<PAGE>
ANNUAL REPORT
. SEPARATE ACCOUNT A OF PACIFIC MUTUAL LIFE INSURANCE COMPANY
[LOGO of SEPARATE ACCOUNT A]
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Pacific Mutual Life Insurance Company
We have audited the accompanying statement of assets and liabilities of Pacific
Mutual's Separate Account A (comprised of the Money Market, High Yield Bond,
Managed Bond, Government Securities, Aggressive Equity, Growth LT, Equity
Income, Multi-Strategy, Equity, Bond and Income, Equity Index, International and
Emerging Markets Variable Accounts) as of December 31, 1996 and the related
statement of operations and statement of changes in net assets for the year
then ended. These financial statements are the responsibility of the Separate
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective Variable
Accounts constituting Pacific Mutual's Separate Account A at December 31, 1996
and the results of their operations and the changes in their net assets for the
year then ended, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 14, 1997
C-1
<PAGE>
SEPARATE ACCOUNT A
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
High
Money Yield Managed
Market Bond Bond
Variable Variable Variable
Account Account Account
------- ------- -------
<S> <C> <C> <C>
ASSETS
Investments in Pacific Select Fund:
Money Market Portfolio (1,525 shares; cost $15,310).................. $ 15,315
High Yield Bond Portfolio (695 shares; cost $6,769).................. $ 6,913
Managed Bond Portfolio (709 shares; cost $7,557)..................... $ 7,625
Government Securities Portfolio (658 shares; cost $6,845)............
Aggressive Equity Portfolio (384 shares; cost $4,030)................
Growth LT Portfolio (669 shares; cost $10,644).......................
Receivables:
Due from Pacific Mutual Life Insurance Company....................... 4 1
Fund shares redeemed................................................. 78
-------- ------- -------
TOTAL ASSETS........................................................... 15,393 6,917 7,626
-------- ------- -------
LIABILITIES
Payables:
Due to Pacific Mutual Life Insurance Company......................... 78
Fund shares purchased................................................ 4 1
-------- ------- -------
TOTAL LIABILITIES...................................................... 78 4 1
-------- ------- -------
NET ASSETS............................................................. $ 15,315 $ 6,913 $ 7,625
======== ======= =======
<CAPTION>
Government Aggressive Growth
Securities Equity LT
Variable Variable Variable
Account Account Account
------- ------- -------
<S> <C> <C> <C>
ASSETS
Investments in Pacific Select Fund:
Money Market Portfolio (1,525 shares; cost $15,310)..................
High Yield Bond Portfolio (695 shares; cost $6,769)..................
Managed Bond Portfolio (709 shares; cost $7,557).....................
Government Securities Portfolio (658 shares; cost $6,845)............ $ 6,834
Aggressive Equity Portfolio (384 shares; cost $4,030)................ $ 4,141
Growth LT Portfolio (669 shares; cost $10,644)....................... $ 11,037
Receivables:
Due from Pacific Mutual Life Insurance Company....................... 33 59 14
Fund shares redeemed.................................................
------- ------- --------
TOTAL ASSETS........................................................... 6,867 4,200 11,051
------- ------- --------
LIABILITIES
Payables:
Due to Pacific Mutual Life Insurance Company.........................
Fund shares purchased................................................ 33 59 14
------- ------- --------
TOTAL LIABILITIES...................................................... 33 59 14
------- ------- --------
NET ASSETS............................................................. $ 6,834 $ 4,141 $ 11,037
======= ======= ========
</TABLE>
See Notes to Financial Statements.
C-2
<PAGE>
SEPARATE ACCOUNT A
STATEMENT OF ASSETS & LIABILITIES (Continued)
DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Equity Multi- Bond and
Income Strategy Equity Income
Variable Variable Variable Variable
Account Account Account Account
------- ------- ------- -------
<S> <C> <C> <C> <C>
ASSETS
Investments in Pacific Select Fund:
Equity Income Portfolio (424 shares; cost $8,098)......................... $ 8,663
Multi-Strategy Portfolio (221 shares; cost $3,112)........................ $ 3,254
Equity Portfolio (271 shares; cost $5,549)................................ $ 5,708
Bond and Income Portfolio (126 shares; cost $1,483)....................... $ 1,514
Equity Index Portfolio (444 shares; cost $8,532)..........................
International Portfolio (1,010 shares; cost $14,505)......................
Emerging Markets Portfolio (238 shares; cost $2,311)......................
Receivables:
Due from Pacific Mutual Life Insurance Company............................ 68 6 63
------- ------- -------- -------
TOTAL ASSETS................................................................ 8,731 3,260 5,771 1,514
------- ------- -------- -------
LIABILITIES
Payables:
Fund shares purchased..................................................... 68 6 63
------- ------- -------- -------
TOTAL LIABILITIES........................................................... 68 6 63 0
------- ------- -------- -------
NET ASSETS.................................................................. $ 8,663 $ 3,254 $ 5,708 $ 1,514
======= ======= ======== =======
<CAPTION>
Equity Inter- Emerging
Index national Markets
Variable Variable Variable
Account Account Account
------- ------- -------
<S> <C> <C> <C>
ASSETS
Investments in Pacific Select Fund:
Equity Income Portfolio (424 shares; cost $8,098).........................
Multi-Strategy Portfolio (221 shares; cost $3,112)........................
Equity Portfolio (271 shares; cost $5,549)................................
Bond and Income Portfolio (126 shares; cost $1,483).......................
Equity Index Portfolio (444 shares; cost $8,532).......................... $ 9,063
International Portfolio (1,010 shares; cost $14,505)...................... $ 15,549
Emerging Markets Portfolio (238 shares; cost $2,311)...................... $ 2,304
Receivables:
Due from Pacific Mutual Life Insurance Company............................ 164 44 8
------- -------- -------
TOTAL ASSETS................................................................ 9,227 15,593 2,312
------- -------- -------
LIABILITIES
Payables:
Fund shares purchased..................................................... 164 44 8
------- -------- -------
TOTAL LIABILITIES........................................................... 164 44 8
------- -------- -------
NET ASSETS.................................................................. $ 9,063 $ 15,549 $ 2,304
======= ======== =======
</TABLE>
See Notes to Financial Statements.
C-3
<PAGE>
SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
High
Money Yield Managed Government Aggressive Growth
Market Bond Bond Securities Equity LT
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account (1) Account
-------- -------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends......................... $ 195 $ 206 $ 166 $ 127 $ 27
EXPENSES
Mortality and expense risk fee
and administrative fee........... 55 31 30 23 $ 15 43
------ ------ ------ ------ ----- ------
NET INVESTMENT INCOME (LOSS)............ 140 175 136 104 (15) (16)
------ ------ ------ ------ ----- ------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized loss from security
transactions..................... (3) (4) (3) (10) (26)
Net unrealized appreciation
(depreciation) on investments.... 6 144 67 (11) 110 393
------ ------ ------ ------ ----- ------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS.................... 3 144 63 (14) 100 367
------ ------ ------ ------ ----- ------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS......... $ 143 $ 319 $ 199 $ 90 $ 85 $ 351
====== ====== ====== ====== ===== ======
</TABLE>
See Notes to Financial Statements.
(1) Operations commenced on April 17, 1996.
C-4
<PAGE>
SEPARATE ACCOUNT A
STATEMENT OF OPERATIONS (Continued)
FOR THE YEAR ENDED DECMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Equity Multi- Bond and Equity Inter- Emerging
Income Strategy Equity Income Index National Markets
Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account(1)
-------- -------- ------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........................... $ 36 $ 33 $ 34 $ 54 $ 234
EXPENSES
Mortality and expense risk fee
and administrative fee 33 12 $ 23 6 32 73 $ 8
----- ----- ----- ----- ----- ------ -----
NET INVESTMENT INCOME (LOSS) 3 21 (23) 28 22 161 (8)
----- ----- ----- ----- ----- ------ -----
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized loss from security
transactions....................... (19) (1) (23) (5) (5) (1) (2)
Net unrealized appreciation
(depreciation) on investments...... 565 142 159 30 531 1,045 (7)
----- ----- ----- ----- ----- ------ -----
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS...................... 546 141 136 25 526 1,044 (9)
----- ----- ----- ----- ----- ------ -----
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........... $549 $162 $113 $ 53 $548 $1,205 $(17)
===== ===== ===== ===== ===== ====== =====
</TABLE>
See Notes to Financial Statements.
(1) Operations commenced on April 17, 1996.
C-5
<PAGE>
SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
High
Money Yield Managed Government Aggressive Growth
Market Bond Bond Securities Equity LT
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account(1) Account
------- ------- ------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss)................................ $ 140 $ 175 $ 136 $ 104 $ (15) $ (16)
Net realized loss from security transactions................ (3) (4) (3) (10) (26)
Net unrealized appreciation (depreciation) on investments... 6 144 67 (11) 110 393
-------- ------- -------- -------- ------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS.................................. 143 319 199 90 85 351
-------- ------- -------- -------- ------- --------
INCREASE (DECREASE) IN NET ASSETS FROM
POLICY TRANSACTIONS
Transfer of net premiums................................... 31,584 3,894 5,689 2,781 3,207 8,126
Transfers in (from other variable accounts)................ 5,153 4,364 2,063 4,221 1,056 4,788
Transfers out (to other variable accounts)................. (21,498) (1,281) (289) (237) (197) (2,176)
Transfers--other........................................... (67) (383) (37) (21) (10) (52)
-------- ------- -------- -------- ------- --------
NET INCREASE IN NET ASSETS
DERIVED FROM POLICY TRANSACTIONS........................... 15,172 6,594 7,426 6,744 4,056 10,686
-------- ------- -------- -------- ------- --------
NET INCREASE IN NET ASSETS................................... 15,315 6,913 7,625 6,834 4,141 11,037
NET ASSETS
Beginning of year..........................................
-------- ------- -------- -------- ------- --------
End of year................................................ $ 15,315 $ 6,913 $ 7,625 $ 6,834 $ 4,141 $ 11,037
======== ======= ======== ======== ======= ========
</TABLE>
See Notes to Financial Statements.
(1) Operations commenced on April 17, 1996.
C-6
<PAGE>
SEPARATE ACCOUNT A
STATEMENT OF CHANGES IN NET ASSETS (Continued)
FOR THE YEAR ENDED DECEMBER 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Equity Multi- Bond and Equity Inter- Emerging
Income Strategy Equity Income Index national Markets
Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account (1)
------- ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss)........................ $ 3 $ 21 $ (23) $ 28 $ 22 $ 161 $ (8)
Net realized loss from security transactions........ (19) (1) (23) (5) (5) (1) (2)
Net unrealized appreciation (depreciation) on
investments........................................ 565 142 159 30 531 1,045 (7)
-------- ------- -------- -------- ------- -------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........................... 549 162 113 53 548 1,205 (17)
-------- ------- -------- -------- ------- -------- --------
INCREASE (DECREASE) IN NET ASSETS FROM
POLICY TRANSACTIONS
Transfer of net premiums............................ 6,487 2,400 4,762 1,278 6,422 11,668 1,846
Transfers in (from other variable accounts)......... 2,498 824 1,399 408 2,551 3,445 607
Transfers out (to other variable accounts).......... (836) (93) (533) (209) (403) (708) (117)
Transfers--other.................................... (35) (39) (33) (16) (55) (61) (15)
-------- ------- -------- -------- ------- -------- --------
NET INCREASE IN NET ASSETS
DERIVED FROM POLICY TRANSACTIONS.................... 8,114 3,092 5,595 1,461 8,515 14,344 2,321
-------- ------- -------- -------- ------- -------- --------
NET INCREASE IN NET ASSETS............................ 8,663 3,254 5,708 1,514 9,063 15,549 2,304
NET ASSETS
Beginning of year...................................
-------- ------- -------- -------- ------- -------- --------
End of year......................................... $ 8,663 $ 3,254 $ 5,708 $ 1,514 $ 9,063 $ 15,549 $ 2,304
======== ======= ======== ======== ======= ======== ========
</TABLE>
See Notes to Financial Statements.
(1) Operations commenced on April 17, 1996.
C-7
<PAGE>
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Separate Account A (the "Separate Account") is registered as a unit
investment trust under the Investment Company Act of 1940, as amended, and
during 1996 was comprised of thirteen subaccounts called Variable Accounts: the
Money Market Variable Account, the High Yield Bond Variable Account, the Managed
Bond Variable Account, the Government Securities Variable Account, the
Aggressive Equity Variable Account, the Growth LT Variable Account, the Equity
Income Variable Account, the Multi-Strategy Variable Account, the Equity
Variable Account, the Bond and Income Variable Account, the Equity Index
Variable Account, the International Variable Account, and the Emerging Markets
Variable Account. The assets in each Variable Account are invested in shares of
the corresponding portfolios of Pacific Select Fund (the "Fund"), each of which
pursues different investment objectives and policies. The financial statements
of the Fund, including the portfolios of investments are included elsewhere in
this report and should be read in conjunction with the Separate Account's
financial statements.
The Separate Account has organized and registered with the Securities and
Exchange Commission two new Variable Accounts, the Aggressive Equity Variable
Account and the Emerging Markets Variable Account. Both Variable Accounts
commenced operations on April 17, 1996.
The Separate Account was established by Pacific Mutual Life Insurance Company
("Pacific Mutual") on September 7, 1994 and commenced operations on January 2,
1996. Under applicable insurance law, the assets and liabilities of the Separate
Account are clearly identified and distinguished from the other assets and
liabilities of Pacific Mutual. The assets of the Separate Account will not be
charged with any liabilities arising out of any other business conducted by
Pacific Mutual, but the obligations of the Separate Account, including benefits
related to variable annuities, are obligations of Pacific Mutual.
The Separate Account held by Pacific Mutual represents funds from individual
flexible premium variable accumulation deferred annuity contracts (the
"Contracts").
The preparation of the accompanying financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates.
A. Valuation of Investments
Investments in shares of the Fund are valued at the reported net asset values
of the respective portfolios. Valuation of securities held by the Fund is
discussed in the notes to their financial statements.
B. Security Transactions
Transactions are recorded on the trade date. Realized gains and losses on
sales of investments are determined on the basis of identified cost.
C. Federal Income Taxes
The operations of the Separate Account will be reported on the Federal income
tax return of Pacific Mutual, which is taxed as a life insurance company under
the provisions of the Tax Reform Act of 1986. Under current tax law, no Federal
income taxes are expected to be paid by Pacific Mutual with respect to the
operations of the Separate Account.
2. DIVIDENDS
During 1996, the Fund has declared dividends for each portfolio except for
the Emerging Markets Portfolio. The amounts accrued by the Separate Account for
its share of the dividends were reinvested in additional full and fractional
shares of the related portfolio.
3. CHARGES AND EXPENSES
Pacific Mutual charges the Separate Account daily for mortality and expense
risks assumed and administrative costs incurred in operating the Separate
Account and issuing and administering the Contracts at an annual rate of 1.25%
and 0.15%, respectively, of the average daily net assets of each Variable
Account. Under the Contracts, Pacific Mutual makes certain deductions from the
net assets of each Variable Account for contract maintenance, any state premium
taxes, and any surrender charges. The operating expenses of the Separate
Account are paid by Pacific Mutual.
C-8
<PAGE>
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS
4. RELATED PARTY AGREEMENT
Pacific Mutual Distributors, Inc., a wholly-owned subsidiary of Pacific
Mutual, is the principal underwriter of variable annuity contracts funded by
interests in the Separate Account, and is compensated by Pacific Mutual.
5. SELECTED ACCUMULATION UNIT** INFORMATION
Selected accumulation unit information for the year ended December 31, 1996
were as follows:
<TABLE>
<CAPTION>
High
Money Yield Managed Government Aggressive Growth Equity
Market Bond Bond Securities Equity LT Income
Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account
-------- -------- -------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ACCUMULATION UNIT
VALUE:
Beginning $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======= ======= ======= ======= ======= ======= =======
Ending $ 10.36 $ 10.96 $ 10.27 $ 10.14 $ 10.67 $ 11.61 $ 11.66
======= ======= ======= ======= ======= ======= =======
Number of Units Outstanding at
End of Year 1,478,808 630,637 742,041 673,682 387,987 950,317 743,123
<CAPTION>
Multi- Bond & Equity Inter- Emerging
Strategy Equity Income Index national Markets
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
ACCUMULATION UNIT
VALUE:
Beginning $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
======= ======= ======= ======= ======= =======
Ending $ 11.03 $ 12.59 $ 9.79 $ 11.97 $ 11.84 $ 9.57
======= ======= ======= ======= ======= =======
Number of Units Outstanding at
End of Year 294,936 453,223 154,590 757,175 1,312,817 240,607
</TABLE>
- --------------
** Accumulation Unit: unit of measure used to calculate the value of a
Contract Owner's interest in a Variable Account during the
Accumulation Period.
C-9
<PAGE>
SEPARATE ACCOUNT A
NOTES TO FINANCIAL STATEMENTS (Continued)
6. CONTRACT OWNERS' COST OF INVESTMENT IN THE FUND SHARES
The investment in the Fund shares are carried at identified cost, which
represents the amount available for investment (including reinvested
distributions of net investment income and realized gains) in such shares after
deduction of mortality and expense risk and administrative (M&E) charges. Total
cost and market value of total Contract Owners' investments in the Fund as of
December 31, 1996 were as follows (amounts in thousands):
<TABLE>
<CAPTION>
Money High Yield Managed Government Aggressive Growth Equity
Market Bond Bond Securities Equity LT Income
Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account (1) Account Account
------- ------- ------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total cost of investments
at beginning of year *
Add: Total proceeds from
sales of units net of M&E
charges $ 25,737 $ 7,787 $ 7,622 $ 6,904 $ 4,215 $ 11,480 $ 8,461
Reinvested distributions
from the Fund:
(a) Net investment
income 195 206 165 126 27 35
(b) Net realized gain 1 1 1
--------- --------- --------- --------- ---------- --------- ---------
Sub-Total 25,932 7,993 7,788 7,031 4,215 11,507 8,497
Less: Cost of investments
disposed during the year 10,622 1,224 231 186 185 863 399
--------- --------- --------- --------- ---------- --------- ---------
Total cost of investments
at end of year 15,310 6,769 7,557 6,845 4,030 10,644 8,098
Add: Unrealized appreciation
(depreciation) 5 144 68 (11) 111 393 565
--------- --------- --------- --------- ---------- --------- ---------
Total market value of
investments at end of year $ 15,315 $ 6,913 $ 7,625 $ 6,834 $ 4,141 $ 11,037 $ 8,663
========= ========= ========= ========= ========== ========= =========
<CAPTION>
Multi- Bond & Equity Inter- Emerging
Strategy Equity Income Index national Markets
Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account (1)
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total cost of investments
at beginning of year *
Add: Total proceeds from
sales of units net of M&E
charges $ 3,260 $ 5,949 $ 1,706 $ 8,688 $ 14,710 $ 2,395
Reinvested distributions
from the Fund:
(a) Net investment
income 33 34 53 234
(b) Net realized
gain 1
-------- --------- -------- -------- --------- ----------
Sub-Total 3,293 5,949 1,740 8,742 14,944 2,395
Less: Cost of investments
disposed during the year 181 400 257 210 439 84
-------- --------- -------- -------- --------- ----------
Total cost of investments
at end of year 3,112 5,549 1,483 8,532 14,505 2,311
Add: Unrealized appreciation
(depreciation) 142 159 31 531 1,044 (7)
-------- --------- -------- -------- --------- ----------
Total market value of
investments at end of year $ 3,254 $ 5,708 $ 1,514 $ 9,063 $ 15,549 $ 2,304
======== ========= ======== ======== ========= ==========
</TABLE>
* This Separate Account commenced operations on January 2, 1996.
(1) Operations commenced on April 17, 1996.
C-10
