<PAGE>
ANNUAL REPORT
. PACIFIC SELECT SEPARATE ACCOUNT OF PACIFIC MUTUAL LIFE INSURANCE COMPANY
[LOGO of PACIFIC SELECT]
<PAGE>
Dear Pacific Select Policy Owner:
We are pleased to share with you the 1995 Annual Report of the Pacific Select
Separate Account ("Separate Account") of Pacific Mutual Life Insurance Company
("Pacific Mutual"), together with the 1995 Annual Report for the Pacific Select
Fund. The Pacific Select Fund is the underlying investment vehicle for the
Separate Account.
The Separate Account supports your Pacific Flexible Premium Variable
Universal Life Insurance Policy ("the Policy") from Pacific Mutual. During 1995
there were ten variable account investment choices and one fixed account.
The following indicates the Accumulated Values and Cash Surrender Values as
of December 29, 1995, assuming a hypothetical Policy was purchased on the date
each Variable Account began operations, and on January 1, 1995, and assuming
100% of the premium payment was allocated to such Variable Account. The Policy
is based on an insured male, nonsmoker, age 55, single premium payment of
$50,000 (also Guideline Single Premium), and a Level and Initial Death Benefit
of $134,671:
<TABLE>
<CAPTION>
Money Managed Government High Yield
Market Bond Securities Bond Growth
Variable Variable Variable Variable Variable
Account Account Account Account Account
1/07/88* 2/22/88* 7/01/88* 7/14/88* 2/18/88*
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
From Inception* -
12/29/95:
AV** .................... $62,652.75 $87,693.19 $84,963.46 $95,026.84 $127,949.95
CSV***................... 61,452.75 86,459.85 83,563.46 93,626.84 126,716.62
1/01/95 - 12/29/95
AV**..................... 51,849.97 58,684.73 58,529.86 58,450.18 62,189.65
CSV***................... 47,849.97 54,684.73 54,529.86 54,450.18 58,189.65
<CAPTION>
Equity Multi- Inter- Equity Growth
Income Strategy national Index LT
Variable Variable Variable Variable Variable
Account Account Account Account Account
3/21/88* 2/22/88* 2/18/88* 2/12/91* 1/04/94*
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
From Inception* -
12/29/95:
AV** ................... $104,821.14 $94,475.98 $74,079.24 $85,248.95 $74,636.42
CSV***.................. 103,554.47 93,242.65 72,845.90 82,815.62 71,036.42
1/01/95 - 12/29/95
AV**.................... 64,872.95 61,721.06 54,443.04 67,497.18 67,613.93
CSV***.................. 60,872.95 57,721.06 50,443.04 63,497.18 63,613.93
</TABLE>
- -----------
*Date Variable Account began operations.
**Accumulated Value: Includes deductions for all policy charges, including
cost of insurance, except surrender charges. Cost of insurance rates vary
depending on age and smoking status.
***Cash Surrender Value: Includes deductions for all policy charges, including
surrender charges that would have been deducted if the policy had been
surrendered on December 29, 1995. Surrender charges vary by policy.
****
If you have any questions, please contact your Registered Representative, or
call Pacific Mutual's Marketing Department at our toll free number
1-800-800-7681.
Sincerely,
Thomas C. Sutton
Chairman and Chief Executive Officer
Pacific Mutual Life Insurance Company
B-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pacific Mutual Life Insurance Company
We have audited the accompanying statements of assets and liabilities of the
Pacific Select Separate Account (comprised of the Money Market, Managed Bond,
Government Securities, High Yield Bond, Growth, Equity Income, Multi-Strategy,
International, Equity Index, and Growth LT Variable Accounts) as of December 31,
1995 and the related statements of operations for the year then ended and
statements of changes in net assets for each of the two years ended December 31,
1995 and 1994. These financial statements are the responsibility of the
Separate Account's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective Variable
Accounts constituting the Pacific Select Separate Account as of December 31,
1995 and the results of their operations for the year then ended and the changes
in their net assets for each of the two years then ended, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 16, 1996
B-2
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
STATEMENTS OF ASSETS & LIABILITIES
DECEMBER 31, 1995
(In thousands)
<TABLE>
<CAPTION>
High
Money Managed Government Yield
Market Bond Securities Bond Growth
Variable Variable Variable Variable Variable
Account Account Account Account Account
ASSETS -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Investments in Pacific Select Fund:
Money Market Portfolio (139 shares; cost $1,395)....... $ 1,388
Managed Bond Portfolio (43 shares; cost $445).......... $ 474
Government Securities Portfolio (33 shares; cost $358). $ 361
High Yield Bond Portfolio (380 shares; cost $3,398).... $ 3,722
Growth Portfolio (429 shares; cost $6,741)............. $ 7,959
Equity Income Portfolio (130 shares; cost $1,915)......
Multi-Strategy Portfolio (61 shares; cost $713)........
International Portfolio (122 shares; cost $1,458)......
Equity Index Portfolio (15 shares; cost $189)..........
Growth LT Portfolio (65 shares; cost $803).............
-------- -------- -------- -------- --------
TOTAL ASSETS.............................................. 1,388 474 361 3,722 7,959
-------- -------- -------- -------- --------
LIABILITIES
Payables:
Mortality and expense risk fee.......................... 1 2 5
-------- -------- -------- -------- --------
TOTAL LIABILITIES......................................... 1 2 5
-------- -------- -------- -------- --------
NET ASSETS................................................ $ 1,387 $ 474 $ 361 $ 3,720 $ 7,954
======== ======== ======== ======== ========
<CAPTION>
Equity Multi- Inter- Equity Growth
Income Strategy national Index LT
Variable Variable Variable Variable Variable
Account Account Account Account Account
ASSETS -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Investments in Pacific Select Fund:
Money Market Portfolio (139 shares; cost $1,395).......
Managed Bond Portfolio (43 shares; cost $445)..........
Government Securities Portfolio (33 shares; cost $358).
High Yield Bond Portfolio (380 shares; cost $3,398)....
Growth Portfolio (429 shares; cost $6,741).............
Equity Income Portfolio (130 shares; cost $1,915)...... $ 2,362
Multi-Strategy Portfolio (61 shares; cost $713)........ $ 858
International Portfolio (122 shares; cost $1,458)...... $ 1,572
Equity Index Portfolio (15 shares; cost $189).......... $ 264
Growth LT Portfolio (65 shares; cost $803)............. $ 919
-------- -------- -------- -------- --------
TOTAL ASSETS.............................................. 2,362 858 1,572 264 919
-------- -------- -------- -------- --------
LIABILITIES
Payables:
Mortality and expense risk fee.......................... 1 1 1
-------- -------- -------- -------- --------
TOTAL LIABILITIES......................................... 1 1 1
-------- -------- -------- -------- --------
NET ASSETS................................................ $ 2,361 $ 858 $ 1,571 $ 264 $ 918
======== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
B-3
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands)
<TABLE>
<CAPTION>
High
Money Managed Government Yield Equity
Market Bond Securities Bond Growth Income
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................... $ 77 $ 26 $ 19 $ 278 $ 66 $ 36
EXPENSES
Mortality and expense risk fee.............................. 10 2 2 24 52 16
--------- --------- --------- --------- --------- ---------
NET INVESTMENT INCOME........................................ 67 24 17 254 14 20
--------- --------- --------- --------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) from security transactions......... (2) 1 (3) 15 155 136
Net unrealized appreciation on investments.................. 3 36 42 304 1,508 451
--------- --------- --------- --------- --------- ---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS.............................................. 1 37 39 319 1,663 587
--------- --------- --------- --------- --------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................................... 68 61 56 573 1,677 607
========= ========= ========= ========= ========= =========
<CAPTION>
Multi- Inter- Equity Growth
Strategy national Index LT
Variable Variable Variable Variable
Account Account Account Account
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................... $ 26 $ 30 $ 6 $ 63
--------- --------- --------- ---------
EXPENSES
Mortality and expense risk fee.............................. 5 10 2 4
--------- --------- --------- ---------
NET INVESTMENT INCOME........................................ 21 20 4 59
--------- --------- --------- ---------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) from security transactions......... 32 25 24 15
Net unrealized appreciation on investments.................. 115 111 52 112
--------- --------- --------- ---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS.............................................. 147 136 76 127
--------- --------- --------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................................... $ 168 $ 156 $ 80 $ 186
========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
B-4
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands)
<TABLE>
<CAPTION>
High
Money Managed Government Yield Equity
Market Bond Securities Bond Growth Income
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income..................................... $ 67 $ 24 $ 17 $ 254 $ 14 $ 20
Net realized gain (loss) from security transactions....... (2) 1 (3) 15 155 136
Net unrealized appreciation on investments................ 3 36 42 304 1,508 451
--------- --------- --------- --------- --------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................................. 68 61 56 573 1,677 607
--------- --------- --------- --------- --------- ---------
INCREASE (DECREASE) IN NET ASSETS FROM
POLICY TRANSACTIONS
Transfers--policy charges and deductions.................. (51) (8) (29) (68) (211) (162)
Transfers in (from other variable accounts)............... 35 330 25 47 1,201 498
Transfers out (to other variable accounts)................ (1,065) (22) (16) (34) (1,098) (927)
Transfers--other.......................................... (2) 1 (8) 7
--------- --------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM POLICY TRANSACTIONS.......................... (1,083) 301 (20) (55) (116) (584)
--------- --------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS...................... (1,015) 362 36 518 1,561 23
NET ASSETS
Beginning of year......................................... 2,402 112 325 3,202 6,393 2,338
--------- --------- --------- --------- --------- ---------
End of year............................................... $ 1,387 $ 474 $ 361 $ 3,720 $ 7,954 $ 2,361
========= ========= ========= ========= ========= =========
<CAPTION>
Multi- Inter- Equity Growth
Strategy national Index LT
Variable Variable Variable Variable
Account Account Account Account
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income..................................... $ 21 $ 20 $ 4 $ 59
Net realized gain (loss) from security transactions....... 32 25 24 15
Net unrealized appreciation on investments................ 115 111 52 112
--------- --------- --------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................................. 168 156 80 186
--------- --------- --------- ---------
INCREASE (DECREASE) IN NET ASSETS FROM
POLICY TRANSACTIONS
Transfers--policy charges and deductions.................. (15) (131) (56) (19)
Transfers in (from other variable accounts)............... 15 473 688
Transfers out (to other variable accounts)................ (70) (9) (32)
Transfers--other.......................................... (2) 1 (1)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM POLICY TRANSACTIONS.......................... 0 270 (64) 636
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS...................... 168 426 16 822
NET ASSETS
Beginning of year......................................... 690 1,145 248 96
--------- --------- --------- ---------
End of year............................................... $ 858 $ 1,571 $ 264 $ 918
========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
B-5
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1994
(In thousands)
<TABLE>
<CAPTION>
High
Money Managed Government Yield
Market Bond Securities Bond Growth
Variable Variable Variable Variable Variable
Account Account Account Account Account
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income......................................... $ 46 $ 46 $ 13 $ 252 $ 501
Net realized gain (loss) from security transactions........... 2 (50) (6) 6 118
Net unrealized appreciation (depreciation)
on investments............................................... (9) (86) (30) (268) (1,427)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS..................................... 39 (90) (23) (10) (808)
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN NET ASSETS FROM
POLICY TRANSACTIONS
Transfer of net premiums
Transfers--policy charges and deductions...................... (35) (24) (66) (13) (241)
Transfers in (from other variable accounts)................... 2,332 142 38 64 345
Transfers out (to other variable accounts).................... (460) (2,301) (38) (85) (225)
Transfers--other.............................................. (1) 1
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM POLICY TRANSACTIONS.............................. 1,837 (2,184) (66) (34) (120)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS........................... 1,876 (2,274) (89) (44) (928)
NET ASSETS
Beginning of year............................................. 526 2,386 414 3,246 7,321
-------- -------- -------- -------- --------
End of year................................................... $ 2,402 $ 112 $ 325 $ 3,202 $ 6,393
======== ======== ======== ======== ========
<CAPTION>
Equity Multi- Inter- Equity Growth
Income Strategy national Index LT
Variable Variable Variable Variable Variable
Account Account Account Account Account
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income......................................... $ 201 $ 37 $ 39 $ 5 $ 1
Net realized gain (loss) from security transactions........... 50 24 52 9
Net unrealized appreciation (depreciation)
on investments............................................... (274) (76) (65) (13) 4
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS..................................... (23) (15) 26 1 5
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN NET ASSETS FROM
POLICY TRANSACTIONS
Transfer of net premiums...................................... 1
Transfers--policy charges and deductions...................... (158) (58) (129) (59) (1)
Transfers in (from other variable accounts)................... 384 32 328 8 92
Transfers out (to other variable accounts).................... (356) (116) (179) (2)
Transfers--other.............................................. (1)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM POLICY TRANSACTIONS.............................. (129) (142) 19 (53) 91
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS........................... (152) (157) 45 (52) 96
NET ASSETS
Beginning of year............................................. 2,490 847 1,100 300
-------- -------- -------- -------- --------
End of year................................................... $ 2,338 $ 690 $ 1,145 $ 248 $ 96
======== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
B-6
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Pacific Select Separate Account (the "Separate Account") is registered
as a unit investment trust under the Investment Company Act of 1940, as amended,
and is currently comprised of ten subaccounts ("Variable Accounts"): the Money
Market Variable Account, the Managed Bond Variable Account, the Government
Securities Variable Account, the High Yield Bond Variable Account, the Growth
Variable Account, the Equity Income Variable Account, the Multi-Strategy
Variable Account, the International Variable Account, the Equity Index Variable
Account, and the Growth LT Variable Account. The assets in each Variable Account
are invested in shares of the corresponding portfolios of Pacific Select Fund
(the "Fund"), each of which pursues different investment objectives and
policies.
The Separate Account was established by Pacific Mutual Life Insurance
Company ("Pacific Mutual") on November 20, 1986 and commenced operations on
January 7, 1988. Under applicable insurance law, the assets and liabilities of
the Separate Account are clearly identified and distinguished from the other
assets and liabilities of Pacific Mutual. The assets of the Separate Account
will not be charged with any liabilities arising out of any other business
conducted by Pacific Mutual, but the obligations of the Separate Account,
including benefits related to variable life insurance, are obligations of
Pacific Mutual.
The Separate Account held by Pacific Mutual represents funds from
individual flexible premium variable life policies. The assets of these accounts
are carried at market value.
The preparation of the accompanying financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of income and expenses during the reporting period. Actual results could
differ from those estimates.
A. Valuation of Investments
Investments in shares of the Fund are valued at the reported net asset
values of the respective portfolios.
B. Security Transactions
Transactions are recorded on the trade date. Realized gains and losses on
sales of investments are determined on the identified cost basis.
C. Federal Income Taxes
The operations of the Separate Account will be reported on the Federal
income tax return of Pacific Mutual, which is taxed as a life insurance company
under the provisions of the Tax Reform Act of 1986. Under current tax law, no
Federal income taxes are expected to be paid by Pacific Mutual with respect to
the operations of the Separate Account.
2. DIVIDENDS
During 1995, the Fund has declared dividends for each portfolio. The
amounts accrued by the Separate Account for its share of the dividends were
reinvested in additional full and fractional shares of each related portfolio.
3. CHARGES AND EXPENSES
Pacific Mutual charges the Separate Account daily for mortality and expense
risks assumed with respect to variable life insurance policies funded by the
Separate Account at an annual rate of 0.70% of the average daily net assets of
each Variable Account. Under the policies, Pacific Mutual makes certain
deductions from the net assets of each Variable Account for sales load,
administrative expenses, state premium taxes, cost of insurance and charges for
optional benefits. The operating expenses of the Separate Account are paid by
Pacific Mutual.
4. RELATED PARTY AGREEMENT
Pacific Equities Network, a wholly-owned subsidiary of Pacific Mutual, is
the principal underwriter of variable life insurance policies funded by
interests in the Separate Account, and is compensated by Pacific Mutual.
B-7
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
5. SELECTED ACCUMULATION UNIT** INFORMATION
Selected accumulation unit information for the year ended December 31, 1995
were as follows:
<TABLE>
<CAPTION>
High
Money Managed Government Yield
Market Bond Securities Bond Growth
Variable Variable Variable Variable Variable
Account Account Account Account Account
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
ACCUMULATION UNIT
VALUE:
Beginning $ 13.79 $ 16.61 $ 16.00 $ 17.92 $ 22.10
======= ======= ======= ======= =======
Ending $ 14.45 $ 19.64 $ 18.89 $ 21.16 $ 27.60
======= ======= ======= ======= =======
Number of Units Outstanding at
End of Period 95,991 24,119 19,115 175,781 288,191
<CAPTION>
Equity Multi- Inter- Equity Growth
Income Strategy national Index LT
Variable Variable Variable Variable Variable
Account Account Account Account Account
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ACCUMULATION UNIT
VALUE:
Beginning $ 17.71 $ 16.93 $ 15.34 $ 13.42 $ 11.25
======= ======= ======= ======= =======
Ending $ 23.16 $ 21.06 $ 16.84 $ 18.26 $ 15.28
======= ======= ======= ======= =======
Number of Units Outstanding at
End of Period 101,952 40,731 93,332 14,450 60,068
</TABLE>
- ------------
**Accumulation Unit: unit of measure used to calculate the value of a Contract
Owner's interest in a Variable Account during the Accumulation Period.
B-8
