PHOENIX RETIREMENT PLANNER'S EDGE
FOR NEW YORK
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 15, 2000
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.
You may allocate payments and contract value to one or more of the
subaccounts of the VA Account or the Guaranteed Interest Account ("GIA"). The
assets of each subaccount will be used to purchase, at net asset value, shares
of a series in the following designated funds:
THE PHOENIX EDGE SERIES FUND
- ----------------------------
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
[diamond] Phoenix-Aberdeen International Series
[diamond] Phoenix-Engemann Capital Growth Series
[diamond] Phoenix-Engemann Nifty Fifty Series
[diamond] Phoenix-Goodwin Money Market Series
[diamond] Phoenix-Goodwin Multi-Sector Fixed Income Series
[diamond] Phoenix-Hollister Value Equity Series
[diamond] Phoenix-Oakhurst Balanced Series
[diamond] Phoenix-Oakhurst Growth and Income Series
[diamond] Phoenix-Oakhurst Strategic Allocation Series
[diamond] Phoenix-Seneca Mid-Cap Growth Series
[diamond] Phoenix-Seneca Strategic Theme Series
MANAGED BY PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
[diamond] Phoenix-Aberdeen New Asia Series
MANAGED BY DUFF & PHELPS INVESTMENT MANAGEMENT CO.
[diamond] Phoenix-Duff & Phelps Real Estate Securities Series
MANAGED BY PHOENIX VARIABLE ADVISORS, INC.
[diamond] Phoenix-Bankers Trust Dow 30 Series
[diamond] Phoenix-Federated U.S. Government Bond Series
[diamond] Phoenix-J.P. Morgan Research Enhanced Index Series
[diamond] Phoenix-Janus Equity Income Series
[diamond] Phoenix-Janus Flexible Income Series
[diamond] Phoenix-Janus Growth Series
[diamond] Phoenix-Morgan Stanley Focus Equity Series
[diamond] Phoenix-Schafer Mid-Cap Value Series
DEUTSCHE ASSET MANAGEMENT VIT FUNDS
- -----------------------------------
MANAGED BY BANKERS TRUST COMPANY
[diamond] EAFE(R) Equity Index Fund
FEDERATED INSURANCE SERIES
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
[diamond] Federated Fund for U.S. Government Securities II
[diamond] Federated High Income Bond Fund II
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
- ---------------------------------------
MANAGED BY MORGAN STANLEY ASSET MANAGEMENT
[diamond] Technology Portfolio
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
- ----------------------------------------------------
MANAGED BY TEMPLETON GLOBAL ADVISORS LIMITED
[diamond] Templeton Growth Securities Fund-- Class 2
MANAGED BY TEMPLETON INVESTMENT COUNSEL, INC.
[diamond] Templeton Asset Strategy Fund -- Class 2
[diamond] Templeton International Securities Fund -- Class 2
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
[diamond] Templeton Developing Markets Securities Fund -- Class 2
MANAGED BY FRANKLIN MUTUAL ADVISERS, LLC
[diamond] Mutual Shares Securities Fund -- Class 2
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
1
<PAGE>
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 tax liability.
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.
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.
This prospectus provides important information that a prospective investor
ought to know before investing. This prospectus should be kept for future
reference. A Statement of Additional Information ("SAI") has been filed with the
SEC and is available free of charge by calling Variable Annuity Operations at
800/541-0171.
2
<PAGE>
TABLE OF CONTENTS
Heading Page
- --------------------------------------------------------------------------------
SPECIAL TERMS............................................. 4
SUMMARY OF EXPENSES....................................... 6
CONTRACT SUMMARY.......................................... 11
FINANCIAL HIGHLIGHTS...................................... 12
PERFORMANCE HISTORY....................................... 12
THE VARIABLE ACCUMULATION ANNUITY......................... 12
PHOENIX AND THE ACCOUNT .................................. 12
INVESTMENTS OF THE ACCOUNT................................ 12
The Phoenix Edge Series Fund........................... 12
Deutsche Asset Management VIT Funds.................... 14
Federated Insurance Series ............................ 14
The Universal Institutional Funds, Inc................. 14
Franklin Templeton Variable Insurance Products Trust... 14
Wanger Advisors Trust.................................. 14
Investment Advisors.................................... 15
Services of the Advisors............................... 16
PURCHASE OF CONTRACTS..................................... 16
DEDUCTIONS AND CHARGES.................................... 16
Daily Deductions from the Separate Account............. 16
Premium Tax.......................................... 16
Mortality and Expense Risk Fee....................... 16
Administrative Fee................................... 16
Administrative Charge................................ 17
Reduced Charges, Credits and Bonus Guaranteed
Interest Rates....................................... 17
Other Charges........................................ 17
THE ACCUMULATION PERIOD................................... 17
Accumulation Units..................................... 17
Accumulation Unit Values............................... 17
Transfers ............................................. 17
Optional Programs and Benefits......................... 18
Dollar Cost Averaging Program...................... 18
Asset Rebalancing Program.......................... 18
Surrender of Contract; Partial Withdrawals............. 19
Lapse of Contract...................................... 19
Payment Upon Death Before Maturity Date ............... 19
THE ANNUITY PERIOD........................................ 20
Variable Accumulation Annuity Contracts................ 20
Annuity Options ....................................... 20
Option A--Life Annuity with Specified Period Certain.. 21
Option B--Non-Refund Life Annuity..................... 21
Option D--Joint and Survivor Life Annuity............. 21
Option E--Installment Refund Life Annuity............. 21
Option F--Joint and Survivor Life Annuity with
10-Year Period Certain ............................ 21
Option G--Payments for Specified Period............... 21
Option H--Payments of Specified Amount................ 21
Option I--Variable Payment Life Annuity with
10-Year Period Certain ............................ 21
Option J--Joint Survivor Variable Payment Life
Annuity with 10-Year Period Certain ............... 21
Option K--Variable Payment Annuity for a
Specified Period .................................. 21
Option L--Variable Payment Life Expectancy
Annuity............................................ 22
Option M--Unit Refund Variable Payment Life
Annuity............................................ 22
Option N--Variable Payment Non-Refund Life
Annuity............................................ 22
Other Options and Rates.............................. 22
Other Conditions..................................... 22
Payment Upon Death After Maturity Date................. 22
VARIABLE ACCOUNT VALUATION PROCEDURES..................... 22
Valuation Date......................................... 22
Valuation Period....................................... 22
Accumulation Unit Value................................ 22
Net Investment Factor.................................. 23
MISCELLANEOUS PROVISIONS.................................. 23
Assignment............................................. 23
Deferment of Payment .................................. 23
Free Look Period....................................... 23
Amendments to Contracts................................ 23
Substitution of Fund Shares............................ 23
Ownership of the Contract.............................. 23
FEDERAL INCOME TAXES...................................... 24
Introduction........................................... 24
Income Tax Status...................................... 24
Taxation of Annuities in General--Non-Qualified Plans... 24
Surrenders or Withdrawals Prior to the Contract
Maturity Date..................................... 24
Surrenders or Withdrawals On or After the
Contract Maturity Date............................ 24
Penalty Tax on Certain Surrenders and Withdrawals.... 25
Additional Considerations.............................. 25
Diversification Standards ............................. 26
Qualified Plans........................................ 27
Tax Sheltered Annuities ("TSAs") .................... 27
Keogh Plans.......................................... 28
Individual Retirement Accounts....................... 28
Corporate Pension and Profit-Sharing Plans........... 28
Penalty Tax on Certain Surrenders and
Withdrawals from Qualified Plans.................. 28
Seek Tax Advice...................................... 29
SALES OF VARIABLE ACCUMULATION CONTRACTS.................. 29
STATE REGULATION.......................................... 29
REPORTS................................................... 29
VOTING RIGHTS............................................. 29
LEGAL MATTERS............................................. 30
SAI....................................................... 30
APPENDIX A-PERFORMANCE HISTORY............................ 31
APPENDIX B-THE GUARANTEED INTEREST ACCOUNT................ 33
APPENDIX C-DEDUCTIONS FOR PREMIUM TAXES................... 34
3
<PAGE>
SPECIAL TERMS
- --------------------------------------------------------------------------------
The following is a list of terms and their meanings when used in this
prospectus.
ACCOUNT (VA 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 $1.0000
on the date assets were first allocated to each subaccount. The value of one
accumulation unit on any subsequent valuation date is determined by multiplying
the immediately preceding accumulation unit value by the applicable net
investment factor for the valuation period ending on such valuation date.
ADJUSTED PARTIAL WITHDRAWALS: The result of multiplying the ratio of the
partial withdrawal to the contract value and the death benefit (prior to the
withdrawal)on the date of the withdrawal.
ANNUAL STEP-UP AMOUNT (STEP-UP AMOUNT): In the first contract year the step-up
amount is the greater of (1) 100% of purchase payments less Adjusted Partial
Withdrawals; or (2) the contract value. After that, in any following contract
year the step-up amount equals the greater of (1) the step-up amount at the end
of the prior contract year, plus 100% of premium payments, less Adjusted Partial
Withdrawals made since the end of the last contract year; or (2) the contract
value.
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 valuation date 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 specified in
the contract application. However, under contracts used with certain tax
qualified plans, the owner must be the annuitant. If no owner is named in the
application, 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, and 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, Deutsche Asset Management VIT Funds,
Federated Insurance Series, The Universal Institutional Funds, Inc., Franklin
Templeton Variable Insurance Products Trust and Wanger Advisors Trust.
GIA: An investment option under which premium amounts are guaranteed to earn a
fixed rate of interest.
ISSUE DATE: The date that the initial premium 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 Annuity (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 as to 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 95th birthday unless you and we
agree otherwise. 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--$20,000
[diamond] Individual Retirement Annuity (Rollover IRA only)--$20,000
[diamond] Bank draft program--$500
[diamond] Qualified plans--$20,000 annually
4
<PAGE>
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 $500.
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, US, WE, 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.
VAO: Variable Annuity Operations.
VARIABLE PAYMENT ANNUITY: An annuity providing payments that vary in amounts,
according to the investment experience of the selected subaccounts.
VPMO: Variable Products Mail Operations, the division of Phoenix that receives
and processes incoming mail for Variable Annuity Operations.
5
<PAGE>
SUMMARY OF EXPENSES
CONTRACT OWNER TRANSACTION EXPENSES ALL SUBACCOUNTS
Sales Charges Imposed on Purchases...................................... None
Deferred Surrender Charges.............................................. None
Subaccount Transfer Charge.............................................. None*
* The company has reserved the right to charge up to $10 per transfer in excess
of two transfers per contract year.
ANNUAL ADMINISTRATIVE CHARGE
Maximum.............................................................. $35
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average account value)
Mortality and Expense Risk Fee....................................... 1.275%
Daily Administrative Fee............................................. .125%
-------
Total Separate Account Annual Expenses............................... 1.40%
6
<PAGE>
FUND ANNUAL EXPENSES (AS A PERCENTAGE OF FUND AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES TOTAL EXPENSES TOTAL EXPENSES
SERIES MANAGEMENT RULE 12b-1 BEFORE BEFORE AFTER
FEES FEES REIMBURSEMENT(1) REIMBURSEMENT REIMBURSEMENT(2)
- ------------------------------------------------------------------------------------------------------------------------------------
THE PHOENIX EDGE SERIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phoenix-Aberdeen International .75% N/A .26% 1.01% 1.01%
Phoenix-Aberdeen New Asia 1.00% N/A 1.39% 2.39% 1.25%
Phoenix-Bankers Trust Dow 30 .35% N/A 1.40%(4) 1.75%(4) .50%
Phoenix-Duff & Phelps Real Estate Securities .75% N/A .56% 1.31% 1.00%
Phoenix-Engemann Capital Growth .62% N/A .06% .68% .68%
Phoenix-Engemann Nifty Fifty .90% N/A .53% 1.43% 1.05%
Phoenix-Federated U.S. Government Bond .60% N/A 1.70%(4) 2.30%(4) .75%
Phoenix-Goodwin Money Market .40% N/A .17% .57% .55%
Phoenix-Goodwin Multi-Sector Fixed Income .50% N/A .21% .71% .65%
Phoenix-Hollister Value Equity .70% N/A 1.33% 2.03% .85%
Phoenix-J.P. Morgan Research Enhanced Index .45% N/A .30% .75% .55%
Phoenix-Janus Equity Income .85% N/A 1.40%(4) 2.25%(4) 1.00%
Phoenix-Janus Flexible Income .80% N/A 1.65%(4) 2.45%(4) .95%
Phoenix-Janus Growth .85% N/A 1.05%(4) 1.90%(4) 1.00%
Phoenix-Morgan Stanley Focus Equity .85% N/A 1.30%(4) 2.15%(4) 1.00%
Phoenix-Oakhurst Balanced .54% N/A .16% .70% .70%
Phoenix-Oakhurst Growth and Income .70% N/A .31% 1.01% .85%
Phoenix-Oakhurst Strategic Allocation .58% N/A .12% .70% .70%
Phoenix-Schafer Mid-Cap Value 1.05% N/A 1.53% 2.58% 1.20%
Phoenix-Seneca Mid-Cap Growth .80% N/A 1.24% 2.04% 1.05%
Phoenix-Seneca Strategic Theme .75% N/A .22% .97% .97%
DEUTSCHE ASSET MANAGEMENT VIT FUNDS
- ------------------------------------------------------------------------------------------------------------------------------------
EAFE(R)Equity Index Fund .45% N/A .69% 1.15% .65%
FEDERATED INSURANCE SERIES
- ------------------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government Securities II .60% N/A .24% .84% .84%
Federated High Income Bond Fund II .60% N/A .19% .79% .79%
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
- ------------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio .80% N/A 1.85%(4) 2.65%(4) 1.15%
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund--Class 2(6) .60% .25%(3) .19% 1.04% 1.04%
Templeton Asset Strategy Fund--Class 2(5,6) .60% .25%(3) .18% 1.03% 1.03%
Templeton Developing Markets Securities Fund--Class 2(5,6) 1.25% .25%(3) .31% 1.81% 1.81%
Templeton Growth Securities Fund--Class 2(6) .83% .25%(3) .05% 1.13% 1.13%
Templeton International Securities Fund--Class 2(5,6) .69% .25%(3) .19% 1.13% 1.13%
WANGER ADVISORS TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty 1.00% N/A 2.45% 3.45% 1.45%
Wanger International Small Cap 1.25% N/A .24% 1.49% 1.49%
Wanger Twenty .95% N/A 1.17% 2.12% 1.35%
Wanger U.S. Small Cap .95% N/A .07% 1.02% 1.02%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Other expenses after reimbursement are as follows: The Phoenix-J.P. Morgan
Research Enhanced Index Series will pay up to .10%; the Phoenix-Engemann
Capital Growth, Phoenix-Goodwin Multi-Sector Fixed Income, Phoenix-Oakhurst
Strategic Allocation, Phoenix-Goodwin Money Market, Phoenix-Engemann Nifty
Fifty, Phoenix-Oakhurst Growth and Income, Phoenix-Hollister Value Equity,
Phoenix-Schafer Mid-Cap Value, Phoenix-Bankers Trust Dow 30, Phoenix-Federated
U.S. Government, Phoenix-Janus Equity Income, Phoenix-Janus Flexible Income,
Phoenix-Janus Growth and Phoenix-Morgan Stanley Focus Equity Series will pay
up to .15%; the Phoenix-Duff & Phelps Real Estate Securities, Phoenix-Seneca
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%. The Wanger Foreign Forty will pay up to .45%, the Wanger U.S.
Small Cap Series will pay up to .50%, the Wanger International Small Cap will
pay up to .60%, and the Wanger Twenty will pay up to .40%.
2 Reflects the effect of any management fee waivers and reimbursement of
expenses.
3 The fund's Class 2 distribution plan or "Rule 12b-1 Plan" is described in the
fund's prospectus.
4 These figures are estimates: these series have been available for less than
six months as of the date of this prospectus.
5 On 2/8/00, shareholders approved a merger and reorganization that combined the
fund with a similar fund of the Franklin Templeton Variable Insurance Products
Trust, effective 5/1/00.
6 The table shows total expenses based on the new fees and assets as of 12/31/99
and not the assets of the combined funds. The following table estimates what
the total expenses would be based on the assets of the combined funds as of
5/1/00:
<TABLE>
<CAPTION>
--------------------------------------------------- ------------------- ---------------- ----------------- ------------------------
ESTIMATED ANNUAL EXPENSES FROM 5/1/00 MANAGEMENT FEES RULE 12b-1 FEES OTHER EXPENSES TOTAL OPERATING EXPENSES
--------------------------------------------------- ------------------- ---------------- ----------------- ------------------------
<S> <C> <C> <C> <C>
Mutual Shares Securities Fund - Class 2 .60% .25% .19% 1.04%
Templeton Asset Strategy Fund - Class 2 .60% .25% .14% .99%
Templeton Developing Markets Securities Fund - Class 2 1.25% .25% .29% 1.79%
Templeton Growth Securities Fund - Class 2 .80% .25% .05% 1.10%
Templeton International Securities Fund - Class 2 .65% .25% .20% 1.10%
--------------------------------------------------- ------------------- ---------------- ----------------- -----------------------
</TABLE>
7
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
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 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>
- -----------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Phoenix-Aberdeen International Series........................... $26 $ 80 $136 $290
Phoenix-Aberdeen New Asia Series................................ 40 120 202 416
Phoenix-Bankers Trust Dow 30 Series(2)......................... 33 102 N/A N/A
Phoenix-Duff & Phelps Real Estate Securities Series............. 29 89 151 319
Phoenix-Engemann Capital Growth Series.......................... 23 70 119 256
Phoenix-Engemann Nifty Fifty Series............................. 30 92 157 330
Phoenix-Federated U.S. Government Bond Series(2)................ 39 118 N/A N/A
Phoenix-Goodwin Money Market Series............................. 22 66 114 245
Phoenix-Goodwin Multi-Sector Fixed Income Series................ 23 71 121 360
Phoenix-Hollister Value Equity Series........................... 36 110 185 384
Phoenix-J.P. Morgan Research Enhanced Index Series.............. 23 72 123 264
Phoenix-Janus Equity Income Series(2)........................... 38 116 N/A N/A
Phoenix-Janus Flexible Income Series(2)......................... 40 122 N/A N/A
Phoenix-Janus Growth Series(2).................................. 35 106 N/A N/A
Phoenix-Morgan Stanley Focus Equity Series(2)................... 37 113 N/A N/A
Phoenix-Oakhurst Balanced Series................................ 23 70 120 258
Phoenix-Oakhurst Growth and Income Series....................... 26 80 136 290
Phoenix-Oakhurst Strategic Allocation Series.................... 23 70 120 258
Phoenix-Schafer Mid-Cap Value Series............................ 41 126 211 431
Phoenix-Seneca Mid-Cap Growth Series............................ 36 110 186 385
Phoenix-Seneca Strategic Theme Series........................... 26 78 134 286
EAFE(R)Equity Index Fund(1)..................................... 27 84 N/A N/A
Federated Fund for U.S. Government Securities II(1)............. 24 75 N/A N/A
Federated High Income Bond Fund II(1)........................... 24 73 N/A N/A
Technology Portfolio(2)......................................... 42 128 N/A N/A
Mutual Shares Securities Fund -- Class 2........................ 26 81 138 292
Templeton Asset Strategy Fund -- Class 2........................ 26 80 137 291
Templeton Developing Markets Securities Fund -- Class 2......... 34 103 175 365
Templeton Growth Securities Fund -- Class 2..................... 27 83 142 301
Templeton International Securities Fund -- Class 2.............. 27 83 142 301
Wanger Foreign Forty............................................ 50 150 250 500
Wanger International Small Cap.................................. 31 94 160 336
Wanger Twenty................................................... 37 112 190 392
Wanger U.S. Small Cap........................................... 26 80 137 290
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Inclusion of this subaccount began July 15, 1999.
2 Inclusion of this subaccount began December 20, 1999.
8
<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>
- -----------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Phoenix-Aberdeen International Series........................... $26 $ 80 $136 $290
Phoenix-Aberdeen New Asia Series................................ 40 120 202 416
Phoenix-Bankers Trust Dow 30 Series(2).......................... 33 102 N/A N/A
Phoenix-Duff & Phelps Real Estate Securities Series............. 29 89 151 319
Phoenix-Engemann Capital Growth Series.......................... 23 70 119 256
Phoenix-Engemann Nifty Fifty Series............................. 30 92 157 330
Phoenix-Federated U.S. Government Bond Series(2)................ 39 118 N/A N/A
Phoenix-Goodwin Money Market Series............................. 22 66 114 245
Phoenix-Goodwin Multi-Sector Fixed Income Series................ 23 71 121 360
Phoenix-Hollister Value Equity Series........................... 36 110 185 384
Phoenix-J.P. Morgan Research Enhanced Index Series.............. 23 72 123 264
Phoenix-Janus Equity Income Series(2)........................... 38 116 N/A N/A
Phoenix-Janus Flexible Income Series(2)......................... 40 122 N/A N/A
Phoenix-Janus Growth Series(2).................................. 35 106 N/A N/A
Phoenix-Morgan Stanley Focus Equity Series(2)................... 37 113 N/A N/A
Phoenix-Oakhurst Balanced Series................................ 23 70 120 258
Phoenix-Oakhurst Growth and Income Series....................... 26 80 136 290
Phoenix-Oakhurst Strategic Allocation Series.................... 23 70 120 258
Phoenix-Schafer Mid-Cap Value Series............................ 41 126 211 431
Phoenix-Seneca Mid-Cap Growth Series............................ 36 110 186 385
Phoenix-Seneca Strategic Theme Series........................... 26 78 134 286
EAFE(R)Equity Index Fund(1)..................................... 27 84 N/A N/A
Federated Fund for U.S. Government Securities II(1)............. 24 75 N/A N/A
Federated High Income Bond Fund II(1)........................... 24 73 N/A N/A
Technology Portfolio(2)......................................... 42 128 N/A N/A
Mutual Shares Securities Fund -- Class 2........................ 26 81 138 292
Templeton Asset Strategy Fund -- Class 2........................ 26 80 137 291
Templeton Developing Markets Securities Fund -- Class 2......... 34 103 175 365
Templeton Growth Securities Fund -- Class 2..................... 27 83 142 301
Templeton International Securities Fund -- Class 2.............. 27 83 142 301
Wanger Foreign Forty............................................ 50 150 250 500
Wanger International Small Cap.................................. 31 94 160 336
Wanger Twenty................................................... 37 112 190 392
Wanger U.S. Small Cap........................................... 26 80 137 290
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Inclusion of this subaccount began July 15, 1999.
2 Inclusion of this subaccount began December 20, 1999.
9
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
If you leave your premiums in the contract and you do not surrender or
annuitize it, after each of these time periods you will have paid 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>
- -----------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Phoenix-Aberdeen International Series........................... $26 $ 80 $136 $290
Phoenix-Aberdeen New Asia Series................................ 40 120 202 416
Phoenix-Bankers Trust Dow 30 Series(2).......................... 33 102 N/A N/A
Phoenix-Duff & Phelps Real Estate Securities Series............. 29 89 151 319
Phoenix-Engemann Capital Growth Series.......................... 23 70 119 256
Phoenix-Engemann Nifty Fifty Series............................. 30 92 157 330
Phoenix-Federated U.S. Government Bond Series(2)................ 39 118 N/A N/A
Phoenix-Goodwin Money Market Series............................. 22 66 114 245
Phoenix-Goodwin Multi-Sector Fixed Income Series................ 23 71 121 360
Phoenix-Hollister Value Equity Series........................... 36 110 185 384
Phoenix-J.P. Morgan Research Enhanced Index Series.............. 23 72 123 264
Phoenix-Janus Equity Income Series(2)........................... 38 116 N/A N/A
Phoenix-Janus Flexible Income Series(2)......................... 40 122 N/A N/A
Phoenix-Janus Growth Series(2).................................. 35 106 N/A N/A
Phoenix-Morgan Stanley Focus Equity Series(2)................... 37 113 N/A N/A
Phoenix-Oakhurst Balanced Series................................ 23 70 120 258
Phoenix-Oakhurst Growth and Income Series....................... 26 80 136 290
Phoenix-Oakhurst Strategic Allocation Series.................... 23 70 120 258
Phoenix-Schafer Mid-Cap Value Series............................ 41 126 211 431
Phoenix-Seneca Mid-Cap Growth Series............................ 36 110 186 385
Phoenix-Seneca Strategic Theme Series........................... 26 78 134 286
EAFE(R)Equity Index Fund(1)..................................... 27 84 N/A N/A
Federated Fund for U.S. Government Securities II(1)............. 24 75 N/A N/A
Federated High Income Bond Fund II(1)........................... 24 73 N/A N/A
Technology Portfolio(2)......................................... 42 128 N/A N/A
Mutual Shares Securities Fund -- Class 2........................ 26 81 138 292
Templeton Asset Strategy Fund -- Class 2........................ 26 80 137 291
Templeton Developing Markets Securities Fund -- Class 2......... 34 103 175 365
Templeton Growth Securities Fund -- Class 2..................... 27 83 142 301
Templeton International Securities Fund -- Class 2.............. 27 83 142 301
Wanger Foreign Forty............................................ 50 150 250 500
Wanger International Small Cap.................................. 31 94 160 336
Wanger Twenty................................................... 37 112 190 392
Wanger U.S. Small Cap........................................... 26 80 137 290
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Inclusion of this subaccount began July 15, 1999.
2 Inclusion of this subaccount began December 20, 1999.
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, 1999, except as indicated. The tables reflect expenses
of the Account as well as the funds. See "Deductions and Charges" in this
prospectus and in the fund prospectuses.
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
- --------------------------------------------------------------------------------
This summary describes the general provisions of the contract.
Certain provisions of the contract described in this prospectus may differ
in a particular state because of specific state requirements.
If there is ever a difference between the provisions within this prospectus
and the provisions of the contract, the contract provisions will control.
OVERVIEW
The contract offers a dynamic idea in retirement planning. It's designed to
provide you with retirement income at a future date, while allowing maximum
flexibility in obtaining your investment goals.
The contract offers a combination of investment options, both variable and
fixed. Investments in the variable options provide results which vary and depend
upon the performance of the underlying fund, while investments in the GIA
provide guaranteed interest earnings subject to certain conditions. Please refer
to "Appendix B" for a detailed discussion of the GIA.
The contract also provides for the payment of a death benefit upon the death
of either the owner or the annuitant anytime before the contract matures.
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 $20,000.
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--3%).
WITHDRAWALS
[diamond] You may partially or fully surrender the contract anytime for its
contract value less any applicable premium tax.
DEATH BENEFIT
The contract provides for payment on the death of the owner or the annuitant
at anytime prior to the maturity date. The amount payable differs depending on
whether the annuitant or owner/annuitant has reached age 80. See "Payment Upon
Death Before Maturity."
DEDUCTIONS AND CHARGES
FROM THE ACCOUNT
[diamond] Mortality and expense risk fee--1.275% 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."
[diamond] Administrative Fee--maximum of $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, however, if
applicable state law requires, we will return the full amount of the initial
payment.
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.
/R>
11
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
FINANCIAL HIGHLIGHTS
ACCUMULATION UNIT VALUES
(SELECTED DATA FOR AN ACCUMULATION UNIT OUTSTANDING
THROUGHOUT THE INDICATED PERIOD)
The subaccounts commenced operations as of the date of this prospectus;
therefore, data for these subaccounts are not yet available.
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.
THE VARIABLE ACCUMULATION ANNUITY
- --------------------------------------------------------------------------------
The individual deferred variable accumulation annuity contract (the
"contract") issued by us 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
that 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 and monthly annuity payments will vary in
accordance with the investment experience of the investment options selected.
However, a fixed annuity may be elected, in which case we 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 subaccounts or GIA.
PHOENIX AND THE ACCOUNT
- --------------------------------------------------------------------------------
We are 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 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. Phoenix sells variable annuity contracts through its own field force of
agents and through brokers.
On April 17, 2000, the Board of Directors of Phoenix Home Life Mutual
Insurance Company authorized management to develop a plan for conversion from a
mutual to a publicly traded stock company. If such a plan is developed and
adopted by the Board, it would be subject to the approval of the New York
Insurance Department and other regulators and submitted to policyholders for
approval. The plan would go into effect only after all these requirements had
been met. There is no assurance that any such plan will be adopted, and if
adopted, there is no guarantee as to the amount or nature of consideration to
eligible policyholders.
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 by the SEC of the
management or investment practices or policies of the Account or of Phoenix.
On July 1, 1992, the Account's domicile was transferred to New York. Under
New York law, all income, gains or losses of the Account must be credited to or
charged against the amounts placed in the Account without regard to the other
income, gains and losses from any other business or activity of Phoenix. The
assets of the Account may not be used to pay liabilities arising out of any
other business that we may conduct. Obligations under the contracts are
obligations of Phoenix.
Contributions to the GIA are not invested in the Account; rather, they
become part of the general account of Phoenix (the "General Account"). The
General Account supports all insurance and annuity obligations of Phoenix and is
made up of all of its general assets other than those allocated to any separate
account such as the Account. For more complete information concerning the GIA,
see Appendix B.
INVESTMENTS OF THE ACCOUNT
- --------------------------------------------------------------------------------
PARTICIPATING INVESTMENT FUNDS
THE PHOENIX EDGE SERIES FUND
Certain subaccounts invest in corresponding series of The Phoenix Edge
Series Fund. The following series are currently available:
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.
12
<PAGE>
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-BANKERS TRUST DOW 30 SERIES: The series seeks to track the total
return of the Dow Jones Industrial AverageSM (the "DJIASM") before fund
expenses.
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.
PHOENIX-ENGEMANN CAPITAL 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-Engemann Capital Growth Series invests
principally in common stocks of corporations believed by management to offer
growth potential.
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-FEDERATED U.S. GOVERNMENT BOND SERIES: The investment objective of
the series is to maximize total return by investing primarily in debt
obligations of the U.S. Government, its agencies and instrumentalities.
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-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 J.P. MORGAN 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-JANUS EQUITY INCOME SERIES: The investment objective of the series
is to seek current income and long-term growth of capital.
PHOENIX-JANUS FLEXIBLE INCOME SERIES: The investment objective of the series
is to seek to obtain maximum total return, consistent with preservation of
capital.
PHOENIX-JANUS GROWTH SERIES: The investment objective of the series is to
seek long-term growth of capital, in a manner consistent with the preservation
of capital.
PHOENIX-MORGAN STANLEY FOCUS EQUITY SERIES: The investment objective of the
series is to seek capital appreciation by investing primarily in equity
securities.
PHOENIX-OAKHURST BALANCED SERIES: The investment objective of the series is
to seek reasonable income, long-term capital growth and conservation of capital.
The Phoenix-Oakhurst Balanced Series invests based on combined considerations of
risk, income, capital enhancement and protection of capital value.
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-OAKHURST 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-Oakhurst Strategic Allocation Series invests in stocks, bonds and money
market instruments in accordance with the investment advisor's appraisal of
investments most likely to achieve the highest total return.
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
13
<PAGE>
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.
PHOENIX-SENECA 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-Seneca Strategic Theme Series invests primarily in common stocks
believed to have substantial potential for capital growth.
DEUTSCHE ASSET MANAGEMENT VIT FUNDS
A certain subaccount invests in a corresponding fund of the Deutsche Asset
Management VIT Funds. The following fund is currently available:
EAFE(R) EQUITY INDEX FUND: The fund seeks to match the performance of the
Morgan Stanley Capital International EAFE(R) Index ("EAFE(R) Index"), which
emphasizes major market stock performance of companies in Europe, Australia and
the Far East. The fund invests in a statistically selected sample of the
securities found in the EAFE(R) Index.
FEDERATED INSURANCE SERIES
Certain subaccounts invest in corresponding fund of the Federated
Insurance Series. The following funds are currently available:
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II: The investment objective
of the fund is to seek current income by investing primarily in U.S.
government securities, including mortgage-backed securities issued by U.S.
government agencies.
FEDERATED HIGH INCOME BOND FUND II: The investment objective of the fund
is to seek high current income by investing primarily in a diversified portfolio
of high-yield, lower-rated corporate bonds.
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
A certain subaccount invests in a corresponding portfolio of The Universal
Institutional Funds, Inc. The following portfolio is currently available:
TECHNOLOGY PORTFOLIO: The investment objective of the portfolio is to seek
long-term capital appreciation by investing primarily in equity securities of
companies that the investment advisor expects to benefit from their involvement
in technology and technology-related industries.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
Certain subaccounts invest in Class 2 shares of the corresponding fund of
the Franklin Templeton Variable Insurance Products Trust. The following funds
are currently available:
MUTUAL SHARES SECURITIES FUND: The primary investment objective of the fund
is capital appreciation with income as a secondary objective. The Mutual Shares
Securities Fund invests primarily in domestic equity securities that the manager
believes are significantly undervalued.
TEMPLETON ASSET STRATEGY FUND: The investment objective of the fund is a
high level of total return. The Templeton Asset Strategy Fund invests in stocks
of companies of any nation, bonds 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, including emerging market countries.
TEMPLETON DEVELOPING MARKETS SECURITIES FUND: The investment objective of
the fund is long-term capital appreciation. The Templeton Developing Markets
Securities Fund invests primarily in emerging market equity securities.
TEMPLETON GROWTH SECURITIES FUND: The investment objective of the fund is
long-term capital growth. The Templeton Growth Securities Fund invests primarily
in common stocks issued by companies in various nations throughout the world,
including the U.S. and emerging markets.
TEMPLETON INTERNATIONAL SECURITIES FUND: The investment objective of the
fund is long-term capital growth. The Templeton International Securities Fund
invests primarily in stocks of companies located outside the United States,
including emerging markets.
WANGER ADVISORS TRUST
Certain subaccounts invest in corresponding series of the Wanger Advisors
Trust. The following series are currently available:
WANGER FOREIGN FORTY: The investment objective of the series is to seek
long-term capital growth. The Wanger Foreign Forty 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: The investment objective of the series is to
seek long-term capital growth. The Wanger International Small Cap invests
primarily in securities of non-U.S. companies with total common stock market
capitalization of less than $1 billion.
WANGER TWENTY: The investment objective of the series is to seek long-term
capital growth. The Wanger Twenty 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.
14
<PAGE>
WANGER U.S. SMALL CAP: The investment objective of the series is to seek
long-term capital growth. The Wanger U.S. Small Cap 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 ADVISORS
Phoenix Investment Counsel, Inc. ("PIC") and Phoenix Variable Advisors, Inc.
("PVA") are the investment advisors to all series in The Phoenix Edge Series
Fund except the Phoenix-Duff & Phelps Real Estate Securities and
Phoenix-Aberdeen New Series. Based on subadvisory agreements with the fund, the
advisor delegates certain investment decisions and research functions to
subadvisors for the following series:
[diamond] Bankers Trust Company
o Phoenix-Bankers Trust Dow 30 Series
[diamond] Federated Investment Management Company
o Phoenix-Federated U.S. Governmetn Bond Series
[diamond] J.P. Morgan Investment Management, Inc.
o Phoenix-J.P. Morgan Research Enhanced Index Series
[diamond] Janus Capital Corporation
o Phoenix-Janus Equity Income Series
o Phoenix-Janus Flexible Income Series
o Phoenix-Janus Growth Series
[diamond] Morgan Stanley Asset Management
o Phoenix-Morgan Stanley Focus Equity Series
[diamond] Phoenix-Aberdeen International Advisors, LLC ("PAIA")
o Phoenix-Aberdeen International Series
[diamond] Roger Engemann & Associates, Inc. ("Engemann")
o Phoenix-Engemann Capital Growth Series
o Phoenix-Engemann Nifty Fifty Series
[diamond] Schafer Capital Management, Inc.
o Phoenix-Schafer Mid-Cap Value Series.
[diamond] Seneca Capital Management, LLC ("Seneca")
o Phoenix-Seneca Mid-Cap Growth Series
o Phoenix-Seneca Strategic Theme Series
The investment advisor to the Phoenix-Duff & Phelps Real Estate Securities
Series is Duff & Phelps Investment Management Co. ("DPIM").
The investment advisor to the Phoenix-Aberdeen New Asia Series is 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 advisors are:
[diamond] Bankers Trust Company
o EAFE(R) Equity Index Fund
[diamond] Federated Investment Management Company
o Federated Fund for U.S. Government Securities II
o Federated High Income Bond Fund II
[diamond] Franklin Mutual Advisers, LLC
o Mutual Shares Securities Fund
[diamond] Morgan Stanley Asset Management
o Technology Portfolio
[diamond] Templeton Asset Management, Ltd.
o Templeton Developing Markets Securities Fund
[diamond] Templeton Global Advisors Limited
o Templeton Growth Securities Fund
[diamond] Templeton Investment Counsel, Inc.
o Templeton Asset Strategy Fund
o Templeton International Securities Fund
[diamond] Wanger Asset Management, L.P.
o Wanger Foreign Forty
o Wanger International Small Cap
o Wanger Twenty
o Wanger U.S. Small Cap
15
<PAGE>
SERVICES OF THE ADVISORS
The advisors continually 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 advisors and subadvisors, 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--$20,000
[diamond] Individual Retirement Annuity (Rollover IRAs only)--$20,000
[diamond] Bank draft program--$500
o You may authorize your bank to draw $500 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 $500. This payment must accompany the
application (if any). Each subsequent payment under a contract
must be at least $500.
[diamond] Qualified plans--$20,000 annually
o If contracts are purchased in connection with tax-qualified or
employer-sponsored plans, a minimum annual payment of $20,000 is
required.
Generally, a contract may not be purchased for a proposed annuitant who is
86 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 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 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 premium
payment amount we accept for a contract. Factors in determining qualifications
for any such reduction include:
(1) the make-up and size of the prospective group; or
(2) the method and frequency of premium payments; and
(3) the amount of compensation to be paid to Registered Representatives on
each premium 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
premium payment is received. We reserve the right to change these rules from
time to time.
DEDUCTIONS AND CHARGES
- --------------------------------------------------------------------------------
DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT
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, our
status within those states and the insurance tax laws of those states. Premium
Taxes on contracts currently range from 0% to 3.5%. We will pay any premium tax
due and will reimburse ourselves only upon the earlier of either full or partial
surrender of the contract, the maturity date or payment of death proceeds. For a
list of states and premium taxes, see Appendix C to this prospectus.
MORTALITY AND EXPENSE RISK FEE
We make a daily deduction from each subaccount for the mortality and expense
risk charge. The fee is based on an annual rate of 1.275% and is taken against
the net assets of the subaccounts.
Although you bear the investment risk of the series in which you invest,
once you begin receiving 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.
No mortality and expense risk charge is deducted from the GIA. If the
charges prove insufficient to cover actual 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.
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.
ADMINISTRATIVE FEE
We make a daily deduction from the Account value to cover the costs of
administration. This fee is based, on an
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annual rate of .125% and is taken against the net assets of the subaccounts. It
compensates the Company for administrative expenses that exceed revenues from
the Administrative Charge described below. (This fee is not deducted from the
GIA.)
ADMINISTRATIVE CHARGE
We deduct an administrative charge from the contract value. This charge is
used to reimburse us for some of the administrative expenses we incur in
establishing and maintaining the contracts.
The maximum administrative maintenance charge under a contract is $35. This
charge is deducted annually on the contract anniversary date. It is deducted on
a pro rata basis from the subaccounts or GIA in which you have an interest. Any
portion of the Administrative Charge from the GIA cannot exceed $30. If you
fully surrender your contract, the full administrative fee if applicable, will
be deducted at the time of withdrawal. The administrative charge will not be
deducted (either annually or upon withdrawal) if your contract value is $50,000
or more on the day the administrative charge is due. This charge may be
decreased but will never increase. 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.
REDUCED CHARGES, CREDITS AND BONUS GUARANTEED INTEREST RATES
We may reduce or eliminate the mortality and expense risk fee and annual
administrative charge, credit additional amounts or grant bonus Guaranteed
Interest Rates when sales of the contracts are made to certain individuals or
groups of individuals that result in savings of sales expenses. We will consider
the following characteristics:
(1) the size and type of the group of individuals to whom the contract is
offered;
(2) the amount of anticipated premium payments;
(3) whether there is a preexisting relationship with the Company such as being
an employee of the Company or its affiliates and their spouses; or to
employees or agents who retire from the Company or its affiliates or Phoenix
Equity Planning Corporation ("PEPCO"), or its affiliates or to registered
representatives of the principal underwriter and registered representatives
of broker-dealers with whom PEPCO has selling agreements; and
(4) internal transfers from other contracts issued by the Company or an
affiliate, or making transfers of amounts held under qualified plans
sponsored by the Company or an affiliate.
Any reduction or elimination of surrender or administrative charge will not
be unfairly discriminatory against any person. We will make any reduction
according to our own rules in effect at the time the contract is issued. We
reserve the right to change these rules from time to time.
OTHER CHARGES
As compensation for investment management services, the advisors 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
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The accumulation period is that time before annuity payments begin during
which 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 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 at anytime prior to the maturity date of your contract, elect to
transfer all or any part of the contract value among one or more subaccounts and
the GIA. A
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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 and GIA does not automatically
change the payment allocation schedule of your contract.
You may request transfers and changes in payment allocations among available
subaccounts and GIA by writing to Phoenix Variable Products Mail Operations, PO
Box 8027, Boston, MA 02266-8027.
Unless we otherwise agree or unless the Dollar Cost Averaging Program has
been elected, you may make only one transfer per contract year from the GIA.
Nonsystematic transfers from the GIA will be made on the date of receipt by VPMO
except as you may otherwise request. For nonsystematic transfers, the amount
that may be transferred from the GIA at any one time cannot exceed the greater
of $1,000 or 25% of the contract value in the GIA at the time of transfer.
Because excessive trading can hurt Fund performance and harm 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.
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 during each contract year. However, you will
be permitted at least six transfers 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.
Currently, contracts in the annuity period are not able to make transfers
between subaccounts.
OPTIONAL PROGRAMS AND BENEFITS
DOLLAR COST AVERAGING PROGRAM
You also may elect to transfer funds automatically among the subaccounts or
GIA on a monthly, quarterly, semiannual or annual basis under the Dollar Cost
Averaging Program. Generally, 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. Also, payments of $1,000,000 or more require our approval before we
will accept them for processing. Funds may be transferred from only one sending
subaccount or from the GIA but may be allocated to multiple receiving
subaccounts. Under the Dollar Cost Averaging Program, you may transfer
approximately equal amounts from the GIA over a period of 6 months or longer.
Transfers under the Dollar Cost Averaging Program are not subject to the general
restrictions on transfers from the GIA.
Upon completion of the Dollar Cost Averaging Program, you must notify VAO at
800/541-0171 or in writing to VPMO to start another Dollar Cost Averaging
Program.
All transfers under the Dollar Cost Averaging 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. Transfers under this program do not count
against any limits on transfers that might otherwise be applicable.
The Dollar Cost Averaging Program is not available to individuals who invest
via a bank draft program or while the Asset Rebalancing Program is in effect.
The Dollar Cost Averaging Program does not ensure a profit nor guarantee
against a loss in a declining market. There is no charge associated with
participation in this program.
ASSET REBALANCING PROGRAM
Under the Asset Rebalancing Program, we transfer funds among the subaccounts
to maintain the percentage allocation you have selected among these subaccounts.
At your election, we will make these transfers on a monthly, quarterly,
semiannual or annual basis. Transfers under this program do not count against
any limits on transfers that might otherwise be applicable.
Asset Rebalancing does not permit transfers to or from the GIA.
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The Asset Rebalancing Program does not ensure a profit nor guarantee against
a loss in a declining market. There is no charge associated with participation
in this program.
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 the
contract value in either a lump sum or by multiple scheduled or unscheduled
partial withdrawals. 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 "Miscellaneous
Provisions--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."
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 annual Administrative Charge or premium tax reimbursement due on
either a full or partial surrender 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
WHO RECEIVES PAYMENT
[diamond] 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.
[diamond] 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.
[diamond] SPOUSAL BENEFICIARY CONTRACT CONTINUANCE If the spousal beneficiary
continues the contract at the death of the an owner/annuitant or
owner who is not also the annuitant, the spousal beneficiary becomes
the annuitant. The benefit option in effect at the death of an
owner/annuitant or an owner will also apply to the spousal
beneficiary.
[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. The benefit
option in effect at the death of the annuitant will also apply to the
contingent 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
"Qualified Plans" for a detailed discussion).
[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.
PAYMENT AMOUNT
[diamond] DEATH OF AN OWNER WHO IS THE ANNUITANT
Upon the death of the annuitant or owner/annuitant who has not yet
reached age 80.
- 100% of payments, less adjusted partial withdrawals; or
- the contract value on the claim date; and
- the annual step-up amount on the claim date.
After the annuitant's 80th birthday, the death benefit (less any
deferred premium tax) equals the contract value on the Claim Date.
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[diamond] DEATH OF AN OWNER WHO IS NOT THE ANNUITANT
Upon the death of an owner who is not the annuitant, the death
proceeds will be paid to the owner's beneficiary. The amount of
death benefit payable is equal to the greater of:
- 100% of payments, less withdrawals; and
- the contract value on the Claim Date.
Depending upon state law, the payment to the beneficiary may avoid probate
and the death benefit may be reduced by any premium tax due. See "Premium Tax."
See also "Distribution at Death" under "Federal Income Taxes."
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. Each contract will provide, at the time of its issuance, for a Variable
Payment Life Expectancy Annuity (Option L) unless a different annuity option is
elected by you. See "Annuity Options." Under a Variable Payment Life Expectancy
Annuity, payments are made on a monthly basis 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. 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.
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.
Each contract specifies a provisional maturity date at the time of its
issuance and is elected by you in the application. 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 will be
applied to provide a Variable Payment Life Expectancy Annuity (Option L) as
described below. Upon the death of the annuitant and joint annuitant if any, the
remaining contract value will be paid in a lump sum to the annuitant's
beneficiary.
With the exception of the Fixed Payment Options and Option L--Variable
Payment Life Expectancy Annuity, 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 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 Variable Payment Life Expectancy Annuity, (see "Option L"
below), you may, by written request received by VPMO on or before the maturity
date, elect any of the other annuity payment options described below.
The level of annuity payments payable under the following options is based
upon the option selected. In
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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 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
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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.
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. 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 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.
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. 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
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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 will ordinarily 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 applicable
state law requires, we will return the full amount of any payments we received.
During periods of extreme market volatility, we reserve the right to make
the Temporary Money Market Allocation Amendment available. In states that
require return of premium during the Free Look Period, we will 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 that Account. At the expiration of the Free Look
Period, the value of the accumulation units held in the Phoenix-Goodwin Money
Market Subaccount will be allocated among the available subaccounts in
accordance with your allocation instructions on the application.
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 infrequent, 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 or because of
poor performance. In that event, we may seek to substitute or merge 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. Transfer of the
ownership of a contract may involve federal income tax consequences, and a
qualified advisor should be consulted before any such transfer is attempted.
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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
advisor. 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.
INCOME TAX STATUS
We are 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 us. 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 advisor 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
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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. However, a number of restrictions, limitations and special rules apply to
qualified plans and contract owners should consult with their tax advisor.
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.
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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 advisors.
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 advisor 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 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.
We represent that we intend 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.
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QUALIFIED PLANS
The contracts may be used with several types of qualified plans. TSAs,
Keoghs, IRAs, Corporate Pension and Profit-sharing 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, Phoenix will accept beneficiary designations and payment instructions
under the terms of the contract without regard to any spousal consents that may
be required under the Retirement Equity Act (REA). Consequently, a contract
owner's beneficiary designation or elected payment option may not be
enforceable.
Effective January 1, 1993, Section 3405 of the Internal Revenue Code was
amended to change the 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 percent income tax withholding. Mandatory withholding can
be avoided only if the employee arranges for a direct rollover to another
qualified pension or profit-sharing plan or to an IRA.
The new mandatory withholding rules apply to all taxable distributions from
qualified plans or TSAs (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 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 be at least $1,000 and the maximum loan amount is the greater of: (a) 90%
of the first $10,000 of contract value; and (b) 50% of the contract value. 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.
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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 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 such items as: amount of allowable contributions; form,
manner and timing of distributions; transferability of benefits; vesting and
nonforfeitability of interests; nondiscrimination in eligibility and
participation; and the tax treatment of distributions, withdrawals and
surrenders. Participant loans are not allowed under the contracts purchased in
connection with these Plans. Purchasers of contracts for use with Corporate
Pension or Profit-sharing Plans should obtain competent tax advice as to the tax
treatment and suitability of such an investment.
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
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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 advisor, 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 Phoenix annuity contracts. WSG is an indirect
wholly-owned subsidiary of Phoenix Home Life Mutual Insurance Company. PEPCO is
an indirect, majority owned subsidiary of Phoenix Home Life Mutual Insurance
Company. 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.
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 also are 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
- --------------------------------------------------------------------------------
Reports showing the contract value and containing the financial statements
of the Account will be furnished to you at least annually.
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 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
29
<PAGE>
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.
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
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 VAO at 800/541-0171.
30
<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 Fixed Income Subaccount and as total
return of any subaccount. For the Phoenix-Goodwin Multi-Sector Fixed Income
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.
THE SUBACCOUNTS COMMENCED OPERATIONS AS OF THE DATE OF THIS PROSPECTUS,
THEREFORE, AVERAGE ANNUAL TOTAL RETURN DATA ARE NOT AVAILABLE.
31
<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 how these yield quotations are calculated:
Example:
Value of hypothetical pre-existing account with
exactly one unit at the beginning of the period:.......... $1.000000
Value of the same account (excluding capital
changes) at the end of the 7-day period:.................. 1.000732
Calculation:
Ending account value...................................... 1.000732
Less beginning account value.............................. 1.000000
Net change in account value............................... 0.000732
Base period return:
(adjusted change/beginning account value)................. 0.000732
Current yield = return x (365/7) =........................... 3.81%
Effective yield = [(1 + return)365/7] -1 =................... 3.89%
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 AverageSM, 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 AverageSM, 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.
32
<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 3% 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
1 full year from the date of deposit. Upon expiration of the initial 1-year
guarantee period (and each subsequent 1-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 1full
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 3% 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 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, contract owners and shareholders.
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 payments allocated to the GIA, plus interest at the rate of 3% per
year, compounded annually, plus any additional interest which Phoenix may, in
its discretion, credit to the GIA, less the sum of all applicable 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 $1,000 OR 25% OF THE
CONTRACT VALUE IN THE GIA AT THE TIME OF THE TRANSFER. IF YOU ELECT THE DOLLAR
COST AVERAGING 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%
33
<PAGE>
APPENDIX C
DEDUCTIONS FOR PREMIUM TAXES
QUALIFIED AND NON-QUALIFIED ANNUITY CONTRACTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
UPON UPON
STATE PURCHASE(1) ANNUITIZATION NON-QUALIFIED QUALIFIED
- ----- ----------- ------------- ------------- ---------
<S> <C> <C> <C>
California .......................................... X 2.35% 0.50%
Kentucky (2)...........................................
Maine................................................ X 2.00
Nevada............................................... X 3.50
South Dakota......................................... X 1.25
West Virginia........................................ X 1.00 1.00
Wyoming.............................................. X 1.00
Commonwealth of Puerto Rico.......................... X 1.00% 1.00%
</TABLE>
NOTE: The above premium tax deduction rates are as of January 1, 2000. 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.
2 "Effective January 1, 2000, Kentucky no longer imposes Premium Tax on variable
annuities.
34
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS ("VPMO")
Hartford, Connecticut P.O. Box 8027
Boston, Massachusetts 02266-8027
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
VARIABLE ACCUMULATION DEFERRED ANNUITY CONTRACT
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus, dated May 1, 2000. You may obtain a copy of
the prospectus without charge by contacting Phoenix Home Life Mutual Insurance
Company at the above address or by calling 800/541-0171.
TABLE OF CONTENTS
PAGE
----
Underwriter............................................................... B-2
Calculation of Yield and Return........................................... B-2
Calculation of Annuity Payments .......................................... B-3
Experts .................................................................. B-4
Financial Statements...................................................... B-5
B-1
<PAGE>
UNDERWRITER
- --------------------------------------------------------------------------------
PEPCO, an affiliate of Phoenix Home Life Mutual Insurance Company
("Phoenix"), offers these contracts on a continuous basis. No contracts were
sold during the fiscal years ended December 31, 1997, 1998 and 1999; therefore
PEPCO was not paid and retained $0 for sales of these contracts.
CALCULATION OF YIELD AND RETURN
- --------------------------------------------------------------------------------
Yield of the Phoenix-Goodwin Money Market Subaccount. We summarize the
following information in the prospectus under the heading "Performance History."
We calculate the yield of the Phoenix-Goodwin Money Market Subaccount for a
7-day "base period" by determining the "net change in value" of a hypothetical
pre-existing account. We assume the hypothetical account had an initial balance
of one share at the beginning of the base period. We then determine what the
value of the hypothetical account would have been at the end of the 7-day base
period. The end value minus the initial value gives us the net change in value
for the hypothetical account. The net change in value can then be divided by the
initial value giving us the base period return (one week's return). To find the
equivalent annual return we multiply the base period return by 365/7. The
equivalent effective annual yield differs from the annual return because we
assume all returns are reinvested in the subaccount. We carry results to the
nearest hundredth of one percent.
The net change in value of the hypothetical account includes the daily net
investment income of the account (after expenses), but does not include realized
gains or losses or unrealized appreciation or depreciation on the underlying
fund shares.
The yield/return calculations include a mortality and expense risk charge
equal to 1.275% on an annual basis, and a daily administrative fee equal to
0.125% on an annual basis.
The Phoenix-Goodwin Money Market Subaccount return and effective yield will
vary in response to fluctuations in interest rates and in the expenses of the
subaccount.
We do not include the maximum annual administrative fee in calculating the
current return and effective yield. Should such a fee apply to your account,
current return and/or effective yield for your account could be reduced.
Example Calculation:
The following is an example of how return/yield calculations for the
Phoenix-Goodwin Money Market Subaccount are made:
Value of hypothetical pre-existing account with
exactly one Unit at the beginning of the period:. $1.000000
Value of the same account (excluding capital changes)
at the end of the 7-day period:.................. 1.000732
Calculation:
Ending account value............................. 1.000732
Less beginning account value..................... 1.000000
Net change in account value...................... 0.000732
Base period return:
(adjusted change/beginning account value)........ 0.000732
Current yield = return x (365/7) =.................. 3.81%
Effective yield = [(1 + return)(365/7)] -1 =........ 3.89%
Yields and total returns may be higher or lower than in the past and there
is no assurance that any historical results will continue.
Calculation of Total Return. We summarize the following information in the
prospectus under the heading, "Performance History." Total return measures the
change in value of a subaccount investment over a stated period. We compute
total returns 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
includes the following steps:
(1) We assume a hypothetical $1,000 initial investment in the subaccount;
(2) We determine the value the hypothetical initial investment would have were
it redeemed at the end of each period. All recurring fees and any applicable
contingent deferred sales charge are deducted. This figure is the ending
redeemable value (ERV in the formula given below);
(3) We divide this value by the initial $1,000 investment, resulting in ratio of
the ending redeemable value to the initial value for that period;
(4) To get the average annual total return we take the n(th) root of the ratio
from step (3), where n equals the number of years in that period (e.g. 1, 5,
10), and subtract one.
B-2
<PAGE>
The formula in mathematical terms is:
R = ((ERV / II)(1/n)) - 1
Where:
II = a hypothetical initial payment of $1,000
R = average annual total return for the period
n = number of years in the period
ERV = ending redeemable value of the hypothetical
$1,000 for the period [see (2) and (3) above]
We normally calculate total return for 1-year, 5-year and 10-year periods
for each subaccount. If a subaccount has not been available for at least 10
years, we will provide total returns for other relevant periods.
PERFORMANCE INFORMATION
Advertisements, sale literature and other communications may contain
information about series' or advisor's current investment strategies and
management style. An advisor may alter investment strategies and style in
response to changing market and economic conditions. A fund may wish to make
known a series' specific portfolio holdings or holdings in specific industries.
A fund may also separately illustrate the income and capital gain portions of a
series' total return. Performance might also be advertised by breaking down
returns into equity and debt components. A series may compare its equity or bond
return figure to any of a number of well-known benchmarks of market performance,
including, but not limited to:
The Dow Jones Industrial Average(SM)(1)
First Boston High Yield Index
Salomon Brothers Corporate Index
Salomon Brothers Government Bond Index
The Standard & Poor's 500 Index (S&P 500)(2)
Each subaccount may include its yield and total return in advertisements or
communications with current or prospective contract owners. Each subaccount may
also include in such advertisements, its ranking or comparison to similar mutual
funds by such organizations as:
Lipper Analytical Services
Morningstar, Inc.
Thomson Financial
A fund may also compare a series' performance to other investment or savings
vehicles (such as certificates of deposit) and may refer to results published in
such publications as:
Barrons
Business Week
Changing Times
Forbes
Fortune
Consumer Reports
Investor's Business Daily
Financial Planning
Financial Services Weekly
Financial World
Money
The New York Times
Personal Investor
Registered Representative
Stanger's Investment Adviser
The Stanger Register
U.S. News and World Report
The Wall Street Journal
A fund may also illustrate the benefits of tax deferral by comparing taxable
investments with investments through tax-deferred retirement plans.
The total return and yield may be used to compare the performance of the
subaccounts with certain commonly used standards for stock and bond market
performance. Such indexes include, but are not limited to:
The Dow Jones Industrial Average(SM)(1)
First Boston High Yield Index
Salomon Brothers Corporate Index
Salomon Brothers Government Bond Index
The S&P 500(2)
CALCULATION OF ANNUITY PAYMENTS
- --------------------------------------------------------------------------------
See your prospectus in the section titled "The Annuity Period" for a
description of the annuity options and restrictions.
You may elect a payment option by written request as described in your
prospectus. If you do not elect an option, amounts held under the contract will
be applied to provide a Variable Payment Life Expectancy Annuity (Option L) on
the maturity date. You may not change your election after the first annuity
payment.
FIXED ANNUITY PAYMENTS
Fixed annuity payments are determined by the total dollar value for all
subaccounts' accumulation units and all amounts held 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 nontax-qualified plans) of
the annuitant or annuitants, for the fixed payment annuity option selected. The
guaranteed annuity payment rates will be no less favorable than the following:
Under Options A, B, D, E and F rates are based on the a-49 Annuity Table(4)
projected to 1985 with Projection Scale B. We use an interest rate of 3-3/8% for
5- and 10-year certain periods under Option A, for the 10-year certain period
under Option F, and for Option E; an interest rate of 3-1/4% for the 20-year
certain period under Options A and F; an interest rate of 3-1/2% under Options B
and D. Under Options G and H the guaranteed interest rate is 3%.
It is possible that we may have more favorable (i.e. higher-paying) rates in
effect on the maturity date.
B-3
<PAGE>
VARIABLE ANNUITY PAYMENTS
Under all variable options except Option L, the first payment is based on an
assumed annual investment rate of 4-1/2%. All subsequent payments may be higher
or lower depending on investment experience of the subaccounts.
Under Options I, J, K, M and N, we determine the first payment by
multiplying the amounts held under the selected option in each subaccount by the
applicable payment option rate, which reflects the age (and sex for
nontax-qualified plans) of the annuitant or annuitants. The first payment equals
the total of such amounts determined for each subaccount. We determine future
payments under these options by multiplying the contract value in each
subaccount (Number of Annuity Units times the Annuity Unit Value) by the
applicable payment option's rate on the payment calculation date. The payment
will equal the sum of the amounts provided by each subaccount investment.
Under Option L, we determine the amount of the annual distribution by
dividing the amount of contract value held under this option on December 31 of
the previous year by the life expectancy of the annuitant or the joint life
expectancy of the annuitant and joint annuitant at that time.
Under Options I, J, M and N, the applicable options rate used to determine
the first payment amount will not be less than the rate based on the 1983 Table
A (1983 IAM)(4) projected with Projection Scale G to the year 2040, and with
continued projection thereafter, and on the assumed investment rate. Under
Option K, the rate will be based on the number of payments to be made during the
specified period and the assumed investment rate.
We deduct a daily charge for mortality and expense risks and a daily
administrative fee from contract values held in the subaccounts. See your
prospectus in the section titled "Deductions and Charges." Electing Option K
will result in a mortality risk deduction being made even though we assume no
mortality risk under that option.
EXPERTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Phoenix Home Life Mutual Insurance
Company as of December 31, 1999 and 1998 and for each of the three years in the
period ended December 31, 1999 included herein have been so included in reliance
on the respective report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
PricewaterhouseCoopers LLP, whose address is 100 Pearl Street, Hartford,
Connecticut 06103, also provides other accounting and tax-related services as
requested by Phoenix from time to time.
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.
1 The Dow Jones Industrial Average(SM)(DJIA(SM)) is an unweighted(3) index of
30 industrial "blue chip" U.S. stocks. It is the oldest continuing U.S. market
index. The 30 stocks now in the DJIA(SM) are both widely-held and a major
influence in their respective industries. The average is computed in such a
way as to preserve its historical continuity and account for such factors as
stock splits and periodic changes in the components of the index. The editors
of The Wall Street Journal select the component stocks of the DJIA(SM).
2 The S&P 500 is a market-value weighted(3) index composed of 500 stocks chosen
for market size, liquidity, and industry group representation. It is one of
the most widely used indicators of U.S. Stock Market performance. As of
December 31, 1999 it contained 376 industrial, 41 utility, 72 financial and 11
transportation issues. The composition of the S&P 500 changes from time to
time. Standard & Poor's Index Committee makes all decisions about the S&P 500.
3 Weighted and unweighted indexes: A market-value, or capitalization, weighted
index uses relative market value (share price multiplied by the number of
shares outstanding) to "weight" the influence of a stock's price on the index.
Simply put, larger companies' stock prices influence the index more than
smaller companies' stock prices. An unweighted index (such as the Dow Jones
Industrial Average(SM)) uses stock price alone to determine the index value. A
company's relative size has no bearing on its impact on the index.
4 The Society of Actuaries developed these tables to provide payment rates for
annuities based on a set of mortality tables acceptable to most regulating
authorities.
B-4
<PAGE>
PHOENIX HOME LIFE VARIABLE
ACCUMULATION ACCOUNT
FINANCIAL STATEMENTS
THE SUBACCOUNTS COMMENCED OPERATIONS AS
OF THE DATE OF THIS PROSPECTUS; THEREFORE, DATA
FOR THESE SUBACCOUNTS ARE NOT YET AVAILABLE.
B-5
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
B-6
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants ........................................B-8
Consolidated Balance Sheet at December 31, 1999 and 1998..................B-9
Consolidated Statement of Income, Comprehensive Income and Equity
for the Years Ended December 31, 1999, 1998 and 1997 ...................B-10
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 .......................................B-11
Notes to Consolidated Financial Statements .......................B-12 - B-48
B-7
<PAGE>
[LOGO] PRICEWATERHOUSECOOPERS
- --------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
100 Pearl Street
Hartford CT 06103-4508
Telephone (860)241 7000
Facsimile (860)241 7590
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,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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 20, the Company has revised the accounting for venture
capital partnerships.
/S/PricewaterhouseCoopers LLP
February 15, 2000
B-8
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
ASSETS
Investments:
<S> <C> <C>
Held-to-maturity debt securities, at amortized cost $ 1,990,169 $ 1,725,439
Available-for-sale debt securities, at fair value 5,506,779 5,987,426
Equity securities, at fair value 461,613 301,649
Mortgage loans 716,831 797,343
Real estate 92,027 91,975
Policy loans 2,042,557 2,008,259
Venture capital partnerships 338,122 191,162
Other invested assets 300,474 232,131
Short-term investments 133,367 185,983
------------------- -----------------
Total investments 11,581,939 11,521,367
Cash and cash equivalents 187,610 115,187
Accrued investment income 174,894 164,812
Deferred policy acquisition costs 1,306,728 1,049,934
Premiums, accounts and notes receivable 119,231 61,489
Reinsurance recoverables 18,772 18,908
Property and equipment, net 137,758 142,153
Goodwill and other intangible assets, net 593,267 477,895
Net assets of discontinued operations (Note 11) 187,595 283,793
Other assets 51,434 36,940
Separate account assets 5,923,888 4,798,949
------------------ -----------------
Total assets $ 20,283,116 $ 18,671,427
================== =================
LIABILITIES
Policy liabilities and accruals $ 11,438,032 $ 11,110,280
Notes payable 499,392 386,575
Deferred income taxes 86,262 116,104
Other liabilities 474,179 430,956
Separate account liabilities 5,923,888 4,798,949
------------------- -----------------
Total liabilities 18,421,753 16,842,864
------------------- -----------------
Contingent liabilities (Note 18)
MINORITY INTEREST IN NET ASSETS
OF CONSOLIDATED SUBSIDIARIES 100,112 92,008
------------------- -----------------
EQUITY
Retained earnings 1,731,146 1,642,264
Accumulated other comprehensive income 30,105 94,291
------------------- -----------------
Total equity 1,761,251 1,736,555
------------------- -----------------
Total liabilities and equity $ 20,283,116 $ 18,671,427
=================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
B-9
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME, COMPREHENSIVE INCOME AND EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
(IN THOUSANDS)
REVENUES
<S> <C> <C> <C>
Premiums $ 1,134,207 $ 1,154,730 $ 1,076,157
Insurance and investment product fees 591,786 493,415 367,540
Net investment income 950,344 851,603 714,367
Net realized investment gains 35,675 58,202 111,043
-------------- --------------- ------------
Total revenues 2,712,012 2,557,950 2,269,107
-------------- --------------- ------------
BENEFITS AND EXPENSES
Policy benefits and increase in policy liabilities 1,352,419 1,403,166 1,201,929
Policyholder dividends 360,509 351,653 343,611
Amortization of deferred policy acquisition costs 146,603 137,663 102,617
Amortization of goodwill and other intangible assets 37,963 23,126 9,366
Interest expense 32,659 25,911 24,300
Other operating expenses 520,603 428,756 367,016
-------------- --------------- ------------
Total benefits and expenses 2,450,756 2,370,275 2,048,839
-------------- --------------- ------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 261,256 187,675 220,268
Income taxes 107,881 65,046 47,241
-------------- --------------- ------------
INCOME FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST 153,375 122,629 173,027
Minority interest in net income of consolidated subsidiaries 10,064 10,512 10,623
-------------- --------------- ------------
NET INCOME FROM CONTINUING OPERATIONS 143,311 112,117 162,404
DISCONTINUED OPERATIONS (NOTE 11)
Gain from operations, net of income taxes 17,555 25,012 7,248
Loss on disposal, net of income taxes (71,984)
-------------- --------------- ------------
NET INCOME 88,882 137,129 169,652
-------------- --------------- ------------
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF INCOME TAXES
Unrealized (losses) gains on securities (61,246) (46,967) 98,287
Reclassification adjustment for net realized gains
included in net income (1,452) (12,980) (30,213)
Minimum pension liability adjustment (1,488) (1,526) (2,101)
-------------- --------------- ------------
Total other comprehensive (loss) income (64,186) (61,473) 65,973
-------------- --------------- ------------
COMPREHENSIVE INCOME 24,696 75,656 235,625
-------------- --------------- ------------
EQUITY, BEGINNING OF YEAR - RESTATED (NOTE 20) 1,736,555 1,660,899 1,425,274
-------------- --------------- ------------
EQUITY, END OF YEAR $ 1,761,251 $ 1,736,555 $ 1,660,899
============== ============== =============
</TABLE>
The accompanying notes are an integral part of these statements.
B-10
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
(IN THOUSANDS)
CASH FLOW FROM CONTINUING OPERATIONS ACTIVITIES
<S> <C> <C> <C>
Net income from continuing operations $ 143,311 $ 112,117 $ 162,404
Net (loss) income from discontinued operations (54,429) 25,012 7,248
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY CONTINUING OPERATIONS :
Net realized investment gains (35,675) (58,202) (111,465)
Amortization and depreciation 69,367 51,076 61,876
Equity in undistributed earnings of affiliates and partnerships (138,215) (44,119) (38,588)
Deferred income taxes (benefit) (14,102) 398 25,298
(Increase) in receivables (67,688) (23,846) (46,178)
Increase (decrease) in deferred policy acquisition costs 3,493 (26,945) (44,406)
Increase in policy liabilities and accruals 329,660 368,528 494,462
Increase in other assets/other liabilities, net 53,901 58,795 54,230
Other, net 2,752 1,660 7,752
----------- ------------ ------------
Net cash provided by operating activities of continuing operations 346,804 439,462 565,385
Net cash (used for) provided by operating activities of
discontinued operations (105,537) 104,512 88,907
----------- ------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Proceeds from sales, maturities or repayments
of available-for-sale debt securities 1,702,889 1,322,381 1,082,132
Proceeds from maturities or repayments of held-to-maturity debt
securities 186,710 267,746 200,946
Proceeds from disposals of equity securities 163,530 45,204 51,373
Proceeds from mortgage loan maturities or repayments 124,864 200,419 164,213
Proceeds from sale of real estate and other invested assets 37,952 439,917 213,224
Proceeds from distributions of venture capital partnerships 26,730 18,550 5,650
Proceeds from sale of subsidiaries and affiliates 15,000 16,300
Purchase of available-for-sale debt securities (1,672,705) (2,400,058) (1,547,855)
Purchase of held-to-maturity debt securities (427,472) (585,370) (183,371)
Purchase of equity securities (162,391) (85,002) (88,573)
Purchase of subsidiaries (187,621) (6,647) (246,400)
Purchase of mortgage loans (25,268) (75,974) (140,831)
Purchase of real estate and other invested assets (71,407) (134,224) (50,599)
Purchase of venture capital partnerships (108,461) (67,200) (39,994)
Change in short term investments, net 52,616 855,117 23,135
Increase in policy loans (34,298) (21,532) (59,699)
Capital expenditures (20,505) (25,052) (44,380)
Other investing activities, net 1,697 (6,540 (1,750)
------------- -------------- --------------
Net cash used for investing activities of continuing operations (398,140) (241,965) (662,779)
Net cash provided by (used for) investing activities of
discontinued
operations 157,267 (101,532) (93,239)
------------- -------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Withdrawals of contractholder deposit funds,
net of deposits and interest credited (1,908) (11,124) (17,902)
Proceeds from repayment of securities sold
subject to repurchase agreements 28,398 (137,473) 137,473
Proceeds from borrowings 124,500 136 215,359
Repayment of borrowings (11,683) (55,589) (243,293)
Dividends paid to minority shareholders in consolidated (4,240) (4,938) (6,895)
Other financing activities (361) (5,664) (1,250)
------------- -------------- --------------
Net cash provided by (used for) financing activities of continuing
operations 134,706 (214,652) 83,492
Net cash (used for) provided by financing activities of discontinued
operations (62,677) (7,739) 4,489
------------- -------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS 83,370 (17,155) (13,902)
NET CHANGE IN CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS (10,947) (4,759) 157
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 115,187 137,101 150,846
------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 187,610 $ 115,187 $ 137,101
============= ============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net $ 106,372 $ 44,508 $ 76,167
Interest paid on indebtedness $ 34,791 $ 32,834 $ 32,300
</TABLE>
The accompanying notes are an integral part of these statements.
B-11
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Phoenix Home Life Mutual Insurance Company and its subsidiaries (Phoenix)
market a wide range of insurance and investment products and services
including individual participating life insurance, term, universal and
variable life insurance, annuities, and investment advisory and mutual fund
distribution services. These products and services are distributed among
three reportable segments: Individual, Investment Management and Corporate &
Other. See Note 10 - "Segment Information."
Additionally, in 1999, Phoenix discontinued the operations of four
of its business units: the Reinsurance Operations, the Property and
Casualty Brokerage Operations, the Real Estate Management
Operations and the Group Insurance Operations. See Note 11 -
"Discontinued Operations."
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 accounting principles generally accepted in the United States (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 revenues 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 inter-company accounts and
transactions have been eliminated. Amounts for 1998 and 1997 have been
retroactively restated to account for income from venture capital
partnership investments and leveraged lease investments. See Note 20 -
"Prior Period Adjustments" for venture capital investment and leveraged
lease investment information. Certain reclassifications have been made to
the 1998 and 1997 amounts to conform with the 1999 presentation.
VALUATION OF INVESTMENTS
Investments in debt securities include bonds, mortgage-backed and
asset-backed securities. 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.
B-12
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For the mortgage-backed and asset-backed bond portion of the debt security
portfolio, Phoenix recognizes income using a constant effective yield based
on anticipated prepayments and the estimated economic life of the
securities. When actual prepayments differ significantly from anticipated
prepayments, the effective yield is recalculated to reflect actual payments
to date, and anticipated future payments and any resulting adjustment is
included in net investment income.
Equity securities are classified as available-for-sale and 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.
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.
Venture capital partnership and other 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. Venture capital
partnerships generally account for the underlying investments held in the
partnerships at fair value. These investments can include public and private
common and preferred stock, notes, warrants and other investments.
Investments that are publicly traded are generally valued at closing market
prices. Investments that are not publicly traded, which are usually subject
to restrictions on resale, are generally valued at cost or at estimated fair
value, as determined in good faith by the general partner after giving
consideration to operating results, financial conditions, recent sales
prices of issuers' securities and other pertinent information. Some general
partners will discount the fair value of private investments held to reflect
these restrictions. These valuations subject the earnings to volatility.
Beginning in 1999, Phoenix includes equity in undistributed unrealized
capital gains and losses on investments held in the venture capital
partnerships in net investment income. Prior to 1999, these amounts were not
recorded. Prior years have been restated to reflect this change. See Note 20
- "Prior Period Adjustments" for additional information on venture capital
partnership investments.
B-13
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Other invested assets include leveraged lease investments. These 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.
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, interest rate caps, interest rate floors
and swaptions. These instruments have credit risk and also may be subject to
risk of loss due to interest rate and market fluctuations.
Phoenix enters into interest rate swap agreements to reduce market risks
from changes in interest rates. Phoenix does not enter into interest rate
swap agreements for trading purposes. Under interest rate swap agreements,
Phoenix exchanges cashflows with another party, at specified intervals, for
a set length of time based on a specified notional principal amount.
Typically, one of the cash flow streams is based on a fixed interest rate
set at the inception of the contract, and the other is a variable rate that
periodically resets. Generally, no premium is paid to enter into the
contract and no payment of principal is made by either party. The amounts to
be received or paid on these swap agreements are accrued and recognized in
net investment income.
Phoenix enters into interest rate floor, interest rate cap and swaption
contracts as a hedge for its assets and liabilities against substantial
changes in interest rates. Phoenix does not enter into interest rate floor,
interest rate cap and swaption contracts for trading purposes. Interest rate
floor and interest rate cap agreements are contracts with a counterparty
which require the payment of a premium and give Phoenix the right to receive
over the maturity of the contract, the difference between the floor or cap
interest rate and a market interest rate on specified future dates based on
an underlying notional principal. Swaption contracts are options to enter
into an interest rate swap transaction on a specified future date and at a
specified price. Upon the exercise of a swaption, Phoenix would either
receive a swap agreement at the pre-specified terms or cash for the market
value of the swap. Phoenix pays the premium for these instruments on a
quarterly basis over the maturity of the contract, and recognizes these
payments in net investment income.
Phoenix enters into foreign currency swap agreements to hedge against
fluctuations in foreign currency exposure. Under these agreements, Phoenix
agrees to exchange with another party, principal and periodic interest
payments denominated in foreign currency for payments denominated in U.S.
dollars. The amounts to be received or paid on these foreign currency swap
agreements is recognized in net investment income. To reduce counterparty
credit risks and
B-14
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
diversify counterparty exposure, Phoenix only enters into derivative
contracts with highly rated financial institutions.
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 new business, are deferred. Deferred
policy acquisition costs (DAC) 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 policies, 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 insurance policies, 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 their estimated lives.
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
B-15
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
investment earnings on their fund balances, less administrative charges.
Universal life fund balances are also assessed mortality charges.
Liabilities for outstanding claims, losses and loss adjustment expenses are
amounts estimated to cover incurred losses. These liabilities are based on
individual case estimates for reported losses and estimates of unreported
losses based on past experience.
Unearned premiums relate primarily to individual participating life
insurance as well as group life, accident and health insurance premiums. The
premiums are reported as earned on a pro-rata basis over the contract
period. The unexpired portion of these premiums is recorded as unearned
premiums.
PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Life insurance premiums, other than premiums for universal life and certain
annuity contracts, are recorded as premium revenue on a pro-rata basis over
each policy year. Benefits, losses and related expenses are matched with
premiums over the related contract periods. Revenues for investment-related
products consist of net investment income and contract charges assessed
against the fund values. Related benefit expenses primarily consist of net
investment income credited to the fund values after deduction for investment
and risk charges. Revenues for universal life products consist of net
investment income and mortality, administration and surrender charges
assessed against the fund values during the period. Related benefit expenses
include universal life benefit claims in excess of fund values and net
investment income credited to universal life fund values.
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 date 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 1999 and prior
years. Entities included within the consolidated group are segregated into
either a life insurance or non-life insurance company subgroup. The
consolidation of these subgroups is subject to certain statutory
restrictions in the percentage of eligible non-life tax losses that can be
applied to offset life company taxable income.
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities and their recorded amounts for financial
reporting purposes. These differences result primarily from policy
liabilities and accruals, policy acquisition expenses, investment impairment
reserves, reserves for postretirement benefits and unrealized gains or
losses on investments.
B-16
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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
In June, 1999, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS
No. 133". Because of the complexities associated with transactions involving
derivative instruments and their prevalent use as hedging instruments and,
because of the difficulties associated with the implementation of Statement
133, the effective date of SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" was delayed until fiscal years beginning
after June 15, 2000. SFAS No. 133, initially issued on June 15, 1998,
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 designated as part of a hedge transaction and, if it
is, the type of hedge transaction. For fair-value hedge transactions in
which Phoenix is hedging changes in an asset's, liability's or firm
commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in
the hedged item's fair value. For cash-flow hedge transactions, in which
Phoenix is hedging the variability of cashflows related to a variable-rate
asset, liability, or a forecasted transaction, changes in the fair value of
the derivative instrument will be reported in other comprehensive income.
The gains and losses on the derivative instrument that are reported in other
comprehensive income will be reclassified as earnings in the period in which
earnings are impacted by the variability of the cash flows of the hedged
item. The ineffective portion of all hedges will be recognized in current
period earnings.
Phoenix has not yet determined the impact that the adoption of SFAS 133 will
have on its earnings or statement of financial position.
Phoenix adopted 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 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," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," and SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other than
Pensions". The new statement revises and standardizes
B-17
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
employers' disclosures about pension and other postretirement benefit plans.
Adoption of this statement did not affect the results of operations or
financial position of Phoenix.
On January 1, 1999, Phoenix adopted Statement of Position (SOP) 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments." SOP 97-3 provides guidance for assessments related to
insurance activities. The adoption of SOP 97-3 did not have a material
impact on Phoenix's results from operations or financial position.
On January 1, 1999, Phoenix adopted SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance for determining when an entity should capitalize or expense
external and internal costs of computer software developed or obtained for
internal use. The adoption of SOP 98-1 did not have a material impact on
Phoenix's results from operations or financial position.
On January 1, 1999, Phoenix adopted SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that start-up costs capitalized
prior to January 1, 1999 should be written off and any future start-up costs
be expenses as incurred. The adoption of SOP 98-5 did not have a material
impact on Phoenix's results from operations or financial position.
3. SIGNIFICANT TRANSACTIONS
DISCONTINUED OPERATIONS
During 1999, Phoenix discontinued the operations of four of its business
units; the Reinsurance Operations, the Property and Casualty Brokerage
Operations, the Real Estate Management Operation and the Group Insurance
Operations. Disclosures concerning the financial impact of these
transactions are contained in Note 11 - "Discontinued Operations."
PFG HOLDINGS, INC.
On October 29, 1999, PM Holdings, a wholly-owned subsidiary of Phoenix,
purchased 100% of PFG Holdings, Inc. 8% cumulative preferred stock
convertible into a 67% interest in common stock for $5 million in cash. In
addition Phoenix has an option to purchase all the outstanding common stock
during year six at a value to 80% of the appraised value of the common stock
at that time. As of the statement date this option had not been executed.
Since the investment represents a majority interest Phoenix has consolidated
this entity for GAAP as if the preferred stock had been converted and
established a minority interest for outside shareholders. The transaction
resulted in goodwill of $3.8 million to be amortized over 10 years.
PFG Holdings was formed to purchase three of The Guarantee Life Companies'
operating subsidiaries: AGL Life Assurance Company, PFG Distribution Company
and Philadelphia Financial Group. These subsidiaries develop, market and
underwrite specialized private placement variable life and annuity products.
AGL Life Assurance Company must maintain at least $10 million of capital and
surplus to satisfy certain regulatory minimum capital requirements. PM
Holdings provided financing at the purchase date of $11 million to PFG
Holdings in order for AGL Life Assurance to meet this minimum requirement.
The debt is an 8.34% senior secured note maturing in 2009.
B-18
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EMPRENDIMIENTO COMPARTIDO, S.A., (EMCO)
At January 1, 1999 PM Holdings held 9.1 million shares of EMCO, representing
a 35% ownership interest the Argentine financial services company that
provides pension management, annuities and life insurance products. On June
23, 1999, PM Holdings became the majority owner of EMCO when it purchased
13.9 million shares of common stock from the Banco del Suquia, S.A. for
$29.5 million, plus $10.0 million for a five year covenant not-to-compete.
Payment for the stock will be made in three installments: $10.0 million, 180
days from closing; $10.0 million, 360 days from closing; and $9.5 million,
540 days from closing, all subject to interest of 7.06%. The covenant was
paid at the time of closing.
In addition, EMCO purchased, for its treasury, 3.0 million shares of its
outstanding common stock held by two banks. This, in combination with the
purchase described above, increased PM Holdings ownership interest from 35%
to 100% of the then outstanding stock.
On November 12, 1999, PM Holdings sold 11.5 million shares (50% interest) of
EMCO common stock for $40.0 million generating a pre-tax gain of $11.3
million. PM Holdings received $15.0 million in cash plus a $9.0 million
two-year 8% interest bearing note, and a $16.0 million five-year 8% interest
bearing note. PM Holdings uses the equity method of accounting to account
for its remaining 50% interest in EMCO.
After the sale, the remaining excess of the purchase price over the fair
value of the acquired net tangible assets totaled $17.0 million. That
consisted of a covenant not-to-compete of $5.0 million which is being
amortized over five years and goodwill of $12.0 million which is being
amortized over ten years.
PHOENIX NEW ENGLAND TRUST
On October 29, 1999, PM Holdings indirectly acquired 100% of the common
stock of New London Trust, a banking subsidiary of Sun Life of Canada, for
$30.0 million in cash. New London Trust, renamed Phoenix New England Trust,
is a New Hampshire based federal savings bank that operates a trust division
with assets under management of approximately $1 billion. Immediately
following this acquisition, on November 1, 1999, PM Holdings sold the New
London Trust's New Hampshire retail banking operations to Lake Sunapee Bank
and Mascoma Savings Bank in New Hampshire and the Connecticut branches to
Westbank Corporation, for a total of $25.2 million in cash. No gain or loss
was recognized on this sale. PM Holdings retained the trust business and
four trust offices of New London Trust, located in New Hampshire and
Vermont.
LOMBARD INTERNATIONAL ASSURANCE, S.A.
On November 5, 1999, PM Holdings purchased 12% of the common stock of
Lombard International Assurance, S.A., a Pan-European financial services
company, for $29.1 million in cash. Lombard provides investment-linked
insurance products to high-net-worth individuals in eight European
countries. This investment is classified as equity securities in the
Consolidated Balance Sheet.
B-19
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PHOENIX INVESTMENT PARTNERS, LTD.
On March 1, 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 Zweig Group managed approximately $3.3 billion of assets as of
December 31,1999.
On December 3, 1998, Phoenix Investment Partners completed the sale of its
49% interest in Canadian investment firm Beutel, Goodman & Company, Ltd. for
$47.0 million. Phoenix Investment Partners received $37.0 million in cash
and a $10.0 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.
Phoenix owns approximately 60% of the outstanding Phoenix Investment
Partners' common stock. In addition, Phoenix owns 45% of Phoenix Investment
Partners' convertible subordinated debentures.
ABERDEEN ASSET MANAGEMENT PLC
On February 18, 1999, PM Holdings purchased an additional 15.1 million
shares of the common stock of Aberdeen Asset Management for $29.4 million.
As of December 31, 1999, PM Holdings owned 21% 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.
DIVIDEND SCALE REDUCTION
In consideration of the decline of interest rates in the financial markets,
Phoenix's Board of Directors voted in October of 1998 to adopt a reduced
dividend scale, effective for dividends payable on or after January 1, 1999.
Dividends for individual participating policies were 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. In October 1999, Phoenix's Board of Directors voted to
maintain the dividend scale for dividends payable on or after January 1,
2000.
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 1998, which had a carrying value of $36.7
million, resulted in pre-tax gains of approximately $67.5 million. As of
December 31, 1999, Phoenix had 3 commercial real estate properties remaining
with a carrying value of $42.9 million and 5 joint venture real estate
partnerships with a carrying value of $49.1 million.
B-20
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS
Information pertaining to Phoenix's investments, net investment income and
realized and unrealized investment gains and losses follows:
DEBT AND EQUITY SECURITIES
The amortized cost and fair value of investments in debt and equity
securities as of December 31, 1999 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
DEBT SECURITIES
HELD-TO-MATURITY:
<S> <C> <C> <C> <C>
State and political subdivision bonds $ 27,595 $ 416 $ (1,033) $ 26,978
Foreign government bonds 3,032 (796) 2,236
Corporate securities 1,776,174 12,945 (95,707) 1,693,412
Mortgage-backed and asset-backed
securities 285,387 1,361 (19,166) 267,582
--------------- -------------- -------------- --------------
Total held-to-maturity securities 2,092,188 14,722 (116,702) 1,990,208
Less: held-to-maturity securities of
discontinued operations 102,019 736 (5,835) 96,920
--------------- -------------- -------------- --------------
Total held-to-maturity securities of
continuing operations 1,990,169 13,986 (110,867) 1,893,288
--------------- -------------- -------------- --------------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 283,697 1,955 (6,537) 279,115
State and political subdivision bonds 495,860 4,765 (21,751) 478,874
Foreign government bonds 273,868 23,700 (3,990) 293,578
Corporate securities 2,353,228 18,578 (102,773) 2,269,033
Mortgage-backed and asset-backed
securities 2,977,136 17,916 (103,264) 2,891,788
--------------- -------------- -------------- --------------
Total available-for-sale securities 6,383,789 66,914 (238,315) 6,212,388
Less: available-for-sale securities of
discontinued operations 725,077 7,600 (27,068) 705,609
--------------- -------------- -------------- --------------
Total available-for-sale securities of
continuing operations 5,658,712 59,314 (211,247) 5,506,779
--------------- -------------- -------------- --------------
TOTAL DEBT SECURITIES OF CONTINUING
OPERATIONS $ 7,648,881 $ 73,300 $ (322,114) $ 7,400,067
============== ============== ============= =============
EQUITY SECURITIES $ 311,100 $ 176,593 $ (24,211) $ 463,482
Less: equity securities of discontinued
operations 1,869 1,869
--------------- -------------- -------------- --------------
TOTAL EQUITY SECURITIES OF CONTINUING
OPERATIONS $ 309,231 $ 176,593 $ (24,211) $ 461,613
============== ============== ============= =============
</TABLE>
B-21
<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, 1998 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
DEBT SECURITIES
HELD-TO-MATURITY:
<S> <C> <C> <C> <C>
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 and asset-backed
securities 172,300 6,201 (12) 178,489
--------------- -------------- -------------- --------------
Total held-to-maturity securities 1,881,687 105,740 (14,656) 1,972,771
Less: held-to-maturity securities of
discontinued operations 156,248 8,776 (1,216) 163,808
--------------- -------------- -------------- --------------
Total held-to-maturity securities of
continuing operations 1,725,439 96,964 (13,440) 1,808,963
--------------- -------------- -------------- --------------
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 and asset-backed
securities 3,121,690 110,172 (14,618) 3,217,244
--------------- -------------- -------------- --------------
Total available-for-sale securities 6,436,444 327,587 (70,491) 6,693,540
Less: available-for-sale securities of
discontinued operations 678,992 34,558 (7,436) 706,114
--------------- -------------- -------------- --------------
Total available-for-sale securities of
continuing operations 5,757,452 293,029 (63,055) 5,987,426
--------------- -------------- -------------- --------------
TOTAL DEBT SECURITIES OF CONTINUING
OPERATIONS $ 7,482,891 $ 389,993 $ (76,495) $ 7,796,389
============== ============= ============ =============
EQUITY SECURITIES $ 223,915 $ 102,018 $ (21,388) $ 304,545
Less: equity securities of discontinued
operations 2,896 2,896
--------------- -------------- -------------- --------------
TOTAL EQUITY SECURITIES OF CONTINUING
OPERATIONS $ 221,019 $ 102,018 $ (21,388) $ 301,649
============== ============= ============ =============
</TABLE>
B-22
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The sale of fixed maturities held-to-maturity relate to certain securities,
with amortized cost of $3.9 million, $19.6 million and $59.1 million, for
the years ended December 31, 1999, 1998 and 1997, respectively, which were
sold specifically due to a significant decline in the issuers' credit
quality. The related realized losses, net of the sales, were $0.2 million,
$0.8 million and $10.1 million in 1999, 1998 and 1997, respectively.
The amortized cost and fair value of debt securities, by contractual sinking
fund payment and maturity, as of December 31, 1999 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 $ 118,171 $ 116,992 $ 43,180 $ 43,483
Due after one year through five years 583,115 564,215 534,417 532,676
Due after five years through ten years 587,568 566,505 1,146,805 1,104,661
Due after ten years 517,946 474,913 1,682,250 1,639,771
Mortgage-backed and
asset-backed securities 285,388 267,583 2,977,137 2,891,797
--------------- --------------- ---------------- --------------
Total $ 2,092,188 $ 1,990,208 $ 6,383,789 $ 6,212,388
Less: securities of discontinued
operations 102,019 96,920 725,077 705,609
--------------- --------------- ---------------- --------------
Total securities of continuing $ 1,990,169 $ 1,893,288 $ 5,658,712 $ 5,506,779
operations =============== =============== ================ ==============
</TABLE>
Carrying values for investments in mortgage-backed and asset-backed
securities, excluding U.S. government guaranteed investments, were as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Planned amortization class $ 168,027 $ 433,668
Asset-backed 956,892 910,594
Mezzanine 194,849 280,162
Commercial 735,238 641,485
Sequential pay 1,039,001 982,576
Pass through 77,154 119,065
Other 6,014 21,994
--------------- ---------------------
Total mortgage-backed and asset-backed securities $ 3,177,175 $ 3,389,544
=============== =====================
</TABLE>
B-23
<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,
1999 1998 1999 1998
(IN THOUSANDS) (IN THOUSANDS)
PROPERTY TYPE:
<S> <C> <C> <C> <C>
Office buildings $ 183,912 $ 221,244 $ 30,545 $ 38,343
Retail 208,606 203,927 14,111 36,858
Apartment buildings 252,947 261,894 41,744 21,553
Industrial buildings 82,699 121,789 1,600
Other 2,950 19,089 8,859 32
Valuation allowances (14,283) (30,600) (3,232) (6,411)
------------------ ------------------ ------------------ ------------------
Total $ 716,831 $ 797,343 $ 92,027 $ 91,975
================== ================== ================== =================
GEOGRAPHIC REGION:
Northeast $ 149,336 $ 169,368 $ 59,582 $ 47,709
Southeast 198,604 213,916 32 32
North central 164,150 176,683 744 11,453
South central 105,062 98,956 21,232 22,649
West 113,962 169,020 13,669 16,543
Valuation allowances (14,283) (30,600) (3,232) (6,411)
------------------ ------------------ ------------------ ------------------
Total $ 716,831 $ 797,343 $ 92,027 $ 91,975
================== ================== ================== ==================
</TABLE>
At December 31, 1999, scheduled mortgage loan maturities were as follows:
2000 - $92 million; 2001 - $87 million; 2002 - $32 million; 2003 - $109
million; 2004 - $38 million; 2005 - $35 million, and $338 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 $6.7
million and $2.3 million of its mortgage loans during 1999 and 1998,
respectively, based on terms which differed from those granted to new
borrowers.
The carrying value of delinquent and in process of foreclosure mortgage
loans at December 31, 1999 and 1998 is $6.0 million and $17.2 million,
respectively. There are valuation allowances of $5.4 million and $14.7
million, respectively, on these mortgages.
B-24
<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)
1999
<S> <C> <C> <C> <C>
Mortgage loans $ 30,600 $ 9,697 $ (26,014) $ 14,283
Real estate 6,411 183 (3,362) 3,232
------------------ ------------------ ------------------- -------------------
Total $ 37,011 $ 9,880 $ (29,376) $ 17,515
================== ================== =================== ===================
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
================== ================== =================== ===================
</TABLE>
NON-INCOME PRODUCING MORTGAGE LOANS AND BONDS
The net carrying values of non-income producing mortgage loans were $0.0
million and $15.6 million at December 31, 1999 and 1998, respectively. The
net carrying value of non-income producing bonds were $0.0 million and $22.3
at December 31, 1999 and 1998, respectively.
B-25
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DERIVATIVE INSTRUMENTS
Derivative instruments at December 31, are summarized below:
<TABLE>
<CAPTION>
1999 1998
($ IN THOUSANDS)
Swaptions:
<S> <C> <C>
Notional amount $ 1,600,000
Weighted average strike rate 5.02%
Index rate (1) 10 Yr. CMS
Fair value $ (8,200)
Interest rate floors:
Notional amount $ 1,210,000 $ 570,000
Weighted average strike rate 4.57% 4.59%
Index rate (1) 2-10 Yr. CMT/CMS 5-10 Yr. CMT
Fair value $ (7,542) $ 1,423
Interest rate swaps:
Notional amount $ 474,037 $ 424,573
Weighted average received rate 6.33% 6.27%
Weighted average paid rate 6.09% 5.82%
Fair value $ 1,476 $ 10,989
Foreign currency swaps:
Notional amount $ 8,074
Weighted average received rate 12.04%
Weighted average paid rate 10.00%
Fair value $ 213
Interest rate caps:
Notional amount $ 50,000 $ 50,000
Weighted average strike rate 7.95% 7.95%
Index rate (1) 10 Yr. CMT 10 Yr. CMT
Fair value $ 842 $ (96)
</TABLE>
(1) Constant maturity treasury yields (CMT) and constant maturity swap
yields (CMS).
The increase in net investment income related to interest rate swap
contracts was $1.0 million and $2.1 million for the years ended December 31,
1999 and 1998, respectively. The decrease in net investment income related
to interest rate floor, interest rate cap and swaption contracts was $2.3
million and $0.2 million for the years ended December 31, 1999 and 1998,
respectively, representing quarterly premium payments on these instruments
which are being paid over the life of the contracts. The estimated fair
value of these instruments represent what Phoenix would have to pay or
receive if the contracts were terminated.
B-26
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Phoenix is exposed to credit risk in the event of nonperformance by
counterparties to these financial instruments, but management of the Phoenix
does not expect counterparties to fail to meet their financial obligations,
given their high credit ratings. The credit exposure of these instruments is
the positive fair value at the reporting date.
Management of Phoenix considers the likelihood of any material loss on these
instruments to be remote.
VENTURE CAPITAL PARTNERSHIPS
Phoenix invests in venture capital limited partnerships. These partnerships
focus on early-stage ventures, primarily in the information technology and
life science industries, as well as direct equity investments in leveraged
buyouts and corporate acquisitions.
Phoenix records its equity in the earnings of the partnerships in net
investment income.
The components of net investment income due to venture capital partnerships
for the year ended December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Operating losses $ (8,921) $ (2,746) $ (2,131)
Realized gains on cash and stock distributions 84,725 23,360 31,336
Unrealized gains on investments held in the partnerships 64,091 19,009 4,531
----------- ------------ -----------
Total venture capital partnership net investment income $ 139,895 $ 39,623 $ 33,736
=========== ============ ===========
</TABLE>
OTHER INVESTED ASSETS
Other invested assets, consisting primarily of partnership interests and
equity in unconsolidated affiliates, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Transportation and equipment leases $ 82,063 $ 80,953
Affordable housing partnerships 22,247 10,854
Investment in Aberdeen Asset Management 99,074 72,257
Investment in EMCO of Argentina 13,423 10,681
Investment in other affiliates 12,389 12,706
Seed money in separate accounts 33,279 26,587
Other partnership interests 41,953 22,697
------------------- -------------------
Total other invested assets $ 304,428 $ 236,735
Less: other invested assets of discontinued operations 3,954 4,604
------------------- -------------------
Total other invested assets of continuing operations $ 300,474 $ 232,131
=================== ===================
</TABLE>
B-27
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31, were
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ 641,076 $ 598,892 $ 509,702
Equity securities 8,272 6,469 4,277
Mortgage loans 66,285 83,101 85,662
Policy loans 148,998 146,477 122,562
Real estate 9,716 38,338 18,939
Leveraged leases 2,202 2,746 2,692
Venture capital partnerships 139,895 39,623 33,736
Other invested assets 2,544 1,750 2,160
Short-term investments 22,543 23,825 18,768
------------- ------------ -------------
Sub-total 1,041,531 941,221 798,498
Less investment expenses 23,505 23,328 22,621
------------- ------------ -------------
Net investment income $ 1,018,026 $ 917,893 $ 775,877
Less: net investment income of discontinued operations 67,682 66,290 61,510
------------- ------------ -------------
Total net investment income of continuing operations $ 950,344 $ 851,603 $ 714,367
============= ============ =============
</TABLE>
Investment income of $2.7 million was not accrued on certain delinquent
mortgage loans and defaulted bonds at December 31, 1999. 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 $36.5 million and $40.8 million at December 31,
1999 and 1998, respectively. Interest income on restructured mortgage loans
that would have been recorded in accordance with the original terms of such
loans amounted to $4.1 million, $4.9 million and $5.3 million in 1999, 1998
and 1997, respectively. Actual interest income on these loans included in
net investment income was $3.5 million, $4.0 million and $3.8 million in
1999, 1998 and 1997, respectively.
B-28
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ (428,497) $ (7,040) $ 112,194
Equity securities 71,752 (91,880) 74,547
Deferred policy acquisition costs 260,287 6,694 (80,603)
Deferred income taxes (33,760) (32,279) 38,064
------------------ ----------------- -----------------
Net unrealized investment (losses) gains
on securities available-for-sale $ (62,698) $ (59,947) $ 68,074
================== ================= =================
</TABLE>
Realized investment gains and losses for the year ended December 31, were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ (20,416) $ (4,295) $ 19,315
Equity securities 16,648 11,939 26,290
Mortgage loans 18,534 (6,895) 3,805
Real estate 2,915 67,522 44,668
Other invested assets 18,432 (4,709) 17,387
------------ ------------ ------------
Net realized investment gains 36,113 63,562 111,465
Less realized from discontinued operations 438 5,360 422
------------ ------------ ------------
Net realized investment gains from continuing
operations $ 35,675 $ 58,202 $ 111,043
============ ============ ============
</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>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from disposals $ 1,106,929 $ 912,696 $ 821,339
Gross gains on sales $ 21,808 $ 17,442 $ 27,954
Gross losses on sales $ 39,122 $ 33,641 $ 5,309
</TABLE>
B-29
<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,
1999 1998
(IN THOUSANDS)
Phoenix Investment Partners gross amounts:
<S> <C> <C>
Goodwill $ 384,576 $ 321,793
Investment management contracts 235,976 169,006
Non-compete covenant 5,000 5,000
Other 10,894 472
-------------- --------------
Totals 636,446 496,271
-------------- --------------
Other gross amounts:
Goodwill 32,554 16,631
Intangible asset related to pension plan benefits 11,739 16,229
Other 1,206 693
-------------- --------------
Totals 45,499 33,553
-------------- --------------
Total gross goodwill and other intangible assets 681,945 529,824
Accumulated amortization - Phoenix Investment Partners (79,912) (49,615)
Accumulated amortization - other (8,766) (2,314)
-------------- --------------
Total net goodwill and other intangible assets $ 593,267 $ 477,895
============== ==============
</TABLE>
6. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Short-term debt $ 21,598 $ 1,938
Bank borrowings 260,284 168,278
Notes payable 1,146
Subordinated debentures 41,364 41,359
Surplus notes 175,000 175,000
----------------- -----------------
Total notes payable $ 499,392 $ 386,575
================= ================
</TABLE>
Phoenix has various lines of credit established with major commercial banks.
As of December 31, 1999, Phoenix had outstanding balances totaling $436.7
million. The total unused credit was $369.0 million. Interest rates ranged
from 5.26% to 7.48% in 1999.
Maturities of other indebtedness are as follows: 2000 - $21.6 million; 2001
- $26.0 million; 2002 $200.0 million; 2003 - $0.0 million; 2004 - $35.0
million; 2005 and thereafter - $216.8 million.
Interest expense was $32.7 million, $25.9 million and $24.3 million for the
years ended December 31, 1999, 1998 and 1997, respectively.
B-30
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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>
1999 1998 1997
(IN THOUSANDS)
Income taxes
<S> <C> <C> <C>
Current $ 121,448 $ 61,889 $ 39,583
Deferred (13,567) 3,157 7,658
------------------ ------------------ ------------------
Total $ 107,881 $ 65,046 $ 47,241
================== ================== ==================
</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 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>
1999 1998 1997
% % %
Income tax expense at statutory
<S> <C> <C> <C> <C> <C> <C>
rate $ 91,440 35 $ 65,685 35 $ 77,095 35
Dividend received deduction and
tax-exempt interest (3,034) (1) (3,273) (2) (1,684) (1)
Other, net 7,922 3 2,634 2 (15,059) (7)
------------- -------- ------------- -------- ------------- ---------
96,328 37 65,046 35 60,352 27
Differential earnings (equity tax) 11,553 4 (13,111) (6)
------------- -------- ------------- -------- ------------- ---------
Income taxes $ 107,881 41 $ 65,046 35 $ 47,241 21
============= ======== ============= ======== ============= =========
</TABLE>
B-31
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The deferred income tax liability (asset) represents the tax effects of
temporary differences attributable to the consolidated tax return group. The
components were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Deferred policy acquisition costs $ 282,725 $ 294,917
Unearned premium/deferred revenue (135,124) (139,346)
Impairment reserves (15,556) (23,111)
Pension and other postretirement benefits (68,902) (57,720)
Investments 177,204 122,032
Future policyholder benefits (181,205) (151,168)
Other 4,683 31,595
-------------- --------------
63,825 77,199
Net unrealized investment gains 26,587 42,254
Minimum pension liability (4,150) (3,349)
--------------- --------------
Deferred income tax liability, net $ 86,262 $ 116,104
=============== ==============
</TABLE>
Gross deferred income tax assets totaled $405 million and $375 million at
December 31, 1999 and 1998, respectively. Gross deferred income tax
liabilities totaled $491 million and $491 million at December 31, 1999 and
1998, 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, 1999 and 1998 will be
realized.
8. PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
PENSION PLANS
Phoenix has a multi-employer, non-contributory, defined benefit pension plan
covering substantially all of its employees. Retirement benefits are a
function of both years of service and level of compensation. Phoenix also
sponsors a non-qualified supplemental defined benefit plan to provide
benefits in excess of amounts allowed pursuant to 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>
1999 1998 1997
(IN THOUSANDS)
Components of net periodic benefit cost
<S> <C> <C> <C>
Service cost $ 11,887 $ 11,046 $ 10,278
Interest cost 24,716 22,958 22,650
Curtailments 21,604
Expected return on plan assets (28,544) (25,083) (22,055)
Amortization of net transition asset (2,369) (2,369) (2,369)
Amortization of prior service cost 1,795 1,795 1,795
Amortization of net (gain) loss (2,709) (1,247) 25
---------------- --------------- ---------------
Net periodic benefit cost $ 26,380 $ 7,100 $ 10,324
================ =============== ===============
</TABLE>
B-32
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In 1999, Phoenix offered a special retirement program under which qualified
participants' benefits under the employee pension plan were enhanced by
adding five years to age and five years to pension plan service. Of the 320
eligible employees, 146 accepted the special retirement program. As a result
of the special retirement program, Phoenix recorded an additional pension
expense of $21.6 million for the year ended December 31, 1999.
The aggregate change in projected benefit obligation, change in plan assets,
and funded status of the plan were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
Change in projected benefit obligation
<S> <C> <C>
Projected benefit obligation at beginning of year $ 353,462 $ 335,436
Service cost 11,887 11,046
Interest cost 24,716 22,958
Plan amendments 23,871
Curtailments (6,380)
Actuarial loss (4,887) 1,958
Benefit payments (19,841) (17,936)
--------------- ----------------
Benefit obligation at end of year $ 382,828 $ 353,462
--------------- ----------------
Change in plan assets
Fair value of plan assets at beginning of year $ 364,819 $ 321,555
Actual return on plan assets 78,951 58,225
Employer contributions 3,883 2,975
Benefit payments (19,841) (17,936)
--------------- ----------------
Fair value of plan assets at end of year $ 427,812 $ 364,819
--------------- ----------------
Funded status of the plan $ 44,984 $ 11,357
Unrecognized net transition asset (11,847) (14,217)
Unrecognized prior service cost 11,705 16,185
Unrecognized net gain (129,936) (75,921)
--------------- ----------------
Net amount recognized $ (85,094) $ (62,596)
=============== ================
Amounts recognized in the Consolidated Balance Sheet consist of:
Accrued benefit liability $ (108,690) $ (88,391)
Intangible asset 11,739 16,229
Accumulated other comprehensive income 11,857 9,566
--------------- ----------------
$ (85,094) $ (62,596)
=============== ================
</TABLE>
At December 31, 1999 and 1998, the non-qualified plan was not funded and had
projected benefit obligations of $72.3 million and $57.2 million,
respectively. The accumulated benefit obligations as of December 31, 1999
and 1998 related to this plan were $60.1 million and $48.4 million,
respectively, and are included in other liabilities.
Phoenix recorded, as a reduction of equity, an additional minimum pension
liability of $7.7 million and $6.2 million, net of income taxes, at December
31, 1999 and 1998, respectively, representing the excess of accumulated
benefit obligations over the fair value of plan assets and accrued pension
liabilities for the non-qualified plan. Phoenix has also recorded an
intangible asset of $11.7 million and $16.2 million as of December 31, 1999
and 1998 related to the non-qualified plan.
B-33
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% and 7.0% for 1999 and 1998,
respectively. The discount rate assumption for 1999 was determined based on
a study that matched available high quality investment securities with the
expected timing of pension liability payments. The rate of increase in
future compensation levels used in determining the actuarial present value
of the projected benefit obligation was 4.5% and 4.0% for 1999 and 1998,
respectively. The expected long-term rate of return on retirement plan
assets was 8.0% in 1999 and 1998.
The assets within the pension plan 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 that are
qualified under Internal Revenue Code Section 401(k). Employees and agents
may contribute a portion of their annual salary, subject to certain
limitations, 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, 1999, 1998 and 1997 were $4.0 million, $4.1
million and $3.8 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>
1999 1998 1997
(IN THOUSANDS)
Components of net periodic benefit cost
<S> <C> <C> <C>
Service cost $ 3,313 $ 3,436 $ 3,136
Interest cost 4,559 4,572 4,441
Curtailments 5,456
Amortization of net gain (1,493) (1,232) (1,527)
-------------- -------------- --------------
Net periodic benefit cost $ 11,835 $ 6,776 $ 6,050
============== ============== ==============
</TABLE>
As a result of the special retirement program, Phoenix recorded an
additional postretirement benefit expense of $5.5 million for the year ended
December 31, 1999.
B-34
<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,
1999 1998
(IN THOUSANDS)
Change in projected postretirement benefit obligation
<S> <C> <C>
Projected benefit obligation at beginning of year $ 70,943 $ 66,618
Service cost 3,313 3,436
Interest cost 4,559 4,572
Plan Amendments 5,785
Curtailments (328)
Actuarial (gain) loss (8,622) 397
Benefit payments (4,459) (4,080)
---------------- ----------------
Projected benefit obligation at end of year 71,191 70,943
---------------- ----------------
Change in plan assets
Employer contributions 4,459 4,080
Benefit payments (4,459) (4,080)
---------------- ----------------
Fair value of plan assets at end of year
---------------- ----------------
Funded status of the plan (71,191) (70,943)
Unrecognized net gain (33,538) (26,408)
---------------- ----------------
Accrued benefit liability $ (104,729) $ (97,351)
================ ================
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% and 7.0% at December 31, 1999 and 1998, respectively.
For purposes of measuring the accumulated postretirement benefit obligation
the health care costs were assumed to increase 7.5% and 8.5% in 1999 and
1998, respectively, declining thereafter until the ultimate rate of 5.5% is
reached in 2002 and remains at that level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation by $4.3 million and the annual service and
interest cost by $0.6 million, before income taxes. Decreasing the assumed
health care cost trend rates by one percentage point in each year would
decrease the accumulated postretirement benefit obligation by $4.1 million
and the annual service and interest cost by $0.5 million, before income
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 expenses were $0.5 million for 1999, ($0.5) million
for 1998 and $0.4 million for 1997.
B-35
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. COMPREHENSIVE INCOME
The components of, and related income tax effects for, other comprehensive
income for the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
<S> <C> <C> <C>
Before-tax amount $ (94,224) $ (72,255) $ 151,210
Income tax (benefit) expense (32,978) (25,288) 52,923
--------------- --------------- ---------------
Totals (61,246) (46,967) 98,287
--------------- --------------- ---------------
RECLASSIFICATION ADJUSTMENT FOR NET GAINS
REALIZED IN NET INCOME:
Before-tax amount (2,234) (19,970) (46,481)
Income tax (benefit) (782) (6,990) (16,268)
--------------- --------------- ---------------
Totals (1,452) (12,980) (30,213)
--------------- --------------- ---------------
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Before-tax amount (96,458) (92,225) 104,729
Income tax (benefit) expense (33,760) (32,278) 36,655
--------------- --------------- ---------------
Totals $ (62,698) $ (59,947) $ 68,074
=============== =============== ===============
MINIMUM PENSION LIABILITY ADJUSTMENT:
Before-tax amount $ (2,289) $ (2,347) $ (3,232)
Income tax (benefit) (801) (821) (1,131)
--------------- --------------- ---------------
Totals $ (1,488) $ (1,526) $ (2,101)
=============== =============== ===============
</TABLE>
The following table summarizes accumulated other comprehensive income for
the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
<S> <C> <C> <C>
Balance, beginning of year $ 100,510 $ 160,457 $ 92,383
Change during period (62,698) (59,947) 68,074
--------------- --------------- ---------------
Balance, end of year 37,812 100,510 160,457
--------------- --------------- ---------------
MINIMUM PENSION LIABILITY ADJUSTMENT:
Balance, beginning of year (6,219) (4,693) (2,592)
Change during period (1,488) (1,526) (2,101)
--------------- --------------- ---------------
Balance, end of year (7,707) (6,219) (4,693)
--------------- --------------- ---------------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance, beginning of year 94,291 155,764 89,791
Change during period (64,186) (61,473) 65,973
--------------- --------------- ---------------
Balance, end of year $ 30,105 $ 94,291 $ 155,764
=============== =============== ===============
</TABLE>
B-36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. SEGMENT INFORMATION
Phoenix offers a wide range of financial products and services. These
businesses have been grouped into three reportable segments.
The Individual segment includes the individual life insurance and annuity
products including participating whole life, universal life, variable life,
term life and variable annuities.
The Investment Management segment includes retail and institutional mutual
fund management and distribution including open-end funds, closed-end funds
and wrap accounts.
Corporate and Other contains several smaller subsidiaries and investment
activities which do not meet the thresholds of reportable segments as
defined in SFAS No. 131. They include venture capital investments,
international operations, trust operations and other investments.
The majority of Phoenix's revenue is derived in the United States. Revenue
derived from outside the United States is not material and revenue derived
from any single customer does not exceed ten percent of total consolidated
revenues.
The accounting policies of the segments are the same as those described in
Note 2 - "Summary of Significant Accounting Policies." Phoenix evaluates the
performance of each operating segment based on profit or loss from
operations before income taxes and nonrecurring items. Phoenix does not
include certain nonrecurring items to the segments. They are reported as
unallocated items and include expenses associated with various lawsuits and
legal disputes, postretirement medical expenses associated with an early
retirement program and realized gains associated with the sales of
subsidiaries. See Note 8 - " Pension and Other Postretirement and
Postemployment Benefit Plans."
Included in the following tables is certain information with respect to
Phoenix's operating segments as of and for each of the years ended December
31, 1999, 1998 and 1997, as well as amounts not allocated to the segments
which was described previously.
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998 1997
(IN MILLIONS)
TOTAL ASSETS
<S> <C> <C> <C>
Individual $ 17,990.3 $ 16,919.5 $ 15,709.8
Investment Management 747.4 591.9 647.9
Corporate & Other 1,357.8 876.2 1,124.4
Discontinued operations 187.6 283.8 250.9
--------------- --------------- ---------------
Total 20,283.1 18,671.4 17,733.0
=============== =============== ===============
DEFERRED POLICY ACQUISITION COSTS
Individual $ 1,306.7 $ 1,049.9 $ 1,016.3
=============== =============== ===============
</TABLE>
B-37
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS)
PREMIUMS, INSURANCE AND INVESTMENT PRODUCT FEES
<S> <C> <C> <C>
Individual $ 1,361.4 $ 1,416.7 $ 1,259.2
Investment Management 293.9 231.0 140.7
Corporate & Other 115.2 41.1 84.1
Less: inter-segment revenues (44.5) (40.7) (40.3)
---------------- ---------------- ---------------
Total 1,726.0 1,648.1 1,443.7
---------------- ---------------- ---------------
INVESTMENT INCOME
Individual 768.2 768.5 640.3
Investment Management 6.0 2.7 3.0
Corporate & Other 176.1 80.4 71.1
---------------- ---------------- ---------------
Total 950.3 851.6 714.4
---------------- ---------------- ---------------
NET REALIZED INVESTMENT GAINS
Individual 15.9 (17.8) 65.7
Corporate & Other 3.9 10.5 45.3
Gains on sale of subsidiaries 16.0 65.5
---------------- ---------------- ---------------
Total 35.8 58.2 111.0
---------------- ---------------- ---------------
POLICY BENEFITS AND DIVIDENDS
Individual 1,611.3 1,718.2 1,499.7
Corporate & Other 101.6 36.6 45.8
---------------- ---------------- ---------------
Total 1,712.9 1,754.8 1,545.5
---------------- ---------------- ---------------
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS
Individual 146.6 137.7 102.6
---------------- ---------------- ---------------
Total 146.6 137.7 102.6
---------------- ---------------- ---------------
AMORTIZATION OF GOODWILL AND INTANGIBLES
Individual 4.2 0.3 0.5
Investment Management 30.3 22.0 9.1
Corporate & Other 3.5 0.8 (0.2)
---------------- ---------------- ---------------
Total 38.0 23.1 9.4
---------------- ---------------- ---------------
INTEREST EXPENSE
Investment Management 18.9 14.7 3.6
Corporate & Other 13.8 11.2 20.7
---------------- ---------------- ---------------
Total 32.7 25.9 24.3
---------------- ---------------- ---------------
OTHER OPERATING EXPENSES
Individual 289.4 268.1 234.6
Investment Management 203.5 156.1 101.9
Corporate & Other 65.0 40.7 69.2
Unallocated amounts 7.2 4.5 1.7
Less: inter-segment expenses (44.5) (40.7) (40.4)
---------------- ---------------- ---------------
Total 520.6 428.7 367.0
---------------- ---------------- ---------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST
Individual 94.0 43.2 127.9
Investment Management 47.2 40.8 29.2
Corporate & Other 111.3 42.7 64.9
Unallocated amounts & inter-segment eliminations 8.8 61.0 (1.7)
---------------- ---------------- ---------------
Total $ 261.3 $ 187.7 $ 220.3
================ ================ ===============
</TABLE>
B-38
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. DISCONTINUED OPERATIONS
During 1999, Phoenix discontinued the operations of four of its business
units which in prior years had been reflected as reportable business
segments: the Reinsurance Operations, the Property and Casualty Brokerage
Operations, the Real Estate Management Operation and the Group Insurance
Operations. The discontinuation of these business units resulted from the
sale of several operations, a signed agreement to sell one of the operations
and the implementation of plans to withdraw from the remaining businesses.
REINSURANCE OPERATIONS
During 1999, Phoenix completed a comprehensive strategic review of its life
reinsurance segment and decided to exit these operations through a
combination of sale, reinsurance and placement of certain components into
run-off. Accordingly, Phoenix estimated sales proceeds, reinsurance premiums
and net claims run-off, resulting in the recognition of a $173 million
pre-tax loss ($113 million after-tax loss) on the disposal of life
reinsurance discontinued operations. The life reinsurance segment consisted
primarily of individual life reinsurance operations as well as group
personal accident and group health reinsurance business. The significant
components of the loss on the disposal of life reinsurance discontinued
operations in 1999 were as follows:
On August 1, 1999, Phoenix sold its individual life reinsurance operations
and certain group health reinsurance business to Employers Reinsurance
Corporation for $130 million. The transaction was structured as a
reinsurance and asset sale transaction, resulting in a pre-tax gain of $113
million. The pre-tax income from operations for the seven months prior to
disposal was $19 million.
On June 30, 1999, PM Holdings sold 100% of the common stock of Financial
Administrative Services, Inc. (FAS), its third-party administration
subsidiary, to CYBERTEK, a wholly-owned subsidiary of Policy Management
Systems Corporation. Proceeds from the sale were $8.0 million for the common
stock plus $1.0 million for a covenant not-to-compete, resulting in an
after-tax gain of $2.0 million.
Phoenix retained ownership of the preferred stock of FAS, which under the
terms of the agreement, CYBERTEK will purchase in six equal annual
installments commencing March 31, 2001 through March 31, 2006. The purchase
price will be determined annually based upon earnings, but in total, will
range from a minimum of $4.0 million to a maximum of $16.0 million.
During 1999, Phoenix placed the remaining group personal accident and group
health reinsurance operations into run-off. Management has adopted a formal
plan to terminate the related treaties as early as contractually permitted
and is not entering into any new contracts. Based upon the most recent
information available, Phoenix reviewed the run-off block and estimated the
amount and timing of future net premiums, claims and expenses. Consequently,
Phoenix increased reserve estimates on the run-off block by $180 million. In
addition, as part of the exit strategy, Phoenix purchased finite aggregate
excess of loss reinsurance to further protect Phoenix from unfavorable
results in the run-off block. The finite reinsurance is subject to an
aggregate retention of $100 million on the run-off block. Phoenix may
commute the agreement at any time after September 30, 2004, subject to
automatic commutation effective September 30, 2019. Phoenix paid an initial
premium of $130 million.
The additional estimated reserves and finite reinsurance coverage are
expected to cover the run-off of the business; however, the nature of the
underlying risks is such that the claims may take years to reach the
reinsurers involved. Therefore, Phoenix expects to pay claims out of
existing estimated reserves over a number of years as the level of business
diminishes.
B-39
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Additionally, certain group personal accident reinsurance business has
become the subject of disputes concerning the placement of the business with
reinsurers and the recovery of the reinsurance. This business primarily
concerns certain occupational accident reinsurance "facilities" and a
reinsurance pool (the Unicover Pool) underwritten and managed by Unicover
Managers, Inc. (Unicover). Phoenix participated as a reinsurer in the
Unicover Pool. The Unicover Pool and "facilities" were reinsured in large
part by a reinsurance facility underwritten and managed by Centaur
Underwriting Limited (Centaur) in which Phoenix also participated. Phoenix
terminated its participation in the Centaur facility effective October 1,
1998 and in the Unicover Pool effective March 1, 1999. However, claims
arising from business underwritten while Phoenix was a participant continue
to run off. On September 21, 1999, Phoenix initiated arbitration proceedings
seeking to rescind certain contracts arising from its participation in the
Centaur facility with respect to reinsurance of the Unicover business. In
January 2000, Phoenix settled two Unicover-related matters (see Note 21 -
"Subsequent Events"). A substantial portion of the risk associated with the
Unicover Pool and "facilities" and the Centaur program was further
retroceded by Phoenix to other unaffiliated insurance entities, providing
Phoenix with significant security. Certain of these retrocessionaires have
given notice that they challenge their obligations under their contracts and
are in arbitration or litigation with Phoenix.
Additionally, certain group personal accident excess of loss reinsurance
contracts created in the London market during 1994 - 1997 have become the
subject of disputes concerning the placement of the business with reinsurers
and the recovery of reinsurance. Several arbitration proceedings are
currently pending.
Given the uncertainty associated with litigation and other dispute
resolution proceedings, and the expected long term development of net claims
payments, the estimated amount of the loss on disposal of life reinsurance
discontinued operations may differ from actual results. However, it is
management's opinion, after consideration of the provisions made in these
financial statements, as described above, that future developments will not
have a material effect on Phoenix's consolidated financial position.
PROPERTY AND CASUALTY BROKERAGE OPERATIONS
On July 1, 1999, PM Holdings sold its property and casualty brokerage
business to Hilb, Rogal and Hamilton Company (HRH) for $48.1 million
including $0.2 million for a covenant not-to-compete. Total proceeds
consisted of $32.0 million in convertible debentures, $15.9 million for
865,042 shares of HRH common stock, valued at $18.38 per share on the sale
date, and $0.2 million in cash. The pre-tax gain realized on the sale was
$40.1 million. The HRH common stock is classified as common stock and the
convertible debentures are classified as bonds in the Consolidated Balance
Sheet. As of December 31, 1999 Phoenix owns 7% of the outstanding HRH common
stock, 15% on a diluted basis.
REAL ESTATE MANAGEMENT OPERATIONS
On March 31, 1999, Phoenix sold its real estate management subsidiary,
Phoenix Realty Advisors, to Henderson Investors International Holdings, B.V.
for $7.9 million in cash. The pre-tax gain realized on this transaction was
$7.1 million.
B-40
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
GROUP INSURANCE OPERATIONS
On December 9, 1999, Phoenix signed a definitive agreement to sell its Group
Life and Health business, including five companies, Phoenix American Life,
Phoenix Dental Services, Phoenix Group Services, California Benefits and
Clinical Disability Management, to GE Financial Assurance Holdings, Inc.
Proceeds from the sale are estimated to be $285 million, including cash of
$240 million and 3.1% of the common stock of GE Life and Annuity Assurance
Company. Phoenix expects the transaction to be completed in the second
quarter of 2000, subject to regulatory approval.
The assets and liabilities of the discontinued operations have been excluded
from the assets and liabilities of continuing operations and separately
identified on the Consolidated Balance Sheet. Net assets of the discontinued
operations totaled $187.6 million and $283.8 million as of December 31, 1999
and 1998, respectively. Asset and liability balances of the continuing
operation as of December 31, 1998, have been restated to conform with the
current year presentation. Likewise, the Consolidated Statement of Income,
Comprehensive Income and Equity has been restated for 1998 and 1997 to
exclude the operating results of discontinued operations from continuing
operations. The operating results of discontinued operations and the gain or
loss on disposal are presented below.
<TABLE>
<CAPTION>
GAIN (LOSS) FROM OPERATIONS OF YEAR ENDED DECEMBER 31,
DISCONTINUED OPERATIONS 1999 1998 1997
(IN THOUSANDS)
Revenues:
<S> <C> <C> <C>
Reinsurance Operations $ 306,671 $ 163,503
Group Insurance Operations $ 453,813 503,825 483,956
Property and Casualty Brokerage Operations 25,968 72,579 64,093
Real Estate Management 1,189 12,707 15,319
--------------- -------------- ---------------
Total revenues 480,970 895,782 726,871
--------------- -------------- ---------------
Gain (loss) from operations:
Reinsurance Operations 14,081 10,611
Group Insurance Operations 28,672 29,212 31,686
Property and Casualty Brokerage Operations 1,534 2,515 (19,911)
Real Estate Management (2,645) (4,037) (2,616)
--------------- -------------- ---------------
Gain from discountinued operations before income
taxes 27,561 41,771 19,770
Income taxes 10,006 16,759 12,522
--------------- -------------- ---------------
Gain from discontinued operations, net of taxes $ 17,555 $ 25,012 $ 7,248
=============== ============== ===============
</TABLE>
B-41
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
YEAR ENDED
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS DECEMBER 31, 1999
(IN THOUSANDS)
(Loss) gain on disposal:
Reinsurance Operations $ (173,061)
Property and Casualty Brokerage Operations 40,131
Real Estate Management 5,870
--------------
Loss on disposal of discontinued operations before
income taxes (127,060)
Income taxes (55,076)
--------------
Loss on disposal of discontinued operations, net of
income taxes $ (71,984)
--------------
12. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements, consisting primarily of
office buildings occupied by Phoenix, are stated at depreciated cost. Real
estate occupied by Phoenix was $101.7 million and $106.7 million at December
31, 1999 and 1998, respectively. 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 $182.3 million and $161.2 million at
December 31, 1999 and 1998, respectively.
Rental expenses for operating leases, principally with respect to buildings,
amounted to $16.3 million, $16.9 million and $16.9 million in 1999, 1998,
and 1997, respectively, for continuing operations. Future minimum rental
payments under non-cancelable operating leases for continuing operations
were approximately $40.2 million as of December 31, 1999, payable as
follows: 2000 - $13.5 million; 2001 - $10.5 million; 2002 - $7.3 million;
2003 - $5.1 million; 2004 - $2.8 million; and $1.0 million thereafter.
13. DIRECT BUSINESS WRITTEN AND REINSURANCE
As is customary practice in the insurance industry, Phoenix assumes and
cedes reinsurance as a means of diversifying underwriting risk. 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. In
1999, Phoenix reinsured the mortality risk on the remaining 20% of this
business. Amounts recoverable from reinsurers are estimated in a manner
consistent with the claim liability associated with the reinsured policy.
B-42
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Additional information on direct business written and reinsurance assumed
and ceded for the years ended December 31, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $ 1,762,359 $ 1,719,393 $ 1,592,800
Reinsurance assumed 416,194 505,262 329,927
Reinsurance ceded (537,847) (371,854) (282,121)
--------------- ---------------- ---------------
Net premiums 1,640,706 1,852,801 1,640,606
Less net premiums of discontinued operations (506,499) (698,071) (564,449)
--------------- ---------------- ---------------
Net premiums of continuing operations $ 1,134,207 $ 1,154,730 $ 1,076,157
=============== ================ ===============
Direct policy and contract claims incurred $ 707,105 $ 728,062 $ 629,112
Reinsurance assumed 563,807 433,242 410,704
Reinsurance ceded (500,282) (407,780) (373,127)
--------------- ---------------- ---------------
Net policy and contract claims incurred 770,630 753,524 666,689
Less net incurred claims of discontinued operations (552,423) (471,688) (422,373)
--------------- ---------------- ---------------
Net policy and contract claims incurred
of continuing operations $ 218,207 $ 281,836 $ 244,316
=============== ================ ==============
Direct life insurance in force $ 131,052,050 $ 121,442,041 $ 120,394,664
Reinsurance assumed 139,649,850 110,632,110 84,806,585
Reinsurance ceded (207,192,046) (135,817,986) (74,764,639)
--------------- ---------------- ---------------
Net insurance in force 63,509,854 96,256,165 130,436,610
Less insurance in force of discontinued operations (1,619,452) (24,330,166) (13,811,408)
--------------- ---------------- ---------------
Net insurance in force of continuing operations $ 61,890,402 $ 71,925,999 $ 116,625,202
=============== ================ ===============
</TABLE>
Irrevocable letters of credit aggregating $36.2 million at December 31, 1999
have been arranged with United States commercial banks in favor of Phoenix
to collateralize the ceded reserves.
14. PARTICIPATING LIFE INSURANCE
Participating life insurance in force was 66.9% and 72.3% of the face value
of total individual life insurance in force at December 31, 1999 and 1998,
respectively. The premiums on participating life insurance policies were
76.8%, 79.4% and 83.5% of total individual life insurance premiums in 1999,
1998, and 1997, respectively.
B-43
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred and
amortized for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 1,049,934 $ 1,016,295 $ 908,616
Acquisition cost deferred 143,110 164,608 288,281
Amortized to expense during the year (146,603) (137,663) (102,617)
Adjustment to net unrealized investment
gains (losses) included in other
comprehensive income 260,287 6,694 (77,985)
------------------ ----------------- ------------------
Balance at end of year $ 1,306,728 $ 1,049,934 $ 1,016,295
================== ================= ==================
</TABLE>
Amortized to expense during the year for 1999 includes a $6.3 million
adjustment due to worse than expected persistency in one of the variable
annuity product lines and a $6.9 million adjustment to traditional life due
to an adjustment to death claims used in determining DAC amortization.
16. MINORITY INTEREST
Phoenix's interests in Phoenix Investment Partners and PFG Holdings, through
its wholly-owned subsidiary PM Holdings, are represented by ownership of
approximately 60% and 67%, respectively, of the outstanding shares of common
stock at December 31, 1999. Earnings and equity attributable to minority
shareholders are included in minority interest in the consolidated financial
statements.
17. 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 consolidated 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 analysis 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.
B-44
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
DERIVATIVE INSTRUMENTS
Phoenix's derivative instruments include interest rate swap, cap and floor
agreements, swaptions and foreign currency swap agreements. Fair values for
these contracts are based on current settlement values. These values are
based on brokerage quotes that utilize pricing models or formulas based upon
current assumptions for the respective agreements.
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.
B-45
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTES PAYABLE
The fair value of notes payable is determined based on contractual cash
flows discounted at market rates.
FAIR VALUE SUMMARY
The estimated fair values of the financial instruments as of December 31,
were as follows:
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 187,610 $ 187,610 $ 115,187 $ 115,187
Short-term investments 133,367 133,367 185,983 185,983
Debt securities 7,496,948 7,400,067 7,712,865 7,796,389
Equity securities 461,613 461,613 301,649 301,649
Mortgage loans 716,831 680,569 797,343 831,919
Derivative instruments (13,211) 12,316
Policy loans 2,042,558 2,040,497 2,008,260 2,122,389
----------------- ----------------- ----------------- -----------------
Total financial assets $ 11,038,927 $ 10,890,512 $ 11,121,287 $ 11,365,832
================= ================= ================= =================
Financial liabilities:
Policy liabilities $ 709,696 $ 709,357 $ 783,400 $ 783,400
Notes payable 499,392 490,831 386,575 395,744
----------------- ----------------- ----------------- -----------------
Total financial liabilities $ 1,209,088 $ 1,200,188 $ 1,169,975 $ 1,179,144
================= ================= ================= ================
</TABLE>
18. CONTINGENCIES
LITIGATION
Certain group personal accident reinsurance business has become the subject
of disputes concerning the placement of the business with reinsurers and the
recovery of the reinsurance (see Note 11 - "Discontinued Operations" and
Note 21 - "Subsequent Events").
19. 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. Except for the accounting policy involving
federal income taxes described next, there were no material practices not
prescribed by the State of New York Insurance Department (the Insurance
Department), as of December 31, 1999, 1998 and 1997. Phoenix's statutory
federal income tax liability is principally based on estimates of federal
income tax due. A deferred income tax liability has also been established
for estimated taxes on unrealized gains for common stock and venture capital
equity partnerships. Current New York law does not allow the recording of
deferred income taxes. Phoenix has received approval from the Insurance
Department for this practice.
B-46
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income $ 131,286 $ 108,652 $ 66,599
Deferred policy acquisition costs, net (28,099) 18,538 48,821
Future policy benefits (23,686) (53,847) (9,145)
Pension and postretirement expenses (8,638) (17,334) (7,955)
Investment valuation allowances 15,141 107,229 87,920
Interest maintenance reserve (7,232) 1,415 17,544
Deferred income taxes 3,919 (39,983) (36,250)
Other, net 6,191 12,459 2,118
--------------- --------------- ---------------
Net income, as reported $ 88,882 $ 137,129 $ 169,652
=============== =============== ===============
</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,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Statutory surplus, surplus notes and AVR $ 1,427,333 $ 1,205,635
Deferred policy acquisition costs, net 1,231,217 1,259,316
Future policy benefits (478,184) (465,268)
Pension and postretirement expenses (193,007) (174,273)
Investment valuation allowances (206,531) 34,873
Interest maintenance reserve 24,767 35,303
Deferred income taxes 65,595 (25,593)
Surplus notes (159,444) (157,500)
Other, net 49,505 24,062
------------------- -------------------
Equity, as reported $ 1,761,251 $ 1,736,555
=================== ===================
</TABLE>
The 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 Insurance Department to financial statements prepared in accordance with
generally accepted accounting principles in making such determinations.
B-47
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
20. PRIOR PERIOD ADJUSTMENTS
In 1999, Phoenix revised the accounting for venture capital partnerships to
include unrealized capital gains and losses on investments held in the
partnerships. These gains and losses are recorded in investment income.
Opening retained earnings at December 31, 1996 has been increased by $17.6
million. The consolidated balance sheet as of December 31, 1998 was revised
by increasing the following balances: other invested assets by $50.6
million, deferred income taxes by $17.7 million and retained earnings by
$32.9 million. The effect on the Consolidated Statement of Income,
Comprehensive Income and Equity was an increase in net income of $12.4
million and $2.9 million for the years ended 1998 and 1997, respectively.
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.
21. SUBSEQUENT EVENTS
OCCUPATIONAL ACCIDENT REINSURANCE
On January 21, 2000, Phoenix, in connection with its participation in the
Centaur facility, and two other companies completed a settlement agreement
with Reliance Insurance Company (Reliance) with respect to certain
reinsurance contracts covering occupational accident business reinsured by
Reliance as a Unicover-managed "facility." The Reliance business was the
largest portion of occupational accident reinsurance business underwritten
by Unicover. Under the terms of the settlement agreement, Phoenix ended the
contracts for a total payment of $115.0 million.
On January 13, 2000, Phoenix and four other companies, in connection with
their participation in the Unicover Pool, completed a settlement agreement
with EBI Indemnity Company and other affiliates of the Orion Group (EBI)
with respect to certain reinsurance contracts covering occupational accident
business which EBI ceded to the Unicover Pool. These contracts represented
the largest source of premium to the Unicover Pool. Under the terms of the
settlement agreement, the Unicover Pool members ended the contracts for a
total payment of $43.0 million, of which Phoenix's share was approximately
$10.0 million.
Phoenix included the cost of these settlements, net of reinsurance, in its
estimate of the loss on discontinued life reinsurance operations. See Note
11 - "Discontinued Operations."
B-48
