As filed with the Securities and Exchange Commission on December 27, 2001
Registration No. 333-62446
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT
NO. 1 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
PACIFIC SELECT EXEC SEPARATE ACCOUNT OF
PACIFIC LIFE & ANNUITY COMPANY
(Exact Name of Registrant)
PACIFIC LIFE & ANNUITY COMPANY
(Name of Depositor)
700 Newport Center Drive
P.O. Box 9000
Newport Beach, California 92660
(Address of Depositor's Principal Executive Office)
(949)219-3743
(Depositor's Telephone Number, including Area Code)
Diane N. Ledger
Vice President
Pacific Life Insurance Company
700 Newport Center Drive
P.O. Box 9000
Newport Beach, California 92660
(Name and Address of Agent for Service of Process)
Copies to:
Jeffrey S. Puretz, Esq.
Dechert
1775 Eye Street, N.W.
Washington, D.C. 20006-2401
Title of securities being registered: interests in the Separate Account under
Pacific Select Estate Preserver-NY Flexible Premium Variable Life Insurance
Policies.
Approximate date of proposed public offering: As soon as practicable after the
effective date of the Registration Statement.
The Registrant hereby amends 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 thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Filing fee: None
Pacific Select Exec Separate Account of Pacific
Life & Annuity Company
RECONCILIATION AND TIE BETWEEN ITEMS IN FORM N-8B2 AND THE PROSPECTUS
(PURSUANT TO INSTRUCTION 4 OF FORM S-6)
CROSS-REFERENCE SHEET
Pursuant to Rule 404(c) of Regulation C under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction as to the Prospectus in Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
1. (a) Name of trust............................... Prospectus front cover
(b) Title of securities issued.................. Prospectus front cover
2. Name and address of each depositor............... Prospectus front cover; Back Cover
3. Name and address of trustee...................... N/A
4. Name and address of each principal underwriter... About PL&A
5. State of organization of trust................... Pacific Select Exec Separate
Account
6. Execution and termination of trust agreement..... Pacific Select Exec Separate
Account
7. Changes of name.................................. N/A
8. Fiscal year...................................... N/A
9. Material Litigation.............................. N/A
II. General Description of the Trust and Securities of the Trust
10. (a) Registered or bearer securities............. Pacific Select Estate Preserver-NY basics; The death benefit
(b) Cumulative or distributive
securities................................ Pacific Select Estate Preserver-NY basics; The death benefit
(c) Withdrawal or redemption......... Withdrawals, surrenders and loans
(d) Conversion, transfer, etc........ Withdrawals, surrenders and loans
(e) Periodic payment plan............ N/A
(f) Voting rights.................... Voting Rights
(g) Notice to security holders....... Reports we'll send you
(h) Consents required................ Voting Rights
(i) Other provisions................. N/A
11. Type of securities comprising
units................................. Pacific Select Estate Preserver-NY basics
12. Certain information regarding
periodic payment plan certificates.... N/A
13. (a) Load, fees, expenses, etc......... Deductions from your premiums; Surrendering your policy
(b) Certain information regarding
periodic payment plan certificates.... N/A
(c) Certain percentages................... Deductions from your premiums; Surrendering your policy
(d) Difference in price................... N/A
(e) Certain other fees, etc............... Deductions from your premiums; Surrendering your policy
(f) Certain other profits or
benefits.............................. The death benefit; Your policy's accumulated value
(g) Ratio of annual charges to
income................................ N/A
14. Issuance of trust's securities........ Pacific Select Exec Estate Preserver-NY basics
15. Receipt and handling of payments
From purchasers..................... How premiums work
16. Acquisition and disposition of Your policy's accumulated
underlying securities............... value: Your investment
options
17. Withdrawal or redemption............ Withdrawals, surrenders
and loans
18. (a) Receipt, custody and disposition
of income....................... Your policy's accumulated
value
(b) Reinvestment of distributions... N/A
(c) Reserves or special funds....... N/A
(d) Schedule of distributions....... N/A
19. Records, accounts and reports....... Statements and
Reports
20. Certain miscellaneous provisions
of trust agreement:
(a) Amendment....................... N/A
(b) Termination..................... N/A
(c) and (d) Trustees, removal and
successor....................... N/A
(e) and (f) Depositors, removal
and successor................... N/A
21. Loans to security holders........... Withdrawals,
surrenders and loans
22. Limitations on liability............ N/A
23. Bonding arrangements................ N/A
24. Other material provisions of
trust agreement..................... N/A
III. Organizations, Personnel and Affiliated Persons of Depositor
25. Organization of depositor...................................................... About PL&A
26. Fees received by depositor..................................................... See Items 13(a) and 13(e)
27. Business of depositor.......................................................... About PL&A
28. Certain information as to officials and affiliated persons of depositor........ About PL&A
29. Voting securities of depositor................................................. N/A
30. Persons controlling depositor.................................................. N/A
31. Payments by depositor for certain services rendered to trust................... N/A
32. Payments by depositor for certain other services rendered to trust............. N/A
33. Remuneration of employees of depositor for certain services rendered to trust.. N/A
34. Remuneration of other persons for certain services rendered to trust........... N/A
IV. Distribution and Redemption of Securities
35. Distribution of trust's securities by states................................... N/A
36. Suspension of sales of trust's securities...................................... N/A
37. Revocation of authority to distribute.......................................... N/A
38. (a) Method of distribution.......................................... How policies are distributed
(b) Underwriting agreements......................................... How policies are distributed
(c) Selling agreements.............................................. How policies are distributed
39. (a) Organization of principal underwriters.......................... How policies are distributed
(b) N.A.S.D. membership of principal underwriters................... How policies are distributed
40. Certain fees received by principal underwriters...................... How policies are distributed
41. (a) Business of each principal underwriter.......................... How policies are distributed
(b) Branch offices of each principal underwriter.................... N/A
(c) Salesmen of each principal underwriter.......................... N/A
42. Ownership of trust's securities by certain persons................... N/A
43. Certain brokerage commissions received by principal underwriters..... N/A
44. (a) Method of valuation............................................. Your policy's accumulated value
(b) Schedule as to offering price................................... How premiums work
(c) Variation in offering price to certain persons.................. Monthly deductions
45. Suspension of redemption rights...................................... Timing of payments, forms, and requests
46. (a) Redemption valuation................................................... Withdrawals, surrenders and loans
(b) Schedule as to redemption price........................................ Withdrawals, surrenders and loans
47. Maintenance of position in underlying securities............................ Your investment options
V. Information Concerning the Trustee or Custodian
48. Organization and regulation of trustee...................................... N/A
49. Fees and expenses of trustees............................................... N/A
50. Trustee's lien.............................................................. N/A
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of trust's securities.................................. The death benefit
VII. Policy of Registrant
52. (a) Provisions of trust agreement with respect to selection
or elimination of under lying securities............................... How our accounts work
(b) Transactions involving elimination of underlying securities............ How our accounts work
(c) Policy regarding substitution or elimination of underlying securities.. How our accounts work
(d) Fundamental policy not otherwise covered............................... N/A
53. Tax status of trust......................................................... Variable life insurance and your taxes
VIII. Financial and Statistical Information
54. Trust's securities during last ten years.......... N/A
55. N/A
56. Certain information regarding periodic payment
plan certificates................................. N/A
57. N/A
58. N/A
59. Financial statements (Instruction 1(c) of
"Instructions as to the Prospectus" of Form S-6).. Financial Statements
PACIFIC SELECT PROSPECTUS , 2001
ESTATE PRESERVER - NY
Pacific Select Estate Preserver - NY is a last survivor
flexible premium variable life insurance policy issued
by Pacific Life & Annuity Company.
This policy is not This prospectus provides information that you should
available in all know before buying a policy. It's accompanied by a
states. This current prospectus for the Pacific Select Fund, a fund
prospectus is not that provides the underlying portfolios for the
an offer in any variable investment options offered under the policy.
state or Please read these prospectuses carefully and keep them
jurisdiction where for future reference.
we're not legally
permitted to offer Here's a list of all of the investment options
the policy. available under your policy:
The policy is VARIABLE INVESTMENT OPTIONS
described in detail
in this prospectus. Blue Chip International Value
The Pacific Select
Fund is described Aggressive Growth Capital Opportunities
in its prospectus
and in its Emerging Markets Mid-Cap Growth
Statement of
Additional Diversified Research Global Growth
Information (SAI).
No one has the Small-Cap Equity Equity Index
right to describe
the policy or the International Large-Cap Small-Cap Index
Pacific Select Fund
any differently I-Net Tollkeeper SM REIT
than they have been
described in these Financial Services Inflation Managed
documents. (formerly called
Health Sciences "Government Securities")
You should be aware
that the Securities Technology Managed Bond
and Exchange
Commission (SEC) Telecommunications Money Market
has not reviewed
the policy for its Multi-Strategy High Yield Bond
investment merit,
and does not Large-Cap Core Equity Income
guarantee that the (formerly called
information in this "Equity Income") Research
prospectus is
accurate or Strategic Value Equity
complete. It's a
criminal offense Growth LT Aggressive Equity
to say otherwise.
Focused 30 Large-Cap Value
Mid-Cap Value
FIXED OPTIONS
Fixed Account
Fixed LT Account
YOUR GUIDE TO THIS PROSPECTUS
An overview of Pacific Select Estate Preserver - NY 4
- ----------------------------------------------------------------------
Pacific Select Estate Preserver - NY basics 12
Owners, people insured by the policy, and beneficiaries 13
Policy date, monthly payment date, policy anniversary date 14
Statements and reports we'll send you 15
Your right to cancel 15
Timing of payments, forms and requests 16
Telephone and electronic transactions 17
- ----------------------------------------------------------------------
The death benefit 18
Choosing your death benefit option 18
The guideline minimum death benefit 19
When we pay the death benefit 19
Comparing the death benefit options 20
Changing your death benefit option 20
Decreasing the face amount 21
Optional riders 21
- ----------------------------------------------------------------------
How premiums work 22
Planned periodic premium payments 22
Paying your premium 23
Deductions from your premiums 23
Allocating your premiums 24
Limits on the premium payments you can make 24
- ----------------------------------------------------------------------
Your policy's accumulated value 26
Calculating your policy's accumulated value 26
Persistency credit 26
Monthly deductions 27
Lapsing and reinstatement 29
- ----------------------------------------------------------------------
Your investment options 31
Variable investment options 31
Fixed options 36
Transferring among investment options 36
Transfer programs 37
- ----------------------------------------------------------------------
Withdrawals, surrenders and loans 39
Making withdrawals 39
Taking out a loan 40
Ways to use your policy's loan and withdrawal features 41
Automated income option 42
Surrendering your policy 44
Policy restoration 45
- ----------------------------------------------------------------------
General information about your policy 46
- ----------------------------------------------------------------------
Variable life insurance and your taxes 49
- ----------------------------------------------------------------------
About PL&A 53
- ----------------------------------------------------------------------
Appendices 113
Appendix A: Joint equal age 113
Appendix B: Rates per $1,000 of initial face amount 114
Appendix C: Death benefit percentages 115
Appendix D: Death benefit factor table 116
- ----------------------------------------------------------------------
Where to go for more information back cover
2
Terms used in this prospectus
We've tried to make this prospectus easy to read and
understand, but you may find some words and terms that
are new to you. We've identified some of these below
and the pages where you'll find an explanation of what
they mean.
If you have any questions, please ask your registered
representative or call us at 1-888-595-6997.
Accumulated value 26 Joint owners 13
Accumulation units 34 Lapse 29
Age 13 Loan account 40
In this prospectus, Allocation 23 Modified endowment contract 49
you and your mean Assignment 48 Monthly payment date 14
the policy holder Beneficiary 14 Net amount at risk 20
or owner. PL&A, we, Business day 16 Net cash surrender value 44
us and our refer to Cash surrender value 44 Net premium 22
Pacific Life & Contingent beneficiary 14 Outstanding loan amount 40
Annuity Company. Cost of insurance rate 27 Planned periodic premium 22
The fund refers to Death benefit 18 Policy anniversary 14
Pacific Select Death benefit factor 19 Policy date 14
Fund. Policy means Death benefit percentage 19 Policy year 14
a Pacific Select Face amount 18 Portfolio 31
Estate Preserver - Fixed account 36 Proper form 16
NY variable life Fixed LT account 36 Reinstatement 29
insurance policy, Fixed options 36 Riders 21
unless we state General account 54 Sales surrender target 44
otherwise. Guideline minimum death benefit 19 Separate account 54
Guideline premium limit 24 Seven-pay limit 51
Illustration 15 Tax code 49
In force 12 Unit value 34
Income benefit 46 Variable account 31
Income period 43 Variable investment option 31
Joint equal age 28
3
AN OVERVIEW OF PACIFIC SELECT ESTATE PRESERVER - NY
This overview tells you some key things you should know
about your policy. It's designed as a summary only -
please read the entire prospectus and your policy for
more detailed information.
Some states have different rules about how life
insurance policies are described or administered. The
terms of your policy, or of any endorsement or rider,
prevail over what's in this prospectus.
---------------------------------------------------------
Pacific Select Pacific Select Estate Preserver - NY is a last survivor
Estate Preserver - flexible premium variable life insurance policy.
NY basics
. Last survivor means the policy insures the lives of
Last survivor life two people and provides a death benefit that's
insurance may be payable after both people have died.
appropriate for two
spouses who want to . Flexible premium means you can vary the amount and
provide a death frequency of your premium payments.
benefit for their
children. . Variable means the policy's value depends on the
performance of the investment options you choose.
This may not be the
right kind of . Life insurance means the policy provides a death
policy for someone benefit to the beneficiary you choose.
who wants to
provide a death In addition to providing a death benefit that is
benefit for his or generally free of federal income tax, any growth in
her spouse. In that your policy's accumulated value is tax-deferred. You
case, a policy that can choose from 33 variable investment options, each of
insures a single which invests in a corresponding portfolio of the
life may be more Pacific Select Fund, and from two fixed options, both
appropriate. of which provide a guaranteed minimum rate of interest.
Please discuss your You may choose to allocate net premium and accumulated
insurance needs and value to no more than 20 investment options at any one
financial time.
objectives with
your registered Pacific Select Estate Preserver - NY is designed for
representative. long-term financial planning. Please take some time to
read the information in this prospectus before you
You'll find more decide if this life insurance policy meets your
about the basics insurance needs and financial objectives.
of Pacific Select
Estate Preserver - Your right to cancel
NY starting on During the free look period, you have the right to
page 12. cancel your policy and return it to us or your
registered representative for a refund. We'll refund
the amount of your premium payments. We'll hold the net
premiums in the Money Market investment option until
the free look transfer date.
4
---------------------------------------------------------
The death benefit You can choose one of four death benefit options
depending on what is more important to you: a larger
Your policy death benefit or building the accumulated value of your
provides a death policy.
benefit for your
beneficiary after You can change your death benefit option and reduce
both of the people your policy's face amount (with certain restrictions)
insured by the while your policy is in force.
policy have died,
as long as your Optional riders
policy is in force.
There are three optional riders that provide extra
You'll find more benefits, some at additional cost. Not all riders are
about the death available in every state, and some riders may only be
benefit starting on added when you apply for your policy.
page 18.
---------------------------------------------------------
How premiums work Deductions from your premiums
We deduct a premium load from each premium payment you
Your policy gives make. The premium load is made up of a sales load, a
you the flexibility state and local tax charge, and a federal tax charge.
to choose the
amount and Limits on the premium payments you can make
frequency of your Federal tax law puts limits on the premium payments you
premium payments, can make in relation to your policy's death benefit. We
within certain may refuse all or part of a premium payment you make,
limits. Each or remove all or part of a premium from your policy and
premium payment return it to you under certain circumstances.
must be at least
$50.
You'll find more
about how premiums
work starting on
page 22.
---------------------------------------------------------
Your policy's Accumulated value is the value of your policy on any
accumulated value business day. It is not guaranteed - it depends on the
performance of the investment options you've chosen,
Accumulated value the premium payments you've made, policy charges, and
is used as the how much you've borrowed or withdrawn from the policy.
basis for
determining policy Monthly deductions
benefits and We deduct a monthly charge from your policy's
charges. If there accumulated value on each monthly payment date. The
is not enough charge is made up of cost of insurance, an
accumulated value administrative charge, and a mortality and expense risk
to cover policy charge. If you add any riders, we'll add any charges
charges, your for them to your monthly charge.
policy could lapse.
Lapsing and reinstatement
You'll find more If there is not enough accumulated value to cover the
about accumulated monthly charge on the day we make the deduction, your
value starting on policy may lapse - which means you'll no longer have
page 26. any insurance coverage. If your policy is in danger of
lapsing, we'll give you a grace period of 61 days to
pay the required premium. If your policy lapses at the
end of the grace period, you have five years from the
day it lapses to apply for a reinstatement.
5
AN OVERVIEW OF PACIFIC SELECT ESTATE PRESERVER - NY
---------------------------------------------------------
Your investment You can choose from 33 variable investment options,
options each of which invests in a corresponding portfolio of
the Pacific Select Fund. Pacific Life is the investment
The investment adviser for the Pacific Select Fund. It oversees the
options you choose management of all the fund's portfolios and manages two
will affect your of the portfolios directly. It has retained other
policy's portfolio managers to manage the other portfolios. The
accumulated value, value of each portfolio will fluctuate with the value
and may affect the of the investments it holds, and returns are not
death benefit. guaranteed.
Your policy's You can also choose from two fixed options, the Fixed
accumulated value account and the Fixed LT account, both of which provide
may be allocated to a guaranteed minimum annual interest rate of 3% during
up to 20 investment the first 10 policy years, 3.6% during policy years 11
options at any one through 20, and 3.85% during policy year 21 and
time. thereafter. We may offer a higher interest rate. If we
do, we'll guarantee that rate for one year.
Please review the
investment options We allocate your premium payments and accumulated value
carefully and ask to the investment options you choose. Your policy's
your registered accumulated value will fluctuate depending on the
representative to investment options you've chosen. You bear the
help you choose the investment risk of any variable investment options you
right ones for your choose.
goals and risk
tolerance. We'll hold your premium payments in the Money Market
investment option until the free look transfer date.
You'll find more Please turn to Your right to cancel for details.
about the
investment options Transferring among investment options
starting on page You can transfer among the investment options during
31. the life of your policy without paying any current
income tax. There is currently no charge for transfers.
You can make as many transfers as you like between
variable investment options. You can also make
automatic transfers from one variable investment option
to another using our dollar cost averaging or portfolio
rebalancing program. These programs are not available
for the fixed options.
You can only make one transfer from each fixed option
in any 12-month period. For the Fixed account, each
transfer may be no more than $5,000 or 25% of the
accumulated value in the Fixed account, whichever is
greater. For the Fixed LT account, each transfer may be
no more than $5,000 or 10% of the accumulated value in
the Fixed LT account, whichever is greater. You can
only transfer to the fixed options in the policy month
right before each policy anniversary. We reserve the
right, in our sole discretion, to waive the transfer
restrictions on the fixed options.
The restrictions for transfers from the Fixed LT
account are temporarily waived during the first policy
year. You will be permitted to transfer any amount out
of the Fixed LT account at any time during the first
twelve policy months. We reserve the right to
discontinue this waiver at any time. However, if the
waiver is in effect on the date you sign the
application for your policy, the waiver on transfer
restrictions will remain in effect for your first
policy year.
You'll find out You can also make automatic transfers from the Fixed
more about our account to other investment options during the first
automatic transfer policy year using our first year transfer program.
programs starting
on page 37.
6
---------------------------------------------------------
Withdrawals, You can take out all or part of your policy's
surrenders and accumulated value while your policy is in force by
loans making withdrawals or surrendering your policy. You can
take out a loan from us using your policy as security.
Making a You can also use your policy's loan and withdrawal
withdrawal, taking features to supplement your income, for example, during
out a loan or retirement.
surrendering your
policy can change Making withdrawals
your policy's tax You can withdraw part of your policy's net cash
status, generate surrender value starting on your policy's first
taxable income, or anniversary. This reduces your policy's accumulated
make your policy value and could affect the face amount and death
more susceptible to benefit.
lapsing. Be sure to
plan carefully Taking out a loan
before using these
policy benefits. You can take out a loan from us using your policy's
accumulated value as security. You pay interest on the
You'll find more amount you borrow at an annual rate of 4.1%. The
about withdrawals, accumulated value used to secure your loan is set aside
surrenders and in a loan account, where it earns interest at an annual
loans starting on rate of 3.1% during the first 10 policy years, 3.7%
page 39. during policy years 11 through 20, and at least 3.85%
during policy year 21 and thereafter.
The amount in the loan account is not available to help
pay for any policy charges. Taking out a loan affects
the accumulated value of your policy because the amount
set aside in the loan account misses out on the
potential earnings available through the investment
options.
Surrendering your policy
You can surrender or cash in your policy for its net
cash surrender value while either of the two people
insured by the policy is still living. If you surrender
your policy during the first 10 policy years, we'll
apply a surrender charge.
---------------------------------------------------------
Variable life Your beneficiary generally will not have to pay federal
insurance and your income tax on death benefit proceeds. You'll also
taxes generally not be taxed on any or all of your policy's
accumulated value unless you receive a cash
There are tax distribution by making a withdrawal or surrendering
issues to consider your policy.
when you own a life
insurance policy. If your policy is a modified endowment contract, all
These are described distributions you receive during the life of the policy
in detail starting may be subject to tax and a 10% penalty.
on page 49.
---------------------------------------------------------
About PL&A PL&A is a life insurance company based in Arizona. We
issue the policies. Pacific Select Distributors, Inc.,
When you buy a life our affiliate, is the distributor of the policies.
insurance policy,
you're relying on How our accounts work
the insurance We put your premium payments in our general and
company that issues separate accounts. We own the assets in our accounts
it to be able to and make the allocations to the investment options
meet its financial you've chosen.
obligations to you.
Amounts allocated to the fixed options are held in our
You'll find more general account. Our general account includes all of
about PL&A, and our our assets, except for those held in our separate
strength as a accounts. Our ability to meet our obligations under the
company, starting policy is backed by our strength as an insurance
on page 53. company.
We may use any Amounts allocated to the variable investment options
profit derived from are held in our separate account. The assets in this
any charges under account are kept separate from the assets in our
the policy for any general account and our other separate accounts, and
lawful purpose, are protected from our general creditors.
including our
distribution and
administrative
expenses.
7
AN OVERVIEW OF PACIFIC SELECT ESTATE PRESERVER - NY
This section of the overview explains the fees and expenses associated with your
Pacific Select Estate Preserver - NY Policy.
-------------------------------------------------------------------------------------
Understanding policy expenses and -----------------
cash flow Your premium
The chart to the right illustrates how cash You make a -----------------------------------------------------
normally flows through a Pacific Select premium
Estate Preserver - NY policy. payment v
-----------------
The dark shaded boxes show the fees and ----------------- We deduct a
expenses you pay directly or indirectly premium load
under your policy. These are explained in -----------------
the pages that follow. Net premium
In some states we'll hold your net premium We allocate the -----------------
payments in the Money Market investment net premium to
option until the free look transfer date. the investment -----------------------------------------------------
Please turn to Your right to cancel for options you
details. choose
-----------------
v v
------------------- -------------------- ----------------- ---------------------
Fixed options Variable Pacific Select The fund
investment Fund deducts advisory
We hold options fees and other
amounts you ---- The variable --- fund expenses from
allocate to these We hold investment the portfolios
options in our amounts you options invest
general account allocate to these in the fund's
options in our portfolios
separate account
------------------- -------------------- ----------------- ---------------------
---------------------
We deduct:
. cost of
insurance
. administrative
We make monthly deductions charge
-------------------------- . mortality and
expense risk
charge
. rider charges
v
------------------- -------------------- ----------------- ---------------------
Loan account Accumulated We deduct a
value withdrawal charge
Accumulated If you make a withdrawal
value set aside --- The total value ------------------------
to secure a of your policy
policy loan
------------------- -------------------- ---------------------
---------------------
We deduct a
If you surrender your policy surrender charge
during the first 10 policy years
--------------------------------
---------------------
8
---------------------------------------------------------
Deductions from We deduct a premium load from each premium payment you
your premiums make. The load is made up of three charges:
The premium load is Sales load - 0% of each premium payment during the
explained in more first 10 policy years and 3% after the 10th policy
detail on page 23. year.
State and local tax charge - 2.35% of each premium
payment.
Federal tax charge - 1.50% of each premium payment.
---------------------------------------------------------
Deductions from We deduct a monthly charge from your policy's
your policy's accumulated value in the investment options on each
accumulated value monthly payment date. This charge is made up of three
charges:
The monthly charge Cost of insurance - We calculate this charge by
is explained in multiplying the current cost of insurance rate by a
more detail discounted net amount at risk at the beginning of each
starting on page policy month. When the younger of the two people
27. insured by the policy reaches age 100, the cost of
insurance charge is zero -- in other words, you no
An example longer pay any cost of insurance charge.
For a policy with:
Administrative charge - We deduct a charge of $7.50 a
. a joint equal age month. When the younger of the two people insured by
of 50 the policy reaches age 100, the administrative charge
is zero -- in other words, you no longer pay any
. a face amount of administrative charge.
$100,000
Mortality and expense risk charge - The mortality and
. accumulated expense risk charge varies depending on your policy's
value of $60,000 face amount, and age and sex of both people insured by
after deducting the policy on the policy date and accumulated value.
any outstanding It's made up of two components:
loan amount.
. The face amount component, which we deduct every
The maximum monthly month during the first 10 policy years at a rate that
charge for the face is based on the age and sex of both people insured by
amount component of the policy, and each $1,000 of the initial face
the mortality and amount of your policy.
expense risk charge
is $15.20 . The accumulated value component, which we deduct
(($100,000 / 1,000) X every month during the first 10 policy years at an
0.152). annual rate of 0.90% (0.075% monthly) of your
policy's accumulated value in the investment options.
The monthly charge During policy years 11 through 20, we reduce the
for the accumulated annual rate to 0.30% (0.025% monthly) of the
value component is accumulated value. During policy year 21 and
$45 thereafter, we further reduce the annual rate to
($60,000 X 0.075%). 0.05% (0.0042% monthly) of the accumulated value.
The charge in
policy years 11 Riders - If you add any riders to your policy, we add
through 20 would be any charges for them to your monthly charge.
$15
($60,000 X 0.025%)
if the policy's
accumulated value
was $60,000. The
charge in policy
year 21 (and
thereafter) would
be $2.52
($60,000 X 0.0042%)
if the policy's
accumulated value
was $60,000.
The monthly charge
for the face amount
component of the
mortality and
expense risk charge
will never exceed
$0.64 per $1,000 of
the initial face
amount of your
policy.
Joint equal age is
explained in
Appendix A. The
maximum rates for
the face amount
component are shown
in Appendix B.
9
AN OVERVIEW OF PACIFIC SELECT ESTATE PRESERVER - NY
---------------------------------------------------------
Withdrawal and You can withdraw part of your policy's net cash
surrender charges surrender value at any time starting on your policy's
first anniversary. There is a $25 charge for each
withdrawal you make. We deduct this charge
Withdrawal and proportionately from all of your investment options.
surrender charges
are explained in If you surrender or cash in your policy, or decrease
more detail on its face amount, during the first 10 years of owning
pages 39 and 44. the policy, we'll deduct a surrender charge. The
surrender charge is made up of two components:
An example
. The underwriting surrender charge, which is assessed
For a policy that at a rate that is based on the joint equal age and
is surrendered at each $1,000 of the initial face amount of your
the end of the policy. The amount of the charge does not change
first policy year, during the first policy year. Starting on the first
with: policy anniversary, we reduce the charge by 0.9259% a
. a joint equal age month until it reaches zero at the end of 10 policy
of 50 years.
. an initial face
amount of . The sales surrender charge, which, during the first
$100,000. policy year, equals the smaller of the following
amounts:
The underwriting
surrender charge is . 70% of the premium payments you've made, or
$520.
. 70% of the sales surrender target, which is based
The maximum sales on the joint equal age of the people insured by the
surrender target is policy for each $1,000 of a policy's initial face
$1,236. The maximum amount.
sales surrender
charge is $865.20. The sales surrender charge increases until the premiums
you pay reach the sales surrender target. In the 13th
The most we will month you own your policy, we reduce the sales
assess for the surrender charge so that it is 99.0741% of the charge
underwriting as calculated above. After that, we reduce it by
surrender charge on 0.9259% a month until it reaches zero at the end of 10
any surrendered policy years.
policy is $17.30
per $1,000 of face
amount.
The underwriting
surrender charge
and sales surrender
target rates appear
in Appendix B.
---------------------------------------------------------
Transfer charges Currently, there is no charge for making a transfer
among your investment options, but in the future we may
charge you $25 per transfer in excess of 12 transfers
per year.
---------------------------------------------------------
Fees and expenses The Pacific Select Fund pays advisory fees and other
paid by the expenses. These are deducted from the assets of the
Pacific Select Fund fund's portfolios and may vary from year to year. They
are not fixed and are not part of the terms of your
You'll find more policy. If you choose a variable investment option,
about the Pacific these fees and expenses affect you indirectly because
Select Fund they reduce portfolio returns.
starting on page
31, and in the Advisory fee
fund's prospectus, Pacific Life is the investment adviser to the fund. The
which accompanies fund pays an advisory fee to us for these services. The
this prospectus. table below shows the advisory fee as a annual
percentage of each portfolio's average daily net
assets.
10
Other expenses
The table below shows the advisory fee and fund expenses
as an annual percentage of each portfolio's average daily
net assets, based on the year 2000 unless otherwise noted.
To help limit fund expenses, effective July 1, 2000
Pacific Life contractually agreed to waive all or part of
its 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 Pacific Life to the extent such
expenses fall below the 0.10% expense cap. Any amounts
repaid to Pacific Life will have the effect of increasing
such expenses of the portfolio, but not above the 0.10%
expense cap. For each portfolio, Pacific Life's right to
repayment of amounts waived and/or reimbursed is limited
to amounts that do not cause such expenses to exceed the
new 0.10% expense cap. There is no guarantee that Pacific
Life will continue to cap expenses after December 31,
2002. In 2000, Pacific Life reimbursed approximately
$13,202 to the I-Net Tollkeeper Portfolio, $36,311 to the
Strategic Value Portfolio, $34,134 to the Focused 30
Portfolio and $27,505 to the Small-Cap Index Portfolio.
----------------------------------------------------------------------------------------
Advisory Other 12b-1 Total Less adviser's Total net
Portfolio fee expenses amounts+ expenses reimbursement expenses
----------------------------------------------------------------------------------------
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
Emerging Markets/2/ 1.10 0.21 -- 1.31 -- 1.31
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 1.05 0.12 -- 1.17 -- 1.17
I-Net Tollkeeper/2/,/3/ 1.40 0.13 -- 1.53 (0.02) 1.51
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
Large-Cap Core/2/ 0.65 0.04 0.01 0.70 -- 0.70
(formerly Equity
Income)
Strategic Value 0.95 0.49 -- 1.44 (0.39) 1.05
Growth LT 0.75 0.04 -- 0.79 -- 0.79
Focused 30 0.95 0.42 -- 1.37 (0.32) 1.05
Mid-Cap Value/2/ 0.85 0.03 0.10 0.98 -- 0.98
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 0.04 -- 1.14 -- 1.14
Inflation Managed/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/2/ 0.60 0.05 -- 0.65 -- 0.65
Equity Income/1/ 0.95 0.15 -- 1.10 (0.05) 1.05
Research/1/ 1.00 0.12 -- 1.12 (0.02) 1.10
Equity 0.65 0.04 -- 0.69 -- 0.69
Aggressive Equity/2/ 0.80 0.04 0.02 0.86 -- 0.86
Large-Cap Value/2/ 0.85 0.05 0.05 0.95 -- 0.95
------------------------------------------------------------------------------------------
/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: 1.30% for Emerging Markets
Portfolio, 0.98% for Diversified Research Portfolio,
0.69% for Small-Cap Equity Portfolio, 1.50% for I-Net
Tollkeeper Portfolio (adjusted for the reduced
advisory fee rate/3/), 0.69% for Large-Cap Core
Portfolio, 0.88% for Mid-Cap Value Portfolio, 0.60%
for Small-Cap Index Portfolio, 0.62% for Inflation
Managed Portfolio, 0.64% for Managed Bond Portfolio,
0.64% for High Yield Bond Portfolio, 0.84% for
Aggressive Equity Portfolio and 0.90% for Large-Cap
Value Portfolio.
/3/ Effective January 1, 2002, advisory fee is reduced
from the annual rate of 1.50% of average daily net
assets to 1.40%.
+ 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.
11
PACIFIC SELECT ESTATE PRESERVER - NY BASICS
When you buy a Pacific Select Estate Preserver - NY
life insurance policy, you're entering into a contract
with Pacific Life & Annuity Company. Your contract with
us is made up of your application, your policy,
applications to change or reinstate the policy, any
amendments, riders or endorsements to your policy, and
specification pages.
Policy amendments When we approve your signed application, we'll issue
and endorsements your policy. If your application does not meet our
are a part of your underwriting and administrative requirements, we can
policy and confirm reject it or ask you for more information. Once we
changes you or we receive your first premium payment, and any contractual
make to the policy. and administrative requirements have been met, we'll
consider your policy to be in force. Our obligations
Specification pages under the policy begin when the policy is in force and
summarize has been delivered to you.
information
specific to your Your policy will be in force until one of the following
policy at the time happens:
the policy is . both people insured by the policy die
issued. . the grace period expires and your policy lapses, or
. you surrender your policy.
Riders provide If your policy is not in force when both people insured
extra benefits, by the policy die, we are not obligated to pay the
some at additional death benefit proceeds to your beneficiary.
cost. Not all
riders are Pacific Select Estate Preserver - NY is a last survivor
available in every flexible premium variable life insurance policy that
state and some insures the lives of two people and pays death benefit
riders may only be proceeds after both people have died.
added when you
apply for your Under a flexible premium life insurance policy, you
policy. have the flexibility to choose the amount and frequency
of your premium payments. You must, however, pay enough
Last survivor life premiums to cover the ongoing cost of policy benefits.
insurance may be
appropriate for two A premium load is deducted from each premium payment
spouses who want to you make. The resulting net premium is allocated to the
provide a death investment options you choose, and becomes part of your
benefit for their policy's accumulated value.
children.
Charges are deducted from the accumulated value each
This may not be the month to help cover the cost of the policy's death
right kind of benefit and other expenses. If there is not enough
policy for someone accumulated value to cover the monthly charge on the
who wants to day we make the deduction, your policy may lapse after
provide a death a grace period - which means you'll no longer have any
benefit for his or insurance coverage.
her spouse. In that
case, a policy that Investment earnings will increase your policy's
insures a single accumulated value, while investment losses will
life may be more decrease it. The premium payments you'll be required to
appropriate. make to keep your policy in force will be influenced by
the investment results of the investment options you've
Please discuss your chosen.
insurance needs and
financial
objectives with
your registered
representative.
We'll hold your net
premium payments in
the Money Market
investment option
until the free look
transfer date.
Please turn to Your
right to cancel for
details.
12
---------------------------------------------------------
Owners, people Owners
insured by the The owner is the person named on the application who
policy, and makes the decisions about the policy and its benefits
beneficiaries while it's in force. You can own a policy by yourself
or with someone else. Two or more owners are called
joint owners. You need the signatures of all owners for
Please consult your all policy transactions.
financial advisor
or a lawyer about If one of the joint owners dies, the surviving owners
designating will hold all rights under the policy. If the last
ownership joint owner dies, his or her estate will own the policy
interests. unless you've given us other instructions.
A policy can also be owned by an institution, trust,
corporation or group or sponsored arrangement. These
If you would like owners often buy more than one policy, which may
to change the owner qualify them for reduced charges or lower premium
of your policy, payments.
please contact us
or your registered We may reduce or waive the sales load or surrender
representative for charges on policies sold to our directors or employees,
a change of owner to any of our affiliates, or to trustees, employees or
form. We can affiliates of the fund.
process the change
only if we receive You can change the owner of your policy by completing a
your instructions change of owner form. Once we've received and recorded
in writing. your request, the change will be effective as of the
day you signed the change of owner form.
People insured by the policy
This policy insures the lives of two people who are
between the ages of 20 and 85 at the time you apply for
your policy, and who have given us satisfactory
evidence of insurability. Your policy refers to these
people as the insureds. The policy pays death benefit
proceeds after both of these people have died.
Risk classes are Each person to be insured by the policy is assigned an
usually based on underwriting or insurance risk class which we use to
age, gender, health calculate cost of insurance and other charges. We
and whether or not normally use the medical or paramedical underwriting
the person to be method to assign underwriting or insurance risk
insured by the classes, which may require a medical examination. We
policy smokes. Most may, however, use other forms of underwriting if we
insurance companies think it's appropriate.
use similar risk
classification
criteria.
When we refer to When we use a person's age in policy calculations, we
age throughout this generally use his or her age as of the nearest policy
prospectus, we're date, and we add one year to this age on each policy
using the word as anniversary date. For example, when we talk about
we've defined it someone "reaching age 100", we're referring to the
here, unless we policy anniversary date closest to that person's 100th
tell you otherwise. birthday, not to the day when he or she actually turns
100.
13
PACIFIC SELECT ESTATE PRESERVER - NY BASICS
Beneficiaries
The beneficiary is the person, people, entity or
If you would like entities you name to receive the death benefit
to change the proceeds. Here are some things you need to know about
beneficiary of your naming beneficiaries:
policy, please
contact us or your . You can name one or more primary beneficiaries who
registered each receive an equal share of the death benefit
representative for proceeds unless you tell us otherwise. If one
a change of beneficiary dies, his or her share will pass to the
beneficiary form. surviving primary beneficiaries in proportion to the
We can process the share of the proceeds they're entitled to receive,
change only if we unless you tell us otherwise.
receive your
instructions in . You can also name a contingent beneficiary for each
writing. primary beneficiary you name. The contingent
beneficiary will receive the death benefit proceeds
if the primary beneficiary dies.
. You can choose to make your beneficiary permanent
(sometimes called irrevocable). You cannot change a
permanent beneficiary's rights under the policy
without his or her permission.
. If none of your beneficiaries is still living when
the death benefit proceeds are payable, you as the
policy owner will receive the proceeds. If you're no
longer living, the proceeds will go to your estate.
. You can change your beneficiary at any time while
either person insured by the policy is still living,
and while the policy is in force. The change will be
effective as of the day you signed the change of
beneficiary form.
---------------------------------------------------------
Policy date, Your policy date
monthly payment This is usually the day we approve your policy
date, policy application. It's also the beginning of your first
anniversary date policy year. Your policy's monthly, quarterly, semi-
annual and annual anniversary dates are based on your
policy date.
The policy date is set so that it never falls on the
29th, 30th or 31st of any month. We'll apply your first
premium payment as of your policy date or as of the day
we receive your premium, whichever is later.
Backdating your policy
You can have your policy backdated up to six months, as
long as we approve it. Backdating in some cases may
lower your cost of insurance rates since these rates
are based on the ages of the people insured by the
policy. Your first premium payment must cover the
premium load and monthly charges for the period between
the backdated policy date and the day your policy is
issued.
Your monthly payment date
This is the day we deduct the monthly charges from your
policy's accumulated value. The first monthly payment
date is your policy date, and it's the same day each
month thereafter. Monthly charges are explained in the
section called Your policy's accumulated value.
Your policy anniversary date
This is the same day as your policy date every year
after we issue your policy. A policy year starts on
your policy date and each anniversary date, and ends on
the day before the next anniversary date.
14
---------------------------------------------------------
Statements and We send the following statements and reports to policy
reports owners:
we'll send you
. a confirmation for many financial transactions,
usually including premium payments and transfers,
loans, loan repayments, withdrawals and surrenders.
Monthly deductions and scheduled transactions made
We can create under the dollar cost averaging and portfolio
customized rebalancing programs are reported on your quarterly
hypothetical policy statement.
illustrations of
benefits under your . a quarterly policy statement. The statement will tell
policy based on you the accumulated value of your policy by
different investment option, cash surrender value, the amount
assumptions. of the death benefit, the policy's face amount, and
any outstanding loan amount. It will also include a
We'll send you one summary of all transactions that have taken place
policy illustration since the last quarterly statement, as well as any
free of charge each other information required by law.
policy year if you
ask for one. We . supplemental schedules of benefits and planned
reserve the right periodic premiums. We'll send these to you if you
to charge $25 for change your policy's face amount or change any of the
additional policy's other benefits.
illustrations.
. financial statements, at least annually or as
required by law, of the separate account and Pacific
Select Fund, that include a listing of securities for
each portfolio of the Pacific Select Fund.
---------------------------------------------------------
Your right to During the free look period, once your policy is in
cancel force you have the right to cancel (or refuse) your
policy and return it to us or your registered
Please call us or representative for a refund.
your registered
representative if The amount of your refund will be the amount of the
you have questions premium payments you've made. We'll always deduct any
about your right to outstanding loan amount from the amount we refund to
cancel your policy. you.
You'll find a complete description of the free look
period that applies to your policy on the policy's
cover sheet, or on a notice that accompanied your
policy. The free look period ends 10 days after you
receive your policy. If you are replacing another life
insurance policy, your free look period ends 60 days
after you receive your policy.
If you cancel your policy during the free look period,
we're required to refund the premium payments you've
made. We'll hold the net premiums in the Money Market
investment option until the free look transfer date. On
that day, we'll transfer the accumulated value in the
Money Market investment option to the investment
options you've chosen.
The free look transfer date is the latest of the
following:
. 10 days after we issue your policy
. when we consider your policy to be in force.
15
PACIFIC SELECT ESTATE PRESERVER - NY BASICS
---------------------------------------------------------
Timing of payments, Effective date
forms and requests Once your policy is in force, the effective date of
payments, forms and requests you send us is usually
A business day, determined by the day and time we receive the item in
called a valuation proper form at the mailing address that appears on the
date in your back cover of this prospectus.
policy, is any day
that the New York Planned periodic premium payments, loan requests,
Stock Exchange and transfer requests, loan payments or withdrawal or
our life insurance surrender requests that we receive in proper form
client services before 4:00 p.m. Eastern time on a business day will
offices are open. normally be effective as of the end of that day, unless
It usually ends at the transaction is scheduled to occur on another
4:00 p.m. Eastern business day. If we receive your payment or request on
time. or after 4:00 p.m. Eastern time on a business day, your
payment or request will be effective as of the end of
The New York Stock the next business day. If a scheduled transaction falls
Exchange is usually on a day that is not a business day, we'll process it
closed on weekends as of the end of the next business day.
and on the
following days: Other forms, notices and requests are normally
. New Year's Day, effective as of the next business day after we receive
Martin Luther them in proper form, unless the transaction is
King, Jr. Day, scheduled to occur on another business day. Change of
President's Day, owner and beneficiary forms are effective as of the day
Good Friday, you sign the change form, once we receive them in
Memorial Day, proper form.
July Fourth,
Labor Day, Proper form
Thanksgiving Day We'll process your requests once we receive all
and Christmas letters, forms or other necessary documents, completed
Day, and to our satisfaction. Proper form may require, among
. the Friday before other things, a signature guarantee or some other proof
New Year's Day, of authenticity. We do not generally require a
July Fourth or signature guarantee, but we may ask for one if it
Christmas Day if appears that your signature has changed, if the
that holiday signature does not appear to be yours, if we have not
falls on a received a properly completed application or
Saturday confirmation of an application, or for other reasons to
. the Monday protect you and us.
following New
Year's Day, July When we make payments and transfers
Fourth or We'll normally send the proceeds of transfers,
Christmas Day if withdrawals, loans, surrenders, exchanges and death
that holiday benefit payments within seven days after the effective
falls on a Sunday date of the request in proper form. We may delay
unless unusual payments and transfers, or the calculation of payments
business conditions and transfers based on the value in the variable
exist, such as the investment options under unusual circumstances, for
ending of a monthly example, if:
or yearly
accounting period. . the New York Stock Exchange closes on a day other
than a regular holiday or weekend
Our client services . an emergency exists as determined by the SEC, as a
offices are also result of which the sale of securities is not
usually closed on practicable, or it is not practicable to determine
the following days: the value of a variable account's assets.
. the Monday before
New Year's Day, We may delay transfers and payments from the fixed
July Fourth, or options, including the proceeds from withdrawals,
Christmas Day, if surrenders and loans, for up to six months. We'll pay
any of these interest at an annual rate of at least 3% on any
holidays falls on withdrawals or surrender proceeds from the fixed
a Tuesday options that we delay for 30 days or more.
. the Tuesday
before Christmas We pay interest at an annual rate of at least 3% on
Day if that death benefit proceeds, calculated from the day the
holiday falls on last surviving person insured by the policy dies to the
a Wednesday day we pay the proceeds.
. the Friday after
New Year's Day,
July Fourth or
Christmas Day, if
any of these
holidays falls on
a Thursday
. the Friday after
Thanksgiving.
Call us or contact
your registered
representative if
you have any
questions about the
proper form
required for a
request.
To request payment
of death benefit
proceeds, send us
proof of death and
payment
instructions.
16
---------------------------------------------------------
Telephone and You can make loans or transfers, and give us
electronic instructions regarding the dollar cost averaging
transactions program or portfolio rebalancing program, by telephone
any time after the free look period as long as we have
Please ask your your signed authorization form on file.
registered
representative for Certain registered representatives are able to give us
more information instructions electronically if authorized by you. You
regarding may appoint your registered representative to give us
electronic instructions on your behalf by completing and filing a
transactions. telephone and electronic authorization form with us.
Here are some things you need to know about telephone
and electronic transactions:
. You must complete a telephone and electronic
authorization form.
. If your policy is jointly owned, all joint owners
must sign the telephone and electronic authorization.
We'll take instructions from any owner or anyone you
appoint.
. We may use any reasonable method to confirm that your
telephone or electronic instructions are genuine. For
example, we may ask you to provide personal
identification or we may record all or part of the
telephone conversation. We may refuse any transaction
request made by telephone or electronically.
We'll send you a written confirmation of each telephone
and electronic transaction.
Sometimes, you may not be able to make loans or
transfers by telephone or electronically, for example,
if our telephone lines or our website are busy because
of unusual market activity or a significant economic or
market change, or our telephone lines or the Internet
are out of service during severe storms or other
emergencies. In these cases, you can send your request
to us in writing, or call us the next business day or
when service has resumed.
When you send us your telephone and electronic
authorization form, you agree that:
. we can accept and act upon instructions you or anyone
you appoint give us over the telephone or
electronically
. neither we, the administrator, any of our affiliates,
the Pacific Select Fund, or any director, trustee,
officer, employee or agent of ours or theirs will be
liable for any loss, damages, cost or expenses that
result from transactions processed because of a
request by telephone or submitted electronically that
we believe to be genuine, as long as we have followed
our own procedures
. you bear the risk of any loss that arises from your
right to make loans or transfers over the telephone
or electronically.
17
THE DEATH BENEFIT
We'll pay death benefit proceeds to your beneficiary
after the last surviving person insured by the policy
dies while the policy is still in force. Your
beneficiary generally will not have to pay federal
income tax on death benefit proceeds.
This policy offers four death benefit options, Options
Your policy's A, B, C and D. The option you choose will generally
initial amount of depend on which is more important to you: a larger
insurance coverage death benefit or building the accumulated value of your
is its initial face policy.
amount. We
determine the face Here are some things you need to know about the death
amount based on benefit:
instructions
provided in your . You choose your death benefit option on your policy
application. application.
The minimum face . If you do not choose a death benefit option, we'll
amount when a assume you've chosen Option A.
policy is issued is
usually $100,000, . The death benefit will always be the greater of the
but we may reduce death benefit under the option you choose or the
this in some guideline minimum death benefit.
circumstances.
. The death benefit will never be lower than the face
You'll find your amount of your policy if you've chosen Option A, B or
policy's face D. Of course, the death benefit proceeds will always
amount, which be reduced by any outstanding loan amount.
includes any
increases or . We'll pay the death benefit proceeds to your
decreases, in the beneficiary when we receive proof of the deaths of
specification pages both of the people insured by the policy.
in your policy.
. After the youngest person insured by the policy
reaches age 100, the death benefit equals the
accumulated value.
---------------------------------------------------------
Choosing your death You can choose one of the following four options for
benefit option the death benefit on your application. The graphs below
help you compare the options using several hypothetical
examples.
Option A - the Option B - the face amount of
face amount of your policy plus its accumulated
your policy. value.
[ILLUSTRATION [ILLUSTRATION APPEARS HERE]
APPEARS HERE]
The death benefit changes as
your policy's accumulated value
changes. The better your
investment options perform, the
larger the death benefit will
be.
Option C - the Option D - the face amount of
face amount of your policy multiplied by a
your policy plus death benefit factor.
the total premiums
you've paid minus
any withdrawals or [ILLUSTRATION APPEARS HERE]
distributions
made. The death benefit gradually
increases over time no matter
how your investment options
[ILLUSTRATION perform, as long as there is
APPEARS HERE] enough accumulated value to keep
your policy in force.
The more premiums
you pay and the
less you withdraw,
the larger the
death benefit will
be.
18
---------------------------------------------------------
How we calculate the death benefit for
Option D
If you choose Option D, we'll calculate the death
benefit by multiplying the face amount by a death
benefit factor. The death benefit factor is a number
from 1.0 to 2.0. A factor of 1.0 means the death
benefit equals the face amount. A factor of 2.0 means
the death benefit is two times the face amount.
The factor changes on each policy anniversary and is
based on the joint equal age of the people insured by
the policy and the number of completed policy years.
Joint equal age is a calculation that blends the ages
and insurance risks of the two people insured by the
policy. Generally, the death benefit factor will reach
the maximum of 2.0 when joint equal age plus the number
of completed policy years is between 85 and 90. You'll
find more information about how we calculate joint
equal age in Appendix A.
You'll find more information about the death benefit
factor in Appendix D and in your policy.
---------------------------------------------------------
The guideline The guideline minimum death benefit is the minimum
minimum death death benefit needed for your policy to qualify as life
benefit insurance under Section 7702 of the Internal Revenue
Code. If the amount of the death benefit under the
If your policy's option you choose is less than the guideline minimum
death benefit is death benefit, we'll adjust your death benefit to equal
equal to the the guideline minimum death benefit.
guideline minimum
death benefit, and We calculate the guideline minimum death benefit by
the net amount at multiplying the accumulated value of your policy by a
risk is more than death benefit percentage. This percentage is based on
three times the the age of the younger person insured by the policy,
death benefit on and will increase over time. You'll find a table of
the policy date, we guideline minimum death benefit percentages in
may reduce the Appendix C.
death benefit by
making withdrawals
from your policy.
We will not charge
you our usual $25
withdrawal fee, but
the withdrawals may
be taxable. Please
turn to
Withdrawals,
surrenders and
loans for
information about
making withdrawals.
---------------------------------------------------------
When we pay the We calculate the amount of the death benefit proceeds
death benefit as of the end of the day the last surviving person
insured by the policy dies. If that person dies on a
Your beneficiary day that is not a business day, we calculate the
can choose to proceeds as of the next business day.
receive the death
benefit proceeds in Your policy's beneficiary must send us proof that both
a lump sum or use people insured by the policy died while the policy was
it to buy an income in force, along with payment instructions. If both
benefit. Please see people insured by the policy die at the same time, or
the discussion if it's not clear who died first, we'll assume the
about income younger of the two died first.
benefits in General
information about Death benefit proceeds equal the total of the death
your policy. benefits provided by your policy and any riders you've
added, minus any outstanding loan amount, minus any
It is important overdue charges.
that we have a
current address for We'll pay interest at an annual rate of at least 3% on
your beneficiary so the death benefit proceeds, calculated from the day the
that we can pay last surviving person insured by the policy dies to the
death benefit day we pay the proceeds.
proceeds promptly.
If we cannot pay
the proceeds to
your beneficiary
within five years
of the death of the
last surviving
person insured by
the policy, we'll
be required to pay
them to the state.
19
THE DEATH BENEFIT
---------------------------------------------------------
Comparing the death The tables below compare the death benefits provided by
benefit options the policy's four death benefit options. The examples
are intended only to show differences in death benefits
and net amounts at risk. Accumulated value assumptions
may not be realistic.
Example A assumes These examples show that each death benefit option
the following: provides a different level of protection. Keep in mind
. the people that cost of insurance charges, which affect your
insured by the policy's accumulated value, increase with the amount of
policy are male the death benefit, as well as over time. The cost of
and female non- insurance is charged at a rate per $1,000 of the
smokers, each age discounted net amount at risk. As the net amount at
45 at the time risk increases, your cost of insurance increases.
the policy was Accumulated value also varies depending on the
issued performance of the investment options in your policy.
. face amount is
$1,000,000
. accumulated value
at year 20 is
$600,000
. total premiums
paid into the
policy at year 20
is $300,000
. the death benefit
percentage for
the guideline
minimum death
benefit is 120%
. the death benefit
factor for Option
D at year 20 is
108.4%
. the guideline
minimum death
benefit is
$720,000
(accumulated
value times a
death benefit
percentage factor
of 120%)
------------------------------------------------------------------------------------------
Example A The death benefit is the larger
of these two amounts
-------------------------------
Death Death benefit Guideline Net amount at risk
benefit How it's under minimum used for cost of
option calculated the option death benefit insurance charge
------------------------------------------------------------------------------------------
Option A Face amount $1,000,000 $720,000 $397,540.10
Option B Face amount plus
accumulated value $1,600,000 $720,000 $996,064.16
Option C Face amount plus
premiums less distributions $1,300,000 $720,000 $696,802.13
Option D Face amount times
death benefit factor $1,084,000 $720,000 $481,333.47
------------------------------------------------------------------------------------------
Example B uses the
same assumptions as
Example A, but has
an accumulated
value of
$1,400,000. Because
accumulated value
has increased, the
guideline minimum
death benefit is
now $1,680,000
($1,400,000 times a
death benefit
factor of 120%).
------------------------------------------------------------------------------------------
Example B The death benefit is the larger
of these two amounts
-------------------------------
Death Death benefit Guideline Net amount at risk
benefit How it's under minimum used for cost of
option calculated the option death benefit insurance charge
------------------------------------------------------------------------------------------
Option A Face amount $1,000,000 $1,680,000 $275,867.37
Option B Face amount plus
accumulated value $2,400,000 $1,680,000 $994,096.24
Option C Face amount plus
premiums less distributions $1,300,000 $1,680,000 $275,867.37
Option D Face amount times
death benefit factor $1,084,000 $1,680,000 $275,867.37
------------------------------------------------------------------------------------------
---------------------------------------------------------
Changing your death
benefit option You can change the death benefit option of your policy.
Here's how it works:
We will not change . You can change the death benefit once in any policy
your death benefit year.
option if it means . You must send us your request in writing.
your policy will be
treated as a . You can only change to Option A or Option B.
modified endowment . The change will become effective on the first monthly
contract, unless payment date after we receive your request. If we
you've told us in receive your request on a monthly payment date, we'll
writing that this process it that day.
would be acceptable . The face amount of your policy will change by the
to you. Modified amount needed to make the death benefit under the new
endowment contracts option equal the death benefit under the old option
are discussed in just before the change. We will not let you change
Variable life the death benefit if doing so means the face amount
insurance and your of your policy will become less than $100,000. We may
taxes. waive this minimum amount under certain
circumstances.
Net amount at risk . Changing the death benefit option can also affect the
is the difference monthly cost of insurance charge since this charge
between the death varies with the net amount at risk.
benefit that would . The new death benefit option will be used in all
be payable if both future calculations.
people insured by
the policy died,
and the accumulated
value of your
policy.
20
---------------------------------------------------------
Decreasing the face You can decrease your policy's face amount starting on
amount the first policy anniversary as long as we approve it.
Here's how it works:
Decreasing the face
amount may affect . You can decrease the face amount as long as at least
your policy's tax one of the people insured by the policy is still
status. To ensure living.
your policy . You can only decrease the face amount once in any
continues to policy year.
qualify as life . You must send us your request in writing while your
insurance, we might policy is in force.
be required to . The decrease will become effective on the first
return part of your monthly payment date after we receive your request.
premium payments to If we receive your request on a monthly payment date,
you, or make we'll process it that day.
distributions from . Decreasing the face amount can affect the monthly
the accumulated cost of insurance charge since this charge varies
value, which may be with the net amount at risk.
taxable. . We can refuse your request to make the face amount
less than $100,000. We can waive this minimum amount
We will not in certain situations, such as group or sponsored
decrease the face arrangements.
amount if it means
your policy will be If you decrease your face amount in the first 10 years
treated as a of the policy, we'll deduct a surrender charge from
modified endowment your policy's accumulated value. Please turn to
contract, unless Withdrawals, surrenders and loans for information about
you've told us in how we calculate surrender charges.
writing that this
would be acceptable
to you.
For more
information, please
see Variable life
insurance and your
taxes.
---------------------------------------------------------
Optional riders
There are three optional riders that provide extra
We offer other benefits, some at additional cost. Not all riders are
variable life available in every state, and some riders may only be
insurance policies added when you apply for your policy.
which provide
insurance . Last survivor added protection benefit
protection on the Provides level or varying term insurance on the two
lives of two people people insured by the policy.
or on the life of
one person. The . Individual annual renewable term rider
loads and charges Provides level or varying term insurance on either or
on these policies both people insured by the policy.
may be different.
Combining a policy
and a rider, . Policy split option rider
however, may be
more economical Splits the policy into two individual policies with
than adding another evidence of insurability.
policy. It may also
be more economical Certain restrictions may apply and are described in the
to provide an rider or benefit. We'll add any rider charges to the
amount of insurance monthly charge we deduct from your policy's accumulated
coverage through a value.
policy alone.
Ask your registered
representative for
more information
about the riders
available with the
policy, or about
other kinds of life
insurance policies
offered by PL&A.
There may be tax
consequences if you
exercise your
rights under the
Policy split option
rider. Please see
Variable life
insurance and your
taxes for more
information.
Samples of the
provisions for the
extra optional
benefits are
available from us
upon written
request.
21
HOW PREMIUMS WORK
Your policy gives you the flexibility to choose the
amount and frequency of your premium payments.
The amount, We usually set the amount of your first premium
frequency, and payment. You can schedule the amount and frequency of
period of time over remaining premium payments within certain limits. Each
which you make premium payment must be at least $50.
premium payments
may affect whether We deduct a premium load from each premium payment, and
your policy will be then allocate your net premium to the investment
classified as a options you've chosen. Depending on the performance of
modified endowment your investment options, and on how many withdrawals,
contract, or no loans or other policy features you've taken advantage
longer qualifies as of, you may need to make additional premium payments to
life insurance for keep your policy in force.
tax purposes. See
Variable life If we do not receive the minimum initial premium
insurance and your payment within 20 days after we issue your policy, we
taxes for more can cancel the policy and refund any partial premium
information. payment you've made. We may waive the 20 day
requirement in some cases.
---------------------------------------------------------
Planned periodic You can schedule the amount and frequency of your
premium payments premium payments. We refer to scheduled premium
payments as your planned periodic premium. Here's how
it works:
Even if you pay all
your premiums when . On your application, you choose a fixed amount of at
they're scheduled, least $50 for each premium payment.
your policy could
lapse if the . You indicate whether you want to make premium
accumulated value, payments annually, semi-annually, or quarterly. You
less any can also choose monthly payments using our monthly
outstanding loan Uni-check plan, which is described below.
amount, is not
enough to pay your . We send you a notice to remind you of your scheduled
monthly charges. premium payment (except for monthly electronic funds
Turn to Your transfer plan payments, which are paid
policy's automatically). While you do not have to make the
accumulated value premium payments you've scheduled, not making a
for more premium payment may have an impact on any financial
information. objectives you may have set for your policy's
accumulated value and death benefit, and could cause
your policy to lapse.
. We'll treat any payment you make during the life of
your policy as a loan repayment, not as a premium
payment, unless you tell us otherwise. When a
payment, or any portion of it, exceeds your
outstanding loan amount, we'll treat it as a premium
payment.
22
---------------------------------------------------------
Paying your premium Premium payments must be made in a form acceptable to
us before we can process it. You may pay your premium:
. by personal check, drawn on a U.S. bank
. by cashier's check, money order, and traveler's
checks in single denominations of $10,000 or more if
they originate in a U.S. bank.
. by third party check, when there is a clear
connection of the third party to the underlying
transaction
. wire transfers that originate in U.S. banks.
We may not accept premium payments in the following
forms:
. cash
. credit card or check drawn against a credit card
account
. cashier's check, money order or traveler's checks in
single denominations of less than $10,000
. cashier's checks, money orders, traveler's checks or
personal checks drawn on non-U.S. banks, even if the
payment may be effected through a U.S. bank
. third party check, if there is not a clear
connection of the third party to the underlying
transaction
. wires that originate from foreign bank accounts.
Monthly electronic funds transfer plan
Once you've made your first premium payment, you can
make monthly premium payments using our electronic
funds transfer plan. Here's how it works:
. you authorize us to withdraw a specified amount from
your checking account each month
. you can choose any day between the 4th and 28th of
the month
. if you do not specify a day for us to make the
withdrawal, we'll withdraw the premium payment on
your policy's monthly anniversary. If your policy's
monthly anniversary falls on the 1st, 2nd or 3rd of
the month, we'll withdraw the payment on the 4th of
each month.
---------------------------------------------------------
Deductions from We deduct a premium load from each premium payment you
your premiums make. The load is made up of three charges:
Your net premium is Sales load
your premium During the first 10 years of your policy, we deduct a
payment less the 0% sales load from each premium payment you make. The
premium load. sales load is 3% after the 10th policy year.
This charge helps pay for the cost of distributing our
policies and is guaranteed not to increase. If our
sales and distribution expenses are more than the sales
load, we can recover these expenses from other charges,
such as the mortality and expense risk charge and the
surrender charge, and from any mortality gains.
State and local tax charge
We deduct 2.35% from each premium payment to pay state
and local premium and other taxes. The actual taxes we
pay vary from state to state, and in some instances,
among municipalities. This rate approximates the
average rate we pay for all states. We do not expect to
profit from this charge, and do not expect to change
the rate unless the rate we pay increases.
23
HOW PREMIUMS WORK
Federal tax charge
We deduct 1.50% from each premium payment to pay
federal taxes. We reserve the right to change this rate
to respond to changes in law.
---------------------------------------------------------
Allocating your We generally allocate your net premiums to the
premiums investment options you've chosen on your application on
the day we receive them. We currently limit your
There are special allocations to 20 investment options at one time.
restrictions when
allocating premiums We allocate your first premium on the free look
to the Fixed LT transfer date. We'll hold your net premiums in the
account. Money Market investment option until the free look
transfer date, and then transfer them to the investment
Please turn to Your options you've chosen.
investment options
for more
information about
the investment
options.
---------------------------------------------------------
Limits on the Federal tax law puts limits on the amount of premium
premium payments payments you can make in relation to your policy's
you can make death benefit. These limits apply in the following
situations:
Before you buy a . If accepting the premium means your policy will no
policy, you can ask longer qualify as life insurance for federal income
us or your tax purposes.
registered
representative for The total amount you can pay in premiums and still have
a personalized your policy qualify as life insurance is your policy's
illustration that guideline premium limit. The sum of the premiums paid,
will show you the less any withdrawals, at any time cannot exceed the
guideline single guideline premium limit, which is the greater of:
premium and
guideline level . the guideline single premium or
annual premiums. . the sum of the guideline level annual premiums.
Your policy's guideline single premium and guideline
level annual premiums appear on your policy's
specification pages.
We may refuse to accept all or part of a premium
payment if, by accepting it, you will exceed your
policy's guideline premium limit. If we find that
you've exceeded your guideline premium limit, we may
remove all or part of a premium you've paid from your
policy as of the day we applied it, and return it to
you. We'll adjust the death benefit retroactively to
that date to reflect the reduction in premium payments.
You'll find a . If applying the premium in that policy year means your
detailed discussion policy will become a modified endowment contract.
of modified
endowment contracts A life insurance policy will become a modified
in Variable life endowment contract if the sum of premium payments made
insurance and your during the first seven contract years, less a portion
taxes. of withdrawals, exceeds the seven-pay limit defined in
Section 7702A of the Internal Revenue Code.
Unless you've told us in writing that you want your
policy to become a modified endowment contract, we'll
remove all or part of the premium payment from your
policy as of the day we applied it and return it to
you. We'll also adjust the death benefit retroactively
to that date to reflect the reduction in premium
payments. If we receive such a premium within 20 days
before your policy anniversary, we'll hold it and apply
it to your policy on the anniversary date.
In both of these situations, if we remove an excess
premium from your policy, we'll return the premium
amount to you no later than 60 days after the end of
that policy year. We may adjust the amount for interest
or for changes in accumulated value that relate to the
amount of the excess premium payment we're returning to
you.
24
If we do not return the premium amount to you within
that time, we'll increase your policy's death benefit
retroactively, to the day we applied the premium, and
prospectively, so that it's always the amount necessary
to ensure your policy qualifies as life insurance, or
to prevent it from becoming a modified endowment
contract. If we increase your death benefit, we'll
adjust cost of insurance or rider charges retroactively
and prospectively to reflect the increase.
Net amount at risk . If applying the premium payment to your policy will
is the difference increase the net amount at risk. This will happen if
between the death your policy's death benefit is equal to the guideline
benefit that would minimum death benefit or would be equal to it once we
be payable if both applied your premium payment.
people insured by
the policy died and We may choose to accept your premium payment in this
the accumulated situation, but before we do so, we may require
value of your satisfactory evidence of the insurability of the two
policy. people insured by the policy.
We will not accept premium payments after the youngest
person insured by the policy reaches age 100.
25
YOUR POLICY'S ACCUMULATED VALUE
Accumulated value Accumulated value is the value of your policy on any
is used as the business day.
basis for
determining policy We use it to calculate how much money is available to
benefits and you for loans and withdrawals, and how much you'll
charges. receive if you surrender your policy. It also affects
the amount of the death benefit if you choose a death
benefit option that's calculated using accumulated
value.
The accumulated value of your policy is not
guaranteed - it depends on the performance of the
investment options you've chosen, the premium payments
you've made, policy charges and how much you've
borrowed or withdrawn from the policy.
---------------------------------------------------------
Calculating your Your policy's accumulated value is the total amount
policy's allocated to the variable investment options and the
accumulated value fixed options, plus the amount in the loan account.
Please see Taking We determine the value allocated to the variable
out a loan for investment options on any business day by multiplying
information about the number of accumulation units for each variable
loans and the loan investment option credited to your policy on that day,
account. by the variable investment option's unit value at the
end of that day. The process we use to calculate unit
values for the variable investment options is described
in Your investment options.
---------------------------------------------------------
Persistency credit Policies may be eligible for a persistency credit.
Here's how it works:
Beginning on your 16th policy anniversary and on each
policy anniversary thereafter, we may credit your
policy with a persistency credit of 0.15% on an annual
basis. We calculate the persistency credit amount on
your policy's average accumulated value less any
outstanding loan amount on each monthly payment date
during the preceding policy year. We add it
proportionately to your investment options according to
your most recent allocation instructions.
Beginning on your 21st policy anniversary, we may
increase your annual persistency credit to 0.25%.
Your policy's persistency credit is not guaranteed, and
we may discontinue the program at any time.
26
---------------------------------------------------------
Monthly deductions We deduct a monthly charge from your policy's
accumulated value in the investment options each
If there is not monthly payment date.
enough accumulated
value to pay the Unless you tell us otherwise, we deduct the monthly
monthly charge, charge from the investment options that make up your
your policy could policy's accumulated value, in proportion to the
lapse. The accumulated value you have in each option. This charge
performance of the is made up of three charges:
investment options
you choose, not Cost of insurance
making planned This charge is for providing you with life insurance
premium payments, protection. Like other policy charges, we may profit
or taking out a from the cost of insurance charge and may use these
loan all affect the profits for any lawful purpose such as the payment of
accumulated value distribution and administrative expenses.
of your policy.
There are maximum or guaranteed cost of insurance rates
You'll find a associated with your policy. When the younger of the
discussion about two people insured by your policy reaches age 100, the
when your policy guaranteed cost of insurance rate is zero - in other
might lapse, and words, you no longer pay any cost of insurance.
what you can do to
reinstate it, later The guaranteed rates include the insurance risks
in this section. associated with insuring two people. They are
calculated using 1980 Commissioners Standard Ordinary
Unisex rates are Mortality Tables or the 1980 Commissioners Ordinary
used when a policy Mortality Table B, which are used for unisex cost of
is owned by an insurance rates. The rates are also based on the ages,
employer in gender and risk classes of the people insured by the
connection with policy unless unisex rates are required.
employment-related
or benefit Our current cost of insurance rates will apply
programs. uniformly to all members of the same class. Any changes
in the cost of insurance will apply uniformly to all
Class is determined members of the same class. These rates generally
by a number of increase as the ages of the two people increase, and
factors, including they vary with the number of years the policy has been
the age, risk in force. Our current rates are lower than the
classification, guaranteed rates and they will not exceed the
smoking status and guaranteed rates in the future.
gender (unless
unisex rates are
required) of the
two people insured
by the policy, and
the policy date and
duration.
---------------------------------------------------------
How we calculate cost of insurance
We calculate cost of insurance by multiplying the
current cost of insurance rate by a discounted net
amount at risk at the beginning of each policy month.
Net amount at risk for the cost of insurance
calculation is the difference between a discounted
death benefit that would be payable if both people
insured by the policy died, and the accumulated value
of your policy. We calculate it in two steps:
. Step 1: we divide the death benefit that would be
payable at the beginning of the policy month by
1.002466.
. Step 2: we subtract your policy's accumulated value
at the beginning of the policy month from the amount
we calculated in step 1.
Administrative charge
We deduct a charge of $7.50 a month. We guarantee that
this charge will not increase. When the younger of the
two people insured by the policy reaches age 100, the
administrative charge is zero - in other words, you no
longer pay any administrative charge.
If you buy additional Pacific Select Estate
Preserver - NY policies that insure the same two
people, we will not deduct the administrative charge
from the additional policies. Instead, we'll deduct
$200 from each policy's first premium payment to help
cover our processing costs.
27
YOUR POLICY'S ACCUMULATED VALUE
Mortality and expense risk charge
Mortality risk is the chance that the people insured by
policies we've issued do not live as long as expected.
This means the cost of insurance charges specified in
the policies may not be enough to pay out actual
claims.
Expense risk is the chance that our actual
administrative and operating expenses are more than
expenses we expected.
The mortality and expense risk charge helps compensate
us for these risks. It has two components, which are
described in the box on the following page. We
guarantee this charge will not increase.
Charges for optional riders
If you add any riders to your policy, we add any
charges for them to your monthly charge.
---------------------------------------------------------
An example How we calculate the mortality and expense risk charge
For a policy with: The mortality and expense risk charge has two
. a joint equal age components: a face amount component and an accumulated
of 50 value component.
. a face amount of
$100,000 . Face amount component We deduct a face amount
. accumulated value component every month during the first 10 policy
of $60,000 after years, at a rate that is based on the joint equal age
deducting any on the policy date and each $1,000 of the initial
outstanding loan face amount of your policy. The rates for the face
amount. amount component are shown in Appendix B. Joint equal
age is a calculation that combines the ages and
The maximum monthly insurance risks of the two people insured by the
charge for the face policy, and is explained in Appendix A.
amount component is
$15.50 . Accumulated value component We deduct an accumulated
(($100,000 / 1,000) value component every month during the first 10
X 0.155). policy years at an annual rate of 0.90% (0.075%
monthly) of your policy's accumulated value in the
The monthly charge investment options. During policy years 11 through
for the accumulated 20, we reduce the annual rate to 0.30% (0.025%
value component is monthly) of the accumulated value. During policy year
$45 ($60,000 X 21 and thereafter, we further reduce the annual rate
0.075%). The charge to 0.05% (0.0042% monthly) of the accumulated value.
in policy years 11 For the purposes of this charge, the amount of
through 20 would be accumulated value is calculated on the monthly
$15 ($60,000 payment date after we deduct the cost of insurance
X 0.025%) if the and charges for any optional riders.
policy's
accumulated value
was $60,000. The
charge in policy
year 21 (and
thereafter) would
be $2.52 ($60,000 X
.0042%) if the
policy's
accumulated value
was $60,000.
The monthly charge
for the face amount
component of the
mortality and
expense risk charge
will never exceed
$0.64 per $1,000 of
the initial face
amount of
your policy.
28
---------------------------------------------------------
Lapsing and Your policy will lapse if there is not enough
reinstatement accumulated value, after subtracting any outstanding
loan amount, to cover the monthly charge on the day we
make the deduction. Your policy's accumulated value is
affected by the following:
. loans or withdrawals you make from your policy
. not making planned premium payments
. the performance of your investment options
. charges under the policy.
There is no guarantee that your policy will not lapse
even if you pay your planned periodic premium.
If there is not enough accumulated value to pay the
total monthly charge, we deduct the amount that's
available and send you, and anyone you've assigned your
policy to, a notice telling you the minimum amount you
have to pay to keep your policy in force. This minimum
amount is equal to three times the monthly charge that
was due on the monthly payment date when there was not
enough accumulated value to pay the charge.
We'll give you a grace period of 61 days from when we
send the notice to pay the required premium. Your
policy will remain in force during the grace period.
If you do not make the minimum payment
If we do not receive your payment within the grace
period, your policy will lapse with no value. This
means we'll end your life insurance coverage.
If you make the minimum payment
If we receive your payment within the grace period,
we'll allocate your net premium to the investment
options you've chosen and deduct the monthly charge
from your investment options in proportion to the
accumulated value you have in each option.
Remember to tell us If your policy is in danger of lapsing and you have an
if a payment is a outstanding loan amount, you may find that making the
premium payment. minimum payment would cause the total premiums paid to
Otherwise, we'll exceed the maximum amount for your policy's face amount
treat it as a loan under tax laws. In that situation, we will not accept
repayment. the portion of your payment that would exceed the
maximum amount. To stop your policy from lapsing,
you'll have to repay a portion of your outstanding loan
amount.
How to avoid future lapsing
To stop your policy from lapsing in the future, you may
want to make larger or more frequent premium payments
if tax laws permit it. Or if you have a loan, you may
want to repay a portion if it.
Paying death benefit proceeds during the grace period
If the last surviving person insured by the policy dies
during the grace period, we'll pay death benefit
proceeds to your beneficiary. We'll reduce the payment
by any unpaid monthly charges and any outstanding loan
amount.
Reinstating a lapsed policy
If your policy lapses, you have five years from the end
of the grace period to apply for a reinstatement. We'll
reinstate it if you send us the following:
. a written application
. evidence satisfactory to us that the two people
insured by the policy are still insurable
29
YOUR POLICY'S ACCUMULATED VALUE
. a premium payment sufficient to keep your policy in
force for three months after the day your policy is
reinstated
. payment of all unpaid monthly charges that were due
in the grace period.
We'll reinstate your policy as of the first monthly
payment date on or after the day we approve the
reinstatement. When we reinstate your policy, its
accumulated value will be the same as it was on the day
your policy lapsed. We'll allocate it according to your
most recent premium allocation instructions.
Reinstating a lapsed policy with an outstanding loan
amount
If you had an outstanding loan amount when your policy
lapsed, we will not pay or credit interest on it during
the period between the lapsing and reinstatement of
your policy. There are special rules that apply to
reinstating a policy with an outstanding loan amount:
. If we reinstate your policy on the first monthly
payment date that immediately follows the lapse,
we'll also reinstate the loan amount that was
outstanding the day your policy lapsed.
. If we reinstate your policy on any monthly payment
date other than the monthly payment date that
immediately follows the lapse, we'll deduct the
outstanding loan amount from your policy's
accumulated value. This means you will no longer have
an outstanding loan amount when your policy is
reinstated.
30
YOUR INVESTMENT OPTIONS
This section tells you about the investment options
available under your policy and how they work.
You can change your We put your premium payments in our general and
premium allocation separate accounts. We own the assets in our accounts
instructions by and allocate your premiums, less any charges, to the
writing or sending investment options you've chosen. Amounts allocated to
a fax. If we have the fixed options are held in our general account.
your completed Amounts allocated to the variable investment options
telephone and are held in our separate account.
electronic
authorization form You choose your initial investment options on your
on file you can application. If you choose more than one investment
call us at 1-888- option, you must tell us the dollar amount or
595-6997 or submit percentage you want to allocate to each option. You can
a request change your premium allocation instructions at any
electronically time.
through your
appointed agent. Or The investment options you choose, and how they
you can ask your perform, will affect your policy's accumulated value
registered and may affect the death benefit. Please review the
representative to investment options carefully and ask your registered
contact us. representative to help you choose the right ones for
your goals and tolerance for risk. Make sure you
You'll find understand any costs you may pay directly and
information about indirectly on your investment options because they will
when we allocate affect the value of your policy.
net premiums to
your investment
options in How
premiums work.
Your policy's
accumulated value
may be allocated to
up to 20 investment
options at any one
time.
---------------------------------------------------------
Variable investment You can choose from 33 variable investment options.
options Each variable investment option is set up as a variable
account under our separate account and invests in a
Variable investment corresponding portfolio of the Pacific Select Fund.
options are also Each portfolio invests in different securities and has
known as variable its own investment goals, strategies and risks. The
accounts. These value of each portfolio will fluctuate with the value
variable accounts of the investments it holds, and returns are not
are divisions of guaranteed. Your policy's accumulated value will
our separate fluctuate depending on the investment options you've
account. We bear chosen. You bear the investment risk of any variable
the direct investment options you choose.
operating expenses
of our separate The following chart is a summary of the Pacific Select
account. For more Fund portfolios. You'll find detailed descriptions of
information about the portfolios in the Pacific Select Fund prospectus
how these accounts that accompanies this prospectus. There's no guarantee
work, see that a portfolio will achieve its investment objective.
About PL&A. You should read the fund prospectus carefully before
investing.
Pacific Life is the
investment adviser
for the Pacific
Select Fund. They
oversee the
management of all
the fund's
portfolios, and
manage two of the
portfolios
directly. They've
retained other
portfolio managers
to manage the other
portfolios.
31
YOUR INVESTMENT OPTIONS
PORTFOLIO INVESTMENT GOAL THE PORTFOLIO'S PORTFOLIO
MAIN INVESTMENTS MANAGER
Blue Chip Long-term growth of Equity securities of "blue chip" A I M Capital
capital. Current income companies--typically large companies Management, Inc.
is of secondary that are well established in their
importance. respective industries.
Aggressive Growth Long-term growth of Equity securities of small- and A I M Capital
capital. medium-sized growth companies. Management, Inc.
Emerging Markets Long-term growth of Equity securities of companies that Alliance Capital
capital. are located in countries generally Management L.P.
regarded as "emerging market"
countries.
Diversified Research Long-term growth of Equity securities of U.S. companies Capital Guardian
capital. and securities whose principal markets Trust Company
are in the U.S.
Small-Cap Equity Long-term growth of Equity securities of smaller and Capital Guardian
capital. medium-sized companies. Trust Company
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.
I-Net Tollkeeper Long-term growth of Equity securities of companies which Goldman Sachs
capital. use, support, or relate directly or Asset Management
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 Funds Group, Inc.
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 Funds Group, Inc.
include medical equipment or supplies,
pharmaceuticals, health care
facilities and other health sciences-
related firms.
Technology Long-term growth of Equity securities in the technology INVESCO
capital. sector. Such companies include Funds Group, Inc.
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 telecommunications sector. Such as Funds Group, Inc.
is of secondary companies that offer telephone
importance. 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.
Large-Cap Core Long-term growth of Equity securities of large and medium- J.P. Morgan
(formerly called capital and income. sized dividend-paying U.S. companies. Investment
Equity Income) Management Inc.
Strategic Value Long-term growth of Equity securities with the potential Janus Capital
capital. for long-term growth of capital. Corporation
Growth LT Long-term growth of Equity securities of a large number of Janus Capital
capital consistent with companies of any size. Corporation
the preservation of
capital.
Focused 30 Long-term growth of Equity securities selected for their Janus Capital
capital. growth potential. Corporation
32
PORTFOLIO INVESTMENT GOAL THE PORTFOLIO'S PORTFOLIO
MAIN INVESTMENTS MANAGER
Mid-Cap Value Capital appreciation. Equity securities of medium-sized U.S. Lazard Asset
companies believed to be undervalued. Management
International Value Long-term capital Equity securities of companies of any Lazard Asset
appreciation primarily size located in developed countries Management
through investment in 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 potential MFS Investment
capital. for long-term growth of capital. Management
Mid-Cap Growth Long-term growth of Equity securities of medium-sized MFS Investment
capital. companies believed to have above- Management
average growth potential.
Global Growth Long-term growth of Equity securities of any size located MFS Investment
capital. within and outside of the U.S. Management
Equity Index Investment results that Equity securities of companies that Mercury Advisors
correspond to the total are included in the Standard & Poor's
return of common stocks 500 Composite Stock Price Index.
publicly traded in the
U.S.
Small-Cap Index Investment results that Equity securities of companies that Mercury Advisors
correspond to the total are included in the Russell 2000 Small
return of an index of Stock Index.
small capitalization
companies.
REIT Current income and long- Equity securities of U.S. and non-U.S. Morgan Stanley
term capital companies principally engaged in the Asset Management
appreciation. U.S. real estate industry.
Inflation Managed Maximize total return Inflation-indexed bonds of varying Pacific
(formerly called consistent with prudent maturities issued by the U.S. and non Investment
Government Securities) investment management. U.S. governments, their agencies and Management
government sponsored enterprises, and Company
corporations, forward contracts and
derivative instruments relating to
such securities.
Managed Bond Maximize total return Medium and high-quality fixed income Pacific
consistent with prudent securities with varying terms to Investment
investment management. maturity. Management
Company
Money Market Current income consistent Highest quality money market Pacific Life
with preservation of instruments believed to have limited
capital. credit risk.
High Yield Bond High level of current Fixed income securities with lower and Pacific Life
income. medium-quality credit ratings and
intermediate to long terms to
maturity.
Equity Income Current income. Capital Equity securities of large U.S. Putnam
growth is of secondary companies with a focus on income- Investment
importance. producing securities believed to be Management, Inc.
undervalued by the market.
Research Long-term growth of Equity securities of large U.S. Putnam
capital. companies with potential for capital Investment
appreciation. Management, Inc.
Equity Capital appreciation. Equity securities of large U.S. Putnam
Current income is of growth-oriented companies. Investment
secondary importance. Management, Inc.
Aggressive Equity Capital appreciation. Equity securities of small Putnam
and medium-sized companies. Investment
Management, Inc.
Large-Cap Value Long-term growth of Equity securities of large U.S. Salomon Brothers
capital. Current income companies. Asset Management
is of secondary Inc
importance.
33
YOUR INVESTMENT OPTIONS
An example Calculating unit values
When you choose a variable investment option, we credit
You ask us to your policy with accumulation units. The number of
allocate $6,000 to units we credit equals the amount we've allocated
the Inflation divided by the unit value of the variable account.
Managed investment Similarly, the number of accumulation units in your
option on a policy will be reduced when you make a transfer,
business day. At withdrawal or loan from a variable investment option,
the end of that and when your monthly charges are deducted.
day, the unit value
of the variable The value of an accumulation unit is the basis for all
account is $15. financial transactions relating to the variable
We'll credit your investment options. We calculate the unit value for
policy with 400 each variable account once every business day, usually
units ($6,000 at or about 4:00 p.m. Eastern time.
divided by $15).
Generally, for any transaction, we'll use the next unit
The value of an value calculated after we receive your written request.
accumulation unit If we receive your written request before 4:00 p.m.
is not the same as Eastern time, we'll use the unit value calculated as of
the value of a the end of that business day. If we receive your
share in the request on or after 4:00 p.m. Eastern time, we'll use
underlying the unit value calculated as of the end of the next
portfolio. business day.
For information If a scheduled transaction falls on a day that is not a
about timing of business day, we'll process it as of the end of the
transactions, see next business day. For your monthly charge, we'll use
Pacific Select the unit value calculated on your monthly payment date.
Estate If your monthly payment date does not fall on a
Preserver - NY business day, we'll use the unit value calculated as of
basics. the end of the next business day.
To calculate the unit value, we multiply the unit value
from the previous business day by the net investment
factor. The net investment factor for a variable
account on any business day is (a) minus (b), divided
by (c) where:
a = the net asset value of the variable account as of
the close of the prior business day, adjusted by
investment performance and any dividends or
distributions paid;
b = any charges for any taxes that are, or may become,
associated with the operation of the variable
account; and
c = the net asset value of the variable account as of
the close of the previous business day.
The net asset value of a variable account on any
business day is the net asset value per share for the
variable account on the business day multiplied by the
number of shares in the variable account on the
valuation date. The investment company in whose shares
the variable account invests reports the net asset
value per share and the number of shares outstanding
for each variable account on each business day.
The unit value of a variable account will change with
the value of its corresponding Pacific Select Fund
portfolio. Changes in the unit value of a variable
account will not change the number of accumulation
units credited to your policy.
A look at performance
Performance information may appear in advertisements,
sales literature, or reports to policy owners or
prospective buyers.
Information about the performance of any variable
account of the separate account reflects only the
performance of a hypothetical policy. The calculations
are based on allocating the hypothetical policy's
accumulated value to the variable account during a
particular time period.
34
Performance information is no guarantee of how a
variable account will perform in the future. You should
keep in mind the investment objectives and policies,
characteristics and quality of the portfolio of the
fund in which the variable account invests, and the
market conditions during the period of time that's
shown.
We may show performance information in any way that's
allowed under the law that applies to it. This may
include presenting a change in accumulated value due to
the performance of one or more variable accounts, or as
a change in a policy owner's death benefit.
We may show performance as a change in accumulated
value over time or in terms of the average annual
compounded rate of return on accumulated value. This
would be based on allocating premium payments for a
hypothetical policy to a particular variable account
over certain periods of time, including one year, or
from the day the variable account started operating. If
a portfolio has existed for longer than its
corresponding variable account, we may also show the
hypothetical returns that the variable account would
have achieved had it invested in the portfolio from the
day the portfolio started operating.
Performance may reflect the deduction of all policy
charges including premium load, the cost of insurance,
the administrative charge, and the mortality and
expense risk charge. The different death benefit
options will result in different expenses for the cost
of insurance, and the varying expenses will result in
different accumulated values.
Performance may also reflect the deduction of the
surrender charge, if it applies, by assuming the
hypothetical policy is surrendered at the end of the
particular period. At the same time, we may give other
performance figures that do not assume the policy is
surrendered and do not reflect any deduction of the
surrender charge.
In our advertisements, sales literature and reports to
policy owners, we may compare performance information
for a variable account to:
. other variable life separate accounts, mutual funds,
or investment products tracked by research firms,
ratings services, companies, publications, or persons
who rank separate accounts or investment products on
overall performance or other criteria
. the Consumer Price Index, to assess the real rate of
return from buying a policy by taking inflation into
consideration.
Reports and promotional literature may also contain our
rating or a rating of our claims-paying ability. These
ratings are set by firms that analyze and rate
insurance companies and by nationally recognized
statistical rating organizations.
You'll find more Fees and expenses paid by the Pacific Select Fund
about Pacific The Pacific Select Fund pays advisory fees and other
Select Fund fees expenses. These are deducted from the assets of the
and expenses in An fund's portfolios and may vary from year to year. They
overview of Pacific are not fixed and are not part of the terms of your
Select Estate policy. If you choose a variable investment option,
Preserver - NY. these fees and expenses affect you indirectly because
they reduce portfolio returns. The fund is governed by
its own Board of Trustees.
35
YOUR INVESTMENT OPTIONS
---------------------------------------------------------
Fixed options You can also choose from two fixed options: the Fixed
account and the Fixed LT account. The fixed options
The fixed options provide a guaranteed minimum annual rate of interest.
are not securities, The amounts allocated to the fixed options are held in
so they do not fall our general account. We have contracted with Pacific
under any Life to manage our general account assets, subject to
securities act. For investment policies, objectives, directions and
this reason, the guidelines established by our Board.
SEC has not
reviewed the Here are some things you need to know about the fixed
disclosure in this options:
prospectus about
these options. . Accumulated value allocated to the fixed options earn
However, other interest on a daily basis, using a 365-day year. Our
federal securities minimum annual interest rate is 3% during the first
laws may apply to 10 policy years, 3.6% during policy years 11 through
the accuracy and 20, and 3.85% during policy year 21 and thereafter.
completeness of the . We may offer a higher annual interest rate on the
disclosure about fixed options. If we do, we'll guarantee the higher
these options. rate for one year.
. There are no investment risks or direct charges.
For more
information about . There are limitations on when and how much you can
the general transfer from the fixed options. These limitations
account, see About are described below in Transferring among investment
PL&A. options. We reserve the right, in our sole
discretion, to waive the transfer restrictions on the
fixed options. Please contact us or your registered
representative to find out if a waiver is currently
in effect.
. We may limit the total amount you allocate to the
Fixed LT account for all Pacific Life policies you
own to $1,000,000 in any 12-month period, and
transfer any amount over $1,000,000 to your other
investment options according to your most recent
instructions. We may increase the $1,000,000 limit at
any time at our sole discretion. You should contact
us to find out if a higher limit is in effect.
---------------------------------------------------------
Transferring among You can transfer among your investment options any time
investment options during the life of your policy without triggering any
current income tax. You can make transfers by writing
You can make to us, by making a telephone or electronic transfer, or
transfers and use by signing up for one of our automatic transfer
transfer programs programs. You'll find more information about making
only after the free telephone and electronic transfers in Pacific Select
look transfer date. Estate Preserver - NY basics.
For more
information, please Transfers will normally be effective as of the end of
see Pacific Select the business day we receive your written, telephone or
Estate electronic request.
Preserver - NY
basics. Here are some things you need to know about making
transfers:
You'll find more
about the first . Your policy's accumulated value may be invested in up
year transfer to 20 investment options at one time.
program later in . If you're making transfers between variable
this section. investment options, there is no minimum amount
required and you can make as many transfers as you
like.
. You can make transfers from the variable investment
options to the Fixed account at any time.
. You can make transfers from the variable investment
options to the Fixed LT account only in the policy
month right before each policy anniversary.
. If you have transferred accumulated value out of the
fixed options, you must wait 90 days before making a
transfer to the Fixed account. However, you can make
transfers to the Fixed account anytime during the
first 18 months of your policy.
. You can only make one transfer from each fixed option
in any 12-month period, except if you've signed up
for the first year transfer program.
. You can only transfer up to the greater of $5,000 or
25% of your policy's accumulated value in the Fixed
account in any 12-month period, except for scheduled
transfers under the first year program.
36
. You can only transfer up to the greater of $5,000 or
10% of your policy's accumulated value in the Fixed
LT account in any 12-month period. The restrictions
for transfers from the Fixed LT account are
temporarily waived during the first policy year. You
will be permitted to transfer any amount out of the
Fixed LT account at any time during the first twelve
policy months. We reserve the right to discontinue
this waiver at any time. However, if the waiver is in
effect on the date you sign the application for your
policy, the waiver on transfer restrictions will
remain in effect for your first policy year.
. Currently, there is no charge for making a transfer,
but in the future we may charge you $25 per transfer
in excess of 12 transfers per policy year.
. There is no minimum required value for the investment
option you're transferring to or from.
. You cannot make a transfer if your policy is in the
grace period and is in danger of lapsing.
. We can restrict or suspend transfers.
. We may choose to impose limits on transfer amounts,
the value of the investment options you're
transferring to or from, or the number and frequency
of transfers you can make.
---------------------------------------------------------
Transfer programs We offer three programs that allow you to make
automatic transfers of accumulated value from one
investment option to another. Under the dollar cost
averaging and portfolio rebalancing programs, you can
transfer among the variable investment options. Under
the first year transfer program, you can make transfers
from the Fixed account to the Fixed LT account and the
variable investment options.
Since the value of Dollar cost averaging program
accumulation units Our dollar cost averaging program allows you to make
can change, more scheduled transfers of $50 or more between variable
units are credited investment options. It does not allow you to make
for a scheduled transfers to or from either of the fixed options.
transfer when unit Here's how the program works:
values are lower,
and fewer units . You can set up this program at any time while your
when unit values policy is in force.
are higher. This . You need to complete a request form to enroll in the
allows you to program. You may enroll by telephone or
average the cost of electronically if you have a completed telephone and
investments over electronic authorization form on file.
time. Investing . You must have at least $5,000 in a variable
this way does not investment option to start the program.
guarantee profits . We'll automatically transfer accumulated value from
or prevent losses. one variable investment option to one or more of the
other variable investment options you've selected.
. We'll process transfers as of the end of the business
day on your policy's monthly, quarterly, semi-annual
or annual anniversary, depending on the interval
you've chosen. We will not make the first transfer
until after the free look transfer date.
. We will not charge you for the dollar cost averaging
program or for transfers made under this program,
even if we decide to charge you in the future for
transfers outside of the program, except if we have
to by law.
. We have the right to discontinue, modify or suspend
the program at any time.
We'll keep making transfers at the intervals you've
chosen until one of the following happens:
. the total amount you've asked us to transfer has been
transferred
. there is no more accumulated value in the investment
option you're transferring from
. your policy enters the grace period and is in danger
of lapsing
. you tell us in writing to cancel the program
. we discontinue the program.
37
YOUR INVESTMENT OPTIONS
Because the Portfolio rebalancing program
portfolio As the value of the underlying portfolios changes, the
rebalancing program value of the allocations to the variable investment
matches your options will also change. The portfolio rebalancing
original percentage program automatically transfers your policy's
allocations, we may accumulated value among the variable investment options
transfer money from according to your original percentage allocations.
an investment
option with
relatively higher
returns to one with
relatively lower
returns.
Here's how the program works:
. You can set up this program at any time while your
policy is in force.
. You enroll in the program by sending us a written
signed request or a completed automatic rebalancing
form. You may enroll by telephone or electronically
if you have a completed telephone and electronic
authorization form on file.
. Your first rebalancing will take place on the monthly
payment date you choose. You choose whether we should
make transfers quarterly, semi-annually or annually,
based on your policy date.
. If you cancel this program, you must wait 30 days to
begin it again.
. You cannot use this program if you're already using
the dollar cost averaging program.
. We do not currently charge for the portfolio
rebalancing program or for transfers made under this
program.
. We can discontinue, modify or suspend the program at
any time.
This program allows First year transfer program
you to average the Our first year transfer program allows you to make
cost of investments monthly transfers during the first policy year from the
over your first Fixed account to the variable investment options or the
policy year. Fixed LT account. It does not allow you to transfer
Investing this way among variable investment options.
does not guarantee
profits or prevent Here's how the program works:
losses.
. You enroll in the program when you apply for your
policy.
. You choose a regular amount to be transferred every
month for 12 months.
. We make the first transfer on the day we allocate
your first net premium to the investment options
you've chosen. Each transfer will be made on the same
day every month.
. If you sign up for this program, we'll waive the
usual transfer limit for the Fixed account during the
first policy year.
. If we make the last transfer during the second policy
year, we will not count it toward the usual one
transfer per year limit for the Fixed account.
. If the accumulated value in the Fixed account is less
than the amount to be transferred, we'll transfer the
balance and then cancel the program.
. If there is accumulated value remaining in the Fixed
account at the end of the program, our usual rules
for the Fixed account will apply.
. We do not currently charge for the first year
transfer program or for transfers made under this
program.
38
WITHDRAWALS, SURRENDERS AND LOANS
Making a You can take out all or part of your policy's
withdrawal, taking accumulated value while your policy is in force by
out a loan or making withdrawals or surrendering your policy. You can
surrendering your take out a loan from us using your policy as security.
policy can change You can also use your policy's loan and withdrawal
your policy's tax features to supplement your income, for example, during
status, generate retirement.
taxable income, or
make your policy
more susceptible to
lapsing. Be sure to
plan carefully
before using these
policy benefits.
If you withdraw a
larger amount than
you've paid into
your policy, your
withdrawal may be
considered taxable
income.
For more
information, see
Variable life
insurance and your
taxes.
---------------------------------------------------------
Making withdrawals You can withdraw part of your policy's net cash
surrender value starting on your policy's first
You can choose to anniversary. Here's how it works:
receive your
withdrawal in a . You must send us a written request that's signed by
lump sum or use it all owners.
to buy an income . Each withdrawal must be at least $500, and the net
benefit. Please see cash surrender value of your policy after the
the discussion withdrawal must be at least $500.
about income . If your policy has an outstanding loan amount, the
benefits in General maximum withdrawal you can take is the amount, if
information about any, by which the cash surrender value just before
your policy. the withdrawal, exceeds the outstanding loan amount
divided by 90%.
We will not accept . We'll charge you $25 for each withdrawal you make.
your request to . If you do not tell us which investment options to
make a withdrawal take the withdrawal from, we'll deduct the withdrawal
if it will cause and the withdrawal charge from all of your investment
your policy to options in proportion to the accumulated value you
become a modified have in each option.
endowment contract, . The accumulated value, cash surrender value and net
unless you've told cash surrender value of your policy will be reduced
us in writing that by the amount of each withdrawal.
you want your . If the last surviving person insured under the policy
policy to become a dies after you've sent a withdrawal request to us,
modified endowment but before we've made the withdrawal, we'll deduct
contract. the amount of the withdrawal from any death benefit
proceeds owing.
How withdrawals affect your policy's death benefit
Making a withdrawal will affect your policy's death
benefit in the following ways:
. if your policy's death benefit does not equal the
guideline minimum death benefit, the death benefit
will decrease by the amount of your withdrawal.
. if your policy's death benefit equals the guideline
minimum death benefit, the death benefit may decrease
by more than the amount of your withdrawal.
How withdrawals affect your policy's face amount
If you've chosen death benefit Option B or Option C,
making a withdrawal does not reduce your policy's face
amount.
If you've chosen death benefit Option A or Option D, a
withdrawal may reduce your face amount. The face amount
will be reduced by the amount if any, by which the face
amount exceeds the death benefit immediately before the
withdrawal, minus the amount of the withdrawal.
39
WITHDRAWALS, SURRENDERS AND LOANS
---------------------------------------------------------
Taking out a loan You can borrow money from us any time while your policy
is in force either by sending us a request in writing,
The amount in the over the telephone or electronically. You'll find more
loan account, plus information about requesting a loan by telephone or
any interest you electronically in Pacific Select Estate Preserver - NY
owe, is referred to basics.
throughout this
prospectus as your When you borrow money from us, we use your policy's
outstanding loan accumulated value as security. You pay interest on the
amount. Your policy amount you borrow. The accumulated value set aside to
refers to this secure your loan also earns interest. Here's how it
amount as policy works:
debt.
. To secure the loan, we transfer an amount equal to
Taking out a loan the amount you're borrowing from your accumulated
will affect the value in the investment options to the loan account.
growth of your We'll transfer this amount from your investment
policy's options in proportion to the accumulated value you
accumulated value, have in each option, unless you tell us otherwise.
and may affect the
death benefit. . Interest owing on the amount you've borrowed accrues
daily at an annual rate of 4.1%.
. Interest that has accrued during the policy year is
due on your policy anniversary. If you do not pay the
interest when it's due, we'll add it to the amount of
your loan and begin accruing interest on it from the
day it was due. We'll also transfer an amount equal
to the interest that was due, from your policy's
accumulated value to the loan account. We'll transfer
this amount from your investment options in
proportion to the accumulated value you have in each
option, unless you tell us otherwise.
. The amount in the loan account earns interest daily
at an annual rate of 3.1% during the first 10 policy
years, 3.7% during policy years 11 through 20, and at
least 3.85% during policy year 21 and thereafter. On
your policy anniversary, we transfer the interest
that's been credited to the loan account
proportionately to your investment options according
to your most recent allocation instructions.
. We currently intend to credit interest on the amount
in the loan account at an annual rate of 4.1% in
policy year 21 and thereafter. We can decrease the
rate credited if we believe the change is needed to
ensure that your policy loan is not treated as a
taxable distribution under federal income tax laws,
or any applicable ruling, regulation, or court
decision. We will not decrease the annual rate to
less than 3.85% on the amount in the loan account
during policy year 21 and thereafter.
How much you can borrow
The minimum amount you can borrow is $200. You can
borrow up to the larger of the following amounts:
An example
For a policy in . 100% of the accumulated value in the fixed options,
policy year 13 plus 90% of the accumulated value in the variable
with: investment options, less any surrender charges that
. accumulated value would apply if you surrendered your policy on the day
of $100,000 you took out the loan.
. a most recent
monthly charge of . the result of a x (b / c) - d, where:
$100
a = the accumulated value of your policy less any
. an outstanding surrender charges that would have applied if you
loan amount of surrendered your policy on the day you took out
$50,000 the loan, and less 12 times the most recent
monthly charge
The maximum amount
you can borrow is b = 1.031 during the first 10 policy years, 1.037
$48,325.46 during policy years 11 through 20, and 1.0385
(($100,000 - during policy year 21 and thereafter.
$1,200) X (1.036 /
1.041)- $50,000) c = 1.041
d = any outstanding loan amount.
Paying off your loan
You can pay off all or part of the loan any time while
your policy is in force. Unless you tell us otherwise,
we'll transfer any loan payments you make
proportionately to your investment options according to
your most recent allocation instructions.
While you have an outstanding loan, we'll treat any
money you send us as a premium payment unless you tell
us in writing that it's a loan repayment.
40
What happens if you do not pay off your loan
If you do not pay off your loan, we'll deduct the
Your outstanding amount in the loan account, including any interest you
loan amount could owe, from one of the following:
result in taxable
income if you . the death benefit proceeds before we pay them to your
surrender your beneficiary
policy, if your . the cash surrender value if you surrender your policy
policy lapses, or . the amount we refund if you exercise your right to
if your policy is a cancel.
modified endowment
contract. You Taking out a loan, whether or not you repay it, will
should talk to your have a permanent effect on the value of your policy.
tax advisor before For example, while your policy's accumulated value is
taking out a loan held in the loan account, it will miss out on the
under your policy. potential earnings available through the variable
For more investment options. The amount of interest you earn on
information, please the loan account may be less than the amount of
turn to Taking out interest you would have earned from the fixed options.
a loan in Variable These could lower your policy's accumulated value,
life insurance and which could reduce the amount of the death benefit.
your taxes.
When a loan is outstanding, the amount in the loan
account is not available to help pay for any policy
charges. If, after deducting your outstanding loan
amount, there is not enough accumulated value in your
policy to cover the policy charges, your policy could
lapse. You may need to make additional premium payments
or loan repayments to prevent your policy from lapsing.
---------------------------------------------------------
Ways to use your You can use your policy's loan and withdrawal features
policy's loan and to supplement your income, for example, during
withdrawal features retirement.
If you're Using your policy to supplement your income does not
interested in using change your rights or our obligations under the policy.
your life insurance The terms for loans and withdrawals described in this
policy to prospectus remain the same.
supplement your
retirement income, Here are some things you should consider when setting
please contact us up an income stream:
for more
information. . the rate of return you expect to earn on your
investment options
We can provide you . how long you would like to receive regular income
with illustrations . the amount of accumulated value you want to maintain
that give you in your policy.
examples of how
this could affect Understanding the risks
the accumulated Setting up an income stream may not be suitable for all
value, net cash policy owners. It's important to understand the risks
surrender value and that are involved in using your policy's loan and
death benefit of withdrawal features.
your policy based
on different You must always leave enough accumulated value in your
hypothetical gross policy to help ensure your policy will continue to
rates of return. We qualify as life insurance and will not lapse. Your
will not use a policy will lapse if there is not enough accumulated
higher rate than value, after subtracting any outstanding loan amount,
12%, and will to cover the monthly charge on the day we make the
always compare it deduction and the grace period expires. If your policy
with a rate of 0% lapses, we'll end your life insurance coverage.
based on guaranteed
insurance costs. There are also charges associated with reinstating a
lapsed policy.
The hypothetical
rates of return are You should consult with your financial adviser and
not illustrative of carefully consider how much you can withdraw and borrow
past or future from your policy each year to set up your income
results. Policy stream.
values and benefits
would be different Remember that the performance of your investment
if: options also affects your policy's accumulated value.
Poor performance can increase the danger of your policy
. the gross annual lapsing. And as the cost of insurance generally
rates of return increases with the ages of the persons insured by the
are different policy, this can also reduce the accumulated value.
from the
hypothetical
rates
. premiums were not
paid as
illustrated
. loan interest was
paid when due.
41
WITHDRAWALS, SURRENDERS AND LOANS
You can also ask In addition, you should carefully review the policy
for accompanying statements we send you. Your statements will allow you
charts and graphs to monitor your policy's accumulated value, less your
that compare outstanding loan amount, to ensure your policy can
results from continue to support the income stream you have chosen.
various retirement
strategies. If your policy lapses, or you surrender your policy
after you have taken out a loan, you could face
You can ask your significant income tax liability in the year of the
registered lapse or surrender. Any outstanding loan amount will
representative for automatically be repaid when your policy lapses or you
illustrations surrender your policy. You could be taxed to the extent
showing how policy that the net surrender value plus the outstanding loan
charges may affect amount repaid exceeds the cost basis of your policy.
existing
accumulated value Interest on a loan is due to us on each policy
and how future anniversary. If we do not receive the interest when
withdrawals and due, we'll add it to the outstanding loan amount and
loans may affect begin accruing interest from the day it was due. This
the accumulated has a compounding effect and can add to your income tax
value and death liability.
benefit.
If both persons insured by the policy die, we'll deduct
Tax issues are any outstanding loan amount from the death benefit.
described in detail This means the death benefit proceeds will be less than
in Variable the death benefit and may be less than the face amount.
insurance and your
taxes.
---------------------------------------------------------
Automated income Our automated income option ("AIO") program allows you
option to make scheduled withdrawals or loans. Your policy is
eligible after the 7th policy anniversary. To begin the
Withdrawals and program, you must have a minimum net cash surrender
loans may reduce value of $50,000, and your policy must not qualify as a
policy values and modified endowment contract.
benefits. They may
also increase your You request participation in the AIO program and
risk of lapse. In specify your AIO preferences by sending us an AIO
order to minimize request form. If you wish to do so, contact your
the risk of lapse, registered representative for an AIO request form.
you should not take
additional loans or There is no fee to participate in the AIO program. The
withdrawals while $25 fee for withdrawals under the AIO program is
you are in the AIO currently waived.
program.
Here's how the program works:
Distributions under
the AIO program may . You can set up the income stream from your policy on
result in tax either a monthly or annual basis. Each scheduled
liability. Please income payment must be at least $500 if you choose to
consult your tax receive monthly payments, or $1,000 if you choose
advisor. annual payments.
For more . You may choose to receive either a fixed amount of
information, see income or an amount based on a fixed duration.
Variable life Depending upon your objectives, you may wish to
insurance and your reduce your face amount or change your policy's death
taxes. benefit option in order to maximize your income.
. You choose the scheduled income payment date. You may
elect to have your income payments sent either by
check or by electronic deposit to a bank account. The
effective date of the withdrawal or loan will be the
business day before any income payment date.
. If the scheduled income payment date falls on a
weekend or holiday, the actual income payment date
will be the business day before the scheduled income
payment date.
. The withdrawal or loan will be taken from your
policy's investment options in proportion to the
accumulated value in each option.
42
Over time, your Upon our receipt of your AIO request form, we will run
policy's actual a hypothetical illustration to determine if your
performance, and request can be fulfilled, or if any adjustments will be
perhaps your use of necessary. We use the illustration to test your policy
the policy's for the minimum net cash surrender value requirement.
options, are likely Your policy must continue to have an illustrated net
to vary from the cash surrender value at age 100 sufficient to meet the
assumptions used in minimum accumulated value required to allow for payment
the illustrations. of policy charges, including policy loan interest.
Changes in your
policy's investment Illustrations generally will be run at an annual gross
option allocations earnings rate chosen by you, not to exceed 10%. No
can impact your earnings rate used is a guarantee or indication of
future values and actual earnings.
income you receive.
Your policy may We will complete an AIO agreement form, and send it and
also be more the illustration to your registered representative for
susceptible to delivery to you. The AIO agreement form will confirm
lapse. your income payment amount, frequency and duration, and
will also confirm your policy's cost basis and other
You are responsible information about your elections under the AIO program.
to monitor your
policy's Unless you request otherwise, distributions under the
accumulated value AIO program will be taken first as withdrawals if not
to ensure your taxable, then they will be taken as loans.
policy is not in
danger of lapsing. Payments under the AIO program will begin as scheduled
You may need to once we receive your signed AIO agreement form. We will
make additional send you a letter confirming the date and amount of the
premium payments or first income payment.
loan repayments to
prevent your policy The income payments will usually remain constant during
from lapsing. each income period, unless there is insufficient net
cash surrender value to make a payment. The duration of
You will not each income period is one year, except that the first
receive a notice to income period may differ depending on the following:
remind you of your
scheduled premium . If the AIO program start date is six months or more
payments while you from your next policy anniversary, the income period
are in the AIO will end on the next policy anniversary. In this
program. case, the first income period will last at least six
months, but not more than one year.
. If the AIO program start date is less than six months
from your next policy anniversary, the income period
will extend to the following policy anniversary. In
this case, the first income period will last at least
one year, but not more than 18 months.
There is no charge After the first income period, and each year you remain
for illustrations in the AIO program, we will run an illustration after
we run in each policy anniversary. This illustration will
connection with the generally be run at a rate chosen by you, not to exceed
AIO program. They a gross annual rate of 10%. Your policy must continue
do not count toward to have an illustrated net cash surrender value at age
your one free 100 sufficient to meet the minimum accumulated value
illustration per required to allow for payment of policy charges,
year. including policy loan interest.
We will send you a letter and the illustration to
notify you of any changes in your income payment amount
or duration. The new income payment amount will be
effective on the income payment date following the
previous income period.
You may discontinue participation in the AIO program at
any time by sending a written notice to us.
43
WITHDRAWALS, SURRENDERS AND LOANS
---------------------------------------------------------
You can surrender or cash in your policy at any time
Surrendering your while either of the two people insured by the policy is
policy still living. Your policy's cash surrender value is its
accumulated value less any surrender charge that
You can choose to applies. The net cash surrender value equals your
receive your money policy's cash surrender value after deducting any
in a lump sum or outstanding loan amount.
use it to buy an
income benefit. Here are some things you need to know about
Please see the surrendering your policy:
discussion about
income benefits in . You must send us your policy and a written request.
General information
about your policy. . We'll send you the policy's net cash surrender value.
If you surrender your policy during the first 10
policy years, we'll deduct a surrender charge that
helps cover our costs for underwriting, issuing and
distributing our policies. The following box
describes how we calculate the surrender charge.
There's no surrender charge after 10 policy years.
. We guarantee the surrender charge rates will not
increase. We can reduce or waive the surrender charge
on policies sold to our directors or employees, to
any of our affiliates or to any trustees or employees
or affiliates of the Pacific Select Fund.
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How we calculate the surrender charge
Joint equal age is The surrender charge is assessed against your policy's
a calculation that accumulated value. It has two parts: an underwriting
combines the ages surrender charge and a sales surrender charge. Both
and insurance risks charges are based on the joint equal age on the policy
of the two people date of the two people insured by the policy, and on
insured by the the initial face amount of your policy.
policy, and is
explained in The underwriting surrender charge is designed to help
Appendix A. cover our administrative expenses for underwriting and
issuing a policy, including the costs of processing
The underwriting applications, conducting medical examinations,
surrender charge determining the insurability and underwriting classes
and sales surrender of the people insured, and establishing policy records.
target rate appear
in Appendix B. The amount of the charge does not change during the
first policy year. Starting on the first policy
anniversary, the charge decreases by 0.9259% each month
An example until it reaches zero at the end of the 10th policy
year.
For a policy with:
The sales surrender charge helps pay for our costs of
. a joint equal age distributing policies. During the first policy year,
of 50 this charge is equal to the smaller of the following
. an initial face amounts:
amount of
$100,000. . 70% of the premium payments you've made, or
. 70% of the sales surrender target, which is based on
Here's the the joint equal age of the people insured by the
surrender charge at policy for each $1,000 of the policy's initial face
the end of the amount.
first policy year:
The sales surrender charge increases until the premiums
. Underwriting you pay reach the sales surrender target. In the 13th
surrender charge: month you own your policy, we reduce the sales
$520 (5.20 X surrender charge so that it is 99.0741% of the charge
$100,000 / 1,000) as calculated above. After that, we reduce it by
. Maximum sales 0.9259% a month until it reaches zero at the end of 10
surrender charge: policy years.
$865.20 (70% X
12.36 X We will not increase the charge if your policy's face
$100,000 / 1,000). amount increases. If you decrease the face amount of
your policy, we'll charge you a surrender charge that's
calculated based on the amount of the decrease.
At the end of the
third policy year,
the surrender ---------------------------------------------------------
charge is reduced Calculating the surrender charge on a decrease in face
to: amount
. Underwriting Here's how we calculate the surrender charge on a
surrender charge: decrease in face amount:
$404.45 ($520 -
($520 X 0.9259% X . Step 1: we divide the amount of the decrease by your
24 months)) policy's face amount immediately before the decrease
. Maximum sales . Step 2: we multiply the amount we calculated in step
surrender charge: 1 by the total surrender charge that would apply if
$672.94 ($865.20 you surrendered your policy.
- ($865.20 X
0.9259% X 24 We deduct the amount we calculated in step 2 from your
months)). investment options in proportion to the accumulated
value you have in each option.
The most we will
assess for the We calculate any surrender charge after a decrease in
underwriting face amount by dividing the new face amount by the old
surrender change face amount, and multiplying the result by the
on any surrendered surrender charge that would have applied before the
policy is $17.30 decrease.
per $1,000 of face
amount.
44
---------------------------------------------------------
Policy restoration You may request to restore a policy you surrender if
the person insured by the policy is still living.
If you surrender Here's how it works:
your policy and use
the proceeds to . We must receive your request to restore the policy
purchase another along with the full amount of the surrender proceeds
policy we must within 30 days from the original date of the
receive your surrender. We will not require evidence of
request to restore insurability.
your policy within . If we assessed a surrender charge when you
60 days of delivery surrendered your policy, we will add the value of
of your the charge to the surrender proceeds we receive from
replacement. you.
. The surrender proceeds and any refunded surrender
charge will be placed into the Fixed account as of
the original date of the surrender. We will
calculate and pay interest on this amount from the
date of surrender to the date we process your
restoration request.
. On the date we process your restoration request, we
will transfer your accumulated value in the Fixed
account to the investment options you choose
according to your most recent premium allocation
instructions.
. If you had an outstanding loan amount when you
surrendered your policy, we will reinstate the loan
amount that was outstanding the day you surrendered
your policy.
. Once we have restored the policy, we will send you a
written confirmation.
We will not restore a policy that has been surrendered
for an income benefit.
45
GENERAL INFORMATION ABOUT YOUR POLICY
This section tells you some additional things you
should know about your policy.
---------------------------------------------------------
Income benefit If you surrender or make a withdrawal from your policy,
you can use the money to buy an income benefit that
provides a monthly income. Your policy's beneficiary
can use death benefit proceeds to buy an income
benefit. In addition to the income benefit described
below, you can choose from other income benefits we may
make available from time to time.
The following is one income benefit available under the
Pacific Select Estate Preserver - NY policy:
. The income benefit is based on the life of the person
receiving the income. If the policy owner is buying
the income benefit, monthly income will be based on
the owner's life. If the policy's beneficiary buys
the income benefit, monthly income will be based on
the beneficiary's life.
. We'll pay a monthly income for at least 10 years
regardless of whether the person receiving the income
is still alive.
. After 10 years, we'll only pay the monthly income for
as long as the person receiving it is still alive.
. The minimum monthly income benefit calculated must be
at least $100.
. For this income benefit, the amount you receive will
always be at least as much as the amount guaranteed
by your policy.
---------------------------------------------------------
Reduced Paid-Up
Benefit You may use the net cash surrender value of your policy
to purchase fixed paid-up insurance on the lives of the
people insured by the policy, or the life of the person
insured by the policy, if only one person is living at
the time of conversion. You may choose to do this on
any policy anniversary while the policy is in force. We
guarantee your right to convert your policy, and we
will not require evidence of insurability.
If you convert your policy, your policy and any riders
attached to it will terminate and the net cash
surrender value will be transferred to our general
account. Investment options are not available under the
policy issued when you convert.
The net cash surrender value will be applied as a net
single premium to purchase paid-up insurance. No
premium payments will be required or accepted on the
converted policy. The amount of such insurance will be
calculated based on 1980 Commissioners Standard
Ordinary Mortality Tables, 3% interest and on the ages
and risk classifications of the people insured by the
policy or, if only one person is living at the time of
conversion, the age and risk classification of the
surviving person.
---------------------------------------------------------
Paying the death
benefit in the case If both people insured by the policy commit suicide,
of suicide or, if only one person insured by the policy is still
living, that person commits suicide, within two years
of the policy date, while sane or insane, death benefit
proceeds will be the total of all premiums you've paid,
less any outstanding loan amount and any withdrawals
you've made.
---------------------------------------------------------
Replacement of life The term replacement has a special meaning in the life
insurance or insurance industry. Before you make a decision to buy,
annuities we want you to understand what impact a replacement may
have on your existing insurance policy.
46
A replacement occurs when you buy a new life insurance
policy or annuity contract, and a policy or contract
you already own has been or will be:
. lapsed, forfeited, surrendered or partially
surrendered, assigned to the replacing insurer, or
otherwise terminated
. converted to reduced paid-up insurance, continued as
extended term insurance, or otherwise reduced in
value by the use of nonforfeiture benefits or other
policy values
. amended to effect either a reduction in benefits or
in the term for which coverage would otherwise remain
in force or for which benefits would be paid
. reissued with any reduction in cash value, or
. pledged as collateral or subject to borrowing,
whether in a single loan or under a schedule of
borrowing over a period of time.
There are circumstances when replacing your existing
life insurance policy or annuity contract can benefit
you. As a general rule, however, replacement is not in
your best interest. You should carefully compare the
costs and benefits of your existing policy or contract
with those of the new policy or contract to determine
whether replacement is in your best interest.
---------------------------------------------------------
Errors on your If the age of either person insured by your policy is
application stated incorrectly on your application, the death
benefit under your policy will be the greater of the
following:
. the amount of death benefit that would be purchased
by the most recent cost of insurance charge for the
correct age or
. the guideline minimum death benefit for the correct
age.
We'll adjust the accumulated value by recalculating all
previous cost of insurance charges and other monthly
deductions based on the correct age.
---------------------------------------------------------
Contesting the We have the right to contest the validity of your
validity of your policy for two years from the policy date. Once your
policy policy has been in force for two years from the policy
date during the lifetime of the people insured by the
policy, we generally lose the right to contest its
validity.
We also have the right to contest the validity of a
policy that you reinstate for two years from the day
that it was reinstated. Once your reinstated policy has
been in force for two years from the reinstatement date
during the lifetime of the people insured by the
policy, we generally lose the right to contest its
validity. During this period, we may contest your
policy only if there is a material misrepresentation on
your application for reinstatement.
We have the right to contest the validity of an
increase in the face amount of a policy for two years
from the day the increase becomes effective. Once the
increased face amount has been in force for two years
during the lifetime of the person insured by the
policy, we generally lose the right to contest its
validity.
Regardless of the above, we can contest the validity of
your policy for failure to pay premiums at any time.
The policy will terminate upon successful contest with
respect to either person insured by the policy.
47
GENERAL INFORMATION ABOUT YOUR POLICY
---------------------------------------------------------
Assigning your You can assign your policy as collateral to secure a
policy as loan, mortgage, or other kind of debt. Here's how it
collateral works:
Assigning a policy . An assignment does not change the ownership of the
that's a modified policy.
endowment contract . After the policy has been assigned, your rights and
may generate the rights of your beneficiary will be subject to the
taxable income and assignment. The entire policy, including any income
a 10% penalty tax. benefit, rider, benefit and endorsement, will also be
subject to the assignment.
. We're not responsible for the validity of any
assignment.
. We must receive a copy of the original assignment
before we'll consider it binding.
. Unless otherwise provided, the person or organization
you assign your policy to may exercise the rights
under the policy, except the right to change the
policy owner or the beneficiary or the right to
choose a monthly income benefit.
---------------------------------------------------------
Non-participating This policy will not share in any of our surplus
earnings.
48
VARIABLE LIFE INSURANCE AND YOUR TAXES
This discussion about taxes is based on our
understanding of the present federal income tax laws as
they are currently interpreted by the Internal Revenue
Service (IRS). It's based on the Internal Revenue Code
(the tax code) and does not cover any state or local
tax laws.
The tax This is not a complete discussion of all federal income
consequences of tax questions that may arise under the policy. There
owning a policy or are special rules that we do not include here that may
receiving proceeds apply in certain situations.
from it may vary by
jurisdiction and We do not know whether the current treatment of life
according to the insurance policies under current federal income tax or
circumstances of estate or gift tax laws will continue. We also do not
each owner or know whether the current interpretations of the laws by
beneficiary. the IRS or the courts will remain the same. Future
legislation may adversely change the tax treatment of
Speak to a life insurance policies, other tax consequences
qualified tax described in this discussion or tax consequences that
adviser for relate directly or indirectly to life insurance
complete policies.
information about
federal, state and We do not make any guarantees about the tax status of
local taxes that your policy, and you should not consider the discussion
may apply to you. that follows to be tax advice.
Recently passed tax
legislation
provides, among
other things, for
reductions in
federal estate tax
rates, increases in
the exemption
amount, and a
"repeal" of the
federal estate tax
in 2010. However,
the legislation
provides for full
reinstatement of
the federal estate
tax in the year
2011. If you are
considering the
purchase of the
policy to help pay
federal estate
taxes at death,
consult with your
tax advisor.
---------------------------------------------------------
Tax treatment of Definition of life insurance
life insurance We believe that the policy qualifies as life insurance.
policies That means it will receive the same tax advantages as a
conventional fixed life insurance policy. The two main
In order to qualify tax advantages are:
as a life insurance
contract for . In general, your policy's beneficiary will not be
federal income tax subject to federal income tax when he or she receives
purposes, the the death benefit proceeds. This is true regardless
policy must meet of whether the beneficiary is an individual,
the statutory corporation, or other entity.
definition of life . You'll generally not be taxed on your policy's
insurance. accumulated value unless you receive a cash
distribution by making a withdrawal, surrendering
Death benefits may your policy, or in some instances, taking a loan from
be excluded from your policy.
income under
Section 101(a) of The tax laws defining life insurance, however, do not
the tax code. cover all policy features. Your policy may have
features that could prevent it from qualifying as life
We believe that insurance. For example, the tax laws have yet to
last survivor address many issues concerning the treatment of
policies meet the substandard risk policies, policies with term insurance
statutory on the person insured by the policy or certain tax
definition of life requirements relating to joint survivorship life
insurance under insurance policies. We can make changes to your policy
Section 7702 of the if we believe the changes are needed to ensure that
tax code. However, your policy continues to qualify as a life insurance
the area of tax law contract.
relating to the
definition of life The tax code and tax regulations impose limitations on
insurance does not unreasonable mortality and expense charges for purposes
explicitly address of determining whether a policy qualifies as life
all relevant issues insurance for federal tax purposes. For life insurance
relating to last policies entered into on or after October 21, 1988,
survivor life these calculations must be based upon reasonable
insurance policies. mortality charges and other charges reasonably expected
We reserve the to be actually paid.
right to make
changes to the
policy if we deem
the changes
appropriate to
continue to qualify
your policy as a
life insurance
contract. If a
policy were
determined not to
qualify as life
insurance, the
policy would not
provide the tax
advantages normally
provided by life
insurance. This
includes excluding
the death benefit
from the gross
income of the
beneficiary.
49
VARIABLE LIFE INSURANCE AND YOUR TAXES
While the Treasury Department has issued proposed
regulations about reasonable standards for mortality
charges, the standards that apply to joint survivor
life insurance policies are not entirely clear. While
we believe that our mortality costs and other expenses
used in calculating whether the policy qualifies as
life insurance are reasonable under current laws, we
cannot be sure that the IRS agrees with us. We can
change our mortality charges if we believe the changes
are needed to ensure that your policy qualifies as a
life insurance contract.
Section 817(h) of Diversification rules and ownership of the separate
the tax code account
describes the Your policy will not qualify for the tax benefit of a
diversification life insurance contract unless the separate account
rules. follows certain rules requiring diversification of
investments underlying the policy. In addition, the IRS
For more requires that the policyholder does not have control
information about over the underlying assets.
diversification
rules, please see The Treasury Department has announced that the
Managing the diversification rules "do not provide guidance
Pacific Select Fund concerning the circumstances in which it will treat an
in the accompanying investor, rather than the insurance company, as the
Pacific Select Fund owner of the assets in a separate account." The IRS
prospectus. treats a variable policy owner as the owner of separate
account assets if he or she has the ability to exercise
investment control over them. Owners of the assets are
taxed on any income or gains the assets generate.
Although the Treasury Department announced several
years ago that it would provide further guidance on the
issue, it had not done so when we wrote this
prospectus.
The ownership rights under your policy are similar to,
but different in certain respects from, those described
by the IRS in rulings in which it was determined that
policyowners were not owners of separate account
assets. Since you have greater flexibility in
allocating premiums and policy values than was the case
in those rulings, it is possible the IRS would treat
you as the owner of your policy's proportionate share
of the assets of the separate account.
We do not know what will be in future Treasury
Department regulations or other guidance. We cannot
guarantee that the fund's portfolios will be able to
operate as currently described in the prospectus, or
that the fund will not have to change any portfolio's
investment objective or policies. We can modify your
policy if we believe it will prevent you from being
considered the owner of your policy's proportionate
share of the assets of the separate account.
Policy exchanges Policy exchanges
fall under Section If you exchange your policy for another one that
1035(a) of the tax insures the same person, it generally will be treated
code. as a tax-free exchange and, if so, will not result in
the recognition of gain or loss. If any of the people
insured by the policy are changed, the exchange will be
treated as a taxable exchange.
Change of ownership
You may have taxable income if you transfer ownership
of your policy, sell your policy, or change the
ownership of it in any way.
There are special Corporate owners
rules for There are special tax issues for corporate owners:
corporate-owned
policies. You . using your policy to fund deferred compensation
should consult your arrangements for employees has special tax
tax adviser. consequences
. corporate ownership of a policy may affect your
Section 59A of the liability under the alternative minimum tax and the
tax code deals with environmental tax.
the environmental
tax.
50
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Conventional life The tax treatment of your policy will depend upon
insurance policies whether it is a type of contract known as a modified
endowment contract. We describe modified endowment
Under Section 7702A contracts later in this section. If your policy is not
of the tax code, a modified endowment contract, it will be treated as a
policies that are conventional life insurance policy and will have the
not classified as following tax treatment:
modified endowment
contracts are taxed Surrendering your policy
as conventional When you surrender, or cash in, your policy, you'll
life insurance generally be taxed on the difference, if any, between
policies. the cash surrender value and the cost basis in your
policy.
The cost basis in
your policy is Making a withdrawal
generally the If you make a withdrawal after your policy has been in
premiums you've force for 15 years, you'll only be taxed on the amount
paid plus any you withdraw that exceeds the cost basis in the policy.
taxable
distributions less Special rules apply if you make a withdrawal within the
any withdrawals or first 15 policy years and it's accompanied by a
premiums previously reduction in benefits. In this case, there is a special
recovered that were formula under which you may be taxed on all or a
not taxable. portion of the withdrawal amount.
Taking out a loan
If you take out a loan, you will not pay tax on the
loan amount unless your policy is surrendered or lapses
and you have not repaid your outstanding loan amount.
The interest you pay, or that's accrued, on a loan is
generally nondeductible. Ask your tax adviser for more
information.
Loans and corporate-owned policies
If you borrow money to buy or carry certain life
insurance policies, tax law provisions may limit the
deduction of interest payable on loan proceeds. If the
taxpayer is an entity that's a direct or indirect
beneficiary of certain life insurance, endowment or
annuity contracts, a portion of the entity's deductions
for loan interest may be disallowed, even though this
interest may relate to debt that's completely unrelated
to the contract. There may be a limited exception that
applies to contracts issued on 20% owners, officers,
directors or employees of the entity. For more
information about this exception, you should consult
your tax adviser.
---------------------------------------------------------
Modified endowment A modified endowment contract is a special type of life
contracts insurance policy. If your policy is a modified
endowment contract, it will have the tax treatment
Section 7702A of described below. Any distributions you receive during
the tax code the life of the policy are treated differently than
defines a class of under conventional life insurance policies.
life insurance Withdrawals, loans, pledges, assignments and
policies known as surrendering your policy are all considered
modified endowment distributions and may be subject to tax on an income-
contracts. Like first basis and a 10% penalty.
other life
insurance policies, When a policy becomes a modified endowment contract
the death benefit A life insurance policy becomes a modified endowment
proceeds paid to contract if, at any time during the first seven policy
your beneficiary years, the sum of actual premiums paid exceeds the
generally are not seven-pay limit. The seven-pay limit is the cumulative
subject to federal total of the level annual premiums (or seven-pay
income tax and your premiums) required to pay for the policy's future death
policy's and endowment benefits.
accumulated value
grows on a tax-
deferred basis
until you receive a
cash distribution.
If there is a
material change to
your policy, like a
change in the death
benefit, we may
have to retest your
policy and restart
the seven-pay
premium period to
determine whether
the change has
caused the policy
to become a
modified endowment
contract.
51
VARIABLE LIFE INSURANCE AND YOUR TAXES
For example, if the seven-pay premiums were $1,000 a
year, the maximum premiums you could pay during the
first seven years to avoid modified endowment treatment
would be $1,000 in the first year, $2,000 through the
first two years and $3,000 through the first three
years, etc. Under this test, a Pacific Select Estate
Preserver - NY policy may or may not be a modified
endowment contract, depending on the amount of premiums
paid during the policy's first seven contract years or
after a material change has been made to the policy.
Surrendering your policy
If you surrender your policy, you're taxed on the
amount by which the cash surrender value exceeds the
cost basis in the policy.
Making a withdrawal or taking out a loan
If you make a withdrawal or take out a loan from a
modified endowment contract, you're taxed on the amount
of the withdrawal or loan that's considered income,
including all previously non-taxed gains. Income is the
difference between the cash surrender value and the
cost basis in your policy. It's unclear whether
interest paid, or accrued, on a loan is considered
interest for federal income tax purposes. If you borrow
money to buy or carry certain life insurance policies,
tax law provisions may limit the deduction of interest
payable on loan proceeds. You should consult your tax
adviser.
All modified endowment contracts we or our affiliates
issue to you in a calendar year are treated as a single
contract when we calculate whether a distribution
amount is subject to tax.
10% penalty tax
If any amount you receive from a modified endowment
contract is taxable, you may also have to pay a penalty
tax equal to 10% of the taxable amount.
A taxpayer will not have to pay the penalty tax if any
of the following exceptions apply:
. you're at least 59 1/2 years old
. you're receiving an amount because you've become
disabled
. you're receiving an amount that's part of a series of
substantially equal periodic payments, paid out at
least annually. These payments may be made for your
life or life expectancy or for the joint lives or
joint life expectancies of you and your
beneficiaries.
Distributions before a policy becomes a modified
endowment contract
If your policy fails the seven-pay test and becomes a
modified endowment contract, any amount you receive or
are deemed to have received during the two years before
it became a modified endowment contract may be taxable.
The distribution would be treated as having been made
in anticipation of the policy's failing to meet the
seven-pay test under Treasury Department regulations
which are yet to be prescribed.
---------------------------------------------------------
Policy riders Split policy option rider
This rider allows a policy to be split into two
Please see the individual policies. If the split is not treated as a
discussion of nontaxable exchange, it could result in the recognition
optional riders in of taxable income up to any gain or income in the
The death benefit. policy at the time of the split.
Please consult with
your tax adviser if
you want to
exercise your
rights under this
rider.
52
ABOUT PL&A
Pacific Life & Annuity Company is a life insurance
company based in Arizona. Our operations include life
insurance, annuity and institutional products, group
life and health insurance and various other insurance
products and services. At the end of 2000, we had total
admitted assets of $461.7 million.
PL&A is authorized to conduct life insurance and
annuity business in Arizona, New York and certain other
states. Our principal office is located at 700 Newport
Center Drive, Newport Beach, California 92660.
---------------------------------------------------------
How we're organized PL&A was incorporated in 1982 under the name of Pacific
Financial Life Insurance Company. We merged with
Pacific Financial Life Insurance Company of Arizona and
assumed the name PM Group Life Insurance Company in
transferring domicile from California to Arizona, which
was completed in 1990. On January 1, 1999, we changed
our name to our current name, PL&A.
PL&A is a stockholder owned company. As such,
purchasing and owning a PL&A policy does not confer any
membership rights nor ownership rights in PL&A or in
any other company affiliated with PL&A.
---------------------------------------------------------
How policies are Pacific Life Insurance Company administers the policies
administered sold under this prospectus. At the end of 2000, Pacific
Life had over $124.6 billion of individual life
insurance in force and total admitted assets of
approximately $51.7 billion. It is ranked the 14th
largest life insurance carrier in the U.S. in terms of
2000 admitted assets.
The Pacific Life family of companies has total assets
and funds under management of $335.9 billion. Pacific
Life's principal office is at 700 Newport Center Drive,
Newport Beach, CA 92660.
---------------------------------------------------------
How policies are Pacific Select Distributors, Inc. (PSD), our affiliate,
distributed is the distributor of our policies. PSD is located at
700 Newport Center Drive, Newport Beach, California
92660.
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 its services as our
distributor.
The policies are sold by registered representatives of
broker-dealers who have signed agreements with us and
PSD. Registered representatives must be licensed to
sell variable life insurance under the state insurance
and securities regulations that apply. Broker-dealers
must be registered with the SEC.
How we pay broker-dealers
We pay broker-dealers commission for promoting,
marketing and selling our policies. Broker-dealers pay
a portion of the commission to their registered
representatives, under their own arrangements.
53
ABOUT PL&A
Commissions are based on "target" premiums we
A target premium is determine. The commission we pay will vary with the
a hypothetical agreement, but the most common schedule of commissions
premium that is we pay is:
used only to
calculate . 55% of premiums paid up to the first target premium
commissions. It in the first policy year
varies with the . 4% of premiums paid up to the first target premium
death benefit after the first policy year
option you choose, . 4% of the premiums paid under targets 2-10
the age of the . 2% of premiums paid in excess of the 10th target
person insured by premium.
the policy on the
policy date, and We may pay broker-dealers an annual renewal commission
the gender (unless of up to 0.20% of a policy's accumulated value less any
unisex rates are outstanding loan amount. We calculate the renewal
required) and risk amount monthly and it becomes payable on each policy
class of the person anniversary.
insured by the
policy. We may also pay override payments, expense and
marketing allowances, bonuses, wholesaler fees and
A policy's target training allowances.
premium will be
less than the Registered representatives who meet certain sales
policy's guideline levels can qualify for sales incentives programs we
level premiums. sponsor. We may also pay them non-cash compensation
like expense-paid trips, expense-paid educational
seminars, and merchandise. They can choose to receive
their compensation on a deferred basis.
---------------------------------------------------------
How our accounts We own the assets in our general account and our
work separate account. We allocate your net premiums to
these accounts according to the investment options
you've chosen.
General account
We can provide you Our general account includes all of our assets, except
with reports of our for those held in our separate accounts. We guarantee
ratings as an you an interest rate for up to one year on any amount
insurance company allocated to the fixed options. The rate is reset
and our ability to annually. The fixed options are part of our general
pay claims with account, which we may invest as we wish, according to
respect to our any laws that apply. We'll credit the guaranteed rate
general account even if the investments we make earn less. Our ability
assets. to pay these guarantees is backed by our strength as a
company.
You'll find the The fixed options are not securities, so they do not
audited financial fall under any securities act. For this reason, the SEC
statements for the has not reviewed the disclosure in this prospectus
Pacific Select Exec about the fixed options. However, other federal
separate account securities laws may apply to the accuracy and
later in this completeness of the disclosure about the fixed options.
section of the
prospectus.
This section of the Separate account
prospectus also Amounts allocated to the variable investment options
includes the are held in our separate account. The assets in this
audited account are kept separate from the assets in our
consolidated general account and our other separate accounts, and
financial are protected from our general creditors.
statements for PL&A
later in this The separate account was established on September 24,
section of the 1998 under Arizona law under the authority of our Board
prospectus. We of Directors. It's registered with the SEC as a type of
include these investment company called a unit investment trust. The
financial SEC does not oversee the administration or investment
statements to show practices or policies of the account.
our strength as a
company and our The separate account is divided into variable accounts.
ability to meet our Each variable account invests in shares of a designated
obligations under portfolio of the Pacific Select Fund. We may add
the policies. variable accounts that invest in other portfolios of
the fund or in other securities.
The separate
account is not the We're the legal owner of the assets in the separate
only investor in account, and pay its operating expenses. The separate
the Pacific Select account is operated only for our variable life
Fund. Investment in insurance policies. We must keep enough money in the
the fund by other account to pay anticipated obligations under the
separate accounts insurance policies funded by the account, but we can
for variable transfer any amount that's more than these anticipated
annuity contracts obligations to our general account. Some of the money
and variable life in the separate account may include charges we collect
insurance contracts from the account and any investment results on those
could cause charges.
conflicts. For more
information, please
see the Statement
of Additional
Information for the
Pacific Select
Fund.
54
We cannot charge the assets in the separate account
attributable to our reserves and other liabilities
under the policies funded by the account with any
liabilities from our other business.
Similarly, the income, gains or losses, realized or
unrealized, of the assets of any variable account
belong to that variable account and are credited to or
charged against the assets held in that variable
account without regard to our other income, gains or
losses.
Making changes to the separate account
We can add, change or remove any securities that the
separate account or any variable account holds or buys,
as long as we comply with the laws that apply.
We can substitute shares of one Pacific Select Fund
portfolio with shares of another portfolio or fund if:
. any portfolio is no longer available for investment
. our management believes that a portfolio is no longer
appropriate in view of the purposes of the policy.
We'll give you any required notice or receive any
required approval from policy owners or the SEC before
we substitute any shares. We'll comply with the filing
or other procedures established by insurance regulators
as required by law.
We can add new variable accounts, which may include
additional subaccounts of the separate account, to
serve as investment options under the policies. These
may be managed separate accounts or they may invest in
a new portfolio of the fund, or in shares of another
investment company or one of its portfolios, or in a
suitable investment vehicle with a specified investment
objective.
We can add new variable accounts when we believe that
it's warranted by marketing needs or investment
conditions. We'll decide on what basis we'll make new
accounts available to existing policy owners.
We can also eliminate any of our variable accounts if
we believe marketing, tax or investment conditions
warrant it. We can terminate and liquidate any variable
account.
If we make any changes to variable accounts or
substitution of securities, we can make appropriate
changes to this policy or any of our other policies, by
appropriate endorsement, to reflect the change or
substitution.
We will notify you if there is a material change in the
investment policy of a Variable Account. The notice
will inform you of your options, including your option
to transfer from such Variable Account to the Fixed
Account within 60 days after:
. the effective date of the material change, or
. the date you receive the notice, whichever is later.
If we believe it's in the best interests of people
holding voting rights under the policies and we meet
any required regulatory approvals we can do the
following:
. operate the separate account as a management
investment company, unit investment trust, or any
other form permitted under securities or other laws
. register or deregister the separate account under
securities law
. combine the separate account with one of our other
separate accounts or our affiliates' separate
accounts
. combine one or more variable accounts
. create a committee, board or other group to manage
the separate account
. change the classification of any variable account.
55
ABOUT PL&A
Taxes we pay
We may be charged for state and local taxes. Currently,
we pay these taxes because they are small amounts with
respect to the policy. If these taxes increase
significantly, we may deduct them from the separate
account.
We may charge the separate account for any federal,
state and local taxes that apply to the separate
account or to our operations. This could happen if our
tax status or the tax treatment of variable life
insurance changes.
---------------------------------------------------------
Voting rights We're the legal owner of the shares of the Pacific
Select Fund that are held by the variable accounts. We
may vote on any matter at shareholder meetings of the
fund. However, we are required by law to vote as you
instruct on the shares relating to your allocation in a
variable investment option. This is called your voting
interest.
Your voting interest is calculated as of a day set by
the Board of Trustees of the fund called the record
date. Your voting interest equals the accumulated value
in a variable investment option divided by the net
asset value of a share of the corresponding portfolio.
Fractional shares are included. If allowed by law, we
may change how we calculate your voting interest.
We'll send you documents from the fund called proxy
materials. They include information about the items
you'll be voting on and forms for you to give us your
instructions. We'll vote shares held in the separate
account for which we do not receive voting instructions
in the same proportion as all other shares in the
portfolio held by that separate account for which we've
received timely instructions. If we do not receive any
voting instructions for the shares in a separate
account, we will vote the shares in that separate
account in the same proportion as the total votes for
all of our separate accounts for which we've received
timely instructions.
We'll vote shares of any portfolio we hold in our
general account in the same proportion as the total
votes for all of our separate accounts, including this
separate account.
If the law changes to allow it, we can vote as we wish
on shares of the portfolios held in the separate
account.
When required by state insurance regulatory
authorities, we may disregard voting instructions that:
. would change a portfolio's investment objective or
subclassification
. would approve or disapprove an investment advisory
contract.
We may disregard voting instructions on a change
initiated by policy owners that would change a
portfolio's investment policy, investment adviser or
portfolio manager if:
. our disapproval is reasonable
. we determine in good faith that the change would be
against state law or otherwise be inappropriate,
considering the portfolio's objectives and purpose,
and considering what effect the change would have on
us.
If we disregard any voting instructions, we'll include
a summary of the action we took and our reasons for it
in the next report to policy owners.
56
---------------------------------------------------------
Illustrations We will provide you with illustrations based on
different sets of assumptions upon your request. You
If you ask us, can request such illustrations at any time.
we'll provide you Illustrations may help you understand how your policy
with different values would vary over time based on different
kinds of assumptions. We have filed examples of such an
illustrations. illustration as an exhibit to the registration
statement that relates to the policy on file with the
. Illustrations SEC.
based on
information you
give us about the
age of the person
to be insured by
the policy, their
risk class, the
face amount, the
death benefit and
premium payments.
. Illustrations
that show the
allocation of
premium payments
to specified
variable
accounts. These
will reflect the
expenses of the
portfolio of the
Fund in which the
variable account
invests.
. Illustrations
that use a
hypothetical
gross rate of
return that's
greater than 12%.
These are
available only to
certain large
institutional
investors.
---------------------------------------------------------
State regulation We're subject to the laws of the state of Arizona
governing insurance companies and to regulations issued
by the Commissioner of Insurance of Arizona. In
addition, we're subject to the insurance laws and
regulations of the other states and jurisdictions in
which we're licensed or may become licensed to operate.
An annual statement in a prescribed form must be filed
with the Commissioner of Insurance of Arizona and with
regulatory authorities of other states on or before
March 1st in each year. This statement covers our
operations for the preceding year and our financial
condition as of December 31st of that year. Our affairs
are subject to review and examination at any time by
the Commissioner of Insurance or his agents, and
subject to full examination of our operations at
periodic intervals.
---------------------------------------------------------
Legal proceedings The separate account is not involved in any legal
and legal matters proceedings that would have a material effect on policy
owners.
Legal matters concerning the issue and sale of the life
insurance policies described in this prospectus, our
organization and authority to issue the policies under
Arizona law, and the validity of the forms of the
policies under Arizona law, have been passed upon by
our general counsel. Legal matters relating to federal
securities laws and federal income tax laws have been
passed upon by Dechert.
---------------------------------------------------------
Registration We've filed a registration statement with the SEC for
statement Pacific Select Estate Preserver - NY, under the
Securities Act of 1933. The SEC's rules allow us to
omit some of the information required by the
registration statement from this prospectus. You can
ask for it from the SEC's office in Washington, D.C.
They may charge you a fee.
---------------------------------------------------------
Management The following is a list of our directors and certain
officers, along with some information about their
business activities over the past five years. They do
not receive any compensation from the separate account
for services they provide to it nor do we pay any
separately allocable compensation for these services.
The business address of each of these people is c/o
Pacific Life & Annuity Company, 700 Newport Center
Drive, Newport Beach, California 92660.
57
ABOUT PL&A
NAME AND POSITION PRINCIPAL OCCUPATION DURING THE LAST FIVE YEARS
Thomas C. Sutton Director, Chairman of the Board and Chief Executive Officer (since August 2001) of
Director, Chairman PL&A; Director, Chairman of the Board and Chief Executive Officer of Pacific Life
of the Board and Insurance Company; Director, Chairman of the Board and Chief Executive Officer of
Chief Executive Pacific LifeCorp, August 1997 to present; Director, Chairman of the Board and Chief
Officer Executive Officer of Pacific Mutual Holding Company, August 1997 to present; Trustee
and Chairman of the Board and Former President of Pacific Select Fund; former
Management Board Member of PIMCO Advisors L.P.; Former Equity Board Member of PIMCO
Advisors L.P.; Former Director of Pacific Corinthian Life Insurance Company;
Director of Newhall Land & Farming; The Irvine Company; Edison International; and
similar positions with other affiliated companies of Pacific Life Insurance Company.
David R. Carmichael Director of PL&A; Senior Vice President and General Counsel of PL&A, July 1998 to
Director, Senior present; Director (since August 1997), Senior Vice President and General Counsel of
Vice President and Pacific Life Insurance Company; Senior Vice President and General Counsel of Pacific
General Counsel LifeCorp, August 1997 to present; Senior Vice President and General Counsel of
Pacific Mutual Holding Company, August 1997 to present; Director of Association of
California Life and Health Insurance Companies; and President-elect and former
Director of Association of Life Insurance Counsel.
Audrey L. Milfs Director, Vice President (since February 1999) and Secretary of PL&A; Director
Director, Vice (since August 1997), Vice President and Corporate Secretary of Pacific Life
President and Insurance Company; Vice President and Corporate Secretary of Pacific LifeCorp,
Secretary August 1997 to present; Vice President and Corporate Secretary of Pacific Mutual
Holding Company, August 1997 to present; Secretary of Pacific Select Fund; similar
positions with other affiliated companies of Pacific Life Insurance Company.
Glenn S. Schafer Director and President (since August 2001) of PL&A; Director and President of
Director and Pacific Life Insurance Company; Executive Vice President and Chief Financial Officer
President of Pacific Life Insurance Company, April 1991 to January 1995; Director and
President of Pacific LifeCorp, August 1997 to present; Director and President of
Pacific Mutual Holding Company, August 1997 to present; President (since February
1999) and Former Trustee of Pacific Select Fund; former Management Board Member of
PIMCO Advisors L.P.; Former Equity Board Member of PIMCO Advisors L.P.; Former
Director of Pacific Corinthian Life Insurance Company; and similar positions with
other affiliated companies of Pacific Life Insurance Company.
Khanh T. Tran Executive Vice President (since April 2001) and Chief Financial Officer of PL&A;
Executive Vice Senior Vice President of PL&A, February 1999 to April 2001; Director (since August
President and Chief 1997), Executive Vice President (since April 2001) and Chief Financial Officer of
Financial Officer Pacific Life Insurance Company, June 1996 to present; Senior Vice President of
Pacific Life, June 1996 to April 2001; Vice President and Treasurer of Pacific Life,
November 1991 to June 1996; Senior Vice President and Chief Financial Officer of
Pacific LifeCorp, August 1997 to present; Senior Vice President and Chief Financial
Officer of Pacific Mutual Holding Company, August 1997 to present; Executive Vice
President and Chief Financial Officer of other affiliated companies of Pacific Life
Insurance Company; Director of Prandium, Inc.
Lynn C. Miller Executive Vice President of PL&A, July 1998 to present; Executive Vice President of
Executive Vice Pacific Life Insurance Company.
President
Brian D. Klemens Vice President and Treasurer of PL&A, February 1999 to present; Vice President and
Vice President and Treasurer of Pacific Life Insurance Company, December 1998 to present; Assistant
Treasurer Vice President, Accounting and Assistant Controller of Pacific Life Insurance
Company, April 1994 to December 1998; Vice President and Treasurer of Pacific
LifeCorp, June 1999 to present; Vice President and Treasurer of Pacific Mutual
Holding Company, June 1999 to present; Vice President and Treasurer of other
affiliated companies of Pacific Life Insurance Company.
---------------------------------------------------------
Financial The next several pages contain the statements of net
statements assets of Pacific Select Exec Separate Account as of
December 31, 2000 and the related statement of
operations and statement of changes in net assets for
the periods from commencement of operations through
December 31, 2000. These are followed by the unaudited
statement of assets and liabilities of the Pacific
Select Exec Separate Account as of September 30, 2001
and the related statement of operations for the nine
months then ended, and the statement of changes in net
assets for the nine month period ended September 30,
2001 and for the year ended December 31, 2000.
These are followed by the financial statements-
statutory basis for PL&A as of December 31, 2000 and
1999 and for the years then ended, which are included
in this prospectus so you can assess our ability to
meet our obligations under the policies. These are
followed by the unaudited financial statements -
statuatory basis for PL&A as of September 30, 2001 and
December 31, 2000 and for the nine months ended
September 30, 2001 and 2000.
58
---------------------------------------------------------
Experts The financial statements-statutory basis for PL&A as of
December 31, 2000 and 1999 and for the years then ended
and the statement of net assets of Pacific Select Exec
Separate Account as of December 31, 2000 and the
related statement of operations and statement of
changes in net assets for the periods from commencement
of operations through December 31, 2000 included in
this prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports
appearing herein, which report on the financial
statements of PL&A expresses an unqualified opinion
with respect to the presentation of such financial
statements-statutory basis in accordance with the
accounting basis prescribed or permitted by the
Insurance Department of the State of Arizona, which is
a comprehensive basis of accounting other than
accounting principles generally accepted in the United
States of America, and also states that such financial
statements-statutory basis, are not presented fairly in
accordance with accounting principles generally
accepted in the United States of America, and have been
so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and
auditing.
59
INDEPENDENT AUDITORS' REPORT
The Board of Directors Pacific Life & Annuity Company:
We have audited the accompanying statement of assets and liabilities of
Pacific Select Exec Separate Account (the "Separate Account") (comprised of the
Aggressive Equity, Emerging Markets, Diversified Research, Small-Cap Equity,
International Large-Cap, Equity, I-Net Tollkeeper, Multi-Strategy, Equity
Income, Growth LT, Mid-Cap Value, Equity Index, Small-Cap Index, REIT,
International Value, Government Securities, Managed Bond, Money Market, High
Yield Bond, and Large-Cap Value Variable Accounts) as of December 31, 2000 and
the related statement of operations and statement of changes in net assets for
the periods from commencement of operations through December 31, 2000. These
financial statements are the responsibility of the Separate Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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
audit provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of each of the respective Variable Accounts
constituting Pacific Select Exec Separate Account as of December 31, 2000 and
the results of their operations and the changes in their net assets for the
periods from commencement of operations through December 31, 2000, in
conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 6, 2001
60
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2000
Aggressive Emerging Diversified Small-Cap International I-Net Multi- Equity Growth
Equity Markets Research Equity Large-Cap Equity Tollkeeper Strategy Income LT
Variable Variable Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account Account Account
----------------------------------------------------------------------------------------------------------
ASSETS
Investments:
Aggressive
Equity
Portfolio....... $2,892
Emerging Markets
Portfolio....... $1,631
Diversified
Research
Portfolio....... $894
Small-Cap Equity
Portfolio....... $4,691
International
Large-Cap
Portfolio....... $6,676
Equity
Portfolio....... $1,226
I-Net Tollkeeper
Portfolio....... $8,479
Multi-Strategy
Portfolio....... $9,751
Equity Income
Portfolio....... $7,631
Growth LT
Portfolio....... $18,880
Receivables:
Due from Pacific
Life & Annuity
Company......... 187 187 234
----------------------------------------------------------------------------------------------------------
Total Assets..... 2,892 1,631 894 4,878 6,863 1,226 8,479 9,751 7,631 19,114
----------------------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Fund shares
purchased....... 187 187 234
----------------------------------------------------------------------------------------------------------
Total
Liabilities...... 187 187 234
----------------------------------------------------------------------------------------------------------
NET ASSETS....... $2,892 $1,631 $894 $4,691 $6,676 $1,226 $8,479 $9,751 $7,631 $18,880
==========================================================================================================
Shares Owned in
each Portfolio... 261 242 81 221 851 47 1,250 633 325 603
==========================================================================================================
Cost of
Investments ..... $3,250 $1,741 $870 $5,020 $6,892 $1,340 $11,177 $10,036 $7,729 $22,221
==========================================================================================================
See Notes to Financial Statements
61
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (Continued)
DECEMBER 31, 2000
Mid-Cap Equity Small-Cap International Government Managed Money High Yield Large-Cap
Value Index Index REIT Value Securities Bond Market Bond Value
Variable Variable Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account Account Account
--------------------------------------------------------------------------------------------------------
ASSETS
Investments:
Mid-Cap Value
Portfolio........ $5,701
Equity Index
Portfolio........ $16,708
Small-Cap Index
Portfolio........ $3,270
REIT Portfolio... $691
International
Value Portfolio.. $10,226
Government
Securities
Portfolio........ $11,748
Managed Bond
Portfolio........ $7,080
Money Market
Portfolio........ $105,137
High Yield Bond
Portfolio........ $4,000
Large-Cap Value
Portfolio........ $16,132
Receivables:
Due from Pacific
Life & Annuity
Company.......... 94 140 94
--------------------------------------------------------------------------------------------------------
Total Assets...... 5,795 16,848 3,270 691 10,226 11,748 7,080 105,137 4,094 16,132
--------------------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Fund shares
purchased........ 94 140 94
--------------------------------------------------------------------------------------------------------
Total
Liabilities....... 94 140 94
--------------------------------------------------------------------------------------------------------
NET ASSETS........ $5,701 $16,708 $3,270 $691 $10,226 $11,748 $7,080 $105,137 $4,000 $16,132
========================================================================================================
Shares Owned in
each Portfolio.... 442 490 294 56 645 1,101 655 10,420 520 1,281
========================================================================================================
Cost of
Investments....... $5,417 $17,552 $3,247 $674 $10,012 $11,611 $7,009 $105,252 $4,061 $15,711
========================================================================================================
See Notes to Financial Statements
62
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 2000
Aggressive Emerging Diversified Small-Cap International I-Net Multi- Equity Growth
Equity Markets Research Equity Large-Cap Equity Tollkeeper Strategy Income LT
Variable Variable Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account (1) Account Account Account Account Account Account
-----------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (1)... $1 $13 $5 $47 $11 $40
-----------------------------------------------------------------------------------------------------------
Net Investment
Income........... 1 13 5 47 11 40
-----------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net realized
loss from
security
transactions.... ($59) ($226) (72) (70) ($6) ($66) (6) (111)
Net unrealized
appreciation
(depreciation)
on investments.. (359) (109) 24 (330) (217) (114) (2,698) (285) (98) (3,342)
-----------------------------------------------------------------------------------------------------------
Net Realized and
Unrealized Gain
(Loss) on
investments...... (418) (335) 24 (402) (287) (120) (2,764) (291) (98) (3,453)
-----------------------------------------------------------------------------------------------------------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS.. ($418) ($335) $25 ($389) ($282) ($120) ($2,764) ($244) ($87) ($3,413)
===========================================================================================================
(1) Pacific Select Fund had declared dividends for the Aggressive Equity,
Emerging Markets, and Equity Portfolios during 2000. The corresponding
Variable Accounts did not own shares prior to the ex-dividend dates.
See Notes to Financial Statements (This Separate Account commenced operations
on August 15, 2000)
63
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (Continued)
FOR THE PERIODS ENDED DECEMBER 31, 2000
Mid-Cap Equity Small-Cap International Government Managed Money High Yield Large-Cap
Value Index Index REIT Value Securities Bond Market Bond Value
Variable Variable Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account Account Account
-------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends........ $12 $29 $22 $9 $15 $105 $119 $2,106 $75 $80
-------------------------------------------------------------------------------------------------------
Net Investment
Income............ 12 29 22 9 15 105 119 2,106 75 80
-------------------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED
GAIN (LOSS) ON
INVESTMENTS
Net realized gain
(loss) from
security
transactions..... 7 (9) (73) (116) 2 9 (271) (6) (73)
Net unrealized
appreciation
(depreciation)
on investments... 284 (844) 25 18 214 137 71 (117) (61) 420
-------------------------------------------------------------------------------------------------------
Net Realized and
Unrealized Gain
(Loss) on
investments....... 291 (853) (48) 18 98 139 80 (388) (67) 347
-------------------------------------------------------------------------------------------------------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... $303 ($824) ($26) $27 $113 $244 $199 $1,718 $8 $427
=======================================================================================================
See Notes to Financial Statements (This Separate Account commenced operations
on August 15, 2000)
64
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIODS ENDED DECEMBER 31, 2000
Aggressive Emerging Diversified Small-Cap International I-Net Multi- Equity Growth
Equity Markets Research Equity Large-Cap Equity Tollkeeper Strategy Income LT
Variable Variable Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account Account Account
--------------------------------------------------------------------------------------------------------
INCREASE (DECREASE)
IN NET ASSETS
FROM OPERATIONS
Net investment
income............. $1 $13 $5 $47 $11 $40
Net realized
loss from
security
transactions....... ($59) ($226) (72) (70) ($6) ($66) (6) (111)
Net unrealized
appreciation
(depreciation)
on investments..... (359) (109) 24 (330) (217) (114) (2,698) (285) (98) (3,342)
--------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) in Net
Assets Resulting
from Operations..... (418) (335) 25 (389) (282) (120) (2,764) (244) (87) (3,413)
--------------------------------------------------------------------------------------------------------
INCREASE
(DECREASE) IN NET
ASSETS FROM POLICY
TRANSACTIONS
Transfer of net
premiums........... 138 281 281 56 820
Transfers
between variable
accounts, net...... 3,675 2,049 885 5,112 7,166 1,482 11,501 10,124 7,938 22,441
Transfers--policy
charges and
deductions......... (374) (241) (16) (342) (538) (137) (258) (184) (220) (902)
Transfers--other... 9 20 29 49 1 (1) (66)
--------------------------------------------------------------------------------------------------------
Net Increase in
Net Assets
Derived from
Policy
Transactions........ 3,310 1,966 869 5,080 6,958 1,346 11,243 9,995 7,718 22,293
--------------------------------------------------------------------------------------------------------
NET INCREASE IN
NET ASSETS.......... 2,892 1,631 894 4,691 6,676 1,226 8,479 9,751 7,631 18,880
--------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of
Period.............
--------------------------------------------------------------------------------------------------------
End of Period...... $2,892 $1,631 $894 $4,691 $6,676 $1,226 $8,479 $9,751 $7,631 $18,880
========================================================================================================
See Notes to Financial Statements (This Separate Account commenced operations
on August 15, 2000)
65
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Continued)
FOR THE PERIODS ENDED DECEMBER 31, 2000
Mid-Cap Equity Small-Cap International Government Managed Money High-Yield Large-Cap
Value Index Index REIT Value Securities Bond Market Bond Value
Variable Variable Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account Account Account
------------------------------------------------------------------------------------------------------
INCREASE (DECREASE)
IN NET ASSETS
FROM OPERATIONS
Net investment
income............ $12 $29 $22 $9 $15 $105 $119 $2,106 $75 $80
Net realized
gain (loss)
from security
transactions...... 7 (9) (73) (116) 2 9 (271) (6) (73)
Net unrealized
appreciation
(depreciation)
on investments.... 284 (844) 25 18 214 137 71 (117) (61) 420
------------------------------------------------------------------------------------------------------
Net Increase
(Decrease) in Net
Assets Resulting
from Operations.... 303 (824) (26) 27 113 244 199 1,718 8 427
------------------------------------------------------------------------------------------------------
INCREASE (DECREASE)
IN NET ASSETS FROM
POLICY TRANSACTIONS
Transfer of net
premiums.......... 140 211 275 688 688 272,763 278 413
Transfers
between variable
accounts, net..... 5,713 17,658 3,255 736 10,033 11,821 6,429 (148,228) 3,875 16,334
Transfers--
policy charges
and deductions.... (430) (338) (168) (72) (639) (317) (235) (21,135) (159) (1,034)
Transfers--other.. (25) 1 (66) 31 (1) 19 (2) (8)
------------------------------------------------------------------------------------------------------
Net Increase in
Net Assets Derived
from Policy
Transactions....... 5,398 17,532 3,296 664 10,113 11,504 6,881 103,419 3,992 15,705
------------------------------------------------------------------------------------------------------
NET INCREASE IN
NET ASSETS......... 5,701 16,708 3,270 691 10,226 11,748 7,080 105,137 4,000 16,132
------------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of
Period............
------------------------------------------------------------------------------------------------------
End of Period..... $5,701 $16,708 $3,270 $691 $10,226 $11,748 $7,080 $105,137 $4,000 $16,132
======================================================================================================
See Notes to Financial Statements (This Separate Account commenced operations
on August 15, 2000)
66
PACIFIC SELECT EXEC SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Pacific Select Exec Separate Account (the "Separate Account") is
registered as a unit investment trust under the Investment Company Act of 1940,
as amended, and is comprised of twenty-two subaccounts called Variable
Accounts: the Aggressive Equity, Emerging Markets, Diversified Research, Small-
Cap Equity, International Large-Cap, Equity, I-Net Tollkeeper, Multi-Strategy,
Equity Income, Strategic Value, Growth LT, Focused 30, Mid-Cap Value, Equity
Index, Small-Cap Index, REIT, International Value, Government Securities,
Managed Bond, Money Market, High Yield Bond, and Large-Cap Value Variable
Accounts as of December 31, 2000. The assets in each Variable Account are
invested in shares of the corresponding portfolios of Pacific Select Fund (the
"Fund"), each of which pursues different investment objectives and policies.
The financial statements of the Fund, including the schedules of investments,
are provided separately and should be read in conjunction with the Separate
Account's financial statements.
The Separate Account was established by Pacific Life & Annuity Company (PL&A),
a wholly-owned subsidiary of Pacific Life Insurance Company (Pacific Life), on
September 24, 1998 and commenced operations on August 15, 2000. The following
Variable Accounts commenced operations in 2000: the Money Market Variable
Account commenced operations on August 15, 2000; the Aggressive Equity,
Emerging Markets, Small-Cap Equity, International Large-Cap, Growth LT, Mid-Cap
Value, International Value and Large-Cap Value Variable Accounts commenced
operations on September 8, 2000; the Equity Index and High Yield Bond Variable
Accounts commenced operations on October 2, 2000; the Small-Cap Index and
Managed Bond Variable Accounts commenced on October 20, 2000; the I-Net
Tollkeeper and Multi-Strategy Variable Accounts commenced operations on
November 3, 2000; the Equity and Government Securities Variable Accounts
commenced operations on November 27, 2000; the Equity Income Variable Account
commenced operations on November 28, 2000; the Diversified Research Variable
Account commenced operations on November 30, 2000; and the REIT Variable
Account commenced operations on December 6, 2000. There were no operational
activities in the Strategic Value and Focused 30 Variable Accounts through
December 31, 2000. Under applicable insurance law, the assets and liabilities
of the Separate Account are clearly identified and distinguished from the other
assets and liabilities of PL&A. The assets of the Separate Account will not be
charged with any liabilities arising out of any other business conducted by
PL&A, but the obligations of the Separate Account, including benefits related
to variable life insurance, are obligations of PL&A.
The Separate Account held by PL&A represents funds from individual flexible
premium variable life policies. The assets of the Separate Account are carried
at market value.
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America for investment
companies which require management to make certain estimates and assumptions at
the date of the financial statements. Actual results could differ from those
estimates.
A. Valuation of Investments
Investments in shares of the Fund are valued at the reported net asset values
of the respective portfolios. Valuation of securities held by the Fund is
discussed in the notes to its financial statements.
B. Security Transactions and Investment Income
Transactions are recorded on the trade date. Realized gains and losses on
sales of investments are determined on the basis of identified cost. Dividend
income is recorded on the ex-dividend date.
C. Federal Income Taxes
The operations of the Separate Account will be reported on the Federal income
tax return of PL&A, which is taxed as a life insurance company under the
provisions of the Tax Reform Act of 1986. Under current tax law, no Federal
income taxes are expected to be paid by PL&A with respect to the operations of
the Separate Account.
2. DIVIDENDS
During 2000, the Fund declared dividends for each portfolio, except for the I-
Net Tollkeeper Portfolio, invested by the Separate Account. The amounts accrued
by the Separate Account for its share of the dividends were reinvested in
additional full and fractional shares of the related portfolios.
3. CHARGES AND EXPENSES
With respect to variable life insurance policies funded by the Separate
Account, PL&A makes certain deductions from premiums for sales load and state
premium taxes before amounts are allocated to the Separate Account. PL&A also
makes certain deductions from the net assets of each Variable Account for the
mortality and expense risks PL&A assumes, administrative expenses, cost of
insurance, charges for optional benefits and any sales and underwriting
surrender charges. The operating expenses of the Separate Account are paid by
PL&A.
4. RELATED PARTY AGREEMENT
Pacific Select Distributors, Inc. (formerly Pacific Mutual Distributors,
Inc.), a wholly-owned subsidiary of Pacific Life, serves as principal
underwriter of variable life insurance policies funded by interests in the
Separate Account, without remuneration from the Separate Account.
67
PACIFIC SELECT EXEC SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
5. SEPARATE ACCOUNT'S COST OF INVESTMENTS IN THE FUND SHARES
The investment in the Fund shares are carried at identified cost, which
represents the amount available for investment (including reinvested
distributions of net investment income and realized gains). A reconciliation of
total cost and market value of the Separate Account's investments in the Fund
as of December 31, 2000 were as follows:
Variable Accounts (1)
---------------------------------------------------------------------
Aggressive Emerging Diversified Small-Cap International
Equity Markets Research Equity Large-Cap Equity
---------------------------------------------------------------------
Total net proceeds from
policy transactions $6,314 $4,669 $885 $7,998 $9,939 $1,375
Add: Reinvested net
investment income
distributions from
the Fund 1 13 5
---------------------------------------------------------------------
Sub-Total 6,314 4,669 886 8,011 9,944 1,375
Less: Cost of
investments
disposed during
the period 3,064 2,928 16 2,991 3,052 35
---------------------------------------------------------------------
Total cost of
investments at end of
period 3,250 1,741 870 5,020 6,892 1,340
Add: Unrealized
appreciation
(depreciation) (358) (110) 24 (329) (216) (114)
---------------------------------------------------------------------
Total market value of
investments at end of
period $2,892 $1,631 $894 $4,691 $6,676 $1,226
=====================================================================
I-Net Multi- Equity Growth Mid-Cap Equity
Tollkeeper Strategy Income LT Value Index
---------------------------------------------------------------------
Total net proceeds from
policy transactions $11,501 $10,179 $7,802 $25,528 $7,444 $17,687
Add: Reinvested net
investment income
distributions from
the Fund 47 11 40 12 29
---------------------------------------------------------------------
Sub-Total 11,501 10,226 7,813 25,568 7,456 17,716
Less: Cost of
investments
disposed during
the period 324 190 84 3,347 2,039 164
---------------------------------------------------------------------
Total cost of
investments at end of
period 11,177 10,036 7,729 22,221 5,417 17,552
Add: Unrealized
appreciation
(depreciation) (2,698) (285) (98) (3,341) 284 (844)
---------------------------------------------------------------------
Total market value of
investments at end of
period $8,479 $9,751 $7,631 $18,880 $5,701 $16,708
=====================================================================
Small-Cap International Government Managed Money
Index REIT Value Securities Bond Market
---------------------------------------------------------------------
Total net proceeds from
policy transactions $4,564 $678 $15,721 $11,821 $10,978 $222,997
Add: Reinvested net
investment income
distributions from
the Fund 22 9 15 105 119 2,106
---------------------------------------------------------------------
Sub-Total 4,586 687 15,736 11,926 11,097 225,103
Less: Cost of
investments
disposed during
the period 1,339 13 5,724 315 4,088 119,851
---------------------------------------------------------------------
Total cost of
investments at end of
period 3,247 674 10,012 11,611 7,009 105,252
Add: Unrealized
appreciation
(depreciation) 23 17 214 137 71 (115)
---------------------------------------------------------------------
Total market value of
investments at end of
period $3,270 $691 $10,226 $11,748 $7,080 $105,137
=====================================================================
High Yield Large-Cap
Bond Value
---------------------
Total net proceeds from
policy transactions $4,150 $22,390
Add: Reinvested net
investment income
distributions from
the Fund 75 80
---------------------
Sub-Total 4,225 22,470
Less: Cost of
investments
disposed during
the period 164 6,759
---------------------
Total cost of
investments at end of
period 4,061 15,711
Add: Unrealized
appreciation
(depreciation) (61) 421
---------------------
Total market value of
investments at end of
period $4,000 $16,132
=====================
- ---------------
(1) Operations commenced during 2000 (See Note 1 to Financial Statements).
68
PACIFIC SELECT EXEC SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
6. TRANSACTIONS IN SEPARATE ACCOUNT UNITS AND SELECTED ACCUMULATION UNIT **
INFORMATION
Transactions in Separate Account units for the periods ended December 31, 2000
and the selected accumulation unit information as of December 31, 2000 were as
follows:
Variable Accounts (1)
---------------------------------------------------------------------------------
Aggressive Emerging Diversified Small-Cap International I-Net
Equity Markets Research Equity Large-Cap Equity Tollkeeper
---------------------------------------------------------------------------------
Increase (decrease) in
units resulting from
policy transactions:
(a) Transfer of net
premiums 15 34 29
(b) Transfers between
variable accounts, net 388 212 86 582 747 150 1,181
(c) Transfers--policy
charges and deductions (44) (28) (2) (41) (56) (14) (32)
(d) Transfers--other (1) 5
---------------------------------------------------------------------------------
Total units outstanding
at end of period 344 199 84 574 725 136 1,149
=================================================================================
Accumulation Unit Value:
At beginning of period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
At end of period $8.41 $8.18 $10.63 $8.17 $9.21 $9.04 $7.38
Multi- Equity Mid-Cap Equity Small-Cap
Strategy Income Growth LT Value Index Index REIT
---------------------------------------------------------------------------------
Increase (decrease) in
units resulting from
policy transactions:
(a) Transfer of net
premiums 6 95 14 23 27
(b) Transfers between
variable accounts, net 1,012 793 2,375 560 1,826 324 73
(c) Transfers--policy
charges and deductions (18) (22) (106) (42) (36) (17) (7)
(d) Transfers--other (1) (1) (6)
---------------------------------------------------------------------------------
Total units outstanding
at end of period 999 770 2,364 532 1,813 328 66
=================================================================================
Accumulation Unit Value:
At beginning of period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
At end of period $9.76 $9.90 $7.99 $10.71 $9.22 $9.96 $10.43
International Government Managed Money High Yield Large-Cap
Value Securities Bond Market Bond Value
-----------------------------------------------------------------------
Increase (decrease) in
units resulting from
policy transactions:
(a) Transfer of net
premiums 72 69 27,083 29 41
(b) Transfers between
variable accounts, net 1,049 1,177 642 (14,718) 404 1,652
(c) Transfers--policy
charges and deductions (67) (31) (23) (2,099) (17) (105)
(d) Transfers--other 1 2 (1)
-----------------------------------------------------------------------
Total units outstanding
at end of period 1,055 1,146 688 10,268 416 1,587
=======================================================================
Accumulation Unit Value:
At beginning of period $10.00 $10.00 $10.00 $10.00 $10.00 $10.00
At end of period $9.70 $10.25 $10.30 $10.24 $9.61 $10.17
- ------
** Accumulation Unit: unit of measure used to calculate the value of a Policy
Owner's interest in a Variable Account during the accumulation period.
(1) Operations commenced during 2000 (See Note 1 to Financial Statements).
69
PACIFIC SELECT EXEC SEPARATE ACCOUNT
Financial Statements as of September 30, 2001
And for the nine months ended September 30, 2001
And for the year ended December 31, 2000
70
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2001 (Unaudited)
Blue Aggressive Aggressive Emerging Diversified Small-Cap International
Chip Growth Equity Markets Research Equity Large-Cap Equity
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account
-------------------------------------------------------------------------------------
ASSETS
Investments:
Blue Chip Portfolio.... $18,025
Aggressive Growth
Portfolio.............. $1,819
Aggressive Equity
Portfolio.............. $24,833
Emerging Markets
Portfolio.............. $12,845
Diversified Research
Portfolio.............. $10,663
Small-Cap Equity
Portfolio.............. $31,689
International Large-Cap
Portfolio.............. $54,221
Equity Portfolio....... $13,796
Receivables:
Due from Pacific Life
Insurance Company...... 2 641 47 646 42 248 32
Fund shares redeemed... 21
-------------------------------------------------------------------------------------
Total Assets............ 18,046 1,821 25,474 12,892 11,309 31,731 54,469 13,828
-------------------------------------------------------------------------------------
LIABILITIES
Payables:
Due to Pacific Life
Insurance Company...... 21
Fund shares purchased.. 2 641 47 646 42 248 32
-------------------------------------------------------------------------------------
Total Liabilities....... 21 2 641 47 646 42 248 32
-------------------------------------------------------------------------------------
NET ASSETS.............. $18,025 $1,819 $24,833 $12,845 $10,663 $31,689 $54,221 $13,796
=====================================================================================
Shares Owned in each
Portfolio............... 2,489 258 3,297 2,710 1,144 2,265 9,603 814
=====================================================================================
Cost of Investments..... $20,986 $2,134 $30,876 $15,537 $11,031 $40,146 $63,476 $15,902
=====================================================================================
See Notes to Financial Statements
71
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (Continued)
SEPTEMBER 30, 2001 (Unaudited)
I-Net Financial Health Telecom- Multi- Equity Strategic
Tollkeeper Services Sciences Technology munications Strategy Income Value
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account
---------------------------------------------------------------------------------
ASSETS
Investments:
I-Net Tollkeeper Portfolio........... $15,986
Financial Services Portfolio......... $6,712
Health Sciences Portfolio............ $8,161
Technology Portfolio ................ $5,810
Telecommunications Portfolio......... $4,382
Multi-Strategy Portfolio............. $29,615
Equity Income Portfolio.............. $63,919
Strategic Value Portfolio............ $4,379
Receivables:
Due from Pacific Life Insurance
Company.............................. 2 196 656 853 190
Fund shares redeemed................. 7
---------------------------------------------------------------------------------
Total Assets.......................... 15,986 6,714 8,357 5,817 4,382 30,271 64,772 4,569
---------------------------------------------------------------------------------
LIABILITIES
Payables:
Due to Pacific Life Insurance
Company.............................. 7
Fund shares purchased................ 2 196 656 853 190
---------------------------------------------------------------------------------
Total Liabilities..................... 2 196 7 656 853 190
---------------------------------------------------------------------------------
NET ASSETS............................ $15,986 $6,712 $8,161 $5,810 $4,382 $29,615 $63,919 $4,379
=================================================================================
Shares Owned in each Portfolio........ 4,418 776 936 1,346 981 2,124 3,425 564
=================================================================================
Cost of Investments................... $24,119 $7,063 $8,250 $7,583 $5,779 $31,682 $70,717 $4,626
=================================================================================
See Notes to Financial Statements
72
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (Continued)
SEPTEMBER 30, 2001 (Unaudited)
Growth Focused Mid-Cap International Capital Mid-Cap Global Equity
LT 30 Value Value Opportunities Growth Growth Index
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account
----------------------------------------------------------------------------------
ASSETS
Investments:
Growth LT Portfolio................. $84,329
Focused 30 Portfolio ............... $67
Mid-Cap Value Portfolio............. $59,046
International Value Portfolio....... $71,040
Capital Opportunities Portfolio..... $5,793
Mid-Cap Growth Portfolio............ $2,915
Global Growth Portfolio............. $24
Equity Index Portfolio.............. $152,556
Receivables:
Due from Pacific Life Insurance
Company............................. 34 1 803 779 190 176 5 574
----------------------------------------------------------------------------------
Total Assets......................... 84,363 68 59,849 71,819 5,983 3,091 29 153,130
----------------------------------------------------------------------------------
LIABILITIES
Payables:
Fund shares purchased............... 34 1 803 779 190 176 5 574
----------------------------------------------------------------------------------
Total Liabilities.................... 34 1 803 779 190 176 5 574
----------------------------------------------------------------------------------
NET ASSETS........................... $84,329 $67 $59,046 $71,040 $5,793 $2,915 $24 $152,556
==================================================================================
Shares Owned in each Portfolio....... 5,000 12 4,937 6,270 810 459 3 5,695
==================================================================================
Cost of Investments.................. $114,529 $72 $64,196 $79,548 $6,576 $3,259 $17 $173,891
==================================================================================
See Notes to Financial Statements
73
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES (Continued)
SEPTEMBER 30, 2001 (Unaudited)
Small-Cap Inflation Managed Money High Yield Large-Cap
Index REIT Managed Bond Market Bond Value
Variable Variable Variable Variable Variable Variable Variable
Account Account Account (1) Account Account Account Account
------------------------------------------------------------------------
ASSETS
Investments:
Small-Cap Index
Portfolio.............. $14,030
REIT Portfolio......... $17,501
Inflation Managed
Portfolio (1).......... $44,753
Managed Bond
Portfolio.............. $93,348
Money Market
Portfolio.............. $1,303,834
High Yield Bond
Portfolio.............. $23,938
Large-Cap Value
Portfolio.............. $42,165
Receivables:
Due from Pacific Life
Insurance Company...... 6 492 849
Fund shares redeemed... 18 50 309 41
------------------------------------------------------------------------
Total Assets............ 14,048 17,507 44,803 93,840 1,304,143 23,979 43,014
------------------------------------------------------------------------
LIABILITIES
Payables:
Due to Pacific Life
Insurance Company...... 18 50 309 41
Fund shares purchased.. 6 492 849
------------------------------------------------------------------------
Total Liabilities....... 18 6 50 492 309 41 849
------------------------------------------------------------------------
NET ASSETS.............. $14,030 $17,501 $44,753 $93,348 $1,303,834 $23,938 $42,165
========================================================================
Shares Owned in each
Portfolio............... 1,641 1,394 4,122 8,304 129,232 3,519 3,953
========================================================================
Cost of Investments..... $17,520 $16,849 $44,370 $91,188 $1,304,991 $26,242 $46,920
========================================================================
(1) Formerly named Government Securities Variable Account and Government
Portfolio.
See Notes to Financial Statements
74
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 2001 (Unaudited)
Blue Aggressive Aggressive Emerging Diversified Small-Cap International
Chip Growth Equity Markets Research Equity Large-Cap Equity
Variable Variable Variable Variable Variable Variable Variable Variable
Account (1) Account (1) Account Account Account Account Account Account
------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends........................... $1 $7 $3,189 $160 $586
------------------------------------------------------------------------------------------
Net Investment Income................ 1 7 3,189 160 586
------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized loss from security
transactions........................ (82) ($4) ($1,936) ($286) (69) (941) (773) (707)
Net unrealized depreciation on
investments......................... (2,961) (315) (5,684) (2,583) (392) (8,127) (9,038) (1,992)
------------------------------------------------------------------------------------------
Net Realized and Unrealized Loss on
Investments.......................... (3,043) (319) (7,620) (2,869) (461) (9,068) (9,811) (2,699)
------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS...................... ($3,042) ($319) ($7,620) ($2,869) ($454) ($5,879) ($9,651) ($2,113)
==========================================================================================
(1) Operations commenced during 2001 (see Note 1 to Financial Statements).
See Notes to Financial Statements
75
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (Continued)
FOR THE PERIOD ENDED SEPTEMBER 30, 2001 (Unaudited)
I-Net Financial Health Telecom- Multi- Equity Strategic
Tollkeeper Services Sciences Technology munications Strategy Income Value
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account (1) Account (1) Account (1) Account (1) Account Account Account (1)
-------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends.............. $400 $359 $1
-------------------------------------------------------------------------------------------
Net Investment Income... 400 359 1
-------------------------------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized loss from
security transactions.. ($4,093) ($9) ($15) ($13) (164) (512) (110)
Net unrealized
depreciation on
investments............ (5,435) (351) ($89) (1,773) (1,397) (1,782) (6,700) (247)
-------------------------------------------------------------------------------------------
Net Realized and
Unrealized Loss on
Investments............. (9,528) (360) (89) (1,788) (1,410) (1,946) (7,212) (357)
-------------------------------------------------------------------------------------------
NET DECREASE IN NET
ASSETS RESULTING FROM
OPERATIONS.............. ($9,528) ($360) ($89) ($1,788) ($1,410) ($1,546) ($6,853) ($356)
===========================================================================================
(1) Operations commenced during 2001 (see Note 1 to Financial Statements).
See Notes to Financial Statements
76
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (Continued)
FOR THE PERIOD ENDED SEPTEMBER 30, 2001 (Unaudited)
Growth Focused Mid-Cap International Capital Mid-Cap Global
LT 30 Value Value Opportunities Growth Growth
Variable Variable Variable Variable Variable Variable Variable
Account Account (1) Account Account Account (1) Account (1) Account (1)
-----------------------------------------------------------------------------------
INVESTMENT INCOME
Equity
Index
Variable
Account
-----------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (2)....................... $11,719 $1,195 $651
-----------------------------------------------------------------------------------
Net Investment Income................. 11,719 1,195 651
-----------------------------------------------------------------------------------
Dividends (2)....................... $972
-----------------------------------------------------------------------------------
Net Investment Income................. 972
-----------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized loss from security
transactions........................ (10,415) (402) (891) ($53) ($61) ($10)
Net unrealized appreciation
(depreciation) on investments....... (26,858) ($5) (5,434) (8,722) (783) (344) 7
-----------------------------------------------------------------------------------
Net Realized and Unrealized Loss on
Investments........................... (37,273) (5) (5,836) (9,613) (836) (405) (3)
-----------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS.......................($25,554) ($5) ($4,641) ($8,962) ($836) ($405) ($3)
-----------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized loss from security
transactions........................ (1,136)
Net unrealized appreciation
(depreciation) on investments....... (20,491)
-----------------------------------------------------------------------------------
Net Realized and Unrealized Loss on
Investments........................... (21,627)
-----------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS.......................($20,655)
===================================================================================
(1) Operations commenced during 2001 (see Note 1 to Financial Statements).
(2) Pacific Select Fund had declared dividends for the Focused 30 Portfolio
during 2001. The corresponding Variable Account did not own shares prior to
the ex-dividend date.
See Notes to Financial Statements
77
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF OPERATIONS (Continued)
FOR THE PERIOD ENDED SEPTEMBER 30, 2001 (Unaudited)
Small-Cap Inflation Managed Money High Yield Large-Cap
Index REIT Managed Bond Market Bond Value
Variable Variable Variable Variable Variable Variable Variable
Account Account Account (1) Account Account Account Account
-----------------------------------------------------------------------
INVESTMENT INCOME
Dividends.............. $1,386 $62 $510 $1,398 $29,743 $1,808 $784
-----------------------------------------------------------------------
Net Investment Income... 1,386 62 510 1,398 29,743 1,808 784
-----------------------------------------------------------------------
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized loss from
security transactions.. (1,053) (54) (31) (43) (628) (4,937) (558)
Net unrealized
appreciation
(depreciation) on
investments............ (3,515) 634 246 2,089 (1,040) (2,243) (5,175)
-----------------------------------------------------------------------
Net Realized and
Unrealized Gain (Loss)
on Investments.......... (4,568) 580 215 2,046 (1,668) (7,180) (5,733)
-----------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS......... ($3,182) $642 $725 $3,444 $28,075 ($5,372) ($4,949)
=======================================================================
(1) Formerly named Government Securities Variable Account.
See Notes to Financial Statements
78
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED SEPTEMBER 30, 2001 (Unaudited)
Blue Aggressive Aggressive Emerging Diversified Small-Cap International
Chip Growth Equity Markets Research Equity Large-Cap Equity
Variable Variable Variable Variable Variable Variable Variable Variable
Account (1) Account (1) Account Account Account Account Account Account
-----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income............... $1 $7 $3,189 $160 $586
Net realized loss from security
transactions........................ (82) ($4) ($1,936) ($286) (69) (941) (773) (707)
Net unrealized depreciation on
investments......................... (2,961) (315) (5,684) (2,583) (392) (8,127) (9,038) (1,992)
-----------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Operations...................... (3,042) (319) (7,620) (2,869) (454) (5,879) (9,651) (2,113)
-----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfer of net premiums............ 1,525 66 11,131 4,900 7,975 14,268 18,640 7,856
Transfers between variable accounts,
net................................. 20,683 2,125 27,692 11,014 3,493 22,923 44,976 8,552
Transfers--policy charges and
deductions.......................... (1,083) (43) (9,309) (1,847) (1,258) (4,133) (6,443) (1,766)
Transfers--other.................... (58) (10) 47 16 13 (181) 23 41
-----------------------------------------------------------------------------------------
Net Increase in Net Assets Derived
from Policy Transactions............. 21,067 2,138 29,561 14,083 10,223 32,877 57,196 14,683
-----------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS........... 18,025 1,819 21,941 11,214 9,769 26,998 47,545 12,570
-----------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period................. 2,892 1,631 894 4,691 6,676 1,226
-----------------------------------------------------------------------------------------
End of Period....................... $18,025 $1,819 $24,833 $12,845 $10,663 $31,689 $54,221 $13,796
=========================================================================================
(1) Operations commenced during 2001 (see Note 1 to Financial Statements).
See Note to Financial Statements
79
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Continued)
FOR THE PERIOD ENDED SEPTEMBER 30, 2001 (Unaudited)
I-Net Financial Health Telecom- Multi- Equity Strategic
Tollkeeper Services Sciences Technology munications Strategy Income Value
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account (1) Account (1) Account (1) Account (1) Account Account Account (1)
-------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income............... $400 $359 $1
Net realized loss from security
transactions........................ ($4,093) ($9) ($15) ($13) (164) (512) (110)
Net unrealized depreciation on
investments......................... (5,435) (351) ($89) (1,773) (1,397) (1,782) (6,700) (247)
-------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Operations...................... (9,528) (360) (89) (1,788) (1,410) (1,546) (6,853) (356)
-------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfer of net premiums............ 5,439 971 1,030 1,392 193 8,390 23,681 1,756
Transfers between variable accounts,
net................................. 14,334 6,202 7,367 6,356 5,690 15,563 43,796 3,816
Transfers--policy charges and
deductions.......................... (2,457) (109) (209) (231) (149) (2,552) (4,423) (891)
Transfers--other.................... (281) 8 62 81 58 9 87 54
-------------------------------------------------------------------------------------------
Net Increase in Net Assets Derived
from Policy Transactions............. 17,035 7,072 8,250 7,598 5,792 21,410 63,141 4,735
-------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS........... 7,507 6,712 8,161 5,810 4,382 19,864 56,288 4,379
-------------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period................. 8,479 9,751 7,631
-------------------------------------------------------------------------------------------
End of Period....................... $15,986 $6,712 $8,161 $5,810 $4,382 $29,615 $63,919 $4,379
===========================================================================================
(1)Operations commenced during 2001 (see Note 1 to Financial Statements).
See Notes to Financial Statements
80
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Continued)
FOR THE PERIOD ENDED SEPTEMBER 30, 2001 (Unaudited)
Growth Focused Mid-Cap International Capital Mid-Cap Global
LT 30 Value Value Opportunities Growth Growth
Variable Variable Variable Variable Variable Variable Variable
Account Account (1) Account Account Account (1) Account (1) Account (1)
-----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income................ $11,719 $1,195 $651
Net realized loss from security
transactions......................... (10,415) (402) (891) ($53) ($61) ($10)
Net unrealized appreciation
(depreciation) on investments........ (26,858) ($5) (5,434) (8,722) (783) (344) 7
-----------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting
from Operations....................... (25,554) (5) (4,641) (8,962) (836) (405) (3)
-----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfer of net premiums............. 18,555 13 19,701 16,576 686 49
Transfers between variable accounts,
net.................................. 86,814 71 53,265 59,044 6,846 2,886 5
Transfers--policy charges and
deductions........................... (14,624) (12) (15,014) (5,786) (190) (294) (27)
Transfers--other..................... 258 34 (58) (27) 42
-----------------------------------------------------------------------------------
Net Increase in Net Assets Derived
from Policy Transactions.............. 91,003 72 57,986 69,776 6,629 3,320 27
-----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS............ 65,449 67 53,345 60,814 5,793 2,915 24
-----------------------------------------------------------------------------------
NET ASSETS
Beginning of Period.................. 18,880 5,701 10,226
-----------------------------------------------------------------------------------
End of Period........................ $84,329 $67 $59,046 $71,040 $5,793 $2,915 $24
===================================================================================
Equity
Index
Variable
Account
---------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income................ $972
Net realized loss from security
transactions......................... (1,136)
Net unrealized appreciation
(depreciation) on investments........ (20,491)
---------
Net Decrease in Net Assets Resulting
from Operations....................... (20,655)
---------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfer of net premiums............. 46,240
Transfers between variable accounts,
net.................................. 118,948
Transfers--policy charges and
deductions........................... (8,358)
Transfers--other..................... (327)
---------
Net Increase in Net Assets Derived
from Policy Transactions.............. 156,503
---------
NET INCREASE IN NET ASSETS............ 135,848
---------
NET ASSETS
Beginning of Period.................. 16,708
---------
End of Period........................ $152,556
=========
(1)Operations commenced during 2001 (see Note 1 to Financial Statements).
See Notes to Financial Statements
81
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Continued)
FOR THE PERIOD ENDED SEPTEMBER 30, 2001 (Unaudited)
Small-Cap Inflation Managed Money High Yield Large-Cap
Index REIT Managed Bond Market Bond Value
Variable Variable Variable Variable Variable Variable Variable
Account Account Account (1) Account Account Account Account
--------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income........... $1,386 $62 $510 $1,398 $29,743 $1,808 $784
Net realized loss from security
transactions.................... (1,053) (54) (31) (43) (628) (4,937) (558)
Net unrealized appreciation
(depreciation) on investments... (3,515) 634 246 2,089 (1,040) (2,243) (5,175)
--------------------------------------------------------------------------
Net Increase (Decrease) in Net
Assets Resulting from
Operations....................... (3,182) 642 725 3,444 28,075 (5,372) (4,949)
--------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfer of net premiums........ 2,312 6,637 6,449 20,900 2,040,050 1,720 10,599
Transfers between variable
accounts, net................... 19,771 11,601 30,399 67,797 (766,634) 32,568 31,966
Transfers--policy charges and
deductions...................... (8,195) (2,044) (4,554) (5,864) (104,589) (8,986) (11,630)
Transfers--other................ 54 (26) (14) (9) 1,795 8 47
--------------------------------------------------------------------------
Net Increase in Net Assets
Derived from Policy
Transactions..................... 13,942 16,168 32,280 82,824 1,170,622 25,310 30,982
--------------------------------------------------------------------------
NET INCREASE IN NET ASSETS....... 10,760 16,810 33,005 86,268 1,198,697 19,938 26,033
--------------------------------------------------------------------------
NET ASSETS
Beginning of Period............. 3,270 691 11,748 7,080 105,137 4,000 16,132
--------------------------------------------------------------------------
End of Period................... $14,030 $17,501 $44,753 $93,348 $1,303,834 $23,938 $42,165
==========================================================================
(1) Formerly named Government Securities Variable Account.
See Notes to Financial Statements
82
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIODS ENDED DECEMBER 31, 2000
Aggressive Emerging Diversified Small-Cap International I-Net Multi-
Equity Markets Research Equity Large-Cap Equity Tollkeeper Strategy
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account Account Account
------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income............... $1 $13 $5 $47
Net realized loss from
security transactions............... ($59) ($226) (72) (70) ($6) ($66) (6)
Net unrealized appreciation
(depreciation) on investments....... (359) (109) 24 (330) (217) (114) (2,698) (285)
------------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations............ (418) (335) 25 (389) (282) (120) (2,764) (244)
------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfer of net premiums............ 138 281 281 56
Transfers between variable accounts,
net................................. 3,675 2,049 885 5,112 7,166 1,482 11,501 10,124
Transfers--policy charges and
deductions.......................... (374) (241) (16) (342) (538) (137) (258) (184)
Transfers--other.................... 9 20 29 49 1 (1)
------------------------------------------------------------------------------------
Net Increase in Net Assets Derived
from Policy Transactions............. 3,310 1,966 869 5,080 6,958 1,346 11,243 9,995
------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS........... 2,892 1,631 894 4,691 6,676 1,226 8,479 9,751
------------------------------------------------------------------------------------
NET ASSETS
Beginning of Period.................
------------------------------------------------------------------------------------
End of Period....................... $2,892 $1,631 $894 $4,691 $6,676 $1,226 $8,479 $9,751
====================================================================================
Equity Growth
Income LT
Variable Variable
Account Account
------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income............... $11 $40
Net realized loss from
security transactions............... (111)
Net unrealized appreciation
(depreciation) on investments....... (98) (3,342)
------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations............ (87) (3,413)
------------------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfer of net premiums............ 820
Transfers between variable accounts,
net................................. 7,938 22,441
Transfers--policy charges and
deductions.......................... (220) (902)
Transfers--other.................... (66)
------------------
Net Increase in Net Assets Derived
from Policy Transactions.............. 7,718 22,293
------------------
NET INCREASE IN NET ASSETS............ 7,631 18,880
------------------
NET ASSETS
Beginning of Period.................
------------------
End of Period....................... $7,631 $18,880
==================
See Notes to Financial Statements (This Separate Account commenced operations
on August 15, 2000)
83
PACIFIC SELECT EXEC SEPARATE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS (Continued)
FOR THE PERIODS ENDED DECEMBER 31, 2000
Mid-Cap Equity Small-Cap International Inflation Managed Money
Value Index Index REIT Value Managed Bond Market
Variable Variable Variable Variable Variable Variable Variable Variable
Account Account Account Account Account Account (1) Account Account
----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income................ $12 $29 $22 $9 $15 $105 $119 $2,106
Net realized gain (loss) from
security transactions................ 7 (9) (73) (116) 2 9 (271)
Net unrealized appreciation
(depreciation) on investments........ 284 (844) 25 18 214 137 71 (117)
----------------------------------------------------------------------------------
Net Increase (Decrease) in Net Assets
Resulting from
Operations............................ 303 (824) (26) 27 113 244 199 1,718
----------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfer of net premiums............. 140 211 275 688 688 272,763
Transfers between variable accounts,
net.................................. 5,713 17,658 3,255 736 10,033 11,821 6,429 (148,228)
Transfers--policy charges and
deductions........................... (430) (338) (168) (72) (639) (317) (235) (21,135)
Transfers--other..................... (25) 1 (66) 31 (1) 19
----------------------------------------------------------------------------------
Net Increase in Net Assets Derived
from Policy
Transactions.......................... 5,398 17,532 3,296 664 10,113 11,504 6,881 103,419
----------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS............ 5,701 16,708 3,270 691 10,226 11,748 7,080 105,137
----------------------------------------------------------------------------------
NET ASSETS
Beginning of Period..................
----------------------------------------------------------------------------------
End of Period........................ $5,701 $16,708 $3,270 $691 $10,226 $11,748 $7,080 $105,137
==================================================================================
High Yield Large-Cap
Bond Value
Variable Variable
Account Account
---------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income................ $75 $80
Net realized gain (loss) from
security transactions................ (6) (73)
Net unrealized appreciation
(depreciation) on investments........ (61) 420
---------------------
Net Increase (Decrease) in Net Assets
Resulting from
Operations............................ 8 427
---------------------
INCREASE (DECREASE) IN NET ASSETS
FROM POLICY TRANSACTIONS
Transfer of net premiums............. 278 413
Transfers between variable accounts,
net.................................. 3,875 16,334
Transfers--policy charges and
deductions........................... (159) (1,034)
Transfers--other..................... (2) (8)
---------------------
Net Increase in Net Assets Derived
from Policy
Transactions.......................... 3,992 15,705
---------------------
NET INCREASE IN NET ASSETS............ 4,000 16,132
---------------------
NET ASSETS
Beginning of Period..................
---------------------
End of Period........................ $4,000 $16,132
=====================
(1)Formerly named Government Securities Variable Account.
See Notes to Financial Statements (This Separate Account commenced operations
on August 15, 2000)
84
PACIFIC SELECT EXEC SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
The Pacific Select Exec Separate Account (the "Separate Account") is
registered as a unit investment trust under the Investment Company Act of 1940,
as amended, and is comprised of thirty-one subaccounts called Variable
Accounts: the Blue Chip, Aggressive Growth, Aggressive Equity, Emerging
Markets, Diversified Research, Small-Cap Equity, International Large-Cap,
Equity, I-Net Tollkeeper, Financial Services, Health Sciences, Technology,
Telecommunications, Multi-Strategy, Equity Income, Strategic Value, Growth LT,
Focused 30, Mid-Cap Value, International Value, Capital Opportunities, Mid-Cap
Growth, Global Growth, Equity Index, Small-Cap Index, REIT, Inflation Managed
(formerly Government Securities), Managed Bond, Money Market, High Yield Bond,
and Large-Cap Value Variable Accounts as of September 30, 2001. The assets in
each Variable Account are invested in shares of the corresponding portfolios of
Pacific Select Fund (the "Fund"), each of which pursues different investment
objectives and policies. The Semi-Annual Report of the Fund dated June 30, 2001
is available upon request to Pacific Life & Annuity Company (PL&A).
The Separate Account has organized and registered with the Securities and
Exchange Commission (SEC) nine new Variable Accounts: the Blue Chip, Aggressive
Growth, Financial Services, Health Sciences, Technology, Telecommunications,
Capital Opportunities, Mid-Cap Growth, and Global Growth Variable Accounts. The
Strategic Value Variable Account commenced operations on February 27, 2001; the
Blue Chip, Aggressive Growth, and Capital Opportunities Variable Accounts
commenced operations on May 1, 2001; the Financial Services, Health Sciences,
Technology, Telecommunications, and Focused 30 Variable Accounts commenced
operations on May 23, 2001; the Global Growth Variable Account commenced
operations on June 14, 2001; and the Mid-Cap Growth commenced operations on
July 9, 2001. The Strategic Value and Focused 30 Variable Accounts were
organized and registered with the SEC in 2000.
The Separate Account was established by PL&A, a wholly-owned subsidiary of
Pacific Life Insurance Company (Pacific Life), on September 24, 1998 and
commenced operations on August 15, 2000. Under applicable insurance law, the
assets and liabilities of the Separate Account are clearly identified and
distinguished from the other assets and liabilities of PL&A. The assets of the
Separate Account will not be charged with any liabilities arising out of any
other business conducted by PL&A, but the obligations of the Separate Account,
including benefits related to variable life insurance, are obligations of PL&A.
The Separate Account held by PL&A represents funds from individual flexible
premium variable life policies. The assets of the Separate Account are carried
at market value.
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America for investment
companies which require management to make certain estimates and assumptions at
the date of the financial statements. Actual results could differ from those
estimates.
A. Valuation of Investments
Investments in shares of the Fund are valued at the reported net asset values
of the respective portfolios. Valuation of securities held by the Fund is
discussed in the notes to its financial statements.
B. Security Transactions and Investment Income
Transactions are recorded on the trade date. Realized gains and losses on
sales of investments are determined on the basis of identified cost. Dividend
income is recorded on the ex-dividend date.
C. Federal Income Taxes
The operations of the Separate Account will be reported on the Federal income
tax return of PL&A, which is taxed as a life insurance company under the
provisions of the Tax Reform Act of 1986. Under current tax law, no Federal
income taxes are expected to be paid by PL&A with respect to the operations of
the Separate Account.
2. DIVIDENDS
During the nine-month period ended September 30, 2001, the Fund declared
dividends for each portfolio, except for the Aggressive Growth, Aggressive
Equity, Emerging Markets, I-Net Tollkeeper, Financial Services, Health
Sciences, Technology, Telecommunications, Capital Opportunities, Mid-Cap
Growth, and Global Growth Portfolios. The amounts accrued by the Separate
Account for its share of the dividends were reinvested in additional full and
fractional shares of the related portfolios.
3. CHARGES AND EXPENSES
With respect to variable life insurance policies funded by the Separate
Account, PL&A makes certain deductions from premiums for sales load and state
premium taxes before amounts are allocated to the Separate Account. PL&A also
makes certain deductions from the net assets of each Variable Account for the
mortality and expense risks PL&A assumes, administrative expenses, cost of
insurance, charges for optional benefits and any sales and underwriting
surrender charges. The operating expenses of the Separate Account are paid by
PL&A.
4. RELATED PARTY AGREEMENT
Pacific Select Distributors, Inc., a wholly-owned subsidiary of Pacific Life,
serves as principal underwriter of variable life insurance policies funded by
interests in the Separate Account, without remuneration from the Separate
Account.
85
PACIFIC SELECT EXEC SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
5. SEPARATE ACCOUNT'S COST OF INVESTMENTS IN THE FUND SHARES
The investment in the Fund shares are carried at identified cost, which
represents the amount available for investment (including reinvested
distributions of net investment income and realized gains). A reconciliation of
total cost and market value of the Separate Account's investments in the Fund
as of September 30, 2001 were as follows:
Variable Accounts
-----------------------------------------------------------------------------------------
Blue Aggressive Aggressive Emerging Diversified Small-Cap International
Chip (1) Growth (1) Equity Markets Research Equity Large-Cap
-----------------------------------------------------------------------------------------
Total cost of
investments at
beginning of period $3,250 $1,741 $870 $5,020 $6,892
Add: Total net proceeds
from policy
transactions $21,604 $2,174 39,958 15,688 11,337 44,797 61,576
Reinvested
distributions from
the Funds:
(a) Net investment
income 1 7 78 160
(b) Net realized
gain 3,111
-----------------------------------------------------------------------------------------
Sub-Total 21,605 2,174 43,208 17,429 12,214 53,006 68,628
Less: Cost of
investments
disposed
during the period 619 40 12,332 1,892 1,183 12,860 5,152
-----------------------------------------------------------------------------------------
Total cost of
investments at end of
period 20,986 2,134 30,876 15,537 11,031 40,146 63,476
Add: Unrealized
depreciation (2,961) (315) (6,043) (2,692) (368) (8,457) (9,255)
-----------------------------------------------------------------------------------------
Total market value of
investments at end of
period $18,025 $1,819 $24,833 $12,845 $10,663 $31,689 $54,221
=========================================================================================
I-Net Financial Health Tech- Telecom- Multi-
Equity Tollkeeper Services (1) Sciences (1) nology (1) munications (1) Strategy
-----------------------------------------------------------------------------------------
Total cost of
investments at
beginning of period $1,340 $11,177 $10,036
Add: Total net proceeds
from policy
transactions 18,230 25,169 $7,143 $8,311 $7,667 $5,836 23,612
Reinvested
distributions from
the Funds:
(a) Net investment
income 361
(b) Net realized
gain 586 39
-----------------------------------------------------------------------------------------
Sub-Total 20,156 36,346 7,143 8,311 7,667 5,836 34,048
Less: Cost of
investments
disposed
during the period 4,254 12,227 80 61 84 57 2,366
-----------------------------------------------------------------------------------------
Total cost of
investments at end of
period 15,902 24,119 7,063 8,250 7,583 5,779 31,682
Add: Unrealized
depreciation (2,106) (8,133) (351) (89) (1,773) (1,397) (2,067)
-----------------------------------------------------------------------------------------
Total market value of
investments at end of
period $13,796 $15,986 $6,712 $8,161 $5,810 $4,382 $29,615
=========================================================================================
Inter- Capital
Equity Strategic Growth Focused Mid-Cap national Opportuni-
Income Value (1) LT 30 (1) Value Value ties (1)
-----------------------------------------------------------------------------------------
Total cost of
investments at
beginning of period $7,729 $22,221 $5,417 $10,012
Add: Total net proceeds
from policy
transactions 72,085 $5,503 122,582 $78 71,312 76,873 $6,791
Reinvested
distributions from
the Funds:
(a) Net investment
income 116 1 705 153 186
(b) Net realized
gain 243 11,014 1,042 465
-----------------------------------------------------------------------------------------
Sub-Total 80,173 5,504 156,522 78 77,924 87,536 6,791
Less: Cost of
investments
disposed
during the period 9,456 878 41,993 6 13,728 7,988 215
-----------------------------------------------------------------------------------------
Total cost of
investments at end of
period 70,717 4,626 114,529 72 64,196 79,548 6,576
Add: Unrealized
depreciation (6,798) (247) (30,200) (5) (5,150) (8,508) (783)
-----------------------------------------------------------------------------------------
Total market value of
investments at end of
period $63,919 $4,379 $84,329 $67 $59,046 $71,040 $5,793
=========================================================================================
Mid-Cap Global Small-Cap Inflation
Growth (1) Growth (1) Equity Index Index REIT Managed (2) Managed Bond
-----------------------------------------------------------------------------------------
Total cost of
investments at
beginning of period $17,552 $3,247 $674 $11,611 $7,009
Add: Total net proceeds
from policy
transactions $3,614 $33 200,372 21,974 21,378 39,725 88,784
Reinvested
distributions from
the Funds:
(a) Net investment
income 671 75 22 510 1,398
(b) Net realized
gain 301 1,311 40
-----------------------------------------------------------------------------------------
Sub-Total 3,614 33 218,896 26,607 22,114 51,846 97,191
Less: Cost of
investments
disposed during
the period 355 16 45,005 9,087 5,265 7,476 6,003
-----------------------------------------------------------------------------------------
Total cost of
investments at end of
period 3,259 17 173,891 17,520 16,849 44,370 91,188
Add: Unrealized
appreciation
(depreciation) (344) 7 (21,335) (3,490) 652 383 2,160
-----------------------------------------------------------------------------------------
Total market value of
investments at end of
period $2,915 $24 $152,556 $14,030 $17,501 $44,753 $93,348
=========================================================================================
- ----------------
(1) Operations commenced during 2001 (See Note 1 to Financial Statements)
(2) Inflation Managed was formerly named Government Securities.
86
PACIFIC SELECT EXEC SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
Variable Accounts
--------------------------------
Money High Yield Large-Cap
Market Bond Value
--------------------------------
Total cost of investments at beginning of period $105,252 $4,061 $15,711
Add: Total net proceeds from policy transactions
Reinvested distributions from the Funds: 1,701,474 67,652 40,444
(a) Net investment income 29,743 1,808 124
(b) Net realized gain 660
---------------------------------
Sub-Total 1,836,469 73,521 56,939
Less: Cost of investments disposed during the period 531,478 47,279 10,019
---------------------------------
Total cost of investments at end of period 1,304,991 26,242 46,920
Add: Unrealized depreciation (1,157) (2,304) (4,755)
---------------------------------
Total market value of investments at end of period $1,303,834 $23,938 $42,165
=================================
6. TRANSACTIONS IN SEPARATE ACCOUNT UNITS AND SELECTED ACCUMULATION UNIT **
INFORMATION
Transactions in Separate Account units for the periods ended September 30,
2001 and the selected accumulation unit information as of September 30, 2001
were as follows:
Variable Accounts
----------------------------------------------------------------------------------------
Blue Aggressive Aggressive Emerging Diversified Small-Cap International
Chip (1) Growth (1) Equity Markets Research Equity Large-Cap
----------------------------------------------------------------------------------------
Total units outstanding at
beginning of period 344 199 84 574 725
Increase (decrease) in
units resulting from
policy transactions:
(a) Transfer of net
premiums 190 8 1,708 812 877 1,981 2,530
(b) Transfers between
variable accounts,
net 2,284 234 3,621 1,465 345 2,946 5,676
(c) Transfers--policy
charges and
deductions (119) (3) (1,335) (249) (125) (514) (803)
(d) Transfers--other (6) (1) 8 3 1 (23) 3
----------------------------------------------------------------------------------------
Sub-Total 2,349 238 4,002 2,031 1,098 4,390 7,406
----------------------------------------------------------------------------------------
Total units outstanding at
end of period 2,349 238 4,346 2,230 1,182 4,964 8,131
========================================================================================
Accumulation Unit Value:
At beginning of period $10.00 $10.00 $8.41 $8.18 $10.63 $8.17 $9.21
At end of period $7.67 $7.66 $5.71 $5.76 $9.02 $6.38 $6.67
I-Net Financial Health Tech- Telecom- Multi-
Equity Tollkeeper Services (1) Sciences (1) nology (1) munications (1) Strategy
----------------------------------------------------------------------------------------
Total units outstanding at
beginning of period 136 1,149 999
Increase (decrease) in
units resulting from
policy transactions:
(a) Transfer of net
premiums 1,179 1,081 122 114 251 35 930
(b) Transfers between
variable accounts,
net 1,134 2,259 666 765 883 816 1,623
(c) Transfers--policy
charges and
deductions (242) (384) (14) (32) (60) (41) (269)
(d) Transfers--other 5 (44) 2 10 21 16 1
----------------------------------------------------------------------------------------
Sub-Total 2,076 2,912 776 857 1,095 826 2,285
----------------------------------------------------------------------------------------
Total units outstanding at
end of period 2,212 4,061 776 857 1,095 826 3,284
========================================================================================
Accumulation Unit Value:
At beginning of period $9.04 $7.38 $10.00 $10.00 $10.00 $10.00 $9.76
At end of period $6.24 $3.94 $8.65 $9.52 $5.31 $5.31 $9.02
- ----------------
** Accumulation Unit: unit of measure used to calculate the value of a Policy
Owner's interest in a Variable Account during the accumulation period.
(1) Operations commenced during 2001 (See Note 1 to Financial Statements).
87
PACIFIC SELECT EXEC SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
Variable Accounts
--------------------------------------------------------------------------
Inter- Capital
Equity Strategic Focused Mid-Cap national Opportuni-
Income Value (1) Growth LT 30 (1) Value Value ties (1)
--------------------------------------------------------------------------
Total units outstanding at
beginning of period 770 2,364 532 1,055
Increase (decrease) in
units resulting from
policy transactions:
(a) Transfer of net
premiums 2,849 236 3,134 2 1,831 2,208
(b) Transfers between
variable accounts,
net 4,858 434 13,316 8 4,765 7,461 853
(c) Transfers--policy
charges and deductions (495) (106) (2,332) (2) (1,348) (699) (22)
(d) Transfers--other 11 6 41 4 (8) (4)
--------------------------------------------------------------------------
Sub-Total 7,223 570 14,159 8 5,252 8,962 827
--------------------------------------------------------------------------
Total units outstanding at
end of period 7,993 570 16,523 8 5,784 10,017 827
==========================================================================
Accumulation Unit Value:
At beginning of period $9.90 $10.00 $7.99 $10.00 $10.71 $9.70 $10.00
At end of period $8.00 $7.68 $5.10 $8.18 $10.21 $7.09 $7.00
Mid-Cap Global Equity Small-Cap Inflation Managed
Growth (1) Growth (1) Index Index REIT Managed (2) Bond
--------------------------------------------------------------------------
Total units outstanding at
beginning of period 1,813 328 66 1,146 688
Increase (decrease) in
units resulting from
policy transactions:
(a) Transfer of net
premiums 99 5 5,370 277 640 606 1,933
(b) Transfers between
variable accounts,
net 348 1 14,659 1,924 1,105 2,845 6,319
(c) Transfers--policy
charges and
deductions (42) (3) (965) (857) (189) (429) (545)
(d) Transfers--other 6 (38) 5 (3) (1) (1)
--------------------------------------------------------------------------
Sub-Total 411 3 19,026 1,349 1,553 3,021 7,706
--------------------------------------------------------------------------
Total units outstanding at
end of period 411 3 20,839 1,677 1,619 4,167 8,394
==========================================================================
Accumulation Unit Value:
At beginning of period $10.00 $10.00 $9.22 $9.96 $10.43 $10.25 $10.30
At end of period $7.09 $8.12 $7.32 $8.37 $10.81 $10.74 $11.12
Money High Yield Large-Cap
Market Bond Value
------------------------------
Total units outstanding at
beginning of period 10,268 416 1,587
Increase (decrease) in
units resulting from
policy transactions:
(a) Transfer of net
premiums 196,376 176 1,143
(b) Transfers between
variable accounts,
net (73,350) 2,927 3,187
(c) Transfers--policy
charges and
deductions (10,183) (906) (1,169)
(d) Transfers--other 174 1 5
------------------------------
Sub-Total 113,017 2,198 3,166
------------------------------
Total units outstanding at
end of period 123,285 2,614 4,753
==============================
Accumulation Unit Value:
At beginning of period $10.24 $9.61 $10.17
At end of period $10.58 $9.16 $8.87
- ----------------
** Accumulation Unit: unit of measure used to calculate the value of a Policy
Owner's interest in a Variable Account during the accumulation period.
(1) Operations commenced during 2001 (See Note 1 to Financial Statements).
(2) Inflation Managed was formerly named Government Securities.
------------------
88
PACIFIC LIFE & ANNUITY COMPANY
Financial Statements - Statutory Basis as of and for the years ended
December 31, 2000 and 1999
and Independent Auditors' Report
89
INDEPENDENT AUDITORS' REPORT
----------------------------
Pacific Life & Annuity Company:
We have audited the accompanying statements of admitted assets, liabilities
and capital and surplus- statutory basis of Pacific Life & Annuity Company
(the Company) as of December 31, 2000 and 1999, and the related statements
of operations-statutory basis, capital and surplus-statutory basis, and
cash flows-statutory basis for the years then ended. 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 auditing standards generally
accepted in the United States of America. 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.
As described in Note 1 to the financial statements, the Company has
prepared these financial statements on the accounting basis prescribed or
permitted by the Insurance Department of the State of Arizona, which is a
comprehensive basis of accounting other than accounting principles
generally accepted in the United States of America. The effects on such
financial statements of the differences between the statutory basis of
accounting and accounting principles generally accepted in the United
States of America are also described in Note 1.
In our opinion, because of the effects of the matter described in the
preceding paragraph, the financial statements referred to above do not
present fairly, in conformity with accounting principles generally accepted
in the United States of America, the financial position of Pacific Life &
Annuity Company as of December 31, 2000 and 1999, or the results of its
operations or its cash flows for the years then ended.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the admitted assets, liabilities and capital and
surplus of Pacific Life & Annuity Company as of December 31, 2000 and 1999,
and the results of its operations and its cash flows for the years then
ended, on the basis of accounting described in Note 1.
DELOITTE & TOUCHE LLP
Costa Mesa, CA
February 26, 2001
90
Pacific Life & Annuity Company
STATEMENTS OF ADMITTED ASSETS,
LIABILITIES AND CAPITAL AND SURPLUS-STATUTORY BASIS
December 31,
2000 1999
- -------------------------------------------------------------------------------------
(In Thousands)
ADMITTED ASSETS
Bonds $258,266 $239,981
Preferred stocks 6,963 6,536
Common stocks 6,849 7,963
Mortgage loans 15,004 15,409
Cash and short-term investments 91,041 73,725
Other invested assets 56,832 29,453
Premiums due and unpaid 20,966 19,824
Other assets 5,527 10,421
Separate account assets 243
- -------------------------------------------------------------------------------------
TOTAL ADMITTED ASSETS $461,691 $403,312
=====================================================================================
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Policy reserves $116,331 $102,041
Policy benefits payable 58,096 50,738
Deposit funds 23,527 6,300
Accrued general expenses 8,169 9,433
Other liabilities 24,842 28,561
Asset valuation reserve 4,769 5,291
Separate account liabilities 243
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES 235,977 202,364
- -------------------------------------------------------------------------------------
Capital and Surplus:
Common stock - $1 par value; 5 million shares
authorized; 2.9 million shares issued and outstanding 2,900 2,900
Paid-in surplus 134,607 134,607
Unassigned surplus 88,207 63,441
- -------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS 225,714 200,948
- -------------------------------------------------------------------------------------
TOTAL LIABILITIES AND CAPITAL AND SURPLUS $461,691 $403,312
=====================================================================================
See Independent Auditors' Report and Notes to Financial Statements - Statutory
Basis
91
Pacific Life & Annuity Company
STATEMENTS OF OPERATIONS-STATUTORY BASIS
Years Ended December 31,
2000 1999
- ----------------------------------------------------------------------------------------------
(In Thousands)
REVENUES
Premiums $434,580 $359,936
Net investment income 31,089 24,786
Other income 1,997 246
- ----------------------------------------------------------------------------------------------
TOTAL REVENUES 467,666 384,968
- ----------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Current and future policy benefits 315,803 250,328
Operating expenses 102,581 87,013
- ----------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES 418,384 337,341
- ----------------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 49,282 47,627
Federal income taxes 16,910 16,196
- ----------------------------------------------------------------------------------------------
NET GAIN FROM OPERATIONS 32,372 31,431
Net realized capital losses (4,201) (405)
- ----------------------------------------------------------------------------------------------
NET INCOME $ 28,171 $ 31,026
==============================================================================================
See Independent Auditors' Report and Notes to Financial Statements - Statutory
Basis
92
Pacific Life & Annuity Company
STATEMENTS OF CAPITAL AND SURPLUS-STATUTORY BASIS
Common Stock
------------- Paid-in Unassigned
Shares Amount Surplus Surplus Total
- -----------------------------------------------------------------------
(In Thousands)
BALANCES,
JANUARY 1, 1999 2,900 $2,900 $ 37,607 $36,192 $ 76,699
Net income 31,026 31,026
Capital contribution 97,000 97,000
Other surplus transactions (3,777) (3,777)
- -----------------------------------------------------------------------
BALANCES,
DECEMBER 31, 1999 2,900 2,900 134,607 63,441 200,948
Net income 28,171 28,171
Other surplus transactions (3,405) (3,405)
- -----------------------------------------------------------------------
BALANCES,
DECEMBER 31, 2000 2,900 $2,900 $134,607 $88,207 $225,714
=======================================================================
See Independent Auditors' Report and Notes to Financial Statements - Statutory
Basis
93
Pacific Life & Annuity Company
STATEMENTS OF CASH FLOWS-STATUTORY BASIS
Years Ended December 31,
2000 1999
- -------------------------------------------------------------------------------
(In Thousands)
CASH FROM OPERATIONS
Receipts
Premiums $ 433,264 $ 366,624
Net investment income 27,997 22,917
Other, net 4,554
Payments
Policy benefit payments (271,663) (301,317)
Operating expenses (92,298) (92,375)
Premium and other taxes (7,875) (10,817)
Federal income taxes (25,858) (4,268)
Other, net (415)
- -------------------------------------------------------------------------------
NET CASH FROM OPERATIONS 63,152 (14,682)
- -------------------------------------------------------------------------------
CASH FROM INVESTMENTS
Proceeds
Bonds 64,792 84,064
Stocks 5,391 5,918
Mortgage loans 12,654 7,017
Other 12,424 4,210
Payments for the purchase of
Bonds (86,900) (108,883)
Stocks (8,197) (3,550)
Mortgage loans (12,000) (11,000)
Other (35,568) (17,407)
Net tax on capital (gains) losses 782 (2,561)
- -------------------------------------------------------------------------------
NET CASH FROM INVESTMENTS (46,622) (42,192)
- -------------------------------------------------------------------------------
CASH FROM FINANCING AND MISCELLANEOUS SOURCES
Capital contribution 97,000
Other, net 786 (3,323)
- -------------------------------------------------------------------------------
NET CASH FROM FINANCING AND MISCELLANEOUS SOURCES 786 93,677
- -------------------------------------------------------------------------------
Net change in cash and short-term investments 17,316 36,803
Cash and short-term investments, beginning of year 73,725 36,922
- -------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 91,041 $ 73,725
===============================================================================
See Independent Auditors' Report and Notes to Financial Statements - Statutory
Basis
94
Pacific Life & Annuity Company
NOTES TO FINANCIAL STATEMENTS-STATUTORY BASIS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
Pacific Life & Annuity Company (PL&A) is a stock life insurance company
domiciled in the State of Arizona, and a wholly owned subsidiary of Pacific
Life Insurance Company (Pacific Life). PL&A provides benefit programs to
employers and other benefit plan sponsors throughout the United States and
offers medical, dental, life, and other ancillary coverages to small and
mid-size employers, as well as flexible funding arrangements for labor
management and union trusts. In addition, stop loss products are sold
through Pacific Life and companion group life insurance is sold through
PL&A to self-funded plan sponsors. Also, PL&A began selling structured
settlement annuities in 2000.
In 1999, PL&A changed its name from PM Group Life Insurance Company and
received approval from the State of New York Insurance Department to
transact business in the State of New York. In connection with this
approval, Pacific Life contributed $97 million of additional paid-in
surplus in cash to PL&A in 1999. During 2000, PL&A began selling variable
life insurance and institutional products and services and filed for
variable annuity product approval in the State of New York.
BASIS OF PRESENTATION
These financial statements have been prepared in accordance with accounting
practices prescribed or permitted by the Insurance Department of the State
of Arizona, which is a comprehensive basis of accounting other than
accounting principles generally accepted in the United States of America
(GAAP). Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners (NAIC),
as well as state laws, regulations, and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices
not so prescribed.
Accounting practices prescribed or permitted by the Insurance Department of
the State of Arizona differ in certain respects, which in some cases are
materially different from GAAP. GAAP stockholder's equity as of December
31, 2000 and 1999 was $255.5 million and $221.9 million, respectively,
compared to statutory capital and surplus as included in these financial
statements of $225.7 million and $200.9 million, respectively. GAAP net
income for the years ended December 31, 2000 and 1999 was $30.9 million and
$30.0 million, respectively, compared to statutory net income included in
these financial statements of $28.2 million and $31.0 million,
respectively. The significant differences are noted below:
An interest maintenance reserve (IMR) is established to capture realized
investment gains and losses, net of tax, on the sale of fixed income
investments resulting from changes in the general level of interest
rates, and is amortized into income over the remaining years to expected
maturity of the assets sold under statutory accounting practices; no such
reserve is allowed under GAAP.
An asset valuation reserve (AVR), based upon a formula prescribed by the
NAIC, is established as a liability to offset potential noninterest
related investment losses, and changes in the AVR are charged or credited
directly to surplus under statutory accounting practices; no such reserve
is allowed under GAAP.
Investments in bonds and preferred stocks are generally carried at
amortized cost under statutory accounting practices; under GAAP,
investments in bonds and preferred stocks, other than those classified as
held to maturity, are carried at estimated fair value.
Certain assets, principally deferred income taxes and furniture and
equipment, are designated as non admitted and excluded from assets by a
direct charge to surplus under statutory accounting practices; under
GAAP, such assets are carried on the statement of financial condition
with appropriate valuation allowances.
95
Pacific Life & Annuity Company
NOTES TO FINANCIAL STATEMENTS-STATUTORY BASIS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
In 1998, the NAIC adopted the Codification of Statutory Accounting
Principles (Codification). Codification, which is intended to standardize
regulatory accounting and reporting to state insurance departments, is
effective January 1, 2001. However, statutory accounting principles will
continue to be established by individual state laws and permitted
practices. The Insurance Department of the State of Arizona is requiring
adoption of Codification for the preparation of statutory financial
statements effective January 1, 2001. The impact of adopting Codification
will be reported as an adjustment to statutory surplus on the effective
date. PL&A has not yet finalized the effects of adopting Codification, but
anticipates that there will not be any adverse effect on statutory surplus.
PL&A's significant statutory accounting practices are described below.
INVESTMENTS
Bonds qualifying for amortization are carried at amortized cost; all other
bonds are carried at prescribed values. Preferred stocks are principally
stated at amortized cost. Common stocks are carried at market value. The
cost of bonds, and preferred and common stocks is adjusted for impairments
in value deemed to be other than temporary.
Mortgage loans are stated at unpaid principal balances.
Short-term investments are carried at amortized cost which approximates
estimated fair value. Short-term investments generally consist of bonds,
commercial paper and money market instruments whose maturities at the time
of acquisition were one year or less.
Other invested assets, which consist principally of joint venture and
partnership interests, are primarily accounted for using the equity method.
The AVR is computed in accordance with a prescribed formula and is designed
to stabilize surplus against valuation and credit-related losses for
certain invested assets. Changes to the AVR are reported as direct
additions to, or deductions from, unassigned surplus. The IMR results in
the deferral of after-tax realized capital gains and losses attributable to
interest rate fluctuations on fixed income investments. These capital gains
and losses are amortized into net investment income over the remaining life
of the investment sold. The IMR of $1.8 million and $1.2 million as of
December 31, 2000 and 1999, respectively, is included in other liabilities.
Net realized capital gains and losses are determined on the specific
identification method and are presented net of Federal capital gains tax
and transfers to the IMR.
Derivatives that qualify for hedge accounting are valued consistently with
the hedged items. Realized hedged gains and losses on fixed income
contracts are deferred and amortized over the average life of the related
hedged assets or insurance liabilities. Derivatives that do not qualify for
hedge accounting are valued at market value through surplus while still
held and when realized through income.
POLICY RESERVES AND DEPOSIT FUNDS
Medical expense claim reserves are based on PL&A's actual loss experience.
Group life insurance reserves, including premium waivers, are based on
various tabular methods and actual loss experience. Disabled life reserves
are determined using various tabular reserve methods.
Reserves for variable life insurance and individual annuities are
maintained principally on the Commissioners' Reserve Valuation Method.
96
Pacific Life & Annuity Company
NOTES TO FINANCIAL STATEMENTS-STATUTORY BASIS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
The liability for deposit funds, including guaranteed interest contracts,
is based primarily upon, and is not less than, the policyholders' equity in
their deposit accounts, including credited interest.
REVENUES, BENEFITS AND EXPENSES
Premiums are recognized as revenue over the premium paying period. Deposits
made in connection with annuity contracts are recognized as revenue when
received. Investment income is recorded as earned.
Expenses, including policy acquisition costs and Federal income taxes, are
charged to operations as incurred.
FEDERAL INCOME TAXES
PL&A's operations are included in the consolidated Federal income tax
return of Pacific Mutual Holding Company, PL&A's ultimate parent. PL&A is
allocated an income tax expense based on the effect of including its
operations in the consolidated return. Deferred taxes are provided for as
permitted by the Insurance Department of the State of Arizona. The net
deferred tax asset is non admitted. This practice has no effect on total
surplus.
OTHER SURPLUS TRANSACTIONS
Other surplus transactions primarily consist of unrealized capital gains
and losses, changes in non admitted assets and change in the AVR.
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 operating results of
separate account assets pass through to separate account policyholders and
contract owners.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments disclosed in Notes 2 and
3 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 PL&A 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.
RISK-BASED CAPITAL
Risk-based capital is a method developed by the 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, 2000 and 1999, PL&A
exceeded the minimum risk-based capital requirements.
BUSINESS RISKS
PL&A operates in a business environment which is subject to various risks
and uncertainties. PL&A's group health insurance is subject to varying
levels of regulation. The United States Congress has, from time to time,
considered various health care proposals and several states have enacted
health care reform legislation. Although
97
Pacific Life & Annuity Company
NOTES TO FINANCIAL STATEMENTS-STATUTORY BASIS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
it is not possible to predict what changes may be adopted at the state or
Federal level, certain changes could have a negative impact upon the group
health business of PL&A.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
practices prescribed or permitted by regulatory authorities requires
management to make estimates and assumptions that affect the reported
amounts of admitted 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 2000
financial statement presentation.
2. INVESTMENTS IN DEBT AND EQUITY SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair
value of debt and equity securities are shown below. Debt securities
include bonds, redeemable preferred stocks and short-term investments.
Equity securities include perpetual preferred stocks and common stocks. 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. PL&A also estimates certain fair values
based on interest rates, credit quality and average maturity, or from
securities with comparable trading characteristics.
Gross Unrealized
Amortized ---------------- Estimated
Cost Gains Losses Fair Value
--------------------------------------
(In Thousands)
December 31, 2000:
------------------
U.S. Treasury securities and obligations of
U.S. government authorities and agencies $ 7,976 $ 78 $ 2 $ 8,052
Obligations of states and political subdivisions 9,456 147 13 9,590
Foreign governments 3,058 162 3,220
Corporate securities 281,495 3,750 2,514 282,731
Mortgage-backed and asset-backed securities 50,645 850 335 51,160
Redeemable preferred stock 2,276 2 2,274
-------------------------------------
Total debt securities $354,906 $ 4,987 $ 2,866 $357,027
=====================================
Total equity securities $ 12,443 $ 1,607 $ 2,503 $ 11,547
=====================================
December 31, 1999:
------------------
U.S. Treasury securities and obligations of
U.S. government authorities and agencies $ 6,029 $ 7 $ 22 $ 6,014
Obligations of states and political subdivisions 8,290 141 40 8,391
Foreign governments 1,000 37 1,037
Corporate securities 231,786 1,241 2,624 230,403
Mortgage-backed and asset-backed securities 68,657 28 1,602 67,083
Redeemable preferred stock 6,111 22 6 6,127
-------------------------------------
Total debt securities $321,873 $ 1,476 $ 4,294 $319,055
=====================================
Total equity securities $ 5,999 $ 3,843 $ 1,454 $ 8,388
=====================================
98
Pacific Life & Annuity Company
NOTES TO FINANCIAL STATEMENTS-STATUTORY BASIS
2. INVESTMENTS IN DEBT AND EQUITY SECURITIES (Continued)
The amortized cost and estimated fair value of debt securities as of
December 31, 2000, 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.
Amortized Estimated
Cost Fair Value
--------------------
(In Thousands)
Due in one year or less $ 83,464 $ 83,426
Due after one year through five years 162,152 162,702
Due after five years through ten years 21,085 21,487
Due after ten years 37,560 38,252
-------------------
304,261 305,867
Mortgage-backed and asset-backed securities 50,645 51,160
-------------------
Total $354,906 $357,027
===================
Proceeds from sales of investments in debt securities were $13.1 million
and $23.3 million for the years ended December 31, 2000 and 1999,
respectively. Gross gains of $1.1 million and $0.1 million and gross losses
of $0.1 million and $0.9 million were realized on those sales for the years
ended December 31, 2000 and 1999, respectively.
3. FINANCIAL INSTRUMENTS
The estimated fair values of PL&A's financial instruments, including debt
and equity securities (Note 2), are as follows:
December 31, 2000 December 31, 1999
----------------- -----------------
Statement Estimated Statement Estimated
Value Fair Value Value Fair Value
------------------------------------------
(In Thousands)
Assets:
Debt securities $354,379 $357,027 $321,873 $319,055
Equity securities 11,536 11,547 8,388 8,388
Mortgage loans 15,004 16,152 15,409 17,131
Financial futures contracts (1,110)
Foreign currency
derivatives (129) 7
Liabilities:
Guaranteed interest
contracts 20,314 20,314
Deposit liabilities 3,213 3,213 6,300 6,300
The following methods and assumptions were used to estimate the fair value
of these financial instruments as of December 31, 2000 and 1999:
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.
99
Pacific Life & Annuity Company
NOTES TO FINANCIAL STATEMENTS-STATUTORY BASIS
3. FINANCIAL INSTRUMENTS (Continued)
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.
FINANCIAL FUTURES CONTRACTS
PL&A 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 PL&A intends to close out open positions prior to
expiration.
FOREIGN CURRENCY DERIVATIVES
PL&A enters into foreign exchange forward contracts 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. Foreign currency derivatives expire during the
year 2001.
4. LIABILITY FOR GROUP HEALTH UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Activity in the liability for group health unpaid claims and claim
adjustment expenses, which is included in both policy reserves and policy
benefits payable, is summarized as follows:
Years Ended
December 31,
2000 1999
------------------
(In Thousands)
Balance at January 1 $ 91,583 $137,181
Less reinsurance recoverables 107 119
------------------
Net balance at January 1 91,476 137,062
------------------
Incurred related to:
Current year 301,160 279,002
Prior years (27,823) (33,283)
------------------
Total incurred 273,337 245,719
------------------
Paid related to:
Current year 221,370 213,682
Prior years 45,078 77,623
------------------
Total paid 266,448 291,305
------------------
Net balance at December 31 98,365 91,476
Plus reinsurance recoverables 49 107
------------------
Balance at December 31 $ 98,414 $ 91,583
==================
100
Pacific Life & Annuity Company
NOTES TO FINANCIAL STATEMENTS-STATUTORY BASIS
4. LIABILITY FOR GROUP HEALTH UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES
(Continued)
As a result of favorable settlement of prior years' estimated claims, the
provision for claims and claim adjustment expenses decreased by $27.8
million and $33.3 million for the years ended December 31, 2000 and 1999,
respectively.
5. RELATED PARTY TRANSACTIONS
Pacific Life provides services of certain management and other personnel,
and other support services to PL&A. Services provided include employee
participation in certain benefit plans provided by Pacific Life (Note 6).
Charges for these services amounted to $12.9 million and $11.9 million for
the years ended December 31, 2000 and 1999, respectively, and are included
in operating expenses.
Under a reinsurance and service agreement, which terminated on January 1,
1999, PL&A assumed substantially all of Pacific Life's group life and
health insurance. Premiums of ($0.6) million and $0.4 million and benefits
of $1.4 million and ($0.7) million were assumed for the years ended
December 31, 2000 and 1999, respectively. Amounts payable under this
agreement were $0.4 million and $1.3 million as of December 31, 2000 and
1999, respectively. Effective January 1, 1999, PL&A began to provide
underwriting and administrative services for this business under an
administrative services agreement. Fees earned amounted to $10.7 million
and $10.2 million for the years ended December 31, 2000 and 1999,
respectively, and are included as an offset to operating expenses.
6. EMPLOYEE BENEFIT PLANS
PL&A permits eligible employees to participate in a retirement plan
provided by Pacific Life.
PL&A permits certain employees to defer a portion of cash compensation
under a deferred compensation plan provided by Pacific Life. Interest
accrued to this plan amounted to $0.4 million for the years ended December
31, 2000 and 1999.
PL&A participates in a defined benefit health care plan and a defined
benefit life insurance plan (the Plans) provided by Pacific Life. The Plans
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.
Pacific Life and PL&A utilize the accrual method of accounting for the
costs of the Plans as prescribed by the Insurance Departments of the States
of California and Arizona, respectively. PL&A has elected to amortize the
transition obligation, which was allocated from Pacific Life, of $3.7
million over 20 years. The transition obligation amortization amounted to
$0.2 million for each of the years ended December 31, 2000 and 1999.
The postretirement obligation included in other liabilities reflects the
amortized balance less reductions due to payouts under the Plans. The
balance as of December 31, 2000 and 1999 is $1.1 million and $1.0 million,
respectively.
7. DIVIDEND RESTRICTIONS
Dividend payments by PL&A to its parent cannot exceed the lesser of 10% of
surplus as of the preceding year-end, as regards to policyholders, or the
statutory net gain from operations for the previous calendar year, without
prior approval from the Insurance Commissioner of the State of Arizona. No
dividends were paid during 2000 and 1999. During 2001, PL&A can pay
dividends amounting to approximately $22.3 million without prior approval
from the Insurance Commissioner of the State of Arizona.
101
Pacific Life & Annuity Company
NOTES TO FINANCIAL STATEMENTS-STATUTORY BASIS
8. COMMITMENTS AND CONTINGENCIES
PL&A has outstanding commitments to make investments in bonds, mortgage
loans and other invested assets as follows (In Thousands):
Year Ending December 31:
------------------------
2001 $ 9,620
2002 through 2005 25,679
2006 and thereafter 17,324
-------
Total $52,623
=======
PL&A leases office facilities under various noncancelable operating leases.
Rent expense in connection with these leases was $2.6 million and $2.4
million for the years ended December 31, 2000 and 1999, respectively.
Aggregate minimum future commitments are as follows (In Thousands):
Year Ending December 31:
------------------------
2001 $3,415
2002 3,321
2003 1,106
2004 1,102
2005 and thereafter 685
------
Total $9,629
======
PL&A is a respondent in a number of legal proceedings, some of which
involve extra-contractual damages. In the opinion of management, the
outcome of these proceedings is not likely to have a material adverse
effect on the financial position or results of operations of PL&A.
- --------------------------------------------------------------------------------
102
PACIFIC LIFE & ANNUITY COMPANY
Financial Statements--Statutory Basis
as of September 30, 2001 and December 31, 2000
and for the nine months ended September 30, 2001 and 2000
103
Pacific Life & Annuity Company
STATEMENTS OF ADMITTED ASSETS,
LIABILITIES AND CAPITAL AND SURPLUS - STATUTORY BASIS
September 30,
2001 December 31,
(Unaudited) 2000
- --------------------------------------------------------------------------
(In Thousands)
ADMITTED ASSETS
Bonds $392,504 $258,266
Preferred stocks 4,688 6,963
Common stocks 5,249 6,849
Mortgage loans 14,557 15,004
Cash and short-term investments 105,175 91,041
Other invested assets 66,845 56,832
Premiums due and unpaid 26,342 20,966
Investment income due and accrued 6,431 3,729
Other assets 6,460 1,798
Separate account assets 2,222 243
- --------------------------------------------------------------------------
TOTAL ADMITTED ASSETS $630,473 $461,691
==========================================================================
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Policy reserves $223,010 $136,645
Policy benefits payable 77,141 58,097
Deposit-type contracts 4,646 3,212
Accrued general expenses 12,243 8,169
Other liabilities 55,286 24,842
Asset valuation reserve 10,340 4,769
Separate account liabilities 2,222 243
- --------------------------------------------------------------------------
TOTAL LIABILITIES 384,888 235,977
- --------------------------------------------------------------------------
Capital and Surplus:
Common stock - $1 par value; 5 million shares
authorized; 2.9 million shares issued and
outstanding 2,900 2,900
Paid-in surplus 134,607 134,607
Unassigned surplus 108,078 88,207
- --------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS 245,585 225,714
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND CAPITAL AND SURPLUS $630,473 $461,691
==========================================================================
See Notes to Financial Statements - Statutory Basis
104
Pacific Life & Annuity Company
STATEMENTS OF OPERATIONS - STATUTORY BASIS
(Unaudited)
Nine Months Ended
September 30,
2001 2000
- -----------------------------------------------------
(In Thousands)
REVENUES
Premiums and other income $529,793 $299,239
Net investment income 23,592 22,678
- -----------------------------------------------------
TOTAL REVENUES 553,385 321,917
- -----------------------------------------------------
BENEFITS AND EXPENSES
Current and future policy benefits 423,467 210,385
Operating expenses 111,715 73,525
- -----------------------------------------------------
TOTAL BENEFITS AND EXPENSES 535,182 283,910
- -----------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES 18,203 38,007
Federal income taxes 7,035 12,998
- -----------------------------------------------------
NET GAIN FROM OPERATIONS 11,168 25,009
Net realized capital gains 3,002 504
- -----------------------------------------------------
NET INCOME $ 14,170 $ 25,513
=====================================================
See Notes to Financial Statements - Statutory Basis
105
Pacific Life & Annuity Company
STATEMENTS OF CAPITAL AND SURPLUS - STATUTORY BASIS
Common Stock
-------------
Paid-in Unassigned
Shares Amount Surplus Surplus Total
- ---------------------------------------------------------------------------------------
(In Thousands)
BALANCES, JANUARY 1, 2000 2,900 $2,900 $134,607 $ 63,441 $200,948
Net income 28,171 28,171
Other surplus transactions (3,405) (3,405)
- ---------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 2000 2,900 2,900 134,607 88,207 225,714
Net income 14,170 14,170
Cumulative effect of changes in
accounting principles 12,383 12,383
Other surplus transactions (6,682) (6,682)
- ---------------------------------------------------------------------------------------
BALANCES (Unaudited), SEPTEMBER 30, 2001 2,900 $2,900 $134,607 $108,078 $245,585
=======================================================================================
See Notes to Financial Statements - Statutory Basis
106
Pacific Life & Annuity Company
STATEMENTS OF CASH FLOWS - STATUTORY BASIS
(Unaudited)
Nine Months Ended
September 30,
2001 2000
- ---------------------------------------------------------------------------
(In Thousands)
CASH FROM OPERATIONS
Receipts
Premiums $ 523,759 $ 299,183
Net investment income 18,683 20,120
Federal income taxes 7,634
Other, net 3,389
Payments
Policy benefit payments (317,769) (193,876)
Operating expenses (94,386) (64,016)
Net transfer to separate accounts (2,067) (67)
Premium and other taxes (10,322) (7,909)
Federal income taxes (12,835)
Other, net (109)
- ---------------------------------------------------------------------------
NET CASH FROM OPERATIONS 128,921 40,491
- ---------------------------------------------------------------------------
CASH FROM INVESTMENTS
Proceeds
Bonds 42,092 55,592
Stocks 4,867 5,027
Mortgage loans 453 1,325
Payments for the purchase of
Bonds (172,941) (55,762)
Stocks (659) (7,463)
Other, net (1,415) (17,734)
- ---------------------------------------------------------------------------
NET CASH FROM INVESTMENTS (127,603) (19,015)
- ---------------------------------------------------------------------------
CASH FROM FINANCING AND MISCELLANEOUS SOURCES
Other, net 12,816 2,152
- ---------------------------------------------------------------------------
NET CASH FROM FINANCING AND MISCELLANEOUS SOURCES 12,816 2,152
- ---------------------------------------------------------------------------
Net change in cash and short-term investments 14,134 23,628
Cash and short-term investments, beginning of period 91,041 73,725
- ---------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 105,175 $ 97,353
- ---------------------------------------------------------------------------
See Notes to Financial Statements - Statutory Basis
107
Pacific Life & Annuity Company
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
Pacific Life & Annuity Company (PL&A) is a stock life insurance company
domiciled in the State of Arizona, and a wholly owned subsidiary of Pacific
Life Insurance Company (Pacific Life). PL&A provides benefit programs to
employers and other benefit plan sponsors throughout the United States and
offers medical, dental, life, and other ancillary coverages to small and
mid-size employers, as well as flexible funding arrangements for labor
management and union trusts. In addition, stop loss products are sold
through Pacific Life and companion group life insurance is sold through
PL&A to self-funded plan sponsors. Also, PL&A began selling structured
settlement annuities in 2000.
In 1999, Pacific Life contributed $97 million in cash of additional paid-in
surplus to PL&A in conjunction with PL&A's approval from the State of New
York Insurance Department (NY DOI) to transact business in the State of New
York. In 2000, PL&A began selling variable life insurance and institutional
products and services in New York. In 2001, PL&A received product approval
from the NY DOI to sell variable annuity products. Sales of the variable
annuity products are pending approval from the Securities and Exchange
Commission.
BASIS OF PRESENTATION
The information set forth in the statement of admitted assets, liabilities
and capital and surplus - statutory basis as of September 30, 2001 and the
statements of operations - statutory basis, the statements of capital and
surplus - statutory basis and of cash flows - statutory basis for the nine
months ended September 30, 2001 and 2000 is unaudited. The September 30,
2001 and 2000 information reflects all adjustments, consisting only of
normal recurring adjustments, that, in the opinion of management, are
necessary to present fairly the financial position and results of
operations of PL&A for the periods indicated. Results of operations for the
interim periods are not necessarily indicative of the results of operations
for the full year. It is suggested that these unaudited financial
statements be read in conjunction with the audited financial statements for
the years ended December 31, 2000 and 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING PRACTICES
The financial statements of PL&A are prepared in conformity with accounting
practices prescribed or permitted by the Insurance Department of the State
of Arizona (AZ DOI). The AZ DOI has adopted as prescribed accounting
practice the National Association of Insurance Commissioners (NAIC)
Accounting Practices and Procedures Manual, version effective January 1,
2001 (NAIC Manual). The AZ DOI has the right to permit accounting practices
that differ from those in the NAIC's Manual.
PL&A's net income and capital and surplus as of September 30, 2001 are the
same between the NAIC Manual and accounting practices permitted by the
State of Arizona.
NAIC Statement of Statutory Accounting Principles (SSAP) and accounting
practices prescribed or permitted by the AZ DOI differ in certain respects,
which in some cases may be material from accounting principles generally
accepted in the United States of America (GAAP). GAAP stockholder's equity
as of September 30, 2001 and December 31, 2000 was $276 million and $255
million, respectively, compared to statutory capital and surplus as
included herein of $246 million and $226 million, respectively. GAAP net
income for the nine months ended September 30, 2001 and 2000 was $16
million and $29 million, respectively, compared to statutory net income
included herein of $14 million and $26 million, respectively.
108
Pacific Life & Annuity Company
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of these financial statements requires estimates and
assumptions that affect the reported amounts of assets and liabilities and
revenue and expenses during the period. It also requires disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.
ACCOUNTING POLICIES
Health premiums are earned ratably over the terms of the related insurance
and reinsurance contracts or policies. Life premiums are recognized as
income when due from the policyholder under the terms of the insurance
contract. For flexible premium products, premiums are recognized as income
when received from the policyholder. Annuity considerations are recognized
as revenue when received. Guaranteed Interest Contracts (GIC's) are
recorded as premium in the period received. GIC's contain purchase rate
guarantees that cause them to be classified as life contracts under SSAP
No. 50, Classifications and Definitions of Insurance or Managed Care
Contracts In Force.
Expenses incurred in connection with acquiring new insurance business,
including acquisition costs such as sales commissions, are charged to
operations as incurred.
Payments received on contracts which do not incorporate any mortality or
morbidity risk are recorded directly as a liability for deposit-type
contracts. Interest credited to deposit-type contracts is recorded as an
expense when earned under the terms of the contract. Payments to
policyholders are recorded as benefit expense to the extent that such
payments differ from the recorded liability.
In addition, PL&A uses the following accounting policies:
Short-term investments are stated at amortized cost.
Bonds not backed by other loans, where eligible under NAIC rules, are
stated at amortized cost using the interest method. Other bonds are
valued at the lower of amortized cost or market.
Investments in unaffiliated common stocks are valued, as provided by the
NAIC, at approximate market value.
Preferred stocks, where eligible under NAIC rules, are stated at
amortized cost. Other preferred stock is stated at the lower of
amortized cost or market.
Mortgage loans on real estate are stated at the aggregate carrying value
less accrued interest.
PL&A utilizes the retrospective method of accounting for amortization of
premium and discount for all mortgage and asset backed securities except
for interest only and residual securities, which are valued using the
prospective method. The prepayment assumptions for all mortgage and
asset backed securities were obtained from broker dealer surveys or
internal estimates. These assumptions are consistent with the current
interest rate and economic conditions at the time of valuation.
PL&A generally carries its unaffiliated investments in joint ventures,
partnerships and limited liability companies based on the underlying
audited GAAP equity of the investee.
Derivative instruments are valued in accordance with the NAIC Manual.
All derivative instruments are valued consistently with the hedged item.
109
Pacific Life & Annuity Company
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
(Unaudited)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
PL&A establishes loss liabilities for accident and health claims
incurred before the valuation date but not yet paid. PL&A also
establishes an expense liability associated with paying those claims.
The method for establishing this liability involves calculating lag
reserves on each type of business using PL&A's own experience. A portion
of this is set aside as the claim liability for incurred but unreported
claims as well as claims in course of settlement. Any liability for
resisted claims is added to this. The group business accrues an
operating expense for the cost of settling benefit claims incurred in
the current period, with settlement in future periods. The estimation is
based upon the number of transactions expected and the total expected
costs of settlement including overhead expenses for each transaction.
3. ACCOUNTING CHANGES
Effective January 1, 2001, the AZ DOI required that insurance companies
domiciled in Arizona prepare statutory basis financial statements in
accordance with the NAIC Manual. Accounting changes adopted to conform to
the provision of the NAIC Manual are reported as changes in accounting
principles. The cumulative effect of changes in accounting principles is
reported as an adjustment to unassigned funds (surplus) in the period of
the change in accounting principles. The cumulative effect is the
difference between the amount of capital and surplus at the beginning of
the year and the amount of capital and surplus that would have been
reported at that date if the new accounting principles had been applied
retroactively for all prior periods. As a result of these changes, PL&A
reported changes in accounting principles as a net adjustment that
increased unassigned funds (surplus) of $12 million as of January 1, 2001.
Included in this total adjustment is an increase of $4 million related to
deferred tax assets and $8 million related to federal income taxes
recoverable.
4. DERIVATIVE INSTRUMENTS
Financial Futures Contracts: PL&A 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. Financial futures
contracts obligate the holder to buy or sell the underlying financial
instrument. Price changes on futures are settled daily through the daily
margin cash flows. The notional amounts of the contract do not represent
future cash requirements, as PL&A intends to close out open positions prior
to expiration.
Foreign Exchange Forward Contracts: PL&A enters into foreign exchange
forward contracts 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 currency gains and
losses on the related assets.
Interest Rate Swap Contracts: PL&A uses interest rate swaps to manage
interest rate risk. The interest rate swap agreements generally involve the
exchange of fixed and floating rate interest payments or the exchange of
floating to floating interest payments tied to different indexes.
Generally, no premium is paid to enter into the contract and no principal
payments are made by either party. The amounts to be received or paid
pursuant to these agreements are accrued and recognized in the statement of
operations through an adjustment to net investment income over the life of
the agreements.
5. INCOME TAXES
For the year 2000, the AZ DOI approved a permitted practice for PL&A to
record deferred income taxes. As of December 31, 2000, PL&A had a
nonadmitted net deferred tax asset (DTA) of $11 million. The change in the
net DTA of $7 million was recorded as Federal income taxes in net income
and as a change to surplus through
110
Pacific Life & Annuity Company
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
(Unaudited)
5. INCOME TAXES (Continued)
change in nonadmitted assets. Surplus was unaffected. If deferred income
taxes had not been recognized, net income would have been increased by $7
million for the year ended December 31, 2000 as compared to the NAIC Manual
in effect for that year. For the period ended September 30, 2001, PL&A
adopted SSAP No. 10, Income Taxes, from the NAIC Manual. The tables below
reflect differences between newly adopted SSAP No. 10 and the former
permitted practice. No deferred tax liabilities (DTL) were recognized.
The components of the net DTA/DTL as of September 30, 2001 and December 31,
2000 are as follows:
September 30, December 31,
2001 2000
--------------------------
(In Thousands)
Total of all DTA's (admitted and
nonadmitted) $11,289 $11,857
Total of all DTL's 351 283
Total DTA's nonadmitted in accordance with
SSAP
No. 10 (2001) and permitted practice
(2000) 7,733 11,574
Decrease in DTA nonadmitted (3,841) (6,879)
DTAs and DTLs are as follows:
September 30, December 31,
2001 2000
--------------------------
(In Thousands)
Current income tax expense, including
ordinary income and capital gains $5,900 $15,153
--------------------------
Increase (decrease) in DTA's ($568) ($6,690)
(Increase) decrease in DTL's (68) (189)
Change due to beginning unrealized
capital gains 424
--------------------------
Net change in deferred taxes ($212) ($6,879)
==========================
PL&A's Federal income tax expense and change in DTA/DTL differs from the
amount obtained by applying the Federal statutory rate of 35% to income
before Federal income taxes for the following reasons:
For the Nine
Months Ended Year Ended
September 30, December 31,
2001 2000
--------------------------
(In Thousands)
Expected Federal income tax expense $6,371 $17,248
Interest maintenance reserve amortization (92) (117)
Dividends received deduction and other 755 (221)
--------------------------
Total incurred Federal income tax expense $7,034 $16,910
==========================
111
Pacific Life & Annuity Company
NOTES TO FINANCIAL STATEMENTS - STATUTORY BASIS
(Unaudited)
5. INCOME TAXES (Continued)
As of September 30, 2001, PL&A had no net operating loss carryforwards. The
following are ordinary and capital gain income taxes incurred in the three
prior years that will be available for recoupment in the event of future
net losses (In Thousands):
Years Ending:
-------------
2000 $13,980
1999 14,452
1998 4,252
PL&A's Federal income tax return is consolidated with Pacific Mutual
Holding Company, its ultimate parent, along with other includable
subsidiaries. The method of allocation between companies is subject to
written agreement, approved by the Board of Directors. Allocation is based
upon separate return calculations with current credit for net losses to the
extent utilized in the consolidated return. If the consolidated return has
tax losses, inter-company balances are settled as refunds are received. If
the consolidated return has a tax payable, the inter-company balances are
settled on a quarterly basis.
6. RETROSPECTIVELY RATED CONTRACTS
PL&A estimates accrued retrospective premium adjustments for its group life
and group health insurance business through a mathematical approach using
its experience rating practices. The amount of net premiums earned by PL&A
for the nine months ended September 30, 2001 that are subject to
retrospective rating features was $4 million, which represented 0.9% of the
total net premiums earned for group life and group health.
7. LITIGATION
PL&A is a respondent in a number of 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 financial position or results of
operations of PL&A.
- --------------------------------------------------------------------------------
112
APPENDIX A - JOINT EQUAL AGE
---------------------------------------------------------
An example Joint equal age is a calculation that combines the ages
and insurance risks of two people insured by a policy.
This example It changes many possible combinations of ages, risk
assumes a male classes, and genders for the two people insured by the
smoker who is age policy into a two life status. With joint equal age, we
65 and a female assume that both people have the same age, gender (both
nonsmoker who is always male), and risk class (both smoker or both
age 55. nonsmoker).
Here's how we How we use joint equal age
calculate the joint Using the joint equal age of the two people insured by
equal age. the policy eliminates many of the tables needed when
age rates are used. We use the joint equal age for
Step 1 calculating the following:
Subtract 0 from the . certain policy charges. We use joint equal age to
male age of 65. For determine the rates per $1000 of initial face amount
the female, for the sales surrender target and underwriting
subtract 5 from age surrender charge.
55.
. the death benefit under Option D.
Adjusted ages after How we calculate joint equal age
Step 1:
.Male 65 Here are the three steps we use to calculate joint
.Female 50 equal age. We start with the actual ages of the two
people insured by the policy on the policy date.
Step 2
Step 1 Adjust ages for gender
Subtract 50 from
65. The difference We subtract years from the age of each person insured
is 15. The add-on by the policy, based on gender. The table below shows
factor for 15 is 6 how we make the adjustment.
in the table.
---------------------------------------------------------
Step 3 Gender Subtract from adjusted age (years)
---------------------------------------------------------
Add 6, the add-on Female 5
factor to 50, the Male 0
younger adjusted Unisex 1
age. ---------------------------------------------------------
The joint equal age Step 2 Determine the add-on factor
is 56.
We subtract the younger adjusted age from the older
adjusted age. We find the difference between the two in
the table below and go across the row to determine the
add-on factor.
---------------------- ----------------------
Difference in Add-on Difference in Add-on
adjusted age factor adjusted age factor
(years) (years) (years) (years)
---------------------- ----------------------
0 0 40-44 12
1-2 1 45-47 13
3-4 2 48-50 14
5-6 3 51-53 15
7-9 4 54-56 16
10-12 5 57-60 17
13-15 6 61-64 18
16-18 7 65-69 19
19-23 8 70-75 20
24-28 9 76-82 21
29-34 10 83-91 22
35-39 11 92-100 23
---------------------- ----------------------
Step 3 Calculate joint equal age
We add the add-on factor to the younger adjusted age
(from Step 1).
The sum is the joint equal age.
113
APPENDIX B - RATES PER $1,000 OF INITIAL FACE AMOUNT
- -------------------------------------------- --------------------------------------------
Face amount Face amount
Joint Sales Underwriting component Joint Sales Underwriting component of
equal surrender surrender of M & E equal surrender surrender M & E
age target/1/ charge risk charge/2/ age target/1/ charge risk charge/2/
- -------------------------------------------- --------------------------------------------
15 3.98 2.0 0.098 51 13.20 5.3 0.159
16 4.05 2.1 0.098 52 13.98 5.4 0.163
17 4.13 2.1 0.099 53 14.82 5.5 0.167
18 4.30 2.2 0.100 54 16.00 5.8 0.172
19 4.27 2.3 0.100 55 17.07 6.1 0.176
20 4.34 2.3 0.101 56 18.42 6.4 0.182
21 4.52 2.4 0.102 57 19.77 6.7 0.187
22 4.60 2.4 0.103 58 21.33 7.0 0.193
23 4.68 2.5 0.104 59 22.92 7.3 0.200
24 4.76 2.6 0.105 60 24.60 7.6 0.207
25 4.84 2.7 0.106 61 26.29 7.9 0.214
26 4.93 2.8 0.107 62 28.18 8.2 0.222
27 5.02 2.9 0.108 63 30.17 8.5 0.231
28 5.11 3.0 0.109 64 32.83 8.9 0.240
29 5.18 3.1 0.110 65 35.66 9.3 0.250
30 5.26 3.2 0.111 66 38.42 9.7 0.261
31 5.34 3.3 0.112 67 41.48 10.1 0.273
32 5.42 3.4 0.114 68 44.75 10.5 0.286
33 5.51 3.5 0.115 69 48.08 10.9 0.300
34 5.84 3.6 0.117 70 50.94 11.3 0.316
35 5.98 3.7 0.118 71 54.60 11.7 0.332
36 6.33 3.8 0.120 72 56.78 12.1 0.350
37 6.60 3.9 0.122 73 60.34 12.5 0.370
38 6.78 4.0 0.123 74 65.37 12.9 0.391
39 7.17 4.1 0.125 75 68.95 13.3 0.414
40 7.58 4.2 0.127 76 70.86 13.7 0.440
41 8.02 4.3 0.129 77 72.68 14.1 0.467
42 8.58 4.4 0.132 78 74.86 14.5 0.498
43 9.08 4.5 0.134 79 77.34 14.9 0.531
44 9.52 4.6 0.137 80 79.33 15.3 0.567
45 9.77 4.7 0.139 81 76.61 15.7 0.553
46 10.14 4.8 0.142 82 78.74 16.1 0.584
47 10.62 4.9 0.145 83 77.90 16.5 0.599
48 11.02 5.0 0.148 84 80.62 16.9 0.614
49 11.57 5.1 0.151 85 82.10 17.3 0.640
50 12.36 5.2 0.155
- -------------------------------------------- --------------------------------------------
/1/Maximum sales surrender target for the joint equal age. The sales surrender
target charged may be less and will depend upon the individual ages and the
sex of the insureds.
/2/Maximum face amount component of the M&E risk charge for the joint equal
age. The face amount component of the M&E risk charge may be less and will
depend upon the individual ages and the sex of the insureds.
114
APPENDIX C - DEATH BENEFIT PERCENTAGES
- ---------------- --------------- --------------- ----------------------------
Age Percentage Age Percentage Age Percentage Age Percentage
- ---------------- --------------- --------------- ----------------------------
0-40 250 50 185 60 130 70 115
41 243 51 178 61 128 71 113
42 236 52 171 62 126 72 111
43 229 53 164 63 124 73 109
44 222 54 157 64 122 74 107
45 215 55 150 65 120 75-90 105
46 209 56 146 66 119 91 104
47 203 57 142 67 118 92 103
48 197 58 138 68 117 93 102
49 191 59 134 69 116 (greater than) 93 101
- ---------------- -------------- --------------- ----------------------------
115
APPENDIX D - DEATH BENEFIT FACTOR TABLE
- ------------------------------------------------------------------------------------------------
Rate per $1.00 of Face Amount
- ------------------------------------------------------------------------------------------------
Joint
equal
age Policy years*
- ------------------------------------------------------------------------------------------------
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75+
- ------------------------------------------------------------------------------------------------
15 1.000 1.000 1.000 1.001 1.002 1.005 1.010 1.022 1.048 1.102 1.210 1.415 1.702 1.957 2.000
20 1.000 1.000 1.001 1.002 1.004 1.009 1.021 1.046 1.100 1.207 1.411 1.700 1.957 2.000 2.000
25 1.000 1.000 1.001 1.003 1.008 1.019 1.044 1.097 1.204 1.408 1.697 1.956 2.000 2.000 2.000
30 1.000 1.001 1.003 1.007 1.018 1.042 1.094 1.200 1.404 1.694 1.955 2.000 2.000 2.000 2.000
35 1.000 1.002 1.006 1.016 1.039 1.091 1.197 1.400 1.692 1.954 2.000 2.000 2.000 2.000 2.000
40 1.001 1.005 1.014 1.036 1.087 1.192 1.395 1.688 1.953 2.000 2.000 2.000 2.000 2.000 2.000
45 1.002 1.011 1.032 1.081 1.185 1.388 1.682 1.952 2.000 2.000 2.000 2.000 2.000 2.000 2.000
50 1.006 1.025 1.072 1.174 1.376 1.674 1.949 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
55 1.015 1.058 1.157 1.358 1.660 1.945 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
60 1.035 1.128 1.327 1.636 1.936 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
65 1.079 1.274 1.595 1.920 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
70 1.175 1.519 1.891 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
75 1.357 1.822 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
80 1.620 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
85 1.894 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
90 1.969 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
95 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
99 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000 2.000
- ------------------------------------------------------------------------------------------------
* Factors are portrayed for both joint equal ages and policy anniversaries, at
five year intervals. See your policy for one year increments in death benefit
factors.
116
PACIFIC SELECT ESTATE
PRESERVER - NY WHERE TO GO FOR MORE INFORMATION
The Pacific Select For more information about Pacific Select Estate
Estate Preserver - Preserver - NY, please call or write to us at the
NY variable life address below. You should also use this address to send
insurance policy is us any notices, forms or requests about your policy.
underwritten by
Pacific Life &
Annuity Company.
---------------------------------------------------------
How to contact us Pacific Life & Annuity Company
Client Services Department
700 Newport Center Drive
P.O. Box 6530
Newport Beach, California 92658-7500
1-888-595-6997
7 a.m. through 5 p.m. Pacific time
---------------------------------------------------------
How to contact the You can also find reports and other information about
SEC the policy and separate account from the SEC. The SEC
may charge you a fee for this information.
Public Reference Section of the SEC
Washington, D.C. 20549-6009
1-800-SEC-0330
Internet: www.sec.gov
PACIFIC SELECT EXEC SEPARATE ACCOUNT
PART II. ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
Contents of Registration Statement
This Registration Statement on Form S-6 comprises the following papers and
documents:
The facing sheet.
The cross-reference table.
The Prospectus consisting of 116 pages.
The undertaking to file reports.
Representation pursuant to Section 26(e) of the Investment Company Act of 1940.
Rule 484 undertaking.
The Signatures.
Written consent of the following person (included in the exhibits shown below):
Deloitte & Touche LLP, independent auditors
Dechert Price & Rhoads
The following exhibits:
1. (1) (a) Minutes of Action of Board of Directors of PM Group Life Insurance
Company (PL&A) dated July 1, 1998/1/
(b) Memorandum Establishing Separate Account/1/
(2) Inapplicable
(3) (a) Form of Distribution Agreement Between PL&A and Pacific Select
Distributors, Inc./1/
(b) Form of Selling Agreement Between Pacific Select Distributors, Inc.
and Various Broker-Dealers/1/
(4) Inapplicable
(5) (a) Flexible Premium Variable Life Insurance Policy (Form P0156-NY)
(b) Last Survivor Added Protection Benefit Rider (Form R01LST-NY)
(c) Individual Annual Renewable Term Rider (Form R01IRT-NY)
(d) Policy Split Option Rider (Form R94PSO-NY)
(e) Accelerated Living Benefit Rider (Form R92ALB-NY)/1/
(f) Estate Tax Repeal Rider (Form R01ETR-NY)/1/
(6) (a) Bylaws of PL&A/1/
(b) Articles of Incorporation of PM Group Life Insurance Company/1/
(c) Amended & Restated Articles of Incorporation for PM Group Life
Insurance Company/1/
(7) Inapplicable
(8) Inapplicable
(9) (a) Form of Participation Agreement between PL&A and Pacific Select
Fund/1/
(b) Administrative Agreement Between PL&A and Pacific Life Insurance
Company (Pacific Life)/1/
(c) Form of Addendum to Participation Agreement between PL&A and Pacific
Select Fund
(10) Application for Flexible Premium Variable Life Insurance Policy &
General Questionnaire
2. Form of Opinion and consent of legal officer of PL&A as to legality of
Policies being registered/1/
3. Inapplicable
4. Inapplicable
5. Inapplicable
6. (a) Consent of Deloitte & Touche LLP
(b) Consent of Dechert/1/
7. (a) Opinion of Actuary
(b) Form of Illustration of Policy Benefits
8. Memorandum Describing Issuance, Transfer and Redemption Procedures/1/
9. Powers of Attorney
10. Inapplicable
11. Inapplicable
12. Inapplicable
13. Inapplicable
14. Inapplicable
15. Inapplicable
16. Inapplicable
17. Inapplicable
_________________
/1/ Filed as part of Registration Statement on Form S-6 via EDGAR on June 6,
2001, File No. 333-62446, Accession Number 0001017062-01-500429.
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATION PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF 1940
Pacific Life & Annuity Company, the sponsoring insurance company of the
Registrant, represents that the fees and charges to be deducted under the
variable Life Insurance Policy ("Policy") described in the prospectus contained
in this registration statement are, in the aggregate, reasonable in relation to
the services rendered, the expenses expected to be incurred, and the risks
assumed in connection with the Policy.
RULE 6e-3(T) REPRESENTATION
This filing is made pursuant to Rule 6e-3(T) and Rule 6c-3 under the
Investment Company Act of 1940.
RULE 484 UNDERTAKING
Pacific Life & Annuity Company's Articles of Incorporation provide in Article
IX for indemnification of directors, officers and employees of the Company.
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Pacific Select Exec Separate Account of Pacific Life & Annuity Company,
certifies that it has caused this Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6 to be signed on its behalf by the undersigned
thereunto duly authorized in the City of Newport Beach, and State of California,
on this 27th day of December, 2001.
PACIFIC SELECT EXEC SEPARATE ACCOUNT
(Registrant)
BY: PACIFIC LIFE & ANNUITY COMPANY
(Depositor)
BY: _____________________________________
Thomas C. Sutton*
Chief Executive Officer
*BY: /s/ DAVID R. CARMICHAEL
David R. Carmichael
as attorney-in-fact
(Powers of Attorney are contained as Exhibit 9 in this Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-6 for the Pacific Select Exec
Separate Account.)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pacific Life &
Annuity Company certifies that it has duly caused this Pre-Effective Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized all in the City of Newport Beach, and
State of California, on this 27th day of December, 2001.
BY: PACIFIC LIFE & ANNUITY COMPANY
(Registrant)
BY: _________________________________
Thomas C. Sutton*
Chief Executive Officer
*BY: /s/ DAVID R. CARMICHAEL
David R. Carmichael
as attorney-in-fact
(Powers of Attorney are contained as Exhibit 9 in this Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-6 for the Pacific Select Exec
Separate Account.)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective
Amendment No. 1 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
Signature Title Date
____________________ Director, Chairman of the Board ___________ , 2001
Thomas C. Sutton* and Chief Executive Officer
____________________ Director, Senior Vice President and ___________ , 2001
David R. Carmichael* General Counsel
____________________ Director, Vice President ___________ , 2001
Audrey L. Milfs* and Secretary
____________________ Director and President ___________ , 2001
Glenn S. Schafer*
____________________ Executive Vice President and Chief ___________ , 2001
Khanh T. Tran* Financial Officer
____________________ Executive Vice President ___________ , 2001
Lynn C. Miller*
____________________ Vice President and Treasurer ___________ , 2001
Brian D. Klemens*
*By: /s/ DAVID R. CARMICHAEL December 27, 2001
------------------------------
David R. Carmichael
as attorney-in-fact
(Powers of Attorney are contained as Exhibit 9 in this Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-6 of Pacific Select Exec Separate
Account.)