As filed with the Securities and Exchange Commission on July 15, 1997
Registration Nos. 2-78020
811-3488
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. ____
POST-EFFECTIVE AMENDMENT NO. 27 /X/
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 29
(CHECK APPROPRIATE BOX OR BOXES.)
----------------------
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
(EXACT NAME OF REGISTRANT )
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
(NAME OF DEPOSITOR)
----------------------
ONE AMERICAN ROW, HARTFORD, CONNECTICUT 06115
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(800) 447-4312
(DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE)
----------------------
DONA D. YOUNG, ESQ.
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
ONE AMERICAN ROW
HARTFORD, CONNECTICUT 06115
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------------
COPIES TO:
LYNN K. STONE, ESQUIRE RICHARD J. WIRTH, ESQ.
BLAZZARD, GRODD & HASENAUER, P.C. PHOENIX HOME LIFE
943 POST ROAD EAST MUTUAL INSURANCE COMPANY
WESTPORT, CT 06880 ONE AMERICAN ROW
HARTFORD, CT 06115
----------------------
It is proposed that this filing will become effective (check
appropriate space)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on July 15, 1997 pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following box:
/ / this Post-Effective Amendment designates a new effective date
for a previously filed Post-Effective Amendment.
REGISTRANT HAS CHOSEN TO REGISTER AN INDEFINITE NUMBER OF SECURITIES IN
ACCORDANCE WITH RULE 24F-2. THE RULE 24F-2 NOTICE FOR REGISTRANT'S MOST RECENT
FISCAL YEAR WAS FILED ON FEBRUARY 21, 1997.
================================================================================
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
POST-EFFECTIVE AMENDMENT NO. 27 TO REGISTRATION
STATEMENT ON FORM N-4
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS
AND STATEMENT OF ADDITIONAL INFORMATION
AS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
FORM N-4 ITEM PROSPECTUS CAPTION
<S> <C> <C>
1. Cover Page ..................................................... Cover Page
2. Definitions..................................................... Special Terms
3. Synopsis or Highlights ......................................... Summary of Expenses; Summary
4. Condensed Financial Information ................................ Financial Highlights
5. General Description of Registrant, Depositor, and............... Phoenix and the Account; The Fund; Voting Rights
Portfolio Companies
6. Deductions and Expenses......................................... Deductions and Charges; Sales of Variable Accumulation
Contracts
7. General Description of Variable Annuity Contracts .............. The Variable Accumulation Annuity; Purchase of Contracts;
The Accumulation Period; Miscellaneous Provisions
8. Annuity Period ................................................. The Annuity Period
9. Death Benefits ................................................. Payment Upon Death Before Maturity Date
10. Purchases and Contract Value ................................... Purchase of Contracts; The Accumulation Period; Variable
Account Valuation Procedures; Sales of Variable
Accumulation Contracts
11. Redemptions .................................................... Surrender of Contracts; Partial Withdrawals; Free Look
Period
12. Taxes .......................................................... Federal Income Taxes
13. Legal Proceeding ............................................... Litigation
14. Table of Contents of Statement of Additional Information ....... Statement of Additional Information
15. Cover Page ..................................................... Cover Page
16. Table of Contents .............................................. Table of Contents
17. General Information and History ................................ Not Applicable
18. Services ....................................................... Not Applicable
19. Purchase of Securities Being Offered ........................... Appendix
20. Underwriters ................................................... Underwriter
21. Calculation of Yield Quotations of Money Market
Subaccounts .................................................... Calculation of Yield and Return
22. Annuity Payments................................................ Calculation of Annuity Payments
23. Financial Statements............................................ Financial Statements
</TABLE>
- ---------------------
Note: This Registration Statement contains two prospectuses. One describes a
variation of the Contract funded by The Phoenix Edge Series Fund, Wanger
Advisors Trust and Templeton Variable Products Series Fund (Version A)
and the other describes a variation of the Contract funded by the
Templeton Variable Products Series Fund (Version B). This Registration
Statement also contains two Statements of Additional Information; one
corresponds to Prospectus Version A and the other corresponds to
Prospectus Version B.
<PAGE>
The following pages from Post-Effective Amendment No. 26 to the Registration
Statement on Form N-4, filed with the Securities and Exchange Commission on
April 30, 1997 are incorporated herein by reference thereto:
PART A
- ------
Version B Prospectus, pages 1 through 28.
PART B
- ------
Version B Statement of Additional Information, pages B-1(T) through B-49(T),
including Financial Statements for Phoenix Home Life Variable Accumulation
Account (Templeton Subaccounts) and Consolidated Financial Statements of Phoenix
Home Life Mutual Insurance Company.
<PAGE>
THE NEW YORK INDIVIDUAL CONTRACT ISSUED ON OR
AFTER MAY 1, 1997 AS DESCRIBED ON PAGE 21 IS
PENDING STATE APPROVAL. FOR INFORMATION,
PLEASE CALL (800) 447-4312.
P-1
<PAGE>
[VERSION A]
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS (VPMO):
Hartford, CT 06115 P.O. Box 8027
Boston, MA 02266-8027
VARIABLE ACCUMULATION DEFERRED ANNUITY CONTRACTS
PROSPECTUS
July 15, 1997
FOR TAX QUALIFIED AND NON-TAX QUALIFIED ANNUITY PLANS
This Prospectus describes variable accumulation annuity contracts
("Contracts") issued by Phoenix Home Life Mutual Insurance Company ("Phoenix").
The Contracts provide for both an Accumulation Period and an Annuity Period.
Purchase payments under the Contract are flexible. Contracts may be purchased by
individuals or on a group basis by employers to fund tax-qualified pension
profit-sharing or tax sheltered annuity (TSAs) plans. For information on
Individual Contracts issued in New York on or after May 1, 1997, see "New York
Individual Contracts issued on or after May 1, 1997," and for information on
contracts issued on a group basis, see "Group Contracts."
Generally, a minimum initial purchase payment of $1,000 is required and each
subsequent purchase payment must be at least $25. If the bank draft investment
program ("check-o-matic" as described under "Purchase of Contracts") is elected,
the minimum initial purchase payment required is $25. For non-tax qualified and
Individual Retirement Accounts (IRAs) including SEP IRAs and SIMPLE IRAs, the
minimum initial purchase payment required is $1,000. For individual Contracts
issued under tax-qualified or employer sponsored plans other than IRAs, a
minimum annual payment of $1,000 must be made. For Contracts with a Maturity
Date in the first Contract year, a minimum initial purchase payment of $10,000
is required. Generally, a Contract may not be purchased with respect to a
proposed Annuitant who is eighty years of age or older.
Purchase payments are allocated to one or more of the available Subaccounts
of the Phoenix Home Life Variable Accumulation Account (the "Account") and/or to
the Guaranteed Interest Account ("GIA") (see Appendix A) as specified by the
Contract Owner in the application for the Contract. The Account is divided into
Subaccounts, each of which invests in a corresponding series of The Phoenix Edge
Series Fund, Wanger Advisors Trust or Templeton Variable Products Series Fund
(collectively, the "Funds").
You may surrender a Contract for any reason within 10 days after its receipt
and receive in cash the adjusted value of the initial purchase payment. You may
receive more or less than the initial payment depending on investment experience
within the Subaccount during the 10-day period, unless the Contract was issued
with the Temporary Money Market Allocation Amendment, in which case your initial
purchase payment is refunded. If the initial purchase payment, or any portion
thereof, was allocated to the GIA, that payment (or portion) and any earned
interest is refunded. (See "Free Look Period.")
This Prospectus provides information a prospective investor ought to know
before investing and should be kept for future reference. It is accompanied by a
current Prospectus for each of the Funds. No offer is being made of a Contract
funded by any Fund for which a current Prospectus has not been delivered.
CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK, CREDIT UNION OR AFFILIATED ENTITY AND ARE NOT FEDERALLY INSURED OR
OTHERWISE PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY AND INVOLVE INVESTMENT RISKS INCLUDING
POSSIBLE LOSS OF PRINCIPAL.
Additional information about the Account has been filed with the Securities
and Exchange Commission ("SEC") in a Statement of Additional Information, dated
July 15, 1997, which is incorporated herein by reference. The Statement of
Additional Information, the table of contents of which is set forth in this
Prospectus, is available without charge upon request by writing or telephoning
Phoenix at the address or telephone number set forth above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, NOR HAS THE
SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
Heading Page
- ---------------------------------------------------------------
SPECIAL TERMS............................................. 3
SUMMARY OF EXPENSES....................................... 4
SUMMARY .................................................. 9
FINANCIAL HIGHLIGHTS...................................... 11
PERFORMANCE HISTORY....................................... 14
THE VARIABLE ACCUMULATION ANNUITY ........................ 16
PHOENIX AND THE ACCOUNT................................... 16
THE PHOENIX EDGE SERIES FUND.............................. 16
WANGER ADVISORS TRUST..................................... 17
TEMPLETON VARIABLE PRODUCTS SERIES FUND................... 17
PURCHASE OF CONTRACTS .................................... 17
DEDUCTIONS AND CHARGES.................................... 18
Premium Tax .......................................... 18
Sales Charges ........................................ 18
Charges for Mortality and Expense Risks .............. 18
Charges for Administrative Services .................. 18
Other Charges ........................................ 19
THE ACCUMULATION PERIOD................................... 19
Accumulation Units ................................... 19
Accumulation Unit Values ............................. 19
Transfers ............................................ 19
Surrender of Contract; Partial Withdrawals ........... 20
Lapse of Contract .................................... 20
Payment Upon Death Before Maturity Date (Non-New
York Individual Contracts)........................ 21
NEW YORK INDIVIDUAL CONTRACTS ISSUED ON OR AFTER
MAY 1, 1997............................................... 21
Sales Charges......................................... 21
Daily Administrative Fee.............................. 21
Maturity Date......................................... 21
Payment Upon Death Before Maturity Date............... 21
GROUP CONTRACTS........................................... 22
Allocated Group Contracts ............................ 22
Unallocated Group Contracts .......................... 23
THE ANNUITY PERIOD ....................................... 23
Variable Accumulation Annuity Contracts............... 23
Annuity Options ...................................... 23
Option A--Life Annuity With Specified Period Certain.. 24
Option B--Non-Refund Life Annuity .................... 24
Option D--Joint and Survivor Life Annuity ............ 24
Option E--Installment Refund Life Annuity ............ 24
Option F--Joint and Survivor Life Annuity With
Specified Period Certain .......................... 24
Option G--Payments for Specified Period .............. 24
Option H--Payments of Specified Amount ............... 24
Option I--Variable Payment Life Annuity with Ten Year
Period Certain .................................... 24
Option J--Joint Survivor Variable Payment Life Annuity
with Ten Year Period Certain ...................... 24
Option K--Variable Payment Annuity for a Specified
Period ............................................. 24
Option L--Variable Payment Life Expectancy Annuity..... 25
Option M--Unit Refund Variable Payment Life Annuity.... 25
Option N--Variable Payment Non-Refund Life Annuity..... 25
Other Options and Rates................................ 25
Other Conditions ...................................... 25
Payment Upon Death After Maturity Date ................ 25
VARIABLE ACCOUNT VALUATION PROCEDURES...................... 25
MISCELLANEOUS PROVISIONS .................................. 26
Assignment............................................. 26
Deferment of Payment .................................. 26
Free Look Period....................................... 26
Amendments to Contracts ............................... 26
Substitution of Fund Shares ........................... 26
Ownership of the Contract ............................. 26
FEDERAL INCOME TAXES ...................................... 26
Introduction .......................................... 26
Tax Status............................................. 26
Taxation of Annuities in General....................... 27
Surrenders or Withdrawals Prior to the Contract
Maturity Date .................................... 27
Surrenders or Withdrawals On or After the Contract
Maturity Date .................................... 27
Penalty Tax on Certain Surrenders and Withdrawals .. 27
Additional Considerations.............................. 27
Diversification Standards ............................. 28
Qualified Plans........................................ 29
Tax Sheltered Annuities ............................ 29
Keogh Plans......................................... 30
Individual Retirement Accounts ..................... 30
Corporate Pension and Profit-Sharing Plans ......... 30
Deferred Compensation Plans with Respect to
Service for State and Local Governments and
Tax Exempt Organizations ......................... 30
Penalty Tax on Certain Surrenders and Withdrawals
from Qualified Contracts.......................... 30
Seek Tax Advice..................................... 31
SALES OF VARIABLE ACCUMULATION CONTRACTS .................. 31
STATE REGULATION .......................................... 31
REPORTS ................................................... 31
VOTING RIGHTS ............................................. 31
TEXAS OPTIONAL RETIREMENT PROGRAM ......................... 32
LITIGATION ................................................ 32
LEGAL MATTERS ............................................. 32
STATEMENT OF ADDITIONAL INFORMATION........................ 32
APPENDIX A ................................................ 33
APPENDIX B ................................................ 34
2
<PAGE>
SPECIAL TERMS
As used in this Prospectus, the following terms have the indicated meanings:
ACCOUNT: Phoenix Home Life Variable Accumulation Account.
ACCOUNT VALUE: The value of all assets held in the Account.
ACCUMULATION UNIT: A standard of measurement with respect to each Subaccount
used in determining the value of a Contract and the interest in the Subaccounts
prior to the commencement of annuity payments.
ACCUMULATION UNIT VALUE: The value of one Accumulation Unit was set at $1.0000
on the date assets were first allocated to each Subaccount. The value of one
Accumulation Unit on any subsequent Valuation Date is determined by multiplying
the immediately preceding Accumulation Unit Value by the applicable Net
Investment Factor for the Valuation Period ending on such Valuation Date.
ANNUITANT: The person whose life is used as the measuring life under the
Contract.
ANNUITY OPTION: The provisions under which a series of annuity payments is made
to the Annuitant or other payee, such as Life Annuity with Ten Years Certain.
(See "Annuity Options.")
ANNUITY UNIT: A standard of measurement used in determining the amount of each
variable income payment under the variable payment Annuity Options I, J, K, M
and N.
CONTRACT: The deferred variable accumulation annuity contracts described in this
Prospectus.
CONTRACT VALUE: Prior to the Maturity Date, the sum of all Accumulation Units
held in the Subaccounts of the Account and the value held in the GIA.
FIXED PAYMENT ANNUITY: A benefit providing periodic payments of a fixed dollar
amount throughout the Annuity Period that does not vary with or reflect the
investment performance of any Subaccount.
FUNDS: The Phoenix Edge Series Fund, the Wanger Advisors Trust and the Templeton
Variable Products Series Fund.
GROUP CONTRACT: The deferred variable accumulation annuity contract, offered to
employers or trusts to fund tax-qualified plans for groups of participants,
described in this Prospectus.
GIA: An allocation option under which amounts deposited are guaranteed to earn a
fixed rate of interest. Excess interest also may be credited, in the sole
discretion of Phoenix.
ISSUE DATE: The date that the initial purchase payment is invested under a
Contract.
MATURITY DATE: The date elected by the Owner pursuant to the Contract as of
which annuity payments will commence. The election is subject to certain
conditions described in "The Annuity Period."
MINIMUM INITIAL PURCHASE PAYMENT: The amount which must be paid when a Contract
is purchased. Minimum initial purchase payments of $1,000, $1,000, $25, $1,000
annually and $10,000 is required for non-qualified, IRA, bank draft program,
qualified plan Contracts and Contracts with a Maturity Date in the first
Contract year, respectively.
MINIMUM SUBSEQUENT PAYMENT: The amount which must be paid when any subsequent
payments are made, after the minimum initial purchase payment has been made (see
above). The minimum subsequent payment for all Contracts is $25.
OWNER: The person or entity, usually the one to whom the Contract is issued, who
has the sole right to exercise all rights and privileges under the Contract
except as otherwise provided in the Contract. The Owner may be the Annuitant, an
employer, a trust or any other individual or entity specified in the application
for the Contract. However, under Contracts used with certain tax qualified
plans, the Owner must be the Annuitant. A husband and wife may be designated as
joint owners, and if such a joint owner dies, the other joint owner becomes the
sole Owner of the Contract. If no Owner is named, the Annuitant will be the
Owner.
PAYMENT UPON DEATH: The obligation of Phoenix under a Contract to make a payment
on the death of the Owner or Annuitant at any time before the Maturity Date of a
Contract (see "Payment Upon Death Before Maturity Date") or after the Maturity
Date of a Contract (see "Payment Upon Death After Maturity Date").
PHOENIX: Phoenix Home Life Mutual Insurance Company.
VALUATION DATE: A Valuation Date is every day the New York Stock Exchange is
open for trading and Phoenix is open for business.
VARIABLE PAYMENT ANNUITY: An annuity providing payments that vary in amount
after the first payment is made, in accordance with the investment experience of
the selected Subaccounts.
VPMO: The Phoenix Variable Products Mail Operation Division of Phoenix that
receives and processes incoming mail for Variable Products Operations.
VPO: The Variable Products Operations Division of Phoenix.
3
<PAGE>
SUMMARY OF EXPENSES(1)
<TABLE>
<CAPTION>
CONTRACT OWNER TRANSACTION EXPENSES ALL SUBACCOUNTS
---------------
<S> <C>
Sales Charge Imposed on Purchases............................................... None
Deferred Sales Load (as a percentage of amount surrendered):(2)
Age of Payment in Complete Years 0-1........................................ 6%
Age of Payment in Complete Years 1-2........................................ 5%
Age of Payment in Complete Years 2-3........................................ 4%
Age of Payment in Complete Years 3-4........................................ 3%
Age of Payment in Complete Years 4-5........................................ 2%
Age of Payment in Complete Years 5-6........................................ 1%
Age of Payment in Complete Years 6 and thereafter........................... None
Exchange Fee
Maximum Allowable Charge Per Exchange....................................... $10
ANNUAL CONTRACT FEE
Maximum..................................................................... $35
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees.............................................. 1.25% or 1.00% (depending on Contract form)(3)
Account Fees and Expenses.................................................... None
Total Separate Account Annual Expenses....................................... 1.25% or 1.00% (depending on Contract form)(3)
</TABLE>
FUND ANNUAL EXPENSES
(as a percentage of Fund average net assets)
<TABLE>
<CAPTION>
OTHER EXPENSES(4)
INVESTMENT RULE 12B-1 (AFTER EXPENSE TOTAL ANNUAL
SERIES MANAGEMENT FEES FEES REIMBURSEMENT) EXPENSES
- ------ --------------- ---- -------------- --------
<S> <C> <C> <C> <C>
Growth Series................................. .63% N/A .09% .72%
Multi-Sector Fixed Income Series.............. .50% N/A .15% .65%
Strategic Allocation Series .................. .58% N/A .12% .70%
Money Market Series........................... .40% N/A .15% .55%
International Series ......................... .75% N/A .29% 1.04%
Balanced Series............................... .55% N/A .13% .68%
Real Estate Securities Series................. .75% N/A .25% 1.00%
Strategic Theme Series........................ .75% N/A .25% 1.00%
Aberdeen New Asia Series...................... 1.00% N/A .25% 1.25%
Research Enhanced Index Series8............... .45% N/A .10% .55%
Wanger U.S. Small Cap Series.................. .99% N/A .22% 1.21%
Wanger International Small Cap Series......... 1.30% N/A .49% 1.79%
Templeton Stock Series(5,6)................... .70% .25% .18% 1.13%
Templeton Asset Allocation Series(5,6)........ .61% .25% .17% 1.03%
Templeton International Series(5,6)........... .70% .25% .18% 1.13%
Templeton Developing Markets Series(5,7)...... 1.25% .25% .53% 2.03%
</TABLE>
(1) The information included on this page does not apply to New York Individual
Contracts issued on or after May 1, 1997 or Group Contracts.
(2) A sales charge may be taken from the proceeds when a Contract is
surrendered or when an amount is withdrawn, if assets have not been held
under the Contract for a certain period of time. An amount up to 10% of the
Contract Value may be withdrawn each year without a sales charge. (See
"Deductions and Charges--Sales Charges.")
(3) The expense risk charge under a Contract is either .60% or .85%, depending
on when the Contract was issued. (See "Deductions and Charges--Charges for
Mortality and Expense Risks.")
(4) Each Series pays a portion or all of its total operating expenses other
than the management fee. The Research Enhanced Index Series will pay up to
.10%; the Growth, Multi-Sector Fixed Income, Strategic Allocation, Money
Market and Balanced Series will pay up to .15%; the International Series
will pay up to .40%; the Real Estate Securities, Strategic Theme and
Aberdeen New Asia Series will pay up to .25%; the U.S. Small Cap Series
will pay up to .50%; and the International Small Cap Series will pay up to
.60%. Absent expense reimbursement, total fund annual expenses were .67%,
1.43%, 1.28% and 2.87%, for Multi-Sector Fixed Income, Real
Estate Securities, Strategic Theme and Aberdeen New Asia, respectively.
Expenses may be higher or lower than those shown but are subject to expense
limitations as noted.
(5) Inclusion of this Subaccount began on May 1, 1997. Because Class 2 shares
were not offered until May 1, 1997, the figures for "Management Fees" and
"Other Expenses" are based on the historical expenses of the Fund's Class 1
shares for the fiscal year ended December 31, 1996, except as otherwise
noted. Class 2 shares of the Fund have a distribution plan or "Rule 12b-1
Plan" which is described in the Fund's prospectus.
(6) Management fees and total operating expenses have been restated to reflect
the management fee schedule which was approved by shareholders and which
takes effect on May 1, 1997. Actual management fees and total fund
operating expenses before May 1, 1997 were lower.
(7) The Adviser waived a portion of its fees during 1996. After the reduction,
actual management fees and fund annual expenses of the portfolio in 1996
were 1.17% and 1.95% of net assets, respectively. This agreement has been
terminated.
(8) Inclusion of this Subaccount began on July 15, 1997. Accordingly,
annualized expenses have been projected for the fiscal period ending
December 31, 1997. Without reimbursement, the total operating expenses are
estimated to be approximately .70% of the average net assets of the
Research Enhanced Index Series for the fiscal year ending December 31,
1997.
4
<PAGE>
SUMMARY OF EXPENSES(1)
EXAMPLES:
If you surrender your Contract at the end of the applicable time period: You
would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Series................................................... $ 68 $ 96 $125 $245
Multi-Sector Fixed Income Series................................ 67 94 121 238
Strategic Allocation Series.................................... 68 96 124 243
Money Market Series............................................. 66 91 116 227
International Series............................................ 71 106 141 278
Balanced Series................................................. 68 95 123 241
Real Estate Securities Series................................... 71 105 139 274
Strategic Theme Series.......................................... 71 105 139 274
Aberdeen New Asia Series........................................ 73 112 151 299
Research Enhanced Index Series(3)............................... 66 91 N/A N/A
Wanger U.S. Small Cap Series.................................... 73 111 149 295
Wanger International Small Cap Series........................... 78 127 178 350
Templeton Stock Series(2)....................................... 72 108 N/A N/A
Templeton Asset Allocation Series(2)............................ 71 105 N/A N/A
Templeton International Series(2)............................... 72 108 N/A N/A
Templeton Developing Markets Series(2).......................... 81 134 N/A N/A
</TABLE>
If you do not surrender your Contract: You would pay the following expenses
on a $1,000 investment assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Series................................................... $ 22 $ 67 $115 $245
Multi-Sector Fixed Income Series................................ 21 65 111 238
Strategic Allocation Series.................................... 22 66 114 243
Money Market Series............................................. 20 62 106 227
International Series............................................ 25 77 131 278
Balanced Series................................................. 21 66 113 241
Real Estate Securities Series................................... 25 75 129 274
Strategic Theme Series.......................................... 25 75 129 274
Aberdeen New Asia Series........................................ 27 83 141 299
Research Enhanced Index Series(3)............................... 20 62 N/A N/A
Wanger U.S. Small Cap Series.................................... 27 82 139 295
Wanger International Small Cap Series........................... 32 99 168 350
Templeton Stock Series(2)....................................... 26 79 N/A N/A
Templeton Asset Allocation Series(2)............................ 25 76 N/A N/A
Templeton International Series(2)............................... 26 79 N/A N/A
Templeton Developing Markets Series(2).......................... 35 106 N/A N/A
</TABLE>
(1) The information included on this page does not apply to New York Individual
Contracts issued on or after May 1, 1997 or Group Contracts.
(2) Inclusion of this Subaccount began on May 1, 1997.
(3) Inclusion of this Subaccount began on July 15, 1997.
The purpose of the tables set forth above is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. The tables reflect Account annual expenses of 1.25% as
well as the Funds. (See "Deductions and Charges" in this Prospectus and in the
Fund Prospectuses.)
Premium or other taxes levied by any governmental entity with respect to the
Contract will be charged against the Contract Values based on a percentage of
premiums paid. Premium taxes currently imposed by certain states on the
Contracts range from 0% to 3.5% of premiums paid. (See "Deductions and
Charges--Premium Tax" and Appendix B.)
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown and are
based on Contracts assessing an expense risk charge of .85%. The $35 annual
administrative charge is reflected in the Example as $1.75 since the average
Contract account size is greater than $1,000 and the expense effect is reduced
accordingly. (See "Deductions and Charges.")
5
<PAGE>
SUMMARY OF EXPENSES
INDIVIDUAL CONTRACTS ISSUED IN NEW YORK ON OR AFTER MAY 1, 1997
<TABLE>
<CAPTION>
CONTRACT OWNER TRANSACTION EXPENSES ALL SUBACCOUNTS
---------------
<S> <C>
Sales Charge Imposed on Purchases............................................... None
Deferred Sales Load (as a percentage of amount surrendered):(1)
Age of Payment in Complete Years 0-1........................................ 7%
Age of Payment in Complete Years 1-2........................................ 6%
Age of Payment in Complete Years 2-3........................................ 5%
Age of Payment in Complete Years 3-4........................................ 4%
Age of Payment in Complete Years 4-5........................................ 3%
Age of Payment in Complete Years 5-6........................................ 2%
Age of Payment in Complete Years 6-7........................................ 1%
Age of Payment in Complete Years 7 and thereafter........................... None
Exchange Fee
Maximum Allowable Charge Per Exchange....................................... $10
ANNUAL CONTRACT FEE
Maximum..................................................................... $35
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees............................................. 1.25%
Daily Administrative Fee.................................................... .125%
Total Separate Account Annual Expenses.......................................... 1.375%
</TABLE>
FUND ANNUAL EXPENSES
(as a percentage of Fund average net assets)
<TABLE>
<CAPTION>
OTHER EXPENSES(2)
INVESTMENT RULE 12B-1 (AFTER EXPENSE TOTAL ANNUAL
SERIES MANAGEMENT FEES FEES REIMBURSEMENT) EXPENSES
- ------ --------------- ---- -------------- --------
<S> <C> <C> <C> <C>
Growth Series................................. .63% N/A .09% .72%
Multi-Sector Fixed Income Series.............. .50% N/A .15% .65%
Strategic Allocation Series................... .58% N/A .12% .70%
Money Market Series........................... .40% N/A .15% .55%
International Series.......................... .75% N/A .29% 1.04%
Balanced Series............................... .55% N/A .13% .68%
Real Estate Securities Series................. .75% N/A .25% 1.00%
Strategic Theme Series........................ .75% N/A .25% 1.00%
Aberdeen New Asia Series...................... 1.00% N/A .25% 1.25%
Research Enhanced Index Series(6)............. .45% N/A .10% .55%
Wanger U.S. Small Cap Series.................. .99% N/A .22% 1.21%
Wanger International Small Cap Series......... 1.30% N/A .49% 1.79%
Templeton Stock Series(3,4)................... .70% .25% .18% 1.13%
Templeton Asset Allocation Series(3,4)........ .61% .25% .17% 1.03%
Templeton International Series(3,4)........... .70% .25% .18% 1.13%
Templeton Developing Markets Series(3,5)...... 1.25% .25% .53% 2.03%
</TABLE>
(1) A sales charge is taken from the proceeds when a Contract is surrendered or
when an amount is withdrawn, if assets have not been held under the Contract
for a certain period of time. An amount up to 10% of the Contract Value may
be withdrawn each year without a sales charge. (See "Deductions and
Charges--Sales Charges.")
(2) Each Series pays a portion or all of its total operating expenses other than
the management fee. The Research Enhanced Index Series will pay up to .10%;
the Growth, Multi-Sector Fixed Income, Strategic Allocation, Money Market
and Balanced Series will pay up to .15%; the International Series will pay
up to .40%; the Real Estate Securities, Strategic Theme and Aberdeen New
Asia Series will pay up to .25%; the U.S. Small Cap Series will pay up to
.50%; and the International Small Cap Series will pay up to .60%. Absent
expense reimbursement, total fund operating expenses were .67%, 1.43%, 1.28%
and 2.87%, for Multi-Sector Fixed Income, Real Estate Securities, Strategic
Theme and Aberdeen New Asia, respectively. Expenses may be higher or lower
than those shown but are subject to expense limitations as noted.
(3) Inclusion of this Subaccount began on May 1, 1997. Because Class 2 shares
were not offered until May 1, 1997, the figures for "Management Fees" and
"Other Expenses" are based on the historical expenses of the Fund's Class 1
shares for the fiscal year ended December 31, 1996, except as otherwise
noted. Class 2 shares of the Fund have a distribution plan or "Rule 12b-1
Plan" which is described in the Fund's prospectus.
(4) Management fees and total operating expenses have been restated to reflect
the management fee schedule which was approved by shareholders and which
takes effect on May 1, 1997. Actual management fees and total fund
operating expenses before May 1, 1997 were lower.
(5) The Adviser waived a portion of its fees during 1996. After the reduction,
actual management fees and total operating expenses of the portfolio in
1996 were 1.17% and 1.95% of net assets, respectively. This agreement has
been terminated.
(6) Inclusion of this Subaccount began on July 15, 1997. Accordingly, annualized
expenses have been projected for the fiscal period ending December 31, 1997.
Without reimbursement, the total operating expenses are estimated to be
approximately .70% of the average net assets of the Research Enhanced Index
Series for the fiscal year ending December 31, 1997.
6
<PAGE>
SUMMARY OF EXPENSES
INDIVIDUAL CONTRACTS ISSUED IN NEW YORK ON OR AFTER MAY 1, 1997
EXAMPLES:
If you surrender your Contract at the end of the applicable time period: You
would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Series................................................... $ 78 $110 $142 $258
Multi-Sector Fixed Income Series................................ 78 108 138 251
Strategic Allocation Series.................................... 78 109 141 256
Money Market Series............................................. 77 105 133 241
International Series............................................ 81 119 157 290
Balanced Series................................................. 78 109 140 254
Real Estate Securities Series................................... 81 118 155 286
Strategic Theme Series.......................................... 81 118 155 286
Aberdeen New Asia Series........................................ 83 125 168 311
Research Enhanced Index Series(2)............................... 77 105 N/A N/A
Wanger U.S. Small Cap Series.................................... 83 124 166 307
Wanger International Small Cap Series........................... 89 140 193 362
Templeton Stock Series(1)....................................... 82 122 N/A N/A
Templeton Asset Allocation Series(1)............................ 81 119 N/A N/A
Templeton International Series(1)............................... 82 122 N/A N/A
Templeton Developing Markets Series(1).......................... 91 147 N/A N/A
</TABLE>
If you annuitize your Contract at the end of the applicable time period: You
would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Series................................................... $ 78 $110 $121 $258
Multi-Sector Fixed Income Series................................ 78 108 117 251
Strategic Allocation Series.................................... 78 109 120 256
Money Market Series............................................. 77 105 112 241
International Series............................................ 81 119 137 290
Balanced Series................................................. 78 109 119 254
Real Estate Securities Series................................... 81 118 135 286
Strategic Theme Series.......................................... 81 118 135 286
Aberdeen New Asia Series........................................ 83 125 147 311
Research Enhanced Index Series(2)............................... 77 105 N/A N/A
Wanger U.S. Small Cap Series.................................... 83 124 145 307
Wanger International Small Cap Series........................... 89 140 174 362
Templeton Stock Series(1)....................................... 82 122 N/A N/A
Templeton Asset Allocation Series(1)............................ 81 119 N/A N/A
Templeton International Series(1)............................... 82 122 N/A N/A
Templeton Developing Markets Series(1).......................... 91 147 N/A N/A
</TABLE>
(1) Inclusion of this Subaccount began on May 1, 1997.
(2) Inclusion of this Subaccount began on July 15, 1997.
7
<PAGE>
SUMMARY OF EXPENSES
INDIVIDUAL CONTRACTS ISSUED IN NEW YORK ON OR AFTER MAY 1, 1997
EXAMPLE:
If you do not surrender your Contract: You would pay the following expenses on a
$1,000 investment assuming 5% annual return on assets:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth Series................................................... $ 23 $ 71 $121 $258
Multi-Sector Fixed Income Series................................ 22 69 117 251
Strategic Allocation Series.................................... 23 70 120 256
Money Market Series............................................. 21 66 112 241
International Series............................................ 26 80 137 290
Balanced Series................................................. 23 70 119 254
Real Estate Securities Series................................... 26 79 135 286
Strategic Theme Series.......................................... 26 79 135 286
Aberdeen New Asia Series........................................ 28 87 147 311
Research Enhanced Index Series(2)............................... 21 66 N/A N/A
Wanger U.S. Small Cap Series.................................... 28 85 145 307
Wanger International Small Cap Series........................... 34 103 174 362
Templeton Stock Series(1)....................................... 27 83 N/A N/A
Templeton Asset Allocation Series(1)............................ 26 80 N/A N/A
Templeton International Series(1)............................... 27 83 N/A N/A
Templeton Developing Markets Series(1).......................... 36 110 N/A N/A
</TABLE>
(1) Inclusion of this Subaccount began on May 1, 1997.
(2) Inclusion of this Subaccount began on July 15, 1997.
The purpose of the tables set forth above is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will bear
directly or indirectly. The tables reflect expenses of the Account as well as
the Funds. (See "Deductions and Charges" in this Prospectus and in the Fund
Prospectuses.)
The Examples should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown. The $35
annual administrative charge is reflected in the Example as $1.75 since the
average Contract account size is greater than $1,000 and the expense effect is
reduced accordingly. (See "Deductions and Charges.")
8
<PAGE>
SUMMARY
- --------------------------------------------------------------------------------
The individual deferred accumulation annuity contracts ("Contract")
described in this Prospectus present a dynamic concept in retirement planning
designed to give you maximum flexibility in attaining your investment goals.
There are no deductions from your purchase payments so that your entire payment
is put to work in the investment portfolio(s) of your choice. Currently, the
Account consists of several Subaccounts, which invest their assets exclusively
in specified Series of the Funds. Each Series has a distinct investment
objective. You choose the Subaccount or Subaccounts in which you wish to invest
among the available Subaccounts and/or the GIA when you make your purchase
payments under the Contract. You also may transfer amounts held under the
Contract among the available Subaccounts and/or the GIA. When the accumulation
period ends, the then Contract Value will be applied to furnish a Variable
Payment Annuity unless a Fixed Payment Annuity is elected. If a Fixed Payment
Annuity is elected, payments will, thereafter, be fixed and guaranteed by
Phoenix.
The Contract is eligible for purchase as non-tax qualified retirement plans
by individuals. Contracts also are eligible for use in connection with (1)
pension or profit-sharing plans qualified under the Self-Employed Individuals
Tax Retirement Act of 1962, known as "HR 10" or "Keogh" plans, (2) pension or
profit-sharing plans qualified under Sections 401(a) and 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code"), known as "corporate plans," (3)
annuity purchase plans adopted under the provisions of Section 403(b) of the
Code by public school systems and certain other tax-exempt organizations (TSA),
(4) IRA plans satisfying the requirements of Section 408 of the Code and (5)
government plans and deferred compensation plans maintained by a state or
political subdivision thereof under Section 457 of the Code. These plans are
sometimes referred to in this Prospectus as "tax qualified plans."
HOW ARE PAYMENTS MADE UNDER THE CONTRACTS?
A Contract Owner may make payments at any time until the Maturity Date
selected by the Owner pursuant to the terms of the Contract. The payments
purchase Accumulation Units of the Subaccount(s) and/or are deposited in the
GIA, as chosen by the Owner. (See "Purchases of Contracts" and "The Accumulation
Period.")
IS THERE A GUARANTEED OPTION?
Yes. A Contract Owner may elect to have payments allocated to the
GIA. Amounts allocated to the GIA earn a fixed rate of interest and
Phoenix also may, in its sole discretion, credit excess interest. (See
Appendix A.)
WHAT ARE THE INVESTMENT OPTIONS UNDER THE CONTRACT?
The Contract currently offers a number of series of The Phoenix Edge Series
Fund, Wanger Advisors Trust and Templeton Variable Products Series Fund as
investment options. Each series has a specific investment objective. (For a
complete list of the series offered and a brief discussion of their respective
investment objectives, see "The Phoenix Edge Series Fund," "Wanger Advisors
Trust" and "Templeton Variable Products Series Fund.")
FOR ADDITIONAL INFORMATION CONCERNING THE FUNDS, SEE THE ACCOMPANYING FUND
PROSPECTUSES, WHICH SHOULD BE READ CAREFULLY BEFORE INVESTING.
WHAT SALES COSTS ARE CHARGED TO PURCHASE PAYMENTS UNDER THE CONTRACTS?
No deductions are made from purchase payments. A deduction for sales charges
may be taken from the proceeds when a Contract is surrendered or when an amount
is withdrawn, if assets have not been held under the Contract for a certain
period of time. However, no deduction for sales charges will be taken after the
Annuity Period has begun, unless unscheduled withdrawals are made under Annuity
Options K or L. If a sales charge is imposed, it is imposed on a first-in,
first-out basis. No sales charge will be imposed in the event that the Annuitant
dies before the date that annuity payments will commence. The total deferred
sales charges on a Contract will never exceed 9% of the total purchase payments.
(See "Sales Charges.")
WHAT FEES ARE CHARGED TO THE ACCOUNT?
There is a mortality and expense risk fee and a daily administrative fee
assessed against the Account. (See "Charges for Mortality and Expense Risks.")
The daily administrative fee applies only to Individual Contracts issued in New
York on or after May 1, 1997. (See "Charges for Administrative Services.")
ARE THERE ANY OTHER CHARGES OR DEDUCTIONS?
In most states, premium taxes are imposed when a Contract is annuitized
rather than when purchase payments are made by the Contract Owner. Phoenix will
reimburse itself on the date of a partial withdrawal, surrender of the Contract,
Maturity Date or payment of death proceeds. (See "Premium Tax.") To cover its
fixed cost of administration, Phoenix generally charges each Contract $35 each
year.
In addition, certain charges are deducted from the assets of the Funds. For
investment management services, each Series of a Fund pays the investment
manager a separate monthly fee calculated on the basis of its average daily net
assets during the year. (See "Other Charges.")
For a more complete description of the fees chargeable to the
Account, see "Deductions and Charges."
WHAT ARE THE MINIMUM INITIAL AND SUBSEQUENT PURCHASE PAYMENTS?
For non-tax qualified and IRA plans, the following minimum purchase payments
apply (unless investments are made pursuant to a bank draft investment program):
Initial minimum per Contract: $1,000
Subsequent minimum per Contract: $ 25
For Contracts issued pursuant to a bank draft investment program, the
following minimum purchase payments apply:
Initial minimum per Contract: $25
Subsequent minimum per Contract: $25
For Contracts issued under tax-qualified or employer sponsored plans other
than IRAs, a minimum annual premium of $1,000 must be paid.
9
<PAGE>
For Contracts with a Maturity Date in the first Contract year, a minimum
initial purchase payment of $10,000 is required.
MAY I ALLOCATE MY PURCHASE PAYMENTS AMONG AVAILABLE OPTIONS?
You may choose the amount of each purchase payment to be
directed to each Subaccount and/or to the GIA, provided that the
minimum initial purchase payment requirements have been met. (See
"Purchase of Contracts.")
MAY I TRANSFER AMOUNTS ALLOCATED TO A SUBACCOUNT OR THE GIA?
Prior to the Maturity Date, you may transfer some or all of the Contract
Value among one or more available Subaccounts and/or the GIA provided that the
minimum initial purchase payment requirements have been met. Also, if issued,
the Temporary Money Market Allocation Amendment provides that no transfers may
be made until the termination of the Free Look Period. Currently, there is not a
limit to the number of transfers per Contract Year, however, Phoenix may in the
future limit the number of transfers allowed during a Contract year, but in no
event will the limit be less than six transfers per year (see "Transfers").
However, there are additional restrictions on transfers from the GIA as
described in Appendix A.
DOES THE CONTRACT PROVIDE FOR PAYMENT UPON DEATH?
The Contract provides that if the Owner and Annuitant are the same and the
Owner/Annuitant dies before annuity payments begin and there is no surviving
Joint Owner, payment to the beneficiary will be made and no surrender charge
will be imposed. The Contract also provides for payment upon death after the
Contract Maturity Date. Special provisions may apply if the Owner and the
Annuitant are not the same person. (See "Payment Upon Death Before Maturity
Date" and "Payment Upon Death After Maturity Date.")
IS THERE A SHORT-TERM CANCELLATION RIGHT?
An Owner may surrender a Contract for any reason within 10 days after its
receipt and receive in cash the adjusted value of the initial purchase payment.
The Owner may receive more or less than the initial payment depending on
investment experience within the Subaccounts during the 10-day period, unless
the Contract is issued with a Temporary Money Market Allocation Amendment, in
which case the initial purchase payment is refunded. If the initial purchase
payment, or any portion thereof, was allocated to the GIA, that payment (or
portion) and any earned interest is refunded. (See "Free Look Period.")
HOW WILL THE ANNUITY PAYMENTS BE DETERMINED ON THE MATURING OF A CONTRACT?
The Owner and Annuitant bear the risk of the investment performance during
the Accumulation Period unless the GIA is selected. Once annuity payments
commence, investment in the Account will continue and the Owner and Annuitant
will continue to bear the risk of investment unless a Fixed Payment Annuity is
elected. If a Fixed Payment Annuity is elected, payments will be fixed and
guaranteed by the general assets of Phoenix. The fixed payment schedule is a
part of the Contract and the Owner also may be given the opportunity to choose
another annuity option available from Phoenix at the maturity of the Contract.
If the current practice settlement rates in effect for Contracts are more
favorable than the applicable rates guaranteed under the Contract, the current
rates shall be applied. (See "The Annuity Period.")
CAN MONEY BE WITHDRAWN FROM THE CONTRACT?
If the Annuitant is living, amounts held under the Contract may be withdrawn
in whole or in part prior to the Maturity Date, or after the Maturity Date under
Annuity Options K or L. Certain limitations apply to Contracts held under 403(b)
plans (see "Qualified Plans; Tax Sheltered Annuities"). There may be a federal
tax penalty assessed in connection with withdrawals (see "Federal Income
Taxes").
CAN THE CONTRACT LAPSE?
If on any Valuation Date the total Contract Value equals zero, or, the
premium tax reimbursement due on a surrender or partial withdrawal is greater
than or equal to the Contract Value, the Contract will immediately terminate and
lapse without value.
THE FOREGOING SUMMARY INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
10
<PAGE>
PHOENIX VARIABLE ACCUMULATION ACCOUNT
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
Following are the financial highlights for the period indicated. As used
below, the designation "VA1" refers to Contracts assessing an expense risk
charge of .60% and "VA2," "VA3" and "GSE" refer to Contracts assessing an
expense risk charge of .85% and not including a daily administration fee. (See
"Deductions and Charges.") For Contracts issued in New York on or after May 1,
1997, no data is shown in this table.
<TABLE>
MONEY MARKET SUBACCOUNT
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period. $2.045097 $1.954211 $1.900873 $1.866308 $1.820007 $1.734559 $1.619595 $1.497413 $1.407621 $1.334900
Unit value, end of period....... $2.126440 $2.045097 $1.954211 $1.900873 $1.866308 $1.820007 $1.734559 $1.619595 $1.497413 $1.407621
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000) 3,460 3,457 4,649 4,617 8,601 10,289 13,110 13,319 12,813 6,829
MONEY MARKET SUBACCOUNT
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, FROM
----------------------- INCEPTION
1/29/87 TO
1996 1995 1994 1993 1992 1991 1990 1989 1988 12/31/87
---- ---- ---- ---- ---- ---- ---- ---- ---- ----------
Unit value, beginning of period. $2.000092 $1.915930 $1.868172 $1.838756 $1.797544 $1.717328 $1.607305 $1.489598 $1.403711 $1.339975
Unit value, end of period ...... $2.074515 $2.000092 $1.915930 $1.868172 $1.838756 $1.797544 $1.717328 $1.607305 $1.489598 $1.403711
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000) 40,530 37,026 38,007 30,143 27,132 15,331 8,723 4,057 1,741 290
GROWTH SUBACCOUNT
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Unit value, beginning of period. $8.273644 $6.384494 $6.355486 $5.362579 $4.910837 $3.474821 $3.373255 $2.501870 $2.431756 $2.296978
Unit value, end of period....... $9.222031 $8.273644 $6.384494 $6.355486 $5.362579 $4.910837 $3.474821 $3.373255 $2.501870 $2.431756
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000) 7,215 8,153 8,351 8,671 8,652 7,280 6,658 6,726 6,243 7,046
GROWTH SUBACCOUNT
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, FROM
----------------------- INCEPTION
1/29/87 TO
1996 1995 1994 1993 1992 1991 1990 1989 1988 12/31/87
---- ---- ---- ---- ---- ---- ---- ---- ---- ----------
Unit value, beginning of period. $8.093932 $6.261062 $6.248053 $5.284626 $4.851447 $3.440659 $3.348325 $2.489403 $2.425706 $2.555569
Unit value, end of period....... $8.999162 $8.093932 $6.261062 $6.248053 $5.284626 $4.851447 $3.440659 $3.348325 $2.489403 $2.425706
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000) 100,883 94,344 76,226 52,751 29,531 12,343 4,415 1,792 655 376
MULTI-SECTOR SUBACCOUNT
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Unit value, beginning of period $3.379335 $2.762836 $2.952674 $2.572692 $2.360698 $1.993832 $1.913888 $1.786177 $1.632777 $1.631508
Unit value, end of period...... $3.761132 $3.379335 $2.762836 $2.952674 $2.572692 $2.360698 $1.993832 $1.913888 $1.786177 $1.632777
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000) 4,114 4,418 4,839 5,798 5,539 5,541 5,085 6,195 5,585 4,991
</TABLE>
11
<PAGE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
MULTI-SECTOR SUBACCOUNT
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, FROM
----------------------- INCEPTION
1/29/87 TO
<CAPTION>
1996 1995 1994 1993 1992 1991 1990 1989 1988 12/31/87
---- ---- ---- ---- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period. $3.306804 $2.710153 $2.902941 $2.535693 $2.332392 $1.974705 $1.900136 $1.777482 $1.628898 $1.679498
Unit value, end of period....... $3.671202 $3.306804 $2.710153 $2.902941 $2.535693 $2.332392 $1.974705 $1.900136 $1.777482 $1.628898
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000) 27,079 25,435 20,608 19,839 10,612 3,480 1,438 856 396 120
ALLOCATION SUBACCOUNT (FORMERLY THE "TOTAL RETURN" SUBACCOUNT)
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Unit value, beginning of period. $3.520947 $3.008513 $3.081973 $2.804149 $2.559543 $1.999109 $1.909058 $1.608209 $1.587193 $1.424283
Unit value, end of period....... $3.801441 $3.520947 $3.008513 $3.081973 $2.804149 $2.559543 $1.999109 $1.909058 $1.608209 $1.587193
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000) 15,341 18,038 19,981 23,027 23,424 22,916 22,667 24,606 31,107 33,612
ALLOCATION SUBACCOUNT (FORMERLY THE "TOTAL RETURN" SUBACCOUNT)
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, FROM
----------------------- INCEPTION
1/29/87 TO
1996 1995 1994 1993 1992 1991 1990 1989 1988 12/31/87
---- ---- ---- ---- ---- ---- ---- ---- ---- ----------
Unit value, beginning of period. $3.442824 $2.948151 $3.028790 $2.762529 $2.527829 $1.979067 $1.894604 $1.600110 $1.583050 $1.587758
Unit value, end of period....... $3.707833 $3.442824 $2.948151 $3.028790 $2.762529 $2.527829 $1.979067 $1.894604 $1.600110 $1.583050
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000) 69,901 73,165 68,860 53,869 30,431 13,524 7,031 3,797 3,139 1,604
INTERNATIONAL SUBACCOUNT
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, FROM
----------------------- INCEPTION
5/1/90 TO
1996 1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- ---- ---------
Unit value, beginning of period. $1.375527 $1.267735 $1.279733 $0.933515 $1.081746 $0.912543 $1.000000
Unit value, end of period ...... $1.615890 $1.375527 $1.267735 $1.279733 $0.933515 $1.081746 $0.912543
========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000) 3,337 3,762 5,926 3,309 1,401 816 490
INTERNATIONAL SUBACCOUNT
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, FROM
----------------------- INCEPTION
5/1/90 TO
1996 1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- ---- ---------
Unit value, beginning of period.. $1.356645 $1.253391 $1.268491 $0.927578 $1.077492 $0.911158 $1.000000
Unit value, end of period ....... $1.589771 $1.356645 $1.253391 $1.268491 $0.927578 $1.077492 $0.911158
========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000) 80,535 78,985 88,400 39,929 12,307 4,364 1,616
BALANCED SUBACCOUNT
---------------------------------------------------------------------------------------------------
VA1 VA2, VA3 & GSE
YEAR ENDED DECEMBER 31, FROM YEAR ENDED DECEMBER 31, FROM
----------------------- INCEPTION ----------------------- INCEPTION
5/1/92 TO 5/1/92 TO
1996 1995 1994 1993 12/31/92 1996 1995 1994 1993 12/31/92
---- ---- ---- ---- --------- ---- ---- ---- ---- ---------
Unit value, beginning of period. $1.373104 $1.124370 $1.168840 $1.086965 $1.000000 $1.360620 $1.116862 $1.163951 $1.085113 $1.000000
Unit value, end of period....... $1.503025 $1.373104 $1.124370 $1.168840 $1.086965 $1.485649 $1.360620 $1.116862 $1.163951 $1.085113
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000) 3,271 4,027 4,732 5,601 3,283 118,572 126,919 130,797 123,929 39,740
</TABLE>
12
<PAGE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
REAL ESTATE SUBACCOUNT
----------------------------------------------------------
<CAPTION>
VA1 VA2, VA3 & GSE
--------------------------- ----------------------------
FROM INCEPTION FROM INCEPTION
YEAR ENDED 5/1/95 TO YEAR ENDED 5/1/95 TO
12/31/96 12/31/95 12/31/96 12/31/95
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Unit value, beginning of period......................................... $1.155453 $1.000000 $1.168262 $1.000000
Unit value, end of period............................................... $1.522792 $1.155453 $1.535829 $1.168262
========= ========= ========= =========
Number of units outstanding (000)....................................... 189 34 12,614 7,009
INTERNATIONAL SMALL CAP SUBACCOUNT
----------------------------------------------------------
VA1 VA2, VA3 & GSE
--------------------------- ----------------------------
FROM INCEPTION FROM INCEPTION
YEAR ENDED 5/1/95 TO YEAR ENDED 5/1/95 TO
12/31/96 12/31/95 12/31/96 12/31/95
---------- --------- ---------- ---------
Unit value, beginning of period......................................... $1.239576 $1.000000 $1.334598 $1.000000
Unit value, end of period............................................... $1.620307 $1.239576 $1.740203 $1.334598
========= ========= ========= =========
Number of units outstanding (000)....................................... 1,632 194 37,820 7,738
U.S. SMALL CAP SUBACCOUNT
----------------------------------------------------------
VA1 VA2, VA3 & GSE
--------------------------- ----------------------------
FROM INCEPTION FROM INCEPTION
YEAR ENDED 5/1/95 TO YEAR ENDED 5/1/95 TO
12/31/96 12/31/95 12/31/96 12/31/95
---------- --------- ---------- ---------
Unit value, beginning of period......................................... $1.157802 $1.000000 $1.155807 $1.000000
Unit value, end of period............................................... $1.680622 $1.157802 $1.673666 $1.155807
========= ========= ========= =========
Number of units outstanding (000)....................................... 2,888 460 58,623 17,039
THEME SUBACCOUNT
-----------------------------------------------
VA1 VA2, VA3 & GSE
--------------- ----------------
FROM INCEPTION FROM INCEPTION
1/29/96 TO 1/29/96 TO
12/31/96 12/31/96
Unit value, beginning of period........................................... $1.000000 $1.000000
Unit value, end of period................................................. $1.086084 $1.090843
========= =========
Number of units outstanding (000)......................................... 621 17,311
ASIA SUBACCOUNT
-----------------------------------------------
VA1 VA2, VA3 & GSE
--------------- ----------------
FROM INCEPTION FROM INCEPTION
9/17/96 TO 9/17/96 TO
12/31/96 12/31/96
Unit value, beginning of period........................................... $1.000000 $1.000000
Unit value, end of period................................................. $0.997626 $0.998026
========= =========
Number of units outstanding (000)......................................... 395 8,125
</TABLE>
TEMPLETON STOCK SUBACCOUNT
TEMPLETON ASSET ALLOCATION SUBACCOUNT
TEMPLETON INTERNATIONAL SUBACCOUNT
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
These Subaccounts commenced operations as of May 1, 1997; accordingly,
data for these Subaccounts is not yet available.
RESEARCH ENHANCED INDEX SUBACCOUNT
This Subaccount commenced operations as of July 15, 1997;
accordingly, data for this Subaccount is not yet available.
13
<PAGE>
PERFORMANCE HISTORY
From time to time the Account may include the performance history of any or
all Subaccounts in advertisements, sales literature or reports. PERFORMANCE
INFORMATION ABOUT EACH SUBACCOUNT IS BASED ON PAST PERFORMANCE ONLY AND IS NOT
AN INDICATION OF FUTURE PERFORMANCE. Performance information may be expressed as
yield and effective yield of the Money Market Subaccount, as yield of the
Multi-Sector Subaccount and as total return of any Subaccount. For the
Multi-Sector Subaccount, quotations of yield will be based on all investment
income per unit earned during a given 30-day period (including dividends and
interest), less expenses accrued during the period ("net investment income"),
and are computed by dividing the net investment income by the maximum offering
price per unit on the last day of the period.
When a Subaccount advertises its total return, it will usually be calculated
for one year, five years and ten years or since inception if the Subaccount has
not been in existence for at least ten years. Total return is measured by
comparing the value of a hypothetical $1,000 investment in the Subaccount at the
beginning of the relevant period to the value of the investment at the end of
the period, assuming the reinvestment of all distributions at net asset value
and the deduction of all applicable Contract charges except for premium taxes
(which vary by state) at the beginning of the relevant period.
For those Subaccounts within the Account that have not been available for
one of the quoted periods, the standardized average annual total return
quotations may show the investment performance such Subaccount would have
achieved (reduced by the applicable charges) had it been available to invest in
shares of the Fund for the period quoted.
Below are quotations of average annual total return for contracts
assessing an .85% expense charge which are not subject to a daily administration
fee, calculated as described above.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED 12/31/96
------------------------------
COMMENCE- 10 SINCE
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS YEARS INCEPTION
- ---------- --------- ------ ------- ----- ---------
Multi-Sector........ 1/1/83 5.85% 9.14% 8.31% N/A
Balanced............ 5/1/92 4.10% N/A N/A 8.26%
Strategic Allocation 9/17/84 2.68% 7.61% 9.92% N/A
Growth.............. 1/1/83 6.00% 12.80% 14.52% N/A
International....... 5/1/90 11.73% 7.73% N/A 7.03%
Money Market........ 10/10/82 (1.12%) 2.55% 4.36% N/A
Real Estate......... 5/1/95 25.34% N/A N/A 25.58%
Theme............... 1/29/96 N/A N/A N/A 2.54%
Asia................ 9/17/96 N/A N/A N/A (6.19%)
U.S. Small Cap...... 5/1/95 38.10% N/A N/A 31.87%
Int'l. Small Cap.... 5/1/95 23.27% N/A N/A 34.74%
TPT Asset Alloc.(1). 11/28/88 11.66% 11.98% N/A 10.64%
TPT Stock(1)........ 11/4/88 15.00% 14.50% N/A 11.56%
TPT International(1) 5/1/92 16.53% N/A N/A 13.04%
TPT Dev. Mkts.(1)... 9/15/96 N/A N/A N/A (4.58%)
(1) Returns shown prior to 5/1/97, the inception date of the Class 2 shares,
are derived from the historical performance of Class 1 shares. These
returns have been adjusted to reflect the higher operating expenses for
Class 2 shares, which includes a 12b-1 fee of .25% annually.
ANNUAL TOTAL RETURN(1)
----------------------
MULTI- ALLO- INTER- MONEY
YEAR SECTOR BALANCED CATION GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983.... 4.64% N/A N/A 31.26% N/A 7.03%
1984.... 10.02% N/A (1.45%) 9.29% N/A 8.85%
1985.... 19.02% N/A 25.76% 33.26% N/A 6.69%
1986.... 17.82% N/A 14.25% 18.98% N/A 5.19%
1987.... (0.18%) N/A 11.18% 5.61% N/A 5.13%
1988.... 8.01% N/A 1.08% 2.63% N/A 6.12%
1989.... 6.90% N/A 18.41% 34.51% N/A 7.86%
1990.... 3.92% N/A 4.45% 2.75% (8.88%) 6.88%
1991.... 18.11% N/A 27.73% 41.00% 18.25% 4.67%
1992.... 8.72% 8.51% 9.28% 8.93% (13.91%) 2.29%
1993.... 14.48% 7.27% 9.64% 18.23% 36.75% 1.60%
1994.... (6.64%) (4.05%) (2.66%) 0.21% (1.19%) 2.56%
1995.... 22.02% 21.83% 16.78% 29.27% 8.24% 4.39%
1996.... 11.02% 9.19% 7.70% 11.18% 17.18% 3.72%
REAL U.S. INT'L.
YEAR ESTATE THEME ASIA SMALL CAP SMALL CAP
- ---- ------ ----- ---- --------- ---------
1995.... 16.83% N/A N/A 15.07%(3) 33.41%(3)
1996.... 31.46%(3) 9.08%(3) (0.20%)(3) 44.80% 30.39%
TPT TPT TPT TPT
YEAR ALLOCATION(2) STOCK(2) INT'L(2) DEV. MKTS.(2)
- ---- ---------- ----- ----- ----------
1989.... 11.63% 12.97% N/A N/A
1990.... (9.36%) (12.39%) N/A N/A
1991.... 25.85% 25.65% N/A N/A
1992.... 6.49% 5.54% (7.07%) N/A
1993.... 24.30% 32.08% 45.19% N/A
1994.... (4.43%) (3.68%) (3.71%) N/A
1995.... 20.75% 23.41% 14.05% N/A
1996.... 17.11% 20.62% 22.21% 0.93%
(1) Sales Charges have not been deducted from the Annual Total Return.
(2) Returns shown prior to 5/1/97, the inception date of the Class 2 shares,
are derived from the historical performance of Class 1 shares. These
returns have been adjusted to reflect the higher operating expenses for
Class 2 shares, which includes a 12b-1 fee of .25% annually.
(3) From inception.
Below are quotations of average annual total return for New York Contracts
issued on or after May 1, 1997. These figures have been restated to reflect an
average annual total return assuming the assessment of an .85% expense charge
and .125% daily administration fee, calculated as described above based on past
performance of existing Subaccounts as data for these Subaccounts are not yet
available.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIODS ENDED 12/31/96
------------------------------
COMMENCE- 10 SINCE
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS YEARS INCEPTION
- ---------- --------- ------ ------- ----- ---------
Multi-Sector....... 1/1/83 4.73% 8.81% 8.17% N/A
Balanced........... 5/1/92 3.00% N/A N/A 7.93%
Allocation......... 9/17/84 1.59% 7.29% 9.79% N/A
Growth............. 1/1/83 4.89% 12.45% 14.38% N/A
International...... 5/1/90 10.56% 7.40% N/A 6.74%
Money Market....... 10/10/82 (2.16%) 2.23% 4.23% N/A
Real Estate........ 5/1/95 24.01% N/A N/A 24.72%
Theme.............. 1/29/96 N/A N/A N/A 2.12%
Asia............... 9/17/96 N/A N/A N/A (6.52%)
U.S. Small Cap..... 5/1/95 36.64% N/A N/A 30.96%
Int'l. Small Cap... 5/1/95 23.03% N/A N/A 34.42%
TPT Asset Alloc.(2) 11/28/88 10.47% 11.64% N/A 10.45%
14
<PAGE>
AVERAGE ANNUAL TOTAL RETURN (CONT'D)
FOR THE PERIOD ENDED 12/31/96
-----------------------------
COMMENCE- 10 LIFE OF
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS YEARS FUND
- ---------- --------- ------ ------- ----- ----
TPT Stock(2)........ 11/4/88 13.78% 14.15% N/A 11.37%
TPT International(2) 5/1/92 15.28% N/A N/A 12.67%
TPT Dev. Mkts.(2)... 9/15/96 N/A N/A N/A (5.52%)
ANNUAL TOTAL RETURN(1)
----------------------
MULTI- ALLO- INTER- MONEY
YEAR SECTOR BALANCED CATION GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983.... 4.56% N/A N/A 31.10% N/A 6.85%
1984.... 9.82% N/A (1.51%) 9.16% N/A 8.72%
1985.... 18.97% N/A 25.61% 33.09% N/A 6.56%
1986.... 17.67% N/A 14.11% 18.83% N/A 5.06%
1987.... (0.30%) N/A 11.02% 5.47% N/A 5.05%
1988.... 8.98% N/A 0.94% 2.50% N/A 5.98%
1989.... 6.76% N/A 18.28% 34.35% N/A 7.71%
1990.... 3.78% N/A 4.32% 2.62% (8.98%) 6.74%
1991.... 17.96% N/A 27.56% 40.81% 18.11% 4.53%
1992.... 8.58% 8.43% 9.15% 8.79% (14.03%) 2.16%
1993.... 14.35% 7.13% 9.50% 18.08% 36.59% 1.47%
1994.... (6.78%) (4.17%) (2.75%) 0.08% (1.31%) 2.42%
1995.... 21.89% 21.69% 16.63% 29.13% 8.12% 4.23%
1996.... 10.89% 9.06% 7.57% 11.06% 17.05% 3.60%
REAL U.S. INT'L.
YEAR ESTATE THEME ASIA SMALL CAP SMALL CAP
- ---- ------ ----- ---- --------- ---------
1995.... 16.75% N/A N/A 14.97% 33.35%
1996.... 31.31% 8.98% (0.23%) 44.64% 30.24%
TPT TPT TPT TPT
YEAR ALLOCATION(2) STOCK(2) INT'L(2) DEV. MKTS.(2)
- ---- ---------- ----- ----- ----------
1989.... 11.49% 12.83% N/A N/A
1990.... (9.47%) (12.50%) N/A N/A
1991.... 25.70% 25.50% N/A N/A
1992.... 6.36% 5.41% (7.15%) N/A
1993.... 24.15% 31.92% 45.01% N/A
1994.... (4.55%) (3.80%) (3.83%) N/A
1995.... 20.60% 23.26% 13.91% N/A
1996.... 16.96% 20.47% 22.06% 0.90%
(1) Sales Charges have not been deducted from the Annual Total Return.
(2) Returns shown prior to 5/1/97, the inception date of the Class 2 shares,
are derived from the historical performance of Class 1 shares. These
returns have been adjusted to reflect the higher operating expenses for
Class 2 shares, which includes a 12b-1 fee of .25% annually.
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
Current yield for the Money Market Subaccount is based upon the income
earned by the Subaccount over a seven-day period and then annualized, i.e., the
income earned in the period is assumed to be earned every seven days over a
52-week period and stated as a percentage of the investment. Effective yield is
calculated similarly but when annualized, the income earned by the investment is
assumed to be reinvested in Subaccount Units and thus compounded in the course
of a 52-week period. Yield and effective yield reflect the recurring charges on
the Account level including the annual administrative fee.
Yield calculations of the Money Market Subaccount used for illustration
purposes are based on the consideration of a hypothetical Contract Owner's
account having a balance of exactly one Unit at the beginning of a seven-day
period, which period will end on the date of the most recent financial
statements. The yield for the Subaccount during this seven-day period will be
the change in the value of the hypothetical Contract Owner's account's
original unit. The following is an example of this yield calculation for the
Money Market Subaccount based on a seven-day period ending December 31, 1996.
Assumptions:
CONTRACTS
CONTRACTS ASSESSING .85%
ASSESSING EXPENSE CHARGE
.85% EXPENSE & .125% DAILY
CHARGE ADMIN. FEE
------ ----------
Value of hypothetical pre-existing account
with exactly one unit at the beginning of
the period:..................... 2.073039 1.050796
Value of the same account (excluding
capital changes) at the end of the
seven-day period:............... 2.074515 1.051525
Calculation:
Ending account value............... 2.074515 1.051525
Less beginning account value....... 2.073039 1.050796
Net change in account value........ 0.001476 0.000729
Base period return:
(adjusted change/beginning account
value).......................... 0.000712 0.000694
Current yield = return x (365/7) =. 3.71% 3.62%
Effective yield = [(1 + return)365/7] -1 = 3.78% 3.68%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time or other investment companies, due to charges which will
be deducted on the Account level.
A Subaccount's performance may be compared to that of the Consumer Price
Index or various unmanaged equity or bond indices such as the Dow Jones
Industrial Average, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500") and the Europe Australia Far East Index, and also may be compared to the
performance of the other variable annuities as reported by services such as
Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies, Inc.
("CDA") and Morningstar, Inc. or in other publications. Lipper and CDA are
widely recognized independent rating/ranking services. A Subaccount's
performance may also be compared to that of other investment or savings
vehicles.
Advertisements, sales literature and other communications may contain
information about any Series' or Advisers' current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately as a return figure the equity or bond portion of a
Series' portfolio; or compare a Series' equity or bond return figure to
well-known indices of market performance including but not limited to the S&P
500, Dow Jones Industrial Average, First Boston High Yield Index, and Solomon
Brothers Corporate and Government Bond indices.
Each Fund's Annual Report, available upon request and without charge,
contains a discussion of the performance of the Fund and a comparison of that
performance to a securities market index.
15
<PAGE>
THE VARIABLE ACCUMULATION ANNUITY
- --------------------------------------------------------------------------------
The individual deferred variable accumulation annuity contract (the
"Contract") issued by Phoenix may be significantly different from a fixed
annuity contract in that, unless the GIA is selected, it is the Owner and
Annuitant under a Contract who assume the risk of investment gain or loss rather
than Phoenix. To the extent that payments are not allocated to the GIA, the
amounts which will be available for annuity payments under a Contract will
depend on the investment performance of the amounts allocated to the Subaccounts
of the Account. Upon the maturity of a Contract, the amounts held under a
Contract will continue to be invested in the Account and/or the GIA. The
monthly annuity payments will vary in accordance with the investment experience
of the selected Subaccounts unless invested in the GIA, then the monthly
anniversary payment will not vary. However, a fixed annuity may be elected, in
which case Phoenix will guarantee specified monthly annuity payments.
The Owner selects the investment objective of each Contract on a continuing
basis by directing the allocation of purchase payments and Contract Value among
the GIA or the Multi-Sector, Money Market, Growth, Allocation, International,
Balanced, Real Estate, Theme, Asia, U.S. Small Cap, International Small Cap,
Templeton Stock, Templeton Asset Allocation, Templeton International and
Templeton Developing Markets Subaccounts.
PHOENIX AND THE ACCOUNT
- --------------------------------------------------------------------------------
Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851 and redomiciled to New York in 1992. Its Executive Office is
located at One American Row, Hartford, Connecticut 06115 and its main
administrative office is located at 100 Bright Meadow Boulevard, Enfield,
Connecticut 06083-1900. Its New York principal office is located at 99 Troy
Road, East Greenbush, New York 12061. Phoenix is the nation's 14th largest
mutual life insurance company and has total assets of approximately $15.5
billion. Phoenix sells insurance policies and annuity contracts through its own
field force of full time agents and through brokers. Its operations are
conducted in all 50 states, the District of Columbia, Canada and Puerto Rico.
On June 21, 1982, Phoenix established the Account, a separate account
created under the insurance laws of Connecticut. The Account is registered with
the Securities and Exchange Commission ("SEC") as a unit investment trust under
the Investment Company Act of 1940 (the "1940 Act") and it meets the definition
of a "separate account" under the 1940 Act. Registration under the 1940 Act does
not involve supervision of the management or investment practices or policies of
the Account or Phoenix.
On July 1, 1992, the Account's domicile was transferred to New York. Under
New York law and the Contracts, all income, gains or losses of the Account,
whether realized or not, must be credited to or charged against the amounts
placed in the Account without regard to the other income, gains and losses of
Phoenix. The assets of the Account may not be charged with liabilities arising
out of any other business that Phoenix may conduct. Obligations under the
Contracts are obligations of Phoenix.
Contributions to the GIA are not invested in the Account; rather, they
become part of the Phoenix general account (the "General Account"). The General
Account supports all insurance and annuity obligations of Phoenix and is made up
of all of its general assets other than those allocated to any separate account
such as the Account. For more complete information concerning the GIA, see
Appendix A.
THE PHOENIX EDGE SERIES FUND
- --------------------------------------------------------------------------------
Certain Subaccounts of the Account invest in corresponding
Series of The Phoenix Edge Series Fund. The investment adviser of all
of the Series (except Real Estate and Asia Series) is Phoenix
Investment Counsel, Inc. ("PIC"). The investment adviser of the Real
Estate Series is Phoenix Realty Securities, Inc. ("PRS") and for the
Asia Series, the adviser is Phoenix-Aberdeen International Advisors,
LLC ("PAIA"). The investment objective of each of the Series of the
Fund is as follows:
(1) MULTI-SECTOR FIXED INCOME ("MULTI-SECTOR") SERIES: The
investment objective of the Multi-Sector Series is to seek
long-term total return by investing in a diversified portfolio
of high yield (high risk) and high quality fixed income
securities. For a discussion of the risks associated with
investing in high yield bonds, please see the accompanying
Fund prospectus.
(2) MONEY MARKET SERIES: The investment objective of the Money Market
Series is to provide maximum current income consistent with capital
preservation and liquidity. The Money Market Series invests
exclusively in high quality money market instruments.
(3) GROWTH SERIES: The investment objective of the Growth Series is to
achieve intermediate and long-term growth of capital, with income as a
secondary consideration. The Growth Series invests principally in
common stocks of corporations believed by management to offer growth
potential.
(4) STRATEGIC ALLOCATION ("ALLOCATION") SERIES, FORMERLY THE
"TOTAL RETURN" SERIES: The investment objective of the
Allocation Series is to realize as high a level of total rate of
return over an extended period of time as is considered
consistent with prudent investment risk. The Allocation
Series invests in stocks, bonds and money market
instruments in accordance with the Adviser's appraisal of
investments most likely to achieve the highest total rate of
return.
(5) INTERNATIONAL SERIES: The International Series seeks as its
investment objective a high total return consistent with
reasonable risk. It intends to achieve its objective by
investing primarily in an internationally diversified portfolio
of equity securities. It intends to reduce its risk by engaging
in hedging transactions involving options, futures contracts
and foreign currency transactions. Investments may be
made for capital growth or for income or any combination
thereof for the purpose of achieving a high overall return.
(6) BALANCED SERIES: The investment objective of the Balanced Series is to
seek reasonable income, long-term capital growth and conservation of
capital. The Balanced Series intends to invest based on combined
considerations of risk, income, capital enhancement and protection of
capital value.
16
<PAGE>
(7) REAL ESTATE SECURITIES ("REAL ESTATE") SERIES: The
investment objective of the Real Estate Series is to seek
capital appreciation and income with approximately equal
emphasis. It intends under normal circumstances to invest
in marketable securities of publicly traded real estate
investment trusts (REITs) and companies that operate,
develop, manage and/or invest in real estate located
primarily in the United States.
(8) STRATEGIC THEME ("THEME") SERIES: The investment objective of the
Theme Series is to seek long-term appreciation of capital through
investing in securities of companies that the adviser believes are
particularly well positioned to benefit from cultural, demographic,
regulatory, social or technological changes worldwide.
(9) ABERDEEN NEW ASIA ("ASIA") SERIES: The investment objective of the
Asia Series is to seek long-term capital appreciation. It is intended
that this Series will invest primarily in a diversified portfolio of
equity securities of issuers located in at least three different
countries throughout Asia, excluding Japan.
(10) RESEARCH ENHANCED INDEX ("ENHANCED INDEX") SERIES:
The investment objective of the Enhanced Index Series is to
seek high total return by investing in a broadly diversified
portfolio of equity securities of large and medium
capitalization companies within market sectors reflected in
the S&P 500. It is intended that the Series will invest in a
portfolio of undervalued common stocks and other equity
securities which appear to offer growth potential and an
overall volatility of return similar to that of the S&P 500.
WANGER ADVISORS TRUST
- --------------------------------------------------------------------------------
The investment adviser of the U.S. Small Cap and International Small Cap
Series is Wanger Asset Management, L.P. ("WAM"). The investment objective of
each of the Series is as follows:
(1) WANGER U.S. SMALL CAP ("U.S. SMALL CAP") SERIES: The
investment objective of the U.S. Small Cap Series is to
provide long-term growth. The U.S. Small Cap Series will
invest primarily in securities of U.S. companies with a total
common stock market capitalization of less than $1 billion.
(2) WANGER INTERNATIONAL SMALL CAP ("INTERNATIONAL SMALL CAP") SERIES: The
investment objective of the International Small Cap Series is to
provide long-term growth. The International Small Cap Series will
invest primarily in securities of non-U.S. companies with a total
common stock market capitalization of less than $1 billion.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- --------------------------------------------------------------------------------
The investment adviser for the Templeton Stock, Templeton Asset Allocation
and Templeton International Series is Templeton Investment Counsel, Inc.
("TICI"). Templeton Asset Management, Ltd. is the investment adviser for the
Templeton Developing Markets Series. The investment objectives and policies of
each of the Series follows:
(1) TEMPLETON STOCK ("TPT STOCK") SERIES: Pursues capital growth through a
policy of investing primarily in common stocks issued by companies,
large and small, in various nations throughout the world.
(2) TEMPLETON ASSET ALLOCATION ("TPT ALLOCATION") SERIES:
Seeks a high level of total return through a flexible policy of
investing globally in stocks of companies in any nation, debt
securities of companies and governments of any nation, and
in money market instruments. Changes in the asset mix will
be made in an attempt to capitalize on total return potential
produced by changing economic conditions throughout the
world.
(3) TEMPLETON INTERNATIONAL ("TPT INTERNATIONAL") SERIES:
Seeks long-term capital growth through a flexible policy of
investing in stocks and debt obligations of companies and
governments outside the United States. Any income realized
will be incidental. Although the Fund generally invests in
common stock, it also may invest in preferred stocks and
certain debt securities such as convertible bonds which are
rated in any category by S&P or Moody's or which are
unrated by any rating agency.
(4) TEMPLETON DEVELOPING MARKETS ("TPT DEV. MKTS.")
SERIES: Seeks long-term capital appreciation by investing
primarily in equity securities of issuers in countries having
developing markets.
Each Series will be subject to the market fluctuations and risks
inherent in the ownership of any security and there can be no
assurance that any Series' stated investment objective will be
realized.
Shares of the Funds may be sold to other separate accounts of Phoenix or its
affiliates or of other insurance companies funding variable annuity or variable
life insurance contracts. It is conceivable that it may be disadvantageous for
variable life insurance separate accounts and variable annuity separate accounts
to invest in the Funds simultaneously. Although neither Phoenix nor the Funds
currently foresees any such disadvantages either to variable annuity contract
owners or to variable life insurance policyowners, the Funds' Trustees intend to
monitor events in order to identify any material conflict between variable
annuity contract owners and variable life insurance policyowners and to
determine what action, if any, should be taken in response thereto. Material
conflicts could result from, for example, (1) changes in state insurance laws,
(2) changes in Federal income tax laws, (3) changes in the investment management
of any portfolio of a Fund or (4) differences in voting instructions between
those given by variable life insurance policyowners and those given by variable
annuity contract owners.
FOR ADDITIONAL INFORMATION CONCERNING THE FUNDS AND THEIR SERIES, PLEASE SEE
THE ACCOMPANYING FUND PROSPECTUSES, WHICH SHOULD BE READ CAREFULLY BEFORE
INVESTING.
PURCHASE OF CONTRACTS
- --------------------------------------------------------------------------------
The minimum initial purchase payment for each Contract purchased is $1,000.
However, for Contracts purchased in connection with IRAs, the minimum initial
purchase payment is $1,000 and for contracts purchased in connection with
tax-qualified or employer sponsored plans, a minimum initial payment of $1,000
is required. For Contracts with a Maturity Date in the first Contract year, the
minimum
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initial purchase payment is $10,000. In addition, a Contract Owner may authorize
his bank to draw $25 or more from his personal checking account monthly to
purchase Units in any available Subaccount or for deposit in the GIA. The amount
the Contract Owner designates will be automatically invested on the date the
bank draws on his account. If this "check-o-matic" privilege is elected, the
minimum initial purchase payment is $25. This payment must accompany the
application. Each subsequent purchase payment under a Contract must be at least
$25.
Generally, a Contract may not be purchased with respect to a proposed
Annuitant who is eighty years of age or older. Total purchase payments in excess
of $1,000,000 cannot be made without the permission of Phoenix. While the
Annuitant is living and the Contract is in force, purchase payments may be
resumed at any time before the Maturity Date of a Contract.
Purchase payments received under the Contracts will be allocated to any
Subaccount and/or to the GIA, or a combination thereof, in the proportion
specified in the application for the Contract or as indicated by the Owner from
time to time. Changes in the allocation of purchase payments will be effective
as of receipt by VPMO by notice of election in a form satisfactory to Phoenix
and will apply to any purchase payments accompanying such notice or made
subsequent to the receipt of the notice, unless otherwise requested by the
Contract Owner.
DEDUCTIONS AND CHARGES
- --------------------------------------------------------------------------------
PREMIUM TAX
Whether or not a premium tax is imposed will depend upon, among other
things, the Owner's state of residence, the Annuitant's state of residence, the
status of Phoenix within those states and the insurance tax laws of those
states. Phoenix will pay any premium tax due and will only reimburse itself upon
the earlier of partial withdrawal, surrender of the Contract, the Maturity Date
or payment of death proceeds. For a list of states and premium taxes, see
"Appendix B."
SALES CHARGES
A deduction for contingent deferred sales charges (also referred to in this
Prospectus as sales or surrender charges) for these Contracts may be taken from
proceeds of withdrawals from, or complete surrender of, the Contracts if assets
are not held under the Contract for a certain period of time (see chart below).
No sales charge will be taken after the Annuity Period has begun except with
respect to unscheduled withdrawals under Options K or L below (see "Annuity
Options"). Any sales charge is imposed on a first-in, first-out basis.
With respect to withdrawals or surrenders, up to 10% of the Contract Value
may be withdrawn in a Contract Year, either in a lump sum or by multiple
scheduled or unscheduled partial surrenders, without the imposition of a sales
charge. During the first Contract Year, the 10% withdrawal without a sales
charge is only available on Contracts issued on or after May 1, 1996 and will be
determined based on the Contract Value at the time of the first partial
surrender. In subsequent years, the 10% will be based on the previous Contract
anniversary value. The deduction for sales charges, expressed as a percentage of
the amount redeemed in excess of the 10% allowable amount, follows:
AGE OF DEPOSIT IN CONTINGENT DEFERRED
COMPLETE YEARS FROM SALES CHARGE AS A
PAYMENT DATE UNIT PERCENTAGE OF
RELEASED WAS CREDITED AMOUNT WITHDRAWN
--------------------- ----------------
0 6%
1 5%
2 4%
3 3%
4 2%
5 1%
6 and over 0%
In the event that the Annuitant dies before the Maturity Date of the
Contract, the sales charge described in the table above will not apply.
The total sales charges on a Contract will never exceed 9% of the total
purchase payments, and the applicable level of sales charge cannot be changed
with respect to outstanding Contracts. Sales charges imposed in connection with
partial surrenders will be deducted from the Subaccounts and the GIA on a pro
rata basis. Any distribution costs not paid for by sales charges will be paid by
Phoenix from the assets of the General Account.
CHARGES FOR MORTALITY AND EXPENSE RISKS
While fixed annuity payments to Annuitants will reflect the investment
performance of the applicable Series of the Fund during the Accumulation Period,
the amount of such payments will not be decreased because of adverse mortality
experience of Annuitants as a class or because of an increase in actual expenses
of Phoenix over the expense charges provided for in the Contracts. Phoenix
assumes the risk that Annuitants as a class may live longer than expected
(necessitating a greater number of annuity payments) and that its expenses may
be higher than the deductions for such expenses.
In assuming the mortality risks, Phoenix agrees to continue life annuity
payments, determined in accordance with the annuity tables and other provisions
of the Contract, to the Annuitant or other payee for as long as he or she may
live.
Phoenix charges each Subaccount the daily equivalent of 0.40% on an annual
basis of the current value of the Subaccount's net assets for mortality risks
assumed and the daily equivalent of 0.85% (0.60% for certain contracts issued
prior to March 11, 1993) on an annual basis for expense risks assumed. (See the
Contract's Schedule Pages). No mortality and expense risk charge is deducted
from the GIA. If the percentage charges prove insufficient to cover actual
insurance underwriting costs and excess administrative costs, then the loss will
be borne by Phoenix; conversely, if the amount deducted proves more than
sufficient, the excess will be a profit to Phoenix. Any such profit may be used,
as a part of Phoenix's General Account's assets, to meet sales expenses, if any,
which are in excess of sales commission revenue generated from any sales
charges. Phoenix has concluded that there is a reasonable likelihood that the
distribution financing arrangement being used in connection with the Contracts
will benefit the Account and the Contract Owners.
CHARGES FOR ADMINISTRATIVE SERVICES
Phoenix is responsible for administering the Contract. In this connection,
Phoenix, among other things, maintains an account for each Owner and Annuitant,
makes all disbursements of benefits,
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furnishes administrative and clerical services for each Contract, makes
disbursements to pay obligations chargeable to the Account, maintains the
accounts, records and other documents relating to the business of the Account
required by regulatory authorities, causes the maintenance of the registration
and qualification of the Account under laws administered by the Securities and
Exchange Commission, prepares and distributes notices and reports to Owners and
the like. Phoenix also reimburses Phoenix Equity Planning Corporation for any
expenses incurred by it as "principal underwriter." All organizational expenses
of the Account are paid by Phoenix.
To cover its fixed cost of administration, such as preparation of billings
and statements of account, Phoenix generally charges each Contract $35 each year
prior to the Contract's Maturity Date. This cost-based charge is deducted from
each Subaccount and/or the GIA holding the assets of the Owner or on a pro rata
basis from two or more Subaccounts or the GIA in relation to their values under
the Contract and is not subject to increase but may be subject to decrease. This
charge is deducted on the Contract anniversary date for services rendered since
the preceding Contract anniversary date. Upon surrender of a Contract, where
applicable, the entire annual administrative charge is deducted regardless of
when the surrender occurs. If Annuity Options I, J, K, M or N are elected, the
$35 charge will be deducted from each annuity payment in equal amounts after the
Maturity Date.
Phoenix may reduce the sales charge or annual administrative charges for
Contracts issued under tax-qualified plans other than IRAs and Contracts issued
under group or sponsored arrangements, in all states except New York. Generally,
sales costs per Contract vary with the size of the group or sponsored
arrangement, its stability as indicated by its term of existence and certain
characteristics of its members, the purposes for which the Contracts are
purchased and other factors. The amounts of reductions will be considered on a
case-by-case basis and will reflect the reduced administrative costs expected as
a result of sales to a particular group or sponsored arrangement. In addition,
Phoenix may reduce the annual administrative charge under a Contract to reflect
lower administrative costs.
No sales or annual administrative charges will be deducted for Contracts
sold to registered representatives of the principal underwriter or to officers,
directors and employees of Phoenix and their spouses; or to employees or agents
who retire from Phoenix or Phoenix Equity Planning Corporation; or to registered
representatives of broker/dealers with whom Phoenix Equity Planning Corporation
has selling agreements, regardless as to their state of residence.
OTHER CHARGES
As compensation for investment management services, the Advisers are
entitled to a fee, payable monthly and based on an annual percentage of the
average aggregate daily net asset values of each Series.
These Fund charges and other expenses are described more fully
in the accompanying Fund prospectuses.
THE ACCUMULATION PERIOD
- --------------------------------------------------------------------------------
ACCUMULATION UNITS
Initial purchase payments will be applied within two days if the application
for a Contract is complete. If an incomplete application form is completed
within five business days of receipt by VPMO, the initial purchase payment will
be applied within two days of the completion of the application. In the event
that VPMO does not accept the application within five business days or if an
application is not completed within five business days of receipt by VPMO, then
the purchase payment will be immediately returned. If the GIA is chosen,
additional purchase payments are deposited on the date of receipt of such
purchase payment at VPMO. If one or more of the Subaccounts is chosen,
additional purchase payments are applied to the purchase of Accumulation Units
of the Subaccount(s) chosen, at the value of such Units next determined after
the receipt of such purchase payment at VPMO. The number of Accumulation Units
of a Subaccount purchased with a specific purchase payment will be determined by
dividing the applied purchase payment by the value of an Accumulation Unit in
that Subaccount next determined after receipt of the purchase payment. The value
of the Accumulation Units of a Subaccount will vary depending upon the
investment performance of the applicable Series of the Funds, the fees charged
against the Fund and the charges and deductions made against the Subaccount.
ACCUMULATION UNIT VALUES
At any date prior to the Maturity Date of the Contract, the total value of
the Accumulation Units in a Subaccount which has been credited under a Contract
can be computed by multiplying the number of such Units by the appropriate value
of an Accumulation Unit in effect for such date. The value of an Accumulation
Unit on a day other than a Valuation Date is the value of the Accumulation Unit
on the next Valuation Date. The number of Accumulation Units in each Subaccount
credited under each Contract and their current value will be reported to the
Owner at least annually.
TRANSFERS
A Contract Owner may, at any time but no later than 30 days prior to the
Maturity Date of a Contract, elect to transfer all or any part of the Contract
Value among one or more Subaccounts or the GIA. Any such transfer from a
Subaccount will result in the redemption of Accumulation Units and, if another
Subaccount is selected, in the purchase of Accumulation Units on the basis of
the respective values next determined after the receipt by VPMO of written
notice of election in a form satisfactory to Phoenix. A transfer among
Subaccounts or the GIA does not automatically change the payment allocation
schedule of a contract.
A Contract Owner may also request transfers and changes in payment
allocations among available Subaccounts or the GIA by calling (800) 447-4312
between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time. Unless the Contract
Owner elects in writing not to authorize telephone transfers or allocation
changes, telephone transfer orders and allocation changes also will be accepted
on behalf of the Contract Owner from his or her registered representative.
Phoenix and Phoenix Equity Planning Corporation ("PEPCO") will employ reasonable
procedures to confirm that telephone instructions are genuine. They will require
verification of account information and will record telephone instructions on
tape. All telephone transfers and
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<PAGE>
allocation changes will be confirmed in writing to the Contract Owner. To the
extent that procedures reasonably designed to prevent unauthorized transfers are
not followed, Phoenix and PEPCO may be liable for following telephone
instructions for transfers that prove to be fraudulent. However, the Contract
Owner would bear the risk of loss resulting from instructions entered by an
unauthorized third party that Phoenix and PEPCO reasonably believe to be
genuine. These telephone privileges may be modified or terminated at any time
and during times of extreme market volatility, may be difficult to exercise. In
such cases a Contract Owner should submit a written request.
A Contract Owner also may elect to transfer funds automatically among the
Subaccounts or the GIA on a monthly, quarterly, semi-annual or annual basis
under the Systematic Transfer Program for Dollar Cost Averaging ("Systematic
Transfer Program"). Under this Systematic Transfer Program, the minimum initial
and subsequent transfer amounts are $25 monthly, $75 quarterly, $150
semi-annually or $300 annually. A Contract Owner must have an initial value of
$2,000 in the GIA or the Subaccount that funds will be transferred from (sending
Subaccount), and if the value in that Subaccount or the GIA drops below the
elected transfer amount, the entire remaining balance will be transferred and no
more systematic transfers will be processed. Funds may be transferred from only
one sending Subaccount or the GIA, but may be allocated to multiple receiving
Subaccounts. Under the Systematic Transfer Program, Contract Owners may transfer
approximately equal amounts from the GIA over a minimum 18-month period.
Upon completion of the Systematic Transfer Program, the Contract Owner must
notify VPO at (800) 447-4312 or in writing to VPMO to implement another
Systematic Transfer Program.
All transfers under the Systematic Transfer Program will be executed on the
basis of the respective values as of the first of the month following receipt of
the Systematic Transfer Program request. If the first of the month falls on a
holiday or weekend, then the transfer will be processed on the next business
day.
Unless Phoenix agrees otherwise or the Systematic Transfer Program has been
elected, a Contract Owner may make only one transfer per Contract year from the
GIA. Non-systematic transfers from the GIA will be effectuated on the date of
receipt by VPMO except as otherwise may be requested by the Contract Owner. For
non-systematic transfers, the amount that may be transferred from the GIA at any
one time cannot exceed the greater of $1,000 or 25% of the Contract Value in the
GIA at the time of transfer.
Phoenix reserves the right not to accept batched transfer instructions from
registered representatives acting under powers of attorney for multiple Contract
Owners unless the registered representative's broker-dealer firm and Phoenix
have entered into a third party transfer service agreement.
No sales charge will be assessed when a transfer is made. The date a payment
was credited for the purpose of calculating the sales charge will remain the
same notwithstanding the transfer. Currently, there is no charge for transfers;
however, Phoenix reserves the right to charge a transfer fee of $10.00 per
transfer after the first two in each Contract year to defray administrative
costs. Currently, unlimited transfers are permitted; however, Phoenix reserves
the right to limit the number of transfers made during each Contract year a
Contract is in existence. When the temporary Money Market Allocation Amendment
has been issued, no transfers may be made until the end of the free look period
(see "Free Look Period"). However, Contract Owners will be permitted at least
six transfers during each Contract year. THERE ARE ADDITIONAL RESTRICTIONS ON
TRANSFERS FROM THE GIA AS DESCRIBED ABOVE AND IN APPENDIX A.
Phoenix reserves the right to limit the number of Subaccounts you may elect
to a total of 18 at any one time and/or over the life of the Contract unless
required to be less to comply with changes in federal and/or state regulation,
including tax, securities and insurance law. As of the date of this Prospectus,
this limitation has no effect because fewer Subaccounts are offered.
SURRENDER OF CONTRACT; PARTIAL WITHDRAWALS
If the Annuitant is living, amounts held under the Contract may be withdrawn
in whole or in part prior to the Maturity Date, or after the Maturity Date under
Annuity Options K or L. Prior to the Maturity Date, the Contract Owner may
withdraw up to 10% of the Contract Value in a Contract Year, either in a lump
sum or by multiple scheduled or unscheduled partial surrenders, without the
imposition of a sales charge. During the first Contract Year, the 10% withdrawal
without a sales charge is only available on Contracts issued on or after May 1,
1996 and will be determined based on the Contract Value at the time of the first
partial surrender. In all subsequent years the 10% will be based on the previous
Contract anniversary value. A signed written request for withdrawal must be sent
to VPMO. If the Contract Owner has not yet reached age 59 1/2, a 10% penalty tax
will apply on taxable income withdrawn (see "Federal Income Taxes"). The
appropriate number of Accumulation Units of a Subaccount will be redeemed at
their value next determined after the receipt by VPMO of a written notice in a
form satisfactory to Phoenix. Unless the Owner designates otherwise,
Accumulation Units redeemed in a partial withdrawal will be redeemed in each
Subaccount in the same proportion as the value of the Accumulation Units of the
Contract is then allocated among the Subaccounts. Also, Contract Values in the
GIA will be withdrawn in a partial withdrawal in the same proportion as the
Contract Value is then allocated to the GIA, unless the Owner designates
otherwise. The redemption value of Accumulation Units may be more or less than
the purchase payments applied under the Contract to purchase the Accumulation
Units, depending upon the investment performance in each Subaccount. The
resulting cash payment will be made in a single sum, ordinarily within seven
days after receipt of such notice. However, redemption and payment may be
delayed under certain circumstances (see "Deferment of Payment"). There may be
adverse tax consequences to certain surrenders and partial withdrawals (see
"Surrenders or Withdrawals Prior to the Contract Maturity Date"). Certain
restrictions on redemptions are imposed on Contracts used in connection with
Internal Revenue Code Section 403(b) plans (see "Qualified Plans";
"Tax-Sheltered Annuities"). A deduction for sales charges may be imposed on
partial withdrawals from, and complete surrender of, a Contract (see "Sales
Charges"). Any sales charge is imposed on a first-in, first-out basis.
Any request for a withdrawal from, or complete surrender of, a Contract
should be mailed to Phoenix Variable Products Mail Operation, PO Box 8027,
Boston, Massachusetts 02266-8027.
LAPSE OF CONTRACT
If on any Valuation Date the Contract Value is zero, or the premium tax
reimbursement due on a surrender or partial withdrawal is greater
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than or equal to the Contract Value, the Contract will immediately terminate and
lapse without value. Within 30 days after this Valuation Date, Phoenix will
notify the Contract Owner in writing that the Contract has lapsed.
PAYMENT UPON DEATH BEFORE MATURITY DATE (NON-NEW YORK INDIVIDUAL CONTRACTS)
If the Owner is the Annuitant and dies before the Contract Maturity Date,
the death benefit will be paid under the Contract to the Owner/Annuitant's
beneficiary. If the Owner and the Annuitant are not the same and the Annuitant
dies prior to the Maturity Date, the contingent Annuitant becomes the Annuitant.
If there is no contingent Annuitant, the death benefit will be paid to the
Annuitant's beneficiary. The death benefit is calculated according to the
following method. If the death occurred during the first six years following the
Contract date, this payment would be equal to the greater of: (a) the sum of all
purchase payments made under the Contract less any prior partial withdrawals
(see "Surrender of Contract; Partial Withdrawals"); or (b) the Contract Value
next determined following receipt of a certified copy of the death certificate
at VPMO. If the death occurred during any subsequent six-year period, this
payment would be equal to the greater of: (a) the death benefit that would have
been payable at the end of the immediately preceding six-year period, plus any
purchase payments made and less any partial withdrawals since such date; or (b)
the Contract Value next determined following receipt of a certified copy of the
death certificate at VPMO.
If the Owner and the Annuitant are not the same and the Owner dies prior to
the Maturity Date and there is no surviving joint Owner, upon receipt of due
proof of death, Phoenix will fully surrender the Contract and pay the Cash
Surrender Value (Contract Value less any applicable sales charge) to the Owner's
beneficiary (see "Sales Charges").
Payments will be made in a single sum to the beneficiary designated by the
Owner prior to the Annuitant's death unless an optional method of settlement had
been elected by the Owner. If an optional method of settlement had not been
elected by the Owner, the beneficiary may elect an optional method of settlement
in lieu of a single sum. No deduction is made for sales or other expenses upon
such election (see "Sales Charges"). Notwithstanding the foregoing, if the
amount to be paid is less than $2,000, it will be paid in a single sum (see
"Annuity Options"). Depending upon state law, the payment to the beneficiary may
avoid probate.
NEW YORK INDIVIDUAL CONTRACTS ISSUED ON OR AFTER MAY 1, 1997
- --------------------------------------------------------------------------------
Individual Contracts issued in New York on or after May 1, 1997, have
certain differences from the other individual Contracts described in this
Prospectus. Other than the differences noted in this section, the Contracts are
the same as the other individual Contracts. These differences are reflected in
the "Summary of Expenses for Individual Contracts Issued in New York on or after
May 1, 1997."
SALES CHARGES
A deduction for contingent deferred sales charges for these Contracts may be
taken from proceeds of withdrawals from, or complete surrender of, the Contract
if assets are not held under the Contract for a certain period (see the chart
below). Sales charges are not taken after the Annuity Period has begun, except
with respect to unscheduled withdrawals under Options K or L (see Annuity
Options). A sales charge is not imposed on amounts payable because of the death
of the Annuitant or Owner.
With respect to withdrawals or surrenders, up to 10% of the Contract Value
may be withdrawn in a Contract Year, either in a lump sum or by multiple
scheduled or unscheduled partial surrenders, without imposition of the sales
charge. During the first Contract Year, the 10% will be based on the Contract
Value at the time of the first partial surrender. In subsequent years, the 10%
will be based on the previous Contract anniversary value. The deduction for
sales charges, expressed as a percentage of the amounts redeemed greater than
the 10% allowable amount is as follows:
AGE OF DEPOSIT IN CONTINGENT DEFERRED
COMPLETE YEARS FROM SALES CHARGE AS A
PAYMENT DATE UNIT PERCENTAGE OF
RELEASED WAS CREDITED AMOUNT WITHDRAWN
---------------------- ----------------
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6 1%
7 and over 0%
In the event of the death of the Annuitant or Owner before the Maturity
Date, the sales charge described in the table above will not apply.
DAILY ADMINISTRATIVE FEE
Phoenix charges each Subaccount the daily equivalent of 0.125% annually of
the accumulated value of the Subaccount to cover its variable costs of
administration (such as printing and distribution of materials pertaining to
Contract Owner meetings). This cost-based fee is not deducted from the GIA nor
from Contracts sold to registered representatives of PEPCO or broker/dealers
with whom PEPCO has selling agreements, or to officers, directors and employees
of Phoenix or its affiliates and their spouses or to employees or agents who
retire from Phoenix or its affiliates or PEPCO.
MATURITY DATE
The Maturity Date cannot be earlier than five years from the inception of
the Contract, nor later than the Contract anniversary nearest the Annuitant's
95th birthday.
PAYMENT UPON DEATH BEFORE MATURITY DATE
If the Owner/Annuitant dies before the Contract Maturity Date, the death
benefit will be paid under the Contract to the Owner/Annuitant's beneficiary. If
the Owner and the Annuitant are not the same and the Annuitant dies prior to the
Maturity Date, the contingent Annuitant becomes the Annuitant. If there is no
contingent Annuitant, the death benefit will be paid to the Annuitant's
beneficiary. Upon the death of the Annuitant or an Owner/Annuitant who has not
yet attained age 85, the death benefit (less any deferred premium tax) is
calculated according to the following method:
1. Death occuring in the first Contract Year -- the greater of:
a. 100% of purchase payments, less any withdrawals; or
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b. the Contract Value next determined following receipt of a
certified copy of the death certificate at VPMO.
2. Death occuring in the second Contract Year or any subsequent
Contract Year -- the greater of:
a. the death benefit at the end of the previous Contract Year,
plus 100% of purchase payments, less any withdrawals
made since that date; or
b. the Contract Value next determined following receipt of a
certified copy of the death certificate at VPMO.
After the Annuitant's age 85, the death benefit (less any deferred premium
tax) equals the Contract Value (no surrender charge is imposed) next determined
following receipt of a certified copy of the death certificate at VPMO.
Upon the death of an Owner who is not the Annuitant, provided that there is
no surviving joint Owner, the death proceeds will be paid to the Owner's
Beneficiary. The amount of death benefit payable is equal to the greater of:
a. 100% of purchase payments, less withdrawals; or
b. the Contract Value next determined following receipt of a
certified copy of the death certificate at VPMO.
If the Owner or Owner/Annuitant's beneficiary elects to defer payment of the
death proceeds for a period longer than one Contract Year, the death proceeds
that will be payable upon distribution is equal to the greater of:
a. 100% of purchase payments, less withdrawals; or
b. the Contract Value next determined following receipt at VPMO of both
written authorization for distribution and a certified copy
of the death certificate.
Payments will be made in a single sum to the beneficiary designated by the
Owner prior to the Annuitant's death unless an optional method of settlement had
been elected by the Owner. If an optional method of settlement had not been
elected by the Owner, the beneficiary may elect an optional method of settlement
in lieu of a single sum. No deduction is made for sales or other expenses upon
such election (see "Sales Charges"). Notwithstanding the foregoing, if the
amount to be paid is less than $2,000, it will be paid in a single sum (see
"Annuity Options"). Depending upon state law, the payment to the beneficiary may
avoid probate and the death benefit may be reduced by any premium tax due (see
"Premium Tax"). See also "Distribution at Death Rules" under Federal Income Tax.
GROUP CONTRACTS
- --------------------------------------------------------------------------------
Contracts may be purchased by employers (or trusts) to fund tax-qualified
pension or profit-sharing plans such as defined contribution and defined benefit
plans ("Group Contracts"). Group Contracts may be purchased on an "allocated" or
"unallocated" basis. In most respects the Group Contracts are the same as the
Contracts purchased on an individual basis described elsewhere in this
Prospectus; however, there are certain differences as described in this section.
Phoenix may limit the payments made under a Group Contract to $1,000,000 and
reserves the right to terminate a Group Contract after 20 years.
The GIA, all of the Series of The Phoenix Edge Series Fund,
Wanger Advisors Trust and Templeton Variable Products Series Fund
are available for investment.
ALLOCATED GROUP CONTRACTS
Under an allocated Group Contract, the Contract Owner is the trust to whom
the Contract is issued. However, individual participant accounts are maintained
and the Contract Owner passes on certain rights to the plan participants such as
the right to choose Subaccounts, and transfer amounts between Subaccounts.
Under an allocated Group Contract, a minimum initial purchase payment of $25
per participant account is required. Subsequent payments per participant account
must be at least $25 and must total at least $300 per Contract year. The annual
administrative service charge under an allocated Group Contract is currently $15
per participant account; it is guaranteed not to exceed $30. If amounts are
withdrawn within a certain number of years after deposit, a sales charge will
apply as described with respect to individual Contracts in the section,
"Deductions and Charges--Sales Charges," unless the withdrawal is for payment of
a plan benefit upon a plan participant's death, disability, demonstration of
financial hardship, termination of employment or retirement (provided the Group
Contract participant account has been maintained for at least five years or the
participant is age 55 or older), taking a participant loan or for the purchase
of another annuity contract, a Retired Life Certificate or election of a Life
Expectancy Distribution option from Phoenix. A sales charge will apply to all
other withdrawals within a certain number of years after deposit as described in
the section, "Deductions and Charges--Sales Charges;" there is no 10% free
withdrawal privilege under allocated Group Contracts.
Under Group Contracts issued in New York, the sales charge will not be
applied to amounts exceeding the total of purchase payments made under the
Contract (calculated at their initial value). In addition, if the Contract has
been in force for at least twenty years and Phoenix terminates the Contract, no
sales charge will apply.
Upon the death of a participant, a death benefit will be paid to the
Contract Owner. The Contract Owner may then distribute the death benefit in
accordance with the terms of the plan. If the death occurred during the first
six years following the Contract date, this payment would be equal to the
greater of: (a) the sum of all purchase payments made by the participant less
any prior withdrawals or (b) the participant's accumulated value under the
Contract. If the death occurred during any subsequent six-year period, this
payment would equal the greater of: (a) the death benefit that would have been
payable at the end of the immediately preceding six-year period, plus any
purchase payments made and less any partial withdrawals since such date or (b)
the participant's accumulated value under the Contract.
Loans and hardship withdrawals will be available under Internal Revenue Code
of 1986 Section 401(k) plans after January 1, 1996. If the plan permits loans, a
partial withdrawal from the participant's contract value may be requested. The
partial withdrawal for the loan must be at least $1,000 and the participant's
remaining contract value must be at least $2,000. A contingent deferred sales
charge will not apply to such a partial withdrawal. A $125 administrative charge
per partial withdrawal will apply and this amount may be increased in the
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future. Loan repayments, including any interest, will be allocated to the
participant's Subaccounts in the same proportion as new payments.
UNALLOCATED GROUP CONTRACTS
Under an unallocated Group Contract, the Contract Owner is the trust to whom
the Contract is issued. The Contract Owner exercises all rights under the
Contract on behalf of plan participants; no participant accounts are maintained
under the Contract.
Under an unallocated Group Contract, a minimum initial purchase payment of
$5,000 is required and subsequent payments also must be at least $5,000. The
annual administrative service charge under an unallocated Group Contract is
currently $300; it is guaranteed not to exceed $500.
If amounts are withdrawn in the early Contract years, a sales charge may
apply unless the withdrawal is for the payment of a plan benefit related to the
death or disability of a plan participant or the purchase of an individual
annuity contract or Life Expectancy Distribution option from Phoenix. A
deduction for a sales charge for an unallocated Group Contract may be taken from
the proceeds of a withdrawal from, or complete surrender of, the Contract if the
withdrawal is not related to the payment of a plan benefit or the purchase of an
annuity as described above and the Contract has not been held for a certain
period of time (see chart below). However, withdrawals of up to 15% of the
payments made under a Contract in the first Contract year and up to 15% of the
Contract Value as of the previous Contract anniversary may be made each year
without imposition of a sales charge for payment of plan benefits related to
termination of employment or retirement. The deduction for sales charges,
expressed as a percentage of the amount redeemed in excess of the 15% allowable
amount, is as follows:
CONTINGENT DEFERRED SALES CHARGE
CONTRACT YEAR AS A PERCENTAGE OF AMOUNT WITHDRAWN
------------- -----------------------------------
0 6%
1 6%
2 6%
3 6%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
10 and over 0%
The total deferred sales charges on a Contract will never exceed 9% of the
total purchase payments, and the applicable level of sales charge cannot be
changed with respect to outstanding Contracts.
Under Group Contracts issued in New York, the sales charge will not be
applied to amounts exceeding the total of purchase payments made under the
Contract (calculated at their initial value). In addition, if the Contract has
been in force for at least twenty years and Phoenix terminates the Contract, no
sales charge will apply.
Upon the death of a participant, a death benefit will be paid to the
Contract Owner. The Contract Owner may then distribute the death
benefit in accordance with the terms of the plan.
THE ANNUITY PERIOD
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VARIABLE ACCUMULATION ANNUITY CONTRACTS
Annuity payments will commence on the Contract's Maturity Date if the
Annuitant is then living and the Contract is then in force. On the Maturity Date
and thereafter, investment in the Account is continued unless a Fixed Payment
Annuity is elected. No sales charge is taken. Each Contract will provide, at the
time of its issuance, for a Variable Payment Life Annuity with Ten Year Period
Certain unless a different annuity option is elected by the Owner (see "Annuity
Options"). Under a Variable Payment Life Annuity with Ten Year Period Certain,
annuity payments, which may vary in amount based on the performance of the
Subaccount selected, are made monthly for life and, if the Annuitant dies within
ten years after the Maturity Date, the Annuitant's beneficiary will be paid the
payments remaining in the ten-year period. A different form of annuity may be
elected by the Owner prior to the Maturity Date. Once annuity payments have
commenced, the Annuity Option may not be changed.
If the amount to be applied on the Maturity Date is less than $2,000,
Phoenix may pay such amount in one lump sum in lieu of providing an annuity. If
the initial monthly annuity payment under an Annuity Option would be less than
$20, Phoenix also may make a single sum payment equal to the total Contract
Value on the date the initial payment would be payable, in place of all other
benefits provided by the Contract, or, make periodic payments quarterly,
semi-annually or annually in place of monthly payments.
Each Contract specifies a provisional Maturity Date at the time of its
issuance. The Owner may subsequently elect a different Maturity Date. The
Maturity Date shall not be earlier than the first Contract anniversary unless a
variable payment option is elected (Options I, J, K, L, M or N), or later than
the Contract anniversary nearest the Annuitant's 85th birthday unless the
Contract is issued in connection with certain qualified plans. Generally, under
qualified plans, the Maturity Date must be such that distributions begin no
later than April 1st of the calendar year following the later of: (a) the year
in which the employee attains age 70 1/2; or (b) the calendar year in which the
employee retires. The date set forth in (b) does not apply to an IRA.
The Maturity Date election shall be made by written notice and must be
received by VPMO thirty days before the provisional Maturity Date. If a Maturity
Date, which is different from the provisional Maturity Date of the Contract, is
not elected by the Owner, the provisional Maturity Date becomes the Maturity
Date. Particular care should be taken in electing the Maturity Date of a
Contract issued under a Tax-Sheltered Annuity, a Keogh Plan or an IRA plan. (See
"Tax-Sheltered Annuities," "Keogh Plans" and "Individual Retirement Accounts.")
ANNUITY OPTIONS
Unless an alternative annuity payment option is elected on or before the
Maturity Date, the amounts held under a Contract on the Maturity Date will be
automatically applied to provide a 10-year period certain variable payment
monthly life annuity based on the life of the Annuitant under Option I described
below. Any annuity payments falling due after the death of the Annuitant during
the period certain will be paid to the Annuitant's beneficiary. Each annuity
payment will be based upon the value of the Annuity Units credited to the
Contract. The number of Annuity Units in each Subaccount to be credited is
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based on the value of the Accumulation Units in that Subaccount and the
applicable annuity purchase rate. The purchase rate differs acc ording to the
payment option selected and the age of the Annuitant. The value of the Annuity
Units will vary with the investment performance of each Subaccount to which
Annuity Units are credited based on an assumed investment return of 4 1/2% per
year. This rate is a fulcrum rate around which variable annuity payments will
vary to reflect whether actual investment experience of the Subaccount is better
or worse than the assumed investment return. The assumed investment return and
the calculation of variable income payments for such 10-year period certain
variable payment life annuity and for Options J and K described below are
described in more detail in the Contract and in the Statement of Additional
Information.
In lieu of the 10-year period certain variable payment life annuity (see
"Option I--Variable Payment Life Annuity with Ten Year Period Certain"), the
Owner may, by written request received by VPMO on or before the Maturity Date of
the Contract, elect any of the other annuity payment options described below. If
the Maturity Date occurs in the first Contract year, only Options I, J, K, L, M
or N may be elected. No surrender charge will be assessed under any annuity
option unless unscheduled withdrawals are made under Annuity Options K or L.
The level of annuity payments payable under the following options is based
upon the option selected and, depending on the option chosen, such factors as
the age at which payments begin, the form of annuity, annuity purchase rates,
assumed investment return (for variable payment annuities) and the frequency of
payments.
Phoenix deducts a daily charge for mortality and expense risks from Contract
Values held in the Subaccounts (see "Charges For Mortality and Expense Risks").
Therefore, electing Option K will result in a deduction being made even though
Phoenix assumes no mortality risk under that option.
OPTION A--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN
Provides a monthly income for the life of the Annuitant. In the
event of death of the Annuitant, the annuity income will be paid to the
beneficiary until the end of the specified period certain. For example, a ten
year period certain will provide a total of 120 monthly payments.
The certain period may be 5, 10 or 20 years.
OPTION B--NON-REFUND LIFE ANNUITY
Provides a monthly income for the lifetime of the Annuitant. No income is
payable after the death of the Annuitant.
OPTION C--DISCONTINUED
OPTION D--JOINT AND SURVIVOR LIFE ANNUITY
Provides a monthly income for the lifetimes of both the Annuitant and a
joint annuitant as long as either is living. In the event of the death of the
Annuitant or joint annuitant, the annuity income will continue for the life of
the survivor. The amount to be continued to the survivor may be 100% or 50% of
the amount of the joint annuity payment, as elected at the time the annuity
option is chosen. No income is payable after the death of the survivor
annuitant.
Under Option D, the joint annuitant must be named at the time the option is
elected and cannot be changed. The joint annuitant must have reached an adjusted
age of 40, as defined in the Contract.
OPTION E--INSTALLMENT REFUND LIFE ANNUITY
Provides a monthly income for the life of the Annuitant. In the event of the
Annuitant's death, the annuity income will continue to the Annuitant's
beneficiary until the amount applied to purchase the annuity has been
distributed.
OPTION F--JOINT AND SURVIVOR LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN
Provides a monthly income for the lifetime of both the Annuitant
and a joint annuitant as long as either is living. In the event of the death of
the Annuitant or joint annuitant, the annuity income will continue for the life
of the survivor. If the survivor dies prior to the end of the elected period
certain, the annuity income will continue to the named beneficiary until the end
of the elected period certain. For example, a ten year period certain will
provide a total of 120 monthly payments. A period certain of either 10 or 20
years may be chosen.
Under Option F, the joint annuitant must be named at the time the option is
elected and cannot be changed. The joint annuitant must have reached an adjusted
age of 40, as defined in the Contract.
OPTION G--PAYMENTS FOR SPECIFIED PERIOD
Provides equal income installments for a specified period of years whether
the Annuitant lives or dies. Any specified whole number of years from 5 to 30
years may be elected.
OPTION H--PAYMENTS OF SPECIFIED AMOUNT
Provides equal installments of a specified amount over a period of at least
five years. The specified amount may not be greater than the total annuity
amount divided by five annual installment payments. If the Annuitant dies prior
to the end of the elected period certain, annuity payments will continue to the
Annuitant's beneficiary until the end of the elected period certain.
OPTION I--VARIABLE PAYMENT LIFE ANNUITY WITH TEN YEAR PERIOD CERTAIN
Unless another annuity option has been elected, this option will
automatically apply to any Contract proceeds payable on the Maturity Date. It
provides a variable payout monthly annuity based on the life of the Annuitant.
In the event of the death of the Annuitant, the annuity payments are made to the
Annuitant's beneficiary until the end of the ten year period. The ten-year
period provides a total of 120 monthly payments. Payments will vary as to dollar
amount, based on the investment experience of the Subaccounts to which proceeds
are applied.
OPTION J--JOINT SURVIVOR VARIABLE PAYMENT LIFE ANNUITY WITH TEN YEAR PERIOD
CERTAIN
Provides a variable payout monthly annuity while the Annuitant and the
designated joint annuitant are living and continues thereafter during the
lifetime of the survivor or, if later, until the end of a 10-year period
certain. Payments will vary as to dollar amount, based on the investment
experience of the Subaccounts to which proceeds are applied. Under Option J, the
joint annuitant must be named at the time the option is selected and cannot be
changed. The joint annuitant must have reached an adjusted age of 40, as defined
in the Contract.
OPTION K--VARIABLE PAYMENT ANNUITY FOR A SPECIFIED PERIOD
Provides variable payout monthly income installments for a specified period
of time, whether the Annuitant lives or dies. The period certain specified must
be in whole numbers of years from 5 to 30. However, the period certain selected
by the beneficiary of any
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<PAGE>
death benefit under the Contract may not extend beyond the life expectancy of
such beneficiary. A Contract Owner may request an unscheduled withdrawal
representing part or all of the remaining Contract Value (less any applicable
contingent deferred sales charge) at any time under Option K.
OPTION L--VARIABLE PAYMENT LIFE EXPECTANCY ANNUITY
Provides a variable payout monthly income payable over the Annuitant's
annually recalculated life expectancy or the annually recalculated life
expectancy of the Annuitant and joint annuitant. A Contract Owner may request an
unscheduled withdrawal representing part or all of the remaining Contract Value
at anytime under Option L. Upon the death of the Annuitant (and joint annuitant,
if there is a joint annuitant), the remaining Contract Value (less any
applicable contingent deferred sales charge) will be paid in a lump sum to the
Annuitant's beneficiary.
OPTION M--UNIT REFUND VARIABLE PAYMENT LIFE ANNUITY
Provides variable monthly payments as long as the Annuitant lives. If the
Annuitant dies, the Annuitant's beneficiary will receive the value of the
remaining Annuity Units in a lump sum.
OPTION N--VARIABLE PAYMENT NON-REFUND LIFE ANNUITY
Provides a variable monthly income for the life of the Annuitant. No income
or payment to a beneficiary is paid after the death of the Annuitant.
OTHER OPTIONS AND RATES
Phoenix may offer other annuity options at the Maturity Date of a Contract.
In addition, in the event that current settlement rates are more favorable than
the applicable rates guaranteed under Group Contracts issued in New York only
and for all Contracts regardless of state of issue, the more favorable rates
shall be used in determining the amount of any annuity payment under the Annuity
Options above.
OTHER CONDITIONS
Federal income tax requirements currently applicable to most qualified plans
provide that the period of years guaranteed under joint and survivorship
annuities with specified periods certain (see "Option F" and "Option J" above)
cannot be any greater than the joint life expectancies of the payee and his or
her spouse or designated beneficiary.
Generally, federal income tax requirements also provide that participants in
qualified plans must begin minimum distributions by April 1 of the calendar year
following the later of: (a) the year in which the employee retires or (b) the
year in which the employee attains age 70 1/2. The date set forth in (a) does
not apply to IRAs. The distributions must be such that the full amount in the
contract will be distributed over a period not greater than the participant's
life expectancy, or the combined life expectancy of the participant and his or
her spouse or designated beneficiary. Distributions made under this method are
generally referred to as Life Expectancy Distributions (LEDs). An LED program is
available to participants in qualified plans or IRAs. Requests to elect this
program must be made in writing.
Under the LED program, regardless of Contract Year, amounts up to the
required minimum distribution may be withdrawn without a deduction for sales
charges, even if the minimum distribution exceeds the 10% allowable amount (see
"Sales Charges"). Also, amounts withdrawn that have not been held under a
Contract for at least six years and are in excess of the greater of the minimum
distribution and the 10% free available amount will be subject to any applicable
sales charge.
PAYMENT UPON DEATH AFTER MATURITY DATE
If an Owner who is also the Annuitant dies on or after the Maturity Date,
except as may otherwise be provided under any supplementary contract between the
Owner and Phoenix, Phoenix will pay to the Owner/Annuitant's beneficiary any
annuity payments due during any applicable period certain under the Annuity
Option in effect on the Annuitant's death. If the Annuitant who is not the Owner
dies on or after the Maturity Date, Phoenix will pay any remaining annuity
payments to the Annuitant's beneficiary according to the payment option in
effect at the time of the Annuitant's death. If an Owner who is not the
Annuitant dies on or after the Maturity Date, Phoenix will pay any remaining
annuity payments to the Owner's beneficiary according to the payment option in
effect at the time of the Owner's death.
VARIABLE ACCOUNT VALUATION PROCEDURES
- --------------------------------------------------------------------------------
VALUATION DATE--A Valuation Date is every day the New York Stock Exchange is
open for trading and Phoenix is open for business. The New York Stock Exchange
is scheduled to be closed for trading on the following days: New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The Board of Directors of the Exchange
reserves the right to change this schedule as conditions warrant. On each
Valuation Date, the value of the Separate Account is determined at the close of
the New York Stock Exchange (currently 4:00 p.m. Eastern Time).
VALUATION PERIOD--A Valuation Period is that period of time from the beginning
of the day following a Valuation Date to the end of the next following Valuation
Date.
ACCUMULATION UNIT VALUE--The value of one Accumulation Unit was set at $1.0000
on the date assets were first allocated to each Subaccount. The value of one
Accumulation Unit on any subsequent Valuation Date is determined by multiplying
the immediately preceding Accumulation Unit Value by the applicable Net
Investment Factor for the Valuation Period ending on such Valuation Date.
NET INVESTMENT FACTOR--The Net Investment Factor for any Valuation Period is
equal to 1.000000 plus the applicable net investment rate for such Valuation
Period. A Net Investment Factor may be more or less than 1.000000. To determine
the net investment rate for any Valuation Period for the funds allocated to each
Subaccount, the following steps are taken: (a) the aggregate accrued investment
income and capital gains and losses, whether realized or unrealized, of the
Subaccount for such Valuation Period is computed, (b) the amount in (a) is then
adjusted by the sum of the charges and credits for any applicable income taxes
and the deductions at the beginning of the Valuation Period for mortality and
expense risk charges (see "Charges For Mortality and Expense Risks") and (c) the
results of (a) as adjusted by (b) are divided by the aggregate Unit Values in
the Subaccount at the beginning of the Valuation Period.
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MISCELLANEOUS PROVISIONS
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ASSIGNMENT
Owners of Contracts issued in connection with non-tax qualified plans may
assign their interest in the Contract without the consent of the beneficiary. A
written notice of such assignment must be filed with VPMO before it will be
honored.
A pledge or assignment of a Contract is treated as payment received on
account of a partial surrender of a Contract. (See "Surrenders or Withdrawals
Prior to the Contract Maturity Date.")
In order to qualify for favorable tax treatment, Contracts issued in
connection with tax qualified plans may not be sold, assigned, discounted or
pledged as collateral for a loan or as security for the performance of an
obligation or for any other purpose, to any person other than Phoenix.
DEFERMENT OF PAYMENT
Payment of the Contract Value in a single sum upon a withdrawal from, or
complete surrender of, a Contract ordinarily will be made within seven days
after receipt of the written request by VPMO. However, payment of the value of
any Accumulation Units may be postponed at times (a) when the New York Stock
Exchange is closed, other than customary weekend and holiday closings, (b) when
trading on the Exchange is restricted, (c) when an emergency exists as a result
of which disposal of securities in the Fund is not reasonably practicable or it
is not reasonably practicable to determine the Contract Value or (d) when a
governmental body having jurisdiction by order permits such suspension. Rules
and regulations of the SEC, if any, are applicable and will govern as to whether
conditions described in (b), (c) or (d) exist.
FREE LOOK PERIOD
Phoenix may mail the Contract to the Owner or it may be delivered in person.
An Owner may return a Contract for any reason within 10 days after its receipt
and receive in cash the adjusted value of the initial purchase payment. (A
longer free look period may be provided in the Contract Owner's state.) The
Owner may receive more or less than the initial payment depending on investment
experience within the Subaccount during the free look period, unless the
Contract was issued with a Temporary Money Market Allocation Amendment, in which
case the initial purchase payment will be refunded.
If the Contract Owner elected on the application to have the Temporary Money
Market Allocation Amendment issued with the Contract, or resides in a state that
requires the Contract to be issued with the Temporary Money Market Allocation
Amendment, Phoenix temporarily allocates the initial purchase payment to the
Money Market Subaccount. Under this Amendment, if the Contract Owner surrenders
the Contract during the Free Look Period, the initial purchase payment is
refunded. At the expiration of the Free Look Period, the value of the
Accumulation Units held in the Money Market Subaccount is allocated among the
available Subaccounts of the Account or the GIA in accordance with the Contract
Owner's allocation instructions on the application.
If the initial purchase payment, or any portion thereof, was
allocated to the GIA, that payment (or portion) and any earned interest
is refunded.
AMENDMENTS TO CONTRACTS
Contracts may be amended to conform to changes in applicable law or
interpretations of applicable law or to accommodate design changes. Changes in
the Contract may need to be approved by Contract Owners and state insurance
departments. A change in the Contract which necessitates a corresponding change
in the Prospectus or the Statement of Additional Information must be filed with
the SEC.
SUBSTITUTION OF FUND SHARES
Although Phoenix believes it to be highly unlikely, it is possible that in
the judgment of its management, one or more of the Series of the Funds may
become unsuitable for investment by Contract Owners because of a change in
investment policy, or a change in the tax laws or because the shares are no
longer available for investment. In that event, Phoenix may seek to substitute
the shares of another Series or the shares of an entirely different mutual fund.
Before this can be done, the approval of the SEC and possibly one or more state
insurance departments, will be required.
OWNERSHIP OF THE CONTRACT
Ordinarily, the purchaser of a Contract is both the Owner and the Annuitant
and is entitled to exercise all the rights under the Contract. However, the
Owner may be an individual or entity other than the Annuitant. Spouses may own a
Contract as joint Owners. Transfer of the ownership of a Contract may involve
federal income tax consequences, and a qualified adviser should be consulted
before any such transfer is attempted.
FEDERAL INCOME TAXES
- --------------------------------------------------------------------------------
INTRODUCTION
The Contracts are designed for use with retirement plans which may or may
not be tax-qualified plans ("Qualified Plans") under the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"). The ultimate effect of
federal income taxes on the amounts held under a Contract, on annuity payments,
and on the economic benefits of the Contract Owner, Annuitant or beneficiary
depends on Phoenix's tax status, on the type of retirement plan for which the
Contract is purchased and upon the tax and employment status of the individual
concerned.
The following discussion is general in nature and is not intended as tax
advice. Each person concerned should consult a competent tax adviser. No attempt
is made to consider any estate or inheritance taxes or any applicable state,
local or other tax laws. Moreover, the discussion is based upon Phoenix's
understanding of the federal income tax laws as they are currently interpreted.
No representation is made regarding the likelihood of continuation of the
federal income tax laws or the current interpretations by the Internal Revenue
Service (the "Service"). Phoenix does not guarantee the tax status of the
Contracts. Purchasers bear the complete risk that the Contracts may not be
treated as "annuity contracts" under federal income tax laws. For a discussion
of federal income taxes as they relate to the Funds, please see the
accompanying Prospectuses for the Funds.
TAX STATUS
Phoenix is taxed as a life insurance company under Part 1 of
Sub-chapter L of the Code. Since the Account is not a separate entity
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from Phoenix and its operations form a part of Phoenix, it will not be taxed
separately as a "regulated investment company" under Sub-chapter M of the Code.
Investment income and realized capital gains on the assets of the Account are
reinvested and taken into account in determining the Contract Value. Under
existing federal income tax law, the Account's investment income, including
realized net capital gains, is not taxed to Phoenix. Phoenix reserves the right
to make a deduction for taxes should they be imposed with respect to such items
in the future.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value of the Units held under a Contract
until some form of distribution is made under the Contract. However, in certain
cases, the increase in value may be subject to tax currently. In the case of
Contracts not owned by natural persons, see "Contracts Owned by Non-Natural
Persons." In the case of Contracts not meeting the diversification requirements,
see "Diversification Standards."
1. SURRENDERS OR WITHDRAWALS PRIOR TO THE CONTRACT
MATURITY DATE.
Code Section 72 provides that a total or partial surrender from
a Contract prior to the Contract Maturity Date will be treated as taxable
income to the extent the amounts held under the Contract exceed the
"investment in the Contract." The "investment in the Contract" is that
portion, if any, of purchase payments (premiums paid) by or on behalf of an
individual under a Contract that is not excluded from the individual's gross
income. However, under certain types of Qualified Plans there may be no
investment in the Contract within the meaning of Code Section 72, so that
the total amount of all payments received will be taxable. The taxable
portion is taxed as ordinary income in an amount equal to the value of the
Contract or portion thereof that is pledged or assigned. For purposes of
this rule, a pledge or assignment of a Contract is treated as a payment
received on account of a partial surrender of a Contract.
2. SURRENDERS OR WITHDRAWALS ON OR AFTER THE CONTRACT
MATURITY DATE.
Upon receipt of a lump sum payment under the Contract, the
recipient is taxed on the portion of the payment that exceeds the investment
in the Contract. Ordinarily, such taxable portion is taxed as ordinary
income. Under certain circumstances, the proceeds of a surrender of a
Contract may qualify for "lump sum distribution" treatment under Qualified
Plans. See your tax adviser if you think you may qualify for "lump sum
distribution" treatment. The five year averaging rule for lump sum
distribution has been repealed for tax years beginning after 1999.
For fixed annuity payments, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the total
expected amount of annuity payments for the term of the Contract. That ratio
is then applied to each payment to determine the non-taxable portion of the
payment. The remaining portion of each payment is taxed as ordinary income.
For variable annuity payments, the taxable portion is determined by a
formula that establishes a specific dollar amount of each payment that is
not taxed. The dollar amount is determined by dividing the investment in the
Contract by the total number of expected periodic payments. The remaining
portion of each payment is taxed as ordinary income. Once the excludable
portion of annuity payments equals the investment in the Contract, the
balance of the annuity payments will be fully taxable. For certain types of
qualified plans, there may be no investment in the Contract resulting in the
full amount of the payments being taxable. A simplified method of
determining the exclusion ratio is effective with respect to qualified plan
annuities starting after November 18, 1996.
Withholding of federal income taxes on all distributions may be
required unless the recipient elects not to have any amounts withheld and
properly notifies Variable Products Operations of that election.
3. PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS.
With respect to amounts surrendered or distributed before the
taxpayer reaches age 59 1/2, a penalty tax is imposed equal to ten percent
(10%) of the portion of such amount that is includable in gross income.
However, the penalty tax will not apply to withdrawals: (i) made on or after
the death of the Contract Owner (or where the Contract Owner is not an
individual, the death of the "Primary Annuitant," who is defined as the
individual the events in whose life are of primary importance in affecting
the timing and amount of the payout under the Contract); (ii) attributable
to the taxpayer's becoming totally disabled within the meaning of Code
Section 72(m)(7); (iii) which are part of a series of substantially equal
periodic payments made (not less frequently than annually) for the life (or
life expectancy) of the taxpayer or the joint lives (or joint life
expectancies) of the taxpayer and his beneficiary; (iv) from certain
qualified plans (such distributions may, however, be subject to a similar
penalty under Code Section 72(t) relating to distributions from qualified
retirement plans and to a special 25% penalty applicable specifically to
SIMPLE IRAs); (v) allocable to investment in the contract before August 14,
1982; (vi) under a qualified funding asset (as defined in Code Section
130(d)); (vii) under an immediate annuity contract (as defined in Code
Section 72(u)(4)); or (viii) that are purchased by an employer on
termination of certain types of qualified plans and which are held by the
employer until the employee separates from service.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the
first year when the modification occurs will be increased by an amount
(determined by the Treasury regulations) equal to the tax that would have
been imposed but for item (iii) above, plus interest for the deferral
period, but only if the modification takes place: (a) before the close of
the period which is five years from the date of the first payment and after
the taxpayer attains age 59 1/2 or (b) before the taxpayer reaches age 59
1/2. Separate tax withdrawal penalties apply to Qualified Plans. (See
"Penalty Tax on Surrenders and Withdrawals from Qualified Contracts.")
ADDITIONAL CONSIDERATIONS
1. DISTRIBUTION-AT-DEATH RULES.
In order to be treated as an annuity contract for federal income tax
purposes, a Contract must provide the following two
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distribution rules: (a) if the Contract Owner dies on or after the Contract
Maturity Date and before the entire interest in the Contract has been
distributed, the remainder of the Contract Owner's interest will be
distributed at least as quickly as the method in effect on the Contract
Owner's death; and (b) if a Contract Owner dies before the Contract Maturity
Date, the Contract Owner's entire interest generally must be distributed
within five (5) years after the date of death, or if payable to a designated
beneficiary may be annuitized over the life of that beneficiary or over a
period not extending beyond the life expectancy of that beneficiary and must
commence within one (1) year after the Contract Owner's date of death. If
the beneficiary is the spouse of the Contract Owner, the Contract (together
with the deferral of tax on the accrued and future income thereunder) may be
continued in the name of the spouse as Contract Owner. These distribution
requirements do not apply to annuity contracts under Qualified Plans.
However, a number of restrictions, limitations and special rules apply to
Qualified Plans and a Contract Owner should consult with a tax adviser.
If the Annuitant, who is not the Contract Owner, dies before the
Maturity Date and there is no Contingent Annuitant, the Annuitant's
beneficiary must elect within 60 days whether to receive the death benefit
in a lump sum or in periodic payments commencing within one (1) year.
If the Contract Owner is not an individual, the death of the primary
Annuitantis treated as the death of the Contract Owner. In addition, when
the Contract Owner is not an individual, a change in the primary Annuitant
is treated as the death of the Contract Owner. Finally, in the case of
non-spousal joint Contract Owners the distribution will be required at the
first death of the Contract Owners.
If the Contract Owner or a Joint Contract Owner dies on or after the
Maturity Date, the remaining payments if any, under the Annuity Option
selected will be made at least as rapidly as under the method of
distribution in effect at the time of death.
2. TRANSFER OF ANNUITY CONTRACTS.
Transfers of non-qualified Contracts prior to the Maturity Date for
less than full and adequate consideration to the Contract Owner at the time
of such transfer, will trigger tax on the gain in the Contract, with the
transferee getting a step-up in basis for the amount included in the
Contract Owner's income. This provision does not apply to transfers between
spouses or incident to a divorce.
3. CONTRACTS OWNED BY NON-NATURAL PERSONS.
If the Contract is held by a non-natural person (for example, a
corporation) the income on that Contract (generally the increase in the net
surrender value less the premium paid) is includable in income each year.
The rule does not apply where the non-natural person is the nominal owner of
a Contract and the beneficial owner is a natural person. The rule also does
not apply where the annuity contract is acquired by the estate of a
decedent, where the Contract is held under a qualified plan, a Tax Sheltered
Annuity program or an IRA, where the Contract is a qualified funding asset
for structured settlements, where the Contract is purchased on behalf of an
employee upon termination of a qualified plan and in the case of an
immediate annuity.
4. SECTION 1035 EXCHANGES.
Code Section 1035 provides, in general, that no gain or loss shall be
recognized on the exchange of one annuity contract for another. A
replacement contract obtained in a tax-free exchange of contracts succeeds
to the status of the surrendered contract. If the surrendered contract was
issued prior to August 14, 1982, the tax rules that formerly provided that
the surrender was taxable only to the extent the amount received exceeds the
Contract Owner's investment in the Contract, will continue to apply. In
contrast, Contracts issued on or after January 19, 1985, in a Code Section
1035 exchange, are treated as new Contracts for purposes of the
distribution-at-death rules. Special rules and procedures apply to Code
Section 1035 transactions. Prospective Contract Owners wishing to take
advantage of Code Section 1035 should consult their tax advisers.
5. MULTIPLE CONTRACTS.
Code Section 72(e)(11)(A)(ii) provides that for Contracts entered into
after October 21, 1988, for purposes of determining the amount of any
distribution under Code Section 72(e) (amounts not received as annuities)
that is includable in gross income, all non-qualified deferred annuity
contracts issued by the same insurer (or affiliate) to the same Contract
Owner during any calendar year are to be aggregated and treated as one
contract. Thus, any amount received under any such contract prior to the
Contract Maturity Date, such as a withdrawal, dividend or loan, will be
taxable (and possibly subject to the 10% penalty tax) to the extent of the
combined income in all such contracts.
The Treasury Department has specific authority to issue regulations
that prevent the avoidance of Code Section 72(e) through the serial purchase
of annuity contracts or otherwise. In addition, there may be situations
where the Treasury may conclude that it would be appropriate to aggregate
two or more contracts purchased by the same Contract Owner. Accordingly, a
Contract Owner should consult a competent tax adviser before purchasing more
than one Contract or other annuity contracts.
DIVERSIFICATION STANDARDS
1. DIVERSIFICATION REGULATIONS.
To comply with the diversification regulations under Code Section
817(h) ("Diversification Regulations"), after a start-up period, each Series
of the Funds will be required to diversify its investments. The
Diversification Regulations generally require that, on the last day of each
quarter of a calendar year no more than 55% of the value of the assets of
a Series are represented by any one investment, no more than 70% is
represented by any two investments, no more than 80% is represented by any
three investments and no more than 90% is represented by any four
investments. A "look-through" rule applies to treat a pro rata portion of
each asset of a Series as an asset of the Account, and each Series of the
Funds are tested for compliance with the percentage limitations. All
securities of the same issuer are treated as a single investment. As a
result of the 1988 Act, each Government agency or instrumentality will be
treated as a separate issuer for purposes of these limitations.
The Treasury Department has indicated that the diversification
Regulations do not provide guidance regarding the circumstances in which
Contract Owner control of the investments of the Account
28
<PAGE>
will cause the Contract Owner to be treated as the owner of the assets of
the Account, thereby resulting in the loss of favorable tax treatment for
the Contract. At this time it cannot be determined whether additional
guidance will be provided and what standards may be contained in such
guidance. The amount of Contract Owner control which may be exercised under
the Contract is different in some respects from the situations addressed in
published rulings issued by the Internal Revenue Service in which was held
that the policy owner was not the owner of the assets of the separate
account. It is unknown whether these differences, such as the Contract
Owner's ability to transfer among investment choices or the number and type
of investment choices available, would cause the Contract Owner to be
considered as the owner of the assets of the Account resulting in the
imposition of federal income tax to the Contract Owner with respect to
earnings allocable to the Contract prior to receipt of payments under the
Contract.
In any event any forthcoming guidance or ruling is considered to set
forth a new position, such guidance or ruling will generally be applied only
prospectively, However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the
Contract Owner being retroactively determined to be the owner of the assets
of the Account.
Due to the uncertainty in this area, Phoenix reserves the right to
modify the Contract in an attempt to maintain favorable tax treatment.
Phoenix has represented that it intends to comply with the
Diversification Regulations to assure that the Contracts continue to be
treated as annuity contracts for federal income tax purposes.
2. DIVERSIFICATION REGULATIONS AND QUALIFIED PLANS.
Code Section 817(h) applies to a variable annuity contract
other than a pension plan contract. The Diversification Regulations
reiterate that the diversification requirements do not apply to a pension
plan contract. All of the Qualified Plans (described below) are defined as
pension plan contracts for these purposes. Notwithstanding the exception of
Qualified Plan Contracts from application of the diversification rules, all
investments of the Phoenix Qualified Plan Contracts (i.e., the Funds) will
be structured to comply with the diversification standards because the Funds
serve as the investment vehicle for non-qualified Contracts as well as
Qualified Plan Contracts.
QUALIFIED PLANS
The Contracts may be used with several types of Qualified Plans. TSAs,
Keoghs, IRAs, Corporate Pension and Profit-Sharing Plans and State Deferred
Compensation Plans will be treated, for purposes of this discussion, as
Qualified Plans. The tax rules applicable to participants in such Qualified
Plans vary according to the type of plan and the terms and conditions of the
plan itself. No attempt is made herein to provide more than general information
about the use of the Contracts with the various types of Qualified Plans.
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. For example, Phoenix
will accept beneficiary designations and payment instructions under the terms of
the Contract without regard to any spousal consents that may be required under
the Retirement Equity Act (REA). Consequently, a Contract Owner's beneficiary
designation or elected payment option may not be enforceable.
Effective January 1, 1993, Section 3405 of the Internal Revenue Code was
amended to change the rollover rules applicable to the taxable portions of
distributions from qualified pension and profit-sharing plans and Section 403(b)
TSA arrangements. Taxable distributions eligible to be rolled-over generally
will be subject to 20 percent income tax withholding. Mandatory withholding can
be avoided only if the employee arranges for a direct rollover to another
qualified pension or profit-sharing plan or to an IRA.
The new mandatory withholding rules apply to all taxable distributions from
qualified plans or TSAs, but not IRAs except a) distributions required under the
Code; b) substantially equal distributions made over the life (or life
expectancy) of the employee or for a term certain of 10 years or more; and c)
the portion of distributions not includible in gross income (i.e., return of
after tax contributions).
On July 6, 1983, the Supreme Court decided in ARIZONA GOVERNING COMMITTEE
V. NORRIS that optional annuity benefits provided under an employer's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women. The Contracts sold by Phoenix in connection with
certain Qualified Plans will utilize annuity tables which do not differentiate
on the basis of sex. Such annuity tables will also be available for use in
connection with certain non-qualified deferred compensation plans.
Numerous changes have been made to the income tax rules governing
Qualified Plans as a result of legislation enacted during the past several
years, including rules with respect to: coverage, participation and maximum
contributions; required distributions; penalty taxes on early or insufficient
distributions and income tax withholding on distributions. The following are
general descriptions of the various types of Qualified Plans and of the use of
the contracts in connection therewith.
1. TAX SHELTERED ANNUITIES.
Code Section 403(b) permits public school systems and certain types of
charitable, educational and scientific organizations, generally specified in
Code Section 501(c)(3) to purchase annuity contracts on behalf of their
employees and, subject to certain limitations, allows employees of those
organizations to exclude the amount of purchase payments from gross income
for federal income tax purposes. These annuity contracts are commonly
referred to as "TSAs."
For taxable years beginning after December 31, 1988, Code Section
403(b)(11) imposes certain restrictions on a Contract Owner's ability to
make partial withdrawals from, or surrenders of, Code Section 403(b)
Contracts, if the cash withdrawn is attributable to purchase payments made
under a salary reduction agreement. Specifically, Code Section 403(b)(11)
allows a Contract Owner to make a surrender or partial withdrawal only (A)
when the employee attains age 59 1/2, separates from service, dies or
becomes disabled (as defined in the Code) or (B) in the case of hardship. In
the case of hardship, the amount distributable cannot include any income
earned under the Contract.
29
<PAGE>
The 1988 Act amended the effective date of Code Section 403(b)(11), so
that it applies only with respect to distributions from Code Section 403(b)
Contracts which are attributable to assets other than assets held as of the
close of the last year beginning before January 1, 1989. Thus, the
distribution restrictions do not apply to assets held as of December 31,
1988.
In addition, in order for certain types of contributions under a Code
Section 403(b) Contract to be excluded from taxable income, the employer
must comply with certain nondiscrimination requirements. Contract Owners
should consult their employers to determine whether the employer has
complied with these rules. Contract Owner loans are not allowed under the
Contracts.
2. KEOGH PLANS.
The Self-Employed Individual Tax Retirement Act of 1962, as amended,
permits self-employed individuals to establish "Keoghs," or qualified plans
for themselves and their employees. The tax consequences to participants
under such a plan depend upon the terms of the plan. In addition, such plans
are limited by law with respect to the maximum permissible contributions,
distribution dates, nonforfeitability of interests and tax rates applicable
to distributions. In order to establish such a plan, a plan document must be
adopted and implemented by the employer, as well as approved by the Internal
Revenue Service.
3. INDIVIDUAL RETIREMENT ACCOUNTS.
Code Section 408 permits eligible individuals to contribute to an
individual retirement program known as an "IRA." These IRAs are subject to
limitations on the amount which may be contributed, the persons who may be
eligible and on the time when distributions may commence. In addition,
distributions from certain other types of Qualified Plans may be placed on a
tax-deferred basis into an IRA. Effective January 1, 1997, employers may
establish a new type of IRA called SIMPLE (Savings Incentive Match Plan for
Employees). Special rules apply to participants contributions to and
withdrawals from SIMPLE IRAs. Also effective January 1, 1997, salary
reduction (SARSEP) may no longer be established.
4. CORPORATE PENSION AND PROFIT-SHARING PLANS.
Code Section 401(a) permits corporate employers to establish
various types of retirement plans for employees. Such retirement plans may
permit the purchase of Contracts to provide benefits thereunder (see "Group
Contracts").
These retirement plans may permit the purchase of the Contracts to
provide benefits under the Plan. Contributions to the Plan for the benefit
of employees will not be includible in the gross income of the employee
until distributed from the Plan. The tax consequences to participants may
vary, depending upon the particular Plan design. However, the Code places
limitations and restrictions on all Plans, including on such items as:
amount of allowable contributions; form, manner and timing of distributions;
transferability of benefits; vesting and nonforfeitability of interests;
nondiscrimination in eligibility and participation; and the tax treatment of
distributions, withdrawals and surrenders. Participant loans are not allowed
under the Contracts purchased in connection with these Plans. Purchasers of
Contracts for use with Corporate Pension or Profit-Sharing Plans should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
5. DEFERRED COMPENSATION PLANS WITH RESPECT TO SERVICE
FOR STATE AND LOCAL GOVERNMENTS AND TAX EXEMPT
ORGANIZATIONS.
Code Section 457 provides for certain deferred compensation plans with
respect to service for state and local governments and certain other
entities. The Contracts may be used in connection with these plans; however,
under these plans if issued to tax exempt organizations, the Contract Owner
is the plan sponsor, and the individual participants in the plans are the
Annuitants. Under such Contracts, the rights of individual plan participants
are governed solely by their agreements with the plan sponsor and not by the
terms of the Contracts. Effective in 1997 for new state and local government
plans, such plans must be funded through a tax exempt annuity contract held
for the exclusive benefit of plan participants.
PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS FROM QUALIFIED PLANS
In the case of a withdrawal under a Qualified Plan, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Plan. Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of any distribution from qualified retirement plans, including Contracts issued
and qualified under Code Sections 401 (Keogh and Corporate Pension and
Profit-Sharing Plans), Tax-Sheltered Annuities and Individual Retirement
Annuities. The penalty is increased to 25% instead of 10% for SIMPLE IRAs if
distribution occurs within the first two years of the Contract Owner's
participation in the SIMPLE IRA. To the extent amounts are not includible in
gross income because they have been properly rolled over to an IRA or to another
eligible Qualified Plan, no tax penalty will be imposed. The tax penalty will
not apply to the following distributions: (a) if distribution is made on or
after the date on which the Contract Owner or Annuitant (as applicable) reaches
age 59 1/2; (b) distributions following the death or disability of the Contract
Owner or Annuitant (as applicable) (for this purpose disability is as defined in
Section 72(m)(7) of the Code); (c) after separation from service, distributions
that are part of substantially equal periodic payments made not less frequently
than annually for the life (or life expectancy) of the Contract Owner or
Annuitant (as applicable) or the joint lives (or joint life expectancies) of
such Contract Owner or Annuitant (as applicable) and his or her designated
beneficiary; (d) distributions to a Contract Owner or Annuitant (as applicable)
who has separated from service after he has attained age 55; (e) distributions
made to the Contract Owner or Annuitant (as applicable) to the extent such
distributions do not exceed the amount allowable as a deduction under Code
Section 213 to the Contract Owner or Annuitant (as applicable) for amounts paid
during the taxable year for medical care; (f) distributions made to an alternate
payee pursuant to a qualified domestic relations order; and (g) distributions
from an Individual Retirement Annuity for the purchase of medical insurance (as
described in Section 213(d)(1)(D) of the Code) for the Contract Owner and his or
her spouse and dependents if the Contract Owner has received unemployment
compensation for at least 12 weeks. This exception will no longer apply after
the Contract Owner has been reemployed for at least 60 days. The exceptions
stated in items (d) and
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<PAGE>
(f) above do not apply in the case of an Individual Retirement Annuity. The
exception stated in item (c) applies to an Individual Retirement Annuity without
the requirement that there be a separation from service.
Generally, distributions from a Qualified Plan must commence no later than
April 1 of the calendar year following the later of: (a) the year in which the
employee attains age 70 1/2 or (b) the calendar year in which the employee
retires. The date set forth in (b) does not apply to an Individual Retirement
Annuity. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed as to the amount not
distributed.
6. SEEK TAX ADVICE.
The above description of federal income tax consequences of the
different types of Qualified Plans which may be funded by the Contracts
offered by this Prospectus is only a brief summary and is not intended as
tax advice. The rules governing the provisions of Qualified Plans are
extremely complex and often difficult to comprehend. Anything less than full
compliance with the applicable rules, all of which are subject to change,
may have adverse tax consequences. A prospective Contract Owner considering
adoption of a Qualified Plan and purchase of a Contract in connection
therewith should first consult a qualified tax adviser, with regard to the
suitability of the Contract as an investment vehicle for the Qualified Plan.
SALES OF VARIABLE ACCUMULATION CONTRACTS
- --------------------------------------------------------------------------------
The principal underwriter of the Contracts is Phoenix Equity Planning
Corporation ("PEPCO"). Contracts may be purchased through registered
representatives of W. S. Griffith & Co., Inc. ("W. S. Griffith") licensed to
sell Phoenix insurance policies and annuity contracts. W. S. Griffith is an
indirect wholly-owned subsidiary of Phoenix. PEPCO is an indirect,
majority-owned subsidiary of Phoenix. Contracts also may be purchased through
other broker-dealers or entities registered under the Securities Exchange Act of
1934, whose representatives are authorized by applicable law to sell Contracts
under terms of agreement provided by PEPCO and terms of agreement provided by
Phoenix.
Although the Glass-Steagall Act prohibits banks and bank affiliates from
engaging in the business of underwriting securities, banking regulators have not
indicated that such institutions are prohibited from purchasing variable annuity
contracts upon the order and for the account of their customers. In addition to
reimbursing PEPCO for its expenses, Phoenix pays PEPCO an amount equal to up to
7.25% of the purchase payments under the Contracts. PEPCO pays any distribution
organization an amount which may not exceed up to 7.25% of purchase payments
made under the contract. Any such amount paid with respect to Contracts sold
through other broker/dealers will be paid by Phoenix to or through PEPCO. The
amounts paid by Phoenix are not deducted from the purchase payments. Deductions
for sales charges (as described under "Sales Charges") may be used to reimburse
Phoenix for commission payments to broker-dealers.
Phoenix through PEPCO will sponsor sales contests, training and educational
meetings and provide to all qualifying dealers, from its own profits and
resources, additional compensation in the form of trips, merchandise or expense
reimbursement. Brokers and dealers other than PEPCO also may make customary
additional charges for their services in effecting purchases, if they notify the
Funds of their intention to do so.
STATE REGULATION
- --------------------------------------------------------------------------------
Phoenix is subject to the provisions of the New York insurance laws
applicable to mutual life insurance companies and to regulation and supervision
by the New York Superintendent of Insurance. Phoenix is also subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of Phoenix includes certain limitations on the investments
which may be made for its General Account and separate accounts, including the
Account. It does not include, however, any supervision over the investment
policy of the Account.
REPORTS
- --------------------------------------------------------------------------------
Reports showing the Contract Value and containing the financial statements
of the Account will be furnished at least annually to an Owner.
VOTING RIGHTS
- --------------------------------------------------------------------------------
As stated above, all of the assets held in an available Subaccount will be
invested in shares of a corresponding Series of the Funds. Phoenix is the legal
owner of those shares and as such has the right to vote to elect the Board of
Trustees of each Fund, to vote upon certain matters that are required by the
1940 Act to be approved or ratified by the shareholders of a mutual fund and to
vote upon any other matter that may be voted upon at a shareholders' meeting.
However, Phoenix intends to vote the shares of the Funds at regular and special
meetings of the shareholders of the Funds in accordance with instructions
received from Owners of the Contracts.
Phoenix currently intends to vote Fund shares attributable to any Phoenix
assets and Fund shares held in each Subaccount for which no timely instructions
from Owners are received in the same proportion as those shares in that
Subaccount for which instructions are received. In the future, to the extent
applicable federal securities laws or regulations permit Phoenix to vote some or
all shares of the Funds in its own right, it may elect to do so.
Matters on which Owners may give voting instructions may include the
following: (1) election of the Board of Trustees of a Fund; (2) ratification of
the independent accountant for a Fund; (3) approval or amendment of the
investment advisory agreement for the Series of the Fund corresponding to the
Owner's selected Subaccount(s); (4) any change in the fundamental investment
policies or restrictions of each such Series; and (5) any other matter requiring
a vote of the Shareholders of a Fund. With respect to amendment of any
investment advisory agreement or any change in a Series' fundamental investment
policy, Owners participating in such Series will vote separately on the matter,
pursuant to the requirements of the 1940 Act.
31
<PAGE>
The number of votes that a Contract Owner has the right to cast will be
determined by applying the Contract Owner's percentage interest in a Subaccount
to the total number of votes attributable to the Subaccount. In determining the
number of votes, fractional shares will be recognized. The number of votes for
which each Owner may give Phoenix instructions will be determined as of the
record date for Fund shareholders chosen by the Board of Trustees of a Fund.
Phoenix will furnish Owners with proper forms and proxies to enable them to give
these instructions.
TEXAS OPTIONAL RETIREMENT PROGRAM
- --------------------------------------------------------------------------------
Participants in the Texas Optional Retirement Program may not receive the
proceeds of a withdrawal from, or complete surrender of, a Contract or apply
them to provide annuity options prior to retirement except in the case of
termination of employment in the Texas public institutions of higher education,
death or total disability. Such proceeds may, however, be used to fund another
eligible retirement vehicle.
LITIGATION
- --------------------------------------------------------------------------------
Phoenix, the Account and PEPCO are not parties to any litigation that would
have a material adverse effect upon the Account or the Contracts.
LEGAL MATTERS
- --------------------------------------------------------------------------------
Blazzard, Grodd & Hasenauer, P.C. of Westport, Connecticut has provided
advice on certain matters relating to the federal securities and income tax laws
in connection with the Contracts described in this Prospectus.
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Statement of Additional Information contains more specific information
and financial statements relating to the Account and Phoenix. The Table of
Contents of the Statement of Additional Information is set forth below:
Underwriter
Calculation of Yield and Return
Calculation of Annuity Payments
Experts
Financial Statements
Contract Owner inquiries and requests for a Statement of Additional
Information should be directed to Phoenix Variable Products Mail Operation in
writing at P.O. Box 8027, Boston, Massachusetts 02266-8027, or by calling
Variable Products Operations at (800) 447-4312.
32
<PAGE>
APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the GIA under the Contract and transfers to the GIA become
part of the general account of Phoenix (the "General Account"), which supports
insurance and annuity obligations. Because of exemptive and exclusionary
provisions, interests in the General Account have not been registered under the
Securities Act of 1933 ("1933 Act") nor is the General Account registered as an
investment company under the 1940 Act. Accordingly, neither the General Account
nor any interest therein is specifically subject to the provisions of the 1933
or 1940 Acts and the staff of the Securities and Exchange Commission has not
reviewed the disclosures in this Prospectus concerning the GIA. Disclosures
regarding the GIA and the General Account, however, may be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
The General Account is made up of all of the general assets of Phoenix other
than those allocated to any separate account. Purchase payments will be
allocated to the GIA and, therefore, the General Account, as elected by the
Owner at the time of purchase or as subsequently changed. Phoenix will invest
the assets of the General Account in assets chosen by it and allowed by
applicable law. Investment income from General Account assets is allocated
between Phoenix and the contracts participating in the General Account, in
accordance with the terms of such contracts.
Fixed annuity payments made to Annuitants under the Contract will not be
affected by the mortality experience (death rate) of persons receiving such
payments or of the general population. Phoenix assumes this "mortality risk" by
virtue of annuity rates incorporated in the Contract that cannot be changed. In
addition, Phoenix guarantees that it will not increase charges for maintenance
of the Contracts regardless of its actual expenses.
Investment income from the General Account allocated to Phoenix includes
compensation for mortality and expense risks borne by it in connection with
General Account contracts.
The amount of investment income allocated to the Contracts will vary from
year to year in the sole discretion of Phoenix. However, Phoenix guarantees that
it will credit interest at a rate of not less than 4% per year for individual
Contracts and 3% per year for Group Contracts, compounded annually, to amounts
allocated to the GIA. Phoenix may credit interest at a rate in excess of these
rates; however, it is not obligated to credit any interest in excess of these
rates.
Bi-weekly, Phoenix will set the excess interest rate, if any, that will
apply to amounts deposited to the GIA. That rate will remain in effect for such
deposits for an initial guarantee period of one full year from the date of
deposit. Upon expiration of the initial one-year guarantee period (and each
subsequent one-year guarantee period thereafter), the rate to be applied to any
deposits whose guaranteed period has just ended will be the same rate as is
applied to new deposits allocated to the GIA at that time. This rate will
likewise remain in effect for a guarantee period of one full year from the date
the new rate is applied.
Excess interest, if any, will be determined by Phoenix based on information
as to expected investment yields. Some of the factors that Phoenix may consider
in determining whether to credit excess interest to amounts allocated to the GIA
and the amount thereof, are general economic trends, rates of return currently
available and anticipated on investments, regulatory and tax requirements and
competitive factors. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE GIA IN
EXCESS OF 4% PER YEAR FOR INDIVIDUAL CONTRACTS AND 3% PER YEAR FOR GROUP
CONTRACTS WILL BE DETERMINED IN THE SOLE DISCRETION OF PHOENIX AND WITHOUT
REGARD TO ANY SPECIFIC FORMULA. THE CONTRACT OWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO GIA ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE FOR
ANY GIVEN YEAR.
Phoenix is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in Phoenix's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders and Contract Owners.
Excess interest, if any, will be credited on the GIA Contract Value. Phoenix
guarantees that, at any time, the GIA Contract Value will not be less than the
amount of purchase payments allocated to the GIA, plus interest at the rate of
4% per year for individual Contracts and 3% per year for Group Contracts,
compounded annually, plus any additional interest which Phoenix may, in its
discretion, credit to the GIA, less the sum of all annual administrative or
surrender charges, any applicable premium taxes and less any amounts
surrendered. If the Owner surrenders the Contract, the amount available from the
GIA will be reduced by any applicable surrender charge and annual administration
charge (see "Deductions and Charges").
IN GENERAL, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE GIA. THE AMOUNT
WHICH CAN BE TRANSFERRED IS LIMITED TO THE GREATER OF $1,000 OR 25% OF THE
CONTRACT VALUE IN THE GIA AT THE TIME OF THE TRANSFER. UNDER THE SYSTEMATIC
TRANSFER PROGRAM, TRANSFERS OF APPROXIMATELY EQUAL AMOUNTS MAY BE MADE OVER A
MINIMUM 18-MONTH PERIOD. NON-SYSTEMATIC TRANSFERS FROM THE GIA WILL BE
EFFECTUATED ON THE DATE OF RECEIPT BY VPMO, UNLESS OTHERWISE REQUESTED BY THE
CONTRACT OWNER.
33
<PAGE>
APPENDIX B
DEDUCTIONS FOR STATE PREMIUM TAXES
QUALIFIED AND NON-QUALIFIED ANNUITY CONTRACTS
<TABLE>
<CAPTION>
UPON UPON
STATE PURCHASE(1) ANNUITIZATION NON-QUALIFIED QUALIFIED
<S> <C> <C> <C> <C>
California .......................................... X 2.35% 0.50%
D.C.................................................. X 2.25 2.25
Kentucky............................................. X 2.00 2.00
Maine................................................ X 2.00
Nevada............................................... X 3.50
South Dakota......................................... X 1.25
West Virginia........................................ X 1.00 1.00
Wyoming.............................................. X 1.00
</TABLE>
NOTE: The above premium tax deduction rates are as of July 15, 1997. No
premium tax deductions are made for states not listed above. For
Kentucky contracts, premium taxes will be deducted upon purchases
effective for annuity considerations received on or after July 1, 1997.
However, premium tax statutes are subject to amendment by legislative
act and to judicial and administrative interpretation, which may affect
both the above list of states and the applicable tax rates.
Consequently, the Company reserves the right to deduct premium tax when
necessary to reflect changes in state tax laws or interpretation.
For a more detailed explanation of the assessment of Premium Taxes see
"Deductions and Charges, Premium Tax."
(1) "Purchase" in this chart refers to the earlier of partial withdrawal,
surrender of the Contract, Maturity Date or payment of death proceeds or
Maturity Date.
34
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
[VERSION A]
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS (VPMO):
Hartford, CT 06115 P.O. Box 8027
Boston, MA 02266-8027
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
VARIABLE ACCUMULATION DEFFERED ANNUITY CONTRACTS
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Prospectus, dated July 15, 1997 which is
available without charge by contacting Phoenix Home Life Mutual Insurance
Company at the above address or at the above telephone number.
July 15, 1997
-----------------
TABLE OF CONTENTS
PAGE
Underwriter............................................................ B-2
Calculation of Yield and Return........................................ B-2
Calculation of Annuity Payments ....................................... B-3
Experts ............................................................... B-4
Financial Statements................................................... B-5
B-1
<PAGE>
UNDERWRITER
- --------------------------------------------------------------------------------
The offering of Contracts is made on a continuous basis by Phoenix Equity
Planning Corporation ("PEPCO"), an affiliate of Phoenix Home Life Mutual
Insurance Company ("Phoenix"). In 1994, 1995 and 1996, aggregate underwriting
commissions paid to PEPCO on the sales of the Contracts were $31,557,402,
$27,332,540 and $26,437,438, respectively, and retained $0 in 1996.
CALCULATION OF YIELD AND RETURN
- --------------------------------------------------------------------------------
Yield of the Money Market Subaccount. As summarized in the Prospectus under
the heading "Performance History," the yield of the Money Market Subaccount for
a seven-day period (the "base period") will be computed by determining the "net
change in value" (calculated as set forth below) of a hypothetical account
having a balance of one share at the beginning of the period, dividing the net
change in account value by the value of the account at the beginning of the base
period to obtain the base period return, and multiplying the base period return
by 365/7 with the resulting yield figure carried to the nearest hundredth of one
percent. Net changes in value of a hypothetical account will include net
investment income of the account (accrued daily dividends as declared by the
underlying funds, less daily expense charges of the account) for the period, but
will not include realized gains or losses or unrealized appreciation or
depreciation on the underlying fund shares. Mortality and expense risk charges
of 0.40% and 0.85%, respectively, are reflected.
The Money Market Subaccount yield and effective yield will vary in response
to fluctuations in interest rates and in the expenses of the Subaccount.
The current yield and effective yield reflect recurring charges at the
Account level, including the maximum annual administrative fee.
Example:
Money Market Subaccount
The following is an example of this yield calculation for the Subaccount
based on a seven-day period ending December 31, 1996.
Assumptions:
CONTRACTS
CONTRACTS ASSESSING
ASSESSING .85% EXPENSE
.85% EXPENSE CHARGE & .125%
CHARGE DAILY ADMIN. FEE
------ ----------------
Value of a hypothetical pre-existing
account with exactly one
unit at the beginning of the period:........ 2.073039 1.050796
Value of the same account (excluding
capital changes) at the
end of the seven-day period ................ 2.074515 1.051525
Calculation:
Ending account value ....................... 2.074515 1.051525
Less beginning account value ............... 2.073039 1.050796
Net change in account value ................ 0.001476 0.000729
Base period return:
(adjusted change/beginning
account value).............................. 0.000712 0.000694
Current yield = return X (365/7) = 3.71%... 3.62%
Effective yield = [(1 + return) 365/7] - 1 = 3.78% 3.68%
At any time in the future, yields and total return may be higher or lower
than past yields and there can be no assurance that any historical results will
continue.
The method of calculating yields described above for the Money Market
Subaccount differs from the method used by the Subaccount prior to May 1, 1988.
The denominator of the fraction used to calculate yield was, prior to May 1,
1988, the average unit value for the period calculated. That denominator was
thereafter the unit value of the Subaccount on the last trading day of the
period calculated.
Calculation of Total Return. As summarized in the Prospectus under the
heading "Performance History," total return is a measure of the change in value
of an investment in a Subaccount over the period covered. The formula for total
return used herein includes four steps: (1) adding to the total number of units
purchased by a hypothetical $1,000 investment in the Subaccount; (2) calculating
the value of the hypothetical initial investment of $1,000 as of the end of the
period by multiplying the total number of units owned at the end of the period
by the unit value per unit on the last trading day of the period; (3) assuming
redemption at the end of the period and deducting any applicable contingent
deferred sales charge and (4) dividing this account value for the hypothetical
investor by the initial $1,000 investment. Total return will be calculated for
one year, five years and ten years or some other relevant periods if a
Subaccount has not been in existence for at least 10 years.
PERFORMANCE INFORMATION
Advertisements, sales literature and other communications may contain
information about any Series or Adviser's current investment strategies and
management style. Current strategies and style may change to allow any Series to
respond quickly to changing market and economic conditions. From time to time,
the Funds may include specific portfolio holdings or industries in such
communications. To illustrate components of overall performance, the Fund may
separate its cumulative and average annual returns into income and capital gains
components; or cite separately as a return figure the equity or bond portion of
a portfolio; or compare a Series' equity or bond return figure to well-known
indices of market performance, including, but not limited to: the S&P 500 Index,
Dow Jones Industrial Average, First Boston High Yield Index and Salomon Brothers
Corporate and Government Bond Indices.
Each Subaccount may, from time to time, include its yield and total return
in advertisements or information furnished to present or prospective Contract
Owners. Each Subaccount may, from time to time, include in advertisements
containing total return (and yield in the case of certain Subaccounts) the
ranking of those performance figures relative to such figures for groups of
mutual funds categorized as having the same investment objectives by Lipper
Analytical Services, CDA Investment Technologies, Inc., Weisenberger Financial
Services, Inc., Morningstar, Inc. and Tillinghast. Additionally, the Fund may
compare a Series' performance results to other investment or savings vehicles
(such as certificates of deposit) and may refer to results published in various
publications such as Changing Times, Forbes, Fortune, Money, Barrons, Business
Week, Investor's Daily, The Stanger Register, Stanger's Investment Adviser, The
Wall Street Journal, The New York Times, Consumer Reports, Registered
Representative, Financial Planning, Financial Services Weekly, Financial World,
U.S. News and World Report, Standard & Poor's, The
B-2
<PAGE>
Outlook and Personal Investor. The Fund may, from time to time, illustrate the
benefits of tax deferral by comparing taxable investments to investments made
through tax-deferred retirement plans.
The total return and yield also may be used to compare the performance of
the Subaccounts against certain widely acknowledged outside standards or indices
for stock and bond market performance. The Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500") is a market value-weighted and unmanaged index
showing the changes in the aggregate market value of 500 stocks relative to the
base period 1941-43. The S&P 500 is composed almost entirely of common stocks of
companies listed on the New York Stock Exchange, although the common stocks of a
few companies listed on the American Stock Exchange or traded over-the-counter
are included. The 500 companies represented include 400 industrial, 60
transportation and 40 financial services concerns. The S&P 500 represents about
80% of the market value of all issues traded on the New York Stock Exchange.
The manner in which total return and yield will be calculated is
described above.
CALCULATION OF ANNUITY PAYMENTS
- --------------------------------------------------------------------------------
VARIABLE ANNUITY PAYMENTS
Unless an alternative annuity payment option is elected on or before the
Contract Maturity Date, the Contract Value on the Maturity Date will be
automatically applied to provide a Variable Payment Life Annuity with Ten Year
Period Certain based on the Annuitant's life under annuity payment Option I as
described in the Prospectus. Any annuity payments falling due after the
Annuitant's death during the period certain will be paid to the Beneficiary.
If the amount to be applied on the Maturity Date is less than $2,000 or
would result in monthly payments of less than $20, Phoenix shall have the right
to pay such amount in one lump sum in lieu of providing the annuity payments.
Phoenix also will have the right to change the annuity payment frequency to
annually if the monthly annuity payment otherwise would be less than $20.
Under the Variable Payment Life Annuity with Ten Year Period Certain
(payment Option I), the first monthly income payment is due on the Maturity
Date. Thereafter, payments are due on the same day of the month as the first
payment was due, or if such date does not fall within a particular month, then
the future payment is due on the first Valuation Date to occur in the following
month. Payments will continue during the lifetime of the Annuitant, or, if
later, until the end of the Ten Year Period Certain starting with the date the
first payment is due.
The Variable Income Table below shows the minimum amount of the first
monthly payment for each $1,000 of Accumulation Value applied. The minimum first
payments shown are based on the 1983 table, an annuity table projected to the
year 2000 with Projection Scale G, and with Projection Scale G thereafter, and
an effective assumed investment return of 4 1/2%. The actual payments will be
based on the monthly payment rate Phoenix is using when the first payment is
due. They will not be less than those shown in the Variable Income Table.
VARIABLE INCOME TABLE
Minimum monthly payment rate for first payment for each $1,000 applied.
Based on 4 1/2% assumed investment return.
ADJUSTED AGE* MALE FEMALE
------------- ---- ------
40 4.31 4.14
45 4.51 4.28
50 4.76 4.47
55 5.09 4.73
60 5.52 5.07
65 6.10 5.53
70 6.83 6.17
75 7.69 7.00
80 8.62 8.01
85 9.46 9.04
* Age on birthday nearest due date of the first payment.
Monthly payment rates for ages not shown will be
furnished on request.
In determining the amount of the first payment, the amounts held under the
Variable Payment Option in each Subaccount are multiplied by the rates Phoenix
is using for the Option on the first Payment Calculation Date. The Payment
Calculation Date is the earliest Valuation Date that is not more than 10 days
before the due date of the payment. The first payment equals the total of such
figures determined for each Subaccount.
Future payments are measured in Annuity Units and are determined by
multiplying the Annuity Units in each Subaccount with assets under the Variable
Payment Option by the Annuity Unit Value for each Subaccount on the Payment
Calculation Date that applies. The number of Annuity Units in each Subaccount
with assets under a Variable Payment Option is equal to the portion of the first
payment provided from that Subaccount divided by the Annuity Unit Value for that
Subaccount on the first Payment Calculation Date. The payment will equal the sum
of such amounts from each Subaccount.
All Annuity Unit Values in each Subaccount were set at $1.000000 on the
first Valuation Date selected by Phoenix. The value of an Annuity Unit on any
date thereafter is equal to (a) the Net Investment Factor for that Subaccount
for the Valuation Period divided by (b) the sum of 1.000000 and the rate of
interest for the number of days in the Valuation Period, based on an effective
annual rate of interest equal to the assumed investment return, and multiplied
by (c) the corresponding Annuity Unit Value on the preceding Valuation Date.
The assumed investment return of 4 1/2% per year is the annual interest rate
assumed in determining the first payment. The amount of each subsequent payment
from each Subaccount will depend on the relationship between the assumed
investment return and the actual investment performance of the Subaccount. If a
4 1/2% rate would result in a first variable payment larger than that permitted
under applicable state law, we will select a lower rate that will comply with
such law.
No partial or full surrenders, withdrawals, transfers or additional purchase
payments may be made with respect to any assets held under Variable Payment
Options I and J. Although no transfers or additional purchase payments may be
made with respect to assets held under Option K, under this option partial or
full surrenders may be made.
B-3
<PAGE>
FIXED ANNUITY PAYMENTS
Fixed monthly annuity payments under a Contract are determined by applying
the Contract Value to the respective annuity purchase rates on the Maturity Date
of a Contract or other date elected for commencement of fixed annuity payments.
Under a Contract, the amount of the fixed annuity payment is calculated by
first multiplying the number of the Subaccounts' Accumulation Units credited to
the Contract on the Maturity Date by the appropriate Unit Value for each
Subaccount on the Maturity Date. The dollar value for all Subaccounts'
Accumulation Units is then aggregated, along with the dollar value of any
investment in the Guaranteed Interest Account. For each Contract, the resulting
dollar value is then multiplied by the applicable annuity purchase rate, which
reflects the age (and sex for non-tax qualified plans) of the Annuitant
specified in the Contract for the Fixed Payment Annuity Option selected. This
computation determines the amount of Phoenix's fixed monthly annuity payment to
the Annuitant.
The mortality table used as a basis for the applicable annuity purchase
rates is the a-49 Individual Annuity Mortality Table at 3 3/8% interest
projected to 1985 at Projection Scale B. More favorable rates may be available
on the Maturity Date or other dates elected for commencement of fixed annuity
payments.
- --------------------------------------------------------------------------------
EXPERTS
The consolidated financial statements of Phoenix and the financial
statements of the Account have been audited by Price Waterhouse LLP,
independent accountants, whose reports are set forth herein, and the financial
statements have been included upon the authority of said firm as experts in
accounting and auditing. Price Waterhouse LLP, whose address is One Financial
Plaza, Hartford, Connecticut, also provides other accounting and tax-related
services as requested by the Account and Phoenix from time to time.
Blazzard, Grodd & Hasenauer, P.C. of Westport, Connecticut has provided
advice on certain matters relating to the federal securities and income tax laws
in connection with the Contracts described in this Prospectus.
B-4
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1996
B-5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
Money Market Growth
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Assets
Investments at cost $ 7,363,985 $ 84,167,085 $44,185,453 $798,667,564
============ ============= ============ =============
Investment in The Phoenix Edge Series
Fund, at market $ 7,363,985 $ 84,167,085 $66,596,242 $908,841,991
------------ ------------- ------------ -------------
Total assets 7,363,985 84,167,085 66,596,242 908,841,991
Liabilities
Accrued expenses to related party 6,712 86,683 57,885 977,624
------------ ------------- ------------ -------------
Net assets $ 7,357,273 $ 84,080,402 $66,538,357 $907,864,367
============ ============= ============ =============
Accumulation units outstanding 3,459,902 40,530,150 7,215,152 100,883,217
============ ============= ============ =============
Unit value $ 2.126440 $ 2.074515 $ 9.222031 $ 8.999162
============ ============= ============ =============
<CAPTION>
Multi-Sector Fixed Income Total Return
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Assets
Investments at cost $15,130,959 $ 94,967,604 $45,838,264 $250,510,261
============ ============== ============ =============
Investment in The Phoenix Edge Series
Fund, at market $15,487,641 $ 99,518,328 $58,367,148 $259,457,802
------------ -------------- ------------ -------------
Total assets 15,487,641 99,518,328 58,367,148 259,457,802
Liabilities
Accrued expenses to related party 12,698 104,432 50,216 277,715
------------ -------------- ------------ -------------
Net assets $15,474,943 $ 99,413,896 $58,316,932 $259,180,087
============ ============== ============ =============
Accumulation units outstanding 4,114,438 27,079,387 15,340,867 69,900,691
============ ============== ============ =============
Unit value $ 3.761132 $ 3.671202 $ 3.801411 $ 3.707833
============ ============== ============ =============
<CAPTION>
International Balanced
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Assets
Investments at cost $ 3,950,560 $102,835,369 $ 4,295,160 $161,540,166
============ ============= ============ =============
Investment in The Phoenix Edge Series
Fund, at market $ 5,395,995 $128,164,938 $ 4,920,977 $176,344,947
------------ ------------- ------------ -------------
Total assets 5,395,995 128,164,938 4,920,977 176,344,947
Liabilities
Accrued expenses to related party 4,502 132,253 4,223 188,469
------------ ------------- ------------ -------------
Net assets $ 5,391,493 $128,032,685 $ 4,916,754 $176,156,478
============ ============= ============ =============
Accumulation units outstanding 3,336,546 80,535,316 3,271,238 118,572,031
============ ============= ============ =============
Unit value $ 1.615890 $ 1.589771 $ 1.503025 $ 1.485649
============ ============= ============ =============
</TABLE>
See Notes to Financial Statements
B-6
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
(Continued)
<TABLE>
<CAPTION>
Real Estate Strategic Theme
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
-------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Assets
Investments at cost $ 241,867 $15,352,449 $ 653,816 $18,148,272
=========== ============ =========== =============
Investment in The Phoenix Edge Series
Fund, at market $ 287,658 $19,391,381 $ 674,557 $18,904,174
----------- ------------ ----------- -------------
Total assets 287,658 19,391,381 674,557 18,904,174
Liabilities
Accrued expenses to related party 227 18,124 569 20,145
----------- ------------ ----------- -------------
Net assets $ 287,431 $19,373,257 $ 673,988 $18,884,029
=========== ============ =========== =============
Accumulation units outstanding 188,753 12,614,201 620,567 17,311,417
=========== ============ =========== =============
Unit value $ 1.522792 $ 1.535829 $ 1.086084 $ 1.090843
=========== ============ =========== =============
<CAPTION>
Aberdeen New Asia
Sub-Account
VA1 VA2, VA3 & GSE
-------------------------------
<S> <C> <C>
Assets
Investments at cost $ 396,202 $ 8,129,643
============ =============
Investment in The Phoenix Edge Series
Fund, at market $ 394,425 $ 8,117,014
------------ -------------
Total assets 394,425 8,117,014
Liabilities
Accrued expenses to related party 330 8,321
------------ -------------
Net assets $ 394,095 $ 8,108,693
============ =============
Accumulation units outstanding 395,033 8,124,731
============ =============
Unit value $ 0.997626 $ 0.998026
============ =============
<CAPTION>
Wanger International Small Cap Wanger U.S. Small Cap
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Assets
Investments at cost $2,369,355 $57,330,199 $4,042,798 $79,402,555
============ ============= =========== =============
Investment in Wanger Advisors Trust,
at market $2,646,515 $65,881,913 $4,857,021 $98,214,300
------------ ------------- ----------- -------------
Total assets 2,646,515 65,881,913 4,857,021 98,214,300
Liabilities
Accrued expenses to related party 2,148 67,199 3,938 98,140
------------ ------------- ----------- -------------
Net assets $2,644,367 $65,814,714 $4,853,083 $98,116,160
============ ============= =========== =============
Accumulation units outstanding 1,632,016 37,820,126 2,887,671 58,623,497
============ ============= =========== =============
Unit value $ 1.620307 $ 1.740203 $ 1.680622 $ 1.673666
============ ============= =========== =============
</TABLE>
See Notes to Financial Statements
B-7
<PAGE>
STATEMENT OF OPERATIONS
For the period ended December 31, 1996
<TABLE>
<CAPTION>
Money Market Growth
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions $ 397,081 $ 3,586,484 $ 638,220 $ 8,253,068
Expenses
Mortality and expense risk charges 81,535 917,302 679,057 10,690,584
----------- ------------ ----------- -------------
Net investment income (loss) 315,546 2,669,182 (40,837) (2,437,516)
----------- ------------ ----------- -------------
Net realized gain from share transactions -- -- 461,426 551,462
Net realized gain distribution from Fund -- -- 4,488,201 60,788,375
Net unrealized appreciation on investment -- -- 2,358,935 31,685,702
----------- ------------ ----------- -------------
Net gain on investments -- -- 7,308,562 93,025,539
----------- ------------ ----------- -------------
Net increase in net assets resulting from
operations $ 315,546 $ 2,669,182 $7,267,725 $90,588,023
=========== ============ ========== =============
<CAPTION>
Multi-Sector Fixed Income Total Return
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions $ 986,913 $ 6,798,736 $1,316,386 $ 5,639,587
Expenses
Mortality and expense risk charges 133,316 1,140,813 609,637 3,244,376
----------- ------------ ----------- ------------
Net investment income 853,597 5,657,923 706,749 2,395,211
----------- ------------ ----------- ------------
Net realized gain from share transactions 542,863 9,603 551,516 563,339
Net realized gain distribution from Fund 458,554 2,940,178 3,644,787 16,147,390
Net unrealized appreciation (depreciation) on
investment (396,876) 940,530 (264,359) 143,413
----------- ------------ ----------- ------------
Net gain on investments 604,541 3,890,311 3,931,944 16,854,142
----------- ------------ ----------- ------------
Net increase in net assets resulting from
operations $1,458,138 $ 9,548,234 $4,638,693 $19,249,353
=========== ============ =========== ============
<CAPTION>
International Balanced
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions $ 77,368 $ 1,823,480 $ 139,715 $ 4,866,871
Expenses
Mortality and expense risk charges 53,836 1,509,486 51,093 2,197,070
----------- ------------ ----------- ------------
Net investment income 23,532 313,994 88,622 2,669,801
----------- ------------ ----------- ------------
Net realized gain from share transactions 65,503 169,042 47,111 393,139
Net realized gain distribution from Fund 120,338 2,835,420 443,754 15,731,997
Net unrealized appreciation (depreciation) on
investment 649,224 15,512,070 (130,224) (3,383,807)
----------- ------------ ----------- -------------
Net gain on investments 835,065 18,516,532 360,641 12,741,329
----------- ------------ ----------- -------------
Net increase in net assets resulting from
operations $ 858,597 $18,830,526 $ 449,263 $15,411,130
=========== ============ =========== =============
</TABLE>
See Notes to Financial Statements
B-8
<PAGE>
STATEMENT OF OPERATIONS
For the period ended December 31, 1996
(Continued)
<TABLE>
<CAPTION>
Real Estate Strategic Theme
Sub-Account Sub-Account(1)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
-------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions $ 4,917 $ 477,780 $ 2,434 $ 66,692
Expenses
Mortality and expense risk charges 1,068 140,105 3,322 142,262
----------- ------------- ---------- -------------
Net investment income (loss) 3,849 337,675 (888) (75,570)
----------- ------------- ---------- -------------
Net realized gain from share transactions 338 10,558 1,447 131,998
Net realized gain distribution from Fund 3,037 199,911 -- --
Net unrealized appreciation on investment 42,397 3,218,688 20,742 755,902
----------- ------------- ---------- -------------
Net gain on investments 45,772 3,429,157 22,189 887,900
----------- ------------- ---------- -------------
Net increase in net assets resulting from
operations $ 49,621 $3,766,832 $ 21,301 $ 812,330
=========== ============= ========== =============
<CAPTION>
Aberdeen New Asia
Sub-Account(2)
VA1 VA2, VA3 & GSE
-------------------------------
<S> <C> <C>
Investment income
Distributions $ 2,008 $ 41,156
Expenses
Mortality and expense risk charges 950 22,524
--------- -----------
Net investment income 1,058 18,632
--------- -----------
Net realized gain (loss) from share
transactions (15) 1,853
Net unrealized depreciation on investment (1,776) (12,629)
--------- -----------
Net loss on investments (1,791) (10,776)
--------- -----------
Net increase (decrease) in net assets
resulting from operations $ (733) $ 7,856
========= ===========
<CAPTION>
Wanger International Small Cap Wanger U.S. Small Cap
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions $ 1,241 $ 50,527 $ 1,323 $ 58,386
Expenses
Mortality and expense risk charges 15,376 493,284 30,173 710,845
----------- ------------- ---------- ------------
Net investment loss (14,135) (442,757) (28,850) (652,459)
----------- ------------- ---------- ------------
Net realized gain (loss) from share
transactions (734) (2,372) 1,581 (31,819)
Net unrealized appreciation on investment 258,110 7,549,473 790,450 18,432,196
----------- ------------- ---------- ------------
Net gain on investments 257,376 7,547,101 792,031 18,400,377
----------- ------------- ---------- ------------
Net increase in net assets resulting from
operations $243,241 $7,104,344 $763,181 $17,747,918
=========== ============= ========== ============
</TABLE>
(1) From inception February 7, 1996 to December 31, 1996
(2) From inception September 29, 1996 to December 31, 1996
See Notes to Financial Statements
B-9
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
---------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
From operations
Net investment
income (loss) $ 315,546 $ 2,669,182 $ (40,837) $ (2,437,516) $ 853,597 $ 5,657,923
Net realized gain -- -- 4,949,627 61,339,837 1,001,417 2,949,781
Net unrealized
appreciation
(depreciation) -- -- 2,358,935 31,685,702 (396,876) 940,530
------------ ------------- ----------- -------------- ------------- -------------
Net increase in net
assets resulting
from operations 315,546 2,669,182 7,267,725 90,588,023 1,458,138 9,548,234
------------ ------------- ----------- -------------- ------------- -------------
From accumulation
unit transactions
Participant deposits 413,122 62,414,283 1,163,841 98,787,397 265,897 12,251,810
Participant
transfers 2,086,813 (38,766,038) (3,027,275) (9,399,903) (34,417) 544,623
Participant
withdrawals (2,528,258) (16,292,176) (6,317,461) (35,720,970) (1,143,820) (7,038,518)
------------- ------------- ----------- -------------- ------------ -------------
Net increase
(decrease) in net
assets resulting
from participant
transactions (28,323) 7,356,069 (8,180,895) 53,666,524 (912,340) 5,757,915
------------- ------------- ----------- -------------- ------------ -------------
Net increase
(decrease) in net
assets 287,223 10,025,251 (913,170) 144,254,547 545,798 15,306,149
Net assets
Beginning of period 7,070,050 74,055,151 67,451,527 763,609,820 14,929,145 84,107,747
------------ ------------- ----------- -------------- ------------- -------------
End of period $ 7,357,273 $ 84,080,402 $66,538,357 $907,864,367 $15,474,943 $ 99,413,896
========== ============= =========== ============== ============ =============
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
---------------------------- ---------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
From operations
Net investment
income $ 706,749 $ 2,395,211 $ 23,532 $ 313,994 $ 88,622 $ 2,669,801
Net realized gain 4,196,303 16,710,729 185,841 3,004,462 490,865 16,125,136
Net unrealized
appreciation
(depreciation) (264,359) 143,413 649,224 15,512,070 (130,224) (3,383,807)
------------ -------------- ------------ -------------- ------------ --------------
Net increase in net
assets resulting
from operations 4,638,693 19,249,353 858,597 18,830,526 449,263 15,411,130
------------ -------------- ------------ -------------- ------------ --------------
From accumulation
unit transactions
Participant deposits 921,673 21,807,365 123,786 9,967,892 69,850 13,546,555
Participant
transfers (4,520,404) (17,991,179) (238,308) (340,043) (770,120) (12,855,150)
Participant
withdrawals (6,234,965) (15,780,165) (527,123) (7,580,723) (362,102) (12,633,674)
------------ -------------- ------------ -------------- ----------- --------------
Net increase
(decrease) in net
assets resulting
from participant
transactions (9,833,696) (11,963,979) (641,645) 2,047,126 (1,062,372) (11,942,269)
------------ -------------- ------------ -------------- ----------- --------------
Net increase
(decrease) in net
assets (5,195,003) 7,285,374 216,952 20,877,652 (613,109) 3,468,861
Net assets
Beginning of period 63,511,935 251,894,713 5,174,541 107,155,033 5,529,863 172,687,617
------------ -------------- ------------ -------------- ------------ --------------
End of period $58,316,932 $259,180,087 $ 5,391,493 $128,032,685 $ 4,916,754 $176,156,478
============ ============== ============ ============== ============ ==============
</TABLE>
See Notes to Financial Statements
B-10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
(Continued)
<TABLE>
<CAPTION>
Real Estate Strategic Theme Aberdeen New Asia
Sub-Account Sub-Account(1) Sub-Account(2)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------- ---------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
From operations
Net investment income
(loss) $ 3,849 $ 337,675 $ (888) $ (75,570) $ 1,058 $ 18,632
Net realized gain 3,375 210,469 1,447 131,998 (15) 1,853
Net unrealized
appreciation
(depreciation) 42,397 3,218,688 20,742 755,902 (1,776) (12,629)
------------ ------------- ----------- ------------- --------- -------------
Net increase
(decrease) in net
assets resulting
from operations 49,621 3,766,832 21,301 812,330 (733) 7,856
------------ ------------- ----------- ------------- --------- -------------
From accumulation unit
transactions
Participant deposits 21,937 1,419,253 97,264 11,116,071 -- 744,784
Participant transfers 203,153 6,126,595 557,249 7,104,135 396,531 7,370,328
Participant
withdrawals (26,582) (127,550) (1,826) (148,507) (1,703) (14,275)
------------ ------------- ----------- ------------- --------- -------------
Net increase in net
assets resulting
from participant
transactions 198,508 7,418,298 652,687 18,071,699 394,828 8,100,837
------------ ------------- ----------- ------------- --------- -------------
Net increase in net
assets 248,129 11,185,130 673,988 18,884,029 394,095 8,108,693
Net assets
Beginning of period 39,302 8,188,127 0 0 0 0
------------ ------------- ----------- ------------- --------- -------------
End of period $ 287,431 $19,373,257 $ 673,988 $18,884,029 $394,095 $8,108,693
============ ============= =========== ============= ========= =============
<CAPTION>
Wanger International Small Cap Wanger U.S. Small Cap
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ ----------------------------
<S> <C> <C> <C> <C>
From operations
Net investment loss $ (14,135) $ (442,757) $ (28,850) $ (652,459)
Net realized gain
(loss) (734) (2,372) 1,581 (31,819)
Net unrealized
appreciation 258,110 7,549,473 790,450 18,432,196
------------ ------------- ----------- --------------
Net increase in net
assets resulting
from operations 243,241 7,104,344 763,181 17,747,918
------------ ------------- ----------- --------------
From accumulation unit
transactions
Participant deposits 234,155 15,960,884 269,408 20,013,816
Participant transfers 2,018,521 33,617,187 3,368,454 42,773,428
Participant
withdrawals (92,790) (1,194,205) (80,915) (2,113,335)
------------ ------------- ----------- --------------
Net increase in net
assets resulting
from participant
transactions 2,159,886 48,383,866 3,556,947 60,673,909
------------ ------------- ----------- --------------
Net increase in net
assets 2,403,127 55,488,210 4,320,128 78,421,827
Net assets
Beginning of period 241,240 10,326,504 532,955 19,694,333
------------ ------------- ----------- --------------
End of period $2,644,367 $65,814,714 $4,853,083 $98,116,160
============ ============= =========== ==============
</TABLE>
(1) From inception February 7, 1996 to December 31, 1996
(2) From inception September 29, 1996 to December 31, 1996
See Notes to Financial Statements
B-11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ ------------------------------ -----------------------------
<S> <C> <C> <C> <C> <C> <C>
From operations
Net investment income
(loss) $ 359,860 $ 3,025,129 $ 65,170 $ (840,458) $ 1,017,753 $ 5,072,165
Net realized gain -- -- 7,548,511 81,208,257 55,037 17,918
Net unrealized
appreciation -- -- 8,168,033 75,535,624 1,761,715 8,666,711
------------ -------------- ------------ -------------- ------------ --------------
Net increase in net
assets resulting
from operations 359,860 3,025,129 15,781,714 155,903,423 2,834,505 13,756,794
------------ -------------- ------------ -------------- ------------ --------------
From accumulation unit
transactions
Participant deposits 5,752 62,308,151 1,598,579 124,955,151 158,313 12,197,018
Participant transfers (180,776) (53,470,824) 3,015,663 43,180,634 (3,366) 6,303,584
Participant
withdrawals (2,199,526) (10,625,595) (6,259,870) (37,686,221) (1,429,692) (4,002,038)
------------ -------------- ------------ -------------- ------------ --------------
Net increase
(decrease) in net
assets resulting
from participant
transactions (2,374,550) (1,788,268) (1,645,628) 130,449,564 (1,274,745) 14,498,564
------------ -------------- ----------- -------------- ------------ --------------
Net increase
(decrease) in net
assets (2,014,690) 1,236,861 14,136,086 286,352,987 1,559,760 28,255,358
Net assets
Beginning of period 9,084,740 72,818,290 53,315,441 477,256,833 13,369,385 55,852,389
------------ -------------- ------------- -------------- ------------ --------------
End of period $ 7,070,050 $ 74,055,151 $67,451,527 $763,609,820 $14,929,145 $ 84,107,747
============ ============== ============ ============== ============ ==============
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
----------------------------- --------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
From operations
Net investment income
(loss) $ 1,381,331 $ 4,688,509 $ (40,806) $ (964,732) $ 123,820 $ 3,467,905
Net realized gain
(loss) 4,218,277 15,383,213 (62,555) 1,346,145 134,199 3,628,855
Net unrealized
appreciation 4,176,429 14,852,737 540,494 7,779,441 767,657 23,829,474
------------ ------------- ------------ -------------- ------------ --------------
Net increase in net
assets resulting
from operations 9,776,037 34,924,459 437,133 8,160,854 1,025,676 30,926,234
------------ ------------- ------------ -------------- ------------ --------------
From accumulation unit
transactions
Participant deposits 1,028,187 32,735,047 148,158 16,055,112 127,367 15,492,037
Participant transfers (1,572,062) (2,629,446) (2,352,617) (19,987,552) (387,341) (9,618,084)
Participant
withdrawals (5,833,027) (16,146,431) (569,829) (7,873,129) (555,779) (10,194,737)
------------ ------------- ------------ -------------- ------------ --------------
Net increase
(decrease) in net
assets resulting
from participant
transactions (6,376,902) 13,959,170 (2,774,288) (11,805,569) (815,753) (4,320,784)
------------ ------------- ------------ -------------- ------------ --------------
Net increase
(decrease) in net
assets 3,399,135 48,883,629 (2,337,155) (3,644,715) 209,923 26,605,450
Net assets
Beginning of period 60,112,800 203,011,084 7,511,696 110,799,748 5,319,940 146,082,167
------------ ------------- ------------ -------------- ------------ --------------
End of period $63,511,935 $251,894,713 $ 5,174,541 $107,155,033 $ 5,529,863 $172,687,617
============ ============= ============ ============== ============ ==============
</TABLE>
See Notes to Financial Statements
B-12
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
From inception May 1, 1995 to December 31, 1995
(Continued)
<TABLE>
<CAPTION>
Real Estate Wanger International Small Wanger U.S. Small Cap
Sub-Account Cap Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 VA1 VA2, VA3
---------------------------- -------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
From operations
Net investment income
(loss) $ 765 $ 155,874 $ (513) $ (37,360) $ (1,865) $ (80,663)
Net realized gain (loss) 292 65,056 4 8,695 (747) (3,774)
Net unrealized appreciation 3,394 820,245 19,049 1,002,242 23,773 379,548
---------- ------------- --------- ------------ --------- -----------
Net increase in net assets
resulting from operations 4,451 1,041,175 18,540 973,577 21,161 295,111
---------- ------------- --------- ------------ --------- -----------
From accumulation unit
transactions
Participant deposits 416 5,827,754 20,936 3,531,791 36,476 7,685,414
Participant transfers 35,382 1,329,121 201,764 5,974,479 478,823 11,864,286
Participant withdrawals (947) (9,923) -- (153,343) (3,505) (150,478)
---------- ------------- --------- ------------ --------- -----------
Net increase in net assets
resulting from participant
transactions 34,851 7,146,952 222,700 9,352,927 511,794 19,399,222
---------- ------------- --------- ------------ --------- -----------
Net increase in net assets 39,302 8,188,127 241,240 10,326,504 532,955 19,694,333
Net assets
Beginning of period 0 0 0 0 0 0
---------- ------------- --------- ------------ --------- -----------
End of period $39,302 $8,188,127 $241,240 $10,326,504 $532,955 $19,694,333
========== ============= ========= ============ ========= ===========
</TABLE>
See Notes to Financial Statements
B-13
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
NOTES TO FINANCIAL STATEMENTS
Note 1--Organization
Phoenix Home Life Variable Accumulation Account (the "Account") is a
separate investment account of Phoenix Home Life Mutual Insurance Company
(Phoenix) registered as a unit investment trust. The Account currently has
eleven Sub-accounts to which contract values may be allocated and invest solely
in a designated portfolio of The Phoenix Edge Series Fund and/or Wanger Advisors
Trust (the "Funds"). The Account is offered as The Big Edge and The Big Edge
Plus to individuals (VA1, VA2 and VA3) and is also offered as Group Strategic
Edge ("GSE") to groups to fund certain tax-qualified pension plans or profit
sharing plans. The Money Market, Growth, Multi-Sector Fixed Income (formerly
Bond), Total Return, International, Balanced, Real Estate, Strategic Theme,
Aberdeen New Asia, Wanger International Small Cap and Wanger U.S. Small Cap
Sub-accounts are subdivided into two pools designated "VA1" and "VA2, VA3 &
GSE". VA2, VA3 and GSE contracts include a higher expense risk charge than the
VA1 contract.
Each Series has distinct investment objectives. The Money Market Series is
a pooled short-term investment fund, the Growth Series is a growth common stock
fund, the Multi-Sector Fixed Income Series is a long-term debt fund, the Total
Return Series invests in equity securities and long and short-term debt, the
International Series invests primarily in an internationally diversified
portfolio of equity securities and the Balanced Series is a balanced fund which
invests in growth stocks and at least 25% of its assets in fixed income senior
securities. The Real Estate Series invests in marketable securities of publicly
traded real estate investment trusts ("REITs") and companies that are
principally engaged in the real estate industry. The Strategic Theme Series
invests in securities of companies believed to benefit from specific trends. The
Aberdeen New Asia Series invests primarily in diversified equity securities of
issuers organized and principally operating in Asia, excluding Japan. Wanger
International Small Cap and Wanger U.S. Small Cap invest primarily in securities
of companies with a stock market capitalization of less than $1 billion.
Contract owners may also direct the allocation of their investments between the
Account and the Guaranteed Interest Account (of the General Account of Phoenix)
through participant transfers.
Note 2--Significant Accounting Policies
A. Valuation of Investments: Investments are made exclusively in the Funds
and are valued at the net asset values per share of the respective Series.
B. Investment transactions and related income: Realized gains and losses
include capital gain distributions from the Funds as well as gains and losses
on sales of shares in the Funds determined on the LIFO (last in, first out)
basis.
C. Income taxes: The Account is not a separate entity from Phoenix and under
current federal income tax law, income arising from the Account is not taxed
since reserves are established equivalent to such income. Therefore, no
provision for related federal or state income taxes is required.
D. Distributions: Distributions are recorded as investment income on the
ex-dividend date.
Note 3--Purchases and Sales of Shares of the Funds
Purchases and sales of shares of the Funds for the period ended December
31, 1996 aggregated the following:
<TABLE>
<CAPTION>
VA1 VA2, VA3 & GSE
----------------------------- -----------------------------
Sub-Account Purchases Sales Purchases Sales
- ----------------------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
The Phoenix Edge Series Fund:
Money Market $15,874,923 $15,586,607 $ 84,974,398 $74,933,945
Growth 9,692,151 13,420,971 206,997,081 94,744,516
Multi-Sector Fixed Income 9,912,247 9,511,838 32,391,800 18,015,431
Total Return 5,577,505 11,059,655 35,318,110 28,708,789
International 1,385,836 1,883,202 18,095,839 12,871,108
Balanced 1,080,239 1,610,321 29,227,305 22,748,091
Real Estate 232,405 26,813 9,997,652 2,031,388
Strategic Theme 720,463 68,094 24,907,339 6,891,065
Aberdeen New Asia 398,440 2,223 9,330,672 1,202,882
Wanger Advisors Trust:
Wanger International Small Cap 2,708,195 560,469 50,827,925 2,825,276
Wanger U.S. Small Cap 6,377,168 2,845,543 63,038,392 2,938,002
</TABLE>
B-14
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
NOTES TO FINANCIAL STATEMENTS
Note 4--Participant Accumulation Unit Transactions (in units)
<TABLE>
<CAPTION>
Sub-Account
---------------------------------------------------------------------------------------
Money Multi-Sector Total
Market Growth Fixed Income Return International Balanced
------------- ------------- -------------- ------------ ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
VA1
Units outstanding,
beginning of period 3,457,073 8,152,578 4,417,776 18,038,311 3,761,861 4,027,273
Participant deposits 197,520 134,660 77,074 253,627 83,754 49,966
Participant transfers 1,018,162 (345,050) (55,510) (1,245,054) (158,084) (549,310)
Participant withdrawals (1,212,853) (727,036) (324,902) (1,706,017) (350,985) (256,691)
----------- ----------- ------------- ----------- -------------- -----------
Units outstanding, end
of period 3,459,902 7,215,152 4,114,438 15,340,867 3,336,546 3,271,238
=========== =========== ============= =========== ============== ===========
VA2, VA3
Big Edge Plus:
Units outstanding,
beginning of period 36,241,891 92,694,585 24,782,657 71,834,899 77,277,010 124,814,290
Participant deposits 29,510,056 10,108,038 3,246,569 5,622,400 6,163,694 8,723,388
Participant transfers (21,526,181) (942,697) 121,097 (4,867,129) (288,064) (9,024,338)
Participant withdrawals (5,343,725) (5,740,812) (1,924,673) (4,267,779) (4,901,106) (8,698,694)
----------- ----------- ------------- ----------- -------------- -----------
Units outstanding, end
of period 38,882,041 96,119,114 26,225,650 68,322,391 78,251,534 115,814,646
=========== =========== ============= =========== ============== ===========
Group Strategic Edge:
Units outstanding,
beginning of period 783,988 1,648,909 652,101 1,330,249 1,708,309 2,104,015
Participant deposits 1,593,445 3,401,352 301,274 526,051 484,703 724,326
Participant transfers 1,045,503 (2,467) 41,728 (95,905) 265,560 191,883
Participant withdrawals (1,774,827) (283,691) (141,366) (182,095) (174,790) (262,839)
----------- ----------- ------------- ----------- -------------- -----------
Units outstanding, end
of period 1,648,109 4,764,103 853,737 1,578,300 2,283,782 2,757,385
=========== =========== ============= =========== ============== ===========
</TABLE>
<TABLE>
<CAPTION>
Strategic Aberdeen Wanger International Wanger U.S.
Real Estate Theme New Asia Small Cap Small Cap
-------------- ------------- ------------ -------------------- --------------
<S> <C> <C> <C> <C> <C>
VA1
Units outstanding, beginning
of period 34,014 0 0 194,615 460,316
Participant deposits 16,219 93,421 -- 153,393 185,088
Participant transfers 156,851 528,857 396,754 1,345,568 2,297,687
Participant withdrawals (18,331) (1,711) (1,721) (61,560) (55,420)
------------ ----------- ---------- ------------------- ------------
Units outstanding, end of
period 188,753 620,567 395,033 1,632,016 2,887,671
============ =========== ========== =================== ============
VA2, VA3
Big Edge Plus:
Units outstanding, beginning
of period 6,971,291 0 0 7,737,540 17,039,472
Participant deposits 1,046,143 10,557,214 742,070 9,247,962 13,215,584
Participant transfers 4,442,965 6,511,719 7,380,189 20,878,871 28,707,048
Participant withdrawals (102,950) (67,958) (14,275) (754,253) (1,451,778)
------------ ----------- ---------- ------------------- ------------
Units outstanding, end of
period 12,357,449 17,000,975 8,107,984 37,110,120 57,510,326
============ =========== ========== =================== ============
Group Strategic Edge:
Units outstanding, beginning
of period 37,517 0 0 0 0
Participant deposits 55,139 188,421 9,045 398,085 520,942
Participant transfers 164,178 195,948 7,702 316,457 641,009
Participant withdrawals (82) (73,927) -- (4,536) (48,780)
------------ ----------- ---------- ------------------- ------------
Units outstanding, end of
period 256,752 310,442 16,747 710,006 1,113,171
============ =========== ========== =================== ============
</TABLE>
B-15
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
NOTES TO FINANCIAL STATEMENTS
Note 5--Investment Advisory Fees and Related Party Transactions
Phoenix and its indirect, majority owned subsidiary, Phoenix Equity
Planning Corporation, a registered broker/dealer in securities, provide all
services to the Account.
Phoenix assumes the risk that annuitants as a class may live longer than
expected (necessitating a greater number of annuity payments) and that its
expenses may be higher than its deductions for such expenses. In return for the
assumption of these mortality and expense risks, Phoenix charges the
Sub-Accounts designated VA1 the daily equivalent of 0.40% on an annual basis of
the current value of the Sub-Account's net assets for mortality risks assumed
and the daily equivalent of 0.60% on an annual basis for expense risks assumed.
VA2, VA3 & GSE Sub-Accounts are charged the daily equivalent of 0.40% and 0.85%
on an annual basis for mortality and expense risks, respectively.
As compensation for administrative services provided to the Account,
Phoenix additionally receives $35 per year from each contract, which is deducted
from the Sub-Account holding the assets of the participant, or on a pro rata
basis from two or more Sub-Accounts in relation to their values under the
contract. Fees for administrative services provided for the year ended December
31, 1996 aggregated $1,549,937 and are funded by and included in participant
withdrawals.
Phoenix Equity Planning Corporation is the principal underwriter and
distributor for the Account. Phoenix reimburses Phoenix Equity Planning
Corporation for expenses incurred as underwriter.
On surrender of a contract, contingent deferred sales charges, which vary
from 0-6% depending upon the duration of each contract deposit, are deducted
from the proceeds and are paid to Phoenix as reimbursement for services
provided. Contingent deferred sales charges deducted and paid to Phoenix
aggregated $1,958,067 for the year ended December 31, 1996.
Note 6--Distribution of Net Income
The Account does not expect to declare dividends to participants from
accumulated net income. The accumulated net income is distributed to
participants as part of withdrawals of amounts in the form of surrenders, death
benefits, transfers or annuity payments in excess of net purchase payments.
Note 7--Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue Code (the
Code), a variable annuity contract, other than a contract issued in connection
with certain types of employee benefit plans, will not be treated as an annuity
contract for federal tax purposes for any period for which the investments of
the segregated asset account on which the contract is based are not adequately
diversified. The Code provides that the "adequately diversified" requirement may
be met if the underlying investments satisfy either a statutory safe harbor test
or diversification requirements set forth in regulations issued by the Secretary
of the Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. Phoenix believes that the Account satisfies the current requirements
of the regulations, and it intends that the Account will continue to meet such
requirements.
B-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[Logotype] Price Waterhouse LLP [Logo]
To the Board of Directors of Phoenix Home Life Mutual Insurance Company and
Participants of Phoenix Home Life Variable Accumulation Account
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Money Market
Sub-Account, Growth Sub-Account, Multi-Sector Fixed Income Sub-Account
(formerly the Bond Sub-Account), Total Return Sub-Account, International
Sub-Account, Balanced Sub-Account, Real Estate Sub-Account, Strategic Theme
Sub-Account, Aberdeen New Asia Sub-Account, Wanger International Small Cap
Sub-Account and Wanger U.S. Small Cap Sub-Account (constituting the Phoenix
Home Life Variable Accumulation Account, hereafter referred to as the
"Account") at December 31, 1996, the results of each of their operations for
the periods then ended and the changes in each of their net assets for each
of the periods indicated, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Account's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of investments at December 31, 1996
by correspondence with the Funds, provide a reasonable basis for the opinion
expressed above.
/s/ Price Waterhouse LLP
Hartford, Connecticut
February 12, 1997
B-17
<PAGE>
PHOENIX HOME LIFE
VARIABLE ACCUMULATION ACCOUNT
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
Underwriter
Phoenix Equity Planning Corporation
P.O. Box 2200
100 Bright Meadow Boulevard
Enfield, Connecticut 06083-2200
Custodians
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
Brown Brothers Harriman & Co.
(International Series, Aberdeen New Asia Series)
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust
(Real Estate Series)
P.O. Box 351
Boston, Massachusetts 02101
Independent Accountants
Price Waterhouse LLP
One Financial Plaza
Hartford, Connecticut 06103
B-18
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
B-19
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants ....................................... B-21
Consolidated Balance Sheets at December 31, 1996 and 1995 ................ B-22
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 ....................................... B-23
Consolidated Statements of Equity for the Years Ended
December 31, 1996, 1995 and 1994 ....................................... B-24
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 ........................................ B-25
Notes to Consolidated Financial Statements .......................... B-26-B-53
B-20
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
[logotype]Price Waterhouse LLP [logo]
REPORT OF INDEPENDENT ACCOUNTANTS
February 12, 1997
To the Board of Directors
and Policyholders of
Phoenix Home Life Mutual Insurance Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of equity and of cash flows present fairly,
in all material respects, the financial position of Phoenix Home Life Mutual
Insurance Company and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
<PAGE>
THIS NEW YORK STATE INSURANCE DEPARTMENT RECOGNIZES ONLY STATUTORY
ACCOUNTING PRACTICES FOR DETERMINING AND REPORTING THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF AN INSURANCE COMPANY, FOR DETERMINING ITS
SOLVENCY UNDER NEW YORK INSURANCE LAW, AND FOR DETERMINING WHETHER ITS
FINANCIAL CONDITION WARRANTS THE PAYMENT OF A DIVIDEND TO ITS
POLICYHOLDERS. NO CONSIDERATION IS GIVEN BY THE DEPARTMENT TO FINANCIAL
STATEMENTS PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN MAKING SUCH DETERMINATIONS.
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31,
1996 1995
(IN THOUSANDS)
ASSETS
Investments:
Fixed maturities:
Held-to-maturity, at amortized cost $ 1,555,685 $ 1,334,447
Available-for-sale, at fair value 4,895,393 4,425,678
Equity securities, at fair value 235,351 254,278
Mortgage loans 947,076 897,192
Real estate 410,945 418,328
Policy loans 1,667,784 1,617,872
Other invested assets 182,372 144,778
Short-term investments 164,967 275,517
---------------- ----------------
Total investments 10,059,573 9,368,090
Cash and cash equivalents 172,895 127,104
Accrued investment income 135,475 128,139
Deferred policy acquisition costs 926,274 816,128
Premiums, accounts and notes receivable 79,354 64,880
Reinsurance recoverables 46,251 48,490
Property and equipment, net 137,231 134,880
Other assets 134,589 130,627
Goodwill and intangibles, net 313,507 313,069
Separate account assets 3,447,899 3,306,070
---------------- ----------------
Total assets $ 15,453,048 $ 14,437,477
================ ================
LIABILITIES
Policy liabilities and accruals $ 9,462,039 $ 8,974,885
Other liabilities 470,595 445,577
Long-term debt 490,430 268,337
Current income taxes 29,345 42,033
Deferred income taxes 61,934 34,176
Separate account liabilities 3,412,152 3,273,056
---------------- ----------------
Total liabilities 13,926,495 13,038,064
---------------- ----------------
Contingent liabilities (Note 15)
Minority interest 129,084 117,826
---------------- ----------------
EQUITY
Unrealized investment gains, net 89,791 75,878
Retained earnings 1,307,678 1,205,709
---------------- ----------------
Total equity 1,397,469 1,281,587
---------------- ----------------
Total liabilities and equity $ 15,453,048 $ 14,437,477
================ ================
The accompanying notes are an integral part of these statements.
B-22
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premiums $ 1,518,822 $ 1,456,875 $ 1,396,002
Insurance and investment product fees 421,058 324,459 286,174
Net investment income 689,890 662,468 622,717
Net realized investment gains (losses) 95,265 74,738 (166)
---------------- ---------------- ----------------
Total revenues 2,725,035 2,518,540 2,304,727
---------------- ---------------- ----------------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses 1,529,573 1,471,030 1,412,686
Policyholder dividends 311,739 289,469 264,456
Policy acquisition expenses 242,363 221,339 237,768
Other operating expenses 452,399 419,231 319,090
---------------- ---------------- ----------------
Total benefits, losses and expenses 2,536,074 2,401,069 2,234,000
---------------- ---------------- ----------------
OPERATING INCOME 188,961 117,471 70,727
Non-operating income
Gain on merger transactions 40,580
---------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST 188,961 158,051 70,727
Income taxes 79,331 43,352 40,062
---------------- ---------------- ----------------
INCOME BEFORE MINORITY INTEREST 109,630 114,699 30,665
Minority interest (8,902) (950) 13
---------------- ---------------- ----------------
NET INCOME $ 100,728 $ 113,749 $ 30,678
================ =============== ================
</TABLE>
The accompanying notes are an integral part of these statements.
B-23
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
- --------------------------------------------------------------------------------
NET UNREALIZED
RETAINED INVESTMENT
EARNINGS GAINS (LOSSES) TOTAL
(IN THOUSANDS)
Balance at December 31, 1993 $ 1,065,115 $ 48,288 $ 1,113,403
Net income 30,678 30,678
Net unrealized loss (75,761) (75,761)
------------ ------------- -------------
Balance at December 31, 1994 1,095,793 (27,473) 1,068,320
Net income 113,749 113,749
Net unrealized gain 103,351 103,351
Minimum pension liability (3,833) (3,833)
------------ ------------- -------------
Balance at December 31, 1995 1,205,709 75,878 1,281,587
Net income 100,728 100,728
Net unrealized gain 13,913 13,913
Minimum pension liability 1,241 1,241
------------ ------------- -------------
Balance at December 31, 1996 $ 1,307,678 $ 89,791 $ 1,397,469
============ ============= =============
The accompanying notes are an integral part of these statements.
B-24
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 100,728 $ 113,749 $ 30,678
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATIONS
Net realized investment gains (95,265) (74,738) (166)
Net gain on merger (40,580)
Amortization and depreciation 64,870 58,912 51,894
Deferred income taxes (benefit) 14,774 (16,236) 68,936
(Increase) decrease in receivables (111,886) (30,130) 2,830
Increase in deferred policy acquisition costs (61,985) (26,370) (2,975)
Increase in policy liabilities and accruals 559,724 537,919 446,850
Increase (decrease) in other assets/other liabilities, net 39,594 95,880 (51,171)
Other, net 11,258 4,203 8,046
------------- ------------- -----------
Net cash provided by operating activities 521,812 622,609 554,922
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from disposals of fixed maturities:
Available-for-sale 1,348,809 1,145,146 985,858
Held-to-maturity 118,596 143,773 209,757
Proceeds from disposals of equity securities 382,359 329,104 347,884
Proceeds from mortgage loan maturities or repayments 151,760 186,172 160,882
Proceeds from sale of other invested assets 127,440 148,546 209,316
Purchase of fixed maturities:
Available-for-sale (1,909,086) (1,614,387) (1,396,902)
Held-to-maturity (385,321) (247,354) (383,207)
Purchase of equity securities (215,104) (282,488) (310,751)
Purchase of mortgage loans (200,683) (93,097) (31,214)
Purchase of other invested assets (157,077) (73,482) (173,988)
Change in short term investments, net 110,503 (166,445) 265,328
Increase in policy loans (49,912) (32,387) (55,143)
Capital expenditures (3,543) (18,449) (12,663)
Other investing activities, net (5,898) (12,704) (11,392)
------------- ------------- -----------
Net cash used for investing activities (687,157) (588,052) (196,235)
CASH FLOW FROM FINANCING ACTIVITIES
Withdrawals of contractholder deposit (6,301) (154,100) (314,100)
funds, net of deposits and interest credited
Proceeds from borrowings 226,082 177,922 3,417
Repayment of borrowings (2,400) (12,726) (19,742)
Dividends paid to minority shareholders (6,245) (31,215)
------------- ------------- -----------
Net cash provided by (used for) financing activities 211,136 (20,119) (330,425)
NET INCREASE IN CASH AND CASH EQUIVALENTS 45,791 14,438 28,262
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 127,104 112,666 84,404
------------- ------------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 172,895 $ 127,104 $ 112,666
============= ============= ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid (refunded), net $ 76,157 $ 33,399 $ (32,245)
Interest paid on debt $ 19,214 $ 8,100 $ 8,191
</TABLE>
The accompanying notes are an integral part of these statements.
B-25
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Phoenix Home Life Mutual Insurance Company (Phoenix or the Company) and its
subsidiaries market a wide range of insurance and investment products and
services including individual participating life insurance, variable life
insurance, group life and health insurance, life and health reinsurance,
annuities, investment advisory and mutual fund distribution services,
insurance agency and brokerage operations, primarily based in the United
States. These products and services are distributed among seven segments:
Individual, Group Life and Health, Life Reinsurance, General Lines
Brokerage, Securities Management, Real Estate Management and Other
Operations. See Note 10 for segment information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Phoenix and
all significant subsidiaries (collectively, the Company). Less than
majority-owned entities in which the Company has at least a 20% interest or
those where the Company has significant influence are reported on the
equity basis.
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates used in
determining insurance and contractholder liabilities, related reinsurance
recoverables, taxes, contingencies and valuation allowances for investment
assets are discussed throughout the Notes to Consolidated Financial
Statements. All significant intercompany accounts and transactions have
been eliminated. Certain reclassifications have been made to the 1995 and
1994 amounts to conform with the 1996 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
As a result of the issuance of the Statement of Financial Accounting
Standard (SFAS) No. 120, "Accounting and Reporting by Mutual Life Insurance
Enterprises and Insurance Enterprises for Certain Long-Duration
Participating Contracts," and Financial Accounting Standards Board
Interpretation (FIN) No. 40, "Applicability of Generally Accepted
Accounting Principles to Mutual Life Insurance and Other Enterprises,"
financial statements of mutual life insurance companies beginning after
December 15, 1995, prepared on the basis of statutory accounting are no
longer characterized as in conformity with GAAP. The Company applied the
pronouncements of the Financial Accounting Standards Board (FASB) to its
financial statements in 1995, and, in accordance with SFAS No. 120 and FIN
No. 40, all prior periods presented were restated.
B-26
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
VALUATION OF INVESTMENTS
Investments in fixed maturities include bonds, asset-backed securities
including collateralized mortgage obligations (CMOs) and preferred stocks.
The Company classifies all its fixed maturities as either held-to-maturity
or available-for-sale investments. Fixed maturities held-to-maturity
consist of private placement bonds presented at amortized cost, net of
impairments, that management intends and has the ability to hold until
maturity. Fixed maturities available-for-sale are presented at fair value
with unrealized gains or losses included in equity and consist of public
bonds and preferred stocks that management may not hold until maturity.
Fixed maturities are considered impaired when a decline in value is
considered to be other than temporary.
Equity securities are classified as available-for-sale securities. These
securities are reported at fair value based principally on their quoted
market prices. Equity securities are considered impaired when a decline in
value is considered to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances, net
of valuation reserves on impaired mortgages. A mortgage loan is considered
to be impaired if management believes it is probable that the Company will
be unable to collect all amounts of contractual interest and principal as
scheduled in the loan agreement. An impaired mortgage loan's fair value is
measured based on the present value of future cash flows discounted at the
loan's observable market price or at the fair value of the collateral. If
the fair value of a mortgage loan is less than the recorded investment in
the loan, the difference is recorded as a valuation reserve.
Real estate held for sale is carried at the lower of cost or current fair
value less costs to sell. Foreclosed real estate is carried at appraised
value at the time of foreclosure. Subsequent to foreclosure, these
investments are carried at the lower of cost or current fair value less
costs to sell. Fair value for real estate is determined taking into
consideration one or more of the following factors: (i) property valuation
techniques utilizing discounted cash flows at the time of stabilization
including capital expenditures and stabilization costs; (ii) sales of
comparable properties; (iii) geographic location of the property and
related market conditions; and (iv) disposition costs.
Policy loans are generally carried at their unpaid principal balances and
are collateralized by the cash values of the related policies.
Short-term investments are carried at amortized cost, which approximates
fair value.
Other invested assets (primarily partnerships) are carried at cost adjusted
for the Company's equity in undistributed earnings or losses since
acquisition, less allowances for other than temporary declines in value.
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are
determined by the specific identification method and reported as a
component of revenue. A realized investment loss is recorded when an
investment valuation reserve is determined. Valuation reserves are netted
against the asset categories to which they apply and changes in the
valuation reserves are included in realized investment gains and losses.
Unrealized investment gains and losses on fixed maturities and equity
securities classified as available-for-sale are included as a separate
component of equity, net of deferred income taxes and deferred policy
acquisition costs.
B-27
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions
involving various types of financial instruments, including debt,
investments such as fixed maturities, mortgage loans and equity securities,
and off-balance-sheet financial instruments such as investment and loan
commitments, financial guarantees, and interest rate swaps. These
instruments have credit risk and also may be subject to risk of loss due to
interest rate and market fluctuations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and money market
instruments.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, underwriting,
distribution and policy issue expenses, all of which vary with and are
primarily related to the production of revenues, are deferred. Deferred
policy acquisition costs are subject to recoverability testing at the time
of policy issue and loss recognition at the end of each accounting period.
For individual participating life insurance business, deferred policy
acquisition costs are amortized in proportion to historical and anticipated
gross margins. Deviations from expected experience are reflected in
earnings in the period such deviations occur.
For universal life, limited pay and investment type contracts, deferred
policy acquisition costs are amortized in proportion to total estimated
gross profits over the expected average life of the contracts using
estimated gross margins arising principally from investment, mortality and
expense margins and surrender charges based on historical and anticipated
experience, updated at the end of each accounting period.
PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements, consisting primarily of
office buildings occupied by the Company, are stated at depreciated cost,
less a reserve for impairments in value. Real estate occupied by the
Company was $97.2 million and $95.0 million, respectively, at December 31,
1996 and 1995. The Company provides for depreciation using straight line
and accelerated methods over the estimated useful lives of the related
assets which generally range from five to forty years. Accumulated
depreciation and amortization was $144.1 million and $129.6 million at
December 31, 1996 and 1995, respectively.
OTHER ASSETS
Other assets consist of prepaid expenses and accounts receivable,
principally investment management fees receivable less allowances for
estimated uncollectible amounts.
B-28
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of the cost of businesses acquired over the
fair value of their net assets. These costs are amortized on a
straight-line basis over periods, not exceeding 40 years, that correspond
with the benefits expected to be derived from the acquisitions. Intangible
assets are amortized on a straight-line basis over the estimated lives of
such assets. Management periodically reevaluates the propriety of the
carrying value of goodwill and intangible assets by comparing estimates of
future undiscounted cash flows to the carrying value of assets. Assets are
considered impaired if the carrying value exceeds the expected future
undiscounted cash flows.
SEPARATE ACCOUNTS
Separate account assets and liabilities are funds maintained in accounts to
meet specific investment objectives of contractholders who bear the
investment risk. Investment income and investment gains and losses accrue
directly to such contractholders. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. The assets and liabilities are carried at market
value. Deposits, net investment income and realized investment gains and
losses for these accounts are excluded from revenues, and the related
liability increases are excluded from benefits and expenses. Amounts
assessed to the contractholders for management services are included in
revenues.
On March 1, 1996, the pooled separate accounts of Phoenix, excluding the
real estate separate accounts, were terminated and the assets of these
separate accounts were transferred to Phoenix Duff & Phelps' institutional
mutual funds.
POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity
products. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. Policy liabilities for
traditional life insurance are computed using the net level premium method
on the basis of actuarial assumptions as to assumed rates of interest,
mortality, morbidity and withdrawals. Liabilities for universal life
include deposits received from customers and investment earnings on their
fund balances, less administrative charges. Universal life fund balances
are also assessed mortality charges.
Liabilities for outstanding claims, losses and loss adjustment expenses are
amounts estimated to cover incurred losses. These liabilities are based on
individual case estimates for reported losses and estimates of unreported
losses based on past experience.
Unearned premiums relate primarily to individual participating life
insurance as well as group life, accident and health insurance premiums.
The premiums are reported as earned on a pro-rata basis over the contract
period. The unexpired portion of these premiums is recorded as unearned
premiums.
Contractholder deposit funds and other policy liabilities include
investment-related products such as guaranteed investment contracts,
deposit administration funds and immediate participation guarantee funds.
These funds consist of deposits received from customers and investment
earnings on their fund balances.
B-29
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Life insurance premiums, other than premiums for universal life and certain
annuity contracts, are recorded as premium revenue on a pro-rata basis over
each policy year. Benefits, losses and related expenses are matched with
premiums over the related contract periods. Revenues for investment-related
products consist of net investment income and contract charges assessed
against the fund values. Related benefit expenses primarily consist of net
investment income credited to the fund values after deduction for
investment and risk charges. Revenues for universal life products consist
of net investment income and mortality, administration and surrender
charges assessed against the fund values during the period. Related benefit
expenses include universal life benefit claims in excess of fund values and
net investment income credited to universal life fund values.
POLICYHOLDERS' DIVIDENDS
Certain life insurance policies contain dividend payment provisions that
enable the policyholder to participate in the earnings of the Company. The
amount of policyholders' dividends to be paid is determined annually by the
Company's board of directors. The aggregate amount of policyholders'
dividends is related to the actual interest, mortality, morbidity and
expense experience for the year and the Company's judgment as to the
appropriate level of statutory surplus to be retained. The participating
life insurance in force was 80.0% and 80.5% of the face value of total
individual life insurance in force at December 31, 1996 and 1995,
respectively. The premiums on participating life insurance policies were
84.1%, 84.7% and 84.5% of total individual life insurance premiums in 1996,
1995 and 1994, respectively. Total policyholders' dividends were $312
million, $289 million and $264 million in 1996, 1995 and 1994,
respectively.
INCOME TAXES
Phoenix and its eligible affiliated companies have elected to file a
life/nonlife consolidated federal income tax return for the tax years ended
December 31, 1996, 1995 and 1994. Entities included within the consolidated
group are segregated into either a life insurance or non-life insurance
company subgroup. The consolidation of these subgroups is subject to
certain statutory restrictions in the percentage of eligible non-life tax
losses that can be applied to offset life company taxable income.
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities and their recorded amounts for financial
reporting purposes. These differences result primarily from policy
liabilities and accruals, policy acquisition expenses, investment
impairment reserves, reserves for postretirement benefits and unrealized
gains or losses on investments.
B-30
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. SIGNIFICANT TRANSACTIONS
PHOENIX DUFF & PHELPS CORPORATION
Effective January 1, 1995, the money management businesses of Phoenix were
completely transferred to Phoenix Securities Group, Inc. (Phoenix
Securities Group), an indirect wholly-owned subsidiary. Phoenix Securities
Group entered into contracts to manage the investments of the general and
separate accounts of Phoenix. On November 1, 1995, Phoenix, through its
subsidiary, PM Holdings, Inc. (PM Holdings), merged Phoenix Securities
Group into Duff & Phelps Corporation (D&P), forming Phoenix Duff & Phelps
Corporation (PDP). The transaction was accounted for as a reverse merger
with the purchase accounting method applied to D&P's assets and
liabilities. The purchase price was $190.7 million and PDP recorded $93.1
million of goodwill, which is being amortized over forty years using the
straight-line method. PM Holdings owns approximately 60% of the outstanding
PDP common stock. In addition, PM Holdings owns 1.4 million shares (45%) of
PDP's series A convertible exchangeable preferred stock. PM Holdings
recognized a non-operating, non-cash, tax free gain on this transaction of
$36.9 million resulting from the realization of the appreciation of the
stock exchanged which is included in the gain on merger transactions in the
consolidated statements of income.
SURPLUS NOTES
On November 25, 1996, the Company issued $175 million of surplus notes with
a 6.95% interest rate scheduled to mature on December 1, 2006. There are no
sinking fund provisions in the notes. The notes are classified as long-term
debt in the Consolidated Balance Sheet at December 31, 1996.
The notes were issued in accordance with Section 1307 of the New York
Insurance Law and, accordingly, interest and principal payments cannot be
made without the approval of the New York Insurance Department.
The notes were issued pursuant to Rule 144A under the Securities Act of
1933 underwritten by Bear, Stearns & Co. Inc., Chase Securities Inc. and
Merrill Lynch & Co. and are administered by Bank of New York as
registrar/paying agent.
ABERDEEN TRUST PLC
On March 25, 1996, the Company purchased 12.2 million shares of Aberdeen
Trust PLC (Aberdeen), a Scottish asset management firm. As of December 31,
1996, the Company owned 13.1 million shares representing 12.5% of
Aberdeen's outstanding common stock. The total cost of these transactions
was $26.4 million. The investment is recorded at cost adjusted for the
Company's equity in undistributed earnings less dividends received.
In addition, on April 15, 1996, the Company purchased a 7% convertible
subordinated note issued by Aberdeen for $37.5 million. The note, which
matures on March 29, 2003, may be converted at a price of $2.15 per share,
which would be equivalent to approximately 14% of Aberdeen's outstanding
common stock.
B-31
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In the spring of 1996, the Company and Aberdeen joined together to form
Phoenix-Aberdeen International Advisors, LLC, an SEC registered investment
advisor that, in conjunction with PDP and Aberdeen, will develop and market
investment products in the United States and the United Kingdom.
4. INVESTMENTS
Information pertaining to Phoenix's investments, net investment income and
realized and unrealized investment gains and losses follows:
FIXED MATURITIES AND EQUITY SECURITIES
The amortized cost and fair value of investments in fixed maturities and
equity securities as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FIXED MATURITIES:
HELD-TO-MATURITY:
State and political subdivision bonds $ 11,685 $ 5 $ (375) $ 11,315
Corporate securities 1,525,999 61,692 (13,405) 1,574,286
Mortgage-backed securities 18,001 1,037 (15) 19,023
----------------- ------------------ ---------------- ---------------
Total 1,555,685 62,734 (13,795) 1,604,624
----------------- ------------------ ---------------- ---------------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 561,017 13,970 (1,610) 573,377
State and political subdivision bonds 406,679 13,831 (1,154) 419,356
Foreign government bonds 174,298 31,441 (1,457) 204,282
Corporate securities 1,092,163 70,432 (7,968) 1,154,627
Mortgage-backed securities 2,509,232 60,321 (25,802) 2,543,751
----------------- ------------------ ---------------- ---------------
Total 4,743,389 189,995 (37,991) 4,895,393
----------------- ------------------ ---------------- ---------------
Total fixed maturities $ 6,299,074 $ 252,729 $ (51,786) $ 6,500,017
================= ================== ================ ===============
Equity securities available-for-sale $ 137,907 $ 100,258 $ (2,814) $ 235,351
================= ================== ================ ===============
</TABLE>
B-32
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of investments in fixed maturities and
equity securities as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FIXED MATURITIES:
HELD-TO-MATURITY:
State and political subdivision bonds $ 20,915 $ 779 $ (142) $ 21,552
Corporate securities 1,297,049 125,055 (1,114) 1,420,990
Mortgage-backed securities 16,483 2,057 (37) 18,503
----------------- ---------------- -------------- -------------
Total 1,334,447 127,891 (1,293) 1,461,045
----------------- ---------------- -------------- -------------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 572,304 29,684 (1,029) 600,959
State and political subdivision bonds 314,407 26,072 (1) 340,478
Foreign government bonds 59,149 6,436 (1,804) 63,781
Corporate securities 987,210 91,741 (3,950) 1,075,001
Mortgage-backed securities 2,269,618 95,176 (19,335) 2,345,459
----------------- ---------------- -------------- -------------
Total 4,202,688 249,109 (26,119) 4,425,678
----------------- ---------------- -------------- -------------
Total fixed maturities $ 5,537,135 $ 377,000 $ (27,412) $ 5,886,723
================= ================ ============== =============
Equity securities available-for-sale $ 197,526 $ 62,658 $ (5,906) $ 254,278
================= ================ ============== =============
</TABLE>
B-33
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of fixed maturities, by contractual
maturity, as of December 31, 1996 are shown below. Actual maturities may
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties, or
the Company may have the right to put or sell the obligations back to the
issuers.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ 34,496 $ 35,001 $ 50,888 $ 51,214
Due after one year through five years 339,989 350,702 360,543 374,212
Due after five years through ten years 616,197 643,166 712,255 738,950
Due after ten years 547,002 556,732 1,110,471 1,187,266
Mortgage-backed securities 18,001 19,023 2,509,232 2,543,751
----------------- --------------- ---------------- ---------------
Total $ 1,555,685 $ 1,604,624 $ 4,743,389 $ 4,895,393
================= =============== ================ ===============
</TABLE>
Carrying values for investments in mortgage-backed securities, excluding
U.S. government guaranteed investments, were as follows:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
MORTGAGE-BACKED SECURITIES
Planned amortization class $ 618,953 $ 787,840
Asset-backed 490,018 436,734
Mezzanine 322,812 365,034
Commercial 413,571 230,083
Sequential pay 552,512 397,950
Pass through 105,282 85,017
Other 58,604 59,284
----------------- -----------------
Total mortgage-backed securities $ 2,561,752 $ 2,361,942
================= =================
Phoenix had 37% and 49% at December 31, 1996 and 1995, respectively, in
planned amortization class and mezzanine mortgage-backed securities which
have reasonably predictable cash flows and a relatively high degree of
prepayment protection. Phoenix has limited exposure in the more volatile
residential derivative market such as interest-only, principal-only or
inverse float instruments.
B-34
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MORTGAGE LOANS AND REAL ESTATE
The Company's mortgage loans and real estate are diversified by property
type and location and, for mortgage loans, by borrower. Mortgage loans are
collateralized by the related properties and are generally 75% of the
properties' value at the time the original loan is made.
The carrying values of mortgage loans and real estate investments, net of
applicable reserves, were as follows:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Mortgage loans $ 947,076 $ 897,192
Real estate held for sale 410,945 418,328
------------------ -------------------
Total $ 1,358,021 $ 1,315,520
================== ===================
During 1996 and 1995, non-cash investing activities included real estate
acquired through foreclosure of mortgage loans and purchase money
mortgages, which had a fair value of $1.5 million and $35 million,
respectively.
B-35
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Mortgage loans and real estate investments are comprised of the following
property types and geographic regions:
MORTGAGE LOANS
DECEMBER 31,
1996 1995
(IN THOUSANDS)
PROPERTY TYPE:
Office buildings $ 251,526 $ 191,672
Retail 257,721 250,172
Apartment buildings 241,286 244,589
Industrial buildings 197,013 222,120
Other 47,928 54,446
Valuation allowances (48,398) (65,807)
----------------------- ---------------------
Total $ 947,076 $ 897,192
======================= =====================
GEOGRAPHIC REGION:
Northeast $ 260,146 $ 233,670
Southeast 261,956 250,019
North central 158,902 171,434
South central 57,507 50,819
West 256,963 257,057
Valuation allowances (48,398) (65,807)
----------------------- ---------------------
Total $ 947,076 $ 897,192
======================= =====================
REAL ESTATE
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Property type:
Office buildings $ 246,644 $ 267,505
Retail 121,813 127,500
Apartment buildings 26,286 36,644
Industrial buildings 56,134 61,667
Other 7,577 8,767
Valuation allowances (47,509) (83,755)
----------------------- ----------------------
Total $ 410,945 $ 418,328
======================= =====================
GEOGRAPHIC REGION:
Northeast $ 103,761 $ 102,249
Southeast 110,746 130,944
North central 86,070 85,470
South central 85,532 91,670
West 72,345 91,750
Valuation allowances (47,509) (83,755)
----------------------- ----------------------
Total $ 410,945 $ 418,328
======================= =====================
B-36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 1996, scheduled mortgage loan maturities were as follows:
1997 - $176 million; 1998 - $138 million; 1999 - $99 million; 2000 - $106
million; 2001 - $98 million; and $378 million thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the
right to prepay obligations with or without prepayment penalties and loans
may be refinanced. The Company refinanced $28.9 million and $100.4 million
of its mortgage loans during 1996 and 1995, respectively, based on terms
which differed from those granted to new borrowers.
INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets
and changes thereto were as follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
JANUARY 1, ADDITIONS DEDUCTIONS DECEMBER 31,
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1996
Mortgage loans $ 65,807 $ 7,640 $ (25,049) $ 48,398
Real estate 83,755 2,526 (38,772) 47,509
------------------ ------------------ --------------------- -------------------
Total $ 149,562 $ 10,166 $ (63,821) $ 95,907
================== ================== ===================== ===================
1995
Mortgage loans $ 118,970 $ (53,163) $ 65,807
Real estate 108,652 $ 8,604 (33,501) 83,755
------------------ ------------------ --------------------- -------------------
Total $ 227,622 $ 8,604 $ (86,664) $ 149,562
================== ================== ===================== ===================
</TABLE>
NON-INCOME PRODUCING MORTGAGES LOANS AND BONDS
The net carrying values of non-income producing mortgage loans were $4.5
million and $3.8 million at December 31, 1996 and 1995, respectively.
There were no non-income producing bonds at December 31, 1996 and 1995.
INTEREST RATE SWAPS
Phoenix enters into interest rate swap agreements, generally having
maturities of seven years or less, to hedge certain variable rate
investment income streams matched against fixed rate liability streams. The
notional amounts of these investments were $60.1 million and $18 million at
December 31, 1996 and 1995, respectively. Average received and average paid
rates were 8.04% and 5.65% for 1996.
The Company has also guaranteed an interest rate swap that has the effect
of the Company paying a fixed interest rate on a notional amount of $184.7
million of the Company's debt.
These agreements do not require the exchange of underlying principal
amounts, and accordingly the Company's maximum exposure to credit risk is
the difference in interest payments exchanged. Management of Phoenix
considers the likelihood of any material loss on these guarantees or
interest rate swaps to be remote.
B-37
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
OTHER INVESTED ASSETS
Other invested assets, consisting primarily of partnership interests and
equity in unconsolidated subsidiaries, were as follows:
DECEMBER 31,
1996 1995
(in thousands)
Venture capital equity partnerships $ 66,284 $ 50,919
Transportation and equipment leases 46,950 47,810
Investment in Aberdeen Trust, PLC 29,980
Investment in Beutel, Goodman & Co. LTD 34,541 39,730
Other 4,617 6,319
------------- ---------------
Total other invested assets $ 182,372 $ 144,778
============= ===============
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31,
were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Fixed maturities $ 469,713 $ 437,521 $ 395,192
Equity securities 4,689 1,787 3,312
Mortgage loans 84,318 92,283 111,122
Policy loans 117,742 115,055 105,678
Real estate 21,799 20,910 17,087
Other invested assets 332 871 1,212
Short-term investments 18,688 21,974 11,673
----------------- ----------------- ----------------
Sub-total 717,281 690,401 645,276
Less investment expenses 27,391 27,933 22,559
----------------- ----------------- ----------------
Net investment income $ 689,890 $ 662,468 $ 622,717
================= ================= ================
</TABLE>
Investment income of $.4 million was not accrued on certain delinquent
mortgage loans and defaulted bonds at December 31, 1996. The Company does
not accrue interest income on impaired mortgage loans and impaired bonds
when the likelihood of collection is doubtful.
The payment terms of mortgage loans may from time to time be restructured
or modified. The investment in restructured mortgage loans, based on
amortized cost, amounted to $61.5 million and $76 million at December 31,
1996 and 1995, respectively. Interest income on restructured mortgage loans
that would have been recorded in accordance with the original terms of such
loans amounted to $3.1 million, $6.6 million and $10.1 million in 1996,
1995 and 1994, respectively. Actual interest income on these loans included
in net investment income aggregated $5.2 million, $6.4 million and $11.3
million in 1996, 1995 and 1994, respectively.
B-38
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INVESTMENT GAINS AND LOSSES
Unrealized gains and losses on investments carried at fair value for the
year ended December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized investment gains (losses)
Fixed maturities $ (70,986) $ 476,352 $ (411,694)
Equity securities 40,803 24,527 2,706
------------------ ------------------ -------------------
(30,183) 500,879 (408,988)
Deferred policy acquisition costs 51,528 (341,836) 292,423
Deferred income taxes (benefits) 7,432 55,692 (40,804)
------------------ ------------------ -------------------
Net unrealized investment gains (losses) $ 13,913 $ 103,351 $ (75,761)
==================== ================== =====================
</TABLE>
Realized investment gains and losses for the year ended December 31, were
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities $ (10,476) $ 8,080 $ (20,554)
Equity securities 59,794 29,276 (8,950)
Mortgage loans 2,628 (262) 485
Real estate 24,711 20,535 16,063
Other invested assets 18,608 17,109 12,790
-------------------- ------------------ ---------------------
95,265 74,738 (166)
Income taxes (benefits) 33,343 26,158 (58)
-------------------- ------------------ ---------------------
Net realized investment gains (losses) $ 61,922 $ 48,580 $ (108)
==================== ================== =====================
</TABLE>
The proceeds from sales of available-for-sale fixed maturities and the
gross realized gains and gross realized losses on those sales for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales $ 1,525,011 $ 1,201,700 $ 733,800
Gross gains on sales $ 15,966 $ 30,300 $ 16,500
Gross losses on sales $ (27,905) $ (19,900) $ (45,500)
</TABLE>
B-39
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets were as follows:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Goodwill $ 231,135 $ 211,084
Investment management contracts 56,700 60,700
Client listings 41,410 31,437
Non-compete covenants 5,000 9,314
Intangible asset related to
pension plan benefits 19,835 22,540
Other 1,220 4,066
----------------- -------------------
355,300 339,141
Accumulated amortization (41,793) (26,072)
----------------- -------------------
Total $ 313,507 $ 313,069
================= ===================
PDP's amounts included above were as follows:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Goodwill $ 179,406 $ 167,014
Investment management contracts 56,700 60,700
Non-compete covenants 5,000 5,000
Other 1,220 4,066
----------------- ------------------
242,326 236,780
Accumulated amortization (13,198) (6,211)
----------------- ------------------
Total $ 229,128 $ 230,569
================= ==================
6. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Financial instruments that are subject to fair value disclosure
requirements (insurance contracts are excluded) are carried in the
financial statements at amounts that approximate fair value. The fair
values presented for certain financial instruments are estimates which, in
many cases, may differ significantly from the amounts which could be
realized upon immediate liquidation. In cases where market prices are not
available, estimates of fair value are based on discounted cash flow
analyses which utilize current interest rates for similar financial
instruments which have comparable terms and credit quality.
B-40
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair
value.
FIXED MATURITIES
Fair values are based on quoted market prices, where available, or quoted
market prices of comparable instruments. Fair values of private placement
fixed maturities are estimated using discounted cash flows that apply
interest rates currently being offered with similar terms to borrowers of
similar credit quality.
EQUITY SECURITIES
Fair values are based on quoted market prices, where available. If a quoted
market price is not available, fair values are estimated using independent
pricing sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are calculated as the present value of scheduled payments, with
the discount based upon (1) the Treasury rate comparable for the remaining
loan duration, plus (2) a spread of between 175 and 450 basis points,
depending on the internal quality rating of the loan. For loans in
foreclosure or default, values were determined assuming principal recovery
was the lower of the loan balance or the estimated value of the underlying
property.
POLICY LOANS
Fair values are estimated as the present value of loan interest and policy
loan repayments discounted at the ten year Treasury rate. Loan repayments
were assumed only to occur as a result of anticipated policy lapses, and it
was assumed that annual policy loan interest payments were made at the
guaranteed loan rate less 17.5 basis points. Discounting was at the ten
year Treasury rate, except for policy loans with a variable policy loan
rate. Variable policy loans have an interest rate that is reset annually
based upon market rates and therefore, book value is a reasonable
approximation of fair value.
INVESTMENT CONTRACTS
In determining the fair value of guaranteed interest contracts, a discount
rate equal to the appropriate Treasury rate, plus 150 basis points, was
assumed to determine the present value of projected contractual liability
payments through final maturity.
The fair value of deferred annuities and supplementary contracts without
life contingencies with an interest guarantee of one year or less is valued
at the amount of the policy reserve. In determining the fair value of
deferred annuities and supplementary contracts without life contingencies
with interest guarantees greater than one year, a discount rate equal to
the appropriate Treasury rate, plus 150 basis points, was used to determine
the present value of the projected account value of the policy at the end
of the current guarantee period.
B-41
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Deposit type funds, including pension deposit administration contracts,
dividend accumulations, and other funds left on deposit not involving life
contingencies, have interest guarantees of less than one year for which
interest credited is closely tied to rates earned on owned assets. For such
liabilities, fair value is assumed to be equal to the stated liability
balances.
DEBT
The carrying value of long-term debt reported on the balance sheet
approximates fair value.
The estimated fair values of the financial instruments as of December 31,
were as follows:
<TABLE>
<CAPTION>
1996 1995
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash $ 172,895 $ 172,895 $ 127,104 $ 127,104
equivalents
Short-term investments 164,967 164,967 275,517 275,517
Fixed maturities 6,451,078 6,500,017 5,760,125 5,886,723
Equity securities 235,351 235,351 254,278 254,278
Mortgage loans 947,076 986,900 897,192 955,800
Policy loans 1,667,784 1,645,899 1,617,872 1,658,000
--------------- ----------------- -------------------- ------------------
Total financial assets $ 9,639,151 $ 9,706,029 $ 8,932,088 $ 9,157,422
=============== ================= ==================== ==================
Financial liabilities:
Policy liabilities $ 875,200 $ 875,100 $ 955,600 $ 955,800
Long-term debt 492,020 492,020 268,337 268,337
--------------- ----------------- -------------------- ------------------
Total financial liabilities $ 1,367,220 $ 1,367,120 $ 1,223,937 $ 1,224,137
=============== ================= ==================== ==================
</TABLE>
7. DEBT
Long-term debt was as follows:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Unsecured debt
Bank borrowings $ 287,365 $ 241,157
Notes payable 25,457 23,995
Other 58
------------------ ----------------
Total unsecured debt 312,822 265,210
Surplus notes 175,000
Secured debt 2,608 3,127
------------------ ----------------
Total long-term debt $ 490,430 $ 268,337
================== ================
B-42
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has various lines of credit established with major commercial
banks. As of December 31, 1996, the Company had outstanding balances
totaling $287.4 million. The total unused credit was $120.9 million. The
Company records commitment fees as a component of interest expense.
Interest rates range from 5.73% to 8.25% in 1996.
On November 25, 1996, the Company issued $175 million of surplus notes (See
Note 3).
Maturities of long-term debt are as follows: 1997 - $17 million; 1998 - $90
million; 1999 - $7 million; 2000 - $177 million; 2001 - $24 million; 2002
and thereafter - $175 million.
Interest expense on long-term debt was $18.0 million, $7.7 million and $9.0
million for the years ended December 31, 1996, 1995 and 1994, respectively.
8. INCOME TAXES
A summary of income taxes (benefits) in the consolidated statements of
income for the year ended December 31, was as follows:
1996 1995 1994
(in thousands)
Income taxes
Current 59,673 59,590 (28,874)
Deferred 19,658 (16,238) 68,936
---------------- --------------- ---------------
Total 79,331 43,352 40,062
================ =============== ===============
The income taxes attributable to the consolidated results of operations are
different than the amounts determined by multiplying income before taxes by
the statutory income tax rate. The sources of the difference and the tax
effects of each for the year ended December 31, were as follows (in
thousands, aside from the percentages):
<TABLE>
<CAPTION>
1996 1995 1994
% % %
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory rate $ 66,136 35 $ 55,318 35 $ 24,754 35
Non-taxable gain on PDP merger (14,203) (9)
Dividend received deduction &
tax-exempt interest (2,107) (1) (623) (1,177) (2)
Other, net 2,736 1 2,860 1 (4,082) (5)
-------------- -------- ------------- -------- ------------- ----------
66,765 35 43,352 27 19,495 28
Differential earnings (equity tax) 12,566 7 20,567 29
-------------- -------- ------------- -------- ------------- ----------
Income taxes $ 79,331 42 $ 43,352 27 $ 40,062 57
============== ======== ============= ======== ============= ==========
</TABLE>
B-43
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The deferred income tax liability (asset) represents the tax effects of
temporary differences attributable to the consolidated tax return group.
The components were as follows:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Deferred policy acquisition costs $ 220,135 $ 221,034
Unearned premium/deferred revenue (131,513) (127,699)
Impairment reserves (43,331) (58,314)
Pension and other postretirement benefits (58,230) (51,985)
Investments 50,219 50,542
Future policyholder benefits (37,904) (47,800)
Other 15,633 (13,716)
----------------- --------------
15,009 (27,938)
Net unrealized investment gains 48,320 40,888
PDP purchase accounting adjustment 23,290
Minimum pension liability (1,395) (2,064)
Foreign tax credit (1,109) (1,057)
------------------ --------------
Deferred tax liability, net
before valuation allowance 60,825 33,119
Valuation allowance 1,109 1,057
------------------ --------------
Deferred tax liability, net $ 61,934 $ 34,176
================== ==============
It is management's assessment, based on the Company's earnings and
projected future taxable income, that it is more likely than not that the
deferred tax assets at December 31, 1996 and 1995, with the exception of
the foreign tax credit, will be realized.
Gross deferred income tax assets totaled $274 million and $301 million at
December 31, 1996 and 1995, respectively. Gross deferred income tax
liabilities totaled $336 million and $335 million at December 31, 1996 and
1995, respectively.
The Internal Revenue Service (IRS) is currently examining the Company's tax
returns for 1991-1994. Management does not believe that there will be a
material adverse effect on the financial statements as a result of pending
tax matters.
B-44
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
PENSION PLANS
The Company has a non-contributory, defined benefit pension plan covering
substantially all of its employees. Retirement benefits are a function of
both years of service and level of compensation. The Company also sponsors
a non-qualified supplemental defined benefit plan to provide benefits in
excess of amounts allowed pursuant to Internal Revenue Code Section
401(a)(17). Phoenix's funding policy is to contribute annually an amount
equal to at least the minimum required contribution in accordance with
minimum funding standards established by the Employee Retirement Income
Security Act of 1974. Contributions are intended to provide not only for
benefits attributable to service to date, but also for service expected to
be earned in the future.
Components of net periodic pension cost for the year ended December 31,
were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 10,076 $ 9,599 $ 10,181
Interest accrued on projected benefit obligation 22,660 19,880 19,181
Actual return on assets (38,788) (62,567) (18,073)
Net amortization and deferral 17,318 45,807 (613)
--------------- ---------------- ---------------
Net periodic pension cost $ 11,266 $ 12,719 $ 10,676
=============== ================ ===============
</TABLE>
In 1996, the Company offered an early retirement window which granted an
additional benefit of five years of age and service. As a result of the
early retirement window, the Company recorded an additional pension expense
of $8.7 million for the year ended December 31, 1996.
B-45
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The funded status of the plan for which assets exceeded accumulated
benefit obligations was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 213,148 $ 171,077
Non-vested benefit obligation 14,828 16,248
-------------------- ---------------------
Accumulated benefit obligation $ 227,976 $ 187,325
==================== =====================
Pension liability included in other liabilities:
Projected benefit obligation $ 261,886 $ 227,585
Plan assets at fair value 292,070 267,013
-------------------- ---------------------
Plan assets in excess of
projected benefit obligation 30,184 39,428
Unrecognized net gain from past experience (52,312) (46,960)
Unrecognized prior service benefit (240) (273)
Unamortized transition asset (19,745) (22,214)
-------------------- ---------------------
Net pension liability $ (42,113) $ (30,019)
==================== =====================
</TABLE>
At December 31, 1996 and 1995, the non-qualified plan was unfunded and had
projected benefit obligations of $50.0 million and $43.4 million,
respectively. The accumulated benefit obligations as of December 31, 1996
and 1995 related to this plan were $37.4 million and $36.2 million,
respectively, and are included in other liabilities.
The Company recorded, as a reduction of policyholders' equity, an
additional minimum pension liability of $2.8 million and $3.8 million, net
of Federal income taxes, at December 31, 1996 and 1995, respectively,
representing the excess of accumulated benefit obligations over the fair
value of plan assets and accrued pension liabilities for the non-qualified
plan. The Company has also recorded an intangible asset of $19.8 million
and $22.5 million as of December 31, 1996 and 1995 related to pension plan
benefits.
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit
obligation were 7.5% and 4.5%, for 1996 and 8.0% and 5.0% for 1995. The
discount rate assumption for 1996 was determined based on a study that
matched available high quality investment securities with the expected
timing of pension liability payments. The expected long-term rate of return
on retirement plan assets was 8.0%.
B-46
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The pension plan's assets include corporate and government debt
securities, equity securities, real estate, venture capital funds, and
shares of mutual funds.
The Company also sponsors savings plans for its employees and agents which
are qualified under Internal Revenue Code Section 401(k). Employees and
agents may contribute a portion of their annual salary, subject to
limitation, to the plans. The Company contributes an additional amount,
subject to limitation, based on the voluntary contribution of the employee
or agent. Company contributions charged to expense with respect to these
plans during the years ended December 31, 1996, 1995 and 1994 were $4.2
million, $4.2 million and $4.0 million, respectively.
OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's pension plans, the Company currently provides
certain health care and life insurance benefits to retired employees,
spouses and other eligible dependents through various plans sponsored by
Phoenix. A substantial portion of Phoenix's employees may become eligible
for these benefits upon retirement. The health care plans have varying
copayments and deductibles, depending on the plan. These plans are
unfunded.
Phoenix recognizes the costs and obligations of postretirement benefits
other than pensions over the employees' service period ending with the date
an employee is fully eligible to receive benefits.
The plan's funded status reconciled with amounts recognized in the
Company's consolidated balance sheet, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 30,576 $ 37,900
Fully eligible active plan participants 11,466 10,500
Other active plan participants 21,614 24,856
----------------- -----------------
63,656 73,256
Unrecognized net gain
from past experience 29,173 14,102
----------------- -----------------
Accrued postretirement benefit liability $ 92,829 $ 87,358
================= =================
</TABLE>
B-47
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The components of net periodic postretirement benefit cost for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Service cost - benefits earned during year $ 2,765 $ 3,366 $ 2,942
Interest cost accrued on benefit obligation 4,547 5,275 5,179
Net amortization (1,577) (458)
--------------- --------------- ---------------
Net periodic postretirement benefit cost $ 5,735 $ 8,183 $ 8,121
=============== =============== ===============
</TABLE>
In addition to the net periodic postretirement benefit cost, the Company
expensed an additional $3.0 million for postretirement benefits related to
the early retirement window.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5% at December 31, 1996 and 8.0% at December 31,
1995.
For purposes of measuring the accumulated postretirement benefit obligation
at December 31, 1996, health care costs were assumed to increase 9.5% in
1997, declining thereafter until the ultimate rate of 5.5% is reached in
2002 and remains at that level thereafter. For purposes of measuring the
accumulated postretirement benefit obligation at December 31, 1995, health
care costs were assumed to increase 11% in 1996, declining thereafter until
the ultimate rate of 5.5% is reached in 2002 and remained at that level
thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. For example, increasing the assumed health
care cost trend rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation by $3.9 million and the
annual service and interest cost by $.6 million, before taxes. Gains and
losses that occur because actual experience differs from the estimates are
amortized over the average future service period of employees.
OTHER POSTEMPLOYMENT BENEFITS
The Company recognizes the costs and obligations of severance, disability
and related life insurance and health care benefits to be paid to inactive
or former employees after employment but before retirement. Postemployment
benefit expense was $.6 million for 1996, $.5 million for 1995 and $(1.9)
million for 1994.
B-48
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. SEGMENT INFORMATION
Phoenix operates principally in seven segments: Individual,
Group Life and Health, Life Reinsurance, General Lines
Brokerage, Securities Management, Real Estate Management and
Other Operations.
Other Operations includes unallocated investment income,
expenses and realized investment gains related to capital in excess of
segment requirements; assets primarily consist of equity securities.
Summarized below is financial information with respect to the business
segments:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Individual $ 1,796,572 $ 1,752,338 $ 1,643,074
Group Life and Health 462,551 421,771 409,883
Life Reinsurance 143,314 128,813 102,120
General Lines Brokerage 61,809 40,977 22,382
Securities Management 164,966 112,206 104,429
Real Estate Management 13,550 13,562 12,439
Other Operations 82,273 48,873 10,400
--------------------- ------------------ -----------------
Total $ 2,725,035 $ 2,518,540 $ 2,304,727
===================== ================== =================
DECEMBER 31,
1996 1995 1994
(IN THOUSANDS)
OPERATING INCOME
Individual $ 65,226 $ 45,858 $ 23,306
Group Life and Health 9,092 17,422 14,584
Life Reinsurance 7,993 17,391 11,492
General Lines Brokerage (2,935) (1,887) (521)
Securities Management 27,506 23,667 27,285
Real Estate Management (3,783) (184) 727
Other Operations 85,862 15,204 (6,146)
--------------------- ------------------ -----------------
Total $ 188,961 $ 117,471 $ 70,727
===================== ================== =================
</TABLE>
DECEMBER 31,
1996 1995
(IN THOUSANDS)
IDENTIFIABLE ASSETS
Individual $ 13,547,132 $ 12,104,989
Group Life and Health 590,545 542,139
Life Reinsurance 294,441 273,036
General Lines Brokerage 117,340 115,558
Securities Management 294,803 811,438
Real Estate Management 319,406 297,166
Other Operations 289,381 293,151
--------------------- ------------------
Total $ 15,453,048 $ 14,437,477
===================== ==================
B-49
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to
buildings, amounted to $14.8 million, $14.6 million and $13.8 million in
1996, 1995, and 1994, respectively. Future minimum rental payments under
non-cancelable operating leases were approximately $41.9 million as of
December 31, 1996, payable as follows: 1997 - $15.8 million; 1998 - $11.6
million; 1999 - $7.5 million; 2000 - $4.7 million; 2001 - $1.8 million;
and $.5 million thereafter.
12. DIRECT BUSINESS WRITTEN AND REINSURANCE
As is customary practice in the insurance industry, Phoenix assumes and
cedes reinsurance as a means of diversifying underwriting risk. The
maximum amount of individual life insurance retained by the Company on any
one life is $8,000,000 for single life and joint first-to-die policies and
$10,000,000 for joint last-to-die policies, with excess amounts ceded to
reinsurers. For reinsurance ceded, the Company remains liable in the event
that assuming reinsurers are unable to meet the contractual obligations.
Amounts recoverable from reinsurers are estimated in a manner consistent
with the claim liability associated with the reinsured policy.
Additional information on direct business written and reinsurance assumed
and ceded for the years ended December 31, was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $ 1,473,869 $ 1,455,459 $ 1,455,467
Reinsurance assumed 276,630 271,498 205,387
Reinsurance ceded (231,677) (270,082) (264,852)
-------------------- ------------------- --------------------
Net premiums $ 1,518,822 $ 1,456,875 $ 1,396,002
==================== =================== ====================
Direct policy and contract claims incurred $ 575,824 $ 605,545 $ 610,004
Reinsurance assumed 170,058 256,529 167,276
Reinsurance ceded (160,646) (292,357) ( 217,911)
-------------------- ------------------- --------------------
Net policy and contract claims incurred $ 585,236 $ 569,717 $ 559,369
==================== =================== ====================
Direct life insurance in force $ 108,816,856 $ 102,606,749 $ 95,717,768
Reinsurance assumed 61,109,836 36,724,852 27,428,529
Reinsurance ceded (51,525,976) (34,093,090) (24,372,415)
-------------------- ------------------- --------------------
Net insurance in force $ 118,400,716 $ 105,238,511 $ 98,773,882
==================== =================== ====================
</TABLE>
Irrevocable letters of credit aggregating $5.2 million at December 31,
1996 have been arranged with United States commercial banks in favor of
Phoenix to collateralize the ceded reserves.
B-50
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred
and amortized for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 816,128 $ 1,128,227 $ 832,839
Acquisition expense deferred 153,873 143,519 150,326
Amortized to expense during the year (95,255) (113,788) (147,361)
Adjustment to equity during the year 51,528 (341,830) 292,423
------------------ ------------------ ------------------
Balance at end of year $ 926,274 $ 816,128 $ 1,128,227
================== ================== ==================
</TABLE>
14. MINORITY INTEREST
The Company's interests in Phoenix Duff and Phelps Corporation and
American Phoenix Corporation, through its wholly-owned subsidiary PM
Holdings is represented by ownership of approximately 60% and 92%,
respectively, of the outstanding shares of common stock at December 31,
1996. Earnings and stockholders' equity attributable to minority
shareholders are included in minority interest in the consolidated
financial statements along with PDP's preferred stock.
15. CONTINGENCIES
FINANCIAL GUARANTEES
The Company is contingently liable for financial guarantees provided in
the ordinary course of business on the repayment of principal and
interest on certain industrial revenue bonds. The contractual amounts of
financial guarantees reflect the Company's maximum exposure to credit
loss in the event of nonperformance. The principal amount of bonds
guaranteed by the Company at December 31, 1996 and 1995 was $88.8 million
and $87.6 million, respectively. Management believes that any loss
contingencies which may arise from the Company's financial guarantees
would not have a material adverse effect on the Company's liquidity or
financial condition.
LITIGATION
In 1996, the Company announced the settlement of a class action suit which
was approved by a New York State Supreme Court judge on January 3, 1997.
The suit related to the sale of individual participating life insurance and
universal life insurance policies from 1980 to 1995. An after tax provision
of $25 million was recorded in 1995. In addition, $7 million after-tax was
expensed in 1996. The Company estimates the cost of settlement to be
between $35 million and $40 million after tax. Management believes, after
consideration of the provisions made in these financial statements, this
suit will not have a material effect on the Company's financial position.
B-51
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company is a defendant in various legal proceedings arising in the
normal course of business. In the opinion of management, based on the
advice of legal counsel after consideration of the provisions made in
these financial statements, the ultimate resolution of these proceedings
will not have a material effect on the Company's consolidated financial
position.
16. STATUTORY FINANCIAL INFORMATION
The insurance subsidiaries are required to file annual statements with
state regulatory authorities prepared on an accounting basis prescribed
or permitted by such authorities. As of December 31, 1996, there were no
material practices not prescribed by the Insurance Department of the
State of New York. Statutory surplus differs from policyholders' equity
reported in accordance with GAAP for life insurance companies primarily
because policy acquisition costs are expensed when incurred, investment
reserves are based on different assumptions, postretirement benefit costs
are based on different assumptions and reflect a different method of
adoption, life insurance reserves are based on different assumptions and
income tax expense reflects only taxes paid or currently payable.
The following reconciles the statutory net income of the Company as
reported to regulatory authorities to the net income as reported in these
financial statements for the year ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income $ 72,961 $ 64,198 $ 4,152
Deferred policy acquisition costs, net 58,618 29,766 2,965
Future policy benefits (16,793) (15,763) (3,443)
Pension and postretirement expenses (23,275) (12,691) (8,350)
Investment valuation allowances 76,631 56,745 60,747
Interest maintenance reserve (5,158) 5,829 (19,545)
Deferred income taxes (67,064) (10,021) (11,626)
Other, net 4,808 (4,314) 5,778
----------------- ---------------- --------------
Net income, as reported $ 100,728 $ 113,749 $ 30,678
================= ================ ==============
</TABLE>
B-52
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following reconciles the statutory surplus and asset valuation
reserve (AVR) of the Company as reported to regulatory authorities to
equity as reported in these financial statements:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Statutory surplus and AVR $ 1,102,200 $ 875,322
Deferred policy acquisition costs, net 897,096 864,505
Future policy benefits (239,252) (249,141)
Pension and postretirement expenses (152,112) (133,452)
Investment valuation allowances (139,562) (171,889)
Interest maintenance reserve 6,897 11,872
Deferred income taxes 82,069 87,418
Surplus notes (157,500)
Other, net (2,367) (3,048)
----------------- --------------
Equity, as reported $ 1,397,469 $ 1,281,587
================= ==============
B-53
<PAGE>
PART C
OTHER INFORMATION
Registrant hereby represents that, in imposing certain restrictions upon
withdrawals from some annuity contracts, it is relying upon the no-action
letter given to the American Council of Life Insurance (publicly available
November 28, 1988) (Ref. No. 1P-6-88) regarding compliance with Section 403(b)
(ii) of the Internal Revenue Code and that it is in compliance with the
conditions for reliance upon that letter set forth therein.
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements
The financial statements are included in Part B. Consolidated
financial information is included in Part A.
(b) Exhibits
(1) Resolution of Board of Directors Establishing Separate
Account filed with registrant's Post-Effective Amendment
No. 1 on April 30, 1983 and is incorporated herein by
reference.
(2) Rules and Regulations of Phoenix Mutual Variable
Accumulation Account filed with registrant's
Post-Effective Amendment No. 1 on April 30, 1983 and
filed via Edgar with Post-Effective Amendment No. 26 on
April 30, 1997, is incorporated herein by reference.
(3)(a) Master Service and Distribution Compliance Agreement
between Depositor and Phoenix Equity Planning
Corporation dated December 31, 1996 filed via Edgar with
registrant's Post-Effective Amendment No. 25 on February
28, 1997, is incorporated herein by reference.
(3)(b) Form of Dealer Agreement filed via Edgar with
registrant's Post-Effective Amendment No. 26 on April
30, 1997.
(3)(c) Form of Underwriting Agreement and Form of Dealer
Agreement (Templeton Investment Plus) filed with
registrant's Post-Effective Amendment No. 13 on May 2,
1988 and filed via Edgar with Post-Effective Amendment
No. 26 on April 30, 1997, are incorporated herein by
reference.
(4)(a) Form of Contract (Big Edge) filed with registrant's
Post-Effective Amendment No. 9 on October 23, 1986 and
filed via Edgar with Post-Effective Amendment No. 26 on
April 30, 1997, is incorporated herein by reference.
(4)(b) Form of Contract (Big Edge Plus) filed with registrant's
Post-Effective Amendment No. 13 on May 2, 1988 and filed
via Edgar with Post-Effective Amendment No. 26 on April
30, 1997, is incorporated herein by reference.
(4)(c) Form of Contract (Group Strategic Edge) filed with
registrant's Post-Effective Amendment No. 21 on April
29, 1993 and filed via Edgar with Post-Effective
Amendment No. 26 on April 30, 1997, is incorporated
herein by reference.
(4)(d) Form of Contract (Big Edge Choice) filed via Edgar with
registrant's Post-Effective Amendment No. 25 on February
28, 1997, is incorporated herein by reference.
(5)(a) Form of Application (Big Edge) filed with registrant's
Post-Effective Amendment No. 9 on October 23, 1986 and
filed via Edgar with Post-Effective Amendment No. 26 on
April 30, 1997, is incorporated herein by reference.
(5)(b) Form of Application (Big Edge Plus) filed with
registrant's Post-Effective Amendment No. 13 on May 2,
1988 and filed via Edgar with Post-Effective Amendment
No. 26 on April 30, 1997, is incorporated herein by
reference.
(5)(c) Form of Application (Group Strategic Edge) filed with
registrant's Post-Effective Amendment No. 21 on April
29, 1993 and filed via Edgar with Post-Effective
Amendment No. 26 on April 30, 1997, is incorporated
herein by reference.
(5)(d) Form of Application (Big Edge Choice) filed via Edgar
with registrant's Post-Effective Amendment No. 25 on
February 28, 1997, is incorporated herein by reference.
(6) Charter and By-Laws of Phoenix Home Life Mutual
Insurance Company filed with registrant's Post-Effective
Amendment No. 18 on June 22, 1992 and filed via Edgar
with Post-Effective Amendment No. 26 on April 30, 1997,
are incorporated herein by reference.
(7) Not Applicable
(8) Product Development and Fund Participation Agreement
(TIP) filed with registrant's Post-Effective Amendment
No. 13 on May 2, 1988 and filed via Edgar with
Post-Effective Amendment No. 26 on April 30, 1997, is
incorporated herein by reference.
(9) See Exhibit 10(a).
(10)(a) Written Consent and Opinion as to Legality of Securities
Being Registered of Blazzard, Grodd & Hasenauer, P.C.
filed via Edgar herewith.
(10)(b) Written Consent of Price Waterhouse LLP filed via Edgar
herewith.
C-1
<PAGE>
(11) Not Applicable
(12) Not Applicable
(13)(a) Explanation of Yield and Effective Yield Calculation
filed via Edgar with registrant's Post-Effective
Amendment No. 24 on April 24, 1996 and is incorporated
herein by reference.
(13)(b) Explanation of Total Return Calculation filed via Edgar
with registrant's Post-Effective Amendment No. 24 on
April 24, 1996 and is incorporated herein by reference.
(14) Not Applicable
(15) Powers of Attorney filed via Edgar with registrant's
Post-Effective Amendment No. 24 on April 29, 1996, are
incorporated herein by reference.
(27) Not Applicable
ITEM 25. DIRECTORS AND EXECUTIVE OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITIONS WITH DEPOSITOR
- ---- -------------------------- ------------------------
<S> <C> <C>
Sal H. Alfiero Chairman and Chief Executive Officer Director
Mark IV Industries, Inc.
Amherst, NY
J. Carter Bacot Chairman and Chief Executive Officer Director
The Bank of New York
New York, NY
Carol H. Baldi President Director
Carol H. Baldi, Inc.
New York, NY
Peter C. Browning President Director
Sonoco Products Company
Hartsville, SC
Arthur P. Byrne Group Executive Director
Danaher Corporation
West Hartford, CT
Richard N. Cooper, Ph.D. Chairman, National Intelligence Council Director
Central Intelligence Agency
Washington, D.C.
Gordon J. Davis, Esq. Partner Director
LeBoeuf, Lamb, Greene & MacRae
New York, NY
Robert W. Fiondella Phoenix Home Life Mutual Chairman of the Board,
Insurance Company President and Chief
Hartford, CT Executive Officer
Jerry J. Jasinowski President Director
National Association of Manufacturers
Washington, D.C.
John W. Johnstone Chairman, President and Chief Director
Executive Officer, Olin Corporation
Stamford, CT
Marilyn E. LaMarche Limited Managing Director Director
Lazard Freres & Co. LLP
New York, NY
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C> <C>
Philip R. McLoughlin* Phoenix Home Life Director, Executive Vice
Mutual Insurance Company President and Chief
Hartford, CT Investment Officer
Indra K. Nooyi Senior Vice President Director
PepisCo, Inc.
Purchase, NY
Charles J. Paydos** Phoenix Home Life Director and Executive
Mutual Insurance Company Vice President
Hartford, CT
Herbert Roth, Jr. Former Chairman Director
LFE Corporation
Clinton, MA
Robert F. Vizza President and Chief Executive Officer Director
St. Francis Hospital
Roslyn, NY
Robert G. Wilson Chairman and Presient Director
Ziani International Capital, Inc.
Miami, FL
Richard H. Booth* Executive Vice President
Strategic Development
David W. Searfoss* Executive Vice President
and Chief Financial Officer
Dona D. Young* Executive Vice President
Individual Insurance and
General Counsel
Kelly J. Carlson* Senior Vice President
Career Organization
Carl T. Chadburn** Senior Vice President
Robert G. Chipkin* Senior Vice President and
Corporate Actuary
Martin J. Gavin* Senior Vice President
Randall C. Giangiulio** Senior Vice President
Group Sales
Joan E. Herman* Senior Vice President
Edward P. Hourihan* Senior Vice President
Information Systems
Joseph E. Kelleher** Senior Vice President
Robert G. Lautensack, Jr.* Senior Vice President
Scott C. Noble* Senior Vice President
Real Estate
Robert E. Primmer* Senior Vice President
Brokerage and PPGA
Distribution
Frederick W. Sawyer, III* Senior Vice President
Richard C. Shaw* Senior Vice President
International and
Corporate Development
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C>
Simon Y. Tan* Senior Vice President
Individual Market
Development
Anthony J. Zeppetella Senior Vice President
</TABLE>
* The principal business address of each of these individuals is One American
Row, Hartford, Connecticut 06115.
** The principal business address of each of these individuals is 100 Bright
Meadow Boulevard, P.O. Box 2200, Enfield, Connecticut 06082-2200.
ITEM 26. NOT APPLICABLE
ITEM 27. NUMBER OF CONTRACTOWNERS
On May 31, 1997, there were 71,136 Owners of Contracts offered by
Registrant.
ITEM 28. INDEMNIFICATION
Section 723 of the New York Business Corporation Law, as made applicable to
insurance companies by Section 108 of the New York Insurance Law, provides that
a corporation may indemnify any director or officer of the corporation made, or
threatened to be made, a party to an action or proceeding other than one by or
in the right of the corporation to procure a judgment in its favor, whether
civil or criminal, including an action by or in the right of any other
corporation of any type or kind, by reason of the fact that he, his testator or
intestate, served such other corporation in any capacity at the request of the
indemnifying corporation.
Article VI Section 6.1 of the By-Laws of the Phoenix Home Life Mutual
Insurance Company provides: "To the full extent permitted by the laws of the
State of New York, the Company shall indemnify any person made or threatened to
be made a party to any action, proceeding or investigation, whether civil or
criminal, by reason of the fact that such person...is or was a Director or
Officer of the Company; or...serves or served another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise in any capacity
at the request of the Company, and also is or was a Director or Officer of the
Company...The Company shall also indemnify any [such] person...by reason of the
fact that such person or such person's testator or intestate is or was an
employee or agent of the Company...."
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
1. Phoenix Equity Planning Corporation ("PEPCO") (Principal Underwriter
as to Contracts described in Prospectus Version A.)
(a) PEPCO currently distributes securities of the Phoenix Duff &
Phelps Funds, Phoenix Funds, Phoenix Home Life Variable
Universal Life Account, PHL Variable Accumulation Account and
Phoenix Life and Annuity Variable Universal Life Account in
addition to those of the Registrant.
(b) Directors and Officers of PEPCO
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
---------------- ----------------
<S> <C>
Michael E. Haylon*** Director
Philip R. McLoughlin* Director and President
David R. Pepin** Director and Executive Vice President
Paul Atkins*** Senior Vice President and Sales Manager
Maris Lambergs** Senior Vice President, Insurance and
Independent Division
William R. Moyer** Senior Vice President and Chief Financial Officer
Leonard J. Saltiel** Managing Director, Operations and Service
</TABLE>
C-4
<PAGE>
<TABLE>
<S> <C>
John F. Sharry** Managing Director, Mutual Fund Distribution
G. Jeffrey Bohne**** Vice President, Mutual Fund Customer Service
Eugene A. Charon** Vice President and Controller
Nancy G. Curtiss*** Vice President and Treasurer, Fund Accounting
Elizabeth R. Sadowinski** Vice President, Administration
Thomas N. Steenburg* Vice President, Counsel and Secretary
</TABLE>
---------------------
* The principal business address of each of these
individuals is One American Row, Hartford, Connecticut
06102-5056.
** The principal business address of each of these
individuals is 100 Bright Meadow Boulevard, P.O. Box 2200,
Enfield, Connecticut 06083-2200.
*** The principal business address of each of these
individuals is 56 Prospect Street, Hartford, Connecticut
06115-0480.
**** The principal business address is 101 Munson Street,
Greenfield, Massachusetts 01302-0810.
(c) Compensation received by PEPCO during Registrant's last fiscal
year:
<TABLE>
<CAPTION>
NAME OF NET UNDERWRITING COMPENSATION BROKERAGE
PRINCIPAL UNDERWRITER DISCOUNTS AND COMMISSIONS ON REDEMPTION COMMISSIONS COMPENSATION
- --------------------- ------------------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
PEPCO $26,437,438 -0- -0- -0-
</TABLE>
PEPCO received no other out-of-pocket compensation from Phoenix
Home Life.
2. W.S. Griffith & Co., Inc. ("WSG") (Principal Underwriter as to
Contracts described in Prospectus Version B.)
(a) WSG currently distributes securities of the Phoenix Duff &
Phelps Funds, Phoenix Funds, Phoenix Home Life Variable
Universal Life Account, PHL Variable Accumulation Account and
Phoenix Life and Annuity Variable Universal Life Account in
addition to those of the Registrant.
(b) Directors and Officers of WSG
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
---------------- ----------------
<S> <C>
Kelly J. Carlson* Director and President
Martin J. Gavin* Director
Philip R. McLoughlin** Director
Charles J. Paydos*** Director
David W. Searfoss* Director
Dona D. Young* Director
Gerard A. Rocchi* Senior Vice President and Chief Operating Officer
Peter S. Deering**** Vice President, Marketing
Laura E. Miller**** Vice President, Finance and Treasurer
Michael A. Gilliland* Assistant Vice President and Compliance Officer
</TABLE>
---------------------
* The principal business address of each of these
individuals is One American Row, Hartford, Connecticut
06102-5056.
** The principal business address of this individual is 56
Prospect Street, Hartford, Connecticut 06115-0480.
*** The principal business address of this individual is 100
Bright Meadow Boulevard, P.O. Box 2200, Enfield,
Connecticut 06083-2200.
**** The principal business address of each of these
individuals is 2355 Northside Drive, Suite 260, San
Diego, California 92108.
(c) WSG received no compensation from Registrant during
Registrant's last fiscal year for sale of Contracts which are
the subject of this Registration Statement and for which WSG
acts as principal underwriter.
C-5
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Item 7, Part II of registrant's Post-Effective Amendment No. 1 is
hereby incorporated by reference.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
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 contained therein are never more
than 16 months old for so long as payments under the Contracts
may be made;
(b) to include as 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;
(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.
Pursuant to Section 26(e)(2)(A) of the Investment Company Act of 1940, as
amended, Phoenix Home Life Mutual Insurance Company ("Phoenix Home Life")
represents that the fees and charges deducted under the Contracts, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred and the risks to be assumed thereunder by Phoenix Home
Life Mutual Insurance Company.
C-6
<PAGE>
SIGNATURES
As required by 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
Amendment to its Registration Statement to be signed on its behalf, in the City
of Hartford and State of Connecticut on this 15th day of July, 1997.
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
By: *Robert W. Fiondella
-------------------------
Robert W. Fiondella
Chief Executive Officer
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
By: *Robert W. Fiondella
------------------------
Robert W. Fiondella
Chief Executive Officer
of Phoenix Home Life Mutual Insurance Company
As required by the Securities Act of 1933, this Amendment to the
Registration Statement has been signed below by the following persons in the
capacities indicated with Phoenix Home Life Mutual Insurance Company on this
15th day of July, 1997.
Signature Title
--------- -----
_______________________________ Director
*Sal H. Alfiero
_______________________________ Director
*J. Carter Bacot
_______________________________ Director
*Carol H. Baldi
_______________________________ Director
*Peter C. Browning
_______________________________ Director
Arthur P. Byrne
_______________________________ Director
*Richard N. Cooper
_______________________________ Director
*Gordon J. Davis
_______________________________ Chairman of the Board,
*Robert W. Fiondella President and Chief Executive Officer
(Principal Executive Officer)
S-1
<PAGE>
_______________________________ Director
*Jerry J. Jasinowski
_______________________________ Director
*John W. Johnstone
_______________________________ Director
*Marilyn E. LaMarche
_______________________________ Director
*Philip R. McLoughlin
_______________________________ Director
Indra K. Nooyi
_______________________________ Director
*Charles J. Paydos
_______________________________ Director
*Herbert Roth, Jr.
_______________________________ Director
*Robert F. Vizza
_______________________________ Director
*Wilson Wilde
_______________________________ Director
*Robert G. Wilson
By: /S/ DONA D. YOUNG
- -------------------------------
*DONA D. YOUNG, as Attorney in Fact pursuant to Powers of Attorney, copies of
which were filed previously.
S-2
EXHIBIT 99.10(A)
Written Consent and Opinion as to Legality of Securities Being
Registered of Blazzard, Grodd & Hasenauer, P.C.
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Blazzard, Grodd & Hasenauer, P.C. (letterhead)
July 14, 1997
Board of Directors
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, CT 06115
RE: Opinion of Counsel
Phoenix Home Life Variable Accumulation Account
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing
with the Securities and Exchange Commission of Post-Effective Amendment No. 27
to a Registration Statement on Form N-4 (File Nos. 2-78020 and 811-3488) with
respect to certain variable annuity contracts (the "Contracts") to be issued by
Phoenix Home Life Mutual Insurance Company and its separate account, Phoenix
Home Life Variable Accumulation Account.
We have made such examination of the law and have examined such records
and documents as in our judgment are necessary or appropriate to enable us to
render the following opinion:
Upon the acceptance of purchase payments made by an Owner pursuant to a Contract
issued in accordance with the Prospectus contained in the Registration Statement
and upon compliance with applicable law, such an Owner will have a
legally-issued, fully paid, non-assessable contractual interest under such
Contract.
This opinion is limited solely to its use as an exhibit to your
Post-Effective Amendment No. 27 to Form N-4 (File Nos. 2-78020 and 811-3488).
We consent to the references to our Firm under the captions "Legal
Matters" in the Prospectus and "Experts" in the Statement of Additional
Information which forms a part of the Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/ Lynn Korman Stone
Lynn Korman Stone
EXHIBIT 99.10(B)
Written Consent of Price Waterhouse LLP
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 27 to the registration
statement on Form N-4 (the "Registration Statement") of our reports dated
February 12, 1997, relating to the financial statements of Phoenix Home Life
Variable Accumulation Account and the consolidated financial statements of
Phoenix Home Life Mutual Insurance Company which appear in such Statement of
Additional Information, and to the incorporation by reference of our reports
into the Prospectus which constitutes part of this Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Statement of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Hartford, Connecticut
July 15, 1997
