<PAGE>
ANNUAL REPORT
. PACIFIC SELECT EXEC SEPARATE ACCOUNT OF PACIFIC MUTUAL LIFE INSURANCE COMPANY
[LOGO of PACIFIC SELECT EXEC]
<PAGE>
Dear Pacific Select Exec and Pacific Select Choice Policy Owners:
We are pleased to share with you the 1996 Annual Report of the Pacific Select
Exec Separate Account ("Separate Account") of Pacific Mutual Life Insurance
Company ("Pacific Mutual").
The Separate Account supports your Pacific Select Exec and/or Pacific Select
Choice Flexible Premium Variable Universal Life Insurance Policy ("the Policy")
from Pacific Mutual. The Separate Account is divided into subaccounts, called
Variable Accounts. A fixed account option is also available.
Attached are charts indicating the Accumulated Values and Cash Surrender
Values as of December 31, 1996 of a hypothetical Pacific Select Exec and Pacific
Select Choice policy, assuming 100% of the net premium payment was allocated to
each Variable Account.
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,
/s/ THOMAS C. SUTTON
- -------------------------------------
Thomas C. Sutton
Chairman and Chief Executive Officer
Pacific Mutual Life Insurance Company
C-1
<PAGE>
Pacific Select Exec
The following indicates the Accumulated Values and Cash Surrender Values as of
December 31, 1996, assuming a hypothetical policy was purchased (1) on the date
each Variable Account began operations, and (2) on January 2, 1996, if later.
Also assumed is that 100% of the net premium payment was allocated to such
Variable Account. The Policy is based on an insured male, nonsmoker, age 40,
annual premium payments of $10,000 (also Guideline Annual Premium), and a Level
and Initial Death Benefit of $560,323:
<TABLE>
<CAPTION>
Money High Yield Managed Government Aggressive Growth Equity
Market Bond Bond Securities Growth Equity LT Income
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account
11/22/88* 1/03/89* 2/01/89* 2/15/89* 2/01/89* 4/8/96* 1/04/94* 1/03/89*
----------- ----------- ---------- ---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(1) Policy Purchased On Date Variable Account Began Operations
AV** ........ $84,307.24 $108,672.99 $89,723.77 $86,458.44 $120,979.39 $9,178.42 $37,512.15 $115,932.12
CSV*** ...... 82,760.72 106,985.88 87,966.37 84,701.04 119,221.98 4,960.64 33,294.37 114,245.01
(2) Policy Purchased On 1/2/96
AV** ........ 8,522.50 9,039.31 8,425.42 8,310.56 10,110.11 * 9,654.62 9,644.79
CSV*** ...... 4,304.72 4,821.54 4,207.64 4,092.79 5,892.34 * 5,436.85 5,427.01
<CAPTION>
Multi- Equity Inter- Emerging
Strategy Index National Markets
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account I Account II Account III Account IV
1/03/89* 1/31/91* 1/19/89* 4/8/96* 10/11/96* 10/17/96* 10/11/96* 11/18/96*
----------- ----------- ---------- ---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(1) Policy Purchased On Date Variable Account Began Operations
AV** ....... $102,180.48 $ 83,633.66 $95,827.30 $ 8,258.68 $ 9,063.72 $8,901.83 $ 9,092.72 $ 8,744.77
CSV*** ..... 100,493.37 80,259.44 94,140.19 4,040.91 4,845.94 4,684.05 4,874.94 4,527.00
(2) Policy Purchased On 1/2/96
AV** ....... 9,095.98 9,927.19 9,814.97 * * * * *
CSV*** ..... 4,878.21 5,709.42 5,597.19 * * * * *
</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, sex, smoking status, substandard rating, and face amount.
***Cash Surrender Value: Includes deductions for all policy charges, including
any underwriting and sales surrender charges that would have been deducted if
the policy had been surrendered on December 31, 1996. Surrender charges vary
by policy.
C-2
<PAGE>
Pacific Select Choice
The following indicates the Accumulated Values and Cash Surrender Values as of
December 31, 1996, assuming a hypothetical policy was purchased (1) on the date
each Variable Account began operations, and (2) on January 2, 1996, if later.
Also assumed is that 100% of the net premium payment was allocated to such
Variable Account. The Policy is based on an insured male, nonsmoker, age 40,
annual premium payments of $10,000 (also Guideline Annual Premium), and a Level
and Initial Death Benefit of $559,456:
<TABLE>
<CAPTION>
Money High Yield Managed Government Aggressive Growth Equity
Market Bond Bond Securities Growth Equity LT Income
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account
11/22/88* 1/03/89* 2/01/89* 2/15/89* 2/01/89* 4/8/96* 1/04/94* 1/03/89*
---------- ---------- ---------- ---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(1) Policy Purchased On Date Variable Account Began Operations
AV** .............. $75,884.64 $94,392.51 $78,315.19 $75,594.94 $104,684.02 $6,387.43 $27,092.77 $101,153.57
CSV*** ............ 75,134.03 93,576.63 77,466.68 74,746.43 103,835.51 4,429.34 25,134.67 100,337.70
(2) Policy Purchased On 1/2/96
AV** .............. 5,636.81 5,995.16 5,545.46 5,462.87 6,781.03 * 6,472.84 6,425.52
CSV*** ............ 3,678.72 4,037.07 3,587.36 3,504.77 4,822.93 * 4,514.74 4,467.42
<CAPTION>
Multi- Equity Inter- Emerging
Strategy Index National Markets
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account I Account II Account III Account IV
1/03/89* 1/31/91* 1/19/89* 4/8/96* 10/11/96* 10/17/96* 10/11/96* 11/18/96*
---------- ---------- ---------- ---------- ----------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(1) Policy Purchased On Date Variable Account Began Operations
AV** .............. $89,332.86 $70,361.17 $85,426.48 $ 5,706.56 $ 6,793.30 $6,673.76 $ 6,818.10 $ 6,631.60
CSV*** ............ 88,516.98 68,762.05 84,610.60 3,748.47 4,835.20 4,715.66 4,860.00 4,673.50
(2) Policy Purchased On 1/2/96
AV** .............. 6,031.09 6,635.46 6,553.12 * * * * *
CSV*** ............ 4,072.99 4,677.36 4,595.02 * * * * *
</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, sex, smoking status, and substandard rating.
*** Cash Surrender Value: Includes deductions for all policy charges, including
any underwriting and sales surrender charges that would have been deducted
if the policy had been surrendered on December 31, 1996. Surrender charges
vary by policy.
C-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pacific Mutual Life Insurance Company
We have audited the accompanying statement of assets and liabilities of the
Pacific Select Exec Separate Account (comprised of the Money Market, High Yield
Bond, Managed Bond, Government Securities, Growth, Aggressive Equity, Growth LT,
Equity Income, Multi-Strategy, Equity Index, International, Emerging Markets,
Variable Account I, Variable Account II, Variable Account III, and Variable
Account IV Variable Accounts) as of December 31, 1996 and the related statement
of operations for the year then ended 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, 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 Exec Separate Account as of December
31, 1996 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 14, 1997
C-4
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF ASSETS & LIABILITIES
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
High
Money Yield Managed Government Aggressive Growth
Market Bond Bond Securities Growth Equity LT
Variable Variable Variable Variable Variable Variable Variablee
Account Account Account Account Account Account Account
------- ------- ------- ------- ------- ------- -------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Investments:
Money Market Portfolio (2,731 shares; cost $27,433) ........ $ 27,430
High Yield Bond Portfolio (2,609 shares; cost $25,201) ..... $ 25,937
Managed Bond Portfolio (6,420 shares; cost $67,913) ........ $ 69,000
Government Securities Portfolio (754 shares; cost $7,723) .. $ 7,830
Growth Portfolio (5,590 shares; cost $98,748) .............. $ 119,910
Aggressive Equity Portfolio (309 shares; cost $3,264) ...... $ 3,331
Growth LT Portfolio (5,399 shares; cost $79,297) ........... $ 89,067
Equity Income Portfolio (4,199 shares; cost $71,762) .......
Receivables:
Due from Pacific Mutual Life Insurance Company ............. 94 55 46 51 130
Fund shares redeemed ....................................... 3 20
-------- -------- -------- ------- --------- ------- --------
TOTAL ASSETS .................................................. 27,524 25,992 69,046 7,881 120,040 3,334 89,087
-------- -------- -------- ------- --------- ------- --------
LIABILITIES
Payables:
Due to Pacific Mutual Life Insurance Company ............... 3 20
Fund shares purchased ...................................... 99 55 46 51 130
-------- -------- -------- ------- --------- ------- --------
TOTAL LIABILITIES ............................................. 99 55 46 51 130 3 20
-------- -------- -------- ------- --------- ------- --------
NET ASSETS .................................................... $ 27,425 $ 25,937 $ 69,000 $ 7,830 $ 119,910 $ 3,331 $ 89,067
======== ======== ======== ======= ========= ======= ========
<CAPTION>
Equity
Income
Variable
Account
-------
ASSETS
Investments:
<S> <C>
Money Market Portfolio (2,731 shares; cost $27,433) ........
High Yield Bond Portfolio (2,609 shares; cost $25,201) .....
Managed Bond Portfolio (6,420 shares; cost $67,913) ........
Government Securities Portfolio (754 shares; cost $7,723) ..
Growth Portfolio (5,590 shares; cost $98,748) ..............
Aggressive Equity Portfolio (309 shares; cost $3,264) ......
Growth LT Portfolio (5,399 shares; cost $79,297) ...........
Equity Income Portfolio (4,199 shares; cost $71,762) ....... $ 85,860
Receivables:
Due from Pacific Mutual Life Insurance Company ............. 57
Fund shares redeemed .......................................
--------
TOTAL ASSETS .................................................. 85,917
--------
LIABILITIES
Payables:
Due to Pacific Mutual Life Insurance Company ...............
Fund shares purchased ...................................... 57
--------
TOTAL LIABILITIES ............................................. 57
--------
NET ASSETS .................................................... $ 85,860
========
</TABLE>
See Notes to Financial Statements.
C-5
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF ASSETS & LIABILITIES (Continued)
December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Multi- Equity Inter- Emerging
Strategy Index national Markets
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account I Account II
------- ------- ------- ------- --------- -----------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Investments:
Multi-Strategy Portfolio (5,365 shares; cost $71,200) ............ $ 79,132
Equity Index Portfolio (6,132 shares; cost $99,779) .............. $ 125,197
International Portfolio (6,328 shares; cost $83,435) ............. $ 97,439
Emerging Markets Portfolio (339 shares; cost $3,318) ............. $ 3,279
Edinburgh Overseas Equity Portfolio (8 shares; cost $77) ......... $ 77
Turner Core Growth Portfolio (14 shares; cost $177) .............. $ 167
Frontier Capital Appreciation Portfolio (42 shares; cost $527) ...
Enhanced U.S. Equity Portfolio (34 shares; cost $416) ............
Receivables:
Due from Pacific Mutual Life Insurance Company ................... 64 45 95 19
Dividends ........................................................ 6
-------- --------- -------- ------- -------- --------
TOTAL ASSETS ........................................................ 79,196 125,242 97,534 3,298 77 173
-------- --------- -------- ------- -------- --------
LIABILITIES
Payables:
Fund shares purchased ............................................ 64 45 95 19
-------- --------- -------- ------- -------- --------
TOTAL LIABILITIES ................................................... 64 45 95 19
-------- --------- -------- ------- -------- --------
NET ASSETS .......................................................... $ 79,132 $ 125,197 $ 97,439 $ 3,279 $ 77 $ 173
========= ========= ======== ======= ======== ========
<CAPTION>
Variable Variable
Account III Account IV
----------- ----------
ASSETS
Investments:
Multi-Strategy Portfolio (5,365 shares; cost $71,200) ............
Equity Index Portfolio (6,132 shares; cost $99,779) ..............
International Portfolio (6,328 shares; cost $83,435) .............
Emerging Markets Portfolio (339 shares; cost $3,318) .............
Edinburgh Overseas Equity Portfolio (8 shares; cost $77) .........
Turner Core Growth Portfolio (14 shares; cost $177) ..............
Frontier Capital Appreciation Portfolio (42 shares; cost $527) ... $ 522
Enhanced U.S. Equity Portfolio (34 shares; cost $416) ............ $ 397
Receivables:
Due from Pacific Mutual Life Insurance Company
Dividends ........................................................ 21 18
----------- ----------
TOTAL ASSETS ........................................................ 543 415
----------- ----------
LIABILITIES
Payables:
Fund shares purchased ............................................
----------- ----------
TOTAL LIABILITIES ...................................................
----------- ----------
NET ASSETS .......................................................... $ 543 $ 415
=========== ==========
</TABLE>
See Notes to Financial Statements.
C-6
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
High
Money Yield Managed Government
Market Bond Bond Securities
Variable Variable Variable Variable
Account Account Account Account
------- ------- ------- -------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........................................................... $ 1,359 $ 1,753 $ 4,145 $ 490
------- ------- ------- -------
NET INVESTMENT INCOME.................................................. 1,359 1,753 4,145 490
------- ------- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) from security transactions................. 13 300 (203) 62
Net unrealized appreciation (depreciation) on investments........... 58 144 (914) (316)
------- ------- ------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS...................................................... 71 444 (1,117) (254)
------- ------- ------- -------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........................................... $ 1,430 $ 2,197 $ 3,028 $ 236
======= ======= ======= =======
<CAPTION>
Aggressive Growth Equity
Growth Equity LT Income
Variable Variable Variable Variable
Account Account (1) Account Account
------- ----------- ------- -------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........................................................... $ 6,582 $ 2 $ 608 $ 3,386
------- ----------- ------- -------
NET INVESTMENT INCOME.................................................. 6,582 2 608 3,386
------- ----------- ------- -------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) from security transactions................. 2,826 (958) 4,372 667
Net unrealized appreciation (depreciation) on investments........... 12,466 67 5,509 8,024
------- ----------- ------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS...................................................... 15,292 (891) 9,881 8,691
------- ----------- ------- -------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........................................... $21,874 $ (889) $10,489 $12,077
======= =========== ======= =======
</TABLE>
See Notes to Financial Statements.
(1) Operations commenced during 1996 (See Note 1 to Financial Statements).
C-7
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Multi- Equity Inter- Emerging
Strategy Index national Markets
Variable Variable Variable Variable
Account Account Account Account (1)
------- ------- ------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................................. $ 4,627 $ 3,825 $ 1,980
-------- -------- -------- --------
NET INVESTMENT INCOME......................................... 4,627 3,825 1,980
-------- -------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) from security transactions........ 356 1,223 564 $ (3)
Net unrealized appreciation (depreciation) on investments.. 2,459 14,294 12,594 (39)
-------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS............................................. 2,815 15,517 13,158 (42)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................................. $ 7,442 $ 19,342 $ 15,138 $ (42)
======== ======== ======== ========
<CAPTION>
Variable Variable Variable Variable
Account I (1) Account II (1) Account III (1) Account IV (1)
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................................. $ 6 $ 21 $ 18
-------- -------- -------- --------
NET INVESTMENT INCOME......................................... 6 21 18
-------- -------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) from security transactions........ 1
Net unrealized appreciation (depreciation) on investments.. (10) (6) (19)
-------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS............................................. (10) (5) (19)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................................. $ 0 $ (4) $ 16 $ (1)
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
(1) Operations commenced during 1996 (See Note 1 to Financial Statements).
C-8
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
High
Money Yield Managed Government
Market Bond Bond Securities
Variable Variable Variable Variable
Account Account Account Account
------- ------- ------- -------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income .................................... $ 1,359 $ 1,753 $ 4,145 $ 490
Net realized gain (loss) from security transactions ...... 13 300 (203) 62
Net unrealized appreciation (depreciation) on
investments ............................................. 58 144 (914) (316)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................................ 1,430 2,197 3,028 236
-------- -------- -------- --------
INCREASE (DECREASE) IN NET ASSETS FROM
POLICY TRANSACTIONS
Transfer of net premiums ................................. 59,965 6,552 21,068 2,042
Transfers--policy charges and deductions ................. (3,056) (1,528) (2,686) (580)
Transfers in (from other variable accounts) .............. 64,487 12,323 8,787 2,504
Transfers out (to other variable accounts) ............... (115,717) (7,278) (8,044) (2,257)
Transfers--other ......................................... (2,862) (920) (843) (379)
-------- -------- -------- --------
NET INCREASE IN NET ASSETS
DERIVED FROM POLICY TRANSACTIONS ......................... 2,817 9,149 18,282 1,330
-------- -------- -------- --------
NET INCREASE IN NET ASSETS .................................. 4,247 11,346 21,310 1,566
NET ASSETS
Beginning of year ........................................ 23,178 14,591 47,690 6,264
-------- -------- -------- --------
End of year .............................................. $ 27,425 $ 25,937 $ 69,000 $ 7,830
======== ======== ======== ========
<CAPTION>
Aggressive Growth Equity
Growth Equity LT Income
Variable Variable Variable Variable
Account Account (1) Account Account
------- ----------- ------- -------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income .................................... $ 6,582 $ 2 $ 608 $ 3,386
Net realized gain (loss) from security transactions ...... 2,826 (958) 4,372 667
Net unrealized appreciation (depreciation) on
investments ............................................. 12,466 67 5,509 8,024
-------- -------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ................................ 21,874 (889) 10,489 12,077
-------- -------- -------- --------
INCREASE (DECREASE) IN NET ASSETS FROM
POLICY TRANSACTIONS
Transfer of net premiums ................................. 29,298 911 24,407 21,368
Transfers--policy charges and deductions ................. (7,697) (146) (5,343) (4,205)
Transfers in (from other variable accounts) .............. 54,635 11,133 48,532 18,530
Transfers out (to other variable accounts) ............... (62,175) (7,395) (39,922) (8,965)
Transfers--other ......................................... (3,544) (283) (2,855) (2,661)
-------- -------- -------- --------
NET INCREASE IN NET ASSETS
DERIVED FROM POLICY TRANSACTIONS ......................... 10,517 4,220 24,819 24,067
-------- -------- -------- --------
NET INCREASE IN NET ASSETS .................................. 32,391 3,331 35,308 36,144
NET ASSETS
Beginning of year ........................................ 87,519 53,759 49,716
-------- -------- -------- --------
End of year .............................................. $119,910 $ 3,331 $ 89,067 $ 85,860
======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
(1) Operations commenced during 1996 (See Note 1 to Financial Statements).
C-9
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Multi- Equity Inter- Emerging
Strategy Index national Markets
Variable Variable Variable Variable
Account Account Account Account (1)
------- ------- ------- -----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income .................................. $ 4,627 $ 3,825 $ 1,980
Net realized gain (loss) from security transactions .... 356 1,223 564 $ (3)
Net unrealized appreciation (depreciation) on
investments ........................................... 2,459 14,294 12,594 (39)
------- ------- ------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS .............................. 7,442 19,342 15,138 (42)
------- ------- ------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM
POLICY TRANSACTIONS
Transfer of net premiums ............................... 22,669 31,284 26,068 549
Transfers--policy charges and deductions ............... (3,698) (5,239) (5,477) (77)
Transfers in (from other variable accounts) ............ 5,320 30,324 25,962 3,170
Transfers out (to other variable accounts) ............. (4,577) (11,107) (18,655) (299)
Transfers--other ....................................... (2,330) (2,082) (2,024) (22)
------- ------- ------- -----------
NET INCREASE IN NET ASSETS
DERIVED FROM POLICY TRANSACTIONS ....................... 17,384 43,180 25,874 3,321
------- ------- ------- -----------
NET INCREASE IN NET ASSETS ................................ 24,826 62,522 41,012 3,279
NET ASSETS
Beginning of year ...................................... 54,306 62,675 56,427
------- -------- ------- -----------
End of year ............................................ $79,132 $125,197 $97,439 $ 3,279
======= ======== ======= ===========
<CAPTION>
Variable Variable Variable Variable
Account I (1) Account II (1) Account III (1) Account IV (1)
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income ................................. $ 6 $ 21 $ 18
Net realized gain (loss) from security transactions ... 1
Net unrealized appreciation (depreciation) on
investments .......................................... (10) (6) (19)
-------- -------- --------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................. (4) 16 (1)
-------- -------- --------- ---------
INCREASE (DECREASE) IN NET ASSETS FROM
POLICY TRANSACTIONS
Transfer of net premiums .............................. 7
Transfers--policy charges and deductions .............. $ (1) (1) (5) (2)
Transfers in (from other variable accounts) ........... 78 178 539 418
Transfers out (to other variable accounts) ............
Transfers--other ...................................... (14)
-------- -------- --------- ---------
NET INCREASE IN NET ASSETS
DERIVED FROM POLICY TRANSACTIONS ...................... 77 177 527 416
-------- -------- --------- ---------
NET INCREASE IN NET ASSETS ............................... 77 173 543 415
======== ======== ========= =========
NET ASSETS
Beginning of year .....................................
-------- -------- --------- ---------
End of year ........................................... $ 77 $ 173 $ 543 $ 415
======== ======== ========= =========
</TABLE>
See Notes to Financial Statements.
(1) Operations commenced during 1996 (See Note 1 to Financial Statements).
C-10
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands)
<TABLE>
<CAPTION>
High
Money Yield Managed Government
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.................................... $ 1,418 $ 944 $ 2,208 $ 294 $ 656
Net realized gain (loss) from security transactions...... 31 (92) (141) (41) (1,046)
Net unrealized appreciation on investments............... 65 1,042 4,063 624 16,423
-------- ------- ------- ------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS................................ 1,514 1,894 6,130 877 16,033
-------- ------- ------- ------- -------
INCREASE (DECREASE) IN NET ASSETS FROM
POLICY TRANSACTIONS
Transfer of net premiums................................. 72,942 5,029 7,113 1,962 25,318
Transfers--policy charges and deductions *............... (3,157) (1,065) (1,983) (490) (6,369)
Transfers in (from other variable accounts).............. 29,120 7,781 15,186 2,845 30,352
Transfers out (to other variable accounts)............... (110,816) (6,185) (2,813) (2,390) 22,297)
Transfers--other *....................................... (1,021) (242) (508) (449) (2,935)
-------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN NET ASSETS
DERIVED FROM POLICY TRANSACTIONS......................... (12,932) 5,318 16,995 1,478 24,069
-------- ------- ------- ------- -------
NET INCREASE (DECREASE) IN NET ASSETS....................... (11,418) 7,212 23,125 2,355 40,102
NET ASSETS
Beginning of year........................................ 34,596 7,379 24,565 3,909 47,417
-------- ------- ------- ------- -------
End of year.............................................. $ 23,178 $14,591 $47,690 $ 6,264 $87,519
======== ======= ======= ======= =======
</TABLE>
* Prior year amounts have been reclassified to conform with current year
presentation.
See Notes to Financial Statements.
C-11
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands)
<TABLE>
<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 IN NET ASSETS
FROM OPERATIONS
Net investment income.......................................... $ 3,592 $ 577 $ 1,401 $ 1,015 $ 1,070
Net realized gain from security transactions................... 1,225 785 71 2,069 574
Net unrealized appreciation on investments..................... 3,892 7,737 7,406 10,698 2,646
------- ------- ------- ------- -------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS...................................... 8,709 9,099 8,878 13,782 4,290
------- ------- ------- ------- -------
INCREASE (DECREASE) IN NET ASSETS FROM
POLICY TRANSACTIONS
Transfer of net premiums....................................... 12,930 13,169 14,278 11,713 16,778
Transfers--policy charges and deductions *..................... (2,765) (2,773) (2,760) (2,873) (3,967)
Transfers in (from other variable accounts).................... 32,699 16,222 5,601 17,636 25,476
Transfers out (to other variable accounts)..................... (8,074) (4,940) (2,670) (6,615) (16,093)
Transfers--other *............................................. (1,148) (1,283) (1,192) (1,361) (1,211)
------- ------- ------- ------- -------
NET INCREASE IN NET ASSETS
DERIVED FROM POLICY TRANSACTIONS............................... 33,642 20,395 13,257 18,500 20,983
------- ------- ------- ------- -------
NET INCREASE IN NET ASSETS........................................ 42,351 29,494 22,135 32,282 25,273
NET ASSETS
Beginning of year.............................................. 11,408 20,222 32,171 30,393 31,154
------- ------- ------- ------- -------
End of year.................................................... $53,759 $49,716 $54,306 $62,675 $56,427
======= ======= ======= ======= =======
</TABLE>
* Prior year amounts have been reclassified to conform with current year
presentation.
See Notes to Financial Statements.
C-12
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES
The Pacific Select Exec Separate Account (the "Separate Account") is
registered as a unit investment trust under the Investment Company Act of 1940,
as amended, and during 1996 was comprised of sixteen 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 Index Variable Account, the
International Variable Account, the Emerging Markets Variable Account, and the
Variable Accounts I through IV. The assets in each of the first twelve Variable
Accounts are invested in shares of the corresponding portfolios of Pacific
Select Fund and the assets of the last four Variable Accounts are invested in
shares of corresponding portfolios of M Fund, Inc. (collectively, the "Funds").
Each Variable Account pursues different investment objectives and policies. The
financial statements of the Funds, including the portfolios of investments, are
either included elsewhere in the report or provided separately and should be
read in conjunction with Separate Account's financial statements.
The separate account has organized and registered with the Securities and
Exchange Commission six new variable accounts, the Aggressive Equity Variable
Account, the Emerging Markets Variable Account, Variable Account I, Variable
Account II, Variable Account III, and Variable Account IV. The Aggressive Equity
Portfolio and the Emerging Markets Portfolio commenced operations on April 8,
1996, Variable Account I and Variable Account III commenced operations on
October 11, 1996, Variable Account II commenced operations on October 17, 1996,
and Variable IV commenced operations on November 18, 1996.
The Separate Account was established by Pacific Mutual Life Insurance
Company ("Pacific Mutual") on May 12, 1988 and commenced operations on November
22, 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 Funds are valued at the reported net asset
values of the respective portfolios. Valuation of securities held by the Funds
is discussed in the notes to their 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 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 1996, the Funds have declared dividends for each portfolio except
for the Emerging Markets 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.
C-13
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
3. CHARGES AND EXPENSES
With respect to variable life insurance policies funded by the Separate
Account, Pacific Mutual makes certain deductions from premiums for sales load
and state premium taxes before amounts are allocated to the Separate Account.
Pacific Mutual also makes certain deductions from the net assets of each
Variable Account for the mortality and expense risks Pacific Mutual assumes,
administrative expenses, cost of insurance, charges for optional benefits and
any sales and underwriting surrender charges. The operating expenses of the
Separate Account are paid by Pacific Mutual.
4. RELATED PARTY AGREEMENT
Pacific Mutual Distributors, Inc., 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.
5. SELECTED ACCUMULATION UNIT** INFORMATION
Selected accumulation unit information for the year ended December 31,
1996 were as follows:
<TABLE>
<CAPTION>
High
Money Yield Managed Government Aggressive Growth Equity
Market Bond Bond Securities Growth Equity Lt Income
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account
------- ------- ------- ------- ------- ------- ------- -------
ACCUMULATION UNIT
VALUE:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning $ 14.52 $ 21.74 $ 19.86 $ 19.28 $ 23.89 $ 10.00 $ 15.49 $ 23.72
======= ======= ======= ======= ======= ======= ======= =======
Ending $ 15.26 $ 24.20 $ 20.70 $ 19.85 $ 29.53 $ 10.86 $ 18.25 $ 28.32
======= ======= ======= ======= ======= ======= ======= =======
Number of Units Outstanding
at End of Year 1,797,662 1,071,818 3,332,577 394,531 4,060,628 306,793 4,879,333 3,031,251
Multi- Equity Inter- Emerging
Strategy Index National Markets
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account I Account II Account III Account IV
------- ------- ------- ------- --------- ---------- ----------- ----------
ACCUMULATION UNIT
VALUE:
Beginning $ 21.60 $ 20.21 $ 15.55 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======= ======= ======= ======= ======= ======= ======= =======
Ending $ 24.31 $ 24.73 $ 18.96 $ 9.82 $ 10.08 $ 10.18 $ 10.46 $ 9.97
======= ======= ======= ======= ======= ======= ======= =======
Number of Units Outstanding
at End of Year 3,255,044 5,062,679 5,140,103 333,810 7,649 17,011 51,927 41,571
</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
C-14
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
6. POLICY OWNERS' COST OF INVESTMENT IN THE FUNDS SHARES
The investment in the Funds shares are carried at identified cost, which
represents the amount available for investment (including reinvested
distributions of net investment income and realized gains). Total cost and
market value of total Policy Owners' investments in the Funds as of December 31,
1996 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Money High Yield Managed Government Aggressive Growth Equity
Market Bond Bond Securities Growth Equity LT Income
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account (1) Account Account
------- ------- ------- ------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total cost of investments at beginning of year $23,106 $13,881 $45,342 $5,877 $78,927 $49,540 $43,643
Add: Total proceeds from sales of units 79,532 13,771 23,511 2,711 36,760 $11,359 41,766 28,447
Reinvested distributions from the Funds:
(a) Net investment income 1,359 1,593 3,180 352 455 2 608 841
(b) Net realized gain 160 965 138 6,127 2,545
------- ------- ------- ------ ------- ------- ------- ------
Sub-Total 103,997 29,405 72,998 9,078 122,269 11,361 91,914 75,476
Less: Cost of investments disposed during the year 76,564 4,204 5,085 1,355 23,521 8,097 12,617 3,714
------- ------- ------- ------ ------- ------- ------- ------
Total cost of investments at end of year 27,433 25,201 67,913 7,723 98,748 3,264 79,297 71,762
Add: Unrealized appreciation (depreciation) (3) 736 1,087 107 21,162 67 9,770 14,098
------- ------- ------- ------ ------- ------- ------- ------
Total market value of investments at end of year $27,430 $25,937 $69,000 $7,830 $119,910 $3,331 $89,067 $85,860
======= ======= ======= ====== ======== ====== ======= =======
<CAPTION>
Multi- Equity Inter- Emerging
Strategy Index national Markets
Variable Variable Variable Variable
Account Account Account Account (1)
------- ------- ------- -----------
<S> <C> <C> <C> <C>
Total cost of investments at beginning of year $48,796 $51,564 $54,916
Add: Total proceeds from sales of units 21,499 46,889 31,432 $3,410
Reinvested distributions from the Funds:
(a) Net investment income 1,796 1,856 1,980
(b) Net realized gain 2,831 1,969
------- ------- ------- ------
Sub-Total 74,922 102,278 88,328 3,410
Less: Cost of investments disposed during the year 3,722 2,499 4,893 92
------- ------- ------- ------
Total cost of investments at end of year 71,200 99,779 83,435 3,318
Add: Unrealized appreciation (depreciation) 7,932 25,418 14,004 (39)
------- ------- ------- ------
Total market value of investments at end of year $79,132 $125,197 $97,439 $3,279
======= ======== ======= ======
<CAPTION>
Variable Variable Variable Variable
Account I (1) Account II (1) Account III (1) Account IV (1)
------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Total cost of investments at beginning of year
Add: Total proceeds from sales of units $ 78 $ 172 $ 522 $ 399
Reinvested distributions from the Funds:
(a) Net investment income 1 4
(b) Net realized gain 5 21 14
---------- --------- --------- ---------
Sub-Total 78 178 543 417
Less: Cost of investments disposed during the year 1 1 16 1
---------- --------- --------- ---------
Total cost of investments at end of year 77 177 527 416
Add: Unrealized appreciation (depreciation) (10) (5) (19)
---------- --------- --------- ---------
Total market value of investments at end of year $ 77 $ 167 $ 522 $ 397
========== ========= ========= =========
</TABLE>
(1) Operations commenced during 1996 (See Note 1 to Financial Statements).
C-15
