PHL VARIABLE ACCUMULATION ACCOUNT
Variable Accumulation Annuity Contracts
issued by
PHL VARIABLE INSURANCE COMPANY
101 Munson St.
P.O. Box 910
Greenfield, Massachusetts 03102-0910
Telephone (800) 447-4312
Statement of Additional Information
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Prospectus, dated July 31, 1995, which is available
without charge by contacting PHL Variable Insurance Company at the above address
or at the above telephone number.
July 31, 1995
-----------------
Table of Contents
Page
Underwriter................................................................ B-2
Calculation of Yield and Return............................................ B-2
Calculation of Annuity Payments............................................ B-2
Experts.................................................................... B-3
Financial Statements....................................................... B-5
B-1
<PAGE>
UNDERWRITER
The offering of Contracts is made on a continuous basis by Phoenix Equity
Planning Corporation ("PEPCO"), an affiliate of PHL Variable. For sales of
variable annuity and variable life insurance contracts, PEPCO was paid and
retained the following amounts during the years indicated:
Paid Retained
---- --------
1983 $ 144,366.34 $ 0
1984 205,670.37 0
1985 294,116.77 0
1986 927,910.90 212,647.00
1987 1,252,654.00 417,552.00
1988 865,747.78 166,145.74
1989 1,177,652.05 234,260.01
1990 1,947,039.38 649,013.13
1991 4,367,689.27 694,514.74
1992 10,552,587.71 1,586,321.48
1993 17,988,629.00 3,903,915.00
1994 31,557,402.61 3,870,793.99
PEPCO is paid an amount equal to up to 7.25% of the purchase payments
under the Contracts. PEPCO, in turn, pays any distribution organization an
amount equal to up to 7.25% of the purchase payments made under the Contracts.
In addition, PEPCO may pay such dealers commission, or other fees in respect of
Conracts sold by them and remaining outstanding for the qualifying period.
CALCULATION OF YIELD AND RETURN
Yield of the Money Market Sub-account. As summarized in the Prospectus under
the heading "Performance History", the yield of the Money Market Sub-account for
a seven-day period (the "base period") will be computed by determining the "net
change in value" (calculated as set forth below) of a hypothetical account
having a balance of one share at the beginning of the period, dividing the net
change in account value by the value of the account at the beginning of the base
period to obtain the base period return, and multiplying the base period return
by 365/7 with the resulting yield figure carried to the nearest hundredth of one
percent. Net changes in value of a hypothetical account will include net
investment income of the account (accrued daily dividends as declared by the
underlying funds, less daily expense charges of the account) for the period, but
will not include realized gains or losses or unrealized appreciation or
depreciation on the underlying fund shares. A mortality and expense risk charge
of 1.25% (approximately 0.40% for mortality and 0.85% for expense) and a daily
administrative fee of 0.125% are reflected.
The Money Market Sub-account yield and effective yield will vary in response
to fluctuations in interest rates and in the expenses of the Sub-account.
The current yield and effective yield reflect recurring charges at the
Account level, including the maximum annual administrative fee.
At any time in the future, yields and total return may be higher or lower
than past yields and there can be no assurance that any historical results will
continue.
The method of calculating yields described above for the Money Market
Sub-account differs from the method used by the Sub-account prior to May 1,
1988. The denominator of the fraction used to calculate yield was prior, to May
1, 1988, the average unit value for the period calculated. That denominator was
thereafter the unit value of the Sub-account on the last trading day of the
period calculated.
Calculation of Total Return. As summarized in the Prospectus under the
heading "Performance History", total return is a measure of the change in value
of an investment in a Sub-account over the period covered and is computed by
finding the average annual compounded rates of return over the 1, 5 and 10 year
periods that would equate the initial amount invested to the ending redeemable
value according to a formula. The formula for total return used herein includes
four steps: (1) assuming a hypothetical $1,000 initial investment in the
Sub-account; (2) calculating the value of the hypothetical initial investment of
$1,000 as of the end of the period by multiplying the total number of units
owned at the end of the period by the unit value per unit on the last trading
day of the period; (3) assuming redemption at the end of the period and
deducting any recurring fees and any applicable contingent deferred sales charge
and (4) dividing this account value for the hypothetical investor by the initial
$1,000 investment. Total return will be calculated for one year, five years and
ten years or some other relevant periods if a Sub-account has not been in
existence for at least ten years.
Performance Comparisons:
Yield and Total Return. Each Sub-account may from time to time include its
yield and total return in advertisements or information furnished to present or
prospective Contract Owners. Each Sub-account may from time to time include in
advertisements containing total return (and yield in the case of certain
Sub-accounts) the ranking of those performance figures relative to such figures
for groups of mutual funds categorized by Lipper Analytical Services as having
the same investment objectives.
The total return and yield may also be used to compare the performance of
the Sub-accounts against certain widely acknowledged outside standards or
indices for stock and bond market performance. The Standard & Poor's Composite
Index of 500 Stocks (the "S&P 500") is a market value-weighted and unmanaged
index showing the changes in the aggregate market value of 500 stocks relative
to the base period 1941-43. The S&P 500 is composed almost entirely of common
stocks of companies listed on the New York Stock Exchange, although the common
stocks of a few companies listed on the American Stock Exchange or traded
over-the-counter are included. The 500 companies represented include 400
industrial, 60 transportation and 40 financial services concerns. The S&P 500
represents about 80% of the market value of all issues traded on the New York
Stock Exchange.
The manner in which total return and yield will be calculated is described
in the prospectus.
B-2
<PAGE>
CALCULATION OF ANNUITY PAYMENTS
Variable Annuity Payments
Unless an alternative annuity payment option is elected on or before the
Contract Maturity Date, the Accumulation Value of the Contract on the Maturity
Date will automatically be applied to provide a Variable Payment Life Annuity
with Ten Year Period Certain based on the Annuitant's life under annuity payment
Option I as described in the Prospectus. Any annuity payments falling due after
the Annuitant's death during the period certain will be paid to the Beneficiary.
If the amount to be applied on the Maturity Date is less than $2,000 or
would result in monthly payments of less than $20, PHL Variable Insurance
Company shall have the right to pay such amount in one lump sum in lieu of
providing the annuity payments. PHL Variable Insurance Company will also have
the right to change the annuity payment frequency to annually if the monthly
annuity payment would otherwise be less than $20.
Under the Variable Payment Life Annuity with Ten Year Period Certain
(payment Option I), the first monthly income payment is due on the Maturity
Date. Thereafter, payments are due on the same day of the month as the first
payment was due, or if such date does not fall within a particular month, then
the future payment is due on the first Valuation Date to occur in the follow-
ing month. Payments will continue during the lifetime of the Annuitant, or, if
later, until the end of the Ten Year Period Certain starting with the date the
first payment is due.
The Variable Income Table below shows the minimum amount of the first
monthly payment for each $1,000 of Accumulation Value applied. The minimum
first payments shown are based on the 1983 table, an annuity table projected to
the year 2040 with Projection Scale G, and with Projection Scale G thereafter,
and an effective assumed investment return of 4%. The actual payments will be
based on the monthly payment rate PHL Variable Insurance Company is using when
the first payment is due. They will not be less than those shown in the Variable
Income Table.
Variable Income Table
Minimum Monthly Payment Rate for First Payment for Each $1,000 Applied.
Based on 4%Assumed Investment Return.
Adjusted Age* Male Female
- ------------ ---- ------
40 $4.15 $4.02
45 4.29 4.12
50 4.40 4.27
55 4.73 4.46
60 5.06 4.71
65 5.51 5.05
70 6.08 5.52
75 6.79 6.17
80 7.65 6.99
85 8.57 7.98
* Age on birthday nearest due date of the first payment. Monthly
payment rates for ages not shown will be furnished on request.
In determining the amount of the first payment, the amounts held under the
Variable Payment Option in each Sub-account are multiplied by the rates PHL
Variable Insurance Company is using for the Option on the first Payment
Calculation Date. The Payment Calculation Date is the earliest Valuation Date
that is not more than 10 days before the due date of the payment. The first
payment equals the total of such figures determined for each Sub-account.
Future payments are measured in Annuity Units and are determined by
multiplying the Annuity Units in each Sub-account with assets under the
Variable Payment Option by the Annuity Unit Value for each Sub-account on the
Payment Calculation Date that applies. The number of Annuity Units in each
Sub-account with assets under a Variable Payment Option is equal to the portion
of the first payment provided from that Sub-account divided by the Annuity Unit
Value for that Sub-account on the first Payment Calculation Date. The payment
will equal the sum of such amounts from each Sub-account.
All Annuity Unit Values in each Sub-account were set at $1.0000000 on the
first Valuation Date selected by PHL Variable Insurance Company. The value of an
Annuity Unit on any date thereafter is equal to (a) the Net Investment Factor
for that Sub-account for the Valuation Period divided by (b) the sum of
1.0000000 and the rate of interest for the number of days in the Valuation
Period, based on an effective annual rate of interest equal to the assumed
investment return, and multiplied by (c) the corresponding Annuity Unit Value on
the preceding Valuation Date. The assumed investment return of 4% per year is
the annual interest rate assumed in determining the first payment. The amount
of each subsequent payment from each Sub-account will depend on the
relationship between the assumed investment return and the actual investment
performance of the Sub-account. If a 4% rate would result in a first variable
payment larger than that permitted under applicable state law, we will select
a lower rate that will comply with such law.
No partial or full surrenders, withdrawals, transfers or additional
premium payments may be made with respect to any assets held under Variable
Payment Options I and J. Although no transfers or additional premium payments
may be made with respect to assets held under Option K, under this option
partial or full surrenders may be made.
Fixed Annuity Payments
Fixed monthly annuity payments under a Contract are determined by applying
the Contract Value to the respective annuity purchase rates on the Maturity Date
of a Contract or other date elected for commencement of fixed annuity payments.
Under a Contract, the amount of the fixed annuity payment is calculated by
first multiplying the number of the Sub-accounts' Accumulation Units credited to
the Contract on the Maturity Date by the appropriate Unit Value for each
Sub-account on the Maturity Date. The dollar value for all Sub-accounts'
Accumulation Units is then aggregated, along with the dollar value of any
investment in the Guaranteed Interest Account. For each Contract the resulting
dollar value is then multiplied by the applicable annuity purchase rate, which
reflects the age (and sex for non-tax qualified plans) of the Annuitant
specified in the Con-
B-3
<PAGE>
tract for the Fixed Payment Annuity Option selected. This computation determines
the amount of PHL Variable Insurance Company's fixed monthly annuity payment to
the Annuitant.
The mortality table used as a basis for the applicable annuity purchase
rates is the a-49 Individual Annuity Mortality Table projected to 1985 at
Projection Scale B. An interest rate of 33/8% for 5 and 10 year certain periods
under Option A, for the 10 year period under Option F and for Option E; an
interest rate of 3% for the 20 year certain period under Options A and F; an
interest rate of 3% under Option B and D. Under Options G and H the guaranteed
interest rate is 3%. More favorable rates may be available on the Maturity Date
or other dates elected for commencement of fixed annuity payments.
EXPERTS
The consolidated financial statements of PHL Variable Insurance Company as
of December 31, 1994 and for the periods January 1, 1994 to May 31, 1994 and
June 1, 1994 to December 31, 1994, have been examined by Price Waterhouse LLP,
independent public accountants, whose reports are set forth herein, and the
financial statements have been included upon the authority of said firm as
experts in accounting and auditing. The financial statements of Dreyfus Consumer
Life Insurance Company at December 31, 1993 and for each of the two years in
the period then ended have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing. Price Waterhouse LLP, whose address is
One Financial Plaza, Hartford, Connecticut, also provides other accounting and
tax-related services as requested by PHL Variable Insurance Company from time to
time. Ernst and Young LLP is located at 787 7th Avenue, New York, New York.
Legal matters involving Federal securities laws in connection with the
Contracts have been passed upon by Jorden Burt & Berenson, Washington, D.C.
Legal matters relating to the validity of the securities being issued have
been passed upon by Patricia O. McLaughlin, Counsel, Phoenix Home Life,
Hartford, CT
B-4
<PAGE>
PHL VARIABLE ACCUMULATION ACCOUNT
Financial Statements
The Sub-accounts commenced operations as of the date of this Prospectus;
therefore, data for these Sub-accounts is not yet available.
B-5
<PAGE>
PHL Variable
Insurance Company
Financial Statements
December 31, 1994
B-6
<PAGE>
PHL Variable Insurance Company
(a wholly-owned subsidiary of PM Holdings, Inc.)
(formerly Dreyfus Consumer Life Insurance Company)
Table of Contents
Page
Reports of Independent Accountants ..................................B-8 - B-10
Balance Sheet .............................................................B-11
Statement of Operations ...................................................B-12
Statement of Changes in Stockholder's Equity...............................B-13
Statement of Cash Flows ...................................................B-14
Notes to Financial Statements .....................................B-15 - B-18
B-7
<PAGE>
Northeast Insurance Services Telephone 203 240 2000
One Financial Plaza Facsimile 203 240 2055
Hartford, CT 06103
Price Waterhouse LLP [logo] Price Waterhouse circle [logo]
Report of Independent Accountants
February 15, 1995
To the Board of Directors
and Stockholder of
PHL Variable Insurance Company
(formerly Dreyfus Consumer Life Insurance Company)
In our opinion, the accompanying statements of operations, of changes in
stockholder's equity and of cash flows present fairly, in all material respects,
the results of operations and cash flows of Dreyfus Consumer Life Insurance
Company (Predecessor or the Company), for the period from January 1, 1994
through May 31, 1994 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above. The financial statements of the Dreyfus Consumer Life Insurance Company
for the years ended December 31, 1993 and 1992 were audited by other independent
accountants whose reports are presented herein.
As discussed in Note 2 to the financial statements, the Company adopted
Statement of Financial Accounting Standard No. 115, Accounting for Certain
Investments in Debt and Equity Securities, in 1994.
/s/ Price Waterhouse LLP
Offices in Boston, Burlington, Hartford, New York, Providence
B-8
<PAGE>
Northeast Insurance Services Telephone 203 240 2000
One Financial Plaza Facsimile 203 240 2055
Hartford, CT 06103
Price Waterhouse LLP [logo] Price Waterhouse circle [logo]
Report of Independent Accountants
February 15, 1995
To the Board of Directors
and Stockholder of
PHL Variable Insurance Company
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of PHL Variable Insurance
Company (the Company), formerly Dreyfus Consumer Life Insurance Company, at
December 31, 1994 and the results of their operations and their cash flows for
the period from June 1, 1994 through December 31, 1994 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Offices in Boston, Burlington, Hartford, New York, Providence
B-9
<PAGE>
[logo] ERNST & YOUNG LLP (box) 787 Seventh Avenue (box) Phone: 212 773 3000
New York, New York 10019
Report of Independent Accountants
Stockholder and Board of Directors
Dreyfus Consumer Life Insurance Company
We have audited the accompanying balance sheet of Dreyfus Consumer Life
Insurance Company as of December 31, 1993, and the related statements of
operations, changes in stockholders equity, and cash flows for each of the two
years in the period then ended. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dreyfus Consumer Life Insurance
Company at December 31, 1993, and the results of its operations and its cash
flows for each of the two years in the period then ended in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
January 27, 1994
B-10
<PAGE>
PHL Variable Insurance Company
(a wholly-owned subsidiary of PM Holdings, Inc.)
(formerly Dreyfus Consumer Life Insurance Company)
Balance Sheet
<TABLE>
<CAPTION>
Successor Predecessor
December 31,
1994 1993
<S> <C> <C>
Assets
Bonds
Held to maturity, at amortized cost
(fair value $6,331,000) $ 6,271,966
Available for sale, at fair value
(amortized cost $9,420,000) $ 9,250,723
Short-term investments, at amortized cost 2,029,041
Cash and cash equivalents 89,896 1,080,575
--------------- ---------------
Total cash and invested assets 9,340,619 9,381,582
Due and accrued investment income 157,863 114,731
Deferred income tax benefit 55,119
Goodwill, net of accumulated amortization 960,500 255,403
Other assets 10,846
--------------- ---------------
Total assets $ 10,514,101 $ 9,762,562
=============== ===============
Liabilities
Federal and state income taxes payable $ 62,174
Payable to former affiliate in lieu of taxes $ 99,000
Payable to former affiliate 13,304
Intercompany payable to affiliate 108,108
Accrued expenses 12,845
--------------- ---------------
Total liabilities 170,282 125,149
--------------- ---------------
Stockholder's Equity
Common stock, $1 par value,
2,000,000 shares authorized,
issued and outstanding 2,000,000 2,000,000
Additional paid-in capital 8,364,486 4,477,588
Net unrealized depreciation on investments, net of tax (109,725)
Retained earnings 89,058 3,159,825
--------------- ---------------
Total stockholder's equity 10,343,819 9,637,413
--------------- ---------------
Total liabilities and stockholder's equity $ 10,514,101 $ 9,762,562
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
B-11
<PAGE>
PHL Variable Insurance Company
(a wholly-owned subsidiary of PM Holdings, Inc.)
(formerly Dreyfus Consumer Life Insurance Company)
Statement of Operations
<TABLE>
<CAPTION>
Successor
Period from Predecessor
June 1, 1994 Period from
to January 1, 1994 Predecessor
December 31, to Year Ended December 31,
1994 May 31, 1994 1993 1992
<S> <C> <C> <C> <C>
Revenues
Net investment income $ 352,037 $ 136,991 $ 405,407 $ 401,970
Realized investment losses (29,100)
-------------- -------------- -------------- --------------
Total revenues 322,937 136,991 405,407 401,970
-------------- -------------- -------------- --------------
Expenses
General and administrative expenses 108,239 13,147 53,333 64,377
Amortization of goodwill 59,500 10,510 25,225 25,225
-------------- -------------- -------------- --------------
Total expenses 167,739 23,657 78,558 89,602
-------------- -------------- -------------- --------------
Income before income taxes 155,198 113,334 326,849 312,368
Provision (benefit) for income taxes 66,140 (12,964) 51,000 109,000
-------------- -------------- -------------- --------------
Net income $ 89,058 $ 126,298 $ 275,849 $ 203,368
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
B-12
<PAGE>
PHL Variable Insurance Company
(a wholly-owned subsidiary of PM Holdings, Inc.)
(formerly Dreyfus Consumer Life Insurance Company)
Statement of Changes in Stockholder's Equity
<TABLE>
<CAPTION>
Predecessor
Period from January 1, 1992
to May 31, 1994
Additional Net Total
Common Paid-in Retained Unrealized Stockholder's
Stock Capital Earnings Depreciation Equity
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1992 $ 2,000,000 $ 4,477,588 $ 2,680,608 $ 9,158,196
Net income 203,368 203,368
------------ ------------ ------------ ------------ --------------
Balances at December 31, 1992 2,000,000 4,477,588 2,883,976 9,361,564
Net income 275,849 275,849
------------ ------------ ------------ ------------ --------------
Balances at December 31, 1993 2,000,000 4,477,588 3,159,825 9,637,413
Adoption of FAS 115 (174,332) (174,332)
Net income 126,298 126,298
------------ ------------ ------------ ------------ --------------
Balances at May 31, 1994 $ 2,000,000 $ 4,477,588 $ 3,111,791 $ 9,589,379
============ ============ ============ ============ ==============
Successor
Period from May 31, 1994
to December 31, 1994
Additional Net Total
Common Paid-in Retained Unrealized Stockholder's
Stock Capital Earnings Depreciation Equity
Balances at May 31, 1994 $ 2,000,000 $ 4,477,588 $ 3,111,791 $ 9,589,379
Acquisition adjustment 3,886,898 (3,111,791) 775,107
------------ ------------ ------------ ------------ --------------
Balances at June 1, 1994 2,000,000 8,364,486 10,364,486
Net income 89,058 89,058
Net unrealized depreciation $ (109,725) (109,725)
------------ ------------ ------------ ------------ --------------
Balances at December 31, 1994 $ 2,000,000 $ 8,364,486 $ 89,058 $ (109,725) $ 10,343,819
============ ============ ============ ============ ==============
</TABLE>
The accompanying notes are an integral part of these statements.
B-13
<PAGE>
PHL Variable Insurance Company
(a wholly-owned subsidiary of PM Holdings, Inc.)
(formerly Dreyfus Consumer Life Insurance Company)
Statement of Cash Flows
<TABLE>
<CAPTION>
Successor
Period from Predecessor
June 1, 1994 Period from
to January 1, 1994 Predecessor
December 31, to Year Ended December 31,
1994 May 31, 1994 1993 1992
<S> <C> <C> <C> <C>
Cash Flow from Operating Activities
Net income $ 89,058 $ 126,298 $ 275,849 $ 203,368
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization of premium and
discount on bonds 9,100 (2,423) 184,788
Realized investment losses 29,100
Amortization of goodwill 59,500 10,510 25,225 25,225
(Increase) decrease in
due and accrued investment
income (67,030) 23,898 (47,721) 115,138
(Increase) in deferred income
tax benefit (55,119)
Decrease (increase) in other assets 10,846 (1,059) 15,230
Increase (decrease) in federal and
state income taxes payable 62,174 (67,000)
(Decrease) increase in payables
to former affiliate (112,304) 16,779 (26,246)
Increase in intercompany
payable to affiliate 108,108
Decrease in accrued expenses (12,845) (1,738) (1,070)
------------- ----------- -------------- ------------
Net cash provided by
operating activities 225,791 55,503 197,912 516,433
------------- ----------- -------------- ------------
Cash Flow from Investing Activities
Investment purchases (44,044,597) (2,724,420) (7,887,954) (8,824,427)
Proceeds from investment maturities 43,473,572 2,023,472 7,767,645 8,784,757
------------- ----------- -------------- ------------
Net cash used in investing activities (571,025) (700,948) (120,309) (39,670)
------------- ----------- -------------- ------------
Net (decrease) increase in cash and
cash equivalents (345,234) (645,445) 77,603 476,763
Cash and cash equivalents at beginning
of period 435,130 1,080,575 1,002,972 526,209
------------- ----------- -------------- ------------
Cash and cash equivalents at end
of period $ 89,896 $ 435,130 $ 1,080,575 $ 1,002,972
============= =========== ============== ============
Supplemental disclosure of cash flow
information
Income taxes paid, net of refunds $ 63,725 $ 32,403 $ 113,500 $ 112,500
============= =========== ============== ============
</TABLE>
The accompanying notes are an integral part of these statements.
B-14
<PAGE>
PHL Variable Insurance Company
(a wholly-owned subsidiary of PM Holdings, Inc.)
(formerly Dreyfus Consumer Life Insurance Company)
Notes to Financial Statements
1. Operations
On May 31, 1994, PM Holdings, Inc. (PM Holdings) acquired Dreyfus Consumer
Life Insurance Company from The Dreyfus Corporation and renamed the
company, PHL Variable Insurance Company (PHL Variable or the Company). PM
Holdings has accounted for the acquisition of the Company under the
purchase method of accounting. The assets and liabilities of the Company
have been recorded at their fair value as of the date of acquisition and
goodwill has been pushed-down to the Company from PM Holdings. The Company
was incorporated under the laws of Connecticut on April 24, 1981 and has
obtained licensing in 36 states and plans to offer variable annuities to
the public in 1995. PHL Variable's parent, PM Holdings is a wholly-owned
subsidiary of Phoenix Home Life Mutual Insurance Company (Phoenix Home
Life).
Phoenix Home Life provides services and facilities to the Company and is
reimbursed through a cost allocation process. Investment related expenses
are allocated to the Company from PM Holdings.
2. Summary of Significant Accounting Policies
The significant accounting policies which are used by the Company in the
preparation of its financial statements are described below.
Basis of presentation
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. Certain reclassifications have
been made to the 1993 and 1992 amounts to conform with the 1994
presentation.
The financial statements as of December 31, 1994 and for the period from
June 1, 1994 through December 31, 1994 are those of PHL Variable Insurance
Company (the Successor). The financial statements for the period from
January 1, 1994 through May 31, 1994 and the years ended December 31, 1993
and 1992 are those of Dreyfus Consumer Life Insurance Company (the
Predecessor) before its business and net assets were acquired by PM
Holdings.
New accounting pronouncements
In 1994, PHL Variable adopted Statement of Financial Accounting Standard
(SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. This statement required PHL Variable to segregate its debt
securities into three categories: held to maturity, available for sale or
trading. All debt securities held by the Company at December 31, 1994 are
classified as available for sale and are recorded at their fair value with
corresponding changes in fair value recorded through stockholder's equity.
The effect of implementing SFAS 115 resulted in a decrease in investment
assets and stockholder's equity of $174,332. Such bonds were previously
carried at amortized cost.
Cash and cash equivalents
Short-term investments with a maturity of three months or less at the time
of purchase are reported as cash equivalents.
Goodwill
Effective June 1, 1994, goodwill arising from the acquisition of the
Company is amortized using the straight-line method over a period of 10
years, the expected period of benefit from the acquisition. Prior to June
1, 1994, goodwill was amortized over a period of 20 years.
Investments
At December 31, 1994, investments in bonds are generally available for sale
and carried at fair value. At December 31, 1993, investments in bonds were
carried at amortized cost and short-term investments were carried at
amortized cost, which approximated market value.
Realized investment gains and losses are determined using the specific
identification method.
B-15
<PAGE>
PHL Variable Insurance Company
(a wholly-owned subsidiary of PM Holdings, Inc.)
(formerly Dreyfus Consumer Life Insurance Company)
Notes to Financial Statements
2. Summary of Significant Accounting Policies (continued)
Income taxes
For the period January 1, 1994 through May 31, 1994 and the years ended
December 31, 1993 and 1992, the former Dreyfus Consumer Life Insurance
Company (DCLIC) was included in the consolidated federal income tax return
filed by The Dreyfus Corporation (the Corporation). All participants in the
consolidated federal income tax return were severally liable for the full
amount of any taxes payable by the group. In accordance with an income tax
apportionment agreement with the Corporation, the provision for DCLIC's
federal income tax was computed on a separate return basis.
PHL Variable is included in a life/nonlife consolidated federal income tax
return with Phoenix Home Life and its eligible affiliates for the period
June 1, 1994 through December 31, 1994. The Company entered into a federal
income tax allocation agreement with PM Holdings, Inc. which requires the
Company's tax provision be determined based upon income taxes that would be
paid or refunded if the Company filed a separate federal income tax return.
3. Investments
Additional information pertaining to the Company's investments and realized
investment gains and losses follows:
Bonds
Bonds classified as available for sale are carried at fair value. Fair
value on bonds includes amounts for publicly traded bonds that are based on
quoted market prices, where available, or quoted market prices on
comparable instruments.
The gross unrealized (depreciation) as of December 31, 1994 for investments
in bonds available for sale (carried at fair value) is set forth below.
Amortized Fair
Cost (Depreciation) Value
(in thousands)
Bonds
U.S. Treasury bonds and
obligations of U.S. Government
corporations and agencies $ 9,247 $ (166) $ 9,081
Obligations of states and
political subdivisions
- non-taxable 173 (3) 170
-------- -------- --------
Total bonds $ 9,420 $ (169) $ 9,251
======== ======== ========
The gross unrealized appreciation (depreciation) as of December 31, 1993
for investments in bonds held to maturity (carried at amortized cost) is
set forth below.
<TABLE>
<CAPTION>
Amortized Fair
Cost Appreciation (Depreciation) Value
(in thousands)
<S> <C> <C> <C> <C>
Bonds
U.S. Treasury bonds and
obligations of U.S. Government
corporations and agencies $ 5,999 $ 44 $ (2) $ 6,041
Obligations of states and
political subdivisions 273 17 290
---------- ---------- ---------- -----------
Total bonds $ 6,272 $ 61 $ (2) $ 6,331
========== ========== ========== ===========
</TABLE>
B-16
<PAGE>
PHL Variable Insurance Company
(a wholly-owned subsidiary of PM Holdings, Inc.)
(formerly Dreyfus Consumer Life Insurance Company)
Notes to Financial Statements
3. Investments (continued)
Bonds (continued)
The fair value and amortized cost basis of bonds at December 31, 1994, by
contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties. The
bond issuers have the right to prepay obligations in some instances
without prepayment penalties.
Fair Amortized
Value Cost
(in thousands)
Due in one year or less $ 1,519 $ 1,523
Due after one year through five years 7,472 7,632
Due after five years through ten years 140 143
Due after ten years 120 122
--------- ---------
$ 9,251 $ 9,420
========= =========
Investments in bonds held by various state insurance departments to satisfy
statutory requirements at December 31, 1994 and 1993 were $950,000 (at fair
value) and $1,265,701 (at amortized cost), respectively.
Net unrealized appreciation (depreciation) of investments
Net unrealized depreciation of $168,808 as of December 31, 1994 on
investments that are carried at fair value is included as a separate
component of stockholder's equity, net of deferred income tax benefits of
$59,083. The net unrealized appreciation of $58,808 as of December 31, 1993
on investments that were carried at amortized cost was not recorded in the
financial statements.
4. General and Administrative Expenses
General and administrative expenses are summarized below.
<TABLE>
<CAPTION>
Successor
Period from Predecessor
June 1, 1994 Period from
to January 1, 1994 Predecessor
December 31, to Year Ended December 31,
1994 May 31, 1994 1993 1992
<S> <C> <C> <C> <C>
License renewal, filing and
examination fees $ 38,857 $ 13,147 $ 24,835 $ 27,384
Legal, accounting and
consulting expense 64,399 13,742 21,413
Other, various 4,983 14,756 15,580
-------------- -------------- -------------- --------------
$ 108,239 $ 13,147 $ 53,333 $ 64,377
============== ============== ============== ==============
</TABLE>
5. Goodwill
Upon acquisition of the Company by PM Holdings on May 31, 1994, the excess
purchase price over the fair value of the Company's net assets of
$1,020,000 was recorded as goodwill by the Company.
6. Stockholder's equity
At December 31, 1994 and 1993, stockholder's equity determined in
accordance with statutory accounting practices aggregated $7,477,718 and
$9,431,000, respectively. There were no practices not prescribed by the
Insurance Department of the State of Connecticut. The Connecticut Insurance
Holding Act limits the maximum amount of annual dividends or other
distributions available to stockholders of Connecticut insurance companies
without prior approval of the Insurance Commissioner. Under current law,
the maximum dividend distribution which may be made by the Company during
1995 without prior approval is subject to restrictions relating to
statutory surplus.
B-17
<PAGE>
7. Income taxes
For the period from June 1, 1994 through December 31, 1994, the Successor
recognized an income tax provision of $66,140. For the period from January
1, 1994 through May 31, 1994 and the years ended December 31, 1993 and
1992, the Predecessor recognized income tax (benefits) provisions of
$(12,964), $51,000 and $109,000, respectively. The Company's current income
tax liabilities at December 31, 1994 and 1993 were $62,174 and $99,000,
respectively. Effective January 1, 1993, the statutory tax rate was
increased by the Omnibus Budget Reconciliation Act of 1993 from 34% to 35%.
The Company's federal tax return is not currently being examined.
Management does not believe that there are pending tax matters which will
have a material adverse effect on the financial statements.
At December 31, 1994, the Company has a deferred income tax benefit of
$55,119 resulting primarily from unrealized investment losses due to the
application of SFAS 115. The Company had no differences between the
financial and tax basis of assets and liabilities at December 31, 1993 and
hence, there was no provision for deferred income taxes.
A reconciliation of the effective rate to the statutory rate is as follows:
<TABLE>
<CAPTION>
Successor
Period from Predecessor
June 1, 1994 Period from
to January 1, 1994 Predecessor
December 31, to Year Ended December 31,
1994 May 31, 1994 1993 1992
<S> <C> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0% 34.0%
State taxes 9.2 (20.5)
Amortization of goodwill 2.7 2.9
Other (1.6) (46.4) (1.6) (2.0)
---- ---- ---- ----
Effective income tax rate 42.6% (11.4)% 15.6% 34.9%
==== ==== ==== ====
</TABLE>
8. Phoenix Home Life guarantee
Effective June 20, 1994, Phoenix Home Life guaranteed the net worth of the
Company for the period it remains a wholly-owned subsidiary or until such
earlier time as: (1) the Company requests a separate rating from the rating
agencies; or (2) any of such rating agencies on their own initiative
determine that the Company requires a separate rating.
B-18
