As filed with the Securities and Exchange Commission on April 30, 1998
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. 28 [X]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 30
(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)
----------
COPY TO:
EDWIN L. KERR, ESQ.
PHOENIX HOME LIFE
MUTUAL INSURANCE COMPANY
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 May 1, 1998 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.
================================================================================
<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>
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>
[VERSION A]
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS (VPMO):
Hartford, Connecticut P.O. Box 8027
Boston, MA 02266-8027
Tel. 800/447-4312
VARIABLE ACCUMULATION DEFERRED ANNUITY CONTRACTS
PROSPECTUS
May 1, 1998
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 ("TSA") 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, SIMPLE IRAs and
Roth 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 80 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, if any, 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.")
It may not be advantageous to purchase a Contract as a replacement for an
existing annuity contract or life insurance policy. You should recognize that a
contract that has been in existence for a period of time might have certain
advantages to you over a new contract. On the other hand, the proposed Contract
may offer new features which are more important to you.
It is in your best interest to have adequate information before a decision
to replace your present annuity contract becomes final so that you may
understand the basic features of both the proposed Contract and your existing
contract.
If you are replacing a life insurance policy, it is important to understand
that the proposed Contract would provide limited, if any, life insurance
coverage, and that annuities and life insurance are treated differently under
the tax laws.
In all cases, it is important to know if the replacement will result in
current tax liability.
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.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION OR CREDIT UNION AND ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN
THE CONTRACTS ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE FLUCTUATION OF
CONTRACT VALUE AND THE POSSIBLE LOSS OF PRINCIPAL INVESTED.
Additional information about the Account has been filed with the Securities
and Exchange Commission ("SEC") in a Statement of Additional Information
("SAI"), dated May 1, 1998, which is incorporated herein by reference. The SAI,
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 .................................................. 10
FINANCIAL HIGHLIGHTS...................................... 12
PERFORMANCE HISTORY....................................... 16
THE VARIABLE ACCUMULATION ANNUITY ........................ 18
PHOENIX AND THE ACCOUNT................................... 18
THE PHOENIX EDGE SERIES FUND.............................. 18
WANGER ADVISORS TRUST..................................... 19
TEMPLETON VARIABLE PRODUCTS SERIES FUND................... 20
PURCHASE OF CONTRACTS .................................... 20
DEDUCTIONS AND CHARGES.................................... 20
Premium Tax .......................................... 20
Sales Charges ........................................ 21
Charges for Mortality and Expense Risks .............. 21
Charges for Administrative Services .................. 21
Other Charges ........................................ 22
THE ACCUMULATION PERIOD................................... 22
Accumulation Units ................................... 22
Accumulation Unit Values ............................. 22
Transfers ............................................ 22
Surrender of Contract; Partial Withdrawals ........... 23
Lapse of Contract .................................... 23
Payment Upon Death Before Maturity Date (Non-New
York Individual Contracts)........................ 23
NEW YORK INDIVIDUAL CONTRACTS ISSUED ON OR AFTER
MAY 1, 1997............................................... 24
Sales Charges......................................... 24
Daily Administrative Fee.............................. 24
Maturity Date......................................... 24
Ownership of the Contract............................. 24
Payment Upon Death Before Maturity Date............... 24
Transfers............................................. 25
GROUP CONTRACTS........................................... 25
Allocated Group Contracts ............................ 25
Unallocated Group Contracts .......................... 25
THE ANNUITY PERIOD ....................................... 26
Variable Accumulation Annuity Contracts............... 26
Annuity Options ...................................... 26
Option A--Life Annuity With Specified Period Certain.. 27
Option B--Non-Refund Life Annuity .................... 27
Option D--Joint and Survivor Life Annuity ............ 27
Option E--Installment Refund Life Annuity ............ 27
Option F--Joint and Survivor Life Annuity With
Specified Period Certain .......................... 27
Option G--Payments for Specified Period .............. 27
Option H--Payments of Specified Amount ............... 27
Option I--Variable Payment Life Annuity with Ten Year
Period Certain .................................... 27
Option J--Joint Survivor Variable Payment Life Annuity
with Ten Year Period Certain ....................... 27
Option K--Variable Payment Annuity for a Specified
Period ............................................. 27
Option L--Variable Payment Life Expectancy Annuity..... 27
Option M--Unit Refund Variable Payment Life Annuity.... 28
Option N--Variable Payment Non-Refund Life Annuity..... 28
Other Options and Rates................................ 28
Other Conditions ...................................... 28
Payment Upon Death After Maturity Date ................ 28
VARIABLE ACCOUNT VALUATION PROCEDURES...................... 28
MISCELLANEOUS PROVISIONS .................................. 28
Assignment............................................. 28
Deferment of Payment .................................. 29
Free Look Period....................................... 29
Amendments to Contracts ............................... 29
Substitution of Fund Shares ........................... 29
Ownership of the Contract ............................. 29
FEDERAL INCOME TAXES ...................................... 29
Introduction .......................................... 29
Tax Status............................................. 29
Taxation of Annuities in General....................... 29
Surrenders or Withdrawals Prior to the Contract
Maturity Date .................................... 30
Surrenders or Withdrawals On or After the Contract
Maturity Date .................................... 30
Penalty Tax on Certain Surrenders and Withdrawals .. 30
Additional Considerations.............................. 30
Diversification Standards ............................. 31
Qualified Plans........................................ 32
Tax Sheltered Annuities ............................ 32
Keogh Plans......................................... 33
Individual Retirement Accounts ..................... 33
Corporate Pension and Profit-Sharing Plans ......... 33
Deferred Compensation Plans with Respect to
Service for State and Local Governments and
Tax Exempt Organizations ......................... 33
Penalty Tax on Certain Surrenders and Withdrawals
from Qualified Contracts.......................... 33
Seek Tax Advice..................................... 34
SALES OF VARIABLE ACCUMULATION CONTRACTS .................. 34
STATE REGULATION .......................................... 34
REPORTS ................................................... 34
VOTING RIGHTS ............................................. 34
TEXAS OPTIONAL RETIREMENT PROGRAM ......................... 35
LITIGATION ................................................ 35
LEGAL MATTERS ............................................. 35
STATEMENT OF ADDITIONAL INFORMATION........................ 35
APPENDIX A ................................................ 36
APPENDIX B ................................................ 37
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 OWNER ("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, if any, 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.
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. For 403(b)
plans with loans, the Contract Value is the sum of all Accumulation Units held
in the Subaccounts of the Account and the value held in the GIA plus the value
held in the Loan Security Account, less any Loan Debt.
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.
LOAN DEBT: Loan Debt is equal to the sum of the outstanding loan balance plus
any accrued loan interest.
LOAN SECURITY ACCOUNT: The Loan Security Account is part of the general account
and is the sole security for 403(b) loans. It is increased with all loan amounts
taken and reduced by all repayments of loan principal.
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.
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
("NYSE") 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 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)
FUND ANNUAL EXPENSES
(as a percentage of Fund average net assets)
</TABLE>
<TABLE>
<CAPTION>
TOTAL ANNUAL(4)
EXPENSES
INVESTMENT RULE 12B-1 (AFTER EXPENSE
SERIES MANAGEMENT FEES FEES OTHER EXPENSES(4) REIMBURSEMENT)
- ------ --------------- ---- ----------------- --------------
<S> <C> <C> <C> <C>
Growth Series....................................... .63% N/A .11% .74%
Multi-Sector Fixed Income Series.................... .50% N/A .15% .65%
Strategic Allocation Series ........................ .58% N/A .13% .71%
Money Market Series................................. .40% N/A .15% .55%
International Series ............................... .75% N/A .26% 1.01%
Balanced Series..................................... .55% N/A .15% .70%
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..................... .45% N/A .10% .55%
Engemann Nifty Fifty Series(7)...................... .90% N/A .15% 1.05%
Phoenix Growth & Income Series(7)................... .70% N/A .15% .85%
Phoenix Value Equity Series(7)...................... .70% N/A .15% .85%
Seneca Mid-Cap Growth Series(7)..................... .80% N/A .25% 1.05%
Schafer Mid-Cap Value Series(7)..................... 1.05% N/A .15% 1.20%
Wanger U.S. Small Cap Series........................ .97% N/A .09% 1.06%
Wanger International Small Cap Series............... 1.28% N/A .32% 1.60%
Templeton Stock Series -- Class 2(5)................ .69% .25% .19% 1.13%
Templeton Asset Allocation Series -- Class 2(5)..... .60% .25% .18% 1.03%
Templeton International Series -- Class 2(5)........ .69% .25% .19% 1.13%
Templeton Developing Markets Series -- Class 2(6)... 1.25% .25% .33% 1.83%
</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 annual 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 annual expenses were .66%, 1.05%, 1.07%, 1.14%
and 2.00% for the Multi-Sector, Enhanced Index, Real Estate, Theme and
Asia Series, respectively. Expenses may be higher or lower than those shown
but are subject to expense limitations as noted.
(5) Class 2 shares of the Templeton Variable Products Series Fund have a
distribution plan or "Rule 12b-1 Plan" which is described in the Fund's
prospectus. Because Class 2 shares were not offered until May 1, 1997, the
figures (other than "12b-1 Fees") are estimates for 1998 based on the
historical expenses of the Fund's Class 1 shares for the fiscal year ended
December 31, 1997, except that Management Fees and Total Annual Expenses
have been restated to reflect the management fee schedule which was
approved by shareholders and effective on May 1, 1997. Actual Management
Fees and Total Annual Expenses during 1997 were lower. See Fund prospectus
for details.
(6) Class 2 shares of the Templeton Variable Products Series Fund have a
distribution plan or "Rule 12b-1 Plan" which is described in the Fund's
prospectus. Because Class 2 shares were not offered until May 1, 1997, the
figures (other than "12b-1 Fees") are estimates for 1998 based on the
historical expenses of the Fund's Class 1 shares for the fiscal year ended
December 31, 1997.
(7) Inclusion of this Subaccount began on March 2, 1998. Accordingly,
annualized expenses have been projected for the fiscal period ending
December 31, 1998. Without reimbursement, the total operating expenses are
estimated to be approximately 1.35%, 1.68%, 1.10%, 1.10% and 1.31% of the
average net assets of the Nifty Fifty, Seneca Mid-Cap, Growth & Income,
Value and Schafer Mid-Cap Series, respectively, for the fiscal year ending
December 31, 1998.
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 $ 97 $126 $247
Multi-Sector Fixed Income Series................................ 67 94 121 238
Strategic Allocation Series..................................... 68 96 124 244
Money Market Series............................................. 66 91 116 227
International Series............................................ 71 105 139 275
Balanced Series................................................. 68 96 124 243
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.................................. 66 91 N/A N/A
Engemann Nifty Fifty Serie(2)................................... 71 106 N/A N/A
Phoenix Growth & Income Series(2)............................... 69 100 N/A N/A
Phoenix Value Equity Series(2).................................. 69 100 N/A N/A
Seneca Mid-Cap Growth Series(2)................................. 73 110 N/A N/A
Schafer Mid-Cap Value Series(2)................................. 71 106 N/A N/A
Wanger U.S. Small Cap Series.................................... 71 106 142 280
Wanger International Small Cap Series........................... 76 122 168 332
Templeton Stock Series -- Class 2............................... 72 108 145 287
Templeton Asset Allocation Series -- Class 2.................... 71 105 140 277
Templeton International Series -- Class 2....................... 72 108 145 287
Templeton Developing Markets Series -- Class 2.................. 79 129 179 354
</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 $ 68 $116 $247
Multi-Sector Fixed Income Series................................ 21 65 111 238
Strategic Allocation Series..................................... 22 67 114 244
Money Market Series............................................. 20 62 106 227
International Series............................................ 25 76 129 275
Balanced Series................................................. 22 66 114 243
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.................................. 20 62 N/A N/A
Engemann Nifty Fifty Series(2).................................. 25 77 N/A N/A
Phoenix Growth & Income Series(2)............................... 23 71 N/A N/A
Phoenix Value Equity Series(2).................................. 23 71 N/A N/A
Seneca Mid-Cap Growth Series(2)................................. 27 81 N/A N/A
Schafer Mid-Cap Value Series(2)................................. 25 77 N/A N/A
Wanger U.S. Small Cap Series.................................... 25 77 132 280
Wanger International Small Cap Series........................... 31 93 158 332
Templeton Stock Series -- Class 2............................... 26 79 135 287
Templeton Asset Allocation Series -- Class 2.................... 25 76 130 277
Templeton International Series -- Class 2....................... 26 79 135 287
Templeton Developing Markets Series -- Class 2.................. 33 100 170 354
</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 March 2, 1998.
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. It is based on historical Fund expenses, as a percentage
of new assets for the year ended December 31, 1997, except as indicated. 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.)
5
<PAGE>
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.")
6
<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 up to a maximum of the total premium):(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%
FUND ANNUAL EXPENSES
(as a percentage of Fund average net assets)
</TABLE>
<TABLE>
<CAPTION>
TOTAL ANNUAL(2)
EXPENSES
INVESTMENT RULE 12B-1 (AFTER EXPENSE
SERIES MANAGEMENT FEES FEES OTHER EXPENSES(2) REIMBURSEMENT)
- ------ --------------- ---- ----------------- --------------
<S> <C> <C> <C> <C>
Growth Series..................................... .63% N/A .11% .74%
Multi-Sector Fixed Income Series.................. .50% N/A .15% .65%
Strategic Allocation Series....................... .58% N/A .13% .71%
Money Market Series............................... .40% N/A .15% .55%
International Series.............................. .75% N/A .26% 1.01%
Balanced Series................................... .55% N/A .15% .70%
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.................... .45% N/A .10% .55%
Engemann Nifty Fifty Series(5).................... .90% N/A .15% 1.05%
Phoenix Growth & Income Series(5)................. .70% N/A .15% .85%
Phoenix Value Equity Series(5).................... .70% N/A .15% .85%
Seneca Mid-Cap Growth Series(5)................... .80% N/A .25% 1.05%
Schafer Mid-Cap Value Series(5)................... 1.05% N/A .15% 1.20%
Wanger U.S. Small Cap Series...................... .97% N/A .09% 1.06%
Wanger International Small Cap Series............. 1.28% N/A .32% 1.60%
Templeton Stock Series -- Class 2(3).............. .69% .25% .19% 1.13%
Templeton Asset Allocation Series -- Class 2(3)... .60% .25% .18% 1.03%
Templeton International Series -- Class 2(3)...... .69% .25% .19% 1.13%
Templeton Developing Markets Series -- Class 2(4). 1.25% .25% .33% 1.83%
</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 annual 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 annual expenses were .66%, 1.05%, 1.07%, 1.14%
and 2.00% for the Multi-Sector, Enhanced Index, Real Estate, Theme and
Asia Series. Expenses may be higher or lower than those shown but are
subject to expense limitations as noted.
(3) Class 2 shares of the Templeton Variable Products Series Fund have a
distribution plan or "Rule 12b-1 Plan" which is described in the Fund's
prospectus. Because Class 2 shares were not offered until May 1, 1997, the
figures (other than "12b-1 Fees") are estimates for 1998 based on the
historical expenses of the Fund's Class 1 shares for the fiscal year ended
December 31, 1997, except that Management Fees and Total Annual Expenses
have been restated to reflect the management fee schedule which was
approved by shareholders and effective on May 1, 1997. Actual Management
Fees and Total Annual Expenses during 1997 were lower. See Fund prospectus
for details.
(4) Class 2 shares of the Templeton Variable Products Series Fund have a
distribution plan or "Rule 12b-1 Plan" which is described in the Fund's
prospectus. Because Class 2 shares were not offered until May 1, 1997, the
figures (other than "12b-1 Fees") are estimates for 1998 based on the
historical expenses of the Fund's Class 1 shares for the fiscal year ended
December 31, 1997.
(5) Inclusion of this Subaccount began on March 2, 1998. Accordingly,
annualized expenses have been projected for the fiscal period ending
December 31, 1998. Without reimbursement, the total operating expenses are
estimated to be approximately 1.35%, 1.68%, 1.10%, 1.10% and 1.31% of the
average net assets of the Nifty Fifty, Seneca Mid-Cap, Growth & Income,
Value and Schafer Mid-Cap Series, respectively, for the fiscal year ending
December 31, 1997.
7
<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................................................... $ 77 $107 $139 $260
Multi-Sector Fixed Income Series................................ 76 105 135 251
Strategic Allocation Series..................................... 77 106 138 257
Money Market Series............................................. 75 102 130 241
International Series............................................ 80 115 154 287
Balanced Series................................................. 77 106 138 256
Real Estate Securities Series................................... 80 115 153 286
Strategic Theme Series.......................................... 80 115 153 286
Aberdeen New Asia Series........................................ 82 123 165 311
Research Enhanced Index Series.................................. 75 102 N/A N/A
Engemann Nifty Fifty Series(1).................................. 80 117 N/A N/A
Phoenix Growth & Income Series(1)............................... 78 111 N/A N/A
Phoenix Value Equity Series(1).................................. 78 111 N/A N/A
Seneca Mid-Cap Growth Series(1)................................. 80 117 N/A N/A
Schafer Mid-Cap Value Series(1)................................. 82 121 N/A N/A
Wanger U.S. Small Cap Series.................................... 80 117 156 292
Wanger International Small Cap Series........................... 86 133 183 344
Templeton Stock Series -- Class 2............................... 81 119 159 299
Templeton Asset Allocation Series -- Class 2.................... 80 116 155 289
Templeton International Series -- Class 2....................... 81 119 159 299
Templeton Developing Markets Series -- Class 2.................. 88 140 194 365
</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................................................... $ 77 $107 $122 $260
Multi-Sector Fixed Income Series................................ 76 105 117 251
Strategic Allocation Series..................................... 77 106 120 257
Money Market Series............................................. 75 102 112 241
International Series............................................ 80 115 136 287
Balanced Series................................................. 77 106 120 256
Real Estate Securities Series................................... 80 115 135 286
Strategic Theme Series.......................................... 80 115 135 286
Aberdeen New Asia Series........................................ 82 123 147 311
Research Enhanced Index Series.................................. 75 102 N/A N/A
Engemann Nifty Fifty Series(1).................................. 80 117 N/A N/A
Phoenix Growth & Income Series(1)............................... 78 111 N/A N/A
Phoenix Value Equity Series(1).................................. 78 111 N/A N/A
Seneca Mid-Cap Growth Series(1)................................. 80 117 N/A N/A
Schafer Mid-Cap Value Series(1)................................. 82 121 N/A N/A
Wanger U.S. Small Cap Series.................................... 80 117 138 292
Wanger International Small Cap Series........................... 86 133 165 344
Templeton Stock Series -- Class 2............................... 81 119 141 299
Templeton Asset Allocation Series -- Class 2.................... 80 116 137 289
Templeton International Series -- Class 2....................... 81 119 141 299
Templeton Developing Markets Series -- Class 2.................. 88 140 176 365
</TABLE>
(1) Inclusion of this Subaccount began on March 2, 1998.
8
<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 $122 $260
Multi-Sector Fixed Income Series................................ 22 69 117 251
Strategic Allocation Series..................................... 23 70 120 257
Money Market Series............................................. 21 66 112 241
International Series............................................ 26 79 136 287
Balanced Series................................................. 23 70 120 256
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.................................. 21 66 N/A N/A
Engemann Nifty Fifty Series(1).................................. 26 81 N/A N/A
Phoenix Growth & Income Series(1)............................... 24 75 N/A N/A
Phoenix Value Equity Series(1).................................. 24 75 N/A N/A
Seneca Mid-Cap Growth Series(1)................................. 26 81 N/A N/A
Schafer Mid-Cap Value Series(1)................................. 28 85 N/A N/A
Wanger U.S. Small Cap Series.................................... 26 81 138 292
Wanger International Small Cap Series........................... 32 97 165 344
Templeton Stock Series -- Class 2............................... 27 83 141 299
Templeton Asset Allocation Series -- Class 2.................... 26 80 137 289
Templeton International Series -- Class 2....................... 27 83 141 299
Templeton Developing Markets Series -- Class 2.................. 34 104 176 365
</TABLE>
(1) Inclusion of this Subaccount began on March 2, 1998.
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. It is based on historical Fund expenses as a percentage
of net assets for the year ended December 31, 1997, except as indicated. 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.")
9
<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 or 408A 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.
10
<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. Although loans are available only under 403(b) plans,
certain limitations may apply (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.
11
<PAGE>
PHOENIX HOME LIFE 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.") As there were no Contracts issued in New York on or
after May 1, 1997, data is not available for this table.
<TABLE>
MONEY MARKET SUBACCOUNT
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period.......................... $2.126440 $2.045097 $1.954211 $1.900873 $1.866308 $1.820007 $1.734559 $1.619595 $1.497413 $1.407621
Unit value, end of period....... $2.214444 $2.126440 $2.045097 $1.954211 $1.900873 $1.866308 $1.820007 $1.734559 $1.619595 $1.497413
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)........................... 2,264 3,460 3,457 4,649 4,617 8,601 10,289 13,110 13,319 12,813
</TABLE>
<TABLE>
MONEY MARKET SUBACCOUNT
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period.......................... $2.074515 $2.000092 $1.915930 $1.868172 $1.838756 $1.797544 $1.717328 $1.607305 $1.489598 $1.403711
Unit value, end of period ...... $2.155028 $2.074515 $2.000092 $1.915930 $1.868172 $1.838756 $1.797544 $1.717328 $1.607305 $1.489598
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)........................... 32,025 40,530 37,026 38,007 30,143 27,132 15,331 8,723 4,057 1,741
</TABLE>
<TABLE>
GROWTH SUBACCOUNT
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period......................... $9.222031 $8.273644 $6.384494 $6.355486 $5.362579 $4.910837 $3.474821 $3.373255 $2.501870 $2.431756
Unit value, end of period...... $11.055774 $9.222031 $8.273644 $6.384494 $6.355486 $5.362579 $4.910837 $3.474821 $3.373255 $2.501870
========== ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000).......................... 6,273 7,215 8,153 8,351 8,671 8,652 7,280 6,658 6,726 6,243
</TABLE>
<TABLE>
GROWTH SUBACCOUNT
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period......................... $8.999162 $8.093932 $6.261062 $6.248053 $5.284626 $4.851447 $3.440659 $3.348325 $2.489403 $2.425706
Unit value, end of period...... $10.762048 $8.999162 $8.093932 $6.261062 $6.248053 $5.284626 $4.851447 $3.440659 $3.348325 $2.489403
========== ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000).......................... 97,099 100,883 94,344 76,226 52,751 29,531 12,343 4,415 1,792 655
</TABLE>
<TABLE>
MULTI-SECTOR SUBACCOUNT
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period......................... $3.761132 $3.379335 $2.762836 $2.952674 $2.572692 $2.360698 $1.993832 $1.913888 $1.786177 $1.632777
Unit value, end of period...... $4.143015 $3.761132 $3.379335 $2.762836 $2.952674 $2.572692 $2.360698 $1.993832 $1.913888 $1.786177
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000).......................... 3,556 4,114 4,418 4,839 5,798 5,539 5,541 5,085 6,195 5,585
</TABLE>
12
<PAGE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
MULTI-SECTOR SUBACCOUNT
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period......................... $3.671202 $3.306804 $2.710153 $2.902941 $2.535693 $2.332392 $1.974705 $1.900136 $1.777482 $1.628898
Unit value, end of period...... $4.022553 $3.671202 $3.306804 $2.710153 $2.902941 $2.535693 $2.332392 $1.974705 $1.900136 $1.777482
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000).......................... 29,600 27,079 25,435 20,608 19,839 10,612 3,480 1,438 856 396
</TABLE>
<TABLE>
ALLOCATION SUBACCOUNT
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period......................... $3.801441 $3.520947 $3.008513 $3.081973 $2.804149 $2.559543 $1.999109 $1.909058 $1.608209 $1.587193
Unit value, end of period...... $4.544296 $3.801441 $3.520947 $3.008513 $3.081973 $2.804149 $2.559543 $1.999109 $1.909058 $1.608209
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000).......................... 13,378 15,341 18,038 19,981 23,027 23,424 22,916 22,667 24,606 31,107
</TABLE>
<TABLE>
ALLOCATION SUBACCOUNT
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period......................... $3.707833 $3.442824 $2.948151 $3.028790 $2.762529 $2.527829 $1.979067 $1.894604 $1.600110 $1.583050
Unit value, end of period...... $4.421518 $3.707833 $3.442824 $2.948151 $3.028790 $2.762529 $2.527829 $1.979067 $1.894604 $1.600110
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000).......................... 64,407 69,901 73,165 68,860 53,869 30,431 13,524 7,031 3,797 3,139
</TABLE>
<TABLE>
INTERNATIONAL SUBACCOUNT
VA1
-------------------------------------------------------------------------------
<CAPTION>
FROM
YEAR ENDED DECEMBER 31, INCEPTION
-----------------------
5/1/90 TO
1997 1996 1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period..................... $1.615890 $1.375527 $1.267735 $1.279733 $0.933515 $1.081746 $0.912543 $1.000000
Unit value, end of period .......................... $1.792595 $1.615890 $1.375527 $1.267735 1.279733 $0.933515 $1.081746 $0.912543
========= ========= ========= ========= ======== ========= ========= =========
Number of units outstanding (000)................... 2,998 3,337 3,762 5,926 3,309 1,401 816 490
</TABLE>
<TABLE>
INTERNATIONAL SUBACCOUNT
VA2, VA3 & GSE
-------------------------------------------------------------------------------
<CAPTION>
FROM
YEAR ENDED DECEMBER 31, INCEPTION
-----------------------
5/1/90 TO
1997 1996 1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period..................... $1.589771 $1.356645 $1.253391 $1.268491 $0.927578 $1.077492 $0.911158 $1.000000
Unit value, end of period .......................... $1.759243 $1.589771 $1.356645 $1.253391 $1.268491 $0.927578 $1.077492 $0.911158
========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000)................... 76,704 80,535 78,985 88,400 39,929 12,307 4,364 1,616
</TABLE>
<TABLE>
BALANCED SUBACCOUNT
VA1
-----------------------------------------------------------------------------------------------
<CAPTION>
FROM
YEAR ENDED DECEMBER 31, INCEPTION
-----------------------
5/1/92 TO
1997 1996 1995 1994 1993 12/31/92
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period..... $1.503025 $1.373104 $1.124370 $1.168840 $1.086965 $1.000000
Unit value, end of period........... $1.755101 $1.503025 $1.373104 $1.124370 $1.168840 $1.086965
========= ========= ========= ========= ========= =========
Number of units outstanding (000)... 2,885 3,271 4,027 4,732 5,601 3,283
</TABLE>
13
<PAGE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
BALANCED SUBACCOUNT
VA2, VA3 & GSE
-----------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED DECEMBER 31, FROM
----------------------- INCEPTION
5/1/92 TO
1997 1996 1995 1994 1993 12/31/92
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period..... $1.485649 $1.360620 $1.116862 $1.163951 $1.085113 $1.000000
Unit value, end of period........... $1.730535 $1.485649 $1.360620 $1.116862 $1.163951 $1.085113
========= ========= ========= ========= ========= =========
Number of units outstanding (000)... 110,735 118,572 126,919 130,797 123,929 39,740
</TABLE>
<TABLE>
REAL ESTATE SUBACCOUNT
VA1 VA2, VA3 & GSE
-------------------------------------------- ---------------------------------------------
<CAPTION>
FROM INCEPTION FROM INCEPTION
YEAR ENDED DECEMBER 31, 5/1/95 TO YEAR ENDED DECEMBER 31, 5/1/95 TO
1997 1996 12/31/95 1997 1996 12/31/95
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period......... $1.522792 $1.155453 $1.000000 $1.535829 $1.168262 $1.000000
Unit value, end of period............... $1.840367 $1.522792 $1.155453 $1.851492 $1.535829 $1.168262
========= ========= ========= ========= ========= =========
Number of units outstanding (000)....... 405 189 34 19,835 12,614 7,009
</TABLE>
<TABLE>
INTERNATIONAL SMALL CAP SUBACCOUNT
VA1 VA2, VA3 & GSE
------------------------------------------ -------------------------------------------
<CAPTION>
FROM FROM
YEAR ENDED DECEMBER 31, INCEPTION YEAR ENDED DECEMBER 31, INCEPTION
5/1/95 TO 5/1/95 TO
1997 1996 12/31/95 1997 1996 12/31/95
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period............. $1.620307 $1.239576 $1.000000 $1.740203 $1.334598 $1.000000
Unit value, end of period................... $1.580723 $1.620307 $1.239576 $1.693453 $1.740203 $1.334598
========= ========= ========= ========= ========= =========
Number of units outstanding (000)........... 1,630 1,632 194 47,318 37,820 7,738
</TABLE>
<TABLE>
U.S. SMALL CAP SUBACCOUNT
VA1 VA2, VA3 & GSE
------------------------------------------ -------------------------------------------
<CAPTION>
FROM FROM
YEAR ENDED DECEMBER 31, INCEPTION YEAR ENDED DECEMBER 31, INCEPTION
5/1/95 TO 5/1/95 TO
1997 1996 12/31/95 1997 1996 12/31/95
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period............. $1.680622 $1.157802 $1.000000 $1.673666 $1.155807 $1.000000
Unit value, end of period................... $2.153561 $1.680622 $1.157802 $2.139447 $1.673666 $1.155807
========= ========= ========= ========= ========= =========
Number of units outstanding (000)........... 3,346 2,888 460 83,070 58,623 17,039
</TABLE>
<TABLE>
THEME SUBACCOUNT
VA1 VA2, VA3 & GSE
------------------------------ ------------------------------
<CAPTION>
FROM INCEPTION FROM INCEPTION
YEAR ENDED 1/29/96 TO YEAR ENDED 1/29/96 TO
12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period.................................... $1.086084 $1.000000 $1.090843 $1.000000
Unit value, end of period.......................................... $1.259897 $1.086084 $1.262435 $1.090843
========= ========= ========= =========
Number of units outstanding (000).................................. 737 621 23,027 17,311
</TABLE>
<TABLE>
ASIA SUBACCOUNT
VA1 VA2, VA3 & GSE
------------------------------ ------------------------------
<CAPTION>
FROM FROM
INCEPTION INCEPTION
YEAR ENDED 9/17/96 TO YEAR ENDED 9/17/96 TO
12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period..................................... $0.997626 $1.000000 $0.998026 $1.000000
Unit value, end of period........................................... $0.667590 $0.997626 $0.666233 $0.998026
========= ========= ========= =========
Number of units outstanding (000)................................... 223 395 9,542 8,125
</TABLE>
14
<PAGE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
<TABLE>
RESEARCH ENHANCED INDEX SUBACCOUNT
VA1 VA2, VA3 & GSE
--------------- ---------------
<CAPTION>
FROM FROM
INCEPTION INCEPTION
7/15/97 TO 7/15/97 TO
12/31/97 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period....................................................... $1.000000 $1.000000
Unit value, end of period............................................................. $1.019907 $1.052252
========= =========
Number of units outstanding (000)..................................................... 600 22,856
</TABLE>
<TABLE>
TEMPLETON STOCK SUBACCOUNT
VA1 VA2, VA3 & GSE
<CAPTION>
--------------- --------------
FROM FROM
INCEPTION INCEPTION
5/1/97 TO 5/1/97 TO
12/31/97 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period....................................................... $1.000000 $1.000000
Unit value, end of period............................................................. $1.063678 $1.062244
========= =========
Number of units outstanding (000)..................................................... 116 7,841
</TABLE>
<TABLE>
TEMPLETON ASSET ALLOCATION SUBACCOUNT
VA1 VA2, VA3 & GSE
--------------- ---------------
<CAPTION>
FROM FROM
INCEPTION INCEPTION
6/2/97 TO 5/2/97 TO
12/31/97 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period....................................................... $1.000000 $1.000000
Unit value, end of period............................................................. $1.032795 $1.076228
========= =========
Number of units outstanding (000)..................................................... 152 4,254
</TABLE>
<TABLE>
TEMPLETON INTERNATIONAL SUBACCOUNT
VA1 VA2, VA3 & GSE
--------------- ---------------
<CAPTION>
FROM FROM
INCEPTION INCEPTION
7/2/97 TO 5/5/97 TO
12/31/97 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period....................................................... $1.000000 $1.000000
Unit value, end of period............................................................. $0.973941 $1.075966
========= =========
Number of units outstanding (000)..................................................... 144 6,907
</TABLE>
<TABLE>
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
VA1 VA2, VA3 & GSE
--------------- ---------------
<CAPTION>
FROM FROM
INCEPTION INCEPTION
5/15/97 TO 5/1/97 TO
12/31/97 12/31/97
-------- --------
<S> <C> <C>
Unit value, beginning of period....................................................... $1.000000 $1.000000
Unit value, end of period............................................................. $0.676043 $0.666465
========= =========
Number of units outstanding (000)..................................................... 718 4,166
</TABLE>
ENGEMANN NIFTY FIFTY SUBACCOUNT, PHOENIX GROWTH &
INCOME SUBACCOUNT, PHOENIX VALUE EQUITY SUBACCOUNT
SCHAFER MID-CAP VALUE SUBACCOUNT, SENECA MID-CAP GROWTH SUBACCOUNT
These Subaccounts commenced operations as of March 2, 1998;
accordingly, data for these Subaccounts is not yet available.
15
<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 usually will 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 12/31/97
------------------------------
COMMENCE- 10 SINCE
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS YEARS INCEPTION
- ---------- --------- ------ ------- ----- ---------
Multi-Sector.......... 1/1/83 4.60% 9.34% 9.35% 9.55%
Balanced.............. 5/1/92 11.06% 9.42% N/A 9.86%
Strategic Allocation.. 9/17/84 13.70% 9.50% 10.69% 11.68%
Growth................ 1/1/83 14.03% 14.93% 15.96% 17.00%
International......... 5/1/90 5.51% 13.31% N/A 7.48%
Money Market.......... 10/10/82 (0.96%) 2.87% 4.24% 4.98%
Real Estate........... 5/1/95 14.94% N/A N/A 24.06%
Theme................. 1/29/96 10.34% N/A N/A 10.03%
Asia.................. 9/17/96 (36.36%) N/A N/A (29.74%)
Enhanced Index........ 7/15/97 N/A N/A N/A (0.46%)
U.S. Small Cap........ 5/1/95 21.89% N/A N/A 30.97%
Int'l. Small Cap...... 5/1/95 (7.22%) N/A N/A 19.99%
TPT Asset Alloc.(1)... 11/28/88 8.56% 13.50% N/A 10.98%
TPT Stock(1).......... 11/4/88 5.12% 15.52% N/A 11.36%
TPT International(1).. 5/1/92 7.03% 16.60% N/A 13.06%
TPT Dev. Mkts.(1)..... 9/15/96 (33.51%) N/A N/A (27.26%)
(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%
1997.... 9.71% 16.48% 19.25% 19.59% 10.66% 3.88%
REAL ENHANCED U.S. INT'L.
YEAR ESTATE THEME ASIA INDEX SMALL CAP SMALL CAP
- ---- ------ ----- ---- ----- --------- ---------
1995.... 16.83% N/A N/A N/A 15.07%(3) 33.41%(3)
1996.... 31.46%(3) 9.08%(3) (0.20%)(3) N/A 44.80% 30.39%
1997.... 20.55% 15.73% (33.24%) 5.23% 27.83% (2.69%)
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%
1997.... 13.86% 10.25% 12.25% (30.26%)(3)
(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. Past fee waivers by the
Investment Manager of the Templeton Developing Markets Fund increased total
return.
(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 12/31/97
------------------------------
COMMENCE- 10 SINCE
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS YEARS INCEPTION
- ---------- --------- ------ ------- ----- ---------
Multi-Sector.... 1/1/83 3.99% 9.15% 9.21% 9.40%
Balanced........ 5/1/92 10.75% 9.24% N/A 9.71%
Allocation...... 9/17/84 13.51% 9.32% 10.58% 11.55%
Growth.......... 1/1/83 13.86% 14.79% 15.81% 16.84%
International... 5/1/90 4.95% 13.17% N/A 7.34%
Money Market.... 10/10/82 (1.82%) 2.60% 4.10% 4.84%
Real Estate..... 5/1/95 14.82% N/A N/A 24.47%
Theme........... 1/29/96 10.00% N/A N/A 10.45%
Asia............ 9/17/96 (37.05%) N/A N/A (30.21%)
Enhanced Index.. 7/15/97 N/A N/A N/A (27.91%)
16
<PAGE>
AVERAGE ANNUAL TOTAL RETURN (CONT'D)
FOR THE PERIOD ENDED 12/31/97
-----------------------------
COMMENCE- 10 LIFE OF
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS YEARS FUND
- ---------- --------- ------ ------- ----- ----
U.S. Small Cap........ 5/1/95 20.59% N/A N/A 31.34%
Int'l. Small Cap...... 5/1/95 (8.21%) N/A N/A 20.29%
TPT Asset Alloc.(2)... 11/28/88 8.16% 13.35% N/A 10.79%
TPT Stock2............ 11/4/88 4.53% 15.38% N/A 11.22%
TPT International(2).. 5/1/92 6.54% 16.47% N/A 12.92%
TPT Dev. Mkts.(2)..... 9/15/96 (34.23%) N/A N/A (27.91%)
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%
1997.... 9.57% 16.34% 19.10% 19.45% 10.53% 3.76%
REAL ENHANCED U.S. INT'L.
YEAR ESTATE THEME ASIA INDEX SMALL CAP SMALL CAP
- ---- ------ ----- ---- ----- --------- ---------
1995.... 16.75% N/A N/A N/A 14.97% 33.35%
1996.... 31.31% 8.98% (0.23%) N/A 44.64% 30.24%
1997.... 20.41% 15.59% (33.33%) 5.19% 27.68% (2.81%)
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%
1997.... 13.74% 10.10% 12.12% (30.35%)
(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. Past fee waivers by the
Investment Manager of the Templeton Developing Markets Fund increased total
return.
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, 1997.
Example:
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:.............................. 2.153665 1.090370
Value of the same account (excluding
capital changes) at the end of the
seven-day period:........................ 2.155028 1.091039
Calculation:
Ending account value..................... 2.155028 1.091039
Less beginning account value............. 2.153665 1.090370
Net change in account value.............. 0.001363 0.000669
Base period return:
(adjusted change/beginning account
value)................................... 0.000633 0.000614
Current yield = return x (365/7) =.......... 3.30% 3.20%
Effective yield = [(1 + return)(365/7)] -1 = 3.35% 3.25%
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 also may 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;
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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.
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 Subaccounts.
PHOENIX AND THE ACCOUNT
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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 10 Krey
Boulevard, East Greenbush, New York 12144. Phoenix is the nation's 9th largest
mutual life insurance company and has consolidated assets of $18.5 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 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 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: 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.
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(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 this 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.
(11) ENGEMANN NIFTY FIFTY ("NIFTY FIFTY") SERIES: The investment objective
of the Nifty Fifty Series is to seek long-term capital appreciation by
investing in approximately 50 different securities which in the
opinion of the Adviser offer the best potential for long-term growth
of capital. At least 75% of the Series' assets will be invested in
common stocks of high quality growth companies. The remaining portion
will be invested in common stocks of small corporations with rapidly
growing earnings per share or common stocks believed to be
undervalued.
(12) SENECA MID-CAP GROWTH ("SENECA MID-CAP") SERIES: The investment
objective of the Seneca Mid-Cap Series is to seek capital appreciation
primarily through investments in equity securities of companies that
have the potential for above average market appreciation. The Series
seeks to outperform the Standard & Poor's Mid-Cap 400 Index.
(13) PHOENIX GROWTH AND INCOME ("GROWTH & INCOME") SERIES: The investment
objective of the Growth & Income Series is to seek dividend growth,
current income and capital appreciation by investing in common stocks.
The Series seeks to achieve its objective by selecting securities
primarily from equity securities of the 1,000 largest companies traded
in the United States, ranked by market capitalization.
(14) PHOENIX VALUE EQUITY ("VALUE") SERIES: The primary investment
objective of the Value Series is long-term capital appreciation, with
a secondary investment objective of current income. The Series seeks
to achieve its objective by investing in a diversified portfolio of
common stocks that meet certain quantitative standards that indicate
above average financial soundness and intrinsic value relative to
price.
(15) SCHAFER MID-CAP VALUE ("SCHAFER MID-CAP") SERIES: The primary
investment objective of the Schafer Mid-Cap Series is to seek
long-term capital appreciation, with current income as the secondary
investment objective. The Series will invest in common stocks of
established companies having a strong financial position and a low
stock market valuation at the time of purchase which are believed to
offer the possibility of increase in value.
INVESTMENT ADVISERS
The investment adviser to all series except the Real Estate and Asia Series
is Phoenix Investment Counsel, Inc. ("PIC"). Pursuant to subadvisory agreements
with the Fund, PIC delegates certain investment decisions and research functions
with respect to the following series to the subadviser indicated:
Enhanced Index Series J.P. Morgan Investment Management, Inc.
Nifty Fifty Series Roger Engemann & Associates, Inc. ("Engemann")
Seneca Mid-Cap Series Seneca Capital Management, LLC ("Seneca")
Schafer Mid-Cap Series Schafer Capital Management, Inc.
The investment adviser to the Real Estate Series is Duff & Phelps Investment
Management Co. ("DPIM").
The investment adviser to the Asia Series is Phoenix-Aberdeen International
Advisors LLC ("PAIA"). Pursuant to subadvisory agreements with the Fund, PAIA
delegates certain investment decisions and research functions with respect to
the Asia Series to PIC and Aberdeen Fund Managers, Inc.
PIC, DPIM, Engemann and Seneca are indirect, less than wholly-owned
subsidiaries of Phoenix Home Life. PAIA is jointly owned and managed by PM
Holdings, Inc., a subsidiary of Phoenix Home Life, and Aberdeen Fund Managers,
Inc.
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.
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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.
SERVICES OF THE ADVISERS
The Advisers continuously furnish an investment program for each Series and
manage the investment and reinvestment of the assets of each Series subject at
all times to the authority and supervision of the Trustees. A detailed
discussion of the investment advisers and subadvisers, and the investment
advisory and subadvisory agreements, is contained in the accompanying prospectus
for the Funds.
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 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, if any. 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 80 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, if any, for the Contract or as indicated by the
Owner from time to time. Initial purchase payments may, under certain
circumstances, be allocated to the Money Market Subaccount (see "Free Look
Period"). 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
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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 available only 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, 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 SEC, 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."
To cover certain of its costs 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 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 charge 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
21
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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 ("PEPCO"); or to
registered representatives of broker/dealers with whom PEPCO 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, if any, for a Contract is complete. If an application form which is
incomplete upon submission is completed within five business days of receipt by
VPMO, the initial purchase payment will be applied within two days of the
completion of such application. In the event that 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 expenses charged against the Funds 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 also may 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 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
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
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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.
Because excessive trading can hurt Fund performance and harm Contract
Owners, Phoenix reserves the right to temporarily or permanently terminate
exchange privileges or reject any specific order from anyone whose transactions
seem to follow a timing pattern, including those who request more than one
exchange out of a Subaccount within any 30-day period. Phoenix will not accept
batch 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 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.
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 available only 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 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
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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 up to a maximum of the total premium 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 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
90th birthday.
OWNERSHIP OF THE CONTRACT
Joint ownership of the Contract is not permitted.
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 occurring in the first Contract year C the greater of:
a. 100% of purchase payments, less any withdrawals; or
b. the Contract Value next determined following receipt of a certified
copy of the death certificate at VPMO.
2. Death occurring in the second Contract year or any subsequent Contract
year C 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, 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
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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."
TRANSFERS
A Contract Owner may request transfers or allocation changes in writing
only. Transfers or allocation changes may not be made by telephone.
GROUP CONTRACTS
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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 20 years and Phoenix terminates the Contract, no
sales charge will apply.
Not more than four transfers may be made from the GIA in any Participant
Account Year and only one such transfer may be made in any 3-consecutive month
period. The amount of such transfers out of the GIA in any one Participant
Account Year may not exceed the greater of $1,000 or 25% of the Participant
Account Value in the GIA as of the last day of the prior Participant Account
Year.
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
future. Loan repayments, including any interest, will be allocated to the
participant's Subaccounts in the same proportion as new payments. A plan loan
partial withdrawal may not be made if a plan loan partial withdrawal is
currently outstanding with respect to that Participant.
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
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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 20 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
- --------------------------------------------------------------------------------
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
10 years after the Maturity Date, the Annuitant's beneficiary will be paid the
payments remaining in the 10-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 30 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 TSA, 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 based
on the value of the Accumulation Units in that Subaccount and the applicable
annuity purchase rate. The purchase rate differs according 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 SAI.
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
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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 10-year period. The 10-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 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.
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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 regular or SIMPLE IRAs and the required distribution rules do not
apply to Roth 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 also is the Annuitant dies on or after the Maturity Date,
except as otherwise may 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
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VALUATION DATE--A Valuation Date is every day the NYSE is open for trading and
Phoenix is open for business. The NYSE is scheduled to be closed for trading on
the following days: New Year's Day, Martin Luther King, Jr. Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. The Board of Directors of the NYSE 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 NYSE (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.
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.
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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 NYSE is closed,
other than customary weekend and holiday closings, (b) when trading on the NYSE
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, if any, 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 and that portion designated for the GIA
will be allocated to that Account. 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 any.
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/or 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 (except for Individual Contracts issued in New York on
or after May 1, 1997). 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
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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 "IRS"). 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 Subchapter L of
the Code. Since the Account is not a separate entity from Phoenix and its
operations form a part of Phoenix, it will not be taxed separately as a
"regulated investment company" under Subchapter 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
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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 VPO 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 or other
special penalties applicable to Roth 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 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
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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
Annuitant is 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 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
policyowner 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
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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 generally will 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% 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 also will 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 ("TSAS").
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.
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
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requirements. Contract Owners should consult their employers to determine
whether the employer has complied with these rules.
Effective May 4, 1998, loans may be made available under Internal
Revenue Code Section 403(b) tax sheltered annuity programs. If the program
permits loans, a loan from the participant's contract value may be
requested. The loan must be at least $1,000 and the maximum loan amount is
the greater of: (a) 90% of the first $10,000 of Contract Value minus any
contingent deferred sales charge; and (b) 50% of the Contract Value minus
any contingent deferred sales charge. The maximum loan amount is $50,000. If
loans are outstanding from any other tax-qualified plan then the maximum
loan amount of the Contract may be reduced from that amount stated above in
order to comply with the maximum loan amount requirements under Section
72(p) of the Internal Revenue Code. Amounts borrowed from the GIA are
subject to the same limitations as apply to transfers from the GIA; thus no
more than the greater of $1,000 and 25% of the Contract Value in the GIA may
be borrowed at any one time.
Loan repayments will first pay any accrued loan interest. The balance
will be applied to reduce the outstanding loan balance and will also reduce
the amount of the Loan Security Account by the same amount that the
outstanding loan balance is reduced. The balance of loan repayments, after
payment of accrued loan interest, will be credited to the Subaccounts of the
Separate Account or the GIA account in accordance with the participant's
most recent premium allocation on file with Phoenix.
If a loan repayment is not received by Phoenix before 90 days after the
payment was due, then the entire loan balance plus accrued interest will be
in default. In the case of default, the outstanding loan balance plus
accrued interest will be deemed a distribution for income tax purposes, and
will be reported as such to the extent required by law. At the time of such
deemed distribution interest will continue to accrue until such time as an
actual distribution occurs under the Contract.
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 IRS.
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) IRAs no longer may be established. Effective January 1,
1998, individuals may establish Roth IRAs. Special rules also apply to
contributions and withdrawals from Roth IRAs.
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.
6. 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), TSAs
and IRAs other than Roth IRAs. 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
33
<PAGE>
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; (g) distributions from an IRA 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;
and (h) distributions from IRAs for first time home purchase (maximum
$10,000) or certain qualified educational expenses of the Contract Owner,
spouse, children or grandchildren of the Contract Owner. This exception will
no longer apply after the Contract Owner has been re-employed for at least
60 days. The exceptions stated in items (d) and (f) above do not apply in
the case of an IRA. The exception stated in item (c) applies to an IRA
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 regular or
SIMPLE IRAs and the required distribution rules do not apply to Roth IRAs.
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.
7. 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 PEPCO. Contracts may be
purchased through registered representatives of W. S. Griffith & Co., Inc.
("WSG") licensed to sell Phoenix insurance policies and annuity contracts. WSG
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.
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.
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.
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 also is 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
34
<PAGE>
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.
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
- --------------------------------------------------------------------------------
Edwin L. Kerr, Counsel, Phoenix 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 SAI is set forth below:
Underwriter
Calculation of Yield and Return
Calculation of Annuity Payments
Experts
Financial Statements
Contract Owner inquiries and requests for a SAI should be directed to
Phoenix Variable Products Mail Operations in writing at P.O. Box 8027, Boston,
Massachusetts 02266-8027, or by calling VPO at (800) 447-4312.
35
<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.
Biweekly, 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"). For 403(b) plans with loans, amounts
borrowed from the GIA will be treated as transfers to the Loan Security Account
and subject to the same limitations as applies to transfers from the GIA (see
"Qualified Plans").
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.
36
<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 January 1, 1998. No
premium tax deductions are made for states not listed above. 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.
37
<PAGE>
[VERSION B]
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS (VPMO):
Hartford, Connecticut P.O. Box 8027
Boston, MA 02266-8027
Tel. 800/243-4840
VARIABLE ACCUMULATION DEFERRED ANNUITY CONTRACTS
PROSPECTUS
May 1, 1998
FOR TAX-QUALIFIED AND NONTAX-QUALIFIED ANNUITY PLANS
This Prospectus describes Templeton Investment Plus, individual deferred
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. 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 is elected, the Minimum Initial Purchase Payment
required is $25. For Individual Retirement Accounts (IRAs) including SEP IRAs
and SIMPLE IRAs, the Minimum Initial Purchase Payment required is $25. For
Contracts issued under tax-qualified or employer-sponsored plans other than
IRAs, a minimum annual payment of $1,000 must be made. Generally, a Contract may
not be purchased with respect to a proposed Annuitant who is 80 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") as specified by the Contract Owner in
the application for the Contract. Each available Subaccount of the Account
invests exclusively in Class 1 of a Series of the Templeton Variable Products
Series Fund (the "Fund") except the Money Market Fund, which has a single class
of shares. The Fund is a mutual fund whose Series presently include the
Templeton Money Market Fund, Templeton Bond Fund, Templeton Stock Fund,
Templeton Asset Allocation Fund, Templeton International Fund and the Templeton
Developing Markets Fund. See "Templeton Money Market Series" for information
concerning a proposal currently pending with the SEC regarding substitution of
shares of this Series.
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 Contract was issued with
a 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 should know
before investing and should be kept for future reference. It is accompanied by a
current prospectus for the Fund. No offer is being made of a Contract funded by
any Series of the Fund for which a current prospectus has not been delivered.
THE CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION OR CREDIT UNION AND ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY. INVESTMENTS IN
THE CONTRACTS ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE FLUCTUATION OF
CONTRACT VALUE AND THE POSSIBLE LOSS OF PRINCIPAL INVESTED.
Additional information about the Contracts has been filed with the
Securities and Exchange Commission ("SEC") in a Statement of Additional
Information ("SAI"), dated May 1, 1998, which is incorporated herein by
reference. The SAI, 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
- -----------------------------------------------------------
SUMMARY OF EXPENSES.................................... 3
FINANCIAL HIGHLIGHTS................................... 5
SPECIAL TERMS.......................................... 6
SUMMARY .............................................. 6
PERFORMANCE HISTORY.................................... 8
THE VARIABLE ACCUMULATION ANNUITY...................... 9
PHOENIX AND THE ACCOUNT................................ 9
TEMPLETON VARIABLE PRODUCTS SERIES FUND................ 10
PURCHASE OF CONTRACTS.................................. 11
DEDUCTIONS AND CHARGES................................. 11
Premium Tax......................................... 11
Sales Charges....................................... 11
Charges for Mortality and Expense Risks............. 11
Charges for Administrative Services................. 12
Other Charges....................................... 12
THE ACCUMULATION PERIOD................................ 12
Accumulation Units.................................. 12
Accumulation Unit Values............................ 13
Transfers........................................... 13
Surrender of Contract; Partial Withdrawals.......... 14
Lapse of Contract................................. 14
Payment Upon Death Before Maturity Date............. 14
THE ANNUITY PERIOD..................................... 14
Variable Accumulation Annuity Contracts............. 14
Annuity Options..................................... 15
Option ACLife Annuity With Specified Period
Certain........................................ 15
Option B--Non-Refund Life Annuity................ 15
Option D--Joint and Survivor Life Annuity........ 15
Option E--Installment Refund Life Annuity........ 15
Option F--Joint and Survivor Life Annuity
With Specified Period Certain.................. 15
Option G--Payments for Specified Period.......... 16
Option H--Payments of Specified Amount........... 16
Option I--Variable Payment Life Annuity With
Ten-Year Period Certain........................ 16
Option J--Joint Survivor Variable Payment Life
Annuity With Ten-Year Period Certain........... 16
Option K--Variable Payment Annuity for a
Specified Period............................... 16
Other Options and Rates.......................... 16
Other Conditions................................. 16
Payment Upon Death After Maturity Date.............. 16
VARIABLE ACCOUNT VALUATION PROCEDURES.................. 16
MISCELLANEOUS PROVISIONS............................... 17
Assignment.......................................... 17
Deferment of Payment................................ 17
Free Look Period.................................... 17
Amendments to Contracts............................. 17
Substitution of Fund Shares......................... 17
Ownership of the Contract........................... 17
FEDERAL INCOME TAXES................................... 18
Introduction........................................ 18
Tax Status.......................................... 18
Taxation of Annuities in General.................... 18
Surrenders or Withdrawals Prior to the
Contract Maturity Date......................... 18
Surrenders or Withdrawals on or after the
Contract Maturity Date......................... 18
Penalty Tax on Certain Surrenders and
Withdrawals.................................... 19
Additional Considerations.......................... 19
Diversification Standards.......................... 20
Qualified Plans.................................... 20
Tax-Sheltered Annuities.......................... 21
Keogh Plans...................................... 21
Individual Retirement Accounts................... 21
Corporate Pension and Profit-Sharing Plans....... 21
Deferred Compensation Plans with Respect to
Service for State and Local Governments and
Tax-Exempt Organizations................... 22
Penalty Tax on Certain Surrenders and
Withdrawals from Qualified Contracts........... 22
Seek Tax Advice.................................. 22
SALES OF VARIABLE ACCUMULATION CONTRACTS............... 22
STATE REGULATION....................................... 23
REPORTS ............................................... 23
VOTING RIGHTS.......................................... 23
TEXAS OPTIONAL RETIREMENT PROGRAM...................... 23
LITIGATION............................................. 23
LEGAL MATTERS.......................................... 23
STATEMENT OF ADDITIONAL INFORMATION.................... 23
APPENDIX A............................................. 24
APPENDIX B............................................. 25
2
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
CONTRACT OWNER TRANSACTION EXPENSES ALL SUBACCOUNTS
---------------
<S> <C>
Sales Charge Imposed on Purchases.................................................... None
Deferred Sales Charge (as a percentage of amount surrendered)(1):
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
Current Fee...................................................................... None
Maximum Allowable Charge Per Exchange............................................ $10
CONTRACT FEES
Current Annual Administrative.................................................... $35
Maximum Annual Administrative.................................................... $35
SEPARATE ACCOUNT EXPENSES (as a percentage of average account value)
Mortality and Expense Risk Fees.................................................. 1.25%
Account Fees and Expenses Daily Administrative Fee............................... 0.125%
Total Separate Account Annual Expenses........................................... 1.375%
FUND ANNUAL EXPENSES
(as a percentage of Fund average net assets)
</TABLE>
<TABLE>
<CAPTION>
ASSET DEVELOPING
MONEY BOND STOCK ALLOCATION INTERNATIONAL MARKETS
MARKET CLASS 1 CLASS 1(2) CLASS 1(2) CLASS 1(2) CLASS 1
------ ------- ---------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Investment Management Fees.................... .35% .50% .69% .60% .69% 1.25%
Other Expenses(3)............................. .18% .18% .19% .18% .19% .33%
Total Fund Annual Expenses.................... .53% .68% .88% .78% .88% 1.58%
</TABLE>
EXAMPLE
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>
<S> <C> <C> <C> <C> <C> <C> <C>
1 year................................ $ 67 $ 68 $ 71 $ 70 $ 71 $ 77
3 years............................... 94 99 105 102 105 125
5 years............................... 122 129 139 134 139 173
10 years............................... 241 254 274 264 274 342
</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>
<S> <C> <C> <C> <C> <C> <C> <C>
1 year................................ $ 21 $ 23 $ 25 $ 24 $ 25 $ 32
3 years............................... 65 70 76 73 76 96
5 years............................... 111 119 129 124 129 164
10 years............................... 238 254 274 264 274 342
</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) Management fees and total fund operating expenses have been restated to
reflect the new management fee schedule which was approved by shareholders
and which took effect on May 1, 1997. See Fund prospectus for details.
Actual fees and operating expenses before May 1, 1997 were lower.
(3) Each Series pays a portion of all of its total operating expenses other than
the management fee. "Other Expenses" are based upon the actual operating
expenses incurred by the Fund for the fiscal year ended December 31, 1997.
3
<PAGE>
SUMMARY OF EXPENSES
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 Fund. (See "Deductions and Charges" in this Prospectus and "Management of
the Trust" in the Fund Prospectus.)
Any premium or other taxes levied by any governmental entity with respect to
the Contracts 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.")
The Example 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.")
4
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
Following are the financial highlights for the period indicated.
<TABLE>
TEMPLETON STOCK SUBACCOUNT
------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
PERIOD FROM
11/4/88*
1997 1996 1995 1994 1993 1992 1991 1990 1989 TO 12/31/88
---- ---- ---- ---- ---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period................ $2.484883 $2.057549 $1.665152 $1.726593 $1.305609 $1.235446 $ .981990 $1.119352 $ .989563 $1.000000
Unit value, end of
period................ 2.742374 $2.484883 $2.057549 $1.665152 $1.726593 $1.305609 $1.235446 $ .981990 $1.119352 $ .989563
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of accumulation
units outstanding at
end of period (000)... 116,902 132,392 142,234 144,872 137,108 118,456 94,307 74,885 44,084 2,812
</TABLE>
<TABLE>
TEMPLETON ASSET ALLOCATION SUBACCOUNT
------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
PERIOD FROM
11/28/88*
1997 1996 1995 1994 1993 1992 1991 1990 1989 TO 12/31/88
---- ---- ---- ---- ---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period................ $2.304966 $1.965734 $1.625952 $1.699180 $1.365257 $1.280431 $1.016125 $1.119543 $1.001691 $1.000000
Unit value, end of
period.................. 2.742374 $2.484883 $2.057549 $1.665152 $1.726593 $1.305609 $1.235446 $ .981990 $1.119352 $ .989563
======== ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of accumulation
units outstanding at
end of period (000)... 58,816 65,843 72,985 74,901 66,903 46,950 27,918 21,974 11,455 130
</TABLE>
<TABLE>
TEMPLETON MONEY MARKET SUBACCOUNT
--------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
PERIOD FROM
12/2/88*
1997 1996 1995 1994 1993 1992 1991 1990 1989 TO 12/31/88
---- ---- ---- ---- ---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period................ $1.333545 $1.287771 $1.238474 $1.213373 $1.201078 $1.181114 $1.134278 $1.069449 $1.003591 $1.000000
Unit value, end of
period................ 1.381824 $1.333545 $1.287771 $1.238474 $1.213373 $1.201078 $1.181114 $1.134278 $1.069449 $1.003591
======== ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of accumulation
units outstanding at
end of period (000)... 11,464 10,597 16,077 26,566 13,892 17,734 18,533 15,540 5,324 423
</TABLE>
<TABLE>
TEMPLETON BOND SUBACCOUNT
----------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
PERIOD FROM
1/4/89*
1997 1996 1995 1994 1993 1992 1991 1990 TO 12/31/89
---- ---- ---- ---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period................... $1.672413 $1.549167 $1.366504 $1.456861 $1.324996 $ 1.272743 $1.113263 $1.061263 $1.000000
Unit value, end of period.. 1.690923 $1.672413 $1.549167 $1.366504 $1.456861 $ 1.324996 $1.272743 $1.113263 $1.061263
======== ========= ========= ========= ========= ========== ========= ========= =========
Number of accumulation
units outstanding at end
of period (000).......... 9,941 11,875 12,633 13,111 13,578 8,937 5,611 2,889 1,455
</TABLE>
<TABLE>
TEMPLETON INTERNATIONAL SUBACCOUNT
-------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<CAPTION>
PERIOD FROM
5/1/92*
1997 1996 1995 1994 1993 TO 12/31/92
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period............................. $1.821499 $1.488540 $1.303520 $1.351997 $ .930016 $1.000000
Unit value, end of period................................... 2.047517 $1.821499 $1.488540 $1.303520 $1.351997 $ .930016
======== ========= ========= ========= ========= =========
Number of accumulation units outstanding at end of period
(000)....................................................... 58,470 62,848 59,587 58,214 32,362 7,562
</TABLE>
<TABLE>
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
---------------------------------------
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 9/15/96*
31, 1997 TO 12/31/96
<S> <C> <C>
Unit value, beginning of period......................................................................... $1.009604 $1.000000
Unit value, end of period............................................................................... 0.704720 $1.009604
======== =========
Number of accumulation units outstanding at end of period (000)......................................... 4,110 1,040
</TABLE>
*Date of inception
5
<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 Subaccount
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. The primary Annuitant as shown on the Contract's Schedule Page, while
the primary Annuitant is living, and then the contingent Annuitant designated on
the application for the Contract or as later changed by the Owner, if the
contingent Annuitant is living at the death of the primary Annuitant.
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.
CONTRACT: The individual deferred variable accumulation annuity contract
described in this Prospectus.
CONTRACT OWNER ("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.
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 for periodic payments of a fixed
dollar amount throughout the Annuity Period that does not vary with or reflect
the investment performance of any Subaccount.
FUND: Templeton Variable Products Series Fund.
GIA: An allocation option under which amounts deposited are guaranteed to earn a
fixed rate of interest. Excess interest may also be credited, in the sole
discretion of Phoenix.
ISSUE DATE: The date that the initial purchase payment is invested in a
Subaccount.
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, $25, $25, and $1,000
annually are required for nonqualified, IRA, bank draft program and qualified
plan contracts, 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.
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
("NYSE") is open for trading.
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: 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.
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,
6
<PAGE>
which invest their assets exclusively in specified Series of the Fund. 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 nontax-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 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 Templeton
Variable Products Series Fund.")
FOR ADDITIONAL INFORMATION CONCERNING THE FUND, SEE THE ACCOMPANYING FUND
PROSPECTUS, 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
Option K. 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 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 earlier date of a partial withdrawal, surrender of the
Contract, Maturity Date or payment of death proceeds. (See "Premium Tax.")
In addition, certain charges are deducted from the assets of the Fund. 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 nontax-qualified plans and IRAs, 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 in connection with IRAs or 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.
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.")
7
<PAGE>
MAY I TRANSFER AMOUNTS ALLOCATED TO A SUBACCOUNT OR THE GIA?
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 elected, 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. (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 Option K. 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.
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 Bond
Subaccount and as total return of any Subaccount. For the Bond 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 usually will 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 standardized average annual total return for
contracts calculated as described above.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDING 12/31/97
------------------------------
COMMENCE- LIFE OF
SERIES MENT DATE 1 YEAR 3 YEARS 5 YEARS FUND
- ------ --------- ------ ------- ------- ----
Stock-Class 1......... 11/04/88 5.23% 16.88% 15.66% 11.51%
Asset
Allocation-Class 1.... 11/28/88 8.66% 16.12% 13.64% 11.10%
Money Market.......... 12/02/88 (1.21%) 2.61% 2.49% 3.48%
Bond-Class 1.......... 01/04/89 (3.61%) 6.23% 4.65% 5.89%
International-Class 1. 05/01/92 7.18% 15.04% 16.76% 13.23%
Developing Markets-
Class 1............. 09/15/96 (33.51%) N/A N/A (27.16%)
8
<PAGE>
ANNUAL TOTAL RETURNS*
---------------------
ASSET DEV.
STOCK ALLOC. MONEY BOND INTL. MKT.
YEAR CLASS 1 CLASS 1 MARKET CLASS 1 CLASS 1 CLASS 1
- ---- ------- ------- ------ ------- ------- -------
1989......... 13.12% 11.77% 6.56% 6.13% N/A N/A
1990......... (12.28)% (9.24)% 6.06% 4.89% N/A N/A
1991......... 25.81% 26.01% 4.13% 14.33% N/A N/A
1992......... 5.68% 6.62% 1.69% 4.11% (7.00)% N/A
1993......... 32.25% 24.46% 1.02% 9.95% 45.37% N/A
1994......... (3.56)% (4.31)% 2.07% (6.20)% (3.59)% N/A
1995......... 23.57% 20.90% 3.98% 13.37% 14.19% N/A
1996......... 20.77% 17.26% 3.55% 7.96% 22.37% 0.96%
1997......... 10.36% 13.95% 3.62% 1.10% 12.40% (30.19%)
*Sales charges have not been deducted from the annual return.
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE
Performance data is historical and includes changes in share price and
reinvestment of dividends and capital gains.
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 participant'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, 1997.
Example:
Assumptions:
Value of hypothetical pre-existing account with exactly
one unit at the beginning of the period............. 1.380950
Value of the same account (excluding capital changes)
at the end of the seven-day period.................. 1.381824
Calculation:
Ending account value................................. 1.381824
Less beginning account value......................... 1.380950
Net change in account value.......................... 0.000874
Base period return:
(adjusted change/beginning account value)............ 0.000633
Current yield = return x (365/7) = .................... 3.30%
Effective yield = [(1 + return)(365/7)]-1 = ........... 3.36%
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 annuity accounts 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 also may be compared to that of other investment or savings
vehicles.
Advertisements, sales literature and other communications may contain
information about any Fund's or Adviser's 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 Funds may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Funds 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
Fund's portfolio; or compare a Fund's equity or bond return figure to well-known
indices of market performance, including, but not limited to: S&P 500 Index, Dow
Jones Industrial Average, First Boston High Yield Index and Solomon Brothers
Corporate and Government Bond Indices.
The 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.
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. Under a fixed annuity contract the insurance company guarantees a
specified interest rate and specified monthly annuity payments. However, except
for payments allocated to the GIA, the amounts which will be available for
annuity payments under a Contract will depend on the investment performance of
the Subaccounts of the Phoenix Home Life Variable Accumulation Account (the
"Account"). Upon the maturity of a Contract, the amounts held under a Contract
will continue to be invested in the Account and monthly annuity payments will
vary in accordance with the investment experience of the selected Subaccounts.
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 accumulated value
among the GIA or the Money
9
<PAGE>
Market Subaccount, Bond Subaccount, Stock Subaccount, Asset Allocation
Subaccount, International Subaccount and Developing Markets Subaccount. Each of
the Subaccounts invests exclusively in shares of a corresponding Series of the
Templeton Variable Products Series Fund (the "Fund").
PHOENIX AND THE ACCOUNT
- --------------------------------------------------------------------------------
Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851. Its executive office is at One American Row, Hartford,
Connecticut 06115, and its main administrative office is at 100 Bright Meadow
Boulevard, Enfield, Connecticut 06083-1900. Its New York principal office is at
10 Krey Boulevard, East Greenbush, New York 12144. Phoenix is the nation's 9th
largest mutual life insurance company and has consolidated assets of $18.5
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 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 Act.
Registration under the 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, 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 general account of Phoenix (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.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- --------------------------------------------------------------------------------
Each available Subaccount of the Account invests exclusively in Class 1 of a
corresponding Series of the Fund. The investment manager of Templeton Stock,
Templeton Asset Allocation, Templeton International, Templeton Bond and
Templeton Money Market Series is Templeton Investment Counsel, Inc.; and
Templeton Asset Management Ltd. is the investment manager for Templeton
Developing Markets Series. The investment objective of each of the Series of the
Fund is as follows:
(1) TEMPLETON MONEY MARKET SERIES--Seeks current income, stability of
principal and liquidity by investing in money market instruments with
maturities not exceeding 397 days, consisting primarily of short-term
U.S. government securities, certificates of deposit, time deposits,
bankers' acceptances, commercial paper and repurchase agreements.
Phoenix has filed with the SEC an application for an order approving a
substitution of shares of Phoenix Money Market Series of The Phoenix
Edge Series Fund for shares of the Templeton Money Market Series (the
"Substitution"). Subject to regulatory approval, the Substitution will
take place as soon as practicable. Following the Substitution,
Templeton Money Market Series no longer will be available as an
investment option under the Contract.
Phoenix proposed the Substitution to provide a transfer of the assets
of the Templeton Money Market Series that currently and in the future
may be expected to be of insufficient size to promote consistent
investment performance or to reduce operating expenses. Prior to the
date of Substitution, an Owner may transfer their Money Market
Subaccount value to any other Subaccount of the Account. Moreover,
following the Substitution for a period of 30 days, Phoenix will permit
transfers from the Money Market Subaccount to any other Subaccount of
the Account without any limitation or charge being imposed. After the
30 days, any transfers from the Money Market Subaccount will be subject
to the restrictions described in the Prospectus.
(2) TEMPLETON BOND SERIES--Seeks high current income through a flexible
policy of investing primarily in debt securities of companies,
governments, and government agencies of various nations throughout the
world and in debt securities which are convertible into common stock of
such companies. The debt securities selected may be rated in any
category by Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's") as well as securities which are unrated by
any rating agency.
(3) TEMPLETON 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.
(4) TEMPLETON ASSET ALLOCATION SERIES--Seeks a high level of total return
through a flexible policy of investing 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.
(5) TEMPLETON 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
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bonds which are rated in any category by S&P or Moody's or which are
unrated by any rating agency.
(6) TEMPLETON DEVELOPING MARKETS 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. For a discussion of the risks
associated with investing in high yield bonds and the special risks inherent in
foreign investing, including currency fluctuation and political uncertainty,
please see the accompanying Fund prospectuses under "Risk Factors."
Shares of the Fund may be sold to other separate accounts of Phoenix or its
affiliates or to 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 Fund simultaneously. Although neither Phoenix nor the Fund
currently foresees any such disadvantages either to variable annuity Contract
Owners or to variable life insurance policyowners, the Fund's 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 the 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 FUND AND ITS 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 $25 and for Contracts purchased in connection with
tax-qualified or employer-sponsored plans, a minimum annual payment of $1,000 is
required. 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 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 selected, 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 80 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 the
Money Market Subaccount, Bond Subaccount, Stock Subaccount, Asset Allocation
Subaccount, International Subaccount, Developing Markets 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 of written 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
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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 reimburse only 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 to this Prospectus.
SALES CHARGES
A deduction for contingent deferred sales charges (also referred to in this
Prospectus as surrender or sales charges) for these Contracts may be taken from
proceeds of withdrawals from, or complete surrender of, the Contracts if assets
are not held in the Account 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 Option K (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 all 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, is as
follows:
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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 its 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% on an annual basis for expense risks
assumed. No mortality and expense risk charges are 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, although it is not anticipated, 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 Account. In this connection,
Phoenix, among other things, maintains an account for each Owner and Annuitant,
makes all disbursements of benefits, furnishes administrative and clerical
services for each Contract, makes disbursements from the Account 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 SEC, prepares and distributes notices and
reports to Owners, and the like.
To cover certain of its costs of administration, such as preparation of
billings and statements of account, Phoenix charges each annuity contract $35
each year. A reduced charge may apply to Contracts issued after September 1,
1994. This cost-based charge is deducted from the Subaccount 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 a surrender of a Contract, the entire annual administrative charge of
$35 is deducted regardless of when the surrender occurs.
Phoenix also charges each Subaccount available through a Contract the daily
equivalent of 0.125% on an annual basis of the accumulated value of the
Subaccount to cover its variable costs of administration, such as printing and
distribution of Contract Owner mailings. This fee is not deducted from the GIA.
Phoenix may reduce the annual administrative charge or the daily
administrative fee for Contracts issued under group or sponsored arrangements.
Generally, administrative 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.
It also receives compensation from the investment manager (out of the
manager's own resources) for administrative services provided to the Developing
Markets Fund Class I.
OTHER CHARGES
Charges for investment and business management are paid out of the assets of
the Fund.
For investment management services, each Series pays a separate monthly fee
calculated on the basis of its average daily net assets during the year.
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
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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 VPO 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 Accumulation 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 Fund,
the fee of the Fund's investment adviser 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. THERE ARE ADDITIONAL
RESTRICTIONS ON TRANSFERS FROM THE GIA AS DESCRIBED BELOW AND IN APPENDIX A. 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 also may request transfers and changes in payment
allocations among available Subaccounts or the GIA by calling 1-800-243-4840
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 and allocation change orders also will be accepted
on behalf of the Contract Owner from his or her registered representative.
Phoenix 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 will be confirmed
in writing to the Contract Owner. To the extent that procedures reasonably
designed to prevent unauthorized transfers are not followed, Phoenix 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 reasonably
believes to be genuine. These telephone privileges may be modified or terminated
at any time. During times of extreme market volatility, it may be difficult to
exercise and 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, semiannual 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 semiannually 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, 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 Subaccount or the GIA, but may
be allocated to multiple 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 succeeding
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. Transfers will be effectuated on the date the transfer request was received
at VPMO, unless made pursuant to the Systematic Transfer Program as noted above.
For nonsystematic 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.
Because excessive trading can hurt Fund performance and harm Contract
Owners, Phoenix reserves the right to temporarily or permanently terminate
exchange privileges or reject any specific order from anyone whose transactions
seem to follow a timing pattern, including those who request more than one
exchange out of a Subaccount within any 30-day period. Phoenix will not 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.
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<PAGE>
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, the Account reserves the right to charge a transfer fee of $10 per
transfer after the first two in each Contract year to defray administrative
costs. Currently, unlimited transfers are permitted; however, the Account
reserves the right to limit the number of transfers made during each Contract
year a Contract is in existence. However, Contract Owners always will be
permitted at least six transfers during each Contract year. When the Temporary
Money Market Allocation Amendment has been elected, no transfers may be made
until the end of the free look period (see "Free Look Period").
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
Prior to the Maturity Date, if the Annuitant is living, a Contract Owner may
surrender the Contract for a cash payment representing the Contract Value or may
make partial withdrawals of cash in amounts representing less than the Contract
Value. 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 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, the 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 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 Operations, P.O. Box 8027,
Boston, Massachusetts 02266-8027.
LAPSE OF CONTRACT
If on any Valuation Date (see "Valuation Date"), the Contract Value is zero,
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
If the Owner is the Annuitant and dies before the Maturity Date, the death
benefit will be paid under the Contract to the Owner's/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 6 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 6-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 6-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
VPO.
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
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<PAGE>
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. See also,
"Distribution at Death Rules" under "Federal Income Taxes. "
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 provides, 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 10-Year Period Certain,
annuity payments, which may vary in amount based on the performance of the
Subaccounts selected, are made monthly for life and, if the Annuitant dies
within 10 years after the Maturity Date, the Annuitant's beneficiary will be
paid the payments remaining in the 10-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 may also 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,
semiannually 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 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 30 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 TSA, 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 based
on the value of the Accumulation Units in that Subaccount and the applicable
annuity purchase rate. The purchase rate differs according 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 Part 8 of the Contract and in the SAI.
In lieu of the 10-year period certain variable payment life annuity (see
"Option I--Variable Payment Life Annuity with Ten-Year Period Certain" below),
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. No surrender charge will be assessed under any annuity option.
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 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
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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 10-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
5 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 10-year period. The 10-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 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.
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 for Contracts are more
favorable than the applicable rates guaranteed under the Contract, the current
settlement 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.
Generally, federal income tax requirements also provide that participants in
qualified plans or IRAs must begin minimum distributions by April 1 of the year
following the one in which they attain age 70 1/2. Participants in qualified
plans, other than 5% Owners, may defer distribution until the later of actual
retirement or April 1 of the year following the year they attain age 70 1/2. 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, any amounts withdrawn that have not been held under a
Contract for at least six years and are in excess
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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 be otherwise provided under any supplementary Contract between the
Owner and Phoenix, Phoenix will pay to the Owner's/Annuitant's beneficiary any
annuity payments due during any applicable period certain under the Annuity
Option in effect on 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. 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.
VARIABLE ACCOUNT VALUATION PROCEDURES
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VALUATION DATE--A Valuation Date is every day the NYSE is open for trading. The
NYSE is scheduled to be closed for trading on the following days: New Year's
Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The Board of
Directors of the NYSE 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 NYSE (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, 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 and daily administrative fee; and (c) the results of (a) as
adjusted by (b) are divided by the aggregate Accumulation Unit Values in the
Subaccount at the beginning of the valuation period.
MISCELLANEOUS PROVISIONS
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ASSIGNMENT
Owners of Contracts issued in connection with nontax-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 NYSE is closed,
other than customary weekend and holiday closings, (b) when trading on the NYSE
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 value of the Accumulation Units in the Subaccounts
or (d) when a governmental body having jurisdiction over the Account 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 elects 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.
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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/or state insurance
departments. A change in the Contract which necessitates a corresponding change
in the Prospectus or the SAI must be filed with the SEC.
SUBSTITUTION OF FUND SHARES
Although Phoenix believes it to be unlikely, it is possible that in the
judgment of its management, one or more of the Series of the Fund 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.
For information on a proposal currently pending regarding substitution of
shares for the Templeton Money Market Series, see "Templeton Variable Products
Series Fund -- Templeton Money Market Series."
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
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INTRODUCTION
The Contracts are designed for use by individuals in 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 ("IRS"). 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 Fund, please see the accompanying prospectus
for the Fund.
TAX STATUS
Phoenix is taxed as a life insurance company under Part I of Subchapter L of
the Code. Since the Account is not a separate entity from Phoenix and its
operations form a part of Phoenix, it will not be taxed separately as a
"regulated investment company" under Subchapter 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 Nonnatural
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 to the Contract
Owner. 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 or an annuity payment under the
Contract, the recipient is taxed on the portion of the payment that exceeds
the investment in the
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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 5-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 nontaxable 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 VPO 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 Sec. 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 5 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 contracts. (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 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. Similar distribution requirements
apply to annuity Contracts under Qualified Plans (other than Code Section
457 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
Annuitant is 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
nonspousal joint Contract Owners, the distribution will be required at the
first death of the Contract Owners.
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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 distribution
in effect at the time of death.
2. TRANSFER OF ANNUITY CONTRACTS.
Transfers of nonqualified 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 NONNATURAL PERSONS.
If the Contract is held by a nonnatural 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 nonnatural 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 TSA 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 nonqualified 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 Fund 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 the Fund is
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
the Fund as an asset of the Account, and each Series of the Fund is 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 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 IRS in which was held that the policyowner 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 the event any forthcoming guidance or ruling is considered to set
forth a new position, such guidance or ruling generally will 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
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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, the
investments of the Phoenix qualified plan Contracts (i.e., the Fund) will
be structured to comply with the diversification standards because the Fund
serves as the investment vehicle for nonqualified 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 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) Tax-Sheltered
Annuities arrangements. Taxable distributions eligible to be rolled over
generally will be subject to 20 % income tax withholding. Mandatory withholding
can only be avoided 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 includable 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 nonqualified deferred compensation plans.
Numerous changes have been made to the tax rules governing Qualified Plans
as a result of tax legislation enacted during the last several years including
rules with respect to: maximum contributions; minimum, maximum and timing of
distributions; antidiscrimination; and increasing the penalty tax on premature
distributions. The following are brief 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.
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
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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 IRS.
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 IRAs (SARSEP) no longer may 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.
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 includable 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.
6. PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS FROM QUALIFIED
CONTRACTS.
In the case of a withdrawal under a qualified contract, 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 contract. 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), TSAs
and IRAs. 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 includable 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 IRA 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
22
<PAGE>
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 (f)
above do not apply in the case of an IRA. The exception stated in item (c)
applies to an IRA 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.
7. 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 and competent tax adviser, with
regard to the suitability of the Contract as an investment vehicle for the
qualified plan.
SALES OF VARIABLE ACCUMULATION CONTRACTS
- --------------------------------------------------------------------------------
The master servicer and distributor of the Contracts is W.S. Griffith & Co.,
Inc. ("WSG"). WSG is an indirect wholly-owned subsidiary of Phoenix. Contracts
are sold through broker-dealers registered under the Securities Exchange Act of
1934, whose representatives are authorized by applicable law to sell Contracts
under terms of agreement with WSG and terms of agreement provided by Phoenix.
For services it renders, Phoenix pays WSG or such other person if required under
applicable law, an amount equal to 5.25% of the purchase payments under the
Contracts. Phoenix, through WSG or such other person, generally pays dealers who
sell Contracts an amount equal to 5% of the purchase payments under the
Contracts. 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.
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 also is 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 Fund. Phoenix is the legal
owner of those shares and as such has the right to vote to elect the Board of
Trustees of the 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 Fund at regular and special
meetings of the shareholders of the Fund 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 Fund 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 the Fund; (2) ratification
of the independent accountant for the 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 the 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.
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 the Fund.
Phoenix will furnish Owners
23
<PAGE>
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, however, may be used to fund another
eligible retirement vehicle.
LITIGATION
- --------------------------------------------------------------------------------
Phoenix, the Account and WSG are not parties to any litigation that would
have a material adverse effect upon the Account or the Contracts.
LEGAL MATTERS
- --------------------------------------------------------------------------------
Edwin L. Kerr, Counsel, Phoenix has provided advice on certain matters
relating to the federal securities and income tax laws in connection to the
Contracts described in this Prospectus.
STATEMENT OF ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The SAI contains more specific information and financial statements relating
to the Account and Phoenix. The "Table of Contents" of the SAI is set forth
below:
Underwriter
Calculation of Yield and Return
Calculation of Annuity Payments
Experts
Financial Statements
Contract Owner inquiries and requests for a SAI should be directed to
Phoenix Variable Products Mail Operations in writing at P.O. Box 8027, Boston,
Massachusetts 02266-8027, or by calling VPO at (800) 243-4840.
24
<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, interest in the General Account has 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 SEC 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, compounded
annually, to amounts allocated to the GIA. Phoenix may credit interest at a rate
in excess of 4% per year; however, it is not obligated to credit any interest in
excess of 4% per year.
Biweekly, 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 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 OF 4%
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, 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. NONSYSTEMATIC TRANSFERS FROM THE GIA WILL BE
EFFECTUATED ON THE DATE OF RECEIPT BY VPMO, UNLESS OTHERWISE REQUESTED BY THE
CONTRACT OWNER.
25
<PAGE>
APPENDIX B
DEDUCTIONS FOR STATE PREMIUM TAXES
QUALIFIED AND NONQUALIFIED ANNUITY CONTRACTS
<TABLE>
<CAPTION>
UPON UPON NON-
STATE PURCHASE(1) ANNUITIZATION QUALIFIED QUALIFIED
----------- ------------- --------- ---------
<S> <C> <C> <C> <C>
California.............................. X 2.35% 0.50%
D.C. ................................... X 2.25 2.25
Kansas.................................. X 2.00
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 January 1, 1998. No
premium tax deductions are made for states not listed above. 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 interpretations.
For an 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, payment of death proceeds or Maturity Date.
26
<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, Connecticut 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 May 1, 1998 which is available
without charge by contacting Phoenix Home Life Mutual Insurance Company at the
above address or at the above telephone number.
May 1, 1998
-----------------
TABLE OF CONTENTS
PAGE
Underwriter........................................................ B-2
Calculation of Yield and Return.................................... B-2
Calculation of Annuity Payments ................................... B-3
Year 2000 Issue.................................................... B-4
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 1995, 1996 and 1997, aggregate underwriting
commissions paid to PEPCO on the sales of the Contracts were $27,332,540,
$26,437,438 and $21,403,257, respectively, and retained $0.
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, 1997.
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:........ 2.153665 1.090370
Value of the same account (excluding
capital changes) at the
end of the seven-day period ................. 2.155028 1.091039
Calculation:
Ending account value ........................ 2.155028 1.091039
Less beginning account value ................ 2.153665 1.090370
Net change in account value ................. 0.001363 0.000669
Base period return:
(adjusted change/beginning
account value)............................... 0.000633 0.000614
Current yield = return X (365/7) =........... 3.30% 3.20%
Effective yield = [(1 + return)(365/7]) -1 =. 3.35% 3.25%
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 Business 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,
B-2
<PAGE>
Financial World, U.S. News and World Report, Standard & Poor's, The 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.
YEAR 2000 ISSUE
- --------------------------------------------------------------------------------
Many existing computer programs use only two digits to identify the year in
a date field. Commonly referred to as the "Year 2000 Issue," companies must
consider the impact of the upcoming change in the century on their computer
systems. The Year 2000 Issue, if not adequately addressed, could result in
computer system failures or miscalculations causing disruptions of operations
and the possible inability of companies to process transactions. Phoenix
believes that the Year 2000 Issue is an important business priority requiring
careful analysis of every business system in order to be assured that all
information systems applications are century compliant.
Phoenix has been addressing the Year 2000 Issue in earnest since 1995 when,
with consultants, a comprehensive inventory and assessment of all business
systems, including those of its subsidiaries, was conducted. Phoenix has
identified and is now actively pursuing a number of strategies to address the
issue, including:
-- upgrading systems with compliant versions;
-- developing or acquiring new systems to replace those that are obsolete;
-- and remediating existing systems by converting code or hardware.
Based on current assessments, Phoenix expects to have its computer systems
compliant by the end of 1998, with testing to continue through 1999. In
addition, Phoenix is examining the status of its third-party vendors, obtaining
assurances that their software and hardware products will be century compliant
by 1999.
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.
Edwin L. Kerr, Counsel, Phoenix 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, 1997
B-5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<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 ....................... $ 5,019,054 $ 69,089,150 $ 46,200,099 $ 922,712,674
=========== ============ ============ =============
Investment in The Phoenix Edge Series
Fund, at market .......................... $ 5,019,054 $ 69,089,150 $ 69,409,173 $1,046,080,148
----------- ------------ ------------ --------------
Total assets ............................. 5,019,054 69,089,150 69,409,173 1,046,080,148
Liabilities
Accrued expenses to related party ......... 5,137 73,589 58,212 1,092,201
----------- ------------ ------------ --------------
Net assets ................................. $ 5,013,917 $ 69,015,561 $ 69,350,961 $1,044,987,947
=========== ============ ============ ==============
Accumulation units outstanding ............. 2,264,187 32,025,359 6,272,827 97,099,306
=========== ============ ============ ==============
Unit value ................................. $ 2.214444 $ 2.155028 $ 11.055774 $ 10.762048
=========== ============ ============ ==============
Multi-SectorFixed Income Strategic Allocation
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
-------------------------------- ---------------------------------
Assets
Investments at cost ....................... $14,342,415 $114,371,746 $ 46,915,081 $ 267,348,851
============= ============= ============== ==============
Investment in The Phoenix Edge Series
Fund, at market .......................... $14,745,786 $119,195,587 $ 60,845,819 $ 285,075,188
------------- ------------- -------------- --------------
Total assets ............................. 14,745,786 119,195,587 60,845,819 285,075,188
Liabilities
Accrued expenses to related party ......... 11,734 124,834 51,065 298,486
------------- ------------- -------------- --------------
Net assets ................................. $14,734,052 $119,070,753 $ 60,794,754 $ 284,776,702
============= ============= ============== ==============
Accumulation units outstanding ............. 3,556,360 29,600,788 13,378,256 64,407,000
============= ============= ============== ==============
Unit value ................................. $ 4.143015 $ 4.022553 $ 4.544296 $ 4.421518
============= ============= ============== ==============
International Balanced
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
-------------------------------- ---------------------------------
Assets
Investments at cost ....................... $ 3,970,237 $109,669,852 $ 4,377,240 $ 174,140,856
============= ============= ============== ==============
Investment in The Phoenix Edge Series
Fund, at market .......................... $ 5,378,870 $135,081,388 $ 5,068,215 $ 191,831,547
------------- ------------- -------------- --------------
Total assets ............................. 5,378,870 135,081,388 5,068,215 191,831,547
Liabilities
Accrued expenses to related party ......... 4,471 141,297 4,240 200,256
------------- ------------- -------------- --------------
Net assets ................................. $ 5,374,399 $134,940,091 $ 5,063,975 $ 191,631,291
============= ============= ============== ==============
Accumulation units outstanding ............. 2,998,111 76,703,517 2,885,290 110,735,265
============= ============= ============== ==============
Unit value ................................. $ 1.792595 $ 1.759243 $ 1.755101 $ 1.730535
============= ============= ============== ==============
</TABLE>
See Notes to Financial Statements
B-6
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
(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 ....................... $ 625,379 $29,051,498 $ 893,344 $ 28,221,496
========== =========== ========== ============
Investment in The Phoenix Edge Series
Fund, at market .......................... $ 746,479 $36,762,905 $ 929,744 $ 29,100,874
---------- ----------- ---------- ------------
Total assets ............................. 746,479 36,762,905 929,744 29,100,874
Liabilities
Accrued expenses to related party ......... 600 37,733 770 30,178
---------- ----------- ---------- ------------
Net assets ................................. $ 745,879 $36,725,172 $ 928,974 $ 29,070,696
========== =========== ========== ============
Accumulation units outstanding ............. 405,294 19,835,085 737,262 23,027,487
========== =========== ========== ============
Unit value ................................. $ 1.840367 $ 1.851492 $ 1.259897 $ 1.262435
========== =========== ========== ============
Aberdeen New Asia Enhanced Index
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------- -------------------------------
Assets
Investments at cost ....................... $ 228,255 $ 9,704,820 $ 603,498 $ 23,165,343
============ ============ ============ =============
Investment in The Phoenix Edge Series
Fund, at market .......................... $ 149,453 $ 6,364,247 $ 611,880 $ 24,074,599
------------ ------------ ------------ -------------
Total assets ............................. 149,453 6,364,247 611,880 24,074,599
Liabilities
Accrued expenses to related party ......... 127 6,867 336 24,603
------------ ------------ ------------ -------------
Net assets ................................. $ 149,326 $ 6,357,380 $ 611,544 $ 24,049,996
============ ============ ============ =============
Accumulation units outstanding ............. 223,679 9,542,274 599,607 22,855,738
============ ============ ============ =============
Unit value ................................. $ 0.667590 $ 0.666233 $ 1.019907 $ 1.052252
============ ============ ============ =============
Wanger International Small Cap Wanger U.S. Small Cap
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------- -------------------------------
Assets
Investments at cost ....................... $2,402,583 $75,116,607 $5,028,680 $125,166,310
============ ============ ============ =============
Investment in Wanger Advisors Trust,
at market ................................ $2,578,445 $80,217,055 $7,212,993 $177,908,157
------------ ------------ ------------ -------------
Total assets ............................. 2,578,445 80,217,055 7,212,993 177,908,157
Liabilities
Accrued expenses to related party ......... 2,240 86,347 6,043 184,487
------------ ------------ ------------ -------------
Net assets ................................. $2,576,205 $80,130,708 $7,206,950 $177,723,670
============ ============ ============ =============
Accumulation units outstanding ............. 1,629,764 47,317,907 3,346,527 83,069,554
============ ============ ============ =============
Unit value ................................. $ 1.580723 $ 1.693453 $ 2.153561 $ 2.139447
============ ============ ============ =============
</TABLE>
See Notes to Financial Statements
B-7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Templeton Stock Templeton Asset Allocation
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Assets
Investments at cost ....................... $ 120,043 $8,629,013 $ 158,655 $4,623,697
========== ========== ========== ==========
Investment in Templeton Variable Products
Series Fund, at market ................... $ 123,570 $8,337,118 $ 156,857 $4,582,681
---------- ---------- ---------- ----------
Total assets ............................. 123,570 8,337,118 156,857 4,582,681
Liabilities
Accrued expenses to related party ......... 102 8,408 98 4,709
---------- ---------- ---------- ----------
Net assets ................................. $ 123,468 $8,328,710 $ 156,759 $4,577,972
========== ========== ========== ==========
Accumulation units outstanding ............. 116,076 7,840,677 151,781 4,253,720
========== ========== ========== ==========
Unit value ................................. $ 1.063678 $ 1.062244 $ 1.032795 $ 1.076228
========== ========== ========== ==========
Templeton International Templeton Developing Markets
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------- -------------------------------
Assets
Investments at cost ....................... $ 140,017 $7,497,310 $ 755,305 $4,087,410
============ =========== ============ ===========
Investment in Templeton Variable Products
Series Fund, at market ................... $ 140,066 $7,439,740 $ 486,099 $2,779,881
------------ ----------- ------------ -----------
Total assets ............................. 140,066 7,439,740 486,099 2,779,881
Liabilities
Accrued expenses to related party ......... 114 7,405 416 2,913
------------ ----------- ------------ -----------
Net assets ................................. $ 139,952 $7,432,335 $ 485,683 $2,776,968
============ =========== ============ ===========
Accumulation units outstanding ............. 143,697 6,907,592 718,420 4,166,711
============ =========== ============ ===========
Unit value ................................. $ 0.973941 $ 1.075966 $ 0.676043 $ 0.666465
============ =========== ============ ===========
</TABLE>
See Notes to Financial Statements
B-8
<PAGE>
STATEMENT OF OPERATIONS
For the period ended December 31, 1997
<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 .................................... $ 395,682 $ 3,795,830 $ 431,569 $ 6,229,740
Expenses
Mortality and expense risk charges ............... 78,109 938,941 682,753 12,345,910
---------- ----------- ----------- ------------
Net investment income (loss) ...................... 317,573 2,856,889 (251,184) (6,116,170)
---------- ----------- ----------- ------------
Net realized gain (loss) from share
transactions ..................................... -- (2) 651,146 2,194,161
Net realized gain distribution from Fund .......... -- -- 11,155,021 165,787,147
Net unrealized appreciation on investment ......... -- -- 798,285 13,193,068
---------- ------------ ----------- ------------
Net gain (loss) on investments .................... -- (2) 12,604,452 181,174,376
---------- ------------- ----------- ------------
Net increase in net assets resulting from
operations ....................................... $ 317,573 $ 2,856,887 $12,353,268 $175,058,206
========== ============ =========== ============
Multi-Sector Fixed Income Strategic Allocation
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
----------------------------- -------------------------------
Investment income
Distributions .................................... $ 954,567 $ 7,814,656 $ 1,316,557 $ 5,985,412
Expenses
Mortality and expense risk charges ............... 128,992 1,335,980 604,869 3,423,214
------------ --------------- ------------- -------------
Net investment income ............................. 825,575 6,478,676 711,688 2,562,198
------------ --------------- ------------- -------------
Net realized gain (loss) from share
transactions ..................................... (114,675) 45,661 1,152,735 1,434,265
Net realized gain distribution from Fund .......... 358,955 2,981,441 7,558,808 35,271,441
Net unrealized appreciation on investment ......... 46,689 273,117 1,401,855 8,778,795
------------ --------------- ------------- -------------
Net gain on investments ........................... 290,969 3,300,219 10,113,398 45,484,501
------------ --------------- ------------- -------------
Net increase in net assets resulting from
operations ....................................... $1,116,544 $ 9,778,895 $10,825,086 $ 48,046,699
============ =============== ============= =============
International Balanced
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
----------------------------- ------------------------------
Investment income
Distributions .................................... $ 79,328 $ 1,942,160 $ 151,720 $ 5,607,215
Expenses
Mortality and expense risk charges ............... 56,646 1,727,387 50,202 2,302,805
------------ --------------- ------------- -------------
Net investment income ............................. 22,682 214,773 101,518 3,304,410
------------ --------------- ------------- -------------
Net realized gain from share transactions ......... 50,587 310,119 36,243 462,770
Net realized gain distribution from Fund .......... 527,355 13,181,550 572,569 21,416,090
Net unrealized appreciation (depreciation) on
investment ....................................... (36,802) 81,967 65,158 2,886,598
------------ --------------- ------------- -------------
Net gain on investments ........................... 541,140 13,573,636 673,970 24,765,458
------------ --------------- ------------- -------------
Net increase in net assets resulting from
operations ....................................... $ 563,822 $13,788,409 $ 775,488 $ 28,069,868
============ =============== ============= =============
</TABLE>
See Notes to Financial Statements
B-9
<PAGE>
STATEMENT OF OPERATIONS
For the period ended December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Real Estate Strategic Theme
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions .................................... $ 20,482 $ 939,742 $ 3,428 $ 101,220
Expenses
Mortality and expense risk charges ............... 6,191 355,320 8,824 318,150
---------- ----------- ------------ ------------
Net investment income (loss) ...................... 14,291 584,422 (5,396) (216,930)
---------- ----------- ------------- ------------
Net realized gain (loss) from share
transactions ..................................... (6,669) (685) 11,994 334,455
Net realized gain distribution from Fund .......... 25,488 1,250,511 107,351 3,356,244
Net unrealized appreciation on investment ......... 75,320 3,671,800 15,658 123,526
---------- ----------- ------------- ------------
Net gain on investments ........................... 94,139 4,921,626 135,003 3,814,225
---------- ----------- ------------- ------------
Net increase in net assets resulting from
operations ....................................... $ 108,430 $ 5,506,048 $ 129,607 $ 3,597,295
========== =========== ============= ============
Aberdeen New Asia Enhanced Index
Sub-Account Sub-Account(1)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ ------------------------------
Investment income
Distributions .................................... $ 6,905 $ 282,050 $ 2,478 $ 115,068
Expenses
Mortality and expense risk charges ............... 3,442 111,674 1,094 115,796
----------- ----------- -------------- ------------
Net investment income (loss) ...................... 3,463 170,376 1,384 (728)
----------- ----------- -------------- ------------
Net realized gain (loss) from share
transactions ..................................... (26,265) (114,892) 1,253 (14,528)
Net realized gain distribution from Fund .......... 209 5,129 2,333 108,299
Net unrealized appreciation (depreciation) on
investment ....................................... (77,025) (3,327,944) 8,382 909,255
----------- ----------- -------------- ------------
Net gain (loss) on investments .................... (103,081) (3,437,707) 11,968 1,003,026
----------- ----------- -------------- ------------
Net increase (decrease) in net assets resulting
from operations .................................. $ (99,618) $(3,267,331) $ 13,352 $ 1,002,298
=========== =========== ============== ============
Wanger International Small Cap Wanger U.S. Small Cap
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ -------------------------------
Investment income
Distributions .................................... $ 70,714 $ 1,809,722 $ 119,907 $ 2,573,295
Expenses
Mortality and expense risk charges ............... 29,899 1,054,042 65,016 1,748,958
----------- ----------- -------------- ------------
Net investment income ............................. 40,815 755,680 54,891 824,337
----------- ----------- -------------- ------------
Net realized gain (loss) from share
transactions ..................................... (9,521) (186,359) 233,219 (4,456)
Net unrealized appreciation (depreciation) on
investment ....................................... (101,297) (3,451,230) 1,370,089 33,929,801
----------- ----------- -------------- ------------
Net gain (loss) on investments .................... (110,818) (3,637,589) 1,603,308 33,925,345
----------- ----------- -------------- ------------
Net increase (decrease) in net assets resulting
from operations .................................. $ (70,003) $(2,881,909) $1,658,199 $34,749,682
=========== =========== ============== ============
</TABLE>
(1) From inception July 15, 1997 to December 31, 1997
See Notes to Financial Statements
B-10
<PAGE>
STATEMENT OF OPERATIONS
For the period ended December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Templeton Stock Templeton Asset Allocation
Sub-Account(1) Sub-Account(2)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ ----------------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions .................................... $ -- $ -- $ -- $ --
Expenses
Mortality and expense risk charges ............... 2,266 38,328 388 23,633
---------- ------------- ------------ -------------
Net investment loss ............................... (2,266) (38,328) (388) (23,633)
----------- ------------- ------------- -------------
Net realized gain (loss) from share
transactions ..................................... (2,763) 1,765 251 (4,016)
Net unrealized appreciation (depreciation) on
investment ....................................... 3,527 (291,895) (1,799) (41,016)
----------- ------------- ------------- -------------
Net gain (loss) on investments .................... 764 (290,130) (1,548) (45,032)
----------- ------------- ------------- -------------
Net decrease in net assets resulting from
operations ....................................... $ (1,502) $(328,458) $ (1,936) $ (68,665)
=========== ============= ============= =============
TempletonInternational Templeton Developing Markets
Sub-Account(3) Sub-Account(4)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
---------------------------- -----------------------------------
Investment income
Distributions .................................... $ -- $ -- $ -- $ --
Expenses
Mortality and expense risk charges ............... 349 30,846 2,574 19,956
------------ ------------- --------------- -------------
Net investment loss ............................... (349) (30,846) (2,574) (19,956)
------------ ------------- --------------- -------------
Net realized loss from share transactions ......... (534) (30,517) (628) (31,490)
Net unrealized appreciation (depreciation) on
investment ....................................... 49 (57,570) (269,206) (1,307,529)
------------ ------------- --------------- -------------
Net loss on investments ........................... (485) (88,087) (269,834) (1,339,019)
------------ ------------- --------------- -------------
Net decrease in net assets resulting from
operations ....................................... $ (834) $(118,933) $ (272,408) $(1,358,975)
============ ============= =============== =============
</TABLE>
(1) From inception May 1, 1997 to December 31, 1997
(2) From inception June 2, 1997 to December 31, 1997 and May 2, 1997 to
December 31, 1997, respectively
(3) From inception July 2, 1997 to December 31, 1997 and May 5, 1997 to
December 31, 1997, respectively
(4) From inception May 15, 1997 to December 31, 1997 and May 1, 1997 to
December 31, 1997, respectively
See Notes to Financial Statements
B-11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Money Market Growth
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
-------------------------------- -------------------------------
<S> <C> <C> <C> <C>
From operations
Net investment income (loss) ................... $ 317,573 $ 2,856,889 $ (251,184) $ (6,116,170)
Net realized gain (loss) ....................... -- (2) 11,806,167 167,981,308
Net unrealized appreciation .................... -- -- 798,285 13,193,068
------------ ------------- ------------ --------------
Net increase in net assets resulting from
operations .................................... 317,573 2,856,887 12,353,268 175,058,206
------------ ------------- ------------ --------------
From accumulation unit transactions
Participant deposits ........................... 364,949 43,216,873 828,029 54,522,216
Participant transfers .......................... 509,575 (41,860,606) (1,448,045) (16,461,926)
Participant withdrawals ........................ (3,535,453) (19,277,995) (8,920,648) (75,994,916)
------------ ------------- ------------ --------------
Net increase (decrease) in net assets
resulting from participant transactions ....... (2,660,929) (17,921,728) (9,540,664) (37,934,626)
------------ ------------- ------------ --------------
Net increase (decrease) in net assets .......... (2,343,356) (15,064,841) 2,812,604 137,123,580
Net assets
Beginning of period ............................ 7,357,273 84,080,402 66,538,357 907,864,367
------------ ------------- ------------ --------------
End of period .................................. $ 5,013,917 $ 69,015,561 $ 69,350,961 $1,044,987,947
============ ============= ============ ===============
<CAPTION>
Multi-Sector
Fixed Income
Sub-Account
VA1 VA2, VA3 & GSE
-------------------------------
<S> <C> <C>
From operations
Net investment income (loss) ................... $ 825,575 $ 6,478,676
Net realized gain (loss) ....................... 244,280 3,027,102
Net unrealized appreciation .................... 46,689 273,117
------------ ------------
Net increase in net assets resulting from
operations .................................... 1,116,544 9,778,895
------------ ------------
From accumulation unit transactions
Participant deposits ........................... 105,706 8,961,354
Participant transfers .......................... 97,090 9,514,532
Participant withdrawals ........................ (2,060,231) (8,597,924)
------------ ------------
Net increase (decrease) in net assets
resulting from participant transactions ....... (1,857,435) 9,877,962
------------ ------------
Net increase (decrease) in net assets .......... (740,891) 19,656,857
Net assets
Beginning of period ............................ 15,474,943 99,413,896
------------ ------------
End of period .................................. $ 14,734,052 $119,070,753
============ ============
<CAPTION>
Strategic Allocation International
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------- ------------------------------
<S> <C> <C> <C> <C>
From operations
Net investment income .......................... $ 711,688 $ 2,562,198 $ 22,682 $ 214,773
Net realized gain .............................. 8,711,543 36,705,706 577,942 13,491,669
Net unrealized appreciation (depreciation) ..... 1,401,855 8,778,795 (36,802) 81,967
------------- --------------- ------------ ----------------
Net increase in net assets resulting from
operations .................................... 10,825,086 48,046,699 563,822 13,788,409
------------- --------------- ------------ ----------------
From accumulation unit transactions
Participant deposits ........................... 1,144,584 12,806,385 195,241 7,443,575
Participant transfers .......................... (3,215,988) (13,007,386) (280,514) (3,359,763)
Participant withdrawals ........................ (6,275,860) (22,249,083) (495,643) (10,964,815)
------------- --------------- ------------ ----------------
Net decrease in net assets resulting from
participant transactions ..................... (8,347,264) (22,450,084) (580,916) (6,881,003)
------------- --------------- ------------ ----------------
Net increase (decrease) in net assets .......... 2,477,822 25,596,615 (17,094) 6,907,406
Net assets
Beginning of period ............................ 58,316,932 259,180,087 5,391,493 128,032,685
------------- --------------- ------------ ----------------
End of period .................................. $ 60,794,754 $284,776,702 $ 5,374,399 $ 134,940,091
============= =============== ============ ================
<CAPTION>
Balanced
Sub-Account
VA1 VA2, VA3 & GSE
-----------------------------
<S> <C> <C>
From operations
Net investment income .......................... $ 101,518 $ 3,304,410
Net realized gain .............................. 608,812 21,878,860
Net unrealized appreciation (depreciation) ..... 65,158 2,886,598
------------ ------------
Net increase in net assets resulting from
operations .................................... 775,488 28,069,868
------------ ------------
From accumulation unit transactions
Participant deposits ........................... 29,263 7,431,032
Participant transfers .......................... (105,010) (3,701,822)
Participant withdrawals ........................ (552,520) (16,324,265)
------------ ------------
Net decrease in net assets resulting from
participant transactions ..................... (628,267) (12,595,055)
------------ ------------
Net increase (decrease) in net assets .......... 147,221 15,474,813
Net assets
Beginning of period ............................ 4,916,754 176,156,478
------------ ------------
End of period .................................. $ 5,063,975 $191,631,291
============ ============
</TABLE>
See Notes to Financial Statements
B-12
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Real Estate Strategic Theme
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
From operations
Net investment income (loss) ................... $ 14,291 $ 584,422 $ (5,396) $ (216,930)
Net realized gain (loss) ....................... 18,819 1,249,826 119,345 3,690,699
Net unrealized appreciation (depreciation) ..... 75,320 3,671,800 15,658 123,526
----------- ----------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations ..................... 108,430 5,506,048 129,607 3,597,295
----------- ----------- ---------- -----------
From accumulation unit transactions
Participant deposits ........................... 39,982 4,865,141 28,393 4,877,862
Participant transfers .......................... 400,830 9,067,768 269,989 5,604,657
Participant withdrawals ........................ (90,794) (2,087,042) (173,003) (3,893,147)
----------- ----------- ---------- -----------
Net increase (decrease) in net assets
resulting from participant transactions ....... 350,018 11,845,867 125,379 6,589,372
----------- ----------- ---------- -----------
Net increase (decrease) in net assets .......... 458,448 17,351,915 254,986 10,186,667
Net assets
Beginning of period ............................ 287,431 19,373,257 673,988 18,884,029
----------- ----------- ---------- -----------
End of period .................................. $ 745,879 $36,725,172 $ 928,974 $29,070,696
=========== =========== ========== ===========
<CAPTION>
Aberdeen New Asia
Sub-Account
VA1 VA2, VA3 & GSE
------------------------------
<S> <C> <C>
From operations
Net investment income (loss) ................... $ 3,463 $ 170,376
Net realized gain (loss) ....................... (26,056) (109,763)
Net unrealized appreciation (depreciation) ..... (77,025) (3,327,944)
---------- ------------
Net increase (decrease) in net assets
resulting from operations ..................... (99,618) (3,267,331)
---------- ------------
From accumulation unit transactions
Participant deposits ........................... 14,600 1,539,143
Participant transfers .......................... (107,286) 396,202
Participant withdrawals ........................ (52,465) (419,327)
---------- ------------
Net increase (decrease) in net assets
resulting from participant transactions ....... (145,151) 1,516,018
---------- ------------
Net increase (decrease) in net assets .......... (244,769) (1,751,313)
Net assets
Beginning of period ............................ 394,095 8,108,693
---------- ------------
End of period .................................. $ 149,326 $ 6,357,380
========== ============
<CAPTION>
Enhanced Index Wanger International Small Cap
Sub-Account(1) Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
--------------------------- -------------------------------
<S> <C> <C> <C> <C>
From operations
Net investment gain (loss) ..................... $ 1,384 $ (728) $ 40,815 $ 755,680
Net realized gain (loss) ....................... 3,586 93,771 (9,521) (186,359)
Net unrealized appreciation (depreciation) ..... 8,382 909,255 (101,297) (3,451,230)
------------ ----------- ------------ -----------
Net increase (decrease) in net assets
resulting from operations ..................... 13,352 1,002,298 (70,003) (2,881,909)
------------ ----------- ------------ -----------
From accumulation unit transactions
Participant deposits ........................... -- 16,296,893 98,602 12,346,480
Participant transfers .......................... 617,780 6,831,680 370,333 9,272,247
Participant withdrawals ........................ (19,588) (80,875) (467,094) (4,420,824)
------------ ----------- ------------ -----------
Net increase in net assets resulting
from participant transactions ................. 598,192 23,047,698 1,841 17,197,903
------------ ----------- ------------ -----------
Net increase (decrease) in net assets .......... 611,544 24,049,996 (68,162) 14,315,994
Net assets
Beginning of period ............................ -- -- 2,644,367 65,814,714
------------ ----------- ------------ -----------
End of period .................................. $ 611,544 $24,049,996 $2,576,205 $80,130,708
============ =========== ============ ===========
<CAPTION>
Wanger U.S. Small Cap
Sub-Account
VA1 VA2, VA3 & GSE
----------------------------
<S> <C> <C>
From operations
Net investment gain (loss) ..................... $ 54,891 $ 824,337
Net realized gain (loss) ....................... 233,219 (4,456)
Net unrealized appreciation (depreciation) ..... 1,370,089 33,929,801
----------- ------------
Net increase (decrease) in net assets
resulting from operations ..................... 1,658,199 34,749,682
----------- ------------
From accumulation unit transactions
Participant deposits ........................... 226,132 18,307,137
Participant transfers .......................... 1,421,314 32,938,503
Participant withdrawals ........................ (951,778) (6,387,812)
----------- ------------
Net increase in net assets resulting
from participant transactions ................. 695,668 44,857,828
----------- ------------
Net increase (decrease) in net assets .......... 2,353,867 79,607,510
Net assets
Beginning of period ............................ 4,853,083 98,116,160
----------- ------------
End of period .................................. $7,206,950 $177,723,670
=========== ============
</TABLE>
(1) From inception July 15, 1997 to December 31, 1997
See Notes to Financial Statements
B-13
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Templeton Stock Templeton Asset Allocation
Sub-Account(1) Sub-Account(2)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ --------------------------------
<S> <C> <C> <C> <C>
From operations
Net investment loss .............................. $ (2,266) $ (38,328) $ (388) $ (23,633)
Net realized gain (loss) ......................... (2,763) 1,765 251 (4,016)
Net unrealized appreciation (depreciation) ....... 3,527 (291,895) (1,799) (41,016)
------------- ------------- ------------- --------------
Net decrease in net assets resulting
from operations ................................. (1,502) (328,458) (1,936) (68,665)
------------- ------------- ------------- --------------
From accumulation unit transactions
Participant deposits ............................. 13,373 2,559,783 1,844 1,407,620
Participant transfers ............................ 214,990 6,188,689 156,708 3,270,467
Participant withdrawals .......................... (103,393) (91,304) 143 (31,450)
------------- ------------- ------------- --------------
Net increase in net assets resulting
from participant transactions ................... 124,970 8,657,168 158,695 4,646,637
------------- ------------- ------------- --------------
Net increase in net assets ....................... 123,468 8,328,710 156,759 4,577,972
Net assets
Beginning of period .............................. -- -- -- --
------------- ------------- ------------- --------------
End of period .................................... $ 123,468 $8,328,710 $ 156,759 $4,577,972
============= ============= ============= ==============
Templeton International Templeton Developing Markets
Sub-Account(3) Sub-Account(4)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
----------------------------- --------------------------------
From operations
Net investment loss .............................. $ (349) $ (30,846) $ (2,574) $ (19,956)
Net realized loss ................................ (534) (30,517) (628) (31,490)
Net unrealized appreciation (depreciation) ....... 49 (57,570) (269,206) (1,307,529)
-------------- ------------- -------------- --------------
Net decrease in net assets resulting
from operations ................................. (834) (118,933) (272,408) (1,358,975)
-------------- ------------- -------------- --------------
From accumulation unit transactions
Participant deposits ............................. 1,844 1,675,418 30,844 1,194,747
Participant transfers ............................ 154,862 5,935,831 727,845 3,007,872
Participant withdrawals .......................... (15,920) (59,981) (598) (66,676)
-------------- ------------- -------------- --------------
Net increase in net assets resulting
from participant transactions ................... 140,786 7,551,268 758,091 4,135,943
-------------- ------------- -------------- --------------
Net increase in net assets ....................... 139,952 7,432,335 485,683 2,776,968
Net assets
Beginning of period .............................. -- -- -- --
-------------- ------------- -------------- --------------
End of period .................................... $ 139,952 $7,432,335 $ 485,683 $2,776,968
============== ============= ============== ==============
</TABLE>
(1) From inception May 1, 1997 to December 31, 1997
(2) From inception June 2, 1997 to December 31, 1997 and May 2, 1997 to
December 31, 1997, respectively
(3) From inception July 2, 1997 to December 31, 1997 and May 5, 1997 to
December 31, 1997, respectively
(4) From inception May 15, 1997 to December 31, 1997 and May 1, 1997 to
December 31, 1997, respectively
See Notes to Financial Statements
B-14
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
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>
From operations
Net investment income (loss) ................... $ 315,546 $ 2,669,182 $ (40,837) $ (2,437,516)
Net realized gain .............................. -- -- 4,949,627 61,339,837
Net unrealized appreciation (depreciation) ..... -- -- 2,358,935 31,685,702
------------ ------------ ------------ ------------
Net increase in net assets resulting from
operations .................................... 315,546 2,669,182 7,267,725 90,588,023
------------ ------------ ------------ ------------
From accumulation unit transactions
Participant deposits ........................... 413,122 62,414,283 1,163,841 98,787,397
Participant transfers .......................... 2,086,813 (38,766,038) (3,027,275) (9,399,903)
Participant withdrawals ........................ (2,528,258) (16,292,176) (6,317,461) (35,720,970)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from participant transactions ....... (28,323) 7,356,069 (8,180,895) 53,666,524
------------ ------------ ------------ ------------
Net increase (decrease) in net assets .......... 287,223 10,025,251 (913,170) 144,254,547
Net assets
Beginning of period ............................ 7,070,050 74,055,151 67,451,527 763,609,820
------------ ------------ ------------ ------------
End of period .................................. $ 7,357,273 $ 84,080,402 $ 66,538,357 $907,864,367
============ ============ ============ ============
<CAPTION>
Multi-Sector
Fixed Income
Sub-Account
VA1 VA2, VA3 & GSE
-------------------------------
<S> <C> <C>
From operations
Net investment income (loss) ................... $ 853,597 $ 5,657,923
Net realized gain .............................. 1,001,417 2,949,781
Net unrealized appreciation (depreciation) ..... (396,876) 940,530
------------ ------------
Net increase in net assets resulting from
operations .................................... 1,458,138 9,548,234
------------ ------------
From accumulation unit transactions
Participant deposits ........................... 265,897 12,251,810
Participant transfers .......................... (34,417) 544,623
Participant withdrawals ........................ (1,143,820) (7,038,518)
------------ ------------
Net increase (decrease) in net assets
resulting from participant transactions ....... (912,340) 5,757,915
------------ ------------
Net increase (decrease) in net assets .......... 545,798 15,306,149
Net assets
Beginning of period ............................ 14,929,145 84,107,747
------------ ------------
End of period .................................. $ 15,474,943 $ 99,413,896
============ ============
<CAPTION>
Strategic Allocation International
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
From operations
Net investment income .......................... $ 706,749 $ 2,395,211 $ 23,532 $ 313,994
Net realized gain .............................. 4,196,303 16,710,729 185,841 3,004,462
Net unrealized appreciation (depreciation) ..... (264,359) 143,413 649,224 15,512,070
------------- ------------ ------------ ------------
Net increase in net assets resulting from
operations .................................... 4,638,693 19,249,353 858,597 18,830,526
------------- ------------ ------------ ------------
From accumulation unit transactions
Participant deposits ........................... 921,673 21,807,365 123,786 9,967,892
Participant transfers .......................... (4,520,404) (17,991,179) (238,308) (340,043)
Participant withdrawals ........................ (6,234,965) (15,780,165) (527,123) (7,580,723)
------------- ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from participant transactions ....... (9,833,696) (11,963,979) (641,645) 2,047,126
------------- ------------ ------------ ------------
Net increase (decrease) in net assets .......... (5,195,003) 7,285,374 216,952 20,877,652
Net assets
Beginning of period ............................ 63,511,935 251,894,713 5,174,541 107,155,033
------------- ------------ ------------ ------------
End of period .................................. $ 58,316,932 $259,180,087 $ 5,391,493 $128,032,685
============= ============ ============ ============
<CAPTION>
Balanced
Sub-Account
VA1 VA2, VA3 & GSE
-----------------------------
<S> <C> <C>
From operations
Net investment income .......................... $ 88,622 $ 2,669,801
Net realized gain .............................. 490,865 16,125,136
Net unrealized appreciation (depreciation) ..... (130,224) (3,383,807)
------------ ------------
Net increase in net assets resulting from
operations .................................... 449,263 15,411,130
------------ ------------
From accumulation unit transactions
Participant deposits ........................... 69,850 13,546,555
Participant transfers .......................... (770,120) (12,855,150)
Participant withdrawals ........................ (362,102) (12,633,674)
------------ ------------
Net increase (decrease) in net assets
resulting from participant transactions ....... (1,062,372) (11,942,269)
------------ ------------
Net increase (decrease) in net assets .......... (613,109) 3,468,861
Net assets
Beginning of period ............................ 5,529,863 172,687,617
------------ ------------
End of period .................................. $ 4,916,754 $176,156,478
============ ============
</TABLE>
See Notes to Financial Statements
B-15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
(Continued)
<TABLE>
<CAPTION>
Real Estate
Sub-Account
VA1 VA2, VA3 & GSE
-----------------------------
<S> <C> <C>
From operations
Net investment income (loss) .............. $ 3,849 $ 337,675
Net realized gain (loss) .................. 3,375 210,469
Net unrealized appreciation (depreciation) 42,397 3,218,688
---------- -----------
Net increase (decrease) in net assets
resulting from operations ................ 49,621 3,766,832
---------- -----------
From accumulation unit transactions
Participant deposits ...................... 21,937 1,419,253
Participant transfers ..................... 203,153 6,126,595
Participant withdrawals ................... (26,582) (127,550)
---------- -----------
Net increase in net assets resulting
from participant transactions ............ 198,508 7,418,298
---------- -----------
Net increase in net assets ................ 248,129 11,185,130
Net assets
Beginning of period ....................... 39,302 8,188,127
---------- -----------
End of period ............................. $ 287,431 $19,373,257
========== ===========
<CAPTION>
Strategic Theme Aberdeen New Asia
Sub-Account(1) Sub-Account(2)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
----------------------------- --------------------------
<S> <C> <C> <C> <C>
From operations
Net investment income (loss) .............. $ (888) $ (75,570) $ 1,058 $ 18,632
Net realized gain (loss) .................. 1,447 131,998 (15) 1,853
Net unrealized appreciation (depreciation) 20,742 755,902 (1,776) (12,629)
---------- ----------- -------- ----------
Net increase (decrease) in net assets
resulting from operations ................ 21,301 812,330 (733) 7,856
---------- ----------- -------- ----------
From accumulation unit transactions
Participant deposits ...................... 97,264 11,116,071 -- 744,784
Participant transfers ..................... 557,249 7,104,135 396,531 7,370,328
Participant withdrawals ................... (1,826) (148,507) (1,703) (14,275)
---------- ----------- -------- ----------
Net increase in net assets resulting
from participant transactions ............ 652,687 18,071,699 394,828 8,100,837
---------- ----------- -------- ----------
Net increase in net assets ................ 673,988 18,884,029 394,095 8,108,693
Net assets
Beginning of period ....................... -- -- -- --
---------- ----------- -------- ----------
End of period ............................. $ 673,988 $18,884,029 $394,095 $8,108,693
========== =========== ======== ==========
Wanger International Small Cap Wanger U.S. Small Cap
Sub-Account Sub-Account
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
---------------------------- ----------------------------
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-16
<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). The account is organized as a unit investment trust and currently
consists of sixteen Sub-accounts and invests in corresponding series of The
Phoenix Edge Series Fund, Wanger Advisors Trust and the Templeton Variable
Products Series Fund (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, Strategic Allocation (formerly Total Return), International, Balanced,
Real Estate, Strategic Theme, Aberdeen New Asia, Research Enhanced Index
("Enhanced Index"), Wanger International Small Cap, Wanger U.S. Small Cap,
Templeton Stock, Templeton Asset Allocation, Templeton International and
Templeton Developing Markets 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
Strategic Allocation Series invests in equity securities and long and
short-term debt. The International Series invests primarily in an
internationally diversified portfolio of equity securities. 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. The Research Enhanced Index ("Enhanced
Index") Series invests in a broadly diversified portfolio of equity securities
of large and medium capitalization companies within market sectors reflected in
the S&P 500. 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. The Templeton Stock Fund invests primarily in common stocks
issued by companies, large and small, in various nations throughout the world.
The Templeton Asset Allocation Fund invests in stocks of companies in any
nation, debt obligations of companies and governments of any nation, and money
market instruments. The Templeton International Fund invests in stocks and debt
obligations of companies and governments outside the United States, and the
Templeton Developing Markets Fund invests primarily in equity securities of
issuers in countries having developing markets. 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 taxes is required.
D. Distributions: Distributions are recorded 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, 1997 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 .............................. $19,996,117 $22,341,049 $ 93,490,661 $108,568,592
Growth .................................... 15,291,803 13,928,303 207,948,090 86,097,141
Multi-Sector Fixed Income ................. 10,878,333 11,552,201 35,121,140 15,762,659
Strategic Allocation ...................... 9,871,470 9,947,388 46,613,050 31,208,725
International ............................. 1,454,621 1,485,532 27,431,757 20,907,393
Balanced .................................. 1,753,005 1,707,168 33,422,434 21,284,514
Real Estate ............................... 787,062 396,881 23,362,457 9,662,722
Strategic Theme ........................... 416,089 188,554 16,448,618 6,709,849
Aberdeen New Asia ......................... 75,826 217,508 4,439,217 2,749,148
Enhanced Index ............................ 684,560 82,315 24,075,329 895,458
Wanger Advisors Trust:
Wanger International Small Cap ............ 1,292,513 1,249,765 30,149,821 12,177,091
Wanger U.S. Small Cap ..................... 7,680,502 6,927,839 57,651,650 11,883,138
The Templeton Variable Products Series Fund:
Stock ..................................... 1,459,381 1,336,575 9,033,866 406,617
Asset Allocation .......................... 219,501 61,096 4,976,725 349,013
International ............................. 156,161 15,611 14,241,802 6,713,975
Developing Markets ........................ 793,940 38,007 4,863,661 744,761
</TABLE>
B-17
<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
Market Growth Fixed Income
--------------- -------------- --------------
<S> <C> <C> <C>
VA1
Units outstanding, beginning of period ...... 3,459,902 7,215,152 4,114,438
Participant deposits ........................ 168,431 79,829 27,284
Participant transfers ....................... 254,663 (138,633) (38,579)
Participant withdrawals ..................... (1,618,809) (883,521) (546,783)
------------ --------- ---------
Units outstanding, end of period ............ 2,264,187 6,272,827 3,556,360
============ ========= =========
VA2, VA3
Big Edge Plus:
Units outstanding, beginning of period ...... 38,882,041 96,119,114 26,225,650
Participant deposits ........................ 18,950,015 4,746,443 2,169,432
Participant transfers ....................... (18,930,004) (1,586,367) 2,421,404
Participant withdrawals ..................... (8,158,027) (7,004,369) (2,194,740)
-------------- ---------- ------------
Units outstanding, end of period ............ 30,744,025 92,274,821 28,621,746
============== ========== ============
Group Strategic Edge:
Units outstanding, beginning of period ...... 1,648,109 4,764,103 853,737
Participant deposits ........................ 884,757 773,620 222,330
Participant transfers ....................... 246,873 (96,723) 4,397
Participant withdrawals ..................... (1,498,405) (616,515) (101,422)
-------------- ---------- ------------
Units outstanding, end of period ............ 1,281,334 4,824,485 979,042
============== ========== ============
Sub-Account
------------------------------------------------
Strategic
Allocation International Balanced
--------------- ---------------- ---------------
VA1
Units outstanding, beginning of period ...... 15,340,867 3,336,546 3,271,238
Participant deposits ........................ 277,021 111,485 18,644
Participant transfers ....................... (777,021) (174,788) (55,482)
Participant withdrawals ..................... (1,462,611) (275,132) (349,110)
---------- --------- ---------
Units outstanding, end of period ............ 13,378,256 2,998,111 2,885,290
========== ========= =========
VA2, VA3
Big Edge Plus:
Units outstanding, beginning of period ...... 68,322,391 78,251,534 115,814,646
Participant deposits ........................ 2,717,555 3,504,973 4,252,236
Participant transfers ....................... (3,025,586) (1,835,577) (2,354,537)
Participant withdrawals ..................... (5,266,187) (5,941,863) (9,470,746)
---------- ------------ -------------
Units outstanding, end of period ............ 62,748,173 73,979,067 108,241,599
========== ============ =============
Group Strategic Edge:
Units outstanding, beginning of period ...... 1,578,300 2,283,782 2,757,385
Participant deposits ........................ 382,242 903,361 458,018
Participant transfers ....................... (109,082) 102,317 (66,357)
Participant withdrawals ..................... (192,633) (565,010) (655,380)
---------- ------------ -------------
Units outstanding, end of period ............ 1,658,827 2,724,450 2,493,666
========== ============ =============
<CAPTION>
Sub-Account
---------------------------------------------
Strategic Aberdeen
Real Estate Theme New Asia
--------------- ----------- --------------
<S> <C> <C> <C>
VA1
Units outstanding, beginning of period ...... 188,753 620,567 395,033
Participant deposits ........................ 24,734 23,596 14,646
Participant transfers ....................... 248,681 232,163 (130,783)
Participant withdrawals ..................... (56,874) (139,064) (55,217)
-------------- ---------- ------------
Units outstanding, end of period ............ 405,294 737,262 223,679
============== ========== ============
VA2, VA3
Big Edge Plus:
Units outstanding, beginning of period ...... 12,357,449 17,000,975 8,107,984
Participant deposits ........................ 2,390,217 3,873,006 1,403,501
Participant transfers ....................... 5,291,355 4,644,302 172,592
Participant withdrawals ..................... (1,096,877) (3,103,649) (389,355)
-------------- ---------- ------------
Units outstanding, end of period ............ 18,942,144 22,414,634 9,294,722
============== ========== ============
Group Strategic Edge:
Units outstanding, beginning of period ...... 256,752 310,442 16,747
Participant deposits ........................ 613,730 289,130 222,982
Participant transfers ....................... 142,121 56,860 55,208
Participant withdrawals ..................... (119,662) (43,579) (47,385)
-------------- ---------- ------------
Units outstanding, end of period ............ 892,941 612,853 247,552
============== ========== ============
Sub-Account
-----------------------------------------------
Wanger
Enhanced International Wanger U.S.
Index Small Cap Small Cap
------------- ---------------- ---------------
VA1
Units outstanding, beginning of period ...... -- 1,632,016 2,887,671
Participant deposits ........................ -- 58,352 123,068
Participant transfers ....................... 619,106 214,743 820,968
Participant withdrawals ..................... (19,499) (275,347) (485,180)
------------- ------------ --------------
Units outstanding, end of period ............ 599,607 1,629,764 3,346,527
============= ============ ==============
VA2, VA3
Big Edge Plus:
Units outstanding, beginning of period ...... -- 37,110,120 57,510,326
Participant deposits ........................ 15,742,750 5,800,556 8,601,492
Participant transfers ....................... 6,781,144 4,900,906 17,253,115
Participant withdrawals ..................... (68,499) (2,199,391) (3,162,263)
------------- ------------ --------------
Units outstanding, end of period ............ 22,455,395 45,612,191 80,202,670
============= ============ ==============
Group Strategic Edge:
Units outstanding, beginning of period ...... -- 710,006 1,113,171
Participant deposits ........................ 265,778 1,016,690 1,311,822
Participant transfers ....................... 134,611 173,049 664,751
Participant withdrawals ..................... (46) (194,029) (222,860)
------------- ------------ --------------
Units outstanding, end of period ............ 400,343 1,705,716 2,866,884
============= ============ ==============
</TABLE>
B-18
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
NOTES TO FINANCIAL STATEMENTS
Note 4--Participant Accumulation Unit Transactions (in units) (continued)
<TABLE>
<CAPTION>
Templeton Templeton
Templeton Asset Templeton Developing
Stock Allocation International Markets
------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
VA1
Units outstanding, beginning of period ......... -- -- -- --
Participant deposits ........................... 11,992 1,734 1,824 31,155
Participant transfers .......................... 194,767 150,051 157,030 687,893
Participant withdrawals ........................ (90,683) (4) (15,157) (628)
------- ---------- ------- -------
Units outstanding, end of period ............... 116,076 151,781 143,697 718,420
======= ========= ======= =======
VA2, VA3
Big Edge Plus:
Units outstanding, beginning of period ......... -- -- -- --
Participant deposits ........................... 2,095,065 1,220,247 1,225,309 1,094,099
Participant transfers .......................... 5,554,846 2,988,103 5,359,434 2,955,129
Participant withdrawals ........................ (108,965) (75,391) (35,917) (106,062)
--------- ---------- --------- ---------
Units outstanding, end of period ............... 7,540,946 4,132,959 6,548,826 3,943,166
========= ========== ========= =========
Group Strategic Edge:
Units outstanding, beginning of period ......... -- -- -- --
Participant deposits ........................... 239,925 105,145 285,384 229,331
Participant transfers .......................... 91,425 18,233 94,565 19,690
Participant withdrawals ........................ (31,619) (2,617) (21,183) (25,476)
--------- ---------- --------- ---------
Units outstanding, end of period ............... 299,731 120,761 358,766 223,545
========= ========== ========= =========
</TABLE>
B-19
<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, 1997 aggregated $1,424,769 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 $2,437,213 for the year ended December 31, 1997.
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-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
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,
Strategic Allocation Sub-Account, International Sub-Account, Balanced
Sub-Account, Real Estate Sub-Account, Strategic Theme Sub-Account, Aberdeen New
Asia Sub-Account, Enhanced Index Sub-Account, Wanger International Small Cap
Sub-Account, Wanger U.S. Small Cap Sub-Account, Templeton Stock Sub-Account,
Templeton Asset Allocation Sub-Account, Templeton International Sub-Account and
Templeton Developing Markets Sub-Account (constituting the Phoenix Home Life
Variable Accumulation Account, hereafter referred to as the "Account") at
December 31, 1997 and the results of each of their operations 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, 1997 by
correspondence with the Funds' custodians, provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
Hartford, Connecticut
February 19, 1998
B-21
<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, Enhanced Index Series)
P.O. Box 351
Boston, Massachusetts 02101
Independent Accountants
Price Waterhouse LLP
One Financial Plaza
Hartford, Connecticut 06103
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
B-23
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants ..........................................B-25
Consolidated Balance Sheet at December 31, 1997 and 1996 ...................B-26
Consolidated Statement of Income and Equity for the Years Ended
December 31, 1997, 1996 and 1995 .........................................B-27
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 ..........................................B-28
Notes to Consolidated Financial Statements ............................B-29-B-55
B-24
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
[LOGO] PRICE WATERHOUSE LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 11, 1998
To the Board of Directors
and Policyholders of
Phoenix Home Life Mutual Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, 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
B-25
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Held-to-maturity debt securities, at amortized cost $ 1,554,905 $ 1,555,685
Available-for-sale debt securities, at fair value 5,659,061 4,895,393
Equity securities, at fair value 373,388 235,351
Mortgage loans 927,501 947,076
Real estate 321,757 410,945
Policy loans 1,986,728 1,667,784
Other invested assets 262,675 218,119
Short-term investments 1,078,276 164,967
------------------ -----------------
Total investments 12,164,291 10,095,320
Cash and cash equivalents 159,307 172,895
Accrued investment income 149,566 135,475
Deferred policy acquisition costs 1,038,407 926,274
Premiums, accounts and notes receivable 99,468 79,354
Reinsurance recoverables 66,649 46,251
Property and equipment, net 156,190 137,231
Goodwill and other intangible assets, net 541,499 313,507
Other assets 61,087 134,589
Separate account assets 4,082,255 3,412,152
------------------ -----------------
Total assets $ 18,518,719 $ 15,453,048
================== =================
LIABILITIES
Policy liabilities and accruals $ 11,334,014 $ 9,462,039
Securities sold subject to repurchase agreements 137,473
Other indebtedness 471,085 490,430
Deferred income taxes 143,821 61,934
Other liabilities 585,467 499,940
Separate account liabilities 4,082,255 3,412,152
------------------ -----------------
Total liabilities 16,754,115 13,926,495
Contingent liabilities (Note 17)
MINORITY INTEREST IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES 136,514 129,084
POLICYHOLDERS' EQUITY 1,628,090 1,397,469
------------------ -----------------
Total liabilities and policyholders' equity $ 18,518,719 $ 15,453,048
================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
B-26
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premiums $ 1,640,606 $ 1,518,822 $ 1,456,875
Insurance and investment product fees 468,030 421,058 324,459
Net investment income 736,874 689,890 662,468
Net realized investment gains 142,770 95,265 74,738
--------------- --------------- --------------
Total revenues 2,988,280 2,725,035 2,518,540
--------------- --------------- --------------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses 1,633,633 1,529,573 1,471,030
Policyholder dividends 343,725 311,739 289,469
Policy acquisition expenses 248,726 242,363 221,339
Other operating expenses 531,597 452,399 419,231
--------------- --------------- --------------
Total benefits, losses and expenses 2,757,681 2,536,074 2,401,069
--------------- --------------- --------------
OPERATING INCOME 230,599 188,961 117,471
NON-OPERATING INCOME
Gain on merger transactions 40,580
--------------- --------------- --------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 230,599 188,961 158,051
Income taxes 57,069 79,331 43,352
--------------- --------------- --------------
INCOME BEFORE MINORITY INTEREST 173,530 109,630 114,699
Minority interest in net income of consolidated subsidiaries 8,882 8,902 950
--------------- --------------- --------------
NET INCOME 164,648 100,728 113,749
Change in net unrealized investment gains, net of income taxes 65,973 15,154 99,518
--------------- --------------- --------------
INCREASE IN POLICYHOLDERS' EQUITY 230,621 115,882 213,267
POLICYHOLDERS' EQUITY, BEGINNING OF YEAR 1,397,469 1,281,587 1,068,320
--------------- --------------- --------------
POLICYHOLDERS' EQUITY, END OF YEAR $ 1,628,090 $ 1,397,469 $ 1,281,587
=============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
B-27
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 164,648 $ 100,728 $ 113,749
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATIONS
Net realized investment gains (142,770) (95,265) (74,738)
Net gain on mergers (40,580)
Amortization and depreciation 90,565 64,870 58,912
Deferred income taxes (benefit) 2,555 14,774 (16,236)
(Increase) decrease in receivables (49,172) 5,955 (30,130)
Increase in deferred policy acquisition costs (48,860) (61,985) (26,370)
Increase in policy liabilities and accruals 512,476 559,724 537,919
Increase (decrease) in other assets/other liabilities, net 44,269 (66,337) 95,880
Other, net 5,832 (652) 4,203
-------------- ----------------- --------------
Net cash provided by operating activities 579,543 521,812 622,609
-------------- ----------------- --------------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from maturities or repayments of
available-for-sale debt securities 1,187,943 1,348,809 1,145,146
Proceeds from maturities or repayments of
held-to-maturity debt securities 217,302 118,596 143,773
Proceeds from disposals of equity securities 51,373 382,359 329,104
Proceeds from mortgage loan maturities or repayments 164,213 151,760 186,172
Proceeds from sale of other invested assets 218,874 127,440 148,546
Purchase of available-for-sale debt securities (1,689,479) (1,909,086) (1,614,387)
Purchase of held-to-maturity debt securities (225,722) (385,321) (247,354)
Purchase of equity securities (88,573) (215,104) (282,488)
Purchase of subsidiaries (246,400)
Purchase of mortgage loans (140,831) (200,683) (93,097)
Purchase of other invested assets (90,593) (157,077) (73,482)
Change in short term investments, net 58,384 110,503 (166,445)
Increase in policy loans (59,699) (49,912) (32,387)
Capital expenditures (41,504) (3,543) (18,449)
Other investing activities, net (1,750) (5,898) (12,704)
-------------- ----------------- --------------
Net cash used for investing activities (686,462) (687,157) (588,052)
-------------- ----------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES
Withdrawals of contractholder deposit funds,
net of deposits and interest credited (17,902) (6,301) (154,100)
Proceeds from securities sold subject to
repurchase agreements 137,472
Proceeds from borrowings 215,359 226,082 177,922
Repayment of borrowings (234,703) (2,400) (12,726)
Dividends paid to minority shareholders (6,895) (6,245) (31,215)
-------------- ----------------- --------------
Net cash provided by (used for) financing activities 93,331 211,136 (20,119)
-------------- ----------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (13,588) 45,791 14,438
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 172,895 127,104 112,666
-------------- ----------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 159,307 $ 172,895 $ 127,104
============== ================= ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net $ 76,167 $ 76,157 $ 33,399
Interest paid on indebtedness $ 32,300 $ 19,214 $ 8,100
</TABLE>
The accompanying notes are an integral part of these statements.
B-28
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Phoenix Home Life Mutual Insurance Company (Phoenix) 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
Insurance, Group Life and Health Insurance, 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
significant subsidiaries. Less than majority-owned entities in which
Phoenix has at least a 20% interest or those where Phoenix 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, income taxes, contingencies and valuation allowances for
investment assets are discussed throughout the Notes to Consolidated
Financial Statements. Significant intercompany accounts and transactions
have been eliminated. Certain reclassifications have been made to the 1996
and 1995 amounts to conform with the 1997 presentation.
VALUATION OF INVESTMENTS
Investments in debt securities include bonds, asset-backed securities
including collateralized mortgage obligations and redeemable preferred
stocks. Phoenix classifies its debt securities as either held-to-maturity
or available-for-sale investments. Debt securities held-to-maturity consist
of private placement bonds reported at amortized cost, net of impairments,
that management intends and has the ability to hold until maturity. Debt
securities available-for-sale are reported at fair value with unrealized
gains or losses included in policyholders' equity and consist of public
bonds and preferred stocks that management may not hold until maturity.
Debt securities are considered impaired when a decline in value is
considered to be other than temporary.
Equity securities are reported at fair value based principally on their
quoted market prices with unrealized gains or losses included in
policyholders' equity. 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 Phoenix 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.
B-29
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Real estate, all of which is held for sale, is 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:
property valuation techniques utilizing discounted cash flows at the time
of stabilization including capital expenditures and stabilization costs;
sales of comparable properties; geographic location of the property and
related market conditions; and 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 partnership interests) are carried at cost
adjusted for Phoenix'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 Phoenix 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 debt securities and equity
securities classified as available-for-sale are included as a separate
component of policyholders' equity, net of deferred income taxes and
deferred policy acquisition costs.
FINANCIAL INSTRUMENTS
In the normal course of business, Phoenix enters into transactions
involving various types of financial instruments, including debt,
investments such as debt securities, 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.
B-30
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
GOODWILL AND OTHER 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. Other
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 other 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 Phoenix. 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.
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.
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.
B-31
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
POLICYHOLDERS' DIVIDENDS
Certain life insurance policies contain dividend payment provisions that
enable the policyholder to participate in the earnings of Phoenix. The
amount of policyholders' dividends to be paid is determined annually by
Phoenix'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 Phoenix's judgment as to the
appropriate level of statutory surplus to be retained. At the end of the
reporting period, Phoenix establishes a dividend liability for the pro-rata
portion of the dividends payable on the next anniversary of each policy.
Phoenix also establishes a liability for termination dividends.
INCOME TAXES
Phoenix and its eligible affiliated companies have elected to file a
life/nonlife consolidated federal income tax return for the years ended
December 31, 1997, 1996 and 1995. 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.
As a mutual life insurance company, Phoenix is required to reduce its
income tax deduction for policyholder dividends by the differential
earnings amount, defined as the difference between the earnings rates of
stock and mutual companies applied against an adjusted base of
policyholders' surplus.
3. SIGNIFICANT TRANSACTIONS
CONFEDERATION LIFE
On December 31, 1997, Phoenix acquired the individual life and
single-premium deferred annuity business of the former Confederation Life
Insurance Company. Confederation Life, a Canadian mutual life insurer, was
placed in liquidation during August of 1994. The blocks of business
acquired were part of Confederation Life's U.S. branch operations and were
covered under the rehabilitation plan approved by a Michigan circuit court.
Approximately 40,000 policies with annualized premium of $122.8 million
were included in the acquisition under an assumption reinsurance contract.
Pursuant to initiation of the contract and the closing on December 31,
1997, Phoenix recorded all balances reinsured using the purchase accounting
method. The value of reserves and liabilities acquired totaled $1.4 billion
and exceeded the assets received, principally cash and short-term
investments. The difference of $141.3 million was recorded as deferred
acquisition costs.
PHOENIX DUFF & PHELPS CORPORATION
On September 3, 1997, Phoenix Duff & Phelps acquired Pasadena Capital
Corporation, the parent company of Roger Engemann & Associates, Inc.
Pasadena Capital manages $6.3 billion in assets, primarily individual
accounts.
B-32
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On July 17, 1997, Phoenix Duff & Phelps acquired a majority interest in
GMG/Seneca Capital Management LLC, renamed Seneca Capital Management.
Seneca Capital Management manages $4.2 billion in assets.
Effective January 1, 1995, the money management businesses of Phoenix were
completely transferred to Phoenix Securities Group, Inc. 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.,
merged Phoenix Securities Group into Duff & Phelps Corporation, forming
Phoenix Duff & Phelps Corporation. The transaction was accounted for as a
reverse merger with the purchase accounting method applied to Duff &
Phelps' assets and liabilities. The purchase price was $190.7 million and
Phoenix Duff & Phelps 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 Phoenix Duff & Phelps common stock. In
addition, PM Holdings owns 45% of Phoenix Duff & Phelps' 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
Statement of Income and Equity.
SURPLUS NOTES
On November 25, 1996, Phoenix 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 debt in
the Consolidated Balance Sheet.
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 ASSET MANAGEMENT PLC
On March 25, 1996, Phoenix purchased common shares of Aberdeen Asset
Management PLC, a Scottish asset management firm for $26.4 million. Phoenix
transferred these shares to PM Holding in 1996. As of December 31, 1997, PM
Holdings owned 10% of Aberdeen Asset Management's outstanding common stock.
The investment is reported on the equity basis and classified as other
invested assets in the Consolidated Balance Sheet.
In addition, on April 15, 1996, Phoenix purchased a 7% convertible
subordinated note issued by Aberdeen Asset Management for $37.5 million.
The note, which matures on March 29, 2003, may be converted into shares
which would be equivalent to approximately 11% of Aberdeen Asset
Management's then outstanding common stock. The note is classified as
equity securities in the Consolidated Balance Sheet.
In the spring of 1996, Phoenix and Aberdeen Asset Management joined
together to form Phoenix-Aberdeen International Advisors, LLC, an SEC
registered investment advisor that, in conjunction with Phoenix Duff &
Phelps and Aberdeen Asset Management, develops and markets investment
products in the United States and the United Kingdom.
B-33
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS
Information pertaining to Phoenix's investments, net investment income and
realized and unrealized investment gains and losses follows:
DEBT AND EQUITY SECURITIES
The amortized cost and fair value of investments in debt and equity
securities as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DEBT SECURITIES
HELD-TO-MATURITY:
State and political subdivision bonds $ 11,041 $ 569 $ (8) $ 11,602
Foreign government bonds 3,032 15 (115) 2,932
Corporate securities 1,521,033 103,267 (2,042) 1,622,258
Mortgage-backed securities 19,799 949 20,748
---------------- --------------- --------------- ----------------
Total 1,554,905 104,800 (2,165) 1,657,540
---------------- --------------- --------------- ----------------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 501,190 25,020 (636) 525,574
State and political subdivision bonds 474,123 32,896 (3,477) 503,542
Foreign government bonds 248,831 26,303 (5,992) 269,142
Corporate securities 1,384,503 97,943 (4,403) 1,478,043
Mortgage-backed securities 2,786,278 99,785 (3,303) 2,882,760
---------------- --------------- --------------- ----------------
Total 5,394,925 281,947 (17,811) 5,659,061
---------------- --------------- --------------- ----------------
TOTAL DEBT SECURITIES $ 6,949,830 $ 386,747 $ (19,976) $ 7,316,601
================ =============== =============== ================
EQUITY SECURITIES $ 195,717 $ 190,669 $ (12,998) $ 373,388
================ =============== =============== ================
</TABLE>
B-34
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of investments in debt 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>
DEBT SECURITIES
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 DEBT SECURITIES $ 6,299,074 $ 252,729 $ (51,786) $ 6,500,017
================= ================= ================= =================
EQUITY SECURITIES $ 137,907 $ 100,258 $ (2,814) $ 235,351
================= ================= ================= =================
</TABLE>
B-35
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of debt securities, by contractual
maturity, as of December 31, 1997 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
Phoenix 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 $ 113,850 $ 116,684 $ 78,768 $ 79,054
Due after one year through five years 477,101 499,155 329,529 347,240
Due after five years through ten years 625,518 670,597 651,878 683,747
Due after ten years 318,637 350,357 1,548,472 1,666,260
Mortgage-backed securities 19,799 20,747 2,786,278 2,882,760
---------------- ---------------- ---------------- ----------------
Total $ 1,554,905 $ 1,657,540 $ 5,394,925 $ 5,659,061
================ ================ ================ ================
</TABLE>
Carrying values for investments in mortgage-backed securities, excluding
U.S. government guaranteed investments, were as follows:
DECEMBER 31,
1997 1996
(IN THOUSANDS)
Planned amortization class $ 554,425 $ 618,953
Asset-backed 594,128 490,018
Mezzanine 328,539 322,812
Commercial 556,155 413,571
Sequential pay 680,397 552,512
Pass through 132,522 105,282
Other 56,393 58,604
-------------- --------------
Total mortgage-backed securities $ 2,902,559 $ 2,561,752
============== ==============
Phoenix had 30% and 37% at December 31, 1997 and 1996, respectively, in
planned amortization class and mezzanine mortgage-backed securities which
have reasonably predictable cash flows and a relatively high degree of
prepayment protection.
B-36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MORTGAGE LOANS AND REAL ESTATE
Phoenix'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.
Mortgage loans and real estate investments comprise the following property
types and geographic regions:
<TABLE>
<CAPTION>
MORTGAGE LOANS REAL ESTATE
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
PROPERTY TYPE:
Office buildings $ 246,500 $ 251,526 $ 180,743 $ 246,644
Retail 231,886 257,721 108,907 121,813
Apartment buildings 303,990 241,286 20,560 26,286
Industrial buildings 162,008 197,013 39,810 56,134
Other 18,917 47,929 238 7,577
Valuation allowances (35,800) (48,399) (28,501) (47,509)
--------------- -------------- ---------------- -------------
Total $ 927,501 $ 947,076 $ 321,757 $ 410,945
=============== ============== ================ =============
GEOGRAPHIC REGION:
Northeast $ 222,975 $ 260,146 $ 92,513 $ 103,761
Southeast 257,376 261,957 85,781 110,746
North central 189,163 158,902 63,751 86,070
South central 79,092 57,507 58,954 85,532
West 214,695 256,963 49,259 72,345
Valuation allowances (35,800) (48,399) (28,501) (47,509)
--------------- -------------- ---------------- -------------
Total $ 927,501 $ 947,076 $ 321,757 $ 410,945
=============== ============== ================ =============
</TABLE>
At December 31, 1997, scheduled mortgage loan maturities were as follows:
1998 - $151 million; 1999 - $88 million; 2000 - $97 million; 2001 - $92
million; 2002 - $41 million; and $494 million thereafter. Actual maturities
will differ from contractual maturities because borrowers may have the
right to prepay obligations with or without prepayment penalties and loans
may be refinanced. Phoenix refinanced $8.6 million and $28.9 million of its
mortgage loans during 1997 and 1996, respectively, based on terms which
differed from those granted to new borrowers.
B-37
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the Consolidated Balance Sheet
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>
1997
Mortgage loans $ 48,399 $ 6,731 $ (19,330) $ 35,800
Real estate 47,509 4,201 (23,209) 28,501
-------------- -------------------- --------------- --------------------
Total $ 95,908 $ 10,932 $ (42,539) $ 64,301
============== ==================== =============== ====================
1996
Mortgage loans $ 65,807 $ 7,640 $ (25,048) $ 48,399
Real estate 83,755 2,526 (38,772) 47,509
-------------- -------------------- --------------- --------------------
Total $ 149,562 $ 10,166 $ (63,820) $ 95,908
============== ==================== =============== ====================
</TABLE>
NON-INCOME PRODUCING MORTGAGE LOANS AND BONDS
The net carrying values of non-income producing mortgage loans were $7.0
million and $4.5 million at December 31, 1997 and 1996, respectively. There
were no non-income producing bonds at December 31, 1997 or 1996.
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 $272.9 million and $73.1 million
at December 31, 1997 and 1996, respectively. Average received and average
paid rates were 7.00% and 6.63% for 1997.
These agreements do not require the exchange of underlying principal
amounts, and accordingly Phoenix's maximum exposure to credit risk is the
difference in interest payments exchanged. Management of Phoenix considers
the likelihood of any material loss on interest rate swaps to be remote.
B-38
<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 affiliates, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Venture capital equity partnerships $ 88,228 $ 66,284
Transportation and equipment leases 59,111 46,950
Investment in Aberdeen Asset Management 32,817 29,980
Investment in Beutel, Goodman & Co. Ltd. 31,214 34,541
Seed money in separate accounts 41,297 35,747
Other 10,008 4,617
------------- ------------
Total other invested assets $ 262,675 $ 218,119
============= ============
</TABLE>
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31,
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Debt securities $ 509,702 $ 469,713 $ 437,521
Equity securities 4,277 4,689 1,787
Mortgage loans 85,662 84,318 92,283
Policy loans 122,562 117,742 115,055
Real estate 18,939 21,799 20,910
Other invested assets (415) 332 871
Short-term investments 18,768 18,688 21,974
------------ ------------ -------------
Sub-total 759,495 717,281 690,401
Less investment expenses 22,621 27,391 27,933
------------ ------------ -------------
Net investment income $ 736,874 $ 689,890 $ 662,468
============ ============ =============
</TABLE>
Investment income of $.7 million was not accrued on certain delinquent
mortgage loans and defaulted bonds at December 31, 1997. Phoenix 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 $51.3 million and $61.5 million at December 31,
1997 and 1996, respectively. Interest income on restructured mortgage loans
that would have been recorded in accordance with the original terms of such
loans amounted to $5.3 million, $3.1 million and $6.6 million in 1997, 1996
and 1995, respectively. Actual interest income on these loans included in
net investment income was $3.8 million, $5.2 million and $6.4 million in
1997, 1996 and 1995, respectively.
B-39
<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>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ 112,194 $ (70,986) $ 476,352
Equity securities 74,547 40,803 24,527
Deferred policy acquisition costs (77,985) 51,528 (341,836)
Deferred income taxes 38,064 7,432 55,692
Other (Note 9) (4,719) 1,241 (3,833)
-------------- ------------------ ---------------
Net unrealized investment gains $ 65,973 $ 15,154 $ 99,518
============== ================== ===============
</TABLE>
Realized investment gains and losses for the year ended December 31, were
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ 19,315 $ (10,476) $ 8,080
Equity securities 26,290 59,794 29,276
Mortgage loans 3,805 2,628 (262)
Real estate 44,668 24,711 20,535
Other invested assets 48,692 18,608 17,109
-------------- ------------------ ---------------
142,770 95,265 74,738
Income taxes 49,970 33,343 26,158
-------------- ------------------ ---------------
Net realized investment gains after taxes $ 92,800 $ 61,922 $ 48,580
============== ================== ===============
</TABLE>
The proceeds from sales of available-for-sale debt securities and the gross
realized gains and gross realized losses on those sales for the year ended
December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from disposals $ 1,206,744 $ 1,348,809 $ 1,145,146
Gross gains on sales $ 48,100 $ 17,429 $ 27,980
Gross losses on sales $ 28,785 $ 27,905 $ 19,900
</TABLE>
B-40
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets were as follows:
DECEMBER 31,
1997 1996
(IN THOUSANDS)
Goodwill $ 387,517 $ 231,135
Investment management contracts 167,788 56,700
Client listings 45,441 41,410
Non-compete covenants 5,000 5,000
Intangible asset related to
pension plan benefits 18,032 19,835
Other 1,499 1,220
------------ ------------
625,277 355,300
Accumulated amortization (83,778) (41,793)
------------ ------------
Total $ 541,499 $ 313,507
============ ============
Phoenix Duff & Phelps' amounts included above were as follows:
DECEMBER 31,
1997 1996
(IN THOUSANDS)
Goodwill $ 321,932 $ 179,406
Investment management contracts 167,788 56,700
Non-compete covenants 5,000 5,000
Other 1,220 1,220
------------ ------------
495,940 242,326
Accumulated amortization (27,579) (13,198)
------------ ------------
Total $ 468,361 $ 229,128
============ ============
In 1997, American Phoenix Corporation wrote down the carrying value of its
goodwill and other intangible assets by $18.8 million. This impairment loss
is included in other operating expenses in the Consolidated Statement of
Income and Equity.
B-41
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Other than debt securities being held-to-maturity, 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.
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.
DEBT SECURITIES
Fair values are based on quoted market prices, where available, or quoted
market prices of comparable instruments. Fair values of private placement
debt securities 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 the Treasury rate comparable for the remaining loan
duration, plus 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.
B-42
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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 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>
1997 1996
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 159,307 $ 159,307 $ 172,895 $ 172,895
Short-term investments 1,078,276 1,078,276 164,967 164,967
Debt securities 7,213,966 7,316,601 6,451,078 6,500,017
Equity securities 373,388 373,388 235,351 235,351
Mortgage loans 927,501 956,041 947,076 986,900
Policy loans 1,986,728 2,104,704 1,667,784 1,645,899
--------------- ---------------- -------------- --------------
Total financial assets $ 11,739,166 $ 11,988,317 $ 9,639,151 $ 9,706,029
=============== ================ ============== ==============
Financial liabilities:
Policy liabilities $ 902,200 $ 902,200 $ 875,200 $ 875,100
Securities sold subject to repurchase
agreements 137,473 137,473
Other indebtedness 471,085 471,085 490,430 490,430
--------------- ---------------- -------------- --------------
Total financial liabilities $ 1,510,758 $ 1,510,758 $ 1,365,630 $ 1,365,530
=============== ================ ============== ==============
</TABLE>
B-43
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. OTHER INDEBTEDNESS
DECEMBER 31,
1997 1996
(IN THOUSANDS)
Short-term debt $ 15,539 $ 12,455
Bank borrowings 263,732 280,845
Notes payable 14,632 19,522
Surplus notes 175,000 175,000
Secured debt 2,182 2,608
------------ ------------
Total other indebtedness $ 471,085 $ 490,430
============ ============
Phoenix has various lines of credit established with major commercial
banks. As of December 31, 1997, Phoenix had outstanding balances totaling
$264.5 million. The total unused credit was $145.3 million. Interest rates
ranged from 5.42% to 6.63% in 1997.
On November 25, 1996, Phoenix issued $175 million of surplus notes (See
Note 3).
Maturities of other indebtedness are as follows: 1998 - $15.5 million; 1999
- $55 million; 2000 - $4 million; 2001 - $29 million; 2002 - $192 million;
2003 and thereafter - $175.5 million.
Interest expense was $32.5 million, $18.0 million and $7.7 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
8. INCOME TAXES
A summary of income taxes (benefits) in the Consolidated Statement of
Income and Equity for the year ended December 31, was as follows:
1997 1996 1995
(IN THOUSANDS)
Income taxes
Current $ 54,514 $ 59,673 $ 59,590
Deferred 2,555 19,658 (16,238)
----------- ---------- ------------
Total $ 57,069 $ 79,331 $ 43,352
=========== ========== ============
B-44
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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>
1997 1996 1995
% % %
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory rate $ 80,710 35 $ 66,136 35 $ 55,318 35
Non-taxable gain on Phoenix Duff &
Phelps merger (14,203) (9)
Dividend received deduction and
tax-exempt interest (2,513) (1) (2,107) (1) (623)
Other, net (8,017) (4) 2,736 1 2,860 1
------------ ----- ------------ ----- ------------ -----
70,180 30 66,765 35 43,352 27
Differential earnings (equity tax) (13,111) (5) 12,566 7
------------ ----- ------------ ----- ------------ -----
Income taxes $ 57,069 25 $ 79,331 42 $ 43,352 27
============ ===== ============ ===== ============ =====
</TABLE>
B-45
<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:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Deferred policy acquisition costs $ 303,500 $ 220,135
Unearned premium/deferred revenue (139,817) (131,513)
Impairment reserves (26,102) (43,331)
Pension and other postretirement benefits (56,643) (58,230)
Investments 77,202 50,219
Future policyholder benefits (140,980) (37,904)
Other 45,053 15,633
------------- -------------
62,213 15,009
Net unrealized investment gains 84,134 48,320
Minimum pension liability (2,526) (1,395)
Foreign tax credit (1,109)
------------- -------------
Deferred income tax liability, net
before valuation allowance 143,821 60,825
Valuation allowance 1,109
------------- -------------
Deferred income tax liability, net $ 143,821 $ 61,934
============= =============
</TABLE>
Gross deferred income tax assets totaled $366 million and $274 million at
December 31, 1997 and 1996, respectively. Gross deferred income tax
liabilities totaled $510 million and $336 million at December 31, 1997 and
1996, respectively. It is management's assessment, based on Phoenix's
earnings and projected future taxable income, that it is more likely than
not that deferred income tax assets at December 31, 1997 and 1996, with the
exception of the foreign tax credit, will be realized.
The Internal Revenue Service is currently examining Phoenix's tax returns
for 1995 and 1996. Management does not believe that there will be a
material adverse effect on the financial statements as a result of pending
tax matters.
B-46
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
PENSION PLANS
Phoenix has a multi-employer, 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. Phoenix also
sponsors a non-qualified supplemental defined benefit plan to provide
benefits in excess of amounts allowed pursuant to Internal Revenue Code.
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>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 10,278 $ 10,076 $ 9,599
Interest accrued on projected benefit obligation 22,650 22,660 19,880
Actual return on assets (53,093) (38,788) (62,567)
Net amortization and deferral 30,488 17,318 45,807
------------ ------------- ------------
Net periodic pension cost $ 10,323 $ 11,266 $ 12,719
============ ============= ============
</TABLE>
In 1996, Phoenix offered an early retirement program which granted an
additional benefit of five years of age and service. As a result of the
early retirement program, Phoenix recorded an additional pension expense of
$8.7 million for the year ended December 31, 1996.
B-47
<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,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of vested benefit obligation $ 236,443 $ 213,148
Actuarial present value of non-vested benefit obligation 16,312 14,828
------------- ------------
Accumulated benefit obligation 252,755 227,976
Present value effect of future salary increases 32,316 33,910
------------- ------------
Projected benefit obligation $ 285,071 $ 261,886
============= ============
Plan assets at fair value $ 321,555 $ 292,070
============= ============
Plan assets in excess of projected benefit obligation $ (36,484) $ (30,184)
Unrecognized net gain from past experience 60,759 52,312
Unrecognized prior service benefit 52 240
Unamortized transition asset 16,586 19,745
------------- ------------
Net pension liability (included in other liabilities) $ 40,913 $ 42,113
============= ============
</TABLE>
At December 31, 1997 and 1996, the non-qualified plan was unfunded and had
projected benefit obligations of $50.4 million and $50.0 million,
respectively. The accumulated benefit obligations as of December 31, 1997
and 1996 related to this plan were $42.8 million and $37.4 million,
respectively, and are included in other liabilities.
Phoenix recorded, as a reduction of policyholders' equity, an additional
minimum pension liability of $4.7 million and $2.8 million, net of income
taxes, at December 31, 1997 and 1996, respectively, representing the excess
of accumulated benefit obligations over the fair value of plan assets and
accrued pension liabilities for the non-qualified plan. Phoenix has also
recorded an intangible asset of $18.0 million and $19.8 million as of
December 31, 1997 and 1996 related to the non-qualified plan.
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit
obligation were 7.0% and 4.0%, for 1997 and 7.5% and 4.5% for 1996. The
discount rate assumption for 1997 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%.
The pension plan's assets include corporate and government debt securities,
equity securities, real estate, venture capital funds, and shares of mutual
funds.
Phoenix 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. Phoenix 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, 1997, 1996 and 1995 were $3.8 million, $4.2
million and $4.2 million, respectively.
B-48
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
OTHER POSTRETIREMENT BENEFIT PLANS
In addition to Phoenix's pension plans, Phoenix 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 Phoenix's
Consolidated Balance Sheet, was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees $ 35,900 $ 30,576
Fully eligible active plan participants 6,889 11,466
Other active plan participants 23,829 21,614
------------ -----------
Total accumulated postretirement benefit obligation 66,618 63,656
Unrecognized net gain from past experience 28,037 29,173
------------ -----------
Accrued postretirement benefit liability $ 94,655 $ 92,829
============ ===========
</TABLE>
The components of net periodic postretirement benefit cost for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during year $ 3,136 $ 2,765 $ 3,366
Interest cost accrued on benefit obligation 4,441 4,547 5,275
Net amortization (1,527) (1,577) (458)
---------- ---------- ---------
Net periodic postretirement benefit cost $ 6,050 $ 5,735 $ 8,183
========== ========== =========
</TABLE>
B-49
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In addition to the net periodic postretirement benefit cost, Phoenix
expensed an additional $3.0 million for postretirement benefits related to
the early retirement program for the year ended December 31, 1996.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.0% at December 31, 1997 and 7.5% at December 31,
1996.
For purposes of measuring the accumulated postretirement benefit obligation
at December 31, 1997, 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, 1996, health
care costs were assumed to increase 9.5% 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 $5.3
million and the annual service and interest cost by $.8 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
Phoenix 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 $.4 million for 1997, $.4 million for 1996 and $.5
million for 1995.
B-50
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. SEGMENT INFORMATION
Phoenix operates principally in seven segments: Individual Insurance, Group
Life and Health Insurance, 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 include equity securities.
Summarized below is financial information with respect to the business
segments:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Individual Insurance $ 2,028,230 $ 1,796,572 $ 1,752,338
Group Life and Health Insurance 459,405 462,551 421,771
Life Reinsurance 162,843 143,314 128,813
General Lines Brokerage 64,093 61,809 40,977
Securities Management 177,894 164,966 112,206
Real Estate Management 15,319 13,550 13,562
Other Operations 80,496 82,273 48,873
----------------- ----------------- -----------------
Total $ 2,988,280 $ 2,725,035 $ 2,518,540
================= ================= =================
OPERATING INCOME
Individual Insurance $ 132,308 $ 63,013 $ 43,094
Group Life and Health Insurance 31,276 11,220 19,921
Life Reinsurance 10,592 8,078 17,656
General Lines Brokerage (21,652) (2,935) (1,887)
Securities Management 38,813 44,440 23,667
Real Estate Management (2,433) (3,783) (184)
Other Operations 41,695 68,928 15,204
----------------- ----------------- -----------------
Total $ 230,599 $ 188,961 $ 117,471
================= ================= =================
IDENTIFIABLE ASSETS
Individual Insurance $ 15,679,598 $ 12,961,648
Group Life and Health Insurance 655,800 596,800
Life Reinsurance 313,500 304,300
General Lines Brokerage 111,900 117,300
Securities Management 615,112 376,000
Real Estate Management 278,500 319,400
Other Operations 864,309 777,600
----------------- -----------------
Total $ 18,518,719 $ 15,453,048
================= =================
</TABLE>
B-51
<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 $14.9 million, $14.8 million and $14.6 million in
1997, 1996, and 1995, respectively. Future minimum rental payments under
non-cancelable operating leases were approximately $51.0 million as of
December 31, 1997, payable as follows: 1998 - $15.7 million; 1999 - $12.9
million; 2000 - $10.1 million; 2001 - $5.6 million; 2002 - $3.6 million;
and $3.1 million thereafter.
12. PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements, consisting primarily of
office buildings occupied by Phoenix, are stated at depreciated cost. Real
estate occupied by Phoenix was $109.0 million and $97.2 million,
respectively, at December 31, 1997 and 1996. Phoenix 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 $164.4 million and
$144.1 million at December 31, 1997 and 1996, respectively.
13. 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 Phoenix on any one life is
$8 million for single life and joint first-to-die policies and $10 million
for joint last-to-die policies, with excess amounts ceded to reinsurers.
For reinsurance ceded, Phoenix 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>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $ 1,592,800 $ 1,473,869 $ 1,455,459
Reinsurance assumed 329,927 276,630 271,498
Reinsurance ceded (282,121) (231,677) (270,082)
----------------- -------------------- -----------------
Net premiums $ 1,640,606 $ 1,518,822 $ 1,456,875
================= ==================== =================
Direct policy and contract claims incurred $ 626,834 $ 575,824 $ 605,545
Reinsurance assumed 410,704 170,058 256,529
Reinsurance ceded (373,127) (160,646) (292,357)
----------------- -------------------- -----------------
Net policy and contract claims incurred $ 664,411 $ 585,236 $ 569,717
================= ==================== =================
Direct life insurance in force $ 120,394,664 $ 108,816,856 $ 102,606,749
Reinsurance assumed 84,806,585 61,109,836 36,724,852
Reinsurance ceded (74,764,639) (51,525,976) (34,093,090)
----------------- -------------------- -----------------
Net insurance in force $ 130,436,610 $ 118,400,716 $ 105,238,511
================= ==================== =================
</TABLE>
B-52
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Irrevocable letters of credit aggregating $134.8 million at December 31,
1997 have been arranged with United States commercial banks in favor of
Phoenix to collateralize the ceded reserves.
14. PARTICIPATING LIFE INSURANCE
Participating life insurance in force was 79.6% and 80.0% of the face value
of total individual life insurance in force at December 31, 1997 and 1996,
respectively. The premiums on participating life insurance policies were
83.5%, 84.1% and 84.7% of total individual life insurance premiums in 1997,
1996 and 1995, respectively.
15. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred and
amortized for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 926,274 $ 816,128 $ 1,128,227
Acquisition cost deferred 295,189 153,873 143,519
Amortized to expense during the year (105,071) (95,255) (113,788)
Adjustment to equity during the year (77,985) 51,528 (341,830)
----------------- -------------- ----------------
Balance at end of year $ 1,038,407 $ 926,274 $ 816,128
================= ============== ================
</TABLE>
16. MINORITY INTEREST
Phoenix's interests in Phoenix Duff & Phelps Corporation and American
Phoenix Corporation, through its wholly-owned subsidiary PM Holdings are
represented by ownership of approximately 60% and 92%, respectively, of the
outstanding shares of common stock at December 31, 1997. Earnings and
policyholders' equity attributable to minority shareholders are included in
minority interest in the consolidated financial statements along with
Phoenix Duff & Phelps' preferred stock.
17. CONTINGENCIES
FINANCIAL GUARANTEES
Phoenix 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 Phoenix's maximum exposure to credit loss in the event
of nonperformance. The principal amount of bonds guaranteed by Phoenix at
December 31, 1997 and 1996 was $88.7 million and $88.8 million,
respectively. Management believes that any loss contingencies which may
arise from Phoenix's financial guarantees would not have a material adverse
effect on Phoenix's liquidity or financial condition.
B-53
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
LITIGATION
In 1996, Phoenix 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. Phoenix estimates the cost of settlement to be $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 Phoenix's consolidated financial position.
Phoenix 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 Phoenix's consolidated financial position.
18. 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, 1997, 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, surplus notes are not included in
policyholders' equity, 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 Phoenix as reported to
regulatory authorities to the net income as reported in these financial
statements for the year ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income $ 60,702 $ 72,961 $ 64,198
Deferred policy acquisition costs, net 48,821 58,618 29,766
Future policy benefits (9,145) (16,793) (15,763)
Pension and postretirement expenses (7,955) (23,275) (12,691)
Investment valuation allowances 88,813 76,631 56,745
Interest maintenance reserve 17,544 (5,158) 5,829
Deferred income taxes (36,250) (67,064) (10,021)
Other, net 2,118 4,808 (4,314)
------------ ------------- ------------
Net income, as reported $ 164,648 $ 100,728 $ 113,749
============ ============= ============
</TABLE>
B-54
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following reconciles the statutory surplus and asset valuation reserve
(AVR) of Phoenix as reported to regulatory authorities to policyholders'
equity as reported in these financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Statutory surplus, surplus notes and AVR $ 1,152,820 $ 1,102,200
Deferred policy acquisition costs, net 1,227,782 1,037,664
Future policy benefits (395,436) (379,820)
Pension and postretirement expenses (169,383) (152,112)
Investment valuation allowances (40,032) (139,562)
Interest maintenance reserve 33,794 6,897
Deferred income taxes (12,051) 82,069
Surplus notes (157,500) (157,500)
Other, net (11,904) (2,367)
-------------- --------------
Policyholders' equity, as reported $ 1,628,090 $ 1,397,469
============== ==============
</TABLE>
The 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.
B-55
<PAGE>
[VERSION B]
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS (VPMO):
Hartford, Connecticut P.O. Box 8027
Boston, MA 02266-8027
VARIABLE ACCUMULATION DEFFERED ANNUITY CONTRACTS
STATEMENT OF ADDITIONAL INFORMATION FOR
TEMPLETON INVESTMENT PLUS
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Prospectus, dated May 1, 1998, which is available
without charge by contacting Phoenix Home Life at the above address or at the
above telephone number.
May 1, 1998
-----------------
TABLE OF CONTENTS
PAGE
----
Underwriter...................................................... B-2(T)
Calculation of Yield and Return ................................. B-2(T)
Calculation of Annuity Payments ................................. B-3(T)
Year 2000 Issue.................................................. B-4(T)
Experts ......................................................... B-4(T)
Financial Statements............................................. B-5(T)
B-1(T)
<PAGE>
UNDERWRITER
- --------------------------------------------------------------------------------
The offering of these Contracts commenced on August 31, 1988 and was made on
a continuous basis by Franklin Templeton Distributors, Inc. ("FTD"). Effective
May 1, 1997, new sales of these Contracts ceased and W.S. Griffith & Co., Inc.
became principal distributor of the Contracts. For sales of Contracts during the
last three fiscal years, FTD was paid and retained the following amounts :
PAID RETAINED
---- --------
1995 $1,720,728 $172,178
1996 $1,255,102 $125,510
1997 $ 893,202 $ 51,024
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.
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 and daily administrative fees.
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, 1997.
Assumptions:
Value of a hypothetical pre-existing account with exactly one
unit at the beginning of the period ....................... 1.380950
Value of the same account (excluding capital changes) at the
end of the seven-day period ............................... 1.381824
Calculation:
Ending account value ...................................... 1.381824
Less beginning account value .............................. 1.380950
Net change in account value ............................... 0.000874
Base period return:
(adjusted change/beginning account value).................. 0.000633
Current yield = return x (365/7) =........................ 3.30%
Effective yield = [(1 + return) x (365/7)] -1 =........... 3.36%
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.
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 ten 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 Fund 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 Business 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 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.
B-2(T)
<PAGE>
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 Composite Index of
500 Stocks (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
automatically be 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 Home Life shall have
the right to pay such amount in one lump sum in lieu of providing the annuity
payments. Phoenix Home Life will also have the right to change the annuity
payment frequency to annually if the monthly annuity payment would otherwise 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 42%. The actual payments will be based
on the monthly payment rates Phoenix Home Life 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 42% 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
Home Life 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 Home Life. 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 42% 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
42% 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(T)
<PAGE>
FIXED ANNUITY PAYMENTS
Fixed monthly annuity payments under a Contract are determined by applying
the Value of each Subaccount's Accumulation Units credited under a Contract 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. 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 Home Life'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 33/ 8 % interest
projected to 1985 at Projection Scale B. More favorable rates may be available
on the Maturity Date or other date selected for commencement of fixed annuity
payments.
YEAR 2000 ISSUE
- --------------------------------------------------------------------------------
Many existing computer programs use only two digits to identify the year in
a date field. Commonly referred to as the "Year 2000 Issue," companies must
consider the impact of the upcoming change in the century on their computer
systems. The Year 2000 Issue, if not adequately addressed, could result in
computer system failures or miscalculations causing disruptions of operations
and the possible inability of companies to process transactions. Phoenix
believes that the Year 2000 Issue is an important business priority requiring
careful analysis of every business system in order to be assured that all
information systems applications are century compliant.
Phoenix has been addressing the Year 2000 Issue in earnest since 1995 when,
with consultants, a comprehensive inventory and assessment of all business
systems, including those of its subsidiaries, was conducted. Phoenix has
identified and is now actively pursuing a number of strategies to address the
issue, including:
-- upgrading systems with compliant versions;
-- developing or acquiring new systems to replace those that are obsolete;
-- and remediating existing systems by converting code or hardware.
Based on current assessments, Phoenix expects to have its computer systems
compliant by the end of 1998, with testing to continue through 1999. In
addition, Phoenix is examining the status of its third-party vendors, obtaining
assurances that their software and hardware products will be century compliant
by 1999.
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.
Edwin L. Kerr, Counsel, Phoenix has provided advice on certain matters
relating to the federal securities and income tax laws in connection to the
Contracts described in this Prospectus.
B-4(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE
ACCUMULATION ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1997
B-5(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON STOCK SUB-ACCOUNT
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
Assets:
Investments in Templeton Stock Fund
(identified cost $168,188,455) $320,963,181
------------
Liabilities:
Accrued expenses due related parties 375,326
------------
Net assets $320,587,855
============
Accumulation units outstanding 116,901,571
============
Net asset value per unit $ 2.742374
============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
Investment income:
Dividends $ 5,623,531
Expenses:
Mortality and expense risk and
administrative charges 4,746,739
-----------
Net investment income 876,792
Realized and unrealized gain on
investments:
Net realized gain from share
transactions $ 3,658,099
Net realized gain distribution
from Fund 26,622,790
Net change in unrealized
appreciation 2,806,597
-----------
Net realized and unrealized gain 33,087,486
-----------
Net increase in net assets from
operations $33,964,278
===========
</TABLE>
See Notes to Financial Statements.
B-6(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON STOCK SUB-ACCOUNT
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 876,792 $ 1,385,665
Net realized gain......................................... 30,280,889 27,482,753
Net change in unrealized appreciation..................... 2,806,597 29,236,460
------------------------------
Net increase in net assets from operations............. 33,964,278 58,104,878
------------------------------
Accumulation unit transactions:
Participant deposits...................................... 7,580,284 13,456,097
Participant transfers..................................... (5,102,553) 2,720,653
Participant withdrawals................................... (44,832,757) (37,955,669)
------------------------------
Net decrease from participant transactions............. (42,355,026) (21,778,919)
------------------------------
Total increase (decrease) in net assets............... (8,390,748) 36,325,959
Net assets:
Beginning of year.......................................... 328,978,603 292,652,644
------------------------------
End of year................................................ $320,587,855 $328,978,603
==============================
Participant accumulation unit transactions (in units):
Participant deposits...................................... 2,844,151 6,175,518
Participant transfers..................................... (2,030,310) 931,089
Participant withdrawals................................... (16,304,248) (16,948,229)
</TABLE>
See Notes to Financial Statements.
B-7(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON INTERNATIONAL SUB-ACCOUNT
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
Assets:
Investments in Templeton International
Fund (identified cost $72,663,203) $119,859,440
------------
Liabilities:
Accrued expenses due related parties 140,473
------------
Net assets $119,718,967
------------
Accumulation units outstanding 58,470,323
------------
Net asset value per unit $ 2.047517
============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
Investment income:
Dividends $ 3,091,889
Expenses:
Mortality and expense risk and
administrative charges 1,673,195
-----------
Net investment income 1,418,694
Realized and unrealized gain on
investments:
Net realized gain from share
transactions $1,680,491
Net realized gain distribution
from Fund 1,242,818
Net change in unrealized
appreciation 9,740,704
----------
Net realized and unrealized gain 12,664,013
-----------
Net increase in net assets from
operations $14,082,707
===========
</TABLE>
See Notes to Financial Statements.
B-8(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON INTERNATIONAL SUB-ACCOUNT
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 1,418,694 $ 78,691
Net realized gain......................................... 2,923,309 543,214
Net change in unrealized appreciation..................... 9,740,704 20,199,153
------------------------------
Net increase in net assets from operations............. 14,082,707 20,821,058
------------------------------
Accumulation unit transactions:
Participant deposits...................................... 2,753,458 4,729,888
Participant transfers..................................... (3,562,548) 6,476,217
Participant withdrawals................................... (8,032,795) (6,247,179)
------------------------------
Net increase (decrease) from participant
transactions.......................................... (8,841,885) 4,958,926
------------------------------
Total increase in net assets.......................... 5,240,822 25,779,984
Net assets:
Beginning of year......................................... 114,478,145 88,698,161
------------------------------
End of year............................................... $119,718,967 $114,478,145
==============================
Participant accumulation unit transactions (in units):
Participant deposits...................................... 1,425,162 2,934,164
Participant transfers..................................... (1,853,141) 4,100,617
Participant withdrawals................................... (3,950,023) (3,773,826)
</TABLE>
See Notes to Financial Statements.
B-9(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON DEVELOPING MARKETS SUB-ACCOUNT
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
Assets:
Investments in Templeton Developing
Markets Fund (identified cost
$3,956,256) $2,899,803
----------
Liabilities:
Accrued expenses due related parties 3,296
----------
Net assets $2,896,507
==========
Accumulation units outstanding 4,110,152
----------
Net asset value per unit $ 0.704720
==========
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
Investment income:
Dividends $ 14,285
Expenses:
Mortality and expense risk and
administrative charges 42,469
------------
Net investment loss (28,184)
Realized and unrealized gain
(loss) on investments:
Net realized loss from share
transactions $ (92,929)
Net realized gain distribution
from fund 10,714
Net change in unrealized
depreciation (1,063,555)
-----------
Net realized and unrealized loss (1,145,770)
------------
Net decrease in net assets from
operations $(1,173,954)
============
</TABLE>
See Notes to Financial Statements.
B-10(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON DEVELOPING MARKETS SUB-ACCOUNT
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996+
---------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment loss....................................... $ (28,184) $ (2,887)
Net realized gain (loss).................................. (82,215) 440
Net change in unrealized appreciation (depreciation)...... (1,063,555) 7,102
---------------------------
Net increase (decrease) in net assets resulting from
operations............................................ (1,173,954) 4,655
---------------------------
Accumulation unit transactions:
Participant deposits...................................... 391,326 12,452
Participant transfers..................................... 3,234,401 1,032,869
Participant withdrawals................................... (604,972) (270)
---------------------------
Net increase from participant transactions............. 3,020,755 1,045,051
---------------------------
Total increase in net assets......................... 1,846,801 1,049,706
Net assets:
Beginning of year......................................... 1,049,706 --
---------------------------
End of year............................................... $ 2,896,507 $1,049,706
===========================
Participant accumulation unit transactions (in units):
Participant deposits...................................... 369,492 12,449
Participant transfers..................................... 3,272,202 1,027,542
Participant withdrawals................................... (571,262) (270)
</TABLE>
+ FOR THE PERIOD MARCH 4, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31,
1996.
See Notes to Financial Statements.
B-11(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON ASSET ALLOCATION SUB-ACCOUNT
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
Assets:
Investments in Templeton Asset
Allocation Fund (identified cost
$88,588,780) $154,673,184
------------
Liabilities:
Accrued expenses due related parties 180,407
------------
Net assets $154,492,777
============
Accumulation units outstanding 58,816,377
============
Net asset value per unit $ 2.626697
============
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
Investment income:
Dividends $ 4,505,531
Expenses:
Mortality and expense risk and
administrative charges 2,220,259
-----------
Net investment income 2,285,272
Realized and unrealized gain on
investments:
Net realized gain from share
transactions $2,521,855
Net realized gain distribution
from fund 8,549,866
Net change in unrealized
appreciation 7,612,843
----------
Net realized and unrealized gain 18,684,564
-----------
Net increase in net assets from
operations $20,969,836
===========
</TABLE>
See Notes to Financial Statements.
B-12(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON ASSET ALLOCATION SUB-ACCOUNT
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 2,285,272 $ 2,361,496
Net realized gain......................................... 11,071,721 5,365,848
Net change in unrealized appreciation..................... 7,612,843 15,661,290
------------------------------
Net increase in net assets resulting from operations... 20,969,836 23,388,634
------------------------------
Accumulation unit transactions:
Participant deposits...................................... 3,930,220 3,814,080
Participant transfers..................................... 407,760 (4,371,058)
Participant withdrawals................................... (22,580,766) (14,534,788)
------------------------------
Net decrease from participant transactions............. (18,242,786) (15,091,766)
------------------------------
Total increase in net assets.......................... 2,727,050 8,296,868
------------------------------
Net assets:
Beginning of year.......................................... 151,765,727 143,468,859
------------------------------
End of year................................................ $154,492,777 $151,765,727
==============================
Participant accumulation unit transactions (in units):
Participant deposits....................................... 1,577,821 1,824,205
Participant transfers...................................... 162,761 (2,087,602)
Participant withdrawals.................................... (8,767,140) (6,878,558)
</TABLE>
See Notes to Financial Statements.
B-13(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON BOND SUB-ACCOUNT
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
Assets:
Investments in Templeton Bond Fund
(identified cost $17,039,049) $16,829,218
Liabilities:
Accrued expenses due related parties 19,710
-----------
Net assets $16,809,508
===========
Accumulation units outstanding 9,941,025
===========
Net asset value per unit $ 1.690923
===========
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C> <C>
Investment income:
Dividends $1,386,525
Expenses:
Mortality and expense risk and
administrative charges 250,495
----------
Net investment income 1,136,030
Realized and unrealized loss on
investments:
Net realized loss from share
transactions $(67,960)
Net change in unrealized
depreciation (903,671)
---------
Net realized and unrealized loss (971,631)
----------
Net increase in net assets
resulting from operations $ 164,399
==========
</TABLE>
See Notes to Financial Statements.
B-14(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON BOND SUB-ACCOUNT
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 1,136,030 $ 1,767,944
Net realized gain (loss).................................. (67,960) 65,010
Net change in unrealized depreciation..................... (903,671) (339,894)
----------------------------
Net increase in net assets from operations............. 164,399 1,493,060
----------------------------
Accumulation unit transactions:
Participant deposits...................................... 465,157 395,604
Participant transfers..................................... (1,122,404) 426,791
Participant withdrawals................................... (2,556,768) (2,027,353)
----------------------------
Net decrease from participant transactions............. (3,214,015) (1,204,958)
----------------------------
Total increase (decrease) in net assets............... (3,049,616) 288,102
Net assets:
Beginning of year.......................................... 19,859,124 19,571,022
----------------------------
End of year................................................ $16,809,508 $19,859,124
============================
Participant accumulation unit transactions (in units):
Participant deposits....................................... 281,655 253,615
Participant transfers...................................... (681,695) 268,583
Participant withdrawals.................................... (1,533,467) (1,280,919)
</TABLE>
See Notes to Financial Statements.
B-15(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON MONEY MARKET SUB-ACCOUNT
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<S> <C>
Assets:
Investments in Templeton Money Market
Fund (identified cost $15,784,363) $15,784,363
Dividends receivable 75,379
-----------
Total assets 15,859,742
-----------
Liabilities:
Accrued expenses due related parties 18,756
-----------
Net assets $15,840,986
===========
Accumulation units outstanding 11,463,826
===========
Net asset value per unit $ 1.381824
===========
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Investment Income:
Dividends $687,506
Expenses:
Mortality and expense risk and
administrative charges 190,837
--------
Net investment income $496,669
========
</TABLE>
See Notes to Financial Statements.
B-16(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON MONEY MARKET SUB-ACCOUNT
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 496,669 $ 552,919
----------------------------
Accumulation unit transactions:
Participant deposits...................................... 2,074,466 6,603,501
Participant transfers..................................... 6,474,682 (4,354,547)
Participant withdrawals................................... (7,336,371) (9,373,530)
----------------------------
Net increase (decrease) from participant
transactions.......................................... 1,212,777 (7,124,576)
----------------------------
Total increase (decrease) in net assets............... 1,709,446 (6,571,657)
----------------------------
Net assets:
Beginning of year......................................... 14,131,540 20,703,197
----------------------------
End of year............................................... $15,840,986 $14,131,540
----------------------------
Participant accumulation unit transactions (in units):
Participant deposits...................................... 1,536,859 5,010,494
Participant transfers..................................... 4,731,704 (3,285,148)
Participant withdrawals................................... (5,401,708) (7,205,144)
</TABLE>
See Notes to Financial Statements.
B-17(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
Notes to Financial Statements, December 31, 1997
1. ORGANIZATION
Phoenix Home Life Variable Accumulation Account (the Account) is a separate
investment account of Phoenix Home Life Mutual Insurance Company registered as a
unit investment trust. The Account currently has six Sub-accounts to which
Templeton Investment Plus contract values may be allocated and include the
Templeton Stock, Templeton International, Templeton Developing Markets,
Templeton Asset Allocation, Templeton Bond and Templeton Money Market which
invest solely in a designated portfolio of Templeton Variable Products Series
Fund (the Fund). Each series of the Fund has distinct investment objectives.
Templeton Stock Fund is a capital growth common stock fund; the Templeton
International Fund invests in stocks and debt obligations of companies and
governments outside the United States; the Templeton Developing Markets Fund
seeks long-term capital appreciation by investing in equity securities of
issuers in countries having developing markets; the Templeton Asset Allocation
Fund invests in stocks and debt obligations of companies and governments and
money market instruments seeking high total return; the Templeton Bond Fund
seeks high current income through investing in debt securities, rated and
unrated, in any category of companies, government and government agencies, and
in debt securities which are convertible into common stock of such companies;
and the Templeton Money Market Fund seeks current income, stability of principal
and liquidity by investing in short-term money market instruments.
2. SIGNIFICANT ACCOUNTING POLICIES
A. VALUATION OF INVESTMENTS:
Investments are made exclusively in the Funds and are valued at the net asset
value per share of the Series.
B. INVESTMENT TRANSACTIONS AND RELATED INCOME:
Investment transactions are recorded on the trade date. Realized gains and
losses on sales of investments are determined on the last-in, first-out (LIFO)
cost basis of the investment sold. Dividends from the Fund are recorded on the
ex-dividend date.
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 taxes is required.
3. PURCHASES AND SALES OF SHARES OF TEMPLETON VARIABLE PRODUCTS SERIES FUND
Purchases and sales of the Fund for the year ended December 31, 1997 aggregated
the following:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Templeton Stock Fund........................................ $56,281,896 $71,136,348
Templeton International Fund................................ 17,809,584 23,979,813
Templeton Developing Markets Fund........................... 6,728,586 3,723,200
Templeton Asset Allocation Fund............................. 16,986,687 24,389,189
Templeton Bond Fund......................................... 3,563,395 5,644,803
Templeton Money Market Fund................................. 47,005,711 45,307,209
</TABLE>
4. INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
Phoenix provides all administrative services to the Account.
Phoenix assumes the risk that annuitants as a class may live longer than
expected 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 each Sub-account 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 0.85% on an annual basis for expense risks
assumed.
B-18(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
Notes to Financial Statements, December 31, 1997 (continued)
4. INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS (CONTINUED)
The fees charged for mortality and expense risks assumed by Phoenix for the
Templeton Stock , the Templeton International, the Templeton Developing Markets,
the Templeton Asset Allocation, the Templeton Bond and the Templeton Money
Market Sub-accounts aggregated $4,314,786, $1,520,934, $38,604, $2,018,215,
$227,700 and $173,471, respectively, for the year ended December 31, 1997.
As compensation for administrative services provided to the Account, Phoenix
additionally receives $35 per year from each annuity contract prior to the
contract's date of maturity. This cost-based charge 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. Upon a
full surrender of a contract, the entire annual administrative charge of $35 is
deducted regardless of when the surrender occurs. Phoenix received $466,675 for
administrative services provided for the year ended December 31, 1997.
Phoenix also charges each Sub-account the daily equivalent of 0.125% on an
annual basis of the current value of the Sub-account's net assets to cover its
variable costs of administration, such as printing and distribution of
participant mailings. The variable costs of administrative services provided by
Phoenix for the Templeton Stock, Templeton International, Templeton Developing
Markets, Templeton Asset Allocation, Templeton Bond and Templeton Money Market
Sub-accounts aggregated $431,953, $152,261, $3,865, $202,044, $22,795 and
$17,366, respectively, for the year ended December 31, 1997.
Franklin Templeton Funds Distributors, Inc. is the principal underwriter and
distributor for the Templeton sub-accounts of the Account. Phoenix reimburses
Franklin Templeton Funds Distributors for expenses incurred as underwriter. On
surrender of a contract, surrender 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. The surrender charges
deducted and paid to Phoenix were $675,459 for the year ended December 31, 1997.
Templeton Investment Counsel, Inc. (TICI) serves as investment manager of the
Templeton Stock, International, and Asset Allocation Funds; Templeton Global
Bond Manager, a division of TICI, serves as investment manager of the Templeton
Bond and Money Market Funds; and Templeton Asset Management Ltd., an independent
wholly owned subsidiary of Franklin Resources, Inc. ("Franklin"), serves as
investment manager of the Templeton Developing Markets Fund. The investment
managers furnish the Funds with investment research and advice and supervise the
investment programs for the Funds in accordance with each Series' investment
objective, policies and restrictions. Templeton Stock, International, Asset
Allocation and Bond Funds each pay a monthly investment management fee, equal on
an annual basis, to 0.50% of the average daily net assets up to $200 million,
0.45% of such net assets from $200 million up to $1.3 billion and 0.40% of such
net assets in excess of $1.3 billion. Templeton Developing Markets Fund pays a
monthly investment management fee equal on an annual basis to 1.25% of its daily
net assets; the Templeton Developing Markets Fund investment manager has agreed
in advance to reduce its fee so as to limit the total expenses of the Fund to an
annual rate of 1.70% of the Fund's average daily net assets until May 1, 1997.
Templeton Money Market Fund pays a monthly investment management fee equal on
annual basis to 0.35% of its average daily net assets up to $200 million, 0.30%
of such net assets from $200 million up to $1.3 billion and 0.25% of such net
assets in excess of $1.3 billion.
Each Fund pays the business manager, Templeton Fund Annuity Company (TFAC), a
monthly fee equivalent on annual basis to 0.15% of the combined average daily
net assets of the Funds, reduced to 0.135% of such assets in excess of $200
million, 0.10% of such assets in excess of $700 million, and 0.075% of such
assets in excess of $1.2 billion. TFAC provides certain administrative
facilities and services for the Funds.
5. 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.
6. 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
B-19(T)
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
Notes to Financial Statements, December 31, 1997 (continued)
6. DIVERSIFICATION REQUIREMENTS (CONTINUED)
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
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-20(T)
<PAGE>
PRICE WATERHOUSE LLP
Report of Independent Accountants [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 statements 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 Templeton Stock
Sub-account, Templeton International Sub-account, Templeton Developing Markets
Sub-account, Templeton Asset Allocation Sub-account, Templeton Bond Sub-account
and Templeton Money Market Sub-account (constituting the Phoenix Home Life
Variable Accumulation Account, hereafter referred to as the "Account") at
December 31, 1997 and the results of each of their operations 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, 1997 by
correspondence with the Funds' custodians, provide a reasonable basis for the
opinion expressed above.
PRICE WATERHOUSE LLP
Hartford, Connecticut
February 19, 1998
B-21(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
B-22(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants .......................................B-24(T)
Consolidated Balance Sheet at December 31, 1997 and 1996 ................B-25(T)
Consolidated Statement of Income and Equity for the Years Ended
December 31, 1997, 1996 and 1995 ......................................B-26(T)
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 .......................................B-27(T)
Notes to Consolidated Financial Statements ......................B-28(T)-B-54(T)
B-23(T)
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
[LOGO] PRICE WATERHOUSE LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 11, 1998
To the Board of Directors
and Policyholders of
Phoenix Home Life Mutual Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, 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
B-24(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Held-to-maturity debt securities, at amortized cost $ 1,554,905 $ 1,555,685
Available-for-sale debt securities, at fair value 5,659,061 4,895,393
Equity securities, at fair value 373,388 235,351
Mortgage loans 927,501 947,076
Real estate 321,757 410,945
Policy loans 1,986,728 1,667,784
Other invested assets 262,675 218,119
Short-term investments 1,078,276 164,967
------------------ -----------------
Total investments 12,164,291 10,095,320
Cash and cash equivalents 159,307 172,895
Accrued investment income 149,566 135,475
Deferred policy acquisition costs 1,038,407 926,274
Premiums, accounts and notes receivable 99,468 79,354
Reinsurance recoverables 66,649 46,251
Property and equipment, net 156,190 137,231
Goodwill and other intangible assets, net 541,499 313,507
Other assets 61,087 134,589
Separate account assets 4,082,255 3,412,152
------------------ -----------------
Total assets $ 18,518,719 $ 15,453,048
================== =================
LIABILITIES
Policy liabilities and accruals $ 11,334,014 $ 9,462,039
Securities sold subject to repurchase agreements 137,473
Other indebtedness 471,085 490,430
Deferred income taxes 143,821 61,934
Other liabilities 585,467 499,940
Separate account liabilities 4,082,255 3,412,152
------------------ -----------------
Total liabilities 16,754,115 13,926,495
Contingent liabilities (Note 17)
MINORITY INTEREST IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES 136,514 129,084
POLICYHOLDERS' EQUITY 1,628,090 1,397,469
------------------ -----------------
Total liabilities and policyholders' equity $ 18,518,719 $ 15,453,048
================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
B-25(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premiums $ 1,640,606 $ 1,518,822 $ 1,456,875
Insurance and investment product fees 468,030 421,058 324,459
Net investment income 736,874 689,890 662,468
Net realized investment gains 142,770 95,265 74,738
--------------- --------------- --------------
Total revenues 2,988,280 2,725,035 2,518,540
--------------- --------------- --------------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses 1,633,633 1,529,573 1,471,030
Policyholder dividends 343,725 311,739 289,469
Policy acquisition expenses 248,726 242,363 221,339
Other operating expenses 531,597 452,399 419,231
--------------- --------------- --------------
Total benefits, losses and expenses 2,757,681 2,536,074 2,401,069
--------------- --------------- --------------
OPERATING INCOME 230,599 188,961 117,471
NON-OPERATING INCOME
Gain on merger transactions 40,580
--------------- --------------- --------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 230,599 188,961 158,051
Income taxes 57,069 79,331 43,352
--------------- --------------- --------------
INCOME BEFORE MINORITY INTEREST 173,530 109,630 114,699
Minority interest in net income of consolidated subsidiaries 8,882 8,902 950
--------------- --------------- --------------
NET INCOME 164,648 100,728 113,749
Change in net unrealized investment gains, net of income taxes 65,973 15,154 99,518
--------------- --------------- --------------
INCREASE IN POLICYHOLDERS' EQUITY 230,621 115,882 213,267
POLICYHOLDERS' EQUITY, BEGINNING OF YEAR 1,397,469 1,281,587 1,068,320
--------------- --------------- --------------
POLICYHOLDERS' EQUITY, END OF YEAR $ 1,628,090 $ 1,397,469 $ 1,281,587
=============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
B-26(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 164,648 $ 100,728 $ 113,749
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATIONS
Net realized investment gains (142,770) (95,265) (74,738)
Net gain on mergers (40,580)
Amortization and depreciation 90,565 64,870 58,912
Deferred income taxes (benefit) 2,555 14,774 (16,236)
(Increase) decrease in receivables (49,172) 5,955 (30,130)
Increase in deferred policy acquisition costs (48,860) (61,985) (26,370)
Increase in policy liabilities and accruals 512,476 559,724 537,919
Increase (decrease) in other assets/other liabilities, net 44,269 (66,337) 95,880
Other, net 5,832 (652) 4,203
-------------- ----------------- --------------
Net cash provided by operating activities 579,543 521,812 622,609
-------------- ----------------- --------------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from maturities or repayments of
available-for-sale debt securities 1,187,943 1,348,809 1,145,146
Proceeds from maturities or repayments of
held-to-maturity debt securities 217,302 118,596 143,773
Proceeds from disposals of equity securities 51,373 382,359 329,104
Proceeds from mortgage loan maturities or repayments 164,213 151,760 186,172
Proceeds from sale of other invested assets 218,874 127,440 148,546
Purchase of available-for-sale debt securities (1,689,479) (1,909,086) (1,614,387)
Purchase of held-to-maturity debt securities (225,722) (385,321) (247,354)
Purchase of equity securities (88,573) (215,104) (282,488)
Purchase of subsidiaries (246,400)
Purchase of mortgage loans (140,831) (200,683) (93,097)
Purchase of other invested assets (90,593) (157,077) (73,482)
Change in short term investments, net 58,384 110,503 (166,445)
Increase in policy loans (59,699) (49,912) (32,387)
Capital expenditures (41,504) (3,543) (18,449)
Other investing activities, net (1,750) (5,898) (12,704)
-------------- ----------------- --------------
Net cash used for investing activities (686,462) (687,157) (588,052)
-------------- ----------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES
Withdrawals of contractholder deposit funds,
net of deposits and interest credited (17,902) (6,301) (154,100)
Proceeds from securities sold subject to
repurchase agreements 137,472
Proceeds from borrowings 215,359 226,082 177,922
Repayment of borrowings (234,703) (2,400) (12,726)
Dividends paid to minority shareholders (6,895) (6,245) (31,215)
-------------- ----------------- --------------
Net cash provided by (used for) financing activities 93,331 211,136 (20,119)
-------------- ----------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (13,588) 45,791 14,438
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 172,895 127,104 112,666
-------------- ----------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 159,307 $ 172,895 $ 127,104
============== ================= ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net $ 76,167 $ 76,157 $ 33,399
Interest paid on indebtedness $ 32,300 $ 19,214 $ 8,100
</TABLE>
The accompanying notes are an integral part of these statements.
B-27(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Phoenix Home Life Mutual Insurance Company (Phoenix) 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
Insurance, Group Life and Health Insurance, 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
significant subsidiaries. Less than majority-owned entities in which
Phoenix has at least a 20% interest or those where Phoenix 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, income taxes, contingencies and valuation allowances for
investment assets are discussed throughout the Notes to Consolidated
Financial Statements. Significant intercompany accounts and transactions
have been eliminated. Certain reclassifications have been made to the 1996
and 1995 amounts to conform with the 1997 presentation.
VALUATION OF INVESTMENTS
Investments in debt securities include bonds, asset-backed securities
including collateralized mortgage obligations and redeemable preferred
stocks. Phoenix classifies its debt securities as either held-to-maturity
or available-for-sale investments. Debt securities held-to-maturity consist
of private placement bonds reported at amortized cost, net of impairments,
that management intends and has the ability to hold until maturity. Debt
securities available-for-sale are reported at fair value with unrealized
gains or losses included in policyholders' equity and consist of public
bonds and preferred stocks that management may not hold until maturity.
Debt securities are considered impaired when a decline in value is
considered to be other than temporary.
Equity securities are reported at fair value based principally on their
quoted market prices with unrealized gains or losses included in
policyholders' equity. 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 Phoenix 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.
B-28(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Real estate, all of which is held for sale, is 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:
property valuation techniques utilizing discounted cash flows at the time
of stabilization including capital expenditures and stabilization costs;
sales of comparable properties; geographic location of the property and
related market conditions; and 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 partnership interests) are carried at cost
adjusted for Phoenix'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 Phoenix 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 debt securities and equity
securities classified as available-for-sale are included as a separate
component of policyholders' equity, net of deferred income taxes and
deferred policy acquisition costs.
FINANCIAL INSTRUMENTS
In the normal course of business, Phoenix enters into transactions
involving various types of financial instruments, including debt,
investments such as debt securities, 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.
B-29(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
GOODWILL AND OTHER 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. Other
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 other 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 Phoenix. 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.
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.
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.
B-30(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
POLICYHOLDERS' DIVIDENDS
Certain life insurance policies contain dividend payment provisions that
enable the policyholder to participate in the earnings of Phoenix. The
amount of policyholders' dividends to be paid is determined annually by
Phoenix'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 Phoenix's judgment as to the
appropriate level of statutory surplus to be retained. At the end of the
reporting period, Phoenix establishes a dividend liability for the pro-rata
portion of the dividends payable on the next anniversary of each policy.
Phoenix also establishes a liability for termination dividends.
INCOME TAXES
Phoenix and its eligible affiliated companies have elected to file a
life/nonlife consolidated federal income tax return for the years ended
December 31, 1997, 1996 and 1995. 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.
As a mutual life insurance company, Phoenix is required to reduce its
income tax deduction for policyholder dividends by the differential
earnings amount, defined as the difference between the earnings rates of
stock and mutual companies applied against an adjusted base of
policyholders' surplus.
3. SIGNIFICANT TRANSACTIONS
CONFEDERATION LIFE
On December 31, 1997, Phoenix acquired the individual life and
single-premium deferred annuity business of the former Confederation Life
Insurance Company. Confederation Life, a Canadian mutual life insurer, was
placed in liquidation during August of 1994. The blocks of business
acquired were part of Confederation Life's U.S. branch operations and were
covered under the rehabilitation plan approved by a Michigan circuit court.
Approximately 40,000 policies with annualized premium of $122.8 million
were included in the acquisition under an assumption reinsurance contract.
Pursuant to initiation of the contract and the closing on December 31,
1997, Phoenix recorded all balances reinsured using the purchase accounting
method. The value of reserves and liabilities acquired totaled $1.4 billion
and exceeded the assets received, principally cash and short-term
investments. The difference of $141.3 million was recorded as deferred
acquisition costs.
PHOENIX DUFF & PHELPS CORPORATION
On September 3, 1997, Phoenix Duff & Phelps acquired Pasadena Capital
Corporation, the parent company of Roger Engemann & Associates, Inc.
Pasadena Capital manages $6.3 billion in assets, primarily individual
accounts.
B-31(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On July 17, 1997, Phoenix Duff & Phelps acquired a majority interest in
GMG/Seneca Capital Management LLC, renamed Seneca Capital Management.
Seneca Capital Management manages $4.2 billion in assets.
Effective January 1, 1995, the money management businesses of Phoenix were
completely transferred to Phoenix Securities Group, Inc. 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.,
merged Phoenix Securities Group into Duff & Phelps Corporation, forming
Phoenix Duff & Phelps Corporation. The transaction was accounted for as a
reverse merger with the purchase accounting method applied to Duff &
Phelps' assets and liabilities. The purchase price was $190.7 million and
Phoenix Duff & Phelps 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 Phoenix Duff & Phelps common stock. In
addition, PM Holdings owns 45% of Phoenix Duff & Phelps' 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
Statement of Income and Equity.
SURPLUS NOTES
On November 25, 1996, Phoenix 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 debt in
the Consolidated Balance Sheet.
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 ASSET MANAGEMENT PLC
On March 25, 1996, Phoenix purchased common shares of Aberdeen Asset
Management PLC, a Scottish asset management firm for $26.4 million. Phoenix
transferred these shares to PM Holding in 1996. As of December 31, 1997, PM
Holdings owned 10% of Aberdeen Asset Management's outstanding common stock.
The investment is reported on the equity basis and classified as other
invested assets in the Consolidated Balance Sheet.
In addition, on April 15, 1996, Phoenix purchased a 7% convertible
subordinated note issued by Aberdeen Asset Management for $37.5 million.
The note, which matures on March 29, 2003, may be converted into shares
which would be equivalent to approximately 11% of Aberdeen Asset
Management's then outstanding common stock. The note is classified as
equity securities in the Consolidated Balance Sheet.
In the spring of 1996, Phoenix and Aberdeen Asset Management joined
together to form Phoenix-Aberdeen International Advisors, LLC, an SEC
registered investment advisor that, in conjunction with Phoenix Duff &
Phelps and Aberdeen Asset Management, develops and markets investment
products in the United States and the United Kingdom.
B-32(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS
Information pertaining to Phoenix's investments, net investment income and
realized and unrealized investment gains and losses follows:
DEBT AND EQUITY SECURITIES
The amortized cost and fair value of investments in debt and equity
securities as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DEBT SECURITIES
HELD-TO-MATURITY:
State and political subdivision bonds $ 11,041 $ 569 $ (8) $ 11,602
Foreign government bonds 3,032 15 (115) 2,932
Corporate securities 1,521,033 103,267 (2,042) 1,622,258
Mortgage-backed securities 19,799 949 20,748
---------------- --------------- --------------- ----------------
Total 1,554,905 104,800 (2,165) 1,657,540
---------------- --------------- --------------- ----------------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 501,190 25,020 (636) 525,574
State and political subdivision bonds 474,123 32,896 (3,477) 503,542
Foreign government bonds 248,831 26,303 (5,992) 269,142
Corporate securities 1,384,503 97,943 (4,403) 1,478,043
Mortgage-backed securities 2,786,278 99,785 (3,303) 2,882,760
---------------- --------------- --------------- ----------------
Total 5,394,925 281,947 (17,811) 5,659,061
---------------- --------------- --------------- ----------------
TOTAL DEBT SECURITIES $ 6,949,830 $ 386,747 $ (19,976) $ 7,316,601
================ =============== =============== ================
EQUITY SECURITIES $ 195,717 $ 190,669 $ (12,998) $ 373,388
================ =============== =============== ================
</TABLE>
B-33(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of investments in debt 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>
DEBT SECURITIES
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 DEBT SECURITIES $ 6,299,074 $ 252,729 $ (51,786) $ 6,500,017
================= ================= ================= =================
EQUITY SECURITIES $ 137,907 $ 100,258 $ (2,814) $ 235,351
================= ================= ================= =================
</TABLE>
B-34(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of debt securities, by contractual
maturity, as of December 31, 1997 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
Phoenix 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 $ 113,850 $ 116,684 $ 78,768 $ 79,054
Due after one year through five years 477,101 499,155 329,529 347,240
Due after five years through ten years 625,518 670,597 651,878 683,747
Due after ten years 318,637 350,357 1,548,472 1,666,260
Mortgage-backed securities 19,799 20,747 2,786,278 2,882,760
---------------- ---------------- ---------------- ----------------
Total $ 1,554,905 $ 1,657,540 $ 5,394,925 $ 5,659,061
================ ================ ================ ================
</TABLE>
Carrying values for investments in mortgage-backed securities, excluding
U.S. government guaranteed investments, were as follows:
DECEMBER 31,
1997 1996
(IN THOUSANDS)
Planned amortization class $ 554,425 $ 618,953
Asset-backed 594,128 490,018
Mezzanine 328,539 322,812
Commercial 556,155 413,571
Sequential pay 680,397 552,512
Pass through 132,522 105,282
Other 56,393 58,604
-------------- --------------
Total mortgage-backed securities $ 2,902,559 $ 2,561,752
============== ==============
Phoenix had 30% and 37% at December 31, 1997 and 1996, respectively, in
planned amortization class and mezzanine mortgage-backed securities which
have reasonably predictable cash flows and a relatively high degree of
prepayment protection.
B-35(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MORTGAGE LOANS AND REAL ESTATE
Phoenix'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.
Mortgage loans and real estate investments comprise the following property
types and geographic regions:
<TABLE>
<CAPTION>
MORTGAGE LOANS REAL ESTATE
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
PROPERTY TYPE:
Office buildings $ 246,500 $ 251,526 $ 180,743 $ 246,644
Retail 231,886 257,721 108,907 121,813
Apartment buildings 303,990 241,286 20,560 26,286
Industrial buildings 162,008 197,013 39,810 56,134
Other 18,917 47,929 238 7,577
Valuation allowances (35,800) (48,399) (28,501) (47,509)
--------------- -------------- ---------------- -------------
Total $ 927,501 $ 947,076 $ 321,757 $ 410,945
=============== ============== ================ =============
GEOGRAPHIC REGION:
Northeast $ 222,975 $ 260,146 $ 92,513 $ 103,761
Southeast 257,376 261,957 85,781 110,746
North central 189,163 158,902 63,751 86,070
South central 79,092 57,507 58,954 85,532
West 214,695 256,963 49,259 72,345
Valuation allowances (35,800) (48,399) (28,501) (47,509)
--------------- -------------- ---------------- -------------
Total $ 927,501 $ 947,076 $ 321,757 $ 410,945
=============== ============== ================ =============
</TABLE>
At December 31, 1997, scheduled mortgage loan maturities were as follows:
1998 - $151 million; 1999 - $88 million; 2000 - $97 million; 2001 - $92
million; 2002 - $41 million; and $494 million thereafter. Actual maturities
will differ from contractual maturities because borrowers may have the
right to prepay obligations with or without prepayment penalties and loans
may be refinanced. Phoenix refinanced $8.6 million and $28.9 million of its
mortgage loans during 1997 and 1996, respectively, based on terms which
differed from those granted to new borrowers.
B-36(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the Consolidated Balance Sheet
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>
1997
Mortgage loans $ 48,399 $ 6,731 $ (19,330) $ 35,800
Real estate 47,509 4,201 (23,209) 28,501
-------------- -------------------- --------------- --------------------
Total $ 95,908 $ 10,932 $ (42,539) $ 64,301
============== ==================== =============== ====================
1996
Mortgage loans $ 65,807 $ 7,640 $ (25,048) $ 48,399
Real estate 83,755 2,526 (38,772) 47,509
-------------- -------------------- --------------- --------------------
Total $ 149,562 $ 10,166 $ (63,820) $ 95,908
============== ==================== =============== ====================
</TABLE>
NON-INCOME PRODUCING MORTGAGE LOANS AND BONDS
The net carrying values of non-income producing mortgage loans were $7.0
million and $4.5 million at December 31, 1997 and 1996, respectively. There
were no non-income producing bonds at December 31, 1997 or 1996.
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 $272.9 million and $73.1 million
at December 31, 1997 and 1996, respectively. Average received and average
paid rates were 7.00% and 6.63% for 1997.
These agreements do not require the exchange of underlying principal
amounts, and accordingly Phoenix's maximum exposure to credit risk is the
difference in interest payments exchanged. Management of Phoenix considers
the likelihood of any material loss on interest rate swaps to be remote.
B-37(T)
<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 affiliates, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Venture capital equity partnerships $ 88,228 $ 66,284
Transportation and equipment leases 59,111 46,950
Investment in Aberdeen Asset Management 32,817 29,980
Investment in Beutel, Goodman & Co. Ltd. 31,214 34,541
Seed money in separate accounts 41,297 35,747
Other 10,008 4,617
------------- ------------
Total other invested assets $ 262,675 $ 218,119
============= ============
</TABLE>
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31,
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Debt securities $ 509,702 $ 469,713 $ 437,521
Equity securities 4,277 4,689 1,787
Mortgage loans 85,662 84,318 92,283
Policy loans 122,562 117,742 115,055
Real estate 18,939 21,799 20,910
Other invested assets (415) 332 871
Short-term investments 18,768 18,688 21,974
------------ ------------ -------------
Sub-total 759,495 717,281 690,401
Less investment expenses 22,621 27,391 27,933
------------ ------------ -------------
Net investment income $ 736,874 $ 689,890 $ 662,468
============ ============ =============
</TABLE>
Investment income of $.7 million was not accrued on certain delinquent
mortgage loans and defaulted bonds at December 31, 1997. Phoenix 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 $51.3 million and $61.5 million at December 31,
1997 and 1996, respectively. Interest income on restructured mortgage loans
that would have been recorded in accordance with the original terms of such
loans amounted to $5.3 million, $3.1 million and $6.6 million in 1997, 1996
and 1995, respectively. Actual interest income on these loans included in
net investment income was $3.8 million, $5.2 million and $6.4 million in
1997, 1996 and 1995, respectively.
B-38(T)
<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>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ 112,194 $ (70,986) $ 476,352
Equity securities 74,547 40,803 24,527
Deferred policy acquisition costs (77,985) 51,528 (341,836)
Deferred income taxes 38,064 7,432 55,692
Other (Note 9) (4,719) 1,241 (3,833)
-------------- ------------------ ---------------
Net unrealized investment gains $ 65,973 $ 15,154 $ 99,518
============== ================== ===============
</TABLE>
Realized investment gains and losses for the year ended December 31, were
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ 19,315 $ (10,476) $ 8,080
Equity securities 26,290 59,794 29,276
Mortgage loans 3,805 2,628 (262)
Real estate 44,668 24,711 20,535
Other invested assets 48,692 18,608 17,109
-------------- ------------------ ---------------
142,770 95,265 74,738
Income taxes 49,970 33,343 26,158
-------------- ------------------ ---------------
Net realized investment gains after taxes $ 92,800 $ 61,922 $ 48,580
============== ================== ===============
</TABLE>
The proceeds from sales of available-for-sale debt securities and the gross
realized gains and gross realized losses on those sales for the year ended
December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from disposals $ 1,206,744 $ 1,348,809 $ 1,145,146
Gross gains on sales $ 48,100 $ 17,429 $ 27,980
Gross losses on sales $ 28,785 $ 27,905 $ 19,900
</TABLE>
B-39(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets were as follows:
DECEMBER 31,
1997 1996
(IN THOUSANDS)
Goodwill $ 387,517 $ 231,135
Investment management contracts 167,788 56,700
Client listings 45,441 41,410
Non-compete covenants 5,000 5,000
Intangible asset related to
pension plan benefits 18,032 19,835
Other 1,499 1,220
------------ ------------
625,277 355,300
Accumulated amortization (83,778) (41,793)
------------ ------------
Total $ 541,499 $ 313,507
============ ============
Phoenix Duff & Phelps' amounts included above were as follows:
DECEMBER 31,
1997 1996
(IN THOUSANDS)
Goodwill $ 321,932 $ 179,406
Investment management contracts 167,788 56,700
Non-compete covenants 5,000 5,000
Other 1,220 1,220
------------ ------------
495,940 242,326
Accumulated amortization (27,579) (13,198)
------------ ------------
Total $ 468,361 $ 229,128
============ ============
In 1997, American Phoenix Corporation wrote down the carrying value of its
goodwill and other intangible assets by $18.8 million. This impairment loss
is included in other operating expenses in the Consolidated Statement of
Income and Equity.
B-40(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Other than debt securities being held-to-maturity, 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.
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.
DEBT SECURITIES
Fair values are based on quoted market prices, where available, or quoted
market prices of comparable instruments. Fair values of private placement
debt securities 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 the Treasury rate comparable for the remaining loan
duration, plus 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.
B-41(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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 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>
1997 1996
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 159,307 $ 159,307 $ 172,895 $ 172,895
Short-term investments 1,078,276 1,078,276 164,967 164,967
Debt securities 7,213,966 7,316,601 6,451,078 6,500,017
Equity securities 373,388 373,388 235,351 235,351
Mortgage loans 927,501 956,041 947,076 986,900
Policy loans 1,986,728 2,104,704 1,667,784 1,645,899
--------------- ---------------- -------------- --------------
Total financial assets $ 11,739,166 $ 11,988,317 $ 9,639,151 $ 9,706,029
=============== ================ ============== ==============
Financial liabilities:
Policy liabilities $ 902,200 $ 902,200 $ 875,200 $ 875,100
Securities sold subject to repurchase
agreements 137,473 137,473
Other indebtedness 471,085 471,085 490,430 490,430
--------------- ---------------- -------------- --------------
Total financial liabilities $ 1,510,758 $ 1,510,758 $ 1,365,630 $ 1,365,530
=============== ================ ============== ==============
</TABLE>
B-42(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. OTHER INDEBTEDNESS
DECEMBER 31,
1997 1996
(IN THOUSANDS)
Short-term debt $ 15,539 $ 12,455
Bank borrowings 263,732 280,845
Notes payable 14,632 19,522
Surplus notes 175,000 175,000
Secured debt 2,182 2,608
------------ ------------
Total other indebtedness $ 471,085 $ 490,430
============ ============
Phoenix has various lines of credit established with major commercial
banks. As of December 31, 1997, Phoenix had outstanding balances totaling
$264.5 million. The total unused credit was $145.3 million. Interest rates
ranged from 5.42% to 6.63% in 1997.
On November 25, 1996, Phoenix issued $175 million of surplus notes (See
Note 3).
Maturities of other indebtedness are as follows: 1998 - $15.5 million; 1999
- $55 million; 2000 - $4 million; 2001 - $29 million; 2002 - $192 million;
2003 and thereafter - $175.5 million.
Interest expense was $32.5 million, $18.0 million and $7.7 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
8. INCOME TAXES
A summary of income taxes (benefits) in the Consolidated Statement of
Income and Equity for the year ended December 31, was as follows:
1997 1996 1995
(IN THOUSANDS)
Income taxes
Current $ 54,514 $ 59,673 $ 59,590
Deferred 2,555 19,658 (16,238)
----------- ---------- ------------
Total $ 57,069 $ 79,331 $ 43,352
=========== ========== ============
B-43(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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>
1997 1996 1995
% % %
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory rate $ 80,710 35 $ 66,136 35 $ 55,318 35
Non-taxable gain on Phoenix Duff &
Phelps merger (14,203) (9)
Dividend received deduction and
tax-exempt interest (2,513) (1) (2,107) (1) (623)
Other, net (8,017) (4) 2,736 1 2,860 1
------------ ----- ------------ ----- ------------ -----
70,180 30 66,765 35 43,352 27
Differential earnings (equity tax) (13,111) (5) 12,566 7
------------ ----- ------------ ----- ------------ -----
Income taxes $ 57,069 25 $ 79,331 42 $ 43,352 27
============ ===== ============ ===== ============ =====
</TABLE>
B-44(T)
<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:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Deferred policy acquisition costs $ 303,500 $ 220,135
Unearned premium/deferred revenue (139,817) (131,513)
Impairment reserves (26,102) (43,331)
Pension and other postretirement benefits (56,643) (58,230)
Investments 77,202 50,219
Future policyholder benefits (140,980) (37,904)
Other 45,053 15,633
------------- -------------
62,213 15,009
Net unrealized investment gains 84,134 48,320
Minimum pension liability (2,526) (1,395)
Foreign tax credit (1,109)
------------- -------------
Deferred income tax liability, net
before valuation allowance 143,821 60,825
Valuation allowance 1,109
------------- -------------
Deferred income tax liability, net $ 143,821 $ 61,934
============= =============
</TABLE>
Gross deferred income tax assets totaled $366 million and $274 million at
December 31, 1997 and 1996, respectively. Gross deferred income tax
liabilities totaled $510 million and $336 million at December 31, 1997 and
1996, respectively. It is management's assessment, based on Phoenix's
earnings and projected future taxable income, that it is more likely than
not that deferred income tax assets at December 31, 1997 and 1996, with the
exception of the foreign tax credit, will be realized.
The Internal Revenue Service is currently examining Phoenix's tax returns
for 1995 and 1996. Management does not believe that there will be a
material adverse effect on the financial statements as a result of pending
tax matters.
B-45(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
PENSION PLANS
Phoenix has a multi-employer, 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. Phoenix also
sponsors a non-qualified supplemental defined benefit plan to provide
benefits in excess of amounts allowed pursuant to Internal Revenue Code.
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>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 10,278 $ 10,076 $ 9,599
Interest accrued on projected benefit obligation 22,650 22,660 19,880
Actual return on assets (53,093) (38,788) (62,567)
Net amortization and deferral 30,488 17,318 45,807
------------ ------------- ------------
Net periodic pension cost $ 10,323 $ 11,266 $ 12,719
============ ============= ============
</TABLE>
In 1996, Phoenix offered an early retirement program which granted an
additional benefit of five years of age and service. As a result of the
early retirement program, Phoenix recorded an additional pension expense of
$8.7 million for the year ended December 31, 1996.
B-46(T)
<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,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of vested benefit obligation $ 236,443 $ 213,148
Actuarial present value of non-vested benefit obligation 16,312 14,828
------------- ------------
Accumulated benefit obligation 252,755 227,976
Present value effect of future salary increases 32,316 33,910
------------- ------------
Projected benefit obligation $ 285,071 $ 261,886
============= ============
Plan assets at fair value $ 321,555 $ 292,070
============= ============
Plan assets in excess of projected benefit obligation $ (36,484) $ (30,184)
Unrecognized net gain from past experience 60,759 52,312
Unrecognized prior service benefit 52 240
Unamortized transition asset 16,586 19,745
------------- ------------
Net pension liability (included in other liabilities) $ 40,913 $ 42,113
============= ============
</TABLE>
At December 31, 1997 and 1996, the non-qualified plan was unfunded and had
projected benefit obligations of $50.4 million and $50.0 million,
respectively. The accumulated benefit obligations as of December 31, 1997
and 1996 related to this plan were $42.8 million and $37.4 million,
respectively, and are included in other liabilities.
Phoenix recorded, as a reduction of policyholders' equity, an additional
minimum pension liability of $4.7 million and $2.8 million, net of income
taxes, at December 31, 1997 and 1996, respectively, representing the excess
of accumulated benefit obligations over the fair value of plan assets and
accrued pension liabilities for the non-qualified plan. Phoenix has also
recorded an intangible asset of $18.0 million and $19.8 million as of
December 31, 1997 and 1996 related to the non-qualified plan.
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit
obligation were 7.0% and 4.0%, for 1997 and 7.5% and 4.5% for 1996. The
discount rate assumption for 1997 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%.
The pension plan's assets include corporate and government debt securities,
equity securities, real estate, venture capital funds, and shares of mutual
funds.
Phoenix 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. Phoenix 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, 1997, 1996 and 1995 were $3.8 million, $4.2
million and $4.2 million, respectively.
B-47(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
OTHER POSTRETIREMENT BENEFIT PLANS
In addition to Phoenix's pension plans, Phoenix 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 Phoenix's
Consolidated Balance Sheet, was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees $ 35,900 $ 30,576
Fully eligible active plan participants 6,889 11,466
Other active plan participants 23,829 21,614
------------ -----------
Total accumulated postretirement benefit obligation 66,618 63,656
Unrecognized net gain from past experience 28,037 29,173
------------ -----------
Accrued postretirement benefit liability $ 94,655 $ 92,829
============ ===========
</TABLE>
The components of net periodic postretirement benefit cost for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during year $ 3,136 $ 2,765 $ 3,366
Interest cost accrued on benefit obligation 4,441 4,547 5,275
Net amortization (1,527) (1,577) (458)
---------- ---------- ---------
Net periodic postretirement benefit cost $ 6,050 $ 5,735 $ 8,183
========== ========== =========
</TABLE>
B-48(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In addition to the net periodic postretirement benefit cost, Phoenix
expensed an additional $3.0 million for postretirement benefits related to
the early retirement program for the year ended December 31, 1996.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.0% at December 31, 1997 and 7.5% at December 31,
1996.
For purposes of measuring the accumulated postretirement benefit obligation
at December 31, 1997, 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, 1996, health
care costs were assumed to increase 9.5% 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 $5.3
million and the annual service and interest cost by $.8 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
Phoenix 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 $.4 million for 1997, $.4 million for 1996 and $.5
million for 1995.
B-49(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. SEGMENT INFORMATION
Phoenix operates principally in seven segments: Individual Insurance, Group
Life and Health Insurance, 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 include equity securities.
Summarized below is financial information with respect to the business
segments:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Individual Insurance $ 2,028,230 $ 1,796,572 $ 1,752,338
Group Life and Health Insurance 459,405 462,551 421,771
Life Reinsurance 162,843 143,314 128,813
General Lines Brokerage 64,093 61,809 40,977
Securities Management 177,894 164,966 112,206
Real Estate Management 15,319 13,550 13,562
Other Operations 80,496 82,273 48,873
----------------- ----------------- -----------------
Total $ 2,988,280 $ 2,725,035 $ 2,518,540
================= ================= =================
OPERATING INCOME
Individual Insurance $ 132,308 $ 63,013 $ 43,094
Group Life and Health Insurance 31,276 11,220 19,921
Life Reinsurance 10,592 8,078 17,656
General Lines Brokerage (21,652) (2,935) (1,887)
Securities Management 38,813 44,440 23,667
Real Estate Management (2,433) (3,783) (184)
Other Operations 41,695 68,928 15,204
----------------- ----------------- -----------------
Total $ 230,599 $ 188,961 $ 117,471
================= ================= =================
IDENTIFIABLE ASSETS
Individual Insurance $ 15,679,598 $ 12,961,648
Group Life and Health Insurance 655,800 596,800
Life Reinsurance 313,500 304,300
General Lines Brokerage 111,900 117,300
Securities Management 615,112 376,000
Real Estate Management 278,500 319,400
Other Operations 864,309 777,600
----------------- -----------------
Total $ 18,518,719 $ 15,453,048
================= =================
</TABLE>
B-50(T)
<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 $14.9 million, $14.8 million and $14.6 million in
1997, 1996, and 1995, respectively. Future minimum rental payments under
non-cancelable operating leases were approximately $51.0 million as of
December 31, 1997, payable as follows: 1998 - $15.7 million; 1999 - $12.9
million; 2000 - $10.1 million; 2001 - $5.6 million; 2002 - $3.6 million;
and $3.1 million thereafter.
12. PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements, consisting primarily of
office buildings occupied by Phoenix, are stated at depreciated cost. Real
estate occupied by Phoenix was $109.0 million and $97.2 million,
respectively, at December 31, 1997 and 1996. Phoenix 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 $164.4 million and
$144.1 million at December 31, 1997 and 1996, respectively.
13. 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 Phoenix on any one life is
$8 million for single life and joint first-to-die policies and $10 million
for joint last-to-die policies, with excess amounts ceded to reinsurers.
For reinsurance ceded, Phoenix 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>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $ 1,592,800 $ 1,473,869 $ 1,455,459
Reinsurance assumed 329,927 276,630 271,498
Reinsurance ceded (282,121) (231,677) (270,082)
----------------- -------------------- -----------------
Net premiums $ 1,640,606 $ 1,518,822 $ 1,456,875
================= ==================== =================
Direct policy and contract claims incurred $ 626,834 $ 575,824 $ 605,545
Reinsurance assumed 410,704 170,058 256,529
Reinsurance ceded (373,127) (160,646) (292,357)
----------------- -------------------- -----------------
Net policy and contract claims incurred $ 664,411 $ 585,236 $ 569,717
================= ==================== =================
Direct life insurance in force $ 120,394,664 $ 108,816,856 $ 102,606,749
Reinsurance assumed 84,806,585 61,109,836 36,724,852
Reinsurance ceded (74,764,639) (51,525,976) (34,093,090)
----------------- -------------------- -----------------
Net insurance in force $ 130,436,610 $ 118,400,716 $ 105,238,511
================= ==================== =================
</TABLE>
B-51(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Irrevocable letters of credit aggregating $134.8 million at December 31,
1997 have been arranged with United States commercial banks in favor of
Phoenix to collateralize the ceded reserves.
14. PARTICIPATING LIFE INSURANCE
Participating life insurance in force was 79.6% and 80.0% of the face value
of total individual life insurance in force at December 31, 1997 and 1996,
respectively. The premiums on participating life insurance policies were
83.5%, 84.1% and 84.7% of total individual life insurance premiums in 1997,
1996 and 1995, respectively.
15. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred and
amortized for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 926,274 $ 816,128 $ 1,128,227
Acquisition cost deferred 295,189 153,873 143,519
Amortized to expense during the year (105,071) (95,255) (113,788)
Adjustment to equity during the year (77,985) 51,528 (341,830)
----------------- -------------- ----------------
Balance at end of year $ 1,038,407 $ 926,274 $ 816,128
================= ============== ================
</TABLE>
16. MINORITY INTEREST
Phoenix's interests in Phoenix Duff & Phelps Corporation and American
Phoenix Corporation, through its wholly-owned subsidiary PM Holdings are
represented by ownership of approximately 60% and 92%, respectively, of the
outstanding shares of common stock at December 31, 1997. Earnings and
policyholders' equity attributable to minority shareholders are included in
minority interest in the consolidated financial statements along with
Phoenix Duff & Phelps' preferred stock.
17. CONTINGENCIES
FINANCIAL GUARANTEES
Phoenix 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 Phoenix's maximum exposure to credit loss in the event
of nonperformance. The principal amount of bonds guaranteed by Phoenix at
December 31, 1997 and 1996 was $88.7 million and $88.8 million,
respectively. Management believes that any loss contingencies which may
arise from Phoenix's financial guarantees would not have a material adverse
effect on Phoenix's liquidity or financial condition.
B-52(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
LITIGATION
In 1996, Phoenix 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. Phoenix estimates the cost of settlement to be $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 Phoenix's consolidated financial position.
Phoenix 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 Phoenix's consolidated financial position.
18. 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, 1997, 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, surplus notes are not included in
policyholders' equity, 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 Phoenix as reported to
regulatory authorities to the net income as reported in these financial
statements for the year ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income $ 60,702 $ 72,961 $ 64,198
Deferred policy acquisition costs, net 48,821 58,618 29,766
Future policy benefits (9,145) (16,793) (15,763)
Pension and postretirement expenses (7,955) (23,275) (12,691)
Investment valuation allowances 88,813 76,631 56,745
Interest maintenance reserve 17,544 (5,158) 5,829
Deferred income taxes (36,250) (67,064) (10,021)
Other, net 2,118 4,808 (4,314)
------------ ------------- ------------
Net income, as reported $ 164,648 $ 100,728 $ 113,749
============ ============= ============
</TABLE>
B-53(T)
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following reconciles the statutory surplus and asset valuation reserve
(AVR) of Phoenix as reported to regulatory authorities to policyholders'
equity as reported in these financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Statutory surplus, surplus notes and AVR $ 1,152,820 $ 1,102,200
Deferred policy acquisition costs, net 1,227,782 1,037,664
Future policy benefits (395,436) (379,820)
Pension and postretirement expenses (169,383) (152,112)
Investment valuation allowances (40,032) (139,562)
Interest maintenance reserve 33,794 6,897
Deferred income taxes (12,051) 82,069
Surplus notes (157,500) (157,500)
Other, net (11,904) (2,367)
-------------- --------------
Policyholders' equity, as reported $ 1,628,090 $ 1,397,469
============== ==============
</TABLE>
The 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.
B-54(T)
<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, is
incorporated herein by reference.
(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).
C-1
<PAGE>
(10)(a) Written Consent and Opinion as to Legality of Securities
Being Registered of Edwin L. Kerr, Esquire filed via
Edgar herewith.
(10)(b)Written Consent of Price Waterhouse LLP filed via Edgar
herewith.
(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. 28 on April 30, 1998.
(27) Not Applicable
ITEM 25. DIRECTORS AND EXECUTIVE OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITIONS WITH DEPOSITOR
---- -------------------------- ------------------------
<S> <C> <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 and Chief Operating Officer Director
Sonoco Products Company
Hartsville, SC
Arthur P. Byrne Chairman, President and Director
Chief Executive Officer
The Wiremold Company
Richard N. Cooper, Ph.D. Professor of International Director
Economics, Harvard University;
formerly Chairman, National
Intelligence Council, Central
Intelligence Agency
McLean, Virginia
Gordon J. Davis, Esq. Partner, LeBoeuf, Lamb, Greene & Director
MacRae; formerly Partner, Lord, Day
& Lord, Barret Smith
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.
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C> <C> <C>
John W. Johnstone Chairman, President and Chief Director
Executive Officer, Olin Corporation
Norwalk, CT
Philip R. McLoughlin* Phoenix Home Life Director, Executive Vice
Mutual Insurance Company President and Chief
Hartford, CT Investment Officer
Charles J. Paydos** Phoenix Home Life Director and Executive
Mutual Insurance Company Vice President
Hartford, CT
Robert F. Vizza President and Chief Executive Officer Director
St. Francis Hospital
Roslyn, NY
Robert G. Wilson Chief Executive Officer, CreditSource Director
USA, Inc., Charlotte, North
Carolina; formerly Chairman and
President Ziani International
Capital, Inc., Miami, Florida, Vice
Chairman, Carter Kaplan & Company,
Richmond Virginia and Chairman and
Chief Executive Officer, Ecologic
Waste Services, Inc., Miami, FL
Richard H. Booth* Executive Vice President
Strategic Development;
formerly President,
Traveler's Insurance
Company
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
Distribution Planning
Carl T. Chadburn** Executive Vice
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
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C> <C> <C>
Joseph E. Kelleher** Senior Vice President,
Underwriting and
Operations
Robert G. Lautensack, Jr.* Senior Vice President,
Individual Financial
Maura L. Melley Senior Vice President
Public Affairs
Scott C. Noble* Senior Vice President
Robert E. Primmer* Senior Vice President
Individual Distribution
Frederick W. Sawyer, III* Senior Vice President
Richard C. Shaw* Senior Vice President
Simon Y. Tan* Senior Vice President
Market and Product
Development
Anthony J. Zeppetella Senior Vice President,
Corporate Portfolio
Management
Walter H. Zultowski Senior Vice President,
Marketing and Market
Research; formerly Senior
Vice President, LIMRA
International,
Hartford, Connecticut
</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 March 31, 1998, there were 74,076 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...."
C-4
<PAGE>
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> <C>
Michael E. Haylon*** Director
Philip R. McLoughlin* Director and President
William R. Moyer** Director, Senior Vice President and Chief
Financial Officer
John F. Sharry** Executive Vice President, Retail Distribution
Paul Atkins*** Senior Vice President and Sales Manager
Maris Lambergs** Senior Vice President, Insurance and
Independent Division
Leonard J. Saltiel** Managing Director, Operations and Service
G. Jeffrey Bohne**** Vice President, Mutual Fund Customer Service
Eugene A. Charon** Vice President and Corporate Controller
Nancy G. Curtiss*** Vice President and Treasurer, Fund Accounting
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
PRINCIPAL NET UNDERWRITING COMPENSATION BROKERAGE
UNDERWRITER DISCOUNTS AND COMMISSIONS ON REDEMPTION COMMISSIONS COMPENSATION
- ----------- ------------------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
PEPCO $21,403,257 -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.
C-5
<PAGE>
(b) Directors and Officers of WSG
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
---------------- ----------------
<S> <C> <C>
Simon Y. Tan * Director and President
Philip R. McLoughlin** Director
Charles J. Paydos*** Director
Robert E. Primmer* Director
David W. Searfoss* Director
Dona D. Young* Director
Gerard A. Rocchi* Senior Vice President and Chief Operating Officer
Peter S. Deering**** Vice President and Chief Marketing Officer
Laura E. Miller**** Vice President, Chief Financial Officer 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.
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 30th day of April, 1998.
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
30th day of April, 1998.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
____________________________________ 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)
</TABLE>
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
*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
Edwin L. Kerr, Counsel
Phoenix Home Life Mutual Insurance Company
<PAGE>
April 30, 1998
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
Dear Members of the Board of Directors:
You have requested my Opinion of Counsel in connection with the filing
with the Securities and Exchange Commission of Post-Effective Amendment No. 28
to a Registration Statement on Form N-4 (File Nos. 2-878020 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.
I have made such examination of the law and have examined such records
and documents as in my judgment are necessary or appropriate to enable me 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. 28 to Form N-4 (File Nos. 2-78020 and 811-3488).
I consent to the references to me under the captions "Legal Matters" in
the Prospectus and "Experts" in the Statement of Additional Information which
form a part of the Registration Statement.
Sincerely,
Edwin L. Kerr
Counsel
EXHIBIT 99.10(B)
Written Consent of Price Waterhouse LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 28 to the Registration
Statement on Form N-4 (the "Registration Statement") of our reports dated
February 19, 1998 and February 11, 1998, relating to the financial statements of
Phoenix Home Life Variable Accumulation Account and the consolidated financial
statements of Phoenix Home Life Mutual Insurance Company, respectively, 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
April 29, 1998
EXHIBIT 99.15
Powers of Attorney
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Peter C. Browning , Director October 19, 1997
- --------------------------------------------
Peter C. Browning
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Robert F. Vizza , Director October 19, 1997
- --------------------------------------------
Robert F. Vizza
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Robert G. Wilson , Director October 19, 1997
- --------------------------------------------
Robert G. Wilson
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ John C. Bacot , Director October 20, 1997
- ------------------------------------
John C. Bacot
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Jerry J. Jasinowski , Director October 20, 1997
- --------------------------------------------
Jerry J. Jasinowski
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Arthur P. Byrne , Director October 20, 1997
- --------------------------------------------
Arthur P. Byrne
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Sal H. Alfiero , Director October 21, 1997
- --------------------------------------------
Sal H. Alfiero
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Indra K. Nooyi , Director October 21, 1997
- --------------------------------------------
Indra K. Nooyi
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Marilyn E. LaMarche , Director October 21, 1997
- ------------------------------------
Marilyn E. LaMarche
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ John W. Johnstone , Director October 21, 1997
- --------------------------------------------
John W. Johnstone
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Gordon J. Davis , Director October 21, 1997
- --------------------------------------------
Gordon J. Davis
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Richard N. Cooper , Director October 21, 1997
- --------------------------------------------
Richard N. Cooper
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Carol H. Baldi , Director October 21, 1997
- --------------------------------------------
Carol H. Baldi
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors of Phoenix Home
Life Mutual Insurance Company, hereby constitute and appoint John H. Beers,
Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them as my true
and lawful attorneys and agents with full power to sign for me in the capacity
indicated below, any or all Registration Statements or amendments thereto filed
with the Securities and Exchange Commission under the Securities Act of 1933
and/or the Investment Company Act of 1940 relating to securities issued or sold
by Phoenix Home Life Mutual Insurance Company or any of its separate accounts,
and hereby ratify and confirm my signature as it may be signed by said attorneys
and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Philip R. McLoughlin , Director October 31, 1997
- ------------------------------------
Philip R. McLoughlin
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors and Officer of
Phoenix Home Life Mutual Insurance Company, hereby constitute and appoint John
H. Beers, Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them
as my true and lawful attorneys and agents with full power to sign for me in the
capacity indicated below, any or all Registration Statements or amendments
thereto filed with the Securities and Exchange Commission under the Securities
Act of 1933 and/or the Investment Company Act of 1940 relating to securities
issued or sold by Phoenix Home Life Mutual Insurance Company or any of its
separate accounts, and hereby ratify and confirm my signature as it may be
signed by said attorneys and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Robert W. Fiondella , Chairman, President and Chief Executive Officer
- --------------------------------------------
Robert W. Fiondella
October 23, 1997
<PAGE>
POWER OF ATTORNEY
I, the undersigned Officer of Phoenix Home Life Mutual Insurance
Company, hereby constitute and appoint John H. Beers, Donald E. Bertrand, Edwin
L. Kerr and Dona D. Young or either of them as my true and lawful attorneys and
agents with full power to sign for me in the capacity indicated below, any or
all Registration Statements or amendments thereto filed with the Securities and
Exchange Commission under the Securities Act of 1933 and/or the Investment
Company Act of 1940 relating to securities issued or sold by Phoenix Home Life
Mutual Insurance Company or any of its separate accounts, and hereby ratify and
confirm my signature as it may be signed by said attorneys and agents.
WITNESS my hand and seal on the date set forth below.
/s/ David W. Searfoss , Executive Vice President and Chief Financial Officer
- --------------------------------------------
David W. Searfoss
October 21, 1997
<PAGE>
POWER OF ATTORNEY
I, the undersigned member of the Board of Directors and Officer of
Phoenix Home Life Mutual Insurance Company, hereby constitute and appoint John
H. Beers, Donald E. Bertrand, Edwin L. Kerr and Dona D. Young or either of them
as my true and lawful attorneys and agents with full power to sign for me in the
capacity indicated below, any or all Registration Statements or amendments
thereto filed with the Securities and Exchange Commission under the Securities
Act of 1933 and/or the Investment Company Act of 1940 relating to securities
issued or sold by Phoenix Home Life Mutual Insurance Company or any of its
separate accounts, and hereby ratify and confirm my signature as it may be
signed by said attorneys and agents.
WITNESS my hand and seal on the date set forth below.
/s/ Charles J. Paydos ,Director
- --------------------------------------------
Charles J. Paydos
October 20, 1997
