sale of Fund shares. PMD shall reimburse each such
person for any legal or other expenses reasonably incurred in connection with
investigating or defending any such loss, liability, damage or claim.
(c) Promptly after receipt by a party entitled to indemnification under
this section ("indemnified party") of notice of the commencement of any action,
if a claim for indemnification in respect thereof is to be made against PMD,
such indemnified party will notify PMD in writing of the commencement thereof,
and the omission to so notify PMD will not
3
<PAGE>
relieve it from any liability under this section, except to the extent that the
omission results in a failure of actual notice to PMD and it is damaged solely
as a result of the failure to give such notice.
10. Effective Date and Termination of this Agreement. This Agreement
------------------------------------------------
shall take effect on the on the date first written above, and shall continue in
effect, unless sooner terminated as provided herein, for two years from such
date and shall continue from year to year thereafter so long as such continuance
is specifically approved at least annually (a) by the vote of a majority of
those members of the Board of Trustees of the Fund who are not parties to this
Agreement or interested persons (as defined in the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) either by a majority of the entire Board of Trustees of the Fund or by a
majority vote (as defined in the Prospectus) of the shareholders of the Fund;
provided, however, that this Agreement may be terminated without penalty by the
-------
Board of Trustees of the Fund; by a majority vote (as defined in the Prospectus)
of the shareholders of the Fund on 60 days' written notice to PMD, or by PMD at
any time, without payment of any penalty, on 90 days' written notice to the
Fund. This Agreement will automatically and immediately terminate in the event
of its assignment (as defined in the 1940 Act).
11. Notices. Notices of any kind to be given to PMD by the Fund shall be
-------
in writing and shall be duly given if mailed, first class postage prepaid, or
delivered to 700 Newport Center Drive, P.O. Box 9000, Newport Beach, California
92660, or at such other address or to such individual as shall be specified by
PMD to the Fund. Notices of any kind to be given to the Fund shall be in
writing and shall be duly given if mailed, first class postage prepaid, or
delivered to 700 Newport Center Drive, P.O. Box 7500, Newport Beach, California
92660 or at such other address or to such individual as shall be specified by
the Fund.
12. Non-Exclusivity. The services of PMD to the Fund under this Agreement
---------------
are not to be deemed exclusive, and PMD shall be free to render similar services
or other services to others so long as its services hereunder are not impaired
thereby.
13. Reports. PMD shall prepare reports for the Board of Trustees of the
-------
Fund on a quarterly basis showing such information as shall be reasonably
requested by the Board from time to time.
14. Independent Contractor. PMD shall for all purposes herein provided be
----------------------
deemed to be an independent contractor and, unless otherwise expressly provided
or authorized, shall have no authority to act for or represent the Fund in any
way or otherwise be deemed an agent of the Fund. It is understood and agreed
that PMD, by separate agreement with the Fund, may also serve the Fund in other
capacities.
15. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original.
16. Governing Law. This Agreement shall be governed by the laws of
-------------
California, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Exchange Act, the Securities Act, or any
rule or order of the Securities and Exchange
4
<PAGE>
L
Commission to any national or regional self-regulating organization, such as the
National Association of Securities Dealers or the New York Stock Exchange.
17. Severability. If any provision of this Agreement shall be held or
------------
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby and, to this extent, the provisions
of this Agreement shall be deemed to be severable.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PACIFIC MUTUAL DISTRIBUTORS, INC.
By: /s/ Gerald W. Robinson
------------------------
Name: Gerald W. Robinson
Title: Chairman & Chief Executive Officer
By: /s/ Edward R. Byrd
-------------------
Name: Edward R. Byrd
Title: Vice President, Chief Financial Officer
& Treasurer
PACIFIC SELECT FUND
By: /s/ Thomas C. Sutton
---------------------
Name: Thomas C. Sutton
Title: Chairman of the Board & Trustee
5
<PAGE>
Exhibit A
Pacific Select Fund
December 15, 1999
Series
- ------
Money Market Portfolio
High Yield Bond Portfolio
Managed Bond Portfolio
Government Securities Portfolio
Growth Portfolio (to be renamed the Small-Cap Equity Portfolio)*
Aggressive Equity Portfolio
Growth LT Portfolio
Equity Income Portfolio
Multi-Strategy Portfolio
Large-Cap Value Portfolio
Mid-Cap Value Portfolio
Equity Portfolio
Bond and Income Portfolio
Equity Index Portfolio
Small-Cap Index Portfolio
REIT Portfolio
International Portfolio (to be renamed the International Value Portfolio)*
Emerging Markets Portfolio
International Large-Cap Portfolio*
Diversified Research Portfolio*
*Effective January 1, 2000
6
<PAGE>
EXHIBIT (e)(2)
FORM OF ADDENDUM TO DISTRIBUTION AGREEMENT
The Distribution Agreement, made the 15th day of December 1999, by and
between PACIFIC SELECT FUND ("Fund"), a Massachusetts business trust having its
principal place of business at 700 Newport Center Drive, Newport Beach, CA
92660, and PACIFIC MUTUAL DISTRIBUTORS, INC., a California corporation, having
its principal place of business at 700 Newport Center Drive, Newport Beach,
California 92660, (the "Agreement") is hereby amended by the addition of the
provisions set forth in this Addendum to the Agreement ("Addendum"), which is
made this 28th day of January, 2000.
1. Effective May 1, 2000, Exhibit A attached to the Agreement is amended
as shown on the Exhibit A attached to this Addendum.
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
PACIFIC SELECT FUND
Attest:__________________________ By:______________________________
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and Trustee
PACIFIC MUTUAL DISTRIBUTORS, INC.
Attest:__________________________ By:______________________________
Name: Audrey L. Milfs Name: Gerald W. Robinson
Title: Secretary Title: Chairman & CEO
<PAGE>
Exhibit A
Pacific Select Fund
Effective: May 1, 2000
Series
- ------
Money Market Portfolio
High Yield Bond Portfolio
Managed Bond Portfolio
Government Securities Portfolio
Small-Cap Equity Portfolio
Aggressive Equity Portfolio
Growth LT Portfolio
Equity Income Portfolio
Multi-Strategy Portfolio
Large-Cap Value Portfolio
Mid-Cap Value Portfolio
Equity Portfolio
Bond and Income Portfolio
Equity Index Portfolio
Small-Cap Index Portfolio
REIT Portfolio
International Value Portfolio
Emerging Markets Portfolio
International Large-Cap Portfolio
Diversified Research Portfolio
I-Net Tollkeeper Portfolio
<PAGE>
EXHIBIT (g)(4)
ADDENDUM TO CUSTODY AGREEMENT
The Custody Agreement, made the 1st day of December, 1987, and subsequently
amended on January 17, 1989, January 4, 1994, August 15, 1994, November 20,1995,
May 15, 1997, and December 18, 1998 between PACIFIC SELECT FUND (the "Fund") a
Massachusetts business trust having its principal place of business at 700
Newport Center Drive, Newport Beach, CA 92660, and Investors Fiduciary Trust
Company ("IFTC"), a state chartered trust company organized and existing under
the laws of the state of Missouri, having its principal place of business at 801
Pennsylvania, Kansas City, Missouri 64105 (the "Agreement") is hereby amended by
the addition of the provisions set forth in this Addendum to the Agreement
("Addendum"), which is made this 15th day of December 1999.
WITNESSETH:
WHEREAS, pursuant to the Agreement, the Fund has appointed IFTC as
Custodian and IFTC has accepted such appointment; and
WHEREAS, the Fund currently consists of eighteen separate series designated
as the Money Market Portfolio, Managed Bond Portfolio, High Yield Bond
Portfolio, Government Securities Portfolio, Growth Portfolio, Equity Income
Portfolio, Multi-Strategy Portfolio, International Portfolio, Equity Index
Portfolio, Growth LT Portfolio, Equity Portfolio, Bond and Income Portfolio,
Aggressive Equity Portfolio, Emerging Markets Portfolio, Mid-Cap Value
Portfolio, Large-Cap Value Portfolio, Small-Cap Index Portfolio, and REIT
Portfolio (each referred to as a "Series" in the Agreement, and hereinafter
referred to as a "Portfolio"); and
WHEREAS, the Fund intends to establish two additional Portfolios to be
designated as the Diversified Research Portfolio and International Large-Cap
Portfolio; and
WHEREAS, the Fund desires to appoint IFTC as Custodian for the Diversified
Research Portfolio and International Large-Cap Portfolio on the terms set forth
in the Agreement and this Addendum; and
WHEREAS, IFTC is willing to accept such appointment;
RESOLVED, in consideration of the mutual premises and covenants contained
in this Addendum, it is agreed between the parties hereto as follows:
1. In addition to its responsibilities as specified in the Agreement, the
Fund hereby constitutes and appoints IFTC as custodian with respect to
the Diversified Research Portfolio and International Large-Cap
Portfolio, which, in addition to all other Portfolios previously
established by the Fund, shall be deemed as a Portfolio under the
Agreement as provided in the Agreement subject to the terms and
conditions as specified in the Agreement and this Addendum, including
the compensation provisions in section seven (7) ("Compensation") of
the Agreement and in the Fee Schedule ("Exhibit A") attached thereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
PACIFIC SELECT FUND
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
- --------------------------- --------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and
Trustee
INVESTORS FIDUCIARY TRUST COMPANY
Attest: /s/ Mark Nicholson By: /s/ Stephen R. Hilliard
- -------------------------- -----------------------
Name: Mark Nicholson Name: Stephen R. Hilliard
Title: Vice President Title: Executive Vice President
<PAGE>
EXHIBIT (g)(5)
FORM OF ADDENDUM TO CUSTODY AGREEMENT
The Custody Agreement, made the 1st day of December, 1987, and subsequently
amended on January 17, 1989, January 4, 1994, August 15, 1994, November 20,1995,
May 15, 1997, and December 18, 1998 between PACIFIC SELECT FUND (the "Fund") a
Massachusetts business trust having its principal place of business at 700
Newport Center Drive, Newport Beach, CA 92660, and Investors Fiduciary Trust
Company ("IFTC"), a state chartered trust company organized and existing under
the laws of the state of Missouri, having its principal place of business at 801
Pennsylvania, Kansas City, Missouri 64105 (the "Agreement") is hereby amended by
the addition of the provisions set forth in this Addendum to the Agreement
("Addendum"), which is made this 28th day of January 2000.
WITNESSETH:
WHEREAS, pursuant to the Agreement, the Fund has appointed IFTC as
Custodian and IFTC has accepted such appointment; and
WHEREAS, the Fund currently consists of 20 separate series designated as
the Money Market Portfolio, Managed Bond Portfolio, High Yield Bond Portfolio,
Government Securities Portfolio, Small-Cap Equity Portfolio, Equity Income
Portfolio, Multi-Strategy Portfolio, International Value Portfolio, Equity Index
Portfolio, Growth LT Portfolio, Equity Portfolio, Bond and Income Portfolio,
Aggressive Equity Portfolio, Emerging Markets Portfolio, Mid-Cap Value
Portfolio, Large-Cap Value Portfolio, Small-Cap Index Portfolio, REIT Portfolio,
Diversified Research Portfolio, and International Large-Cap Portfolio (each
referred to as a "Series" in the Agreement, and hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund intends to establish an additional Portfolio to be
designated as the I-Net Tollkeeper Portfolio; and
WHEREAS, the Fund desires to appoint IFTC as Custodian for the I-Net
Tollkeeper Portfolio on the terms set forth in the Agreement and this Addendum;
and
WHEREAS, IFTC is willing to accept such appointment;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows
that:
In addition to its responsibilities as specified in the Agreement, the Fund
hereby constitutes and appoints IFTC as custodian with respect to the I-Net
Tollkeeper Portfolio, which, in addition to all other Portfolios previously
established by the Fund, shall be deemed as a Portfolio under the Agreement and
this Addendum, including the compensation provisions in section seven (7)
("Compensation") of the Agreement and in the Fee Schedule to the Addendum to the
Custody Agreement made November 20, 1995.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
PACIFIC SELECT FUND
Attest:_____________________ By:______________________________
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board
and Trustee
INVESTORS FIDUCIARY TRUST COMPANY
Attest:_____________________ By:______________________________
Name: Name:
Title: Title:
<PAGE>
EXHIBIT (h)(2)
FORM OF FUND PARTICIPATION AGREEMENT
------------------------------------
This Agreement is made the 1st day of January, 2000, by and among PACIFIC
LIFE INSURANCE COMPANY (formerly Pacific Mutual Life Insurance Company)
("Pacific Life"), a life insurance company domiciled in California, on its
behalf and on behalf of its segregated asset accounts listed on Exhibit A to
this Agreement; PACIFIC LIFE & ANNUITY COMPANY (formerly PM Group Life Insurance
Company) ("PL&A", and, together with Pacific Life, the "Companies"), a life
insurance company domiciled in Arizona, on its behalf and on behalf of its
segregated asset accounts listed on Exhibit A to this Agreement (the segregated
asset accounts of the Companies are referred to collectively as the "Separate
Accounts"); PACIFIC SELECT FUND (the "Fund"), a Massachusetts business trust;
and PACIFIC MUTUAL DISTRIBUTORS, INC. (formerly Pacific Equities Network )
("Distributor"), a California corporation.
W I T N E S S E T H
-------------------
WHEREAS, the Fund is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended ("1940 Act") and the Fund is authorized to issue
separate classes of shares of beneficial interests ("shares"), each representing
an interest in a separate portfolio of assets known as a "series" and each
series has its own investment objective, policies, and limitations; and
WHEREAS, Pacific Life, the Fund and the Distributor are currently parties
to a Fund Participation Agreement dated November 6, 1992, as amended by an
Addendum to the Agreement dated January 4, 1994, an
<PAGE>
Addendum to the Agreement dated August 15, 1994, an Addendum to the Agreement
dated November 20, 1995, and an Addendum to the Agreement dated December 18,
1998 (the "Current Agreement"), pursuant to which Fund shares are offered and
sold to certain segregated asset accounts of Pacific Life; and
WHEREAS, the Fund is available to offer shares of one or more of its series
to separate accounts of insurance companies that fund variable life insurance
policies and variable annuity contracts ("Variable Contracts") and to serve as
an investment medium for Variable Contracts offered by insurance companies that
have entered into participation agreements ("Participating Insurance Companies")
substantially similar to the Current Agreement, and the Fund is currently
comprised of multiple separate series, and other series may be established in
the future; and
WHEREAS, the Fund has obtained an order from the SEC, granting
Participating Insurance Companies, separate accounts funding Variable Contracts
of Participating Insurance Companies, and the Fund, inter alia, exemptions from
the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and
paragraph (b)(15) of Rule 6e-3(T) under the 1940 Act, to the extent necessary
to permit such persons to rely on the exemptive relief provided under paragraph
(b)(15) of Rule 6e-3(T), even though shares of the Fund may be offered to and
held by separate accounts funding variable annuity contracts or scheduled or
flexible premium variable life insurance contracts of both affiliated and
unaffiliated life insurance companies (the "Shared Funding Exemptive Order");
and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
2
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Companies wish to purchase shares of one or more of the Fund's
series on behalf of their Separate Accounts to serve as an investment medium for
Variable Contracts funded by the Separate Accounts, and the Distributor is
authorized to sell shares of the Fund's series; and
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants hereinafter set forth, the parties hereby agree to amend and
restate the Current Agreement as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Distributor agrees to sell to the Companies those shares of the
series offered and made available by the Fund and identified in Exhibit B
("Series"), that a Company orders on behalf of its Separate Accounts, and agrees
to execute such orders on each day on which the Fund calculates its net asset
value pursuant to rules of the SEC ("business day") at the net asset value next
computed after receipt and acceptance by the Fund or its agent of the order for
the shares of the Fund.
1.2. The Fund agrees to make available on each business day shares of the
Series for purchase at the applicable net asset value per share by the Companies
on behalf of their Separate Accounts; provided, however, that the Board of
Trustees of the Fund may refuse to sell shares of any Series to any person, or
suspend or terminate the offering of shares of any Series, if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole
3
<PAGE>
discretion of the Trustees, acting in good faith and in light of the Trustees'
fiduciary duties under applicable law, necessary in the best interests of the
shareholders of any Series.
1.3. The Fund and Distributor agree that shares of the Series of the Fund
will be sold only to Participating Insurance Companies, their separate accounts,
and other persons consistent with each Series being adequately diversified
pursuant to Section 817(h) of the Internal Revenue Code of 1986, as amended
("Code") and the regulations thereunder.
1.4. The Fund and the Distributor will not sell shares of the Series to any
insurance company other than the Companies or to the separate account of any
such other insurance company unless an agreement containing provisions
substantially the same as those in Article IV and Sections 5.5 and 5.6 of
Article V of this Agreement is in effect to govern such sales.
1.5. Upon receipt of a request for redemption in proper form from a
Company, the Fund agrees to redeem any full or fractional shares of the Series
held by the Company, ordinarily executing such requests on each business day at
the net asset value next computed after receipt and acceptance by the Fund or
its agent of the request for redemption, except that the Fund reserves the right
to suspend the right of redemption, consistent with Section 22(e) of the 1940
Act and any rules thereunder. Such redemption shall be paid consistent with
applicable rules of the SEC and procedures and policies of the Fund as described
in the current prospectus.
1.6. Each Company agrees to purchase and redeem the shares of each Series
in accordance with the provisions of the current prospectus for the Fund.
4
<PAGE>
1.7. Each Company shall pay for shares of the Series in federal funds
transmitted by wire no later than 11:00 a.m. Eastern time the next following
business day after it places an order to purchase shares.
1.8. Issuance and transfer of shares of the Series will be by book entry
only unless otherwise agreed by the Fund. Stock certificates will not be issued
to the Companies or the Separate Accounts unless otherwise agreed by the Fund.
Shares ordered from the Fund will be recorded in an appropriate title for the
Separate Accounts or the appropriate subaccounts of the Separate Accounts.
1.9. The Fund shall promptly furnish notice (by wire or telephone, followed
by written confirmation) to each Company of any income dividends or capital gain
distributions payable on the shares of the Series. Each Company hereby elects to
reinvest in the Series all such dividends and distributions as are payable on a
Series' shares and to receive such dividends and distributions in additional
shares of that Series. Each Company reserves the right to revoke this election
in writing and to receive all such dividends and distributions in cash. The Fund
shall notify each Company of the number of shares so issued as payment of such
dividends and distributions.
1.10. The Fund shall instruct its recordkeeping agent to advise each
Company on each business day of the net asset value per share for each Series as
soon as reasonably practicable after the net asset value per share is
calculated.
5
<PAGE>
ARTICLE II. Representations and Warranties
------------------------------
2.1. Pacific Life represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that it is taxed as
an insurance company under Subchapter L of the Code.
2.2. PL&A represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it is taxed as an
insurance company under Subchapter L of the Code.
2.3. Pacific Life represents and warrants that it has legally and validly
established each of its Separate Accounts as a segregated asset account under
the California Insurance Code, and that each of its Separate Accounts is a
validly existing segregated asset account under applicable federal and state
law.
2.4. PL&A represents and warrants that it has legally and validly
established each of its Separate Accounts as a segregated asset account under
the Arizona Insurance Code, and that each of the Separate Accounts is a validly
existing segregated asset account under applicable federal and state law.
2.5. Pacific Life represents and warrants that the Variable Contracts
issued by it or interests in its Separate Accounts under such Variable Contracts
(1) are or, prior to issuance, will be registered as securities under the
Securities Act of 1933 ("1933 Act") or, alternatively (2) are not registered
because they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act.
6
<PAGE>
2.6. PL&A represents and warrants that the Variable Contracts issued by it
or interests in its Separate Accounts under such Variable Contracts (1) are or,
prior to issuance, will be registered as securities under the Securities Act of
1933 ("1933 Act") or, alternatively (2) are not registered because they are
properly exempt from registration under the 1933 Act or will be offered
exclusively in transactions that are properly exempt from registration under the
1933 Act.
2.7. Each Company represents and warrants that each of its Separate
Accounts (1) has been registered as a unit investment trust in accordance with
the provisions of the 1940 Act or, alternatively (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
2.8. Each Company represents that it believes, in good faith, that the
Variable Contracts issued by that Company are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.9. The Fund represents and warrants that it is duly organized as a
business trust under the laws of the Commonwealth of Massachusetts, and is in
good standing under applicable law.
2.10. The Fund represents and warrants that the shares of the Series are
duly authorized for issuance in accordance with applicable law and that the Fund
is registered as an open-end management investment company under the 1940 Act.
7
<PAGE>
2.11. The Fund represents that it believes, in good faith, that the Series
currently comply with the diversification provisions of Section 817(h) of the
Code and the regulations issued thereunder relating to the diversification
requirements for variable life insurance policies and variable annuity
contracts.
2.12. The Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
ARTICLE III. General Duties
--------------
3.1. The Fund shall take all such actions as are necessary to permit the
sale of the shares of each Series to the Separate Accounts, including
maintaining its registration as an investment company under the 1940 Act, and
registering the shares of the 1933 Act for so long as required by applicable
law. The Fund shall amend its Registration Statement filed with the SEC under
the 1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of the shares of the Series. The Fund shall register and
qualify the shares for sale in accordance with the laws of the various states to
the extent deemed necessary by the Fund or the Distributor.
3.2. The Fund shall make every effort to maintain qualification of each
Series as a Regulated Investment Company under Subchapter M of the Code (or any
successor or similar provision) and shall notify the Companies immediately upon
having a reasonable basis for believing that a Series has ceased to so qualify
or that it might not so qualify in the future.
8
<PAGE>
3.3. The Fund shall make every effort to enable each Series to comply with
the diversification provisions of Section 817(h) of the Code and the regulations
issued thereunder relating to the diversification requirements for variable life
insurance policies and variable annuity contracts and any prospective amendments
or other modifications to Section 817 or regulations thereunder, and shall
notify the Companies immediately upon having reasonable basis for believing that
any Series has ceased to comply.
3.4. The Fund shall be entitled to receive and act upon advice of its
General Counsel or its outside counsel in meeting the requirements specified in
Section 3.2 and 3.3 hereof.
3.5. Each Company shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by that Company, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all necessary
approvals to offer the Variable Contracts from state insurance commissioners.
3.6. Each Company shall make every effort to maintain the treatment of the
Variable Contracts issued by that Company as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code, and
shall notify the Fund and the Distributor immediately upon having a reasonable
basis for believing that such Variable Contracts have ceased to be so treated or
that they might not be so treated in the future.
9
<PAGE>
3.7. Each Company shall offer and sell the Variable Contracts issued by
that Company in accordance with applicable provisions of the 1933 Act, the 1934
Act, the 1940 Act, the NASD Conduct Rules, and state law respecting the offering
of variable life insurance policies and variable annuity contracts.
3.8. The Distributor shall sell and distribute the shares of the Series of
the Fund in accordance with the applicable provisions of the 1933 Act, the 1934
Act, the 1940 Act, the NASD Conduct Rules, and state law.
3.9. A majority of the Board of Trustees of the Fund shall consist of
persons who are not "interested persons" of the Fund, as defined by Section
2(a)(19) of the 1940 Act ("disinterested Trustees"), except that if this
provision of this Section 3.9 is not met by reason of the death,
disqualification, or bona fide resignation of any Trustee or Trustees, then the
operation of this provision shall be suspended (a) for a period of 45 days if
the vacancy or vacancies may be filled by the Fund's Board; (b) for a period of
60 days if a vote of shareholders is required to fill the vacancy or vacancies;
or (c) for such longer period as the SEC may prescribe by order upon
application.
3.10. Each Company agrees to provide, as promptly as possible, notice to
the Fund and to the Distributor if that Company has reason to know about a
meeting of some or all of the owners of the Variable Contracts or shareholders
of the Fund, where the agenda or purpose of the meeting relates, in whole or in
part, to the Fund, and that has not been called by the Fund's Board of Trustees
(and which shall not include a vote of Variable Contract Owners having an
interest in a Separate Account to substitute shares of another investment
company for
10
<PAGE>
corresponding shares of the Fund or a Series, as described in Section 9.1(e) and
to which the notice provision of Section 9.2 shall apply). In such an event,
that Company agrees to distribute proxy statements and any additional
solicitation materials upon the request of the Fund or the Distributor to the
owners of the Variable Contracts issued by that Company at least 30 days prior
to the meeting. That Company further agrees that it shall take no action,
directly or indirectly, in furtherance of shareholders of the Fund or Contract
Owners taking any action with respect to the Fund by written consent and without
a meeting.
3.11. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
ARTICLE IV. Potential Conflicts
-------------------
4.1. The Fund's Board of Trustees shall monitor the Fund for the existence
of any material irreconcilable conflict: (1) between the interests of owners of
scheduled premium variable life insurance policies and owners of flexible
premium variable life insurance policies; (2) between the interests of owners of
variable annuity contracts and owners of scheduled premium or flexible premium
variable life insurance policies, and (3) between the interests of owners of
Variable Contracts ("Variable Contract Owners") issued by different
Participating Insurance Companies that invest in the Fund. An irreconcilable
material conflict may arise for a variety of reasons, including: (a) an action
by any state insurance regulatory authority; (b) a
11
<PAGE>
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of the Fund or any
Series are being managed; (e) a decision by a Participating Insurance Company to
disregard the voting instructions of Variable Contract Owners.
4.2. Each Company agrees that it shall be responsible for reporting any
potential or existing conflict to the Fund's Board of Trustees. Each Company
will be responsible for assisting the Board of Trustees of the Fund in carrying
out its responsibilities under this Agreement, by providing the Board with all
information reasonably necessary for the Board to consider any issues raised.
This includes, but is not limited to, an obligation by each Company to inform
the Board whenever Variable Contract Owner voting instructions are disregarded.
Each Company shall carry out its responsibility under this Section 4.2 with a
view only to the interests of its Variable Contract Owners.
4.3. Each Company agrees that in the event that it is determined by a
majority of the Board of Trustees of the Fund or a majority of the Fund's
disinterested Trustees that a material irreconcilable conflict exists, that
Company shall, to the extent reasonably practicable (as determined by a majority
of the disinterested Trustees of the Board of the Fund), take whatever steps are
necessary to eliminate the irreconcilable material conflict, including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Series and reinvesting such assets in a different investment
medium, which may include another Series of
12
<PAGE>
the Fund, or submitting the question of whether such segregation should be
implemented to a vote of all affected Variable Contract Owners and, as
appropriate, segregating the assets of any appropriate group (i.e., Contract
---
Owners of Variable Contracts issued by one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Variable Contract Owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account. If a material irreconcilable conflict arises because of a Company's
decision to disregard Variable Contract Owners' voting instructions and that
decision represents a minority position or would preclude a majority vote, that
Company shall be required, at the Fund's election, to withdraw its Separate
Accounts' investment in the Fund, and no charge or penalty will be imposed as a
result of such withdrawal. The Fund shall neither be required to bear the costs
of remedial actions taken to remedy a material irreconcilable conflict nor shall
it be requested to pay a higher investment advisory fee for the sole purpose of
covering such costs. In addition, no Variable Contract Owner shall be required
directly or indirectly to bear the direct or indirect costs or remedial actions
taken to remedy a material irreconcilable conflict. A new funding medium for any
Variable Contract need not be established pursuant to this Section 4.3, if an
offer to do so has been declined by vote of a majority of Variable Contract
Owners materially adversely affected by the irreconcilable material conflict.
All reports received by the Fund's Board of Trustees of potential or existing
conflicts, and all Board action with regard to determining the existence of a
conflict, notifying Participating Insurance Companies and the Fund's investment
adviser of a conflict, and determining whether any proposed action adequately
remedies a conflict, shall be properly recorded in the minutes of the Board of
Trustees of the Fund or other appropriate
13
<PAGE>
records, and such minutes or other records shall be made available to the SEC
upon request. Each Company and the Fund shall carry out their responsibilities
under this Section 4.3 with a view only to the interests of the Variable
Contract Owners.
4.4. The Board of Trustees of the Fund shall promptly notify each Company
in writing of its determination of the existence of an irreconcilable material
conflict and its implications.
ARTICLE V. Prospectuses and Proxy Statements; Voting
-----------------------------------------
5.1. Each Company shall distribute such prospectuses, proxy statements and
periodic reports of the Fund to the owners of Variable Contracts issued by that
Company as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
5.2. The Distributor shall provide each Company with as many copies of the
current prospectus of the Fund as that Company may reasonably request. If
requested by a Company in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type,
electronic file or in camera-ready copy) and other assistance as is reasonably
necessary in order for the Company to print together in one document the current
prospectus for the Variable Contracts issued by the Company and the current
prospectus for the Fund. The Fund shall bear the expense of printing copies of
its current prospectus that will be distributed to existing Variable Contract
Owners, and each Company shall bear the expense of printing copies of the Fund's
prospectus that are used in connection with offering those Variable Contracts
issued by that Company.
14
<PAGE>
5.3. The Fund and the Distributor shall provide (1) at the Fund's expense,
one copy of the Fund's current Statement of Additional Information ("SAI") to
each Company and to any owner of a Variable Contract issued by a Company who
requests such SAI, (2) at a Company's expense, such additional copies of the
Fund's current SAI as that Company shall reasonably request and that that
Company shall require in accordance with applicable law in connection with
offering the Variable Contracts issued by that Company.
5.4. The Fund, at its expense, shall provide a Company with copies of its
proxy material, periodic reports to shareholders and other communications to
shareholders in such quantity as that Company shall reasonably require for
purposes of distributing to owners of Variable Contracts issued by that Company.
The Fund, at a Company's expense, shall provide that Company with copies of its
periodic reports to shareholders and other communications to shareholders in
such quantity as that Company shall reasonably request for use in connection
with offering the Variable Contracts issued by that Company. If requested by a
Company in lieu thereof, the Fund shall provide such documentation (including a
final copy of the Fund's proxy materials, periodic reports to shareholders and
other communications to shareholders, as set in type or in camera-ready copy)
and other assistance as reasonably necessary in order for that Company to print
such shareholder communications for distribution to owners of Variable Contracts
issued by that Company.
5.5. For so long as the SEC interprets the 1940 Act to require pass-through
voting by Participating Insurance Companies whose Separate Accounts are
registered as investment companies under the 1940 Act, each Company shall vote
shares of each Series of the Fund held
15
<PAGE>
in a Separate Account or a subaccount thereof that is registered as an
investment company under the 1940 Act, at regular and special meetings of the
Fund in accordance with instructions timely received by that Company (or its
designated agent) from owners of Variable Contracts funded by such Separate
Account or subaccount thereof having a voting interest in the Series. Each
Company shall vote shares of a Series of the Fund held in a such a registered
Separate Account or a subaccount thereof that are attributable to its Variable
Contracts as to which no timely instructions are received, as well as shares
held in such Separate Account or subaccount thereof that are not attributable to
its Variable Contracts and owned beneficially by the Company (resulting from
charges against the Variable Contracts or otherwise), in the same proportion as
the votes cast by owners of the Variable Contracts funded by that Separate
Account or subaccount thereof having a voting interest in the Series from whom
instructions have been timely received. Each Company shall vote shares of each
Series of the Fund held in its general account, if any, in the same proportion
as the votes cast with respect to shares of the Series held in all Separate
Accounts of that Company or subaccounts thereof, whether or not registered, in
the aggregate.
5.6. The Fund shall disclose in its prospectus or Statement of Additional
Information, to the extent pertinent, that (1) shares of the Series of the Fund
are offered to affiliated or unaffiliated insurance company separate accounts
which fund both annuity and life insurance contracts and, (2) due to differences
in tax treatment or other considerations, the interests of various Variable
Contract Owners participating in the Fund or a Series might at some time be in
conflict, and (3) the Board of Trustees of the Fund will monitor for any
material conflicts and determine what action, if any, should be taken. The Fund
hereby notifies the Companies that
16
<PAGE>
prospectus disclosure may be appropriate, to the extent pertinent, regarding
potential risks of offering shares of the Fund to separate accounts funding both
variable annuity contracts and variable life insurance policies, to separate
accounts funding Variable Contracts of unaffiliated life insurance companies.
ARTICLE VI. Sales Material and Information
------------------------------
6.1. Each Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund (or any Series thereof) or its investment advisers or
the Distributor is named, and no such sales literature or other promotional
material shall be used without the approval of the Fund and the Distributor or
the designee of either.
6.2. Each Company agrees that neither it nor any of its affiliates or
agents shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund other than the information or
representations contained in the Registration Statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Distributor or its designee, except with the permission of
the Fund or its designee or the Distributor or its designee.
6.3. The Fund or the Distributor or the designee of either shall furnish to
each Company or its designee, each piece of sales literature or other
promotional material in which
17
<PAGE>
that Company or its Separate Accounts are named, and no such material shall be
used without the approval of that Company or its designee.
6.4. The Fund and the Distributor agree that each, and the affiliates and
agents of each, shall not give any information or make any representations on
behalf of a Company or concerning that Company, its Separate Accounts, or the
Variable Contracts issued by that Company, other than the information or
representations contained in a registration statement or prospectus for such
Variable Contracts, as such registration statement and prospectus may be amended
or supplemented from time to time, or in reports for the Separate Accounts or
prepared for distribution to owners of such Variable Contracts, or in sales
literature or other promotional material approved by that Company or its
designee, except with the permission of that Company.
6.5. The Fund will provide to each Company at least one complete copy of
all prospectuses, Statements of Additional Information, reports, proxy
statements and other voting solicitation materials, and all amendments and
supplements to any of the above, that relate to the Fund or its shares, promptly
after the filing of such document with the SEC or other regulatory authorities.
6.6. Each Company will provide to the Fund at least one complete copy of
all prospectuses (which shall include an offering memorandum if the Variable
Contracts issued by that Company or interests therein are not registered under
the 1933 Act), Statements of Additional Information, reports, solicitations for
voting instructions, and all amendments or supplements to any of the above, that
relate to the Variable Contracts issued by that Company or
18
<PAGE>
its Separate Accounts promptly after the filing of such document with the SEC or
other regulatory authority.
6.7. For purposes of this Article VI, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, computerized media, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, seminar texts, reprints or excerpts of any
other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees.
ARTICLE VII. Indemnification
---------------
7.1. Indemnification By Pacific Life
-------------------------------
7.1(a). Pacific Life agrees to indemnify and hold harmless the Fund,
each of its Trustees and officers, any affiliated person of the Fund within the
meaning of Section 2(a)(3) of the 1940 Act, and the Distributor (collectively,
the "Indemnified Parties" for purposes of this Section 7.1 and Section 7.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Pacific Life) or litigation expenses
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages,
19
<PAGE>
liabilities or litigation expenses are related to the sale or acquisition of the
Fund's shares or the Variable Contracts issued by Pacific Life and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement or
prospectus (which shall include an offering memorandum) for the Variable
Contracts issued by Pacific Life or sales literature for such Variable Contracts
(or any amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to Pacific Life by or on behalf of the Fund for use in the registration
statement or prospectus for the Variable Contracts issued by Pacific Life or
sales literature (or any amendment or supplement) or otherwise for use in
connection with the sale of such Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or representation
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Variable Contracts not
supplied by Pacific Life or persons under its control) or wrongful conduct of
Pacific Life or any of its affiliates, employees or agents with respect to the
sale or distribution of the Variable Contracts issued by Pacific Life or the
Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, or sales
literature of the Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Fund by or on behalf of Pacific Life;
except to the extent provided in Sections 7.1(b) and 7.1(c) hereof.
7.1(b). Pacific Life shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations or
duties under this Agreement or to the Fund.
20
<PAGE>
7.1(c). Pacific Life shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified Pacific Life in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Party shall have received notice of such service on any designated agent), but
failure to notify Pacific Life of any such claim shall not relieve Pacific Life
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, Pacific Life
shall be entitled to participate, at its own expense, in the defense of such
action. Pacific Life also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from Pacific
Life to such party of Pacific Life's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and Pacific Life will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.1(d). The Indemnified Parties shall promptly notify Pacific Life of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Variable Contracts issued by
Pacific Life or the operation of the Fund.
21
<PAGE>
7.2. Indemnification By PL&A
-----------------------
7.2(a). PL&A agrees to indemnify and hold harmless the Indemnified
Parties against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of PL&A) or litigation
expenses (including legal and other expenses), to which the Indemnified Parties
may become subject under any statue, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or litigation expenses are
related to the sale or acquisition of the Fund's shares or the Variable
Contracts issued by PL&A and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement or
prospectus (which shall include an offering memorandum) for the Variable
Contracts issued by PL&A or sales literature for such Variable Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to PL&A by or on behalf of the Fund for use in the registration statement or
prospectus for the Variable Contracts issued by PL&A or sales literature (or any
amendment or supplement) or otherwise for use in connection with the sale of
such Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or representation
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Variable Contracts not
supplied by PL&A or persons under its control) or wrongful conduct of PL&A or
any of its affiliates, employees or agents with respect to the sale or
distribution of the Variable Contracts issued by PL&A or the Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, or sales
literature of the Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Fund by or on behalf of PL&A;
except to the extent provided in Sections 7.2(b) and 7.2(c) hereof.
22
<PAGE>
7.2(b). PL&A shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation expenses
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his or her
duties or by reason of his or her reckless disregard of obligations or duties
under this Agreement or to the Fund.
7.2(c). PL&A shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such Party
shall have notified PL&A in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Party shall have
received notice of such service on any designated agent), but failure to notify
PL&A of any such claim shall not relieve PL&A from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, PL&A shall be entitled to participate, at its
own expense, in the defense of such action. PL&A also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from PL&A to such party of PL&A's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and PL&A will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
23
<PAGE>
7.2(d). The Indemnified Parties shall promptly notify PL&A of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Variable Contracts issued by PL&A
or the operation of the Fund.
7.3. Indemnification By the Distributor
----------------------------------
7.3(a). The Distributor agrees to indemnify and hold harmless the Fund
and each Company and each of their trustees, directors and officers and each
person, if any, who is an affiliated person of the Fund or that Company within
the meaning of Section 2(a)(3) the 1940 Act (collectively, the "Indemnified
Parties" for purposes of this Section 7.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Distributor) or litigation expenses (including legal and other
expenses) to which the Indemnified parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or litigation expenses are related to the sale or acquisition of the Fund's
shares or the Variable Contracts issued by that Company and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement or
prospectus or sales literature of the Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Distributor or the Fund
or the designee or either by or on behalf of that Company for use in the
registration statement or prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the sale of the
Variable Contracts issued by that Company or Fund shares; or
(ii) arise out of or as a result of any statement or representation
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Variable Contracts not
supplied by the Distributor or any employees or agents
24
<PAGE>
thereof) or wrongful conduct of the Fund or Distributor, or the affiliates,
employees, or agents of the Fund or the Distributor with respect to the sale or
distribution of the Variable Contracts issued by that Company or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, or sales
literature covering the Variable Contracts issued by that Company, or any
amendment thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to that Company by or
on behalf of the Fund;
except to the extent provided in Sections 7.3(b) and 7.3(c) hereof.
7.3(b). The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations and
duties under this Agreement or to a Company or its Separate Accounts.
7.3(c). The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Distributor in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Party shall have received notice of such service on any designated agent),
but failure to notify the Distributor of any such claim shall not relieve the
Distributor from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
Indemnification Provision. In case any such
25
<PAGE>
action is brought against the Indemnified Parties, the Distributor will be
entitled to participate, at its own expense, in the defense thereof. The
Distributor also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Distributor
to such party of the Distributor's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Distributor will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.3(d). The Company shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Variable Contracts
issued by the Company or the operation of the Separate Accounts.
ARTICLE VIII. Applicable Law
--------------
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California.
8.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Amended Shared Funding Order) and the terms
hereof shall be interpreted and construed in accordance therewith.
26
<PAGE>
ARTICLE IX. Termination
-----------
9.1. This Agreement shall terminate:
(a) at the option of any party upon 180 days advance written notice to
the other parties; or
(b) as to a Company, at the option of that Company if shares of the
Series are not reasonably available to meet the requirements of the Variable
Contracts issued by that Company, as determined by that Company, and upon prompt
notice by that Company to the other parties; or
(c) as to a Company, at the option of the Fund or the Distributor upon
institution of formal proceedings against that Company or its agent by the NASD,
the SEC, or any state securities or insurance department or any other regulatory
body regarding that Company's duties under this Agreement or related to the sale
of the Variable Contracts issued by that Company, the operation of the Separate
Accounts, or the purchase of the Fund shares; or
(d) as to a Company, at the option of that Company upon institution of
formal proceedings against the Fund or the Distributor by the NASD, the SEC, or
any state securities or insurance department or any other regulatory body; or
(e) as to a Company, upon requisite vote of the Variable Contract
Owners having an interest in its Separate Accounts (or any subaccounts thereof)
to substitute the shares of another investment company for the corresponding
shares of the Fund or a Series in
27
<PAGE>
accordance with the terms of the Variable Contracts for which those shares had
been selected to serve as the underlying investment media; or
(f) in the event any of the shares of a Series are not registered,
issued or sold in accordance with the applicable state and/or federal law, or
such law precludes the use of such shares as the underlying investment media of
the Variable Contracts issued or to be issued by a Company; or
(g) by any party to the Agreement upon a determination by a majority
of the Trustees of the Fund, or a majority of its disinterested Trustees, that
an irreconcilable conflict exists; or
(h) as to any Company, at the option of that Company if the Fund or a
Series fails to meet the diversification requirements specified in Section 3.3
hereof.
9.2. Each party to this Agreement shall promptly notify the other parties
to the Agreement of the institution against such party of any such formal
proceedings as described in Sections 8.1(c) and (d) hereof. Each Company shall
give 60 days prior written notice to the Fund of the date of any proposed vote
of its Variable Contract Owners to replace the Fund's shares as described in
Section 9.1(e) hereof.
9.3. If this Agreement terminates, any provision of this Agreement
necessary to the orderly windup of business under it will remain in effect as to
that business, after termination.
28
<PAGE>
ARTICLE X. Notices
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund: If to PL&A:
Pacific Select Fund Pacific Life and Annuity Company
Attn: Variable Regulatory Attn: Variable Regulatory Compliance
Compliance Department Department
700 Newport Center Drive 700 Newport Center Drive
P.O. Box 7500 P.O. Box 7500
Newport Beach, CA 92660 Newport Beach, CA 92660
If to the Distributor: If to Pacific Life:
Pacific Mutual Distributors Pacific Life Insurance Company
Attn: Compliance Officer Attn: Variable Regulatory
700 Newport Center Drive, NB-4 Compliance Department
Newport Beach, CA 92660 700 Newport Center Drive
P.O. Box 7500
Newport Beach, CA 92660
ARTICLE XI. Miscellaneous
-------------
11.1. The Fund and the Company agree that if and to the extent Rule 6e-2 or
Rule 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in final
form, to the extent applicable, the Fund and the Company shall each take such
steps as may be necessary to comply with those Rules, as may be applicable, as
amended or adopted in final form.
11.2. A copy of the Fund's Agreement and Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that the Agreement has been executed on behalf of the Fund by a Trustee of
the Fund in his or her capacity as
29
<PAGE>
Trustee and not individually. The obligations of this Agreement shall only be
binding upon the assets and property of the Fund and shall not be binding upon
any Trustee, officer or shareholder of the Fund individually.
11.3. Nothing in this Agreement shall impede the Fund's Trustee or
shareholders of the shares of the Fund's Series from exercising any of the
rights provided to such Trustees or shareholders in the Fund's Agreement and
Declaration of Trust, as amended, a copy of which will be provided to the
Company upon request.
11.4. It is understood that the name "Pacific", "Pacific Life", "Pacific
Select" or any derivative thereof or logo associated with that name is the
valuable property of Pacific Life, and that the Fund has the right to use such
name (or derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement the Companies shall forthwith cease to use such
name (or derivative or logo).
11.5. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.6. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.7. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
30
<PAGE>
11.8. This Agreement may not be assigned by any party to the Agreement
except with the written consent of the other parties to the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
PACIFIC SELECT FUND
ATTEST:_______________________ BY:_______________________
Name: Name:
Title: Title:
PACIFIC MUTUAL DISTRIBUTORS, INC.
ATTEST:_______________________ BY:_______________________
Name: Name:
Title: Title:
31
<PAGE>
PACIFIC LIFE INSURANCE COMPANY
ATTEST:_______________________ BY:_______________________
Name: Name:
Title: Title:
ATTEST:_______________________ BY:_______________________
Name: Name:
Title: Title:
PACIFIC LIFE & ANNUITY COMPANY
ATTEST:_______________________ BY:_______________________
Name: Name:
Title: Title:
ATTEST:_______________________ BY:_______________________
Name: Name:
Title: Title:
32
<PAGE>
Exhibit A
Separate Accounts of Pacific Life Insurance Company:
Pacific Select Separate Account
Pacific Select Exec Separate Account
Pacific Select COLI Separate Account
Pacific Select Variable Annuity Separate Account
Separate Account A
Separate Account B
Pacific Select Value Separate Account
Pacific Corinthian Variable Separate Account
Pacific COLI Separate Account II
Pacific COLI Separate Account III
Separate Accounts of Pacific Life and Annuity Company:
Pacific Select Exec Separate Account
Separate Account A
33
<PAGE>
Exhibit B
Money Market Portfolio
High Yield Bond Portfolio
Managed Bond Portfolio
Government Securities Portfolio
Small-Cap Equity Portfolio
Aggressive Equity Portfolio
Growth LT Portfolio
Equity Income Portfolio
Multi-Strategy Portfolio
Large-Cap Value Portfolio
Mid-Cap Value Portfolio
Equity Portfolio
Bond and Income Portfolio
Equity Index Portfolio
Small-Cap Index Portfolio
REIT Portfolio
International Value Portfolio
Emerging Markets Portfolio
International Large-Cap Portfolio
Diversified Research Portfolio
Internet Toll Keeper Portfolio*
*Effective 05/01/2000
34
<PAGE>
EXHIBIT (h)(5)
ADDENDUM TO AGENCY AGREEMENT
----------------------------
The Agency Agreement, made the 1st day of July, 1990 and subsequently
amended on January 4, 1994, August 15, 1994, November 20, 1995, and December 18,
1998, by and between PACIFIC SELECT FUND ("Fund"), a Massachusetts business
trust having its principal place of business at 700 Newport Center Drive,
Newport Beach, CA 92660, and PACIFIC LIFE INSURANCE COMPANY ("Pacific Life"), a
California Corporation, having its principal place of business at 700 Newport
Center Drive, Newport Beach, California 92660 (the "Agreement") is hereby
amended by the addition of the provisions set forth in this Addendum to the
Agreement ("Addendum"), which is made this 27th day of August, 1999.
WHEREAS, pursuant to the Agreement, the Fund has appointed Pacific Life as
Transfer Agent and Dividend Disbursing Agent and Pacific Life has accepted such
appointment;
WHEREAS, the Fund is authorized to issue its shares of beneficial interest
(hereinafter "Shares") in separate series (each, a "Portfolio" and collectively,
the "Portfolios") with each such Portfolio representing interests in securities
and other assets;
WHEREAS, the Fund may establish multiple Portfolios, as described in the
Fund's prospectus, which may be amended and supplemented from time to time, and
the Fund may add or eliminate Portfolios from time to time;
WHEREAS, the Fund historically has offered Shares, other than shares for
initial investment capital, solely to separate accounts of Pacific Life for
purposes of serving as an investment vehicle for variable annuity contracts and
variable life insurance contracts issued by Pacific Life;
WHEREAS, the Fund has adopted a Multi-Class Plan, pursuant to which each
Portfolio is authorized to establish multiple classes of Shares that reflect
differing service or distribution arrangements;
WHEREAS, the Fund may offer its Shares (i) to qualified institutional
investors including, but not limited to, separate accounts of Pacific Life and
separate accounts of other insurance companies that fund variable life insurance
policies and variable annuity contracts issued by such insurance companies (the
"Variable Contracts"); and (ii) in connection with individual retirement
accounts and qualified retirement plans under Sections 401 and 403(b) of the
Internal Revenue Code ("IRC"), and qualified deferred compensation arrangements
under IRC Section 457 (collectively, the "Qualified Plans");
WHEREAS, the Fund may issue Shares in multiple classes to different types
of investors, the Fund believes it is appropriate to provide services to those
investors in different classes that require different levels of service;
<PAGE>
WHEREAS, the Fund desires that Pacific Life continue to serve as Transfer
Agent and Dividend Disbursing Agent for the class of Shares offered to separate
accounts of Pacific Life and separate accounts of other life insurance companies
that fund Variable Contracts ("Class S Shares");
WHEREAS, Pacific Life is willing to continue to serve in such capacity for
Class S Shares;
NOW THEREFORE, in consideration of the mutual promises and covenants
contained in this Addendum, it is agreed between the parties hereto as follows:
1. The Fund hereby employs and appoints Pacific Life as Transfer Agent and
Dividend Disbursing Agent with respect to Class S Shares of the Portfolios
listed on the Schedule of Portfolios, attached hereto, as provided for in the
Agreement, subject to the terms and conditions as specified in the Agreement and
this Addendum, including the compensation provisions in Section six (6)
("Compensation and Expenses") of the Agreement and in the Compensation Schedule
("Exhibit C") attached thereto. The terms of the Agreement and this Addendum
thereto apply to Class S Share only.
2. The Agreement is hereby amended as follows:
A. Section 4.E. is amended to read:
E. Subject to provisions of Sections 20. and 21. of the Agreement,
Pacific Life agrees that it will perform all of the usual and ordinary services
of Transfer Agent and Dividend Disbursing Agent and as Agent for the various
Class S shareholder accounts, including, without limitation, the following:
issuing, transferring and canceling certificates of shares of beneficial
interest, maintaining all shareholder accounts, preparing shareholder meeting
lists, arranging for mailing shareholder reports and prospectuses, arranging for
mailing of proxies and receipt and tabulation of proxies, withholding taxes on
non-resident alien and foreign corporation accounts, for pension and deferred
income, backup withholding or other instances agreed upon by the parties,
preparing and mailing checks for disbursing of income dividends and capital gain
distributions, preparing and filing U.S. Treasury Department Form 1099 for all
shareholders, preparing and mailing confirmation forms to shareholders and
dealers with respect to all purchases and liquidations of Fund shares and other
transactions in shareholder accounts for which confirmations are required,
recording reinvestments of dividends and distributions in Fund shares, recording
redemptions of Fund shares and preparing for payments upon redemption and for
disbursements.
B. Section 6.B is amended to read:
<PAGE>
B. Fund agrees to promptly reimburse Pacific Life for all
reasonable out-of-pocket expenses or advances incurred by Pacific Life in
connection with mailing stock certificates, envelopes, check forms, continuous
forms, forms for reports and statements, stationery, and other similar items,
telephone and telegraph charges incurred in answering inquiries from dealers of
shareholders, microfilm used each year to record the previous year's transaction
in shareholder accounts and computer tapes used for permanent storage of records
and cost of insertion of materials in mailing envelopes by outside firms.
Pacific Life will provide to Fund, at least quarterly, a detailed accounting of
all out-of-pocket expenditures made by Pacific Life on behalf of Fund.
C. Exhibit A is amended to read as attached hereto.
IN WITNESS WHEREOF, the parties hereto have caused this addendum to be
executed by their officers designated below on the date written above.
PACIFIC SELECT FUND
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
- ----------------------------- ------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and Trustee
PACIFIC LIFE INSURANCE COMPANY
Attest: /s/ Audrey L. Milfs By: /s/ Thomas C. Sutton
- -------- ------------------- ------------------------
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman & CEO
Attest: /s/ Audrey L. Milfs By: /s/ Glenn S. Schafer
- ----------------------------- ------------------------
Name: Audrey L. Milfs Name: Glenn S. Schafer
Title: Secretary Title: President
<PAGE>
EXHIBIT A
TRANSFER AGENCY SERVICES AND SYSTEMS FEATURES
---------------------------------------------
FUNCTIONS
- ---------
A. Issuance of stock certificates
B. Recording of non-certificate shares
C. Purchase, redemptions, exchanges, transfers and legals
D. Changes of address, etc.
E. Daily balancing of Fund
F. Dividend calculation and disbursement
G. Arranging for mailing of semi-annual and annual reports and prospectuses to
existing shareholders
H. Arranging for mailing of proxies and receipt and tabulation of proxies
I. Filing 1099/1042 information to shareholders and government
J. Reconcilement of dividend and disbursement accounts
K. Daily communication of reports to Funds
L. Provide listings, labels and other special reports
M. Wire order processing
<PAGE>
Schedule of Portfolios
Portfolios for which services are rendered to Class S Shares:
Money Market Portfolio
High Yield Bond Portfolio
Managed Bond Portfolio
Government Securities Portfolio
Growth Portfolio (to be renamed Small-Cap Equity Portfolio)*
Aggressive Equity Portfolio
Growth LT Portfolio
Equity Income Portfolio
Multi-Strategy Portfolio
Large-Cap Value Portfolio
Mid-Cap Value Portfolio
Equity Portfolio
Bond and Income Portfolio
Equity Index Portfolio
Small-Cap Index Portfolio
REIT Portfolio
International Portfolio (to be renamed International Value Portfolio)*
Emerging Markets Portfolio
International Large-Cap Portfolio*
Diversified Research Portfolio*
*Effective January 1, 2000
<PAGE>
EXHIBIT (h)(6)
FORM OF ADDENDUM TO AGENCY AGREEMENT
The Agency Agreement, made the 1st day of July, 1990 and subsequently
amended on January 4, 1994, August 15, 1994, November 20, 1995, December 18,
1998, and August 27, 1999, by and between PACIFIC SELECT FUND ("Fund"), a
Massachusetts business trust having its principal place of business at 700
Newport Center Drive, Newport Beach, CA 92660, and PACIFIC LIFE INSURANCE
COMPANY ("Pacific Life"), a California corporation, having its principal place
of business at 700 Newport Center Drive, Newport Beach, California 92660, (the
"Agreement") is hereby amended by the addition of the provisions set forth in
this Addendum to the Agreement ("Addendum"), which is made this 28th day of
January, 2000.
1. Effective May 1, 2000, the Schedule of Portfolios attached to the
Agreement is amended as shown on the Schedule of Portfolios attached
to this Addendum.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to be
executed by their officers designated below on the date written above.
PACIFIC SELECT FUND
Attest:__________________________ By:______________________________
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman of the Board and Trustee
PACIFIC LIFE INSURANCE COMPANY
Attest:__________________________ By:______________________________
Name: Audrey L. Milfs Name: Thomas C. Sutton
Title: Secretary Title: Chairman & CEO
Attest:__________________________ By:______________________________
Name: Audrey L. Milfs Name: Glenn S. Schafer
Title: Secretary Title: President
<PAGE>
Schedule of Portfolios
Portfolios for which services are rendered:
Money Market Portfolio
High Yield Bond Portfolio
Managed Bond Portfolio
Government Securities Portfolio
Small-Cap Equity Portfolio
Aggressive Equity Portfolio
Growth LT Portfolio
Equity Income Portfolio
Multi-Strategy Portfolio
Large-Cap Value Portfolio
Mid-Cap Value Portfolio
Equity Portfolio
Bond and Income Portfolio
Equity Index Portfolio
Small-Cap Index Portfolio
REIT Portfolio
International Value Portfolio
Emerging Markets Portfolio
International Large-Cap Portfolio
Diversified Research Portfolio
I-Net Tollkeeper Portfolio
<PAGE>
EXHIBIT (h)(7)
FORM OF ADDENDUM TO FUND PARTICIPATION AGREEMENT
The Fund Participation Agreement, made the 1st day of January, 2000, by and
among PACIFIC LIFE INSURANCE COMPANY (formerly Pacific Mutual Life Insurance
Company) ("Pacific Life"), a life insurance company domiciled in California, on
its behalf and on behalf of its segregated asset accounts listed on Exhibit A to
the Agreement; PACIFIC LIFE & ANNUITY COMPANY (formerly PM Group Life Insurance
Company) ("PL&A", and, together with Pacific Life, the "Companies"), a life
insurance company domiciled in Arizona, on its behalf and on behalf of its
segregated asset accounts listed on Exhibit A to the Agreement (the segregated
asset accounts of the Companies are referred to collectively as the "Separate
Accounts"); PACIFIC SELECT FUND (the "Fund"), a Massachusetts business trust;
and PACIFIC MUTUAL DISTRIBUTORS, INC. (formerly Pacific Equities Network )
("Distributor"), a California corporation, is hereby amended by the addition of
the provisions set forth in this Addendum to the Agreement ("Addendum"), which
is made this 28th day of January, 2000.
1. Effective May 1, 2000, Exhibit B attached to the Agreement, is amended
as shown on Exhibit B attached to this Addendum.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
PACIFIC SELECT FUND
ATTEST:_________________ BY:_____________________
Name: Name:
Title: Title:
PACIFIC MUTUAL DISTRIBUTORS, INC.
ATTEST:__________________ BY:_____________________
Name: Name:
Title: Title:
<PAGE>
PACIFIC LIFE INSURANCE COMPANY
ATTEST:__________________ BY:_____________________
Name: Name:
Title: Title:
ATTEST:__________________ BY:_____________________
Name: Name:
Title: Title:
PACIFIC LIFE & ANNUITY COMPANY
ATTEST:__________________ BY:_____________________
Name: Name:
Title: Title:
ATTEST:__________________ BY:_____________________
Name: Name:
Title: Title:
<PAGE>
Exhibit B
Money Market Portfolio
High Yield Bond Portfolio
Managed Bond Portfolio
Government Securities Portfolio
Small-Cap Equity Portfolio
Aggressive Equity Portfolio
Growth LT Portfolio
Equity Income Portfolio
Multi-Strategy Portfolio
Large-Cap Value Portfolio
Mid-Cap Value Portfolio
Equity Portfolio
Bond and Income Portfolio
Equity Index Portfolio
Small-Cap Index Portfolio
REIT Portfolio
International Value Portfolio
Emerging Markets Portfolio
International Large-Cap Portfolio
Diversified Research Portfolio
I-Net Tollkeeper Portfolio
Effective May 1, 2000
<PAGE>
EXHIBIT (p)
CODE OF ETHICS
PACIFIC SELECT FUND
The following Code of Ethics ("Code") is adopted by Pacific Select Fund (the
"Fund") and each registered investment adviser of the Fund, pursuant to Rule
17j-1 of the Investment Company Act of 1940 (the "Act"). This Code is intended
to ensure that all acts, practices and courses of business engaged in by Access
Persons (as defined) of the Fund reflect high standards and comply with the
requirements of Section 17(j) of the Act and Rule 17j-1 thereunder. Each series
of the Fund shall be referred to herein as a "Portfolio".
I. DEFINITIONS
(a) "Access Person" means any director, trustee, officer, general partner,
or advisory person (as defined) of the Fund, or any investment adviser
or sub-adviser thereof, as well as any "Portfolio Employee". However,
the term "Access Person," contained herein, shall not include any
director, trustee, officer or general partner of the Fund who is
subject to another code of ethics, provided that such code of ethics
is approved by the Board of the Fund.
(b) "Advisory Person" means (i) any employee of the Fund (or of any
company in a control relationship to the Fund) or any of its portfolio
managers or its adviser or administrator, who, in connection with his
or her regular functions or duties, makes, participates in, or obtains
information regarding the purchase or sale of a security (as defined
in this Code) by the Fund, or whose functions relate to the making of
any recommendations with respect to such purchases or sales; and (ii)
any natural person in a control relationship to the Fund who obtains
information concerning recommendations made to the Fund with regard to
the purchase or sale of a security.
(c) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated or, with respect to the person making the recommendation,
when such person seriously considers making such a recommendation.
(d) A security is "being purchased or sold" by the Fund from the time when
a purchase or sale program has been communicated to the person who
places the buy and sell orders for the Fund until the time when such
program has been fully completed or terminated.
1
<PAGE>
(e) "Beneficial Ownership" shall be interpreted in the same manner as it
would be in determining whether a person is subject to the provisions
of Section 16 of the Securities Exchange Act of 1934 and the rules and
regulations thereunder, except that the determination of direct or
indirect beneficial ownership shall apply to all securities which an
Access Person has or acquires./(1)/
(f) "Control" shall have the same meaning as that set forth in Section
2(a)(9) of the Act. Section 2(a)(9) provides that "control" generally
means the power to exercise a controlling influence over the
management or policies of a company, unless such power is solely the
result of an official position with such company.
(g) "Security" shall have the meaning set forth in Section 2(a)(36) of the
Act, except that it shall not include "Exempt Securities".
(h) "Exempt Securities" include securities issued by the Government of the
United States, and money market instruments/(2)/ as defined under Rule
17j-1 of the Act (as amended from time to time), and shares of
registered open-end investment companies, or such other securities as
may be excepted under the provisions of Rule 17j-1.
- -----------------
/(1)/ You are considered to have Beneficial Ownership of Securities if you
have or share a direct or indirect Pecuniary Interest in the
Securities. You have a Pecuniary Interest in Securities if you have
the opportunity, directly or indirectly, to profit or share in any
profit derived from a transaction in the Securities. The following are
examples of an indirect Pecuniary Interest in Securities:
(a) Securities held by members of your immediate family sharing the
same household; however, this presumption may be rebutted by
convincing evidence that profits derived from transactions in
these Securities will not provide you with any economic benefit.
Immediate family means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-
in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and includes any adoptive relationship.
(b) Your interest as a general partner in Securities held by a
general or limited partnership.
(c) Your interest as a manager-member in the Securities held by a
limited liability company.
You do not have an indirect Pecuniary Interest in Securities held by
a corporation, partnership, limited liability company or other entity
in which you hold an equity interest, unless you are a controlling
equityholder or you have or share investment control over the
Securities held by the entity.
The following circumstances constitute Beneficial Ownership by you
of Securities held by a trust:
(a) Your ownership of Securities as a trustee where either you or
members of your immediate family have a vested interest in the
principal or income of the trust.
(b) Your ownership of a vested beneficial interest in a trust.
(c) Your status as a settlor of a trust, unless the consent of all of
the beneficiaries is required in order for you to revoke the
trust.
/(2)/ Currently, the following are exempted: bankers' acceptances, bank
certificates of deposit, commercial paper, and high quality short-
term debt instruments, including repurchase agreements and any
instrument that has a maturity at issuance of less than 366 days and
that is rated in one of the two highest rating categories by a
Nationally Recognized Statistical Organization.
2
<PAGE>
(i) "Portfolio Employee" is any person who is employed by a Portfolio
Manager of a Portfolio and who is authorized to make investment
decisions on behalf of a Portfolio, as well as investment personnel
such as securities analysts and traders who advise or execute the
decisions of Portfolio Managers of a Portfolio. Provided, however,
that "Portfolio Employee" shall not include any person who is subject
to another code of ethics, provided that such code of ethics is
approved by the Board of the Fund. (Note: a Portfolio Employee is
included within the definition of Access Person).
II. STATEMENT OF GENERAL PRINCIPLES
The following are general principles governing personal securities
transactions by Access Persons of the Fund:
(1) Access Persons have a duty to place the interests of the Fund's
shareholders first;
(2) Access Persons must comply with this Code of Ethics and avoid any
actual or potential conflicts of interest in personal securities
transactions; and
(3) Access Persons cannot take inappropriate advantage of their
positions, including in particular, front-running purchases or
sales by the Fund.
III. PROHIBITED PURCHASES AND SALES
A. No Access Person shall, in connection with the purchase or sale,
directly or indirectly, by such person of a security held or to be
acquired by the Fund:
(1) employ and devise, scheme or artifice to defraud the Fund;
(2) make to the Fund any untrue statement of a material fact or omit
to state to the Fund a material fact necessary in order to make
the statements made, in light of the circumstances under which
they are made, not misleading;
(3) engage in any act, practice or course of business which would
operate as a fraud or deceit upon the Fund;
(4) engage in any manipulative practice with respect to the Fund.
B. In this connection it shall be impermissible for any Access Person to
purchase or sell, directly or indirectly, any security (or any option
to purchase or sell such security) in which (s)he has, or by reason of
such transaction acquires, any direct
3
<PAGE>
or indirect beneficial ownership and which (s)he has actual knowledge
at the time of such purchase or sale that such security:
(1) is being considered for purchase or sale by the Fund; or
(2) is being purchased or sold by the Fund.
This does not impose any duty or requirement on Access Persons to
inquire of Portfolio Employees if a security is being considered or is
being purchased or sold by the Fund, including any Portfolio managed
by another Portfolio Manager.
C. Any Access Person who questions whether a contemplated transaction is
prohibited by this Code should discuss the transaction with the Fund's
Compliance Officer (or his/her designee), prior to proceeding with the
transaction.
D. An Access Person may not accept any investment opportunity, gift,
gratuity or other thing of more than nominal value, from any person or
entity that does business or desires to do business with the Fund,
including trading with any of the Portfolios of the Fund. It is not
prohibited to (i) accept gifts from a single giver, so long as the
annual aggregate value does not exceed $100; or (ii) attend business
meals, sporting events and other entertainment events at the expense
of the giver, so long as the expense is reasonable and the giver is
present with the Access Person.
IV. EXEMPT TRANSACTIONS FOR ACCESS PERSONS - Exempt from quarterly reporting
The prohibitions of Section III of this Code shall not apply to the
following transactions by an Access Person:
(1) Purchases or sales over which the Access Person has no direct or
indirect influence or control. There is a presumption that you
can exert some measure of influence or control over accounts held
by members of your immediate family sharing the same household,
but this presumption may be rebutted by convincing evidence;
(2) Purchases or sales of securities which are not eligible for
purchase or sale by the Fund;
(3) Purchases or sales which are nonvolitional on the part of either
the Access Person or the Fund;
4
<PAGE>
(4) Purchases which are part of an automatic dividend reinvestment
plan;
(5) Purchases effected upon the exercise of rights issued by an
issuer pro rata to all holders of a class of its securities, to
--- ----
the extent such rights were acquired with respect to securities
of which you have beneficial ownership.
(6) Acquisitions or dispositions of Securities as the result of a
stock dividend, stock split, reverse stock split, merger,
consolidation, spin-off or other similar corporate distribution
or reorganization applicable to all holders of a class of
Securities of which you have Beneficial Ownership.
(7) Subject to the restrictions on participation in private
placements set forth below under Private Placements, acquisitions
or dispositions of Securities of a private issuer. A private
issuer is a corporation, partnership, limited liability company
or other entity which has no outstanding publicly-traded
Securities, and no outstanding Securities which are convertible
into or exchangeable for, or represent the right to purchase or
otherwise acquire, publicly-traded Securities. However, you will
have Beneficial Ownership of Securities held by a private issuer
whose equity Securities you hold, unless you are not a
controlling equityholder and do not have or share investment
control over the Securities held by the entity.
(8) Transactions which appear to the Compliance Officer of the Fund
or his/her designee to present no reasonable likelihood of harm
to the Fund and which have been authorized in advance by the
Compliance Officer.
V. TRANSACTIONS WHICH DO NOT REQUIRE PRECLEARANCE
The following Transactions do not require preclearance:
(1) Purchases or sales of securities which are not eligible for
purchase or sale by the Portfolio managed by the Portfolio
Manager which employs the Portfolio Employee.
(2) Purchases or sales of up to $100,000 per calendar month per
issuer of fixed-income Securities other than municipal
securities.
(3) Any purchase or sale of fixed-income Securities issued by
agencies or instrumentalities of, or unconditionally guaranteed
by, the Government of the United States.
5
<PAGE>
(4) Purchases or sale of up to $1,000,000 per calendar month per
issuer of fixed-income Securities issued by qualified foreign
governments.
A qualified foreign government is a national government of a
developed foreign country with outstanding fixed-income
securities in excess of fifty billion dollars.
(5) Purchases or sales of up to 500 shares per day, but not more than
1,000 shares per calendar week, per issuer, of large-cap issuers.
A large-cap issuer is an issuer with a total market
capitalization in excess of one billion dollars and an average
daily trading volume during the preceding calendar month, on the
principal securities exchange (including NASDAQ) on which its
shares are traded, in excess of 50,000 shares.
(6) Purchases or sales of up to the lesser of 500 shares or $5,000
per calendar week, per issuer, of stock of issuers other than
large-cap issuers.
(7) Purchases or sales of up to $1,000,000 in total notional open
interest per calendar month, per index, of exchange-traded
options on broadly-based indices.
A broadly-based index is an index with an average notional open
interest during the preceding calendar quarter in excess of one
billion dollars.
(8) Any purchase or sale of shares of registered closed-end
investment companies.
Access Persons should keep the following in mind:
(1) Paragraph V Transactions must be reported to the Fund on
quarterly and annual reports (see below).
(2) The securities of qualified foreign governments, large-cap
issuers and broadly-based indices which qualify under Paragraph V
may change from time to time. Accordingly, you may purchase
Securities in a Paragraph V Transaction, only to find that you
cannot sell them later without preclearance. In that case, you
will be able to sell them only if you preclear the sale in
compliance with the procedures set forth in the Code.
In addition, Portfolio Employees should keep the following in mind:
6
<PAGE>
(1) Paragraph V Transactions are subject to the prohibition against
short-swing trading profits set forth in the Code.
VI. PRECLEARANCE PROCEDURES
The purchase or sale of any Security by any Access Person which is not
exempt, requires preclearance by the Compliance Officer of the Fund or the
Compliance Officer of the Portfolio Manager which employs such Access
Person; provided, however, that the Independent Trustees of the Fund are
not subject to preclearance procedures unless they have actual knowledge at
the time of their purchase or sale that the Security is being considered
for purchase or sale by the Fund or is being purchased or sold by the Fund.
(1) The Securities may not be purchased or sold on any day during
which there is a pending buy or sell order in the same Security
on behalf of the Fund until that order is executed or withdrawn.
(2) The Securities may not be purchased or sold by a Portfolio
Employee during the period which begins seven days before and
ends seven days after the day on which a portfolio you manage
trades in the same Security.
(3) The Securities may be purchased or sold only if you have asked a
Compliance Officer to preclear the purchase or sale, the
Compliance Officer has given you preclearance in writing, and the
purchase or sale is executed by the close of business on the day
preclearance is given. Preclearance will not be given unless a
determination is made that the purchase or sale complies with
this Code and the foregoing restrictions. The form for
requesting preclearance is attached hereto as Appendix I.
(4) Any transaction which violates these procedures must be unwound,
or if that is not practical or not possible, profits received by
the Access Person must be contributed to a charitable
organization.
VII. PRIVATE PLACEMENTS
If you are a Portfolio Employee, you may not acquire Beneficial Ownership
of any Securities in a private placement, unless you have received the
prior written approval of your firm's compliance officer, who shall be
designated as such to the Board of Trustees. Approval may not be given
unless a determination is made that the investment opportunity should not
be reserved for the Fund.
7
<PAGE>
If you have acquired Beneficial Ownership of Securities in a private
placement, you must disclose your investment when you play a part in any
consideration of an investment by the Fund in the issuer of the Securities,
and any decision to make such an investment must be independently reviewed
by a portfolio manager who does not have Beneficial Ownership of any
Securities of the issuer.
VIII. INITIAL PUBLIC OFFERINGS ("IPOs")
If you are a Portfolio Employee, you may not acquire Beneficial Ownership
of any Securities in an IPO.
IX. SHORT-TERM TRADING PROFITS
If you are a Portfolio Employee, you may not profit from the purchase and
sale, or sale and purchase, within 60 calendar days of the same (or
equivalent) Securities of which you have Beneficial Ownership. Any such
short-term trade must be unwound, or if that is not practical, the profits
must be contributed to a charitable organization. Nothing in this paragraph
shall be deemed to permit avoidance of loss through short-term trading.
You are considered to profit from a short-term trade if Securities of which
you have Beneficial Ownership are sold for more than their purchase price,
even though the Securities purchased and the Securities sold are held of
record or beneficially by different persons or entities.
X. REPORTING
A. Every Access Person (except as noted in C. below with respect to
Independent Trustees) shall (i) file an initial holdings report within
10 days of becoming an access person and (ii) file a holdings report
annually within 30 days of year-end. Holdings reports must be current
as of a date no more than 30 days before the report is submitted.
(Sample Report of Initial/Annual Securities Holdings is attached
hereto as Appendix IV).
B. Every Access Person (except as noted in C. below with respect to
Independent Trustees) shall file with the Fund a quarterly report of
any transaction in Securities with respect to transactions in any
security in which such Access Person has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership in
the security; provided however, that such Access Person shall not be
required to make a report with respect to exempt transactions as set
forth in paragraph IV. (Sample Personal Transaction Reporting Form is
attached hereto as Appendix II).
8
<PAGE>
C. The Independent Trustees of the Trust shall not be required to file an
initial holdings report or an annual holdings report or a quarterly
transaction report unless such Trustee has actual knowledge at the
time of their purchase or sale that the security they purchased or
sold was being considered for purchase or sale or was being purchased
or sold by the Trust.
D. Every quarterly report shall be made no later than ten days after the
end of the calendar quarter in which the transaction to which the
report relates was effected, and shall contain the following
information:
(1) The date of the transaction, the title and the number of shares,
and the principal amount of each security involved;
(2) The nature of the transaction (i.e., purchase, sale or any other
type of acquisition or disposition), including information
sufficient to establish any exemption listed in Paragraph IV
which is relied upon;
(3) The price at which the transaction was effected;
(4) The name of the broker, dealer or bank with or through whom the
transaction was effected; and
(5) For accounts opened during the quarter:
(a) The opening date of the account;
(b) Account title;
(c) Account number; and
(d) Name of Broker Dealer or Bank;
E. Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he has
any direct or indirect beneficial ownership in the security to which
the report relates, and the existence of any report shall not be
construed as an admission that any event reported on constitutes a
violation of this Code.
XI. CERTIFICATE OF COMPLIANCE
As an Access Person, you are required to certify annually that you have
read and understand this Code and recognize that you are subject to this
Code. Each annual certificate will also state that, to the best of your
knowledge, you have complied with the requirements of this Code during the
prior year, and that you have disclosed, reported, or caused to be reported
all transactions during the prior year in Securities of which you had
9
<PAGE>
or acquired Beneficial Ownership. An officer or otherwise authorized
signatory of each Portfolio Manager shall obtain certificates of compliance
from each Portfolio Employee (a copy of a form of which is attached hereto
as Appendix III) and certify on behalf of each Portfolio of the Fund which
it manages, that as a firm, it has complied with this Code.
XII. REVIEW AND ENFORCEMENT
A. Review
(1) The Compliance Officer of the Fund (or his/her designees) shall
from time to time review the reported personal securities
transactions of Access Persons to determine whether any violation
of this Code may have occurred, taking into account all the
exemptions provided under Paragraph IV. The Compliance Officer
or his/her designees shall review holdings reports at least
annually and transaction reports at least quarterly. Before
making any determination that a violation has been committed by
an individual, the Compliance Officer of the Fund (or his/her
designee) shall give such person an opportunity to supply
additional information regarding the transaction in question.
(2) The Compliance Officer shall be responsible to maintain a current
list of all Fund Access Persons, updated at least quarterly.
(3) The Compliance Officer of the Fund or his/her designees shall
report at least annually to the Board regarding compliance with
this Code, including violations if any and recommendations for
change if necessary.
B. Enforcement
(1) If the Compliance Officer of the Fund (or his/her designees)
determines that a violation of this Code may have occurred, They
shall promptly report the possible violation to the Trustees of
the Fund. The Trustees, with the exception of any person whose
transaction is under consideration, shall take such actions as
they consider appropriate, including imposition of any sanctions
that they consider appropriate.
(2) No person shall participate in a determination of whether he has
committed a violation of this Code or in the imposition of any
sanction against himself. If, for example, a securities
transaction of the President of the Fund is under consideration,
a Trustee of the Fund designated for the purpose by the Trustees
of the Fund shall act in all respects in the manner prescribed
herein for the President.
10
<PAGE>
XIII. RECORDS
The Fund shall maintain records in the manner and to the extent set forth
in the Act and shall make the same available for appropriate examination
by representatives of the Securities and Exchange Commission:
(1) A copy of this Code and any other code of ethics which is, or at
any time within the past five years has been in effect, shall be
preserved in an easily accessible place;
(2) A record of any violation of this Code and of any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
(3) A copy of each report made pursuant to this Code by an Access
Person shall be preserved by the Fund for a period of not less
than five years from the end of the fiscal year in which it is
made, the first two years in an easily accessible place;
(4) A list of all persons who are, or within the past five years have
been, required to make reports pursuant to this Code shall be
maintained in an easily accessible place.
XIV. CONFIDENTIALITY
All reports of securities transactions and any other information filed
with the Fund pursuant to this Code shall be treated as confidential,
except as regards appropriate examinations by representatives of the
Securities and Exchange Commission.
XV. AMENDMENT AND INTERPRETATION OF PROVISIONS
The Trustees may from time to time amend this Code or adopt such
interpretations of this Code as they deem appropriate.
11
<PAGE>
APPENDIX I
PACIFIC SELECT FUND
(the "Fund")
PRE-CLEARANCE OF SECURITIES TRANSACTION FORM
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1. Name of Employee requesting authorization: ______________________
2. If different from #1, name of the account
where the trade will occur: ______________________
3. Relationship of (2) to (1): ______________________
4. Name of firm at which the account is held: ______________________
5. Name of Security and call symbol: ______________________
6. Maximum number of shares or units to be
Purchased or sold or amount of bond: ______________________
7. Check those that are applicable:
_____ Purchase _____ Sale _____ Market Order _____ Limit Order (Price of Limit Order:________)
8. Do you possess material nonpublic
information regarding the
security or the
issuer of the security?1 _____ Yes _____ No
9. This is NOT an Exempt Security, an Exempt
Transaction, or a
transaction which does not
require preclearance?2 _____ Yes _____ No
10. To your knowledge, are the securities or
"equivalent securities" (i.e. securities
issued by the same entity as the issuer of
a security, and all derivative instruments,
such as options and warrants) held by
the Fund? _____ Yes _____ No
</TABLE>
_______________________________
/1/ Please note that employees generally are not permitted to acquire or sell
securities when they possess material nonpublic information regarding the
security or the issuers of the security.
/2/ For a definition of Exempt Security, Exempt Transaction or Transactions
which do not require preclearance, please refer to the Code of Ethics.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
11. To your knowledge, are there any
outstanding purchase or sell orders for
this security or any equivalent security by
the Fund? _____ Yes _____ No
12. To your knowledge, are the securities or
equivalent securities being considered for purchase
or sale by one or more Portfolios of the Fund? _____ Yes _____ No
13. Are the securities being acquired in an initial
public offering? _____ Yes _____ No
14. If you are a Portfolio Employee4, are the securities
being acquired in a private placement?5 _____ Yes _____ No
15. If you are a Portfolio Employee4, has any
account you manage purchased or sold these
securities or equivalent securities within the
past seven calendar days or do you expect the
account to purchase or sell these securities or
equivalent securities within seven calendar days
of your purchase or sale? _____ Yes _____ No
16. If this is NOT an Exempt Security and you
are a Portfolio Employee, have you or any
Related Account covered by the reauthorization
provisions of the Code purchased or sold these
securities within the past 60 days? _____ Yes _____ No
</TABLE>
_________________________
/3/ Please note that employees generally are not permitted to acquire securities
in an initial public offering for their own or
related accounts.
/4/ Please see your Compliance Officer if you are not sure whether or not you
are a Portfolio Employee.
/5/ Please note that generally acquisitions of securities in a private placement
are discouraged and may be denied.
/6/ Please see your Compliance Officer if you are not sure whether or not you
are a Portfolio Manager.
<PAGE>
APPENDIX II
PACIFIC SELECT FUND
-------------------
Quarterly Report of Securities Transactions
Quarter Ending:
-------------------
Note: If no accounts have been opened or no reportable transactions have
occurred, answer "NONE". In lieu of entering the information requested below,
you may attach a copy of each confirmation and/or statement(s) received from the
broker, dealer, or bank and indicate the number of confirmation/statements
attached.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Date of Number of Price Per Total Purchase Broker, Dealer, or Bank Effecting
Title of Security Transaction Buy/Sell Shares* Share or Bond** or Sale Price Transaction***
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Or principal amount of each security if a bond.
**Price at which transaction was effected.
***If new account, please complete information below
COMPLETE FOR ACOUNTS OPENED DURING THE CURRENT QUARTER:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Opening Date Account Name/Title Name of Broker Dealer and/or Firm Account Number
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Date:___________________________________
Signed: ________________________________
Print Name: ____________________________
================================================================================
Please return completed form to: Lisa Rigdon, Variable Regulatory Compliance,
NB-5, Ext. 6783.
================================================================================
<PAGE>
INSTRUCTIONS FOR COMPLETING QUARTERLY REPORT OF SECURITIES TRANSACTIONS
A. Transactions Required to be Reported. You should report every transaction in
------------------------------------
which you acquired or disposed of any direct or indirect beneficial
ownership of any security, except "Exempt Securities" and "Exempt
Transactions" as defined below, during the calendar quarter. The term
"beneficial ownership" generally means that you have the opportunity,
directly or indirectly, to profit or share in any profit derived from a
transaction in the securities. The term includes but is not limited to the
following cases:
1. where the security is held for your benefit by others (brokers,
custodians, banks and pledges);
2. where the security is held for the benefit of your spouse or minor
children (or any relative who shares your residence);
3. where the securities are held by a partnership of which you are a
partner or investment club or other unincorporated association of which
you are a member.
4. where the securities are held by a limited liability company of which
you are a manager-member;
5. where securities are held in a trust over which you have a direct or
indirect influence or control and under which either you or any member
---
of your immediate family (ie. your spouse, children, grandchildren,
parents and grandparents) is a beneficiary; and
6. where securities are held in a trust over which you alone, or in
conjunction with someone not having substantial interest adverse to
yours, have the power to revoke and revest title to yourself at once or
at some future time.
B. Reporting Exceptions. Notwithstanding the foregoing, need not be reported.
---------------------
See Fund code for complete definitions of Exempt Securities and Exempt
Transactions.
1. purchase or sales over which you have no direct or indirect influence or
control;
2. purchases or sales which are involuntary on the part of the Access
Person;
3. purchases which are part of an automatic dividend reinvestment plan;
4 acquisitions or dispositions of securities as the result of a stock
split, reverse stock split, merger, consolidation, spin-off, etc.
applicable to all holders of a class of securities; and
5. purchases or sales of exempt securities, which include: securities
issued by the Government of the United States, money market
instruments/1/ as defined under Rule 17j-1 of the Act (as amended from
time to time), and shares of registered open-end investment companies
(mutual funds), or such other securities as may be excepted under the
provisions of Rule 17j-1.
C. Information Required to Be Reported.
------------------------------------
1. Title of Security. State the name of the issuer and the class of the
-----------------
security (e.g. common stock, preferred stock or designated issue of debt
securities). In the case of acquisition or disposition of a future
contract, put or call option or other right (hereinafter referred to as
"options",) state the title of the security subject to the option and
the expiration date of the option. Stock options granted to you by your
employer should be reported only at the time such options are exercised.
2. Date of Transaction. In the case of a market transaction, state the
-------------------
trade date (not the settlement date).
3. Buy/Sell. State the character of the transaction (e.g. purchase, sale of
--------
security, purchase or sale of option, or exercise of option).
4. Number of Shares. State the number of shares of stock, or, if a debt
----------------
security, the principal amount, or other units of other securities. For
options, state the amount of securities subject to the option. If your
ownership interest was through a spouse, relative, or other natural
person or through a partnership, trust or other entity, state the entire
amount of securities involved in the transaction.
5. Price Per Share or Bond. State the purchase or sale price per share or
------------------------
other unit. In the case of an option, state the price at which it is
currently exercisable. No price need be reported for transactions not
involving cash.
6. Total Purchase or Sale Price. State the total purchase or sale price
-----------------------------
exclusive of brokerage commissions or other costs of execution.
7. Broker, Dealer or Bank Effecting Transaction. State the name of the
---------------------------------------------
broker, dealer or bank with or through whom the transaction was
effected.
COMPLETE THIS SECTION ONLY FOR ACCOUNTS OPENED DURING CALENDAR QUARTER
8. Opening Date. Indicate the date the account was opened.
-------------
9. Account Name/Title. State the name in which the account is held.
-------------------
10. Name of Broker Dealer and or Firm. State the name of the broker dealer,
----------------------------------
(or bank or firm) where the account was opened.
11. Account Number. State the account number.
-----------------
12. Date. Indicate the date the form was signed.
------
13. Signed. Sign the form in the space provided.
-------
14. Print Name. Clearly print name on the form in the space provided.
-----------
D. Filing of Report. A report should be filed NOT LATER THAN 10 DAYS after the
----------------- ----------------------
end of each calendar quarter.
- ------------------------
/1/ Currently, the following are exempted: bankers' acceptances, bank
certificate of deposit, commercial paper, and high quality short-term debt
instruments, including repurchase agreements and any instrument that has a
maturity at issuance of less than 366 days and that is rated in one of the two
highest rating categories by a Nationally Recognized Statistical Organization.
<PAGE>
APPENDIX III
CODE OF ETHICS
UNDER RULE 17j-1 OF THE INVESTMENT COMPANY ACT OF 1940
ADOPTED BY PACIFIC SELECT FUND
I have read and understand the Code of Ethics for Pacific Select Fund and
recognize that it applies to me. To the best of my knowledge, I have not
violated any of the provisions thereof, and I have disclosed, reported or caused
to be reported all transactions during the prior year in Securities of which I
had or acquired Beneficial Ownership.
Date: ________________________ __________________________
Signature
__________________________
Print Name
1
<PAGE>
APPENDIX IV
PACIFIC SELECT FUND
-------------------
Report of Initial/Annual Securities Holdings
As of ___________________
Note: If you hold no reportable transactions, answer "NONE". In lieu of
entering the information requested below, you may attach a copy of each
statement received from the broker, dealer, or bank and indicate the number of
statements attached.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Account Name and/or Title Broker Dealer, or Bank Where Securities Are Held Security Name and Symbol Number of Shares*
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
*Or principal amount of each security if a bond.
Date Signed: _____________________________
Signature: _______________________________
Print Name: ______________________________
----------------------------------------------------------------------------------------------
Please return completed form to: Lisa Rigdon, Variable Regulatory Compliance, NB-5, Ext. 6783.
----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INSTRUCTIONS FOR COMPLETING ANNUAL/INITIAL REPORT OF SECURITIES HOLDINGS
A. Transactions Required to be Reported. You should report all securities for
------------------------------------
which you currently hold any direct or indirect beneficial ownership of,
except "Exempt Securities" as defined below. The term "beneficial ownership"
generally means that you have the opportunity, directly or indirectly, to
profit or share in any profit derived from a transaction in the securities.
The term includes but is not limited to the following cases:
1. where the security is held for your benefit by others (brokers,
custodians, banks and pledges);
2. where the security is held for the benefit of your spouse or minor
children (or any relative who shares your residence);
3. where the securities are held by a partnership of which you are a
partner or investment club or other unincorporated association of which
you are a member.
4. where the securities are held by a limited liability company of which
you are a manager-member;
5. where securities are held in a trust over which you have a direct or
indirect influence or control and under which either you or any member
---
of your immediate family (ie. your spouse, children, grandchildren,
parents and grandparents) is a beneficiary; and
6. where securities are held in a trust over which you alone, or in
conjunction with someone not having substantial interest adverse to
yours, have the power to revoke and revest title to yourself at once or
at some future time.
B. Reporting Exceptions. Notwithstanding the foregoing, none of the following
--------------------
securities need be reported:
1. holdings of exempt securities as described in the Fund's Code of Ethics,
which include: securities issued by the Government of the United States,
money market instruments/1/ as defined under Rule 17j-1 of the Act (as
amended from time to time), and shares of registered open-end investment
companies (mutual funds), or such other securities as may be excepted
under the provisions of Rule 17j-1.
C. Information Required to Be Reported.
-----------------------------------
1. Account Name and/or Title. State the name/title in which the account is
-------------------------
held.
2. Broker Dealer, or Bank Where Securities Are Held. State the name of the
------------------------------------------------
broker dealer or bank with or through whom the account is held.
3. Security Name and Symbol. State the name of the issuer and the class of
------------------------
the security (e.g. common stock, preferred stock or designated issue of
debt securities). In the case of acquisition or disposition of a future
contract, put or call option or other right (hereinafter referred to as
"options",) state the title of the security subject to the options and
the expiration date of the option. Stock options granted to you by your
employer should be reported only at the time such options are exercised.
4. Number of Shares. State the number of shares of stock, or, if a debt
----------------
security, the principal amount, or other units of other securities. For
options, state the amount of securities subject to the option. If your
ownership interest was through a spouse, relative, or other natural
person or through a partnership, trust or other entity, state the entire
amount of securities involved in the transaction.
5. Date Signed. Indicate the Date the form was signed.
------------
6. Signature. Sign the form in the space provided.
----------
7. Print Name. Clearly print name on the form in the space provided.
-----------
D. Filing of Report. A report should be filed NOT LATER THAN 10 DAYS after
----------------- ----------------------
which you become an access person or for existing access persons, NO LATER
THAN 10 DAYS AFTER YEAR END.
- --------------------
/1/ Currently, the following are exempted: bankers' acceptances, bank
certificates of deposit, commercial paper, and high quality short-term debt
instruments, including repurchase agreements and any instrument that has a
maturity at issuance of less than 366 days and that is rated in one of the two
highest rating categories by a Nationally Recognized Statistical Organization.
