As filed with the Securities and Exchange Commission on April 30, 1999
Registration No. 33-6793
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
Post-Effective Amendment No. 15
to
FORM S-6
UNDER THE SECURITIES ACT OF 1933
---------------------------
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(EXACT NAME OF TRUST)
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
(NAME OF DEPOSITOR)
--------------------------
ONE AMERICAN ROW
HARTFORD, CONNECTICUT 06102-5056
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DONA D. YOUNG, ESQUIRE
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
ONE AMERICAN ROW
HARTFORD, CONNECTICUT 06102-5056
(NAME AND ADDRESS OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
<TABLE>
<CAPTION>
<S> <C>
MICHAEL BERENSON, ESQ. EDWIN L. KERR, ESQ.
JORDEN BURT BOROS CICCHETTI BERENSON & JOHNSON LLP COUNSEL
1025 THOMAS JEFFERSON STREET N.W. PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
SUITE 400 EAST ONE AMERICAN ROW
WASHINGTON, D.C. 20007-0805 HARTFORD, CONNECTICUT 06102-5056
</TABLE>
--------------------------
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b)
[x] on May 1, 1999 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a) (1) or
[ ] on pursuant to paragraph (a) (1) of Rule 485.
[ ] this Post-Effective Amendment designates a new effective date
for a previously filed post-effective amendment.
================================================================================
<PAGE>
CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
----------- ---------------------
1 The VUL Account
2 Phoenix Home Life Mutual Insurance Company
3 Not Applicable
4 Sales of Policies
5 The VUL Account
6 The VUL Account
7 Not Applicable
8 Not Applicable
9 Legal Proceedings
10 The Policy
11 Investments of the VUL Account
12 Investments of the VUL Account
13 Charges and Deductions; Investments of the VUL Account
14 Premium Payment; Allocation of Issue Premium; Right to Cancel
Period
15 Allocation of Issue Premium; Transfer of Policy Value
16 Investments of the VUL Account
17 Surrenders
18 Allocation of Issue Premium; Transfer of Policy Value;
Reinvestment and Redemption
19 Voting Rights; Reports
20 Not Applicable
21 Policy Loans
22 Not Applicable
23 Safekeeping of the VUL Account's Assets
24 Not Applicable
25 Phoenix Home Life Mutual Insurance Company
26 Charges and Other Deductions; Investments of the VUL Account
27 Phoenix Home Life Mutual Insurance Company
28 Phoenix Home Life Mutual Insurance Company; The Directors and
Executive Officers of Phoenix Home Life
29 Not Applicable
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Phoenix Home Life Mutual Insurance Company
36 Not Applicable
37 Not Applicable
38 Sales of Policies
39 Sales of Policies
40 Not Applicable
41 Sales of Policies
42 Not Applicable
43 Not Applicable
44 Determination of Subaccount Value
45 Not Applicable
46 Determination of Subaccount Values
47 Allocation of Issue Premium; Determination of Subaccount
Values
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Phoenix Home Life Mutual Insurance Company; The Policy;
Charges and Deductions
<PAGE>
N-8B-2 Item Caption in Prospectus
----------- ---------------------
52 Investments of the VUL Account
53 Federal Tax Considerations
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Not Applicable
<PAGE>
THE PHOENIX EDGE
VARIABLE LIFE
INSURANCE POLICY
Issued by
PHOENIX HOME LIFE
MUTUAL INSURANCE COMPANY
IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT US AT:
[envelope] PHOENIX VARIABLE PRODUCTS MAIL OPERATIONS
PO Box 8027
Boston, MA 02266-8027
[telephone] Tel. 800/541-0171
PROSPECTUS MAY 1, 1999
This Prospectus describes a variable life insurance policy which provides
lifetime insurance protection.
The Policy is not a deposit or obligation of, underwritten or guaranteed by, any
financial institution or credit union. It is not federally insured or endorsed
by the Federal Deposit Insurance Corporation or any other state or federal
agency. Policy investments are subject to risk, including the fluctuation of
Policy Values and possible loss of principal invested or premiums paid.
The Securities and Exchange Commission has not approved or disapproved these
securities, nor passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
THE PHOENIX EDGE SERIES FUND
- ----------------------------
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
[diamond] Phoenix Research Enhanced Index
[diamond] Phoenix-Aberdeen International
[diamond] Phoenix-Engemann Nifty Fifty
[diamond] Phoenix-Goodwin Balanced
[diamond] Phoenix-Goodwin Growth
[diamond] Phoenix-Goodwin Money Market
[diamond] Phoenix-Goodwin Multi-Sector Fixed Income
[diamond] Phoenix-Goodwin Strategic Allocation
[diamond] Phoenix-Goodwin Strategic Theme
[diamond] Phoenix-Hollister Value Equity
[diamond] Phoenix-Oakhurst Growth and Income
[diamond] Phoenix-Schafer Mid-Cap Value
[diamond] Phoenix-Seneca Mid-Cap Growth
MANAGED BY PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
[diamond] Phoenix-Aberdeen New Asia
MANAGED BY DUFF & PHELPS INVESTMENT MANAGEMENT CO.
[diamond] Phoenix-Duff & Phelps Real Estate Securities
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- ---------------------------------------
MANAGED BY TEMPLETON INVESTMENT COUNSEL, INC.
[diamond] Templeton Asset Allocation
[diamond] Templeton International
[diamond] Templeton Stock
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
[diamond] Templeton Developing Markets
MANAGED BY FRANKLIN MUTUAL ADVISERS, INC.
[diamond] Mutual Shares Investments
WANGER ADVISORS TRUST
- ---------------------
MANAGED BY WANGER ASSET MANAGEMENT, L.P.
[diamond] Wanger Foreign Forty
[diamond] Wanger International Small Cap
[diamond] Wanger Twenty
[diamond] Wanger U.S. Small Cap
It may not be in your best interest to purchase a policy to replace an
existing life insurance policy or annuity contract. You must understand the
basic features of the proposed Policy and your existing coverage before you
decide to replace your present coverage. You must also know if the replacement
will result in any taxes.
This Prospectus is valid only if accompanied or preceded by current
prospectuses for the Funds. You should read and keep these prospectuses for
future reference.
1
<PAGE>
TABLE OF CONTENTS
Heading Page
- ------------------------------------------------------------
SPECIAL TERMS ......................................... 3
SUMMARY ............................................... 5
PERFORMANCE HISTORY.................................... 6
PHOENIX AND THE VUL ACCOUNT............................ 6
Phoenix ............................................ 6
The VUL Account .................................... 6
The GIA ............................................ 6
THE POLICY ............................................ 7
Introduction ....................................... 7
Eligible Purchasers ................................ 7
Premium Payment..................................... 7
Allocation of Issue Premium ........................ 7
Right to Cancel Period ............................. 8
Temporary Insurance Coverage ....................... 8
Transfer of Policy Value ........................... 8
Systematic Transfer Program....................... 8
Nonsystematic Transfers .......................... 8
Determination of Subaccount Values ................. 9
Death Benefit ...................................... 10
Additional Premiums and Partial Surrenders:
Effect on Death Benefit........................... 10
Minimum Face Amount Rider........................... 11
Surrenders ......................................... 11
Policy Loans ....................................... 11
Lapse .............................................. 12
INVESTMENTS OF THE VUL ACCOUNT ........................ 12
Participating Investment Funds...................... 12
Investment Advisers................................. 15
Services of the Advisers ........................... 15
Reinvestment and Redemption ........................ 15
Substitution of Investments ........................ 15
CHARGES AND DEDUCTIONS ................................ 15
General............................................. 15
Acquisition Expense (Acquisition Expense
Allowance) ....................................... 16
Periodic Charges.................................... 16
Conditional Charges................................. 17
Investment Management Charge........................ 17
Other Taxes ........................................ 17
GENERAL PROVISIONS .................................... 17
Postponement of Payments ........................... 17
Payment by Check ................................... 17
The Contract ....................................... 17
Suicide ............................................ 17
Incontestability ................................... 18
Change of Owner or Beneficiary ..................... 18
Assignment ......................................... 18
Misstatement of Age or Sex ......................... 18
Surplus............................................. 18
PAYMENT OF PROCEEDS ................................... 18
Surrender and Death Benefit Proceeds ............... 18
Payment Options .................................... 18
FEDERAL TAX CONSIDERATIONS ............................ 19
Introduction ....................................... 19
Phoenix's Tax Status ............................... 19
Policy Benefits .................................... 19
Business-Owned Policies............................. 20
Penalty Tax......................................... 20
Material Change Rules............................... 21
Serial Purchase of Modified Endowment
Contracts......................................... 21
Limitations on Unreasonable Mortality
and Expense Charges .............................. 21
Qualified Plans .................................... 21
Diversification Standards .......................... 21
Change of Ownership or Insured or Assignment ....... 22
Other Taxes ........................................ 22
VOTING RIGHTS ......................................... 22
Phoenix............................................. 22
THE DIRECTORS AND EXECUTIVE OFFICERS OF
PHOENIX ............................................ 22
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS ............... 24
SALES OF POLICIES ..................................... 24
STATE REGULATION ...................................... 24
REPORTS ............................................... 24
LEGAL PROCEEDINGS ..................................... 24
LEGAL MATTERS ......................................... 24
REGISTRATION STATEMENT ................................ 24
YEAR 2000 ISSUE........................................ 24
FINANCIAL STATEMENTS .................................. 25
APPENDIX A ............................................ 79
APPENDIX B ............................................ 83
APPENDIX C............................................. 84
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESPERSON, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
2
<PAGE>
SPECIAL TERMS
- --------------------------------------------------------------------------------
The following is a list of terms and their meanings when used in this
Prospectus.
ACQUISITION EXPENSE (ACQUISITION EXPENSE ALLOWANCE): The amount set forth on the
Schedule Pages of the Policy. It equals the aggregate of the sales load, issue
administration charge and premium taxes assessed under the Policy. The
Acquisition Expense (also referred to as Acquisition Expense Allowance) is
deducted from the Issue Premium and recredited to Policy Value. A pro rata
portion of the Acquisition Expense is deducted from Policy Value monthly during
the first 10 Policy Years. Upon Policy lapse or full surrender, any unpaid
Acquisition Expense is paid.
ADDITIONAL NET PREMIUM: Additional premium reduced by the Premium Tax Charge
and, for additional premiums received during a grace period, by the amount
needed to cover any monthly deductions made during the grace period.
BENEFICIARY: The person or persons specified by the Policyowner as entitled to
receive the death benefits under a Policy.
CASH VALUE: The Policy Value less the balance of any unpaid Acquisition Expense
Allowance.
DEATH BENEFIT ADJUSTMENT RATES: Rates used to calculate the variable death
benefit under a Policy as set forth in a table in the Schedule Pages of the
Policy.
FUNDS: The Phoenix Edge Series Fund, Wanger Advisors Trust and Templeton
Variable Products Series Fund.
GENERAL ACCOUNT: The general asset account of Phoenix.
GIA (GUARANTEED INTEREST ACCOUNT): An investment option under which amounts
deposited are guaranteed to earn a fixed rate of interest. Excess interest also
may be credited, at the sole discretion of Phoenix.
IN FORCE: Conditions under which the coverage under a Policy is in effect and
the Insured's life remains insured.
INSURED: The person upon whose life the Policy is issued.
IN WRITING (WRITTEN REQUEST): In a written form satisfactory to Phoenix and
delivered to VPMO.
ISSUE PREMIUM: The premium payment made in connection with issuing the Policy.
LOAN ACCOUNT: An account within the General Account to which amounts are
transferred for Policy loans.
MATURITY DATE: The anniversary of the Policy nearest the Insured's 95th
birthday, if the Insured is living.
MONTHLY CALCULATION DAY: The first Monthly Calculation Day is the same day as
the Policy Date. Subsequent Monthly Calculation Days are the same day of each
month thereafter or, if such day does not fall within a given month, the last
day of that month will be the Monthly Calculation Day.
NET ASSET VALUE: The worth of one share of a Series of a Fund at the end of a
valuation period. Net Asset Value is computed by adding the value of a Series'
holdings plus other assets, minus liabilities and then dividing the result by
the number of shares outstanding.
PAYMENT DATE: The Valuation Date on which we receive a premium payment or loan
repayment, unless it is received after the close of the New York Stock Exchange
("NYSE"), in which case it will be the next Valuation Date.
PHOENIX (COMPANY, OUR, US, WE): Phoenix Home Life Mutual Insurance Company,
Hartford, Connecticut.
POLICY ANNIVERSARY: Each anniversary of the Policy Date.
POLICY DATE: The Policy Date as shown on the Schedule Page of the Policy. It is
the date from which we measure Policy Years and Policy Anniversaries.
POLICY MONTH: The period from one Monthly Calculation Day up to, but not
including, the next Monthly Calculation Day.
POLICYOWNER (OWNER, YOU, YOUR): The person(s) who purchase(s) a Policy.
POLICY VALUE: The sum of a Policy's share in the values of each Subaccount of
the VUL Account plus the Policy's share in the values of the GIA.
POLICY YEAR: The first Policy Year is the 1-year period from the Policy Date up
to, but not including, the first Policy Anniversary. Each succeeding Policy Year
is the 1-year period from the Policy Anniversary up to, but not including, the
next Policy Anniversary.
PROPORTIONATE (PRO RATA): Amounts allocated to Subaccounts on a pro rata basis
are allocated by increasing or decreasing a Policy's share in the value of the
affected Subaccounts and GIA so that such shares maintain the same ratio to each
other before and after the allocation.
SERIES: A separate investment portfolio of the Fund.
SUBACCOUNTS: Accounts within the VUL Account to which nonloaned assets under
a Policy are allocated.
3
<PAGE>
SURRENDER VALUE: The Cash Value less any indebtedness under the Policy.
TARGET FACE AMOUNT: The Target Face Amount as shown in the Schedule Pages of the
Policy or as later changed in accordance with the Partial Surrender Provision.
UNIT: A standard of measurement used to set the value of a Policy. The value of
a Unit for each Subaccount will reflect the investment performance of that
Subaccount and will vary in dollar amount.
VALUATION DATE: For any Subaccount, each date on which we calculate the net
asset value of the Fund is
determined.
VALUATION PERIOD: For any Subaccount, the period in days from the end of one
Valuation Date through the next.
VPMO: The Variable Products Mail Operation Division of Phoenix that receives and
processes incoming mail for Variable Products Operations.
VPO: Variable Products Operations.
VUL ACCOUNT (ACCOUNT): Phoenix Home Life Variable Universal Life Account, a
separate account of the company.
4
<PAGE>
SUMMARY
- --------------------------------------------------------------------------------
This is a summary of the Policy and does not contain all of the detailed
information that may be important to you. You should carefully read the entire
Prospectus before making any decision.
INVESTMENT FEATURES
PREMIUM PAYMENT
The only premium you have to pay is the issue premium (and any payments
required to prevent policy lapse). See "Premium Payment" and "Lapse."
ALLOCATION OF PREMIUMS AND POLICY VALUE
After we deduct certain charges from your premium payment, we will invest
the balance in one or more of the Subaccounts of the VUL Account and/or the GIA
as you will have instructed us.
You may make transfers into the GIA and among the Subaccounts at anytime.
Transfers from the GIA are subject to the rules discussed in "Appendix B" and
under "Transfer of Policy Value."
The policy value varies with the investment performance of the Funds and is
not guaranteed.
The policy value allocated to the GIA will depend on deductions taken from
the GIA to pay expenses and will accumulate interest at rates we periodically
establish, but never less than 4%.
LOANS AND SURRENDERS
[diamond] Generally, you may take loans against 75%-90% of the Policy's cash
value subject to certain conditions. See "Policy Loans."
[diamond] You may partially surrender any part of the policy anytime. A partial
surrender charge of the lesser of $25 or 2% of the partial surrender
amount will apply. A separate surrender charge also may be imposed.
See "Surrenders."
[diamond] You may fully surrender this Policy anytime for its surrender value. A
surrender charge may be imposed. See "Surrenders."
INSURANCE PROTECTION FEATURES
DEATH BENEFITS
[diamond] Both a fixed and variable benefit is available under the Policy.
[bullet] During the first policy month, the fixed benefit is equal to
the target face amount
[bullet] After the first policy month, the variable benefit equals the
cash value on the last preceding monthly calculation day
multiplied by the applicable Death Benefit Adjustment Rate.
[diamond] The death benefit is payable when the Insured dies. See "Death
Benefit."
DEDUCTIONS AND CHARGES
FROM PREMIUM PAYMENTS
[diamond] Taxes
[bullet] Premium Taxes
See "Charges and Deductions" for a detailed discussion.
FROM POLICY VALUE
[diamond] Issue Administration Charge--1% of the issue premium paid.
[diamond] Sales Charge--5.5% of the issue premium paid.
[diamond] Cost of Insurance--Amount deducted monthly. The rates vary and are
based on certain personal factors such as sex, attained age and risk
class of the Insured.
[diamond] Partial Surrender Charge--may be deducted for partial surrenders.
FROM THE VUL ACCOUNT
[diamond] Mortality and Expense Risk Charge--50% annually
FROM THE FUND
The assets of the VUL Account are used to purchase, at net asset value,
shares of your selected underlying Funds. The net asset value reflects
investment management fees and other direct expenses of the Fund. See
"Investment Management Charge."
See "Charges and Deductions" for a more detailed description of how each is
applied.
ADDITIONAL INFORMATION
CANCELLATION RIGHT
You have the right to review the Policy. If you are not satisfied with it,
you may cancel the Policy:
[diamond] within 10 days after you receive the Policy, or
[diamond] within 10 days after we mail or deliver a written notice telling you
about your right to cancel, or
[diamond] within 45 days of completing the application;
whichever is latest.
See "Right to Cancel Period."
RISK OF LAPSE
The Policy will remain in force as long as the surrender value is enough to
pay the necessary monthly charges incurred under the Policy. When the surrender
value is no longer enough, the policy lapses, or ends. We will let you know of
an impending lapse situation. We will give you the opportunity (a "grace
period") to keep the Policy in force by paying a specified amount. Please see
"Lapse" for more detail.
5
<PAGE>
TAX EFFECTS
Generally, under current federal income tax law, death benefits are not
subject to income tax. Earnings on the premiums invested in the VUL Account or
the GIA are not subject to income tax until there is a distribution from the
Policy. Loans, partial surrenders or Policy termination may result in
recognition of income for tax purposes.
VARIATIONS
The Policy is subject to laws and regulations in every state where the
Policy is sold. Therefore, the terms of the Policy may vary from state to state.
PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
We may include the performance history of the VUL Account Subaccounts in
advertisements, sales literature or reports. Performance information about each
Subaccount is based on past performance only and is not an indication of future
performance. See "Appendix A" for more information.
PHOENIX AND THE VUL ACCOUNT
- --------------------------------------------------------------------------------
PHOENIX
We are a mutual life insurance company originally chartered in Connecticut
in 1851. We were redomiciled to New York in 1992. Our executive office is
located at One American Row, Hartford, Connecticut 06102-5056, and the main
administrative office is located at 100 Bright Meadow Boulevard, Enfield,
Connecticut 06083-1900. Our New York principal office is located at 10 Krey
Boulevard, East Greenbush, New York, 12144. We sell insurance policies and
annuity contracts through our own field force of full time agents and through
brokers.
THE VUL ACCOUNT
The VUL Account is a separate account of Phoenix formed on June 17, 1985 and
governed under the laws of New York. It is registered as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act") and meets the definition
of a "separate account" under that Act. Such registration does not involve
supervision of the management of the VUL Account or Phoenix by the SEC.
The VUL Account is divided into Subaccounts each of which is available for
allocation of policy value. Each Subaccount will invest solely in shares of a
specific series of a mutual fund. In the future, we may establish additional
Subaccounts which will be made available to existing Policyowners to the extent
and on a basis decided by us. See "Investments of the VUL Account--Participating
Investment Funds."
We do not guarantee the investment performance of the VUL Account or any of
its Subaccounts. Contributions to the overall policy value allocated to the VUL
Account depend on the chosen Fund's investment performance. Thus, you bear the
full investment risk for all monies invested in the VUL Account.
The VUL Account is part of the general business of Phoenix, but the gains or
losses of the VUL Account belong solely to the VUL Account. The gains or losses
of any other business we may conduct does not affect the VUL Account. Under New
York law, the assets of the VUL Account may not be taken to pay liabilities
arising out of any other business we may conduct. Nevertheless, all obligations
arising under the Policy (such as paying death benefits) are general corporate
obligations of Phoenix.
THE GIA
The GIA is not part of the VUL Account. It is accounted for as part of the
General Account. We reserve the right to limit total deposits, including
transfers, to the GIA to no more than $250,000 during any one-week period. We
will credit interest daily on the amounts you allocate to the GIA at an
effective annual rate of not less than 4%. The credited rate will be the same
for all monies deposited at the same time.
On the last working day of each calendar week, Phoenix sets the interest
rate that will apply to any net premium or transferred amounts deposited to the
unloaned portion of the GIA. That rate will remain in effect for such deposits
for an initial guarantee period of one full year from the date of deposit. Upon
the end of the initial one-year guarantee period (and each subsequent one-year
guarantee period thereafter), the rate to be applied to any deposits whose
guarantee period has just ended shall be the same rate then being applied to new
deposits to the GIA. This rate will remain in effect for a guaranteed period of
one full year from the date the new rate is applied.
In general, you can make only one transfer per year from the GIA. The amount
that can be transferred out is limited to the greater of $1,000 or 25% of the
value in the GIA as of the date of the transfer. If you elect the Systematic
Transfer Program, approximately equal amounts may be transferred out of the GIA.
Also, the total value allocated to the GIA may be transferred out of the GIA to
one or more of the Subaccounts of the VUL Account over a consecutive four-year
period according to the following schedule:
[diamond] Year One: 25% of the total value
[diamond] Year Two: 33% of remaining value
[diamond] Year Three: 50% of remaining value
[diamond] Year Four: 100% of remaining value
Transfers into the GIA and among the Subaccounts of the VUL Account may be
made at any time. Transfers from the GIA are subject to the rules discussed in
"Appendix B" and "Transfer of Policy Value--Systematic Transfer Program."
6
<PAGE>
THE POLICY
- --------------------------------------------------------------------------------
INTRODUCTION
The Policy is a variable life insurance policy issued on the life of the
Insured. The Policy has a death benefit, surrender value and loan privilege as
does a traditional fixed benefit whole life policy. It differs from a fixed
benefit whole life policy, however, because you can allocate your premium into
one or more of several Subaccounts of the VUL Account or the GIA. Each
Subaccount of the VUL Account, in turn, invests its assets exclusively in a
Series of the Funds. The Policy death benefit and cash value vary according to
the investment performance of the Series to which the policy value has been
allocated.
ELIGIBLE PURCHASERS
Any person up to the age of 75 is eligible to be insured under a newly
purchased Policy after providing suitable evidence of insurability. You can
purchase a Policy to insure the life of another person provided that you have
the Insured's consent and a legally-recognized interest for insuring that life.
A Policy could, for example, be purchased on the life of a spouse, family member
or a business partner.
PREMIUM PAYMENT
The minimum issue premium for a Policy is $10,000. After the first policy
year, you may pay, within certain limits, additional premiums if the variable
death benefit on the first day of the policy year is less than the highest
variable death benefit during the previous policy year and less than the current
target face amount. Additional premiums may be paid only during the first 60
days of a policy year.
The maximum amount of an additional premium payment (when permitted) is the
lesser of (i) A minus B or (ii) C, where:
A = the premium payment which would have increased the variable death
benefit at the beginning of the current policy year to the highest
variable death benefit during the previous policy year
B = the amount of any reduction in cash value due to partial surrenders
made during the previous policy year
C = the premium payment which would have increased the variable death
benefit at the beginning of the current policy year to the current
target face amount
Example: Assume that a male age 45, nonsmoker, pays an initial premium of
$10,000 and has a target face amount of $28,236. Assume also a net
investment rate of return of 9% for the first policy year and a net
investment rate of return of 0% for the second and third policy years. At
the beginning of the third policy year, this individual would have a
variable death benefit of $28,952. This variable death benefit is less than
the highest death benefit in the previous year, which would have been
$29,772. However, since $28,952 is higher than the initial target face
amount of $28,236, this individual would not be permitted to pay an
additional premium.
At the beginning of the fourth policy year, this individual would have a
variable death benefit of $27,940. The variable death benefit is less than
the highest death benefit in the previous year, which would have been
$28,952. Also, this death benefit is less than the initial target face
amount of $28,236; therefore, this individual would be permitted to pay an
additional premium. The premium necessary to increase the death benefit to
$28,236 (the initial target face amount) is $105.66 for this individual.
Phoenix also may agree to allow payment of a higher premium amount.
The individual in this example may wish to pay this additional premium to
maintain his originally targeted level of death benefit protection despite
adverse market experience. In addition, some Policyowners may view depressed
market values as an opportunity to buy additional Units at the depressed
value in anticipation of future market improvement.
Additional premium payments are reduced by any applicable state premium tax
based on your last known address on record at VPO. See "Monthly
Deduction--Acquisition Expense." Also, a further deduction is made from
additional premiums when payment is made during a grace period. See "Lapse."
The additional premiums less applicable deductions are called additional net
premium. They are applied to policy value based on the then current premium
allocation schedule.
The payment of additional premiums will have an effect on the Policy's
variable death benefit. See "Death Benefit--Additional Premiums and Partial
Surrenders: Effect on Death Benefit."
ALLOCATION OF ISSUE PREMIUM
We will generally allocate the issue premium less applicable charges to the
VUL Account or to the GIA upon receipt of a completed application, in accordance
with the allocation instructions in the application for a Policy. However,
Policies issued in certain states, and Policies issued in certain states
pursuant to applications which state the Policy is intended to replace existing
insurance, are issued with a Temporary Money Market Allocation Amendment. Under
this Amendment, we temporarily allocate the entire issue premium paid less
applicable charges (along with any other premiums paid during the right to
cancel period) to the Phoenix-Goodwin Money Market Subaccount of the VUL
Account, and, at the expiration of the right to cancel period, the policy value
of the Phoenix-Goodwin Money Market Subaccount is allocated among the
Subaccounts of the VUL Account or
7
<PAGE>
to the GIA in accordance with the applicant's allocation instructions in the
application for insurance.
RIGHT TO CANCEL PERIOD
You have the right to review the Policy. If you are not satisfied with it,
you may cancel the Policy:
[diamond] by mailing it to us within 10 days after you receive it (or longer in
some states); or
[diamond] within 10 days after we mail or deliver a written notice telling you
about your right to cancel; or
[diamond] within 45 days after completing the application,
whichever occurs latest (the "Right to Cancel Period").
We treat a returned Policy as if we never issued it and, except for Policies
issued without a Temporary Money Market Allocation Amendment, we will return the
sum of the following as of the date we receive the returned Policy: (1) the then
current Policy Value less any unpaid loans and loan interest; plus (2) any
monthly deductions, partial surrender fees and other charges made under the
Policy. For Policies issued with the Temporary Money Market Amendment the amount
returned will equal any premiums paid less any unrepaid loans and loan interest,
and less any partial surrender amounts paid.
We retain the right to decline to process an application within seven days
of our receipt of the completed application for insurance. If we decline to
process the application, we will return the premium paid. Even if we have
approved the application for processing, we retain the right to decline to issue
the Policy. If we decline to issue the Policy, we will refund to you the same
amount as would have been refunded under the Policy had it been issued but
returned for refund during the Right to Cancel Period.
TEMPORARY INSURANCE COVERAGE
On the date the application for a Policy is signed and submitted with the
issue premium, we issue a Temporary Insurance Receipt to you. Under the
Temporary Insurance Receipt, the insurance protection applied for (subject to
the limits of liability and subject to the terms set forth in the Policy and in
the Receipt) takes effect on the date of the application.
TRANSFER OF POLICY VALUE
SYSTEMATIC TRANSFER PROGRAM
You may elect to transfer all or a portion of policy value among the
Subaccounts or the unloaned portion of the GIA on a monthly, quarterly,
semiannual or annual basis under the Systematic Transfer Program for Dollar Cost
Averaging ("Systematic Transfer Program"). Under this Systematic Transfer
Program, the minimum transfer amounts are $25 monthly, $75 quarterly, $150
semiannually or $300 annually. You must have an initial value of $1,000 in the
GIA or the Subaccount from which funds will be transferred ("Sending
Subaccount") and if the value in that Subaccount or the GIA drops below the
amount to be transferred, the entire remaining balance will be transferred and
all systematic transfers stop. Funds may be transferred from only one Sending
Subaccount or the GIA, but may be allocated to more than one Subaccount
("Receiving Subaccounts"). Under the Systematic Transfer Program, Policyowners
may make more than one transfer per policy year from the GIA. These transfers
must be in approximately equal amounts and made over a minimum 18-month period.
Only one Systematic Transfer Program can be active at any time. After the
completion of the Systematic Transfer Program, you can call VPO at 800/541-0171
to begin a new Systematic Transfer Program.
All transfers under the Systematic Transfer Program will be made on the
basis of the GIA and Subaccount on the first day of the month following our
receipt of the transfer request. If the first day of the month falls on a
holiday or weekend, then the transfer will be processed on the next business
day.
NONSYSTEMATIC TRANSFERS
Transfers among available Subaccounts or the GIA may be requested in writing
or by calling 800/541-0171, between the hours of 8:30 a.m. and 4:00 p.m. Eastern
Time. Written requests for transfers will be executed on the date the request is
received at VPMO. Telephone transfers will be effective on the date the request
is made except as noted below. Unless you elect in writing not to authorize
telephone transfers or premium allocation changes, telephone transfer orders and
premium allocation changes also will be accepted on your behalf from your
registered representative. Phoenix and Phoenix Equity Planning Corporation
("PEPCO"), the national distributor for Phoenix, will employ reasonable
procedures to confirm that telephone instructions are genuine. They will require
verification of account information and will record telephone instructions on
tape. All telephone transfers will be confirmed in writing to you. To the extent
that Phoenix and PEPCO fail to follow procedures reasonably designed to prevent
unauthorized transfers, Phoenix and PEPCO 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 that Phoenix and PEPCO reasonably believe to be genuine. The telephone
transfer and allocation change privileges may be modified or terminated at any
time. During times of extreme market volatility, these privileges may be
difficult to exercise. In such cases, you should submit a written request.
Although currently there is no charge for transfers, in the future, we may
charge a fee of $10 for each transfer after the first two transfers in a policy
year.
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We reserve the right to refuse to transfer amounts less than $500 unless:
[diamond] the entire balance in the Subaccount or the GIA is being transferred;
or
[diamond] the transfer is part of the Systematic Transfer Program.
We also reserve the right to prohibit a transfer to any Subaccount of the
VUL Account if the value of your investment in that Subaccount immediately after
the transfer would be less than $500. We further reserve the right to require
that the entire balance of a Subaccount or the GIA be transferred if the value
of your investment in that Subaccount would, immediately after the transfer, be
less than $500.
You may make only one transfer per policy year from the unloaned portion of
the GIA unless
[diamond] the transfer(s) are made as part of a Systematic Transfer Program, or
[diamond] we agree to make an exception to this rule.
The amount you may transfer cannot exceed the greater of $1,000 or 25% of
the value of the unloaned portion of the GIA at the time of the transfer. In
addition, you may transfer the total value allocated to the unloaned portion of
the GIA out of the GIA to one or more of the Subaccounts over a consecutive
four-year period according to the following schedule:
[diamond] Year One: 25% of the total value
[diamond] Year Two: 33% of the remaining value
[diamond] Year Three: 50% of the remaining value
[diamond] Year Four: 100% of the remaining value
A nonsystematic transfer from the unloaned portion of the GIA will be
processed on the day such request is received by VPMO.
Transfers into the GIA and among the Subaccounts may be made anytime. We
reserve the right to limit the number of Subaccounts you may invest in to a
total of 18 at any one time or over the life of the Policy. We may limit you to
less than 18 if we are required to do so by any federal or state law.
Because excessive exchanges between Subaccounts can hurt Fund performance,
we reserve the right to temporarily or even permanently terminate exchange
privileges or reject any specific exchange order from anyone whose transactions
appear to us 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
batched transfer instructions from registered representatives (acting under
powers of attorney for multiple Policyowners), unless the registered
representative's broker-dealer firm and Phoenix have entered into a third-party
transfer service agreement.
If a policy has been issued with a Temporary Money Market Allocation
Amendment, no transfers may be made until the end of the Right to Cancel Period.
DETERMINATION OF SUBACCOUNT VALUES
On each valuation date, the Policy's share in the value of each Subaccount
is determined separately, but the valuation method used is the same for each
Subaccount.
A Policy's share in the value of a Subaccount on any valuation date equals:
(a) the Policy's share in the value of that Subaccount as of the
immediately preceding valuation date multiplied by the "Net Investment
Factor" of that Subaccount for the current valuation period; plus
(b) all amounts transferred to the Policy's share in the value of that
Subaccount from another Subaccount or from the loan account during the
current valuation period; plus
(c) all additional net premiums allocated to that Subaccount during the
current valuation period; minus
(d) all amounts transferred from the Policy's share in the value of that
Subaccount to another Subaccount or to the loan account during the
current valuation period; minus
(e) any portion of the monthly deduction allocated to the Policy's share in
the value of that Subaccount during the current valuation period; minus
(f) all reductions in the policy value allocated to the Policy's share in
the value of that Subaccount due to any partial surrenders made during
the current valuation period.
The net investment factor for each Subaccount for any Valuation Period is
determined by dividing (a) by (b), and subtracting (c) from the result where:
(a) is the result of:
(i) the asset value of the Fund shares held by that Subaccount
determined as of the end of the current valuation period
(exclusive of the net value of any transactions during the
current valuation period); plus
(ii) the amount of any dividend (or, if applicable, any capital gain
distribution) made by the Fund on shares held by that Subaccount
if the "ex-dividend" date occurs during the current valuation
period; plus/minus
(iii) the charge or credit for any taxes incurred by, or provided for,
in that Subaccount for the current valuation period.
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(b) the net asset value of the Fund shares held by that Subaccount
determined as of the end of the immediately preceding valuation period
(c) is a factor, equal to the sum of 0.50% on an annual basis held by that
Subaccount, representing the mortality and expense risk charge deducted
from that Subaccount during the valuation period
The net investment factor may be greater than, less than, or equal to one.
Therefore, the policy value may increase, decrease or remain unchanged.
DEATH BENEFIT
GENERAL
In the application for insurance, an applicant designates an amount as the
Policy's initial target face amount. During the first policy month, the death
benefit equals this target face amount. After the first policy month the death
benefit is equal to the variable death benefit.
During any policy month after the first, the variable death benefit under
the Policy is equal to:
(i) the cash value on the last preceding monthly calculation day,
multiplied by
(ii) the applicable death benefit adjustment rate (as defined below) on the
last preceding monthly calculation day.
The death benefit adjustment rates assume an interest rate ranging from 4%
to 5%. The assumed interest rate used to calculate the death benefit adjustment
rates under a particular Policy depends on the Policy's initial premium and its
target face amount. In the event the net investment rate of return (gross
investment return net of mortality and expense risk charge and investment
management fee) applied to the policy value exceeds the assumed interest rate
used to calculate the death benefit adjustment rates, the variable death benefit
under the Policy will be greater than its target face amount. Conversely, if the
net investment rate of return applied to the policy value is less than the
assumed interest rate, then the variable death benefit will be less than the
target face amount. Finally, if the net investment rate of return applied to the
policy value equals the assumed interest rate, then the variable death benefit
will approximately equal the target face amount.
Example: Death benefit adjustment rates which assume a 4% interest rate
apply to a male age 45 nonsmoker who pays an initial premium of $25,000 and
has a target face amount of $70,591. Five years after the issue date of this
Policy, the following variable death benefits would apply for the specified
net rates of return:
-assuming a 5% net investment
rate of return: $75,144
-assuming a 4% net investment
rate of return: $71,514
-and assuming a 3% net investment
rate of return: $68,019
Example: A male age 45, nonsmoker, pays an initial premium of $10,000. For
this initial premium, this individual can choose an initial target face
amount ranging from $28,236 to $35,980. This range of target face amount
represents death benefit adjustment rates which assume interest rates
ranging from 4% to 5% and a 2% state premium tax. Generally, selection of
the highest target face amount available for a given premium will result in
the highest death benefit adjustment rate, variable death benefit and
resulting cost of insurance charges. Conversely, selection of the lower
target face amount available for a given premium will result in the lowest
death benefit adjustment rate, variable death benefit and resulting cost of
insurance charges.
Assuming that this individual selects an initial target face amount of
$35,980, and that the net rate of return achieved is 5% per year, the
variable death benefit will be $36,826 and cash value will be $36,826 at age
95. The variable death benefit and cash value are slightly larger than the
initial target face amount due to the fact that the acquisition expense is
deducted and then recredited to the individual in this example and taken out
in monthly installments over the first 10 policy years. While a portion of
this acquisition expense allowance remains in the policy value, it also is
earning a net rate of return.
ADDITIONAL PREMIUMS AND PARTIAL SURRENDERS: EFFECT ON DEATH BENEFIT
Additional premium payments are permitted under certain circumstances. See
"The Policy--Premium Payment." Such a payment does not result in an immediate
increase in the variable death benefit. However, on the next monthly calculation
day the variable death benefit will be larger as a consequence of the larger
cash value.
A partial surrender decreases the target face amount and the minimum face
amount (if provided by appropriate rider). The target face amount and minimum
face amount are reduced by a fraction equal to the result of dividing the
partial surrender amount paid plus the partial surrender fee by the cash value
(determined without regard to the partial surrender). Moreover, the death
benefit under a Policy is reduced on the next monthly calculation day due to the
reduced cash value. A partial surrender or decrease in the death benefit may
have certain tax consequences. See "Federal Tax Considerations."
In addition, if the Insured dies during any policy month in which additional
premium had been paid, the death proceeds paid will equal the death benefit for
that month plus the additional premium paid, minus any premium paid during a
grace period necessary to keep the Policy in effect.
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MINIMUM FACE AMOUNT RIDER
You may elect to have a Minimum Face Amount Rider issued in connection with
the Policy. If this Rider is elected, you will designate an amount in the
application as the minimum face amount. The amount designated as the minimum
face amount cannot exceed the Policy's target face amount.
The death benefit under a Policy issued with the Minimum Face Amount Rider
equals the target face amount during the first policy month. Thereafter, the
Policy's death benefit equals the higher of
[diamond] the variable death benefit, or
[diamond] the minimum face amount.
Under the Minimum Face Amount Rider, when the death benefit is calculated
with reference to the minimum face amount, it may be greater than it otherwise
would have been had the Rider not been issued. Accordingly, when the minimum
face amount is used to calculate the death benefit, there is a greater "net
amount at risk" under the Policy. Therefore, a larger amount is deducted from
policy value to pay for cost of insurance than would be deducted under an
identical Policy without the Rider.
SURRENDERS
GENERAL
At any time during the lifetime of the Insured and while the Policy is in
force, you may partially or fully surrender the Policy by sending to VPMO a
written release and surrender in a form satisfactory to us. We may also require
you to send the Policy to us. The amount available for surrender is the
surrender value at the end of the valuation period during which the surrender
request is received at VPMO.
Upon partial or full surrender, we generally will pay to you the amount
surrendered within seven days after we receive the written request for the
surrender. Under certain circumstances, the surrender payment may be postponed.
See "General Provisions--Postponement of Payments." For the federal tax effects
of partial and full surrenders, see "Federal Tax Considerations."
FULL SURRENDERS
If the Policy is being fully surrendered, the Policy itself must be returned
to VPMO, along with the written release and surrender of all claims in a form
satisfactory to us. You may elect to have the amount paid in a lump sum or under
a payment option. See "Conditional Charges--Surrender Charge" and "Payment
Options."
PARTIAL SURRENDERS
You may obtain a partial surrender of the Policy by requesting payment of
the Policy's cash surrender value. It is possible to do this at any time during
the lifetime of the Insured, while the Policy is in force, with a written
request to VPMO. We may require the return of the Policy before payment is made.
A partial surrender will be effective on the date the written request is
received or, if required, the date the Policy is received by us. Surrender
proceeds may be applied under any of the payment options described under
"Payment of Proceeds--Payment Options."
We reserve the right not to allow partial surrenders of less than $500. In
addition, if the share of the policy value in any Subaccount or in the GIA is
reduced as a result of a partial surrender and is less than $500, we reserve the
right to require surrender of the entire remaining balance in that Subaccount or
the GIA.
Upon a partial surrender, the policy value will be reduced by the sum of the
following:
(1) The Partial Surrender Amount Paid. This amount comes from a reduction in the
Policy's share in the value of each Subaccount or the GIA based on the
allocation requested at the time of the partial surrender. If no allocation
request is made, the withdrawals from each Subaccount will be made in the
same manner as that provided for monthly deductions.
(2) The Partial Surrender Fee. This fee is the lesser of $25 or 2% of the
partial surrender amount paid. The assessment to each Subaccount or the GIA
will be made in the same manner as provided for the partial surrender amount
paid.
(3) Any Unrepaid Acquisition Expense. The portion of any unrepaid acquisition
expense paid in connection with a partial surrender is equal to the result
of dividing the partial surrender amount paid plus the partial surrender fee
by the cash value (determined without regard to the partial surrender). The
reduction in policy value caused by partial surrenders is deducted from the
Subaccounts of the VUL Account based on the allocation schedule for monthly
deductions, unless you direct otherwise. Cash value is reduced to equal the
resulting policy value less the balance of any remaining unpaid acquisition
expense allowance.
Partial surrenders will decrease the target face amount and the minimum face
amount (if provided by rider), as well as the variable death benefit. See "Death
Benefit--Additional Premiums and Partial Surrenders: Effect on Death Benefit"
and "Federal Tax Considerations."
POLICY LOANS
During the first three policy years, you may borrow an amount up to 75% of
the cash value under the Policy. Thereafter, you may borrow an amount not
exceeding 90% of the cash value. The available loan value is the loan value on
the current day less any outstanding debt.
The amount of any loan will be added to the loaned portion of the GIA and
subtracted from the Policy's share of the Subaccounts or the unloaned portion of
the GIA, based on the allocation requested at the time of the loan. The total
reduction will equal the amount added to the
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loaned portion of the GIA. Allocations generally must be expressed in terms of
whole percentages. If no allocation request is made, the amount subtracted from
the share of each Subaccount or the unloaned portion of the GIA will be
determined in the same manner as provided for monthly deductions. Interest will
be credited and the loaned portion of the GIA will increase at an effective
annual rate of 2%, compounded daily and payable in arrears. At the end of each
policy year and at the time of any debt repayment, interest credited to the
loaned portion of the GIA will be transferred to the unloaned portion of the
GIA.
Debt may be repaid at any time during the lifetime of the Insured while the
Policy is in force. Any debt repayment received by us during a grace period will
be reduced to pay any overdue monthly deductions and only the balance will be
applied to reduce the debt. Such balance will first be used to pay any
outstanding accrued loan interest, and then will be applied to reduce the loaned
portion of the GIA. The unloaned portion of the GIA will be increased by the
same amount the loaned portion is decreased. If the amount of a loan repayment
exceeds the remaining loan balance and accrued interest, the excess will be
allocated among the Subaccounts as you may request at the time of the repayment
and, if no allocation request is made, according to the most recent premium
allocation schedule on file.
Payments received by us for the Policy will be applied directly to reduce
outstanding debt unless specified as a premium payment by you. Until the debt is
fully repaid, additional debt repayments may be made at any time during the
lifetime of the Insured while the Policy is in force.
Failure to repay a policy loan or to pay loan interest will not terminate
the Policy unless the policy value becomes insufficient to maintain the Policy
in force.
The proceeds of Policy loans may be subject to federal income tax. See
"Federal Tax Considerations."
In the future, Phoenix may not allow policy loans of less than $500, unless
such loan is used to pay a premium on another Phoenix policy.
The loan debt will bear interest at an effective annual rate of 8.00%,
compounded daily and payable in arrears. The loan account value is credited with
interest at an effective annual rate of 7.25%, compounded daily and payable in
arrears.
At the end of each policy year, any interest due on the debt will be treated
as a new loan and will be offset by a transfer from your Subaccounts and the
unloaned portion of the GIA to the loaned portion of the GIA.
A policy loan, whether or not repaid, has a permanent effect on the policy
value because the investment results of the Subaccounts or unloaned portion of
the GIA will apply only to the amount remaining in the Subaccounts or the
unloaned portion of the GIA. The longer a loan is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If the
Subaccounts or the unloaned portion of the GIA earn more than the annual
interest rate for funds held in the loaned portion of the GIA, policy value does
not increase as rapidly as it would have had no loan been made. If the
Subaccounts or the GIA earn less than the annual interest rate for funds held in
the loaned portion of the GIA, the policy value is greater than it would have
been had no loan been made. A policy loan, whether or not repaid, also has a
similar effect on the Policy's death benefit due to any resulting differences in
surrender value.
LAPSE
Unlike conventional fixed benefit life insurance policies, the payment of
the issue premium, no matter how large, or the payment of additional premiums
will not necessarily continue the Policy in force to its maturity date. Lapse
will only occur if the surrender value is insufficient to cover the monthly
deduction and a grace period expires without payment of the additional required
amount. If the surrender value is insufficient to cover the monthly deduction,
you must pay the amount needed to increase the surrender value to equal three
times the required monthly deduction during the grace period. See "Charges and
Deductions."
If on any monthly calculation day the surrender value is insufficient to
cover the monthly deduction, we will notify you about the additional required
payment. You will then have a grace period of 61 days, measured from the date
notice is sent to you, to pay the additional amount. Failure to pay the
additional amount within the grace period will result in lapse of the Policy. If
we receive a premium payment for the additional amount during the grace period,
any additional net premium will be allocated among the Subaccounts or the GIA in
accordance with the current premium allocation schedule. To determine the
additional net premium to be applied to the Subaccounts or the GIA, we will
deduct the premium tax and the amount needed to cover any monthly deductions
made during the grace period. If the Insured dies during the grace period, the
death benefit will equal the amount of the death benefit immediately prior to
the commencement of the grace period.
INVESTMENTS OF THE VUL ACCOUNT
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PARTICIPATING INVESTMENT FUNDS
THE PHOENIX EDGE SERIES FUND
Certain Subaccounts of the Account invest in corresponding Series of The
Phoenix Edge Series Fund. Currently, the Fund has the following Series
available:
PHOENIX RESEARCH ENHANCED INDEX SERIES: The investment objective of the
Series is to seek high total return by investing in a broadly diversified
portfolio of
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equity securities of large and medium capitalization companies within market
sectors reflected in the S&P 500. The Series invests in a portfolio of
undervalued common stocks and other equity securities which appear to offer
growth potential and an overall volatility of return similar to that of the S&P
500.
PHOENIX-ABERDEEN INTERNATIONAL SERIES: The investment objective of the
Series is to seek a high total return consistent with reasonable risk. The
Series invests primarily in an internationally diversified portfolio of equity
securities. It intends to reduce its risk by engaging in hedging transactions
involving options, futures contracts and foreign currency transactions. The
Phoenix-Aberdeen International Series provides a means for investors to invest a
portion of their assets outside the United States.
PHOENIX-ABERDEEN NEW ASIA SERIES: The investment objective of the Series is
to seek long-term capital appreciation. The Series invests primarily in a
diversified portfolio of equity securities of issuers organized and principally
operating in Asia, excluding Japan.
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES: The investment
objective of the Series is to seek capital appreciation and income with
approximately equal emphasis. Under normal circumstances, it invests in
marketable securities of publicly traded real estate investment trusts (REITs)
and companies that operate, develop, manage and/or invest in real estate located
primarily in the United States.
PHOENIX-ENGEMANN NIFTY FIFTY SERIES: The investment objective of the Series
is to seek long-term capital appreciation by investing in approximately 50
different securities which offer the best potential for long-term growth of
capital. At least 75% of the Series' assets will be invested in common stocks of
high quality growth companies. The remaining portion will be invested in common
stocks of small corporations with rapidly growing earnings per share or common
stocks believed to be undervalued.
PHOENIX-GOODWIN BALANCED SERIES: The investment objective of the Series is
to seek reasonable income, long-term capital growth and conservation of capital.
The Phoenix-Goodwin Balanced Series invests based on combined considerations of
risk, income, capital enhancement and protection of capital value.
PHOENIX-GOODWIN GROWTH SERIES: The investment objective of the Series is to
achieve intermediate and long-term growth of capital, with income as a secondary
consideration. The Phoenix-Goodwin Growth Series invests principally in common
stocks of corporations believed by management to offer growth potential.
PHOENIX-GOODWIN MONEY MARKET SERIES: The investment objective of the Series
is to provide maximum current income consistent with capital preservation and
liquidity. The Phoenix-Goodwin Money Market Series invests exclusively in high
quality money market instruments.
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES: The investment objective
of the Series is to seek long-term total return. The Phoenix-Goodwin
Multi-Sector Fixed Income Series seeks to achieve its investment objective by
investing in a diversified portfolio of high yield and high quality fixed income
securities.
PHOENIX-GOODWIN STRATEGIC ALLOCATION SERIES: The investment objective of the
Series is to realize as high a level of total return over an extended period of
time as is considered consistent with prudent investment risk. The
Phoenix-Goodwin Strategic Allocation Series invests in stocks, bonds and money
market instruments in accordance with the Investment Adviser's appraisal of
investments most likely to achieve the highest total return.
PHOENIX-GOODWIN STRATEGIC THEME SERIES: The investment objective of the
Series is to seek long-term appreciation of capital by identifying securities
benefiting from long-term trends present in the United States and abroad. The
Phoenix-Goodwin Strategic Theme Series invests primarily in common stocks
believed to have substantial potential for capital growth.
PHOENIX-HOLLISTER VALUE EQUITY SERIES: The primary investment objective of
the Series is long-term capital appreciation, with a secondary investment
objective of current income. The Phoenix-Hollister Value Equity Series seeks to
achieve its objective by investing in a diversified portfolio of common stocks
that meet certain quantitative standards that indicate above average financial
soundness and intrinsic value relative to price.
PHOENIX-OAKHURST GROWTH AND INCOME SERIES: The investment objective of the
Series is to seek dividend growth, current income and capital appreciation by
investing in common stocks. The Phoenix-Oakhurst Growth and Income Series seeks
to achieve its objective by selecting securities primarily from equity
securities of the 1,000 largest companies traded in the United States, ranked by
market capitalization.
PHOENIX-SCHAFER MID-CAP VALUE SERIES: The primary investment objective of
the Series is to seek long-term capital appreciation, with current income as the
secondary investment objective. The Phoenix-Schafer Mid-Cap Value Series will
invest in common stocks of established companies having a strong financial
position and a low stock market valuation at the time of purchase which are
believed to offer the possibility of increase in value.
PHOENIX-SENECA MID-CAP GROWTH SERIES: The investment objective of the Series
is to seek capital appreciation primarily through investments in equity
securities of companies that have the potential for above average market
appreciation. The Series seeks to outperform the Standard & Poor's Mid-Cap 400
Index.
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TEMPLETON VARIABLE PRODUCTS SERIES FUND
Certain Subaccounts of the Account invest in Class 2 Shares of a
corresponding Series of the Templeton Variable Products Series Fund. The
following Series are currently available through the Contracts:
MUTUAL SHARES INVESTMENTS SERIES: The primary investment objective of the
Series is to seek capital appreciation with income as a secondary objective. The
Mutual Shares Investments Series invests in domestic equity securities and
domestic debt obligations.
TEMPLETON ASSET ALLOCATION SERIES: The investment objective of the Series is
to seek a high level of total return through a flexible investment policy. The
Templeton Asset Allocation Series invests in stocks of companies of any nation,
debt securities of companies and governments of any nation and in money market
instruments. Changes in the asset mix will be made in an attempt to capitalize
on total return potential produced by changing economic conditions throughout
the world.
TEMPLETON DEVELOPING MARKETS SERIES: The investment objective of the Series
is to seek long-term capital appreciation. The Templeton Developing Markets
Series invests primarily in equity securities of issuers in countries having
developing markets.
TEMPLETON INTERNATIONAL SERIES: The investment objective of the Series is to
seek long-term capital growth through a flexible policy of investing. The
Templeton International Series invests in stocks and debt obligations of
companies and governments outside the United States. Any income realized will be
incidental. Although the Series generally invests in common stock, it also may
invest in preferred stocks and certain debt securities such as convertible bonds
that are rated in any category by S&P or Moody's or that are unrated by any
rating agency.
TEMPLETON STOCK SERIES: The investment objective of the Series is to provide
capital growth. The Templeton Stock Series invests primarily in common stocks
issued by companies, large and small, in various nations throughout the world.
WANGER ADVISORS TRUST
Certain Subaccounts of the Account invest in corresponding Series of the
Wanger Advisors Trust. The following Series are currently available through the
Contracts:
WANGER FOREIGN FORTY SERIES: The investment objective of the Series is to
seek long-term capital growth. The Wanger Foreign Forty Series invests primarily
in equity securities of foreign companies with market capitalization of $1
billion to $10 billion and focuses its investments in 40 to 60 companies in the
developed markets.
WANGER INTERNATIONAL SMALL CAP SERIES: The investment objective of the
Series is to provide long-term growth. The Wanger International Small Cap Series
invests primarily in securities of non-U.S. companies with total common stock
market capitalization of less than $1 billion.
WANGER TWENTY SERIES: The investment objective of the Series is to seek
long-term capital growth. The Wanger Twenty Series invests primarily in the
stocks of U.S. companies with market capitalization of $1 billion to $10 billion
and ordinarily focuses its investments in 20 to 25 U.S. companies.
WANGER U.S. SMALL CAP SERIES: The investment objective of the Series is to
provide long-term growth. The Wanger U.S. Small Cap Series invests primarily in
securities of U.S. companies with total common stock market capitalization of
less than $1 billion.
Each Series will be subject to market fluctuations and the risks that come
with the ownership of any security, and there can be no assurance that any
Series will achieve its stated investment objective.
In addition to being sold to the Account, shares of the Funds also may be
sold to other separate accounts of Phoenix or its affiliates or to the separate
accounts of other insurance companies.
It is possible that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the Fund(s) simultaneously. Although neither Phoenix 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:
[diamond] changes in state insurance laws;
[diamond] changes in federal income tax laws;
[diamond] changes in the investment management of any portfolio of the
Fund(s); or
[diamond] differences in voting instructions between those given by variable
life insurance Policyowners and those given by variable annuity
Contract Owners.
We will, at our 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.
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INVESTMENT ADVISERS
Phoenix Investment Counsel, Inc. ("PIC") is the investment adviser to all
Series in The Phoenix Edge Series Fund except the Phoenix-Duff & Phelps Real
Estate Securities and Phoenix-Aberdeen New Asia Series. Based on subadvisory
agreements with the Fund, PIC delegates certain investment decisions and
research functions to subadvisers for the following Series:
[diamond] J.P. Morgan Investment Management, Inc.
[bullet] Phoenix Research Enhanced Index Series
[diamond] Roger Engemann & Associates, Inc. ("Engemann")
[bullet] Phoenix-Engemann Nifty Fifty Series
[diamond] Seneca Capital Management, LLC ("Seneca")
[bullet] Phoenix-Seneca Mid-Cap Series
[diamond] Schafer Capital Management, Inc.
[bullet] Phoenix-Schafer Mid-Cap Series
The investment adviser to the Phoenix-Duff & Phelps Real Estate Securities
Series is Duff & Phelps Investment Management Co. ("DPIM").
The investment adviser to the Phoenix-Aberdeen New Asia Series is
Phoenix-Aberdeen International Advisors LLC ("PAIA"). Pursuant to subadvisory
agreements with the Fund, PAIA delegates certain investment decisions and
research functions with respect to the Phoenix-Aberdeen New Asia Series to PIC
and Aberdeen Fund Managers, Inc.
PIC, DPIM, Engemann and Seneca are indirect, less than wholly-owned
subsidiaries of Phoenix. PAIA is jointly owned and managed by PM Holdings, Inc.,
a subsidiary of Phoenix, and by Aberdeen Fund Managers, Inc.
The other investment advisers are:
[diamond] Wanger Asset Management, L.P.
[bullet] Wanger Advisors Trust
[diamond] Templeton Investment Counsel, Inc.
[bullet] Templeton Asset Allocation
[bullet] Templeton International
[bullet] Templeton Stock
[diamond] Templeton Asset Ltd.
[bullet] Templeton Developing Markets
[diamond] Franklin Mutual Advisers, Inc.
[bullet] Mutual Shares Investments
SERVICES OF THE ADVISERS
The Advisers continuously furnish an investment program for each Series and
manage the investment and reinvestment of the assets of each Series subject at
all times to the authority and supervision of the Trustees. A detailed
discussion of the investment advisers and subadvisers, and the investment
advisory and subadvisory agreements, is contained in the accompanying prospectus
for the Funds.
REINVESTMENT AND REDEMPTION
All dividend distributions of the Fund are automatically reinvested in
shares of the Fund at their net asset value on the date of distribution.
Likewise, all capital gains distributions of the Fund, if any, are reinvested at
the net asset value on the record date. We redeem Fund shares at their net asset
value to the extent necessary to make payments under the Policy.
SUBSTITUTION OF INVESTMENTS
We reserve the right to make additions to, deletions from, or substitutions
for the investments held by the VUL Account, subject to compliance with the law
as currently applicable or as subsequently changed. In the future, we may
establish additional Subaccounts within the VUL Account, each of which will
invest in shares of a designated portfolio of the Fund with a specified
investment objective. If and when marketing needs and investment conditions
warrant, and at our discretion, we may establish additional portfolios. These
will be made available under existing Policies to the extent and on a basis
determined by us.
If shares of any of the portfolios of the Fund should no longer be available
for investment or, if in the judgment of our management, further investment in
shares of any of the portfolios become inappropriate due to Policy objectives,
we may then substitute shares of another mutual fund for shares already
purchased, or to be purchased in the future. No substitution of mutual fund
shares held by the VUL Account may take place without prior approval of the
Securities and Exchange Commission and prior notice to you. In the event of a
change, you will be given the option of transferring the policy value of the
Subaccount in which the substitution is to occur to another Subaccount.
CHARGES AND DEDUCTIONS
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GENERAL
Charges are deducted in connection with the Policy to compensate us for:
[diamond] our expenses in selling the Policy;
[diamond] underwriting and issuing the Policy;
[diamond] premium taxes incurred on the premium received;
[diamond] providing the insurance benefits set forth in the Policy; and
[diamond] assuming certain risks in connection with the Policy.
The nature and amount of these charges are more fully described in sections
below.
We may reduce the sales charge or issue administration charge component of
the acquisition expense allowance for Policies issued under group or sponsored
arrangements. Generally, sales and administrative costs per Policy vary with the
size of the group or sponsored arrangement, its stability as indicated by its
term of existence and certain characteristics of its members, the purposes for
which the
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Policies are purchased, and other factors. The amounts of any reductions will be
considered on a case-by-case basis and will reflect the reduced sales or
administration costs expected as a result of sales to a particular group or
sponsored arrangement.
Certain charges are deducted only once, others are deducted periodically,
while certain others are deducted only if certain events occur.
A charge is deducted monthly from the policy value under a Policy ("monthly
deduction") during the first 10 policy years, to repay the acquisition expense
allowance (as described below). A charge also is deducted monthly to compensate
for the cost of insurance. The monthly deduction is deducted on each monthly
calculation day. It is allocated among the Subaccounts of the VUL Account and
the GIA based on the allocation schedule for monthly deductions specified by the
applicant in the application for a Policy or as later changed by the
Policyowner. Because portions of the monthly deduction, such as the cost of
insurance, can vary from month to month, the monthly deduction itself may vary
in amount from month to month.
ACQUISITION EXPENSE (ACQUISITION EXPENSE ALLOWANCE)
The acquisition expense allowance consists of:
[diamond] the sales charge;
[diamond] issue administration charge; and
[diamond] premium taxes.
Charges are deducted from the issue premium and recredited by us as part of
the allocation of the issue premium to the policy value on the date of issue. A
monthly pro rata share of the allowance is repaid to us as part of the monthly
deduction during the first 10 policy years. Any unpaid balance is fully repaid
to us upon Policy lapse or full surrender.
By deducting these charges in monthly installments instead of deducting them
all at once from the issue premium, more funds are available for investment
during the first 10 policy years. As a result, if the net investment factor is
positive, the Policyowner will enjoy greater increases in cash value, but if the
net investment factor is negative, the Policyowner will experience greater
decreases in cash value.
Additional premiums are not subject to an acquisition expense allowance (a
sales or issue administration charge). However, prior to allocation of
additional net premiums among the Subaccounts of the VUL Account or the GIA,
additional premiums paid will be reduced by the premium tax charge and, for
additional premiums paid during a grace period, by the amount needed to cover
any monthly deductions made during the grace period.
PERIODIC CHARGES
MONTHLY
[diamond] SALES CHARGE. A sales charge of 5.5% of the Issue Premium paid is
assessed to compensate Phoenix for distribution expenses incurred in
connection with the Policy. These expenses include agent sales
commissions, the cost of printing prospectuses and sales literature,
and any advertising costs. The sales charge in any Policy is not
necessarily related to actual distribution expenses incurred in the
year the Policy is issued.
[diamond] PREMIUM TAX CHARGE. Various states (and countries and cities) impose a
tax on premiums received by insurance companies. Premium taxes vary
from state to state. Currently, these taxes range from 0.75% to 4% of
premiums paid. Moreover, certain municipalities in Louisiana, Kentucky
and South Carolina also impose taxes on premiums paid, in addition to
the state taxes imposed. The premium tax charge represents an amount
we consider necessary to pay all premium taxes imposed by these taxing
authorities, and we do not expect to derive a profit from this charge.
[diamond] ISSUE ADMINISTRATION CHARGE. The issue administration charge is 1% of
the issue premium paid and is to compensate us for underwriting and
start-up expenses in connection with issuing a Policy. Rather than
deduct the full amount at once, the issue expense charge is deducted
in equal monthly installments.
[diamond] COST OF INSURANCE. Because the cost of insurance depends upon a number
of variables, this charge can vary from month to month. The cost of
insurance charge is equal to the applicable cost of insurance rate
divided by 1,000 multiplied by the "net amount at risk" for each
Policy Month. The net amount at risk for a Policy Month is
[bullet] the death benefit on the monthly calculation day, less
[bullet] the cash value on such day.
Cost of insurance rates are based on the sex (in most states),
attained age and risk class of the Insured. The actual monthly cost of
insurance rates are based on our expectations of future experience.
They will not, however, be greater than the guaranteed cost of
insurance rates set forth in the Policy. These guaranteed rates are
based on the 1980 Commissioners Standard Ordinary Mortality Table with
appropriate adjustment for the Insured's risk classification. Any
change in the cost of insurance rates will apply to all persons of the
same insurance age, sex and risk class whose Policies have been in
force for the same length of time.
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The risk class of an Insured may affect the cost of insurance rate. We
currently place Insureds into a standard risk class or risk classes
involving a higher mortality risk. In an otherwise identical Policy,
Insureds in the standard risk class will have a lower cost of
insurance than those in the risk class with the higher mortality risk.
The standard risk class also is divided into two categories: smokers
and nonsmokers. Nonsmoking Insureds will generally incur a lower cost
of insurance than similarly situated Insureds who smoke.
DAILY
[diamond] MORTALITY AND EXPENSE RISK CHARGE. A charge at an annual rate of .50%
is deducted daily from the VUL Account. No portion of this charge is
deducted from the GIA.
The mortality risk assumed by us is that collectively our Insureds may
live for a shorter time than projected because of inaccuracies in the
projecting process and, therefore, the total amount of death benefits
that will be paid out are greater than we expected. The expense risk
assumed is that expenses incurred in issuing and maintaining the
Policies may exceed the limits on administrative charges set in the
Policies. If the expenses do not increase to an amount in excess of
the limits, or if the mortality projecting process proves to be
accurate, we may profit from this charge. We also assume risks with
respect to other contingencies including the incidence of Policy
loans, which may cause us to incur greater costs than expected when we
designed the Policies. To the extent we profit from this charge, we
may use such profits for any proper purpose, including the payment of
sales expenses or any other expenses that may exceed income in a given
year.
CONDITIONAL CHARGES
These are other charges that are imposed only if certain events occur.
[diamond] PARTIAL SURRENDER FEE. In the case of a partial surrender, an
additional fee is imposed. This fee is equal to 2% of the amount
withdrawn but not more than $25. It is intended to recover the actual
costs of processing the partial surrender request and will be deducted
from each Subaccount and the GIA in the same proportion as the
withdrawal is allocated. If no allocation is made at the time of the
request for the partial surrender, withdrawal allocation will be made
in the same manner as monthly deductions. A fraction of the balance of
any unpaid acquisition expense also is deducted from the policy value
upon a partial surrender. This fraction is equal to the result of
dividing the partial surrender amount paid plus the partial surrender
fee by the cash value (determined without regard to the partial
surrender).
INVESTMENT MANAGEMENT CHARGE
As compensation for investment management services to the Funds, the
Advisers are entitled to fees, payable monthly and based on an annual percentage
of the average aggregate daily net asset values of each Series.
These Fund charges and other expenses are described more fully in the
accompanying Fund prospectuses.
OTHER TAXES
Currently no charge is made to the VUL Account for federal income taxes that
may be attributable to the VUL Account. We may, however, make such a charge in
the future for these or any other taxes attributable to the VUL Account.
GENERAL PROVISIONS
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POSTPONEMENT OF PAYMENTS
GENERAL
Payment of any amount may be postponed upon complete or partial surrender,
Policy loan, or benefits payable at death (in excess of the initial face amount)
or maturity:
[diamond] for up to six months from the date of the request, for any
transactions dependent upon the value of the GIA;
[diamond] whenever the NYSE is closed other than for customary weekend and
holiday closings or trading on the NYSE is restricted as determined by
the SEC; or
[diamond] whenever an emergency exists, as decided by the SEC as a result of
which disposal of securities is not reasonably practicable or it is
not reasonably practicable to determine the value of the VUL Account's
net assets.
Transfers also may be postponed under these circumstances.
PAYMENT BY CHECK
Payments under the Policy of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared your bank.
THE CONTRACT
The Policy and attached copy of the application are the entire contract.
Only statements in the application can be used to void the Policy. The
statements are considered representations and not warranties. Only an executive
officer of Phoenix can agree to change or waive any provisions of the Policy.
SUICIDE
If the Insured commits suicide within two years after the Policy's date of
issue, we will only pay you the cash value plus the acquisition expense,
adjusted by the addition
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of any monthly deductions and other fees and charges, minus any debt owed to us
under the Policy.
INCONTESTABILITY
We cannot contest this Policy or any attached rider after it has been in
force during the Insured's lifetime or for two years from the policy date.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently changed,
will receive the Policy benefits at the Insured's death. If the named
Beneficiary dies before the Insured, the contingent Beneficiary, if named,
becomes the Beneficiary. If no Beneficiary survives the Insured, the death
benefit payable under the Policy will be paid to your estate.
As long as the Policy is in force, the Policyowner and the Beneficiary may
be changed in writing, satisfactory to us. A change in Beneficiary will take
effect as of the date the notice is signed, whether or not the Insured is living
when we receive the notice. We will not, however, be liable for any payment made
or action taken before receipt of the notice.
ASSIGNMENT
The Policy may be assigned. We will not be bound by the assignment until a
written copy has been received and we will not be liable with respect to any
payment made prior to receipt. We assume no responsibility for determining
whether an assignment is valid.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the death benefit will
be adjusted based on what the cost of insurance charge for the most recent
monthly deduction would have purchased based on the correct age and sex.
SURPLUS
You may share in the divisible surplus of Phoenix to the extent decided
annually by the Board of Directors. However, it is not currently expected that
the Board will authorize these payments since you will be participating directly
in investment results.
PAYMENT OF PROCEEDS
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SURRENDER AND DEATH BENEFIT PROCEEDS
Death benefit proceeds and the proceeds of full or partial surrenders will
be processed at unit values next computed after we receive the request for
surrender or due proof of death, provided such request is complete and in good
order. Payment of surrender or death proceeds usually will be made in one lump
sum within seven days, unless another payment option has been elected. Payment
of the death proceeds, however, may be delayed if the claim for payment of the
death proceeds needs to be investigated, e.g., to ensure payment of the proper
amount to the proper payee. Any such delay will not be beyond that reasonably
necessary to investigate such claims consistent with insurance practices
customary in the life insurance industry.
You may elect a payment option for payment of the death proceeds to the
Beneficiary. You may revoke or change a prior election, unless such right has
been waived. The Beneficiary may make or change an election before payment of
the death proceeds, unless you have made an election that does not permit such
further election or changes by the Beneficiary.
A written request in a form satisfactory to us is required to elect, change
or revoke a payment option.
The minimum amount of surrender or death benefit proceeds that may be
applied under any payment option is $1,000.
If the Policy is assigned as collateral security, we will pay any amount due
the assignee in one lump sum. Any remaining proceeds will remain under the
option elected.
PAYMENT OPTIONS
All or part of the surrender or death proceeds of a Policy may be applied
under one or more of the following payment options or such other payment options
or alternative versions of the options listed as we may choose to make available
in the future.
OPTION 1--LUMP SUM.
Payment in one lump sum.
OPTION 2--LEFT TO EARN INTEREST.
A payment of interest during the payee's lifetime on the amount payable as a
principal sum. Interest rates are guaranteed to be at least 3% per year. Upon
death of the payee, payment of the principal amount along with any accrued and
unpaid interest will be made to the Contingent Beneficiary.
OPTION 3--PAYMENT FOR A SPECIFIC PERIOD.
Equal installments are paid for a specified period of years whether the
payee lives or dies. The first payment will be on the date of settlement. The
assumed interest rate on the unpaid balance is guaranteed not to be less than 3%
per year. Upon the death of the named payee, the remaining payments will
continue to the contingent Beneficiary as designated in the written form
electing the options.
OPTION 4--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN.
Equal installments are paid until the later of:
[diamond] the death of the payee; or
[diamond] the end of the period certain.
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The first payment will be on the date of settlement.
The period certain must be chosen at the time this option is elected. The
periods certain that you may choose from are as follows:
[diamond] ten years;
[diamond] twenty years; or
[diamond] until the installments paid refund the amount applied under this
option.
If the payee is not living when the final payment falls due, that payment
will be limited to the amount which needs to be added to the payments already
made to equal the amount applied under this option.
If, for the age of the payee, a period certain is chosen that is shorter
than another period certain paying the same installment amount, we will consider
the longer period certain as having been elected.
OPTION 5--LIFE ANNUITY.
Equal installments are paid only during the lifetime of the payee. The first
payment will be on the date of settlement. Under this option, the payee may
receive only one payment, if the payee dies before the due date for the second
payment; only two payments, if the payee dies before the due date for the third
payment, etc.
OPTION 6--PAYMENTS OF A SPECIFIED AMOUNT.
Equal installments of a specified amount, out of the principal sum and
interest on that sum, are paid until the principal sum remaining is less than
the amount of the installment. When that happens, the principal sum remaining
with accrued interest will be paid as a final payment. The first payment will be
on the date of settlement. The payments will include interest on the remaining
principal at a guaranteed rate of at least 3% per year. This interest will be
credited at the end of each year. If the amount of interest credited at the end
of the year exceeds the income payments made in the last 12 months, that excess
will be paid in one sum on the date credited.
OPTION 7--JOINT SURVIVORSHIP ANNUITY WITH 10-YEAR PERIOD CERTAIN.
This payment option is not available for death proceeds. This option is
available only if the Policy is surrendered within six months of the Policy
anniversary nearest the Insured's 55th, 60th or 65th birthday.
The first payment will be on the date of settlement. Equal installments are
paid until the latest of:
[diamond] the end of the 10-year period certain;
[diamond] the death of the Insured; or
[diamond] the death of the other named annuitant.
The other annuitant must have attained age 40, must be named at the time
this option is elected and cannot later be changed.
For additional information concerning the above payment options, see the
Policy.
FEDERAL TAX CONSIDERATIONS
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INTRODUCTION
The ultimate effect of federal income taxes on values under the VUL Account
and on the economic benefit to you or your Beneficiary depends on our tax status
and upon the tax status of the individual concerned. The discussion contained
herein is general in nature and is not intended as tax advice. For complete
information on federal and state tax considerations, a qualified tax adviser
should be consulted. No attempt is made to consider any estate and inheritance
taxes, or any state, local or other tax laws. Because the discussion herein is
based upon our understanding of federal income tax laws as they are currently
interpreted, we cannot guarantee the tax status of any Policy. The Internal
Revenue Service (the "IRS") makes no representation regarding the likelihood of
continuation of current federal income tax laws, Treasury regulations or of the
current interpretations. We reserve the right to make changes to the Policy to
assure that it will continue to qualify as a life insurance contract for federal
income tax purposes.
PHOENIX'S TAX STATUS
We are taxed as a life insurance company under the Internal Revenue Code of
1986, as amended (the "Code"). For federal income tax purposes, neither the VUL
Account nor the GIA is a separate entity from Phoenix and their operations form
a part of Phoenix.
Investment income and realized capital gains on the assets of the VUL
Account are reinvested and taken into account in determining the value of the
VUL Account. Investment income of the VUL Account, including realized net
capital gains, is not taxed to us. Due to our tax status under current
provisions of the Code, no charge currently will be made to the VUL Account for
our federal income taxes which may be attributable to the VUL Account. We
reserve the right to make a deduction for taxes if our federal tax treatment is
determined to be other than what we currently believe it to be, if changes are
made affecting the tax treatment to our variable life insurance contracts, or if
changes occur in our tax status. If imposed, such charge would be equal to the
federal income taxes attributable to the investment results of the VUL Account.
POLICY BENEFITS
DEATH BENEFIT PROCEEDS
The Policy, which is essentially a single premium policy, is a modified
endowment contract within the meaning of the Code.
GENERAL
Pursuant to Code Section 72(e), loans and other amounts received under
modified endowment contracts
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will, in general, be taxed to the extent of accumulated income (generally, the
excess of cash value over premiums paid). Policies are modified endowment
contracts if they meet the definition of life insurance, but fail the 7-pay
test. This test essentially provides that the cumulative amount paid under the
Policy at any time during the Policy's first seven years cannot exceed the sum
of the net level premiums that would have been paid on or before that time had
the Policy provided for paid-up future benefits after the payment of seven level
annual premiums.
In addition, a modified endowment contract includes any life insurance
contract that is received in exchange for a modified endowment contract.
Premiums paid during a policy year that are returned by Phoenix (with interest)
within 60 days after the end of the policy year will not cause the Policy to
fail the 7-pay test.
Classification of the Policy as a modified endowment contract does not
affect the exclusion of death benefit proceeds under the Policy from the gross
income of the Beneficiary under Code Section 101(a)(1) and also does not cause
the Policyowner to be deemed to be in constructive receipt of the cash value,
including increments or "inside buildup" thereon. As such, the death benefit
proceeds thereunder should be excludable from the gross income of the
Beneficiary under Code Section 101(a)(1). Also, the Policyowner should not be
deemed to be in constructive receipt of the cash value, including increments
thereon. Refer to the sections below on possible taxation of amounts actually
received under the Policy, from full surrender, partial surrender or loan.
REDUCTION IN BENEFITS DURING THE FIRST SEVEN YEARS
If there is a reduction in benefits during the first seven Policy Years, the
premiums are redetermined for purposes of the 7-pay test as if the Policy had
originally been issued at the reduced death benefit level and the new limitation
is applied to the cumulative amount paid for each of the first seven policy
years.
DISTRIBUTION AFFECTED
If a Policy fails to meet the 7-pay test, it is considered a modified
endowment contract only as to distributions in the year in which the death
benefit reduction takes effect and all subsequent policy years. However,
distributions made in anticipation of such failure (there is a presumption that
distributions made within two years prior to such failure were "made in
anticipation") also are considered distributions under a modified endowment
contract. If the Policy satisfies the "7-pay test," for seven years,
distributions and loans will generally not be subject to the modified endowment
contract rules.
FULL SURRENDER
Upon full surrender of a Policy for its cash value, the excess, if any, of
the cash value (unreduced by any outstanding indebtedness) over the premiums
paid will be treated as ordinary income for federal income tax purposes. The
full surrender of a Policy that is a modified endowment contract may result in
the imposition of an additional 10% tax on any income received.
PARTIAL SURRENDER
Since the Policy is a modified endowment contract, under Section 7702A of
the Code partial surrenders are fully taxable to the extent of income in the
Policy and are possibly subject to an additional 10% tax. We suggest you consult
with your tax adviser in advance of a partial surrender as to the portion, if
any, which would be subject to tax, and in addition as to the impact such
partial surrender might have under the new rules affecting modified endowment
contracts.
LOANS
We believe that any loan received under a Policy will be treated as your
indebtedness. Since the Policy is a modified endowment contract, loans are fully
taxable to the extent of income in the Policy and possibly will be subject to an
additional 10% tax.
The deductibility by a Policyowner of loan interest under a Policy may be
limited under Code Section 264, depending on the circumstances. A Policyowner
intending to fund premium payments through borrowing should consult a tax
adviser with respect to the tax consequences thereof. Under the "personal"
interest limitation provisions of the Code, interest on Policy loans used for
personal purposes is not tax deductible. Other rules may apply to allow all or
part of the interest expense as a deduction if the loan proceeds are used for
"trade or business" or "investment" purposes. See your tax adviser for further
guidance.
BUSINESS-OWNED POLICIES
If a business or a corporation owns the Policy, the Code may impose
additional restrictions. The Code limits the interest deduction on
business-owned Policy loans and may impose tax upon the inside build-up of
corporate-owned life insurance policies through the corporate alternative
minimum tax.
PENALTY TAX
Any amounts taxable under the modified endowment contract rule will be
subject to an additional 10% excise tax, with certain exceptions. This
additional tax will not apply in the case of distributions that are:
[diamond] made on or after the taxpayer attains age 59 1/2;
[diamond] attributable to the taxpayer's disability (within the meaning of Code
Section 72(m)(7)); or
[diamond] part of a series of substantially equal periodic payments (not less
often than annually) made for the life (or life expectancy) of the
taxpayer or the joint lives (or life expectancies) of the taxpayer and
his Beneficiary.
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MATERIAL CHANGE RULES
Any determination of whether the Policy meets the 7-pay test will begin
again any time the Policy undergoes a "material change," which includes any
increase in death benefits or any increase in or addition of a qualified
additional benefit, with the following two exceptions.
[diamond] First, if an increase is attributable to premiums paid "necessary to
fund" the lowest death benefit and qualified additional benefits
payable in the first seven policy years or to the crediting of
interest or dividends with respect to these premiums, the "increase"
does not constitute a material change.
[diamond] Second, to the extent provided in regulations, if the death benefit or
qualified additional benefit increases as a result of a cost-of-living
adjustment based on an established broad-based index specified in the
Policy, this does not constitute a material change if:
[bullet] the cost-of-living determination period does not exceed the
remaining premium payment period under the Policy; and
[bullet] the cost-of-living increase is funded ratably over the
remaining premium payment period of the Policy.
A reduction in death benefits is not considered a material change unless
accompanied by a reduction in premium payments.
A material change may occur at any time during the life of the Policy
(within the first seven years or thereafter), and future taxation of
distributions or loans would depend upon whether the Policy satisfied the
applicable 7-pay test from the time of the material change. An exchange of
policies is considered to be a material change for all purposes.
SERIAL PURCHASE OF MODIFIED ENDOWMENT CONTRACTS
All modified endowment contracts issued by the same insurer (or affiliated
companies of the insurer) to the same Policyowner within the same calendar year
will be treated as one modified endowment contract in determining the taxable
portion of any loans or distributions made to the Policyowner. The Treasury has
been given specific legislative authority to issue regulations to prevent the
avoidance of the new distribution rules for modified endowment contracts. A
qualified tax adviser should be consulted about the tax consequences of the
purchase of more than one modified endowment contract within any calendar year.
LIMITATIONS ON UNREASONABLE MORTALITY AND EXPENSE CHARGES
The Code imposes limitations on unreasonable mortality and expense charges
for purposes of ensuring that a Policy qualifies as a life insurance contract
for federal income tax purposes. The mortality charges taken into account to
compute permissible premium levels may not exceed those charges required to be
used in determining the federal income tax reserve for the Policy, unless
Treasury regulations prescribe a higher level of charge.
In addition, the expense charges taken into account under the guideline
premium test are required to be reasonable, as defined by the Treasury
regulations. We will comply with the limitations for calculating the premium we
are permitted to receive from you.
QUALIFIED PLANS
A Policy may be used in conjunction with certain qualified plans. Since the
rules governing such use are complex, you should not use the Policy in
conjunction with a qualified plan until you have consulted a competent pension
consultant or tax adviser.
DIVERSIFICATION STANDARDS
To comply with the Diversification Regulations under Code Section 817(h),
("Diversification Regulations") each Series of the Fund is required to diversify
its investments. The Diversification Regulations generally require that on the
last day of each calendar quarter 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 VUL Account; therefore, each Series of the Fund will
be tested for compliance with the percentage limitations. For purposes of these
diversification rules, all securities of the same issuer are treated as a single
investment, but each United States government agency or instrumentality is
treated as a separate issuer.
The general diversification requirements are modified if any of the assets
of the VUL Account are direct obligations of the United States Treasury. In this
case, there is no limit on the investment that may be made in Treasury
securities, and for purposes of determining whether assets other than Treasury
securities are adequately diversified, the generally applicable percentage
limitations are increased based on the value of the VUL Account's investment in
Treasury securities. Notwithstanding this modification of the general
diversification requirements, the portfolios of the Funds will be structured to
comply with the general diversification standards because they serve as an
investment vehicle for certain variable annuity contracts that must comply with
these standards.
In connection with the issuance of the Diversification Regulations, the
Treasury announced that such regulations do not provide guidance concerning the
extent to which
21
<PAGE>
you may direct your investments to particular divisions of a separate account.
It is possible that a revenue ruling or other form of administrative
pronouncement in this regard may be issued in the near future. It is not clear,
at this time, what such a revenue ruling or other pronouncement will provide. It
is possible that the Policy may need to be modified to comply with such future
Treasury announcements. For these reasons, we reserve the right to modify the
Policy, as necessary, to prevent you from being considered the owner of the
assets of the VUL Account.
We intend to comply with the Diversification Regulations to assure that the
Policies continue to qualify as a life insurance contract for federal income tax
purposes.
CHANGE OF OWNERSHIP OR INSURED OR ASSIGNMENT
Changing the Policyowner or the Insured or an exchange or assignment of the
Policy may have tax consequences depending on the circumstances. Code Section
1035 provides that a life insurance contract can be exchanged for another life
insurance contract, without recognition of gain or loss, assuming that no money
or other property is received in the exchange, and that the Policies relate to
the same Insured. If the surrendered Policy is subject to a policy loan, this
may be treated as the receipt of money on the exchange. We recommend that any
person contemplating such actions seek the advice of a qualified tax consultant.
OTHER TAXES
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary. We do not make any
representations or guarantees regarding the tax consequences of any Policy with
respect to these types of taxes.
VOTING RIGHTS
- --------------------------------------------------------------------------------
We will vote the Funds' shares held by the Subaccounts at any regular and
special meetings of shareholders of the Funds. To the extent required by law,
such voting will be pursuant to instructions received from you. However, if the
1940 Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result, we decide that we are
permitted to vote the Funds' shares at our own discretion, we may elect to do
so.
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.
Funds' shares held in a Subaccount for which no timely instructions are
received, and Funds' shares which are not otherwise attributable to
Policyowners, will be voted by Phoenix in proportion to the voting instructions
that are received with respect to all Policies participating in that Subaccount.
Instructions to abstain on any item to be voted upon will be applied to reduce
the votes eligible to be cast by Phoenix.
You will receive proxy materials, reports and other materials related to the
Funds.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
to cause a change in the subclassification or investment objective of one or
more of the portfolios of the Funds or to approve or disapprove an investment
advisory contract for the Funds. In addition, Phoenix itself may disregard
voting instructions in favor of changes initiated by a Policyowner in the
investment policies or the Investment Adviser of the Funds if Phoenix reasonably
disapproves of such changes. A change would be disapproved only if the proposed
change is contrary to state law or prohibited by state regulatory authorities or
we decide that the change would have an adverse effect on the General Account
because the proposed investment policy for a Series may result in overly
speculative or unsound investments. In the event Phoenix does disregard voting
instructions, a summary of that action and the reasons for such action will be
included in the next periodic report to Policyowners.
PHOENIX
You (or the payee entitled to payment under a payment option if a different
person) will have the right to vote at annual meetings of all Phoenix
policyholders for the election of members of the Board of Directors of Phoenix
and on other corporate matters, if any, where a policyholder's vote is taken. At
meetings of all the Phoenix policyholders, you (or payee) may cast only one vote
as the holder of a Policy, irrespective of policy value or the number of the
Policies you hold.
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX
- --------------------------------------------------------------------------------
Phoenix is managed by its Board of Directors. The following are the
Directors and Executive Officers of Phoenix:
DIRECTORS PRINCIPAL OCCUPATION
Sal H. Alfiero Chairman and Chief Executive
Officer, Mark IV Industries, Inc.
Amherst, New York
J. Carter Bacot Chairman and Chief Executive
Officer, The Bank of New York
New York, New York
Richard H. Booth Executive Vice President,
Strategic Development, Phoenix
Home Life Mutual Insurance
Company, Hartford, Connecticut;
formerly President, Travelers
Insurance Company
22
<PAGE>
Peter C. Browning President and Chief Operating
Officer, Sonoco Products Company
Hartsville, South Carolina
Arthur P. Byrne Chairman, President and Chief
Executive Officer,
The Wiremold Company
West Hartford, Connecticut
Richard N. Cooper Professor of International
Economics, Harvard University;
formerly Chairman, National
Intelligence Council, Central
Intelligence Agency
McLean, Virginia
Gordon J. Davis, Esq. Partner, LeBoeuf, Lamb, Greene &
MacRae; formerly Partner, Lord,
Day & Lord, Barret Smith
New York, New York
Robert W. Fiondella Chairman of the Board, President
and Chief Executive Officer,
Phoenix Home Life Mutual Insurance
Company
Hartford, Connecticut
Jerry J. Jasinowski President, National Association of
Manufacturers
Washington, D.C.
John W. Johnstone Chairman, President and Chief
Executive Officer, Olin
Corporation
Norwalk, Connecticut
Marilyn E. LaMarche Limited Managing Director,
Lazard Freres & Company
New York, New York
Philip R. McLoughlin Executive Vice President and Chief
Investment Officer, Phoenix Home
Life Mutual Insurance Company
Hartford, Connecticut
Indra K. Nooyi Senior Vice President,
PepsiCo, Inc.
Purchase, New York
Robert F. Vizza President and Chief Executive
Officer, St. Francis Hospital
Roslyn, New York
Robert G. Wilson Chairman and Chief Financial
Officer, Lending Tree, Inc.,
Charlotte, North Carolina;
Chairman and President,
Ziani International Capital, Inc.,
Miami, Florida; formerly General
Partner, Goldman Sachs & Company,
New York, New York;
Vice Chairman, Carter Kaplan &
Company, Richmond, Virginia; and
Chairman and Chief Executive
Officer, Ecologic
Waste Services, Inc.
Miami, Florida
Dona D. Young Executive Vice President,
Individual Insurance and General
Counsel, Phoenix Home Life Mutual
Insurance Company Hartford,
Connecticut
EXECUTIVE OFFICERS PRINCIPAL OCCUPATION
Robert W. Fiondella Chairman of the Board, President
and Chief Executive Officer
Richard H. Booth Executive Vice President,
Strategic Development
Carl T. Chadburn Executive Vice President
Philip R. McLoughlin Executive Vice President and Chief
Investment Officer
David W. Searfoss Executive Vice President and Chief
Financial Officer
Dona D. Young Executive Vice President,
Individual Insurance and General
Counsel
Kelly J. Carlson Senior Vice President, Business
Practices
Robert G. Chipkin Senior Vice President and
Corporate Actuary
Martin J. Gavin Senior Vice President,
Trust Operations
Randall C. Giangiulio Senior Vice President,
Group Life and Health
Edward P. Hourihan Senior Vice President,
Information Systems
Joseph E. Kelleher Senior Vice President,
Underwriting and Operations
Robert G. Lautensack, Jr. Senior Vice President,
Individual Line Financial
Maura L. Melley Senior Vice President,
Public Affairs
Scott C. Noble Senior Vice President
David R. Pepin Senior Vice President
Robert E. Primmer Senior Vice President,
Distribution and Sales
Frederick W. Sawyer, III Senior Vice President
Simon Y. Tan Senior Vice President, Market and
Product Development
Anthony J. Zeppetella Senior Vice President,
Corporate Portfolio Management
Walter H. Zultowski Senior Vice President, Marketing
and Market Research; formerly
Senior Vice President,
LIMRA International,
Hartford, Connecticut
The above positions reflect the last held position in our parent company,
Phoenix Home Life Mutual Insurance Company, during the last five years.
23
<PAGE>
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS
- --------------------------------------------------------------------------------
We hold the assets of the VUL Account. The assets of the VUL Account are
kept physically segregated and held separate and apart from our General Account.
We maintain records of all purchases and redemptions of shares of the Funds.
SALES OF POLICIES
- --------------------------------------------------------------------------------
Policies may be purchased from registered representatives of W.S. Griffith &
Co., Inc. ("WSG"), a New York corporation incorporated on August 7, 1970,
licensed to sell Phoenix insurance policies as well as policies, annuity
contracts and funds of companies affiliated with Phoenix. WSG, an indirect
subsidiary of Phoenix, is registered as a broker-dealer with the SEC under the
Securities Exchange Act of 1934 ("1934 Act") and is a member of the National
Association of Securities Dealers, Inc. PEPCO serves as national distributor of
the Policies. PEPCO is an indirect subsidiary of Phoenix Investment Partners,
Ltd. ("PXP"), in which Phoenix owns a majority interest.
Policies also may be purchased from other broker-dealers registered under
the 1934 Act whose representatives are authorized by applicable law to sell
Policies under terms of agreements provided by PEPCO. Sales commissions will be
paid to registered representatives on purchase payments we receive under these
Policies. Phoenix will pay a maximum total sales commission of 50% of premiums
to PEPCO. To the extent that the sales charge under the Policies is less than
the sales commissions paid with respect to the Policies, we will pay the
shortfall from our General Account assets, which will include any profits we may
derive under the Policies.
STATE REGULATION
- --------------------------------------------------------------------------------
We are subject to the provisions of New York insurance laws applicable to
stock 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 we do insurance
business.
State regulation of Phoenix includes certain limitations on the investments
which we may make, including investments for the VUL Account and the GIA. This
regulation does not include, however, any supervision over the investment
policies of the VUL Account.
REPORTS
- --------------------------------------------------------------------------------
All Policyowners will be furnished with those reports required by the 1940
Act and related regulations or by any other applicable law or regulation.
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The VUL Account is not engaged in any litigation. We are not involved in any
litigation that would have a material adverse effect on our ability to meet our
obligations under the Policies.
LEGAL MATTERS
- --------------------------------------------------------------------------------
Edwin L. Kerr, Counsel of Phoenix Home Life Mutual Insurance Company, has
passed upon the organization of Phoenix, its authority to issue variable life
insurance Policies and the validity of the Policy, and upon legal matters
relating to the federal securities and income tax laws for Phoenix.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
A Registration Statement has been filed with the SEC, under the Securities
Act of 1933 ("1933 Act") with respect to the securities offered. This Prospectus
is a summary of the contents of the Policy and other legal documents and does
not contain all the information set forth in the Registration Statement and its
exhibits. We refer you to the registration statement and its exhibits for
further information concerning the VUL Account, Phoenix and the Policy.
YEAR 2000 ISSUE
- --------------------------------------------------------------------------------
Many existing computer programs use only two digits to identify the year in
a date field. This is commonly referred to as the "Year 2000 Issue." Companies
must consider the impact of the upcoming change in the century on their computer
systems. The Year 2000 Issue, if not adequately addressed, could result in
computer system failures or miscalculations causing disruptions of operations
and the possible inability of companies to process transactions. We believe that
the Year 2000 Issue is an important business priority requiring careful analysis
of every business system in order to be assured that all information systems
applications are century compliant.
We have been addressing the Year 2000 Issue in earnest since 1995 when, with
consultants, a comprehensive inventory and assessment of all business systems,
including those of our subsidiaries, was conducted. We have identified and are
now actively pursuing a number of strategies to address the issue, including:
[diamond] upgrading systems with compliant versions;
[diamond] developing or acquiring new systems to replace those that are
obsolete;
[diamond] and remediating existing systems by converting code or hardware.
Based on current assessments, we expect to have our computer systems
remediated and tested by June 1999. In
24
<PAGE>
addition, Phoenix is examining the status of its third-party vendors, obtaining
assurances that their software and hardware products will be century compliant
by 1999.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Phoenix contained herein should be
considered only as bearing upon Phoenix's ability to meet its obligations under
the Policy, and they should not be considered as bearing on the investment
performance of the VUL Account. The financial statements of the VUL Account are
for the Subaccounts available for the period ended December 31, 1998.
25
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
26
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants.............................................28
Consolidated Balance Sheet at December 31, 1998 and 1997......................29
Consolidated Statement of Income, Comprehensive Income and Equity
for the Years Ended December 31, 1998, 1997 and 1996 ........................30
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.............................................31
Notes to Consolidated Financial Statements ................................32-63
27
<PAGE>
[PRICEWATERHOUSECOOPERS logo and address]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Policyholders of
Phoenix Home Life Mutual Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, comprehensive income and equity and of cash
flows present fairly, in all material respects, the financial position of
Phoenix Home Life Mutual Insurance Company and its subsidiaries at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As indicated in Note 19, the company has revised the accounting for leveraged
leases.
/s/ PricewaterhouseCoopers LLP
February 11, 1999, except as to Note 20, which is as of April 27, 1999
28
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Held-to-maturity debt securities, at amortized cost $ 1,881,687 $ 1,554,905
Available-for-sale debt securities, at fair value 6,693,540 5,659,061
Equity securities, at fair value 304,545 335,888
Mortgage loans 797,343 927,501
Real estate 91,975 321,757
Policy loans 2,008,260 1,986,728
Other invested assets 377,326 319,088
Short-term investments 240,911 1,078,276
----------- -----------
Total investments 12,395,587 12,183,204
Cash and cash equivalents 132,634 159,307
Accrued investment income 173,312 149,566
Deferred policy acquisition costs 1,076,635 1,038,407
Premiums, accounts and notes receivable 120,928 99,468
Reinsurance recoverables 96,676 66,649
Property and equipment, net 153,425 156,190
Goodwill and other intangible assets, net 527,029 541,499
Other assets 46,060 61,087
Separate account assets 4,798,949 4,082,255
----------- -----------
Total assets $19,521,235 $18,537,632
=========== ===========
LIABILITIES
Policy liabilities and accruals $11,810,202 $11,334,014
Securities sold subject to repurchase agreements 137,473
Notes payable 449,252 471,085
Deferred income taxes 111,912 150,440
Other liabilities 555,352 585,467
Separate account liabilities 4,798,949 4,082,255
----------- -----------
Total liabilities 17,725,667 16,760,734
----------- -----------
Contingent liabilities (Note 17)
MINORITY INTEREST IN NET ASSETS
OF CONSOLIDATED SUBSIDIARIES
91,884 136,514
----------- -----------
EQUITY
Retained earnings 1,609,393 1,484,620
Accumulated other comprehensive income 94,291 155,764
----------- -----------
Total equity 1,703,684 1,640,384
----------- -----------
Total liabilities and equity $19,521,235 $18,537,632
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME, COMPREHENSIVE INCOME AND EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premiums $1,852,801 $1,640,606 $1,518,822
Insurance and investment product fees 619,476 468,030 421,058
Net investment income 898,884 771,346 711,595
Net realized investment gains 63,562 111,465 77,422
---------- ---------- ----------
Total revenues 3,434,723 2,991,447 2,728,897
---------- ---------- ----------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses 1,930,384 1,633,633 1,529,573
Policyholder dividends 351,805 343,725 311,739
Policy acquisition expenses 290,585 192,886 172,379
Amortization of goodwill and other intangible assets 29,248 16,393 15,610
Interest expense 29,889 28,147 17,570
Other operating expenses 592,420 542,897 489,203
---------- ---------- ----------
Total benefits, losses and expenses 3,224,331 2,757,681 2,536,074
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 210,392 233,766 192,823
Income taxes 75,152 58,177 80,683
---------- ---------- ----------
INCOME BEFORE MINORITY INTEREST 135,240 175,589 112,140
Minority interest in net income of consolidated subsidiaries 10,467 8,882 8,902
---------- ---------- ----------
NET INCOME 124,773 166,707 103,238
---------- ---------- ----------
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES
Unrealized (losses) gains on securities (46,967) 98,287 42,493
Reclassification adjustment for net realized gains
included in net income (12,980) (30,213) (28,580)
Minimum pension liability adjustment (1,526) (2,101) 1,241
---------- ---------- ----------
Total other comprehensive income (loss) (61,473) 65,973 15,154
---------- ---------- ----------
COMPREHENSIVE INCOME 63,300 232,680 118,392
---------- ---------- ----------
EQUITY, BEGINNING OF YEAR - RESTATED (NOTE 19) 1,640,384 1,407,704 1,289,312
---------- ---------- ----------
EQUITY, END OF YEAR $1,703,684 $1,640,384 $1,407,704
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 124,773 $ 166,707 $ 103,238
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATIONS
Net realized investment gains (63,562) (111,465) (77,422)
Amortization and depreciation 60,580 90,565 64,870
Equity in undistributed earnings of affiliates and partnerships (25,110) (34,057) (22,037)
Deferred income taxes (benefit) (9,274) 3,663 16,126
(Increase) decrease in receivables (75,233) (49,172) 5,955
Increase in deferred policy acquisition costs (31,534) (48,860) (61,985)
Increase in policy liabilities and accruals 487,312 512,476 559,724
Increase (decrease) in other assets/other liabilities, net 53,194 44,269 (66,337)
Other, net 3,412 5,417 (320)
--------- ---------- ----------
Net cash provided by operating activities 524,558 579,543 521,812
--------- ---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sales, maturities or repayments
of available-for-sale debt securities 1,446,990 1,187,943 1,348,809
Proceeds from maturities or repayments of held-to-maturity
debt securities 306,183 217,302 118,596
Proceeds from disposals of equity securities 45,204 51,373 382,359
Proceeds from mortgage loan maturities or repayments 200,419 164,213 151,760
Proceeds from sale of real estate and other invested assets 458,467 218,874 127,440
Purchase of available-for-sale debt securities (2,568,971) (1,689,479) (1,909,086)
Purchase of held-to-maturity debt securities (631,974) (225,722) (385,321)
Purchase of equity securities (86,472) (88,573) (215,104)
Purchase of subsidiaries (6,647) (246,400)
Purchase of mortgage loans (75,974) (140,831) (200,683)
Purchase of real estate and other invested assets (201,424) (90,593) (157,077)
Change in short-term investments, net 837,365 58,384 110,503
Increase in policy loans (21,532) (59,699) (49,912)
Capital expenditures (23,935) (41,504) (3,543)
Other investing activities, net (6,540) (1,750) (5,898)
--------- ---------- ----------
Net cash used for investing activities (328,841) (686,462) (687,157)
--------- ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Withdrawals of contractholder deposit funds,
net of deposits and interest credited (11,124) (17,902) (6,301)
(Repayment of)/proceeds from securities sold
subject to repurchase agreements (137,472) 137,472
Proceeds from borrowings 136 215,359 226,082
Repayment of borrowings (63,328) (234,703) (2,400)
Dividends paid to minority shareholders in consolidated subsidiaries (4,938) (6,895) (6,245)
Other financing activities (5,664)
--------- ---------- ----------
Net cash provided by (used for) financing activities (222,390) 93,331 211,136
--------- ---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (26,673) (13,588) 45,791
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 159,307 172,895 127,104
--------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 132,634 $ 159,307 $ 172,895
========= ========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net $ 44,508 $ 76,167 $ 76,157
Interest paid on indebtedness $ 32,834 $ 32,300 $ 19,214
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Phoenix Home Life Mutual Insurance Company (Phoenix) and its subsidiaries
market a wide range of insurance and investment products and services
including individual participating life insurance, variable life insurance,
group life and health insurance, life and health reinsurance, annuities,
investment advisory and mutual fund distribution services and insurance
agency and brokerage operations, primarily based in the United States. These
products and services are distributed among five reportable segments:
Individual Insurance, Life Reinsurance, Group Life and Health Insurance,
Securities Management and All Other. See Note 10 for segment information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Phoenix and
significant subsidiaries. Less than majority-owned entities in which Phoenix
has significant influence over operating and financial policies and
generally at least a 20% ownership interest are reported on the equity
basis.
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could
differ from those estimates. Significant estimates used in determining
insurance and contractholder liabilities, related reinsurance recoverables,
income taxes, contingencies and valuation allowances for investment assets
are discussed throughout the Notes to Consolidated Financial Statements.
Significant intercompany accounts and transactions have been eliminated.
Amounts for 1997 and 1996 have been retroactively restated to account for
income from leveraged lease investments (see Note 19). Certain
reclassifications have been made to the 1997 and 1996 amounts to conform
with the 1998 presentation.
VALUATION OF INVESTMENTS
Investments in debt securities include bonds, asset-backed securities
including collateralized mortgage obligations and redeemable preferred
stocks. Phoenix classifies its debt securities as either held-to-maturity or
available-for-sale investments. Debt securities held-to-maturity consist of
private placement bonds reported at amortized cost, net of impairments, that
management intends and has the ability to hold until maturity. Debt
securities available-for-sale are reported at fair value with unrealized
gains or losses included in equity and consist of public bonds and preferred
stocks that management may not hold until maturity. Debt securities are
considered impaired when a decline in value is considered to be other than
temporary.
Equity securities are reported at fair value based principally on their
quoted market prices with unrealized gains or losses included in equity.
Equity securities are considered impaired when a decline in value is
considered to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances, net
of valuation reserves on impaired mortgages. A mortgage loan is considered
to be impaired if management believes it is probable that Phoenix will be
unable to collect all amounts of contractual interest and principal as
scheduled in the loan agreement. An impaired mortgage loan's fair value is
measured based on the present value of future cash flows discounted at the
loan's observable market price or at the fair value of the collateral. If
the fair value of a mortgage loan is less than the recorded investment in
the loan, the difference is recorded as a valuation reserve.
32
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Real estate, all of which is held for sale, is carried at the lower of cost
or current fair value less costs to sell. Fair value for real estate is
determined taking into consideration one or more of the following factors:
property valuation techniques utilizing discounted cash flows at the time of
stabilization including capital expenditures and stabilization costs; sales
of comparable properties; geographic location of the property and related
market conditions; and disposition costs.
Policy loans are generally carried at their unpaid principal balances and
are collateralized by the cash values of the related policies.
Short-term investments are carried at amortized cost, which approximates
fair value.
Partnership interests are carried at cost adjusted for Phoenix's equity in
undistributed earnings or losses since acquisition, less allowances for
other than temporary declines in value. These earnings or losses are
included in investment income. Prior to 1998, for venture capital
partnerships, this activity was reflected in capital gains and losses. Such
earnings and losses included in prior year financial statements have been
reclassified to reflect this change.
Beginning in 1998, leveraged lease investments represent the net of the
estimated residual value of the lease assets, rental receivables, and
unearned and deferred income to be allocated over the lease term. Investment
income is calculated using the interest method and is recognized only in
periods in which the net investment is positive. Prior to 1998, leveraged
lease investments were carried at cost adjusted for Phoenix's equity in
undistributed earnings or losses since acquisition, less allowances for
other than temporary declines in value. Prior years have been restated to
reflect these changes (see Note 19).
Realized investment gains and losses, other than those related to separate
accounts for which Phoenix does not bear the investment risk, are determined
by the specific identification method and reported as a component of
revenue. A realized investment loss is recorded when an investment valuation
reserve is determined. Valuation reserves are netted against the asset
categories to which they apply and changes in the valuation reserves are
included in realized investment gains and losses. Unrealized investment
gains and losses on debt securities and equity securities classified as
available-for-sale are included as a component of equity, net of deferred
income taxes and deferred policy acquisition costs.
FINANCIAL INSTRUMENTS
In the normal course of business, Phoenix enters into transactions involving
various types of financial instruments including debt, investments such as
debt securities, mortgage loans and equity securities, off-balance sheet
financial instruments such as investment and loan commitments, financial
guarantees, interest rate swaps and interest rate floors. These instruments
have credit risk and also may be subject to risk of loss due to interest
rate and market fluctuations.
Phoenix also uses interest rate swaps and futures contracts as hedges for
asset/liability management of fixed income investments and certain
liabilities. Realized gains and losses on these contracts are deferred and
amortized over the life of the hedged asset or liability.
Phoenix enters into interest rate floor contracts to hedge against
significant declines in interest rates by locking in a minimum interest rate
amount that will be received on future reinvestments in terms of an
underlying treasury yield. Phoenix does not enter into interest rate floor
contracts for trading purposes. The excess of a predetermined (strike) rate
over a reference (index) rate is recognized in investment income when
received or paid.
33
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and money market
instruments.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, underwriting,
distribution and policy issue expenses, all of which vary with and are
primarily related to the production of revenues, are deferred. Deferred
policy acquisition costs are subject to recoverability testing at the time
of policy issue and loss recognition at the end of each accounting period.
For individual participating life insurance business, deferred policy
acquisition costs are amortized in proportion to historical and anticipated
gross margins. Deviations from expected experience are reflected in earnings
in the period such deviations occur.
For universal life, limited pay and investment type contracts, deferred
policy acquisition costs are amortized in proportion to total estimated
gross profits over the expected average life of the contracts using
estimated gross margins arising principally from investment, mortality and
expense margins and surrender charges based on historical and anticipated
experience, updated at the end of each accounting period.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the cost of businesses acquired over the
fair value of their net assets. These costs are amortized on a straight-line
basis over periods, not exceeding 40 years, that correspond with the
benefits expected to be derived from the acquisitions. Other intangible
assets are amortized on a straight-line basis over the estimated lives of
such assets. Management periodically reevaluates the propriety of the
carrying value of goodwill and other intangible assets by comparing
estimates of future undiscounted cash flows to the carrying value of assets.
Assets are considered impaired if the carrying value exceeds the expected
future undiscounted cash flows.
SEPARATE ACCOUNTS
Separate account assets and liabilities are funds maintained in accounts to
meet specific investment objectives of contractholders who bear the
investment risk. Investment income and investment gains and losses accrue
directly to such contractholders. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of Phoenix. The assets and liabilities are carried at market value.
Deposits, net investment income and realized investment gains and losses for
these accounts are excluded from revenues, and the related liability
increases are excluded from benefits and expenses. Amounts assessed to the
contractholders for management services are included in revenues.
POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity
products. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. Policy liabilities for
traditional life insurance are computed using the net level premium method
on the basis of actuarial assumptions as to assumed rates of interest,
mortality, morbidity and withdrawals. Liabilities for universal life include
deposits received from customers and investment earnings on their fund
balances, less administrative charges. Universal life fund balances are also
assessed mortality charges.
Liabilities for outstanding claims, losses and loss adjustment expenses are
amounts estimated to cover incurred losses. These liabilities are based on
individual case estimates for reported losses and estimates of unreported
losses based on past experience.
34
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Unearned premiums relate primarily to individual participating life
insurance as well as group life, accident and health insurance premiums. The
premiums are reported as earned on a pro rata basis over the contract
period. The unexpired portion of these premiums is recorded as unearned
premiums.
PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Life insurance premiums, other than premiums for universal life and certain
annuity contracts, are recorded as premium revenue on a pro rata basis over
each policy year. Benefits, losses and related expenses are matched with
premiums over the related contract periods. Revenues for investment-related
products consist of net investment income and contract charges assessed
against the fund values. Related benefit expenses primarily consist of net
investment income credited to the fund values after deduction for investment
and risk charges. Revenues for universal life products consist of net
investment income and mortality, administration and surrender charges
assessed against the fund values during the period. Related benefit expenses
include universal life benefit claims in excess of fund values and net
investment income credited to universal life fund values.
POLICYHOLDERS' DIVIDENDS
Certain life insurance policies contain dividend payment provisions that
enable the policyholder to participate in the earnings of Phoenix. The
amount of policyholders' dividends to be paid is determined annually by
Phoenix's board of directors. The aggregate amount of policyholders'
dividends is related to the actual interest, mortality, morbidity and
expense experience for the year and Phoenix's judgment as to the appropriate
level of statutory surplus to be retained. At the end of the reporting
period, Phoenix establishes a dividend liability for the pro rata portion of
the dividends payable on the next anniversary of each policy. Phoenix also
establishes a liability for termination dividends.
INCOME TAXES
Phoenix and its eligible affiliated companies have elected to file a
life/nonlife consolidated federal income tax return for 1998 and prior
years. Entities included within the consolidated group are segregated into
either a life insurance or nonlife insurance company subgroup. The
consolidation of these subgroups is subject to certain statutory
restrictions in the percentage of eligible nonlife tax losses that can be
applied to offset life company taxable income.
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities and their recorded amounts for financial
reporting purposes. These differences result primarily from policy
liabilities and accruals, policy acquisition expenses, investment impairment
reserves, reserves for postretirement benefits and unrealized gains or
losses on investments.
As a mutual life insurance company, Phoenix is required to reduce its income
tax deduction for policyholder dividends by the differential earnings
amount, defined as the difference between the earnings rates of stock and
mutual companies applied against an adjusted base of policyholders' surplus.
RECENT ACCOUNTING PRONOUNCEMENTS
Phoenix adopted Statement of Financial Accounting Standard (SFAS) No. 130,
"Reporting Comprehensive Income," as of January 1, 1998. This statement
establishes standards for the reporting and display of comprehensive income
and its components in a full set of financial statements. This statement
defines the components of comprehensive income as those items that were
previously reported only as components of equity and were excluded from net
income.
In 1998, Phoenix adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a
35
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Business Enterprise," replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of Phoenix's reportable segments. The
adoption of this statement did not affect the results of operations or
financial position but did affect the disclosure of segment information.
In 1998, Phoenix adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which amends SFAS No. 87,
"Employers' Accounting for Pensions," No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." The new statement revises and
standardizes employers' disclosures about pension and other postretirement
benefit plans. Adoption of this statement did not affect the results of
operations or financial position of the company.
On June 15, 1998, The Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, effective for all years beginning after June 15, 1999, requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designed as part of a hedge transaction and, if it
is, the type of hedge transaction. Management anticipates that, due to its
limited use of derivative instruments, the adoption of this statement will
not have a significant effect on Phoenix's results of operations or its
financial position.
3. SIGNIFICANT TRANSACTIONS
DIVIDEND SCALE REDUCTION
Due to the decline of interest rates in the financial markets to historic
lows and the strong likelihood that such levels will be sustained, Phoenix
carefully reviewed and considered a change in its dividend scale. As a
result, in October 1998, Phoenix's Board of Directors voted to adopt a
reduced dividend scale, effective for dividends payable on or after January
1, 1999. Dividends for individual participating policies are being reduced
60 basis points in most cases, an average reduction of approximately 8%. The
effect was a decrease of approximately $15.7 million in the policyholder
dividends expense in 1998.
REAL ESTATE SALES
On December 15, 1998, Phoenix sold 47 commercial real estate properties with
a carrying value of $269.8 million, and 4 joint venture real estate
partnerships with a carrying value of $10.5 million, for approximately $309
million in cash. This transaction, along with the sale of 18 other
properties and partnerships during the year, which had a carrying value of
$36.7 million, resulted in after-tax gains of approximately $49.6 million.
As of December 31,1998, Phoenix has 7 commercial real estate properties
remaining with a carrying value of $55.7 million and 10 joint venture real
estate partnerships with a carrying value of $36.3 million.
PHOENIX INVESTMENT PARTNERS, LTD.
On December 3, 1998, Phoenix Investment Partners completed the sale of its
49% interest in Canadian investment firm Beutel, Goodman & Company, Ltd. for
$47 million. Phoenix Investment Partners received $37 million in cash and a
$10 million three-year interest bearing note. The transaction resulted in a
before-tax gain of approximately $17.5 million. Phoenix's interest
represents an after-tax realized gain of approximately $6.8 million.
36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On September 3, 1997, Phoenix Investment Partners acquired Pasadena Capital
Corporation, the parent company of Roger Engemann & Associates, Inc. for
approximately $214 million. Pasadena Capital managed over $7 billion in
assets at December 31, 1998, primarily individual accounts.
On July 17, 1997, Phoenix Investment Partners acquired a majority interest
in GMG/Seneca Capital Management LLC, renamed Seneca Capital Management, for
approximately $37.5 million. Seneca Capital Management managed $6 billion in
assets at December 31, 1998.
The purchase price for Pasadena Capital and Seneca Capital Management
represented the consideration paid and the direct costs incurred by Phoenix
Investment Partners to purchase Pasadena Capital and a majority interest in
Seneca Capital Management. The excess of the purchase price over the fair
value of the acquired net tangible assets of these companies totaled
approximately $212.8 million. Of this excess purchase price, $110.2 million
was classified as identifiable intangible assets, primarily associated with
investment management contracts, which are being amortized over their
estimated average useful life of 13 years using the straight line method.
The remaining excess purchase price of $142.5 million was classified as
goodwill and is being amortized over 40 years using the straight line
method.
Phoenix owns approximately 60% of the outstanding Phoenix Investment
Partners' common stock. In addition, Phoenix owns 45% of Phoenix Investment
Partners' convertible subordinated debentures.
CONFEDERATION LIFE
On December 31, 1997, Phoenix acquired the individual life and
single-premium deferred annuity business of the former Confederation Life
Insurance Company. Confederation Life, a Canadian mutual life insurer, was
placed in liquidation during August of 1994. The blocks of business acquired
were part of Confederation Life's U.S. branch operations and were covered
under the rehabilitation plan approved by a Michigan circuit court.
Approximately 40,000 policies with annualized premium of $122.8 million were
included in the acquisition under an assumption reinsurance contract.
Pursuant to initiation of the contract and the closing on December 31, 1997,
Phoenix recorded all balances reinsured using the purchase accounting
method. The value of reserves and liabilities acquired totaled $1.4 billion
and exceeded the assets received, principally cash and short-term
investments. The $141.3 million difference, which does not exceed the
estimated present value of future profits of the acquired business, was
recorded as deferred acquisition costs.
SURPLUS NOTES
On November 25, 1996, Phoenix issued $175 million of surplus notes with a
6.95% interest rate scheduled to mature on December 1, 2006. There are no
sinking fund provisions in the notes. The notes are classified as notes
payable in the Consolidated Balance Sheet.
The notes were issued in accordance with Section 1307 (Contingent Liability
for Borrowings) of the New York Insurance Law and, accordingly, interest and
principal payments cannot be made without the approval of the New York
Insurance Department.
The notes were issued pursuant to Rule 144A (Private Resales of Securities
to Institutions) under the Securities Act of 1933 underwritten by Bear,
Stearns & Co. Inc., Chase Securities Inc. and Merrill Lynch & Co. and are
administered by Bank of New York as registrar/paying agent.
ABERDEEN ASSET MANAGEMENT PLC
As of December 31, 1998, PM Holdings owned 10% of the outstanding common
stock of Aberdeen Asset Management, a Scottish asset management firm. The
investment is reported on the equity basis and classified as other invested
assets in the Consolidated Balance Sheet.
37
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In addition, on April 15, 1996, Phoenix purchased a 7% convertible
subordinated note issued by Aberdeen Asset Management for $37.5 million. The
note, which matures on March 29, 2003, may be converted into shares which
would be equivalent to approximately 10% of Aberdeen Asset Management's then
outstanding common stock. The note is also classified as other invested
assets in the Consolidated Balance Sheet.
In the spring of 1996, Phoenix and Aberdeen Asset Management joined together
to form Phoenix-Aberdeen International Advisors, LLC, an SEC registered
investment advisor that, in conjunction with Phoenix Investment Partners and
Aberdeen Asset Management, develops and markets investment products in the
United States and the United Kingdom.
4. INVESTMENTS
Information pertaining to Phoenix's investments, net investment income and
realized and unrealized investment gains and losses follows:
DEBT AND EQUITY SECURITIES
The amortized cost and fair value of investments in debt and equity
securities as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DEBT SECURITIES
HELD-TO-MATURITY:
State and political subdivision bonds $ 10,562 $ 643 $ (78) $ 11,127
Foreign government bonds 3,036 (743) 2,293
Corporate securities 1,695,789 98,896 (13,823) 1,780,862
Mortgage-backed securities 172,300 6,201 (12) 178,489
---------- ---------- ----------- ----------
Total 1,881,687 105,740 (14,656) 1,972,771
---------- ---------- ----------- ----------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 497,089 34,454 (422) 531,121
State and political subdivision bonds 529,977 43,622 (104) 573,495
Foreign government bonds 293,968 28,814 (18,691) 304,091
Corporate securities 1,993,720 110,525 (36,656) 2,067,589
Mortgage-backed securities 3,121,690 110,172 (14,618) 3,217,244
---------- ---------- ----------- ----------
Total 6,436,444 327,587 (70,491) 6,693,540
---------- ---------- ----------- ----------
TOTAL DEBT SECURITIES $8,318,131 $ 433,327 $ (85,147) $8,666,311
---------- ---------- ----------- ----------
EQUITY SECURITIES $ 223,915 $ 102,018 $ (21,388) $ 304,545
========== ========== =========== ==========
</TABLE>
38
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of investments in debt and equity
securities as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DEBT SECURITIES
HELD-TO-MATURITY:
State and political subdivision bonds $ 11,041 $ 569 $ (8) $ 11,602
Foreign government bonds 3,032 15 (115) 2,932
Corporate securities 1,521,033 103,267 (2,042) 1,622,258
Mortgage-backed securities 19,799 949 20,748
---------- --------- ---------- ----------
Total 1,554,905 104,800 (2,165) 1,657,540
---------- --------- ---------- ----------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 501,190 25,020 (636) 525,574
State and political subdivision bonds 474,123 32,896 (3,477) 503,542
Foreign government bonds 248,831 26,303 (5,992) 269,142
Corporate securities 1,384,503 97,943 (4,403) 1,478,043
Mortgage-backed securities 2,786,278 99,785 (3,303) 2,882,760
---------- --------- ---------- ----------
Total 5,394,925 281,947 (17,811) 5,659,061
---------- --------- ---------- ----------
TOTAL DEBT SECURITIES $6,949,830 $ 386,747 $ (19,976) $7,316,601
---------- --------- ---------- ----------
EQUITY SECURITIES $ 158,217 $ 190,669 $ (12,998) $ 335,888
========== ========= ========== ==========
</TABLE>
The amortized cost and fair value of debt securities, by contractual sinking
fund payment and maturity, as of December 31, 1998 are shown below. Actual
maturity may differ from contractual maturity because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties, or Phoenix may have the right to put or sell the obligations back
to the issuers.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ 75,505 $ 66,367 $ 58,513 $ 59,953
Due after one year through five years 512,131 535,084 460,182 481,790
Due after five years through ten years 672,533 710,988 948,676 983,590
Due after ten years 449,218 481,843 1,847,383 1,950,963
Mortgage-backed securities 172,300 178,489 3,121,690 3,217,244
----------- ----------- ----------- -----------
Total $ 1,881,687 $ 1,972,771 $ 6,436,444 $ 6,693,540
=========== =========== =========== ===========
</TABLE>
39
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Carrying values for investments in mortgage-backed securities, excluding
U.S. government guaranteed investments, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Planned amortization class $ 433,668 $ 554,425
Asset-backed 910,594 594,128
Mezzanine 280,162 328,539
Commercial 641,485 556,155
Sequential pay 982,576 680,397
Pass through 119,065 132,522
Other 21,994 56,393
---------- ----------
Total mortgage-backed securities $3,389,544 $2,902,559
========== ==========
</TABLE>
40
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MORTGAGE LOANS AND REAL ESTATE
Phoenix's mortgage loans and real estate are diversified by property type
and location and, for mortgage loans, by borrower. Mortgage loans are
collateralized by the related properties and are generally 75% of the
properties' value at the time the original loan is made.
Mortgage loans and real estate investments comprise the following property
types and geographic regions:
<TABLE>
<CAPTION>
MORTGAGE LOANS REAL ESTATE
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
PROPERTY TYPE:
Office buildings $221,244 $246,500 $ 38,343 $180,743
Retail 203,927 231,886 36,858 108,907
Apartment buildings 261,894 303,990 21,553 20,560
Industrial buildings 121,789 162,008 1,600 39,810
Other 19,089 18,917 32 238
Valuation allowances (30,600) (35,800) (6,411) (28,501)
-------- -------- -------- --------
Total $797,343 $927,501 $ 91,975 $321,757
======== ======== ======== ========
GEOGRAPHIC REGION:
Northeast $169,368 $222,975 $ 47,709 $ 92,513
Southeast 213,916 257,376 32 85,781
North central 176,683 189,163 11,453 63,751
South central 98,956 79,092 22,649 58,954
West 169,020 214,695 16,543 49,259
Valuation allowances (30,600) (35,800) (6,411) (28,501)
-------- -------- -------- --------
Total $797,343 $927,501 $ 91,975 $321,757
======== ======== ======== ========
</TABLE>
At December 31, 1998, scheduled mortgage loan maturities were as follows:
1999--$99 million; 2000--$81 million; 2001--$87 million; 2002--$29 million;
2003--$107 million; and $394 million thereafter. Actual maturities will
differ from contractual maturities because borrowers may have the right to
prepay obligations with or without prepayment penalties and loans may be
refinanced. Phoenix refinanced $2.3 million and $8.6 million of its mortgage
loans during 1998 and 1997, respectively, based on terms which differed from
those granted to new borrowers.
41
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the Consolidated Balance Sheet
and changes thereto were as follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
JANUARY 1, ADDITIONS DEDUCTIONS DECEMBER 31,
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1998
Mortgage loans $ 35,800 $ 50,603 $(55,803) $30,600
Real estate 28,501 5,108 (27,198) 6,411
-------- -------- -------- -------
Total $ 64,301 $ 55,711 $(83,001) $37,011
======== ======== ======== =======
1997
Mortgage loans $ 48,399 $ 6,731 $(19,330) $35,800
Real estate 47,509 4,201 (23,209) 28,501
-------- -------- -------- -------
Total $ 95,908 $ 10,932 $(42,539) $64,301
======== ======== ======== =======
1996
Mortgage loans $ 65,807 $ 7,640 $(25,048) $48,399
Real estate 83,755 2,526 (38,772) 47,509
-------- -------- -------- -------
Total $149,562 $ 10,166 $(63,820) $95,908
======== ======== ======== =======
</TABLE>
NONINCOME-PRODUCING MORTGAGE LOANS AND BONDS
The net carrying values of nonincome-producing mortgage loans were $15.6
million and $7.0 million at December 31, 1998 and 1997, respectively. The
net carrying value of nonincome-producing bonds was $22.3 million at
December 31, 1998. There were no nonincome-producing bonds at December 31,
1997.
INTEREST RATE SWAPS AND INTEREST RATE FLOORS
The notional amounts of Phoenix's interest rate swaps were $416.0 million
and $272.9 million at December 31, 1998 and 1997, respectively. Weighted
average received and paid rates were 6.24% and 5.79%, for 1998. The increase
in net investment income related to interest rate swap contracts was $1.9
million and $.7 million for the years ended December 31, 1998 and 1997,
respectively. The fair value of these interest rate swap agreements as of
December 31, 1998 and 1997 were $11.0 million and $9.4 million,
respectively. These agreements do not require the exchange of underlying
principal amounts, and accordingly Phoenix's maximum exposure to credit risk
is the difference in interest payments exchanged.
During 1998, Phoenix entered into several interest rate floor contracts. The
notional amount of Phoenix's interest rate floor contracts was $570.0
million at December 31, 1998. The weighted average strike rate was 4.59% for
1998. The excess of the strike rates over the index rates (5- and 10-year
constant maturity treasury yields) was not significant. The fair value of
these interest rate floors at December 31, 1998 was $1.4 million. These
contracts do not require payment of notional principal.
Management of Phoenix considers the likelihood of any material loss on these
guarantees or interest rate swaps or floors to be remote.
42
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
OTHER INVESTED ASSETS
Other invested assets, consisting primarily of partnership interests and
equity in unconsolidated affiliates, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Venture capital equity partnerships $140,591 $ 88,228
Transportation and equipment leases 80,953 78,024
Affordable housing partnerships 10,854
Investment in Aberdeen Asset Management 72,257 70,317
Investment in Beutel, Goodman & Co. Ltd. 31,214
Investment in other affiliates 23,387 5,453
Seed money in separate accounts 26,587 41,297
Other partnership interests 22,697 4,555
-------- --------
Total other invested assets $377,326 $319,088
======== ========
</TABLE>
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31, were
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $598,892 $509,702 $469,713
Equity securities 6,469 4,277 4,689
Mortgage loans 83,101 85,662 84,318
Policy loans 146,477 122,562 117,742
Real estate 38,338 18,939 21,799
Leveraged leases 2,746 2,692 3,286
Other invested assets 22,364 31,365 18,751
Short-term investments 23,825 18,768 18,688
-------- -------- --------
Sub-total 922,212 793,967 738,986
Less investment expenses 23,328 22,621 27,391
-------- -------- --------
Net investment income $898,884 $771,346 $711,595
======== ======== ========
</TABLE>
Investment income of $8.4 million was not accrued on certain delinquent
mortgage loans and defaulted bonds at December 31, 1998. Phoenix does not
accrue interest income on impaired mortgage loans and impaired bonds when
the likelihood of collection is doubtful.
The payment terms of mortgage loans may, from time to time, be restructured
or modified. The investment in restructured mortgage loans, based on
amortized cost, amounted to $40.8 million and $51.3 million at December 31,
1998 and 1997, respectively. Interest income on restructured
43
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
mortgage loans that would have been recorded in accordance with the original
terms of such loans amounted to $4.9 million, $5.3 million and $3.1 million
in 1998, 1997 and 1996, respectively. Actual interest income on these loans
included in net investment income was $4.0 million, $3.8 million and $5.2
million in 1998, 1997 and 1996, respectively.
INVESTMENT GAINS AND LOSSES
Net unrealized gains and (losses) on securities available-for-sale and
carried at fair value for the year ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ (7,040) $112,194 $(70,986)
Equity securities (91,880) 74,547 40,803
Deferred policy acquisition costs 6,694 (80,603) 51,528
Deferred income taxes (32,279) 38,064 7,432
-------- -------- --------
Net unrealized investment (losses) gains
on securities available-for-sale $(59,947) $ 68,074 $ 13,913
======== ======== ========
</TABLE>
Realized investment gains and losses for the year ended December 31, were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $(4,295) $ 19,315 $(10,476)
Equity securities 11,939 26,290 59,794
Mortgage loans (6,895) 3,805 2,628
Real estate 67,522 44,668 24,711
Other invested assets (4,709) 17,387 765
-------- -------- --------
Net realized investment gains $ 63,562 $111,465 $ 77,422
======== ======== ========
</TABLE>
The proceeds from sales of available-for-sale debt securities and the gross
realized gains and gross realized losses on those sales for the year ended
December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from disposals $912,696 $821,339 $1,118,594
Gross gains on sales $ 17,442 $ 27,954 $ 12,547
Gross losses on sales $ 33,641 $ 5,309 $ 25,575
</TABLE>
44
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Phoenix Investment Partners' gross amounts:
Goodwill $321,793 $321,932
Investment management contracts 169,006 167,788
Noncompete covenant 5,000 5,000
Other 472 1,220
-------- --------
Totals 496,271 495,940
-------- --------
Other gross amounts:
Goodwill 79,217 65,585
Client listings 48,111 45,441
Intangible asset related to pension plan benefits 16,229 18,032
Other 1,690 279
-------- --------
Totals 145,247 129,337
-------- --------
Total gross goodwill and other intangible assets 641,518 625,277
Accumulated amortization - Phoenix Investment Partners (49,615) (27,579)
Accumulated amortization - other (64,874) (56,199)
-------- --------
Total net goodwill and other intangible assets $527,029 $541,499
======== ========
</TABLE>
In 1997, American Phoenix Corporation wrote down the carrying value of its
goodwill and other intangible assets by $18.8 million. This impairment loss
is included in other operating expenses in the Consolidated Statement of
Income, Comprehensive Income and Equity.
45
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Short-term debt $ 20,463 $ 15,539
Bank borrowings 205,778 263,732
Notes payable 5,438 14,632
Subordinated debentures 41,359
Surplus notes 175,000 175,000
Secured debt 1,214 2,182
-------- --------
Total notes payable $449,252 $471,085
======== ========
</TABLE>
Phoenix has various lines of credit established with major commercial banks.
As of December 31, 1998, Phoenix had outstanding balances totaling $219.7
million. The total unused credit was $190.7 million. Interest rates ranged
from 5.24% to 7.98% in 1998.
Maturities of other indebtedness are as follows: 1999--$20.5 million;
2000--$38.3 million; 2001--$29.2 million; 2002--$318.3 million; 2003--$1.1
million; 2004 and thereafter--$41.9 million.
Interest expense was $29.9 million, $32.5 million and $18.0 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
7. INCOME TAXES
A summary of income taxes (benefits) applicable to income before income
taxes and minority interest for the year ended December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes
Current $80,322 $54,514 $59,673
Deferred (5,170) 3,663 21,010
------- ------- -------
Total $75,152 $58,177 $80,683
======= ======= =======
</TABLE>
The income taxes attributable to the consolidated results of operations are
different than the amounts determined by multiplying income before taxes by
the statutory income tax rate. The
46
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
sources of the difference and the tax effects of each for the year ended
December 31, were as follows (in thousands, aside from the percentages):
<TABLE>
<CAPTION>
1998 1997 1996
% % %
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory rate $73,637 35 $81,818 35 $67,488 35
Dividend received deduction and
tax-exempt interest (3,691) (1) (2,513) (1) (2,107) (1)
Other, net 5,206 2 (8,017) (4) 2,736 1
------- -- ------- -- ------ --
75,152 36 71,288 30 68,117 35
Differential earnings (equity tax) (13,111) (5) 12,566 7
------- -- ------- -- ------ --
Income taxes $75,152 36 $58,177 25 $80,683 42
======= == ======= == ======= ==
</TABLE>
The deferred income tax liability (asset) represents the tax effects of
temporary differences attributable to the consolidated tax return group. The
components were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Deferred policy acquisition costs $ 301,337 $ 303,500
Unearned premium/deferred revenue (148,112) (139,817)
Impairment reserves (23,393) (26,102)
Pension and other postretirement benefits (59,164) (56,643)
Investments 105,395 83,821
Future policyholder benefits (141,130) (140,980)
Other 28,730 45,053
---------- ----------
63,663 68,832
Net unrealized investment gains 51,597 84,134
Minimum pension liability (3,348) (2,526)
---------- ----------
Deferred income tax liability, net $ 111,912 $ 150,440
========== ==========
</TABLE>
Gross deferred income tax assets totaled $375 million and $366 million at
December 31, 1998 and 1997, respectively. Gross deferred income tax
liabilities totaled $487 million and $516 million at December 31, 1998 and
1997, respectively. It is management's assessment, based on Phoenix's
earnings and projected future taxable income, that it is more likely than
not that deferred income tax assets at December 31, 1998 and 1997 will be
realized.
The Internal Revenue Service is currently examining Phoenix's tax returns
for 1995 through 1997. Management does not believe that there will be a
material adverse effect on the financial statements as a result of pending
tax matters.
47
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
PENSION PLANS
Phoenix has a multi-employer, noncontributory, defined benefit pension plan
covering substantially all of its employees. Retirement benefits are a
function of both years of service and level of compensation. Phoenix also
sponsors a nonqualified supplemental defined benefit plan to provide
benefits in excess of amounts allowed pursuant to the Internal Revenue Code.
Phoenix's funding policy is to contribute annually an amount equal to at
least the minimum required contribution in accordance with minimum funding
standards established by the Employee Retirement Income Security Act of
1974. Contributions are intended to provide not only for benefits
attributable to service to date, but also for service expected to be earned
in the future.
Components of net periodic pension cost for the years ended December 31,
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 11,046 $ 10,278 $ 10,076
Interest cost 22,958 22,650 22,661
Expected return on plan assets (25,083) (22,055) (20,847)
Amortization of net transition asset (2,369) (2,369) (2,468)
Amortization of prior service cost 1,795 1,795 (22)
Amortization of net (gain) loss (1,247) 25 1,867
-------- -------- --------
Net periodic benefit cost $ 7,100 $ 10,324 $ 11,267
======== ======== ========
</TABLE>
In 1996, Phoenix offered an early retirement program which granted an
additional benefit of five years of age and service. As a result of the
early retirement program, Phoenix recorded an additional pension expense of
$8.7 million for the year ended December 31, 1996.
48
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The aggregate change in projected benefit obligation, change in plan assets,
and funded status of the plan were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation at beginning of year $ 335,436 $ 301,245
Service cost 11,046 10,278
Interest cost 22,958 22,650
Plan amendments 171
Actuarial loss 1,958 18,644
Benefit payments (17,936) (17,552)
--------- ---------
Benefit obligation at end of year $ 353,462 $ 335,436
========= =========
Change in plan assets
Fair value of plan assets at beginning of year $ 321,555 $ 283,245
Actual return on plan assets 58,225 53,093
Employer contributions 2,975 2,769
Benefit payments (17,936) (17,552)
--------- ---------
Fair value of plan assets at end of year $ 364,819 $ 321,555
========= =========
Funded status of the plan $ 11,357 $ (13,881)
Unrecognized net transition asset (14,217) (16,586)
Unrecognized prior service cost 16,185 17,980
Unrecognized net gain (75,921) (45,986)
--------- ---------
Net amount recognized $ (62,596) $ (58,473)
========= =========
Amounts recognized in the Consolidated Balance
Sheet consist of:
Accrued benefit liability $ (88,391) $ (83,724)
Intangible asset 16,229 18,032
Accumulated other comprehensive income 9,566 7,219
--------- ---------
$ (62,596) $ (58,473)
========= =========
</TABLE>
At December 31, 1998 and 1997, the nonqualified plan was unfunded and had
projected benefit obligations of $57.2 million and $50.4 million,
respectively. The accumulated benefit obligations as of December 31, 1998
and 1997 related to this plan were $48.4 million and $42.8 million,
respectively, and are included in other liabilities.
49
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Phoenix recorded, as a reduction of equity, an additional minimum pension
liability of $6.2 million and $4.7 million, net of income taxes, at December
31, 1998 and 1997, respectively, representing the excess of accumulated
benefit obligations over the fair value of plan assets and accrued pension
liabilities for the nonqualified plan. Phoenix has also recorded an
intangible asset of $16.2 million and $18.0 million as of December 31, 1998
and 1997 related to the nonqualified plan.
The discount rate and rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
were 7.0% and 4.0% for 1998 and 1997. The discount rate assumption for 1998
was determined based on a study that matched available high quality
investment securities with the expected timing of pension liability
payments. The expected long-term rate of return on retirement plan assets
was 8.0% in 1998 and 1997.
The pension plan's assets include corporate and government debt securities,
equity securities, real estate, venture capital partnerships, and shares of
mutual funds.
Phoenix also sponsors savings plans for its employees and agents which are
qualified under Internal Revenue Code Section 401(k). Employees and agents
may contribute a portion of their annual salary, subject to limitation, to
the plans. Phoenix contributes an additional amount, subject to limitation,
based on the voluntary contribution of the employee or agent. Company
contributions charged to expense with respect to these plans during the
years ended December 31, 1998, 1997 and 1996 were $4.1 million, $3.8 million
and $4.2 million, respectively.
OTHER POSTRETIREMENT BENEFIT PLANS
In addition to Phoenix's pension plans, Phoenix currently provides certain
health care and life insurance benefits to retired employees, spouses and
other eligible dependents through various plans sponsored by Phoenix. A
substantial portion of Phoenix's employees may become eligible for these
benefits upon retirement. The health care plans have varying copayments and
deductibles, depending on the plan. These plans are unfunded.
Phoenix recognizes the costs and obligations of postretirement benefits
other than pensions over the employees' service period ending with the date
an employee is fully eligible to receive benefits.
The components of net periodic postretirement benefit cost for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $3,436 $3,136 $2,765
Interest cost 4,572 4,441 4,547
Amortization of net gain (1,232) (1,527) (1,576)
------ ------ ------
Net periodic benefit cost $6,776 $6,050 $5,736
====== ====== ======
</TABLE>
In addition to the net periodic postretirement benefit cost, Phoenix
expensed an additional $3.0 million for postretirement benefits related to
the early retirement program for the year ended December 31, 1996.
50
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The plan's change in projected benefit obligation, change in plan assets,
and funded status were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Change in projected postretirement benefit obligation
Projected benefit obligation at beginning of year $ 66,618 $ 63,656
Service cost 3,436 3,136
Interest cost 4,572 4,441
Actuarial (gain) loss 397 (518)
Benefit payments (4,080) (4,098)
-------- --------
Projected benefit obligation at end of year $ 70,943 $ 66,617
-------- --------
Change in plan assets
Employer contributions $ 4,080 $ 4,098
Benefit payments (4,080) (4,098)
-------- --------
Fair value of plan assets at end of year $ $
-------- --------
Funded status of the plan $(70,943) $(66,617)
Unrecognized net gain (26,408) (28,037)
-------- --------
Accrued benefit liability $(97,351) $(94,654)
======== ========
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.0% at December 31, 1998 and 1997.
51
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For purposes of measuring the accumulated postretirement benefit obligation
the health care costs were assumed to increase 9.5% in 1997, declining
thereafter until the ultimate rate of 5.5% is reached in 2002 and remains at
that level thereafter. Based on this assumption the health care costs were
assumed to increase 8.5% in 1998.
The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation by $4.6 million and the annual service and
interest cost by $.7 million, before taxes. Decreasing the assumed health
care cost trend rates by one percentage point in each year would decrease
the accumulated postretirement benefit obligation by $4.3 million and the
annual service and interest cost by $.6 million, before taxes. Gains and
losses that occur because actual experience differs from the estimates are
amortized over the average future service period of employees.
OTHER POSTEMPLOYMENT BENEFITS
Phoenix recognizes the costs and obligations of severance, disability and
related life insurance and health care benefits to be paid to inactive or
former employees after employment but before retirement. Other
postemployment benefit expense was ($.5) million for 1998, $.4 million for
1997 and $.4 million for 1996.
52
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. COMPREHENSIVE INCOME
The components of, and related tax effects for, other comprehensive income
for the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Before-tax amount $(72,255) $151,210 $ 65,374
Tax expense (benefit) (25,288) 52,923 22,881
-------- -------- --------
Totals (46,967) 98,287 42,493
-------- -------- --------
RECLASSIFICATION ADJUSTMENT FOR NET GAINS
REALIZED IN NET INCOME:
Before-tax amount (19,970) (46,481) (43,969)
Tax (benefit) (6,990) (16,268) (15,389)
-------- -------- --------
Totals (12,980) (30,213) (28,580)
-------- -------- --------
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Before-tax amount (92,225) 104,729 21,405
Tax expense (benefit) (32,278) 36,655 7,492
-------- -------- --------
Totals $(59,947) $ 68,074 $ 13,913
-------- -------- --------
MINIMUM PENSION LIABILITY ADJUSTMENT:
Before-tax amount $ (2,347) $ (3,232) $ 1,910
Tax expense (benefit) (821) (1,131) 669
-------- -------- --------
Totals $ (1,526) $ (2,101) $ 1,241
======== ======== ========
</TABLE>
53
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes accumulated other comprehensive income for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Balance, beginning of year $160,457 $ 92,383 $ 78,470
Change during period (59,947) 68,074 13,913
-------- -------- --------
Balance, end of year 100,510 160,457 92,383
-------- -------- --------
MINIMUM PENSION LIABILITY ADJUSTMENT:
Balance, beginning of year (4,693) (2,592) (3,833)
Change during period (1,526) (2,101) 1,241
-------- -------- --------
Balance, end of year (6,219) (4,693) (2,592)
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance, beginning of year 155,764 89,791 74,637
Change during period (61,473) 65,973 15,154
-------- -------- --------
Balance, end of year $ 94,291 $155,764 $ 89,791
======== ======== ========
</TABLE>
10. SEGMENT INFORMATION
Phoenix is organized by lines of business that include similar product
groupings. Lines of businesses have been grouped into the following
reportable segments: Individual Insurance, Life Reinsurance, Group Life and
Health Insurance and Securities Management. The category "Individual
Insurance" aggregates the Individual Traditional, Universal Life, Variable
Universal Life and Variable Annuity lines of business. The category "All
Other" includes the combined financial results of segments that individually
are below the quantitative thresholds. Those segments include General Lines
Brokerage and several small individual insurance lines. In addition, the
category "All Other" contains unallocated investment income, unallocated
expenses and realized investment gains related to capital in excess of
segment requirements, as well as certain assets such as equity securities
and venture capital. Phoenix calculates taxes at a flat rate of 35% on the
operating income of its insurance line segments and therefore, does not
allocate permanent tax differences to these segments. Also, Phoenix does not
allocate unusual or extraordinary items to its segments.
54
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes significant financial amounts by reportable
segment:
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED
DECEMBER 31, 1998 GROUP LIFE
(IN MILLIONS) INDIVIDUAL LIFE & HEALTH SECURITIES ALL
INSURANCE REINSURANCE INSURANCE MANAGEMENT OTHER TOTALS
---------- ----------- ---------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external sources $ 1,354 $ 64 $440 $214 $400 $ 2,472
Intersegment revenues 18 41 59
Net investment income 708 19 45 2 75 849
Interest expense 15 1 16
Policyholder dividends 344 344
Increase in DAC (9) (5) (5) (19)
Depreciation and amortization expense 4 1 26 14 45
Other noncash items:
Increase in policy liabilities and accruals 596 38 16 36 686
Minority interest in operating income 14 5 19
Segment operating income (a) $ 50 $ 12 $ 26 $ 23 $ 1 $ 112
======= ==== ==== ==== ==== =======
Deferred policy acquisition costs $ 1,035 $ 27 $ 18 $ 1,080
Total segment assets $16,177 $398 $701 $557 $938 $18,771
======= ==== ==== ==== ==== =======
AT AND FOR THE YEAR ENDED
DECEMBER 31, 1997 GROUP LIFE
(IN MILLIONS) INDIVIDUAL LIFE & HEALTH SECURITIES ALL
INSURANCE REINSURANCE INSURANCE MANAGEMENT OTHER TOTALS
---------- ----------- ---------- ---------- ----- ------
Revenues from external sources $ 1,200 $ 57 $428 $124 $ 298 $ 2,107
Intersegment revenues 16 30 46
Net investment income 586 19 42 2 101 750
Interest expense 4 1 5
Policyholder dividends 328 328
Increase in DAC (32) (5) (13) (50)
Depreciation and amortization expense 3 1 12 36 52
Other noncash items:
Increase in policy liabilities and accruals 508 3 24 50 585
Minority interest in operating income 12 2 14
Segment operating income (a) $ 59 $ 10 $ 33 $ 16 $ (17) $ 101
======= ==== ==== ==== ==== =======
Deferred policy acquisition costs $ 1,014 $ 22 $ 6 $ 1,042
Total segment assets $14,946 $318 $656 $615 $1,101 $17,636
======= ==== ==== ==== ====== =======
</TABLE>
(a) Before income taxes and after policyholder dividends on Individual
Insurance.
55
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED
DECEMBER 31, 1996 GROUP LIFE
(IN MILLIONS) INDIVIDUAL LIFE & HEALTH SECURITIES ALL
INSURANCE REINSURANCE INSURANCE MANAGEMENT OTHER TOTALS
---------- ----------- ---------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues from external sources $ 1,111 $121 $415 $153 $ 140 $ 1,940
Intersegment revenues 14 33 47
Net investment income 562 16 37 2 91 708
Interest expense 3 2 5
Policyholder dividends 297 297
Increase in DAC (39) (2) (20) (61)
Depreciation and amortization expense 3 1 11 11 26
Other noncash items:
Increase in policy liabilities and
accruals 465 8 40 49 562
Minority interest in operating income 17 (3) 14
Segment operating income (a) $ 59 $ 9 $ 12 $ 28 $ (9) $ 99
======= ==== ==== ==== ====== =======
Deferred policy acquisition costs $ 905 $ 18 $ 21 $ 944
Total segment assets $12,302 $304 $597 $366 $ 965 $14,534
======= ==== ==== ==== ====== =======
</TABLE>
(a) Before income taxes and after policyholder dividends on Individual
Insurance.
56
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SEGMENT RECONCILIATION
The following is a reconciliation of the totals of reportable segment
revenues, operating income and assets to Phoenix's consolidated totals:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
(IN MILLIONS)
<S> <C> <C> <C>
REVENUES
Total revenues for reportable segments $ 3,380 $ 2,903 $ 2,695
Realized investment gains 64 111 77
Unallocated net investment income 50 24 4
Elimination of intersegment revenues (59) (47) (47)
------- ------- -------
Total consolidated revenues $ 3,435 $ 2,991 $ 2,729
======= ======= =======
OPERATING INCOME
Total operating income for reportable segments $ 112 $ 101 $ 99
Realized investment gains 64 111 77
Unallocated amounts:
Net investment income 50 22 4
Interest expense (14) (23) (13)
Other unallocated amounts (14) 9 9
Reclassification of minority interest 12 14 17
------- ------- -------
Total consolidated operating income $ 210 $ 234 $ 193
======= ======= =======
ASSETS
Total assets for reportable segments $18,771 $17,636 $14,534
Unallocated amounts:
Investments and accrued investment income
attributable to unallocated capital 725 846 859
Goodwill and other intangible assets 15 21 20
Other unallocated amounts 10 35 41
------- ------- -------
Total consolidated assets $19,521 $18,538 $15,454
======= ======= =======
</TABLE>
11. PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements, consisting primarily of
office buildings occupied by Phoenix, are stated at depreciated cost. Real
estate occupied by Phoenix was $106.7 million and $109.0 million,
respectively, at December 31, 1998 and 1997. Phoenix provides for
depreciation using straight line and accelerated methods over the estimated
useful lives of the related assets which generally range from five to forty
years. Accumulated depreciation and amortization was $173.5 million and
$164.4 million at December 31, 1998 and 1997, respectively.
Rental expenses for operating leases, principally with respect to buildings,
amounted to $14.5 million, $14.9 million and $14.8 million in 1998, 1997,
and 1996, respectively. Future minimum rental payments under noncancelable
operating leases were approximately $45.3 million as of December 31, 1998,
payable as follows: 1999--$14.8 million; 2000--$12.0 million; 2001--$7.9
million; 2002--$5.8 million; 2003--$3.2 million; and $1.6 million
thereafter.
57
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. DIRECT BUSINESS WRITTEN AND REINSURANCE
As is customary practice in the insurance industry, Phoenix assumes and
cedes reinsurance as a means of diversifying underwriting risk. For direct
issues, the maximum of individual life insurance retained by Phoenix on any
one life is $8 million for single life and joint first-to-die policies and
to $10 million for joint last-to-die policies, with excess amounts ceded to
reinsurers. Phoenix reinsures 80% of the mortality risk on the inforce block
of the Confederation Life business acquired on December 31, 1997, and 90% of
the mortality risk on certain new issues of term and universal life
products. In addition, Phoenix entered into a separate reinsurance agreement
on October 1, 1998 to reinsure 80% of the mortality risk on a substantial
portion of its otherwise retained individual life insurance business.
Amounts recoverable from reinsurers are estimated in a manner consistent
with the claim liability associated with the reinsured policy.
Additional information on direct business written and reinsurance assumed
and ceded for the years ended December 31, was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $ 1,719,393 $ 1,592,800 $ 1,473,869
Reinsurance assumed 505,262 329,927 276,630
Reinsurance ceded (371,854) (282,121) (231,677)
------------ ------------ ------------
Net premiums $ 1,852,801 $ 1,640,606 $ 1,518,822
============ ============ ============
Direct policy and contract claims incurred $ 728,062 $ 626,834 $ 575,824
Reinsurance assumed 433,242 410,704 170,058
Reinsurance ceded (407,780) (373,127) (160,646)
------------ ------------ ------------
Net policy and contract claims incurred $ 753,524 $ 664,411 $ 585,236
============ ============ ============
Direct life insurance in force $121,442,041 $ 120,394,664 $108,816,856
Reinsurance assumed 110,632,110 84,806,585 61,109,836
Reinsurance ceded (135,817,986) (74,764,639) (51,525,976)
------------ ------------ ------------
Net insurance in force $ 96,256,165 $130,436,610 $118,400,716
============ ============ ============
</TABLE>
Irrevocable letters of credit aggregating $5.3 million at December 31, 1998
have been arranged with United States commercial banks in favor of Phoenix
to collateralize the ceded reserves.
13. PARTICIPATING LIFE INSURANCE
Participating life insurance in force was 72.3% and 79.6% of the face value
of total individual life insurance in force at December 31, 1998 and 1997,
respectively. The premiums on participating life insurance policies were
75.7%, 83.5% and 84.1% of total individual life insurance premiums in 1998,
1997 and 1996, respectively.
58
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred and
amortized for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $1,038,407 $ 926,274 $ 816,128
Acquisition cost deferred 171,618 295,189 153,873
Amortized to expense during the year (140,084) (105,071) (95,255)
Adjustment to net unrealized investment
gains (losses) included in other
comprehensive income 6,694 (77,985) 51,528
---------- ---------- ---------
Balance at end of year $1,076,635 $1,038,407 $ 926,274
========== ========== =========
</TABLE>
15. MINORITY INTEREST
Phoenix's interests in Phoenix Investment Partners and American Phoenix
Corporation, through its wholly-owned subsidiary PM Holdings, are
represented by ownership of approximately 60% and 85%, respectively, of the
outstanding shares of common stock at December 31, 1998. Earnings and equity
attributable to minority shareholders are included in minority interest in
the consolidated financial statements.
16. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Other than debt securities being held-to-maturity, financial instruments
that are subject to fair value disclosure requirements (insurance contracts
are excluded) are carried in the financial statements at amounts that
approximate fair value. The fair values presented for certain financial
instruments are estimates which, in many cases, may differ significantly
from the amounts which could be realized upon immediate liquidation. In
cases where market prices are not available, estimates of fair value are
based on discounted cash flow analyses which utilize current interest rates
for similar financial instruments which have comparable terms and credit
quality.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair
value.
DEBT SECURITIES
Fair values are based on quoted market prices, where available, or quoted
market prices of comparable instruments. Fair values of private placement
debt securities are estimated using discounted cash flows that apply
interest rates currently being offered with similar terms to borrowers of
similar credit quality.
59
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EQUITY SECURITIES
Fair values are based on quoted market prices, where available. If a quoted
market price is not available, fair values are estimated using independent
pricing sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are calculated as the present value of scheduled payments, with
the discount based upon the Treasury rate comparable for the remaining loan
duration, plus a spread of between 130 and 800 basis points, depending on
the internal quality rating of the loan. For loans in foreclosure or
default, values were determined assuming principal recovery was the lower of
the loan balance or the estimated value of the underlying property.
POLICY LOANS
Fair values are estimated as the present value of loan interest and policy
loan repayments discounted at the ten-year Treasury rate. Loan repayments
were assumed only to occur as a result of anticipated policy lapses, and it
was assumed that annual policy loan interest payments were made at the
guaranteed loan rate less 17.5 basis points. Discounting was at the ten-year
Treasury rate, except for policy loans with a variable policy loan rate.
Variable policy loans have an interest rate that is reset annually based
upon market rates and therefore, book value is a reasonable approximation of
fair value.
INVESTMENT CONTRACTS
In determining the fair value of guaranteed interest contracts, a discount
rate equal to the appropriate Treasury rate, plus 150 basis points, was
assumed to determine the present value of projected contractual liability
payments through final maturity.
The fair value of deferred annuities and supplementary contracts without
life contingencies with an interest guarantee of one year or less is valued
at the amount of the policy reserve. In determining the fair value of
deferred annuities and supplementary contracts without life contingencies
with interest guarantees greater than one year, a discount rate equal to the
appropriate Treasury rate, plus 150 basis points, was used to determine the
present value of the projected account value of the policy at the end of the
current guarantee period.
Deposit type funds, including pension deposit administration contracts,
dividend accumulations, and other funds left on deposit not involving life
contingencies, have interest guarantees of less than one year for which
interest credited is closely tied to rates earned on owned assets. For such
liabilities, fair value is assumed to be equal to the stated liability
balances.
DEBT
The carrying value of debt reported on the balance sheet approximates fair
value.
60
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FAIR VALUE SUMMARY
The estimated fair values of the financial instruments as of December 31,
were as follows:
<TABLE>
<CAPTION>
1998 1997
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 132,634 $ 132,634 $ 159,307 $ 159,307
Short-term investments 240,911 240,911 1,078,276 1,078,276
Debt securities 8,575,227 8,666,311 7,213,966 7,316,601
Equity securities 304,545 304,545 335,888 335,888
Mortgage loans 797,343 831,919 927,501 956,041
Policy loans 2,008,260 2,122,389 1,986,728 2,104,704
----------- ----------- ----------- -----------
Total financial assets $12,058,920 $12,298,709 $11,701,666 $11,950,817
=========== =========== =========== ===========
Financial liabilities:
Policy liabilities $ 783,400 $ 783,400 $ 902,200 $ 902,200
Securities sold subject to repurchase
agreements 137,473 137,473
Notes payable 449,252 449,252 471,085 471,085
----------- ----------- ----------- -----------
Total financial liabilities $ 1,232,652 $ 1,232,652 $ 1,510,758 $ 1,510,758
=========== =========== =========== ===========
</TABLE>
17. CONTINGENCIES
FINANCIAL GUARANTEES
As a result of the sale of real estate properties, in December 1998, Phoenix
is no longer contingently liable for financial guarantees provided in the
ordinary course of business on the repayment of principal and interest on
certain industrial revenue bonds. The principal amount of bonds guaranteed
by Phoenix at December 31, 1997 was $88.7 million.
LITIGATION
In 1996, Phoenix announced the settlement of a class action suit which was
approved by a New York State Supreme Court judge on January 3, 1997. The
suit related to the sale of individual participating life insurance and
universal life insurance policies from 1980 to 1995. Phoenix estimates the
cost of settlement to be $40 million after tax. A $25 million after tax
liability was recorded in 1995. In addition, $7 million after tax was
expensed in 1996. The after tax costs of $12.5 million for 1997 and $6.7
million for 1998 were directly offset by a release of the liability in those
years. Management believes, after consideration of the provisions made in
these financial statements, this suit will not have a material effect on
Phoenix's consolidated financial position.
Phoenix is a defendant in various legal proceedings arising in the normal
course of business. In the opinion of management, based on the advice of
legal counsel after consideration of the provisions made in these financial
statements, the ultimate resolution of these proceedings will not have a
material effect on Phoenix's consolidated financial position.
61
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
18. STATUTORY FINANCIAL INFORMATION
The insurance subsidiaries are required to file annual statements with state
regulatory authorities prepared on an accounting basis prescribed or
permitted by such authorities. As of December 31, 1998, 1997 and 1996, there
were no material practices not prescribed by the Insurance Department of the
State of New York. Statutory surplus differs from equity reported in
accordance with GAAP for life insurance companies primarily because policy
acquisition costs are expensed when incurred, investment reserves are based
on different assumptions, surplus notes are not included in equity,
postretirement benefit costs are based on different assumptions and reflect
a different method of adoption, life insurance reserves are based on
different assumptions and income tax expense reflects only taxes paid or
currently payable.
The following reconciles the statutory net income of Phoenix as reported to
regulatory authorities to the net income as reported in these financial
statements for the year ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income $108,652 $ 66,599 $ 70,261
Deferred policy acquisition costs, net 18,538 48,821 58,618
Future policy benefits (53,847) (9,145) (16,793)
Pension and postretirement expenses (17,334) (7,955) (23,275)
Investment valuation allowances 94,873 84,975 81,841
Interest maintenance reserve 1,415 17,544 (5,158)
Deferred income taxes (39,983) (36,250) (67,064)
Other, net 12,459 2,118 4,808
-------- -------- --------
Net income, as reported $124,773 $166,707 $103,238
======== ======== ========
</TABLE>
62
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following reconciles the statutory surplus and asset valuation reserve
(AVR) of Phoenix as reported to regulatory authorities to equity as reported
in these financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
(IN THOUSANDS)
<S> <C> <C>
Statutory surplus, surplus notes and AVR $1,205,635 $1,152,820
Deferred policy acquisition costs, net 1,259,316 1,227,782
Future policy benefits (465,268) (395,436)
Pension and postretirement expenses (174,273) (169,383)
Investment valuation allowances 2,002 (27,738)
Interest maintenance reserve 35,303 33,794
Deferred income taxes (25,593) (12,051)
Surplus notes (157,500) (157,500)
Other, net 24,062 (11,904)
---------- ----------
Equity, as reported $1,703,684 $1,640,384
========== ==========
</TABLE>
The New York State Insurance Department recognizes only statutory accounting
practices for determining and reporting the financial condition and results
of operations of an insurance company, for determining its solvency under
New York Insurance Law, and for determining whether its financial condition
warrants the payment of a dividend to its policyholders. No consideration is
given by the Department to financial statements prepared in accordance with
generally accepted accounting principles in making such determinations.
19. PRIOR PERIOD ADJUSTMENT
In 1998, Phoenix revised the accounting for partnerships involved in
leveraged lease arrangements for 1997 and 1996. Opening retained earnings at
December 31, 1995 has been increased by $7.7 million. The Consolidated
Balance Sheet as of December 31, 1997 was revised by increasing the
following balances: other invested assets by $18.9 million, deferred income
taxes by $6.6 million and retained earnings by $12.3 million. The effect on
the Consolidated Statement of Income, Comprehensive Income and Equity was an
increase in net income of $2.1 million and $2.5 million for the years ended
1997 and 1996, respectively.
20. SUBSEQUENT EVENTS
PHOENIX INVESTMENT PARTNERS, LTD.
On March 2, 1999, Phoenix Investment Partners completed its acquisition of
the retail mutual fund and closed-end fund business of the New York City
based Zweig Group. Under the terms of the agreement, Phoenix Investment
Partners paid $135.0 million at closing and will pay up to an additional
$29.0 million over the next three years based on revenue growth of the Zweig
funds. The acquisition increases Phoenix Investment Partners' assets under
management by approximately $4.4 billion.
OCCUPATIONAL ACCIDENT REINSURANCE
Effective March 1, 1995, Phoenix became a participant in an occupational
accident reinsurance pool. In addition, effective October 1, 1996, Phoenix
and American Phoenix Life and Reassurance Company, an indirect wholly owned
subsidiary of Phoenix, became a participant in a reinsurance facility of
occupational accident reinsurance. A significant portion of the risk
associated with the occupational accident reinsurance pool and the
reinsurance facility is further retroceded by Phoenix and American Phoenix
Life to several other unaffiliated insurance entities. Phoenix has
terminated membership in the pool effective March 1, 1999 while American
Phoenix Life and Phoenix terminated participation in the reinsurance
facility effective October 1, 1998.
Management's assessment of the reinsurance arrangements and related
financial exposure to Phoenix and American Phoenix Life is ongoing. Based on
current facts and circumstances, management believes these transactions will
not materially affect the financial condition of Phoenix or American Phoenix
Life.
63
<PAGE>
PHOENIX HOME LIFE VARIABLE
UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1998
64
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
MULTI-SECTOR
MONEY MARKET GROWTH FIXED INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Investments at cost................................................ $ 801,462 $26,799,824 $3,817,260
=========== =========== ==========
Investment in The Phoenix Edge Series Fund, at market.............. $ 801,462 $40,624,469 $3,557,809
----------- ----------- ----------
Total assets.................................................... 801,462 40,624,469 3,557,809
LIABILITIES
Accrued expenses to related party.................................. 340 16,205 1,525
----------- ----------- ----------
NET ASSETS............................................................ $ 801,122 $40,608,264 $3,556,284
=========== =========== ==========
Accumulation units outstanding........................................ 439,537 7,236,992 1,452,115
=========== =========== ==========
Unit value............................................................ $ 1.822650 $ 5.611208 $ 2.449030
=========== =========== ==========
STRATEGIC
ALLOCATION INTERNATIONAL BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ----------- ----------
ASSETS
Investments at cost................................................ $15,952,877 $ 1,129,438 $ 83,271
=========== =========== ==========
Investment in The Phoenix Edge Series Fund, at market.............. $19,182,187 $ 1,537,151 $ 113,718
----------- ----------- ----------
Total assets.................................................... 19,182,187 1,537,151 113,718
LIABILITIES
Accrued expenses to related party.................................. 7,788 630 47
----------- ----------- ----------
NET ASSETS............................................................ $19,174,399 $ 1,536,521 $ 113,671
=========== =========== ==========
Accumulation units outstanding........................................ 5,519,645 650,739 53,478
=========== =========== ==========
Unit value............................................................ $ 3.473843 $ 2.361203 $ 2.125548
=========== =========== ==========
ABERDEEN
REAL ESTATE STRATEGIC THEME NEW ASIA
SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ----------- ----------
ASSETS
Investments at cost................................................ $ 80,399 $ 309,267 $ 40,255
=========== =========== ==========
Investment in The Phoenix Edge Series Fund, at market.............. $ 69,071 $ 411,269 $ 27,740
----------- ----------- ----------
Total assets.................................................... 69,071 411,269 27,740
LIABILITIES
Accrued expenses to related party.................................. 4 162 11
----------- ----------- ----------
NET ASSETS............................................................ $ 69,067 $ 411,107 $ 27,729
=========== =========== ==========
Accumulation units outstanding........................................ 55,433 244,317 43,139
=========== =========== ==========
Unit value............................................................ $ 1.245953 $ 1.682681 $ 0.642781
=========== =========== ==========
SENECA
ENHANCED ENGEMANN MID-CAP
INDEX NIFTY FIFTY GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
----------- ----------- ----------
ASSETS
Investments at cost................................................ $ 330,524 $ 70,742 $ 14,409
=========== =========== ==========
Investment in the Phoenix Edge Series Fund, at market.............. $ 371,684 $ 84,636 $ 16,292
----------- ----------- ----------
Total assets.................................................... 371,684 84,636 16,292
LIABILITIES
Accrued expenses to related party.................................. 270 34 6
----------- ----------- ----------
NET ASSETS............................................................ $ 371,414 $ 84,602 $ 16,286
=========== =========== ==========
Accumulation units outstanding........................................ 279,279 70,855 15,148
=========== =========== ==========
Unit value............................................................ $ 1.329908 $ 1.193670 $ 1.075153
=========== =========== ==========
</TABLE>
See Notes to Financial Statements
65
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
GROWTH SCHAFER
AND INCOME VALUE EQUITY MID-CAP
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Investments at cost................................................ $ 49,381 $ 9,684 $ 8,424
=========== =========== ==========
Investment in The Phoenix Edge Series Fund, at market.............. $ 53,561 $ 10,042 $ 7,268
----------- ----------- ----------
Total assets.................................................... 53,561 10,042 7,268
LIABILITIES
Accrued expenses to related party.................................. 22 4 3
----------- ----------- ----------
NET ASSETS............................................................ $ 53,539 $ 10,038 $ 7,265
=========== =========== ==========
Accumulation units outstanding........................................ 48,315 9,730 8,427
=========== =========== ==========
Unit value............................................................ $ 1.108117 $ 1.031633 $ 0.862195
=========== =========== ==========
WANGER WANGER
U.S. INTERNATIONAL
SMALL CAP SMALL CAP
SUBACCOUNT SUBACCOUNT
---------- ----------
ASSETS
Investments at cost................................................ $ 492,929 $ 120,475
=========== ===========
Investment in Wanger Advisors Trust, at market..................... $ 572,296 $ 132,336
----------- -----------
Total assets.................................................... 572,296 132,336
LIABILITIES
Accrued expenses to related party.................................. 229 54
----------- -----------
NET ASSETS............................................................ $ 572,067 $ 132,282
=========== ===========
Accumulation units outstanding........................................ 402,094 113,611
=========== ===========
Unit value............................................................ $ 1.422719 $ 1.164344
=========== ===========
TEMPLETON
TEMPLETON DEVELOPING
INTERNATIONAL MARKETS
SUBACCOUNT SUBACCOUNT
---------- ----------
ASSETS
Investments at cost................................................ $ 58,063 $ 9,966
=========== ===========
Investment in Templeton Variable Products Series Fund, at market... $ 58,661 $ 10,164
----------- -----------
Total assets.................................................... 58,661 10,164
LIABILITIES
Accrued expenses to related party.................................. 30 7
----------- -----------
NET ASSETS............................................................ $ 58,631 $ 10,157
=========== ===========
Accumulation units outstanding........................................ 58,063 9,966
=========== ===========
Unit value............................................................ $ 1.009777 $ 1.019200
=========== ===========
</TABLE>
See Notes to Financial Statements
66
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MULTI-SECTOR
MONEY MARKET GROWTH FIXED INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
<S> <C> <C> <C>
Investment income
Distributions.................................................... $ 34,069 $ 45,279 $ 276,334
Expenses
Mortality and expense risk charges............................... 3,416 176,605 18,611
----------- ------------ ----------
Net investment income............................................... 30,653 (131,326) 257,723
----------- ------------ ----------
Net realized gain (loss) from share transactions.................... -- 115,904 (5,762)
Net realized gain distribution from Fund............................ -- 1,458,124 22,699
Net unrealized appreciation (depreciation) on investment............ -- 7,944,733 (454,168)
----------- ------------ ----------
Net gain (loss) on investments...................................... -- 9,518,761 (437,231)
----------- ------------ ----------
Net increase (decrease) in net assets resulting from operations..... $ 30,653 $ 9,387,435 $ (179,508)
=========== =========== ==========
STRATEGIC
ALLOCATION INTERNATIONAL BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
Investment income
Distributions.................................................... $ 331,457 $ -- $ 3,487
Expenses
Mortality and expense risk charges............................... 88,167 7,050 738
----------- ------------ ----------
Net investment income (loss)........................................ 243,290 (7,050) 2,749
----------- ------------ ----------
Net realized gain (loss) from share transactions.................... 62,550 10,048 15,781
Net realized gain distribution from Fund............................ 1,229,190 260,506 5,438
Net unrealized appreciation (depreciation) on investment............ 1,781,538 63,522 (363)
----------- ------------ ----------
Net gain (loss) on investments...................................... 3,073,278 334,076 20,856
----------- ------------ ----------
Net increase (decrease) in net assets resulting from operations..... $ 3,316,568 $ 327,026 $ 23,605
=========== ============ ==========
ABERDEEN
REAL ESTATE STRATEGIC THEME NEW ASIA
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
Investment income
Distributions.................................................... $ 3,665 $ 375 $ 117
Expenses
Mortality and expense risk charges............................... 394 1,845 132
----------- ------------ ----------
Net investment income (loss)........................................ 3,271 (1,470) (15)
----------- ------------ ----------
Net realized gain (loss) from share transactions.................... (5) 5,703 (53)
Net realized gain distribution from Fund............................ 87 23,881 --
Net unrealized appreciation (depreciation) on investment............ (23,427) 115,793 (1,944)
----------- ------------ ----------
Net gain (loss) on investments...................................... (23,345) 145,377 (1,997)
----------- ------------ ----------
Net increase (decrease) in net assets resulting from operations..... $ (20,074) $ 143,907 $ (2,012)
=========== ============ ==========
SENECA
ENHANCED ENGEMANN MID-CAP
INDEX NIFTY FIFTY GROWTH
SUBACCOUNT SUBACCOUNT(1) SUBACCOUNT(2)
---------- ------------- -------------
Investment income
Distributions.................................................... $ 2,795 $ 33 $ 13
Expenses
Mortality and expense risk charges............................... 1,284 236 39
----------- ------------ ----------
Net investment income (loss)........................................ 1,511 (203) (26)
----------- ------------ ----------
Net realized gain (loss) from share transactions.................... 14 1,379 (4)
Net realized gain distribution from Fund............................ 15,896 -- --
Net unrealized appreciation (depreciation) on investment............ 40,885 13,894 1,884
----------- ------------ ----------
Net gain (loss) on investments...................................... 56,795 15,273 1,880
----------- ------------ ----------
Net increase (decrease) in net assets resulting from operations..... $ 58,306 $ 15,070 $ 1,854
=========== ============ ==========
</TABLE>
(1) From inception April 28, 1998 to December 31, 1998
(2) From inception April 21, 1998 to December 31, 1998
See Notes to Financial Statements
67
<PAGE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
GROWTH SCHAFER
AND INCOME VALUE EQUITY MID-CAP
SUBACCOUNT(2) SUBACCOUNT(2) SUBACCOUNT(3)
------------- ------------- -------------
<S> <C> <C> <C>
Investment income
Distributions.................................................... $ 216 $ 42 $ 21
Expenses
Mortality and expense risk charges............................... 114 29 23
----------- ------------ ----------
Net investment income (loss)........................................ 102 13 (2)
----------- ------------ ----------
Net realized gain (loss) from share transactions.................... (7) (4) (9)
Net realized gain distribution from Fund............................ -- -- --
Net unrealized appreciation (depreciation) on investment............ 4,180 357 (1,156)
----------- ------------ ----------
Net gain (loss) on investments...................................... 4,173 353 (1,165)
----------- ------------ ----------
Net increase (decrease) in net assets resulting from operations..... $ 4,275 $ 366 $ (1,167)
=========== ============ ==========
WANGER WANGER
U.S. INTERNATIONAL
SMALL CAP SMALL CAP
SUBACCOUNT SUBACCOUNT
---------- ----------
Investment income
Distributions.................................................... $ 24,715 $ 1,801
Expenses
Mortality and expense risk charges............................... 2,527 765
----------- ------------
Net investment income (loss)........................................ 22,188 1,036
----------- ------------
Net realized gain (loss) from share transactions.................... (1,168) (2,560)
Net realized gain distribution from Fund............................ -- --
Net unrealized appreciation (depreciation) on investment............ 18,143 20,730
----------- ------------
Net gain (loss) on investments...................................... 16,975 18,170
----------- ------------
Net increase (decrease) in net assets resulting from operations..... $ 39,163 $ 19,206
=========== ============
TEMPLETON TEMPLETON
INTERNATIONAL DEVELOPING MARKETS
SUBACCOUNT(4) SUBACCOUNT(5)
------------- -------------
Investment income
Distributions.................................................... $ -- $ --
Expenses
Mortality and expense risk charges............................... 30 7
----------- ------------
Net investment income (loss)........................................ (30) (7)
----------- ------------
Net realized gain (loss) from share transactions.................... 1 (1)
Net realized gain distribution from Fund............................ -- --
Net unrealized appreciation (depreciation) on investment............ 598 199
----------- ------------
Net gain (loss) on investments...................................... 599 198
----------- ------------
Net increase (decrease) in net assets resulting from operations..... $ 569 $ 191
=========== ============
</TABLE>
(2) From inception April 21, 1998 to December 31, 1998
(3) From inception March 13, 1998 to December 31, 1998
(4) From inception November 23, 1998 to December 31, 1998
(5) From inception November 9, 1998 to December 31, 1998
See Notes to Financial Statements
68
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MULTI-SECTOR
MONEY MARKET GROWTH FIXED INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)..................................... $ 30,653 $ (131,326) $ 257,723
Net realized gain (loss)......................................... -- 1,574,028 16,937
Net unrealized appreciation (depreciation)....................... -- 7,944,733 (454,168)
------------ ------------ -----------
Net increase (decrease) in net assets resulting from operations.. 30,653 9,387,435 (179,508)
------------ ------------ -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 486,770 88,441 126,281
Participant transfers............................................ 965,687 (693,362) (59,435)
Participant withdrawals.......................................... (1,189,945) (1,369,401) (52,100)
------------ ------------ -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 262,512 (1,974,322) 14,746
------------ ------------ -----------
Net increase (decrease) in net assets............................ 293,165 7,413,113 (164,762)
NET ASSETS
Beginning of period.............................................. 507,957 33,195,151 3,721,046
------------ ------------ -----------
End of period.................................................... $ 801,122 $ 40,608,264 $ 3,556,284
============ ============ ===========
STRATEGIC
ALLOCATION INTERNATIONAL BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
FROM OPERATIONS
Net investment income (loss)..................................... $ 243,290 $ (7,050) $ 2,749
Net realized gain (loss)......................................... 1,291,740 270,554 21,219
Net unrealized appreciation (depreciation)....................... 1,781,538 63,522 (363)
------------ ------------ -----------
Net increase (decrease) in net assets resulting from operations.. 3,316,568 327,026 23,605
------------ ------------ -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 172,594 10,726 898
Participant transfers............................................ (707,451) 121,752 (81,691)
Participant withdrawals.......................................... (1,109,396) (128,944) (21,600)
------------ ------------ -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. (1,644,253) 3,534 (102,393)
------------ ------------ -----------
Net increase (decrease) in net assets............................ 1,672,315 330,560 (78,788)
NET ASSETS
Beginning of period.............................................. 17,502,084 1,205,961 192,459
------------ ------------ -----------
End of period.................................................... $ 19,174,399 $ 1,536,521 $ 113,671
============ ============ ===========
ABERDEEN
REAL ESTATE STRATEGIC THEME NEW ASIA
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
FROM OPERATIONS
Net investment income (loss)..................................... $ 3,271 $ (1,470) $ (15)
Net realized gain (loss)......................................... 82 29,584 (53)
Net unrealized appreciation (depreciation)....................... (23,427) 115,793 (1,944)
------------ ------------ -----------
Net increase (decrease) in net assets resulting from operations.. (20,074) 143,907 (2,012)
------------ ------------ -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 232 12,934 --
Participant transfers............................................ (21,663) (129,618) 10,000
Participant withdrawals.......................................... (2,485) (43,120) (266)
------------ ------------ -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. (23,916) (159,804) 9,734
------------ ------------ -----------
Net increase (decrease) in net assets............................ (43,990) (15,897) 7,722
NET ASSETS
Beginning of period.............................................. 113,057 427,004 20,007
------------ ------------ -----------
End of period.................................................... $ 69,067 $ 411,107 $ 27,729
============ ============ ===========
</TABLE>
See Notes to Financial Statements
69
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
SENECA
ENHANCED ENGEMANN MID-CAP
INDEX NIFTY FIFTY GROWTH
SUBACCOUNT SUBACCOUNT(1) SUBACCOUNT(2)
---------- ------------- -------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)..................................... $ 1,511 $ (203) $ (26)
Net realized gain (loss)......................................... 15,910 1,379 (4)
Net unrealized appreciation (depreciation)....................... 40,885 13,894 1,884
---------- --------- ---------
Net increase (decrease) in net assets resulting from operations.. 58,306 15,070 1,854
---------- --------- ---------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 3,734 3,828 2,490
Participant transfers............................................ 254,523 68,638 12,002
Participant withdrawals.......................................... (3,798) (2,934) (60)
---------- --------- ---------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 254,459 69,532 14,432
---------- --------- ---------
Net increase (decrease) in net assets............................ 312,765 84,602 16,286
NET ASSETS
Beginning of period.............................................. 58,649 0 0
---------- --------- ---------
End of period.................................................... $ 371,414 $ 84,602 $ 16,286
========== ========= =========
GROWTH SCHAFER
AND INCOME VALUE EQUITY MID-CAP
SUBACCOUNT(2) SUBACCOUNT(2) SUBACCOUNT(3)
------------- ------------- -------------
FROM OPERATIONS
Net investment income (loss)..................................... $ 102 $ 13 $ (2)
Net realized gain (loss)......................................... (7) (4) (9)
Net unrealized appreciation (depreciation)....................... 4,180 357 (1,156)
---------- --------- ---------
Net increase (decrease) in net assets resulting from operations.. 4,275 366 (1,167)
---------- --------- ---------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 7,469 -- --
Participant transfers............................................ 41,999 9,714 8,460
Participant withdrawals.......................................... (204) (42) (28)
---------- --------- ---------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 49,264 9,672 8,432
---------- --------- ---------
Net increase (decrease) in net assets............................ 53,539 10,038 7,265
NET ASSETS
Beginning of period.............................................. 0 0 0
---------- --------- ---------
End of period.................................................... $ 53,539 $ 10,038 $ 7,265
========== ========= =========
WANGER WANGER
U.S. INTERNATIONAL
SMALL CAP SMALL CAP
SUBACCOUNT SUBACCOUNT
---------- ----------
FROM OPERATIONS
Net investment income (loss)..................................... $ 22,188 $ 1,036
Net realized gain (loss)......................................... (1,168) (2,560)
Net unrealized appreciation (depreciation)....................... 18,143 20,730
---------- ---------
Net increase (decrease) in net assets resulting from operations.. 39,163 19,206
---------- ---------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 6,509 142
Participant transfers............................................ 139,320 (31,046)
Participant withdrawals.......................................... (119,121) (2,397)
---------- ---------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 26,708 (33,301)
---------- ---------
Net increase (decrease) in net assets............................ 65,871 (14,095)
NET ASSETS
Beginning of period.............................................. 506,196 146,377
---------- ---------
End of period.................................................... $ 572,067 $ 132,282
========== =========
</TABLE>
(1) From inception April 28, 1998 to December 31, 1998
(2) From inception April 21, 1998 to December 31, 1998
(3) From inception March 13, 1998 to December 31, 1998
See Notes to Financial Statements
70
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
TEMPLETON
TEMPLETON DEVELOPING
INTERNATIONAL MARKETS
SUBACCOUNT(4) SUBACCOUNT(5)
------------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss)..................................... $ (30) $ (7)
Net realized gain (loss)......................................... 1 (1)
Net unrealized appreciation (depreciation)....................... 598 199
--------- ---------
Net increase (decrease) in net assets resulting from operations.. 569 191
--------- ---------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. -- --
Participant transfers............................................ 58,235 10,000
Participant withdrawals.......................................... (173) (34)
--------- ---------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 58,062 9,966
--------- ---------
Net increase (decrease) in net assets............................ 58,631 10,157
NET ASSETS
Beginning of period.............................................. 0 0
--------- ---------
End of period.................................................... $ 58,631 $ 10,157
========= =========
</TABLE>
(4) From inception November 23, 1998 to December 31, 1998
(5) From inception November 9, 1998 to December 31, 1998
See Notes to Financial Statements
71
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MULTI-SECTOR
MONEY MARKET GROWTH FIXED INCOME
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income............................................ $ 32,748 $ 39,817 $ 236,378
Net realized gain................................................ -- 5,258,165 96,168
Net unrealized appreciation...................................... -- 406,199 13,298
--------- ----------- -----------
Net increase in net assets resulting from operations............. 32,748 5,704,181 345,844
--------- ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 20,734 31,261 1,248
Participant transfers............................................ (485,415) (14,615) 102,450
Participant withdrawals.......................................... (38,213) (863,532) (58,294)
--------- ----------- -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. (502,894) (846,886) 45,404
--------- ----------- -----------
Net increase (decrease) in net assets............................ (470,146) 4,857,295 391,248
NET ASSETS
Beginning of period.............................................. 978,103 28,337,856 3,329,798
--------- ----------- -----------
End of period.................................................... $ 507,957 $33,195,151 $ 3,721,046
========= =========== ===========
STRATEGIC
ALLOCATION INTERNATIONAL BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
FROM OPERATIONS
Net investment income............................................ $ 279,202 $ 13,746 $ 6,335
Net realized gain................................................ 2,197,643 173,937 35,646
Net unrealized appreciation (depreciation)....................... 531,049 (41,169) (10,412)
----------- ----------- ----------
Net increase in net assets resulting from operations............. 3,007,894 146,514 31,569
----------- ----------- ----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 109,277 7,986 1,666
Participant transfers............................................ (317,620) (241,204) (30,741)
Participant withdrawals.......................................... (557,654) (74,579) (176,265)
----------- ----------- ----------
Net decrease in net assets resulting from participant transactions (765,997) (307,797) (205,340)
----------- ----------- ----------
Net increase (decrease) in net assets............................ 2,241,897 (161,283) (173,771)
NET ASSETS
Beginning of period.............................................. 15,260,187 1,367,244 366,230
----------- ----------- ----------
End of period.................................................... $17,502,084 $ 1,205,961 $ 192,459
=========== =========== ==========
</TABLE>
See Notes to Financial Statements
72
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1997
(CONTINUED)
<TABLE>
<CAPTION>
ABERDEEN
REAL ESTATE STRATEGIC THEME NEW ASIA
SUBACCOUNT SUBACCOUNT SUBACCOUNT(1)
---------- ---------- -------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)..................................... $ 2,558 $ (203) $ 743
Net realized gain (loss)......................................... 3,710 52,208 (695)
Net unrealized appreciation (depreciation)....................... 9,852 (15,711) (10,570)
-------- ---------- -----------
Net increase (decrease) in net assets resulting from operations.. 16,120 36,294 (10,522)
-------- ---------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 1,571 12,472 --
Participant transfers............................................ 85,333 212,505 30,856
Participant withdrawals.......................................... (2,416) (43,070) (327)
-------- ---------- -----------
Net increase in net assets resulting from participant transactions 84,488 181,907 30,529
-------- ---------- -----------
Net increase in net assets....................................... 100,608 218,201 20,007
NET ASSETS
Beginning of period.............................................. 12,449 208,803 0
-------- ---------- -----------
End of period.................................................... $113,057 $ 427,004 $ 20,007
======== ========== ===========
WANGER WANGER
ENHANCED INTERNATIONAL U.S.
INDEX SMALL CAP SMALL CAP
SUBACCOUNT(2) SUBACCOUNT SUBACCOUNT
------------- ---------- ----------
FROM OPERATIONS
Net investment income............................................ $ 207 $ 1,963 $ 3,980
Net realized gain (loss)......................................... 258 (68) 814
Net unrealized appreciation (depreciation)....................... 275 (9,128) 60,894
Net increase (decrease) in net assets resulting from operations.. 740 (7,233) 65,688
-------- ---------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. -- 1,559 2,102
Participant transfers............................................ 58,145 149,460 450,846
Participant withdrawals.......................................... (236) (7,607) (27,955)
-------- ---------- -----------
Net increase in net assets resulting from participant transactions 57,909 143,412 424,993
-------- ----------
Net increase in net assets....................................... 58,649 136,179 490,681
NET ASSETS
Beginning of period.............................................. 0 10,198 15,515
-------- ---------- -----------
End of period.................................................... $ 58,649 $ 146,377 $ 506,196
======== ========== ===========
</TABLE>
(1) From inception January 6, 1997 to December 31, 1997
(2) From inception September 22, 1997 to December 31, 1997
See Notes to Financial Statements
73
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION
Phoenix Home Life Variable Universal Life Account (the "Account") is a
separate investment account of Phoenix Home Life Mutual Insurance Company
("Phoenix"). The Account is registered as a unit investment trust under the
Investment Company Act of 1940, as amended. Policies offered by the Account have
a death benefit, cash surrender value and loan privileges. The Account was
established January 1, 1987 and currently consists of 19 Subaccounts, that
invest in a corresponding series (the "Series") of The Phoenix Edge Series Fund,
Wanger Advisors Trust and the Templeton Variable Products Series Fund (the
"Funds").
Each Series has distinct investment objectives. The Money Market Series seeks
to provide maximum current income consistent with capital preservation and
liquidity. The Growth Series seeks to achieve intermediate and long-term growth
of capital, with income as a secondary consideration. The Multi-Sector Fixed
Income Series seeks to provide long-term total return by investing in a
diversified portfolio of high yield and high quality fixed income securities.
The Strategic Allocation Series seeks to realize as high a level of total rate
of return over an extended period of time as is considered consistent with
prudent investment risk by investing in three market segments: stocks, bonds and
money market instruments. The International Series seeks as its investment
objective a high total return consistent with reasonable risk by investing
primarily in an internationally diversified portfolio of equity securities. The
Balanced Series seeks to provide reasonable income, long-term growth and
conservation of capital. The Real Estate Series seeks to achieve capital
appreciation and income with approximately equal emphasis through investments in
real estate investment trusts and companies that operate, manage, develop or
invest in real estate. The Strategic Theme Series seeks long-term appreciation
of capital by investing in securities that the adviser believes are well
positioned to benefit from cultural, demographic, regulatory, social or
technological changes worldwide. The Aberdeen New Asia Series seeks to provide
long-term capital appreciation by investing primarily in diversified equity
securities of issuers organized and principally operating in Asia, excluding
Japan. The Enhanced Index Series seeks high total return by investing in a
broadly diversified portfolio of equity securities of large and medium
capitalization companies within market sectors reflected in the Standard &
Poor's 500 Composite Stock Price Index. The Engemann Nifty Fifty Series seeks to
achieve long-term capital appreciation investing in approximately 50 different
securities which offer the potential for long-term growth of capital. The Seneca
Mid-Cap Growth Series seeks capital appreciation primarily through investments
in equity securities of companies that have the potential for above average
market appreciation. The Growth and Income Series seeks as its investment
objective, dividend growth, current income and capital appreciation by investing
in common stocks. The Value Equity Series seeks to achieve long-term capital
appreciation and income by investing in a diversified portfolio of common stocks
which meet certain quantitative standards that indicate above average financial
soundness and intrinsic value relative to price. The Schafer Mid-Cap Series
seeks to achieve long-term capital appreciation with current income as the
secondary investment objective by investing in common stocks of established
companies having a strong financial position and a low stock market valuation at
the time of purchase which are believed to offer the possibility of increase in
value. The Wanger U.S. Small Cap Series invests in growth common stock of U.S.
companies with stock market capitalization of less than $1 billion. The Wanger
International Small Cap Series invests in securities of non-U.S. companies with
a stock market capitalization of less than $1 billion. The Templeton
International Series invests in stocks and debt obligations of companies and
governments outside of the United States. The Templeton Developing Markets
Series seeks long-term capital appreciation by investing in equity securities of
issuers in countries having developing markets. Additionally, policyowners also
may direct the allocation of their investments between the Account and the
Guaranteed Interest Account of the general account of Phoenix.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
A. VALUATION OF INVESTMENTS: Investments are made exclusively in the Funds
and are valued at the net asset values per share of the respective Series.
B. INVESTMENT TRANSACTIONS AND RELATED INCOME: Realized gains and losses
include capital gain distributions from the Funds as well as gains and losses on
sales of shares in the Funds determined on the LIFO (last in, first out) basis.
C. INCOME TAXES: The Account is not a separate entity from Phoenix and, under
current federal income tax law, income arising from the Account is not taxed
since reserves are established equivalent to such income. Therefore, no
provision for related federal taxes is required.
D. DISTRIBUTIONS: Distributions are recorded on the ex-dividend date.
74
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 3--PURCHASES AND SALES OF SHARES OF THE FUNDS
Purchases and sales of shares of the Funds for the period ended December 31,
1998 aggregated the following:
<TABLE>
<CAPTION>
SUBACCOUNT PURCHASES SALES
- ---------- --------- -----
<S> <C> <C>
The Phoenix Edge Series Fund:
Money Market................................................................... $2,307,660 $2,014,371
Growth......................................................................... 1,960,991 2,606,153
Multi-Sector Fixed Income...................................................... 461,429 166,306
Strategic Allocation........................................................... 1,729,252 1,900,572
International.................................................................. 407,145 150,027
Balanced....................................................................... 9,286 103,526
Real Estate.................................................................... 6,408 27,008
Strategic Theme................................................................ 24,855 162,265
Aberdeen New Asia.............................................................. 10,117 394
Enhanced Index................................................................. 276,854 4,743
Engemann Nifty Fifty........................................................... 142,426 73,063
Seneca Mid-Cap Growth.......................................................... 14,501 88
Growth and Income.............................................................. 49,671 283
Value Equity .................................................................. 9,754 66
Schafer Mid-Cap................................................................ 8,481 48
Wanger Advisors Trust:
U.S. Small Cap................................................................. 181,645 132,732
International Small Cap........................................................ 13,680 45,954
The Templeton Variable Products Series Fund:
International ................................................................. 58,236 174
Developing Markets ............................................................ 10,000 33
</TABLE>
NOTE 4--PARTICIPANT ACCUMULATION UNIT TRANSACTIONS (IN UNITS)
<TABLE>
<CAPTION>
SUBACCOUNT
--------------------------------------------------------------------------------------
MONEY MULTI-SECTOR STRATEGIC
MARKET GROWTH FIXED INCOME ALLOCATION INTERNATIONAL BALANCED
------ ------ ------------ ---------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of period 291,427 7,653,211 1,451,093 6,055,691 650,153 107,226
Participant deposits................. 272,723 18,958 3,095 55,853 4,797 461
Participant transfers................ 550,868 (150,756) 30,543 (234,434) 54,653 (43,079)
Participant withdrawals.............. (675,481) (284,421) (32,616) (357,465) (58,864) (11,130)
-------- --------- --------- --------- ------- -------
Units outstanding, end of period..... 439,537 7,236,992 1,452,115 5,519,645 650,739 53,478
======== ========= ========= ========= ======= =======
SENECA
REAL STRATEGIC ABERDEEN ENHANCED ENGEMANN NIFTY MID-CAP
ESTATE THEME NEW ASIA INDEX FIFTY GROWTH
------ ----- -------- ----- ----- ------
Units outstanding, beginning of period 71,147 365,357 29,593 57,784 0 0
Participant deposits................. 183 8,215 -- 3,066 3,111 2,672
Participant transfers................ (14,164) (98,454) 13,969 221,661 71,335 12,542
Participant withdrawals.............. (1,733) (30,801) (423) (3,232) (3,591) (66)
-------- --------- --------- --------- ------- -------
Units outstanding, end of period..... 55,433 244,317 43,139 279,279 70,855 15,148
======== ========= ========= ========= ======= =======
GROWTH WANGER WANGER
AND VALUE SCHAFER U.S. INTERNATIONAL
INCOME EQUITY MID-CAP SMALL CAP SMALL CAP
------ ------ ------- --------- ---------
Units outstanding, beginning of period 0 0 0 384,787 145,518
Participant deposits................. 7,402 -- -- 5,129 111
Participant transfers................ 41,117 9,777 8,461 31,234 (29,957)
Participant withdrawals.............. (204) (47) (34) (19,056) (2,061)
-------- --------- --------- --------- -------
Units outstanding, end of period..... 48,315 9,730 8,427 402,094 113,611
======== ========= ========= ========= =======
TEMPLETON
TEMPLETON DEVELOPING
INTERNATIONAL MARKETS
------------- -------
Units outstanding, beginning of period 0 0
Participant deposits................. -- --
Participant transfers................ 58,236 10,000
Participant withdrawals.............. (173) (34)
-------- ---------
Units outstanding, end of period..... 58,063 9,966
======== =========
</TABLE>
75
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
NOTE 5--POLICY LOANS
Transfers are made to Phoenix's general account as a result of policy loans.
Policy provisions allow policyowners to borrow up to 75% of a policy's cash
value during the first three policy years and up to 90% of cash value
thereafter, with interest of 8% due and payable on each policy anniversary. At
the time a loan is granted, an amount equivalent to the amount of the loan is
transferred from the Account to Phoenix's general account as collateral for the
outstanding loan. These transfers are included in participant withdrawals in the
accompanying financial statements. Amounts in the general account are credited
with interest at 7.25%. Loan repayments result in a transfer of collateral back
to the Account.
NOTE 6--INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
Phoenix and its indirect, majority owned subsidiary, Phoenix Equity Planning
Corporation, a registered broker/dealer in securities, provide all services to
the Account.
The cost of insurance is charged to each policy on a monthly basis by a
withdrawal of participant units prorated among the elected Subaccounts. The
amount charged to each policy depends on a number of variables including sex,
age and risk class as well as the death benefit and cash value of the policy.
Such costs aggregated $640,106 during the period ended December 31, 1998.
Upon partial surrender of a policy, a surrender fee of the lesser of $25 or
2% of the partial surrender amount paid and a fraction of the balance of any
unpaid acquisition expense allowance is deducted from the policy value and paid
to Phoenix.
Phoenix Equity Planning Corporation is the principal underwriter and
distributor for the Account. Phoenix Equity Planning Corporation is reimbursed
for its distribution and underwriting expenses by Phoenix.
An acquisition expense allowance is paid to Phoenix over a ten-year period
from contract inception by a withdrawal of units. The acquisition expense
allowance consists of a sales load of 5.5% of the issue premium to compensate
Phoenix for distribution expenses incurred, an issue administration charge of
1.0% of the issue premium to compensate Phoenix for underwriting and start-up
expenses and premium taxes which currently range from 0.75% to 4% of premiums
paid based on the state where the policyowner resides. In the event of a
surrender before ten years, the unpaid balance of the acquisition expense
allowance is deducted and paid to Phoenix.
Phoenix assumes the mortality risk that insureds may live for a shorter time
than projected because of inaccuracies in the projecting process and,
accordingly, that an aggregate amount of death benefits greater than projected
will be payable. The expense risk assumed is that expenses incurred in issuing
the policies may exceed the limits on administrative charges set in the
policies. In return for the assumption of these mortality and expense risks,
Phoenix charges the Account an annual rate of 0.50% of the average daily net
assets of the Account for mortality and expense risks assumed.
NOTE 7--DIVERSIFICATION REQUIREMENTS
Under the provisions of Section 817(h) of the Internal Revenue Code (the
"Code"), a variable universal life contract, other than a contract issued in
connection with certain types of employee benefit plans, will not be treated as
a universal life contract for federal tax purposes for any period for which the
investments of the segregated asset account on which the contract is based are
not adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations issued
by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. Phoenix believes that the Account satisfies the current requirements
of the regulations, and it intends that the Account will continue to meet such
requirements.
76
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[PRICEWATERHOUSECOOPERS LOGO]
To the Board of Directors of Phoenix Home Life Mutual Insurance Company and
Participants of Phoenix Home Life Variable Universal Life Account:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly, in
all material respects, the financial position of each of the subaccounts: Money
Market, Growth, Multi-Sector Fixed Income, Strategic Allocation, International,
Balanced, Real Estate, Strategic Theme, Aberdeen New Asia, Enhanced Index,
Engemann Nifty Fifty, Seneca Mid-Cap Growth, Growth and Income, Value Equity,
Schafer Mid-Cap, Wanger U.S. Small Cap, Wanger International Small Cap,
Templeton International and Templeton Developing Markets (constituting the
Phoenix Home Life Variable Universal Life Account, hereafter referred to as the
"Account") at December 31, 1998, and the results of each of their operations and
the changes in each of their net assets for each of the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Account's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments at
December 31, 1998 by correspondence with fund custodians or transfer agents,
provide a reasonable basis for the opinion expressed above.
/s/PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
February 17, 1999
77
<PAGE>
PHOENIX HOME LIFE
VARIABLE UNIVERSAL LIFE ACCOUNT
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
UNDERWRITER
Phoenix Equity Planning Corporation
P.O. Box 2200
100 Bright Meadow Boulevard
Enfield, Connecticut 06083-2200
CUSTODIANS
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust
P.O. Box 351
Boston, Massachusetts 02101
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
One Financial Plaza
Hartford, Connecticut 06103
78
<PAGE>
APPENDIX A
PERFORMANCE HISTORY
- -------------------------------------------------------------------------------
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE
PERFORMANCE. THEY DO NOT ILLUSTRATE HOW ACTUAL PERFORMANCE WILL AFFECT THE
BENEFITS UNDER A POLICY BECAUSE THEY DO NOT REFLECT COST OF INSURANCE, PREMIUM
TAX CHARGES, PREMIUM SALES CHARGES AND SURRENDER CHARGES, IF APPLICABLE. FOR
THIS INFORMATION SEE APPENDIX C "ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES
AND CASH SURRENDER VALUES." Performance information may be expressed as yield
and effective yield of the Phoenix-Goodwin Money Market Subaccount, as yield of
the Phoenix-Goodwin Multi-Sector Subaccount and as total return of any
Subaccount. Current yield for the Phoenix-Goodwin Money Market Subaccount will
be based on the income earned by the Subaccount over a given 7-day period (less
a hypothetical charge reflecting deductions for expenses taken during the
period) and then annualized, i.e., the income earned in the period is assumed to
be earned every seven days over a 52-week period and is stated in terms of an
annual percentage return on the investment. Effective yield is calculated
similarly but reflects the compounding effect of earnings on reinvested
dividends. Yield and effective yield reflect the Mortality and Expense Risk
charge on the VUL Account level.
Yield calculations of the Phoenix-Goodwin Money Market Subaccount used for
illustration purposes are based on the consideration of a hypothetical
participant's account having a balance of exactly one Unit at the beginning of a
7-day period, which period will end on the date of the most recent financial
statements. The yield for the Subaccount during this 7-day period will be the
change in the value of the hypothetical participant's account's original Unit.
The following is an example of this yield calculation for the Phoenix-Goodwin
Money Market Subaccount based on a 7-day period ending December 31, 1998.
Example:
Assumptions:
Value of hypothetical pre-existing account with exactly one
unit at the beginning of the period:.................... 1.821414
Value of the same account (excluding capital changes) at the
end of the 7-day period:................................ 1.82265
Calculation:
Ending account value ................................... 1.82265
Less beginning account value ........................... 1.821414
Net change in account value ............................ 0.001236
Base period return:
(adjusted change/beginning account value) .............. 0.000679
Current yield = return x (365/7) = ....................... 3.54%
Effective yield = [(1 + return)(365/7)] - 1 = ............ 3.60%
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 VUL Account level.
For the Phoenix-Goodwin Multi-Sector Subaccount, quotations of yield will be
based on all investment income per unit earned during a given 30-day period
(including dividends and interest), less expenses accrued during the period
("net investment income"), and are computed by dividing net investment income by
the maximum offering price per unit on the last day of the period.
When a Subaccount advertises its total return, it usually will be calculated
for one year, five years, and ten years or since inception if the Subaccount has
not been in existence for at least ten years. Total return is measured by
comparing the value of a hypothetical $10,000 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 the Mortality and Expense Risk, Issue Expense and Monthly
Administrative Charges.
For those Subaccounts within the VUL Account that have not been available
for one of the quoted periods, the average annual total return quotations will
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.
79
<PAGE>
The following performance tables display historical investment results of
the Subaccounts of the VUL Account. This information may be useful in helping
potential investors in deciding which Subaccounts to choose and in assessing the
competence of the investment advisers. The performance figures shown should be
considered in light of the investment objectives and policies, characteristics
and quality of the Subaccounts and market conditions during the periods of time
quoted. The performance figures should not be considered as estimates or
predictions of future performance. Investment return of the Subaccounts are not
guaranteed and will fluctuate. Below are quotations of average annual total
return calculated as described above for all Subaccounts with at least one year
of results. POLICY CHARGES (INCLUDING COST OF INSURANCE, PREMIUM TAX CHARGES,
PREMIUM SALES CHARGES AND SURRENDER CHARGES) ARE NOT REFLECTED.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 19981
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUBACCOUNT INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix Research Enhanced Index..................... 7/15/97 22.51% N/A N/A 19.21%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International...................... 5/1/90 19.02% 11.21% N/A 9.60%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia........................... 9/17/96 -11.10% N/A N/A -20.13%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities........ 5/1/95 -26.69% N/A N/A 9.30%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty........................ 3/2/98 N/A N/A N/A 15.69%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Balanced............................ 5/1/92 10.72% 11.41% N/A 10.97%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Growth.............................. 1/1/83 20.96% 16.50% 18.77% 18.13%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market........................ 10/10/82 -2.23% 3.04% 4.22% 5.36%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income........... 1/1/83 -10.83% 4.97% 8.00% 9.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation................ 9/17/84 12.38% 11.07% 12.74% 12.61%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme..................... 1/29/96 34.62% N/A N/A 20.50%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity...................... 3/2/98 N/A N/A N/A 3.19%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income.................. 3/2/98 N/A N/A N/A 12.17%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value....................... 3/2/98 N/A N/A N/A -17.48%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth....................... 3/2/98 N/A N/A N/A 13.38%
- -----------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments (Templeton)............... 11/2/98 N/A N/A N/A -4.11%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation.......................... 11/28/88 -1.29% 9.37% 10.60% 10.52%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets........................ 9/15/96 -26.55% N/A N/A -25.00%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton International............................. 5/1/92 1.45% 9.51% N/A 12.22%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Stock..................................... 11/4/88 -6.04% 8.88% 10.67% 10.38%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty................................ 2/1/99 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap...................... 5/1/95 8.23% N/A N/A 18.65%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Twenty....................................... 2/1/99 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger U.S. Small Cap............................... 5/1/95 1.12% N/A N/A 24.13%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The average annual total return is the annual compound return that results
from holding an initial investment of $400,000 for the time period indicated.
Returns are net of $600 Issue Expense Charge, $20 Monthly Administrative
Charge, Investment Management Fees and Mortality and Expense Risk Charges.
Advertisements, sales literature and other communications may contain
information about any Series' or Adviser's current investment strategies and
management style. Current strategies and style may change to 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
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"), Dow Jones
Industrial Average, First Boston High Yield Index and Salomon Brothers Corporate
and Government Bond Indices.
Occasionally, The VUL Account may include in advertisements containing total
return, the ranking of those performance figures relating to such figures for
groups of Subaccounts having similar investment objectives as categorized by
ranking services such as:
Lipper Analytical Services, Inc. Morningstar, Inc.
CDA Investment Technologies, Inc. Weisenberger Financial Services, Inc.
80
<PAGE>
Additionally, the Funds may compare a Series' performance results to other
investment or savings vehicles (such as certificates of deposit) and may refer
to results published in various publications such as:
Changing Times Forbes
Fortune Money
Barrons Business Week
Investor's Business Daily The Stanger Register
Stanger's Investment Adviser The Wall Street Journal
The New York Times Consumer Reports
Registered Representative Financial Planning
Financial Services Weekly Financial World
U.S. News and World Report Standard & Poor's
The Outlook Personal Investor
The Funds may occasionally illustrate the benefits of tax deferral by
comparing taxable investments to investments made through tax-deferred
retirement plans. The total return also may be used to compare the performance
of a Series against certain widely acknowledged outside standards or indices for
stock and bond market performance such as:
S&P 500 Dow Jones Industrial Average
Europe Australia Far East Index (EAFE) Consumers Price Index
Shearson Lehman Corporate Index Shearson Lehman T-Bond Index
The S&P 500 is a commonly quoted market value-weighted and unmanaged index
showing the changes in the aggregate market value of 500 common stocks relative
to the base period 1940-43. The S&P 500 is composed almost entirely of common
stocks of companies listed on the NYSE, although the common stocks of a few
companies listed on the American Stock Exchange or traded over the counter are
included. The 500 companies represented include 400 industrial, 60
transportation and 40 financial services concerns. The S&P 500 represents about
70-80% of the market value of all issues traded on the NYSE.
The Funds' Annual Reports, available upon request and without charge,
contain a discussion of the performance of the Funds and a comparison of that
performance to a securities market index.
81
<PAGE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series 1983 1984 1985 1986 1987 1988 1989 1990
- -----------------------------------------------------------------------------------------------------------
Phoenix Research Enhanced Index N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International N/A N/A N/A N/A N/A N/A N/A -8.48%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Balanced N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Growth 32.22% 10.11% 34.24% 19.86% 6.48% 3.39% 35.39% 3.55%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 7.79% 9.67% 7.49% 5.98% 5.97% 6.90% 8.65% 7.67%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 5.47% 10.78% 20.00% 18.69% 0.60% 9.89% 7.70% 4.67%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation N/A -1.20% 26.69% 15.10% 12.16% 1.83% 19.27% 5.22%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Mutual Shares Investments (Templeton) N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Templeton Asset Allocation N/A N/A N/A N/A N/A 0.23% 12.46% -8.67%
- -----------------------------------------------------------------------------------------------------------
Templeton Developing Markets N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Templeton International N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Templeton Stock N/A N/A N/A N/A N/A -0.94% 13.82% -11.72%
- -----------------------------------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Wanger International Small Cap N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Wanger US Small Cap N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
ANNUAL TOTAL RETURN(1) (CONTINUED)
- -----------------------------------------------------------------------------------------------------------
Series 1991 1992 1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------
Phoenix Research Enhanced Index N/A N/A N/A N/A N/A N/A 5.61% 31.03%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International 19.07% -13.26% 37.72% -0.44% 9.04% 18.06% 11.49% 27.30%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia N/A N/A N/A N/A N/A 0.01% -32.73% -4.92%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities N/A N/A N/A N/A 17.42% 32.60% 21.45% -21.59%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty N/A N/A N/A N/A N/A N/A N/A 23.73%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Balanced N/A 9.26% 8.06% -3.32% 22.72% 10.01% 17.35% 18.42%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Growth 42.00% 9.75% 19.09% 0.96% 30.23% 12.02% 20.48% 29.37%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 5.45% 3.06% 2.35% 3.31% 5.16% 4.50% 4.66% 4.57%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 18.97% 9.52% 15.33% -5.93% 22.91% 11.86% 10.53% -4.63%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation 28.64% 10.10% 10.46% -1.89% 17.61% 8.50% 20.13% 20.19%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme N/A N/A N/A N/A N/A 9.89% 16.59% 43.97%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity N/A N/A N/A N/A N/A N/A N/A 10.36%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income N/A N/A N/A N/A N/A N/A N/A 19.96%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value N/A N/A N/A N/A N/A N/A N/A -11.74%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth N/A N/A N/A N/A N/A N/A N/A 21.26%
- -----------------------------------------------------------------------------------------------------------
Mutual Shares Investments (Templeton) N/A N/A N/A N/A N/A N/A N/A 2.55%
- -----------------------------------------------------------------------------------------------------------
Templeton Asset Allocation 26.80% 7.29% 25.24% -3.71% 21.65% 18.00% 14.71% 5.57%
- -----------------------------------------------------------------------------------------------------------
Templeton Developing Markets N/A N/A N/A N/A N/A 1.13% -29.74% -21.44%
- -----------------------------------------------------------------------------------------------------------
Templeton International N/A -6.62% 46.28% -2.98% 14.91% 23.14% 13.10% 8.50%
- -----------------------------------------------------------------------------------------------------------
Templeton Stock 26.60% 6.34% 33.08% -2.96% 24.34% 21.53% 11.08% 0.49%
- -----------------------------------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Wanger International Small Cap N/A N/A N/A N/A 34.23% 31.54% -1.95% 15.75%
- -----------------------------------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Wanger US Small Cap N/A N/A N/A N/A 16.24% 46.08% 28.78% 8.15%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Rates are net of Mortality and Expense Risk Charges and Investment
Management fees for the Subaccounts.
These rates of return are not an estimate or guarantee of future performance.
82
<PAGE>
APPENDIX B
THE GUARANTEED INTEREST ACCOUNT
- --------------------------------------------------------------------------------
Contributions to the GIA under the Policy and transfers to the GIA become
part of the Phoeix General Account (the "General Account"), which supports
insurance and annuity obligations. Because of exemptive and exclusionary
provisions, interest in the General Account has not been registered under the
Securities Act of 1933 ("1933 Act") nor is the General Account registered as an
investment company under the Investment Company Act of 1940 ("1940 Act").
Accordingly, neither the General Account nor any interest therein is
specifically subject to the provisions of the 1933 or 1940 Acts and the staff of
the Securities and Exchange Commission has not reviewed the disclosures in this
Prospectus concerning the GIA. Disclosures regarding the GIA and the General
Account, however, may be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
The General Account is made up of all of the general assets of Phoenix other
than those allocated to any separate account. Premium payments will be allocated
to the GIA and, therefore, the General Account, as elected by the Policyowner at
the time of purchase or as subsequently changed. Phoenix will invest the assets
of the General Account in assets chosen by it and allowed by applicable law.
Investment income from General Account assets is allocated between Phoenix and
the contracts participating in the General Account, in accordance with the terms
of such contracts.
Investment income from the General Account allocated to Phoenix includes
compensation for mortality and expense risks borne by it in connection with
General Account contracts.
The amount of investment income allocated to the Policies will vary from
year to year in the sole discretion of Phoenix. However, Phoenix guarantees that
it will credit interest at a rate of not less than 4% per year, compounded
annually, to amounts allocated to the unloaned portion of the GIA. Phoenix may
credit interest at a rate in excess of 4% per year; however, it is not obligated
to credit any interest in excess of 4% per year. The loaned portion of the GIA
will be credited interest at an effective annual rate of 7.25%.
On the last business day of each calendar week, Phoenix will set the excess
interest rate, if any, that will apply to premium payments made to the GIA. That
rate will remain in effect for such premium payments for an initial guarantee
period of one full year from the date of premium payment. Upon expiration of the
initial one-year guarantee period (and each subsequent one-year guarantee period
thereafter), the rate to be applied to any premium payments whose guaranteed
period has just ended will be the same rate as is applied to new premium
payments allocated at that time to the GIA. This rate will likewise remain in
effect for a guarantee period of one full year from the date the new rate is
applied.
Excess interest, if any, will be determined by Phoenix based on information
as to expected investment yields. Some of the factors that Phoenix may consider
in determining whether to credit interest to amounts allocated to the GIA and
the amount thereof, are general economic trends, rates of return currently
available and anticipated on investments, regulatory and tax requirements and
competitive factors. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE GIA IN
EXCESS OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF PHOENIX AND
WITHOUT REGARD TO ANY SPECIFIC FORMULA. THE POLICY OWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO GIA ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 4%
FOR ANY GIVEN YEAR.
Phoenix is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in Phoenix's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
Policyholders, Contract Owners and shareholders.
Excess interest, if any, will be credited on the GIA Policy Value. Phoenix
guarantees that, at any time, the GIA Policy Value will not be less than the
amount of premium payments allocated to the GIA, plus interest at the rate of 4%
per year, compounded annually, plus any additional interest which Phoenix may,
in its discretion, credit to the GIA, less the sum of all annual administrative
or surrender charges, any applicable premium taxes, and less any amounts
surrendered or loaned. If the Policyowner surrenders the Policy, the amount
available from the GIA will be reduced by any applicable surrender charge and
annual administration charge. See "Deductions and Charges."
IN GENERAL, YOU CAN MAKE ONLY ONE TRANSFER PER YEAR FROM THE GIA. THE AMOUNT
THAT CAN BE TRANSFERRED OUT IS LIMITED TO THE GREATER OF $1,000 OR 25% OF THE
POLICY VALUE IN THE GIA AT THE TIME OF THE TRANSFER. IF YOU ELECT THE SYSTEMATIC
TRANSFER PROGRAM, APPROXIMATELY EQUAL AMOUNTS MAY BE TRANSFERRED OUT OF THE GIA
OVER A MINIMUM 18-MONTH PERIOD. ALSO, THE TOTAL POLICY VALUE ALLOCATED TO THE
GIA MAY BE TRANSFERRED OUT OF THE GIA TO ONE OR MORE OF THE SUBACCOUNTS OF THE
VUL ACCOUNT OVER A CONSECUTIVE FOUR-YEAR PERIOD ACCORDING TO THE FOLLOWING
ANNUALLY RENEWABLE SCHEDULE:
YEAR ONE: 25% YEAR TWO: 33%
YEAR THREE: 50% YEAR FOUR: 100%
83
<PAGE>
APPENDIX C
ILLUSTRATIONS OF DEATH BENEFITS, ACCUMULATION VALUES, CASH VALUES AND
ACCUMULATED PREMIUMS
- -------------------------------------------------------------------------------
The tables illustrate how a Policy's death benefits, accumulation values and
cash values may vary over time assuming hypothetical gross (after tax)
investment return rates of 0%, 6% and 12%, i.e., the investment income and
capital gains and losses, realized or unrealized of the Fund is equivalent to
the assumed hypothetical gross annual investment return rates of 0%, 6% and 12%.
The tables are based on current or guaranteed mortality charges as indicated,
and on a single premium of $10,000.
1. The illustration on pages 85 and 86 is for a policy issued to a male
nonsmoker age 35 with the maximum amount of insurance under the contract.
2. The illustration on pages 87 and 88 is for a policy issued to a female
nonsmoker age 35 with the maximum amount of insurance under the contract.
3. The illustration on pages 89 and 90 is for a policy issued to a male
nonsmoker age 35 with the minimum amount of insurance under the contract.
4. The illustration on pages 91 and 92 is for a policy issued to a female
nonsmoker age 35 with the minimum amount of insurance under the contract.
The death benefits, accumulation values and cash values would be different
from those shown if the actual gross investment return averaged 0%, 6% or 12%,
but fluctuated above or below the averaged rate at various points in time. These
benefits and values also would change if the assumptions underlying the
illustrations (for example age of the Insured, Insured's smoking status, premium
amount paid or Target Face Amount selected) were different.
The death benefit, accumulation value and cash value amounts reflect the
following current or guaranteed maximum charges:
1. Acquisition Expense Charge (see "Charges and Deductions--Acquisition
Expense").
2. Cost of Insurance Charge (see "Charges and Deductions--Cost of
Insurance").
3. Mortality and Expense Risk Charge, which is equal to .50%, on an annual
basis, of the net asset value of the VUL Account (see "Charges and
Deductions--Mortality and Expense Risk Charge").
These illustrations also assume an average investment advisory fee of .76%
on an annual basis, of the average daily net asset value of each of the Series
of the Funds. These illustrations also assume other ongoing average Fund
expenses of .28%. All other Fund expenses, except capital expenses, are assumed
by the Advisers or by Phoenix. Management may decide to limit the amount of
expense reimbursement in the future. If expense reimbursement had not been in
place for the fiscal year ended December 31, 1998, average total operating
expenses for the Series would have been approximately 1.47% of the average net
assets.
Taking into account the Mortality and Expense Risk Charge and the investment
advisory fees and expenses, the gross annual investment return rates of 0%, 6%
and 12% on the Funds' assets are equivalent to net annual investment return
rates of approximately -1.53%, 4.44% and 10.41%, respectively.
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the VUL Account in the future. If such Tax Charges
are imposed in the future, then in order to produce after tax returns equal to
those illustrated for 0%, 6% and 12%, a sufficiently higher amount in excess of
the hypothetical interest rates would have to be earned. (See "Charges and
Deduction--Other Charges--Taxes.")
The second column of each table shows the amount that would accumulate if an
amount equal to the Single Premium were invested to earn interest, after taxes,
at 5% compounded annually.
A comparable illustration based on a proposed Insured's age and sex and a
proposed Death Benefit and single premium is available upon request. In states
where cost of insurance rates are not based on the insured's sex, the tables
designated "male" apply to all standard risk insureds who are nonsmokers.
84
<PAGE>
Page 1 of 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $53,815
MINIMUM FACE AMOUNT RIDER: $0
MALE 35 NONSMOKER
<TABLE>
<CAPTION>
THE PHOENIX EDGE -- A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING CURRENT CHARGES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
-------- ---------- ---------- ----------- ---------- ----------- --------------------- ---------- ---------- ----------
1 10,500 9,729 8,987 50,873 10,321 9,579 53,938 10,913 10,171 56,989
2 11,025 9,462 8,803 47,845 10,654 9,995 54,038 11,916 11,257 60,567
3 11,576 9,200 8,623 45,004 11,000 10,423 54,114 13,019 12,442 64,286
4 12,155 8,943 8,448 42,339 11,359 10,865 54,169 14,231 13,736 68,161
5 12,763 8,689 8,277 39,840 11,731 11,319 54,205 15,561 15,149 72,204
6 13,401 8,433 8,103 37,467 12,107 11,778 54,182 17,009 16,679 76,371
7 14,071 8,180 7,933 35,241 12,496 12,249 54,140 18,596 18,349 80,724
8 14,775 7,918 7,753 33,101 12,876 12,711 53,997 20,301 20,136 85,143
9 15,513 7,660 7,577 31,092 13,267 13,184 53,832 22,166 22,083 89,751
10 16,289 7,406 7,406 29,212 13,670 13,670 53,657 24,207 24,207 94,577
11 17,103 7,225 7,225 27,405 14,144 14,144 53,390 26,478 26,478 99,486
12 17,959 7,046 7,046 25,707 14,631 14,631 53,117 28,956 28,956 104,636
13 18,857 6,871 6,871 24,113 15,131 15,131 52,846 31,658 31,658 110,053
14 19,799 6,698 6,698 22,619 15,645 15,645 52,577 34,605 34,605 115,752
15 20,789 6,528 6,528 21,218 16,173 16,173 52,310 37,817 37,817 121,747
16 21,829 6,361 6,361 19,904 16,714 16,714 52,045 41,317 41,317 128,056
17 22,920 6,196 6,196 18,671 17,269 17,269 51,783 45,128 45,128 134,694
18 24,066 6,034 6,034 17,516 17,836 17,836 51,525 49,273 49,273 141,685
19 25,270 5,873 5,873 16,434 18,414 18,414 51,270 53,780 53,780 149,045
20 26,533 5,715 5,715 15,419 19,003 19,003 51,020 58,673 58,673 156,796
@ 65 43,219 4,109 4,109 7,705 26,107 26,107 48,716 148,572 148,572 275,958
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.54%
(includes average fund operating expenses of 1.04% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
85
<PAGE>
Page 2 of 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $53,815
MINIMUM FACE AMOUNT RIDER: $0
MALE 35 NONSMOKER
<TABLE>
<CAPTION>
THE PHOENIX EDGE -- A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING GUARANTEED CHARGES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
-------- ---------- ---------- ----------- ---------- ----------- --------------------- ---------- ---------- ----------
1 10,500 9,693 8,951 50,685 10,282 9,540 53,740 10,872 10,130 56,780
2 11,025 9,392 8,732 47,477 10,574 9,915 53,625 11,827 11,167 60,105
3 11,576 9,097 8,520 44,477 10,875 10,298 53,485 12,871 12,294 63,542
4 12,155 8,807 8,312 41,672 11,186 10,691 53,322 14,012 13,518 67,099
5 12,763 8,522 8,110 39,049 11,505 11,092 53,137 15,259 14,847 70,788
6 13,401 8,242 7,913 36,596 11,833 11,503 52,933 16,622 16,292 74,619
7 14,071 7,967 7,719 34,302 12,169 11,922 52,711 18,109 17,861 78,602
8 14,775 7,696 7,531 32,156 12,515 12,350 52,472 19,732 19,567 82,750
9 15,513 7,429 7,347 30,150 12,869 12,787 52,218 21,504 21,421 87,072
10 16,289 7,167 7,167 28,274 13,233 13,233 51,950 23,437 23,437 91,582
11 17,103 6,990 6,990 26,517 13,689 13,689 51,675 25,631 25,631 96,306
12 17,959 6,816 6,816 24,869 14,158 14,158 51,402 28,025 28,025 101,273
13 18,857 6,645 6,645 23,323 14,640 14,640 51,130 30,635 30,635 106,497
14 19,799 6,477 6,477 21,874 15,135 15,135 50,860 33,480 33,480 111,990
15 20,789 6,311 6,311 20,514 15,642 15,642 50,591 36,580 36,580 117,766
16 21,829 6,148 6,148 19,240 16,162 16,162 50,324 39,956 39,956 123,841
17 22,920 5,988 5,988 18,044 16,694 16,694 50,058 43,631 43,631 130,229
18 24,066 5,829 5,829 16,923 17,236 17,236 49,794 47,624 47,624 136,946
19 25,270 5,672 5,672 15,871 17,789 17,789 49,531 51,961 51,961 144,010
20 26,533 5,517 5,517 14,885 18,350 18,350 49,269 56,666 56,666 151,438
@ 65 43,219 3,918 3,918 7,349 24,904 24,904 46,480 141,748 141,748 263,329
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.54%
(includes average fund operating expenses of 1.04% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
86
<PAGE>
Page 1 of 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $61,546
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
FEMALE 35 NONSMOKER
<TABLE>
<CAPTION>
THE PHOENIX EDGE -- A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING CURRENT CHARGES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
-------- ---------- ---------- ----------- ---------- ----------- --------------------- ---------- ---------- ----------
1 10,500 9,728 8,986 58,185 10,320 9,578 61,691 10,912 10,170 65,181
2 11,025 9,460 8,801 54,729 10,652 9,992 61,814 11,914 11,254 69,282
3 11,576 9,197 8,620 51,489 10,996 10,419 61,912 13,014 12,437 73,550
4 12,155 8,937 8,443 48,451 11,352 10,857 61,989 14,222 13,727 78,000
5 12,763 8,682 8,269 45,603 11,721 11,309 62,047 15,547 15,135 82,649
6 13,401 8,422 8,093 42,898 12,092 11,762 62,036 16,987 16,657 87,442
7 14,071 8,166 7,919 40,361 12,475 12,227 62,007 18,564 18,316 92,454
8 14,775 7,899 7,734 37,916 12,845 12,680 61,854 20,252 20,087 97,532
9 15,513 7,636 7,553 35,621 13,225 13,143 61,675 22,097 22,014 102,828
10 16,289 7,377 7,377 33,472 13,617 13,617 61,482 24,113 24,113 108,372
11 17,103 7,189 7,189 31,397 14,075 14,075 61,167 26,350 26,350 113,980
12 17,959 7,006 7,006 29,446 14,547 14,547 60,844 28,790 28,790 119,859
13 18,857 6,826 6,826 27,616 15,032 15,032 60,522 31,451 31,451 126,040
14 19,799 6,649 6,649 25,900 15,531 15,531 60,202 34,351 34,351 132,541
15 20,789 6,475 6,475 24,290 16,043 16,043 59,884 37,513 37,513 139,377
16 21,829 6,306 6,306 22,782 16,569 16,569 59,571 40,959 40,959 146,576
17 22,920 6,140 6,140 21,370 17,111 17,111 59,266 44,716 44,716 154,161
18 24,066 5,977 5,977 20,048 17,669 17,669 58,971 48,813 48,813 162,163
19 25,270 5,818 5,818 18,812 18,243 18,243 58,691 53,279 53,279 170,619
20 26,533 5,663 5,663 17,655 18,832 18,832 58,422 58,146 58,146 179,545
@ 65 43,219 4,123 4,123 8,736 26,194 26,194 55,235 149,072 149,072 312,886
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.54%
(includes average fund operating expenses of 1.04% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
87
<PAGE>
Page 2 of 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $61,546
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
FEMALE 35 NONSMOKER
<TABLE>
<CAPTION>
THE PHOENIX EDGE -- A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING GUARANTEED CHARGES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
-------- ---------- ---------- ----------- ---------- ----------- --------------------- ---------- ---------- ----------
1 10,500 9,691 8,949 57,966 10,281 9,539 61,459 10,870 10,129 64,936
2 11,025 9,388 8,728 54,296 10,570 9,910 61,328 11,822 11,162 68,739
3 11,576 9,089 8,512 50,865 10,867 10,290 61,167 12,861 12,284 72,669
4 12,155 8,796 8,301 47,657 11,172 10,677 60,981 13,995 13,500 76,737
5 12,763 8,507 8,095 44,657 11,484 11,072 60,769 15,232 14,820 80,956
6 13,401 8,222 7,893 41,851 11,804 11,474 60,535 16,581 16,252 85,337
7 14,071 7,941 7,694 39,227 12,131 11,883 60,281 18,051 17,804 89,893
8 14,775 7,665 7,500 36,774 12,464 12,299 60,008 19,652 19,487 94,635
9 15,513 7,392 7,310 34,479 12,806 12,723 59,717 21,397 21,315 99,578
10 16,289 7,125 7,125 32,333 13,156 13,156 59,410 23,300 23,300 104,736
11 17,103 6,944 6,944 30,324 13,599 13,599 59,096 25,462 25,462 110,138
12 17,959 6,766 6,766 28,439 14,055 14,055 58,784 27,820 27,820 115,818
13 18,857 6,592 6,592 26,672 14,523 14,523 58,473 30,391 30,391 121,791
14 19,799 6,421 6,421 25,014 15,005 15,005 58,164 33,193 33,193 128,073
15 20,789 6,254 6,254 23,460 15,500 15,500 57,856 36,248 36,248 134,679
16 21,829 6,090 6,090 22,002 16,007 16,007 57,550 39,575 39,575 141,625
17 22,920 5,928 5,928 20,634 16,528 16,528 57,246 43,198 43,198 148,929
18 24,066 5,769 5,769 19,352 17,061 17,061 56,943 47,140 47,140 156,610
19 25,270 5,613 5,613 18,149 17,605 17,605 56,642 51,424 51,424 164,688
20 26,533 5,460 5,460 17,021 18,161 18,161 56,343 56,082 56,082 173,181
@ 65 43,219 3,966 3,966 8,404 25,206 25,206 53,151 143,468 143,468 301,125
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.54%
(includes average fund operating expenses of 1.04% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
88
<PAGE>
Page 1 of 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $39,392
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
MALE 35 NONSMOKER
<TABLE>
<CAPTION>
THE PHOENIX EDGE -- A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING CURRENT CHARGES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
-------- -------- -------- --------- -------- --------- --------- -------- -------- -------- -------
1 10,500 9,740 8,998 37,621 10,333 9,591 39,888 10,926 10,184 42,144
2 11,025 9,485 8,825 35,674 10,679 10,020 40,291 11,945 11,285 45,159
3 11,576 9,233 8,656 33,833 11,040 10,463 40,681 13,066 12,489 48,327
4 12,155 8,986 8,491 32,092 11,414 10,919 41,057 14,300 13,805 51,661
5 12,763 8,742 8,330 30,447 11,803 11,391 41,423 15,657 15,245 55,176
6 13,401 8,497 8,168 28,876 12,200 11,870 41,756 17,139 16,810 58,854
7 14,071 8,256 8,009 27,391 12,612 12,364 42,077 18,768 18,521 62,735
8 14,775 8,008 7,843 25,958 13,022 12,858 42,341 20,532 20,368 66,761
9 15,513 7,764 7,682 24,602 13,447 13,364 42,592 22,467 22,384 71,007
10 16,289 7,524 7,524 23,322 13,886 13,886 42,834 24,589 24,589 75,497
11 17,103 7,359 7,359 22,086 14,406 14,406 43,023 26,968 26,968 80,165
12 17,959 7,197 7,197 20,914 14,942 14,942 43,209 29,571 29,571 85,114
13 18,857 7,037 7,037 19,804 15,495 15,495 43,396 32,418 32,418 90,369
14 19,799 6,879 6,879 18,753 16,066 16,066 43,584 35,535 35,534 95,949
15 20,789 6,723 6,723 17,757 16,654 16,654 43,773 38,940 38,940 101,875
16 21,829 6,569 6,569 16,815 17,260 17,260 43,964 42,664 42,644 108,167
17 22,920 6,418 6,418 15,924 17,884 17,884 44,156 46,733 46,733 114,852
18 24,066 6,268 6,268 15,080 18,525 18,525 44,352 51,176 51,176 121,954
19 25,270 6,119 6,119 14,281 19,183 19,183 44,549 56,023 56,023 129,500
20 26,533 5,972 5,972 13,525 19,857 19,857 44,749 61,307 61,307 137,519
@ 65 43,219 4,462 4,462 7,481 28,346 28,346 47,292 161,310 161,310 267,875
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.54%
(includes average fund operating expenses of 1.04% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
89
<PAGE>
Page 2 of 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $39,392
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
MALE 35 NONSMOKER
<TABLE>
<CAPTION>
THE PHOENIX EDGE -- A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING GUARANTEED CHARGES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
-------- -------- -------- --------- -------- --------- --------- -------- -------- -------- -------
1 10,500 9,716 8,974 37,527 10,307 9,565 39,788 10,898 10,156 42,039
2 11,025 9,437 8,777 35,487 10,625 9,965 40,081 11,884 11,224 44,924
3 11,576 9,162 8,585 33,561 10,954 10,377 40,357 12,964 12,387 47,943
4 12,155 8,892 8,397 31,745 11,294 10,800 40,616 14,149 13,654 51,108
5 12,763 8,626 8,214 30,030 11,646 11,233 40,860 15,447 15,035 54,430
6 13,401 8,364 8,035 28,412 12,009 11,679 41,090 16,870 16,540 57,920
7 14,071 8,106 7,859 26,885 12,383 12,135 41,307 18,427 18,180 61,592
8 14,775 7,852 7,687 25,444 12,769 12,604 41,511 20,133 19,968 65,458
9 15,513 7,601 7,519 24,084 13,167 13,084 41,703 22,000 21,917 69,532
10 16,289 7,355 7,355 22,800 13,577 13,577 41,884 24,043 24,043 73,830
11 17,103 7,193 7,193 21,587 14,083 14,083 42,060 26,366 26,366 78,378
12 17,959 7,033 7,033 20,439 14,606 14,606 42,236 28,907 28,907 83,206
13 18,857 6,876 6,876 19,351 15,145 15,145 42,413 31,687 31,687 88,332
14 19,799 6,721 6,721 18,322 15,700 15,700 42,592 34,727 34,727 93,773
15 20,789 6,567 6,567 17,347 16,272 16,272 42,770 38,051 38,051 99,550
16 21,829 6,416 6,416 16,424 16,862 16,862 42,949 41,683 41,683 105,682
17 22,920 6,267 6,267 15,550 17,468 17,468 43,130 45,650 45,650 112,192
18 24,066 6,119 6,119 14,722 18,090 18,090 43,310 49,978 49,978 119,103
19 25,270 5,973 5,973 13,939 18,728 18,728 43,492 54,698 54,698 126,440
20 26,533 5,827 5,827 13,197 19,380 19,380 43,675 59,839 59,839 134,228
@ 65 43,219 4,313 4,313 7,233 27,408 27,408 45,733 155,985 155,985 259,068
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.54%
(includes average fund operating expenses of 1.04% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
90
<PAGE>
Page 1 of 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $44,121
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
FEMALE 35 NONSMOKER
<TABLE>
<CAPTION>
THE PHOENIX EDGE -- A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING CURRENT CHARGES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
------- -------- -------- --------- -------- --------- --------- -------- -------- -------- -------
1 10,500 9,740 8,998 42,139 10,333 9,591 44,678 10,926 10,184 47,205
2 11,025 9,484 8,825 39,960 10,679 10,019 45,132 11,944 11,285 50,584
3 11,576 9,232 8,655 37,901 11,038 10,461 45,572 13,064 12,487 54,137
4 12,155 8,984 8,489 35,955 11,411 10,917 45,999 14,296 13,801 57,879
5 12,763 8,739 8,326 34,117 11,798 11,386 46,416 15,650 15,238 61,826
6 13,401 8,492 8,162 32,361 12,193 11,863 46,796 17,129 16,799 65,956
7 14,071 8,249 8,001 30,702 12,601 12,353 47,164 18,752 18,504 70,318
8 14,775 7,998 7,833 29,099 13,006 12,841 47,465 20,506 20,341 74,839
9 15,513 7,751 7,668 27,582 13,424 13,342 47,750 22,429 22,346 79,607
10 16,289 7,508 7,508 26,149 13,857 13,857 48,025 24,536 24,536 84,647
11 17,103 7,339 7,339 24,760 14,367 14,367 48,233 26,894 26,894 89,872
12 17,959 7,174 7,174 23,443 14,894 14,894 48,435 29,475 29,475 95,408
13 18,857 7,011 7,011 22,196 15,438 15,438 48,638 32,298 32,298 101,285
14 19,799 6,850 6,850 21,015 16,000 16,000 48,842 35,386 35,386 107,524
15 20,789 6,692 6,692 19,896 16,579 16,579 49,047 38,764 38,764 114,148
16 21,829 6,537 6,537 18,839 17,177 17,177 49,255 42,457 42,457 121,185
17 22,920 6,385 6,385 17,839 17,794 17,794 49,468 46,497 46,497 128,666
18 24,066 6,236 6,236 16,893 18,431 18,431 49,687 50,916 50,916 136,623
19 25,270 6,089 6,089 16,001 19,089 19,089 49,915 55,748 55,748 145,096
20 26,533 5,945 5,945 15,157 19,768 19,768 50,150 61,031 61,031 154,113
@ 65 43,219 4,492 4,492 8,320 28,539 28,539 52,600 162,407 162,407 297,938
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.54%
(includes average fund operating expenses of 1.04% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
91
<PAGE>
Page 2 of 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $44,121
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
FEMALE 35 NONSMOKER
<TABLE>
<CAPTION>
THE PHOENIX EDGE -- A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING GUARANTEED CHARGES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
-------- -------- -------- --------- -------- --------- --------- -------- -------- -------- -------
1 10,500 9,715 8,973 42,032 10,306 9,564 44,565 10,898 10,156 47,086
2 11,025 9,435 8,776 39,747 10,623 9,964 44,893 11,882 11,222 50,317
3 11,576 9,159 8,582 37,591 10,951 10,374 45,202 12,960 12,383 53,699
4 12,155 8,887 8,393 35,556 11,288 10,794 45,492 14,141 13,647 57,244
5 12,763 8,619 8,207 33,635 11,636 11,224 45,766 15,434 15,022 60,965
6 13,401 8,355 8,025 31,823 11,994 11,665 46,023 16,850 16,520 64,874
7 14,071 8,093 7,846 30,112 12,363 12,116 46,266 18,397 18,150 68,987
8 14,775 7,835 7,671 28,498 12,742 12,577 46,495 20,090 73,317
9 15,513 7,581 7,499 26,975 13,132 13,050 46,710 21,942 21,859 77,881
10 16,289 7,331 7,331 25,537 13,534 13,534 46,913 23,968 23,968 82,695
11 17,103 7,167 7,167 24,179 14,033 14,033 47,110 26,271 26,271 87,789
12 17,959 7,005 7,005 22,892 14,547 14,547 47,307 28,792 28,792 93,197
13 18,857 6,846 6,846 21,674 15,079 15,079 47,506 31,550 31,550 98,938
14 19,799 6,689 6,689 20,521 15,627 15,627 47,705 34,567 34,567 105,033
15 20,789 6,535 6,535 19,429 16,193 16,193 47,905 37,865 37,865 111,503
16 21,829 6,383 6,383 18,395 16,776 16,776 48,106 41,471 41,471 118,372
17 22,920 6,234 6,234 17,416 17,376 17,376 48,308 45,412 45,412 125,664
18 24,066 6,087 6,087 16,490 17,995 17,995 48,511 49,715 49,715 133,404
19 25,270 5,941 5,941 15,612 18,629 18,629 48,714 54,411 54,411 141,622
20 26,533 5,798 5,798 14,782 19,282 19,282 48,918 59,537 59,537 150,346
@ 65 43,219 4,374 4,374 8,101 27,793 27,793 51,224 158,178 158,178 290,181
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.54%
(includes average fund operating expenses of 1.04% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
92
<PAGE>
BC to come
<PAGE>
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
RULE 484 UNDERTAKING
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 Phoenix Home Life provides that "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.
REPRESENTATION PURSUANT TO SECTION 26(E)(2)(A)
OF THE INVESTMENT COMPANY ACT OF 1940.
Pursuant to Section 26(e)(2)(A) of the Investment Company Act of 1940, as
amended, Phoenix Home Life Mutual Insurance Company represents that the fees and
charges deducted under the Policies, 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.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet.
The cross-reference sheet to Form N-8B-2.
The Prospectus, consisting of 92 pages.
The undertaking to file reports.
The Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A) under the Investment Company
Act of 1940.
The signatures.
The Powers of Attorney.
Written consent of the following persons:
(a) Edwin L. Kerr, Esq.
(b) PricewaterhouseCoopers LLP
(c) Paul M. Fischer, FSA, CLU, ChFC
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of the Board of Directors of Phoenix Mutual establishing
the VUL Account filed with registrant's Registration Statement on
June 26, 1986 and is filed via Edgar with Post-Effective Amendment
No. 14 on April 29, 1998, incorporated herein by reference.
(2) Not Applicable.
(3) Distribution of Policies:
(a) Master Service and Distribution Compliance Agreement between
Depositor and Phoenix Equity Planning Corporation dated
December 31, 1996 filed via Edgar with Post-Effective
Amendment No. 14 on April 29, 1998.
(b) Form of Agreement between Phoenix Equity Planning Corporation
and Independent Brokers with respect to the sale of Policies
filed via Edgar with Post-Effective Amendment No. 14 on April
29, 1998.
(c) Not Applicable.
(4) Not Applicable.
(5) Specimen Variable Life Insurance Policy Form Number 5000 (Phoenix
Edge) with optional rider (VR101) filed via Edgar herewith.
(6) (a) Charter of Phoenix Home Life filed with registrant's Post-
Effective Amendment No. 7 on June 22, 1992 and filed via Edgar
with Post-Effective Amendment No. 14 on April 29, 1998, is
incorporated herein by reference.
(b) By-laws of Phoenix Home Life filed with registrant's
Post-Effective Amendment No. 7 on June 22, 1992 and filed via
Edgar with Post-Effective Amendment No. 14 on April 29, 1998,
is incorporated herein by reference.
(7) Not Applicable.
(8) Not Applicable.
II-2
<PAGE>
(9) Form of Application for Variable Life Insurance Policy filed via
Edgar with Post-Effective Amendment No. 14 on April 29, 1998.
(10) Memorandum describing transfer and redemption procedures and method
of computing adjustments in payments and cash values upon
conversion to fixed benefit policies filed via Edgar with
Post-Effective Amendment No. 14 on April 29, 1998.
2. See Exhibit 1.A.(5).
3. Opinion of Counsel as to the legality of the securities being registered.
(See number 7 below.)
4. No financial statement will be omitted from the Prospectus pursuant to
Instruction 1(b) or (c) of Part I. .
5. Not Applicable.
6. Consent of PricewaterhouseCoopers LLP.*
7. Consent of Edwin L. Kerr, Esq.*
8. Opinion of Paul M. Fischer, FSA, CLU, ChFC*
_________________
* Filed herewith.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Phoenix Home Life Variable Universal Life Account, certifies that it meets all
of the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Hartford,
State of Connecticut on the 30th day of April, 1999.
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
-------------------------------------------------
(Registrant)
By: PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
------------------------------------------
(Sponsor)
By: /s/ Dona D. Young
-----------------------
Dona D. Young, Executive Vice President, Individual
Insurance and General Counsel
ATTEST: /s/John H. Beers
_____________________________________
John H. Beers, Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities on
this 30th day of April, 1999.
SIGNATURE TITLE
- --------- -----
Director
- ------------------------------------------------
*Sal H. Alfiero
Director
- ------------------------------------------------
*J. Carter Bacot
Director
- ------------------------------------------------
*Peter C. Browning
Director
- ------------------------------------------------
*Arthur P. Byrne
Director
- ------------------------------------------------
*Richard N. Cooper
Director
- ------------------------------------------------
*Gordon J. Davis, Esq.
Chairman of the Board,
- ------------------------------------------------ President and
*Robert W. Fiondella Chief Executive Officer
(Principal Executive
Officer)
Director
- ------------------------------------------------
*Jerry J. Jasinowski
S-1
<PAGE>
SIGNATURE TITLE
- --------- -----
Director
- ------------------------------------------------
*John W. Johnstone
Director
- ------------------------------------------------
*Marilyn E. LaMarche
Director
- ------------------------------------------------
*Philip R. McLoughlin
Director
- ------------------------------------------------
*Indra K. Nooyi
Director
- ------------------------------------------------
*Robert F. Vizza
Director
- ------------------------------------------------
*Robert G. Wilson
Executive Vice President and
- ------------------------------------------------ Chief Financial Officer
*David W. Searfoss* (Principal Accounting and
Financial Officer)
_____________________________
By: /s/Dona D. Young
*Dona D. Young as Attorney in Fact pursuant to Powers of Attorney, copies of
which were filed previously.
S-2
EXHIBIT 6
CONSENT OF PRICEWATERHOUSECOOPERS LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 15 to the Registration Statement on Form S-6 (the
"Registration Statement") of our reports dated February 17, 1999 and February
11, 1999, except as to Note 20, which is as of April 27, 1999, relating to the
financial statements of Phoenix Home Life Variable Universal Life Account and
the consolidated financial statements of Phoenix Home Life Mutual Insurance
Company, respectively, which appear in such Prospectus.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
April 27, 1999
EXHIBIT 7
CONSENT OF EDWIN L. KERR, ESQ.
<PAGE>
To Whom It May Concern:
I hereby consent to the reference to my name under the caption "Legal
Matters" in the Prospectus contained in Post-Effective Amendment No. 15 to the
Registration Statement on Form S-6 (File No. 33-6793) filed by Phoenix Home Life
Variable Universal Life Account with the Securities and Exchange Commission
under the Securities Act of 1933.
Very truly yours,
Dated April 27, 1999 /s/ Edwin L. Kerr
--------------------------
Edwin L. Kerr, Counsel
Phoenix Home Life
Mutual Insurance Company
EXHIBIT 8
CONSENT OF PAUL M. FISCHER, FSA, CLU, CHFC
<PAGE>
April 30, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
This consent is furnished in connection with the registration of flexible
premium variable life insurance policies ("Policies") under the Securities Act
of 1933. The prospectuses included in the Registration Statement on Form S-6
(SEC File No.33-6793) describes the Policies. The forms of Policies were
prepared under my direction, and I am familiar with the Registration Statement
and Exhibits thereto.
In my opinion, the illustrations of death benefits and cash values included
in the sections entitled "Illustrations of Death Benefits, Policy Values
("Account Values"), and Cash Surrender Values" in Appendix B of the
prospectuses, based on the assumptions stated in the illustrations, are
consistent with the provisions of the respective forms of the Policies.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Paul M. Fischer
Paul M. Fischer, FSA, CLU, ChFC
Vice President
