As filed with the Securities and Exchange Commission on April 30, 1999
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. 29 [X]
AND/OR
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 31
(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, 1999 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 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> <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 and Phoenix Edge 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}
GROUP STRATEGIC EDGE
THE BIG EDGE CHOICE FOR NEW YORK
THE BIG EDGE PLUS
VARIABLE ANNUITY
Issued by
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT:
[envelope] PHOENIX VARIABLE PRODUCTS MAIL OPERATIONS
PO Box 8027
Boston, MA 02266-8027
[telephone] Tel. 800/541-0171
PROSPECTUS MAY 1, 1999
This Prospectus describes a variable accumulation deferred annuity contract. The
Contract is designed to provide you with retirement income in the future. The
Contract offers a variety of variable and fixed investment options.
The Contract is not a deposit or obligation of, underwritten or guaranteed by,
any financial institution, credit union or affiliate. It is not federally
insured by the Federal Deposit Insurance Corporation or any other state or
federal agency. Contract investments are subject to risk, including the
fluctuation of Contract Values and possible loss of principal.
The Securities and Exchange Commission ("SEC") has not approved or disapproved
these securities, nor passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
THE PHOENIX EDGE SERIES FUND
- ----------------------------
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
[diamond] Phoenix Research Enhanced Index
[diamond] Phoenix-Aberdeen International
[diamond] Phoenix-Engemann Nifty Fifty
[diamond] Phoenix-Goodwin Balanced
[diamond] Phoenix-Goodwin Growth
[diamond] Phoenix-Goodwin Money Market
[diamond] Phoenix-Goodwin Multi-Sector Fixed Income
[diamond] Phoenix-Goodwin Strategic Allocation
[diamond] Phoenix-Goodwin Strategic Theme
[diamond] Phoenix-Hollister Value Equity
[diamond] Phoenix-Oakhurst Growth and Income
[diamond] Phoenix-Schafer Mid-Cap Value
[diamond] Phoenix-Seneca Mid-Cap Growth
MANAGED BY PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
[diamond] Phoenix-Aberdeen New Asia
MANAGED BY DUFF & PHELPS INVESTMENT MANAGEMENT CO.
[diamond] Phoenix-Duff & Phelps Real Estate Securities
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- ---------------------------------------
MANAGED BY TEMPLETON INVESTMENT COUNSEL, INC.
[diamond] Templeton Asset Allocation
[diamond] Templeton International
[diamond] Templeton Stock
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
[diamond] Templeton Developing Markets
MANAGED BY FRANKLIN MUTUAL ADVISERS, INC.
[diamond] Mutual Shares Investments
WANGER ADVISORS TRUST
- ---------------------
MANAGED BY WANGER ASSET MANAGEMENT, L.P.
[diamond] Wanger Foreign Forty
[diamond] Wanger International Small Cap
[diamond] Wanger Twenty
[diamond] Wanger U.S. Small Cap
It may not be in your best interest to purchase a Contract to replace an
existing annuity contract or life insurance policy. You must understand the
basic features of the proposed Contract and your existing coverage before you
decide to replace your present coverage. You must also know if the replacement
will result in any taxes.
This Prospectus is valid only if accompanied or preceded by current
prospectuses for the Funds. You should read and keep these prospectuses for
future reference.
1
<PAGE>
TABLE OF CONTENTS
Heading Page
- ----------------------------------------------------------------------------
SPECIAL TERMS............................................. 3
SUMMARY OF EXPENSES....................................... 5
CONTRACT SUMMARY ......................................... 11
FINANCIAL HIGHLIGHTS...................................... 13
PERFORMANCE HISTORY....................................... 21
THE VARIABLE ACCUMULATION ANNUITY......................... 21
PHOENIX AND THE ACCOUNT................................... 21
INVESTMENTS OF THE ACCOUNT ............................... 21
The Phoenix Edge Series Fund........................... 21
Templeton Variable Products Series Fund................ 22
Wanger Advisors Trust ................................. 23
Investment Advisers.................................... 23
Services of the Advisers............................... 24
PURCHASE OF CONTRACTS .................................... 24
DEDUCTIONS AND CHARGES.................................... 24
Premium Tax ........................................... 24
Surrender Charges ..................................... 24
Charges for Mortality and Expense Risks ............... 25
Charges for Administrative Services ................... 25
Other Charges ......................................... 25
THE ACCUMULATION PERIOD................................... 25
Accumulation Units .................................... 25
Accumulation Unit Values .............................. 26
Transfers ............................................. 26
Surrender of Contract; Partial Withdrawals ............ 27
Lapse of Contract ..................................... 27
Payment Upon Death Before Maturity Date................ 27
NEW YORK INDIVIDUAL CONTRACTS ISSUED ON OR AFTER
MAY 1, 1997............................................ 28
Surrender Charges...................................... 28
Daily Administrative Fee............................... 28
Maturity Date.......................................... 28
Ownership of the Contract.............................. 28
Payment Upon Death Before Maturity Date................ 28
Transfers.............................................. 29
GROUP CONTRACTS........................................... 29
Allocated Group Contracts ............................. 29
Unallocated Group Contracts ........................... 30
THE ANNUITY PERIOD ....................................... 30
Variable Accumulation Annuity Contracts................ 30
Annuity Options ....................................... 31
Option A--Life Annuity with Specified Period
Certain.............................................. 31
Option B--Non-Refund Life Annuity ...................... 31
Option D--Joint and Survivor Life Annuity .............. 31
Option E--Installment Refund Life Annuity .............. 32
Option F--Joint and Survivor Life Annuity with
10-Year Period Certain .............................. 32
Option G--Payments for Specified Period ................ 32
Option H--Payments of Specified Amount ................. 32
Option I--Variable Payment Life Annuity with
10-Year Period Certain .............................. 32
Option J--Joint Survivor Variable Payment Life Annuity
with 10-Year Period Certain ......................... 32
Option K--Variable Payment Annuity for a Specified
Period ................................................ 32
Option L--Variable Payment Life Expectancy Annuity........ 32
Option M--Unit Refund Variable Payment Life
Annuity................................................ 32
Option N--Variable Payment Non-Refund Life
Annuity................................................ 32
Other Options and Rates................................. 32
Other Conditions ....................................... 32
Payment Upon Death After Maturity Date ................. 33
VARIABLE ACCOUNT VALUATION PROCEDURES...................... 33
MISCELLANEOUS PROVISIONS .................................. 33
Assignment.............................................. 33
Deferment of Payment ................................... 34
Free Look Period........................................ 34
Amendments to Contracts ................................ 34
Substitution of Fund Shares ............................ 34
Ownership of the Contract .............................. 34
FEDERAL INCOME TAXES ...................................... 34
Introduction ........................................... 34
Tax Status.............................................. 34
Taxation of Annuities in General--Non-Qualified
Plans ................................................ 35
Surrenders or Withdrawals Prior to the Contract
Maturity Date ....................................... 35
Surrenders or Withdrawals On or After the Contract
Maturity Date ....................................... 35
Penalty Tax on Certain Surrenders and
Withdrawals .............................................. 35
Additional Considerations............................... 36
Diversification Standards .............................. 37
Qualified Plans......................................... 37
Tax Sheltered Annuities ("TSAs") ..................... 38
Keogh Plans........................................... 38
Individual Retirement Accounts ....................... 38
Corporate Pension and Profit-Sharing Plans ........... 39
Deferred Compensation Plans With Respect to
Service for State and Local Governments and
Tax Exempt Organizations ........................... 39
Penalty Tax on Certain Surrenders and Withdrawals
from Qualified Plans................................ 39
Seek Tax Advice....................................... 40
SALES OF VARIABLE ACCUMULATION CONTRACTS .................. 40
STATE REGULATION .......................................... 40
REPORTS ................................................... 40
VOTING RIGHTS ............................................. 40
TEXAS OPTIONAL RETIREMENT PROGRAM ......................... 41
LEGAL MATTERS ............................................. 41
SAI........................................................ 41
APPENDIX A ................................................ 42
APPENDIX B ................................................ 47
APPENDIX C................................................. 48
2
<PAGE>
SPECIAL TERMS
- -----------------------------------------------------------------------------
The following is a list of terms and their meanings when used in this
Prospectus.
ACCOUNT: Phoenix Home Life Variable Accumulation Account.
ACCOUNT VALUE: The value of all assets held in the Account.
ACCUMULATION UNIT: A standard of measurement for each Subaccount used to
determine the value of a Contract and the interest in the Subaccounts prior to
the start of annuity payments.
ACCUMULATION UNIT VALUE: The value of one Accumulation Unit was set at $1.000000
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 annuitant will be the primary Annuitant as shown on the Contract's
Schedule Page while that person is living, and will then be the contingent
Annuitant, if that person is living at the death of the primary Annuitant.
ANNUITY OPTION: The provisions under which we make a series of annuity payments
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
periodic payment under the variable payment Annuity Options I, J, K, M and N.
CLAIM DATE: The Contract Value next determined following receipt of a certified
copy of the death certificate at VPMO.
CONTRACT: The deferred variable accumulation annuity contracts described in this
Prospectus.
CONTRACT OWNER (OWNER, YOU, YOUR): Usually, the person or entity, to whom we
issue the Contract. The Contract Owner has the sole right to exercise all rights
and privileges under the Contract as provided in the Contract. The Owner may be
the Annuitant, an employer, a trust or any other individual or entity. 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
Tax-sheltered Annuity plans (as described in Internal Revenue Code (IRC) 403(b))
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. This benefit 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 investment option under which payment amounts are guaranteed to earn a
fixed rate of interest.
ISSUE DATE: The date that the initial 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 Tax-sheltered Annuities (as described in IRC
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 when annuity payments will begin.
The Maturity Date will not be any earlier than the fifth Contract anniversary
and no later than the Annuitant's 85th birthday. The election is subject to
certain conditions described in "The Annuity Period."
MINIMUM INITIAL PAYMENT: The amount that you pay when you purchase a Contract.
We require minimum initial payments of:
[diamond] Non-qualified plans--$1,000
[diamond] Individual Retirement Annuity--$1,000
[diamond] Bank draft program--$25
[diamond] Qualified plans--$1,000 annually
MINIMUM SUBSEQUENT PAYMENT: The least amount that you may pay when you make any
subsequent payments, after the minimum initial payment (see above). The minimum
subsequent payment for all Contracts is $25.
NET ASSET VALUE: Net asset value of a Series' shares is computed by dividing the
value of the net assets of the Series by the total number of Series' outstanding
shares.
PAYMENT UPON DEATH: The obligation of Phoenix under a Contract to make a payment
on the death of
3
<PAGE>
the Owner or Annuitant anytime (a) before the Maturity Date of a Contract (see
"Payment Upon Death Before Maturity Date") or (b) after the Maturity Date of a
Contract (see "Payment Upon Death After Maturity Date").
PHOENIX (OUR, WE, US, COMPANY): 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 amounts
according to the investment experience of the selected Subaccounts.
VPMO: The Variable Products Mail Operations Division of Phoenix that receives
and processes incoming mail for Variable Products Operations.
VPO: The Variable Products Operations.
4
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
NEW YORK INDIVIDUAL CONTRACTS
ISSUED ON OR
CONTRACT OWNER TRANSACTION EXPENSES INDIVIDUAL AND GROUP CONTRACTS AFTER 5/1/97
------------------------------ ------------
<S> <C> <C>
Sales Charge Imposed on Purchases.................................... None None
Deferred Surrender Charge (as a percentage of amount surrendered)(1)
Age of Payment in Complete Years 0-1............................. 6% 7%
Age of Payment in Complete Years 1-2............................. 5% 6%
Age of Payment in Complete Years 2-3............................. 4% 5%
Age of Payment in Complete Years 3-4............................. 3% 4%
Age of Payment in Complete Years 4-5............................. 2% 3%
Age of Payment in Complete Years 5-6............................. 1% 2%
Age of Payment in Complete Years 6 and thereafter................ 0% N/A
Age of Payment in Complete Years 6-7............................. N/A 1%
Age of Payment in Complete Years 7 and thereafter................ N/A 0%
Exchange Fee-- Maximum Allowable Charge Per Exchange................. $10 $10
ANNUAL CONTRACT FEE
Maximum.................................................................... $35 $35
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percentage of average account value)
Mortality and Expense Risk Fees (depending on Contract form)(2)............ 1.25% or 1.00% 1.25%
Daily Administrative Fee................................................... None .125%
Total Separate Account Annual Expenses (depending on Contract form)(2)..... 1.25% or 1.00% 1.375%
FUND ANNUAL EXPENSES
(as a percentage of Fund average net assets)
- -------------------------------------------------------------------------------------------------------------------------------
RULE 12B-1 OTHER EXPENSES(3) TOTAL ANNUAL
SERIES MANAGEMENT FEES FEES (BEFORE EXPENSE REIMBURSEMENT) EXPENSES(3)
- -------------------------------------------------------------------------------------------------------------------------------
THE PHOENIX EDGE SERIES FUND
Phoenix Research Enhanced Index .45% N/A .37% .82%
Phoenix-Aberdeen International .75% N/A .23% .98%
Phoenix-Aberdeen New Asia 1.00% N/A 1.50% 2.50%
Phoenix-Duff & Phelps Real Estate Securities .75% N/A .26% 1.61%
Phoenix-Engemann Nifty Fifty .90% N/A 1.68% 2.58%
Phoenix-Goodwin Balanced .55% N/A .13% .68%
Phoenix-Goodwin Growth .62% N/A .07% .69%
Phoenix-Goodwin Money Market .40% N/A .15% .55%
Phoenix-Goodwin Multi-Sector Fixed Income .50% N/A .14% .64%
Phoenix-Goodwin Strategic Allocation .58% N/A .10% .68%
Phoenix-Goodwin Strategic Theme .75% N/A .24% .99%
Phoenix-Hollister Value Equity .70% N/A 1.76% 2.46%
Phoenix-Oakhurst Growth and Income .70% N/A .76% 1.46%
Phoenix-Schafer Mid-Cap Value 1.05% N/A 1.72% 2.77%
Phoenix-Seneca Mid-Cap Growth .80% N/A 2.01% 2.81%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)A surrender charge is taken from the proceeds when a Contract is surrendered
or when an amount is withdrawn, if the payments have not been held under the
Contract for a certain period of time. However, each year an amount up to 10%
of the Contract Value as of the end of the previous Contract year may be
withdrawn without a surrender charge. See "Deductions and Charges--Surrender
Charges."
(2)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."
(3)Each Series pays a portion or all of its expenses other than the management
fee. The Phoenix Research Enhanced Index Series will pay up to .10%; the
Phoenix-Goodwin Growth, Phoenix-Goodwin Multi-Sector Fixed Income,
Phoenix-Goodwin Strategic Allocation, Phoenix-Goodwin Money Market,
Phoenix-Goodwin Balanced, Phoenix-Engemann Nifty Fifty, Phoenix-Oakhurst
Growth and Income, Phoenix-Hollister Value Equity and Phoenix-Schafer Mid-Cap
Value Series will pay up to .15%; the Phoenix-Duff & Phelps Real Estate
Securities, Phoenix-Goodwin Strategic Theme, Phoenix-Aberdeen New Asia, and
Phoenix-Seneca Mid-Cap Growth Series will pay up to .25%; and the
Phoenix-Aberdeen International Series will pay up to .40%. Expenses in excess
of the stated amount are reimbursed by that Series' investment advisor. For
those Series receiving expense reimbursement, the Actual Total Annual
Expenses for the year ending December 31, 1998 were as follows:
<TABLE>
<CAPTION>
<S> <C>
.55% Phoenix Research Enhanced Index .85% Phoenix-Oakhurst Growth and Income
1.25% Phoenix-Aberdeen New Asia 1.20% Phoenix-Schafer Mid-Cap Value
1.00% Phoenix-Duff & Phelps Real Estate Securities 1.05% Phoenix-Seneca Mid-Cap Growth
.85% Phoenix-Hollister Value Equity
</TABLE>
5
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
RULE 12B-1 TOTAL ANNUAL
SERIES MANAGEMENT FEES FEES(1) OTHER EXPENSES EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Mutual Shares Investments-- Class 2(2) .60% .25% 2.27% 3.12%
Templeton Asset Allocation-- Class 2 .60% .25% .18% 1.03%
Templeton Developing Markets-- Class 2 1.25% .25% .41% 1.91%
Templeton International-- Class 2 .69% .25% .17% 1.11%
Templeton Stock-- Class 2 .70% .25% .19% 1.14%
WANGER ADVISORS TRUST
Wanger Foreign Forty .95% N/A .50% 1.45%
Wanger International Small Cap 1.27% N/A .28% 1.55%
Wanger Twenty .90% N/A .45% 1.35%
Wanger U.S. Small Cap .96% N/A .06% 1.02%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Class 2 shares of the Templeton Variable Products Series Fund have a
distribution plan or "12b-1 Plan" which is described in the Fund's
prospectus.
(2)The Adviser has agreed in advance to limit Management Fees so that the Actual
Total Annual Expenses did not exceed 1.25% in 1998 for the Mutual Shares
Investments Fund. See the Fund prospectus for details.
It is impossible to show you what expenses you would incur if you purchased
a Contract because there are so many different factors which affect expenses.
However, the following three tables are meant to help demonstrate how certain
decisions or choices by you could result in different levels of expense.
EXAMPLES (APPLICABLE TO ALL CONTRACTS EXCEPT NEW YORK INDIVIDUAL CONTRACTS
ISSUED ON OR AFTER MAY 1, 1997.):
If you surrender your Contract at the end of the applicable period: You
would pay the following expenses on a $1,000 investment assuming 5% annual
return on assets:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Phoenix Research Enhanced Index................................. $ 79 $112 $145 $267
Phoenix-Aberdeen International.................................. 81 116 153 283
Phoenix-Aberdeen New Asia....................................... 95 159 224 421
Phoenix-Duff & Phelps Real Estate Securities.................... 81 117 154 286
Phoenix-Engemann Nifty Fifty.................................... 96 161 228 428
Phoenix-Goodwin Balanced........................................ 78 108 138 252
Phoenix-Goodwin Growth.......................................... 78 108 139 253
Phoenix-Goodwin Money Market.................................... 76 104 132 239
Phoenix-Goodwin Multi-Sector Fixed Income....................... 77 106 136 248
Phoenix-Goodwin Strategic Allocation............................ 78 108 138 252
Phoenix-Goodwin Strategic Theme................................. 81 117 153 284
Phoenix-Hollister Value Equity.................................. 94 158 222 417
Phoenix-Oakhurst Growth and Income.............................. 85 130 176 329
Phoenix-Schafer Mid-Cap Value................................... 97 167 237 444
Phoenix-Seneca Mid-Cap Growth................................... 98 168 238 447
Mutual Shares Investments-- Class 2............................. 83 124 N/A N/A
Templeton Asset Allocation-- Class 2............................ 81 118 155 288
Templeton Developing Markets-- Class 2.......................... 89 143 197 370
Templeton International-- Class 2............................... 82 120 159 295
Templeton Stock-- Class 2....................................... 82 121 161 298
Wanger Foreign Forty(1)......................................... 86 133 N/A N/A
Wanger International Small Cap.................................. 86 133 180 337
Wanger Twenty(1)................................................ 85 131 N/A N/A
Wanger U.S. Small Cap........................................... 81 117 155 287
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inclusion of this Subaccount began on February 1, 1999.
6
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
If you annuitize your Contract at the end of one of these time periods, you
would pay the following expenses on a $1,000 investment. We have assumed a
constant 5% annual return on the invested assets for all of the Series.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Phoenix Research Enhanced Index................................. $ 79 $112 $125 $267
Phoenix-Aberdeen International.................................. 81 116 133 283
Phoenix-Aberdeen New Asia....................................... 95 159 206 421
Phoenix-Duff & Phelps Real Estate Securities.................... 81 117 134 286
Phoenix-Engemann Nifty Fifty.................................... 96 161 209 428
Phoenix-Goodwin Balanced........................................ 78 108 117 252
Phoenix-Goodwin Growth.......................................... 78 108 118 253
Phoenix-Goodwin Money Market.................................... 76 104 111 239
Phoenix-Goodwin Multi-Sector Fixed Income....................... 77 106 115 248
Phoenix-Goodwin Strategic Allocation............................ 78 108 117 252
Phoenix-Goodwin Strategic Theme................................. 81 117 133 417
Phoenix-Hollister Value Equity.................................. 94 158 203 417
Phoenix-Oakhurst Growth and Income.............................. 85 130 156 329
Phoenix-Schafer Mid-Cap Value................................... 97 167 218 444
Phoenix-Seneca Mid-Cap Growth................................... 98 168 220 447
Mutual Shares Investments-- Class 2............................. 83 124 N/A N/A
Templeton Asset Allocation-- Class 2............................ 81 118 135 288
Templeton Developing Markets-- Class 2.......................... 89 143 178 370
Templeton International-- Class 2............................... 82 120 139 295
Templeton Stock-- Class 2....................................... 82 121 141 298
Wanger Foreign Forty(1)......................................... 86 133 N/A N/A
Wanger International Small Cap.................................. 86 133 161 337
Wanger Twenty(1)................................................ 85 131 N/A N/A
Wanger U.S. Small Cap........................................... 81 117 135 287
- ------------------------------------------------------------------------------------------------------------------------------------
If you do not surrender your Contract: You would pay the following expenses
on a $1,000 investment assuming 5% annual return on assets.
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
Phoenix Research Enhanced Index................................. $ 24 $ 73 $125 $267
Phoenix-Aberdeen International.................................. 25 78 133 283
Phoenix-Aberdeen New Asia....................................... 40 122 206 421
Phoenix-Duff & Phelps Real Estate Securities.................... 26 78 134 286
Phoenix-Engemann Nifty Fifty.................................... 41 124 209 428
Phoenix-Goodwin Balanced........................................ 22 69 117 252
Phoenix-Goodwin Growth.......................................... 22 69 118 253
Phoenix-Goodwin Money Market.................................... 21 65 111 239
Phoenix-Goodwin Multi-Sector Fixed Income....................... 22 67 115 248
Phoenix-Goodwin Strategic Allocation............................ 22 69 117 252
Phoenix-Goodwin Strategic Theme................................. 25 78 133 284
Phoenix-Hollister Value Equity.................................. 40 121 203 417
Phoenix-Oakhurst Growth and Income.............................. 30 92 156 329
Phoenix-Schafer Mid-Cap Value................................... 43 130 218 444
Phoenix-Seneca Mid-Cap Growth................................... 43 131 220 447
Mutual Shares Investments-- Class 2............................. 28 86 N/A N/A
Templeton Asset Allocation-- Class 2............................ 26 79 135 288
Templeton Developing Markets-- Class 2.......................... 34 105 178 370
Templeton International-- Class 2............................... 27 81 139 295
Templeton Stock-- Class 2....................................... 27 82 141 298
Wanger Foreign Forty(1)......................................... 31 95 N/A N/A
Wanger International Small Cap.................................. 31 95 161 337
Wanger Twenty(1)................................................ 30 92 N/A N/A
Wanger U.S. Small Cap........................................... 26 79 135 287
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inclusion of this Subaccount began on February 1, 1999.
7
<PAGE>
The purpose of the tables above is to assist you in understanding the
various costs and expenses that your Contract will bear directly or indirectly.
It is based on historical Fund expenses, as a percentage of net assets for the
year ended December 31, 1998, except as indicated. The tables reflect expenses
of the Account as well as of the Funds. See "Deductions and Charges" in this
Prospectus and in the Fund Prospectuses.
Premium taxes, which are not reflected in the table above, may apply. We
will charge any premium or other taxes levied by any governmental entity with
respect to your Contract against the Contract Values based on a percentage of
premiums paid. Certain states currently impose premium taxes on the Contracts
and range from 0% to 3.5% of premiums paid. See "Deductions and Charges--Premium
Tax" and Appendix C.
The Examples should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown. See "Deductions and
Charges."
EXAMPLES--THE INFORMATION INCLUDED IN THESE EXAMPLES APPLIES TO NEW YORK
INDIVIDUAL CONTRACTS ISSUED ON OR AFTER MAY 1, 1997:
It is impossible to show you what expenses you would incur if you purchased
a Contract because there are so many different factors which affect expenses.
However, the following three tables are meant to help demonstrate how certain
decisions or choices by you could result in different levels of expense.
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>
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Phoenix Research Enhanced Index................................. $ 87 $120 $156 $275
Phoenix-Aberdeen International.................................. 89 125 164 291
Phoenix-Aberdeen New Asia....................................... 104 170 236 429
Phoenix-Duff & Phelps Real Estate Securities.................... 89 126 165 294
Phoenix-Engemann Nifty Fifty.................................... 105 172 240 435
Phoenix-Goodwin Balanced........................................ 86 116 149 261
Phoenix-Goodwin Growth.......................................... 86 116 149 262
Phoenix-Goodwin Money Market.................................... 85 112 142 248
Phoenix-Goodwin Multi-Sector Fixed Income....................... 86 115 147 257
Phoenix-Goodwin Strategic Allocation............................ 86 116 149 261
Phoenix-Goodwin Strategic Theme................................. 89 125 164 292
Phoenix-Hollister Value Equity.................................. 104 168 235 425
Phoenix-Oakhurst Growth and Income.............................. 94 139 187 337
Phoenix-Schafer Mid-Cap Value................................... 107 177 249 451
Phoenix-Seneca Mid-Cap Growth................................... 107 178 251 454
Mutual Shares Investments-- Class 2............................. 110 187 N/A N/A
Templeton Asset Allocation-- Class 2............................ 90 127 166 296
Templeton Developing Markets-- Class 2.......................... 98 153 209 378
Templeton International-- Class 2............................... 90 129 170 304
Templeton Stock-- Class 2....................................... 91 130 172 307
Wanger Foreign Forty(1)......................................... 94 140 N/A N/A
Wanger International Small Cap.................................. 95 142 192 345
Wanger Twenty(1)................................................ 93 136 N/A N/A
Wanger U.S. Small Cap........................................... 89 126 166 295
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inclusion of this Subaccount began on February 1, 1999.
8
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
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>
- -----------------------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Phoenix Research Enhanced Index................................. $ 87 $120 $129 $275
Phoenix-Aberdeen International.................................. 89 125 137 291
Phoenix-Aberdeen New Asia....................................... 104 170 209 429
Phoenix-Duff & Phelps Real Estate Securities.................... 89 126 138 294
Phoenix-Engemann Nifty Fifty.................................... 105 172 213 435
Phoenix-Goodwin Balanced........................................ 86 116 122 261
Phoenix-Goodwin Growth.......................................... 86 116 122 262
Phoenix-Goodwin Money Market.................................... 85 112 115 248
Phoenix-Goodwin Multi-Sector Fixed Income....................... 86 115 120 257
Phoenix-Goodwin Strategic Allocation............................ 86 116 122 261
Phoenix-Goodwin Strategic Theme................................. 89 125 137 292
Phoenix-Hollister Value Equity.................................. 104 168 208 425
Phoenix-Oakhurst Growth and Income.............................. 94 139 160 337
Phoenix-Schafer Mid-Cap Value................................... 107 177 222 451
Phoenix-Seneca Mid-Cap Growth................................... 107 178 224 454
Mutual Shares Investments-- Class 2............................. 110 187 N/A N/A
Templeton Asset Allocation-- Class 2............................ 90 127 139 296
Templeton Developing Markets-- Class 2.......................... 98 153 182 378
Templeton International-- Class 2............................... 90 129 143 304
Templeton Stock-- Class 2....................................... 91 130 145 307
Wanger Foreign Forty(1)......................................... 94 140 N/A N/A
Wanger International Small Cap.................................. 95 142 165 345
Wanger Twenty(1)................................................ 93 136 N/A N/A
Wanger U.S. Small Cap........................................... 89 126 139 295
- -----------------------------------------------------------------------------------------------------------------------------------
If you do not surrender your Contract: You would pay the following expense
on a $1,000 investment assuming 5% annual return on assets.
- -----------------------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
Phoenix Research Enhanced Index................................. $ 24 $ 75 $129 $275
Phoenix-Aberdeen International.................................. 26 80 137 291
Phoenix-Aberdeen New Asia....................................... 41 125 209 429
Phoenix-Duff & Phelps Real Estate Securities.................... 26 81 138 294
Phoenix-Engemann Nifty Fifty.................................... 42 127 213 435
Phoenix-Goodwin Balanced........................................ 23 71 122 261
Phoenix-Goodwin Growth.......................................... 23 71 122 262
Phoenix-Goodwin Money Market.................................... 22 67 115 248
Phoenix-Goodwin Multi-Sector Fixed Income....................... 23 70 120 257
Phoenix-Goodwin Strategic Allocation............................ 23 71 122 261
Phoenix-Goodwin Strategic Theme................................. 26 80 137 292
Phoenix-Hollister Value Equity.................................. 41 123 208 425
Phoenix-Oakhurst Growth and Income.............................. 31 94 160 337
Phoenix-Schafer Mid-Cap Value................................... 44 132 222 451
Phoenix-Seneca Mid-Cap Growth................................... 44 133 224 454
Mutual Shares Investments-- Class 2............................. 47 142 N/A N/A
Templeton Asset Allocation-- Class 2............................ 27 82 139 296
Templeton Developing Markets-- Class 2.......................... 35 108 182 378
Templeton International-- Class 2............................... 27 84 143 304
Templeton Stock-- Class 2....................................... 28 85 145 307
Wanger Foreign Forty(1)......................................... 31 94 N/A N/A
Wanger International Small Cap.................................. 32 97 165 345
Wanger Twenty(1)................................................ 30 91 N/A N/A
Wanger U.S. Small Cap........................................... 26 81 139 295
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Inclusion of this Subaccount began on February 1, 1999.
9
<PAGE>
The purpose of the tables above is to assist you in understanding the
various costs and expenses that your Contract will bear directly or indirectly.
It is based on historical Fund expenses, as a percentage of net assets for the
year ended December 31, 1998, except as indicated. The tables reflect expenses
of the Account as well as of the Funds. See "Deductions and Charges" in this
Prospectus and in the Fund Prospectuses.
Premium taxes, which are not reflected in the table above, may apply. We
will charge any premium or other taxes levied by any governmental entity with
respect to your Contract against the Contract Values based on a percentage of
premiums paid. Certain states currently impose premium taxes on the Contracts
and range from 0% to 3.5% of premiums paid. See "Deductions and Charges--Premium
Tax" and Appendix C.
The Examples should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown. See "Deductions and
Charges."
10
<PAGE>
CONTRACT SUMMARY
- -------------------------------------------------------------------------------
You should read the following summary along with the detailed information
appearing elsewhere in this Prospectus.
OVERVIEW
The Contract offers a dynamic idea in retirement planning. It's designed to
give you maximum flexibility in obtaining your investment goals.
The Contract offers a combination of investment options both variable and
fixed. Investments in the Subaccounts provide returns that are variable and
depend upon the performance of the underlying Funds. Allocations to the GIA
produce guaranteed interest earnings subject to certain conditions.
You also may select from many different variable and fixed annuity payout
options, some of which offer retirement income payments that you cannot outlive.
See "The Annuity Period--Annuity Options."
INVESTMENT FEATURES
FLEXIBLE PAYMENTS
[diamond] You may make payments anytime until the Maturity Date.
[diamond] You can vary the amount and frequency of your payments.
[diamond] Other than the Minimum Initial Payment, there are no required
payments.
MINIMUM CONTRIBUTION
[diamond] Generally, the Minimum Initial Payment is $1,000.
ALLOCATION OF PREMIUMS AND CONTRACT VALUE
[diamond] Payments are invested in one or more of the Subaccounts, and
the GIA.
[diamond] Transfers between the Subaccounts and into the GIA can be made
anytime. Transfers from the GIA are subject to rules discussed
in Appendix B and in "The Accumulation Period--Transfers."
[diamond] The Contract Value varies with the investment performance of the
Funds and is not guaranteed.
[diamond] The Contract Value allocated to the GIA will depend on deductions
taken from the GIA and interest accumulation at rates set by us
(minimum-- 4%).
WITHDRAWALS
[diamond] You may partially or fully surrender the Contract anytime for its
Contract Value less any applicable surrender charge and premium tax.
[diamond] During the first Contract Year, you may withdraw up to 10% of the
Contract Value as of the date of the first partial surrender without
a surrender charge. After that, you can surrender up to 10% of the
Contract Value as of the last Contract anniversary without a
surrender charge.
DEATH BENEFIT
The Contract provides for payment on the death of the Owner or the Annuitant
anytime before the Maturity Date of the Contract.
DEDUCTIONS AND CHARGES
GENERALLY
[diamond] No deductions are made from payments.
[diamond] A deduction for surrender charges may occur when you surrender your
Contract or request a withdrawal if the assets have not been held
under the Contract for a specified period.
[diamond] No deduction for surrender charges after the Annuity Period has
begun, unless you make unscheduled withdrawals under Annuity Options
K or L.
[diamond] If we impose a surrender charge, it is on a first-in, first-out
basis.
[diamond] No surrender charge is imposed if the Annuitant or Owner dies before
the date that annuity payments will begin.
[diamond] A declining surrender charge is assessed on withdrawals in excess of
10% of the Account Value, based on the date the payments are
deposited:
INDIVIDUAL & GROUP CONTRACTS:
- --------------------------------------------------------------
Percent 6% 5% 4% 3% 2% 1% 0%
- --------------------------------------------------------------
Age of Payment in
Complete Years 0 1 2 3 4 5 6
- --------------------------------------------------------------
NEW YORK INDIVIDUAL CONTRACTS ISSUED ON OR AFTER MAY 1, 1997:
- --------------------------------------------------------------
Percent 7% 6% 5% 4% 3% 2% 1% 0%
- --------------------------------------------------------------
Age of Payment in
Complete Years 0 1 2 3 4 5 6 7+
- --------------------------------------------------------------
o The total deferred surrender charges on a Contract will never exceed 9%
of the total payments.
See "Deductions and Charges--Surrender Charges" for a detailed discussion.
FROM THE ACCOUNT
[diamond] Mortality and expense risk fee--1.25% annually. See "Charges for
Mortality and Expense Risks."
[diamond] The daily administrative fee--.125% annually. Applies to Individual
Contracts only issued in New York on or after May 1, 1997. See "New
York Individual Contracts Issued On or After May 1, 1997--Daily
Administrative Fee."
11
<PAGE>
OTHER CHARGES OR DEDUCTIONS
[diamond] Premium Taxes--taken from the Contact Value upon annuitization.
o Phoenix will reimburse itself for such taxes on the date of a partial
withdrawal, surrender of the Contract, Maturity Date or payment of
death proceeds. See "Premium Tax."
[diamond] Administrative Fee--$35 each year.
See "Deductions and Charges" for a detailed description of Contract charges.
In addition, certain charges are deducted from the assets of the Funds for
investment management services. See the prospectuses for the Funds for more
information.
ADDITIONAL INFORMATION
FREE LOOK PERIOD
You have the right to review the Contract. If you are not satisfied, you may
return it within 10 days after you receive it and cancel the Contract. You will
receive in cash the adjusted value of the initial payment unless you temporarily
allocated your initial payment to the Phoenix-Goodwin Money Market Subaccount.
In that case, your Contract is issued with a Temporary Money Market
Allocation Amendment and we will refund the initial payment.
See "Free Look Period" for a detailed discussion.
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.
VARIATIONS
The Contract is subject to laws and regulations in every state where the
Contract is sold. Therefore, the terms of the Contract may vary from state to
state.
12
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
For all Contracts except New York Individual Contracts issued on or after
May 1, 1997.
The following tables show how the value of one unit of each Subaccount
changed during each of the years through to 1998. As you will note, not all
Subaccounts were operating in all of those years. All units began with a value
of 1.000000. Thereafter, the unit value reflects the cumulative investment
experience of the Subaccount. These tables are highlights only, you may obtain
more detailed information in the financial statements contained in the Statement
of Additional Information.
Following are financial highlights for Individual and Group Contracts
for the periods indicated.
<TABLE>
<CAPTION>
PHOENIX RESEARCH ENHANCED INDEX SUBACCOUNT
VA1 VA2, VA3 & GSE
-------------------------------------------------------
FROM FROM
INCEPTION INCEPTION
YEAR ENDED 7/15/97 TO YEAR ENDED 7/15/97 TO
12/31/98 12/31/97 12/31/98 12/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period........................................ $1.019907 $1.000000 $1.052252 $1.000000
Unit value, end of period.............................................. $1.329762 $1.019907 $1.368460 $1.052252
========= ========= ========= =========
Number of units outstanding (000)...................................... 1,139 600 18,649 22,856
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-ABERDEEN INTERNATIONAL SUBACCOUNT
VA1
-----------------------------------------------------------------------------------------
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 5/1/90 TO
1998 1997 1996 1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period........ $1.792595 $1.615890 $1.375527 $1.267735 $1.279733 $0.933515 $1.081746 $0.912543 $1.000000
Unit value, end of period ............. $2.270606 $1.792595 $1.615890 $1.375527 $1.267735 $1.279733 $0.933515 $1.081746 $0.912543
========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000)...... 2,641 2,998 3,337 3,762 5,926 3,309 1,401 816 490
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-ABERDEEN INTERNATIONAL SUBACCOUNT
VA2, VA3 & GSE
-----------------------------------------------------------------------------------------
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 5/1/90 TO
1998 1997 1996 1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- ---- ---- ---- --------
<S> C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period......... $1.759243 $1.589771 $1.356645 $1.253391 $1.268491 $0.927578 $1.077492 $0.911158 $1.000000
Unit value, end of period .............. $2.222864 $1.759243 $1.589771 $1.356645 $1.253391 $1.268491 $0.927578 $1.077492 $0.911158
========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000)....... 65,866 76,704 80,535 78,985 88,400 39,929 12,307 4,364 1,616
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-ABERDEEN NEW ASIA SUBACCOUNT
VA1 VA2, VA3 & GSE
---------------------------------- ------------------------------------
FROM FROM
INCEPTION INCEPTION
YEAR ENDED 9/17/96 TO YEAR ENDED 9/17/96 TO
1998 12/31/97 12/31/96 1998 12/31/97 12/31/96
---- -------- -------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period.......................... $0.667590 $0.997626 $1.000000 $0.666233 $0.998026 $1.000000
Unit value, end of period................................ $0.636069 $0.667590 $0.997626 $0.628739 $0.666233 $0.998026
========= ========= ========= ========= ========= =========
Number of units outstanding (000)........................ 186 223 395 8,543 9,542 8,125
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SUBACCOUNT
VA1 VA2, VA3 & GSE
----------------------------------------------- -------------------------------------------------
FROM FROM
YEAR ENDED DECEMBER 31, INCEPTION YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 5/1/95 TO ----------------------- 5/1/95 TO
1998 1997 1996 12/31/95 1998 1997 1996 12/31/95
---- ---- ---- -------- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period.... $1.840367 $1.522792 $1.155453 $1.000000 $1.851492 $1.535829 $1.168262 $1.000000
Unit value, end of period.......... $1.435700 $1.840367 $1.522792 $1.155453 $1.440674 $1.851492 $1.535829 $1.168262
========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000).. 282 405 189 34 14,027 19,835 12,614 7,009
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
PHOENIX-ENGEMANN NIFTY FIFTY SUBACCOUNT
VA1 VA2, VA3 & GSE
----------------- ----------------
FROM FROM
INCEPTION INCEPTION
3/10/98 TO 12/31/98 3/3/98 TO 12/31/98
------------------- ------------------
<S> <C> <C>
Unit value, beginning of period.................................................... $1.000000 $1.000000
Unit value, end of period.......................................................... $1.248784 $1.249645
========= =========
Number of units outstanding (000).................................................. 171 4,459
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN BALANCED SUBACCOUNT
VA1
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 5/1/92 TO
1998 1997 1996 1995 1994 1993 12/31/92
---- ---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period............................ $1.755101 $1.503025 $1.373104 $1.124370 $1.168840 $1.086965 $1.000000
Unit value, end of period.................................. $2.068143 $1.755101 $1.503025 $1.373104 $1.124370 $1.168840 $1.086965
========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000).......................... 2,588 2,885 3,271 4,027 4,732 5,601 3,283
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN BALANCED SUBACCOUNT
VA2, VA3 & GSE
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 5/1/92 TO
1998 1997 1996 1995 1994 1993 12/31/92
---- ---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period............................ $1.730535 $1.485649 $1.360620 $1.116862 $1.163951 $1.085113 $1.000000
Unit value, end of period.................................. $2.034127 $1.730535 $1.485649 $1.360620 $1.116862 $1.163951 $1.085113
========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000).......................... 99,624 110,735 118,572 126,919 130,797 123,929 39,740
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN GROWTH SUBACCOUNT
VA1
-------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period.................... $11.055774 $9.222031 $8.273644 $6.384494 $6.355486 $5.362579 $4.910837 $3.474821 $3.373255 $2.501870
Unit value, end of period.. $14.231978 $11.055774 $9.222031 $8.273644 $6.384494 $6.355486 $5.362579 $4.910837 $3.474821 $3.373255
========== ========== ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)..................... 5,404 6,273 7,215 8,153 8,351 8,671 8,652 7,280 6,658 6,726
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN GROWTH SUBACCOUNT
VA2, VA3 & GSE
-------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period.................... $10.762048 $8.999162 $8.093932 $6.261062 $6.248053 $5.284626 $4.851447 $3.440659 $3.348325 $2.489403
Unit value, end of period.. $13.819193 $10.762048 $8.999162 $8.093932 $6.261062 $6.248053 $5.284626 $4.851447 $3.440659 $3.348325
========== ========== ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)..................... 83,410 97,099 100,883 94,344 76,226 52,751 29,531 12,343 4,415 1,792
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN MONEY MARKET SUBACCOUNT
VA1
-------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period.................... $2.214444 $2.126440 $2.045097 $1.954211 $1.900873 $1.866308 $1.820007 $1.734559 $1.619595 $1.497413
Unit value, end of period.. $2.304138 $2.214444 $2.126440 $2.045097 $1.954211 $1.900873 $1.866308 $1.820007 $1.734559 $1.619595
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)..................... 2,845 2,264 3,460 3,457 4,649 4,617 8,601 10,289 13,110 13,319
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
PHOENIX-GOODWIN MONEY MARKET SUBACCOUNT
VA2, VA3 & GSE
-------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period.................... $2.155028 $2.074515 $2.000092 $1.915930 $1.868172 $1.838756 $1.797544 $1.717328 $1.607305 $1.489598
Unit value, end of period.. $2.236763 $2.155028 $2.074515 $2.000092 $1.915930 $1.868172 $1.838756 $1.797544 $1.717328 $1.607305
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)..................... 34,700 32,025 40,530 37,026 38,007 30,143 27,132 15,331 8,723 4,057
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SUBACCOUNT
VA1
-------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period.................... $4.143015 $3.761132 $3.379335 $2.762836 $2.952674 $2.572692 $2.360698 $1.993832 $1.913888 $1.786177
Unit value, end of period.. $3.925373 $4.143015 $3.761132 $3.379335 $2.762836 $2.952674 $2.572692 $2.360698 $1.993832 $1.913888
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)..................... 2,315 3,556 4,114 4,418 4,839 5,798 5,539 5,541 5,085 6,195
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SUBACCOUNT
VA2, VA3 & GSE
-------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period..................... $4.022553 $3.671202 $3.306804 $2.710153 $2.902941 $2.535693 $2.332392 $1.974705$1.900136 $1.777482
Unit value, end of period.. $3.812622 $4.022553 $3.671202 $3.306804 $2.710153 $2.902941 $2.535693 $2.332392$1.974705 $1.900136
========= ========= ========= ========= ========= ========= ========= ================== =========
Number of units outstanding
(000)...................... 25,246 29,600 27,079 25,435 20,608 19,839 10,612 3,480 1,438 856
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN STRATEGIC ALLOCATION SUBACCOUNT
VA1
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period..................... $4.544296 $3.801441 $3.520947 $3.008513 $3.081973 $2.804149 $2.559543 $1.999109 $1.909058 $1.608209
Unit value, end of period.. $5.434874 $4.544296 $3.801441 $3.520947 $3.008513 $3.081973 $2.804149 $2.559543 $1.999109 $1.909058
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)...................... . 11,665 13,378 15,341 18,038 19,981 23,027 23,424 22,916 22,667 24,606
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN STRATEGIC ALLOCATION SUBACCOUNT
VA2, VA3 & GSE
---------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of
period..................... $4.421518 $3.707833 $3.442824 $2.948151 $3.028790 $2.762529 $2.527829 $1.979067 $1.894604 $1.600110
Unit value, end of period.. $5.274814 $4.421518 $3.707833 $3.442824 $2.948151 $3.028790 $2.762529 $2.527829 $1.979067 $1.894604
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding
(000)...................... 55,361 64,407 69,901 73,165 68,860 53,869 30,431 13,524 7,031 3,797
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN STRATEGIC THEME SUBACCOUNT
VA1 VA2, VA3 & GSE
----------------------------------- -------------------------------------
FROM FROM
INCEPTION INCEPTION
YEAR ENDED 1/29/96 TO YEAR ENDED 1/29/96 TO
1998 12/31/97 12/31/96 1998 12/31/97 12/31/96
---- -------- -------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period....................... $1.259897 $1.086084 $1.000000 $1.262435 $1.090843 $1.000000
Unit value, end of period............................. $1.805131 $1.259897 $1.086084 $1.804159 $1.262435 $1.090843
========= ========= ========= ========= ========= =========
Number of units outstanding (000)..................... 479 737 621 21,470 23,027 17,311
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
PHOENIX-HOLLISTER VALUE EQUITY SUBACCOUNT
VA1 VA2, VA3 & GSE
------------------- -------------------
FROM FROM
INCEPTION INCEPTION
5/21/98 TO 12/31/98 3 /3/98 TO 12/31/98
------------------- -------------------
<S> <C> <C>
Unit value, beginning of period..................................................... $1.000000 $1.000000
Unit value, end of period........................................................... $1.039906 $1.096514
========= =========
Number of units outstanding (000)................................................... 31 4,715
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-OAKHURST GROWTH AND INCOME
SUBACCOUNT
VA1 VA2, VA3 & GSE
------------------- -------------------
FROM FROM
INCEPTION INCEPTION
3 /4/98 TO 12/31/98 3/3/98 TO 12/31/98
------------------- ------------------
<S> <C> <C>
Unit value, beginning of period................................................. $1.000000 $1.000000
Unit value, end of period....................................................... $1.194641 $1.192258
========= =========
Number of units outstanding (000)............................................... 429 16,396
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-SCHAFER MID-CAP VALUE SUBACCOUNT
VA1 VA2, VA3 & GSE
------------------- -------------------
FROM INCEPTION FROM INCEPTION
3/17/98 TO 12/31/98 3/3/98 TO 12/31/98
------------------- -------------------
<S> <C> <C>
Unit value, beginning of period................................................. $1.000000 $1.000000
Unit value, end of period....................................................... $0.858489 $0.877027
========= =========
Number of units outstanding (000)............................................... 96 4,559
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-SENECA MID-CAP GROWTH SUBACCOUNT
VA1 VA2, VA3 & GSE
---------------- -----------------
FROM INCEPTION FROM INCEPTION
4/16/98 TO 12/31/98 3/3/98 TO 12/31/98
------------------- -------------------
<S> <C> <C>
Unit value, beginning of period..................................................... $1.000000 $1.000000
Unit value, end of period........................................................... $1.087509 $1.204999
========= =========
Number of units outstanding (000)................................................... 43 3,535
</TABLE>
<TABLE>
<CAPTION>
MUTUAL SHARES INVESTMENTS SUBACCOUNT
VA1 VA2, VA3 & GSE
---------------- -----------------
FROM INCEPTION
11/11/98 TO 12/31/98
--------------------
<S> <C> <C>
Unit value, beginning of period..................................................... $ -- $1.000000
Unit value, end of period........................................................... $ -- $1.014614
======== =========
Number of units outstanding (000)................................................... 124
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION SUBACCOUNT
VA1 VA2, VA3 & GSE
---------------- -----------------
FROM FROM
INCEPTION INCEPTION
YEAR ENDED 6/2/97 TO YEAR ENDED 5/2/97 TO
12/31/98 12/31/97 12/31/98 12/31/97
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Unit value, beginning of period........................................ $1.032795 $1.000000 $1.076228 $1.000000
Unit value, end of period.............................................. $1.084915 $1.032795 $1.127724 $1.076228
========= ========= ========= =========
Number of units outstanding (000)...................................... 131 152 4,579 4,254
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
VA1 VA2, VA3 & GSE
---------------------------- -----------------------------
FROM FROM
INCEPTION INCEPTION
YEAR ENDED 5/15/97 TO YEAR ENDED 5/1/97 TO
12/31/98 12/31/97 12/31/98 12/31/97
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Unit value, beginning of period........................................ $0.676043 $1.000000 $0.666465 $1.000000
Unit value, end of period.............................................. $0.528457 $0.676043 $0.519642 $0.666465
========= ========= ========= =========
Number of units outstanding (000)...................................... 711 718 4,248 4,166
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL SUBACCOUNT
VA1 VA2, VA3 & GSE
---------------------------- ----------------------------
FROM FROM
INCEPTION INCEPTION
YEAR ENDED 7/2/97 TO YEAR ENDED 5/5/97 TO
12/31/98 12/31/97 12/31/98 12/31/97
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Unit value, beginning of period........................................ $0.973941 $1.000000 $1.075966 $1.000000
Unit value, end of period.............................................. $1.051797 $0.973941 $1.158804 $1.075966
========= ========= ========= =========
Number of units outstanding (000)...................................... 211 144 7,109 6,907
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON STOCK SUBACCOUNT
VA1 VA2, VA3 & GSE
---------------------------- -----------------------------
FROM FROM
INCEPTION INCEPTION
YEAR ENDED 5/1/97 TO YEAR ENDED 5/1/97 TO
12/31/98 12/31/97 12/31/98 12/31/97
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Unit value, beginning of period........................................ $1.063678 $1.000000 $1.062244 $1.000000
Unit value, end of period.............................................. $1.063450 $1.063678 $1.059457 $1.062244
========= ========= ========= =========
Number of units outstanding (000)...................................... 123 116 7,999 7,841
</TABLE>
<TABLE>
<CAPTION>
WANGER INTERNATIONAL SMALL CAP SUBACCOUNT
VA1 VA2, VA3 & GSE
---------------------------------------------- -------------------------------------------------
FROM FROM
INCEPTION INCEPTION
YEAR ENDED DECEMBER 31, 5/1/95 TO YEAR ENDED DECEMBER 31, 5/1/95 TO
1998 1997 1996 12/31/95 1998 1997 1996 12/31/95
---- ---- ---- -------- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period... $1.580723 $1.620307 $1.239576 $1.000000 $1.693453 $1.740203 $1.334598 $1.000000
Unit value, end of period......... $1.820651 $1.580723 $1.620307 $1.239576 $1.945673 $1.693453 $1.740203 $1.334598
========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000). 1,320 1,630 1,632 194 40,116 47,318 37,820 7,738
</TABLE>
<TABLE>
<CAPTION>
WANGER U.S. SMALL CAP SUBACCOUNT
VA1 VA2, VA3 & GSE
---------------------------------------------- -------------------------------------------------
FROM FROM
INCEPTION INCEPTION
YEAR ENDED DECEMBER 31, 5/1/95 TO YEAR ENDED DECEMBER 31, 5/1/95 TO
1998 1997 1996 12/31/95 1998 1997 1996 12/31/95
---- ---- ---- -------- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period. $2.153561 $1.680622 $1.157802 $1.000000 $2.139447 $1.673666 $1.155807 $1.000000
Unit value, end of period....... $2.317414 $2.153561 $1.680622 $1.157802 $2.296561 $2.139447 $1.673666 $1.155807
========= ========= ========= ========= ========= ========= ========= =========
Number of units outstanding (000). 3,662 3,346 2,888 460 77,960 83,070 58,623 17,039
</TABLE>
WANGER TWENTY SUBACCOUNT AND WANGER FOREIGN FORTY SUBACCOUNT
These Subaccounts commenced operations as of February 1, 1999; accordingly,
data for these Subaccounts is not yet available.
17
<PAGE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
The following tables show how the value of one unit of each Subaccount
changed during 1998. All units began with a value of 1.000000. Thereafter, the
unit value reflects the cumulative investment experience of the Subaccount.
These tables are highlights only, you may obtain more detailed information in
the financial statements contained in the Statement of Additional Information.
Following are financial highlights for New York Individual Contracts issued
on or after May 1, 1997.
<TABLE>
<CAPTION>
PHOENIX RESEARCH ENHANCED INDEX SUBACCOUNT
FROM INCEPTION TO
5/13/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.108325
=========
Number of units outstanding (000)............................. 920
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-ABERDEEN INTERNATIONAL SUBACCOUNT
FROM INCEPTION TO
6/17/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.015117
=========
Number of units outstanding (000)............................. 1,504
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-ABERDEEN NEW ASIA SUBACCOUNT
FROM INCEPTION TO
6/16/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.162712
=========
Number of units outstanding (000)............................. 19
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SUBACCOUNT
FROM INCEPTION TO
6/9/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $0.848760
=========
Number of units outstanding (000)............................. 125
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-ENGEMANN NIFTY FIFTY SUBACCOUNT
FROM INCEPTION TO
5/28/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.193056
=========
Number of units outstanding (000)............................. 245
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN BALANCED SUBACCOUNT
FROM INCEPTION TO
6/3/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.104962
=========
Number of units outstanding (000)............................. 1,185
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN GROWTH SUBACCOUNT
FROM INCEPTION TO
5/14/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.127145
=========
Number of units outstanding (000)............................. 9,416
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
PHOENIX-GOODWIN MONEY MARKET SUBACCOUNT
FROM INCEPTION TO
5/14/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.023366
=========
Number of units outstanding (000)............................. 1,608
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SUBACCOUNT
FROM INCEPTION TO
5/15/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $0.931865
=========
Number of units outstanding (000)............................. 1,578
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN STRATEGIC ALLOCATION SUBACCOUNT
FROM INCEPTION TO
6/2/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.123635
=========
Number of units outstanding (000)............................. 1,495
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN STRATEGIC THEME SUBACCOUNT
FROM INCEPTION TO
6/16/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.351368
=========
Number of units outstanding (000)............................. 148
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-HOLLISTER VALUE EQUITY SUBACCOUNT
FROM INCEPTION TO
6/16/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.088751
=========
Number of units outstanding (000)............................. 136
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-OAKHURST GROWTH AND INCOME SUBACCOUNT
FROM INCEPTION TO
5/28/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.122163
=========
Number of units outstanding (000)............................. 825
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-SCHAFER MID-CAP VALUE SUBACCOUNT
FROM INCEPTION TO
5/28/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $0.884934
=========
Number of units outstanding (000)............................. 162
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-SENECA MID-CAP GROWTH SUBACCOUNT
FROM INCEPTION TO
5/28/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.154307
=========
Number of units outstanding (000)............................. 203
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
MUTUAL SHARE INVESTMENTS SUBACCOUNT
FROM INCEPTION TO
12/11/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.033360
=========
Number of units outstanding (000)............................. 25
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION SUBACCOUNT
FROM INCEPTION TO
6/16/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.002002
=========
Number of units outstanding (000)............................. 48
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
FROM INCEPTION TO
8/18/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.182161
=========
Number of units outstanding (000)............................. 22
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL SUBACCOUNT
FROM INCEPTION TO
5/28/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $0.935264
=========
Number of units outstanding (000)............................. 181
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON STOCK SUBACCOUNT
FROM INCEPTION TO
6/2/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $0.898644
=========
Number of units outstanding (000)............................. 75
</TABLE>
<TABLE>
<CAPTION>
WANGER INTERNATIONAL SMALL CAP SUBACCOUNT
FROM INCEPTION TO
6/17/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $1.064969
=========
Number of units outstanding (000)............................. 381
</TABLE>
<TABLE>
<CAPTION>
WANGER U.S. SMALL CAP SUBACCOUNT
FROM INCEPTION TO
5/15/98 TO 12/31/98
---------------------
<S> <C>
Unit value, beginning of period............................... $1.000000
Unit value, end of period..................................... $0.931043
=========
Number of units outstanding (000)............................. 1,825
</TABLE>
WANGER TWENTY SUBACCOUNT AND WANGER FOREIGN FORTY SUBACCOUNT
These Subaccounts commenced operations as of February 1, 1999; accordingly,
data for these Subaccounts is not yet available.
20
<PAGE>
PERFORMANCE HISTORY
- -------------------------------------------------------------------------------
We may include the performance history of the 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.
See Appendix A for more information.
THE VARIABLE ACCUMULATION ANNUITY
- -------------------------------------------------------------------------------
The individual deferred variable accumulation annuity contract (the
"Contract") issued by Phoenix is significantly different from a fixed annuity
contract in that, unless the GIA is selected, it is the Owner and Annuitant
under a Contract who bear 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. Upon the
maturity of a Contract, the amounts held under a Contract will continue to be
invested in the Account or the GIA. The monthly annuity payments will vary
according to the investment experience of the selected investment options.
However, a fixed annuity may be elected, in which case, Phoenix will guarantee
specified monthly annuity payments.
You select the investment objective of each Contract on a continuing basis
by directing the allocation of payments and the reallocation of the Contract
Value among the GIA or the Subaccounts.
PHOENIX AND THE ACCOUNT
- -------------------------------------------------------------------------------
Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851 and redomiciled to New York in 1992. Our Executive Office is
located at One American Row, Hartford, Connecticut 06102-5056 and our main
administrative office is located at 100 Bright Meadow Boulevard, Enfield,
Connecticut 06083-1900. The principal office is located at 10 Krey Boulevard,
East Greenbush, New York 12144. We sell insurance policies and annuity contracts
through our own field force of full-time agents and through brokers.
On June 21, 1982, we 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 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 used to pay 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 B.
INVESTMENTS OF THE ACCOUNT
- -------------------------------------------------------------------------------
PARTICIPATING INVESTMENT FUNDS
THE PHOENIX EDGE SERIES FUND
Certain Subaccounts of the Account invest in corresponding Series of The
Phoenix Edge Series Fund. The Fund currently has the following Series available
through the Contracts:
PHOENIX RESEARCH ENHANCED INDEX SERIES: The investment objective of the
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. The Series invests 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.
PHOENIX-ABERDEEN INTERNATIONAL SERIES: The investment objective of the
Series is to seek a high total return consistent with reasonable risk. The
Series invests 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. The
Phoenix-Aberdeen International Series provides a means for investors to invest a
portion of their assets outside the United States.
PHOENIX-ABERDEEN NEW ASIA SERIES: The investment objective of the Series is
to seek long-term capital appreciation. The Series invests primarily in a
diversified portfolio of equity securities of issuers organized and principally
operating in Asia, excluding Japan.
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES: The investment
objective of the Series is to seek capital appreciation and income with
approximately equal emphasis. Under normal circumstances, it invests 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.
21
<PAGE>
PHOENIX-ENGEMANN NIFTY FIFTY SERIES: The investment objective of the Series
is to seek long-term capital appreciation by investing in approximately 50
different securities which 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.
PHOENIX-GOODWIN BALANCED SERIES: The investment objective of the Series is
to seek reasonable income, long-term capital growth and conservation of capital.
The Phoenix-Goodwin Balanced Series invests based on combined considerations of
risk, income, capital enhancement and protection of capital value.
PHOENIX-GOODWIN GROWTH SERIES: The investment objective of the Series is to
achieve intermediate and long-term growth of capital, with income as a secondary
consideration. The Phoenix-Goodwin Growth Series invests principally in common
stocks of corporations believed by management to offer growth potential.
PHOENIX-GOODWIN MONEY MARKET SERIES: The investment objective of the Series
is to provide maximum current income consistent with capital preservation and
liquidity. The Phoenix-Goodwin Money Market Series invests exclusively in high
quality money market instruments.
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES: The investment objective
of the Series is to seek long-term total return. The Phoenix-Goodwin
Multi-Sector Fixed Income Series seeks to achieve its investment objective by
investing in a diversified portfolio of high yield and high quality fixed income
securities.
PHOENIX-GOODWIN STRATEGIC ALLOCATION SERIES: The investment objective of the
Series is to realize as high a level of total return over an extended period of
time as is considered consistent with prudent investment risk. The
Phoenix-Goodwin Strategic Allocation Series invests in stocks, bonds and money
market instruments in accordance with the Investment Adviser's appraisal of
investments most likely to achieve the highest total return.
PHOENIX-GOODWIN STRATEGIC THEME SERIES: The investment objective of the
Series is to seek long-term appreciation of capital by identifying securities
benefiting from long-term trends present in the United States and abroad. The
Phoenix-Goodwin Strategic Theme Series invests primarily in common stocks
believed to have substantial potential for capital growth.
PHOENIX-HOLLISTER VALUE EQUITY SERIES: The primary investment objective of
the Series is long-term capital appreciation, with a secondary investment
objective of current income. The Phoenix-Hollister Value Equity 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.
PHOENIX-OAKHURST GROWTH AND INCOME SERIES: The investment objective of the
Series is to seek dividend growth, current income and capital appreciation by
investing in common stocks. The Phoenix-Oakhurst Growth and Income 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.
PHOENIX-SCHAFER MID-CAP VALUE SERIES: The primary investment objective of
the Series is to seek long-term capital appreciation, with current income as the
secondary investment objective. The Phoenix-Schafer Mid-Cap Value 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.
PHOENIX-SENECA MID-CAP GROWTH SERIES: The investment objective of the 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.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Certain Subaccounts of the Account invest in Class 2 shares of the
corresponding Series of the Templeton Variable Products Series Fund. The
following Series are currently available through the Contracts:
MUTUAL SHARES INVESTMENTS SERIES: The primary investment objective of the
Series is to seek capital appreciation with income as a secondary objective. The
Mutual Shares Investment Series invests in domestic equity securities and
domestic debt obligations.
TEMPLETON ASSET ALLOCATION SERIES: The investment objective of the Series is
to seek a high level of total return through a flexible investment policy. The
Templeton Asset Allocation Series invests in stocks of companies of 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.
TEMPLETON DEVELOPING MARKETS SERIES: The investment objective of the Series
is to seek long-term capital appreciation. The Templeton Developing Markets
Series invests primarily in equity securities of issuers in countries having
developing markets.
TEMPLETON INTERNATIONAL SERIES: The investment objective of the Series is to
seek long-term capital growth through a flexible policy of investing. The
Templeton International Series invests in stocks and debt obligations of
companies and governments outside the United States. Any
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<PAGE>
income realized will be incidental. Although the Series 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.
TEMPLETON STOCK SERIES: The investment objective of the Series is to provide
capital growth. The Templeton Stock Series invests primarily in common stocks
issued by companies, large and small, in various nations throughout the world.
WANGER ADVISORS TRUST
Certain Subaccounts of the Account invest in corresponding Series of the
Wanger Advisors Trust. The following Series are currently available through the
Contracts:
WANGER FOREIGN FORTY SERIES: The investment objective of the Series is to
seek long-term capital growth. The Wanger Foreign Forty Series invests primarily
in equity securities of foreign companies with market capitalization of $1
billion to $10 billion and focuses its investments in 40 to 60 companies in the
developed markets.
WANGER INTERNATIONAL SMALL CAP SERIES: The investment objective of the
Series is to provide long-term growth. The Wanger International Small Cap Series
invests primarily in securities of non-U.S. companies with total common stock
market capitalization of less than $1 billion.
WANGER TWENTY SERIES: The investment objective of the Series is to seek
long-term capital growth. The Wanger Twenty Series invests primarily in the
stocks of U.S. companies with market capitalization of $1 billion to $10 billion
and ordinarily focuses its investments in 20 to 25 U.S. companies.
WANGER U.S. SMALL CAP SERIES: The investment objective of the Series is to
provide long-term growth. The Wanger U.S. Small Cap Series invests primarily in
securities of U.S. companies with total common stock market capitalization of
less than $1 billion.
Each Series will be subject to market fluctuations and the risks that come
with the ownership of any security, and there can be no assurance that any
Series will achieve its stated investment objective.
In addition to being sold to the Account, shares of the Funds also may be
sold to other separate accounts of Phoenix or its affiliates or to the separate
accounts of other insurance companies.
It is possible that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the Fund(s) simultaneously. Although neither we nor the Fund(s)
trustees currently foresee any such disadvantages either to variable life
insurance Policyowners or to variable annuity Contract Owners, the Funds'
trustees intend to monitor events in order to identify any material conflicts
between variable life insurance Policyowners and variable annuity Contract
Owners and to determine what action, if any, should be taken in response to such
conflicts. Material conflicts could, for example, result from (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(s) or (4) differences in
voting instructions between those given by variable life insurance Policyowners
and those given by variable annuity Contract Owners. We will, at our own
expense, remedy such material conflicts, including, if necessary, segregating
the assets underlying the variable life insurance policies and the variable
annuity contracts and establishing a new registered investment company.
INVESTMENT ADVISERS
Phoenix Investment Counsel, Inc. ("PIC") is the investment adviser to all
Series in The Phoenix Edge Series Fund except the Phoenix-Duff & Phelps Real
Estate Securities and Phoenix-Aberdeen New Asia Series. Based on subadvisory
agreements with the Fund, PIC delegates certain investment decisions and
research functions to subadvisers for the following Series:
[diamond] J.P. Morgan Investment Management, Inc.
o Phoenix Research Enhanced Index
[diamond] Roger Engemann & Associates, Inc. ("Engemann")
o Phoenix-Engemann Nifty Fifty
[diamond] Seneca Capital Management, LLC ("Seneca")
o Phoenix-Seneca Mid-Cap
[diamond] Schafer Capital Management, Inc.
o Phoenix-Schafer Mid-Cap
The investment adviser to the Phoenix-Duff & Phelps Real Estate Securities
Series is Duff & Phelps Investment Management Co. ("DPIM").
The investment adviser to the Phoenix-Aberdeen New 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 Phoenix-Aberdeen New Asia Series to PIC
and Aberdeen Fund Managers, Inc.
PIC, DPIM, Engemann and Seneca are indirect, less than wholly-owned
subsidiaries of Phoenix. PAIA is jointly owned and managed by PM Holdings, Inc.,
a subsidiary of Phoenix, and by Aberdeen Fund Managers, Inc.
The other investment advisers are:
[diamond] Wanger Asset Management, L.P.
o Wanger Advisors Trust
[diamond] Templeton Investment Counsel, Inc.
o Templeton Asset Allocation
o Templeton International
o Templeton Stock
[diamond] Templeton Asset Ltd.
o Templeton Developing Markets
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<PAGE>
[diamond] Franklin Mutual Advisers, Inc.
o Mutual Shares Investments
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.
PURCHASE OF CONTRACTS
- --------------------------------------------------------------------------------
We require minimum initial payments of:
[diamond] Non-qualified plans--$1,000
[diamond] Individual Retirement Annuity--$1,000
[diamond] Bank draft program--$25
o You may authorize your bank to draw $25 or more from your
personal checking account monthly to purchase Units in any
available Subaccount, or for deposit in the GIA. The amount
you designate will be automatically invested on the date the
bank draws on your account. If Check-o-matic is elected, the
minimum initial payment is $25. This payment must accompany
the application. Each subsequent payment under a Contract
must be at least $25.
[diamond] Qualified plans--$1,000 annually
o Contracts purchased in connection with tax-qualified or
employer-sponsored plans, a minimum annual payment of $1,000
is required.
Generally, a Contract may not be purchased for a proposed Annuitant who is
81 years of age or older. Total 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, payments may be made anytime before the Maturity Date of a
Contract.
Payments received under the Contracts will be allocated in any combination
to any Subaccount or the GIA, in the proportion specified in the application for
the Contract or as otherwise indicated by you from time to time. Initial
payments may, under certain circumstances, be allocated to the Phoenix-Goodwin
Money Market Subaccount. See "Free Look Period." Changes in the allocation of
payments will be effective as of receipt by VPMO of notice of election in a form
satisfactory to us (either in writing or by telephone) and will apply to any
payments accompanying such notice or made subsequent to the receipt of the
notice, unless otherwise requested by you.
In certain circumstances, we may reduce the initial or subsequent payment
amount we accept for a Contract. Qualifications for such reduction follow:
[diamond] the makeup and size of the prospective group; or
[diamond] the method and frequency of payments; and
[diamond] the amount of compensation to be paid to Registered
Representative(s) on each payment.
Any reduction will not unfairly discriminate against any person. We will
make any such reduction according to our own rules in effect at the time the
payment is received. We reserve the right to change these rules from time to
time.
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 reimburse itself only upon
the earlier of partial withdrawal, surrender of the Contract, Maturity Date or
payment of death proceeds. For a list of states and premium taxes, see Appendix
C to this Prospectus.
SURRENDER CHARGES
A deduction for surrender charges for this Contract may be taken from
proceeds of partial withdrawals or complete surrender of the Contract. The
amount (if any) of a surrender charge depends on whether your payments are held
under the Contract for a certain period of time. The surrender charge schedule
is shown in the chart below. No surrender charge will be taken from death
proceeds. No surrender charge will be taken after the Annuity Period has begun
except with respect to unscheduled withdrawals under Annuity Option K or L
below. See "Annuity Options." Any surrender charge is imposed on a first-in,
first-out basis.
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 amounts without the
imposition of a surrender charge. During the first Contract year, the 10%
withdrawal without a surrender charge will be based on the Contract Value at the
time of the first partial withdrawal. In subsequent years, the 10% will be based
on the previous Contract anniversary value. The deduction for surrender charges,
expressed as a percentage of the amount withdrawn in excess of the 10% allowable
amount, is as follows:
- ---------------------------------------------------------------
Percent 6% 5% 4% 3% 2% 1% 0%
- ---------------------------------------------------------------
Age of Payment in
Complete Years 0 1 2 3 4 5 6+
- ---------------------------------------------------------------
If the Annuitant or Owner dies before the Maturity Date of the Contract, the
surrender charge described in the table above will not apply.
The total deferred surrender charges on a Contract will never exceed 9% of
total payments, and the applicable level of surrender charge cannot be changed
with respect to
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<PAGE>
outstanding Contracts. Surrender charges imposed in connection with partial
surrenders will be deducted from the Subaccounts and GIA on a pro rata basis.
Any distribution costs not paid for by surrender charges will be paid by Phoenix
from the assets of the General Account.
CHARGES FOR MORTALITY AND EXPENSE RISKS
While you bear the investment risk of the Series in which you invest, once
the Contract has been converted to a fixed annuity, the annuity payments are
guaranteed by us. We assume the risk that Annuitants as a class may live longer
than expected (necessitating a greater number of annuity payments) and that our
expenses may be higher than the deductions for such expenses.
In assuming the mortality risk, we agree 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.
To compensate for assuming these risks, we charge each Subaccount the daily
equivalent of .40% annually of the current value of the Subaccount's net assets
for mortality risks assumed and the daily equivalent of .85% annually for
expense risks assumed. (See the Contract Schedule Pages.) No mortality and
expense risk charge is deducted from the GIA. If the charges prove insufficient
to cover actual insurance underwriting costs and excess administrative costs,
then the loss will be borne by us; conversely, if the amount deducted proves
more than sufficient, the excess will be a profit to Phoenix. Any such profit
may be used, as part of our General Account assets, to meet sales expenses, if
any, which are in excess of sales commission revenue generated from any
surrender charges.
We have concluded that there is a reasonable likelihood that the
distribution financing arrangement being used in connection with the Contract
will benefit the Account and the Contract Owners.
CHARGES FOR ADMINISTRATIVE SERVICES
We are responsible for administering the Contract. In doing so, we maintain
an account for each Owner and Annuitant, make all disbursements of benefits,
furnish administrative and clerical services for each Contract. We also make
disbursements to pay obligations chargeable to the Account, maintain the
accounts, records and other documents relating to the business of the Account
required by regulatory authorities, cause the maintenance of the registration
and qualification of the Account under laws administered by the SEC, prepare and
distribute notices and reports to Owners, and the like. We also reimburse
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. A reduced charge may apply in
certain situations. This charge is deducted from each Subaccount and GIA in
which you are invested on a pro rata basis. This charge may be decreased but
will never increase. This charge is deducted on the Contract anniversary date
for services rendered during the preceding Contract Year. Upon surrender of a
Contract, the entire annual administrative charge of $35 is deducted regardless
of when the surrender occurs.
If you elect Payment Options I, J, K, M or N, the annual administrative
charge after the Maturity Date will be deducted from each annuity payment in
equal amounts.
We may reduce the annual administrative charges for Contracts issued under
tax-qualified plans other than IRAs, and for group or sponsored arrangements
such as Internal Revenue Code Section 403(b) or 457 Plans. 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 amount of reduction will be considered on a
case-by-case basis but will be applied in a uniform, nondiscriminatory manner
that reflects the reduced administrative costs expected as a result of sales to
a particular group or sponsored arrangement.
No surrender 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 or its affiliates and their spouses; or to
employees or agents who retire from Phoenix or its affiliates or Phoenix Equity
Planning Corporation ("PEPCO"), or its affiliates or to registered
representatives of broker-dealers with whom PEPCO has selling agreements.
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 daily net asset values of each Series. These Fund charges and other Fund
expenses are described more fully in the accompanying Fund prospectuses.
THE ACCUMULATION PERIOD
- -------------------------------------------------------------------------------
The accumulation period is that time before annuity payments begin that your
payments into the Contract remain invested.
ACCUMULATION UNITS
Your initial payments will be applied within two days of our receipt if the
application for a Contract is complete. If an incomplete application is
completed within five business days of receipt by VPMO, your payment will be
applied within two days of the completion of the application. If VPMO does not
accept the application within five business days or if an order form is not
completed within five business days of receipt by VPMO, then your payment will
be immediately returned unless you request us to hold it while the application
is completed. Additional payments allocated to the GIA are deposited on the date
of receipt of payment at VPMO. Additional payments
25
<PAGE>
allocated to Subaccounts are used to purchase Accumulation Units of the
Subaccount(s), at the value of such Units next determined after the receipt of
the payment at VPMO. The number of Accumulation Units of a Subaccount purchased
with a specific payment will be determined by dividing the payment by the value
of an Accumulation Unit in that Subaccount next determined after receipt of the
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 Fund and the charges and deductions made against
the Subaccount.
ACCUMULATION UNIT VALUES
On any date before the Maturity Date of the Contract, the total value of the
Accumulation Units in a Subaccount can be computed by multiplying the number of
such Units by the value of an Accumulation Unit on that 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
credited to you in each Subaccount and their current value will be reported to
you at least annually.
TRANSFERS
You may, anytime up to 30 days prior to the Maturity Date of your Contract,
elect to transfer all or any part of the Contract Value among one or more
Subaccounts or the GIA. A transfer from a Subaccount will result in the
redemption of Accumulation Units and, if another Subaccount is selected, in the
purchase of Accumulation Units. The exchange will be based on the values of the
Accumulation Units next determined after the receipt by VPMO of written notice
of election in a form satisfactory to us. A transfer among Subaccounts or the
GIA does not automatically change the payment allocation schedule of your
contract.
You may also request transfers and changes in payment allocations among
available Subaccounts or the GIA by calling VPO at 800/541-0171 between the
hours of 8:30 a.m. and 4:00 p.m. Eastern Time. Unless you elect in writing not
to authorize telephone transfers or allocation changes, telephone transfer
orders and allocation changes also will be accepted on your behalf from your
registered representative. We will employ reasonable procedures to confirm that
telephone instructions are genuine. We 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 you. To the
extent that procedures reasonably designed to prevent unauthorized transfers are
not followed, we may be liable for following telephone instructions for
transfers that prove to be fraudulent. However, you will bear the risk of loss
resulting from instructions entered by an unauthorized third party we reasonably
believe to be genuine. These telephone exchange and allocation change privileges
may be modified or terminated at any time. In particular, during times of
extreme market volatility, telephone privileges may be difficult to exercise. In
such cases you should submit written instructions.
You also may elect to transfer funds automatically among the Subaccounts or
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. You must have an initial value of $2,000 in the GIA or in the
Subaccount from which funds will be transferred (sending Subaccount), and if the
value in that Subaccount or the GIA drops below the amount to be transferred,
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 from the GIA but may be allocated to multiple receiving
Subaccounts. Under the Systematic Transfer Program, you may transfer
approximately equal amounts from the GIA over a minimum 18-month period.
Transfers under the Systematic Transfer Program are not subject to the general
restrictions on transfers from the GIA.
Upon completion of the Systematic Transfer Program, you must notify VPO at
800/541-0171 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 values as of the first of the month rather than on the basis of values
next determined after receipt of the transfer 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 we otherwise agree or unless the Systematic Transfer Program has been
elected, you may make only one transfer per Contract year from the GIA.
Non-systematic transfers from the GIA will be made on the date of receipt by
VPMO except as you may otherwise request. 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 all Contract
Owners, we reserve 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. We will not accept batch transfer
instructions from registered representatives (acting under powers of attorney
for multiple Contract Owners), unless we have entered into a third-party
transfer service
26
<PAGE>
agreement with the registered representative's broker-dealer firm.
No surrender charge will be assessed when a transfer is made. The date a
payment was originally credited for the purpose of calculating the surrender
charge will remain the same. Currently, there is no charge for transfers.
However, we reserve the right to charge a transfer fee of $10 per transfer after
the first two transfers in each Contract year to defray administrative costs.
Currently, unlimited transfers are permitted. However, we reserve the right to
change our policy to limit the number of transfers made to no more than six
during each Contract year. If the Temporary Money Market Allocation Amendment is
in effect, no transfers may be made until the end of the free look period. See
"Free Look Period." There are additional restrictions on transfers from the GIA
as described above and in Appendix B.
We reserve the right to limit the number of Subaccounts you may elect to a
total of 18 over the life of the Contract unless changes in federal and/or state
regulation, including tax, securities and insurance law require us to impose a
lower limit.
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, you 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 withdrawals, without the imposition of a
surrender charge. During the first Contract year, the 10% withdrawal without a
surrender 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 withdrawal. 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 you have not yet reached age 59 1/2, a 10% penalty tax
may 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 us. Accumulation Units redeemed in a partial withdrawal
from multiple Subaccounts will be redeemed on a pro rata basis unless you
designate otherwise. Contract Values in the GIA will also be withdrawn on a pro
rata basis unless you designate otherwise. 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.
Although loans are available under 403(b) plans only, certain limitations may
apply. See "Qualified Plans"; "Tax Sheltered Annuities." A deduction for
surrender charges may be imposed on partial withdrawals from, and complete
surrender of, a Contract. See "Surrender Charges." Any surrender 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, PO Box 8027,
Boston, Massachusetts 02266-8027.
LAPSE OF CONTRACT
The Contract will terminate and lapse without value, if on any Valuation
Date:
[diamond] the Contract Value is zero; or
[diamond] the premium tax reimbursement due on surrender or partial
withdrawals is greater than or equal to the Contract Value (unless
any Contract Value has been applied under one of the variable
payment options).
Phoenix will notify you in writing that the Contract has lapsed.
PAYMENT UPON DEATH BEFORE MATURITY DATE
DEATH OF AN OWNER/ANNUITANT
If the Owner/Annuitant dies before the Contract Maturity Date, the death
benefit will be paid under the Contract to the Annuitant's beneficiary.
DEATH OF AN ANNUITANT WHO IS NOT THE OWNER
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 upon the Death of the Annuitant or Owner/Annuitant will
be:
1. Death occurring in the first 6-year period following the Contract Date--the
greater of:
a. 100% of payments, less any withdrawals; or
b. the Contract Value as of the claim date.
2. Death occurring any subsequent 6-year period--the greater of:
a. the death benefit that would have been payable at the end of the
immediately preceding 6-year period, plus any payments, less any
withdrawals made since that date; or
b. the Contract Value as of the claim date.
DEATH OF AN OWNER WHO IS NOT THE ANNUITANT
Upon the death of an Owner who is not the Annuitant, provided that there is
no surviving joint Owner, the death proceeds will be paid to the Owner's
beneficiary. The death benefit is equal to the cash surrender value.
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<PAGE>
[diamond] SPOUSAL BENEFICIARY CONTRACT CONTINUANCE. If the spousal beneficiary
continues the Contract at the death of the Owner/Annuitant or Owner
who is not also the Annuitant, the spousal beneficiary becomes the
Annuitant.
[diamond] CONTINGENT ANNUITANT CONTRACT CONTINUANCE. Upon the death of the
Annuitant who is not the Owner provided a contingent Annuitant was
named prior to the death of the Annuitant, the contract will
continue with the contingent Annuitant becoming the Annuitant.
[diamond] QUALIFIED CONTRACTS. Under qualified Contracts, the death benefit is
paid at the death of the participant who is the Annuitant under the
Contract. Death benefit payments must satisfy distribution rules.
See "Federal Income Taxes--Qualified Plans."
[diamond] OWNERSHIP OF THE CONTRACT BY A NON-NATURAL PERSON. If the Owner is
not an individual, the death of the Annuitant is treated as the
death of the Owner.
If the death benefit amount to be paid is less than $2,000, it will be paid
in a single lump sum (see "Annuity Options"). Depending upon state law, the
death benefit payment to the beneficiary may avoid probate and the death benefit
may be reduced by any premium tax due. See "Deductions and Charges--Premium
Tax." See also, "Federal Income Taxes--Distribution at Death."
NEW YORK INDIVIDUAL CONTRACTS ISSUED ON OR AFTER MAY 1, 1997
- -------------------------------------------------------------------------------
New York Individual Contracts issued 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
other individual Contracts. These differences are reflected in the "Summary of
Expenses for New York Individual Contracts Issued on or after May 1, 1997."
SURRENDER CHARGES
A deduction for surrender charges for these Contracts may be taken from
proceeds of partial withdrawals or complete surrender of the Contract. The
amount (if any) of a surrender charge depends on whether your payments are held
under the Contract for a certain period of time. The surrender charge schedule
is shown in the chart below. No surrender charge will be taken after the Annuity
Period has begun, except with respect to unscheduled withdrawals under Options K
or L. See "Annuity Options." A surrender charge is not imposed on amounts
payable because of the death of the Annuitant or Owner.
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 amounts, without
imposition of a surrender charge. During the first Contract year, the 10%
withdrawal without a surrender charge will be based on the Contract Value at the
time of the first partial withdrawal. In subsequent years, the 10% will be based
on the previous Contract anniversary value. The deduction for surrender 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:
- ---------------------------------------------------------------
Percent 7% 6% 5% 4% 3% 2% 1% 0%
- ---------------------------------------------------------------
Age of Payment in
Complete Years 0 1 2 3 4 5 6 7+
- ---------------------------------------------------------------
If the Annuitant or Owner dies before the Maturity Date, the surrender
charge described in the table above will not apply.
DAILY ADMINISTRATIVE FEE
We also charge each Subaccount the daily equivalent of 0.125% annually 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, from Contracts sold to registered representatives of PEPCO or
broker-dealers with whom PEPCO has selling agreements, 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
DEATH OF AN OWNER/ANNUITANT
If the Owner/Annuitant dies before the Contract Maturity Date, the death
benefit will be paid under the Contract to the Annuitant's beneficiary.
DEATH OF AN ANNUITANT WHO IS NOT THE OWNER
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 upon the Death of the Annuitant or Owner/Annuitant who has
not yet reached age 85 will be:
1. Death occurring in the first 7-year period following the Contract Date--the
greater of :
a. 100% of payments, less any withdrawals; or
b. the Contract value as of the claim date.
2. Death occurring any subsequent 7-year period--the greater of :
a. the death benefit that would have been payable at the end of the
immediately preceding 7-year period,
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plus any payments, less any withdrawals made since that date; or
b. the Contract value as of the claim date.
After the Annuitants' attained age 85, the death benefit equals the contract
value as of the claim date.
DEATH OF AN OWNER WHO IS NOT THE ANNUITANT
Upon the death of an Owner who is not the Annuitant, provided that there is
no surviving joint Owner, the death proceeds will be paid to the Owner's
beneficiary. The death benefit is the greater of:
a. 100% of payments, less withdrawals; or
b. the Contract value as of the claim date.
[diamond] SPOUSAL BENEFICIARY CONTRACT CONTINUANCE. If the spousal beneficiary
continues the Contract at the death of the Owner/Annuitant or Owner
who is not also the Annuitant, the spousal beneficiary becomes the
Annuitant.
[diamond] CONTINGENT ANNUITANT CONTRACT CONTINUANCE. Upon the death of the
Annuitant who is not the Owner provided a contingent Annuitant was
named prior to the death of the Annuitant, the contract will
continue with the contingent Annuitant becoming the Annuitant.
[diamond] QUALIFIED CONTRACTS. Under qualified Contracts, the death benefit is
paid at the death of the participant who is the Annuitant under the
Contract. Death benefit payments must satisfy distribution rules.
See "Federal Income Taxes--Qualified Plans."
[diamond] OWNERSHIP OF THE CONTRACT BY A NON-NATURAL PERSON. If the Owner is
not an individual, the death of the Annuitant is treated as the
death of the Owner.
If the death benefit amount to be paid is less than $2,000, it will be paid
in a single lump sum (see "Annuity Options"). Depending upon state law, the
death benefit payment to the beneficiary may avoid probate and the death benefit
may be reduced by any premium tax due. See "Deductions and Charges--Premium
Tax." See also, "Federal Income Taxes--Distribution at Death."
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 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.
We may limit the payments made under a Group Contract to $1,000,000 and reserve
the right to terminate a Group Contract after 20 years.
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 withdrawals occur within a certain number of years after deposit, a
surrender charge will apply. (Please see description in section "Deductions and
Charges--Surrender Charges.") Allocated group contracts do not have a 10% free
withdrawal privilege. A surrender charge will not be applied if the withdrawal
is for one of the following:
[diamond] death of a participant
[diamond] disability
[diamond] demonstration of financial hardship
[diamond] termination of employment or retirement (participant account has
been maintained for a minimum of 5 years or age 55 or older)
[diamond] participant loan
[diamond] purchase of:
o annuity contract
o retired life certificate
o election of life expectancy distribution option
Under Group Contracts issued in New York, the surrender charge will not be
applied to amounts exceeding the total of 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 surrender
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
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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 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 the 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 surrender charge may
apply unless the withdrawal is for the payment of a plan benefit related to the
death or disability of a plan participant or the purchase of an individual
annuity contract or Life Expectancy Distribution option from Phoenix. A
deduction for a surrender 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 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 surrender charge for payment of plan benefits related to
termination of employment or retirement. The deduction for surrender charges,
expressed as a percentage of the amount withdrawn in excess of the 15% allowable
amount, is as follows:
- --------------------------------------------------------------
Percent 6% 6% 6% 6% 6% 5% 4% 3% 2% 1% 0%
- --------------------------------------------------------------
Age of Payment
in Complete Years 0 1 2 3 4 5 6 7 8 9 10+
- --------------------------------------------------------------
The total surrender charges on a Contract will never exceed 9% of the total
payments, and the applicable level of sales charge cannot be changed with
respect to outstanding Contracts.
Under Group Contracts issued in New York, the surrender 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
surrender charge will apply.
Upon the death of a participant, a death benefit will be paid to the
Contract Owner. The Contract Owner may then distribute the death benefit in
accordance with the terms of the plan.
THE ANNUITY PERIOD
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The annuity period is that period of time beginning after the end of the
accumulation period and during which payments to you are made.
VARIABLE ACCUMULATION ANNUITY CONTRACTS
Annuity payments will begin on the Contract's Maturity Date if the Annuitant
is alive and the Contract is still in force. Beginning on the Maturity Date,
investment in the Account is continued unless a Fixed Payment Annuity is
elected. No surrender charge is taken. Each Contract will provide, at the time
of its issuance, for a Variable Payment Life Annuity with 10-Year Period Certain
unless a different annuity option is elected by you. 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 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
you 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, we 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, we may
make a single sum payment equal to the total Contract Value on the date the
initial payment would be payable, or make periodic payments quarterly,
semiannually or annually in place of monthly payments.
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Each Contract specifies a provisional Maturity Date at the time of its
issuance. You may subsequently elect a different Maturity Date. The Maturity
Date may not be earlier than the fifth Contract anniversary or later than the
Contract anniversary nearest the Annuitant's 95th 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 must 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, is not elected by
you, the provisional Maturity Date becomes the Maturity Date. Particular care
should be taken in electing the Maturity Date of a Contract issued under a Tax
Sheltered Annuity (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
automatically will be 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 payment rate. The Contract is issued with guaranteed minimum
annuity payment rates; however, if the current rate is higher, we'll apply the
higher rate. The payment rate differs according to the payment option selected
and the age of the Annuitant. The annuity payment rate is applied and will
determine all payments for the fixed annuity payment options and the first
payment for the variable annuity payment options. The value of the Annuity Units
will vary with the investment performance of each Subaccount to which Annuity
Units are credited. The initial payment will be calculated based on an assumed
investment return of 4 1/2% per year. This rate is a fulcrum return 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.
Instead of the 10-year period certain variable payment life annuity (see
"Option I--Variable Payment Life Annuity with 10-Year Period Certain"), you 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, 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. In addition, such factors as the age at which payments
begin, the form of annuity, annuity payment rates, assumed investment rate (for
variable payment annuities) and the frequency of payments will effect the level
of annuity payments. The assumed investment rate is 4.5% per year. We use this
rate to determine the first payment under Variable Payment Annuity Options I, J,
K, M and N.
We deduct a daily charge for mortality and expense risks and a daily
administrative fee from Contract Values held in the Subaccounts. See "Charges
For Mortality and Expense Risks" and "Charges for Administrative Services."
Therefore, electing Option K will result in a deduction being made even though
we assume no mortality risk under that option.
The following are descriptions of the annuity options available under a
Contract. These descriptions should allow you to understand the basic
differences between the options, however, you should contact VPMO well in
advance of the date you wish to elect an option to obtain estimates of payments
under each 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 10-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 paid to the survivor is 100% 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 surviving annuitant.
Under Option D, the joint annuitant must be named at the time the option is
elected and cannot be changed. The
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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 10-YEAR
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 10-year period, the
annuity income will continue to the named beneficiary until the end of the
10-year period certain.
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 10-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 in which proceeds
are invested.
OPTION J--JOINT SURVIVOR VARIABLE PAYMENT LIFE ANNUITY WITH 10-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 in which proceeds are invested. 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. This option is not available for payment of any death benefit under
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 at anytime request
unscheduled withdrawals representing part or all of the remaining Contract Value
less any applicable contingent deferred surrender charge.
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 at anytime
request unscheduled withdrawals representing part or all of the remaining
Contract Value less any applicable contingent deferred surrender charge. Upon
the death of the Annuitant (and joint annuitant, if there is a joint annuitant),
the remaining Contract Value will be paid in a lump sum to the Annuitant's
beneficiary.
OPTION M--UNIT REFUND VARIABLE PAYMENT LIFE ANNUITY
Provides variable monthly payments as long as the Annuitant lives. If the
Annuitant dies, the Annuitant's beneficiary will receive the value of the
remaining Annuity Units in a lump sum.
OPTION N--VARIABLE PAYMENT NON-REFUND LIFE ANNUITY
Provides a variable monthly income for the life of the Annuitant. No income
or payment to a beneficiary is paid after the death of the Annuitant.
OTHER OPTIONS AND RATES
We may offer other annuity options at the time a Contract reaches its
Maturity Date. In addition, in the event that annuity payment rates for
Contracts are at that time more favorable than the applicable rates guaranteed
under the Contract, the then 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.
Federal income tax requirements also provide that participants in regular or
SIMPLE IRAs must begin minimum distributions by April 1 of the year following
the year in which they attain age 70 1/2. Minimum distribution
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requirements do not apply to Roth IRAs. Distributions from qualified plans
generally must begin by the later of actual retirement or April 1 of the year
following the year participants attain age 70 1/2. Any required minimum
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 surrender
charges, even if the minimum distribution exceeds the 10% allowable amount. See
"Surrender Charges." Any amounts withdrawn that have not been held under a
Contract for at least six years and are in excess of both the minimum
distribution and the 10% free available amount will be subject to any applicable
surrender charge.
If the initial monthly annuity payment under an Annuity Option would be less
than $20, we may make a single sum payment equal to the Contract Value on the
date the initial payment would be payable, in place of all other benefits
provided by the Contract, or, may make periodic payments quarterly, semiannually
or annually in place of monthly payments.
Currently, transfers between Subaccounts are not available for amounts
allocated to any of the variable payment annuity options.
PAYMENT UPON DEATH AFTER MATURITY DATE
If an Owner who also is the Annuitant dies on or after the Maturity Date,
except as may otherwise be provided under any supplementary contract between the
Owner and us, we 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, we 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, we 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 we are open
for business. The NYSE is scheduled to be closed on the following days: New
Year's Day, Martin Luther King, Jr. Day, Presidents' 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 Account is
determined at the close of the NYSE (currently 4:00 p.m. Eastern Time).
VALUATION PERIOD
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 a 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. After the first Valuation
Period, the Accumulation Unit Value reflects the cumulative investment
experience of that Subaccount.
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 depending on whether the assets gained
or lost value that day. 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 and daily
administration fee, 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
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or as security for the performance of an obligation, or for any other purpose,
to any person other than to us.
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, we may postpone payment
of the value of any Accumulation Units 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 over us 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
We may mail the Contract to you or we may deliver it to you in person. You
may surrender a Contract for any reason within 10 days after you receive it and
receive in cash the adjusted value of your initial payment. (A longer Free Look
Period may be required by your state.) You may receive more or less than the
initial payment depending on investment experience within the Subaccounts during
the Free Look Period. If a portion or all of your initial payment has been
allocated to the GIA, we also will refund any earned interest.
If you elected the Temporary Money Market Allocation Amendment or you reside
in a state that requires the full refund of premium, we will temporarily
allocate those portions of your initial payment designated for the Subaccounts
to the Phoenix-Goodwin Money Market Subaccount and those portions designated for
the GIA will be allocated to those Accounts. If you surrender the Contract, then
your initial payment is refunded. At the expiration of the Free Look Period, the
value of the Accumulation Units held in the Phoenix-Goodwin Money Market
Subaccount is allocated among the available Subaccounts in accordance with your
allocation.
AMENDMENTS TO CONTRACTS
Contracts may be amended to conform to changes in applicable law or
interpretations of applicable law, or to accommodate design changes. Changes in
the Contract may need to be approved by Contract Owners and state insurance
departments. A change in the Contract which necessitates a corresponding change
in the Prospectus or the SAI must be filed with the SEC.
SUBSTITUTION OF FUND SHARES
Although we believe it to be highly unlikely, it is possible that in the
judgment of our 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, we may seek to substitute the shares of
another Series or the shares of an entirely different fund. Before this can be
done, the approval of the SEC, and possibly one or more state insurance
departments, will be required.
OWNERSHIP OF THE CONTRACT
Ordinarily, the purchaser of a Contract is both the Owner and the Annuitant
and is entitled to exercise all the rights under the Contract. However, the
Owner may be an individual or entity other than the Annuitant. Spouses may own a
Contract as joint Owners. Transfer of the ownership of a Contract may involve
federal income tax consequences, and a qualified adviser should be consulted
before any such transfer is attempted.
FEDERAL INCOME TAXES
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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, (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
our 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. The tax rules are complicated and this discussion can only make you
aware of the issues. 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 our 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"). We do 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
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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. We reserve the right to make a deduction for taxes should they be
imposed on us with respect to such items in the future.
TAXATION OF ANNUITIES IN GENERAL--NON-QUALIFIED PLANS
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. However, in certain cases the increase
in value may be subject to tax currently. In the case of Contracts not owned by
natural persons, see "Contracts Owned by Non-Natural Persons." In the case of
Contracts not meeting the diversification requirements, see "Diversification
Standards."
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 payments
(premiums paid) by or on behalf of an individual under a Contract that have not
been 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 amount received on account of a total or partial surrender of a
Contract. 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.
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 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 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 VPMO of that election.
PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS
Amounts surrendered or distributed before the taxpayer reaches age 59 1/2
are subject to a penalty tax 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 or her 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 penalty of 25% 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) within 5 years from the date of the first payment,
or (b) before the taxpayer reaches age 59 1/2.
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Separate tax withdrawal penalties apply to Qualified Plans. See "Penalty Tax
on Surrenders and Withdrawals from Qualified Contracts."
ADDITIONAL CONSIDERATIONS
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 or life expectancy of
that beneficiary and payments must begin 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 Contract Owners
should consult with their 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, distribution will be required at the death of the first
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.
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.
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 TSA program or an IRA, where the Contract is a
qualified funding asset for structured settlements, or where the Contract is
purchased on behalf of an employee upon termination of a qualified plan, and nor
if the annuity contract is an immediate annuity.
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 generally 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 are, in a Code Section 1035 exchange,
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.
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.
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DIVERSIFICATION STANDARDS
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 calendar quarter
that the Series' assets be invested in no more than:
[diamond] 55% in any 1 investment
[diamond] 70% in any 2 investments
[diamond] 80% in any 3 investments
[diamond] 90% in any 4 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 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 Contract
Owner being retroactively determined to be the Owner of the assets of the
Account.
Due to the uncertainty in this area, we reserve 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.
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 here 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, we 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 roll-over 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 (not including 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).
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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 we sell 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, 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.
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 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 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 distribution amount
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
consult their employers to determine whether the employer has complied with
these rules. Contract Owner loans are not allowed under the Contracts.
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 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 surrender
charge; and (b) 50% of the Contract Value minus any contingent deferred
surrender 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 the 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 applies 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 in accordance with the participant's most recent premium allocation on
file with us.
If a loan repayment is not received by us 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.
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.
INDIVIDUAL RETIREMENT ACCOUNTS
Code Sections 408 and 408A permit 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
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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. Effective January 1, 1998, individuals may establish Roth IRAs.
Special rules also apply to contributions to and withdrawals from Roth IRAs.
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 items such 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.
DEFERRED COMPENSATION PLANS WITH RESPECT TO SERVICE FOR STATE AND LOCAL
GOVERNMENTS AND TAX EXEMPT ORGANIZATIONS
Code Section 457 provides for certain deferred compensation plans with
respect to service for state and local governments and certain other entities.
The Contracts may be used in connection with these plans; however, under these
plans if issued to tax exempt organizations, the Contract Owner is the plan
sponsor, and the individual participants in the plans are the Annuitants. Under
such Contracts, the rights of individual plan participants are governed solely
by their agreements with the plan sponsor and not by the terms of the Contracts.
Effective in 1997 for new state and local government plans, such plans must be
funded through a tax exempt annuity contract held for the exclusive benefit of
plan participants.
PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS FROM QUALIFIED PLANS
In the case of a withdrawal under a Qualified Plan, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Plan. Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of any distribution from qualified retirement plans, including Contracts issued
and qualified under Code Sections 401 (Keogh and Corporate Pension and
Profit-sharing Plans), Tax-Sheltered Annuities and Individual Retirement
Annuities 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
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; (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 expenses (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 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 a regular or SIMPLE IRA 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
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required minimum distributions are not made, a 50% penalty tax is imposed as to
the amount not distributed.
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 meant to alert you to the issues 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
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The principal underwriter of the Contracts is PEPCO. Contracts may be
purchased through registered representatives of W.S. Griffith & Company, Inc.
("WSG") who are licensed to sell our 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 or exempt 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, we pay PEPCO an amount
equal to up to 7.25% of the payments made under the Contract. PEPCO pays any
qualified distribution organization an amount which may not exceed 7.25% of the
payments under the Contract. Any such amount paid with respect to Contracts sold
through other broker-dealers will be paid by us to or through PEPCO. The amounts
paid are not deducted from the payments. Deductions for surrender charges (as
described under "Surrender Charges") may be used as reimbursement for commission
payments.
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
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Phoenix is subject to the provisions of New York insurance laws applicable
to 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
policies of the Account.
REPORTS
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Reports showing the Contract Value and containing the financial statements
of the Account will be furnished to you at least annually.
VOTING RIGHTS
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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 the Funds, to vote upon certain matters that are required by the
Investment Company Act of 1940 ("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, we intend to vote the shares of
the Funds at regular and special meetings of the shareholders of the Funds in
accordance with instructions received from Owners of the Contracts.
We currently intend to vote Fund shares attributable to any of our 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 us 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 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.
The number of votes that you have the right to cast will be determined by
applying your 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 you may give us
instructions will be determined as of the record date for Fund shareholders
chosen by the Board of
40
<PAGE>
Trustees of a Fund. We will furnish you 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.
LEGAL MATTERS
- -------------------------------------------------------------------------------
Edwin L. Kerr, Counsel, Phoenix Home Life Mutual Insurance Company, has
provided advice on certain matters relating to the federal securities and income
tax laws in connection with the Contracts described in this Prospectus.
SAI
- -------------------------------------------------------------------------------
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
Year 2000 Issue
Experts
Financial Statements
Contract Owner inquiries and requests for a SAI should be directed, in
writing, to Phoenix Variable Products Mail Operations at PO Box 8027, Boston,
Massachusetts 02266-8027, or by calling VPO at 800/541-0171.
41
<PAGE>
APPENDIX A
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 Phoenix-Goodwin Money Market Subaccount, as
yield of the Phoenix-Goodwin Multi-Sector Subaccount and as total return of any
Subaccount. For the Phoenix-Goodwin 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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED
DECEMBER 31, 1998(1)
- -----------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index..................... 7/15/97 22.84% N/A N/A 19.07%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International...................... 5/1/90 19.35% 11.30% N/A 9.49%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia........................... 9/17/96 -10.91% N/A N/A -20.18%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities........ 5/1/95 -26.54% N/A N/A 9.23%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty........................ 3/2/98 N/A N/A N/A 18.22%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Balanced............................ 5/1/92 11.01% 11.24% N/A 10.96%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Growth.............................. 1/1/83 21.28% 16.63% 18.60% 17.68%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market........................ 10/10/82 -1.98% 3.12% 4.00% 4.90%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income........... 1/1/83 -10.61% 5.06% 7.80% 8.55%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation................ 9/17/84 12.67% 11.17% 12.55% 12.20%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme..................... 1/29/96 34.98% N/A N/A 20.27%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity...................... 3/2/98 N/A N/A N/A 3.73%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income.................. 3/2/98 N/A N/A N/A 12.79%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value....................... 3/2/98 N/A N/A N/A -17.03%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth....................... 3/2/98 N/A N/A N/A 13.99%
- -----------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments (Templeton)............... 11/2/98 N/A N/A N/A -3.16%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation.......................... 11/28/88 -1.04% 9.47% 10.39% 10.30%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets........................ 9/15/96 -26.40% N/A N/A -25.04%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton International............................. 5/1/92 1.71% 9.61% N/A 12.22%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Stock..................................... 11/4/88 -5.81% 8.98% 10.45% 10.16%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty................................ 2/1/99 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap...................... 5/1/95 8.52% N/A N/A 18.55%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Twenty....................................... 2/1/99 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger U.S. Small Cap............................... 5/1/95 1.38% N/A N/A 24.04%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)The average annual total return is the annual compound return that results
from holding an initial investment of $1,000 for the time period indicated.
Returns are net of investment management fees, daily and annual
administrative fees, and mortality and expense risk charges and deferred
sales charges of 6% and 2% deducted from redemptions after 1 and 5 years,
respectively. Surrender charges are based on the age of the deposit. The
investment return and principal value of the variable contract will fluctuate
so that the accumulated value, when redeemed, may be worth more or less than
the original cost.
42
<PAGE>
<TABLE>
<CAPTION>
NEW YORK INDIVIDUAL CONTRACTS ISSUED ON OR AFTER MAY 1, 1997
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1998(1)
- -----------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index..................... 7/15/97 23.33% N/A N/A 19.57%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International...................... 5/1/90 22.69% 11.76% N/A 9.65%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia........................... 9/17/96 -11.86% N/A N/A -20.61%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities........ 5/1/95 -27.30% N/A N/A 9.24%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty........................ 3/2/98 N/A N/A N/A 18.60%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Balanced............................ 5/1/92 10.93% 11.17% N/A 10.83%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Growth.............................. 1/1/83 21.67% 16.61% 18.44% 17.51%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market........................ 10/10/82 -2.79% 2.89% 3.87% 4.76%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income........... 1/1/83 -11.79% 4.81% 7.63% 8.39%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation................ 9/17/84 12.69% 11.10% 12.42% 12.06%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme..................... 1/29/96 36.22% N/A N/A 20.78%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity...................... 3/2/98 N/A N/A N/A 1.86%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income.................. 3/2/98 N/A N/A N/A 12.83%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value....................... 3/2/98 N/A N/A N/A -17.89%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth....................... 3/2/98 N/A N/A N/A 14.26%
- -----------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments (Templeton)............... 11/2/98 N/A N/A N/A -3.88%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation.......................... 11/28/88 -1.81% 9.36% 10.25% 10.16%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets........................ 9/15/96 -27.18% N/A N/A -25.45%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton International............................. 5/1/92 1.62% 9.61% N/A 12.18%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Stock..................................... 11/4/88 -6.82% 8.86% 10.31% 10.02%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty................................ 2/1/99 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap...................... 5/1/95 22.53% N/A N/A 22.78%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Twenty....................................... 2/1/99 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger U.S. Small Cap............................... 5/1/95 1.34% N/A N/A 24.50%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)The average annual total return is the annual compound return that results
from holding an initial investment of $1,000 for the time period indicated.
Returns are net of investment management fees, daily and annual
administrative fees, and mortality and expense risk charges and deferred
sales charges of 6% and 2% deducted from redemptions after 1 and 5 years,
respectively. Surrender charges are based on the age of the deposit. The
investment return and principal value of the variable contract will fluctuate
so that the accumulated value, when redeemed, may be worth more or less than
the original cost.
43
<PAGE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN(1)
- ----------------------------------------------------------------------------------------------------
Series 1983 1984 1985 1986 1987 1988 1989
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Phoenix-Goodwin Balanced N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Phoenix-Goodwin Growth 31.26% 9.29% 33.26% 18.98% 5.61% 2.63% 34.51%
- ----------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 7.03% 8.85% 6.69% 5.19% 5.13% 6.12% 7.86%
- ----------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 4.69% 9.96% 19.11% 17.81% -0.18% 9.12% 6.90%
- ----------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation N/A -1.45% 25.76% 14.25% 11.18% 1.08% 18.41%
- ----------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Mutual Shares Investments (Templeton) N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Templeton Asset Allocation N/A N/A N/A N/A N/A 0.17% 11.63%
- ----------------------------------------------------------------------------------------------------
Templeton Developing Markets N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Templeton International N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Templeton Stock N/A N/A N/A N/A N/A -1.06% 12.97%
- ----------------------------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Wanger International Small Cap N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
Wanger US Small Cap N/A N/A N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN(1) Continued
- --------------------------------------------------------------------------------------------------------------------
Series 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index N/A N/A N/A N/A N/A N/A N/A 5.23% 30.05%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International -8.88% 18.25% -13.91% 36.75% -1.19% 8.24% 17.18% 10.66% 26.35%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia N/A N/A N/A N/A N/A N/A -0.20% -33.24% -5.64%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities N/A N/A N/A N/A N/A 16.83% 31.46% -22.19%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty N/A N/A N/A N/A N/A N/A N/A N/A 24.96%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Balanced N/A N/A 8.72% 7.27% -4.05% 21.83% 9.19% 16.48% 17.54%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Growth 2.75% 41.00% 8.93% 18.23% 0.21% 29.27% 11.18% 19.59% 28.41%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 6.88% 4.67% 2.29% 1.60% 2.56% 4.39% 3.72% 3.88% 3.79%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 3.92% 18.11% 8.72% 14.48% -6.64% 22.02% 11.02% 9.71% -5.34%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation 4.45% 27.73% 9.28% 9.64% -2.66% 16.78% 7.70% 19.25% 19.30%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme N/A N/A N/A N/A N/A N/A 9.08% 15.73% 42.91%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity N/A N/A N/A N/A N/A N/A N/A N/A 9.65%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income N/A N/A N/A N/A N/A N/A N/A N/A 19.23%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value N/A N/A N/A N/A N/A N/A N/A -12.30%
- --------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth N/A N/A N/A N/A N/A N/A N/A N/A 20.50%
- --------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments (Templeton) N/A N/A N/A N/A N/A N/A N/A N/A 2.37%
- --------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation -9.36% 25.85% 6.49% 24.30% -4.43% 20.75% 17.11% 13.86% 4.78%
- --------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets N/A N/A N/A N/A N/A N/A 0.93% -22.03%
- --------------------------------------------------------------------------------------------------------------------
Templeton International N/A N/A -7.07% 45.19% -3.71% 14.05% 22.21% 12.25% 7.69%
- --------------------------------------------------------------------------------------------------------------------
Templeton Stock -12.39% 25.65% 5.54% 32.08% -3.68% 23.41% 20.62% 10.25% -0.26%
- --------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A N/A N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap N/A N/A N/A N/A N/A 33.41% 30.39% -2.69% 14.89%
- --------------------------------------------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A N/A N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------
Wanger US Small Cap N/A N/A N/A N/A N/A 15.57% 44.80% 27.83% 7.34%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Rates are net of the investment management fee, daily administrative fees,
and mortality and expense risk charges of the Subaccounts. Percent change
doesn't include the effect of the surrender charges or the annual
administrative fees.
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
44
<PAGE>
<TABLE>
<CAPTION>
NEW YORK INDIVIDUAL CONTRACTS ISSUED ON OR AFTER MAY 1, 1997
ANNUAL TOTAL RETURN(1)
- -----------------------------------------------------------------------------------------------------
Series 1983 1984 1985 1986 1987 1988 1989
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Phoenix-Goodwin Balanced N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Phoenix-Goodwin Growth 31.08% 9.15% 33.08% 18.83% 5.47% 2.50% 34.34%
- -----------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 6.89% 8.71% 6.55% 5.06% 5.05% 5.98% 7.71%
- -----------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 4.56% 9.82% 18.96% 17.66% -0.30% 8.98% 6.76%
- -----------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation N/A -1.47% 25.60% 14.11% 11.02% 0.94% 18.27%
- -----------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Mutual Shares Investments (Templeton) N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Templeton Asset Allocation N/A N/A N/A N/A N/A 0.15% 11.49%
- -----------------------------------------------------------------------------------------------------
Templeton Developing Markets N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Templeton International N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Templeton Stock N/A N/A N/A N/A N/A -1.07% 12.83% -
- -----------------------------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Wanger International Small Cap N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Wanger US Small Cap N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NEW YORK INDIVIDUAL CONTRACTS ISSUED ON OR AFTER MAY 1, 1997
ANNUAL TOTAL RETURN(1)
- ---------------------------------------------------------------------------------------------------------------------
Series 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index N/A N/A N/A N/A N/A N/A N/A 5.19% 29.83%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International -8.97% 18.10% -14.03% 36.57% -1.31% 8.12% 17.05% 10.53% 29.17%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia N/A N/A N/A N/A N/A N/A -0.23% -33.33% -5.75%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities N/A N/A N/A N/A N/A 16.75% 31.31% -22.26%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty N/A N/A N/A N/A N/A N/A N/A N/A 24.90%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Balanced N/A N/A 8.63% 7.13% -4.16% 21.70% 9.06% 16.34% 17.43%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Growth 2.62% 40.80% 8.79% 18.07% 0.08% 29.12% 11.06% 19.45% 28.18%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 6.74% 4.53% 2.16% 1.47% 2.42% 4.23% 3.60% 3.76% 3.69%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 3.78% 17.96% 8.57% 14.34% -6.78% 21.84% 10.89% 9.57% -5.69%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation 4.32% 27.55% 9.15% 9.50% -2.75% 16.65% 7.57% 19.10% 19.18%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme N/A N/A N/A N/A N/A N/A 8.98% 15.59% 42.75%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity N/A N/A N/A N/A N/A N/A N/A N/A 8.16%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income N/A N/A N/A N/A N/A N/A N/A N/A 19.13%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value N/A N/A N/A N/A N/A N/A N/A -12.36%
- ---------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth N/A N/A N/A N/A N/A N/A N/A N/A 20.56%
- ---------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments (Templeton) N/A N/A N/A N/A N/A N/A N/A N/A 2.42%
- ---------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation -9.47% 25.70% 6.36% 24.15% -4.55% 20.60% 16.96% 13.74% 4.66%
- ---------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets N/A N/A N/A N/A N/A N/A 0.90% -22.11%
- ---------------------------------------------------------------------------------------------------------------------
Templeton International N/A N/A -7.15% 45.01% -3.83% 13.91% 22.06% 12.12% 8.10%
- ---------------------------------------------------------------------------------------------------------------------
Templeton Stock -12.50% 25.50% 5.41% 31.92% -3.80% 23.26% 20.47% 10.10% -0.38%
- ---------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap N/A N/A N/A N/A N/A 33.34% 30.24% -2.81% 29.02%
- ---------------------------------------------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
Wanger US Small Cap N/A N/A N/A N/A N/A 15.00% 44.64% 27.68% 7.82%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Rates are net of the investment management fee and mortality and expense
risk charges of the Subaccounts. Percent change does not include the effect
of the surrender charges or the annual administrative fees.
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
45
<PAGE>
Current yield for the Phoenix-Goodwin Money Market Subaccount is based upon
the income earned by the Subaccount over a 7-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 excluding the annual administrative fee.
Yield calculations of the Phoenix-Goodwin 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 7-day
period, which period will end on the date of the most recent financial
statements. The yield for the Subaccount during this 7-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 quotation for the
Phoenix-Goodwin Money Market Subaccount based on a 7-day period ending December
31, 1998.
Example:
Value of hypothetical pre-existing account with exactly one
unit at the beginning of the period............... 2.235585
Value of the same account (excluding capital
changes) at the
end of the 7-day period:.......................... 2.236766
Calculation:
Ending account value.............................. 2.236766
Less beginning account value...................... 2.235585
Net change in account value....................... 0.001181
Base period return:
(adjusted change/beginning account value)......... 0.000528
Current yield = return x (365/7) =.................. 2.75%
Effective yield = [(1 + return)(365/7)] -1 =.......... 2.79%
Example: New York Individual Contracts Issued On or
After May 1, 1997
Value of hypothetical pre-existing account with
exactly one
unit at the beginning of the period............... 1.022842
Value of the same account (excluding capital
changes) at the
end of the 7-day period:.......................... 1.023367
Calculation:
Ending account value.............................. 1.023367
Less beginning account value...................... 1.022842
Net change in account value....................... 0.000525
Base period return:
(adjusted change/beginning account value)......... 0.000513
Current yield = return x (365/7) =.................. 2.68%
Effective yield = [(1 + return)(365/7)] -1 =.......... 2.71%
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 various 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; 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 FUNDS AND A COMPARISON OF THAT
PERFORMANCE TO A SECURITIES MARKET INDEX.
46
<PAGE>
APPENDIX B
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. 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 these rates; however, it is not obligated to credit any interest in
excess of these rates.
On the last business day of each calendar week, 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 AT OUR SOLE DISCRETION 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.
We are 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, Contract Owners and shareholders.
Excess interest, if any, will be credited on the GIA Contract Value. We
guarantee that, at any time, the GIA Contract Value will not be less than the
amount of payments allocated to the GIA, plus interest at the rate of 4% per
year, compounded annually, plus any additional interest which We 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, YOU CAN MAKE ONLY ONE TRANSFER PER YEAR FROM THE GIA. THE AMOUNT
THAT CAN BE TRANSFERRED OUT IS LIMITED TO THE GREATER OF $2,000 OR 25% OF THE
CONTRACT VALUE IN THE GIA AT THE TIME OF THE TRANSFER. IF YOU ELECT THE
SYSTEMATIC TRANSFER PROGRAM, APPROXIMATELY EQUAL AMOUNTS MAY BE TRANSFERRED OUT
OF THE GIA OVER A MINIMUM 18-MONTH PERIOD. ALSO, THE TOTAL CONTRACT VALUE
ALLOCATED TO THE GIA MAY BE TRANSFERRED OUT OF THE GIA TO ONE OR MORE OF THE
SUBACCOUNTS OF THE ACCOUNT OVER A CONSECUTIVE FOUR-YEAR PERIOD ACCORDING TO THE
FOLLOWING ANNUALLY RENEWABLE SCHEDULE:
YEAR ONE: 25% YEAR TWO: 33% YEAR THREE: 50% YEAR FOUR: 100%
47
<PAGE>
APPENDIX C
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%
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, 1999. 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, we
reserve 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, payment of death proceeds or Maturity Date.
48
<PAGE>
[Version B]
THE TEMPLETON INVESTMENT PLUS
VARIABLE ANNUITY
Issued by
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT:
[envelope] PHOENIX VARIABLE PRODUCTS MAIL OPERATIONS
PO Box 8027
Boston, MA 02266-8027
[telephone] Tel. 800/541-0171
PROSPECTUS MAY 1, 1999
This Prospectus describes a variable accumulation deferred annuity contract. The
Contract is designed to provide you with retirement income in the future. The
Contract offers a variety of variable and fixed investment options.
The Contract is not a deposit or obligation of, underwritten or guaranteed by,
any financial institution, credit union or affiliate. It is not federally
insured by the Federal Deposit Insurance Corporation or any other state or
federal agency. Contract investments are subject to risk, including the
fluctuation of Contract Values and possible loss of principal.
The Securities and Exchange Commission ("SEC") has not approved or disapproved
these securities, nor passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- ---------------------------------------
MANAGED BY TEMPLETON INVESTMENT COUNSEL, INC.
[diamond] Templeton Asset Allocation
[diamond] Templeton Bond
[diamond] Templeton International
[diamond] Templeton Stock
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
[diamond] Templeton Developing Markets
THE PHOENIX EDGE SERIES FUND
- ----------------------------
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
[diamond] Phoenix-Goodwin Money Market
It may not be in your best interest to purchase a Contract to replace an
existing annuity contract or life insurance policy. You must understand the
basic features of the proposed Contract and your existing coverage before you
decide to replace your present coverage. You must also know if the replacement
will result in any taxes.
This Prospectus is valid only if accompanied or preceded by current
prospectuses for the Funds. You should read and keep these prospectuses for
future reference.
1
<PAGE>
TABLE OF CONTENTS
Heading Page
- ---------------------------------------------------------------
SPECIAL TERMS.......................................... 3
SUMMARY OF EXPENSES.................................... 4
CONTRACT SUMMARY....................................... 6
FINANCIAL HIGHLIGHTS................................... 8
PERFORMANCE HISTORY.................................... 9
PHOENIX AND THE ACCOUNT................................ 9
INVESTMENTS OF THE ACCOUNT............................. 9
PURCHASE OF CONTRACTS.................................. 10
DEDUCTIONS AND CHARGES................................. 10
Premium Tax......................................... 10
Surrender Charges................................... 11
Charges for Mortality and Expense Risks............. 11
Charges for Administrative Services................. 11
Other Charges....................................... 12
THE ACCUMULATION PERIOD................................ 12
Accumulation Units.................................. 12
Accumulation Unit Values............................ 12
Transfers........................................... 12
Surrender of Contract; Partial Withdrawals.......... 13
Lapse of Contract................................... 14
Payment Upon Death Before Maturity Date............. 14
THE ANNUITY PERIOD..................................... 14
Variable Accumulation Annuity Contracts............. 14
Annuity Options..................................... 15
Option A--Life 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 10-Year Period Certain.................... 15
Option G--Payments for Specified Period........... 16
Option H--Payments of Specified Amount............ 16
Option I--Variable Payment Life Annuity With
10-Year Period Certain......................... 16
Option J--Joint Survivor Variable Payment Life
Annuity With 10-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.............. 17
VARIABLE ACCOUNT VALUATION PROCEDURES.................. 17
MISCELLANEOUS PROVISIONS............................... 17
Assignment.......................................... 17
Deferment of Payment................................ 17
Free Look Period.................................... 17
Amendments to Contracts............................. 18
Substitution of Fund Shares......................... 18
Ownership of the Contract........................... 18
FEDERAL INCOME TAXES................................... 18
Introduction........................................ 18
Tax Status.......................................... 18
Taxation of Annuities in General--
Non-Qualified Plans.............................. 18
Surrenders or Withdrawals Prior to the
Contract Maturity Date......................... 18
Surrenders or Withdrawals On or After the
Contract Maturity Date......................... 19
Penalty Tax on Certain Surrenders and
Withdrawals.................................... 19
Additional Considerations.......................... 19
Diversification Standards.......................... 20
Qualified Plans.................................... 21
Tax Sheltered Annuities.......................... 21
Keogh Plans...................................... 22
Individual Retirement Accounts................... 22
Corporate Pension and Profit-Sharing Plans...... 22
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.................................. 23
SALES OF VARIABLE ACCUMULATION CONTRACTS............... 23
STATE REGULATION....................................... 23
REPORTS ............................................... 23
VOTING RIGHTS.......................................... 24
TEXAS OPTIONAL RETIREMENT PROGRAM...................... 24
LEGAL MATTERS.......................................... 24
SAI.................................................... 24
APPENDIX A............................................. 25
APPENDIX B............................................. 27
APPENDIX C............................................. 28
2
<PAGE>
SPECIAL TERMS
- ------------------------------------------------------------------------------
The following is a list of terms and their meanings when used in this
Prospectus.
ACCOUNT: Phoenix Home Life Variable Accumulation Account.
ACCOUNT VALUE: The value of all assets held in the Account.
ACCUMULATION UNIT: A standard of measurement for each Subaccount used to
determine the value of a Contract and the interest in the Subaccounts prior to
the start of annuity payments.
ACCUMULATION UNIT VALUE: The value of one Accumulation Unit was set at $1.000000
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 annuitant will be the primary Annuitant as shown on the Contract's
Schedule Page while that person is living, and will then be the contingent
Annuitant, if that person is living at the death of the primary Annuitant.
ANNUITY OPTION: The provisions under which we make a series of annuity payments
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
periodic payment under variable payment Annuity Options I, J and K.
CLAIM DATE: The Contract Value next determined following receipt of a certified
copy of the death certificate at VPMO.
CONTRACT: The deferred variable accumulation annuity contract described in this
Prospectus.
CONTRACT OWNER (OWNER, YOU, YOUR): Usually the person or entity, to whom we
issue the Contract. The Contract Owner has the sole right to exercise all rights
and privileges under the Contract as provided in the Contract. The Owner may be
the Annuitant, an employer, a trust or any other individual or entity. 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 periodic payments of a fixed dollar
amount throughout the Annuity Period. This benefit does not vary with or reflect
the investment performance of any Subaccount.
FUNDS: Templeton Variable Products Series Fund and The Phoenix Edge Series Fund.
GIA: An investment option under which payment amounts are guaranteed to earn a
fixed rate of interest.
ISSUE DATE: The date that the initial payment is invested under a Contract.
MATURITY DATE: The date elected by the Owner when annuity payments will begin.
The election is subject to certain conditions described in "The Annuity Period."
MINIMUM INITIAL PURCHASE PAYMENT: The amount that you pay when you purchase a
Contract. We require minimum initial payments of:
[diamond] Non-qualified plans--$1,000
[diamond] Individual Retirement Annuity--$1,000
[diamond] Bank draft program--$25
[diamond] Qualified plans--$1,000 annually
MINIMUM SUBSEQUENT PAYMENT: The least amount that you may pay when you make any
subsequent payments, after the minimum initial payment (see above). The minimum
subsequent payment for all Contracts is $25.
NET ASSET VALUE: Net asset value of a Series' shares is computed by dividing the
value of the net assets of the Series by the total number of Series' outstanding
shares.
PAYMENT UPON DEATH: The obligation of Phoenix under a Contract to make a payment
on the death of the Owner or Annuitant anytime: (a) before the Maturity Date of
a Contract (see "Payment Upon Death Before Maturity Date") or (b) after the
Maturity Date of a Contract (see "Payment Upon Death After Maturity Date").
PHOENIX (OUR, WE US, COMPANY): Phoenix Home Life Mutual Insurance Company.
SERIES: A separate investment portfolio of a Fund.
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 amounts
according to 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>
<TABLE>
<CAPTION>
SUMMARY OF EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES ALL SUBACCOUNTS
<S> <C>
Sales Charge Imposed on Purchases.................................................... None
Deferred Surrender 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................................ 0%
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%
</TABLE>
<TABLE>
<CAPTION>
FUND ANNUAL EXPENSES (as a percentage of Fund average net assets)
- ----------------------------------------------------------------------------------------------------------------------------------
RULE 12B-1 OTHER EXPENSES TOTAL ANNUAL
SERIES MANAGEMENT FEES FEES (BEFORE EXPENSE REIMBURSEMENT) EXPENSES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Templeton Asset Allocation-- Class 1 .60% N/A .18% .78%
Templeton Bond-- Class 1 .50% N/A .23% .73%
Templeton Developing Markets-- Class 1 1.25% N/A .41% 1.66%
Templeton International-- Class 1 .69% N/A .17% .86%
Templeton Stock-- Class 1 .70% N/A .19% .89%
Phoenix-Goodwin Money Market(2) .40% N/A .15% .55%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) A surrender 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 surrender charge.
(See "Deductions and Charges--Surrender Charges.")
(2) This Series pays a portion of all of its Other Expenses (other than the
management fee). The Phoenix-Goodwin Money Market Series will pay up to
.15%. The investment advisor will reimburse the Series for other expenses
in excess of this amount.
It is impossible to show you what expenses you would incur if you purchased
a Contract because there are so many different factors that affect expenses.
However, the following two tables are meant to help demonstrate how certain
decisions or choices by you could result in different levels of expense.
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>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Templeton Asset Allocation-- Class 1............................ $69 $101 $133 $263
Templeton Bond-- Class 1........................................ 78 126 176 348
Templeton Developing Markets-- Class 1.......................... 78 126 176 348
Templeton International-- Class 1............................... 70 103 137 271
Templeton Stock-- Class 1....................................... 71 104 139 274
Phoenix-Goodwin Money Market.................................... 67 94 121 239
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
If you do not surrender your Contract: You would pay the following expenses
on a $1,000 investment, assuming 5% annual investment, assuming 5% annual return
on assets:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SERIES 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------- ------- --------
<S> <C> <C> <C> <C>
Templeton Asset Allocation-- Class 1............................ $23 $72 $123 $263
Templeton Bond-- Class 1........................................ 32 98 166 348
Templeton Developing Markets-- Class 1.......................... 32 98 166 348
Templeton International-- Class 1............................... 24 74 127 271
Templeton Stock-- Class 1....................................... 24 75 128 274
Phoenix-Goodwin Money Market.................................... 21 65 111 239
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The purpose of the tables above is to assist you in understanding the
various costs and expenses that your Contract will bear directly or indirectly.
It is based on historical Fund expenses, as a percentage of net assets for the
year ended December 31, 1998, except as indicated. The tables reflect expenses
of the Account as well as of the Funds. See "Deductions and Charges" in this
Prospectus and in the Fund Prospectuses.
Premium taxes, which are not reflected in the table above, may apply. We
will charge any premium or other taxes levied by any governmental entity with
respect to your Contract against the Contract Values based on a percentage of
premiums paid. Certain states currently impose premium taxes on the Contracts
and range from 0% to 3.5% of premiums paid. See "Deductions and Charges--Premium
Tax" and Appendix C.
The Examples should not be considered a representation of future expenses.
Actual expenses may be greater or less than those shown. See "Deductions and
Charges."
5
<PAGE>
CONTRACT SUMMARY
- --------------------------------------------------------------------------------
You should read the following summary along with the detailed information
appearing elsewhere in this Prospectus.
OVERVIEW
The Contract offers a dynamic idea in retirement planning. It's designed to
give you maximum flexibility in obtaining your investment goals.
The Contract offers a combination of investment options both variable and
fixed. Investments in the Subaccounts provide returns that are variable and
depend upon the performance of the underlying Funds. Allocations to the GIA
produce guaranteed interest earnings subject to certain conditions.
You also may select from many different variable and fixed annuity payout
options, some of which offer retirement income payments that you cannot outlive.
See "The Annuity Period--Annuity Options."
INVESTMENT FEATURES
FLEXIBLE PAYMENTS
[diamond] You may make payments anytime until the Maturity Date.
[diamond] You can vary the amount and frequency of your payments.
[diamond] Other than the Minimum Initial Payment, there are no required
payments.
MINIMUM CONTRIBUTION
[diamond] Generally, the Minimum Initial Payment is $1,000.
ALLOCATION OF PREMIUMS AND CONTRACT VALUE
[diamond] Payments are invested in one or more of the Subaccounts and the GIA.
[diamond] Transfers between the Subaccounts and into the GIA can be made
anytime. Transfers from the GIA are subject to rules discussed in
Appendix B and in "The Accumulation Period--Transfers."
[diamond] The Contract Value varies with the investment performance of the
Funds and is not guaranteed.
[diamond] The Contract Value allocated to the GIA will depend on deductions
taken from the GIA and interest accumulation at rates set by us
(minimum-- 4%).
WITHDRAWALS
[diamond] You may partially or fully surrender the Contract anytime for its
Contract Value less any applicable surrender charge and premium tax.
[diamond] During the first Contract Year, you may withdraw up to 10% of the
Contract Value as of the date of the first partial surrender without
a surrender charge. After that, you can surrender up to 10% of the
Contract Value as of the last Contract anniversary without a
surrender charge.
DEATH BENEFIT
The Contract provides for payment on the death of the Owner or the Annuitant
anytime before the Maturity Date of the Contract.
DEDUCTIONS AND CHARGES
GENERALLY
[diamond] No deductions are made from payments.
[diamond] A deduction for surrender charges may occur when you surrender your
Contract or request a withdrawal if the assets have not been held
under the Contract for a specified period.
[diamond] No deduction for surrender charges after the Annuity Period has
begun, unless you make unscheduled withdrawals under Annuity Options
K or L.
[diamond] If we impose a surrender charge, it is on a first-in, first-out
basis.
[diamond] No surrender charge is imposed if the Annuitant or Owner dies before
the date that annuity payments will begin.
[diamond] A declining surrender charge is assessed on withdrawals in excess of
10% of the Account Value, based on the date the payments are
deposited:
---------------------------------------------------------
Percent 6% 5% 4% 3% 2% 1% 0%
---------------------------------------------------------
Age of Payment in
Complete Years 0 1 2 3 4 5 6+
---------------------------------------------------------
o The total deferred surrender charges on a Contract will never
exceed 9% of the total payments.
See "Deductions and Charges--Surrender Charges" for a detailed discussion.
FROM THE ACCOUNT
[diamond] Mortality and expense risk fee--1.25% annually. See "Charges for
Mortality and Expense Risks."
[diamond] The daily administrative fee--.125% annually. See "Charges for
Administrative Services."
OTHER CHARGES OR DEDUCTIONS
[diamond] Premium Taxes--taken from the Contact Value upon annuitization.
o Phoenix will reimburse itself for such taxes on the date of a
partial withdrawal, surrender of the Contract, Maturity Date
or payment of death proceeds. See "Premium Tax" and Appendix C.
[diamond] Administrative Fee--$35 each year.
See "Deductions and Charges" for a detailed description of Contract
charges."
In addition, certain charges are deducted from the assets of the Funds for
investment management services. See the prospectuses for the Funds for more
information.
6
<PAGE>
ADDITIONAL INFORMATION
FREE LOOK PERIOD
You have the right to review the Contract. If you are not satisfied, you may
return it within 10 days after you receive it and cancel the Contract. You will
receive in cash the adjusted value of the initial payment unless you temporarily
allocated your initial payment to the Phoenix-Goodwin Money Market Subaccount.
In that case, your Contract is issued with a Temporary Money Market
Allocation Amendment and we will refund the initial payment.
See "Free Look Period" for a detailed discussion.
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.
VARIATIONS
The Contract is subject to laws and regulations in every state where the
Contract is sold. Therefore, the terms of the Contract may vary from state to
state.
7
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
The following tables show how the value of one unit of each Subaccount
changed during each of the years through to 1998. As you will note, not all
Subaccounts were operating in all of those years. All units began with a value
of 1.000000. Thereafter, the unit value reflects the cumulative investment
experience of the Subaccount. These tables are highlights only, you may obtain
more detailed information in the financial statements contained in the Statement
of Additional Information.
Following are the financial highlights for the period indicated.
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION SUBACCOUNT
---------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Unit value, beginning of
period............... $2.626697 $2.304966 $1.965734 $1.625952 $1.699180 $1.365257 $1.280431 $1.016125 $1.119543 $1.001691
Unit value, end of
period............... $2.757230 $2.626697 $2.304966 $1.965734 $1.625952 $1.699180 $1.365257 $1.280431 $1.016125 $1.119543
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of accumulation
units outstanding
at end of
period (000)...... 47,107 58,816 65,843 72,985 74,901 66,903 46,950 27,918 21,974 11,455
TEMPLETON BOND SUBACCOUNT
--------------------------------------------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 1/4/89
1998 1997 1996 1995 1994 1993 1992 1991 1990 TO 12/31/89
---- ---- ---- ---- ---- ---- ---- ---- ---- -----------
Unit value, beginning of
period............. $1.690923 $1.672413 $1.549167 $1.366504 $1.456861 $1.324996 $ 1.272743 $1.113263 $1.061263 $1.000000
Unit value, end of
period................ $1.787408 $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)...... 8,388 9,941 11,875 12,633 13,111 13,578 8,937 5,611 2,889 1,455
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
--------------------------------------------------------------------------------------------------------------
YEAR ENDED FROM
DECEMBER 31, INCEPTION
------------ 9/15/96
1998 1997 TO 12/31/96
---- ---- -----------
Unit value, beginning of period.................................................................... $0.704720 $1.009604 $1.000000
Unit value, end of period.......................................................................... $0.549373 $0.704720 $1.009604
========= ========= =========
Number of accumulation units outstanding at end of period (000).................................... 3,597 4,110 1,040
TEMPLETON INTERNATIONAL SUBACCOUNT
--------------------------------------------------------------------------------------------------------------
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 5/1/92
-----------------------
1998 1997 1996 1995 1994 1993 TO 12/31/92
---- ---- ---- ---- ---- ---- -----------
Unit value, beginning of period........................ $2.047517 $1.821499 $1.488540 $1.303520 $1.351997 $0.930016 $1.000000
Unit value, end of period.............................. $2.208077 $2.047517 $1.821499 $1.488540 $1.303520 $1.351997 $0.930016
========= ========= ========= ========= ========= ========= =========
Number of accumulation units outstanding at end of
period (000)........................................... 44,495 58,470 62,848 59,587 58,214 32,362 7,562
TEMPLETON STOCK SUBACCOUNT
--------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Unit value, beginning
of period............ $2.742374 $2.484883 $2.057549 $1.665152 $1.726593 $1.305609 $1.235446 $0.981990 $1.119352 $0.989563
Unit value, end of
period.............. $2.738872 $2.742374 $2.484883 $2.057549 $1.665152 $1.726593 $1.305609 $1.235446 $0.981990 $1.119352
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of accumulation
units outstanding
at end of period (000).. 92,618 116,902 132,392 142,234 144,872 137,108 118,456 94,307 74,885 44,084
</TABLE>
<TABLE>
<CAPTION>
PHOENIX-GOODWIN MONEY MARKET SUBACCOUNT(1)
--------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning
of period.......... $1.381824 $1.333545 $1.287771 $1.238474 $1.213373 $1.201078 $1.181114 $1.134278 $1.069449 $1.003591
Unit value, end of
period.............. $1.430699 $1.381824 $1.333545 $1.287771 $1.238474 $1.213373 $1.201078 $1.181114 $1.134278 $1.069449
========= ========= ========= ========= ========= ========= ========= ========= ========= =========
Number of accumulation
units outstanding
at end of period (000). 12,123 11,464 10,597 16,077 26,566 13,892 17,734 18,533 15,540 5,324
</TABLE>
(1) Formerly known as the "Templeton Money Market Subaccount." On October 6,
1998 shares of the Phoenix-Goodwin Money Market Series were substituted
for shares of the Templeton Money Market Fund.
8
<PAGE>
PERFORMANCE HISTORY
- -------------------------------------------------------------------------------
We may include the performance history of the 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.
See Appendix A for more information.
PHOENIX AND THE ACCOUNT
- -------------------------------------------------------------------------------
We are a mutual life insurance company originally chartered in Connecticut
in 1851. Our executive office is at One American Row, Hartford, Connecticut
06102-5056, and our main administrative office is at 100 Bright Meadow
Boulevard, Enfield, Connecticut 06083-1900. The New York principal office is at
10 Krey Boulevard, East Greenbush, New York 12144. We sell insurance policies
and annuity contracts through our own field force of full-time agents and
through brokers.
On June 21, 1982, we 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 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 Phoenix or the Account.
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 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 we may conduct. Obligations under the Contracts are our obligations.
Contributions to the GIA are not invested in the Account; rather, they
become part of our 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 B.
INVESTMENTS OF THE ACCOUNT
- -------------------------------------------------------------------------------
PARTICIPATING INVESTMENT FUNDS
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Certain Subaccounts of the Account invest in Class 1 shares of the
corresponding Series of the Templeton Variable Products Series Fund. The
following Series are currently available through the Contract:
TEMPLETON ASSET ALLOCATION SERIES: The investment objective of the Series is
to seek a high level of total return through a flexible investment policy. The
Templeton Allocation Series invests in stocks of companies of 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.
TEMPLETON BOND SERIES: The investment objective is to seek high current
income. It tries to achieve this goal 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.
TEMPLETON DEVELOPING MARKETS SERIES: The investment objective of the Series
is to seek long-term capital appreciation. The Templeton Developing Markets
Series invests primarily in equity securities of issuers in countries having
developing markets.
TEMPLETON INTERNATIONAL SERIES: The investment objective of the Series is to
seek long-term capital growth through a flexible policy of investing. The
Templeton International Series invests in stocks and debt obligations of
companies and governments outside the United States. Any income realized will be
incidental. Although the Series 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.
TEMPLETON STOCK SERIES: The investment objective of the Series is to provide
capital growth. The Templeton Stock Series invests primarily in common stocks
issued by companies, large and small, in various nations throughout the world.
THE PHOENIX EDGE SERIES FUND
Certain Subaccounts of the Account invest in corresponding Series of The
Phoenix Edge Series Fund. The Fund currently has the following Series available
through the Contract:
PHOENIX-GOODWIN MONEY MARKET SERIES: The investment objective of the Series
is to provide maximum current income consistent with capital preservation and
liquidity. The Phoenix-Goodwin Money Market Series invests exclusively in high
quality money market instruments.
Each Series will be subject to market fluctuations and the risks that come
with the ownership of any security and there can be no assurance that any Series
will achieve its stated investment objective.
In addition to being sold to the Account, shares of the Funds also may be
sold to other separate accounts of Phoenix
9
<PAGE>
or its affiliates or to the separate accounts of other insurance companies.
It is possible that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the Fund(s) simultaneously. Although neither Phoenix nor the Fund(s)
trustees currently foresees any such disadvantages either to variable life
insurance Policyowners or to variable annuity Contract Owners, the Funds'
trustees intend to monitor events in order to identify any material conflicts
between variable life insurance Policyowners and variable annuity Contract
Owners and to determine what action, if any, should be taken in response to such
conflicts. Material conflicts could, for example, result from (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(s) or (4) differences in
voting instructions between those given by variable life insurance Policyowners
and those given by variable annuity Contract Owners. Phoenix will, at its own
expense, remedy such material conflicts including, if necessary, segregating the
assets underlying the variable life insurance policies and the variable annuity
contracts and establishing a new registered investment company.
INVESTMENT ADVISERS
Templeton Investment Counsel, Inc. ("TICI") is the investment adviser to all
Series in The Templeton Variable Products Series Fund except the Templeton
Developing Markets and Phoenix-Goodwin Money Market Series.
The other investment advisers are:
[diamond] Templeton Asset Ltd.
o Templeton Developing Markets
[diamond] Phoenix Investment Counsel, Inc.
o Phoenix-Goodwin Money Market
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.
PURCHASE OF CONTRACTS
- -------------------------------------------------------------------------------
Generally, we require minimum initial payments of:
[diamond] Non-qualified plans--$1,000
[diamond] Individual Retirement Annuity--$1,000
[diamond] Bank draft program--$25
o You may authorize your bank to draw $25 or more from your
personal checking account monthly to purchase Units in any
available Subaccount, or for deposit in the GIA. The amount
you designate will be automatically invested on the date the
bank draws on your account. If Check-o-matic is elected, the
minimum initial payment is $25. This payment must accompany
the application (if any). Each subsequent payment under a
Contract must be at least $25.
[diamond] Qualified plans--$1,000 annually
o If Contracts are purchased in connection with tax-qualified or
employer-sponsored plans, a minimum annual payment of $1,000
is required.
Generally, a Contract may not be purchased for a proposed Annuitant who is
81 years of age or older. Total payments in excess of $1,000,000 cannot be made
without our permission. While the Annuitant is living and the Contract is in
force, payments may be made anytime before the Maturity Date of a Contract.
Payments received under the Contracts will be allocated in any combination
to any Subaccount or GIA, in the proportion specified in the application for the
Contract or as otherwise indicated by you from time to time. Initial payments
may, under certain circumstances, be allocated to the Money Market Subaccount.
See "Free Look Period." Changes in the allocation of payments will be effective
as of receipt by VPMO of notice of election in a form satisfactory to us (either
in writing or by telephone) and will apply to any payments accompanying such
notice or made subsequent to the receipt of the notice, unless otherwise
requested by you.
In certain circumstances, we may reduce the initial or subsequent payment
amount we accept for Contract. Qualifications for such reduction follow:
[diamond] the makeup and size of the prospective group; or
[diamond] the method and frequency of payments; and
[diamond] the amount of compensation to be paid to Registered
Representative(s) on each payment.
Any reduction will not unfairly discriminate against any person. We will
make any such reduction according to our own rules in effect at the time the
payment is received. We reserve the right to change these rules from time to
time.
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. We will pay any premium tax due and will reimburse ourself only upon the
earlier of partial withdrawal, surrender of the Contract, Maturity Date or
payment of death proceeds. For a list of states and premium taxes, see Appendix
C.
10
<PAGE>
SURRENDER CHARGES
A deduction for surrender charges for this Contract may be taken from
proceeds of partial withdrawals from, or complete surrender of the Contract. The
amount (if any) of a surrender charge depends on whether your payments are held
under the Contract for a certain period of time. The surrender charge schedule
is shown in the chart below. No surrender charge will be taken from death
proceeds. No surrender charge will be taken after the Annuity Period has begun
except with respect to unscheduled withdrawals under Annuity Option K below. See
"Annuity Options." Any surrender charge is imposed on a first-in, first-out
basis.
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 amounts without the
imposition of a surrender charge. During the first Contract year, the 10%
withdrawal without a surrender charge will be determined based on the Contract
Value at the time of the first partial withdrawal. In subsequent years, the 10%
will be based on the previous Contract anniversary value. The deduction for
surrender charges, expressed as a percentage of the amount withdrawn in excess
of the 10% allowable amount, is as follows:
- ---------------------------------------------------------------
Percent 6% 5% 4% 3% 2% 1% 0%
- ---------------------------------------------------------------
Age of Payment in
Complete Years 0 1 2 3 4 5 6+
- ---------------------------------------------------------------
If the Annuitant or Owner dies before the Maturity Date of the Contract, the
surrender charge described in the table above will not apply.
The total deferred surrender charges on a Contract will never exceed 9% of
total payments, and the applicable level of surrender charge cannot be changed
with respect to outstanding Contracts. Surrender charges imposed in connection
with partial surrenders will be deducted from the Subaccounts and GIA on a pro
rata basis. Any distribution costs not paid for by surrender charges will be
paid by us from the assets of the General Account.
CHARGES FOR MORTALITY AND EXPENSE RISKS
Although you bear the investment risk of the Series in which you invest,
once you begin receiving fixed annuity payments that carry life contingencies
the annuity payments are guaranteed by us to continue for as long as the
Annuitant lives. We assume the risk that Annuitants as a class may live longer
than expected (requiring a greater number of annuity payments) and that our
actual expenses may be higher than the expense charges provided for in the
Contract.
In assuming the mortality risk, we promise to make these lifetime annuity
payments to the Owner or other payee for as long as the Annuitant lives
according to the annuity tables and other provisions of the Contract.
To compensate for assuming these risks, we charge each Subaccount the daily
equivalent of .40% annually of the current value of the Subaccount's net assets
for mortality risks assumed and the daily equivalent of .85% annually for
expense risks assumed. (See the Contract Schedule Pages.) No mortality and
expense risk charge is deducted from the GIA. If the charges prove insufficient
to cover actual insurance underwriting costs and excess administrative costs,
then the loss will be borne by us; conversely, if the amount deducted proves
more than sufficient, the excess will be a profit to us. Any such profit may be
used, as part of our General Account assets, to meet sales expenses, if any,
which are in excess of sales commission revenue generated from any surrender
charges.
We have concluded that there is a reasonable likelihood that the
distribution financing arrangement being used in connection with the Contract
will benefit the Account and the Contract Owners.
CHARGES FOR ADMINISTRATIVE SERVICES
We are responsible for administering the Contract. In doing so, we maintain
an account for each Owner and Annuitant, make all disbursements of benefits,
furnish administrative and clerical services for each Contract. We also make
disbursements to pay obligations chargeable to the Account, maintain the
accounts, records and other documents relating to the business of the Account
required by regulatory authorities, cause the maintenance of the registration
and qualification of the Account under laws administered by the SEC, prepare and
distribute notices and reports to Owners, and the like. We also reimburse
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, we generally charge each Contract $35 each
year prior to the Contract's Maturity Date. A reduced charge may apply in
certain situations. This charge is deducted from each Subaccount and GIA in
which you are invested on a pro rata basis. This charge may be decreased but
will never increase. This charge is deducted on the Contract anniversary date
for services rendered during the preceding Contract Year. Upon surrender of a
Contract, the entire annual administrative charge of $35 is deducted regardless
of when the surrender occurs.
If you elect Payment Options I, J or K, the annual administrative charge
after the Maturity Date will be deducted from each annuity payment in equal
amounts.
We may reduce the annual administrative charges for Contracts issued under
tax-qualified plans other than IRAs, and for group or sponsored arrangements
such as Internal Revenue Code Section 403(b) or 457 Plans. Generally,
administrative costs per Contract vary with the size of the group or sponsored
arrangement, its stability as indicated by
11
<PAGE>
its term of existence and certain characteristics of its members, the purposes
for which the Contracts are purchased and other factors. The amount of reduction
will be considered on a case-by-case basis but will be applied in a uniform,
nondiscriminatory manner that reflects the reduced administrative costs expected
as a result of sales to a particular group or sponsored arrangement.
We also charge each Subaccount the daily equivalent of 0.125% annually 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.
No surrender 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 or its affiliates and their spouses; or to
employees or agents who retire from Phoenix or its affiliates or Phoenix Equity
Planning Corporation ("PEPCO"), or its affiliates or to registered
representatives of broker-dealers with whom PEPCO has selling agreements.
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 daily net asset values of each Series. These Fund charges and other Fund
expenses are described more fully in the accompanying Fund prospectuses.
THE ACCUMULATION PERIOD
- -------------------------------------------------------------------------------
The accumulation period is that time before annuity payments begin that your
payments into the Contract remain invested.
ACCUMULATION UNITS
Your initial payment will be applied within two days of our receipt if the
application for a Contract is complete. If an incomplete application is
completed within five business days of receipt by VPMO, your payment will be
applied within two days of the completion of the application. If we do not
accept the application within five business days or if an order form is not
completed within five business days of receipt by us, then your payment will be
immediately returned unless you request us to hold it while the application is
completed. Additional payments allocated to the GIA are deposited on the date of
receipt of payment at VPMO. Additional payments allocated to Subaccounts are
used to purchase Accumulation Units of the Subaccount(s), at the value of such
Units next determined after the receipt of the payment at VPMO. The number of
Accumulation Units of a Subaccount purchased with a specific payment will be
determined by dividing the payment by the value of an Accumulation Unit in that
Subaccount next determined after receipt of the 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 Fund and the charges and deductions made against the Subaccount.
ACCUMULATION UNIT VALUES
On any date before the Maturity Date of the Contract, the total value of the
Accumulation Units in a Subaccount can be computed by multiplying the number of
such Units by the value of an Accumulation Unit on that 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
credited to you in each Subaccount and their current value will be reported to
you at least annually.
TRANSFERS
You may, anytime up to 30 days prior to the Maturity Date of your Contract,
elect to transfer all or any part of the Contract Value among one or more
Subaccounts or the GIA. A transfer from a Subaccount will result in the
redemption of Accumulation Units and, if another Subaccount is selected, in the
purchase of Accumulation Units. The exchange will be based on the values of the
Accumulation Units next determined after the receipt by VPMO of written notice
of election in a form satisfactory to us. A transfer among Subaccounts or the
GIA does not automatically change the payment allocation schedule of your
contract.
You also may request transfers and changes in payment allocations among
available Subaccounts or the GIA by calling VPO at 800-541-0171 between the
hours of 8:30 a.m. and 4:00 p.m. Eastern Time. Unless you elect in writing not
to authorize telephone transfers or allocation changes, telephone transfer
orders and allocation changes also will be accepted on your behalf from your
registered representative. We will employ reasonable procedures to confirm that
telephone instructions are genuine. We 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 you. To the
extent that procedures reasonably designed to prevent unauthorized transfers are
not followed, we may be liable for following telephone instructions for
transfers that prove to be fraudulent. However, you will bear the risk of loss
resulting from instructions entered by an unauthorized third party we reasonably
believe to be genuine. These telephone exchange and allocation change privileges
may be modified or terminated at any time. In particular, during times of
extreme market volatility, telephone privileges may be difficult to exercise. In
such cases you should submit written instructions.
You also may elect to transfer funds automatically among the Subaccounts or
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. You must
12
<PAGE>
have an initial value of $2,000 in the GIA or in the Subaccount from which funds
will be transferred (sending Subaccount), and if the value in that Subaccount or
the GIA drops below the amount to be transferred, 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 from the GIA but may be
allocated to multiple receiving Subaccounts. Under the Systematic Transfer
Program, you may transfer approximately equal amounts from the GIA over a
minimum 18-month period. Transfers under the Systematic Transfer Program are not
subject to the general restrictions on transfers from the GIA.
Upon completion of the Systematic Transfer Program, you must notify VPO at
(800) 541-0171 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 values as of the first of the month rather than on the basis of values
next determined after receipt of the transfer 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 we otherwise agree or unless the Systematic Transfer Program has been
elected, you may make only one transfer per Contract year from the GIA.
Non-systematic transfers from the GIA will be made on the date of receipt by
VPMO except as you may otherwise request. 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 all Contract
Owners, we reserve 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. We will not accept batch transfer
instructions from registered representatives (acting under powers of attorney
for multiple Contract Owners), unless we have entered into a third-party
transfer service agreement with the registered representative's broker-dealer
firm.
No surrender charge will be assessed when a transfer is made. The date a
payment was originally credited for the purpose of calculating the surrender
charge will remain the same. Currently, there is no charge for transfers.
However, we reserve the right to charge a transfer fee of $10 per transfer after
the first two transfers in each Contract year to defray administrative costs.
Currently, unlimited transfers are permitted. However, we reserve the right to
change our policy to limit the number of transfers made to no more than six
during each Contract year. If the Temporary Money Market Allocation Amendment is
in effect, no transfers may be made until the end of the free look period. See
"Free Look Period." There are additional restrictions on transfers from the GIA
as described above and in Appendix B.
Currently, transfers between Subaccounts are not available for amounts
allocated to any of the variable payment annuity options.
We reserve the right to limit the number of Subaccounts you may elect to a
total of 18 over the life of the Contract unless changes in federal and/or state
regulation, including tax, securities and insurance law require us to impose a
lower limit.
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 Option K. Prior to the Maturity Date, you 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 withdrawals, without the imposition of a surrender
charge. During the first Contract year, the 10% withdrawal without a surrender
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
withdrawal. 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 you have not yet reached age 59 1/2, a 10% penalty tax may 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 us. Accumulation Units redeemed in a partial withdrawal from multiple
Subaccounts will be redeemed on a pro rata basis unless you designate otherwise.
Contract Values in the GIA will also be withdrawn on a pro rata basis unless you
designate otherwise. 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. Although
loans are available under 403(b) plans only, certain limitations may apply. See
"Qualified Plans"; "Tax Sheltered Annuities." A deduction for surrender charges
may be imposed on partial withdrawals from, and complete surrender of, a
Contract. See "Surrender Charges." Any surrender 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, PO Box 8027,
Boston, Massachusetts 02266-8027.
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LAPSE OF CONTRACT
The Contract will terminate and lapse without value, if on any Valuation
Date:
[diamond] the Contract Value is zero; or
[diamond] the premium tax reimbursement due on surrender or partial
withdrawals is greater than or equal to the Contract Value (unless
any Contract Value has been applied under one of the variable
payment options).
We will notify you in writing that the Contract has lapsed.
PAYMENT UPON DEATH BEFORE MATURITY DATE
DEATH OF AN OWNER/ANNUITANT
If the Owner/Annuitant dies before the Contract Maturity Date, the death
benefit will be paid under the Contract to the Annuitant's beneficiary.
DEATH OF AN ANNUITANT WHO IS NOT THE OWNER
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 upon the Death of the Annuitant or Owner/Annuitant will
be:
1. Death occurring in the first 6-year period following the Contract Date--the
greater of :
a. 100% of payments, less any withdrawals; or
b. the Contract Value as of the claim date.
2. Death occurring any subsequent 6-year period--the greater of :
a. the death benefit that would have been payable at the end of the
immediately preceding 6-year period, plus any payments, less any
withdrawals made since that date; or
b. the Contract Value as of the claim date.
DEATH OF AN OWNER WHO IS NOT THE ANNUITANT
Upon the death of an Owner who is not the Annuitant, provided that there is
no surviving joint Owner, the death proceeds will be paid to the Owner's
beneficiary. The death benefit is equal to the cash surrender value.
[diamond] SPOUSAL BENEFICIARY CONTRACT CONTINUANCE. If the spousal beneficiary
continues the Contract at the death of the Owner/Annuitant or Owner
who is not also the Annuitant, the spousal beneficiary becomes the
Annuitant.
[diamond] CONTINGENT ANNUITANT CONTRACT CONTINUANCE. Upon the death of the
Annuitant who is not the Owner provided a contingent Annuitant was
named prior to the death of the Annuitant, the contract will
continue with the contingent Annuitant becoming the Annuitant.
[diamond] QUALIFIED CONTRACTS. Under qualified Contracts, the death benefit is
paid at the death of the participant who is the Annuitant under the
Contract. Death benefit payments must satisfy distribution rules.
See "Federal Income Taxes--Qualified Plans."
[diamond] OWNERSHIP OF THE CONTRACT BY A NON-NATURAL PERSON. If the Owner is
not an individual, the death of the Annuitant is treated as the
death of the Owner.
If the death benefit amount to be paid is less than $2,000, it will be paid
in a single lump sum (see "Annuity Options"). Depending upon state law, the
death benefit payment to the beneficiary may avoid probate and the death benefit
may be reduced by any premium tax due. See "Deductions and Charges--Premium
Tax." See also, "Federal Income Taxes--Distribution at Death."
THE ANNUITY PERIOD
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VARIABLE ACCUMULATION ANNUITY CONTRACTS
Annuity payments will begin on the Contract's Maturity Date if the Annuitant
is alive and the Contract is still in force. Beginning on the Maturity Date,
investment in the Account is continued unless a Fixed Payment Annuity is
elected. No surrender 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 you. 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
you 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, we 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, we may
also make a single sum payment equal to the total Contract Value on the date the
initial payment would be payable, 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. You 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.
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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
automatically will be 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 payment rate. The Contract is issued with guaranteed minimum
annuity payment rates, however, if the current rate is higher, we'll apply the
higher rate. The payment rate differs according to the payment option selected
and the age of the Annuitant. The annuity payment rate is applied and will
determine all payments for the fixed annuity payment options and the first
payment for the variable annuity payment options. 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.
Instead of the 10-year period certain variable payment life annuity (see
"Option I--Variable Payment Life Annuity with Ten-Year Period Certain" below),
you 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, unless unscheduled
withdrawals are made under Annuity Option K.
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 payment rates,
assumed investment rate (for variable payment annuities) and the frequency of
payments will effect the level of annuity payments. The assumed investment rate
is 4.5% per year. We use this rate to determine the first payment under Variable
Payment Annuity Options I, J and K.
We deduct a daily charge for mortality and expense risks and a daily
administrative fee from Contract Values held in the Subaccounts. See "Charges
For Mortality and Expense Risks" and "Charges for Administrative Services."
Therefore, electing Option K will result in a deduction being made even
though we assume no mortality risk under that option.
The following are descriptions of the annuity options available under a
Contract. These descriptions should allow you to understand the basic
differences between the options, however, you should contact VPMO well in
advance of the date you wish to elect an option to obtain estimates of payments
under each option.
OPTION A--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN
Provides a monthly income for the life of the Annuitant. In the event of the
Annuitant's death, the annuity income will be paid to the beneficiary until the
end of the specified period certain. For example, a 10-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 10-YEAR
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,
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the annuity income will continue for the life of the survivor. If the survivor
dies prior to the end of the 10-year period, the annuity income will continue to
the named beneficiary until the end of the 10-year period certain.
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 10-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 invested.
OPTION J--JOINT SURVIVOR VARIABLE PAYMENT LIFE ANNUITY WITH 10-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 invested. 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. This option is not available for payment of any death benefit under
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. You may request unscheduled withdrawals
representing part or all of the remaining Contract Value (less any applicable
contingent deferred surrender charge) at any time under Option K.
OTHER OPTIONS AND RATES
We may offer other annuity options at the time a Contract reaches its
Maturity Date. In addition, in the event that annuity payment rates for
Contracts are at that time more favorable than the applicable rates guaranteed
under the Contract, the current annuity payment 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.
Federal income tax requirements also provide that participants in regular or
SIMPLE IRAs must begin minimum distributions by April 1 of the year following
the one in which they attain age 70 1/2. Minimum distribution requirements do
not apply to Roth IRAs. Distributions from qualified plans generally must begin
by the later of actual retirement or April 1 of the year following the year
participants attain age 70 1/2. Any required minimum 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 surrender
charges, even if the minimum distribution exceeds the 10% allowable amount. See
"Surrender Charges." Any amounts withdrawn that have not been held under a
Contract for at least six years and are in excess of both the minimum
distribution and the 10% free available amount will be subject to any applicable
surrender charge.
If the initial monthly annuity payment under an Annuity Option would be less
than $20, we may make a single sum payment equal to the Contract Value on the
date the initial payment would be payable, in place of all other benefits
provided by the Contract, or, may make periodic payments quarterly, semiannually
or annually in place of monthly payments.
Currently, transfers between Subaccounts are not available for amounts
allocated to any of the variable payment annuity options.
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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 us, we 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, we 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, we 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. The NYSE is
scheduled to be closed on the following days: New Year's Day, Martin Luther
King, Jr. Day, Presidents' 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 Account is determined at the close of the NYSE
(currently 4:00 p.m. Eastern Time).
VALUATION PERIOD
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 a 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. After the first Valuation
Period, the Accumulation Unit Value reflects the cumulative investment
experience of that Subaccount.
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 depending on whether the assets gained
or lost value that day. 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 and daily
administration fee, 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 to us.
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, we may postpone payment
of the value of any Accumulation Units 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 over us 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
We may mail the Contract to you or we may deliver it to you in person. You
may surrender a Contract for any reason within 10 days after you receive it and
receive in cash the adjusted value of your initial payment. (A longer Free Look
Period may be required by your state.) You may receive more or less than the
initial payment depending on investment experience within the Subaccounts during
the Free Look Period. If a portion or all of your initial payment has been
allocated to the GIA, we also will refund any earned interest.
If you elected the Temporary Money Market Allocation Amendment or you reside
in a state that requires the full refund of premium, we will temporarily
allocate those
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portions of your initial payment designated for the Subaccounts to the
Phoenix-Goodwin Money Market Subaccount and those portions designated for the
GIA will be allocated to those Accounts. If you surrender the Contract, then
your initial payment is refunded. At the expiration of the Free Look Period, the
value of the Accumulation Units held in the Phoenix-Goodwin Money Market
Subaccount is allocated among the available Subaccounts in accordance with your
allocation instructions.
AMENDMENTS TO CONTRACTS
Contracts may be amended to conform to changes in applicable law or
interpretations of applicable law, or to accommodate design changes. Changes in
the Contract may need to be approved by Contract Owners and state insurance
departments. A change in the Contract which necessitates a corresponding change
in the Prospectus or the SAI must be filed with the SEC.
SUBSTITUTION OF FUND SHARES
Although we believe it to be highly unlikely, it is possible that in the
judgment of our 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, we may seek to substitute the shares of
another Series or the shares of an entirely different fund. Before this can be
done, the approval of the SEC, and possibly one or more state insurance
departments, will be required.
OWNERSHIP OF THE CONTRACT
Ordinarily, the purchaser of a Contract is both the Owner and the Annuitant
and is entitled to exercise all the rights under the Contract. However, the
Owner may be an individual or entity other than the Annuitant. Spouses may own a
Contract as joint Owners. Transfer of the ownership of a Contract may involve
federal income tax consequences, and a qualified adviser should be consulted
before any such transfer is attempted.
FEDERAL INCOME TAXES
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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, (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
our 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. The tax rules are complicated and this discussion can only make you
aware of the issues. 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 our 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"). We do 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. We reserve the right to make a deduction for taxes
should they be imposed on us with respect to such items in the future.
TAXATION OF ANNUITIES IN GENERAL--NON-QUALIFIED PLANS
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. However, in certain cases the increase
in value may be subject to tax currently. In the case of Contracts not owned by
natural persons, see "Contracts Owned by Non-Natural Persons." In the case of
Contracts not meeting the diversification requirements, see "Diversification
Standards."
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 payments
(premiums paid) by or on behalf of an individual under a Contract that have not
been 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 amount received on account of a total or partial surrender of a
Contract. For purposes of this rule, a pledge or assignment
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of a Contract is treated as a payment received on account of a partial surrender
of a Contract.
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 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 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 VPMO of that election.
PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS
Amounts surrendered or distributed before the taxpayer reaches age 59 1/2
are subject to a penalty tax 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 or her 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 penalty of 25% 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) within 5 years from the date of the first payment,
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
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 or life expectancy of
that beneficiary and payments must begin 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 Contract Owners
should consult with their 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
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<PAGE>
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, distribution will be required at the death of the first
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.
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.
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 TSA program or an IRA, where the
Contract is a qualified funding asset for structured settlements, or where the
Contract is purchased on behalf of an employee upon termination of a qualified
plan, and nor if the annuity contract is an immediate annuity.
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 generally 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 are, in a Code Section 1035 exchange,
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.
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
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 calendar quarter
that the Series' assets be invested in no more than:
[diamond] 55% in any 1 investment
[diamond] 70% in any 2 investments
[diamond] 80% in any 3 investments
[diamond] 90% in any 4 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 IRS
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<PAGE>
in which was held that the Contract Owner was not the owner of the assets of the
separate account. It is unknown whether these differences, such as the Contract
Owner's ability to transfer among investment choices or the number and type of
investment choices available, would cause the Contract Owner to be considered as
the Owner of the assets of the Account resulting in the imposition of federal
income tax to the Contract Owner with respect to earnings allocable to the
Contract prior to receipt of payments under the Contract.
In 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 Contract
Owner being retroactively determined to be the Owner of the assets of the
Account.
Due to the uncertainty in this area, we reserve 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.
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 here 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, we 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 roll-over 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 (not including 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 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, 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.
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 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 payments made under a salary
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<PAGE>
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
distribution amount 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
consult their employers to determine whether the employer has complied with
these rules. Contract Owner loans are not allowed under the Contracts.
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.
INDIVIDUAL RETIREMENT ACCOUNTS
Code Sections 408 and 408A permit 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. Effective January 1, 1998,
individuals may establish Roth IRAs. Special rules also apply to contributions
to and withdrawals from Roth IRAs.
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 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 items such 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.
DEFERRED COMPENSATION PLANS WITH RESPECT TO SERVICE FOR STATE AND LOCAL
GOVERNMENTS AND TAX EXEMPT ORGANIZATIONS
Code Section 457 provides for certain deferred compensation plans with
respect to service for state and local governments and certain other entities.
The Contracts may be used in connection with these plans; however, under these
plans if issued to tax exempt organizations, the Contract Owner is the plan
sponsor, and the individual participants in the plans are the Annuitants. Under
such Contracts, the rights of individual plan participants are governed solely
by their agreements with the plan sponsor and not by the terms of the Contracts.
Effective in 1997 for new state and local government plans, such plans must be
funded through a tax exempt annuity contract held for the exclusive benefit of
plan participants.
PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS FROM QUALIFIED PLANS
In the case of a withdrawal under a Qualified Plan, a ratable portion of the
amount received is taxable, generally based on the ratio of the individual's
cost basis to the individual's total accrued benefit under the retirement plan.
Special tax rules may be available for certain distributions from a Qualified
Plan. Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of any distribution from qualified retirement plans, including Contracts issued
and qualified under Code Sections 401 (Keogh and Corporate Pension and
Profit-sharing Plans), Tax-Sheltered Annuities and Individual Retirement
Annuities 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
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
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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
expenses (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 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 a regular or SIMPLE IRA 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.
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 meant to alert you to the issues 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 & Company, Inc.
("WSG") who are licensed to sell our 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 or exempt 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 us.
In addition to reimbursing PEPCO for its expenses, we pay PEPCO an amount
equal to up to 7.25% of the payments made under the Contract. PEPCO pays any
qualified distribution organization an amount which may not exceed 7.25% of the
payments under the Contract. Any such amount paid with respect to Contracts sold
through other broker-dealers will be paid by us to or through PEPCO. The amounts
paid are not deducted from the payments. Deductions for surrender charges (as
described under "Surrender Charges") may be used as reimbursement for commission
payments.
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
- ------------------------------------------------------------------------------
We are subject to the provisions of the New York insurance laws applicable
to life insurance companies and to regulation and supervision by the New York
Superintendent of Insurance. We are also subject to the applicable insurance
laws of all the other states and jurisdictions in which we do 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
policies of the Account.
REPORTS
- -------------------------------------------------------------------------------
Reports showing the Contract Value and containing the financial statements
of the Account will be furnished to you at least annually.
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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. We are the legal
owner of those shares and as such have the right to vote to elect the Board of
Trustees of the Funds, to vote upon certain matters that are required by the
Investment Company Act of 1940 ("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, we intend to vote the shares of
the Funds at regular and special meetings of the shareholders of the Funds in
accordance with instructions received from Owners of the Contracts.
We currently intend to vote Fund shares attributable to any of our 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 us 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 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.
The number of votes that you have the right to cast will be determined by
applying your 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 you may give us
instructions will be determined as of the record date for Fund shareholders
chosen by the Board of Trustees of a Fund. We will furnish you 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.
LEGAL MATTERS
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Edwin L. Kerr, Counsel, Phoenix Home Life Mutual Insurance Company, has
provided advice on certain matters relating to the federal securities and income
tax laws in connection with the Contracts described in this Prospectus.
SAI
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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, in
writing, to Phoenix Variable Products Mail Operations at P.O. Box 8027, Boston,
Massachusetts 02266-8027, or by calling VPO at 800/541-0171.
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<PAGE>
APPENDIX A
PERFORMANCE HISTORY
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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 Phoenix-Goodwin Money Market Subaccount and as
total return of any Subaccount.
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.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1998(1)
- -----------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Templeton Asset Allocation-- Class 1.................. 11/28/88 0.08% 9.78% 10.30% 10.45%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Bond-- Class 1.............................. 1/4/89 0.78% 3.82% N/A 5.87%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets-- Class 1................ 9/15/96 -25.55% N/A N/A -47.04%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton International-- Class 1..................... 5/1/92 2.82% 9.96% N/A 12.55%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Stock-- Class 1............................. 11/4/88 -4.79% 9.32% N/A 10.30%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market.......................... 12/2/88 -1.29% 3.00% N/A 3.47%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The average annual total return is the annual compound return that results
from holding an initial investment of $1,000 for the time period
indicated. Returns are net of investment management fees, daily and annual
administrative fees, and mortality and expense risk charges and deferred
sales charges of 6% and 2% deducted from redemptions after 1 and 5 years,
respectively. Surrender charges are based on the age of the deposit. The
investment return and principal value of the variable contract will
fluctuate so that the accumulated value, when redeemed, may be worth more
or less than the original cost.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
ANNUAL TOTAL RETURN(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Series 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Templeton Asset Allocation--
Class 1 0.18% 11.77% -9.24% 26.01% 6.62% 24.46% -4.31% 20.90% 17.26% 13.95% 4.97%
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Bond-- Class 1 N/A 6.13% 4.89% 14.33% 4.11% 9.95% -6.20% 13.37% 7.96% 1.10% 5.71%
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets--
Class 1 N/A N/A N/A N/A N/A N/A N/A N/A 0.96% -30.19% -22.04%
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton International--
Class 1 N/A N/A N/A N/A -7.00% 45.37% -3.59% 14.19% 22.37% 12.40% 7.84%
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Stock-- Class 1 -1.04% 13.12% -12.28% 25.81% 5.68% 32.25% -3.56% 23.57% 20.77% 10.36% -0.13%
- ------------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 0.37% 6.56% 6.06% 4.13% 1.69% 1.02% 2.07% 3.98% 3.55% 3.62% 3.54%2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Rates are net of the investment management fee, daily administrative fees,
and mortality and expense risk charges of the Subaccounts. Percent change
does not include the effect of the surrender charges or the annual
administrative fees.
(2) Formerly known as "Templeton Money Market." On October 6, 1998 shares of
the Phoenix-Goodwin Money Market Series were substituted for shares of the
Templeton Money Market Fund.
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Current yield for the Phoenix-Goodwin Money Market Subaccount is based upon
the income earned by the Subaccount over a 7-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 excluding the annual administrative fee.
Yield calculations of the Phoenix-Goodwin 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 7-day
period, which period will end on the date of the most recent financial
statements. The yield for the Subaccount during this 7-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 quotation for the
Phoenix-Goodwin Money Market Subaccount based on a 7-day period ending December
31, 1998.
Example:
Value of hypothetical pre-existing account with
exactly one
unit at the beginning of the period:.............. 1.332697
Value of the same account (excluding capital
changes) at the
end of the 7-day period:.......................... 1.333545
Calculation:
Ending account value.............................. 1.333545
Less beginning account value...................... 1.332697
Net change in account value....................... 0.000848
Base period return:
(adjusted change/beginning account value)......... 0.000636
Current yield = return x (365/7) =.................. 3.32%
Effective yield = [(1 + return)(365/7)] -1 =.......... 3.37%
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 various 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; 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 FUNDS AND A COMPARISON OF THAT
PERFORMANCE TO A SECURITIES MARKET INDEX.
26
<PAGE>
APPENDIX B
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 interest in
excess of 4% per year.
On the last business day of each calendar week, 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, YOU CAN MAKE
ONLY ONE TRANSFER PER YEAR FROM THE GIA. THE AMOUNT THAT CAN BE TRANSFERRED OUT
IS LIMITED TO THE GREATER OF $2,000 OR 25% OF THE CONTRACT VALUE IN THE GIA AT
THE TIME OF THE TRANSFER. IF YOU ELECT THE SYSTEMATIC TRANSFER PROGRAM,
APPROXIMATELY EQUAL AMOUNTS MAY BE TRANSFERRED OUT OF THE GIA OVER A MINIMUM
18-MONTH PERIOD. ALSO, THE TOTAL CONTRACT VALUE ALLOCATED TO THE GIA MAY BE
TRANSFERRED OUT OF THE GIA TO ONE OR MORE OF THE SUBACCOUNTS OF THE ACCOUNT OVER
A CONSECUTIVE FOUR-YEAR PERIOD ACCORDING TO THE FOLLOWING ANNUALLY RENEWABLE
SCHEDULE.
YEAR ONE: 25% YEAR TWO: 33% YEAR THREE: 50% YEAR FOUR: 100%
27
<PAGE>
APPENDIX C
DEDUCTIONS FOR STATE PREMIUM TAXES
QUALIFIED AND NONQUALIFIED ANNUITY CONTRACTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UPON UPON
STATE PURCHASE(1) ANNUITIZATION NON-QUALIFIED QUALIFIED
- ----- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
California .......................................... X 2.35% 0.50%
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, 1999. 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, payment of death proceeds or Maturity Date.
28
<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 DEFERRED 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, 1999 which is available
without charge by contacting Phoenix Home Life Mutual Insurance Company at the
above address or toll-free at 800/541-0171.
May 1, 1999
----------------
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 1996, 1997 and 1998, aggregate underwriting
commissions paid to PEPCO on the sales of the Contracts were $26,437,438,
$21,403,257 and $22,077,720, 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 7-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, excluding the maximum annual administrative fee.
Example:
The following is an example of this yield calculation for the Subaccount
based on a 7-day period ending December 31, 1998.
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:...... 2.235585 1.022842
Value of the same account (excluding
capital changes) at the
end of the seven-day period .............. 2.236766 1.023367
Calculation:
Ending account value ..................... 2.236766 1.023367
Less beginning account value ............. 2.235585 1.022842
Net change in account value .............. 0.001181 0.000525
Base period return:
(adjusted change/beginning
account value)............................ 0.000528 0.000513
Current yield = return x (365/7) =........ 2.75% 2.68%
Effective yield = [(1 + return)(365/7)] - 1 = 2.79% 2.71%
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 and is computed by
finding the average annual compounded rates of return over the 1-, 5- and
10-year periods that would equate the initial amount invested to the ending
redeemable value according to a formula. The formula for total return used
herein includes four steps: (1) assuming a hypothetical $1,000 initial
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 recurring fees and 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, sale 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, 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 as Lipper
Analytical Services, CDA
B-2
<PAGE>
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.
The total return and yield may also be used to compare the performance of
the Subaccounts against certain widely acknowledged outside standards or indices
for stock and bond market performance. 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 NYSE, 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 NYSE.
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 automatically
will be applied to provide a Variable Payment Life Annuity with 10-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 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 10-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 10-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 2040 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
B-3
<PAGE>
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 payments
may be made with respect to any assets held under Variable Payment Options I and
J. Although no transfers or additional payments may be made with respect to
assets held under Option K, under this option partial or full surrenders may be
made.
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 GIA. 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. An interest rate of 3-3/8% for 5- and
10-year certain periods under Option A; an interest rate of 3-3/4% for the
20-year certain period under Options A and F; and an interest rate of 3-1/2%
under Options B and D. Under Options G and H, the guaranteed interest rate is
3%. 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:
[diamond] upgrading systems with compliant versions;
[diamond] developing or acquiring new systems to replace those that are
obsolete;
[diamond] and remediating existing systems by converting code or hardware.
Based on current assessments, we expect to have our computer systems
remediated and tested by June 1999. In addition, we are examining the status of
our 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 PricewaterhouseCoopers 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. PricewaterhouseCoopers 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, 1998
B-5
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MONEY MARKET GROWTH
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
---------------------------- -------------------------------
ASSETS
<S> <C> <C> <C> <C>
Investments at cost.................. $6,562,524 $77,697,405 $38,738,578 $ 802,833,112
========== =========== =========== ==============
Investment in The Phoenix Edge Series
Fund, at market.................... $6,562,524 $77,697,405 $76,975,075 $1,153,823,570
---------- ----------- ----------- --------------
Total assets....................... 6,562,524 77,697,405 76,975,075 1,153,823,570
LIABILITIES
Accrued expenses to related party 6,931 81,795 61,883 1,160,823
---------- ----------- ----------- --------------
NET ASSETS.............................. $6,555,593 $77,615,610 $76,913,192 $1,152,662,747
========== =========== =========== ==============
Accumulation units outstanding.......... 2,845,136 34,699,924 5,404,212 83,410,279
========== =========== =========== ==============
Unit value.............................. $ 2.304138 $ 2.236763 $ 14.231978 $ 13.819193
========== =========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
MULTI-SECTOR FIXED INCOME STRATEGIC ALLOCATION
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
---------------------------- -------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at cost.................. $9,801,129 $103,824,011 $43,574,557 $ 247,177,354
========== ============ =========== ==============
Investment in The Phoenix Edge Series
Fund, at market.................... $9,094,025 $ 96,359,381 $63,447,522 $ 292,315,694
---------- ------------ ----------- --------------
Total assets....................... 9,094,025 96,359,381 63,447,522 292,315,694
LIABILITIES
Accrued expenses to related party $ 8,130 $ 105,842 $ 51,832 $ 299,333
---------- ------------ ----------- --------------
NET ASSETS.............................. 9,085,895 96,253,539 63,395,690 292,016,361
========== ============ =========== ==============
Accumulation units outstanding.......... 2,314,658 25,246,020 11,664,611 55,360,502
========== ============ =========== ==============
Unit value.............................. $ 3.925373 $ 3.812622 $ 5.434874 $ 5.274814
========== ============ =========== ==============
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
---------------------------- -------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at cost.................. $4,369,929 $114,659,288 $ 4,089,417 $163,461,975
========== ============ =========== ============
Investment in The Phoenix Edge Series
Fund, at market.................... $6,002,066 $146,561,933 $ 5,356,175 $202,855,942
---------- ------------ ----------- ------------
Total assets....................... 6,002,066 146,561,933 5,356,175 202,855,942
LIABILITIES
Accrued expenses to related party 4,976 151,767 4,432 208,860
---------- ------------ ----------- ------------
NET ASSETS.............................. $5,997,090 $146,410,166 $ 5,351,743 $202,647,082
========== ============ =========== ============
Accumulation units outstanding.......... 2,641,185 65,865,547 2,587,705 99,623,618
========== ============ =========== ============
Unit value.............................. $ 2.270606 $ 2.222864 $ 2.068143 $2.034127
========== ============ =========== ============
</TABLE>
See Notes to Financial Statements
B-6
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
REAL ESTATE STRATEGIC THEME
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at cost..................... $ 426,257 $ 19,725,026 $ 608,544 $ 28,305,532
============ ============ ============ ============
Investment in The Phoenix Edge Series
Fund, at market...................... $ 404,844 $ 20,223,763 $ 864,489 $ 38,774,245
------------ ------------ ------------ ------------
Total assets......................... 404,844 20,223,763 864,489 38,774,245
LIABILITIES
Accrued expenses to related party....... 212 14,843 683 38,120
------------ ------------ ------------ ------------
NET ASSETS................................. $ 404,632 $ 20,208,920 $ 863,806 $ 38,736,125
============ ============ ============ ============
Accumulation units outstanding............. 281,836 14,027,411 478,520 21,470,457
============ ============ ============ ============
Unit value................................. $ 1.435700 $ 1.440674 $ 1.805131 $ 1.804159
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
ABERDEEN NEW ASIA
SUBACCOUNT
VA1 VA2, VA3 & GSE
----------------------------------
<S> <C> <C>
ASSETS
Investments at cost..................... $ 191,368 $ 8,755,769
============ ============
Investment in The Phoenix Edge Series
Fund, at market...................... $ 117,285 $ 5,376,295
------------ ------------
Total assets......................... 117,285 5,376,295
LIABILITIES
Accrued expenses to related party....... 98 5,742
------------ ------------
NET ASSETS................................. $ 117,187 $ 5,370,553
============ ============
Accumulation units outstanding............. 185,561 8,542,794
============ ============
Unit value................................. $ 0.636069 $ 0.628739
============ ============
</TABLE>
<TABLE>
<CAPTION>
ENHANCED INDEX
SUBACCOUNT
VA1 VA2, VA3 & GSE SIP
------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments at cost..................... $ 1,306,557 $ 20,002,230 $4,499,873
============ ============ ==========
Investment in The Phoenix Edge Series
Fund, at market...................... $ 1,516,306 $ 25,556,793 4,826,414
------------ ------------ ----------
Total assets......................... 1,516,306 25,556,793 4,826,414
LIABILITIES
Accrued expenses to related party....... 1,654 36,081 0
------------ ------------ ----------
NET ASSETS................................. $ 1,514,652 $ 25,520,712 $4,826,414
============ ============ ==========
Accumulation units outstanding............. 1,139,040 18,649,223 398,878
============ ============ ==========
Unit value................................. $ 1.329762 $ 1.368460 $12.099964
============ ============ ==========
</TABLE>
<TABLE>
<CAPTION>
ENGEMANN NIFTY FIFTY SENECA MID-CAP GROWTH
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at cost..................... $ 192,470 $ 4,653,983 $ 42,124 $ 3,623,025
============ ============ ============ ============
Investment in The Phoenix Edge Series 46,937
Fund, at market...................... $ 213,198 $ 5,577,628 $ $ 4,263,622
------------ ------------ ------------ ------------
Total assets......................... 213,198 5,577,628 46,937 4,263,622
LIABILITIES
Accrued expenses to related party....... 134 5,226 36 4,053
------------ ------------ ------------ ------------
NET ASSETS................................. $ 213,064 $ 5,572,402 $ 46,901 $ 4,259,569
============ ============ ============ ============
Accumulation units outstanding............. 170,618 4,459,187 43,127 3,534,998
============ ============ ============ ============
Unit value................................. $ 1.248784 $ 1.249645 $ 1.087509 $ 1.204999
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
B-7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
GROWTH AND INCOME VALUE EQUITY
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at cost..................... $ 475,585 $ 17,357,837 $ 30,229 $ 4,751,220
============ ============ ============ ============
Investment in The Phoenix Edge Series 32,315
Fund, at market...................... $ 512,974 $ 19,566,846 $ $ 5,175,227
------------ ------------ ------------- ------------
Total assets......................... 512,974 19,566,846 32,315 5,175,227
LIABILITIES
Accrued expenses to related party....... 402 19,093 28 4,886
------------ ------------ ------------- ------------
NET ASSETS................................. $ 512,572 $ 19,547,753 $ 32,287 $ 5,170,341
============ ============ ============ ============
Accumulation units outstanding............. 429,060 16,395,572 31,048 4,715,253
============ ============ ============ ============
Unit value................................. $ 1.194641 $ 1.192258 $ 1.039906 $ 1.096514
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
SCHAFER MID-CAP WANGER U.S. SMALL CAP
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at cost..................... $ 95,903 $ 4,466,332 $ 6,062,291 $120,698,036
============ ============ ============ ============
Investment in The Phoenix Edge Series
Fund, at market...................... $ 82,886 $ 4,002,741 $ -- $ --
Investment in Wanger Advisors Trust,
at market............................ -- -- 8,491,514 179,219,308
------------ ------------ ------------- ------------
Total assets......................... 82,886 4,002,741 8,491,514 179,219,308
LIABILITIES
Accrued expenses to related party....... 68 4,121 5,672 180,465
------------ ------------ ------------- ------------
NET ASSETS................................. $ 82,818 $ 3,998,620 $ 8,485,842 $179,038,843
============ ============ ============ ============
Accumulation units outstanding............. 96,471 4,559,289 3,661,772 77,959,539
============ ============ ============ ============
Unit value................................. $ 0.858489 $ 0.877027 $ 2.317414 $ 2.296561
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
WANGER INTERNATIONAL SMALL CAP TEMPLETON STOCK
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at cost..................... $ 1,909,995 $ 62,035,868 $ 139,821 $ 9,553,800
============ ============ ============ ============
Investment in Wanger Advisors Trust,
at market............................ $ 2,405,793 $ 78,132,232 $ -- $ --
Investment in Templeton Variable Products
Series Fund, at market............... -- -- 131,189 8,483,303
------------ ------------ ------------- ------------
Total assets......................... 2,405,793 78,132,232 131,189 8,483,303
LIABILITIES
Accrued expenses to related party....... 1,956 80,571 109 8,835
------------ ------------ ------------- ------------
NET ASSETS................................. $ 2,403,837 $ 78,051,661 $ 131,080 $ 8,474,468
============ ============ ============ ============
Accumulation units outstanding............. 1,320,317 40,115,513 123,318 7,998,876
============ ============ ============ ============
Unit value................................. $ 1.820651 $ 1.945673 $ 1.063450 $ 1.059457
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
B-8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION TEMPLETON INTERNATIONAL
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at cost..................... $ 144,180 $ 5,204,312 $ 218,765 $ 8,092,081
============ ============ ============ ============
Investment in Templeton Variable Products
Series Fund, at market............... $ 142,405 $ 5,169,062 $ 222,546 $ 8,245,914
------------ ------------ ------------ ------------
Total assets......................... 142,405 5,169,062 222,546 8,245,914
LIABILITIES
Accrued expenses to related party....... 119 5,421 184 8,764
------------ ------------ ------------ ------------
NET ASSETS................................. $ 142,286 $ 5,163,641 $ 222,362 $ 8,237,150
============ ============ ============ ============
Accumulation units outstanding............. 131,149 4,578,819 211,412 7,108,964
============ ============ ============ ============
Unit value................................. $ 1.084915 $ 1.127724 $ 1.051797 $ 1.158804
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING MARKETS MUTUAL SHARES INVESTMENTS
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments at cost..................... $ 755,347 $ 4,159,884 $ -- $ 124,258
============ ============ ============ ============
Investment in Templeton Variable Products
Series Fund, at market............... $ 375,990 $ 2,209,634 $ -- $ 125,722
------------ ------------ ------------ ------------
Total assets......................... 375,990 2,209,634 -- 125,722
LIABILITIES
Accrued expenses to related party....... 316 2,391 -- 126
------------ ------------ ------------ ------------
NET ASSETS................................. $ 375,674 $ 2,207,243 $ -- $ 125,596
============ ============ ============ ============
Accumulation units outstanding............. 710,888 4,247,626 123,787
============ ============ ============ ============
Unit value................................. $ 0.528457 $ 0.519642 $ -- $ 1.014614
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
B-9
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MONEY MARKET GROWTH
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions.......................... $ 308,893 $ 3,503,886 $ 92,142 $ 1,414,233
Expenses
Mortality and expense risk charges..... 61,805 879,337 706,451 13,455,438
------------- ------------ ------------ ------------
Net investment income (loss) ............. 247,088 2,624,549 (614,309) (12,041,205)
------------- ------------ ------------ ------------
Net realized gain (loss) from share
transactions........................... -- -- 676,058 11,617,846
Net realized gain distribution from Fund.. -- -- 2,895,506 44,065,967
Net unrealized appreciation
(depreciation) on investment.......... -- -- 15,027,423 227,622,984
------------- ------------ ------------ ------------
Net gain (loss) on investments............ -- -- 18,598,987 283,306,797
------------- ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations.............. $ 247,088 $ 2,624,549 $ 17,984,678 $271,265,592
============= ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MULTI-SECTOR FIXED INCOME STRATEGIC ALLOCATION
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions.......................... $ 897,963 $ 8,203,764 $ 1,144,073 $ 5,310,631
Expenses
Mortality and expense risk charges..... 128,049 1,411,918 611,126 3,558,783
------------ ------------ ------------ ------------
Net investment income (loss).............. 769,914 6,791,846 532,947 1,751,848
------------ ------------ ------------ ------------
Net realized gain (loss) from share
transactions........................... (205,026) (1,229,880) 260,424 1,435,216
Net realized gain distribution from Fund.. 86,394 714,720 4,199,254 19,515,595
Net unrealized appreciation
(depreciation) on investment........... (1,110,475) (12,288,471) 5,942,227 27,452,482
------------ ------------ ------------ ------------
Net gain (loss) on investments............ (1,229,107) (12,803,631) 10,401,905 48,403,293
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations.............. $ (459,193) $ (6,011,785) $ 10,934,852 $ 50,155,141
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions.......................... $ -- $ -- $ 129,020 $ 4,856,403
Expenses
Mortality and expense risk charges..... 60,585 1,875,398 51,840 2,458,794
----------- ------------ ---------- ------------
Net investment income..................... (60,585) (1,875,398) 77,180 2,397,609
----------- ------------ ---------- ------------
Net realized gain (loss) from share
transactions........................... 149,801 3,953,808 6,022 483,496
Net realized gain distribution from Fund.. 1,029,608 25,131,290 185,636 7,164,545
Net unrealized appreciation
(depreciation) on investment........... 223,504 6,491,109 575,784 21,703,276
----------- ------------ ---------- ------------
Net gain (loss) on investments............ 1,402,913 35,576,207 767,442 29,351,317
----------- ------------ ---------- ------------
Net increase (decrease) in net assets
resulting from operations............. $ 1,342,328 $ 33,700,809 $ 844,622 $ 31,748,926
=========== ============ ========== ============
</TABLE>
See Notes to Financial Statements
B-10
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
REAL ESTATE STRATEGIC THEME
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions.................. $ 26,066 $ 1,189,306 $ 586 $ 26,354
Expenses
Mortality and expense risk charges 6,405 353,570 7,201 393,829
--------- ----------- --------- ------------
Net investment income (loss) ..... 19,661 835,736 (6,615) (367,475)
--------- ----------- --------- ------------
Net realized gain (loss) from share
transactions................... (52,528) (1,045,319) 6,132 302,021
Net realized gain distribution from
Fund.............................. 722 32,352 50,198 2,271,021
Net unrealized appreciation
(depreciation) on investment... (142,513) (7,212,670) 219,545 9,589,335
--------- ----------- --------- ------------
Net gain (loss) on investments.... (194,319) (8,225,637) 275,875 12,162,377
--------- ----------- --------- ------------
Net increase (decrease) in net assets
resulting from operations...... $(174,658) $(7,389,901) $ 269,260 $ 11,794,902
========= =========== ========= ============
</TABLE>
<TABLE>
<CAPTION>
ABERDEEN NEW ASIA
SUBACCOUNT
VA1 VA2, VA3 & GSE
------------------------------
<S> <C> <C>
Investment income
Distributions.......................... $ 495 $ 22,778
Expenses
Mortality and expense risk charges 1,314 71,029
-------- ---------
Net investment income (loss) ............. (819) (48,251)
-------- ---------
Net realized gain (loss) from share
transactions........................... (17,561) (280,504)
Net realized gain distribution from
Fund...................................... -- --
Net unrealized appreciation
(depreciation) on investment........... 4,719 (38,901)
-------- ---------
Net gain (loss) on investments............ (12,842) (319,405)
-------- ---------
Net increase (decrease) in net assets
resulting from operations.............. $(13,661) $(367,656)
======== =========
</TABLE>
<TABLE>
<CAPTION>
ENHANCED INDEX
SUBACCOUNT(1)
VA1 VA2, VA3 & GSE SIP
---------------------------------------------
<S> <C> <C>
Investment income
Distributions.......................... $ 11,709 $ 232,777 $ 37,035
Expenses
Mortality and expense risk charges..... 10,833 333,605 --
--------- ---------- ---------
Net investment income (loss) ............. 876 (100,828) 37,035
Net realized gain (loss) from share --------- ---------- ---------
transactions........................... (4,668) 1,003,810 18,232
Net realized gain distribution from Fund.. 64,867 1,124,271 214,285
Net unrealized appreciation
(depreciation) on investment........... 201,367 4,645,307 326,541
--------- ---------- ---------
Net gain (loss) on investments............ 261,566 6,773,388 559,058
--------- ---------- ---------
Net increase (decrease) in net assets.....
resulting from operations.............. $ 262,442 $6,672,560 $ 596,093
========= ========== =========
</TABLE>
(1)From inception (SIP) March 2, 1998 to December 31, 1998.
See Notes to Financial Statements
B-11
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
ENGEMANN NIFTY FIFTY SENECA MID-CAP GROWTH
SUBACCOUNT(1) SUBACCOUNT(2)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions.......................... $ 85 $ 2,180 $ 38 $ 3,508
Expenses
Mortality and expense risk charges..... 525 37,502 349 34,485
-------- --------- -------- ---------
Net investment income (loss) ............. (440) (35,322) (311) (30,977)
-------- --------- -------- ---------
Net realized gain (loss) from share
transactions........................... 607 (5,592) (13,046) 96,095
Net realized gain distribution from Fund.. -- -- -- --
Net unrealized appreciation (depreciation)
on investment.......................... 20,728 923,645 4,813 640,597
-------- --------- -------- ---------
Net gain (loss) on investments............ 21,335 918,053 (8,233) 736,692
-------- --------- -------- ---------
Net increase (decrease) in net assets
resulting from operations.............. $ 20,895 $ 882,731 $ (8,544) $ 705,715
======== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND INCOME VALUE EQUITY
SUBACCOUNT(3) SUBACCOUNT(4)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions.......................... $ 2,250 $ 78,487 $ 133 $ 21,109
Expenses
Mortality and expense risk charges..... 2,317 105,264 158 36,405
-------- ---------- -------- ---------
Net investment income (loss) ............. (67) (26,777) (25) (15,296)
-------- ---------- -------- ---------
Net realized gain (loss) from share
transactions........................... (20,327) 11,937 (1) 60,980
Net unrealized appreciation (depreciation)
on investment.......................... 37,389 2,209,009 2,086 424,007
-------- ---------- -------- ---------
Net gain (loss) on investments............ 17,062 2,220,946 2,085 484,987
-------- ---------- -------- ---------
Net increase (decrease) in net assets
resulting from operations.............. $ 16,995 $2,194,169 $ 2,060 $ 469,691
======== ========== ======== =========
</TABLE>
<TABLE>
<CAPTION>
SCHAFER MID-CAP WANGER U.S. SMALL CAP
SUBACCOUNT(5) SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions.......................... $ 243 $ 11,750 $ 387,364 $ 9,837,149
Expenses
Mortality and expense risk charges..... 553 35,187 75,167 2,323,769
---------- ----------- ---------- ------------
Net investment income (loss) ............. (310) (23,437) 312,197 7,513,380
---------- ----------- ---------- ------------
Net realized gain (loss) from share
transactions........................... 661 21,222 188,405 (809,189)
Net unrealized appreciation (depreciation)
on investment.......................... (13,017) (463,591) 244,910 5,779,426
---------- ----------- ---------- ------------
Net gain (loss) on investments............ (12,356) (442,369) 433,315 4,970,237
---------- ----------- ---------- ------------
Net increase (decrease) in net assets
resulting from operations.............. $ (12,666) $ (465,806) $ 745,512 $ 12,483,617
========== =========== ========== ============
</TABLE>
(1)From inception March 10, 1998 to December 31, 1998 and March 3, 1998 to
December 31, 1998, respectively
(2)From inception April 16, 1998 to December 31, 1998 and March 3, 1998 to
December 31, 1998, respectively
(3)From inception March 4, 1998 to December 31, 1998 and March 3, 1998 to
December 31, 1998, respectively
(4)From inception May 21, 1998 to December 31, 1998 and March 3, 1998 to
December 31, 1998, respectively
(5)From inception March 17, 1998 to December 31, 1998 and March 3, 1998 to
December 31, 1998, respectively
See Notes to Financial Statements
B-12
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
WANGER INTERNATIONAL SMALL CAP TEMPLETON STOCK
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions.......................... $ 31,860 $ 986,566 $ 13,812 $ 851,635
Expenses
Mortality and expense risk charges..... 26,533 1,055,298 1,339 105,870
--------- ----------- -------- ---------
Net investment income (loss).............. 5,327 (68,732) 12,473 745,765
--------- ----------- -------- ---------
Net realized gain (loss) from share
transactions........................... 52,537 (180,001) 510 (44,571)
Net unrealized appreciation (depreciation)
on investment.......................... 319,936 10,995,916 (12,159) (778,603)
--------- ----------- -------- ---------
Net gain (loss) on investments............ 372,473 10,815,915 (11,649) (823,174)
--------- ----------- -------- ---------
Net increase (decrease) in net assets
resulting from operations.............. $ 377,800 $10,747,183 $ 824 $ (77,409)
========= =========== ======== =========
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION TEMPLETON INTERNATIONAL
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions.......................... $ 7,836 $ 296,398 $ 12,407 $ 605,384
Expenses
Mortality and expense risk charges..... 1,412 66,614 2,052 119,063
--------- ----------- -------- ---------
Net investment gain (loss) ............... 6,424 229,784 10,355 486,321
--------- ----------- -------- ---------
Net realized gain (loss) from share (925) (28,165) (2,138) (108,189)
transactions...........................
Net unrealized appreciation (depreciation)
on investment.......................... 23 5,766 3,732 211,403
--------- ----------- -------- ---------
Net gain (loss) on investments............ (902) (22,399) 1,594 103,214
--------- ----------- -------- ---------
Net increase (decrease) in net assets
resulting from operations.............. $ 5,522 $ 207,385 $ 11,949 $ 589,535
========= =========== ======== =========
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING MARKETS MUTUAL SHARES INVESTMENTS
SUBACCOUNT SUBACCOUNT(6)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Investment income
Distributions.......................... $ 10,743 $ 66,718 $ -- $ --
Expenses
Mortality and expense risk charges..... 4,048 33,684 -- 126
--------- ----------- -------- ---------
Net investment gain (loss) ............... 6,695 33,034 -- (126)
--------- ----------- -------- ---------
Net realized gain (loss) from share
transactions.......................... (2,611) 25,248 -- 31
Net unrealized appreciation (depreciation)
on investment.......................... (110,152) (642,722) -- 1,464
--------- ----------- -------- ---------
Net gain (loss) on investments............ (112,763) (617,474) -- 1,495
--------- ----------- -------- ---------
Net increase (decrease) in net assets
resulting from operations.............. $(106,068) $ (584,440) $ -- $ 1,369
========= =========== ======== =========
</TABLE>
(6)From inception November 11, 1998 to December 31, 1998
See Notes to Financial Statements
B-13
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MONEY MARKET GROWTH
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 247,088 $ 2,624,549 $ (614,309) $ (12,041,205)
Net realized gain (loss)................ -- -- 3,571,564 55,683,813
Net unrealized appreciation (depreciation) -- -- 15,027,423 227,622,984
------------ ----------- ----------- --------------
Net increase (decrease) in net assets
resulting from operations............ 247,088 2,624,549 17,984,678 271,265,592
------------ ----------- ----------- --------------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits.................... 68,647 21,470,571 714,963 40,092,431
Participant transfers................... 2,956,800 12,069,249 (406,960) (29,320,598)
Participant withdrawals................. (1,730,859) (27,564,320) (10,730,450) (174,362,625)
------------ ----------- ----------- --------------
Net increase (decrease) in net assets
resulting from participant transactions 1,294,588 5,975,500 (10,422,447) (163,590,792)
------------ ----------- ----------- --------------
Net increase (decrease) in net assets .. 1,541,676 8,600,049 7,562,231 107,674,800
NET ASSETS
Beginning of period..................... 5,013,917 69,015,561 69,350,961 1,044,987,947
------------ ----------- ----------- --------------
End of Period........................... $ 6,555,593 $77,615,610 $76,913,192 $1,152,662,747
============ =========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
MULTI-SECTOR FIXED INCOME STRATEGIC ALLOCATION
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 769,914 $ 6,791,846 $ 532,947 $ 1,751,848
Net realized gain (loss)................ (118,632) (515,160) 4,459,678 20,950,811
Net unrealized appreciation (depreciation) (1,110,475) (12,288,471) 5,942,227 27,452,482
------------ ------------ ----------- ------------
Net increase (decrease) in net assets
resulting from operations............ (459,193) (6,011,785) 10,934,852 50,155,141
------------ ------------ ----------- ------------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits.................... 819,747 2,248,177 826,457 12,106,881
Participant transfers................... (4,424,733) 2,586,038 (1,122,261) (10,979,795)
Participant withdrawals................. (1,583,978) (21,639,644) (8,038,112) (44,042,568)
------------ ------------ ----------- ------------
Net increase (decrease) in net assets
resulting from participant transactions (5,188,964) (16,805,429) (8,333,916) (42,915,482)
------------ ------------ ----------- ------------
Net increase (decrease) in net assets .. (5,648,157) (22,817,214) 2,600,936 7,239,659
NET ASSETS
Beginning of period..................... 14,734,052 119,070,753 60,794,754 284,776,702
------------ ------------ ----------- ------------
End of Period........................... $ 9,085,895 $ 96,253,539 $63,395,690 $292,016,361
============ ============ =========== ============
</TABLE>
See Notes to Financial Statements
B-14
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ (60,585) $ (1,875,398) $ 77,180 $ 2,397,609
Net realized gain (loss)................ 1,179,409 29,085,098 191,658 7,648,041
Net unrealized appreciation (depreciation) 223,504 6,491,109 575,784 21,703,276
------------ ------------- ----------- ------------
Net increase (decrease) in net assets
resulting from operations............ 1,342,328 33,700,809 844,622 31,748,926
------------ ------------- ----------- ------------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits.................... 180,075 6,173,824 434,830 7,396,247
Participant transfers................... (66,262) (3,494,208) (377,269) 1,802,572
Participant withdrawals................. (833,450) (24,910,350) (614,415) (29,931,954)
------------ ------------- ----------- ------------
Net increase (decrease) in net assets
resulting from participant transactions (719,637) (22,230,734) (556,854) (20,733,135)
------------ ------------- ----------- ------------
Net increase (decrease) in net assets .. 622,691 11,470,075 287,768 11,015,791
NET ASSETS
Beginning of period..................... 5,374,399 134,940,091 5,063,975 191,631,291
------------ ------------- ----------- ------------
End of Period........................... $ 5,997,090 $ 146,410,166 $ 5,351,743 $202,647,082
============ ============= =========== ============
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE STRATEGIC THEME
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------ -------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 19,661 $ 835,736 $ (6,615) $ (367,475)
Net realized gain (loss)................ (51,806) (1,012,967) 56,330 2,573,042
Net unrealized appreciation (depreciation) (142,513) (7,212,670) 219,545 9,589,335
------------ ------------- ----------- ------------
Net increase (decrease) in net assets
resulting from operations............ (174,658) (7,389,901) 269,260 11,794,902
------------ ------------- ----------- ------------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits.................... 15,190 2,415,363 8,110 2,079,830
Participant transfers................... (43,201) (5,037,520) (210,732) 2,263,095
Participant withdrawals................. (138,578) (6,504,194) (131,806) (6,472,398)
------------ ------------- ----------- ------------
Net increase (decrease) in net assets
resulting from participant transactions (166,589) (9,126,351) (334,428) (2,129,473)
------------ ------------- ----------- ------------
Net increase (decrease) in net assets .. (341,247) (16,516,252) (65,168) 9,665,429
NET ASSETS
Beginning of period..................... 745,879 36,725,172 928,974 29,070,696
------------ ------------- ----------- ------------
End of Period........................... $ 404,632 $ 20,208,920 $ 863,806 $ 38,736,125
============ ============= =========== ============
</TABLE>
See Notes to Financial Statements
B-15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
ABERDEEN NEW ASIA
SUBACCOUNT
VA1 VA2, VA3 & GSE
-------------------------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss)................. $ (819) $ (48,251)
Net realized gain (loss)..................... (17,561) (280,504)
Net unrealized appreciation (depreciation)... 4,719 (38,901)
---------- ------------
Net increase (decrease) in net assets
resulting from operations................. (13,661) (367,656)
---------- ------------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits......................... 1,990 451,227
Participant transfers........................ (12,883) (593,927)
Participant withdrawals...................... (7,585) (476,471)
---------- ------------
Net increase (decrease) in net assets
resulting from participant transactions... (18,478) (619,171)
---------- ------------
Net increase (decrease) in net assets ....... (32,139) (986,827)
NET ASSETS
Beginning of period.......................... 149,326 6,357,380
---------- ------------
End of Period................................ $ 117,187 $ 5,370,553
========== ============
</TABLE>
<TABLE>
<CAPTION>
ENHANCED INDEX
SUBACCOUNT(1)
VA1 VA2, VA3 & GSE SIP
----------------------------------------------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 876 $ (100,828) $ 37,035
Net realized gain (loss)................ 60,199 2,128,081 232,517
Net unrealized appreciation (depreciation) 201,367 4,645,307 326,541
---------- ------------ -----------
Net increase (decrease) in net assets
resulting from operations............ 262,442 6,672,560 596,093
---------- ------------ -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits.................... 6,999 2,577,535 6,085,034
Participant transfers................... 648,597 12,178,064 --
Participant withdrawals................. (14,930) (19,957,443) (1,854,713)
---------- ------------ -----------
Net increase (decrease) in net assets
resulting from participant transactions 640,666 (5,201,844) 4,230,321
---------- ------------ -----------
Net increase (decrease) in net assets .. 903,108 1,470,716 4,826,414
NET ASSETS
Beginning of period..................... 611,544 24,049,996 0
---------- ------------ -----------
End of Period........................... $1,514,652 $ 25,520,712 $ 4,826,414
========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
ENGEMANN NIFTY FIFTY SENECA MID-CAP GROWTH
SUBACCOUNT(2) SUBACCOUNT(3)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ (440) $ (35,322) $ (311) $ (30,977)
Net realized gain (loss)................ 607 (5,592) (13,046) 96,095
Net unrealized appreciation (depreciation) 20,728 923,645 4,813 640,597
---------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations............ 20,895 882,731 (8,544) 705,715
---------- ------------ ------------ -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits.................... 31,541 3,684,848 14,780 2,940,994
Participant transfers................... 160,642 2,273,018 79,803 1,159,057
Participant withdrawals................. (14) (1,268,195) (39,138) (546,197)
---------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from participant transactions 192,169 4,689,671 55,445 3,553,854
---------- ------------ ------------ -----------
Net increase (decrease) in net assets .. 213,064 5,572,402 46,901 4,259,569
NET ASSETS
Beginning of period..................... 0 0 0 0
---------- ------------ ------------ -----------
End of Period........................... $ 213,064 $ 5,572,402 $ 46,901 $ 4,259,569
========== ============ ============ ===========
</TABLE>
(1)From inception (SIP) March 2, 1998 to December 31, 1998.
(2)From inception March 10, 1998 to December 31, 1998 and March 3, 1998 to
December 31, 1998, respectively.
(3)From inception April 16, 1998 to December 31, 1998 and March 3, 1998 to
December 31, 1998, respectively.
See Notes to Financial Statements
B-16
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
GROWTH AND INCOME VALUE EQUITY
SUBACCOUNT(4) SUBACCOUNT(5)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................. $ (67) $ (26,777) $ (25) $ (15,296)
Net realized gain (loss)................ (20,327) 11,937 (1) 60,980
Net unrealized appreciation (depreciation)... 37,389 2,209,009 2,086 424,007
---------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from operations................. 16,995 2,194,169 2,060 469,691
---------- ------------ ------------ -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits......................... 135,413 4,743,739 16,130 3,355,794
Participant transfers........................ 519,990 14,190,783 14,097 1,667,847
Participant withdrawals...................... (159,826) (1,580,938) -- (322,991)
---------- ------------ ------------ -----------
Net increase (decrease) in net assets
resulting from participant transactions 495,577 17,353,584 30,227 4,700,650
---------- ------------ ------------ -----------
Net increase (decrease) in net assets ....... 512,572 19,547,753 32,287 5,170,341
NET ASSETS
Beginning of period.......................... 0 0 0 0
---------- ------------ ------------ -----------
End of Period................................ $ 512,572 $ 19,547,753 $ 32,287 $ 5,170,341
========== ============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
SCHAFER MID-CAP WANGER U.S. SMALL CAP
SUBACCOUNT(6) SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................. $ (310) $ (23,437) $ 312,197 $ 7,513,380
Net realized gain (loss)..................... 661 21,222 188,405 (809,189)
Net unrealized appreciation (depreciation)... (13,017) (463,591) 244,910 5,779,426
---------- ------------ ------------ -------------
Net increase (decrease) in net assets
resulting from operations................. (12,666) (465,806) 745,512 12,483,617
---------- ------------ ------------ -------------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits......................... 10,825 2,656,058 179,028 12,527,312
Participant transfers........................ 84,673 2,056,323 1,606,641 5,179,426
Participant withdrawals...................... (14) (247,955) (1,252,289) (28,875,182)
---------- ------------ ------------ -------------
Net increase (decrease) in net assets
resulting from participant transactions 95,484 4,464,426 533,380 (11,168,444)
---------- ------------ ------------ -------------
Net increase (decrease) in net assets ....... 82,818 3,998,620 1,278,892 1,315,173
NET ASSETS
Beginning of period.......................... 0 0 7,206,950 177,723,670
---------- ------------ ------------ -------------
End of Period................................ $ 82,818 $ 3,998,620 $ 8,485,842 $ 179,038,843
========== ============ ============ =============
</TABLE>
(4)From inception March 4, 1998 to December 31, 1998 and March 3, 1998 to
December 31, 1998, respectively.
(5)From inception May 21, 1998 to December 31, 1998 and March 3, 1998 to
December 31, 1998, respectively.
(6)From inception March 17, 1998 to December 31, 1998 and March 3, 1998 to
December 31, 1998, respectively.
See Notes to Financial Statements
B-17
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
WANGER INTERNATIONAL SMALL CAP TEMPLETON STOCK
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................ $ 5,327 $ (68,732) $ 12,473 $ 745,765
Net realized gain (loss).................... 52,537 (180,001) 510 (44,571)
Net unrealized appreciation (depreciation).. 319,936 10,995,916 (12,159) (778,603)
---------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from operations................ 377,800 10,747,183 824 (77,409)
---------- ------------ ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits........................ 81,399 5,249,768 10,361 1,314,215
Participant transfers....................... (372,965) (4,984,976) (3,508) 348,626
Participant withdrawals..................... (258,602) (13,091,022) (65) (1,439,674)
---------- ------------ ----------- -----------
Net increase (decrease) in net assets
resulting from participant transactions.. (550,168) (12,826,230) 6,788 223,167
---------- ------------ ----------- -----------
Net increase (decrease) in net assets ...... (172,368) (2,079,047) 7,612 145,758
NET ASSETS
Beginning of period..................... 2,576,205 80,130,708 123,468 8,328,710
---------- ------------ ----------- -----------
End of Period........................... $2,403,837 $ 78,051,661 $ 131,080 $ 8,474,468
========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON ASSET ALLOCATION TEMPLETON INTERNATIONAL
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................ $ 6,424 $ 229,784 $ 10,355 $ 486,321
Net realized gain (loss).................... (925) (28,165) (2,138) (108,189)
Net unrealized appreciation (depreciation).. 23 5,766 3,732 211,403
---------- ------------ --------- -----------
Net increase (decrease) in net assets
resulting from operations................ 5,522 207,385 11,949 589,535
---------- ------------ --------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits........................ 2,881 826,820 202 1,154,317
Participant transfers....................... (18,523) 258,383 77,843 413,065
Participant withdrawals..................... (4,353) (706,919) (7,584) (1,352,102)
---------- ------------ --------- -----------
Net increase (decrease) in net assets
resulting from participant transactions.. (19,995) 378,284 70,461 215,280
---------- ------------ --------- -----------
Net increase (decrease) in net assets ...... (14,473) 585,669 82,410 804,815
NET ASSETS
Beginning of period......................... 156,759 4,577,972 139,952 7,432,335
---------- ------------ --------- -----------
End of Period............................... $ 142,286 $ 5,163,641 $ 222,362 $ 8,237,150
========== ============ ========= ===========
</TABLE>
See Notes to Financial Statements
B-18
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
TEMPLETON DEVELOPING MARKETS MUTUAL SHARES INVESTMENTS
SUBACCOUNT SUBACCOUNT(6)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................ $ 6,695 $ 33,034 $ -- $ (126)
Net realized gain (loss).................... (2,611) 25,248 -- 31
Net unrealized appreciation (depreciation... (110,152) (642,722) -- 1,464
----------- ------------ --------- -----------
Net increase (decrease) in net assets
resulting from operations................ (106,068) (584,440) -- 1,369
----------- ------------ --------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits........................ 6,933 475,997 -- 1,816
Participant transfers....................... (8,270) 44,127 -- 125,409
Participant withdrawals..................... (2,604) (505,409) -- (2,998)
----------- ------------ --------- -----------
Net increase (decrease) in net assets
resulting from participant transactions (3,941) 14,715 -- 124,227
----------- ------------ --------- -----------
Net increase (decrease) in net assets ...... (110,009) (569,725) -- 125,596
NET ASSETS
Beginning of period......................... 485,683 2,776,968 0 0
----------- ------------ --------- -----------
End of Period............................... $ 375,674 $ 2,207,243 $ -- $ 125,596
=========== ============ ======== ===========
</TABLE>
(6)From inception November 11, 1998 to December 31, 1998
See Notes to Financial Statements
B-19
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MONEY MARKET GROWTH
SUBACCOUNT SUBACCOUNT
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
============= ============= ============ ==============
</TABLE>
<TABLE>
<CAPTION>
MULTI-SECTOR FIXED INCOME STRATEGIC ALLOCATION
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income........................ $ 825,575 $ 6,478,676 $ 711,688 $ 2,562,198
Net realized gain............................ 244,280 3,027,102 8,711,543 36,705,706
Net unrealized appreciation.................. 46,689 273,117 1,401,855 8,778,795
------------- ------------- ------------ --------------
Net increase in net assets resulting
from operations........................... 1,116,544 9,778,895 10,825,086 48,046,699
------------- ------------- ------------ --------------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits......................... 105,706 8,961,354 1,144,584 12,806,385
Participant transfers........................ 97,090 9,514,532 (3,215,988) (13,007,386)
Participant withdrawals...................... (2,060,231) (8,597,924) (6,275,860) (22,249,083)
------------- ------------- ------------ --------------
Net increase (decrease) in net assets
resulting from participant transactions... (1,857,435) 9,877,962 (8,347,264) (22,450,084)
------------- ------------- ------------ --------------
Net increase (decrease) in net assets ....... (740,891) 19,656,857 2,477,822 25,596,615
NET ASSETS
Beginning of period.......................... 15,474,943 99,413,896 58,316,932 259,180,087
------------- ------------- ------------ --------------
End of Period................................ $ 14,734,052 $ 119,070,753 $ 60,794,754 $ 284,776,702
============= ============= ============ ==============
</TABLE>
See Notes to Financial Statements
B-20
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1997
(CONTINUED)
<TABLE>
<CAPTION>
INTERNATIONAL BALANCED
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income........................ $ 22,682 $ 214,773 $ 101,518 $ 3,304,410
Net realized gain............................ 577,942 13,491,669 608,812 21,878,860
Net unrealized appreciation (depreciation)... (36,802) 81,967 65,158 2,886,598
------------ -------------- ------------- --------------
Net increase in net assets resulting
from operations........................... 563,822 13,788,409 775,488 28,069,868
------------ -------------- ------------- --------------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits......................... 195,241 7,443,575 29,263 7,431,032
Participant transfers........................ (280,514) (3,359,763) (105,010) (3,701,822)
Participant withdrawals...................... (495,643) (10,964,815) (552,520) (16,324,265)
------------ -------------- ------------- --------------
Net decrease in net assets resulting from
participant transactions.................. (580,916) (6,881,003) (628,267) (12,595,055)
------------ -------------- ------------- --------------
Net increase (decrease) in net assets ....... (17,094) 6,907,406 147,221 15,474,813
NET ASSETS
Beginning of period.......................... 5,391,493 128,032,685 4,916,754 176,156,478
------------ -------------- ------------- --------------
End of Period................................ $ 5,374,399 $ 134,940,091 $ 5,063,975 $ 191,631,291
============ ============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
REAL ESTATE STRATEGIC THEME
SUBACCOUNT SUBACCOUNT
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............................ 18,819 1,249,826 119,345 3,690,699
Net unrealized appreciation.................. 75,320 3,671,800 15,658 123,526
------------ -------------- ------------- --------------
Net increase 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 in net assets
resulting from participant transactions 350,018 11,845,867 125,379 6,589,372
------------ -------------- ------------- --------------
Net increase 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
============ ============== ============= ==============
</TABLE>
See Notes to Financial Statements
B-21
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1997
(CONTINUED)
<TABLE>
<CAPTION>
ABERDEEN NEW ASIA ENHANCED INDEX
SUBACCOUNT SUBACCOUNT(1)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................. $ 3,463 $ 170,376 $ 1,384 $ (728)
Net realized gain (loss)..................... (26,056) (109,763) 3,586 93,771
Net unrealized appreciation (depreciation)... (77,025) (3,327,944) 8,382 909,255
------------ -------------- ------------- --------------
Net increase (decrease) in net assets
resulting from operations................. (99,618) (3,267,331) 13,352 1,002,298
------------ -------------- ------------- --------------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits......................... 14,600 1,539,143 -- 16,296,893
Participant transfers........................ (107,286) 396,202 617,780 6,831,680
Participant withdrawals...................... (52,465) (419,327) (19,588) (80,875)
------------ -------------- ------------- --------------
Net increase (decrease) in net assets
resulting from participant transactions (145,151) 1,516,018 598,192 23,047,698
------------ -------------- ------------- --------------
Net increase (decrease) in net assets ....... (244,769) (1,751,313) 611,544 24,049,996
NET ASSETS
Beginning of period.......................... 394,095 8,108,693 0 0
------------ -------------- ------------- --------------
End of Period................................ $ 149,326 $ 6,357,380 $ 611,544 $ 24,049,996
============ ============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
WANGER INTERNATIONAL SMALL CAP WANGER U.S. SMALL CAP
SUBACCOUNT SUBACCOUNT
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income........................ $ 40,815 $ 755,680 $ 54,891 $ 824,337
Net realized gain (loss)..................... (9,521) (186,359) 233,219 (4,456)
Net unrealized appreciation (depreciation)... (101,297) (3,451,230) 1,370,089 33,929,801
------------ -------------- ------------- --------------
Net increase (decrease) in net assets
resulting from operations................. (70,003) (2,881,909) 1,658,199 34,749,682
------------ -------------- ------------- --------------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits......................... 98,602 12,346,480 226,132 18,307,137
Participant transfers........................ 370,333 9,272,247 1,421,314 32,938,503
Participant withdrawals...................... (467,094) (4,420,824) (951,778) (6,387,812)
------------ -------------- ------------- --------------
Net increase in net assets
resulting from participant transactions... 1,841 17,197,903 695,668 44,857,828
------------ -------------- ------------- --------------
Net increase (decrease) in net assets ....... (68,162) 14,315,994 2,353,867 79,607,510
NET ASSETS
Beginning of period.......................... 2,644,367 65,814,714 4,853,083 98,116,160
------------ -------------- ------------- --------------
End of Period................................ $ 2,576,205 $ 80,130,708 $ 7,206,950 $ 177,723,670
============ ============== ============= ==============
</TABLE>
(1)From inception July 15, 1997 to December 31, 1997
See Notes to Financial Statements
B-22
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1997
(CONTINUED)
<TABLE>
<CAPTION>
TEMPLETON STOCK TEMPLETON ASSET ALLOCATION
SUBACCOUNT(1) SUBACCOUNT(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.......................... 0 0 0 0
-------------- ---------------- ------------- --------------
End of Period................................ $ 123,468 $ 8,328,710 $ 156,759 $ 4,577,972
============== ================ ============= ==============
</TABLE>
<TABLE>
<CAPTION>
TEMPLETON INTERNATIONAL TEMPLETON DEVELOPING MARKETS
SUBACCOUNT(3) SUBACCOUNT(4)
VA1 VA2, VA3 & GSE VA1 VA2, VA3 & GSE
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
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.......................... 0 0 0 0
-------------- -------------- ------------- --------------
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-23
<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 22
Subaccounts and invests in corresponding series (the "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 including Phoenix's Savings Investment Plan ("SIP"). The
Subaccount is subdivided into three pools designated "VA1" and "VA2, VA3 & GSE."
VA2, VA3 and GSE contracts include a higher expense risk charge than the VA1
contract. SIP contracts are offered to employees of Phoenix Home Life and do not
incur mortality and expense charges.
Each Series has distinct investment objectives. The Money Market Series seeks
to provide maximum current income consistent with capital preservation and
liquidity. The Growth Series seeks to achieve intermediate and long-term growth
of capital, with income as a secondary consideration. The Multi-Sector Fixed
Income Series seeks to provide long-term total return by investing in a
diversified portfolio of high yield and high quality fixed income securities.
The Strategic Allocation Series seeks 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 by investing in three market segments: stocks, bonds and
money market instruments. The International Series seeks as its investment
objective a high total return consistent with reasonable risk by investing
primarily in an internationally diversified portfolio of equity securities. The
Balanced Series seeks to provide reasonable income, long-term growth and
conservation of capital. The Real Estate Series seeks to achieve capital
appreciation and income with approximately equal emphasis through investments in
real estate investment trusts and companies that operate, manage, develop or
invest in real estate. The Strategic Theme Series seeks long-term appreciation
of capital by investing in securities that the adviser believes are well
positioned to benefit from cultural, demographic, regulatory, social or
technological changes worldwide. The Aberdeen New Asia Series seeks to provide
long-term capital appreciation by investing primarily in diversified equity
securities of issuers organized and principally operating in Asia, excluding
Japan. The Enhanced Index Series seeks 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 Standard &
Poor's 500 Composite Stock Price Index. The Engemann Nifty Fifty Series seeks to
achieve long-term capital appreciation investing in approximately 50 different
securities which offer the potential for long-term growth of capital. The Seneca
Mid-Cap Growth Series seeks capital appreciation primarily through investments
in equity securities of companies that have the potential for above average
market appreciation. The Growth and Income Series seeks as its investment
objective, dividend growth, current income and capital appreciation by investing
in common stocks. The Value Equity Series seeks to achieve long-term capital
appreciation and income by investing in a diversified portfolio of common stocks
which meet certain quantitative standards that indicate above average financial
soundness and intrinsic value relative to price. The Schafer Mid-Cap Series
seeks to achieve long-term capital appreciation with current income as the
secondary investment objective by investing 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. The Wanger U.S. Small Cap Series invests in growth common stock of U.S.
companies with stock market capitalization of less than $1 billion. The Wanger
International Small Cap Series invests in securities of non-U.S. companies with
a stock market capitalization of less than $1 billion. The Templeton Stock
Series is a capital growth common stock fund. The Templeton Asset Allocation
Series invests in stocks and debt obligations of companies and governments and
money market instruments seeking high total return. The Templeton International
Series invests in stocks and debt obligations of companies and governments
outside the United States. The Templeton Developing Markets Series seeks
long-term capital appreciation by investing in equity securities of issuers in
countries having developing markets. The Mutual Shares Investments Series is a
capital appreciation fund with income as a secondary objective. Contract owners
also may direct the allocation of their investments between the Account and the
Guaranteed Interest Account.
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
provisions for related federal taxes is required.
D. DISTRIBUTIONS: Distributions are recorded on the ex-dividend date.
B-24
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 3--PURCHASES AND SALES OF SHARES OF THE FUNDS
Purchases and sales of shares of the Funds for the period ended December 31,
1998 aggregated the following:
<TABLE>
<CAPTION>
VA1 VA2, VA3 & GSE
----------------------------- -----------------------------
SUBACCOUNT PURCHASES SALES PURCHASES SALES
- ---------- --------- ----- --------- -----
<S> <C> <C> <C> <C>
The Phoenix Edge Series Fund:
Money Market................... $ 11,706,247 $ 10,162,777 $ 89,385,894 $ 80,777,639
Growth......................... 5,515,303 13,652,882 63,322,316 194,819,724
Multi-Sector Fixed Income...... 2,916,018 7,252,278 23,450,096 32,767,951
Strategic Allocation........... 6,035,349 9,636,297 32,260,400 53,907,592
International.................. 1,805,196 1,555,305 32,291,138 31,255,510
Balanced....................... 1,079,909 1,373,754 18,055,838 29,218,215
Real Estate.................... 336,454 483,048 6,779,460 15,060,613
Strategic Theme................ 113,922 404,854 10,080,515 10,298,500
Aberdeen New Asia.............. 8,153 27,479 4,945,805 5,614,352
Enhanced Index................. 804,713 96,986 19,217,077 23,384,000
Engemann Nifty Fifty........... 245,787 53,924 6,746,153 2,086,578
Seneca Mid-Cap Growth.......... 104,618 49,448 5,807,640 2,280,710
Growth and Income.............. 661,416 165,504 19,303,837 1,957,937
Value Equity .................. 30,360 130 5,678,058 987,818
Schafer Mid-Cap................ 120,726 25,484 5,309,826 864,716
Wanger Advisors Trust:
Wanger U.S. Small Cap.......... 6,258,385 5,413,179 34,934,083 38,593,168
Wanger International Small Cap. 179,108 724,233 8,120,863 21,021,601
The Templeton Variable Products
Series Fund:
Stock.......................... 67,032 47,764 4,604,662 3,635,304
Asset Allocation............... 14,577 28,127 2,483,146 1,874,366
International.................. 155,171 74,285 7,569,446 6,866,486
Developing Markets............. 20,268 17,615 3,123,459 3,076,233
Mutual Shares Investment....... -- -- 127,225 2,998
</TABLE>
<TABLE>
<CAPTION>
SIP
------------------------
SUBACCOUNT PURCHASES SALES
- ---------- --------- -------
<S> <C> <C>
The Phoenix Edge Series Fund
Enhanced Index................. $ 6,355,088 $1,873,447
</TABLE>
NOTE 4--PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN UNITS)
<TABLE>
<CAPTION>
SUBACCOUNT
--------------------------------------------------------------------------------------
MONEY MULTI-SECTOR STRATEGIC
MARKET GROWTH FIXED INCOME ALLOCATION INTERNATIONAL BALANCED
--------- --------- ------------ ------------ ------------- ----------
VA1
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of period.. 2,264,187 6,272,827 3,556,360 13,378,256 2,998,111 2,885,290
Participant deposits.................... 30,376 57,599 60,764 166,408 57,315 36,504
Participant transfers................... 1,312,370 (44,935) (927,007) (230,545) (38,341) (25,472)
Participant withdrawals................. (761,797) (881,279) (375,459) (1,649,508) (375,900) (308,617)
----------- ----------- ---------- ---------- ----------- -----------
Units outstanding, end of period........ 2,845,136 5,404,212 2,314,658 11,664,611 2,641,185 2,587,705
=========== =========== ========== ========== =========== ===========
VA2, VA3
BIG EDGE PLUS:
Units outstanding, beginning of period.. 30,744,025 92,274,821 28,621,746 62,748,173 73,979,067 108,241,599
Participant deposits.................... 8,190,501 2,464,655 1,298,480 1,485,787 1,989,856 3,085,538
Participant transfers................... 5,711,666 (2,462,014) 113,848 (1,486,637) (1,907,070) 1,049,932
Participant withdrawals................. (11,201,946) (13,087,720) (5,670,940) (9,286,259) (10,543,850) (15,719,284)
----------- ----------- ---------- ---------- ----------- -----------
Units outstanding, end of period........ 33,444,246 79,189,742 24,363,134 53,461,064 63,518,003 96,657,785
=========== =========== ========== ========== =========== ===========
GROUP STRATEGIC EDGE:
Units outstanding, beginning of period.. 1,281,334 4,824,485 979,042 1,658,827 2,724,451 2,493,666
Participant deposits.................... 1,550,422 848,482 310,586 586,984 533,610 957,402
Participant transfers................... 130,972 (54,628) (166,016) (6,831) (50,834) 1,715
Participant withdrawals................. (1,707,050) (1,397,802) (240,726) (339,542) (859,683) (486,950)
----------- ----------- ---------- ---------- ----------- -----------
Units outstanding, end of period........ 1,255,678 4,220,537 882,886 1,899,438 2,347,544 2,965,833
=========== =========== ========== ========== =========== ===========
</TABLE>
B-25
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 4--PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN UNITS) (CONTINUED)
<TABLE>
<CAPTION>
SENECA
STRATEGIC ABERDEEN ENHANCED ENGEMANN MID-CAP
REAL ESTATE THEME NEW ASIA INDEX NIFTY FIFTY GROWTH
----------- --------- --------- ---------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
VA1
Units outstanding, beginning of period.. 405,294 737,262 223,679 599,607 -- --
Participant deposits.................... 5,918 5,929 -- 6,121 2,144 1,088
Participant transfers................... (38,212) (168,268) (27,693) 546,715 168,491 94,592
Participant withdrawals................. (91,164) (96,403) (10,425) (13,403) (17) (52,553)
----------- ----------- ---------- ---------- ----------- -----------
Units outstanding, end of period........ 281,836 478,520 185,561 1,139,040 170,618 43,127
=========== =========== ========== ========== =========== ===========
VA2, VA3
BIG EDGE PLUS:
Units outstanding, beginning of period.. 18,942,144 22,414,634 9,294,722 22,455,395 -- --
Participant deposits.................... 619,920 861,105 403,717 1,298,415 2,379,892 2,320,530
Participant transfers................... (2,967,742) 627,906 (960,934) 10,704,823 2,136,840 1,184,019
Participant withdrawals................. (3,595,455) (3,344,559) (582,592) (17,259,440) (212,996) (85,327)
----------- ----------- ---------- ---------- ----------- -----------
Units outstanding, end of period........ 12,998,867 20,559,086 8,154,913 17,199,193 4,303,736 3,419,222
=========== =========== ========== ========== =========== ===========
GROUP STRATEGIC EDGE:
Units outstanding, beginning of period.. 892,941 612,853 247,552 400,343 -- --
Participant deposits.................... 610,969 489,516 198,274 749,685 55,518 35,224
Participant transfers................... (305,919) (97,818) 31,544 575,136 207,723 96,700
Participant withdrawals................. (169,447) (93,180) (89,489) (275,134) (107,790) (16,148)
----------- ----------- ---------- ---------- ----------- -----------
Units outstanding, end of period........ 1,028,544 911,371 387,881 1,450,030 155,451 115,776
=========== =========== ========== ========== =========== ===========
GROUP STRATEGIC EDGE (SIP):
Units outstanding, beginning of period.. -- -- -- -- -- --
Participant deposits.................... -- -- -- 583,114 -- --
Participant transfers................... -- -- -- -- -- --
Participant withdrawals................. -- -- -- (184,236) -- --
----------- ----------- ---------- ---------- ----------- -----------
Units outstanding, end of period........ -- -- -- 398,878 -- --
=========== =========== ========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
WANGER
GROWTH & VALUE SCHAFER WANGER U.S. INTERNATIONAL TEMPLETON
INCOME EQUITY MID-CAP SMALL CAP SMALL CAP STOCK
----------- ---------- ----------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
VA1
Units outstanding, beginning of period.. -- -- -- 3,346,527 1,629,764 116,076
Participant deposits.................... 93,764 1,932 2,988 67,939 42,553 8,781
Participant transfers................... 506,807 29,116 93,496 816,052 (211,423) (1,477)
Participant withdrawals................. (171,511) (0) (13) (568,746) (140,577) (62)
----------- ----------- ---------- ---------- ----------- -----------
Units outstanding, end of period........ 429,060 31,048 96,471 3,661,772 1,320,317 123,318
=========== =========== ========== ========== =========== ===========
VA2, VA3
BIG EDGE PLUS:
Units outstanding, beginning of period.. -- -- -- 80,202,670 45,612,191 7,540,946
Participant deposits.................... 3,447,726 2,470,453 2,425,855 3,592,207 1,885,533 563,759
Participant transfers................... 13,786,340 1,645,948 2,223,055 2,208,539 (2,993,043) 254,466
Participant withdrawals................. (1,422,744) (263,818) (238,760) (11,607,633) (6,302,464) (1,092,943)
----------- ----------- ---------- ---------- ----------- -----------
Units outstanding, end of period........ 15,811,322 3,852,583 4,410,150 74,395,783 38,202,217 7,266,228
=========== =========== ========== ========== =========== ===========
GROUP STRATEGIC EDGE:
Units outstanding, beginning of period.. -- -- -- 2,866,884 1,705,716 299,731
Participant deposits.................... 502,865 150,148 103,159 1,620,537 643,612 445,554
Participant transfers................... 202,252 712,669 51,848 18,193 (68,602) 12,273
Participant withdrawals................. (120,867) (147) (5,868) (941,858) (367,430) (24,910)
----------- ----------- ---------- ---------- ----------- -----------
Units outstanding, end of period........ 584,250 862,670 149,139 3,563,756 1,913,296 732,648
=========== =========== ========== ========== =========== ===========
</TABLE>
B-26
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 4--PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN UNITS) (CONTINUED)
<TABLE>
<CAPTION>
TEMPLETON MUTUAL
TEMPLETON ASSET TEMPLETON DEVELOPING SHARES
ALLOCATION INTERNATIONAL MARKETS INVESTMENT
---------- ------------- -------- ----------
<S> <C> <C> <C> <C>
VA1
Units outstanding, beginning of period.... 151,781 143,697 718,420 --
Participant deposits...................... 2,721 172 10,698 --
Participant transfers..................... (19,267) 75,509 (12,273) --
Participant withdrawals................... (4,086) (7,966) (5,957) --
--------- ---------- ---------- --------
Units outstanding, end of period.......... 131,149 211,412 710,888 --
========= ========== ========== +=======
VA2, VA3
BIG EDGE PLUS:
Units outstanding, beginning of period.... 4,132,959 6,548,826 3,943,166 --
Participant deposits...................... 417,174 533,360 492,314 1,842
Participant transfers..................... 154,601 403,939 390,164 124,900
Participant withdrawals................... (615,844) (1,032,124) (1,018,882) (2,955)
--------- ---------- ---------- --------
Units outstanding, end of period.......... 4,088,890 6,454,001 3,806,762 123,787
========= ========== ========== ========
GROUP STRATEGIC EDGE:
Units outstanding, beginning of period.... 120,760 358,766 223,545 --
Participant deposits...................... 318,244 411,569 284,454 --
Participant transfers..................... 75,263 (39,039) 66,915 --
Participant withdrawals................... (24,338) (76,333) (134,050) --
--------- ---------- ---------- --------
Units outstanding, end of period.......... 489,929 654,963 440,864 --
========= ========== ========== ========
</TABLE>
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 Subaccounts
designated VA1 in 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 0.60% on an annual basis for expense risks assumed. VA2, VA3
& GSE Subaccounts 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 Subaccount holding the assets of the participant, or on a pro rata basis
from two or more Subaccounts in relation to their values under the contract.
Fees for administrative services provided for the year ended December 31, 1998
aggregated $1,301,911 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 $2,394,498 for the year ended December 31, 1998.
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-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[PricewaterhouseCoopers 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 each of the subaccounts: Money
Market, Growth, Multi-Sector Fixed Income, Strategic Allocation, International,
Balanced, Real Estate, Strategic Theme, Aberdeen New Asia, Enhanced Index,
Engemann Nifty Fifty, Seneca Mid-Cap Growth, Growth and Income, Value Equity,
Schafer Mid-Cap, Wanger U.S. Small Cap, Wanger International Small Cap,
Templeton Stock, Templeton Asset Allocation, Templeton International, Templeton
Developing Markets and Mutual Shares Investments (constituting the Phoenix Home
Life Variable Accumulation Account, hereafter referred to as the "Account") at
December 31, 1998, 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, 1998 by
correspondence with fund custodians or transfer agents, provide a reasonable
basis for the opinion expressed above.
[PricewaterhouseCoopers Signature]
PricewaterhouseCoopers LLP
Hartford, Connecticut
February 17, 1999
B-28
<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.
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust
P.O. Box 351
Boston, Massachusetts 02101
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Financial Plaza
Hartford, Connecticut 06103
B-29
<PAGE>
VERSION A-2
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MULTI-SECTOR
MONEY MARKET GROWTH FIXED INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investments at cost................................................ $ 1,646,955 $ 9,996,753 $ 1,511,524
============ ============ ============
Investment in The Phoenix Edge Series Fund, at market.............. $ 1,646,955 $ 10,618,540 $ 1,471,507
------------ ------------ ------------
Total assets.................................................... 1,646,955 10,618,540 1,471,507
LIABILITIES
Accrued expenses to related party.................................. 1,564 5,448 1,075
------------ ------------ ------------
NET ASSETS............................................................ $ 1,645,391 $ 10,613,092 $ 1,470,432
============ ============ ============
Accumulation units outstanding........................................ 1,607,822 9,415,908 1,577,941
============ ============ ============
Unit value............................................................ $ 1.023366 $ 1.127145 $ 0.931865
============ ============ ============
STRATEGIC
ALLOCATION INTERNATIONAL BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
ASSETS
Investments at cost................................................ $ 1,645,111 $ 1,721,899 $ 1,235,499
============ ============ ============
Investment in The Phoenix Edge Series Fund, at market.............. $ 1,680,576 $ 1,527,717 $ 1,310,067
------------ ------------ ------------
Total assets.................................................... 1,680,576 1,527,717 1,310,067
LIABILITIES
Accrued expenses to related party.................................. 981 761 942
------------ ------------ ------------
NET ASSETS............................................................ $ 1,679,595 $ 1,526,956 $ 1,309,125
============ ============ ============
Accumulation units outstanding........................................ 1,494,785 1,504,222 1,184,769
============ ============ ============
Unit value............................................................ $ 1.123635 $ 1.015117 $ 1.104962
============ ============ ============
ABERDEEN
REAL ESTATE STRATEGIC THEME NEW ASIA
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
ASSETS
Investments at cost................................................ $ 110,028 $ 168,112 $ 19,524
=========== =========== ===========
Investment in The Phoenix Edge Series Fund, at market.............. $ 105,791 $ 200,488 $ 22,408
----------- ----------- -----------
Total assets.................................................... 105,791 200,488 22,408
LIABILITIES
Accrued expenses to related party.................................. 41 188 24
----------- ----------- -----------
NET ASSETS............................................................ $ 105,750 $ 200,300 $ 22,384
=========== =========== ===========
Accumulation units outstanding........................................ 124,594 148,220 19,252
=========== =========== ===========
Unit value............................................................ $ .848760 $ 1.351368 $ 1.162712
=========== =========== ===========
SENECA
ENHANCED ENGEMANN MID-CAP
INDEX NIFTY FIFTY GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
ASSETS
Investments at cost................................................ $ 951,260 $ 237,390 $ 195,124
=========== =========== ===========
Investment in the Phoenix Edge Series Fund, at market.............. $ 1,020,919 $ 292,932 $ 234,934
----------- ----------- -----------
Total assets.................................................... 1,020,919 292,932 234,934
LIABILITIES
Accrued expenses to related party.................................. 1,274 309 234
----------- ----------- -----------
NET ASSETS............................................................ $ 1,019,645 $ 292,623 $ 234,700
=========== =========== ===========
Accumulation units outstanding........................................ 919,987 245,270 203,326
=========== =========== ===========
Unit value............................................................ $ 1.108325 $ 1.193056 $ 1.154307
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
B-30
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
GROWTH SCHAFER
AND INCOME VALUE EQUITY MID-CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investments at cost................................................ $ 846,955 $ 137,093 $ 138,173
=========== =========== ===========
Investment in The Phoenix Edge Series Fund, at market.............. $ 926,641 $ 148,003 $ 143,809
----------- ----------- -----------
Total assets.................................................... 926,641 148,003 143,809
LIABILITIES
Accrued expenses to related party.................................. 859 156 148
----------- ----------- -----------
NET ASSETS............................................................ $ 925,782 $ 147,847 $ 143,661
=========== =========== ===========
Accumulation units outstanding........................................ 824,998 135,795 162,341
=========== =========== ===========
Unit value............................................................ $ 1.122163 $ 1.088751 $ 0.884934
=========== =========== ===========
WANGER WANGER
U.S. INTERNATIONAL TEMPLETON
SMALL CAP SMALL CAP STOCK
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
ASSETS
Investments at cost................................................ $ 1,614,567 $ 380,793 $ 63,238
============ ========== ==========
Investment in Wanger Advisors Trust, at market..................... $ 1,699,348 $ 406,117 $ --
Investment in Templeton Variable Products Series Fund, at market... -- -- 67,084
----------- ---------- -----------
Total assets.................................................... 1,699,348 406,117 67,084
LIABILITIES
Accrued expenses to related party.................................. 1,348 325 76
----------- ---------- -----------
NET ASSETS............................................................ $ 1,698,000 $ 405,792 $ 67,008
============ ========== ==========
Accumulation units outstanding........................................ 1,824,621 381,007 74,558
============ ========== ==========
Unit value............................................................ $ 0.931043 $ 1.064969 $ 0.898644
============ ========== ==========
TEMPLETON
ASSET TEMPLETON
ALLOCATION INTERNATIONAL
SUBACCOUNT SUBACCOUNT
---------- ----------
ASSETS
Investments at cost $ 46,250 $ 161,830
=========== ===========
Investment in Templeton Variable Products Series Fund, at market... $ 48,391 $ 169,841
----------- -----------
Total assets.................................................... 48,391 169,841
LIABILITIES
Accrued expenses to related party.................................. 56 170
----------- -----------
NET ASSETS............................................................ $ 48,335 $ 169,671
=========== ===========
Accumulation units outstanding........................................ 48,239 181,415
=========== ===========
Unit value............................................................ $ 1.002002 $ .935264
=========== ===========
TEMPLETON
DEVELOPING MUTUAL SHARES
MARKETS INVESTMENTS
SUBACCOUNT SUBACCOUNT
---------- ----------
ASSETS
Investments at cost $ 22,456 $ 25,000
=========== ===========
Investment in Templeton Variable Products Series Fund, at market... $ 25,467 $ 25,850
----------- -----------
Total assets.................................................... 25,467 25,850
LIABILITIES
Accrued expenses to related party.................................. 26 16
----------- -----------
NET ASSETS............................................................ $ 25,441 $ 25,834
=========== ===========
Accumulation units outstanding........................................ 21,521 25,000
=========== ===========
Unit value............................................................ $ 1.182161 $ 1.033360
=========== ===========
</TABLE>
See Notes to Financial Statements
B-31
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MULTI-SECTOR
MONEY MARKET GROWTH FIXED INCOME
SUBACCOUNT(2) SUBACCOUNT(2) SUBACCOUNT(3)
------------- ------------- -------------
<S> <C> <C> <C>
Investment income
Distributions.................................................... $ 20,105 $ 90 $ 35,725
Expenses
Mortality and expense risk charges............................... 5,465 12,252 2,781
---------- ---------- ----------
Net investment income (loss)........................................ 14,640 (12,162) 32,944
---------- ---------- ----------
Net realized gain (loss) from share transactions.................... -- (28) 8
Net realized gain distribution from Fund............................ -- 103,882 272
Net unrealized appreciation (depreciation) on investment............ -- 621,787 (40,017)
---------- ---------- ----------
Net gain (loss) on investments...................................... -- 725,641 (39,737)
---------- ---------- ----------
Net increase (decrease) in net assets resulting from operations..... $ 14,640 $ 713,479 $ (6,793)
========== ========== ==========
STRATEGIC
ALLOCATION INTERNATIONAL BALANCED
SUBACCOUNT(5) SUBACCOUNT(9) SUBACCOUNT(6)
------------- ------------- -------------
Investment income
Distributions.................................................... $ 8,283 $ -- $ 8,516
Expenses
Mortality and expense risk charges............................... 2,084 1,699 2,390
---------- ---------- ----------
Net investment income (loss)........................................ 6,199 (1,699) 6,126
---------- ---------- ----------
Net realized gain (loss) from share transactions.................... 17 (66) (25)
Net realized gain distribution from Fund............................ 53,805 241,742 1,090
Net unrealized appreciation (depreciation) on investment............ 35,465 (194,182) 74,568
---------- ---------- ----------
Net gain (loss) on investments...................................... 89,287 47,494 75,633
---------- ---------- ----------
Net increase (decrease) in net assets resulting from operations..... $ 95,486 $ 45,795 $ 81,759
========== ========== ==========
ABERDEEN
REAL ESTATE STRATEGIC THEME NEW ASIA
SUBACCOUNT(7) SUBACCOUNT(8) SUBACCOUNT(8)
------------- ------------- -------------
Investment income
Distributions.................................................... $ 2,891 $ $ 93
--
Expenses
Mortality and expense risk charges............................... 216 633 98
---------- ---------- ----------
Net investment income (loss)........................................ 2,675 (633) (5)
---------- ---------- ----------
Net realized gain (loss) from share transactions.................... (375) (5,033) 42
Net realized gain distribution from Fund............................ 4 10,713 --
Net unrealized appreciation (depreciation) on investment............ (4,237) 32,376 2,884
---------- ---------- ----------
Net gain (loss) on investments...................................... (4,608) 38,056 2,926
---------- ---------- ----------
Net increase (decrease) in net assets resulting from operations..... $ (1,933) $ 37,423 $ 2,921
=========== ========== =========
SENECA
ENHANCED ENGEMANN MID-CAP
INDEX NIFTY FIFTY GROWTH
SUBACCOUNT(1) SUBACCOUNT(4) SUBACCOUNT(4)
------------- ------------- -------------
Investment income
Distributions.................................................... $ 5,699 $ 116 $ 193
Expenses
Mortality and expense risk charges............................... 3,304 1,004 812
---------- ---------- ----------
Net investment income (loss)........................................ 2,395 (888) (619)
---------- ---------- ----------
Net realized gain (loss) from share transactions.................... (996) 30 (19)
Net realized gain (loss) distribution from Fund..................... 40,541 -- --
Net unrealized appreciation (depreciation) on investment............ 69,659 55,542 39,810
---------- ---------- ----------
Net gain (loss) on investments...................................... 109,204 55,572 39,791
---------- ---------- ----------
Net increase (decrease) in net assets resulting from operations..... $ 111,599 $ 54,684 $ 39,172
========== ========== ==========
(1) From inception May 13, 1998 to December 31, 1998 (6) From inception June 3, 1998 to December 31, 1998
(2) From inception May 14, 1998 to December 31, 1998 (7) From inception June 9, 1998 to December 31, 1998
(3) From inception May 15, 1998 to December 31, 1998 (8) From inception June 16, 1998 to December 31, 1998
(4) From inception May 28, 1998 to December 31, 1998 (9) From inception June 17, 1998 to December 31, 1998
(5) From inception June 2, 1998 to December 31, 1998
</TABLE>
See Notes to Financial Statements
B-32
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
GROWTH SCHAFER
AND INCOME VALUE EQUITY MID-CAP
SUBACCOUNT(4) SUBACCOUNT(8) SUBACCOUNT(4)
------------- ------------- -------------
<S> <C> <C> <C>
Investment income
Distributions.................................................... $ 3,095 $ 548 $ 422
Expenses
Mortality and expense risk charges............................... 2,963 484 610
---------- ---------- ----------
Net investment income (loss)........................................ 132 64 (188)
---------- ---------- ----------
Net realized gain (loss) from share transactions.................... 70 212 (4)
Net realized gain distribution from Fund............................ -- -- --
Net unrealized appreciation (depreciation) on investment............ 79,686 10,910 5,636
---------- ---------- ----------
Net gain (loss) on investments...................................... 79,756 11,122 5,632
---------- ---------- ----------
Net increase (decrease) in net assets resulting from operations..... $ 79,888 $ 11,186 $ 5,444
=========== =========== ==========
WANGER WANGER
U.S. INTERNATIONAL TEMPLETON
SMALL CAP SMALL CAP STOCK
SUBACCOUNT(3) SUBACCOUNT(9) SUBACCOUNT(5)
------------- ------------- -------------
Investment income
Distributions.................................................... $ -- $ -- $ --
Expenses
Mortality and expense risk charges............................... 4,490 975 (290)
---------- ---------- ----------
Net investment income (loss)........................................ (4,490) (975) (290)
---------- ---------- ----------
Net realized gain (loss) from share transactions.................... (196) 245 1
Net realized gain distribution from Fund............................ -- -- --
Net unrealized appreciation (depreciation) on investment............ 84,781 25,324 3,846
---------- ---------- ----------
Net gain (loss) on investments...................................... 84,585 25,569 3,847
---------- ---------- ----------
Net increase (decrease) in net assets resulting from operations..... $ 80,095 $ 24,594 $ 3,557
=========== ========== ==========
TEMPLETON
ASSET TEMPLETON
ALLOCATION INTERNATIONAL
SUBACCOUNT(8) SUBACCOUNT(4)
------------- -------------
Investment income
Distributions.................................................... $ -- $ --
Expenses
Mortality and expense risk charges............................... 243 606
---------- ----------
Net investment income (loss)........................................ (243) (606)
---------- ----------
Net realized gain (loss) from share transactions.................... (12) (204)
Net realized gain distribution from Fund............................ -- --
Net unrealized appreciation (depreciation) on investment............ 2,141 8,011
---------- ----------
Net gain (loss) on investments...................................... 2,129 7,807
---------- ----------
Net increase (decrease) in net assets resulting from operations..... $ 1,886 $ 7,201
========== ==========
TEMPLETON
DEVELOPING MUTUAL SHARES
MARKETS INVESTMENTS
SUBACCOUNT(10) SUBACCOUNT(11)
-------------- --------------
Investment income
Distributions.................................................... $ -- $ --
Expenses
Mortality and expense risk charges............................... 84 16
---------- ----------
Net investment income (loss)........................................ (84) (16)
---------- ----------
Net realized gain (loss) from share transactions.................... (24) --
Net realized gain distribution from Fund............................ -- --
Net unrealized appreciation (depreciation) on investment............ 3,011 850
---------- ----------
Net gain (loss) on investments...................................... 2,987 850
---------- ----------
Net increase (decrease) in net assets resulting from operations..... $ 2,903 $ 834
========== ==========
(3) From inception May 15, 1998 to December 31, 1998 (9) From inception June 17, 1998 to December 31, 1998
(4) From inception May 28, 1998 to December 31, 1998 (10) From inception August 18, 1998 to December 31, 1998
(5) From inception June 2, 1998 to December 31, 1998 (11) From inception December 11, 1998 to December 31, 1998
(8) From inception June 16, 1998 to December 31, 1998
</TABLE>
See Notes to Financial Statements
B-33
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MULTI-SECTOR
MONEY MARKET GROWTH FIXED INCOME
SUBACCOUNT(2) SUBACCOUNT(2) SUBACCOUNT(3)
------------- ------------- -------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)..................................... $ 14,640 $ (12,162) $ 32,944
Net realized gain (loss)......................................... -- 103,854 280
Net unrealized appreciation (depreciation)....................... -- 621,787 (40,017)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations.. 14,640 713,479 (6,793)
----------- ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 2,543,980 9,768,376 1,343,432
Participant transfers............................................ (865,293) 190,527 134,447
Participant withdrawals.......................................... (47,936) (59,290) (654)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 1,630,751 9,899,613 1,477,225
----------- ----------- -----------
Net increase (decrease) in net assets............................ 1,645,391 10,613,092 1,470,432
NET ASSETS
Beginning of period.............................................. 0 0 0
----------- ----------- -----------
End of period.................................................... $ 1,645,391 $10,613,092 $ 1,470,432
=========== =========== ===========
STRATEGIC
ALLOCATION INTERNATIONAL BALANCED
SUBACCOUNT(5) SUBACCOUNT(9) SUBACCOUNT(6)
------------- ------------- -------------
FROM OPERATIONS
Net investment income (loss)..................................... $ 6,199 $ (1,699) $ 6,126
Net realized gain (loss)......................................... 53,822 241,676 1,065
Net unrealized appreciation (depreciation)....................... 35,465 (194,182) 74,568
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations.. 95,486 45,795 81,759
----------- ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 1,500,673 1,468,191 1,184,410
Participant transfers............................................ 84,868 19,076 60,238
Participant withdrawals.......................................... (1,432) (6,106) (17,282)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 1,584,109 1,481,161 1,227,366
----------- ----------- -----------
Net increase (decrease) in net assets............................ 1,679,595 1,526,956 1,309,125
NET ASSETS
Beginning of period.............................................. 0 0 0
----------- ----------- -----------
End of period.................................................... $ 1,679,595 $ 1,526,956 $ 1,309,125
=========== =========== ===========
ABERDEEN
REAL ESTATE STRATEGIC THEME NEW ASIA
SUBACCOUNT(7) SUBACCOUNT(8) SUBACCOUNT(8)
------------- ------------- -------------
FROM OPERATIONS
Net investment income (loss)..................................... $ 2,675 $ (633) $ (5)
Net realized gain (loss)......................................... (371) 5,680 42
Net unrealized appreciation (depreciation)....................... (4,237) 32,376 2,884
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations.. (1,933) 37,423 2,921
----------- ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 103,404 182,463 20,743
Participant transfers............................................ 4,323 (19,017) 250
Participant withdrawals.......................................... (44) (569) (1,530)
Net increase (decrease) in net assets resulting from participant ----------- ----------- -----------
transactions.................................................. 107,683 162,877 19,463
----------- ----------- -----------
Net increase (decrease) in net assets............................ 105,750 200,300 22,384
NET ASSETS
Beginning of period.............................................. 0 0 0
----------- ----------- -----------
End of period.................................................... $ 105,750 $ 200,300 $ 22,384
=========== =========== ===========
(2) From inception May 14, 1998 to December 31, 1998 (7) From inception June 9, 1998 to December 31, 1998
(3) From inception May 15, 1998 to December 31, 1998 (8) From inception June 16, 1998 to December 31, 1998
(5) From inception June 2, 1998 to December 31, 1998 (9) From inception June 17, 1998 to December 31, 1998
(6) From inception June 3, 1998 to December 31, 1998
</TABLE>
See Notes to Financial Statements
B-34
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
SENECA
ENHANCED ENGEMANN MID-CAP
INDEX NIFTY FIFTY GROWTH
SUBACCOUNT(1) SUBACCOUNT(4) SUBACCOUNT(4)
------------- ------------- -------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)..................................... $ 2,395 $ (888) $ (619)
Net realized gain (loss)......................................... 39,545 30 (19)
Net unrealized appreciation (depreciation)....................... 69,659 55,542 39,810
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations.. 111,599 54,684 39,172
----------- ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 862,473 237,816 188,189
Participant transfers............................................ 74,779 6,755 12,830
Participant withdrawals.......................................... (29,206) (6,632) (5,491)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 908,046 237,939 195,528
----------- ----------- -----------
Net increase (decrease) in net assets............................ 1,019,645 292,623 234,700
NET ASSETS
Beginning of period.............................................. 0 0 0
----------- ----------- -----------
End of period.................................................... $ 1,019,645 $ 292,623 $ 234,700
=========== =========== ===========
GROWTH SCHAFER
AND INCOME VALUE EQUITY MID-CAP
SUBACCOUNT(4) SUBACCOUNT(8) SUBACCOUNT(4)
------------- ------------- -------------
FROM OPERATIONS
Net investment income (loss)..................................... $ 132 $ 64 $ (188)
Net realized gain (loss)......................................... 70 212 (4)
Net unrealized appreciation (depreciation)....................... 79,686 10,910 5,636
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations.. 79,888 11,186 5,444
----------- ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 745,117 133,027 122,222
Participant transfers............................................ 120,825 10,661 17,285
Participant withdrawals.......................................... (20,048) (7,027) (1,290)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 845,894 136,661 138,217
----------- ----------- -----------
Net increase (decrease) in net assets............................ 925,782 147,847 143,661
NET ASSETS
Beginning of period.............................................. 0 0 0
----------- ----------- -----------
End of period.................................................... $ 925,782 $ 147,847 $ 143,661
=========== =========== ===========
WANGER WANGER
U.S. INTERNATIONAL TEMPLETON
SMALL CAP SMALL CAP STOCK
SUBACCOUNT(3) SUBACCOUNT(9) SUBACCOUNT(5)
------------- ------------- -------------
FROM OPERATIONS
Net investment income (loss)..................................... $ (4,490) $ (975) $ (290)
Net realized gain (loss)......................................... (196) 245 1
Net unrealized appreciation (depreciation)....................... 84,781 25,324 3,846
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations.. 80,095 24,594 3,557
----------- ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 1,570,924 363,290 56,849
Participant transfers............................................ 60,617 26,170 12,674
Participant withdrawals.......................................... (13,636) (8,262) (6,072)
Net increase (decrease) in net assets resulting from participant ----------- ----------- -----------
transactions.................................................. 1,617,905 381,198 63,451
----------- ----------- -----------
Net increase in (decrease) net assets............................ 1,698,000 405,792 67,008
NET ASSETS
Beginning of period.............................................. 0 0 0
----------- ----------- -----------
End of period.................................................... $ 1,698,000 $ 405,792 $ 67,008
=========== =========== ===========
(1) From inception May 13, 1998 to December 31, 1998 (5) From inception June 2, 1998 to December 31, 1998
(3) From inception May 15, 1998 to December 31, 1998 (8) From inception June 16, 1998 to December 31, 1998
(4) From inception May 28, 1998 to December 31, 1998 (9) From inception June 17, 1998 to December 31, 1998
</TABLE>
See Notes to Financial Statements
B-35
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
TEMPLETON
ASSET TEMPLETON
ALLOCATION INTERNATIONAL
SUBACCOUNT(8) SUBACCOUNT(4)
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss)..................................... $ (243) $ (606)
Net realized gain (loss)......................................... (12) (204)
Net unrealized appreciation (depreciation)....................... 2,141 8,011
----------- -----------
Net increase (decrease) in net assets resulting from operations.. 1,886 7,201
----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 39,635 151,455
Participant transfers............................................ 7,203 14,400
Participant withdrawals.......................................... (389) (3,385)
----------- -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 46,449 162,470
----------- -----------
Net increase in (decrease) net assets............................ 48,335 169,671
NET ASSETS
Beginning of period.............................................. 0 0
----------- -----------
End of period.................................................... $ 48,335 $ 169,671
=========== ===========
TEMPLETON
DEVELOPING MUTUAL SHARES
MARKETS INVESTMENTS
SUBACCOUNT(10) SUBACCOUNT(11)
-------------- --------------
FROM OPERATIONS
Net investment income (loss)..................................... $ (84) $ (16)
Net realized gain (loss)......................................... (24) --
Net unrealized appreciation (depreciation)....................... 3,011 850
----------- -----------
Net increase (decrease) in net assets resulting from operations.. 2,903 834
----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 24,013 25,000
Participant transfers............................................ 1,201 --
Participant withdrawals.......................................... (2,676) --
----------- -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 22,538 25,000
----------- -----------
Net increase in (decrease) net assets............................ 25,441 25,834
NET ASSETS
Beginning of period.............................................. 0 0
----------- -----------
End of period.................................................... $ 25,441 $ 25,834
=========== ===========
(4) From inception May 28, 1998 to December 31, 1998 (10) From inception August 18, 1998 to December 31, 1998
(8) From inception June 16, 1998 to December 31, 1998 (11) From inception December 11, 1998 to December 31, 1998
</TABLE>
See Notes to Financial Statements
B-36
<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 registered as a unit investment trust under the Investment
Company Act of 1940, as amended. The Account was established June 21, 1982 and
currently consists of 22 Subaccounts, that invest in a corresponding series (the
"Series"), of The Phoenix Edge Series Fund, Wanger Advisors Trust and the
Templeton Variable Products Series Fund (the "Funds").
Each Series has distinct investment objectives. The Money Market Series seeks
to provide maximum current income consistent with capital preservation and
liquidity. The Growth Series seeks to achieve intermediate and long-term growth
of capital, with income as a secondary consideration. The Multi-Sector Fixed
Income Series seeks to provide long-term total return by investing in a
diversified portfolio of high yield and high quality fixed income securities.
The Strategic Allocation Series seeks 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 by investing in three market segments: stocks, bonds and
money market instruments. The International Series seeks as its investment
objective a high total return consistent with reasonable risk by investing
primarily in an internationally diversified portfolio of equity securities. The
Balanced Series seeks to provide reasonable income, long-term growth and
conservation of capital. The Real Estate Series seeks to achieve capital
appreciation and income with approximately equal emphasis through investments in
real estate investment trusts and companies that operate, manage, develop or
invest in real estate. The Strategic Theme Series seeks long-term appreciation
of capital by investing in securities that the adviser believes are well
positioned to benefit from cultural, demographic, regulatory, social or
technological changes worldwide. The Aberdeen New Asia Series seeks to provide
long-term capital appreciation by investing primarily in diversified equity
securities of issuers organized and principally operating in Asia, excluding
Japan. The Enhanced Index Series seeks 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 Standard &
Poor's 500 Composite Stock Price Index. The Engemann Nifty Fifty Series seeks to
achieve long-term capital appreciation investing in approximately 50 different
securities which offer the potential for long-term growth of capital. The Seneca
Mid-Cap Growth Series seeks capital appreciation primarily through investments
in equity securities of companies that have the potential for above average
market appreciation. The Growth and Income Series seeks as its investment
objective, dividend growth, current income and capital appreciation by investing
in common stocks. The Value Equity Series seeks to achieve long-term capital
appreciation and income by investing in a diversified portfolio of common stocks
which meet certain quantitative standards that indicate above average financial
soundness and intrinsic value relative to price. The Schafer Mid-Cap Series
seeks to achieve long-term capital appreciation with current income as the
secondary investment objective by investing 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. The Wanger U.S. Small Cap Series invests in growth common stock of U.S.
companies with stock market capitalization of less than $1 billion. The Wanger
International Small Cap Series invests in securities of non-U.S. companies with
a stock market capitalization of less than $1 billion. The Templeton Stock
Series is a capital growth common stock fund. The Templeton Asset Allocation
Series invests in stocks and debt obligations of companies and governments and
money market instruments seeking high total return. The Templeton International
Series invests in stocks and debt obligations of companies and governments
outside the United States. The Templeton Developing Markets Series seeks
long-term capital appreciation by investing in equity securities of issuers in
countries having developing markets. The Mutual Shares Investments Series is a
capital appreciation fund with income as a secondary objective. Additionally,
policyowners also may direct the allocation of their investments between the
Account and the Guaranteed Interest Account of the general account of Phoenix.
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.
B-37
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 3--PURCHASES AND SALES OF SHARES OF THE FUNDS
Purchases and sales of shares of the Funds for the period ended December 31,
1998 aggregated the following:
<TABLE>
<CAPTION>
SUBACCOUNT PURCHASES SALES
- ---------- --------- -----
<S> <C> <C>
The Phoenix Edge Series Fund:
Money Market................................................................... $ 2,479,887 $832,932
Growth......................................................................... 10,017,536 20,755
Multi-Sector Fixed Income...................................................... 1,518,727 7,211
Strategic Allocation........................................................... 1,646,510 1,416
International.................................................................. 1,726,627 4,662
Balanced....................................................................... 1,250,690 15,166
Real Estate.................................................................... 117,903 7,500
Strategic Theme................................................................ 205,920 32,775
Aberdeen New Asia.............................................................. 21,239 1,757
Enhanced Index................................................................. 990,252 37,996
Engemann Nifty Fifty........................................................... 245,801 8,441
Seneca Mid-Cap Growth.......................................................... 200,902 5,759
Growth and Income.............................................................. 867,487 20,602
Value Equity .................................................................. 147,276 10,395
Schafer Mid-Cap................................................................ 138,624 447
Wanger Advisors Trust:
U.S. Small Cap................................................................. 1,653,845 39,082
International Small Cap........................................................ 403,372 22,824
The Templeton Variable Products Series Fund:
Stock ......................................................................... 69,471 6,234
Asset Allocation............................................................... 46,838 576
International ................................................................. 176,260 14,226
Developing Markets ............................................................ 25,203 2,723
Mutual Shares Investments ..................................................... 25,000 --
</TABLE>
NOTE 4--PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN UNITS)
<TABLE>
<CAPTION>
SUBACCOUNT
--------------------------------------------------------------------------------------
MONEY MULTI-SECTOR STRATEGIC
MARKET GROWTH FIXED INCOME ALLOCATION INTERNATIONAL BALANCED
------ ------ ------------ ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of period 0 0 0 0 0 0
Participant deposits................. 2,504,771 9,247,699 1,419,852 1,414,097 1,490,191 1,145,069
Participant transfers................ (849,619) 184,474 162,939 82,089 19,663 55,730
Participant withdrawals.............. (47,330) (16,265) (4,850) (1,401) (5,632) (16,030)
--------- --------- --------- --------- --------- ---------
Units outstanding, end of period..... 1,607,822 9,415,908 1,577,941 1,494,785 1,504,222 1,184,769
========= ========= ========= ========= ========= =========
SENECA
REAL STRATEGIC ABERDEEN ENHANCED ENGEMANN MID-CAP
ESTATE THEME NEW ASIA INDEX NIFTY FIFTY GROWTH
------ ----- -------- ----- ----------- ------
Units outstanding, beginning of period 0 0 0 0 0 0
Participant deposits................. 119,599 170,400 20,350 879,569 244,619 194,781
Participant transfers................ 5,044 (21,648) 242 71,903 6,800 13,847
Participant withdrawals.............. (49) (532) (1,340) (31,485) (6,149) (5,302)
--------- --------- --------- --------- --------- ---------
Units outstanding, end of period..... 124,594 148,220 19,252 919,987 245,270 203,326
========= ========= ========= ========= ========= =========
WANGER WANGER
GROWTH AND VALUE SCHAFER U.S. INTERNATIONAL TEMPLETON
INCOME EQUITY MID-CAP SMALL CAP SMALL CAP STOCK
------ ------ ------- --------- --------- -----
Units outstanding, beginning of period 0 0 0 0 0 0
Participant deposits................. 727,478 131,100 142,370 1,774,179 363,235 66,799
Participant transfers................ 116,877 11,402 21,532 65,217 25,800 13,980
Participant withdrawals.............. (19,357) (6,707) (1,561) (14,775) (8,028) (6,221)
--------- --------- --------- --------- --------- ---------
Units outstanding, end of period..... 824,998 135,795 162,341 1,824,621 381,007 74,558
========= ========= ========= ========= ========= =========
TEMPLETON TEMPLETON MUTUAL
ASSET TEMPLETON DEVELOPING SHARES
ALLOCATION INTERNATIONAL MARKETS INVESTMENTS
---------- ------------- ------- -----------
Units outstanding, beginning of period 0 0 0 0
Participant deposits................. 40,941 168,795 22,807 25,000
Participant transfers................ 7,750 16,356 1,047 --
Participant withdrawals.............. (452) (3,736) (2,333) --
--------- --------- --------- ---------
Units outstanding, end of period..... 48,239 181,415 21,521 25,000
========= ========= ========= =========
</TABLE>
B-38
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 5--INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
Phoenix and its indirect affiliate, Phoenix Equity Planning Corporation, a
registered broker/dealer in securities, provide all services to the Account.
As compensation for administrative services provided to the Account, Phoenix
additionally receives $35 per year from each contract, which is deducted from
the Subaccount holding the assets of the participant, or on a pro-rata basis
from two or more Subaccounts in relation to their values under the contract.
Such costs aggregated $35 during the period ended December 31, 1998.
Phoenix Equity Planning Corporation is the principal underwriter and
distributor for the Account. Phoenix Equity Planning Corporation is reimbursed
for its distribution and underwriting expenses by Phoenix.
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 proceeds and are paid to Phoenix as reimbursement for services provided.
Contingent deferred sales charges deducted and paid to Phoenix aggregated $34
for the period ended December 31, 1998.
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 return for the
assumption of these mortality and expense risks, Phoenix charges each Subaccount
the daily equivalent of 0.40%, 0.85% and 0.125% on an annual basis for
mortality, expense risks and daily administrative fees, respectively.
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 universal life contract, other than a contract issued in
connection with certain types of employee benefit plans, will not be treated as
a universal life 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 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-39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[PricewaterhouseCoopers 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 each of the subaccounts: Money
Market, Growth, Multi-Sector Fixed Income, Strategic Allocation, International,
Balanced, Real Estate, Strategic Theme, Aberdeen New Asia, Enhanced Index,
Engemann Nifty Fifty, Seneca Mid-Cap Growth, Growth and Income, Value Equity,
Schafer Mid-Cap, Wanger U.S. Small Cap, Wanger International Small Cap,
Templeton Stock, Templeton Asset Allocation, Templeton International, Templeton
Developing Markets and Mutual Shares Investments (constituting the Phoenix Home
Life Variable Accumulation Account, hereafter referred to as the "Account") at
December 31, 1998, and the results of each of their operations and the changes
in each of their net assets for the period then ended, 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 audit. We conducted our audit
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
audit, which included confirmation of investments at December 31, 1998 by
correspondence with fund custodians or transfer agents, provides a reasonable
basis for the opinion expressed above.
/S/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
February 17, 1999
B-40
<PAGE>
PHOENIX HOME LIFE
VARIABLE UNIVERSAL LIFE 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.
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust
P.O. Box 351
Boston, Massachusetts 02101
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Financial Plaza
Hartford, Connecticut 06103
B-41
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
B-42
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants...........................................B-44
Consolidated Balance Sheet at December 31, 1998 and 1997....................B-45
Consolidated Statement of Income, Comprehensive Income and Equity
for the Years Ended December 31, 1998, 1997 and 1996 ......................B-46
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996...........................................B-47
Notes to Consolidated Financial Statements ............................B-48-B-79
B-43
<PAGE>
[PRICEWATERHOUSECOOPERS logo and address]
REPORT OF INDEPENDENT ACCOUNTANTS
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, comprehensive 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,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, 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.
As indicated in Note 19, the company has revised the accounting for leveraged
leases.
/s/ PricewaterhouseCoopers LLP
February 11, 1999, except as to Note 20, which is as of April 27, 1999
B-44
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Held-to-maturity debt securities, at amortized cost $ 1,881,687 $ 1,554,905
Available-for-sale debt securities, at fair value 6,693,540 5,659,061
Equity securities, at fair value 304,545 335,888
Mortgage loans 797,343 927,501
Real estate 91,975 321,757
Policy loans 2,008,260 1,986,728
Other invested assets 377,326 319,088
Short-term investments 240,911 1,078,276
----------- -----------
Total investments 12,395,587 12,183,204
Cash and cash equivalents 132,634 159,307
Accrued investment income 173,312 149,566
Deferred policy acquisition costs 1,076,635 1,038,407
Premiums, accounts and notes receivable 120,928 99,468
Reinsurance recoverables 96,676 66,649
Property and equipment, net 153,425 156,190
Goodwill and other intangible assets, net 527,029 541,499
Other assets 46,060 61,087
Separate account assets 4,798,949 4,082,255
----------- -----------
Total assets $19,521,235 $18,537,632
=========== ===========
LIABILITIES
Policy liabilities and accruals $11,810,202 $11,334,014
Securities sold subject to repurchase agreements 137,473
Notes payable 449,252 471,085
Deferred income taxes 111,912 150,440
Other liabilities 555,352 585,467
Separate account liabilities 4,798,949 4,082,255
----------- -----------
Total liabilities 17,725,667 16,760,734
----------- -----------
Contingent liabilities (Note 17)
MINORITY INTEREST IN NET ASSETS
OF CONSOLIDATED SUBSIDIARIES
91,884 136,514
----------- -----------
EQUITY
Retained earnings 1,609,393 1,484,620
Accumulated other comprehensive income 94,291 155,764
----------- -----------
Total equity 1,703,684 1,640,384
----------- -----------
Total liabilities and equity $19,521,235 $18,537,632
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
B-45
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME, COMPREHENSIVE INCOME AND EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premiums $1,852,801 $1,640,606 $1,518,822
Insurance and investment product fees 619,476 468,030 421,058
Net investment income 898,884 771,346 711,595
Net realized investment gains 63,562 111,465 77,422
---------- ---------- ----------
Total revenues 3,434,723 2,991,447 2,728,897
---------- ---------- ----------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses 1,930,384 1,633,633 1,529,573
Policyholder dividends 351,805 343,725 311,739
Policy acquisition expenses 290,585 192,886 172,379
Amortization of goodwill and other intangible assets 29,248 16,393 15,610
Interest expense 29,889 28,147 17,570
Other operating expenses 592,420 542,897 489,203
---------- ---------- ----------
Total benefits, losses and expenses 3,224,331 2,757,681 2,536,074
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 210,392 233,766 192,823
Income taxes 75,152 58,177 80,683
---------- ---------- ----------
INCOME BEFORE MINORITY INTEREST 135,240 175,589 112,140
Minority interest in net income of consolidated subsidiaries 10,467 8,882 8,902
---------- ---------- ----------
NET INCOME 124,773 166,707 103,238
---------- ---------- ----------
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES
Unrealized (losses) gains on securities (46,967) 98,287 42,493
Reclassification adjustment for net realized gains
included in net income (12,980) (30,213) (28,580)
Minimum pension liability adjustment (1,526) (2,101) 1,241
---------- ---------- ----------
Total other comprehensive income (loss) (61,473) 65,973 15,154
---------- ---------- ----------
COMPREHENSIVE INCOME 63,300 232,680 118,392
---------- ---------- ----------
EQUITY, BEGINNING OF YEAR - RESTATED (NOTE 19) 1,640,384 1,407,704 1,289,312
---------- ---------- ----------
EQUITY, END OF YEAR $1,703,684 $1,640,384 $1,407,704
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
B-46
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 124,773 $ 166,707 $ 103,238
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATIONS
Net realized investment gains (63,562) (111,465) (77,422)
Amortization and depreciation 60,580 90,565 64,870
Equity in undistributed earnings of affiliates and partnerships (25,110) (34,057) (22,037)
Deferred income taxes (benefit) (9,274) 3,663 16,126
(Increase) decrease in receivables (75,233) (49,172) 5,955
Increase in deferred policy acquisition costs (31,534) (48,860) (61,985)
Increase in policy liabilities and accruals 487,312 512,476 559,724
Increase (decrease) in other assets/other liabilities, net 53,194 44,269 (66,337)
Other, net 3,412 5,417 (320)
--------- ---------- ----------
Net cash provided by operating activities 524,558 579,543 521,812
--------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sales, maturities or repayments
of available-for-sale debt securities 1,446,990 1,187,943 1,348,809
Proceeds from maturities or repayments of held-to-maturity
debt securities 306,183 217,302 118,596
Proceeds from disposals of equity securities 45,204 51,373 382,359
Proceeds from mortgage loan maturities or repayments 200,419 164,213 151,760
Proceeds from sale of real estate and other invested assets 458,467 218,874 127,440
Purchase of available-for-sale debt securities (2,568,971) (1,689,479) (1,909,086)
Purchase of held-to-maturity debt securities (631,974) (225,722) (385,321)
Purchase of equity securities (86,472) (88,573) (215,104)
Purchase of subsidiaries (6,647) (246,400)
Purchase of mortgage loans (75,974) (140,831) (200,683)
Purchase of real estate and other invested assets (201,424) (90,593) (157,077)
Change in short-term investments, net 837,365 58,384 110,503
Increase in policy loans (21,532) (59,699) (49,912)
Capital expenditures (23,935) (41,504) (3,543)
Other investing activities, net (6,540) (1,750) (5,898)
--------- ---------- ----------
Net cash used for investing activities (328,841) (686,462) (687,157)
--------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Withdrawals of contractholder deposit funds,
net of deposits and interest credited (11,124) (17,902) (6,301)
(Repayment of)/proceeds from securities sold
subject to repurchase agreements (137,472) 137,472
Proceeds from borrowings 136 215,359 226,082
Repayment of borrowings (63,328) (234,703) (2,400)
Dividends paid to minority shareholders in consolidated subsidiaries (4,938) (6,895) (6,245)
Other financing activities (5,664)
--------- ---------- ----------
Net cash provided by (used for) financing activities (222,390) 93,331 211,136
--------- ---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (26,673) (13,588) 45,791
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 159,307 172,895 127,104
--------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 132,634 $ 159,307 $ 172,895
========= ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net $ 44,508 $ 76,167 $ 76,157
Interest paid on indebtedness $ 32,834 $ 32,300 $ 19,214
</TABLE>
The accompanying notes are an integral part of these statements.
B-47
<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 and insurance
agency and brokerage operations, primarily based in the United States. These
products and services are distributed among five reportable segments:
Individual Insurance, Life Reinsurance, Group Life and Health Insurance,
Securities Management and All Other. 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 significant influence over operating and financial policies and
generally at least a 20% ownership interest 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.
Amounts for 1997 and 1996 have been retroactively restated to account for
income from leveraged lease investments (see Note 19). Certain
reclassifications have been made to the 1997 and 1996 amounts to conform
with the 1998 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 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 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-48
<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.
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. These earnings or losses are
included in investment income. Prior to 1998, for venture capital
partnerships, this activity was reflected in capital gains and losses. Such
earnings and losses included in prior year financial statements have been
reclassified to reflect this change.
Beginning in 1998, leveraged lease investments represent the net of the
estimated residual value of the lease assets, rental receivables, and
unearned and deferred income to be allocated over the lease term. Investment
income is calculated using the interest method and is recognized only in
periods in which the net investment is positive. Prior to 1998, leveraged
lease investments were carried at cost adjusted for Phoenix's equity in
undistributed earnings or losses since acquisition, less allowances for
other than temporary declines in value. Prior years have been restated to
reflect these changes (see Note 19).
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 component of 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, off-balance sheet
financial instruments such as investment and loan commitments, financial
guarantees, interest rate swaps and interest rate floors. These instruments
have credit risk and also may be subject to risk of loss due to interest
rate and market fluctuations.
Phoenix also uses interest rate swaps and futures contracts as hedges for
asset/liability management of fixed income investments and certain
liabilities. Realized gains and losses on these contracts are deferred and
amortized over the life of the hedged asset or liability.
Phoenix enters into interest rate floor contracts to hedge against
significant declines in interest rates by locking in a minimum interest rate
amount that will be received on future reinvestments in terms of an
underlying treasury yield. Phoenix does not enter into interest rate floor
contracts for trading purposes. The excess of a predetermined (strike) rate
over a reference (index) rate is recognized in investment income when
received or paid.
B-49
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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.
B-50
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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 1998 and prior
years. Entities included within the consolidated group are segregated into
either a life insurance or nonlife insurance company subgroup. The
consolidation of these subgroups is subject to certain statutory
restrictions in the percentage of eligible nonlife 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.
RECENT ACCOUNTING PRONOUNCEMENTS
Phoenix adopted Statement of Financial Accounting Standard (SFAS) No. 130,
"Reporting Comprehensive Income," as of January 1, 1998. This statement
establishes standards for the reporting and display of comprehensive income
and its components in a full set of financial statements. This statement
defines the components of comprehensive income as those items that were
previously reported only as components of equity and were excluded from net
income.
In 1998, Phoenix adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a
B-51
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Business Enterprise," replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of Phoenix's reportable segments. The
adoption of this statement did not affect the results of operations or
financial position but did affect the disclosure of segment information.
In 1998, Phoenix adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which amends SFAS No. 87,
"Employers' Accounting for Pensions," No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." The new statement revises and
standardizes employers' disclosures about pension and other postretirement
benefit plans. Adoption of this statement did not affect the results of
operations or financial position of the company.
On June 15, 1998, The Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, effective for all years beginning after June 15, 1999, requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designed as part of a hedge transaction and, if it
is, the type of hedge transaction. Management anticipates that, due to its
limited use of derivative instruments, the adoption of this statement will
not have a significant effect on Phoenix's results of operations or its
financial position.
3. SIGNIFICANT TRANSACTIONS
DIVIDEND SCALE REDUCTION
Due to the decline of interest rates in the financial markets to historic
lows and the strong likelihood that such levels will be sustained, Phoenix
carefully reviewed and considered a change in its dividend scale. As a
result, in October 1998, Phoenix's Board of Directors voted to adopt a
reduced dividend scale, effective for dividends payable on or after January
1, 1999. Dividends for individual participating policies are being reduced
60 basis points in most cases, an average reduction of approximately 8%. The
effect was a decrease of approximately $15.7 million in the policyholder
dividends expense in 1998.
REAL ESTATE SALES
On December 15, 1998, Phoenix sold 47 commercial real estate properties with
a carrying value of $269.8 million, and 4 joint venture real estate
partnerships with a carrying value of $10.5 million, for approximately $309
million in cash. This transaction, along with the sale of 18 other
properties and partnerships during the year, which had a carrying value of
$36.7 million, resulted in after-tax gains of approximately $49.6 million.
As of December 31,1998, Phoenix has 7 commercial real estate properties
remaining with a carrying value of $55.7 million and 10 joint venture real
estate partnerships with a carrying value of $36.3 million.
PHOENIX INVESTMENT PARTNERS, LTD.
On December 3, 1998, Phoenix Investment Partners completed the sale of its
49% interest in Canadian investment firm Beutel, Goodman & Company, Ltd. for
$47 million. Phoenix Investment Partners received $37 million in cash and a
$10 million three-year interest bearing note. The transaction resulted in a
before-tax gain of approximately $17.5 million. Phoenix's interest
represents an after-tax realized gain of approximately $6.8 million.
B-52
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On September 3, 1997, Phoenix Investment Partners acquired Pasadena Capital
Corporation, the parent company of Roger Engemann & Associates, Inc. for
approximately $214 million. Pasadena Capital managed over $7 billion in
assets at December 31, 1998, primarily individual accounts.
On July 17, 1997, Phoenix Investment Partners acquired a majority interest
in GMG/Seneca Capital Management LLC, renamed Seneca Capital Management, for
approximately $37.5 million. Seneca Capital Management managed $6 billion in
assets at December 31, 1998.
The purchase price for Pasadena Capital and Seneca Capital Management
represented the consideration paid and the direct costs incurred by Phoenix
Investment Partners to purchase Pasadena Capital and a majority interest in
Seneca Capital Management. The excess of the purchase price over the fair
value of the acquired net tangible assets of these companies totaled
approximately $212.8 million. Of this excess purchase price, $110.2 million
was classified as identifiable intangible assets, primarily associated with
investment management contracts, which are being amortized over their
estimated average useful life of 13 years using the straight line method.
The remaining excess purchase price of $142.5 million was classified as
goodwill and is being amortized over 40 years using the straight line
method.
Phoenix owns approximately 60% of the outstanding Phoenix Investment
Partners' common stock. In addition, Phoenix owns 45% of Phoenix Investment
Partners' convertible subordinated debentures.
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 $141.3 million difference, which does not exceed the
estimated present value of future profits of the acquired business, was
recorded as deferred acquisition costs.
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 notes
payable in the Consolidated Balance Sheet.
The notes were issued in accordance with Section 1307 (Contingent Liability
for Borrowings) 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 (Private Resales of Securities
to Institutions) 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
As of December 31, 1998, PM Holdings owned 10% of the outstanding common
stock of Aberdeen Asset Management, a Scottish asset management firm. The
investment is reported on the equity basis and classified as other invested
assets in the Consolidated Balance Sheet.
B-53
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 10% of Aberdeen Asset Management's then
outstanding common stock. The note is also classified as other invested
assets 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 Investment Partners and
Aberdeen Asset Management, develops and markets investment products in the
United States and the United Kingdom.
4. INVESTMENTS
Information pertaining to Phoenix's investments, net investment income and
realized and unrealized investment gains and losses follows:
DEBT AND EQUITY SECURITIES
The amortized cost and fair value of investments in debt and equity
securities as of December 31, 1998 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 $ 10,562 $ 643 $ (78) $ 11,127
Foreign government bonds 3,036 (743) 2,293
Corporate securities 1,695,789 98,896 (13,823) 1,780,862
Mortgage-backed securities 172,300 6,201 (12) 178,489
---------- ---------- ----------- ----------
Total 1,881,687 105,740 (14,656) 1,972,771
---------- ---------- ----------- ----------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 497,089 34,454 (422) 531,121
State and political subdivision bonds 529,977 43,622 (104) 573,495
Foreign government bonds 293,968 28,814 (18,691) 304,091
Corporate securities 1,993,720 110,525 (36,656) 2,067,589
Mortgage-backed securities 3,121,690 110,172 (14,618) 3,217,244
---------- ---------- ----------- ----------
Total 6,436,444 327,587 (70,491) 6,693,540
---------- ---------- ----------- ----------
TOTAL DEBT SECURITIES $8,318,131 $ 433,327 $ (85,147) $8,666,311
---------- ---------- ----------- ----------
EQUITY SECURITIES $ 223,915 $ 102,018 $ (21,388) $ 304,545
========== ========== =========== ==========
</TABLE>
B-54
<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, 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 $ 158,217 $ 190,669 $ (12,998) $ 335,888
========== ========= ========== ==========
</TABLE>
The amortized cost and fair value of debt securities, by contractual sinking
fund payment and maturity, as of December 31, 1998 are shown below. Actual
maturity may differ from contractual maturity 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 $ 75,505 $ 66,367 $ 58,513 $ 59,953
Due after one year through five years 512,131 535,084 460,182 481,790
Due after five years through ten years 672,533 710,988 948,676 983,590
Due after ten years 449,218 481,843 1,847,383 1,950,963
Mortgage-backed securities 172,300 178,489 3,121,690 3,217,244
----------- ----------- ----------- -----------
Total $ 1,881,687 $ 1,972,771 $ 6,436,444 $ 6,693,540
=========== =========== =========== ===========
</TABLE>
B-55
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Carrying values for investments in mortgage-backed securities, excluding
U.S. government guaranteed investments, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Planned amortization class $ 433,668 $ 554,425
Asset-backed 910,594 594,128
Mezzanine 280,162 328,539
Commercial 641,485 556,155
Sequential pay 982,576 680,397
Pass through 119,065 132,522
Other 21,994 56,393
---------- ----------
Total mortgage-backed securities $3,389,544 $2,902,559
========== ==========
</TABLE>
B-56
<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,
1998 1997 1998 1997
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
PROPERTY TYPE:
Office buildings $221,244 $246,500 $ 38,343 $180,743
Retail 203,927 231,886 36,858 108,907
Apartment buildings 261,894 303,990 21,553 20,560
Industrial buildings 121,789 162,008 1,600 39,810
Other 19,089 18,917 32 238
Valuation allowances (30,600) (35,800) (6,411) (28,501)
-------- -------- -------- --------
Total $797,343 $927,501 $ 91,975 $321,757
======== ======== ======== ========
GEOGRAPHIC REGION:
Northeast $169,368 $222,975 $ 47,709 $ 92,513
Southeast 213,916 257,376 32 85,781
North central 176,683 189,163 11,453 63,751
South central 98,956 79,092 22,649 58,954
West 169,020 214,695 16,543 49,259
Valuation allowances (30,600) (35,800) (6,411) (28,501)
-------- -------- -------- --------
Total $797,343 $927,501 $ 91,975 $321,757
======== ======== ======== ========
</TABLE>
At December 31, 1998, scheduled mortgage loan maturities were as follows:
1999--$99 million; 2000--$81 million; 2001--$87 million; 2002--$29 million;
2003--$107 million; and $394 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 $2.3 million and $8.6 million of its mortgage
loans during 1998 and 1997, respectively, based on terms which differed from
those granted to new borrowers.
B-57
<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>
1998
Mortgage loans $ 35,800 $ 50,603 $(55,803) $30,600
Real estate 28,501 5,108 (27,198) 6,411
-------- -------- -------- -------
Total $ 64,301 $ 55,711 $(83,001) $37,011
======== ======== ======== =======
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>
NONINCOME-PRODUCING MORTGAGE LOANS AND BONDS
The net carrying values of nonincome-producing mortgage loans were $15.6
million and $7.0 million at December 31, 1998 and 1997, respectively. The
net carrying value of nonincome-producing bonds was $22.3 million at
December 31, 1998. There were no nonincome-producing bonds at December 31,
1997.
INTEREST RATE SWAPS AND INTEREST RATE FLOORS
The notional amounts of Phoenix's interest rate swaps were $416.0 million
and $272.9 million at December 31, 1998 and 1997, respectively. Weighted
average received and paid rates were 6.24% and 5.79%, for 1998. The increase
in net investment income related to interest rate swap contracts was $1.9
million and $.7 million for the years ended December 31, 1998 and 1997,
respectively. The fair value of these interest rate swap agreements as of
December 31, 1998 and 1997 were $11.0 million and $9.4 million,
respectively. 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.
During 1998, Phoenix entered into several interest rate floor contracts. The
notional amount of Phoenix's interest rate floor contracts was $570.0
million at December 31, 1998. The weighted average strike rate was 4.59% for
1998. The excess of the strike rates over the index rates (5- and 10-year
constant maturity treasury yields) was not significant. The fair value of
these interest rate floors at December 31, 1998 was $1.4 million. These
contracts do not require payment of notional principal.
Management of Phoenix considers the likelihood of any material loss on these
guarantees or interest rate swaps or floors to be remote.
B-58
<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,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Venture capital equity partnerships $140,591 $ 88,228
Transportation and equipment leases 80,953 78,024
Affordable housing partnerships 10,854
Investment in Aberdeen Asset Management 72,257 70,317
Investment in Beutel, Goodman & Co. Ltd. 31,214
Investment in other affiliates 23,387 5,453
Seed money in separate accounts 26,587 41,297
Other partnership interests 22,697 4,555
-------- --------
Total other invested assets $377,326 $319,088
======== ========
</TABLE>
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31, were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $598,892 $509,702 $469,713
Equity securities 6,469 4,277 4,689
Mortgage loans 83,101 85,662 84,318
Policy loans 146,477 122,562 117,742
Real estate 38,338 18,939 21,799
Leveraged leases 2,746 2,692 3,286
Other invested assets 22,364 31,365 18,751
Short-term investments 23,825 18,768 18,688
-------- -------- --------
Sub-total 922,212 793,967 738,986
Less investment expenses 23,328 22,621 27,391
-------- -------- --------
Net investment income $898,884 $771,346 $711,595
======== ======== ========
</TABLE>
Investment income of $8.4 million was not accrued on certain delinquent
mortgage loans and defaulted bonds at December 31, 1998. 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 $40.8 million and $51.3 million at December 31,
1998 and 1997, respectively. Interest income on restructured
B-59
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
mortgage loans that would have been recorded in accordance with the original
terms of such loans amounted to $4.9 million, $5.3 million and $3.1 million
in 1998, 1997 and 1996, respectively. Actual interest income on these loans
included in net investment income was $4.0 million, $3.8 million and $5.2
million in 1998, 1997 and 1996, respectively.
INVESTMENT GAINS AND LOSSES
Net unrealized gains and (losses) on securities available-for-sale and
carried at fair value for the year ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ (7,040) $112,194 $(70,986)
Equity securities (91,880) 74,547 40,803
Deferred policy acquisition costs 6,694 (80,603) 51,528
Deferred income taxes (32,279) 38,064 7,432
-------- -------- --------
Net unrealized investment (losses) gains
on securities available-for-sale $(59,947) $ 68,074 $ 13,913
======== ======== ========
</TABLE>
Realized investment gains and losses for the year ended December 31, were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $(4,295) $ 19,315 $(10,476)
Equity securities 11,939 26,290 59,794
Mortgage loans (6,895) 3,805 2,628
Real estate 67,522 44,668 24,711
Other invested assets (4,709) 17,387 765
-------- -------- --------
Net realized investment gains $ 63,562 $111,465 $ 77,422
======== ======== ========
</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>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from disposals $912,696 $821,339 $1,118,594
Gross gains on sales $ 17,442 $ 27,954 $ 12,547
Gross losses on sales $ 33,641 $ 5,309 $ 25,575
</TABLE>
B-60
<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:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Phoenix Investment Partners' gross amounts:
Goodwill $321,793 $321,932
Investment management contracts 169,006 167,788
Noncompete covenant 5,000 5,000
Other 472 1,220
-------- --------
Totals 496,271 495,940
-------- --------
Other gross amounts:
Goodwill 79,217 65,585
Client listings 48,111 45,441
Intangible asset related to pension plan benefits 16,229 18,032
Other 1,690 279
-------- --------
Totals 145,247 129,337
-------- --------
Total gross goodwill and other intangible assets 641,518 625,277
Accumulated amortization - Phoenix Investment Partners (49,615) (27,579)
Accumulated amortization - other (64,874) (56,199)
-------- --------
Total net goodwill and other intangible assets $527,029 $541,499
======== ========
</TABLE>
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, Comprehensive Income and Equity.
B-61
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Short-term debt $ 20,463 $ 15,539
Bank borrowings 205,778 263,732
Notes payable 5,438 14,632
Subordinated debentures 41,359
Surplus notes 175,000 175,000
Secured debt 1,214 2,182
-------- --------
Total notes payable $449,252 $471,085
======== ========
</TABLE>
Phoenix has various lines of credit established with major commercial banks.
As of December 31, 1998, Phoenix had outstanding balances totaling $219.7
million. The total unused credit was $190.7 million. Interest rates ranged
from 5.24% to 7.98% in 1998.
Maturities of other indebtedness are as follows: 1999--$20.5 million;
2000--$38.3 million; 2001--$29.2 million; 2002--$318.3 million; 2003--$1.1
million; 2004 and thereafter--$41.9 million.
Interest expense was $29.9 million, $32.5 million and $18.0 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
7. INCOME TAXES
A summary of income taxes (benefits) applicable to income before income
taxes and minority interest for the year ended December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes
Current $80,322 $54,514 $59,673
Deferred (5,170) 3,663 21,010
------- ------- -------
Total $75,152 $58,177 $80,683
======= ======= =======
</TABLE>
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
B-62
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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>
1998 1997 1996
% % %
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory rate $73,637 35 $81,818 35 $67,488 35
Dividend received deduction and
tax-exempt interest (3,691) (1) (2,513) (1) (2,107) (1)
Other, net 5,206 2 (8,017) (4) 2,736 1
------- -- ------- -- ------ --
75,152 36 71,288 30 68,117 35
Differential earnings (equity tax) (13,111) (5) 12,566 7
------- -- ------- -- ------ --
Income taxes $75,152 36 $58,177 25 $80,683 42
======= == ======= == ======= ==
</TABLE>
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,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Deferred policy acquisition costs $ 301,337 $ 303,500
Unearned premium/deferred revenue (148,112) (139,817)
Impairment reserves (23,393) (26,102)
Pension and other postretirement benefits (59,164) (56,643)
Investments 105,395 83,821
Future policyholder benefits (141,130) (140,980)
Other 28,730 45,053
---------- ----------
63,663 68,832
Net unrealized investment gains 51,597 84,134
Minimum pension liability (3,348) (2,526)
---------- ----------
Deferred income tax liability, net $ 111,912 $ 150,440
========== ==========
</TABLE>
Gross deferred income tax assets totaled $375 million and $366 million at
December 31, 1998 and 1997, respectively. Gross deferred income tax
liabilities totaled $487 million and $516 million at December 31, 1998 and
1997, 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, 1998 and 1997 will be
realized.
The Internal Revenue Service is currently examining Phoenix's tax returns
for 1995 through 1997. Management does not believe that there will be a
material adverse effect on the financial statements as a result of pending
tax matters.
B-63
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
PENSION PLANS
Phoenix has a multi-employer, noncontributory, 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 nonqualified supplemental defined benefit plan to provide
benefits in excess of amounts allowed pursuant to the 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 years ended December 31,
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 11,046 $ 10,278 $ 10,076
Interest cost 22,958 22,650 22,661
Expected return on plan assets (25,083) (22,055) (20,847)
Amortization of net transition asset (2,369) (2,369) (2,468)
Amortization of prior service cost 1,795 1,795 (22)
Amortization of net (gain) loss (1,247) 25 1,867
-------- -------- --------
Net periodic benefit cost $ 7,100 $ 10,324 $ 11,267
======== ======== ========
</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-64
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The aggregate change in projected benefit obligation, change in plan assets,
and funded status of the plan were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation at beginning of year $ 335,436 $ 301,245
Service cost 11,046 10,278
Interest cost 22,958 22,650
Plan amendments 171
Actuarial loss 1,958 18,644
Benefit payments (17,936) (17,552)
--------- ---------
Benefit obligation at end of year $ 353,462 $ 335,436
========= =========
Change in plan assets
Fair value of plan assets at beginning of year $ 321,555 $ 283,245
Actual return on plan assets 58,225 53,093
Employer contributions 2,975 2,769
Benefit payments (17,936) (17,552)
--------- ---------
Fair value of plan assets at end of year $ 364,819 $ 321,555
========= =========
Funded status of the plan $ 11,357 $ (13,881)
Unrecognized net transition asset (14,217) (16,586)
Unrecognized prior service cost 16,185 17,980
Unrecognized net gain (75,921) (45,986)
--------- ---------
Net amount recognized $ (62,596) $ (58,473)
========= =========
Amounts recognized in the Consolidated Balance
Sheet consist of:
Accrued benefit liability $ (88,391) $ (83,724)
Intangible asset 16,229 18,032
Accumulated other comprehensive income 9,566 7,219
--------- ---------
$ (62,596) $ (58,473)
========= =========
</TABLE>
At December 31, 1998 and 1997, the nonqualified plan was unfunded and had
projected benefit obligations of $57.2 million and $50.4 million,
respectively. The accumulated benefit obligations as of December 31, 1998
and 1997 related to this plan were $48.4 million and $42.8 million,
respectively, and are included in other liabilities.
B-65
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Phoenix recorded, as a reduction of equity, an additional minimum pension
liability of $6.2 million and $4.7 million, net of income taxes, at December
31, 1998 and 1997, respectively, representing the excess of accumulated
benefit obligations over the fair value of plan assets and accrued pension
liabilities for the nonqualified plan. Phoenix has also recorded an
intangible asset of $16.2 million and $18.0 million as of December 31, 1998
and 1997 related to the nonqualified 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 1998 and 1997. The discount rate assumption for 1998
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% in 1998 and 1997.
The pension plan's assets include corporate and government debt securities,
equity securities, real estate, venture capital partnerships, 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, 1998, 1997 and 1996 were $4.1 million, $3.8 million
and $4.2 million, respectively.
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 components of net periodic postretirement benefit cost for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $3,436 $3,136 $2,765
Interest cost 4,572 4,441 4,547
Amortization of net gain (1,232) (1,527) (1,576)
------ ------ ------
Net periodic benefit cost $6,776 $6,050 $5,736
====== ====== ======
</TABLE>
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.
B-66
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The plan's change in projected benefit obligation, change in plan assets,
and funded status were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Change in projected postretirement benefit obligation
Projected benefit obligation at beginning of year $ 66,618 $ 63,656
Service cost 3,436 3,136
Interest cost 4,572 4,441
Actuarial (gain) loss 397 (518)
Benefit payments (4,080) (4,098)
-------- --------
Projected benefit obligation at end of year $ 70,943 $ 66,617
-------- --------
Change in plan assets
Employer contributions $ 4,080 $ 4,098
Benefit payments (4,080) (4,098)
-------- --------
Fair value of plan assets at end of year $ $
-------- --------
Funded status of the plan $(70,943) $(66,617)
Unrecognized net gain (26,408) (28,037)
-------- --------
Accrued benefit liability $(97,351) $(94,654)
======== ========
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.0% at December 31, 1998 and 1997.
B-67
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For purposes of measuring the accumulated postretirement benefit obligation
the 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. Based on this assumption the health care costs were
assumed to increase 8.5% in 1998.
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 $4.6 million and the annual service and
interest cost by $.7 million, before taxes. Decreasing the assumed health
care cost trend rates by one percentage point in each year would decrease
the accumulated postretirement benefit obligation by $4.3 million and the
annual service and interest cost by $.6 million, before taxes. Gains and
losses that occur because actual experience differs from the estimates are
amortized over the average future service period of employees.
OTHER POSTEMPLOYMENT BENEFITS
Phoenix recognizes the costs and obligations of severance, disability and
related life insurance and health care benefits to be paid to inactive or
former employees after employment but before retirement. Other
postemployment benefit expense was ($.5) million for 1998, $.4 million for
1997 and $.4 million for 1996.
B-68
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. COMPREHENSIVE INCOME
The components of, and related tax effects for, other comprehensive income
for the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Before-tax amount $(72,255) $151,210 $ 65,374
Tax expense (benefit) (25,288) 52,923 22,881
-------- -------- --------
Totals (46,967) 98,287 42,493
-------- -------- --------
RECLASSIFICATION ADJUSTMENT FOR NET GAINS
REALIZED IN NET INCOME:
Before-tax amount (19,970) (46,481) (43,969)
Tax (benefit) (6,990) (16,268) (15,389)
-------- -------- --------
Totals (12,980) (30,213) (28,580)
-------- -------- --------
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Before-tax amount (92,225) 104,729 21,405
Tax expense (benefit) (32,278) 36,655 7,492
-------- -------- --------
Totals $(59,947) $ 68,074 $ 13,913
-------- -------- --------
MINIMUM PENSION LIABILITY ADJUSTMENT:
Before-tax amount $ (2,347) $ (3,232) $ 1,910
Tax expense (benefit) (821) (1,131) 669
-------- -------- --------
Totals $ (1,526) $ (2,101) $ 1,241
======== ======== ========
</TABLE>
B-69
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes accumulated other comprehensive income for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Balance, beginning of year $160,457 $ 92,383 $ 78,470
Change during period (59,947) 68,074 13,913
-------- -------- --------
Balance, end of year 100,510 160,457 92,383
-------- -------- --------
MINIMUM PENSION LIABILITY ADJUSTMENT:
Balance, beginning of year (4,693) (2,592) (3,833)
Change during period (1,526) (2,101) 1,241
-------- -------- --------
Balance, end of year (6,219) (4,693) (2,592)
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance, beginning of year 155,764 89,791 74,637
Change during period (61,473) 65,973 15,154
-------- -------- --------
Balance, end of year $ 94,291 $155,764 $ 89,791
======== ======== ========
</TABLE>
10. SEGMENT INFORMATION
Phoenix is organized by lines of business that include similar product
groupings. Lines of businesses have been grouped into the following
reportable segments: Individual Insurance, Life Reinsurance, Group Life and
Health Insurance and Securities Management. The category "Individual
Insurance" aggregates the Individual Traditional, Universal Life, Variable
Universal Life and Variable Annuity lines of business. The category "All
Other" includes the combined financial results of segments that individually
are below the quantitative thresholds. Those segments include General Lines
Brokerage and several small individual insurance lines. In addition, the
category "All Other" contains unallocated investment income, unallocated
expenses and realized investment gains related to capital in excess of
segment requirements, as well as certain assets such as equity securities
and venture capital. Phoenix calculates taxes at a flat rate of 35% on the
operating income of its insurance line segments and therefore, does not
allocate permanent tax differences to these segments. Also, Phoenix does not
allocate unusual or extraordinary items to its segments.
B-70
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes significant financial amounts by reportable
segment:
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED
DECEMBER 31, 1998 GROUP LIFE
(IN MILLIONS) INDIVIDUAL LIFE & HEALTH SECURITIES ALL
INSURANCE REINSURANCE INSURANCE MANAGEMENT OTHER TOTALS
---------- ----------- ---------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external sources $ 1,354 $ 64 $440 $214 $400 $ 2,472
Intersegment revenues 18 41 59
Net investment income 708 19 45 2 75 849
Interest expense 15 1 16
Policyholder dividends 344 344
Increase in DAC (9) (5) (5) (19)
Depreciation and amortization expense 4 1 26 14 45
Other noncash items:
Increase in policy liabilities and accruals 596 38 16 36 686
Minority interest in operating income 14 5 19
Segment operating income (a) $ 50 $ 12 $ 26 $ 23 $ 1 $ 112
======= ==== ==== ==== ==== =======
Deferred policy acquisition costs $ 1,035 $ 27 $ 18 $ 1,080
Total segment assets $16,177 $398 $701 $557 $938 $18,771
======= ==== ==== ==== ==== =======
AT AND FOR THE YEAR ENDED
DECEMBER 31, 1997 GROUP LIFE
(IN MILLIONS) INDIVIDUAL LIFE & HEALTH SECURITIES ALL
INSURANCE REINSURANCE INSURANCE MANAGEMENT OTHER TOTALS
---------- ----------- ---------- ---------- ----- ------
Revenues from external sources $ 1,200 $ 57 $428 $124 $ 298 $ 2,107
Intersegment revenues 16 30 46
Net investment income 586 19 42 2 101 750
Interest expense 4 1 5
Policyholder dividends 328 328
Increase in DAC (32) (5) (13) (50)
Depreciation and amortization expense 3 1 12 36 52
Other noncash items:
Increase in policy liabilities and accruals 508 3 24 50 585
Minority interest in operating income 12 2 14
Segment operating income (a) $ 59 $ 10 $ 33 $ 16 $ (17) $ 101
======= ==== ==== ==== ==== =======
Deferred policy acquisition costs $ 1,014 $ 22 $ 6 $ 1,042
Total segment assets $14,946 $318 $656 $615 $1,101 $17,636
======= ==== ==== ==== ====== =======
</TABLE>
(a) Before income taxes and after policyholder dividends on Individual
Insurance.
B-71
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED
DECEMBER 31, 1996 GROUP LIFE
(IN MILLIONS) INDIVIDUAL LIFE & HEALTH SECURITIES ALL
INSURANCE REINSURANCE INSURANCE MANAGEMENT OTHER TOTALS
---------- ----------- ---------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external sources $ 1,111 $121 $415 $153 $ 140 $ 1,940
Intersegment revenues 14 33 47
Net investment income 562 16 37 2 91 708
Interest expense 3 2 5
Policyholder dividends 297 297
Increase in DAC (39) (2) (20) (61)
Depreciation and amortization expense 3 1 11 11 26
Other noncash items:
Increase in policy liabilities and
accruals 465 8 40 49 562
Minority interest in operating income 17 (3) 14
Segment operating income (a) $ 59 $ 9 $ 12 $ 28 $ (9) $ 99
======= ==== ==== ==== ====== =======
Deferred policy acquisition costs $ 905 $ 18 $ 21 $ 944
Total segment assets $12,302 $304 $597 $366 $ 965 $14,534
======= ==== ==== ==== ====== =======
</TABLE>
(a) Before income taxes and after policyholder dividends on Individual
Insurance.
B-72
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEGMENT RECONCILIATION
The following is a reconciliation of the totals of reportable segment
revenues, operating income and assets to Phoenix's consolidated totals:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Total revenues for reportable segments $ 3,380 $ 2,903 $ 2,695
Realized investment gains 64 111 77
Unallocated net investment income 50 24 4
Elimination of intersegment revenues (59) (47) (47)
------- ------- -------
Total consolidated revenues $ 3,435 $ 2,991 $ 2,729
======= ======= =======
OPERATING INCOME
Total operating income for reportable segments $ 112 $ 101 $ 99
Realized investment gains 64 111 77
Unallocated amounts:
Net investment income 50 22 4
Interest expense (14) (23) (13)
Other unallocated amounts (14) 9 9
Reclassification of minority interest 12 14 17
------- ------- -------
Total consolidated operating income $ 210 $ 234 $ 193
======= ======= =======
ASSETS
Total assets for reportable segments $18,771 $17,636 $14,534
Unallocated amounts:
Investments and accrued investment income
attributable to unallocated capital 725 846 859
Goodwill and other intangible assets 15 21 20
Other unallocated amounts 10 35 41
------- ------- -------
Total consolidated assets $19,521 $18,538 $15,454
======= ======= =======
</TABLE>
11. 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 $106.7 million and $109.0 million,
respectively, at December 31, 1998 and 1997. 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 $173.5 million and
$164.4 million at December 31, 1998 and 1997, respectively.
Rental expenses for operating leases, principally with respect to buildings,
amounted to $14.5 million, $14.9 million and $14.8 million in 1998, 1997,
and 1996, respectively. Future minimum rental payments under noncancelable
operating leases were approximately $45.3 million as of December 31, 1998,
payable as follows: 1999--$14.8 million; 2000--$12.0 million; 2001--$7.9
million; 2002--$5.8 million; 2003--$3.2 million; and $1.6 million
thereafter.
B-73
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. DIRECT BUSINESS WRITTEN AND REINSURANCE
As is customary practice in the insurance industry, Phoenix assumes and
cedes reinsurance as a means of diversifying underwriting risk. For direct
issues, the maximum of individual life insurance retained by Phoenix on any
one life is $8 million for single life and joint first-to-die policies and
to $10 million for joint last-to-die policies, with excess amounts ceded to
reinsurers. Phoenix reinsures 80% of the mortality risk on the inforce block
of the Confederation Life business acquired on December 31, 1997, and 90% of
the mortality risk on certain new issues of term and universal life
products. In addition, Phoenix entered into a separate reinsurance agreement
on October 1, 1998 to reinsure 80% of the mortality risk on a substantial
portion of its otherwise retained individual life insurance business.
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>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $ 1,719,393 $ 1,592,800 $ 1,473,869
Reinsurance assumed 505,262 329,927 276,630
Reinsurance ceded (371,854) (282,121) (231,677)
------------ ------------ ------------
Net premiums $ 1,852,801 $ 1,640,606 $ 1,518,822
============ ============ ============
Direct policy and contract claims incurred $ 728,062 $ 626,834 $ 575,824
Reinsurance assumed 433,242 410,704 170,058
Reinsurance ceded (407,780) (373,127) (160,646)
------------ ------------ ------------
Net policy and contract claims incurred $ 753,524 $ 664,411 $ 585,236
============ ============ ============
Direct life insurance in force $121,442,041 $ 120,394,664 $108,816,856
Reinsurance assumed 110,632,110 84,806,585 61,109,836
Reinsurance ceded (135,817,986) (74,764,639) (51,525,976)
------------ ------------ ------------
Net insurance in force $ 96,256,165 $130,436,610 $118,400,716
============ ============ ============
</TABLE>
Irrevocable letters of credit aggregating $5.3 million at December 31, 1998
have been arranged with United States commercial banks in favor of Phoenix
to collateralize the ceded reserves.
13. PARTICIPATING LIFE INSURANCE
Participating life insurance in force was 72.3% and 79.6% of the face value
of total individual life insurance in force at December 31, 1998 and 1997,
respectively. The premiums on participating life insurance policies were
75.7%, 83.5% and 84.1% of total individual life insurance premiums in 1998,
1997 and 1996, respectively.
B-74
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred and
amortized for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $1,038,407 $ 926,274 $ 816,128
Acquisition cost deferred 171,618 295,189 153,873
Amortized to expense during the year (140,084) (105,071) (95,255)
Adjustment to net unrealized investment
gains (losses) included in other
comprehensive income 6,694 (77,985) 51,528
---------- ---------- ---------
Balance at end of year $1,076,635 $1,038,407 $ 926,274
========== ========== =========
</TABLE>
15. MINORITY INTEREST
Phoenix's interests in Phoenix Investment Partners and American Phoenix
Corporation, through its wholly-owned subsidiary PM Holdings, are
represented by ownership of approximately 60% and 85%, respectively, of the
outstanding shares of common stock at December 31, 1998. Earnings and equity
attributable to minority shareholders are included in minority interest in
the consolidated financial statements.
16. 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.
B-75
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 130 and 800 basis points, depending on
the internal quality rating of the loan. For loans in foreclosure or
default, values were determined assuming principal recovery was the lower of
the loan balance or the estimated value of the underlying property.
POLICY LOANS
Fair values are estimated as the present value of loan interest and policy
loan repayments discounted at the ten-year Treasury rate. Loan repayments
were assumed only to occur as a result of anticipated policy lapses, and it
was assumed that annual policy loan interest payments were made at the
guaranteed loan rate less 17.5 basis points. Discounting was at the ten-year
Treasury rate, except for policy loans with a variable policy loan rate.
Variable policy loans have an interest rate that is reset annually based
upon market rates and therefore, book value is a reasonable approximation of
fair value.
INVESTMENT CONTRACTS
In determining the fair value of guaranteed interest contracts, a discount
rate equal to the appropriate Treasury rate, plus 150 basis points, was
assumed to determine the present value of projected contractual liability
payments through final maturity.
The fair value of deferred annuities and supplementary contracts without
life contingencies with an interest guarantee of one year or less is valued
at the amount of the policy reserve. In determining the fair value of
deferred annuities and supplementary contracts without life contingencies
with interest guarantees greater than one year, a discount rate equal to the
appropriate Treasury rate, plus 150 basis points, was used to determine the
present value of the projected account value of the policy at the end of the
current guarantee period.
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.
B-76
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FAIR VALUE SUMMARY
The estimated fair values of the financial instruments as of December 31,
were as follows:
<TABLE>
<CAPTION>
1998 1997
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 132,634 $ 132,634 $ 159,307 $ 159,307
Short-term investments 240,911 240,911 1,078,276 1,078,276
Debt securities 8,575,227 8,666,311 7,213,966 7,316,601
Equity securities 304,545 304,545 335,888 335,888
Mortgage loans 797,343 831,919 927,501 956,041
Policy loans 2,008,260 2,122,389 1,986,728 2,104,704
----------- ----------- ----------- -----------
Total financial assets $12,058,920 $12,298,709 $11,701,666 $11,950,817
=========== =========== =========== ===========
Financial liabilities:
Policy liabilities $ 783,400 $ 783,400 $ 902,200 $ 902,200
Securities sold subject to repurchase
agreements 137,473 137,473
Notes payable 449,252 449,252 471,085 471,085
----------- ----------- ----------- -----------
Total financial liabilities $ 1,232,652 $ 1,232,652 $ 1,510,758 $ 1,510,758
=========== =========== =========== ===========
</TABLE>
17. CONTINGENCIES
FINANCIAL GUARANTEES
As a result of the sale of real estate properties, in December 1998, Phoenix
is no longer 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 principal amount of bonds guaranteed
by Phoenix at December 31, 1997 was $88.7 million.
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. Phoenix estimates the
cost of settlement to be $40 million after tax. A $25 million after tax
liability was recorded in 1995. In addition, $7 million after tax was
expensed in 1996. The after tax costs of $12.5 million for 1997 and $6.7
million for 1998 were directly offset by a release of the liability in those
years. 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.
B-77
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, 1998, 1997 and 1996, there
were no material practices not prescribed by the Insurance Department of the
State of New York. Statutory surplus differs from 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 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>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income $108,652 $ 66,599 $ 70,261
Deferred policy acquisition costs, net 18,538 48,821 58,618
Future policy benefits (53,847) (9,145) (16,793)
Pension and postretirement expenses (17,334) (7,955) (23,275)
Investment valuation allowances 94,873 84,975 81,841
Interest maintenance reserve 1,415 17,544 (5,158)
Deferred income taxes (39,983) (36,250) (67,064)
Other, net 12,459 2,118 4,808
-------- -------- --------
Net income, as reported $124,773 $166,707 $103,238
======== ======== ========
</TABLE>
The following reconciles the statutory surplus and asset valuation reserve
(AVR) of Phoenix as reported to regulatory authorities to equity as reported
in these financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Statutory surplus, surplus notes and AVR $1,205,635 $1,152,820
Deferred policy acquisition costs, net 1,259,316 1,227,782
Future policy benefits (465,268) (395,436)
Pension and postretirement expenses (174,273) (169,383)
Investment valuation allowances 2,002 (27,738)
Interest maintenance reserve 35,303 33,794
Deferred income taxes (25,593) (12,051)
Surplus notes (157,500) (157,500)
Other, net 24,062 (11,904)
---------- ----------
Equity, as reported $1,703,684 $1,640,384
========== ==========
</TABLE>
B-78
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
19. PRIOR PERIOD ADJUSTMENT
In 1998, Phoenix revised the accounting for partnerships involved in
leveraged lease arrangements for 1997 and 1996. Opening retained earnings at
December 31, 1995 has been increased by $7.7 million. The Consolidated
Balance Sheet as of December 31, 1997 was revised by increasing the
following balances: other invested assets by $18.9 million, deferred income
taxes by $6.6 million and retained earnings by $12.3 million. The effect on
the Consolidated Statement of Income, Comprehensive Income and Equity was an
increase in net income of $2.1 million and $2.5 million for the years ended
1997 and 1996, respectively.
20. SUBSEQUENT EVENTS
PHOENIX INVESTMENT PARTNERS, LTD.
On March 2, 1999, Phoenix Investment Partners completed its acquisition of
the retail mutual fund and closed-end fund business of the New York City
based Zweig Group. Under the terms of the agreement, Phoenix Investment
Partners paid $135.0 million at closing and will pay up to an additional
$29.0 million over the next three years based on revenue growth of the Zweig
funds. The acquisition increases Phoenix Investment Partners' assets under
management by approximately $4.4 billion.
OCCUPATIONAL ACCIDENT REINSURANCE
Effective March 1, 1995, Phoenix became a participant in an occupational
accident reinsurance pool. In addition, effective October 1, 1996, Phoenix
and American Phoenix Life and Reassurance Company, an indirect wholly owned
subsidiary of Phoenix, became a participant in a reinsurance facility of
occupational accident reinsurance. A significant portion of the risk
associated with the occupational accident reinsurance pool and the
reinsurance facility is further retroceded by Phoenix and American Phoenix
Life to several other unaffiliated insurance entities. Phoenix has
terminated membership in the pool effective March 1, 1999 while American
Phoenix Life and Phoenix terminated participation in the reinsurance
facility effective October 1, 1998.
Management's assessment of the reinsurance arrangements and related
financial exposure to Phoenix and American Phoenix Life is ongoing. Based on
current facts and circumstances, management believes these transactions will
not materially affect the financial condition of Phoenix or American Phoenix
Life.
B-79
<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 DEFERRED 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, 1999, which is available
without charge by contacting Phoenix at the above address or toll-free at
800/541-0171.
May 1, 1999
------------------
TABLE OF CONTENTS
PAGE
Underwriter............................................................ 2
Calculation of Yield and Return ....................................... 2
Calculation of Annuity Payments ....................................... 3
Year 2000 Issue........................................................ 4
Experts ............................................................... 4
Financial Statements................................................... 5
1
<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 in 1996
and until May 1, 1997, FTD was paid and retained the following amounts:
PAID RETAINED
---- --------
1996 $1,255,102 $125,510
1997 $ 893,202 $ 51,024
For sales of Contracts from May 1, 1997 and 1998, W.S. Griffith & Co. was
paid $258,190 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 7-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, excluding the maximum annual and daily administrative fees.
Example:
The following is an example of this yield calculation for the Subaccount
based on a 7-day period ending December 31, 1998.
Assumptions:
Value of a hypothetical pre-existing account with exactly one
unit at the beginning of the period ............ 1.332697
Value of the same account (excluding capital changes) at the
end of the seven-day period .................... 1.333545
Calculation:
Ending account value ........................... 1.333545
Less beginning account value ................... 1.332697
Net change in account value .................... 0.000848
Base period return:
(adjusted change/beginning account value)....... 0.000636
Current yield = return x (365/7) =.............. 3.32%
Effective yield = [(1 + return) x (365/7)]-1 = ... 3.37%
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 and is computed by
finding the average annual compounded rates of return over the 1-, 5- and
10-year periods that would equate the initial amount invested to the ending
redeemable value according to a formula. The formula for total return used
herein includes four steps: (1) assuming a hypothetical $1,000 initial
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 recurring fees and 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, sale 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, 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 as 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
2
<PAGE>
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.
The total return and yield may also be used to compare the performance of
the Subaccounts against certain widely acknowledged outside standards or indices
for stock and bond market performance. 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 NYSE, 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 NYSE.
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 automatically
will be applied to provide a Variable Payment Life Annuity with 10-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 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 10-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 10-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 2040 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 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.
3
<PAGE>
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 payments
may be made with respect to any assets held under Variable Payment Options I and
J. Although no transfers or additional payments may be made with respect to
assets held under Option K, under this option partial or full surrenders may be
made.
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, along with the dollar value of any
investment in the GIA. 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. An interest rate of 3 3/8 % for 5- and
10-year certain periods under Option A; an interest rate of 3 1/4% for the
20-year certain period under Options A and F; and an interest rate of 3 1/2%
under Options B and D. Under Options G and H, the guaranteed interest rate is
3%. 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:
[diamond] upgrading systems with compliant versions;
[diamond] developing or acquiring new systems to replace those that are
obsolete;
[diamond] and remediating existing systems by converting code or hardware.
Based on current assessments, we expect to have our computer systems
remediated and tested by June 1999. In addition, we are examining the status of
our 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 PricewaterhouseCoopers 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. PricewaterhouseCoopers 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.
4
<PAGE>
PHOENIX HOME LIFE VARIABLE
ACCUMULATION ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON ASSET ALLOCATION SUBACCOUNT
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in Templeton Asset Allocation Fund
(identified cost $71,673,716)............................. $130,035,498
------------
Liabilities:
Accrued expenses due related parties....................... 150,575
------------
Net assets.................................................. $129,884,923
------------
------------
Accumulation units outstanding.............................. 47,107,034
------------
Net asset value per unit.................................... $ 2.757230
------------
------------
</TABLE>
See Notes to Financial Statements.
1
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON ASSET ALLOCATION SUBACCOUNT
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
Investment income:
Dividends.................................................. $8,970,853
Expenses:
Mortality and expense risk and administrative charges...... 1,973,538
----------
Net investment income.................................. 6,997,315
Realized and unrealized gain (loss) on investments:
Net realized gain from share transactions.................. $ 7,849,541
Net change in unrealized depreciation...................... (7,722,622)
-----------
Net realized and unrealized gain........................... 126,919
----------
Net increase in net assets from operations................. $7,124,234
----------
----------
</TABLE>
See Notes to Financial Statements.
2
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON ASSET ALLOCATION SUBACCOUNT
Financial Statements (continued)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 6,997,315 $ 2,285,272
Net realized gain......................................... 7,849,541 11,071,721
Net change in unrealized appreciation (depreciation)...... (7,722,622) 7,612,843
----------------------------
Net increase in net assets from operations............. 7,124,234 20,969,836
----------------------------
Accumulation unit transactions:
Participant deposits....................................... 1,675,291 3,930,220
Participant transfers...................................... (3,786,832) 407,760
Participant withdrawals.................................... (29,620,547) (22,580,766)
----------------------------
Net decrease from participant transactions............. (31,732,088) (18,242,786)
----------------------------
Total increase (decrease) in net assets............... (24,607,854) 2,727,050
Net assets:
Beginning of year.......................................... 154,492,777 151,765,727
----------------------------
End of year................................................ $129,884,923 $154,492,777
----------------------------
----------------------------
Participant accumulation unit transactions (in units):
Participant deposits....................................... 603,185 1,577,821
Participant transfers...................................... (1,488,554) 162,761
Participant withdrawals.................................... (10,823,974) (8,767,140)
</TABLE>
See Notes to Financial Statements.
3
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON BOND SUBACCOUNT
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in Templeton Bond Fund
(identified cost $15,038,650)............................. $15,011,196
-----------
Liabilities:
Accrued expenses due related parties....................... 17,546
-----------
Net assets.................................................. $14,993,650
-----------
-----------
Accumulation units outstanding.............................. 8,388,486
-----------
Net asset value per unit.................................... $ 1.787408
-----------
-----------
</TABLE>
See Notes to Financial Statements.
4
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON BOND SUBACCOUNT
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
Investment income:
Dividends.................................................. $1,069,569
Expenses:
Mortality and expense risk and administrative charges...... 213,086
----------
Net investment income.................................. 856,483
Realized and unrealized gain (loss) on investments:
Net realized loss from share transactions.................. $(203,459)
Net change in unrealized appreciation...................... 182,377
---------
Net realized and unrealized loss........................... (21,082)
----------
Net increase in net assets from operations................. $ 835,401
----------
----------
</TABLE>
See Notes to Financial Statements.
5
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON BOND SUBACCOUNT
Financial Statements (continued)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 856,483 $ 1,136,030
Net realized loss......................................... (203,459) (67,960)
Net change in unrealized appreciation (depreciation)...... 182,377 (903,671)
--------------------------
Net increase in net assets from operations............. 835,401 164,399
--------------------------
Accumulation unit transactions:
Participant deposits....................................... 220,095 465,157
Participant transfers...................................... 396,127 (1,122,404)
Participant withdrawals.................................... (3,267,481) (2,556,768)
--------------------------
Net decrease from participant transactions............. (2,651,259) (3,214,015)
--------------------------
Total decrease in net assets.......................... (1,815,858) (3,049,616)
Net assets:
Beginning of year.......................................... 16,809,508 19,859,124
--------------------------
End of year................................................ $14,993,650 $16,809,508
--------------------------
--------------------------
Participant accumulation unit transactions (in units):
Participant deposits....................................... 127,603 281,655
Participant transfers...................................... 217,397 (681,695)
Participant withdrawals.................................... (1,897,539) (1,533,467)
</TABLE>
See Notes to Financial Statements.
6
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in Templeton Developing Markets Fund
(identified cost $3,601,213).............................. $1,978,667
----------
Liabilities:
Accrued expenses due related parties....................... 2,470
----------
Net assets.................................................. $1,976,197
----------
----------
Accumulation units outstanding.............................. 3,597,186
----------
Net asset value per unit.................................... $ 0.549373
----------
----------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
Investment income:
Dividends.................................................. $ 69,201
Expenses:
Mortality and expense risk and administrative charges...... 33,210
---------
Net investment income.................................. 35,991
Realized and unrealized loss on investments:
Net realized loss from share transactions.................. $(107,888)
Net change in unrealized depreciation...................... (566,093)
---------
Net realized and unrealized loss........................... (673,981)
---------
Net decrease in net assets from operations................. $(637,990)
---------
---------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON DEVELOPING MARKETS SUBACCOUNT
Financial Statements (continued)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income (loss).............................. $ 35,991 $ (28,184)
Net realized loss......................................... (107,888) (82,215)
Net change in unrealized depreciation..................... (566,093) (1,063,555)
-------------------------
Net decrease in net assets from operations............. (637,990) (1,173,954)
-------------------------
Accumulation unit transactions:
Participant deposits....................................... 68,677 391,326
Participant transfers...................................... 189,045 3,234,401
Participant withdrawals.................................... (540,042) (604,972)
-------------------------
Net increase (decrease) from participant
transactions.......................................... (282,320) 3,020,755
-------------------------
Total increase (decrease) in net assets............... (920,310) 1,846,801
Net assets:
Beginning of year.......................................... 2,896,507 1,049,706
-------------------------
End of year................................................ $1,976,197 $ 2,896,507
-------------------------
-------------------------
Participant accumulation unit transactions (in units):
Participant deposits....................................... 121,399 369,492
Participant transfers...................................... 329,287 3,272,202
Participant withdrawals.................................... (963,652) (571,262)
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON INTERNATIONAL SUBACCOUNT
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in Templeton International Fund
(identified cost $56,723,707)............................. $98,362,357
-----------
Liabilities:
Accrued expenses due related parties....................... 114,079
-----------
Net assets.................................................. $98,248,278
-----------
-----------
Accumulation units outstanding.............................. 44,494,957
-----------
Net asset value per unit.................................... $ 2.208077
-----------
-----------
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON INTERNATIONAL SUBACCOUNT
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
Investment income:
Dividends.................................................. $8,054,626
Expenses:
Mortality and expense risk and administrative charges...... 1,593,906
----------
Net investment income.................................. 6,460,720
Realized and unrealized gain (loss) on investments:
Net realized gain from share transactions.................. $ 8,040,545
Net change in unrealized depreciation...................... (5,557,587)
-----------
Net realized and unrealized gain........................... 2,482,958
----------
Net increase in net assets from operations................. $8,943,678
----------
----------
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON INTERNATIONAL SUBACCOUNT
Financial Statements (continued)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 6,460,720 $ 1,418,694
Net realized gain......................................... 8,040,545 2,923,309
Net change in unrealized appreciation (depreciation)...... (5,557,587) 9,740,704
----------------------------
Net increase in net assets from operations............. 8,943,678 14,082,707
----------------------------
Accumulation unit transactions:
Participant deposits....................................... 876,359 2,753,458
Participant transfers...................................... (9,349,207) (3,562,548)
Participant withdrawals.................................... (21,941,519) (8,032,795)
----------------------------
Net decrease from participant transactions............. (30,414,367) (8,841,885)
----------------------------
Total increase/decrease in net assets................. (21,470,689) 5,240,822
Net assets:
Beginning of year.......................................... 119,718,967 114,478,145
----------------------------
End of year................................................ $ 98,248,278 $119,718,967
----------------------------
----------------------------
Participant accumulation unit transactions (in units):
Participant deposits....................................... 394,221 1,425,162
Participant transfers...................................... (4,428,086) (1,853,141)
Participant withdrawals.................................... (9,941,501) (3,950,023)
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON STOCK SUBACCOUNT
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in Templeton Stock Fund
(identified cost $140,149,483)............................ $253,961,790
------------
Liabilities:
Accrued expenses due related parties....................... 292,518
------------
Net assets.................................................. $253,669,272
------------
------------
Accumulation units outstanding.............................. 92,618,154
------------
Net asset value per unit.................................... $ 2.738872
------------
------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON STOCK SUBACCOUNT
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
Investment income:
Dividends.................................................. $ 34,406,027
Expenses:
Mortality and expense risk and administrative charges...... 4,071,693
------------
Net investment income.................................. 30,334,334
Realized and unrealized gain (loss) on investments:
Net realized gain from share transactions.................. $ 9,294,906
Net change in unrealized depreciation...................... (38,962,419)
------------
Net realized and unrealized loss........................... (29,667,513)
------------
Net increase in net assets from operations................. $ 666,821
------------
------------
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
TEMPLETON STOCK SUBACCOUNT
Financial Statements (continued)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 30,334,334 $ 876,792
Net realized gain......................................... 9,294,906 30,280,889
Net change in unrealized appreciation (depreciation)...... (38,962,419) 2,806,597
----------------------------
Net increase in net assets from operations............. 666,821 33,964,278
----------------------------
Accumulation unit transactions:
Participant deposits....................................... 2,412,559 7,580,284
Participant transfers...................................... (5,549,061) (5,102,553)
Participant withdrawals.................................... (64,448,902) (44,832,757)
----------------------------
Net decrease from participant transactions............. (67,585,404) (42,355,026)
----------------------------
Total decrease in net assets.......................... (66,918,583) (8,390,748)
Net assets:
Beginning of year.......................................... 320,587,855 328,978,603
----------------------------
End of year................................................ $253,669,272 $320,587,855
----------------------------
----------------------------
Participant accumulation unit transactions (in units):
Participant deposits....................................... 845,333 2,844,151
Participant transfers...................................... (2,090,025) (2,030,310)
Participant withdrawals.................................... (23,038,725) (16,304,248)
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
PHOENIX MONEY MARKET SUBACCOUNT
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<S> <C>
Assets:
Investments in Phoenix Money Market Fund
(identified cost $17,366,581)............................. $17,366,581
-----------
Liabilities:
Accrued expenses due related parties....................... 21,728
-----------
Net assets.................................................. $17,344,853
-----------
-----------
Accumulation units outstanding.............................. 12,123,331
-----------
Net asset value per unit.................................... $ 1.430699
-----------
-----------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
PHOENIX MONEY MARKET SUBACCOUNT
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
Investment income:
Dividends.................................................. $858,456
Expenses:
Mortality and expense risk and administrative charges...... 241,826
--------
Net investment income.................................. $616,630
--------
--------
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
PHOENIX MONEY MARKET SUBACCOUNT
Financial Statements (continued)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................................... $ 616,630 $ 496,669
---------------------------
Accumulation unit transactions:
Participant deposits....................................... 136,420 2,074,466
Participant transfers...................................... 18,481,404 6,474,682
Participant withdrawals.................................... (17,730,587) (7,336,371)
---------------------------
Net increase from participant transactions............. 887,237 1,212,777
---------------------------
Total increase in net assets.......................... 1,503,867 1,709,446
Net assets:
Beginning of year.......................................... 15,840,986 14,131,540
---------------------------
End of year................................................ $ 17,344,853 $15,840,986
---------------------------
---------------------------
Participant accumulation unit transactions (in units):
Participant deposits....................................... 93,105 1,536,859
Participant transfers...................................... 13,159,426 4,731,704
Participant withdrawals.................................... (12,593,026) (5,401,708)
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
Notes to Financial Statements
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 Subaccounts 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 Phoenix Money Market which invest
solely in designated portfolios of the Templeton Variable Products Series Fund
and the Phoenix Edge Series Fund (the Funds). Each series of the Funds have
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; and 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 Phoenix Money Market Series seeks
current income, stability of principal and liquidity by investing in high
quality money market instruments. Shares of the Phoenix Money Market Series were
substituted for shares of the Templeton Money Market Fund on October 6, 1998.
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 or state income taxes is required.
3. PURCHASES AND SALES OF SHARES OF TEMPLETON VARIABLE PRODUCTS SERIES FUND
Purchases and sales of the Fund for the period ended December 31, 1998
aggregated the following:
<TABLE>
<CAPTION>
PURCHASES SALES
----------------------------
<S> <C> <C>
Templeton Asset Allocation Fund............................. $ 11,978,637 $ 36,743,242
Templeton Bond Fund......................................... 3,693,531 5,490,471
Templeton Developing Markets Fund........................... 5,014,642 5,261,797
Templeton International Fund................................ 20,115,083 44,095,124
Templeton Stock Fund........................................ 45,166,756 82,500,634
Phoenix Money Market Series................................. 103,940,461 102,358,243
</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 subaccount the daily equivalent of 0.40% on an annual basis
of the current value of the subaccount's net assets for the mortality risks
assumed and the daily equivalent of .085% on an annual basis for the expense
risks assumed.
19
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
Notes to Financial Statements (continued)
4. INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS (CONT.)
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 Phoenix Money Market
Subaccounts aggregated $3,701,169, $1,448,860, $30,188, $1,793,946, $193,695 and
$150,734, and $69,104 respectively, for the period ended December 31, 1998.
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
Subaccount holding the assets of the participant or on a pro-rata basis from two
or more Subaccounts 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 $449,095 for
administrative services provided for the period ended December 31, 1998.
Phoenix also charges each Subaccount the daily equivalent of 0.125% on an annual
basis of the current value of the Subaccount'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 Phoenix Money Market Subaccounts
aggregated $370,524, $145,046, $3,022, $179,592, $19,391 and $15,090, and $6,918
respectively, for the period ended December 31, 1998.
Franklin Templeton Funds Distributors, Inc. is the principal underwriter and
distributor for the Templeton subaccounts of the Account. Phoenix Equity
Planning Corporation ("PEPCO") is the principal underwriter and W.S. Griffith
and Company, Inc ("WSG") is the distributor for the Phoenix Money Market
Subaccount. Phoenix reimburses Franklin Templeton Funds Distributors, Inc. and
PEPCO 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 $1,024,276 for the period ended December 31, 1998.
Templeton Investment Counsel, Inc. (TICI) serves as investment manager of the
Templeton Stock, Templeton International, Templeton Asset Allocation and
Templeton Bond Fund; Templeton Asset Management Ltd. (TAML) serves as investment
manager of the Templeton Developing Markets Fund; and Phoenix Investment
Counsel, Inc. (PIC) is the investment advisor to the Phoenix Money Market
Series. 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
Fund and Templeton International Fund each pays an investment management fee,
equal on an annual basis to 0.75% of its average daily net assets up to $200
million, 0.675% of such assets from $200 million up to $1.3 billion, and 0.60%
of such assets in excess of $1.3 billion. Templeton Asset Allocation Fund pays
an investment management fee, equal on an annual basis to 0.65% of its average
daily net assets up to $200 million, 0.585% of such assets from $200 million up
to $1.3 billion, and 0.52% of such assets in excess of $1.3 billion. Templeton
Bond Fund pays an investment management fee, equal on an annual basis to 0.50%
of its average daily net assets up to $200 million, 0.45% of such assets from
$200 million up to $1.3 billion, and 0.40% of such assets in excess of $1.3
billion. Templeton Developing Markets Fund pays an investment management fee,
equal on an annual basis to 1.25% of its average daily net assets during the
year. Phoenix Money Market Series pays a monthly investment management fee equal
on annual basis to 0.40% of its average daily net assets up to $250 million,
0.35% of such net assets from $250 million up to $500 million and 0.30% of such
net assets in excess of $500 million.
Each Fund pays its allocated share of an administrative fee to Franklin
Templeton Services, Inc. (FT Services), equal on an annual basis to 0.15% of the
combined average daily net assets of the Funds up to $200 million, reduced to
0.135% of such assets in excess of $200 million, 0.10% of such assets in excess
of $700 million, 0.075% of such assets in excess of $1.2 billion. FT Services
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.
20
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
Notes to Financial Statements (continued)
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 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.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[PRICEWATERHOUSECOOPERS 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 each of the subaccounts:
Templeton Asset Allocation, Templeton Bond, Templeton Developing Markets,
Templeton International, Templeton Stock and Phoenix Money Market (constituting
the Phoenix Home Life Variable Accumulation Account, hereafter referred to as
the "Account") at December 31, 1998, 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, 1998 by correspondence with fund custodian or transfer agent,
provide a reasonable basis for the opinion expressed above.
[PriceWaterhouseCoopers Signature]
PricewaterhouseCoopers LLP
Hartford, Connecticut
February 17, 1999
22
<PAGE>
PHOENIX HOME LIFE
MUTUAL INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants.............................................2
Consolidated Balance Sheet at December 31, 1998 and 1997......................3
Consolidated Statement of Income, Comprehensive Income and Equity
for the Years Ended December 31, 1998, 1997 and 1996 ........................4
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.............................................5
Notes to Consolidated Financial Statements ................................ 6-37
1
<PAGE>
[PRICEWATERHOUSECOOPERS logo and address]
REPORT OF INDEPENDENT ACCOUNTANTS
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, comprehensive 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,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, 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.
As indicated in Note 19, the company has revised the accounting for leveraged
leases.
/s/ PricewaterhouseCoopers LLP
February 11, 1999, except as to Note 20, which is as of April 27, 1999
2
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Held-to-maturity debt securities, at amortized cost $ 1,881,687 $ 1,554,905
Available-for-sale debt securities, at fair value 6,693,540 5,659,061
Equity securities, at fair value 304,545 335,888
Mortgage loans 797,343 927,501
Real estate 91,975 321,757
Policy loans 2,008,260 1,986,728
Other invested assets 377,326 319,088
Short-term investments 240,911 1,078,276
----------- -----------
Total investments 12,395,587 12,183,204
Cash and cash equivalents 132,634 159,307
Accrued investment income 173,312 149,566
Deferred policy acquisition costs 1,076,635 1,038,407
Premiums, accounts and notes receivable 120,928 99,468
Reinsurance recoverables 96,676 66,649
Property and equipment, net 153,425 156,190
Goodwill and other intangible assets, net 527,029 541,499
Other assets 46,060 61,087
Separate account assets 4,798,949 4,082,255
----------- -----------
Total assets $19,521,235 $18,537,632
=========== ===========
LIABILITIES
Policy liabilities and accruals $11,810,202 $11,334,014
Securities sold subject to repurchase agreements 137,473
Notes payable 449,252 471,085
Deferred income taxes 111,912 150,440
Other liabilities 555,352 585,467
Separate account liabilities 4,798,949 4,082,255
----------- -----------
Total liabilities 17,725,667 16,760,734
----------- -----------
Contingent liabilities (Note 17)
MINORITY INTEREST IN NET ASSETS
OF CONSOLIDATED SUBSIDIARIES
91,884 136,514
----------- -----------
EQUITY
Retained earnings 1,609,393 1,484,620
Accumulated other comprehensive income 94,291 155,764
----------- -----------
Total equity 1,703,684 1,640,384
----------- -----------
Total liabilities and equity $19,521,235 $18,537,632
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME, COMPREHENSIVE INCOME AND EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premiums $1,852,801 $1,640,606 $1,518,822
Insurance and investment product fees 619,476 468,030 421,058
Net investment income 898,884 771,346 711,595
Net realized investment gains 63,562 111,465 77,422
---------- ---------- ----------
Total revenues 3,434,723 2,991,447 2,728,897
---------- ---------- ----------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses 1,930,384 1,633,633 1,529,573
Policyholder dividends 351,805 343,725 311,739
Policy acquisition expenses 290,585 192,886 172,379
Amortization of goodwill and other intangible assets 29,248 16,393 15,610
Interest expense 29,889 28,147 17,570
Other operating expenses 592,420 542,897 489,203
---------- ---------- ----------
Total benefits, losses and expenses 3,224,331 2,757,681 2,536,074
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 210,392 233,766 192,823
Income taxes 75,152 58,177 80,683
---------- ---------- ----------
INCOME BEFORE MINORITY INTEREST 135,240 175,589 112,140
Minority interest in net income of consolidated subsidiaries 10,467 8,882 8,902
---------- ---------- ----------
NET INCOME 124,773 166,707 103,238
---------- ---------- ----------
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES
Unrealized (losses) gains on securities (46,967) 98,287 42,493
Reclassification adjustment for net realized gains
included in net income (12,980) (30,213) (28,580)
Minimum pension liability adjustment (1,526) (2,101) 1,241
---------- ---------- ----------
Total other comprehensive income (loss) (61,473) 65,973 15,154
---------- ---------- ----------
COMPREHENSIVE INCOME 63,300 232,680 118,392
---------- ---------- ----------
EQUITY, BEGINNING OF YEAR - RESTATED (NOTE 19) 1,640,384 1,407,704 1,289,312
---------- ---------- ----------
EQUITY, END OF YEAR $1,703,684 $1,640,384 $1,407,704
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 124,773 $ 166,707 $ 103,238
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATIONS
Net realized investment gains (63,562) (111,465) (77,422)
Amortization and depreciation 60,580 90,565 64,870
Equity in undistributed earnings of affiliates and partnerships (25,110) (34,057) (22,037)
Deferred income taxes (benefit) (9,274) 3,663 16,126
(Increase) decrease in receivables (75,233) (49,172) 5,955
Increase in deferred policy acquisition costs (31,534) (48,860) (61,985)
Increase in policy liabilities and accruals 487,312 512,476 559,724
Increase (decrease) in other assets/other liabilities, net 53,194 44,269 (66,337)
Other, net 3,412 5,417 (320)
--------- ---------- ----------
Net cash provided by operating activities 524,558 579,543 521,812
--------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sales, maturities or repayments
of available-for-sale debt securities 1,446,990 1,187,943 1,348,809
Proceeds from maturities or repayments of held-to-maturity
debt securities 306,183 217,302 118,596
Proceeds from disposals of equity securities 45,204 51,373 382,359
Proceeds from mortgage loan maturities or repayments 200,419 164,213 151,760
Proceeds from sale of real estate and other invested assets 458,467 218,874 127,440
Purchase of available-for-sale debt securities (2,568,971) (1,689,479) (1,909,086)
Purchase of held-to-maturity debt securities (631,974) (225,722) (385,321)
Purchase of equity securities (86,472) (88,573) (215,104)
Purchase of subsidiaries (6,647) (246,400)
Purchase of mortgage loans (75,974) (140,831) (200,683)
Purchase of real estate and other invested assets (201,424) (90,593) (157,077)
Change in short-term investments, net 837,365 58,384 110,503
Increase in policy loans (21,532) (59,699) (49,912)
Capital expenditures (23,935) (41,504) (3,543)
Other investing activities, net (6,540) (1,750) (5,898)
--------- ---------- ----------
Net cash used for investing activities (328,841) (686,462) (687,157)
--------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Withdrawals of contractholder deposit funds,
net of deposits and interest credited (11,124) (17,902) (6,301)
(Repayment of)/proceeds from securities sold
subject to repurchase agreements (137,472) 137,472
Proceeds from borrowings 136 215,359 226,082
Repayment of borrowings (63,328) (234,703) (2,400)
Dividends paid to minority shareholders in consolidated subsidiaries (4,938) (6,895) (6,245)
Other financing activities (5,664)
--------- ---------- ----------
Net cash provided by (used for) financing activities (222,390) 93,331 211,136
--------- ---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (26,673) (13,588) 45,791
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 159,307 172,895 127,104
--------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 132,634 $ 159,307 $ 172,895
========= ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net $ 44,508 $ 76,167 $ 76,157
Interest paid on indebtedness $ 32,834 $ 32,300 $ 19,214
</TABLE>
The accompanying notes are an integral part of these statements.
5
<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 and insurance
agency and brokerage operations, primarily based in the United States. These
products and services are distributed among five reportable segments:
Individual Insurance, Life Reinsurance, Group Life and Health Insurance,
Securities Management and All Other. 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 significant influence over operating and financial policies and
generally at least a 20% ownership interest 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.
Amounts for 1997 and 1996 have been retroactively restated to account for
income from leveraged lease investments (see Note 19). Certain
reclassifications have been made to the 1997 and 1996 amounts to conform
with the 1998 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 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 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.
6
<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.
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. These earnings or losses are
included in investment income. Prior to 1998, for venture capital
partnerships, this activity was reflected in capital gains and losses. Such
earnings and losses included in prior year financial statements have been
reclassified to reflect this change.
Beginning in 1998, leveraged lease investments represent the net of the
estimated residual value of the lease assets, rental receivables, and
unearned and deferred income to be allocated over the lease term. Investment
income is calculated using the interest method and is recognized only in
periods in which the net investment is positive. Prior to 1998, leveraged
lease investments were carried at cost adjusted for Phoenix's equity in
undistributed earnings or losses since acquisition, less allowances for
other than temporary declines in value. Prior years have been restated to
reflect these changes (see Note 19).
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 component of 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, off-balance sheet
financial instruments such as investment and loan commitments, financial
guarantees, interest rate swaps and interest rate floors. These instruments
have credit risk and also may be subject to risk of loss due to interest
rate and market fluctuations.
Phoenix also uses interest rate swaps and futures contracts as hedges for
asset/liability management of fixed income investments and certain
liabilities. Realized gains and losses on these contracts are deferred and
amortized over the life of the hedged asset or liability.
Phoenix enters into interest rate floor contracts to hedge against
significant declines in interest rates by locking in a minimum interest rate
amount that will be received on future reinvestments in terms of an
underlying treasury yield. Phoenix does not enter into interest rate floor
contracts for trading purposes. The excess of a predetermined (strike) rate
over a reference (index) rate is recognized in investment income when
received or paid.
7
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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.
8
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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 1998 and prior
years. Entities included within the consolidated group are segregated into
either a life insurance or nonlife insurance company subgroup. The
consolidation of these subgroups is subject to certain statutory
restrictions in the percentage of eligible nonlife 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.
RECENT ACCOUNTING PRONOUNCEMENTS
Phoenix adopted Statement of Financial Accounting Standard (SFAS) No. 130,
"Reporting Comprehensive Income," as of January 1, 1998. This statement
establishes standards for the reporting and display of comprehensive income
and its components in a full set of financial statements. This statement
defines the components of comprehensive income as those items that were
previously reported only as components of equity and were excluded from net
income.
In 1998, Phoenix adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a
9
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Business Enterprise," replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of Phoenix's reportable segments. The
adoption of this statement did not affect the results of operations or
financial position but did affect the disclosure of segment information.
In 1998, Phoenix adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which amends SFAS No. 87,
"Employers' Accounting for Pensions," No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." The new statement revises and
standardizes employers' disclosures about pension and other postretirement
benefit plans. Adoption of this statement did not affect the results of
operations or financial position of the company.
On June 15, 1998, The Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, effective for all years beginning after June 15, 1999, requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designed as part of a hedge transaction and, if it
is, the type of hedge transaction. Management anticipates that, due to its
limited use of derivative instruments, the adoption of this statement will
not have a significant effect on Phoenix's results of operations or its
financial position.
3. SIGNIFICANT TRANSACTIONS
DIVIDEND SCALE REDUCTION
Due to the decline of interest rates in the financial markets to historic
lows and the strong likelihood that such levels will be sustained, Phoenix
carefully reviewed and considered a change in its dividend scale. As a
result, in October 1998, Phoenix's Board of Directors voted to adopt a
reduced dividend scale, effective for dividends payable on or after January
1, 1999. Dividends for individual participating policies are being reduced
60 basis points in most cases, an average reduction of approximately 8%. The
effect was a decrease of approximately $15.7 million in the policyholder
dividends expense in 1998.
REAL ESTATE SALES
On December 15, 1998, Phoenix sold 47 commercial real estate properties with
a carrying value of $269.8 million, and 4 joint venture real estate
partnerships with a carrying value of $10.5 million, for approximately $309
million in cash. This transaction, along with the sale of 18 other
properties and partnerships during the year, which had a carrying value of
$36.7 million, resulted in after-tax gains of approximately $49.6 million.
As of December 31,1998, Phoenix has 7 commercial real estate properties
remaining with a carrying value of $55.7 million and 10 joint venture real
estate partnerships with a carrying value of $36.3 million.
PHOENIX INVESTMENT PARTNERS, LTD.
On December 3, 1998, Phoenix Investment Partners completed the sale of its
49% interest in Canadian investment firm Beutel, Goodman & Company, Ltd. for
$47 million. Phoenix Investment Partners received $37 million in cash and a
$10 million three-year interest bearing note. The transaction resulted in a
before-tax gain of approximately $17.5 million. Phoenix's interest
represents an after-tax realized gain of approximately $6.8 million.
10
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On September 3, 1997, Phoenix Investment Partners acquired Pasadena Capital
Corporation, the parent company of Roger Engemann & Associates, Inc. for
approximately $214 million. Pasadena Capital managed over $7 billion in
assets at December 31, 1998, primarily individual accounts.
On July 17, 1997, Phoenix Investment Partners acquired a majority interest
in GMG/Seneca Capital Management LLC, renamed Seneca Capital Management, for
approximately $37.5 million. Seneca Capital Management managed $6 billion in
assets at December 31, 1998.
The purchase price for Pasadena Capital and Seneca Capital Management
represented the consideration paid and the direct costs incurred by Phoenix
Investment Partners to purchase Pasadena Capital and a majority interest in
Seneca Capital Management. The excess of the purchase price over the fair
value of the acquired net tangible assets of these companies totaled
approximately $212.8 million. Of this excess purchase price, $110.2 million
was classified as identifiable intangible assets, primarily associated with
investment management contracts, which are being amortized over their
estimated average useful life of 13 years using the straight line method.
The remaining excess purchase price of $142.5 million was classified as
goodwill and is being amortized over 40 years using the straight line
method.
Phoenix owns approximately 60% of the outstanding Phoenix Investment
Partners' common stock. In addition, Phoenix owns 45% of Phoenix Investment
Partners' convertible subordinated debentures.
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 $141.3 million difference, which does not exceed the
estimated present value of future profits of the acquired business, was
recorded as deferred acquisition costs.
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 notes
payable in the Consolidated Balance Sheet.
The notes were issued in accordance with Section 1307 (Contingent Liability
for Borrowings) 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 (Private Resales of Securities
to Institutions) 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
As of December 31, 1998, PM Holdings owned 10% of the outstanding common
stock of Aberdeen Asset Management, a Scottish asset management firm. The
investment is reported on the equity basis and classified as other invested
assets in the Consolidated Balance Sheet.
11
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 10% of Aberdeen Asset Management's then
outstanding common stock. The note is also classified as other invested
assets 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 Investment Partners and
Aberdeen Asset Management, develops and markets investment products in the
United States and the United Kingdom.
4. INVESTMENTS
Information pertaining to Phoenix's investments, net investment income and
realized and unrealized investment gains and losses follows:
DEBT AND EQUITY SECURITIES
The amortized cost and fair value of investments in debt and equity
securities as of December 31, 1998 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 $ 10,562 $ 643 $ (78) $ 11,127
Foreign government bonds 3,036 (743) 2,293
Corporate securities 1,695,789 98,896 (13,823) 1,780,862
Mortgage-backed securities 172,300 6,201 (12) 178,489
---------- ---------- ----------- ----------
Total 1,881,687 105,740 (14,656) 1,972,771
---------- ---------- ----------- ----------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 497,089 34,454 (422) 531,121
State and political subdivision bonds 529,977 43,622 (104) 573,495
Foreign government bonds 293,968 28,814 (18,691) 304,091
Corporate securities 1,993,720 110,525 (36,656) 2,067,589
Mortgage-backed securities 3,121,690 110,172 (14,618) 3,217,244
---------- ---------- ----------- ----------
Total 6,436,444 327,587 (70,491) 6,693,540
---------- ---------- ----------- ----------
TOTAL DEBT SECURITIES $8,318,131 $ 433,327 $ (85,147) $8,666,311
---------- ---------- ----------- ----------
EQUITY SECURITIES $ 223,915 $ 102,018 $ (21,388) $ 304,545
========== ========== =========== ==========
</TABLE>
12
<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, 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 $ 158,217 $ 190,669 $ (12,998) $ 335,888
========== ========= ========== ==========
</TABLE>
The amortized cost and fair value of debt securities, by contractual sinking
fund payment and maturity, as of December 31, 1998 are shown below. Actual
maturity may differ from contractual maturity 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 $ 75,505 $ 66,367 $ 58,513 $ 59,953
Due after one year through five years 512,131 535,084 460,182 481,790
Due after five years through ten years 672,533 710,988 948,676 983,590
Due after ten years 449,218 481,843 1,847,383 1,950,963
Mortgage-backed securities 172,300 178,489 3,121,690 3,217,244
----------- ----------- ----------- -----------
Total $ 1,881,687 $ 1,972,771 $ 6,436,444 $ 6,693,540
=========== =========== =========== ===========
</TABLE>
13
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Carrying values for investments in mortgage-backed securities, excluding
U.S. government guaranteed investments, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Planned amortization class $ 433,668 $ 554,425
Asset-backed 910,594 594,128
Mezzanine 280,162 328,539
Commercial 641,485 556,155
Sequential pay 982,576 680,397
Pass through 119,065 132,522
Other 21,994 56,393
---------- ----------
Total mortgage-backed securities $3,389,544 $2,902,559
========== ==========
</TABLE>
14
<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,
1998 1997 1998 1997
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
PROPERTY TYPE:
Office buildings $221,244 $246,500 $ 38,343 $180,743
Retail 203,927 231,886 36,858 108,907
Apartment buildings 261,894 303,990 21,553 20,560
Industrial buildings 121,789 162,008 1,600 39,810
Other 19,089 18,917 32 238
Valuation allowances (30,600) (35,800) (6,411) (28,501)
-------- -------- -------- --------
Total $797,343 $927,501 $ 91,975 $321,757
======== ======== ======== ========
GEOGRAPHIC REGION:
Northeast $169,368 $222,975 $ 47,709 $ 92,513
Southeast 213,916 257,376 32 85,781
North central 176,683 189,163 11,453 63,751
South central 98,956 79,092 22,649 58,954
West 169,020 214,695 16,543 49,259
Valuation allowances (30,600) (35,800) (6,411) (28,501)
-------- -------- -------- --------
Total $797,343 $927,501 $ 91,975 $321,757
======== ======== ======== ========
</TABLE>
At December 31, 1998, scheduled mortgage loan maturities were as follows:
1999--$99 million; 2000--$81 million; 2001--$87 million; 2002--$29 million;
2003--$107 million; and $394 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 $2.3 million and $8.6 million of its mortgage
loans during 1998 and 1997, respectively, based on terms which differed from
those granted to new borrowers.
15
<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>
1998
Mortgage loans $ 35,800 $ 50,603 $(55,803) $30,600
Real estate 28,501 5,108 (27,198) 6,411
-------- -------- -------- -------
Total $ 64,301 $ 55,711 $(83,001) $37,011
======== ======== ======== =======
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>
NONINCOME-PRODUCING MORTGAGE LOANS AND BONDS
The net carrying values of nonincome-producing mortgage loans were $15.6
million and $7.0 million at December 31, 1998 and 1997, respectively. The
net carrying value of nonincome-producing bonds was $22.3 million at
December 31, 1998. There were no nonincome-producing bonds at December 31,
1997.
INTEREST RATE SWAPS AND INTEREST RATE FLOORS
The notional amounts of Phoenix's interest rate swaps were $416.0 million
and $272.9 million at December 31, 1998 and 1997, respectively. Weighted
average received and paid rates were 6.24% and 5.79%, for 1998. The increase
in net investment income related to interest rate swap contracts was $1.9
million and $.7 million for the years ended December 31, 1998 and 1997,
respectively. The fair value of these interest rate swap agreements as of
December 31, 1998 and 1997 were $11.0 million and $9.4 million,
respectively. 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.
During 1998, Phoenix entered into several interest rate floor contracts. The
notional amount of Phoenix's interest rate floor contracts was $570.0
million at December 31, 1998. The weighted average strike rate was 4.59% for
1998. The excess of the strike rates over the index rates (5- and 10-year
constant maturity treasury yields) was not significant. The fair value of
these interest rate floors at December 31, 1998 was $1.4 million. These
contracts do not require payment of notional principal.
Management of Phoenix considers the likelihood of any material loss on these
guarantees or interest rate swaps or floors to be remote.
16
<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,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Venture capital equity partnerships $140,591 $ 88,228
Transportation and equipment leases 80,953 78,024
Affordable housing partnerships 10,854
Investment in Aberdeen Asset Management 72,257 70,317
Investment in Beutel, Goodman & Co. Ltd. 31,214
Investment in other affiliates 23,387 5,453
Seed money in separate accounts 26,587 41,297
Other partnership interests 22,697 4,555
-------- --------
Total other invested assets $377,326 $319,088
======== ========
</TABLE>
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31, were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $598,892 $509,702 $469,713
Equity securities 6,469 4,277 4,689
Mortgage loans 83,101 85,662 84,318
Policy loans 146,477 122,562 117,742
Real estate 38,338 18,939 21,799
Leveraged leases 2,746 2,692 3,286
Other invested assets 22,364 31,365 18,751
Short-term investments 23,825 18,768 18,688
-------- -------- --------
Sub-total 922,212 793,967 738,986
Less investment expenses 23,328 22,621 27,391
-------- -------- --------
Net investment income $898,884 $771,346 $711,595
======== ======== ========
</TABLE>
Investment income of $8.4 million was not accrued on certain delinquent
mortgage loans and defaulted bonds at December 31, 1998. 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 $40.8 million and $51.3 million at December 31,
1998 and 1997, respectively. Interest income on restructured
17
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
mortgage loans that would have been recorded in accordance with the original
terms of such loans amounted to $4.9 million, $5.3 million and $3.1 million
in 1998, 1997 and 1996, respectively. Actual interest income on these loans
included in net investment income was $4.0 million, $3.8 million and $5.2
million in 1998, 1997 and 1996, respectively.
INVESTMENT GAINS AND LOSSES
Net unrealized gains and (losses) on securities available-for-sale and
carried at fair value for the year ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ (7,040) $112,194 $(70,986)
Equity securities (91,880) 74,547 40,803
Deferred policy acquisition costs 6,694 (80,603) 51,528
Deferred income taxes (32,279) 38,064 7,432
-------- -------- --------
Net unrealized investment (losses) gains
on securities available-for-sale $(59,947) $ 68,074 $ 13,913
======== ======== ========
</TABLE>
Realized investment gains and losses for the year ended December 31, were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $(4,295) $ 19,315 $(10,476)
Equity securities 11,939 26,290 59,794
Mortgage loans (6,895) 3,805 2,628
Real estate 67,522 44,668 24,711
Other invested assets (4,709) 17,387 765
-------- -------- --------
Net realized investment gains $ 63,562 $111,465 $ 77,422
======== ======== ========
</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>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from disposals $912,696 $821,339 $1,118,594
Gross gains on sales $ 17,442 $ 27,954 $ 12,547
Gross losses on sales $ 33,641 $ 5,309 $ 25,575
</TABLE>
18
<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:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Phoenix Investment Partners' gross amounts:
Goodwill $321,793 $321,932
Investment management contracts 169,006 167,788
Noncompete covenant 5,000 5,000
Other 472 1,220
-------- --------
Totals 496,271 495,940
-------- --------
Other gross amounts:
Goodwill 79,217 65,585
Client listings 48,111 45,441
Intangible asset related to pension plan benefits 16,229 18,032
Other 1,690 279
-------- --------
Totals 145,247 129,337
-------- --------
Total gross goodwill and other intangible assets 641,518 625,277
Accumulated amortization - Phoenix Investment Partners (49,615) (27,579)
Accumulated amortization - other (64,874) (56,199)
-------- --------
Total net goodwill and other intangible assets $527,029 $541,499
======== ========
</TABLE>
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, Comprehensive Income and Equity.
19
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Short-term debt $ 20,463 $ 15,539
Bank borrowings 205,778 263,732
Notes payable 5,438 14,632
Subordinated debentures 41,359
Surplus notes 175,000 175,000
Secured debt 1,214 2,182
-------- --------
Total notes payable $449,252 $471,085
======== ========
</TABLE>
Phoenix has various lines of credit established with major commercial banks.
As of December 31, 1998, Phoenix had outstanding balances totaling $219.7
million. The total unused credit was $190.7 million. Interest rates ranged
from 5.24% to 7.98% in 1998.
Maturities of other indebtedness are as follows: 1999--$20.5 million;
2000--$38.3 million; 2001--$29.2 million; 2002--$318.3 million; 2003--$1.1
million; 2004 and thereafter--$41.9 million.
Interest expense was $29.9 million, $32.5 million and $18.0 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
7. INCOME TAXES
A summary of income taxes (benefits) applicable to income before income
taxes and minority interest for the year ended December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes
Current $80,322 $54,514 $59,673
Deferred (5,170) 3,663 21,010
------- ------- -------
Total $75,152 $58,177 $80,683
======= ======= =======
</TABLE>
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
20
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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>
1998 1997 1996
% % %
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory rate $73,637 35 $81,818 35 $67,488 35
Dividend received deduction and
tax-exempt interest (3,691) (1) (2,513) (1) (2,107) (1)
Other, net 5,206 2 (8,017) (4) 2,736 1
------- -- ------- -- ------ --
75,152 36 71,288 30 68,117 35
Differential earnings (equity tax) (13,111) (5) 12,566 7
------- -- ------- -- ------ --
Income taxes $75,152 36 $58,177 25 $80,683 42
======= == ======= == ======= ==
</TABLE>
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,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Deferred policy acquisition costs $ 301,337 $ 303,500
Unearned premium/deferred revenue (148,112) (139,817)
Impairment reserves (23,393) (26,102)
Pension and other postretirement benefits (59,164) (56,643)
Investments 105,395 83,821
Future policyholder benefits (141,130) (140,980)
Other 28,730 45,053
---------- ----------
63,663 68,832
Net unrealized investment gains 51,597 84,134
Minimum pension liability (3,348) (2,526)
---------- ----------
Deferred income tax liability, net $ 111,912 $ 150,440
========== ==========
</TABLE>
Gross deferred income tax assets totaled $375 million and $366 million at
December 31, 1998 and 1997, respectively. Gross deferred income tax
liabilities totaled $487 million and $516 million at December 31, 1998 and
1997, 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, 1998 and 1997 will be
realized.
The Internal Revenue Service is currently examining Phoenix's tax returns
for 1995 through 1997. Management does not believe that there will be a
material adverse effect on the financial statements as a result of pending
tax matters.
21
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
PENSION PLANS
Phoenix has a multi-employer, noncontributory, 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 nonqualified supplemental defined benefit plan to provide
benefits in excess of amounts allowed pursuant to the 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 years ended December 31,
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 11,046 $ 10,278 $ 10,076
Interest cost 22,958 22,650 22,661
Expected return on plan assets (25,083) (22,055) (20,847)
Amortization of net transition asset (2,369) (2,369) (2,468)
Amortization of prior service cost 1,795 1,795 (22)
Amortization of net (gain) loss (1,247) 25 1,867
-------- -------- --------
Net periodic benefit cost $ 7,100 $ 10,324 $ 11,267
======== ======== ========
</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.
22
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The aggregate change in projected benefit obligation, change in plan assets,
and funded status of the plan were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation at beginning of year $ 335,436 $ 301,245
Service cost 11,046 10,278
Interest cost 22,958 22,650
Plan amendments 171
Actuarial loss 1,958 18,644
Benefit payments (17,936) (17,552)
--------- ---------
Benefit obligation at end of year $ 353,462 $ 335,436
========= =========
Change in plan assets
Fair value of plan assets at beginning of year $ 321,555 $ 283,245
Actual return on plan assets 58,225 53,093
Employer contributions 2,975 2,769
Benefit payments (17,936) (17,552)
--------- ---------
Fair value of plan assets at end of year $ 364,819 $ 321,555
========= =========
Funded status of the plan $ 11,357 $ (13,881)
Unrecognized net transition asset (14,217) (16,586)
Unrecognized prior service cost 16,185 17,980
Unrecognized net gain (75,921) (45,986)
--------- ---------
Net amount recognized $ (62,596) $ (58,473)
========= =========
Amounts recognized in the Consolidated Balance
Sheet consist of:
Accrued benefit liability $ (88,391) $ (83,724)
Intangible asset 16,229 18,032
Accumulated other comprehensive income 9,566 7,219
--------- ---------
$ (62,596) $ (58,473)
========= =========
</TABLE>
At December 31, 1998 and 1997, the nonqualified plan was unfunded and had
projected benefit obligations of $57.2 million and $50.4 million,
respectively. The accumulated benefit obligations as of December 31, 1998
and 1997 related to this plan were $48.4 million and $42.8 million,
respectively, and are included in other liabilities.
23
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Phoenix recorded, as a reduction of equity, an additional minimum pension
liability of $6.2 million and $4.7 million, net of income taxes, at December
31, 1998 and 1997, respectively, representing the excess of accumulated
benefit obligations over the fair value of plan assets and accrued pension
liabilities for the nonqualified plan. Phoenix has also recorded an
intangible asset of $16.2 million and $18.0 million as of December 31, 1998
and 1997 related to the nonqualified 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 1998 and 1997. The discount rate assumption for 1998
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% in 1998 and 1997.
The pension plan's assets include corporate and government debt securities,
equity securities, real estate, venture capital partnerships, 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, 1998, 1997 and 1996 were $4.1 million, $3.8 million
and $4.2 million, respectively.
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 components of net periodic postretirement benefit cost for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $3,436 $3,136 $2,765
Interest cost 4,572 4,441 4,547
Amortization of net gain (1,232) (1,527) (1,576)
------ ------ ------
Net periodic benefit cost $6,776 $6,050 $5,736
====== ====== ======
</TABLE>
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.
24
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The plan's change in projected benefit obligation, change in plan assets,
and funded status were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Change in projected postretirement benefit obligation
Projected benefit obligation at beginning of year $ 66,618 $ 63,656
Service cost 3,436 3,136
Interest cost 4,572 4,441
Actuarial (gain) loss 397 (518)
Benefit payments (4,080) (4,098)
-------- --------
Projected benefit obligation at end of year $ 70,943 $ 66,617
-------- --------
Change in plan assets
Employer contributions $ 4,080 $ 4,098
Benefit payments (4,080) (4,098)
-------- --------
Fair value of plan assets at end of year $ $
-------- --------
Funded status of the plan $(70,943) $(66,617)
Unrecognized net gain (26,408) (28,037)
-------- --------
Accrued benefit liability $(97,351) $(94,654)
======== ========
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.0% at December 31, 1998 and 1997.
25
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For purposes of measuring the accumulated postretirement benefit obligation
the 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. Based on this assumption the health care costs were
assumed to increase 8.5% in 1998.
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 $4.6 million and the annual service and
interest cost by $.7 million, before taxes. Decreasing the assumed health
care cost trend rates by one percentage point in each year would decrease
the accumulated postretirement benefit obligation by $4.3 million and the
annual service and interest cost by $.6 million, before taxes. Gains and
losses that occur because actual experience differs from the estimates are
amortized over the average future service period of employees.
OTHER POSTEMPLOYMENT BENEFITS
Phoenix recognizes the costs and obligations of severance, disability and
related life insurance and health care benefits to be paid to inactive or
former employees after employment but before retirement. Other
postemployment benefit expense was ($.5) million for 1998, $.4 million for
1997 and $.4 million for 1996.
26
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. COMPREHENSIVE INCOME
The components of, and related tax effects for, other comprehensive income
for the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Before-tax amount $(72,255) $151,210 $ 65,374
Tax expense (benefit) (25,288) 52,923 22,881
-------- -------- --------
Totals (46,967) 98,287 42,493
-------- -------- --------
RECLASSIFICATION ADJUSTMENT FOR NET GAINS
REALIZED IN NET INCOME:
Before-tax amount (19,970) (46,481) (43,969)
Tax (benefit) (6,990) (16,268) (15,389)
-------- -------- --------
Totals (12,980) (30,213) (28,580)
-------- -------- --------
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Before-tax amount (92,225) 104,729 21,405
Tax expense (benefit) (32,278) 36,655 7,492
-------- -------- --------
Totals $(59,947) $ 68,074 $ 13,913
-------- -------- --------
MINIMUM PENSION LIABILITY ADJUSTMENT:
Before-tax amount $ (2,347) $ (3,232) $ 1,910
Tax expense (benefit) (821) (1,131) 669
-------- -------- --------
Totals $ (1,526) $ (2,101) $ 1,241
======== ======== ========
</TABLE>
27
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes accumulated other comprehensive income for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Balance, beginning of year $160,457 $ 92,383 $ 78,470
Change during period (59,947) 68,074 13,913
-------- -------- --------
Balance, end of year 100,510 160,457 92,383
-------- -------- --------
MINIMUM PENSION LIABILITY ADJUSTMENT:
Balance, beginning of year (4,693) (2,592) (3,833)
Change during period (1,526) (2,101) 1,241
-------- -------- --------
Balance, end of year (6,219) (4,693) (2,592)
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance, beginning of year 155,764 89,791 74,637
Change during period (61,473) 65,973 15,154
-------- -------- --------
Balance, end of year $ 94,291 $155,764 $ 89,791
======== ======== ========
</TABLE>
10. SEGMENT INFORMATION
Phoenix is organized by lines of business that include similar product
groupings. Lines of businesses have been grouped into the following
reportable segments: Individual Insurance, Life Reinsurance, Group Life and
Health Insurance and Securities Management. The category "Individual
Insurance" aggregates the Individual Traditional, Universal Life, Variable
Universal Life and Variable Annuity lines of business. The category "All
Other" includes the combined financial results of segments that individually
are below the quantitative thresholds. Those segments include General Lines
Brokerage and several small individual insurance lines. In addition, the
category "All Other" contains unallocated investment income, unallocated
expenses and realized investment gains related to capital in excess of
segment requirements, as well as certain assets such as equity securities
and venture capital. Phoenix calculates taxes at a flat rate of 35% on the
operating income of its insurance line segments and therefore, does not
allocate permanent tax differences to these segments. Also, Phoenix does not
allocate unusual or extraordinary items to its segments.
28
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes significant financial amounts by reportable
segment:
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED
DECEMBER 31, 1998 GROUP LIFE
(IN MILLIONS) INDIVIDUAL LIFE & HEALTH SECURITIES ALL
INSURANCE REINSURANCE INSURANCE MANAGEMENT OTHER TOTALS
---------- ----------- ---------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external sources $ 1,354 $ 64 $440 $214 $400 $ 2,472
Intersegment revenues 18 41 59
Net investment income 708 19 45 2 75 849
Interest expense 15 1 16
Policyholder dividends 344 344
Increase in DAC (9) (5) (5) (19)
Depreciation and amortization expense 4 1 26 14 45
Other noncash items:
Increase in policy liabilities and accruals 596 38 16 36 686
Minority interest in operating income 14 5 19
Segment operating income (a) $ 50 $ 12 $ 26 $ 23 $ 1 $ 112
======= ==== ==== ==== ==== =======
Deferred policy acquisition costs $ 1,035 $ 27 $ 18 $ 1,080
Total segment assets $16,177 $398 $701 $557 $938 $18,771
======= ==== ==== ==== ==== =======
AT AND FOR THE YEAR ENDED
DECEMBER 31, 1997 GROUP LIFE
(IN MILLIONS) INDIVIDUAL LIFE & HEALTH SECURITIES ALL
INSURANCE REINSURANCE INSURANCE MANAGEMENT OTHER TOTALS
---------- ----------- ---------- ---------- ----- ------
Revenues from external sources $ 1,200 $ 57 $428 $124 $ 298 $ 2,107
Intersegment revenues 16 30 46
Net investment income 586 19 42 2 101 750
Interest expense 4 1 5
Policyholder dividends 328 328
Increase in DAC (32) (5) (13) (50)
Depreciation and amortization expense 3 1 12 36 52
Other noncash items:
Increase in policy liabilities and accruals 508 3 24 50 585
Minority interest in operating income 12 2 14
Segment operating income (a) $ 59 $ 10 $ 33 $ 16 $ (17) $ 101
======= ==== ==== ==== ==== =======
Deferred policy acquisition costs $ 1,014 $ 22 $ 6 $ 1,042
Total segment assets $14,946 $318 $656 $615 $1,101 $17,636
======= ==== ==== ==== ====== =======
</TABLE>
(a) Before income taxes and after policyholder dividends on Individual
Insurance.
29
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED
DECEMBER 31, 1996 GROUP LIFE
(IN MILLIONS) INDIVIDUAL LIFE & HEALTH SECURITIES ALL
INSURANCE REINSURANCE INSURANCE MANAGEMENT OTHER TOTALS
---------- ----------- ---------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external sources $ 1,111 $121 $415 $153 $ 140 $ 1,940
Intersegment revenues 14 33 47
Net investment income 562 16 37 2 91 708
Interest expense 3 2 5
Policyholder dividends 297 297
Increase in DAC (39) (2) (20) (61)
Depreciation and amortization expense 3 1 11 11 26
Other noncash items:
Increase in policy liabilities and
accruals 465 8 40 49 562
Minority interest in operating income 17 (3) 14
Segment operating income (a) $ 59 $ 9 $ 12 $ 28 $ (9) $ 99
======= ==== ==== ==== ====== =======
Deferred policy acquisition costs $ 905 $ 18 $ 21 $ 944
Total segment assets $12,302 $304 $597 $366 $ 965 $14,534
======= ==== ==== ==== ====== =======
</TABLE>
(a) Before income taxes and after policyholder dividends on Individual
Insurance.
30
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEGMENT RECONCILIATION
The following is a reconciliation of the totals of reportable segment
revenues, operating income and assets to Phoenix's consolidated totals:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Total revenues for reportable segments $ 3,380 $ 2,903 $ 2,695
Realized investment gains 64 111 77
Unallocated net investment income 50 24 4
Elimination of intersegment revenues (59) (47) (47)
------- ------- -------
Total consolidated revenues $ 3,435 $ 2,991 $ 2,729
======= ======= =======
OPERATING INCOME
Total operating income for reportable segments $ 112 $ 101 $ 99
Realized investment gains 64 111 77
Unallocated amounts:
Net investment income 50 22 4
Interest expense (14) (23) (13)
Other unallocated amounts (14) 9 9
Reclassification of minority interest 12 14 17
------- ------- -------
Total consolidated operating income $ 210 $ 234 $ 193
======= ======= =======
ASSETS
Total assets for reportable segments $18,771 $17,636 $14,534
Unallocated amounts:
Investments and accrued investment income
attributable to unallocated capital 725 846 859
Goodwill and other intangible assets 15 21 20
Other unallocated amounts 10 35 41
------- ------- -------
Total consolidated assets $19,521 $18,538 $15,454
======= ======= =======
</TABLE>
11. 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 $106.7 million and $109.0 million,
respectively, at December 31, 1998 and 1997. 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 $173.5 million and
$164.4 million at December 31, 1998 and 1997, respectively.
Rental expenses for operating leases, principally with respect to buildings,
amounted to $14.5 million, $14.9 million and $14.8 million in 1998, 1997,
and 1996, respectively. Future minimum rental payments under noncancelable
operating leases were approximately $45.3 million as of December 31, 1998,
payable as follows: 1999--$14.8 million; 2000--$12.0 million; 2001--$7.9
million; 2002--$5.8 million; 2003--$3.2 million; and $1.6 million
thereafter.
31
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. DIRECT BUSINESS WRITTEN AND REINSURANCE
As is customary practice in the insurance industry, Phoenix assumes and
cedes reinsurance as a means of diversifying underwriting risk. For direct
issues, the maximum of individual life insurance retained by Phoenix on any
one life is $8 million for single life and joint first-to-die policies and
to $10 million for joint last-to-die policies, with excess amounts ceded to
reinsurers. Phoenix reinsures 80% of the mortality risk on the inforce block
of the Confederation Life business acquired on December 31, 1997, and 90% of
the mortality risk on certain new issues of term and universal life
products. In addition, Phoenix entered into a separate reinsurance agreement
on October 1, 1998 to reinsure 80% of the mortality risk on a substantial
portion of its otherwise retained individual life insurance business.
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>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $ 1,719,393 $ 1,592,800 $ 1,473,869
Reinsurance assumed 505,262 329,927 276,630
Reinsurance ceded (371,854) (282,121) (231,677)
------------ ------------ ------------
Net premiums $ 1,852,801 $ 1,640,606 $ 1,518,822
============ ============ ============
Direct policy and contract claims incurred $ 728,062 $ 626,834 $ 575,824
Reinsurance assumed 433,242 410,704 170,058
Reinsurance ceded (407,780) (373,127) (160,646)
------------ ------------ ------------
Net policy and contract claims incurred $ 753,524 $ 664,411 $ 585,236
============ ============ ============
Direct life insurance in force $121,442,041 $ 120,394,664 $108,816,856
Reinsurance assumed 110,632,110 84,806,585 61,109,836
Reinsurance ceded (135,817,986) (74,764,639) (51,525,976)
------------ ------------ ------------
Net insurance in force $ 96,256,165 $130,436,610 $118,400,716
============ ============ ============
</TABLE>
Irrevocable letters of credit aggregating $5.3 million at December 31, 1998
have been arranged with United States commercial banks in favor of Phoenix
to collateralize the ceded reserves.
13. PARTICIPATING LIFE INSURANCE
Participating life insurance in force was 72.3% and 79.6% of the face value
of total individual life insurance in force at December 31, 1998 and 1997,
respectively. The premiums on participating life insurance policies were
75.7%, 83.5% and 84.1% of total individual life insurance premiums in 1998,
1997 and 1996, respectively.
32
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred and
amortized for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $1,038,407 $ 926,274 $ 816,128
Acquisition cost deferred 171,618 295,189 153,873
Amortized to expense during the year (140,084) (105,071) (95,255)
Adjustment to net unrealized investment
gains (losses) included in other
comprehensive income 6,694 (77,985) 51,528
---------- ---------- ---------
Balance at end of year $1,076,635 $1,038,407 $ 926,274
========== ========== =========
</TABLE>
15. MINORITY INTEREST
Phoenix's interests in Phoenix Investment Partners and American Phoenix
Corporation, through its wholly-owned subsidiary PM Holdings, are
represented by ownership of approximately 60% and 85%, respectively, of the
outstanding shares of common stock at December 31, 1998. Earnings and equity
attributable to minority shareholders are included in minority interest in
the consolidated financial statements.
16. 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.
33
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 130 and 800 basis points, depending on
the internal quality rating of the loan. For loans in foreclosure or
default, values were determined assuming principal recovery was the lower of
the loan balance or the estimated value of the underlying property.
POLICY LOANS
Fair values are estimated as the present value of loan interest and policy
loan repayments discounted at the ten-year Treasury rate. Loan repayments
were assumed only to occur as a result of anticipated policy lapses, and it
was assumed that annual policy loan interest payments were made at the
guaranteed loan rate less 17.5 basis points. Discounting was at the ten-year
Treasury rate, except for policy loans with a variable policy loan rate.
Variable policy loans have an interest rate that is reset annually based
upon market rates and therefore, book value is a reasonable approximation of
fair value.
INVESTMENT CONTRACTS
In determining the fair value of guaranteed interest contracts, a discount
rate equal to the appropriate Treasury rate, plus 150 basis points, was
assumed to determine the present value of projected contractual liability
payments through final maturity.
The fair value of deferred annuities and supplementary contracts without
life contingencies with an interest guarantee of one year or less is valued
at the amount of the policy reserve. In determining the fair value of
deferred annuities and supplementary contracts without life contingencies
with interest guarantees greater than one year, a discount rate equal to the
appropriate Treasury rate, plus 150 basis points, was used to determine the
present value of the projected account value of the policy at the end of the
current guarantee period.
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.
34
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FAIR VALUE SUMMARY
The estimated fair values of the financial instruments as of December 31,
were as follows:
<TABLE>
<CAPTION>
1998 1997
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 132,634 $ 132,634 $ 159,307 $ 159,307
Short-term investments 240,911 240,911 1,078,276 1,078,276
Debt securities 8,575,227 8,666,311 7,213,966 7,316,601
Equity securities 304,545 304,545 335,888 335,888
Mortgage loans 797,343 831,919 927,501 956,041
Policy loans 2,008,260 2,122,389 1,986,728 2,104,704
----------- ----------- ----------- -----------
Total financial assets $12,058,920 $12,298,709 $11,701,666 $11,950,817
=========== =========== =========== ===========
Financial liabilities:
Policy liabilities $ 783,400 $ 783,400 $ 902,200 $ 902,200
Securities sold subject to repurchase
agreements 137,473 137,473
Notes payable 449,252 449,252 471,085 471,085
----------- ----------- ----------- -----------
Total financial liabilities $ 1,232,652 $ 1,232,652 $ 1,510,758 $ 1,510,758
=========== =========== =========== ===========
</TABLE>
17. CONTINGENCIES
FINANCIAL GUARANTEES
As a result of the sale of real estate properties, in December 1998, Phoenix
is no longer 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 principal amount of bonds guaranteed
by Phoenix at December 31, 1997 was $88.7 million.
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. Phoenix estimates the
cost of settlement to be $40 million after tax. A $25 million after tax
liability was recorded in 1995. In addition, $7 million after tax was
expensed in 1996. The after tax costs of $12.5 million for 1997 and $6.7
million for 1998 were directly offset by a release of the liability in those
years. 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.
35
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, 1998, 1997 and 1996, there
were no material practices not prescribed by the Insurance Department of the
State of New York. Statutory surplus differs from 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 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>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income $108,652 $ 66,599 $ 70,261
Deferred policy acquisition costs, net 18,538 48,821 58,618
Future policy benefits (53,847) (9,145) (16,793)
Pension and postretirement expenses (17,334) (7,955) (23,275)
Investment valuation allowances 94,873 84,975 81,841
Interest maintenance reserve 1,415 17,544 (5,158)
Deferred income taxes (39,983) (36,250) (67,064)
Other, net 12,459 2,118 4,808
-------- -------- --------
Net income, as reported $124,773 $166,707 $103,238
======== ======== ========
</TABLE>
The following reconciles the statutory surplus and asset valuation reserve
(AVR) of Phoenix as reported to regulatory authorities to equity as reported
in these financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Statutory surplus, surplus notes and AVR $1,205,635 $1,152,820
Deferred policy acquisition costs, net 1,259,316 1,227,782
Future policy benefits (465,268) (395,436)
Pension and postretirement expenses (174,273) (169,383)
Investment valuation allowances 2,002 (27,738)
Interest maintenance reserve 35,303 33,794
Deferred income taxes (25,593) (12,051)
Surplus notes (157,500) (157,500)
Other, net 24,062 (11,904)
---------- ----------
Equity, as reported $1,703,684 $1,640,384
========== ==========
</TABLE>
36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
19. PRIOR PERIOD ADJUSTMENT
In 1998, Phoenix revised the accounting for partnerships involved in
leveraged lease arrangements for 1997 and 1996. Opening retained earnings at
December 31, 1995 has been increased by $7.7 million. The Consolidated
Balance Sheet as of December 31, 1997 was revised by increasing the
following balances: other invested assets by $18.9 million, deferred income
taxes by $6.6 million and retained earnings by $12.3 million. The effect on
the Consolidated Statement of Income, Comprehensive Income and Equity was an
increase in net income of $2.1 million and $2.5 million for the years ended
1997 and 1996, respectively.
20. SUBSEQUENT EVENTS
PHOENIX INVESTMENT PARTNERS, LTD.
On March 2, 1999, Phoenix Investment Partners completed its acquisition of
the retail mutual fund and closed-end fund business of the New York City
based Zweig Group. Under the terms of the agreement, Phoenix Investment
Partners paid $135.0 million at closing and will pay up to an additional
$29.0 million over the next three years based on revenue growth of the Zweig
funds. The acquisition increases Phoenix Investment Partners' assets under
management by approximately $4.4 billion.
OCCUPATIONAL ACCIDENT REINSURANCE
Effective March 1, 1995, Phoenix became a participant in an occupational
accident reinsurance pool. In addition, effective October 1, 1996, Phoenix
and American Phoenix Life and Reassurance Company, an indirect wholly owned
subsidiary of Phoenix, became a participant in a reinsurance facility of
occupational accident reinsurance. A significant portion of the risk
associated with the occupational accident reinsurance pool and the
reinsurance facility is further retroceded by Phoenix and American Phoenix
Life to several other unaffiliated insurance entities. Phoenix has
terminated membership in the pool effective March 1, 1999 while American
Phoenix Life and Phoenix terminated participation in the reinsurance
facility effective October 1, 1998.
Management's assessment of the reinsurance arrangements and related
financial exposure to Phoenix and American Phoenix Life is ongoing. Based on
current facts and circumstances, management believes these transactions will
not materially affect the financial condition of Phoenix or American Phoenix
Life.
37
<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.
C-1
<PAGE>
(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) Opinion previously filed.
(10)(a) Written Consent as to Legality of Securities Being
Registered of Edwin L. Kerr, Esquire filed via Edgar
herewith.
(10)(b) Written Consent of PricewaterhouseCoopers 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 and is
incorporated herein by reference.
(27) Not Applicable
ITEM 25. DIRECTORS AND EXECUTIVE OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITIONS WITH DEPOSITOR
---- -------------------------- ------------------------
<S> <C> <C> <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
Peter C. Browning President Director
Sonoco Products Company
Hartsville, SC
Arthur P. Byrne Group Executive Director
Danaher Corporation
West Hartford, CT
Richard N. Cooper, Ph.D. Chairman, National Intelligence Council Director
Central Intelligence Agency
Washington, D.C.
Gordon J. Davis, Esq. Partner Director
LeBoeuf, Lamb, Greene & MacRae
New York, NY
Robert W. Fiondella Phoenix Home Life Mutual Chairman of the Board,
Insurance Company President and Chief
Hartford, CT Executive Officer
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITIONS WITH DEPOSITOR
---- -------------------------- ------------------------
<S> <C> <C> <C>
Jerry J. Jasinowski President Director
National Association of Manufacturers
Washington, D.C.
John W. Johnstone Chairman, President and Chief Director
Executive Officer, Olin Corporation
Stamford, CT
Marilyn E. LaMarche Limited Managing Director Director
Lazard Freres & Co. LLP
New York, NY
Philip R. McLoughlin* Phoenix Home Life Director, Executive Vice
Mutual Insurance Company President and Chief
Hartford, CT Investment Officer
Indra K. Nooyi Senior Vice President Director
PepisCo, Inc.
Purchase, NY
Robert F. Vizza President and Chief Executive Officer Director
St. Francis Hospital
Roslyn, NY
Robert G. Wilson Chairman and President Director
Ziani International Capital, Inc.
Miami, FL
Richard H. Booth* Director, Executive Vice President
Strategic Development
Dona D. Young* Director, Executive Vice President
Individual Insurance and
General Counsel
David W. Searfoss* Executive Vice President
and Chief Financial
Officer
Carl T. Chadburn** Executive Vice President
Kelly J. Carlson* Senior Vice President
Career Organization
Robert G. Chipkin* Senior Vice President and
Corporate Actuary
Martin J. Gavin* Senior Vice President
Randall C. Giangiulio** Senior Vice President
Group Sales
Edward P. Hourihan* Senior Vice President
Information Systems
Joseph E. Kelleher** Senior Vice President
Robert G. Lautensack, Jr.* Senior Vice President
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
NAME PRINCIPAL BUSINESS ADDRESS POSITIONS WITH DEPOSITOR
---- -------------------------- ------------------------
<S> <C> <C>
Maura L. Melley Senior Vice President
Scott C. Noble* Senior Vice President
Real Estate
David R. Pepin Senior Vice President
Robert E. Primmer* Senior Vice President
Brokerage and PPGA
Distribution
Frederick W. Sawyer, III* Senior Vice President
Simon Y. Tan* Senior Vice President
Individual Market
Development
Anthony J. Zeppetella Senior Vice President
Walter H. Zultowski* Senior Vice President
</TABLE>
* The principal business address of each of these individuals is One American
Row, Hartford, Connecticut 06115.
** The principal business address of each of these individuals is 100 Bright
Meadow Boulevard, P.O. Box 2200, Enfield, Connecticut 06082-2200.
ITEM 26. NOT APPLICABLE
ITEM 27. NUMBER OF CONTRACTOWNERS
On March 31, 1999, there were 79,459 Owners of Contracts offered by
Registrant.
ITEM 28. INDEMNIFICATION
Section 723 of the New York Business Corporation Law, as made applicable to
insurance companies by Section 108 of the New York Insurance Law, provides that
a corporation may indemnify any director or officer of the corporation made, or
threatened to be made, a party to an action or proceeding other than one by or
in the right of the corporation to procure a judgment in its favor, whether
civil or criminal, including an action by or in the right of any other
corporation of any type or kind, by reason of the fact that he, his testator or
intestate, served such other corporation in any capacity at the request of the
indemnifying corporation.
Article VI Section 6.1 of the By-Laws of the Phoenix Home Life Mutual
Insurance Company provides: "To the full extent permitted by the laws of the
State of New York, the Company shall indemnify any person made or threatened to
be made a party to any action, proceeding or investigation, whether civil or
criminal, by reason of the fact that such person is or was a Director or Officer
of the Company; or serves or served another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity at the
request of the Company, and also is or was a Director or Officer of the
Company...The Company shall also indemnify any [such] person...by reason of the
fact that such person or such person's testator or intestate is or was an
employee or agent of the Company...."
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C-4
<PAGE>
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
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 NET UNDERWRITING COMPENSATION BROKERAGE
PRINCIPAL UNDERWRITER DISCOUNTS AND COMMISSIONS ON REDEMPTION COMMISSIONS COMPENSATION
- --------------------- ------------------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
PEPCO $22,077,720 -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
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, 1999.
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, 1999.
SIGNATURE TITLE
--------- -----
__________________________________ Director
*Sal H. Alfiero
__________________________________ Director
*J. Carter Bacot
__________________________________ Director
*Carol H. Baldi
__________________________________ Director
*Peter C. Browning
__________________________________ Director
*Arthur P. Byrne
__________________________________ Director
*Richard N. Cooper
__________________________________ Director
*Gordon J. Davis
__________________________________ Chairman of the Board,
*Robert W. Fiondella President and Chief Executive Officer
(Principal Executive Officer)
S-1
<PAGE>
SIGNATURE TITLE
--------- -----
__________________________________ Director
*Jerry J. Jasinowski
__________________________________ Director
*John W. Johnstone
__________________________________ Director
*Marilyn E. LaMarche
__________________________________ Director
*Philip R. McLoughlin
__________________________________ Director
*Indra K. Nooyi
__________________________________ 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 of Edwin L. Kerr, Counsel
Phoenix Home Life Mutual Insurance Company
<PAGE>
To Whom It May Concern:
I hereby consent to the reference to my name under the caption "Legal
Matters" in the Prospectus contained in Post-Effective Amendment No. 29 to the
Registration Statement on Form N-4 (File No. 2-78020) filed by Phoenix Home Life
Variable Accumulation Account with the Securities and Exchange Commission under
the Securities Act of 1933.
Very truly yours,
Dated April 27, 1999 /s/ Edwin L. Kerr
Edwin L. Kerr, Counsel
Phoenix Home Life
Mutual Insurance Company
EXHIBIT 99.10(B)
Written Consent of PricewaterhouseCoopers, 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. 29 to the Registration
Statement on Form N-4 (the "Registration Statement") of our reports dated
February 17, 1999 and February 11, 1999, except as to Note 20, which is as of
April 27, 1999, 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/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
April 27, 1999
