As filed with the Securities and Exchange Commission on January 12, 2001
File No. 333-47862
811-03488
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1 |X|
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 1 |X|
(Check appropriate box or boxes.)
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Phoenix Home Life Variable Accumulation Account
(Exact Name of Registrant)
Phoenix Home Life Mutual Insurance Company
(Name of Depositor)
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One American Row, Hartford, Connecticut 06102
(Address of Depositor's Principal Executive Offices) (Zip Code)
(800) 447-4312
(Depositor's Telephone Number, Including Area Code)
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Dona D. Young, Esq.
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06102
(Name and Address of Agent for Service)
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Copy to:
Edwin L. Kerr, Esq.
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06102
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Approximate date of proposed public offering:
January 16, 2001 or as soon thereafter as possible
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The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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================================================================================
<PAGE>
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
REGISTRATION
STATEMENT ON FORM N-4
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS
AND STATEMENT OF ADDITIONAL INFORMATION
AS REQUIRED BY FORM N-4
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FORM N-4 ITEM PROSPECTUS/SAI CAPTION
------------- ----------------------
PART A INFORMATION REQUIRED IN A PROSPECTUS
1. Cover Page .................................................. Cover Page
2. Definitions ................................................. Special Terms
3. Synopsis..................................................... Summary of Expenses; Contract Summary
4. Condensed Financial Information ............................. Financial Highlights
5. General Description of Registrant, Depositor and
Portfolio Companies....................................... Phoenix and the Account; Investments of the Account;
Voting Rights
6. Deductions and Expenses ..................................... Deductions and Charges; Sales of Immediate
Fixed and Variable Annuity Contracts
7. General Description of Variable Annuity Contracts............ The Immediate Fixed and Variable Annuity; Purchase of
Contracts; Miscellaneous Provisions
8. Annuity Period .............................................. The Annuity Period
9. Death Benefits............................................... Payment Upon Death
10. Purchases and Contract Value ................................ Purchase of Contracts; Sales of
Immediate Variable Annuity Contracts
11. Redemptions.................................................. Surrender of Contracts; Partial Withdrawals; Free Look
Period
12. Taxes ....................................................... Federal Income Taxes
13. Legal Proceedings............................................ Legal Matters
14. Table of Contents of the Statement of Additional
Information............................................... SAI
PART B INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
15. Cover Page .................................................. Cover Page
16. Table of Contents ........................................... Table of Contents
17. General Information and History ............................. Not Applicable
18. Services..................................................... Not Applicable
19. Purchase of Securities Being Offered......................... Appendix
20. Underwriters ................................................ Underwriter
21. Calculation of Performance Data.............................. Calculation of Yield and Return
22. Annuity Payments............................................. Calculation of Annuity Payments
23. Financial Statements ........................................ Financial Statements
</TABLE>
<PAGE>
PHOENIX INCOME EDGE
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 JANUARY 16, 2001
This prospectus describes a single premium immediate fixed and variable
annuity contract. The contract is designed to provide you with retirement
income. The contract offers a variety of variable and fixed payment options.
You may allocate your premium and contract value to one or more of the
subaccounts of the Phoenix Home Life Variable Accumulation Account ("Account")
and the Fixed Income Allocation ("FIA"). The assets of each subaccount will be
used to purchase, at net asset value, shares of a series in the following
designated funds. The portion of your premium allocated to the FIA will purchase
fixed annuity payments.
THE PHOENIX EDGE SERIES FUND
----------------------------
[diamond] Phoenix-Aberdeen International Series
[diamond] Phoenix-Aberdeen New Asia Series
[diamond] Phoenix-Bankers Trust Dow 30 Series
[diamond] Phoenix-Bankers Trust Nasdaq 100-Index(R) Series
[diamond] Phoenix-Duff & Phelps Real Estate Securities Series
[diamond] Phoenix-Engemann Capital Growth Series
[diamond] Phoenix-Engemann Nifty Fifty Series
[diamond] Phoenix-Engemann Small & Mid-Cap Growth Series
[diamond] Phoenix-Federated U.S. Government Bond Series
[diamond] Phoenix-Goodwin Money Market Series
[diamond] Phoenix-Goodwin Multi-Sector Fixed Income Series
[diamond] Phoenix-Hollister Value Equity 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-Oakhurst Balanced Series
[diamond] Phoenix-Oakhurst Growth and Income Series
[diamond] Phoenix-Oakhurst Strategic Allocation Series
[diamond] Phoenix-Sanford Bernstein Global Value Series
[diamond] Phoenix-Sanford Bernstein Mid-Cap Value Series
[diamond] Phoenix-Sanford Bernstein Small-Cap Value Series
[diamond] Phoenix-Seneca Mid-Cap Growth Series
[diamond] Phoenix-Seneca Strategic Theme Series
THE ALGER AMERICAN FUND
-----------------------
[diamond] Alger American Leveraged AllCap Portfolio
DEUTSCHE ASSET MANAGEMENT VIT FUNDS
-----------------------------------
[diamond] EAFE(R) Equity Index Fund
FEDERATED INSURANCE SERIES
--------------------------
[diamond] Federated Fund for U.S. Government Securities II
[diamond] Federated High Income Bond Fund II
FIDELITY(R) VARIABLE INSURANCE PRODUCTS
---------------------------------------
[diamond] VIP Contrafund(R) Portfolio
[diamond] VIP Growth Opportunities Portfolio
[diamond] VIP Growth Portfolio
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
----------------------------------------------------
[diamond] Mutual Shares Securities Fund -- Class 2
[diamond] Templeton Asset Strategy Fund -- Class 2
[diamond] Templeton Developing Markets Securities Fund -- Class 2
[diamond] Templeton Growth Securities Fund -- Class 2
[diamond] Templeton International Securities Fund -- Class 2
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
---------------------------------------
[diamond] Technology Portfolio
WANGER ADVISORS TRUST
---------------------
[diamond] Wanger Foreign Forty
[diamond] Wanger International Small Cap
[diamond] Wanger Twenty
[diamond] Wanger U.S. Small Cap
It may not be in your best interest to purchase a contract to replace an
existing annuity contract or life insurance policy. You must understand the
basic features of the proposed contract and your existing coverage before you
decide to replace your present coverage. You must also know if the replacement
will result in any income tax liability.
1
<PAGE>
This prospectus is valid only if accompanied or preceded by current prospectuses
for the funds. 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 ("FDIC") 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 is valid only if accompanied or
preceded by current fund prospectuses. These prospectuses 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...................................... 5
CONTRACT SUMMARY......................................... 10
FINANCIAL HIGHLIGHTS..................................... 11
PERFORMANCE HISTORY...................................... 11
THE IMMEDIATE FIXED AND VARIABLE ANNUITY................. 11
PHOENIX AND THE ACCOUNT ................................. 11
INVESTMENTS OF THE ACCOUNT............................... 11
The Phoenix Edge Series Fund......................... 11
The Alger American Fund.............................. 13
Deutsche Asset Management VIT Funds.................. 13
Federated Insurance Series........................... 13
Fidelity Variable Insurance Products................. 13
Franklin Templeton Variable Insurance
Products Trust ..................................... 13
The Universal Institutional Funds, Inc............... 14
Wanger Advisors Trust................................ 14
Investment Advisors.................................. 14
Services of the Advisors............................. 15
FIA...................................................... 15
PURCHASE OF CONTRACTS.................................... 16
Payment Upon Death Before the Annuity Date........... 16
ADDITIONAL RIDER BENEFITS................................ 16
Guaranteed Minimum Payment Rider................... 16
OPTIONAL PROGRAMS AND BENEFITS 16
Transfers.......................................... 16
DEDUCTIONS AND CHARGES................................... 16
Deductions from the Separate Account................. 16
Tax................................................ 16
Surrender Charges.................................. 16
Risk and Administrative Fee........................ 16
Payment Charge..................................... 16
Reduced Charges or Credit Additional Amounts......... 16
Other Charges........................................ 17
THE ANNUITY PERIOD....................................... 17
PAYMENT OPTIONS ..................................... 17
Option A--Single Life Annuity...................... 17
Option B--Single Life Annuity with Period Certain. 17
Option C--Joint Survivor Life Annuity ............. 17
Option D--Joint Survivor Life Annuity with
Period Certain.................................. 17
Option E--Annuity for a Specified Period........... 17
Option F--Life Expectancy Annuity ................. 17
Option G--Unit Refund Life Annuity................. 17
Other Options and Rates............................ 18
Other Conditions................................... 18
Payment Upon Death After the Annuity Date............ 18
Surrender of Contract: Withdrawals................... 19
LAPSE OF CONTRACT........................................ 20
VARIABLE ACCOUNT VALUATION PROCEDURES.................... 20
MISCELLANEOUS PROVISIONS................................. 20
Assignment........................................... 20
Deferment of Payment ................................ 20
Free Look Period..................................... 20
Amendments to Contracts.............................. 21
Substitution of Fund Shares.......................... 21
Ownership of the Contract............................ 21
FEDERAL INCOME TAXES..................................... 21
Introduction......................................... 21
Income Tax Status.................................... 21
Taxation of Annuities in General--Non- 21
Qualified Plans......................................
Surrenders or Withdrawals.......................... 21
Penalty Tax on Certain Surrenders and Withdrawals.. 22
Additional Considerations............................ 22
Diversification Standards ........................... 22
Individual Retirement Annuity........................ 23
IRAs............................................... 23
Penalty Tax on Certain Surrenders and
Withdrawals from IRAs............................. 23
Seek Tax Advice.................................... 24
SALES OF CONTRACTS....................................... 24
STATE REGULATION......................................... 24
REPORTS.................................................. 24
VOTING RIGHTS............................................ 24
LEGAL MATTERS............................................ 25
SAI...................................................... 25
APPENDIX A--PERFORMANCE HISTORY.......................... 26
APPENDIX B--DEDUCTIONS FOR PREMIUM TAXES................. 28
APPENDIX C--ILLUSTRATION OF VALUES....................... 29
3
<PAGE>
SPECIAL TERMS
--------------------------------------------------------------------------------
The following is a list of terms and their meanings when used in this
prospectus.
ACCOUNT: Phoenix Home Life Variable Accumulation Account.
ACCUMULATION UNIT: A standard of measurement for the Phoenix-Goodwin Money
Market Subaccount used to determine the value of a contract prior to the annuity
date during the free look period.
ACCUMULATION UNIT VALUE: The value of one accumulation unit was set to 1.0000 on
the date assets were first allocated to the Phoenix-Goodwin Money Market
Subaccount. The value of one accumulation unit on any subsequent valuation date
is determined by multiplying the immediately preceding accumulation unit value
by the applicable net investment factor for the valuation period ending on such
valuation date.
ANNUITANT: The primary person whose life is used as the measuring life under the
contract. Also, see Joint Annuitant.
ANNUITY DATE: The date we calculate and make the first annuity payment.
ANNUITY PAYMENT: The amount we pay on each payment calculation date. It is the
sum of the fixed annuity payment and the variable annuity payment.
ANNUITY UNIT: A standard of measurement used in determining the amount of each
variable annuity payment.
ASSUMED INTEREST RATE: The rate used to determine the variable annuity payment.
COMMUTED VALUE: The present value of any remaining guaranteed annuity payments.
This amount is calculated using the assumed interest rate for variable annuity
payments or the underlying interest rate for fixed annuity payments.
CONTRACT: The single premium immediate fixed and variable 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. A husband and wife may be
designated as joint owners, and if such a joint owner dies, the other joint
owner becomes the sole owner of the contract. If no owner is named in the
application, the annuitant will be the owner.
CONTRACT VALUE: The sum of the total value of the subaccounts and the FIA on any
valuation date.
FIA: The Fixed Income Allocation is an investment option within our general
account.
FIXED ANNUITY PAYMENT: A benefit providing periodic payments of a fixed dollar
amount throughout the annuity period. This benefit does not vary with or reflect
the investment performance of any subaccount.
FUNDS: The Phoenix Edge Series Fund, The Alger American Fund, Deutsche Asset
Management VIT Funds, Federated Insurance Series, Franklin Templeton Variable
Insurance Products Trust, Fidelity(R) Variable Insurance Products, The Universal
Institutional Funds, Inc. and Wanger Advisors Trust.
JOINT ANNUITANT: A person other than the annuitant on whose life annuity
payments may also be based.
ISSUE DATE: The date that the initial premium is invested under a contract.
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.
NET PREMIUM: The premium less any applicable tax.
PAYEE: The person you designate to receive annuity payments.
PAYMENT CALCULATION DATE: The date we calculate annuity payments. The first
payment calculation date is the annuity date. After the first payment
calculation date, we will calculate payments on the same date each month. We use
the previous valuation date if such date is not a valuation date.
PAYMENT OPTION: The provisions under which we make a series of annuity payments
to the annuitant or other payee, such as a single life annuity. See "Payment
Options."
PAYMENT UPON DEATH: The obligation of Phoenix under a contract to make a payment
on the death of annuitant.
PHOENIX (OUR, US, WE, COMPANY): Phoenix Home Life Mutual Insurance Company.
PREMIUM: The amount you pay when you purchase a contract. Generally, we require
a minimum premium of $35,000.
SERIES: A separate investment portfolio of a fund.
SURRENDER VALUE: The commuted value less any applicable surrender charge.
VAO: Variable Annuity Operations.
VALUATION DATE: A valuation date is every day the New York Stock Exchange
("NYSE") is open for trading.
VARIABLE ANNUITY PAYMENT: An annuity providing payments that vary in amount,
according to the investment experience of the selected subaccounts.
4
<PAGE>
VPMO: The Variable Products Mail Operations division of Phoenix that receives
and processes incoming mail for VAO.
5
<PAGE>
SUMMARY OF EXPENSES
<TABLE>
<CAPTION>
CONTRACT OWNER TRANSACTION EXPENSES ALL SUBACCOUNTS
Surrender Charges(1) (as a percentage of amount withdrawn):
<S> <C>
Age of Premium in Complete Years 0-1............................................ 7%
Age of Premium in Complete Years 1-2............................................ 6%
Age of Premium in Complete Years 2-3............................................ 5%
Age of Premium in Complete Years 3-4............................................ 4%
Age of Premium in Complete Years 4-5............................................ 3%
Age of Premium in Complete Years 5-6............................................ 2%
Age of Premium in Complete Years 6-7............................................ 1%
Age of Premium in Complete Years 7 and thereafter .............................. None
Subaccount Transfer Charge(2)....................................................... None
ANNUAL PAYMENT CHARGE
Maximum......................................................................... $24
ANNUAL SEPARATE ACCOUNT EXPENSES (as a percentage of average account value)
Maximum Risk and Administrative Fee............................................. 1.40%
Maximum Guaranteed Minimum Payment Rider Risk and Administrative Fee............ 1.00%
</TABLE>
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(1) A surrender charge is taken from the proceeds when a contract is
surrendered or when an amount is withdrawn if the premium has not been held
under the contract for a certain period of time. See "Deductions and
Charges--Surrender Charges."
(2) Currently, there is no transfer charge; however, we reserve the right to
charge a fee of up to $20 per transfer after the first 10 transfers each
contract year.
6
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
FUND ANNUAL EXPENSES (AS A PERCENTAGE OF FUND AVERAGE NET ASSETS)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Other Expenses Total Expenses
Management Rule 12b-1 Before Before Total Expenses
Series Fees Fees Reimbursement(1) Reimbursement After 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%(3) 1.75%(3) .50%
Phoenix-Bankers Trust Nasdaq-100 Index(R) .35% N/A .45% .80% .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-Engemann Small & Mid-Cap Growth .90% N/A .70% 1.60% 1.15%
Phoenix-Federated U.S. Government Bond .60% N/A 1.70%(3) 2.30%(3) .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%(3) 2.25%(3) 1.00%
Phoenix-Janus Flexible Income .80% N/A 1.65%(3) 2.45%(3) .95%
Phoenix-Janus Growth .85% N/A 1.05%(3) 1.90%(3) 1.00%
Phoenix-Morgan Stanley Focus Equity .85% N/A 1.30%(3) 2.15%(3) 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-Sanford Bernstein Global Value .90% N/A .85%(3) 1.75%(3) 1.05%
Phoenix-Sanford Bernstein Mid-Cap Value 1.05% N/A 1.53% 2.58% 1.20%
Phoenix-Sanford Bernstein Small-Cap Value 1.05% N/A .85%(3) 1.90%(3) 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%
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</TABLE>
(1) Each series pays a portion or all of its expenses other than the management
fee. 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-Oakhurst Balanced, Phoenix-Engemann Nifty Fifty,
Phoenix-Oakhurst Growth and Income, Phoenix-Hollister Value Equity,
Phoenix-Sanford Bernstein Mid-Cap Value, Phoenix-Bankers Trust Dow 30,
Phoenix-Federated U.S. Government, Phoenix-Janus Equity Income,
Phoenix-Janus Flexible Income, Phoenix-Janus Growth, Phoenix-Morgan Stanley
Focus Equity, Phoenix-Sanford Bernstein Global Value and Phoenix-Sanford
Bernstein Small-Cap Value 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%.
(2) Reflects the effect of any management fee waivers and reimbursement of
expenses by the investment advisor.
(3) These figures are estimates; these series have been available for less than
12 months as of the date of this prospectus.
7
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
FUND ANNUAL EXPENSES (AS A PERCENTAGE OF FUND AVERAGE NET ASSETS)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Other Expenses Total Expenses
Management Rule 12b-1 Before Before Total Expenses
Series Fees Fees Reimbursement Reimbursement After Reimbursement(2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THE ALGER AMERICAN FUND
------------------------------------------------------------------------------------------------------------------------------------
Alger American Leveraged AllCap Portfolio .85% N/A .08%(4,7) .93%(4) .93%
DEUTSCHE ASSET MANAGEMENT VIT FUNDS
------------------------------------------------------------------------------------------------------------------------------------
EAFE(R) Equity Index Fund .45% N/A .69% 1.15% .65%
FEDERATED INSURANCE SERIES
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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%
FIDELITY(R) VARIABLE INSURANCE PRODUCTS
------------------------------------------------------------------------------------------------------------------------------------
VIP Contrafund(R) Portfolio(8) .58% N/A .10%(4) .78%(4) .75%(10)
VIP Growth Opportunities Portfolio(9) .58% N/A .11%(4) .79%(4) .78%(10)
VIP Growth Portfolio(9) .58% N/A .09%(4) .77%(4) .75%(10)
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%
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
------------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio .80% N/A 1.85%(4) 2.65%(4) 1.15%
WANGER ADVISORS TRUST
------------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty 1.00% N/A 2.45%(1) 3.45% 1.45%
Wanger International Small Cap 1.25% N/A .24%(1) 1.49% 1.49%
Wanger Twenty .95% N/A 1.17%(1) 2.12% 1.35%
Wanger U.S. Small Cap .95% N/A .07%(1) 1.02% 1.02%
</TABLE>
(1) Each series pays a portion or all of its expenses other than the management
fee. 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 Series
will pay up to .60% and the Wanger Twenty Series will pay up to .40%.
(2) Reflects the effect of any management fee waivers and reimbursement of
expenses by the investment advisor.
(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
12 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 OTHER EXPENSES TOTAL OPERATING
FEES 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) Included in "Other Expenses" is .01% of interest expense.
(8) Effective November 3, 1997, the advisor has voluntarily agreed to
reimburse the fund to the extent that total operating expenses (excluding
interest, taxes, certain securities lending costs, brokerage commissions,
and extraordinary expenses), as a percentage of its average net assets,
exceed 1.10%. This arrangement can be discontinued at any time.
(9) Effective November 3, 1997, the advisor has voluntarily agreed to reimburse
the fund to the extent that total operating expenses (excluding interest,
taxes, certain securities lending costs, brokerage commissions, and
extraordinary expenses), as a percentage of its average net assets, exceed
1.60%. This arrangement can be discontinued at any time.
(10) A portion of the brokerage commissions that the fund pays is used to reduce
the fund's expenses. In addition, through arrangements with the fund's
custodian, credits realized as a result of uninvested cash balances are
used to reduce custodian expenses.
8
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
EXAMPLES
--------------------------------------------------------------------------------
It is impossible to show you what expenses you would incur if you purchased a
contract because there are so many different factors that affect expenses.
However, the following three tables are meant to help demonstrate how certain
decisions or choices by you could result in different levels of expense.
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 $105 $157 $211 $376
Phoenix-Aberdeen New Asia Series $119 $196 $274 $490
Phoenix-Bankers Trust Dow 30 Series $114 $184 N/A N/A
Phoenix-Bankers Trust Nasdaq 100-Inde(R) Series $103 $151 N/A N/A
Phoenix-Duff & Phelps Real Estate Securities Series $108 $166 $225 $402
Phoenix-Engemann Capital Growth Series $102 $147 $195 $346
Phoenix-Engemann Nifty Fifty Series $109 $169 $231 $413
Phoenix-Engemann Small & Mid-Cap Growth Series $111 $174 N/A N/A
Phoenix-Federated U.S. Government Bond Series $125 $215 N/A N/A
Phoenix-Goodwin Money Market Series $101 $144 $190 $336
Phoenix-Goodwin Multi-Sector Fixed Income Series $102 $148 $197 $349
Phoenix-Hollister Value Equity Series $115 $186 $258 $462
Phoenix-J.P. Morgan Research Enhanced Index Series $103 $149 $199 $353
Phoenix-Janus Equity Income Series $130 $228 N/A N/A
Phoenix-Janus Flexible Income Series $124 $213 N/A N/A
Phoenix-Janus Growth Series $114 $182 N/A N/A
Phoenix-Morgan Stanley Focus Equity Series $126 $218 N/A N/A
Phoenix-Oakhurst Balanced Series $102 $148 $196 $348
Phoenix-Oakhurst Growth and Income Series $105 $157 $211 $376
Phoenix-Oakhurst Strategic Allocation Series $102 $148 $196 $348
Phoenix-Sanford Bernstein Global Value Series $112 $178 N/A N/A
Phoenix-Sanford Bernstein Mid-Cap Value Series $121 $202 $282 $504
Phoenix-Sanford Bernstein Small-Cap Value Series $114 $182 N/A N/A
Phoenix-Seneca Mid-Cap Growth Series $115 $186 $259 $463
Phoenix-Seneca Strategic Theme Series $105 $156 $209 $373
Alger American Leveraged AllCap $104 $155 N/A N/A
EAFE(R) Equity Index Fund $106 $161 N/A N/A
Federated Fund for U.S. Government Securities II $103 $152 N/A N/A
Federated High Income Bond Fund II $103 $151 N/A N/A
VIP Contrafund(R) Portfolio $103 $150 N/A N/A
VIP Growth Opportunities Portfolio $103 $151 N/A N/A
VIP Growth Portfolio $103 $150 N/A N/A
Mutual Shares Securities Fund-Class 2 $105 $158 $212 $379
Templeton Asset Strategy Fund-Class 2 $105 $158 $212 $378
Templeton Developing Markets Securities Fund-Class 2 $113 $180 $248 $444
Templeton Growth Securities Fund-Class 2 $106 $160 $217 $387
Templeton International Securities Fund-Class 2 $106 $160 $217 $387
Technology Portfolio $121 $203 N/A N/A
Wanger Foreign Forty $129 $225 $319 $566
Wanger International Small Cap $110 $171 $233 $418
Wanger Twenty $116 $189 $262 $469
Wanger U.S. Small Cap $105 $157 $211 $377
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
SUMMARY OF EXPENSES (CONTINUED)
If you do not surrender your contract, 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 $35 $107 $181 $376
Phoenix-Aberdeen New Asia Series $49 $146 $244 $490
Phoenix-Bankers Trust Dow 30 Series $44 $134 N/A N/A
Phoenix-Bankers Trust Nasdaq 100-Index(R) Series $33 $101 N/A N/A
Phoenix-Duff & Phelps Real Estate Securities Series $38 $116 $195 $402
Phoenix-Engemann Capital Growth Series $32 $97 $165 $346
Phoenix-Engemann Nifty Fifty Series $39 $119 $201 $413
Phoenix-Engemann Small & Mid-Cap Growth Series $41 $124 N/A N/A
Phoenix-Federated U.S. Government Bond Series $55 $165 N/A N/A
Phoenix-Goodwin Money Market Series $31 $94 $160 $336
Phoenix-Goodwin Multi-Sector Fixed Income Series $32 $98 $167 $349
Phoenix-Hollister Value Equity Series $45 $136 $228 $462
Phoenix-J.P. Morgan Research Enhanced Index Series $33 $99 $169 $353
Phoenix-Janus Equity Income Series $60 $178 N/A N/A
Phoenix-Janus Flexible Income Series $54 $163 N/A N/A
Phoenix-Janus Growth Series $44 $132 N/A N/A
Phoenix-Morgan Stanley Focus Equity Series $56 $168 N/A N/A
Phoenix-Oakhurst Balanced Series $32 $98 $166 $348
Phoenix-Oakhurst Growth and Income Series $35 $107 $181 $376
Phoenix-Oakhurst Strategic Allocation Series $32 $98 $166 $348
Phoenix-Sanford Bernstein Global Value Series $42 $128 N/A N/A
Phoenix-Sanford Bernstein Mid-Cap Value Series $51 $152 $252 $504
Phoenix-Sanford Bernstein Small-Cap Value Series $44 $132 N/A N/A
Phoenix-Seneca Mid-Cap Growth Series $45 $136 $229 $463
Phoenix-Seneca Strategic Theme Series $35 $106 $179 $373
Alger American Leveraged AllCap $34 $105 N/A N/A
EAFE(R) Equity Index Fund $36 $111 N/A N/A
Federated Fund for U.S. Government Securities II $33 $102 N/A N/A
Federated High Income Bond Fund II $33 $101 N/A N/A
VIP Contrafund(R) Portfolio $33 $100 N/A N/A
VIP Growth Opportunities Portfolio $33 $101 N/A N/A
VIP Growth Portfolio $33 $100 N/A N/A
Mutual Shares Securities Fund-Class 2 $35 $108 $182 $379
Templeton Asset Strategy Fund-Class 2 $35 $108 $182 $378
Templeton Developing Markets Securities Fund-Class 2 $43 $130 $218 $444
Templeton Growth Securities Fund-Class 2 $36 $110 $187 $387
Templeton International Securities Fund-Class 2 $36 $110 $187 $387
Technology Portfolio $51 $153 N/A N/A
Wanger Foreign Forty $59 $175 $289 $566
Wanger International Small Cap $40 $121 $203 $418
Wanger Twenty $46 $139 $232 $469
Wanger U.S. Small Cap $35 $107 $181 $377
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The purpose of the tables above is to assist you in understanding the various
costs and expenses that your contract will bear directly or indirectly. It is
based on historical fund expenses, as a percentage of net assets for the year
ended December 31, 1999, except as indicated. The tables reflect Account
expenses including the fee for the Guaranteed Minimum Payment Rider, as well as
the funds. See "Deductions and Charges" in this prospectus and the fund
prospectuses.
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 the premium.
Certain states currently impose premium taxes on the contracts ranging from 0%
to 3.5% of the premium. See "Deductions and Charges--Tax" and Appendix B.
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 described within this
prospectus and the provisions of the contract, the contract provisions will
prevail.
OVERVIEW
The contract is designed to provide regular income payments from an annuity
contract. It offers a combination of variable and fixed payments. If variable
annuity payments are elected, second and subsequent payments will vary based
upon the performance of the underlying funds.
INVESTMENT FEATURES
MINIMUM CONTRIBUTION
[diamond] Generally, the minimum premium is $35,000.
ALLOCATION OF PREMIUM AND CONTRACT VALUE
[diamond] You may choose where your premium is invested: in one or more of the
subaccounts or in the FIA.
[diamond] Transfers between the subaccounts and to the FIA can be made.
[diamond] If all or part of the premium is invested in one or more of the
subaccounts, the contract value will vary with the investment
performance of the subaccounts and is not guaranteed.
WITHDRAWALS
[diamond] You may make withdrawals under payment options B, D, E and F or fully
surrender the contract for its surrender value less any applicable tax
under payment options E and F. No withdrawals may be made under any
other payment options. Please refer to "Deductions and
Charges--Surrender Charges" for a complete description.
DEATH BENEFIT
[diamond] The death benefit is calculated differently under each payment option
and the amount varies based on the option selected.
DEDUCTIONS AND CHARGES
FROM THE PREMIUM
[diamond] Taxes--currently ranges 0% to 3.5% (varies by state).
FROM THE CONTRACT VALUE
[diamond] A deduction for surrender charges may occur when you surrender your
contract or request a withdrawal if the assets have not been held
under the contract for a specified period of time.
[diamond] No surrender charges are taken upon the death of the annuitant.
[diamond] A declining surrender charge is assessed on withdrawals based on the
date the premium is deposited:
--------------------------------------------------------------
Percent 7% 6% 5% 4% 3% 2% 1% 0%
--------------------------------------------------------------
Age of Premium in 0 1 2 3 4 5 6 7+
Complete Years
--------------------------------------------------------------
o The total surrender charges on a contract will never exceed 9% of
the premium.
[diamond] Payment Charge--maximum of $24 each year.
FROM THE ACCOUNT
[diamond] Risk and administrative fee-- varies based on the election of the
Guaranteed Minimum Payment Rider. See "Deductions and Charges - Risk
and Administrative Fee"
OTHER CHARGES OR DEDUCTIONS
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 20 days after you receive it and cancel the contract. You will
receive the contract value in cash. However, if applicable state law requires,
we will return the premium paid less any withdrawals made during the free look
period. See "Free Look Period" for a detailed discussion.
MINIMUM PAYMENT
If on any valuation date the annuity payment due is less than $20, we may
make such settlement as is equitable to the payee.
LAPSE
If on any valuation date the contract value is zero, the contract will
immediately terminate and lapse without value.
11
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The subaccounts of this contract commenced operations as of the date of this
prospectus; therefore, data is 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.
See Appendix A for more information.
THE IMMEDIATE VARIABLE AND FIXED ANNUITY
--------------------------------------------------------------------------------
The immediate variable and fixed annuity contract is issued by Phoenix. If
variable annuity payments are elected, the amounts held under a contract will be
invested in the Account and variable annuity payments will vary in accordance
with the investment experience of the investment options selected. It is the
owner and annuitant under a contract who bear the risk of investment gain or
loss rather than Phoenix. However, amounts may be allocated to the FIA, in which
case Phoenix will guarantee specified fixed annuity payments.
You control the investment objective of the contract on an ongoing basis by
reallocating the contract value among the subaccounts or from the subaccounts to
the FIA.
PHOENIX AND THE ACCOUNT
--------------------------------------------------------------------------------
Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851 and redomiciled to New York in 1992. Our Executive Office is
located at One American Row, Hartford, Connecticut and our main administrative
office is located at 100 Bright Meadow Boulevard, Enfield, Connecticut. The
principal office is located at 10 Krey Boulevard, East Greenbush, New York. We
sell insurance policies and annuity contracts through our own field force of
full-time agents and through brokers.
On December 18, 2000, Phoenix's Board of Directors adopted a plan for
conversion from a mutual to a publicly traded stock company. The plan is subject
to the approval of the New York Insurance Department as well as other regulators
and must be submitted to policyholders for approval. The plan will go into
effect only if all these requirements have been met. There is no assurance that
the plan will be approved, and if approved, 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 of the management
or investment practices or policies of the Account or Phoenix.
On July 1, 1992, the Account's domicile was transferred to New York. Under
New York law and the Contracts, all income, gains or losses of the Account must
be credited to or charged against the amounts placed in the Account without
regard to the other income, gains and losses of Phoenix. The assets of the
Account may not be used to pay liabilities arising out of any other business
that Phoenix may conduct. Obligations under the Contracts are obligations of
Phoenix.
Contributions to the FIA 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 FIA,
see the "FIA" section of this prospectus.
INVESTMENTS OF THE ACCOUNT
--------------------------------------------------------------------------------
PARTICIPATING INVESTMENT FUNDS
THE PHOENIX EDGE SERIES FUND
The following subaccounts invest in corresponding series of The Phoenix Edge
Series Fund:
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
series provides a means for investors to invest a portion of their assets
outside the United States.
PHOENIX-ABERDEEN NEW ASIA SERIES: the series seeks 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 Average(SM) before fund expenses.
12
<PAGE>
PHOENIX-BANKERS TRUST NASDAQ-100 INDEX(R) SERIES: this non-diversified
series seeks to track the total return of the Nasdaq-100 Index(R) ("Index")
before fund expenses. The series is "passively" managed (it invests in the same
companies in the same proportions as the Index). The series may invest in equity
equivalents in an attempt to improve cash flow and reduce transaction costs,
while replicating investments in the Index.
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 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 that 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-ENGEMANN SMALL & MID-CAP GROWTH SERIES: the series seeks to achieve
its objective of long-term growth of capital by normally investing at least 65%
of assets in equities of "small-cap" and "mid-cap" companies (market
capitalization under $1.5 billion). Expected emphasis will be on investments in
common stocks of U.S. corporations that have rapidly growing earnings per share.
Stocks are generally sold when characteristics such as growth rate, competitive
advantage, or price, render the stock unattractive. The advisor may change the
asset allocation or temporarily take up a defensive investment strategy
depending on market conditions.
PHOENIX-FEDERATED U.S. GOVERNMENT BOND SERIES: seeks 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 series invests exclusively in high quality money market
instruments.
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES: seeks long-term total
return. It invests in a diversified portfolio of high yield and high quality
fixed income securities.
PHOENIX-HOLLISTER VALUE EQUITY SERIES: has a primary investment objective
of the series is long-term capital appreciation and a secondary investment
objective of current income. The series invests 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 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 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 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.
13
<PAGE>
PHOENIX-SANFORD BERNSTEIN GLOBAL VALUE SERIES seeks long-term capital
appreciation through investing in foreign and domestic equity securities. The
advisor uses a value-oriented approach with a focus on non-U.S. companies in
developed countries in Europe and the Far East, Australia and Canada. The
advisor may invest a portion of the series' assets in developing market
companies.
PHOENIX-SANFORD BERNSTEIN 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 series will invest in common
stocks of established companies having a strong financial position and a low
stock market valuation at the time of purchase, which are believed to offer the
possibility of increase in value.
PHOENIX-SANFORD BERNSTEIN SMALL-CAP VALUE SERIES seeks long-term capital
appreciation by investing primarily in small-capitalization stocks the advisor
believes are undervalued.
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
series invests primarily in common stocks believed to have substantial potential
for capital growth.
THE ALGER AMERICAN FUND
The following subaccount invests in the corresponding portfolio of The Alger
American Fund:
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO: The investment objective of the
portfolio is long-term capital appreciation. It invests primarily in equity
securities, such as common or preferred stocks, which are listed on U.S.
exchanges or in the over-the-counter market. The portfolio invests primarily in
"growth" stocks. Under normal circumstances, the portfolio invests in the equity
securities of companies of any size, which demonstrate promising growth
potential. The portfolio can leverage, that is, borrow money, up to one-third of
its total assets to buy additional securities.
DEUTSCHE ASSET MANAGEMENT VIT FUNDS
The following subaccount invests in a corresponding fund of Deutsche Asset
Management VIT Funds:
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 a 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.
FIDELITY(R) VARIABLE INSURANCE PRODUCTS
The following subaccounts invest in corresponding portfolios of the
Fidelity(R) Variable Insurance Products:
VIP CONTRAFUND(R) PORTFOLIO: The investment objective of the portfolio is to
seek long-term capital appreciation. Principal investment strategies include:
o Normally investing primarily in common stocks.
o Investing in securities of companies whose value it believes is not fully
recognized by the public.
o Investing in domestic and foreign issuers.
o Investing in either "growth" stocks or "value" stocks or both.
o Using fundamental analysis of each issuer's financial condition and
industry position and market and economic conditions to select investments.
VIP GROWTH OPPORTUNITIES PORTFOLIO: The investment objective of the
portfolio is to seek to provide capital growth. Principal investment strategies
include:
o Normally investing primarily in common stocks.
o Potentially investing in other types of securities, including bonds which
may be lower-quality debt securities.
o Investing in domestic and foreign issuers.
o Investing in either "growth" stocks or "value" stocks or both.
o Using fundamental analysis of each issuer's financial condition and
industry position and market and economic conditions to select investments.
14
<PAGE>
VIP GROWTH PORTFOLIO: The investment objective of the portfolio is to seek
to achieve long-term capital appreciation. Principal investment strategies
include:
o Normally investing primarily in common stocks.
o Investing in companies that it believes have above-average growth potential.
o Investing in securities of domestic and foreign issuers.
o Using fundamental analysis of each issuer's financial condition and
industry position and market and economic conditions to select investments.
FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST
The following subaccounts invest in Class 2 shares of the corresponding fund
of the Franklin Templeton Variable Insurance Products Trust:
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 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.
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.
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.
WANGER ADVISORS TRUST
The following subaccounts invest in corresponding series of the Wanger
Advisors Trust:
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.
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.
15
<PAGE>
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
The following are the investment advisors and subadvisors for the variable
investment options:
--------------------------------------------------------------------------------
PHOENIX INVESTMENT COUNSEL, INC. ("PIC")
--------------------------------------------------------------------------------
Phoenix-Aberdeen International
Phoenix-Engemann Capital Growth
Phoenix-Engemann Nifty Fifty
Phoenix-Engemann Small & Mid-Cap Growth
Phoenix-Goodwin Money Market
Phoenix-Goodwin Multi-Sector Fixed Income
Phoenix-Hollister Value Equity
Phoenix-Oakhurst Balanced
Phoenix-Oakhurst Growth and Income
Phoenix-Oakhurst Strategic Allocation
Phoenix-Seneca Mid-Cap Growth
Phoenix-Seneca Strategic Theme
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PIC SUBADVISORS
--------------------------------------------------------------------------------
Phoenix-Aberdeen International Advisors, LLC ("PAIA")
o Phoenix-Aberdeen International
Roger Engemann & Associates, Inc. ("Engemann")
o Phoenix-Engemann Capital Growth
o Phoenix-Engemann Nifty Fifty
o Phoenix-Engemann Small & Mid-Cap Growth
Seneca Capital Management, LLC ("Seneca")
o Phoenix-Seneca Mid-Cap Growth
o Phoenix-Seneca Strategic Theme
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PHOENIX VARIABLE ADVISORS, INC. ("PVA")
--------------------------------------------------------------------------------
Phoenix-Bankers Trust Dow 30
Phoenix-Bankers Trust Nasdaq-100 Index(R)
Phoenix-Federated U.S. Government Bond
Phoenix-J.P. Morgan Research Enhanced Index
Phoenix-Janus Equity Income
Phoenix-Janus Flexible Income
Phoenix-Janus Growth
Phoenix-Morgan Stanley Focus Equity
Phoenix-Sanford Bernstein Global Value
Phoenix-Sanford Bernstein Mid-Cap Value
Phoenix-Sanford Bernstein Small Cap Value
Phoenix-Oakhurst Strategic Allocation
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PVA SUBADVISORS
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Bankers Trust Company
o Phoenix-Bankers Trust Dow 30
o Phoenix-Bankers Trust Nasdaq-100 Index(R)
Federated Investment Management Company
o Phoenix-Federated U.S. Government Bond
J.P. Morgan Investment Management, Inc.
o Phoenix-J.P. Morgan Research Enhanced Index
Janus Capital Corporation
o Phoenix-Janus Equity Income
o Phoenix-Janus Flexible Income
o Phoenix-Janus Growth
Morgan Stanley Asset Management
o Phoenix-Morgan Stanley Focus Equity
Alliance Capital Management L.P.
o Phoenix-Sanford Bernstein Global Value
o Phoenix-Sanford Bernstein Mid-Cap Value
o Phoenix-Sanford Bernstein Small Cap Value
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DUFF & PHELPS INVESTMENT MANAGEMENT CO. ("DPIM")
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Phoenix-Duff & Phelps Real Estate Securities
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PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC ("PAIA")
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Phoenix-Aberdeen New Asia
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Based on subadvisory agreements with the fund, PIC and PVA as investment
advisors delegate certain investment decisions and research functions to
subadvisors.
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. PVA is a wholly
owned subsidiary of PM Holdings, Inc.
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OTHER ADVISORS
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Fred Alger Management, Inc.
o Alger American Leveraged AllCap Portfolio
Bankers Trust Company
o EAFE(R) Equity Index Fund
Federated Investment Management Company
o Federated Fund for U.S. Government Securities II
o Federated High Income Bond Fund II
Fidelity Management and Research Company
o VIP Contrafund(R) Portfolio
o VIP Growth Opportunities Portfolio
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OTHER ADVISORS
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o VIP Growth Portfolio
Franklin Mutual Advisers, LLC
o Mutual Shares Securities Fund
Morgan Stanley Asset Management
o Technology Portfolio
Templeton Asset Management, Ltd.
o Templeton Developing Markets Securities Fund
Templeton Global Advisors Limited
o Templeton Growth Securities Fund
Templeton Investment Counsel, Inc.
o Templeton Asset Strategy Fund
o Templeton International Securities Fund
Wanger Asset Management, L.P.
o Wanger Foreign Forty
o Wanger International Small Cap
o Wanger Twenty
o Wanger U.S. Small Cap
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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.
FIA
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In addition to the Account, you may allocate the premium to the FIA. The
amount of premium you allocate to the FIA will become part of Phoenix's general
account assets. You do not share in the investment experience of those assets.
Rather, we guarantee a 3% rate of return on your allocated amount. Although we
are not obligated to credit interest at a higher rate than the minimum, we will
credit any excess interest as determined by us based on expected investment
yield information.
Because of exemptive and exclusionary provisions, we have not registered
interests in our general account under the Securities Act of 1933. Also, we have
not registered our general account as an investment company under the Investment
Company Act of 1940, as amended. Therefore, neither the general account nor any
of its interests are subject to these Acts, and the Securities and Exchange
Commission has not reviewed the general account disclosures. These disclosures
may, however, be subject to certain provisions of the federal securities law
regarding accuracy and completeness of statements made in this prospectus.
PURCHASE OF CONTRACTS
--------------------------------------------------------------------------------
MINIMUM PREMIUM
Generally, we require a minimum premium of $35,000:
In certain circumstances we may reduce the premium 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;
(2) the amount of compensation to be paid to registered representatives on the
premium.
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 is received. We reserve the right to change these rules from time to
time.
PREMIUM ALLOCATION
The net premium received under the contract will be allocated in any
combination to any subaccount or the FIA in the proportion specified when you
purchased the contract.
GENERAL
Usually, a contract may not be purchased for a proposed annuitant who is 90
years of age or older. A premium in excess of $1,000,000 cannot be made without
our permission.
PAYMENT UPON DEATH BEFORE THE ANNUITY DATE
On the death of any owner, annuitant or joint annuitant before the annuity
date, the death benefit equals the contract value on the date we receive due
proof of death.
DEATH OF OWNER
If the contract is held by a single owner who dies before the annuity date,
we will pay the death benefit to the beneficiary. If the beneficiary has
predeceased the owner, the owner's estate will be the beneficiary. If the
beneficiary is the spouse of the sole owner, the beneficiary may elect to
continue the contract and exercise the rights of the owner.
If the contract is held by multiple owners and one or more owners die before
the annuity date, we will pay the death benefit to the surviving owner(s), if
any, who will be deemed to be the beneficiary(ies). If the only owners of the
contract are spouses of each other, the surviving spouse may elect to continue
the contract.
DISTRIBUTION ON DEATH OF OWNER
Any beneficiary who is a natural person, may, within one year after we
receive due proof of death, elect to receive a payment option. The payment
option selected may not extend beyond such beneficiary's life or life expectancy
and the payments must begin within one year after death. If a payment option is
not elected or the beneficiary is a non-natural person, the entire contract
value will be distributed in a lump sum no later than five years after the date
of death.
DEATH OF ANNUITANT OR JOINT ANNUITANT
If the annuitant or joint annuitant die before the annuity date, we will pay
the death benefit to the owner(s) who will be deemed to be the
beneficiary(ies). If there is no surviving owner(s), we will pay the death
benefit to the
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beneficiary(ies). Payment will be made as described above in "Distribution on
Death of Owner."
ADDITIONAL RIDER BENEFITS
--------------------------------------------------------------------------------
You may elect additional benefits that are available under your contract. A
charge may be deducted from your contract value for each additional rider
benefit chosen. More details will be included in the form of a rider to your
contract if any of these benefits is chosen. The following benefits are
currently available (if approved in your state). Additional riders also may be
available as described in your policy.
GUARANTEED MINIMUM PAYMENT RIDER
This rider is only available if you elect it when you purchase your
contract. It guarantees that the each annuity payment will never be less than
the initial annuity payment as long as no withdrawals are taken. If a withdrawal
is taken, then the annuity payment will be reduced proportionately by the
withdrawal amount.
The charge for this rider is taken in the form of an additional risk and
administrative fee of up to 1.00%. We reserve the right to limit the subaccounts
available when this rider is elected.
OPTIONAL PROGRAMS AND BENEFITS
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TRANSFERS
You may transfer all or a portion of the value of the subaccounts of this
contract between and among the subaccounts and from the subaccounts to the FIA.
No transfers may be made from the FIA to the subaccounts. Transfers may be made
by telephone or written request. We reserve the right to limit the number of
transfers you may make each contract year. However, you may make up to at least
twelve transfers per contract year among the subaccounts. Once each contract
year, you may transfer all or a portion of the value of the subaccounts from the
subaccounts to the FIA. Transfers from the subaccounts to the FIA will affect
the amount of future fixed annuity payments. The amount of future fixed annuity
payments will be determined by the contract value of the FIA on the date of the
transfer, the amount transferred to the FIA, and the annuity payment rate in
effect on the date of the transfer for the payment option selected when you
purchased your contract. Any transfer charge will be deducted from the
subaccounts from which the amounts are to be transferred with each such
subaccount bearing a pro rata share of the transfer charge. The value of each
subaccount will be determined on the valuation date that coincides with the date
of transfer.
You may also request transfers among available subaccounts or from the
subaccounts to the FIA by calling VAO at 800/541-0171 between the hours of 8:30
a.m. and 4:00 p.m. Eastern Time on any valuation date. Unless you elect in
writing not to authorize telephone transfers, telephone transfer orders will
also be accepted on your behalf from your registered representative. We will
employ reasonable procedures to confirm that telephone instructions are genuine.
We will require verification of account information and will record telephone
instructions on tape. All telephone transfers will be confirmed in writing to
you. To the extent that procedures reasonably designed to prevent unauthorized
transfers are not followed, we may be liable for following telephone
instructions for transfers that prove to be fraudulent. However, you will bear
the risk of loss resulting from instructions entered by an unauthorized third
party we reasonably believe to be genuine. These telephone exchange privileges
may be modified or terminated at any time. In particular, during times of
extreme market volatility, telephone privileges may be difficult to exercise. In
such cases you should submit written instructions.
Because excessive trading can hurt fund performance and harm all contract
owners, we reserve the right to temporarily or permanently terminate exchange
privileges or reject any specific order from anyone whose transactions seem to
follow a timing pattern, including those who request more than one exchange out
of a subaccount within any 30-day period. We will not accept batch transfer
instructions from registered representatives (acting under powers of attorney
for multiple contract owners), unless we have entered into a third-party
transfer service agreement with the registered representative's broker-dealer
firm.
No surrender charge will be assessed when a transfer is made. Currently,
there is no charge for transfers. You are permitted at least one free transfer
each month. We reserve the right to impose a transfer charge after the first
free transfer made in each month, upon prior written notice to you. In no event,
however, will such transfer charge exceed $20 per transaction. 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 twelve transfers during each contract year among
the subaccounts. Once each contract year, you may transfer all or a portion of
the value of the subaccounts from the subaccounts to the FIA. No transfers may
be made from the FIA.
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.
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DEDUCTIONS AND CHARGES
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DEDUCTIONS FROM THE PREMIUM
TAX
Whether or not a 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. Taxes on the
premium currently range from 0% to 3.5%. We will pay any tax due upon the
receipt of the premium. For a list of states and premium taxes, see Appendix B
to this prospectus.
DEDUCTIONS FROM THE CONTRACT VALUE
SURRENDER CHARGES
A deduction for surrender charges for this contract may be taken from
proceeds of withdrawals from, or complete surrender of the contract. The amount
(if any) of a surrender charge depends on whether your premium is held under the
contract for a certain period of time. No surrender charge will be taken from
death proceeds. The deduction for surrender charges is as follows:
---------------------------------------------------------------
Percent 7% 6% 5% 4% 3% 2% 1% 0%
---------------------------------------------------------------
Age of Premium in 0 1 2 3 4 5 6 7+
Complete Years
---------------------------------------------------------------
The total surrender charges on a contract will never exceed 9% of the
premium, and the applicable level of surrender charge cannot be changed with
respect to outstanding contracts. Any distribution costs not paid for by
surrender charges will be paid by Phoenix from the assets of the general
account.
PAYMENT CHARGE
We deduct a payment charge from each annuity payment. This charge is used to
reimburse us for some of the administrative expenses we incur in establishing
and maintaining the contracts.
The maximum payment charge under a contract is $24 each year. It is deducted
from each annuity payment in equal amounts. If you fully surrender your
contract, the full payment charge if applicable, will be deducted at the time of
withdrawal.
DEDUCTIONS FROM THE ACCOUNT
RISK AND ADMINISTRATIVE FEE
We make a daily deduction from each subaccount for the risk and
administrative fee. The fee is based on an annual rate of up to 1.40% for the
base contract plus up to 1.00% for the Guaranteed Minimum Payment Rider if
elected. It is taken against the daily net assets of the subaccounts. Although
you bear the investment risk of the series in which you invest, 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.
No risk and administrative fee is deducted from the FIA. 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, which are in excess of
sales commission revenue generated from any surrender charges.
REDUCED CHARGES OR CREDIT ADDITIONAL AMOUNTS
We may reduce or eliminate the risk and administrative fee, the surrender or
payment charge or credit additional amounts 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 the premium;
(3) whether there is a pre-existing 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;
(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; and
(5) the amount of compensation to be paid to registered representatives on the
premium.
Any reduction or elimination of charges will not be unfairly discriminatory
against any person. We will make any such adjustment 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 ANNUITY PERIOD
--------------------------------------------------------------------------------
The annuity period is that period of time beginning on the annuity date and
during which payments to you are made.
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<PAGE>
PAYMENT OPTIONS
When you purchase the contract, you must choose among the available payment
options. The options allow you to choose:
[diamond] Payments Options A, B, C, D, E, F, and G. Variable annuity payments
attributed to premium allocated to the subaccounts depend on
subaccount investment performance. Any payments attributed to premium
allocated to the FIA will provide fixed annuity payments while either
the annuitant or joint annuitant is living. The minimum payment due
must be at least $20.
The annuity payments begin on the annuity date. The level of annuity
payments will depend on the option selected and such factors as the age of the
annuitant, the form of annuity, annuity payment rates, and the frequency of
payments. The contract and the SAI provide additional information on the methods
used for calculating annuity payments.
The assumed interest rate for the variable annuity payments is 3%, 5% or 6%
on an annual basis (subject to state availability). The assumed rate is selected
when you purchase the contract. It is used to calculate the first variable
annuity payment and is the smallest net rate of investment return required to
ensure that the dollar amount of variable annuity payments does not decrease.
The amount of subsequent variable annuity payments will depend on the
relationship between the assumed interest rate and the actual investment
performance of each subaccount. Although choosing a higher assumed interest rate
will generate a higher first variable annuity payment than choosing a lower
assumed interest rate, a contract with a higher assumed interest rate must earn
a higher net rate of investment return than a contract with a lower assumed
interest rate to ensure that the dollar amount of subsequent variable annuity
payments does not decrease. The contract will not be issued with variable
annuity payments if you do not select an assumed interest rate.
We make daily deductions from contract values held in subaccounts for the
risk and administrative fee. These charges affect all variable annuity payments.
The following descriptions should allow you to compare the basic differences
of the currently available payment options.
OPTION A--SINGLE LIFE ANNUITY
Provides annuity payments based on the life of the annuitant. No income or
payment to a beneficiary is paid after the death of the annuitant.
OPTION B--SINGLE LIFE ANNUITY WITH PERIOD CERTAIN
Provides annuity payments 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, 15, or 20-year period selected.
OPTION C--JOINT SURVIVOR LIFE ANNUITY
Provides annuity payments while the annuitant and the designated joint
annuitant are living and continues thereafter during the lifetime of the
survivor at a level of 100% or 50% of the original level elected when you
purchased your contract. 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 D--JOINT SURVIVOR LIFE ANNUITY WITH PERIOD CERTAIN
Provides annuity payments 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 the 10, 15 or 20-year period certain at
a level of 100% or 50% of the original level elected when you purchased your
contract. 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--ANNUITY FOR SPECIFIED PERIOD
Provides annuity payments for a specified period of time, whether the
annuitant lives or dies. The period certain specified must be in whole numbers
of years from 5 to 30, but may not be greater than 100 minus the age of the
annuitant. 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.
OPTION F--LIFE EXPECTANCY ANNUITY
Provides annuity payments over the annuitant's annually recalculated life
expectancy. A contract owner may at anytime request withdrawals representing
part or all of the remaining contract value less any applicable surrender
charge. Upon the death of the annuitant, the remaining contract value will be
paid in a lump sum to the annuitant's beneficiary. This option is available only
if 100% of the net premium is allocated to the FIA.
OPTION G--UNIT REFUND LIFE ANNUITY
Provides annuity payments for the lifetime of the annuitant. If the
annuitant dies, the annuitant's beneficiary will receive in a lump sum (1) the
value of the annuity units on the annuity date less the sum of any variable
annuity payments made prior to the annuitant's death plus (2) the total amount
applied to the FIA on the annuity date less the sum of any fixed annuity
payments made prior to the annuitant's death.
OTHER OPTIONS AND RATES
We may offer other payment options at the time of application. 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 annuity payment rates shall be used in determining the amount of any
annuity payments under the payment options above.
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<PAGE>
OTHER CONDITIONS
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. 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"). A LED program is available to IRA participants. Any payment options
elected under regular or SIMPLE IRA contracts must also meet federal income tax
distribution requirements. Requests to elect this program must be made in
writing.
Under the LED program, regardless of contract year, amounts up to the
required minimum distribution may be withdrawn without a deduction for surrender
charges. See "Surrender Charges." Any amounts withdrawn that have not been held
under a contract for at least seven years and are in excess of the minimum
distribution will be subject to any applicable surrender charge.
If the monthly annuity payment under a payment option would be less than
$20, we may make a single sum payment equal to the contract value on the date
the 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.
SURRENDER OF CONTRACT; WITHDRAWALS
If the annuitant is living, withdrawals may be made from amounts held under
payment options B, D, E or F. 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 annuity 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. Annuity units redeemed in a withdrawal from multiple subaccounts will be
redeemed on a pro rata basis unless you designate otherwise.
Under payment options B or D, you may withdraw, less any applicable
surrender charge, amounts equal to the commuted value of the payments that would
have been made during the certain period you chose under the payment option.
If you withdraw the entire commuted value of the annuity payments we would
have made during the certain period, we will not make any annuity payments
during the years remaining in the certain period. If you withdraw only a portion
of the commuted value of the annuity payments we would have made during the
certain period, we will reduce the remaining annuity payments during the years
remaining in the certain period. The remaining annuity payments are reduced by
the same percentage as the percentage of the commuted value surrendered.
Variable annuity payments will be commuted at the assumed interest rate. Fixed
annuity payments will be commuted using the underlying interest rate.
Annuity payments that are to be made after the certain period is over will
not change.
Under payment options E and F, you may withdraw, less any applicable
surrender charge, all or part of the commuted value. Withdrawals under payment
options E and F will affect the amount of future annuity payments.
The resulting cash payment will be made in a single sum, ordinarily within
seven days after receipt of such notice. However, redemption and payment may be
delayed under certain circumstances. See "Deferment of Payment." There may be
adverse tax consequences to certain surrenders and withdrawals. See "Federal
Income Taxes." A deduction for surrender charges may be imposed on withdrawals
or complete surrender of a contract. See "Surrender Charges." 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 minimum payment due is less than $20.
Phoenix will notify you in writing that the contract has lapsed.
PAYMENT UPON DEATH AFTER THE ANNUITY DATE
If an owner dies after the annuity date and there is no surviving owner, any
remaining payments will be paid to the beneficiary under the payment option in
effect on the date of death. Payments may not be deferred or otherwise extended.
If there is a surviving owner, the payments continue as if there had been no
death.
If the annuitant and joint annuitant, if any, dies and is survived by any
owner, any remaining guaranteed payments will be paid to such owner(s). If no
owner survives, any remaining guaranteed payments will be paid to the
beneficiary. Payments will continue under the payment option in effect at the
date of death and may not be deferred or otherwise extended. Alternatively, the
surviving owner(s), or beneficiary if no owner survives, may elect to take the
commuted value of any remaining guaranteed payments in a lump sum.
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VARIABLE ACCOUNT VALUATION PROCEDURES
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VALUATION DATE
A valuation date is every day the NYSE is open for trading. The NYSE is
scheduled to be closed on the following days: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. The Board of Directors of the
NYSE reserves the right to change this schedule as conditions warrant. On each
valuation date, the value of the Account is determined at the close of the NYSE
(currently 4:00 p.m. Eastern Time).
VALUATION PERIOD
Valuation period is that period of time from the beginning of the day
following a valuation date to the end of the next following valuation date.
ACCUMULATION UNIT VALUE
The value of one accumulation unit was set at $1.0000 on the date assets
were first allocated to a subaccount. The value of one accumulation unit on any
subsequent valuation date is determined by multiplying the immediately preceding
accumulation unit value by the applicable net investment factor for the
valuation period ending on such valuation date. After the first valuation
period, the accumulation unit value reflects the cumulative investment
experience of that subaccount.
ANNUITY UNIT VALUE
The value of one annuity unit was set at $1.0000 on the date assets were
first allocated to a subaccount. The value of one annuity unit on any subsequent
valuation date is determined by multiplying the immediately preceding annuity
unit value by the applicable net investment factor for the valuation period
ending on such valuation date divided by 1.000000 plus the rate of interest for
the number of days in the valuation period based on the assumed interest rate.
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 risk and administrative 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 withdrawal of a contract. See "Surrenders of Contracts;
Withdrawals."
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 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 the processing of any
such transactions 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 20 days and receive, in cash, the
adjusted value of your premium. You may receive more or less than your premium
depending on investment experience of the Phoenix-Goodwin Money Market
Subaccount during the free look period. If applicable state law requires, we
will return the full amount of the premium we received. (A longer free look
period may be required by your state.)
Your premium will temporarily be applied to the Phoenix-Goodwin Money Market
Subaccount. On the annuity date, the then value of this contract's share in the
Phoenix-Goodwin Money Market Subaccount will automatically be reallocated to the
various subaccounts and the Fixed Income Allocation in accordance with your
instructions for the allocation of premium provided when you purchased the
contract.
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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 that necessitates a corresponding change
in the prospectus or the SAI must be filed with the SEC.
SUBSTITUTION OF FUND SHARES
Although we believe it to be highly unlikely, it is possible that in the
judgment of our management, one or more of the series of the funds may become
unsuitable for investment by contract owners because of a change in investment
policy, or a change in the tax laws, or because the shares are no longer
available for investment. In that event, we may seek to substitute the shares of
another series or the shares of an entirely different fund. Before this can be
done, the approval of the SEC, and possibly one or more state insurance
departments, will be required.
OWNERSHIP OF THE CONTRACT
Ordinarily, the purchaser of a contract is both the owner and the annuitant
and is entitled to exercise all the rights under the contract. However, the
owner may be an individual or entity other than the annuitant. Spouses may own a
contract as joint owners. Transfer of the ownership of a contract may involve
federal income tax consequences, and a qualified advisor should be consulted
before any such transfer is attempted.
FEDERAL INCOME TAXES
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INTRODUCTION
The contracts are designed for use with retirement plans which may
or may not be tax-qualified plans under the provisions of the Internal Revenue
Code of 1986, (the "Code"). The contracts may be used to establish regular,
SIMPLE and Roth IRAs. The contracts will not be issued in connection with other
tax-qualified plans such as employer-sponsored or tax-sheltered annuity plans.
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 income tax status, on the type of
retirement plan for which the contract is purchased, and upon the income tax and
employment status of the individual concerned.
The following discussion is general in nature and is not intended as income
tax advice. The income tax rules are complicated and this discussion can only
make you aware of the issues. Each person concerned should consult a
professional tax advisor. No attempt is made to consider any estate or
inheritance taxes or any applicable state, local or other income 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 income 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
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 regular IRAs and all SIMPLE IRAs, 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.
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Withholding of federal income taxes on all distributions may be required
unless the recipient elects not to have any amounts withheld and properly
notifies VPMO of that election.
PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS
Amounts surrendered or distributed before the taxpayer reaches age 59 1/2
are subject to a penalty tax equal to ten percent (10%) of the portion of such
amount that is includable in gross income. However, the penalty tax will not
apply to withdrawals: (i) made on or after the death of the contract owner (or
where the contract owner is not an individual, the death of the "Primary
Annuitant," who is defined as the individual the events in whose life are of
primary importance in affecting the timing and amount of the payout under the
contract); (ii) attributable to the taxpayer's becoming totally disabled within
the meaning of Code Section 72(m)(7); (iii) which are part of a series of
substantially equal periodic payments made (not less frequently than annually)
for the life (or life expectancy) of the taxpayer, or the joint lives (or joint
life expectancies) of the taxpayer and his or her beneficiary; (iv) allocable to
investment in the contract before August 14, 1982; (v) under a qualified funding
asset (as defined in Code Section 130(d)); (vi) under an immediate annuity
contract (as defined in Code Section 72(u)(4)); or (vii) 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 U.S. 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 IRAs. See "Penalty Tax on
Surrenders and Withdrawals from IRAs."
ADDITIONAL CONSIDERATIONS
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 a non-natural person (for example, a corporation) holds the contract the
income on that contract (generally the increase in the net surrender value less
the premium) 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 an IRA, where the contract is a qualified funding asset for structured
settlements, or where the contract is purchased on behalf of an employee upon
termination of a qualified plan, and nor if the annuity contract is an immediate
annuity.
SECTION 1035 EXCHANGES
Code Section 1035 provides, in general, that no gain or loss shall be
recognized on the exchange of one annuity contract for another. A replacement
contract obtained in a tax-free exchange of contracts generally succeeds to the
status of the surrendered contract. If the surrendered contract was issued prior
to August 14, 1982, the tax rules that formerly provided that the surrender was
taxable only to the extent the amount received exceeds the contract owner's
investment in the contract will continue to apply. In contrast, contracts issued
on or after January 19, 1985 are, in a Code Section 1035 exchange, treated as
new contracts for purposes of the distribution-at-death rules. Special rules and
procedures apply to Code Section 1035 transactions. Prospective contract owners
wishing to take advantage of Code Section 1035 should consult their tax
advisers.
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 U.S. 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
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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. The IRAs
(described below) are defined as "pension plan contracts" for these purposes.
Notwithstanding the exception of IRA contracts from application of the
diversification rules, all investments of the Phoenix IRA 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
IRA contracts.
INDIVIDUAL RETIREMENT ANNUITY
The contract may be used with several types of IRAs. The tax rules
applicable to IRAs vary according to the type of IRAs. No attempt is made here
to provide more than general information about the use of the contracts with the
various types of IRAs.
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 IRAs which are considered sponsored by an employer for its employees
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.
IRAs
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.
PENALTY TAX ON CERTAIN SURRENDERS AND WITHDRAWALS
FROM IRAs
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion
of certain early distribution from IRAs qualified under Code 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 IRA or 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) 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 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; (e) distributions from an IRA for the purchase of medical
insurance (as described in Section 213(d)(1)(D) of the Code) for the contract
owner and his or her spouse and dependents if the contract owner has received
unemployment compensation for at least 12 weeks. This exception will no longer
apply after the contract owner has been reemployed for at least 60 days and (f)
distributions 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.
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Roth IRAs are subject to the early distribution penalties described above.
In addition, Roth IRAs, which contain amounts converted from regular or SIMPLE
IRAs, are subject to a 10% penalty if made prior to the expiration of the
five-year holding period beginning with the year of the conversion.
Generally, distributions from regular and SIMPLE IRAs must commence no later
than April 1 of the calendar year following the year in which the contract owner
attains age 70 1/2. The required distribution rules do not apply to Roth IRAs
provided Roth IRA rules regarding age and holding periods have been met.
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 IRAs 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 IRAs 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 an IRA and
purchase of a contract in connection therewith should first consult a qualified
tax adviser, with regard to the suitability of the contract as an investment
vehicle for the IRA.
SALES OF CONTRACTS
--------------------------------------------------------------------------------
The principal underwriter of the contracts is PEPCO. Contracts may be
purchased through registered representatives of W.S. Griffith & Company, Inc.
("WSG") who are licensed to sell our annuity contracts. WSG is an indirect
wholly-owned subsidiary of Phoenix. PEPCO is an indirect, majority owned
subsidiary of Phoenix. Contracts also may be purchased through other
broker-dealers or entities registered under or exempt under the Securities
Exchange Act of 1934, whose representatives are authorized by applicable law to
sell contracts under terms of agreement provided by PEPCO and terms of agreement
provided by 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. We will pay any such amount paid with respect to
contracts sold through other broker-dealers to or through PEPCO. The amounts
paid are not deducted from the payments. Deductions for surrender charges (as
described under "Surrender Charges") may be used as reimbursement for commission
payments.
Although the Glass-Steagall Act prohibits banks and bank affiliates from
engaging in the business of underwriting securities, banking regulators have not
indicated that such institutions are prohibited from purchasing variable annuity
contracts upon the order and for the account of their customers.
STATE REGULATION
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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
that 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 shareholder' meeting. However, we intend to vote the shares of
the funds at regular and special meetings of the shareholders of the funds in
accordance with instructions received from owners of the contracts.
We currently intend to vote fund shares attributable to any of our assets
and fund shares held in each subaccount for which no timely instructions from
owners are received in the same proportion as those shares in that subaccount
for which instructions are received. In the future, to the extent applicable
federal securities laws or regulations permit us to vote some or all shares of
the fund in its own right, it may elect to do so.
Matters on which owners may give voting instructions may include the
following: (1) election of the Board of Trustees of a fund; (2) ratification of
the independent accountant for a fund; (3) approval or amendment of the
investment advisory agreement for the series of the fund
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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, and Brian A. Giantonio, Counsel, have 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:
o Underwriter
o Calculation of Yield and Return
o Calculation of Annuity Payments
o Experts
o 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.
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APPENDIX A
PERFORMANCE HISTORY FOR CONTRACTS
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From time to time, the Account may include the performance history of any or
all subaccounts in advertisements, sales literature or reports. Performance
information about each subaccount is based on past performance only and is not
an indication of future performance. Performance information may be expressed as
yield and effective yield of the Phoenix-Goodwin Money Market Subaccount, 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 1 year, 5 years and 10 years or since inception if the subaccount has not
been in existence for at least 10 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 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 FOR THIS CONTRACT COMMENCED OPERATIONS AS OF THE DATE OF
THIS PROSPECTUS; THEREFORE, TOTAL RETURN DATA IS NOT AVAILABLE.
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 7 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 payment charge.
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 1 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:............ 1.001003
Calculation:
Ending account value.............................. 1.001003
Less beginning account value...................... 1.000000
Net change in account value....................... 0.001003
Base period return:
(adjusted change/beginning account value)......... 0.001003
Current yield = return x (365/7) =.................. 5.23%
Effective yield = [(1 + return)(365/7)]-1 =.......... 5.37%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time, or other investment companies, due to charges which
will be deducted on the Account level.
A subaccount's performance may be compared to that of the Consumer Price
Index or various unmanaged equity or bond indices such as the Dow Jones
Industrial Average(SM), 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 advisors' current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately as a return figure the equity or bond portion of a
series' portfolio; or compare a series' equity or bond return figure to
well-known indices of market performance including, but not limited to, the S&P
500, Dow Jones Industrial Average(SM), First Boston
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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.
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APPENDIX B
DEDUCTIONS FOR PREMIUM TAXES
QUALIFIED AND NON-QUALIFIED ANNUITY CONTRACTS
--------------------------------------------------------------------------------
STATE NON-QUALIFIED QUALIFIED
California .................................. 2.35% 0.50%
Kentucky(1)..................................
Maine........................................ 2.00
Nevada....................................... 3.50
South Dakota................................. 1.25
West Virginia................................ 1.00 1.00
Wyoming...................................... 1.00
Commonwealth of Puerto Rico.................. 1.00% 1.00%
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 taxes, see "Deductions and
Charges--Tax."
(1) Effective January 1, 2000, Kentucky no longer imposes premium tax on
variable annuities.
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APPENDIX C
ILLUSTRATIONS OF ANNUITY PAYMENTS ASSUMING HYPOTHETICAL RATES OF RETURN
--------------------------------------------------------------------------------
The following illustrations have been prepared to show how investment
performance affects variable annuity payments over time. The monthly annuity
payments reflect three different assumptions for a constant investment return
before all expenses: 0%, 6%, and 12%. These are hypothetical rates of return and
we do not guarantee that the contract would earn these returns for any one year
or sustained period of time. The tables are for illustrative purposes only and
do not represent past or future investment returns.
The monthly annuity payments may be more or less than shown if the actual
returns of the subaccounts are different than those illustrated. Since it is
very likely that investment returns will fluctuate over time, the amount of
variable annuity payments will also fluctuate. The total amount of annuity
payments ultimately received will depend on cumulative investments returns and
how long the annuitant lives and the payment option chosen.
The assumed interest rate will also affect the amount of variable annuity
payments. Payments will increase from one payment calculation date to the next
if the net investment factor is greater than the assumed interest rate, and will
decrease if the net investment factor is less than the assumed interest rate.
Each of the following illustrations have a different assumed interest rate.
The assumed interest rates of 3%, 5% and 6% are highlighted on each illustration
page.
The monthly annuity payments reflect the deduction of all fees and expenses.
Actual fund fees and expenses will vary from year to year and may be higher or
lower than the assumed rate. The illustrations assume that each fund will incur
expenses at an average annual rate of 0.83% of the average daily net assets.
This is a weighted average of the fund expenses shown in the fund annual expense
table on pages 7 and 8. While the expense reimbursement arrangements described
on pages 7 and 8 are expected to continue at least through 2001, discontinuing
one or more of such arrangements will increase the expenses of the fund.
Increased fund expenses will reduce performance and reduce monthly payments. The
risk and administrative fee is calculated in aggregate, at an annual rate of
1.40% of the average daily net assets of the subaccounts. After taking these
fees and expenses into account, the illustrated gross investment returns of 0%,
6% and 12% are approximately equal to net rates of -2.23%, 3.77% and 9.77%,
respectively. The $24 annual payment charge is taken as a $2 deduction from each
variable annuity payment.
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PHOENIX INCOME EDGE
INITIAL ANNUITY DATE: 1/1/2001
INITIAL VARIABLE ANNUITY PAYMENT AMOUNT: $1,000
PAYMENT OPTION: 20 YEAR SPECIFIED PERIOD
FREQUENCY OF ANNUITY INCOME: MONTHLY
ASSUMED INTEREST RATE: 3.0%
AVERAGE MGMT FEE: 0.83%
RISK AND ADMINISTRATIVE FEE: 1.40%
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ANNUAL RATE OF INTEREST BEFORE EXPENSES: 0.00% 6.00% 12.00%
ANNUAL RATE OF INTEREST AFTER EXPENSES -2.23% 3.77% 9.77%
PAYMENT CALCULATION DATE: MONTHLY PAYMENTS
--------------------------------------------------------------------------------
January 1, 2001 $1,000 $1,000 $1,000
January 1, 2002 $949 $1,006 $1,064
January 1, 2003 $901 $1,013 $1,131
January 1, 2004 $856 $1,019 $1,203
January 1, 2005 $812 $1,026 $1,278
January 1, 2006 $771 $1,033 $1,361
January 1, 2007 $732 $1,039 $1,447
January 1, 2008 $695 $1,046 $1,539
January 1, 2009 $660 $1,053 $1,636
January 1, 2010 $626 $1,060 $1,740
January 1, 2011 $595 $1,066 $1,851
January 1, 2012 $564 $1,073 $1,968
January 1, 2013 $536 $1,080 $2,093
January 1, 2014 $509 $1,087 $2,226
January 1, 2015 $483 $1,094 $2,367
January 1, 2016 $458 $1,101 $2,517
January 1, 2017 $435 $1,108 $2,677
January 1, 2018 $413 $1,115 $2,847
January 1, 2019 $392 $1,123 $3,028
January 1, 2020 $372 $1,130 $3,220
--------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN SHOWN AND ARE BASED ON MANY FACTORS.
32
<PAGE>
--------------------------------------------------------------------------------
PHOENIX INCOME EDGE
INITIAL ANNUITY DATE: 1/1/2001
INITIAL VARIABLE ANNUITY PAYMENT AMOUNT: $1,000
PAYMENT OPTION: 20 YEAR SPECIFIED PERIOD
FREQUENCY OF ANNUITY INCOME: MONTHLY
ASSUMED INTEREST RATE: 5.0%
AVERAGE MGMT FEE: 0.83%
RISK AND ADMINISTRATIVE FEE: 1.40%
--------------------------------------------------------------------------------
ANNUAL RATE OF INTEREST BEFORE EXPENSES: 0.00% 6.00% 12.00%
ANNUAL RATE OF INTEREST AFTER EXPENSES -2.23% 3.77% 9.77%
PAYMENT CALCULATION DATE: MONTHLY PAYMENTS
--------------------------------------------------------------------------------
January 1, 2001 $1,000 $1,000 $1,000
January 1, 2002 $931 $987 $1,043
January 1, 2003 $867 $975 $1,088
January 1, 2004 $808 $962 $1,135
January 1, 2005 $752 $950 $1,184
January 1, 2006 $700 $938 $1,236
January 1, 2007 $652 $926 $1,289
January 1, 2008 $607 $914 $1,345
January 1, 2009 $565 $902 $1,403
January 1, 2010 $526 $891 $1,463
January 1, 2011 $490 $879 $1,527
January 1, 2012 $456 $868 $1,593
January 1, 2013 $425 $857 $1,661
January 1, 2014 $396 $846 $1,733
January 1, 2015 $368 $835 $1,808
January 1, 2016 $343 $825 $1,886
January 1, 2017 $319 $814 $1,968
January 1, 2018 $297 $804 $2,053
January 1, 2019 $277 $793 $2,141
January 1, 2020 $258 $783 $2,234
--------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN SHOWN AND ARE BASED ON MANY FACTORS.
33
<PAGE>
--------------------------------------------------------------------------------
PHOENIX INCOME EDGE
INITIAL ANNUITY DATE: 1/1/01
INITIAL VARIABLE ANNUITY PAYMENT AMOUNT: $1,000
PAYMENT OPTION: 20 YEAR SPECIFIED PERIOD
FREQUENCY OF ANNUITY INCOME: MONTHLY
ASSUMED INTEREST RATE: 6.0%
AVERAGE MGMT FEE: 0.83%
RISK AND ADMINISTRATIVE FEE: 1.40%
--------------------------------------------------------------------------------
ANNUAL RATE OF INTEREST BEFORE EXPENSES: 0.00% 6.00% 12.00%
ANNUAL RATE OF INTEREST AFTER EXPENSES -2.23% 3.77% 9.77%
PAYMENT CALCULATION DATE: MONTHLY PAYMENTS
--------------------------------------------------------------------------------
January 1, 2001 $1,000 $1,000 $1,000
January 1, 2002 $922 $978 $1,033
January 1, 2003 $851 $956 $1,068
January 1, 2004 $785 $935 $1,103
January 1, 2005 $724 $914 $1,140
January 1, 2006 $668 $894 $1,178
January 1, 2007 $616 $875 $1,218
January 1, 2008 $568 $855 $1,258
January 1, 2009 $524 $836 $1,300
January 1, 2010 $483 $818 $1,344
January 1, 2011 $446 $800 $1,388
January 1, 2012 $411 $782 $1,435
January 1, 2013 $379 $765 $1,483
January 1, 2014 $350 $748 $1,532
January 1, 2015 $322 $731 $1,583
January 1, 2016 $297 $715 $1,636
January 1, 2017 $274 $699 $1,690
January 1, 2018 $253 $684 $1,747
January 1, 2019 $233 $669 $1,805
January 1, 2020 $215 $654 $1,865
--------------------------------------------------------------------------------
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND
SHOULD NOT BE DEEMED TO REPRESENT PAST OR FUTURE INVESTMENT PERFORMANCE. ACTUAL
RATES OF RETURN MAY BE MORE OR LESS THAN SHOWN AND ARE BASED ON MANY FACTORS.
34
<PAGE>
PART B
INFORMATION REQUIRED IN A
STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
PHOENIX INCOME EDGE
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS ("VPMO")
Hartford, Connecticut P.O. Box 8027
Boston, Massachusetts 02266-8027
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
SINGLE PREMIUM IMMEDIATE FIXED AND VARIABLE ANNUITY CONTRACT
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the prospectus, dated January 16, 2001. You may obtain a
copy of the prospectus without charge by contacting Phoenix Home Life Mutual
Insurance Company ("Phoenix") at the above address and telephone number.
TABLE OF CONTENTS
PAGE
----
Underwriter............................................................ 2
Calculation of Yield and Return........................................ 2
Calculation of Annuity Payments ....................................... 3
Experts ............................................................... 4
Account Financial Statements........................................... SA-1
Company Financial Statements........................................... F-1
1
<PAGE>
UNDERWRITER
--------------------------------------------------------------------------------
PEPCO, an affiliate of Phoenix, offers these contracts on a continuous basis.
Because the contract was not available unit January 16, 2001, no contracts were
sold during fiscal years 1997, 1998 and 1999; therefore PEPCO was not paid for
sales of these contracts and retained $0.
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 risk and administrative fee equal to
1.40% 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 calculated:
Value of hypothetical pre-existing account with $1.000000
exactly one Unit at the beginning of the period:
Value of the same account (excluding capital 1.001003
changes) at the end of the 7-day period:......
Calculation:
Ending account value.......................... 1.001003
Less beginning account value.................. 1.000000
Net change in account value................... 0.001003
Base period return:
(adjusted change/beginning account value)..... 0.001003
Current yield = return x (365/7) =............... 5.23%
Effective yield = [(1 + return)(365/7)] -1 =....... 5.37%
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.
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.
2
<PAGE>
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
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)
First Boston High Yield Index
Salomon Brothers Corporate Index
Salomon Brothers Government Bond Index
The S&P 500
We may use historical performance of the subaccounts, the S&P 500, or other
recognized investment benchmark portfolio to illustrate periodic annuity income
amounts. We will reflect the 1.40% Risk and Administrative Fee and actual or
assumed subaccount expenses in all illustrations.
CALCULATION OF ANNUITY PAYMENTS
--------------------------------------------------------------------------------
See your prospectus in the section titled "The Annuity Period" for a
description of the payment options.
You elect a payment option when you purchase your contract as described in
your prospectus. You may not change the payment option you elect.
FIXED ANNUITY PAYMENTS
On the Annuity Date, a stream of Annuity Payments is purchased. The amount
of the Fixed Annuity Payment will be the value in the Contract allocated to the
Fixed Income Allocation, divided by $1,000, then multiplied by the appropriate
factor for the Payment Option selected.
Under Options A-E, guaranteed rates are based on the a-49 Annuity Table4
projected to 1985 with Projection Scale B. We use the minimum assumed interest
rate of 3%. If our rates in effect on the annuity date are more favorable (i.e.
higher-paying), we will use those rates.
VARIABLE ANNUITY PAYMENTS
Variable Annuity Payments after the first payment will vary with the
investment experience of the Subaccounts.
----------
1 The Dow Jones Industrial Average(SM) (DJIA(SM)) is an unweighted3 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.
3
<PAGE>
Payments may be either higher or lower than the first payment.
Under Payment Options A, B, C, D, E and G, We determine the first payment by
multiplying the value in the contract held under the selected option in each
Subaccount by the applicable Payment Option rate. The first payment equals the
total of such amounts determined for each Subaccount. We determine future
payments under these options by multiplying the number of Annuity Units in each
Subaccount by the Annuity Unit Value for each Subaccount on the Payment
Calculation Date. The payment will equal the sum of the amounts provided by each
Subaccount.
Under Option F, We determine the amount of the initial distribution by
dividing the amount of value in the contract held under this option by the life
expectancy of the Annuitant.
Under all payment options, the first payment is based on an assumed interest
rate of either 3% or 6%. All subsequent payments may be higher or lower
depending on investment experience of the subaccounts.
The applicable rate used to determine the first variable annuity payment
amount will not be less than the rate based on the 1983 Table A (1983 IAM)1
projected with Projection Scale G to the year 2040, and with continued
projection thereafter, and on the assumed interest rate. If our rates in effect
on the annuity date are more favorable (i.e. higher-paying), we will use those
rates.
We deduct a daily charge for risk and administrative fee from contract
values held in the subaccounts. See your prospectus in the section titled
"Deductions and Charges".
EXPERTS
--------------------------------------------------------------------------------
The consolidated financial statements of Phoenix as of December 31, 1999 and
1998 and for each of the three years in the period ended December 31, 1999
included in this prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
Edwin L. Kerr, Counsel, and Brian A. Giantonio, Counsel, Phoenix Home Life
Mutual Insurance Company, have 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 Society of Actuaries developed these tables to provide payment rates for
annuities based on a set of mortality tables acceptable to most regulating
authorities.
4
<PAGE>
PHOENIX HOME LIFE
ACCUMULATION ACCOUNT
FINANCIAL STATEMENTS
AS OF JANUARY 16, 2001, THERE HAVE BEEN NO DEPOSITS TO THE ACCOUNT;
THEREFORE, FINANCIAL STATEMENTS ARE NOT AVAILABLE.
SA-1
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
AND
SEPTEMBER 30, 2000 (UNAUDITED)
F-1
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
<S> <C>
Report of Independent Accountants.............................................................................F-3
Consolidated Balance Sheet as of December 31, 1998 and 1999...................................................F-4
Consolidated Statement of Income, Comprehensive Income and Equity for the
years ended December 31, 1997, 1998 and 1999................................................................F-5
Consolidated Statement of Cash Flows for the years ended December 31, 1997,
1998 and 1999...............................................................................................F-6
Notes to Consolidated Financial Statements....................................................................F-8
Unaudited Interim Consolidated Balance Sheet as of September 30, 2000.........................................F-49
Unaudited Interim Consolidated Statement of Income, Comprehensive Income
and Equity for the nine months ended September 30, 1999 and 2000............................................F-50
Unaudited Interim Consolidated Statement of Cash Flows for the nine months
ended September 30, 1999 and 2000...........................................................................F-51
Notes to Unaudited Interim Consolidated Financial Statements..................................................F-53
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors 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 of America. 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 of America, 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 our opinion.
As discussed in Note 24, the Company has revised its accounting for the disposal
of its property and casualty distribution business.
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
February 15, 2000, except as to Note 24, which is as of December 7, 2000
F-3
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------
1998 1999
-------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Assets:
Investments
Held-to-maturity debt securities, at amortized cost.......... $ 1,762.9 $ 2,027.7
Available-for-sale debt securities, at fair value............ 5,987.4 5,506.8
Equity securities, at fair value............................. 302.7 437.2
Mortgage loans............................................... 797.3 716.8
Real estate.................................................. 92.0 92.0
Policy loans................................................. 2,008.3 2,042.6
Venture capital partnerships................................. 191.2 338.1
Other invested assets........................................ 149.2 188.0
Short-term investments....................................... 186.0 133.4
-------------- --------------
Total investments......................................... 11,477.0 11,482.6
Cash and cash equivalents........................................ 127.0 187.6
Accrued investment income........................................ 164.8 174.9
Deferred policy acquisition costs................................ 1,049.9 1,306.7
Premiums, accounts and notes receivable.......................... 100.2 119.2
Reinsurance recoverables......................................... 18.9 18.8
Property and equipment, net...................................... 150.4 137.7
Goodwill and other intangible assets, net........................ 520.1 593.3
Equity in unconsolidated subsidiaries............................ 45.4 91.2
Net assets of discontinued operations (Note 13).................. 298.7 187.6
Other assets..................................................... 38.4 51.4
Separate account assets.......................................... 4,798.9 5,923.9
-------------- --------------
Total assets................................................. $ 18,789.7 $ 20,274.9
============== ==============
Liabilities:
Policy liabilities and accruals.............................. $ 10,578.6 $ 10,899.8
Policyholder deposit funds................................... 531.7 538.2
Notes payable................................................ 449.3 499.4
Deferred income taxes........................................ 112.9 83.3
Other liabilities............................................ 489.7 474.2
Separate account liabilities................................. 4,798.9 5,923.9
-------------- --------------
Total liabilities......................................... 16,961.1 18,418.8
-------------- --------------
Contingent liabilities (Note 21)
Minority interest in net assets of consolidated subsidiaries..... 92.0 100.1
-------------- --------------
Equity:
Retained earnings............................................ 1,642.3 1,731.5
Accumulated other comprehensive income....................... 94.3 24.5
-------------- --------------
Total equity.............................................. 1,736.6 1,756.0
-------------- --------------
Total liabilities and equity.............................. $ 18,789.7 $ 20,274.9
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME, COMPREHENSIVE
INCOME AND EQUITY
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1998 1999
------------- ------------------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
Revenues
Premiums............................................. $ 1,087.7 $ 1,175.8 $ 1,175.7
Insurance and investment product fees................ 402.8 540.2 578.4
Net investment income................................ 723.3 862.2 956.8
Net realized investment gains........................ 111.0 58.2 75.8
---------- ---------- ----------
Total revenues.................................... 2,324.8 2,636.4 2,786.7
---------- ---------- ----------
Benefits and expenses
Policy benefits and increase in policy liabilities... 1,201.9 1,409.8 1,373.1
Policyholder dividends............................... 343.6 351.6 360.5
Amortization of deferred policy acquisition costs.... 102.6 137.6 146.6
Amortization of goodwill and other intangible assets. 35.3 28.8 40.1
Interest expense..................................... 28.0 29.8 34.0
Other operating expenses............................. 415.3 488.4 533.9
---------- ---------- ----------
Total benefits and expenses....................... 2,126.7 2,446.0 2,488.2
---------- ---------- ----------
Income from continuing operations before income taxes,
minority interest and equity in earnings of
unconsolidated subsidiaries.......................... 198.1 190.4 298.5
Income taxes............................................. 44.9 67.8 110.4
---------- ---------- ----------
Income from continuing operations before minority interest
and equity in earnings of unconsolidated subsidiaries 153.2 122.6 188.1
Minority interest in net income of consolidated subsidiaries 8.9 10.5 10.1
Equity in earnings of unconsolidated subsidiaries........ .4 (.1) 3.1
---------- ----------- ----------
Income from continuing operations........................ 144.7 112.0 181.1
Discontinued operations (Note 13)
Gain from operations, net of income taxes............ 25.0 25.1 17.1
Loss on disposal, net of income taxes................ - - (109.0)
-------------- -------------- -----------
Net income............................................... 169.7 137.1 89.2
---------- ---------- ----------
Other comprehensive (loss) income, net of income taxes
Unrealized (losses) gains on securities.............. 98.2 (46.9) (66.8)
Reclassification adjustment for net realized gains
included in net income............................ (30.2) (13.0) (1.5)
Minimum pension liability adjustment................. (2.1) (1.5) (1.5)
----------- ----------- -----------
Total other comprehensive (loss) income........... 65.9 (61.4) (69.8)
---------- ----------- -----------
Comprehensive income..................................... 235.6 75.7 19.4
---------- ---------- ----------
Equity, beginning of year................................ 1,425.3 1,660.9 1,736.6
---------- ---------- ----------
Equity, end of year.................................. $ 1,660.9 $ 1,736.6 $ 1,756.0
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1998 1999
---------------- ----------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 169.7 $ 137.1 $ 89.2
Adjustments to reconcile net income to net cash provided by
operating activities:
Net gain (loss) from discontinued operations........... (25.0) (25.1) 91.9
Net realized investment gains.......................... (111.0) (58.2) (75.8)
Amortization and depreciation.......................... 89.7 58.5 72.0
Equity in undistributed earnings of affiliates and
partnerships........................................ (38.6) (44.1) (138.2)
Deferred income taxes (benefit)........................ 22.3 2.8 (13.9)
Increase in receivables................................ (48.4) (26.7) (62.9)
(Decrease) increase in deferred policy acquisition costs (44.4) (26.9) 3.5
Increase in policy liabilities and accruals............ 490.2 386.0 321.2
Increase in other assets/other liabilities, net........ 63.7 63.0 47.5
Other, net............................................. 7.8 1.8 2.5
------------- ------------- -------------
Net cash provided by continuing operations............. 576.0 468.2 337.0
Net cash provided by (used for) discontinued
operations.......................................... 77.8 77.5 (95.7)
------------- ------------- -------------
Net cash provided by operating activities.............. 653.8 545.7 241.3
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sales, maturities or repayments of
available-for-sale debt securities.................. 1,082.1 1,322.4 1,702.9
Proceeds from maturities or repayments of
held-to-maturity debt securities.................... 200.9 267.7 186.7
Proceeds from disposals of equity securities........... 51.4 45.2 163.5
Proceeds from mortgage loan maturities or repayments... 164.2 200.4 124.9
Proceeds from sale of real estate and other invested
assets.............................................. 213.2 439.9 38.0
Proceeds from distributions of venture capital
partnerships........................................ 5.7 18.6 26.7
Proceeds from sale of subsidiaries and affiliates...... - 16.3 46.4
Purchase of available-for-sale debt securities......... (1,553.3) (2,404.3) (1,672.6)
Purchase of held-to-maturity debt securities........... (183.4) (585.4) (427.5)
Purchase of equity securities.......................... (88.6) (85.0) (162.4)
Purchase of subsidiaries............................... (258.6) (11.2) (187.6)
Purchase of mortgage loans............................. (140.8) (76.0) (25.3)
Purchase of real estate, unconsolidated subsidiaries
and other invested assets........................... (50.6) (134.2) (71.4)
Purchase of venture capital partnerships............... (40.0) (67.2) (108.5)
Change in short term investments, net.................. 23.1 855.1 52.6
Increase in policy loans............................... (59.7) (21.5) (34.3)
Capital expenditures................................... (46.0) (27.2) (20.5)
Other investing activities, net........................ (2.6) (6.5) 1.7
-------------- -------------- -------------
Net cash used for continuing operations.................... (683.0) (252.9) (366.7)
Net cash (used for) provided by discontinued operations.... (75.8) (78.2) 105.6
-------------- -------------- -------------
Net cash used for investing activities..................... $ (758.8) $ (331.1) $ (261.1)
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1998 1999
---------------- ----------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from financing activities:
Net deposits (withdrawals) of policyholder deposit funds,
net of interest credited...............................
$ (13.6) $ (28.7) $ 6.5
Proceeds from repayment of securities sold subject to
repurchase agreements.................................. 137.5 (137.5) 28.4
Proceeds from borrowings................................... 215.4 .1 175.1
Repayment of borrowings.................................... (243.3) (63.3) (125.0)
Dividends paid to minority shareholders in consolidated
subsidiaries........................................... (6.9) (4.9) (4.2)
Other financing activities................................. (1.3) (5.7) (.4)
-------------- -------------- --------------
Net cash provided by (used for) continuing operations...... 87.8 (240.0) 80.4
Net cash provided by discontinued operations............... 4.5 - -
--------------- -------------- --------------
Net cash provided by (used for) financing activities....... 92.3 (240.0) 80.4
------------- -------------- -------------
Net change in cash and cash equivalents.................... (12.7) (25.4) 60.6
Cash and cash equivalents, beginning of period............. 165.1 152.4 127.0
------------- ------------- -------------
Cash and cash equivalents, end of period................... $ 152.4 $ 127.0 $ 187.6
============= ============= =============
Supplemental cash flow information
Income taxes paid, net..................................... $ 76.2 $ 44.5 $ 106.4
Interest paid on indebtedness.............................. $ 32.3 $ 32.8 $ 34.8
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<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 managed within four reportable segments: Life and Annuity,
Investment Management, Venture Capital and Corporate & Other. See Note
12 - "Segment Information."
Additionally, in 1999, Phoenix discontinued the operations of three of
its business units: the Reinsurance Operations, the Real Estate
Management Operations and the Group Life and Health Operations. See
Note 13 - "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 its 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. Certain reclassifications have been made to the 1997
and 1998 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.
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 either the present value of
future cash flows discounted at the loan's observable market price or
at the fair value of the collateral if collection
F-8
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
is collateral dependent. 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 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. These valuations
subject the earnings to volatility. Phoenix includes equity in
undistributed unrealized capital gains and losses on investments held
in the venture capital partnerships in net investment income. Our
investment in these venture capital partnerships is as a limited
partner.
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 the assumed
impact of net unrealized investment gains and losses on the
amortization of deferred policy acquisition costs related to investment
contracts.
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
F-9
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 diversify counterparty
exposure, Phoenix only enters into derivative contracts with highly
rated financial institutions.
In certain instances, derivative contracts are terminated prior to
maturity. These contracts include, but are not limited to, interest
rate and foreign currency swaps, cap and floor contracts, and payor and
receiver swaptions. To the extent that derivative contracts determined
to be effective hedges are terminated, realized gains and losses are
deferred and amortized. Derivatives associated with hedged items that
either no longer exist or are no longer expected to occur are accounted
for as the relevant change in status of the hedged items, with gains or
losses on such contracts recognized immediately in net income.
Similarly, for derivatives otherwise determined to no longer be
effective hedges, gains or losses as of termination are recognized
immediately in net income.
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. Internal replacements are defined as an exchange of
existing Phoenix life insurance or annuity policies for different
Phoenix life insurance or annuity policies. The deferred acquisition
costs associated with the replaced contracts are fully amortized. In
the case of surrenders of policies, in which owners cancel existing
life or annuity contracts, the deferred acquisition costs of the
surrendered contracts are fully amortized.
For universal life insurance policies and investment type contracts,
deferred policy acquisition costs are amortized in proportion to total
estimated gross profits over the expected 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.
F-10
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the cost of business acquired over
the fair value of their net assets. These costs are amortized on a
straight-line basis over periods ranging from 10 to 40 years,
corresponding with the benefits expected to be derived from the
acquisitions. The weighted-average remaining life is approximately 38
years. Other intangible assets, primarily associated with investment
management contracts and employee contracts, are amortized over their
estimated useful lives using the straight-line method. The average
estimated useful life of the intangible assets ranges from 5 to 16
years for investment management contracts and 3 to 7 years for employee
contracts. The weighted-average remaining life approximates 13 years.
The propriety of the carrying value of goodwill and other intangible
assets is periodically reevaluated in accordance with Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-lived Assets to be Disposed Of," 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. Analyses are performed at
least annually, or more frequently if warranted by events and
circumstances affecting the Phoenix's business.
EQUITY IN UNCONSOLIDATED SUBSIDIARIES
Equity in unconsolidated subsidiaries represents investments in
operating entities in which Phoenix owns more than 20% but less than a
majority of the outstanding common stock and those operating entities
for which Phoenix owns less than 20% if Phoenix exercises significant
influence over the operating and financial policies of the company.
Phoenix utilizes the equity method of accounting for these investments.
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 and annuity products.
Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. Future policy
benefits for traditional life insurance are computed using the net
level premium method on the basis of actuarial assumptions as to
contractual guaranteed rates of interest, mortality and morbidity. The
guaranteed interest rates range from 2.25% to 6.00%. Liabilities for
universal life include deposits received from customers and investment
earnings on their fund balances which range from 4.00% to 7.15%, less
administrative and 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.
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 when due.
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
F-11
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
INVESTMENT MANAGEMENT FEES
Investment management fees and mutual fund ancillary fees included in
insurance and investment product fees in the accompanying Consolidated
Statement of Income, Comprehensive Income and Equity, are recorded as
income during the period in which services are performed. Investment
management fees are generally computed and earned based upon a
percentage of assets under management. Mutual fund ancillary fees
consist of dealer concessions, distribution fees, administrative fees,
shareholder services agent fees, and accounting fees. Dealer
concessions and underwriting fees earned (net of related expenses) from
the distribution and sale of affiliated mutual fund shares and other
securities are recorded on a trade date basis.
REINSURANCE
Phoenix utilizes reinsurance agreements to provide for greater
diversification of business, allow management to control exposure to
potential losses arising from large risks and provide additional
capacity for growth.
Assets and liabilities related to reinsurance ceded contracts are
reported on a gross basis. The cost of reinsurance related to
long-duration contracts is accounted for over the life of the
underlying reinsured policies using assumptions consistent with those
used to account for the underlying policies.
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.
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. Phoenix estimates the differential earnings
rate (DER) each year using the best available information including
industry surveys. The IRS subsequently determines the DER applicable to
the mutual companies and Phoenix adjusts its estimates accordingly. The
impact of the difference between estimated and actual DER is reflected
in the tax provision in the year the IRS determination is made.
F-12
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages,
but does not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. Phoenix's
majority owned, consolidated subsidiary, Phoenix Investment Partners
(PXP), a publicly held investment management company, has chosen to
continue to account for stock-based compensation using the intrinsic
method prescribed in Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, compensation cost for stock options and
restricted stock under existing plans is measured as the excess, if
any, of the quoted market price of PXP's stock at the date of the grant
over the amount an employee must pay to acquire the stock. (See Note 19
- "Stock Purchase and Award Plans.")
RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1999, The Financial Accounting Standards Board issued 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.
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 expensed 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
F-13
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DISCONTINUED OPERATIONS
During 1999, Phoenix discontinued the operations of three of its
business units: the Reinsurance Operations, the Real Estate Management
Operation and the Group Insurance Operations. Disclosures concerning
the financial impact of these transactions are contained in Note 13 -
"Discontinued Operations."
PROPERTY AND CASUALTY DISTRIBUTION OPERATIONS
On July 1, 1999, PM Holdings sold its property and casualty
distribution 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. Phoenix also
retains two board seats on HRH's board of directors. The pre-tax gain
realized on the sale was $40.1 million. The HRH common stock is
classified as equity in unconsolidated subsidiaries 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.
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 the sixth year subsequent to the acquisition at a
value to 80% of the appraised value of the common stock at that time.
As of December 31, 1999, this option had not been executed. Since
Phoenix officers hold board voting control, the entity has been
consolidated and a minority interest has been established for outside
shareholder interests. 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.
EMPRENDIMIENTO COMPARTIDO, S.A., (EMCO)
At January 1, 1999 PM Holdings held 9.1 million shares of EMCO,
representing a 35% ownership interest in 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.
F-14
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 carried at fair value, for
which cost is a reasonable estimate, and is classified as equity
securities in the Consolidated Balance Sheet.
PHOENIX INVESTMENT PARTNERS, LTD.
On March 1, 1999, Phoenix Investment Partners acquired 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 excess of purchase price over the fair
value of acquired net tangible assets of Zweig totaled $136.1 million.
Of this excess purchase price, $77.2 million has been allocated to
intangible assets, primarily associated with investment management
contracts, which are being amortized using the straight line method
over an average estimated useful life of approximately 12 years. The
remaining excess purchase price of $58.9 million has been classified as
goodwill and is being amortized over 40 years using the straight-line
method. 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 pre-tax gain of approximately $17.5
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 which are
eliminated through consolidation.
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
equity in unconsolidated subsidiaries.
F-15
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DIVIDEND SCALE REDUCTION
In consideration of the decline of interest rates in the financial
markets, Phoenix's Board of Directors voted in October 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, and both are reported as real estate
on the Consolidated Balance Sheet.
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
COST GAINS LOSSES FAIR VALUE
----------- ------------ ------------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Debt securities
Held-to-maturity:
State and political subdivision bonds............. $ 27.6 $ .4 $ (1.0) $ 27.0
Foreign government bonds.......................... 3.0 - (.8) 2.2
Corporate securities.............................. 1,813.7 12.9 (95.7) 1,730.9
Mortgage-backed and asset-backed securities....... 285.4 1.4 (19.2) 267.6
--------- --------- ---------- ---------
Total held-to-maturity securities............. 2,129.7 14.7 (116.7) 2,027.7
Less: held-to-maturity securities of
discontinued operations.................... 102.0 .7 (5.8) 96.9
--------- --------- ---------- ---------
Total held-to-maturity securities of continuing
operations................................. 2,027.7 14.0 (110.9) 1,930.8
--------- --------- ---------- ---------
Available-for-sale:
U.S. government and agency bonds.................. 283.7 2.0 (6.5) 279.1
State and political subdivision bonds............. 495.9 4.8 (21.8) 478.9
Foreign government bonds.......................... 273.9 23.7 (4.0) 293.6
Corporate securities.............................. 2,353.2 18.6 (102.8) 2,269.0
Mortgage-backed and asset-backed securities....... 2,977.1 17.9 (103.3) 2,891.8
--------- --------- ---------- ---------
Total available-for-sale securities........... 6,383.8 66.9 (238.3) 6,212.4
Less: available-for-sale securities of 725.1 7.6 (27.1) 705.6
--------- --------- ---------- ---------
</TABLE>
F-16
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
----------- ------------ ------------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
discontinued operations....................
Total available-for-sale securities of
continuing operations...................... 5,658.7 59.3 (211.2) 5,506.8
--------- --------- ---------- ---------
Total debt securities of continuing operations $ 7,686.4 $ 73.3 $ (322.1) $ 7,437.6
========= ========= ========== =========
Equity securities................................. $ 295.2 $ 168.1 $ (24.2) $ 439.1
Less: equity securities of discontinued
operations................................. 1.9 - - 1.9
--------- --------- --------- ---------
Total equity securities of continuing
operations................................. $ 293.3 $ 168.1 $ (24.2) $ 437.2
========= ========= ========== =========
</TABLE>
F-17
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
COST GAINS LOSSES FAIR VALUE
----------- ------------ ------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Debt securities
Held-to-Maturity:
State and political subdivision bonds...................... $ 10.6 $ .6 $ (.1) $ 11.1
Foreign government bonds................................... 3.0 - (.7) 2.3
Corporate securities....................................... 1,733.3 98.9 (13.8) 1,818.4
Mortgage-backed and asset-backed securities................ 172.3 6.2 (.0) 178.5
--------- --------- ---------- ---------
Total held-to-maturity securities...................... 1,919.2 105.7 (14.7) 2,010.3
Less: held-to-maturity securities of discontinued
operations.......................................... 156.2 8.8 (1.2) 163.8
--------- --------- ---------- ---------
Total held-to-maturity securities of continuing
operations....................................... 1,762.9 97.0 (13.4) 1,846.5
--------- --------- ---------- ---------
Available-for-sale:
U.S. government and agency bonds........................... 497.1 34.5 (.4) 531.1
State and political subdivision bonds...................... 530.0 43.6 (.1) 573.5
Foreign government bonds................................... 294.0 28.8 (18.7) 304.1
Corporate securities....................................... 1,993.7 110.5 (36.7) 2,067.6
Mortgage-backed and asset-backed securities................ 3,121.7 110.2 (14.6) 3,217.2
--------- --------- ---------- ---------
Total available-for-sale securities.................... 6,436.4 327.6 (70.5) 6,693.5
Less: available-for-sale securities of discontinued
operations.......................................... 679.0 34.6 (7.4) 706.1
--------- --------- ---------- ---------
Total available-for-sale securities of continuing
operations....................................... 5,757.5 293.0 (63.1) 5,987.4
------- --------- ---------- ---------
Total debt securities of continuing operations...... $ 7,520.4 $ 390.0 $ (76.5) $ 7,833.9
========= ========= ========== =========
Equity securities.......................................... $ 223.9 $ 102.0 $ (21.4) $ 304.5
Less: equity securities of discontinued operations..... 1.8 - - 1.8
--------- --------- --------- ---------
Total equity securities of continuing operations....... $ 222.1 $ 102.0 $ (21.4) $ 302.7
========= ========= ========== =========
</TABLE>
The sale of fixed maturities held-to-maturity relate to certain securities, with
amortized cost of $59.1 million, $19.6 million and $3.9 million, for the years
ended December 31, 1997, 1998 and 1999, respectively, which were sold
specifically due to a significant decline in the issuers' credit quality. Net
realized losses were $10.1 million, $0.8 million and $0.2 million in 1997, 1998
and 1999, respectively.
F-18
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 AMORTIZED
COSTS FAIR VALUE COSTS FAIR VALUE
------------ ---------------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less................................... $ 118.2 $ 117.0 $ 43.2 $ 43.5
Due after one year through five years..................... 583.1 564.2 534.4 532.7
Due after five years through ten years.................... 625.1 604.0 1,146.8 1,104.6
Due after ten years....................................... 517.9 474.9 1,682.3 1,639.8
Mortgage-backed and asset-backed securities............... 285.4 267.6 2,977.1 2,891.8
---------- ---------- ---------- ----------
Total ................................................... $ 2,129.7 $ 2,027.7 $ 6,383.8 $ 6,212.4
Less: securities of discontinued operations............... 102.0 96.9 725.1 705.6
---------- ---------- ---------- ----------
Total securities of continuing operations................. $ 2,027.7 $ 1,930.8 $ 5,658.7 $ 5,506.8
========== ========== ========== ==========
Carrying values for investments in mortgage-backed and asset-backed securities, excluding U.S. government
guaranteed investments, were as follows:
DECEMBER 31,
---------------------------------------------------
1998 1999
--------------------------- -----------------------
(IN MILLIONS)
<S> <C> <C>
Planned amortization class................................ $ 433.7 $ 168.0
Asset-backed.............................................. 910.6 956.9
Mezzanine................................................. 280.1 194.9
Commercial................................................ 641.5 735.2
Sequential pay............................................ 982.6 1,039.0
Pass through.............................................. 119.0 77.2
Other 22.0 6.0
------------ ------------
Total mortgage-backed and asset-backed securities......... $ 3,389.5 $ 3,177.2
============ ============
</TABLE>
F-19
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MORTGAGE LOANS AND REAL ESTATE
Phoenix's mortgage loans and real estate are diversified by property
type and location and, for mortgage loans, by borrower. Mortgage loans
are collateralized by the related properties and are generally 75% of
the properties' value at the time the original loan is made.
Mortgage loans and real estate investments comprise the following
property types and geographic regions:
<TABLE>
<CAPTION>
MORTGAGE LOANS REAL ESTATE
DECEMBER 31, DECEMBER 31,
---------------------------------- ----------------------------------
1998 1999 1998 1999
---------------- ----------------- ------------------ ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Property type:
Office buildings........... $ 221.2 $ 183.9 $ 38.3 $ 30.5
Retail .................... 203.9 208.6 36.9 14.1
Apartment buildings........ 261.9 252.9 21.6 41.7
Industrial buildings....... 121.8 82.7 1.6 -
Other .................... 19.1 3.0 - 8.9
Valuation allowances....... (30.6) (14.3) (6.4) (3.2)
---------- ---------- ---------- ----------
Total $ 797.3 $ 716.8 $ 92.0 $ 92.0
========== ========== ========== ==========
Geographic region:
Northeast.................. $ 169.4 $ 149.3 $ 47.7 $ 59.6
Southeast.................. 213.9 198.6 - -
North central.............. 176.7 164.2 11.5 .7
South central.............. 98.9 105.1 22.7 21.2
West .................... 169.0 114.0 16.5 13.7
Valuation allowances....... (30.6) (14.3) (6.4) (3.2)
---------- ---------- ---------- ----------
Total $ 797.3 $ 716.8 $ 92.0 $ 92.0
========== ========== ========== ==========
</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 $2.3 million and $6.7 million of its mortgage loans
during 1998 and 1999, 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, 1998 and 1999 is $17.2 million and $6.0 million,
respectively. There are valuation allowances of $14.7 million and $5.4
million, respectively, on these mortgages.
F-20
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 MILLIONS)
<S> <C> <C> <C> <C>
1999
Mortgage loans........... $ 30.6 $ 9.7 $ (26.0) $ 14.3
Real estate.............. 6.4 .2 (3.4) 3.2
-------- -------- -------- --------
Total.................... $ 37.0 $ 9.9 $ (29.4) $ 17.5
======== ======== ======== ========
1998
Mortgage loans........... $ 35.8 $ 50.6 $ (55.8) $ 30.6
Real estate.............. 28.5 5.1 (27.2) 6.4
-------- -------- -------- --------
Total.................... $ 64.3 $ 55.7 $ (83.0) $ 37.0
======== ======== ======== ========
1997
Mortgage loans........... $ 48.4 $ 6.7 $ (19.3) $ 35.8
Real estate.............. 47.5 4.2 (23.2) 28.5
-------- -------- -------- --------
Total $ 95.9 $ 10.9 $ (42.5) $ 64.3
======== ======== ======== ========
</TABLE>
NON-INCOME PRODUCING MORTGAGE LOANS AND BONDS
The net carrying values of non-income producing mortgage loans were
$15.6 million and $0.0 million at December 31, 1998 and 1999,
respectively. The net carrying value of non-income producing bonds were
$22.3 million and $0.0 million at December 31, 1998 and 1999,
respectively.
VENTURE CAPITAL PARTNERSHIPS
Phoenix invests as a limited partner 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 these 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>
1997 1998 1999
------------- ------------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Operating losses........................................... $ (2.1) $ (2.7) $ (8.9)
Realized gains on cash and stock distributions............. 31.3 23.3 84.7
Net unrealized gains on investments held in the partnerships
4.5 19.0 64.1
-------- -------- --------
Total venture capital partnership net investment income.... $ 33.7 $ 39.6 $ 139.9
======== ======== ========
</TABLE>
F-21
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OTHER INVESTED ASSETS
Other invested assets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1998 1999
------------------- -------------------
(IN MILLIONS)
<S> <C> <C>
Transportation and equipment leases................... $ 80.9 $ 82.1
Affordable housing partnerships....................... 10.8 22.2
Investment in other affiliates........................ 12.7 12.4
Seed money in separate accounts....................... 26.6 33.3
Other partnership interests........................... 22.7 42.0
------------- -------------
Total other invested assets........................... 153.7 192.0
Less: other invested assets of discontinued operations 4.5 4.0
------------- -------------
Total other invested assets of continuing operations.. $ 149.2 $ 188.0
============= =============
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31, were as follows:
1997 1998 1999
------------------ ---------------- -------------
(IN MILLIONS)
<S> <C> <C> <C>
Debt securities............................... $ 509.7 $ 598.9 $ 641.1
Equity securities............................. 4.3 6.5 7.9
Mortgage loans................................ 85.6 83.1 66.3
Policy loans.................................. 122.6 146.5 149.0
Real estate................................... 18.9 38.3 9.7
Leveraged leases.............................. 2.7 2.8 2.2
Venture capital partnerships.................. 33.7 39.6 139.9
Other invested assets......................... 1.6 2.0 (1.5)
Short-term investments........................ 18.8 23.8 22.6
----------- ----------- -----------
Sub-total.................................. 797.9 941.5 1,037.2
Less: investment expenses..................... 14.1 14.0 13.0
----------- ----------- -----------
Net investment income......................... 783.8 927.5 1,024.2
Less: net investment income of discontinued
operations................................. 60.5 65.3 67.4
----------- ----------- -----------
Total net investment income of continuing
operations............................... $ 723.3 $ 862.2 $ 956.8
=========== =========== ===========
</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. See Note 2 -
"Summary of Significant Accounting Policies - Valuation of investment"
for further information on mortgage loan and bond impairment.
The payment terms of mortgage loans may, from time to time, be
restructured or modified. The investment in restructured mortgage
loans, based on amortized cost, amounted to $40.8 million and $36.5
million at December 31, 1998 and 1999, respectively. Interest income on
restructured mortgage loans that would have been recorded in accordance
with the original terms of such loans amounted to $5.3 million, $4.9
million and $4.1 million in 1997, 1998 and 1999, respectively. Actual
interest income on these loans included in net investment income was
$3.8 million, $4.0 million and $3.5 million in 1997, 1998 and 1999,
respectively.
F-22
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
1997 1998 1999
-------------------- ------------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Debt securities.......................... $ 112.2 $ (7.0) $ (428.5)
Equity securities........................ 74.5 (91.9) 63.2
Deferred policy acquisition costs........ (80.6) 6.7 260.3
Deferred income taxes.................... 38.1 (32.3) (36.7)
------------ ------------ ------------
Net unrealized investment gains (losses)
on securities available-for-sale..... $ 68.0 $ (59.9) $ (68.3)
============ ============ ============
Realized investment gains and losses for the year ended December 31, were as follows:
1997 1998 1999
-------------------- ------------------- ---------------
(IN MILLIONS)
Debt securities................................ $ 19.3 $ (4.3) $ (20.4)
Equity securities.............................. 26.3 11.9 16.6
Mortgage loans................................. 3.8 (6.9) 18.5
Real estate.................................... 44.7 67.5 2.9
Sale of property and casualty subsidiary....... - - 40.1
Other invested assets.......................... 17.3 (4.6) 18.5
------------ ------------- ------------
Net realized investment gains.................. 111.4 63.6 76.2
Less: net realized investment gains
from discontinued operations............... .4 5.4 .4
------------ ------------ ------------
Net realized investment gains from
continuing operations...................... $ 111.0 $ 58.2 $ 75.8
============ ============ ============
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:
1997 1998 1999
-------------------- ------------------- ---------------
(IN MILLIONS)
Proceeds from disposals...................... $ 821.3 $ 912.7 $ 1,106.9
Gross gains on sales......................... 28.0 17.4 21.8
Gross losses on sales........................ 5.3 33.6 39.1
</TABLE>
F-23
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1998 1999
--------------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Phoenix Investment Partners gross amounts:
Goodwill........................................... $ 321.8 $ 384.6
Investment management contracts.................... 169.0 236.0
Non-compete covenant............................... 5.0 5.0
Other.............................................. .5 10.9
--------- ---------
Totals................................................ 496.3 636.5
--------- ---------
Other gross amounts:
Goodwill........................................... 71.4 32.6
Client listings.................................... 48.1 -
Intangible asset related to pension plan benefits.. 16.2 11.7
Other.............................................. .7 1.2
--------- ---------
Totals ............................................... 136.4 45.5
--------- ---------
Total gross goodwill and other intangible assets...... 632.7 682.0
Accumulated amortization - Phoenix Investment Partners (49.6) (79.9)
Accumulated amortization - other...................... (63.0) (8.8)
-------- ---------
Total net goodwill and other intangible assets........ $ 520.1 $ 593.3
======== =========
In 1999, Phoenix wrote off $2.6 million of goodwill associated with its acquisition of
Phoenix National Life Insurance Company in 1998 and $2.0 million associated with an
acquisition of Phoenix New England Trust in 1999.
6. EQUITY IN UNCONSOLIDATED SUBSIDIARIES
Equity in unconsolidated subsidiaries were as follows:
DECEMBER 31,
---------------------------------
1998 1999
----------------- ---------------
(IN MILLIONS)
EMCO of Argentina......................................... $ 10.7 $ 13.4
Aberdeen Asset Management................................. 34.7 61.6
Hilb, Rogal and Hamilton Company.......................... - 16.2
--------- ---------
Total equity in unconsolidated subsidiaries............... $ 45.4 $ 91.2
========= =========
</TABLE>
F-24
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EQUITY IN EARNINGS OF UNCONSOLIDATED SUBSIDIARIES
The components of equity in earnings of unconsolidated subsidiaries for
the year ended December 31, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1997 1998 1999
------------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
EMCO of Argentina...................................... $ - $ (1.4) $ 1.1
Aberdeen Asset Management.............................. .6 1.2 2.9
Hilb, Rogal and Hamilton Company....................... - - .7
------------ ----------- ------------
Total equity in earnings of unconsolidated subsidiaries
before income taxes................................. .6 (.2) 4.7
Income taxes........................................... .2 (.1) 1.6
------------ ------------- ------------
Total equity in earnings of unconsolidated subsidiaries $ .4 $ (.1) $ 3.1
=========== ============= ============
7. DERIVATIVE INSTRUMENTS
Derivative instruments at December 31, are summarized below:
1998 1999
----------------------- -------------------------
(IN MILLIONS)
<S> <C> <C>
Asset hedges
Foreign currency swaps:
Notional amount.......................... $ - $ 8.1
Weighted average received rate........... - 12.04%
Weighted average paid rate............... - 10.00%
Fair value............................... $ - $ .2
Interest rate swaps:
Notional amount.......................... $ 43.0 $ 43.0
Weighted average received rate........... 7.51% 7.51%
Weighted average paid rate............... 5.40% 6.14%
Fair value............................... $ 4.6 $ .4
Liability hedges
Swaptions:
Notional amount.......................... $ - $ 1,600.0
Weighted average strike rate............. - 5.02%
Index rate (1)........................... - 10 Yr. CMS
Fair value............................... $ - $ (8.2)
Interest rate floors:
Notional amount.......................... $ 570.0 $ 1,210.0
Weighted average strike rate............. 4.59% 4.57%
Index rate (1)........................... 5-10 Yr. CMT 2-10Yr. CMT/CMS
Fair value............................... $ 1.4 $ (7.5)
Interest rate swaps:
Notional amount.......................... $ 381.6 $ 431.0
Weighted average received rate........... 6.13% 6.22%
Weighted average paid rate............... 5.87% 6.09%
Fair value............................... $ 6.4 $ 1.1
</TABLE>
F-25
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
----------------------- -------------------------
(IN MILLIONS)
<S> <C> <C>
Interest rate caps:
Notional amount.......................... $ 50.0 $ 50.0
Weighted average strike rate............. 7.95% 7.95%
Index rate (1)........................... 10 Yr. CMT 10 Yr. CMT
Fair value............................... $ (.1) $ (.8)
-------------------
</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 $2.1 million and $1.0 million for the years ended
December 31, 1998 and 1999, respectively. The decrease in net
investment income related to interest rate floor, interest rate cap and
swaption contracts was $0.2 million and $2.3 million for the years
ended December 31, 1998 and 1999, 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.
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.
8. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1998 1999
----------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Short-term debt............................................. $ 20.5 $ 21.6
Bank borrowings, blended rate 6.7%, due in
varying amounts to 2004 .............................. 207.0 260.3
Notes payable ........................................ 5.4 1.1
Subordinated debentures, 6% due 2015 ................. 41.4 41.4
Surplus notes, 6.95%, due 2006 ....................... 175.0 175.0
-------- ---------
Total notes payable .................................. $ 449.3 $ 499.4
======== =========
</TABLE>
Phoenix has several lines of credits established with major commercial
banks. The first facility has a $100 million line of credit maturing
October 3, 2001. Drawdowns may be executed in domestic U.S. dollars or
Eurodollars. Domestic dollar loans bear interest at the greater of the
Bank of New York's prime commercial rate or the effective federal funds
rate plus .5%. Eurodollar loans bear interest at a LIBOR based rate
that varies depending on the Eurodollar Reserve Percentage. The credit
agreement contains customary financial and operating covenants. At
December 31, 1999, Phoenix had no outstanding borrowings under this
agreement.
The second facility has a $100.0 million line that matures November 1,
2001. Loans bear interest at Bank of New York's commercial prime rate
or certificate of deposit rate plus .285%. The agreement contains
customary financial and operating covenants. At December 31, 1999,
Phoenix had no outstanding borrowing under this agreement.
F-26
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The third facility has a (pound)20.0 million line that matures on July
11, 2001. Loans under this facility bear interest at LIBOR plus .17%.
The credit agreement contains customary financial and operating
covenants. At December 31,1999 Phoenix had $25.3 million outstanding
under this agreement.
The fourth facility has a $200.0 million line that matures August 2002.
Loans under this facility have variable rates with a choice of
certificate of deposit, Eurodollar or the banks' base lending rate. The
credit agreement contains customary financial and operating covenants.
As of December 31, 1999, Phoenix had $200.0 million outstanding under
this agreement.
The fifth facility is a $175.0 million line maturing in March 2004.
Loans under this facility have variable rates with a choice of
certificate of deposit, Eurodollar or the banks' base lending rate. The
credit agreement contains customary financial and operating covenants.
As of December 31, 1999 Phoenix had $35.0 million outstanding under
this agreement.
In November 1996, Phoenix issued $175 million principal amount of 6.95%
surplus notes due December 1, 2006. Each payment of interest on
principal of the notes requires the prior approval of the
Superintendent of Insurance of the State of New York, and may be made
only out of surplus funds which the Superintendent determines to be
available for such payment under the New York Insurance Law. As of
December 31, 1999, Phoenix had $175 million in surplus notes
outstanding.
As of December 31, 1999 Phoenix had outstanding $41.4 million principal
amount of 6% convertible subordinated debentures due 2015, issued by
PXP and held by outside third parties. PXP issued these debentures in
April 1998 in exchange for all outstanding shares of its Series A
convertible exchangeable preferred stock. Each $25.00 principal amount
of these debentures is convertible into 3.11 shares of PXP common stock
at any time upon the holder's election and the debentures may be
redeemed by PXP, in whole or in part at any time upon 15 days' notice
beginning November 1, 2000.
Additionally, Phoenix has access to several other, smaller credit
lines. 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 $28.0 million, $29.8 million and $34.0 million for
the years ended December 31, 1997, 1998 and 1999, respectively.
9. 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>
1997 1998 1999
-------------- ------------------ -------------
(IN MILLIONS)
<S> <C> <C> <C>
Income taxes
Current .................................... $ 39.8 $ 61.4 $ 123.8
Deferred ................................... 5.1 6.4 (13.4)
--------- ----------- -----------
Total ......................................... $ 44.9 $ 67.8 $ 110.4
======== ========== ==========
</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 millions, aside from the percentages):
F-27
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1998 1999
--------------------- ----------------------- -----------------------
(IN MILLIONS) % (IN MILLIONS) % (IN MILLIONS) %
-------------- ------ ---------------- ------ --------------- -------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at
statutory rate.................... $ 69.3 35 $ 66.7 35 $ 104.5 35
Dividend received deduction
and tax-exempt interest .......... (1.7) (1) (3.3) (2) (3.0) (1)
Audit adjustments (10.5) (5) - - - -
Other, net .......................... .9 - 4.4 3 (2.7) (1)
--------- ---- ---------- --- ---------- -----
58.0 29 67.8 36 98.8 33
Differential earnings (equity
tax) ............................. (13.1) (6) - - 11.6 4
--------- ---- ---------- --- --------- ----
Income taxes ........................ $ 44.9 23 $ 67.8 36 $ 110.4 37
==== ==== ========== === ========= ====
The tax benefit of $13.1 million resulted from an adjustment to the 1996 accrual for the DER. Phoenix
estimated the DER for tax year 1996 would be 3%. In 1997, the IRS announced the actual DER for tax year
1996 was 0%.
The net deferred income tax liability represents the tax effects of temporary differences attributable to
the consolidated tax return group. The components were as follows:
DECEMBER 31,
---------------------------------
1998 1999
---------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Deferred policy acquisition costs .................... $ 294.9 $ 282.7
Unearned premium/deferred revenue .................... (139.3) (135.1)
Impairment reserves .................................. (23.1) (15.6)
Pension and other postretirement benefits ............ (57.7) (68.9)
Investments .......................................... 122.0 177.2
Future policyholder benefits ......................... (151.2) (181.2)
Other ................................................ 28.4 4.7
--------- ---------
74.0 63.8
Net unrealized investment gains ...................... 42.3 23.6
Minimum pension liability ............................ (3.4) (4.1)
---------- ---------
Deferred income tax liability, net ................... $ 112.9 $ 83.3
========= =========
</TABLE>
Gross deferred income tax assets totaled $375 million and $405 million
at December 31, 1998 and 1999, respectively. Gross deferred income tax
liabilities totaled $488 million and $488 million at December 31, 1998
and 1999, respectively. It is management's assessment, based on
Phoenix's earnings and projected future taxable income, that it is more
likely than not that deferred income tax assets at December 31, 1998
and 1999 will be realized.
10. 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
F-28
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
1997 1998 1999
---------------- ------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost................................ $ 10.3 $ 11.0 $ 11.9
Interest cost............................... 22.7 23.0 24.7
Curtailments................................ 21.6
Expected return on plan assets.............. (22.1) (25.1) (28.5)
Amortization of net transition asset........ (2.4) (2.4) (2.4)
Amortization of prior service cost.......... 1.8 1.8 1.8
Amortization of net (gain) loss............. - (1.2) (2.7)
-------- -------- --------
Net periodic benefit cost................... $ 10.3 $ 7.1 $ 26.4
========= ======== ========
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:
DECEMBER 31,
----------------------------------
1998 1999
----------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation at beginning of year.. $ 335.4 $ 353.5
Service cost....................................... 11.0 11.9
Interest cost...................................... 23.0 24.7
Plan amendments.................................... - 23.9
Curtailments....................................... - (6.4)
Actuarial loss..................................... 2.0 (4.9)
Benefit payments................................... (17.9) (19.8)
-------- ---------
Benefit obligation at end of year.................. $ 353.5 $ 382.9
-------- ---------
Change in plan assets
Fair value of plan assets at beginning of year .... $ 321.6 $ 364.9
Actual return on plan assets....................... 58.2 79.0
Employer contributions............................. 3.0 3.9
Benefit payments................................... (17.9) (19.8)
-------- ---------
Fair value of plan assets at end of year........... $ 364.9 $ 428.0
-------- ---------
Funded status of the plan.......................... $ 11.5 $ 45.0
Unrecognized net transition asset.................. (14.2) (11.8)
Unrecognized prior service cost.................... 16.1 11.7
Unrecognized net gain.............................. (76.0) (130.0)
-------- ---------
Net amount recognized.............................. $ (62.6) $ (85.1)
======== =========
</TABLE>
F-29
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1998 1999
----------------- ----------------
(IN MILLIONS)
<S> <C> <C>
Amounts recognized in the Consolidated Balance
Sheet consist of:
Accrued benefit liability.......................... $ (88.4) $ (108.7)
Intangible asset................................... 16.2 11.7
Accumulated other comprehensive income............. 9.6 11.9
-------- ---------
$ (62.6) $ (85.1)
======== =========
</TABLE>
At December 31, 1998 and 1999, the non-qualified plan was not funded
and had projected benefit obligations of $57.2 million and $72.3
million, respectively. The accumulated benefit obligations as of
December 31, 1998 and 1999 related to this plan were $48.4 million and
$60.1 million, respectively, and are included in other liabilities.
Phoenix recorded, as a reduction of equity, an additional minimum
pension liability of $6.2 million and $7.7 million, net of income
taxes, at December 31, 1998 and 1999, 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 $16.2 million and
$11.7 million as of December 31, 1998 and 1999 related to the
non-qualified plan.
The discount rate used in determining the actuarial present value of
the projected benefit obligation was 7.0% and 7.5% for 1998 and 1999,
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 4.0%
and 4.5% for 1998 and 1999, respectively. The expected long-term rate
of return on retirement plan assets was 8.0% in 1998 and 1999.
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, 1997, 1998
and 1999 were $3.8 million, $4.1 million and $4.0 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:
F-30
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1998 1999
--------------- ----------------- --------------
(IN MILLIONS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost................................ $ 3.1 $ 3.4 $ 3.3
Interest cost............................... 4.4 4.6 4.6
Curtailments................................ - - 5.5
Amortization of net gain.................... (1.4) (1.2) (1.6)
-------- -------- --------
Net periodic benefit cost................... $ 6.1 $ 6.8 $ 11.8
======== ======== ========
</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.
The plan's change in projected benefit obligation, change in plan
assets, and funded status were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1998 1999
------------------- ------------------
(IN MILLIONS)
<S> <C> <C>
Change in projected postretirement benefit obligation
Projected benefit obligation at beginning of year.. $ 66.6 $ 70.9
Service cost....................................... 3.4 3.3
Interest cost...................................... 4.6 4.6
Plan amendments.................................... - 5.8
Curtailments....................................... - (.3)
Actuarial loss (gain).............................. .4 (8.6)
Benefit payments................................... (4.1) (4.5)
------- ---------
Projected benefit obligation at end of year........ 70.9 71.2
------- ---------
Change in plan assets
Employer contributions............................. 4.1 4.5
Benefit payments................................... (4.1) (4.5)
--------- ---------
Fair value of plan assets at end of year........... - -
--------- ---------
Funded status of the plan............................. (70.9) (71.2)
Unrecognized net gain................................. (26.5) (33.5)
--------- ---------
Accrued benefit liability.......................... $ (97.4) $ (104.7)
========= =========
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.0% and 7.5% at December 31, 1998 and 1999,
respectively.
For purposes of measuring the accumulated postretirement benefit
obligation the health care costs were assumed to increase 8.5% and 7.5%
in 1998 and 1999, 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.
F-31
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $0.4 million for 1997,
($0.5) million for 1998 and $0.5 million for 1999.
11. 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>
1997 1998 1999
--------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Unrealized gains (losses) on securities available-for-sale:
Before-tax amount.............................. $ 151.2 $ (72.3) $ (102.8)
Income tax expense (benefit)................... 53.0 (25.4) (36.0)
-------- -------- --------
Totals......................................... 98.2 (46.9) (66.8)
-------- --------- ---------
Reclassification adjustment for net gains realized in net income:
Before-tax amount.............................. (46.5) (20.0) (2.2)
Income tax (benefit)........................... (16.3) (7.0) (.7)
-------- -------- --------
Totals......................................... (30.2) (13.0) (1.5)
--------- --------- ---------
Net unrealized (losses) gains on securities available-for-sale:
Before-tax amount.............................. 104.7 (92.2) (105.0)
Income tax expense (benefit)................... 36.7 (32.3) (36.7)
-------- -------- --------
Totals......................................... $ 68.0 $ (59.9) $ (68.3)
======== ======== ========
Minimum pension liability adjustment:
Before-tax amount.............................. $ (3.2) $ (2.3) $ (2.3)
Income tax (benefit)........................... (1.1) (.8) (.8)
-------- -------- --------
Totals......................................... $ (2.1) $ (1.5) $ (1.5)
======== ======== ========
</TABLE>
F-32
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes accumulated other comprehensive income
for the years ended December 31:
<TABLE>
<CAPTION>
1997 1998 1999
--------------- ---------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C>
Net unrealized (losses) gains on securities available-for-sale:
Balance, beginning of year..................... $ 92.4 $ 160.4 $ 100.5
Change during period........................... 68.0 (59.9) (68.3)
-------- -------- --------
Balance, end of year........................... 160.4 100.5 32.2
-------- -------- --------
Minimum pension liability adjustment:
Balance, beginning of year..................... (2.6) (4.7) (6.2)
Change during period........................... (2.1) (1.5) (1.5)
-------- -------- --------
Balance, end of year........................... (4.7) (6.2) (7.7)
-------- -------- --------
Accumulated other comprehensive income:
Balance, beginning of year..................... 89.8 155.7 94.3
Change during period........................... 65.9 (61.4) (69.8)
-------- -------- ---------
Balance, end of year........................... $ 155.7 $ 94.3 $ 24.5
======== ======== ========
</TABLE>
12. SEGMENT INFORMATION
Phoenix offers a wide range of financial products and services. These
businesses are managed within four reportable segments: (i) Life and
Annuity, (ii) Investment Management, (iii) Venture Capital, and (iv)
Corporate and Other. These reportable segments are managed in this
fashion because they either provide different products or services, are
subject to different regulation, require different strategies or have
different distribution systems. We have aggregated our life and annuity
products together as they share similar economic characteristics and
commonalities in product, customer, regulation, management and
distribution.
The Life and Annuity 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 managed accounts,
open-end funds and closed-end funds.
The Venture Capital segment includes the operating income and the
realized and unrealized investment gains of Phoenix's venture capital
partnership investments.
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 "Disclosure about Segments of an
Enterprise and Related Information." They include international
operations and the runoff of our group pension and guaranteed
investment contract businesses.
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 segment performance on the basis of after tax operating
income which excludes the effect of net realized investment gains and
losses and nonrecurring items. Certain nonrecurring items in the
segments are reported as unallocated items and include expenses
associated with an early retirement program, demutualization expenses,
surplus tax and various non-recurring expenses related to the
Investment Management segment including restructuring charges, a
portfolio loss reimbursement and subsequent insurance recovery and a
litigation settlement. Capital is
F-33
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
allocated to Investment Management on a historical cost basis and to
insurance products based on 200% of company action level risked-based
capital. Net investment income is allocated based on the assets
allocated to each segment. Other costs and operating expenses are
allocated to each segment based on a review of the nature of such
costs, cost allocations using time studies and other allocation
methodologies. See Note 10 - "Pension and Other Postretirement and
Postemployment Benefit Plans."
The following tables provide certain information with respect to
Phoenix's operating segments as of and for each of the years ended
December 31, 1997, 1998 and 1999, as well as amounts not allocated to
the segments as described previously.
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998 1999
---------------- ----------------- ----------------
(IN MILLIONS)
<S> <C> <C> <C>
Total assets:
Life and Annuity.................................. $ 15,711.3 $ 16,930.5 $ 18,025.7
Investment Management............................. 647.9 591.9 747.4
Venture Capital................................... 119.8 191.2 338.1
Corporate and Other............................... 1,169.9 777.4 976.1
Discontinued operations........................... 260.6 298.7 187.6
------------- ------------- -------------
Total......................................... $ 17,909.5 $ 18,789.7 $ 20,274.9
============= ============= =============
Deferred policy acquisition costs:
Life and Annuity.................................. $ 1,016.3 $ 1,049.9 $ 1,306.7
============= ============= =============
Policy liabilities and accruals
Life and Annuity.................................. $ 10,049.3 $ 10,441.9 $ 10,771.4
Corporate and Other............................... 143.2 136.7 128.4
------------- ------------- -------------
Total......................................... $ 10,192.5 $ 10,578.6 $ 10,899.8
============= ============= =============
Policyholder deposit funds
Life and Annuity.................................. $ 534.4 $ 510.7 $ 521.9
Corporate and Other............................... 26.0 21.0 16.3
------------- ------------- -------------
Total......................................... $ 560.4 $ 531.7 $ 538.2
============= ============= =============
Premiums
Life and Annuity.................................. $ 1,087.7 $ 1,175.8 $ 1,175.7
------------- ------------ -------------
Total......................................... 1,087.7 1,175.8 1,175.7
------------- ------------- -------------
Insurance and investment product fees
Life and Annuity.................................. 174.1 251.0 281.5
Investment Management............................. 168.0 225.3 284.3
Corporate and Other............................... 77.0 83.5 42.2
Unallocated amounts............................... - - (5.9)
Less: inter-segment revenues..................... (16.3) (19.6) (23.7)
-------------- -------------- --------------
Total......................................... 402.8 540.2 578.4
------------- ------------- -------------
Net investment income
Life and Annuity.................................. 640.5 768.8 768.3
Investment Management............................. - - 3.1
Venture Capital................................... 33.7 39.6 139.9
Corporate and Other............................... 40.6 44.4 35.0
Add: inter-segment investment expenses............ 8.5 9.4 10.5
------------- ------------- -------------
Total......................................... 723.3 862.2 956.8
------------- ------------- -------------
</TABLE>
F-34
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998 1999
---------------- ----------------- ----------------
(IN MILLIONS)
<S> <C> <C> <C>
Policy benefits and dividends
Life and Annuity.................................. 1,522.1 1,743.6 1,723.6
Corporate and Other............................... 23.4 17.8 10.0
------------- ------------- -------------
Total......................................... 1,545.5 1,761.4 1,733.6
------------- ------------- -------------
Amortization of deferred policy acquisition costs
Life and Annuity.................................. 102.6 137.6 146.6
------------- ------------- -------------
Total......................................... 102.6 137.6 146.6
------------- ------------- -------------
Amortization of goodwill and intangibles
Life and Annuity.................................. .2 .8 6.7
Investment Management............................. 9.1 22.0 30.3
Corporate and Other............................... 26.0 6.0 3.1
------------- ------------- -------------
Total......................................... 35.3 28.8 40.1
------------- ------------- -------------
Interest expense
Investment Management............................. 5.2 11.5 16.8
Corporate and Other............................... 22.8 18.3 17.2
------------- ------------- -------------
Total......................................... $ 28.0 $ 29.8 $ 34.0
------------- ------------- -------------
Other operating expenses
Life and Annuity.................................. $ 219.1 $ 256.4 $ 276.4
Investment Management............................. 120.3 149.1 187.0
Corporate and Other............................... 80.7 91.8 55.6
Unallocated amounts............................... 3.0 1.3 28.1
Less: inter-segment expenses..................... (7.8) (10.2) (13.2)
-------------- -------------- --------------
Total......................................... 415.3 488.4 533.9
------------- ------------- -------------
Operating income before income taxes, minority
interest and equity in earnings of
unconsolidated subsidiaries
Life and Annuity.................................. 58.3 57.2 72.2
Investment Management............................. 33.4 42.7 53.3
Venture Capital................................... 33.7 39.6 139.9
Corporate and Other............................... (35.3) (6.0) (8.7)
Unallocated amounts............................... (3.0) (1.3) (34.0)
-------------- -------------- --------------
Total......................................... 87.1 132.2 222.7
------------- ------------- -------------
Income taxes
Life and Annuity.................................. 20.3 20.1 25.5
Investment Management............................. 13.7 19.3 23.0
Venture Capital................................... 11.8 13.9 49.0
Corporate and Other............................... (25.6) (5.6) (13.0)
Unallocated amounts............................... (14.2) (0.3) (0.7)
-------------- -------------- --------------
Total......................................... 6.0 47.4 83.8
------------- ------------- -------------
Minority interest in net income of consolidated
subsidiaries
Investment Management............................. 7.6 6.0 10.1
Corporate and Other............................... (1.3) - -
-------------- ------------- ------------
Total......................................... 6.3 6.0 10.1
------------- ------------- -------------
Equity in earnings of unconsolidated subsidiaries
</TABLE>
F-35
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1998 1999
---------------- ----------------- ----------------
(IN MILLIONS)
<S> <C> <C> <C>
Investment Management............................. .4 .7 2.0
Corporate and Other............................... - (.8) 1.1
------------- -------------- -------------
Total......................................... .4 (.1) 3.1
------------- -------------- -------------
Segment operating income after income taxes
Life and Annuity.................................. 38.0 37.1 46.7
Investment Management............................. 12.5 18.1 22.2
Venture Capital................................... 21.9 25.7 90.9
Corporate and Other............................... (8.4) (1.2) 5.4
Unallocated amounts............................... 11.2 (1.0) (33.3)
------------- -------------- --------------
Total......................................... 75.2 78.7 131.9
------------- ------------- -------------
Net realized investment gains (losses) after
income taxes
Life and Annuity.................................. 42.7 (11.6) 10.3
Investment Management............................. 3.8 6.9 -
Corporate and Other............................... 23.0 38.0 38.9
------------- ------------- -------------
Total......................................... $ 69.5 $ 33.3 $ 49.2
------------- ------------- -------------
Income (loss) from continuing operations
Life and Annuity.................................. $ 80.7 $ 25.5 $ 57.0
Investment Management............................. 16.3 25.0 22.2
Venture Capital................................... 21.9 25.7 90.9
Corporate and Other............................... 14.6 36.8 44.3
Unallocated amounts............................... 11.2 (1.0) (33.3)
------------- -------------- --------------
Total......................................... $ 144.7 $ 112.0 $ 181.1
============= ============= =============
</TABLE>
13. DISCONTINUED OPERATIONS
During 1999, Phoenix discontinued the operations of three of its
business units which in prior years had been reflected as reportable
business segments: the reinsurance operations, the real estate
management operations and the group life and health 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
reinsurance segment and decided to exit these operations through a
combination of sale, reinsurance and placement of certain components
into runoff. The reinsurance segment consisted primarily of individual
life reinsurance operations as well as group accident and health
reinsurance business. Accordingly, Phoenix estimated sales proceeds,
reinsurance premiums and net claims runoff, resulting in the
recognition of a $173 million pre-tax loss on the disposal of
reinsurance operations. The significant components of the loss on the
disposal of reinsurance operations in 1999 were as follows:
On August 1, 1999, Phoenix sold its individual life reinsurance
business and certain group health reinsurance business to Employers
Reassurance Corporation for $130 million. The transaction was
structured as a reinsurance and asset sale transaction (assumption
reinsurance) 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
F-36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 a pre-tax gain of $3.8 million.
In addition to the $9.0 million sale price Phoenix will receive
additional proceeds contingent on certain revenue targets. Phoenix
recorded a note receivable for $4.0 million which under the terms of
the agreement, CYBERTEK will repay in six equal annual installments
commencing March 31, 2001 through March 31, 2006. The contingent
proceeds will be determined annually 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 accident and health
reinsurance operations into runoff. 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 runoff block
and estimated the amount and timing of future net premiums, claims and
expenses. Consequently, Phoenix increased reserve estimates on the
runoff block by $180 million. In addition, as part of the exit
strategy, Phoenix purchased aggregate excess of loss reinsurance to
further protect Phoenix from unfavorable results in the runoff block.
This reinsurance is subject to an aggregate retention of $100 million
on the runoff block. Phoenix may commute the agreement at any time
after September 30, 2004, subject to automatic commutation effective
September 30, 2019. Phoenix incurred an initial expense of $130 million
in the acquisition of this reinsurance.
The additional estimated reserves and aggregate excess of loss
reinsurance coverage are expected to cover the runoff 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 for up to ten years as
the level of business diminishes.
Additionally, certain group accident and health 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 runoff. 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 23 - "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.
F-37
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
GROUP LIFE AND HEALTH 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 $298.7 million and $187.6 million
as of December 31, 1998 and 1999, respectively. Asset and liability
balances of continuing operations 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 1997 and 1998 to exclude the operating results of
discontinued operations from those of continuing operations. The
operating results of discontinued operations and the gain or loss on
disposal are presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1998 1999
--------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Gain from operations of discontinued operations
Revenues:
Reinsurance Operations...................... $ 163.5 $ 298.7 $ -
Group Life and Health Operations............ 484.0 503.8 453.8
Real Estate Management Operations........... 15.3 12.7 1.2
---------- ---------- ----------
Total revenues................................. 662.8 815.2 455.0
---------- ---------- ----------
Gain (loss) from operations:
Reinsurance Operations...................... 10.6 14.1 -
Group Life and Health Operations............ 31.7 29.2 28.7
Real Estate Management Operations........... (2.6) (4.0) (2.6)
---------- ---------- ----------
Gain from discontinued operations before
income taxes................................ 39.7 39.3 26.1
Income taxes................................... 14.8 14.1 9.0
---------- ---------- ----------
Gain from discontinued operations, net of
taxes....................................... $ 25.0 $ 25.1 $ 17.1
========== ========== ==========
</TABLE>
F-38
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
-----------------
(in millions)
<S> <C>
Loss on disposal of discontinued operations:
(Loss) gain on disposal:
Reinsurance Operations........................................ $ (173.1)
Real Estate Management Operations............................. 5.9
----------
Loss on disposal of discontinued operations before income taxes... (167.2)
Income taxes...................................................... (58.2)
----------
Loss on disposal of discontinued operations, net of income
taxes........................................................... $ (109.0)
==========
</TABLE>
14. 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 $106.7 million and $101.7 million
at December 31, 1998 and 1999, 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
$161.2 million and $182.3 million at December 31, 1998 and 1999,
respectively.
Rental expenses for operating leases, principally with respect to
buildings, amounted to $16.9 million, $16.9 million and $16.3 million
in 1997, 1998, and 1999, 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.
15. DIRECT BUSINESS WRITTEN AND REINSURANCE
As is customary practice in the insurance industry, Phoenix cedes
reinsurance as a means of diversifying underwriting risk. To the extent
that reinsuring companies may not be able to meet their obligations
under reinsurance agreements in effect, Phoenix remains liable. Failure
of the reinsurers to honor their obligations could result in losses to
the company; consequently, estimates are established for amounts deemed
or estimated to be uncollectible. To minimize its exposure to
significant losses from reinsurance insolvencies, Phoenix evaluates the
financial condition of its reinsurers and monitors concentration of
credit risk arising from similar geographic regions, activities, or
economic characteristics of the reinsurers. 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
$10 million for joint last-to-die policies, with excess amounts ceded
to reinsurers. Phoenix reinsures 80% of the mortality risk on the in
force 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.
F-39
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Additional information on direct business written and reinsurance
assumed and ceded for the years ended December 31, was as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------ ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Direct premiums ............................... $ 1,592.8 $ 1,719.4 $ 1,677.5
Reinsurance assumed ........................... 329.9 505.3 416.2
Reinsurance ceded ............................. (282.1) (371.9) (323.0)
----------- ----------- -----------
Net premiums .................................. 1,640.6 1,852.8 1,770.7
Less net premiums of discontinued operations .. (552.9) (677.0) (595.0)
----------- ----------- -----------
Net premiums of continuing operations ......... $ 1,087.7 $ 1,175.8 $ 1,175.7
=========== =========== ===========
Percentage of amount assumed to net............ 20% 27% 24%
========== ========== ==========
Direct policy and contract claims incurred .... $ 629.1 $ 728.1 $ 622.3
Reinsurance assumed ........................... 410.7 433.2 563.8
Reinsurance ceded ............................. (373.1) (407.8) (285.4)
---------- ----------- -----------
Net policy and contract claims incurred ....... 666.7 753.5 900.7
Less net incurred claims of discontinued
operations .................................. (422.4) (465.1) (661.7)
----------- ----------- -----------
Net policy and contract claims incurred of
continuing operations ....................... $ 244.3 $ 288.4 $ 239.0
=========== =========== ===========
Direct life insurance in force ................ $ 120,394.7 $ 121,442.0 $ 131,052.1
Reinsurance assumed ........................... 84,806.6 110,632.1 139,649.9
Reinsurance ceded ............................. (74,764.6) (135,818.0) (207,192.0)
----------- ----------- -----------
Net insurance in force ........................ 130,436.7 96,256.1 63,510.0
Less insurance in force of discontinued
operations................................... (13,811.4) (24,330.2) (1,619.5)
----------- ----------- -----------
Net insurance in force of continuing
operations................................... $ 116,625.3 $ 71,925.9 $ 61,890.5
=========== =========== ===========
Percentage of amount assumed to net............ 65% 115% 220%
========== ========== ==========
</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.
16. PARTICIPATING LIFE INSURANCE
Participating life insurance in force was 72.3% and 66.9% of the face
value of total individual life insurance in force at December 31, 1998
and 1999, respectively. The premiums on participating life insurance
policies were 83.5%, 79.4% and 76.8% of total individual life insurance
premiums in 1997, 1998, and 1999, respectively.
F-40
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred
and amortized for the years ended December 31:
<TABLE>
<CAPTION>
1997 1998 1999
--------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance at beginning of year .................. $ 908.6 $ 1,016.3 $ 1,049.9
Acquisition cost deferred ..................... 288.3 164.6 143.1
Amortized to expense during the year .......... (102.6) (137.7) (146.6)
Adjustment to net unrealized investment gains
(losses) included in other comprehensive
income....................................... (78.0) 6.7 260.3
---------- ----------- -----------
Balance at end of year ........................ $ 1,016.3 $ 1,049.9 $ 1,306.7
========== =========== ===========
</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.
In conjunction with the 1997 acquisition of the Confederation Life
business, the present value of future profits (PVFP) of $141.2 million
is reflected as an element of deferred acquisition costs. The estimated
amount to be amortized for the years ending December 31, 2000, 2001,
2002, 2003 and 2004 is $15.8 million, $11.8 million, $10.2 million,
$8.9 million and $7.5 million, respectively. The following is an
analysis of PVFP for the years ended December 31:
<TABLE>
<CAPTION>
1997 1998 1999
--------------- ----------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Balance at beginning of year............. - $ 141.2 $ 135.8
Acquisition costs deferred............... $ 141.2 - -
Amortization............................. - (4.4) (24.1)
---------- ------------ -------------
Balance at end of year................... $ 141.2 $ 136.8 $ 112.7
========== ============ ============
</TABLE>
18. 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.
19. STOCK PURCHASE AND AWARD PLANS
EMPLOYEE STOCK PURCHASE PLAN
On November 1, 1999, PXP implemented an Employee Stock Purchase Plan
(ESPP) previously approved by PXP's Board of Directors. The ESPP allows
eligible employees to purchase PXP's common stock at the lower of 85%
of the market price of the stock at the beginning or end of each
offering period, and provides for PXP to withhold up to 15% of a
participant's earnings for such purchase. PXP's only expense relating
to this plan is for its administration. The maximum number of shares of
PXP's common stock that are available under the ESPP is 615,000. The
first offering period ended April 28, 2000. As such, no shares of
common stock were purchased under the ESPP in 1999. Beginning in 2000,
additional consecutive six month offering periods will be implemented,
for a period not to exceed 10 years, commencing on the first trading
day on or after May 1 and November 1 of each year.
F-41
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RESTRICTED STOCK
Restricted shares of PXP's common stock are issued to certain officers
under the provisions of an approved restricted stock plan. Restricted
stock is issued at the market value of a share of PXP's common stock on
the date of the grant. If a participant's employment terminates due to
retirement, death or disability, the restrictions expire and the shares
become fully vested. If a participant terminates employment for any
other reason, the non-vested shares of restricted stock are forfeited.
The restricted stock vests in even annual installments over a
three-year period from the date of the grant. Dividends declared are
paid in cash as the restrictions lapse. Restricted shares were first
granted during 1998. At December 31, 1998 and 1999, 243,130 and 291,237
shares of restricted stock have been included in common stock shares
outstanding, respectively. The market value of the restricted stock at
the time of the grant is recorded as unearned compensation in a
separate component of stockholders' equity and is amortized to expense
over the restricted period. During 1998 and 1999, $0.5 million and $1.7
million was charged to compensation expense relating to the plan.
RESTRICTED STOCK GRANTS
<TABLE>
<CAPTION>
COMMON SHARES AVERAGE MARKET VALUE
------------------------ ------------------------------
<S> <C> <C>
BALANCE, DECEMBER 31, 1997 -- --
Awarded....................................... 246,640 $ 8.40
Earned........................................ -- --
Forfeited..................................... (3,510) 8.40
---------------
BALANCE, DECEMBER 31, 1998 243,130 $ 8.40
Awarded....................................... 195,067 7.74
Earned........................................ (105,623) 8.18
Forfeited..................................... (41,337) 8.08
---------------
BALANCE, DECEMBER 31, 1999 291,237 $ 8.08
==============
</TABLE>
STOCK OPTION PLANS
PXP has reserved a total of 14.7 million shares of company common stock
to be granted under three stock option plans: the 1989 Employee Stock
Option Plan (Employee Option Plan), the 1989 Employee Performance Stock
Option Plan (Performance Plan) and the 1992 Long-Term Stock Incentive
Plan (1992 Plan).
The Compensation Committee of PXP's Board of Directors administers the
1992 Plan, designates which employees and outside directors participate
in it and determines the terms of the options to be granted. Under the
1992 Plan, participants are granted non-qualified options to purchase
shares of common stock of PXP at an option price equal to not less than
85% of the fair market value of the common stock at the time the option
is granted. The options held by a participant terminate no later than
10 years from the date of grant. Options granted under the 1992 Plan
vest, on average, in even annual installments over a three-year period
from the date of grant.
OUTSTANDING OPTIONS
<TABLE>
<CAPTION>
WEIGHTED SERIES A WEIGHTED
AVERAGE PREFERRED AVERAGE
COMMON SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------------- --------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 3,937,506 $ 6.93 109,048 $ 28.05
Granted...................... 2,735,329 7.91 -- --
Exercised.................... (257,845) 5.54 (12,345) 21.02
</TABLE>
F-42
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED SERIES A WEIGHTED
AVERAGE PREFERRED AVERAGE
COMMON SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------------- --------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Canceled..................... (73,334) 6.93 -- --
Forfeited.................... (234,997) 7.56 (3,450) 41.55
--------------- ----------------- --------------- -----------
BALANCE, DECEMBER 31, 1997 6,106,659 $ 7.40 93,253 $ 28.49
Granted...................... 1,851,808 8.25 -- --
Exercised.................... (222,846) 5.84 -- --
Canceled..................... (10,491) 6.49 (93,253) 28.49
Forfeited.................... (325,166) 7.47 -- --
--------------- ----------------- -------------- -----------
BALANCE, DECEMBER 31, 1998 7,399,964 $ 7.66 -- $ --
Granted...................... 1,344,727 7.75 -- --
Exercised.................... (453,263) 5.94 -- --
Canceled..................... (9,999) 7.71 -- --
Forfeited.................... (353,554) 8.20 -- --
--------------- ----------------- -------------- ----------
BALANCE, DECEMBER 31, 1999 7,927,875 $ 7.75 -- $ --
============== ================= ============== ==========
</TABLE>
EXERCISABLE OPTIONS
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE SERIES A AVERAGE
COMMON SHARES EXERCISE PRICE PREFERRED SHARES EXERCISE PRICE
------------------ --------------------- ---------------- --------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 1,356,474 $ 6.95 105,283 $ 28.18
Became exercisable........... 1,012,047 6.88 3,765 28.75
Exercised.................... (257,845) 5.54 (12,345) 21.02
Canceled..................... (33,334) 6.98 -- --
Forfeited.................... (39,500) 10.12 (3,450) 41.55
-------------- ---------------- -------------- ----------------
BALANCE, DECEMBER 31, 1997 2,037,842 $ 7.04 93,253 $ 28.49
Became exercisable........... 2,050,494 7.39 -- --
Exercised.................... (222,846) 5.84 -- --
Canceled..................... (10,491) 6.49 (93,253) 28.49
Forfeited.................... (325,166) 7.47 -- --
-------------- ---------------- ------------- ----------------
BALANCE, DECEMBER 31, 1998 3,529,833 $ 7.27 -- --
Became exercisable........... 1,962,396 7.78 -- --
Exercised.................... (453,263) 5.94 -- --
Canceled..................... (9,999) 7.71 -- --
Forfeited.................... (159,674) 8.14 -- --
-------------- ---------------- ------------- ----------------
BALANCE, DECEMBER 31, 1999 4,869,293 $ 7.57 -- $ --
============= ================ ============= ================
</TABLE>
At December 31, 1999, 6.5 million shares of PXP common stock were
available for future grants.
F-43
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA INFORMATION
PXP has adopted the disclosures-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation." Accordingly, no compensation
cost has been recognized for the stock option plans, and compensation
for restricted stock grants has been recorded in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees." Had
compensation cost for the PXP stock option and restricted stock plans
been determined based on the fair value at the grant date for awards in
1997, 1998 and 1999 consistent with the provisions of SFAS No. 123,
Phoenix's income from continuing operations would have been reduced to
the pro forma amounts indicated below
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Income from continuing operations, as reported (in millions)............ $ 144.7 $ 112.0 $ 181.1
Income from continuing operations, pro forma (in millions).............. $ 144.1 $ 111.0 $ 179.9
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1999: dividend yield of
2.62%, expected volatility of 25.2%, risk free interest rate of 5.6%
and expected lives of six years.
As of December 31, 1999 options to purchase 11,620, and 7,916,255
shares of common stock were outstanding at weighted average exercise
prices per share of approximately $6.77, and $7.75, respectively, under
the Employee Option Plan and 1992 Plan, respectively. During 1999, the
remaining outstanding options under the Performance Plan were
exercised.
20. 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 analyses which utilize current interest rates for similar
financial instruments which have comparable terms and credit quality.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair
value.
DEBT SECURITIES
Fair values are based on quoted market prices, where available, or
quoted market prices of comparable instruments. Fair values of private
placement debt securities are estimated using discounted cash flows
that apply interest rates currently being offered with similar terms to
borrowers of similar credit quality.
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.
F-44
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
VENTURE CAPITAL PARTNERSHIPS
Fair values are calculated as the closing market prices for investments
that are publicly traded. For investments that are not publicly traded,
fair value is based on estimated fair value determined by the general
partner after giving consideration to operating results, financial
conditions, recent sales prices of issuers' securities and other
pertinent information.
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.
NOTES PAYABLE
The fair value of notes payable is determined based on contractual cash
flows discounted at market rates.
F-45
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FAIR VALUE SUMMARY
The estimated fair values of the financial instruments as of December
31, were as follows:
<TABLE>
<CAPTION>
1998 1999
--------------------------------- ----------------------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
----------------- ----------------- --------------- ----------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents........ $ 127.0 $ 127.0 $ 187.6 $ 187.6
Short-term investments........... 186.0 186.0 133.4 133.4
Debt securities.................. 7,750.4 7,833.9 7,534.5 7,437.6
Equity securities................ 302.7 302.7 437.2 437.2
Mortgage loans................... 797.3 831.9 716.8 680.6
Derivative instruments........... -- 12.3 -- (13.2)
Policy loans..................... 2,008.3 2,122.4 2,042.6 2,040.4
Venture capital partnerships..... 191.2 191.2 338.1 338.1
----------- ----------- ------------ -----------
Total financial assets........... $ 11,362.9 $ 11,607.4 $ 11,390.2 $ 11,241.7
=========== =========== =========== ===========
Financial liabilities:
Policy liabilities............... $ 783.4 $ 783.4 $ 709.7 $ 709.4
Notes payable.................... 449.3 458.4 499.4 490.8
----------- ----------- ----------- -----------
Total financial liabilities...... $ 1,232.7 $ 1,241.8 $ 1,209.1 $ 1,200.2
=========== =========== =========== ===========
</TABLE>
21. 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 13 -
"Discontinued Operations" and Note 23 - "Subsequent Events.")
22. 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, 1997, 1998 and 1999.
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
Insurance Law does not allow the recording of deferred income taxes.
Phoenix has received approval from the Insurance Department for this
practice.
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 included in surplus rather than debt,
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.
F-46
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following reconciles the statutory net income of Phoenix as
reported to regulatory authorities to the net income as reported in
these financial statements for the year ended December 31:
<TABLE>
<CAPTION>
1997 1998 1999
---------------- ---------------- -----------------
(IN MILLIONS)
<S> <C> <C> <C>
Statutory net income .......................... $ 66.6 $ 108.7 $ 131.3
Deferred policy acquisition costs, net ........ 48.8 18.5 (28.1)
Future policy benefits ........................ (9.1) (53.8) (23.7)
Pension and postretirement expenses ........... (8.0) (17.3) (8.6)
Investment valuation allowances ............... 87.9 107.2 15.4
Interest maintenance reserve .................. 17.5 1.4 (7.2)
Deferred income taxes ......................... (36.3) (40.0) 3.9
Other, net .................................... 2.3 12.4 6.2
---------- ---------- ----------
Net income, as reported ....................... $ 169.7 $ 137.1 $ 89.2
========== ========== ==========
</TABLE>
December 31:
The following reconciles the statutory surplus and asset valuation
reserve (AVR) of Phoenix as reported to regulatory authorities to
equity as reported in these financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1998 1999
------------------ -------------------
(IN MILLIONS)
<S> <C> <C>
Statutory surplus, surplus notes and AVR ............. $ 1,205.6 $ 1,427.3
Deferred policy acquisition costs, net ............... 1,259.3 1,231.2
Future policy benefits ............................... (465.3) (478.2)
Pension and postretirement expenses .................. (174.3) (193.0)
Investment valuation allowances ...................... 34.9 (211.8)
Interest maintenance reserve ......................... 35.3 24.8
Deferred income taxes ................................ (25.6) 65.6
Surplus notes ........................................ (157.5) (159.4)
Other, net ........................................... 24.2 49.5
---------- ----------
Equity, as reported .................................. $ 1,736.6 $ 1,756.0
========== ==========
</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.
23. 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.
F-47
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 reinsurance operations in
1999. See Note 13 - "Discontinued Operations."
24. PRIOR PERIOD ADJUSTMENT
Phoenix retroactively revised the accounting for the disposition of its
property and casualty distribution business to record the results of
operations and the gain on the sale as part of continuing operations
and, in addition, adopted the equity method of accounting for its
interest in the purchase of its property and casualty distribution
business. This disposition was previously reported as discontinued
operation. Income from continuing operations decreased $17.7 million
and $0.1 million in 1997 and 1998, respectively, and increased $37.8
million in 1999. Results of discontinued operations increased $17.7
million and $0.1 million in 1997 and 1998 respectively, and decreased
$37.5 million in 1999. Net income increased $0.3 million in 1999 as a
result of the change to equity accounting.
F-48
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
UNAUDITED INTERIM CONSOLIDATED
BALANCE SHEET
<TABLE>
AS OF
SEPTEMBER 30,
2000
---------------------
(IN MILLIONS)
<S> <C>
Assets:
Investments
Held-to-maturity debt securities, at amortized cost............................... $ 2,173.7
Available-for-sale debt securities, at fair value................................. 5,849.9
Equity securities, at fair value.................................................. 460.8
Mortgage loans.................................................................... 638.0
Real estate....................................................................... 95.1
Policy loans...................................................................... 2,060.8
Venture capital partnerships...................................................... 487.3
Other invested assets............................................................. 202.5
Short-term investments............................................................ 448.5
------------
Total investments................................................................. 12,416.6
Cash and cash equivalents......................................................... 88.7
Accrued investment income......................................................... 200.2
Deferred policy acquisition costs................................................. 1,277.9
Premiums, accounts and notes receivable........................................... 193.6
Reinsurance recoverables.......................................................... 18.6
Property and equipment, net....................................................... 127.9
Goodwill and other intangible assets, net......................................... 612.6
Equity in unconsolidated subsidiaries............................................. 88.7
Net assets of discontinued operations (Note 6).................................... 32.8
Other assets...................................................................... 34.2
Separate account assets........................................................... 5,920.0
------------
Total assets...................................................................... $ 21,011.8
============
Liabilities:
Policy liabilities and accruals................................................... $ 11,229.5
Policyholder deposit funds........................................................ 618.1
Notes payable..................................................................... 489.4
Deferred income taxes............................................................. 118.6
Other liabilities................................................................. 497.0
Separate account liabilities...................................................... 5,920.0
------------
Total liabilities................................................................. 18,872.6
------------
Contingent liabilities (Note 8)...................................................
Minority interest in net assets of consolidated subsidiaries...................... 124.5
------------
Equity:
Retained earnings................................................................. 1,959.3
Accumulated other comprehensive income............................................ 55.4
------------
Total equity...................................................................... 2,014.7
------------
Total liabilities and equity...................................................... $ 21,011.8
============
</TABLE>
The accompanying notes are an integral part of these statements.
F-49
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF INCOME,
COMPREHENSIVE INCOME AND EQUITY
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 2000
-------------- --------------
(IN MILLIONS)
<S> <C> <C>
Revenues
Premiums...................................................... $ 882.9 $ 876.3
Insurance and investment product fees......................... 427.1 483.6
Net investment income......................................... 670.1 896.2
Net realized investment gains................................. 65.5 66.0
--------- ---------
Total revenues............................................. 2,045.6 2,322.1
--------- ---------
Benefits and expenses
Policy benefits and increase in policy liabilities............ 1,028.0 1,055.5
Policyholder dividends........................................ 269.4 279.5
Amortization of deferred policy acquisition costs............. 107.7 119.8
Amortization of goodwill and other intangible assets.......... 26.2 28.0
Interest expense.............................................. 23.3 24.0
Other operating expenses...................................... 411.4 419.2
--------- ---------
Total benefits and expenses................................ 1,866.0 1,926.0
--------- ---------
Income from continuing operations before income taxes, minority
interest and equity in earnings of unconsolidated subsidiaries 179.6 396.1
Income taxes.................................................... 62.4 139.9
--------- ---------
Income from continuing operations before minority interest and
equity in earnings of unconsolidated subsidiaries............. 117.2 256.2
Minority interest in net income of consolidated subsidiaries.... 6.9 13.7
Equity in earnings of unconsolidated subsidiaries............... 2.9 2.8
--------- ---------
Income from continuing operations............................... 113.2 245.3
Discontinued operations (Note 6)
Gain from operations, net of income taxes..................... 10.6 4.2
Loss on disposal, net of income taxes......................... (104.7) (21.7)
--------- ---------
Net income...................................................... 19.1 227.8
--------- ---------
Other comprehensive income (loss), net of income taxes
Unrealized gains (losses) on securities....................... (71.4) 76.2
Reclassification adjustment for net realized gains included in
net income.................................................... (1.7) (45.3)
--------- ---------
Total other comprehensive income (loss).................... (73.1) 30.9
---------- ---------
Comprehensive (loss) income..................................... (54.0) 258.7
---------- ---------
Equity, beginning of period..................................... 1,736.6 1,756.0
--------- ---------
Equity, end of period........................................... $ 1,682.6 $ 2,014.7
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-50
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------------------
1999 2000
-------------- ------------
(IN MILLIONS)
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................... $ 19.1 $ 227.8
Adjustments to reconcile net income to net cash from operating activities:
Net loss from discontinued operations.......................... 94.1 17.5
Net realized investment gains.................................. (65.5) (66.0)
Amortization and depreciation.................................. 40.8 31.0
Equity in undistributed earnings of affiliates and partnerships (44.3) (235.9)
Deferred income taxes (benefit)................................ (4.5) 18.6
Increase in receivables........................................ (7.9) (99.4)
Decrease (increase) in deferred policy acquisition costs....... 1.6 (6.5)
Increase in policy liabilities and accruals.................... 221.2 329.7
Decrease (increase) in other assets/other liabilities, net..... (57.9) 41.2
Other, net..................................................... 4.2 1.2
------------ ------------
Net cash provided by continuing operations................. 200.9 259.3
Net cash used for discontinued operations.................. (137.3) (237.7)
------------ ------------
Net cash provided by operating activities.................. 63.6 21.6
------------ ------------
Cash flows from investing activities:
Proceeds from sales, maturities or repayments of
available-for-sale debt securities........................... 983.8 926.3
Proceeds from maturities or repayments of held-to-maturity debt
securities................................................... 130.5 139.5
Proceeds from disposals of equity securities................... 85.1 332.7
Proceeds from mortgage loan maturities or repayments........... 96.9 75.3
Proceeds from sale of real estate and other invested assets.... 46.0 20.6
Proceeds from distributions of venture capital partnerships.... 22.0 32.1
Proceeds from sale of subsidiaries and affiliates..............
Purchase of available-for-sale debt securities................. (1,118.1) (1,043.3)
Purchase of held-to-maturity debt securities................... (297.3) (285.3)
Purchase of equity securities.................................. (92.5) (102.9)
Purchase of subsidiaries....................................... (177.2) (59.2)
Purchase of mortgage loans..................................... (22.3) (0.7)
Purchase of real estate, unconsolidated subsidiaries and other
invested assets.............................................. (49.4) (30.0)
Purchase of venture capital partnerships....................... (61.4) (79.8)
Change in short term investments, net.......................... 116.4 (315.2)
Increase in policy loans....................................... (11.3) (18.3)
Capital expenditures........................................... (3.9) (13.4)
------------- -------------
Net cash used for continuing operations.................... (352.7) (421.5)
Net cash provided by discontinued operations............... 127.7 234.2
------------ ------------
Net cash used for investing activities..................... $ (225.0) $ (187.3)
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-51
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
UNAUDITED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
---------------------------------------
1999 2000
-------------- ------------
(IN MILLIONS)
<S> <C> <C>
Cash flows from financing activities:
Deposits (withdrawals) of policyholder deposit funds, net of
interest credited............................................ $ (7.0) $ 79.9
Proceeds from repayment of securities sold subject to repurchase
agreements................................................... 37.5 -
Proceeds from borrowings....................................... 139.6 14.7
Repayment of borrowings........................................ (63.7) (24.7)
Dividends paid to minority shareholders in consolidated
subsidiaries................................................. (4.2) (3.1)
------------- ------------
Net cash provided by financing operations.................. 102.2 66.8
------------- ------------
Net change in cash and cash equivalents............................... (59.2) (98.9)
Cash and cash equivalents, beginning of period........................ 127.0 187.6
------------- ------------
Cash and cash equivalents, end of period.............................. $ 67.8 $ 88.7
============== ============
Supplemental cash flow information
Income taxes paid, net......................................... $ 53.6 $ 45.5
Interest paid on indebtedness.................................. $ 21.1 $ 21.9
</TABLE>
The accompanying notes are an integral part of these statements.
F-52
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND 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 managed within four reportable segments: Life and Annuity,
Investment Management, Venture Capital and Corporate and Other. See
Note 5 - "Segment Information."
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP) for interim financial
information. Accordingly, they do not include all of the information
and footnotes required by GAAP for complete financial statements. The
State of New York Insurance Department (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 solvency under the New York State
Insurance Law. No consideration is given by the Insurance Department to
financial statements prepared in accordance with GAAP in making such
determination.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended September
30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. These interim
consolidated financial statements should be read in conjunction with
the consolidated financial statements of the company for the year ended
December 31, 1999.
3. RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board deferred the effective date of
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities" until 2001. Phoenix
plans to adopt SFAS No. 133 effective January 1, 2001, and is currently
evaluating the effect the implementation will have on its results of
operations and financial position.
4. REORGANIZATION
On June 16, 2000, Phoenix submitted to the staff of the Insurance
Department a draft Plan of Reorganization whereby Phoenix would
convert, pursuant to the New York Insurance Law, from a New York mutual
life insurance company to a New York stock life insurance company and
become a wholly-owned subsidiary of a newly formed holding company. The
Plan of Reorganization was approved by Phoenix's board of directors on
December 18, 2000 and subsequently amended and restated on December 28,
2000 but has yet to be approved by the Insurance Department.
5. SEGMENT INFORMATION
Included in the following tables is certain information with respect to
Phoenix's operating segments as of December 31, 1999, September 30,
2000 and for each of the nine months ended September 30, 1999 and 2000.
The unallocated amounts consist of nonrecurring expenses associated
with demutualization, legal settlements, portfolio loss reimbursement
and recoveries, expenses related to the purchase of PXP minority
interest and restructuring charges.
F-53
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 2000
---------------------- ---------------------
(IN MILLIONS)
<S> <C> <C>
Total assets
Life and Annuity..................................... $ 18,025.7 $ 18,665.7
Investment Management................................ 747.4 768.1
Venture Capital...................................... 338.1 487.3
Corporate and Other.................................. 976.1 1,052.4
Discontinued operations.............................. 187.6 38.3
--------------- -------------
Total............................................ $ 20,274.9 $ 21,011.8
=============== =============
Deferred acquisition costs
Life and Annuity..................................... $ 1,306.7 $ 1,277.9
=============== =============
Policy liabilities and accruals
Life and Annuity..................................... $ 10,771.4 $ 11,109.0
Corporate and Other.................................. 128.4 120.5
--------------- -------------
Total............................................ $ 10,899.8 $ 11,229.5
=============== =============
Policyholder deposit funds
Life and Annuity..................................... $ 521.9 $ 577.5
Corporate and Other.................................. 16.3 40.6
--------------- -------------
Total............................................ $ 538.2 $ 618.1
=============== =============
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
1999 2000
-------------------- --------------------
(IN MILLIONS)
<S> <C> <C>
Premiums
Life and Annuity..................................... $ 882.7 $ 871.3
Corporate and Other.................................. .2 5.0
--------------- -------------
Total............................................ 882.9 876.3
--------------- -------------
Insurance and investment product fees
Life and Annuity..................................... 204.8 233.2
Investment Management................................ 210.7 246.4
Corporate and Other.................................. 35.0 20.5
Unallocated amounts.................................. (5.9) 4.5
Less: intersegment revenues.......................... (17.5) (21.0)
---------------- --------------
Total............................................ 427.1 483.6
--------------- -------------
Net Investment income
Life and Annuity..................................... 567.3 590.0
Investment Management................................ 2.4 1.7
Venture Capital...................................... 63.9 268.7
Corporate and Other.................................. 28.7 27.3
Add: intersegment investment expenses................ 7.8 8.5
--------------- -------------
Total............................................ 670.1 896.2
--------------- -------------
</TABLE>
F-54
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
1999 2000
-------------------- --------------------
(IN MILLIONS)
<S> <C> <C>
Policy benefits and dividends
Life and Annuity.................... $ 1,288.8 $ 1,320.6
Corporate and Other................. 8.6 14.4
--------------- -------------
Total........................... $ 1,297.4 $ 1,335.0
-------------- ------------
Amortization of deferred policy acquisition costs
Life and Annuity.................... 107.7 119.8
--------------- -------------
Total........................... 107.7 119.8
--------------- -------------
Amortization of goodwill and intangibles
Life and Annuity.................... .4 .5
Investment Management............... 22.2 23.6
Corporate and Other................. 3.6 3.9
--------------- -------------
Total........................... 26.2 28.0
--------------- -------------
Interest expense
Life and Annuity.................... -- .7
Investment Management............... 12.4 13.1
Corporate and Other................. 10.9 10.2
--------------- -------------
Total........................... 23.3 24.0
--------------- -------------
Other operating expenses
Life and Annuity.................... 202.5 202.1
Investment Management............... 139.5 158.6
Corporate and Other................. 51.0 56.9
Unallocated amounts................. 28.1 14.1
Less: intersegment expenses......... (9.7) (12.5)
--------------- -------------
Total........................... 411.4 419.2
--------------- -------------
Operating income before income taxes
Life and Annuity.................... 55.4 50.8
Investment Management............... 39.0 52.8
Venture Capital..................... 63.9 268.7
Corporate and Other................. (10.2) (32.6)
Unallocated amounts................. (34.0) (9.6)
--------------- -------------
Total........................... 114.1 330.1
--------------- -------------
Income taxes
Life and Annuity.................... 19.3 17.7
Investment Management............... 16.7 24.7
Venture Capital..................... 22.4 94.0
Corporate and Other................. (15.0) (20.8)
Unallocated amounts................. (3.9) 1.2
--------------- -------------
Total........................... 39.5 116.8
--------------- -------------
Minority interest in net income of consolidated
subsidiaries
Investment Management............. 6.9 10.5
--------------- -------------
Total.......................... $ 6.9 $ 10.5
=============== =============
</TABLE>
F-55
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
1999 2000
-------------------- --------------------
(IN MILLIONS)
<S> <C> <C>
Equity in earnings of unconsolidated subsidiaries
Investment Management............. $ 1.9 $ 2.0
Corporate and Other............... 1.0 .8
--------------- -------------
Total.......................... 2.9 2.8
--------------- -------------
Segment operating income after income taxes
Life and Annuity.................... 36.1 33.1
Investment Management............... 17.3 19.6
Venture Capital..................... 41.5 174.7
Corporate and Other................. 5.8 (11.0)
Unallocated amounts................. (30.1) (10.8)
---------------- --------------
Total........................... 70.6 205.6
--------------- -------------
Net realized investment gains (losses) after income
taxes
Life and Annuity.................... 7.8 (14.0)
Investment Management............... - 4.9
Corporate and Other................. 34.8 48.8
--------------- -------------
Total........................... 42.6 39.7
--------------- -------------
Income (loss) from continuing operations
Life and Annuity.................... 43.9 19.1
Investment Management............... 17.3 24.5
Venture Capital..................... 41.5 174.7
Corporate and Other................. 40.6 37.8
Unallocated amounts................. (30.1) (10.8)
---------------- --------------
Total........................... $ 113.2 $ 245.3
=============== =============
</TABLE>
6. DISCONTINUED OPERATIONS
GROUP LIFE AND HEALTH OPERATIONS
On April 1, 2000, Phoenix sold its group life and health business to GE
Financial Assurance Holdings, Inc. (GEFA) except for Phoenix Dental
Services and California Benefits Dental Plan. Specifically, Phoenix
Group Holdings and PM Holdings sold 97% of the common stock of Phoenix
American Life Insurance Company Life and Health and 100% of the common
stock of Phoenix Group Services, Inc. and Clinical Disability
Management, Inc. for $283.7 million. This amount is comprised of $238.7
million in cash and $45 million in common stock of GE Life and Annuity
Assurance Company, an affiliate of GEFA. The common stock represents a
3.1% interest in GE Life and Annuity Assurance Company. Phoenix retains
ownership of 3% of the common stock of Phoenix American Life Insurance
Company. Phoenix has a right to put these shares back to GEFA beginning
in 2005 and ending in 2007. These investments are reported as equity
securities on the Consolidated Balance Sheet (unaudited). The pre-tax
gain on the sale was $69.4 million and is reported in discontinued
operations gain on disposal, net of income taxes.
The sale to GEFA of 100% of the common stock of Phoenix Dental
Services, Inc. and California Benefits Dental Plan closed on October
31, 2000. The sales proceeds for these entities was $2.0 million which
resulted in a pre-tax loss of .4 million.
REINSURANCE OPERATIONS
During 1999, Phoenix completed a comprehensive strategic review of its
reinsurance segment and decided to exit these operations. Phoenix sold
its individual life reinsurance business, and placed its group accident
F-56
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
and health reinsurance into runoff. After estimating the sales
proceeds, and the amount and timing of future net premiums, claims and
reserves on the retained operations, Phoenix increased reserves and
purchased aggregate excess of loss reinsurance to further protect
Phoenix from unfavorable results in the runoff block. Phoenix recorded
a $167.9 million pre-tax loss on the disposal of reinsurance operations
through September 30, 1999 including increased reserve estimates on the
runoff block of $174.8 million (pre-tax), and initial premium for the
excess of loss reinsurance of $130.0 million and a gain of $113.0
million on the sale of its individual life reinsurance operations to
Employers Reassurance Corporation.
During the third quarter of 2000, Phoenix updated its estimates of
future losses related to the retained group accident and health
reinsurance business as well as future expenses associated with
managing the runoff. Based on the most recent information available,
Phoenix increased reserve estimates on the runoff block by $94.0
million (pre-tax). Phoenix determined that the increase to reserves was
needed based on revised actuarial assumptions to reflect current and
expected deteriorating trends in claim experience and higher than
anticipated expenses.
A significant portion of the claims arising from the group accident and
health business arises from Phoenix's participation in a pool of
reinsurers, formerly managed by Unicover Managers, Inc. (Unicover),
which reinsured the accident and health portion of workers compensation
coverage. In addition, Phoenix participated as a reinsurer of the
Unicover pool, and other reinsurance facilities established by Unicover
(Unicover facilities), through Phoenix's participation in an
underwriting facility formerly managed by Centaur Underwriting
Management, Ltd. (Centaur). In turn, Phoenix retroceded these risks to
unaffiliated insurance carriers ("retrocessionaires"), providing
Phoenix with substantial reinsurance protection.
During 1999, Phoenix initiated arbitration to rescind the treaty by
which it reinsured the Unicover pool and facilities. Certain of
Phoenix's retrocessionaires brought actions against Phoenix,
challenging their reinsurance obligations. All of these proceedings
remain in their preliminary phases.
During 2000, Phoenix reached settlements with several of the companies
involved in Unicover. On January 13, 2000, Phoenix and the other member
companies of the Unicover pool settled with EBI Indemnity Company and
affiliates of the Orion Group (EBI/Orion), by which all pool members
were released from their obligations as reinsurers of EBI/Orion. On
January 21, 2000, Phoenix settled with Reliance Insurance Company
(Reliance) and its parent Reliance Group Holdings, Inc. and was
released from its obligations as a reinsurer of the so-called Reliance
facility. On March 27, 2000, Phoenix settled with Reliance, Lincoln
National Life Insurance Company and Lincoln National Health and
Casualty Company, releasing Phoenix from its obligations as a reinsurer
of the so-called Lincoln facility. On May 28, 2000, Phoenix reached an
agreement with one of its retrocessionaires, and recovered a
substantial portion of its settlement cost on the Reliance settlement.
Financial terms of these settlements were consistent with the
provisions established by Phoenix in 1999. There was no effect on net
income resulting from these settlements for the period ended September
30, 2000.
REAL ESTATE MANAGEMENT OPERATIONS
On May 25, 2000, Phoenix sold its investment in 50% of the outstanding
common stock of Pinnacle Realty Management Company, Inc., a real estate
property management firm, for $6.0 million. This sale represented
Phoenix's entire interest in Pinnacle Realty Management Company, Inc.
and Phoenix now has no other real estate management business. The
transaction resulted in a pre-tax loss of $0.6 million through
September 30, 2000.
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 (unaudited).
Net assets of the discontinued operations totaled $32.8 million and
$187.6 million as of September 30, 2000 and December 31, 1999,
respectively. The Consolidated Statement of Income, Comprehensive
Income and Equity (unaudited) excludes 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.
F-57
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 2000
------------------- --------------------
Gain from operations of (IN MILLIONS)
discontinued operations
<S> <C> <C>
Revenues:
Group Life and Health Operations....................... $ 343.1 $ 112.7
Real Estate Management Operations...................... 1.3 .4
------------ ----------
Total revenues............................................ $ 344.4 $ 113.1
=========== ==========
Gain (loss) from operations:
Group Life and Health Operations....................... $ 17.8 $ 6.8
Real Estate Management Operations...................... (2.4) (.2)
------------ -----------
Gain from discontinued operations before income taxes 15.4 6.6
Income taxes.............................................. 4.8 2.4
------------ -----------
Gain from discontinued operations, net of income taxes.... $ 10.6 $ 4.2
============ ===========
Loss on disposal of discontinued operations
Gain (loss) on disposal:
Group Life and Health Operations....................... $ - $ 69.4
Reinsurance Operations................................. (167.9) (100.6)
Real Estate Management Operations...................... 6.6 (.6)
------------ ------------
Loss on disposal of discontinued operations before (161.3) (31.8)
income taxes...........................................
Income taxes.............................................. (56.6) (10.1)
------------- ------------
Loss on disposal of discontinued operations, net of income
taxes.................................................. $ (104.7) $ (21.7)
============ ===========
</TABLE>
7. SIGNIFICANT TRANSACTIONS
PRACTICARE
In the third quarter of 2000, Phoenix decided to exit its physician
practice management business conducted by PractiCare, Inc.
(PractiCare), an indirect subsidiary of PM Holdings, Inc. In September
2000, Phoenix evaluated the financial position of the company and
recorded several non-recurring charges totaling $10.1 million
(pre-tax). These non-recurring charges included an investment write-off
of $6.1 million, a goodwill write-off of $1.9 million and expenses
related to contract terminations of $2.1 million. Phoenix expects
PractiCare to fully exit this business by June 2001 by not renewing or
renegotiating its existing management service contracts.
8. COMMITMENTS AND CONTINGENCIES
In the normal course of its business operations, the company is
involved with litigation from time to time with claimants,
beneficiaries and others, and a number of litigation matters were
pending as of September 30, 2000. It is the opinion of management,
after consultation with counsel, that the ultimate liability with
respect to these claims, if any, will not materially affect the
financial position or results of operations of the company.
F-58
PART C
OTHER INFORMATION
C-1
<PAGE>
PART C
OTHER INFORMATION
Registrant hereby represents that, in imposing certain restrictions upon
withdrawals from some annuity contracts, it is relying upon the no-action letter
given to the American Council of Life Insurance (publicly available November 28,
1988) (Ref. No. 1P-6-88) regarding compliance with Section 403(b) (ii) of the
Internal Revenue Code and that it is in compliance with the conditions for
reliance upon that letter set forth therein.
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Condensed financial information is included in Part A. The
financial statements are included in Part B.
(b) Exhibits
(1) Resolution of Board of Directors Establishing the Separate
Account is incorporated by reference to Registrant's Form
N-4 (002-78020) Post-Effective Amendment No. 1 filed on
April 30, 1983.
(2) Rules and Regulations of Phoenix Home Life Variable
Accumulation Account are incorporated by reference to
Registrant's Form N-4 (002-78020) Post-Effective Amendment
No. 1 filed on April 30, 1983 and Post-Effective Amendment
No. 26 filed via Edgar on April 30, 1997.
(3)(a) Master Service and Distribution Compliance Agreement
between Depositor and Phoenix Equity Planning Corporation
dated December 31, 1996 is incorporated by reference to
Registrant's form N-4 (002-78020) Post-Effective Amendment
No. 25 filed via Edgar on February 28, 1997
(3)(b) Form of Dealer Agreement is incorporated by reference to
Registrant's N-4 (002-78020) Post-Effective Amendment No.
26 filed via Edgar on April 30, 1997.
(4) Form of Contract filed herewith.
(5) Form of Application filed herewith.
(6) Charter and by-laws of Phoenix Home Life Mutual Insurance
Company are incorporated by reference to registrant's Form
N-4 (002-78020) Post-Effective Amendment No. 18 on June
22, 1992 and filed via Edgar with Post-Effective Amendment
No. 26 on April 30, 1997.
(7) Not Applicable.
(8) Not Applicable.
(9) Opinion of Edwin L. Kerr, Esq. filed herewith.
(10)(a) Written Consent of Edwin L. Kerr, Esq. filed herewith.
(10)(b) Written Consent of Brian A. Giantonio, Esq. filed
herewith.
(10)(c) Written Consent of PricewaterhouseCoopers LLP filed
herewith.
(11) Not Applicable.
(12) Not Applicable.
(13)(a) Explanation of Yield and Effective Yield Calculation is
incorporated by reference to registrant's Form N-4
(002-78020) Post-Effective Amendment No. 24 filed via
Edgar on April 24, 1996.
(13)(b) Explanation of Total Return Calculation is incorporated by
reference to registrant's Form N-4 (002-78020)
Post-Effective Amendment No. 24 filed via Edgar on April
24, 1996.
C-2
<PAGE>
ITEM 25. DIRECTORS AND EXECUTIVE OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME PRINCIPAL BUSINESS ADDRESS WITH DEPOSITOR
---- -------------------------- --------------
<S> <C> <C>
Sal H. Alfiero Chairman and Chief Executive Officer Director
Mark IV Industries, Inc.
Amherst, NY
John C. Bacot Chairman and Chief Executive Officer Director
The Bank of New York
New York, NY
Peter C. Browning Chairman, Nucor Corporation, Director
Charlotte, North Carolina; formerly,
President & Chief Operating Officer,
Sonoco Products Company
North Carolina
Arthur P. Byrne Group Executive Director
Danaher Corporation
West Hartford, CT
Richard N. Cooper, Ph.D. Professor Director
Harvard University
Cambridge, MA
Gordon J. Davis, Esq. Partner Director
LeBoeuf, Lamb, Greene & MacRae
New York, NY
Robert W. Fiondella* Chairman of the Board,
Director, and Chief
Executive Office
John E. Haire President Director
The Fortune Group
New York, NY
Jerry J. Jasinowski President Director
National Association of Manufacturers
Washington, D.C.
Thomas S. Johnson Chairman & CEO, Greenpoint Director
Financial Corporation
New York, New York
John W. Johnstone Chairman Director
Governance & Nominating Committees
Arch Chemicals, Inc.
Westport, CT
Marilyn E. LaMarche Limited Managing Director Director
Lazard Freres & Co. LLP
New York, NY
Philip R. McLoughlin*** Director, Executive Vice
President, Investments
Indra K. Nooyi Senior Vice President Director
Pepsico, Inc.
Purchase, NY
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME PRINCIPAL BUSINESS ADDRESS WITH DEPOSITOR
---- -------------------------- --------------
<S> <C>
Robert F. Vizza President & Chief Executive Officer Director
The DeMatteis Center of
St. Francis Hospital
Old Brookfield, NY
Robert G. Wilson Retired, formerly Chairman and Director
Chief Executive Officer,
Ecologic Waste Services, Inc.
Miami, Florida
Dona D. Young* Director, President
Carl T. Chadburn** Executive Vice President
Michael Gilotti* Senior Vice President
Joseph E. Kelleher** Senior Vice President
Underwriting and Operations
Robert G. Lautensack, Jr.* Senior Vice President
Individual Line Financial
Sherry A. Manetta* Senior Vice President,
Information Systems
Maura L. Melley* Senior Vice President
Public Affairs
Charles L. Olson*** Senior Vice President
Richard R. Paton* Senior Vice President
Robert E. Primmer* Senior Vice President
Distribution and Sales
Tracy L. Rich* Senior Vice President
David W. Searfoss* Executive Vice President and
Chief Financial Officer
John F. Solan, Jr.* Senior Vice President
Simon Y. Tan* Executive Vice President
Life & Annuity Products and
Operations
Walter H. Zultowski* Senior Vice President
Marketing and Market Research
</TABLE>
* The principal business address of this individual is
One American Row, Hartford, Connecticut 06115.
** The principal business address of this individual is 100 Bright
Meadow Boulevard, P.O. Box 2200, Enfield, Connecticut
06082-2200.
*** The principal business address of this individual is
56 Prospect Street, Hartford, Connecticut 06115-0480.
C-4
<PAGE>
ITEM 26. NOT APPLICABLE
ITEM 27. NUMBER OF CONTRACTOWNERS
No contracts have been sold to date.
ITEM 28. INDEMNIFICATION
Section 723 of the New York Business Corporation Law, as made applicable to
insurance companies by Section 108 of the New York Insurance Law, provides that
a corporation may indemnify any director or officer of the corporation made, or
threatened to be made, a party to an action or proceeding other than one by or
in the right of the corporation to procure a judgment in its favor, whether
civil or criminal, including an action by or in the right of any other
corporation of any type or kind, by reason of the fact that he, his testator or
intestate, served such other corporation in any capacity at the request of the
indemnifying corporation.
Article VI Section 6.1 of the by-laws of the Phoenix Home Life Mutual Insurance
Company provides: "To the full extent permitted by the laws of the State of New
York, the Company shall indemnify any person made or threatened to be made a
party to any action, proceeding or investigation, whether civil or criminal, by
reason of the fact that such person is or was a Director or Officer of the
Company; or serves or served another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity at the request
of the Company, and also is or was a Director or Officer of the Company...The
Company shall also indemnify any [such] person...by reason of the fact that such
person or such person's testator or intestate is or was an employee or agent of
the Company...."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
1. Phoenix Equity Planning Corporation ("PEPCO")
(a) PEPCO currently distributes securities of the Phoenix Duff &
Phelps Funds, Phoenix Funds, Phoenix Home Life Variable Universal
Life Account, PHL Variable Accumulation Account and Phoenix Life
and Annuity Variable Universal Life Account in addition to those
of the Registrant.
(b) Directors and Officers of PEPCO
<TABLE>
<CAPTION>
<S> <C> <C>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER
---------------- ----------------
Michael E. Haylon** Director
Philip R. McLoughlin** Director, President and Chairman
William R. Moyer* Director, Executive Vice President, Chief Financial
Officer and Treasurer
John F. Sharry* Executive Vice President, Retail Distribution
Paul A. Atkins** Senior Vice President, Sales Manager
Nancy G. Curtiss** Vice President and Treasurer, Fund Accounting
Nancy J. Engberg** Vice President, Counsel and Secretary
Michael Kearney* Senior Vice President, Operations and Service
Robert R. Tousignant* Senior Vice President and National Sales Manager
-------------
</TABLE>
* The principal business address of this individual is
100 Bright Meadow Boulevard, P.O. Box 2200, Enfield,
Connecticut 06083.
** The principal business address of this individual is
56 Prospect Street, Hartford, Connecticut 06115.
C-5
<PAGE>
(c) Compensation received by PEPCO during Registrant's last fiscal
year:
<TABLE>
<CAPTION>
NAME OF NET UNDERWRITING COMPENSATION BROKERAGE
PRINCIPAL UNDERWRITER DISCOUNTS AND COMMISSIONS ON REDEMPTION COMMISSIONS COMPENSATION
--------------------- ------------------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
PEPCO $0.00 -0- -0- -0-
</TABLE>
PEPCO received no other out-of-pocket compensation from Phoenix Home Life.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Item 7, Part II of registrant's Post-Effective Amendment No. 1 is hereby
incorporated by reference.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Registrant hereby undertakes to:
(a) file a post-effective amendment to this registration statement
as frequently as is necessary to ensure that the audited
financial statements contained therein are never more than 16
months old for so long as payments under the Contracts may be
made;
(b) include as part of any application to purchase a Contract
offered by the prospectus, a space that an applicant can check
to request a Statement of Additional Information;
(c) deliver any Statement of Additional Information and any
financial statements required to be made available under this
form promptly upon written or oral request.
Pursuant to Section 26(e)(2)(A) of the Investment Company Act of 1940, as
amended, Phoenix Home Life Mutual Insurance Company ("Phoenix Home Life")
represents that the fees and charges deducted under the Contracts, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred and the risks to be assumed thereunder by Phoenix Home
Life Mutual Insurance Company.
C-6
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has caused this
Amendment to its Registration Statement to be signed on its behalf, in the City
of Hartford and State of Connecticut on this 12th day of January, 2001.
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
By: *Robert W. Fiondella
---------------------------------
Robert W. Fiondella
Chief Executive Officer
PHOENIX HOME LIFE VARIABLE ACCUMULATION ACCOUNT
By: *Robert W. Fiondella
---------------------------------
Robert W. Fiondella
Chief Executive Officer
Phoenix Home Life Mutual Insurance Company
As required by the Securities Act of 1933, this Amendment to the Registration
Statement has been signed below by the following persons in the capacities
indicated with Phoenix Home Life Mutual Insurance Company on this 12th day of
January, 2001.
SIGNATURE TITLE
--------- -----
____________________________________ Director
*Sal H. Alfiero
____________________________________ Director
*John C. Bacot
____________________________________ Director
Peter C. Browning
____________________________________ Director
*Arthur P. Byrne
____________________________________ Director
*Richard N. Cooper
____________________________________ Director
*Gordon J. Davis
____________________________________ Chairman of the Board,
*Robert W. Fiondella and Chief Executive Officer
(Principal Executive Officer)
____________________________________ Director
*John E. Haire
S-1
<PAGE>
SIGNATURE TITLE
--------- -----
____________________________________ Director
*Jerry J. Jasinowski
____________________________________ Director
Thomas S. Johnson
____________________________________ Director
*John W. Johnstone
____________________________________ Director
*Marilyn E. LaMarche
____________________________________ Director
*Philip R. McLoughlin
____________________________________ Director
*Indra K. Nooyi
____________________________________ Director
*Robert F. Vizza
____________________________________ Director
*Robert G. Wilson
____________________________________ Director, President
Dona D. Young
By:/s/ Dona D. Young
-----------------
*Dona D. Young, as Attorney in Fact pursuant to Powers of Attorney, copies of
which were filed previously.
S-2
