As filed with the Securities and
Exchange Commission on April 19, 2011.
333-168284
811-08946
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | x | |
| Pre-Effective Amendment No. | o | |
| Post-Effective Amendment No. 1 | x | |
and/or
| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | x | |
| Amendment No. 311 | x | |
(Check appropriate box or boxes)
SEPARATE ACCOUNT A
(Exact Name of Registrant)
PACIFIC LIFE INSURANCE COMPANY
(Name of Depositor)
700 Newport Center Drive
Newport Beach, California 92660
(Address of Depositor’s Principal Executive Offices) (Zip Code)
(949) 219-3943
(Depositor’s Telephone Number, including Area Code)
Brandon J. Cage
Assistant Vice President
Pacific Life Insurance Company
700 Newport Center Drive
Newport Beach, California 92660
(Name and address of agent for service)
Approximate Date of Proposed Public Offering:
It is proposed that this filing will
become effective (check appropriate box)
o immediately upon filing pursuant to paragraph (b) of Rule 485
x on May 1, 2011 pursuant to paragraph (b) of Rule 485
o 60 days after filing pursuant to paragraph (a)(1) of Rule 485
o on ______________ pursuant to paragraph (a)(1) of Rule 485
o on ______________ pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
| o | this post-effective amendment designates a new effective date for a previously filed post-effective amendment. |
Title of Securities Being Registered: Interests in the Separate Account under Pacific Destinations B individual flexible premium variable annuity contracts.
Filing Fee: None
|
PACIFIC DESTINATIONS B |
PROSPECTUS MAY 1, 2011 |
Pacific
Destinations B is an individual flexible premium
deferred variable annuity contract issued by Pacific Life
Insurance Company (Pacific Life).
This Prospectus
provides information you should know before buying a Contract.
It’s accompanied by current Prospectuses for the Funds that
provide the underlying Portfolios for the Variable Investment
Options offered under the Contract. The Variable Investment
Options are funded by Separate Account A of Pacific Life. Please
read both Prospectuses carefully, and keep them for future
reference.
Here’s a list
of all the Investment Options currently available under your
Contract; the Variable Investment Options are listed according
to the underlying Funds:
VARIABLE
INVESTMENT OPTIONS
Pacific Select
Fund
|
International Small-Cap Mid-Cap Value Equity Index Small-Cap Index Small-Cap Equity American Funds® Growth-Income American Funds® Growth Large-Cap Value Floating Rate Loan Small-Cap Growth |
Comstock Growth LT Focused 30 International Value Long/Short Large-Cap Mid-Cap Equity International Large-Cap Mid-Cap Growth Real Estate Small-Cap Value |
Main
Street®
Core Emerging Markets Cash Management High Yield Bond Managed Bond Inflation Managed Pacific Dynamix – Conservative Growth Pacific Dynamix – Moderate Growth Pacific Dynamix – Growth Inflation Protected |
Portfolio Optimization Conservative Portfolio Optimization Moderate-Conservative Portfolio Optimization Moderate Portfolio Optimization Growth Portfolio Optimization Aggressive-Growth Dividend Growth Short Duration Bond Large-Cap Growth Diversified Bond |
|
AIM Variable Insurance
Funds (Invesco Variable Insurance Funds) Invesco V.I. Balanced-Risk Allocation Fund Series II |
AllianceBernstein Variable
Products Series Fund, Inc. AllianceBernstein VPS Balanced Wealth Strategy Portfolio Class B |
BlackRock Variable Series
Funds, Inc. BlackRock Global Allocation V.I. Fund Class III BlackRock Capital Appreciation V.I. Fund Class III |
Franklin Templeton Variable
Insurance Products Trust Franklin Templeton VIP Founding Funds Allocation Fund Class 2 Mutual Global Discovery Securities Fund Class 2 Templeton Global Bond Securities Fund Class 2 |
|||
|
GE Investments Funds,
Inc. GE Investments Total Return Fund Class 3 |
Lord Abbett Series
Fund, Inc. Lord Abbett International Core Equity Portfolio Class VC Lord Abbett Total Return Portfolio Class VC |
MFS®
Variable Insurance Trust MFS® Investors Growth Stock Series – Service Class MFS® Total Return Series – Service Class MFS® Value Series – Service Class |
PIMCO Variable Insurance
Trust PIMCO Global Multi-Asset Portfolio – Advisor Class |
FIXED OPTION
DCA Plus Fixed Option
DCA Plus Fixed Option
You will find more
information about the Contract and Separate Account A in the
Statement of Additional Information (SAI) dated May 1,
2011. The SAI has been filed with the SEC and is considered to
be part of this Prospectus because it’s incorporated by
reference. You will find a table of contents for the SAI on
page 74 of this Prospectus. You can get a copy of the SAI
without charge by calling or writing to Pacific Life or you can
visit our website at www.pacificlife.com. You can also visit the
SEC’s website at www.sec.gov, which contains the SAI,
material incorporated into this Prospectus by reference, and
other information about registrants that file electronically
with the SEC.
This Contract is not
available in all states. This Prospectus is not an offer in any
state or jurisdiction where we are not legally permitted to
offer the Contract.
The Contract is
described in detail in this Prospectus and its SAI. A Fund is
described in its Prospectus and its SAI. No one has the right to
describe the Contract or a Fund any differently than they have
been described in these documents.
You should be aware
that the Securities and Exchange Commission (SEC) has not
reviewed the Contract and does not guarantee that the
information in this Prospectus is accurate or complete.
It’s a criminal offense to say otherwise.
This material is not
intended to be used, nor can it be used by any taxpayer, for the
purpose of avoiding U.S. federal, state or local tax penalties.
Pacific Life, its distributors and their respective
representatives do not provide tax, accounting or legal advice.
Any taxpayer should seek advice based on the taxpayer’s
particular circumstances from an independent tax advisor.
This Contract is
not a deposit or obligation of, or guaranteed or endorsed by,
any bank. It’s not federally insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board, or any
other government agency. Investment in a Contract involves risk,
including possible loss of principal.
YOUR GUIDE TO
THIS PROSPECTUS
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| Back Cover | ||
2
AN OVERVIEW OF
PACIFIC DESTINATIONS B
This overview tells
you some key things you should know about your Contract.
It’s designed as a summary only – please read
this Prospectus, your Contract and the Statement of Additional
Information (SAI) for more detailed information.
In this Prospectus,
you and your mean the Contract Owner or
Policyholder. Pacific Life, we, us and our refer
to Pacific Life Insurance Company. Contract means a
Pacific Destinations B variable annuity contract, unless we
state otherwise.
Certain Contract
features described in this Prospectus may vary or may not be
available in your state. The state in which your Contract is
issued governs whether or not certain features, Riders, charges
or fees are allowed or will vary under your Contract. These
variations are reflected in your Contract and in Riders or
Endorsements to your Contract. See your financial advisor or
contact us for specific information that may be applicable to
your state. See ADDITIONAL INFORMATION – State
Considerations. This prospectus provides a description of
the material rights and obligations under the Contract. Your
Contract (including any riders and/or endorsements) represents
the contractual agreement between you and us. Any guarantees
provided for under your Contract or through optional riders are
backed by our financial strength and claims paying ability. You
must look to the strength of the insurance company with regard
to such guarantees. Your financial advisor or financial
advisor’s firm is not responsible for any Contract
guarantees.
Some of the Terms
used in this Prospectus may be new to you. You will find a
glossary of certain terms in the TERMS USED IN THIS
PROSPECTUS section.
Pacific
Destinations B Basics
An annuity contract may be appropriate if you are looking for
retirement income or you want to meet other long-term financial
objectives. Discuss with your financial advisor whether a
variable annuity, optional benefits and which underlying
Investment Options are appropriate for you, taking into
consideration your age, income, net worth, tax status, insurance
needs, financial objectives, investment goals, liquidity needs,
time horizon, risk tolerance and other relevant information.
Together you can decide if a variable annuity is right for
you.
This Contract may not be the right one for you if you need to
withdraw money for short-term needs, because withdrawal charges
and tax penalties for early withdrawal may apply.
You should consider the Contract’s investment and income
benefits, as well as its costs.
Pacific Destinations B is an annuity contract between you
and Pacific Life. Annuity contracts have two phases, the
accumulation phase and the annuitization (income) phase. The two
phases are discussed below.
This Contract is designed for long-term financial planning. It
allows you to invest money on a tax-deferred basis for
retirement or other goals, and/or to receive income in a variety
of ways, including a series of income payments for life or for a
specified period of years.
Non-Qualified and Qualified Contracts are available. You buy a
Non-Qualified Contract with “after-tax” dollars. You
buy a Qualified Contract under a qualified retirement or pension
plan, or some form of an individual retirement annuity or
account (IRA). It is important to know that IRAs and qualified
plans are already tax-deferred which means the tax deferral
feature of a variable annuity does not provide a benefit in
addition to that already offered by an IRA or qualified plan. An
annuity contract should only be used to fund an IRA or qualified
plan to benefit from the annuity’s features other than tax
deferral.
Pacific Destinations B is a variable annuity, which means
that your Contract Value fluctuates depending on the performance
of the Investment Options you choose. The Contract allows you to
choose how often you make Investments (“Purchase
Payments”) and how much you add each time.
3
AN OVERVIEW OF
PACIFIC DESTINATIONS B
Your
Right to Cancel (“Free Look”)
During the Free Look period, you have the right to cancel your
Contract and return it with instructions to us or to your
financial advisor for a refund. The amount refunded may be more
or less than the Purchase Payments you have made and the length
of the Free Look period may vary, depending on the state where
you signed your application and the type of Contract you
purchased.
You will find more information about the Right to Cancel
(“Free Look”) period starting on page 35.
The Accumulation
Phase
The Investment Options you choose and how they perform will
affect your Contract Value during the accumulation phase, as
well as the amount available to annuitize on the Annuity
Date.
The accumulation phase begins on your Contract Date and
continues until your Annuity Date. During the accumulation
phase, you can put money in your Contract by making Purchase
Payments subject to certain limitations, and choose Investment
Options in which to allocate them. You can also take money out
of your Contract by making a withdrawal.
Investments
(“Purchase Payments”)
Your initial Purchase Payment must be at least $10,000 for a
Non-Qualified Contract or a Qualified Contract. Additional
Purchase Payments must be at least $250 for a Non-Qualified
Contract and $50 for a Qualified Contract. Currently, we are not
enforcing the minimum initial Purchase Payment on Qualified
Contracts or the minimum additional Purchase Payment amounts on
Qualified and Non-Qualified Contracts, but we reserve the right
to enforce such minimums in the future.
You will find more information about Making Your Investments
(“Purchase Payments”) starting on page 17.
Investment
Options
Ask your financial advisor to help you choose the right
Investment Options for your goals and risk tolerance. Any
financial firm or financial advisor you engage to provide advice
and/or make transfers for you is not acting on our behalf. We
are not responsible for any investment decisions or allocations
you make, recommendations such financial advisors make or any
allocations or specific transfers they choose to make on your
behalf. Some broker-dealers may not allow or may limit the
amount you may allocate to certain Investment Options.
You can choose from a variety of Variable Investment Options
(also called Subaccounts), each of which invests in a
corresponding Portfolio of a Fund. The value of each Portfolio
will fluctuate with the value of the investments it holds, and
returns are not guaranteed.
You can also choose any available fixed option that earns a
guaranteed rate of interest of at least 3% annually.
We allocate your Purchase Payments to the Investment Options you
choose. Your Contract Value will fluctuate during the
accumulation phase depending on the Investment Options you have
chosen. You bear the investment risk of any Variable Investment
Options you choose.
You will find more information about the Investment Options
and the Investment Advisers starting on page 12.
Transferring
Among Investment Options
You can transfer among Investment Options any time, subject to
certain limitations, until your Annuity Date without paying any
current income tax. Transfers are limited to 25 for each
calendar year. Only 2 transfers per month may involve the
Invesco V.I. Balanced-Risk Allocation Fund, BlackRock
Global Allocation V.I. Fund, GE Investments Total Return
Fund, International Value, International Small-Cap,
International Large-Cap, Emerging Markets, Lord Abbett
International Core Equity Portfolio, Mutual Global Discovery
Securities Fund, or PIMCO Global Multi-Asset Investment Options.
In addition, only 2 transfers into or out of each American Funds
Investment Option (American Funds Growth or American Funds
Growth-Income) may occur in any calendar month. If you have used
all 25 transfers in a calendar year, you may make 1
additional transfer of all or a portion of your Variable Account
Value to the Cash Management Investment Option before the start
of the next calendar year. You can also make systematic
transfers by enrolling in our dollar cost averaging, portfolio
rebalancing or earnings sweep programs. Transfers made under
these systematic transfer programs or automatic quarterly
rebalancing under the Custom Model program are excluded from
these limitations. Some restrictions may apply to transfers to
or from any fixed option.
You will find more information about transfers and transfer
limitations starting on page 20.
4
Withdrawals
You can make full and partial withdrawals to supplement your
income or for other purposes. You can withdraw a certain amount
each year without paying a withdrawal charge, but any amount
withdrawn in excess of this amount may incur a withdrawal charge
on Investments that are less than 8 years old. Some restrictions
may apply to making partial withdrawals from any fixed option.
In general, you may have to pay income taxes on withdrawals or
other distributions from your Contract. If you are under age
591/2,
a 10% federal tax penalty may also apply to taxable withdrawals.
You will find more information about withdrawals and
withdrawal minimums starting on page 33.
The Income
Phase
The income phase of your Contract begins on your Annuity Date.
Generally, you can choose to surrender your Contract and receive
a single payment or you can annuitize your Contract and receive
a series of income payments over a fixed period or for life.
You can choose fixed or variable annuity payments, or a
combination of both. Variable annuity payments may not be
available in all states. You can choose monthly, quarterly,
semi-annual or annual payments. We will make the income payments
to you or your designated payee. The Owner is responsible for
any tax consequences of any annuity payments.
If you choose variable annuity payments, the amount of the
payments will fluctuate depending on the performance of the
Variable Investment Options you choose. After your Annuity Date,
if you choose variable annuity payments, you can exchange your
Subaccount Annuity Units among the Variable Investment Options
up to 4 times in any
12-month
period.
You will find more information about annuitization starting
on page 26 and annuity options available under the Contract
starting on page 28.
The Death
Benefit
Generally, the Contract provides a death payout upon the first
death of an Owner or the death of the sole surviving Annuitant,
whichever occurs first, during the accumulation phase. Death
benefit proceeds are payable when we receive proof of death and
payment instructions in proper form. To whom we pay a death
benefit depends on who dies first and the type of Contract you
own.
You will find more information about the death benefit
starting on page 30.
Optional
Riders
Optional Riders are subject to availability (including state
availability). Before purchasing any optional Rider, make sure
you understand all of the terms and conditions and consult with
your financial advisor for advice on whether an optional Rider
is appropriate for you. We reserve the right to restrict the
purchase of an optional living benefit Rider to only Contract
issue in the future.
Stepped-Up
Death Benefit
This optional Rider offers you the ability to lock in market
gains for your beneficiaries with a stepped-up death benefit,
which is the highest Contract Value on any previous Contract
Anniversary (prior to the oldest of the Owner’s or
Annuitant’s
81st birthday)
adjusted for additional Purchase Payments and withdrawals. You
can only buy this Rider when you buy your Contract.
You will find more information about the Stepped-Up Death
Benefit starting on page 32.
Optional
Living Benefit Riders
You may purchase an optional Rider on the Contract Date or on
any Contract Anniversary (if available). In addition, if you
purchase a Rider within 60 days after the Contract Date or,
if available, within 60 days after any Contract
Anniversary, the Rider Effective Date will be that Contract Date
or Contract Anniversary. Your election to purchase an optional
Rider must be received in a form satisfactory to us at our
Service Center.
At initial purchase and during the entire time that you own an
optional living benefit Rider, you must invest your entire
Contract Value in an asset allocation program or in Investment
Options we make available for these Riders. The allocation
limitations associated with these Riders may limit the number of
Investment Options that are otherwise available to you under
your Contract. See OTHER OPTIONAL RIDERS – General
Information – Investment Allocation
Requirements. Failure to adhere to the Investment Allocation
Requirements may cause your Rider to terminate. We reserve
the right to add, remove or change asset allocation programs or
Investment Options we make available for these Riders at any
time. We may make such a change due to a fund reorganization,
fund substitution, or when we believe a change is necessary to
protect our ability to provide the guarantees under these
Riders.
5
AN OVERVIEW OF
PACIFIC DESTINATIONS B
Distributions made due to divorce instructions or under Code
Section 72(t)/72(q) (substantially equal periodic payments)
are treated as withdrawals for Contract purposes and may
adversely affect Rider benefits.
Taking a withdrawal before a certain age or a withdrawal that is
greater than the annual withdrawal amount (“excess
withdrawal”) under a particular Rider may result in adverse
consequences such as a permanent reduction in Rider benefits or
the failure to receive lifetime withdrawals under a Rider.
Some optional riders allow for owner elected
Resets/Step-Ups.
If you elect to
Reset/Step-Up,
your election must be received, in a form satisfactory to us, at
our Service Center within 60 days after the Contract
Anniversary (“60 day period”) on which the
Reset/Step-Up
is effective. We may, at our sole discretion, allow
Resets/Step-Ups
after the 60 day period. We reserve the right to refuse a
Reset/Step-Up
request after the 60 day period regardless of whether we
may have allowed you or others to
Reset/Step-Up
in the past. Each Contract Anniversary starts a new 60 day
period in which a
Reset/Step-Up
may be elected.
Taking a loan while an optional living benefit Rider is in
effect will terminate your Rider. Work with your financial
advisor before taking a loan.
CoreIncome
Advantage 5 Plus (Single)
This optional Rider lets you, before the Annuity Date, withdraw
up to 5% of your Protected Payment Base per year (once
age 591/2
is reached), lock in market gains, and provides the potential to
withdraw up to the Protected Payment Amount for life, if certain
conditions are met. If your total withdrawals in a Contract Year
exceed the annual withdrawal amount allowed under the Rider,
then the Protected Payment Base may decrease and the amount you
may withdraw in the future under the Rider may be reduced.
While this Rider is in effect, the aggregate Purchase Payments
under the Death Benefit Amount will be reduced by withdrawals in
a different manner than if you do not purchase this Rider. This
may result in a different Death Benefit Amount that is paid in
accordance with the Death Benefit Proceeds section. See
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS –
Death Benefits – Death Benefit Amount and
OTHER OPTIONAL RIDERS – CoreIncome Advantage 5 Plus
(Single) – Death Benefit Amount Adjustment.
In addition, taking a withdrawal that is greater than the
allowed annual withdrawal amount may reduce the aggregate
Purchase Payments under the Death Benefit Amount by an amount
greater than the amount withdrawn.
Beginning with the
1st anniversary
of the Rider Effective Date or most recent Reset Date, whichever
is later, the Rider provides for Automatic Resets or
Owner-Elected Resets of the Protected Payment Base to an amount
equal to 100% of the Contract Value. Any reset may include a
change in the annual charge percentage (up to a maximum of
1.55%) associated with the Rider. Protected Payment Base,
Protected Payment Amount, Automatic Reset, Owner-Elected Reset
and Reset Date are described in OTHER OPTIONAL
RIDERS – CoreIncome Advantage 5 Plus (Single).
This Rider is called the Guaranteed Withdrawal Benefit VI
Rider – Single Life in the Rider attached to your
Contract.
You will find more information about CoreIncome
Advantage 5 Plus (Single) starting on page 38.
CoreIncome
Advantage 5 Plus (Joint)
This optional Rider lets you, before the Annuity Date, withdraw
up to 5% of your Protected Payment Base per year (once
age 591/2
is reached), lock in market gains, and provides the potential to
withdraw up to the Protected Payment Amount, until the Rider
terminates, if certain conditions are met. If your total
withdrawals in a Contract Year exceed the annual withdrawal
amount allowed under the Rider, then the Protected Payment Base
may decrease and the amount you may withdraw in the future under
the Rider may be reduced.
While this Rider is in effect, the aggregate Purchase Payments
under the Death Benefit Amount will be reduced by withdrawals in
a different manner than if you do not purchase this Rider. This
may result in a different Death Benefit Amount that is paid in
accordance with the Death Benefit Proceeds section. See
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS –
Death Benefits – Death Benefit Amount and
OTHER OPTIONAL RIDERS – CoreIncome Advantage 5 Plus
(Joint) – Death Benefit Amount Adjustment.
In addition, taking a withdrawal that is greater than the
allowed annual withdrawal amount may reduce the aggregate
Purchase Payments under the Death Benefit Amount by an amount
greater than the amount withdrawn.
Beginning with the
1st
anniversary of the Rider Effective Date or most recent Reset
Date, whichever is later, the Rider provides for Automatic
Resets or Owner-Elected Resets of the Protected Payment Base to
an amount equal to 100% of the Contract Value. Any reset may
include an increase in the annual charge percentage (up to a
maximum of 1.80%) associated with the Rider. Protected Payment
Base, Protected Payment Amount, Automatic Reset, Owner-Elected
Reset and Reset Date are described in OTHER OPTIONAL
RIDERS – CoreIncome Advantage 5 Plus (Joint).
Changes to the Contract Owner, Annuitant
and/or
Beneficiary designations and changes in marital status may
adversely affect the benefits of this Rider (see CoreIncome
Advantage 5 Plus (Joint) – Ownership and
Beneficiary Changes).
6
This Rider is called the Guaranteed Withdrawal Benefit VI
Rider – Joint Life in the Rider attached to your
Contract.
You will find more information about CoreIncome
Advantage 5 Plus (Joint) starting on page 42.
Automatic
Income Builder
This optional Rider lets you, before the Annuity Date, withdraw
up to 4%, 5%, or 6% (depending on your age) of your Protected
Payment Base per year, lock in market gains, and provides the
potential to withdraw up to the Protected Payment Amount for
life, if certain conditions are met. Lifetime withdrawals are
available if the oldest Owner (or Annuitant, in the case of a
Non-Natural Owner) was
age 591/2
or older when the first withdrawal was taken after the Rider
Effective Date or the most recent Reset Date, whichever is
later. If you are older than
591/2
and if you delay taking withdrawals, this Rider also provides
the potential to receive a 0.10% increase in the withdrawal
percentage per year, which can increase the percentage that you
may withdraw each Contract Year without reducing your Protected
Payment Base. Once a withdrawal is taken, regardless of your age
when the withdrawal occurred, the 0.10% increase in the
withdrawal percentage will no longer be applied. Any previously
added 0.10% increase in the withdrawal percentage will be locked
in and will remain a part of your total withdrawal percentage.
If your total withdrawals in a Contract Year exceed the annual
withdrawal amount allowed under the Rider, then the Protected
Payment Base may decrease and the amount you may withdraw in the
future under the Rider may be reduced.
While this Rider is in effect, the aggregate Purchase Payments
under the Death Benefit Amount will be reduced by withdrawals in
a different manner than if you do not purchase this Rider. This
may result in a different Death Benefit Amount that is paid in
accordance with the Death Benefit Proceeds section. See
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS –
Death Benefits – Death Benefit Amount and
OTHER OPTIONAL RIDERS – Automatic Income
Builder – Death Benefit Amount Adjustment.
In addition, taking a withdrawal that is greater than the
allowed annual withdrawal amount may reduce the aggregate
Purchase Payments under the Death Benefit Amount by an amount
greater than the amount withdrawn.
Beginning with the
1st
anniversary of the Rider Effective Date or most recent Reset
Date, whichever is later, the Rider provides for Automatic
Resets or Owner-Elected Resets of the Protected Payment Base and
Remaining Protected Balance to an amount equal to 100% of the
Contract Value. Any reset may include a change in the annual
charge percentage (up to a maximum of 1.50%) associated with the
Rider. Protected Payment Base, Remaining Protected Balance,
Automatic Reset, Owner-Elected Resets and Reset Date are
described in OTHER OPTIONAL RIDERS – Automatic
Income Builder.
This Rider is called the Guaranteed Withdrawal Benefit
III-B Rider
in the Rider attached to your Contract.
You will find more information about Automatic Income Builder
starting on page 47.
7
AN OVERVIEW OF
PACIFIC DESTINATIONS B
Fees and
Expenses
This section of the
overview explains the fees and expenses that you will pay when
buying, owning and surrendering your Pacific Destinations B
Contract.
Contract
Transaction Expenses
The following describes the transaction fees and expenses that
you may pay when you make withdrawals or surrender your
Contract. Expenses are fixed under the terms of your Contract.
Premium taxes and/or other taxes may also apply to your
Contract. We generally charge state premium taxes and/or other
taxes when you annuitize your Contract, but there are other
times when we charge them to your Contract instead. Please see
your Contract for details.
|
• Maximum Withdrawal Charge (as a percentage of
Purchase Payments
withdrawn)1
|
|
“Age” of Payment in Years:
|
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 or more | ||||||||
|
Withdrawal Charge Percentage:
|
7% | 7% | 6% | 6% | 5% | 3% | 1% | 0% |
Periodic
Expenses
The following describes the fees and expenses that you will pay
periodically during the time you own your Contract not including
Portfolio fees and expenses.
| • Annual Fee2 | $ | 30.00 |
Separate
Account A Annual Expenses
(as a
percentage of the average daily Variable Account
Value3):
|
Without
Stepped-Up |
With
Stepped-Up |
|||||||
| Death Benefit Rider | Death Benefit Rider | |||||||
|
• Mortality and Expense Risk
Charge4
|
1.15% | 1.15% | ||||||
|
• Administrative
Fee4
|
0.15% | 0.15% | ||||||
|
• Stepped-Up Death Benefit Rider
Charge4,5
|
N/A | 0.20% | ||||||
|
• Total Separate Account A Annual Expenses
|
1.30% | 1.50% | ||||||
|
Loan Expenses (interest on Contract Debt) (Loans are only
available with certain Qualified Contracts. See FEDERAL TAX ISSUES – Qualified Contracts – General Rules – Loans on page 60): |
||||||||
|
• Loan Interest Rate
(net)6
|
2.00% | |||||||
Optional
Rider7
Annual Expenses:
|
Current Charge |
Maximum Charge |
|||||||
| Percentage | Percentage | |||||||
|
• CoreIncome Advantage 5 Plus Charge
(Single)8
|
0.65% | 1.55% | ||||||
|
• CoreIncome Advantage 5 Plus Charge
(Joint)8
|
0.85% | 1.80% | ||||||
|
• Automatic Income Builder
Charge9
|
1.05% | 1.50% | ||||||
| 1 | The withdrawal charge may or may not apply or may be reduced under certain circumstances. The age is measured from the date of each Purchase Payment. See CHARGES, FEES AND DEDUCTIONS and WITHDRAWALS. | |
| 2 | We deduct an Annual Fee on each Contract Anniversary up to your Annuity Date and when you make a full withdrawal if the Contract Value on these days is less than $50,000 after deducting any outstanding loan and interest (your Net Contract Value). See CHARGES, FEES AND DEDUCTIONS. | |
| 3 | The Variable Account Value is the value of your Variable Investment Options on any Business Day. | |
| 4 | This is an annual rate and is assessed on a daily basis. The daily rate is calculated by dividing the annual rate by 365. | |
| 5 | If you buy the Stepped-Up Death Benefit, we will add this charge to the Mortality and Expense Risk Charge until your Annuity Date. | |
| 6 | If we process a loan on your Contract, we will charge you a gross interest rate of 5.00% on your outstanding principal amount. We will credit you the amount of 3.00% on any Contract Value attributed to your Loan Account. The net amount of interest you pay on your loan will be 2.00% annually. See FEDERAL TAX ISSUES – Qualified Contracts – General Rules – Loans. |
| 7 | Only one withdrawal benefit rider (CoreIncome Advantage 5 Plus (Single), CoreIncome Advantage 5 Plus (Joint), or Automatic Income Builder) may be owned or in effect at the same time. |
| 8 | If you buy CoreIncome Advantage 5 Plus (Single) or (Joint), the annual charge is deducted from your Contract Value on a quarterly basis. The quarterly charge is the current charge percentage (divided by 4) multiplied by the Protected Payment Base. The initial Protected Payment Base is equal to the initial Purchase Payment if purchased at Contract issue or is equal to the Contract Value if the Rider is purchased on a Contract Anniversary. For a complete explanation of the Protected Payment Base, see the OTHER OPTIONAL RIDERS – CoreIncome Advantage 5 Plus (Single) or (Joint). The quarterly amount deducted may increase or decrease due to changes in your Protected Payment Base. Your Protected Payment Base may increase due to additional Purchase Payments, decrease due to withdrawals or also change due to Resets. We deduct the charge proportionately from your Investment Options (excluding the DCA Plus Fixed Option) every quarter following the Rider Effective Date, during the term of the Rider and while the Rider is in effect, and when the Rider is terminated. Under the Single version, we will |
8
| waive the annual charge if the Rider terminates as a result of the death of an Owner or sole surviving Annuitant, upon full annuitization of your Contract, or if your Contract Value is zero. Under the Joint version, we will waive the annual charge if the Rider terminates as a result of the death of the surviving Designated Life, upon full annuitization of your Contract, or if your Contract Value is zero. The annual charge is only waived for the quarter that we are notified of death or annuitization. See CHARGES, FEES, AND DEDUCTIONS – Optional Rider Charges. |
| 9 | If you buy Automatic Income Builder, the annual charge is deducted from your Contract Value on a quarterly basis. The quarterly charge is the current charge percentage (divided by 4) multiplied by the Protected Payment Base. The initial Protected Payment Base is equal to the initial Purchase Payment if purchased at Contract issue or is equal to the Contract Value if the Rider is purchased on a Contract Anniversary. For a complete explanation of the Protected Payment Base, see OTHER OPTIONAL RIDERS – Automatic Income Builder. The quarterly amount deducted may increase or decrease due to changes in your Protected Payment Base. Your Protected Payment Base may increase due to additional Purchase Payments, decrease due to withdrawals or also change due to Resets. We deduct this charge proportionately from your Investment Options (excluding the DCA Plus Fixed Option) every quarter following the Rider Effective Date, during the term of the Rider and while the Rider is in effect, and when the Rider is terminated. We will waive the annual charge if the Rider terminates as a result of the death of an Owner or sole surviving Annuitant, upon full annuitization of your Contract or after the Contract Value is zero. The annual charge is only waived for the quarter that we are notified of death or annuitization. See CHARGES, FEES AND DEDUCTIONS – Optional Rider Charges. |
9
AN OVERVIEW OF
PACIFIC DESTINATIONS B
Total Annual Fund
Operating Expenses
You will find more about the underlying Funds starting on
page 12, and in each underlying Fund Prospectus which
accompanies this Prospectus.
This table shows the minimum and maximum total annual operating
expenses incurred by the Portfolios that you indirectly pay
during the time you own the Contract. This table shows the range
(minimum and maximum) of fees and expenses (including management
fees, shareholder servicing and/or distribution
(12b-1)
fees, and other expenses) charged by any of the Portfolios,
expressed as an annual percentage of average daily net assets.
The amounts are based on expenses paid in the year ended
December 31, 2010, adjusted to reflect anticipated changes
in fees and expenses, or, for new Portfolios, are based on
estimates for the current fiscal year.
Each Variable Account of the Separate Account purchases shares
of the corresponding Fund Portfolio at net asset value. The net
asset value reflects the investment advisory fees and other
expenses that are deducted from the assets of the Portfolio. The
advisory fees and other expenses are not fixed or specified
under the terms of the Contract, and they may vary from year to
year. These fees and expenses are described in each Fund
Prospectus.
| Minimum | Maximum | |||||||
| Range of total annual portfolio operating expenses before any waivers or expense reimbursements | 0.28% | 1.74% | ||||||
| Range of total annual portfolio operating expenses after any waivers or expense reimbursements | 0.28% | 1.70% | ||||||
To help limit Fund expenses, Fund advisers have contractually
agreed to reduce investment advisory fees or otherwise reimburse
certain Portfolios of their respective Funds which may reduce
the Portfolio’s expenses. The range of expenses in the
first row above does not include the effect of any waiver
and/or
expense reimbursement arrangement. The range of expenses in the
second row above includes the effect of waiver
and/or
expense reimbursement arrangements that will remain in effect at
least through April 30, 2012. There can be no assurance
that expense waivers or reimbursements will be extended beyond
their current terms, and they may not cover certain expenses
such as extraordinary expenses. See each Fund prospectus for
complete information regarding annual operating expenses of that
Fund.
10
Examples
The following examples are intended to help you compare the cost
of investing in your Contract with the cost of investing in
other variable annuity contracts. The maximum amounts reflected
below include the maximum periodic Contract expenses, Contract
Transaction Expenses, Separate Account annual expenses and the
Portfolio with the highest fees and expenses for the year ended
December 31, 2010. The maximum amounts also include the
combination of optional Riders whose cumulative maximum charge
expenses totaled more than any other optional Rider combination.
The optional Riders included are Stepped-Up Death Benefit and
CoreIncome Advantage 5 Plus (Joint). The minimum amounts
reflected below include the minimum periodic Contract expenses,
Separate Account annual expenses and the Portfolio with the
lowest fees and expenses for the year ended December 31,
2010. The minimum amounts do not include any optional Riders.
The examples assume that you invest $10,000 in the Contract for
the time periods indicated. They also assume that your Purchase
Payment has a 5% return each year and assumes the maximum and
minimum fees and expenses of all of the Investment Options
available. Although your actual costs may be higher or lower,
based on these assumptions, your maximum and minimum costs would
be:
| • | If you surrendered your Contract: |
| 1 Year | 3 Years | 5 Years | 10 Years | |||||
|
Maximum*
|
$1,110 | $1,982 | $2,857 | $4,834 | ||||
|
Minimum*
|
$794 | $1,048 | $1,325 | $1,906 |
| • | If you annuitized your Contract: |
| 1 Year | 3 Years | 5 Years | 10 Years | |||||
|
Maximum*
|
$1,110 | $1,442 | $2,407 | $4,834 | ||||
| Minimum* | $794 | $508 | $875 | $1,906 |
| • | If you did not surrender or annuitize, but left the money in your Contract: |
| 1 Year | 3 Years | 5 Years | 10 Years | |||||
|
Maximum*
|
$480 | $1,442 | $2,407 | $4,834 | ||||
|
Minimum*
|
$164 | $508 | $875 | $1,906 |
| * | In calculating the examples above, we used the maximum and minimum total operating expenses of all the Portfolios as shown in the Fees And Expenses section of each Fund Prospectus. For more information on fees and expenses, see CHARGES, FEES AND DEDUCTIONS in this Prospectus, and see each Fund Prospectus. See the FINANCIAL HIGHLIGHTS section in this Prospectus for condensed financial information about the Subaccounts. |
11
YOUR
INVESTMENT OPTIONS
Some broker-dealers may not allow or may limit the amount you
may allocate to certain Investment Options. Work with your
financial advisor to help you choose the right Investment
Options for your investment goals and risk tolerance.
You may choose among the different Variable Investment Options
and the DCA Plus Fixed Option.
Your
Variable Investment Options
Each Variable Investment Option invests in a separate Portfolio
of a Fund. For your convenience, the following chart summarizes
some basic data about each Portfolio. This chart is only a
summary. For more complete information on each Portfolio,
including a discussion of the Portfolio’s investment
techniques and the risks associated with its investments, see
the applicable Fund Prospectus. No assurance can be given that a
Portfolio will achieve its investment objective. YOU SHOULD READ
EACH FUND PROSPECTUS CAREFULLY BEFORE INVESTING.
| PACIFIC SELECT FUND | INVESTMENT GOAL | MANAGER | ||
| International Small-Cap | Seeks long-term growth of capital. | Batterymarch Financial Management, Inc. | ||
| Mid-Cap Value | Seeks long-term growth of capital. | BlackRock Capital Management, Inc. | ||
| Equity Index | Seeks investment results that correspond to the total return of common stocks that are publicly traded in the U.S. | BlackRock Investment Management, LLC | ||
| Small-Cap Index | Seeks investment results that correspond to the total return of an index of small-capitalization companies. | BlackRock Investment Management, LLC | ||
| Small-Cap Equity | Seeks long-term growth of capital. |
Franklin Advisory Services, LLC & BlackRock Investment Management, LLC |
||
|
American Funds Growth-Income |
Seeks long-term growth of capital and income. |
Capital Research and Management Company (adviser to the Master Growth-Income Fund) |
||
|
American Funds Growth |
Seeks long-term growth of capital. |
Capital Research and Management Company (adviser to the Master Growth Fund) |
||
| Large-Cap Value | Seeks long-term growth of capital; current income is of secondary importance. | ClearBridge Advisors, LLC | ||
| Floating Rate Loan | Seeks a high level of current income. | Eaton Vance Management | ||
| Small-Cap Growth | Seeks capital appreciation; no consideration is given to income. | Fred Alger Management, Inc. | ||
| Comstock | Seeks long-term growth of capital. | Invesco Advisers, Inc. | ||
| Growth LT | Seeks long-term growth of capital. | Janus Capital Management, LLC | ||
| Focused 30 | Seeks long-term growth of capital. | Janus Capital Management, LLC | ||
| International Value | Seeks long-term capital appreciation primarily through investment in equity securities of corporations domiciled in countries with developed economies and markets other than the U.S. Current income from dividends and interest will not be an important consideration. | J.P. Morgan Investment Management Inc. | ||
| Long/Short Large-Cap | Seeks above-average total returns. | J.P. Morgan Investment Management Inc. | ||
| Mid-Cap Equity | Seeks capital appreciation. | Lazard Asset Management LLC | ||
| International Large-Cap | Seeks long-term growth of capital. | MFS Investment Management | ||
| Mid-Cap Growth | Seeks long-term growth of capital. | Morgan Stanley Investment Management Inc. | ||
| Real Estate | Seeks current income and long-term capital appreciation. | Morgan Stanley Investment Management Inc. | ||
| Small-Cap Value | Seeks long-term growth of capital. | NFJ Investment Group LLC | ||
| Main Street Core | Seeks long-term growth of capital and income. | OppenheimerFunds, Inc. | ||
| Emerging Markets | Seeks long-term growth of capital. | OppenheimerFunds, Inc. | ||
12
| PACIFIC SELECT FUND | INVESTMENT GOAL | MANAGER | ||
| Cash Management | Seeks current income consistent with preservation of capital. | Pacific Asset Management | ||
| High Yield Bond | Seeks a high level of current income. | Pacific Asset Management | ||
| Managed Bond | Seeks to maximize total return consistent with prudent investment management. | Pacific Investment Management Company LLC | ||
| Inflation Managed | Seeks to maximize total return consistent with prudent investment management. | Pacific Investment Management Company LLC | ||
|
Pacific Dynamix – Conservative Growth |
Seeks current income and moderate growth of capital. | Pacific Life Fund Advisors LLC | ||
|
Pacific Dynamix – Moderate Growth |
Seeks long-term growth of capital and low to moderate income. | Pacific Life Fund Advisors LLC | ||
|
Pacific Dynamix – Growth |
Seeks moderately high, long-term growth of capital with low, current income. | Pacific Life Fund Advisors LLC | ||
| Portfolio Optimization Conservative | Seeks current income and preservation of capital. | Pacific Life Fund Advisors LLC | ||
| Portfolio Optimization Moderate-Conservative | Seeks current income and moderate growth of capital. | Pacific Life Fund Advisors LLC | ||
| Portfolio Optimization Moderate | Seeks long-term growth of capital and low to moderate income. | Pacific Life Fund Advisors LLC | ||
| Portfolio Optimization Growth | Seeks moderately high, long-term capital appreciation with low, current income. | Pacific Life Fund Advisors LLC | ||
| Portfolio Optimization Aggressive-Growth | Seeks high, long-term capital appreciation. | Pacific Life Fund Advisors LLC | ||
| Dividend Growth | Seeks long-term growth of capital. | T. Rowe Price Associates, Inc. | ||
| Short Duration Bond | Seeks current income; capital appreciation is of secondary importance. | T. Rowe Price Associates, Inc. | ||
| Large-Cap Growth | Seeks long-term growth of capital; current income is of secondary importance. | UBS Global Asset Management (Americas) Inc. | ||
| Diversified Bond | Seeks to maximize total return consistent with prudent investment management. | Western Asset Management Company | ||
| Inflation Protected | Seeks to maximize total return consistent with prudent investment management. | Western Asset Management Company | ||
13
|
AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS) |
INVESTMENT GOAL | MANAGER | ||
| Invesco V.I. Balanced-Risk Allocation Fund Series II | Total return with a low to moderate correlation to traditional financial market indices. | Invesco Advisers, Inc. | ||
|
ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. |
INVESTMENT GOAL | MANAGER | ||
|
AllianceBernstein VPS Balanced Wealth Strategy Portfolio Class B |
Maximize total return. | AllianceBernstein L.P. | ||
|
BLACKROCK VARIABLE SERIES FUNDS, INC. |
INVESTMENT GOAL | MANAGER | ||
|
BlackRock Global Allocation V.I. Fund Class III |
Seeks high total investment return. | BlackRock Advisors, LLC | ||
|
BlackRock Capital Appreciation V.I. Fund Class III |
Seeks long-term growth of capital. | BlackRock Advisors, LLC | ||
|
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST |
INVESTMENT GOAL |
MANAGER |
||
|
Franklin Templeton VIP Founding Funds Allocation Fund Class 2 |
Seeks capital appreciation, with income as a secondary goal. | Franklin Templeton Services, LLC serves as the Fund’s administrator. | ||
|
Mutual Global Discovery Securities Fund Class 2 |
Seeks capital appreciation. | Franklin Mutual Advisers, LLC | ||
|
Templeton Global Bond Securities Fund Class 2 |
Seeks high current income, consistent with preservation of capital. Capital appreciation is a secondary consideration. | Franklin Advisers, Inc. | ||
|
GE INVESTMENTS FUNDS, INC. |
INVESTMENT GOAL |
MANAGER |
||
|
GE Investments Total Return Fund Class 3 |
Highest total return, composed of current income and capital appreciation, as is consistent with prudent investment risk. | GE Asset Management Incorporated | ||
|
LORD ABBETT SERIES FUND, INC. |
INVESTMENT GOAL | MANAGER | ||
|
Lord Abbett International Core Equity Portfolio Class VC |
Seeks long-term capital appreciation. | Lord, Abbett & Co. LLC | ||
|
Lord Abbett Total Return Portfolio Class VC |
Seeks income and capital appreciation to produce a high total return. | Lord, Abbett & Co. LLC | ||
14
|
MFS VARIABLE INSURANCE TRUST |
INVESTMENT GOAL | MANAGER | ||
|
MFS Investors Growth Stock Series – Service Class |
Seeks capital appreciation. | Massachusetts Financial Services Company | ||
|
MFS Total Return Series – Service Class |
Seeks total return. | Massachusetts Financial Services Company | ||
|
MFS Value Series – Service Class |
Seeks capital appreciation. | Massachusetts Financial Services Company | ||
|
PIMCO VARIABLE INSURANCE TRUST |
INVESTMENT GOAL | MANAGER | ||
|
PIMCO Global Multi-Asset Portfolio – Advisor Class |
Seeks total return which exceeds that of a blend of 60% MSCI World Index/40% Barclays Capital U.S. Aggregate Index. | Pacific Investment Management Company, LLC | ||
15
The
Investment Advisers
Pacific Life Fund Advisors LLC (PLFA), a subsidiary of Pacific
Life Insurance Company, is the investment adviser for the
Pacific Select Fund. PLFA and the Pacific Select Fund’s
Board of Trustees oversee the management of all the Pacific
Select Fund’s Portfolios, and PLFA also manages certain
portfolios directly. PLFA also does business under the name
“Pacific Asset Management” and manages the Pacific
Select Fund’s Cash Management and High Yield Bond
Portfolios under that name.
Invesco Advisers, Inc. is the investment adviser for the AIM
Variable Insurance Funds (Invesco Variable Insurance Funds).
AllianceBernstein L.P. is the investment adviser for the
AllianceBernstein Variable Products Series Fund, Inc.
BlackRock Advisors, LLC is the investment adviser for the
BlackRock Variable Series Funds, Inc. and has retained various
sub-advisors for its portfolios.
Franklin Templeton Services, LLC is the fund administrator for
the Franklin Templeton VIP Founding Funds Allocation Fund.
Franklin Mutual Advisers, LLC is the investment adviser for the
Mutual Global Discovery Securities Fund. Franklin Advisers, Inc.
is the investment adviser for the Templeton Global Bond
Securities Fund. These Portfolios are part of the Franklin
Templeton Variable Insurance Products Trust.
GE Asset Management Incorporated is the investment adviser for
the GE Investments Funds, Inc.
Lord, Abbett & Co. LLC is the investment adviser for
the Lord Abbett Series Fund, Inc.
Massachusetts Financial Services Company is the investment
adviser for the MFS Variable Insurance Trust.
Pacific Investment Management Company LLC is the investment
adviser for the PIMCO Variable Insurance Trust.
Invesco Advisers, Inc. is the investment adviser for the AIM
Variable Insurance Funds (Invesco Variable Insurance Funds).
Your
Fixed Option
The DCA Plus Fixed Option offers you a guaranteed minimum
interest rate on amounts that you allocate to this option. You
may only allocate Purchase Payments and you may choose a
Guarantee Term of 6 or 12 months. Any amount allocated to this
option will be transferred monthly (over the Guarantee Term) to
one or more of the Variable Investment Option(s) you selected.
Amounts you allocate to this option, and your earnings credited
are held in our General Account. For more detailed information
about this option, see THE GENERAL ACCOUNT.
PURCHASING
YOUR CONTRACT
How to
Apply for Your Contract
To purchase a Contract, you must work with your financial
advisor to fill out an application and submit it along with your
initial Purchase Payment to Pacific Life Insurance Company at
P.O. Box 2290, Omaha, Nebraska
68103-2290.
In those instances when we receive electronic transmission of
the information on the application from your financial
advisor’s broker-dealer firm and our administrative
procedures with your broker-dealer so provide, we consider the
application to be received on the Business Day we receive the
transmission. If your application and Purchase Payment are
complete when received, or once they have become complete, we
will issue your Contract within 2 Business Days. If some
information is missing from your application, we may delay
issuing your Contract while we obtain the missing information.
However, we will not hold your initial Purchase Payment for more
than 5 Business Days without your permission. In any case,
we will not hold your initial Purchase Payment after
20 Business Days.
You may also purchase a Contract by exchanging your existing
annuity. Call your financial advisor or call us at
(800) 722-4448.
Financial advisors may call us at
(877) 441-2357.
We reserve the right to reject any application or Purchase
Payment for any reason, subject to any applicable
nondiscrimination laws and to our own standards and guidelines.
On your application, you must provide us with a valid U.S. tax
identification number for federal and state tax reporting
purposes.
The maximum age of a Contract Owner/Annuitant, including Joint
Owners/Annuitants and Contingent Annuitants, for which a
Contract will be issued is 85. The Contract Owner’s
age is calculated as of his or her last birthday. If any
Contract Owner or any sole Annuitant named in the application
for a Contract dies and we are notified of the death before we
issue the Contract, then we will return the amount we received.
If we are not notified of the death and we issue the Contract,
then the application for the Contract and/or any Contract issued
will be deemed cancelled and a refund will be issued. Depending
on the state where your application was signed, the amount of
the refund may be more or less than the initial Purchase Payment
received, or any other Purchase Payment we received in
connection with an exchange or transfer. In most states, the
refund will be the Contract Value based upon the next determined
Accumulated Unit Value (AUV) after we receive proof of death, in
proper form, of the Contract Owner or Annuitant, plus a refund
of
16
any amounts that may have been deducted as Contract fees and
charges or used to pay premium taxes and/or any other taxes. Any
refund may subject the refunded assets to probate.
Making
Your Investments (“Purchase Payments”)
Making
Your Initial Purchase Payment
Your initial Purchase Payment must be at least $10,000 for
Non-Qualified or Qualified Contracts. Currently, we are not
enforcing the minimum initial Purchase Payment on Qualified
Contracts but we reserve the right to enforce the minimum
initial Purchase Payment on Qualified Contracts in the future.
For Non-Qualified Contracts, if the entire minimum initial
Purchase Payment is not included when you submit your
application, you must submit a portion of the required Contract
minimum
and/or
establish a pre-authorized checking plan (PAC). A PAC allows you
to pay the remainder of the required initial Purchase Payment in
equal installments over the first year. Further requirements for
PAC are discussed in the PAC form.
You must obtain our consent before making an initial or
additional Purchase Payment that will bring your aggregate
Purchase Payments over $1,000,000.
Making
Additional Purchase Payments
If your Contract is Non-Qualified, you may choose to invest
additional amounts in your Contract at any time. If your
Contract is Qualified, the method of contribution and
contribution limits may be restricted by the Qualified Plan or
the Internal Revenue Code (“the Code”). Each
additional Purchase Payment must be at least $250 for
Non-Qualified Contracts and $50 for Qualified Contracts.
Currently, we are not enforcing the minimum additional Purchase
Payment amounts but we reserve the right to enforce the minimum
additional Purchase Payment amounts in the future. Additional
Purchase Payments will be allocated according to the
instructions we have on file unless we receive specific
allocation instructions. Contracts issued in certain states may
limit additional Purchase Payments. If your Contract is in
closed status (e.g. Purchase Payments are no longer
accepted under the terms of your Contract, the Contract was
surrendered, a Free Look was exercised, or death of an Owner or
Annuitant occurred, etc.) and we receive additional Purchase
Payments that are equal to or less than $10.00 (“residual
payments”), the residual payments will not be refunded to
you. Instead, the funds will be donated to the Pacific Life
Foundation. We reserve the right to adjust the designated
threshold amount ($10.00) as deemed necessary. We will refund
any residual payment that is greater than $10.00.
Forms of
Purchase Payment
Your initial and additional Purchase Payments may be sent by
personal or bank check or by wire transfer. Purchase Payments
must be made in a form acceptable to us before we can process
it. Acceptable forms of Purchase Payments are:
| • | personal checks or cashier’s checks drawn on a U.S. bank, | |
| • | money orders and traveler’s checks in single denominations of more than $10,000 if they originate in a U.S. bank, | |
| • | third party payments when there is a clear connection of the third party to the underlying transaction, and | |
| • | wire transfers that originate in U.S. banks. |
We will not accept Purchase Payments in the following forms:
| • | cash, | |
| • | credit cards or checks drawn against a credit card account, | |
| • | money orders or traveler’s checks in single denominations of $10,000 or less, | |
| • | starter checks, | |
| • | 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 payments if there is not a clear connection of the third party to the underlying transaction, and | |
| • | wire transfers that originate from foreign bank accounts. |
All unacceptable forms of Purchase Payments will be returned to
the payor along with a letter of explanation. We reserve the
right to reject or accept any form of payment. If you make
Purchase Payments by check other than a cashier’s check,
your payment of any withdrawal proceeds and any refund during
the “Right to Cancel” period may be delayed until we
receive confirmation in our Annuities administrative office that
your check has cleared.
17
Persistency
Credit
Beginning on your
8th
Contract Anniversary and on each subsequent Contract Anniversary
before your Annuity Date, we will add a persistency credit to
your Contract Value. The persistency credit applied is 0.55%
multiplied by your Contract Value on each applicable Contract
Anniversary.
Example: It is your
8th
Contract Anniversary and your Contract Value is $250,000. The
persistency credit added to your Contract Value for the
8th
Contract Anniversary would be $1,375
($250,000 × 0.55% = $1,375). Let’s
assume that on your
9th
Contract Anniversary, your Contract Value is $280,000. The
persistency credit added to your Contract Value for the
9th
Contract Anniversary would be $1,540
($280,000 × 0.55% = $1,540).
The persistency credit added to your Contract Value will be
allocated to your Investment Options on a proportionate basis.
Keep in mind that the persistency credit amount applied each
year will increase or decrease as your Contract Value on each
applicable Contract Anniversary changes. Since the persistency
credit is added to your Contract Value, any calculation that may
be based on Contract Value (e.g. optional rider benefits
or death benefit) will already include any persistency credit
that was added (subject to investment performance). In addition,
the persistency credit is added to the Contract Value before any
Resets/Step-Ups are determined under the optional benefit
riders. Any persistency credit applied to the Contract is
considered earnings for tax purposes and will be treated as
earnings when determining withdrawal charges and the free
withdrawal amount under your Contract.
HOW YOUR
PURCHASE PAYMENTS ARE ALLOCATED
Choosing
Your Investment Options
You may allocate your Purchase Payments among any of the
available Investment Options. Allocations of your initial
Purchase Payment to the Investment Options you selected will be
effective on your Contract Date. Each additional Purchase
Payment will be allocated to the Investment Options according to
your allocation instructions in your application, or most recent
instructions, if any, subject to the terms described in
WITHDRAWALS – Right to Cancel (“Free
Look”). We reserve the right to require that your
allocation to any particular Investment Option must be at least
$500. We also reserve the right to transfer any remaining
Account Value that is not at least $500 to your other Investment
Options on a pro rata basis relative to your most recent
allocation instructions.
If your Contract is issued in exchange for another annuity
contract or a life insurance policy, our administrative
procedures may vary depending on the state in which your
Contract is delivered.
Custom
Model
The Custom Model program allows you, with the help of your
financial advisor, to create your own asset allocation model
that will comply with the Investment Allocation Requirements for
certain optional living benefit Riders. (See OTHER OPTIONAL
RIDERS – General Information –
Investment Allocation Requirements.) You will create
your own model using the parameters listed below.
Parameters. To create your model, you may select
Investment Options from the 4 Categories
(Categories A, B, C and D) listed below. You must
allocate at least 25% into each of Categories A, B, and C.
You may not allocate more than 15% into any one Investment
Option within Category A, B, or C. Category D is
optional and you are not required to allocate any part of your
Purchase Payment or Contract Value to this Category. If you
choose to allocate your Purchase Payment or Contract Value to
Category D, you are allowed to allocate up to 25% into any
one Investment Option within Category D. Allocation
percentages among the Categories must total 100%. The percentage
allocation requirements only apply to your Variable Account
Value. The model you create will be automatically rebalanced on
a quarterly basis.
Example: Assume a $100,000 Purchase Payment.
Following the parameters and using the Investment Options listed
from the Categories below, you may allocate your Purchase
Payment as follows:
| • | Category A – 15% to Diversified Bond, 10% to Managed Bond and 5% to Cash Management, | |
| • | Category B – 15% to Focused 30, 10% to Small-Cap Index, 10% to Mid-Cap Growth, 5% to Large-Cap Growth and 5% to Large-Cap Value, and | |
| • | Category C – 10% to International Value, 10% to International Large-Cap and 5% to Emerging Markets. |
The total allocated is 100%: Category A = 30%,
Category B = 45% and
Category C = 25%. If you want to include all
4 Categories when creating your model, you could adjust
your allocation percentages in Categories A, B and C and
allocate up to 25% to any combination of the Investment Options
in Category D. Keep in mind that you may select any
Investment Option within a Category and the allocation
percentages among the Categories must total 100%.
18
| Category A – Fixed Income Investment Options | ||||||
| Short Duration Bond | Cash Management | Managed Bond | High Yield Bond | |||
| Inflation Managed | Diversified Bond | Templeton Global Bond Securities Fund | Lord Abbett Total Return Portfolio | |||
| Inflation Protected | ||||||
| Category B – Domestic Equity Investment Options | ||||||
| Small-Cap Growth | Equity Index | Small-Cap Index | Dividend Growth | |||
| Large-Cap Value | Growth LT | Focused 30 | Mid-Cap Equity | |||
| Large-Cap Growth | Small-Cap Value | Main Street Core | Comstock | |||
| Mid-Cap Growth | Small-Cap Equity | Mid-Cap Value | BlackRock Capital Appreciation V.I. Fund | |||
| MFS Investors Growth Stock Series | MFS Value Series | |||||
| Category C – International Equity and Sector Investment Options | ||||||
| International Value | International Small-Cap | International Large-Cap | Emerging Markets | |||
| Real Estate | Mutual Global Discovery Securities Fund | Lord Abbett International Core Equity Portfolio | ||||
| Category D – Asset Allocation Investment Options | ||||||
| Invesco V.I. Balanced-Risk Allocation Fund | Pacific Dynamix – Conservative Growth | Portfolio Optimization Moderate-Conservative | Portfolio Optimization Aggressive-Growth | |||
| GE Investments Total Return Fund | BlackRock Global Allocation V.I. Fund | Portfolio Optimization Moderate | Franklin Templeton VIP Founding Funds Allocation Fund | |||
| PIMCO Global Multi-Asset Portfolio | Pacific Dynamix – Moderate Growth | Portfolio Optimization Growth | Pacific Dynamix – Growth | |||
| AllianceBernstein VPS Balanced Wealth Strategy Portfolio | Portfolio Optimization Conservative | MFS Total Return Series | ||||
You may make transfers between Investment Options within a
particular Group or from one Group to another Group as long as
you follow the Custom Model parameters. Transfers made will be
subject to any transfer and market timing restrictions (see
HOW YOUR PURCHASE PAYMENTS ARE ALLOCATED –
Transfers and Market-timing Restrictions). Subsequent
Purchase Payments will be allocated according to your current
model allocation instructions. Any withdrawals must be made on a
pro rata basis from each of the Investment Options you selected
for your model.
You may terminate your participation in the Custom Model program
at any time. However, if you own an optional living benefit
rider and do not allocate your entire Contract Value to another
asset allocation model or Investment Options we make available
for the Riders, your Rider will terminate. If you allocate any
subsequent Purchase Payment or Contract Value inconsistent with
the Custom Model parameters, make transfers between Investment
Options outside the Custom Model parameters, or do not make a
withdrawal on a pro rata basis, you will no longer be
participating in the Custom Model program and your Rider will
terminate. Work with your financial advisor and consider your
options before making any Investment Option transfers. Any
changes in the allocation percentages due to market performance
will not be a violation of the program, since the model you
created will automatically be rebalanced on a quarterly basis.
We are under no contractual obligation to continue this program
and have the right to terminate or change the Custom Model
program at any time.
Investing
in Variable Investment Options
Each time you allocate your Purchase Payment to a Variable
Investment Option, your Contract is credited with a number of
“Subaccount Units” in that Subaccount. The number of
Subaccount Units credited is equal to the amount you have
allocated to that Subaccount, divided by the “Unit
Value” of one Unit of that Subaccount.
Example: You allocate $600 to Subaccount A. At
the end of the Business Day on which your allocation is
effective, the value of one Unit in Subaccount A is $15. As
a result, 40 Subaccount Units are credited to your Contract
for your $600 ($600 / $15 = 40).
19
Your
Variable Account Value Will Change
After we credit your Contract with Subaccount Units, the value
of those Units will usually fluctuate. This means that, from
time to time, your Purchase Payment allocated to the Variable
Investment Options may be worth more or less than the original
Purchase Payments to which those amounts can be attributed.
Fluctuations in Subaccount Unit Value will not change the number
of Units credited to your Contract.
Subaccount Unit Values will vary in accordance with the
investment performance of the corresponding Portfolio. For
example, the value of Units in the Equity Index Subaccount will
change to reflect the performance of the Equity Index Portfolio
(including that Portfolio’s investment income, its capital
gains and losses, and its expenses). Subaccount Unit Values are
also adjusted to reflect the Administrative Fee and applicable
Risk Charge imposed on the Separate Account.
We calculate the value of all Subaccount Units on each Business
Day.
Calculating
Subaccount Unit Values
We calculate the Unit Value of the Subaccount Units in each
Variable Investment Option at the close of the New York Stock
Exchange which usually closes at 4:00 p.m. Eastern Time on
each Business Day. At the end of each Business Day, the Unit
Value for a Subaccount is equal to:
Y × Z
|
where
|
(Y) | = | the Unit Value for that Subaccount as of the end of the preceding Business Day; and | |||
| (Z) | = | the Net Investment Factor for that Subaccount for the period (a “valuation period”) between that Business Day and the immediately preceding Business Day. |
The “Net Investment Factor” for a Subaccount for any
valuation period is equal to:
(A ¸ B) − C
|
where
|
(A) | = | the “per share value of the assets” of that Subaccount as of the end of that valuation period, which is equal to: a + b + c |
|
where
|
(a) | = | the net asset value per share of the corresponding Portfolio shares held by that Subaccount as of the end of that valuation period; | |||
| (b) | = | the per share amount of any dividend or capital gain distributions made by each Fund for that Portfolio during that valuation period; and | ||||
| (c) | = | any per share charge (a negative number) or credit (a positive number) for any income taxes and/or any other taxes or other amounts set aside during that valuation period as a reserve for any income and/or any other taxes which we determine to have resulted from the operations of the Subaccount or Contract, and/or any taxes attributable, directly or indirectly, to Investments; |
| (B) | = | the net asset value per share of the corresponding Portfolio shares held by the Subaccount as of the end of the preceding valuation period; and | ||||
| (C) | = | a factor that assesses against the Subaccount net assets for each calendar day in the valuation period the basic Risk Charge plus any applicable increase in the Risk Charge and the Administrative Fee (see CHARGES, FEES AND DEDUCTIONS). |
The Subaccount Unit Value may increase or decrease from one
valuation period to another.
When Your
Purchase Payment is Effective
Your initial Purchase Payment is effective on the day we issue
your Contract. Any additional Purchase Payment is effective on
the day we receive it in proper form. See ADDITIONAL
INFORMATION – Inquiries and Submitting Forms and
Requests.
The day your Purchase Payment is effective determines the Unit
Value at which Subaccount Units are attributed to your Contract.
In the case of transfers or withdrawals, the effective day
determines the Unit Value at which affected Subaccount Units are
debited and/or credited under your Contract. That Unit Value is
the value of the Subaccount Units next calculated after your
transaction is effective. Your Variable Account Value begins to
reflect the investment performance results of your new
allocations on the day after your transaction is effective.
Transfers
and Market-timing Restrictions
Transfers
Transfers are allowed 30 days after the Contract Date.
Currently, we are not enforcing this restriction but we reserve
the right to enforce it in the future. Once your Purchase
Payments are allocated to the Investment Options you selected,
you may transfer your Account Value less Loan Account Value from
any Investment Option to any other Investment Option, except the
DCA Plus Fixed Option. Transfers are
20
limited to 25 for each calendar year. Only 2 transfers in any
calendar month may involve any of the following Investment
Options: Invesco V.I. Balanced-Risk Allocation Fund,
BlackRock Global Allocation V.I. Fund, GE Investments Total
Return Fund, International Value, International Small-Cap,
International Large-Cap, Emerging Markets, Lord Abbett
International Core Equity Portfolio, Mutual Global Discovery
Securities Fund, or PIMCO Global Multi-Asset. In addition, only
2 transfers into or out of each American Funds Investment Option
(American Funds Growth or American Funds Growth-Income) may
occur in any calendar month.
Transfers to or from a Variable Investment Option cannot be made
before the seventh calendar day following the last transfer to
or from the same Variable Investment Option. If the seventh
calendar day is not a Business Day, then a transfer may not
occur until the next Business Day. The day of the last transfer
is not considered a calendar day for purposes of meeting this
requirement. For example, if you make a transfer into the Equity
Index Variable Investment Option on Monday, you may not make any
transfers to or from that Variable Investment Option before the
following Monday. Transfers to or from the Cash Management
Variable Investment Option are excluded from this limitation.
For the purpose of applying the limitations, multiple transfers
that occur on the same day are considered 1 transfer. A
transfer of Account Value from the Loan Account back into your
Investment Options following a loan repayment is not considered
a transfer under these limitations. Transfers that occur as a
result of the DCA Plus program, the dollar cost averaging
program, the portfolio rebalancing program, the earnings sweep
program, approved corporate owned life insurance policy
rebalancing programs or automatic quarterly rebalancing under
the Custom Model program are excluded from these limitations.
Also, allocations of Purchase Payments are not subject to these
limitations.
If you have used all 25 transfers available to you in a
calendar year, you may no longer make transfers between the
Investment Options until the start of the next calendar year.
However, you may make 1 transfer of all or a portion of the
Account Value remaining in the Variable Investment Options into
the Cash Management Investment Option prior to the start of the
next calendar year.
There are no exceptions to the above transfer limitations in the
absence of an error by us, a substitution of Investment Options,
or reorganization of underlying Portfolios, or other
extraordinary circumstances.
If we deny a transfer request, we will notify your financial
advisor via telephone. If you (or your financial advisor)
request a transfer via telephone that exceeds the above
limitations, we will notify you (or your financial advisor)
immediately.
Certain restrictions apply to any available fixed option. See
THE GENERAL ACCOUNT. Transfer requests are generally
effective on the Business Day we receive them in proper form,
unless you request a systematic transfer program with a future
date.
We have the right, at our option (unless otherwise required by
law), to require certain minimums in the future in connection
with transfers. These may include a minimum transfer amount and
a minimum Account Value, if any, for the Investment Option from
which the transfer is made or to which the transfer is made. If
your transfer request results in your having a remaining Account
Value in an Investment Option that is less than $500 immediately
after such transfer, we may transfer that Account Value to your
other Investment Options on a pro rata basis, relative to your
most recent allocation instructions.
We reserve the right (unless otherwise required by law) to limit
the size of transfers, to restrict transfers, to require that
you submit any transfer requests in writing, to suspend
transfers, and to impose further limits on the number and
frequency of transfers you can make. We also reserve the right
to reject any transfer request. Any policy we may establish with
regard to the exercise of any of these rights will be applied
uniformly to all Contract Owners.
Market-timing
Restrictions
The Contract is not designed to serve as a vehicle for frequent
trading in response to short-term fluctuations in the market.
Accordingly, organizations or individuals that use market-timing
investment strategies and make frequent transfers should not
purchase the Contract. Such frequent trading can disrupt
management of the underlying Portfolios and raise expenses. The
transfer limitations set forth above are intended to reduce
frequent trading. In addition, we monitor certain large
transaction activity in an attempt to detect trading that may be
disruptive to the Portfolios. In the event transfer activity is
found to be disruptive, certain future transactions by such
Contract Owners, or by a financial advisor or other party acting
on behalf of one or more Contract Owners, will require
preclearance. Frequent trading and large transactions that are
disruptive to portfolio management can have an adverse effect on
Portfolio performance and therefore your Contract’s
performance. Such trading may also cause dilution in the value
of the Investment Options held by long-term Contract Owners.
While these issues can occur in connection with any of the
underlying Portfolios, Portfolios holding securities that are
subject to market pricing inefficiencies are more susceptible to
abuse. For example, Portfolios holding international securities
may be more susceptible to time-zone arbitrage which seeks to
take advantage of pricing discrepancies occurring between the
time of the closing of the market on which the security is
traded and the time of pricing of the Portfolios.
Our policies and procedures which limit the number and frequency
of transfers and which may impose preclearance requirements on
certain large transactions are applied uniformly to all Contract
Owners. However, there is a risk that these policies and
procedures will not detect all potentially disruptive activity
or will otherwise prove ineffective in whole or in part.
Further, we and our affiliates make available to our variable
annuity and variable life insurance Contract Owners underlying
funds not affiliated with us. We are unable to
21
monitor or restrict the trading activity with respect to shares
of such funds not sold in connection with our Contracts. In the
event the Board of Trustees/Directors of any underlying fund
imposes a redemption fee or trading (transfer) limitations, we
will pass them on to you.
We reserve the right to restrict, in our sole discretion and
without prior notice, transfers initiated by a market timing
organization or individual or other party authorized to give
transfer instructions on behalf of multiple Contract Owners.
Such restrictions could include:
| • | not accepting transfer instructions from a financial advisor acting on behalf of more than one Contract Owner, and |
| • | not accepting preauthorized transfer forms from market timers or other entities acting on behalf of more than one Contract Owner at a time. |
We further reserve the right to impose, without prior notice,
restrictions on transfers that we determine, in our sole
discretion, will disadvantage or potentially hurt the rights or
interests of other Contract Owners; or to comply with any
applicable federal and state laws, rules and regulations.
Exchanges
of Annuity Units
Exchanges of Annuity Units in any Subaccount(s) to any other
Subaccount(s) after the Annuity Date are limited to 4 in any
12-month
period. For purposes of applying the limitations, multiple
exchanges that occur on the same day are considered 1 exchange.
See THE GENERAL ACCOUNT section in this Prospectus and
THE CONTRACTS AND THE SEPARATE ACCOUNT section in the SAI.
Systematic
Transfer Options
We offer 4 systematic transfer options: dollar cost
averaging, DCA Plus, portfolio rebalancing, and earnings sweep.
There is no charge for these options and transfers under these
options are not counted towards your total transfers in a
calendar year. However, they are subject to the same
requirements and restrictions as non-systematic transfers. You
can have only one DCA Plus, dollar cost averaging, or earnings
sweep program in effect at one time. Only portfolio rebalancing
is available after you annuitize.
Dollar
Cost Averaging
Dollar cost averaging is a method in which you buy securities in
a series of regular purchases instead of in a single purchase.
This allows you to average the securities’ prices over
time, and may permit a “smoothing” of abrupt peaks and
drops in price. Prior to your Annuity Date, you may use dollar
cost averaging to transfer amounts, over time, from any
Investment Option with an Account Value of at least $5,000 to
one or more Variable Investment Options. Each transfer must be
for at least $250. Currently, we are not enforcing the minimum
Account Value and/or transfer amounts but we reserve the right
to enforce such minimum amounts in the future. Detailed
information appears in the SAI.
DCA
Plus
DCA Plus provides a way to transfer amounts monthly from the DCA
Plus Fixed Option to one or more Variable Investment Option(s)
over a period of up to one year. The initial minimum amount that
you may allocate to the DCA Plus Fixed Option is $5,000. The
minimum amount for subsequent Purchase Payments is $250.
Currently, we are not enforcing the initial or subsequent
Purchase Payment minimum amounts but we reserve the right to
enforce such minimum amounts in the future. Amounts allocated to
the DCA Plus Fixed Option are held in our General Account and
receive interest at rates declared periodically by us, but not
less than an annual rate of 3% (the “Guaranteed Interest
Rate”). The DCA Plus program can also be used with
allowable Asset Allocation Models or allowable Investment
Options to qualify for certain optional benefit riders offered
under your Contract. See THE GENERAL ACCOUNT.
Portfolio
Rebalancing
You may instruct us to maintain a specific balance of Variable
Investment Options under your Contract (e.g. 30% in
Subaccount A, 40% in Subaccount B, and 30% in
Subaccount C). Periodically, we will “rebalance”
your values in the elected Subaccounts to the percentages you
have specified. Rebalancing may result in transferring amounts
from a Subaccount earning a relatively higher return to one
earning a relatively lower return. You may choose to have
rebalances made quarterly, semi-annually or annually until your
Annuity Date. Only Variable Investment Options are available for
rebalancing. Detailed information appears in the SAI.
Earnings
Sweep
You may instruct us to make automatic periodic transfers of your
earnings from the Cash Management Subaccount to one or more
Variable Investment Options (other than the Cash Management
Subaccount). Detailed information appears in the SAI.
22
CHARGES,
FEES AND DEDUCTIONS
Withdrawal
Charge
No front-end sales charge is imposed on any Purchase Payment
which means the entire amount of your Purchase Payment is
allocated to the Investment Options you selected. Your Purchase
Payments may, however, be subject to a withdrawal charge. This
charge may apply to amounts you withdraw under your Contract
prior to the Annuity Date, depending on the length of time each
Purchase Payment has been invested and on the amount you
withdraw. This amount is deducted proportionately among all
Investment Options from which the withdrawal occurs. See the
Choosing Your Annuity Option – Annuity
Options section for withdrawal charges that may apply to
redemptions after the Annuity Date. No withdrawal charge is
imposed on:
| • | the free withdrawal amount (see WITHDRAWALS – Withdrawals Free of a Withdrawal Charge), | |
| • | death benefit proceeds, except as provided under the DEATH BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS – Non-Natural Owner section for certain Non-Natural Owners, |
| • | amounts converted after the 1st Contract Anniversary to a life contingent Annuity Option or an Annuity Option with a period certain of at least 5 years that is offered under the Contract, unless guaranteed variable annuity payments under Annuity Option 2 or 4 are subsequently redeemed (see ANNUITIZATION – Choosing Your Annuity Option), |
| • | withdrawals by Owners to meet the minimum distribution rules for Qualified Contracts as they apply to amounts held under the Contract, |
| • | withdrawals after the 1st Contract Anniversary, if the Owner or Annuitant has been diagnosed with a medically determinable condition that results in a life expectancy of 12 months or less and we are provided with medical evidence satisfactory to us, or |
| • | subject to medical evidence satisfactory to us, after 90 days from the Contract Date, full or partial withdrawals while the Owner or Annuitant has been confined to an accredited nursing home for 30 days or longer. |
The waiver of withdrawal charges applies only to withdrawals
made while the Owner or Annuitant is in a nursing home or within
90 days after the Owner or Annuitant leaves the nursing
home. In addition, the nursing home confinement period for which
you seek the waiver must begin after the Contract Date. In order
to use this waiver, you must submit with your withdrawal request
the following documents:
| • | a physician’s note recommending the Owner or Annuitant’s admittance to a nursing home, | |
| • | an admittance form which shows the type of facility the Owner or Annuitant entered, and |
| • | a bill from the nursing home which shows that the Owner or Annuitant met the 30 day nursing home confinement requirement. |
An accredited nursing home is defined as a home or facility that:
| • | is operating in accordance with the law of jurisdiction in which it is located, | |
| • | is primarily engaged in providing, in addition to room and board, skilled nursing care under the supervision of a duly licensed physician, and | |
| • | provides continuous 24 hour a day nursing service by or under the supervision of a registered nurse, and maintains a daily record of the patient. |
Transfers of all or part of your Account Value from one
Investment Option to another are not considered a withdrawal of
an amount from your Contract, so no withdrawal charge is imposed
at the time of transfer. See HOW YOUR INVESTMENTS ARE
ALLOCATED – Transfers and Market-timing
Restrictions and THE GENERAL ACCOUNT.
How the
Withdrawal Charge is Determined
The amount of the withdrawal charge depends on how long each
Purchase Payment was held under your Contract. Each Purchase
Payment you make is considered to have a certain
“age,” depending on the length of time since that
Purchase Payment was effective. A Purchase Payment is “one
year old” or has an “age of one” from the day it
is effective until the beginning of the day preceding your next
Contract Anniversary. Beginning on the day preceding that
Contract Anniversary, your Purchase Payment will have an
“age of two” and
23
increases in age on the day preceding each Contract Anniversary.
When you withdraw an amount subject to the withdrawal charge,
the “age” of the Purchase Payment you withdraw
determines the level of withdrawal charge as follows:
|
Withdrawal |
||||
|
Charge as a |
||||
|
percentage of the |
||||
|
“Age” of Payment |
Purchase Payment |
|||
| in Years | withdrawn | |||
|
1
|
7 | % | ||
|
2
|
7 | % | ||
|
3
|
6 | % | ||
|
4
|
6 | % | ||
|
5
|
5 | % | ||
|
6
|
3 | % | ||
|
7
|
1 | % | ||
|
8 or more
|
0 | % | ||
We calculate your withdrawal charge by assuming that your
Earnings are withdrawn first, followed by amounts attributed to
Purchase Payments with the “oldest” Purchase Payment
withdrawn first and before any deduction for other charges due
or taxes are made. We also account for any eligible Purchase
Payments that are still in the surrender charge period that may
be withdrawn without incurring a withdrawal charge (e.g.
free 10%). See WITHDRAWALS – Optional
Withdrawals – Withdrawals Free of a Withdrawal
Charge. The withdrawal charge will be deducted
proportionately among all Investment Options from which your
withdrawal occurs. Unless you specify otherwise, a partial
withdrawal amount requested will be processed as a
“gross” amount, which means that applicable charges
and taxes will be deducted from the requested amount. If a
partial withdrawal amount is requested to be a “net”
amount, applicable charges and taxes will be added to the
requested amount and the withdrawal charges and taxes will be
calculated on the grossed up amount. See THE GENERAL
ACCOUNT.
Example: You make an initial Purchase Payment of $10,000
in Contract Year 1 and make an additional Purchase Payment of
$7,000 in Contract Year 2. With Earnings, your Contract Value in
Contract Year 3 is $19,000. In Contract Year 3 you make a
withdrawal of $9,000. At this point, total Purchase Payments
equal $17,000, Earnings equal $2,000, and the “age” of
the applicable Purchase Payments withdrawn is 3 Years.
Earnings ($2,000) and 10% of all Purchase Payments made ($1,700)
may be withdrawn free of a withdrawal charge per Contract year.
The amount of the withdrawal charge applied would be $318
($9,000 − $2,000 − $1,700 =
$5,300; $5,300 × 6% = $318).
The withdrawal charge is designed to reimburse us for sales
commissions and other expenses associated with the promotion and
solicitation of offers for the Contracts, although our actual
expenses may be greater or less than the withdrawal charge
amount. See ADDITIONAL INFORMATION – Distribution
Arrangements for information regarding commissions and other
amounts paid to broker-dealers in connection with Contract
distribution.
Mortality
and Expense Risk Charge
We assess a charge against the assets of each Subaccount to
compensate for certain mortality and expense risks that we
assume under the Contract (the “Risk Charge”). The
risk that an Annuitant will live longer (and therefore receive
more annuity payments) than we predict through our actuarial
calculations at the time the Contract is issued is
“mortality risk.” We also bear mortality risk in
connection with death benefit payable under the Contract. The
risk that the expense charges and fees under the Contract and
Separate Account are less than our actual administrative and
operating expenses is called “expense risk.”
This Risk Charge is assessed daily at an annual rate equal to
1.15% of each Subaccount’s assets.
The Risk Charge will stop at the Annuity Date if you select
fixed annuity payments. The base Risk Charge will continue after
the Annuity Date if you choose variable annuity payments, even
though we do not bear mortality risk if your Annuity Option is
Period Certain Only.
We will realize a gain if the Risk Charge exceeds our actual
cost of expenses and benefits, and will suffer a loss if such
actual costs exceed the Risk Charge. Any gain will become part
of our General Account. We may use it for any reason, including
covering sales expenses on the Contracts.
Increase
in Risk Charge if an Optional Death Benefit Rider is
Purchased
We increase your Risk Charge by an annual rate equal to 0.20% of
each Subaccount’s assets if you purchase the Stepped-Up
Death Benefit. The total Risk Charge annual rate will be 1.35%
if the Stepped-Up Death Benefit is purchased. Any increase in
your Risk Charge will not continue after the Annuity Date. See
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS –
Death Benefits.
24
Administrative
Fee
We charge an Administrative Fee as compensation for costs we
incur in operating the Separate Account, issuing and
administering the Contracts, including processing applications
and payments, and issuing reports to you and to regulatory
authorities.
The Administrative Fee is assessed daily at an annual rate equal
to 0.15% of the assets of each Subaccount. This rate is
guaranteed not to increase for the life of your Contract. A
correlation will not necessarily exist between the actual
administrative expenses attributable to a particular Contract
and the Administrative Fee paid in respect of that particular
Contract. The Administrative Fee will continue after the Annuity
Date if you choose any variable payout option. We do not intend
to realize a profit from this fee.
Annual
Fee
We will charge you an Annual Fee of $30 on each Contract
Anniversary prior to the Annuity Date, and at the time you
withdraw your entire Net Contract Value (on a pro rated basis
for that Contract Year) if your Net Contract Value is less than
$50,000 on that date. The fee is not imposed on amounts you
annuitize or on payment of death benefit proceeds. The fee
reimburses certain costs in administering the Contracts and the
Separate Account. We do not intend to realize a profit from this
fee. This fee is guaranteed not to increase for the life of your
Contract.
Your Annual Fee will be charged proportionately against your
Investment Options. Assessments against your Variable Investment
Options are made by debiting some of the Subaccount Units
previously credited to your Contract. That is, assessment of the
Annual Fee does not change the Unit Value for those Subaccounts.
Any portion of the Annual Fee we deduct from any of our fixed
options (if available under the Contract) will not be greater
than the annual interest credited in excess of that fixed
option’s minimum guaranteed interest rate.
Optional
Rider Charges
If you purchase an optional Rider listed in the table below, we
will deduct an annual charge from your Investment Options
(excluding the DCA Plus Fixed Option) on a proportionate basis.
The charge is deducted every 3 months following the Rider
Effective Date (“Quarterly Rider Anniversary”). The
Rider charge will be deducted while the Rider remains in effect
and when the Rider terminates. The charge is deducted in arrears
each Quarterly Rider Anniversary.
If your Rider terminates on a Quarterly Rider Anniversary, the
entire charge for the prior quarter will be deducted from the
Contract Value on that anniversary. If the Rider terminates
prior to a Quarterly Rider Anniversary, we will prorate the
charge based on the Protected Payment Base as of the day the
Rider terminates. Such prorated amount will be deducted from the
Contract Value on the earlier of the day the Contract terminates
or on the Quarterly Rider Anniversary immediately following the
day the Rider terminates.
Any portion of the Rider’s charge we deduct from any fixed
option will not be greater than the annual interest credited in
excess of 3%. If you make a full withdrawal of the amount
available for withdrawal during a Contract Year, we will deduct
the charge from the final payment made to you.
An optional Rider annual charge percentage may change if a
Step-Up/Reset occurs under the Rider provisions. However, the
annual charge percentage will not exceed the maximum annual
charge percentage (indicated in the table below) for the
applicable Rider. You may elect to opt-out of a Reset and your
annual charge percentage will remain the same as it was before
the Reset. If an Automatic Reset or Owner-Elected Reset never
occurs, the annual charge percentage established on the Rider
Effective Date is guaranteed not to change.
Annual
Charge Percentage Table
|
Maximum |
|||||||||||||||
|
Current |
Annual Charge |
To determine the amount to be |
|||||||||||||
|
Annual Charge |
Percentage |
deducted, the Annual Charge |
The Charge is |
||||||||||||
| Optional Rider | Percentage | Under the Rider | Percentage is multiplied by the: | deducted on each: | |||||||||||
|
CoreIncome Advantage 5 Plus (Single)
|
0.65% | 1.55% | Protected Payment Base | Quarterly Rider Anniversary | |||||||||||
|
CoreIncome Advantage 5 Plus (Joint)
|
0.85% | 1.80% | Protected Payment Base | Quarterly Rider Anniversary | |||||||||||
|
Automatic Income Builder
|
1.05% | 1.50% | Protected Payment Base | Quarterly Rider Anniversary | |||||||||||
See Mortality and Expense Risk Charge for the Stepped-Up
Death Benefit charge information.
Premium
Taxes
Depending on your state of residence (among other factors), a
tax may be imposed on your Purchase Payments (“premium
tax”) at the time your Investment is made, at the time of a
partial or full withdrawal, at the time any death benefit
proceeds are paid, at annuitization
25
or at such other time as taxes may be imposed. Tax rates ranging
from 0% to 3.5% are currently in effect, but may change in the
future. Some local jurisdictions also impose a tax.
If we pay any premium taxes attributable to Purchase Payments,
we will impose a similar charge against your Contract Value.
Premium tax is subject to state requirements. We normally will
charge you when you annuitize some or all of your Contract
Value. We reserve the right to impose this charge for applicable
premium taxes and/or other taxes when you make a full or partial
withdrawal, at the time any death benefit proceeds are paid, or
when those taxes are incurred. For these purposes, “premium
taxes” include any state or local premium or retaliatory
taxes and any federal, state or local income, excise, business
or any other type of tax (or component thereof) measured by or
based upon, directly or indirectly, the amount of Purchase
Payments we have received. We currently base this charge on your
Contract Value, but we reserve the right to base this charge on
the amount of the transaction, the aggregate amount of Purchase
Payments we receive under your Contract, or any other amount,
that in our sole discretion we deem appropriately reimburses us
for premium taxes paid on this Contract.
We may also charge the Separate Account or your Contract Value
for taxes attributable to the Separate Account or the Contract,
including income taxes attributable to the Separate Account or
to our operations with respect to the Contract, or taxes
attributable, directly or indirectly, to Purchase Payments.
Currently, we do not impose any such charges.
Waivers
and Reduced Charges
We may agree to waive or reduce charges under our Contracts, in
situations where selling and/or maintenance costs associated
with the Contracts are reduced, such as the sale of several
Contracts to the same Contract Owner(s), sales of large
Contracts, sales of Contracts in connection with a group or
sponsored arrangement or mass transactions over multiple
Contracts.
In addition, we may agree to waive or reduce some or all of such
charges and/or credit additional amounts under our Contracts, or
waive minimum Investment requirements for those Contracts sold
to persons who meet criteria established by us, who may include
current financial advisors and employees of broker/dealers with
a current selling agreement with us.
We will only waive or reduce such charges or credit additional
amounts on any Contract where expenses associated with the sale
or distribution of the Contract and/or costs associated with
administering and maintaining the Contract are reduced. Any
additional amounts will be added to the Contract when we apply
Purchase Payments. We reserve the right to terminate waiver,
reduced charge and crediting programs at any time, including for
issued Contracts.
With respect to additional amounts as described above, in most
states you may not receive any amount credited if you return
your Contract during the Free Look period as described under
WITHDRAWALS – Right to Cancel (“Free
Look”).
Fund
Expenses
Your Variable Account Value reflects advisory fees and other
expenses incurred by the various Fund Portfolios, net of any
applicable reductions and/or reimbursements. These fees and
expenses may vary. Each Fund is governed by its own Board of
Trustees, and your Contract does not fix or specify the level of
expenses of any Portfolio. A Fund’s fees and expenses are
described in detail in the applicable Fund Prospectus and SAI.
Some Investment Options available to you are “fund of
funds”. A fund of funds portfolio is a fund that invests in
other funds in addition to other investments that the portfolio
may make. Expenses of fund of funds Investment Options may be
higher than non fund of funds Investment Options due to the two
tiered level of expenses. See the Fund prospectuses for detailed
portfolio expenses and other information before investing.
ANNUITIZATION
Selecting
Your Annuitant
When you submit your Contract application, you must choose a
sole Annuitant or Joint Annuitants. If you are buying a
Qualified Contract, you must be the sole Annuitant. If you are
buying a Non-Qualified Contract you may choose yourself
and/or
another person as Annuitant. Whether you have a sole or Joint
Annuitants, you may choose a Contingent Annuitant. The
Contingent Annuitant will not have any Contract benefits,
including death benefit proceeds, until becoming the sole
surviving Annuitant. You will not be able to add or change a
sole or Joint Annuitant after your Contract is issued. However,
if you are buying a Qualified Contract, you may add a Joint
Annuitant on the Annuity Date. You will be able to add or change
a Contingent Annuitant until your Annuity Date or the death of
your sole Annuitant or both Joint Annuitants, whichever occurs
first. However, once your Contingent Annuitant has become the
Annuitant under your Contract, no additional Contingent
Annuitant may be named. No Annuitant (Primary, Joint or
Contingent) may be named upon or after reaching his or her
86th birthday.
We reserve the right to require proof of age or survival of the
Annuitant(s). If the Contract is owned by a Non-Natural Owner,
you may not designate a Joint or Contingent Annuitant.
26
Annuitization
Annuitization occurs on the Annuity Date when you convert your
Contract from the accumulation phase to the annuitization
(income) phase. You may choose both your Annuity Date and your
Annuity Option. At the Annuity Date, you may elect to annuitize
some or all of your Net Contract Value, less any applicable
charge for premium taxes and/or other taxes, (the
“Conversion Amount”), as long as such Conversion
Amount annuitized is at least $10,000. We will send the annuity
payments to the payee that you designate.
If you annuitize only a portion of this available Contract
Value, you may have the remainder distributed, less any Contract
Debt, any applicable charge for premium taxes
and/or other
taxes, any applicable withdrawal charge, any optional Rider
charge, and any applicable Annual Fee. This option of
distribution may or may not be available, or may be available
for only certain types of Contracts. We will distribute your Net
Contract Value, less any applicable charge for premium taxes
and/or other
taxes, and any Annual Fee to you in a single sum if the net
amount of your Contract Value available to convert to an annuity
is less than $10,000 on your Annuity Date. Distributions under
your Contract will have tax consequences. You should consult a
qualified tax adviser for information on full or partial
annuitization.
If you annuitize only a portion of your Net Contract Value on
your Annuity Date, you may, at that time, have the option to
elect not to have the remainder of your Contract Value
distributed, but instead to continue your Contract with that
remaining Contract Value (a “continuing Contract”). If
this option is available, you would then choose a second Annuity
Date for your continuing Contract, and all references in this
Prospectus to your “Annuity Date” would, in connection
with your continuing Contract, be deemed to refer to that second
Annuity Date. The second Annuity Date may not be later than the
date specified in the Choosing Your Annuity Date section
of this Prospectus. This option may not be available, or may be
available only for certain types of Contracts. You should be
aware that some or all of the payments received before the
second Annuity Date may be fully taxable. We recommend that you
contact a qualified tax adviser for more information if you are
interested in this option.
Choosing
Your Annuity Date
You should choose your Annuity Date when you submit your
application or we will apply a default Annuity Date to your
Contract. You may change your Annuity Date by notifying us, in
proper form, at least ten Business Days prior to the earlier of
your current Annuity Date or your new Annuity Date. Your Annuity
Date cannot be earlier than your first Contract Anniversary.
Adverse federal tax consequences may result if you choose an
Annuity Date that is prior to an Annuitant’s attained
age 591/2.
See FEDERAL TAX ISSUES.
If you have a sole Annuitant, your Annuity Date cannot be later
than his or her
95th birthday.
If you have Joint Annuitants, your Annuity Date cannot be later
than your younger Joint Annuitant’s
95th birthday.
Different requirements may apply as required by any applicable
state law or the Code. We may, at our sole discretion, allow
you to extend your Annuity Date. We reserve the right, at any
time, to not offer any extension to your Annuity Date regardless
of whether we may have granted any extensions to you or to any
others in the past. Some Broker/Dealers may not allow their
clients to extend the Annuity Date beyond age 95.
If your Contract is a Qualified Contract, you may also be
subject to additional restrictions. In order to meet the Code
minimum distribution rules, your Required Minimum Distributions
(RMDs) may begin earlier than your Annuity Date. For instance,
under Section 401 of the Code (for Qualified Plans) and
Section 408 of the Code (for IRAs), the entire interest
under the Contract must be distributed to the Owner/Annuitant
not later than the Owner/Annuitant’s Required Beginning
Date (“RBD”), or distributions over the life of the
Owner/Annuitant (or the Owner/Annuitant and his or her
Beneficiary) must begin no later than the RBD. For more
information see FEDERAL TAX ISSUES.
Default
Annuity Date and Options
If you have a Non-Qualified Contract and you do not choose an
Annuity Date when you submit your application, your Annuity Date
will be your Annuitant’s
95th birthday
or your younger Joint Annuitant’s
95th birthday,
whichever applies. If you have a Qualified Contract and you do
not choose an Annuity Date when you submit your application,
your Annuity Date will be your Annuitant’s
95th birthday.
However some states’ laws may require a different Annuity
Date. Certain Qualified Contracts may require distributions to
occur at an earlier age.
If you have not specified an Annuity Option or do not instruct
us otherwise, at your Annuity Date your Net Contract Value, less
any charges for premium taxes
and/or other
taxes, will be converted (if this net amount is at least
$10,000) to a fixed annuity payout option.
Additionally:
| • | If you have a Non-Qualified Contract, your default Annuity Option will be Life with a ten year Period Certain. |
| • | If you have a Qualified Contract, your default Annuity Option will be Life with a five year Period Certain or a shorter period certain as may be required by federal regulation. If you are married, different requirements may apply. Please contact your plan administrator for further information, if applicable. |
| • | If the net amount is less than $10,000, the entire amount will be distributed in one lump sum. |
27
Choosing
Your Annuity Option
You should carefully review the Annuity Options with a qualified
tax adviser, and, for Qualified Contracts, reference should be
made to the terms of the particular plan and the requirements of
the Code for pertinent limitations regarding annuity payments,
Required Minimum Distributions (“RMDs”), and other
matters.
You may make 3 basic decisions about your annuity payments.
First, you may choose whether you want those payments to be a
fixed-dollar amount and/or a variable-dollar amount. Second, you
may choose the form of annuity payments (see Annuity
Options below). Third, you may decide how often you want
annuity payments to be made (the “frequency” of the
payments). You may not change these selections after the Annuity
Date.
Fixed and
Variable Payment Options
You may choose fixed annuity payments based on a fixed rate and
the 1983a Annuity Mortality Table with the ages set back
10 years, variable annuity payments that vary with the
investment results of the Subaccounts you select, or you may
choose both, converting one portion of the net amount you
annuitize into fixed annuity payments and another portion into
variable annuity payments.
If you select fixed annuity payments, each periodic annuity
payment received will be equal to the initial annuity payment,
unless you select a Joint and Survivor Life annuity with reduced
survivor payments when the Primary Annuitant dies. Any net
amount you convert to fixed annuity payments will be held in our
General Account (but not under any fixed option).
If you select variable annuity payments, you may choose as many
Variable Investment Options as you wish. The amount of the
periodic annuity payments will vary with the investment results
of the Variable Investment Options selected and may be more or
less than a fixed payment option. After the Annuity Date,
Annuity Units may be exchanged among available Variable
Investment Options up to 4 times in any 12 month
period. How your Contract converts into variable annuity
payments is explained in more detail in THE CONTRACTS AND THE
SEPARATE ACCOUNT section in the SAI.
Annuity
Options
Four Annuity Options are currently available under the Contract,
although additional options may become available in the future.
For other Annuity Options see OTHER OPTIONAL RIDERS.
| 1. | Life Only. Periodic payments are made to the designated payee during the Annuitant’s lifetime. Payments stop when the Annuitant dies. |
| 2. | Life with Period Certain. Periodic payments are made to the designated payee during the Annuitant’s lifetime, with payments guaranteed for a specified period. You may choose to have payments guaranteed from 5 through 30 years (in full years only). The guaranteed period may be limited on Qualified Contracts based on your life expectancy. |
| 3. | Joint and Survivor Life. Periodic payments are made to the designated payee during the lifetime of the Primary Annuitant. After the death of the Primary Annuitant, periodic payments will continue to be made during the lifetime of the secondary Annuitant named in the election. You may choose to have the payments during the lifetime of the surviving secondary Annuitant equal 50%, 662/3% or 100% of the original amount payable made during the lifetime of the Primary Annuitant (you must make this election when you choose your Annuity Option). If you elect a reduced payment based on the life of the secondary Annuitant, fixed annuity payments will be equal to 50% or 662/3% of the original fixed payment payable during the lifetime of the Primary Annuitant; variable annuity payments will be determined using 50% or 662/3%, as applicable, of the number of Annuity Units for each Subaccount credited to the Contract as of the date of death of the Primary Annuitant. Payments stop when both Annuitants have died. |
| 4. | Period Certain Only. Periodic payments are made to the designated payee, guaranteed for a specified period. You may choose to have payments guaranteed from 5 through 30 years (in full years only). The guaranteed period may be limited on Qualified Contracts based on your life expectancy. |
Periodic payment amounts will differ based on the Annuity Option
selected. Generally, the longer the possible payment period, the
lower the payment amount.
Additionally, if payments are elected under Annuity
Options 2 and 4, you may redeem all remaining guaranteed
payments after the Annuity Date. Also, under Option 4,
partial redemptions of remaining guaranteed payments after the
Annuity Date are available. If you elect to redeem all
remaining guaranteed payments in a single sum, we will not make
any additional annuity payments during the Annuitant’s
lifetime or the remaining guaranteed period after the
redemption. The amount available upon full redemption would
be the present value of any remaining guaranteed payments at the
assumed investment return. Any applicable withdrawal charge will
be deducted from the present value as if you made a full
withdrawal, or if applicable, a partial withdrawal. For purposes
of calculating the withdrawal charge and Free Withdrawal amount,
it will be assumed that the Contract was never converted to
provide annuity payments and any prior annuity payments in that
Contract Year will be treated as if they were partial
withdrawals from the Contract (see CHARGES, FEES AND
DEDUCTIONS – Withdrawal Charge).
28
For example, assume that a Contract was issued with a single
investment of $10,000 and in Contract Year 5 the Owner elects to
receive variable annuity payments under Annuity Option 4. In
Contract Year 6, the Owner elects to make a partial redemption
of $5,000. The withdrawal charge as a percentage of the Purchase
Payments with an age of 6 years is 3%. Assuming the Free
Withdrawal amount immediately prior to the partial redemption is
$300, the withdrawal charge for the partial redemption will be
$141 (($5,000 − $300) × 3%).
No withdrawal charge will be imposed on a redemption if:
| • | the Annuity Option is elected as the form of payments of death benefit proceeds, or | |
| • | the Annuitant dies before the period certain has ended and the Beneficiary requests a redemption of the variable annuity payments. |
Full or partial redemptions of remaining guaranteed variable
payments are explained in more detail in the SAI under THE
CONTRACTS AND THE SEPARATE ACCOUNT.
If the Annuitant dies before the guaranteed payments under
Annuity Options 2 and 4 are completed, we will pay the
remainder of the guaranteed payments to the first person among
the following who is (1) living; or (2) an entity or
corporation entitled to receive the remainder of the guaranteed
payments:
| • | the Owner; | |
| • | the Joint Owner; | |
| • | the Beneficiary; or | |
| • | the Contingent Beneficiary. |
If none are living (or if there is no entity or corporation
entitled to receive the remainder of the guaranteed payments),
we will pay the remainder of the guaranteed payments to the
Owner’s estate.
If the Owner dies on or after the Annuity Date, but payments
have not yet been completed, then distributions of the remaining
amounts payable under the Contract must be made at least as
rapidly as the method of distribution that was being used at the
date of the Owner’s death. All of the Owner’s rights
granted by the Contract will be assumed by the first among the
following who is (1) living; or (2) an entity or
corporation entitled to assume the Owner’s rights granted
by the Contract:
| • | the Joint Owner; | |
| • | the Beneficiary; or | |
| • | the Contingent Beneficiary. |
If none are living (or if there is no entity or corporation
entitled to assume the Owner’s rights granted by the
Contract), all of the Owner’s rights granted by the
Contract will be assumed by the Owner’s estate.
For Qualified Contracts, please refer to the Choosing Your
Annuity Date section in this Prospectus. If your Contract
was issued in connection with a Qualified Plan subject to
Title I of the Employee Retirement Income Security Act of
1974 (“ERISA”), your spouse’s consent may be
required when you seek any distribution under your Contract,
unless your Annuity Option is Joint and Survivor Life with
survivor payments of at least 50%, and your spouse is your Joint
Annuitant.
Your
Annuity Payments
Frequency
of Payments
You may choose to have annuity payments made monthly, quarterly,
semi-annually, or annually. The amount of a variable payment
will be determined in each period on the date corresponding to
your Annuity Date, and payment will be made on the next
succeeding day.
Your initial annuity payment must be at least $250. Depending on
the net amount you annuitize, this requirement may limit your
options regarding the period and/or frequency of annuity
payments.
Amount of
the First Payment
Your Contract contains tables that we use to determine the
amount of the first annuity payment under your Contract, taking
into consideration the annuitized portion of your Net Contract
Value at the Annuity Date. This amount will vary, depending on
the annuity period and payment frequency you select. This amount
will be larger in the case of shorter Period Certain annuities
and smaller for longer Period Certain annuities. Similarly, this
amount will be greater for a Life Only annuity than for a Joint
and Survivor Life annuity, because we will expect to make
payments for a shorter period of time on a Life Only annuity. If
you do not choose the Period Certain Only annuity, this amount
will also vary depending on the age of the Annuitant(s) on the
Annuity Date and, for some Contracts in some states, the sex of
the Annuitant(s).
29
For fixed annuity payments, the guaranteed income factors in our
tables are based on an annual interest rate of 3% and the 1983a
Annuity Mortality Table with the ages set back 10 years. If
you elect a fixed annuity, fixed annuity payments will be based
on the periodic income factors in effect for your Contract on
the Annuity Date which are at least the guaranteed income
factors under the Contract.
For variable annuity payments, the tables are based on an
assumed annual investment return of 5% and the 1983a Annuity
Mortality Table with the ages set back 10 years. If you
elect a variable annuity, your initial variable annuity payment
will be based on the applicable variable annuity income factors
in effect for your Contract on the Annuity Date which are at
least the variable annuity income factors under the Contract.
You may choose any other annuity option we may offer on the
option’s effective date. A higher assumed investment return
would mean a larger first variable annuity payment, but
subsequent payments would increase only when actual net
investment performance exceeds the higher assumed rate and would
fall when actual net investment performance is less than the
higher assumed rate. A lower assumed rate would mean a smaller
first payment and a more favorable threshold for increases and
decreases. If the actual net investment performance is a
constant 5% annually, annuity payments will be level. The
assumed investment return is explained in more detail in the SAI
under THE CONTRACTS AND THE SEPARATE ACCOUNT.
DEATH
BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS
Death
Benefits
Death benefit proceeds may be payable before the Annuity Date on
proof of the sole surviving Annuitant’s death or of any
Contract Owner while the Contract is in force. Any death benefit
payable will be calculated on the “Notice Date”, which
is the day on which we receive, in proper form, proof of death
and instructions regarding payment of death benefit proceeds. If
a Contract has multiple recipients, death benefit proceeds will
be calculated when we first receive proof of death and
instructions, in proper form, from any recipient. The death
benefit proceeds still remaining to be paid to other recipients
will fluctuate with the performance of the underlying Investment
Options.
Death
Benefit Proceeds
Death benefit proceeds will be payable on the Notice Date. Such
proceeds will be reduced by any charge for premium taxes and/or
other taxes and any Contract Debt. The death benefit proceeds
may be payable in a single sum, as an Annuity Option available
under the Contract, towards the purchase of any other Annuity
Option we then offer, or in any other manner permitted by the
IRS and approved by us. The Owner’s spouse may continue the
Contract (see Death Benefits – Spousal
Continuation). In addition, there may be legal requirements
that limit the recipient’s Annuity Options and the timing
of any payments. A recipient should consult a qualified tax
adviser before making a death benefit election.
The death benefit proceeds will be paid to the first among the
following who is (1) living; or (2) an entity or
corporation entitled to receive the death benefit proceeds, in
the following order:
| • | Owner, | |
| • | Joint Owner, | |
| • | Beneficiary, or | |
| • | Contingent Beneficiary. |
If none are living (or if there is no entity or corporation
entitled to receive the death benefit proceeds), the proceeds
will be payable to the Owner’s Estate.
Death
Benefit Amount
The Death Benefit Amount as of any Business Day before the
Annuity Date is equal to the greater of:
| • | your Contract Value as of that day, or | |
| • | your aggregate Purchase Payments reduced by an amount for each withdrawal, which is calculated by multiplying the aggregate Purchase Payments received before each withdrawal by the ratio of the amount of the withdrawal, including any withdrawal charge, to the Contract Value immediately prior to each withdrawal. The reduction made, when the Contract Value is less than aggregate Purchase Payments made into the Contract, may be greater than the actual amount withdrawn. |
We calculate the Death Benefit Amount as of the Notice Date and
the death benefit will be paid in accordance with the Death
Benefit Proceeds section above.
If you purchase the optional Automatic Income Builder,
CoreIncome Advantage 5 Plus (Single), or CoreIncome
Advantage 5 Plus (Joint), and while the Rider is in effect,
the aggregate Purchase Payments under the Death Benefit Amount
will be reduced by withdrawals in a different manner than if you
did not purchase the Rider. This may result in a different Death
Benefit Amount that is paid in accordance
30
with the Death Benefit Proceeds section above. See the
applicable Death Benefit Amount Adjustment subsection in
OTHER OPTIONAL RIDERS for additional information.
If the Rider terminates before the death of an Owner or sole
surviving Annuitant, withdrawals while the Rider was in effect
will adjust the aggregate Purchase Payments under the Death
Benefit Amount on a proportionate basis.
See APPENDIX C: DEATH BENEFIT AMOUNT AND STEPPED-UP
DEATH BENEFIT SAMPLE CALCULATIONS.
Spousal
Continuation
Generally, a sole designated recipient who is the Owner’s
spouse may elect to become the Owner (and sole Annuitant if the
deceased Owner had been the Annuitant) and continue the Contract
until the earliest of the spouse’s death, the death of the
Annuitant, or the Annuity Date, except in the case of a
Qualified Contract issued under section 403 of the Code.
The spousal continuation election must be made by the fifth
anniversary of the death of the Contract Owner for Non-Qualified
Contracts, or by December 31 of the calendar year in which
the fifth anniversary of the Contract Owner’s death falls
for Qualified Contracts. On the Notice Date, if the surviving
spouse is deemed to have continued the Contract, we will set the
Contract Value equal to the death benefit proceeds that would
have been payable to the spouse as the deemed
Beneficiary/designated recipient of the death benefit proceeds.
This “Add-In Amount” is the difference between the
Contract Value and the death benefit proceeds that would have
been payable. The Add-In Amount will be added to the Contract
Value on the Notice Date. There will not be an adjustment to the
Contract Value if the Contract Value is equal to or greater than
the death benefit proceeds as of the Notice Date. The Add-In
Amount will be allocated among Investment Options in accordance
with the current allocation instructions for the Contract and
may be, under certain circumstances, considered earnings. The
Add-In Amount is not treated as a new Purchase Payment. A Joint
Owner who is the designated recipient, but not the Owner’s
spouse, may not continue the Contract. Under IRS Guidelines,
once a surviving spouse continues the Contract, the Contract may
not be continued again in the event the surviving spouse
remarries. If you have purchased an optional living benefit
Rider, please refer to the Rider attached to your Contract to
determine how any guaranteed amounts may be affected when a
surviving spouse continues the Contract.
Example: On the Notice Date, the Owner’s
surviving spouse elects to continue the Contract. On that date,
the death benefit proceeds were $100,000 and the Contract Value
was $85,000. Since the surviving spouse elected to continue the
Contract in lieu of receiving the death benefit proceeds, we
will increase the Contract Value by an Add-In Amount of
$15,000 ($100,000 − $85,000 = $15,000).
If the Contract Value on the Notice Date was $100,000 or higher,
then nothing would be added to the Contract Value.
Death of
Annuitant
If a sole surviving Annuitant dies before the Annuity Date, the
amount of the death benefit will be equal to the Death
Benefit Amount as of the Notice Date and will be paid in
accordance with the Death Benefit Proceeds section.
If there is more than one Annuitant and an Annuitant who is not
an Owner dies, no death benefit proceeds will be payable. The
designated sole Annuitant will then be the first living person
in the following order:
| • | a surviving Joint Annuitant, or | |
| • | a surviving Contingent Annuitant. |
Death of
Owner
If a Contract Owner dies before the Annuity Date, the amount of
the death benefit will be equal to the Death Benefit Amount
as of the Notice Date and will be paid in accordance with
the Death Benefit Proceeds section.
Non-Natural
Owner
If you are a Non-Natural Owner of a Contract other than a
Contract issued under a Qualified Plan as defined in
Section 401 or 403 of the Code, the Primary Annuitant will
be treated as the Owner of the Contract for purposes of the
Non-Qualified Contract Distribution Rules. If there is a
change in the Primary Annuitant prior to the Annuity Date, such
change will be treated as the death of the Owner (however, under
the terms of your Contract, you cannot change the Primary
Annuitant). The Death Benefit Amount will be: (a) the
Contract Value, if the Non-Natural Owner elects to maintain the
Contract and reinvest the Contract Value into the contract in
the same amount as immediately prior to the distribution; or
(b) the Contract Value, less any Annual Fee, withdrawal
charge and charges for premium taxes
and/or other
taxes, if the Non-Natural Owner elects a cash distribution and
will be paid in accordance with the Death Benefits
Proceeds section.
Non-Qualified
Contract Distribution Rules
The Contract is intended to comply with all applicable
provisions of Code Section 72(s) and any successor
provision, as deemed necessary by us to qualify the Contract as
an annuity contract for federal income tax purposes. If an Owner
of a Non-Qualified Contract dies before the Annuity Date,
distribution of the death benefit proceeds must begin within
1 year after the Owner’s death or complete
31
distribution within 5 years after the Owner’s death.
In order to satisfy this requirement, the designated recipient
must receive a final lump sum payment by the
5th anniversary
of the Contract Owner’s death, or elect to receive an
annuity for life or over a period that does not exceed the life
expectancy of the designated recipient with annuity payments
that start within 1 year after the Owner’s death or,
if permitted by the IRS, elect to receive a systematic
distribution over a period not exceeding the beneficiary’s
life expectancy using a method that would be acceptable for
purposes of calculating the minimum distribution required under
section 401(a)(9) of the Code. If an election to receive an
annuity is not made within 60 days of our receipt of proof,
in proper form, of the Owner’s death or, if earlier,
60 days (or shorter period as we permit) prior to the
1st anniversary
of the Owner’s death, the option to receive annuity
payments is no longer available. If a Non-Qualified Contract has
Joint Owners, this requirement applies to the first Contract
Owner to die.
The Owner may designate that the Beneficiary will receive death
benefit proceeds through annuity payments for life or life with
Period Certain. The Owner must designate the payment method in
writing in a form acceptable to us. The Owner may revoke the
designation only in writing and only in a form acceptable to us.
Once the Owner dies, the Beneficiary cannot revoke or modify the
Owner’s designation.
Qualified
Contract Distribution Rules
Under Internal Revenue Service regulations and our
administrative procedures, if the Contract is owned under a
Qualified Plan as defined in Sections 401, 403, 457(b) or
Sections 408, or 408A of the Code and the Annuitant dies
before the Required Beginning Date, the payment of any death
benefit proceeds must be made to the designated recipient in
accordance with one of two rules. One rule generally requires
the death benefit proceeds to commence distribution by
December 31 of the calendar year following the calendar
year of the Annuitant’s death and continue over the life of
his or her Beneficiary (the “life expectancy method”).
The second rule requires distribution of the entire death
benefit proceeds no later than December 31 of the calendar
year in which the
5th anniversary
of the Annuitant’s death falls (the “five-year
rule”).
However, the life expectancy method and the five-year rule are
modified if the sole primary Beneficiary is a surviving spouse.
If the surviving spouse elects not to do an eligible rollover to
an IRA or another existing eligible plan in his or her name,
then he or she will be subject to the five-year rule. However,
the surviving spouse may waive the five-year requirement and
elect to take distributions over his or her life expectancy. If
the surviving spouse elects to defer the commencement of
required distributions beyond the
1st anniversary
of the Annuitant’s death, the surviving spouse may defer
required distributions until the later of:
| • | December 31 of the year following the year the Annuitant died, or | |
| • | December 31 of the year in which the deceased Annuitant would have turned 701/2. |
You are responsible for monitoring distributions that must be
taken to meet IRS guidelines.
If the Annuitant dies after the commencement of RMDs (except in
the case of a Roth IRA when RMDs do not apply) but before the
Annuitant’s entire interest in the Contract (other than a
Roth IRA) has been distributed, the remaining interest in
the Contract must be distributed to the designated recipient at
least as rapidly as under the distribution method in effect at
the time of the Annuitant’s death.
Stepped-Up
Death Benefit
This optional Rider offers you the ability to lock in market
gains for your beneficiaries with a
stepped-up
death benefit, which is the highest Contract Value on any
previous Contract Anniversary (prior to the oldest of the
Owner’s or Annuitant’s
81st birthday)
increased by the amount of additional Purchase Payments and
decreased by withdrawals that you make.
Purchasing
the Rider
You may purchase this optional Rider at the time your
application is completed. You may not purchase this Rider after
the Contract Date. This Rider may only be purchased if the age
of each Owner and Annuitant is 75 or younger on the Contract
Date.
How the
Rider Works
If you purchase this Rider at the time your application is
completed, upon the death of the sole surviving Annuitant (first
Annuitant for Non-Natural Owners) or the first Owner, prior to
the Annuity Date, the death benefit proceeds will be equal to
the greater of (a) or (b) below:
| (a) | the Death Benefit Amount as of the Notice Date. |
The Death Benefit Amount as of any day before the Annuity Date
is equal to the greater of:
| • | your Contract Value as of that day, or | |
| • | your aggregate Purchase Payments reduced by an amount for each withdrawal, which is calculated by multiplying the aggregate Purchase Payments received before each withdrawal by the ratio of the amount of the withdrawal, including any |
32
| withdrawal charge, to the Contract Value immediately prior to each withdrawal. The reduction made, when the Contract Value is less than aggregate Purchase Payments made into the Contract, may be greater than the actual amount withdrawn. |
| (b) | the Guaranteed Minimum Death Benefit Amount as of the Notice Date. |
The actual Guaranteed Minimum Death Benefit Amount is calculated
only when death benefit proceeds become payable as a result of
the death of the sole surviving Annuitant (first Annuitant for
Non-Natural Owners) or the first death of an Owner, prior to the
Annuity Date and is determined as follows:
First we calculate what the Death Benefit Amount would have been
as of your first Contract Anniversary and each subsequent
Contract Anniversary that occurs prior to the oldest of the
Owner’s or Annuitant’s
81st birthday
(each of these Contract Anniversaries is a “Milestone
Date”).
We then adjust the Death Benefit Amount for each Milestone Date
by:
| • | adding the aggregate amount of any Purchase Payments received by us since the Milestone Date, and | |
| • | subtracting an amount for each withdrawal that has occurred since that Milestone Date, which is calculated by multiplying the Death Benefit Amount before the withdrawal by the ratio of the amount of each withdrawal that has occurred since that Milestone Date, including any withdrawal charge, to the Contract Value immediately prior to the withdrawal. The reduction made, when the Contract Value is less than aggregate Purchase Payments made into the Contract, may be greater than the actual amount withdrawn. |
The highest of these adjusted Death Benefit Amounts for each
Milestone Date, as of the Notice Date, is your Guaranteed
Minimum Death Benefit Amount if you purchase this Rider.
Calculation of any actual Guaranteed Minimum Death Benefit
Amount is only made once death benefit proceeds become payable
under your Contract.
Any death benefit paid under this Rider will be paid in
accordance with the Death Benefit Proceeds section above.
See APPENDIX C: DEATH BENEFIT AMOUNT AND STEPPED-UP
DEATH BENEFIT SAMPLE CALCULATIONS.
Termination
The Rider will remain in effect until the earlier of:
| • | the date a full withdrawal of the amount available for withdrawal is made under the Contract, | |
| • | the date death benefit proceeds become payable under the Contract, | |
| • | the date the Contract is terminated in accordance with the provisions of the Contract, or | |
| • | the Annuity Date. |
The Rider may not otherwise be cancelled.
WITHDRAWALS
Optional
Withdrawals
You may, on or prior to your Annuity Date, withdraw all or a
portion of the amount available under your Contract while the
Annuitants are living and your Contract is in force. You may
surrender your Contract and make a full withdrawal at any time.
If you surrender your Contract it will be terminated as of the
Effective Date of the withdrawal. Beginning 30 days after
your Contract Date, you also may make partial withdrawals from
your Investment Options at any time. Currently, we are not
requiring the
30-day
waiting period on partial withdrawals, but we reserve the right
to require a
30-day
waiting period on partial withdrawals in the future. You may
request to withdraw a specific dollar amount or a specific
percentage of an Account Value or your Net Contract Value. You
may choose to make your withdrawal from specified Investment
Options. If you do not specify Investment Options, your
withdrawal will be made from all of your Investment Options
proportionately.
Each partial withdrawal must be for $500 or more. Pre-authorized
partial withdrawals must be at least $250, except for
pre-authorized withdrawals distributed by Electronic Funds
Transfer (EFT), which must be at least $100. If your partial
withdrawal from an Investment Option would leave a remaining
Account Value in that Investment Option of less than $500, we
also reserve the right, at our option, to transfer that
remaining amount to your other Investment Options on a
proportionate basis relative to your most recent allocation
instructions.
If your partial withdrawal leaves you with a Net Contract Value
of less than $1,000, or if your partial withdrawal request is
for an amount exceeding the amount available for withdrawal, as
described in the Amount Available for Withdrawal section
below, we have the right, at our option, to terminate your
Contract and send you the withdrawal proceeds. However, we will
not terminate your Contract if you own
33
an optional rider and a partial withdrawal reduces the Net
Contract Value to an amount less than $1,000. Partial
withdrawals from any fixed option in any Contract Year may be
subject to restrictions.
See THE GENERAL ACCOUNT.
Distributions made due to divorce instructions or under Code
Section 72(t)/72(q) (substantially equal periodic payments)
are treated as withdrawals for Contract purposes and may result
in a withdrawal charge assessment.
Amount
Available for Withdrawal
The amount available for withdrawal is your Net Contract Value
(Contract Value less Contract Debt) at the end of the Business
Day on which your withdrawal request is effective, less any
applicable Annual Fee, optional Rider Charges, withdrawal
charge, and any charge for premium taxes and/or other taxes. The
amount we send to you (your “withdrawal proceeds”)
will also reflect any required or requested federal and state
income tax withholding. See FEDERAL TAX ISSUES and THE
GENERAL ACCOUNT. If you own optional Riders, taking a
withdrawal before a certain age or a withdrawal that is greater
than the allowed annual withdrawal amount under a Rider, may
result in adverse consequences such as a reduction in Rider
benefits or the failure to receive lifetime withdrawals under
the Rider.
You assume investment risk on Purchase Payments in the
Subaccounts. As a result, the amount available to you for
withdrawal from any Subaccount may be more or less than the
total Purchase Payments you have allocated to that Subaccount.
Withdrawals
Free of a Withdrawal Charge
Subject to the amount available for withdrawal provisions
described above, during a Contract Year you may withdraw your
Earnings plus your “eligible Purchase Payments”
without incurring a withdrawal charge. Eligible Purchase
Payments include 10% of all Purchase Payments at the beginning
of a Contract Year that have an “age” of less than
8 years, plus 10% of any Purchase Payments received during
the Contract Year plus 100% of any remaining Purchase Payments
that have an age of 8 years or more. Our calculations of
the withdrawal charge deduct this “free 10%” from your
“oldest” Purchase Payment that is still subject to the
withdrawal charge. For purposes of determining the free
withdrawal amounts, withdrawal of mandatory required minimums
from certain Qualified Plans are included within the
calculations. Any portion of your eligible Purchase Payments not
withdrawn during a Contract Year may not be carried over to the
next Contract Year.
Example: You make an initial Purchase Payment of
$10,000 in Contract Year 1, and make additional Purchase
Payments of $1,000 and $6,000 in Contract Year 2. With Earnings,
your Contract Value in Contract Year 3 is $19,000. In Contract
Year 3, you may withdraw $3,700 free of the withdrawal charge
(your total Purchase Payments were $17,000, so 10% of that total
equals $1,700, plus you had $2,000 of Earnings). After this
withdrawal, your Contract Value is $15,300. In Contract Year 4,
your Contract Value falls to $12,500; you may withdraw $1,700
(10% of $17,000; $17,000 represents Purchase Payments) free of
any withdrawal charges.
The free 10% may also apply to redemptions made after the
Annuity Date. See ANNUITIZATION – Choosing Your
Annuity Option – Annuity Options for Free
Withdrawal amounts that apply to redemptions after the Annuity
Date.
Qualified Contracts have special restrictions on withdrawals.
For purposes of determining the free withdrawal amounts,
withdrawal of mandatory required minimums from certain Qualified
Contracts are included within the calculations. For additional
information, see Special Restrictions Under Qualified
Plans below.
Pre-Authorized
Withdrawals
If your Contract Value is at least $5,000, you may select the
pre-authorized withdrawal option, and you may choose monthly,
quarterly, semi-annual or annual withdrawals. Currently, we are
not enforcing the minimum Contract Value amount but we reserve
the right to enforce the minimum amount in the future. Each
withdrawal must be for at least $250, except for withdrawals
distributed by Electronic Funds Transfer (EFT), which must be at
least $100. Each pre-authorized withdrawal is subject to federal
income tax on its taxable portion and may be subject to a tax
penalty of 10% if you have not reached
age 591/2.
Pre-authorized withdrawals cannot be used to continue the
Contract beyond the Annuity Date. See FEDERAL TAX ISSUES
and THE GENERAL ACCOUNT. Additional information and
options are set forth in the SAI.
Special
Requirements for Full Withdrawals and Payments to Third Party
Payees
Instructions for a full withdrawal and surrender of your
Contract in proper form includes, among other things, a return
of the original Contract or a lost contract affidavit. For your
convenience, our Withdrawal Request form includes a lost
contract affidavit for your use in providing us with your full
withdrawal and surrender instructions. If you wish to have a
full or partial withdrawal check made payable to a third-party
payee, you must provide complete instructions and an original
signature is required on the Withdrawal Request form or your
withdrawal request instructions. If you wish to withdraw the
entire amount available under your Contract, you must either
return your Contract to us or sign and submit a Withdrawal
Request form or a Lost Contract Affidavit if no Withdrawal
Request form is completed.
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Special
Restrictions Under Qualified Plans
Qualified Plans may have additional rules regarding withdrawals
from a Contract purchased under such a Plan. In general, if your
Contract was issued under certain Qualified Plans, you may
not withdraw amounts attributable to contributions made
pursuant to a salary reduction agreement (as defined in
Section 402(g)(3)(A) of the Code) or to transfers from a
custodial account (as defined in Section 403(b)(7) of the
Code) except in cases of your:
| • | severance from employment, | |
| • | death, | |
| • | disability as defined in Section 72(m)(7) of the Code, | |
| • | reaching age 591/2, or | |
| • | hardship as defined for purposes of Section 401 of the Code. |
These limitations do not affect certain rollovers or exchanges
between Qualified Plans, and do not apply to rollovers from
these Qualified Plans to an individual retirement account or
individual retirement annuity. In the case of a
403(b) plan, these limitations do not apply to certain
salary reduction contributions made, and investment results
earned, prior to dates specified in the Code.
Hardship withdrawals under the exception provided above are
restricted to amounts attributable to salary reduction
contributions, and do not include investment results. This
additional restriction does not apply to salary reduction
contributions made, or investment results earned, prior to dates
specified in the Code.
Certain distributions, including rollovers, may be subject to
mandatory withholding of 20% for federal income tax and to a tax
penalty of 10% if the distribution is not transferred directly
to the trustee of another Qualified Plan, or to the custodian of
an individual retirement account or issuer of an individual
retirement annuity. See FEDERAL TAX ISSUES. Distributions
may also trigger withholding for state income taxes. The tax and
ERISA rules relating to withdrawals from Contracts issued to
Qualified Plans are complex. We are not the administrator of any
Qualified Plan. You should consult your qualified tax adviser
and/or your Plan Administrator before you withdraw any portion
of your Contract Value.
Effective
Date of Withdrawal Requests
Withdrawal requests are normally effective on the Business Day
we receive them in proper form. If you make Purchase Payments by
check and submit a withdrawal request immediately afterwards,
payment of your withdrawal proceeds may be delayed until we
receive confirmation in our Annuities administrative office that
your check has cleared.
Tax
Consequences of Withdrawals
All withdrawals, including pre-authorized withdrawals, will
generally have federal income tax consequences, which could
include tax penalties. You should consult with a qualified
tax adviser before making any withdrawal or selecting the
pre-authorized withdrawal option. See FEDERAL TAX
ISSUES.
Right to
Cancel (“Free Look”)
You may return your Contract for cancellation and a refund
during your Free Look period. Your Free Look period is usually
the 10-day period beginning on the day you receive your
Contract, but may vary if required by state law. The amount of
your refund may be more or less than the Purchase Payments you
have made. If you return your Contract and it is post-marked
during the Free Look period, it will be cancelled as of the date
we receive your Contract. In most states, you will then receive
a refund of your Contract Value, based upon the next determined
Accumulated Unit Value (AUV) after we receive your Contract for
cancellation, plus a refund of any amount that may have been
deducted as Contract fees and charges, and minus any additional
amount credited as described in CHARGES, FEES AND
DEDUCTIONS – Waivers and Reduced Charges. You bear
the investment risk on any additional amount credited.
In some states we are required to refund your Purchase Payments.
If your Contract was issued in such a state and you cancel your
Contract during the Free Look period, we will return the greater
of your Purchase Payments (less any withdrawals made) or the
Contract Value. In addition, if your Contract was issued as an
IRA and you return your Contract within 7 days after you
receive it, we will return the greater of your Purchase Payments
(less any withdrawals made) or the Contract Value.
Your Purchase Payments are allocated to the Investment Options
you indicated on your application, unless otherwise required by
state law. If state law requires that your Purchase Payments
must be allocated to Investment Options different than you
requested, we will comply with state requirements. At the end of
the Free Look period, we will allocate your Purchase Payments
based on your allocation instructions.
See ADDITIONAL INFORMATION – State
Considerations.
35
For replacement business and in some states, the Free Look
period may be extended and the amount returned may be different
than as otherwise described above. Please consult with your
financial advisor if you have any questions regarding your
state’s Free Look period and the amount of any refund.
You will find a complete description of the Free Look period and
amount to be refunded that applies to your Contract on the
Contract’s cover page, or on a notice that accompanies your
Contract.
If your Contract is issued in exchange for another annuity
contract or a life insurance policy, our administrative
procedures may vary, depending on the state in which your
Contract is issued.
OTHER
OPTIONAL RIDERS
General
Information
Optional Riders are subject to availability (including state
availability). Before purchasing any optional Rider, make sure
you understand all of the terms and conditions and consult with
your financial advisor for advice on whether an optional Rider
is appropriate for you. We reserve the right to restrict the
purchase of an optional living benefit Rider to only Contract
issue in the future.
You may purchase an optional Rider on the Contract Date or on
any Contract Anniversary (if available). In addition, if you
purchase a Rider within 60 days after the Contract Date or,
if available, within 60 days after any Contract
Anniversary, the Rider Effective Date will be that Contract Date
or Contract Anniversary. Your election to purchase an optional
Rider must be received in a form satisfactory to us at our
Service Center.
Distributions made due to divorce instructions or under Code
Section 72(t)/72(q) (substantially equal periodic payments)
are treated as withdrawals for Contract purposes and may
adversely affect Rider benefits.
Taking a withdrawal before a certain age or a withdrawal that is
greater than the annual withdrawal amount (“excess
withdrawal”) under a particular Rider may result in adverse
consequences such as a permanent reduction in Rider benefits or
the failure to receive lifetime withdrawals under a Rider.
Some optional riders allow for owner elected
Resets/Step-Ups.
If you elect to
Reset/Step-Up,
your election must be received, in a form satisfactory to us, at
our Service Center within 60 days after the Contract
Anniversary (“60 day period”) on which the
Reset/Step-Up
is effective. We may, at our sole discretion, allow
Resets/Step-Ups
after the 60 day period. We reserve the right to refuse a
Reset/Step-Up
request after the 60 day period regardless of whether we
may have allowed you or others to
Reset/Step-Up
in the past. Each Contract Anniversary starts a new 60 day
period in which a
Reset/Step-Up
may be elected.
Some broker/dealers may limit their clients from purchasing some
optional Riders based upon the client’s age or other
factors. You should work with your financial advisor to decide
whether an optional Rider is appropriate for you.
Taking a loan while an optional living benefit Rider is in
effect will terminate your Rider. Work with your financial
advisor before taking a loan.
All references to Purchase Payments refer to gross Purchase
Payments unless otherwise specified.
Investment
Allocation Requirements
At initial purchase and during the entire time that you own an
optional living benefit Rider, you must allocate your entire
Contract Value to an asset allocation program or Investment
Options we make available for these Riders. You may allocate
your Contract Value according to the following requirements:
| • | 100% to one allowable Asset Allocation Model, OR | |
| • | 100% among allowable Investment Options. |
You may also use the DCA Plus program to transfer amounts to an
Asset Allocation Model or among the Investment Options listed
below. Currently, the allowable Asset Allocation Models and
Investment Options are as follows:
| Allowable Asset Allocation Models | ||
|
Custom Model
|
36
| Allowable Investment Options | ||
|
AllianceBernstein VPS Balanced Wealth Strategy Portfolio
|
Pacific Dynamix – Moderate Growth | |
|
BlackRock Global Allocation V.I. Fund
|
Pacific Dynamix – Growth | |
|
Franklin Templeton VIP Founding Funds Allocation Fund
|
Portfolio Optimization Conservative | |
|
GE Investments Total Return Fund
|
Portfolio Optimization Moderate-Conservative | |
|
Invesco V.I. Balanced-Risk Allocation Fund
|
Portfolio Optimization Moderate | |
|
MFS Total Return Series
|
Portfolio Optimization Growth | |
|
Pacific Dynamix – Conservative Growth
|
PIMCO Global Multi-Asset Portfolio |
You may transfer your entire Contract Value between an allowable
Asset Allocation Model and allowable Investment Options, between
allowable Asset Allocation Models or between allowable
Investment Options, subject to certain transfer limitations. See
HOW YOUR PURCHASE PAYMENTS ARE ALLOCATED –
Transfers and Market-timing Restrictions. Keep in mind that
you must allocate your entire Contract Value to either
one allowable Asset Allocation Model or among the
allowable Investment Options. If you do not allocate your
entire Purchase Payment or Contract Value according to
the requirements above, your Rider will terminate.
Allowable Asset Allocation Models – Custom
Model. You may also make transfers between the
Investment Options available under the Custom Model program as
long as you follow the Custom Model parameters. However, if you
make transfers, subsequent Purchase Payments or change the
allocation percentages within your Custom Model and they do not
comply with the Custom Model parameters, you will no longer be
participating in the Custom Model program and your Rider will
terminate. See HOW YOUR PURCHASE PAYMENTS ARE
ALLOCATED – Custom Model for information about the
program.
Allowable Investment Options. You may allocate your
entire Contract Value among any of the allowable Investment
Options listed in the table above.
By adding an optional living benefit Rider to your Contract, you
agree to the above referenced investment allocation requirements
for the entire period that you own a Rider. These requirements
may limit the number of Investment Options that are otherwise
available to you under your Contract. We reserve the right to
add, remove or change allowable asset allocation programs or
allowable Investment Options at any time. We may make such a
change due to a fund reorganization, fund substitution, or when
we believe a change is necessary to protect our ability to
provide the guarantees under these riders. If such a change is
required, we will provide you with reasonable notice (generally
90 calendar days unless we are required to give less
notice) prior to the effective date of such change to allow you
to reallocate your Contract Value to maintain your rider
benefits. If you do not reallocate your Contract Value your
rider will terminate.
We will send you written notice in the event any transaction
made by you will involuntarily cause the Rider to terminate for
failure to invest according to the investment allocation
requirements. However, you will have 10 Business Days after the
date of our written notice (“10 day period”), to
instruct us to take appropriate corrective action to continue
participation in an allowable asset allocation program or
allowable Investment Options to continue the Rider.
Multiple
Rider Ownership
Only one withdrawal benefit rider (CoreIncome Advantage 5 Plus
(Single), CoreIncome Advantage 5 Plus (Joint), or Automatic
Income Builder) may be owned or in effect at the same time.
Withdrawal
Benefit Rider Exchanges
Subject to availability, you may elect to exchange between
CoreIncome Advantage 5 Plus (Single), CoreIncome
Advantage 5 Plus (Joint), and Automatic Income Builder on
any Contract Anniversary beginning with the
5th Contract
Anniversary measured from the Contract issue date.
When you elect an exchange, you are terminating your existing
Rider and purchasing a new Rider. The Initial Protected Payment
Base and Remaining Protected Balance (if applicable) under the
new Rider will be equal to the Contract Value on that Contract
Anniversary. Generally, if your Contract Value is lower than
the Protected Payment Base under your existing Rider, your
election to exchange from one rider to another may result in a
reduction in the Protected Payment Base, Protected Payment
Amount and any applicable Remaining Protected Balance. In other
words, your existing protected balances will not carryover to
the new Rider. If you elect an exchange, you will be subject to
the charge for the new Rider in effect at the time of the
exchange. Only one exchange may be elected each Contract Year.
In addition, there are withdrawal percentages and lifetime
income age requirements that differ between the Riders listed
above. Work with your financial advisor prior to electing an
exchange.
37
CoreIncome
Advantage 5 Plus (Single)
Purchasing
the Rider
You may purchase this optional Rider on the Contract Date or on
any Contract Anniversary if the age of each Annuitant is
85 years or younger on the date of purchase, the Contract
is not issued as an Inherited IRA, Inherited Roth IRA or
Inherited TSA, and you allocate your entire Contract Value
according to the Investment Allocation Requirements.
Rider
Terms
Annual RMD Amount – The amount required to be
distributed each Calendar Year for purposes of satisfying the
minimum distribution requirements of Code Section 401(a)(9)
(“Section 401(a)(9)”) and related Code provisions
in effect as of the Rider Effective Date.
Early Withdrawal – Any withdrawal that occurs
before the oldest Owner (or Annuitant, in the case of a
Non-Natural Owner) is
591/2 years
of age.
Excess Withdrawal – Any withdrawal (except an
RMD withdrawal) that occurs after the oldest Owner (or
Annuitant, in the case of a Non-Natural Owner) is
age 591/2
or older and exceeds the Protected Payment Amount.
Protected Payment Amount – The maximum amount
that can be withdrawn under this Rider without reducing the
Protected Payment Base. If the oldest Owner (or Annuitant, in
the case of a Non-Natural Owner) is
591/2 years
of age or older, the Protected Payment Amount is equal to 5% of
the Protected Payment Base, less cumulative withdrawals during
that Contract Year and will be reset to 5% of the Protected
Payment Base each Contract Anniversary. If the oldest Owner (or
Annuitant, in the case of a Non-Natural Owner) is younger than
591/2 years
of age, the Protected Payment Amount is equal to zero (0);
however, once the oldest Owner (or Annuitant, in the case of a
Non-Natural Owner) reaches
age 591/2,
the Protected Payment Amount will equal 5% of the Protected
Payment Base and will be reset each Contract Anniversary. The
initial Protected Payment Amount will depend upon the age of the
oldest Owner (or Annuitant, in the case of a Non-Natural Owner).
Protected Payment Base – An amount used to
determine the Protected Payment Amount. The Protected Payment
Base will remain unchanged except as otherwise described under
the provisions of this Rider. The initial Protected Payment Base
is equal to the initial Purchase Payment, if the Rider Effective
Date is on the Contract Date, or the Contract Value, if the
Rider Effective Date is on a Contract Anniversary.
Reset Date – Any Contract Anniversary after the
Rider Effective Date on which an Automatic Reset or an
Owner-Elected Reset occurs.
Rider Effective Date – The date the guarantees
and charges for the Rider become effective. If the Rider is
purchased within 60 days of the Contract Date, the Rider
Effective Date is the Contract Date. If the Rider is purchased
within 60 days of a Contract Anniversary, the Rider
Effective Date is the date of that Contract Anniversary.
How the
Rider Works
On any day, this Rider guarantees you can withdraw up to the
Protected Payment Amount, regardless of market performance,
until the Rider terminates. Beginning with the
1st anniversary
of the Rider Effective Date or most recent Reset Date, whichever
is later, the Rider provides for Automatic Annual Resets or
Owner-Elected Resets of the Protected Payment Base to an amount
equal to 100% of the Contract Value. Once the Rider is
purchased, you cannot request a termination of the Rider (see
the Termination subsection of this Rider for more
information).
If the oldest Owner (or Annuitant, in the case of a Non-Natural
Owner) is
591/2 years
of age or older, the Protected Payment Amount is 5% of the
Protected Payment Base. If the oldest Owner (or Annuitant, in
the case of a Non-Natural Owner) is younger than
591/2 years
of age, the Protected Payment Amount is zero (0).
The Protected Payment Base may change over time. An Automatic
Reset or Owner-Elected Reset will increase or decrease the
Protected Payment Base depending on the Contract Value on the
Reset Date. A withdrawal that is less than or equal to the
Protected Payment Amount will not change the Protected Payment
Base. If a withdrawal is greater than the Protected Payment
Amount and the Contract Value is less than the Protected Payment
Base, the Protected Payment Base will be reduced by an amount
that is greater than the excess amount withdrawn. If a
withdrawal is greater than the Protected Payment Amount and the
Contract Value is less than the aggregate Purchase Payments
under the Death Benefit Amount, then the aggregate Purchase
Payments will be reduced by an amount greater than the amount
withdrawn. For withdrawals that are greater than the Protected
Payment Amount, see the Withdrawal of Protected Payment
Amount subsection.
For purposes of this Rider, the term “withdrawal”
includes any applicable withdrawal charges. Amounts withdrawn
under this Rider will reduce the Contract Value by the amount
withdrawn and will be subject to the same conditions,
limitations, restrictions and all other fees, charges and
deductions, if applicable, as withdrawals otherwise made under
the provisions of the Contract. Withdrawals under this Rider are
not annuity payouts. Annuity payouts generally receive a more
favorable tax treatment than other withdrawals.
38
If your Contract is a Qualified Contract, including an IRA or
TSA/403(b) Contract, you are subject to restrictions on
withdrawals you may take prior to a triggering event (e.g.
reaching
age 591/2,
separation from service, disability) and you should consult your
tax or legal advisor prior to purchasing this optional
guarantee, the primary benefit of which is guaranteeing
withdrawals. For additional information regarding withdrawals
and triggering events, see FEDERAL TAX ISSUES –
IRAs and Qualified Plans.
Withdrawal
of Protected Payment Amount
When the oldest Owner (or Annuitant, in the case of a
Non-Natural Owner) is
591/2 years
of age or older, you may withdraw up to the Protected Payment
Amount each Contract Year, regardless of market performance,
until the Rider terminates. The Protected Payment Amount will be
reduced by the amount withdrawn during the Contract Year and
will be reset each Contract Anniversary to 5% of the Protected
Payment Base. Any portion of the Protected Payment Amount not
withdrawn during a Contract Year may not be carried over to the
next Contract Year. If a withdrawal does not exceed the
Protected Payment Amount immediately prior to that withdrawal,
the Protected Payment Base will remain unchanged.
Withdrawals Exceeding the Protected Payment Amount. If a
withdrawal (except an RMD withdrawal) exceeds the Protected
Payment Amount immediately prior to that withdrawal, we will
(immediately following the withdrawal) reduce the Protected
Payment Base on a proportionate basis for the amount in excess
of the Protected Payment Amount. (See example 4 in APPENDIX
A: COREINCOME ADVANTAGE 5 PLUS SAMPLE CALCULATIONS for a
numerical example of the adjustments to the Protected Payment
Base as a result of an Excess Withdrawal.) If a withdrawal is
greater than the Protected Payment Amount and the Contract Value
is less than the Protected Payment Base, the Protected Payment
Base will be reduced by an amount that is greater than the
excess amount withdrawn.
The amount available for withdrawal under the Contract must be
sufficient to support any withdrawal that would otherwise exceed
the Protected Payment Amount.
For information regarding taxation of withdrawals, see
FEDERAL TAX ISSUES.
Early
Withdrawal
If an Early Withdrawal occurs, we will (immediately following
the Early Withdrawal) reduce the Protected Payment Base either
on a proportionate basis or by the total withdrawal amount,
whichever results in a lower Protected Payment Base. See example
5 in APPENDIX A: COREINCOME ADVANTAGE 5 PLUS SAMPLE
CALCULATIONS for a numerical example of the adjustments to
the Protected Payment Base as a result of an Early Withdrawal.
Death
Benefit Amount Adjustment
While this Rider is in effect, the aggregate Purchase Payments
component of the Death Benefit Amount under the Contract (see
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS –
Death Benefits – Death Benefit Amount) will
be reduced by withdrawals based on either the amount withdrawn
(a dollar-for-dollar basis) or on a proportionate basis. The
calculation method used will depend on the amount withdrawn at
the time of the withdrawal as compared to your Protected Payment
Amount at the time of the withdrawal.
If a withdrawal does not exceed your Protected Payment
Amount immediately prior to that withdrawal, then the aggregate
Purchase Payments under the Death Benefit Amount will be reduced
by the amount of the withdrawal (dollar-for-dollar basis).
If a withdrawal (except an RMD withdrawal) exceeds the
Protected Payment Amount immediately prior to that withdrawal,
we will reduce the aggregate Purchase Payments under the Death
Benefit Amount by the amount of the Protected Payment Amount
plus we will make a proportionate reduction for the amount in
excess of the Protected Payment Amount.
If an Early Withdrawal occurs, then the aggregate Purchase
Payments under the Death Benefit Amount will be reduced on a
proportionate basis based on the total amount of the withdrawal.
See examples 6, 7 and 8 in APPENDIX A: COREINCOME
ADVANTAGE 5 PLUS SAMPLE CALCULATIONS for numerical
examples of the adjustments to the Death Benefit Amount. If this
Rider terminates before the death of an Owner or sole surviving
Annuitant, withdrawals while this Rider was in effect will
adjust the aggregate Purchase Payments component of the Death
Benefit Amount on a proportionate basis. If this Rider
terminates as a result of the death of an Owner or sole
surviving Annuitant, then the aggregate Purchase Payments
component of the Death Benefit Amount will be adjusted as
described above.
This Rider has no effect on the death benefit calculation under
the optional Stepped-Up Death Benefit. A Reset does not alter
the adjustment calculation of the aggregate Purchase Payments
under the Death Benefit Amount. However, a Reset will change the
Protected Payment Base which is used to determine the annual
withdrawal amount under the Rider. See the Reset of Protected
Payment Base subsection for more information on Resets.
39
Required
Minimum Distributions
No adjustment will be made to the Protected Payment Base as a
result of a withdrawal that exceeds the Protected Payment Amount
immediately prior to the withdrawal, provided:
| • | such withdrawal (an “RMD Withdrawal”) is for purposes of satisfying the minimum distribution requirements of Section 401(a)(9) and related Code provisions in effect at that time, |
| • | you have authorized us to calculate and make periodic distribution of the Annual RMD Amount for the Calendar Year required based on the payment frequency you have chosen, |
| • | the Annual RMD Amount is based on this Contract only, and |
| • | only RMD withdrawals are made from the Contract during the Contract Year. |
See example 9 in APPENDIX A: COREINCOME ADVANTAGE 5 PLUS
SAMPLE CALCULATIONS for numerical examples that describe
what occurs when only withdrawals of the Annual RMD Amount are
made during a Contract Year and when withdrawals of the Annual
RMD Amount plus other non-RMD Withdrawals are made during a
Contract Year. While this Rider is in effect, an RMD Withdrawal
will also reduce the aggregate Purchase Payments under the Death
Benefit Amount by the RMD Withdrawal amount (dollar-for-dollar
basis).
See FEDERAL TAX ISSUES – Qualified
Contracts – Required Minimum Distributions.
Depletion
of Contract Value
If the oldest Owner (or Annuitant, in the case of a Non-Natural
Owner) is younger than
age 591/2
when the Contract Value is zero, the Rider will terminate.
If the oldest Owner (or Annuitant, in the case of a Non-Natural
Owner) is
age 591/2
or older and the Contract Value was reduced to zero by a
withdrawal that exceeds the Protected Payment Amount, the Rider
will terminate.
If the oldest Owner (or Annuitant, in the case of a Non-Natural
Owner) is
age 591/2
or older and the Contract Value was reduced to zero by a
withdrawal (including an RMD withdrawal) that did not exceed the
Protected Payment Amount, the following will apply:
| • | the Protected Payment Amount will be paid each year until the date of death of an Owner or the date of death of the sole surviving Annuitant, |
| • | the Protected Payment Amount will be paid under a series of pre-authorized withdrawals under a payment frequency as elected by the Owner, but no less frequently than annually, |
| • | no additional Purchase Payments will be accepted under the Contract, and |
| • | the Contract will cease to provide any death benefit. |
Reset of
Protected Payment Base
On and after each Reset Date, the provisions of this Rider shall
apply in the same manner as they applied when the Rider was
originally issued. The limitations and restrictions on Purchase
Payments and withdrawals, the deduction of Rider charges and any
future reset options available on and after the Reset Date, will
again apply and will be measured from that Reset Date. A reset
occurs when the Protected Payment Base is changed to an amount
equal to the Contract Value as of the Reset Date.
Automatic Reset. On each Contract Anniversary while this
Rider is in effect and before the Annuity Date, we will
automatically reset the Protected Payment Base to an amount
equal to 100% of the Contract Value, if the Protected Payment
Base is less than the Contract Value on that Contract
Anniversary. The annual charge percentage may change as a result
of any Automatic Reset (see CHARGES, FEES AND
DEDUCTIONS – Optional Rider Charges).
Automatic Reset – Opt-Out Election. Within
60 days after a Contract Anniversary on which an Automatic
Reset is effective, you have the option to reinstate the
Protected Payment Base, Protected Payment Amount and annual
charge percentage to their respective amounts immediately before
the Automatic Reset. Any future Automatic Resets will continue
in accordance with the Automatic Reset paragraph above.
If you elect this option, your opt-out election must be
received, in a form satisfactory to us, at our Service Center
within the same 60 day period after the Contract
Anniversary on which the reset is effective.
Automatic Reset – Future Participation. You may
elect not to participate in future Automatic Resets at any time.
Your election must be received, in a form satisfactory to us, at
our Service Center, while this Rider is in effect and before the
Annuity Date. Such election will be effective for future
Contract Anniversaries.
40
If you previously elected not to participate in Automatic
Resets, you may re-elect to participate in future Automatic
Resets at any time. Your election to resume participation must
be received, in a form satisfactory to us, at our Service Center
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries as
described in the Automatic Reset paragraph above.
Owner-Elected Resets (Non-Automatic). You may, on any
Contract Anniversary, elect to reset the Protected Payment Base
to an amount equal to 100% of the Contract Value. An
Owner-Elected Reset may be elected while Automatic Resets are in
effect. The annual charge percentage may change as a result of
this Reset.
If you elect this option, your election must be received, in a
form satisfactory to us, at our Service Center within
60 days after the Contract Anniversary on which the reset
is effective. The reset will be based on the Contract Value as
of that Contract Anniversary. Your election of this option
may result in a reduction in the Protected Payment Base and
Protected Payment Amount. Generally, the reduction will
occur when your Contract Value is less than the Protected
Payment Base as of the Contract Anniversary you elected the
reset. You are strongly advised to work with your financial
advisor prior to electing an Owner-Elected Reset. We will
provide you with written confirmation of your election.
Subsequent
Purchase Payments
If we receive additional Purchase Payments after the Rider
Effective Date, we will increase the Protected Payment Base by
the amount of the Purchase Payments. However, for purposes of
this Rider, we reserve the right to restrict additional Purchase
Payments that result in a total of all Purchase Payments
received on or after the later of the
1st Contract
Anniversary or most recent Reset Date to exceed $100,000 without
our prior approval.
Annuitization
If you annuitize the Contract at the maximum Annuity Date
specified in your Contract and this Rider is still in effect at
the time of your election and a Life Only fixed annuity option
is chosen, the annuity payments will be equal to the greater of:
| • | the Life Only fixed annual payment amount based on the terms of your Contract, or |
| • | the Protected Payment Amount in effect at the maximum Annuity Date. |
If you annuitize the Contract at any time prior to the maximum
Annuity Date specified in your Contract, your annuity payments
will be determined in accordance with the terms of your
Contract. The Protected Payment Base and Protected Payment
Amount under this Rider will not be used in determining any
annuity payments. Work with your financial advisor to determine
if you should annuitize your Contract before the maximum Annuity
Date or stay in the accumulation phase and continue to take
withdrawals under the Rider.
Continuation
of Rider if Surviving Spouse Continues Contract
This Rider terminates upon the death of an Owner or sole
surviving Annuitant. If the surviving spouse continues the
Contract, the surviving spouse may re-purchase this Rider (if
available) on any Contract Anniversary. The existing protected
balances will not carry over to the new Rider.
The surviving spouse may elect to receive any death benefit
proceeds instead of continuing the Contract (see DEATH
BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS – Death
Benefits).
Termination
You cannot request a termination of the Rider. Except as
otherwise provided below, the Rider will automatically terminate
on the earliest of:
| • | the day any portion of the Contract Value is no longer allocated according to the Investment Allocation Requirements, |
| • | the date of the death of an Owner or the date of death of the sole surviving Annuitant, |
| • | for Contracts with a Non-Natural Owner, the date of death of an Annuitant, |
| • | the day the Contract is terminated in accordance with the provisions of the Contract, |
| • | the day we are notified of a change in ownership of the Contract to a non-spouse Owner if the Contract is Non-Qualified (excluding changes in ownership to or from certain trusts), |
| • | the day you exchange this Rider for another withdrawal benefit Rider, |
| • | the Annuity Date (see the Annuitization subsection for additional information), |
41
| • | the day the Contract Value is reduced to zero as a result of a withdrawal (except an RMD withdrawal) that exceeds the Protected Payment Amount, or |
| • | the day the Contract Value is reduced to zero if the oldest Owner (or Annuitant, in the case of a Non-Natural Owner) is younger than age 591/2. |
The Rider and the Contract will not terminate the day the
Contract Value is zero and you begin taking pre-authorized
withdrawals of the Protected Payment Amount (see the
Depletion of Contract Value subsection). In this case,
the Rider and the Contract will terminate the date of death of
an Owner or the date of death of the sole surviving Annuitant.
Sample
Calculations
Hypothetical sample calculations are in the attached APPENDIX
A: COREINCOME ADVANTAGE 5 PLUS (SINGLE AND JOINT) SAMPLE
CALCULATIONS. The examples are based on certain hypothetical
assumptions and are for example purposes only. These examples
are not intended to serve as projections of future investment
returns.
CoreIncome
Advantage 5 Plus (Joint)
Purchasing
the Rider
You may purchase this optional Rider on the Contract Date or on
any Contract Anniversary if you meet the following eligibility
requirements:
| • | the Contract is issued as: |
| • | Non-Qualified Contract (this Rider is not available if the Owner is a trust or other entity), or |
| • | Qualified Contract under Code Section 408(a), 408(k), 408A, 408(p) or 403(b), except for Inherited IRAs, Inherited Roth IRAs and Inherited TSAs, |
| • | both Designated Lives are 85 years or younger on the date of purchase, |
| • | you allocate your entire Contract Value according to the Investment Allocation Requirements, |
| • | the Contract must be structured so that upon the death of one Designated Life, the surviving Designated Life may retain or assume ownership of the Contract, and |
| • | any Annuitant must be a Designated Life. |
For purposes of meeting the eligibility requirements, Designated
Lives must be any one of the following:
| • | a sole Owner with the Owner’s Spouse designated as the sole primary Beneficiary, |
| • | Joint Owners, where the Owners are each other’s Spouses, or |
| • | if the Contract is issued as a custodial owned IRA or TSA, the beneficial owner must be the Annuitant and the Annuitant’s Spouse must be designated as the sole primary Beneficiary under the Contract. The custodian, under a custodial owned IRA or TSA, for the benefit of the beneficial owner, may be designated as sole primary Beneficiary provided that the Spouse of the beneficial owner is the sole primary Beneficiary of the custodial account. |
If this Rider is added on a Contract Anniversary, naming your
Spouse as the Beneficiary to meet eligibility requirements will
not be considered a change of Annuitant on the Contract.
Rider
Terms
Annual RMD Amount – The amount required to
be distributed each Calendar Year for purposes of satisfying the
minimum distribution requirements of Code Section 401(a)(9)
(“Section 401(a)(9)”) and related Code provisions
in effect as of the Rider Effective Date.
Designated Lives (each a “Designated
Life”) – Designated Lives must be natural
persons who are each other’s spouses on the Rider Effective
Date. Designated Lives will remain unchanged while this Rider is
in effect.
To be eligible for lifetime benefits, the Designated Life must:
| • | be the Owner (or Annuitant, in the case of a custodial owned IRA or TSA), |
| • | remain the Spouse of the other Designated Life and be the first in line of succession, as determined under the Contract, for payment of any death benefit. |
Early Withdrawal – Any withdrawal that
occurs before the youngest Designated Life is
591/2 years
of age.
42
Excess Withdrawal – Any withdrawal (except
an RMD withdrawal) that occurs after the youngest Designated
Life is
age 591/2
or older and exceeds the Protected Payment Amount.
Protected Payment Amount – The maximum
amount that can be withdrawn under this Rider without reducing
the Protected Payment Base. If the youngest Designated Life is
591/2 years
of age or older, the Protected Payment Amount is equal to 5% of
the Protected Payment Base, less cumulative withdrawals during
that Contract Year and will be reset to 5% of the Protected
Payment Base each Contract Anniversary. If the youngest
Designated Life is younger than
591/2 years
of age, the Protected Payment Amount is equal to zero (0).
However, once the youngest Designated Life reaches
age 591/2,
the Protected Payment Amount will equal 5% of the Protected
Payment Base and will be reset each Contract Anniversary. The
initial Protected Payment Amount will depend upon the age of the
youngest Designated Life.
Protected Payment Base – An amount used to
determine the Protected Payment Amount. The Protected Payment
Base will remain unchanged except as otherwise described under
the provisions of this Rider. The initial Protected Payment Base
is equal to the initial Purchase Payment, if the Rider Effective
Date is on the Contract Date, or the Contract Value, if the
Rider Effective Date is on a Contract Anniversary.
Reset Date – Any Contract Anniversary after the
Rider Effective Date on which an Automatic Reset or
Owner-Elected Reset occurs.
Rider Effective Date – The date the guarantees
and charges for the Rider become effective. If the Rider is
purchased within 60 days of the Contract Date, the Rider
Effective Date is the Contract Date. If the Rider is purchased
within 60 days of a Contract Anniversary, the Rider
Effective Date is the date of that Contract Anniversary.
Spouse – The Owner’s spouse who is
treated as the Owner’s spouse pursuant to federal law. If
the Contract is a custodial owned IRA or TSA, the
Annuitant’s spouse who is treated as the Annuitant’s
spouse pursuant to federal law.
Surviving Spouse – The surviving spouse of
a deceased Owner (or Annuitant in the case of a custodial owned
IRA or TSA).
How the
Rider Works
On any day, this Rider guarantees you can withdraw up to the
Protected Payment Amount, regardless of market performance,
until the Rider terminates. Beginning with the
1st anniversary
of the Rider Effective Date or most recent Reset Date, whichever
is later, the Rider provides for Automatic Annual Resets or
Owner-Elected Resets of the Protected Payment Base to an amount
equal to 100% of the Contract Value. Once the Rider is
purchased, you cannot request a termination of the Rider (see
the Termination subsection of this Rider for more
information).
If the youngest Designated Life is
591/2 years
of age or older, the Protected Payment Amount is 5% of the
Protected Payment Base. If the youngest Designated Life is
younger than
591/2 years
of age, the Protected Payment Amount is zero (0).
The Protected Payment Base may change over time. An Automatic
Reset or Owner-Elected Reset will increase or decrease the
Protected Payment Base depending on the Contract Value on the
Reset Date. A withdrawal that is less than or equal to the
Protected Payment Amount will not change the Protected Payment
Base. If a withdrawal is greater than the Protected Payment
Amount and the Contract Value is less than the Protected Payment
Base, the Protected Payment Base will be reduced by an amount
that is greater than the excess amount withdrawn. If a
withdrawal is greater than the Protected Payment Amount and the
Contract Value is less than the aggregate Purchase Payments
under the Death Benefit Amount, then the aggregate Purchase
Payments will be reduced by an amount greater than the amount
withdrawn. For withdrawals that are greater than the Protected
Payment Amount, see the Withdrawal of Protected Payment
Amount subsection.
For purposes of this Rider, the term “withdrawal”
includes any applicable withdrawal charges. Amounts withdrawn
under this Rider will reduce the Contract Value by the amount
withdrawn and will be subject to the same conditions,
limitations, restrictions and all other fees, charges and
deductions, if applicable, as withdrawals otherwise made under
the provisions of the Contract. Withdrawals under this Rider are
not annuity payouts. Annuity payouts generally receive a more
favorable tax treatment than other withdrawals.
If your Contract is a Qualified Contract, including an IRA or
TSA/403(b) Contract, you are subject to restrictions on
withdrawals you may take prior to a triggering event (e.g.
reaching
age 591/2,
separation from service, disability) and you should consult your
tax or legal advisor prior to purchasing this optional
guarantee, the primary benefit of which is guaranteeing
withdrawals. For additional information regarding withdrawals
and triggering events, see FEDERAL TAX ISSUES –
IRAs and Qualified Plans.
Withdrawal
of Protected Payment Amount
When the youngest Designated Life is
591/2 years
of age or older, you may withdraw up to the Protected Payment
Amount each Contract Year, regardless of market performance,
until the Rider terminates. The Protected Payment Amount will be
reduced by the amount withdrawn during the Contract Year and
will be reset each Contract Anniversary to 5% of the Protected
Payment Base. Any portion of the Protected Payment Amount not
withdrawn during a Contract Year may not be carried over to the
next Contract Year. If a withdrawal
43
does not exceed the Protected Payment Amount immediately prior
to that withdrawal, the Protected Payment Base will remain
unchanged.
Withdrawals Exceeding the Protected Payment Amount. If a
withdrawal (except an RMD withdrawal) exceeds the Protected
Payment Amount immediately prior to that withdrawal, we will
(immediately following the withdrawal) reduce the Protected
Payment Base on a proportionate basis for the amount in excess
of the Protected Payment Amount. (See example 4 in
APPENDIX A: COREINCOME ADVANTAGE 5 PLUS SAMPLE CALCULATIONS
for a numerical example of the adjustments to the Protected
Payment Base as a result of an Excess Withdrawal.) If a
withdrawal is greater than the Protected Payment Amount and the
Contract Value is less than the Protected Payment Base, the
Protected Payment Base will be reduced by an amount that is
greater than the excess amount withdrawn.
The amount available for withdrawal under the Contract must be
sufficient to support any withdrawal that would otherwise exceed
the Protected Payment Amount.
For information regarding taxation of withdrawals, see
FEDERAL TAX ISSUES.
Early
Withdrawal
If an Early Withdrawal occurs, we will (immediately following
the Early Withdrawal) reduce the Protected Payment Base either
on a proportionate basis or by the total withdrawal amount,
whichever results in a lower Protected Payment Base. See example
5 in APPENDIX A: COREINCOME ADVANTAGE 5 PLUS SAMPLE
CALCULATIONS for a numerical example of the adjustments to
the Protected Payment Base as a result of an Early Withdrawal.
Death
Benefit Amount Adjustment
While this Rider is in effect, the aggregate Purchase Payments
component of the Death Benefit Amount under the Contract (see
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS –
Death Benefits – Death Benefit Amount) will
be reduced by withdrawals based on either the amount withdrawn
(a dollar-for-dollar basis) or on a proportionate basis. The
calculation method used will depend on the amount withdrawn at
the time of the withdrawal as compared to your Protected Payment
Amount at the time of the withdrawal.
If a withdrawal does not exceed your Protected Payment
Amount immediately prior to that withdrawal, then the aggregate
Purchase Payments under the Death Benefit Amount will be reduced
by the amount of the withdrawal (dollar-for-dollar basis).
If a withdrawal (except an RMD withdrawal) exceeds the
Protected Payment Amount immediately prior to that withdrawal,
we will reduce the aggregate Purchase Payments under the Death
Benefit Amount by the amount of the Protected Payment Amount
plus we will make a proportionate reduction for the amount in
excess of the Protected Payment Amount.
If an Early Withdrawal occurs, then the aggregate Purchase
Payments under the Death Benefit Amount will be reduced on a
proportionate basis based on the total amount of the withdrawal.
See examples 6, 7 and 8 in APPENDIX A: COREINCOME ADVANTAGE 5
PLUS SAMPLE CALCULATIONS for numerical examples of the
adjustments to the Death Benefit Amount.
If this Rider terminates before the death of an Owner or sole
surviving Annuitant, withdrawals while this Rider was in effect
will adjust the aggregate Purchase Payments component of the
Death Benefit Amount on a proportionate basis. If this Rider
terminates as a result of the death of all Designated Lives
eligible for lifetime benefits, then the aggregate Purchase
Payments component of the Death Benefit Amount will be adjusted
as described above.
This Rider has no effect on the death benefit calculation under
the optional Stepped-Up Death Benefit. A Reset does not alter
the adjustment calculation of the aggregate Purchase Payments
under the Death Benefit Amount. However, a Reset will change the
Protected Payment Base which is used to determine the annual
withdrawal amount under the Rider. See the Reset of Protected
Payment Base subsection for more information on Resets.
Required
Minimum Distributions
No adjustment will be made to the Protected Payment Base as a
result of a withdrawal that exceeds the Protected Payment Amount
immediately prior to the withdrawal, provided:
| • | such withdrawal (an “RMD Withdrawal”) is for purposes of satisfying the minimum distribution requirements of Section 401(a)(9) and related Code provisions in effect at that time, |
| • | you have authorized us to calculate and make periodic distribution of the Annual RMD Amount for the Calendar Year required based on the payment frequency you have chosen, |
| • | the Annual RMD Amount is based on this Contract only, |
44
| • | the youngest Designated Life is age 591/2 or older, and |
| • | only RMD withdrawals are made from the Contract during the Contract Year. |
See example 9 in APPENDIX A: COREINCOME ADVANTAGE 5 PLUS
SAMPLE CALCULATIONS for numerical examples that describe
what occurs when only withdrawals of the Annual RMD Amount are
made during a Contract Year and when withdrawals of the Annual
RMD Amount plus other non-RMD Withdrawals are made during a
Contract Year. While this Rider is in effect, an RMD Withdrawal
will also reduce the aggregate Purchase Payments under the Death
Benefit Amount by the RMD Withdrawal amount (dollar-for-dollar
basis).
See FEDERAL TAX ISSUES – Qualified
Contracts – Required Minimum Distributions.
Depletion
of Contract Value
If the youngest Designated Life is younger than
age 591/2
when the Contract Value is zero, the Rider will terminate.
If the youngest Designated Life is
age 591/2
or older and the Contract Value was reduced to zero by a
withdrawal that exceeds the Protected Payment Amount, the Rider
will terminate.
If the youngest Designated Life is
age 591/2
or older and the Contract Value was reduced to zero by a
withdrawal (including an RMD withdrawal) that did not exceed the
Protected Payment Amount, the following will apply:
| • | the Protected Payment Amount will be paid each year until the death of all Designated Lives eligible for lifetime benefits, |
| • | the Protected Payment Amount will be paid under a series of pre-authorized withdrawals under a payment frequency as elected by the Owner, but no less frequently than annually, |
| • | no additional Purchase Payments will be accepted under the Contract, and |
| • | the Contract will cease to provide any death benefit. |
Reset of
Protected Payment Base
On and after each Reset Date, the provisions of this Rider shall
apply in the same manner as they applied when the Rider was
originally issued. The limitations and restrictions on Purchase
Payments and withdrawals, the deduction of Rider charges and any
future reset options available on and after the Reset Date, will
again apply and will be measured from that Reset Date. A reset
occurs when the Protected Payment Base is changed to an amount
equal to the Contract Value as of the Reset Date.
Automatic Reset. On each Contract Anniversary while this
Rider is in effect and before the Annuity Date, we will
automatically reset the Protected Payment Base to an amount
equal to 100% of the Contract Value, if the Protected Payment
Base is less than the Contract Value on that Contract
Anniversary. The annual charge percentage may change as a result
of any Automatic Reset (see CHARGES, FEES AND
DEDUCTIONS – Optional Rider Charges).
Automatic Reset – Opt-Out Election. Within
60 days after a Contract Anniversary on which an Automatic
Reset is effective, you have the option to reinstate the
Protected Payment Base, Protected Payment Amount and annual
charge percentage to their respective amounts immediately before
the Automatic Reset. Any future Automatic Resets will continue
in accordance with the Automatic Reset paragraph above.
If you elect this option, your opt-out election must be
received, in a form satisfactory to us, at our Service Center
within the same 60 day period after the Contract
Anniversary on which the reset is effective.
Automatic Reset – Future Participation. You may
elect not to participate in future Automatic Resets at any time.
Your election must be received, in a form satisfactory to us, at
our Service Center, while this Rider is in effect and before the
Annuity Date. Such election will be effective for future
Contract Anniversaries.
If you previously elected not to participate in Automatic
Resets, you may re-elect to participate in future Automatic
Resets at any time. Your election to resume participation must
be received, in a form satisfactory to us, at our Service Center
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries as
described in the Automatic Reset paragraph above.
Owner-Elected Resets (Non-Automatic). You may, on any
Contract Anniversary, elect to reset the Protected Payment Base
to an amount equal to 100% of the Contract Value. An
Owner-Elected Reset may be elected while Automatic Resets are in
effect. The annual charge percentage may change as a result of
this Reset.
If you elect this option, your election must be received, in a
form satisfactory to us, at our Service Center within
60 days after the Contract Anniversary on which the reset
is effective. The reset will be based on the Contract Value as
of that Contract Anniversary. Your election of this option
may result in a reduction in the Protected Payment Base and
Protected Payment Amount. Generally, the reduction will
occur when your Contract Value is less than the Protected
Payment Base as of the Contract Anniversary you elected the
45
reset. You are strongly advised to work with your financial
advisor prior to electing an Owner-Elected Reset. We will
provide you with written confirmation of your election.
Subsequent
Purchase Payments
If we receive additional Purchase Payments after the Rider
Effective Date, we will increase the Protected Payment Base by
the amount of the Purchase Payments. However, for purposes of
this Rider, we reserve the right to restrict additional Purchase
Payments that result in a total of all Purchase Payments
received on or after the later of the
1st Contract
Anniversary or most recent Reset Date to exceed $100,000 without
our prior approval.
Annuitization
If you annuitize the Contract at the maximum Annuity Date
specified in your Contract and this Rider is still in effect at
the time of your election and a Life Only fixed annuity option
is chosen, the annuity payments will be equal to the greater of:
| • | the Life Only fixed annual payment amount based on the terms of your Contract, or |
| • | the Protected Payment Amount in effect at the maximum Annuity Date. |
If you annuitize the Contract at any time prior to the maximum
Annuity Date specified in your Contract, your annuity payments
will be determined in accordance with the terms of your
Contract. The Protected Payment Base and Protected Payment
Amount under this Rider will not be used in determining any
annuity payments. Work with your financial advisor to determine
if you should annuitize your Contract before the maximum Annuity
Date or stay in the accumulation phase and continue to take
withdrawals under the Rider.
Continuation
of Rider if Surviving Spouse Continues Contract
If the Owner dies and the Surviving Spouse (who is also a
Designated Life eligible for lifetime benefits) elects to
continue the Contract in accordance with its terms, the
Surviving Spouse may continue to take withdrawals of the
Protected Payment Amount under this Rider, until the Rider
terminates.
The surviving spouse may elect to receive any death benefit
proceeds instead of continuing the Contract (see DEATH
BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS – Death
Benefits).
Ownership
and Beneficiary Changes
Changes to the Contract Owner, Annuitant
and/or
Beneficiary designations and changes in marital status,
including a dissolution of marriage, may adversely affect the
benefits of this Rider. A particular change may make a
Designated Life ineligible to receive lifetime income benefits
under this Rider. As a result, the Rider may remain in effect
and you may pay for benefits that you will not receive. You
are strongly advised to work with your financial advisor and
consider your options prior to making any Owner, Annuitant
and/or
Beneficiary changes to your Contract.
Termination
You cannot request a termination of the Rider. Except as
otherwise provided below, the Rider will automatically terminate
on the earliest of:
| • | the day any portion of the Contract Value is no longer allocated according to the Investment Allocation Requirements, |
| • | the date of the death of all Designated Lives eligible for lifetime benefits, |
| • | upon the death of the first Designated Life, if a death benefit is payable and a Surviving Spouse who chooses to continue the Contract is not a Designated Life eligible for lifetime benefits, |
| • | upon the death of the first Designated Life, if a death benefit is payable and the Contract is not continued by a Surviving Spouse who is a Designated Life eligible for lifetime benefits, |
| • | if both Designated Lives are Joint Owners and there is a change in marital status, the Rider will terminate upon the death of the first Designated Life who is a Contract Owner, |
| • | the day the Contract is terminated in accordance with the provisions of the Contract, |
| • | the day that neither Designated Life is an Owner (or Annuitant, in the case of a custodial owned IRA or TSA), |
| • | the day you exchange this Rider for another withdrawal benefit Rider, |
| • | the Annuity Date (see the Annuitization subsection for additional information), |
46
| • | the day the Contract Value is reduced to zero as a result of a withdrawal (except an RMD withdrawal) that exceeds the Protected Payment Amount, or |
| • | the day the Contract Value is reduced to zero if the youngest Designated Life is younger than age 591/2. |
The Rider and the Contract will not terminate the day the
Contract Value is zero and you begin taking pre-authorized
withdrawals of the Protected Payment Amount (see the
Depletion of Contract Value subsection). In this case,
the Rider and the Contract will terminate the date of death of
all Designated Lives eligible for lifetime benefits.
Sample
Calculations
Hypothetical sample calculations are in the attached APPENDIX
A: COREINCOME ADVANTAGE 5 PLUS (SINGLE AND JOINT) SAMPLE
CALCULATIONS. The examples are based on certain hypothetical
assumptions and are for example purposes only. These examples
are not intended to serve as projections of future investment
returns.
Automatic
Income Builder
Purchasing
the Rider
You may purchase this optional Rider on the Contract Date or on
any Contract Anniversary (if available) if the age of each
Annuitant is 85 years or younger on the date of purchase and you
allocate your entire Contract Value according to the
Investment Allocation Requirements.
Rider
Terms
Annual RMD Amount – The amount required to be
distributed each Calendar Year for purposes of satisfying the
minimum distribution requirements of Code Section 401(a)(9)
(“Section 401(a)(9)”) and related Code provisions
in effect as of the Rider Effective Date.
Protected Payment Amount – The maximum amount
that can be withdrawn under this Rider without reducing the
Protected Payment Base.
If the oldest Owner (or Annuitant in the case of a Non-Natural
Owner) is
age 591/2
or older when the first withdrawal was taken or the most recent
reset, whichever is later, the Protected Payment Amount on any
day after the Rider Effective Date is equal to the withdrawal
percentage multiplied by the Protected Payment Base as of that
day, less cumulative withdrawals during the Contract Year.
If the oldest Owner (or Annuitant in the case of a Non-Natural
Owner) is younger than
age 591/2
when the first withdrawal was taken or the most recent reset,
whichever is later, the Protected Payment Amount on any day
after the Rider Effective Date is equal to the lesser of:
| • | the withdrawal percentage multiplied by the Protected Payment Base as of that day, less cumulative withdrawals during that Contract Year, or | |
| • | the Remaining Protected Balance as of that day. |
The Protected Payment Amount will never be less than zero. The
initial Protected Payment Amount on the Rider Effective Date is
equal to the applicable withdrawal percentage (based on the
Owner’s age at the time of purchase) multiplied by the
Protected Payment Base.
Protected Payment Base – An amount used to
determine the Protected Payment Amount. The Protected Payment
Base will never be less than zero and will remain unchanged
except as otherwise described under the provisions of this
Rider. The initial Protected Payment Base is equal to the
initial Purchase Payment, if the Rider Effective Date is on the
Contract Date, or the Contract Value, if the Rider Effective
Date is on a Contract Anniversary.
Remaining Protected Balance – The amount
available for future withdrawals made under this Rider, unless
withdrawals are guaranteed until the death of an Owner or sole
surviving Annuitant. The Remaining Protected Balance will never
be less than zero. The initial Remaining Protected Balance is
equal to the initial Purchase Payment, if the Rider Effective
Date is on the Contract Date, or the Contract Value, if the
Rider Effective Date is on a Contract Anniversary.
Reset Date – Any Contract Anniversary after the
Rider Effective Date on which an Automatic Reset or an
Owner-Elected Reset occurs.
Rider Effective Date – The date the guarantees
and charges for the Rider become effective. If the Rider is
purchased within 60 days of the Contract Date, the Rider
Effective Date is the Contract Date. If the Rider is purchased
within 60 days of a Contract Anniversary, the Rider
Effective Date is the date of that Contract Anniversary.
How the
Rider Works
On any day, this Rider guarantees you can withdraw up to the
Protected Payment Amount, regardless of market performance,
until the Rider terminates. Lifetime withdrawals up to the
Protected Payment Amount may continue after the Remaining
Protected Balance is reduced to zero (0) if the oldest
Owner (or Annuitant in the case of a Non-Natural Owner) was
age 591/2
or older when the first
47
withdrawal was taken after the Rider Effective Date or the most
recent Reset Date, whichever is later. If a withdrawal was
taken before
age 591/2
and there was no subsequent Reset, the Rider will terminate once
the Remaining Protected Balance is reduced to zero (0).
If you are older than
591/2
and if you delay taking withdrawals, this Rider also provides
the potential to receive a 0.10% increase in the withdrawal
percentage per year, which can increase the percentage that you
may withdraw each Contract Year without reducing your Protected
Payment Base. Once the Rider is purchased, you cannot request a
termination of the Rider (see the Termination subsection
of this Rider for more information).
In addition, beginning with the
1st anniversary
of the Rider Effective Date or most recent Reset Date, whichever
is later, the Rider provides for Automatic Annual Resets or
Owner-Elected Resets of the Protected Payment Base and Remaining
Protected Balance to an amount equal to 100% of the Contract
Value.
The Protected Payment Base and Remaining Protected Balance may
change over time. An Automatic Reset or Owner-Elected Reset will
increase or decrease the Protected Payment Base and Remaining
Protected Balance depending on the Contract Value on the Reset
Date. A withdrawal that is less than or equal to the Protected
Payment Amount will reduce the Remaining Protected Balance by
the amount of the withdrawal and will not change the Protected
Payment Base. If a withdrawal is greater than the Protected
Payment Amount and the Contract Value is less than the Protected
Payment Base, both the Protected Payment Base and Remaining
Protected Balance will be reduced by an amount that is greater
than the excess amount withdrawn. If a withdrawal is greater
than the Protected Payment Amount and the Contract Value is less
than the aggregate Purchase Payments under the Death Benefit
Amount, then the aggregate Purchase Payments will be reduced by
an amount greater than the amount withdrawn. For withdrawals
that are greater than the Protected Payment Amount, see the
Withdrawal of Protected Payment Amount subsection.
For purposes of this Rider, the term “withdrawal”
includes any applicable withdrawal charges. Amounts withdrawn
under this Rider will reduce the Contract Value by the amount
withdrawn and will be subject to the same conditions,
limitations, restrictions and all other fees, charges and
deductions, if applicable, as withdrawals otherwise made under
the provisions of the Contract. Withdrawals under this Rider are
not annuity payouts. Annuity payouts generally receive a more
favorable tax treatment than other withdrawals.
If your Contract is a Qualified Contract, including a
TSA/403(b) Contract, you are subject to restrictions on
withdrawals you may take prior to a triggering event
(e.g. reaching
age 591/2,
separation from service, disability) and you should consult your
tax or legal advisor prior to purchasing this optional
guarantee, the primary benefit of which is guaranteeing
withdrawals. For additional information regarding withdrawals
and triggering events, see FEDERAL TAX ISSUES –
IRAs and Qualified Plans.
Withdrawal
Percentage
On or prior to the date of the first withdrawal (measured from
the later of the Rider Effective Date or most recent Reset Date)
the withdrawal percentage is determined as follows based on the
oldest Owner’s age (or Annuitant in the case of a
Non-Natural Owner):
|
Age
|
Withdrawal Percentage | |
|
Before
591/2
|
4.0% | |
|
591/2 - 69
|
4.0% | |
|
70 - 84
|
5.0% | |
|
85 and older
|
6.0% |
If the first withdrawal (measured from the later of the Rider
Effective Date or most recent Reset Date) is taken on or
after
age 591/2,
the withdrawal percentage will automatically increase according
to the table above based on age as of the most recent Contract
Anniversary.
If the first withdrawal (measured from the later of the Rider
Effective Date or most recent Reset Date) is taken prior
to
age 591/2,
the withdrawal percentage will be 4.0% until the Remaining
Protected Balance is depleted and will remain unchanged unless a
Reset occurs. If an Automatic Reset or an Owner-Elected Reset
occurs and your first withdrawal after that Reset is taken on or
after
age 591/2,
the withdrawal percentage will be the withdrawal percentage that
corresponds to the age at the time of the first withdrawal.
There is an opportunity for an increase in the withdrawal
percentage. The withdrawal percentage in the table above will
increase by 0.10% for each Rider year a withdrawal is not taken
beginning on the later of the Contract Anniversary following the
Owner’s
age 591/2
or the Rider Effective Date. In addition, the increase in the
withdrawal percentage will still be included as you reach a new
age band (for example, if your first withdrawal is taken after
age 591/2
and at age 69 your withdrawal percentage is 4.4%, then your
withdrawal percentage would be 5.4% the Contract Anniversary
immediately after you turn 70). However, once a withdrawal
is taken (including an RMD Withdrawal), regardless of the
Owner’s age when the withdrawal is taken, no further
increase in the withdrawal percentage will be available and
eligibility for the increase cannot be reinstated with a Reset.
The withdrawal percentage, including any 0.10% increase, will
not be reduced as a result of a Reset.
48
Withdrawal
of Protected Payment Amount
While this Rider is in effect, you may withdraw up to the
Protected Payment Amount each Contract Year, regardless of
market performance, until the Rider terminates. Any portion of
the Protected Payment Amount not withdrawn during a Contract
Year may not be carried over to the next Contract Year.
If a withdrawal does not exceed the Protected Payment Amount
immediately prior to that withdrawal, the Protected Payment Base
will remain unchanged. Immediately following the withdrawal the
Remaining Protected Balance will decrease by the withdrawal
amount.
Withdrawals Exceeding the Protected Payment
Amount. If a withdrawal (except an RMD withdrawal)
exceeds the Protected Payment Amount immediately prior to that
withdrawal, we will (immediately following the excess
withdrawal) reduce the Protected Payment Base on a proportionate
basis for the amount in excess of the Protected Payment Amount.
We will reduce the Remaining Protected Balance either on a
proportionate basis or by the total withdrawal amount, whichever
results in the lower Remaining Protected Balance amount. (See
example 4 in APPENDIX B: AUTOMATIC INCOME BUILDER SAMPLE
CALCULATIONS for a numerical example of the adjustments to
the Protected Payment Base, Remaining Protected Balance and
Protected Payment Amount as a result of an excess withdrawal.)
If a withdrawal is greater than the Protected Payment Amount and
the Contract Value is less than the Protected Payment Base, both
the Protected Payment Base and Remaining Protected Balance will
be reduced by an amount that is greater than the excess amount
withdrawn.
The amount available for withdrawal under the Contract must be
sufficient to support any withdrawal that would otherwise exceed
the Protected Payment Amount.
For information regarding taxation of withdrawals, see
FEDERAL TAX ISSUES.
Death
Benefit Amount Adjustment
While this Rider is in effect, the aggregate Purchase Payments
component of the Death Benefit Amount under the Contract (see
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS –
Death Benefits – Death Benefit Amount)
will be reduced by withdrawals based on either the amount
withdrawn (a dollar-for-dollar basis) or on a proportionate
basis. The calculation method used will depend on the amount
withdrawn at the time of the withdrawal as compared to your
Protected Payment Amount at the time of the withdrawal.
If a withdrawal does not exceed your Protected Payment
Amount immediately prior to that withdrawal, then the aggregate
Purchase Payments under the Death Benefit Amount will be reduced
by the amount of the withdrawal (dollar-for-dollar basis).
If a withdrawal (except an RMD withdrawal) exceeds the
Protected Payment Amount immediately prior to that withdrawal,
we will reduce the aggregate Purchase Payments under the Death
Benefit Amount by the amount of the Protected Payment Amount
plus we will make a proportionate reduction for the amount in
excess of the Protected Payment Amount.
See examples 5 and 6 in APPENDIX B: AUTOMATIC
INCOME BUILDER SAMPLE CALCULATIONS for numerical examples of
the adjustments to the Death Benefit Amount.
If this Rider terminates before the death of an Owner or sole
surviving Annuitant, withdrawals while this Rider was in effect
will adjust the aggregate Purchase Payments component of the
Death Benefit Amount on a proportionate basis. If this Rider
terminates as a result of the death of an Owner or sole
surviving Annuitant, then the aggregate Purchase Payments
component of the Death Benefit Amount will be adjusted as
described above.
This Rider has no effect on the death benefit calculation under
the optional Stepped-Up Death Benefit. A Reset does not alter
the adjustment calculation of the aggregate Purchase Payments
under the Death Benefit Amount. However, a Reset will change
the Protected Payment Base which is used to determine the annual
withdrawal amount under the Rider. See the Reset of Protected
Payment Base and Remaining Protected Balance subsection for
more information on Resets.
Required
Minimum Distributions
No adjustment will be made to the Protected Payment Base as a
result of a withdrawal that exceeds the Protected Payment Amount
immediately prior to the withdrawal, provided:
| • | such withdrawal (an “RMD Withdrawal”) is for purposes of satisfying the minimum distribution requirements of Section 401(a)(9) and related Code provisions in effect at that time, | |
| • | you have authorized us to calculate and make periodic distribution of the Annual RMD Amount for the Calendar Year required based on the payment frequency you have chosen, | |
| • | the Annual RMD Amount is based on this Contract only, and | |
| • | only RMD withdrawals are made from the Contract during the Contract Year. |
49
Immediately following an RMD Withdrawal, the Remaining Protected
Balance will decrease by the RMD withdrawal amount. While this
Rider is in effect, an RMD Withdrawal will also reduce the
aggregate Purchase Payments under the Death Benefit Amount by
the RMD Withdrawal amount (dollar-for-dollar basis).
See FEDERAL TAX ISSUES – Qualified
Contracts – Required Minimum Distributions.
Depletion
of Contract Value
If a withdrawal (including an RMD withdrawal) does not exceed
the Protected Payment Amount immediately prior to the withdrawal
and reduces the Contract Value to zero, the following will apply:
| • | if the oldest Owner (or Annuitant in the case of a Non-Natural Owner): |
| • | was younger than age 591/2 when the first withdrawal was taken under the Rider, after the Rider Effective Date or the most recent Reset Date, whichever is later, the Protected Payment Amount will be paid each year until the Remaining Protected Balance is reduced to zero, or | |
| • | was age 591/2 or older when the first withdrawal was taken under the Rider after the Rider Effective Date or the most recent Reset Date, whichever is later, the Protected Payment Amount will be paid each year until the day of the death of an Owner or the date of death of the sole surviving Annuitant. |
| • | the Protected Payment Amount will be paid under a series of pre-authorized withdrawals under a payment frequency as elected by the Owner, but no less frequently than annually, | |
| • | no additional Purchase Payments will be accepted under the Contract, | |
| • | any Remaining Protected Balance will not be available for payment in a lump sum and will not be applied to provide payments under an Annuity Option, and | |
| • | the Contract will cease to provide any death benefit. |
If the Owner or sole surviving Annuitant dies and the Contract
Value is zero as of the date of death, there is no death
benefit, however, any Remaining Protected Balance will be paid
to the Beneficiary through a series of pre-authorized
withdrawals with a payment frequency then in effect at the time
of the Owner’s or sole surviving Annuitant’s death.
If, however, the Remaining Protected Balance would be paid over
a period that exceeds the life expectancy of the Beneficiary,
the pre-authorized withdrawal amount will be adjusted so that
the withdrawal payments will be paid over a period that does not
exceed the Beneficiary’s life expectancy.
Depletion
of Remaining Protected Balance
If a withdrawal (including an RMD Withdrawal) reduces the
Remaining Protected Balance to zero and Contract Value remains,
the following will apply:
If the oldest Owner (or Annuitant in the case of a Non-Natural
Owner):
| • | was younger than age 591/2 when the first withdrawal was taken under the Rider after the Rider Effective Date or the most recent Reset Date, whichever is later, this Rider will terminate, or | |
| • | was age 591/2 or older when the first withdrawal was taken under the Rider after the Rider Effective Date or the most recent Reset Date, whichever is later, you may elect to withdraw up to the Protected Payment Amount each year until the day of the death of an Owner or the date of death of the sole surviving Annuitant. If an Automatic or Owner-Elected Reset occurs, the Remaining Protected Balance will be reinstated to an amount equal to the Contract Value as of that Contract Anniversary. |
Before your Remaining Protected Balance is zero, if you took
your first withdrawal before
age 591/2
and you would like to be eligible for lifetime payments under
the Rider, an Automatic or Owner-Elected Reset must occur and
your first withdrawal after that Reset must be taken on or
after
age 591/2.
See the Reset of Protected Payment Base and Remaining
Protected Balance subsection of this Rider. If you are
younger than
age 591/2
when the Remaining Protected Balance is zero and Contract Value
remains, the Rider will terminate and there is no opportunity
for a Reset.
If a withdrawal (except an RMD withdrawal) made from the
Contract exceeds the Protected Payment Amount, the Protected
Payment Base will be reduced according to the Withdrawals
Exceeding the Protected Payment Amount subsection.
Any death benefit proceeds to be paid to the Beneficiary from
remaining Contract Value will be paid according to the Death
Benefit provisions of the Contract.
50
Reset of
Protected Payment Base and Remaining Protected Balance
Regardless of which reset option is used, on and after each
Reset Date, the provisions of this Rider shall apply in the same
manner as they applied when the Rider was originally issued,
except that eligibility for the increase in the withdrawal
percentage cannot be reinstated with a Reset once a withdrawal
is taken. The limitations and restrictions on Purchase Payments
and withdrawals, the deduction of annual Charges and any future
reset options available on and after the Reset Date, will again
apply and will be measured from that Reset Date. A reset occurs
when the Protected Payment Base and Remaining Protected Balance
are changed to an amount equal to the Contract Value as of the
Reset Date.
Automatic Reset. On each Contract Anniversary while
this Rider is in effect and before the Annuity Date, we will
automatically reset the Protected Payment Base and Remaining
Protected Balance to an amount equal to 100% of the Contract
Value, if the Protected Payment Base is less than the Contract
Value on that Contract Anniversary. The annual charge percentage
may change as a result of any Automatic Reset (see CHARGES,
FEES AND DEDUCTIONS – Optional Rider Charges).
Automatic Reset – Opt-Out Election. Within
60 days after a Contract Anniversary on which an Automatic
Reset is effective, you have the option to reinstate the
Protected Payment Base, Remaining Protected Balance, Protected
Payment Amount and annual charge percentage to their respective
amounts immediately before the Automatic Reset. Any future
Automatic Resets will continue in accordance with the
Automatic Reset paragraph above. If you elect this
option, your opt-out election must be received, in a form
satisfactory to us, at our Service Center within the same
60 day period after the Contract Anniversary on which the
reset is effective.
Automatic Reset – Future
Participation. You may elect not to participate in
future Automatic Resets at any time. Your election must be
received, in a form satisfactory to us, at our Service Center,
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries. If
you previously elected not to participate in Automatic Resets,
you may re-elect to participate in future Automatic Resets at
any time. Your election to resume participation must be
received, in a form satisfactory to us, at our Service Center
while this Rider is in effect and before the Annuity Date. Such
election will be effective for future Contract Anniversaries as
described in the Automatic Reset paragraph above.
Owner-Elected Resets (Non-Automatic). You may, on
any Contract Anniversary, elect to reset the Remaining Protected
Balance and Protected Payment Base to an amount equal to 100% of
the Contract Value. An Owner-Elected Reset may be elected while
Automatic Resets are in effect. The annual charge percentage may
change as a result of this Reset.
If you elect this option, your election must be received, in a
form satisfactory to us, at our Service Center within
60 days after the Contract Anniversary on which the reset
is effective. The reset will be based on the Contract Value as
of that Contract Anniversary. Your election of this option
may result in a reduction in the Protected Payment Base,
Remaining Protected Balance and Protected Payment Amount.
Generally, the reduction will occur when your Contract Value is
less than the Protected Payment Base as of the Contract
Anniversary you elected the reset. You are strongly advised
to work with your financial advisor prior to electing an
Owner-Elected Reset. We will provide you with written
confirmation of your election.
Subsequent
Purchase Payments
If we receive additional Purchase Payments after the Rider
Effective Date, we will increase the Protected Payment Base and
Remaining Protected Balance by the amount of the Purchase
Payments. However, for purposes of this Rider, we reserve the
right to restrict additional Purchase Payments that result in a
total of all Purchase Payments received on or after the later of
the 1st
Contract Anniversary or most recent Reset Date to exceed
$100,000 without our prior approval. This provision only applies
if the Contract to which this Rider is attached permits Purchase
Payments after the
1st
Contract Anniversary, measured from the Contract Date.
Annuitization
If you annuitize the Contract at the maximum Annuity Date
specified in your Contract and this Rider is still in effect at
the time of your election and a Life Only fixed annuity option
is chosen, the annuity payments will be equal to the greater of:
| • | the Life Only fixed annual payment amount based on the terms of your Contract, or | |
| • | the Protected Payment Amount in effect at the maximum Annuity Date. |
If you annuitize the Contract at any time prior to the maximum
Annuity Date specified in your Contract, your annuity payments
will be determined in accordance with the terms of your
Contract. The Protected Payment Base, Remaining Protected
Balance and Protected Payment Amount under this Rider will not
be used in determining any annuity payments. Work with your
financial advisor to determine if you should annuitize your
Contract before the maximum Annuity Date or stay in the
accumulation phase and continue to take withdrawals under the
Rider.
The annuity payments described in this subsection are available
to you even if your first withdrawal was taken prior to
age 591/2
and no Resets have occurred.
51
Continuation
of Rider if Surviving Spouse Continues Contract
If the Remaining Protected Balance is zero when the Owner dies,
this Rider will terminate. If the Remaining Protected Balance is
greater than zero and the Owner dies while this Rider is in
effect, the surviving spouse of the deceased Owner may elect to
continue the Contract in accordance with its terms, and the
surviving spouse may continue to take withdrawals of the
Protected Payment Amount under this Rider, until the Remaining
Protected Balance is reduced to zero.
The surviving spouse may elect any of the reset options
available under this Rider for subsequent Contract
Anniversaries. If a reset takes place then the provisions of
this Rider will continue in full force and in effect for the
surviving spouse. The withdrawal percentage will be determined
based on the age of the surviving spouse and the new withdrawal
percentage may be higher or lower than what the withdrawal
percentage was prior to death. In addition, if the surviving
spouse is age
591/2
or older when the first withdrawal is taken after the most
recent Reset Date and this Reset Date occurred after the
surviving spouse continued the Contract, then the surviving
spouse may take withdrawals of the Protected Payment Amount
(based on the new Protected Payment Base and withdrawal
percentage) for life.
Any 0.10% increase to the withdrawal percentage previously added
will apply but no further increases to the withdrawal percentage
will be added.
The surviving spouse may elect to receive any death benefit
proceeds instead of continuing the Contract and Rider (see
DEATH BENEFITS AND OPTIONAL DEATH BENEFIT RIDERS –
Death Benefits).
Termination
You cannot request a termination of the Rider. Except as
otherwise provided below, the Rider will automatically terminate
on the earliest of:
| • | the day any portion of the Contract Value is no longer allocated according to the Investment Allocation Requirements, | |
| • | the day the Remaining Protected Balance is reduced to zero if the oldest Owner (or Annuitant in the case of a Non-Natural Owner), was younger than 591/2 when the first withdrawal was taken under the Rider after the Rider Effective Date or the most recent Reset Date, whichever is later, | |
| • | the date of death of an Owner or the date of death of the sole surviving Annuitant (except as provided under the Continuation of Rider if Surviving Spouse Continues Contract subsection), | |
| • | for Contracts with a Non-Natural Owner, the date of the first death of an Annuitant, | |
| • | the day the Contract is terminated in accordance with the provisions of the Contract, | |
| • | the day we are notified of a change in ownership of the Contract to a non-spouse Owner if the Contract is Non-Qualified (excluding changes in ownership to or from certain trusts), | |
| • | the day you exchange this Rider for another withdrawal benefit Rider, | |
| • | the Annuity Date (see the Annuitization subsection for additional information), or | |
| • | the day the Contract Value is reduced to zero as a result of a withdrawal (except an RMD withdrawal) that exceeds the Protected Payment Amount. |
The Rider will not terminate the day the Remaining Protected
Balance is reduced to zero if the oldest Owner (or Annuitant in
the case of a Non-Natural Owner) was
age 591/2
or older when the first withdrawal was taken under the Rider
after the Rider Effective Date or the most recent Reset Date,
whichever is later.
The Rider and the Contract will not terminate the day the
Contract Value is zero and you begin taking pre-authorized
withdrawals of the Protected Payment Amount. In this case, the
Rider and the Contract will terminate:
| • | the day the Remaining Protected Balance is reduced to zero if the oldest Owner (or Annuitant in the case of a Non-Natural Owner), was younger than 591/2 when the first withdrawal was taken under the Rider after the Rider Effective Date or the most recent Reset Date, whichever is later, or | |
| • | the date of the first death of an Owner or the date of death of the sole surviving Annuitant if the oldest Owner (or Annuitant in the case of a Non-Natural Owner) was age 591/2 or older when the first withdrawal was taken under the Rider after the Rider Effective Date or the most recent Reset Date, whichever is later. |
If this Rider is terminated as a result of having any portion of
the Contract Value no longer allocated according to the
Investment Allocation Requirements, you must wait until a
Contract Anniversary that is at least 1 year from the
Effective Date of termination before this Rider may be purchased
again (if available).
52
Sample
Calculations
Hypothetical sample calculations are in the attached APPENDIX
B: AUTOMATIC INCOME BUILDER SAMPLE CALCULATIONS. The
examples are based on certain hypothetical assumptions and are
for example purposes only. These examples are not intended to
serve as projections of future investment returns.
PACIFIC
LIFE AND THE SEPARATE ACCOUNT
Pacific
Life
Pacific Life Insurance Company is a life insurance company
domiciled in Nebraska. Along with our subsidiaries and
affiliates, our operations include life insurance, annuity,
pension and institutional products, mutual funds, broker-dealer
operations, and investment advisory services. At the end of
2010, we had $215.5 billion of individual life insurance in
force and total admitted assets of approximately
$98.8 billion.
We are authorized to conduct our life insurance and annuity
business in the District of Columbia and in all states except
New York. Our executive office is located at 700 Newport
Center Drive, Newport Beach, California 92660.
We were originally organized on January 2, 1868, under the
name “Pacific Mutual Life Insurance Company of
California” and reincorporated as “Pacific Mutual Life
Insurance Company” on July 22, 1936. On
September 1, 1997, we converted from a mutual life
insurance company to a stock life insurance company ultimately
controlled by a mutual holding company and were authorized by
California regulatory authorities to change our name to Pacific
Life Insurance Company. On September 1, 2005, Pacific Life
changed from a California corporation to a Nebraska corporation.
Pacific Life is a subsidiary of Pacific LifeCorp, a holding
company, which, in turn, is a subsidiary of Pacific Mutual
Holding Company, a mutual holding company. Under their
respective charters, Pacific Mutual Holding Company must always
hold at least 51% of the outstanding voting stock of Pacific
LifeCorp, and Pacific LifeCorp must always own 100% of the
voting stock of Pacific Life. Owners of Pacific Life’s
annuity contracts and life insurance policies have certain
membership interests in Pacific Mutual Holding Company,
consisting principally of the right to vote on the election of
the Board of Directors of the mutual holding company and on
other matters, and certain rights upon liquidation or
dissolutions of the mutual holding company.
Our subsidiary, Pacific Select Distributors, Inc. (PSD) serves
as the principal underwriter (distributor) for the Contracts.
PSD is located at 700 Newport Center Drive, Newport Beach,
California 92660. We and PSD enter into selling agreements with
broker-dealers, whose financial advisors are authorized by state
insurance departments to sell the Contracts.
We may provide you with reports of our ratings both as an
insurance company and as to our claims-paying ability with
respect to our General Account assets.
Separate
Account A
Separate Account A was established on September 7, 1994 as
a separate account of ours, and is registered with the SEC under
the Investment Company Act of 1940 (the
“1940 Act”), as a type of investment company
called a “unit investment trust.” We established the
Separate Account under the laws of the state of California. The
Separate Account is maintained under the laws of the state of
Nebraska.
Obligations arising under your Contract are our general
corporate obligations. We are also the legal owner of the assets
in the Separate Account. Assets of the Separate Account
attributed to the reserves and other liabilities under the
Contract and other contracts issued by us that are supported by
the Separate Account may not be charged with liabilities arising
from any of our other business; any income, gain or loss
(whether or not realized) from the assets of the Separate
Account are credited to or charged against the Separate Account
without regard to our other income, gain or loss.
We may invest money in the Separate Account in order to commence
its operations and for other purposes, but not to support
contracts other than variable annuity contracts. A portion of
the Separate Account’s assets may include accumulations of
charges we make against the Separate Account and investment
results of assets so accumulated. These additional assets are
ours and we may transfer them to our General Account at any
time; however, before making any such transfer, we will consider
any possible adverse impact the transfer might have on the
Separate Account. Subject to applicable law, we reserve the
right to transfer our assets in the Separate Account to our
General Account.
The Separate Account is not the sole investor in the Funds.
Investment in a Fund by other separate accounts in connection
with variable annuity and variable life insurance contracts may
create conflicts. See the accompanying Prospectus and SAI for
the Funds for more information.
53
FINANCIAL
HIGHLIGHTS
As of December 31, 2010 no Contracts were issued. As a result,
no condensed financial information is included in this
Prospectus.
FEDERAL
TAX ISSUES
The following summary of federal income tax issues is based
on our understanding of current tax laws and regulations, which
may be changed by legislative, judicial or administrative
action. The summary is general in nature and is not intended as
tax advice. Moreover, it does not consider any applicable
foreign, state or local tax laws. We do not make any guarantee
regarding the tax status, federal, foreign, state or local, of
any Contract or any transaction involving the Contracts.
Accordingly, you should consult a qualified tax adviser for
complete information and advice before purchasing a Contract.
Additional tax information is included in the SAI.
Diversification
Requirements and Investor Control
Section 817(h) of the Code provides that the investments
underlying a variable annuity must satisfy certain
diversification requirements in order for the contract to be
treated as an annuity contract and qualify for tax deferral. We
believe the underlying Variable Investment Options for the
contract meet these requirements. Details on these
diversification requirements appear in the Pacific Select Fund
SAI.
In addition, for a variable annuity contract to qualify for tax
deferral, assets in the separate accounts supporting the
contract must be considered to be owned by the insurance company
and not by the contract owner. Under current U.S. tax law, if a
contract owner has excessive control over the investments made
by a separate account, or the underlying fund, the contract
owner will be taxed currently on income and gains from the
account or fund. In other words, in such a case of investor
control the contract owner would not derive the tax benefits
normally associated with variable annuities. For more
information regarding investor control, please refer to the
contract SAI.
Taxation
of Annuities – General Provisions
Section 72 of the Code governs the taxation of annuities in
general, and we designed the Contracts to meet the requirements
of Section 72 of the Code. We believe that, under current
law, the Contract will be treated as an annuity for federal
income tax purposes if the Contract Owner is a natural person or
an agent for a natural person, and that we (as the issuing
insurance company), and not the Contract Owner(s), will be
treated as the owner of the investments underlying the Contract.
Accordingly, no tax should be payable by you as a Contract Owner
as a result of any increase in Contract Value until you receive
money under your Contract. You should, however, consider how
amounts will be taxed when you do receive them. The following
discussion assumes that your Contract will be treated as an
annuity for federal income tax purposes.
Non-Qualified
Contracts – General Rules
These general rules apply to Non-Qualified Contracts. As
discussed below, however, tax rules may differ for Qualified
Contracts and you should consult a qualified tax adviser if you
are purchasing a Qualified Contract.
Taxes
Payable
A Contract Owner is not taxed on the increases in the value of a
Contract until an amount is received or deemed to be received.
An amount could be received or deemed to be received, for
example, if there is a partial distribution, a lump sum
distribution, an Annuity payment or a material change in the
Contract. See the Addition of Optional Rider or Material
Change to Contract section below. Increases in Contract
Value that are received or deemed to be received are taxable to
the Contract Owner as ordinary income. Distributions of net
investment income or capital gains that each Subaccount receives
from its corresponding Portfolio are automatically reinvested in
such Portfolio unless we, on behalf of the Separate Account,
elect otherwise. As noted above, you will be subject to federal
income taxes on the investment income from your Contract only
when it is distributed to you.
Beginning in 2013, any taxable distribution of the investment
income from your Contract will also be subject to a net
investment income tax of 3.8%. This tax applies to various
investment income such as interest, dividends, royalties,
payments from annuities, and the disposition of property, but
only to the extent a married taxpayer’s modified adjusted
gross income exceeds $250,000 ($200,000 if single). Please
speak to your tax advisor about this new tax.
Non-Natural
Persons as Owners
If a contract is not owned or held by a natural person or as
agent for a natural person, the contract generally will not be
treated as an “annuity” for tax purposes, meaning that
the contract owner will be subject to current tax on annual
increases in Contract Value at ordinary income rates unless some
other exception applies. Certain entities, such as some trusts,
may be deemed to be acting as agents for natural persons.
Corporations, including S corps, C corps, LLCs,
partnerships and FLPs, and tax exempt entities are non-natural
persons that will not be deemed to be acting as agents for
natural persons.
54
Addition
of Optional Rider or Material Change to Contract
The addition of a rider to the Contract, or a material change in
the Contract’s provisions, such as a change in Contract
ownership or an assignment of the Contract, could cause it to be
considered newly issued or entered into for tax purposes, and
thus could cause a taxable event or the Contract to lose certain
grandfathered tax status. Please contact your tax adviser for
more information.
Taxes
Payable on Withdrawals Prior to the Annuity Date
Amounts you withdraw before annuitization, including amounts
withdrawn from your Contract Value in connection with partial
withdrawals for payment of any charges and fees, will be treated
first as taxable income to the extent that your Contract Value
exceeds the aggregate of your Purchase Payments reduced by
non-taxable amounts previously received (investment in the
Contract), and then as non-taxable recovery of your Purchase
Payments. Therefore, you include in your gross income the
smaller of: a) the amount of the partial withdrawal, or
b) the amount by which your Contract Value immediately
before you receive the distribution exceeds your investment in
the Contract at that time. If at the time of a partial
withdrawal your Contract Value does not exceed your investment
in the Contract, then the withdrawal will not be includable in
gross income and will simply reduce your investment in the
Contract. Exceptions to this rule are distributions in full
discharge of your Contract (a full surrender) or distributions
from contracts issued and investments made before
August 14, 1982.
The assignment or pledge of (or agreement to assign or pledge)
the value of the Contract for a loan will be treated as a
withdrawal subject to these rules. You should consult your tax
adviser for additional information regarding taking a partial or
a full distribution from your Contract.
Multiple
Contracts (Aggregation Rule)
Multiple Non-Qualified Contracts that are issued after
October 21, 1988, by us or our affiliates to the same Owner
during the same calendar year are treated as one Contract for
purposes of determining the taxation of distributions (the
amount includible in gross income under Code Section 72(e))
prior to the Annuity Date from any of the Contracts. A Contract
received in a tax-free exchange under Code Section 1035 may
be treated as a new Contract for this purpose. For Contracts
subject to the Aggregation Rule, the values of the Contracts and
the investments in the Contracts should be added together to
determine the taxation under Code Section 72(e).
Withdrawals will be treated first as withdrawals of income until
all of the income from all such Contracts is withdrawn. The
Treasury Department has specific authority under Code
Section 72(e)(11) to issue regulations to prevent the
avoidance of the income-out-first rules for withdrawals prior to
the Annuity Date through the serial purchase of Contracts or
otherwise. As of the date of this Prospectus there are no
regulations interpreting these aggregation provisions.
10% Tax
Penalty Applicable to Certain Withdrawals and Annuity
Payments
The Code provides that the taxable portion of a withdrawal or
other distribution may be subject to a tax penalty equal to 10%
of that taxable portion unless the withdrawal is:
| • | made on or after the date you reach age 591/2, | |
| • | made by a Beneficiary after your death, | |
| • | attributable to your becoming disabled, | |
| • | any payment made under an immediate annuity, | |
| • | attributable to an investment in the Contract made prior to August 14, 1982, or | |
| • | any distribution that is a part of a series of substantially equal periodic payments (Code Section 72(q) payments) made (at least annually) over your life (or life expectancy) or the joint lives (or life expectancies) of you and your designated beneficiary. |
Additional exceptions may apply to certain Qualified Contracts
(see Taxes Payable on Annuity Payments and the
applicable Qualified Contracts).
Taxes
Payable on Optional Rider Charges
It is our understanding that the charges relating to any
optional death benefit rider are not subject to current taxation
and we will not report them as such. However, the IRS may
determine that these charges should be treated as partial
withdrawals subject to current taxation to the extent of any
gain and, if applicable, the 10% tax penalty. We reserve the
right to report any optional death benefit rider charges as
partial withdrawals if we believe that we would be expected to
report them in accordance with IRS regulations.
55
Distributions
After the Annuity Date
After you annuitize, a portion of each annuity payment you
receive under a Contract generally will be treated as a partial
recovery of Investments (as used here, “Investments”
means the aggregate Purchase Payments less any amounts that were
previously received under the Contract but not included in
income) and will not be taxable. (In certain circumstances,
subsequent modifications to an initially-established payment
pattern may result in the imposition of a tax penalty.) The
remainder of each annuity payment will be taxed as ordinary
income. However, after the full amount of aggregate Investments
has been recovered, the full amount of each annuity payment will
be taxed as ordinary income. Exactly how an annuity payment is
divided into taxable and non-taxable portions depends on the
period over which annuity payments are expected to be received,
which in turn is governed by the form of annuity selected and,
where a lifetime annuity is chosen, by the life expectancy of
the Annuitant(s) or payee(s). Such a payment may also be subject
to a tax penalty if taken prior to age
591/2.
Same-Sex
Spouses
Pursuant to Section 3 of the federal Defense of Marriage
Act (“DOMA”), same-sex marriages currently are not
recognized for purposes of federal law. Therefore, the favorable
income-deferral options afforded by federal tax law to an
opposite-sex spouse under Internal Revenue Code
sections 72(s) and 401(a)(9) are currently NOT available to
a same-sex spouse. Same-sex spouses who own or are considering
the purchase of annuity products that provide benefits based
upon status as a spouse should consult a tax advisor. To the
extent that an annuity contract or certificate accords to
spouses other rights or benefits that are not affected by DOMA,
same-sex spouses remain entitled to such rights or benefits to
the same extent as any annuity holder’s spouse.
Distributions
to Beneficiary After Contract Owner’s Death
Generally, the same tax rules apply to amounts received by the
Beneficiary as those that apply to the Contract Owner, except
that the early withdrawal tax penalty does not apply. Thus, any
annuity payments or lump sum withdrawal will be divided into
taxable and non-taxable portions.
If death occurs after the Annuity Date, but before the
expiration of a period certain option, the Beneficiary will
recover the balance of the Investments as payments are made and
may be allowed a deduction on the final tax return for the
unrecovered Investments. A lump sum payment taken by the
Beneficiary in lieu of remaining monthly annuity payments is not
considered an annuity payment for tax purposes. The portion of
any lump sum payment to a Beneficiary in excess of aggregate
unrecovered Investments would be subject to income tax.
Contract
Owner’s Estate
Generally, any amount payable to a Beneficiary after the
Contract Owner’s death, whether before or after the Annuity
Date, will be included in the estate of the Contract Owner for
federal estate tax purposes. If the inclusion of the value of
the Contract triggers a federal estate tax to be paid, the
Beneficiary may be able to use a deduction called Income in
Respect of Decedent (IRD) in calculating the income taxes
payable upon receipt of the death benefit proceeds. In addition,
designation of a non-spouse Beneficiary who either is
371/2
or more years younger than a Contract Owner or is a grandchild
of a Contract Owner may have Generation Skipping Transfer Tax
(GSTT) consequences under section 2601 of the Code. You
should consult with a qualified tax advisor if you have
questions about federal estate tax, IRD, or GSTT.
Gifts of
Annuity Contracts
Generally, gifts of Non-Qualified Contracts prior to the annuity
start date will trigger tax reporting to the donor on the gain
on the Contract, with the donee getting a stepped-up basis for
the amount included in the donor’s income. The 10% early
withdrawal tax penalty and gift tax also may be applicable. This
provision does not apply to transfers between spouses or
incident to a divorce, or transfers to and from a trust acting
as agent for the Owner or the Owner’s spouse.
Tax
Withholding for Non-Qualified Contracts
Unless you elect to the contrary, any amounts you receive under
your Contract that are attributable to investment income will be
subject to withholding to meet federal income tax obligations.
For nonperiodic distributions, you will have the option to
provide us with withholding information at the time of your
withdrawal request. If you do not provide us with withholding
information, we will generally withhold 10% of the taxable
distribution amount and remit it to the IRS. For periodic
(annuity) payments, the rate of withholding will be determined
on the basis of the withholding information you provide to us
with your application. If you do not provide us with withholding
information, we are required to determine the withholding, from
every annuity payment, as if you are a married person with 3
exemptions.
Certain states have indicated that pension and annuity
withholding will apply to payments made to residents.
Please call
(800) 722-4448
with any questions about the required withholding information.
Financial advisors may call us at
(877) 441-2357.
56
Tax
Withholding for
Non-resident
Aliens or Non U.S. Persons
Taxable distributions to Contract Owners who are non-resident
aliens or other non U.S. persons are generally subject to
U.S. federal income tax withholding at a 30% rate, unless a
lower treaty rate applies. Prospective foreign owners are
advised to consult with a tax advisor regarding the U.S., state
and foreign tax treatment of a Contract.
Exchanges
of Non-Qualified Contracts (1035 Exchanges)
You may make your initial or an additional Purchase Payment
through an exchange of an existing annuity contract or endowment
life insurance contract pursuant to Section 1035 of the
Code (a 1035 exchange). The exchange can be effected by
completing the Transfer/Exchange form, indicating in the
appropriate section of the form that you are making a 1035
exchange and submitting any applicable state replacement form.
The form is available by calling your financial advisor or by
calling our Contract Owner number at
(800) 722-4448.
Financial advisors can call
(877) 441-2357.
Once completed, the form should be mailed to us. If you are
making an initial Purchase Payment, a completed Contract
application should also be attached.
In general terms, Section 1035 of the Code provides that no
gain or loss is recognized when you exchange one annuity or life
insurance contract for another annuity contract. Transactions
under Section 1035, however, may be subject to special
rules and may require special procedures and record keeping,
particularly if the exchanged annuity contract was issued prior
to August 14, 1982. You should consult your tax adviser
prior to effecting a 1035 exchange.
Partial
1035 Exchanges
A partial exchange is the direct transfer of only a portion of
an existing annuity’s Contract Value to a new annuity
contract.
Rev. Proc. 2008-24
adopted the provisions of
Notice 2003-51,
with some modifications, finalizing the guidelines for partial
1035 exchanges. Under
Rev. Proc. 2008-24,
the 24 month period is reduced to 12 months, so that a
partial exchange will be treated as tax-free under Code
Section 1035 if there are no distributions, from either
annuity, within 12 months of the partial
1035 exchange. Alternatively, a partial 1035 exchange
will be treated as tax-free under Code Section 1035 if the
taxpayer demonstrates that any distribution taken within the
12 months is due to a specifically identified condition
that occurred between the date of the partial transfer and the
distribution (the conditions are death, disability, attaining
age 591/2,
divorce or loss of employment).
Rev Proc. 2008-24
removes the subjective element of
Notice 2003-51
(whether the distribution was contemplated at the time of the
partial exchange). Also,
Rev. Proc. 2008-24
provides that if the partial exchange does not qualify as a
tax-free exchange under Code Section 1035, it will be
treated as a taxable distribution with a subsequent repurchase,
and that if the partial exchange is treated as tax-free under
Code Section 1035 and this Rev. Proc., the two contracts
will not be aggregated and treated as one contract, but rather
will be treated as two separate contracts for tax and penalty
purposes.
You should consult your tax adviser prior to effecting a partial
1035 exchange.
Impact of
Federal Income Taxes
In general, in the case of Non-Qualified Contracts, if you are
an individual and expect to accumulate your Contract Value over
a relatively long period of time without making significant
withdrawals, there may be federal income tax advantages in
purchasing such a Contract. This is because any increase in
Contract Value is not subject to current taxation. Income taxes
are deferred until the money is withdrawn, at which point
taxation occurs only on the gain from the investment in the
Contract. With income taxes deferred, you may accumulate more
money over the long term through a variable annuity than you may
through non-tax-deferred investments. The advantage may be
greater if you decide to liquidate your Contract Value in the
form of monthly annuity payments after your retirement, or if
your tax rate is lower at that time than during the period that
you held the Contract, or both.
When withdrawals or distributions are taken from the variable
annuity, the gain is taxed as ordinary income. This may be a
potential disadvantage because money that had been invested in
other types of assets may qualify for a more favorable federal
tax rate. For example, in 2011 the tax rate applicable both to
the sale of capital gain assets held more than 1 year and
to the receipt of qualifying dividends by individuals is
generally 15% (0% for lower-income individuals). In contrast, an
ordinary income tax rate of up to 35% applies to taxable
withdrawals on distributions from a variable annuity in 2011.
Also, withdrawals or distributions taken from a variable annuity
prior to attaining age
591/2
may be subject to a tax penalty equal to 10% of the taxable
portion, although exceptions to the tax penalty may apply.
An owner of a variable annuity cannot deduct or offset losses on
transfers to or from Subaccounts, or at the time of any partial
withdrawals. If you surrender your Contract and your Net
Contract Value is less than the aggregate of your investments in
the Contract (reduced by any previous non-taxable
distributions), there may be a deductible ordinary income loss,
although the deduction may be limited. Consult with your tax
adviser regarding the impact of federal income taxes on your
specific situation.
57
Taxes on
Pacific Life
Although the Separate Account is registered as an investment
company, it is not a separate taxpayer for purposes of the Code.
The earnings of the Separate Account are taxed as part of our
operations. No charge is made against the Separate Account for
our federal income taxes (excluding the charge for premium
taxes), but we will review, periodically, the question of
charges to the Separate Account or your Contract for such taxes.
Such a charge may be made in future years for any federal income
taxes that would be attributable to the Separate Account or to
our operations with respect to your Contract, or attributable,
directly or indirectly, to investments in your Contract.
Under current law, we may incur state and local taxes (in
addition to premium taxes) in several states. At present, these
taxes are not significant and they are not charged against the
Contract or the Separate Account. If there is a material change
in applicable state or local tax laws, the imposition of any
such taxes upon us that are attributable to the Separate Account
or to our operations with respect to your Contract may result in
a corresponding charge against the Separate Account or your
Contract.
Given the uncertainty of future changes in applicable federal,
state or local tax laws, we cannot appropriately describe the
effect a tax law change may have on taxes that would be
attributable to the Separate Account or your Contract.
Qualified
Contracts – General Rules
The Contracts are available to a variety of Qualified Plans and
IRAs. Tax restrictions and consequences for Contracts under each
type of Qualified Plan and IRAs differ from each other and from
those for Non-Qualified Contracts. No attempt is made herein to
provide more than general information about the use of the
Contract with the various types of Qualified Plans and IRAs.
Participants under such Qualified Plans, as well as Contract
Owners, Annuitants and Beneficiaries, are cautioned that the
rights of any person to any benefits under such Qualified Plans
may be subject to the terms and conditions of the Plans
themselves or limited by applicable law, regardless of the terms
and conditions of the Contract issued in connection therewith.
Tax
Deferral
It is important to know that Qualified Plans such as 401(k)s, as
well as IRAs, are already tax-deferred. Therefore, an annuity
contract should be used to fund an IRA or Qualified Plan to
benefit from the annuity’s features other than tax
deferral. The other benefits of using a variable annuity to fund
a Qualified Plan or an IRA include the lifetime income options,
guaranteed death benefit options and the ability to transfer
among Investment Options without sales or withdrawal charges.
You should consider if the Contract is a suitable investment if
you are investing through a Qualified Plan or IRA.
Taxes
Payable
Generally, amounts received from Qualified Contracts are taxed
as ordinary income under Section 72, to the extent that
they are not treated as a tax free recovery of contributions.
Different rules apply for Roth IRAs. Consult your tax advisor
before requesting a distribution from a Qualified Contract.
10% Tax
Penalty for Early Withdrawals
Generally, distributions from IRAs and Qualified Plans that
occur before you attain
age 591/2
are subject to a 10% tax penalty imposed on the amount of the
distribution that is includable in gross income, with certain
exceptions. These exceptions include distributions:
| • | made to a beneficiary after the owner’s/participant’s death, | |
| • | attributable to the owner/participant becoming disabled under Section 72(m)(7), | |
| • | that are part of a series of substantially equal periodic payments (also referred to as SEPPs or 72(t) payments) made (at least annually) over your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary, | |
| • | for certain higher education expenses (IRAs only), | |
| • | used to pay for certain health insurance premiums or medical expenses (IRAs only), | |
| • | for costs related to the purchase of your first home (IRAs only), and | |
| • | (except for IRAs) made to an employee after separation from service after reaching age 55 (or age 50 in the case of a qualified public safety employee). |
Tax
Withholding for Qualified Contracts
Distributions from a Contract under a Qualified Plan (not
including an individual retirement annuity subject to Code
Section 408 or Code Section 408A) to an employee,
surviving spouse, or former spouse who is an alternate payee
under a qualified domestic relations
58
order, in the form of a lump sum settlement or periodic annuity
payments for a fixed period of fewer than 10 years are
subject to mandatory income tax withholding of 20% of the
taxable amount of the distribution, unless:
| • | the distributee directs the transfer of such amounts in cash to another Qualified Plan or a traditional IRA, or | |
| • | the payment is a minimum distribution required under the Code. |
The taxable amount is the amount of the distribution less the
amount allocable to after-tax contributions. All other types of
taxable distributions are subject to withholding unless the
distributee elects not to have withholding apply.
Certain states have indicated that pension and annuity
withholding will apply to payments made to residents.
IRAs and
Other Qualified Contracts with Optional Benefit Riders
As of the date of this Prospectus, there are special
considerations for purchases of any optional living or death
benefit riders. IRS regulations state that Individual Retirement
Accounts (IRAs) may generally not invest in life insurance
contracts. We believe that these regulations do not prohibit the
optional living or death benefit riders from being added to your
Contract if it is issued as a Traditional IRA, Roth IRA, SEP IRA
or SIMPLE IRA. However, the law is unclear and it is possible
that a Contract that has optional living or death benefit riders
and is issued as a Traditional IRA, Roth IRA, SEP IRA or SIMPLE
IRA could be disqualified and may result in increased taxes to
the Owner.
Similarly, section 401 plans, section 403(b), 457(b)
annuities and IRAs (but not Roth IRAs) can only offer
incidental death benefits. The Internal Revenue Service
(IRS) could take the position that the enhanced death benefits
provided by optional benefit riders are not incidental. In
addition, to the extent that the optional benefit riders alter
the timing or the amount of the payment of distributions under a
Qualified Contract, the riders cannot be paid out in violation
of the minimum distribution rules of the Code.
It is our understanding that the charges relating to the
optional benefit riders are not subject to current taxation and
we will not report them as such. However, the IRS may determine
that these charges should be treated as partial withdrawals
subject to current income taxation to the extent of any gain
and, if applicable, the 10% tax penalty. We reserve the right to
report the rider charges as partial withdrawals if we believe
that we would be expected to report them in accordance with IRS
regulations.
Required
Minimum Distributions
The regulations provide that you cannot keep assets in Qualified
Plans or IRAs indefinitely. Eventually they are required to be
distributed; at that time (the Required Beginning Date (RBD)),
Required Minimum Distributions (RMDs) are the amount that must
be distributed each year.
Under Section 401 of the Code (for Qualified Plans) and
Section 408 of the Code (for IRAs), the entire interest
under the Contract must be distributed to the Owner/Annuitant no
later than the Owner/Annuitant’s RBD, or distributions over
the life of the Owner/Annuitant (or the Owner/Annuitant and his
beneficiary) must begin no later than the RBD.
The RBD for distributions from a Qualified Contract maintained
for an IRA under Section 408 of the Code is generally
April 1 of the calendar year following the year in which
the Owner/Annuitant reaches
age 701/2.
The RBD for a Qualified Contract maintained for a qualified
retirement or pension plan under Section 401 of the Code or
a Section 403(b) annuity is April 1 of the calendar
year following the later of the year in which the
Owner/Annuitant reaches
age 701/2,
or, if the plan so provides, the year in which the
Owner/Annuitant retires. There is no RBD for a Roth IRA
maintained pursuant to Section 408A of the Code.
The IRS issued Final and Temporary Regulations on April 17,
2002 (“Final Regulations”). Effective January 1,
2003, the IRS requires that all IRA holders and Qualified Plan
Participants (with one exception discussed below) use the
Uniform Lifetime Table to calculate their RMDs.
The Uniform Lifetime Table is based on a joint life expectancy
and uses the IRA owner’s actual age and assumes that the
beneficiary is 10 years younger than the IRA owner. Note
that under these Final Regulations, the IRA owner does not need
to actually have a named beneficiary when they turn
age 701/2.
The exception noted above is for an IRA owner who has a spouse,
who is more than 10 years younger, as the sole beneficiary
on the IRA. In that situation, the spouse’s actual age (and
life expectancy) will be used in the joint life calculation.
If the Owner/Annuitant dies prior to his RBD or complete
distribution from the Qualified Contract, the remainder shall be
distributed as provided in the “Qualified Contract
Distribution Rules” section of this Prospectus. For
non-spouse beneficiaries, life expectancy is initially computed
by use of the Single Life Table of the Final Regulations
(Regulation
Section 1.401(a)(9)-9).
Subsequent life expectancy shall be calculated by reducing the
life expectancy of the Beneficiary by one in each following
calendar year.
For calendar year 2003 and thereafter, taxpayers (and the
underlying Qualified Plan) must rely on the Final and Temporary
Regulations (discussed above) for determining RMDs. If any
future guidance from the IRS is more restrictive than the
guidance in these Final and Temporary Regulations, the future
guidance will be issued without retroactive effect.
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The method of distribution selected must comply with the minimum
distribution rules of Code Section 401(a)(9), and the
applicable proposed Regulations thereunder.
Actuarial
Value
In accordance with recent changes in laws and regulations, RMDs
and Roth IRA conversions may be calculated based on the sum of
the contract value and the actuarial value of any additional
death benefits and benefits from optional riders that you have
purchased under the Contract. As a result, RMDs may be larger
than if the calculation were based on the contract value only,
which may in turn result in an earlier (but not before the
required beginning date) distribution under the Contract and an
increased amount of taxable income distributed to the contract
owner, and a reduction of death benefits and the benefits of any
optional riders.
RMDs and
Annuity Options
Under the Final Regulations, for retirement plans that qualify
under Section 401 or 408 of the Code, the period elected
for receipt of RMDs as annuity payments under Annuity
Options 2 and 4 generally may be:
| • | no longer than the joint life expectancy of the Annuitant and Beneficiary in the year that the Annuitant reaches age 701/2, and | |
| • | must be shorter than such joint life expectancy if the Beneficiary is not the Annuitant’s spouse and is more than 10 years younger than the Annuitant. |
Under Annuity Option 3, if the Beneficiary is not the
Annuitant’s spouse and is more than 10 years younger
than the Annuitant, the
662/3%
and 100% elections specified below may not be available. The
restrictions on options for retirement plans that qualify under
Sections 401 and 408 also apply to a retirement plan that
qualifies under Section 403(b) with respect to amounts that
accrued after December 31, 1986.
Loans
Certain Owners of Qualified Contracts may borrow against their
Contracts. Otherwise loans from us are not permitted. You may
request a loan from us, using your Contract Value as your only
security if yours is a Qualified Contract that is:
| • | not subject to Title 1 of ERISA, | |
| • | issued under Section 403(b) of the Code, and | |
| • | issued under a Plan that permits Loans (a “Loan Eligible Plan”). |
You may have only one loan outstanding at any time. The minimum
loan amount is $1,000, subject to certain state limitations.
Your Contract Debt at the effective date of your loan may not
exceed the lesser of:
| • | 50% of the amount available for withdrawal under this Contract (see WITHDRAWALS – Optional Withdrawals – Amount Available for Withdrawal), or | |
| • | $50,000 less your highest outstanding Contract Debt during the 12-month period immediately preceding the effective date of your loan. |
If your request for a loan is processed, you will be charged
interest on your Contract Debt at a fixed annual rate equal to
5%. The amount held in the Loan Account to secure your loan will
earn a return equal to an annual rate of 3%. The net amount of
interest you pay on your loan will be 2.00% annually. These
rates may vary by state.
Interest charges accrue on your Contract Debt daily, beginning
on the effective date of your loan. Interest earned on the Loan
Account Value accrues daily beginning on the day following the
effective date of the loan, and those earnings will be
transferred once a year to your Investment Options in accordance
with your most recent allocation instructions. Your loan,
including principal and accrued interest, generally must be
repaid in quarterly installments and loan repayments are not
considered Purchase Payments. For more information about loans,
including the consequences of loans, loan procedures, loan terms
and repayment terms, see the SAI.
Taking a loan while an optional living benefit Rider is in
effect will terminate your Rider. Work with your financial
advisor before taking a loan.
We may change these loan provisions to reflect changes in the
Code or interpretations thereof. We urge you to consult with
a qualified tax adviser prior to effecting any loan transaction
under your Contract.
IRAs and
Qualified Plans
The following is only a general discussion about types of
IRAs and Qualified Plans for which the Contracts are available.
We are not the administrator of any Qualified Plan. The plan
administrator and/or custodian, whichever is applicable, (but
not us) is responsible for all Plan administrative duties
including, but not limited to, notification of distribution
options, disbursement of Plan benefits,
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handling any processing and administration of Qualified
Plan loans, compliance regulatory requirements and federal and
state tax reporting of income/distributions from the Plan to
Plan participants and, if applicable, Beneficiaries of Plan
participants and IRA contributions from Plan participants. Our
administrative duties are limited to administration of the
Contract and any disbursements of any Contract benefits to the
Owner, Annuitant, or Beneficiary of the Contract, as applicable.
Our tax reporting responsibility is limited to federal and state
tax reporting of income/distributions to the applicable payee
and IRA contributions from the Owner of a Contract, as recorded
on our books and records. The Qualified Plan (the plan
administrator or the custodian) is required to provide us with
information regarding individuals with signatory authority on
the Contract(s) owned. If you are purchasing a Qualified
Contract, you should consult with your plan administrator and/or
a qualified tax adviser. You should also consult with a
qualified tax adviser and/or plan administrator before you
withdraw any portion of your Contract Value.
Individual
Retirement Annuities (“IRAs”)
In addition to “traditional” IRAs established under
Code 408, there are SEP IRAs under Code
Section 408(k), Roth IRAs governed by Code
Section 408A and SIMPLE IRAs established under Code
Section 408(p). Also, Qualified Plans under
Section 401, 403(b), or 457(b) of the Code that include
after-tax employee contributions may be treated as deemed IRAs
subject to the same rules and limitations as traditional IRAs.
Contributions to each of these types of IRAs are subject to
differing limitations. The following is a very general
description of each type of IRA and other Qualified Plans.
Traditional
IRAs
Traditional IRAs are subject to limitations on the amount that
may be contributed each year, the persons who may be eligible to
contribute, when rollovers are available and when distributions
must commence. Depending upon the circumstances of the
individual, contributions to a traditional IRA may be made on a
deductible or non-deductible basis.
Annual contributions are generally allowed for persons who have
not attained
age 701/2
and who have compensation (as defined by the IRS) of at least
the contribution amount. Distributions of minimum amounts
specified by the Code must commence by April 1 of the
calendar year following the calendar year in which you attain
age 701/2.
Failure to make mandatory minimum distributions may result in
imposition of a 50% tax penalty on any difference between the
required distribution amount and the amount actually
distributed. Additional distribution rules apply after your
death.
You (or your surviving spouse if you die) may rollover funds
(such as proceeds from existing insurance policies, annuity
contracts or securities) from certain existing Qualified Plans
into your traditional IRA if those funds are in cash. This will
require you to liquidate any value accumulated under the
existing Qualified Plan. Mandatory withholding of 20% may apply
to any rollover distribution from your existing Qualified Plan
if the distribution is not transferred directly to your
traditional IRA. To avoid this withholding you should have cash
transferred directly from the insurance company or plan trustee
to your traditional IRA.
SIMPLE
IRAs
The Savings Incentive Match Plan for Employees of Small
Employers (“SIMPLE Plan”) is a type of IRA established
under Code Section 408(p)(2). Depending upon the SIMPLE
Plan, employers may make plan contributions into a SIMPLE IRA
established by each participant of the SIMPLE Plan. Like other
IRAs, a 10% tax penalty is imposed on certain distributions that
occur before an employee attains
age 591/2.
In addition, the tax penalty is increased to 25% for amounts
received or rolled to another IRA or Qualified Plan during the
2-year
period beginning on the date an employee first participated in a
qualified salary reduction arrangement pursuant to a SIMPLE Plan
maintained by their employer. Contributions to a SIMPLE IRA will
generally include employee salary deferral contributions and
employer contributions. Distributions from a SIMPLE IRA may be
transferred to another SIMPLE IRA tax free or may be eligible
for tax free rollover to a traditional IRA, a 403(b), a 457(b)
or other Qualified Plan after the required
2-year
period.
SEP-IRAs
A Simplified Employee Pension (SEP) is an employer sponsored
retirement plan under which an employer is allowed to make
contributions toward their employees’ retirement, as well
as their own retirement (if the employer is self-employed). A
SEP is a type of IRA established under Code Section 408(k).
Under a SEP, a separate IRA account called a SEP-IRA is set up
by or for each eligible employee and the employer makes the
contribution to the account. Like other IRAs, a 10% tax penalty
is imposed on certain distributions that occur before an
employee attains
age 591/2.
Roth
IRAs
Section 408A of the Code permits eligible individuals to
establish a Roth IRA. Contributions to a Roth IRA are not
deductible, but withdrawals of amounts contributed and the
earnings thereon that meet certain requirements are not subject
to federal income tax. In general, Roth IRAs are subject to
limitations on the amount that may be contributed and the
persons who may be eligible to contribute and are subject to
certain required distribution rules on the death of the Contract
Owner. Unlike a traditional IRA, Roth IRAs are not subject to
minimum required distribution rules during the Contract
Owner’s lifetime. Generally, however, the amount remaining
in a
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Roth IRA must be distributed by the end of the fifth year after
the death of the Contract Owner/Annuitant or distributed over
the life expectancy of the Designated Beneficiary. The owner of
a traditional IRA may convert a traditional IRA into a Roth IRA
under certain circumstances. The conversion of a traditional IRA
to a Roth IRA will subject the amount of the converted
traditional IRA to federal income tax. Anyone considering the
purchase of a Qualified Contract as a Roth IRA or a
“conversion” Roth IRA should consult with a qualified
tax adviser.
In accordance with recent changes in laws and regulations, at
the time of either a full or partial conversion from a
Traditional IRA annuity to a Roth IRA annuity, the determination
of the amount to be reported as income will be based on the
annuity contract’s “fair market value”, which
will include all front-end loads and other non-recurring charges
assessed in the 12 months immediately preceding the
conversion, and the actuarial present value of any additional
contract benefits.
Tax
Sheltered Annuities (“TSAs”)
Employees of certain tax-exempt organizations, such as public
schools or hospitals, may defer compensation through an eligible
plan under Code Section 403(b). Salary deferral amounts
received from employers for these employees are excludable from
the employees’ gross income (subject to maximum
contribution limits). Distributions under these Contracts must
comply with certain limitations as to timing, or result in tax
penalties. Distributions from amounts contributed to a TSA
pursuant to a salary reduction arrangement, may be made from a
TSA only upon attaining
age 591/2,
severance from employment, death, disability, or financial
hardship. Section 403(b) annuity distributions can be
rolled over to other Qualified Plans in a manner similar to
those permitted by Qualified Plans that are maintained pursuant
to Section 401 of the Code.
In accordance with Code Section 403(b) and final
regulations published on July 26, 2007 (“Final
Regulations”), as of January 1, 2009, we are required
to provide information regarding contributions, loans,
withdrawals, and hardship distributions from your Contract to
your 403(b) employer or an agent of your
403(b) employer, upon request. In addition, prior to
processing your request for certain transactions, we are
required to verify certain information about you with your
403(b) employer (or if applicable, former
403(b) employer) which may include obtaining authorization
from either your employer or your employer’s third party
administrator.
Section 457(b)
Non-Qualified
Deferred Compensation Plans
Certain employees of governmental entities or tax exempt
employers may defer compensation through an eligible plan under
Code section 457(b). Contributions to a Contract of an
eligible plan are subject to limitations. Subject to plan
provisions and a qualifying triggering event, assets in a
Section 457(b) plan established by a governmental entity
may be transferred or rolled into an IRA or another Qualified
Plan, if the Qualified Plan allows the transfer or rollover. If
a rollover to an IRA is completed, the assets become subject to
IRA rules, including the 10% penalty on distributions prior to
age 591/2.
Assets from other plans may be rolled into a governmental
457(b) plan if the 457(b) plan allows the rollover and
if the investment provider is able to segregate the assets for
tax reporting purposes. Consult both the distributing plan and
the receiving plan prior to making this election. Assets in a
457(b) plan set up by a tax exempt employer may not be
rolled to a different type of Qualified Plan or IRA at any time.
401(k) Plans;
Pension and Profit-Sharing Plans
Qualified Plans may be established by an employer for certain
eligible employees under Section 401 of the Code. These
plans may be 401(k) plans, profit-sharing plans, or other
pension or retirement plans. Contributions to these plans are
subject to limitations. Rollover to other eligible plans may be
available. Please consult your Qualified Plans Summary Plan
description for more information.
ADDITIONAL
INFORMATION
Voting
Rights
We are the legal owner of the shares of the Portfolios held by
the Subaccounts. We may vote on any matter voted on at
shareholders’ meetings of the Funds. However, our current
interpretation of applicable law requires us to vote the number
of shares attributable to your Variable Account Value (your
“voting interest”) in accordance with your directions.
We will pass proxy materials on to you so that you have an
opportunity to give us voting instructions for your voting
interest. You may provide your instructions by proxy or in
person at the shareholders’ meeting. If there are shares of
a Portfolio held by a Subaccount for which we do not
receive timely voting instructions, we will vote those shares in
the same proportion as all other shares of that Portfolio held
by that Subaccount for which we have received timely
voting instructions. If we 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. If we hold shares of a
Portfolio in our General Account, we will vote such shares in
the same proportion as the total votes cast for all of our
separate accounts, including Separate Account A. We will vote
shares of any Portfolio held by our non-insurance affiliates in
the same proportion as the total votes for all separate accounts
of ours and our insurance affiliates. As a result of
proportional voting, the votes cast by a small number of
Contract Owners may determine the outcome of a vote.
62
We may elect, in the future, to vote shares of the Portfolios
held in Separate Account A in our own right if we are permitted
to do so through a change in applicable federal securities laws
or regulations, or in their interpretation.
The number of Portfolio shares that form the basis for your
voting interest is determined as of the record date set by the
Board of Trustees of the Fund. It is equal to:
| • | your Contract Value allocated to the Subaccount corresponding to that Portfolio, divided by | |
| • | the net asset value per share of that Portfolio. |
Fractional votes will be counted. We reserve the right, if
required or permitted by a change in federal regulations or
their interpretation, to amend how we calculate your voting
interest.
After your Annuity Date, if you have selected a variable
annuity, the voting rights under your Contract will continue
during the payout period of your annuity, but the number of
shares that form the basis for your voting interest, as
described above, will decrease throughout the payout period.
Changes
to Your Contract
Contract
Owner(s)
Transfer of Contract ownership may involve federal income tax
and/or gift tax consequences; you should consult a qualified tax
adviser before effecting such a transfer. A change to or from
joint Contract ownership is considered a transfer of ownership.
If your Contract is Non-Qualified, you may change Contract
ownership at any time while the Annuitant is living and prior to
your Annuity Date. You may name a different Owner or add or
remove a Joint Owner. A Contract cannot name more than two
Contract Owners at any time. Any newly-named Contract Owners,
including Joint Owners, must be under the age of 86 at the time
of change or addition. The Contract Owner(s) may make all
decisions regarding the Contract, including making allocation
decisions and exercising voting rights. Transactions under a
Contract with Joint Owners require approval from both Owners.
If your Contract is Qualified under Code Sections 401 or
457(b), the Qualified Plan must be the sole Owner of the
Contract and the ownership cannot be changed unless and until a
triggering event has been met under the terms of the Qualified
Plan. Upon such event, the ownership can only be changed to the
Annuitant. If your Contract is Qualified under Code
Sections 408 and 403(b), you must be the sole Owner of the
Contract and no changes can be made.
Annuitant
and Contingent or Joint Annuitant
Your sole Annuitant cannot be changed, and Joint Annuitants
cannot be added or changed, once your Contract is issued.
Certain changes may be permitted in connection with Contingent
Annuitants. See ANNUITIZATION – Selecting Your
Annuitant. There may be limited exceptions for certain
Qualified Contracts.
Beneficiaries
Your Beneficiary is the person(s) or entity who may receive
death benefit proceeds under your Contract or any remaining
annuity payments after the Annuity Date if the Annuitant or
Owner dies. See the DEATH BENEFITS AND OPTIONAL DEATH BENEFIT
RIDERS section for additional information regarding death
benefit payouts. You may change or remove your Beneficiary or
add Beneficiaries at any time prior to the death of the
Annuitant or Owner, as applicable. Any change or addition will
generally take effect only when we receive all necessary
documents, in proper form, at our Service Center and we record
the change or addition. Any change or addition will not affect
any payment made or any other action taken by us before the
change or addition was received and recorded. Under our
administrative procedures, a signature guarantee and/or other
verification of identity or authenticity may be required when
processing a claim payable to a Beneficiary.
Spousal consent may be required to change an IRA Beneficiary. If
you are considering removing a spouse as a Beneficiary, it is
recommended that you consult your legal or tax advisor regarding
any applicable state or federal laws prior to requesting the
change. If you have named your Beneficiary irrevocably, you will
need to obtain that Beneficiary’s consent before making any
changes. Qualified Contracts may have additional restrictions on
naming and changing Beneficiaries. If your Contract was issued
in connection with a Qualified Plan subject to Title I of
ERISA, contact your Plan Administrator for details. We require
that Contracts issued under Code Sections 401 and 457(b)
name the Plan as Beneficiary. If you leave no surviving
Beneficiary or Contingent Beneficiary, your estate will receive
any death benefit proceeds under your Contract.
Changes
to All Contracts
If, in the judgment of our management, continued investment by
Separate Account A in one or more of the Portfolios becomes
unsuitable or unavailable, we may seek to alter the Variable
Investment Options available under the Contracts. We do not
expect that a
63
Portfolio will become unsuitable, but unsuitability issues could
arise due to changes in investment policies, market conditions,
tax laws, or due to marketing or other reasons.
Alterations of Variable Investment Options may take differing
forms. We reserve the right to substitute shares of any
Portfolio that were already purchased under any Contract (or
shares that were to be purchased in the future under a Contract)
with shares of another Portfolio, shares of another investment
company or series of another investment company, or another
investment vehicle. Required approvals of the SEC and state
insurance regulators will be obtained before any such
substitutions are effected, and you will be notified of any
planned substitution.
We may add new Subaccounts to Separate Account A and any new
Subaccounts may invest in Portfolios of a Fund or in other
investment vehicles. Availability of any new Subaccounts to
existing Contract Owners will be determined at our discretion.
We will notify you, and will comply with the filing or other
procedures established by applicable state insurance regulators,
to the extent required by applicable law. We also reserve the
right, after receiving any required regulatory approvals, to do
any of the following:
| • | cease offering any Subaccount; | |
| • | add or change designated investment companies or their portfolios, or other investment vehicles; | |
| • | add, delete or make substitutions for the securities and other assets that are held or purchased by the Separate Account or any Variable Account; | |
| • | permit conversion or exchanges between portfolios and/or classes of contracts on the basis of Owners’ requests; | |
| • | add, remove or combine Variable Accounts; | |
| • | combine the assets of any Variable Account with any other of our separate accounts or of any of our affiliates; | |
| • | register or deregister Separate Account A or any Variable Account under the 1940 Act; | |
| • | operate any Variable Account as a managed investment company under the 1940 Act, or any other form permitted by law; | |
| • | run any Variable Account under the direction of a committee, board, or other group; | |
| • | restrict or eliminate any voting rights of Owners with respect to any Variable Account or other persons who have voting rights as to any Variable Account; | |
| • | make any changes required by the 1940 Act or other federal securities laws; | |
| • | make any changes necessary to maintain the status of the Contracts as annuities under the Code; | |
| • | make other changes required under federal or state law relating to annuities; | |
| • | suspend or discontinue sale of the Contracts; and | |
| • | comply with applicable law. |
Inquiries
and Submitting Forms and Requests
You may reach our service representatives at
(800) 722-4448
between the hours of 6:00 a.m. and 5:00 p.m., Pacific
time. Financial advisors may call us at
(877) 441-2357.
Please send your forms and written requests or questions to:
Pacific Life Insurance Company
P.O. Box 2378
Omaha, Nebraska 68103-2378
P.O. Box 2378
Omaha, Nebraska 68103-2378
If you are submitting a Purchase Payment or other payment by
mail, please send it, along with your application if you are
submitting one, to the following address:
Pacific Life Insurance Company
P.O. Box 2290
Omaha, Nebraska 68103-2290
P.O. Box 2290
Omaha, Nebraska 68103-2290
If you are using an overnight delivery service to send payments,
please send them to the following address:
Pacific Life Insurance Company
1299 Farnam Street, 6th Floor, RSD
1299 Farnam Street, 6th Floor, RSD
Omaha, Nebraska 68102
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The effective date of certain notices or of instructions is
determined by the date and time on which we receive the notice
or instructions in proper form. In those instances when we
receive electronic transmission of the information on the
application from your financial advisor’s broker-dealer
firm and our administrative procedures with your broker-dealer
so provide, we consider the application to be received on the
Business Day we receive the transmission. If the address on your
Contract specification pages is different and our administrative
procedures with your broker-dealer so provide, in those
instances when information regarding your Purchase Payment is
electronically transmitted to us by the broker-dealer, we will
consider the Purchase Payment to be received by us on the
Business Day we receive the transmission of the information.
Please call us at
(800) 722-4448
if you have any questions regarding which address you should
use. Financial advisors may call us at
(877) 441-2357.
We reserve the right to process any Purchase Payment received at
an incorrect address when it is received at either the address
indicated in your Contract specification pages or the
appropriate address indicated in the Prospectus.
Purchase Payments after your initial Purchase Payment, loan
requests, transfer requests, loan repayments and withdrawal
requests we receive before the close of the New York Stock
Exchange, which usually closes at 4:00 p.m. Eastern time,
will normally be effective at the end of the same Business Day
that we receive them in “proper form,” unless the
transaction or event is scheduled to occur on another day.
Generally, whenever you submit any other form, notice or
request, your instructions will be effective on the next
Business Day after we receive them in “proper form”
unless the transaction or event is scheduled to occur on another
day. “Proper form” means in a form satisfactory to us
and may require, among other things, a signature guarantee or
other verification of authenticity. We do not generally require
a signature guarantee unless it appears that your signature may
have changed over time or the signature does not appear to be
yours; or an executed application or confirmation of
application, as applicable, in proper form is not received by
us; or, to protect you or us. Requests regarding death benefit
proceeds must be accompanied by both proof of death and
instructions regarding payment satisfactory to us. You should
call your financial advisor or us if you have questions
regarding the required form of a request.
Telephone
and Electronic Transactions
You are automatically entitled to make certain transactions by
telephone or, to the extent available, electronically. You may
also authorize other people to make certain transaction requests
by telephone or, to the extent available, electronically by so
indicating on the application or by sending us instructions in
writing in a form acceptable to us. We cannot guarantee that you
or any other person you authorize will always be able to reach
us to complete a telephone or electronic transaction; for
example, all telephone lines may be busy or access to our
website may be unavailable during certain periods, such as
periods of substantial market fluctuations or other drastic
economic or market change, or telephones or the Internet may be
out of service or unavailable during severe weather conditions
or other emergencies. Under these circumstances, you should
submit your request in writing (or other form acceptable to us).
Transaction instructions we receive by telephone or
electronically before the close of the New York Stock Exchange,
which usually closes at 4:00 p.m. Eastern time, on any
Business Day will usually be effective at the end of that day,
and we will provide you confirmation of each telephone or
electronic transaction.
We have established procedures reasonably designed to confirm
that instructions communicated by telephone or electronically
are genuine. These procedures may require any person requesting
a telephone or electronic transaction to provide certain
personal identification upon our request. We may also record all
or part of any telephone conversation with respect to
transaction instructions. We reserve the right to deny any
transaction request made by telephone or electronically. You are
authorizing us to accept and to act upon instructions received
by telephone or electronically with respect to your Contract,
and you agree that, so long as we comply with our procedures,
neither we, any of our affiliates, nor any Fund, or any of their
directors, trustees, officers, employees or agents will be
liable for any loss, liability, cost or expense (including
attorneys’ fees) in connection with requests that we
believe to be genuine. This policy means that so long as we
comply with our procedures, you will bear the risk of loss
arising out of the telephone or electronic transaction
privileges of your Contract. If a Contract has Joint Owners,
each Owner may individually make telephone and/or electronic
transaction requests.
Electronic
Information Consent
Subject to availability, you may authorize us to provide
prospectuses, prospectus supplements, annual and semi-annual
reports, quarterly statements and immediate confirmations, proxy
solicitation, privacy notice and other notices and documentation
in electronic format when available instead of receiving paper
copies of these documents by U.S. mail. You may enroll in
this service by so indicating on the application, via our
Internet website, or by sending us instructions in writing in a
form acceptable to us to receive such documents electronically.
Not all contract documentation and notifications may be
currently available in electronic format. You will continue to
receive paper copies of any documents and notifications not
available in electronic format by U.S. mail. In addition,
you will continue to receive paper copies of annual statements
if required by state or federal law. By enrolling in this
service, you consent to receive in electronic format any
documents added in the future. For jointly owned contracts, both
owners are consenting to receive information electronically.
Documents will be available on our Internet website. As
documents become available, we will notify you of this by
sending you an
e-mail
message that will include instructions on how to retrieve the
document. You must have ready access to a computer with Internet
access, an active
e-mail
account to receive this information electronically, and the
ability to read and retain it. You may access and print all
documents provided through this service.
65
If you plan on enrolling in this service, or are currently
enrolled, please note that:
| • | We impose no additional charge for electronic delivery, although your Internet provider may charge for Internet access. | |
| • | You must provide a current e-mail address and notify us promptly when your e-mail address changes. | |
| • | You must update any e-mail filters that may prevent you from receiving e-mail notifications from us. | |
| • | You may request a paper copy of the information at any time for no charge, even though you consented to electronic delivery, or if you decide to revoke your consent. | |
| • | For jointly owned contracts, both owners are consenting that the primary owner will receive information electronically. (Only the primary owner will receive e-mail notices.) |
| • | Electronic delivery will be cancelled if e-mails are returned undeliverable. |
| • | This consent will remain in effect until you revoke it. |
We are not required to deliver this information electronically
and may discontinue electronic delivery in whole or in part at
any time. If you are currently enrolled in this service, please
call
(800) 722-4448
if you would like to revoke your consent, wish to receive a
paper copy of the information above, or need to update your
e-mail
address.
Timing of
Payments and Transactions
For withdrawals, including exchanges under Code
Section 1035 and other Qualified transfers, from the
Variable Investment Options or for death benefit payments
attributable to your Variable Account Value, we will normally
send the proceeds within 7 calendar days after your request
is effective or after the Notice Date, as the case may be. We
will normally effect periodic annuity payments on the day that
corresponds to the Annuity Date and will make payment on the
following day. Payments or transfers may be suspended for a
longer period under certain extraordinary circumstances. These
include: a closing of the New York Stock Exchange other than on
a regular holiday or weekend; a trading restriction imposed by
the SEC; or an emergency declared by the SEC. Amounts withdrawn
or transferred from any
fixed-rate
General Account Investment Option may be delayed for up to six
months after the request is effective. See THE GENERAL
ACCOUNT for more details.
Confirmations,
Statements and Other Reports to Contract Owners
Confirmations will be sent out for unscheduled Purchase Payments
and transfers, loans, loan repayments, unscheduled partial
withdrawals, a full withdrawal, optional living benefit rider
Automatic or Owner Elected Resets/Step-Ups, and on payment of
any death benefit proceeds. Periodically, we will send you a
statement that provides certain information pertinent to your
Contract. These statements disclose Contract Value, Subaccount
values, any fixed option values, fees and charges applied to
your Contract Value, transactions made and specific Contract
data that apply to your Contract. Confirmations of your
transactions under the pre-authorized checking plan, dollar cost
averaging, earnings sweep, portfolio rebalancing, and
pre-authorized withdrawal options will appear on your quarterly
account statements. Your fourth-quarter statement will contain
annual information about your Contract Value and transactions.
You may also access these statements online.
If you suspect an error on a confirmation or quarterly
statement, you must notify us in writing as soon as possible to
ensure proper accounting to your Contract. When you write, tell
us your name, contract number and a description of the suspected
error. We assume transactions are accurate unless you notify us
otherwise within 30 days of receiving the transaction
confirmation or, if the transaction is first confirmed on the
quarterly statement, within 30 days of receiving the
quarterly statement. All transactions are deemed final and may
not be changed after the applicable 30 day period.
You will also be sent an annual report for the Separate Account
and the Funds and a list of the securities held in each
Portfolio of the Funds, as required by the 1940 Act; or
more frequently if required by law.
Contract Owner Mailings. To help reduce expenses,
environmental waste and the volume of mail you receive, only one
copy of Contract Owner documents (such as the prospectus,
supplements, announcements, and each annual and semi-annual
report) may be mailed to Contract Owners who share the same
household address (Householding). If you are already
participating, you may opt out by contacting us. Please allow
30 calendar days for regular delivery to resume. You may
also elect to participate in Householding by writing to us. The
current documents are available on our website any time or an
individual copy of any of these documents may be
requested – see the last page of this Prospectus for
more information.
Distribution
Arrangements
PSD, a broker-dealer and our subsidiary, pays various forms of
sales compensation to broker-dealers (including other
affiliates) that solicit applications for the Contracts. PSD
also may reimburse other expenses associated with the promotion
and solicitation of applications for the Contracts.
66
We offer the Contracts for sale through broker-dealers that have
entered into selling agreements with PSD. Broker-dealers sell
the Contracts through their financial advisors. PSD pays
compensation to broker-dealers for the promotion and sale of the
Contracts. The individual financial advisor who sells you a
Contract typically will receive a portion of the compensation,
under the financial advisor’s own arrangement with his or
her broker-dealer. Broker-dealers may receive aggregate
commissions of up to 6.00% of your aggregate Purchase Payments.
Under certain circumstances where PSD pays lower initial
commissions, certain broker-dealers that solicit applications
for Contracts may be paid an ongoing persistency trail
commission (sometimes called a residual) which will take into
account, among other things, the Account Value and the length of
time Purchase Payments have been held under a Contract. A trail
commission is not anticipated to exceed 0.50%, on an annual
basis, of the Account Value considered in connection with the
trail commission. Certain broker-dealers may also be paid an
amount under a persistency program which will be based on assets
under management and duration of Contracts. The amount under the
persistency program for a financial advisor is not expected to
exceed 0.25% of their total assets under management.
We may also provide compensation to broker-dealers for providing
ongoing service in relation to Contracts that have already been
purchased.
Additional
Compensation and Revenue Sharing
To the extent permitted by SEC and FINRA rules and other
applicable laws and regulations, selling broker-dealers may
receive additional payments in the form of cash, other special
compensation or reimbursement of expenses, sometimes called
“revenue sharing”. These additional compensation or
reimbursement arrangements may include, for example, payments in
connection with the firm’s “due diligence”
examination of the contracts, payments for providing conferences
or seminars, sales or training programs for invited financial
advisors and other employees, payments for travel expenses,
including lodging, incurred by financial advisors and other
employees for such seminars or training programs, seminars for
the public, advertising and sales campaigns regarding the
Contracts, and payments to assist a firm in connection with its
administrative systems, operations and marketing expenses and/or
other events or activities sponsored by the firms. Subject to
applicable FINRA rules and other applicable laws and
regulations, PSD and its affiliates may contribute to, as well
as sponsor, various educational programs, sales contests and/or
promotions in which participating firms and their salespersons
may receive prizes such as merchandise, cash, or other awards.
Such additional compensation may give us greater access to
financial advisors of the broker-dealers that receive such
compensation or may otherwise influence the way that a
broker-dealer and financial advisor market the Contracts.
These arrangements may not be applicable to all firms, and the
terms of such arrangements may differ between firms. We provide
additional information on special compensation or reimbursement
arrangements involving selling firms and other financial
institutions in the Statement of Additional Information, which
is available upon request. Any such compensation will not result
in any additional direct charge to you by us.
The compensation and other benefits provided by PSD or its
affiliates may be more or less than the overall compensation on
similar or other products. This may influence your financial
advisor or broker-dealer to present this Contract over other
investment options available in the marketplace. You may ask
your financial advisor about these differing and divergent
interests, how he/she is personally compensated and how his/her
broker-dealer is compensated for soliciting applications for the
Contract.
Service
Arrangements
We have entered into services agreements with certain Funds, or
Fund affiliates, which pay us for administrative and other
services, including, but not limited to, certain communications
and support services. The fees are based on an annual percentage
of average daily net assets of certain Fund portfolios purchased
by us at Contract Owner’s instructions. Currently, the fees
received do not exceed an annual percentage of 0.30% and each
Fund (or Fund affiliate) may not pay the same annual percentage
(some may pay significantly less). Because we receive such fees,
we may be subject to competing interests in making these Funds
available as Investment Options under the Contracts.
AllianceBernstein Investments, Inc. pays us for each
AllianceBernstein Variable Products Series Fund, Inc. portfolio
(Class B) held by our separate accounts. BlackRock
Distributors, Inc. pays us for each BlackRock Variable Series
Funds, Inc. portfolio (Class III) held by our separate
accounts. Franklin Templeton Services, LLC pays us for each
Franklin Templeton Variable Insurance Products Trust portfolio
(Class 2) held by our separate accounts. Invesco Advisers,
Inc. and its affiliates pay us for each AIM Variable Insurance
Funds (Invesco Variable Insurance Funds) portfolio
(Series II) held by our separate accounts. Lord Abbett
Series Fund, Inc. pays us for each Lord Abbett Series Fund, Inc.
portfolio (Class VC) held by our separate accounts.
Massachusetts Financial Services Company pays us for each MFS
Variable Insurance Trust portfolio (Service Class) held by our
separate accounts. Pacific Investment Management Company LLC
pays us for each PIMCO Variable Insurance Trust portfolio
(Advisor Class) held by our separate accounts. GE Investments
Funds, Inc. pays us for each GE Investments Funds, Inc.
portfolio (Class 3) held by our separate accounts.
PSD shall pay American Funds Distributors, Inc. at a rate of
0.16% of Purchase Payments up to $1.5 billion, 0.14% on
Purchase Payments on the next $1.5 billion and 0.10% on
Purchase Payments made in excess, attributable to the Master
Funds for certain marketing assistance.
67
Replacement
of Life Insurance or Annuities
The term “replacement” has a special meaning in the
life insurance industry and is described more fully below.
Before you make your purchase decision, we want you to
understand how a replacement may impact your existing plan of
insurance.
A policy “replacement” occurs when a new policy or
contract is purchased and, in connection with the sale, an
existing policy or contract is surrendered, lapsed, forfeited,
assigned to the replacing insurer, otherwise terminated, or used
in a financed purchase. A “financed purchase” occurs
when the purchase of a new life insurance policy or annuity
contract involves the use of funds obtained from the values of
an existing life insurance policy or annuity contract through
withdrawal, surrender or loan.
There are circumstances in which replacing your existing life
insurance policy or annuity contract can benefit you. As a
general rule, however, replacement is not in your best interest.
Accordingly, you should make a careful comparison of the costs
and benefits of your existing policy or contract and the
proposed policy or contract to determine whether replacement is
in your best interest.
State
Considerations
Certain Contract features described in this Prospectus may
vary or may not be available in your state. The state in which
your Contract is issued governs whether or not certain features,
Riders, charges or fees are available or will vary under your
Contract. These variations are reflected in your Contract and in
Riders or Endorsements to your Contract. See your financial
advisor or contact us for specific information that may be
applicable to your state.
For Contracts issued in the state of Pennsylvania, any person
who knowingly and with intent to defraud any insurance company
or other person files an application for insurance or statement
of claim containing any materially false information or conceals
for the purpose of misleading, information concerning any fact
material thereto commits a fraudulent insurance act, which is a
crime and subjects such person to criminal and civil penalties.
In addition, you understand that benefits and values provided
under the Contract may be on a variable basis. Amounts directed
into one or more variable Investment Options will reflect the
investment experience of those Investment Options. These amounts
may increase or decrease and are not guaranteed as to a dollar
amount.
California
Applicants Age 60 or Older
For residents of the state of California 60 years of age or
older, the Free Look period is a
30-day period
beginning on the day you receive your Contract. If you are a
California applicant age 60 or older and your Contract is
delivered or issued for delivery on or after July 1, 2004,
you must elect, at the time you apply for your Contract, to
receive a return of either your Purchase Payments or your
Contract Value proceeds if you exercise your Right to Cancel and
return your Contract to us.
If you elect to receive the return of Purchase Payments option,
the following will apply:
| • | We will allocate all or any portion of any Purchase Payment we receive to any available fixed option if you instruct us to do so. We will allocate all or any portion of any Purchase Payment designated for any Variable Investment Option to the Cash Management Subaccount until the Free Look Transfer Date. The Free Look Transfer Date is 30 days from the Contract Date. On the Free Look Transfer Date, we will automatically transfer your Cash Management Subaccount Value according to the instructions on your application, or your most recent instruction, if any. This automatic transfer to the Variable Investment Options according to your initial allocation instruction is excluded from the Transfer limitations. See HOW YOUR PURCHASE PAYMENTS ARE ALLOCATED – Transfers and Market-timing Restrictions. | |
| • | If you specifically instruct us to allocate all or any portion of any additional Purchase Payments we receive to any Variable Investment Option other than the Cash Management Subaccount before the Free Look Transfer Date, you will automatically change your election to the return of your Contract Value proceeds option. This will automatically cancel your election of the “return of Purchase Payments” option for the entire Contract. | |
| • | If you request a transfer of all or any portion of your Contract Value from the Cash Management Subaccount to any other Variable Investment Option before the Free Look Transfer Date, you will automatically change your election to the return of your Contract Value proceeds option. This will automatically cancel your election of the “return of Purchase Payments” option for the entire Contract. | |
| • | If you exercise your Right to Cancel, we will send you your Purchase Payments. |
If you elect the return of Contract Value proceeds option, the
following will apply:
| • | We will immediately allocate any Purchase Payments we receive to the Investment Options you select on your application or your most recent instructions, if any. |
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| • | If you exercise your Right to Cancel, we will send you your Contract Value proceeds described in the Right to Cancel (“Free Look”) section of this prospectus. | |
| • | Once you elect this option, it may not be changed. |
Financial
Statements
The statements of assets and liabilities of Separate Account A
as of December 31, 2010, the related statements of
operations for the periods presented, the statements of changes
in net assets for each of the periods presented and the
financial highlights for each of the periods presented are
incorporated by reference in the Statement of Additional
Information from the Annual Report of Separate Account A dated
December 31, 2010. Pacific Life’s consolidated
statements of financial condition as of December 31, 2010
and 2009, and the related consolidated statements of operations,
equity and cash flows for each of the three years in the period
ended December 31, 2010 are contained in the Statement of
Additional Information.
Rule
12h-7 Representation
In reliance on the exemption provided by
Rule 12h-7
of the Securities Exchange Act of 1934
(“34 Act”), we do not intend to file periodic
reports as required under the 34 Act.
THE
GENERAL ACCOUNT
General
Information
All amounts allocated to a fixed option become part of our
General Account. Subject to applicable law, we exercise sole
discretion over the investment of General Account assets, and
bear the associated investment risk. You will not share in the
investment experience of General Account assets. Unlike the
Separate Account, the General Account is subject to liabilities
arising from any of our other business. Any guarantees provided
for under the contract or through optional riders are backed by
our financial strength and claims paying ability. You must look
to the strength of the insurance company with regard to such
guarantees.
Because of exemptive and exclusionary provisions, interests in
the General Account under the Contract are not registered under
the Securities Act of 1933, as amended, and the General Account
has not been registered as an investment company under the 1940
Act. Any interest you have in a fixed option is not subject to
these Acts, and we have been advised that the SEC staff has not
reviewed disclosure in this Prospectus relating to any fixed
option. This disclosure may, however, be subject to certain
provisions of federal securities laws relating to the accuracy
and completeness of statements made in prospectuses.
Guarantee
Terms
When you allocate any portion of your Purchase Payments or
Contract Value to any fixed option, we guarantee you an interest
rate (a “Guaranteed Interest Rate”) for a specified
period of time (a “Guarantee Term”) of up to one year.
Guarantee Terms will be offered at our discretion.
Guaranteed Interest Rates for any fixed option may be changed
periodically for new allocations. Your allocation will receive
the Guaranteed Interest Rate in effect for that fixed option on
the effective date of your allocation. All Guaranteed Interest
Rates will credit interest daily at a rate that compounds over
one year to equal the annual effective rate. The Guaranteed
Interest Rate on your fixed option will remain in effect for the
Guarantee Term and will never be less than an annual rate of 3%.
Withdrawals
and Transfers
Prior to the Annuity Date, you may withdraw or transfer amounts
from any fixed option to one or more of the other Variable
Investment Options. No partial withdrawal or transfer may be
made from a fixed option within 30 days of the Contract
Date. Currently, we are not requiring the
30-day
waiting period on partial withdrawals and transfers, but we
reserve the right to require the
30-day
waiting period on partial withdrawals and transfers in the
future. If your withdrawal leaves you with a Net Contract Value
of less than $1,000, we have the right, at our option, to
terminate your Contract and send you the withdrawal proceeds.
However, we will not terminate your Contract if you own an
optional Rider and a partial withdrawal reduces the Net Contract
Value to an amount less than $1,000.
Amounts transferred or withdrawn from any fixed option may be
delayed, as described under ADDITIONAL
INFORMATION – Timing of Payments and Transactions.
Any amount delayed, so long as it is held under any fixed
option, will continue to earn interest at the Guaranteed
Interest Rate then in effect until that Guarantee Term has
ended, and the minimum guaranteed interest rate of 3%
thereafter, unless state law requires a greater rate be paid.
69
DCA Plus
Fixed Option
Before your Annuity Date, you can allocate all or some of your
Purchase Payments to the DCA Plus Fixed Option. The initial
minimum amount that you may allocate to the DCA Plus Fixed
Option is $5,000. Currently, we are not enforcing the minimum
amount you may allocate to the DCA Plus Fixed Option but we
reserve the right to enforce the minimum amount in the future.
You may not transfer any amount to the DCA Plus Fixed Option
from any other Investment Option. All Purchase Payments
allocated to the DCA Plus Fixed Option will earn interest at the
then current Guaranteed Interest Rate declared by us.
The DCA Plus Fixed Option Value on any Business Day is the DCA
Plus Fixed Option Value on the prior Business Day, increased by
any additions to the DCA Plus Fixed Option on that day as a
result of any:
| • | interest, plus |
| • | Purchase Payments allocated to the DCA Plus Fixed Option, plus |
| • | any additional amounts allocated to the DCA Plus Fixed Option, |
and decreased by any deductions from the DCA Plus Fixed Option
on that day as a result of any;
| • | transfers, including transfers to the Loan Account, |
| • | withdrawals, including any applicable withdrawal charges, |
| • | amounts applied to provide an annuity, and |
| • | charges for premium taxes and/or other taxes and annual fees. |
The DCA Plus program will automatically terminate at the end of
your DCA Plus Guarantee Term, or upon the earliest of:
| • | the date death benefit proceeds become payable under the Contract, | |
| • | the date you transfer the entire amount from the DCA Plus Fixed Option to another Investment Option, | |
| • | the date the Contract is terminated, or | |
| • | the Annuity Date. |
At the end of the DCA Plus program, upon receipt of an
additional Purchase Payment that satisfies our minimum
allocation requirements, you may request, in a form satisfactory
to us, a new DCA Plus program.
We reserve the right to change the terms and conditions of the
DCA Plus program, but not a DCA Plus program you already have in
effect.
Guarantee
Terms
The day that the first Investment allocation is made to the DCA
Plus Fixed Option will begin the Guarantee Term. You can choose
a Guarantee Term of up to one year. Currently, we offer
Guarantee Terms of 6 or 12 months with monthly transfers on
the same day of each month thereafter to the Variable Investment
Options that you selected. The amount transferred each month is
equal to your DCA Plus Fixed Option Value on that day divided by
the remaining number of monthly transfers in the Guarantee Term.
Example: On May 1, you submit a $10,000
Investment entirely to the DCA Plus Fixed Option at a then
current Guaranteed Interest Rate of 5.00% with a Guarantee Term
of 6 months. On June 1, the value of the DCA Plus
Fixed Option is $10,041.52. On June 1, a transfer equal to
$1,673.59
($10,041.52 / 6)
will be made according to your DCA Plus transfer instructions.
Your remaining DCA Plus Fixed Option Value after the transfer is
$8,367.93. On July 1, your DCA Plus Fixed Option has now
increased to $8,401.56. We will transfer $1,680.31
($8,401.56 / 5)
to the Variable Investment Options, leaving a remaining value of
$6,721.25 in the DCA Plus Fixed Option.
During the Guarantee Term, you can allocate all or a part of any
additional Purchase Payments to the DCA Plus Fixed Option.
Additional allocations must be at least $250. Each additional
allocation will be transferred to the Variable Investment
Options you select over the remaining Guarantee Term. Transfers
will be made from the DCA Plus Fixed Option Value attributed to
the oldest Investment allocation and each subsequent Purchase
Payment in the order received.
Example: (using the previous example): On
July 15, an additional $5,000 is allocated to the DCA Plus
Option at a Guaranteed Interest Rate of 4.00%. On August 1,
your DCA Plus Fixed Option Value has increased to $11,758.30. An
amount equal to $2,939.58
($11,758.30 / 4)
is transferred from the DCA Plus Fixed Option to the Variable
Investment Options. The remaining DCA Plus Fixed Option Value is
$8,818.72.
70
Transfers
DCA Plus transfers must be made on a monthly basis to the
Variable Investment Options. No transfers to the DCA Plus Fixed
Option may be made at any time. You cannot choose to transfer
other than monthly. Unless otherwise instructed, any additional
Purchase Payment we receive during a Guarantee Term will be
allocated to the Investment Options, including the DCA Plus
Fixed Option if so indicated, according to your most recent
allocation instructions.
If the Owner dies while transfers are being made from the DCA
Plus Fixed Option and the surviving spouse of the deceased Owner
elects to continue the Contract in accordance with its terms,
transfers will continue to be made from the DCA Plus Fixed
Option to the selected Variable Investment Options, until the
Guarantee Term ends.
DCA Plus Fixed Option interest is compounded annually and
credited to your Contract daily. The Guaranteed Interest Rate is
credited on a declining balance as money is transferred from the
DCA Plus Fixed Option to the selected Variable Investment
Options. The equivalent annual rate reflects the amount of
interest that will be transferred to selected Variable
Investment Options over the entire Guarantee Term divided by the
amount originally invested in the DCA Plus Fixed Option.
Example: On May 1, you submit a $10,000
Purchase Payment entirely to the DCA Plus Fixed Option at a then
current Guaranteed Interest Rate of 4.00% with a Guarantee Term
of 12 months. Over the entire Guarantee Term, $215.40 of
interest is transferred to the selected Variable Investment
Options. The equivalent annual rate will equal 2.15% during the
Guarantee Term.
71
TERMS
USED IN THIS PROSPECTUS
Some of the terms
we’ve used in this Prospectus may be new to you.
We’ve identified them in the Prospectus by capitalizing the
first letter of each word. You will find an explanation of what
they mean below.
If you have any
questions, please ask your financial advisor or call us at
(800) 722-4448.
Financial advisors may call us at
(877) 441-2357.
Account
Value –
The amount of your Contract Value allocated to a specified
Variable Investment Option or any fixed option.
Annual
Fee –
A $30 fee charged each year on your Contract Anniversary and at
the time of a full withdrawal, if your Net Contract Value is
less than $50,000 on that date.
Annuitant –
A person on whose life annuity payments may be determined. An
Annuitant’s life may also be used to determine certain
increases in death benefits, and to determine the Annuity Date.
A Contract may name a single (“sole”) Annuitant or two
(“Joint”) Annuitants, and may also name a
“Contingent” Annuitant. If you name Joint Annuitants
or a Contingent Annuitant, “the Annuitant” means the
sole surviving Annuitant, unless otherwise stated.
Annuity
Date –
The date specified in your Contract, or the date you later
elect, if any, for the start of annuity payments if the
Annuitant (or Joint Annuitants) is (or are) still living and
your Contract is in force; or if earlier, the date that annuity
payments actually begin.
Annuity
Option –
Any one of the income options available for a series of payments
after your Annuity Date.
Beneficiary –
A person who may have a right to receive the death benefit
payable upon the death of the Annuitant or a Contract Owner
prior to the Annuity Date, or may have a right to receive
remaining guaranteed annuity payments, if any, if the Annuitant
dies after the Annuity Date.
Business
Day –
Any day on which the value of an amount invested in a Variable
Investment Option is required to be determined, which currently
includes each day that the New York Stock Exchange is open for
trading and our administrative offices are open. The New York
Stock Exchange and our administrative offices are closed on
weekends and on the following holidays: New Year’s Day,
Martin Luther King Jr. Day, President’s Day, Good Friday,
Memorial Day, July Fourth, Labor Day, Thanksgiving Day and
Christmas Day, and the Friday before New Year’s Day, July
Fourth or Christmas Day if that holiday falls on a Saturday, the
Monday following New Year’s Day, July Fourth or Christmas
Day if that holiday falls on a Sunday, unless unusual business
conditions exist, such as the ending of a monthly or yearly
accounting period. In this Prospectus, “day” or
“date” means Business Day unless otherwise specified.
If any transaction or event called for under a Contract is
scheduled to occur on a day that is not a Business Day, such
transaction or event will be deemed to occur on the next
following Business Day unless otherwise specified. Any
systematic pre-authorized transaction scheduled to occur on
December 30 or December 31 where that day is not a
Business Day will be deemed an order for the last Business Day
of the calendar year and will be calculated using the applicable
Subaccount Unit Value at the close of that Business Day. Special
circumstances such as leap years and months with fewer than
31 days are discussed in the SAI.
Code –
The Internal Revenue Code of 1986, as amended.
Contingent
Annuitant –
A person, if named in your Contract, who will become your sole
surviving Annuitant if your existing sole Annuitant (or both
Joint Annuitants) should die before your Annuity Date. Special
restrictions apply for Contracts owned by Non-Natural Owners.
Contract
Anniversary –
The same date, in each subsequent year, as your Contract Date.
Contract
Date –
The date we issue your Contract. Contract Years, Contract
Semi-Annual Periods, Contract Quarters and Contract Months are
measured from this date.
Contract
Debt –
As of the end of any given Business Day, the principal amount
you have outstanding on any loan under your Contract, plus any
accrued and unpaid interest. Loans are only available on certain
Qualified Contracts.
Contract Owner,
Owner, Policyholder, you, or
your –
Generally, a person who purchases a Contract and makes the
Investments. A Contract Owner has all rights in the Contract,
including the right to make withdrawals, designate and change
beneficiaries, transfer amounts among Investment Options, and
designate an Annuity Option. If your Contract names Joint
Owners, both Joint Owners are Contract Owners and share all such
rights.
Contract
Value –
As of the end of any Business Day, the sum of your Variable
Account Value, any fixed option value, the value of any other
Investment Option added to the Contract by Rider or Endorsement,
and any Loan Account Value.
Contract
Year –
A year that starts on the Contract Date or on a Contract
Anniversary.
DCA Plus Fixed
Option –
If you allocate all or part of your Purchase Payments to the DCA
Plus Fixed Option, such amounts are held in our General Account
and receive interest at rates declared periodically (the
“Guaranteed Interest Rate”), but not less than an
annual rate of 3%. This fixed option may be used for dollar cost
averaging over a 6 or 12 month period.
DCA Plus Fixed
Option
Value –
The aggregate amount of your Contract Value allocated to the DCA
Plus Fixed Option.
Earnings –
As of the end of any Business Day, your Earnings equal your
Contract Value less your aggregate Purchase Payments, which are
reduced by withdrawals of prior Investments.
Fund –
Pacific Select Fund, AIM Variable Insurance Funds (Invesco
Variable Insurance Funds), AllianceBernstein Variable Products
Series Fund, Inc., BlackRock Variable Series Funds, Inc.,
Franklin Templeton Variable Insurance Products Trust, GE
Investments Funds, Lord Abbett Series Fund, Inc., MFS Variable
Insurance Trust, and/or PIMCO Variable Insurance Trust.
General
Account –
Our General Account consists of all of our assets other than
those assets allocated to Separate Account A or to any of
our other separate accounts.
Guaranteed
Interest
Rate –
The interest rate guaranteed at the time of allocation (or
rollover) for the Guarantee Term on amounts allocated to a fixed
option. All Guaranteed Interest Rates are expressed as annual
rates and interest is accrued daily. The rate will not be less
than an annual rate of 3%.
Guarantee
Term –
The period during which an amount you allocate to any available
fixed option earns interest at a Guaranteed Interest Rate. These
terms are up to 1 year for a fixed option.
Investment
(“Purchase
Payment”) –
An amount paid to us by or on behalf of a Contract Owner as
consideration for the benefits provided under the Contract.
Investment
Option –
A Subaccount, any fixed option or any other Investment Option
added to the Contract by Rider or Endorsement.
Joint
Annuitant –
If your Contract is a Non-Qualified Contract, you may name two
Annuitants, called “Joint Annuitants,” in your
application for your Contract. Special restrictions apply for
Qualified Contracts and Contracts owned by Non-Natural Owners.
Loan
Account –
The Account in which the amount equal to the principal amount of
a loan and any interest accrued is held to secure any Contract
Debt.
Loan Account
Value –
The amount, including any interest accrued, held in the Loan
Account to secure any Contract Debt.
Net Contract
Value –
Your Contract Value less Contract Debt.
Non-Natural
Owner –
A corporation, trust or other entity that is not a (natural)
person.
Non-Qualified
Contract –
A Contract other than a Qualified Contract.
Policyholder –
The Contract Owner.
72
Portfolio –
A separate portfolio of a Fund in which a Subaccount invests its
assets.
Primary
Annuitant –
The individual that is named in your Contract, the events in the
life of whom are of primary importance in affecting the timing
or amount of the payout under the Contract.
Purchase Payment
(“Investment”) –
An amount paid to us by or on behalf of a Contract Owner as
consideration for the benefits provided under the Contract.
Qualified
Contract –
A Contract that qualifies under the Code as an individual
retirement annuity or account (IRA), or form thereof, or a
Contract purchased by a Qualified Plan, qualifying for special
tax treatment under the Code.
Qualified
Plan –
A retirement plan that receives favorable tax treatment under
Section 401, 403, 408, 408A or 457 of the Code.
SEC –
Securities and Exchange Commission.
Separate Account
A (the “Separate
Account”) –
A separate account of ours registered as a unit investment trust
under the Investment Company Act of 1940, as amended (the
“1940 Act”).
Subaccount –
An investment division of the Separate Account. Each Subaccount
invests its assets in shares of a corresponding Portfolio.
Subaccount
Annuity
Unit –
Subaccount Annuity Units (or “Annuity Units”) are used
to measure variation in variable annuity payments. To the extent
you elect to convert all or some of your Contract Value into
variable annuity payments, the amount of each annuity payment
(after the first payment) will vary with the value and number of
Annuity Units in each Subaccount attributed to any variable
annuity payments. At annuitization (after any applicable premium
taxes and/or other taxes are paid), the amount annuitized to a
variable annuity determines the amount of your first variable
annuity payment and the number of Annuity Units credited to your
annuity in each Subaccount. The value of Subaccount Annuity
Units, like the value of Subaccount Units, is expected to
fluctuate daily, as described in the definition of Unit Value.
Subaccount
Unit –
Before your Annuity Date, each time you allocate an amount to a
Subaccount, your Contract is credited with a number of
Subaccount Units in that Subaccount. These Units are used for
accounting purposes to measure your Account Value in that
Subaccount. The value of Subaccount Units is expected to
fluctuate daily, as described in the definition of Unit Value.
Unit
Value –
The value of a Subaccount Unit (“Subaccount Unit
Value”) or Subaccount Annuity Unit (“Subaccount
Annuity Unit Value”). Unit Value of any Subaccount is
subject to change on any Business Day in much the same way that
the value of a mutual fund share changes each day. The
fluctuations in value reflect the investment results, expenses
of and charges against the Portfolio in which the Subaccount
invests its assets. Fluctuations also reflect charges against
the Separate Account. Changes in Subaccount Annuity Unit Values
also reflect an additional factor that adjusts Subaccount
Annuity Unit Values to offset our Annuity Option Table’s
implicit assumption of an annual investment return of 5%. The
effect of this assumed investment return is explained in detail
in the SAI. Unit Value of a Subaccount Unit or Subaccount
Annuity Unit on any Business Day is measured as of the close of
the New York Stock Exchange on that Business Day, which usually
closes at 4:00 p.m., Eastern time, although it occasionally
closes earlier.
Variable Account
Value –
The aggregate amount of your Contract Value allocated to all
Subaccounts.
Variable
Investment
Option –
A Subaccount (also called a Variable Account).
73
CONTENTS
OF THE STATEMENT OF ADDITIONAL INFORMATION
|
PERFORMANCE
|
||
|
Total Returns
|
||
|
Yields
|
||
|
Performance Comparisons and Benchmarks
|
||
|
Power of Tax Deferral
|
||
|
DISTRIBUTION OF THE CONTRACTS
|
||
|
Pacific Select Distributors, Inc. (PSD)
|
||
|
THE CONTRACTS AND THE SEPARATE ACCOUNT
|
||
|
Calculating Subaccount Unit Values
|
||
|
Variable Annuity Payment Amounts
|
||
|
Redemptions of Remaining Guaranteed Variable Payments Under
Options 2 and 4
|
||
|
Corresponding Dates
|
||
|
Age and Sex of Annuitant
|
||
|
Systematic Transfer Programs
|
||
|
Pre-Authorized Withdrawals
|
||
|
More on Federal Tax Issues
|
||
|
Safekeeping of Assets
|
||
|
FINANCIAL STATEMENTS
|
||
|
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND INDEPENDENT
AUDITORS
|
||
| You can receive a copy of the Pacific Destinations B SAI without charge by calling us at (800) 722-4448 or you can visit our website at www.pacificlife.com to download a copy. Financial advisors may call us at (877) 441-2357. | ||
74
APPENDIX
A:
COREINCOME
ADVANTAGE 5 PLUS (SINGLE AND JOINT)
SAMPLE
CALCULATIONS
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. The examples have been provided to assist in
understanding the benefits provided by this Rider and to
demonstrate how Purchase Payments received and withdrawals made
from the Contract prior to the Annuity Date affect the values
and benefits under this Rider over an extended period of time.
There may be minor differences in the calculations due to
rounding. These examples are not intended to serve as
projections of future investment returns nor are they a
reflection of how your Contract will actually perform.
The examples apply to CoreIncome Advantage 5 Plus
(Single) and (Joint) unless otherwise noted below.
Example #1 – Setting
of Initial Values.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 |
| • | Rider Effective Date = Contract Date |
| • | Every Owner and Annuitant (every Designated Life for Joint) is 64 years old. |
|
Protected |
Protected |
|||||||||
|
Purchase |
Contract |
Payment |
Payment |
|||||||
| Payment | Withdrawal | Value | Base | Amount | ||||||
|
Rider Effective Date
|
$100,000 | $100,000 | $100,000 | $5,000 | ||||||
On the Rider Effective Date, the initial values are set as
follows:
| • | Protected Payment Base = Initial Purchase Payment = $100,000 |
| • | Protected Payment Amount = 5% of Protected Payment Base = $5,000 |
Example #2 – Subsequent
Purchase Payments.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 |
| • | Rider Effective Date = Contract Date |
| • | Every Owner and Annuitant (every Designated Life for Joint) is 64 years old. |
| • | A subsequent Purchase Payment of $100,000 is received during Contract Year 1. |
| • | No withdrawals taken. |
| • | Automatic Reset at Beginning of Contract Year 2. |
| • | Each Contract Anniversary referenced in the table represents the first day of the applicable Contract Year. |
|
Protected |
Protected |
|||||||||
|
Purchase |
Contract |
Payment |
Payment |
|||||||
| Payment | Withdrawal | Value | Base | Amount | ||||||
|
Rider Effective Date
|
$100,000 | $100,000 | $100,000 | $5,000 | ||||||
|
Activity
|
$100,000 | $200,000 | $200,000 | $10,000 | ||||||
|
Year 2 Contract Anniversary
|
(Prior to Automatic Reset) | $207,000 | $200,000 | $10,000 | ||||||
|
Year 2 Contract Anniversary
|
(After Automatic Reset) | $207,000 | $207,000 | $10,350 | ||||||
Immediately after the $100,000 subsequent Purchase Payment
during Contract Year 1, the Protected Payment Base is
increased by the Purchase Payment amount to $200,000
($100,000 + $100,000). The Protected Payment Amount
after the Purchase Payment is equal to $10,000 (5% of the
Protected Payment Base after the Purchase Payment).
An automatic reset takes place at Year 2 Contract
Anniversary, since the Contract Value ($207,000) is higher than
the Protected Payment Base ($200,000). This resets the Protected
Payment Base to $207,000 and the Protected Payment Amount to
$10,350 (5% × $207,000).
In addition to Purchase Payments, the Contract Value is further
subject to increases and/or decreases during each Contract Year
as a result of charges, fees and other deductions, and increases
and/or decreases in the investment performance of the Variable
Account.
75
Example #3 – Withdrawals
Not Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 |
| • | Rider Effective Date = Contract Date |
| • | Every Owner and Annuitant (every Designated Life for Joint) is 64 years old. |
| • | A subsequent Purchase Payment of $100,000 is received during Contract Year 1. |
| • | A withdrawal equal to or less than the Protected Payment Amount is taken during Contract Year 2. |
| • | Automatic Resets at Beginning of Contract Years 2 and 3. |
| • | Each Contract Anniversary referenced in the table represents the first day of the applicable Contract Year. |
|
Protected |
Protected |
|||||||||
|
Purchase |
Contract |
Payment |
Payment |
|||||||
| Payment | Withdrawal | Value | Base | Amount | ||||||
|
Rider Effective Date
|
$100,000 | $100,000 | $100,000 | $5,000 | ||||||
|
Activity
|
$100,000 | $200,000 | $200,000 | $10,000 | ||||||
|
Year 2 Contract Anniversary
|
(Prior to Automatic Reset) | $207,000 | $200,000 | $10,000 | ||||||
|
Year 2 Contract Anniversary
|
(After Automatic Reset) | $207,000 | $207,000 | $10,350 | ||||||
|
Activity
|
$5,000 | $216,490 | $207,000 | $5,350 | ||||||
|
Year 3 Contract Anniversary
|
(Prior to Automatic Reset) | $216,490 | $207,000 | $10,350 | ||||||
|
Year 3 Contract Anniversary
|
(After Automatic Reset) | $216,490 | $216,490 | $10,825 | ||||||
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1
and #2.
An automatic reset takes place at Year 2 Contract Anniversary,
since the Contract Value ($207,000) is higher than the Protected
Payment Base ($200,000). This resets the Protected Payment Base
to $207,000 and the Protected Payment Amount to $10,350
(5% × $207,000).
As the withdrawal during Contract Year 2 did not
exceed the Protected Payment Amount immediately prior to the
withdrawal ($10,350), the Protected Payment Base remains
unchanged.
At Year 3 Contract Anniversary, since the Protected Payment
Base was less than the Contract Value on that Contract
Anniversary (see balances at Year 3 Contract
Anniversary – Prior to Automatic Reset), an
automatic reset occurred which resets the Protected Payment Base
to an amount equal to 100% of the Contract Value (see
balances at Year 3 Contract
Anniversary – After Automatic Reset). As a
result, the Protected Payment Amount is equal to $10,825 (5% of
the reset Protected Payment Base).
Example #4 –
Withdrawals Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 |
| • | Rider Effective Date = Contract Date |
| • | Every Owner and Annuitant (every Designated Life for Joint) is 64 years old. |
| • | A subsequent Purchase Payment of $100,000 is received during Contract Year 1. |
| • | A withdrawal greater than the Protected Payment Amount is taken during Contract Year 2. |
| • | Automatic Resets at Beginning of Contract Years 2 and 3. |
| • | Each Contract Anniversary referenced in the table represents the first day of the applicable Contract Year. |
|
Protected |
Protected |
|||||||||
|
Purchase |
Contract |
Payment |
Payment |
|||||||
| Payment | Withdrawal | Value | Base | Amount | ||||||
|
Rider Effective Date
|
$100,000 | $100,000 | $100,000 | $5,000 | ||||||
|
Activity
|
$100,000 | $200,000 | $200,000 | $10,000 | ||||||
|
Year 2 Contract Anniversary
|
(Prior to Automatic Reset) | $207,000 | $200,000 | $10,000 | ||||||
|
Year 2 Contract Anniversary
|
(After Automatic Reset) | $207,000 | $207,000 | $10,350 | ||||||
|
Activity
|
$25,000 | $196,490 | $192,634 | $0 | ||||||
|
Year 3 Contract Anniversary
|
(Prior to Automatic Reset) | $196,490 | $192,634 | $9,632 | ||||||
|
Year 3 Contract Anniversary
|
(After Automatic Reset) | $196,490 | $196,490 | $9,825 | ||||||
For an explanation of the values and activities at the start of
and during Contract Year 1, refer to Examples #1
and #2.
Because the $25,000 withdrawal during Contract Year 2
exceeds the Protected Payment Amount immediately prior to
the withdrawal ($25,000 > $10,350), the Protected
Payment Base immediately after the withdrawal is reduced.
76
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
| • | Contract Value = $221,490 |
| • | Protected Payment Base = $207,000 |
| • | Protected Payment Amount = $10,350 (5% × Protected Payment Base; 5% × $207,000 = $10,350) |
| • | No withdrawals were taken prior to the excess withdrawal |
A withdrawal of $25,000 was taken, which exceeds the Protected
Payment Amount of $10,350 for the Contract Year. The Protected
Payment Base will be reduced based on the following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $14,650 (total withdrawal
amount − Protected Payment Amount;
$25,000 − $10,350 = $14,650).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value − Protected Payment Amount);
the calculation is based on the Contract Value and the Protected
Payment Amount values immediately before the excess withdrawal.
The Contract Value prior to the withdrawal was $221,490, which
equals the $196,490 after the withdrawal plus the $25,000
withdrawal amount. Numerically, the ratio is 6.94%
($14,650 ¸
($221,490 − $10,350);
$14,650 ¸ $211,140 = 0.0694
or 6.94%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$192,634 (Protected Payment
Base × (1 − ratio);
$207,000 × (1 − 6.94%);
$207,000 × 93.06% = $192,634).
The Protected Payment Amount immediately after the withdrawal is
equal to $0 (5% of the Protected Payment Base after the
withdrawal (5% of $192,634 = $9,632), less cumulative
withdrawals during that Contract Year ($25,000), but not less
than zero).
At Year 3 Contract Anniversary, since the Protected Payment
Base was less than the Contract Value on that Contract
Anniversary (see balances at Year 3 Contract
Anniversary – Prior to Automatic Reset), an
Automatic Reset occurred which resets the Protected Payment Base
to an amount equal to 100% of the Contract Value (see
balances at Year 3 Contract
Anniversary – After Automatic Reset).
Example #5 –
Early Withdrawals.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 |
| • | Rider Effective Date = Contract Date |
| • | The oldest Owner (Annuitant in the case of a Non-Natural Owner; youngest Designated Life for Joint) is 561/2 years old. |
| • | A subsequent Purchase Payment of $100,000 is received during Contract Year 1. |
| • | A withdrawal greater than the Protected Payment Amount is taken during Contract Year 2. |
| • | Automatic Resets at Beginning of Contract Years 2, 3 and 4. |
| • | Each Contract Anniversary referenced in the table represents the first day of the applicable Contract Year. |
|
Protected |
Protected |
|||||||||
|
Purchase |
Contract |
Payment |
Payment |
|||||||
| Payment | Withdrawal | Value | Base | Amount | ||||||
|
Rider Effective Date
|
$100,000 | $100,000 | $100,000 | $0 | ||||||
|
Activity
|
$100,000 | $200,000 | $200,000 | $0 | ||||||
|
Year 2 Contract Anniversary
|
(Prior to Automatic Reset) | $207,000 | $200,000 | $0 | ||||||
|
Year 2 Contract Anniversary
|
(After Automatic Reset) | $207,000 | $207,000 | $0 | ||||||
|
Activity
|
$25,000 | $196,490 | $182,000 | $0 | ||||||
|
Year 3 Contract Anniversary
|
(Prior to Automatic Reset) | $196,490 | $182,000 | $0 | ||||||
|
Year 3 Contract Anniversary
|
(After Automatic Reset) | $196,490 | $196,490 | $0 | ||||||
|
Year 4 Contract Anniversary
|
(Prior to Automatic Reset) | $205,000 | $196,490 | $0 | ||||||
|
Year 4 Contract Anniversary
|
(After Automatic Reset) | $205,000 | $205,000 | $10,250 | ||||||
Because the $25,000 withdrawal during Contract Year 2
exceeds the Protected Payment Amount immediately prior to
the withdrawal ($25,000 > $0), the Protected
Payment Base immediately after the withdrawal is reduced.
The Values shown below are based on the following assumptions
immediately before the early withdrawal:
| • | Contract Value = $221,490 |
| • | Protected Payment Base = $207,000 |
| • | No withdrawals were taken prior to the early withdrawal |
77
A withdrawal of $25,000 was taken, which exceeds the Protected
Payment Amount of $0 for the Contract Year. The Protected
Payment Base will be reduced based on the following calculation:
First, determine the early withdrawal amount. The early
withdrawal amount is the total withdrawal amount ($25,000).
Second, determine the ratio for the proportionate reduction. The
ratio is the early withdrawal amount divided by the Contract
Value prior to the withdrawal. The Contract Value prior to the
withdrawal was $221,490, which equals the $196,490 after the
withdrawal plus the $25,000 withdrawal amount. Numerically, the
ratio is 11.29%
($25,000 ¸
$221,490 = 0.1129 or 11.29%).
Third, determine the new Protected Payment Base. The Protected
Payment Base is reduced either on a proportionate basis or by
the total withdrawal amount, whichever results in the lower
Protected Payment Base.
To determine the proportionate reduction, the Protected Payment
Base is multiplied by 1 less the ratio determined above.
Numerically, the new Protected Payment Base is $183,630
(Protected Payment Base × (1 − ratio); $207,000
× (1 − 11.29%); $207,000 × 88.71% = $183,630).
To determine the total withdrawal amount reduction, the
Protected Payment Base is reduced by the total withdrawal
amount. Numerically, after the Protected Payment Base is reduced
by the total withdrawal amount, the new Protected Payment Base
is $182,000 (Protected Payment Base − total withdrawal
amount; $207,000 − $25,000 = $182,000).
Therefore, since $182,000 (total withdrawal amount method) is
less than $183,630 (proportionate method) the new Protected
Payment Base is $182,000.
At Year 3 Contract Anniversary, since the Protected Payment
Base was less than the Contract Value on that Contract
Anniversary (see balances at Year 3 Contract
Anniversary – Prior to Automatic Reset), an
Automatic Reset occurred which resets the Protected Payment Base
to an amount equal to 100% of the Contract Value (see
balances at Year 3 Contract
Anniversary – After Automatic Reset). The
Protected Payment Amount remains at $0 since the oldest Owner
(or Annuitant for Non-Natural Owners; youngest Designated Life
for Joint) has not reached
age 591/2.
At Year 4 Contract Anniversary, since the Protected Payment Base
was less than the Contract Value on that Contract Anniversary
(see balances at Year 4 Contract
Anniversary – Prior to Automatic Reset), an
Automatic Reset occurred which resets the Protected Payment Base
to an amount equal to 100% of the Contract Value (see
balances at Year 4 Contract
Anniversary – After Automatic Reset). The
Protected Payment Amount is set to $10,250
(5% × $205,000) since the oldest Owner (or
Annuitant for Non-Natural Owners; youngest Designated Life for
Joint) reached
age 591/2.
Example
#6 – Death Benefit Amount Adjustment for a
Withdrawal That Does Not Exceed the Protected Payment
Amount.
This example shows how the aggregate Purchase Payments under the
Death Benefit Amount is adjusted for a withdrawal that does not
exceed the Protected Payment Amount. This table assumes that the
Protected Payment Amount is $5,000 prior to the withdrawal. Each
Contract Anniversary referenced in the table represents the
first day of the applicable Contract Year.
|
Death |
Protected |
|||||||||
|
Purchase |
Contract |
Benefit |
Payment |
|||||||
| Payment | Withdrawal | Value | Amount1 | Amount | ||||||
| Rider Effective Date | $100,000 | $100,000 | $100,000 | $5,000 | ||||||
| Year 2 Contract Anniversary | $80,000 | $100,000 | $5,000 | |||||||
| Activity | $3,000 | $77,000 | $97,000 | $2,000 | ||||||
| 1 | The greater of the Contract Value or the aggregate Purchase Payments represents the Death Benefit Amount. |
Because the $3,000 withdrawal in Contract Year 2 was less
than the Protected Payment Amount, the aggregate Purchase
Payments are reduced by the $3,000 withdrawal to $97,000.
If death were to occur at this point, the Death Benefit Amount
would be $97,000 since the aggregate Purchase Payments ($97,000)
are greater than the Contract Value ($77,000).
Example
#7 – Death Benefit Amount Adjustment for a
Withdrawal That Exceeds the Protected Payment Amount.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 |
| • | Protected Payment Amount prior to withdrawal in year 2 = $5,000 |
| • | A withdrawal greater than the Protected Payment Amount is taken during Contract Year 2. |
| • | Each Contract Anniversary referenced in the table represents the first day of the applicable Contract Year. |
78
|
Death |
Protected |
|||||||||
|
Purchase |
Contract |
Benefit |
Payment |
|||||||
| Payment | Withdrawal | Value | Amount1 | Amount | ||||||
| Rider Effective Date | $100,000 | $100,000 | $100,000 | $5,000 | ||||||
| Year 2 Contract Anniversary | $80,000 | $100,000 | $5,000 | |||||||
| Activity | $10,000 | $70,000 | $88,664 | $0 | ||||||
| 1 | The greater of the Contract Value or the aggregate Purchase Payments represents the Death Benefit Amount. |
As the withdrawal during Contract Year 2 exceeded the
Protected Payment Amount immediately prior to the withdrawal
($5,000), the aggregate Purchase Payments under the Death
Benefit Amount (“aggregate Purchase Payments”) are
reduced to $88,664. The reduction in the aggregate Purchase
Payments is calculated as follows:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount (prior to the withdrawal). Numerically,
the excess withdrawal amount is $5,000 (total withdrawal
amount − Protected Payment Amount;
$10,000 − $5,000 = $5,000).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value − Protected Payment Amount).
Numerically, the ratio is
6.67% ($5,000 / ($80,000 − $5,000);
$5,000 / $75,000 = 0.0667
or 6.67%).
Third, determine the new aggregate Purchase Payments amount. The
aggregate Purchase Payments amount (prior to the withdrawal)
less the Protected Payment Amount (prior to the withdrawal) is
multiplied by 1 less the ratio determined above. Numerically,
the new aggregate Purchase Payments amount is $88,664 (aggregate
Purchase Payments − Protected Payment Amount
× (1 − ratio);
($100,000 − $5,000) × (1 − 6.67%);
$95,000 × 93.33% = $88,664).
If death were to occur at this point, the Death Benefit Amount
would be $88,664 since the aggregate Purchase Payments ($88,664)
are greater than the Contract Value ($70,000).
Example
#8 – Death Benefit Amount Adjustment for an Early
Withdrawal.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 |
| • | The oldest Owner (Annuitant in the case of a Non-Natural Owner; youngest Designated Life for Joint) is 561/2 years old. |
| • | Protected Payment Amount prior to withdrawal in year 2 = $0 |
| • | A withdrawal greater than the Protected Payment Amount is taken during Contract Year 2. |
| • | Each Contract Anniversary referenced in the table represents the first day of the applicable Contract Year. |
|
Death |
Protected |
|||||||||
|
Purchase |
Contract |
Benefit |
Payment |
|||||||
| Payment | Withdrawal | Value | Amount1 | Amount | ||||||
| Rider Effective Date | $100,000 | $100,000 | $100,000 | $0 | ||||||
| Year 2 Contract Anniversary | $80,000 | $100,000 | $0 | |||||||
| Activity | $5,000 | $75,000 | $93,750 | $0 | ||||||
| 1 | The greater of the Contract Value or the aggregate Purchase Payments represents the Death Benefit Amount. |
As the withdrawal during Contract Year 2 exceeded the
Protected Payment Amount immediately prior to the withdrawal
($0), the aggregate Purchase Payments under the Death Benefit
Amount (“aggregate Purchase Payments”) are reduced to
$93,750. The reduction in the aggregate Purchase Payments is
calculated as follows:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount ($5,000)
because the withdrawal occurred before age
591/2
(Protected Payment Amount is $0).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by the Contract Value. Numerically, the ratio is 6.25%
($5,000 / $80,000 = 0.0625 or 6.25%).
Third, determine the new aggregate Purchase Payments amount. The
aggregate Purchase Payments amount (prior to the withdrawal) is
multiplied by 1 less the ratio determined above. Numerically,
the new aggregate Purchase Payments amount is $93,750 (aggregate
Purchase Payments × (1 − ratio);
$100,000 × (1 − 6.25%);
$100,000 × 93.75% = $93,750).
If death were to occur at this point, the Death Benefit Amount
would be $93,750 since the aggregate Purchase Payments ($93,750)
are greater than the Contract Value ($75,000).
79
Example #9 – RMD
Withdrawals.
This is an example of the effect of cumulative RMD Withdrawals
during the Contract Year that exceed the Protected Payment
Amount established for that Contract Year and its effect on the
Protected Payment Base. The Annual RMD Amount is based on the
entire interest of your Contract as of the previous year-end.
This table assumes quarterly withdrawals of only the Annual RMD
Amount during the Contract Year. The calculated Annual RMD
amount for the Calendar Year is $7,500 and the Contract
Anniversary is May 1 of each year.
|
Annual |
Protected |
Protected |
||||||||
|
Activity |
RMD |
Non-RMD |
RMD |
Payment |
Payment |
|||||
| Date | Withdrawal | Withdrawal | Amount | Base | Amount | |||||
| 05/01/2006 | $100,000 | $5,000 | ||||||||
|
Contract Anniversary |
||||||||||
|
01/01/2007
|
$7,500 | |||||||||
|
03/15/2007
|
$1,875 | $100,000 | $3,125 | |||||||
|
05/01/2007
|
$100,000 | $5,000 | ||||||||
|
Contract Anniversary |
||||||||||
|
06/15/2007
|
$1,875 | $100,000 | $3,125 | |||||||
|
09/15/2007
|
$1,875 | $100,000 | $1,250 | |||||||
|
12/15/2007
|
$1,875 | $100,000 | $0 | |||||||
|
01/01/2008
|
$8,000 | |||||||||
|
03/15/2008
|
$2,000 | $100,000 | $0 | |||||||
|
05/01/2008
|
$100,000 | $5,000 | ||||||||
|
Contract Anniversary |
||||||||||
Since the RMD Amount for 2008 increases to $8,000, the quarterly
withdrawals of the RMD Amount increase to $2,000, as shown by
the RMD withdrawal on March 15, 2008. Because all
withdrawals during the Contract Year were RMD Withdrawals, there
is no adjustment to the Protected Payment Base for exceeding the
Protected Payment Amount. In addition, each contract year the
Protected Payment Amount is reduced by the amount of each
withdrawal until the Protected Payment Amount is zero.
This chart assumes quarterly withdrawals of the Annual RMD
Amount and other non-RMD Withdrawals during the Contract Year.
The calculated Annual RMD amount and Contract Anniversary are
the same as above.
|
Annual |
Protected |
Protected |
||||||||
|
Activity |
RMD |
Non-RMD |
RMD |
Payment |
Payment |
|||||
| Date | Withdrawal | Withdrawal | Amount | Base | Amount | |||||
| 05/01/2006 | $0 | $100,000 | $5,000 | |||||||
|
Contract Anniversary |
||||||||||
|
01/01/2007
|
$7,500 | |||||||||
|
03/15/2007
|
$1,875 | $100,000 | $3,125 | |||||||
|
04/01/2007
|
$2,000 | $100,000 | $1,125 | |||||||
|
05/01/2007
|
$100,000 | $5,000 | ||||||||
|
Contract Anniversary |
||||||||||
|
06/15/2007
|
$1,875 | $100,000 | $3,125 | |||||||
|
09/15/2007
|
$1,875 | $100,000 | $1,250 | |||||||
|
11/15/2007
|
$4,000 | $96,900 | $0 | |||||||
On 3/15/07
there was an RMD Withdrawal of $1,875 and on
4/1/07 a
non-RMD Withdrawal of $2,000. Because the total withdrawals
during the Contract Year
(5/1/06
through
4/30/07) did
not exceed the Protected Payment Amount of $5,000 there was no
adjustment to the Protected Payment Base. On
5/1/07, the
Protected Payment Amount was re-calculated (5% of the Protected
Payment Base) as of that Contract Anniversary.
On 11/15/07,
there was a non-RMD Withdrawal ($4,000) that caused the
cumulative withdrawals during the Contract Year ($7,750) to
exceed the Protected Payment Amount ($5,000). As the withdrawal
exceeded the Protected Payment Amount immediately prior to the
withdrawal ($1,250), and assuming the Contract Value was $90,000
immediately prior to the withdrawal, the Protected Payment Base
is reduced to $96,900.
80
The Values shown below are based on the following assumptions
immediately before the excess withdrawal:
| • | Contract Value = $90,000 |
| • | Protected Payment Base = $100,000 |
| • | Protected Payment Amount = $1,250 |
A withdrawal of $4,000 was taken, which exceeds the Protected
Payment Amount of $1,250. The Protected Payment Base will be
reduced based on the following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $2,750 (total withdrawal
amount − Protected Payment Amount;
$4,000 − $1,250 = $2,750).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value − Protected Payment Amount);
the calculation is based on the Contract Value and the Protected
Payment Amount values immediately before the excess withdrawal.
Numerically, the ratio is 3.10%
($2,750 ¸ ($90,000 − $1,250);
$2,750 ¸ $88,750 = 0.0310
or 3.10%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$96,900 (Protected Payment
Base × (1 − ratio);
$100,000 × (1 − 3.10%);
$100,000 × 96.90% = $96,900).
Example #10 – Lifetime
Income.
This example applies to CoreIncome Advantage 5 Plus (Single)
only.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 |
| • | Rider Effective Date = Contract Date |
| • | Every Owner and Annuitant is 64 years old. |
| • | No subsequent Purchase Payments are received. |
| • | Withdrawals, each equal to 5% of the Protected Payment Base are taken each Contract Year. |
| • | No Automatic Reset or Owner-Elected Reset is assumed during the life of the Rider. |
81
|
Protected |
Protected |
|||||||
|
Contract |
End of Year |
Payment |
Payment |
|||||
| Year | Withdrawal | Contract Value | Base | Amount | ||||
|
1
|
$5,000 | $96,489 | $100,000 | $5,000 | ||||
|
2
|
$5,000 | $94,384 | $100,000 | $5,000 | ||||
|
3
|
$5,000 | $92,215 | $100,000 | $5,000 | ||||
|
4
|
$5,000 | $89,982 | $100,000 | $5,000 | ||||
|
5
|
$5,000 | $87,681 | $100,000 | $5,000 | ||||
|
6
|
$5,000 | $85,311 | $100,000 | $5,000 | ||||
|
7
|
$5,000 | $82,871 | $100,000 | $5,000 | ||||
|
8
|
$5,000 | $80,357 | $100,000 | $5,000 | ||||
|
9
|
$5,000 | $77,768 | $100,000 | $5,000 | ||||
|
10
|
$5,000 | $75,101 | $100,000 | $5,000 | ||||
|
11
|
$5,000 | $72,354 | $100,000 | $5,000 | ||||
|
12
|
$5,000 | $69,524 | $100,000 | $5,000 | ||||
|
13
|
$5,000 | $66,610 | $100,000 | $5,000 | ||||
|
14
|
$5,000 | $63,608 | $100,000 | $5,000 | ||||
|
15
|
$5,000 | $60,517 | $100,000 | $5,000 | ||||
|
16
|
$5,000 | $57,332 | $100,000 | $5,000 | ||||
|
17
|
$5,000 | $54,052 | $100,000 | $5,000 | ||||
|
18
|
$5,000 | $50,674 | $100,000 | $5,000 | ||||
|
19
|
$5,000 | $47,194 | $100,000 | $5,000 | ||||
|
20
|
$5,000 | $43,610 | $100,000 | $5,000 | ||||
|
21
|
$5,000 | $39,918 | $100,000 | $5,000 | ||||
|
22
|
$5,000 | $36,115 | $100,000 | $5,000 | ||||
|
23
|
$5,000 | $32,199 | $100,000 | $5,000 | ||||
|
24
|
$5,000 | $28,165 | $100,000 | $5,000 | ||||
|
25
|
$5,000 | $24,010 | $100,000 | $5,000 | ||||
|
26
|
$5,000 | $19,730 | $100,000 | $5,000 | ||||
|
27
|
$5,000 | $15,322 | $100,000 | $5,000 | ||||
|
28
|
$5,000 | $10,782 | $100,000 | $5,000 | ||||
|
29
|
$5,000 | $6,105 | $100,000 | $5,000 | ||||
|
30
|
$5,000 | $1,288 | $100,000 | $5,000 | ||||
|
31
|
$5,000 | $0 | $100,000 | $5,000 | ||||
|
32
|
$5,000 | $0 | $100,000 | $5,000 | ||||
|
33
|
$5,000 | $0 | $100,000 | $5,000 | ||||
|
34
|
$5,000 | $0 | $100,000 | $5,000 | ||||
On the Rider Effective Date, the initial values are set as
follows:
| • | Protected Payment Base = Initial Purchase Payment = $100,000 |
| • | Protected Payment Amount = 5% of Protected Payment Base = $5,000 |
Because the amount of each withdrawal does not exceed the
Protected Payment Amount immediately prior to the withdrawal
($5,000), the Protected Payment Base remains unchanged.
Withdrawals of 5% of the Protected Payment Base will continue to
be paid each year (even after the Contract Value has been
reduced to zero) until the date of death of an Owner or the date
of death of the sole surviving Annuitant (death of any Annuitant
for Non-Natural Owners), whichever occurs first.
Example #11 –
Lifetime Income.
This
example applies to CoreIncome Advantage 5 Plus (Joint)
only.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 | |
| • | Rider Effective Date = Contract Date | |
| • | All Designated Lives are 64 years old. | |
| • | No subsequent Purchase Payments are received. | |
| • | Withdrawals, each equal to 5% of the Protected Payment Base are taken each Contract Year. |
82
| • | No Automatic Reset or Owner-Elected Reset is assumed during the life of the Rider. | |
| • | All Designated Lives remain eligible for lifetime income benefits while the Rider is in effect. |
| • | Surviving Spouse continues Contract upon the death of the first Designated Life. |
|
Protected |
Protected |
|||||||||
|
Contract |
End of Year |
Annual |
Payment |
Payment |
||||||
| Year | Withdrawal | Contract Value | Credit | Base | Amount | |||||
|
1
|
$5,000 | $96,489 | $0 | $100,000 | $5,000 | |||||
|
2
|
$5,000 | $94,384 | $0 | $100,000 | $5,000 | |||||
|
3
|
$5,000 | $92,215 | $0 | $100,000 | $5,000 | |||||
|
4
|
$5,000 | $89,982 | $0 | $100,000 | $5,000 | |||||
|
5
|
$5,000 | $87,681 | $0 | $100,000 | $5,000 | |||||
|
6
|
$5,000 | $85,311 | $0 | $100,000 | $5,000 | |||||
|
7
|
$5,000 | $82,871 | $0 | $100,000 | $5,000 | |||||
|
8
|
$5,000 | $80,357 | $0 | $100,000 | $5,000 | |||||
|
9
|
$5,000 | $77,768 | $0 | $100,000 | $5,000 | |||||
|
10
|
$5,000 | $75,101 | $0 | $100,000 | $5,000 | |||||
|
11
|
$5,000 | $72,354 | $0 | $100,000 | $5,000 | |||||
|
12
|
$5,000 | $69,524 | $0 | $100,000 | $5,000 | |||||
|
13
|
$5,000 | $66,610 | $0 | $100,000 | $5,000 | |||||
|
Activity (Death of first Designated Life) 14 |
$5,000 | $63,608 | $0 | $100,000 | $5,000 | |||||
|
15
|
$5,000 | $60,517 | $0 | $100,000 | $5,000 | |||||
|
16
|
$5,000 | $57,332 | $0 | $100,000 | $5,000 | |||||
|
17
|
$5,000 | $54,052 | $0 | $100,000 | $5,000 | |||||
|
18
|
$5,000 | $50,674 | $0 | $100,000 | $5,000 | |||||
|
19
|
$5,000 | $47,194 | $0 | $100,000 | $5,000 | |||||
|
20
|
$5,000 | $43,610 | $0 | $100,000 | $5,000 | |||||
|
21
|
$5,000 | $39,918 | $0 | $100,000 | $5,000 | |||||
|
22
|
$5,000 | $36,115 | $0 | $100,000 | $5,000 | |||||
|
23
|
$5,000 | $32,199 | $0 | $100,000 | $5,000 | |||||
|
24
|
$5,000 | $28,165 | $0 | $100,000 | $5,000 | |||||
|
25
|
$5,000 | $24,010 | $0 | $100,000 | $5,000 | |||||
|
26
|
$5,000 | $19,730 | $0 | $100,000 | $5,000 | |||||
|
27
|
$5,000 | $15,322 | $0 | $100,000 | $5,000 | |||||
|
28
|
$5,000 | $10,782 | $0 | $100,000 | $5,000 | |||||
|
29
|
$5,000 | $6,105 | $0 | $100,000 | $5,000 | |||||
|
30
|
$5,000 | $1,288 | $0 | $100,000 | $5,000 | |||||
|
31
|
$5,000 | $0 | $0 | $100,000 | $5,000 | |||||
|
32
|
$5,000 | $0 | $0 | $100,000 | $5,000 | |||||
|
33
|
$5,000 | $0 | $0 | $100,000 | $5,000 | |||||
|
34
|
$5,000 | $0 | $0 | $100,000 | $5,000 | |||||
On the Rider Effective Date, the initial values are set as
follows:
| • | Protected Payment Base = Initial Purchase Payment = $100,000 |
| • | Protected Payment Amount = 5% of Protected Payment Base = $5,000 |
Because the amount of each withdrawal does not exceed the
Protected Payment Amount immediately prior to the withdrawal
($5,000), the Protected Payment Base remains unchanged.
During Contract Year 13, the death of the first Designated Life
occurred. Withdrawals of the Protected Payment Amount (5% of the
Protected Payment Base) will continue to be paid each year (even
after the Contract Value was reduced to zero) until the Rider
terminates.
If there was a change in Owner, Beneficiary or marital status
prior to the death of the first Designated Life that resulted in
the surviving Designated Life (spouse) to become ineligible for
lifetime income benefits, then the lifetime income benefits
under the Rider would not continue for the surviving Designated
Life and the Rider would terminate upon the death of the first
Designated Life.
83
APPENDIX
B:
AUTOMATIC
INCOME BUILDER
SAMPLE
CALCULATIONS
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. The examples have been provided to assist in
understanding the benefits provided by this Rider and to
demonstrate how Purchase Payments received and withdrawals made
from the Contract prior to the Annuity Date affect the values
and benefits under this Rider over an extended period of time.
There may be minor differences in the calculations due to
rounding. These examples are not intended to serve as
projections of future investment returns nor are they a
reflection of how your Contract will actually perform.
Example #1 – Setting
of Initial Values.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 |
| • | Rider Effective Date = Contract Date |
| • | Owner’s age on Rider Effective Date = 68 |
|
Protected |
Protected |
Remaining |
||||||||||
|
Purchase |
Payment |
Payment |
Protected |
|||||||||
| Payment | Withdrawal | Contract Value | Base | Amount | Balance | |||||||
|
Rider Effective Date
|
$100,000 | $100,000 | $100,000 | $4,000 | $100,000 | |||||||
On the Rider Effective Date, the initial values are set as
follows:
| • | Protected Payment Base = Initial Purchase Payment = $100,000 |
| • | Remaining Protected Balance = Initial Purchase Payment = $100,000 |
| • | Protected Payment Amount = Withdrawal percentage multiplied by the Protected Payment Base = 4% × $100,000 = $4,000 |
Example #2 – Subsequent
Purchase Payments.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 |
| • | Rider Effective Date = Contract Date |
| • | Owner’s age on Rider Effective Date = 68 |
| • | A subsequent Purchase Payment of $100,000 is received during Contract Years 1 and 2. |
| • | No withdrawals taken. |
| • | Automatic Reset at Contract Years 2 and 3. |
| • | Each Contract Anniversary referenced in the table represents the first day of the applicable Contract Year. |
|
Protected |
Protected |
Remaining |
||||||||||
|
Purchase |
Payment |
Payment |
Protected |
|||||||||
| Payment | Withdrawal | Contract Value | Base | Amount | Balance | |||||||
|
Rider Effective Date
|
$100,000 | $100,000 | $100,000 | $4,000 | $100,000 | |||||||
|
Activity
|
$100,000 | $200,000 | $200,000 | $8,000 | $200,000 | |||||||
|
Year 2 Contract Anniversary
|
Prior to Automatic Reset | $207,000 | $200,000 | $8,200 | $200,000 | |||||||
|
Year 2 Contract Anniversary
|
After Automatic Reset | $207,000 | $207,000 | $8,487 | $207,000 | |||||||
|
Activity
|
$100,000 | $307,000 | $307,000 | $12,587 | $307,000 | |||||||
|
Year 3 Contract Anniversary
|
Prior to Automatic Reset | $321,490 | $307,000 | $15,964 | $307,000 | |||||||
|
Year 3 Contract Anniversary
|
After Automatic Reset | $321,490 | $321,490 | $16,717 | $321,490 | |||||||
Immediately after the $100,000 subsequent Purchase Payment
during Contract Year 1, the Protected Payment Base and
Remaining Protected Balance are increased by the Purchase
Payment amount to $200,000 ($100,000 + $100,000). The
Protected Payment Amount after the Purchase Payment is equal to
$8,000 (4.0% of the Protected Payment Base after the Purchase
Payment).
Since no withdrawal occurred prior to Year 2 Contract
Anniversary, the withdrawal percentage is increased to 4.1%.
Additionally, because at Year 2 Contract Anniversary, the
Protected Payment Base was less than the Contract Value on that
Contract Anniversary (see balances at Year 2 Contract
Anniversary – Prior to Automatic Reset), an
automatic reset occurred which resets the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value (see balances at Year 2 Contract
Anniversary – After Automatic Reset). As a result,
the Protected Payment Amount is equal to $8,487 (4.1% of the
reset Protected Payment Base).
84
Immediately after the $100,000 subsequent Purchase Payment
during Contract Year 2, the Protected Payment Base and Remaining
Protected Balance are increased by the Purchase Payment amount
to $307,000 ($207,000 + $100,000). The Protected
Payment Amount after the Purchase Payment is equal to $12,587
(4.1% of the Protected Payment Base after the Purchase Payment).
At Year 3 Contract Anniversary, the withdrawal percentage
is increased to 5.2%. The withdrawal percentage increased from
4.1% to 5.2% because during Contract Year 2 there were no
withdrawals (0.10% added to the withdrawal percentage) and the
Owner reached age 70 (1.0% added to the withdrawal
percentage). Additionally, because at Year 3 Contract
Anniversary, the Protected Payment Base was less than the
Contract Value on that Contract Anniversary (see balances at
Year 3 Contract Anniversary – Prior to Automatic
Reset), an Automatic Reset occurred which resets the
Protected Payment Base and Remaining Protected Balance to an
amount equal to 100% of the Contract Value (see balances at
Year 3 Contract Anniversary – After Automatic
Reset). As a result, the Protected Payment Amount is equal
to $16,717 (5.2% of the reset Protected Payment Base).
In addition to Purchase Payments, the Contract Value is further
subject to increases
and/or
decreases during each Contract Year as a result of additional
amounts credited, charges, fees and other deductions, and
increases
and/or
decreases in the investment performance of the Variable Account.
Example #3 – Withdrawals
Not Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 |
| • | Rider Effective Date = Contract Date |
| • | Owner’s age on Rider Effective Date = 68 |
| • | A subsequent Purchase Payment of $100,000 is received during Contract Years 1 and 2. |
| • | A withdrawal equal to or less than the Protected Payment Amount is taken during Contract Year 3. |
| • | Automatic Reset at Contract Years 2, 3 and 4. |
| • | Each Contract Anniversary referenced in the table represents the first day of the applicable Contract Year. |
|
Protected |
Protected |
Remaining |
||||||||||
|
Purchase |
Payment |
Payment |
Protected |
|||||||||
| Payment | Withdrawal | Contract Value | Base | Amount | Balance | |||||||
|
Rider Effective Date
|
$100,000 | $100,000 | $100,000 | $4,000 | $100,000 | |||||||
|
Activity
|
$100,000 | $200,000 | $200,000 | $8,000 | $200,000 | |||||||
|
Year 2 Contract Anniversary
|
Prior to Automatic Reset | $207,000 | $200,000 | $8,200 | $200,000 | |||||||
|
Year 2 Contract Anniversary
|
After Automatic Reset | $207,000 | $207,000 | $8,487 | $207,000 | |||||||
|
Activity
|
$100,000 | $307,000 | $307,000 | $12,587 | $307,000 | |||||||
|
Year 3 Contract Anniversary
|
Prior to Automatic Reset | $321,490 | $307,000 | $15,964 | $307,000 | |||||||
|
Year 3 Contract Anniversary
|
After Automatic Reset | $321,490 | $321,490 | $16,717 | $321,490 | |||||||
|
Activity
|
$16,717 | $327,277 | $321,490 | $0 | $304,773 | |||||||
|
Year 4 Contract Anniversary
|
Prior to Automatic Reset | $327,277 | $321,490 | $16,717 | $304,773 | |||||||
|
Year 4 Contract Anniversary
|
After Automatic Reset | $327,277 | $327,277 | $17,018 | $327,277 | |||||||
For an explanation of the values and activities at the start of
and during Contract Years 1 and 2, refer to
Examples #1 and #2.
At Year 3 Contract Anniversary, the withdrawal percentage is
increased to 5.2%. The withdrawal percentage increased from 4.1%
to 5.2% because during Contract Year 2 there were no withdrawals
(0.10% added to the withdrawal percentage) and the Owner reached
age 70 (1.0% added to the withdrawal percentage). Additionally,
because at Year 3 Contract Anniversary, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Year 3 Contract
Anniversary – Prior to Automatic Reset), an
Automatic Reset occurred which resets the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value (see balances at Year 3 Contract
Anniversary – After Automatic Reset). As a result,
the Protected Payment Amount is equal to $16,717 (5.2% of the
reset Protected Payment Base).
As the withdrawal during Contract Year 3 did not
exceed the Protected Payment Amount immediately prior to the
withdrawal ($16,717):
| • | the Protected Payment Base remains unchanged; and | |
| • | the Remaining Protected Balance is reduced by the amount of the withdrawal to $304,773 ($321,490 − $16,717). |
Since a withdrawal occurred during Contract Year 3, the
withdrawal percentage will no longer increase as a result of
delaying withdrawals.
Because at the Year 4 Contract Anniversary, the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Year 4 Contract
Anniversary – Prior to Automatic Reset), an
automatic reset occurred which resets the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value (see balances at Year 4 Contract
85
Anniversary – After Automatic Reset). As a
result, the Protected Payment Amount is equal to $17,018 (5.2%
of the reset Protected Payment Base).
Example #4 – Withdrawals
Exceeding Protected Payment Amount.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 |
| • | Rider Effective Date = Contract Date |
| • | Owner’s age on Rider Effective Date = 68 |
| • | A subsequent Purchase Payment of $100,000 is received during Contract Years 1 and 2. |
| • | A withdrawal greater than the Protected Payment Amount is taken during Contract Year 3. |
| • | Automatic Resets at Contract Years 2, 3 and 4. |
| • | Each Contract Anniversary referenced in the table represents the first day of the applicable Contract Year. |
|
Protected |
Protected |
Remaining |
||||||||||
|
Purchase |
Contract |
Payment |
Payment |
Protected |
||||||||
| Payment | Withdrawal | Value | Base | Amount | Balance | |||||||
|
Rider Effective Date
|
$100,000 | $100,000 | $100,000 | $4,000 | $100,000 | |||||||
|
Activity
|
$100,000 | $200,000 | $200,000 | $8,000 | $200,000 | |||||||
|
Year 2 Contract Anniversary
|
Prior to Automatic Reset | $207,000 | $200,000 | $8,200 | $200,000 | |||||||
|
Year 2 Contract Anniversary
|
After Automatic Reset | $207,000 | $207,000 | $8,487 | $207,000 | |||||||
|
Activity
|
$100,000 | $307,000 | $307,000 | $12,587 | $307,000 | |||||||
|
Year 3 Contract Anniversary
|
Prior to Automatic Reset | $321,490 | $307,000 | $15,964 | $307,000 | |||||||
|
Year 3 Contract Anniversary
|
After Automatic Reset | $321,490 | $321,490 | $16,717 | $321,490 | |||||||
|
Activity
|
$30,000 | $313,994 | $308,437 | $0 | $291,490 | |||||||
|
Year 4 Contract Anniversary
|
Prior to Automatic Reset | $313,994 | $308,437 | $16,038 | $291,490 | |||||||
|
Year 4 Contract Anniversary
|
After Automatic Reset | $313,994 | $313,994 | $16,327 | $313,994 | |||||||
For an explanation of the values and activities at the start of
and during Contract Years 1 and 2, refer to
Examples #1 and #2.
At Year 3 Contract Anniversary, the withdrawal percentage is
increased to 5.2%. The withdrawal percentage increased from 4.1%
to 5.2% because during Contract Year 2 there were no withdrawals
(0.10% added to the withdrawal percentage) and the Owner reached
age 70 (1.0% added to the withdrawal percentage). Additionally,
because at Year 3 Contract Anniversary, since the Protected
Payment Base was less than the Contract Value on that Contract
Anniversary (see balances at Year 3 Contract
Anniversary – Prior to Automatic Reset), an
Automatic Reset occurred which resets the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value (see balances at Year 3 Contract
Anniversary – After Automatic Reset). As a result,
the Protected Payment Amount is equal to $16,717 (5.2% of the
reset Protected Payment Base).
As the withdrawal during Contract Year 3 exceeded
the Protected Payment Amount immediately prior to the withdrawal
($16,717), the Protected Payment Base is reduced to $308,437 and
the Remaining Protected Balance is reduced to $291,490. The
reduction in the Protected Payment Base and the Remaining
Protected Balance is calculated as follows:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $13,283 (total withdrawal amount −
Protected Payment Amount;
$30,000 − $16,717 = $13,283).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value prior to the
withdrawal − Protected Payment Amount). The
Contract Value prior to the withdrawal was $343,994, which
equals the $313,994 after the withdrawal plus the $30,000
withdrawal amount. Numerically, the ratio is 4.06%
($13,283 ¸ ($343,994 − $16,717);
$13,283 ¸ $327,277 = 0.0406
or 4.06%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$308,437 (Protected Payment
Base × (1 − ratio);
$321,490 × (1 − 4.06%);
$321,490 × 95.94% = $308,437).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance immediately before the withdrawal is reduced
by the Protected Payment Amount and then multiplied by 1 less
the ratio determined above. Numerically, after the proportionate
reduction, the new Remaining Protected Balance is $292,399
((Remaining Protected Balance immediately before the
withdrawal − Protected Payment
Amount) × (1 − ratio);
($321,490 − $16,717) × (1 − 4.06%);
$304,773 × 95.94% = $292,399).
86
To determine the total withdrawal amount reduction, the
Remaining Protected Balance immediately before the withdrawal is
reduced by the total withdrawal amount. Numerically, after the
Remaining Protected Balance is reduced by the total withdrawal
amount, the new Remaining Protected Balance is $291,490
(Remaining Protected Balance immediately before the
withdrawal − total withdrawal amount;
$321,490 − $30,000 = $291,490).
Therefore, since $291,490 (total withdrawal amount method) is
less than $292,399 (proportionate method) the new Remaining
Protected Balance is $291,490.
Since a withdrawal occurred during Contract Year 3, the
withdrawal percentage will no longer increase as a result of
delaying withdrawals.
At Year 4 Contract Anniversary, since the Protected Payment
Base was less than the Contract Value on that Contract
Anniversary (see balances at Year 4 Contract
Anniversary – Prior to Automatic Reset), an
automatic reset occurred which resets the Protected Payment Base
and Remaining Protected Balance to an amount equal to 100% of
the Contract Value (see balances at Year 4 Contract
Anniversary – After Automatic Reset). As a result,
the Protected Payment Amount is equal to $16,327 (5.2% of the
reset Protected Payment Base).
Example
#5 – Death Benefit Amount Adjustment for a
Withdrawal That Does Not Exceed the Protected Payment
Amount.
This example shows how the aggregate Purchase Payments under the
Death Benefit Amount is adjusted for a withdrawal that does not
exceed the Protected Payment Amount. This table assumes that the
Protected Payment Amount is $4,000 prior to the withdrawal. Each
Contract Anniversary referenced in the table represents the
first day of the applicable Contract Year.
|
Death |
Protected |
|||||||||
|
Purchase |
Contract |
Benefit |
Payment |
|||||||
| Payment | Withdrawal | Value | Amount1 | Amount | ||||||
| Rider Effective Date | $100,000 | $100,000 | $100,000 | $4,000 | ||||||
| Year 2 Contract Anniversary | $80,000 | $100,000 | $4,000 | |||||||
| Activity | $3,000 | $77,000 | $97,000 | $1,000 | ||||||
| 1 | The greater of the Contract Value or the aggregate Purchase Payments represents the Death Benefit Amount. |
Because the $3,000 withdrawal in Contract Year 2 was less
than the Protected Payment Amount, the aggregate Purchase
Payments are reduced by the $3,000 withdrawal to $97,000.
If death were to occur at this point, the Death Benefit Amount
would be $97,000 since the aggregate Purchase Payments ($97,000)
are greater than the Contract Value ($77,000).
Example
#6 – Death Benefit Amount Adjustment for a
Withdrawal That Exceeds the Protected Payment Amount.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 |
| • | Protected Payment Amount prior to withdrawal in year 2 = $4,000 |
| • | A withdrawal greater than the Protected Payment Amount is taken during Contract Year 2. |
| • | Each Contract Anniversary referenced in the table represents the first day of the applicable Contract Year. |
|
Death |
Protected |
|||||||||
|
Purchase |
Contract |
Benefit |
Payment |
|||||||
| Payment | Withdrawal | Value | Amount1 | Amount | ||||||
| Rider Effective Date | $100,000 | $100,000 | $100,000 | $4,000 | ||||||
| Year 2 Contract Anniversary | $80,000 | $100,000 | $4,000 | |||||||
| Activity | $10,000 | $70,000 | $88,426 | $0 | ||||||
| 1 | The greater of the Contract Value or the aggregate Purchase Payments represents the Death Benefit Amount. |
As the withdrawal during Contract Year 2 exceeded the
Protected Payment Amount immediately prior to the withdrawal
($4,000), the aggregate Purchase Payments under the Death
Benefit Amount (“aggregate Purchase Payments”) are
reduced to $88,426. The reduction in the aggregate Purchase
Payments is calculated as follows:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount (prior to the withdrawal). Numerically,
the excess withdrawal amount is $6,000 (total withdrawal
amount − Protected Payment Amount;
$10,000 − $4,000 = $6,000).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value − Protected Payment Amount).
Numerically, the ratio is
7.89% ($6,000 / ($80,000 − $4,000);
$6,000 / $76,000 = 0.0789
or 7.89%).
87
Third, determine the new aggregate Purchase Payments amount. The
aggregate Purchase Payments amount (prior to the withdrawal)
less the Protected Payment Amount (prior to the withdrawal) is
multiplied by 1 less the ratio determined above. Numerically,
the new aggregate Purchase Payments amount is $88,426 (aggregate
Purchase Payments-Protected Payment Amount
× (1 − ratio);
($100,000 − $4,000) × (1 − 7.89%);
$96,000 × 92.11% = $88,426).
If death were to occur at this point, the Death Benefit Amount
would be $88,426 since the aggregate Purchase Payments ($88,426)
are greater than the Contract Value ($70,000).
Example
#7 – RMD Withdrawals.
This is an example of the effect of cumulative RMD Withdrawals
during the Contract Year that exceed the Protected Payment
Amount established for that Contract Year and its effect on the
Protected Payment Base and Remaining Protected Balance. The
Annual RMD Amount is based on the entire interest of your
Contract as of the previous
year-end.
This table assumes quarterly withdrawals of only the Annual RMD
Amount during the Contract Year. The calculated Annual RMD
amount for the Calendar Year is $7,500 and the Contract
Anniversary is May 1 of each year.
|
Annual |
Protected |
Protected |
Remaining |
|||||||||
|
Activity |
RMD |
Non-RMD |
RMD |
Payment |
Payment |
Protected |
||||||
| Date | Withdrawal | Withdrawal | Amount | Base | Amount | Balance | ||||||
|
05/01/2006 Contract Anniversary |
$0 | $100,000 | $5,000 | $100,000 | ||||||||
|
01/01/2007
|
$7,500 | |||||||||||
|
03/15/2007
|
$1,875 | $100,000 | $3,125 | $98,125 | ||||||||
|
05/01/2007 Contract Anniversary |
$100,000 | $5,000 | $98,125 | |||||||||
|
06/15/2007
|
$1,875 | $100,000 | $3,125 | $96,250 | ||||||||
|
09/15/2007
|
$1,875 | $100,000 | $1,250 | $94,375 | ||||||||
|
12/15/2007
|
$1,875 | $100,000 | $0 | $92,500 | ||||||||
|
01/01/2008
|
$8,000 | |||||||||||
|
03/15/2008
|
$2,000 | $100,000 | $0 | $90,500 | ||||||||
| 05/01/2008 | ||||||||||||
|
Contract Anniversary |
$100,000 | $5,000 | $90,500 | |||||||||
Since the RMD Amount for 2008 increases to $8,000, the quarterly
withdrawals of the RMD Amount increase to $2,000, as shown by
the RMD withdrawal on March 15, 2008. Because all
withdrawals during the Contract Year were RMD Withdrawals, there
is no adjustment to the Protected Payment Base for exceeding the
Protected Payment Amount. The only effect is a reduction in the
Remaining Protected Balance equal to the amount of each
withdrawal. In addition, each contract year the Protected
Payment Amount is reduced by the amount of each withdrawal until
the Protected Payment Amount is zero.
This chart assumes quarterly withdrawals of the Annual RMD
Amount and other
non-RMD
Withdrawals during the Contract Year. The calculated Annual RMD
amount and Contract Anniversary are the same as above.
|
Annual |
Protected |
Protected |
Remaining |
|||||||||
|
Activity |
RMD |
Non-RMD |
RMD |
Payment |
Payment |
Protected |
||||||
| Date | Withdrawal | Withdrawal | Amount | Base | Amount | Balance | ||||||
|
05/01/2006 Contract Anniversary |
$0 | $100,000 | $5,000 | $100,000 | ||||||||
|
01/01/2007
|
$7,500 | |||||||||||
|
03/15/2007
|
$1,875 | $100,000 | $3,125 | $98,125 | ||||||||
|
04/01/2007
|
$2,000 | $100,000 | $1,125 | $96,125 | ||||||||
|
05/01/2007 Contract Anniversary |
$100,000 | $5,000 | $96,125 | |||||||||
|
06/15/2007
|
$1,875 | $100,000 | $3,125 | $94,250 | ||||||||
|
09/15/2007
|
$1,875 | $100,000 | $1,250 | $92,375 | ||||||||
|
11/15/2007
|
$4,000 | $96,900 | $0 | $88,300 | ||||||||
88
On 3/15/07
there was an RMD Withdrawal of $1,875 and on
4/1/07 a
non-RMD
Withdrawal of $2,000. Because the total withdrawals during the
Contract Year
(5/1/06
through
4/30/07) did
not exceed the Protected Payment Amount of $5,000 there was no
adjustment to the Protected Payment Base. The only effect is a
reduction in the Remaining Protected Balance and the Protected
Payment Amount equal to the amount of each withdrawal. On
5/1/07, the
Protected Payment Amount was
re-calculated
(5% of the Protected Payment Base) as of that Contract
Anniversary.
On 11/15/07,
there was a
non-RMD
Withdrawal ($4,000) that caused the cumulative withdrawals
during the Contract Year ($7,750) to exceed the Protected
Payment Amount ($5,000). As the withdrawal exceeded the
Protected Payment Amount immediately prior to the withdrawal
($1,250), and assuming the Contract Value was $90,000
immediately prior to the withdrawal, the Protected Payment Base
is reduced to $96,900 and the Remaining Protected Balance is
reduced to $88,300. The Protected Payment Base and Remaining
Protected Balance will be reduced by the following calculation:
First, determine the excess withdrawal amount. The excess
withdrawal amount is the total withdrawal amount less the
Protected Payment Amount. Numerically, the excess withdrawal
amount is $2,750 (total withdrawal amount − Protected
Payment Amount;
$4,000 − $1,250 = $2,750).
Second, determine the ratio for the proportionate reduction. The
ratio is the excess withdrawal amount determined above divided
by (Contract Value − Protected Payment Amount).
Numerically, the ratio is 3.10%
($2,750 ¸ ($90,000 − $1,250);
$2,750 ¸ $88,750 = 0.0310
or 3.10%).
Third, determine the new Protected Payment Base. The Protected
Payment Base will be reduced on a proportionate basis. The
Protected Payment Base is multiplied by 1 less the ratio
determined above. Numerically, the new Protected Payment Base is
$96,900 (Protected Payment
Base × (1 − ratio); $100,000
× (1 − 3.10%); $100,000 ×
96.90% = $96,900).
Fourth, determine the new Remaining Protected Balance. The
Remaining Protected Balance is reduced either on a proportionate
basis or by the total withdrawal amount, whichever results in
the lower Remaining Protected Balance amount.
To determine the proportionate reduction, the Remaining
Protected Balance is reduced by the Protected Payment Amount and
then multiplied by 1 less the ratio determined above.
Numerically, after the proportionate reduction, the Remaining
Protected Balance is $88,300 ((Remaining Protected
Balance − Protected Payment
Amount) × (1 − ratio);
($92,375 − $1,250) × (1 − 3.10%);
$91,125 × 96.90% = $88,300).
To determine the total withdrawal amount reduction, the
Remaining Protected Balance is reduced by the total withdrawal
amount. Numerically, after the Remaining Protected Balance is
reduced by the total withdrawal amount, the Remaining Protected
Balance is $88,375 (Remaining Protected Balance −
total withdrawal amount;
$92,375 − $4,000 = $88,375).
Therefore, since $88,300 (proportionate method) is less than
$88,375 (total withdrawal amount method) the new Remaining
Protected Balance is $88,300.
Example #8 –
Lifetime Income.
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 | |
| • | Rider Effective Date = Contract Date | |
| • | Owner’s age on Rider Effective Date = 65 | |
| • | No subsequent Purchase Payments are received. | |
| • | Withdrawals, are taken each Contract Year: |
| • | Equal to 4% of the Protected Payment Base in Contract Years 1-5 (age 65-69) | |
| • | Equal to 5% of the Protected Payment Base in Contract Years 6-20 (age 70-84) | |
| • | Equal to 6% of the Protected Payment Base in Contract Years 21-35 (age 85-99) |
| • | No Automatic Reset or Owner-Elected Reset is assumed during the life of the Rider. |
89
|
Protected |
Protected |
Remaining |
||||||||
|
Contract |
End of Year |
Payment |
Payment |
Protected |
||||||
| Year | Withdrawal | Contract Value | Base | Amount | Balance | |||||
|
1
|
$4,000 | $99,000 | $100,000 | $4,000 | $96,000 | |||||
|
2
|
$4,000 | $97,970 | $100,000 | $4,000 | $92,000 | |||||
|
3
|
$4,000 | $96,909 | $100,000 | $4,000 | $88,000 | |||||
|
4
|
$4,000 | $95,816 | $100,000 | $4,000 | $84,000 | |||||
|
5
|
$4,000 | $94,691 | $100,000 | $4,000 | $80,000 | |||||
|
6
|
$5,000 | $92,532 | $100,000 | $5,000 | $75,000 | |||||
|
7
|
$5,000 | $90,308 | $100,000 | $5,000 | $70,000 | |||||
|
8
|
$5,000 | $88,017 | $100,000 | $5,000 | $65,000 | |||||
|
9
|
$5,000 | $85,657 | $100,000 | $5,000 | $60,000 | |||||
|
10
|
$5,000 | $83,227 | $100,000 | $5,000 | $55,000 | |||||
|
11
|
$5,000 | $80,724 | $100,000 | $5,000 | $50,000 | |||||
|
12
|
$5,000 | $78,146 | $100,000 | $5,000 | $45,000 | |||||
|
13
|
$5,000 | $75,490 | $100,000 | $5,000 | $40,000 | |||||
|
14
|
$5,000 | $72,755 | $100,000 | $5,000 | $35,000 | |||||
|
15
|
$5,000 | $69,937 | $100,000 | $5,000 | $30,000 | |||||
|
16
|
$5,000 | $67,035 | $100,000 | $5,000 | $25,000 | |||||
|
17
|
$5,000 | $64,046 | $100,000 | $5,000 | $20,000 | |||||
|
18
|
$5,000 | $60,968 | $100,000 | $5,000 | $15,000 | |||||
|
19
|
$5,000 | $57,797 | $100,000 | $5,000 | $10,000 | |||||
|
20
|
$5,000 | $54,531 | $100,000 | $5,000 | $5,000 | |||||
|
21
|
$6,000 | $50,167 | $100,000 | $6,000 | $0 | |||||
|
22
|
$6,000 | $45,672 | $100,000 | $6,000 | $0 | |||||
|
23
|
$6,000 | $41,042 | $100,000 | $6,000 | $0 | |||||
|
24
|
$6,000 | $36,273 | $100,000 | $6,000 | $0 | |||||
|
25
|
$6,000 | $31,361 | $100,000 | $6,000 | $0 | |||||
|
26
|
$6,000 | $26,302 | $100,000 | $6,000 | $0 | |||||
|
27
|
$6,000 | $21,091 | $100,000 | $6,000 | $0 | |||||
|
28
|
$6,000 | $15,724 | $100,000 | $6,000 | $0 | |||||
|
29
|
$6,000 | $10,196 | $100,000 | $6,000 | $0 | |||||
|
30
|
$6,000 | $4,501 | $100,000 | $6,000 | $0 | |||||
|
31
|
$6,000 | $0 | $100,000 | $6,000 | $0 | |||||
|
32
|
$6,000 | $0 | $100,000 | $6,000 | $0 | |||||
|
33
|
$6,000 | $0 | $100,000 | $6,000 | $0 | |||||
|
34
|
$6,000 | $0 | $100,000 | $6,000 | $0 | |||||
|
35
|
$6,000 | $0 | $100,000 | $6,000 | $0 | |||||
On the Rider Effective Date, the initial values are set as
follows:
| • | Protected Payment Base = Initial Purchase Payment = $100,000 | |
| • | Remaining Protected Balance = Initial Purchase Payment = $100,000 | |
| • | Protected Payment Amount = 4% of Protected Payment Base = $4,000 |
Because the amount of each withdrawal does not exceed the
Protected Payment Amount immediately prior to the withdrawal:
(a) the Protected Payment Base remains unchanged; and
(b) the Remaining Protected Balance is reduced by the
amount of each withdrawal.
Since a withdrawal occurred during Contract Year 1, no
increases are added to the withdrawal percentage due to delaying
withdrawals.
Since it was assumed that the Owner was
age 591/2
or older when the first withdrawal was taken, withdrawals of 4%,
5% and 6% of the Protected Payment Base, respectively, will
continue to be paid each year (even after the Contract Value and
Remaining Protected Balance have been reduced to zero) until the
day of the first death of an Owner or the date of death of the
sole surviving Annuitant (death of any Annuitant for Non-Natural
Owners), whichever occurs first.
90
APPENDIX
C:
DEATH BENEFIT AMOUNT AND STEPPED-UP DEATH BENEFIT SAMPLE
CALCULATIONS
The examples provided are based on certain hypothetical
assumptions and are for example purposes only. Where Contract
Value is reflected, the examples do not assume any specific
return percentage. They have been provided to assist in
understanding the death benefit amount under the Contract and
the optional
Stepped-Up
Death Benefit and to demonstrate how Purchase Payments and
withdrawals made from the Contract may effect the values and
benefits. There may be minor differences in the calculations due
to rounding. These examples are not intended to reflect what
your actual death benefit proceeds will be or serve as
projections of future investment returns nor are they a
reflection of how your Contract will actually perform.
Death
Benefit Amount
The values shown below are based on the following assumptions:
| • | Initial Purchase Payment = $100,000 | |
| • | Rider Effective Date = Contract Date | |
| • | A subsequent Purchase Payment of $25,000 is received in Contract Year 3. | |
| • | A withdrawal of $35,000 is taken during Contract Year 6. | |
| • | A withdrawal of $10,000 is taken during Contract Year 11. |
|
Beginning |
Purchase |
Return of |
||||||
|
of Contract |
Payments |
Withdrawal |
Purchase |
|||||
| Year | Received | Amount | Contract Value1 | Payments1 | ||||
|
1
|
$100,000 | $100,000 | $100,000 | |||||
|
2
|
$103,000 | $100,000 | ||||||
|
3
|
$106,090 | $100,000 | ||||||
|
Activity
|
$25,000 | $133,468 | $125,000 | |||||
|
4
|
$134,458 | $125,000 | ||||||
|
5
|
$138,492 | $125,000 | ||||||
|
6
|
$142,647 | $125,000 | ||||||
|
Activity
|
$35,000 | $110,844 | $95,000 | |||||
|
7
|
$111,666 | $95,000 | ||||||
|
8
|
$103,850 | $95,000 | ||||||
|
9
|
$96,580 | $95,000 | ||||||
| 10 | $89,820 | $95,000 | ||||||
|
11
|
$10,000 | $73,530 | $83,629 | |||||
|
12
|
$68,383 | $83,629 | ||||||
|
13
|
$63,596 | $83,629 | ||||||
|
14 Death Occurs |
$59,144 | $83,629 | ||||||
| 1 | The greater of the Contract Value or the adjusted Return of Purchase Payments represents the Death Benefit Amount. |
On the Rider Effective Date, the initial values are set as
follows:
| • | Return of Purchase Payment = Initial Purchase Payment = $100,000 | |
| • | Contract Value = Initial Purchase Payment = $100,000 |
During Contract Year 3, an additional Purchase Payment of
$25,000 was made. The Return of Purchase Payment amount
increased to $125,000. The Contract Value increased to $133,468.
During Contract Year 6, a withdrawal of $35,000 was made.
This withdrawal reduced the Return of Purchase Payment amount on
a pro rata basis to $95,000 and decreased the Contract Value to
$110,844. Numerically, the new Return of Purchase Payment amount
is calculated as follows:
First, determine the ratio for the proportionate reduction. The
ratio is the withdrawal amount divided by the Contract Value
prior to the withdrawal ($145,844, which equals the $110,844
Contract Value after the withdrawal plus the $35,000 withdrawal
amount). Numerically, the ratio is
24.00% ($35,000 ¸ $145,844 = 0.2400
or 24.00%).
Second, determine the new Return of Purchase Payment amount. The
Return of Purchase Payment amount prior to the withdrawal is
multiplied by 1 less the ratio determined above. Numerically,
the new Return of Purchase Payment amount is $95,000 (Return of
Purchase Payment amount prior to the
withdrawal × (1 − ratio);
$125,000 × (1 − 24.00%);
$125,000 × 76.00% = $95,000).
91
During Contract Year 11, a withdrawal of $10,000 was made.
This withdrawal reduced the Return of Purchase Payment amount on
a pro rata basis to $83,629 and decreased the Contract Value to
$73,530. Numerically, the new Return of Purchase Payment amount
is calculated as follows:
First, determine the ratio for the proportionate reduction. The
ratio is the withdrawal amount divided by the Contract Value
prior to the withdrawal ($83,530, which equals the $73,530
Contract Value after the withdrawal plus the $10,000 withdrawal
amount). Numerically, the ratio is
11.97% ($10,000 ¸ $83,530 = 0.1197
or 11.97%).
Second, determine the new Return of Purchase Payment amount. The
Return of Purchase Payment amount prior to the withdrawal is
multiplied by 1 less the ratio determined above. Numerically,
the new Return of Purchase Payment amount is $83,629 (Return of
Purchase Payment prior to the
withdrawal × (1 − ratio);
$95,000 × (1 − 11.97%);
$95,000 × 88.03% = $83,629).
During Contract Year 14, death occurs. The Death Benefit
Amount will be the Return of Purchase Payments reduced by an
amount for each withdrawal ($83,629) because that amount is
greater than the Contract Value ($59,144).
Using the table above, if death occurred in Contract
Year 7, the Death Benefit Amount would be the Contract
Value ($111,666) because that amount is greater than the Return
of Purchase Payment (reduced by an amount for withdrawals) of
$95,000.
Stepped-Up
Death Benefit
| • | Initial Purchase Payment = $100,000 | |
| • | Rider Effective Date = Contract Date | |
| • | A subsequent Purchase Payment of $25,000 is received in Contract Year 3. | |
| • | A withdrawal of $35,000 is taken during Contract Year 6. |
| • | Annual Step-Ups occur on each of the first 7 Contract Anniversaries. |
|
Guaranteed |
||||||||||
|
Minimum |
||||||||||
|
Beginning |
Purchase |
Return of |
(Stepped-Up) |
|||||||
|
of Contract |
Payments |
Withdrawal |
Contract |
Purchase |
Death Benefit |
|||||
| Year | Received | Amount | Value1 | Payments1 | Amount | |||||
|
1
|
$100,000 | $100,000 | $100,000 | $100,000 | ||||||
|
2
|
$103,000 | $100,000 | $103,000 | |||||||
|
3
|
$106,090 | $100,000 | $106,090 | |||||||
|
Activity
|
$25,000 | $133,468 | $125,000 | $131,090 | ||||||
|
4
|
$134,458 | $125,000 | $134,458 | |||||||
|
5
|
$138,492 | $125,000 | $138,492 | |||||||
|
6
|
$142,647 | $125,000 | $142,647 | |||||||
|
Activity
|
$35,000 | $110,844 | $95,000 | $108,412 | ||||||
|
7
|
$111,666 | $95,000 | $111,666 | |||||||
|
8
|
$103,850 | $95,000 | $111,666 | |||||||
|
9
|
$96,580 | $95,000 | $111,666 | |||||||
|
Death Occurs |
$89,820 | $95,000 | $111,666 | |||||||
| 1 | The greater of the Contract Value or the adjusted Return of Purchase Payments represents the Death Benefit Amount. |
On the Rider Effective Date, the initial values are set as
follows:
| • | Return of Purchase Payment = Initial Purchase Payment = $100,000 | |
| • | Guaranteed Minimum (Stepped-Up) Death Benefit Amount = Initial Purchase Payment = $100,000 | |
| • | Contract Value = Initial Purchase Payment = $100,000 |
During Contract Year 3, an additional Purchase Payment of
$25,000 was made. This results in an increase in the Return of
Purchase Payment amount to $125,000. The Contract Value
increased to $133,468 and the Guaranteed Minimum
(Stepped-Up)
Death Benefit Amount increased to $131,090.
During Contract Year 6, a withdrawal of $35,000 was made.
This withdrawal reduced the Return of Purchase Payment amount on
a pro rata basis to $95,000 and decreased the Contract Value to
$110,844. In addition, the Guaranteed Minimum
(Stepped-Up)
Death Benefit
92
Amount was reduced on a pro rata basis to $108,412. Numerically,
the new Return of Purchase Payment and Guaranteed Minimum
(Stepped-Up)
Death Benefit Amount is calculated as follows:
First, determine the ratio for the proportionate reduction. The
ratio is the withdrawal amount divided by the Contract Value
prior to the withdrawal ($145,844, which equals the $110,844
Contract Value after the withdrawal plus the $35,000 withdrawal
amount). Numerically, the ratio is
24.00% ($35,000 ¸ $145,844 = 0.2400
or 24.00%)
Second, determine the new Return of Purchase Payment amount. The
Return of Purchase Payment amount prior to the withdrawal is
multiplied by 1 less the ratio determined above. Numerically,
the new Return of Purchase Payment amount is $95,000 (Return of
Purchase Payment amount prior to the
withdrawal × (1 − ratio);
$125,000 × (1 − 24.00%);
$125,000 × 76.00% = $95,000).
Third, determine the new Guaranteed Minimum
(Stepped-Up)
Death Benefit Amount. The Guaranteed Minimum
(Stepped-Up)
Death Benefit Amount prior to the withdrawal is multiplied by 1
less the ratio determined above. Numerically, the new Guaranteed
Minimum
(Stepped-Up)
Death Benefit Amount is $108,412 (Guaranteed Minimum
(Stepped-Up)
Death Benefit Amount prior to the
withdrawal × (1 − ratio);
$142,647 × (1 − 24.00%);
$142,647 × 76.00% = $108,412).
During Contract Year 9, death occurs. The death benefit
proceeds are the greater of the Death Benefit Amount (Contract
Value or Return of Purchase Payments adjusted for withdrawals)
or the Guaranteed Minimum
(Stepped-Up)
Death Benefit Amount. The Death Benefit Amount is $95,000
because the Return of Purchase Payment Amount ($95,000) is
greater than the Contract Value ($89,820). The death benefit
proceeds are equal to the Guaranteed Minimum
(Stepped-Up)
Death Benefit Amount of $111,666 because it is greater than the
Death Benefit Amount (Return of Purchase Payments of $95,000).
93
|
PACIFIC DESTINATIONS B |
WHERE TO GO FOR MORE INFORMATION |
|
The Pacific Destinations B variable annuity Contract is offered by Pacific Life Insurance Company, 700 Newport Center Drive. P.O. Box 9000, Newport Beach, California 92660.
If you have any questions about the Contract, please ask your financial advisor or contact us. |
You will find more information about the Pacific Destinations B variable annuity contract and Separate Account A in the Statement of Additional Information (SAI) dated May 1, 2011.
The SAI has been filed with the SEC and is considered to be part of this Prospectus because it is incorporated by reference. In this Prospectus, you will find the table of contents for the SAI on page 74. You can get a copy of the SAI at no charge by calling or writing to us, or by contacting the SEC. The SEC may charge you a fee for this information. |
|
|
How to Contact Us
|
Call or write to us at:
Pacific Life Insurance Company P.O. Box 2378 Omaha, Nebraska 68103-2378 Contract Owners: (800) 722-4448 Financial Advisors: (877) 441-2357 6 a.m. through 5 p.m. Pacific time Send Purchase Payments, other payments and application forms to the following address: By mail Pacific Life Insurance Company P.O. Box 2290 Omaha, Nebraska 68103-2290 By overnight delivery service Pacific Life Insurance Company 1299 Farnam Street, 6th Floor, RSD Omaha, Nebraska 68102 |
|
|
How to Contact the SEC
|
Commission’s Public Reference Section 100 F Street, NE Washington, D.C. 20549 (202) 551-8090 Website: www.sec.gov e-mail: publicinfo@sec.gov |
|
|
FINRA Public Disclosure Program
|
The Financial Industry Regulatory Authority (FINRA) provides investor protection education through its website and printed materials. The FINRA regulation website address is www.finra.org. An investor brochure that includes information describing the BrokerCheck program may be obtained from FINRA. The FINRA BrokerCheck hotline number is (800) 289-9999. FINRA does not charge a fee for the BrokerCheck program services. |
(THIS PAGE INTENTIONALLY LEFT BLANK)
Pacific Life Insurance Company
Mailing address:
P.O. Box 2378
Omaha, Nebraska
68103-2378
Visit us at our website:
www.PacificLife.com
33500-11Z
STATEMENT
OF ADDITIONAL INFORMATION
May 1, 2011
PACIFIC DESTINATIONS
B
SEPARATE ACCOUNT A
Pacific Destinations B (the “Contract”) is a variable
annuity contract offered by Pacific Life Insurance Company
(“Pacific Life”).
This Statement of Additional Information (“SAI”) is
not a Prospectus and should be read in conjunction with the
Contract’s Prospectus, dated May 1, 2011, and any
supplement thereto, which is available without charge upon
written or telephone request to Pacific Life. Terms used in this
SAI have the same meanings as in the Prospectus, and some
additional terms are defined particularly for this SAI. This SAI
is incorporated by reference into the Contract’s Prospectus.
Pacific Life Insurance Company
Mailing address: P.O. Box 2378
Omaha, Nebraska 68103-2378
(800) 722-4448 – Contract Owners
(877) 441-2357 – Financial Advisors
TABLE OF
CONTENTS
| Page No. | ||||
| 1 | ||||
| 1 | ||||
| 2 | ||||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 5 | ||||
| 6 | ||||
| 6 | ||||
| 7 | ||||
| 9 | ||||
| 10 | ||||
| 10 | ||||
| 10 | ||||
| 12 | ||||
| 12 | ||||
| 16 | ||||
| 16 | ||||
| 16 | ||||
i
PERFORMANCE
From time to time, our reports or other communications to
current or prospective Contract Owners or our advertising or
other promotional material may quote the performance (yield and
total return) of a Subaccount. Quoted results are based on past
performance and reflect the performance of all assets held in
that Subaccount for the stated time period. Quoted results
are neither an estimate nor a guarantee of future investment
performance, and do not represent the actual experience of
amounts invested by any particular Contract Owner.
Total
Returns
A Subaccount may advertise its “average annual total
return” over various periods of time. “Total
return” represents the average percentage change in value
of an investment in the Subaccount from the beginning of a
measuring period to the end of that measuring period.
“Annualized” total return assumes that the total
return achieved for the measuring period is achieved for each
full year period. “Average annual” total return is
computed in accordance with a standard method prescribed by the
SEC, and is also referred to as “standardized return.”
Average
Annual Total Return
To calculate a Subaccount’s average annual total return for
a specific measuring period, we first take a hypothetical $1,000
investment in that Subaccount, at its applicable Subaccount Unit
Value (the “initial payment”) and we compute the
ending redeemable value of that initial payment at the end of
the measuring period based on the investment experience of that
Subaccount (“full withdrawal value”). The full
withdrawal value reflects the effect of all recurring fees and
charges applicable to a Contract Owner under the Contract,
including the Risk Charge, the asset-based Administrative Fee
and the deduction of the applicable withdrawal charge, but does
not reflect any charges for applicable premium taxes and/or any
other taxes, any optional Rider charge, any non-recurring fees
or charges, or any increase in the Risk Charge for an optional
Death Benefit Rider. The Annual Fee is also taken into account,
assuming an average Contract Value of $45,000. The redeemable
value is then divided by the initial payment and this quotient
is raised to the 365/N power (N represents the number
of days in the measuring period), and 1 is subtracted from
this result. Average annual total return is expressed as a
percentage.
T = (ERV/P)(365/N)
− 1
|
where
|
T | = | average annual total return | |||
| ERV | = | ending redeemable value | ||||
| P | = | hypothetical initial payment of $1,000 | ||||
| N | = | number of days |
Average annual total return figures will be given for recent
1-,
3-,
5- and
10-year
periods (if applicable), and may be given for other periods as
well (such as from commencement of the Subaccount’s
operations, or on a year-by-year basis).
When considering “average” total return figures for
periods longer than one year, it is important to note that the
relevant Subaccount’s annual total return for any one year
in the period might have been greater or less than the average
for the entire period.
Aggregate
Total Return
A Subaccount may use “aggregate” total return figures
along with its “average annual” total return figures
for various periods; these figures represent the cumulative
change in value of an investment in the Subaccount for a
specific period. Aggregate total returns may be shown by means
of schedules, charts or graphs and may indicate subtotals of the
various components of total return. The SEC has not prescribed
standard formulas for calculating aggregate total return.
Total returns may also be shown for the same periods that do not
take into account the withdrawal charge or the Annual Fee.
1
Non-Standardized
Total Returns
We may also calculate non-standardized total returns which may
or may not reflect any Annual Fee, withdrawal charges, increases
in Risk Charge for an optional Death Benefit Rider, charges for
premium taxes and/or any other taxes, any charge for an optional
Rider, or any non-recurring fees or charges.
Standardized return figures will always accompany any
non-standardized returns shown.
Yields
Cash
Management Subaccount
The “yield” (also called “current yield”) of
the Cash Management Subaccount is computed in accordance with a
standard method prescribed by the SEC. The net change in the
Subaccount’s Unit Value during a seven-day period is
divided by the Unit Value at the beginning of the period to
obtain a base rate of return. The current yield is generated
when the base rate is “annualized” by multiplying it
by the fraction
365/7;
that is, the base rate of return is assumed to be generated each
week over a 365-day period and is shown as a percentage of the
investment. The “effective yield” of the Cash
Management Subaccount is calculated similarly but, when
annualized, the base rate of return is assumed to be reinvested.
The effective yield will be slightly higher than the current
yield because of the compounding effect of this assumed
reinvestment.
The formula for effective yield is: [(Base Period Return +
1) (To the power of
365/7)]
− 1.
Realized capital gains or losses and unrealized appreciation or
depreciation of the assets of the underlying Cash Management
Portfolio are not included in the yield calculation. Current
yield and effective yield do not reflect the deduction of
charges for any applicable premium taxes and/or any other taxes,
any increase in the Risk Charge for an optional Death Benefit
Rider, any charges for an optional Rider or any non-recurring
fees or charges, but do reflect a deduction for the Annual Fee,
the Risk Charge, and the asset-based Administrative Fee and
assume an average Contract Value of $45,000.
Other
Subaccounts
“Yield” of the other Subaccounts is computed in
accordance with a different standard method prescribed by the
SEC. The net investment income (investment income less expenses)
per Subaccount Unit earned during a specified one-month or
30-day period is divided by the Subaccount Unit Value on the
last day of the specified period. This result is then annualized
(that is, the yield is assumed to be generated each month or
each 30-day
period for a year), according to the following formula, which
assumes semi-annual compounding:
|
YIELD = 2[(
|
a – b cd |
+ 1)6 − 1] |
|
where:
|
a | = | net investment income earned during the period by the Portfolio attributable to the Subaccount. | |||
| b | = | expenses accrued for the period (net of reimbursements). | ||||
| c | = | the average daily number of Subaccount Units outstanding during the period that were entitled to receive dividends. | ||||
| d | = | the Unit Value of the Subaccount Units on the last day of the period. |
The yield of each Subaccount reflects the deduction of all
recurring fees and charges applicable to the Subaccount, such as
the Risk Charge, the asset-based Administrative Fee and the
Annual Fee (assuming an average Contract Value of $45,000), but
does not reflect any withdrawal charge, charge for applicable
premium taxes and/or any other taxes, increase in the Risk
Charge for an optional Death Benefit Rider, any charges for an
optional Rider, or any non-recurring fees or charges.
The Subaccounts’ yields will vary from time to time
depending upon market conditions, the composition of each
Portfolio and operating expenses of the Fund allocated to each
Portfolio. Consequently, any given performance quotation should
not be considered representative of the Subaccount’s
performance in the future. Yield should also be considered
relative to changes in Subaccount Unit Values and to the
relative risks associated with the investment policies and
objectives of the various Portfolios. In addition, because
performance will fluctuate, it may not provide a
2
basis for comparing the yield of a Subaccount with certain bank
deposits or other investments that pay a fixed yield or return
for a stated period of time.
Performance
Comparisons and Benchmarks
In advertisements and sales literature, we may compare the
performance of some or all of the Subaccounts to the performance
of other variable annuity issuers in general and to the
performance of particular types of variable annuities investing
in mutual funds, or series of mutual funds, with investment
objectives similar to each of the Subaccounts. This performance
may be presented as averages or rankings compiled by Lipper
Analytical Services, Inc. (“Lipper”), or Morningstar,
Inc. (“Morningstar”), which are independent services
that monitor and rank the performance of variable annuity
issuers and mutual funds in each of the major categories of
investment objectives on an industry-wide basis. Lipper’s
rankings include variable life issuers as well as variable
annuity issuers. The performance analyses prepared by Lipper and
Morningstar rank such issuers on the basis of total return,
assuming reinvestment of dividends and distributions, but do not
take sales charges, redemption fees or certain expense
deductions at the separate account level into consideration. In
addition, Morningstar prepares risk adjusted rankings, which
consider the effects of market risk on total return performance.
We may also compare the performance of the Subaccounts with
performance information included in other publications and
services that monitor the performance of insurance company
separate accounts or other investment vehicles. These other
services or publications may be general interest business
publications such as The Wall Street Journal, Barron’s,
Business Week, Forbes, Fortune, and Money.
In addition, our reports and communications to Contract Owners,
advertisements, or sales literature may compare a
Subaccount’s performance to various benchmarks that measure
the performance of a pertinent group of securities widely
regarded by investors as being representative of the securities
markets in general or as being representative of a particular
type of security. We may also compare the performance of the
Subaccounts with that of other appropriate indices of investment
securities and averages for peer universes of funds or data
developed by us derived from such indices or averages. Unmanaged
indices generally assume the reinvestment of dividends or
interest but do not generally reflect deductions for investment
management or administrative costs and expenses.
Tax
Deferred Accumulation
In reports or other communications to you or in advertising or
sales materials, we may also describe the effects of
tax-deferred compounding on the Separate Account’s
investment returns or upon returns in general. These effects may
be illustrated in charts or graphs and may include comparisons
at various points in time of returns under the Contract or in
general on a tax-deferred basis with the returns on a taxable
basis. Different tax rates may be assumed.
In general, individuals who own annuity contracts are not taxed
on increases in the value under the annuity contract until some
form of distribution is made from the contract (Non-Natural
Persons as Owners may not receive tax deferred accumulation).
Thus, the annuity contract will benefit from tax deferral during
the accumulation period, which generally will have the effect of
permitting an investment in an annuity contract to grow more
rapidly than a comparable investment under which increases in
value are taxed on a current basis. The following chart
illustrates this benefit by comparing accumulation under a
variable annuity contract with accumulations from an investment
on which gains are taxed on a current ordinary income basis.
The chart shows accumulations on a single Purchase Payment of
$10,000, assuming hypothetical annual returns of 0%, 4% and 8%,
compounded annually, and a tax rate of 33%. The values shown for
the taxable investment do not include any deduction for
management fees or other expenses but assume that taxes are
deducted annually from investment returns. The values shown for
the variable annuity do not reflect the deduction of contractual
expenses such as the Risk Charge (equal to an annual rate of
1.15% of average daily account value), the Administrative Fee
(equal to an annual rate of 0.15% of average daily account
value), the Annual Fee (equal to $30 per year if your Net
Contract Value is less than $50,000), any increase in the Risk
Charge for an optional Death Benefit Rider (equal to a maximum
annual rate of 0.20% of average daily Account Value), other
optional Rider charges (equal to a maximum annual rate of 1.80%
of the Protected Payment Base), a charge for premium taxes
and/or other taxes, any applicable withdrawal charge, or any
underlying Fund expenses.
Generally, the withdrawal charge is equal to 7% of the amount
withdrawn attributable to Purchase Payments that are one year
old, 7% of the amount withdrawn attributable to Purchase
Payments that are two years old, 6% of the amount
3
withdrawn attributable to Purchase Payments that are three
years old, 6% of the amount withdrawn attributable to Purchase
Payments that are four years old, 5% of the amount withdrawn
attributable to Purchase Payments that are five years old, and
3% of the amount withdrawn attributable to Purchase Payments
that are six years old, and 1% of the amount withdrawn
attributable to Purchase Payments that are seven years old. The
age of Purchase Payments is considered 1 year old in the
Contract Year we receive it and increases by one year on the
beginning of the day preceding each Contract Anniversary. There
is no withdrawal charge on withdrawals of your Earnings, on
amounts attributed to Purchase Payments at least 8 years
old, or to the extent that total withdrawals that are free of
charge during the Contract Year do not exceed 10% of the sum of
your Purchase Payments at the beginning of the Contract Year
that have been held under your Contract for less than
8 years plus additional Purchase Payments applied to your
Contract during that Contract Year. If these expenses and fees
were taken into account, they would reduce the investment return
shown for both the taxable investment and the hypothetical
variable annuity contract. In addition, these values assume that
you do not surrender the Contract or make any withdrawals until
the end of the period shown. The chart assumes a full
withdrawal, at the end of the period shown, of all Contract
Value and the payment of taxes at the 33% rate on the amount in
excess of the Purchase Payment.
The rates of return illustrated are hypothetical and are not an
estimate or guarantee of performance. Actual tax rates may vary
for different assets (e.g. capital gains and qualifying
dividend income) and taxpayers from that illustrated.
Withdrawals by and distributions to Contract Owners who have not
reached
age 591/2 may
be subject to a tax penalty of 10%.
Power of
Tax Deferral
$10,000 investment at annual rates of return of 0%, 4% and 8%,
taxed @ 33%
4
DISTRIBUTION
OF THE CONTRACTS
Pacific
Select Distributors, Inc. (PSD)
Pacific Select Distributors, Inc., our subsidiary, acts as the
distributor of the Contracts and offers the Contracts on a
continuous basis. 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 FINRA. We pay PSD
for acting as distributor under a Distribution Agreement. We and
PSD enter into selling agreements with broker-dealers whose
financial advisors are authorized by state insurance departments
to solicit applications for the Contracts. Because the Contract
was not offered before 2010, PSD was not paid any underwriting
commissions with regard to this Contract.
PSD or an affiliate pays various sales compensation to
broker-dealers that solicit applications for the Contracts. PSD
or an affiliate also may provide reimbursement for other
expenses associated with the promotion and solicitation of
applications for the Contracts. Your financial advisor typically
receives a portion of the compensation that is payable to his or
her broker-dealer in connection with the Contract, depending on
the agreement between your financial advisor and his or her
firm. Pacific Life is not involved in determining that
compensation arrangement, which may present its own incentives
or conflicts. You may ask your financial advisor how he/she will
personally be compensated for the transaction.
Under certain circumstances where PSD pays lower initial
commissions, certain broker-dealers that solicit applications
for Contracts may be paid an ongoing persistency trail
commission (sometimes called a residual). The mix of Purchase
Payment-based versus trail commissions varies depending upon our
agreement with the selling broker-dealer and the commission
option selected by your financial advisor or broker-dealer.
Certain broker-dealers may also be paid an amount under a
persistency program which will be based on assets under
management and duration of contracts. The amount under the
persistency program for a financial advisor is not expected to
exceed 0.25% of their total assets under management.
In addition to the Purchase Payment-based, trail commissions and
persistency program described above, we and/or an affiliate may
pay additional cash compensation from our own resources in
connection with the promotion and solicitation of applications
for the Contracts by some, but not all, broker-dealers. The
range of additional cash compensation based on Purchase Payments
generally does not exceed 0.40% and trailing compensation based
on Account Value generally does not exceed 0.10% on an annual
basis. Such additional compensation may give Pacific Life
greater access to financial advisors of the broker-dealers that
receive such compensation. While this greater access provides
the opportunity for training and other educational programs so
that your financial advisor may serve you better, this
additional compensation also may afford Pacific Life a
“preferred” status at the recipient broker-dealer and
provide some other marketing benefit such as website placement,
access to financial advisor lists, extra marketing assistance or
other heightened visibility and access to the
broker-dealer’s sales force that may otherwise influence
the way that the broker-dealer and the financial advisor market
the Contracts.
As of December 31, 2010, the following firms have
arrangements in effect with the Distributor pursuant to which
the firm is entitled to receive a revenue sharing payment:
American Portfolios Financial Services Inc., Askar Corporation,
Bancwest Investment Services Inc., C C O Investment
Services Corp, C U N A Brokerage Services Inc.,
C U S O Financial Services LP, Centaurus
Financial, Inc., Citigroup Global Markets Inc., Commonwealth
Financial Network, B B V A Compass Investment
Solutions Inc., Edward D. Jones & Co., LP, Essex
National Securities Inc., F S C Securities
Corporation, Fifth Third Securities Inc., Financial Network
Investment Corp., First Allied Securities Inc., First Heartland
Capital Inc., First Tennessee Brokerage Inc., Geneos Wealth
Management Inc., Great American Advisors Inc., I N G
Financial Partners Inc., Infinex Investments Inc., Invest
Financial Corporation, Investacorp Inc., Investment Centers of
America Inc., Investment Professionals Inc., J J B
Hilliard, W L Lyons Inc., Jacques Financial
L L C, Janney Montgomery Scott Inc., Key Investment
Services L L C, L P L Financial Corp.,
Lincoln Financial Advisors Corp., Lincoln Financial Securities
Corp., M & T Securities Inc., M Holdings
Securities Inc., M M L Investors Services Inc.,
Merrill Lynch, Pierce, Fenner & Smith, Morgan
Keegan & Company Inc., Morgan Stanley & Co.
Incorporated, Multi-Financial Securities Corp., Mutual Of Omaha
Investor Services Inc., NF P Securities Inc., National
Planning Corporation, NEXT Financial Group Inc., P N C
Investments L L C, Park Avenue Securities LLC.,
Primevest Financial Services Inc., ProEquities Inc.,
R B C Capital Markets Corporation, Raymond
James & Associates Inc., Raymond James
5
Financial Services Inc., Robert W Baird & Company
Inc., Royal Alliance Associates Inc., S I I
Investments Inc., Sagepoint Financial Inc., Securian Financial
Services Inc., Securities America Inc., Sigma Financial Corp.,
Signator Investors Inc., Sorrento Pacific Financial
L L C, Stifel Nicolaus & Company Inc.,
Suntrust Investment Services Inc., Tower Square Securities Inc.,
Transamerica Financial Advisors Inc., Triad Advisors Inc.,
U B S Financial Services Inc., U S Bancorp
Investments Inc., Unionbanc Investment Services L L C,
United Planners’ Financial Services of America,
V S R Financial Services Inc., Vision Investment
Services Inc., Walnut Street Securities, Wells Fargo Advisors
LLC, Wells Fargo Investments LLC, Wescom Financial Services
L L C, Woodbury Financial Services Inc., Zions Direct
Inc.
We or our affiliates may also pay override payments, expense
allowances and reimbursements, bonuses, wholesaler fees, and
training and marketing allowances. Such payments may offset the
broker-dealer’s expenses in connection with activities that
it is required to perform, such as educating personnel and
maintaining records. Financial advisors may also receive
non-cash compensation, such as expense-paid educational or
training seminars involving travel within and outside the U.S.
or promotional merchandise.
All of the compensation described in this section, and other
compensation or benefits provided by us or our affiliates, may
be more or less than the overall compensation on similar or
other products and may influence your financial advisor or
broker-dealer to present this Contract over other investment
options. You may ask your financial advisor about these
potential conflicts of interests and how he/she and his/her
broker-dealer are compensated for selling the Contract.
Portfolio Managers of the underlying Portfolios available under
this Contract may from time to time bear all or a portion of the
expenses of conferences or meetings sponsored by Pacific Life or
PSD that are attended by, among others, representatives of PSD,
who would receive information and/or training regarding the
Fund’s Portfolios and their management by the Portfolio
Managers in addition to information regarding the variable
annuity and/or life insurance products issued by Pacific Life
and its affiliates. Other persons may also attend all or a
portion of any such conferences or meetings, including
directors, officers and employees of Pacific Life, officers and
trustees of Pacific Select Fund, and spouses/guests of the
foregoing. The Pacific Select Fund Board of Trustees may hold
meetings concurrently with such a conference or meeting. The
Pacific Select Fund pays for the expenses of the meetings of its
Board of Trustees, including the pro rata share of expenses for
attendance by the Trustees at the concurrent conferences or
meetings sponsored by Pacific Life or PSD. Additional expenses
and promotional items may be paid for by Pacific Life and/or
Portfolio Managers. PSD serves as the Pacific Select Fund
Distributor.
THE
CONTRACTS AND THE SEPARATE ACCOUNT
Calculating
Subaccount Unit Values
The Unit Value of the Subaccount Units in each Variable
Investment Option is computed at the close of the New York
Stock Exchange, which is usually 4:00 p.m. Eastern time on
each Business Day. The initial Unit Value of each Subaccount was
$10 on the Business Day the Subaccount began operations. At the
end of each Business Day, the Unit Value for a Subaccount is
equal to:
Y × Z
|
where
|
(Y) | = | the Unit Value for that Subaccount as of the end of the preceding Business Day; and | |||
| (Z) | = | the Net Investment Factor for that Subaccount for the period (a “valuation period”) between that Business Day and the immediately preceding Business Day. |
The “Net Investment Factor” for a Subaccount for any
valuation period is equal to:
(A
¸
B) − C
|
where
|
(A) | = | the “per share value of the assets” of that Subaccount as of the end of that valuation period, which is equal to: a+b+c |
6
|
where
|
(a) | = | the net asset value per share of the corresponding Portfolio shares held by that Subaccount as of the end of that valuation period; | |||
| (b) | = | the per share amount of any dividend or capital gain distributions made by the Fund for that Portfolio during that valuation period; and | ||||
| (c) | = | any per share charge (a negative number) or credit (a positive number) for any income taxes or other amounts set aside during that valuation period as a reserve for any income and/or any other taxes which we determine to have resulted from the operations of the Subaccount or Contract, and/or any taxes attributable, directly or indirectly, to Investments; |
| (B) | = | the net asset value per share of the corresponding Portfolio shares held by the Subaccount as of the end of the preceding valuation period; and | ||||
| (C) | = | a factor that assesses against the Subaccount net assets for each calendar day in the valuation period, the basic Risk Charge plus any applicable increase in the Risk Charge and the Administrative Fee (see the CHARGES, FEES AND DEDUCTIONS section in the Prospectus). |
As explained in the Prospectus, the Annual Fee, if applicable,
will be charged proportionately against your Investment Options.
Assessments against your Variable Investment Options are
assessed against your Variable Account Value through the
automatic debit of Subaccount Units; the Annual Fee decreases
the number of Subaccount Units attributed to your Contract but
does not alter the Unit Value for any Subaccount.
Variable
Annuity Payment Amounts
The following steps show how we determine the amount of each
variable annuity payment under your Contract.
First:
Pay Applicable Premium Taxes
When you convert any portion of your Net Contract Value into
annuity payments, you must pay any applicable charge for premium
taxes and/or other taxes on your Contract Value (unless
applicable law requires those taxes to be paid at a later time).
We assess this charge by reducing your Account Value
proportionately, relative to your Account Value in each
Subaccount and in any fixed option, in an amount equal to the
aggregate amount of the charges. The remaining amount of your
available Net Contract Value may be used to provide variable
annuity payments. Alternatively, your remaining available Net
Contract Value may be used to provide fixed annuity payments, or
it may be divided to provide both fixed and variable annuity
payments. You may also choose to withdraw some or all of your
remaining Net Contract Value, less any applicable Annual Fees,
any charge for an optional Rider, and/or withdrawal charge, and
any charges for premium taxes and/or other taxes without
converting this amount into annuity payments.
Second:
The First Variable Payment
We begin by referring to your Contract’s Option Table for
your Annuity Option (the “Annuity Option Table”). The
Annuity Option Table allows us to calculate the dollar amount of
the first variable annuity payment under your Contract, based on
the amount applied toward the variable annuity. The number that
the Annuity Option Table yields will be based on the
Annuitant’s age (and, in certain cases, sex) and assumes a
5% rate of return, as described in more detail below.
Example: Assume a man is 65 years of age at his
Annuity Date and has selected a lifetime annuity with monthly
payments guaranteed for 10 years. According to the Annuity
Option Table, this man should receive an initial monthly payment
of $5.79 for every $1,000 of his Contract Value (reduced by
applicable charges) that he will be using to provide variable
payments. Therefore, if his Contract Value after deducting
applicable fees and charges is $100,000 on his Annuity Date and
he applies this entire amount toward his variable annuity, his
first monthly payment will be $579.00.
You may choose any other Annuity Option Table that assumes a
different rate of return which we offer at the time your Annuity
Option is effective.
7
Third:
Subaccount Annuity Units
For each Subaccount, we use the amount of the first variable
annuity payment under your Contract attributed to each
Subaccount to determine the number of Subaccount Annuity Units
that will form the basis of subsequent payment amounts. First,
we use the Annuity Option Table to determine the amount of that
first variable payment for each Subaccount. Then, for each
Subaccount, we divide that amount of the first variable annuity
payment by the value of one Subaccount Annuity Unit (the
“Subaccount Annuity Unit Value”) as of the end of the
Annuity Date to obtain the number of Subaccount Annuity Units
for that particular Subaccount. The number of Subaccount Annuity
Units used to calculate subsequent payments under your Contract
will not change unless exchanges of Annuity Units are made, (or
if the Joint and Survivor Annuity Option is elected and the
Primary Annuitant dies first) but the value of those Annuity
Units will change daily, as described below.
Fourth:
The Subsequent Variable Payments
The amount of each subsequent variable annuity payment will be
the sum of the amounts payable based on each Subaccount. The
amount payable based on each Subaccount is equal to the number
of Subaccount Annuity Units for that Subaccount multiplied by
their Subaccount Annuity Unit Value at the end of the Business
Day in each payment period you elected that corresponds to the
Annuity Date.
Each Subaccount’s Subaccount Annuity Unit Value, like its
Subaccount Unit Value, changes each day to reflect the net
investment results of the underlying investment vehicle, as well
as the assessment of the Risk Charge at an annual rate of 1.15%
and the Administrative Fee at an annual rate of 0.15%. In
addition, the calculation of Subaccount Annuity Unit Value
incorporates an additional factor; as discussed in more detail
below, this additional factor adjusts Subaccount Annuity Unit
Values to correct for the Option Table’s implicit assumed
annual investment return on amounts applied but not yet used to
furnish annuity benefits. Any increase in your Risk Charge for
an optional death benefit rider is not charged on and after the
Annuity Date.
Different Subaccounts may be selected for your Contract before
and after your Annuity Date, subject to any restrictions we may
establish. Currently, you may exchange Subaccount Annuity Units
in any Subaccount for Subaccount Annuity Units in any other
Subaccount(s) up to four times in any twelve month period after
your Annuity Date. The number of Subaccount Annuity Units in any
Subaccount may change due to such exchanges. Exchanges following
your Annuity Date will be made by exchanging Subaccount Annuity
Units of equivalent aggregate value, based on their relative
Subaccount Annuity Unit Values.
Understanding
the “Assumed Investment Return” Factors
The Annuity Option Table incorporates a number of implicit
assumptions in determining the amount of your first variable
annuity payment. As noted above, the numbers in the Annuity
Option Table reflect certain actuarial assumptions based on the
Annuitant’s age, and, in some cases, the Annuitant’s
sex. In addition, these numbers assume that the amount of your
Contract Value that you convert to a variable annuity will have
a positive net investment return of 5% each year during the
payout of your annuity; thus 5% is referred to as an
“assumed investment return.”
The Subaccount Annuity Unit Value for a Subaccount will increase
only to the extent that the investment performance of that
Subaccount exceeds the Risk Charge, the Administrative Fee, and
the assumed investment return. The Subaccount Annuity Unit Value
for any Subaccount will generally be less than the Subaccount
Unit Value for that same Subaccount, and the difference will be
the amount of the assumed investment return factor.
Example: Assume the net investment performance of a
Subaccount is at a rate of 5.00% per year (after deduction of
the 1.15% Risk Charge and the 0.15% Administrative Fee). The
Subaccount Unit Value for that Subaccount would increase at a
rate of 5.00% per year, but the Subaccount Annuity Unit Value
would not increase (or decrease) at all. The net investment
factor for that 5% return [1.05] is then divided by the factor
for the 5% assumed investment return [1.05] and 1 is subtracted
from the result to determine the adjusted rate of change in
Subaccount Annuity Unit Value:
|
1.05 |
= 1; 1 − 1 = 0; 0 × 100% = 0%. |
8
If the net investment performance of a Subaccount’s assets
is at a rate less than 5.00% per year, the Subaccount Annuity
Unit Value will decrease, even if the Subaccount Unit Value is
increasing.
Example: Assume the net investment performance of a
Subaccount is at a rate of 2.60% per year (after deduction of
the 1.15% Risk Charge and the 0.15% Administrative Fee). The
Subaccount Unit Value for that Subaccount would increase at a
rate of 2.60% per year, but the Subaccount Annuity Unit Value
would decrease at a rate of 2.29% per year. The net
investment factor for that 2.6% return [1.026] is then divided
by the factor for the 5% assumed investment return [1.05] and 1
is subtracted from the result to determine the adjusted rate of
change in Subaccount Annuity Unit Value:
|
1.026 |
= 0.9771; 0.9771 − 1 = −0.0229; −0.0229 × 100% = −2.29%. |
The assumed investment return will always cause increases in
Subaccount Annuity Unit Values to be somewhat less than if the
assumption had not been made, will cause decreases in Subaccount
Annuity Unit Values to be somewhat greater than if the
assumption had not been made, and will (as shown in the example
above) sometimes cause a decrease in Subaccount Annuity Unit
Values to take place when an increase would have occurred if the
assumption had not been made. If we had assumed a higher
investment return in our Annuity Option tables, it would produce
annuities with larger first payments, but the increases in
subaccount annuity payments would be smaller and the decreases
in subsequent annuity payments would be greater; a lower assumed
investment return would produce annuities with smaller first
payments, and the increases in subsequent annuity payments would
be greater and the decreases in subsequent annuity payments
would be smaller.
Redemptions
of Remaining Guaranteed Variable Payments Under
Options 2 and 4
If variable payments are elected under Annuity Options 2
and 4, you may redeem all remaining guaranteed variable payments
after the Annuity Date. Also, under Option 4, partial
redemptions of remaining guaranteed variable payments after the
Annuity Date are available. If you elect to redeem all
remaining guaranteed variable payments in a single sum, we will
not make any additional variable annuity payments during the
Annuitant’s lifetime or the remaining guaranteed period
after the redemption. The amount available upon full
redemption would be the present value of any remaining
guaranteed variable payments at the assumed investment return.
Any applicable withdrawal charge will be deducted from the
present value as if you made a full withdrawal, or if
applicable, a partial withdrawal. For purposes of calculating
the withdrawal charge and Free Withdrawal amount, it will be
assumed that the Contract was never converted to provide annuity
payments and any prior variable annuity payments in that
Contract Year will be treated as if they were partial
withdrawals from the Contract (see the CHARGES, FEES AND
DEDUCTIONS—Withdrawal Charge section in the
Prospectus). For example, assume that a Contract was issued with
a single investment of $10,000 and in Contract Year 5 the
Owner elects to receive variable annuity payments under Annuity
Option 4. In Contract Year 6, the Owner elects to make
a partial redemption of $5,000. The withdrawal charge as a
percentage of the Purchase Payments with an age of 6 years
is 3%. Assuming the Free Withdrawal amount immediately prior to
the partial redemption is $300, the withdrawal charge for the
partial redemption will be $141 (($5,000 − $300)
* 3%). No withdrawal charge will be imposed on a redemption if:
| • | the Annuity Option is elected as the form of payments of death benefit proceeds, or | |
| • | the Annuitant dies before the period certain has ended and the Beneficiary requests a redemption of the variable annuity payments. |
The variable payment amount we use in calculating the present
value is determined by summing an amount for each Subaccount,
which we calculate by multiplying your Subaccount Annuity Units
by the Annuity Unit Value next computed after we receive your
redemption request. This variable payment amount is then
discounted at the assumed investment return from each future
Annuity Payment date that falls within the payment guaranteed
period. The sum of these discounted remaining variable payment
amounts is the present value of remaining guaranteed variable
payments.
If you elect to redeem all remaining guaranteed variable
payments in a single sum, we will not make any additional
variable annuity payments during the remaining guaranteed period
after the redemption.
9
If you elect to redeem a portion of the remaining guaranteed
variable payments in a single sum, we will reduce the number of
Annuity Units for each Subaccount by the same percentage as the
partial redemption value bears to the amount available upon a
full redemption.
Redemption of remaining guaranteed variable payments will not
affect the amount of any fixed annuity payments.
Corresponding
Dates
If any systematic pre-authorized transaction under your Contract
is scheduled to occur on a “corresponding date” that
does not exist in a given calendar period or is scheduled to
occur on the last day of the month that is not a Business Day,
the transaction will be deemed to occur on the last Business Day
of the month.
Example: If your Contract is issued on
February 29 in year 1 (a leap year), your Contract
Anniversary in years 2, 3 and 4 will be on February 28.
Example: If your Annuity Date is January 31,
and you select monthly annuity payments, the payments received
will be based on valuations made on February 28 (or 29 in a
leap year), March 31, April 30, May 31,
June 30, July 31, August 31, September 30,
October 31, November 30, and December 31 if those
days are Business Days. Otherwise, the valuations made will be
based on the last Business Day of the applicable month.
Age and
Sex of Annuitant
The Contracts generally provide for sex-distinct annuity income
factors in the case of life annuities. Statistically, females
tend to have longer life expectancies than males; consequently,
if the amount of annuity payments is based on life expectancy,
they will ordinarily be higher if an annuitant is male than if
an annuitant is female. Certain states’ regulations
prohibit sex-distinct annuity income factors, and Contracts
issued in those states will use unisex factors. In addition,
Contracts issued in connection with Qualified Plans are required
to use unisex factors.
We may require proof of your Annuitant’s age and sex before
or after commencing annuity payments. If the age or sex (or
both) of your Annuitant are incorrectly stated in your Contract,
we will correct the amount payable to equal the amount that the
annuitized portion of the Contract Value under that Contract
would have purchased for your Annuitant’s correct age and
sex. If we make the correction after annuity payments have
started, and we have made overpayments based on the incorrect
information, we will deduct the amount of the overpayment, with
interest at 3% a year, from any payments due then or later; if
we have made underpayments, we will add the amount, with
interest at 3% a year, of the underpayments to the next payment
we make after we receive proof of the correct age and/or sex.
Additionally, we may require proof of the Annuitant’s or
Owner’s age before any payments associated with the Death
Benefit provisions of your Contract are made. If the age or sex
of the Annuitant is incorrectly stated in your Contract, we will
base any payment associated with the Death Benefit provisions on
your Contract on the Annuitant’s or Owner’s correct
age or sex.
Systematic
Transfer Programs
The fixed option(s) are not available in connection with
portfolio rebalancing. If you are using the earnings sweep, you
may also use portfolio rebalancing only if you selected the Cash
Management Subaccount. You may not use dollar cost averaging,
DCA Plus, and the earnings sweep at the same time. Only
portfolio rebalancing is available after you annuitize. The
systematic transfer options are subject to the same requirements
and restrictions as non-systematic transfers. In addition, no
fixed option(s) may be used as the target Investment Option
under any systematic transfer program.
Dollar
Cost Averaging
When you request dollar cost averaging, you are authorizing us
to make periodic reallocations of your Contract Value without
waiting for any further instruction from you. You may request to
begin or stop dollar cost averaging at any time prior to your
Annuity Date; the effective date of your request will be the day
we receive notice from you in a form satisfactory to us. Your
request may specify the date on which you want your first
transfer to be made. Your first transfer may not be made until
30 days after your Contract Date, and if you specify an
earlier date, your first transfer
10
will be delayed until one calendar month after the date you
specify. If you request dollar cost averaging on your
application for your Contract and you fail to specify a date for
your first transfer, your first transfer will be made one period
after your Contract Date (that is, if you specify monthly
transfers, the first transfer will occur 30 days after your
Contract Date; quarterly transfers, 90 days after your
Contract Date; semi-annual transfers, 180 days after your
Contract Date; and if you specify annual transfers, the first
transfer will occur on your Contract Anniversary). If you stop
dollar cost averaging, you must wait 30 days before you may
begin this option again. Currently, we are not enforcing the
30 day waiting period but we reserve the right to enforce
such waiting period in the future.
Your request to begin dollar cost averaging must specify the
Investment Option you wish to transfer money from (your
“source account”). You may choose any one Investment
Option as your source account. The Account Value of your source
account must be at least $5,000 for you to begin dollar cost
averaging. Currently, we are not enforcing the minimum Account
Value but we reserve the right to enforce such minimum amounts
in the future.
Your request to begin dollar cost averaging must also specify
the amount and frequency of your transfers. You may choose
monthly, quarterly, semiannual or annual transfers. The amount
of your transfers may be specified as a dollar amount or a
percentage of your source Account Value; however, each transfer
must be at least $250. Currently, we are not enforcing the
minimum transfer amount but we reserve the right to enforce such
minimum amounts in the future. Dollar cost averaging transfers
are not subject to the same requirements and limitations as
other transfers.
Finally, your request must specify the Variable Investment
Option(s) you wish to transfer amounts to (your
“target account(s)”). If you select more than one
target account, your dollar cost averaging request must specify
how transferred amounts should be allocated among the target
accounts. Your source account may not also be a target account.
Your dollar cost averaging transfers will continue until the
earlier of:
| • | your request to stop dollar cost averaging is effective, or | |
| • | your source Account Value is zero, or | |
| • | your Annuity Date. |
If, as a result of a dollar cost averaging transfer, your source
Account Value falls below any minimum Account Value we may
establish, we have the right, at our option, to transfer that
remaining Account Value to your target account(s) on a
proportionate basis relative to your most recent allocation
instructions. We may change, terminate or suspend the dollar
cost averaging option at any time.
Portfolio
Rebalancing
Portfolio rebalancing allows you to maintain the percentage of
your Contract Value allocated to each Variable Investment Option
at a pre-set level prior to annuitization.
For example, you could specify that 30% of your Contract Value
should be in Subaccount A, 40% in Subaccount B, and
30% in Subaccount C.
Over time, the variations in each Subaccount’s investment
results will shift this balance of these Subaccount Value
allocations. If you elect the portfolio rebalancing feature, we
will automatically transfer your Subaccount Value back to the
percentages you specify.
You may choose to have rebalances made quarterly, semi-annually
or annually. Only portfolio rebalancing is available after you
annuitize.
Procedures for selecting portfolio rebalancing are generally the
same as those discussed in detail above for selecting dollar
cost averaging: You may make your request at any time prior to
your Annuity Date and it will be effective when we receive it in
a form satisfactory to us. If you stop portfolio rebalancing,
you must wait 30 days to begin again. Currently, we are not
enforcing the 30-day waiting period but we reserve the right to
enforce such waiting period in the future. If you specify a date
fewer than 30 days after your Contract Date, your first
rebalance will be delayed one month, and if you request
rebalancing on your application but do not specify a date for
the first rebalance, it will occur one period after your
Contract Date, as described above under Dollar Cost Averaging.
We may change, terminate or suspend the portfolio rebalancing
feature at any time.
11
Earnings
Sweep
An earnings sweep automatically transfers the earnings
attributable to the Cash Management Subaccount (the “sweep
option”) to one or more other Variable Investment Options
(your “target option(s)”). The Account Value of your
sweep option will be required to be at least $5,000 when you
elect the earnings sweep. Currently, we are not enforcing the
minimum Account Value but we reserve the right to enforce such
minimum amounts in the future.
You may choose to have earnings sweeps occur monthly, quarterly,
semi-annually or annually until you annuitize. At each earnings
sweep, we will automatically transfer your accumulated earnings
attributable to your sweep option for the previous period
proportionately to your target option(s). That is, if you select
a monthly earnings sweep, we will transfer the sweep option
earnings from the preceding month; if you select a semi-annual
earnings sweep, we will transfer the sweep option earnings
accumulated over the preceding 6 months. Earnings sweep
transfers are not subject to the same requirements and
limitations as other transfers.
To determine the earnings, we take the change in the sweep
option’s Account Value during the sweep period, add any
withdrawals or transfers out of the sweep option Account that
occurred during the sweep period, and subtract any allocations
to the sweep option Account during the sweep period. The result
of this calculation represents the “total earnings”
for the sweep period.
If, during the sweep period, you withdraw or transfer amounts
from the sweep option Account, we assume that earnings are
withdrawn or transferred before any other Account Value.
Therefore, your “total earnings” for the sweep period
will be reduced by any amounts withdrawn or transferred during
the sweep option period. The remaining earnings are eligible for
the sweep transfer.
Procedures for selecting the earnings sweep are generally the
same as those discussed in detail above for selecting dollar
cost averaging and portfolio rebalancing: You may make your
request at any time and it will be effective when we receive it
in a form satisfactory to us. If you stop the earnings sweep,
you must wait 30 days to begin again. Currently, we are not
enforcing the 30-day waiting period but we reserve the right to
enforce such waiting period in the future. If you specify a date
fewer than 30 days after your Contract Date, your first
earnings sweep will be delayed one month, and if you request the
earnings sweep on your application but do not specify a date for
the first sweep, it will occur one period after your Contract
Date, as described above under Dollar Cost Averaging.
If, as a result of an earnings sweep transfer, your source
Account Value falls below $500, we have the right, at our
option, to transfer that remaining Account Value to your target
account(s) on a proportionate basis relative to your most recent
allocation instructions. We may change, terminate or suspend the
earnings sweep option at any time.
Pre-Authorized
Withdrawals
You may specify a dollar amount for your pre-authorized
withdrawals, or you may specify a percentage of your Contract
Value or an Account Value. You may direct us to make your
pre-authorized withdrawals from one or more specific Investment
Options. If you do not give us these specific instructions,
amounts will be deducted proportionately from your Account Value
in each Investment Option.
Procedures for selecting pre-authorized withdrawals are
generally the same as those discussed in detail above for
selecting dollar cost averaging, portfolio rebalancing, and
earnings sweeps: You may make your request at any time and it
will be effective when we receive it in a form satisfactory to
us. If you stop the pre-authorized withdrawals, you must wait
30 days to begin again. Currently, we are not enforcing the
30-day waiting period but we reserve the right to enforce such
waiting period in the future.
Pre-authorized withdrawals are subject to the same withdrawal
charges as are other withdrawals, and each withdrawal is subject
to any applicable charge for premium taxes and/or other taxes,
to federal income tax on its taxable portion, and, if you have
not reached age
591/2,
may be subject to a 10% federal tax penalty.
More on
Federal Tax Issues
Section 817(h) of the Code provides that the investments
underlying a variable annuity must satisfy certain
diversification requirements. Details on these diversification
requirements appear in the Pacific Select Fund SAI. We believe
the underlying Variable Investment Options for the Contract meet
these requirements. On March 7, 2008,
12
the Treasury Department issued Final Regulations under Section
817(h). These Final Regulations do not provide guidance
concerning the extent to which you may direct your investments
to particular divisions of a separate account. Such guidance may
be included in regulations or revenue rulings under
Section 817(d) relating to the definition of a variable
contract. We reserve the right to make such changes as we deem
necessary or appropriate to ensure that your Contract continues
to qualify as an annuity for tax purposes. Any such changes will
apply uniformly to affected Contract Owners and will be made
with such notice to affected Contract Owners as is feasible
under the circumstances.
For a variable life insurance contract or a variable annuity
contract to qualify for tax deferral, assets in the separate
accounts supporting the contract must be considered to be owned
by the insurance company and not by the contract owner. Under
current U.S. tax law, if a contract owner has excessive control
over the investments made by a separate account, or the
underlying fund, the contract owner will be taxed currently on
income and gains from the account or fund. In other words, in
such a case of “investor control” the contract owner
would not derive the tax benefits normally associated with
variable life insurance or variable annuities.
Generally, according to the IRS, there are two ways that
impermissible investor control may exist. The first relates to
the design of the contract or the relationship between the
contract and a separate account or underlying fund. For example,
at various times, the IRS has focused on, among other factors,
the number and type of investment choices available pursuant to
a given variable contract, whether the contract offers access to
funds that are available to the general public, the number of
transfers that a contract owner may make from one investment
option to another, and the degree to which a contract owner may
select or control particular investments.
With respect to this first aspect of investor control, we
believe that the design of our contracts and the relationship
between our contracts and the Portfolios satisfy the current
view of the IRS on this subject, such that the investor control
doctrine should not apply. However, because of some uncertainty
with respect to this subject and because the IRS may issue
further guidance on this subject, we reserve the right to make
such changes as we deem necessary or appropriate to reduce the
risk that your contract might not qualify as a life insurance
contract or as an annuity for tax purposes.
The second way that impermissible investor control might exist
concerns your actions. Under the IRS pronouncements, you may not
select or control particular investments, other than choosing
among broad investment choices such as selecting a particular
Portfolio. You may not select or direct the purchase or sale of
a particular investment of a Separate Account, a Subaccount (or
Variable Investment Option), or a Portfolio. All investment
decisions concerning the Separate Accounts and the Subaccounts
must be made by us, and all investment decisions concerning the
underlying Portfolios must be made by the portfolio manager for
such Portfolio in his or her sole and absolute discretion, and
not by the contract owner. Furthermore, under the IRS
pronouncements, you may not enter into an agreement or
arrangement with a portfolio manager of a Portfolio or
communicate directly or indirectly with such a portfolio manager
or any related investment officers concerning the selection,
quality, or rate of return of any specific investment or group
of investments held by a Portfolio, and you may not enter into
any such agreement or arrangement or have any such communication
with us or PLFA.
Finally, the IRS may issue additional guidance on the investor
control doctrine, which might further restrict your actions or
features of the variable contract. Such guidance could be
applied retroactively. If any of the rules outlined above are
not complied with, the IRS may seek to tax you currently on
income and gains from a Portfolio such that you would not derive
the tax benefits normally associated with variable life
insurance or variable annuities. Although highly unlikely, such
an event may have an adverse impact on the fund and other
variable contracts. We urge you to consult your own tax adviser
with respect to the application of the investor control doctrine.
Loans
Certain Owners of Qualified Contracts may borrow against their
Contracts. Otherwise loans from us are not permitted. You may
request a loan from us, using your Contract Value as your only
security if your Qualified Contract is:
| • | not subject to Title 1 of ERISA, |
13
| • | issued under Section 403(b) of the Code, and | |
| • | permits loans under its terms (a “Loan Eligible Plan”). |
You will be charged interest on your Contract Debt at a fixed
annual rate equal to 5%. The amount held in the Loan Account to
secure your loan will earn a return equal to an annual rate of
3%. The net amount of interest you pay on your loan will be
2.00% annually. This loan rate may vary by state.
Interest charges accrue on your Contract Debt daily, beginning
on the effective date of your loan. Interest earned on the Loan
Account Value accrue daily beginning on the day following the
effective date of the loan, and those earnings will be
transferred once a year to your Investment Options in accordance
with your most recent allocation instructions.
We may change these loan provisions to reflect changes in the
Code or interpretations thereof. We urge you to consult with
a qualified tax adviser prior to effecting any loan transaction
under your Contract.
If you purchase any optional living benefit rider (including any
and all previous, current, and future versions), taking a loan
while an optional living benefit rider is in effect will
terminate your Rider. If you have an existing loan on your
Contract, you should carefully consider whether an optional
living benefit rider is appropriate for you.
Tax and
Legal Matters
The tax and ERISA rules relating to Contract loans are complex
and in many cases unclear. For these reasons, and because the
rules vary depending on the individual circumstances, these
loans are processed by your Plan Administrator. We urge you
to consult with a qualified tax adviser prior to effecting any
loan transaction under your Contract.
Generally, interest paid on your loan under a 403(b)
tax-sheltered annuity will be considered non-deductible
“personal interest” under Section 163(h) of the
Code, to the extent the loan comes from and is secured by your
pre-tax contributions, even if the proceeds of your loan are
used to acquire your principal residence.
Loan
Procedures
Your loan request must be submitted on our Non-ERISA TSA
Application and Loan Agreement Form. You may submit a loan
request 30 days after your Contract Date and before your
Annuity Date. However, before requesting a new loan, you must
wait 30 days after the last payment of a previous loan. If
approved, your loan will usually be effective as of the end of
the Business Day on which we receive all necessary documentation
in proper form. We will normally forward proceeds of your loan
to you within 7 calendar days after the effective date of
your loan.
In order to secure your loan, on the effective date of your
loan, we will transfer an amount equal to the principal amount
of your loan into an account called the “Loan
Account.” The Loan Account is held under the General
Account. To make this transfer, we will transfer amounts
proportionately from your Investment Options based on your
Account Value in each Investment Option.
As your loan is repaid, a portion, corresponding to the amount
of the repayment of any amount then held as security for your
loan, will be transferred from the Loan Account back into your
Investment Options relative to your most recent allocation
instructions.
A transfer from the Loan Account back into your Investment
Options following a loan repayment is not considered a transfer
under the transfer limitations as stated in the HOW YOUR
PURCHASE PAYMENTS ARE ALLOCATED – Transfers and
Market-timing Restrictions section in the Prospectus.
Loan
Terms
You may have only one loan outstanding at any time. The minimum
loan amount is $1,000, subject to certain state limitations.
Your Contract Debt at the effective date of your loan may not
exceed the lesser of:
| • | 50% of the amount available for withdrawal under this Contract (see the WITHDRAWALS – Optional Withdrawals – Amount Available for Withdrawal section in the Prospectus), or |
14
| • | $50,000 less your highest outstanding Contract Debt during the 12-month period immediately preceding the effective date of your loan. |
You should refer to the terms of your particular Loan Eligible
Plan for any additional loan restrictions. If you have other
loans outstanding pursuant to other Loan Eligible Plans, the
amount you may borrow may be further restricted. We are not
responsible for making any determination (including loan amounts
permitted) or any interpretation with respect to your Loan
Eligible Plan.
Repayment
Terms
Your loan, including principal and accrued interest, generally
must be repaid in quarterly installments. An installment will be
due in each quarter on the date corresponding to the effective
date of your loan, beginning with the first such date following
the effective date of your loan. See the FEDERAL TAX
ISSUES – Qualified Contracts –
Loans section in the Prospectus.
Example: On May 1, we receive your loan
request, and your loan is effective. Your first quarterly
payment will be due on August 1.
Adverse tax consequences may result if you fail to meet the
repayment requirements for your loan. You must repay principal
and interest of any loan in substantially equal payments over
the term of the loan. Generally, the term of the loan will be
5 years from the effective date of the loan. However, if
you have certified to us that your loan proceeds are to be used
to acquire a principal residence for yourself, you may request a
loan term of 30 years. In either case, however, you must
repay your loan prior to your Annuity Date. If you elect to
annuitize (or withdraw) your Net Contract Value while you have
an outstanding loan, we will deduct any Contract Debt from your
Contract Value at the time of the annuitization (or withdrawal)
to repay the Contract Debt.
You may prepay your entire loan at any time. If you do so, we
will bill you for any unpaid interest that has accrued through
the date of payoff. Your loan will be considered repaid only
when the interest due has been paid. Subject to any necessary
approval of state insurance authorities, while you have Contract
Debt outstanding, we will treat all payments you send us as
Investments unless you specifically indicate that your payment
is a loan repayment or include your loan payment notice with
your payment. To the extent allowed by law, any loan repayments
in excess of the amount then due will be applied to the
principal balance of your loan. Such repayments will not change
the due dates or the periodic repayment amount due for future
periods. If a loan repayment is in excess of the principal
balance of your loan, any excess repayment will be refunded to
you. Repayments we receive that are less than the amount then
due will be returned to you, unless otherwise required by law.
If we have not received your full payment by its due date, we
will declare the entire remaining loan balance in default. At
that time, we will send written notification of the amount
needed to bring the loan back to a current status. You will have
60 days from the date on which the loan was declared in
default (the “grace period”) to make the required
payment.
If the required payment is not received by the end of the grace
period, the defaulted loan balance plus accrued interest and any
withdrawal charge will be withdrawn from your Contract Value,
if amounts under your Contract are eligible for
distribution. In order for an amount to be eligible for
distribution from a TSA funded by salary reductions you must
meet one of five triggering events. The triggering events are:
| • | attainment of age 591/2, | |
| • | severance from employment, | |
| • | death, | |
| • | disability, and | |
| • | financial hardship (with respect to contributions only, not income or earnings on these contributions). |
If those amounts are not eligible for distribution, the
defaulted loan balance plus accrued interest and any withdrawal
charge will be considered a Deemed Distribution and will be
withdrawn when such Contract Values become eligible.
15
In either case, the Distribution or the Deemed Distribution will
be considered a currently taxable event, and may be
subject to federal tax withholding, the withdrawal charge and
may be subject to a 10% federal tax penalty.
If there is a Deemed Distribution under your Contract and to the
extent allowed by law, any future withdrawals will first be
applied as repayment of the defaulted Contract Debt, including
accrued interest and charges for applicable taxes. Any amounts
withdrawn and applied as repayment of Contract Debt will first
be withdrawn from your Loan Account, and then from your
Investment Options on a proportionate basis relative to the
Account Value in each Investment Option. If you have an
outstanding loan that is in default, the defaulted Contract Debt
will be considered a withdrawal for the purpose of calculating
any Death Benefit Amount and/or Guaranteed Minimum Death Benefit.
The terms of any such loan are intended to qualify for the
exception in Code Section 72(p)(2) so that the distribution
of the loan proceeds will not constitute a distribution that is
taxable to you. To that end, these loan provisions will be
interpreted to ensure and maintain such tax qualification,
despite any other provisions to the contrary. Subject to any
regulatory approval, we reserve the right to amend your Contract
to reflect any clarifications that may be needed or are
appropriate to maintain such tax qualification or to conform any
terms of our loan arrangement with you to any applicable changes
in the tax qualification requirements. We will send you a copy
of any such amendment. If you refuse such an amendment, it may
result in adverse tax consequences to you.
Safekeeping
of Assets
We are responsible for the safekeeping of the assets of the
Separate Account. These assets are held separate and apart from
the assets of our General Account and our other separate
accounts.
FINANCIAL
STATEMENTS
The statements of assets and liabilities of Separate Account A
as of December 31, 2010, the related statements of
operations for the periods presented, the statements of changes
in net assets for each of the periods presented and the
financial highlights for each of the periods presented are
incorporated by reference in this Statement of Additional
Information from the Annual Report of Separate Account A dated
December 31, 2010. Pacific Life’s consolidated
financial statements as of December 31, 2010 and 2009 and
for each of the three years in the period ended
December 31, 2010 are attached. These financial statements
should be considered only as bearing on the ability of Pacific
Life to meet its obligations under the Contracts and not as
bearing on the investment performance of the assets held in the
Separate Account.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
AND INDEPENDENT AUDITORS
The financial statements of Separate Account A of Pacific
Life Insurance Company as of December 31, 2010 and for each
of the periods presented have been audited by
Deloitte & Touche LLP, 695 Town Center
Drive, Costa Mesa, CA 92626, independent registered public
accounting firm, as stated in their report included in the
Annual Report of Separate Account A dated December 31,
2010, which is incorporated by reference in this Registration
Statement.
The consolidated financial statements of Pacific Life Insurance
Company and Subsidiaries as of December 31, 2010 and 2009
and for each of the three years in the period ended
December 31, 2010 have been audited by Deloitte &
Touche LLP, 695 Town Center Drive, Costa Mesa, CA
92626, independent auditors, as stated in their report appearing
herein.
16
Form
No. 4719-11A
PACIFIC LIFE INSURANCE COMPANY
AND SUBSIDIARIES
AND SUBSIDIARIES
Consolidated Financial Statements
as of December 31, 2010 and 2009 and
for the years ended December 31, 2010, 2009 and 2008
and Independent Auditors’ Report
as of December 31, 2010 and 2009 and
for the years ended December 31, 2010, 2009 and 2008
and Independent Auditors’ Report
PL-1
INDEPENDENT AUDITORS’ REPORT
Pacific Life Insurance Company and Subsidiaries:
We have audited the accompanying consolidated statements of financial condition of Pacific
Life Insurance Company and Subsidiaries (the Company) as of December 31, 2010 and 2009, and
the related consolidated statements of operations, equity and cash flows for each of the three
years in the period ended December 31, 2010. 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 consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Pacific Life Insurance Company and Subsidiaries as of
December 31, 2010 and 2009, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2010 in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company changed its
method of accounting and reporting for variable interest entities as required by accounting
guidance adopted in 2010, as well as for other than temporary impairments and noncontrolling
interest as required by accounting guidance adopted in 2009.
DELOITTE & TOUCHE LLP
March 7, 2011
| Member of | ||
| Deloitte Touche Tohmatsu |
PL-2
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In Millions) | ||||||||
ASSETS |
||||||||
Investments: |
||||||||
Fixed maturity securities available for sale, at estimated fair value |
$ | 28,313 | $ | 26,039 | ||||
Equity securities available for sale, at estimated fair value |
279 | 278 | ||||||
Mortgage loans |
6,693 | 6,577 | ||||||
Policy loans |
6,690 | 6,509 | ||||||
Other investments (includes VIE assets of $263 and $232, respectively) |
2,247 | 2,007 | ||||||
TOTAL INVESTMENTS |
44,222 | 41,410 | ||||||
Cash and cash equivalents (includes VIE assets of $4 and $7, respectively) |
2,270 | 1,919 | ||||||
Restricted cash (includes VIE assets of $170 and $190, respectively) |
214 | 221 | ||||||
Deferred policy acquisition costs |
4,435 | 4,806 | ||||||
Aircraft leasing portfolio, net (includes VIE assets of $2,154 and $2,384, respectively) |
5,259 | 5,304 | ||||||
Other assets (includes VIE assets of $40 and $48, respectively) |
2,579 | 2,253 | ||||||
Separate account assets |
55,683 | 52,564 | ||||||
TOTAL ASSETS |
$ | 114,662 | $ | 108,477 | ||||
LIABILITIES AND EQUITY |
||||||||
Liabilities: |
||||||||
Policyholder account balances |
$ | 35,076 | $ | 33,984 | ||||
Future policy benefits |
7,080 | 7,403 | ||||||
Short-term debt |
105 | |||||||
Long-term debt (includes VIE debt of $1,592 and $1,977, respectively) |
6,516 | 5,632 | ||||||
Other liabilities (includes VIE liabilities of $388 and $413, respectively) |
2,377 | 1,872 | ||||||
Separate account liabilities |
55,683 | 52,564 | ||||||
TOTAL LIABILITIES |
106,732 | 101,560 | ||||||
Commitments and contingencies (Note 21) |
||||||||
Stockholder’s Equity: |
||||||||
Common stock — $50 par value; 600,000 shares authorized, issued and outstanding |
30 | 30 | ||||||
Paid-in capital |
982 | 982 | ||||||
Retained earnings |
6,359 | 6,037 | ||||||
Accumulated other comprehensive income (loss) |
308 | (363 | ) | |||||
Total Stockholder’s Equity |
7,679 | 6,686 | ||||||
Noncontrolling interest |
251 | 231 | ||||||
TOTAL EQUITY |
7,930 | 6,917 | ||||||
TOTAL LIABILITIES AND EQUITY |
$ | 114,662 | $ | 108,477 | ||||
The abbreviation VIE above means variable interest entity.
See Notes to Consolidated Financial Statements
PL-3
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Millions) | ||||||||||||
REVENUES |
||||||||||||
Policy fees and insurance premiums |
$ | 2,367 | $ | 2,275 | $ | 1,997 | ||||||
Net investment income |
2,122 | 1,862 | 1,994 | |||||||||
Net realized investment gain (loss) |
(94 | ) | 153 | (749 | ) | |||||||
OTTIs, consisting of $328 and $641 in total, net of $215 and $330 recognized in OCI
for 2010 and 2009, respectively |
(113 | ) | (311 | ) | (580 | ) | ||||||
Realized investment gain on interest in PIMCO |
109 | |||||||||||
Investment advisory fees |
245 | 208 | 255 | |||||||||
Aircraft leasing revenue |
591 | 578 | 571 | |||||||||
Other income |
230 | 137 | 167 | |||||||||
TOTAL REVENUES |
5,348 | 4,902 | 3,764 | |||||||||
BENEFITS AND EXPENSES |
||||||||||||
Policy benefits paid or provided |
1,351 | 1,226 | 1,206 | |||||||||
Interest credited to policyholder account balances |
1,317 | 1,253 | 1,234 | |||||||||
Commission expenses |
831 | 691 | 715 | |||||||||
Operating and other expenses |
1,264 | 1,246 | 1,178 | |||||||||
TOTAL BENEFITS AND EXPENSES |
4,763 | 4,416 | 4,333 | |||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
PROVISION (BENEFIT) FOR INCOME TAXES |
585 | 486 | (569 | ) | ||||||||
Provision (benefit) for income taxes |
63 | 44 | (315 | ) | ||||||||
INCOME (LOSS) FROM CONTINUING OPERATIONS |
522 | 442 | (254 | ) | ||||||||
Discontinued operations, net of taxes |
(20 | ) | (6 | ) | ||||||||
Net income (loss) |
522 | 422 | (260 | ) | ||||||||
Less: net (income) loss attributable to the noncontrolling interest from continuing operations |
(50 | ) | 14 | 3 | ||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO THE COMPANY |
$ | 472 | $ | 436 | ($257 | ) | ||||||
The abbreviation OTTIs above means other than temporary impairment losses.
The abbreviation OCI above means other comprehensive income (loss).
See Notes to Consolidated Financial Statements
PL-4
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF EQUITY
| Accumulated Other | ||||||||||||||||||||||||||||||||
| Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||||
| Unrealized | ||||||||||||||||||||||||||||||||
| Gain (Loss) On | ||||||||||||||||||||||||||||||||
| Derivatives | ||||||||||||||||||||||||||||||||
| and Securities | Total | |||||||||||||||||||||||||||||||
| Common | Paid-in | Retained | Available for | Other, | Stockholder’s | Noncontrolling | Total | |||||||||||||||||||||||||
| Stock | Capital | Earnings | Sale, Net | Net | Equity | Interest | Equity | |||||||||||||||||||||||||
| (In Millions) | ||||||||||||||||||||||||||||||||
BALANCES, JANUARY 1, 2008 |
$ | 30 | $ | 781 | $ | 6,028 | $ | 145 | $ | 46 | $ | 7,030 | $ | 214 | $ | 7,244 | ||||||||||||||||
Comprehensive loss: |
||||||||||||||||||||||||||||||||
Net loss |
(257 | ) | (257 | ) | (3 | ) | (260 | ) | ||||||||||||||||||||||||
Other comprehensive loss, net |
(1,896 | ) | (97 | ) | (1,993 | ) | (1,993 | ) | ||||||||||||||||||||||||
Total comprehensive loss |
(2,250 | ) | (2,253 | ) | ||||||||||||||||||||||||||||
Dividend to parent |
(345 | ) | (345 | ) | (345 | ) | ||||||||||||||||||||||||||
Change in equity of noncontrolling interest |
33 | 33 | ||||||||||||||||||||||||||||||
Other equity adjustments |
1 | 1 | 1 | |||||||||||||||||||||||||||||
BALANCES, DECEMBER 31, 2008 |
30 | 782 | 5,426 | (1,751 | ) | (51 | ) | 4,436 | 244 | 4,680 | ||||||||||||||||||||||
Cumulative effect of adoption of new
accounting principle, net of tax |
175 | (170 | ) | 5 | 5 | |||||||||||||||||||||||||||
REVISED BALANCES, DECEMBER 31, 2008 |
30 | 782 | 5,601 | (1,921 | ) | (51 | ) | 4,441 | 244 | 4,685 | ||||||||||||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||||||||||
Net income (loss) |
436 | 436 | (14 | ) | 422 | |||||||||||||||||||||||||||
Other comprehensive income (loss) |
1,562 | 47 | 1,609 | (7 | ) | 1,602 | ||||||||||||||||||||||||||
Total comprehensive income |
2,045 | 2,024 | ||||||||||||||||||||||||||||||
Contribution paid to parent |
200 | 200 | 200 | |||||||||||||||||||||||||||||
Change in equity of noncontrolling interest |
8 | 8 | ||||||||||||||||||||||||||||||
BALANCES, DECEMBER 31, 2009 |
30 | 982 | 6,037 | (359 | ) | (4 | ) | 6,686 | 231 | 6,917 | ||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||
Net income |
472 | 472 | 50 | 522 | ||||||||||||||||||||||||||||
Other comprehensive income |
669 | 2 | 671 | 671 | ||||||||||||||||||||||||||||
Total comprehensive income |
1,143 | 1,193 | ||||||||||||||||||||||||||||||
Dividend paid to parent |
(150 | ) | (150 | ) | (150 | ) | ||||||||||||||||||||||||||
Change in equity of noncontrolling interest |
(30 | ) | (30 | ) | ||||||||||||||||||||||||||||
BALANCES, DECEMBER 31, 2010 |
$ | 30 | $ | 982 | $ | 6,359 | $ | 310 | ($2 | ) | $ | 7,679 | $ | 251 | $ | 7,930 | ||||||||||||||||
See Notes to Consolidated Financial Statements
PL-5
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Millions) | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
Net income (loss) from continuing operations |
$ | 522 | $ | 442 | ($254 | ) | ||||||
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by operating activities: |
||||||||||||
Net accretion on fixed maturity securities |
(136 | ) | (142 | ) | (144 | ) | ||||||
Depreciation and amortization |
299 | 281 | 259 | |||||||||
Deferred income taxes |
56 | 451 | (511 | ) | ||||||||
Net realized investment (gain) loss |
94 | (153 | ) | 749 | ||||||||
Other than temporary impairments |
113 | 311 | 580 | |||||||||
Realized investment gain on interest in PIMCO |
(109 | ) | ||||||||||
Net change in deferred policy acquisition costs |
116 | (202 | ) | (175 | ) | |||||||
Interest credited to policyholder account balances |
1,317 | 1,253 | 1,234 | |||||||||
Net change in future policy benefits and other insurance liabilities |
648 | 111 | 1,182 | |||||||||
Other operating activities, net |
(5 | ) | 85 | (337 | ) | |||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES BEFORE DISCONTINUED OPERATIONS |
3,024 | 2,437 | 2,474 | |||||||||
Net cash used in operating activities of discontinued operations |
(27 | ) | (18 | ) | ||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES |
3,024 | 2,410 | 2,456 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||
Fixed maturity and equity securities available for sale: |
||||||||||||
Purchases |
(6,503 | ) | (5,507 | ) | (2,730 | ) | ||||||
Sales |
3,572 | 1,463 | 2,084 | |||||||||
Maturities and repayments |
2,138 | 2,542 | 2,136 | |||||||||
Repayments of mortgage loans |
746 | 406 | 470 | |||||||||
Fundings of mortgage loans and real estate |
(870 | ) | (1,434 | ) | (1,665 | ) | ||||||
Net change in policy loans |
(181 | ) | 411 | (510 | ) | |||||||
Sale of interest in PIMCO |
288 | |||||||||||
Purchases of derivative instruments |
(116 | ) | (20 | ) | (12 | ) | ||||||
Terminations of derivative instruments |
(51 | ) | 20 | 84 | ||||||||
Proceeds from nonhedging derivative settlements |
9 | 64 | 728 | |||||||||
Payments for nonhedging derivative settlements |
(569 | ) | (1,540 | ) | (89 | ) | ||||||
Net change in collateral received or pledged |
6 | (1,226 | ) | 1,056 | ||||||||
Purchases of and advance payments on aircraft leasing portfolio |
(754 | ) | (561 | ) | (694 | ) | ||||||
Other investing activities, net |
272 | 48 | (316 | ) | ||||||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES BEFORE DISCONTINUED
OPERATIONS |
(2,301 | ) | (5,334 | ) | 830 | |||||||
Net cash provided by investing activities of discontinued operations |
7 | |||||||||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
(2,301 | ) | (5,334 | ) | 837 | |||||||
(Continued)
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
PL-6
Pacific Life Insurance Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Years Ended December 31, | ||||||||||||
| (Continued) | 2010 | 2009 | 2008 | |||||||||
| (In Millions) | ||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||
Policyholder account balances: |
||||||||||||
Deposits |
$ | 4,272 | $ | 8,003 | $ | 7,320 | ||||||
Withdrawals |
(5,162 | ) | (7,972 | ) | (7,602 | ) | ||||||
Net change in short-term debt |
(105 | ) | (45 | ) | 50 | |||||||
Issuance of long-term debt |
1,815 | 1,692 | 335 | |||||||||
Payments of long-term debt |
(1,012 | ) | (433 | ) | (381 | ) | ||||||
Contribution from (dividend to) parent |
(150 | ) | 200 | (345 | ) | |||||||
Other financing activities, net |
(30 | ) | 1 | 33 | ||||||||
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
(372 | ) | 1,446 | (590 | ) | |||||||
Net change in cash and cash equivalents |
351 | (1,478 | ) | 2,703 | ||||||||
Cash and cash equivalents, beginning of year |
1,919 | 3,397 | 694 | |||||||||
CASH AND CASH EQUIVALENTS, END OF YEAR |
$ | 2,270 | $ | 1,919 | $ | 3,397 | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
||||||||||||
Income taxes paid (received), net |
$ | 113 | ($143 | ) | ($20 | ) | ||||||
Interest paid |
$ | 175 | $ | 146 | $ | 195 | ||||||
See Notes to Consolidated Financial Statements
PL-7
Pacific Life Insurance Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| ORGANIZATION AND DESCRIPTION OF BUSINESS | ||
| Pacific Life Insurance Company (Pacific Life) was established in 1868 and is domiciled in the State of Nebraska as a stock life insurance company. Pacific Life is an indirect subsidiary of Pacific Mutual Holding Company (PMHC), a Nebraska mutual holding company, and a wholly owned subsidiary of Pacific LifeCorp, an intermediate Delaware stock holding company. PMHC and Pacific LifeCorp were organized pursuant to consent received from the California Department of Insurance and the implementation of a plan of conversion to form a mutual holding company structure in 1997 (the Conversion). | ||
| Effective December 31, 2009, Pacific LifeCorp contributed its 100% stock ownership of Aviation Capital Group Corp. (ACG) to Pacific Life (Note 9). ACG is engaged in the acquisition and leasing of commercial jet aircraft. These financial statements and the accompanying footnotes have been prepared by combining the previously separate financial statements of Pacific Life and ACG as if the two entities had been combined as of the beginning of 2008, the first period presented in these consolidated financial statements. This retrospective treatment is prescribed by accounting principles generally accepted in the United States of America (U.S. GAAP) whenever a transfer between entities under common control is effected. | ||
| Pacific Life and its subsidiaries and affiliates have primary business operations consisting of life insurance, annuities, mutual funds, and aircraft leasing. | ||
| BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION | ||
| The accompanying consolidated financial statements of Pacific Life and its subsidiaries (the Company) have been prepared in accordance with U.S. GAAP and include the accounts of Pacific Life and its majority owned and controlled subsidiaries and variable interest entities (VIEs) in which the Company is the primary beneficiary. Noncontrolling interest is primarily comprised of private equity funds (Note 4). All significant intercompany transactions and balances have been eliminated in consolidation. | ||
| Pacific Life prepares its regulatory financial statements in accordance with statutory accounting practices prescribed or permitted by the Nebraska Department of Insurance (NE DOI), which is a comprehensive basis of accounting other than U.S. GAAP (Note 2). These consolidated financial statements materially differ from those filed with regulatory authorities. | ||
| The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of 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. | ||
| In developing these estimates, management makes subjective and complex judgments that are inherently uncertain and subject to material change as facts and circumstances develop. Management has identified the following estimates as critical, as they involve a higher degree of judgment and are subject to a significant degree of variability: |
| • | The fair value of investments in the absence of quoted market values | ||
| • | Investment impairments | ||
| • | Application of the consolidation rules to certain investments | ||
| • | The fair value of and accounting for derivatives | ||
| • | Aircraft valuation and impairment | ||
| • | The capitalization and amortization of deferred policy acquisition costs (DAC) | ||
| • | The liability for future policyholder benefits | ||
| • | Accounting for income taxes and the valuation of deferred income tax assets and liabilities and unrecognized tax benefits | ||
| • | Accounting for reinsurance transactions | ||
| • | Litigation and other contingencies |
| Certain reclassifications have been made to the 2009 and 2008 consolidated financial statements to conform to the 2010 financial statement presentation. |
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| The Company has evaluated events subsequent to December 31, 2010 through March 7, 2011, the date the consolidated financial statements were available to be issued. | ||
| RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS | ||
| Effective September 30, 2009, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification (Codification) as the single source of authoritative U.S. GAAP. The Codification did not create new accounting and reporting guidance, rather it reorganized then-existing U.S. GAAP pronouncements into approximately 90 Topics within a consistent structure. All guidance in the Codification carries an equal level of authority. After the effective date of the Codification, all nongrandfathered accounting literature not included in the Codification is superseded and deemed nonauthoritative. Adoption of the Codification also changed how the Company references U.S. GAAP in its consolidated financial statements. | ||
| Effective January 1, 2010, the Company adopted additional guidance to the Codification’s Consolidation Topic whereby the Company changed the methodology it employs to evaluate if an entity is a VIE and, once identified, if a VIE should be included in the consolidated financial statements. The new methodology places emphasis on the Company’s ability to direct the activities that most significantly impact the VIE’s financial performance. This guidance provides for enhanced disclosure requirements. The adoption of this guidance did not impact the Company’s consolidated financial statements, however, adoption did result in additional disclosure on the consolidated statements of financial condition. | ||
| In April 2009, the FASB issued additional guidance under the Codification’s Fair Value Measurements and Disclosures Topic. This update relates to determining fair values when there is no active market or where the price inputs being used represent distressed sales. The Company early adopted this guidance on March 31, 2009. This update provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased. Also included is guidance on identifying circumstances that indicate a transaction is not orderly. See Note 14 for information on the Company’s fair value measurements and expanded disclosures. | ||
| In April 2009, the FASB issued additional guidance under the Codification’s Investments — Debt and Equity Securities Topic. For debt securities, this guidance replaces the management assertion that it has the intent and ability to hold an impaired debt security until recovery with the requirement that management assert if it either has the intent to sell the debt security or if it is more likely than not the entity will be required to sell the debt security before recovery of its amortized cost basis. If management intends to sell the debt security or it is more likely than not the entity will be required to sell the debt security before recovery of its amortized cost basis, an other than temporary impairment (OTTI) shall be recognized in earnings equal to the entire difference between the debt security’s amortized cost basis and its fair value at the reporting date. After the recognition of an OTTI, the debt security is accounted for as if it had been purchased on the measurement date of the OTTI, with an amortized cost basis equal to the previous amortized cost basis less the OTTI recognized in earnings. The update also changes the presentation in the financial statements of non credit related impairment amounts for instruments within its scope. When the entity asserts it does not have the intent to sell the security and it is more likely than not it will not have to sell the security before recovery of its amortized cost basis, only the credit related impairment losses are to be recognized in earnings and non credit losses are to be recognized in other comprehensive income (loss) (OCI). Additionally, this update provides for enhanced presentation and disclosure of OTTIs of debt and equity securities in the consolidated financial statements. The Company early adopted this guidance effective January 1, 2009, resulting in an after tax decrease to OCI of $170 million, including an after tax DAC impact of $5 million, and an after tax increase to retained earnings of $175 million. | ||
| Effective January 1, 2009, the FASB issued additional guidance to the Codification’s Consolidation Topic. This guidance improves the relevance, comparability and transparency of the financial information that a company provides in its consolidated financial statements by establishing accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. As a result of the adoption of this guidance, which required retrospective application of presentation requirements, total equity as of December 31, 2008 increased by $244 million representing the noncontrolling interest, and other liabilities and total liabilities as of December 31, 2008 decreased by $244 million as a result of reclassifying noncontrolling interest (previously known as minority interest) to equity. | ||
| FUTURE ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS | ||
| In October 2010, the FASB issued Accounting Standards Update (ASU) 2010-26 to the Codification’s Financial Services — Insurance Topic. ASU 2010-26 significantly amends the guidance applicable to accounting for costs associated with acquiring or renewing insurance contracts. This update addresses the diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendment specifies the following costs incurred in the acquisition of new and renewal contracts should be capitalized: 1) incremental direct costs of contract acquisition and 2) certain |
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| costs related directly to underwriting, policy issuance and processing, medical and inspecting, and sales force contract selling activities. This amendment also specifies that costs may only be capitalized based on successful contract acquisition efforts. Previously, insurance entities were able to capitalize costs relating to successful and unsuccessful contract acquisition efforts. The amendment is effective on January 1, 2012 and can be applied prospectively or retrospectively. The Company is currently evaluating the impact of this revised guidance on its consolidated financial statements. | ||
| INVESTMENTS | ||
| Fixed maturity and equity securities available for sale are reported at estimated fair value, with unrealized gains and losses, net of adjustments related to DAC, future policy benefits and deferred income taxes, recognized as a component of OCI. For mortgage-backed securities and asset-backed securities included in fixed maturity securities available for sale, the Company recognizes income using a constant effective yield based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. For fixed rate securities, the net investment in the securities is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the securities. These adjustments are reflected in net investment income. Trading securities, which are included in other investments, are reported at estimated fair value with changes in estimated fair value included in net realized investment gain (loss). | ||
| Investment income consists primarily of interest and dividends, net investment income from partnership interests, prepayment fees on fixed maturity securities and mortgage loans, and income from certain derivatives. Interest is recognized on an accrual basis and dividends are recorded on the ex-dividend date. Amortization of premium and accretion of discount on fixed maturity securities is recorded using the effective interest method. | ||
| The Company’s available for sale securities are regularly assessed for OTTIs. If a decline in the estimated fair value of an available for sale security is deemed to be other than temporary, the OTTI is recognized equal to the difference between the estimated fair value and net carrying amount of the security. If the OTTI for a fixed maturity security is attributable to both credit and other factors, then the OTTI is bifurcated and the non credit related portion is recognized in OCI while the credit portion is recognized as an OTTI. If the OTTI is related to credit factors only, it is recognized as an OTTI. | ||
| The evaluation of OTTIs is a quantitative and qualitative process subject to significant estimates and management judgment. The Company has rigorous controls and procedures in place to monitor securities and identify those that are subject to greater analysis for OTTIs. The Company has an investment impairment committee comprised of investment and accounting professionals that reviews and evaluates securities for potential OTTIs at least on a quarterly basis. | ||
| In evaluating whether a decline in value is other than temporary, the Company considers many factors including, but not limited to, the following: the extent and duration of the decline in value; the reasons for the decline (credit event, currency, or interest rate related, including spread widening); the ability and intent to hold the investment for a period of time to allow for a recovery of value; and the financial condition of and near-term prospects of the issuer. | ||
| Analysis of the probability that all cash flows will be collected under the contractual terms of a fixed maturity security and determination as to whether the Company does not intend to sell the security and that it is more likely than not that the Company will not be required to sell the security before recovery of the investment are key factors in determining whether a fixed maturity security is other than temporarily impaired. | ||
| For mortgage-backed and asset-backed securities, scrutiny was placed on the performance of the underlying collateral and projected future cash flows. In projecting future cash flows, the Company incorporates inputs from third-party sources and applies reasonable judgment in developing assumptions used to estimate the probability and timing of collecting all contractual cash flows. | ||
| In evaluating investment grade perpetual preferred securities, which do not have final contractual cash flows, the Company applied OTTI considerations used for debt securities, placing emphasis on the probability that all cash flows will be collected under the contractual terms of the security and the Company’s intent and ability to hold the security to allow for a recovery of value. Perpetual preferred securities are reported as equity securities as they are structured in equity form, but have significant debt-like characteristics, including periodic dividends, call features, and credit ratings and pricing similar to debt securities. | ||
| Realized gains and losses on investment transactions are determined on a specific identification basis and are included in net realized investment gain (loss). |
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| Mortgage loans on real estate are carried at their unpaid principal balance, net of deferred origination fees and write-downs. Mortgage loans are considered to be impaired when management estimates that based upon current information and events, it is probable that the Company will not be able to collect amounts due according to the contractual terms of the mortgage loan agreement. For mortgage loans deemed to be impaired, an impairment loss is recorded when the carrying amount is greater than the Company’s estimated fair value of the underlying collateral of the loan. When the underlying collateral of the loan is greater than the carrying amount, the loan is not considered to have an impaired loss and no write-down is recorded. As of December 31, 2010, one loan totaling $6 million was foreclosed upon. Since the estimated fair value of the collateral was greater than the carrying amount of the loan, no impairment loss was recorded. This loan was the only default realized during the year ended December 31, 2010. As of December 31, 2009, two loans totaling $8 million were considered impaired, however no impairment loss was necessary as the estimated fair value of the collateral was greater than the carrying amount of the related loans. | ||
| Policy loans are stated at unpaid principal balances. | ||
| Other investments primarily consist of partnership and joint ventures, real estate investments, derivative instruments, non-marketable equity securities, and low income housing related investments qualifying for tax credits (LIHTC). Non-marketable equity securities are carried at fair value with unrealized gains or losses recognized in OCI. Partnership and joint venture interests where the Company does not have a controlling interest or majority ownership are recorded under the cost or equity method of accounting depending on the equity ownership position. Real estate investments are carried at depreciated cost, net of write-downs, or, for real estate acquired in satisfaction of debt, estimated fair value less estimated selling costs at the date of acquisition, if lower than the related unpaid balance. | ||
| Real estate investments are evaluated for impairment based on the undiscounted cash flows expected to be received during the estimated holding period. When the undiscounted cash flows are less than the current carrying value of the property (gross cost less accumulated depreciation) the property is considered impaired and will be written-down to its estimated fair value. During the year ended December 31, 2010, three real estate investments were written-down for a total of $27 million (Note 14). The Company had no real estate write-downs during the years ended December 31, 2009 and 2008. | ||
| Investments in LIHTC are recorded under either the effective interest method, if they meet certain requirements, including a projected positive yield based solely on guaranteed credits, or are recorded under the equity method if these certain requirements are not met. For investments in LIHTC recorded under the effective interest method, the amortization of the original investment and the tax credits are recorded in the provision (benefit) for income taxes. For investments in LIHTC recorded under the equity method, the amortization of the initial investment is included in net investment income, and the related tax credits are recorded in the provision (benefit) for income taxes (Note 18). The amortization recorded in net investment income was $1 million, $3 million and $5 million for the years ended December 31, 2010, 2009 and 2008, respectively. | ||
| All derivatives, whether designated in hedging relationships or not, are required to be recorded at estimated fair value. If the derivative is designated as a cash flow hedge, the effective portion of changes in the estimated fair value of the derivative is recorded in OCI and recognized in earnings when the hedged item affects earnings. If the derivative is designated as a fair value hedge, changes in the estimated fair value of the hedging derivative, including amounts measured as ineffectiveness, and changes in the estimated fair value of the hedged item related to the designated risk being hedged, are reported in net realized investment gain (loss). The change in estimated value of the hedged item associated with the risk being hedged is reflected as an adjustment to the carrying amount of the hedged item. For derivative instruments not designated as hedges, the change in estimated fair value of the derivative is recorded in net realized investment gain (loss). Estimated fair value exposure is calculated based on the aggregate estimated fair value of all derivative instruments with each counterparty, net of collateral received or pledged, in accordance with legally enforceable counterparty master netting agreements (Note 10). | ||
| The periodic cash flows for all hedging derivatives are recorded consistent with the hedged item on an accrual basis. For derivatives that are hedging securities, these amounts are included in net investment income. For derivatives that are hedging liabilities, these amounts are included in interest credited to policyholder account balances or interest expense, which is included in operating and other expenses. For derivatives not designated as hedging instruments, the periodic cash flows are reflected in net realized investment gain (loss) on an accrual basis. Upon termination of a cash flow hedging relationship, the accumulated amount in OCI is amortized into net investment income or interest credited to policyholder account balances over the remaining life of the hedged item. Upon termination of a fair value hedging relationship, the accumulated adjustment to the carrying value of the hedged item is amortized into net investment income, interest expense, which is included in operating and other expenses, or interest credited to policyholder account balances over its remaining life. | ||
| CASH AND CASH EQUIVALENTS | ||
| Cash and cash equivalents include all investments with a maturity of three months or less from purchase date. |
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| RESTRICTED CASH | ||
| Restricted cash primarily consists of security deposits, commitment fees, maintenance reserve payments and rental payments received from certain lessees related to the aircraft leasing business. | ||
| DEFERRED POLICY ACQUISITION COSTS | ||
| The costs of acquiring new insurance business, principally commissions, medical examinations, underwriting, policy issue and other expenses, all of which vary with and are primarily associated with the production of new business, are deferred and recorded as an asset commonly referred to as DAC. DAC related to internally replaced contracts (as defined in the Codification’s Financial Services — Insurance Topic), is immediately written off to expense and any new deferrable expenses associated with the replacement are deferred if the contract modification substantially changes the contract. However, if the contract modification does not substantially change the contract, the existing DAC asset remains in place and any acquisition costs associated with the modification are immediately expensed. As of December 31, 2010 and 2009, the carrying value of DAC was $4.4 billion and $4.8 billion, respectively (Note 7). | ||
| For universal life (UL), variable annuities and other investment-type contracts, acquisition costs are amortized through earnings in proportion to the present value of estimated gross profits (EGPs) from projected investment, mortality and expense margins, and surrender charges over the estimated lives of the contracts. Actual gross margins or profits may vary from management’s estimates, which can increase or decrease the rate of DAC amortization. DAC related to traditional policies is amortized through earnings over the premium-paying period of the related policies in proportion to premium revenues recognized, using assumptions and estimates consistent with those used in computing policy reserves. DAC related to certain unrealized components in OCI, primarily unrealized gains and losses on securities available for sale, is recorded directly to equity through OCI. | ||
| Significant assumptions in the development of EGPs include investment returns, surrender and lapse rates, rider utilization, interest spreads, and mortality margins. The Company’s long-term assumption for the underlying separate account investment return ranges up to 8.0%. | ||
| A change in the assumptions utilized to develop EGPs results in a change to amounts expensed in the reporting period in which the change was made by adjusting the DAC balance to the level DAC would have been had the EGPs been calculated using the new assumptions over the entire amortization period. In general, favorable experience variances result in increased expected future profitability and may lower the rate of DAC amortization, whereas unfavorable experience variances result in decreased expected future profitability and may increase the rate of DAC amortization. All critical assumptions utilized to develop EGPs are evaluated at least annually and necessary revisions are made to certain assumptions to the extent that actual or anticipated experience necessitates such a prospective change (Note 7). | ||
| The Company defers sales inducements and amortizes them over the life of the policy using the same methodology and assumptions used to amortize DAC. The capitalized sales inducement balance included in the DAC asset were $549 million and $583 million as of December 31, 2010 and 2009, respectively. | ||
| AIRCRAFT LEASING PORTFOLIO | ||
| Aircraft are recorded at cost, which includes certain acquisition costs, less accumulated depreciation. Major improvements to aircraft are capitalized when incurred. The Company evaluates carrying values of aircraft based upon changes in market and other physical and economic conditions and records impairment losses to recognize a loss in the value of the aircraft when management believes that, based on estimated future cash flows, the recoverability of the Company’s investment in an aircraft is unlikely (Note 9). The Company had five and four non-earning aircraft in the portfolio as of December 31, 2010 and 2009, respectively. | ||
| GOODWILL FROM ACQUISITIONS | ||
| Goodwill represents the excess of costs over the fair value of net assets acquired. Goodwill is not amortized but is reviewed for impairment at least annually or more frequently if events occur or circumstances indicate that the goodwill might be impaired. Goodwill from acquisitions, included in other assets, totaled $43 million as of December 31, 2010 and 2009. There were no goodwill impairment write-downs from continuing operations during the years ended December 31, 2010, 2009 and 2008. |
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| POLICYHOLDER ACCOUNT BALANCES | ||
| Policyholder account balances on UL and investment-type contracts, such as funding agreements, annuities without life contingencies, deposit liabilities and guaranteed interest contracts (GICs), are valued using the retrospective deposit method and are equal to accumulated account values, which consist of deposits received, plus interest credited, less withdrawals and assessments (Note 11). Interest credited to these contracts primarily ranged from 0.2% to 9.0%. | ||
| FUTURE POLICY BENEFITS | ||
| Annuity reserves, which primarily consist of group retirement and structured settlement annuities with life contingencies, are equal to the present value of estimated future payments using pricing assumptions, as applicable, for interest rates, mortality, morbidity, retirement age and expenses (Note 11). Interest rates used in establishing such liabilities ranged from 0.8% to 11.0%. | ||
| The Company offers a rider on certain variable annuity contracts that guarantees net principal over a ten-year holding period, as well as riders on certain variable annuity contracts that guarantee a minimum withdrawal benefit over specified periods, subject to certain restrictions. These variable annuity guaranteed living benefits (GLBs) are considered embedded derivatives and are recorded in future policy benefits (Note 11). | ||
| Policy charges assessed against policyholders that represent compensation to the Company for services to be provided in future periods, or unearned revenue reserves (URR), are recognized in revenue over the expected life of the contract using the same methods and assumptions used to amortize DAC. Unearned revenue related to certain unrealized components in OCI, primarily unrealized gains and losses on securities available for sale, is recorded directly to equity through OCI. | ||
| Life insurance reserves are valued using the net level premium method on the basis of actuarial assumptions appropriate at policy issue. Mortality and persistency assumptions are generally based on the Company’s experience, which, together with interest and expense assumptions, include a margin for possible unfavorable deviations. Interest rate assumptions ranged from 3.0% to 9.3%. Future dividends for participating business are provided for in the liability for future policy benefits. | ||
| As of December 31, 2010 and 2009, participating experience rated policies paying dividends represent less than 1% of direct life insurance in force. | ||
| Estimates of future policy benefit reserves and liabilities are continually reviewed and, as experience develops, are adjusted as necessary. Such changes in estimates are included in earnings for the period in which such changes occur. | ||
| REINSURANCE | ||
| The Company has ceded reinsurance agreements with other insurance companies to limit potential losses, reduce exposure arising from larger risks, provide additional capacity for future growth and assumed reinsurance agreements intended to offset reinsurance costs. As part of a strategic alliance, the Company also reinsures risks associated with policies written by an independent producer group through modified coinsurance and yearly renewable term arrangements with this producer group’s reinsurance company. | ||
| All assets associated with business reinsured on a modified coinsurance basis remain with, and under the control of, the Company. As part of its risk management process, the Company routinely evaluates its reinsurance programs and may change retention limits, reinsurers or other features at any time. | ||
| Reinsurance accounting is utilized for ceded transactions when risk transfer provisions have been met. To meet risk transfer requirements, a reinsurance contract must include insurance risk, consisting of both underwriting and timing risk, and a reasonable possibility of a significant loss to the reinsurer. | ||
| Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from their respective revenue and benefit and expense accounts. Prepaid reinsurance premiums, included in other assets, are premiums that are paid in advance for future coverage. Reinsurance recoverables, included in other assets, include balances due from reinsurance companies for paid and unpaid losses. Amounts receivable and payable are offset for account settlement purposes for contracts where the right of offset exists. See Note 16. |
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| REVENUES, BENEFITS AND EXPENSES | ||
| Premiums from annuity contracts with life contingencies and traditional life and term insurance contracts, are recognized as revenue when due. Benefits and expenses are matched against such revenues to recognize profits over the lives of the contracts. This matching is accomplished by providing for liabilities for future policy benefits, expenses of contract administration and the amortization of DAC and URR. | ||
| Receipts for UL and investment-type contracts are reported as deposits to either policyholder account balances or separate account liabilities and are not included in revenue. Policy fees consist of mortality charges, surrender charges and expense charges that have been earned and assessed against related account values during the period. The timing of policy fee revenue recognition is determined based on the nature of the fees. Benefits and expenses include policy benefits and claims incurred in the period that are in excess of related policyholder account balances, interest credited to policyholder account balances, expenses of contract administration and the amortization of DAC. | ||
| Investment advisory fees are primarily fees earned by Pacific Life Fund Advisors LLC (PLFA), a wholly owned subsidiary of Pacific Life formed in 2007, which serves as the investment advisor for the Pacific Select Fund, an investment vehicle provided to the Company’s variable universal life (VUL) and variable annuity contract holders, and the Pacific Life Funds, the investment vehicle for the Company’s mutual fund products. These fees are based upon the net asset value of the underlying portfolios and are recorded as earned. Related subadvisory expense is included in operating and other expenses and recorded when incurred. | ||
| Aircraft leases, which are structured as triple net leases, are accounted for as operating leases. Aircraft leasing revenue is recognized ratably over the terms of the lease agreements. ACG has four capital leases, which are accounted for under the provisions in the Codification’s Leases Topic. As of December 31, 2010 and 2009, capital leases in the amount of $5 million and $8 million, respectively, are classified in other assets. | ||
| DEPRECIATION AND AMORTIZATION | ||
| Aircraft and certain other assets are depreciated or amortized using the straight-line method over estimated useful lives, which range from three to 40 years. Depreciation and amortization of aircraft under operating leases and certain other assets are included in operating and other expenses. Depreciation of investment real estate is computed using the straight-line method over estimated useful lives, which range from five to 30 years. Depreciation of investment real estate is included in net investment income. | ||
| INCOME TAXES | ||
| Pacific Life and its includable subsidiaries are included in the consolidated Federal income tax return of PMHC. Pacific Life and its wholly owned, Arizona domiciled life insurance subsidiary, Pacific Life & Annuity Company (PL&A), and Pacific Alliance Reinsurance Company of Vermont (PAR Vermont), a Vermont-based life reinsurance company wholly owned by Pacific Life, are taxed as life insurance companies for Federal income tax purposes. Pacific Life’s non-insurance subsidiaries are either included in PMHC’s combined California franchise tax return or, if necessary, file separate state tax returns. Companies included in the consolidated Federal income tax return of PMHC and/or the combined California franchise tax return of PMHC are allocated tax expense or benefit based principally on the effect of including their operations in PMHC’s returns under a tax sharing agreement. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years the differences are expected to be recovered or settled. | ||
| CONTINGENCIES | ||
| Each reporting cycle, the Company evaluates all identified contingent matters on an individual basis. A loss is recorded if probable and reasonably estimable. The Company establishes reserves for these contingencies at the best estimate, or, if no one number within the range of possible losses is more probable than any other, the Company records an estimated reserve at the low end of the range of losses. See Note 21. | ||
| SEPARATE ACCOUNTS | ||
| Separate accounts primarily include variable annuity and life contracts, as well as other guaranteed and non-guaranteed accounts. Separate account assets are recorded at estimated fair value and represent legally segregated contract holder funds. A separate |
PL-14
| account liability is recorded equal to the amount of separate account assets. Deposits to separate accounts, investment income and realized and unrealized gains and losses on the separate account assets accrue directly to contract holders and, accordingly, are not reflected in the consolidated statements of operations or cash flows. Amounts charged to the separate account for mortality, surrender and expense charges are included in revenues as policy fees. | ||
| For separate account funding agreements in which the Company provides a guarantee of principal and interest to the contract holder and bears all the risks and rewards of the investments underlying the separate account, the related investments and liabilities are recognized as investments and liabilities in the consolidated statements of financial condition. Revenue and expenses are recognized within the respective revenue and benefit and expense lines in the consolidated statements of operations. | ||
| FAIR VALUE OF FINANCIAL INSTRUMENTS | ||
| The estimated fair value of financial instruments, disclosed in Notes 8, 10 and 14, has been determined using available market information and appropriate valuation methodologies. However, considerable judgment is often required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented may not be indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. |
| 2. | STATUTORY FINANCIAL INFORMATION AND DIVIDEND RESTRICTIONS |
| STATUTORY ACCOUNTING PRACTICES | ||
| Pacific Life prepares its regulatory statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the NE DOI, which is a comprehensive basis of accounting other than U.S. GAAP. Statutory accounting practices primarily differ from U.S. GAAP by charging policy acquisition costs to expense as incurred, recognizing certain policy fees as revenue when billed, establishing future policy benefit liabilities using different actuarial assumptions, reporting surplus notes as surplus instead of debt, as well as the valuation of investments and certain assets and accounting for deferred income taxes on a different basis. | ||
| Pacific Life has one permitted practice approved by the NE DOI that differs from statutory accounting practices adopted by the National Association of Insurance Commissioners (NAIC). This permitted practice relates to the valuation of certain statutory separate account assets that are carried at book value instead of estimated fair value. Pacific Life’s statutory capital and surplus as of December 31, 2010 and 2009 did not reflect unrealized losses of $24 million and $29 million, respectively, with regard to this permitted practice. | ||
| In addition, Pacific Life uses an NE DOI prescribed accounting practice for certain synthetic GIC reserves that differs from statutory accounting practices adopted by the NAIC. As of December 31, 2010 and 2009, this NE DOI prescribed accounting practice resulted in statutory reserves of $27 million and $20 million, respectively, as opposed to statutory reserves of zero, using statutory accounting practices adopted by the NAIC. | ||
| STATUTORY NET INCOME (LOSS) AND SURPLUS | ||
| Statutory net income (loss) of Pacific Life was $741 million, $652 million and ($1,529) million for the years ended December 31, 2010, 2009 and 2008, respectively. Statutory capital and surplus of Pacific Life was $5,867 million and $5,006 million as of December 31, 2010 and 2009, respectively. | ||
| 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. Additionally, certain risks are required to be measured using actuarial cash flow modeling techniques, subject to formulaic minimums. The adequacy of a company’s actual capital is measured by a comparison to the risk-based capital results. Companies below minimum risk-based capital requirements are classified within certain levels, each of which requires specified corrective action. As of December 31, 2010 and 2009, Pacific Life, PL&A and PAR Vermont exceeded the minimum risk-based capital requirements. |
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| DIVIDEND RESTRICTIONS | ||
| The payment of dividends by Pacific Life to Pacific LifeCorp is subject to restrictions set forth in the State of Nebraska insurance laws. These laws require (i) notification to the NE DOI for the declaration and payment of any dividend and (ii) approval by the NE DOI for accumulated dividends within the preceding twelve months that exceed the greater of 10% of statutory policyholder surplus as of the preceding December 31 or statutory net gain from operations for the preceding twelve months ended December 31. Generally, these restrictions pose no short-term liquidity concerns for Pacific LifeCorp. Based on these restrictions and 2010 statutory results, Pacific Life could pay $688 million in dividends in 2011 to Pacific LifeCorp without prior approval from the NE DOI, subject to the notification requirement. | ||
| During the year ended December 31, 2010, Pacific Life paid a cash dividend to Pacific LifeCorp of $150 million. No dividends were paid during 2009. During the year ended December 31, 2008, Pacific Life paid a cash dividend to Pacific LifeCorp of $345 million. | ||
| The maximum amount of ordinary dividends that can be paid by PL&A to Pacific Life without restriction cannot exceed the lesser of 10% of statutory surplus as regards to policyholders, or the statutory net gain from operations. Based on this limitation and 2010 statutory results, PL&A could pay $28 million in dividends to Pacific Life in 2011 without prior regulatory approval. No dividends were paid during 2010, 2009 and 2008. | ||
| OTHER | ||
| The Company has ceded reinsurance contracts in place with a reinsurer whose financial stability has deteriorated. In January 2009, the reinsurer’s domiciliary state regulator issued an order of supervision, which requires the regulator’s consent to any transaction outside the normal course of business. The Company will continue to monitor the situation and evaluate its options to deal with any further deterioration in the reinsurer’s financial condition. As of December 31, 2010, statutory reserves ceded to this reinsurer amounted to approximately $177 million. |
| 3. | CLOSED BLOCK |
| In connection with the Conversion, an arrangement known as a closed block (the Closed Block) was established, for dividend purposes only, for the exclusive benefit of certain individual life insurance policies that had an experience based dividend scale for 1997. The Closed Block was designed to give reasonable assurance to holders of the Closed Block policies that policy dividends will not change solely as a result of the Conversion. | ||
| Assets that support the Closed Block, which are primarily included in fixed maturity securities and policy loans, amounted to $284 million and $285 million as of December 31, 2010 and 2009, respectively. Liabilities allocated to the Closed Block, which are primarily included in future policy benefits, amounted to $304 million and $307 million as of December 31, 2010 and 2009, respectively. The net contribution to income from the Closed Block was zero, $4 million and $1 million for the years ended December 31, 2010, 2009 and 2008, respectively. |
PL-16
| 4. | VARIABLE INTEREST ENTITIES |
| The Company evaluates its interests in VIEs on an ongoing basis and consolidates those VIEs in which it has a controlling financial interest and is thus deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Creditors or beneficial interest holders of VIEs, where the Company is the primary beneficiary, have no recourse against the Company in the event of default by these VIEs. | ||
| The following table presents, as of December 31, 2010 and 2009, the consolidated assets, consolidated liabilities and maximum exposure to loss relating to VIEs, which the Company (i) has consolidated because it is the primary beneficiary or (ii) total assets of and maximum exposure to loss relating to VIEs in which the Company holds a significant variable interest, but has not consolidated because it is not the primary beneficiary: |
| Primary Beneficiary | Not Primary Beneficiary | |||||||||||||||||||
| Maximum | Maximum | |||||||||||||||||||
| Consolidated | Consolidated | Exposure to | Total | Exposure to | ||||||||||||||||
| Assets | Liabilities | Loss | Assets | Loss | ||||||||||||||||
| (In Millions) | ||||||||||||||||||||
December 31, 2010: |
||||||||||||||||||||
Aircraft securitizations |
$ | 2,364 | $ | 1,975 | $ | 389 | $ | 320 | ||||||||||||
Private equity funds |
267 | 5 | 34 | |||||||||||||||||
Asset-backed securities |
1,910 | $ | 108 | |||||||||||||||||
Total |
$ | 2,631 | $ | 1,980 | $ | 423 | $ | 2,230 | $ | 108 | ||||||||||
December 31, 2009: |
||||||||||||||||||||
Aircraft securitizations |
$ | 2,622 | $ | 2,385 | $ | 349 | $ | 371 | ||||||||||||
Private equity funds |
239 | 5 | 30 | |||||||||||||||||
Asset-backed securities |
1,910 | $ | 103 | |||||||||||||||||
Total |
$ | 2,861 | $ | 2,390 | $ | 379 | $ | 2,281 | $ | 103 | ||||||||||
| AIRCRAFT SECURITIZATIONS | ||
| ACG has sponsored three financial asset securitizations secured by interests in aircraft. ACG serves as the remarketing agent and provides various aircraft related services in all three securitizations for a fee. This fee is eliminated for the two consolidated securitizations and is included in other income as earned for the unconsolidated securitization. | ||
| In 2005, ACG sponsored a securitization transaction whereby Aviation Capital Group Trust III (ACG Trust III) acquired 74 of ACG’s aircraft through a private placement note offering in the amount of $1,860 million. ACG owns 100% of the equity and has a controlling financial interest in this VIE. Therefore, ACG was determined to be the primary beneficiary of this VIE and ACG Trust III is consolidated into the consolidated financial statements of the Company. These private placement notes are the obligation of ACG Trust III and represent debt that is non-recourse to the Company (Note 13). VIE non-recourse debt consolidated from ACG Trust III was $1,103 million and $1,309 million as of December 31, 2010 and 2009, respectively. As of December 31, 2010 and 2009, the maximum exposure to loss, based on the Company’s interest in ACG Trust III, was $201 million and $148 million, respectively. | ||
| In 2003, ACG sponsored a securitization transaction whereby Aviation Capital Group Trust II (ACG Trust II) acquired 37 of ACG’s aircraft through a private placement note offering in the amount of $1,027 million. ACG owns 100% of the equity and has a controlling financial interest in this VIE. Therefore, ACG was determined to be the primary beneficiary of this VIE and ACG Trust II is consolidated into the consolidated financial statements of the Company. These private placement notes are the obligation of ACG Trust II and represent debt that is non-recourse to the Company (Note 13). VIE non-recourse debt consolidated from ACG Trust II was $484 million and $666 million as of December 31, 2010 and 2009, respectively. As of December 31, 2010 and 2009, the maximum exposure to loss was $188 million and $201 million, respectively, based on the Company’s interest in ACG Trust II. As of December 31, 2009, the maximum exposure to loss included a contingent purchase obligation of $100 million. The Company was contingently obligated to purchase certain notes from ACG Trust II to cover shortfalls in amounts due to the holders of the notes. This contingent purchase obligation expired in August 2010. |
PL-17
| In 2000, ACG sponsored a financial asset securitization of aircraft to Aviation Capital Group Trust (Aviation Trust). ACG and Pacific Life are beneficial interest holders in Aviation Trust. Aviation Trust is not consolidated as the Company is not the primary beneficiary as ACG does not have the obligation to absorb losses of Aviation Trust that could potentially be significant to Aviation Trust or the right to receive benefits from Aviation Trust that could potentially be significant to it. The carrying value is comprised of beneficial interests issued by Aviation Trust. As of December 31, 2010 and 2009, the maximum exposure to loss, based on carrying value, was zero. | ||
| PRIVATE EQUITY FUNDS | ||
| Private equity funds (the Funds) are three limited partnerships that invest in private equity investments for outside investors, where the Company is the general partner. The Company provides investment management services to the Funds for a fee and receives carried interest based upon the performance of the Funds. The Funds are a VIE due to the purpose and design of the Funds and the lack of control by the other equity investors. The Company has determined itself to be the primary beneficiary since it has a controlling financial interest in the Funds and the Funds are consolidated into the consolidated financial statements of the Company. The Company has not guaranteed the performance, liquidity or obligations of the Funds, and the Company’s maximum exposure to loss is equal to the carrying amounts of its retained interest. VIE non-recourse debt consolidated from the Funds was $5 million and $2 million as of December 31, 2010 and 2009, respectively (Note 13). | ||
| ASSET-BACKED SECURITIES | ||
| As part of the Company’s investment strategy, the Company purchases primarily investment grade beneficial interests issued from bankruptcy-remote special purpose entities (SPEs), which are collateralized by financial assets including corporate debt. The Company has not guaranteed the performance, liquidity or obligations of the SPEs, and the Company’s maximum exposure to loss is limited to its carrying value of the beneficial interests in the SPEs. The Company has no liabilities related to these VIEs. The Company has determined that it is not the primary beneficiary of these entities since it does not have the power to direct their financial activities. Therefore, the Company does not consolidate these entities. The investments are reported as fixed maturity securities available for sale and had a net carrying amount of $108 million and $103 million at December 31, 2010 and 2009, respectively. During the years ended December 31, 2010, 2009 and 2008, the Company recorded OTTIs of zero, $60 million and $117 million, respectively, related to these securities. |
| 5. | INTEREST IN PIMCO |
| As of December 31, 2007, the Company owned a beneficial economic interest in Pacific Investment Management Company LLC (PIMCO) through Allianz Global Investors of America LLC (interest in PIMCO). PIMCO offers investment products through managed accounts and institutional, retail and offshore mutual funds. The interest in PIMCO was reported at estimated fair value, as determined by a contractual put and call option price, with changes in estimated fair value reported as a component of OCI, net of taxes. | ||
| During the year ended December 31, 2008, the Company exercised a put option and sold all of its remaining interest in PIMCO to Allianz of America, Inc., a subsidiary of Allianz SE, for $288 million. The Company recognized a pre-tax gain of $109 million for the year ended December 31, 2008. |
PL-18
| 6. | DISCONTINUED OPERATIONS |
| The Company’s former broker-dealer operations have been reflected as discontinued operations in the Company’s consolidated financial statements. Discontinued operations do not include the operations of Pacific Select Distributors, Inc. (PSD), a wholly owned broker-dealer subsidiary of Pacific Life, which primarily serves as the underwriter/distributor of registered investment-related products and services, principally variable life and variable annuity contracts issued by the Company, and mutual funds. In March 2007, the Company classified its broker-dealer subsidiaries, other than PSD, as held for sale. During 2008 and 2007, these broker-dealers were sold. | ||
| Operating results from discontinued operations were as follows: |
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Millions) | ||||||||||||
Revenues |
$ | 13 | ||||||||||
Benefits and expenses |
$ | 31 | 22 | |||||||||
Loss from discontinued operations |
— | (31 | ) | (9 | ) | |||||||
Benefit from income taxes |
(11 | ) | (3 | ) | ||||||||
Discontinued operations, net of taxes |
— | ($20 | ) | ($6 | ) | |||||||
| 7. | DEFERRED POLICY ACQUISITION COSTS |
| Components of DAC are as follows: |
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Millions) | ||||||||||||
Balance, January 1 |
$ | 4,806 | $ | 5,012 | $ | 4,481 | ||||||
Cumulative pre-tax effect of adoption of new
accounting principle (Note 1) |
7 | |||||||||||
Additions: |
||||||||||||
Capitalized during the year |
558 | 777 | 752 | |||||||||
Amortization: |
||||||||||||
Allocated to commission expenses |
(529 | ) | (446 | ) | (444 | ) | ||||||
Allocated to operating expenses |
(145 | ) | (129 | ) | (133 | ) | ||||||
Total amortization |
(674 | ) | (575 | ) | (577 | ) | ||||||
Allocated to OCI |
(255 | ) | (415 | ) | 356 | |||||||
Balance, December 31 |
$ | 4,435 | $ | 4,806 | $ | 5,012 | ||||||
| During the years ended December 31, 2010, 2009 and 2008, the Company revised certain assumptions to develop EGPs for its products subject to DAC amortization (Note 1). This resulted in increases in DAC amortization expense of $34 million, $23 million and $20 million for the years ended December 31, 2010, 2009 and 2008, respectively. The revised EGPs also resulted in increased URR amortization of $20 million for the year ended December 31, 2010, an immaterial decrease in URR amortization for the year ended December 31, 2009 and increased URR amortization of $2 million for the year ended December 31, 2008. |
PL-19
| 8. | INVESTMENTS |
| The net carrying amount, gross unrealized gains and losses, and estimated fair value of fixed maturity and equity securities available for sale are shown below. The net carrying amount of fixed maturity securities represents amortized cost adjusted for OTTIs recognized in earnings and changes in the estimated fair value attributable to the hedged risk in a fair value hedge. The net carrying amount of equity securities represents cost adjusted for OTTIs. See Note 14 for information on the Company’s fair value measurements and disclosure. |
| Net | ||||||||||||||||
| Carrying | Gross Unrealized | Estimated | ||||||||||||||
| Amount | Gains | Losses | Fair Value | |||||||||||||
| (In Millions) | ||||||||||||||||
December 31, 2010: |
||||||||||||||||
U.S.
Treasury securities and obligations of U.S. government authorities and agencies |
$ | 914 | $ | 21 | $ | 15 | $ | 920 | ||||||||
Obligations of states and political subdivisions |
954 | 15 | 44 | 925 | ||||||||||||
Foreign governments |
433 | 50 | 1 | 482 | ||||||||||||
Corporate securities |
18,454 | 1,421 | 207 | 19,668 | ||||||||||||
Residential mortgage-backed securities |
5,100 | 138 | 597 | 4,641 | ||||||||||||
Commercial mortgage-backed securities |
972 | 50 | 11 | 1,011 | ||||||||||||
Collateralized debt obligations |
118 | 28 | 26 | 120 | ||||||||||||
Other asset-backed securities |
500 | 54 | 8 | 546 | ||||||||||||
Total fixed maturity securities |
$ | 27,445 | $ | 1,777 | $ | 909 | $ | 28,313 | ||||||||
Perpetual preferred securities |
$ | 299 | $ | 11 | $ | 35 | $ | 275 | ||||||||
Other equity securities |
4 | 4 | ||||||||||||||
Total equity securities |
$ | 303 | $ | 11 | $ | 35 | $ | 279 | ||||||||
| Net | ||||||||||||||||
| Carrying | Gross Unrealized | Estimated | ||||||||||||||
| Amount | Gains | Losses | Fair Value | |||||||||||||
| (In Millions) | ||||||||||||||||
December 31, 2009: |
||||||||||||||||
U.S.
Treasury securities and obligations of U.S. government authorities and agencies |
$ | 105 | $ | 10 | $ | 115 | ||||||||||
Obligations of states and political subdivisions |
633 | 12 | $ | 46 | 599 | |||||||||||
Foreign governments |
389 | 42 | 431 | |||||||||||||
Corporate securities |
17,256 | 905 | 308 | 17,853 | ||||||||||||
Residential mortgage-backed securities |
6,133 | 105 | 1,078 | 5,160 | ||||||||||||
Commercial mortgage-backed securities |
1,160 | 42 | 23 | 1,179 | ||||||||||||
Collateralized debt obligations |
118 | 27 | 33 | 112 | ||||||||||||
Other asset-backed securities |
562 | 45 | 17 | 590 | ||||||||||||
Total fixed maturity securities |
$ | 26,356 | $ | 1,188 | $ | 1,505 | $ | 26,039 | ||||||||
Perpetual preferred securities |
$ | 324 | $ | 6 | $ | 55 | $ | 275 | ||||||||
Other equity securities |
1 | 2 | 3 | |||||||||||||
Total equity securities |
$ | 325 | $ | 8 | $ | 55 | $ | 278 | ||||||||
PL-20
| The Company has investments in perpetual preferred securities that are primarily issued by European banks. The net carrying amount and estimated fair value of the available for sale perpetual preferred securities was $387 million and $346 million, respectively, as of December 31, 2010. Included in these amounts are perpetual preferred securities carried in trusts with a net carrying amount and estimated fair value of $88 million and $71 million, respectively, that are held in fixed maturities and included in the tables above in corporate securities. Perpetual preferred securities reported as equity securities available for sale are presented in the tables above as perpetual preferred securities. | ||
| The net carrying amount and estimated fair value of fixed maturity securities available for sale as of December 31, 2010, by contractual repayment date of principal, are shown below. Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. |
| Net | ||||||||||||||||
| Carrying | Gross Unrealized | Estimated | ||||||||||||||
| Amount | Gains | Losses | Fair Value | |||||||||||||
| (In Millions) | ||||||||||||||||
Due in one year or less |
$ | 877 | $ | 50 | $ | 1 | $ | 926 | ||||||||
Due after one year through five years |
5,373 | 355 | 32 | 5,696 | ||||||||||||
Due after five years through ten years |
9,324 | 696 | 114 | 9,906 | ||||||||||||
Due after ten years |
5,181 | 406 | 120 | 5,467 | ||||||||||||
| 20,755 | 1,507 | 267 | 21,995 | |||||||||||||
Mortgage-backed and asset-backed securities |
6,690 | 270 | 642 | 6,318 | ||||||||||||
Total fixed maturity securities |
$ | 27,445 | $ | 1,777 | $ | 909 | $ | 28,313 | ||||||||
PL-21
| The following tables present the number of investments, estimated fair value and gross unrealized losses on investments where the estimated fair value has declined and remained continuously below the net carrying amount for less than twelve months and for twelve months or greater. Included in the tables are gross unrealized losses for fixed maturity securities available for sale and other securities, which include equity securities available for sale, cost method investments, and non-marketable equity securities. |
| Total | ||||||||||||
| Gross | ||||||||||||
| Estimated | Unrealized | |||||||||||
| Number | Fair Value | Losses | ||||||||||
| (In Millions) | ||||||||||||
December 31, 2010: |
||||||||||||
U.S. Treasury securities and obligations of
U.S. government authorities and agencies |
3 | $ | 429 | $ | 15 | |||||||
Obligations of states and political subdivisions |
44 | 612 | 44 | |||||||||
Foreign governments |
7 | 56 | 1 | |||||||||
Corporate securities |
350 | 3,161 | 207 | |||||||||
Residential mortgage-backed securities |
287 | 2,976 | 597 | |||||||||
Commercial mortgage-backed securities |
21 | 141 | 11 | |||||||||
Collateralized debt obligations |
5 | 67 | 26 | |||||||||
Other asset-backed securities |
19 | 122 | 8 | |||||||||
Total fixed maturity securities |
736 | 7,564 | 909 | |||||||||
Perpetual preferred securities |
17 | 195 | 35 | |||||||||
Other securities |
29 | 112 | 16 | |||||||||
Total other securities |
46 | 307 | 51 | |||||||||
Total |
782 | $ | 7,871 | $ | 960 | |||||||
| Less than 12 Months | 12 Months or Greater | |||||||||||||||||||||||
| Gross | Gross | |||||||||||||||||||||||
| Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||||
| Number | Fair Value | Losses | Number | Fair Value | Losses | |||||||||||||||||||
| (In Millions) | (In Millions) | |||||||||||||||||||||||
December 31, 2010: |
||||||||||||||||||||||||
U.S. Treasury securities and obligations of
U.S. government authorities and agencies |
3 | $ | 429 | $ | 15 | |||||||||||||||||||
Obligations of states and political subdivisions |
32 | 374 | 16 | 12 | $ | 238 | $ | 28 | ||||||||||||||||
Foreign governments |
7 | 56 | 1 | |||||||||||||||||||||
Corporate securities |
241 | 1,926 | 66 | 109 | 1,235 | 141 | ||||||||||||||||||
Residential mortgage-backed securities |
94 | 156 | 4 | 193 | 2,820 | 593 | ||||||||||||||||||
Commercial mortgage-backed securities |
15 | 52 | 2 | 6 | 89 | 9 | ||||||||||||||||||
Collateralized debt obligations |
5 | 67 | 26 | |||||||||||||||||||||
Other asset-backed securities |
7 | 30 | 1 | 12 | 92 | 7 | ||||||||||||||||||
Total fixed maturity securities |
399 | 3,023 | 105 | 337 | 4,541 | 804 | ||||||||||||||||||
Perpetual preferred securities |
17 | 195 | 35 | |||||||||||||||||||||
Other securities |
3 | 17 | 1 | 26 | 95 | 15 | ||||||||||||||||||
Total other securities |
3 | 17 | 1 | 43 | 290 | 50 | ||||||||||||||||||
Total |
402 | $ | 3,040 | $ | 106 | 380 | $ | 4,831 | $ | 854 | ||||||||||||||
PL-22
| Total | ||||||||||||
| Gross | ||||||||||||
| Estimated | Unrealized | |||||||||||
| Number | Fair Value | Losses | ||||||||||
| (In Millions) | ||||||||||||
December 31, 2009: |
||||||||||||
Obligations of states and political subdivisions |
27 | $ | 383 | $ | 46 | |||||||
Corporate securities |
442 | 4,539 | 308 | |||||||||
Residential mortgage-backed securities |
307 | 3,844 | 1,078 | |||||||||
Commercial mortgage-backed securities |
19 | 339 | 23 | |||||||||
Collateralized debt obligations |
6 | 61 | 33 | |||||||||
Other asset-backed securities |
24 | 205 | 17 | |||||||||
Total fixed maturity securities |
825 | 9,371 | 1,505 | |||||||||
Perpetual preferred securities |
18 | 195 | 55 | |||||||||
Other securities |
31 | 97 | 26 | |||||||||
Total other securities |
49 | 292 | 81 | |||||||||
Total |
874 | $ | 9,663 | $ | 1,586 | |||||||
| Less than 12 Months | 12 Months or Greater | |||||||||||||||||||||||
| Gross | Gross | |||||||||||||||||||||||
| Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||||
| Number | Fair Value | Losses | Number | Fair Value | Losses | |||||||||||||||||||
| (In Millions) | (In Millions) | |||||||||||||||||||||||
December 31, 2009: |
||||||||||||||||||||||||
Obligations of states and political subdivisions |
11 | $ | 116 | $ | 6 | 16 | $ | 267 | $ | 40 | ||||||||||||||
Corporate securities |
182 | 1,766 | 50 | 260 | 2,773 | 258 | ||||||||||||||||||
Residential mortgage-backed securities |
53 | 498 | 94 | 254 | 3,346 | 984 | ||||||||||||||||||
Commercial mortgage-backed securities |
6 | 100 | 5 | 13 | 239 | 18 | ||||||||||||||||||
Collateralized debt obligations |
5 | 59 | 32 | 1 | 2 | 1 | ||||||||||||||||||
Other asset-backed securities |
24 | 205 | 17 | |||||||||||||||||||||
Total fixed maturity securities |
257 | 2,539 | 187 | 568 | 6,832 | 1,318 | ||||||||||||||||||
Perpetual preferred securities |
18 | 195 | 55 | |||||||||||||||||||||
Other securities |
16 | 54 | 9 | 15 | 43 | 17 | ||||||||||||||||||
Total other securities |
16 | 54 | 9 | 33 | 238 | 72 | ||||||||||||||||||
Total |
273 | $ | 2,593 | $ | 196 | 601 | $ | 7,070 | $ | 1,390 | ||||||||||||||
| The Company has evaluated fixed maturity and other securities with gross unrealized losses and has determined that the unrealized losses are temporary. The Company does not intend to sell the securities and it is more likely than not that the Company will not be required to sell the securities before recovery of their net carrying amounts. | ||
| Prime mortgages are loans made to borrowers with strong credit histories, whereas sub-prime mortgage lending is the origination of residential mortgage loans to customers with weak credit profiles. Alt-A mortgage lending is the origination of residential mortgage loans to customers who have good credit ratings, but have limited documentation for their source of income or some other standard input used to underwrite the mortgage loan. The slowing U.S. housing market, greater use of affordability mortgage products and relaxed underwriting standards by some originators for these loans has led to higher delinquency and loss rates, especially within the 2007 and 2006 vintage years. |
PL-23
| The table below presents non-agency residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) by investment rating from independent rating agencies and vintage year of the underlying collateral as of December 31, 2010. |
| Net | Rating as % of | Vintage Breakdown | ||||||||||||||||||||||||||||||
| Carrying | Estimated | Net Carrying | 2004 and | 2008 and | ||||||||||||||||||||||||||||
| Rating | Amount | Fair Value | Amount | Prior | 2005 | 2006 | 2007 | Thereafter | ||||||||||||||||||||||||
| ($ In Millions) | ||||||||||||||||||||||||||||||||
Prime RMBS: |
||||||||||||||||||||||||||||||||
AAA |
$ | 595 | $ | 593 | 20 | % | 17 | % | 3 | % | ||||||||||||||||||||||
AA |
110 | 104 | 4 | % | 3 | % | 1 | % | ||||||||||||||||||||||||
A |
108 | 106 | 4 | % | 1 | % | 2 | % | 1 | % | ||||||||||||||||||||||
BAA |
28 | 25 | 1 | % | 1 | % | ||||||||||||||||||||||||||
BA and below |
2,063 | 1,752 | 71 | % | 3 | % | 23 | % | 31 | % | 14 | % | ||||||||||||||||||||
Total |
$ | 2,904 | $ | 2,580 | 100 | % | 24 | % | 29 | % | 33 | % | 14 | % | 0 | % | ||||||||||||||||
Alt-A RMBS: |
||||||||||||||||||||||||||||||||
AAA |
$ | 44 | $ | 41 | 5 | % | 5 | % | ||||||||||||||||||||||||
AA |
22 | 23 | 3 | % | 2 | % | 1 | % | ||||||||||||||||||||||||
BAA |
26 | 24 | 3 | % | 1 | % | 1 | % | 1 | % | ||||||||||||||||||||||
BA and below |
747 | 559 | 89 | % | 9 | % | 27 | % | 53 | % | ||||||||||||||||||||||
Total |
$ | 839 | $ | 647 | 100 | % | 6 | % | 12 | % | 29 | % | 53 | % | 0 | % | ||||||||||||||||
Sub-prime RMBS: |
||||||||||||||||||||||||||||||||
AAA |
$ | 212 | $ | 199 | 52 | % | 52 | % | ||||||||||||||||||||||||
AA |
92 | 79 | 23 | % | 23 | % | ||||||||||||||||||||||||||
A |
20 | 13 | 5 | % | 5 | % | ||||||||||||||||||||||||||
BA and below |
83 | 67 | 20 | % | 1 | % | 17 | % | 1 | % | 1 | % | ||||||||||||||||||||
Total |
$ | 407 | $ | 358 | 100 | % | 81 | % | 17 | % | 1 | % | 1 | % | 0 | % | ||||||||||||||||
CMBS: |
||||||||||||||||||||||||||||||||
AAA |
$ | 842 | $ | 888 | 87 | % | 59 | % | 4 | % | 14 | % | 10 | % | ||||||||||||||||||
AA |
65 | 66 | 6 | % | 3 | % | 3 | % | ||||||||||||||||||||||||
A |
37 | 33 | 4 | % | 4 | % | ||||||||||||||||||||||||||
BA |
28 | 24 | 3 | % | 3 | % | ||||||||||||||||||||||||||
Total |
$ | 972 | $ | 1,011 | 100 | % | 66 | % | 4 | % | 0 | % | 17 | % | 13 | % | ||||||||||||||||
| Pacific Life is a member of the Federal Home Loan Bank (FHLB) of Topeka. As of December 31, 2010, the Company has received advances of $1.5 billion from the FHLB of Topeka and has issued funding agreements to the FHLB of Topeka in connection with its institutional investment products (Note 19). The funding agreement liabilities are included in policyholder account balances. Fixed maturity securities and cash equivalents with an estimated fair value of $1.7 billion as of December 31, 2010 are in a custodial account pledged as collateral for the funding agreements. The Company is required to purchase stock in FHLB of Topeka each time it receives an advance. As of December 31, 2010, the Company holds $78 million of FHLB of Topeka stock, which is recorded in other investments. | ||
| PL&A is a member of FHLB of San Francisco. As of December 31, 2010, no assets are pledged as collateral. As of December 31, 2010, the Company holds FHLB of San Francisco stock with an estimated fair value of $28 million, which is recorded in other investments. |
PL-24
| Major categories of investment income (loss) and related investment expense are summarized as follows: |
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Millions) | ||||||||||||
Fixed maturity securities |
$ | 1,506 | $ | 1,448 | $ | 1,467 | ||||||
Equity securities |
19 | 20 | 23 | |||||||||
Mortgage loans |
337 | 297 | 289 | |||||||||
Real estate |
93 | 92 | 86 | |||||||||
Policy loans |
214 | 229 | 223 | |||||||||
Partnerships and joint ventures |
119 | (78 | ) | 21 | ||||||||
Other |
12 | 21 | ||||||||||
Gross investment income |
2,288 | 2,020 | 2,130 | |||||||||
Investment expense |
166 | 158 | 136 | |||||||||
Net investment income |
$ | 2,122 | $ | 1,862 | $ | 1,994 | ||||||
| The components of net realized investment gain (loss) are as follows: |
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Millions) | ||||||||||||
Fixed maturity securities: |
||||||||||||
Gross gains on sales |
$ | 167 | $ | 42 | $ | 101 | ||||||
Gross losses on sales |
(32 | ) | (18 | ) | (37 | ) | ||||||
Total fixed maturity securities |
135 | 24 | 64 | |||||||||
Equity securities: |
||||||||||||
Gross gains on sales |
4 | 1 | ||||||||||
Gross losses on sales |
(11 | ) | ||||||||||
Total equity securities |
4 | (11 | ) | 1 | ||||||||
Trading securities |
12 | 20 | (22 | ) | ||||||||
Real estate |
21 | |||||||||||
Variable annuity GLB embedded derivatives
(including reinsurance contracts) |
185 | 2,211 | (2,775 | ) | ||||||||
Variable annuity GLB policy fees |
208 | 147 | 108 | |||||||||
Variable annuity derivatives — interest rate swaps |
(104 | ) | 402 | |||||||||
Variable annuity derivatives — total return swaps |
(534 | ) | (1,542 | ) | 646 | |||||||
Equity put options |
(159 | ) | (672 | ) | 853 | |||||||
Synthetic GIC policy fees |
30 | 25 | 15 | |||||||||
Other derivatives |
8 | 45 | (62 | ) | ||||||||
Other |
(4 | ) | 10 | 21 | ||||||||
Total |
($94 | ) | $ | 153 | ($749 | ) | ||||||
PL-25
| The table below summarizes the OTTIs by investment type: |
| Recorded in | Included in | |||||||||||
| Earnings | OCI | Total | ||||||||||
| (In Millions) | ||||||||||||
Year ended December 31, 2010: |
||||||||||||
Corporate securities |
$ | 10 | $ | 10 | ||||||||
RMBS |
64 | $ | 215 | 279 | ||||||||
Collateralized debt obligations |
1 | 1 | ||||||||||
OTTIs — fixed maturity and equity securities |
75 | 215 | 290 | |||||||||
Real estate |
27 | 27 | ||||||||||
Other investments |
11 | 11 | ||||||||||
Total OTTIs |
$ | 113 | $ | 215 | $ | 328 | ||||||
Year ended December 31, 2009: |
||||||||||||
Corporate securities (1) |
$ | 63 | $ | 2 | $ | 65 | ||||||
RMBS |
116 | 315 | 431 | |||||||||
Collateralized debt obligations |
66 | 13 | 79 | |||||||||
Perpetual preferred securities |
26 | 26 | ||||||||||
OTTIs — fixed maturity and equity securities |
271 | 330 | 601 | |||||||||
Other investments |
40 | 40 | ||||||||||
Total OTTIs |
$ | 311 | $ | 330 | $ | 641 | ||||||
| (1) | Included are $29 million of OTTI recognized in earnings on perpetual preferred securities carried in trusts. |
| In accordance with additional guidance under the Codification’s Investments – Debt and Equity Securities Topic, effective January 1, 2009, the Company began recognizing the credit loss portion of OTTI adjustments in earnings and the portion related to other factors in OCI. The table below details the amount of OTTIs attributable to credit losses recognized in earnings for which a portion was recognized in OCI: |
| Years Ended | ||||||||
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In Millions) | ||||||||
Cumulative credit loss, January 1 |
$ | 200 | $ | 88 | ||||
Additions for credit impairments recognized on: |
||||||||
Securities not previously other than temporarily impaired |
14 | 48 | ||||||
Securities previously other than temporarily impaired |
46 | 106 | ||||||
Total additions |
60 | 154 | ||||||
Reductions for credit impairments previously recognized on: |
||||||||
Securities that matured or were sold |
(5 | ) | (40 | ) | ||||
Securities due to an increase in expected cash flows and
time value of cash flows |
(10 | ) | (2 | ) | ||||
Total subtractions |
(15 | ) | (42 | ) | ||||
Cumulative credit loss, December 31 |
$ | 245 | $ | 200 | ||||
PL-26
| The table below presents gross unrealized losses on investments for which OTTI has been recognized in earnings in current or prior periods and gross unrealized losses on temporarily impaired investments for which no OTTI has been recognized. |
| Gross Unrealized Losses | ||||||||||||
| OTTI | Non-OTTI | |||||||||||
| Investments | Investments | Total | ||||||||||
| (In Millions) | ||||||||||||
December 31, 2010: |
||||||||||||
U.S.
Treasury securities and obligations of U.S. government authorities and agencies |
$ | 15 | $ | 15 | ||||||||
Obligations of states and political subdivisions |
44 | 44 | ||||||||||
Foreign governments |
1 | 1 | ||||||||||
Corporate securities |
207 | 207 | ||||||||||
RMBS |
$ | 308 | 289 | 597 | ||||||||
CMBS |
11 | 11 | ||||||||||
Collateralized debt obligations |
26 | 26 | ||||||||||
Other asset-backed securities |
8 | 8 | ||||||||||
Total fixed maturity securities |
$ | 334 | $ | 575 | $ | 909 | ||||||
Perpetual preferred securities |
$ | 35 | $ | 35 | ||||||||
Total equity securities |
— | $ | 35 | $ | 35 | |||||||
December 31, 2009: |
||||||||||||
Obligations of states and political subdivisions |
$ | 46 | $ | 46 | ||||||||
Corporate securities |
$ | 2 | 306 | 308 | ||||||||
RMBS |
328 | 750 | 1,078 | |||||||||
CMBS |
23 | 23 | ||||||||||
Collateralized debt obligations |
32 | 1 | 33 | |||||||||
Other asset-backed securities |
17 | 17 | ||||||||||
Total fixed maturity securities |
$ | 362 | $ | 1,143 | $ | 1,505 | ||||||
Perpetual preferred securities |
$ | 55 | $ | 55 | ||||||||
Total equity securities |
— | $ | 55 | $ | 55 | |||||||
| The change in unrealized gain (loss) on investments in available for sale and trading securities is as follows: |
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Millions) | ||||||||||||
Available for sale securities: |
||||||||||||
Fixed maturity |
$ | 1,185 | $ | 2,455 | ($3,269 | ) | ||||||
Equity |
23 | 124 | (143 | ) | ||||||||
Total available for sale securities |
$ | 1,208 | $ | 2,579 | ($3,412 | ) | ||||||
Trading securities |
$ | 14 | $ | 26 | ($19 | ) | ||||||
| Trading securities totaled $349 million and $206 million as of December 31, 2010 and 2009, respectively. The cumulative net unrealized gains on trading securities held as of December 31, 2010 and 2009 were $21 million and $7 million, respectively. |
PL-27
| As of December 31, 2010 and 2009, fixed maturity securities of $12 million were on deposit with state insurance departments to satisfy regulatory requirements. | ||
| Mortgage loans totaled $6,693 million and $6,577 million as of December 31, 2010 and 2009, respectively. Mortgage loans are collateralized by commercial properties primarily located throughout the U.S. As of December 31, 2010, $1,047 million, $1,022 million, $716 million, $562 million and $433 million were located in Washington, California, Florida, Texas and Maryland, respectively. As of December 31, 2010, $596 million was located in Canada. The Company did not have any mortgage loans with accrued interest more than 180 days past due as of December 31, 2010 or 2009. As of December 31, 2010, there was no single mortgage loan investment that exceeded 10% of stockholder’s equity. | ||
| Investments in real estate totaled $547 million and $574 million as of December 31, 2010 and 2009, respectively. |
| 9. | AIRCRAFT LEASING PORTFOLIO, NET |
| Aircraft leasing portfolio, net, consisted of the following: |
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In Millions) | ||||||||
Aircraft |
$ | 3,502 | $ | 3,217 | ||||
Aircraft consolidated from VIEs |
2,938 | 3,081 | ||||||
| 6,440 | 6,298 | |||||||
Accumulated depreciation |
1,181 | 994 | ||||||
Aircraft leasing portfolio, net |
$ | 5,259 | $ | 5,304 | ||||
| As of December 31, 2010, domestic and foreign future minimum rentals scheduled to be received under the noncancelable portion of operating leases are as follows (In Millions): |
| 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | |||||||||||||||||||
Domestic |
$ | 32 | $ | 28 | $ | 25 | $ | 25 | $ | 20 | $ | 98 | ||||||||||||
Foreign |
517 | 443 | 340 | 272 | 194 | 362 | ||||||||||||||||||
Total operating leases |
$ | 549 | $ | 471 | $ | 365 | $ | 297 | $ | 214 | $ | 460 | ||||||||||||
| As of December 31, 2010 and 2009, aircraft with a carrying amount of $4,802 million and $4,954 million, respectively, were assigned as collateral to secure debt (Notes 4 and 13). | ||
| During the year ended December 31, 2010, ACG recognized a $4 million aircraft impairment, which is included in operating and other expenses (Note 14). There were no impairments recognized during the years ended December 31, 2009 and 2008. | ||
| During the years ended December 31, 2010, 2009 and 2008, ACG recognized pre-tax gains on the sale of aircraft of $18 million, zero and zero, respectively, which are included in other income. |
PL-28
| 10. | DERIVATIVES AND HEDGING ACTIVITIES |
| The Company primarily utilizes derivative instruments to manage its exposure to interest rate risk, foreign currency risk, credit risk, and equity risk. Derivative instruments are also used to manage the duration mismatch of assets and liabilities. The Company utilizes a variety of derivative instruments including swaps, foreign exchange forward contracts and options. In addition, certain insurance products offered by the Company contain features that are accounted for as derivatives. |
| Accounting for derivatives and hedging activities requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the consolidated statement of financial condition. The Company applies hedge accounting by designating derivative instruments as either fair value or cash flow hedges on the date the Company enters into a derivative contract. The Company formally documents at inception all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. In this documentation, the Company specifically identifies the asset, liability, firm commitment, or forecasted transaction that has been designated as a hedged item and states how the hedging instrument is expected to hedge the risks related to the hedged item. The Company formally assesses and measures effectiveness of its hedging relationships both at the hedge inception and on an ongoing basis in accordance with its risk management policy. |
| DERIVATIVES DESIGNATED AS CASH FLOW HEDGES |
| The Company primarily uses foreign currency interest rate swaps, forward starting interest rate swaps and interest rate swaps to manage its exposure to variability in cash flows due to changes in foreign currencies and the benchmark interest rate. These cash flows include those associated with existing assets and liabilities, as well as the forecasted interest cash flows related to anticipated investment purchases and liability issuances. Such anticipated investment purchases and liability issuances are considered probable to occur and are generally completed within 22 years of the inception of the hedge. |
| Foreign currency interest rate swap agreements are used to convert a fixed or floating rate, foreign-denominated asset or liability to a U.S. dollar fixed rate asset or liability. The foreign currency interest rate swaps involve the exchange of an initial principal amount in two currencies and the agreement to re-exchange the currencies at a future date at an agreed exchange rate. There are also periodic exchanges of interest payments in the two currencies at specified intervals, calculated using agreed upon rates and the exchanged principal amounts. The main currencies that the Company hedges are the Euro, British Pound, and Canadian Dollar. |
| Interest rate swap agreements are used to convert a floating rate asset or liability to a fixed rate to hedge the variability of cash flows of the hedged asset or liability due to changes in benchmark interest rates. These derivatives are predominantly used to better match the cash flow characteristics of certain assets and liabilities. These agreements involve the exchange, at specified intervals, of interest payments resulting from the difference between fixed rate and floating rate interest amounts calculated by reference to an underlying notional amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. |
| Forward starting interest rate swaps are used to hedge the variability in the future interest receipts or payments stemming from the anticipated purchase of fixed rate securities or issuance of fixed rate liabilities due to changes in benchmark interest rates. These derivatives are predominantly used to lock in interest rate levels to match future cash flow characteristics of assets and liabilities. Forward starting interest rate swaps involve the exchange, at specified intervals, of interest payments resulting from the difference between fixed and floating rate interest amounts calculated by reference to an underlying notional amount to begin at a specified date in the future for a specified period of time. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. The notional amounts of the contracts do not represent future cash requirements, as the Company intends to close out open positions prior to their effective dates. |
| When a derivative is designated as a cash flow hedge, the effective portion of changes in the estimated fair value of the derivative is recognized in OCI and recognized in earnings when the hedged item affects earnings, and the ineffective portion of changes in the estimated fair value of the derivative is recognized in net realized investment gain (loss). For the years ended December 31, 2010, 2009 and 2008, hedge ineffectiveness related to designated cash flow hedges reflected in net realized investment gain (loss) was $5 million, $8 million and ($4) million, respectively. For the years ended December 31, 2010, 2009 and 2008, the Company did not have any net losses reclassified from accumulated other comprehensive income (loss) (AOCI) to earnings resulting from the discontinuance of cash flow hedges due to forecasted transactions that were no longer probable of occurring. Over the next twelve months, the Company anticipates that $16 million of deferred losses on derivative instruments in AOCI will be reclassified to earnings. For the years ended December 31, 2010, 2009 and 2008, all of the Company’s hedged forecasted transactions were determined to be probable of occurring. |
PL-29
| The Company had the following outstanding derivatives designated as cash flow hedges: |
| Notional Amount | ||||||||
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In Millions) | ||||||||
Foreign currency interest rate swaps |
$ | 4,917 | $ | 5,099 | ||||
Interest rate swaps |
2,727 | 3,910 | ||||||
Forward starting interest rate swaps |
1,140 | 1,060 | ||||||
| Notional amount represents a standard of measurement of the volume of derivatives. Notional amount is not a quantification of market risk or credit risk and is not recorded on the consolidated statements of financial condition. Notional amounts generally represent those amounts used to calculate contractual cash flows to be exchanged and are not paid or received, except for certain contracts such as currency swaps. |
| DERIVATIVES DESIGNATED AS FAIR VALUE HEDGES |
| Interest rate swap agreements are used to convert a fixed rate asset or liability to a floating rate to hedge the changes in estimated fair value of the hedged asset or liability due to changes in benchmark interest rates. These derivatives are used primarily to closely match the duration of the assets supporting specific liabilities. Pacific Life uses interest rate swaps to convert fixed rate surplus notes to variable rate notes (Note 13). |
| The Company had the following outstanding derivatives designated as fair value hedges: |
| Notional Amount | ||||||||
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In Millions) | ||||||||
Interest rate swaps |
$ | 1,579 | $ | 1,658 | ||||
Foreign currency interest rate swaps |
13 | 13 | ||||||
| DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS |
| The Company has certain insurance and reinsurance contracts that are considered to have embedded derivatives. When it is determined that the embedded derivative possesses economic and risk characteristics that are not clearly and closely related to those of the host contract and that a separate instrument with the same terms would qualify as a derivative instrument, it is separated from the host contract and accounted for as a stand-alone derivative. |
| The Company offers a rider on certain variable annuity contracts that guarantees net principal over a ten-year holding period, as well as riders on certain variable annuity contracts that guarantee a minimum withdrawal benefit over specified periods, subject to certain restrictions. These variable annuity GLBs are considered embedded derivatives and are recorded in future policy benefits. |
| GLBs on variable annuity contracts issued between January 1, 2007 and March 31, 2009 are partially covered by reinsurance. These reinsurance arrangements are used to offset a portion of the Company’s exposure to the GLBs for the lives of the host variable annuity contracts issued. The ceded portion of the GLBs is considered an embedded derivative and is recorded in other assets or other liabilities as either a reinsurance recoverable or reinsurance payable. |
| The Company employs hedging strategies (variable annuity derivatives) to mitigate equity risk associated with the GLBs not covered by reinsurance. The Company utilizes total return swaps based upon the S&P 500 Index (S&P 500) primarily to economically hedge the equity risk of the mortality and expense fees in its variable annuity products. These contracts provide periodic payments to the Company in exchange for the total return and changes in fair value of the S&P 500 in the form of a payment or receipt, depending on whether the return relative to the index on trade date is positive or negative, respectively. Payments and receipts are recognized in net realized investment gain (loss). The Company has used interest rate swaps to hedge fluctuations in the valuation of GLBs as a result of changes in risk free rates. These agreements involved the exchange, at specified intervals, of interest payments resulting from the difference between fixed rate and floating rate interest amounts |
PL-30
| calculated by reference to an underlying notional amount. During 2009, all interest rate swaps held at the beginning of the year were terminated and there were no open interest rate swaps as of December 31, 2009. The Company had no interest rate swap trading activity for the year ended December 31, 2010. |
| The Company also uses equity put options to hedge equity and credit risks. These equity put options involve the exchange of periodic fixed rate payments for the return, at the end of the option agreement, of the equity index below a specified strike price. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. |
| The Company offers equity indexed universal life (EIUL) insurance products, which credits the price return of the S&P 500 to the policy cash value. A policyholder may allocate the policy’s net accumulated value to one or a combination of the following: fixed return account, one-year indexed account capped at 12%, or a five-year indexed account. These equity indexed products contain embedded derivatives and are recorded in policyholder account balances. |
| The Company utilizes one-year and five-year S&P call options to hedge against adverse changes in the equity index. These options are contracts to buy the equity index at a predetermined time at a contracted price. The contracts will be net settled in cash based on differentials in the index at the time of exercise and the strike price and the settlements will be recognized in net realized investment gain (loss). |
| The Company issues synthetic GICs to Employee Retirement Income Security Act of 1974 (ERISA) qualified defined contribution employee benefit plans (ERISA Plan). The ERISA Plan uses the contracts in its stable value fixed income option. The Company receives a fee for providing book value accounting for the ERISA Plan stable value fixed income option. The Company does not manage the assets underlying synthetic GICs. In the event that plan participant elections exceed the estimated fair value of the assets or if the contract is terminated and at the end of the termination period the book value under the contract exceeds the estimated fair value of the assets, then the Company is required to pay the ERISA Plan the difference between book value and estimated fair value. The Company mitigates the investment risk through pre-approval and monitoring of the investment guidelines, requiring high quality investments and adjustments to the plan crediting rates to compensate for unrealized losses in the portfolios. |
| Credit default swaps involve the receipt or payment of fixed amounts at specific intervals in exchange for the assumption of or protection from potential credit events associated with the underlying security. The Company wrote one credit default swap for which a payment would be delivered if the underlying security of the derivative defaults. The maximum potential amount of future payment under the credit default swap was $50 million as of December 31, 2010 and 2009. As of December 31, 2010 and 2009, the fair value of the credit derivative sold by the Company was ($10) million and ($17) million, respectively. The term for this instrument is seven years. |
| The Company had the following outstanding derivatives not designated as hedging instruments: |
| Notional Amount | ||||||||
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In Millions) | ||||||||
Variable annuity GLB embedded derivatives |
$ | 37,147 | $ | 36,408 | ||||
Variable annuity GLB reinsurance contracts |
15,117 | 14,878 | ||||||
Variable annuity derivatives — total return swaps |
2,891 | 4,456 | ||||||
Equity put options |
5,285 | 5,267 | ||||||
EIUL embedded derivatives |
538 | 331 | ||||||
S&P call options |
483 | 306 | ||||||
Synthetic GICs |
22,402 | 23,993 | ||||||
Foreign currency interest rate swaps |
424 | 398 | ||||||
Interest rate swaps |
144 | 178 | ||||||
Other |
417 | 384 | ||||||
PL-31
| CONSOLIDATED FINANCIAL STATEMENT IMPACT |
| Derivative instruments are recorded on the Company’s consolidated statements of financial condition at estimated fair value and are presented as assets or liabilities determined by calculating the net position for each derivative counterparty by legal entity, taking into account income accruals and net cash collateral. |
| The following table summarizes the gross asset or liability derivative fair value and excludes the impact of offsetting asset and liability positions held with the same counterparty, cash collateral payables and receivables and income accruals. See Note 14. |
| Asset Derivatives | Liability Derivatives | |||||||||||||||
| Estimated Fair Value | Estimated Fair Value | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| (In Millions) | (In Millions) | |||||||||||||||
Derivatives designated as hedging
instruments: |
||||||||||||||||
Foreign currency interest rate swaps |
$ | 227 | $ | 177 | (1) | $ | 248 | $ | 230 | (1) | ||||||
| 13 | 69 | (5) | 190 | 154 | (5) | |||||||||||
Interest rate swaps |
99 | 32 | (1) | 60 | 106 | (1) | ||||||||||
| 5 | 13 | (5) | 136 | 152 | (5) | |||||||||||
Forward starting interest rate swap
agreements |
51 | 34 | (1) | 1 | (1) | |||||||||||
| 20 | 8 | (5) | ||||||||||||||
Total derivatives designated as hedging
instruments |
415 | 333 | 635 | 642 | ||||||||||||
Derivatives not designated as hedging
instruments: |
||||||||||||||||
Variable annuity derivatives — total
return swaps |
6 | (1) | 41 | 60 | (1) | |||||||||||
| (5) | 33 | 4 | (5) | |||||||||||||
Equity put options |
254 | 329 | (1) | 15 | 16 | (1) | ||||||||||
| 33 | 41 | (5) | 13 | 14 | (5) | |||||||||||
Foreign currency interest rate swaps |
15 | 21 | (1) | 4 | (1) | |||||||||||
| 1 | (5) | |||||||||||||||
Interest rate swaps |
15 | 9 | (1) | 2 | (1) | |||||||||||
| 1 | (5) | |||||||||||||||
S&P call options |
29 | 18 | (1) | |||||||||||||
| 6 | 16 | (5) | ||||||||||||||
Other |
23 | 23 | (1) | |||||||||||||
| 9 | 10 | (5) | ||||||||||||||
Embedded derivatives: |
||||||||||||||||
Variable annuity GLB embedded
derivatives (including reinsurance contracts) |
25 | 52 | (2) | 542 | 754 | (3) | ||||||||||
EIUL embedded derivatives |
68 | 39 | (4) | |||||||||||||
Other |
8 | 5 | (4) | |||||||||||||
Total derivatives not designated as hedging
instruments |
387 | 503 | 747 | 917 | ||||||||||||
Total derivatives |
$ | 802 | $ | 836 | $ | 1,382 | $ | 1,559 | ||||||||
| Location on the consolidated statements of financial condition: |
| (1) | Other investments | |
| (2) | Other assets | |
| (3) | Future policy benefits | |
| (4) | Policyholder account balances | |
| (5) | Other liabilities |
PL-32
| Cash collateral received from counterparties was $251 million and $237 million as of December 31, 2010 and 2009, respectively. This unrestricted cash collateral is included in cash and cash equivalents and the obligation to return it is netted against the estimated fair value of derivatives in other investments or other liabilities. Cash collateral pledged to counterparties was $145 million and $137 million as of December 31, 2010 and 2009, respectively. A receivable representing the right to call this collateral back from the counterparty is netted against the estimated fair value of derivatives in other investments or other liabilities. If the net estimated fair value of the exposure to the counterparty is positive, the amount is reflected in other investments, whereas, if the net estimated fair value of the exposure to the counterparty is negative, the estimated fair value is included in future policy benefits or other liabilities, depending on the nature of the derivative. |
| As of December 31, 2010 and 2009, the Company had also accepted collateral consisting of various securities with an estimated fair value of $36 million and $14 million, respectively, which are held in separate custodial accounts. The Company is permitted by contract to sell or repledge this collateral and as of December 31, 2010 and 2009, none of the collateral had been repledged. As of December 31, 2010 and 2009, the Company provided collateral in the form of various securities with an estimated fair value of $15 million and zero, respectively, which are included in fixed maturity securities. The counterparties are permitted by contract to sell or repledge this collateral. |
| The following table summarizes amounts recognized in net realized investment gain (loss) for derivatives designated as fair value hedges. Gains and losses include the changes in estimated fair value of the derivatives as well as the offsetting gain or loss on the hedged item attributable to the hedged risk. The Company includes the gain or loss on the derivative in the same line item as the offsetting gain or loss on the hedged item. The net of the amounts presented for each year represents the ineffective portion of the hedge. The amounts presented do not include the periodic net settlements of the derivatives or the income (expense) related to the hedged item. |
| Gain (Loss) | Gain (Loss) | |||||||||||||||||||||||
| Recognized in | Recognized in | |||||||||||||||||||||||
| Income on Derivatives | Income on Hedged Items | |||||||||||||||||||||||
| Years Ended | Years Ended | |||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
| (In Millions) | (In Millions) | |||||||||||||||||||||||
Derivatives in fair value hedges: |
||||||||||||||||||||||||
Interest rate swaps |
$ | 85 | $ | 97 | ($136 | ) | ($98 | ) | ($93 | ) | $ | 135 | ||||||||||||
Total |
$ | 85 | $ | 97 | ($136 | ) | ($98 | ) | ($93 | ) | $ | 135 | ||||||||||||
| For the years ended December 31, 2010, 2009 and 2008, hedge ineffectiveness related to designated fair value hedges reflected in net realized investment gain (loss) was ($13) million, $4 million and ($1) million, respectively. No component of the hedging instrument’s estimated fair value is excluded from the determination of effectiveness. |
PL-33
| The following table summarizes amounts recognized in the consolidated financial statements for derivatives designated as cash flow hedges. Gain and losses include the changes in estimated fair value of the derivatives and amounts realized on terminations. The amounts presented do not include the periodic net settlements of the derivatives. |
| Gain (Loss) | ||||||||||||
| Recognized in | ||||||||||||
| OCI on Derivatives | ||||||||||||
| (Effective Portion) | ||||||||||||
| Years Ended | ||||||||||||
| December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Millions) | ||||||||||||
Derivatives in cash flow hedges: |
||||||||||||
Foreign currency interest rate swaps |
($8 | ) | $ | 42 | $ | 66 | ||||||
Interest rate swaps |
(6 | ) | 66 | (146 | ) | |||||||
Forward starting interest rate swaps |
29 | (254 | ) | 336 | ||||||||
Total |
$ | 15 | ($146 | ) | $ | 256 | ||||||
| The following table summarizes amounts recognized in net realized investment gain (loss) for derivatives not designated as hedging instruments. Gains and losses include the changes in estimated fair value of the derivatives and amounts realized on terminations. The amounts presented do not include the periodic net (settlements) proceeds of ($560) million, ($1,476) million and $639 million for the years ended December 31, 2010, 2009 and 2008, respectively, which are recognized in net realized investment gain (loss). |
| Amount of Gain (Loss) | ||||||||||||
| Recognized in | ||||||||||||
| Income on Derivatives | ||||||||||||
| Years Ended | ||||||||||||
| December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Millions) | ||||||||||||
Derivatives not designated as hedging
instruments: |
||||||||||||
Variable annuity derivatives —
interest rate swaps |
($168 | ) | $ | 386 | ||||||||
Variable annuity derivatives — total
return swaps |
($84 | ) | (102 | ) | (55 | ) | ||||||
Equity put options |
(60 | ) | (580 | ) | 927 | |||||||
Foreign currency interest rate swaps |
(2 | ) | (8 | ) | 12 | |||||||
Interest rate swaps |
2 | (8 | ) | |||||||||
S&P call options |
35 | 16 | (13 | ) | ||||||||
Other |
4 | 26 | (53 | ) | ||||||||
Embedded derivatives: |
||||||||||||
Variable annuity GLB embedded
derivatives (including reinsurance contracts) |
185 | 2,211 | (2,775 | ) | ||||||||
EIUL embedded derivatives |
(20 | ) | (16 | ) | 9 | |||||||
Other embedded derivatives |
(3 | ) | 2 | 4 | ||||||||
Total |
$ | 57 | $ | 1,381 | ($1,566 | ) | ||||||
PL-34
| CREDIT EXPOSURE AND CREDIT RISK RELATED CONTINGENT FEATURES |
| Credit exposure is measured on a counterparty basis as the net positive aggregate estimated fair value, net of collateral received, if any. The credit exposure for over the counter derivatives as of December 31, 2010 was $100 million. The maximum exposure to any single counterparty was $17 million at December 31, 2010. |
| For all derivative contracts, excluding embedded derivative contracts such as variable annuity GLBs and synthetic GICs, the Company enters into master agreements that may include a termination event clause associated with Pacific Life’s insurer financial strength ratings assigned by certain independent rating agencies. If Pacific Life’s insurer financial strength rating were to fall below a specified level, as defined within each counterparty master agreement or, in most cases, if one of the rating agencies ceased to provide an insurer financial strength rating, the counterparty could terminate the master agreement with payment due based on the estimated fair value of the underlying derivatives. As of December 31, 2010, Pacific Life’s insurer financial strength ratings were above the specified level. |
| The Company enters into collateral arrangements with derivative counterparties, which require both the pledging and accepting of collateral when the net estimated fair value of the underlying derivatives reaches a pre-determined threshold. Certain of these arrangements include credit-contingent provisions that provide for a reduction of these thresholds in the event of downgrades in the credit ratings of the Company and/or the counterparty. If Pacific Life’s insurer financial strength rating were to fall below a specific investment grade credit rating, the counterparties to the derivative instruments could request immediate and ongoing full collateralization on derivative instruments in net liability positions. The aggregate fair value of all derivative instruments with credit risk related contingent features that are in a liability position on December 31, 2010, is $244 million for which the Company has posted collateral of $160 million in the normal course of business. If certain of Pacific Life’s insurer financial strength ratings were to fall one notch as of December 31, 2010, the Company would have been required to post an additional $29 million of collateral to its counterparties. |
| The Company attempts to limit its credit exposure by dealing with creditworthy counterparties, establishing risk control limits, executing legally enforceable master netting agreements, and obtaining collateral where appropriate. In addition, each counterparty is reviewed to evaluate its financial stability before entering into each agreement and throughout the period that the financial instrument is owned. All of the Company’s credit exposure from derivative contracts is with investment grade counterparties. |
| 11. | POLICYHOLDER LIABILITIES |
| POLICYHOLDER ACCOUNT BALANCES |
| The detail of the liability for policyholder account balances is as follows: |
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In Millions) | ||||||||
Universal life |
$ | 20,098 | $ | 19,298 | ||||
Annuity and deposit liabilities |
8,335 | 7,109 | ||||||
Funding agreements |
4,618 | 5,240 | ||||||
GICs |
2,025 | 2,337 | ||||||
Total |
$ | 35,076 | $ | 33,984 | ||||
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| FUTURE POLICY BENEFITS |
| The detail of the liability for future policy benefits is as follows: |
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In Millions) | ||||||||
Annuity reserves |
$ | 4,926 | $ | 4,960 | ||||
Variable annuity GLB embedded derivatives |
542 | 754 | ||||||
URR |
510 | 734 | ||||||
Life insurance |
411 | 365 | ||||||
Policy benefits payable |
363 | 260 | ||||||
Closed Block liabilities |
303 | 306 | ||||||
Other |
25 | 24 | ||||||
Total |
$ | 7,080 | $ | 7,403 | ||||
| 12. | SEPARATE ACCOUNTS AND VARIABLE ANNUITY GUARANTEED BENEFIT FEATURES |
| The Company issues variable annuity contracts through separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder (traditional variable annuities). These contracts also include various types of guaranteed minimum death benefit (GMDB) and GLB features. For a discussion of certain GLBs accounted for as embedded derivatives, see Note 10. |
| The GMDBs provide a specified minimum return upon death. Many of these death benefits are spousal, whereby a death benefit will be paid upon death of the first spouse. The survivor has the option to terminate the contract or continue it and have the death benefit paid into the contract and a second death benefit paid upon the survivor’s death. The GMDB features include those where the Company contractually guarantees to the contract holder either (a) return of no less than total deposits made to the contract less any partial withdrawals (return of net deposits), (b) the highest contract value on any contract anniversary date through age 80 minus any payments or withdrawals following the contract anniversary (anniversary contract value), or (c) the highest of contract value on certain specified dates or total deposits made to the contract less any partial withdrawals plus a minimum return (minimum return). |
| The guaranteed minimum income benefit (GMIB) is a GLB that provides the contract holder with a guaranteed annuitization value after 10 years. Annuitization value is generally based on deposits adjusted for withdrawals plus a minimum return. In general, the GMIB requires contract holders to invest in an approved asset allocation strategy. |
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| Information in the event of death on the various GMDB features outstanding was as follows (the Company’s variable annuity contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed are not mutually exclusive): |
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| ($ In Millions) | ||||||||
Return of net deposits |
||||||||
Separate account value |
$ | 49,673 | $ | 46,884 | ||||
Net amount at risk (1) |
1,738 | 4,017 | ||||||
Average attained age of contract holders |
61 years | 61 years | ||||||
Anniversary contract value |
||||||||
Separate account value |
$ | 16,814 | $ | 16,483 | ||||
Net amount at risk (1) |
1,299 | 2,541 | ||||||
Average attained age of contract holders |
62 years | 63 years | ||||||
Minimum return |
||||||||
Separate account value |
$ | 1,211 | $ | 1,241 | ||||
Net amount at risk (1) |
505 | 620 | ||||||
Average attained age of contract holders |
65 years | 65 years | ||||||
| (1) | Represents the amount of death benefit in excess of the current account balance as of December 31. |
| Information regarding GMIB features outstanding is as follows: |
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| ($ In Millions) | ||||||||
Separate account value |
$ | 2,744 | $ | 2,675 | ||||
Average attained age of contract holders |
57 years | 58 years | ||||||
| The determination of GMDB and GMIB liabilities is based on models that involve a range of scenarios and assumptions, including those regarding expected market rates of return and volatility, contract surrender rates and mortality experience. The following table summarizes the GMDB and GMIB liabilities, which are recorded in future policy benefits, and changes in these liabilities, which are reflected in policy benefits paid or provided: |
| December 31, | December 31, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| GMDB | GMIB | |||||||||||||||
| (In Millions) | (In Millions) | |||||||||||||||
Balance, beginning of year |
$ | 119 | $ | 38 | $ | 62 | ||||||||||
Changes in reserves |
$ | 42 | (11 | ) | 14 | (23 | ) | |||||||||
Benefits paid |
(42 | ) | (108 | ) | (9 | ) | (1 | ) | ||||||||
Balance, end of year |
$ | 0 | $ | 0 | $ | 43 | $ | 38 | ||||||||
| Reinsurance recoverables related to GMDB reserves totaled zero as of December 31, 2010 and 2009. Reinsurance recoverables related to GMIB reserves are not significant. |
PL-37
| Variable annuity contracts with guarantees were invested in separate account investment options as follows: |
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In Millions) | ||||||||
Asset type |
||||||||
Domestic equity |
$ | 26,290 | $ | 25,760 | ||||
International equity |
6,447 | 6,728 | ||||||
Bonds |
16,484 | 13,775 | ||||||
Money market |
452 | 621 | ||||||
Total separate account value |
$ | 49,673 | $ | 46,884 | ||||
| 13. | DEBT |
| Debt consists of the following: |
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In Millions) | ||||||||
Short-term debt: |
||||||||
Credit facility recourse only to ACG |
$ | 105 | ||||||
Total short-term debt |
— | $ | 105 | |||||
Long-term debt: |
||||||||
Surplus notes |
$ | 1,600 | $ | 1,150 | ||||
Fair value adjustment for derivative hedging
activities |
84 | (13 | ) | |||||
Non-recourse long-term debt: |
||||||||
Debt recourse only to ACG |
2,499 | 1,636 | ||||||
ACG non-recourse debt |
621 | 761 | ||||||
Other non-recourse debt |
120 | 121 | ||||||
ACG VIE debt (Note 4) |
1,587 | 1,975 | ||||||
Other VIE debt (Note 4) |
5 | 2 | ||||||
Total long-term debt |
$ | 6,516 | $ | 5,632 | ||||
| SHORT-TERM DEBT |
| Pacific Life maintains a $700 million commercial paper program. There was no commercial paper debt outstanding as of December 31, 2010 and 2009. In addition, Pacific Life has a bank revolving credit facility of $400 million maturing in 2012 that serves as a back-up line of credit for the commercial paper program. This facility had no debt outstanding as of December 31, 2010 and 2009. As of and during the year ended December 31, 2010, Pacific Life was in compliance with the debt covenants related to this facility. |
| PL&A maintains reverse repurchase lines of credit with various financial institutions. These borrowings are at variable rates of interest based on collateral and market conditions. There was no debt outstanding in connection with these lines of credit as of December 31, 2010 and 2009. |
| Pacific Life has approval from the FHLB of Topeka to receive advances up to 40% of Pacific Life’s statutory general account assets provided it has available collateral and is in compliance with debt covenant restrictions and insurance laws and regulations. There |
PL-38
| was no debt outstanding with the FHLB of Topeka as of December 31, 2010 and 2009. The Company had zero and $127 million of additional funding capacity from eligible collateral as of December 31, 2010 and 2009, respectively. |
| PL&A is eligible to borrow from the FHLB of San Francisco amounts based on a percentage of statutory capital and surplus and could borrow up to amounts of $120 million. Of this amount, half, or $60 million, can be borrowed for terms other than overnight, out to a maximum term of nine months. These borrowings are at variable rates of interest, collateralized by certain mortgage loan and government securities. As of December 31, 2010 and 2009, PL&A had no debt outstanding with the FHLB of San Francisco. |
| In October 2010, ACG entered into a revolving credit agreement with a bank for a $200 million borrowing facility. Interest is at variable rates and the facility matures in October 2013. There was no debt outstanding in connection with this revolving credit agreement as of December 31, 2010. This credit facility is recourse only to ACG. |
| ACG had a revolving credit agreement with a bank for a $105 million borrowing facility, which was entered into in May 2009. Interest was at variable rates and the facility matured and was repaid in March 2010. The amount outstanding as of December 31, 2009 was $105 million bearing an interest rate of 4.8%. |
| LONG-TERM DEBT |
| In June 2009, Pacific Life issued $1.0 billion of surplus notes at a fixed interest rate of 9.25%, maturing on June 15, 2039. Interest is payable semiannually on June 15 and December 15. Pacific Life may redeem the 9.25% surplus notes at its option, subject to the approval of the Nebraska Director of Insurance for such optional redemption. The 9.25% surplus notes are unsecured and subordinated to all present and future senior indebtedness and policy claims of Pacific Life. All future payments of interest and principal on the 9.25% surplus notes can be made only with the prior approval of the Nebraska Director of Insurance. The Company entered into interest rate swaps converting $650 million and $350 million of the 9.25% surplus notes to variable rate notes based upon the London InterBank Offered Rate (LIBOR) during the years ended December 31, 2009 and 2010, respectively. The interest rate swaps were designated as fair value hedges of these surplus notes and the changes in fair value of the hedged surplus notes associated with changes in interest rates are reflected as an adjustment to their carrying amount. This adjustment to the carrying amount of the 9.25% surplus notes, which increased (decreased) long-term debt by $53 million and ($35) million as of December 31, 2010 and 2009, respectively, is offset by a fair value adjustment which has also been recorded for the interest rate swap derivative instruments. |
| Pacific Life has $150 million of surplus notes outstanding at a fixed interest rate of 7.9%, maturing on December 30, 2023. Interest is payable semiannually on June 30 and December 30. The 7.9% surplus notes may not be redeemed at the option of Pacific Life or any holder of the surplus notes. The 7.9% surplus notes are unsecured and subordinated to all present and future senior indebtedness and policy claims of Pacific Life. All future payments of interest and principal on the 7.9% surplus notes can be made only with the prior approval of the Nebraska Director of Insurance. The Company entered into interest rate swaps converting these surplus notes to variable rate notes based upon the LIBOR. The interest rate swaps were designated as fair value hedges of these surplus notes and the changes in fair value of the hedged surplus notes associated with changes in interest rates are reflected as an adjustment to their carrying amount. This adjustment to the carrying amount of the 7.9% surplus notes, which increased long-term debt by $31 million and $22 million as of December 31, 2010 and 2009, respectively, is offset by a fair value adjustment which has also been recorded for the interest rate swap derivative instruments. |
| In March 2010, the Nebraska Director of Insurance approved the issuance of an internal surplus note by Pacific Life to Pacific LifeCorp for $450 million. Pacific Life is required to pay Pacific LifeCorp interest on the internal surplus note semiannually on February 5 and August 5 at a fixed annual rate of 6.0%. All future payments of interest and principal on the internal surplus note can be made only with the prior approval of the Nebraska Director of Insurance. The internal surplus note matures on February 5, 2020. |
| ACG enters into various secured loans that are guaranteed by the U.S. Export-Import bank or by the European Export Credit Agencies. Interest on these loans is payable quarterly and ranged from 0.4% to 4.5% as of December 31, 2010 and from 0.3% to 4.5% as of December 31, 2009. As of December 31, 2010, $1,524 million was outstanding on these loans with maturities ranging from 2014 to 2022. Principal payments due over the next twelve months are $113 million. As of December 31, 2009, $1,253 million was outstanding on these loans. These loans are recourse only to ACG. |
| ACG enters into various senior unsecured loans with third-parties. Interest on these loans is payable monthly or semi-annually and ranged from 5.7% to 7.2% as of December 31, 2010 and from 1.5% to 6.8% as of December 31, 2009. As of December 31, 2010, $975 million was outstanding on these loans with maturities ranging from 2012 to 2020. As of December 31, 2009, $320 million was outstanding on these loans. These loans are recourse only to ACG. |
PL-39
| ACG enters into various secured bank loans to finance aircraft and aircraft order deposits. As of December 31, 2010, ACG had an $88 million facility to finance aircraft order deposits with no amounts outstanding. This facility matures in 2013 and interest accrues at variable rates and is payable monthly. As of December 31, 2009, ACG had a facility to finance aircraft and aircraft order deposits with $63 million outstanding. Interest on this loan accrued at variable rates, was payable monthly and with an interest rate of 2.0% as of December 31, 2009. These loans are recourse only to ACG. |
| ACG enters into various acquisition facilities and bank loans to acquire aircraft. Interest on these facilities and loans accrues at variable rates, is payable monthly and ranged from 1.6% to 3.3% as of December 31, 2010 and from 1.6% to 3.2% as of December 31, 2009. As of December 31, 2010, $621 million was outstanding on these facilities and loans with maturities ranging from 2011 to 2014. Principal payments due over the next twelve months are $395 million. As of December 31, 2009, $761 million was outstanding on these facilities and loans. These facilities and loans are non-recourse to the Company. |
| Certain subsidiaries of Pacific Asset Holding LLC, a wholly owned subsidiary of Pacific Life, entered into various real estate property related loans with various third-parties. Interest on these loans accrues at fixed and variable rates and is payable monthly. Fixed rates range from 5.8% to 6.2% as of December 31, 2010 and 2009. Variable rates range from 1.4% to 2.0% as of December 31, 2010 and 2009. As of December 31, 2010, there was $120 million outstanding on these loans with maturities ranging from 2011 to 2012. Principal payments due over the next twelve months are $87 million. As of December 31, 2009, there was $121 million outstanding on these loans. One of these loans, totaling $32 million and maturing in 2012, is currently in the process of foreclosure that is expected to be completed in 2011. All of these loans are secured by real estate properties and are non-recourse to the Company. |
| 14. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
| The Codification’s Fair Value Measurements and Disclosures Topic establishes a hierarchy that prioritizes the inputs of valuation methods used to measure fair value for financial assets and financial liabilities that are carried at fair value. The hierarchy consists of the following three levels that are prioritized based on observable and unobservable inputs. |
| Level 1 | Unadjusted quoted prices for identical instruments in active markets. Level 1 financial instruments would include securities that are traded in an active exchange market. |
| Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in inactive markets; and model-derived valuations for which all significant inputs are observable market data. Level 2 instruments include most fixed maturity securities that are valued by models using inputs that are derived principally from or corroborated by observable market data. |
| Level 3 | Valuations derived from valuation techniques in which one or more significant inputs are unobservable. Level 3 instruments include less liquid securities for which significant inputs are not observable in the market, such as certain structured securities and variable annuity GLB embedded derivatives that require significant management assumptions or estimation in the fair value measurement. |
| This hierarchy requires the use of observable market data when available. |
PL-40
The following tables present, by fair value hierarchy level, the Company’s financial
assets and liabilities that are carried at fair value as of December 31, 2010 and 2009.
| Gross | ||||||||||||||||||||||||
| Derivatives | Netting | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | Adjustments (1) | Total | |||||||||||||||||||
| (In Millions) | ||||||||||||||||||||||||
December 31, 2010: |
||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||
U.S. Treasury securities and obligations of
U.S. government authorities and agencies |
$ | 920 | $ | 920 | ||||||||||||||||||||
Obligations of states and political
subdivisions |
886 | $ | 39 | 925 | ||||||||||||||||||||
Foreign governments |
412 | 70 | 482 | |||||||||||||||||||||
Corporate securities |
18,040 | 1,628 | 19,668 | |||||||||||||||||||||
RMBS |
3,573 | 1,068 | 4,641 | |||||||||||||||||||||
CMBS |
757 | 254 | 1,011 | |||||||||||||||||||||
Collateralized debt obligations |
5 | 115 | 120 | |||||||||||||||||||||
Other asset-backed securities |
266 | 280 | 546 | |||||||||||||||||||||
Total fixed maturity securities |
24,859 | 3,454 | 28,313 | |||||||||||||||||||||
Perpetual preferred securities |
263 | 12 | 275 | |||||||||||||||||||||
Other equity securities |
$ | 3 | 1 | 4 | ||||||||||||||||||||
Total equity securities |
3 | 263 | 13 | 279 | ||||||||||||||||||||
Trading securities (2) |
91 | 192 | 66 | 349 | ||||||||||||||||||||
Other investments |
173 | 173 | ||||||||||||||||||||||
Derivatives: |
||||||||||||||||||||||||
Interest rate swaps |
184 | 6 | $ | 190 | ($86 | ) | 104 | |||||||||||||||||
Foreign currency interest rate swaps |
256 | 256 | (266 | ) | (10 | ) | ||||||||||||||||||
Equity derivatives |
322 | 322 | (95 | ) | 227 | |||||||||||||||||||
Embedded derivatives |
25 | 25 | 25 | |||||||||||||||||||||
Other |
6 | 3 | 9 | (32 | ) | (23 | ) | |||||||||||||||||
Total derivatives |
446 | 356 | 802 | (479 | ) | 323 | ||||||||||||||||||
Separate account assets (3) |
55,438 | 123 | 100 | 55,661 | ||||||||||||||||||||
Total |
$ | 55,532 | $ | 25,883 | $ | 4,162 | $ | 802 | ($479 | ) | $ | 85,098 | ||||||||||||
Liabilities: |
||||||||||||||||||||||||
Derivatives: |
||||||||||||||||||||||||
Interest rate swaps |
$ | 197 | $ | 197 | ($86 | ) | $ | 111 | ||||||||||||||||
Foreign currency interest rate swaps |
442 | 442 | (266 | ) | 176 | |||||||||||||||||||
Equity derivatives |
$ | 102 | 102 | (95 | ) | 7 | ||||||||||||||||||
Embedded derivatives |
618 | 618 | 618 | |||||||||||||||||||||
Other |
23 | 23 | (32 | ) | (9 | ) | ||||||||||||||||||
Total |
— | $ | 639 | $ | 743 | $ | 1,382 | ($479 | ) | $ | 903 | |||||||||||||
PL-41
| Gross | ||||||||||||||||||||||||
| Derivatives | Netting | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | Adjustments (1) | Total | |||||||||||||||||||
| (In Millions) | ||||||||||||||||||||||||
December 31, 2009: |
||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||
U.S. Treasury securities and obligations of
U.S. government authorities and agencies |
$ | 109 | $ | 6 | $ | 115 | ||||||||||||||||||
Obligations of states and political
subdivisions |
565 | 34 | 599 | |||||||||||||||||||||
Foreign governments |
323 | 108 | 431 | |||||||||||||||||||||
Corporate securities |
15,566 | 2,287 | 17,853 | |||||||||||||||||||||
RMBS |
1,510 | 3,650 | 5,160 | |||||||||||||||||||||
CMBS |
852 | 327 | 1,179 | |||||||||||||||||||||
Collateralized debt obligations |
8 | 104 | 112 | |||||||||||||||||||||
Other asset-backed securities |
355 | 235 | 590 | |||||||||||||||||||||
Total fixed maturity securities |
19,288 | 6,751 | 26,039 | |||||||||||||||||||||
Perpetual preferred securities |
205 | 70 | 275 | |||||||||||||||||||||
Other equity securities |
$ | 3 | 3 | |||||||||||||||||||||
Total equity securities |
3 | 205 | 70 | 278 | ||||||||||||||||||||
Trading securities (2) |
92 | 85 | 29 | 206 | ||||||||||||||||||||
Other investments |
163 | 163 | ||||||||||||||||||||||
Derivatives: |
||||||||||||||||||||||||
Interest rate swaps |
94 | 3 | $ | 97 | ($130 | ) | (33 | ) | ||||||||||||||||
Foreign currency interest rate swaps |
267 | 267 | (299 | ) | (32 | ) | ||||||||||||||||||
Equity derivatives |
410 | 410 | (133 | ) | 277 | |||||||||||||||||||
Embedded derivatives |
52 | 52 | 52 | |||||||||||||||||||||
Other |
8 | 2 | 10 | (33 | ) | (23 | ) | |||||||||||||||||
Total derivatives |
369 | 467 | 836 | (595 | ) | 241 | ||||||||||||||||||
Separate account assets (3) |
52,305 | 116 | 101 | 52,522 | ||||||||||||||||||||
Total |
$ | 52,400 | $ | 20,063 | $ | 7,581 | $ | 836 | ($595 | ) | $ | 79,449 | ||||||||||||
Liabilities: |
||||||||||||||||||||||||
Derivatives: |
||||||||||||||||||||||||
Interest rate swaps |
$ | 260 | $ | 260 | ($130 | ) | $ | 130 | ||||||||||||||||
Foreign currency interest rate swaps |
384 | 384 | (299 | ) | 85 | |||||||||||||||||||
Equity derivatives |
$ | 94 | 94 | (133 | ) | (39 | ) | |||||||||||||||||
Embedded derivatives |
798 | 798 | 798 | |||||||||||||||||||||
Other |
1 | 22 | 23 | (33 | ) | (10 | ) | |||||||||||||||||
Total |
— | $ | 645 | $ | 914 | $ | 1,559 | ($595 | ) | $ | 964 | |||||||||||||
| (1) | Netting adjustments represent the impact of offsetting asset and liability positions on the consolidated statement of financial condition held with the same counterparty as permitted by guidance for offsetting in the Codification’s Derivatives and Hedging Topic. | |
| (2) | Trading securities are presented in other investments in the consolidated statements of financial condition. |
PL-42
| (3) | Separate account assets are measured at fair value. Investment performance related to separate account assets is offset by corresponding amounts credited to contract holders whose liability is reflected in the separate account liabilities. Separate account liabilities are measured to equal the fair value of separate account assets as prescribed by guidance in the Codification’s Financial Services — Insurance Topic for accounting and reporting of certain non traditional long-duration contracts and separate accounts. Separate account assets as presented in the tables above differ from the amounts presented in the consolidated statements of financial condition because cash and receivables for securities are not subject to the guidance under the Codification’s Fair Value Measurements and Disclosures Topic. |
FAIR VALUE MEASUREMENT
The Codification’s Fair Value Measurements and Disclosures Topic defines fair value as the
price that would be received to sell the asset or paid to transfer the liability at the
measurement date. This “exit price” notion is a market-based measurement that requires a
focus on the value that market participants would assign for an asset or liability.
The following section describes the valuation methodologies used by the Company to measure
various types of financial instruments at fair value.
FIXED MATURITY, EQUITY AND TRADING SECURITIES
The fair values of fixed maturity securities available for sale, equity securities available
for sale and trading securities are determined by management after considering external
pricing sources and internal valuation techniques.
For securities with sufficient trading volume, prices are obtained from third-party pricing
services. For structured or complex securities that are traded infrequently, estimated fair
values are determined after evaluating prices obtained from third-party pricing services and
independent brokers or are valued internally using various valuation techniques. Such
techniques include matrix model pricing and internally developed models, which incorporate
observable market data, where available. Matrix model pricing measures fair value using cash
flows, which are discounted using observable market yield curves provided by a major
independent data service. The matrix model determines the discount yield based upon
significant factors that include the security’s weighted average life and rating.
Where matrix model pricing is not used, particularly for RMBS and other asset-backed
securities, estimated fair values for these securities are determined by evaluating prices
from third-party pricing services and independent brokers or other internally derived
valuation models are utilized. The inputs used to measure fair value in the internal
valuations include, but are not limited to, benchmark yields, issuer spreads, bids, offers,
reported trades, and estimated projected cash flows that incorporate significant inputs such
as defaults and delinquency rates, severity, subordination, vintage and prepayment speeds.
For non-agency RMBS backed by prime, sub-prime and Alt-A collateral, the Company determined in
the first quarter of 2009 that there had been a significant decrease in the volume and level
of transaction activity indicating the need for a valuation technique not solely based on
observable transactions and/or quoted market prices. As permitted by guidance in the
Codification’s Fair Value Measurements and Disclosures Topic beginning March 31, 2009, the
Company determined the estimated fair value for these assets utilizing an internally developed
weighting of valuations derived from internal pricing models and independent pricing services.
This approach utilized multiple valuation techniques incorporating an income approach
(maximizing the use of relevant observable inputs and minimizing the use of unobservable
inputs) and a market approach (based on data provided by independent pricing services)
produced a result more representative of an investment’s fair value as compared to a single
valuation technique. The income approach incorporated cash flows for each investment adjusted
for expected losses assuming various interest rates and housing price-level scenarios. The
adjusted cash flows were discounted using a risk premium that market participants would demand
given the risk in the modeled cash flows. The risk premium utilized was reflective of an
orderly transaction between market participants under current market conditions and included
considerations such as liquidity and structure risk. These internally generated prices were
then reviewed in conjunction with prices obtained from multiple independent pricing services.
The internally generated prices were weighted with the prices obtained from independent
pricing services, with consideration given to the relative range of values that were most
representative of fair value under the market conditions. These securities were classified as
Level 3 financial assets.
During the fourth quarter of 2010, the Company determined that there has been an increase in
the volume and level of trading activity for these non-agency RMBS, as indicated by a
significant decrease in liquidity risk premiums and more consistency in prices quoted in the
market. Therefore, the Company believes that the non-agency RMBS market is no longer an
inactive market as of December 31, 2010. Beginning December 31, 2010, the Company primarily
utilizes prices obtained from third-party pricing services to determine fair value for
non-agency RMBS.
PL-43
Prices obtained from independent third-parties are generally evaluated based on the inputs
indicated above. The Company’s management analyzes and evaluates these prices and determines
whether they are reasonable estimates of fair value. Management’s analysis may include, but
is not limited to, review of third-party pricing methodologies and inputs, analysis of recent
trades, and development of internal models utilizing observable market data of comparable
securities. Based on this analysis, prices received from third-parties may be adjusted if the
Company determines that there is a more appropriate fair value based on available market
information.
Most securities priced by a major independent third-party service have been classified as
Level 2, as management has verified that the inputs used in determining their fair values are
market observable and appropriate. Other externally priced securities for which fair value
measurement inputs are not sufficiently transparent, such as securities valued based on broker
quotations, have been classified as Level 3. Internally valued securities, including adjusted
prices received from independent third-parties, where significant management assumptions have
been utilized in determining fair value, have been classified as Level 3.
OTHER INVESTMENTS
Other investments include non-marketable equity securities that do not have readily
determinable fair values. Certain significant inputs used in determining the fair value of
these equities are based on management assumptions or contractual terms with another party
that cannot be readily observable in the market. These investments are classified as Level 3
assets.
DERIVATIVE INSTRUMENTS
Derivative instruments are reported at fair value using pricing valuation models, which
utilize market data inputs or independent broker quotations. Excluding embedded derivatives,
as of December 31, 2010, 99% of derivatives based upon notional values were priced by
valuation models. The remaining derivatives were priced by broker quotations. The
derivatives are valued using mid-market inputs that are predominantly observable in the
market. Inputs used to value derivatives include, but are not limited to, interest swap
rates, foreign currency forward and spot rates, credit spreads and correlations, interest and
equity volatility and equity index levels. In accordance with the Codification’s Fair Value
Measurements and Disclosures Topic, a credit valuation analysis was performed for all
derivative positions to measure the risk that one of the counterparties to the transaction
will be unable to perform under the contractual terms (nonperformance risk) and was determined
to be immaterial as of December 31, 2010.
The Company performs a monthly analysis on derivative valuations, which includes both
quantitative and qualitative analysis. Examples of procedures performed include, but are not
limited to, review of pricing statistics and trends, analyzing the impacts of changes in the
market environment, and review of changes in market value for each derivative including those
derivatives priced by brokers.
Derivative instruments classified as Level 2 primarily include interest rate, currency and
certain credit default swaps. The derivative valuations are determined using pricing models
with inputs that are observable in the market or can be derived principally from or
corroborated by observable market data.
Derivative instruments classified as Level 3 include complex derivatives, such as equity
options and swaps and certain credit default swaps. Also included in Level 3 classification
for derivatives are embedded derivatives in certain insurance and reinsurance contracts.
These derivatives are valued using pricing models, which utilize both observable and
unobservable inputs and, to a lesser extent, broker quotations. A derivative instrument
containing Level 1 or Level 2 inputs will be classified as a Level 3 financial instrument in
its entirety if it has at least one significant Level 3 input.
The Company utilizes derivative instruments to manage the risk associated with certain assets
and liabilities. However, the derivative instrument may not be classified within the same
fair value hierarchy level as the associated assets and liabilities. Therefore, the realized
and unrealized gains and losses on derivatives reported in Level 3 may not reflect the
offsetting impact of the realized and unrealized gains and losses of the associated assets and
liabilities.
VARIABLE ANNUITY GLB EMBEDDED DERIVATIVES
Fair values for variable annuity GLB and related reinsurance embedded derivatives are
calculated based upon significant unobservable inputs using internally developed models
because active, observable markets do not exist for those items. As a result, variable
annuity GLB and related reinsurance embedded derivatives are categorized as Level 3. Below is
a description of the Company’s fair value methodologies for these embedded derivatives.
PL-44
The Company’s fair value is calculated as an aggregation of fair value and additional risk
margins including Behavior Risk Margin, Mortality Risk Margin and Credit Standing Adjustment.
The resulting aggregation is reconciled or calibrated, if necessary, to market information
that is, or may be, available to the Company, but may not be observable by other market
participants, including reinsurance discussions and transactions. Each of the components
described below are unobservable in the market place and requires subjectivity by the Company
in determining their value.
| • | Behavior Risk Margin: This component adds a margin that market participants would require for the risk that the Company’s assumptions about policyholder behavior used in the fair value model could differ from actual experience. | ||
| • | Mortality Risk Margin: This component adds a margin in mortality assumptions, both for decrements for policyholders with GLBs, and for expected payout lifetimes in guaranteed minimum withdrawal benefits. | ||
| • | Credit Standing Adjustment: This component makes an adjustment that market participants would make to reflect the chance that GLB obligations or the GLB reinsurance recoverables will not be fulfilled (nonperformance risk). |
SEPARATE ACCOUNT ASSETS
Separate account assets are primarily invested in mutual funds, but also have investments in
fixed maturity and short-term securities. Separate account assets are valued in the same
manner, and using the same pricing sources and inputs, as the fixed
maturity and equity securities available for sale of the Company. Mutual funds are included
in Level 1. Most fixed maturity securities are included in Level 2. Level 3 assets include
any investments where fair value is based on management assumptions or obtained from
independent third-parties and fair value measurement inputs are not sufficiently transparent.
PL-45
LEVEL 3 RECONCILIATION
The tables below present reconciliations of the beginning and ending balances of the Level 3
financial assets and liabilities, net, that have been measured at fair value on a recurring
basis using significant unobservable inputs.
| Purchases, | ||||||||||||||||||||||||||||
| Total Gains or Losses | Transfers | Sales, | Unrealized | |||||||||||||||||||||||||
| In and/or | Issuances, | Gains | ||||||||||||||||||||||||||
| January 1, | Included in | Included in | Out of | and | December 31, | (Losses) | ||||||||||||||||||||||
| 2010 | Earnings | OCI | Level 3 (1) | Settlements | 2010 | Still Held (2) | ||||||||||||||||||||||
| (In Millions) | ||||||||||||||||||||||||||||
U.S. Treasury securities and
obligations of U.S. government
authorities and agencies |
$ | 6 | ($6 | ) | ||||||||||||||||||||||||
Obligations of states and
political subdivisions |
34 | $ | 4 | ($7 | ) | ($4 | ) | 12 | $ | 39 | ||||||||||||||||||
Foreign governments |
108 | 7 | (43 | ) | (2 | ) | 70 | |||||||||||||||||||||
Corporate securities |
2,287 | 38 | 25 | (547 | ) | (175 | ) | 1,628 | ($2 | ) | ||||||||||||||||||
RMBS |
3,650 | (44 | ) | 500 | (2,407 | ) | (631 | ) | 1,068 | |||||||||||||||||||
CMBS |
327 | 20 | (59 | ) | (34 | ) | 254 | |||||||||||||||||||||
Collateralized debt obligations |
104 | 5 | 7 | 2 | (3 | ) | 115 | |||||||||||||||||||||
Other asset-backed securities |
235 | 7 | 65 | (27 | ) | 280 | ||||||||||||||||||||||
Total fixed maturity securities |
6,751 | 3 | 559 | (2,993 | ) | (866 | ) | 3,454 | (2 | ) | ||||||||||||||||||
Perpetual preferred securities |
70 | 3 | (42 | ) | (19 | ) | 12 | |||||||||||||||||||||
Other equity securities |
1 | 1 | ||||||||||||||||||||||||||
Total equity securities |
70 | 4 | (42 | ) | (19 | ) | 13 | |||||||||||||||||||||
Trading securities |
29 | 2 | 27 | 8 | 66 | |||||||||||||||||||||||
Other investments |
163 | 6 | 4 | 173 | ||||||||||||||||||||||||
Derivatives, net |
(447 | ) | 11 | 1 | 48 | (387 | ) | 426 | ||||||||||||||||||||
Separate account assets (3) |
101 | 6 | (7 | ) | 100 | 7 | ||||||||||||||||||||||
Total |
$ | 6,667 | $ | 22 | $ | 570 | ($3,008 | ) | ($832 | ) | $ | 3,419 | $ | 431 | ||||||||||||||
PL-46
| Purchases, | ||||||||||||||||||||||||||||
| Total Gains or Losses | Transfers | Sales, | Unrealized | |||||||||||||||||||||||||
| In and/or | Issuances, | Gains | ||||||||||||||||||||||||||
| January 1, | Included in | Included in | Out of | and | December 31, | (Losses) | ||||||||||||||||||||||
| 2009 | Earnings | OCI | Level 3 (1) | Settlements | 2009 | Still Held (2) | ||||||||||||||||||||||
| (In Millions) | ||||||||||||||||||||||||||||
U.S. Treasury securities and
obligations of U.S. government
authorities and agencies |
$ | 6 | $ | 6 | ||||||||||||||||||||||||
Obligations of states and
political subdivisions |
($3 | ) | 7 | $ | 30 | 34 | ||||||||||||||||||||||
Foreign governments |
$ | 22 | $ | 2 | 5 | 71 | 8 | 108 | ||||||||||||||||||||
Corporate securities |
2,243 | (28 | ) | 644 | (974 | ) | 402 | 2,287 | ($5 | ) | ||||||||||||||||||
RMBS |
3,355 | (115 | ) | 437 | 427 | (454 | ) | 3,650 | ||||||||||||||||||||
CMBS |
201 | 1 | 26 | 60 | 39 | 327 | ||||||||||||||||||||||
Collateralized debt obligations |
104 | (67 | ) | 71 | (4 | ) | 104 | |||||||||||||||||||||
Other asset-backed securities |
210 | 2 | 10 | 42 | (29 | ) | 235 | |||||||||||||||||||||
Total fixed maturity securities |
6,135 | (205 | ) | 1,190 | (361 | ) | (8 | ) | 6,751 | (5 | ) | |||||||||||||||||
Perpetual preferred securities |
12 | (17 | ) | 12 | (5 | ) | 68 | 70 | ||||||||||||||||||||
Other equity securities |
1 | 4 | (28 | ) | 23 | |||||||||||||||||||||||
Total equity securities |
12 | (16 | ) | 16 | (33 | ) | 91 | 70 | ||||||||||||||||||||
Trading securities |
97 | (51 | ) | (17 | ) | 29 | 2 | |||||||||||||||||||||
Other investments |
150 | 24 | (11 | ) | 163 | |||||||||||||||||||||||
Derivatives, net |
(2,042 | ) | 1,504 | 1 | 90 | (447 | ) | 1,597 | ||||||||||||||||||||
Separate account assets (3) |
61 | 6 | 20 | 14 | 101 | 12 | ||||||||||||||||||||||
Total |
$ | 4,413 | $ | 1,289 | $ | 1,231 | ($425 | ) | $ | 159 | $ | 6,667 | $ | 1,606 | ||||||||||||||
| (1) | Transfers in and/or out are recognized at the end of each quarterly reporting period. | |
| (2) | Represents the net amount of total gains or losses for the period, recorded in earnings, attributable to the change in unrealized gains (losses) relating to assets and liabilities classified as Level 3 that were still held as of December 31, 2010 and 2009. | |
| (3) | The realized/unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income (loss) for the Company. |
During the year ended December 31, 2010, the Company transferred $923 million of fixed
maturity securities out of Level 2 and into Level 3, and transferred $3,916 million of fixed
maturity securities out of Level 3 and into Level 2. The net transfers into Level 2 were
primarily attributable to the increased availability and use of market observable inputs to
estimate fair value. During the year ended December 31, 2010, the Company did not have any
significant transfers between Level 1 and 2.
During the year ended December 31, 2009, the Company transferred $1,507 million of fixed
maturity securities out of Level 2 and into Level 3, and transferred $1,868 million of fixed
maturity securities out of Level 3 and into Level 2. The net transfers into Level 2 were
primarily attributable to the increased availability and use of market observable inputs to
estimate fair value. During the year ended December 31, 2009, the Company did not have any
significant transfers between Level 1 and Level 2.
PL-47
| NONRECURRING FAIR VALUE MEASUREMENTS | ||
| Certain assets are measured at estimated fair value on a nonrecurring basis and are not included in the tables presented above. The amounts below relate to certain investments measured at estimated fair value during the year and still held at the reporting date. |
| Year Ended December 31, 2010 | ||||||||||||
| Carrying Value | Estimated Fair | Net | ||||||||||
| Prior to | Value After | Investment | ||||||||||
| Measurement | Measurement | Loss | ||||||||||
| (In Millions) | ||||||||||||
Real estate investments |
$ | 69 | $ | 42 | ($27 | ) | ||||||
Aircraft |
24 | 20 | (4 | ) | ||||||||
| REAL ESTATE INVESTMENTS | ||
| During the year ended December 31, 2010, the Company recognized an impairment of $27 million, which is included in OTTIs. The impaired investments presented above were accounted for using the cost basis. Real estate investments are evaluated for impairment based on the undiscounted cash flows expected to be received during the estimated holding period. When the undiscounted cash flows are less than the current carrying value of the property (gross cost less accumulated depreciation), the property may be considered impaired and written-down to its estimated fair value. Estimated fair value is determined using a combination of the present value of the expected future cash flows and comparable sales. These write-downs to estimated fair value represent nonrecurring fair value measurements that have been classified as Level 3 due to the limited activity and lack of price transparency inherent in the market for such investments. | ||
| AIRCRAFT | ||
| During the year ended December 31, 2010, the Company recognized an impairment of $4 million, which is included in operating and other expenses, as a result of declines in the estimated future cash flows to be received from two aircraft. The Company evaluates carrying values of aircraft based upon changes in market and other physical and economic conditions and records write-offs to recognize losses in the value of aircraft when management believes that, based on future estimated cash flows, the recoverability of the Company’s investment in an aircraft has been impaired. The fair value is based on the present value of the future cash flows, which include contractual lease agreements, projected future lease payments as well as a residual value. The cash flows were based on unobservable inputs and have been classified as Level 3. | ||
| The Company did not have any other nonfinancial assets or liabilities measured at fair value on a nonrecurring basis resulting from impairments as of December 31, 2010 and 2009. The Company has not made any changes in the valuation methodologies for nonfinancial assets and liabilities. |
PL-48
| The carrying amount and estimated fair value of the Company’s financial instruments that are not carried at fair value under the Codification’s Financial Instruments Topic are as follows: |
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| Carrying | Estimated | Carrying | Estimated | |||||||||||||
| Amount | Fair Value | Amount | Fair Value | |||||||||||||
| (In Millions) | ||||||||||||||||
Assets: |
||||||||||||||||
Mortgage loans |
$ | 6,693 | $ | 6,906 | $ | 6,577 | $ | 6,660 | ||||||||
Policy loans |
6,690 | 6,690 | 6,509 | 6,509 | ||||||||||||
Other invested assets |
183 | 190 | 196 | 185 | ||||||||||||
Cash and cash equivalents |
2,270 | 2,270 | 1,919 | 1,919 | ||||||||||||
Restricted cash |
214 | 214 | 221 | 221 | ||||||||||||
Liabilities: |
||||||||||||||||
Funding agreements and GICs (1) |
6,635 | 7,127 | 7,572 | 8,093 | ||||||||||||
Annuity and deposit liabilities |
8,335 | 8,335 | 7,109 | 7,109 | ||||||||||||
Short-term debt |
105 | 105 | ||||||||||||||
Long-term debt |
6,516 | 6,775 | 5,632 | 5,806 | ||||||||||||
| (1) | Balance excludes embedded derivatives that are included in the fair value hierarchy level tables above. |
| The following methods and assumptions were used to estimate the fair value of these financial instruments as of December 31, 2010 and 2009: | ||
| MORTGAGE LOANS | ||
| The estimated fair value of the mortgage loan portfolio is determined by discounting the estimated future cash flows, using current rates that are applicable to similar credit quality, property type and average maturity of the composite portfolio. | ||
| POLICY LOANS | ||
| Policy loans are not separable from their associated insurance contract and bear no credit risk since they do not exceed the contract’s cash surrender value, making these assets fully secured by the cash surrender values of the contracts. Therefore, the carrying amount of the policy loans is a reasonable approximation of their fair value. | ||
| OTHER INVESTED ASSETS | ||
| Included in other invested assets are private equity investments in which the estimated fair value of private equity investments is based on the ownership percentage of the underlying equity of the investments. | ||
| CASH AND CASH EQUIVALENTS | ||
| The carrying values approximate fair values due to the short-term maturities of these instruments. | ||
| RESTRICTED CASH | ||
| The carrying values approximate fair values due to the short-term maturities of these instruments. | ||
| FUNDING AGREEMENTS AND GICs | ||
| The fair value of funding agreements and GICs is estimated using the rates currently offered for deposits of similar remaining maturities. |
PL-49
| ANNUITY AND DEPOSIT LIABILITIES | ||
| Annuity and deposit liabilities primarily includes policyholder deposits and accumulated credited interest. The estimated fair value of annuity and deposit liabilities approximates carrying value based on an analysis of discounted future cash flows with maturities similar to the product portfolio liabilities. | ||
| DEBT | ||
| The carrying amount of short-term debt is a reasonable estimate of its fair value because the interest rates are variable and based on current market rates. The estimated fair value of long-term debt is based on market quotes, except for VIE debt and non-recourse debt, for which the carrying amounts are reasonable estimates of their fair values because the interest rate approximates current market rates. | ||
| 15. | OTHER COMPREHENSIVE INCOME (LOSS) | |
| The Company displays comprehensive income (loss) and its components on the consolidated statements of equity. The disclosure of the gross components of other comprehensive income (loss) and related taxes are as follows: |
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Millions) | ||||||||||||
Unrealized gain (loss) on derivatives and securities available
for sale, net: |
||||||||||||
Gross holding gain (loss): |
||||||||||||
Securities available for sale |
$ | 1,272 | $ | 2,594 | ($3,872 | ) | ||||||
Derivatives |
15 | (146 | ) | 256 | ||||||||
Income tax (expense) benefit |
(438 | ) | (861 | ) | 1,269 | |||||||
Reclassification adjustment — realized (gain) loss: |
||||||||||||
Sale of securities available for sale |
(139 | ) | (13 | ) | (65 | ) | ||||||
OTTI recognized on securities available for sale |
75 | 271 | 525 | |||||||||
Derivatives |
24 | 25 | (4 | ) | ||||||||
Income tax expense (benefit) |
(1 | ) | (98 | ) | (159 | ) | ||||||
Allocation of holding (gain) loss to DAC |
(255 | ) | (415 | ) | 356 | |||||||
Allocation of holding (gain) loss to future policy benefits |
41 | 85 | (119 | ) | ||||||||
Income tax expense (benefit) |
75 | 113 | (83 | ) | ||||||||
Cumulative effect of adoption of new accounting principle |
(263 | ) | ||||||||||
Income tax expense |
93 | |||||||||||
Unrealized gain (loss) on derivatives and securities available for sale, net |
669 | 1,385 | (1,896 | ) | ||||||||
Other, net: |
||||||||||||
Holding gain (loss) on other securities and interest in PIMCO |
9 | 22 | (24 | ) | ||||||||
Income tax (expense) benefit |
(4 | ) | (8 | ) | 9 | |||||||
Reclassification of realized gain on sale of interest in PIMCO |
(109 | ) | ||||||||||
Income tax on realized gain |
42 | |||||||||||
Net unrealized gain (loss) on other securities and interest in PIMCO |
5 | 14 | (82 | ) | ||||||||
Other, net of tax |
(3 | ) | 33 | (15 | ) | |||||||
Other, net |
2 | 47 | (97 | ) | ||||||||
Total other comprehensive income (loss), net |
$ | 671 | $ | 1,432 | ($1,993 | ) | ||||||
PL-50
| 16. | REINSURANCE | |
| Certain no lapse guarantee rider (NLGR) benefits of Pacific Life’s UL insurance products are subject to Actuarial Guideline 38 (AG 38) statutory reserving requirements. AG 38 results in additional statutory reserves on UL products with NLGRs issued after June 30, 2005. U.S. GAAP benefit reserves for such riders are based on guidance in the Codification’s Financial Services — Insurance Topic for accounting and reporting of certain non traditional long-duration contracts and separate accounts. Substantially all the U.S. GAAP benefit reserves relating to NLGRs issued from June 30, 2005 through March 31, 2010 were ceded from Pacific Life to Pacific Alliance Reinsurance Ltd. (PAR Bermuda), a Bermuda-based life reinsurance company wholly owned by Pacific LifeCorp and PAR Vermont under reinsurance agreements. Effective October 1, 2010, 100% of the PAR Bermuda reinsurance was novated to PAR Vermont, consolidating all such NLGR reinsurance in PAR Vermont. Funded economic reserves and an irrevocable letter of credit held in the PAR Vermont trust account with Pacific Life as beneficiary provide security for statutory reserve credits taken by Pacific Life. See Note 21 for further discussion of this letter of credit. | ||
| Between January 1, 2006 and March 31, 2009, the Company reinsured a portion of variable annuity business under modified coinsurance agreements. Additionally, between January 1, 2007 and March 31, 2009, the Company reinsured a portion of variable annuity living and death benefit riders under coinsurance agreements. Business ceded during such periods ranged between 12% and 45%. While the Company stopped reinsuring variable annuity business effective April 1, 2009, new business related to the aforementioned periods continues to be reinsured. | ||
| Reinsurance receivables and payables generally include amounts related to claims, reserves and reserve related items. Reinsurance receivables, included in other assets, were $326 million and $404 million as of December 31, 2010 and 2009, respectively. Reinsurance payables, included in other liabilities, were $47 million and $37 million as of December 31, 2010 and 2009, respectively. | ||
| The ceding of risk does not discharge the Company from its primary obligations to contract owners. To the extent that the assuming companies become unable to meet their obligations under reinsurance contracts, the Company remains contingently liable. Each reinsurer is reviewed to evaluate its financial stability before entering into each reinsurance contract and throughout the period that the reinsurance contract is in place. | ||
| The components of insurance premiums presented in the consolidated statements of operations are as follows: |
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Millions) | ||||||||||||
Direct premiums |
$ | 626 | $ | 666 | $ | 410 | ||||||
Reinsurance ceded (1) |
(339 | ) | (323 | ) | (291 | ) | ||||||
Reinsurance assumed (2) |
122 | 60 | 53 | |||||||||
Insurance premiums |
$ | 409 | $ | 403 | $ | 172 | ||||||
| (1) | Included are $21 million, $21 million and $13 million of reinsurance ceded to PAR Bermuda for the years ended December 31, 2010, 2009 and 2008, respectively. | |
| (2) | Included are $11 million and $4 million of assumed premiums from Pacific Life Re Limited (PLR), an affiliate of the Company and a wholly owned subsidiary of Pacific LifeCorp, for the years ended December 31, 2010 and 2009, respectively. |
PL-51
| 17. | EMPLOYEE BENEFIT PLANS | |
| PENSION PLANS | ||
| Prior to December 31, 2007, Pacific Life provided a defined benefit pension plan (ERP) covering all eligible employees of the Company. Certain subsidiaries did not participate in this plan. The full-benefit vesting period for all participants was five years. Pacific Life’s funding policy was to contribute amounts to the plan sufficient to meet the minimum funding requirements set forth in ERISA, plus such additional amounts as was determined appropriate. All such contributions were made to a tax-exempt trust. | ||
| The Company amended the ERP to terminate effective December 31, 2007. In anticipation of the final settlement of the defined benefit pension plan, the plan’s investment strategy was revised and the mutual fund investments were sold, transferred to a separate account group annuity contract managed by the Company and invested primarily in fixed income investments to better match the expected duration of the liabilities. | ||
| In September 2009, the Company received regulatory approval to commence the final termination of the ERP and payment of plan benefits to the participants. The Company completed the final distribution of plan assets to participants in December 2009. The Company recognized settlement costs of $5 million in 2008 and recognized the final settlement costs for the ERP totaling $72 million in 2009. | ||
| Pacific Life maintains supplemental employee retirement plans (SERPs) for certain eligible employees. As of December 31, 2010 and 2009, the projected benefit obligation was $44 million and $37 million, respectively. The fair value of plan assets as of December 31, 2010 and 2009 was zero. The net periodic benefit expense of the SERPs was $5 million, $4 million and $5 million for the years ended December 31, 2010, 2009 and 2008, respectively. | ||
| The following table sets forth the benefit obligations, plan assets and funded status of the defined benefit plans: |
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| ERP | SERP | ERP | SERP | |||||||||||||
| (In Millions) | (In Millions) | |||||||||||||||
Defined benefit plans: |
||||||||||||||||
Benefit obligation, end of year |
$ | 44 | $ | 37 | ||||||||||||
Fair value of plan assets, end of year |
$ | 26 | ||||||||||||||
Over (under) funded status, end of year |
— | ($44 | ) | $ | 26 | ($37 | ) | |||||||||
| The Company incurred a net pension expense of $5 million, $79 million and $8 million for the years ended December 31, 2010, 2009 and 2008, respectively, as detailed in the following table: |
| Year Ended | Year Ended | Year Ended | ||||||||||||||||||||||
| December 31, 2010 | December 31, 2009 | December 31, 2008 | ||||||||||||||||||||||
| ERP | SERP | ERP | SERP | ERP | SERP | |||||||||||||||||||
| (In Millions) | (In Millions) | (In Millions) | ||||||||||||||||||||||
Components of the net periodic pension expense: |
||||||||||||||||||||||||
Service cost — benefits earned during the year |
$ | 2 | $ | 2 | $ | 2 | ||||||||||||||||||
Interest cost on projected benefit obligation |
2 | $ | 12 | 2 | $ | 12 | 2 | |||||||||||||||||
Expected return on plan assets |
(12 | ) | (14 | ) | ||||||||||||||||||||
Settlement costs |
72 | 5 | ||||||||||||||||||||||
Amortization of net obligations and prior service cost |
1 | 3 | 1 | |||||||||||||||||||||
Net periodic pension expense |
— | $ | 5 | $ | 75 | $ | 4 | $ | 3 | $ | 5 | |||||||||||||
PL-52
| Significant plan assumptions: |
| December 31, 2010 | December 31, 2009 | |||||||||||||||
| ERP | SERP | ERP | SERP | |||||||||||||
Weighted-average assumptions used to determine benefit
obligations: |
||||||||||||||||
Discount rate |
N/A | 4.75 | % | 6.35 | % | 6.30 | % | |||||||||
Salary rate |
N/A | 4.50 | % | N/A | 4.50 | % | ||||||||||
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
Weighed-average assumptions used to determine
the ERP’s net periodic benefit expense: |
||||||||||||
Discount rate |
N/A | 6.30 | % | 6.25 | % | |||||||
Expected long-term return on plan assets |
N/A | N/A | 5.25 | % | ||||||||
| The salary rate used to determine the net periodic benefit expense for the SERP was 4.50% for the years ended December 31, 2010, 2009 and 2008. | ||
| Pacific Life expects to contribute $4 million to the SERP in 2011. The expected benefit payments are as follows for the years ending December 31 (In Millions): |
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016-2020 | |||||
$4
|
$4 | $4 | $4 | $3 | $14 |
| RETIREMENT INCENTIVE SAVINGS PLAN | ||
| Pacific Life provides a Retirement Incentive Savings Plan (RISP) covering all eligible employees of Pacific LifeCorp and certain of its subsidiaries. The RISP matches 75% of each employee’s contributions, up to a maximum of 6% of eligible employee compensation in cash. Contributions made by the Company to the RISP, including the matching contribution, amounted to $27 million, $26 million and $29 million for the years ended December 31, 2010, 2009 and 2008, respectively, and are included in operating expenses. | ||
| POSTRETIREMENT BENEFITS | ||
| Pacific Life provides a defined benefit health care plan and a defined benefit life insurance plan (the Plans) that provide postretirement benefits for all eligible retirees and their dependents. Generally, qualified employees may become eligible for these benefits if they have reached normal retirement age, have been covered under Pacific Life’s policy as an active employee for a minimum continuous period prior to the date retired, and have an employment date before January 1, 1990. The Plans contain cost-sharing features such as deductibles and coinsurance, and require retirees to make contributions, which can be adjusted annually. Pacific Life’s commitment to qualified employees who retire after April 1, 1994 is limited to specific dollar amounts. Pacific Life reserves the right to modify or terminate the Plans at any time. As in the past, the general policy is to fund these benefits on a pay-as-you-go basis. | ||
| The net periodic postretirement benefit cost for each of the years ended December 31, 2010, 2009 and 2008 was $1 million. As of December 31, 2010 and 2009, the accumulated benefit obligation was $19 million. The fair value of the plan assets as of December 31, 2010 and 2009 was zero. | ||
| The discount rate used in determining the accumulated postretirement benefit obligation was 4.85% and 5.50% for 2010 and 2009, respectively. |
PL-53
| Benefit payments for the year ended December 31, 2010 amounted to $2 million. The expected benefit payments are as follows for the years ending December 31 (In Millions): |
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016-2020 | |||||
| $2 | $2 | $2 | $2 | $2 | $8 |
| OTHER PLANS | ||
| The Company has deferred compensation plans that permit eligible employees to defer portions of their compensation and earn interest on the deferred amounts. The interest rate is determined quarterly. The compensation that has been deferred has been accrued and the primary expense related to this plan, other than compensation, is interest on the deferred amounts. The Company also has performance-based incentive compensation plans for its employees. | ||
| 18. | INCOME TAXES | |
| The provision (benefit) for income taxes is as follows: |
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Millions) | ||||||||||||
Current |
$ | 7 | ($407 | ) | $ | 196 | ||||||
Deferred |
56 | 451 | (511 | ) | ||||||||
Provision (benefit) for income taxes from continuing operations |
63 | 44 | (315 | ) | ||||||||
Benefit from income taxes from discontinued operations |
(11 | ) | (3 | ) | ||||||||
Total |
$ | 63 | $ | 33 | ($318 | ) | ||||||
| A reconciliation of the provision (benefit) for income taxes from continuing operations based on the Federal corporate statutory tax rate of 35% to the provision (benefit) for income taxes from continuing operations reflected in the consolidated financial statements is as follows: |
| Years Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In Millions) | ||||||||||||
Provision (benefit) for income taxes at the statutory rate |
$ | 205 | $ | 170 | ($199 | ) | ||||||
Separate account dividends received deduction |
(106 | ) | (93 | ) | (107 | ) | ||||||
LIHTC and foreign tax credits |
(18 | ) | (19 | ) | (31 | ) | ||||||
Singapore transfer |
(17 | ) | ||||||||||
Other |
(1 | ) | (14 | ) | 22 | |||||||
Provision (benefit) for income taxes from continuing operations |
$ | 63 | $ | 44 | ($315 | ) | ||||||
| In December 2010, ACG and an unrelated third-party transferred aircraft to Singapore in connection with a joint venture (Singapore Transfer). The Singapore Transfer reduced the provision for income taxes for the year ended December 31, 2010 by $17 million, primarily due to the reversal of deferred taxes related to bases differences in the interest transferred. ACG plans to reinvest any income generated by these aircraft indefinitely outside of the U.S. |
PL-54
| A reconciliation of the changes in the unrecognized tax benefits is as follows (In Millions): |
Balance at January 1, 2008 |
$ | 32 | ||
Additions and deletions |
402 | |||
Balance at December 31, 2008 |
434 | |||
Additions and deletions |
(420 | ) | ||
Balance at December 31, 2009 |
14 | |||
Additions and deletions |
||||
Balance at December 31, 2010 |
$ | 14 | ||
| During the year ended December 31, 2008, the Company’s tax contingency related to the accounting for uncertainty in income taxes increased by $402 million for a tax position for which there was uncertainty about the timing, but not the deductibility, of certain tax deductions. Since the benefits of the tax position were not being claimed on an original return and the Company did not receive cash, interest or penalties were not accrued. Due to the nature of deferred tax accounting, the tax position does not have an impact on the annual effective tax rate. | ||
| During the year ended December 31, 2009, the Company’s contingency related to the accounting for uncertainty in income taxes decreased by $420 million. The Company resolved an uncertain tax accounting position on certain tax deductions resulting in a $402 million decrease. The Company also effectively settled $18 million of the gross uncertain tax position related to separate account Dividends Received Deductions (DRD), which resulted in the realization of $9 million of tax benefits. | ||
| Depending on the outcome of Internal Revenue Service (IRS) audits, approximately $7 million of the unrecognized DRD tax benefits may be realized during the next twelve months. All realized tax benefits and related interest are recorded as a discrete item that will impact the effective tax rate in the accounting period in which the uncertain tax position is ultimately settled. | ||
| During the years ended December 31, 2010, 2009 and 2008, the Company paid an insignificant amount of interest and penalties to state tax authorities. |
PL-55
| The net deferred tax liability, included in other liabilities, is comprised of the following tax effected temporary differences: |
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In Millions) | ||||||||
Deferred tax assets: |
||||||||
Policyholder reserves |
$ | 672 | $ | 724 | ||||
Tax credit carryforwards |
312 | 214 | ||||||
Investment valuation |
247 | 283 | ||||||
Tax net operating loss carryforwards |
220 | 249 | ||||||
Deferred compensation |
54 | 45 | ||||||
Aircraft maintenance reserves |
24 | 38 | ||||||
Dividends to policyholders |
8 | 8 | ||||||
Other |
24 | 25 | ||||||
Total deferred tax assets |
1,561 | 1,586 | ||||||
Deferred tax liabilities: |
||||||||
DAC |
(1,257 | ) | (1,313 | ) | ||||
Depreciation |
(625 | ) | (563 | ) | ||||
Hedging |
(81 | ) | (44 | ) | ||||
Partnership income |
(59 | ) | (28 | ) | ||||
Reinsurance |
(27 | ) | (77 | ) | ||||
Other |
(48 | ) | (41 | ) | ||||
Total deferred tax liabilities |
(2,097 | ) | (2,066 | ) | ||||
Net deferred tax liability from continuing operations |
(536 | ) | (480 | ) | ||||
Unrealized (gain) loss on derivatives and securities available for sale |
(143 | ) | 101 | |||||
Deferred taxes on cumulative changes in accounting principles |
120 | |||||||
Minimum pension liability and other adjustments |
(12 | ) | (10 | ) | ||||
Net deferred tax liability |
($691 | ) | ($269 | ) | ||||
| The tax net operating loss carryforwards relate to Federal tax losses incurred in 1998 through 2010 with a 20-year carryforward for non-life losses and a 15-year carryforward for life losses, and California tax losses incurred in 2004 through 2010 with a ten-year carryforward. | ||
| The tax credit carryforwards relate to LIHTC, foreign tax credits, and alternative minimum tax (AMT) credits generated from 2000 to 2010. The LIHTC begin to expire in 2020. The foreign tax credits begin to expire in 2016. The AMT credits have no expiration date. | ||
| The Codification’s Income Taxes Topic requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that a portion or all of the deferred tax assets will not be realized. Based on management’s assessment, it is more likely than not that the Company’s deferred tax assets will be realized through future taxable income, including the reversal of deferred tax liabilities. | ||
| The Company files income tax returns in U.S. Federal and various state jurisdictions. The Company is under continuous audit by the IRS and is audited periodically by some state taxing authorities. The IRS has completed audits of the Company’s tax returns through the tax years ended December 31, 2005 and has commenced audits for tax years 2006, 2007 and 2008. The State of California concluded audits for tax years 2003 and 2004 without material assessment. The Company does not expect the Federal and state audits to result in any material assessments. |
PL-56
| 19. | SEGMENT INFORMATION | |
| The Company has three operating segments: Life Insurance, Retirement Solutions and Aircraft Leasing. These segments are managed separately and have been identified based on differences in products and services offered. All other activity is included in the Corporate and Other segment. | ||
| Prior to January 1, 2010, the Company’s financial reporting structure included the Investment Management segment. Effective January 1, 2010, structured settlement and group retirement annuities were moved to the Retirement Solutions segment. Other institutional investment products and the Company’s securities portfolio management became part of the Corporate and Other segment. The segment information included herein has been retrospectively adjusted to reflect the current operating segments for comparable purposes. | ||
| The Life Insurance segment provides a broad range of life insurance products through multiple distribution channels operating in the upper income and corporate markets. Principal products include UL, VUL, survivor life, interest sensitive whole life, corporate-owned life insurance and traditional products such as whole life and term life. Distribution channels include regional life offices, marketing organizations, broker-dealer firms, wirehouses and M Financial, an association of independently owned and operated insurance and financial producers. | ||
| The Retirement Solutions segment’s principal products include variable and fixed annuity products, mutual funds, and structured settlement and group retirement annuities, which are offered through multiple distribution channels. Distribution channels include independent planners, financial institutions and national/regional wirehouses. This segment’s name was changed from Annuities & Mutual Funds effective March 1, 2010. | ||
| The Aircraft Leasing segment offers aircraft leasing to the airline industry throughout the world and provides brokerage and asset management services to other third-parties. | ||
| The Corporate and Other segment consists of assets and activities, which support the Company’s operating segments. Included in these support activities is the management of investments, certain entity level hedging activities and other expenses and other assets not directly attributable to the operating segments. The Corporate and Other segment also includes the operations of certain subsidiaries that do not qualify as operating segments and the elimination of intersegment transactions. Discontinued operations (Note 6) are also included in the Corporate and Other segment. | ||
| The Company uses the same accounting policies and procedures to measure segment net income (loss) and assets as it uses to measure its consolidated net income (loss) and assets. Net investment income and net realized investment gain (loss) are allocated based on invested assets purchased and held as is required for transacting the business of that segment. Overhead expenses are allocated based on services provided. Interest expense is allocated based on the short-term borrowing needs of the segment and is included in net investment income. The provision (benefit) for income taxes is allocated based on each segment’s actual tax provision (benefit). | ||
| The operating segments, excluding Aircraft Leasing, are allocated equity based on formulas determined by management and receive a fixed interest rate of return on interdivision debentures supporting the allocated equity. The debenture amount is reflected as investment expense in net investment income in the Corporate and Other segment and as investment income in the operating segments. | ||
| The Company generates substantially all of its revenues and net income from customers located in the U.S. As of December 31, 2010 and 2009, the Company had foreign investments with an estimated fair value of $8.0 billion and $7.2 billion, respectively. Aircraft leased to foreign customers were $5.1 billion and $5.0 billion as of December 31, 2010 and 2009, respectively. Revenues derived from any customer did not exceed 10% of consolidated total revenues for the years ended December 31, 2010, 2009 and 2008. |
PL-57
| The following is segment information as of and for the year ended December 31, 2010: |
| Life | Retirement | Aircraft | Corporate | |||||||||||||||||
| Insurance | Solutions | Leasing | and Other | Total | ||||||||||||||||
| REVENUES | (In Millions) | |||||||||||||||||||
Policy fees and insurance premiums |
$ | 1,092 | $ | 1,265 | $ | 10 | $ | 2,367 | ||||||||||||
Net investment income |
924 | 748 | 450 | 2,122 | ||||||||||||||||
Net realized investment gain (loss) |
55 | (73 | ) | ($2 | ) | (74 | ) | (94 | ) | |||||||||||
OTTIs |
(21 | ) | (10 | ) | (82 | ) | (113 | ) | ||||||||||||
Investment advisory fees |
21 | 224 | 245 | |||||||||||||||||
Aircraft leasing revenue |
591 | 591 | ||||||||||||||||||
Other income |
11 | 141 | 57 | 21 | 230 | |||||||||||||||
Total revenues |
2,082 | 2,295 | 646 | 325 | 5,348 | |||||||||||||||
BENEFITS AND EXPENSES |
||||||||||||||||||||
Policy benefits |
432 | 923 | (4 | ) | 1,351 | |||||||||||||||
Interest credited |
700 | 282 | 335 | 1,317 | ||||||||||||||||
Commission expenses |
355 | 475 | 1 | 831 | ||||||||||||||||
Operating expenses |
297 | 339 | 60 | 65 | 761 | |||||||||||||||
Depreciation of aircraft |
241 | 241 | ||||||||||||||||||
Interest expense |
178 | 84 | 262 | |||||||||||||||||
Total benefits and expenses |
1,784 | 2,019 | 479 | 481 | 4,763 | |||||||||||||||
Income (loss) from continuing operations before
provision (benefit) for income taxes |
298 | 276 | 167 | (156 | ) | 585 | ||||||||||||||
Provision (benefit) for income taxes |
93 | (9 | ) | 41 | (62 | ) | 63 | |||||||||||||
Net income (loss) |
205 | 285 | 126 | (94 | ) | 522 | ||||||||||||||
Less: net income attributable to the
noncontrolling interest from continuing operations |
(9 | ) | (41 | ) | (50 | ) | ||||||||||||||
Net income (loss) attributable to the Company |
$ | 205 | $ | 285 | $ | 117 | ($135 | ) | $ | 472 | ||||||||||
Total assets |
$ | 30,337 | $ | 67,415 | $ | 6,893 | $ | 10,017 | $ | 114,662 | ||||||||||
DAC |
1,598 | 2,836 | 1 | 4,435 | ||||||||||||||||
Separate account assets |
5,982 | 49,701 | 55,683 | |||||||||||||||||
Policyholder and contract liabilities |
21,776 | 13,743 | 6,637 | 42,156 | ||||||||||||||||
Separate account liabilities |
5,982 | 49,701 | 55,683 | |||||||||||||||||
PL-58
| The following is segment information as of and for the year ended December 31, 2009: |
| Life | Retirement | Aircraft | Corporate | |||||||||||||||||
| Insurance | Solutions | Leasing | and Other | Total | ||||||||||||||||
| REVENUES | (In Millions) | |||||||||||||||||||
Policy fees and insurance premiums |
$ | 1,063 | $ | 1,209 | $ | 3 | $ | 2,275 | ||||||||||||
Net investment income |
892 | 610 | $ | 1 | 359 | 1,862 | ||||||||||||||
Net realized investment gain (loss) |
311 | 7 | (165 | ) | 153 | |||||||||||||||
OTTIs |
(63 | ) | (53 | ) | (195 | ) | (311 | ) | ||||||||||||
Investment advisory fees |
18 | 190 | 208 | |||||||||||||||||
Aircraft leasing revenue |
578 | 578 | ||||||||||||||||||
Other income |
10 | 112 | 13 | 2 | 137 | |||||||||||||||
Total revenues |
1,920 | 2,379 | 599 | 4 | 4,902 | |||||||||||||||
BENEFITS AND EXPENSES |
||||||||||||||||||||
Policy benefits |
363 | 863 | 1,226 | |||||||||||||||||
Interest credited |
681 | 193 | 379 | 1,253 | ||||||||||||||||
Commission expenses |
353 | 337 | 1 | 691 | ||||||||||||||||
Operating expenses |
290 | 285 | 59 | 148 | 782 | |||||||||||||||
Depreciation of aircraft |
227 | 227 | ||||||||||||||||||
Interest expense |
182 | 55 | 237 | |||||||||||||||||
Total benefits and expenses |
1,687 | 1,678 | 468 | 583 | 4,416 | |||||||||||||||
Income (loss) from continuing operations before
provision (benefit) for income taxes |
233 | 701 | 131 | (579 | ) | 486 | ||||||||||||||
Provision (benefit) for income taxes |
66 | 147 | 39 | (208 | ) | 44 | ||||||||||||||
Income (loss) from continuing operations |
167 | 554 | 92 | (371 | ) | 442 | ||||||||||||||
Discontinued operations, net of taxes |
(20 | ) | (20 | ) | ||||||||||||||||
Net income (loss) |
167 | 554 | 92 | (391 | ) | 422 | ||||||||||||||
Less: net (income) loss attributable to the
noncontrolling interest from continuing operations |
(9 | ) | 23 | 14 | ||||||||||||||||
Net income (loss) attributable to the Company |
$ | 167 | $ | 554 | $ | 83 | ($368 | ) | $ | 436 | ||||||||||
Total assets |
$ | 28,589 | $ | 63,277 | $ | 6,091 | $ | 10,520 | $ | 108,477 | ||||||||||
DAC |
1,865 | 2,939 | 2 | 4,806 | ||||||||||||||||
Separate account assets |
5,590 | 46,907 | 67 | 52,564 | ||||||||||||||||
Policyholder and contract liabilities |
21,133 | 12,677 | 7,577 | 41,387 | ||||||||||||||||
Separate account liabilities |
5,590 | 46,907 | 67 | 52,564 | ||||||||||||||||
PL-59
| The following is segment information for the year ended December 31, 2008: |
| Life | Retirement | Aircraft | Corporate | |||||||||||||||||
| Insurance | Solutions | Leasing | and Other | Total | ||||||||||||||||
| REVENUES | (In Millions) | |||||||||||||||||||
Policy fees and insurance premiums |
$ | 943 | $ | 1,054 | $ | 1,997 | ||||||||||||||
Net investment income |
855 | 482 | $ | 657 | 1,994 | |||||||||||||||
Net realized investment gain (loss) |
24 | (695 | ) | (78 | ) | (749 | ) | |||||||||||||
OTTIs |
(69 | ) | (83 | ) | ($3 | ) | (425 | ) | (580 | ) | ||||||||||
Realized investment gain on interest in PIMCO |
109 | 109 | ||||||||||||||||||
Investment advisory fees |
22 | 233 | 255 | |||||||||||||||||
Aircraft leasing revenue |
571 | 571 | ||||||||||||||||||
Other income |
11 | 117 | 38 | 1 | 167 | |||||||||||||||
Total revenues |
1,786 | 1,108 | 606 | 264 | 3,764 | |||||||||||||||
BENEFITS AND EXPENSES |
||||||||||||||||||||
Policy benefits |
372 | 834 | 1,206 | |||||||||||||||||
Interest credited |
661 | 133 | 440 | 1,234 | ||||||||||||||||
Commission expenses |
268 | 443 | 4 | 715 | ||||||||||||||||
Operating expenses |
263 | 330 | 40 | 99 | 732 | |||||||||||||||
Depreciation of aircraft |
208 | 208 | ||||||||||||||||||
Interest expense |
221 | 17 | 238 | |||||||||||||||||
Total benefits and expenses |
1,564 | 1,740 | 469 | 560 | 4,333 | |||||||||||||||
Income (loss) from continuing operations before
provision (benefit) for income taxes |
222 | (632 | ) | 137 | (296 | ) | (569 | ) | ||||||||||||
Provision (benefit) for income taxes |
61 | (336 | ) | 48 | (88 | ) | (315 | ) | ||||||||||||
Income (loss) from continuing operations |
161 | (296 | ) | 89 | (208 | ) | (254 | ) | ||||||||||||
Discontinued operations, net of taxes |
(6 | ) | (6 | ) | ||||||||||||||||
Net income (loss) |
161 | (296 | ) | 89 | (214 | ) | (260 | ) | ||||||||||||
Less: net (income) loss attributable to the
noncontrolling interest from continuing operations |
(8 | ) | 11 | 3 | ||||||||||||||||
Net income (loss) attributable to the Company |
$ | 161 | ($296 | ) | $ | 81 | ($203 | ) | ($257 | ) | ||||||||||
| 20. | TRANSACTIONS WITH AFFILIATES | |
| PLFA serves as the investment adviser for the Pacific Select Fund, an investment vehicle provided to the Company’s variable life insurance policyholders and variable annuity contract owners, and the Pacific Life Funds, the investment vehicle for the Company’s mutual fund products. Investment advisory and other fees are based primarily upon the net asset value of the underlying portfolios. These fees, included in investment advisory fees and other income, amounted to $291 million, $244 million and $287 million for the years ended December 31, 2010, 2009 and 2008, respectively. In addition, Pacific Life provides certain support services to the Pacific Select Fund, the Pacific Life Funds and other affiliates based on an allocation of actual costs. These fees amounted to $8 million, $9 million and $7 million for the years ended December 31, 2010, 2009 and 2008, respectively. | ||
| Additionally, the Pacific Select Fund has a service plan whereby the fund pays PSD, as distributor of the fund, a service fee in connection with services rendered or procured to or for shareholders of the fund or their variable contract owners. These services may include, but are not limited to, payment of compensation to broker-dealers, including PSD itself, and other financial institutions |
PL-60
| and organizations, which assist in providing any of the services. For the years ended December 31, 2010, 2009 and 2008, PSD received $100 million, $86 million and $100 million, respectively, in service fees from the Pacific Select Fund, which are recorded in other income. | ||
| ACG has derivative swap contracts with Pacific LifeCorp as the counterparty. The notional amounts total $1.5 billion and $2.0 billion as of December 31, 2010 and 2009, respectively. The estimated fair values of the derivatives were net liabilities of $62 million and $48 million as of December 31, 2010 and 2009, respectively. | ||
| 21. | COMMITMENTS AND CONTINGENCIES | |
| COMMITMENTS | ||
| The Company has outstanding commitments to make investments primarily in fixed maturity securities, mortgage loans, limited partnerships and other investments, as follows (In Millions): |
| Years Ending December 31: | ||||
2011 |
$ | 606 | ||
2012 through 2015 |
647 | |||
2016 and thereafter |
46 | |||
Total |
$ | 1,299 | ||
| The Company leases office facilities under various operating leases, which in most, but not all cases, are noncancelable. Rent expense, which is included in operating and other expenses, in connection with these leases was $9 million, $8 million and $10 million for the years ended December 31, 2010, 2009 and 2008, respectively. In connection with the sale of a block of business in 2005, PL&A is contingently liable until March 31, 2013 for certain future rent and expense obligations, not to exceed $11 million, related to an office lease that has been assigned to the buyer. Aggregate minimum future commitments are as follows (In Millions): |
| Years Ending December 31: | ||||
2011 |
$ | 9 | ||
2012 through 2015 |
22 | |||
2016 and thereafter |
1 | |||
Total |
$ | 32 | ||
| ACG entered into a sale leaseback transaction, the subject of which was two commercial aircraft on long-term lease to a U.S. airline. As a result of this transaction, ACG has committed to two operating leases expiring December 2025 and in turn benefits from operating leases on the two sale leaseback aircraft which expire July 2021 and April 2024. Aggregate minimum future lease commitments and minimum rentals to be received in the future are as follows (In Millions): |
| Minimum Future | Minimum Rentals to | |||||||
| Years Ending December 31: | Commitments | be Received | ||||||
2011 |
$ | 11 | $9 | |||||
2012 through 2015 |
23 | 37 | ||||||
2016 and thereafter |
64 | 63 | ||||||
Total |
$ | 98 | $109 | |||||
PL-61
| As of December 31, 2010, ACG has commitments with major aircraft manufacturers and other third-parties to purchase aircraft at an estimated delivery price of $6,125 million with delivery from 2011 through 2017. These purchase commitments may be funded: |
| • | up to $1,205 million in less than one year, | ||
| • | an additional $2,297 million in one to three years, | ||
| • | an additional $1,699 million in three to five years, and | ||
| • | an additional $417 million thereafter. |
| As of December 31, 2010, deposits related to these agreements totaled $507 million and are included in other assets. | ||
| In connection with an acquisition in 2005, ACG assumed residual value support agreements with remaining expiration dates ranging from 2011 to 2015. The gross remaining residual value exposure under these agreements was $99 million as of December 31, 2010 and 2009. As of December 31, 2010, the Company has estimated that it has no measurable liability under the remaining residual value guarantee agreements. | ||
| In connection with the reinsurance of NLGR benefits ceded from Pacific Life to PAR Vermont (Note 16), PAR Bermuda and PAR Vermont entered into a three year letter of credit agreement with a group of banks in April 2009. This agreement allows for the issuance of letters of credit with an expiration date of March 2012 to PAR Bermuda and PAR Vermont for up to a combined total amount of $650 million. As of December 31, 2010, the letter of credit issued from this facility for PAR Bermuda was cancelled. In addition, as of December 31, 2010, a letter of credit was issued for PAR Vermont totaling $355 million. Pacific LifeCorp guarantees the obligations of PAR Vermont under the letter of credit agreement. | ||
| On March 29, 2010, the Company entered into an agreement with PLR to guarantee the performance of unaffiliated reinsurance obligations of PLR. PLR will pay the Company a fee for its guarantee. For the year ended December 31, 2010, the Company earned $2 million under the agreement for its guarantee. This guarantee is secondary to a similar guarantee provided by Pacific LifeCorp and would only be triggered in the event of nonperformance by both PLR and Pacific LifeCorp. Management believes that any additional obligations, if any, related to the guarantee agreement are not likely to have a material adverse effect on the Company’s condensed consolidated financial statements. PLR is incorporated in the United Kingdom (UK) and provides reinsurance to insurance and annuity providers in the UK, Ireland and to insurers in selected markets in Asia. | ||
| CONTINGENCIES — LITIGATION | ||
| The Company is a respondent in a number of legal proceedings, some of which involve allegations for extra-contractual damages. Although the Company is confident of its position in these matters, success is not a certainty and it is possible that in any case a judge or jury could rule against the Company. In the opinion of management, the outcome of such proceedings is not likely to have a material adverse effect on the Company’s consolidated financial position. The Company believes adequate provision has been made in its consolidated financial statements for all probable and estimable losses for litigation claims against the Company. | ||
| CONTINGENCIES — IRS REVENUE RULING | ||
| On August 16, 2007, the IRS issued Revenue Ruling 2007-54, which provided the IRS’ interpretation of tax law regarding the computation of the DRD. On September 25, 2007, the IRS issued Revenue Ruling 2007-61, which suspended Revenue Ruling 2007-54 and indicated the IRS would address the proper interpretation of tax law in a regulation project that is on the IRS’ priority guidance plan. Although no guidance has been issued, if the IRS ultimately adopts the interpretation contained in Revenue Ruling 2007-54, the Company could lose a substantial amount of DRD tax benefits, which could have a material adverse effect on the Company’s consolidated financial statements. | ||
| CONTINGENCIES — OTHER | ||
| In connection with the sale of certain broker-dealer subsidiaries (Note 6), certain indemnifications triggered by breaches of representations, warranties or covenants were provided by the Company. Also, included in the indemnifications is indemnification for certain third-party claims arising from the normal operation of these broker-dealers prior to the closing and within the nine month period following the sale. Management believes that judgments, if any, against the Company related to such matters are not likely to have a material adverse effect on the Company’s consolidated financial statements. | ||
| In the course of its business, the Company provides certain indemnifications related to other dispositions, acquisitions, investments, lease agreements or other transactions that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. These obligations are typically subject to time limitations that vary in duration, |
PL-62
| including contractual limitations and those that arise by operation of law, such as applicable statutes of limitation. Because the amounts of these types of indemnifications often are not explicitly stated, the overall maximum amount of the obligation under such indemnifications cannot be reasonably estimated. The Company has not historically made material payments for these types of indemnifications. The estimated maximum potential amount of future payments under these obligations is not determinable due to the lack of a stated maximum liability for certain matters, and therefore, no related liability has been recorded. Management believes that judgments, if any, against the Company related to such matters are not likely to have a material adverse effect on the Company’s consolidated financial statements. | ||
| Most of the jurisdictions in which the Company is admitted to transact business require life insurance companies to participate in guaranty associations, which are organized to pay contractual benefits owed pursuant to insurance policies issued by insolvent life insurance companies. These associations levy assessments, up to prescribed limits, on all member companies in a particular state based on the proportionate share of premiums written by member companies in the lines of business in which the insolvent insurer operated. The Company has not received notification of any insolvency that is expected to result in a material guaranty fund assessment. | ||
| The Asset Purchase Agreements of Aviation Trust, ACG Trust II and ACG Trust III (Note 4) provide that Pacific LifeCorp will guarantee the performance of certain obligations of ACG, as well as provide certain indemnifications, and that Pacific Life will assume certain obligations of ACG arising from the breach of certain representations and warranties under the Asset Purchase Agreements. Management believes that obligations, if any, related to these guarantees are not likely to have a material adverse effect on the Company’s consolidated financial statements. The financial debt obligations of Aviation Trust, ACG Trust II and ACG Trust III are non-recourse to the Company and are not guaranteed by the Company. | ||
| In connection with the operations of certain subsidiaries, Pacific Life has made commitments to provide for additional capital funding as may be required. | ||
| See Note 10 for discussion of contingencies related to derivative instruments. | ||
| See Note 18 for discussion of other contingencies related to income taxes. |
PL-63
PART II
Part C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits
| (a) | Financial Statements |
| Part A: None |
| Part B: |
| (1) | Registrant’s Financial Statements | ||
| Audited Financial Statements dated as of December 31, 2010 and for each of the periods presented which are incorporated by reference from the 2010 Annual Report include the following for Separate Account A: | |||
| Statements of Assets and Liabilities Statements of Operations Statements of Changes in Net Assets Notes to Financial Statements Report of Independent Registered Public Accounting Firm |
| (2) | Depositor’s Financial Statements | ||
| Audited Consolidated Financial Statements dated as of December 31, 2010 and 2009, and for each of the three years in the period ended December 31, 2010, included in Part B include the following for Pacific Life: | |||
| Independent Auditors’ Report Consolidated Statements of Financial Condition Consolidated Statements of Operations Consolidated Statements of Stockholder’s Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements |
| (b) | Exhibits |
| 1. | (a) | Resolution of the Board of Directors of the Depositor authorizing establishment of Separate Account A and Memorandum establishing Separate Account A.1 | ||
| (b) | Memorandum Establishing Two New Variable Accounts — Aggressive Equity and Emerging Markets Portfolios.1 | |||
| (c) | Resolution of the Board of Directors of Pacific Life Insurance Company authorizing conformity to the terms of the current Bylaws.2 |
II-1
| 2. | Not applicable | |||||||
3. |
(a) |
Distribution Agreement between Pacific Life Insurance Company (formerly Pacific Mutual Life
Insurance Company) and Pacific Select Distributors, Inc. (“PSD”)(formerly Pacific Equities Network)1 |
||||||
| (b) | Form of Selling Agreement between Pacific Life, PSD and Various Broker Dealers7 | |||||||
4. |
(a) |
Individual Flexible Premium Deferred Variable Annuity Contract
(Form
No. ICC 10:10-1180)13 |
||||||
| (b) | (1) 403(b) Tax-Sheltered Annuity Rider (Form No. 20-15200)8 | |||||||
| (2) 403(b) Tax-Sheltered Annuity Rider (Form No. 20-1156)10 | ||||||||
| (c) | Section 457 Plan Rider (Form No. 24-123799)8 | |||||||
| (d) | Individual Retirement Annuity Rider (Form No. 20-18900)4 | |||||||
| (e) | Roth Individual Retirement Annuity Rider (Form No. 20-19000)4 | |||||||
| (f) | SIMPLE Individual Retirement Annuity Rider (Form No. 20-19100)4 | |||||||
| (g) | Qualified Retirement Plan Rider (Form No. 20-14200)8 | |||||||
| (h) | DCA Plus Fixed Option Rider (Form No. 20-1103)5 | |||||||
| (i) | Guaranteed Withdrawal Benefit III-B Rider (Form No. ICC 10:20-1186)13 | |||||||
| (j) | Stepped-Up Death Benefit Rider (Form No. 20-1172)11 | |||||||
| (k) | Core Withdrawal Benefit II-A Rider (Form No. ICC 10:20-1182)13 | |||||||
| (l) | Guaranteed Withdrawal Benefit VI Rider — Single Life (Form No. ICC 11:20-1202) | |||||||
| (m) | Guaranteed Withdrawal Benefit VI Rider — Joint Life (Form No. ICC 11:20-1203) | |||||||
5. |
(a) |
Variable
Annuity
Application14 |
||||||
(b) |
Portfolio Optimization Enrollment/Rider Request Form (Form No.
2150-6B)7 |
|||||||
6. |
(a) |
Pacific
Life’s Articles of Incorporation2 |
||||||
(b) |
By-laws of Pacific Life2 |
|||||||
(c) |
Pacific
Life’s Restated Articles of Incorporation7 |
|||||||
(d) |
By-laws
of Pacific Life As Amended September 1, 20057 |
|||||||
| 7. | Not applicable | |||||||
| 8. | (a) |
Pacific
Select Fund Participation Agreement3 |
||||||
(b) |
Fund
Participation Agreement Between Pacific Life Insurance Company, Pacific Select |
|||||||
Distributions, Inc., American Funds Insurance Series,
American Funds Distributors, |
||||||||
and Capital Research and Management
Company6 |
||||||||
(c) |
Exhibit B to the Pacific
Select Fund Participation Agreement (to add International Small-Cap
and Diversified Bond)7 |
|||||||
(d) |
Form
of AllianceBernstein Variable Products Series Fund, Inc.
Participation Agreement9 |
|||||||
(e) |
Form
of BlackRock Variable Series Fund, Inc. Participation Agreement9 |
|||||||
(1)
Amendment to Participation Agreement12 |
||||||||
(f) |
Form
of Franklin Templeton Variable Insurance Products Trust Participation
Agreement9 |
|||||||
(1)
First Amendment to Participation Agreement12 |
||||||||
(2) Second
Amendment to Participation Agreement |
||||||||
(g) |
Form
of AllianceBernstein Investments, Inc. Administrative Services
Agreement9 |
|||||||
(h) |
Form
of BlackRock Distributors, Inc. Administrative Services
Agreement9 |
|||||||
(1)
Amendment to Administrative Services Agreement12 |
||||||||
(i) |
Form
of Franklin Templeton Services, LLC Administrative Services
Agreement9 |
|||||||
(1)
First Amendment to Administrative Services Agreement12 |
||||||||
(j) |
Form
of AIM Variable Insurance Funds Participation Agreement10 |
|||||||
(k) |
Form
of Invesco Aim Distributors, Inc. Distribution Services Agreement10 |
|||||||
(l) |
Form
of Invesco Aim Advisors, Inc. Administrative Services Agreement10 |
|||||||
(m) |
Form
of GE Investments Funds, Inc. Participation Agreement10 |
|||||||
(1)
Amendment to Participation Agreement12 |
||||||||
(n) |
Form
of GE Investment Distributors, Inc. Distribution and Services
Agreement (Amended and
Restated)12 |
|||||||
(o) |
Form
of Van Kampen Life Investment Trust Participation Agreement10 |
|||||||
(p) |
Form
of Van Kampen Funds, Inc. Shareholder Service Agreement10 |
|||||||
(q) |
Form
of Van Kampen Asset Management Administrative Services Letter
Agreement10 |
|||||||
| (r) | Form of GE Investments Funds, Inc. Investor Services Agreement12 | |||||||
(1)
First Amendment to Investor Services Agreement12 |
||||||||
| (s) | Form of PIMCO Variable Insurance Trust Participation Agreement12 | |||||||
(1)
First Amendment to Participation Agreement |
||||||||
(2)
Second Amendment to Participation Agreement |
||||||||
| (t) | Form of Allianz Global Investors Distributors LLC Selling Agreement12 | |||||||
| (u) | Form of PIMCO LLC Services Agreement12 | |||||||
| (v) | Form of MFS Variable Insurance Trust Participation Agreement12 | |||||||
(1)
First Amendment to Participation Agreement12 |
||||||||
(2)
Second Amendment to Participation Agreement |
||||||||
| (w) | Form of MFS Variable Insurance Trust Administrative Services Agreement12 | |||||||
| (x) | Form of Lord Abbett Series Fund, Inc. Fund Participation Agreement13 | |||||||
| (y) | Form of Lord Abbett Series Fund, Inc. Service Agreement13 | |||||||
| (z) | Form of Lord Abbett Series Fund, Inc. Administrative Services Agreement13 | |||||||
| 9. | Opinion and Consent of legal officer of Pacific Life Insurance Company as to the legality of Contracts being registered13 | |||||||
II-2
10. |
Consent of Independent Registered
Public Accounting Firm and Consent of Independent
Auditors |
|
11. |
Not applicable |
|
12. |
Not applicable |
|
13. |
Powers
of Attorney |
|
| 1 | Included in Registrant’s Form N-4, File No. 33-88460, Accession No. 0000898430-96-001377 filed on April 19, 1996, and incorporated by reference herein. | |
| 2 | Included in Registrant’s Form N-4, File No. 33-88460, Accession No. 0001017062-98-000945 filed on April 29, 1998, and incorporated by reference herein. | |
| 3 | Included in Registrant’s Form N-4/A, File No. 33-88460, Accession No. 0001017062-01-500083 filed on April 25, 2001, and incorporated by reference herein. | |
| 4 | Included in Registrant’s Form N-4/B, File No. 033-88460, Accession No. 0001017062-02-002150 filed on December 19, 2002, and incorporated by reference herein. | |
| 5 | Included in Registrant’s Form N-4/A, File No. 033-88460, Accession No. 0001193125-03-099259 filed on December 24, 2003, and incorporated by reference herein. | |
| 6 | Included in Registrant’s Form N-4/B, File No. 333-93059, as Exhibit 8(e), Accession No. 0000892569-05-000253 filed on April 19, 2005, and incorporated by reference herein. | |
| 7 | Included in Registrant’s Form N-4/B, File No. 033-88460, Accession No. 0000892569-06-000528 filed on April 18, 2006, and incorporated by reference herein. | |
| 8 | Included in Registrant’s Form N-4, File No. 333-136597, Accession No. 0000892569-06-000999 filed on August 14, 2006, and incorporated by reference herein. | |
| 9 | Included in Registrant’s Form N-4/A, File No. 333-136597, Accession No. 0000892569-08-000961 filed on July 2, 2008, and incorporated by reference herein. | |
| 10 | Included in Registrant’s Form N-4/B, File No. 333-136597, Accession No. 0000892569-08-001559 filed on December 4, 2008, and incorporated by reference herein. | |
| 11 | Included in Registrant’s Form N-4, File No. 333-160772, Accession No. 0000950123-09-025183 filed on July 24, 2009, and incorporated by reference herein. | |
| 12 | Included in Registrant’s Form N-4/B, File No. 333-160772, Accession No. 0000950123-10-036181 filed on April 20, 2010, and incorporated by reference herein. | |
| 13 | Included in Registrant’s Form N-4, File No. 333-168284, Accession No. 0000950123-10-067409 filed on July 23, 2010, and incorporated by reference herein. | |
| 14 | Included in Registrant’s Form N-4, File No. 333-168284, Accession No. 0000950123-10-088500 filed on September 23, 2010, and incorporated by reference herein. | |
Item 25. Directors and Officers of Pacific Life
| Positions and Offices | ||
| Name and Address | with Pacific Life | |
| James T. Morris | Director, Chairman, President and Chief Executive Officer | |
| Khanh T. Tran | Director, Executive Vice President, Chief Financial Officer and Chief Investment Officer | |
| Sharon A. Cheever | Director, Senior Vice President and General Counsel | |
| Jane M. Guon | Director, Vice President and Secretary | |
| Edward R. Byrd |
Senior Vice President and Chief Accounting Officer |
|
| Brian D. Klemens | Vice President and Controller | |
| Dewey P. Bushaw | Executive Vice President | |
| Denis P. Kalscheur | Senior Vice President and Treasurer |
The address for each of the persons listed above is as follows:
700 Newport Center Drive
Newport Beach, California 92660
II-3
Item 26. Persons Controlled by or Under Common Control with Pacific Life or Separate Account A.
The following is an explanation of the organization chart of Pacific Life’s subsidiaries:
Pacific Life is a Nebraska Stock Life Insurance Company wholly-owned by Pacific LifeCorp (a
Delaware Stock Holding Company), which is, in turn, 100% owned by Pacific Mutual Holding Company (a
Nebraska Mutual Insurance Holding Company).
PACIFIC LIFE, SUBSIDIARIES & AFFILIATED ENTERPRISES
LEGAL STRUCTURE
LEGAL STRUCTURE
| Jurisdiction of | Percentage of | |||
| Incorporation or | Ownership by its | |||
| Organization | Immediate Parent | |||
Pacific Mutual Holding Company |
Nebraska | |||
Pacific LifeCorp |
Delaware | 100 | ||
Pacific Life Insurance Company |
Nebraska | 100 | ||
Pacific Life & Annuity Company |
Arizona | 100 | ||
Pacific Select Distributors, Inc. |
California | 100 | ||
Pacific Select, LLC |
Delaware | 100 | ||
Pacific Asset Holding LLC |
Delaware | 100 | ||
Pacific TriGuard Partners LLC# |
Delaware | 100 | ||
Grayhawk Golf Holdings, LLC |
Delaware | 95 | ||
Grayhawk Golf L.L.C. |
Arizona | 100 | ||
Las Vegas Golf I, LLC |
Delaware | 100 | ||
Angel Park Golf, LLC |
Nevada | 100 | ||
CW Atlanta, LLC |
Delaware | 100 | ||
City Walk Towers, LLC |
Delaware | 100 | ||
Kierland One, LLC |
Delaware | 100 | ||
Kinzie Member, LLC |
Delaware | 100 | ||
Parcel B Owner LLC |
Delaware | 88 | ||
Kinzie Parcel A Member, LLC |
Delaware | 100 | ||
Parcel A Owner LLC |
Delaware | 90 | ||
PL/KBS Fund Member, LLC |
Delaware | 100 | ||
KBS/PL Properties, L.P.# |
Delaware | 99.9 | ||
Wildflower Member, LLC |
Delaware | 100 | ||
Epoch-Wildflower, LLC |
Florida | 99 | ||
Sedona Golf Club, LLC |
Delaware | 100 | ||
Confederation Life Insurance and Annuity Company |
Georgia | 100 | ||
Pacific Life Fund Advisors LLC |
Delaware | 100 | ||
Pacific Alliance Reinsurance Company of Vermont |
Vermont | 100 | ||
Pacific Mezzanine Associates L.L.C. |
Delaware | 67 | ||
Pacific Mezzanine Investors L.L.C.# |
Delaware | 100 | ||
Pension Advisory Advisory Group LLC |
Delaware | 100 | ||
Aviation Capital Group Corp. |
Delaware | 100 | ||
ACG Acquisition Corporation V |
Delaware | 100 | ||
ACG Acquisition 41 LLC |
Delaware | 100 | ||
ACG Acquisition 4063 LLC |
Delaware | 100 | ||
ACG Acquisition 4084 LLC |
Delaware | 100 | ||
ACG International Ltd. |
Bermuda | 100 | ||
ACG Acquisition Ireland III Limited |
Ireland | 100 | ||
ACG Acquisition Ireland V Ltd. |
Ireland | 100 | ||
ACG Capital Partners II LLC |
Delaware | 50 | ||
ACG Investment Capital Partners LLC |
Delaware | 100 | ||
ACG Acquisition 4658 LLC |
Delaware | 100 | ||
ACG Acquisition 2688 LLC |
Delaware | 100 | ||
Aviation Capital Group Singapore Pte. Ltd. |
Singapore | 100 | ||
ACG Capital Partners Singapore Pte. Ltd. |
Singapore | 50 | ||
ACG Acquisition VI LLC |
Nevada | 50 | ||
ACG Acquisition XIX LLC |
Delaware | 20 | ||
ACG XIX Holding LLC |
Delaware | 100 | ||
Aviation Capital Group Trust |
Delaware | 100 | ||
ACG Acquisition XV LLC |
Delaware | 100 | ||
ACG Acquisition XX LLC |
Delaware | 100 | ||
ACG Acquisition (Bermuda) Ltd. |
Bermuda | 100 | ||
ACG Acquisition Ireland Limited |
Ireland | 100 | ||
ACG Acquisition Labuan Ltd. |
Labuan | 100 | ||
ACG Acquisitions Sweden AB |
Sweden | 100 | ||
ACG Acquisition XXI LLC |
Delaware | 100 | ||
ACG Trust 2004 -1 Holding LLC |
Delaware | 100 | ||
ACG Funding Trust 2004-1 |
Delaware | 100 | ||
ACG 2004-1 Bermuda Limited |
Bermuda | 100 | ||
ACG Acquisition Ireland 2004-1 Limited |
Ireland | 100 | ||
ACG Trust II Holding LLC |
Delaware | 100 | ||
Aviation Capital Group Trust II |
Delaware | 100 | ||
ACG Acquisition XXV LLC |
Delaware | 100 | ||
ACG Acquisition 37 LLC |
Delaware | 100 | ||
ACG Acquisition 38 LLC |
Delaware | 100 | ||
ACG Acquisition Ireland II Limited |
Ireland | 100 | ||
ACG Acquisition (Bermuda) II Ltd. |
Bermuda | 100 | ||
ACG Acquisition XXIX LLC |
Delaware | 100 | ||
ACG Acquisition XXX LLC |
Delaware | 100 | ||
ACG Acquisition 31 LLC |
Delaware | 100 | ||
ACG Acquisition 32 LLC |
Delaware | 100 | ||
ACG Acquisition 33 LLC |
Delaware | 100 | ||
ACG Acquisition 36 LLC |
Delaware | 100 | ||
ACG Acquisition 39 LLC |
Delaware | 100 | ||
ACGFS LLC |
Delaware | 100 | ||
ACG Acquisition 35 LLC |
Delaware | 100 | ||
Boullioun Aviation Services Inc. |
Washington | 100 | ||
Boullioun Aircraft Holding Company, Inc. |
Washington | 100 | ||
Boullioun Portfolio Finance III LLC |
Nevada | 100 | ||
ACG Funding 2005-1 Holding LLC |
Delaware | 100 | ||
ACG Funding Trust 2005-1 |
Delaware | 100 | ||
ACG III Holding LLC |
Delaware | 100 | ||
ACG Trust III |
Delaware | 100 | ||
RAIN I LLC |
Delaware | 100 | ||
RAIN II LLC |
Delaware | 100 | ||
RAIN III LLC |
Delaware | 100 | ||
RAIN IV LLC |
Delaware | 100 | ||
RAIN V LLC |
Delaware | 100 | ||
RAIN VI LLC |
Delaware | 100 | ||
RAIN VII LLC |
Delaware | 100 | ||
RAIN VIII LLC |
Delaware | 100 | ||
ACG Acquisition 169 LLC |
Delaware | 100 | ||
ACG Acquisition 30271 LLC |
Delaware | 100 | ||
ACG Acquisition 30744 LLC |
Delaware | 100 | ||
ACG Acquisition 30745 LLC |
Delaware | 100 | ||
ACG Acquisition 30289 LLC |
Delaware | 100 | ||
ACG Acquisition 30293 LLC |
Delaware | 100 | ||
ACG Acquisition 1176 LLC |
Delaware | 100 | ||
0168 Statutory Trust |
Connecticut | 100 | ||
0179 Statutory Trust |
Connecticut | 100 | ||
Bellevue Aircraft Leasing Limited |
Ireland | 100 | ||
Rainier Aircraft Leasing (Ireland) Limited |
Ireland | 100 | ||
ACG Acquisition (Cyprus) Ltd. |
Cyprus | 100 | ||
ACG Acquisition (Bermuda) III Ltd. |
Bermuda | 100 | ||
ACG 2006-ECA LLC |
Delaware | 100 | ||
ACG Acquisition 2692 LLC |
Delaware | 100 | ||
ACG ECA-2006 Ireland Limited |
Ireland | 100 | ||
ACG Acquisition 2987 LLC |
Delaware | 100 | ||
ACG Acquisition Aruba NV |
Aruba | 100 | ||
ACG Trust 2006-1 Holding LLC |
Delaware | 100 | ||
ACG Funding Trust 2006-1 |
Delaware | 100 | ||
ACG Capital Partners LLC |
Delaware | 50 | ||
Bellevue Coastal Leasing LLC |
Washington | 100 | ||
ACG Capital Partners Ireland Limited |
Ireland | 100 | ||
ACG Acquisition 30288 LLC |
Delaware | 100 | ||
ACGCP Acquisition 979 LLC |
Delaware | 100 | ||
ACG Trust 2009-1 Holding LLC |
Delaware | 100 | ||
ACG Funding Trust 2009-1 |
Delaware | 100 | ||
ACG Acquisition 29677 LLC |
Delaware | 100 | ||
College Savings Bank |
New Jersey | 100 | ||
Pacific Asset Funding, LLC |
Delaware | 100 | ||
Pacific Life Trade Services, Limited |
Hong Kong | 100 | ||
Pacific Life & Annuity Services, Inc. |
Colorado | 100 | ||
Bella Sera Holdings, LLC |
Delaware | 100 | ||
Pacific Life Re Holdings LLC |
Delaware | 100 | ||
Pacific Life Re Holdings Limited |
U.K. | 100 | ||
Pacific Life Re Services Limited |
U.K. | 100 | ||
Pacific Life Re Limited |
U.K. | 100 | ||
Pacific Alliance Reinsurance Ltd. |
Bermuda | 100 |
| # = Abbreviated structure | ||
Item 27. Number of Contractholders
| Pacific Destinations B - Approximately | |
6 | Qualified | |||||
| |
20 | Non Qualified | ||||||
Item 28. Indemnification
| (a) | The Distribution Agreement between Pacific Life and Pacific Select Distributors, Inc. (PSD) provides substantially as follows: |
| Pacific Life hereby agrees to indemnify and hold harmless PSD and its officers and directors, and employees for any expenses (including legal expenses), losses, claims, damages, or liabilities incurred by reason of any untrue or alleged untrue statement or representation of a material fact or any omission or alleged omission to state a material fact required to be stated to make other statements not misleading, if made in reliance on any prospectus, registration statement, post effective amendment thereof, or sales materials supplied or approved by Pacific Life or the Separate Account. Pacific Life shall reimburse each such person for any legal or other expenses reasonably incurred in connection with investigating or defending any such loss, liability, damage, or claim. However, in no case shall Pacific Life be required to indemnify for any expenses, losses, claims, damages, or liabilities which have resulted from the willful misfeasance, bad faith, negligence, misconduct, or wrongful act of PSD. |
| PSD hereby agrees to indemnify and hold harmless Pacific Life, its officers, directors, and employees, and the Separate Account for any expenses, losses, claims, damages, or liabilities arising out of or based upon any of the following in connection with the offer or sale of the contracts: (1) except for such statements made in reliance on any prospectus, registration statement or sales material supplied or approved by Pacific Life or the Separate Account, any untrue or alleged untrue statement or representation is made; (2) any failure to deliver a currently effective prospectus; (3) the use of any unauthorized sales literature by any officer, employee or agent of PSD or Broker; (4) any willful misfeasance, bad faith, negligence, misconduct or wrongful act. PSD shall reimburse each such person for any legal or other expenses reasonably incurred in connection with investigating or defending any such loss, liability, damage, or claim. |
| (b) | The Form of Selling Agreement between Pacific Life, Pacific Select Distributors, Inc. (PSD) and Various Broker-Dealers and Agency (Selling Entities) provides substantially as follows: |
| Pacific Life and PSD agree to indemnify and hold harmless Selling Entities, their officers, directors, agents and employees, against any and all losses, claims, damages, or liabilities to which they may become subject under the Securities Act, the Exchange Act, the Investment Company Act of 1940, or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission to state a material fact required to be stated or necessary to make the statements made not misleading in the registration statement for the Contracts or for the shares of Pacific Select Fund (the “Fund”) filed pursuant to the Securities Act, or any prospectus included as a part thereof, as from time to time amended and supplemented, or in any advertisement or sales literature provided by Pacific Life and PSD. |
II-5
Selling Entities agree to, jointly and severally, hold harmless and indemnify Pacific Life and PSD and any of their respective affiliates, employees, officers, agents and directors (collectively, “Indemnified Persons”) against any and all claims, liabilities and expenses (including, without limitation, losses occasioned by any rescission of any Contract pursuant to a “free look” provision or by any return of initial purchase payment in connection with an incomplete application), including, without limitation, reasonable attorneys’ fees and expenses and any loss attributable to the investment experience under a Contract, that any Indemnified Person may incur from liabilities resulting or arising out of or based upon (a) any untrue or alleged untrue statement other than statements contained in the registration statement or prospectus relating to any Contract, (b) (i) any inaccurate or misleading, or allegedly inaccurate or misleading sales material used in connection with any marketing or solicitation relating to any Contract, other than sales material provided preprinted by Pacific Life or PSD, and (ii) any use of any sales material that either has not been specifically approved in writing by Pacific Life or PSD or that, although previously approved in writing by Pacific Life or PSD, has been disapproved, in writing by either of them, for further use, or (c) any act or omission of a Subagent, director, officer or employee of Selling Entities, including, without limitation, any failure of Selling Entities or any Subagent to be registered as required as a broker/dealer under the 1934 Act, or licensed in accordance with the rules of any applicable SRO or insurance regulator.
II-6
Item 29. Principal Underwriters
| (a) | PSD also acts as principal underwriter for Pacific Select Variable Annuity Separate Account, Separate Account B, Pacific Corinthian Variable Separate Account, Pacific Select Separate Account, Pacific Select Exec Separate Account, COLI Separate Account, COLI II Separate Account, COLI III Separate Account, COLI IV Separate Account, COLI V Separate Account, Separate Account A of Pacific Life & Annuity Company, Pacific Select Exec Separate Account of Pacific Life & Annuity Company, Separate Account I of Pacific Life Insurance Company, Separate Account I of Pacific Life & Annuity Company. | ||
| (b) | For information regarding PSD, reference is made to Form B-D, SEC File No. 8-15264, which is herein incorporated by reference. |
| (c) | PSD retains no compensation or net discounts or commissions from the Registrant. |
Item 30. Location of Accounts and Records
The accounts, books and other documents required to be maintained by Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and the rules under that section will be maintained by Pacific Life at 700 Newport Center Drive, Newport Beach, California 92660.
Item 31. Management Services
Not applicable
Item 32. Undertakings
The registrant hereby undertakes:
| (a) | to file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in this registration statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted, unless otherwise permitted. |
| (b) | to include either (1) as a part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information, or (3) to deliver a Statement of Additional Information with the Prospectus. |
| (c) | to deliver any Statement of Additional Information and any financial statements required to be made available under this Form promptly upon written or oral request. |
II-7
Additional Representations
(a) The Registrant and its Depositor are relying upon American Council of Life Insurance, SEC No-Action Letter, SEC Ref. No. 1P-6-88 (November 28, 1988) with respect to annuity contracts offered as funding vehicles for retirement plans meeting the requirements of Section 403(b) of the Internal Revenue Code, and the provisions of paragraphs (1)-(4) of this letter have been complied with.
(b) The Registrant and its Depositor are relying upon Rule 6c-7 of the Investment Company Act of 1940 with respect to annuity contracts offered as funding vehicles to participants in the Texas Optional Retirement Program, and the provisions of Paragraphs (a)-(d) of the Rule have been complied with.
(c) REPRESENTATION PURSUANT TO SECTION 26(f) OF THE INVESTMENT COMPANY ACT OF 1940: Pacific Life Insurance Company and Registrant represent that the fees and charges to be deducted under the Variable Annuity Contract (“Contract”) described in the prospectus contained in this registration statement are, in the aggregate, reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed in connection with the Contract.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this Registration Statement and has caused this Post-Effective Amendment No. 1 to the Registration Statement on Form N-4 to be signed on its behalf by the undersigned thereunto duly authorized in the City of Newport Beach, and the State of California on this 19th day of April, 2011.
| SEPARATE ACCOUNT A | ||||
| (Registrant) | ||||
| By: | PACIFIC LIFE INSURANCE COMPANY | |||
| By: | ||||
| James T. Morris* | ||||
| Director, Chairman, President and Chief Executive Officer | ||||
| By: | PACIFIC LIFE INSURANCE COMPANY (Depositor) |
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| By: | ||||
| James T. Morris* | ||||
| Director, Chairman, President and Chief Executive Officer | ||||
Pursuant to the requirements of the Securities Act of 1933, Post-Effective Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
| Signature | Title | Date | ||
| James T. Morris* |
Director, Chairman, President and Chief Executive Officer | April 19, 2011 | ||
| Khanh T. Tran* |
Director, Executive Vice President, Chief Financial Officer and Chief Investment Officer |
April 19, 2011 | ||
| Sharon A. Cheever* |
Director, Senior Vice President and General Counsel |
April 19, 2011 | ||
| Jane M. Guon* |
Director, Vice President and Secretary | April 19, 2011 | ||
| Edward R. Byrd* |
Senior Vice President and Chief Accounting Officer |
April 19, 2011 | ||
| Brian D. Klemens* |
Vice President and Controller | April 19, 2011 | ||
| Dewey P. Bushaw* |
Executive Vice President | April 19, 2011 |
| Denis P. Kalscheur* |
Senior Vice President and Treasurer | April 19, 2011 |
| *By: | /s/ SHARON A. CHEEVER | April 19, 2011 | ||||
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Sharon A. Cheever as attorney-in-fact |
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(Powers of Attorney are contained in this Registration Statement as Exhibit 13).
