<PAGE>
ANNUAL REPORT
. PACIFIC SELECT SEPARATE ACCOUNT OF PACIFIC LIFE INSURANCE COMPANY
[LOGO OF PACIFIC SELECT]
<PAGE>
DEAR PACIFIC SELECT POLICY OWNER:
We are pleased to share with you the 1997 Annual Report of the Pacific
Select Separate Account ("Separate Account") of Pacific Life Insurance Company
("Pacific Life").
The Separate Account supports your Pacific Select Flexible Premium Variable
Universal Life Insurance Policy ("the Policy") from Pacific Life. The Separate
Account is divided into subaccounts, called Variable Accounts. A fixed account
option is also available.
The following indicates the Accumulated Values and Cash Surrender Values as
of December 31, 1997, assuming a hypothetical policy was purchased (1) on the
date each Variable Account began operations, and (2) on January 2, 1997, if
later. Also assumed is that 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>
VARIABLE ACCOUNTS
----------------------------------------------------------------------------------------------------
MONEY HIGH YIELD MANAGED GOVERNMENT AGGRESSIVE
MARKET BOND BOND SECURITIES GROWTH EQUITY
1/7/88* 7/14/88* 2/22/88* 7/1/88* 2/18/88* 1/15/97*
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(1) POLICY PURCHASED ON DATE VARIABLE ACCOUNT BEGAN OPERATIONS
AV** ........... $65,307.60 $112,342.53 $96,803.63 $92,064.34 $200,481.09 $50,276.64
CSV*** ......... 64,907.60 111,742.53 96,370.29 91,464.34 200,047.76 46,276.64
(2) POLICY PURCHASED ON 1/2/97
AV** ........... 51,732.17 53,835.50 54,332.57 54,108.66 64,801.10 *
CSV*** ......... 47,732.17 49,835.50 50,332.57 50,108.66 64,801.10 *
<CAPTION>
GROWTH EQUITY MULTI- EQUITY INTER- EMERGING
LT INCOME STRATEGY INDEX NATIONAL MARKETS
1/4/94* 3/21/88* 2/22/88* 2/12/91* 2/18/88* 1/15/97*
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(1) POLICY PURCHASED ON DATE VARIABLE ACCOUNT BEGAN OPERATIONS
AV** ........... $94,563.96 $156,824.62 $123,501.44 $134,767.12 $94,982.26 $45,541.60
CSV*** ......... 91,763.96 156,357.95 123,068.11 133,133.79 94,548.92 41,541.60
(2) POLICY PURCHASED ON 1/2/97
AV** .......... 55,005.33 63,514.72 59,096.39 65,817.62 54,266.36 *
CSV*** ......... 51,005.33 59,514.72 55,096.39 61,817.62 50,266.36 *
</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 31, 1997. Surrender charges vary by
policy.
* * * *
If you have any questions, please contact your Registered Representative,
or call Pacific Life's Marketing Department at our toll free number 1-800-800-
7681.
SINCERELY,
/s/ THOMAS C. SUTTON
- ------------------------------------
THOMAS C. SUTTON
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PACIFIC LIFE INSURANCE COMPANY
B-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pacific Life Insurance Company
We have audited the accompanying statement of assets and liabilities of the
Pacific Select Separate Account (currently comprised of the Money Market, High
Yield Bond, Managed Bond, Government Securities, Growth, Aggressive Equity,
Growth LT, Equity Income, Multi-Strategy, Equity Index, International and
Emerging Markets Variable Accounts) as of December 31, 1997 and the related
statement of operations for the year then ended (as to the Aggressive Equity
Variable Account and the Emerging Markets Variable Account, for the period from
commencement of operations through December 31, 1997) and statement of changes
in net assets for each of the two years in the period then ended. 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, such financial statements 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, 1997 and the
results of their operations for the year then ended (as to the Aggressive Equity
Variable Account and the Emerging Markets Variable Account, for the period from
commencement of operations through December 31, 1997) and the changes in their
net assets for each of the two years in the period then ended, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 6, 1998
B-2
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
(In thousands)
<TABLE>
<CAPTION>
High
Money Yield Managed
Market Bond Bond
Variable Variable Variable
Account Account Account
----------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments:
Money Market Portfolio (22 shares; cost $218) ........................ $218
High Yield Bond Portfolio (613 shares; cost $5,687) .................. $6,119
Managed Bond Portfolio (57 shares; cost $599) ........................ $630
Government Securities Portfolio (30 shares; cost $326) ...............
Growth Portfolio (280 shares; cost $4,535) ...........................
Aggressive Equity Portfolio (2 shares; cost $17) .....................
----------------------------------------------------
Total Assets .......................................................... 218 6,119 630
----------------------------------------------------
LIABILITIES
Payables:
Mortality and expense risk fee ....................................... 1 18 2
----------------------------------------------------
Total Liabilities ..................................................... 1 18 2
----------------------------------------------------
NET ASSETS ............................................................ $217 $6,101 $628
----------------------------------------------------
<CAPTION>
Govern-
ment Aggressive
Securities Growth Equity
Variable Variable Variable
Account Account Account
-------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments:
Money Market Portfolio (22 shares; cost $218) ........................
High Yield Bond Portfolio (613 shares; cost $5,687) ..................
Managed Bond Portfolio (57 shares; cost $599) ........................
Government Securities Portfolio (30 shares; cost $326) ............... $329
Growth Portfolio (280 shares; cost $4,535) ........................... $6,878
Aggressive Equity Portfolio (2 shares; cost $17) ..................... $18
-------------------------------------------
Total Assets .......................................................... 329 6,878 18
-------------------------------------------
LIABILITIES
Payables:
Mortality and expense risk fee ....................................... 1 21
-------------------------------------------
Total Liabilities ..................................................... 1 21
-------------------------------------------
NET ASSETS ............................................................ $328 $6,857 $18
-------------------------------------------
</TABLE>
See Notes to Financial Statements
B-3
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (Continued)
DECEMBER 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Growth Equity Multi-
LT Income Strategy
Variable Variable Variable
Account Account Account
----------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments:
Growth LT Portfolio (72 shares; cost $966) ........................... $1,239
Equity Income Portfolio (134 shares; cost $2,116) .................... $3,283
Multi-Strategy Portfolio (68 shares; cost $834) ...................... $1,094
Equity Index Portfolio (134 shares; cost $2,571) .....................
International Portfolio (261 shares; cost $3,501) ....................
Emerging Markets Portfolio (21 shares; cost $231) ....................
----------- ----------- -----------
Total Assets .......................................................... 1,239 3,283 1,094
----------- ----------- -----------
LIABILITIES
Payables:
Mortality and expense risk fee ....................................... 4 10 3
----------- ----------- -----------
Total Liabilities ..................................................... 4 10 3
----------- ----------- -----------
NET ASSETS ............................................................ $1,235 $3,273 $1,091
----------- ----------- -----------
<CAPTION>
Equity Inter- Emerging
Index national Markets
Variable Variable Variable
Account Account Account
--------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments:
Growth LT Portfolio (72 shares; cost $966) ...........................
Equity Income Portfolio (134 shares; cost $2,116) ....................
Multi-Strategy Portfolio (68 shares; cost $834) ......................
Equity Index Portfolio (134 shares; cost $2,571) ..................... $3,447
International Portfolio (261 shares; cost $3,501) .................... $4,235
Emerging Markets Portfolio (21 shares; cost $231) .................... $199
----------- ----------- -----------
Total Assets .......................................................... 3,447 4,235 199
----------- ----------- -----------
LIABILITIES
Payables:
Mortality and expense risk fee ....................................... 10 13
----------- ----------- -----------
Total Liabilities ..................................................... 10 13
----------- ----------- -----------
NET ASSETS ............................................................ $3,437 $4,222 $199
----------- ----------- -----------
See Notes to Financial Statements
</TABLE>
B-4
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
<TABLE>
<CAPTION>
High
Money Yield Managed
Market Bond Bond
Variable Variable Variable
Account Account Account
-------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends ............................................................ $11 $508 $34
EXPENSES
Mortality and expense risk fee ....................................... 2 41 4
-------------------------------------------
Net Investment Income ................................................. 9 467 30
-------------------------------------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) from security transactions .................. 14 2
Net unrealized appreciation on investments ........................... 6 20
-------------------------------------------
Net Realized And Unrealized Gain On Investments ....................... 20 22
-------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................................ $ 9 $487 $52
-------------------------------------------
<CAPTION>
Govern-
ment Aggressive
Securities Growth Equity
Variable Variable Variable
Account Account Account (1)
------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends ............................................................ $17 $ 643
EXPENSES
Mortality and expense risk fee ....................................... 2 45
------------------------------------------------
Net Investment Income ................................................. 15 598
------------------------------------------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) from security transactions .................. (1) 94
Net unrealized appreciation on investments ........................... 13 895 $1
------------------------------------------------
Net Realized And Unrealized Gain On Investments ....................... 12 989 1
------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ............................................ $27 $1,587 $1
================================================
</TABLE>
(1) For the period from January 15, 1997 (commencement of operations) to
December 31, 1997.
See Notes to Financial Statements
B-5
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Growth Equity Multi-
LT Income Strategy
Variable Variable Variable
Account Account Account
---------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends ............................................................ $ 64 $204 $ 85
EXPENSES
Mortality and expense risk fee ....................................... 8 22 7
---------------------------------------------
Net Investment Income ................................................. 56 182 78
---------------------------------------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) from security transactions .................. 54 123 15
Net unrealized appreciation (depreciation) on investments ............ 12 452 83
---------------------------------------------
Net Realized And Unrealized Gain (Loss) On Investments ................ 66 575 98
---------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................................ $122 $757 $176
=============================================
<CAPTION>
Equity Inter- Emerging
Index national Markets
Variable Variable Variable
Account Account Account (1)
---------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends ............................................................ $148 $155 $ 1
EXPENSES
Mortality and expense risk fee ....................................... 21 31 1
---------------------------------------------
Net Investment Income ................................................. 127 124 0
---------------------------------------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) from security transactions .................. 53 58 (1)
Net unrealized appreciation (depreciation) on investments ............ 614 155 (32)
---------------------------------------------
Net Realized And Unrealized Gain (Loss) On Investments ................ 667 213 (33)
---------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................................ $794 $337 $(33)
=============================================
</TABLE>
(1) For the period from January 15, 1997 (commencement of operations) to
December 31, 1997.
See Notes to Financial Statements
B-6
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
<TABLE>
<CAPTION>
High
Money Yield Managed
Market Bond Bond
Variable Variable Variable
Account Account Account
--------------- ------------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income ................................................ $ 9 $ 467 $ 30
Net realized gain (loss) from security transactions .................. 14 2
Net unrealized appreciation on investments ........................... 6 20
--------------- ------------- -----------
Net Increase In Net Assets Resulting From Operations .................. 9 487 52
--------------- ------------- -----------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfers--policy charges and deductions ............................. (3) (38) (5)
Transfers in (from other variable accounts) .......................... 190 175 109
Transfers out (to other variable accounts) ........................... (190) (104) (50)
Transfers--other ..................................................... 2 (2) (2)
--------------- ------------- -----------
Net Increase (Decrease) In Net Assets Derived
From Policy Transactions ............................................. (1) 31 52
--------------- ------------- -----------
NET INCREASE IN NET ASSETS ............................................ 8 518 104
--------------- ------------- -----------
NET ASSETS
Beginning of Year .................................................... 209 5,583 524
--------------- ------------- -----------
End of Year .......................................................... $ 217 $6,101 $628
=============== ============= ===========
<CAPTION>
Govern-
ment Aggressive
Securities Growth Equity
Variable Variable Variable
Account Account Account (1)
------------- -------------- -------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income ................................................ $ 15 $ 598
Net realized gain (loss) from security transactions .................. (1) 94
Net unrealized appreciation on investments ........................... 13 895 $ 1
----------- -------------- -----------
Net Increase In Net Assets Resulting From Operations .................. 27 1,587 1
----------- -------------- -----------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfers--policy charges and deductions ............................. (3) (72)
Transfers in (from other variable accounts) .......................... 1 286 17
Transfers out (to other variable accounts) ........................... (19) (192)
Transfers--other ..................................................... (3) (163)
----------- -------------- -----------
Net Increase (Decrease) In Net Assets Derived
From Policy Transactions ............................................. (24) (141) 17
----------- -------------- -----------
NET INCREASE IN NET ASSETS ............................................ 3 1,446 18
----------- -------------- -----------
NET ASSETS
Beginning of Year .................................................... 325 5,411
----------- -------------- -----------
End of Year .......................................................... $328 $6,857 $18
=========== ============== ===========
</TABLE>
(1) For the period from January 15, 1997 (commencement of operations) to
December 31, 1997.
See Notes to Financial Statements
B-7
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Growth Equity Multi-
LT Income Strategy
Variable Variable Variable
Account Account Account
----------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income ................................................ $ 56 $ 182 $ 78
Net realized gain (loss) from security transactions .................. 54 123 15
Net unrealized appreciation (depreciation) on investments ............ 12 452 83
-----------------------------------------------------------
Net Increase (Decrease) In Net Assets Resulting From Operations ....... 122 757 176
-----------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfers--policy charges and deductions ............................. (10) (54) (12)
Transfers in (from other variable accounts) .......................... 84 271 4
Transfers out (to other variable accounts) ........................... (179) (464) (4)
Transfers--other ..................................................... (15) (82) (25)
-----------------------------------------------------------
Net Increase (Decrease) In Net Assets Derived
From Policy Transactions ............................................. (120) (329) (37)
-----------------------------------------------------------
NET INCREASE IN NET ASSETS ............................................ 2 428 139
-----------------------------------------------------------
NET ASSETS
Beginning of Year .................................................... 1,233 2,845 952
-----------------------------------------------------------
End of Year .......................................................... $1,235 $3,273 $1,091
-----------------------------------------------------------
<CAPTION>
Equity Inter- Emerging
Index national Markets
Variable Variable Variable
Account Account Account (1)
------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income ................................................ $ 127 $ 124
Net realized gain (loss) from security transactions .................. 53 58 $ (1)
Net unrealized appreciation (depreciation) on investments ............ 614 155 (32)
------------------------------------------------------
Net Increase (Decrease) In Net Assets Resulting From Operations ....... 794 337 (33)
------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfers--policy charges and deductions ............................. (34) (51) (2)
Transfers in (from other variable accounts) .......................... 432 159 342
Transfers out (to other variable accounts) ........................... (36) (131) (34)
Transfers--other ..................................................... (60) (39) (74)
------------------------------------------------------
Net Increase (Decrease) In Net Assets Derived
From Policy Transactions ............................................. 302 (62) 232
------------------------------------------------------
NET INCREASE IN NET ASSETS ............................................ 1,096 275 199
------------------------------------------------------
NET ASSETS
Beginning of Year .................................................... 2,341 3,947
------------------------------------------------------
End of Year .......................................................... $3,437 $4,222 $199
------------------------------------------------------
</TABLE>
(1) For the period from January 15, 1997 (commencement of operations) to
December 31, 1997.
See Notes to Financial Statements
B-8
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
High Govern-
Money Yield Managed ment
Market Bond Bond Securities 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 .................................... $ 23 $ 396 $ 33 $ 22 $ 502
Net realized gain (loss) from security transactions ...... (1) 5 3 (3) 860
Net unrealized appreciation (depreciation)
on investments ......................................... 7 103 (18) (13) 231
----------------------------------------------------------------------
Net Increase In Net Assets
Resulting From Operations ................................ 29 504 18 6 1,593
----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfer of net premiums ................................. 2
Transfers--policy charges and deductions ................. (8) (39) (5) (5) (108)
Transfers in (from other variable accounts) .............. 11,217 5,077 79 12 4,076
Transfers out (to other variable accounts) ............... (12,403) (3,676) (42) (20) (7,965)
Transfers--other ......................................... (13) (3) (29) (141)
----------------------------------------------------------------------
Net Increase (Decrease ) In Net Assets Derived
From Policy Transactions ................................. (1,207) 1,359 32 (42) (4,136)
----------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS ............................................ (1,178) 1,863 50 (36) (2,543)
----------------------------------------------------------------------
NET ASSETS
Beginning of Year ........................................ 1,387 3,720 474 361 7,954
----------------------------------------------------------------------
End of Year .............................................. $ 209 $ 5,583 $ 524 $ 325 $ 5,411
----------------------------------------------------------------------
<CAPTION>
Growth Equity Multi- Equity Inter-
LT Income Strategy Index national
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 .................................... $ 2 $ 141 $ 64 $ 29 $ 51
Net realized gain (loss) from security transactions ...... 32 49 6 24 31
Net unrealized appreciation (depreciation)
on investments ......................................... 145 267 31 188 465
---------------------------------------------------------------------
Net Increase In Net Assets
Resulting From Operations ................................ 179 457 101 241 547
---------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfer of net premiums ................................. 2
Transfers--policy charges and deductions ................. (12) (80) (16) (26) (52)
Transfers in (from other variable accounts) .............. 496 413 9 1,899 2,052
Transfers out (to other variable accounts) ............... (332) (241) (2) (17) (90)
Transfers--other ......................................... (16) (67) 2 (20) (81)
---------------------------------------------------------------------
Net Increase (Decrease ) In Net Assets Derived
From Policy Transactions ................................. 136 27 (7) 1,836 1,829
---------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS ............................................ 315 484 94 2,077 2,376
---------------------------------------------------------------------
NET ASSETS
Beginning of Year ........................................ 918 2,361 858 264 1,571
---------------------------------------------------------------------
End of Year .............................................. $ 1,233 $ 2,845 $ 952 $ 2,341 $ 3,947
---------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
B-9
<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 comprised of fourteen subaccounts called Variable Accounts: the Money
Market Variable Account, the High Yield Bond Variable Account, the Managed Bond
Variable Account, the Government Securities Variable Account, the Growth
Variable Account, the Aggressive Equity Variable Account, the Growth LT
Variable Account, the Equity Income Variable Account, the Multi-Strategy
Variable Account, the Equity Variable Account, the Bond and Income Variable
Account, the Equity Index Variable Account, the International Variable Account,
and the Emerging Markets 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 financial statements of the Fund, including the schedules of
investments, are included elsewhere in this report and should be read in
conjunction with the Separate Account's financial statements.
During the year ended December 31, 1997, the Separate Account organized and
registered the Equity Variable Account and the Bond and Income Variable Account
with the Securities and Exchange Commission under the Investment Company Act of
1940. There was no operational activity through December 31, 1997 in both
Variable Accounts.
The Separate Account was established by Pacific Life Insurance Company
(formerly named Pacific Mutual Life Insurance Company - see Note 1 to Financial
Statements of the Fund on A-66) 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 Life. The assets of the Separate Account will
not be charged with any liabilities arising out of any other business conducted
by Pacific Life, but the obligations of the Separate Account, including benefits
related to variable life insurance, are obligations of Pacific Life.
The Separate Account held by Pacific Life represents funds from individual
flexible premium variable life policies. The assets of the Separate Account 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. Valuation of securities held by the Fund is
discussed in the notes to its financial statements.
B. Security Transactions
Transactions are recorded on the trade date. Realized gains and losses on
sales of investments are determined on the basis of identified cost.
C. Federal Income Taxes
The operations of the Separate Account will be reported on the Federal income
tax return of Pacific Life, 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 Life with respect to the
operations of the Separate Account.
2. DIVIDENDS
During 1997, the Fund has declared dividends for each portfolio except for the
Aggressive Equity Portfolio. The amounts accrued by the Separate Account for its
share of the dividends were reinvested in additional full and fractional shares
of the related portfolio.
3. CHARGES AND EXPENSES
Pacific Life 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 Life 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 Life.
4. RELATED PARTY AGREEMENT
Pacific Mutual Distributors, Inc., a wholly-owned subsidiary of Pacific Life,
is the principal underwriter of variable life insurance policies funded by
interests in the Separate Account, and is compensated by Pacific Life.
B-10
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
5. SEPARATE ACCOUNT'S COST OF INVESTMENTS IN THE FUND SHARES
The investment in the Fund shares are carried at identified cost, which
represents the amount available for investment (including reinvested
distributions of net investment income and realized gains) in such shares after
deduction of mortality and expense risk charges (M&E). The cost and market value
of total Separate Account's investments in the Fund as of December 31, 1997 were
as follows (amounts in thousands):
<TABLE>
<CAPTION>
Variable Accounts
-------------------------------------------------------------------
Money High Yield Managed Government
Market Bond Bond Securities
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total cost of investments at beginning of year $209 $5,166 $514 $336
Add: Total net proceeds from policy and M&E transactions 5 133 82 1
Reinvested distributions from the Fund:
(a) Net investment income 11 458 32 17
(b) Net realized gain 50 2
-------------------------------------------------------------------
Sub-Total 225 5,807 630 354
Less: Cost of investments disposed during the year 7 120 31 28
-------------------------------------------------------------------
Total cost of investments at end of year 218 5,687 599 326
Add: Unrealized appreciation 432 31 3
-------------------------------------------------------------------
Total market value of investments at end of year $218 $6,119 $630 $329
===================================================================
<CAPTION>
Aggressive Growth Equity
Growth Equity (1) LT Income
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total cost of investments at beginning of year $3,972 $975 $2,135
Add: Total net proceeds from policy and M&E transactions 193 $17 50 32
Reinvested distributions from the Fund:
(a) Net investment income 14 7 28
(b) Net realized gain 629 57 176
-------------------------------------------------------------------
Sub-Total 4,808 17 1,089 2,371
Less: Cost of investments disposed during the year 273 123 255
-------------------------------------------------------------------
Total cost of investments at end of year 4,535 17 966 2,116
Add: Unrealized appreciation 2,343 1 273 1,167
-------------------------------------------------------------------
Total market value of investments at end of year $6,878 $18 $1,239 $3,283
===================================================================
<CAPTION>
Multi- Equity Inter- Emerging
Strategy Index national Markets (1)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total cost of investments at beginning of year $777 $2,083 $3,374
Add: Total net proceeds from policy and M&E transactions 4 392 118 $317
Reinvested distributions from the Fund:
(a) Net investment income 33 48 76 1
(b) Net realized gain 52 100 79
-------------------------------------------------------------------
Sub-Total 866 2,623 3,647 318
Less: Cost of investments disposed during the year 32 52 146 87
-------------------------------------------------------------------
Total cost of investments at end of year 834 2,571 3,501 231
Add: Unrealized appreciation (depreciation) 260 876 734 (32)
-------------------------------------------------------------------
Total market value of investments at end of year $1,094 $3,447 $4,235 $199
===================================================================
</TABLE>
_________________________________________________________
(1) For the period from January 15, 1997 (commencement of operations) to
December 31, 1997.
B-11
<PAGE>
PACIFIC SELECT SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
6. TRANSACTIONS IN SEPARATE ACCOUNT UNITS AND SELECTED ACCUMULATION UNIT **
INFORMATION
Transactions in Separate Account units for the year ended December 31, 1997
and the selected accumulation unit information as of December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
VARIABLE ACCOUNTS
----------------------------------------------------------------------
MONEY HIGH YIELD MANAGED GOVERNMENT
MARKET BOND BOND SECURITIES
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total units outstanding at beginning of year 13,843 238,658 25,744 16,830
Increase (decrease) in units resulting from
policy transactions:
(a) Transfers--policy charges and deductions (213) (1,563) (244) (138)
(b) Transfers in (from other variable accounts) 11,687 6,498 4,222 2,528
(c) Transfers out (to other variable accounts) (11,667) (3,594) (1,387) (3,122)
(d) Transfers--other 123 (69) (55) (493)
----------------------------------------------------------------------
Sub-Total (70) 1,272 2,536 (1,225)
----------------------------------------------------------------------
Total units outstanding at end of year 13,773 239,930 28,280 15,605
----------------------------------------------------------------------
----------------------------------------------------------------------
Accumulation Unit Value: At beginning of year $15.08 $23.39 $20.34 $19.31
At end of year $15.76 $25.43 $22.20 $20.99
----------------------------------------------------------------------
AGGRESSIVE GROWTH EQUITY
GROWTH EQUITY (1) LT INCOME
----------------------------------------------------------------------
Total units outstanding at beginning of year 159,620 68,915 103,533
Increase (decrease) in units resulting from
policy transactions:
(a) Transfers--policy charges and deductions (1,812) (27) (509) (1,709)
(b) Transfers in (from other variable accounts) 11,548 1,837 3,864 15,534
(c) Transfers out (to other variable accounts) (7,055) (8,883) (20,499)
(d) Transfers--other (5,989) (744) (3,623)
----------------------------------------------------------------------
Sub-Total (3,308) 1,810 (6,272) (10,297)
----------------------------------------------------------------------
Total units outstanding at end of year 156,312 1,810 62,643 93,236
----------------------------------------------------------------------
----------------------------------------------------------------------
Accumulation Unit Value: At beginning of year $33.90 $10.00 $17.89 $27.47
At end of year $43.87 $10.17 $19.72 $35.10
----------------------------------------------------------------------
MULTI- EQUITY INTER- EMERGING
STRATEGY INDEX NATIONAL MARKETS (1)
----------------------------------------------------------------------
Total units outstanding at beginning of year 40,429 105,503 193,550
Increase (decrease) in units resulting from
policy transactions:
(a) Transfers--policy charges and deductions (459) (1,293 (2,303) (239)
(b) Transfers in (from other variable accounts) 17,677 8,493 31,577
(c) Transfers out (to other variable accounts) (137) (1,743) (6,936) (3,068)
(d) Transfers--other (853) (2,906) (2,065) (6,679)
----------------------------------------------------------------------
Sub-Total (1,449) 11,735 (2,811) 21,591
----------------------------------------------------------------------
Total units outstanding at end of year 38,980 117,238 190,739 21,591
----------------------------------------------------------------------
----------------------------------------------------------------------
Accumulation Unit Value: At beginning of year $23.54 $22.19 $20.39 $10.00
At end of year $27.98 $29.31 $22.13 $ 9.21
----------------------------------------------------------------------
</TABLE>
- ----------------------------------------------------
(1) For the period from January 15, 1997 (commencement of operations) to
December 31, 1997.
** Accumulation Unit: unit of measure used to calculate the value of a Policy
Owner's interest in a Variable Account during the accumulation period.
B-12
