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As filed with the Securities and Exchange Commission on April 27, 1999
Registration No 333-20355
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT
INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
PACIFIC SELECT EXEC SEPARATE ACCOUNT OF
PACIFIC LIFE INSURANCE COMPANY
(Exact Name of Registrant)
PACIFIC LIFE INSURANCE COMPANY
(Name of Depositor)
700 Newport Center Drive
Newport Beach, California 92660
(Address of Depositor's Principal Executive Offices) (Zip Code)
(949) 640-3743
(Depositor's Telephone Number, including Area Code)
Diane N. Ledger
Vice President
Pacific Life Insurance Company
700 Newport Center Drive
Newport Beach, California 92660
(Name and address of agent for service)
Copies of all communications to:
Jeffrey S. Puretz, Esq.
Dechert Price & Rhoads
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
It is proposed that this filing will become effective on May 1, 1999 pursuant to
paragraph (b) of Rule 485
Title of securities being registered: Interests in the Separate Account under
Pacific Select Estate Preserver II Last Survivor Flexible Premium Variable Life
Insurance Policies.
Filing fee: None
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Pacific Select Exec Separate Account of Pacific Life Insurance Company
CROSS-REFERENCE SHEET
Pursuant to Rule 404(c) of Regulation C under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction as to the Prospectus in Form S-6)
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Form N-8B-2 Form S-6
Item Number Heading in Prospectus
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1. (a) Name of trust................................. Prospectus front cover
(b) Title of securities issues.................... Prospectus front cover
2. Name and address of each depositor................. Prospectus front cover
3. Name and address of trustee........................ N/A
4. Name and address of each principal underwriter..... Pacific Life Insurance
Company
5. State of organization of trust..................... Pacific Select Exec Separate
Account
6. Execution and termination of trust agreement....... Pacific Select Exec Separate
Account
7. Changes of name.................................... N/A
8. Fiscal year........................................ N/A
9. Material Litigation................................ N/A
II. General Description of the Trust and Securities of the Trust
10. (a) Registered or bearer securities............... The Policy
(b) Cumulative or distributive securities......... The Policy
(c) Withdrawal or redemption...................... Policy Loans;
Surrender; Partial
Withdrawals
(d) Conversion, transfer, etc..................... Transfer of Accumulated
Value; Policy Loans;
Surrender; Partial
Withdrawals
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Policy
(e) Periodic payment plan......................... N/A
(f) Voting rights................................. Voting of Fund Shares
(g) Notice to security holders.................... Confirmation Statements
and Other Reports to
Owners
(h) Consents required............................. Voting of Fund Shares;
Disregard of Voting
Instructions;
Substitution of
Investments
(i) Other provisions.............................. The Policy
11. Type of securities comprising units................ The Policy; Pacific
Select Exec Separate
Account
12. Certain information regarding periodic
payment plan certificates.......................... N/A
13. (a) Load, fees, expenses, etc..................... Charges and Deductions
(b) Certain information regarding periodic
payment plan certificates..................... N/A
(c) Certain percentages........................... Charges and Deductions
(d) Difference in price........................... N/A
(e) Certain other fees, etc....................... Charges and Deductions
(f) Certain other profits or benefits............. The Policy
(g) Ratio of annual charges to income............. N/A
14. Issuance of trust's securities..................... The Policy
15. Receipt and handling of payments from
purchasers......................................... The Policy; Premiums
16. Acquisition and disposition of underlying
securities......................................... Introduction; Pacific
Select Exec Separate
Account; The Policy
17. Withdrawal or redemption........................... Transfer of Accumulated
Value; Policy Loans;
Surrender; Partial
Withdrawals
18. (a) Receipt, custody and disposition
of income..................................... The Policy
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(b) Reinvestment of distributions................. N/A
(c) Reserves or special funds..................... N/A
(d) Schedule of distributions..................... N/A
19. Records, accounts and reports...................... Confirmation Statements
and Other Report to
Owners
20. Certain miscellaneous provisions of trust
agreement
(a) Amendment..................................... N/A
(b) Termination................................... N/A
(c) and (d) Trustee, removal and successor......... N/A
(e) and (f) Depositors, removal and successor...... N/A
21. Loans to security holders.......................... Policy Loans
22. Limitations on liability........................... N/A
23. Bonding arrangements............................... N/A
24. Other material provisions of trust agreement....... N/A
III. Organizations, Personnel and Affiliated Persons of Depositor
25. Organization of depositor.......................... Pacific Life Insurance
Company
26. Fees received by depositor......................... See Items 13(a) and 13(e)
27. Business of depositor.............................. Pacific Life Insurance
Company
28. Certain information as to officials and affiliated
persons of depositor............................... More About Pacific Life
29. Voting securities of depositor..................... N/A
30. Persons controlling depositor...................... N/A
31. Payments by depositor for certain services
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rendered to trust................................. N/A
32. Payments by depositor for certain other services
rendered to trust................................. N/A
33. Remuneration of employees of depositor for
certain services rendered to trust................ Charges and Deductions
34. Remuneration of other persons for certain
services rendered to trust........................ Charges and Deductions
IV. Distribution and Redemption of Securities
35. Distribution of trust's securities by states...... N/A
36. Suspension of sales of trust's securities......... N/A
37. Revocation of authority to distribute............. N/A
38. (a) Method of distribution....................... Distribution of the Policy
(b) Underwriting agreements...................... Distribution of the Policy
(c) Selling agreements........................... Distribution of the Policy
39. (a) Organization of principal underwriters....... See Item 25
(b) N.A.S.D. membership of principal
underwriters................................. Distribution of the Policy
40. Certain fees received by principal underwriters... See Items 13(a) and 13(e)
41. (a) Business of each principal underwriter....... See Item 39(b)
(b) Branch offices of each principal
underwriter.................................. N/A
(c) Salesmen of each principal underwriter....... N/A
42. Ownership of trust's securities by certain persons N/A
43. Certain brokerage commissions received by
principal underwriters............................ N/A
44. (a) Method of valuation.......................... Determination of Accumulated
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Value
(b) Schedule as to offering price................ Charges and Deductions
(c) Variation in offering price to certain
persons...................................... Charges and Deductions
45. Suspension of redemption rights................... Surrender
46. (a) Redemption Valuation......................... See Items 10(c) and (d)
(b) Schedule as to redemption price.............. Surrender
47. Maintenance of position in underlying securities.. The Pacific Select Fund
V. Information Concerning the Trustee or Custodian
48. Organization and regulation of trustee............ N/A
49. Fees and expenses of trustees..................... N/A
50. Trustee's lien.................................... N/A
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of trust's securities........ Pacific Life Insurance
Company; The Policy
VII. Policy of Registrant
52. (a) Provisions of trust agreement with respect
to selection or elimination of underlying
securities................................... Substitution of Investments
(b) Transactions involving elimination of
underlying securities........................ Substitution of Investments
(c) Policy regarding substitution or
elimination of underlying securities......... See Items 13(a) and 52(a)
(d) Fundamental policy not otherwise
covered...................................... N/A
53. Tax status of trust............................... Federal Income Tax Considerations
VIII. Financial and Statistical Information
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54. Trust's securities during last ten years.......... N/A
55. N/A
56. Certain information regarding periodic payment
plan certificates................................. Premiums
57. N/A
58. N/A
59. Financial statements (Instruction 1(c) of
"Instructions as to the Prospectus" of Form S-6).. Financial Statements
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PACIFIC SELECT
ESTATE PRESERVER II PROSPECTUS MAY 1, 1999
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Pacific Select Estate Preserver II is a last survivor flexible premium variable
life insurance policy issued by Pacific Life Insurance Company.
This Policy is not available in all states. This prospectus provides information that you should know before buying a
This prospectus is not an offer in any Policy. It's accompanied by a current prospectus for the Pacific Select Fund, a
state or jurisdiction where we're not Fund that provides the underlying Portfolios for the Variable Investment
legally permitted to offer the Policy. Options offered under the Policy. Please read these prospectuses carefully and
keep them for future reference.
The Policy is described in detail in this
prospectus. The Pacific Select Fund is Here's a list of all of the Investment Options available under your Policy:
described in its prospectus and in its
Statement of Additional Information VARIABLE INVESTMENT OPTIONS
(SAI). No one has the right to describe Money Market Large-Cap Value
the Policy or the Pacific Select Fund High Yield Bond Mid-Cap Value
any differently than they have been Managed Bond Equity
described in these documents. Government Securities Bond and Income
Growth Equity Index
You should be aware that the Securities Aggressive Equity Small-Cap Index
and Exchange Commission (SEC) has not Growth LT REIT
reviewed the policy for its investment Equity Income International
merit, and does not guarantee that the Multi-Strategy Emerging Markets
information in this prospectus is accurate
or complete. It's a criminal offense FIXED OPTIONS
to say otherwise. Fixed Account
Fixed LT Account (not available in all states)
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YOUR GUIDE TO THIS PROSPECTUS
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Terms Used in This Prospectus 3 Performance Information 33
- ----------------------------------------------------------- ---------------------------------------------------------------
An Overview of Pacific Select Estate Preserver II 4 The General Account 33
- ----------------------------------------------------------- General Description 34
Information about Pacific Life, the Separate Account, Death Benefit 34
and the Fund 11 Policy Charges 34
Pacific Life Insurance Company 11 Transfers to and from the Fixed Options 34
Pacific Select Exec Separate Account 11 Surrenders, Withdrawals, and Policy Loans 35
The Pacific Select Fund 12 ---------------------------------------------------------------
The Investment Adviser and Portfolio Managers 14 More about the Policy 36
- ----------------------------------------------------------- Ownership 36
The Policy 14 Beneficiary 36
Application for a Policy 14 The Contract 36
Premiums 14 Payments 36
Allocation of Net Premiums 15 Assignment 36
Dollar Cost Averaging Option 16 Errors on the Application 37
Portfolio Rebalancing 16 Incontestability 37
Transfer of Accumulated Value 17 Payment in Case of Suicide 37
Death Benefit 17 Dividends 37
Changes in Death Benefit Option 20 Policy Illustrations 37
Decrease in Face Amount 20 Payment Plan 37
Policy Values 21 Optional Insurance Benefits and Other Policies 38
Determination of Accumulated Value 21 Retirement Income Strategy Using Life Insurance 38
Policy Loans 22 Risks Regarding Retirement Income Strategy Using
Surrender 23 Life Insurance 39
Partial Withdrawals 23 Distribution of the Policy 39
Right to Examine a Policy - Free-Look Right 24 ---------------------------------------------------------------
Lapse 24 More about Pacific Life 40
Reinstatement 24 Management 40
- ----------------------------------------------------------- State Regulation 42
Charges and Deductions 25 Telephone Transfer and Loan Privileges 42
Premium Load 25 Legal Proceedings 42
Deductions from Accumulated Value 25 Legal Matters 43
Withdrawal Charge 26 Registration Statement 43
Corporate and Other Purchasers 27 Preparation for the Year 2000 43
Other Charges 27 Independent Auditors 43
Guarantee of Certain Charges 27 Financial Statements 44
Usage 27 ---------------------------------------------------------------
- ----------------------------------------------------------- Illustrations 90
Other Information 27 ---------------------------------------------------------------
Federal Income Tax Considerations 27 Appendix A 102
Charge for Our Income Taxes 30 ---------------------------------------------------------------
Voting of Fund Shares 31 Appendix B 104
Disregard of Voting Instructions 31 ---------------------------------------------------------------
Confirmation Statements and Other Reports to Owners 31 Appendix C 105
Substitution of Investments 32 ---------------------------------------------------------------
Replacement of Life Insurance or Annuities 32 Appendix D 106
Changes to Comply with Law 32 ---------------------------------------------------------------
- ----------------------------------------------------------- Where to Go for More Information Back Cover
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TERMS USED IN THIS PROSPECTUS
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Some of the terms we've used in this Accumulated Value set aside to secure
prospectus may be new to you. We've Policy loans.
identified them in this prospectus by
capitalizing the first letter of each word. Monthly Payment Date - The day each month
You'll find an explanation of what they on which the monthly deduction is due
mean below. against the Accumulated Value. The first
Monthly Payment Date is the Policy Date.
In this prospectus, Owner, you and your
mean the Policyholder or Policy Owner. Net Cash Surrender Value - The Cash
Pacific Life, we, us and our refer to Surrender Value less Policy Debt.
Pacific Life Insurance Company. The Fund
refers to Pacific Select Fund. Policy Planned Periodic Premium - The premium
means a Pacific Select Estate Preserver II determined by you as a level amount
variable life insurance policy, unless we planned to be paid at fixed intervals
state otherwise. over a specified period of time.
If you have any questions, please ask your Policy Date - The date used to determine
registered representative or call us at the Monthly Payment Date, Policy Years,
1-800-800-7681. and Policy Monthly, Quarterly, Semi-Annual,
and Annual Anniversaries. It is usually
Accumulated Value - The total value of the the date the application is accepted by
amounts in the Investment Options for the us. The term "Issue Date" is substituted
Policy as well as any amount set aside in for Policy Date with respect to Policies
the Loan Account, including any accrued issued to residents of the Commonwealth
earned interest, as of any Valuation Date. of Massachusetts.
Age - The Insured's age as of his or her Policy Debt - The unpaid Policy loan
nearest birthday as of the Policy Date, balance including accrued loan interest.
increased by the number of complete Policy
Years elapsed. Policyholder, Policy Owner, Owner, You, or
Your - The person or persons who own the
Beneficiary - The person or persons you Policy. If your Policy has been absolutely
name in the application or by proper later assigned, the assignee becomes the Owner. A
designation to receive the death benefit collateral assignee is not the Owner.
proceeds upon the death of the last
surviving Insured. Separate Account - The Pacific Select Exec
Separate Account, a separate account of ours
Cash Surrender Value - The Accumulated registered as a unit investment trust under
Value of your Policy. the Investment Company Act of 1940.
Face Amount - The amount shown as the Face Survivor - The Insured remaining alive after
Amount on the Specification page of your the first death of the two Insureds that
Policy, including any decreases. The Face occurs while your Policy is in force.
Amount is generally the minimum death
benefit while your Policy remains in force. Valuation Date - Each date on which the
Separate Account is valued, which currently
Fixed Account - An account that is part of includes each day that the New York Stock
our General Account. All or a portion of Exchange is open for trading and on which
premium payments may be allocated to the our client services offices are open. The
Fixed Account for accumulation at a fixed New York Stock Exchange is closed on
rate of interest (which may not be less weekends and on: New Year's Day, Martin
than 4.0%) declared periodically by us. Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, July Fourth, Labor Day,
Fixed LT Account - An account that is part Thanksgiving Day, and Christmas Day. Our
of our General Account. All or a portion client services offices are normally closed
of premium payments may be allocated to on the following: the Monday before
the Fixed LT Account for accumulation at a New Year's Day, July Fourth, or Christmas
fixed rate of interest (which may not be Day if any of those holidays falls on a
less than 4.0%) declared periodically by us. Tuesday; the Tuesday before Christmas Day if
that holiday falls on a Wednesday; the Friday
General Account - All of our assets other after New Year's Day, July Fourth or
than those allocated to the Separate Account Christmas Day if any of these holidays falls
or to any of our other segregated separate on a Thursday; the Friday after Thanksgiving.
accounts. If any transaction or event called for under
a Policy is scheduled to occur on a day that
Guideline Minimum Death Benefit - The is not a Valuation Date, such transaction or
minimum death benefit that is sufficient for event will be deemed to occur on the next
the Policy to qualify as life insurance under following Valuation Date unless otherwise
the Internal Revenue Code. It is equal to specified.
your Policy's Accumulated Value times the
applicable Death Benefit Percentage shown in Valuation Period - The period that starts at
Appendix C. the close of a Valuation Date and ends at the
close of the next succeeding Valuation Date.
Home Office - The Client Services Department
at our main office. The address is shown on Variable Account - A separate account of ours
the back cover. or a subaccount of such a separate account,
which is used only to support the variable
Insured - One of two persons upon whose life death benefits and policy values of variable
your Policy is issued and whose death may be life insurance policies, and the assets of
the contingency upon which the death benefit which are segregated from our General Account
proceeds are payable. and our other separate accounts. The Pacific
Select Exec Separate Account serves as the
Investment Option - A Fixed Option or one of funding vehicle for the Policies. The Money
the Variable Accounts. Market Variable Account, High-Yield Bond
Variable Account, Managed Bond Variable
Joint Equal Age - An age determined under Account, Government Securities Variable
a calculation shown in Appendix A that Account, Growth Variable Account, Aggressive
represents a blending of the age and Equity Variable Account, Growth LT Variable
insurance risks presented by two Insureds. Account, Equity Income Variable Account,
It is used in calculating the mortality and Multi-Strategy Variable Account, Large-Cap
expense risk charge, and the death Value Variable Account, Mid-Cap Value
benefit under Option D. For example, Variable Account, Equity Variable Account,
the Joint Equal Age for a male Insured Age 55 Bond and Income Variable Account, Equity
and a female Insured Age 55 is 53 assuming a Index Variable Account, Small-Cap Index
standard nonsmoker or smoker underwriting Variable Account, REIT Variable Account,
classification for each Insured. International Variable Account, and Emerging
Markets Variable Account are all subaccounts
Loan Account - An account that holds of the Separate Account.
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AN OVERVIEW OF PACIFIC SELECT ESTATE PRESERVER II
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This overview tells you some key things you should know about your Policy. It's
designed as a summary only - please read the entire prospectus and your Policy
for more detailed information.
Some states have different rules about how life insurance policies are described
or administered. The terms of your Policy, or of any endorsement or rider,
prevail over what's in this prospectus.
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Pacific Select Pacific Select Estate Preserver II is a last survivor flexible premium variable
Estate Preserver II Basics life insurance policy.
Last survivor life insurance may be . Last survivor means the Policy insures the lives of two people and provides a
appropriate for two spouses who want death benefit that's payable after both people have died.
to provide a death benefit for their
children. . Flexible premium means you can vary the amount and frequency of your premium
payments.
This may not be the right kind of Policy
for someone who wants to provide a death . Variable means the Policy's value depends on the performance of the Investment
benefit for his or her spouse. In that Options you choose.
case, a policy that insures a single life
may be more appropriate. . Life insurance means the policy provides a death benefit to the Beneficiary
you choose.
Please discuss your insurance needs and
financial objectives with your registered In addition to providing a death benefit that is generally free of federal
representative. income tax, any growth in your Policy's Accumulated Value is tax-deferred. You
can choose from 18 Variable Investment Options, each of which invests in a
You'll find more about the basics of corresponding Portfolio of the Pacific Select Fund, and from two Fixed Options,
Pacific Select Estate Preserver II both of which provide a guaranteed minimum rate of interest.
starting on page 14.
Pacific Select Estate Preserver II is designed for long-term financial
planning. Please take some time to read the information in this prospectus
before you decide if this Policy meets your insurance needs and financial
objectives.
Your Right to Cancel
During the Free-Look Period, you have the right to cancel your Policy and
return it to us or your registered representative for a refund. The amount of
your refund may be more or less than the premium payments you've made,
depending on the state where you signed your application. If you signed your
application in a state that requires us to refund premium payments, we'll hold
the net premiums in the Money Market Investment Option until the Free-Look
Transfer Date.
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The Death Benefit You can choose one of four death benefit options depending on what is more
important to you: a larger death benefit or building the Accumulated Value of
Your Policy provides a death benefit for your policy.
your Beneficiary after both of the people
insured by the Policy have died, as long You can change your death benefit option and reduce your Policy's Face Amount
as your Policy is in force. (with certain restrictions) while your Policy is in force.
Your Policy will be in force until one of We'll pay death benefit proceeds to your Beneficiary when we receive proof of
the following happens: death of both people insured by the Policy, along with payment instructions.
. both people insured by the Policy die
. the Grace Period expires and your Policy Optional Riders
lapses, or There are six optional riders that provide extra benefits, some at additional
. you surrender you Policy. cost. Not all riders are available in every state, and some riders may only be
added when you apply for your Policy.
You'll find more about the death benefit
starting on page 17. --------------------------------------------------------------------------------
Your first premium must be equal to at least 25% of the sum of your premium
load and your Policy's monthly charges for the first year. Your Planned
Periodic Premium must be for at least $50.
How Premiums Work Deductions from Your Premiums
We deduct a premium load from each premium payment you make. The premium load
Your Policy gives you the flexibility to is made up of a sales load, a state and local tax charge, and a federal tax
choose the amount and frequency of your charge.
premium payments, within certain limits.
Limits on the Premium Payments You Can Make
You'll find more about how premiums work Federal tax law puts limits on the premium payments you can make in relation to
starting on page 14. your policy's death benefit. We may refuse all or part of a premium payment you
make, or remove all or part of a premium from your policy and return it to you
under certain circumstances.
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Your Policy's Accumulated Value Accumulated Value is the value of your Policy on any Valuation Date. It is not
guaranteed - it depends on the performance of the Investment Options you've
Accumulated Value is used as the basis for chosen, the premium payments you've made, Policy charges, and how much you've
determining Policy benefits and charges. borrowed or withdrawn from the Policy.
If there is not enough Accumulated Value to
cover Policy charges, your Policy could lapse. Monthly Deductions
We deduct a monthly charge from your Policy's Accumulated Value on each Monthly
You'll find more about Accumulated Value Payment Date. The charge is made up of cost of insurance, an administrative
starting on page 21. charge, and a mortality and expense risk charge. If you add any riders, we'll
add any charges for them to your monthly charge.
You'll find more about the monthly charge
on page 25. Lapsing and Reinstatement
If there is not enough Accumulated Value to cover the monthly charge on the day
You'll find more about lapsing and we make the deduction, your Policy may lapse - which means you'll no longer
reinstatement starting on page 24. have any insurance coverage. If your Policy is in danger of lapsing, we'll give
you a Grace Period of 61 days to pay the required premium.
If your Policy lapses at the end of the Grace Period, you have five years from
the end of the Grace Period to apply for a reinstatement.
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AN OVERVIEW OF PACIFIC SELECT ESTATE PRESERVER II
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Your Investment Options You can choose from 18 Variable Investment Options, each of which invests in a
corresponding Portfolio of the Pacific Select Fund. We're the Investment
The Investment Options you choose will Adviser for the Pacific Select Fund. We oversee the management of all the
affect your Policy's Accumulated Value, Fund's Portfolios and manage two of the Portfolios directly. We've retained
and may affect the death benefit. other portfolio managers to manage the other Portfolios. The value of each
Portfolio will fluctuate with the value of the investments it holds, and
Please review the Investment Options returns are not guaranteed.
carefully and ask your registered
representative to help you choose the You can also choose from two Fixed Options, the Fixed Account and the Fixed LT
right ones for your goals and risk Account, both of which provide a guaranteed minimum annual interest rate of 4%.
tolerance. We may offer a higher interest rate. If we do, we'll guarantee that rate for
one year.
The Fixed LT Account will be available
June 1, 1999, but may not be available We allocate your premium payments and Accumulated Value to the Investment
in every state. Please contact your Options you choose. Your Policy's Accumulated Value will fluctuate depending on
registered representative or us to find out the Investment Options you've chosen. You bear the investment risk of any
if the Fixed LT Account is available in the Variable Investment Options you choose.
state where you signed your application.
In some states we'll hold your premium payments in the Money Market Investment
You'll find more about the Variable Option until the Free-Look Transfer Date. Please turn to Right to cancel--Free-
Investment Options on page 13 and the Fixed Look Right for more details.
Options on page 33.
Transferring Among Investment Options
You'll find out more about transfers on You can transfer among the Investment Options during the life of your Policy
page 17. without paying any current tax. There is currently no charge for transfers.
You can make as many transfers as you like between Variable Investment Options.
You can also make automatic transfers from one Variable Investment Option to
another using our dollar cost averaging or portfolio rebalancing program. These
programs are not available for the Fixed Options.
You can only make one transfer from each Fixed Option in any 12-month period.
For the Fixed Account, each transfer may be no more than $5,000 or 25% of the
Accumulated Value in the Fixed Account, whichever is greater. For the Fixed LT
Account, each transfer may be no more than $5,000 or 10% of the Accumulated
Value in the Fixed LT Account. You can only transfer to the Fixed Options in
the Policy Month right before each Policy Anniversary.
You can also make automatic transfers from the Fixed Account to other
Investment Options during the first Policy Year using our first year transfer
program.
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Withdrawals, Surrenders and Loans You can take out all or part of your Policy's Accumulated Value while your
Policy is in force by making withdrawals or surrendering your Policy. You can
Making a withdrawal, taking out a loan or take out a loan from us using your Policy as security. You can also use your
surrendering your Policy can change your Policy's loan and withdrawal features to supplement your income, for example,
Policy's tax status, generate taxable during retirement.
income, or make your Policy more
susceptible to lapsing. Be sure to plan Making Withdrawals
carefully before using these Policy You can withdraw part of your Policy's Net Cash Surrender Value starting on
benefits. your first Policy Anniversary. This reduces your Policy's Accumulated Value and
could affect the Face Amount and death benefit, depending on the death benefit
You'll find more about making withdrawals, option you've chosen.
on page 23.
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You'll find more about taking out loans Taking Out a Loan
on page 22. You can take out a loan from us using your Policy's Accumulated Value as
security. You pay interest on the amount you borrow at an annual rate of 4.5%
during the first 10 Policy Years and 4.25% thereafter. The Accumulated Value
used to secure your loan is set aside in a Loan Account, where it earns
interest at an annual rate of 4%.
The amount in the Loan Account is not available to help pay for any Policy
charges. Taking out a loan affects the Accumulated Value of your Policy because
the amount set aside in the Loan Account misses out on the potential earnings
available through the Investment Options.
You'll find out more about surrendering Surrendering Your Policy
your Policy on page 23. You can surrender or cash in your Policy for its Net Cash Surrender Value while
either of the two people insured by the Policy is still living.
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Variable Life Insurance and Your Taxes Your Beneficiary generally will not have to pay federal income tax on death
benefit proceeds. You'll also generally not be taxed on any or all of your
There are tax issues to consider when you Policy's Accumulated Value unless you receive a cash distribution by making a
own a life insurance policy. These are withdrawal or surrendering your Policy.
described in detail starting on page 27.
If your Policy is a modified endowment contract, all distributions you receive
during the life of the Policy may be subject to tax and a 10% penalty.
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About Pacific Life Pacific Life is a life insurance company based in California. We issue the
Policies. Pacific Mutual Distributors, Inc., our subsidiary, is the distributor
When you buy a life insurance policy, of the Policies.
you're relying on the insurance company
that issues it to be able to meet its How Our Accounts Work
financial obligations to you. We put your premium payments in our General and Separate Accounts. We own the
assets in our Accounts and make the allocations to the Investment Options
You'll find more about Pacific Life, and you've chosen.
our strength as a company, starting on
page 11. Amounts allocated to the Fixed Options are held in our General Account. Our
General Account includes all of our assets, except for those held in our
separate accounts. Our ability to meet our obligations under the Policy is
backed by our strength as an insurance company.
Amounts allocated to the Variable Investment Options are held in our Separate
Account. The assets in this Account are kept separate from the assets in our
General Account and our other separate accounts, and are protected from our
general creditors.
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Processing Payments, Forms and Requests Effective Date
The effective date of payments, forms and requests you send us is usually
To request payment of death benefit determined by the day and time we receive the item in proper form at the
proceeds, send us proof of death of both mailing address that appears on the back cover of this prospectus.
people insured by the Policy and payment
instructions. Planned Periodic Premium payments, loan requests, transfer requests, loan
payments or withdrawal requests that we receive in proper form before 4:00 p.m.
Eastern time on a Valuation Date will normally be effective as of the end of
that day, unless the transaction is scheduled to occur of the end of the next
Valuation Date or on another Valuation Date. If we receive your payment or
request on or after 4:00 p.m. Eastern time on a Valuation Date, your payment or
request will be effective as of the end of the next Valuation Date. If a
transaction is scheduled to occur on a day that is not a Valuation Date, we'll
process it as of the end of the next Valuation Date.
Call us or contact your registered Proper Form
representative if you have any We'll process your requests once we receive all letters, forms or other
questions about the proper form required necessary documents, completed to our satisfaction. Proper form may require,
for a request. among other things, a signature guarantee or some other proof of authenticity.
We do not generally require a signature guarantee unless it appears that your
signature has changed, if it appears the signature is not yours, if we have not
received a properly completed application or confirmation of an application, or
for other reasons to protect you and us.
7
</TABLE>
<PAGE>
AN OVERVIEW OF PACIFIC ESTATE PRESERVER II
<TABLE>
<S> <C>
This section of the overview explains the fees and expenses associated with
your Pacific Select Estate Preserver II Policy.
------------------------------------------------------------------------------
Understanding Policy Expenses Your Premium
and Cash Flow You make a
premium
The chart to the right illustrates payment We deduct a
how cash normally flows through a Pacific premium load
Select Estate Preserver II Policy.
Net Premium
The dark shaded boxes show the fees and We allocate the
expenses you pay directly or indirectly net premium to
under your Policy. These are explained the investment
in the pages that follow. Options you choose
In some states we'll hold your net premium Fixed Options Variable Pacific Select Fund The Fund
payments in the Money Market Investment We hold amounts Investment Options The Variable Invest- deducts
Option until the Free-Look Transfer Date. you allocate to We hold amounts ment Options invest advisory
Please turn to Your Right to Examine a these Options in you allocate to in the Fund's fees and
Policy - Free-Look Right for details. our General Account these Options in Portfolios other Fund
our Separate Account expenses
from the
Portfolios
We deduct
. cost of
insurance
. admini-
strative
charge
We make monthly deductions . mortality
and
expense
risk charge
. rider
charges
Loan Account Accumulated Value We deduct a
Accumulated The total value of If you make a withdrawal withdrawal
Value set aside your Policy charge
to secure a
Policy Loan There is no
If you surrender your surrender
Policy charge
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
Deductions from Your Premiums We deduct a premium load from each premium payment you make. The load is made
up of three charges:
The premium load is explained in more
detail on page 25. Sales Load - 6% of each premium payment during the first 10 Policy Years and
reduced to 4% after the 10th Policy Year.
State and Local Tax Charge - 2.35% of each premium payment.
Federal Tax Charge - 1.50% of each premium payment.
--------------------------------------------------------------------------------
Deductions from Your Policy's We deduct a monthly charge from your Policy's Accumulated Value in the
Accumulated Value Investment Options on each Monthly Payment Date. This charge is made up of
three charges:
The monthly charge is explained in more
detail starting on page 25. Cost of Insurance - We calculate this charge by multiplying the current cost of
insurance rate by a discounted net amount at risk at the beginning of each
An example Policy Month. When the younger of the two people insured by the policy reaches
For a Policy with: age 100, the cost of insurance charge is zero -- in other words, you no longer
. a Joint Equal Age of 50 pay any cost of insurance charge.
. a Face Amount of $100,000
. Accumulated Value of $60,000 after Administrative Charge - We deduct a charge of $16 a month during the first five
deducting any outstanding loan amount. Policy Years, and $6 a month thereafter. When the younger of the two people
insured by the policy reaches age 100, the administrative charge is zero -- in
other words, you no longer pay any administrative charge.
Mortality and Expense Risk Charge - The mortality and expense risk charge
varies depending on your Policy's Face Amount, Joint Equal Age on the Policy
The monthly charge for the Face Amount Date and Accumulated Value. It's made up of two components:
Component of the mortality and expense risk
charge is $10.20 . The Face Amount Component, which we deduct every month during the first 10
(($100,000 / 1,000) X 0.102). Policy Years at a rate that is based on the Joint Equal Age and each $1,000
of the initial Face Amount of your Policy.
The monthly charge for the Accumulated
Value Component is $15 ($60,000 X 0.025%). . The Accumulated Value Component, which we deduct every month during the
The charge in Policy Year 21 (and first 20 Policy Years at an annual rate of 0.30% (0.025% monthly) of your
thereafter) would be $5 ($60,000 Policy's Accumulated Value in the Investment Options. During Policy Years 21
X 0.008333%) if the Policy's and thereafter, we reduce the annual rate to 0.10% (0.008333% monthly) of the
Accumulated Value was $60,000. Accumulated Value.
Joint Equal Age is explained in Appendix A. Riders - If you add any riders to your Policy, we add any charges for them to
The rates for the Face Amount Component are your monthly charge.
shown in Appendix B.
9
</TABLE>
<PAGE>
AN OVERVIEW OF PACIFIC SELECT ESTATE PRESERVER II
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
Withdrawal and Surrender Charges You can withdraw part of your policy's Net Cash Surrender Value at any time
starting on your first Policy Anniversary. There is a $25 charge for each
Withdrawal charges are explained in more withdrawal you make. We deduct this charge proportionately from all of your
detail on pages 26. Investment Options.
There is no surrender charge if you If you surrender or cash in your policy, we do not deduct a surrender charge.
surrender your Policy.
--------------------------------------------------------------------------------
Fees and Expenses Paid by the The Pacific Select Fund pays advisory fees and other expenses. These are
Pacific Select Fund deducted from the assets of the Fund's Portfolios and may vary from year to
year. They are not fixed and are not part of the terms of your Policy. If you
You'll find more about the Pacific Select choose a Variable Investment Option, these fees and expenses affect you
Fund starting on page 12, and in the indirectly because they reduce Portfolio returns.
Fund's prospectus, which accompanies this
prospectus. Advisory Fee
Pacific Life is the Investment Adviser to the Fund. The Fund pays an advisory
fee to us for these services. The table below shows the advisory fee as a
annual percentage of each Portfolio's average daily net assets.
Other Expenses
The table also shows expenses the Fund paid in 1998 as an annual percentage of
each Portfolio's average daily net assets. To help limit Fund expenses, we've
agreed to waive all or part of our investment advisory fees or otherwise
reimburse each Portfolio for expenses (not including advisory fees, additional
costs associated with foreign investing and extraordinary expenses) that exceed
0.25% of its average daily net assets. We do this voluntarily, but do not
guarantee that we'll continue to do so after December 31, 2000. No
reimbursement was necessary for 1998.
--------------------------------------------------------------------------------
Portfolio Advisory fee Other expenses Total expenses
--------------------------------------------------------------------------------
Money Market/1/ 0.37% 0.06% 0.43%
High Yield Bond/1/ 0.60% 0.06% 0.66%
Managed Bond 0.60% 0.06% 0.66%
Government Securities 0.60% 0.06% 0.66%
Growth 0.65% 0.05% 0.70%
Aggressive Equity 0.80% 0.09% 0.89%
Growth LT 0.75% 0.05% 0.80%
Equity Income/1/ 0.65% 0.05% 0.70%
Multi-Strategy/1/ 0.65% 0.06% 0.71%
Large-Cap Value/2/ 0.85% 0.06% 0.91%
Mid-Cap Value/2/ 0.85% 0.06% 0.91%
Equity 0.65% 0.06% 0.71%
Bond and Income 0.60% 0.10% 0.70%
Equity Index 0.16% 0.05% 0.21%
Small-Cap Index/2/ 0.50% 0.06% 0.56%
REIT/2/ 1.10% 0.06% 1.16%
International 0.85% 0.15% 1.00%
Emerging Markets 1.10% 0.36% 1.46%
--------------------------------------------------------------------------------
/1/ Total net expenses for these Portfolios in 1998, after deduction of an offset
for custodian credits, was: 0.42% for Money Market Portfolio, 0.65% for High
Yield Bond Portfolio, 0.69% for Equity Income Portfolio, and 0.70% for Multi-
Strategy Portfolio.
/2/ Expenses are estimated. There were no actual advisory fees or other expenses
for these Portfolios in 1998 because the portfolios started on January 4, 1999.
</TABLE>
10
<PAGE>
INFORMATION ABOUT PACIFIC LIFE, THE SEPARATE ACCOUNT, AND THE FUND
Pacific Life Insurance Company
We are a life insurance company that is based in California. Along with our
subsidiaries and affiliates, our operations include life insurance, annuities,
pension and institutional products, group employee benefits, broker-dealer
operations and investment advisory services. As of the end of 1998, we had
$89.6 billion of individual life insurance in force and total admitted assets
of approximately $37.6 billion. We have been ranked according to admitted
assets as the 18th largest life insurance carrier in the nation based on
December 31, 1998 assets. The Pacific Life family of companies has total assets
and funds under management of $290 billion as of December 31, 1998. We are
authorized to conduct life insurance and annuity business in the District of
Columbia and all states except New York. Our principal office is located at 700
Newport Center Drive, Newport Beach, California 92660.
We were originally organized on January 2, 1868, under the name "Pacific
Mutual Life Insurance Company of California" and reincorporated as "Pacific
Mutual Life Insurance Company" on July 22, 1936. On September 1, 1997, we
converted from a mutual life insurance company to a stock life insurance
company ultimately controlled by a mutual holding company and were authorized
by California regulatory authorities to change our name to Pacific Life
Insurance Company.
We are a subsidiary of Pacific LifeCorp, a holding company which, in turn, is
a subsidiary of Pacific Mutual Holding Company, a mutual holding company. Under
their respective charters, Pacific Mutual Holding Company must always hold at
least 51% of the outstanding voting stock of Pacific LifeCorp, and Pacific
LifeCorp must always own 100% of the voting stock of Pacific Life. Owners of
Pacific Life's annuity contracts and life insurance policies have certain
membership interests in Pacific Mutual Holding Company, consisting principally
of the right to vote on the election of the Board of Directors of the mutual
holding company and on other matters, and certain rights upon liquidation or
dissolutions of the mutual holding company.
The principal underwriter for the Policies is Pacific Mutual Distributors,
Inc. ("PMD"), one of our subsidiaries. PMD is registered as a broker-dealer
with the Securities and Exchange Commission ("SEC").
Pacific Select Exec Separate Account
The Separate Account is a separate investment account of ours that is used
only to support the variable death benefits and policy values of variable life
insurance policies. The Separate Account supports the Policies as well as other
variable life insurance policies issued by us. The assets in the Separate
Account are kept separate from our General Account assets and our other
separate accounts.
We own the assets in the Separate Account and are required to maintain
sufficient assets in the Separate Account to meet anticipated obligations of
the insurance policies funded by the Account. The Separate Account is divided
into subaccounts called Variable Accounts. The income, gains, or losses,
realized or unrealized, of each Variable Account are credited to or charged
against the assets held in the Variable Account without regard to our other
income, gains, or losses. Assets in the Separate Account attributable to the
reserves and other liabilities under the variable life insurance policies
funded by the Separate Account are not chargeable with liabilities arising from
any other business that we conduct. However, we may transfer to our General
Account any assets which exceed anticipated obligations of the Separate
Account. All obligations arising under the Policy are our general corporate
obligations. We may accumulate in the Separate Account proceeds from various
policy charges and investment results applicable to those assets.
The Separate Account was established on May 12, 1988 under California law
under the authority of our Board of Directors. The Separate Account is
registered as a unit investment trust with the SEC. Such registration does not
involve any supervision by the SEC of the administration or investment
practices or policies of the Account.
Each Variable Account available to you invests exclusively in shares of a
designated Portfolio of the Fund. We may in the future establish additional
Variable Accounts within the Separate Account, which may invest in other
Portfolios of the Fund or in other securities.
11
<PAGE>
The Pacific Select Fund
The Fund is a diversified, open-end management investment company of the
series type, generally known as a mutual fund. The Fund is registered with the
SEC under the Investment Company Act of 1940. The Fund currently offers
eighteen separate Portfolios that fund the Variable Investments Options
available to you. Each Portfolio pursues different investment objectives and
policies. We purchase the shares of each Portfolio for the corresponding
Variable Account at net asset value, i.e., without sales load. All dividends
and capital gains distributions received from a Portfolio are automatically
reinvested in such Portfolio at net asset value, unless we, on behalf of the
Separate Account, elect otherwise. Fund shares will be redeemed by us at their
net asset value to the extent necessary to make payments under the Policies.
Shares of the Fund currently are offered only to separate accounts of ours
and our affiliates and/or subsidiaries to serve as an investment medium for
variable life insurance policies and variable annuity contracts issued or
administered by us. Shares of the Fund may also be sold in the future to
separate accounts of other insurance companies, either affiliated or not
affiliated with us. Investment in the Fund by other separate accounts in
connection with variable annuity and variable life insurance contracts may
potentially create conflicts. See "Information for investors" in the
accompanying prospectus of the Fund.
The following chart summarizes some basic data about each Portfolio of the
Fund offered to the Separate Account. There can be no assurance that any
Portfolio will achieve its objective. This chart is only a summary. You should
read the more detailed information which is contained in the accompanying
prospectus of the Fund, including information on the risks associated with the
investments and investment techniques of each of the Portfolios.
12
<PAGE>
THE FUND'S PROSPECTUS ACCOMPANIES THIS PROSPECTUS AND SHOULD BE READ
CAREFULLY BEFORE INVESTING.
<TABLE>
<CAPTION>
Primary Investments
Portfolio Objective (under normal circumstances) Portfolio Manager
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market Current income consistent Highest quality money Pacific Life
with preservation of market instruments
capital. believed to have limited
credit risk.
- ----------------------------------------------------------------------------------------------
High Yield High level of current Fixed income securities Pacific Life
Bond income. with lower and medium-
quality credit ratings and
intermediate to long terms
to maturity.
- ----------------------------------------------------------------------------------------------
Managed Bond Maximize total return Medium and high-quality Pacific Investment
consistent with prudent fixed income securities Management Company
investment management. with varying terms to
maturity.
- ----------------------------------------------------------------------------------------------
Government Maximize total return Fixed income securities Pacific Investment
Securities consistent with prudent that are issued or Management Company
investment management. guaranteed by the U.S.
government, its agencies
or government-sponsored
enterprises.
- ----------------------------------------------------------------------------------------------
Growth Growth of capital. Equity securities of Capital Guardian
smaller and medium-sized Trust Company
companies.
- ----------------------------------------------------------------------------------------------
Aggressive Capital appreciation. Equity securities of small Alliance Capital
Equity emerging-growth companies Management L.P.
and medium-sized
companies.
- ----------------------------------------------------------------------------------------------
Growth LT Long-term growth of Equity securities of a Janus Capital
capital consistent with large number of companies Corporation
the preservation of of any size.
capital.
- ----------------------------------------------------------------------------------------------
Equity Income Long-term growth of Equity securities of large J.P. Morgan
capital and income. and medium-sized dividend- Investment Management
paying U.S. companies. Inc.
- ----------------------------------------------------------------------------------------------
Multi-Strategy High total return. A mix of equity and fixed J.P. Morgan
income securities. Investment Management
Inc.
- ----------------------------------------------------------------------------------------------
Large-Cap Long-term growth of Equity securities of large Salomon Brothers
Value capital. Current income is U.S. companies. Asset Management Inc
of secondary importance.
- ----------------------------------------------------------------------------------------------
Mid-Cap Value Capital appreciation. Equity securities of Lazard Asset
medium-sized U.S. Management
companies believed to be
undervalued.
- ----------------------------------------------------------------------------------------------
Equity Capital appreciation. Equity securities of large Goldman Sachs
Current income is of U.S. growth-oriented Asset Management
secondary importance. companies.
- ----------------------------------------------------------------------------------------------
Bond and Total return and income A wide range of fixed Goldman Sachs
Income consistent with prudent income securities with Asset Management
investment management. varying terms to maturity,
with an emphasis on long-
term bonds.
- ----------------------------------------------------------------------------------------------
Equity Index Investment results that Equity securities of Bankers Trust
correspond to the total companies that are Company
return of common stocks included in the Standard &
publicly traded in the Poor's 500 Composite Stock
U.S. Price Index.
- ----------------------------------------------------------------------------------------------
Small-Cap Investment results that Equity securities of Bankers Trust
Index correspond to the total companies that are Company
return of an index of included in the Russell
small capitalization 2000 Small Stock Index.
companies.
- ----------------------------------------------------------------------------------------------
REIT Current income and long- Equity securities of real Morgan Stanley Asset
term capital appreciation. estate investment trusts. Management
- ----------------------------------------------------------------------------------------------
International Long-term capital Equity securities of Morgan Stanley Asset
appreciation. companies of any size Management
located in developed
countries outside of the
U.S.
- ----------------------------------------------------------------------------------------------
Emerging Long-term growth of Equity securities of Blairlogie Capital
Markets capital. companies that are located Management
in countries generally
regarded as "emerging
market" countries.
- ----------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
The Investment Adviser and Portfolio Managers
We serve as Investment Adviser to each Portfolio of the Fund. We are
registered with the SEC as an Investment Adviser. For sixteen of the
Portfolios, we and the Fund have engaged other firms to serve as Portfolio
Managers, which are shown in the chart above.
THE POLICY
The variable life insurance benefits provided by the Policies are funded
through the Policy Owner's Accumulated Value in the Separate Account and the
Fixed Options. The information included below describes the benefits, features,
charges, and other major provisions of the Policies.
Application for a Policy
The Policy is designed to meet the needs of individuals by insuring the lives
of two Insureds. Anyone wishing to purchase the Policy may submit an
application to us. A Policy can be issued on the life of Insureds for Ages 20
through Age 85 with evidence of insurability satisfactory to us. An Insured's
Age is calculated for most purposes as of the Insured's birthday nearest the
Policy Date. Acceptance is subject to our underwriting rules, and we reserve
the right to request additional information and to reject an application.
Each Policy is issued with a Policy Date. Your Policy Date is usually the
date the application is accepted by us, although your Policy Date will never be
the 29th, 30th, or 31st of any month. We first become obligated under your
Policy on the date your total initial premium is received or on the date your
application is accepted, whichever is later. Any monthly deductions due will be
taken on the Monthly Payment Date on or next following the date we become
obligated. Your initial premium must be received within 20 days after your
Policy is issued, although we may waive the 20 day requirement at our
discretion. If your initial premium is not received or your application is
rejected by us, your Policy will be cancelled and any partial premium received
will be refunded.
Subject to our approval, your Policy may be backdated, but your Policy Date
may not be more than six months prior to the date of your application.
Backdating can be advantageous if the Insureds' lower issue Ages results in
lower cost of insurance rates. If your Policy is backdated, the minimum initial
premium required will include sufficient premium to cover the backdating period
and will be applied as of the later of the Policy Date or the date the initial
premium is received at our Home Office. Monthly deductions will be made for the
period your Policy Date is backdated.
Insureds are assigned to underwriting (insurance risk) classes which are used
in calculating the cost of insurance charges. In assigning Insureds to
underwriting classes, we will normally use the medical or paramedical
underwriting method, which may require a medical examination of a proposed
Insured, although other forms of underwriting may be used when deemed
appropriate by us.
Premiums
The Policy is a flexible-premium policy, and it provides considerable
flexibility, subject to the limitations described below, to pay premiums at
your discretion. We usually require you to pay a minimum initial premium equal
to at least 25% of the sum of your Policy's monthly deductions plus premium
load for the first year, which will be based upon your Policy's Face Amount and
the Age, smoking status, gender (unless unisex cost of insurance rates apply,
see "Charges and Deductions: Cost of Insurance"), and underwriting classes of
the Insureds. Thereafter, subject to the limitations described below, you may
choose the amount and frequency of premium payments. The Policy, therefore,
provides the Policy Owner with the flexibility to vary premium payments to
reflect varying financial conditions.
When applying for a Policy, you will determine a Planned Periodic Premium
that provides for the payment of level premiums at fixed intervals over a
specified period of time. You will receive a premium reminder notice annually,
semi-annually, or quarterly; however, you are not required to pay Planned
Periodic Premiums.
14
<PAGE>
Premiums may be paid monthly under the Uni-check electronic funds transfer plan
where you authorize us to withdraw premiums from your checking account each
month. The minimum initial premium required must be paid before the Uni-check
plan will be accepted by us. You may elect the day each month on which premiums
are paid under the Uni-check plan, provided the day elected is between the 4th
and the 28th day of the month. If no day is elected by you, the day on which
premiums are paid will be the Monthly Anniversary.
Payment of the Planned Periodic Premium will not guarantee that your Policy
will remain in force. Instead, the continuation of your Policy depends upon
your Policy's Accumulated Value. Even if Planned Periodic Premiums are paid,
your Policy will lapse any time Net Cash Surrender Value is insufficient to pay
the current monthly deduction and a grace period expires without sufficient
payment. See "Lapse".
Any premium payment must be for at least $50.00. We also may reject or limit
any premium payment that would result in an immediate increase in the net
amount at risk under the Policy, although such a premium may be accepted with
satisfactory evidence of insurability. See "Charges and Deductions: Cost of
Insurance". A premium payment would result in an immediate increase in the net
amount at risk if the death benefit under your Policy is, or upon acceptance of
the premium would be, equal to your Guideline Minimum Death Benefit. See "Death
Benefit". If satisfactory evidence of insurability is not received, the
payment, or portion thereof, may be returned. All or a portion of a premium
payment will be rejected and returned to you if it would exceed the maximum
premium limitations prescribed by federal tax law. We also reserve the right to
make distributions from your Policy to the extent we deem it necessary to
continue to qualify your Policy as life insurance under the Internal Revenue
Code ("IRC").
The amount, frequency, and period of time over which you pay premiums might
affect whether your Policy will be classified as a modified endowment contract,
which is a type of life insurance contract subject to different tax treatment
for certain pre-death distributions than conventional life insurance contracts.
In order for your Policy to avoid being treated as a modified endowment
contract, the sum of the premiums paid less a portion of any Partial
Withdrawals may not exceed the "seven pay premium" limit as defined in the IRC.
(See "Federal Income Tax Considerations"). If we receive any premium payment
that we believe, if applied to your Policy in that Policy year, would cause
your Policy to become a modified endowment contract, the portion of the payment
that we believe would cause your Policy to become a modified endowment contract
will not be applied to your Policy but will be returned to you, unless you have
previously notified us that payments that cause your Policy to become a
modified endowment contract may be accepted by us and applied to your Policy.
However, for premium payments received by us at our Home Office within 20 days
before the upcoming Annual Anniversary of your Policy, we may apply the portion
of the premium payment that we believe would cause your Policy to become a
modified endowment contract to your Policy on the upcoming Annual Anniversary.
Certain charges will be deducted from each premium payment. See "Charges and
Deductions". The remainder of the premium, known as the net premium, will be
allocated as described below under "Allocation of Net Premiums." Additional
payments will first be treated as premium payments unless you request
otherwise.
Allocation of Net Premiums
In your application for the Policy, you select the Investment Options to
which net premium payments will be allocated. When your application is approved
and your Policy is issued, your Accumulated Value will be automatically
allocated according to your instructions contained in your application, or more
recent written instructions, if any (except for amounts allocated to the Loan
Account to secure any Policy Debt). However, if your Policy is delivered before
all of our requirements necessary for the Policy to be considered in force have
been met, the net premium will be allocated to the Money Market Account until
the requirements are received by our Home Office.
For residents of states that require a refund of premium to an Owner who
returns the Policy during the Free-Look Period, net premiums received prior to
the Free-Look Transfer Date will be allocated to the Money
15
<PAGE>
Market Variable Account (except for amounts allocated to the Loan Account to
secure any Policy loan). The Free-Look Transfer Date is 15 days after the
Policy is issued or 45 days after the application is signed, or, if longer,
when all requirements are received by the Home Office for the Policy to be
considered in force. Net premiums received on and after the Free-Look Transfer
Date will be allocated upon receipt among the Investment Options according to
your most recent instructions. Allocations to the Fixed LT Account are subject
to certain restrictions. (See "The General Account".)
You may change the allocation of net premiums by submitting a proper written
request to our Home Office. Changes in net premium allocation instructions may
be made by telephone if a properly completed Authorization for Telephone
Requests is on file at our Home Office. We reserve the right to suspend or
discontinue telephone net premium allocation instructions.
Dollar Cost Averaging Option
We currently offer an option under which you may dollar cost average your
allocations in the available Variable Accounts under your Policy by authorizing
us to make periodic allocations of Accumulated Value from any one Variable
Account to one or more of the other Variable Accounts. Dollar cost averaging is
a systematic method of investing under which securities are purchased at
regular intervals in fixed dollar amounts so that the cost of the securities
gets averaged over time and possibly over various market values. The option
will result in the allocation of Accumulated Value to one or more Variable
Accounts, and these amounts will be credited at the Accumulation Unit values as
of the end of the Valuation Dates on which the transfers are processed. Since
the value of Accumulation Units will vary, the amounts allocated to a Variable
Account will result in the crediting of a greater number of units when the
Accumulation Unit value is low and a lesser number of units when the
Accumulation Unit value is high. Dollar cost averaging does not guarantee
profits, nor does it assure that a Policy Owner will not have losses.
A Dollar Cost Averaging Request Form is available upon request. To elect the
Dollar Cost Averaging Option, the Accumulated Value in the Variable Account
from which the Dollar Cost Averaging transfers will be made must be at least
$5,000. After we have received a Dollar Cost Averaging Request in proper form
at our Home Office, we will transfer Accumulated Value in amounts you designate
from the Variable Account from which transfers are to be made to the Variable
Account or Accounts you choose. The minimum amount that may be transferred to
any one Variable Account is $50. After your initial net premium is allocated
according to your instructions, the first transfer will be effected on your
Policy's Monthly, Quarterly, Semi-Annual, or Annual Anniversary, whichever
corresponds to the period selected by you, on or next following receipt at our
Home Office of a Dollar Cost Averaging Request in proper form. Subsequent
transfers will be effected on the following Monthly, Quarterly, Semi-Annual, or
Annual Anniversary for so long as you designate until the total amount elected
has been transferred, until Accumulated Value in the Variable Account from
which transfers are made has been depleted, or until your Policy enters the
grace period. Amounts periodically transferred under this option will not be
subject to any transfer charges that may be imposed by us in the future, except
as may be required by applicable law.
We do not currently charge you for the Dollar Cost Averaging Option, and will
not charge you for transfers made under this Option, even if we decide to
charge you in the future for transfers outside the Option, except if we have to
by law.
You may instruct us at any time to terminate this option by written request
to our Home Office. We may discontinue, modify, or suspend the Dollar Cost
Averaging Option at any time.
Portfolio Rebalancing
You may direct us to automatically re-set the percentage of your Accumulated
Value allocated to each Variable Account at a predetermined level. This process
is called portfolio rebalancing. (The Fixed Options are not available for
portfolio rebalancing.) Over time, the variations in each Variable Account's
investment results will shift the percentage allocations of your Accumulated
Value. The portfolio rebalancing feature will automatically transfer your
Accumulated Value among the Variable Accounts back to the preset percentages.
16
<PAGE>
Rebalancing can be made quarterly, semi-annually or annually, measured from
your Policy Date ("frequency period"). Rebalancing may result in transferring
amounts from a Variable Account with relatively higher investment performance
to a Variable Account with relatively lower investment performance.
You may initiate portfolio rebalancing by sending our Home Office a signed,
written request in good form or a properly completed Automatic Portfolio
Rebalancing form. You must specify the frequency for rebalancing and a
beginning date. The first rebalancing will usually occur on your Monthly
Payment Date that starts the frequency period you elected and that occurs on or
follows the beginning date you elected. If you stop portfolio rebalancing, you
must wait 30 days to begin again. Portfolio rebalancing cannot be used with the
Dollar Cost Averaging Option.
We do not currently charge for the portfolio rebalancing program or for
transfers made under this program.
We may modify, terminate or suspend the portfolio rebalancing feature at any
time.
Transfer of Accumulated Value
After your initial net premium is allocated to the Investment Options you
choose and upon proper written request to our Home Office, you may transfer
Accumulated Value among the Variable Accounts. Transfers (other than transfers
in connection with the Dollar Cost Averaging Option) may be made by telephone if
a properly completed Authorization For Telephone Requests is on file at our Home
Office. Currently, there are no limitations on the number of transfers between
Variable Accounts, no minimum amount required for a transfer, nor any minimum
amount required to be remaining in a given Variable Account after a transfer
(except as required under the Dollar Cost Averaging Option). No transfer may be
made if your Policy is in the grace period and a payment required to avoid lapse
is not paid. See "Lapse". No charges are currently imposed upon such transfers.
We reserve the right, however, at a future date to limit the size of transfers
and remaining balances, to assess transfer charges, to limit the number and
frequency of transfers, and to impose other reasonable limits or suspend or
discontinue telephone transfers.
Subject to certain restrictions, Accumulated Value may also be transferred
from the Variable Accounts to the Fixed Options after your initial net premium
is allocated to the Investment Options you choose; however, such a transfer
will only be permitted in the Policy Month preceding your Policy Anniversary,
except that if you reside in Connecticut, Georgia, Maryland, North Carolina,
North Dakota, or Pennsylvania, you may make such a transfer at any time during
the first 18 Policy Months. Transfers from the Fixed Options to the Variable
Accounts are restricted as described in "The General Account".
First Year Transfer Program. The Fixed Account provides a way for you to
transfer amounts monthly from the Fixed Account to the Variable Accounts or the
Fixed LT Account. On the date your initial net premium is allocated according
to your instructions, and for up to 12 months thereafter, transfers will be
made from the Fixed Account to the other Investment Options per your
instructions. This allows you to average the Accumulation Unit values in the
Variable Accounts over time, and may permit a "smoothing" of abrupt peaks and
drops in Accumulation Unit values over the first year. See "The General
Account" for a more detailed description of the First Year Transfer Program.
Death Benefit
When your Policy is issued, we will determine the initial amount of insurance
based on the instructions provided in the application. That amount will be
shown on the specifications page of your Policy and is called the "Face
Amount". The minimum Face Amount at issuance of a Policy is $100,000. We may
reduce the minimum Face Amount required at issuance under certain
circumstances.
For so long as your Policy remains in force, we will, upon proof of the death
of both Insureds, pay death benefit proceeds to a named Beneficiary. Death
benefit proceeds will consist of the death benefit under the Policy, plus any
insurance proceeds provided by Rider, reduced by any outstanding Policy Debt
(and, if in the grace period, any overdue charges).
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Each Policy Owner may select one of four death benefit options: Option A,
Option B, Option C, or Option D. Generally, you designate the death benefit
option in your application. If no option is designated, Option A will be
assumed by us to have been selected. Subject to certain restrictions, you may
change the death benefit option selected to Option A or B.
The death benefit upon the death of the Survivor will be equal to the death
benefit option selected or, if greater, the Guideline Minimum Death Benefit,
which is Accumulated Value (determined as of the end of the Valuation Period
during which the Survivor dies) multiplied by the Death Benefit Percentage. The
Death Benefit Percentage varies according to the Age of the younger Insured and
will be at least equal to the cash value corridor in IRC Section 7702, which
addresses the definition of a life insurance policy for tax purposes. The Death
Benefit Percentage is 250% for an Insured at Age 40 or under, and it declines
for older Insureds. A table showing the Death Benefit Percentages is in
Appendix C to this prospectus and in the Policy. Under any option, for so long
as your Policy remains in force, the death benefit will always be sufficient to
qualify the Policy as life insurance under IRC Section 7702.
Option A. Under Option A, the death benefit will be equal to the Face Amount
of your Policy.
Option B. Under Option B, the death benefit will be equal to the Face Amount
of your Policy plus the Accumulated Value. The death benefit under Option B
will always vary as Accumulated Value varies.
Option C. Under Option C, the death benefit will be equal to the Face Amount
of your Policy plus the total premiums paid minus the sum of any partial
withdrawals taken and any other distribution of Accumulated Value.
Option D. Under Option D, the death benefit will be equal to the Face Amount
of the Policy multiplied by a Death Benefit Factor. Death Benefit Factors for
Joint Equal Ages and Policy years, each at 5 year intervals, are shown in
Appendix D; a complete chart is contained in your Policy. Generally, the Death
Benefit Factor is a number from 1.0 to 2.0. The factor that applies to a Policy
varies with the Joint Equal Age of the Insureds and the number of completed
Policy Years, and changes on each Policy Anniversary. Generally, the Death
Benefit Factor will reach the maximum of 2.0 when the sum of the Joint Equal
Age and the number of completed Policy Years is between 85 and 90, so that the
minimum death benefit at that time would be equal to twice the amount of the
Face Amount.
Choosing Among the Options.
Option A is intended to provide flexibility in the amount of insurance
protection provided under a Policy. Option A provides for the smallest amount
of insurance protection in that the death benefit is equal to the Face Amount
(assuming that the Guideline Minimum Death Benefit is not greater than the Face
Amount). Under this option, favorable investment performance will be reflected
in increasing Accumulated Value rather than insurance protection.
Option B provides for a greater degree of insurance protection than
experienced under Option A, in that the death benefit under Option B includes
Accumulated Value. Option B will reflect the value of growth in Accumulated
Value due to performance, assuming that the Guideline Minimum Death Benefit is
not greater than the death benefit otherwise determined. The death benefit will
never be less than the Face Amount.
Option C provides for a greater degree of insurance protection than
experienced under Option A, in that the death benefit under Option C includes
the amount of premiums paid minus withdrawals and any other distributions of
Accumulated Value. However, to the extent the sum of the withdrawals and any
other distributions is greater than the sum of the premiums paid, and assuming
that the Guideline Minimum Death Benefit is not greater than the death benefit
otherwise determined, it is possible for the death benefit to be less than the
Face Amount.
Option D is intended to provide flexibility in the amount of insurance
protection provided under a Policy. It provides some assurance that the death
benefit will increase gradually over time without regard to the investment
performance of the Investment Options.
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Examples of Death Benefit Options. The following examples demonstrate the
determination of death benefits under Options A through D. The examples show
eight hypothetical Policies, each with a Face Amount of $1,000,000 and where
the two Insureds are male and female nonsmokers, each Age 45 at the time of
issue, and assuming that there is no outstanding Policy Debt, that no
withdrawals have been taken, and the other assumptions shown below. (The
examples are intended to portray differences in death benefits; Accumulated
Value assumptions may not be realistic.)
<TABLE>
<CAPTION>
Assumptions Policy I Policy II Policy III Policy IV
- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Face Amount................... $1,000,000 $1,000,000 $1,000,000 $1,000,000
Accumulated Value on Date of
Death........................ $ 600,000 $ 900,000 $1,200,000 $1,800,000
Total Premium Paid on Date of
Death........................ $ 300,000 $ 400,000 $ 500,000 $ 700,000
Youngest Age on Date of
Death........................ 65 65 65 65
Death Benefit Percentage...... 120% 120% 120% 120%
Death Benefit Factor (Option
D)........................... 108.4% 108.4% 108.4% 108.4%
Death Benefits Options
- ----------------------
Death Benefit Under Option A.. $1,000,000 $1,080,000 $1,440,000 $2,160,000
Death Benefit Under Option B.. $1,600,000 $1,900,000 $2,200,000 $2,800,000
Death Benefit Under Option C.. $1,300,000 $1,400,000 $1,500,000 $2,160,000
Death Benefit Under Option D.. $1,084,000 $1,084,000 $1,440,000 $2,160,000
<CAPTION>
Policy
Assumptions Policy V Policy VI Policy VII VIII
- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Face Amount................... $1,000,000 $1,000,000 $1,000,000 $1,000,000
Accumulated Value on Date of
Death........................ $ 600,000 $ 900,000 $1,200,000 $1,800,000
Total Premium Paid on Date of
Death........................ $ 300,000 $ 400,000 $ 500,000 $ 700,000
Youngest Age on Date of
Death........................ 90 90 90 90
Death Benefit Percentage...... 105% 105% 105% 105%
Death Benefit Factor (Option
D)........................... 200% 200% 200% 200%
Death Benefits Options
- ----------------------
Death Benefit Under Option A.. $1,000,000 $1,000,000 $1,260,000 $1,890,000
Death Benefit Under Option B.. $1,600,000 $1,900,000 $2,200,000 $2,800,000
Death Benefit Under Option C.. $1,300,000 $1,400,000 $1,500,000 $1,890,000
Death Benefit Under Option D.. $2,000,000 $2,000,000 $2,000,000 $2,000,000
</TABLE>
The death benefit shown in these examples is based upon the Guideline Minimum
Death Benefit for the following examples: Policy II, Option A; Policy III,
Options A and D; Policy IV, Options A, C, and D; Policy VII, Option A; and
Policy VIII, Options A and C.
If the death benefit is equal to the Guideline Minimum Death Benefit, we
reserve the right to reduce the death benefit by requiring Partial Withdrawals
be made in order to maintain the net amount at risk at a level that will not
exceed three times the death benefit on the Policy Date. Such Partial
Withdrawals may be taxable to you in whole or in part. See "Federal Income Tax
Considerations." The $25 withdrawal fee will not be assessed on Partial
Withdrawals we require.
The Policy is intended to qualify as a life insurance contract under the
Internal Revenue Code for Federal tax purposes, and the death benefit under the
Policy is intended to qualify for the income tax exclusion under the Internal
Revenue Code. Unless otherwise specified by you in writing, it is intended that
the Policy will not be treated as a modified endowment contract under the
Internal Revenue Code. To these ends, the provisions of the Policy, including
any other Rider, Benefit, or endorsement, are to be interpreted to ensure such
tax qualification and to prevent the Policy from being treated as a modified
endowment contract, notwithstanding any other provisions to the contrary.
If at any time the premiums paid under your Policy exceed the amount
allowable for such tax qualification, such excess amount shall be removed from
the Policy as of the date of its payment, and any appropriate adjustment in the
death benefit shall be made as of such date. The excess amount shall be
refunded to you no
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later than 60 days after the end of the applicable Policy Year. The excess
amount removed from the Policy and refunded to you may be adjusted for interest
or for changes in Accumulated Value attributable to the excess amount. If for
some reason this excess amount is not refunded by then, the death benefit under
this Policy shall be increased retroactively and prospectively so that at no
time is the death benefit ever less than the amount needed to ensure such tax
qualification. To the extent that the death benefit as of any time is increased
by this provision, appropriate adjustments shall be made retroactively in any
cost of insurance or supplemental benefits as of that time that are consistent
with such an increase.
If at any time the premiums or other amounts paid under the Policy exceed the
limit for avoiding modified endowment contract treatment, and you have not
specified in writing that such treatment is acceptable to you, such excess
amount shall be removed from the Policy as of the date of its payment, and any
appropriate adjustment in the Policy's death benefit shall be made as of such
date. This excess amount shall be refunded to you no later than 60 days after
the end of the applicable Policy Year. The excess amount removed from the
Policy and refunded to you may be adjusted for interest or for changes in
Accumulated Value attributable to the excess amount. If this excess amount is
not refunded by then, the death benefit under your Policy shall be increased
retroactively and prospectively to the minimum amount necessary so that at no
time is the death benefit ever less than the amount needed to avoid modified
endowment contract treatment. To the extent the death benefit as of any time is
increased by this provision, appropriate adjustments shall be made,
retroactively or otherwise, in any cost of insurance or supplemental benefits
as of that time that are consistent with such an increase.
All calculations of death benefit will be made as of the end of the Valuation
Period during which the Survivor dies. We will pay interest on death benefit
proceeds from the date of the Survivor's death to the date of payment at an
annual rate of not less than 4% or if higher, the interest rate required by
state law. Death benefit proceeds may be paid to the Beneficiary in a lump sum
or under a payment plan offered under the Policy. Your Policy should be
consulted for details.
Changes in Death Benefit Option
After the fifth Policy Year, you may request that the death benefit option
under your Policy be changed to Option A or B. Changes to Option C or D will
not be available. Changes in the death benefit option may be made only once per
Policy Year and should be made in writing to our Home Office. The effective
date of any such change shall be the next Monthly Payment Date on or next
following the date we receive your written request at our Home Office.
A change in the death benefit under a Policy will result in a change in the
Face Amount of the Policy so that the death benefit under the new death benefit
option will equal the death benefit under the former option immediately prior
to the change. From that point on, the change in option will affect the
determination of the death benefit. In addition, a change in death benefit
option may affect the monthly cost of insurance charge since this charge varies
with the net amount at risk, which generally is the amount by which the death
benefit exceeds Accumulated Value. A change will not be permitted if it would
result in a Face Amount of less than $100,000, although we reserve the right to
waive this minimum under certain circumstances.
Unless otherwise specified by you in writing, any request for a death benefit
option change will not be accepted by us if the option change would cause your
Policy to be treated as a modified endowment contract.
Decrease in Face Amount
You may request a decrease in the Face Amount under your Policy subject to
approval from us. A decrease in Face Amount may only be made once per Policy
Year and only after the first Policy Year. Decreasing the Face Amount could
decrease the death benefit. The amount of change in the death benefit will
depend, among other things, upon the death benefit option chosen by you and
whether, and the degree to which, the death benefit under your Policy exceeds
the Face Amount prior to the change. Changing the Face Amount could affect the
subsequent level of the death benefit while your Policy is in force and the
subsequent level of Policy values. A decrease in Face Amount may decrease the
net amount at risk, which may decrease your cost of insurance charge.
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<PAGE>
Any request for a decrease in Face Amount must be made by written application
to our Home Office. It will become effective on the Monthly Payment Date on or
next following the date we receive your written request at our Home Office.
A decrease will not be permitted if the Face Amount would fall below
$100,000, although we reserve the right to waive the minimum Face Amount under
certain circumstances, such as for group or sponsored arrangements. If a
decrease in the Face Amount would result in total premiums paid exceeding the
premium limitations prescribed under tax law to qualify your Policy as a life
insurance contract, we may refund to you the amount of such excess above the
premium limitations.
We reserve the right to disallow a requested decrease, and will not permit a
requested decrease, among other reasons, (1) if compliance with the guideline
premium limitations under tax law resulting from the requested decrease would
result in immediate termination of your Policy, (2) if, to effect the requested
decrease, payments to you would have to be made from Accumulated Value for
compliance with the guideline premium limitations, and the amount of such
payments would exceed the Net Cash Surrender Value under your Policy, or (3) if
the decrease would cause your Policy to be treated as a modified endowment
contract and you have not specified in writing that such treatment is
acceptable to you.
Policy Values
Accumulated Value. The Accumulated Value is the sum of the amounts under the
Policy held in each Investment Option, as well as the amount set aside in our
Loan Account to secure any Policy Debt.
On each Valuation Date, the portion of your Accumulated Value allocated to
any particular Variable Account will be adjusted to reflect the investment
experience of that Variable Account. On each Monthly Payment Date, the portion
of the Accumulated Value allocated to a particular Investment Option also will
be adjusted to reflect the assessment of the monthly deduction. See
"Determination of Accumulated Value". No minimum amount of Accumulated Value is
guaranteed. You bear the risk for the investment experience of Accumulated
Value allocated to the Variable Accounts.
Cash Surrender Value. The Cash Surrender Value of your Policy equals the
Accumulated Value.
Net Cash Surrender Value. The Net Cash Surrender Value of your Policy equals
the Cash Surrender Value less any outstanding Policy Debt. You can surrender
your Policy at any time while either Insured is living and receive its Net Cash
Surrender Value. See "Surrender".
Determination of Accumulated Value
Your Accumulated Value will vary to a degree that depends upon several
factors, including investment performance of the Variable Accounts to which
Accumulated Value has been allocated, payment of premiums, the amount of any
outstanding Policy Debt, Partial Withdrawals, and the charges assessed in
connection with your Policy.
The amounts allocated to the Variable Accounts will be invested in shares of
the corresponding Portfolio of the Fund. The investment performance of the
Variable Accounts will reflect increases or decreases in the net asset value
per share of the corresponding Portfolio and any dividends or distributions
declared by a Portfolio. Any dividends or distributions from any Portfolio of
the Fund will be automatically reinvested in shares of the same Portfolio,
unless we, on behalf of the Separate Account, elect otherwise.
Assets in the Variable Accounts are divided into accumulation units, which
are a measure of value used for bookkeeping purposes. When you allocate net
premiums to a Variable Account, the Policy is credited with accumulation units.
In addition, other transactions including loans, a surrender, Partial
Withdrawals, transfers, and assessment of charges against your Policy affect
the number of accumulation units credited to your Policy. The number of units
credited or debited in connection with any such transaction is determined by
dividing the dollar amount of such transaction by the unit value of the
affected Variable Account. The unit value of each Variable Account is
determined on each Valuation Date at or about 4:00 p.m. Eastern time. The
number of units credited will not change because of subsequent changes in unit
value.
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<PAGE>
The accumulation unit value of each Variable Account's unit initially was
$10. The unit value of a Variable Account on any Valuation Date is calculated
by adjusting the unit value from the previous Valuation Date for (1) the
investment performance of the Variable Account, which is based upon the
investment performance of the corresponding Portfolio of the Fund, (2) any
dividends or distributions paid by the corresponding Portfolio, and (3) the
charges, if any, that may be assessed by us for income taxes attributable to
the operation of the Variable Account.
Policy Loans
You may borrow money from us using your Policy as the only security for the
loan by submitting a proper written request to our Home Office. We may in our
discretion permit loans to be made by telephone if a properly completed
Authorization For Telephone Requests has been filed at our Home Office. A loan
may be taken any time your Policy is in force. The minimum loan that can be
taken at any time is $500 ($200 in Connecticut, $250 in Oregon). The maximum
amount that can be borrowed at any time is the greater of (1) 100% of your
Accumulated Value in the Fixed Options plus 90% of your Accumulated Value in
the Variable Accounts or (2) 100% of the product of (a X b/c - d) where (a)
equals the Policy's Accumulated Value less 12 times the current monthly
deduction; (b) equals 1 plus the annual loan interest rate credited; (c) equals
1 plus the annual loan interest rate currently charged; and (d) equals any
existing Policy Debt.
When you take a loan, an amount equal to the loan is transferred out of your
Accumulated Value in the Investment Options into the Loan Account to secure the
loan. Unless you request otherwise, loan amounts will be deducted from the
Investment Options in the proportion that each bears to your Accumulated Value
less Policy Debt.
The Policy loan interest rate is 4.50% for years one through ten, and 4.25%
thereafter. We will credit interest monthly on amounts held in the Loan Account
to secure the loan at an annual effective rate of 4.00%.
You may repay all or part of the loan at any time while your Policy is in
force. Interest on a loan is accrued daily and is due for the prior year on
each Policy Anniversary. If interest is not paid when due, it will be added to
the amount of the loan principal and interest will begin accruing thereon from
that date. An amount equal to the loan interest charged will be transferred to
the Loan Account from the Investment Options on a proportional basis.
Unless you request otherwise, any loan repayment will be transferred into the
Investment Options in accordance with the most recent premium allocation
instructions. In addition, on each Policy Anniversary any interest earned on
the loan balance held in the Loan Account will be transferred to each of the
Investment Options in accordance with your most recent premium allocation
instructions. Any payment we receive from you while you have a loan outstanding
will be first considered a premium payment, unless you tell us in writing it is
a loan repayment.
While the amount to secure the loan is held in the Loan Account, you forgo
the investment experience of the Variable Accounts and the current interest
rates of the Fixed Options on the loaned amount. Thus a loan, whether or not
repaid, will have a permanent effect on your Policy's values and might have an
effect on the amount and duration of the death benefit. If not repaid, the
Policy Debt will be deducted from the amount of death benefit upon the death of
the Survivor, the Cash Surrender Value upon surrender, or the refund of premium
upon exercise of the Free-Look Right.
A loan may affect the length of time your Policy remains in force. Your
Policy will lapse when Net Cash Surrender Value is insufficient to cover the
monthly deduction against your Policy's Accumulated Value on any Monthly
Payment Date and the minimum payment required is not made during the grace
period. Moreover, your Policy may enter the grace period more quickly when a
loan is outstanding, because the loaned amount is not available to cover the
monthly deduction. Additional payments or repayment of a portion of Policy Debt
may be required to keep your Policy in force. See "Lapse".
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<PAGE>
A loan will not be treated as a distribution from your Policy and will not
result in taxable income to you unless your Policy is a modified endowment
contract or the Policy is surrendered or upon lapse of the Policy, in which
case a loan will be treated as a distribution that may give rise to taxable
income.
For information on the tax treatment of loans, see "Federal Income Tax
Considerations".
Surrender
You may fully surrender your Policy at any time during the life of either
Insured. The amount received in the event of a full surrender is your Policy's
Net Cash Surrender Value, which is equal to its Accumulated Value less any
outstanding Policy Debt.
You may surrender your Policy by sending a written request together with your
Policy to our Home Office. The proceeds will be determined as of the end of the
Valuation Period during which the request for a surrender is received. You may
elect to have the proceeds paid in cash or applied under a payment plan offered
under the Policy. See "Payment Plan". For information on the tax effects of a
surrender of a Policy, see "Federal Income Tax Considerations".
Partial Withdrawals
A Policy Owner may make Partial Withdrawals of Net Cash Surrender Value
starting on the first Policy Anniversary. The portion of the first Partial
Withdrawal in each of the first 15 Policy Years of up to the lesser of $10,000
or 10% of the Cash Surrender Value will not reduce the Face Amount under your
Policy. The excess of any Partial Withdrawal over this amount may cause a
reduction in Face Amount if the death benefit option is Option A or D, as
described below.
Partial Withdrawals must be for at least $500, and your Policy's Net Cash
Surrender Value after the withdrawal must be at least $500. If there is any
Policy Debt, the maximum Partial Withdrawal is limited to the excess, if any,
of your Cash Surrender Value immediately prior to the withdrawal over the
result of the Policy Debt divided by 90%. If you do not make a Partial
Withdrawal during one of the first 15 Policy Years, the amount that you could
have withdrawn without affecting Face Amount does not carry over in the
following year.
You may make a Partial Withdrawal by submitting a proper written request to
our Home Office. As of the effective date of any withdrawal, your Accumulated
Value, Cash Surrender Value, and Net Cash Surrender Value will be reduced by
the amount of the withdrawal. The amount of the withdrawal will be allocated
proportionately to your Accumulated Value in the Investment Options unless you
request otherwise. If the Survivor dies after the request for a withdrawal is
sent to us and prior to the withdrawal being effected, the amount of the
withdrawal will be deducted from the death benefit proceeds, which will be
determined without taking into account the withdrawal. A withdrawal fee of $25
will be charged for a Partial Withdrawal. (See "Charges and Deductions.")
Except as noted above, when a Partial Withdrawal is made on a Policy on which
you have selected death benefit Option A or D, the Face Amount under your
Policy is decreased by the excess, if any, of the Face Amount over the result
of the death benefit immediately prior to the Partial Withdrawal minus the
amount of the Partial Withdrawal. A Partial Withdrawal will not change the Face
Amount of your Policy if you have selected death benefit Option B or C.
However, assuming that the death benefit is not equal to the Guideline Minimum
Death Benefit, the Partial Withdrawal will reduce the death benefit by the
amount of the Partial Withdrawal. To the extent the death benefit is the
Guideline Minimum Death Benefit, a Partial Withdrawal may cause the death
benefit to decrease by an amount greater than the amount of the Partial
Withdrawal. See "Death Benefit".
Unless otherwise specified by you in writing, no Partial Withdrawal request
will be accepted by us if the Partial Withdrawal would cause your Policy to be
treated as a modified endowment contract.
For information on the tax treatment of Partial Withdrawals, see "Federal
Income Tax Considerations".
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<PAGE>
Right to Examine a Policy--Free-Look Right
You have a Free-Look Right, under which your Policy may be returned within 10
days after you receive it (15 days in Colorado; 20 days in North Dakota; and 30
days if you are a resident of California and are age 60 or older), 10 days
after we mail or deliver this notice of right of withdrawal included in this
prospectus, or within 45 days after you complete the application for insurance,
whichever is later. However, in Pennsylvania, you have a different Free-Look
Right, under which your Policy may be returned only within 10 days after you
receive it. For this purpose, your application is considered complete when you
sign it. Certain states require different Free-Look Rights if you purchase your
Policy in exchange for another policy, in which case we will notify you of your
Right. It can be mailed or delivered to us or our agent. The returned Policy
will be treated as if we never issued it, except as indicated below, and we
will refund any charges deducted from premiums received, any net premium
allocated to the Fixed Options, plus the sum of your Accumulated Value
allocated to the Variable Accounts plus any Policy Charges and Fees deducted
from your Accumulated Value in the Variable Accounts.
If you reside in a state that requires us to return premium payments to
Policy Owners who exercise the Free-Look Right, we will refund the amount of
the premium paid. If you have taken a loan during the Free-Look Period, the
Policy Debt will be deducted from the amount refunded. When the application is
approved and the Policy is issued, net premiums will be allocated according to
your instructions, unless the Policy is sold to a resident of a state that
requires a refund of premium, in which case, until the Free-Look Transfer Date,
net premiums received by us will be allocated to the Money Market Variable
Account (except for amounts allocated to the Loan Account to secure a Policy
loan). See "Allocation of Net Premiums".
Lapse
Your Policy will remain in force until the earliest of the death of the
Survivor or a full surrender of your Policy, unless before either of these
events, Accumulated Value less Policy Debt is insufficient to pay the current
monthly deduction on a Monthly Payment Date and a grace period expires without
sufficient additional premium payment or loan repayment by your Policy Owner.
If your Accumulated Value less Policy Debt is insufficient to cover the current
monthly deduction on a Monthly Payment Date, you must pay during the grace
period a minimum of three times the full monthly deduction due on the Monthly
Payment Date when the insufficiency occurred to avoid termination of your
Policy. We will not accept any payment if it would cause your total premium
payments to exceed the maximum permissible premium for your Policy's Face
Amount under the Internal Revenue Code. This is unlikely to occur unless you
have outstanding Policy Debt, in which case you could repay a sufficient
portion of the Policy Debt to avoid termination. In this instance, you may wish
to repay a portion of Policy Debt to avoid recurrence of the potential lapse.
If premium payments have not exceeded the maximum permissible premiums for your
Policy's Face Amount, you may wish to make larger or more frequent premium
payments to avoid recurrence of the potential lapse.
If your Accumulated Value less Policy Debt is insufficient to cover the
monthly deduction on a Monthly Payment Date, we will deduct the amount that is
available. We will notify you (and any assignee of record) of the payment
required to keep your Policy in force. You will then have a "grace period" of
61 days, measured from the date the notice is sent, to make the required
payment. Your Policy will remain in force through the grace period. Failure to
make the required payment within the grace period will result in termination of
coverage under your Policy, and your Policy will lapse with no value. If the
required payment is made during the grace period, any premium paid will be
allocated among the Investment Options in accordance with your current premium
allocation instructions. Any monthly deduction due will be charged to the
Investment Options on a proportionate basis. If the Survivor dies during the
grace period, the death benefit proceeds will equal the amount of the death
benefit immediately prior to the commencement of the grace period, reduced by
any unpaid monthly deductions and any Policy Debt.
Reinstatement
We will reinstate a lapsed Policy (but not a Policy which has been
surrendered for its Net Cash Surrender Value) at any time within five years
after the end of the grace period provided we receive the following: (1) a
written application from the Policy Owner; (2) evidence of insurability
satisfactory to us for each Insured; and
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<PAGE>
(3) payment of all monthly deductions that were due and unpaid during the grace
period, and payment of a premium at least sufficient to keep the Policy in
force for three months after the date of reinstatement.
When your Policy is reinstated, the Accumulated Value will be equal to your
Accumulated Value on the date of the lapse subject to the following: If your
Policy is reinstated after the first Monthly Payment Date following lapse, the
Accumulated Value will be reduced by the amount of Policy Debt on the date of
lapse and no Policy Debt will exist on the date of the reinstatement. If your
Policy is reinstated on the Monthly Payment Date next following lapse, any
Policy Debt on the date of lapse will also be reinstated. No interest on
amounts held in our Loan Account to secure Policy Debt will be paid or credited
between lapse and reinstatement. Reinstatement will be effective as of the
Monthly Payment Date on or next following the date of approval by us, and
Accumulated Value minus, if applicable, Policy Debt will be allocated among the
Investment Options in accordance with your most recent premium allocation
instructions.
CHARGES AND DEDUCTIONS
Premium Load
A premium load is deducted from each premium payment under a Policy prior to
allocation of the net premium to the Policy Owner's Accumulated Value. The
premium load consists of the following items:
Sales Load. The sales load is equal to 6% of each premium paid during the
first ten Policy Years and 4% of each premium paid thereafter.
The sales load is deducted to compensate us for the cost of distributing
the Policies. The amount derived by us from the sales load is not expected
to be sufficient to cover the sales and distribution expenses in connection
with the Policies. To the extent that sales and distribution expenses exceed
sales loads, such expenses may be recovered from other charges, including
amounts derived from the charge for mortality and expense risks and from
mortality gains.
We may reduce or waive the sales load on Policies sold to our directors or
employees or any of our affiliates or to trustees or any employees of the
Fund.
State and Local Tax Charge. A charge equal to 2.35% is assessed against
each premium to pay applicable state and local premium taxes. Premium taxes
vary from state to state, and in some instances, among municipalities. The
2.35% rate approximates the average tax rate expected to be paid on premiums
from all states. Premium taxes vary from state to state, and in some
instances, among municipalities. We reserve the right to change the premium
tax charge to reflect any changes in the law. We do not expect to profit
from this charge.
Federal Tax Charge. A charge equal to 1.50% is assessed against each
premium to pay applicable Federal Tax. We reserve the right to change the
Federal Tax charge to reflect any changes in the law.
Deductions from Accumulated Value
A charge called the monthly deduction is deducted from a Policy's Accumulated
Value in the Investment Options beginning on the Monthly Payment Date on or
next following the date we first become obligated under the Policy and on each
Monthly Payment Date thereafter. Unless you request otherwise, the monthly
deduction will be deducted from the Investment Options on a prorata basis. The
monthly deduction consists of the following items:
Cost of Insurance. This monthly charge compensates us for providing life
insurance coverage for the Insureds. The amount of the charge is equal to a
current cost of insurance rate multiplied by the net amount at risk under a
Policy at the beginning of the Policy Month. We may use any profit we derive
from this charge for any lawful purpose, including the cost of claims
processing and investigation. The net amount at risk for these purposes is
equal to the amount of death benefit payable at the beginning of the Policy
Month divided by 1.00327374 (a discount factor to account for return deemed to
be earned during the month) less the Accumulated Value at the beginning of the
Policy Month.
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Each Policy contains guaranteed cost of insurance rates that may not be
increased. The guaranteed rates are intended to reflect the insurance risk
associated with joint Insureds. They are based on certain of the
1980 Commissioners Standard Ordinary Mortality Tables (and where unisex cost of
insurance rates apply, the 1980 Commissioners Ordinary Mortality Table B), and
the Ages, gender (where permissible), and underwriting classes of the Insureds.
The guaranteed cost of insurance rates are set equal to zero starting at the
Policy Anniversary where the younger Insured reaches age 100, and will remain
zero from that point on. As of the date of this prospectus, we charge "current
rates" that are lower (i.e., less expensive) than the guaranteed rates, and we
may also charge current rates in the future. Like the guaranteed rates, the
current rates also vary with the Ages, gender (where permissible), and
underwriting classes of the Insureds. They also vary with the number of
completed Policy Years. The cost of insurance rates generally increase with the
Ages of the Insureds.
Administrative Charge. A monthly administrative charge is deducted equal to
$16 in each of the first 60 Policy Months and $6 per month thereafter. The
administrative charge is assessed to reimburse us for the expenses associated
with administration and maintenance of the Policies. The administrative charge
is guaranteed never to exceed $16 during the first 60 Policy Months and $6 per
month thereafter. We do not expect to profit from this charge.
The monthly administrative charges will be waived on the second or subsequent
Policies acquired by you on the lives of the Insureds who are the same Insureds
as on your initial Policy, and that Policy is in force. However, we deduct $200
from the initial premium to cover processing costs.
Mortality and Expense Risk Charge. A monthly charge is deducted for mortality
and expense risks assumed by us. The mortality and expense risk charge consists
of two components: a Face Amount Component and an Accumulated Value Component.
During the first ten Policy Years, the Face Amount Component will be assessed
at a rate determined with reference to the initial Face Amount of the Policy.
The rate will be equal to a Face Amount Component Factor per $1,000 of initial
Face Amount. Face Amount Component Factors are shown in Appendix B, and they
are based upon the Joint Equal Age of the Insureds at the Policy Date. For
example, for a Policy where the Joint Equal Age attributable to the Insureds is
50 on the Policy Date, and where the Face Amount is $100,000, the Face Amount
Component Factor would be 0.102, and the monthly Face Amount Component for the
first ten Policy Years would be $10.20. This component is not assessed after
the tenth Policy Year.
In addition, a monthly Accumulated Value Component is assessed at an annual
rate equal to .30% of Accumulated Value during the first twenty Policy Years
and .10% of Accumulated Value thereafter. For purposes of this component, the
Accumulated Value is based upon its value on the Monthly Payment Date after the
deduction of the cost of insurance charge and charges for any optional
insurance Riders or Benefits added.
The mortality and expense risk charge is assessed to compensate us for
assuming certain mortality and expense risks under the Policies. The mortality
risk assumed is that Insureds, as a group, may live for a shorter period of
time than estimated and, therefore, the cost of insurance charges specified in
the Policy will be insufficient to meet actual claims. The expense risk assumed
is that other expenses incurred in issuing and administering the Policies and
operating the Separate Account will be greater than the charges assessed for
such expenses. We will realize a gain from this charge to the extent it is not
needed to provide the mortality benefits and expenses under the Policies, and
will realize a loss to the extent the charge is not sufficient.
Optional Insurance Benefits Charges. The monthly deduction will include
charges for any optional insurance Riders or Benefits added to the Policy. See
"Optional Insurance Benefits".
Withdrawal Charge
A withdrawal fee of $25 will be deducted proportionately from the Accumulated
Value in the Investment Options each time a Partial Withdrawal occurs.
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Corporate and Other Purchasers
The Policy is available for individuals and for corporations and other
institutions. For corporations or other group or sponsored arrangements
purchasing one or more Policies, we may reduce the amount of charges where the
expenses associated with the sale of the Policy or Policies or the underwriting
or other administrative costs associated with the Policy or Policies are
reduced. Sales, underwriting or other administrative expenses may be reduced,
for reasons such as expected economies resulting from a corporate purchase or a
group or sponsored arrangements, from the amount of the initial premium payment
or payments, or the amount of projected premium payments.
Other Charges
We will bear the direct operating expenses of the Separate Account. Each
Variable Account available to you purchases shares of the corresponding
Portfolio of the underlying Fund. The Fund and each of its Portfolios incur
certain charges, including the investment advisory fee, and certain operating
expenses. The Fund is governed by its Board of Trustees. The Fund's expenses
are not fixed or specified under the terms of the Policy and these expenses may
vary from year to year. The advisory fees and other expenses are more fully
described in "AN OVERVIEW OF PACIFIC SELECT ESTATE PRESERVER II: Fees and
Expenses Paid by the Pacific Select Fund" and in the prospectus of the Fund.
Guarantee of Certain Charges
We guarantee that certain charges will not increase. This includes the charge
for mortality and expense risks, the administrative charge with respect to the
guaranteed rates described above, the premium load, and the guaranteed cost of
insurance rates.
Usage
We may use any profit derived from charges imposed under the Policies for any
lawful purpose including our sales and distribution expenses not covered by the
sales load.
OTHER INFORMATION
Federal Income Tax Considerations
The following discussion provides a general description of the federal income
tax considerations relating to the Policy. This discussion is based upon our
understanding of the present federal income tax laws as they are currently
interpreted by the Internal Revenue Service ("IRS"). This discussion is not
intended as tax advice. Because of the inherent complexity of such laws and the
fact that tax results will vary according to the particular circumstances of
the individual involved, tax advice may be needed by a person contemplating the
purchase of the Policy. It should, therefore, be understood that these comments
concerning federal income tax consequences are not an exhaustive discussion of
all tax questions that might arise under the Policy and that special rules
which are not discussed herein may apply in certain situations. Moreover, no
representation is made as to the likelihood of continuation of federal income
tax or estate or gift tax laws or of the current interpretations by the IRS or
the courts. Future legislation may adversely affect the tax treatment of life
insurance policies or other tax rules described in this discussion or that
relate directly or indirectly to life insurance policies. Finally, these
comments do not take into account any state or local income tax considerations
which may be involved in the purchase of the Policy.
While we believe that the Policy meets the statutory definition of life
insurance under Section 7702 of the Internal Revenue Code ("IRC") and hence
will receive federal income tax treatment consistent with that of traditional
fixed life insurance, the area of the tax law relating to the definition of
life insurance does not explicitly address all relevant issues (including, for
example, the treatment of substandard risk policies, policies with term
insurance on the Insureds, and certain tax requirements relating to joint
survivorship life insurance policies). We reserve the right to make changes to
the Policy if changes are deemed appropriate by us to attempt
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to assure qualification of the Policy as a life insurance contract. If a Policy
were determined not to qualify as life insurance, the Policy would not provide
the tax advantages normally provided by life insurance. The discussion below
summarizes the tax treatment of life insurance contracts.
The death benefit under a Policy should be excludable from the gross income
of the Beneficiary (whether the Beneficiary is a corporation, individual or
other entity) under IRC Section 101(a)(1) for purposes of the regular federal
income tax and you generally should not be deemed to be in constructive receipt
of the cash values, including increments thereof, under the Policy until a full
surrender thereof or a Partial Withdrawal. In addition, certain Policy loans
and Partial Withdrawals may be taxable in the case of Policies that are
modified endowment contracts. Prospective Policy Owners that intend to use
Policies to fund deferred compensation arrangements for their employees are
urged to consult their tax advisors with respect to the tax consequences of
such arrangements. Prospective corporate Owners should consult their tax
advisors about the treatment of life insurance in their particular
circumstances for purposes of the alternative minimum tax applicable to
corporations and the environmental tax under IRC Section 59A. Changing the
Policy Owner may also have tax consequences. Exchanging a Policy for another
involving the same Insureds generally will not result in the recognition of
gain or loss according to Section 1035(a) of the IRC. Changing the Insureds
under a Policy will, however, not be treated as a tax-free exchange under
Section 1035, but rather as a taxable exchange.
Diversification Requirements. To comply with regulations under Section 817(h)
of the IRC, each Portfolio of the Fund is required to diversify its
investments. For details on these diversification requirements, see "Taxation"
in the Fund's SAI.
The IRS has stated in published rulings that a variable contract owner will
be considered the owner of separate account assets if the contract owner
possesses incidents of ownership in those assets, such as the ability to
exercise investment control over the assets. In those circumstances, income and
gains from the separate account assets would be includable in the variable
policy owner's gross income. The Treasury Department also announced, in
connection with the issuance of regulations concerning diversification, that
those regulations "do not provide guidance concerning the circumstances in
which investor control of the investments of a segregated asset account may
cause the investor [i.e., the Policy Owner], rather than the insurance company,
to be treated as the owner of the assets in the account." This announcement
also stated that guidance would be issued by way of regulations or rulings on
the "extent to which policyholders may direct their investments to particular
subaccounts without being treated as owners of the underlying assets." As of
the date of this prospectus, no such guidance has been issued.
The ownership rights under your Policy are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that policy owners were not owners of separate account assets. For
example, you have additional flexibility in allocating premium payments and
Policy values. These differences could result in your being treated as the
owner of your Policy's pro rata portion of the assets of the Separate Account.
In addition, we do not know what standards will be set forth, if any, in the
regulations or ruling which the Treasury Department has stated it expects to
issue. We therefore reserve the right to modify the Policy, as deemed
appropriate by us, to attempt to prevent you from being considered the owner of
your Policy's pro rata share of the assets of the Separate Account. Moreover,
in the event that regulations are adopted or rulings are issued, there can be
no assurance that the Portfolios will be able to operate as currently described
in the Prospectus, or that the Fund will not have to change any Portfolio's
investment objective or investment policies.
Tax Treatment of Policies. IRC Section 7702A defines a class of life
insurance contracts referred to as modified endowment contracts. Under this
provision, the policies will be treated for tax purposes in one of two ways.
Policies that are not classified as modified endowment contracts will be taxed
as conventional life insurance contracts, as described below. Taxation of pre-
death distributions from Policies that are classified as modified endowment
contracts and that are entered into on or after June 21, 1988 is somewhat
different, as described below.
A life insurance contract becomes a "modified endowment contract" if, at any
time during the first seven contract years, the sum of actual premiums paid
exceeds the sum of the "seven-pay premium." Generally, the "seven-pay premium"
is the level annual premium, such that if paid for each of the first seven
years, will fully
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pay for all future death and endowment benefits under a life insurance
contract. For example, if the "seven-pay premiums" were $1,000, the maximum
premiums that could be paid during the first seven years to avoid "modified
endowment" treatment would be $1,000 in the first year; $2,000 through the
first two years and $3,000 through the first three years, etc. Under this test,
a Select Estate Preserver Policy II may or may not be a modified endowment
contract, depending on the amount of premiums paid during each of the Policy's
first seven contract years. Changes in the Policy, including changes in death
benefits, may require "retesting" of a Policy to determine if it is to be
classified as a modified endowment contract.
Conventional Life Insurance Policies. If a Policy is not a modified endowment
contract, upon full surrender for its Net Cash Surrender Value, the excess, if
any, of the Net Cash Surrender Value plus any outstanding Policy Debt over the
cost basis under a Policy will be treated as ordinary income for federal income
tax purposes. Such a Policy's cost basis will usually equal the premiums paid
less any premiums previously recovered in Partial Withdrawals. Under IRC
Section 7702, if a Partial Withdrawal occurring within 15 years of the Policy
Date is accompanied by a reduction in benefits under the Policy, special rules
apply to determine whether part or all of the cash received is paid out of the
income of the Policy and is taxable. Cash distributed to a Policy Owner on
Partial Withdrawals occurring more than 15 years after the Policy Date will be
taxable as ordinary income to the Policy Owner to the extent that it exceeds
the cost basis under a Policy.
We also believe that loans received under Policies that are not modified
endowment contracts will be treated as indebtedness of the Owner for federal
income tax purposes, and that no part of any loan under the Policy will
constitute income to the Owner unless the Policy is surrendered or matures or
lapses. Consult with your tax advisor on whether interest paid (or accrued by
an accrual basis taxpayer) on a loan under a Policy that is not a modified
endowment contract may be deductible. Tax law provisions may limit the
deduction of interest payable on loan proceeds that are used to purchase or
carry certain life insurance policies. Also, new tax law has been proposed in
1999 which contains a provision that could adversely affect the owners of
certain "corporate-owned life insurance policies". (As of the date of this
Prospectus, this proposal has not been introduced as a bill and may or may not
ever become law as currently drafted.) Present law provides that a portion of
the interest deductions on indebtedness is reduced if the taxpayer is a direct
or indirect beneficiary of certain life insurance, endowment, or annuity
contracts (even interest on indebtedness that is completely unrelated to the
contract). This rule does not apply under present law if the contract was
issued on 20% owners, officers or employees. The proposal would repeal the
exception other than for 20% owners for taxable years beginning after the date
of enactment. The effect of the proposal would be to increase the after-tax
cost of such policies in most cases. If you have questions regarding the
proposal, please consult your tax advisor.
Modified Endowment Contracts. Pre-death distributions from modified endowment
contracts may give rise to taxable income. Upon full surrender or maturity of
the Policy, the Policy Owner would recognize ordinary income for federal income
tax purposes equal to the amount by which the Net Cash Surrender Value plus
Policy Debt exceeds the investment in the Policy (usually the premiums paid
plus certain pre-death distributions that were taxable less any premiums
previously recovered that were excludable from gross income). Upon Partial
Withdrawals and Policy loans, the Policy Owner would recognize ordinary income
to the extent allocable to income (which includes all previously non-taxed
gains) on the Policy. The amount allocated to income is the amount by which the
Accumulated Value of the Policy exceeds investment in the Policy immediately
before the distribution. If two or more policies which are classified as
modified endowment contracts are purchased from any one insurance company,
including us, during any calendar year, all such policies will be aggregated
for purposes of determining the portion of the pre-death distributions
allocable to income on the policies and the portion allocable to investment in
the policies.
Amounts received under a modified endowment contract that are included in
gross income are subject to an additional tax equal to 10% of the amount
included in gross income, unless an exception applies. The 10% additional tax
does not apply to any amount received: (i) when the taxpayer is at least 59 1/2
years old; (ii) which is attributable to the taxpayer becoming disabled; or
(iii) which is part of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy) of the
taxpayer or the joint lives (or joint life expectancies) of the taxpayer and
his or her beneficiary.
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If a Policy was not originally a modified endowment contract but becomes one,
under Treasury Department regulations which are yet to be prescribed, pre-death
distributions received in anticipation of a failure of a Policy to meet the
seven-pay premium test are to be treated as pre-death distributions from a
modified endowment contract (and, therefore, are to be taxable as described
above) even though, at the time of the distribution(s) the Policy was not yet a
modified endowment contract. For this purpose, pursuant to the IRC, any
distribution made within two years before the Policy is classified as a
modified endowment contract shall be treated as being made in anticipation of
the Policy's failing to meet the seven-pay premium test.
It is unclear whether interest paid (or accrued by an accrual basis taxpayer)
on Policy Debt with respect to a modified endowment contract constitutes
interest for federal income tax purposes. Consult your tax advisor. Tax law
provisions may limit the deduction of interest payable on loan proceeds that
are used to purchase or carry certain life insurance policies.
Reasonableness Requirement for Charges. Another provision of the tax law
deals with allowable charges for mortality costs and other expenses that are
used in making calculations to determine whether a contract qualifies as life
insurance for federal income tax purposes. For life insurance policies entered
into on or after October 21, 1988, these calculations must be based upon
reasonable mortality charges and other charges reasonably expected to be
actually paid. The Treasury Department has issued proposed regulations and is
expected to promulgate temporary or final regulations governing reasonableness
standards for mortality charges. Under the proposed regulations, the standards
applicable to joint survivor life insurance policies are not entirely clear.
While we believe under IRS pronouncements currently in effect that the
mortality costs and other expenses used in making calculations to determine
whether the Policy qualifies as life insurance meet the current requirements,
complete assurance cannot be given that the IRS would necessarily agree. It is
possible that future regulations will contain standards that would require us
to modify the mortality charges used for the purposes of the calculations in
order to retain the qualification of the Policy as life insurance for federal
income tax purposes, and we reserve the right to make any such modifications.
Accelerated Living Benefits Rider. Amounts received under the Rider should be
generally excluded from taxable income under Section 101(g) of the tax code.
Benefits under the Rider will be taxed, however, if they are paid to someone
other than an Insured, and an Insured is a director, officer or employee of the
person receiving the benefit, or has a financial interest in a business of the
person receiving the benefit.
Split Policy Option Rider. This Rider permits a Policy to be split into two
individual policies. A Policy split could have adverse tax consequences. For
example, it is not clear whether a Policy split will be treated as a nontaxable
exchange under IRC Section 1031 through 1043. If a Policy split is not treated
as a nontaxable exchange, a split could result in the recognition of taxable
income in an amount up to any gain in the Policy at the time of the split.
Owners considering adding a Split Policy Option Rider or exercising rights
under this Rider should first consult a qualified tax adviser.
Other. Federal estate and gift and state and local estate, inheritance, and
other tax consequences of ownership or receipt of Policy proceeds depend on the
jurisdiction and the circumstances of each Owner or Beneficiary.
For complete information on federal, state, local and other tax
considerations, a qualified tax adviser should be consulted.
WE DO NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY POLICY.
Charge for Our Income Taxes
For federal income tax purposes, variable life insurance generally is treated
in a manner consistent with traditional fixed life insurance. We will review
the question of the charge to the Separate Account for our federal income taxes
periodically. A charge may be made for any federal income taxes incurred by us
that are attributable to the Separate Account or to our operations with respect
to the Policy. A charge might become necessary if our tax treatment is
ultimately determined to be other than what we currently believe it to be, if
there are changes made in the federal income tax treatment of variable life
insurance at the insurance company level, or if there is a change in our tax
status.
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Under current laws, we may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
If there is a material change in applicable state or local tax laws, we reserve
the right to charge the Account for such taxes, if any, attributable to the
Account.
Voting of Fund Shares
In accordance with our view of present applicable law, we will exercise
voting rights attributable to the shares of each Portfolio of the Fund held in
the Variable Accounts at any regular and special meetings of the shareholders
of the Fund on matters requiring shareholder voting under the Investment
Company Act of 1940 or by the Fund. We will exercise these voting rights based
on instructions received from persons having the voting interest in
corresponding Variable Accounts of the Separate Account. However, if the
Investment Company Act of 1940 or any regulations thereunder should be amended,
or if the present interpretation thereof should change, and as a result we
determine that we are permitted to vote the shares of the Fund in our own
right, we may elect to do so.
You are the person having the voting interest under a Policy. Unless
otherwise required by applicable law, the number of votes as to which you will
have the right to instruct will be determined by dividing your Accumulated
Value in a Variable Account by the net asset value per share of the
corresponding Portfolio of the Fund. Fractional votes will be counted. The
number of votes as to which a Policy Owner will have the right to instruct will
be determined as of the date coincident with the date established by the Fund
for determining shareholders eligible to vote at the meeting of the Fund. If
required by the SEC, we reserve the right to determine in a different fashion
the voting rights attributable to the shares of the Fund based upon the
instructions received from Policy Owners. Voting instructions may be cast in
person or by proxy.
If there are shares of a Portfolio held by a Variable Account for which we do
not receive timely voting instructions, we will vote those shares in the same
proportion as all other shares of that Portfolio held by that Variable Account
for which we have received timely voting instructions. If we hold shares of a
Portfolio in our General Account such shares will be voted in the same
proportion as the total votes cast for all of our separate accounts, including
this separate account. We'll vote shares of any Portfolio held by our non-
insurance affiliates in the same proportion as the total votes for all separate
accounts of ours and our insurance affiliates.
Disregard of Voting Instructions
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that voting rights be exercised
so as to cause a change in the subclassification or investment objective of a
Portfolio or to approve or disapprove an investment advisory contract. In
addition, we may disregard voting instructions of changes initiated by Policy
Owners in the investment policy or the investment adviser (or portfolio
manager) of a Portfolio, provided that our disapproval of the change is
reasonable and is based on a good faith determination that the change would be
contrary to state law or otherwise inappropriate, considering the Portfolio's
objectives and purpose, and considering the effect the change would have on us.
In the event we do disregard voting instructions, a summary of that action and
the reasons for such action will be included in the next report to Policy
Owners.
Confirmation Statements and Other Reports to Owners
A statement will be sent quarterly to you setting forth a summary of the
transactions which occurred during the Policy Quarter and indicating the death
benefit, Face Amount, Accumulated Value, Cash Surrender Value, and any Policy
Debt. In addition, the statement will indicate the allocation of Accumulated
Value among the Investment Options and any other information required by law.
Confirmations will be sent out upon premium payments and transfers, loans, loan
repayments, withdrawals, and surrenders. Confirmation of scheduled transactions
under dollar cost averaging, portfolio rebalancing and monthly deductions will
appear on your quarterly statement.
You will also be sent annual financial statements for the Separate Account
and the Fund, the latter of which will include a list of the portfolio
securities of the Fund, as required by the Investment Company Act of 1940,
and/or such other reports as may be required by federal securities laws.
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Substitution of Investments
We reserve the right, subject to compliance with the law as then in effect,
to make additions to, deletions from, or substitutions for the securities that
are held by the Separate Account or any Variable Account or that the Separate
Account or any Variable Account may purchase. If shares of any or all of the
Portfolios of the Fund should no longer be available for investment, or if, in
the judgment of our management, further investment in shares of any or all
Portfolios of the Fund should become inappropriate in view of the purposes of
the Policies, we may substitute shares of another Portfolio of the Fund or of a
different fund for shares already purchased, or to be purchased in the future
under the Policies.
Where required, we will not substitute any shares attributable to a Policy
Owner's interest in a Variable Account or the Separate Account without notice,
Policy Owner approval, or prior approval of the SEC and without following the
filing or other procedures established by applicable state insurance
regulators.
We also reserve the right to establish additional Variable Accounts which may
include additional Subaccounts of the Separate Account to serve as investment
options under the Policies which may be managed separate accounts or may invest
in a new Portfolio of the Fund, or in shares of another investment company, a
portfolio thereof, or suitable investment vehicle with a specified investment
objective. New Variable Accounts may be established when, at our sole
discretion, marketing needs or investment conditions warrant, and any new
Variable Accounts will be made available to existing Policy Owners on a basis
to be determined by us. We may also eliminate one or more Variable Accounts if,
in our sole discretion, marketing, tax, or investment conditions so warrant. We
may also terminate and liquidate any Variable Account.
In the event of any such substitution or change, we may, by appropriate
endorsement, make such changes in this and other policies as may be necessary
or appropriate to reflect such substitution or change. If deemed by us to be in
the best interests of persons having voting rights under the Policies, the
Separate Account may be operated as a management investment company under the
Investment Company Act of 1940 or any other form permitted by law, it may be
deregistered under that Act in the event such registration is no longer
required, or it may be combined with other separate accounts of ours or an
affiliate of ours. Subject to compliance with applicable law, we also may
combine one or more Variable Accounts and may establish a committee, board, or
other group to manage one or more aspects of the operation of the Separate
Account.
Replacement of Life Insurance or Annuities
The term "replacement" has a special meaning in the life insurance industry
and is described more fully below. Before you make your purchase decision,
Pacific Life wants you to understand how a replacement may impact your existing
plan of insurance.
A policy "replacement" occurs when a new policy or contract is purchased and,
in connection with the sale, an existing policy or contract is surrendered,
lapsed, forfeited, assigned to the replacing insurer, otherwise terminated, or
used in a financed purchase. A "financed purchase" occurs when the purchase of
a new life insurance policy or annuity contract involves the use of funds
obtained from the values of an existing life insurance policy or annuity
contract through withdrawal, surrender or loan.
There are circumstances in which replacing your existing life insurance
policy or annuity contract can benefit you. As a general rule, however,
replacement is not in your best interest. Accordingly, you should make a
careful comparison of the costs and benefits of your existing policy or
contract and the proposed policy or contract to determine whether replacement
is in your best interest.
Changes to Comply with Law
We reserve the right to make any change without your consent to the
provisions of the Policy to comply with, or give you the benefit of, any
federal or state statute, rule, or regulation, including but not limited to
requirements for life insurance contracts and modified endowment contracts
under the IRC, under regulations of the United States Treasury Department or
any state.
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PERFORMANCE INFORMATION
Performance information for the Variable Accounts of the Separate Account may
appear in advertisements, sales literature, or reports to Policy Owners or
prospective purchasers. Performance information in advertisements or sales
literature may be expressed in any fashion permitted under applicable law,
which may include presentation of a change in a Policy Owner's Accumulated
Value attributable to the performance of one or more Variable Accounts, or as a
change in a Policy Owner's death benefit. Performance quotations may be
expressed as a change in a Policy Owner's Accumulated Value over time or in
terms of the average annual compounded rate of return on the Policy Owner's
Accumulated Value, based upon a hypothetical Policy in which premiums have been
allocated to a particular Variable Account over certain periods of time that
will include one year or from the commencement of operation of the Variable
Account. If a Portfolio has been in existence for a longer period of time than
its corresponding Variable Account, we may also present hypothetical returns
that the Variable Account would have achieved had it invested in its
corresponding Portfolio for periods through the commencement of operation of
the Portfolio. For the period that a particular Variable Account has been in
existence, the performance will be actual performance and not hypothetical in
nature. Any such quotation may reflect the deduction of all applicable charges
to the Policy including premium load, the cost of insurance, the administrative
charge, and the mortality and expense risk charge. The varying death benefit
options will result in different expenses for the cost of insurance, and the
varying expenses will result in different Accumulated Values. Since the
Guideline Minimum Death Benefit is equal to a percentage (e.g., 250% for an
Insured Age 40) times Accumulated Value, it will vary with Accumulated Value.
The cost of insurance charge varies according to the Ages of the Insureds and
therefore the cost of insurance charge reflected in the performance for the
hypothetical Policy is based on the hypothetical Insureds and death benefit
option assumed.
Performance information for a Variable Account may be compared, in
advertisements, sales literature, and reports to Policy Owners, to: (i) other
variable life separate accounts, mutual funds, or investment products tracked
by research firms, ratings services, companies, publications, or persons who
rank separate accounts or investment products on overall performance or other
criteria; and (ii) the Consumer Price Index (measure for inflation) to assess
the real rate of return from the purchase of a Policy. Reports and promotional
literature may also contain our rating or a rating of our claim-paying ability
as determined by firms that analyze and rate insurance companies and by
nationally recognized statistical rating organizations.
Performance information for any Variable Account of the Separate Account
reflects only the performance of a hypothetical Policy whose Accumulated Value
is allocated to the Variable Account during a particular time period on which
the calculations are based. Performance information should be considered in
light of the investment objectives and policies, characteristics and quality of
the Portfolio of the Fund in which the Variable Account invests, and the market
conditions during the given period of time, and should not be considered as a
representation of what may be achieved in the future.
THE GENERAL ACCOUNT
You may allocate all or a portion of your net premium payments and transfer
Accumulated Value to the Fixed Account. A second Fixed Option, the Fixed LT
Account, will be available June 1, 1999, but may not be available in every
state. Please contact your registered representative or us to find out if the
Fixed LT Account is available in the state where you signed your application.
All amounts allocated to the Fixed Options become part of our General Account,
which consists of all assets owned by us other than those in the Separate
Account and our other separate accounts, and supports insurance and annuity
obligations. Subject to applicable law, we have sole discretion over the
investment of the assets of our General Account, and bear the associated
investment risk; you will not share in the investment experience of General
Account assets.
Because of exemptive and exclusionary provisions, interests in the Fixed
Options have not been registered under the Securities Act of 1933 and the
General Account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, the Fixed Options or any interests
therein are generally not subject to the provisions of these Acts and, as a
result, the staff of the SEC has not reviewed the
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disclosure in this prospectus relating to the Fixed Options. Disclosures
regarding the Fixed Options may, however, be subject to certain generally
applicable provisions of the federal securities laws relating to the accuracy
and completeness of statements made in the prospectus. For more details
regarding the Fixed Options, see the Policy itself.
General Description
You may elect to allocate net premium payments to the Fixed Account, the
Fixed LT Account, the Separate Account, or all three, subject to the
limitations described below. You may also transfer Accumulated Value from the
Variable Accounts to the Fixed Options, or from the Fixed Options to the
Variable Accounts, subject to the limitations described below. We guarantee
that the Accumulated Value in the Fixed Options will be credited on a daily
basis using a 365 day year at a rate not less than a minimum effective annual
rate of 4%. Such interest will be paid regardless of the actual investment
experience of the General Account. In addition, we may in our sole discretion
declare current interest in excess of the 4%, which will be guaranteed at least
until the end of the Policy Year and annually thereafter. (The portion of your
Accumulated Value that has been used to secure Policy Debt will be credited
with an interest rate equal to an effective annual rate of 4%.)
We bear the full investment risk for the Accumulated Value allocated to the
Fixed Options.
Death Benefit
The death benefit under the Policy will be determined in the same fashion for
an Owner who has Accumulated Value in the Fixed Options as for an Owner who has
Accumulated Value in the Variable Accounts. See "Death Benefit".
Policy Charges
Policy charges will be the same whether you allocate net premiums or transfer
Accumulated Value to the Fixed Options or allocate net premiums to the Variable
Accounts. These charges consist of the premium load, including the sales load,
state and local premium tax charge, and federal tax charge; the deductions from
Accumulated Value, including the charges for the cost of insurance,
administrative charge, M&E Risk Charge, the charge for any optional insurance
benefits added by rider, any death benefit change charge; and the surrender
charge. Any amounts that we pay for income taxes allocable to the Variable
Accounts will not be charged against the Fixed Options. In addition, the
operating expenses of the Variable Accounts, as well as the investment advisory
fee charged by the Fund, will not be paid directly or indirectly by you to the
extent the Accumulated Value is allocated to the Fixed Options; however, to
such extent you will not participate in the investment experience of the
Variable Accounts.
Transfers to and from the Fixed Options
Subject to the following limitations, amounts may be transferred on and after
the date your initial net premium is allocated to the Investment Options you
choose from the Variable Accounts to the Fixed Options, from the Fixed Options
to the Variable Accounts, and/or between the Fixed Options.
Transfers from the Variable Accounts to the Fixed Options may be made in the
Policy Month preceding a Policy Anniversary, except that if you reside in
Connecticut, Georgia, Maryland, North Carolina, North Dakota or Pennsylvania
you may make such a transfer at any time during the first 18 Policy Months.
Except as described below, you may not make more than one transfer from the
Fixed Options to the Variable Accounts in any 12-month period. No transfer may
be made if the Policy is in a Grace Period and the required premium has not
been paid.
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Currently there is no charge imposed upon transfers; however, we reserve the
right to assess such a charge in the future and to impose limitations on the
number of transfers, the amount of transfers, and the amount remaining in a
Fixed Option or the Variable Accounts after a transfer other than those
described below.
Transfers payable from the Fixed Options, other than as described in the
First Year Transfer Program, may be delayed for up to six months. We stop
crediting interest on any amount transferred from the Fixed Options as of the
day the transfer is effective.
The Fixed Account
Except for scheduled transfers under the Fixed Account's First Year Transfer
Program as described below, you may not make more than one transfer from the
Fixed Account to the Variable Accounts and/or the Fixed LT Account in any 12-
month period. Further, except during your First Year Transfer Program, you may
not transfer more than the greater of 25% of your Accumulated Value in the
Fixed Account or $5,000 in any year.
First Year Transfer Program. At Policy Issue, you may elect to use the First
Year Transfer Program to transfer amounts from the Fixed Account to the
Variable Accounts and/or the Fixed LT Account during the first Policy Year.
There is no charge to elect this feature. Transfers may begin on the date your
initial net premium is allocated to the Investment Options you choose, and a
fixed dollar amount will be transferred every month for up to 12 months. Each
transfer date thereafter will be the same day of the month. If the First Year
Transfer Program is elected, the greater of 25% of Accumulated Value or $5,000
limitation is waived during the first Policy Year. The last transfer may take
place in the second Policy Year, and would not be counted toward the Owner's
one transfer per year limitation described above.
If the Accumulated Value in the Fixed Account is less than the amount to be
transferred, the remaining balance is transferred, and the program is
terminated. However, if, at the end of the 12-transfer period, money remains in
the Fixed Account, this will remain invested in the Fixed Account at the then-
current interest rate and becomes subject to the one transfer per year
limitation.
The Fixed LT Account
We reserve the right to limit the amount allocated to the Fixed LT Account to
$1,000,000 during the most recent 12 months for all policies owned by you.
Allocations include net premium payments, transfers and loan repayments. Any
excess over $1,000,000 would be transferred to your other Investment Options
relative to your most recent instructions.
We may increase the $1,000,000 limit at any time at our sole discretion. You
may contact us to find out if a higher limit is in effect.
You may not make more than one transfer from the Fixed LT Account to the
Variable Accounts and/or the Fixed Account in any 12-month period. Further, you
may not transfer more than the greater of 10% of your Accumulated Value in the
Fixed LT Account or $5,000 in any year.
Surrenders, Withdrawals, and Policy Loans
You may also make withdrawals and full surrenders from the Fixed Options to
the same extent as an Owner who has invested in the Variable Accounts. See
"Surrender" and "Withdrawals". You may borrow up to the greater of (1) 100% of
your Accumulated Value in the Fixed Options and 90% of your Accumulated Value
in the Variable Accounts, less any Policy Debt, and less any surrender charges
that would have been imposed if your Policy were surrendered on the date the
loan is taken or (2) 100% of the product of (a X b/c - d) where (a) equals your
Policy's Accumulated Value less any surrender charge that would be imposed if
your Policy were surrendered on the date the loan is taken and less 12 times
the current monthly deduction; (b) equals 1 plus the annual loan interest rate
credited; (c) equals 1 plus the annual loan interest rate currently charged;
and (d) equals any existing Policy Debt. See "Policy Loans".
Surrenders and withdrawals payable from the Fixed Options and the payment of
Policy loans allocated to the Fixed Options may be delayed for up to six
months. We stop crediting interest on any amount withdrawn from the Fixed
Options as of the day the withdrawal is effective.
37
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MORE ABOUT THE POLICY
Ownership
The Policy Owner is the individual named as such in the application or in any
later change shown in our records. While the Insureds are living, the Policy
Owner alone has the right to receive all benefits and exercise all rights that
the Policy grants or we allow.
Joint Owners. If more than one person is named as Policy Owner, they are
joint Owners. Any Policy transaction requires the signature of all persons
named jointly. Unless otherwise provided, if a joint Owner dies, ownership
passes to the surviving joint Owner(s). When the last joint Owner dies,
ownership passes through that person's estate, unless otherwise provided.
Beneficiary
The Beneficiary is the individual named as such in the application or any
later change shown in our records. You may change the Beneficiary at any time
during the life of either Insured by written request on forms provided by us,
which must be received by us at our Home Office. The change will be effective
as of the date this form is signed. Contingent and/or concurrent Beneficiaries
may be designated. You may designate a permanent Beneficiary, whose rights
under your Policy cannot be changed without his or her consent. Unless
otherwise provided, if no designated Beneficiary is living upon the death of
the Survivor, you are the Beneficiary, if living; otherwise your estate is the
Beneficiary.
We will pay the death benefit proceeds to the Beneficiary. Unless otherwise
provided, in order to receive proceeds at the Survivor's death, the Beneficiary
must be living at the time of the Survivor's death.
The Contract
This Policy is a contract between the Owner and us. The entire contract
consists of the Policy, a copy of the initial application, all subsequent
applications to change the Policy, any endorsements, any Riders and Benefits,
and all additional Policy information sections (specification pages) added to
the Policy.
Payments
We ordinarily will pay death benefit proceeds, Net Cash Surrender Value on
surrender, Partial Withdrawals, and loan proceeds based on allocations made to
the Variable Accounts, and will effect a transfer between Variable Accounts or
from a Variable Account to a Fixed Option within seven days after we receive
all the information needed to process a payment or transfer or, if sooner, any
other period required by law.
However, we can postpone the calculation or payment of such a payment or
transfer of amounts based on investment performance of the Variable Accounts
if:
. The New York Stock Exchange is closed on other than customary weekend and
holiday closing or trading on the New York Stock Exchange is restricted as
determined by the SEC; or
. An emergency exists, as determined by the SEC, as a result of which
disposal of securities is not reasonably practicable or it is not
reasonably practicable to determine the value of a Variable Account's net
assets; or
. The SEC by order permits postponement for the protection of Policy Owners.
Assignment
You may assign a Policy as collateral security for a loan or other
obligation. No assignment will bind us unless the original, or a copy, is
received and recorded by our Home Office. An assignment does not change the
ownership of the Policy. However, after an assignment, the rights of any Owner
or Beneficiary will be subject to the assignment. The entire Policy, including
any attached payment option, Rider, Benefit, and endorsement, will
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be subject to the assignment. We will not be responsible for the validity of
any assignment. Unless otherwise provided, the assignee may exercise all rights
this Policy grants except (a) the right to change the Policy Owner or
Beneficiary; and (b) the right to elect a payment option. Assignment of a
Policy that is a modified endowment contract may generate taxable income. (See
"Federal Income Tax Considerations".)
Errors on the Application
If the Age or sex of either Insured has been misstated, the Face Amount shall
be adjusted as follows in order to reflect the correct Age or sex: the Face
Amount before the adjustment will be multiplied by the monthly cost of
insurance rate used in the Policy Year in which the misstatement is discovered,
based on the misstated Age or sex, and the result will be divided by the
monthly cost of insurance rate for the Policy Year in which the misstatement is
discovered, based on the correct Age and sex. For all Policy Months following
the discovery of the misstatement, Accumulated Value will be calculated using
cost of insurance charges, Rider charges and Benefit charges based on the
correct Age and sex, but Accumulated Value for all Policy Months through the
Month in which the misstatement is discovered will not be recalculated.
Mortality and expense risk charges will not be recalculated. If unisex cost of
insurance rates apply, no adjustment will be made for a misstatement of sex.
See "Charges and Deductions: Cost of Insurance".
Incontestability
We may contest the validity of your Policy if any material misstatements are
made in the application. However, your Policy will be incontestable after the
expiration of the following: the initial Face Amount cannot be contested with
respect to a given Insured after the Policy has been in force during the
Insured's lifetime for two years from the Policy Date; and reinstatement cannot
be contested after it has been in force during an Insured's lifetime for two
years from the date of reinstatement.
Payment in Case of Suicide
If either Insured dies by suicide, while sane or insane, within two years
from the Policy Date, we will limit the death benefit proceeds to the premium
payments less any withdrawal amounts, dividends paid by us in cash, and Policy
Debt.
Dividends
The current dividend scale is zero and we do not anticipate that dividends
will be paid. Any dividends that do become payable will be paid in cash.
Policy Illustrations
Upon request, we will send you an illustration of future benefits under your
Policy based on both guaranteed and current cost factor assumptions. However,
we reserve the right to charge a $25 fee for requests for illustrations in
excess of one per Policy year.
Payment Plan
Surrender or withdrawal benefits may be used to purchase a payment plan
providing monthly income for the lifetime of the Insureds, and death benefit
proceeds may be used to purchase a payment plan providing monthly income for
the lifetime of the Beneficiary. The monthly payments consisting of proceeds
plus interest will be paid in equal installments for at least ten years. The
purchase rates for the payment plan are guaranteed not to exceed those shown in
the Policy, but current rates that are lower (i.e., providing greater income)
may be established by us from time to time. This benefit is not available if
the income would be less than $100 a month. Surrender or withdrawal benefits or
death benefit proceeds may be used to purchase any other payment plan that we
make available at that time.
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Optional Insurance Benefits and Other Policies
Subject to certain requirements, you may elect to add one or more of the
following optional insurance benefits to the Policy by a Rider at the time of
application for your Policy (subject to approval of state insurance
authorities). These optional benefits are: guaranteed payment of a specified
coverage amount upon the death of the Survivor, subject to stated conditions
(Guaranteed Minimum Death Benefit Rider); provision for level or varying
coverage on the same two Insureds (Last Survivor Added Protection Benefit);
renewable level or varying term insurance on either Insured, or individually on
the Insureds (Individual Annual Renewable Term Rider); allowance to split the
Policy into individual policies for each Insured without evidence of individual
insurability (Enhanced Policy Split Option Rider); allowance to split the
Policy into individual policies for each Insured subject to evidence of
individual insurability (Policy Split Option Rider); and Policy Owner access to
a portion of the Policy's proceeds if an Insured has been diagnosed with a
terminal illness resulting in a life expectancy of six months or less (or such
other period that may be required by state insurance authorities) (Accelerated
Living Benefits Rider). The cost of any additional insurance benefits will be
deducted as part of the monthly deduction against Accumulated Value. See
"Charges and Deductions". The amounts of these benefits are fully guaranteed at
issue. Certain restrictions may apply and are described in the applicable Rider
or Benefit. Under certain circumstances, a Policy can be combined with an added
protection benefit to result in a combined coverage amount equal to the same
Face Amount that could be acquired under a single policy. Combining a Policy
and such a benefit will result in certain charges, including a Face Amount
component of the mortality and expense risk charge and possibly cost of
insurance charges, for a Policy that are lower than for the single Policy on
the same given Insureds providing the same coverage amount. We offer other
variable life insurance policies that provide insurance protection on the lives
of two insureds or on the life of a single insured, whose loads and charges may
vary. A registered representative authorized to sell the Policy can describe
these extra optional benefits and other policies further. Samples of the
provisions for the extra optional benefits are available from us upon written
request.
Retirement Income Strategy Using Life Insurance
Any Policy Owners or applicants who wish to consider using the Policy as a
funding vehicle for (non-qualified) retirement purposes may obtain additional
information from us. An Owner could pay premiums under a Policy for a number of
years, and upon retirement, could utilize a Policy's loan and partial
withdrawal features to access Accumulated Value as a source of retirement
income for a period of time. This use of a Policy does not alter an Owner's
rights or our obligations under a Policy; the Policy would remain a life
insurance contract that, so long as it remains in force, provides for a death
benefit payable when the Survivor dies.
Ledger illustrations are available upon request that portray how the Policy
can be used as a funding mechanism for (non-qualified) supplemental retirement
income for individuals. Ledger illustrations are illustrations that show the
effect on Accumulated Value, Net Cash Surrender Value, and the net death
benefit of premiums paid under a Policy and Partial Withdrawals and loans taken
for retirement income; or reflecting allocation of premiums to specified
Variable Accounts. This information will be portrayed at hypothetical rates of
return that are requested. Charts and graphs presenting the results of the
ledger illustrations or a comparison of retirement strategies will also be
furnished upon request. Any graphic presentations and retirement strategy
charts must be accompanied by a corresponding ledger illustration; ledger
illustrations must always include or be accompanied by comparable information
that is based on guaranteed cost of insurance rates and that presents a
hypothetical gross rate of return of 0%. Retirement illustrations will not be
furnished with a hypothetical gross rate of return in excess of 12%.
The hypothetical rates of return in ledger illustrations are illustrative
only and should not be interpreted as a representation of past or future
investment results. Policy values and benefits shown in the ledger
illustrations would be different if the gross annual investment rates of return
were different from the hypothetical rates portrayed, if premiums were not paid
when due, and loan interest was paid when due. Withdrawals or loans may have an
adverse effect on Policy benefits.
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Risks Regarding Retirement Income Strategy Using Life Insurance
Using the Policy as a funding vehicle for retirement income purposes presents
several risks, including the risk that if the Policy is insufficiently funded
in relation to the income stream from the Policy, the Policy can lapse
prematurely and result in significant income tax liability to the Owner in the
year in which the lapse occurs. Other risks associated with borrowing from the
Policy also apply. Loans will be automatically repaid from the gross death
benefit at the death of the Survivor, resulting in the estimated payment to the
Beneficiary of the net death benefit, which will be less than the gross death
benefit and may be less than the Face Amount. Upon surrender, the loan will be
automatically repaid, resulting in the payment to you of the Net Cash Surrender
Value. Similarly, upon lapse, the loan will be automatically repaid. The
automatic repayment of the loan upon lapse or surrender will cause the
recognition of taxable income to the extent that Net Cash Surrender Value plus
the amount of the repaid loan exceeds your basis in the Policy. Thus, under
certain circumstances, surrender or lapse of the Policy could result in tax
liability to you. In addition, to reinstate a lapsed Policy, you would be
required to make certain payments as described under "Reinstatement". Thus, you
should be careful to fashion a life insurance retirement plan so that the
Policy will not lapse prematurely under various market scenarios as a result of
withdrawals and loans taken from the Policy.
The Policy will lapse if your Net Cash Surrender Value is insufficient to
cover the current monthly deduction on any Monthly Payment Date, and a grace
period expires without your making a sufficient payment. To avoid lapse of your
Policy, it is important to fashion a payment stream that does not leave your
Policy with insufficient Accumulated Value. Determinations as to the amount to
withdraw or borrow each year warrant careful consideration. Careful
consideration should also be given to any assumptions respecting the
hypothetical rate of return, to the duration of withdrawals and loans, and to
the amount of Accumulated Value that should remain in your Policy upon its
maturity. Poor investment performance can contribute to the risk that your
Policy may lapse. In addition, the cost of insurance generally increases with
the Age of the Insured, which can further erode existing Accumulated Value and
contribute to the risk of lapse.
Further, interest on a Policy loan is due to us for any Policy Year on the
Policy Anniversary. If this interest is not paid when due, it is added to the
amount of the outstanding Policy Debt, and interest will begin accruing thereon
from that date. This can have a compounding effect, and to the extent that the
outstanding loan balance exceeds your basis in the Policy, the amounts
attributable to interest due on the loans can add to your federal (and possibly
state) income tax liability.
You should consult with your attorney and financial advisers in designing a
life insurance retirement strategy that is suitable. Further, you should
continue to monitor the Accumulated Value net of loans remaining in a Policy to
assure that the Policy is sufficiently funded to continue to support the
desired income stream and so that it will not lapse. In this regard, you should
consult your periodic statements to determine the amount of their remaining
Accumulated Value minus the outstanding loan balance. Illustrations showing the
effect of charges under the Policy upon existing Accumulated Value or the
effect of future withdrawals or loans upon the Policy's Accumulated Value and
death benefit are available from your agent. Consideration should be given
periodically to whether the Policy is sufficiently funded so that it will not
lapse prematurely.
Because of the potential risks associated with borrowing from a Policy, use
of the Policy's Accumulated Value as a source for retirement income may not be
suitable for all Policy Owners. These risks should be carefully considered
before borrowing from the Policy to provide an income stream.
Distribution of the Policy
PMD is principal underwriter (distributor) of the Policies. PMD is registered
as a broker-dealer with the SEC and is a member of the National Association of
Securities Dealers, Inc. ("NASD"). We pay PMD for acting as principal
underwriter under a Distribution Agreement. PMD is a subsidiary of ours. PMD's
principal business address is 700 Newport Center Drive, Newport Beach,
California 92660.
We and PMD have sales agreements with various broker-dealers under which the
Policy will be sold by registered representatives of the broker-dealers. The
registered representatives are required to be authorized under applicable state
regulations to sell variable life insurance. The broker-dealers are required to
be registered
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with the SEC. We pay compensation directly to broker-dealers for promotion and
sales of the Policy. The compensation payable to a broker-dealer for sales of
the Policy may vary with the Sales Agreement and is based on predefined premium
receipt levels (called "targets") and the year in which premiums are received.
The targets are equal to a specified amount that varies with the Joint Equal
Age of the Insureds for each $1000 of a Policy's initial Face Amount in
accordance with a schedule shown in Appendix B. The most common schedule of
commissions we pay is 30% of premiums paid up to the first target, 25% of the
premiums paid under targets 2-5, and on the premium in excess of the sum of
targets 1-5, 4% of premiums paid in Policy years 1-10 and 3% of premiums paid
thereafter. Broker-dealers may also receive annual renewal compensation of up
to .20% of Accumulated Value less Policy Debt. The annual renewal compensation
will be computed monthly and payable on each Policy Anniversary. In addition,
we may also pay override payments, expense allowances, bonuses, wholesaler
fees, and training allowances. Registered representatives earn commissions from
the broker-dealers with whom they are affiliated for selling our Policies.
Compensation arrangements vary among broker-dealers. In addition, registered
representatives who meet specified production levels may qualify, under sales
incentive programs adopted by us, to receive non-cash compensation such as
expense-paid trips, expense-paid educational seminars and merchandise and may
elect to receive compensation on a deferred basis.
MORE ABOUT PACIFIC LIFE
Management
Our directors and officers are listed below together with information as to
their principal occupations during the past five years and certain other
current affiliations. Unless otherwise indicated, the business address of each
director and officer is c/o Pacific Life Insurance Company, 700 Newport Center
Drive, Newport Beach, California 92660.
<TABLE>
<CAPTION>
Name and Position Principal Occupation During the Last Five Years
----------------- -----------------------------------------------
<S> <C>
Thomas C. Sutton Director, Chairman of the Board and Chief Executive Officer
Director, Chairman of of Pacific Life; Director, Chairman of the Board and Chief
the Board and Executive Officer of Pacific LifeCorp, August 1997 to
Chief Executive Officer present; Director, Chairman of the Board and Chief
Executive Officer of Pacific Mutual Holding Company, August
1997 to present; Trustee and Chairman of the Board and
Former President of Pacific Select Fund; Director and
Chairman of the Board of Pacific Life & Annuity Company
(formerly known as PM Group Life Insurance Company);
Management Board Member of PIMCO Advisors L.P., December
1997 to present; Former Equity Board Member of PIMCO
Advisors L.P.; Former Director of Pacific Corinthian Life
Insurance Company; Director of: Newhall Land & Farming; The
Irvine Company; Edison International; and similar positions
with other affiliated companies of Pacific Life.
Glenn S. Schafer Director (since November 1994) and President (since January
Director and President 1995) of Pacific Life; Executive Vice President and Chief
Financial Officer of Pacific Life, April 1991 to January
1995; Director and President of Pacific LifeCorp, August
1997 to present; Director and President of Pacific Mutual
Holding Company, August 1997 to present; President (since
February 1999) and Former Trustee (November 1998 to
February 1999) of Pacific Select Fund; Management Board
Member of PIMCO Advisors L.P., December 1997 to present;
Former Equity Board Member of PIMCO Advisors L.P.; Former
Director of Pacific Corinthian Life Insurance Company;
Director of Pacific Life & Annuity Company; and similar
positions with other affiliated companies of Pacific Life.
Khanh T. Tran Director (since August 1997), Senior Vice President and
Director, Senior Vice Chief Financial Officer of Pacific Life, June 1996 to
President and Chief present; Vice President and Treasurer of Pacific Life,
Financial Officer November 1991 to June 1996; Senior Vice President and Chief
Financial Officer of Pacific LifeCorp, August 1997 to
present; Senior Vice President and Chief Financial Officer
of Pacific Mutual Holding Company, August 1997 to present;
Chief Financial Officer and Treasurer to other affiliated
companies of Pacific Life.
</TABLE>
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<TABLE>
<CAPTION>
Name and Position Principal Occupation During the Last Five Years
----------------- -----------------------------------------------
<S> <C>
David R. Carmichael Director (since August 1997), Senior Vice President and
Director, Senior Vice General Counsel of Pacific Life; Senior Vice President and
President and General General Counsel of Pacific LifeCorp, August 1997 to
Counsel present; Senior Vice President and General Counsel of
Pacific Mutual Holding Company, August 1997 to present;
Director of: Pacific Life & Annuity Company; Association of
California Life and Health Insurance Companies and
Association of Life Insurance Counsel.
Audrey L. Milfs Director (since August 1997), Vice President and Corporate
Director, Vice President Secretary of Pacific Life; Vice President and Secretary of
and Corporate Secretary Pacific LifeCorp, August 1997 to present; Vice President
and Secretary of Pacific Mutual Holding Company, August
1997 to present; Secretary of Pacific Select Fund; similar
positions with other affiliated companies of Pacific Life.
Richard M. Ferry Director of Pacific Life; Director of Pacific LifeCorp,
Director August 1997 to present; Director of Pacific Mutual Holding
Company, August 1997 to present; Director and Chairman of
Korn/Ferry International; Director of: Avery Dennison
Corporation; Broco, Inc.; ConAm Management; Mullin
Consulting, Inc.; Northwestern Restaurants, Inc.; Dole Food
Co.; Mrs. Fields' Original Cookies Inc.; Rainier Bells,
Inc.; Mellon West Coast Advisory Board; Former Director of
First Business Bank. Address: 1800 Century Park East, Suite
900, Los Angeles, California 90067.
Donald E. Guinn Director of Pacific Life; Director of Pacific LifeCorp,
Director August 1997 to present; Director of Pacific Mutual Holding
Company, August 1997 to present; Chairman Emeritus and
Former Director of Pacific Telesis Group; Director of: The
Dial Corp.; BankAmerica Corporation; Former Director of
Bank of America NT & SA. Address: Pacific Telesis Center,
130 Kearny Street, Room 3704, San Francisco, California
94108-4818.
Ignacio E. Lozano, Jr. Director of Pacific Life; Director of Pacific LifeCorp,
Director August 1997 to present; Director of Pacific Mutual Holding
Company, August 1997 to present; Director, Chairman and
Former Editor-In-Chief of La Opinion; Former Director of:
BankAmerica Corporation; Bank of America NT&SA; Pacific
Enterprises; Director of: The Walt Disney Company; Southern
California Gas Company; Lozano Communications, Inc.; Sempra
Energy and San Diego Gas and Electric Company. Address:
411 West Fifth Street, 12th Floor, Los Angeles, California
90013.
Charles D. Miller Director of Pacific Life; Director of Pacific LifeCorp,
Director August 1997 to present; Director of Pacific Mutual Holding
Company, August 1997 to present; Director, Chairman and
Former Chief Executive Officer of Avery Dennison
Corporation; Former Director of Great Western Financial
Corporation; Advisory Board Member of: Korn/Ferry
International; Mellon Bank; Director of: Nationwide Health
Properties, Inc.; Edison International. Address: 150 North
Orange Grove Boulevard, Pasadena, California 91109.
Donn B. Miller Director of Pacific Life; Director of Pacific LifeCorp,
Director August 1997 to present; Director of Pacific Mutual Holding
Company, August 1997 to present; Director, President and
Chief Executive Officer of Pearson-Sibert Oil Co. of Texas;
Director of: The Irvine Company; Automobile Club of
Southern California; Former Director of St. John's Hospital
& Health Care Foundation. Address: 136 El Camino, Suite
216, Beverly Hills, California 90212.
Richard M. Rosenberg Director of Pacific Life (since October 1997 and previously
Director from November 1995 to August 1997); Director of Pacific
LifeCorp, August 1997 to present; Director of Pacific
Mutual Holding Company, October 1997 to present; Chairman
and Chief Executive Officer (Retired) of BankAmerica
Corporation; Director of: BankAmerica Corporation; Airborne
Express Corporation; Northrop Grumman Corporation; Potlatch
Corporation; SBC Communications; Chronicle Publishing;
Pollo Rey/Unamas; Age Wave; Former Director of K-2
Incorporated. Address: 555 California Street, 11th Floor,
Unit 3001B, San Francisco, California 94104.
James R. Ukropina Director of Pacific Life; Director of Pacific LifeCorp,
Director August 1997 to present; Director of Pacific Mutual Holding
Company, August 1997 to present; Partner with the law firm
of O'Melveny & Meyers LLP; Director of Lockheed Martin
Corporation; Trustee of Stanford University. Address: 400
South Hope Street, 16th Floor, Los Angeles, California
90071-2899.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Name and Position Principal Occupation During the Last Five Year
----------------- -----------------------------------------------
<S> <C>
Raymond L. Watson Director of Pacific Life; Director of Pacific LifeCorp,
Director August 1997 to present; Director of Pacific Mutual Holding
Company, August 1997 to present; Vice Chairman and Director
of The Irvine Company; Director of: The Walt Disney
Company; The Mitchell Energy and Development Company; The
Irvine Apartment Communities; Former Director of The Tejon
Ranch. Address: 550 Newport Center Drive, 9th Floor,
Newport Beach, California 92660.
Lynn C. Miller Executive Vice President, Individual Insurance, of Pacific
Executive Vice President Life, January 1995 to present; Senior Vice President,
Individual Insurance, of Pacific Life, 1989 to 1995;
Executive Vice President, Pacific Life & Annuity Company.
Edward R. Byrd Vice President and Controller of Pacific Life; Vice
Vice President and President and Controller of Pacific LifeCorp, August 1997
Controller to present; Vice President and Controller of Pacific Mutual
Holding Company, August 1997 to present; and similar
positions with other affiliated companies of Pacific Life.
Brian D. Klemens Vice President and Treasurer of Pacific Life, December 1998
Vice President and to present; Assistant Vice President, Accounting and
Treasurer Assistant Controller of Pacific Life, April 1994 to
December 1998.
</TABLE>
No officer or director listed above receives any compensation from the
Separate Account. No separately allocable compensation has been paid by us or
any of our affiliates to any person listed for services rendered to the
Separate Account.
State Regulation
We are subject to the laws of the state of California governing insurance
companies and to regulation by the Commissioner of Insurance of California. In
addition, we are subject to the insurance laws and regulations of the other
states and jurisdictions in which we are licensed or may become licensed to
operate. An annual statement in a prescribed form must be filed with the
Commissioner of Insurance of California and with regulatory authorities of
other states on or before March 1st in each year. This statement covers our
operations for the preceding year and our financial condition as of December
31st of that year. Our affairs are subject to review and examination at any
time by the Commissioner of Insurance or his agents, and subject to full
examination of our operations at periodic intervals.
Telephone Transfer and Loan Privileges
You may request a transfer of Accumulated Value or a Policy loan by telephone
if a properly completed Authorization for Telephone Requests ("Telephone
Authorization") has been filed at our Home Office. All or part of any telephone
conversation with respect to transfer or loan instructions may be recorded by
us. Telephone instructions received by us by 1:00 P.M. Pacific time on any
Valuation Date will be processed as of the end of that Valuation Date in
accordance with your instructions, (presuming that the Free-Look Period has
expired). We reserve the right to deny any telephone transfer or loan request.
If all telephone lines are busy (which might occur, for example, during periods
of substantial market fluctuations), you might not be able to request transfers
and loans by telephone and would have to submit written requests.
We have established procedures to confirm that instructions communicated by
telephone are genuine. Under the procedures, any person requesting a transfer
by telephone must provide certain personal identification as requested by us,
and we will send a written confirmation of all transfers requested by telephone
within 7 days of the transfer. Upon the submission of a Telephone
Authorization, you authorize us to accept and act upon telephone instructions
for transfers or loans involving your Policy, and agree that neither we, any of
our affiliates, Pacific Select Fund, nor any of our or their directors,
trustees, officers, employees or agents, will be liable for any loss, damages,
cost, or expense (including attorney's fees) arising out of any requests
effected in accordance with the Telephone Authorization and believed by us to
be genuine, provided that we have complied with our procedures. As a result of
this policy on telephonic requests, you will bear the risk of loss arising from
the telephone transfer and loan privileges.
Legal Proceedings
There are no legal proceedings pending to which the Separate Account is a
party, or which would materially affect the Separate Account.
42
<PAGE>
Legal Matters
Legal matters in connection with the issue and sale of the Policies described
in this Prospectus and our organization, our authority to issue the Policies
under California law, and the validity of the forms of the Policies under
California law have been passed on by our General Counsel.
Legal matters relating to the federal securities and federal income tax laws
have been passed upon by Dechert Price & Rhoads.
Registration Statement
A registration statement under the Securities Act of 1933 has been filed with
the SEC relating to the offering described in this prospectus. This prospectus
does not include all of the information set forth in the registration
statement, as portions have been omitted pursuant to the rules and regulations
of the SEC. The omitted information may be obtained at the SEC's principal
office in Washington, D.C., upon payment of the SEC's prescribed fees.
Preparation for the Year 2000
Pacific Life long ago recognized the challenges associated with the Year 2000
date change. This change involves the ability of computer systems to properly
recognize the Year 2000. The inability to do so could result in major failures
or miscalculations. We began prior to 1995 to assess and plan for the potential
impact of the Year 2000. More recently, Pacific Life has been executing a
company-wide plan adopted during 1998 which called for correction or
replacement of remaining non-compliant systems by December 31, 1998.
We have successfully executed this project plan to date. Virtually all affected
systems were remediated and tested in time for use during 1998 year-end
processing cycles. Although it is not possible to certify that any system will
be completely free of Year 2000 problems, we have performed extensive testing
to identify and deal with such potential problems. Additionally, most of the
company's critical systems were subject to an independent third-party review
process which used sophisticated automated tools to identify Year 2000 related
bugs. The results have been very positive and we feel the company's internal
systems are positioned well for the date change in the century.
We plan to continue to test and re-test throughout 1999 and we will respond
promptly should any problems arise at any time thereafter.
We are continuing to work on contingency plans for critical business processes.
When appropriate, alternative methods and procedures are being developed to
work around unanticipated problems.
In addition to the above, we will continue to carefully evaluate responses from
vendors and significant business partners regarding the compliance of their
critical business processes and products. Although ultimately Pacific Life
cannot be responsible for the Year 2000 compliance efforts of these outside
entities, we will take appropriate steps wherever possible to develop
contingency plans to address vendors and partners deemed non-compliant.
Expenses to make our systems Year 2000 compliant are currently estimated to
range from $12 million to $15 million, which excludes the cost of our personnel
who support Year 2000 compliance efforts. We do not anticipate any other
material future costs associated with the Year 2000 compliance projects,
although there can be no assurance.
These Year 2000 related statements are designated as "Year 2000 Readiness
Disclosure" pursuant to the Year 2000 Information Readiness Disclosure Act,
enacted October 19, 1998.
Independent Auditors
The audited consolidated financial statements for Pacific Life as of December
31, 1998 and 1997 and for the three years ended December 31, 1998 and the
audited financial statements for Pacific Select Exec Separate Account as of
December 31, 1998 and for the two years ended December 31, 1998 included in
this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein, and have been so
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
43
<PAGE>
Financial Statements
The audited financial statements of Pacific Select Exec Separate Account as
of December 31, 1998 and for the two years then ended are set forth herein,
starting on page 45. The audited consolidated financial statements of Pacific
Life as of December 31, 1998 and 1997 and for the three years then ended are
set forth herein starting on page 57.
The financial statements of Pacific Life should be distinguished from the
financial statements of the Pacific Select Exec Separate Account and should be
considered only as bearing upon our ability to meet our obligations under the
Policies.
44
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pacific Life Insurance Company
We have audited the accompanying includes assessing the accounting
statement of assets and liabilities principles used and significant
of Pacific Select Exec Separate estimates made by management, as well
Account (comprised of the Money as evaluating the overall financial
Market, High Yield Bond, Managed statement presentation. We believe
Bond, Government Securities, Growth, that our audits provide a reasonable
Aggressive Equity, Growth LT, Equity basis for our opinion.
Income, Multi-Strategy, Equity, Bond
and Income, Equity Index, In our opinion, such financial
International, Emerging Markets, statements present fairly, in all
Variable Account I, Variable Account material respects, the financial
II, Variable Account III, and position of each of the respective
Variable Account IV Variable Variable Accounts constituting
Accounts) as of December 31, 1998 and Pacific Select Exec Separate Account
the related statement of operations as of December 31, 1998 and the
for the year then ended and statement results of their operations for the
of changes in net assets for each of year then ended and the changes in
the two years in the period then their net assets for each of the two
ended (as to the Equity Variable years in the period then ended (as to
Account and the Bond and Income the Equity Variable Account and the
Variable Account, for the year ended Bond and Income Variable Account, for
December 31, 1998 and for the period the year ended December 31, 1998 and
from commencement of operations for the period from commencement of
through December 31, 1997). These operations through December 31,
financial statements are the 1997), in conformity with generally
responsibility of the Separate accepted accounting principles.
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 DELOITTE & TOUCHE LLP
examining, on a test basis, evidence
supporting the amounts and
disclosures in the financial Costa Mesa, California
statements. An audit also February 5, 1999
45
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
High Govern-
Money Yield Managed ment Aggressive Growth Equity Multi-
Market Bond Bond Securities Growth Equity LT Income Strategy
Variable Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account Account
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Money Market Portfolio
(6,873 shares; cost
$69,218)............... $69,107
High Yield Bond
Portfolio (4,645
shares; cost $45,134).. $43,370
Managed Bond Portfolio
(8,941 shares; cost
$97,525)............... $101,864
Government Securities
Portfolio (1,562
shares; cost $16,677).. $17,149
Growth Portfolio (8,711
shares; cost
$187,167).............. $199,670
Aggressive Equity
Portfolio (1,404
shares; cost $16,338).. $17,766
Growth LT Portfolio
(8,674 shares; cost
$152,516).............. $227,277
Equity Income Portfolio
(6,986 shares; cost
$147,393).............. $187,867
Multi-Strategy
Portfolio (7,736
shares; cost
$112,643).............. $133,998
Receivables:
Due from Pacific Life
Insurance Company...... 89 72 174 209 321 153 92 54
Fund shares redeemed... 100
------------------------------------------------------------------------------------
Total Assets............ 69,207 43,459 101,936 17,323 199,879 18,087 227,430 187,959 134,052
------------------------------------------------------------------------------------
LIABILITIES
Payables:
Due to Pacific Life
Insurance Company...... 100
Fund shares purchased.. 89 72 174 209 321 153 92 54
------------------------------------------------------------------------------------
Total Liabilities....... 100 89 72 174 209 321 153 92 54
------------------------------------------------------------------------------------
NET ASSETS.............. $69,107 $43,370 $101,864 $17,149 $199,670 $17,766 $227,277 $187,867 $133,998
------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
46
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (Continued)
DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Bond and Equity Inter- Emerging
Equity Income Index national Markets Variable Variable Variable Variable
Variable Variable Variable Variable Variable Account Account Account Account
Account Account Account Account Account I II III IV
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Equity Portfolio (617
shares; cost $16,061).. $18,066
Bond and Income
Portfolio (397 shares;
cost $5,250)........... $5,282
Equity Index Portfolio
(9,370 shares; cost
$212,820).............. $303,187
International Portfolio
(9,944 shares; cost
$153,283).............. $157,140
Emerging Markets
Portfolio (1,471
shares; cost $11,689).. $10,072
Brandes International
Equity Portfolio (1)
(140 shares;
cost $1,454)........... $1,522
Turner Core Growth
Portfolio (165 shares;
cost $2,467)........... $2,948
Frontier Capital
Appreciation Portfolio
(295 shares;
cost $4,191)........... $4,452
Enhanced U.S. Equity
Portfolio (276 shares;
cost $4,437)........... $4,986
Receivables:
Due from Pacific Life
Insurance Company...... 11 13 161 81 11
Fund shares redeemed... 23 9 19 32
-------------------------------------------------------------------------------
Total Assets............ 18,077 5,295 303,348 157,221 10,083 1,545 2,957 4,471 5,018
-------------------------------------------------------------------------------
LIABILITIES
Payables:
Due to Pacific Life
Insurance Company...... 23 9 19 32
Fund shares purchased.. 11 13 161 81 11
-------------------------------------------------------------------------------
Total Liabilities....... 11 13 161 81 11 23 9 19 32
-------------------------------------------------------------------------------
NET ASSETS.............. $18,066 $5,282 $303,187 $157,140 $10,072 $1,522 $2,948 $4,452 $4,986
-------------------------------------------------------------------------------
</TABLE>
(1) Formerly named Edinburgh Overseas Equity Portfolio
See Notes to Financial Statements
47
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
High Govern-
Money Yield Managed ment Aggressive Growth Equity Multi-
Market Bond Bond Securities Growth Equity LT Income Strategy
Variable Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account Account
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............. $3,392 $3,403 $5,533 $881 $20,232 $5 $6,250 $18,901 $12,030
--------------------------------------------------------------------------------------
Net Investment Income... 3,392 3,403 5,533 881 20,232 5 6,250 18,901 12,030
--------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain
(loss) from security
transactions........... (3) (87) 663 164 10,581 653 5,163 5,470 3,108
Net unrealized
appreciation
(depreciation) on
investments............ 14 (2,165) 1,408 59 (23,983) 1,132 63,381 9,750 5,144
--------------------------------------------------------------------------------------
Net Realized and
Unrealized Gain
(Loss) on Investments... 11 (2,252) 2,071 223 (13,402) 1,785 68,544 15,220 8,252
--------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS RESULTING FROM
OPERATIONS.............. $3,403 $1,151 $7,604 $1,104 $6,830 $1,790 $74,794 $34,121 $20,282
--------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
48
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Bond and Equity Inter- Emerging
Equity Income Index national Markets Variable Variable Variable Variable
Variable Variable Variable Variable Variable Account Account Account Account
Account Account Account Account Account I II III IV
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............. $507 $147 $4,853 $11,985 $117 $87 $52 $21 $154
----------------------------------------------------------------------------------
Net Investment Income... 507 147 4,853 11,985 117 87 52 21 154
----------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain
(loss) from security
transactions........... 369 19 11,629 5,435 (1,951) 8 96 (64) 183
Net unrealized
appreciation
(depreciation) on
investments............ 1,989 13 43,404 (10,085) (935) 72 460 44 366
----------------------------------------------------------------------------------
Net Realized and
Unrealized Gain
(Loss) on Investments... 2,358 32 55,033 (4,650) (2,886) 80 556 (20) 549
----------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS
RESULTING FROM
OPERATIONS.............. $2,865 $179 $59,886 $7,335 $(2,769) $167 $608 $1 $703
----------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
49
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
High Govern-
Money Yield Managed ment Aggressive Growth Equity Multi-
Market Bond Bond Securities Growth Equity LT Income Strategy
Variable Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account Account
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS FROM
OPERATIONS
Net investment income.. $3,392 $3,403 $5,533 $881 $20,232 $5 $6,250 $18,901 $12,030
Net realized gain
(loss) from security
transactions........... (3) (87) 663 164 10,581 653 5,163 5,470 3,108
Net unrealized
appreciation
(depreciation) on
investments............ 14 (2,165) 1,408 59 (23,983) 1,132 63,381 9,750 5,144
------------------------------------------------------------------------------------------
Net Increase in Net
Assets Resulting
from Operations......... 3,403 1,151 7,604 1,104 6,830 1,790 74,794 34,121 20,282
------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS FROM POLICY
TRANSACTIONS
Transfer of net
premiums............... 164,872 7,612 13,456 2,186 31,972 4,086 29,295 24,939 14,554
Transfers--policy
charges and
deductions............. (6,168) (2,255) (3,939) (699) (10,609) (969) (9,146) (7,949) (5,260)
Transfers in (from
other variable
accounts).............. 268,634 34,691 52,698 10,097 89,840 20,958 82,877 46,109 13,875
Transfers out (to other
variable accounts)..... (399,943) (29,075) (36,135) (5,218) (87,886) (16,962) (53,981) (35,074) (17,159)
Transfers--other....... (13,775) (2,461) (4,332) (742) (10,466) (610) (7,000) (5,765) (5,646)
------------------------------------------------------------------------------------------
Net Increase in Net
Assets Derived from
Policy Transactions..... 13,620 8,512 21,748 5,624 12,851 6,503 42,045 22,260 364
------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS.................. 17,023 9,663 29,352 6,728 19,681 8,293 116,839 56,381 20,646
------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year....... 52,084 33,707 72,512 10,421 179,989 9,473 110,438 131,486 113,352
------------------------------------------------------------------------------------------
End of Year............. $69,107 $43,370 $101,864 $17,149 $199,670 $17,766 $227,277 $187,867 $133,998
------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
50
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Bond and Equity Inter- Emerging
Equity Income Index national Markets Variable Variable Variable Variable
Variable Variable Variable Variable Variable Account Account Account Account
Account Account Account Account Account I II III IV
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS FROM
OPERATIONS
Net investment income.. $507 $147 $4,853 $11,985 $117 $87 $52 $21 $154
Net realized gain
(loss) from security
transactions........... 369 19 11,629 5,435 (1,951) 8 96 (64) 183
Net unrealized
appreciation
(depreciation) on
investments............ 1,989 13 43,404 (10,085) (935) 72 460 44 366
-----------------------------------------------------------------------------------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... 2,865 179 59,886 7,335 (2,769) 167 608 1 703
-----------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS FROM POLICY
TRANSACTIONS
Transfer of net
premiums............... 2,976 1,056 44,705 28,077 3,183 238 408 1,305 1,358
Transfers--policy
charges and
deductions............. (633) (197) (12,955) (8,359) (663) (62) (93) (245) (156)
Transfers in (from
other variable
accounts).............. 17,627 6,550 108,028 71,891 27,300 749 2,159 1,700 1,697
Transfers out (to other
variable accounts)..... (8,527) (2,820) (73,002) (64,225) (25,040) (97) (880) (1,374) (481)
Transfers--other....... (432) (171) (10,763) (6,520) (355) (12) (37) (44) 111
-----------------------------------------------------------------------------------
Net Increase in Net
Assets Derived from
Policy Transactions..... 11,011 4,418 56,013 20,864 4,425 816 1,557 1,342 2,529
-----------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS.................. 13,876 4,597 115,899 28,199 1,656 983 2,165 1,343 3,232
-----------------------------------------------------------------------------------
NET ASSETS
Beginning of Year....... 4,190 685 187,288 128,941 8,416 539 783 3,109 1,754
-----------------------------------------------------------------------------------
End of Year............. $18,066 $5,282 $303,187 $157,140 $10,072 $1,522 $2,948 $4,452 $4,986
-----------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
51
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
<TABLE>
<CAPTION>
High Govern-
Money Yield Managed ment Aggressive Growth Equity Multi-
Market Bond Bond Securities Growth Equity LT Income Strategy
Variable Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account Account
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS FROM
OPERATIONS
Net investment income.. $2,072 $2,559 $3,893 $498 $14,427 $4,656 $7,127 $7,530
Net realized gain from
security transactions.. 94 454 367 96 6,822 $101 3,899 3,288 695
Net unrealized
appreciation
(depreciation) on
investments............ (121) (335) 1,844 306 15,323 230 1,609 16,626 8,279
------------------------------------------------------------------------------------------
Net Increase in Net
Assets Resulting from
Operations.............. 2,045 2,678 6,104 900 36,572 331 10,164 27,041 16,504
------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS FROM POLICY
TRANSACTIONS
Transfer of net
premiums............... 114,902 6,516 11,008 2,026 28,003 2,091 27,890 20,805 20,699
Transfers--policy
charges and
deductions............. (4,303) (1,844) (2,926) (587) (9,059) (469) (6,771) (5,873) (4,507)
Transfers in (from
other variable
accounts).............. 133,629 17,591 15,603 5,190 61,551 12,131 34,622 27,826 9,864
Transfers out (to other
variable accounts)..... (214,125) (15,732) (11,609) (4,376) (46,874) (7,838) (39,146) (18,793) (5,914)
Transfers--other....... (7,489) (1,439) (14,668) (562) (10,114) (104) (5,388) (5,380) (2,426)
------------------------------------------------------------------------------------------
Net Increase (Decrease)
in Net Assets Derived
from Policy
Transactions............ 22,614 5,092 (2,592) 1,691 23,507 5,811 11,207 18,585 17,716
------------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS.................. 24,659 7,770 3,512 2,591 60,079 6,142 21,371 45,626 34,220
------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year....... 27,425 25,937 69,000 7,830 119,910 3,331 89,067 85,860 79,132
------------------------------------------------------------------------------------------
End of Year............. $52,084 $33,707 $72,512 $10,421 $179,989 $9,473 $110,438 $131,486 $113,352
------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements
52
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Bond and Equity Inter- Emerging
Equity Income Index national Markets Variable Variable Variable Variable
Variable Variable Variable Variable Variable Account Account Account Account
Account (1) Account (1) Account Account Account I II III IV
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS FROM
OPERATIONS
Net investment income.. $30 $11 $7,400 $4,347 $41 $8 $71 $73 $63
Net realized gain from
security transactions.. 13 5 12,511 4,938 187 2 7 42 7
Net unrealized
appreciation
(depreciation) on
investments............ 16 19 21,545 (62) (644) (4) 31 222 201
---------------------------------------------------------------------------------------
Net Increase (Decrease)
in Net Assets Resulting
from Operations......... 59 35 41,456 9,223 (416) 6 109 337 271
---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN
NET ASSETS FROM POLICY
TRANSACTIONS
Transfer of net
premiums............... 466 56 28,526 26,039 2,039 80 172 656 372
Transfers--policy
charges and
deductions............. (87) (13) (8,168) (7,142) (479) (25) (28) (149) (54)
Transfers in (from
other variable
accounts).............. 4,237 659 51,709 54,246 10,615 408 537 3,409 976
Transfers out (to other
variable accounts)..... (438) (53) (25,760) (45,867) (6,460) (3) (163) (1,636) (217)
Transfers--other....... (47) 1 (25,672) (4,997) (162) (4) (17) (51) (9)
---------------------------------------------------------------------------------------
Net Increase in Net
Assets Derived from
Policy Transactions..... 4,131 650 20,635 22,279 5,553 456 501 2,229 1,068
---------------------------------------------------------------------------------------
NET INCREASE IN NET
ASSETS.................. 4,190 685 62,091 31,502 5,137 462 610 2,566 1,339
---------------------------------------------------------------------------------------
NET ASSETS
Beginning of Year....... 125,197 97,439 3,279 77 173 543 415
---------------------------------------------------------------------------------------
End of Year............. $4,190 $685 $187,288 $128,941 $8,416 $539 $783 $3,109 $1,754
---------------------------------------------------------------------------------------
</TABLE>
(1) For the period from January 10, 1997 (commencement of operations) to
December 31, 1997.
See Notes to Financial Statements
53
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES and liabilities at the date of the
financial statements and the reported
The Pacific Select Exec Separate amounts of income and expenses during
Account (the "Separate Account") is the reporting period. Actual results
registered as a unit investment trust could differ from those estimates.
under the Investment Company Act of
1940, as amended, and during 1998 was A. Valuation of Investments
comprised of eighteen subaccounts
called Variable Accounts: the Money Investments in shares of the Funds
Market Variable Account, the High are valued at the reported net asset
Yield Bond Variable Account, the values of the respective portfolios.
Managed Bond Variable Account, the Valuation of securities held by the
Government Securities Variable Funds is discussed in the notes to
Account, the Growth Variable Account, their financial statements.
the Aggressive Equity Variable
Account, the Growth LT Variable B. Security Transactions
Account, the Equity Income Variable
Account, the Multi-Strategy Variable Transactions are recorded on the
Account, the Equity Variable Account, trade date. Realized gains and losses
the Bond and Income Variable Account, on sales of investments are
the Equity Index Variable Account, determined on the basis of identified
the International Variable Account, cost.
the Emerging Markets Variable
Account, and the Variable Accounts I C. Federal Income Taxes
through IV. The assets in each of the
first fourteen Variable Accounts are The operations of the Separate
invested in shares of the Account will be reported on the
corresponding portfolios of Pacific Federal income tax return of Pacific
Select Fund and the assets of the Life, which is taxed as a life
last four Variable Accounts are insurance company under the
invested in shares of the provisions of the Tax Reform Act of
corresponding portfolios of M Fund, 1986. Under current tax law, no
Inc. (collectively, the "Funds"). Federal income taxes are expected to
Each Variable Account pursues be paid by Pacific Life with respect
different investment objectives and to the operations of the Separate
policies. The financial statements of Account.
the Funds, including the schedules of
investments, are either included in 2. DIVIDENDS
Section B of this report or provided
separately and should be read in During 1998, the Funds declared
conjunction with the Separate dividends for each portfolio. The
Account's financial statements. amounts accrued by the Separate
Account for its share of the
The Separate Account was established dividends were reinvested in
by Pacific Life Insurance Company additional full and fractional shares
(formerly named Pacific Mutual Life of the related portfolio.
Insurance Company--see Note 1 to
Financial Statements of the Fund on 3. CHARGES AND EXPENSES
B-58) on May 12, 1988 and commenced
operations on November 22, 1988. With respect to variable life
Under applicable insurance law, the insurance policies funded by the
assets and liabilities of the Separate Account, Pacific Life makes
Separate Account are clearly certain deductions from premiums for
identified and distinguished from the sales load and state premium taxes
other assets and liabilities of before amounts are allocated to the
Pacific Life. The assets of the Separate Account. Pacific Life also
Separate Account will not be charged makes certain deductions from the net
with any liabilities arising out of assets of each Variable Account for
any other business conducted by the mortality and expense risks
Pacific Life, but the obligations of Pacific Life assumes, administrative
the Separate Account, including expenses, cost of insurance, charges
benefits related to variable life for optional benefits and any sales
insurance, are obligations of Pacific and underwriting surrender charges.
Life. The operating expenses of the
Separate Account are paid by Pacific
The Separate Account held by Pacific Life.
Life represents funds from individual
flexible premium variable life 4. RELATED PARTY AGREEMENT
policies. The assets of the Separate
Account are carried at market value. Pacific Mutual Distributors, Inc., a
wholly-owned subsidiary of Pacific
The preparation of the accompanying Life, serves as principal underwriter
financial statements requires of variable life insurance policies
management to make estimates and funded by interests in the Separate
assumptions that affect the reported Account, without remuneration from
amounts of assets the Separate Account.
54
<PAGE>
PACIFIC SELECT EXEC SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
5. SEPARATE ACCOUNT'S COST OF INVESTMENTS 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). The cost and market
value of total Separate Account's investments in the Funds as of December 31,
1998 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Variable Accounts
--------------------------------------------------------------------------
Govern-
Money High Yield Managed ment Aggressive
Market Bond Bond Securities Growth Equity
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total cost of
investments at
beginning of year $52,208 $33,305 $69,581 $10,008 $143,503 $9,176
Add: Total net proceeds
from policy
transactions 180,669 23,481 32,416 8,675 56,862 15,473
Reinvested
distributions from
the Funds:
(a) Net investment
income 3,392 3,082 4,503 663 214 5
(b) Net realized gain 321 1,030 218 20,018
--------------------------------------------------------------------------
Sub-Total 236,269 60,189 107,530 19,564 220,597 24,654
Less: Cost of
investments disposed
during the year 167,051 15,055 10,005 2,887 33,430 8,316
--------------------------------------------------------------------------
Total cost of
investments at end of
year 69,218 45,134 97,525 16,677 187,167 16,338
Add: Unrealized
appreciation
(depreciation) (111) (1,764) 4,339 472 12,503 1,428
--------------------------------------------------------------------------
Total market value of
investments at end of
year $69,107 $43,370 $101,864 $17,149 $199,670 $17,766
--------------------------------------------------------------------------
<CAPTION>
Growth Equity Multi- Bond and Equity
LT Income Strategy Equity Income Index
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total cost of
investments at
beginning of year $99,059 $100,762 $97,141 $4,174 $666 $140,325
Add: Total net proceeds
from policy
transactions 60,881 40,603 16,738 15,633 5,455 84,675
Reinvested
distributions from
the Funds:
(a) Net investment
income 327 1,300 3,405 40 145 3,133
(b) Net realized gain 5,923 17,601 8,625 467 2 1,720
--------------------------------------------------------------------------
Sub-Total 166,190 160,266 125,909 20,314 6,268 229,853
Less: Cost of
investments disposed
during the year 13,674 12,873 13,266 4,253 1,018 17,033
--------------------------------------------------------------------------
Total cost of
investments at end of
year 152,516 147,393 112,643 16,061 5,250 212,820
Add: Unrealized
appreciation 74,761 40,474 21,355 2,005 32 90,367
--------------------------------------------------------------------------
Total market value of
investments at end of
year $227,277 $187,867 $133,998 $18,066 $5,282 $303,187
--------------------------------------------------------------------------
<CAPTION>
Inter- Emerging
national Markets I II III IV
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total cost of
investments at
beginning of year $115,000 $9,098 $544 $762 $2,892 $1,571
Add: Total net proceeds
from policy
transactions 47,705 9,932 1,047 1,994 2,546 3,239
Reinvested
distributions from
the Funds:
(a) Net investment
income 1,485 117 87 52 146
(b) Net realized gain 10,500 21 8
--------------------------------------------------------------------------
Sub-Total 174,690 19,147 1,678 2,808 5,459 4,964
Less: Cost of
investments disposed
during the year 21,407 7,458 224 341 1,268 527
--------------------------------------------------------------------------
Total cost of
investments at end of
year 153,283 11,689 1,454 2,467 4,191 4,437
Add: Unrealized
appreciation
(depreciation) 3,857 (1,617) 68 481 261 549
--------------------------------------------------------------------------
Total market value of
investments at end of
year $157,140 $10,072 $1,522 $2,948 $4,452 $4,986
--------------------------------------------------------------------------
</TABLE>
55
<PAGE>
PACIFIC SELECT EXEC 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, 1998
and the selected accumulation unit information as of December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Variable Accounts
-----------------------------------------------------------------------
Govern-
Money High Yield Managed ment Aggressive
Market Bond Bond Securities Growth Equity
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total units outstanding
at beginning of year 3,242,630 1,272,728 3,186,015 479,603 4,678,660 840,837
Increase (decrease) in
units resulting from
policy transactions:
(a) Transfer of net
premiums 9,998,490 280,788 567,458 95,603 858,593 345,960
(b) Transfers--policy
charges and deductions (373,932) (84,466) (165,049) (30,660) (283,438) (82,024)
(c) Transfers in (from
other variable
accounts) 16,112,581 1,251,759 2,162,298 411,892 2,206,806 1,764,520
(d) Transfers out (to
other variable
accounts) (24,064,758) (1,034,962) (1,475,354) (204,814) (2,150,435) (1,425,259)
(e) Transfers--other (828,850) (87,604) (176,871) (29,124) (256,086) (51,258)
-----------------------------------------------------------------------
Sub-Total 843,531 325,515 912,482 242,897 375,440 551,939
-----------------------------------------------------------------------
Total units outstanding
at end of year 4,086,161 1,598,243 4,098,497 722,500 5,054,100 1,392,776
-----------------------------------------------------------------------
Accumulation Unit
Value: At beginning of -----------------------------------------------------------------------
year $16.06 $26.48 $22.76 $21.73 $38.47 $11.27
At end of year $16.91 $27.14 $24.85 $23.74 $39.51 $12.76
-----------------------------------------------------------------------
<CAPTION>
Growth Equity Multi- Bond and Equity
LT Income Strategy Equity Income Index
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total units outstanding
at beginning of year 5,452,479 3,609,629 3,897,779 365,186 57,616 5,696,188
Increase (decrease) in
units resulting from
policy transactions:
(a) Transfer of net
premiums 1,193,031 621,209 459,357 229,214 83,678 1,213,083
(b) Transfers--policy
charges and deductions (371,549) (198,432) (168,061) (48,132) (15,662) (350,651)
(c) Transfers in (from
other variable
accounts) 3,139,545 984,220 372,455 1,338,126 518,911 2,722,051
(d) Transfers out (to
other variable
accounts) (2,057,690) (741,626) (498,426) (643,218) (223,441) (1,831,867)
(e) Transfers--other (266,828) (121,899) (164,002) (32,588) (13,550) (270,080)
-----------------------------------------------------------------------
Sub-Total 1,636,509 543,472 1,323 843,402 349,936 1,482,536
-----------------------------------------------------------------------
Total units outstanding
at end of year 7,088,988 4,153,101 3,899,102 1,208,588 407,552 7,178,724
-----------------------------------------------------------------------
Accumulation Unit
Value: At beginning of -----------------------------------------------------------------------
year $20.25 $36.43 $29.08 $11.47 $11.89 $32.88
At end of year $32.06 $45.24 $34.37 $14.95 $12.96 $42.23
-----------------------------------------------------------------------
<CAPTION>
Inter- Emerging
national Markets I II III IV
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total units outstanding
at beginning of year 6,224,372 871,397 52,300 59,984 243,373 132,506
Increase (decrease) in
units resulting from
policy transactions:
(a) Transfer of net
premiums 1,264,542 393,994 21,062 27,463 107,709 92,938
(b) Transfers--policy
charges and deductions (378,357) (82,543) (5,624) (6,243) (20,099) (10,607)
(c) Transfers in (from
other variable
accounts) 3,056,270 3,699,775 70,147 145,602 141,760 118,099
(d) Transfers out (to
other variable
accounts) (2,708,392) (3,409,238) (8,799) (56,670) (125,903) (23,033)
(e) Transfers--other (274,952) (48,335) (1,088) (2,384) (4,033) (5,315)
-----------------------------------------------------------------------
Sub-Total 959,111 553,653 75,698 107,768 99,434 172,082
-----------------------------------------------------------------------
Total units outstanding
at end of year 7,183,483 1,425,050 127,998 167,752 342,807 304,588
-----------------------------------------------------------------------
Accumulation Unit
Value: At beginning of -----------------------------------------------------------------------
year $20.72 $9.66 $10.31 $13.06 $12.77 $13.23
At end of year $21.88 $7.07 $11.89 $17.57 $12.99 $16.37
-----------------------------------------------------------------------
</TABLE>
- ------
** Accumulation Unit: unit of measure used to calculate the value of a Policy
Owner's interest in a Variable Account during the accumulation period.
56
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Pacific Life Insurance Company and Subsidiaries:
We have audited the accompanying consolidated statements of financial
condition of Pacific Life Insurance Company and Subsidiaries (the
"Company") as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholder's equity and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company'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 consolidated financial statements present fairly, in
all material respects, the financial position of Pacific Life Insurance
Company and Subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 22, 1999
57
<PAGE>
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
1998 1997
- ------------------------------------------------------------------------------
(In Millions)
<S> <C> <C>
ASSETS
Investments:
Securities available for sale at estimated fair value:
Fixed maturity securities $13,617.0 $13,938.5
Equity securities 547.5 346.4
Mortgage loans 2,788.7 1,922.1
Real estate 172.7 192.1
Policy loans 3,901.2 3,769.2
Short-term investments 99.9 83.8
Other investments 948.0 432.4
- ------------------------------------------------------------------------------
TOTAL INVESTMENTS 22,075.0 20,684.5
Cash and cash equivalents 150.1 110.4
Deferred policy acquisition costs 889.7 716.9
Accrued investment income 252.3 255.4
Other assets 672.8 636.5
Separate account assets 15,844.0 11,605.1
- ------------------------------------------------------------------------------
TOTAL ASSETS $39,883.9 $34,008.8
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Universal life, annuity and other investment contract
deposits $17,973.0 $16,644.5
Future policy benefits 2,131.6 2,133.8
Short-term and long-term debt 445.1 253.6
Other liabilities 1,162.2 1,224.5
Separate account liabilities 15,844.0 11,605.1
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 37,555.9 31,861.5
- ------------------------------------------------------------------------------
Commitments and contingencies
Stockholder's Equity:
Common stock - $50 par value; 600,000 shares authorized,
issued and outstanding 30.0 30.0
Paid-in capital 126.2 120.1
Retained earnings 1,663.5 1,422.0
Accumulated other comprehensive income -
Unrealized gain on securities available for sale, net 508.3 575.2
- ------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 2,328.0 2,147.3
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $39,883.9 $34,008.8
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
58
<PAGE>
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
- ------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
REVENUES
Policy fees from universal life, annuity and other
investment contract deposits $ 525.3 $ 431.2 $ 348.6
Insurance premiums 514.7 504.3 465.4
Net investment income 1,293.8 1,225.3 1,087.3
Net realized capital gains 38.7 85.3 44.0
Commission revenue 220.1 146.6 79.6
Other income 216.6 181.7 123.1
- ------------------------------------------------------------------------------
TOTAL REVENUES 2,809.2 2,574.4 2,148.0
- ------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Interest credited to universal life, annuity and
other investment contract deposits 880.8 797.8 665.0
Policy benefits paid or provided 719.5 675.7 652.9
Commission expenses 386.1 303.7 233.6
Operating expenses 467.8 507.7 316.2
- ------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES 2,454.2 2,284.9 1,867.7
- ------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 355.0 289.5 280.3
Provision for income taxes 113.5 113.5 113.7
- ------------------------------------------------------------------------------
NET INCOME $ 241.5 $ 176.0 $ 166.6
- ------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
59
<PAGE>
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
------------- Paid-in Retained Comprehensive
Shares Amount Capital Earnings Income Total
- -------------------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C> <C> <C> <C>
BALANCES,
JANUARY 1, 1996 $1,151.4 $ 482.0 $1,633.4
Comprehensive income:
Net income 166.6 166.6
Change in unrealized gain on
securities available for sale,
net (102.8) (102.8)
--------
Total comprehensive income 63.8
- -------------------------------------------------------------------------------------------
BALANCES,
DECEMBER 31, 1996 1,318.0 379.2 1,697.2
Comprehensive income:
Net income 176.0 176.0
Change in unrealized gain on
securities available for sale,
net 196.0 196.0
--------
Total comprehensive income 372.0
Issuance of partnership units by
affiliate $ 85.1 85.1
Initial member capitalization
of Pacific Mutual Holding Company (2.0) (2.0)
Issuance of common stock 0.6 $30.0 35.0 (65.0)
Dividend paid to parent (5.0) (5.0)
- -------------------------------------------------------------------------------------------
BALANCES,
DECEMBER 31, 1997 0.6 30.0 120.1 1,422.0 575.2 2,147.3
Comprehensive income:
Net income 241.5 241.5
Change in unrealized gain on
securities available for sale,
net (66.9) (66.9)
--------
Total comprehensive income 174.6
Issuance of partnership units by
affiliate 6.1 6.1
- -------------------------------------------------------------------------------------------
BALANCES,
DECEMBER 31, 1998 0.6 $30.0 $126.2 $1,663.5 $ 508.3 $2,328.0
- -------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
60
<PAGE>
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
- --------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 241.5 $ 176.0 $ 166.6
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization on fixed maturities (39.4) (26.6) (45.2)
Depreciation and other amortization 26.0 38.3 43.8
Deferred income taxes (20.6) (14.4) (49.8)
Net realized capital gains (38.7) (85.3) (44.0)
Net change in deferred policy acquisition
costs (172.8) (185.4) (140.4)
Interest credited to universal life, annuity
and other investment contract deposits 880.8 797.8 665.0
Change in accrued investment income 3.1 (52.9) (3.7)
Change in future policy benefits (2.2) (372.7) 62.3
Change in other assets and liabilities 99.4 577.4 158.1
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 977.1 852.2 812.7
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Purchases (4,302.3) (6,272.3) (4,525.0)
Sales 2,201.9 2,224.1 2,511.0
Maturities and repayments 2,196.1 2,394.6 1,184.7
Repayments of mortgage loans 334.9 179.3 220.4
Proceeds from sales of mortgage loans and real
estate 43.3 104.4 14.5
Purchases of mortgage loans and real estate (1,246.3) (643.7) (414.3)
Distributions from partnerships 119.5 91.6 78.8
Change in policy loans (132.0) (637.4) (338.5)
Change in short-term investments (16.1) (17.7) 37.2
Other investing activity, net (564.2) 43.5 (144.5)
- --------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,365.2) (2,533.6) (1,375.7)
- --------------------------------------------------------------------------------
</TABLE>
(Continued)
See Notes to Consolidated Financial Statements
61
<PAGE>
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
(Continued) 1998 1997 1996
- ------------------------------------------------------------------------------
(In Millions)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits $ 4,007.0 $ 4,373.6 $ 2,105.0
Withdrawals (3,770.7) (2,667.3) (1,756.6)
Net change in short-term debt 191.5 8.5 42.5
Repayment of long-term debt (25.0) (5.0)
Initial capitalization of Pacific Mutual
Holding Company (2.0)
Dividend paid to parent (5.0)
- ------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 427.8 1,682.8 385.9
- ------------------------------------------------------------------------------
Net change in cash and cash equivalents 39.7 1.4 (177.1)
Cash and cash equivalents, beginning of year 110.4 109.0 286.1
- ------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 150.1 $ 110.4 $ 109.0
- ------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL SCHEDULE OF INVESTING AND FINANCING ACTIVITIES
In connection with the acquisition of an insurance block of business in 1997,
as discussed in Note 5, the following assets and liabilities were assumed:
<TABLE>
<S> <C>
Cash $1,215.9
Policy loans 440.3
Other assets 43.4
--------
Total assets assumed $1,699.6
--------
Policyholder account values $1,693.8
Other liabilities 5.8
--------
Total liabilities assumed $1,699.6
--------
</TABLE>
- -------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NON CASH FINANCING ACTIVITIES
As a result of the Conversion in 1997, as discussed in Note 1, $65 million of
retained earnings was allocated for the issuance of 600,000 shares of common
stock with a par value totaling $30 million and $35 million to paid-in
capital.
- -------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<S> <C> <C> <C>
Income taxes paid $127.9 $153.0 $189.6
Interest paid $ 24.0 $ 26.1 $ 27.3
- -------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
62
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
CONVERSION TO MUTUAL HOLDING COMPANY STRUCTURE
Pursuant to consent received from the Insurance Department of the State of
California, Pacific Mutual Life Insurance Company ("Pacific Mutual")
implemented a plan of conversion to form a mutual holding company structure
(the "Conversion") on September 1, 1997. The Conversion created Pacific
LifeCorp, an intermediate stock holding company and Pacific Mutual Holding
Company ("PMHC"), a mutual holding company. Pacific Mutual was converted to
a stock life insurance company and renamed Pacific Life Insurance Company
("Pacific Life"). Under their respective charters, PMHC must always own at
least 51% of the outstanding voting stock of Pacific LifeCorp, and Pacific
LifeCorp must always own 100% of the voting stock of Pacific Life. Owners
of Pacific Life's annuity contracts and life insurance policies have
certain membership interests in PMHC, consisting principally of the right
to vote on the election of the Board of Directors of PMHC and on other
matters, and certain rights upon liquidation or dissolution of PMHC.
As a result of the Conversion, $65 million of retained earnings was
allocated for the issuance of 600,000 shares of common stock with a par
value totaling $30 million and $35 million to paid-in capital.
DESCRIPTION OF BUSINESS
Pacific Life was established in 1868 and is organized under the laws of the
State of California as a stock life insurance company. Pacific Life
conducts business in every state except New York.
Pacific Life and its subsidiaries and affiliates have primary business
operations which consist of life insurance, annuities, pension and
institutional products, group employee benefits, broker-dealer operations
and investment management and advisory services. Pacific Life's primary
business operations provide a broad range of life insurance, asset
accumulation and investment products for individuals and businesses and
offer a range of investment products to institutions and pension plans.
Additionally, through its major subsidiaries and affiliates, Pacific Life
provides a variety of group employee benefits, broker-dealer operations and
investment management and advisory services.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements of Pacific Life
Insurance Company and Subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles ("GAAP") and
include the accounts of Pacific Life and its wholly-owned insurance
subsidiaries, PM Group Life Insurance Company ("PM Group") and World-Wide
Holdings Limited, and its wholly-owned noninsurance subsidiaries, Pacific
Asset Management LLC ("PAM"), Pacific Mutual Distributors, Inc. ("PMD"),
Pacific Mutual Realty Finance, Inc. and Pacific Mezzanine Associates,
L.L.C. (50% owned). All significant intercompany transactions and balances
have been eliminated. Pacific Life prepares its regulatory financial
statements based on accounting practices prescribed or permitted by the
Insurance Department of the State of California. These consolidated
financial statements differ from those followed in reports to regulatory
authorities (Note 2).
PAM was initially capitalized on December 31, 1997, when Pacific Life
completed a subsidiary restructuring in which all the assets and
liabilities of Pacific Financial Asset Management Corporation ("PFAMCo")
were contributed into this newly formed limited liability company. PFAMCo
was then merged into Pacific Life. On October 30, 1997, Pacific Corinthian
Life Insurance Company ("PCL"-Note 4), a wholly-owned insurance subsidiary,
was merged into Pacific Life, with Pacific Life as the surviving entity.
NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," and
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits."
63
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
SFAS No. 130 established standards for the reporting and display of
comprehensive income and its components in financial statements (Note 11).
SFAS No. 131 established standards for the way information about operating
segments is reported in financial statements. It also established standards
for related disclosures about products and services, geographic areas and
major customers (Note 13). SFAS No. 132 standardized disclosure
requirements for employers' pensions and other retiree benefits (Note 14).
Adoption of these accounting standards did not have a significant impact on
the consolidated financial position or results of operations of the
Company.
On January 1, 1998, the Company adopted the American Institute of Certified
Public Accountants ("AICPA") Statement of Position ("SOP") 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments." SOP 97-3 provides guidance on when a liability should be
recognized for guaranty fund and other assessments and how to measure the
liability. Adoption of this accounting standard did not have a significant
impact on the consolidated financial position or results of operations of
the Company.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 is effective for fiscal years beginning after June 15, 1999. SFAS No.
133 establishes accounting and reporting standards for derivative
instruments and hedging activities. The Company currently plans to adopt
SFAS No. 133 on January 1, 2000. The impact on the consolidated financial
position or results of operations of the Company due to the adoption of
this statement has not yet been determined.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires that certain costs incurred in developing internal use computer
software be capitalized. The Company currently plans to adopt SOP 98-1 on
January 1, 1999. The adoption is not expected to have a significant impact
on the consolidated financial position or results of operations of the
Company.
INVESTMENTS
Available for sale fixed maturity and equity securities are reported at
estimated fair value, with unrealized gains and losses, net of deferred
income tax and adjustments related to deferred policy acquisition costs,
included as a separate component of equity on the accompanying consolidated
statements of financial condition. Trading securities, which are included
in short-term investments, are reported at estimated fair value with
unrealized gains and losses included in net realized capital gains on the
accompanying consolidated statements of operations.
For mortgage-backed securities included in fixed maturity securities, the
Company recognizes income using a constant effective yield based on
anticipated prepayments and the estimated economic life of the securities.
When estimates of prepayments change, the effective yield is recalculated
to reflect actual payments to date and anticipated future payments. The net
investment in the securities is adjusted to the amount that would have
existed had the new effective yield been applied since the acquisition of
the securities. This adjustment is reflected in net investment income on
the accompanying consolidated statements of operations.
Realized gains and losses on investment transactions are determined on a
specific identification basis and are included in net realized capital
gains on the accompanying consolidated statements of operations.
Short-term investments are carried at estimated fair value and include all
trading securities.
Derivative financial instruments are carried at estimated fair value.
Unrealized gains and losses of derivatives used to hedge securities
classified as available for sale are reflected in a separate component of
equity on the accompanying consolidated statements of financial condition,
similar to the accounting of the underlying hedged assets. Realized gains
and losses on derivatives used for hedging are deferred and amortized over
the average life of the related hedged assets or insurance liabilities.
Unrealized gains and losses of other derivatives are included in net
realized capital gains on the accompanying consolidated statements of
operations.
Mortgage loans and policy loans are stated at unpaid principal balances.
64
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
Real estate is carried at depreciated cost, or for real estate acquired in
satisfaction of debt, estimated fair value less estimated selling costs at
the date of acquisition if lower than the related unpaid balance.
On November 15, 1994, certain of the Company's investment management and
advisory subsidiaries entered into an agreement and plan of consolidation
with Thomson Advisory Group L.P., a Delaware limited partnership with
publicly traded units, to merge into a newly capitalized partnership named
PIMCO Advisors L.P. ("PIMCO Advisors"). In December 1997, PIMCO Advisors
completed a transaction in which it acquired the assets of Oppenheimer
Capital, L.P., including its interest in Oppenheimer Capital, by issuing
approximately 33 million PIMCO Advisors General and Limited Partner units.
In connection with this transaction, the Company increased its investment
in PIMCO Advisors to reflect the excess of the Company's pro rata share of
PIMCO Advisors partners' capital subsequent to this transaction over the
carrying value of the Company's investment in PIMCO Advisors. The net
result of this transaction was to directly increase stockholder's equity by
$85.1 million. The Company's beneficial ownership in PIMCO Advisors was
approximately 42% prior to this transaction and 31% as of December 31,
1997. During 1998, the Company increased its investment in PIMCO Advisors
to reflect its pro rata share of the increase to PIMCO Advisors partners'
capital due to the issuance of additional partnership units. For the year
ended December 31, 1998, there was a direct increase to the Company's
stockholder's equity of $6.1 million. During 1998, the Company also
acquired the beneficial ownership of additional partnership units which
increased its ownership to 33% as of December 31, 1998. Deferred taxes
resulting from these transactions have been included in the accompanying
consolidated financial statements. The Company's investment in PIMCO
Advisors, which is included in other investments on the accompanying
consolidated statements of financial condition, is accounted for using the
equity method.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all liquid debt instruments with an
original maturity of three months or less.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new insurance business, principally commissions,
medical examinations, underwriting, policy issue and other expenses, all of
which vary with and are primarily related to the production of new
business, have been deferred. For universal life, annuity and other
investment contract products, such costs are generally amortized in
proportion to the present value of expected gross profits using the assumed
crediting rate. Adjustments are reflected in earnings or equity in the
period the Company experiences deviations in gross profit assumptions.
Adjustments directly affecting equity result from experience deviations due
to changes in unrealized gains and losses in investments classified as
available for sale. For life insurance products, such costs are being
amortized over the premium-paying period of the related policies in
proportion to premium revenues recognized, using assumptions consistent
with those used in computing policy reserves. For the years ended December
31, 1998, 1997 and 1996, net amortization of deferred policy acquisition
costs included in commission expenses amounted to $73.0 million,
$50.2 million and $42.6 million, respectively, and included in operating
expenses amounted to $33.5 million, $29.4 million and $27.4 million,
respectively, on the accompanying consolidated statements of operations.
PRESENT VALUE OF FUTURE PROFITS
In connection with the rehabilitation of First Capital Life Insurance
Company ("FCL"-Note 4), an asset was established which represented the
present value of estimated future profits of the acquired business. The
future profits were discounted to provide an appropriate rate of return and
were amortized over the rehabilitation plan period. Amortization for the
years ended December 31, 1997 and 1996 amounted to $16.1 million and
$24.2 million, respectively, and is included in commission expenses on the
accompanying consolidated statements of operations. During 1996, the
Company changed certain assumptions regarding the estimated life which
resulted in an increase in amortization in 1996 of approximately $17.0
million.
65
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
UNIVERSAL LIFE, ANNUITY AND OTHER INVESTMENT CONTRACT DEPOSITS
Universal life, annuity and other investment contract deposits are valued
using the retrospective deposit method and consist principally of deposits
received plus interest credited less accumulated assessments. Interest
credited to these policies primarily ranged from 4.0% to 8.4% during 1998,
1997 and 1996.
FUTURE POLICY BENEFITS
Life insurance reserves are valued using the net level premium method.
Interest rate assumptions ranged from 4.5% to 9.3% for 1998, 1997 and 1996.
Mortality, morbidity and withdrawal assumptions are generally based on the
Company's experience, modified to provide for possible unfavorable
deviations. Future dividends for participating business are provided for in
the liability for future policy benefits. Dividends to policyholders are
included in policy benefits paid or provided on the accompanying
consolidated statements of operations.
Dividends are accrued based on dividend formulas approved by the Board of
Directors and reviewed for reasonableness and equitable treatment of
policyholders by an independent consulting actuary. As of December 31, 1998
and 1997, participating experience rated policies paying dividends
represented approximately 1% of direct written life insurance in force.
REVENUES AND EXPENSES
Insurance premiums are recognized as revenue when due. Benefits and
expenses, other than deferred policy acquisition costs, are recognized when
incurred.
Generally, receipts for universal life, annuities and other investment
contracts are classified as deposits. Policy fees from these contracts
include mortality charges, surrender charges and earned policy service
fees. Expenses related to these products include interest credited to
account balances and benefit amounts in excess of account balances.
Commission revenue from Pacific Life's broker-dealer subsidiaries is
generally recorded on the trade date.
DEPRECIATION AND AMORTIZATION
Depreciation of investment real estate is computed on the straight-line
method over the estimated useful lives which range from 5 to 30 years.
Certain other assets are depreciated or amortized on the straight-line
method over periods ranging from 3 to 40 years. Depreciation of investment
real estate is included in net investment income on the accompanying
consolidated statements of operations. Depreciation and amortization of
other assets is included in operating expenses on the accompanying
consolidated statements of operations.
INCOME TAXES
Pacific Life is taxed as a life insurance company for income tax purposes
and is included in the consolidated income tax returns of PMHC. Prior to
1998, Pacific Life was subject to an equity tax calculated by a prescribed
formula that incorporated a differential earnings rate between stock and
mutual life insurance companies. In December 1998, the Internal Revenue
Service released Revenue Ruling 99-3 which exempts Pacific Life from this
tax for taxable years beginning in 1998. Deferred income taxes are provided
for timing differences in the recognition of revenues and expenses for
financial reporting and income tax purposes.
SEPARATE ACCOUNTS
Separate account assets are recorded at market value and the related
liabilities represent segregated contract owner funds maintained in
accounts with individual investment objectives. The investment results of
separate account assets generally pass through to separate account contract
owners.
66
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments disclosed in Notes 6 and
7 has been determined using available market information and appropriate
valuation methodologies. However, considerable judgment is required to
interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented may not be indicative of the amounts the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies could have a significant effect
on the estimated fair value amounts.
BUSINESS RISKS
The Company operates in a business environment that is subject to various
risks and uncertainties. Such risks and uncertainties include, but are not
limited to, interest rate risk, credit risk, and legal and regulatory
changes.
Interest rate risk is the potential for interest rates to change, which can
cause fluctuations in the value of investments. To the extent that
fluctuations in interest rates cause the duration of assets and liabilities
to differ, the Company may have to sell assets prior to their maturity and
realize losses. The Company controls its exposure to this risk by, among
other things, asset/liability matching techniques which attempt to match
the duration of assets and liabilities and utilization of derivative
instruments. Additionally, the Company includes contractual provisions
limiting withdrawal rights for certain of its products. A substantial
portion of the Company's liabilities are not subject to surrender or can be
surrendered only after deduction of a surrender charge or a market value
adjustment.
Credit risk is the risk that issuers of investments owned by the Company
may default or that other parties may not be able to pay amounts due to the
Company. The Company manages its investments to limit credit risk by
diversifying its portfolio among various security types and industry
sectors. The credit risk of financial instruments is controlled through
credit approval procedures, limits and ongoing monitoring. Real estate and
mortgage loan investment risks are limited by diversification of geographic
location and property type. Management does not believe that significant
concentrations of credit risk exist.
The Company is also exposed to credit loss in the event of nonperformance
by the counterparties to interest rate swap contracts and other derivative
securities. The Company manages this risk through credit approvals and
limits on exposure to any specific counterparty. However, the Company does
not anticipate nonperformance by the counterparties.
The Company is subject to various state and Federal regulatory authorities.
The potential exists for changes in regulatory initiatives that can result
in additional, unanticipated expense to the Company. Existing Federal laws
and regulations affect the taxation of life insurance or annuity products
and insurance companies. There can be no assurance as to what, if any,
cases might be decided or future legislation might be enacted, or if
decided or enacted, whether such cases or legislation would contain
provisions with possible negative effects on the Company's life insurance
or annuity products.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1998
financial statement presentation.
67
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. STATUTORY RESULTS
The following are reconciliations of statutory capital and surplus and
statutory net income for Pacific Life as calculated in accordance with
accounting practices prescribed or permitted by the Insurance Department of
the State of California, to the amounts reported as stockholder's equity
and net income included on the accompanying consolidated financial
statements:
<TABLE>
<CAPTION>
December 31,
1998 1997
------------------
(In Millions)
<S> <C> <C>
Statutory capital and surplus $1,157.4 $ 944.8
Deferred policy acquisition costs 908.0 730.7
Unrealized gain on securities available for
sale, net 508.3 575.2
Deferred income tax 307.1 289.2
Asset valuation reserve 298.7 252.4
Non admitted assets 40.4 25.2
Subsidiary equity 26.5 60.4
Surplus notes (149.6) (149.6)
Insurance and annuity reserves (654.4) (511.5)
Other (114.4) (69.5)
------------------
Stockholder's equity as reported herein $2,328.0 $2,147.3
------------------
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
--------------------------
(In Millions)
<S> <C> <C> <C>
Statutory net income $ 187.6 $ 121.5 $113.1
Deferred policy acquisition costs 177.3 160.4 111.2
Interest maintenance reserve 24.1 7.6 3.8
Deferred income tax 17.9 41.2 70.9
Net realized gain (loss) on trading
securities 9.2 (5.8) (11.6)
Earnings of subsidiaries (32.8) (40.6) (33.0)
Insurance and annuity reserves (145.1) (107.0) (91.3)
Other 3.3 (1.3) 3.5
--------------------------
Net income as reported herein $ 241.5 $ 176.0 $166.6
--------------------------
</TABLE>
68
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. STATUTORY RESULTS (Continued)
RISK-BASED CAPITAL
Risk-based capital is a method developed by the National Association of
Insurance Commissioners ("NAIC") to measure the minimum amount of capital
appropriate for an insurance company to support its overall business
operations in consideration of its size and risk profile. The formulas for
determining the amount of risk-based capital specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk. The adequacy of a company's
actual capital is measured by comparing it to the risk-based capital as
determined by the formulas. Companies below minimum risk-based capital
requirements are classified within certain levels, each of which requires
specified corrective action. As of December 31, 1998 and 1997, Pacific Life
and PM Group exceeded the minimum risk-based capital requirements.
CODIFICATION
In March 1998, the NAIC adopted the Codification of Statutory Accounting
Principles ("Codification"). The Codification, which is intended to
standardize regulatory accounting and reporting for the insurance industry,
is proposed to be effective January 1, 2001. However, statutory accounting
principles will continue to be established by individual state laws and
permitted practices and it is uncertain when, or if, the states of
California and Arizona will require adoption of Codification for the
preparation of statutory financial statements. The Company has not
finalized the quantification of the effects of Codification on its
statutory financial statements.
DIVIDEND RESTRICTIONS
Dividend payments by Pacific Life to its parent in any 12-month period
cannot exceed the greater of 10% of statutory capital and surplus as of the
preceding year-end or the statutory net gain from operations for the
previous calendar year, without prior approval from the Insurance
Department of the State of California. Based on this limitation and 1998
statutory results, Pacific Life could pay approximately $240.9 million in
dividends in 1999 without prior approval. No dividends were paid during
1998.
Extraordinary dividends to Pacific Life from PM Group are subject to
regulatory restrictions and approvals by the Insurance Department of the
State of Arizona, PM Group's state of domicile. The maximum amount of
ordinary dividends that can be paid by PM Group without restriction cannot
exceed the lesser of 10% of surplus as regards policyholders, or the
statutory net gain from operations. PM Group received approval to pay
dividends of $14 million and $25 million for the years ended December 31,
1997 and 1996 of which $8 million and $18 million, respectively, were
considered extraordinary. No dividends were paid during 1998.
PERMITTED PRACTICE
As discussed in Note 1, the Company beneficially owns approximately 33% of
the outstanding General and Limited Partner units in PIMCO Advisors L.P. as
of December 31, 1998. Net cash distributions received on these units are
recorded as income as permitted by the Insurance Department of the State of
California for statutory accounting purposes.
3. CLOSED BLOCK
In connection with the Conversion, an arrangement known as a closed block
(the "Closed Block"), was established, for dividend purposes only, for the
exclusive benefit of certain individual life insurance policies that had an
experience based dividend scale for 1997. The Closed Block was designed to
give reasonable assurance to holders of Closed Block policies that policy
dividends will not change solely as a result of the Conversion.
Assets of Pacific Life have been allocated to the Closed Block in an amount
that produces cash flows, which, together with anticipated revenues, are
expected to be sufficient to support the policies. Pacific Life is not
69
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. CLOSED BLOCK (Continued)
required to support the payment of dividends on these policies from its
general funds. The Closed Block will continue in effect until either the
last policy is no longer in force, or the dissolution of the Closed Block.
Total assets of $311.6 million and $316.2 million and total liabilities of
$352.8 million and $356.0 million for the Closed Block are included in
other assets and other liabilities, respectively, on the accompanying
consolidated statements of financial condition as of December 31, 1998 and
1997, respectively. The contribution to income from the Closed Block of
$5.1 million and $5.7 million, consisting of net revenues and expenses
generated by the Closed Block, is included in other income on the
accompanying consolidated statements of operations for the years ended
December 31, 1998 and 1997, respectively.
4. REHABILITATION OF FIRST CAPITAL LIFE INSURANCE COMPANY
On September 30, 1997, PCL completed the rehabilitation of FCL pursuant to
a five-year rehabilitation plan approved by the California Superior Court
and the Insurance Department of the State of California (the
"Rehabilitation Plan"). Under the terms of the Rehabilitation Plan, FCL's
insurance policies in force, primarily individual annuities and universal
life insurance, were restructured and assumed by PCL on December 31, 1992,
pursuant to an assumption reinsurance agreement and asset purchase
agreement. On October 30, 1997, PCL was merged into Pacific Life, with
Pacific Life as the surviving entity.
5. ACQUISITION OF INSURANCE BLOCKS OF BUSINESS
On June 1, 1997, Pacific Life acquired a block of corporate-owned life
insurance ("COLI") policies from Confederation Life Insurance Company
(U.S.) in Rehabilitation, which is currently under rehabilitation
("Confederation Life"), which consisted of approximately 38,000 policies
having a face amount of insurance of $8.6 billion and reserves of
approximately $1.7 billion. The assets received as part of this acquisition
amounted to approximately $1.2 billion in cash and approximately $0.4
billion in policy loans. This block is primarily non-leveraged COLI.
The remaining cost of acquiring this business, representing the amount
equal to the excess of the estimated fair value of the reserves assumed
over the estimated fair value of the assets acquired, amounted to $36.5
million and $43.4 million as of December 31, 1998 and 1997, respectively,
and is included in deferred policy acquisition costs on the accompanying
consolidated statements of financial condition. Amortization of this asset
for the years ended December 31, 1998 and 1997 was $7.7 million and $0.9
million, respectively, and is included in commission expenses on the
accompanying consolidated statements of operations.
In January 1999, Pacific Life signed a definitive agreement to acquire a
payout annuity block of business from Confederation Life. This block of
business consists of approximately 18,000 policies, having reserves
amounting to approximately $2.0 billion. The transaction is subject to
various regulatory and Court approvals and is anticipated to close during
1999.
70
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVESTMENT IN FIXED MATURITY AND EQUITY SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair
value of fixed maturity and equity securities are shown below. The
estimated fair value of publicly traded securities is based on quoted
market prices. For securities not actively traded, estimated fair values
were provided by independent pricing services specializing in "matrix
pricing" and modeling techniques. The Company also estimates certain fair
values based on interest rates, credit quality and average maturity or from
securities with comparable trading characteristics.
<TABLE>
<CAPTION>
Gross Unrealized
Amortized ----------------- Estimated
Cost Gains Losses Fair Value
--------------------------------------
(In Millions)
<S> <C> <C> <C> <C>
Securities Available for Sale:
-----------------------------
As of December 31, 1998:
U.S. Treasury securities and
obligations of U.S. government
authorities and agencies $ 94.0 $ 24.9 $ 118.9
Obligations of states, political
subdivisions and foreign govern-
ments 726.0 118.0 $ 16.1 827.9
Corporate securities 7,766.0 438.0 122.4 8,081.6
Mortgage-backed and asset-backed
securities 4,391.7 139.6 52.9 4,478.4
Redeemable preferred stock 104.0 11.3 5.1 110.2
-------------------------------------
Total fixed maturity securities $13,081.7 $ 731.8 $ 196.5 $13,617.0
-------------------------------------
Total equity securities $ 364.4 $ 202.6 $ 19.5 $ 547.5
-------------------------------------
Securities Available for Sale:
-----------------------------
As of December 31, 1997:
U.S. Treasury securities and
obligations of U.S. government
authorities and agencies $ 85.4 $ 17.5 $ 102.9
Obligations of states, political
subdivisions and foreign govern-
ments 730.2 89.4 $ 3.0 816.6
Corporate securities 7,658.6 594.3 72.7 8,180.2
Mortgage-backed and asset-backed
securities 4,597.2 147.1 15.5 4,728.8
Redeemable preferred stock 102.3 10.3 2.6 110.0
-------------------------------------
Total fixed maturity securities $13,173.7 $ 858.6 $ 93.8 $13,938.5
-------------------------------------
Total equity securities $ 226.4 $ 122.5 $ 2.5 $ 346.4
-------------------------------------
</TABLE>
71
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVESTMENT IN FIXED MATURITY AND EQUITY SECURITIES (Continued)
The amortized cost and estimated fair value of fixed maturity securities as
of December 31, 1998, by contractual repayment date of principal, are shown
below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
--------------------
(In Millions)
<S> <C> <C>
Securities Available for Sale:
------------------------------
Due in one year or less $ 479.8 $ 482.6
Due after one year through five years 3,131.7 3,236.6
Due after five years through ten years 2,923.1 3,033.4
Due after ten years 2,155.4 2,386.0
-------------------
8,690.0 9,138.6
Mortgage-backed and asset-backed securi-
ties 4,391.7 4,478.4
-------------------
Total $13,081.7 $13,617.0
-------------------
</TABLE>
Gross gains of $110.6 million, $69.1 million and $89.3 million and gross
losses of $35.9 million, $32.9 million and $29.9 million on securities
available for sale were realized during 1998, 1997 and 1996, respectively.
Major categories of investment income are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
---------------------------
(In Millions)
<S> <C> <C> <C>
Fixed maturity securities $ 915.9 $ 925.4 $ 820.7
Equity securities 17.5 12.8 17.8
Mortgage loans 174.6 129.5 109.4
Real estate 38.1 53.6 51.3
Policy loans 154.5 137.1 113.0
Other 100.2 75.5 82.6
---------------------------
Gross investment income 1,400.8 1,333.9 1,194.8
Investment expense 107.0 108.6 107.5
---------------------------
Net investment income $1,293.8 $1,225.3 $1,087.3
---------------------------
</TABLE>
72
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. INVESTMENT IN FIXED MATURITY AND EQUITY SECURITIES (Continued)
The change in gross unrealized gain on investments in available for sale
and trading securities is as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
------------------------
(In Millions)
<S> <C> <C> <C>
Available for sale securities:
Fixed maturity $(229.5) $223.5 $(168.6)
Equity 63.1 85.7 6.3
------------------------
Total $(166.4) $309.2 $(162.3)
------------------------
Trading securities:
Fixed maturity $ (2.5) $ (1.1) $ (0.5)
Equity 0.2
------------------------
Total $ (2.5) $ (1.1) $ (0.3)
------------------------
</TABLE>
As of December 31, 1998 and 1997, investments in fixed maturity securities
with a carrying value of $13.0 million and $14.4 million, respectively,
were on deposit with state insurance departments to satisfy regulatory
requirements.
No investment, aggregated by issuer, exceeded 10% of total stockholder's
equity as of December 31, 1998.
7. FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------------------------------------
(In Millions)
<S> <C> <C> <C> <C>
Assets:
Fixed maturity and equity
securities (Note 6) $14,164.5 $14,164.5 $14,284.9 $14,284.9
Mortgage loans 2,788.7 2,911.2 1,922.1 1,990.9
Policy loans 3,901.2 3,901.2 3,769.2 3,769.2
Cash and cash equivalents 150.1 150.1 110.4 110.4
Derivative financial
instruments:
Interest rate floors, caps,
options and swaptions 67.9 67.9 22.9 22.9
Interest rate swap contracts 0.5 0.5
Foreign currency derivatives 108.2 108.2 4.1 4.1
Liabilities:
Guaranteed interest contracts 5,665.3 5,751.0 3,982.0 4,035.7
Deposit liabilities 599.9 626.7 733.5 737.4
Annuity liabilities 1,448.0 1,430.1 1,883.5 1,872.6
Short-term debt 295.5 295.5 104.0 104.0
Surplus notes 149.6 176.0 149.6 164.7
Derivative financial
instruments:
Options written 1.6 1.6
Interest rate swap contracts 23.3 23.3
Asset swap contracts 3.6 3.6 12.6 12.6
Credit default and total
return swaps 9.1 9.1 4.0 4.0
</TABLE>
73
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. FINANCIAL INSTRUMENTS (Continued)
The following methods and assumptions were used to estimate the fair value
of these financial instruments as of December 31, 1998 and 1997:
MORTGAGE LOANS
The estimated fair value of the mortgage loan portfolio is determined by
discounting the estimated future cash flows, using a year-end market rate
which is applicable to the yield, credit quality and average maturity of
the composite portfolio.
POLICY LOANS
The carrying amounts of policy loans are a reasonable estimate of their
fair values.
CASH AND CASH EQUIVALENTS
The carrying amounts of these items are a reasonable estimate of their fair
values.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives are financial instruments whose value or cash flows are
"derived" from another source, such as an underlying security. They can
facilitate total return and, when used for hedging, they achieve the lowest
cost and most efficient execution of positions. Derivatives can also be
used to leverage by using very large notional amounts or by creating
formulas that multiply changes in the underlying security. The Company's
approach is to avoid highly leveraged or overly complex investments. The
Company utilizes certain derivative financial instruments to diversify its
business risk and to minimize its exposure to fluctuations in market
prices, interest rates or basis risk as well as for facilitating total
return. Risk is limited through modeling derivative performance in product
portfolios for hedging and setting loss limits in total return portfolios.
Derivatives used by the Company involve elements of credit risk and market
risk in excess of amounts recognized in the accompanying consolidated
financial statements. The notional amounts of these instruments reflect the
extent of involvement in the various types of financial instruments. The
estimated fair values of these instruments are based on dealer quotations
or internal price estimates believed to be comparable to dealer quotations.
These amounts estimate what the Company would have to pay or receive if the
contracts were terminated at that time. The Company determines, on an
individual counterparty basis, the need for collateral or other security to
support financial instruments with off-balance sheet counterparty risk.
74
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. FINANCIAL INSTRUMENTS (Continued)
A reconciliation of the notional or contract amounts and discussion of the
various derivative instruments is as follows:
<TABLE>
<CAPTION>
Balance Terminations Balance
Beginning and End
of Year Acquisitions Maturities of Year
--------------------------------------------
(In Millions)
<S> <C> <C> <C> <C>
December 31, 1998:
-----------------
Interest rate floors, caps,
options and swaptions $2,730.0 $ 160.6 $ 237.6 $2,653.0
Interest rate swap
contracts 2,026.1 960.8 378.3 2,608.6
Asset swap contracts 67.4 30.3 34.5 63.2
Credit default and total
return swaps 288.5 771.5 410.4 649.6
Financial futures contracts 214.1 4,108.4 3,713.6 608.9
Foreign currency
derivatives 207.0 959.4 35.2 1,131.2
December 31, 1997:
-----------------
Interest rate floors, caps,
options and swaptions 4,538.2 1,644.2 3,452.4 2,730.0
Interest rate swap
contracts 988.3 1,356.0 318.2 2,026.1
Asset swap contracts 30.0 47.4 10.0 67.4
Credit default and total
return swaps 356.5 98.9 166.9 288.5
Financial futures contracts 609.2 3,930.6 4,325.7 214.1
Foreign currency
derivatives 41.4 217.0 51.4 207.0
</TABLE>
Interest Rate Floors, Caps, Options and Swaptions
-------------------------------------------------
The Company uses interest rate floors, caps, options and swaptions to hedge
against fluctuations in interest rates and to take positions in its total
return portfolios. Interest rate floor agreements entitle the Company to
receive the difference when the current rate of the underlying index is
below the strike rate. Interest rate cap agreements entitle the Company to
receive the difference when the current rate of the underlying index is
above the strike rate. Options purchased involve the right, but not the
obligation, to purchase the underlying securities at a specified price
during a given time period. Swaptions are options to enter into a swap
transaction at a specified price. The Company uses written covered call
options on a limited basis. Gains and losses on covered calls are offset by
gains and losses on the underlying position. Floors, caps and options are
reported as assets and options written are reported as liabilities in the
accompanying consolidated statements of financial condition. Cash
requirements for these instruments are generally limited to the premium
paid by the Company at acquisition. The purchase premium of these
instruments is amortized on a constant effective yield basis and included
as a component of net investment income in the accompanying consolidated
statements of operations over the term of the agreement. Interest rate
floors and caps, options and swaptions mature during the years 1999 through
2017.
Interest Rate Swap Contracts
----------------------------
The Company uses interest rate swaps to manage interest rate risk and to
take positions in its total return portfolios. The interest rate swap
agreements generally involve the exchange of fixed and floating rate
interest payments or the exchange of floating to floating interest payments
tied to different indexes. Generally, no premium is paid to enter into the
contract and no principal payments are made by either party. The amounts to
be received or paid pursuant to these agreements are accrued and recognized
through an adjustment to net investment income in the accompanying
consolidated statements of operations over the life of the agreements. The
interest rate swap contracts mature during the years 1999 through 2021.
75
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. FINANCIAL INSTRUMENTS (Continued)
Asset Swap Contracts
--------------------
The Company uses asset swap contracts to manage interest rate and equity
risk to better match portfolio duration to liabilities. Asset swap
contracts involve the exchange of upside equity potential for fixed income
streams. The amounts to be received or paid pursuant to these agreements
are accrued and recognized through an adjustment to net investment income
in the accompanying consolidated statements of operations over the life of
the agreements. The asset swap contracts mature during the years 2000
through 2005.
Credit Default and Total Return Swaps
-------------------------------------
The Company uses credit default and total return swaps to take advantage of
market opportunities. Credit default swaps involve the receipt of fixed
rate payments in exchange for assuming potential credit exposure of an
underlying security. Total return swaps involve the exchange of floating
rate payments for the total return performance of a specified index or
market. The amounts to be received or paid pursuant to these agreements are
accrued and recognized through an adjustment to net investment income in
the accompanying consolidated statements of operations over the life of the
agreements. Credit default and total return swaps mature during the years
1999 through 2028.
Financial Futures Contracts
---------------------------
The Company uses exchange-traded financial futures contracts to hedge cash
flow timing differences between assets and liabilities and overall
portfolio duration. Assets and liabilities are rarely acquired or sold at
the same time, which creates a need to hedge their change in value during
the unmatched period. In addition, foreign currency futures may be used to
hedge foreign currency risk on non-U.S. dollar denominated securities.
Financial futures contracts obligate the holder to buy or sell the
underlying financial instrument at a specified future date for a set price
and may be settled in cash or by delivery of the financial instrument.
Price changes on futures are settled daily through the required margin cash
flows. The notional amounts of the contracts do not represent future cash
requirements, as the Company intends to close out open positions prior to
expiration.
Foreign Currency Derivatives
----------------------------
The Company enters into foreign exchange forward contracts and swaps to
hedge against fluctuations in foreign currency exposure. Foreign currency
derivatives involve the exchange of foreign currency denominated payments
for U.S. dollar denominated payments. Gains and losses on foreign exchange
forward contracts offset losses and gains, respectively, on the related
foreign currency denominated assets. The amounts to be received or paid
under the foreign currency swaps are accrued and recognized through an
adjustment to net investment income in the accompanying consolidated
statements of operations over the life of the agreements. Foreign currency
derivatives expire during the years 1999 through 2013.
GUARANTEED INTEREST CONTRACTS AND DEPOSIT LIABILITIES
The estimated fair value of fixed maturity guaranteed interest contracts is
estimated using the rates currently offered for deposits of similar
remaining maturities. The estimated fair value of deposit liabilities with
no defined maturities is the amount payable on demand.
ANNUITY LIABILITIES
The estimated fair value of annuity liabilities approximates carrying value
and primarily includes policyholder deposits and accumulated credited
interest.
76
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7.FINANCIAL INSTRUMENTS (Continued)
SHORT-TERM DEBT
The carrying amount of short-term debt is a reasonable estimate of its fair
value because the interest rates are variable and based on current market
values.
SURPLUS NOTES
The estimated fair value of surplus notes is based on market quotes.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Pacific Life has issued certain contracts to 401(k) plans totaling $1.6
billion as of December 31, 1998, pursuant to the terms of which the 401(k)
plan retains direct ownership and control of the assets related to these
contracts. Pacific Life agrees to provide benefit responsiveness in the
event that plan benefit requests exceed plan cash flows. In return for this
guarantee, Pacific Life receives a fee which varies by contract. Pacific
Life sets the investment guidelines to provide for appropriate credit
quality and cash flow matching.
8. UNIVERSAL LIFE, ANNUITY AND OTHER INVESTMENT CONTRACT DEPOSITS
The detail of universal life, annuity and other investment contract deposit
liabilities is as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
-------------------
(In Millions)
<S> <C> <C>
Universal life $10,218.0 $10,012.0
Annuity 1,429.0 1,817.4
Other investment contract depos-
its 6,326.0 4,815.1
-------------------
$17,973.0 $16,644.5
-------------------
</TABLE>
The detail of universal life, annuity and other investment contract
deposits policy fees and interest credited net of reinsurance ceded is as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
--------------------------
(In Millions)
<S> <C> <C> <C>
Policy fees:
Universal life $ 439.9 $ 377.5 $ 318.4
Annuity 82.1 50.3 26.6
Other investment contract de-
posits 3.3 3.4 3.6
--------------------------
Total policy fees $ 525.3 $ 431.2 $ 348.6
--------------------------
Interest credited:
Universal life $ 440.8 $ 368.2 $ 284.3
Annuity 79.8 116.8 138.7
Other investment contract de-
posits 360.2 312.8 242.0
--------------------------
Total interest credited $ 880.8 $ 797.8 $ 665.0
--------------------------
</TABLE>
77
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. SHORT-TERM AND LONG-TERM DEBT
Pacific Life borrows for short-term needs by issuing commercial paper.
Principal of $234.9 million and interest payable of $0.6 million was
outstanding as of December 31, 1998, bearing an average interest rate of
5.22%, and was repaid in January 1999. There was no commercial paper debt
outstanding as of December 31, 1997. Pacific Life has a revolving credit
facility available of $350 million as of December 31, 1998 and 1997. There
was no debt outstanding under the revolving credit facility as of December
31, 1998 and 1997.
PAM had bank borrowings outstanding of $60 million and $104 million as of
December 31, 1998 and 1997, respectively. The interest rate averaged 5.8%,
5.8% and 5.6% for the years ended December 31, 1998, 1997 and 1996,
respectively. Outstanding debt is due and payable in 1999 and subject to
renewal. The borrowing limit for PAM as of December 31, 1998 and 1997 was
$200 million.
Pacific Life has $150 million of long-term debt which consists of surplus
notes outstanding at an interest rate of 7.9% maturing on December 30,
2023. Interest is payable semiannually on June 30 and December 30. The
surplus notes may not be redeemed at the option of Pacific Life or any
holder of the surplus notes. The surplus notes are unsecured and
subordinated to all present and future senior indebtedness and policy
claims of Pacific Life. Each payment of interest on and the payment of
principal of the surplus notes may be made only with the prior approval of
the Insurance Commissioner of the State of California. Interest expense
amounted to $11.8 million for each of the years ended December 31, 1998,
1997 and 1996 and is included in net investment income on the accompanying
consolidated statements of operations.
10. INCOME TAXES
The Company accounts for income taxes using the liability method. The
deferred tax consequences of changes in tax rates or laws must be computed
on the amounts of temporary differences and carryforwards existing at the
date a new tax law is enacted. Recording the effects of a change involves
adjusting deferred tax liabilities and assets with a corresponding charge
or credit recognized in the provision for income taxes. The objective is to
measure a deferred tax liability or asset using the enacted tax rates and
laws expected to apply to taxable income in the periods in which the
deferred tax liability or asset is expected to be settled or realized.
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
----------------------------
(In Millions)
<S> <C> <C> <C>
Current $ 134.1 $ 127.9 $ 163.5
Deferred (20.6) (14.4) (49.8)
----------------------------
$ 113.5 $ 113.5 $ 113.7
----------------------------
</TABLE>
78
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (Continued)
The sources of the Company's provision for deferred taxes are as follows:
<TABLE>
Years Ended December 31,
1998 1997 1996
----------------------------
<S> <C> <C> <C>
(In Millions)
Non deductible reserves $ 28.2 $ (27.6) $ (6.4)
Duration hedging 20.8 (2.6) (14.9)
Partnership income 20.8
Deferred policy acquisition costs (12.6) (18.0) 2.1
Investment valuation (24.5) 3.9 (7.3)
Policyholder reserves (29.5) 20.1 (28.5)
Other (2.6) 9.8 5.2
----------------------------
Deferred taxes from operations 0.6 (14.4) (49.8)
Release of subsidiary deferred taxes (21.2)
----------------------------
Deferred tax provision $ (20.6) $ (14.4) $ (49.8)
----------------------------
</TABLE>
The Company's acquisition of a controlling interest in a subsidiary allowed
such subsidiary to be included in PMHC's consolidated income tax return.
That inclusion resulted in the release of certain deferred taxes.
A reconciliation of the provision for income taxes based on the prevailing
corporate statutory tax rate to the provision reflected in the consolidated
financial statements is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
----------------------------
(In Millions)
<S> <C> <C> <C>
Income taxes at the statutory rate $ 124.2 $ 101.3 $ 98.1
Equity tax (5.0) 5.0 16.3
Amortization of intangibles on equity
method investments 4.3 7.6 6.5
Non-taxable investment income (3.6) (2.6) (2.1)
Other (6.4) 2.2 (5.1)
----------------------------
Provision for income taxes $ 113.5 $ 113.5 $ 113.7
----------------------------
</TABLE>
79
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INCOME TAXES (Continued)
The net deferred tax liability is comprised of the following tax effected
temporary differences:
<TABLE>
<CAPTION>
December 31,
1998 1997
----------------
<S> <C> <C>
(In Millions)
Policyholder reserves $ 254.3 $ 224.8
Investment valuation 44.7 20.2
Deferred compensation 33.7 25.9
Dividends 7.6 7.7
Non deductible reserves 5.9 34.1
Depreciation (2.4) (2.5)
Duration hedging (8.5) 12.3
Deferred policy acquisition costs (13.3) (25.9)
Partnership income (20.8)
Other (1.4) 3.8
----------------
Deferred taxes from operations 299.8 300.4
Deferred taxes assumed in acquisition of
subsidiary 4.8
Issuance of partnership units by affiliate (74.9) (47.9)
Unrealized gain on securities available for
sale (272.3) (307.8)
----------------
Net deferred tax liability $ (42.6) $ (55.3)
----------------
</TABLE>
80
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMPREHENSIVE INCOME
The Company displays comprehensive income and its components in the
accompanying consolidated statements of stockholder's equity and the note
herein. The Company's only component of other comprehensive income,
unrealized gain (loss) on securities available for sale, is shown net of
reclassification adjustments, as defined by SFAS No. 130, and net of income
tax in the accompanying consolidated statements of stockholder's equity. The
disclosure of the gross components of other comprehensive income is as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
----------------------------
(In Millions)
<S> <C> <C> <C>
Calculation of Holding Gain (Loss):
-----------------------------------
Gross holding gain (loss) on
securities available for sale $ (13.4) $ 338.2 $ (75.7)
Tax (expense) benefit 4.5 (117.1) 26.5
----------------------------
Holding gain (loss) on securities
available for sale, net of tax $ (8.9) $ 221.1 $ (49.2)
----------------------------
Calculation of Reclassification Adjustment:
------------------------------------------
Realized gain on sale of securities
available for sale $ 89.3 $ 38.9 $ 82.6
Tax expense (31.3) (13.8) (29.0)
----------------------------
Reclassification adjustment, net of tax $ 58.0 $ 25.1 $ 53.6
----------------------------
Amounts Reported in Other Comprehensive Income:
----------------------------------------------
Holding gain (loss) on securities
available for sale, net of tax $ (8.9) $ 221.1 $ (49.2)
Less reclassification adjustment, net of tax 58.0 25.1 53.6
----------------------------
Net unrealized gain (loss) recognized
in other comprehensive income $ (66.9) $ 196.0 $ (102.8)
----------------------------
</TABLE>
81
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. REINSURANCE
The Company has reinsurance agreements with other insurance companies for
the purpose of diversifying risk and limiting exposure on larger risks or,
in the case of a producer-owned reinsurance company, to diversify risk and
retain top producing agents. Amounts receivable from reinsurers for
reinsurance on future policy benefits, universal life deposits, and unpaid
losses is reported as an asset and included in other assets on the
accompanying consolidated statements of financial condition. All assets
associated with reinsured business remain with, and under the control of
the Company. Approximate amounts recoverable (payable) from (to) reinsurers
include the following amounts:
<TABLE>
<CAPTION>
December 31,
1998 1997
-----------------------
(In Millions)
<S> <C> <C>
Reinsured universal life deposits $ (46.0) $(39.6)
Future policy benefits 108.9 92.2
Unpaid claims 12.5 14.0
Paid claims 24.3 10.2
</TABLE>
As of December 31, 1998, 79% of the reinsurance recoverables were from one
reinsurer, of which 100% is secured by payables to the reinsurer. To the
extent that the assuming companies become unable to meet their obligations
under these agreements, the Company remains contingently liable. The
Company does not anticipate nonperformance by the assuming companies.
Revenues and benefits are shown net of the following reinsurance
transactions:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
-------------------------------
(In Millions)
<S> <C> <C> <C>
Ceded reinsurance netted against insurance premiums $ 82.7 $ 70.7 $ 44.3
Assumed reinsurance included in insurance premiums 17.2 18.1 17.8
Ceded reinsurance netted against policy fees 65.0 77.5 71.0
Ceded reinsurance netted against net investment income 203.3 204.9 192.5
Ceded reinsurance netted against interest credited 162.8 165.8 155.2
Ceded reinsurance netted against policy benefits 121.3 93.4 56.7
Assumed reinsurance included in policy benefits 17.7 12.7 9.9
</TABLE>
82
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SEGMENT INFORMATION
The Company's six operating segments are Individual Insurance,
Institutional Products Group, Annuities, Group Employee Benefits, Broker-
Dealers and Investment Management. These segments have been identified
based on differences in products and services offered. All other activity
is included in Corporate and Other.
The Individual Insurance segment offers universal life, variable universal
life and other life insurance products to individuals, small businesses and
corporations through a network of distribution channels that include branch
offices, marketing organizations, national accounts and a national producer
group. The Institutional Products Group segment offers investment and
annuity products to pension fund sponsors and other institutional investors
primarily through its home office marketing team. The Annuities segment
offers variable and fixed annuities to individuals, small businesses and
qualified plans through financial institutions, National Association of
Securities Dealers ("NASD") firms, and regional and national wirehouses.
The Group Employee Benefits segment offers group life, health and dental
insurance, and stop loss insurance products to corporate, government and
labor-management-negotiated plans. The group life, health and dental
insurance is distributed through a network of sales offices and the stop
loss insurance is distributed through a network of third party
administrators. The Broker-Dealers segment includes five NASD registered
firms that provide securities and affiliated insurance brokerage services
and investment advisory services through more than 3,100 registered
representatives. The Investment Management segment is primarily comprised
of the Company's investment in PIMCO Advisors (Note 1). PIMCO Advisors
offers a diversified range of investment products through separately
managed accounts, and institutional, retail and offshore funds.
Corporate and Other primarily includes investment income, expenses and
assets not attributable to the major segments and the operations of the
Company's reinsurance subsidiary located in the United Kingdom. Corporate
and Other also includes the elimination of intersegment revenues, expenses
and assets.
The Company uses the same accounting policies and procedures to measure
segment income and assets as it uses to measure its consolidated net income
and assets. Net investment income and capital gains are allocated based on
invested assets purchased and held as is required for transacting the
business of that segment. Overhead expenses are allocated based on services
provided. Interest expense is allocated based on the short-term borrowing
needs of the segment and is included in net investment income. The income
tax provision is allocated based on each segment's actual tax liability.
Intersegment revenues include commissions paid by the Individual Insurance
segment and the Annuities segment for variable product sales to the Broker-
Dealers segment. Investment Management segment assets have been reduced by
an intersegment note payable of $110 million as of December 31, 1998. The
related intersegment note receivable is included in Corporate and Other
segment assets.
The Company generates substantially all of its revenues and income from
customers located in the United States. Additionally, substantially all of
the Company's assets are located in the United States.
Depreciation expense and capital expenditures are not material and have not
been reported herein. The Company's significant non cash item is interest
credited to universal life, annuity and other investment contract deposits
and is disclosed herein.
83
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SEGMENT INFORMATION (Continued)
Financial information for each of the business segments is as follows:
<TABLE>
<CAPTION>
Institutional Group
Individual Products Employee Broker- Investment Corporate
Insurance Group Annuities Benefits Dealers Management and Other Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
External customers and (In Millions)
other revenue
December 31, 1998 $ 414.6 $ 43.3 $ 124.0 $521.2 $236.1 $ 17.1 $ 17.4 $ 1,373.7
December 31, 1997 379.2 61.6 83.3 480.6 154.0 21.8 3.2 1,183.7
December 31, 1996 335.4 36.8 41.4 431.7 82.2 22.2 5.7 955.4
Intersegment revenues
December 31, 1998 185.3 (185.3) -
December 31, 1997 143.3 (143.3) -
December 31, 1996 98.0 (98.0) -
Net investment income
December 31, 1998 565.7 565.5 88.6 23.1 0.9 8.0 42.0 1,293.8
December 31, 1997 485.2 509.6 149.4 24.9 0.8 6.2 49.2 1,225.3
December 31, 1996 404.1 465.5 149.6 21.9 0.8 4.8 40.6 1,087.3
Net realized capital
gains (losses)
December 31, 1998 3.4 (13.6) 4.6 1.7 4.0 38.6 38.7
December 31, 1997 9.8 12.8 0.6 2.0 20.8 39.3 85.3
December 31, 1996 5.7 5.0 (4.5) 2.3 1.1 34.4 44.0
Net income of equity
method investees
December 31, 1998 103.0 103.0
December 31, 1997 80.1 80.1
December 31, 1996 61.3 61.3
Total revenues
December 31, 1998 983.7 595.2 217.2 546.0 422.3 132.1 (87.3) 2,809.2
December 31, 1997 874.2 584.0 233.3 507.5 298.1 128.9 (51.6) 2,574.4
December 31, 1996 745.2 507.3 186.5 455.9 181.0 89.4 (17.3) 2,148.0
Segment profit (loss)
before income tax
provision
December 31, 1998 151.1 74.6 34.1 10.3 9.9 60.1 14.9 355.0
December 31, 1997 132.4 98.3 23.5 28.8 6.4 24.6 (24.5) 289.5
December 31, 1996 109.3 80.7 (16.5) 26.3 4.3 34.1 42.1 280.3
Income tax provision
(benefit)
December 31, 1998 52.6 21.2 11.3 2.9 4.5 2.1 18.9 113.5
December 31, 1997 55.8 33.9 9.4 9.1 2.7 10.1 (7.5) 113.5
December 31, 1996 44.8 27.5 (0.4) 6.2 1.8 21.5 12.3 113.7
Segment net income
(loss)
December 31, 1998 98.5 53.4 22.8 7.4 5.4 58.0 (4.0) 241.5
December 31, 1997 76.6 64.4 14.1 19.7 3.7 14.5 (17.0) 176.0
December 31, 1996 64.5 53.2 (16.1) 20.1 2.5 12.6 29.8 166.6
Interest credited on
universal life, annuity
and other investment
contract deposits
December 31, 1998 449.6 354.1 71.0 6.1 880.8
December 31, 1997 378.8 299.8 106.2 13.0 797.8
December 31, 1996 290.3 232.9 132.8 9.0 665.0
Segment assets
As of December 31, 1998 14,578.2 15,221.0 8,384.2 361.1 55.8 267.3 1,016.3 39,883.9
As of December 31, 1997 13,426.7 12,241.7 6,310.8 368.6 52.4 305.4 1,303.2 34,008.8
</TABLE>
84
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. PENSION PLANS, POSTRETIREMENT BENEFITS AND OTHER PLANS
PENSION PLANS
Pacific Life has defined benefit pension plans which cover all eligible
employees who have one year of continuous employment and have attained age
21. The full-benefit vesting period for all participants is five years.
Benefits for employees are based on years of service and the highest five
consecutive years of compensation during the last ten years of employment.
Pacific Life's funding policy is to contribute amounts to the plan
sufficient to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974, plus such additional
amounts as may be determined appropriate. Contributions are intended to
provide not only for benefits attributed to employment to date but also for
those expected to be earned in the future. All such contributions are made
to a tax-exempt trust. Plan assets consist primarily of group annuity
contracts issued by Pacific Life, as well as mutual funds managed by an
affiliate of Pacific Life.
Components of net periodic pension cost are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
----------------------------
(In Millions)
<S> <C> <C> <C>
Service cost - benefits earned during
the year $ 4.0 $ 3.6 $ 3.7
Interest cost on projected benefit
obligation 10.9 10.4 9.8
Expected return on plan assets (15.0) (12.8) (11.2)
Amortization of net obligations and
prior service cost (1.4) (1.4) (1.4)
----------------------------
Net periodic pension cost (benefit) $ (1.5) $ (0.2) $ 0.9
----------------------------
</TABLE>
85
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. PENSION PLANS, POSTRETIREMENT BENEFITS AND OTHER PLANS (Continued)
The following tables set forth the pension plans' reconciliation of benefit
obligation, plan assets and funded status for the years ended:
<TABLE>
<CAPTION>
December 31,
1998 1997
--------------
(In Millions)
<S> <C> <C>
Change in Benefit Obligation:
-----------------------------
Benefit obligation, beginning of year $157.9 $140.9
Service cost 4.0 3.6
Interest cost 10.9 10.4
Plan expense (0.3) (0.2)
Actuarial loss 11.9 10.1
Benefits paid (6.6) (6.9)
--------------
Benefit obligation, end of year $177.8 $157.9
--------------
Change in Plan Assets:
----------------------
Fair value of plan assets, beginning of year $180.3 $154.2
Actual return on plan assets 21.9 33.2
Plan expense (0.3) (0.2)
Benefits paid (6.6) (6.9)
--------------
Fair value of plan assets, end of year $195.3 $180.3
--------------
Funded Status Reconciliation:
-----------------------------
Funded status $ 17.5 $ 22.4
Unrecognized transition asset (3.6) (4.8)
Unrecognized prior service cost (1.0) (1.2)
Unrecognized actuarial gain (9.7) (14.7)
--------------
Prepaid pension cost $ 3.2 $ 1.7
--------------
</TABLE>
In determining the actuarial present value of the projected benefit
obligation as of December 31, 1998 and 1997, the weighted average discount
rate used was 6.5% and 7.0%, respectively, and the rate of increase in
future compensation levels was 5.0% and 5.5%, respectively. The expected
long-term rate of return on plan assets was 8.5% in 1998 and 1997.
In connection with the merger of PCL into Pacific Life as discussed in Note
4, Pacific Life assumed sponsorship of PCL's defined benefit pension plan.
This pension plan provides for retirement income benefits at age 65 with
reduced benefits for early retirement. Effective December 31, 1997, PCL's
defined benefit plan merged into Pacific Life's plan. All benefits
associated with PCL's plan remain unchanged subsequent to the merger.
POSTRETIREMENT BENEFITS
Pacific Life sponsors a defined benefit health care plan and a defined
benefit life insurance plan (the "Plans") that provide postretirement
benefits for all eligible retirees and their dependents. Generally,
qualified employees may become eligible for these benefits if they reach
normal retirement age, have been covered under Pacific Life's policy as an
active employee for a minimum continuous period prior to the date retired,
and have an employment date before January 1, 1990. The Plans contain cost-
sharing features such as deductibles and
86
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. PENSION PLANS, POSTRETIREMENT BENEFITS AND OTHER PLANS (Continued)
coinsurance, and require retirees to make contributions which can be
adjusted annually. Pacific Life's commitment to qualified employees who
retire after April 1, 1994 is limited to specific dollar amounts. Pacific
Life reserves the right to modify or terminate the Plans at any time. As in
the past, the general policy is to fund these benefits on a pay-as-you-go
basis.
The net periodic postretirement benefit cost for the years ended December
31, 1998, 1997 and 1996 is $0.7 million, $0.8 million and $1.4 million,
respectively. As of December 31, 1998 and 1997, the accumulated benefit
obligation is $19.3 million and $20.0 million, respectively. The fair value
of the plan assets as of December 31, 1998 and 1997 is zero. The amount of
accrued benefit cost included in other liabilities on the accompanying
consolidated statements of financial condition is $25.3 million and $26.0
million as of December 31, 1998 and 1997, respectively.
The Plans include both indemnity and HMO coverage. The assumed health care
cost trend rate used in measuring the accumulated benefit obligation for
indemnity coverage was 8% and 9% for 1998 and 1997, respectively, and is
assumed to decrease gradually to 3.5% in 2003 and remain at that level
thereafter. The assumed health care cost trend rate used in measuring the
accumulated benefit obligation for HMO coverage was 7% and 8% for 1998 and
1997, respectively, and is assumed to decrease gradually to 3% in 2003 and
remain at that level thereafter.
The amount reported is materially effected by the health care cost trend
rate assumptions. If the health care cost trend rate assumptions were
increased by 1%, the accumulated postretirement benefit obligation as of
December 31, 1998 would be increased by 8.0%, and the aggregate of the
service and interest cost components of the net periodic benefit cost would
increase by 7.5%. If the health care cost trend rate assumptions were
decreased by 1%, the accumulated postretirement benefit obligation as of
December 31, 1998 would be decreased by 6.8%, and the aggregate of the
service and interest cost components of the net periodic benefit cost would
decrease by 6.5%.
The discount rate used in determining the accumulated postretirement benefit
obligation is 6.5% and 7.0% for 1998 and 1997, respectively.
OTHER PLANS
Pacific Life provides a voluntary Retirement Incentive Savings Plan
("RISP") pursuant to Section 401(k) of the Internal Revenue Code covering
all eligible employees of the Company. Effective October 1, 1997, Pacific
Life's RISP changed the matching percentage of each employee's
contributions from 50% to 75%, up to a maximum of 6% of eligible employee
compensation and restricted the matched investment to an Employee Stock
Ownership Plan ("ESOP") sponsored by Pacific LifeCorp. The ESOP was formed
at the time of the Conversion and is currently only available to the
participants of the RISP in the form of matching contributions.
Pacific Life also has a deferred compensation plan which permits certain
employees to defer portions of their compensation and earn a guaranteed
interest rate on the deferred amounts. The interest rate is determined
annually and is guaranteed for one year. The compensation which has been
deferred has been accrued and the primary expense, other than compensation,
related to this plan is interest on the deferred amounts.
The Company also has performance based incentive compensation plans for its
employees.
15. TRANSACTIONS WITH AFFILIATES
Pacific Life serves as the investment advisor for the Pacific Select Fund,
the investment vehicle provided to the Company's variable life and variable
annuity contractholders. Pacific Life charges fees based upon the net asset
value of the portfolios of the Pacific Select Fund, which amounted to $42.1
million, $27.5 million and $14.3 million for the years ended December 31,
1998, 1997 and 1996, respectively. In addition, Pacific Life provides
certain support services to the Pacific Select Fund for an administration
fee which is based on an
87
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. TRANSACTIONS WITH AFFILIATES (Continued)
allocation of actual costs. Such administration fees amounted to $232,000,
$165,000 and $108,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
PIMCO Advisors provides investment advisory services to the Company for
which the fees amounted to $16.9 million, $11.4 million and $6.2 million
for the years ended December 31, 1998, 1997 and 1996, respectively.
Included in equity securities on the accompanying consolidated statements
of financial condition are investments in mutual funds and other
investments managed by PIMCO Advisors which amounted to $40.3 million and
$46.5 million as of December 31, 1998 and 1997, respectively.
Pacific Life provides certain support services to PIMCO Advisors. Charges
for these services are based on an allocation of actual costs and amounted
to $1.2 million, $1.2 million and $1.4 million for the years ended December
31, 1998, 1997 and 1996, respectively.
16. TERMINATION AND NON-COMPETITION AGREEMENTS
Effective November 15, 1994, in connection with the PIMCO Advisors
transaction (Note 1), termination and non-competition agreements were
entered into with certain former key employees of PAM's subsidiaries. These
agreements provide terms and conditions for the allocation of future
proceeds received from distributions and sales of certain PIMCO Advisors
units and other noncompete payments. When the amount of future obligations
to be made to a key employee is determinable, a liability for such amount
is established.
For the years ended December 31, 1998, 1997 and 1996, approximately $49.4
million, $85.8 million and $35.3 million, respectively, is included in
operating expenses on the accompanying consolidated statements of
operations related to the termination and non-competition agreements. This
includes payments of $43.1 million in 1997 to former key employees who
elected to sell to PAM's subsidiaries their rights to the future proceeds
from the PIMCO Advisors units.
17. COMMITMENTS
The Company has outstanding commitments to make investments primarily in
fixed maturities, mortgage loans, limited partnerships and other
investments as follows (In Millions):
<TABLE>
<CAPTION>
Years Ending December 31:
------------------------
<S> <C>
1999 $172.7
2000-2003 202.1
2004 and thereafter 55.9
------
Total $430.7
------
</TABLE>
The Company leases office facilities under various non-cancelable operating
leases. Aggregate minimum future commitments as of December 31, 1998
through the term of the leases are approximately $37.5 million.
88
<PAGE>
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. LITIGATION
The Company was named in civil litigation proceedings similar to other
litigation brought against many life insurers alleging misconduct in the
sale of products, sometimes referred to as market conduct litigation. The
class of plaintiffs included, with some exceptions, all persons who owned,
as of December 31, 1997 (or as of the date of policy termination, if
earlier), individual whole life, universal life or variable life insurance
policies sold by the Company on or after January 1, 1982. The Company has
settled this litigation pursuant to a final settlement agreement approved by
the Court in November 1998. The settlement agreement is currently being
implemented. The cost of the settlement has been included in the
accompanying consolidated statements of operations during the three years
ended December 31, 1998.
Further, the Company is a respondent in a number of other legal
proceedings, some of which involve allegations for extra-contractual
damages. In the opinion of management, the outcome of the foregoing
proceedings is not likely to have a material adverse effect on the
consolidated financial position or results of operations of the Company.
----------------------------------------------------------------------------
89
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATIONS
<S> <C>
Illustrations 1 through 10, which appear on the following pages, illustrate how
the death benefit, Accumulated Value and Net Cash Surrender Value of a
hypothetical Policy may vary over an extended period of time, based on certain
hypothetical rates of return.
These illustrations are based on a hypothetical policy with the following
If you ask us, we'll provide you with characteristics:
different kinds of illustrations:
. the Face Amount is $1,500,000
. Illustrations similar to the ones in . the annual premium for Illustrations 1, 2, 5, 6, 7, 8, 9 and 10 is $32,484
this prospectus, but based on . the annual premium for Illustrations 3 and 4 is $121,904
information you give us about the Ages . on the Policy Date, the people insured by the Policy are:
of the two people to be insured by the - a 55-year old male select non-smoker
Policy, their risk classes, the Face - a 55-year old female select non-smoker
Amount, the death benefit and premium
payments. The death benefit option and the cost of insurance rates vary by illustration,
as follows:
. Illustrations that show the allocation
of premium payments to specified Variable ------------------------------------------------------------------
Accounts. These will reflect the expenses Death benefit Cost of insurance rate
of the Portfolio of the Fund in which the ------------------------------------------------------------------
Variable Account invests. Illustration 1 Option A Current
Illustration 2 Option A Guaranteed
. Illustrations that use a hypothetical Illustration 3 Option B Current
gross rate of return that's greater Illustration 4 Option B Guaranteed
than 12%. These are available only Illustration 5 Option C Current
to certain large institutional investors. Illustration 6 Option C Guaranteed
Illustration 7 Option D Current
Illustration 8 Option D Guaranteed
Illustration 9 Option A Current
Illustration 10 Option A Guaranteed
------------------------------------------------------------------
Assumptions
The illustrations are based on the guideline premium test. Here are the
assumptions we're using:
. The hypothetical rates of return are equal to constant gross annual rates of
0%, 6% and 12%.
. All premium payments are made at the beginning of the policy year.
. An amount equal to the annual premium, after taxes, is invested to earn
interest at 5% compounded annually for the second column of each table, Total
premiums paid plus interest at 5%, which shows the amount that would
accumulate.
. No policy loans have been taken out.
. The amounts shown for the death benefits, Accumulated Values and Net Cash
Surrender Values reflect charges deducted from the Variable Accounts. This
means that the net investment return on the Variable Accounts is lower than
the gross investment return on the assets.
. The amounts shown for the death benefits, Accumulated Values and Net Cash
Surrender Values also reflect premium loads, administrative charges and
mortality and expense risk charges.
The fund's investment advisory fees and . Illustrations 1 to 8 assume total annual advisory fees and expenses of .77%
expenses are shown in An Overview of of total average daily net assets of the Fund. This reflects average advisory
Pacific Select Estate Preserver II. fees of .69% and average expenses of .08% based upon fees and expenses of
Portfolios available as Investment Options under the Policy.
. Illustrations 9 and 10 assume total annual advisory fees and expenses of .72%
of total average daily net assets of the Fund. This reflects weighted average
advisory fees of .65% and weighted average expenses of .08% based upon fees
and expenses of Portfolios available as Investment Options under the Policy.
</TABLE>
90
<PAGE>
<TABLE>
<S> <C>
. There are no charges against the Variable Accounts for income taxes but we
reserve the right to impose charges in the future.
Things to keep in mind
Here are a few things to keep in mind when reviewing the illustrations:
. The values shown would be different if, although the gross annual investment
rates of return averaged 0%, 6% or 12% over a period of years, they also rose
above or fell below those averages for individual Policy Years.
. After we've deducted the charges and fund expenses described in the
assumptions above, the illustrated gross annual investment rates of return of
0%, 6% and 12% correspond to approximate net annual rates of return of -
0.77%, 5.18%, and 11.14%, for illustrations 1 to 8 and -0.72%, 5.24% and
11.19% for illustrations 9 and 10.
. The amounts shown would be different if unisex insurance rates were used or
if the people insured by the Policy were females and insurance rates for
females were used.
. For the illustrations that assume current cost of insurance rates, the
amounts shown would be different if either person insured by the Policy was a
smoker and rates for smokers were used.
. The Fund expenses used in the illustrations do not include foreign taxes.
Here's what foreign taxes were for the year ended December 31, 1998:
-------------------------------------------
Percentage of average
Portfolio daily net assets
-------------------------------------------
Aggressive Equity 0.01%
Growth LT 0.01%
Equity Income 0.01%
Equity Index 0.01%
International 0.23%
Emerging Markets 0.26%
-------------------------------------------
91
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATIONS
<S> <C>
---------------------------------------------------------------------------------
Illustration 1
Death benefit Option A at current cost of insurance rates
Based on average annual advisory fees and expenses of the Portfolios
DEATH BENEFIT OPTION:A
FACE AMOUNT:$1,500,000
MALE SELECT NONSMOKER ISSUE AGE 55
FEMALE SELECT NONSMOKER ISSUE AGE 55
GUIDELINE PREMIUM TEST
ANNUAL PREMIUM:$32,484
---------------------------------------------------------------------------------
Flexible premium survivorship Total
variable universal life premiums
Illustration of death benefits, End of paid plus End of year DEATH BENEFIT assuming
Accumulated Values and Net Cash Surrender Policy interest at hypothetical gross annual investment return of
Values. Year 5% 0% 6% 12%
---------------------------------------------------------------------------------
All premium payments are illustrated as 1 $34,108 $1,500,000 $1,500,000 $1,500,000
if made at the beginning of the 2 $69,922 $1,500,000 $1,500,000 $1,500,000
Policy Year. 3 $107,526 $1,500,000 $1,500,000 $1,500,000
4 $147,011 $1,500,000 $1,500,000 $1,500,000
This illustration assumes no Policy loans 5 $188,469 $1,500,000 $1,500,000 $1,500,000
or partial withdrawals have been made. 6 $232,001 $1,500,000 $1,500,000 $1,500,000
7 $277,709 $1,500,000 $1,500,000 $1,500,000
The death benefits, Accumulated Values and 8 $325,703 $1,500,000 $1,500,000 $1,500,000
Cash Surrender Values will differ if 9 $376,096 $1,500,000 $1,500,000 $1,500,000
premiums are paid in different amounts 10 $429,009 $1,500,000 $1,500,000 $1,500,000
or frequencies. 15 $736,006 $1,500,000 $1,500,000 $1,500,000
20 $1,127,820 $1,500,000 $1,500,000 $2,012,746
The hypothetical investment rates shown 25 $1,627,885 $1,500,000 $1,500,000 $3,544,846
above and elsewhere in this prospectus 30 $2,266,109 $1,500,000 $1,989,939 $6,175,447
are illustrative only and should not be 35 $3,080,663 $1,500,000 $2,706,113 $10,534,716
interpreted as a representation of past ---------------------------------------------------------------------------------
or future investment results. Actual rates End of year End of year
of return may be more or less than those ACCUMULATED VALUE NET CASH SURRENDER VALUE
shown and will depend on a number of End of assuming hypothetical gross assuming hypothetical gross
factors, including the investment Policy annual investment return of annual investment return of
allocations made to Variable Accounts by Year 0% 6% 12% 0% 6% 12%
the Owner and the experience of the ---------------------------------------------------------------------------------
Accounts. No representation can be made by 1 $26,541 $28,201 $29,863 $26,541 $28,201 $29,863
us, the Separate Account or the Fund 2 $52,593 $57,564 $62,735 $52,593 $57,564 $62,735
that these hypothetical rates of return can 3 $78,129 $88,112 $98,910 $78,129 $88,112 $98,910
be achieved for any one year or sustained 4 $103,121 $119,874 $138,716 $103,121 $119,874 $138,716
over any period of time. 5 $127,540 $152,874 $182,518 $127,540 $152,874 $182,518
6 $151,465 $187,257 $230,843 $151,465 $187,257 $230,843
This is an illustration only. An 7 $175,101 $223,294 $284,390 $175,101 $223,294 $284,390
illustration is not intended to predict 8 $198,482 $261,100 $343,763 $198,482 $261,100 $343,763
actual performance. Interest rates, 9 $221,611 $300,765 $409,600 $221,611 $300,765 $409,600
dividends, and values set forth in the 10 $244,491 $342,382 $482,611 $244,491 $342,382 $482,611
illustration are not guaranteed. 15 $368,959 $599,433 $1,004,829 $368,959 $599,433 $1,004,829
20 $484,341 $925,148 $1,881,071 $484,341 $925,148 $1,881,071
25 $584,732 $1,349,172 $3,376,044 $584,732 $1,349,172 $3,376,044
30 $640,408 $1,895,180 $5,881,379 $640,408 $1,895,180 $5,881,379
35 $585,953 $2,577,251 $10,033,063 $585,953 $2,577,251 $10,033,063
---------------------------------------------------------------------------------
</TABLE>
92
<PAGE>
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
Illustration 2
Death benefit Option A at guaranteed cost of insurance rates
Based on average annual advisory fees and expenses of the Portfolios
DEATH BENEFIT OPTION:A
FACE AMOUNT:$1,500,000
MALE SELECT NONSMOKER ISSUE AGE 55
FEMALE SELECT NONSMOKER ISSUE AGE 55
GUIDELINE PREMIUM TEST
ANNUAL PREMIUM:$32,484
--------------------------------------------------------------------------------
Flexible premium survivorship Total
variable universal life premiums
Illustration of death benefits, Accumulated End of paid plus End of year DEATH BENEFIT assuming
Values and Net Cash Surrender Values. Policy interest at hypothetical gross annual investment return of
Year 5% 0% 6% 12%
All premium payments are illustrated as if -------------------------------------------------------------------------------
made at the beginning of the Policy Year. 1 $34,108 $1,500,000 $1,500,000 $1,500,000
2 $69,922 $1,500,000 $1,500,000 $1,500,000
This illustration assumes no Policy loans 3 $107,526 $1,500,000 $1,500,000 $1,500,000
or partial withdrawals have been made. 4 $147,011 $1,500,000 $1,500,000 $1,500,000
5 $188,469 $1,500,000 $1,500,000 $1,500,000
*Additional payment will be required to 6 $232,001 $1,500,000 $1,500,000 $1,500,000
prevent Policy termination. 7 $277,709 $1,500,000 $1,500,000 $1,500,000
8 $325,703 $1,500,000 $1,500,000 $1,500,000
The death benefits, Accumulated Values 9 $376,096 $1,500,000 $1,500,000 $1,500,000
and Cash Surrender Values will differ if 10 $429,009 $1,500,000 $1,500,000 $1,500,000
premiums are paid in different amounts or 15 $736,006 $1,500,000 $1,500,000 $1,500,000
frequencies. 20 $1,127,820 $1,500,000 $1,500,000 $1,920,789
25 $1,627,885 $1,500,000 $1,500,000 $3,367,968
The hypothetical investment rates shown 30 $2,266,109 $0* $1,584,459 $5,793,693
above and elsewhere in this prospectus 35 $3,080,663 $0* $2,137,365 $9,646,445
are illustrative only and should not be -------------------------------------------------------------------------------
interpreted as a representation of past End of year End of year
or future investment results. Actual ACCUMULATED VALUE NET CASH SURRENDER VALUE
rates of return may be more or less than End of assuming hypothetical gross assuming hypothetical gross
those shown and will depend on a number Policy annual investment return of annual investment return of
of factors, including the investment Year 0% 6% 12% 0% 6% 12%
allocations made to Variable Accounts by -------------------------------------------------------------------------------
the Owner and the experience of the Accounts. 1 $26,525 $28,184 $29,845 $26,525 $28,184 $29,845
No representation can be made by us, the 2 $52,524 $57,492 $62,660 $52,524 $57,492 $62,660
Separate Account or the Fund that these 3 $77,966 $87,940 $98,727 $77,966 $87,940 $98,727
hypothetical rates of return can be 4 $102,818 $119,547 $138,365 $102,818 $119,547 $138,365
achieved for any one year or sustained 5 $127,043 $152,331 $181,927 $127,043 $152,331 $181,927
over any period of time. 6 $150,714 $186,426 $229,926 $150,714 $186,426 $229,926
7 $173,648 $221,713 $282,671 $173,648 $221,713 $282,671
This is an illustration only. An 8 $195,762 $258,174 $340,624 $195,762 $258,174 $340,624
illustration is not intended to predict 9 $216,943 $295,767 $404,288 $216,943 $295,767 $404,288
actual performance. Interest rates, 10 $237,066 $334,443 $474,236 $237,066 $334,443 $474,236
dividends, and values set forth in the 15 $331,059 $559,228 $965,434 $331,059 $559,228 $965,434
illustration are not guaranteed. 20 $370,820 $812,008 $1,795,130 $370,820 $812,008 $1,795,130
25 $291,292 $1,106,015 $3,207,588 $291,292 $1,106,015 $3,207,588
30 $0* $1,509,009 $5,517,803 $0* $1,509,009 $5,517,803
35 $0* $2,035,585 $9,187,091 $0* $2,035,585 $9,187,091
-------------------------------------------------------------------------------
93
</TABLE>
<PAGE>
ILLUSTRATIONS
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
Illustration 3
Death benefit Option B at current cost of insurance rates
Based on average annual advisory fees and expenses of the Portfolios
DEATH BENEFIT OPTION:B
FACE AMOUNT:$1,500,000
MALE SELECT NONSMOKER ISSUE AGE 55
FEMALE SELECT NONSMOKER ISSUE AGE 55
GUIDELINE PREMIUM TEST
ANNUAL PREMIUM:$121,904
--------------------------------------------------------------------------------
Flexible premium survivorship Total
variable universal life premiums
Illustration of death benefits, Accumulated End of paid plus End of year DEATH BENEFIT assuming
Values and Net Cash Surrender Values. Policy interest at hypothetical gross annual investment return of
Year 5% 0% 6% 12%
All premium payments are illustrated as if --------------------------------------------------------------------------------
made at the beginning of the Policy Year. 1 $127,999 $1,606,291 $1,612,736 $1,619,183
2 $262,398 $1,711,232 $1,730,739 $1,751,014
This illustration assumes no Policy loans 3 $403,517 $1,814,797 $1,854,223 $1,896,817
or partial withdrawals have been made. 4 $551,693 $1,916,954 $1,983,407 $2,058,053
5 $707,276 $2,017,670 $2,118,518 $2,236,337
The death benefits, Accumulated Values and 6 $870,639 $2,117,016 $2,259,904 $2,433,571
Cash Surrender Values will differ if 7 $1,042,171 $2,215,235 $2,408,105 $2,652,046
premiums are paid in different amounts or 8 $1,222,278 $2,312,372 $2,563,487 $2,894,091
frequencies. 9 $1,411,391 $2,408,438 $2,726,399 $3,162,253
10 $1,609,960 $2,503,444 $2,897,206 $3,459,353
The hypothetical investment rates shown 15 $2,762,039 $2,985,254 $3,910,101 $5,531,897
above and elsewhere in this prospectus are 20 $4,232,416 $3,437,089 $5,189,503 $8,987,912
illustrative only and should not be 25 $6,109,030 $3,862,369 $6,835,579 $14,860,423
interpreted as a representation of past or 30 $8,504,119 $4,195,896 $8,861,560 $24,677,004
future investment results. Actual rates of 35 $11,560,927 $4,327,785 $11,247,186 $41,455,412
return may be more or less than those shown --------------------------------------------------------------------------------
and will depend on a number of factors, End of year End of year
including the investment allocations made to ACCUMULATED VALUE NET CASH SURRENDER VALUE
Variable Accounts by the Owner and the End of assuming hypothetical gross assuming hypothetical gross
experience of the Accounts. No representation Policy annual investment return of annual investment return of
can be made by us, the Separate Account or Year 0% 6% 12% 0% 6% 12%
the Fund that these hypothetical rates of --------------------------------------------------------------------------------
return can be achieved for any one year or 1 $106,291 $112,736 $119,183 $106,291 $112,736 $119,183
sustained over any period of time. 2 $211,232 $230,739 $251,014 $211,232 $230,739 $251,014
3 $314,797 $354,223 $396,817 $314,797 $354,223 $396,817
This is an illustration only. An illustration 4 $416,954 $483,407 $558,053 $416,954 $483,407 $558,053
is not intended to predict actual performance. 5 $517,670 $618,518 $736,337 $517,670 $618,518 $736,337
Interest rates, dividends, and values set 6 $617,016 $759,904 $933,571 $617,016 $759,904 $933,571
forth in the illustration are not guaranteed. 7 $715,235 $908,105 $1,152,045 $715,235 $908,105 $1,152,045
8 $812,372 $1,063,487 $1,394,091 $812,372 $1,063,487 $1,394,091
9 $908,438 $1,226,398 $1,662,253 $908,438 $1,226,398 $1,662,253
10 $1,003,444 $1,397,206 $1,959,353 $1,003,444 $1,397,206 $1,959,353
15 $1,485,254 $2,410,101 $4,031,897 $1,485,254 $2,410,101 $4,031,897
20 $1,937,089 $3,689,503 $7,487,912 $1,937,089 $3,689,503 $7,487,912
25 $2,362,369 $5,335,579 $13,360,423 $2,362,369 $5,335,579 $13,360,423
30 $2,695,896 $7,361,560 $23,177,004 $2,695,896 $7,361,560 $23,177,004
35 $2,827,785 $9,747,186 $39,481,348 $2,827,785 $9,747,186 $39,481,348
--------------------------------------------------------------------------------
</TABLE>
94
<PAGE>
<TABLE>
<S> <C>
Illustration 4
Death benefit Option B at guaranteed cost of insurance rates
Based on average annual advisory fees and expenses of the Portfolios
DEATH BENEFIT OPTION:B
FACE AMOUNT:$1,500,000
MALE SELECT NONSMOKER ISSUE AGE 55
FEMALE SELECT NONSMOKER ISSUE AGE 55
GUIDELINE PREMIUM TEST
ANNUAL PREMIUM: $121,904
------------------------------------------------------------------------------------
Flexible premium survivorship Total
variable universal life premiums
Illustration of death benefits, End of paid plus End of year DEATH BENEFIT assuming
Accumulated Values and Net Cash Policy interest at hypothetical gross annual investment return of
Surrender Values. Year 5% 0% 6% 12%
------------------------------------------------------------------------------------
All premium payments are illustrated 1 $127,999 $1,606,274 $1,612,719 $1,619,165
as if made at the beginning of the 2 $262,398 $1,711,161 $1,730,665 $1,750,937
Policy Year. 3 $403,517 $1,814,627 $1,854,042 $1,896,625
4 $551,693 $1,916,633 $1,983,060 $2,057,678
This illustration assumes no Policy 5 $707,276 $2,017,137 $2,117,932 $2,235,692
loans or partial withdrawals have 6 $870,639 $2,116,201 $2,258,992 $2,432,551
been made. 7 $1,042,171 $2,213,626 $2,406,320 $2,650,062
8 $1,222,278 $2,309,306 $2,560,094 $2,890,325
The death benefits, Accumulated Values 9 $1,411,391 $2,403,093 $2,720,457 $3,155,626
and Cash Surrender Values will differ if 10 $1,609,960 $2,494,822 $2,887,537 $3,448,470
premiums are paid in different amounts 15 $2,762,039 $2,938,374 $3,854,082 $5,464,336
or frequencies. 20 $4,232,416 $3,290,310 $5,002,288 $8,743,690
25 $6,109,030 $3,487,105 $6,328,802 $14,147,369
The hypothetical investment rates shown 30 $8,504,119 $3,378,140 $7,691,336 $22,892,532
above and elsewhere in this prospectus 35 $11,560,927 $2,735,799 $8,827,552 $37,225,476
are illustrative only and should not be ------------------------------------------------------------------------------------
interpreted as a representation of past End of year End of year
or future investment results. Actual rates ACCUMULATED VALUE NET CASH SURRENDER VALUE assuming
of return may be more or less than End of assuming hypothetical gross hypothetical gross
those shown and will depend on a number Policy annual investment return of annual investment return of
of factors, including the investment Year 0% 6% 12% 0% 6% 12%
allocations made to Variable Accounts by ------------------------------------------------------------------------------------
the Owner and the experience of the Accounts. 1 $1,606,274 $112,719 $119,165 $1,606,274 $112,719 $119,165
No representation can be made by us, the 2 $1,711,161 $230,665 $250,937 $1,711,161 $230,665 $250,937
Separate Account or the Fund that these 3 $1,814,627 $354,042 $396,625 $1,814,627 $354,042 $396,625
hypothetical rates of return can be achieved 4 $1,916,633 $483,060 $557,678 $1,916,633 $483,060 $557,678
for any one year or sustained over any 5 $2,017,137 $617,932 $735,692 $2,017,137 $617,932 $735,692
period of time. 6 $2,116,201 $758,992 $932,551 $2,116,201 $758,992 $932,551
7 $2,213,626 $906,320 $1,150,062 $2,213,626 $906,320 $1,150,062
This is an illustration only. An illustration 8 $2,309,306 $1,060,094 $1,390,325 $2,309,306 $1,060,094 $1,390,325
is not intended to predict actual performance. 9 $2,403,093 $1,220,456 $1,655,626 $2,403,093 $1,220,456 $1,655,626
Interest rates, dividends, and values set forth 10 $2,494,822 $1,387,536 $1,948,470 $2,494,822 $1,387,536 $1,948,470
in the illustration are not guaranteed. 15 $2,938,374 $2,354,082 $3,964,336 $2,938,374 $2,354,082 $3,964,3361
20 $3,290,310 $3,502,288 $7,243,690 $3,290,310 $3,502,288 $7,243,6901
25 $3,487,105 $4,828,802 $12,647,369 $3,487,105 $4,828,802 $12,647,3692
30 $3,378,140 $6,191,336 $21,392,532 $3,378,140 $6,191,336 $21,392,5322
35 $2,735,799 $7,327,552 $35,452,836 $2,735,799 $7,327,552 $35,452,836
------------------------------------------------------------------------------------
95
</TABLE>
<PAGE>
ILLUSTRATIONS
<TABLE>
<S> <C>
---------------------------------------------------------------------------------
Illustration 5
Death benefit Option C at current cost of insurance rates
Based on average annual advisory fees and expenses of the Portfolios
DEATH BENEFIT OPTION:C
FACE AMOUNT:$1,500,000
MALE SELECT NONSMOKER ISSUE AGE 55
FEMALE SELECT NONSMOKER ISSUE AGE 55
GUIDELINE PREMIUM TEST
ANNUAL PREMIUM:$32,484
---------------------------------------------------------------------------------
Flexible premium survivorship Total
variable universal life premiums
Illustration of death benefits, End of paid plus End of year DEATH BENEFIT assuming
Accumulated Values and Net Cash Policy interest at hypothetical gross annual investment return of
Surrender Values. Year 5% 0% 6% 12%
---------------------------------------------------------------------------------
All premium payments are illustrated as if 1 $34,108 $1,532,484 $1,532,484 $1,532,484
made at the beginning of the Policy Year. 2 $69,922 $1,564,968 $1,564,968 $1,564,968
3 $107,526 $1,597,452 $1,597,452 $1,597,452
This illustration assumes no Policy loans 4 $147,011 $1,629,936 $1,629,936 $1,629,936
or partial withdrawals have been made. 5 $188,469 $1,662,420 $1,662,420 $1,662,420
6 $232,001 $1,694,905 $1,694,905 $1,694,905
The death benefits, Accumulated Values 7 $277,709 $1,727,389 $1,727,389 $1,727,389
and Cash Surrender Values will differ if 8 $325,703 $1,759,873 $1,759,873 $1,759,873
premiums are paid in different amounts 9 $376,096 $1,792,357 $1,792,357 $1,792,357
or frequencies. 10 $429,009 $1,824,841 $1,824,841 $1,824,841
15 $736,006 $1,987,261 $1,987,261 $1,987,261
The hypothetical investment rates shown 20 $1,127,820 $2,149,682 $2,149,682 $2,149,682
above and elsewhere in this prospectus 25 $1,627,885 $2,312,102 $2,312,102 $3,511,863
are illustrative only and should not be 30 $2,266,109 $2,474,523 $2,474,523 $6,120,000
interpreted as a representation of past 35 $3,080,663 $2,636,943 $2,636,943 $10,442,062
or future investment results. Actual ---------------------------------------------------------------------------------
rate's of return may be more or less than End of year End of year
those shown and will depend on a number ACCUMULATED VALUE NET CASH SURRENDER VALUE
of factors, including the investment End of assuming hypothetical gross assuming hypothetical gross
allocations made to Variable Accounts by Policy annual investment return of annual investment return of
the Owner and the experience of the Year 0% 6% 12% 0% 6% 12%
Accounts. No representation can be made ---------------------------------------------------------------------------------
by us, the Separate Account or the Fund 1 $26,539 $28,199 $29,860 $26,539 $28,199 $29,860
that these hypothetical rates of return 2 $52,578 $57,548 $62,718 $52,578 $57,548 $62,718
can be achieved for any one year or 3 $78,077 $88,058 $98,852 $78,077 $88,058 $98,852
sustained over any period of time. 4 $102,995 $119,739 $138,572 $102,995 $119,739 $138,572
5 $127,282 $152,596 $182,218 $127,282 $152,596 $182,218
This is an illustration only. An 6 $150,997 $186,745 $230,284 $150,997 $186,745 $230,284
illustration is not intended to predict 7 $174,379 $222,491 $283,496 $174,379 $222,491 $283,496
actual performance. Interest rates, 8 $197,467 $259,946 $342,450 $197,467 $259,946 $342,450
dividends, and values set forth in the 9 $220,260 $299,197 $407,776 $220,260 $299,197 $407,776
illustration are not guaranteed. 10 $242,762 $340,331 $480,172 $242,762 $340,331 $480,172
15 $364,644 $593,753 $997,212 $364,644 $593,753 $997,212
20 $474,538 $911,437 $1,862,742 $474,538 $911,437 $1,862,742
25 $555,044 $1,308,479 $3,344,631 $555,044 $1,308,479 $3,344,631
30 $537,534 $1,778,312 $5,828,572 $537,534 $1,778,312 $5,828,572
35 $224,007 $2,341,770 $9,944,821 $224,007 $2,341,770 $9,944,821
---------------------------------------------------------------------------------
</TABLE>
96
<PAGE>
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
Illustration 6
Death benefit Option C at guaranteed cost of insurance rates
Based on average annual advisory fees and expenses of the Portfolios
DEATH BENEFIT OPTION:C
FACE AMOUNT:$1,500,000
MALE SELECT NONSMOKER ISSUE AGE 55
FEMALE SELECT NONSMOKER ISSUE AGE 55
GUIDELINE PREMIUM TEST
ANNUAL PREMIUM:$32,484
--------------------------------------------------------------------------------
Flexible premium survivorship Total
variable universal life premiums
Illustration of death benefits, End of paid plus End of year DEATH BENEFIT assuming
Accumulated Values and Net Cash Policy interest at hypothetical gross annual investment return of
Surrender Values. Year 5% 0% 6% 12%
--------------------------------------------------------------------------------
All premium payments are illustrated 1 $34,108 $1,532,484 $1,532,484 $1,532,484
as if made at the beginning of the 2 $69,922 $1,564,968 $1,564,968 $1,564,968
Policy Year. 3 $107,526 $1,597,452 $1,597,452 $1,597,452
4 $147,011 $1,629,936 $1,629,936 $1,629,936
This illustration assumes no Policy 5 $188,469 $1,662,420 $1,662,420 $1,662,420
loans or partial withdrawals have 6 $232,001 $1,694,905 $1,694,905 $1,694,905
been made. 7 $277,709 $1,727,389 $1,727,389 $1,727,389
8 $325,703 $1,759,873 $1,759,873 $1,759,873
*Additional payment will be required 9 $376,096 $1,792,357 $1,792,357 $1,792,357
to prevent Policy termination. 10 $429,009 $1,824,841 $1,824,841 $1,824,841
15 $736,006 $1,987,261 $1,987,261 $1,987,261
The death benefits, Accumulated Values 20 $1,127,820 $2,149,682 $2,149,682 $2,149,682
and Cash Surrender Values will differ if 25 $1,627,885 $2,312,102 $2,312,102 $3,179,767
premiums are paid in different amounts or 30 $2,266,109 $0* $2,474,523 $5,481,915
frequencies. 35 $3,080,663 $0* $0* $9,138,731
--------------------------------------------------------------------------------
The hypothetical investment rates shown End of year End of year
above and elsewhere in this prospectus ACCUMULATED VALUE NET CASH SURRENDER VALUE
are illustrative only and should not be End of assuming hypothetical gross assuming hypothetical gross
interpreted as a representation of past Policy annual investment return of annual investment return of
or future investment results. Actual rates Year 0% 6% 12% 0% 6% 12%
of return may be more or less than those --------------------------------------------------------------------------------
shown and will depend on a number of factors, 1 $26,522 $28,182 $29,843 $26,522 $28,182 $29,843
including the investment allocations made to 2 $52,506 $57,473 $62,640 $52,506 $57,473 $62,640
Variable Accounts by the Owner and the 3 $77,905 $87,876 $98,660 $77,905 $87,876 $98,660
experience of the Accounts. No representation 4 $102,669 $119,389 $138,196 $102,669 $119,389 $138,196
can be made by us, the Separate Account or the 5 $126,740 $152,004 $181,574 $126,740 $152,004 $181,574
Fund that these hypothetical rates of return 6 $150,163 $185,824 $229,268 $150,163 $185,824 $229,268
can be achieved for any one year or sustained 7 $172,722 $220,689 $281,536 $172,722 $220,689 $281,536
over any period of time. 8 $194,287 $256,522 $338,772 $194,287 $256,522 $338,772
9 $214,683 $293,206 $401,381 $214,683 $293,206 $401,381
This is an illustration only. An illustration 10 $233,705 $330,596 $469,816 $233,705 $330,596 $469,816
is not intended to predict actual performance. 15 $313,573 $538,165 $939,731 $313,573 $538,165 $939,731
Interest rates, dividends, and values set forth 20 $304,558 $728,295 $1,697,463 $304,558 $728,295 $1,697,463
in the illustration are not guaranteed. 25 $63,004 $803,480 $3,028,350 $63,004 $803,480 $3,028,350
30 $0* $452,683 $5,220,871 $0* $452,683 $5,220,871
35 $0* $0* $8,703,554 $0* $0* $8,703,554
--------------------------------------------------------------------------------
97
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ILLUSTRATIONS
<TABLE>
<S> <C>
------------------------------------------------------------------------------
Illustration 7
Death benefit Option D at current cost of insurance rates
Based on average annual advisory fees and expenses of the Portfolios
DEATH BENEFIT OPTION:D
FACE AMOUNT:$1,500,000
MALE SELECT NONSMOKER ISSUE AGE 55
FEMALE SELECT NONSMOKER ISSUE AGE 55
GUIDELINE PREMIUM TEST
ANNUAL PREMIUM:$32,484
------------------------------------------------------------------------------
Total
Flexible premium survivorship premiums
variable universal life End of paid plus End of year DEATH BENEFIT assuming
Illustration of death benefits, Policy interest at hypothetical gross annual investment return of
Accumulated Values and Net Cash Year 5% 0% 6% 12%
Surrender Values. ------------------------------------------------------------------------------
1 $34,108 $1,500,000 $1,500,000 $1,500,000
All premium payments are illustrated 2 $69,922 $1,503,000 $1,503,000 $1,503,000
as if made at the beginning of the 3 $107,526 $1,506,000 $1,506,000 $1,506,000
Policy Year. 4 $147,011 $1,510,500 $1,510,500 $1,510,500
5 $188,469 $1,516,500 $1,516,500 $1,516,500
This illustration assumes no policy 6 $232,001 $1,522,500 $1,522,500 $1,522,500
loans or partial withdrawals have 7 $277,709 $1,530,000 $1,530,000 $1,530,000
been made. 8 $325,703 $1,539,000 $1,539,000 $1,539,000
9 $376,096 $1,549,500 $1,549,500 $1,549,500
The death benefits, Accumulated 10 $429,009 $1,563,000 $1,563,000 $1,563,000
Values and Cash Surrender Values will 15 $736,006 $1,675,500 $1,675,500 $1,675,500
differ if premiums are paid in 20 $1,127,820 $1,903,500 $1,903,500 $2,007,737
different amounts or frequencies. 25 $1,627,885 $2,317,500 $2,317,500 $3,536,562
30 $2,266,109 $2,766,000 $2,766,000 $6,161,522
The hypothetical investment rates shown 35 $3,080,663 $3,000,000 $3,000,000 $10,511,446
above and elsewhere in this prospectus ------------------------------------------------------------------------------
are illustrative only and should not be End of year End of year
interpreted as a representation of past ACCUMULATED VALUE NET CASH SURRENDER VALUE
or future investment results. Actual rates End of assuming hypothetical gross assuming hypothetical gross
of return may be more or less than those Policy annual investment return of annual investment return of
shown and will depend on a number of factors, Year 0% 6% 12% 0% 6% 12%
including the investment allocations made ------------------------------------------------------------------------------
to Variable Accounts by the Owner and the 1 $26,541 $28,201 $29,863 $26,541 $28,201 $29,863
experience of the Accounts. No representation 2 $52,592 $57,563 $62,734 $52,592 $57,563 $62,734
can be made by us, the Separate Account or 3 $78,126 $88,109 $98,906 $78,126 $88,109 $98,906
the Fund that these hypothetical rates of 4 $103,112 $119,864 $138,706 $103,112 $119,864 $138,706
return can be achieved for any one year or 5 $127,517 $152,850 $182,493 $127,517 $152,850 $182,493
sustained over any period of time. 6 $151,418 $187,207 $230,789 $151,418 $187,207 $230,789
7 $175,021 $223,206 $284,294 $175,021 $223,206 $284,294
This is an illustration only. An illustration 8 $198,358 $260,962 $343,608 $198,358 $260,962 $343,608
is not intended to predict actual performance. 9 $221,429 $300,559 $409,366 $221,429 $300,559 $409,366
Interest rates, dividends, and values set 10 $244,235 $342,087 $482,271 $244,235 $342,087 $482,271
forth in the illustration are not guaranteed. 15 $367,931 $598,169 $1,003,251 $367,931 $598,169 $1,003,251
20 $480,353 $920,161 $1,876,389 $480,353 $920,161 $1,876,389
25 $562,988 $1,322,668 $3,368,155 $562,988 $1,322,668 $3,368,155
30 $529,991 $1,780,576 $5,868,116 $529,991 $1,780,576 $5,868,116
35 $130,887 $2,249,187 $10,010,901 $130,887 $2,249,187 $10,010,901
------------------------------------------------------------------------------
</TABLE>
98
<PAGE>
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
Illustration 8
Death benefit Option D at guaranteed cost of insurance rates
Based on average annual advisory fees and expenses of the Portfolios
DEATH BENEFIT OPTION:D
FACE AMOUNT:$1,500,000
MALE SELECT NONSMOKER ISSUE AGE 55
FEMALE SELECT NONSMOKER ISSUE AGE 55
GUIDELINE PREMIUM TEST
ANNUAL PREMIUM:$32,484
-----------------------------------------------------------------------------------
Flexible premium survivorship Total
variable universal life premiums
Illustration of death benefits, End of paid plus End of year DEATH BENEFIT assuming
Accumulated Values and Net Cash Policy interest at hypothetical gross annual investment return of
Surrender Values. Year 5% 0% 6% 12%
-----------------------------------------------------------------------------------
All premium payments are 1 $34,108 $1,500,000 $1,500,000 $1,500,000
illustrated as if made at the 2 $69,922 $1,503,000 $1,503,000 $1,503,000
beginning of the Policy Year. 3 $107,526 $1,506,000 $1,506,000 $1,506,000
4 $147,011 $1,510,500 $1,510,500 $1,510,500
This illustration assumes no 5 $188,469 $1,516,500 $1,516,500 $1,516,500
Policy loans or partial 6 $232,001 $1,522,500 $1,522,500 $1,522,500
withdrawals have been made. 7 $277,709 $1,530,000 $1,530,000 $1,530,000
8 $325,703 $1,539,000 $1,539,000 $1,539,000
*Additional payment will be 9 $376,096 $1,549,500 $1,549,500 $1,549,500
required to prevent Policy 10 $429,009 $1,563,000 $1,563,000 $1,563,000
termination. 15 $736,006 $1,675,500 $1,675,500 $1,675,500
20 $1,127,820 $1,903,500 $1,903,500 $1,903,500
The death benefits, Accumulated 25 $1,627,885 $2,317,500 $2,317,500 $3,308,759
Values and Cash Surrender Values 30 $2,266,109 $0* $2,766,000 $5,695,606
will differ if premiums are paid 35 $3,080,663 $0* $0* $9,486,716
in different amounts or -----------------------------------------------------------------------------------
frequencies. End of year End of year
ACCUMULATED VALUE NET CASH SURRENDER VALUE
The hypothetical investment rates End of assuming hypothetical gross assuming hypothetical gross
shown above and elsewhere in this Policy annual investment return of annual investment return of
prospectus are illustrative only Year 0% 6% 12% 0% 6% 12%
and should not be interpreted as -----------------------------------------------------------------------------------
a representation of past or 1 $26,525 $28,184 $29,845 $26,525 $28,184 $29,845
future investment results. Actual 2 $52,524 $57,491 $62,659 $52,524 $57,491 $62,659
rates of return may be more or 3 $77,963 $87,937 $98,724 $77,963 $87,937 $98,724
less than those shown and will 4 $102,808 $119,536 $138,354 $102,808 $119,536 $138,354
depend on a number of factors, 5 $127,017 $152,303 $181,897 $127,017 $152,303 $181,897
including the investment 6 $150,659 $186,367 $229,862 $150,659 $186,367 $229,862
allocations made to Variable 7 $173,544 $221,599 $282,547 $173,544 $221,599 $282,547
Accounts by the Owner and the 8 $195,575 $257,968 $340,397 $195,575 $257,968 $340,397
experience of the Accounts. No 9 $216,623 $295,411 $403,892 $216,623 $295,411 $403,892
representation can be made by us, 10 $236,531 $333,845 $473,566 $236,531 $333,845 $473,566
the Separate Account or the Fund 15 $326,206 $553,620 $958,901 $326,206 $553,620 $958,901
that these hypothetical rates of 20 $340,232 $775,608 $1,762,066 $340,232 $775,608 $1,762,066
return can be achieved for any 25 $123,036 $899,612 $3,151,199 $123,036 $899,612 $3,151,199
one year or sustained over any 30 $0* $537,167 $5,424,387 $0* $537,167 $5,424,387
period of time. 35 $0* $0* $9,034,968 $0* $0* $9,034,968
-----------------------------------------------------------------------------------
This is an illustration only. An
illustration is not intended to
predict actual performance.
Interest rates, dividends, and
values set forth in the
illustration are not guaranteed.
99
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATIONS
<S> <C>
----------------------------------------------------------------------------------
Illustration 9
Death benefit Option A at current cost of insurance rates
Based on a weighted average of annual advisory fees and expenses of the
Portfolios
DEATH BENEFIT OPTION:A
FACE AMOUNT:$1,500,000
MALE SELECT NONSMOKER ISSUE AGE 55
FEMALE SELECT NONSMOKER ISSUE AGE 55
GUIDELINE PREMIUM TEST
ANNUAL PREMIUM:$32,484
----------------------------------------------------------------------------------
Flexible premium survivorship Total
variable universal life premiums
Illustration of death benefits, End of paid plus End of year DEATH BENEFIT assuming
Accumulated Values and Net Cash Policy interest at hypothetical gross annual investment return of
Surrender Values. Year 5% 0% 6% 12%
----------------------------------------------------------------------------------
All premium payments are 1 $34,108 $1,500,000 $1,500,000 $1,500,000
illustrated as if made at the 2 $69,922 $1,500,000 $1,500,000 $1,500,000
beginning of the Policy Year. 3 $107,526 $1,500,000 $1,500,000 $1,500,000
4 $147,011 $1,500,000 $1,500,000 $1,500,000
This illustration assumes no 5 $188,469 $1,500,000 $1,500,000 $1,500,000
Policy loans or partial 6 $232,001 $1,500,000 $1,500,000 $1,500,000
withdrawals have been made. 7 $277,709 $1,500,000 $1,500,000 $1,500,000
8 $325,703 $1,500,000 $1,500,000 $1,500,000
The death benefits, Accumulated 9 $376,096 $1,500,000 $1,500,000 $1,500,000
Values and Cash Surrender Values 10 $429,009 $1,500,000 $1,500,000 $1,500,000
will differ if premiums are paid 15 $736,006 $1,500,000 $1,500,000 $1,500,000
in different amounts or 20 $1,127,820 $1,500,000 $1,500,000 $2,026,623
frequencies. 25 $1,627,885 $1,500,000 $1,500,000 $3,576,590
30 $2,266,109 $1,500,000 $2,009,305 $6,244,316
The hypothetical investment rates 35 $3,080,663 $1,500,000 $2,737,397 $10,676,445
shown above and elsewhere in this ----------------------------------------------------------------------------------
prospectus are illustrative only End of year End of year
and should not be interpreted as ACCUMULATED VALUE NET CASH SURRENDER VALUE
a representation of past or End of assuming hypothetical gross assuming hypothetical gross
future investment results. Actual Policy annual investment return of annual investment return of
rates of return may be more or Year 0% 6% 12% 0% 6% 12%
less than those shown and will ----------------------------------------------------------------------------------
depend on a number of factors, 1 $26,555 $28,216 $29,878 $26,555 $28,216 $29,878
including the investment 2 $52,634 $57,609 $62,784 $52,634 $57,609 $62,784
allocations made to Variable 3 $78,209 $88,205 $99,015 $78,209 $88,205 $99,015
Accounts by the Owner and the 4 $103,254 $120,032 $138,904 $103,254 $120,032 $138,904
experience of the Accounts. No 5 $127,736 $153,118 $182,819 $127,736 $153,118 $182,819
representation can be made by us, 6 $151,736 $187,608 $231,295 $151,736 $187,608 $231,295
the Separate Account or the Fund 7 $175,459 $223,777 $285,035 $175,459 $223,777 $285,035
that these hypothetical rates of 8 $198,938 $261,740 $344,653 $198,938 $261,740 $344,653
return can be achieved for any 9 $222,176 $301,589 $410,795 $222,176 $301,589 $410,795
one year or sustained over any 10 $245,175 $343,421 $484,182 $245,175 $343,421 $484,182
period of time. 15 $370,407 $602,121 $1,009,837 $370,407 $602,121 $1,009,837
20 $486,824 $930,787 $1,894,041 $486,824 $930,787 $1,894,041
This is an illustration only. An 25 $588,561 $1,359,905 $3,406,276 $588,561 $1,359,905 $3,406,276
illustration is not intended to 30 $646,007 $1,913,624 $5,946,968 $646,007 $1,913,624 $5,946,968
predict actual performance. 35 $594,330 $2,607,045 $10,168,043 $594,330 $2,607,045 $10,168,043
Interest rates, dividends, and ----------------------------------------------------------------------------------
values set forth in the
illustration are not guaranteed.
100
</TABLE>
<PAGE>
<TABLE>
<S> <C>
--------------------------------------------------------------------------------
Illustration 10
Death benefit Option A at guaranteed cost of insurance rates
Based on a weighted average of annual advisory fees and expenses of the
Portfolios
DEATH BENEFIT OPTION:A
FACE AMOUNT:$1,500,000
MALE SELECT NONSMOKER ISSUE AGE 55
FEMALE SELECT NONSMOKER ISSUE AGE 55
GUIDELINE PREMIUM TEST
ANNUAL PREMIUM:$32,484
----------------------------------------------------------------------------------
Flexible premium survivorship Total
variable universal life premiums
Illustration of death benefits, End of paid plus End of year DEATH BENEFIT assuming
Accumulated Values and Net Cash Policy interest at hypothetical gross annual investment return of
Surrender Values. Year 5% 0% 6% 12%
----------------------------------------------------------------------------------
All premium payments are 1 $34,108 $1,500,000 $1,500,000 $1,500,000
illustrated as if made at the 2 $69,922 $1,500,000 $1,500,000 $1,500,000
beginning of the Policy Year. 3 $107,526 $1,500,000 $1,500,000 $1,500,000
4 $147,011 $1,500,000 $1,500,000 $1,500,000
This illustration assumes no 5 $188,469 $1,500,000 $1,500,000 $1,500,000
Policy loans or partial 6 $232,001 $1,500,000 $1,500,000 $1,500,000
withdrawals have been made. 7 $277,709 $1,500,000 $1,500,000 $1,500,000
8 $325,703 $1,500,000 $1,500,000 $1,500,000
*Additional payment will be 9 $376,096 $1,500,000 $1,500,000 $1,500,000
required to prevent Policy 10 $429,009 $1,500,000 $1,500,000 $1,500,000
termination. 15 $736,006 $1,500,000 $1,500,000 $1,500,000
20 $1,127,820 $1,500,000 $1,500,000 $1,934,779
The death benefits, Accumulated 25 $1,627,885 $1,500,000 $1,500,000 $3,399,280
Values and Cash Surrender Values 30 $2,266,109 $0* $1,610,269 $5,860,106
will differ if premiums are paid 35 $3,080,663 $0* $2,174,576 $9,778,992
in different amounts or -----------------------------------------------------------------------------------
frequencies. End of year End of year
ACCUMULATED VALUE NET CASH SURRENDER VALUE
The hypothetical investment rates End of assuming hypothetical gross assuming hypothetical gross
shown above and elsewhere in this Policy annual investment return of annual investment return of
prospectus are illustrative only Year 0% 6% 12% 0% 6% 12%
and should not be interpreted as -----------------------------------------------------------------------------------
a representation of past or 1 $26,538 $28,199 $29,861 $26,538 $28,199 $29,861
future investment results. Actual 2 $52,565 $57,537 $62,709 $52,565 $57,537 $62,709
rates of return may be more or 3 $78,047 $88,032 $98,833 $78,047 $88,032 $98,833
less than those shown and will 4 $102,950 $119,705 $138,553 $102,950 $119,705 $138,553
depend on a number of factors, 5 $127,239 $152,575 $182,227 $127,239 $152,575 $182,227
including the investment 6 $150,985 $186,777 $230,376 $150,985 $186,777 $230,376
allocations made to Variable 7 $174,005 $222,195 $283,315 $174,005 $222,195 $283,315
Accounts by the Owner and the 8 $196,217 $258,812 $341,512 $196,217 $258,812 $341,512
experience of the Accounts. No 9 $217,505 $296,588 $405,480 $217,505 $296,588 $405,480
representation can be made by us, 10 $237,745 $335,478 $475,803 $237,745 $335,478 $475,803
the Separate Account or the Fund 15 $332,481 $561,906 $970,473 $332,481 $561,906 $970,473
that these hypothetical rates of 20 $373,237 $817,759 $1,808,204 $373,237 $817,759 $1,808,204
return can be achieved for any 25 $295,073 $1,117,978 $3,237,409 $295,073 $1,117,978 $3,237,409
one year or sustained over any 30 $0* $1,533,589 $5,581,054 $0* $1,533,589 $5,581,054
period of time. 35 $0* $2,071,025 $9,313,326 $0* $2,071,025 $9,313,326
-----------------------------------------------------------------------------------
This is an illustration only. An
illustration is not intended to
predict actual performance.
Interest rates, dividends, and
values set forth in the
illustration are not guaranteed.
101
</TABLE>
<PAGE>
APPENDIX A
DESCRIPTION OF JOINT EQUAL AGE CALCULATION
1. A Joint Equal Age (JEA) conversion changes many possible combinations of
Ages, risk classes, substandard ratings and sexes for two lives into a "two
life status" in which both Insureds are assumed to have the same Age, sex
(both always male), and risk class (both nonsmoker, or smoker).
2. Certain Policy charges are based on the JEA determined at issue. JEA
eliminates many of the tables needed when Age rates are used. JEA will be
used to determine the rates per $1000 of initial Face Amount for the Sales
Surrender Target, underwriting surrender charge and the Face Amount
component of the mortality and expense risk charge. JEA determined at issue
is also used to determine the death benefit under Death Benefit Option D.
Age is used for cost of insurance rates, both current and guaranteed.
3. To calculate JEA, the two Ages are each converted to an adjusted Age, the
difference in adjusted Ages is converted to an Age add-on, and the Age add-
on is added to the younger adjusted Age. The steps are as follows:
a. Smoker Age Adjustment:
If both Insureds are smoker or both Insureds are nonsmoker, no smoker
adjustment is made. If exactly one Insured is a smoker, the Age of the
smoker is adjusted as follows:
<TABLE>
<CAPTION>
Number of Smokers Smoker Age Add-on
----------------- -----------------
<S> <C>
0 0
1 female +4
1 male +6
1 unisex +5
2 0
</TABLE>
b. Sex Age Adjustment:
Each female Insured has a 5 year Age reduction. Each male Insured has a 0
year Age reduction. Each unisex Insured has a 1 year Age reduction.
c. Table rating Age adjustment:
The substandard Table ratings represent a multiple of standard mortality
rates. An Age adjustment will be added to each Insured with a substandard
Table rating as follows:
Table Rating Age Adjustment
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Table Rating 0 A B C D E F H J L N P
----------------------------------------------------------------
Age Adjustment 0 2 4 6 8 10 12 14 15 16 18 19
</TABLE>
The adjusted Age for substandard is capped at Age 100.
For uninsurable Insureds, the adjusted Age will always be 100,
independently of the Age and sex of the uninsurable Insureds. (We reserve
the right to reject an application for a policy.)
102
<PAGE>
d. After the Ages are adjusted for sex, smoker, and table ratings, the
younger adjusted Age is subtracted from the older adjusted Age. The
difference is used to determine an adjusted Age add-on.
<TABLE>
<CAPTION>
Difference in Add to younger Difference in Add to younger
adjusted Age adjusted Age adjusted Age adjusted Age
------------- -------------- ------------- --------------
<S> <C> <C> <C>
0 0 40-44 12
1-2 1 45-47 13
3-4 2 48-50 14
5-6 3 51-53 15
7-9 4 54-56 16
10-12 5 57-60 17
13-15 6 61-64 18
16-18 7 65-69 19
19-23 8 70-75 20
24-28 9 76-82 21
29-34 10 83-91 22
35-39 11 92-100 23
</TABLE>
e. Add the Age add-on factor from Step d to the younger adjusted Age. This
is the Joint Equal Age, or JEA.
EXAMPLE: Assuming a male smoker, Age 65, and a female nonsmoker, Age 55, Table
D substandard rating, JEA is calculated as follows:
<TABLE>
<CAPTION>
Male Female
---- ------
<S> <C> <C> <C>
Age 65 55
Step a--Smoker Age Adjustment 71 55
Step b--Sex Age Adjustment 71 50
Step c--Table Rating Age Adjustment 71 58
Step d--Subtract Younger from Older 71-58=13
Step e--Add Adjusted Age Add-On 58+6=64 JEA
</TABLE>
103
<PAGE>
APPENDIX B
RATES PER $1000 OF INITIAL FACE AMOUNT
<TABLE>
<CAPTION>
Face Amount Face Amount
Joint Component Joint Component
Equal of M&E Risk Equal of M&E Risk
Age Target Charge Age Target Charge
- ----- ------ ----------- ----- ------ -----------
<S> <C> <C> <C> <C> <C>
15 2.28 0.051 58 16.74 0.208
16 2.35 0.052 59 18.04 0.230
17 2.43 0.053 60 19.35 0.253
18 2.50 0.054 61 20.64 0.275
19 2.57 0.055 62 21.89 0.298
20 2.65 0.056 63 23.08 0.320
21 2.73 0.056 64 24.20 0.341
22 2.81 0.057 65 25.26 0.362
23 2.89 0.058 66 26.25 0.382
24 2.98 0.059 67 27.20 0.401
25 3.07 0.060 68 28.12 0.420
26 3.16 0.061 69 29.00 0.439
27 3.25 0.062 70 29.87 0.457
28 3.35 0.063 71 30.73 0.475
29 3.45 0.064 72 31.59 0.492
30 3.55 0.065 73 32.46 0.510
31 3.66 0.066 74 33.35 0.528
32 3.77 0.067 75 34.26 0.547
33 3.88 0.068 76 35.19 0.566
34 4.04 0.069 77 36.14 0.585
35 4.21 0.070 78 37.09 0.605
36 4.38 0.072 79 38.06 0.626
37 4.56 0.073 80 39.04 0.647
38 4.75 0.074 81 40.02 0.668
39 4.95 0.075 82 41.01 0.689
40 5.15 0.076 83 42.00 0.711
41 5.37 0.078 84 43.00 0.733
42 5.59 0.079 85 44.00 0.756
43 5.82 0.080 86 45.00 0.778
44 6.20 0.082 87 46.00 0.801
45 6.60 0.085 88 47.00 0.824
46 7.03 0.087 89 48.00 0.848
47 7.49 0.090 90 49.00 0.871
48 7.98 0.093 91 50.00 0.895
49 8.50 0.097 92 51.00 0.919
50 9.05 0.102 93 52.00 0.944
51 9.64 0.107 94 53.00 0.968
52 10.27 0.113 95 54.00 0.993
53 10.94 0.120 96 55.00 1.018
54 11.94 0.134 97 56.00 1.044
55 13.03 0.150 98 57.00 1.069
56 14.21 0.168 99 58.00 1.095
57 15.45 0.188 100 59.00 1.121
</TABLE>
104
<PAGE>
APPENDIX C
DEATH BENEFIT PERCENTAGES
<TABLE>
<CAPTION>
Age Percentage Age Percentage Age Percentage Age Percentage
--- ---------- --- ---------- --- ---------- --- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
0-40 250% 50 185% 60 130% 70 115%
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 >93 101
</TABLE>
105
<PAGE>
APPENDIX D
Death Benefit Factor Table
Rate per $1.00 of Face Amount
<TABLE>
<CAPTION>
Joint
Equal
Age Policy Years*
----- -----------------------------------------------------------------------------------------
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75+
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 1.000 1.000 1.000 1.001 1.002 1.005 1.010 1.022 1.048 1.102 1.210 1.415 1.702 1.957 2.000
20 1.000 1.000 1.001 1.002 1.004 1.009 1.021 1.046 1.100 1.207 1.411 1.700 1.957 2.000 2.000
25 1.000 1.000 1.001 1.003 1.008 1.019 1.044 1.097 1.204 1.408 1.697 1.956 2.000 2.000 2.000
30 1.000 1.001 1.003 1.007 1.018 1.042 1.094 1.200 1.404 1.694 1.955 2.000 2.000 2.000 2.000
35 1.000 1.002 1.006 1.016 1.039 1.091 1.197 1.400 1.692 1.954 2.000 2.000 2.000 2.000 2.000
40 1.001 1.005 1.014 1.036 1.087 1.192 1.395 1.688 1.953 2.000 2.000 2.000 2.000 2.000 2.000
45 1.002 1.011 1.032 1.081 1.185 1.388 1.682 1.952 2.000 2.000 2.000 2.000 2.000 2.000 2.000
50 1.006 1.025 1.072 1.174 1.376 1.674 1.949 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
55 1.015 1.058 1.157 1.358 1.660 1.945 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
60 1.035 1.128 1.327 1.636 1.936 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
65 1.079 1.274 1.595 1.920 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
70 1.175 1.519 1.891 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
75 1.357 1.822 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
80 1.620 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
85 1.894 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
90 1.969 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
95 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
99 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
</TABLE>
* Factors are portrayed for both Joint Equal Ages and Policy Anniversaries, at
five year intervals. See your Policy for one year increments in Death Benefit
factors.
106
<PAGE>
<TABLE>
<CAPTION>
PACIFIC SELECT
ESTATE PRESERVER II WHERE TO GO FOR MORE INFORMATION
<S> <C>
The Pacific Select Estate Preserver II For more information about Pacific Select Estate Preserver II, please call or
variable life insurance policy is write to us at the address below. You should also use this address to send us
underwritten by Pacific Life Insurance any notices, forms or requests about your policy.
Company.
--------------------------------------------------------------------------------
How to contact us Pacific Life Insurance Company
Client Services Department
700 Newport Center Drive
P.O. Box 7500
Newport Beach, California 92658-7500
1-800-800-7681
7 a.m. through 5 p.m. Pacific time
--------------------------------------------------------------------------------
How to contact the SEC You can also find reports and other information about the policy and separate
account from the SEC. The SEC may charge you a fee for this information.
Public Reference Section of the SEC
Washington, D.C. 20549-6009
1-800-SEC-0330
Internet: www.sec.gov
</TABLE>
<PAGE>
Supplement to Prospectus Dated May 1, 1999 for
Pacific Select Estate Preserver II
Last Survivor Flexible Premium Variable Life Insurance Policies
Issued by Pacific Life Insurance Company
<TABLE>
<S> <C>
In this supplement, you and your mean the This supplement provides information about four additional Variable Investment
Policyholder or Owner. Pacific Life, we, Options offered under this Policy. Each of these Investment Options is set up
us, and our refer to Pacific Life Insurance as a Variable Account under our Separate Account and invests in a corresponding
Company. M Fund refers to M Fund, Inc. Portfolio of the M Fund.
You'll find an explanation of what
capitalized terms mean in the accompanying Variable Account I: Brandes International Equity Fund
variable life insurance prospectus or the Variable Account II: Turner Core Growth Fund
M Fund prospectus. Variable Account III: Frontier Capital Appreciation Fund
Variable Account IV: Enhanced U.S. Equity Fund
The M Fund is described in detail in its
prospectus and in its Statement of You can allocate premium payments and transfer Accumulated Value to these
Additional Information (SAI). Variable Investment Options, as well as to the other Investment Options
described in the accompanying Pacific Select Estate Preserver II prospectus.
Pacific Select Estate Preserver II is
described in detail in the accompanying INFORMATION ABOUT M FUND
variable life insurance prospectus. Except
as described below, all features and M Fund, Inc.
procedures of the Policy described in its M Fund is a diversified, open-end management investment company registered with
prospectus remain intact. the Securities and Exchange Commission ("SEC") under the Investment Company Act
of 1940. M Fund currently offers four separate Portfolios as Investment Options
under the Policies. Each Portfolio pursues different investment objectives and
policies. The shares of each Portfolio are purchased by us for the
corresponding Variable Account at net asset value, i.e., without sales load.
All dividends and capital gains distributions received from a Portfolio are
automatically reinvested in such Portfolio at net asset value, unless we, on
behalf of the Separate Account, elect otherwise. M Fund shares may be redeemed
by us at their net asset value to the extent necessary to make payments under
the Policies.
Supplement dated May 1, 1999
1
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Your Policy's Accumulated Value will The following chart is a summary of the M Fund Portfolios. You'll find detailed
fluctuate depending on the Investment descriptions of the Portfolios, including the risks associated with investing
Options you've chosen. in the Portfolios, in the M Fund prospectus. There's no guarantee that a
Portfolio will achieve its investment objective. You should read the M Fund
prospectus carefully before investing.
The Portfolio's The Portfolio's Main Portfolio
Portfolio Investment Goal Investments Manager
Brandes Long-term capital Equity securities of foreign Brandes Investment
International appreciation. issuers, including common stocks, Partners, L.P.
Equity preferred stocks and securities
that are convertible into common
stocks. Focuses on stocks with
capitalizations of $1 billion
or more.
Turner Core Long-term capital Common stocks that show strong Turner Investment
Growth Fund appreciation. earnings potential and also have Partners, Inc.
reasonable valuations.
Frontier Maximum capital Common stock of companies of all Frontier Capital
Capital appreciation. sizes with emphasis on stocks Management
Appreciation companies with capitalizations of Company, Inc.
less than $3 billion.
Enhanced U.S. Above-market Common stocks of U.S. companies Franklin Portfolio
Equity total return. which the portfolio manager Associates LLC
believes have the potential for
higher rates of return than the
Standard & Poor's 500 Composite
Stock Price Index while having
risks similar to those of the
index.
We are not responsible for the operation M Financial Investment Advisers, Inc. (MFIA) is the investment adviser for each
of the M Fund or any of its Portfolios. Portfolio of the M Fund, and has retained other firms to manage the Portfolios.
We also are not responsible for ensuring MFIA and the M Fund's Board of Directors oversee the management of all of the M
that the M Fund and its Portfolios comply Fund's Portfolios.
with any laws that apply.
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
You'll find more information about Policy Fees and Expenses Paid by the M Fund
charges in An Overview of Pacific Select The M Fund pays advisory fees and other expenses. These are deducted from the
Estate Preserver II in the accompanying assets of each Portfolio and may vary from year to year. They are not fixed and
variable life insurance prospectus. are not part of the terms of your Policy. If you choose a Variable Investment
Option, these fees and expenses affect you indirectly because they reduce
You'll find more about M Fund fees and Portfolio returns.
expenses in the accompanying M Fund
prospectus. M Fund's expenses are assessed at the Fund level and are not direct charges
against the Variable Accounts or the Policy's Accumulated Value. These expenses
are taken into account in computing each Portfolio's net asset value. We in
turn use each Portfolio's net asset value to compute the corresponding Variable
Account's Accumulation Unit Value.
. Advisory fee
MFIA is the investment adviser to the M Fund. The M Fund pays an advisory fee
to MFIA for these services. The table below shows the advisory fee as an annual
percentage of each Portfolio's average daily net assets.
. Other expenses
The table also shows expenses the M Fund paid in 1998 as an annual percentage
of each Portfolio's average daily net assets. MFIA has agreed to pay operating
expenses of the M Fund (not including brokerage or other Portfolio transaction
expenses, expenses for litigation, indemnification, taxes, or other
extraordinary expenses) that exceed 0.25% of each Portfolio's average daily net
assets. MFIA does this voluntarily, but does not guarantee that it will
continue to do so after December 31, 1999.
M Fund Expenses after Expense Limitation/1/
Advisory Other Total
fee expenses expenses
-------- -------- --------
Brandes International Equity 1.05% 0.25% 1.30%
Turner Core Growth 0.45% 0.25% 0.70%
Frontier Capital Appreciation 0.90% 0.25% 1.15%
Enhanced U.S. Equity 0.55% 0.25% 0.80%
/1/Actual expenses for 1998 were 3.57% for Brandes International Equity
Portfolio, 3.42% for Turner Core Growth Portfolio, 1.75% for Frontier Capital
Appreciation Portfolio, and 2.34% for Enhanced U.S. Equity Portfolio. MFIA paid
the difference.
Statements and reports we'll send you
We'll send you financial statements that we receive from M Fund.
The rights we describe in the accompanying Voting rights
variable life insurance prospectus under We're the legal owner of the shares of the M Fund that are held by the Variable
Disregard of Voting Instructions and Accounts. The voting rights we describe in the Voting of Fund Shares section of
Substitution of Investments also apply to the accompanying variable life insurance prospectus and how we'll exercise them
the M Fund. also apply to the M Fund.
3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ILLUSTRATIONS
<S> <C>
--------------------------------------------------------------------------------
If you ask us, we'll provide you with Illustrations 1 and 2, which appear on the following pages, illustrate how the
different kinds of illustrations: death benefit, Accumulated Value and Net Cash Surrender Value of a hypothetical
Policy may vary over an extended period of time, based on certain hypothetical
. Illustrations similar to the ones in the rates of return.
prospectus and this supplement, but based
on information you give us about the Ages These illustrations are based on a hypothetical Policy with the following
of the two people to be insured by the characteristics:
Policy, their risk classes, the Face
Amount, the death benefit and premium . the Face Amount is $1,500,000
payments.
. the annual premium is $32,484
. Illustrations that show the allocation of
premium payments to specified Variable . on the Policy Date, the people insured by the Policy are
Accounts. These will reflect the expenses
of the Portfolio in which the Variable - a 55-year old male select nonsmoker
Account invests.
- a 55-year old female select nonsmoker
. Illustrations that use a hypothetical
gross rate of return that's greater than The cost of insurance rates vary by illustration, as follows:
12%. These are available only to certain ----------------------------------------------
large institutional investors. Cost of insurance rate
----------------------------------------------
Illustration 1 Current
Illustration 2 Guaranteed
----------------------------------------------
Assumptions
The illustrations are based on the guideline premium test. Here are the
assumptions we're using:
. The hypothetical rates of return are equal to constant gross annual rates of
0%, 6% and 12%.
. All premium payments are made at the beginning of the Policy Year.
. An amount equal to the annual premium, after taxes, is invested to earn
interest at 5% compounded annually for the second column of each table, Total
premiums paid plus interest at 5%, which shows the amount that would
accumulate.
. No Policy loans have been taken out.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
. The amounts shown for the death benefits, Accumulated Values and Net Cash
Surrender Values reflect charges deducted from the Variable Accounts. This
means that the net investment return on the Variable Accounts is lower than
the gross investment return on the assets.
. The amounts shown for the death benefits, Accumulated Values and Net Cash
Surrender Values also reflect premium loads, administrative charges and
mortality and expense risk charges.
The Pacific Select Fund's investment . The Illustrations assume total annual advisory fees and expenses of .80% of
advisory fees and expenses are shown total average daily net assets of the Fund. This reflects average advisory
in An Overview of Pacific Select Estate fees of .69% and average expenses of .11% based upon fees and expenses of
Preserver II. Portfolios available as Investment Options under the Policy.
The M Fund's investment advisory fees . There are no charges against the Variable Accounts for income taxes but we
and expenses are shown on page 3 of reserve the right to impose charges in the future.
this supplement.
Things to keep in mind
Here are a few things to keep in mind when reviewing the illustrations:
. The values shown would be different if, although the gross annual investment
rates of return averaged 0%, 6% or 12% over a period of years, they also
rose above or fell below those averages for individual Policy years.
. After we've deducted the charges and fund expenses described in the
assumptions above, the illustrated gross annual investment rates of return of
0%, 6% and 12% correspond to approximate net annual rates of return of -.80%,
5.15%, and 11.10%.
. The amounts shown would be different if unisex insurance rates were used or if
the people were insured by the Policy were females and insurance rates for
females were used.
. For the illustration that assumes current cost of insurance rates, the amounts
shown would be different if either person insured by the Policy was a smoker
and rates for smokers were used.
. The Portfolio expenses used in the illustrations do not include foreign taxes.
Here's what foreign taxes were for the year ended December 31, 1998:
-------------------------------------------------------
Percentage of average
Portfolio daily net assets
-------------------------------------------------------
Pacific Select Fund:
Aggressive Equity 0.01%
Growth LT 0.01%
Equity Income 0.01%
Equity Index 0.01%
International 0.23%
Emerging Markets 0.26%
M Fund:
Brandes International Equity 0.18%
-------------------------------------------------------
5
</TABLE>
<PAGE>
<TABLE>
<S> <C>
---------------------------------------------------------------------------------
Illustration 1
Death benefit Option A at current cost of insurance rates
Based on average annual advisory fees and expenses of the Portfolios
DEATH BENEFIT OPTION:A
FACE AMOUNT:$1,500,000
MALE NONSMOKER ISSUE AGE 55
FEMALE NONSMOKER ISSUE AGE 55
ANNUAL PREMIUM:$32,484
---------------------------------------------------------------------------------
Flexible premium survivorship Total
variable universal life premiums
Illustration of death benefits, Accumulated End of paid plus End of year DEATH BENEFIT assuming
Values and Net Cash Surrender Values. Policy interest at hypothetical gross annual investment return of
Year 5% 0% 6% 12%
All premium payments are illustrated as if ---------------------------------------------------------------------------------
made at the beginning of the Policy Year. 1 $34,108 $1,500,000 $1,500,000 $1,500,000
2 $69,922 $1,500,000 $1,500,000 $1,500,000
This illustration assumes no Policy loans 3 $107,526 $1,500,000 $1,500,000 $1,500,000
or Partial Withdrawals have been made. 4 $147,011 $1,500,000 $1,500,000 $1,500,000
5 $188,469 $1,500,000 $1,500,000 $1,500,000
The death benefits, Accumulated Values and 6 $232,001 $1,500,000 $1,500,000 $1,500,000
Net Cash Surrender Values will differ if 7 $277,709 $1,500,000 $1,500,000 $1,500,000
premiums are paid in different amounts or 8 $325,703 $1,500,000 $1,500,000 $1,500,000
frequencies. 9 $376,096 $1,500,000 $1,500,000 $1,500,000
10 $429,009 $1,500,000 $1,500,000 $1,500,000
The hypothetical investment rates shown 15 $736,006 $1,500,000 $1,500,000 $1,500,000
above and elsewhere in this prospectus 20 $1,127,820 $1,500,000 $1,500,000 $2,004,468
are illustrative only and should not be 25 $1,627,885 $1,500,000 $1,500,000 $3,525,942
interpreted as a representation of past 30 $2,266,109 $1,500,000 $1,978,406 $6,134,507
or future investment results. Actual 35 $3,080,663 $1,500,000 $2,687,518 $10,450,613
rates of return may be more or less than ---------------------------------------------------------------------------------
those shown and will depend on a number End of year End of year
of factors, including the investment ACCUMULATED VALUE NET CASH SURRENDER VALUE
allocations made to Variable Accounts by End of assuming hypothetical gross assuming hypothetical gross
the Owner and the experience of the Policy annual investment return of annual investment return of
Accounts. No representation can be made Year 0% 6% 12% 0% 6% 12%
by us, the Separate Account or the ---------------------------------------------------------------------------------
underlying funds that these hypothetical 1 $26,532 $28,192 $29,853 $26,532 $28,192 $29,853
rates of return can be achieved for 2 $52,568 $57,537 $62,705 $52,568 $57,537 $62,705
any one year or sustained over any period 3 $78,081 $88,057 $98,846 $78,081 $88,057 $98,846
of time. 4 $103,042 $119,779 $138,604 $103,042 $119,779 $138,604
5 $127,422 $152,727 $182,338 $127,422 $152,727 $182,338
This is an illustration only. An 6 $151,302 $187,046 $230,573 $151,302 $187,046 $230,573
illustration is not intended to predict 7 $174,886 $223,005 $284,004 $174,886 $223,005 $284,004
actual performance. Interest rates, 8 $198,209 $260,718 $343,230 $198,209 $260,718 $343,230
dividends, and values set forth in the 9 $221,273 $300,271 $408,884 $221,273 $300,271 $408,884
illustration are not guaranteed. 10 $244,082 $341,760 $481,671 $244,082 $341,760 $481,671
15 $368,093 $597,827 $1,001,836 $368,093 $597,827 $1,001,836
20 $482,859 $921,783 $1,873,334 $482,859 $921,783 $1,873,334
25 $582,449 $1,342,777 $3,358,040 $582,449 $1,342,777 $3,358,040
30 $637,075 $1,884,196 $5,842,388 $637,075 $1,884,196 $5,842,388
35 $580,974 $2,559,541 $9,952,965 $580,974 $2,559,541 $9,952,965
---------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
--------------------------------------------------------------------------------
Illustration 2
Death benefit Option A at guaranteed cost of insurance rates
Based on average annual advisory fees and expenses of the Portfolios
DEATH BENEFIT OPTION:A
FACE AMOUNT:$1,500,000
MALE NONSMOKER ISSUE AGE 55
FEMALE NONSMOKER ISSUE AGE 55
ANNUAL PREMIUM:$32,484
-------------------------------------------------------------------------------
Flexible premium survivorship Total
variable universal life premiums
Illustration of death benefits, Accumulated End of paid plus End of year DEATH BENEFIT assuming
Values and Net Cash Surrender Values. Policy interest at hypothetical gross annual investment return of
Year 5% 0% 6% 12%
All premium payments are illustrated as if -------------------------------------------------------------------------------
made at the beginning of the Policy Year. 1 $34,108 $1,500,000 $1,500,000 $1,500,000
2 $69,922 $1,500,000 $1,500,000 $1,500,000
This illustration assumes no Policy loans 3 $107,526 $1,500,000 $1,500,000 $1,500,000
or Partial Withdrawals have been made. 4 $147,011 $1,500,000 $1,500,000 $1,500,000
5 $188,469 $1,500,000 $1,500,000 $1,500,000
*Additional payment will be required to 6 $232,001 $1,500,000 $1,500,000 $1,500,000
prevent Policy termination. 7 $277,709 $1,500,000 $1,500,000 $1,500,000
8 $325,703 $1,500,000 $1,500,000 $1,500,000
The death benefits, Accumulated Values and 9 $376,096 $1,500,000 $1,500,000 $1,500,000
Net Cash Surrender Values will differ if 10 $429,009 $1,500,000 $1,500,000 $1,500,000
premiums are paid in different amounts or 15 $736,006 $1,500,000 $1,500,000 $1,500,000
frequencies. 20 $1,127,820 $1,500,000 $1,500,000 $1,912,435
25 $1,627,885 $1,500,000 $1,500,000 $3,349,309
The hypothetical investment rates shown 30 $2,266,109 $0* $1,569,116 $5,754,195
above and elsewhere in this prospectus are 35 $3,080,663 $0* $2,115,296 $9,567,770
illustrative only and should not be -------------------------------------------------------------------------------
interpreted as a representation of past or End of year End of year
future investment results. Actual rates of ACCUMULATED VALUE NET CASH SURRENDER VALUE
return may be more or less than those shown End of assuming hypothetical gross assuming hypothetical gross
and will depend on a number of factors, Policy annual investment return of annual investment return of
including the investment allocations made to Year 0% 6% 12% 0% 6% 12%
Variable Accounts by the Owner and the -------------------------------------------------------------------------------
experience of the Accounts. No representation 1 $26,516 $28,175 $29,836 $26,516 $28,175 $29,836
can be made by us, the Separate Account or 2 $52,500 $57,465 $62,630 $52,500 $57,465 $62,630
the underlying funds that these hypothetical 3 $77,918 $87,885 $98,664 $77,918 $87,885 $98,664
rates of return can be achieved for any one 4 $102,739 $119,453 $138,253 $102,739 $119,453 $138,253
year or sustained over any period of time. 5 $126,925 $152,185 $181,747 $126,925 $152,185 $181,747
6 $150,551 $186,216 $229,656 $150,551 $186,216 $229,656
This is an illustration only. An illustration 7 $173,434 $221,425 $282,285 $173,434 $221,425 $282,285
is not intended to predict actual performance. 8 $195,490 $257,792 $340,092 $195,490 $257,792 $340,092
Interest rates, dividends, and values set 9 $216,607 $295,275 $403,574 $216,607 $295,275 $403,574
forth in the illustration are not guaranteed. 10 $236,659 $333,824 $473,298 $236,659 $333,824 $473,298
15 $330,209 $557,628 $962,422 $330,209 $557,628 $962,422
20 $369,377 $808,577 $1,787,323 $369,377 $808,577 $1,787,323
25 $289,039 $1,098,892 $3,189,818 $289,039 $1,098,892 $3,189,818
30 $0* $1,494,397 $5,480,186 $0* $1,494,397 $5,480,186
35 $0* $2,014,567 $9,112,162 $0* $2,014,567 $9,112,162
-------------------------------------------------------------------------------
7
</TABLE>
<PAGE>
Form No. 15-21536-00
<PAGE>
PART II. ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement on Form S-6 comprises the following papers and
documents:
The facing sheet.
The cross-reference sheet.
The Prospectus consisting of 106 pages (including illustrations)
Supplement to Prospectus dated May 1, 1998 consisting of 7 pages.
The undertaking to file reports.
Representation pursuant to Section 26(e) of the Investment Company Act of
1940.
The signatures.
Written consent of the following person (included in the exhibits shown below):
Deloitte & Touche LLP, independent auditors
The following exhibits:
1. (1) (a) Resolution of the Board of Directors of the Depositor dated
November 22, 1989 and copies of the Memoranda concerning Pacific
Select Exec Separate Account dated May 12, 1988 and January 26,
1993./1/
(b) Resolution of the Board of Directors of Pacific Life Insurance
Company authorizing conformity to the terms of the current
Bylaws./3/
(2) Inapplicable
(3) (a) Distribution Agreement Between Pacific Mutual Life Insurance
Company and Pacific Equities Network/1/
(b) Form of Selling Agreement Between Pacific Equities Network and
Various Broker-Dealers/1/
(4) Inapplicable
(5) (a) Last Survivor Flexible Premium Variable Life Insurance
Policy (Form 97-56)/1/
(b) Accelerated Living Benefit Rider (Form R92-ABR)/1/
(c) Policy Split Option Rider (Form R94-PSO)/1/
(d) Last Survivor Added Protection Benefit (Form R96-LSAPB)/1/
(e) Individual Annual Renewable Term Rider (Form R96-ART)/1/
(f) Enhanced Policy Split Option Rider (Form R96-EPSO)/1/
(g) Fixed LT Account Endorsement
(6) (a) Articles of Incorporation of Pacific Life Insurance
Company/3/
(b) Bylaws of Pacific Life Insurance Company/3/
(7) Inapplicable
(8) Inapplicable
(9) (a) Participation Agreement between Pacific Mutual Life Insurance
Company and Pacific Select Fund/1/
(b) M Fund Inc. Participation Agreement with Pacific Mutual Life
Insurance Company/2/
(10) Applications and General Questionnaire/1/
2. Form of Opinion and consent of legal officer of Pacific Mutual as to
legality of Policies being registered/1/ (Incorporated by reference to
Exhibit No. 3 filed in Registrant's Registration Statement on Form S-6
filed via EDGAR on January 24, 1997, File No. 333-20355, Accession Number
00001017062-97-000074.)
3. Inapplicable
<PAGE>
4. Inapplicable
5. Inapplicable
6. (a) Consent of Independent Auditors
(b) Consent of Dechert Price & Rhoads/1/
7. Opinion of Actuary
8. Memorandum Describing Issuance, Transfer, and Redemption
Procedures/1/
9. Powers of Attorney
/1/ Filed as part of the Registration Statement on Form S-6 EL24, filed via
EDGAR on January 24, 1997, File No. 333-20355 Accession Number
0001017062-97-000074.
/2/ Filed as part of Post-Effective Amendment No. 1 to the Registration
Statement on Form S-6 filed via EDGAR on April 29, 1997, File No.
333-20355, Accession Number 0001017062-97-000775.
/3/ Filed as part of Post-Effective Amendment No. 2 to the Registration
Statement on Form S-6 filed via EDGAR on April 24, 1998, File No.
333-20355, Accession Number 0001017062-98-000897.
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATION PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF 1940
Pacific Life Insurance Company and Registrant represent that the fees and
charges to be deducted under the Variable Life Insurance Policy ("Policy")
described in the prospectus contained in this registration statement are, in the
aggregate, reasonable in relation to the services rendered, the expenses to be
incurred, and the risks assumed in connection with the Policy.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Pacific Select Exec Separate Account of Pacific Life Insurance Company,
certifies that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment No. 3 to the Registration
Statement on Form S-6 to be signed on its behalf by the undersigned thereunto
duly authorized, all in the City of Newport Beach, and State of California, on
this 27th day of April, 1999.
PACIFIC SELECT EXEC SEPARATE ACCOUNT
(Registrant)
BY: PACIFIC LIFE INSURANCE COMPANY
(Depositor)
BY: _____________________________________
Thomas C. Sutton*
Chairman & Chief Executive Officer
*BY: /s/DAVID R. CARMICHAEL
David R. Carmichael
as attorney-in-fact
(Power of attorney is contained as Exhibit 9 of this Post-Effective Amendment
No. 3 to the Registration Statement on Form S-6, File No. 333-20355, of Pacific
Select Exec Separate Account.)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pacific Life
Insurance Company certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 3
to the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, all in the City of Newport Beach, and State of
California, on this 27th day of April, 1999.
BY: PACIFIC LIFE INSURANCE COMPANY
(Registrant)
BY: _____________________________________
Thomas C. Sutton*
Chairman & Chief Executive Officer
*BY: /s/DAVID R. CARMICHAEL
David R. Carmichael
as attorney-in-fact
(Power of Attorney is contained as Exhibit 9 of this Post-Effective Amendment
No. 3 to the Registration Statement on Form S-6, File No. 333-20355, of Pacific
Select Exec Separate Account.)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Post Effective
Amendment No. 3 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Thomas C. Sutton* Director, Chairman ____________, 1999
of the Board and
Chief Executive Officer
Glenn S. Schafer* President ____________, 1999
Khanh T. Tran* Director, Senior Vice ____________, 1999
President and Chief
Financial Officer
David R. Carmichael* Director, Senior Vice ____________, 1999
President and General
Counsel
Audrey L. Milfs* Director, Vice President ____________, 1999
and Corporate Secretary
Richard M. Ferry* Director ____________, 1999
Donald E. Guinn* Director ____________, 1999
Ignacio E. Lozano, Jr.* Director ____________, 1999
Charles D. Miller* Director ____________, 1999
Donn B. Miller* Director ____________, 1999
Richard M. Rosenberg* Director ____________, 1999
James R. Ukropina* Director ____________, 1999
Raymond L. Watson* Director ____________, 1999
Edward Byrd* Vice President and
Controller ____________, 1999
Brian D. Klemens* Vice President and
Treasurer ____________, 1999
*BY: /s/DAVID R. CARMICHAEL April 27, 1999
David R. Carmichael
as attorney-in-fact
</TABLE>
(Powers of Attorney are contained as Exhibit 9 of this Post Effective Amendment
No. 3 to the Registration Statement on Form S-6, File No. 333-20355, of Pacific
Select Exec Separate Account.)
<PAGE>
EXHIBIT 1(5)(g)
ENDORSEMENT
(ADDING FIXED LT ACCOUNT)
This endorsement becomes part of the policy to which it is attached. Its
purpose is to provide another fixed-rate interest option, called the Fixed LT
Account. The following changes to your policy occur in the order in which they
appear in this endorsement.
The following is added to the Definitions section:
Fixed Options - consist of the Fixed Account and the Fixed LT Account, which
are part of our general account.
Investment Options - consist of the Variable Accounts and the Fixed Options.
The words "the Investment Options" replace the following:
- The words "the Variable Accounts and Fixed Account" occurring in the 2nd
paragraph of the Grace Period and Lapse subsection of the Premiums section;
and
- The words "each Variable Account and the Fixed Account" occurring in the
Monthly Deduction subsection of the Policy Charges section; and
- The words "the Fixed and Variable Accounts" wherever they occur throughout
the policy.
The words "the Fixed Account" wherever they occur throughout the policy are
replaced by "each Fixed Option".
The Fixed Account subsection of the Accumulated Value section is replaced by the
following:
Fixed Options - For each Fixed Option, the Accumulated Value on any date is:
- the Accumulated Value in the Fixed Option on the prior monthly payment
date, increased by interest;
- plus the amount of any premiums less Premium Load received and allocated to
the Fixed Option since the last monthly payment date, increased by
interest;
- minus the monthly deduction and other deductions due, if any, and assessed
against the Fixed Option, increased by interest;
- minus the amount of any withdrawals, or transfers from the Fixed Option,
including transfers to the Loan Account, since the last monthly payment
date, increased by interest; and
- plus the amount of any transfer to the Fixed Option, including transfers
from the Loan Account, since the last monthly payment date, increased by
interest.
The first paragraph of the Interest subsection of the Accumulated Value section
is replaced by the following:
Interest - We will credit interest on each Fixed Option and on the Loan
Account at a rate not less than .32737% per month, compounded monthly. This
is equivalent to an annual effective rate of 4%. At our discretion, we may
credit a higher rate of interest on the Fixed Options. Each Fixed Option may
have its own unique rate.
The Transfers subsection of the Accumulated Value section is replaced by the
following:
Transfers - After your initial Net Premium has been allocated according to
your instructions and while your policy is in force, you may, upon Written
Request, transfer your Accumulated Value, or a part of it, among the
Investment Options as provided in this subsection. No transfer may be made if
the policy is in a grace period and the required premium has not been paid.
Transfers from the Variable Accounts to the Fixed Options may be made only
during the policy month preceding each policy anniversary.
Page 1
<PAGE>
Transfers from the Fixed Account: Only one transfer from the Fixed Account
may be made in any twelve-month period. Transfers from the Fixed Account will
be limited to the greater of $5,000 or 25% of the Accumulated Value in the
Fixed Account.
Transfers from the Fixed LT Account: Only one transfer from the Fixed LT
Account may be made in any twelve-month period. Transfers from the Fixed LT
Account will be limited to the greater of $5,000 or 10% of the Accumulated
Value in the Fixed LT Account.
Allocations into the Fixed LT Account: We reserve the right to limit the
amount allocated to the Fixed LT Account to $1,000,000 during the most recent
12 months for all policies in which you have an ownership interest or to which
payments are made by a single payor. Allocations include Net Premium
payments, transfers and loan repayments. Any excess over $1,000,000 will be
transferred to your other Investment Options relative to your most recent
instructions. We may increase the $1,000,000 limit at any time at our sole
discretion. You may contact us to find out if a higher limit is in effect.
We reserve the right:
. to limit the size of transfers so that each transfer is at least $500;
. to require that the remaining balance in any account as a result of a
transfer be at least $500; and
. to assess a charge of $50 for each transfer exceeding 6 per policy year.
The Fixed Account subsection of the Payments section is re-titled to "Fixed
Options".
The Index entry "Fixed Account" is changed to "Fixed Options".
Signed for Pacific Life Insurance Company at our Home Office, 700 Newport Center
Drive, Newport Beach, California 92660.
/s/ Thomas C. Sutton /s/ Audrey L. Milfs
Chairman and Chief Executive Officer Secretary
Page 2
<PAGE>
EXHIBIT 6(a)
INDEPENDENT AUDITORS' CONSENT
Pacific Life Insurance Company:
We consent to the use in this Post-Effective Amendment No. 3 to Registration
Statement No. 333-20355 on Form S-6 of our report dated February 5, 1999 related
to the financial statements of Pacific Select Exec Separate Account as of
December 31, 1998 and for each of the two years in the period then ended and of
our report dated February 22, 1999, related to the consolidated financial
statements of Pacific Life Insurance Company and subsidiaries as of December 31,
1998 and 1997 and for each of the three years in the period ended December 31,
1998 appearing in the Prospectus of Pacific Select Estate Preserver II, which is
a part of such Registration Statement.
We also consent to the reference to us under the heading "Independent Auditors"
appearing in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Costa Mesa, California
April 27, 1999
<PAGE>
EXHIBIT 7
[Letterhead of Pacific Life]
April 16, 1999
PACIFIC LIFE INSURANCE COMPANY
700 Newport Center Drive
Newport Beach, CA 92660
RE: Pacific Select Estate Preserver II Last Survivor
Flexible Premium Variable Life Insurance Policy
To whom it may concern:
In my capacity as Assistant Vice President of the Product Design Department of
Pacific Life Insurance Company, I have provided actuarial advice concerning:
The preparation of the Post-Effective Amendment No. 3 to the Registration
Statement on Form S-6 filed by Pacific Life Insurance Company with the
Securities and Exchange Commission under the Securities Act of 1933 with respect
to variable life insurance policies (the "Registration Statement") and the
preparation of the policy forms for the variable life insurance policies
described in the Registration Statement (the "Policies").
It is my professional opinion that:
The illustration of death benefits, cash values and accumulated premiums shown
in the Appendix to the prospectus, based on the assumptions stated in the
illustrations and on two pages immediately preceding the illustrations, are
consistent with the provisions of the Policies. The rate structure of the
Policies has not been designed so as to make the relationship between premiums
and benefits, as shown in the illustrations, appear to be correspondingly more
favorable to the prospective purchaser of the Policies at age 55 in the
underwriting classes illustrated than to prospective purchasers of Policies at
other ages or underwriting classes.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ LAWRENCE M. HERSH
Lawrence M. Hersh, FSA, MAAA
Assistant Vice President
<PAGE>
EXHIBIT 9
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: 2/25/98 /s/ TC SUTTON
Thomas C. Sutton
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: February 25, 1998 /s/ GLENN S. SCHAFER
Glenn S. Schafer
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: 2/25/98 /s/ RICHARD M. FERRY
Richard M. Ferry
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: 2/25/98 /s/ DONALD E. GUINN
Donald E. Guinn
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: 2/25/98 /s/ IGNACIO E. LOZANO, JR.
Ignacio E. Lozano, Jr.
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: 2/25/98 /s/ CHARLES D. MILLER
Charles D. Miller
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: Feb 25, 1998 /s/ DONN B. MILLER
Donn B. Miller
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: 2/25/1998 /s/ RICHARD M. ROSENBERG
Richard M. Rosenberg
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: 2/25/98 /s/ JAMES R. UKROPINA
James R. Ukropina
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: Feb 25, 1998 /s/ RAYMOND L. WATSON
Raymond L. Watson
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: February 25, 1998 /s/ DAVID R. CARMICHAEL
David R. Carmichael
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: 2/25/98 /s/ AUDREY L. MILFS
Audrey L. Milfs
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: 02-25-98 /s/ KHANH T. TRAN
Khanh T. Tran
Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, Paul F. Roye and Robin Yonis Sandlaufer his/her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: March 10, 1998 /s/ EDWARD R. BYRD
Edward R. Byrd
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints David R. Carmichael, Sharon A. Cheever, Diane N.
Ledger, Jeffrey S. Puretz, and Robin Yonis Sandlaufer his/her true and lawful
attorney-in-fact and agent, each with full power of substitution and
resubstitution for him/her in his/her name, place, and stead, in any and all
Registration Statements applicable to Pacific Select Separate Account of Pacific
Life Insurance Company, Pacific Select Exec Separate Account of Pacific Life
Insurance Company, Pacific Select Variable Annuity Separate Account of Pacific
Life Insurance Company, Separate Account A of Pacific Life Insurance Company,
Separate Account B of Pacific Life Insurance Company and Pacific Corinthian
Variable Separate Account of Pacific Life Insurance Company and any amendments
or supplements thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he/she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his/her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Dated: March 29, 1999 /s/ BRIAN D. KLEMENS
Brian D. Klemens
Vice President and Treasurer
