Registration Statement for a Separate Account (Unit Investment Trust) — Form N-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: N-4 Form N-4 for Pacific Odyssey 112 577K
2: EX-99.1(A) Resolution of the Board of Directors 3 17K
3: EX-99.1(B) Memorandum Establishing 2 New Variable Accounts 1 10K
4: EX-99.1(C) Resolution of the Board of Directors 1 10K
23: EX-99.10 Independent Auditors Consent 1 10K
24: EX-99.13 Performance Calculations 6 32K
25: EX-99.15 Power of Attorney 8 24K
5: EX-99.3(A) Distribution Agreement 7 35K
6: EX-99.3(B) Form of Selling Agreement 12 64K
7: EX-99.4(A) Individual Flexible Premium Deferred Contract 31 144K
8: EX-99.4(B) Qualified Pension Plan Rider 5 23K
9: EX-99.4(C) 403(B) Tax-Sheltered Annuity Rider 7 44K
10: EX-99.4(D) Form of Section 457 Plan Rider 2 16K
11: EX-99.4(E) Individual Retirement Annuity Rider 6 31K
12: EX-99.4(F) Roth Individual Retirement Annuity Rider 2 16K
13: EX-99.4(G) Simple Individual Retirement Annuity Rider 5 31K
14: EX-99.4(H) Stepped-Up Death Benefit Rider 2 14K
15: EX-99.4(I) Premier Death Benefit Rider 2 17K
16: EX-99.5(A) Application Form 4± 34K
17: EX-99.5(B) Form of Variable Annuity Pac App 3± 17K
18: EX-99.5(C) Form of Application/Confirmation Form 2 16K
19: EX-99.6(A) Pacific Life's Articles of Incorporation 3 13K
20: EX-99.6(B) By-Laws of Pacific Life 14 75K
21: EX-99.8 Fund Participation Agreement 34 85K
22: EX-99.9 Opinion and Consent of Legal Officer 2± 13K
As filed with the Securities and Exchange Commission on December 29, 2000
Registration Nos.
811-08946
333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [_]
Post Effective Amendment No. [_]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 36 [X]
(Check appropriate box or boxes)
SEPARATE ACCOUNT A
(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) 219-3743
(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:
Diane N. Ledger Jane A. Kanter, Esq.
Pacific Life Insurance Company Dechert, Price & Rhoads
P. O. Box 9000 1775 Eye Street, N.W.
Newport Beach, CA 92658-9030 Washington, D.C. 20006-2401
Approximate Date of Commencement of Proposed Public Offering:
The Registrant hereby agrees to amend this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall therefore become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
Title of Securities being registered: interests in the Separate Account under
Pacific Odyssey individual flexible premium deferred variable annuity contracts.
Filing Fee: None
DECLARATION PURSUANT TO RULE 24f-2
The Registrant elects to register an indefinite number of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940.
SEPARATE ACCOUNT A
FORM N-4
CROSS REFERENCE SHEET
PART A
Item No. Prospectus Heading
1. Cover Page Cover Page
2. Definitions TERMS USED IN THIS PROSPECTUS
3. Synopsis AN OVERVIEW OF PACIFIC ODYSSEY
4. Condensed Financial Information YOUR INVESTMENT OPTIONS --Variable
Investment Option Performance;
ADDITIONAL INFORMATION --Financial
Statements
5. General Description of Registrant,
Depositor and Portfolio Companies AN OVERVIEW OF PACIFIC ODYSSEY;
YOUR INVESTMENT OPTIONS -- Your
Variable Investment Options;PACIFIC
LIFE AND THE SEPARATE ACCOUNT --
Pacific Life, --Separate Account A;
ADDITIONAL INFORMATION --Voting
Rights
6. Deductions AN OVERVIEW OF PACIFIC ODYSSEY; HOW
YOUR PAYMENTS ARE ALLOCATED --
Transfers; CHARGES, FEES AND
DEDUCTIONS; WITHDRAWALS -- Optional
Withdrawal
7. General Description of Variable
Annuity Contracts AN OVERVIEW OF PACIFIC ODYSSEY;
PURCHASING YOUR CONTRACT -- How to
Apply for your Contract; HOW YOUR
PAYMENTS ARE ALLOCATED; RETIREMENT
BENEFITS AND OTHER PAYOUTS --
Choosing Your Annuity Option, -- Your
Annuity Payments, -- Death Benefits;
ADDITIONAL INFORMATION -- Voting
Rights, -- Changes to Your Contract,
Changes to ALL Contracts, --Inquiries
and Submitting Forms and Requests, --
Timing of Payments and Transactions;
TERMS USED IN THIS PROSPECTUS
8. Annuity Period RETIREMENT BENEFITS AND OTHER PAYOUTS
9. Death Benefit RETIREMENT BENEFITS AND OTHER PAYOUTS
-- Death Benefits
10. Purchases and Contract Value AN OVERVIEW OF PACIFIC ODYSSEY;
PURCHASING YOUR CONTRACT; HOW YOUR
PAYMENTS ARE ALLOCATED; PACIFIC LIFE
AND THE SEPARATE ACCOUNT -- Pacific
Life; THE GENERAL ACCOUNT --
Withdrawals and Transfers
11. Redemptions AN OVERVIEW OF PACIFIC ODYSSEY;
CHARGES, FEES AND DEDUCTIONS;
WITHDRAWALS; ADDITIONAL INFORMATION
-- Timing of Payments and
Transactions; THE GENERAL ACCOUNT --
Withdrawals and Transfers
12. Taxes AN OVERVIEW OF PACIFIC ODYSSEY;
CHARGES, FEES AND DEDUCTIONS--
Premium Taxes; WITHDRAWALS --Optional
Withdrawals, -- Tax Consequences of
Withdrawals; FEDERAL TAX STATUS
13. Legal Proceedings Not Applicable
14. Table of Contents of the Statement
of Additional Information CONTENTS OF THE STATEMENT
OF ADDITIONAL INFORMATION
PART B
Item No. Statement of Additional Information
Heading
15. Cover Page Cover Page
16. Table of Contents TABLE OF CONTENTS
17. General Information and History Not Applicable
18. Services Not Applicable
19. Purchase of Securities Being Offered THE CONTRACTS AND THE SEPARATE
ACCOUNT -- Calculating Subaccount
Unit Values, -- Systematic Transfer
Programs
20. Underwriters DISTRIBUTION OF THE CONTRACTS --
Pacific Select Distributors, Inc.
21. Calculation of Performance Data PERFORMANCE
22. Annuity Payments THE CONTRACTS AND THE SEPARATE
ACCOUNT --Variable Annuity Payment
Amounts
23. Financial Statements FINANCIAL STATEMENTS
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement.
PACIFIC ODYSSEY PROSPECTUS [MARCH 1, 2001]
Pacific Odyssey is an individual flexible premium
deferred variable annuity contract issued by Pacific
Life Insurance Company.
This Contract is This Prospectus provides information you should know
not available in before buying a Contract. It's accompanied by a current
all states. This Prospectus for the Pacific Select Fund, the Fund that
Prospectus is not provides the underlying Portfolios for the Variable
an offer in any Investment Options offered under the Contract. The
state or Variable Investment Options are funded by Separate
jurisdiction where Account A of Pacific Life. Please read both
we're not legally Prospectuses carefully, and keep them for future
permitted to offer reference.
the Contract.
Here's a list of all the Investment Options available
The Contract is under your Contract:
described in detail
in this Prospectus VARIABLE INVESTMENT OPTIONS
and its Statement
of Additional Blue Chip Growth LT
Information (SAI).
The Pacific Select Aggressive Growth Focused 30
Fund is described
in its Prospectus Aggressive Equity Mid-Cap Value
and its SAI. No one
has the right to Emerging Markets International Value
describe the (formerly called International)
Contract or the Diversified Research
Pacific Select Fund Capital Opportunities
any differently Small-Cap Equity (formerly called Growth)
than they have been
described in these International Large-Cap Mid-Cap Growth
documents.
Equity Global Growth
You should be aware
that the Securities I-Net Tollkeeper(SM) Equity Index
and Exchange
Commission (SEC) Financial Services Small-Cap Index
has not reviewed
the Contract and Health Sciences REIT
does not guarantee
that the Technology Government Securities
information in this
Prospectus is Telecommunications Managed Bond
accurate or
complete. It's a Multi-Strategy Money Market
criminal offense to
say otherwise. Equity Income High Yield Bond
This Contract is Strategic Value Large-Cap Value
not a deposit or
obligation of, or FIXED OPTION
guaranteed or
endorsed by, any Fixed
bank. It's not
federally insured You'll find more information about the Contract and
by the Federal Separate Account A in the SAI dated [March 1, 2001].
Deposit Insurance The SAI has been filed with the SEC and is considered
Corporation, to be part of this Prospectus because it's incorporated
the Federal Reserve by reference. You'll find a table of contents for the
Board, or any other SAI on page 44 of this Prospectus. You can get a copy
government agency. of the SAI without charge by calling or writing to
Investment in a Pacific Life. You can also visit the SEC's website at
Contract involves www.sec.gov, which contains the SAI, material
risk, including incorporated into this Prospectus by reference, and
possible loss of other information about registrants that file
principal. electronically with the SEC.
YOUR GUIDE TO THIS PROSPECTUS
[Download Table]
An Overview of Pacific Odyssey 3
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Your Investment Options 10
Your Variable Investment Options 10
Variable Investment Option Performance 12
Your Fixed Option 12
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Purchasing Your Contract 12
How to Apply for Your Contract 12
Purchasing a Death Benefit Rider (Optional) 13
Making Your Purchase Payments 13
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How Your Payments are Allocated 13
Choosing Your Investment Options 13
Investing in Variable Investment Options 14
When Your Investment is Effective 14
Transfers 14
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Charges, Fees and Deductions 15
Premium Taxes 15
Mortality and Expense Risk Charge 16
Administrative Fee 16
Waivers and Reduced Charges 16
Expenses of the Fund 17
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Retirement Benefits and Other Payouts 17
Selecting Your Annuitant 17
Annuitization 17
Choosing Your Annuity Date ("Annuity Start Date") 17
Default Annuity Date and Options 19
Choosing Your Annuity Option 19
Your Annuity Payments 20
Death Benefits 21
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Withdrawals 25
Optional Withdrawals 25
Tax Consequences of Withdrawals 27
Right to Cancel ("Free Look") 27
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Pacific Life and the Separate Account 27
Pacific Life 27
Separate Account A 28
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Federal Tax Status 29
Taxes Payable by Contract Owners: General Rules 29
Qualified Contracts 30
Loans 32
Withholding 35
Impact of Federal Income Taxes 35
Taxes on Pacific Life 35
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Additional Information 36
Voting Rights 36
Changes to Your Contract 36
Changes to All Contracts 37
Inquiries and Submitting Forms and Requests 38
Telephone and Electronic Transactions 38
Electronic Delivery Authorization 39
Timing of Payments and Transactions 39
Confirmations, Statements and Other Reports to Contract Owners 39
Replacement of Life Insurance or Annuities 40
Financial Statements 40
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The General Account 40
General Information 40
Guarantee Terms 40
Withdrawals and Transfers 41
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Terms Used in This Prospectus 42
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Contents of the Statement of Additional Information 44
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Appendix A: State Law Variations 45
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Where to Go for More Information Back Cover
2
AN OVERVIEW OF PACIFIC ODYSSEY
This overview tells you some key things you should know
about your Contract. It's designed as a summary only -
please read this Prospectus, your Contract and the
Statement of Additional Information for more detailed
information.
Some states have different rules about how annuity
contracts are described or administered. These rules
are reflected in your Contract, or in endorsements or
supplements to your Contract. The terms of your
Contract, or of any endorsement or supplement, prevail
over what's in this Prospectus.
In this Prospectus, you and your mean the Contract
Owner or Policyholder. Pacific Life, we, us and our
refer to Pacific Life Insurance Company. Contract means
a Pacific Odyssey variable annuity contract, unless we
state otherwise.
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Pacific Odyssey Pacific Odyssey is an annuity contract between you and
Basics Pacific Life Insurance Company.
An annuity contract This Contract is designed for long-term financial
may be appropriate planning. It allows you to invest money on a tax-
if you're looking deferred basis for retirement or other goals, and to
for retirement receive income in a variety of ways, including a series
income or you want of income payments for life or for a specified period
to meet other long- of years.
term financial
objectives. Non-Qualified and Qualified Contracts are available.
You buy a Non-Qualified Contract with "after-tax"
This Contract may dollars. You buy a Qualified Contract under a qualified
not be the right retirement or pension plan, or an individual retirement
one for you if you annuity or account (IRA), or form thereof.
need to withdraw
money for short- Pacific Odyssey is a variable annuity, which means that
term needs, because the value of your Contract fluctuates depending on the
tax penalties for performance of the Investment Options you choose. The
early withdrawal Contract allows you to choose how often you make
may apply. Purchase Payments and how much you add each time.
You should consider Your Right to Cancel ("Free Look")
the Contract's During the Free Look period, you have the right to
investment and cancel your Contract and return it to us or to your
income benefits, as registered representative for a refund. The amount
well as its costs. refunded may be more or less than the Purchase Payments
you've made, depending on the state where you signed
your application and the kind of Contract you buy.
3
AN OVERVIEW OF PACIFIC ODYSSEY
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The Accumulation During the accumulation phase, you can put money in
Phase your Contract by making Purchase Payments, and choose
Investment Options in which to allocate them. You can
The Investment also take money out of your Contract by making a
Options you choose withdrawal. The accumulation phase begins on your
and how they Contract Date and continues until your Annuity Date.
perform will affect
the value of your Purchase Payments
Contract during the Your initial Purchase Payment must be at least $25,000
accumulation phase, for a Non-Qualified Contract or a Qualified Contract.
as well as the Additional Purchase Payments must be at least $250 for
amount of your a Non-Qualified Contract and $50 for a Qualified
annuity payments Contract.
during the income
phase if you choose
a variable
annuitization
payout.
Investment Options
You can ask your You can choose from 31 Variable Investment Options
registered (also called Subaccounts), each of which invests in a
representative to corresponding Portfolio of the Pacific Select Fund.
help you choose the We're the investment adviser for the Pacific Select
right Investment Fund. We oversee the management of all the Fund's
Options for your Portfolios and manage two of the Portfolios directly.
goals and risk We've retained other portfolio managers to manage the
tolerance. other Portfolios. The value of each Portfolio will
fluctuate with the value of the investments it holds,
You'll find more and returns are not guaranteed.
about the
Investment Options You can also choose the Fixed Option that earns a
starting on page guaranteed rate of interest of at least 3% annually.
10.
We allocate your Purchase Payments to the Investment
Options you choose. The value of your Contract will
fluctuate during the accumulation phase depending on
the Investment Options you've chosen. You bear the
investment risk of any Variable Investment Options you
choose.
Transferring among Investment Options
You'll find more You can transfer among Investment Options any time
about transfers until your Annuity Date without paying any current
starting on page income tax. You can also make automatic transfers by
14. enrolling in our dollar cost averaging, portfolio
rebalancing, or earnings sweep programs. Some
restrictions apply to transfers to and from the Fixed
Option.
Withdrawals
You'll find more You can make full and partial withdrawals to supplement
about withdrawals your income or for other purposes. There is no
starting on page withdrawal charge. Some restrictions apply to making
25. withdrawals from the Fixed Option.
In general, you may have to pay tax on withdrawals or
other distributions from your Contract. If you're under
age 59 1/2, a 10% federal penalty tax may also apply to
withdrawals.
4
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The Income Phase The income phase of your Contract begins on your
Annuity Date. Generally, you can choose to surrender
You'll find more your Contract and receive a single payment or you can
about annuitization annuitize your Contract and receive a series of income
starting on page payments.
17.
You can choose fixed or variable annuity payments, or a
combination of both, for life or for a specified period
of years. Variable annuity payments may not be
available in all states. You can choose monthly,
quarterly, semiannual or annual payments. We'll make
the income payments to your designated payee.
If you choose variable annuity payments, the amount of
the payments will fluctuate depending on the
performance of the Variable Investment Options you
choose. After your Annuity Date, if you choose variable
annuity payments, you can exchange your Subaccount
Annuity Units among the Variable Investment Options up
to four times in any 12-month period.
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The Death Benefit The Contract provides a death benefit if the first
Owner or last surviving Annuitant dies during the
You'll find more accumulation phase. Death benefit proceeds are payable
about the death when we receive proof of death and payment
benefit starting on instructions. To whom we pay a death benefit, and how
page 21. we calculate the amount of the death benefit depends on
who dies first and the type of Contract you own.
Optional Riders
These riders are The Stepped-Up Death Benefit Rider (SDBR) and Premier
not available in Death Benefit Rider (PDBR) offer the potential for a
all states. Ask larger death benefit. You can only buy one of the
your registered riders and you can only buy it when you buy your
representative Contract. You cannot buy both riders and you cannot buy
about the current a rider after you buy your Contract.
availability status
in your state of
delivery.
5
AN OVERVIEW OF PACIFIC ODYSSEY
This section of the overview explains the fees and
expenses associated with your Pacific Odyssey Contract.
. Contract Expenses are expenses that we deduct from
your Contract. These expenses are fixed under the
terms of your Contract. Premium taxes or other taxes
may also apply to your Contract. We generally charge
premium taxes when you annuitize your Contract, but
there may be other times when we charge them to your
Contract instead. Please see your Contract for
details.
. Separate Account A Annual Expenses are expenses that
we deduct from the assets of each Variable Investment
Option. They are guaranteed not to increase under the
terms of your Contract.
. Fees and Expenses Paid by the Pacific Select Fund
affect you indirectly if you choose a Variable
Investment Option because they reduce Portfolio
returns. They can vary from year to year. They are not
fixed and are not part of the terms of your Contract.
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Contract Expenses Sales charge on Purchase Payments none
Withdrawal charge none
Withdrawal transaction fee none/1/
Transfer fee none/2/
Annual Fee none
[Enlarge/Download Table]
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Separate Account A Without With Stepped-Up With Premier
Annual Expenses Rider Death Benefit Rider Death Benefit Rider
(as a percentage of -------------------------------------------------------------------------
the average daily Mortality and Expense
Account Value) Risk Charge/3/ 0.15% 0.15% 0.15%
Administrative Fee/3/ 0.25% 0.25% 0.25%
Death Benefit Rider
Charge/4/ none 0.20% 0.35%
----- ----- -----
Total Separate Account A
Annual Expenses 0.40% 0.60% 0.75%
----- ----- -----
/1/ In the future, we may charge a fee of up to $15 for
any withdrawal over 15 that you make in a Contract
Year. See WITHDRAWALS - Optional Withdrawals.
/2/ In the future, we may charge a fee of up to $15 for
any transfer over 15 that you make in a Contract
Year. See HOW YOUR PAYMENTS ARE ALLOCATED -
Transfers.
/3/ This is an annual rate. The daily rate is
calculated by dividing the annual rate by 365.
/4/ If you buy the Stepped-Up Death Benefit Rider or
the Premier Death Benefit Rider (which is subject
to state availability), we add this charge to the
Mortality and Expense Risk Charge until your
Annuity Date. See CHARGES, FEES AND DEDUCTIONS.
6
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Fees and Expenses The Pacific Select Fund pays advisory fees and other
Paid by expenses. These are deducted from the assets of the
the Pacific Select Fund's Portfolios and may vary from year to year. They
Fund are not fixed and are not part of the terms of your
Contract. If you choose a Variable Investment Option,
You'll find more these fees and expenses affect you indirectly because
about the Pacific they reduce Portfolio returns.
Select Fund
starting on page Advisory Fee
10, and in the Pacific Life is the investment adviser to the Fund. The
Fund's Prospectus, Fund pays an advisory fee to us for these services. The
which accompanies table below shows the advisory fee as an annual
this Prospectus. percentage of each Portfolio's average daily net
assets.
Other Expenses
The table below shows the advisory fee and Fund
expenses as an annual percentage of each Portfolio's
average daily net assets for the year 2000. To help
limit Fund expenses, effective July 1, 2000 we
contractually agreed to waive all or part of our
investment advisory fees or otherwise reimburse each
Portfolio for operating expenses (including
organizational expenses, but not including advisory
fees, additional costs associated with foreign
investing and extraordinary expenses) that exceed an
annual rate of 0.10% of its average daily net assets.
Such waiver or reimbursement is subject to repayment to
us to the extent such expenses fall below the 0.10%
expense cap. For each Portfolio, our right to repayment
is limited to amounts waived and/or reimbursed that
exceed the new 0.10% expense cap and, except for
Portfolios that started on or after October 2, 2000,
that do not exceed the previously established 0.25%
expense cap. Any amounts repaid to us will have the
effect of increasing such expenses of the Portfolio,
but not above the 0.10% expense cap. There is no
guarantee that we will continue to cap expenses after
December 31, 2001. In 2000, Pacific Life reimbursed
approximately $14,627 to the I-Net Tollkeeper
Portfolio, $36,874 to the Strategic Value Portfolio,
$34,687 to the Focused 30 Portfolio and $28,882 to the
Small-Cap Index Portfolio.
[Enlarge/Download Table]
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Less
Advisory Other 12b-1 Total adviser's Total net
Portfolio fee expenses amounts+ expenses reimbursement expenses
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As an annual % of average daily net assets
Blue Chip/1/ 0.95 0.06 -- 1.01 -- 1.01
Aggressive Growth/1/ 1.00 0.06 -- 1.06 -- 1.06
Aggressive Equity/2/ 0.80 0.04 0.02 0.86 -- 0.86
Emerging Markets/2/ 1.10 0.20 -- 1.30 -- 1.30
Diversified Research/2/ 0.90 0.08 0.01 0.99 -- 0.99
Small-Cap Equity/2/ 0.65 0.05 -- 0.70 -- 0.70
International Large-Cap/2/ 1.05 0.13 -- 1.18 -- 1.18
Equity 0.65 0.04 -- 0.69 -- 0.69
I-Net Tollkeeper/2/ 1.50 0.13 -- 1.63 (0.02) 1.61
Financial Services/1/ 1.10 0.15 -- 1.25 (0.05) 1.20
Health Sciences/1/ 1.10 0.11 -- 1.21 (0.01) 1.20
Technology/1/ 1.10 0.08 -- 1.18 -- 1.18
Telecommunications/1/ 1.10 0.08 -- 1.18 -- 1.18
Multi-Strategy 0.65 0.04 -- 0.69 -- 0.69
Equity Income/2/ 0.65 0.04 0.01 0.70 -- 0.70
Strategic Value 0.95 0.51 -- 1.46 (0.41) 1.05
Growth LT 0.75 0.04 -- 0.79 -- 0.79
Focused 30 0.95 0.43 -- 1.38 (0.33) 1.05
Mid-Cap Value/2/ 0.85 0.04 0.12 1.01 -- 1.01
International Value 0.85 0.11 -- 0.96 -- 0.96
Capital Opportunities/1/ 0.80 0.06 -- 0.86 -- 0.86
Mid-Cap Growth/1/ 0.90 0.06 -- 0.96 -- 0.96
Global Growth/1/ 1.10 0.19 -- 1.29 -- 1.29
Equity Index 0.25 0.04 -- 0.29 -- 0.29
Small-Cap Index/2/ 0.50 0.13 -- 0.63 (0.02) 0.61
REIT 1.10 0.05 -- 1.15 -- 1.15
Government Securities/2/ 0.60 0.05 -- 0.65 -- 0.65
Managed Bond/2/ 0.60 0.05 -- 0.65 -- 0.65
Money Market 0.34 0.04 -- 0.38 -- 0.38
High Yield Bond 0.60 0.04 -- 0.64 -- 0.64
Large-Cap Value/2/ 0.85 0.05 0.06 0.96 -- 0.96
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/1/ Expenses are estimated. There were no actual
advisory fees or expenses for these Portfolios in
2000 because the Portfolios started after December
31, 2000.
/2/ Total adjusted net expenses for these Portfolios,
after deduction of an offset for custodian credits
and the 12b-1 recapture were: 0.84% for Aggressive
Equity Portfolio, 1.29% for Emerging Markets
Portfolio, 0.98% for Diversified Research
Portfolio, 0.69% for Small-Cap Equity Portfolio,
1.17% for International Large-Cap Portfolio, 1.60%
for I-Net Tollkeeper Portfolio, 0.69% for Equity
Income Portfolio, 0.89% for Mid-Cap Value
Portfolio, 0.60% for Small-Cap Index Portfolio,
0.62% for Government Securities Portfolio, 0.64%
for Managed Bond Portfolio, and 0.90% for Large-Cap
Value Portfolio.
+ The Fund has a brokerage enhancement 12b-1 plan
under which brokerage transactions, subject to best
price and execution, may be placed with certain
broker-dealers in return for credits, cash or other
compensation ("recaptured commissions"). While a
Portfolio pays the cost of brokerage when it buys
or sells a Portfolio security, there are no fees or
charges to the Fund under the plan. Recaptured
commissions may be used to promote and market Fund
shares and the distributor may therefore defray
expenses for distribution that it might otherwise
incur. The SEC staff requires that the amount of
recaptured commissions be shown as an expense in
the chart above.
7
AN OVERVIEW OF PACIFIC ODYSSEY
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Examples The following table shows the expenses you would pay on
each $1,000 you invested if, at the end of each period,
you: annuitized your Contract; surrendered your
Contract and withdrew the Contract Value, or did not
annuitize or surrender, but left the money in your
Contract.
These examples assume the following:
. the Contract Value starts at $80,000
. the Investment Options have an annual return of 5%
without Rider reflects the expenses you would pay if
you did not buy the optional Stepped-Up Death Benefit
Rider (SDBR) or Premier Death Benefit Rider (PDBR).
with SDBR reflects the expenses you would pay if you
bought the optional Stepped-Up Death Benefit Rider.
with PDBR reflects the expenses you would pay if you
bought the optional Premier Death Benefit Rider.
These examples do not show past or future expenses.
Your actual expenses in any year may be more or less
than those shown here.
[Download Table]
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Expenses ($)
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Variable Account 1 yr 3 yr 5 yr 10 yr
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Blue Chip
without Rider 14 45 77 169
with SDBR 16 51 88 191
with PDBR 18 55 95 207
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Aggressive Growth
without Rider 15 46 80 174
with SDBR 17 52 90 196
with PDBR 18 57 98 213
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Aggressive Equity
without Rider 13 39 68 150
with SDBR 15 46 79 172
with PDBR 16 50 87 189
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Emerging Markets
without Rider 17 53 92 199
with SDBR 19 59 102 221
with PDBR 21 64 110 237
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Diversified Research
without Rider 14 44 76 167
with SDBR 16 50 87 189
with PDBR 18 55 94 205
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Small-Cap Equity
without Rider 11 35 60 133
with SDBR 13 41 71 156
with PDBR 15 46 79 172
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International Large-Cap
without Rider 16 50 86 188
with SDBR 18 56 96 209
with PDBR 20 61 104 225
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Equity
without Rider 11 35 60 133
with SDBR 13 41 71 156
with PDBR 15 46 79 172
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I-Net Tollkeeper
without Rider 20 63 108 232
with SDBR 22 69 118 253
with PDBR 24 73 126 269
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Financial Services
without Rider 16 50 87 190
with SDBR 18 57 97 211
with PDBR 20 61 105 227
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Health Sciences
without Rider 16 50 87 190
with SDBR 18 57 97 211
with PDBR 20 61 105 227
---------------------------------------------------------
Technology
without Rider 16 50 86 188
with SDBR 18 56 96 209
with PDBR 20 61 104 225
---------------------------------------------------------
Telecommunications
without Rider 16 50 86 188
with SDBR 18 56 96 209
with PDBR 20 61 104 225
---------------------------------------------------------
8
[Download Table]
---------------------------------------------------------
Expenses ($)
---------------------------------------------------------
Variable Account 1 yr 3 yr 5 yr 10 yr
---------------------------------------------------------
Multi-Strategy
without Rider 11 35 60 133
with SDBR 13 41 71 156
with PDBR 15 46 79 172
---------------------------------------------------------
Equity Income
without Rider 11 35 60 133
with SDBR 13 41 71 156
with PDBR 15 46 79 172
---------------------------------------------------------
Strategic Value
without Rider 15 46 79 173
with SDBR 17 52 90 195
with PDBR 18 57 98 212
---------------------------------------------------------
Growth LT
without Rider 12 38 65 144
with SDBR 14 44 76 167
with PDBR 16 49 84 183
---------------------------------------------------------
Focused 30
without Rider 15 46 79 173
with SDBR 17 52 90 195
with PDBR 18 57 98 212
---------------------------------------------------------
Mid-Cap Value
without Rider 13 41 71 155
with SDBR 15 47 81 178
with PDBR 17 52 89 194
---------------------------------------------------------
International Value
without Rider 14 43 74 163
with SDBR 16 49 85 186
with PDBR 17 54 93 202
---------------------------------------------------------
Capital Opportunities
without Rider 13 40 69 152
with SDBR 15 46 80 175
with PDBR 16 51 88 191
---------------------------------------------------------
Mid-Cap Growth
without Rider 14 43 74 163
with SDBR 16 49 85 186
with PDBR 17 54 93 202
---------------------------------------------------------
Global Growth
without Rider 17 53 92 199
with SDBR 19 59 102 221
with PDBR 21 64 110 237
---------------------------------------------------------
Equity Index
without Rider 7 22 38 85
with SDBR 9 28 49 108
with PDBR 11 33 57 126
---------------------------------------------------------
Small-Cap Index
without Rider 10 32 55 122
with SDBR 12 38 66 145
with PDBR 14 43 74 162
---------------------------------------------------------
REIT
without Rider 16 49 84 184
with SDBR 18 55 95 206
with PDBR 19 60 103 222
---------------------------------------------------------
Government Securities
without Rider 10 32 56 125
with SDBR 12 39 67 148
with PDBR 14 43 75 165
---------------------------------------------------------
Managed Bond
without Rider 11 33 57 127
with SDBR 13 39 68 150
with PDBR 14 44 76 167
---------------------------------------------------------
Money Market
without Rider 8 25 43 95
with SDBR 10 31 54 119
with PDBR 11 36 62 136
---------------------------------------------------------
High Yield Bond
without Rider 11 33 57 126
with SDBR 13 39 68 149
with PDBR 14 44 76 166
---------------------------------------------------------
Large-Cap Value
without Rider 13 41 71 157
with SDBR 15 47 82 179
with PDBR 17 52 90 195
---------------------------------------------------------
9
YOUR INVESTMENT OPTIONS
You may choose among the different Variable Investment Options and the Fixed
Option.
Your Variable Investment Options
Each Variable Investment Option invests in a separate Portfolio of the Fund.
For your convenience, the following chart summarizes some basic data about each
Portfolio. This chart is only a summary. For more complete information on each
Portfolio, including a discussion of the Portfolio's investment techniques and
the risks associated with its investments, see the accompanying Fund
Prospectus. No assurance can be given that a Portfolio will achieve its
investment objective. YOU SHOULD READ THE FUND PROSPECTUS CAREFULLY BEFORE
INVESTING.
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PORTFOLIO THE PORTFOLIO'S THE PORTFOLIO'S PORTFOLIO
INVESTMENT GOAL MAIN INVESTMENTS MANAGER
Blue Chip Long-term growth of Equity securities of "blue chip" AIM
capital. Current income is companies--typically large
of secondary importance. companies that are well
established in their respective
industries.
Aggressive Growth Long-term growth of Equity securities of small- and AIM
capital. medium-sized growth companies.
Aggressive Equity Capital appreciation. Equity securities of small Alliance Capital
emerging-growth companies and Management L.P.
medium-sized companies.
Emerging Markets Long-term growth of Equity securities of companies Alliance Capital
capital. that are located in countries Management L.P.
generally regarded as "emerging
market" countries.
Diversified Research Long-term growth of Equity securities of U.S. Capital Guardian
capital. companies and securities whose Trust Company
principal markets are in the U.S.
Small-Cap Equity Growth of capital. Equity securities of smaller and Capital Guardian
(formerly called medium-sized companies. Trust Company
Growth)
International Large-Cap Long-term growth of Equity securities of non-U.S. Capital Guardian
capital. companies and securities whose Trust Company
principal markets are outside of
the U.S.
Equity Capital appreciation. Equity securities of large U.S. Goldman Sachs
Current income is of growth-oriented companies. Asset Management
secondary importance.
I-Net Tollkeeper Long-term growth of Equity securities of companies Goldman Sachs
capital. which use, support, or relate Asset Management
directly or indirectly to use of
the Internet. Such companies
include those in the media,
telecommunications, and technology
sectors.
Financial Services Long-term growth of Equity securities in the financial INVESCO
capital. services sector. Such companies
include banks, insurance
companies, brokerage firms and
other finance-related firms.
Health Sciences Long-term growth of Equity securities in the health INVESCO
capital. sciences sector. Such companies
include medical equipment or
supplies, pharmaceuticals, health
care facilities and other health
sciences-related firms.
Technology Long-term growth of Equity securities in the INVESCO
capital. technology sector. Such companies
include biotechnology,
communications, computers,
electronics, Internet
telecommunications, networking,
robotics, video and other
technology-related firms.
Telecommunications Long-term growth of Equity securities in the INVESCO
capital. Current income is telecommunications sector. Such as
of secondary importance. companies that offer telephone
service, wireless communications,
satellite communications,
television and movie programming,
broadcasting and Internet access.
Multi-Strategy High total return. A mix of equity and fixed income J.P. Morgan
securities. Investment
Management Inc.
Equity Income Long-term growth of capital Equity securities of large and J.P. Morgan
and income. medium-sized dividend-paying U.S. Investment
companies. Management Inc.
Strategic Value Long-term growth of Equity securities with the Janus Capital
capital. potential for long-term growth of Corporation
capital.
10
[Enlarge/Download Table]
PORTFOLIO THE PORTFOLIO'S THE PORTFOLIO'S PORTFOLIO
INVESTMENT GOAL MAIN INVESTMENTS MANAGER
Growth LT Long-term growth of capital Equity securities of a large Janus Capital
consistent with the number of companies of any size. Corporation
preservation of capital.
Focused 30 Long-term growth of Equity securities selected for Janus Capital
capital. their growth potential. Corporation
Mid-Cap Value Capital appreciation. Equity securities of medium-sized Lazard Asset
U.S. companies believed to be Management
undervalued.
International Value Long-term capital Equity securities of companies of Lazard Asset
(formerly called appreciation primarily any size located in developed Management
International) through investment in countries outside of the U.S.
equity securities of
corporations domiciled in
countries other than the
U.S.
Capital Opportunities Long-term growth of Equity securities with the MFS
capital. potential for long-term growth of
capital.
Mid-Cap Growth Long-term growth of Equity securities of medium-sized MFS
capital. companies believed to have above-
average growth potential.
Global Growth Long-term growth of Equity securities of any size MFS
capital. located within and outside of the
U.S.
Equity Index Investment results that Equity securities of companies Mercury Advisors
correspond to the total that are included in the Standard
return of common stocks & Poor's 500 Composite Stock Price
publicly traded in the U.S. Index.
Small-Cap Index Investment results that Equity securities of companies Mercury Advisors
correspond to the total that are included in the Russell
return of an index of small 2000 Small Stock Index.
capitalization companies.
REIT Current income and long- Equity securities of real estate Morgan Stanley
term capital appreciation. investment trusts. Asset Management
Government Maximize total return Fixed income securities that are Pacific
Securities consistent with prudent issued or guaranteed by the U.S. Investment
investment management. government, its agencies or Management
government-sponsored enterprises. Company
Managed Bond Maximize total return Medium and high-quality fixed Pacific
consistent with prudent income securities with varying Investment
investment management. terms to maturity. Management
Company
Money Market Current income consistent Highest quality money market Pacific Life
with preservation of instruments believed to have
capital. limited credit risk.
High Yield Bond High level of current Fixed income securities with lower Pacific Life
income. and medium-quality credit ratings
and intermediate to long terms to
maturity.
Large-Cap Value Long-term growth of Equity securities of large U.S. Salomon Brothers
capital. Current income is companies. Asset Management
of secondary importance. Inc
11
The Investment Adviser
We are the investment adviser for the Fund. We and the Fund have retained other
portfolio managers, supervised by us, for 29 of the Portfolios.
Variable Investment Option Performance
Historical performance information can help you understand how investment
performance can affect your investment in the Variable Investment Options.
Although each Subaccount was established January 2, 1996 or thereafter and has
no historical performance prior to the date that it was established, each
Subaccount will be investing in shares of a Portfolio of the Fund, and the
majority of these Portfolios do have historical performance data which covers a
longer period. Performance data include total returns for each Subaccount,
current and effective yields for the Money Market Subaccount, and yields for
the other fixed income Subaccounts. Calculations are in accordance with
standard formulas prescribed by the SEC which are described in the SAI. Yields
do not reflect any charge for premium taxes and/or other taxes; this exclusion
may cause yields to show more favorable performance. Total returns may or may
not reflect any charge for premium and/or other taxes; data that do not reflect
these charges may show more favorable performance.
The SAI presents some hypothetical performance data. The SAI also presents some
performance benchmarks, based on unmanaged market indices, such as the Standard
& Poor's 500 Composite Stock Price Index (S&P 500), and on "peer groups," which
use other managed funds with similar investment objectives. These benchmarks
may give you a broader perspective when you examine hypothetical or actual
Subaccount performance.
In addition, we may provide you with reports both as an insurance company and
as to our claims paying ability that are produced by rating agencies and
organizations.
Your Fixed Option
The Fixed Option offers you a guaranteed minimum interest rate on the amount
you allocate to this Option. Amounts you allocate to this Option, and your
earnings credited are held in our General Account. For more detailed
information about this Option, see THE GENERAL ACCOUNT section in this
Prospectus.
PURCHASING YOUR CONTRACT
How to Apply for Your Contract
To purchase a Contract, fill out an application and submit it along with your
initial Purchase Payment to Pacific Life Insurance Company at P.O. Box 100060,
Pasadena, California 91189-0060. If your application and payment are complete
when received, or once they have become complete, we will issue your Contract
within two Business Days. If some information is missing from your application,
we may delay issuing your Contract while we obtain the missing information;
however, we will not hold your initial Purchase Payment for more than five
Business Days unless we specifically obtain your permission.
You may also purchase a Contract by exchanging your existing contract. You must
submit all contracts to be exchanged when you submit your application. Call
your representative, or call us at 1-800-722-2333, if you are interested in
this option.
We reserve the right to reject any application or Purchase Payment for any
reason, subject to any applicable nondiscrimination laws and to our own
standards and guidelines. The maximum age of a Contract Owner, including Joint
Owners and Contingent Owners, for which a Contract will be issued is 90. The
Contract Owner's age is calculated as of his or her last birthday. If any
Contract Owner or any Annuitant named in the application for a Contract dies
prior to our issuance of a Contract, then the application for the Contract
and/or any Contract issued shall be deemed null and void; and any premiums we
receive, including any proceeds received in connection with an exchange or
transfer, will be returned to the applicant/Owner or the applicant/Owner's
estate.
12
Purchasing a Death Benefit Rider (Optional)
You may purchase either the Stepped-Up Death Benefit Rider (SDBR) or Premier
Death Benefit Rider (PDBR) (subject to state availability) at the time your
application is completed. You may not purchase either Rider after the Contract
Date.
If you select one of these Riders, the SDBR or PDBR, as applicable, will remain
in effect until the earliest of: (a) the full withdrawal of the amount
available for withdrawal under the Contract; (b) when death benefit proceeds
become payable under the Contract; (c) any termination of the Contract in
accordance with the provisions of the Contract; or (d) the Annuity Date. The
SDBR or PDBR may not otherwise be cancelled. The SDBR or PDBR may only be
purchased if the age of each Annuitant is 75 or younger on the Contract Date.
Making Your Purchase Payments
Making Your Initial Payment
Your initial Purchase Payment must be at least $25,000. You may pay this entire
amount when you submit your application, or you may choose our pre-authorized
checking plan (PAC), which allows you to pay in equal monthly installments over
one year (at least $2,000 per month). If you choose the PAC, you must make your
first installment payment when you submit your application. Further
requirements for PAC are discussed in the PAC form.
You must obtain our consent before making an initial or additional Purchase
Payment that will bring your aggregate Purchase Payments over $1,000,000.
Making Additional Payments
You may choose to invest additional amounts in your Contract at any time. Each
additional Purchase Payment above the initial Purchase Payment requirements
must be at least $250 for Non-Qualified Contracts and $50 for Qualified
Contracts.
Forms of Payment
Your initial and additional Purchase Payments may be sent by personal or bank
check or by wire transfer. You may also make additional PAC Purchase Payments
via electronic funds transfer. All checks must be drawn on U.S. funds. If you
make Purchase Payments by check other than a cashier's check, your payment of
any withdrawal proceeds and any refund during your "Free Look" period may be
delayed until your check has cleared.
HOW YOUR PAYMENTS ARE ALLOCATED
Choosing Your Investment Options
You may allocate your Purchase Payments among the 31 Subaccounts and the Fixed
Option. Allocations of your initial Purchase Payment to the Investment Options
you selected will be effective on your Contract Date. See WITHDRAWALS--Right to
Cancel ("Free Look"). Each additional Purchase Payment will be allocated to the
Investment Options according to your allocation instructions in your
application, or most recent instructions, if any, subject to the terms
described in the WITHDRAWALS--Right to Cancel ("Free Look") section. We reserve
the right to require that your allocation to any particular Investment Option
must be at least $500. We also reserve the right to transfer any remaining
Account Value that is not at least $500 to your other Investment Options on a
pro rata basis relative to your most recent allocation instructions. If your
Contract is issued in exchange for another annuity contract or a life insurance
contract, our administrative procedures may vary depending on the state in
which your Contract is delivered. If your initial Purchase Payment is received
from multiple sources, we will consider them all your initial Purchase Payment.
13
Investing in Variable Investment Options
Each time we allocate your investment to a Variable Investment Option, your
Contract is credited with a number of "Subaccount Units" in that Subaccount.
The number of Subaccount Units credited is equal to the amount you have
allocated to that Subaccount divided by the "Unit Value" of one Unit of that
Subaccount.
Example: You allocate $600 to the Government Securities Subaccount. At the
end of the Business Day on which your allocation is effective, the value of
one Unit in the Government Securities Subaccount is $15. As a result, 40
Subaccount Units are credited to your Contract for your $600.
Your Variable Account Value Will Change
After we credit your Contract with Subaccount Units, the value of those Units
will usually fluctuate. This means that, from time to time, your investment
allocated to the Variable Investment Options may be worth more or less than the
original allocations to which those amounts can be attributed. Fluctuations in
Subaccount Unit Value will not change the number of Units credited to your
Contract.
Subaccount Unit Values will vary in accordance with the investment performance
of the corresponding Portfolio. For example, the value of Units in the Managed
Bond Subaccount will change to reflect the performance of the Managed Bond
Portfolio (including that Portfolio's investment income, its capital gains and
losses, and its expenses). Subaccount Unit Values are also adjusted to reflect
the Administrative Fee and applicable Risk Charge imposed on the Separate
Account.
We calculate the value of all Subaccount Units on each Business Day. The SAI
contains a detailed discussion of these calculations.
When Your Investment is Effective
The day your allocation is effective determines the Unit Value at which
Subaccount Units are attributed to your Contract. In the case of transfers or
withdrawals, the effective day determines the Unit Value at which affected
Subaccount Units are debited and/or credited under your Contract. The Unit
Value at which purchase, transfer and withdrawal transactions are credited or
debited is the value of the Subaccount Units next calculated after your
transaction is effective. Your Variable Account Value begins to reflect the
investment performance results of your new allocations on the day after your
transaction is effective.
Your initial Purchase Payment is usually effective on the day we issue your
Contract. Any additional allocation is effective on the day we receive your
Purchase Payment in proper form. See ADDITIONAL INFORMATION--Inquiries and
Submitting Forms and Requests.
Transfers
Once your Payments are allocated to the Investment Options you selected, you
may transfer your Account Value from any Investment Option to any other
Investment Option. Certain restrictions apply to the Fixed Option. See THE
GENERAL ACCOUNT--Withdrawals and Transfers. Transfer requests are generally
effective on the Business Day we receive them in proper form.
No transfer fee is currently imposed for transfers among the Investment
Options, but we reserve the right to impose a transaction fee for transfers in
the future; a fee of up to $15 per transfer may apply to transfers in excess of
15 in any Contract Year. Transfers under the dollar cost averaging and earnings
sweep options (but not the portfolio rebalancing option described below) are
counted toward your total transfers in a Contract Year. Any such fee would be
charged against your Investment Options proportionately, based on your relative
Account Value in each immediately after the transfer.
We have the right, at our option (unless otherwise required by law), to require
certain minimums in the future in connection with transfers; these may include
a minimum transfer amount and a minimum Account Value, if any, for the
Investment Option from which the transfer is made or to which the transfer is
made.
14
If your transfer request results in your having a remaining Account Value in an
Investment Option that is less than $500 immediately after such transfer, we
may transfer that Account Value to your other Investment Options on a pro rata
basis, relative to your most recent allocation instructions. We also reserve
the right (unless otherwise required by law) to limit the size of transfers, to
limit the number and frequency of transfers, to restrict transfers, to require
that you submit any transfer requests in writing, and to suspend transfers. We
reserve the right to reject any transfer request.
Exchanges of Annuity Units in any Subaccount(s) to any other Subaccount(s)
after the Annuity Date are limited to four in any twelve-month period. See THE
GENERAL ACCOUNT--Withdrawals and Transfers in the Prospectus and THE CONTRACTS
AND THE SEPARATE ACCOUNT in the SAI.
Automatic Transfer Options
We offer three automatic transfer options: dollar cost averaging, portfolio
rebalancing, and earnings sweep. There is no charge for these options, although
transfers under the dollar cost averaging and earnings sweep options are
counted towards your total transfers in a Contract Year.
Dollar Cost Averaging
Dollar cost averaging is a method in which you buy securities in a series of
regular purchases instead of in a single purchase. This allows you to average
the securities' prices over time, and may permit a "smoothing" of abrupt peaks
and drops in price. Prior to your Annuity Date, you may use dollar cost
averaging to transfer amounts, over time, from any Investment Option with an
Account Value of at least $5,000 to one or more Variable Investment Options.
Each transfer must be for at least $250. Detailed information appears in the
SAI.
Portfolio Rebalancing
You may instruct us to maintain a specific balance of Variable Investment
Options under your Contract (e.g., 30% in the Equity Index Subaccount, 40% in
the Managed Bond Subaccount, and 30% in the Growth LT Subaccount) prior to your
Annuity Date. Periodically, we will "rebalance" your values in the elected
Subaccounts to the percentages you have specified. Rebalancing may result in
transferring amounts from a Subaccount earning a relatively higher return to
one earning a relatively lower return. The Fixed Option is not available for
rebalancing. Detailed information appears in the SAI.
Earnings Sweep
You may instruct us to make automatic periodic transfers of your earnings from
the Money Market Subaccount or from the Fixed Option to one or more Variable
Investment Options (other than the Money Market Subaccount). Detailed
information appears in the SAI.
CHARGES, FEES AND DEDUCTIONS
Premium Taxes
Depending on your state of residence (among other factors), a tax may be
imposed on your Purchase Payments at the time your payment is made, at the time
of a partial or full withdrawal, at the time any death benefit proceeds are
paid, at the Annuity Date or at such other time as taxes may be imposed. Tax
rates ranging from 0% to 3.5% are currently in effect, but may change in the
future. Some local jurisdictions also impose a tax.
If we pay any taxes attributable to Purchase Payments ("premium taxes"), we
will impose a similar charge against your Contract Value. Premium tax is
subject to state requirements. We normally will charge you when you annuitize
some or all of your Contract Value. We reserve the right to impose this charge
for applicable premium taxes when you make a full or partial withdrawal, at the
time any death benefit proceeds are paid, or when those taxes are incurred by
us. For these purposes, "premium taxes" include any state or local premium or
retaliatory taxes and, where approval has been obtained, federal premium taxes
and any federal, state or local
15
income, excise, business or any other type of tax (or component thereof)
measured by or based upon, directly or indirectly, the amount of Purchase
Payments we have received. We will base this charge on the Contract Value, the
amount of the transaction, the aggregate amount of Purchase Payments we receive
under your Contract, or any other amount, that in our sole discretion we deem
appropriate.
We may also charge the Separate Account or your Contract Value for taxes
attributable to the Separate Account or the Contract, including income taxes
attributable to the Separate Account or to our operations with respect to the
Contract, or taxes attributable, directly or indirectly, to Purchase Payments.
Currently, we do not impose any such charges.
Mortality and Expense Risk Charge
We assess a charge against the assets of each Subaccount to compensate for
certain mortality and expense risks that we assume under the Contracts (the
"Risk Charge"). The risk that an Annuitant will live longer (and therefore
receive more annuity payments) than we predict through our actuarial
calculations at the time the Contract is issued is "mortality risk." We also
bear mortality risk in connection with death benefits payable under the
Contracts. The risk that the expense charges and fees under the Contracts and
Separate Account are less than our actual administrative and operating expenses
is called "expense risk."
This Risk Charge is assessed daily at an annual rate equal to 0.15% of each
Subaccount's assets; this charge may not be increased for the duration of your
Contract.
The Risk Charge will stop at the Annuity Date if you select a fixed annuity;
the base Risk Charge, but not any increase in the Risk Charge for an optional
Death Benefit Rider, will continue after the Annuity Date if you choose any
variable annuity.
We will realize a gain if the Risk Charge exceeds our actual cost of expenses
and benefits, and will suffer a loss if such actual costs exceed the Risk
Charge. Any gain will become part of our General Account; we may use it for any
reason, including covering sales expenses on the Contracts.
Increase in Risk Charge If an Optional Death Benefit Rider Is Purchased
We increase your Risk Charge by an annual rate equal to 0.20% of each
Subaccount's assets if you purchase the Stepped-Up Death Benefit Rider (SDBR)
or 0.35% if you purchase the Premier Death Benefit Rider (PDBR). The total Risk
Charge annual rate will be 0.35% if the SDBR is purchased or 0.50% if the PDBR
is purchased. Any increase in your Risk Charge will not continue after the
Annuity Date. See PURCHASING YOUR CONTRACT--Purchasing an Optional Death
Benefit Rider.
Administrative Fee
We charge an Administrative Fee as compensation for costs we incur in operating
the Separate Account and issuing and administering the Contracts, including
processing applications and payments, and issuing reports to you and to
regulatory authorities.
The Administrative Fee is assessed daily at an annual rate equal to 0.25% of
the assets of each Subaccount. This rate is guaranteed not to increase for the
life of your Contract. A relationship will not necessarily exist between the
actual administrative expenses attributable to a particular Contract and the
Administrative Fee paid in respect of that particular Contract. The
Administrative Fee will continue after the Annuity Date if you choose any
variable annuity.
Waivers and Reduced Charges
We may agree to waive or reduce charges by crediting additional amounts under
our Contracts, in situations where selling and/or maintenance costs associated
with the contracts are reduced, such as the sale of several Contracts to the
same Contract Owner(s), sales of large Contracts, sales of Contracts in
connection with a group or sponsored arrangement or mass transactions over
multiple Contracts.
16
We will only reduce or waive such charges by crediting an additional amount on
any Contract where expenses associated with the sale of the Contract and/or
costs associated with administering and maintaining the Contract are reduced.
We reserve the right to terminate waiver and reduced charge programs at any
time, including for issued Contracts.
With respect to additional amounts as described above, you will not keep any
amounts credited if you return your Contract during the Free Look period as
described under WITHDRAWALS--Right to Cancel ("Free Look").
Expenses of the Fund
Your Variable Account Value reflects advisory fees and other expenses incurred
by the various Portfolios of the Fund, net of any applicable waivers and/or
reimbursements. These fees and expenses may vary. The Fund is governed by its
own Board of Trustees, and your Contract does not fix or specify the level of
expenses of any Portfolio. The Fund's fees and expenses are described in detail
in the Fund's Prospectus and in its SAI.
RETIREMENT BENEFITS AND OTHER PAYOUTS
Selecting Your Annuitant
When you submit the application for your Contract, you may choose a sole
Annuitant or Joint Annuitants. We will send the annuity payments to the payee
that you designate. If you are buying a Qualified Contract, you must be the
sole Annuitant; if you are buying a Non-Qualified Contract you may choose
yourself and/or another person. Whether you choose to have a sole or two Joint
Annuitants, you may choose a Contingent Annuitant; more information on these
options is provided in the SAI. You will not be able to add or change a sole or
Joint Annuitant after your Contract is issued. You will be able to add or
change a Contingent Annuitant until your Annuity Date or the death of your sole
Annuitant or both Joint Annuitants, whichever occurs first; however, once your
Contingent Annuitant has become the Annuitant under your Contract, no
additional Contingent Annuitant may be named. No Annuitant (Primary, Joint or
Contingent) may be named upon or after reaching his or her 91st birthday. We
reserve the right to require proof of age or survival of the Annuitant(s).
Annuitization
You may choose both your Annuity Date and your Annuity Option. At the Annuity
Date, you may elect to annuitize some or all of your Net Contract Value, less
any applicable charge for premium taxes and/or other taxes, (the "Conversion
Amount"), as long as such Conversion Amount annuitized is at least $10,000,
subject to any state exceptions. If you annuitize only a portion of this
available Contract Value, you may have the remainder distributed, less any
applicable charge for premium taxes and/or other taxes. Any such distribution
will be made to you in a single sum if the remaining Conversion Amount is less
than $10,000 on your Annuity Date. Distributions under your Contract may have
tax consequences. You should consult a qualified tax adviser for information on
annuitization. See APPENDIX A: STATE LAW VARIATIONS.
Choosing Your Annuity Date ("Annuity Start Date")
You should choose your Annuity Date when you submit your application or we will
apply a default Annuity Date to your Contract.
You may change your Annuity Date by notifying us, in proper form, at least ten
Business Days prior to the earlier of your current Annuity Date or your new
Annuity Date.
Your Annuity Date cannot be earlier than your first Contract Anniversary and
must occur on or before a certain date: If you have a sole Annuitant, your
Annuity Date cannot be later than his or her 100th birthday. However, to meet
IRS minimum distribution rules, your required minimum distribution date may be
earlier than your Annuity Date. If you have Joint Annuitants and a Non-
Qualified Contract, your Annuity Date cannot be later
17
than your younger Joint Annuitant's 100th birthday. Different requirements may
apply in some states. If your Contract is a Qualified Contract, you may also be
subject to additional restrictions. Adverse federal tax consequences may result
if you choose an Annuity Date that is prior to an Annuitant's attained age 59
1/2. See FEDERAL TAX STATUS.
You should carefully review the Annuity Options with your financial tax
adviser, and, for Contracts used in connection with a Qualified Plan, reference
should be made to the terms of the particular plan and the requirements of the
Code for pertinent limitations respecting annuity payments, required minimum
distributions, and other matters. For instance, under requirements for
retirement plans that qualify under Section 401 or 408 of the Code, required
minimum distributions, or annuity payments generally must begin no later than
April 1 of the calendar year following the year in which the Annuitant reaches
age 70 1/2.
For retirement plans that qualify under section 401 or 408 of the Code,
distributions must begin no later than the Required Minimum Date of the April 1
of the calendar year following the year in which the Owner/Annuitant reaches
age 70 1/2. These distributions are subject to the "minimum distribution and
incidental death benefit", "MDIB", rules of Code Section 401(a)(9) and the
Regulations thereunder, and shall comply with such rules. Accordingly:
(a) The entire interest under the Contract shall be distributed to the
Owner/Annuitant:
(i) Not later than the April 1st next following the close of the calendar
year in which the Owner/Annuitant attains age 70 1/2, or
(ii) Commencing not later than the Required Beginning Date, over the
Owner/Annuitant's life or the lives of the Owner/Annuitant and his or
her Beneficiary.
(b) For purposes of calculating life expectancy for retirement plans under Code
Section 401 or 408, life expectancy is computed by use of the expected
return multiples V and VI of Regulation Section 1.72-9. Unless otherwise
elected by the Owner by the Required Beginning Date, life expectancy for
the Owner shall be recalculated annually, but shall not be recalculated
annually for any spouse Beneficiary. Any election by the Owner/Annuitant to
recalculate (or not) the life expectancy of the Owner/Annuitant or of the
spouse Beneficiary shall be irrevocable and shall apply to all subsequent
years. The life expectancy of a non-spouse Beneficiary may not be
recalculated. Instead, where the life expectancy of a Beneficiary (or
Owner/Annuitant) is not recalculated annually, such a life expectancy shall
be calculated using the attained age of such Beneficiary (or
Owner/Annuitant) during the calendar year in which the Owner attains 70
1/2, and payments for subsequent years shall be calculated based on such
life expectancy reduced by one year for each calendar year which has
elapsed since the calendar year life expectancy was first calculated.
(c) The method of distribution selected also shall comply with the MDIB rule of
Code Section 401(a)(9), and proposed Regulation Section 1.401(a)(9)-2.
However, if a plan qualified under Section 401(a) of the Code or a 403(b)
contract so provides, no distributions are required for individuals who are
employed after age 70 1/2 (other than 5% owners) until they retire. If a plan
is qualified under Section 408A of the Code, no minimum distributions are
required at any time.
For retirement plans that qualify under Section 401 or 408 of the Code, the
period elected for receipt of required minimum distributions or annuity
payments under Annuity Options 2 and 4 (a) generally may be no longer than the
joint life expectancy of the Annuitant and Beneficiary in the year that the
Annuitant reaches age 70 1/2, and (b) must be shorter than such joint life
expectancy if the Beneficiary is not the Annuitant's spouse and is more than 10
years younger than the Annuitant. Under Option 3, if the Beneficiary is not the
Annuitant's spouse and is more than 10 years younger than the Annuitant, the 66
2/3% and 100% elections specified below may not be available. The restrictions
on options for retirement plans that qualify under Sections 401 and 408 also
apply to a retirement plan that qualifies under Section 403(b) with respect to
amounts that accrued after December 31, 1986.
Subject to legislation, if you annuitize only a portion of your Net Contract
Value on your Annuity Date, you may, at that time, have the option to elect not
to have the remainder of your Contract Value distributed, but
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instead to continue your Contract with that remaining Contract Value (a
"continuing Contract"). If this option is available, you would then choose a
second Annuity Date for your continuing Contract, and all references in this
Prospectus to your "Annuity Date" would, in connection with your continuing
Contract, be deemed to refer to that second Annuity Date. This option may not
be available, or may be available only for certain types of Contracts. You
should be aware that some or all of the payments received before the second
Annuity Date may be fully taxable. We recommend that you call your tax adviser
for more information if you are interested in this option.
Default Annuity Date and Options
If you have a Non-Qualified Contract and you do not choose an Annuity Date when
you submit your application, your Annuity Date will be your Annuitant's 100th
birthday or your younger Joint Annuitant's 100th birthday, whichever applies;
however some states' laws may require a different Annuity Date. Certain
Qualified Plans may require distribution to occur at an earlier age.
If you have not specified an Annuity Option or do not instruct us otherwise, at
your Annuity Date your Net Contract Value, less any charges for premium taxes
and/or other taxes, will be annuitized (if this net amount is at least $10,000)
as follows: the net amount from your Fixed Option will be converted into a
fixed-dollar annuity and the net amount from your Variable Account Value will
be converted into a variable-dollar annuity directed to the Subaccounts
proportionate to your Account Value in each. If you have a Non-Qualified
Contract, or if you have a Qualified Contract and are not married, your default
Annuity Option will be Life with a ten year Period Certain. If you have a
Qualified Contract and you are married, your default Annuity Option will be
Joint and Survivor Life with survivor payments of 50%; your spouse will
automatically be considered your Beneficiary.
Choosing Your Annuity Option
You may make three basic decisions about your annuity payments. First, you may
choose whether you want those payments to be a fixed-dollar amount, and/or a
variable-dollar amount, subject to state availability. Second, you may choose
the form of annuity payments (see Annuity Options below). Third, you may decide
how often you want annuity payments to be made (the "frequency" of the
payments). You may not change these selections after the Annuity Date.
Fixed and Variable Annuities
You may choose a fixed annuity (i.e., with fixed-dollar amounts), a variable
annuity (i.e., with variable-dollar amounts), or you may choose both,
converting one portion of the net amount you annuitize into a fixed annuity and
another portion into a variable annuity.
If you select a fixed annuity, each periodic annuity payment received will be
equal to the initial annuity payment, unless you select a joint and survivor
life annuity with reduced survivor payments and the Primary Annuitant dies. Any
net amount you convert to a fixed annuity will be held in our General Account,
(but not under the Fixed Option).
If you select a variable annuity, you may choose as many Variable Investment
Options as you wish; the amount of the periodic annuity payments will vary with
the investment results of the Variable Investment Options selected. After the
Annuity Date, Annuity Units may be exchanged among available Variable
Investment Options up to four times in any twelve-month period. How your
Contract converts into a variable annuity is explained in more detail in THE
CONTRACTS AND THE SEPARATE ACCOUNT in the SAI.
Annuity Options
Four Annuity Options are currently available under the Contracts, although
additional options may become available in the future.
1. Life Only. Periodic payments are made to the designated payee during the
Annuitant's lifetime. Payments stop when the Annuitant dies.
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2. Life with Period Certain. Periodic payments are made to the designated
payee during the Annuitant's lifetime, with payments guaranteed for a
specified period. You may choose to have payments guaranteed for anywhere
from 5 through 30 years (in full years only). If the Annuitant dies
before the guaranteed payments are completed, the Owner receives the
remainder of the guaranteed payments. Additionally, if variable payments
are elected under this option, you may redeem all remaining guaranteed
variable payments after the Annuity Date. The amount available upon such
redemption would be the present value of any remaining guaranteed
variable payments at the assumed investment return.
3. Joint and Survivor Life. Periodic payments are made during the lifetime
of the Primary Annuitant. After the death of the Primary Annuitant,
periodic payments are made to the secondary Annuitant named in the
election if and so long as such secondary Annuitant lives. You may choose
to have the payments to the surviving secondary Annuitant equal 50%, 66
2/3% or 100% of the original amount payable made during the lifetime of
the Primary Annuitant (you must make this election when you choose your
Annuity Option). If you elect a reduced payment based on the life of the
secondary Annuitant, fixed annuity payments will be equal to 50% or 66
2/3% of the original fixed payment payable during the lifetime of the
Primary Annuitant; variable annuity payments will be determined using 50%
or 66 2/3%, as applicable, of the number of Annuity Units for each
Subaccount credited to the Contract as of the date of death of the
Primary Annuitant. Payments stop when both Annuitants have died.
4. Period Certain Only. Periodic payments are made to the designated payee
over a specified period. You may choose to have payments continue for
anywhere from 5 through 30 years (in full years only). If the Annuitant
dies before the guaranteed payments are completed, we pay the Owner the
remainder of the guaranteed payments. Additionally, if variable payments
are elected under this option, you may redeem all remaining guaranteed
variable payments after the Annuity Date. The amount available upon such
redemption would be the present value of any remaining guaranteed
variable payments at the assumed investment return.
If the Owner dies, after the Annuity Date, the Owner's rights are assumed by
the Joint or Contingent Owner, if living; if not to the Beneficiary, if living;
if not to the Contingent Beneficiary, if living; if not to the Owner's Estate.
For Contracts issued in connection with a Qualified Plan, please refer to the
discussion above under "Choosing Your Annuity Date ("Annuity Start Date")". If
your Contract was issued in connection with a Qualified Plan subject to Title I
of the Employee Retirement Income Security Act of 1974 ("ERISA"), your spouse's
consent may be required when you seek any distribution under your Contract,
unless your Annuity Option is Joint and Survivor Life with survivor payments of
at least 50%, and your spouse is your Joint Annuitant.
Frequency of Payments
You may choose to have annuity payments made monthly, quarterly, semiannually,
or annually. The amount of a variable payment will be determined in each period
on the date corresponding to your Annuity Date, and payment will be made on the
next succeeding day.
Your initial annuity payment must be at least $250. (See APPENDIX A: STATE LAW
VARIATIONS.) Depending on the net amount you annuitize, this requirement may
limit your options regarding the period and/or frequency of annuity payments.
Your Annuity Payments
Amount of the First Payment
Your Contract contains tables that we use to determine the amount of the first
annuity payment under your Contract, taking into consideration the annuitized
portion of your Net Contract Value at the Annuity Date. This amount will vary,
depending on the annuity period and payment frequency you select; this amount
will be larger in the case of shorter Period Certain annuities and smaller for
longer Period Certain annuities. Similarly,
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this amount will be greater for a Life Only annuity than for a Joint and
Survivor Life annuity, because we will expect to make payments for a shorter
period of time on a Life Only annuity. If you do not choose the Period Certain
Only annuity, this amount will also vary depending on the age of the
Annuitant(s) on the Annuity Date and, for some Contracts in some states, the
sex of the Annuitant(s).
For fixed annuity payments, the guaranteed income factors in our tables are
based on an annual interest rate of 3% and the 1983a Annuity Mortality Table
with the ages set back 10 years. If you elect a fixed annuity, fixed annuity
payments will be based on the periodic income factors in effect for your
Contract on the Annuity Date which are at least the guaranteed income factors
under the Contract.
For variable annuity payments, the tables are based on an assumed annual
investment return of 5% and the 1983a Annuity Mortality Table with the ages set
back 10 years. If you elect a variable annuity, your initial variable annuity
payment will be based on the applicable variable annuity income factors in
effect for your Contract or the Annuity Date which are at least the variable
annuity income factors under the contract. You may choose any other annuity
option we may offer on the option's effective date. A higher assumed investment
return would mean a larger first variable annuity payment, but subsequent
payments would increase only when actual net investment performance exceeds the
higher assumed rate and would fall when actual net investment performance is
less than the higher assumed rate. A lower assumed rate would mean a smaller
first payment and a more favorable threshold for increases and decreases. If
the actual net investment performance is a constant 5% annually, annuity
payments will be level. The assumed investment return is explained in more
detail in the SAI under THE CONTRACTS AND THE SEPARATE ACCOUNT.
Death Benefits
Death benefit proceeds may be payable on proof of death before the Annuity Date
of the Annuitant or of any Contract Owner while the Contract is in force. The
amount of the death benefit proceeds will be paid according to the Death
Benefit Proceeds section below.
The "Notice Date" is the day on which we receive proof (in proper form) of
death and instructions regarding payment of death benefit proceeds.
Death Benefit Proceeds
Death benefit proceeds will be payable upon receipt, in proper form, of proof
of death and instructions regarding payment of death proceeds. Such proceeds
will equal the amount of the death benefit reduced by any charges for premium
taxes and/or other taxes and any Contract Debt. The death benefit proceeds will
be payable in a single sum, as an Annuity Option under this Contract or towards
the purchase of any Annuity Option we then offer, or in accordance with IRS
regulations (see Death of Owner Distribution Rules). Any such Annuity Option is
subject to all restrictions (including minimum amount requirements) as are
other annuities under this Contract; in addition, there may be legal
requirements that limit the recipient's Annuity Options and the timing of any
payments. A recipient should consult a qualified tax adviser before electing to
receive an annuity.
Additional provisions apply if your Contract names a Joint or Contingent Owner
or Annuitant, or if the Beneficiary, Joint Owner, or Contingent Owner is your
spouse. Further information about these provisions is contained in the SAI.
Death of Owner Distribution Rules
If an Owner of a Non-Qualified Contract dies before the Annuity Date, any death
benefit proceeds under this Contract must complete distribution within five
years after the Owner's death. In order to satisfy this requirement, the
designated recipient must receive a lump sum payment or elect to receive an
annuity for life or over a period that does not exceed the life expectancy of
the designated recipient with annuity payments that start within one year after
the Owner's death. If an election to receive an annuity is not made within 60
days of our receipt of proof in proper form of the Owner's death or, if
earlier, 60 days (or shorter period as we permit)
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prior to the first anniversary of the Owner's death, the lump sum option will
be deemed elected, unless otherwise required by law. If the lump sum option is
deemed elected, we will consider that deemed election as receipt of
instructions regarding payment of death benefit proceeds. If a Non-Qualified
Contract has Joint Owners, this requirement applies to the first Owner to die.
The Owner may designate that the Beneficiary will receive death benefit
proceeds through annuity payments for life or over a period that does not
exceed the Beneficiary's life expectancy. The Owner must designate the payment
method in writing in a form acceptable to us. The Owner may revoke the
designation only in writing and only in an acceptable form to us. Once the
Owner dies, the Beneficiary cannot revoke or modify the Owner's designation.
If the Owner was not an Annuitant but was a Joint Owner and there is a
surviving Joint Owner, that surviving Joint Owner is the designated recipient;
if no Joint Owner survives but a Contingent Owner is named in the Contract and
is living, he or she is the designated recipient, otherwise the Beneficiary, if
living; if not, the Contingent Beneficiary, if living; if not, the Owner's
estate.
If the Owner was an Annuitant, the designated recipient is the Joint Owner, if
living; if not the Beneficiary, if living; if not, the Contingent Beneficiary,
if living; if not, the Owner's estate. A sole designated recipient who is the
Owner's spouse may elect to become the Owner (and sole Annuitant if the
deceased Owner had been the Annuitant) and continue the Contract until the
earliest of the spouse's death, the death of the Annuitant, or the Annuity
Date. On the Notice Date, if the surviving spouse is deemed to have continued
the Contract, Pacific Life will set the Contract Value equal to the death
benefit proceeds that would have been payable to the spouse as the deemed
Beneficiary/designated recipient of the death benefit. The amount that the
death benefit proceeds exceeds the Contract Value will be added to the Contract
Value in the form of the Add-In Amount on the Notice Date. There will not be an
adjustment to the Contract Value if the Contract Value is equal to the death
benefit proceeds as of the Notice Date. The Add-In Amount will be allocated
among Investment Options in accordance with the current allocation instructions
for the Contract and will be considered earnings. A Joint or Contingent Owner
who is the designated recipient but not the Owner's spouse may not continue the
Contract.
If you are a non-individual Owner of a Contract other than a Contract issued
under a Qualified Plan as defined in Section 401 or 403 of the Code, the
Primary Annuitant will be treated as the Owner of the Contract for purposes of
these Distribution Rules. If there is a change in the Primary Annuitant prior
to the Annuity Date, such change will be treated as the death of the Owner. The
amount of the death benefit in this situation will be (a) the Contract Value if
the non-individual Owner elects to maintain the Contract and reinvest the
Contract Value into the Contract in the same amount as immediately prior to the
distribution, or (b) the Contract Value less any transaction fee, and/or
premium taxes and/or other taxes, if the non-individual Owner elects a cash
distribution. The amount of the death benefit will be determined as of the
Business Day we receive, in proper form, the request to change the Primary
Annuitant and instructions regarding maintaining the Contract or cash
distribution.
The Contract incorporates all applicable provisions of Code Section 72(s) and
any successor provision, as deemed necessary by us to qualify the Contract as
an annuity contract for federal income tax purposes, including the requirement
that, if the Owner dies before the Annuity Date, any death benefit proceeds
under the Contract shall be distributed within five years of the Owner's death
(or such other period that we offer and that is permitted under the Code or
such shorter period as we may require).
Qualified Plan Death of Annuitant Distribution Rules
Under Internal Revenue Service regulations, if the Contract is owned under a
Qualified Plan as defined in Section 401, 403, 408, or 408A of the Code and the
Annuitant dies before the commencement of distributions, the payment of any
death benefit must be made to the designated recipient no later than December
31 of the calendar year in which the fifth anniversary of the Annuitant's death
falls. In order to satisfy this requirement, generally the designated recipient
must receive a lump sum payment by this date or elect to receive the
Annuitant's interest in the Contract in equal or substantially equal
installments over a period not exceeding the lifetime or life expectancy of the
designated recipient. If the designated recipient elects the installment
payment option, the Internal Revenue Service regulations provide that payments
must begin no later than December 31 of the calendar year which follows the
calendar year in which the Annuitant died. However, if the designated recipient
is the spouse of the
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Annuitant at the time of the Annuitant's death ("surviving spouse"), then,
under the regulations, required distributions must begin no later than December
31 of the calendar year in which the Annuitant would have reached age 70 1/2.
Under our administrative procedures, payments must commence either by the end
of the fifth year following the Annuitant's death or lifetime distributions
beginning no later than the end of the year following the year the Annuitant
died; unless the designated recipient is the surviving spouse. If the surviving
spouse elects to continue the contract and not do an eligible rollover to an
IRA in his or her name, then he or she will be subject to the five year rule.
However, the surviving spouse may waive the five year requirement and elect to
take distributions over his or her life expectancy, and if the surviving spouse
elects to defer the commencement of required distributions beyond the first
anniversary of the Annuitant's death, the surviving spouse will be deemed to
continue the Contract. In this instance, the surviving spouse may defer
required distributions until the later of: (a) December 31 of the year
following the year the Annuitant died; or (b) December 31 of the year in which
the Annuitant would have turned 70 1/2. Further, under our administrative
procedures, if the required distributions election is not received by us in
good order by December 31, of the year following the Annuitant's death or, the
December of the year in which the Annuitant would have attained age 70 1/2, the
lump sum option will be deemed by us to have been elected, unless otherwise
required by law. If the lump sum option is deemed elected, we will treat that
deemed election as receipt of instructions regarding payment of death benefit
proceeds.
If the Annuitant dies after the commencement of Required Minimum Distributions
but before the Annuitant's entire interest in the Contract (other than a Roth
IRA) has been distributed, the remaining interest in the Contract must be
distributed to the designated recipient at least as rapidly as under the
distribution method in effect at the time of the Annuitant's death.
The Amount of the Death Benefit: Death of Annuitant
If the sole Annuitant dies prior to the Annuity Date, the death benefit will be
equal to the greater of:
(a) your Contract Value as of the Notice Date, or
(b) your aggregate Purchase Payments reduced by an amount for each
withdrawal, which is calculated by multiplying the aggregate Purchase
Payments received prior to each withdrawal by the ratio of the amount of
the withdrawal to the Contract Value immediately prior to each
withdrawal.
Optional Stepped-Up Death Benefit Rider
If you purchase the Stepped-Up Death Benefit Rider (SDBR) at the time your
application is completed (subject to state availability) upon the death of the
sole Annuitant prior to the Annuity Date, the death benefit will be equal to
the greater of (a) or (b) below:
(a) the Death Benefit Amount as of the Notice Date. The Death Benefit Amount
as of any day (prior to the Annuity Date) is equal to the greater of:
(i) your Contract Value as of that day, or
(ii) your aggregate Purchase Payments reduced by an amount for each
withdrawal, which is calculated by multiplying the aggregate
Purchase Payments received prior to each withdrawal by the ratio of
the amount of the withdrawal to the Contract Value immediately prior
to each withdrawal.
(b) the Guaranteed Minimum Death Benefit Amount as of the Notice Date. The
Guaranteed Minimum Death Benefit Amount is calculated only when death
benefit proceeds become payable as a result of the death of the
Annuitant prior to the Annuity Date and is determined as follows:
First we calculate what the Death Benefit Amount would have been as of
your first Contract Anniversary and each subsequent contract Anniversary
that occurs while the Annuitant is living and before the Annuitant
reaches his or her 81st birthday (each of these Contract anniversaries is
a "Milestone Date").
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We then adjust the Death Benefit Amount for each milestone date by:
(i) adding the aggregate amount of any Purchase Payments received by us
since the Milestone Date; and
(ii) subtracting an amount for each withdrawal that has occurred since
that Milestone Date, which is calculated by multiplying the Death
Benefit Amount by the ratio of the amount of each withdrawal that
has occurred since that Milestone Date, to the Contract Value
immediately prior to the withdrawal.
The highest of these adjusted Death Benefit Amounts for each Milestone Date, as
of the Notice Date, is your Guaranteed Minimum Death Benefit Amount if you
purchase the SDBR. Calculation of any Guaranteed Minimum Death Benefit Amount
is only made once death benefit proceeds become payable under your Contract.
Optional Premier Death Benefit Rider
If you purchase the Premier Death Benefit Rider (PDBR) at the time your
application is completed (subject to state availability), upon the death of the
sole Annuitant prior to the Annuity Date, the death benefit will be equal to
the greater of (a) or (b) below:
(a) the Death Benefit Amount as of the Notice Date. The Death Benefit Amount
as of any day (prior to the Annuity Date) is equal to the greater of:
(i) your Contract Value as of that day, or
(ii) your aggregate Purchase Payments less an adjusted amount for each
withdrawal increased at an effective annual rate of 6% to that day,
subject to a maximum of two times the difference between the
aggregate Purchase Payments and withdrawals. The 6% annual rate of
growth will take into account the timing of when each Purchase
Payment and withdrawal occurred by applying a daily factor of
1.00015965 to each day's balance. (See APPENDIX A: STATE LAW
VARIATIONS.) The 6% effective annual rate of growth will stop
accruing as of the earlier of:
1. the Contract anniversary following the date the Annuitant reaches
his or her 80th birthday; or
2. the date of death of the sole Annuitant; or
3. the Annuity Date.
(b) the Guaranteed Minimum Death Benefit Amount as of the Notice Date. The
Guaranteed Minimum Death Benefit Amount is calculated only when death
benefit proceeds become payable as a result of the death of the sole
Annuitant prior to the Annuity Date, and is determined as follows:
First, we calculate what the Death Benefit Amount would have been as of
the quarterly anniversary following the Contract Date and as of each
subsequent quarterly anniversary that occurs while the Annuitant is
living and up to and including the Contract Anniversary following the
Annuitant's 65th birthday. Quarterly anniversaries are measured from the
Contract Date. After the Contract Anniversary following the Annuitant's
65th birthday, we calculate what the Death Benefit Amount would have been
as of each Contract Anniversary that occurs while the Annuitant is living
and before the Annuitant reaches his or her 81st birthday. Each quarterly
anniversary and each Contract Anniversary in which a Death Benefit Amount
is calculated is referred to as a "Milestone Date".
We then adjust the Death Benefit Amount for each Milestone Date by:
(i) adding the aggregate amount of any Purchase Payments received by us
since that Milestone Date; and
(ii) subtracting an amount for each withdrawal that has occurred since
that Milestone Date, which is calculated by multiplying the Death
Benefit Amount by the ratio of the amount of each withdrawal that
has occurred since that Milestone Date to the Contract Value
immediately prior to the withdrawal.
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The highest of these adjusted Death Benefit Amounts as of the notice date is
your Guaranteed Minimum Death Benefit if the PDBR is purchased. Calculation of
any Guaranteed Minimum Death Benefit is only made once death benefit proceeds
become payable under your Contract.
The following procedures apply in the event of death of an Annuitant who is not
also a Contract Owner: If your Contract names Joint Annuitants and only one
Joint Annuitant dies, the surviving Joint Annuitant becomes your sole Annuitant
and the death benefit is not yet payable. If your sole Annuitant dies (or if no
Joint Annuitant survives) and your Contract names a surviving Contingent
Annuitant, he or she becomes the sole Annuitant and the death benefit proceeds
are not yet payable. If there is no surviving Joint or Contingent Annuitant,
the death benefit proceeds are payable to the Owner, if living; if not, to the
Beneficiary, if living; if not, to the Contingent Beneficiary, if living; if
not, to the Owner's estate.
If the Owner is not the Annuitant and they die simultaneously, the death
benefit will be calculated under the Death of Annuitant provisions and proceeds
will be paid to the Joint Owner, if living; if not, to the Contingent Owner, if
living; if not, to the Beneficiary, if living; if not, to the Contingent
Beneficiary, if living; if not, to the Owner's estate.
The Amount of the Death Benefit: Death of a Contract Owner
If a Contract Owner who is not the Annuitant dies before the Annuity Date, the
amount of the death benefit will be equal to your Contract Value as of the
Notice Date and will be paid in accordance with the Death Benefit Proceeds
section. The death benefit proceeds will be paid to the Joint Owner, if living;
if not, to the Contingent Owner, if living; if not, to the Beneficiary, if
living; if not, to the Contingent Beneficiary, if living; if not, to the
Owner's estate. See THE GENERAL ACCOUNT--Withdrawals and Transfers.
If a Contract Owner who is the Annuitant dies before the Annuity Date, the
amount of the death benefit will be determined in accordance with the The
Amount of the Death Benefit: Death of Annuitant section above, and will be paid
in accordance with the Death Benefit Proceeds section. The death benefit
proceeds will be paid to the Joint Owner, if living; if not, to the
Beneficiary, if living; if not, to the Contingent Beneficiary, if living; if
not, to the Owner's estate.
WITHDRAWALS
Optional Withdrawals
You may, on or prior to your Annuity Date, withdraw all or a portion of the
amount available under your Contract while the Annuitant is living and your
Contract is in force. You may surrender your Contract and make a full
withdrawal at any time. Except as provided below, beginning 30 days after your
Contract Date, you also may make partial withdrawals from your Investment
Options at any time. You may request to withdraw a specific dollar amount or a
specific percentage of an Account Value or your Net Contract Value. You may
choose to make your withdrawal from specified Investment Options; if you do not
specify Investment Options, your withdrawal will be made from all of your
Investment Options proportionately. Each partial withdrawal must be for $500 or
more, except pre-authorized withdrawals, which must be at least $250. If your
partial withdrawal from an Investment Option would leave a remaining Account
Value in that Investment Option of less than $500, we have the right, at our
option, to transfer that remaining amount to your other Investment Options on a
proportionate basis relative to your most recent allocation instructions. If
your partial withdrawal leaves you with a Net Contract Value of less than
$1,000, we have the right, at our option, to terminate your Contract and send
you the withdrawal proceeds described in the next section below. Partial
withdrawals from the Fixed Option in any Contract Year are subject to
restrictions. See GENERAL ACCOUNT--Withdrawals and Transfers and APPENDIX A:
STATE LAW VARIATIONS sections.
Amount Available for Withdrawal
The amount available for withdrawal is your Net Contract Value at the end of
the Business Day on which your withdrawal request is effective, less any
applicable withdrawal transaction fee and any charge for premium taxes
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and/or other taxes. The amount we send to you (your "withdrawal proceeds") will
also reflect any required or requested federal and state income tax
withholding. See FEDERAL TAX STATUS and THE GENERAL ACCOUNT--Withdrawals and
Transfers.
You assume investment risk on investments in the Subaccounts; as a result, the
amount available to you for withdrawal from any Subaccount may be more or less
than the total Purchase Payments you have allocated to that Subaccount.
Withdrawal Transaction Fees
There is currently no transaction fee for partial withdrawals. However, we
reserve the right to impose a withdrawal transaction fee in the future of up to
$15 for each partial withdrawal (including pre-authorized partial withdrawals)
in excess of 15 in any Contract Year. Any such fee would be charged against
your Investment Options proportionately based on your Account Value in each
Investment Option immediately after the withdrawal.
Pre-Authorized Withdrawals
If your Contract Value is at least $5,000, you may select the pre-authorized
withdrawal option, and you may choose monthly, quarterly, semiannual or annual
withdrawals. Each withdrawal must be for at least $250. Each pre-authorized
withdrawal is subject to federal income tax on its taxable portion and may be
subject to a penalty tax of 10% or more if you have not reached age 59 1/2. See
FEDERAL TAX STATUS and THE GENERAL ACCOUNT--Withdrawals and Transfers.
Additional information and options are set forth in the SAI and in the Pre-
Authorized Withdrawal section of your application.
Special Requirements for Full Withdrawals
If you wish to withdraw the entire amount available under your Contract, you
must either return your Contract to us or sign and submit to us a "lost
Contract affidavit."
Special Restrictions Under Qualified Plans
Individual Qualified Plans may have additional rules regarding withdrawals from
a Contract purchased under such a Plan. In general, if your Contract was issued
under certain Qualified Plans, you may not withdraw amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 402(g)(3)(A) of the Code) or to transfers from a custodial account (as
defined in Section 403(b)(7) of the Code) except in cases of your (a)
separation from service, (b) death, (c) disability as defined in Section
72(m)(7) of the Code, (d) reaching age 59 1/2, or (e) hardship as defined for
purposes of Section 401(k) of the Code.
These limitations do not affect certain rollovers or exchanges between
Qualified Plans, and do not apply to rollovers from these Qualified Plans to an
individual retirement account or individual retirement annuity. In the case of
tax sheltered annuities, these limitations do not apply to certain salary
reduction contributions made, and investment results earned, prior to dates
specified in the Code.
Hardship withdrawals under the exception provided above are restricted to
amounts attributable to salary reduction contributions, and do not include
investment results; this additional restriction does not apply to salary
reduction contributions made, and investment results earned, prior to dates
specified in the Code.
Certain distributions, including rollovers, may be subject to mandatory
withholding of 20% for federal income tax and to a penalty tax of 10% or more
if the distribution is not transferred directly to the trustee of another
Qualified Plan, or to the custodian of an individual retirement account or
issuer of an individual retirement annuity. See FEDERAL TAX STATUS.
Distributions may also trigger withholding for state income taxes. The tax and
ERISA rules relating to Contract withdrawals are complex. We are not the
administrator of any Qualified Plan. You should consult your tax adviser and/or
your plan administrator before you withdraw any portion of your Contract Value.
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Effective Date of Withdrawal Requests
Withdrawal requests are normally effective on the Business Day we receive them
in proper form. If you make Purchase Payments by check and submit a withdrawal
request immediately afterwards, payment of your withdrawal proceeds may be
delayed until your check clears.
Tax Consequences of Withdrawals
Withdrawals, including pre-authorized withdrawals, will generally have federal
income tax consequences, which could include tax penalties. You should consult
with a tax adviser before making any withdrawal or selecting the pre-authorized
withdrawal option. See FEDERAL TAX STATUS.
Right to Cancel ("Free Look")
During the Free Look period, you have the right to cancel your Contract and
return it to us for a refund. If you return your Contract, it will be canceled.
The amount of your refund may be more or less than the Purchase Payments you've
made, depending on the state where you signed your application. Generally, the
Free Look period ends 10 days after you receive your Contract, but may vary by
state. Also, some states may have a different Free Look period if you are
replacing another annuity contract or life insurance policy. For more
information, see APPENDIX A: STATE LAW VARIATIONS.
In most states, your refund will be your Contract Value as of the end of the
Business Day on which we receive your Contract for cancellation, plus a refund
of any amount that may have been deducted as Contract charges to pay for
premium taxes and/or other taxes, and minus the Contract Value attributable to
any additional amount credited as described in CHARGES, FEES AND DEDUCTIONS-
Waivers and Reduced Charges. This means you will not keep any amounts that we
add as a credit or any gains and losses on the amounts credited. You will
receive any Contract fees and charges that we deducted from the credited
amounts. We have applied to the Securities and Exchange Commission for an
exemptive order to change the amount you would receive if you return your
Contract during the Free Look period. We can not be sure that the SEC will
grant this order, but if it is granted, you would not receive any amounts that
we add as a credit or Contract fees and charges deducted from those amounts,
but you would keep the gains or losses on the credited amounts. Thus an Owner
who returns a Contract within the Free Look period bears only the investment
risk on amounts attributable to Purchase Payments. There are some states that
require us to return a different amount if you are replacing another annuity
contract or life insurance policy. For any Contract issued as an IRA returned
within 7 days after you receive it, we are required to return all Purchase
Payments (less any withdrawals made). For more information, see APPENDIX A:
STATE LAW VARIATIONS.
You'll find a complete description of the Free Look period and amount to be
refunded that applies to your Contract on the Contract's cover page, or on a
notice that accompanies your policy.
Your Purchase Payments will be allocated in accordance with your application or
your most recent allocation instructions.
PACIFIC LIFE AND THE SEPARATE ACCOUNT
Pacific Life
Pacific Life Insurance Company is a life insurance company that is based in
California. Along with our subsidiaries and affiliates, our operations include
life insurance, annuity, pension and institutional products, group employee
benefits, broker-dealer operations and investment and advisory services. As of
the end of 1999, we had $101 billion of individual life insurance in force and
total admitted assets of approximately $48.2 billion. We are ranked the 16th
largest life insurance carrier in the U.S. in terms of 1999 admitted assets.
The Pacific Life family of companies has total assets under management of $315
billion. 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.
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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. Pacific Life is 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.
Our subsidiary, Pacific Select Distributors, Inc. ("PSD", formerly known as
Pacific Mutual Distributors, Inc.), serves as the principal underwriter
(distributor) for the Contracts. PSD is located at 700 Newport Center Drive,
Newport Beach, California 92660. We and PSD enter into selling agreements with
broker-dealers, under which such broker-dealers act as agents of us and PSD in
the sale of the Contracts.
We may provide you with reports of our ratings both as an insurance company and
as to our claims-paying ability with respect to our General Account assets. The
SAI presents more details about these ratings.
Separate Account A
Separate Account A was established on September 7, 1994 as a separate account
of ours, and is registered with the SEC under the 1940 Act, as a type of
investment company called a "unit investment trust."
Obligations arising under your Contract are our general corporate obligations.
We are also the legal owner of the assets in the Separate Account. Assets of
the Separate Account attributed to the reserves and other liabilities under the
Contract and other contracts issued by us that are supported by the Separate
Account may not be charged with liabilities arising from any of our other
business; any income, gain or loss (whether or not realized) from the assets of
the Separate Account are credited to or charged against the Separate Account
without regard to our other income, gain or loss.
We may invest money in the Separate Account in order to commence its operations
and for other purposes, but not to support contracts other than variable
annuity contracts. A portion of the Separate Account's assets may include
accumulations of charges we make against the Separate Account and investment
results of assets so accumulated. These additional assets are ours and we may
transfer them to our General Account at any time; however, before making any
such transfer, we will consider any possible adverse impact the transfer might
have on the Separate Account. Subject to applicable law, we reserve the right
to transfer our assets in the Separate Account to our General Account.
The Separate Account is not the sole investor in the Fund. Investment in the
Fund by other separate accounts in connection with variable annuity and
variable life insurance contracts may create conflicts. See the accompanying
Prospectus and the SAI for the Fund for more information.
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FEDERAL TAX STATUS
The following summary of federal income tax consequences is based on our
understanding of current tax laws and regulations, which may be changed by
legislative, judicial or administrative action. The summary is general in
nature and is not intended as tax advice. Moreover, it does not consider any
applicable state or local tax laws. We do not make any guarantee regarding the
tax status, federal, state or local, of any Contract or any transaction
involving the Contracts. Accordingly, you should consult a qualified tax
adviser for complete information and advice before purchasing a Contract.
The following rules generally do not apply to variable annuity contracts held
by or for non-natural persons (e.g., corporations) unless such an entity holds
the contract as nominee for a natural person. If a contract is not owned or
held by a natural person or a nominee for a natural person, the contract
generally will not be treated as an "annuity" for tax purposes, meaning that
the contract owner will be taxed currently on annual increases in Contract
Value at ordinary income rates unless some other exception applies.
Section 72 of the Code governs the taxation of annuities in general, and we
designed the Contracts to meet the requirements of Section 72 of the Code. We
believe that, under current law, the Contract will be treated as an annuity for
federal income tax purposes if the Contract Owner is a natural person or an
agent for a natural person, and that we (as the issuing insurance company), and
not the Contract Owner(s), will be treated as the owner of the investments
underlying the Contract. Accordingly, generally no tax should be payable by you
as a Contract Owner as a result of any increase in Contract Value until you
receive money under your Contract. You should, however, consider how amounts
will be taxed when you do receive them. The following discussion assumes that
your Contract will be treated as an annuity for federal income tax purposes.
Section 817(h) of the Code provides that the investments underlying a variable
annuity must satisfy certain diversification requirements. Details on these
diversification requirements appear in the Fund's SAI. We believe the
underlying Variable Investment Options for the Contract meet these
requirements. In connection with the issuance of temporary regulations relating
to diversification requirements under Section 817(h), the Treasury Department
announced that such regulations do not provide guidance concerning the extent
to which you may direct your investments to particular divisions of a separate
account. Such guidance may be included in regulations or revenue rulings under
Section 817(d) relating to the definition of a variable contract. Because of
this uncertainty, we reserve the right to make such changes as we deem
necessary or appropriate to ensure that your Contract continues to qualify as
an annuity for tax purposes. Any such changes will apply uniformly to affected
Contract Owners and will be made with such notice to affected Contract Owners
as is feasible under the circumstances.
Taxes Payable by Contract Owners: General Rules
These general rules apply to Non-Qualified Contracts. As discussed below,
however, tax rules may differ for Qualified Contracts and you should consult a
qualified tax adviser if you are purchasing a Qualified Contract.
Distributions of net investment income or capital gains that each Subaccount
receives from its corresponding Portfolio are automatically reinvested in such
Portfolio unless we, on behalf of the Separate Account, elect otherwise. As
noted above, you will be subject to federal income taxes on the investment
income from your Contract only when it is distributed to you.
Multiple Contracts
All Non-Qualified contracts that are issued by us, or our affiliates, to the
same Owner during any calendar year are treated as one contract for purposes of
determining the amount includible in gross income under Code Section 72(e).
Further, the Treasury Department has specific authority to issue regulations
that prevent the avoidance of Section 72(e) through the serial purchase of
contracts or otherwise.
Taxes Payable on Withdrawals
Amounts you withdraw before annuitization, including amounts withdrawn from
your Contract Value in connection with partial withdrawals for payment of any
charges and fees, will be treated first as taxable income to
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the extent that your Contract Value exceeds the aggregate of your Purchase
Payments (reduced by non-taxable amounts previously received), and then as non-
taxable recovery of your Purchase Payments.
The assignment or pledge of (or agreement to assign or pledge) the value of the
Contract for a loan will be treated as a withdrawal subject to these rules.
Moreover, all annuity contracts issued to you in any given calendar year by us
and any of our affiliates are treated as a single annuity contract for purposes
of determining whether an amount is subject to tax under these rules. The Code
further provides that the taxable portion of a withdrawal or other distribution
may be subject to a penalty tax equal to 10% of that taxable portion unless the
withdrawal is: (1) made on or after the date you reach age 59 1/2, (2) made by
a Beneficiary after your death, (3) attributable to you becoming disabled, or
(4) in the form of level annuity payments under a lifetime annuity.
Taxes Payable on Annuity Payments
A portion of each annuity payment you receive under a Contract generally will
be treated as a partial recovery of Purchase Payments (as used here, "Purchase
Payments" means the aggregate Purchase Payments less any amounts that were
previously received under the Contract but not included in income) and will not
be taxable. (In certain circumstances, subsequent modifications to an
initially-established payment pattern may result in the imposition of a penalty
tax.) The remainder of each annuity payment will be taxed as ordinary income.
However, after the full amount of aggregate Purchase Payments has been
recovered, the full amount of each annuity payment will be taxed as ordinary
income. Exactly how an annuity payment is divided into taxable and non-taxable
portions depends on the period over which annuity payments are expected to be
received, which in turn is governed by the form of annuity selected and, where
a lifetime annuity is chosen, by the life expectancy of the Annuitant(s) or
payee(s). Such a payment may also be subject to a penalty tax.
Should the death of a Contract Owner cause annuity payments to cease before
Purchase Payments have been fully recovered, a deduction may be allowed on the
final tax return for the unrecovered Purchase Payments; however, if any
remaining annuity payments are made to a Beneficiary, the Beneficiary will
recover the balance of the Purchase Payments as payments are made. IRC Section
72(b)(3)(A) or (B) or (C).
Generally, the same tax rules apply to amounts received by the Beneficiary as
those set forth above, except that the early withdrawal penalty tax does not
apply. Thus, any annuity payments or lump sum withdrawal will be divided into
taxable and non-taxable portions. If the Contract Owner or Annuitant dies and
within sixty days after the date on which a lump sum death benefit first
becomes payable the designated recipient elects to receive annuity payments in
lieu of the lump sum death benefit, then the designated recipient will not be
treated for tax purposes as having received the lump sum death benefit in the
tax year it first becomes payable. Rather, in that case, the designated
recipient will be taxed on the annuity payments as they are received.
Any amount payable upon the Contract Owner's death, whether before or after the
Annuity Date, will be included in the estate of the Contract Owner for federal
estate tax purposes. In addition, designation of a Beneficiary who either is 37
1/2 or more years younger than a Contract Owner or is a grandchild of a
Contract Owner may have Generation Skipping Transfer Tax consequences under
section 2601 of the Code.
Generally, gifts of non-tax qualified contracts prior to the annuity start date
will trigger tax on the gain on the contract, with the donee getting a stepped-
up basis for the amount included in the donor's income. The 10% penalty tax and
gift tax also may be applicable. This provision does not apply to transfers
between spouses or incident to a divorce.
Qualified Contracts
The Contracts are available to a variety of Qualified Plans. Tax restrictions
and consequences for Contracts under each type of Qualified Plan differ from
each other and from those for Non-Qualified Contracts. In addition, individual
Qualified Plans may have terms and conditions that impose additional rules.
Therefore, no attempt is made herein to provide more than general information
about the use of the Contract with the various types of Qualified Plans.
Participants under such Qualified Plans, as well as Contract Owners,
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Annuitants and Beneficiaries, are cautioned that the rights of any person to
any benefits under such Qualified Plans may be subject to the terms and
conditions of the Plans themselves or limited by applicable law, regardless of
the terms and conditions of the Contract issued in connection therewith.
The following is only a general discussion about types of Qualified Plans for
which the Contracts are available. We are not the administrator of any
Qualified Plan. The plan administrator and/or custodian, whichever is
applicable, (but not us) is responsible for all Plan administrative duties
including, but not limited to, notification of distribution options,
disbursement of Plan benefits, compliance regulatory requirements and federal
and state tax reporting of income/distributions from the Plan to Plan
participants and, if applicable, Beneficiaries of Plan participants and IRA
contributions from Plan participants. Our administrative duties are limited to
administration of the Contract and any disbursements of any Contract benefits
to the Owner, Annuitant, or Beneficiary of the Contract, as applicable. Our tax
reporting responsibility is limited to federal and state tax reporting of
income/distributions to the applicable payee and IRA contributions from the
Owner of a Contract, as recorded on our books and records. The Qualified Plan
(the plan administrator or the custodian) is required to provide us with
information regarding individuals with signatory authority on the Contract(s)
owned. If you are purchasing a Qualified Contract, you should consult with your
plan administrator and/or a qualified tax adviser. You should also consult with
your tax adviser and/or plan administrator before you withdraw any portion of
your contract value.
Individual Retirement Annuities ("IRAs")
Recent federal tax legislation has expanded the type of IRAs available to
individuals for tax deferred retirement savings: In addition to "traditional"
IRAs established under Code Section 408, there are Roth IRAs governed by Code
Section 408A and SIMPLE IRAs established under Code Section 408(p).
Contributions to each of these types of IRAs are subject to differing
limitations. In addition, distributions from each type of IRA are subject to
differing restrictions. The following is a very general description of each
type of IRA and other Qualified Plans:
Traditional IRAs
----------------
Traditional IRAs are subject to limitations on the amount that may be
contributed, the persons who may be eligible, and on the time when
distributions must commence. Depending upon the circumstances of the
individual, contributions to a traditional IRA may be made on a deductible or
non-deductible basis. Failure to make mandatory distributions may result in
imposition of a 50% penalty tax on any difference between the required
distribution amount and the amount actually distributed. A 10% penalty tax is
imposed on the amount includable in gross income from distributions that occur
before you attain age 59 1/2 and that are not made on account of death or
disability, with certain exceptions. These exceptions include distributions
that are part of a series of substantially equal periodic payments made over
your life (or life expectancy) or the joint lives (or joint life expectancies)
of you and your Designated Beneficiary. Distributions of minimum amounts
specified by the Code must commence by April 1 of the calendar year following
the calendar year in which you attain age 70 1/2. Additional distribution rules
apply after your death.
You may rollover funds from certain existing Qualified Plans (such as proceeds
from existing insurance policies, annuity contracts or securities) into your
traditional IRA if those funds are in cash; this will require you to liquidate
any value accumulated under the existing Qualified Plan. Mandatory withholding
of 20% may apply to any rollover distribution from your existing Qualified Plan
if the distribution is not transferred directly to your Traditional IRA; to
avoid this withholding you should have cash transferred directly from the
insurance company or plan trustee to your traditional IRA. Similar limitations
and tax penalties apply to tax sheltered annuities, government plans, 401(k)
plans, and pension and profit-sharing plans.
SIMPLE IRAs
-----------
The Small Business Job Protection Act of 1996 created a new retirement plan,
the Savings Incentive Match Plan for Employees of Small Employers ("SIMPLE
Plans"). Depending upon the SIMPLE Plan, employers may make the plan
contributions into a SIMPLE retirement account established by each eligible
participant. Like other Qualified Plans, a 10% penalty tax is imposed on
certain distributions that occur before you attain age 59 1/2.
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In addition, the penalty tax is increased to 25% for amounts received during
the 2-year period beginning on the date any individual first participated in
any qualified salary reduction arrangement maintained by the individual's
employer under Code Section 408(p)(2). Contributions to a SIMPLE IRA may be
either salary deferral contributions or employer contributions. Distributions
from a SIMPLE IRA may be rolled over to another SIMPLE IRA tax free or may be
eligible for tax free rollover to a traditional IRA after a required two year
period. A distribution from a SIMPLE IRA, however, is never eligible to be
rolled over to a retirement plan qualified under Code Section 401 or a Section
403(b) annuity contract.
Roth IRAs
---------
Section 408A of the Code permits eligible individuals to establish a Roth IRA.
Contributions to a Roth IRA are not deductible, but withdrawals of amounts
contributed and the earnings thereon that meet certain requirements are not
subject to federal income tax. In general, Roth IRAs are subject to limitations
on the amount that may be contributed and the persons who may be eligible to
contribute and are subject to certain required distribution rules on the death
of the Contract Owner. Unlike a traditional IRA, Roth IRAs are not subject to
minimum required distribution rules during the Contract Owner's lifetime.
Generally, however, the amount remaining in a Roth IRA must be distributed by
the end of the fifth year after the death of the Contract Owner/Annuitant or
distributed over the life expectancy of the Designated Beneficiary. Beginning
in 1998, the owner of a traditional IRA may convert a traditional IRA into a
Roth IRA under certain circumstances. The conversion of a traditional IRA to a
Roth IRA will subject the amount of the converted traditional IRA to federal
income tax. Anyone considering the purchase of a Qualified Contract as a Roth
IRA or a "conversion" Roth IRA should consult with a qualified tax adviser.
Tax Sheltered Annuities ("TSAs")
Section 403(b) of the Code permits public school systems and certain tax-exempt
organizations to adopt annuity plans for their employees; Purchase Payments
made on Contracts purchased for these employees are excludable from the
employees' gross income (subject to maximum contribution limits). Distributions
under these Contracts must comply with certain limitations as to timing, or
result in tax penalties.
Government Plans
Section 457 of the Code permits employees of a state or local government (or of
certain other tax-exempt entities) to defer compensation through an eligible
government plan. Contributions to a Contract in connection with an eligible
government plan are subject to limitations.
401(k) Plans; Pension and Profit-Sharing Plans
Qualified Employer plans may be established by eligible employers for certain
eligible employees under Sections 401(a) and 401(k) of the Code. Contributions
to these plans are subject to certain limitations.
Loans
Certain Owners of Qualified Contracts may borrow against their Contracts;
otherwise loans from us are not permitted. If yours is a Qualified Contract
issued under Section 401 or 403 of the Code and the terms of your Qualified
Plan permit, you may request a loan from us, using your Contract Value as your
only security.
Tax and Legal Matters
The tax and ERISA rules relating to Contract loans are complex and in many
cases unclear. For these reasons, and because the rules vary depending on the
individual circumstances of each Contract, we urge you to consult with a
qualified tax adviser prior to effecting any loan transaction under your
Contract.
Generally interest paid on your loan under a 401 plan or 403(b) tax-sheltered
annuity will be considered non- deductible "personal interest" under Section
163(h) of the Code, to the extent the loan comes from and is secured by your
pre-tax contributions, even if the proceeds of your loan are used to acquire
your principal residence.
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We may change these loan provisions to reflect changes in the Code or
interpretations thereof.
Loan Procedures
Your loan request must be submitted on our Loan Agreement Form. You may submit
a loan request at any time after your first Contract Anniversary and before
your Annuity Date; however, before requesting a new loan, you must wait thirty
days after the last payment of a previous loan. If approved, your loan will
usually be effective as of the end of the Business Day on which we receive all
necessary documentation in proper form. We will normally forward proceeds of
your loan to you within seven calendar days after the effective date of your
loan.
In order to secure your loan, on the effective date of your loan, we will
transfer an amount equal to the principal amount of your loan into an account
called the "Loan Account." To make this transfer, we will transfer amounts
proportionately from your Investment Options based on your Account Value in
each Investment Option.
As your loan is repaid, a portion, corresponding to the amount of the repayment
of any amount then held as security for your loan, will be transferred from the
Loan Account back into your Investment Options relative to your current
allocation instructions.
Loan Terms
You may have only one loan outstanding at any time. The minimum loan amount is
$1,000, subject to certain state limitations. Your Contract Debt at the
effective date of your loan may not exceed the lesser of:
. 50% of your Contract Value; and
. $50,000 less your highest outstanding Contract Debt during the 12-month
period immediately preceding the effective date of your loan.
You should refer to the terms of your particular Qualified Plan for any
additional loan restrictions. If you have other loans outstanding pursuant to
other Qualified Plans, the amount you may borrow may be further restricted. We
are not responsible for making any determinations (including loan amounts
permitted) or any interpretations with respect to your Qualified Plan.
Qualified Plan (Not Subject to Title I of ERISA)
If your Qualified Plan is not subject to Title I of ERISA regulations, you will
be charged interest on your Contract Debt at a fixed annual rate equal to 5%.
The amount held in the Loan Account to secure your loan will earn a return
equal to an annual rate of 3%.
Qualified Plan (Subject to Title I of ERISA)
If your Qualified Plan is subject to Title I of ERISA regulations, you will be
charged interest on your Contract Debt at a fixed annual rate, set at the time
the loan is made, equal to the higher of (a) Moody's Corporate Bond Yield
Average-Monthly Average Corporates (the "Moody's Rate"), as published by
Moody's Investors Service, Inc., or its successor, for the most recently
available calendar month, or (b) 5%. (See APPENDIX A: STATE LAW VARIATIONS.) In
the event that the Moody's Rate is no longer available, we may substitute a
substantially similar average rate, subject to compliance with applicable state
regulations. The amount held in the Loan Account to secure your loan will earn
a return equal to an annual rate that is two percentage points lower than the
annual rate of interest charged on your Contract Debt.
Interest charges accrue on your Contract Debt daily, beginning on the effective
date of your loan. Interest earned on the Loan Account Value accrue daily
beginning on the day following the effective date of the loan, and those
earnings will be transferred once a year to your Investment Options in
accordance with your current allocation instructions.
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Repayment Terms
Your loan, including principal and accrued interest, generally must be repaid
in quarterly installments. An installment will be due in each quarter on the
date corresponding to the effective date of your loan, beginning with the first
such date following the effective date of your loan.
Example: On May 1, we receive your loan request, and your loan is effective.
Your first quarterly payment will be due on August 1.
Adverse tax consequences may result if you fail to meet the repayment
requirements for your loan. You must repay principal and interest of any loan
in substantially equal payments over the term of the loan. Generally, the term
of the loan will be five years from the effective date of the loan; however, if
you have certified to us that your loan proceeds are to be used to acquire a
principal residence for yourself, you may request a loan term of 30 years. In
either case, however, you must repay your loan prior to your Annuity Date. If
you elect to annuitize (or withdraw) your Net Contract Value while you have an
outstanding loan, we will deduct any Contract Debt from your Contract Value at
the time of the annuitization (or withdrawal) to repay the Contract Debt.
You may prepay your entire loan at any time; if you do so, we will bill you for
any unpaid interest that has accrued through the date of payoff. Your loan will
be considered repaid only when the interest due has been paid. Subject to any
necessary approval of state insurance authorities, while you have Contract Debt
outstanding, we will treat all payments you send us as Purchase Payments unless
you specifically indicate that your payment is a loan repayment or include your
loan stub with your payment. To the extent allowed by law, any loan repayments
in excess of the amount then due will be applied to the principal balance of
your loan. Such repayments will not change the due dates or the periodic
repayment amount due for future periods. If a loan repayment is in excess of
the principal balance of your loan, any excess repayment will be refunded to
you. Repayments we receive that are less than the amount then due will be
returned to you, unless otherwise required by law.
If we have not received your full payment by its due date, we will declare the
entire remaining loan balance in default. At that time, we will send written
notification of the amount needed to bring the loan back to a current status.
You will have sixty (60) days from the date on which the loan was declared in
default (the "grace period") to make the required payment.
If the required payment is not received by the end of the grace period, the
defaulted loan balance plus accrued interest will be withdrawn from your
Contract Value, if amounts under your Contract are eligible for distribution.
In order for an amount to be eligible for distribution from a Qualified Plan
you must meet one of six triggering events. They are: attainment of age 59 1/2;
separation from service; death; disability; plan termination; and financial
hardship. If those amounts are not eligible for distribution, the defaulted
loan balance plus accrued interest will be considered a Deemed Distribution and
will be withdrawn when such Contract Values become eligible. In either case,
the Distribution or the Deemed Distribution will be considered a currently
taxable event, and may be subject to federal tax withholding, and the federal
early withdrawal penalty tax.
If there is a Deemed Distribution under your Contract and to the extent allowed
by law, any future withdrawals will first be applied as repayment of the
defaulted Contract Debt, including accrued interest and charges for applicable
taxes. Any amounts withdrawn and applied as repayment of Contract Debt will
first be withdrawn from your Loan Account, and then from your Investment
Options on a proportionate basis relative to the Account Value in each
Investment Option. If you have an outstanding loan that is in default, the
defaulted Contract Debt will be considered a withdrawal for the purpose of
calculating any Death Benefit Amount and/or Guaranteed Minimum Death Benefit.
The terms of any such loan are intended to qualify for the exception in Code
Section 72(p)(2) so that the distribution of the loan proceeds will not
constitute a distribution that is taxable to you. To that end, these loan
provisions will be interpreted to ensure and maintain such tax qualification,
despite any other provisions to the contrary. We reserve the right to amend
your Contract to reflect any clarifications that may be needed or are
appropriate to maintain such tax qualification or to conform any terms of our
loan arrangement with you to any applicable changes in the tax qualification
requirements. We will send you a copy of any such amendment. If you refuse such
an amendment, it may result in adverse tax consequences to you.
34
Withholding
Unless you elect to the contrary, any amounts you receive under your Contract
that are attributable to investment income will be subject to withholding to
meet federal and state income tax obligations. The rate of withholding on
annuity payments made to you will be determined on the basis of the withholding
information you provide to us with your application. If you do not provide us
with required withholding information, we will withhold, from every withdrawal
from your Contract and from every annuity payment to you, the appropriate
percentage of the taxable amount of the payment. Please call us at 1-800-722-
2333 with any questions about the required withholding information. For
purposes of determining your withholding rate on annuity payments, you will be
treated as a married person with three exemptions. The rate of withholding on
all other payments made to you under your Contract, such as amounts you receive
upon withdrawals, will be 10%, unless otherwise specified by the Code.
Generally, there will be no withholding for taxes until you actually receive
payments under your Contract.
Distributions from a Contract under a Qualified Plan (not including an
individual retirement annuity subject to Code Section 408 or Code Section 408A)
to an employee, surviving spouse, or former spouse who is an alternate payee
under a qualified domestic relations order, in the form of a lump sum
settlement or periodic annuity payments for a fixed period of fewer than 10
years are subject to mandatory income tax withholding of 20% of the taxable
amount of the distribution, unless (1) the distributee directs the transfer of
such amounts in cash to another Qualified Plan or a Traditional IRA; or (2) the
payment is a minimum distribution required under the Code. The taxable amount
is the amount of the distribution less the amount allocable to after-tax
contributions. All other types of taxable distributions are subject to
withholding unless the distributee elects not to have withholding apply.
Certain states have indicated that pension and annuity withholding will apply
to payments made to residents. Generally, an election out of federal
withholding will also be considered an election out of state withholding.
Impact of Federal Income Taxes
In general, in the case of Non-Qualified Contracts if you expect to accumulate
your Contract Value over a relatively long period of time without making
significant withdrawals, there should be tax advantages, regardless of your tax
bracket, in purchasing such a Contract rather than, for example, a mutual fund
with a similar investment policy and approximately the same level of expected
investment results. This is because little or no income taxes are incurred by
you or by us while you are participating in the Subaccounts, and it is
generally advantageous to defer the payment of income taxes, so that the
investment return is compounded without any deduction for income taxes. The
advantage will be greater if you decide to liquidate your Contract Value in the
form of monthly annuity payments after your retirement, or if your tax rate is
lower at that time than during the period that you held the Contract, or both.
Taxes on Pacific Life
Although the Separate Account is registered as an investment company, it is not
a separate taxpayer for purposes of the Code. The earnings of the Separate
Account are taxed as part of our operations. No charge is made against the
Separate Account for our federal income taxes (excluding the charge for premium
taxes), but we will review, periodically, the question of charges to the
Separate Account or your Contract for such taxes. Such a charge may be made in
future years for any federal income taxes that would be attributable to the
Separate Account or to our operations with respect to your Contract, or
attributable, directly or indirectly, to Purchase Payments on your Contract.
Under current law, we may incur state and local taxes (in addition to premium
taxes) in several states. At present, these taxes are not significant and they
are not charged against the Contract or the Separate Account. If there is a
material change in applicable state or local tax laws, the imposition of any
such taxes upon us that are attributable to the Separate Account or to our
operations with respect to your Contract may result in a corresponding charge
against the Separate Account or your Contract.
35
ADDITIONAL INFORMATION
Voting Rights
We are the legal owner of the shares of the Portfolios held by the Subaccounts.
We may vote on any matter voted on at Fund shareholders' meetings. However, our
current interpretations of applicable law requires us to vote the number of
shares attributable to your Variable Account Value (your "voting interest") in
accordance with your directions.
We will pass proxy materials on to you so that you have an opportunity to give
us voting instructions for your voting interest. You may provide your
instructions by proxy or in person at the shareholders' meeting. If there are
shares of a Portfolio held by a Subaccount 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 Subaccount for which we have
received timely voting instructions. If we hold shares of a Portfolio in our
General Account, we will vote such shares in the same proportion as the total
votes cast for all of our separate accounts, including Separate Account A. We
will 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.
We may elect, in the future, to vote shares of the Portfolios held in Separate
Account A in our own right if we are permitted to do so through a change in
applicable federal securities laws or regulations, or in their interpretation.
The number of Portfolio shares that form the basis for your voting interest is
determined as of the record date set by the Board of Trustees of the Fund. It
is equal to (a) your Contract Value allocated to the Subaccount corresponding
to that Portfolio, divided by (b) the net asset value per share of that
Portfolio. Fractional votes will be counted. We reserve the right, if required
or permitted by a change in federal regulations or their interpretation, to
amend how we calculate your voting interest.
After your Annuity Date, if you have selected a variable annuity, the voting
rights under your Contract will continue during the payout period of your
annuity, but the number of shares that form the basis for your voting interest,
as described above, will decrease throughout the payout period.
Changes to Your Contract
Contract Owner(s) and Contingent Owner
You may change your Non-Qualified Contract at any time prior to your Annuity
Date to name a different Contract Owner or to add a Joint Owner, or to add or
change a Contingent Owner; if yours is a Qualified Contract, you must be the
only Contract Owner. Your Contract cannot name more than two Contract Owners
(Joint Owners) and one Contingent Owner at any time. Any newly-named Contract
Owners, including Joint and/or Contingent Owners, must be under the age of 91
at the time of change or addition. Joint ownership is in the form of a joint
tenancy. The Contract Owner(s) may make all decisions regarding the Contract,
including making allocation decisions and exercising voting rights.
Transactions under jointly owned Contracts require authorization from both
Contract Owners. Transfer of Contract ownership may involve federal income tax
and/or gift tax consequences; you should consult a qualified tax adviser before
effecting such a transfer. A change to joint Contract ownership is considered a
transfer of ownership.
Annuitant and Contingent or Joint Annuitant
Your sole Annuitant cannot be changed, and Joint Annuitants cannot be added or
changed, once your Contract is issued. Certain changes may be permitted in
connection with Contingent Annuitants. See RETIREMENT BENEFITS AND OTHER
PAYOUTS - Selecting Your Annuitant.
Beneficiaries
Your Beneficiary is the person(s) who may receive death benefits under your
Contract or any remaining annuity payments after the Annuity Date if the
Annuitant dies. You may change or remove your Beneficiary or add Beneficiaries
at any time prior to the death of the Annuitant or Owner, as applicable.
Spousal consent may be
36
required to change the Beneficiary on an IRA. If you have named your
Beneficiary irrevocably, you will need to obtain that Beneficiary's consent
before making any changes. Qualified Contracts may have additional restrictions
on naming and changing Beneficiaries; for example, if your Contract was issued
in connection with a Qualified Plan subject to Title I of ERISA, your spouse
must either be your Beneficiary or consent to your naming of a different
Beneficiary. If you leave no surviving Beneficiary or Contingent Beneficiary,
your estate may receive any death benefit proceeds under your Contract.
Changes to All Contracts
If, in the judgment of our management, continued investment by Separate Account
A in one or more of the Portfolios becomes unsuitable or unavailable, we may
seek to alter the Variable Investment Options available under the Contracts. We
do not expect that a Portfolio will become unsuitable, but unsuitability issues
could arise due to changes in investment policies, market conditions, or tax
laws, or due to marketing or other reasons.
Alterations of Variable Investment Options may take differing forms. We reserve
the right to substitute shares of any Portfolio that were already purchased
under any Contract (or shares that were to be purchased in the future under a
Contract) with shares of another Portfolio, shares of another investment
company or series of an investment company, or another investment vehicle. We
may also purchase, through a Subaccount, other securities for other series or
other classes of contracts, and may permit conversions or exchanges between
series or classes of contracts on the basis of Contract Owner requests.
Required approvals of the SEC and state insurance regulators will be obtained
before any such substitutions are effected, and you will be notified of any
planned substitution.
We may add new Subaccounts to Separate Account A, and any new Subaccounts may
invest in Portfolios or in other investment vehicles; availability of any new
Subaccounts to existing Contract Owners will be determined at our discretion.
We will notify you, and will comply with the filing or other procedures
established by applicable state insurance regulators, to the extent required by
applicable law. We also reserve the right, after receiving any required
regulatory approvals, to do any of the following:
. cease offering any Subaccount;
. add or change designated investment companies or their portfolios, or
other investment vehicles;
. add, delete or make substitutions for the securities and other assets that
are held or purchased by the Separate Account or any Variable Account;
. permit conversion or exchanges between portfolios and/or classes of
contracts on the basis of Owners' requests;
. add, remove or combine Variable Accounts;
. combine the assets of any Variable Account with any other of our separate
accounts or of any of our affiliates;
. register or deregister Separate Account A or any Variable Account under
the 1940 Act;
. operate any Variable Account as a managed investment company under the
1940 Act, or any other form permitted by law;
. run any Variable Account under the direction of a committee, board, or
other group;
. restrict or eliminate any voting rights of Owners with respect to any
Variable Account or other persons who have voting rights as to any
Variable Account;
. make any changes required by the 1940 Act or other federal securities
laws;
. make any changes necessary to maintain the status of the Contracts as
annuities under the Code;
. make other changes required under federal or state law relating to
annuities;
. suspend or discontinue sale of the Contracts; and
. comply with applicable law.
37
Inquiries and Submitting Forms and Requests
You may reach our service representatives at 1-800-722-2333 between the hours
of 6:00 a.m. and 5:00 p.m., Pacific time.
Please send your forms and written requests or questions to:
Pacific Life Insurance Company
P.O. Box 7187
Pasadena, California 91109-7187
If you are submitting a purchase or other payment by mail, please send it,
along with your application if you are submitting one, to:
Pacific Life Insurance Company
P.O. Box 100060
Pasadena, California 91189-0060
If you are using an overnight delivery service to send payments, please send
them to:
Pacific Life Insurance Company
c/o FCNPC
1111 South Arroyo Parkway, First Floor
Pasadena, California 91105
The effective date of certain notices or of instructions is determined by the
date and time on which we "receive" the notice or instructions. We "receive"
this information only when it arrives, in proper form, at the correct mailing
address set out above. Please call us at 1-800-722-2333 if you have any
questions regarding which address you should use.
Purchase Payments after your initial Purchase Payment, loan requests, transfer
requests, loan repayments and withdrawal requests we receive before 4:00 p.m.
Eastern time will usually be effective on the same Business Day that we receive
them in "proper form," unless the transaction or event is scheduled to occur on
another day. Generally, whenever you submit any other form, notice or request,
your instructions will be effective on the next Business Day after we receive
them in "proper form" unless the transaction or event is scheduled to occur on
another day. "Proper form" means in a form satisfactory to us and may require,
among other things, a signature guarantee or other verification of
authenticity. We do not generally require a signature guarantee unless it
appears that your signature may have changed over time or the signature does
not appear to be yours; an executed application or confirmation of application,
as applicable, in proper form is not received by us; or, to protect you or us.
Requests regarding death benefits must be accompanied by both proof of death
and instructions regarding payment satisfactory to us. You should call your
registered representative or us if you have questions regarding the required
form of a request.
Telephone and Electronic Transactions
After your Free Look period, you are automatically entitled to make certain
transactions by telephone or, to the extent available in early 2001,
electronically. You may also authorize other people to make certain transaction
requests by telephone or to the extent available electronically by so
indicating on the application or by sending us instructions in writing in a
form acceptable to us. We cannot guarantee that you or any other person you
authorize will always be able to reach us to complete a telephone or electronic
transaction; for example, all telephone lines or the Web-site may be busy
during certain periods, such as periods of substantial market fluctuations or
other drastic economic or market change, or telephones or the Internet may be
out of service during severe weather conditions or other emergencies. Under
these circumstances, you should submit your request in writing (or other form
acceptable to us). Transaction instructions we receive by telephone or
electronically before 4:00 p.m. Eastern time on any Business Day will usually
be effective on that day, and we will provide you confirmation of each
telephone or electronic transaction.
38
We have established procedures reasonably designed to confirm that instructions
communicated by telephone or electronically are genuine. These procedures may
require any person requesting a telephone or electronic transaction to provide
certain personal identification upon our request. We may also record all or
part of any telephone conversation with respect to transaction instructions. We
reserve the right to deny any transaction request made by telephone or
electronically. You are authorizing us to accept and to act upon instructions
received by telephone or electronically with respect to your Contract, and you
agree that, so long as we comply with our procedures, neither we, any of our
affiliates, nor the Fund, or any of their directors, trustees, officers,
employees or agents will be liable for any loss, liability, cost or expense
(including attorneys' fees) in connection with requests that we believe to be
genuine. This policy means that so long as we comply with our procedures, you
will bear the risk of loss arising out of the telephone or electronic
privileges of your Contract. If a Contract has Joint Owners, each Owner may
individually make transaction requests by telephone.
Electronic Delivery Authorization
Subject to availability, you may authorize us to provide prospectuses,
statements and other information ("documents") electronically by so indicating
on the application, or by sending us instructions in writing in a form
acceptable to us to receive such documents electronically. You must have
internet access to use this service. While we impose no additional charge for
this service, there may be potential costs associated with electronic delivery,
such as on-line charges. Documents will be available on our Internet Web site.
You may access and print all documents provided through this service. As
documents become available, we will notify you of this by sending you an e-mail
message that will include instructions on how to retrieve the document. If our
e-mail notification is returned to us as "undeliverable," we will contact you
to obtain your updated e-mail address. If we are unable to obtain a valid e-
mail address for you, we will send a paper copy by regular U.S. mail to your
address of record. You may revoke your consent for electronic delivery at any
time and we will resume providing you with a paper copy of all required
documents; however, in order for us to be properly notified, your revocation
must be given to us a reasonable time before electronic delivery has commenced.
We will provide you with paper copies at any time upon request. Such request
will not constitute revocation of your consent to receive required documents
electronically.
Timing of Payments and Transactions
For withdrawals from the Variable Investment Options or for death benefit
payments attributable to your Variable Account Value, we will normally send the
proceeds within seven calendar days after your withdrawal request is effective
or after the Notice Date, as the case may be. Similarly, for transfers from the
Variable Investment Options, we will normally send the proceeds within seven
calendar days after your transfer (or exchange) request is effective. We will
normally effect periodic annuity payments on the day that corresponds to the
Annuity Date and will make payment on the following day. Payments or transfers
may be suspended for a longer period under certain extraordinary circumstances.
These include: a closing of the New York Stock Exchange other than on a regular
holiday or weekend; a trading restriction imposed by the SEC; or an emergency
declared by the SEC. For (i) withdrawals from the Fixed Option, (ii) death
benefit payments attributable to Fixed Option Value, or (iii) fixed periodic
annuity payments, payment of proceeds may be delayed for up to six months
(thirty days in West Virginia) after the request is effective. Similar delays
may apply to loans and transfers from the Fixed Option. See THE GENERAL ACCOUNT
for more details.
Confirmations, Statements and Other Reports to Contract Owners
Confirmations will be sent out for unscheduled Purchase Payments and transfers,
loans, loan repayments, unscheduled partial withdrawals, a full withdrawal, and
on payment of any death benefit proceeds. Each quarter prior to your Annuity
Date, we will send you a statement that provides certain information pertinent
to your Contract. These statements disclose Contract Value, Subaccount values,
values under each Fixed Option, fees and charges applied to your Contract
Value, transactions made and specific Contract data that apply to your
Contract. Confirmations of your transactions under the pre-authorized checking
plan, dollar cost averaging, earnings sweep, portfolio rebalancing, and pre-
authorized withdrawal options will appear on your quarterly account statements.
Your fourth-quarter statement will contain annual information about your
Contract Value and transactions. If you suspect an error on a confirmation or
quarterly statement, you must notify us in
39
writing within 30 days from the date of the first confirmation or statement on
which the transaction you believe to be erroneous appeared. When you write,
tell us your name, contract number and a description of the suspected error.
You will also be sent an annual report for the Separate Account and the Fund
and a list of the securities held in each Portfolio of the Fund, as required by
the 1940 Act; or more frequently if required by law.
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.
Financial Statements
The statement of net assets of Separate Account A as of December 31, 1999 and
the related statement of operations for the year then ended and statements of
changes in net assets for each of the two years in the period then ended are
incorporated by reference in the Statement of Additional Information from the
Annual Report of Separate Account A dated December 31, 1999. Pacific Life's
consolidated financial statements as of December 31, 1999 and 1998 and for each
of the three years in the period ended December 31, 1999 are contained in the
Statement of Additional Information.
THE GENERAL ACCOUNT
General Information
All amounts allocated to the Fixed Option become part of our General Account.
Subject to applicable law, we exercise sole discretion over the investment of
General Account assets, 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 General
Account under the Contract are not registered under the Securities Act of 1933,
as amended, and the General Account has not been registered as an investment
company under the 1940 Act. Any interest you have in the Fixed Option is not
subject to these Acts, and we have been advised that the SEC staff has not
reviewed disclosure in this Prospectus relating to the Fixed Option. This
disclosure may, however, be subject to certain provisions of federal securities
laws relating to the accuracy and completeness of statements made in
prospectuses.
Guarantee Terms
When you allocate any portion of your Purchase Payments or Contract Value to
the Fixed Option, we guarantee you an interest rate (a "Guaranteed Interest
Rate") for a specified period of time (a "Guarantee Term") of up to one year.
Guaranteed Interest Rates for the Fixed Option may be changed periodically for
new allocations; your allocation will receive the Guaranteed Interest Rate in
effect for the Fixed Option on the effective date of your allocation. All
Guaranteed Interest Rates will be expressed as annual effective rates; however,
interest will accrue daily. The Guaranteed Interest Rate on your Fixed Option
will remain in effect for the Guarantee Term and will never be less than an
annual rate of 3%.
40
Fixed Option
Each allocation (or rollover) you make to the Fixed Option receives a Guarantee
Term that begins on the day that allocation or rollover is effective and ends
at the end of that Contract Year or, if earlier, on your Annuity Date. At the
end of that Contract Year, we will roll over your Fixed Option Value on that
day into a new Guarantee Term of one year (or, if shorter, the time remaining
until your Annuity Date) at the then current Guaranteed Interest Rate, unless
you instruct us otherwise.
Example: Your Contract Anniversary is February 1. On February 1 of year 1,
you allocate $1,000 to the Fixed Option and receive a Guarantee Term of one
year and a Guaranteed Interest Rate of 5%. On August 1, you allocate another
$500 to the Fixed Option and receive a Guaranteed Interest Rate of 6%.
Through January 31, year 1, your first allocation of $1,000 earns 5%
interest and your second allocation of $500 earns 6% interest. On February
1, year 2, a new interest rate may go into effect for your entire Fixed
Option Value.
Withdrawals and Transfers
Prior to the Annuity Date, you may withdraw amounts from your Fixed Option or
transfer amounts from your Fixed Option to one or more of the other Investment
Options. In addition, no partial withdrawal or transfer may be made from your
Fixed Option within 30 days of the Contract Date. If your withdrawal leaves you
with a Net Contract Value of less than $1,000, we have the right, at our
option, to terminate your Contract and send you the withdrawal proceeds. See
APPENDIX A: STATE LAW VARIATIONS section.
Payments or transfers from the Fixed Option may be delayed, as described under
ADDITIONAL INFORMATION--Timing of Payments and Transactions; any amount delayed
will, as long as it is held under the Fixed Option, continue to earn interest
at the Guaranteed Interest Rate then in effect until that Guarantee Term has
ended, and the minimum guaranteed interest rate of 3% thereafter, unless state
law requires a greater rate be paid.
Fixed Option
After the first Contract Anniversary, you may make one transfer or partial
withdrawal from your Fixed Option during any Contract Year, except as provided
under the dollar cost averaging, earnings sweep and pre-authorized withdrawal
programs. You may make one transfer or one partial withdrawal within the 30
days after the end of each Contract Anniversary. Normally, you may transfer or
withdraw up to one-third (33 1/3%) of your Fixed Option Value in any given
Contract Year. However, in consecutive Contract Years you may transfer or
withdraw up to one-third (33 1/3%) of your Fixed Option Value in one year; you
may transfer or withdraw up to one-half (50%) of your remaining Fixed Option
Value in the next year; and you may transfer or withdraw up to the entire
amount (100%) of any remaining Fixed Option Value in the third year. In
addition, if, as a result of a partial withdrawal or transfer, the Fixed Option
Value is less than $500, we have the right, at our option, to transfer the
entire remaining amount to your other Investment Options on a proportionate
basis relative to your most recent allocation instructions.
41
TERMS USED IN THIS PROSPECTUS
Some of the terms we've used in this Prospectus may be new to you. We've
identified them in the Prospectus by capitalizing the first letter of each
word. You'll find an explanation of what they mean below.
If you have any questions, please ask your registered representative or call us
at 1-800-722-2333.
Account Value - The amount of your Contract Value allocated to a specified
Variable Investment Option or the Fixed Option.
Add-In Amount - The amount added by Pacific Life, if applicable, to the
Contract Value on the Notice Date to set the Contract Value equal to the death
benefit proceeds that would have been payable to the Spouse as the deemed
Beneficiary/designated recipient of the death benefit. The Add-In Amount will
only apply if the deceased Contract Owner was also the last surviving
Annuitant.
Annuitant - A person on whose life annuity payments may be determined. An
Annuitant's life may also be used to determine certain increases in death
benefits, and to determine the Annuity Date. A Contract may name a single
("sole") Annuitant or two ("Joint") Annuitants, and may also name a
"Contingent" Annuitant. If you name Joint Annuitants or a Contingent Annuitant,
"the Annuitant" means the sole surviving Annuitant, unless otherwise stated.
Annuity Date ("Annuity Start Date") - The date specified in your Contract, or
the date you later elect, if any, for the start of annuity payments if the
Annuitant (or Joint Annuitants) is (or are) still living and your Contract is
in force; or if earlier, the date that annuity payments actually begin.
Annuity Option - Any one of the income options available for a series of
payments after your Annuity Date.
Beneficiary - A person who may have a right to receive the death benefit
payable upon the death of the Annuitant or a Contract Owner prior to the
Annuity Date, or has a right to receive remaining guaranteed annuity payments,
if any, if the Annuitant dies after the Annuity Date.
Business Day - Any day on which the value of an amount invested in a Variable
Investment Option is required to be determined, which currently includes each
day that the New York Stock Exchange is open for trading and our administrative
offices are open. The New York Stock Exchange and our administrative offices
are closed on weekends and on the following holidays: New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, July Fourth,
Labor Day, Thanksgiving Day and Christmas Day, and the Friday before New Year's
Day, July Fourth or Christmas Day if that holiday falls on a Saturday, the
Monday following New Year's Day, July Fourth or Christmas Day if that holiday
falls on a Sunday, unless unusual business conditions exist, such as the ending
of a monthly or yearly accounting period. In this Prospectus, "day" or "date"
means Business Day unless otherwise specified. If any transaction or event
called for under a Contract is scheduled to occur on a day that is not a
Business Day, such transaction or event will be deemed to occur on the next
following Business Day unless otherwise specified. Special circumstances such
as leap years and months with fewer than 31 days are discussed in the SAI.
Code - The Internal Revenue Code of 1986, as amended.
Contingent Annuitant - A person, named in your Contract, who will become your
sole surviving Annuitant if your existing sole Annuitant (or both Joint
Annuitants) should die.
Contingent Owner - A person, named in your Contract, who will succeed to the
rights as a Contract Owner of your Contract if all named Contract Owners die
before your Annuity Date.
Contract Anniversary - The same date, in each subsequent year, as your Contract
Date.
Contract Date - The date we issue your Contract. Contract Years, Contract
Semiannual Periods, Contract Quarters and Contract Months are measured from
this date.
Contract Debt - As of the end of any given Business Day, the principal amount
you have outstanding on any loan under your Contract, plus any accrued and
unpaid interest. Loans are only available on certain Qualified Contracts.
Contract Owner, Owner, Policyholder, you, or your - Generally, a person who
purchases a Contract and makes the Purchase Payments. A Contract Owner has all
rights in the Contract, including the right to make withdrawals, designate and
change beneficiaries, transfer amounts among Investment Options, and designate
an Annuity Option. If your Contract names Joint Owners, both Joint Owners are
Contract Owners and share all such rights.
Contract Value - As of the end of any Business Day, the sum of your Variable
Account Value, Fixed Option Value, and any Loan Account Value.
Contract Year - A year that starts on the Contract Date or on a Contract
Anniversary.
Earnings - As of the end of any Business Day, your Earnings equal your Contract
Value less your aggregate Purchase Payments, which are reduced by withdrawals
of prior Purchase Payments.
Fixed Option - If you allocate all or part of your Purchase Payments or
Contract Value to the Fixed Option, such amounts are held in our General
Account and receive the Guaranteed Interest Rates declared periodically, but
not less than an annual rate of 3%.
Fixed Option Value - The aggregate amount of your Contract Value allocated to
the Fixed Option.
Fund - Pacific Select Fund.
General Account - Our General Account consists of all of our assets other than
those assets allocated to Separate Account A or to any of our other separate
accounts.
Guaranteed Interest Rate - The interest rate guaranteed at the time of
allocation (or rollover) for the Guarantee Term on amounts allocated to the
Fixed Option. Each Guaranteed Interest Rate is expressed as an annual rate and
interest is accrued daily. Each rate will not be less than an annual rate of
3%.
Guarantee Term - The period during which an amount you allocate to the Fixed
Option earns a Guaranteed Interest Rate. These terms are up to one-year for the
Fixed Option.
Investment Option - A Subaccount or the Fixed Option offered under the
Contract.
Joint Annuitant - If your Contract is a Non-Qualified Contract, you may name
two Annuitants, called "Joint Annuitants," in your application for your
Contract. Special restrictions apply for Qualified Contracts.
Loan Account - The Account in which the amount equal to the principal amount of
a loan and any interest accrued is held to secure any Contract Debt.
Loan Account Value - The amount, including any interest accrued, held in the
Loan Account to secure any Contract Debt.
Net Contract Value - Your Contract Value less Contract Debt.
Non-Qualified Contract - A Contract other than a Qualified Contract.
42
Policyholder - The Contract Owner.
Portfolio - A separate portfolio of the Fund in which a Subaccount invests its
assets.
Primary Annuitant - The individual that is named in your Contract, the events
in the life of whom are of primary importance in affecting the timing or amount
of the payout under the Contract.
Purchase Payment ("Premium Payment") - An amount paid to us by or on behalf of
a Contract Owner, as consideration for the benefits provided under the
Contract.
Qualified Contract - A Contract that qualifies under the Code as an individual
retirement annuity or account ("IRA"), or form thereof, or a Contract purchased
by a Qualified Plan, qualifying for special tax treatment under the Code.
Qualified Plan - A retirement plan that receives favorable tax treatment under
Section 401, 403, 408, 408A or 457 of the Code.
SEC - Securities and Exchange Commission.
Separate Account A (the "Separate Account") - A separate account of ours
registered as a unit investment trust under the Investment Company Act of 1940,
as amended (the "1940 Act").
Subaccount - An investment division of the Separate Account. Each Subaccount
invests its assets in shares of a corresponding Portfolio.
Subaccount Annuity Unit - Subaccount Annuity Units (or "Annuity Units") are
used to measure variation in variable annuity payments. To the extent you elect
to convert all or some of your Contract Value into variable annuity payments,
the amount of each annuity payment (after the first payment) will vary with the
value and number of Annuity Units in each Subaccount attributed to any variable
annuity payments. At annuitization (after any applicable premium taxes and/or
other taxes are paid), the amount annuitized to a variable annuity determines
the amount of your first variable annuity payment and the number of Annuity
Units credited to your annuity in each Subaccount. The value of Subaccount
Annuity Units, like the value of Subaccount Units, is expected to fluctuate
daily, as described in the definition of Unit Value.
Subaccount Unit - Before your Annuity Date, each time you allocate an amount to
a Subaccount, your Contract is credited with a number of Subaccount Units in
that Subaccount. These Units are used for accounting purposes to measure your
Account Value in that Subaccount. The value of Subaccount Units is expected to
fluctuate daily, as described in the definition of Unit Value.
Unit Value - The value of a Subaccount Unit ("Subaccount Unit Value") or
Subaccount Annuity Unit ("Subaccount Annuity Unit Value"). Unit Value of any
Subaccount is subject to change on any Business Day in much the same way that
the value of a mutual fund share changes each day. The fluctuations in value
reflect the investment results, expenses of and charges against the Portfolio
in which the Subaccount invests its assets. Fluctuations also reflect charges
against the Separate Account. Changes in Subaccount Annuity Unit Values also
reflect an additional factor that adjusts Subaccount Annuity Unit Values to
offset our Annuity Option Table's implicit assumption of an annual investment
return of 5%. The effect of this assumed investment return is explained in
detail in the SAI. Unit Value of a Subaccount Unit or Subaccount Annuity Unit
on any Business Day is measured at or about 4:00 p.m., Eastern time, on that
Business Day.
Variable Account Value - The aggregate amount of your Contract Value allocated
to all Subaccounts.
Variable Investment Option - A Subaccount (also called a Variable Account).
43
CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
[Download Table]
Page
----
PERFORMANCE................................................................ 1
Total Returns............................................................ 1
Yields................................................................... 2
Performance Comparisons and Benchmarks................................... 2
Separate Account Performance............................................. 4
DISTRIBUTION OF THE CONTRACTS.............................................. 7
Pacific Select Distributors, Inc. ....................................... 7
THE CONTRACTS AND THE SEPARATE ACCOUNT..................................... 8
Calculating Subaccount Unit Values....................................... 8
Variable Annuity Payment Amounts......................................... 8
Corresponding Dates...................................................... 10
Age and Sex of Annuitant................................................. 10
Systematic Transfer Programs............................................. 11
Pre-Authorized Withdrawals............................................... 13
Death Benefit............................................................ 13
1035 Exchanges........................................................... 13
Safekeeping of Assets.................................................... 13
FINANCIAL STATEMENTS....................................................... 14
INDEPENDENT AUDITORS....................................................... 14
44
APPENDIX A:
STATE LAW VARIATIONS
Annuitization
If your contract is delivered in the state of Texas, the Conversion Amount
annuitized must be at least $2,000.
Default Annuity Date and Options
If your contract was delivered in the state of Texas, the minimum net amount to
be converted must be at least $2,000 or result in an income stream that is less
than $20 a month and your initial annuity payment must be at least $20.
Death Benefits
If, at the time your application is completed, you purchase the optional
Premier Death Benefit Rider (PDBR) and your Contract was delivered in the
following states:
Texas
Washington
the Death Benefit Amount stated in the Optional Premier Death Benefit Rider
sections are replaced with the following:
The Death Benefit Amount as of any day (prior to the Annuity Date) is equal to
the greater of (i) your Contract Value as of that day, or (ii) your aggregate
Purchase Payments less an adjusted amount for each withdrawal increased at an
effective annual rate of 5% to that day, subject to a maximum of two times the
difference between the aggregate Purchase Payments and withdrawals, including
withdrawal charges. The 5% effective annual rate of growth will take into
account the timing of when each Purchase Payment and withdrawal occurred by
applying a daily factor of 1.00013368 to each day's balance. The 5% effective
annual rate of growth will stop accruing as of the earlier of: (a) the Contract
Anniversary following the date the Annuitant reaches his or her 80th birthday;
or (2) the date of death of the sole Annuitant; or (3) the Annuity Date.
Optional Withdrawals
Variations to the Optional Withdrawals section. If your Contract was delivered
in Texas and your partial withdrawal leaves you with a Net Contract Value of
less than $500, we have the right, at our option to terminate your Contract and
sent you the withdrawal proceeds.
Right to Cancel ("Free Look")
Variations to the length of the Free Look period. In most states, the Free Look
period is a 10-day period beginning on the day you receive your Contract. If
your Contract was delivered in one of the following states, the Free Look
period is as specified below:
Idaho (20 days)
North Dakota (20 days)
In addition, if you reside in California and are age 60 or older on your
Contract Date, the Free Look period is 30 days.
There may be extended Free Look periods in some states for replacement
business. Please consult with your registered representative if you have any
questions regarding your state's Free Look period.
45
Loans
If your Contract is issued in connection with a Qualified Plan that permits
loans and your Qualified Plan is subject to Title I of ERISA in the states
listed below:
Connecticut
Oregon
Wisconsin
the Qualified Plan (Subject to Title I of ERISA) section is replaced as
follows:
If your Qualified Plan is subject to Title I of ERISA regulations, you will be
charged interest on your Contract Debt at a fixed annual rate, set at the time
the loan is made, equal to the higher of (a) Moody's Corporate Bond Yield
Average-Monthly Average Corporates (the "Moody's Rate"), as published by
Moody's Investors Service, Inc., or its successor, for the most recently
available calendar month, or (b) 4%. In the event that the Moody's Rate is no
longer available, we may substitute a substantially similar average rate,
subject to compliance with applicable state regulations. The amount held in the
Loan Account to secure your loan will earn a return equal to an annual rate
that is two percentage points lower than the annual rate of interest charged on
your Contract Debt.
46
-- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
[SCISSORS SYMBOL]
To receive a current copy of the Pacific Odyssey SAI without charge, call (800)
722-2333 or complete the following and send it to:
Pacific Life Insurance Company
Annuities Division
Post Office Box 7187
Pasadena, CA 91109-7187
Name _______________________________________________________
Address ____________________________________________________
City _________________________ State _________ Zip _________
PACIFIC ODYSSEY WHERE TO GO FOR MORE INFORMATION
The Pacific You'll find more information about the Pacific Odyssey
Odyssey variable variable annuity contract and Separate Account A in the
annuity Contract Statement of Additional Information (SAI) dated [March
is offered by 1, 2001].
Pacific Life
Insurance Company, The SAI has been filed with the SEC and is considered
700 Newport Center to be part of this Prospectus because it's incorporated
Drive, by reference. You'll find the table of contents for the
P.O. Box 9000, SAI on page 44 of this Prospectus.
Newport Beach,
California 92660. You can get a copy of the SAI at no charge by calling
or writing to us, or by contacting the SEC. The SEC may
If you have any charge you a fee for this information.
questions about
the Contract,
please ask your
registered
representative or
contact us.
---------------------------------------------------------
How to contact us Call or write to us at:
Pacific Life Insurance Company
Annuities Division
P.O. Box 7187
Pasadena, California 91109-7187
1-800-722-2333
6 a.m. through 5 p.m. Pacific time
Send Purchase Payments, other payments and application
forms:
By mail
Pacific Life Insurance Company
P.O. Box 100060
Pasadena, California 91189-0060
By overnight delivery service
Pacific Life Insurance Company
c/o FCNPC
1111 South Arroyo Parkway, Suite 150
Pasadena, California 91105
---------------------------------------------------------
How to contact the Public Reference Section of the SEC
SEC Washington, D.C. 20549-6009
1-800-SEC-0330
Internet: www.sec.gov
STATEMENT OF ADDITIONAL INFORMATION
[ , 2001]
PACIFIC ODYSSEY
SEPARATE ACCOUNT A
----------------
Pacific Odyssey (the "Contract") is a variable annuity contract offered by
Pacific Life Insurance Company ("Pacific Life").
This Statement of Additional Information ("SAI") is not a Prospectus and
should be read in conjunction with the Contract's Prospectus, dated [ ,
2001] which is available without charge upon written or telephone request to
Pacific Life. Terms used in this SAI have the same meanings as in the
Prospectus, and some additional terms are defined particularly for this SAI.
----------------
Pacific Life Insurance Company
Annuities Division
Mailing Address: P.O. Box 7187
Pasadena, California 91109-7187
1-800-722-2333
TABLE OF CONTENTS
[Download Table]
Page No.
--------
PERFORMANCE............................................................ 1
Total Returns........................................................ 1
Yields............................................................... 2
Performance Comparisons and Benchmarks............................... 2
Separate Account Performance......................................... 4
DISTRIBUTION OF THE CONTRACTS.......................................... 7
Pacific Select Distributors, Inc. ................................... 7
THE CONTRACTS AND THE SEPARATE ACCOUNT................................. 8
Calculating Subaccount Unit Values................................... 8
Variable Annuity Payment Amounts..................................... 8
Corresponding Dates.................................................. 10
Age and Sex of Annuitant............................................. 10
Systematic Transfer Programs......................................... 11
Pre-Authorized Withdrawals........................................... 13
Death Benefit........................................................ 13
1035 Exchanges....................................................... 13
Safekeeping of Assets................................................ 13
FINANCIAL STATEMENTS................................................... 14
INDEPENDENT AUDITORS................................................... 14
PERFORMANCE
From time to time, our reports or other communications to current or
prospective Contract Owners or our advertising or other promotional material
may quote the performance (yield and total return) of a Subaccount. Quoted
results are based on past performance and reflect the performance of all
assets held in that Subaccount for the stated time period. Quoted results are
neither an estimate nor a guarantee of future investment performance, and do
not represent the actual experience of amounts invested by any particular
Contract Owner.
Total Returns
A Subaccount may advertise its "average annual total return" over various
periods of time. "Total return" represents the average percentage change in
value of an investment in the Subaccount from the beginning of a measuring
period to the end of that measuring period. "Annualized" total return assumes
that the total return achieved for the measuring period is achieved for each
such period for a full year. "Average annual" total return is computed in
accordance with a standard method prescribed by the SEC.
Average Annual Total Return
To calculate a Subaccount's average annual total return for a specific
measuring period, we first take a hypothetical $1,000 investment in that
Subaccount, at its then-applicable Subaccount Unit Value (the "initial
payment") and we compute the ending redeemable value of that initial payment
at the end of the measuring period based on the investment experience of that
Subaccount ("full withdrawal value"). The full withdrawal value reflects the
effect of all recurring fees and charges applicable to a Contract Owner under
the Contract, including the Risk Charge, and the Administrative Fee, but does
not reflect any charges for applicable premium taxes, any non-recurring fees
or charges or any increase in the Risk Charge for an optional Death Benefit
Rider. The redeemable value is then divided by the initial payment and this
quotient is raised to the 365/N power (N represents the number of days in the
measuring period), and 1 is subtracted from this result. Average annual total
return is expressed as a percentage.
T = [(ERV/P)(to the power of 365/N)] - 1
where: T = average annual total return
ERV = ending redeemable value
P = hypothetical initial payment of $1,000
N = number of days
Average annual total return figures will be given for recent one-, three-,
five- and ten-year periods (if applicable), and may be given for other periods
as well (such as from commencement of the Subaccount's operations, or on a
year-by-year basis).
When considering "average" total return figures for periods longer than one
year, it is important to note that the relevant Subaccount's annual total
return for any one year in the period might have been greater or less than the
average for the entire period.
Aggregate Total Return
A Subaccount may use "aggregate" total return figures along with its "average
annual" total return figures for various periods; these figures represent the
cumulative change in value of an investment in the Subaccount for a specific
period. Aggregate total returns may be shown by means of schedules, charts or
graphs and may indicate subtotals of the various components of total return.
The SEC has not prescribed standard formulas for calculating aggregate total
return.
Non-Standardized Total Returns
We may also calculate non-standardized total returns which may or may not
reflect any increases in Risk Charges, charges for premium and/or other taxes,
and any non-recurring fees or charges.
Standardized return figures will always accompany any non-standardized returns
shown.
1
Yields
Money Market Subaccount
The "yield" (also called "current yield") of the Money Market Subaccount is
computed in accordance with a standard method prescribed by the SEC. The net
change in the Subaccount's Unit Value during a seven-day period is divided by
the Unit Value at the beginning of the period to obtain a base rate of return.
The current yield is generated when the base rate is "annualized" by
multiplying it by the fraction 365/7; that is, the base rate of return is
assumed to be generated each week over a 365-day period and is shown as a
percentage of the investment. The "effective yield" of the Money Market
Subaccount is calculated similarly but, when annualized, the base rate of
return is assumed to be reinvested. The effective yield will be slightly
higher than the current yield because of the compounding effect of this
assumed reinvestment.
The formula for effective yield is: [(Base Period Return + 1) (To the power of
365/7)] - 1.
Realized capital gains or losses and unrealized appreciation or depreciation
of the assets of the underlying Money Market Portfolio are not included in the
yield calculation. Current yield and effective yield do not reflect any
deduction of charges for any applicable premium taxes and/or other taxes, or
any increase in the Risk Charge for an optional Death Benefit Rider, but do
reflect a deduction for the Risk Charge and the Administrative Fee.
At December 31, 1999, the Money Market Subaccount's current yield was 5.22%
and the effective yield was 5.35%.
Other Subaccounts
"Yield" of the other Subaccounts is computed in accordance with a different
standard method prescribed by the SEC. The net investment income (investment
income less expenses) per Subaccount Unit earned during a specified one-month
or 30-day period is divided by the Subaccount Unit Value on the last day of
the specified period. This result is then annualized (that is, the yield is
assumed to be generated each month or each 30-day period for a year),
according to the following formula, which assumes semiannual compounding:
YIELD = 2[(a - b + 1) (To the power of 6) - 1]
-----
cd
where: a = net investment income earned during the period by the Portfolio
attributable to the Subaccount.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of Subaccount Units outstanding during the
period that were entitled to receive dividends.
d = the Unit Value of the Subaccount Units on the last day of the
period.
The yield of each Subaccount reflects the deduction of all recurring fees and
charges applicable to the Subaccount, such as the Risk Charge, and the
Administrative Fee, but does not reflect any charge for applicable premium
taxes, any increase in the Risk Charge for an optional Death Benefit Rider, or
any non-recurring fees or charges.
The Subaccounts' yields will vary from time to time depending upon market
conditions, the composition of each Portfolio and operating expenses of the
Fund allocated to each Portfolio. Consequently, any given performance
quotation should not be considered representative of the Subaccount's
performance in the future. Yield should also be considered relative to changes
in Subaccount Unit Values and to the relative risks associated with the
investment policies and objectives of the various Portfolios. In addition,
because performance will fluctuate, it may not provide a basis for comparing
the yield of a Subaccount with certain bank deposits or other investments that
pay a fixed yield or return for a stated period of time.
Performance Comparisons and Benchmarks
In advertisements and sales literature, we may compare the performance of some
or all of the Subaccounts to the performance of other variable annuity issuers
in general and to the performance of particular types of variable annuities
investing in mutual funds, or series of mutual funds, with investment
objectives similar to each of the
2
Subaccounts. This performance may be presented as averages or rankings
compiled by Lipper Analytical Services, Inc. ("Lipper"), the Variable Annuity
Research and Data Service ("VARDS(R)") or Morningstar, Inc. ("Morningstar"),
which are independent services that monitor and rank the performance of
variable annuity issuers and mutual funds in each of the major categories of
investment objectives on an industry-wide basis. Lipper's rankings include
variable life issuers as well as variable annuity issuers. VARDS(R) rankings
compare only variable annuity issuers. The performance analyses prepared by
Lipper and VARDS(R) rank such issuers on the basis of total return, assuming
reinvestment of dividends and distributions, but do not take sales charges,
redemption fees or certain expense deductions at the separate account level
into consideration. In addition, VARDS(R) prepares risk adjusted rankings,
which consider the effects of market risk on total return performance. We may
also compare the performance of the Subaccounts with performance information
included in other publications and services that monitor the performance of
insurance company separate accounts or other investment vehicles. These other
services or publications may be general interest business publications such as
The Wall Street Journal, Barron's, Business Week, Forbes, Fortune, and Money.
In addition, our reports and communications to Contract Owners,
advertisements, or sales literature may compare a Subaccount's performance to
various benchmarks that measure the performance of a pertinent group of
securities widely regarded by investors as being representative of the
securities markets in general or as being representative of a particular type
of security. We may also compare the performance of the Subaccounts with that
of other appropriate indices of investment securities and averages for peer
universes of funds or data developed by us derived from such indices or
averages. Unmanaged indices generally assume the reinvestment of dividends or
interest but do not generally reflect deductions for investment management or
administrative costs and expenses.
3
Separate Account Performance
The Contract was not available prior to 2001. However, in order to help you
understand how investment performance can affect your Variable Account Value,
we are including performance information based on the historical performance
of the Subaccounts.
The following table presents the annualized total return for each Variable
Account for the period from each such Variable Account's commencement of
operations through December 31, 1999. The full withdrawal value ("FWV")
reflects the deductions for all contractual fees and charges, but does not
reflect any increase in the Risk Charge for an optional Death Benefit Rider,
any nonrecurring fees and charges, and any charges for premium taxes.
The results shown in this section are not an estimate or guarantee of future
investment performance.
Historical Separate Account Performance
Annualized Rates of Return for Periods Ended December 31, 1999**
All numbers are expressed as a percentage
[Download Table]
Since
1 Year* 3 Years* Inception*
------- -------- ----------
Variable Accounts FWV FWV FWV
----------------- ------- -------- ----------
Aggressive Equity 4/17/96*.......................... 26.84 13.92 13.59
Emerging Markets 4/17/96*........................... 52.94 2.96 1.11
Small-Cap Equity 10/1/99*........................... 28.30
Equity 1/2/96*...................................... 37.99 28.21 27.98
Multi-Strategy 1/2/96*.............................. 6.62 14.35 13.62
Equity Income 1/2/96*............................... 12.81 21.36 20.46
Growth LT 1/2/96*................................... 97.29 50.92 41.74
Mid-Cap Value 1/4/99*............................... 4.79
Equity Index 1/2/96*................................ 20.11 26.72 25.26
Small-Cap Index 1/4/99*............................. 18.88
REIT 1/4/99*........................................ (0.41)
International Value 1/2/96*......................... 22.33 11.88 13.59
Government Securities 1/2/96*....................... (2.34) 5.03 4.38
Managed Bond 1/2/96*................................ (2.30) 5.17 4.83
Money Market 1/2/96*................................ 4.52 4.75 4.72
High Yield Bond 1/2/96*............................. 2.49 4.47 6.00
Large-Cap Value 1/4/99*............................. 11.01
--------
* Date Variable Account commenced operations.
** Effective June 1, 1997 Morgan Stanley Asset Management became the
Portfolio Manager of the International Value Portfolio. Effective May 1,
1998, Alliance Capital Management L.P. ("Alliance Capital") became the
Portfolio Manager of the Aggressive Equity Portfolio and Goldman Sachs
Asset Management became the Portfolio Manager of the Equity Portfolio;
prior to May 1, 1998 some of the investment policies of the Aggressive
Equity and Equity Portfolios differed. Effective January 1, 2000, Alliance
Capital became the Portfolio Manager of the Emerging Markets Portfolio and
Mercury Asset Management US became the Portfolio Manager of the Equity
Index and Small-Cap Index Portfolios.
The Diversified Research, International Large-Cap and I-Net Toll Keeper
Subaccounts started operations after December 31, 1999 and there is no
historical value available for these Subaccounts.
In order to help you understand how investment performance can affect your
Variable Account Value, we are including performance information based on the
historical performance of the Portfolios.
The Separate Account commenced operations as of January 2, 1996. Therefore, no
historical performance data exists for the Subaccounts prior to that date. The
following table represents what the performance of the Subaccounts would have
been if the Subaccounts had been both in existence and invested in the
corresponding Portfolio since the date of the Portfolio's (or predecessor
series') inception or for the indicated time period. Nine of the Portfolios of
the Fund available under the Contract have been in operation since January 4,
1988
4
(January 30, 1991 in the case of the Equity Index Portfolio, January 4, 1994
in the case of the Growth LT Portfolio, April 1, 1996 in the case of the
Aggressive Equity and Emerging Markets Portfolios and January 4, 1999 in the
case of the Mid-Cap Value, Small-Cap Index, REIT and Large-Cap Value
Portfolios). Historical performance information for the Equity Portfolio is
based in part on the performance of that Portfolio's predecessor; the
predecessor series was a series of Pacific Corinthian Variable Fund and began
its first full year of operations in 1984, the assets of which were acquired
by the Fund on December 31, 1994. Because the Subaccounts had not commenced
operations until January 2, 1996 or later, as indicated in the chart above,
and because the Contracts were not available until 2000, these are not actual
performance numbers for the Subaccounts or for the Contract.
These are hypothetical total return numbers based on full withdrawal value
("FWV") that represent the actual performance of the Portfolios, adjusted to
reflect the deductions for the fees and charges applicable to the Contract.
Any charge for non-recurring fees and charges, premium taxes, or an optional
Death Benefit Rider are not reflected in these data. The information presented
also includes data representing unmanaged market indices.
The results shown in this section are not an estimate or guarantee of future
investment performance.
Historical and Hypothetical Separate Account Performance
Annualized Rates of Return for Periods Ended December 31, 1999
All numbers are expressed as a percentage
[Download Table]
Since
1 year* 3 years* 5 years* 10 years* Inception*
------- -------- -------- --------- ----------
Variable Accounts FWV FWV FWV FWV FWV
----------------- ------- -------- -------- --------- ----------
Aggressive Equity................ 26.84 13.92 13.16
Emerging Markets................. 52.94 2.96 1.38
Small-Cap Equity................. 46.96 24.95 24.64 34.89 17.46
Equity........................... 37.99 28.21 26.92 29.48 9.81
Multi-Strategy................... 6.62 14.35 15.90 23.26 11.58
Equity Income.................... 12.81 21.36 22.76 30.19 14.71
Growth LT........................ 97.29 50.92 40.61 35.60
Mid-Cap Value.................... 4.79
Equity Index..................... 20.11 26.72 27.60 19.54
Small-Cap Index.................. 18.88
REIT............................. (0.41)
International Value.............. 22.33 11.88 13.36 16.30 9.59
Government Securities............ (2.34) 5.03 7.05 14.44 7.48
Managed Bond..................... (2.30) 5.17 7.45 15.66 8.02
Money Market..................... 4.52 4.75 4.81 9.22 4.89
High Yield Bond.................. 2.49 4.47 8.40 20.88 9.24
Large-Cap Value.................. 11.01
[Download Table]
Major Indices 1 year 3 years 5 years 10 years
------------- ------ ------- ------- --------
CS First Boston Global High Yield Bond......... 3.28 5.37 9.07 11.06
Lehman Brothers Aggregate Bond................. (0.83) 5.73 7.73 7.69
Lehman Brothers Government Bond................ (2.25) 5.57 7.43 7.48
Lehman Brothers Government/Corporate Bond...... (2.15) 5.54 7.60 7.66
Lehman Brothers Long-Term Government/Corporate
Bond.......................................... (7.64) 5.74 8.99 8.65
Morgan Stanley Capital International Europe,
Australasia & Far East........................ 27.30 16.06 13.15 7.33
Morgan Stanley Capital International Emerging
Markets Free.................................. 63.70 0.91 (0.13) 8.58
NAREIT Equity.................................. (4.62) (1.82) 8.09 9.14
Russell Mid-Cap................................ 18.23 18.86 21.86 15.92
Russell 1000 Growth............................ 33.16 34.07 32.41 20.32
Russell 2000 Small-Stock....................... 21.26 13.08 16.69 13.40
Russell 2500................................... 24.15 15.72 19.43 15.05
Standard & Poor's 500 Composite Stock Price.... 21.04 27.56 28.55 18.20
--------
* The performance of the Aggressive Equity, Equity Income, Multi-Strategy,
Equity, International Value, and Emerging Markets Variable Accounts for all
or a portion of this period occurred at a time when other Portfolio
Managers managed the corresponding Portfolio in which each Variable Account
invests. Effective January 1, 1994, J. P. Morgan Investment Management Inc.
became the Portfolio Manager of the
5
Equity Income and Multi-Strategy Portfolios; prior to January 1, 1994, some
of the investment policies of the Equity Income Portfolio and the
investment objective of the Multi-Strategy Portfolio differed. Effective
June 1, 1997 Morgan Stanley Asset Management became the Portfolio Manager
of the International Value Portfolio. Effective May 1, 1998, Alliance
Capital Management L.P. became the Portfolio Manager of the Aggressive
Equity Portfolio and Goldman Sachs Asset Management became the Portfolio
Manager of the Equity Portfolio; prior to May 1, 1998 some of the
investment policies of the Aggressive Equity, and Equity Portfolios
differed. Performance of the Equity Portfolio is based in part on the
performance of the predecessor portfolio of Pacific Corinthian Variable
Fund, which began its first full year of operations in 1984, the assets of
which were acquired by the Fund on December 31, 1994. Effective January 1,
2000, Alliance Capital became the Portfolio Manager of the Emerging Markets
Portfolio and Mercury Asset Management US became the Portfolio Manager of
the Equity Index and Small-Cap Index Portfolios.
Tax Deferred Accumulation
In reports or other communications to you or in advertising or sales
materials, we may also describe the effects of tax-deferred compounding on the
Separate Account's investment returns or upon returns in general. These
effects may be illustrated in charts or graphs and may include comparisons at
various points in time of returns under the Contract or in general on a tax-
deferred basis with the returns on a taxable basis. Different tax rates may be
assumed.
In general, individuals who own annuity contracts are not taxed on increases
in the value under the annuity contract until some form of distribution is
made from the contract. Thus, the annuity contract will benefit from tax
deferral during the accumulation period, which generally will have the effect
of permitting an investment in an annuity contract to grow more rapidly than a
comparable investment under which increases in value are taxed on a current
basis. The following chart illustrates this benefit by comparing accumulation
under a variable annuity contract with accumulations from an investment on
which gains are taxed on a current ordinary income basis. The chart shows
accumulations on a single Purchase Payment of $10,000, assuming hypothetical
annual returns of 0%, 4% and 8%, compounded annually, and a tax rate of 36%.
The values shown for the taxable investment do not include any deduction for
management fees or other expenses but assume that taxes are deducted annually
from investment returns. The values shown for the variable annuity do not
reflect the deduction of contractual expenses such as the Risk Charge (equal
to an annual rate of 0.15% of average daily account value), the Administrative
Fee (equal to an annual rate of 0.25% of average daily account value), any
increase in the Risk Charge for an optional Death Benefit Rider (equal to a
maximum annual rate of 0.35% of average daily account value), any charge for
premium taxes and/or other taxes, or the expenses of an underlying investment
vehicle, such as the Fund. The chart assumes a full withdrawal, at the end of
the period shown, of all Contract Value and the payment of taxes at the 36%
rate on the amount in excess of the Purchase Payment.
The rates of return illustrated are hypothetical and are not an estimate or
guarantee of performance. Actual tax rates may vary for different assets and
taxpayers from that illustrated and withdrawals by and distributions to
Contract Owners who have not reached age 59 1/2 may be subject to a tax
penalty of 10%.
6
Power of Tax Deferral
$10,000 investment at annual rates of return of 0%, 4% and 8%, taxed @ 36%
[PERFORMANCE GRAPH APPEARS HERE]
Taxable Tax-Deferred
Investment Investment
---------- ------------
10 Years
0% $10,000.00 $10,000.00
4% $12,875.97 $13,073.56
8% $16,476.07 $17,417.12
20 Years
0% $10,000.00 $10,000.00
4% $16,579.07 $17,623.19
8% $27,146.07 $33,430.13
30 Years
0% $10,000.00 $10,000.00
4% $21,347.17 $24,357.74
8% $44,726.05 $68,001.00
DISTRIBUTION OF THE CONTRACTS
Pacific Select Distributors, Inc. (formerly known as Pacific Mutual
Distributors, Inc.)
Pacific Select Distributors, Inc. ("PSD"), a subsidiary of ours, acts as the
principal underwriter ("distributor") of the Contracts and offers the Contracts
on a continuous basis. PSD is registered as a broker-dealer with the SEC and is
a member of the National Association of Securities Dealers ("NASD"). We pay PSD
for acting as principal underwriter under a Distribution Agreement. We and PSD
enter into selling agreements with broker-dealers whose registered
representatives are authorized by state insurance departments to sell the
Contracts. Because this Contract was not offered until [2001], PSD was not paid
any underwriting commissions with regard to this Contract in 2000.
7
THE CONTRACTS AND THE SEPARATE ACCOUNT
Calculating Subaccount Unit Values
The Unit Value of the Subaccount Units in each Variable Investment Option is
computed at or about 4:00 p.m. Eastern Time on each Business Day. The initial
Unit Value of each Subaccount was $10 on the Business Day the Subaccount began
operations. At the end of each Business Day, the Unit Value for a Subaccount
is equal to:
Y X Z
where (Y) = the Unit Value for that Subaccount as of the end of the preceding
Business Day; and
(Z) = the Net Investment Factor for that Subaccount for the period (a
"valuation period") between that Business Day and the immediately
preceding Business Day.
The "Net Investment Factor" for a Subaccount for any valuation period is equal
to:
(A / B) - C
where (A) = the "per share value of the assets" of that Subaccount as of the
end of that valuation period, which is equal to: a + b + c
where (a) = the net asset value per share of the corresponding Portfolio
shares held by that Subaccount as of the end of that valuation
period;
(b) = the per share amount of any dividend or capital gain
distributions made by the Fund for that Portfolio during
that valuation period; and
(c) = any per share charge (a negative number) or credit (a positive
number) for any income taxes or other amounts set aside during
that valuation period as a reserve for any income and/or any
other taxes which we determine to have resulted from the
operations of the Subaccount or Contract, and/or any taxes
attributable, directly or indirectly, to Purchase Payments;
(B) = the net asset value per share of the corresponding Portfolio shares
held by the Subaccount as of the end of the preceding valuation
period; and
(C) = a factor that assesses against the Subaccount net assets for each
calendar day in the valuation period the basic Risk Charge plus any
applicable increase in the Risk Charge and the Administrative Fee
(see CHARGES, FEES AND DEDUCTIONS in the Prospectus).
Variable Annuity Payment Amounts
The following steps show how we determine the amount of each variable annuity
payment under your Contract.
First: Pay Applicable Premium Taxes
When you convert your Net Contract Value into annuity payments, you must pay
any applicable charge for premium taxes and/or other taxes on your Contract
Value (unless applicable law requires those taxes to be paid at a later time).
We assess this charge by reducing each Account Value proportionately, relative
to your Account Value in each Subaccount and in the Fixed Option, in an amount
equal to the aggregate amount of the charges. The remaining amount of your
available Net Contract Value may be used to provide variable annuity payments.
Alternatively, your remaining available Net Contract Value may be used to
provide fixed annuity payments, or it may be divided to provide both fixed and
variable annuity payments. You may also choose to withdraw some or all of your
remaining Net Contract Value, less any charges for premium taxes without
converting this amount into annuity payments.
Second: The First Variable Payment
We begin by referring to your Contract's Option Table for your Annuity Option
(the "Annuity Option Table"). The Annuity Option Table allows us to calculate
the dollar amount of the first variable annuity payment under
8
your Contract, based on the amount applied toward the variable annuity. The
number that the Annuity Option Table yields will be based on the Annuitant's
age (and, in certain cases, sex) and assumes a 5% rate of return, as described
in more detail below.
Example: Assume a man is 65 years of age at his Annuity Date and has
selected a lifetime annuity with monthly payments guaranteed for 10 years.
According to the Annuity Option Table, this man should receive an initial
monthly payment of $5.79 for every $1,000 of his Contract Value (reduced by
applicable charges) that he will be using to provide variable payments.
Therefore, if his Contract Value after deducting applicable fees and
charges is $100,000 on his Annuity Date and he applies this entire amount
toward his variable annuity, his first monthly payment will be $579.00.
You may choose any other Annuity Option Table that assumes a different rate of
return which we offer at the time your Annuity Option is effective.
Third: Subaccount Annuity Units
For each Subaccount, we use the amount of the first variable annuity payment
under your Contract attributable to each Subaccount to determine the number of
Subaccount Annuity Units that will form the basis of subsequent payment
amounts. First, we use the Annuity Option Table to determine the amount of
that first variable payment for each Subaccount. Then, for each Subaccount, we
divide that amount of the first variable annuity payment by the value of one
Subaccount Annuity Unit (the "Subaccount Annuity Unit Value") as of the end of
the Annuity Date to obtain the number of Subaccount Annuity Units for that
particular Subaccount. The number of Subaccount Annuity Units used to
calculate subsequent payments under your Contract will not change unless
exchanges of Annuity Units are made (or if the Joint and Survivor Annuity
Option is elected and the Primary Annuitant dies first), but the value of
those Annuity Units will change daily, as described below.
Fourth: The Subsequent Variable Payments
The amount of each subsequent variable annuity payment will be the sum of the
amounts payable based on each Subaccount. The amount payable based on each
Subaccount is equal to the number of Subaccount Annuity Units for that
Subaccount multiplied by their Subaccount Annuity Unit Value at the end of the
Business Day in each payment period you elected that corresponds to the
Annuity Date.
Each Subaccount's Subaccount Annuity Unit Value, like its Subaccount Unit
Value, changes each day to reflect the net investment results of the
underlying investment vehicle, as well as the assessment of the Risk Charge at
an annual rate of 0.15% and the Administrative Fee at an annual rate of 0.25%.
In addition, the calculation of Subaccount Annuity Unit Value incorporates an
additional factor; as discussed in more detail below, this additional factor
adjusts Subaccount Annuity Values to correct for the Option Table's implicit
assumed annual investment return on amounts applied but not yet used to
furnish annuity benefits. Any increase in your Risk Charge for an Optional
Death Benefit Rider is not charged on and after the Annuity Date.
Different Subaccounts may be selected for your Contract before and after your
Annuity Date, subject to any restrictions we may establish. Currently, you may
exchange Subaccount Annuity Units in any Subaccount for Subaccount Annuity
Units in any other Subaccount(s) up to four times in any twelve month period
after your Annuity Date. The number of Subaccount Annuity Units in any
Subaccount may change due to such exchanges. Exchanges following your Annuity
Date will be made by exchanging Subaccount Annuity Units of equivalent
aggregate value, based on their relative Subaccount Annuity Unit Values.
Understanding the "Assumed Investment Return" Factor
The Annuity Option Table incorporates a number of implicit assumptions in
determining the amount of your first variable annuity payment. As noted above,
the numbers in the Annuity Option Table reflect certain actuarial assumptions
based on the Annuitant's age, and, in some cases, the Annuitant's sex. In
addition, these numbers assume that the amount of your Contract Value that you
convert to a variable annuity will have a positive net investment return of 5%
(or such other rate of return you may elect) each year during the payout of
your annuity; thus 5% is referred to as an "assumed investment return."
9
The Subaccount Annuity Unit Value for a Subaccount will increase only to the
extent that the investment performance of that Subaccount exceeds the Risk
Charge, the Administrative Fee, and the assumed investment return. The
Subaccount Annuity Unit Value for any Subaccount will generally be less than
the Subaccount Unit Value for that same Subaccount, and the difference will be
the amount of the assumed investment return factor.
Example: Assume the net investment performance of a Subaccount is at a rate
of 5.00% per year (after deduction of the 0.15% Risk Charge and the 0.25%
Administrative Fee). The Subaccount Unit Value for that Subaccount would
increase at a rate of 5.00% per year, but the Subaccount Annuity Unit Value
would not increase (or decrease) at all. The net investment factor for that
5% return [1.05] is then divided by the factor for the 5% assumed
investment return [1.05] and 1 is subtracted from the result to determine
the adjusted rate of change in Subaccount Annuity Unit Value:
1.05 = 1; 1 - 1 = 0; 0 X 100% = 0%.
----
1.05
If the net investment performance of a Subaccount's assets is at a rate less
than 5.00% per year, the Subaccount Annuity Unit Value will decrease, even if
the Subaccount Unit Value is increasing.
Example: Assume the net investment performance of a Subaccount is at a rate
of 2.60% per year (after deduction of the 0.15% Risk Charge and the 0.25%
Administrative Fee). The Subaccount Unit Value for that Subaccount would
increase at a rate of 2.60% per year, but the Subaccount Annuity Unit Value
would decrease at a rate of 2.29% per year. The net investment factor for
that 2.6% return [1.026] is then divided by the factor for the 5% assumed
investment return [1.05] and 1 is subtracted from the result to determine
the adjusted rate of change in Subaccount Annuity Unit Value:
1.026 = 0.9771; 0.9771 - 1 = -0.0229; - 0.0229 X 100% = -2.29%.
-----
1.05
The assumed investment return will always cause increases in Subaccount
Annuity Unit Values to be somewhat less than if the assumption had not been
made, will cause decreases in Subaccount Annuity Unit Values to be somewhat
greater than if the assumption had not been made, and will (as shown in the
example above) sometimes cause a decrease in Subaccount Annuity Unit Values to
take place when an increase would have occurred if the assumption had not been
made. If we had assumed a higher investment return in our Annuity Option
tables, it would produce annuities with larger first payments, but the
increases in subaccount annuity payments would be smaller and the decreases in
subsequent annuity payments would be greater; a lower assumed investment
return would produce annuities with smaller first payments, and the increases
in subsequent annuity payments would be greater and the decreases in
subsequent annuity payments would be smaller.
Corresponding Dates
If any transaction or event under your Contract is scheduled to occur on a
"corresponding date" that does not exist in a given calendar period, the
transaction or event will be deemed to occur on the following Business Day. In
addition, as stated in the Prospectus, any event scheduled to occur on a day
that is not a Business Day will occur on the next succeeding Business Day.
Example: If your Contract is issued on February 29 in year 1 (a leap year),
your Contract Anniversary in years 2, 3 and 4 will be on March 1.
Example: If your Annuity Date is July 31 and you select monthly annuity
payments, the payments received will be based on valuations made on July
31, August 31, October 1 (for September), October 31, December 1 (for
November), December 31, January 31, March 1 (for February), March 31, May 1
(for April), May 31 and July 1 (for June).
Age and Sex of Annuitant
As mentioned in the Prospectus, the Contracts generally provide for sex-
distinct annuity income factors in the case of life annuities. Statistically,
females tend to have longer life expectancies than males; consequently, if the
amount of annuity payments is based on life expectancy, they will ordinarily
be higher if an annuitant is male than if an annuitant is female. Certain
states' regulations prohibit sex-distinct annuity income factors, and
Contracts issued in those states will use unisex factors. In addition,
Contracts issued in connection with Qualified Plans are required to use unisex
factors.
10
We may require proof of your Annuitant's age and sex before or after starting
annuity payments. If the age or sex (or both) of your Annuitant are
incorrectly stated in your Contract, we will correct the amount payable based
on your Annuitant's correct Age or sex, if applicable. If we make the
correction after annuity payments have started, and we have made overpayments,
we will deduct the amount of the overpayment, with interest at 3% a year, from
any payments due then or later; if we have made underpayments, we will add the
amount, with interest at 3% a year, of the underpayments to the next payment
we make after we receive proof of the correct Age and/or sex.
Systematic Transfer Programs
The Fixed Account is not available in connection with portfolio rebalancing.
If you are using the earnings sweep, you may also use portfolio rebalancing
only if you selected the Fixed Option as your sweep option. You may not use
dollar cost averaging and the earnings sweep at the same time.
Dollar Cost Averaging
When you request dollar cost averaging, you are authorizing us to make
periodic reallocations of your Contract Value without waiting for any further
instruction from you. You may request to begin or stop dollar cost averaging
at any time prior to your Annuity Date; the effective date of your request
will be the day we receive written notice from you in proper form. Your
request may specify the date on which you want your first transfer to be made.
If you do not specify a date for your first transfer, we will treat your
request as if you had specified the effective date of your request. Your first
transfer may not be made until 30 days after your Contract Date, and if you
specify an earlier date, your first transfer will be delayed until one
calendar month after the date you specify. If you request dollar cost
averaging on your application for your Contract and you fail to specify a date
for your first transfer, your first transfer will be made one period after
your Contract Date (that is, if you specify monthly transfers, the first
transfer will occur 30 days after your Contract Date; quarterly transfers, 90
days after your Contract Date; semiannual transfers, 180 days after your
Contract Date; and if you specify annual transfers, the first transfer will
occur on your Contract Anniversary). If you stop dollar cost averaging, you
must wait 30 days before you may begin this option again.
Your request to begin dollar cost averaging must specify the Investment Option
you wish to transfer money from (your "source account"). You may choose any
one Investment Option as your source account. The Account Value of your source
account must be at least $5,000 for you to begin dollar cost averaging.
Your request to begin dollar cost averaging must also specify the amount and
frequency of your transfers. You may choose monthly, quarterly, semiannual or
annual transfers. The amount of your transfers may be specified as a dollar
amount or a percentage of your source Account Value; however, each transfer
must be at least $250. Dollar cost averaging transfers are subject to the same
requirements and limitations as other transfers.
Finally, your request must specify the Variable Investment Option(s) you wish
to transfer amounts to (your "target account(s)"). If you select more than one
target account, your dollar cost averaging request must specify how
transferred amounts should be allocated among the target accounts. Your source
account may not also be a target account.
Your dollar cost averaging transfers will continue until the earlier of (i)
your request to stop dollar cost averaging is effective, or (ii) your source
Account Value is zero, or (iii) your Annuity Date. If, as a result of a dollar
cost averaging transfer, your source Account Value falls below any minimum
Account Value we may establish, we have the right, at our option, to transfer
that remaining Account Value to your target account(s) on a proportionate
basis relative to your most recent allocation instructions. We may change,
terminate or suspend the dollar cost averaging option at any time.
Portfolio Rebalancing
Portfolio rebalancing allows you to maintain the percentage of your Contract
Value allocated to each Variable Investment Option at a pre-set level prior to
annuitization. For example, you could specify that 30% of your
11
Contract Value should be in the Equity Index Subaccount, 40% in the Managed
Bond Subaccount, and 30% in the Growth LT Subaccount. Over time, the
variations in each Subaccount's investment results will shift this balance of
these Subaccount Value allocations. If you elect the portfolio rebalancing
feature, we will automatically transfer your Subaccount Value back to the
percentages you specify.
You may choose to have rebalances made quarterly, semiannually or annually
until your Annuity Date; portfolio rebalancing is not available after you
annuitize.
Procedures for selecting portfolio rebalancing are generally the same as those
discussed in detail above for selecting dollar cost averaging: You may make
your request at any time prior to your Annuity Date and it will be effective
when we receive it in proper form. If you stop portfolio rebalancing, you must
wait 30 days to begin again. You may specify a date for your first rebalance,
or we will treat your request as if you selected the request's effective date.
If you specify a date fewer than 30 days after your Contract Date, your first
rebalance will be delayed one month, and if you request rebalancing on your
application but do not specify a date for the first rebalance, it will occur
one period after your Contract Date, as described above under Dollar Cost
Averaging. We may change, terminate or suspend the portfolio rebalancing
feature at any time.
Earnings Sweep
An earnings sweep automatically transfers the earnings attributable to a
specified Investment Option (the "sweep option") to one or more other
Investment Options (your "target option(s)"). If you elect to use the earnings
sweep, you may select either the Fixed Option or the Money Market Subaccount
as your sweep option. The Account Value of your sweep option will be required
to be at least $5,000 when you elect the earnings sweep. You may select one or
more Variable Investment Options (but not the Money Market Subaccount) as your
target option(s).
You may choose to have earnings sweeps occur monthly, quarterly, semiannually
or annually until you annuitize. At each earnings sweep, we will automatically
transfer your accumulated earnings attributable to your sweep option for the
previous period proportionately to your target option(s). That is, if you
select a monthly earnings sweep, we will transfer the sweep option earnings
from the preceding month; if you select a semiannual earnings sweep, we will
transfer the sweep option earnings accumulated over the preceding six months.
Earnings sweep transfers are subject to the same requirements and limitations
as other transfers.
To determine the earnings, we take the change in the sweep option's Account
Value during the sweep period, add any withdrawals or transfers out of the
sweep option Account that occurred during the sweep period, and subtract any
allocations to the sweep option Account during the sweep period. The result of
this calculation represents the "total earnings" for the sweep period.
If, during the sweep period, you withdraw or transfer amounts from the sweep
option Account, we assume that earnings are withdrawn or transferred before
any other Account Value. Therefore, your "total earnings" for the sweep period
will be reduced by any amounts withdrawn or transferred during the sweep
option period. The remaining earnings are eligible for the sweep transfer.
Procedures for selecting the earnings sweep are generally the same as those
discussed in detail above for selecting dollar cost averaging and portfolio
rebalancing: You may make your request at any time and it will be effective
when we receive it in a form satisfactory to us. If you stop the earnings
sweep, you must wait 30 days to begin again. You may specify a date for your
first sweep, or we will treat your request as if you selected the request's
effective date. If you specify a date fewer than 30 days after your Contract
Date, your first earnings sweep will be delayed one month, and if you request
the earnings sweep on your application but do not specify a date for the first
sweep, it will occur one period after your Contract Date, as described above
under Dollar Cost Averaging.
If, as a result of an earnings sweep transfer, your source Account Value falls
below $500, we have the right, at our option, to transfer that remaining
Account Value to your target account(s) on a proportionate basis relative to
your most recent allocation instructions. We may change, terminate or suspend
the earnings sweep option at any time.
12
Pre-Authorized Withdrawals
You may specify a dollar amount for your pre-authorized withdrawals, or you
may specify a percentage of your Contract Value or an Account Value. You may
direct us to make your pre-authorized withdrawals from one or more specific
Investment Options; if you do not give us these specific instructions, amounts
will be deducted proportionately from your Account Value in each Fixed or
Variable Investment Option.
Procedures for selecting pre-authorized withdrawals are generally the same as
those discussed in detail above for selecting dollar cost averaging, portfolio
rebalancing, and earnings sweeps: You may make your request at any time and it
will be effective when we receive it in proper form. If you stop the pre-
authorized withdrawals, you must wait 30 days to begin again. You may specify
a date for the first withdrawal, or we will treat your request as if you
selected the request's effective date. If you specify a date fewer than 30
days after your Contract Date, your first pre-authorized withdrawal will be
delayed one month, and if you request the pre-authorized withdrawals on your
application but do not specify a date for the first withdrawal, it will occur
one period after your Contract Date.
If your pre-authorized withdrawals cause your Account Value in any Investment
Option to fall below $500, we have the right, at our option, to transfer that
remaining Account Value to your other Investment Options on a proportionate
basis relative to your most recent allocation instructions. If your pre-
authorized withdrawals cause your Contract Value to fall below $1,000, we may,
at our option, terminate your Contract and send you the remaining withdrawal
proceeds.
Pre-authorized withdrawals are subject to any applicable charge for premium
taxes and/or other taxes, to federal income tax on its taxable portion, and,
if you have not reached age 59 1/2, a federal tax penalty of at least 10%.
Death Benefit
Any death benefit payable will be calculated as of the date we receive proof
(in proper form) of the Annuitant's death (or, if applicable, the Contract
Owner's death) and instructions regarding payment; any claim of a death
benefit must be made in proper form. A recipient of death benefit proceeds may
elect to have this benefit paid in one lump sum, in periodic payments, in the
form of a lifetime annuity or in some combination of these. Annuity payments
will begin within 30 days once we receive all information necessary to process
the claim.
If your Contract names Joint or Contingent Annuitants, no death benefit
proceeds will be payable unless and until the last Annuitant dies prior to the
Annuity Date or a Contract Owner dies prior to the Annuity Date.
1035 Exchanges
You may make your initial Purchase Payment through an exchange of an existing
annuity contract. To exchange, you must complete a 1035 Exchange form, which
is available by calling your representative, or by calling us at 1-800-722-
2333, and mail the form along with the annuity contract you are exchanging
(plus your completed application if you are making an initial Purchase
Payment) to us.
In general terms, Section 1035 of the Code provides that you recognize no gain
or loss when you exchange one annuity contract solely for another annuity
contract. However, transactions under Section 1035 may be subject to special
rules and may require special procedures and record-keeping, particularly if
the exchanged annuity contract was issued prior to August 14, 1982. You should
consult your tax adviser prior to effecting a 1035 Exchange.
Safekeeping of Assets
We are responsible for the safekeeping of the assets of the Separate Account.
These assets are held separate and apart from the assets of our General
Account and our other separate accounts.
13
FINANCIAL STATEMENTS [TO BE UPDATED]
The statement of net assets of Separate Account A as of December 31, 1999 and
the related statement of operations for the year then ended and statements of
changes in net assets for each of the two years in the period then ended are
incorporated by reference in this Statement of Additional Information from the
Annual Report of Separate Account A dated December 31, 1999. Pacific Life's
consolidated financial statements as of December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 are set forth
beginning on the next page. These financial statements should be considered
only as bearing on the ability of Pacific Life to meet its obligations under
the Contracts and not as bearing on the investment performance of the assets
held in the Separate Account.
The information in Separate Account A's Annual Report relates to variable
annuity contracts other than the Contract that we have issued and that are
funded by Separate Account A.
INDEPENDENT AUDITORS [TO BE UPDATED]
The consolidated financial statements of Pacific Life as of December 31, 1999
and 1998 and for each of the three years in the period ended December 31, 1999
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein.
14
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, 1999 and 1998, 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, 1999. 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, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 22, 2000
15
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
[Download Table]
December 31,
1999 1998
-------------------------------------------------------------------------------
(In Millions)
ASSETS
Investments:
Securities available for sale at estimated fair value:
Fixed maturity securities $14,814.0 $13,804.7
Equity securities 295.2 547.5
Trading securities at estimated fair value 99.9 97.0
Mortgage loans 2,920.2 2,788.7
Real estate 236.0 172.7
Policy loans 4,258.5 4,003.2
Other investments 882.7 951.7
-------------------------------------------------------------------------------
TOTAL INVESTMENTS 23,506.5 22,365.5
Cash and cash equivalents 439.4 154.1
Deferred policy acquisition costs 1,446.1 899.8
Accrued investment income 287.2 259.3
Other assets 830.7 361.2
Separate account assets 23,613.1 15,844.0
-------------------------------------------------------------------------------
TOTAL ASSETS $50,123.0 $39,883.9
===============================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Universal life and investment-type products $19,045.5 $17,973.0
Future policy benefits 4,386.0 2,480.5
Short-term and long-term debt 224.4 445.1
Other liabilities 939.2 813.3
Separate account liabilities 23,613.1 15,844.0
-------------------------------------------------------------------------------
TOTAL LIABILITIES 48,208.2 37,555.9
-------------------------------------------------------------------------------
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 139.9 126.2
Unearned ESOP shares (11.6)
Retained earnings 2,034.5 1,663.5
Accumulated other comprehensive income (loss) -
Unrealized gain (loss) on securities available for
sale, net (278.0) 508.3
-------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 1,914.8 2,328.0
-------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $50,123.0 $39,883.9
===============================================================================
See Notes to Consolidated Financial Statements
16
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
[Download Table]
Years Ended December 31,
1999 1998 1997
-------------------------------------------------------------------------------
(In Millions)
REVENUES
Universal life and investment-type product policy
fees $ 653.8 $ 525.3 $ 431.2
Insurance premiums 483.9 537.1 526.4
Net investment income 1,473.3 1,413.6 1,325.4
Net realized investment gains 101.5 39.4 85.4
Commission revenue 234.3 220.1 146.6
Other income 144.7 112.5 97.9
-------------------------------------------------------------------------------
TOTAL REVENUES 3,091.5 2,848.0 2,612.9
-------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Interest credited to universal life and investment-
type products 904.4 880.8 797.8
Policy benefits paid or provided 734.4 757.0 712.6
Commission expenses 484.6 387.2 305.1
Operating expenses 453.4 468.0 507.9
-------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES 2,576.8 2,493.0 2,323.4
-------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES 514.7 355.0 289.5
Provision for income taxes 143.7 113.5 113.5
-------------------------------------------------------------------------------
NET INCOME $ 371.0 $ 241.5 $ 176.0
===============================================================================
See Notes to Consolidated Financial Statements
17
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
[Enlarge/Download Table]
Accumulated
Common Stock Unearned Other
------------- Paid-in ESOP Retained Comprehensive
Shares Amount Capital Shares Earnings Income (Loss) Total
-----------------------------------------------------------------------------------------
(In Millions)
BALANCES,
JANUARY 1, 1997 $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
Pacific LifeCorp (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
Comprehensive loss:
Net income 371.0 371.0
Change in unrealized
gain on securities
available for sale,
net (786.3) (786.3)
--------
Total comprehensive
loss (415.3)
Issuance of partnership
units by affiliate 10.6 10.6
Capital contribution 3.1 3.1
Purchase of ESOP note $(13.1) (13.1)
Allocation of unearned
ESOP shares 1.5 1.5
-----------------------------------------------------------------------------------------
BALANCES,
DECEMBER 31, 1999 0.6 $30.0 $139.9 $(11.6) $2,034.5 $(278.0) $1,914.8
=========================================================================================
See Notes to Consolidated Financial Statements
18
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Download Table]
Years Ended December 31,
1999 1998 1997
------------------------------------------------------------------------------
(In Millions)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 371.0 $ 241.5 $ 176.0
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization on fixed maturity securities (77.8) (39.4) (26.6)
Depreciation and other amortization 20.5 26.0 38.3
Earnings of equity method investees (92.9) (99.0) (78.1)
Deferred income taxes (8.5) (20.6) (14.4)
Net realized investment gains (101.5) (39.4) (85.4)
Net change in deferred policy acquisition
costs (546.3) (171.9) (196.4)
Interest credited to universal life and in-
vestment-type products 904.4 880.8 797.8
Change in trading securities (2.9) (14.3) (18.3)
Change in accrued investment income (27.9) 3.1 (59.9)
Change in future policy benefits 58.1 (9.7) (16.3)
Change in other assets and liabilities 207.1 102.2 574.9
------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 703.3 859.3 1,091.6
------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale:
Purchases (4,173.4) (4,330.5) (6,272.3)
Sales 2,333.8 2,209.3 2,224.1
Maturities and repayments 1,400.3 2,221.8 2,394.6
Repayments of mortgage loans 681.0 334.9 179.3
Proceeds from sales of mortgage loans and
real estate 24.4 43.3 104.4
Purchases of mortgage loans and real estate (886.3) (1,246.3) (643.7)
Distributions from partnerships 138.2 119.5 91.6
Change in policy loans (255.3) (129.7) (301.4)
Cash received from acquisitions of insurance
blocks of business 164.9 1,215.9
Other investing activity, net 255.6 (466.6) (70.8)
------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (316.8) (1,244.3) (1,078.3)
------------------------------------------------------------------------------
(Continued)
See Notes to Consolidated Financial Statements
19
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Download Table]
Years Ended December 31,
(Continued) 1999 1998 1997
-----------------------------------------------------------------------------
(In Millions)
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholder account balances:
Deposits $ 4,453.4 $ 4,007.0 $ 2,679.8
Withdrawals (4,322.3) (3,770.7) (2,667.3)
Net change in short-term and long-term
debt (220.7) 191.5 (16.5)
Purchase of ESOP note (13.1)
Allocation of unearned ESOP shares 1.5
Initial capitalization of Pacific Mutual
Holding Company (2.0)
Dividend paid to Pacific LifeCorp (5.0)
-----------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (101.2) 427.8 (11.0)
-----------------------------------------------------------------------------
Net change in cash and cash equivalents 285.3 42.8 2.3
Cash and cash equivalents, beginning of
year 154.1 111.3 109.0
-----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 439.4 $ 154.1 $ 111.3
=============================================================================
SUPPLEMENTAL SCHEDULE OF INVESTING AND FINANCING ACTIVITIES
In connection with the acquisitions of an annuity and an insurance block of
business in 1999 and 1997, respectively, as discussed in Note 4, the
following assets and liabilities were assumed:
Fixed maturity securities $ 1,592.7
Cash and cash equivalents 164.9 $ 1,215.9
Policy loans 440.3
Other assets 100.4 43.4
--------- ---------
Total assets assumed $ 1,858.0 $ 1,699.6
========= =========
Policyholder account values $ 1,693.8
Annuity reserves $ 1,847.4
Other liabilities 10.6 5.8
--------- ---------
Total liabilities assumed $ 1,858.0 $ 1,699.6
========= =========
=============================================================================
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
Income taxes paid $ 83.0 $ 127.9 $ 153.0
Interest paid $ 23.3 $ 24.0 $ 26.1
=============================================================================
See Notes to Consolidated Financial Statements
20
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Pacific Life Insurance Company ("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 is an indirect subsidiary of Pacific
Mutual Holding Company ("PMHC"), a mutual holding company, and a wholly
owned subsidiary of Pacific LifeCorp, an intermediate stock holding
company. PMHC and Pacific LifeCorp were organized pursuant to consent
received from the Insurance Department of the State of California and the
implementation of a plan of conversion to form a mutual holding company
structure in 1997 (the "Conversion"). 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.
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.
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 majority owned and controlled
subsidiaries. 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 filed with regulatory authorities (Note 2).
NEW ACCOUNTING PRONOUNCEMENTS
On January 1, 1999, the Company adopted the American Institute of
Certified Public Accountants ("AICPA") Statement of Position ("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. Adoption of this accounting
standard did not have a material impact on the Company's consolidated
financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133, as amended
by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133," is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133
requires, among other things, that all derivatives be recognized in the
consolidated statements of financial condition as either assets or
liabilities and measured at estimated fair value. The corresponding
derivative gains and losses should be reported based upon the hedge
relationship, if such a relationship exists. Changes in the estimated fair
value of derivatives that are not designated as hedges or that do not meet
the hedge accounting criteria in SFAS No. 133 are required to be reported
in income. The Company is required to adopt SFAS No. 133 as of January 1,
2001. The Company is in the process of quantifying the impact of SFAS No.
133 on its consolidated financial statements.
During 1998, the AICPA issued SOP 98-7, "Deposit Accounting: Accounting
for Insurance and Reinsurance Contracts That Do Not Transfer Insurance
Risk." SOP 98-7 provides guidance on how to account for insurance and
reinsurance contracts that do not transfer insurance risk under a method
referred to as deposit accounting. SOP 98-7 is effective for fiscal years
beginning after June 15, 1999. The Company currently plans to adopt
21
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
SOP 98-7 on January 1, 2000. Adoption of this accounting standard is not
expected to have a material impact on the Company's consolidated financial
statements.
INVESTMENTS
Available for sale fixed maturity and equity securities are reported at
estimated fair value, with unrealized gains and losses, net of deferred
income taxes and adjustments related to deferred policy acquisition costs,
included as a separate component of equity on the accompanying
consolidated statements of financial condition. The cost of fixed maturity
and equity securities is adjusted for impairments in value deemed to be
other than temporary. Trading securities are reported at estimated fair
value with unrealized gains and losses included in net realized investment
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 investment
gains on the accompanying consolidated statements of operations.
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 liabilities. Unrealized
gains and losses of other derivatives are included in net realized
investment gains on the accompanying consolidated statements of
operations.
Mortgage loans, net of valuation allowances, and policy loans are stated
at unpaid principal balances.
Real estate is carried at depreciated cost, net of writedowns, 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.
Partnership and joint venture interests in which the Company does not have
a controlling interest or a majority ownership are generally recorded
using the equity method of accounting and are included in other
investments on the accompanying consolidated statements of financial
condition.
The Company, through its wholly owned subsidiary Pacific Asset Management
LLC ("PAM"), has an approximate 33% beneficial ownership interest in PIMCO
Advisors L.P. ("PIMCO Advisors") as of December 31, 1999 and 1998. 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. During 1999 and
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 years ended
December 31, 1999 and 1998, there was a direct increase to the Company's
stockholder's equity of $10.6 million and $6.1 million, respectively.
During 1998, the Company also acquired the beneficial ownership of
additional partnership units. Deferred taxes resulting from these
transactions have been included in the accompanying consolidated financial
statements.
22
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
On October 31, 1999, PAM entered into an Implementation and Merger
Agreement with Allianz of America, Inc. ("Allianz") and a number of other
parties in which Allianz will purchase 70% of the outstanding partnership
units of PIMCO Advisors. PAM is exchanging its interest in PIMCO Advisors
for a beneficial economic interest in a new class of PIMCO Advisors
partnership units with a cash distribution comprised of a fixed and
variable return. This transaction is anticipated to close during the first
half of 2000, subject to certain closing conditions and approvals.
In connection with this transaction, PAM has entered into a Continuing
Investment Agreement with Allianz with respect to its investment in PIMCO
Advisors. The investment in PIMCO Advisors held by PAM will be subject to
put and call options held by PAM and Allianz, respectively. The put option
gives PAM the right to require Allianz, on the last business day of each
calendar quarter, to purchase all of the investment in PIMCO Advisors held
by PAM. The put option price would be the distributions per unit amount,
as defined in the Continuing Investment Agreement, for the most recently
completed four calendar quarters multiplied by a factor of 14.0. The call
option gives Allianz the right to require PAM, on any January 31, April
30, July 31, or October 31, beginning on January 31, 2003, to sell its
investment in PIMCO Advisors to Allianz. The call option price would be
the distributions per unit, as defined in the Continuing Investment
Agreement, for the most recently completed four calendar quarters
multiplied by a factor of 14.0 if the call per unit value is at least $50.
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-type products, such costs are generally amortized over the
expected life of the contract 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
traditional 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, 1999, 1998 and
1997, amortization of deferred policy acquisition costs included in
commission expenses amounted to $131.7 million, $73.0 million and
$50.2 million, respectively, and included in operating expenses amounted
to $55.4 million, $33.5 million and $29.4 million, respectively, on the
accompanying consolidated statements of operations.
UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCTS
Universal life and investment-type products, including guaranteed
investment contracts and funding agreements, 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% to 8.4% during 1999, 1998 and
1997.
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 1999, 1998 and
1997. Mortality, morbidity and withdrawal assumptions are generally based
on the Company's experience, modified to provide for possible unfavorable
deviations. Future dividends for
23
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
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,
1999 and 1998, 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-
type products 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
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
certain 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.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments, disclosed in Notes 5, 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.
24
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
RISKS AND UNCERTAINTIES
The Company operates in a business environment which is subject to various
risks and uncertainties. Such risks and uncertainties include, but are not
limited to, interest rate risk, investment market 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
which 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 1999
financial statement presentation.
25
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:
[Download Table]
December 31,
1999 1998
------------------
(In Millions)
Statutory capital and surplus $1,219.1 $1,157.4
Deferred policy acquisition costs 1,398.6 944.5
Deferred income taxes 304.5 307.1
Asset valuation reserve 232.1 298.7
Non admitted assets 83.3 40.4
Subsidiary equity 25.2 26.5
Surplus notes (149.6) (149.6)
Unrealized gain (loss) on securities available
for sale, net (278.0) 508.3
Insurance and annuity reserves (845.2) (654.4)
Other (75.2) (150.9)
------------------
Stockholder's equity as reported herein $1,914.8 $2,328.0
==================
[Download Table]
Years Ended December 31,
1999 1998 1997
----------------------------
(In Millions)
Statutory net income $ 168.4 $ 187.6 $ 121.5
Deferred policy acquisition costs 379.2 177.3 160.4
Deferred income taxes (2.7) 17.9 41.2
Earnings of subsidiaries (27.5) (32.8) (40.6)
Insurance and annuity reserves (184.3) (145.1) (107.0)
Other 37.9 36.6 0.5
---------------------------
Net income as reported herein $ 371.0 $ 241.5 $ 176.0
===========================
26
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 the risk-based capital results 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, 1999 and 1998, Pacific
Life and Pacific Life & Annuity Company, formerly PM Group Life Insurance
Company, a wholly owned Arizona domiciled life insurance subsidiary of
Pacific Life, exceeded the minimum risk-based capital requirements.
CODIFICATION
In 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 Pacific LifeCorp 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 1999
statutory results, Pacific Life could pay $174.0 million in dividends in
2000 without prior approval. No dividends were paid during 1999 and 1998.
The maximum amount of ordinary dividends that can be paid by PL&A without
restriction cannot exceed the lesser of 10% of statutory surplus as
regards to policyholders, or the statutory net gain from operations. No
dividends were paid during 1999 and 1998.
PERMITTED PRACTICE
Net cash distributions received on PAM's investment in PIMCO Advisors 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 that support the Closed Block, which are primarily included in
fixed maturity securities, policy loans and accrued investment income,
amounted to $293.5 million and $311.6 million as of December 31, 1999 and
1998, respectively. Liabilities allocated to the Closed Block, which are
primarily included in future policy benefits amounted to $341.8 million
and $352.8 million as of December 31, 1999 and 1998, respectively. The
27
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. CLOSED BLOCK (Continued)
contribution to income from the Closed Block amounted to $3.8 million,
$5.1 million and $5.7 million and is primarily included in insurance
premiums, net investment income and policy benefits paid or provided for
the years ended December 31, 1999, 1998 and 1997, respectively.
4. ACQUISITIONS
Effective July 15, 1999, Pacific Life acquired a payout annuity block of
business from Confederation Life Insurance Company (U.S.) in
Rehabilitation, which is currently under rehabilitation ("Confederation
Life"). This block of business consists of approximately 16,000 annuitants
having reserves of $1.8 billion. The assets received as part of this
acquisition amounted to $1.6 billion in fixed maturity securities and $0.2
billion in cash.
The remaining cost of acquiring this annuity 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
$74.5 million as of December 31, 1999, and is included in deferred policy
acquisition costs on the accompanying consolidated statement of financial
condition. Amortization of this asset for the year ended December 31, 1999
amounted to $0.4 million, and is included in commission expense on the
accompanying consolidated statement of operations.
On June 1, 1997, Pacific Life acquired a block of corporate-owned life
insurance ("COLI") policies from Confederation Life, which consisted of
approximately 38,000 policies having a face amount of insurance of
$8.6 billion and reserves of $1.7 billion. The assets received as part of
this acquisition amounted to $1.2 billion in cash and $0.4 billion in
policy loans. This block is primarily non leveraged COLI.
The remaining cost of acquiring this COLI 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
$27.9 million and $36.5 million as of December 31, 1999 and 1998,
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, 1999, 1998 and 1997
amounted to $8.6 million, $7.7 million and $0.9 million, respectively, and
is included in commission expenses on the accompanying consolidated
statements of operations.
During 1999, Pacific Life acquired a 95% interest in Grayhawk Golf
Holdings, LLC, which owns 100% of a real estate investment property in
Arizona.
28
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. 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 available for sale 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.
[Download Table]
Gross Unrealized
Amortized ----------------- Estimated
Cost Gains Losses Fair Value
--------------------------------------
(In Millions)
As of December 31, 1999:
------------------------
U.S. Treasury securities and
obligations of U.S. government
authorities and agencies $ 107.7 $ 9.3 $ 1.0 $ 116.0
Obligations of states, political
subdivisions 642.0 13.0 27.7 627.3
Foreign governments 285.0 10.5 6.7 288.8
Corporate securities 8,725.0 220.3 387.4 8,557.9
Mortgage-backed and asset-backed
securities 5,323.8 33.7 251.1 5,106.4
Redeemable preferred stock 108.5 14.2 5.1 117.6
-------------------------------------
Total fixed maturity securities $15,192.0 $301.0 $679.0 $14,814.0
=====================================
Total equity securities $ 269.3 $ 57.0 $ 31.1 $ 295.2
=====================================
As of December 31, 1998:
------------------------
U.S. Treasury securities and
obligations of U.S. government
authorities and agencies $ 95.6 $ 25.1 $ 120.7
Obligations of states, political
subdivisions 481.9 91.3 $ 11.8 561.4
Foreign governments 253.1 28.3 4.3 277.1
Corporate securities 7,888.7 446.3 124.5 8,210.5
Mortgage-backed and asset-backed
securities 4,434.7 143.1 53.0 4,524.8
Redeemable preferred stock 104.0 11.3 5.1 110.2
-------------------------------------
Total fixed maturity securities $13,258.0 $745.4 $198.7 $13,804.7
=====================================
Total equity securities $ 364.4 $202.6 $ 19.5 $ 547.5
=====================================
29
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTMENT IN FIXED MATURITY AND EQUITY SECURITIES (Continued)
The amortized cost and estimated fair value of fixed maturity securities
available for sale as of December 31, 1999, 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.
[Download Table]
Amortized Estimated
Cost Fair Value
--------------------
(In Millions)
Due in one year or less $ 566.5 $ 572.6
Due after one year through five years 3,324.0 3,366.5
Due after five years through ten years 2,995.9 2,921.4
Due after ten years 2,981.8 2,847.1
--------------------
9,868.2 9,707.6
Mortgage-backed and asset-backed securities 5,323.8 5,106.4
--------------------
Total $15,192.0 $14,814.0
====================
Major categories of investment income are summarized as follows:
[Download Table]
Years Ended December 31,
1999 1998 1997
--------------------------
(In Millions)
Fixed maturity securities $1,030.3 $ 929.7 $ 940.2
Equity securities 14.6 13.5 10.2
Mortgage loans 205.6 174.6 129.5
Real estate 46.5 38.1 53.6
Policy loans 158.6 161.5 144.3
Other 131.7 203.2 156.2
--------------------------
Gross investment income 1,587.3 1,520.6 1,434.0
Investment expense 114.0 107.0 108.6
--------------------------
Net investment income $1,473.3 $1,413.6 $1,325.4
==========================
30
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INVESTMENT IN FIXED MATURITY AND EQUITY SECURITIES (Continued)
Net realized investment gain, including changes in valuation allowances,
are as follows:
[Download Table]
Years Ended December 31,
1999 1998 1997
----------------------------
(In Millions)
Fixed maturity securities available for
sale:
Gross gain $ 89.3 $ 92.7 $ 56.3
Gross loss (72.9) (84.8) (31.1)
Equity securites available for sale:
Gross gain 109.0 40.9 36.1
Gross loss (52.0) (6.8) (6.2)
Mortgage loans on real estate 10.1 (10.7) (4.6)
Real estate 18.0 1.2 16.9
Other investments 6.9 18.0
----------------------------
Total $101.5 $ 39.4 $ 85.4
============================
The change in gross unrealized gain on investments in available for sale
and trading securities is as follows:
[Download Table]
December 31,
1999 1998 1997
--------------------------
(In Millions)
Available for sale securities:
Fixed maturity $ (924.7) $(229.5) $223.5
Equity (157.2) 63.1 85.7
--------------------------
Total $(1,081.9) $(166.4) $309.2
==========================
Trading securities $ 0.4 $ (2.5) $ (1.1)
==========================
As of December 31, 1999 and 1998, investments in fixed maturity securities
with a carrying value of $12.6 million and $13.0 million, respectively,
were on deposit with state insurance departments to satisfy regulatory
requirements. One diversified financial security, rated AA, exceeds 10% of
total stockholder's equity as of December 31, 1999.
31
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as
follows:
[Download Table]
December 31, 1999 December 31, 1998
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-----------------------------------------
(In Millions)
Assets:
Fixed maturity and equity
securities (Note 5) $15,109.2 $15,109.2 $14,352.2 $14,352.2
Trading securities 99.9 99.9 97.0 97.0
Mortgage loans 2,920.2 2,983.8 2,788.7 2,911.2
Policy loans 4,258.5 4,258.5 4,003.2 4,003.2
Cash and cash equivalents 439.4 439.4 154.1 154.1
Derivative instruments 43.5 43.5 176.1 176.1
Liabilities:
Guaranteed interest contracts 6,365.0 6,296.3 5,665.3 5,751.0
Deposit liabilities 544.9 533.7 599.9 626.7
Annuity liabilities 1,323.3 1,304.8 1,448.0 1,430.1
Short-term debt 60.0 60.0 295.5 295.5
Long-term debt 164.4 164.3 149.6 176.0
Derivative instruments 229.5 229.5 36.0 36.0
32
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. FINANCIAL INSTRUMENTS (Continued)
The following methods and assumptions were used to estimate the fair value
of these financial instruments as of December 31, 1999 and 1998:
TRADING SECURITIES
The estimated fair value of trading securities is based on quoted market
prices.
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 because interest rates are generally variable and based on
current market rates.
CASH AND CASH EQUIVALENTS
The carrying values approximate fair values due to the short-term
maturities of these instruments.
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.
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 rates.
LONG-TERM DEBT
The estimated fair value of surplus notes is based on market quotes. The
carrying amount of other long-term debt is a reasonable estimate of its
fair value because the interest on the debt is approximately the same as
current market rates.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Pacific Life has issued certain contracts to 401(k) plans totaling $1.7
billion as of December 31, 1999, 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.
33
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. DERIVATIVE 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 as 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 on 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.
Outstanding derivatives with off balance sheet risks, shown in notional or
contract amounts along with their carrying value and estimated fair values
as of December 31, 1999 and 1998 are as follows:
[Download Table]
Assets (Liabilities)
----------------------------------------
Notional or Carrying Estimated Carrying Estimated
Contract Amounts Value Fair Value Value Fair Value
----------------- -------- ---------- -------- ----------
1999 1998 1999 1999 1998 1998
----------------------------------------------------------
(In Millions)
Interest rate floors,
caps, options and
swaptions $1,003.0 $2,653.0 $ 5.0 $ 5.0 $ 67.9 $ 67.9
Interest rate swap
contracts 2,867.5 2,608.6 38.5 38.5 (23.3) (23.3)
Asset swap contracts 58.1 63.2 (3.6) (3.6) (3.6) (3.6)
Credit default and total
return swaps 2,061.9 649.6 (43.1) (43.1) (9.1) (9.1)
Financial futures
contracts 676.8 608.9
Foreign currency
derivatives 1,685.1 1,131.2 (182.8) (182.8) 108.2 108.2
----------------------------------------------------------
Total derivatives $8,352.4 $7,714.5 $(186.0) $(186.0) $140.1 $140.1
==========================================================
34
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. DERIVATIVE INSTRUMENTS (Continued)
A reconciliation of the notional or contract amounts and discussion of the
various derivative instruments are as follows:
[Download Table]
Balance Terminations Balance
Beginning and End
of Year Acquisitions Maturities of Year
--------------------------------------------
(In Millions)
December 31, 1999:
------------------
Interest rate floors, caps,
options and swaptions $2,653.0 $ 670.9 $2,320.9 $1,003.0
Interest rate swap
contracts 2,608.6 1,226.2 967.3 2,867.5
Asset swap contracts 63.2 7.8 12.9 58.1
Credit default and total
return swaps 649.6 1,617.3 205.0 2,061.9
Financial futures contracts 608.9 5,586.8 5,518.9 676.8
Foreign currency
derivatives 1,131.2 874.0 320.1 1,685.1
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
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 on 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 on the accompanying
consolidated statements of operations over the term of the agreement.
Interest rate floors and caps, options and swaptions mature during the
years 2000 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
35
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. DERIVATIVE INSTRUMENTS (Continued)
be received or paid pursuant to these agreements are accrued and
recognized through an adjustment to net investment income on the
accompanying consolidated statements of operations over the life of the
agreements. The interest rate swap contracts mature during the years 2000
through 2021.
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
on 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
on the accompanying consolidated statements of operations over the life of
the agreements. Credit default and total return swaps mature during the
years 2000 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 on the accompanying consolidated
statements of operations over the life of the agreements. Foreign currency
derivatives expire during the years 2000 through 2013.
36
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. UNIVERSAL LIFE AND INVESTMENT-TYPE PRODUCTS
The detail of universal life and investment-type product liabilities is as
follows:
[Download Table]
December 31,
1999 1998
-------------------
(In Millions)
Universal life $10,807.7 $10,218.0
Investment-type products 8,237.8 7,755.0
-------------------
$19,045.5 $17,973.0
===================
The detail of universal life and investment-type product policy fees and
interest credited net of reinsurance ceded is as follows:
[Download Table]
Years Ended December 31,
1999 1998 1997
--------------------------
(In Millions)
Policy fees:
Universal life $509.2 $439.9 $377.5
Investment-type products 144.6 85.4 53.7
--------------------------
Total policy fees $653.8 $525.3 $431.2
==========================
Interest credited:
Universal life $443.9 $440.8 $368.2
Investment-type products 460.5 440.0 429.6
--------------------------
Total interest credited $904.4 $880.8 $797.8
==========================
37
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Activity in the liability for unpaid claims and claim adjustment expenses,
which is included in future policy benefits on the accompanying
consolidated statements of financial condition, is summarized as follows:
[Download Table]
Years Ended
December 31,
1999 1998
--------------
(In Millions)
Balance at January 1 $137.4 $140.5
Less reinsurance recoverables 0.1 0.7
--------------
Net balance at January 1 137.3 139.8
--------------
Incurred related to:
Current year 376.8 412.9
Prior years (33.8) (18.3)
--------------
Total incurred 343.0 394.6
--------------
Paid related to:
Current year 286.7 303.5
Prior years 77.1 93.6
--------------
Total paid 363.8 397.1
--------------
Net balance at December 31 116.5 137.3
Plus reinsurance recoverables 0.1 0.1
--------------
Balance at December 31 $116.6 $137.4
==============
As a result of payment of prior years' estimated claims, the provision for
claims and claim adjustment expenses decreased by $33.8 million and $18.3
million for the years ended December 31, 1999 and 1998, respectively. The
reduction is primarily due to lower than anticipated settlement of claims
and reduced claim adjustment expenses.
38
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SHORT-TERM AND LONG-TERM DEBT
Pacific Life borrows for short-term needs by issuing commercial paper.
There was no commercial paper debt outstanding as of December 31, 1999.
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
5.2%. As of December 31, 1999 and 1998, Pacific Life had a revolving
credit facility of $350 million. There was no debt outstanding under the
revolving credit facility as of December 31, 1999 and 1998.
PAM had bank borrowings outstanding of $60 million as of December 31, 1999
and 1998. The interest rate was 6.0%, 5.1% and 6.2% as of December 31,
1999, 1998 and 1997, respectively. Outstanding debt is due and payable in
2000 and subject to renewal. The borrowing limit for PAM as of December
31, 1999 and 1998 was $100 million and $200 million, respectively.
In connection with Pacific Life's acquisition of Grayhawk Golf Holdings,
LLC in 1999, the Company assumed a note payable with a maturity date of
May 22, 2008. The note bears a fixed rate of interest of 7.6%. The
outstanding balance as of December 31, 1999 was $14.8 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, 1999,
1998 and 1997 and is included in net investment income on the accompanying
consolidated statements of operations.
39
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. 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:
[Download Table]
Years Ended December 31,
1999 1998 1997
---------------------------
(In Millions)
Current $152.2 $134.1 $127.9
Deferred (8.5) (20.6) (14.4)
---------------------------
$143.7 $113.5 $113.5
===========================
The sources of the Company's provision for deferred taxes are as follows:
Years Ended December 31,
1999 1998 1997
---------------------------
(In Millions)
Policyholder reserves $ 50.9 $(29.5) $ 20.1
Deferred policy acquisition
costs 20.0 (12.6) (18.0)
Non deductible reserves 4.0 28.2 (27.6)
Partnership income (25.6) 20.8
Investment valuation (28.0) (24.5) 3.9
Duration hedging (29.6) 20.8 (2.6)
Other (0.2) (2.6) 9.8
---------------------------
Deferred taxes from
operations (8.5) 0.6 (14.4)
Release of subsidiary
deferred taxes (21.2)
---------------------------
Deferred tax provision $(8.5) $(20.6) $(14.4)
===========================
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
in 1998.
40
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. INCOME TAXES (Continued)
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:
[Download Table]
Years Ended December 31,
1999 1998 1997
----------------------------
(In Millions)
Provision for income taxes at the
statutory rate $180.1 $124.2 $101.3
Amortization of intangibles on equity
method investments 2.0 4.3 7.6
Non taxable investment income (7.3) (3.6) (2.6)
Tax settlement (7.5)
Low income housing tax credits (19.2) (3.9)
Equity tax (5.0) 5.0
Other (4.4) (2.5) 2.2
----------------------------
Provision for income taxes $143.7 $113.5 $113.5
============================
The net deferred tax asset (liability), included in other assets on the
accompanying consolidated statements of financial condition, is comprised
of the following tax effected temporary differences:
[Download Table]
December 31,
1999 1998
---------------
(In Millions)
Deferred tax assets
Policyholder reserves $203.4 $ 254.3
Investment valuation 72.7 44.7
Deferred compensation 35.4 33.7
Duration hedging 21.1 (8.5)
Postretirement benefits 9.0 8.9
Dividends 8.4 7.6
Partnership income 4.8 (20.8)
Non deductible reserves 1.9 5.9
Other 3.1 5.2
---------------
Total deferred tax assets 359.8 331.0
Deferred tax liabilities
Deferred policy acquisition costs 44.0 24.0
Depreciation 2.7 2.4
---------------
Total deferred tax liabilities 46.7 26.4
---------------
Net deferred tax asset from operations 313.1 304.6
Unrealized (gain) loss on securities 150.8 (272.3)
Issuance of partnership units by affiliate (81.1) (74.9)
---------------
Net deferred tax asset (liability) $382.8 $ (42.6)
===============
41
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. COMPREHENSIVE INCOME
The Company displays comprehensive income and its components on the
accompanying consolidated statements of stockholder's equity and the note
herein. Other comprehensive income is shown net of reclassification
adjustments 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:
[Download Table]
Years Ended December 31,
1999 1998 1997
--------------------------
(In Millions)
Calculation of Holding Gain (Loss):
-----------------------------------
Gross holding gain (loss) on securities
available for sale $(1,179.7) $(53.8) $ 359.8
Deferred policy acquisition costs 43.9 (6.9) (3.1)
Tax (expense) benefit 397.7 21.1 (125.1)
--------------------------
Holding gain (loss) on securities
available for sale, net of tax $ (738.1) $(39.6) $ 231.6
==========================
Calculation of Reclassification
Adjustment:
-------------------------------
Realized gain on sale of securities
available for sale $ 73.4 $ 42.0 $ 55.1
Tax expense (25.2) (14.7) (19.5)
--------------------------
Reclassification adjustment, net of tax $ 48.2 $ 27.3 $ 35.6
==========================
Amounts Reported in Other Comprehensive
Income:
---------------------------------------
Holding gain (loss) on securities
available for sale, net of tax $ (738.1) $(39.6) $ 231.6
Less reclassification adjustment, net of
tax 48.2 27.3 35.6
--------------------------
Net unrealized gain (loss) recognized in
other comprehensive income (loss) $ (786.3) $(66.9) $ 196.0
==========================
42
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. REINSURANCE
The Company has reinsurance agreements with other insurance companies for
the purpose of diversifying risk and limiting exposure on larger mortality
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 of 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 business reinsured on a yearly renewable term
and modified coinsurance basis remain with, and under the control of the
Company. Approximate amounts recoverable (payable) from (to) reinsurers
include the following amounts:
[Download Table]
December 31,
1999 1998
--------------
(In Millions)
Reinsured universal life deposits $(55.3) $(46.0)
Future policy benefits 141.8 108.9
Unpaid claims 8.5 12.5
Paid claims 6.4 24.3
As of December 31, 1999, 74% 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:
[Download Table]
Years Ended December 31,
1999 1998 1997
--------------------------
(In Millions)
Ceded reinsurance netted against insurance
premiums $ 92.8 $ 82.7 $ 70.7
Assumed reinsurance included in insurance
premiums 13.9 17.2 18.1
Ceded reinsurance netted against policy fees 52.3 65.0 77.5
Ceded reinsurance netted against net invest-
ment income 211.9 203.3 204.9
Ceded reinsurance netted against interest
credited 110.5 162.8 165.8
Ceded reinsurance netted against policy bene-
fits 88.4 121.3 93.4
Assumed reinsurance included in policy bene-
fits 8.3 17.7 12.7
43
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SEGMENT INFORMATION
The Company's six operating segments are Life Insurance, Institutional
Products, Annuities, Group Insurance, 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 Life 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 that has produced over 10% of the segment's in force
business. The Institutional Products 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 Insurance 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 insurance brokerage services and
investment advisory services through approximately 3,200 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 operating 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 investment 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 Life 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 $100.5 million and $110 million
as of December 31, 1999 and 1998, respectively. 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
disclosed herein is interest credited to universal life and investment-
type products.
44
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SEGMENT INFORMATION (Continued)
Financial information for each of the business segments is as follows:
[Enlarge/Download Table]
Life Institutional Group Broker- Investment Corporate
Insurance Products Annuities Insurance Dealers Management and Other Total
-------------------------------------------------------------------------------------
External customers and (In Millions)
other revenue
December 31, 1999 $ 502.0 $ 39.1 $ 205.0 $478.4 $253.2 $ 14.9 $ 24.1 $ 1,516.7
December 31, 1998 431.9 43.2 124.0 521.2 236.1 17.0 21.6 1,395.0
December 31, 1997 395.6 61.4 83.3 480.6 154.0 21.2 6.0 1,202.1
Intersegment revenues
December 31, 1999 348.5 (348.5) -
December 31, 1998 185.3 (185.3) -
December 31, 1997 143.3 (143.3) -
Net investment income
excluding earnings of
equity method investees
December 31, 1999 580.2 645.1 78.3 23.4 0.9 8.3 44.2 1,380.4
December 31, 1998 586.5 565.5 88.6 23.1 0.9 8.0 42.0 1,314.6
December 31, 1997 507.2 509.6 149.4 24.9 0.8 6.2 49.2 1,247.3
Earnings of equity
method investees
December 31, 1999 (0.7) (1.2) (0.1) 107.9 (13.0) 92.9
December 31, 1998 0.1 103.1 (4.2) 99.0
December 31, 1997 0.2 80.7 (2.8) 78.1
Net realized investment
gains (losses)
December 31, 1999 12.6 26.8 0.1 (0.6) 9.9 52.7 101.5
December 31, 1998 4.1 (13.6) 4.6 1.7 4.0 38.6 39.4
December 31, 1997 9.9 12.8 0.6 2.0 20.8 39.3 85.4
Total revenues
December 31, 1999 1,094.1 709.8 283.3 501.2 602.6 141.0 (240.5) 3,091.5
December 31, 1998 1,022.5 595.2 217.2 546.0 422.3 132.1 (87.3) 2,848.0
December 31, 1997 912.7 584.0 233.3 507.5 298.1 128.9 (51.6) 2,612.9
Income (loss) before
provision for
income tax
December 31, 1999 178.4 111.9 73.2 30.4 11.9 62.6 46.3 514.7
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
Provision (benefit) for
income tax
December 31, 1999 54.4 30.7 24.0 10.1 5.2 11.3 8.0 143.7
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
Net income (loss)
December 31, 1999 124.0 81.2 49.2 20.3 6.7 51.3 38.3 371.0
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
Interest credited on
universal life and
investment-type
products
December 31, 1999 451.4 383.8 65.1 4.1 904.4
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
Assets
As of December 31, 1999 16,276.1 17,649.4 14,565.2 341.5 60.9 264.5 965.4 50,123.0
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
45
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. 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 the net periodic pension benefit are as follows:
[Download Table]
Years Ended December 31,
1999 1998 1997
----------------------------
(In Millions)
Service cost - benefits earned during
the year $ 4.6 $ 4.0 $ 3.6
Interest cost on projected benefit
obligation 11.5 10.9 10.4
Expected return on plan assets (16.3) (15.0) (12.8)
Amortization of net obligations and
prior service cost (1.4) (1.4) (1.4)
----------------------------
Net periodic pension benefit $ (1.6) $ (1.5) $ (0.2)
============================
46
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. 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:
[Download Table]
December 31,
1999 1998
--------------
(In Millions)
Change in Benefit Obligation:
-----------------------------
Benefit obligation, beginning of year $177.8 $157.9
Service cost 4.6 4.0
Interest cost 11.5 10.9
Plan expense (0.3) (0.3)
Actuarial (gain) loss (30.7) 11.9
Benefits paid (7.0) (6.6)
--------------
Benefit obligation, end of year $155.9 $177.8
==============
Change in Plan Assets:
----------------------
Fair value of plan assets, beginning of year $195.3 $180.3
Actual return on plan assets 23.6 21.9
Plan expense (0.3) (0.3)
Benefits paid (7.0) (6.6)
--------------
Fair value of plan assets, end of year $211.6 $195.3
==============
Funded Status Reconciliation:
-----------------------------
Funded status $ 55.7 $ 17.5
Unrecognized transition asset (47.7) (3.6)
Unrecognized prior service cost (2.4) (1.0)
Unrecognized actuarial gain (0.8) (9.7)
--------------
Prepaid pension cost $ 4.8 $ 3.2
==============
In determining the actuarial present value of the projected benefit
obligation as of December 31, 1999 and 1998, the weighted average discount
rate used was 8.0% and 6.5%, respectively, and the rate of increase in
future compensation levels was 5.5% and 5.0%, respectively. The expected
long-term rate of return on plan assets was 8.5% in 1999 and 1998.
47
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. PENSION PLANS, POSTRETIREMENT BENEFITS AND OTHER PLANS (Continued)
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 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, 1999, 1998 and 1997 is $0.5 million, $0.7 million and $0.8 million,
respectively. As of December 31, 1999 and 1998, the accumulated benefit
obligation is $19.7 million and $19.3 million, respectively. The fair
value of the plan assets as of December 31, 1999 and 1998 is zero. The
amount of accrued benefit cost included in other liabilities on the
accompanying consolidated statements of financial condition is $24.4
million and $25.3 million as of December 31, 1999 and 1998, 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 8.0% for 1999 and 1998 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 7.0% for 1999 and 1998 and is assumed to
decrease gradually to 3.0% 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, 1999 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 10.1%. If the health care cost trend rate assumptions
were decreased by 1%, the accumulated postretirement benefit obligation as
of December 31, 1999 would be decreased by 7.0%, and the aggregate of the
service and interest cost components of the net periodic benefit cost
would decrease by 8.9%.
The discount rate used in determining the accumulated postretirement
benefit obligation is 8.0% and 6.5% for 1999 and 1998, 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 ("ESOP"). ESOP contributions made by the Company amounted to
$5.4 million, $5.2 million and $1.1 million for the years ended December
31, 1999, 1998 and 1997, respectively, and are included in operating
expenses on the accompanying consolidated statements of operations.
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 LifeCorp issued 1.7 million shares of common stock
at
48
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. PENSION PLANS, POSTRETIREMENT BENEFITS AND OTHER PLANS (Continued)
$12.50 per share to the ESOP ("ESOP Shares") on September 2, 1997, in
exchange for a promissory note in the amount of $21.2 million ("ESOP
Note"). Interest and principal payments made by the ESOP to Pacific
LifeCorp were funded by ESOP contributions from Pacific Life.
On July 27, 1999, Pacific Life loaned cash to the ESOP to pay off the ESOP
Note due Pacific LifeCorp. This loan is included in unearned ESOP shares
on the accompanying consolidated statement of stockholder's equity as of
December 31, 1999. The unearned ESOP shares account is reduced as ESOP
shares are released for allocation to participants through ESOP
contributions by Pacific Life. In addition, when the fair value of ESOP
shares being released for allocation to participants exceeds the original
issue price of those shares, paid-in capital is increased by this
difference and reflected as a capital contribution on the accompanying
consolidated statement of stockholder's equity as of December 31, 1999.
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.
16. 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 $69.7 million, $42.1 million and $27.5 million for the years
ended December 31, 1999, 1998 and 1997, respectively. In addition, Pacific
Life provides certain support services to the Pacific Select Fund for an
administration fee which is based on an allocation of actual costs. Such
administration fees amounted to $265,000, $232,000 and $165,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
PIMCO Advisors provides investment advisory services to the Company for
which the fees amounted to $7.3 million, $16.9 million and $11.4 million
for the years ended December 31, 1999, 1998 and 1997, 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 $3.2 million and
$40.3 million as of December 31, 1999 and 1998, 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 $1.0 million, $1.2 million and $1.2 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
17. TERMINATION AND NON COMPETITION AGREEMENTS
The Company has termination and non competition agreements 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 non
compete 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, 1999, 1998 and 1997, approximately $53.6
million, $49.4 million and $85.8 million, respectively, is included in
operating expenses on the accompanying consolidated statements of
49
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. TERMINATION AND NON COMPETITION AGREEMENTS (Continued)
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.
In connection with the closing of the PIMCO Advisors transaction (Note 1),
the termination and non competition agreements with certain former key
employees of PAM's subsidiaries will be assumed by Allianz.
18. COMMITMENTS AND CONTINGENCIES
The Company has outstanding commitments to make investments primarily in
fixed maturity securities, mortgage loans, limited partnerships and other
investments as follows (In Millions):
[Download Table]
Years Ending December 31:
-------------------------
2000 $437.0
2001 through 2004 210.8
2005 and thereafter 144.3
------
Total $792.1
======
The Company leases office facilities under various non cancelable
operating leases. Aggregate minimum future commitments as of December 31,
1999 through the term of the leases are approximately $43.3 million.
Pacific Life has a contingent liability of approximately $23 million
related to the posting of an appeal bond in conjunction with one of its
investments. An unrelated third party has agreed to reimburse Pacific Life
for 50% of any losses incurred under the bond. In addition, Pacific Life
has given a commitment for additional capital funding, as may be required,
to certain of its subsidiaries.
Pacific Life 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 Pacific Life on or after January 1, 1982. Pacific Life
has settled this litigation pursuant to a final settlement agreement
approved by the Court in November 1998. The settlement agreement was
implemented during 1999.
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.
---------------------------------------------------------------------------
50
PART II
Part C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
Part A: NONE
Part B:
(1) Registrant's Financial Statements [TO BE UPDATED]
Audited Financial Statements dated as of December 31, 1999
which are incorporated by reference from the Annual Report
include the following for Separate Account A:
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Notes to Financial Statements
(2) Depositor's Financial Statements [TO BE UPDATED]
Audited Consolidated Financial Statements dated as of
December 31, 1999 and 1998, and for the three year
period ending December 31, 1999, included in
Part B include the following for Pacific Life:
Consolidated Statements of Financial Position
Consolidated Statements of Operations and Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) Exhibits
1. (a) Resolution of the Board of Directors of the
Depositor authorizing establishment of Separate
Account A and Memorandum establishing Separate
Account A.
(b) Memorandum Establishing Two New Variable
Accounts--Aggressive Equity and Emerging Markets
Portfolios.
(c) Resolution of the Board of Directors of Pacific
Life Insurance Company authorizing conformity to
the terms of the current Bylaws.
II-1
2. Not applicable
3. (a) Distribution Agreement between Pacific Life
Insurance Company (formerly Pacific Mutual Life
Insurance Company) and Pacific Select
Distributors, Inc. ("PSD") (formerly Pacific
Equities Network)
(b) Form of Selling Agreement between Pacific Life
Insurance Company (formerly Pacific Mutual Life
Insurance Company), PSD and Various Broker-Dealers
4. (a) Individual Flexible Premium Deferred
Variable Annuity Contract (Form No. 10-13200)
(b) Qualified Pension Plan Rider (Form R90-Pen-V)
(c) 403(b) Tax-Sheltered Annuity Rider (Form
No. 20-13300)
(d) Form of Section 457 Plan Rider (Form R95-457)
(e) Individual Retirement Annuity Rider (Form
No. 20-13900)
(f) Roth Individual Retirement Annuity Rider (Form
R-RIRA 198)
(g) Simple Individual Retirement Annuity Rider (Form
No. 20-13400)
(h) Stepped-Up Death Benefit Rider (Form No. 20-13500)
(i) Premier Death Benefit Rider (Form No. 20-13600)
5. (a) Application Form for Individual Flexible Premium
Deferred Variable Annuity Contract (Form
No. 25-13200)
(b) Form of Variable Annuity PAC APP
(c) Form of Application/Confirmation Form
6. (a) Pacific Life's Articles of Incorporation
(b) By-laws of Pacific Life
7. Not applicable
8. Fund Participation Agreement
9. Opinion and Consent of legal officer of Pacific Life as
to the legality of Contracts being registered.
II-2
10. Independent Auditors Consent
11. Not applicable
12. Not applicable
13. Performance Calculations
14. Not applicable
15. Powers of Attorney
16. Not applicable
Item 25. Directors and Officers of Pacific Life
Positions and Offices
Name and Address with Pacific Life
Thomas C. Sutton Director, Chairman of the Board, and
Chief Executive Officer
Glenn S. Schafer Director and President
Khanh T. Tran Director, Senior Vice President and
Chief Financial Officer
David R. Carmichael Director, Senior Vice President and
General Counsel
Audrey L. Milfs Director, Vice President and Corporate
Secretary
Brian D. Klemens Vice President and Treasurer
Edward R. Byrd Vice President and Controller
Gerald W. Robinson Executive Vice President
______________________________
The address for each of the persons listed above is as follows:
700 Newport Center Drive
Newport Beach, California 92660
II-3
Item 26. Persons Controlled by or Under Common Control with Pacific Life
or Separate Account A
The following is an explanation of the organization chart of Pacific
Life's subsidiaries:
PACIFIC LIFE, SUBSIDIARIES & AFFILIATED ENTERPRISES
LEGAL STRUCTURE
Pacific Life is a California Stock Life Insurance Company wholly-owned
by Pacific LifeCorp (a Delaware Stock Holding Company) which is, in
turn, 99% owned by Pacific Mutual Holding Company (a California Mutual
Holding Company). Pacific Life is the parent company of Pacific Asset
Management LLC (a Delaware Limited Liability Company), Pacific Life &
Annuity Company, formerly known as PM Group Life Insurance Company (an
Arizona Stock Life Insurance Company), Pacific Select Distributors,
Inc. (formerly known as Pacific Mutual Distributors, Inc.), and World-
Wide Holdings Limited (a United Kingdom Corporation). Pacific Life
also has a 40% ownership of American Maturity Life Insurance Company
(a Connecticut Stock Life Insurance Company), a 50% ownership of
Pacific Mezzanine Associates, L.L.C. (a Delaware Limited Liability
Company and a 95% ownership of Grayhawk Golf Holdings, LLC). A
subsidiary of Pacific Mezzanine Associates, L.L.C. is Pacific
Mezzanine Investors, L.L.C., (a Delaware Limited Liability Company)
who is the sole general partner of the PMI Mezzanine Fund, L.P. (a
Delaware Limited Partnership). Subsidiaries of Pacific Asset
Management LLC are PMRealty Advisors Inc. and Pacific Financial
Products Inc. (a Delaware Corporation). Pacific Asset Management LLC
has an approximate 30% beneficial economic interest in PIMCO Advisors
L.P. (a Delaware Limited Partnership). Subsidiaries of Pacific Select
Distributors, Inc. include: Associated Financial Group, Inc.; Mutual
Service Corporation (a Michigan Corporation), along with its
subsidiaries Advisors' Mutual Service Center, Inc. (a Michigan
Corporation) and Titan Value Equities Group, Inc.; and United
Planners' Group, Inc. (an Arizona Corporation), along with its
subsidiary United Planners' Financial Services of America (an Arizona
Limited Partnership). Subsidiaries of World-Wide Holdings Limited
include: World-Wide Reassurance Company Limited (a United Kingdom
Corporation) and World-Wide Reassurance Company (BVI) Limited (a
British Virgin Islands Corporation). All corporations are 100% owned
unless otherwise indicated. All entities are California corporations
unless otherwise indicated.
II-4
Item 27. Number of Contractholders
None
Item 28. Indemnification
(a) The Distribution Agreement between Pacific Life (formerly Pacific
Mutual Life) and Pacific Select Distributors, Inc. ("PSD",
formerly known as Pacific Mutual Distributors, Inc.) provides
substantially as follows:
Pacific Life hereby agrees to indemnify and hold harmless PSD and
its officers and directors, and employees for any expenses
(including legal expenses), losses, claims, damages, or
liabilities incurred by reason of any untrue or alleged untrue
statement or representation of a material fact or any omission or
alleged omission to state a material fact required to be stated
to make other statements not misleading, if made in reliance on
any prospectus, registration statement, post-effective amendment
thereof, or sales materials supplied or approved by Pacific Life
or the Separate Account. Pacific Life shall reimburse each such
person for any legal or other expenses reasonably incurred in
connection with investigating or defending any such loss,
liability, damage, or claim. However, in no case shall Pacific
Life be required to indemnify for any expenses, losses, claims,
damages, or liabilities which have resulted from the willful
misfeasance, bad faith, negligence, misconduct, or wrongful act
of PSD.
PSD hereby agrees to indemnify and hold harmless Pacific Life,
its officers, directors, and employees, and the Separate Account
for any expenses, losses, claims, damages, or liabilities arising
out of or based upon any of the following in connection with the
offer or sale of the contracts: (1) except for such statements
made in reliance on any prospectus, registration statement or
sales material supplied or approved by Pacific Life or the
Separate Account, any untrue or alleged untrue statement or
representation made; (2) any failure to deliver a currently
effective prospectus; (3) the use of any unauthorized sales
literature by any officer, employee or agent of PSD or Broker;
(4) any willful misfeasance, bad faith, negligence, misconduct or
wrongful act. PSD shall reimburse each such person for any legal
or other expenses reasonably incurred in connection with
investigating or defending
II-5
any such loss, liability, damage, or claim.
(b) The Form of Selling Agreement between Pacific Life, Pacific
Select Distributors, Inc. ("PSD") (formerly Pacific Mutual
Distributors, Inc.) and Various Broker-Dealers provides
substantially as follows:
Pacific Life and PSD agree to indemnify and hold harmless Selling
Broker-Dealer and General Agent, their officers, directors,
agents and employees, against any and all losses, claims, damages
or liabilities to which they may become subject under the 1933
Act, the 1934 Act, or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact or any omission to state a
material fact required to be stated or necessary to make the
statements made not misleading in the registration statement for
the Contracts or for the shares of Pacific Select Fund (the
"Fund") filed pursuant to the 1933 Act, or any prospectus
included as a part thereof, as from time to time amended and
supplemented, or in any advertisement or sales literature
approved in writing by Pacific Life and PSD pursuant to Section
IV.E. of this Agreement.
Selling Broker-Dealer and General Agent agree to indemnify and
hold harmless Pacific Life, the Fund and PSD, their officers,
directors, agents and employees, against any and all losses,
claims, damages or liabilities to which they may become subject
under the 1933 Act, the 1934 Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon: (a) any oral or
written misrepresentation by Selling Broker-Dealer or General
Agent or their officers, directors, employees or agents unless
such misrepresentation is contained in the registration statement
for the Contracts or Fund shares, any prospectus included as a
part thereof, as from time to time amended and supplemented, or
any advertisement or sales literature approved in writing by
Pacific Life and PSD pursuant to Section IV.E. of this Agreement,
(b) the failure of Selling Broker-Dealer or General Agent or
their officers, directors, employees or agents to comply with any
applicable provisions of this Agreement or (c) claims by Sub-
agents or employees of General Agent or Selling Broker-Dealer for
payments of compensation or remuneration of any type. Selling
Broker-Dealer and General Agent will reimburse Pacific Life or
PSD or any director, officer, agent or employee of either entity
for any legal or other expenses reasonably incurred by Pacific
Life, PSD, or such officer, director, agent or employee in
connection with investigating or defending any such loss, claims,
damages, liability or action. This indemnity agreement will be in
addition to any liability which Broker-Dealer may otherwise have.
II-6
Item 29. Principal Underwriters
(a) PSD (formerly Pacific Mutual Distributors, Inc.) also acts as
principal underwriter for Pacific Select Separate Account,
Pacific Select Exec Separate Account, Pacific Select Variable
Annuity Separate Account, Pacific Corinthian Variable Separate
Account, Separate Account B and Pacific Select Fund.
(b) For information regarding PSD, reference is made to Form B-D, SEC
File No. 8-15264, which is herein incorporated by reference.
(c) PSD retains no compensation or net discounts or commissions from
the Registrant.
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be maintained
by Registrant pursuant to Section 31(a) of the Investment Company
Act of 1940 and the rules under that section will be maintained
by Pacific Life at 700 Newport Center Drive, Newport Beach,
California 92660.
Item 31. Management Services
Not applicable
Item 32. Undertakings
The registrant hereby undertakes:
(a) to file a post-effective amendment to this registration statement
as frequently as is necessary to ensure that the audited
financial statements in this registration statement are never
more than 16 months old for so long as payments under the
variable annuity contracts may be accepted, unless otherwise
permitted.
(b) to include either (1) as a part of any application to purchase a
contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information, or (2) a
post card or similar written communication affixed to or included
in the prospectus that the applicant can remove to send for a
Statement of Additional Information, or (3) to deliver a
Statement of Additional Information with the Prospectus.
(c) to deliver any Statement of Additional Information and any
financial statements required to be made available under this
Form promptly upon written or oral request.
Additional Representations
II-7
(a) The Registrant and its Depositor are relying upon American Council of
Life Insurance, SEC No-Action Letter, SEC Ref. No. 1P-6-88 (November 28, 1988)
with respect to annuity contracts offered as funding vehicles for retirement
plans meeting the requirements of Section 403(b) of the Internal Revenue Code,
and the provisions of paragraphs (1)-(4) of this letter have been complied with.
(b) The Registrant and its Depositor are relying upon Rule 6c-7 of the
Investment Company Act of 1940 with respect to annuity contracts offered as
funding vehicles to participants in the Texas Optional Retirement Program, and
the provisions of Paragraphs (a)-(d) of the Rule have been complied with.
(c) 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 Annuity Contract
("Contract") described in the prospectus contained in this registration
statement are, in the aggregate, reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed in
connection with the Contract.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets the requirements of
Securities Act Rule 485 for effectiveness of this Registration Statement and has
caused this Registration Statement on Form N-4 to be signed on its behalf by the
undersigned thereunto duly authorized in the City of Newport Beach, and the
State of California on this 29th day of December, 2000.
SEPARATE ACCOUNT A
(Registrant)
By: PACIFIC LIFE INSURANCE COMPANY
By:
Thomas C. Sutton*
Chairman and Chief Executive Officer
By: PACIFIC LIFE INSURANCE COMPANY
(Depositor)
By:
Thomas C. Sutton*
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
[Download Table]
Signature Title Date
Thomas C. Sutton* Director, Chairman of the Board December 29, 2000
and Chief Executive Officer
Glenn S. Schafer* Director and President December 29, 2000
Khanh T. Tran* Director, Senior Vice December 29, 2000
President and Chief Financial
Officer
David R. Carmichael* Director, Senior Vice December 29, 2000
President and General Counsel
Audrey L. Milfs* Director, Vice President and December 29, 2000
Corporate Secretary
[Download Table]
Edward R. Byrd* Vice President and Controller December 29, 2000
Brian D. Klemens* Vice President and Treasurer December 29, 2000
Gerald W. Robinson* Executive Vice President December 29, 2000
*By: /s/ DAVID R. CARMICHAEL December 29, 2000
David R. Carmichael
as attorney-in-fact
(Powers Of Attorney are contained in this Registration Statement on Form
N-4 for Separate Account A, as Exhibit 15.)
Dates Referenced Herein and Documents Incorporated by Reference
23 Subsequent Filings that Reference this Filing
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