As filed with the Securities and Exchange Commission on April 29, 1999
REGISTRATION NO. 333-23171
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Post-Effective Amendment No. 4
to
FORM S-6
----------------------
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
----------------------
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 complete address of agent for service)
----------------------
<TABLE>
<CAPTION>
Copies to:
<S> <C> <C>
Michael Berenson, Esq. Edwin L. Kerr, Esq.
Jorden Burt Boros Cicchetti Berenson & Johnson LLP Counsel
1025 Thomas Jefferson St. 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
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<CAPTION>
N-8B-2 Item Caption in Prospectus
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<S> <C> <C>
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 Flexible Premiums; Allocation of Premium and Policy
Value; Right to Cancel Period
15 Allocation of Premium and Policy Value; Transfer of
Policy Value
16 Investments of the VUL Account
17 Surrenders
18 Allocation of Premium and Policy Value; 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 Mutual Insurance Company
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 Values
45 Not Applicable
46 Determination of Subaccount Values
47 Allocation of Premium and Policy Value; Determination of Subaccount Values
48 Not Applicable
</TABLE>
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<TABLE>
<CAPTION>
N-8B-2 Item Caption in Prospectus
- ----------- ---------------------
<S> <C> <C>
49 Not Applicable
50 Not Applicable
51 Phoenix Home Life Mutual Insurance Company; The Policy; Charges and Deductions
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
</TABLE>
<PAGE>
THE ESTATE EDGE
SURVIVORSHIP VARIABLE
UNIVERSAL 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 survivorship variable universal life insurance
policy. The Policy provides lifetime insurance protection on the lives of two
Insureds. We pay the death benefit when the last insured dies.
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
- ----------------------------------------------------------------
THE ESTATE EDGE .......................................... 1
TABLE OF CONTENTS ........................................ 2
SPECIAL TERMS ............................................ 3
SUMMARY................................................... 4
PERFORMANCE HISTORY....................................... 5
PHOENIX AND THE VUL ACCOUNT .............................. 5
Phoenix ............................................... 5
The VUL Account ....................................... 5
The GIA................................................ 6
THE POLICY ............................................... 6
Introduction .......................................... 6
Eligible Purchasers ................................... 6
Flexible Premiums ..................................... 6
Allocation of Premium and Policy Value ................ 7
Right to Cancel Period ................................ 7
Temporary Insurance Coverage .......................... 7
Transfer of Policy Value .............................. 7
Determination of Subaccount Values .................... 8
Death Benefit ......................................... 9
Surrenders ............................................ 9
Policy Loans .......................................... 10
Lapse ................................................. 11
Additional Insurance Options .......................... 11
Additional Rider Benefits ............................. 11
INVESTMENTS OF THE ACCOUNT ............................... 12
Participating Investment Funds ........................ 12
Investment Advisers.................................... 14
Services of the Advisers............................... 15
Reinvestment and Redemption ........................... 15
Substitution of Investments ........................... 15
CHARGES AND DEDUCTIONS ................................... 15
Charges Deducted Once.................................. 15
Premium Taxes ......................................... 15
Federal Tax Charge..................................... 16
Conditional Charges ................................... 16
Investment Management Charge........................... 17
GENERAL PROVISIONS ....................................... 17
Postponement of Payments .............................. 17
The Contract .......................................... 17
Suicide ............................................... 18
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 ....................................... 20
Business-Owned Policies................................ 20
Modified Endowment Contracts .......................... 20
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
The Funds ............................................. 22
Phoenix ............................................... 22
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX .......... 23
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........................................... 25
FINANCIAL STATEMENTS ..................................... 25
APPENDIX A ............................................... 78
APPENDIX B ............................................... 82
APPENDIX C................................................ 83
WE ARE OFFERING THIS PRODUCT ONLY WHERE WE MAY LAWFULLY DO SO. YOU SHOULD RELY
ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR IN ONE THAT WE HAVE
REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT.
2
<PAGE>
SPECIAL TERMS
- --------------------------------------------------------------------------------
The following is a list of terms and their meanings when used in this
prospectus.
ATTAINED AGE: The age of the Insured on the birthday nearest the most recent
Policy Anniversary.
BENEFICIARY: The person or persons specified by the Policyowner as entitled to
receive the death benefits under a Policy.
CASH SURRENDER VALUE: The Policy Value less any surrender charge that would
apply on the date of surrender and less any Debt.
DEATH BENEFIT GUARANTEE: An additional benefit rider available with the Policy
that guarantees a death benefit equal to the initial Face Amount or the Face
Amount as later increased or decreased, if you pay the Minimum Required
Premiums. See "Additional Rider Benefits."
DEBT: Outstanding loans against a Policy plus accrued interest on any
outstanding loans.
FACE AMOUNT: The initial amount of insurance coverage.
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, in the sole discretion of Phoenix.
IN FORCE: Conditions under which the coverage under a Policy is in effect and
the Insureds' lives remain insured.
INSUREDS: The two persons on whose lives we issue the Policy.
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.
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. 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 all a
Series' holdings plus other assets, minus liabilities and then dividing the
result by the number of shares outstanding.
NON-TRANSFERABLE GENERAL ACCOUNT ("NTGA"): A part of the General Account. The
cash value in the NTGA cannot decrease due to investment performance, but may
decrease due to deductions for policy charges. Interest is credited to the NTGA
at rates declared by Phoenix, but not less than 4%.
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 (WE, OUR, US, COMPANY): Phoenix Home Life Mutual Insurance Company,
Hartford, CONNECTICUT.
PLANNED ANNUAL PREMIUM: The premium amount that the Policyowner agrees to pay
each Policy Year. It must be at least equal to the minimum premium required for
the Face Amount of insurance selected but may be no greater than the maximum
premium allowed for the Face Amount selected.
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.
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 one-year period from the Policy Date
up to, but not including, the first Policy Anniversary. Each succeeding Policy
Year is the one-year period from the Policy Anniversary up to, but not
including, the next Policy Anniversary.
POLICYOWNER (OWNER, YOU, YOUR): The person(s) who purchase(s) a Policy.
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 non-loaned assets under a
Policy are allocated.
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 amounts.
VALUATION DATE: For any Subaccount, each date on which we calculate the net
asset value of a Fund.
VALUATION PERIOD: For any Subaccount, the period in days from the end of one
Valuation Date through the next.
VPMO: The Variable Products Mail Operations 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.
3
<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 read the entire Prospectus
carefully before making any decision.
INVESTMENT FEATURES
FLEXIBLE PREMIUMS
The only premiums you have to pay are the Issue Premium and any payments
required to prevent the policy from lapse. See "Flexible Premiums" 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 90% of the Policy's Cash
Surrender Value subject to certain conditions. See "Policy Loans."
[diamond] You may surrender any part of the policy anytime. A partial surrender
fee of the lesser of $25 or 2% of the partial surrender amount will
apply. A separate surrender charge also may be imposed. See
"Conditional Charges."
[diamond] You may fully surrender this Policy anytime for its Cash Surrender
Value. A surrender charge may be imposed. See "Conditional Charges."
INSURANCE PROTECTION FEATURES
DEATH BENEFITS
[diamond] Both a fixed and variable benefit is available under the Policy.
[bullet] The fixed benefit is equal to the Policy's Face Amount
(Option 1)
[bullet] The variable benefit equals the Face Amount plus the Policy
Value (Option 2)
[diamond] After the first year, you may reduce the Face Amount. Certain
restrictions apply, and generally, the minimum Face Amount is
$250,000.
[diamond] The death benefit is payable when the last insured dies. See "Death
Benefit."
DEATH BENEFIT GUARANTEE
You may elect a guaranteed death benefit. The amount of the guaranteed death
benefit is equal to the initial Face Amount. The Death Benefit Guarantee may not
be available in some states.
DEATH BENEFIT AT ENDOWMENT
After age 100 of the younger Insured, the death benefit equals the Policy
Value, and no more monthly deductions will be made. This allows you to keep the
Policy In Force until the second death.
ADDITIONAL BENEFITS
The following additional benefits are available by rider:
[diamond] Disability Benefit
[diamond] Four Year Survivorship Term
[diamond] Conditional Exchange Option
[diamond] Policy Split Option
Availability of these Riders depends upon state approval and may involve an
extra cost.
DEDUCTIONS AND CHARGES
FROM PREMIUM PAYMENTS
[diamond] Taxes
[bullet] State Premium Tax Charge--2.25%
[bullet] Federal Tax Charge--1.50%
[diamond] Sales Charge
[bullet] Policy Year 1 = 20% of premiums paid up to one target annual
premium ("TAP") and 5% of premiums paid in excess of the TAP.
[bullet] Policy Years 2 through 10 = 5% of premiums
[bullet] Policy Years 11 and after = 0%
See "Deductions and Charges" for a detailed discussion, including an
explanation of TAP.
FROM POLICY VALUE
[diamond] Issue Expense Charge--$600. Deducted in the first Policy Year only and
payable in 12 monthly installments of $50.
[diamond] Administrative Charge--Deducted monthly in Policy Years 1 through 10
only. Amount deducted varies by Face Amount.
[diamond] Cost of Insurance--Amount deducted monthly. Cost of insurance rates
apply to the Policy and certain riders. The rates vary and are based
on certain personal factors such as sex, attained age and risk class
of the Insureds.
[diamond] Surrender Charge--Deducted if the Policy is surrendered within the
first 10 Policy Years. See "Surrender Charge."
4
<PAGE>
[diamond] Partial Surrender Charge--Deducted for partial surrenders.
[diamond] Transfer Charge--Maximum of $10. See "Non-Systematic Transfers and
Charges in Payment Allocations."
FROM THE VUL ACCOUNT
Mortality and Expense Risk Charge
[diamond] Policy Years 1 through 15--.80% annually
[diamond] Policy Years 16 and after--.25% 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 cash surrender value is
enough to pay the necessary monthly charges incurred under the Policy. When the
cash 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.
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 (the "1940 Act"), and it meets the
definition of a "separate account" under the 1940 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 you invest 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.
5
<PAGE>
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. The credited
rate will be the same for all monies deposited at the same time. The loaned
portion of the GIA will be credited interest at an effective annual fixed rate
of 2% (4% in New York). Interest on the unloaned portion of the GIA will be
credited at an effective annual rate of not less than 4%.
On the last business 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 1-year guarantee period (and each subsequent 1-year
guarantee period thereafter), the rate to be applied to any deposits whose
guarantee period has just ended will be the same rate then being applied to new
deposits to the GIA. This rate will then 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 of 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."
THE POLICY
- --------------------------------------------------------------------------------
INTRODUCTION
The Policy is a flexible premium variable universal life insurance policy
issued on the lives of two Insureds. The Policy has a death benefit, Cash
Surrender Value and loan privilege as does a traditional fixed benefit whole
life policy. The Policy 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 Value varies
according to the investment performance of the Series to which premiums have
been allocated.
ELIGIBLE PURCHASERS
Any person between the ages of 18 and 85 is eligible to be insured under a
newly purchased Policy after providing suitable evidence of insurability. You
can purchase a Policy to insure the lives of two other individuals, provided
that you have the Insureds' consents and a legally recognized interest for
insuring their lives. A Policy could, for example, be purchased on the lives of
spouses, family members, business partners.
FLEXIBLE PREMIUMS
The Issue Premium required depends on a number of factors, such as:
[diamond] age;
[diamond] sex;
[diamond] rate class of proposed insured;
[diamond] desired Face Amount;
[diamond] supplemental benefit; and
[diamond] planned premiums
The minimum Issue Premium generally is 1/6 of the Planned Annual Premium.
Both Insureds must be alive when the Issue Premium is paid, and it is due on the
Policy Date. After the Issue Premium is paid, although premiums are flexible,
the amount and frequency of Planned Annual Premiums are as shown on the Schedule
Page of the Policy. You decide the amount of Planned Annual Premium (within
limits set by us) when you apply for the Policy. The Issue Premium payment
should be delivered to your registered representative for forwarding to our
Underwriting Department. Additional payments should be sent to VPMO.
Premium payments received by us will be reduced by a 2.25% charge for state
premium tax and also reduced by a federal tax charge of 1.50%. The Issue Premium
also will be reduced by the issue expense charge deducted in equal monthly
installments over a 12-month period. Each installment will be taken from the
subaccounts on a pro rata basis. Any unpaid balance of the issue expense charge
will be paid to us upon Policy Lapse or termination.
Premium payments received during a grace period will, after deduction of
state and federal tax charges and any sales charge, be first used to fund any
monthly deductions during the grace period. Any balance will be applied on the
Payment Date to the various Subaccounts of the VUL Account or to the GIA, based
on the premium allocation schedule elected in the application for the Policy or
by your most recent instructions. See "Non-Systematic Transfers and Changes in
Payment Allocations."
6
<PAGE>
The number of units credited to a Subaccount of the VUL Account will be
determined by dividing the amount of the net premium applied to that Subaccount
by the unit value of the Subaccount on the Payment Date.
You may increase or decrease the Planned Annual Premium amount (within
limits) or payment frequency at any time by written notice to VPMO. We reserve
the right to limit increases to such maximums as we may establish and change
from time to time. Additional premium payments may be made at any time. Each
premium payment must at least equal $25 or, if made during a grace period, the
payment must equal the amount needed to prevent lapse of the Policy.
The Policy contains a total premium limit as shown on the Schedule Page.
This limit is applied to the sum of all premiums paid under the Policy. If the
total premium limit is exceeded, you will receive the excess, with interest at
an annual rate of not less than 4%, not later than 60 days after the end of the
Policy Year in which the limit was exceeded. The Policy Value then will be
adjusted to reflect the refund. To pay such refund, amounts taken from each
Subaccount or the GIA will be done in the same manner as for monthly deductions.
You may write to us and give us different instructions. The total premium limit
may be exceeded if additional premium is needed to prevent lapse or if we
subsequently determine that additional premium would be permitted by federal
laws or regulations.
You may authorize your bank to draw $25 or more monthly from your personal
checking account to be allocated among the available Subaccounts or the GIA.
Your monthly payment will be invested according to your most recent instructions
on file at VPO.
Policies sold to officers, directors and employees of Phoenix (and their
spouses and children) will be credited with an amount equal to the first-year
commission that would apply on the amount of premium contributed. This option
also is available to career agents of Phoenix (and their spouses and children).
ALLOCATION OF PREMIUM AND POLICY VALUE
We will generally allocate the Issue Premium (less applicable charges) to
the VUL Account or to the GIA upon receipt of a completed application, pursuant
to the allocation instructions in the application for the Policy. However,
Policies issued in certain states, and Policies which are 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 end of the Right to Cancel Period, the value of the
Phoenix-Goodwin Money Market Subaccount is allocated among the Subaccounts of
the VUL Account or to the GIA pursuant to the allocation instructions you made
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 with 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 funds automatically 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
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or the GIA drops below the amount to be transferred, the entire remaining
balance will be transferred and all systematic transfers will 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, you 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 a
Systematic Transfer Program has ended, 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 values 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 AND CHANGES IN PAYMENT ALLOCATIONS
Transfers among available Subaccounts or the GIA and changes in premium
payment allocations 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.
We reserve the right to refuse to transfer amounts less than $500 unless (1)
the entire balance in the Subaccount or the GIA is being transferred or (2) 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 (1) the transfer(s) are made as part of a Systematic Transfer
Program, or (2) 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
We establish the unit value of each Subaccount of the VUL Account on the
first Valuation Date of that Subaccount. The unit value of a Subaccount on any
other
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Valuation Date is determined by multiplying the unit value of that
Subaccount on the just prior Valuation Date by the Net Investment Factor for
that Subaccount for the then current Valuation Period. The unit value of each
Subaccount on a day other than a Valuation Date is the unit value on the next
Valuation Date. Unit values are carried to six decimal places. The unit value of
each Subaccount on a Valuation Date is determined at the end of that day.
The Net Investment Factor for each Subaccount is determined by the
investment performance of the assets held by the Subaccount during the Valuation
Period. Each valuation will follow applicable law and accepted procedures. The
Net Investment Factor is determined by the formula:
(A) + (B) - (D) where:
--------
(C)
(A) = The value of the assets in the Subaccount on the current Valuation
Date, including accrued net investment income and realized and
unrealized capital gains and losses, but excluding the net value of
any transactions during the current Valuation Period.
(B = The amount of any dividend (or, if applicable, any capital gain
distribution) received by the Subaccount if the "ex-dividend" date for
shares of the Fund occurs during the current Valuation Period.
(C) = The value of the assets in the Subaccount as of the just prior
Valuation Date, including accrued net investment income and realized
and unrealized capital gains and losses, and including the net amount
of any deposits and withdrawals made during the Valuation Period
ending on that date.
(D) = The sum of the following daily charges multiplied by the number of
days in the current Valuation Period:
1. The mortality and expense risk charge; and
2. The charge, if any, for taxes and reserves for taxes on investment
income, and realized and unrealized capital gains.
DEATH BENEFIT
GENERAL
The death benefit under Option 1 equals the Policy's Face Amount on the date
of the death of the last surviving Insured or, if greater, the minimum death
benefit on that date.
Under Option 2, the death benefit equals the Policy's Face Amount on the
date of the death of the last surviving Insured plus the Policy Value or, if
greater, the minimum death benefit on that date.
Under either Option, the minimum death benefit is the Policy Value on the
date of death of the last surviving Insured increased by a percentage determined
from a table contained in the Policy. This percentage will be based on the
Insured's attained age at the beginning of the Policy Year in which the death
occurs. If no option is elected, Option 1 will apply.
GUARANTEED DEATH BENEFIT OPTION
A Guaranteed Death Benefit Rider is available. Under this Policy rider, if
you pay the required premium each year as specified in the rider, the death
benefit selected will be guaranteed for a certain specified number of years,
regardless of the investment performance of the Policy, and will equal either
the initial Face Amount or the Face Amount as later changed by decreases. To
keep this guaranteed death benefit In Force; there may be limitations on the
amount of partial surrenders or decreases in Face Amount permitted.
After the first 10 Policy Years, there will be a monthly charge equal to
$0.01 per $1,000 of Face Amount for policies issued with a Guaranteed Death
Benefit Rider.
PARTIAL SURRENDER AND DECREASES IN FACE AMOUNT: EFFECT ON DEATH BENEFIT
A partial surrender or a decrease in Face Amount generally decreases the
death benefit. Upon a decrease in Face Amount or partial surrender, a partial
surrender charge will be deducted from Policy value based on the amount of the
decrease or partial surrender. If the change is a decrease in Face Amount, the
death benefit under a Policy would be reduced on the next Monthly Calculation
Day. If the change is a partial surrender, the death benefit under a Policy
would be reduced immediately. A decrease in the death benefit may have certain
tax consequences. See "Federal Tax Considerations."
REQUESTS FOR DECREASE IN FACE AMOUNT
You may request a decrease in Face Amount at any time after the first Policy
Year. Unless we agree otherwise, the decrease must be at least $25,000 and the
Face Amount remaining after the decrease must be at least $250,000. All Face
Amount decrease requests must be in writing and will be effective on the first
Monthly Calculation Day following the date we approve the request. A partial
surrender charge will be deducted from the Policy Value based on the amount of
the decrease. The charge will equal the applicable surrender charge that would
apply to a full surrender multiplied by a fraction. The fraction is equal to the
decrease in Face Amount divided by the Face Amount of the Policy before the
decrease.
SURRENDERS
GENERAL
At any time during the lifetime of the Insureds 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 Cash
Surrender Value at the end of the
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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 us at 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 "Surrender Charge" and "Payment Options."
PARTIAL SURRENDERS
You may obtain a partial surrender of the Policy by requesting that part of
the Policy's Cash Surrender Value be paid. You may do this at any time during
the lifetime of the Insureds while the Policy is In Force with a written request
to VPMO. We may require that the Policy be returned 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 that
would be reduced as a result of a partial surrender and would be less than $500,
we may require the entire remaining balance in that Subaccount or the GIA be
surrendered.
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) A Partial Surrender Charge. This charge is equal to a pro rata portion
of the applicable surrender charge that would apply to a full
surrender, determined by multiplying the applicable surrender charge by
a fraction (equal to the partial surrender amount payable divided by
the result of subtracting the applicable surrender charge from the
Policy Value). This amount is assessed against the Subaccount or the
GIA in the same manner as provided for the partial surrender amount
paid.
The Cash Surrender Value will be reduced by the partial surrender amount
paid plus the partial surrender fee. The Face Amount of the Policy will be
reduced by the same amount as the Policy Value is reduced as described above.
POLICY LOANS
Generally, while the Policy is In Force, a loan may be taken against the
Policy up to the available loan value. The loan value on any day is 90% of the
Policy Value reduced by an amount equal to the surrender charge. 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 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% (4% in
New York only), 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 Insureds 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 Insureds while the Policy is In Force.
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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.
You will pay interest on the loan at an effective annual rate, compounded
daily and payable in arrears. The loan interest rates in effect are as follows:
FOR POLICIES ISSUED IN MOST STATES EXCEPT NEW YORK
- --------------------------------------------------
Policy Years 1-10: 4%
Policy Years 11-15: 3%
Policy Years 16 and thereafter: 2 1/2%
FOR POLICIES ISSUED IN NEW YORK ONLY
- ------------------------------------
Policy Years 1-10: 6%
Policy Years 11-15: 5%
Policy Years 16 and thereafter: 4 1/2%
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, the 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
Cash Surrender Value.
LAPSE
Unlike conventional 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.
If on any Monthly Calculation Day during the first three Policy Years, the
Policy Value is insufficient to cover the monthly deduction, a grace period of
61 days will be allowed for the payment of an amount equal to three times the
required monthly deduction. If on any Monthly Calculation Day during any
subsequent Policy Year, the Cash Surrender Value (which should have become
positive) is less than the required monthly deduction, a grace period of 61 days
will be allowed for the payment of an amount equal to three times the required
monthly deduction. However, during the first five Policy Years or until the Cash
Surrender Value becomes positive for the first time, the Policy will not lapse
as long as all premiums planned at issue have been paid.
During the grace period the Policy will continue In Force but Subaccount
transfers, loans, partial or full surrenders will not be permitted. Failure to
pay the additional amount within the grace period will result in lapse of the
Policy, but not before 30 days after we have mailed written notice to you. If a
premium payment for the additional amount is received by us during the grace
period, any amount of premium over what is required to prevent lapse will be
allocated among the Subaccounts or to the GIA according to the then current
premium allocation schedule. In determining the amount of "excess" 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 last surviving 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.
ADDITIONAL INSURANCE OPTIONS
While the Policy is In Force, you will have the option to purchase
additional insurance on the same Insureds with the same guaranteed rates as the
Policy without being assessed an issue expense charge. We will require evidence
of insurability and charges will be adjusted for the Insured's new attained age
and any change in risk classification.
ADDITIONAL RIDER BENEFITS
You may elect additional benefits under a Policy. These benefits are
cancelable by you at any time. A charge may be deducted monthly from the Policy
Value for each additional rider benefit chosen. More details will be included in
the form of a rider to the Policy if any of these benefits is chosen. The
following benefits are currently available (if approved in your state).
Additional riders may be available as described in the Policy.
DISABILITY BENEFIT RIDER
This rider is available for one or both Insureds. On disability of a covered
insured before age 65, monthly deductions will be waived and an additional
Specified Amount (if any) will be credited, as long as he/she remains disabled
(but not for more than the longer of one year or to age 65, if disability
commenced after age 60).
The rider terminates at the Insured's attained age 65. However, benefits
will continue to be paid for the covered Insured's lifetime if he or she has
been continuously
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disabled under the terms of the rider from attained age 60 to age 65.
FOUR-YEAR SURVIVORSHIP TERM
This rider provides a level death benefit on the second death if both
Insureds die within four years of policy issue. This rider is not convertible
into any other policy or coverage.
The rider face amount will be up to 125% of the Policy's initial face
amount.
POLICY SPLIT OPTION RIDER
This rider provides for the exchange of the policy into two single life
policies. At the time of the exchange, the Policy can be split by any percentage
subject to minimum requirements of the single life policies. There is no charge
for this rider, but you must show satisfactory evidence of insurability.
CONDITIONAL EXCHANGE OPTION RIDER
This rider provides for the exchange of the Policy for two new single
policies, without evidence of insurability, for either of the following events:
1. the divorce of the Insureds, or
2. major change in the federal estate tax law.
Both Insureds must be alive on the date of exchange and there must continue
to be insurable interest.
GUARANTEED DEATH BENEFIT RIDER
This rider guarantees the face amount of coverage even if the Policy Value
is insufficient to cover the monthly deduction.
For the first 10 policy years, the monthly guarantee premium is 1/12 of the
Target Annual Premium. For Policy year 11 and thereafter, the monthly guarantee
premium is 1/12 of the Guideline Level Premium (as defined in Internal Revenue
Code Section 7702).
The rider will remain in effect if one of three conditions is met monthly.
Otherwise, the rider will lapse and the underlying Policy will continue without
the rider benefits or charges. The three conditions are:
1. Total Cumulative Premium Test - the total premium paid less the sum of
all surrender amounts is not less than the cumulative sum of all
monthly guarantee premiums since policy issue.
2. Tabular Account Value Test - the Policy's Cash Surrender Value is not
less than the Policy's Tabular Account Value (as listed on Policy's
schedule pages) on the Policy Anniversary on or immediately preceding
the Monthly Calculation Day.
3. Annual Premium Test - the total premium paid during the Policy Year,
less surrenders, is not less than the sum of all monthly guarantee
premiums applicable each month since the Policy Year began.
CONVERSION TO UNIVERSAL LIFE RIDER
This rider permits you to convert from a variable universal life policy to a
fixed universal life policy by transferring all cash value to the
Non-Transferable General Account ("NTGA"). You may make this election on or
after the 15th Policy Anniversary. There is no charge for this rider.
INVESTMENTS OF THE ACCOUNT
- --------------------------------------------------------------------------------
PARTICIPATING INVESTMENT FUNDS
THE PHOENIX EDGE SERIES FUND
Certain Subaccounts of the Account invest in corresponding Series of The
Phoenix Edge Series Fund. The Fund currently has the following Series available
through the Contracts:
PHOENIX RESEARCH ENHANCED INDEX SERIES: The investment objective of the
Series is to seek high total return by investing in a broadly diversified
portfolio of equity securities of large and medium capitalization companies
within market sectors reflected in the S&P 500. The Series invests in a
portfolio of undervalued common stocks and other equity securities which appear
to offer growth potential and an overall volatility of return similar to that of
the S&P 500.
PHOENIX-ABERDEEN INTERNATIONAL SERIES: The investment objective of the
Series is to seek a high total return consistent with reasonable risk. The
Series invests primarily in an internationally diversified portfolio of equity
securities. It intends to reduce its risk by engaging in hedging transactions
involving options, futures contracts and foreign currency transactions. The
Phoenix-Aberdeen International Series provides a means for investors to invest a
portion of their assets outside the United States.
PHOENIX-ABERDEEN NEW ASIA SERIES: The investment objective of the Series is
to seek long-term capital appreciation. The Series invests primarily in a
diversified portfolio of equity securities of issuers organized and principally
operating in Asia, excluding Japan.
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES: The investment
objective of the Series is to seek capital appreciation and income with
approximately equal emphasis. Under normal circumstances, it invests in
marketable securities of publicly traded real estate investment trusts (REITs)
and companies that operate, develop, manage and/or invest in real estate located
primarily in the United States.
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
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growth of capital. At least 75% of the Series' assets will be invested in common
stocks of high quality growth companies. The remaining portion will be invested
in common stocks of small corporations with rapidly growing earnings per share
or common stocks believed to be undervalued.
PHOENIX-GOODWIN BALANCED SERIES: The investment objective of the Series is
to seek reasonable income, long-term capital growth and conservation of capital.
The Phoenix-Goodwin Balanced Series invests based on combined considerations of
risk, income, capital enhancement and protection of capital value.
PHOENIX-GOODWIN GROWTH SERIES: The investment objective of the Series is to
achieve intermediate and long-term growth of capital, with income as a secondary
consideration. The Phoenix-Goodwin Growth Series invests principally in common
stocks of corporations believed by management to offer growth potential.
PHOENIX-GOODWIN MONEY MARKET SERIES: The investment objective of the Series
is to provide maximum current income consistent with capital preservation and
liquidity. The Phoenix-Goodwin Money Market Series invests exclusively in high
quality money market instruments.
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES: The investment objective
of the Series is to seek long-term total return. The Phoenix-Goodwin
Multi-Sector Fixed Income Series seeks to achieve its investment objective by
investing in a diversified portfolio of high yield and high quality fixed income
securities.
PHOENIX-GOODWIN STRATEGIC ALLOCATION SERIES: The investment objective of the
Series is to realize as high a level of total return over an extended period of
time as is considered consistent with prudent investment risk. The
Phoenix-Goodwin Strategic Allocation Series invests in stocks, bonds and money
market instruments in accordance with the Investment Adviser's appraisal of
investments most likely to achieve the highest total return.
PHOENIX-GOODWIN STRATEGIC THEME SERIES: The investment objective of the
Series is to seek long-term appreciation of capital by identifying securities
benefiting from long-term trends present in the United States and abroad. The
Phoenix-Goodwin Strategic Theme Series invests primarily in common stocks
believed to have substantial potential for capital growth.
PHOENIX-HOLLISTER VALUE EQUITY SERIES: The primary investment objective of
the Series is long-term capital appreciation, with a secondary investment
objective of current income. The Phoenix-Hollister Value Equity Series seeks to
achieve its objective by investing in a diversified portfolio of common stocks
that meet certain quantitative standards that indicate above average financial
soundness and intrinsic value relative to price.
PHOENIX-OAKHURST GROWTH AND INCOME SERIES: The investment objective of the
Series is to seek dividend growth, current income and capital appreciation by
investing in common stocks. The Phoenix-Oakhurst Growth and Income Series seeks
to achieve its objective by selecting securities primarily from equity
securities of the 1,000 largest companies traded in the United States, ranked by
market capitalization.
PHOENIX-SCHAFER MID-CAP VALUE SERIES: The primary investment objective of
the Series is to seek long-term capital appreciation, with current income as the
secondary investment objective. The Phoenix-Schafer Mid-Cap Value Series will
invest in common stocks of established companies having a strong financial
position and a low stock market valuation at the time of purchase which are
believed to offer the possibility of increase in value.
PHOENIX-SENECA MID-CAP GROWTH SERIES: The investment objective of the Series
is to seek capital appreciation primarily through investments in equity
securities of companies that have the potential for above average market
appreciation. The Series seeks to outperform the Standard & Poor's Mid-Cap 400
Index.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Certain Subaccounts of the Account invest in Class 1 shares of the
corresponding Series of the Templeton Variable Products Series Fund. The
following Series are currently available through the Contracts:
MUTUAL SHARES INVESTMENTS SERIES: The primary investment objective of the
Series is to seek capital appreciation with income as a secondary objective. The
Mutual Shares Investment Series invests in domestic equity securities and
domestic debt obligations.
TEMPLETON ASSET ALLOCATION SERIES: The investment objective of the Series is
to seek a high level of total return through a flexible investment policy. The
Templeton Asset Allocation Series invests in stocks of companies of any nation,
debt securities of companies and governments of any nation and in money market
instruments. Changes in the asset mix will be made in an attempt to capitalize
on total return potential produced by changing economic conditions throughout
the world.
TEMPLETON DEVELOPING MARKETS SERIES: The investment objective of the Series
is to seek long-term capital appreciation. The Templeton Developing Markets
Series invests primarily in equity securities of issuers in countries having
developing markets.
TEMPLETON INTERNATIONAL SERIES: The investment objective of the Series is to
seek long-term capital growth through a flexible policy of investing. The
Templeton International Series invests in stocks and debt obligations of
companies and governments outside the United States. Any income realized will be
incidental. Although the Series generally invests in common stock, it also may
invest in
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preferred stocks and certain debt securities such as convertible bonds which are
rated in any category by S&P or Moody's or which are unrated by any rating
agency.
TEMPLETON STOCK SERIES: The investment objective of the Series is to provide
capital growth. The Templeton Stock Series invests primarily in common stocks
issued by companies, large and small, in various nations throughout the world.
WANGER ADVISORS TRUST
Certain Subaccounts of the Account invest in corresponding Series of the
Wanger Advisors Trust. The following Series are currently available through the
Contracts:
WANGER FOREIGN FORTY SERIES: The investment objective of the Series is to
seek long-term capital growth. The Wanger Foreign Forty Series invests primarily
in equity securities of foreign companies with market capitalization of $1
billion to $10 billion and focuses its investments in 40 to 60 companies in the
developed markets.
WANGER INTERNATIONAL SMALL CAP SERIES: The investment objective of the
Series is to provide long-term growth. The Wanger International Small Cap Series
invests primarily in securities of non-U.S. companies with total common stock
market capitalization of less than $1 billion.
WANGER TWENTY SERIES: The investment objective of the Series is to seek
long-term capital growth. The Wanger Twenty Series invests primarily in the
stocks of U.S. companies with market capitalization of $1 billion to $10 billion
and ordinarily focuses its investments in 20 to 25 U.S. companies.
WANGER U.S. SMALL CAP SERIES: The investment objective of the Series is to
provide long-term growth. The Wanger U.S. Small Cap Series invests primarily in
securities of U.S. companies with total common stock market capitalization of
less than $1 billion.
Each Series will be subject to market fluctuations and the risks that come
with the ownership of any security, and there can be no assurance that any
Series will achieve its stated investment objective.
In addition to being sold to the Account, shares of the Funds also are sold
to the PHLVIC Variable Universal Life Account, a separate account used by
Phoenix to receive and invest premiums paid under certain variable universal
life policies issued by Phoenix. 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 Funds'
trustees currently foresees any such disadvantages either to variable life
insurance Policyowners or to variable annuity Contract Owners, the Funds'
trustees intend to monitor events in order to identify any material conflicts
between variable life insurance Policyowners and variable annuity Contract
Owners and to determine what action, if any, should be taken in response to such
conflicts. Material conflicts could, for example, result from (1) changes in
state insurance laws, (2) changes in federal income tax laws, (3) changes in the
investment management of any portfolio of the Fund(s) or (4) differences in
voting instructions between those given by variable life insurance Policyowners
and those given by variable annuity Contract Owners. Phoenix will, at its own
expense, remedy such material conflicts including, if necessary, segregating the
assets underlying the variable life insurance policies and the variable annuity
contracts and establishing a new registered investment company.
INVESTMENT ADVISERS
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
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[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 Fund
prospectuses.
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; all
capital gains distributions of the Fund, if any, are likewise reinvested at the
net asset value on the record date. Phoenix redeems Fund shares at their net
asset value to the extent necessary to make payments under the Policy.
SUBSTITUTION OF INVESTMENTS
Phoenix reserves the right, subject to compliance with the law to add
additional series, delete existing series, or substitute one series for another.
Phoenix in its sole discretion, will determine if and when to establish new
Subaccounts. Similarly, Phoenix in its sole discretion will determine whether to
make any new Subaccounts available to existing Policies.
If the shares of any of the portfolios of the Fund should no longer be
available for investment, or if in the judgment of Phoenix's management further
investment in shares of any of the portfolios becomes inappropriate in view of
the objectives of the Policy, then Phoenix may substitute shares of another fund
for shares already purchased, or to be purchased in the future. No substitution
of fund shares held by the VUL Account may take place without prior approval of
the SEC and prior notice to you. In the event of a substitution, you will be
given the option of transferring the Policy Value of the Subaccount in which the
substitution is to occur to another Subaccount without penalty.
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 and federal taxes incurred on premiums 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.
When we issue Policies under group or sponsored arrangements, we may reduce
or eliminate one or more of:
[diamond] sales charge,
[diamond] issue expense charge,
[diamond] administrative charge, and
[diamond] surrender charge.
Sales to a group or through sponsored arrangement often result in lower per
policy costs and often involve a greater stability of premiums paid into the
policies. Under such circumstances Phoenix tries to pass these savings onto the
purchasers. The amount of reduction will be determined on a case-by-case basis
and will reflect the cost reduction we expect as a result of these group or
sponsored sales.
Certain charges are deducted only once, others are deducted periodically,
while certain others are deducted only if certain events occur.
CHARGES DEDUCTED ONCE
SALES CHARGE
To help reimburse ourselves for a variety of expenses incurred in selling
the Policy (e.g., commissions, advertising, printing) we impose a sales charge
on premiums paid on the Policy.
The sales charge is assessed according to the following schedule:
[diamond] Policy Year 1: 20% of premiums paid
up to the first TAP
5% of premiums in
excess of the TAP
[diamond] Policy Years 2-10: 5% of premium
[diamond] Policy Years 11 and over: 0% of premium
The TAP is established at the time the Policy is issued and is the greater
of: (a) the level premium required to mature the Policy, computed at an interest
rate of 6.5% and assuming current mortality and expenses; and (b) $1,200. The
sales charge does not fully cover our total sales expenses, but we expect to
recover these expenses in full over the period the Policy remains in force.
PREMIUM TAXES
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
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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. Policies will be assessed a
tax charge equal to 2.25% of the premiums paid. These charges are deducted from
each premium payment.
FEDERAL TAX CHARGE
A charge equal to 1.50% of each premium will be deducted from each premium
payment to cover the estimated cost to us of the federal income tax treatment of
deferred acquisition costs.
PERIODIC CHARGES
MONTHLY
[diamond] ISSUE EXPENSE CHARGE. The issue expense charge is $600 and is to
reimburse Phoenix 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 of $50
over the first 12 months of the Policy.
[diamond] ADMINISTRATIVE CHARGE. This charge is assessed to cover our variable
administrative expenses such as the preparation of billings,
statements and mailings to Policyholders. The administrative charge is
only assessed during the first ten Policy Years and varies by the Face
Amount of the Policy as follows:
[bullet] $20 per month for Policies with Face Amounts of less than or
equal to $400,000;
[bullet] $0.05 per $1,000 for Policies with Face Amounts of $400,001
up to $1,600,000; and
[bullet] $80 per month for Policies with Face Amounts of greater than
$1,600,000
[diamond] COST OF INSURANCE. To determine this expense, we multiply the
appropriate cost of insurance rate by the difference between your
Policy's death benefit and the Policy Value. Generally, cost of
insurance rates are based on the sex, Attained Age and risk class of
the Insureds. However, in certain states and for policies issued in
conjunction with certain qualified plans, cost of insurance rates are
not based on sex. The actual monthly costs of insurance rates are
based on our expectations of future mortality experience. They will
not, however, be greater than the guaranteed cost of insurance rates
set forth in the Policy. These guaranteed maximum rates are equal to
100% of the 1980 Commissioners Standard Ordinary ("CSO") Mortality
Table, with appropriate adjustment for the Insureds' risk
classification. Any change in the cost of insurance rates will apply
to all persons of the same sex, insurance age and risk class whose
Policies have been In Force for the same length of time. Your risk
class may affect your cost of insurance rate. We currently place
Insureds into a standard risk class or a risk class involving a higher
mortality risk, depending upon the health of the Insureds as
determined by medical information that we request. For otherwise
identical Policies, 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
categories: smokers, nonsmokers and those who have never smoked.
Nonsmokers will generally incur a lower cost of insurance than
similarly situated Insureds who smoke.
[diamond] COST OF ANY RIDERS TO YOUR POLICY. Certain policy riders require the
payment of additional premiums to pay for the benefit provided by the
rider.
Monthly deductions are made on each Monthly Calculation Day. The amount
deducted is allocated among Subaccounts and the unloaned portion of the GIA
based on an allocation schedule specified by you.
You initially choose this schedule in your application, but can later change
it from time to time. If any Subaccount or the unloaned portion of the GIA is
insufficient to permit the full withdrawal of the monthly deduction, the
withdrawals from the other Subaccounts or GIA will be proportionally increased.
DAILY
[diamond] MORTALITY AND EXPENSE RISK CHARGE. A charge at an annual rate of 0.8%
is deducted daily from the VUL Account. After the 15th policy year,
the charge is reduced to an annual rate of 0.25%. 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 that
projecting process and, therefore, that the total amount of death
benefits that we will pay out will be greater than that 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 those 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.
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[diamond] SURRENDER CHARGE. During the first 10 Policy Years, there is a
difference between the amount of Policy Value and the amount of Cash
Surrender Value of the Policy. This difference is the surrender
charge, which is a contingent deferred sales charge. The surrender
charge is designed to recover the expense of distributing Policies
that are terminated before distribution expenses have been recouped
from revenue generated by these policies. These are contingent charges
because they are paid only if the Policy is surrendered (or the Face
Amount is reduced or the Policy lapses) during this period. They are
deferred charges because they are not deducted from premiums.
During the first 10 Policy Years, the surrender charge described below
will apply if you either surrender the Policy for its Cash Surrender
Value or let the Policy lapse. There is no surrender charge after the
10th Policy Year. During the first 10 Policy Years, the maximum
surrender charge that you can pay while you own the Policy is equal to
the percentage amount shown in the Surrender Charge Table below.
SURRENDER CHARGE TABLE
----------------------
SURRENDER SURRENDER SURRENDER
POLICY CHARGE POLICY CHARGE POLICY CHARGE
MONTH % OF TAP MONTH % OF TAP MONTH % OF TAP
----- -------- ----- --------- ----- --------
1-70 100% 87 66% 104 32%
71 98% 88 64% 105 30%
72 96% 89 62% 106 28%
73 94% 90 60% 107 26%
74 92% 91 58% 108 24%
75 90% 92 56% 109 22%
76 88% 93 54% 110 20%
77 86% 94 52% 111 18%
78 84% 95 50% 112 16%
79 82% 96 48% 113 14%
80 80% 97 46% 114 12%
81 78% 98 44% 115 10%
82 76% 99 42% 116 8%
83 74% 100 40% 117 6%
84 72% 101 38% 118 4%
85 70% 102 36% 119 2%
86 68% 103 34% 120 0%
[diamond] PARTIAL SURRENDER FEE. In the case of a partial surrender, but not a
decrease in Face Amount, an additional fee is imposed. The fee is
equal to 2% of the amount withdrawn but not more than $25. The fee is
intended to recover the actual costs of processing the partial
surrender request. The fee will be deducted from each Subaccount and
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
are monthly deductions.
[diamond] PARTIAL SURRENDER CHARGE. If less than all of the Policy is
surrendered, the amount withdrawn is a "partial surrender." A charge
as described below is deducted from the Policy Value upon a partial
surrender of the Policy. The charge is a fraction of the applicable
surrender charge that would apply to a full surrender, determined by
how much of the full Cash Surrender Value is being withdrawn. This
amount is assessed against the Subaccounts and the GIA in the same
proportion as the withdrawal is allocated.
A partial surrender charge also is deducted from Policy Value upon a
decrease in Face Amount. The charge is equal to the applicable
surrender charge multiplied by a fraction equal to the decrease in
Face Amount divided by the Face Amount of the Policy prior to the
decrease.
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
- --------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
GENERAL
Payment of any amount upon complete or partial surrender, Policy loan or
benefits payable at death (in excess of the initial Face Amount) or maturity may
be postponed:
[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 decided 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
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representations and not warranties. Only an executive officer of Phoenix can
agree to change or waive any provisions of the Policy.
SUICIDE
If either of the Insureds commits suicide within two years after the
Policy's Date of Issue, the Policy will stop and become void. We will pay you
the Policy Value adjusted by the addition 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 Insureds' lifetimes 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 death of the last surviving Insured. If
the named Beneficiary dies before the death of the last surviving Insured, the
contingent Beneficiary, if named, becomes the Beneficiary. If no Beneficiary
survives the last surviving Insured, the death benefit payable under the Policy
will be paid to you or your estate.
As long as the Policy is In Force, the Policyowner and the Beneficiary may
be changed by written request, satisfactory to us. A change in Beneficiary will
take effect as of the date the notice is signed, whether or not the last
surviving 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 either of the Insureds 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
of the Insureds.
SURPLUS
You may share in divisible surplus of Phoenix to the extent decided annually
by the Phoenix Board of Directors. However, it is not currently expected that
the Board will authorize these payments since you will be participating directly
in the Subaccount's investment results.
PAYMENT OF PROCEEDS
- --------------------------------------------------------------------------------
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. Under this Policy, the death proceeds
will be paid upon the death of the last surviving Insured.
You may elect a payment option for payment of the death proceeds to the
Beneficiary. You may do this only before the second death. 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 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.
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.
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OPTION 4--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN.
Equal installments are paid until the later of:
[diamond] the death of the payee and
[diamond] the end of the period certain. The first payment will be on the date
of settlement. The period certain must be chosen when this option is
elected. The periods certain that may be chosen are as follows:
[diamond] ten years;
[diamond] twenty years;
[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.
Any life annuity provided under Option 4 is computed using an interest rate
guaranteed to be no less than 3-3/8% per year, but any life annuity providing a
period certain of 20 years or more is computed using an interest rate guaranteed
to be no less than 3-1/4% per year.
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. Any life annuity as may be provided
under Option 5 is computed using an interest rate guaranteed to be no less than
3-1/2% per year.
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.
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; and
[diamond] the death of the other named annuitant. The other annuitant must be
named when this option is elected and cannot later be changed.
The other annuitant must have an attained age of at least 40. Any joint
survivorship annuity that may be provided under this option is computed using a
guaranteed interest rate to equal at least 3-3/8% per year.
For additional information concerning the above payment options, see the
Policy.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
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 Phoenix's 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
Phoenix is 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 Phoenix. Due to Phoenix's tax status under
current provisions of the Code, no charge currently will be made to the VUL
Account for Phoenix's federal income taxes, which may be attributable to the VUL
Account. Phoenix reserves the right to make a deduction for taxes if the federal
tax treatment of Phoenix is determined to be other than what Phoenix currently
believes it to be, if changes are made affecting the tax treatment to Phoenix of
variable life insurance contracts, or if changes occur in Phoenix's tax status.
If imposed, such charge would be equal to the federal income taxes attributable
to the investment results of the VUL Account.
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POLICY BENEFITS
DEATH BENEFIT PROCEEDS
The Policy, whether or not it is a modified endowment contract (see the
discussion on modified endowment contracts below), should be treated as meeting
the definition of a life insurance contract for federal income tax purposes,
under Section 7702 of the Code. As such, the death benefit proceeds thereunder
should be excludable from the gross income of the Beneficiary under Code Section
101(a)(1). Also, a Policyowner should not be considered to be in constructive
receipt of the cash value, including investment income. See, however, the
sections below on possible taxation of amounts received under the Policy, via
full surrender, partial surrender or loan.
Code Section 7702 imposes certain conditions with respect to premiums
received under a Policy. Phoenix intends to monitor the premiums to assure
compliance with such conditions. However, if the premium limitation is exceeded
during the year, Phoenix may return the excess premium, with interest, to the
Policyowner within 60 days after the end of the Policy Year, and maintain the
qualification of the Policy as life insurance for federal income tax purposes.
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
If the Policy is a modified endowment contract, partial surrenders are fully
taxable to the extent of income in the Policy and are possibly subject to an
additional 10% tax. See the discussion on modified endowment contracts below. If
the Policy is not a modified endowment contract, partial surrenders still may be
taxable, as follows. Code Section 7702(f)(7) provides that where a reduction in
death benefits occurs during the first 15 years after a Policy is issued and
there is a cash distribution associated with that reduction, a Policyowner may
be taxed on all or a part of the amount distributed. A reduction in death
benefits may result from a partial surrender. After 15 years, the proceeds will
not be subject to tax, except to the extent such proceeds exceed the total
amount of premiums paid but not previously recovered. Phoenix suggests you
consult with your tax adviser in advance of a proposed decrease in death
benefits or 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
Phoenix believes that any loan received under a Policy will be treated as
indebtedness of a Policyowner. If the Policy is a modified endowment contract,
loans are fully taxable to the extent of income in the Policy and are possibly
subject to an additional 10% tax. See the discussion on modified endowment
contracts below. If the Policy is not a modified endowment contract, Phoenix
believes that no part of any loan under a Policy will constitute income to a
Policyowner.
The deductibility by a Policyowner of loan interest under a Policy may be
limited under Code Section 264, depending on 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.
MODIFIED ENDOWMENT CONTRACTS
GENERAL
Pursuant to Code Section 72(e), loans and other amounts received under
modified endowment contracts will, in general, be taxed to the extent of
accumulated income (generally, the excess of cash value over premiums paid).
Life insurance policies can be modified endowment contracts if they fail to meet
what is known as "the 7-pay test." The measuring stick for this test is a
hypothetical life insurance policy of equal face amount which requires 7 equal
annual premiums but which, after the seventh year is "fully paid-up," continuing
to provide a level death benefit without the need for any further premiums. A
Policy becomes a modified endowment contract, if, at any time during the first
seven years, the cumulative premium paid on the Policy exceeds the cumulative
premium that would have been paid under the hypothetical policy. Premiums paid
during a Policy Year but which are returned by Phoenix with interest within 60
days after the end of the Policy Year will be excluded from the 7-pay test. A
life insurance policy received in exchange for a modified endowment contract
will be treated as a modified endowment contract.
REDUCTION IN BENEFITS DURING THE FIRST SEVEN YEARS
If there is a reduction in death benefits during the first seven Policy
Years, the premiums are redetermined for purposes of the 7-pay test as if the
Policy originally had been issued at the reduced death benefit level and the new
20
<PAGE>
limitation is applied to the cumulative amount paid for each of the first seven
Policy Years.
DISTRIBUTIONS 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 test is
failed 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 generally will
not be subject to the modified endowment contract rules.
PENALTY TAX
Any amount 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; or
[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.
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. Phoenix intends to
comply with the limitations in calculating the premium it is 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 Funds is required to
diversify its investments. The Diversification Regulations generally require
that on the last day of each calendar quarter that the Series assets be invested
in no more than:
[diamond] 55% in any 1 investment
[diamond] 70% in any 2 investments
[diamond] 80% in any 3 investments
[diamond] 90% in any 4 investments
21
<PAGE>
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 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, Phoenix reserves the
right to modify the Policy, as necessary, to prevent you from being considered
the owner of the assets of the VUL Account.
Phoenix intends 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 one or both of the Insureds 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 Insureds. If the surrendered Policy is
subject to a policy loan, this may be treated as the receipt of money on the
exchange. Phoenix recommends 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
- --------------------------------------------------------------------------------
THE FUNDS
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
22
<PAGE>
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 members of which are
elected by its Policyholders, including Owners of the Policies. See "Voting
Rights."
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
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
23
<PAGE>
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 the organization.
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS
- --------------------------------------------------------------------------------
Phoenix holds the assets of the VUL Account. The assets of the VUL Account
are kept physically segregated and held separate and apart from the General
Account of Phoenix. Phoenix maintains records of all purchases and redemptions
of shares of the Fund.
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 received by Phoenix 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, Phoenix will pay the shortfall
from its General Account assets, which will include any profits it may derive
under the Policies.
STATE REGULATION
- --------------------------------------------------------------------------------
Phoenix is subject to the provisions of the New York insurance laws
applicable to mutual life insurance companies and to regulation and supervision
by the New York Superintendent of Insurance. Phoenix also is subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of Phoenix includes certain limitations on the investments
that it may make, including investments for the VUL Account and the GIA. It 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. Phoenix is not involved in
any litigation that would have a material adverse effect on the ability of
Phoenix to meet its obligations under the Policies.
LEGAL MATTERS
- --------------------------------------------------------------------------------
Edwin L. Kerr, Counsel of Phoenix, 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.
24
<PAGE>
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 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 addition, Phoenix is examining the status
of its third-party vendors, obtaining assurances that their software and
hardware products will be century compliant by the end of 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 as of 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>
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>
62
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The New York State Insurance Department recognizes only statutory accounting
practices for determining and reporting the financial condition and results
of operations of an insurance company, for determining its solvency under
New York Insurance Law, and for determining whether its financial condition
warrants the payment of a dividend to its policyholders. No consideration is
given by the Department to financial statements prepared in accordance with
generally accepted accounting principles in making such determinations.
19. PRIOR PERIOD ADJUSTMENT
In 1998, Phoenix revised the accounting for partnerships involved in
leveraged lease arrangements for 1997 and 1996. Opening retained earnings at
December 31, 1995 has been increased by $7.7 million. The Consolidated
Balance Sheet as of December 31, 1997 was revised by increasing the
following balances: other invested assets by $18.9 million, deferred income
taxes by $6.6 million and retained earnings by $12.3 million. The effect on
the Consolidated Statement of Income, Comprehensive Income and Equity was an
increase in net income of $2.1 million and $2.5 million for the years ended
1997 and 1996, respectively.
20. SUBSEQUENT EVENTS
PHOENIX INVESTMENT PARTNERS, LTD.
On March 2, 1999, Phoenix Investment Partners completed its acquisition of
the retail mutual fund and closed-end fund business of the New York City
based Zweig Group. Under the terms of the agreement, Phoenix Investment
Partners paid $135.0 million at closing and will pay up to an additional
$29.0 million over the next three years based on revenue growth of the Zweig
funds. The acquisition increases Phoenix Investment Partners' assets under
management by approximately $4.4 billion.
OCCUPATIONAL ACCIDENT REINSURANCE
Effective March 1, 1995, Phoenix became a participant in an occupational
accident reinsurance pool. In addition, effective October 1, 1996, Phoenix
and American Phoenix Life and Reassurance Company, an indirect wholly owned
subsidiary of Phoenix, became a participant in a reinsurance facility of
occupational accident reinsurance. A significant portion of the risk
associated with the occupational accident reinsurance pool and the
reinsurance facility is further retroceded by Phoenix and American Phoenix
Life to several other unaffiliated insurance entities. Phoenix has
terminated membership in the pool effective March 1, 1999 while American
Phoenix Life and Phoenix terminated participation in the reinsurance
facility effective October 1, 1998.
Management's assessment of the reinsurance arrangements and related
financial exposure to Phoenix and American Phoenix Life is ongoing. Based on
current facts and circumstances, management believes these transactions will
not materially affect the financial condition of Phoenix or American Phoenix
Life.
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................................................ $ 8,387,854 $ 3,541,375 $ 314,905
=========== =========== ===========
Investment in The Phoenix Edge Series Fund, at market.............. $ 8,387,854 $ 3,946,875 $ 303,537
----------- ----------- -----------
Total assets.................................................... 8,387,854 3,946,875 303,537
LIABILITIES
Accrued expenses to related party.................................. 3,073 1,886 176
----------- ----------- -----------
NET ASSETS............................................................ $ 8,384,781 $ 3,944,989 $ 303,361
=========== =========== ===========
Accumulation units outstanding........................................ 5,600,044 728,068 138,658
=========== =========== ===========
Unit value............................................................ $ 1.497271 $ 5.418439 $ 2.187825
=========== =========== ===========
STRATEGIC
ALLOCATION INTERNATIONAL BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
ASSETS
Investments at cost................................................ $ 621,666 $ 996,726 $ 554,526
=========== =========== ===========
Investment in The Phoenix Edge Series Fund, at market.............. $ 653,879 $ 911,849 $ 594,602
----------- ----------- -----------
Total assets.................................................... 653,879 911,849 594,602
LIABILITIES
Accrued expenses to related party.................................. 340 533 319
----------- ----------- -----------
NET ASSETS............................................................ $ 653,539 $ 911,316 $ 594,283
=========== =========== ===========
Accumulation units outstanding........................................ 195,987 396,457 283,637
=========== =========== ===========
Unit value............................................................ $ 3.334592 $ 2.298658 $ 2.095220
=========== =========== ===========
ABERDEEN
REAL ESTATE STRATEGIC THEME NEW ASIA
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
ASSETS
Investments at cost................................................ $ 229,334 $ 37,854 $ 9,719
=========== =========== ===========
Investment in The Phoenix Edge Series Fund, at market.............. $ 200,269 $ 43,556 $ 9,514
----------- ----------- -----------
Total assets.................................................... 200,269 43,556 9,514
LIABILITIES
Accrued expenses to related party.................................. 62 24 6
----------- ----------- -----------
NET ASSETS............................................................ $ 200,207 $ 43,532 $ 9,508
=========== =========== ===========
Accumulation units outstanding........................................ 162,035 26,106 14,964
=========== =========== ===========
Unit value............................................................ $ 1.235584 $ 1.667556 $ 0.635389
=========== =========== ===========
SENECA
ENHANCED ENGEMANN MID-CAP
INDEX NIFTY FIFTY GROWTH
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
ASSETS
Investments at cost................................................ $ 1,659,146 $ 129,646 $ 33,941
=========== =========== ===========
Investment in the Phoenix Edge Series Fund, at market.............. $ 1,790,185 $ 171,315 $ 40,990
----------- ----------- -----------
Total assets.................................................... 1,790,185 171,315 40,990
LIABILITIES
Accrued expenses to related party.................................. 1,704 191 24
----------- ----------- -----------
NET ASSETS............................................................ $ 1,788,481 $ 171,124 $ 40,966
=========== =========== ===========
Accumulation units outstanding........................................ 1,284,367 144,531 35,381
=========== =========== ===========
Unit value............................................................ $ 1.392499 $ 1.183985 $ 1.157875
=========== =========== ===========
</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................................................ $ 377,965 $ 132,690 $ 46,683
=========== =========== ===========
Investment in The Phoenix Edge Series Fund, at market.............. $ 420,504 $ 160,627 $ 45,362
----------- ----------- -----------
Total assets.................................................... 420,504 160,627 45,362
LIABILITIES
Accrued expenses to related party.................................. 252 105 18
----------- ----------- -----------
NET ASSETS............................................................ $ 420,252 $ 160,522 $ 45,344
=========== =========== ===========
Accumulation units outstanding........................................ 367,908 150,803 53,558
=========== =========== ===========
Unit value............................................................ $ 1.142276 $ 1.064448 $ 0.846636
=========== =========== ===========
WANGER WANGER
U.S. INTERNATIONAL TEMPLETON
SMALL CAP SMALL CAP ASSET ALLOCATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
ASSETS
Investments at cost................................................ $ 781,357 $ 140,753 $ 5,226
=========== =========== ===========
Investment in Wanger Advisors Trust, at market..................... $ 820,194 $ 146,010
Investment in Templeton Variable Products Series Fund, at market... 5,385
----------- ----------- -----------
Total assets.................................................... 820,194 $ 146,010 $ 5,385
----------- ----------- -----------
LIABILITIES
Accrued expenses to related party.................................. 485 88 6
----------- ----------- -----------
NET ASSETS............................................................ $ 819,709 $ 145,922 $ 5,379
=========== =========== ===========
Accumulation units outstanding........................................ 570,682 125,979 5,224
=========== =========== ===========
Unit value............................................................ $ 1.436366 $ 1.158297 $ 1.029701
=========== =========== ===========
</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(1)
---------- ---------- -------------
<S> <C> <C> <C>
Investment income
Distributions.................................................... $ 78,452 $ 536 $ 8,771
Expenses
Mortality, expense risk and administrative charges............... 12,443 7,130 593
----------- ----------- -----------
Net investment income (loss)........................................ 66,009 (6,594) 8,178
----------- ----------- -----------
Net realized gain (loss) from share transactions.................... -- (8,303) (205)
Net realized gain distribution from Fund............................ -- 49,993 241
Net unrealized appreciation (depreciation) on investment............ -- 413,772 (11,368)
----------- ----------- -----------
Net gain (loss) on investments...................................... -- 455,462 (11,332)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations..... $ 66,009 $ 448,868 $ (3,154)
=========== =========== ===========
STRATEGIC
ALLOCATION INTERNATIONAL BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
Investment income
Distributions.................................................... $ 4,098 $ 0 $ 4,855
Expenses
Mortality, expense risk and administrative charges............... 1,059 1,965 985
----------- ----------- -----------
Net investment income (loss)........................................ 3,039 (1,965) 3,870
----------- ----------- -----------
Net realized gain (loss) from share transactions.................... (447) (230) 123
Net realized gain distribution from Fund............................ 23,450 145,131 1,942
Net unrealized depreciation on investment........................... 32,533 (83,267) 40,076
----------- ----------- -----------
Net gain (loss) on investments...................................... 55,536 61,634 42,141
----------- ----------- -----------
Net increase in net assets resulting from operations................ $ 58,575 $ 59,669 $ 46,011
=========== =========== ===========
ABERDEEN
REAL ESTATE STRATEGIC THEME NEW ASIA
SUBACCOUNT SUBACCOUNT SUBACCOUNT(2)
---------- ---------- -------------
Investment income
Distributions.................................................... $ 7,052 $ 0 $ 41
Expenses
Mortality, expense risk and administrative charges............... 753 114 33
----------- ----------- -----------
Net investment income (loss)........................................ 6,299 (114) 8
----------- ----------- -----------
Net realized gain (loss) from share transactions.................... (19) (2) 4
Net realized gain distribution from Fund............................ 95 2,518 --
Net unrealized appreciation (depreciation) on investment............ (28,443) 5,767 (205)
----------- ----------- -----------
Net gain (loss) on investments...................................... (28,367) 8,283 (201)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations..... $ (22,068) $ 8,169 $ (193)
=========== =========== ===========
SENECA
ENHANCED ENGEMANN MID-CAP
INDEX NIFTY FIFTY GROWTH
SUBACCOUNT SUBACCOUNT(3) SUBACCOUNT(4)
---------- ------------- -------------
Investment income
Distributions.................................................... $ 9,949 $ 68 $ 34
Expenses
Mortality, expense risk and administrative charges............... 4,123 538 76
----------- ----------- -----------
Net investment income (loss) ....................................... 5,826 (470) (42)
----------- ----------- -----------
Net realized gain (loss) from share transactions.................... 148 16 88
Net realized gain distribution from Fund............................ 72,613 -- --
Net unrealized appreciation (depreciation) on investment............ 130,839 41,669 7,049
----------- ----------- -----------
Net gain (loss) on investments...................................... 203,600 41,685 7,137
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations..... $ 209,426 $ 41,215 $ 7,095
=========== =========== ===========
</TABLE>
(1) From inception January 7, 1998 to December 31, 1998
(2) From inception February 3, 1998 to December 31, 1998
(3) From inception May 19, 1998 to December 31, 1998
(4) From inception May 29, 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 VALUE SCHAFER
AND INCOME EQUITY MID-CAP
SUBACCOUNT(5) SUBACCOUNT(4) SUBACCOUNT(5)
------------- ------------- -------------
<S> <C> <C> <C>
Investment income
Distributions.................................................... $ 1,583 $ 604 $ 111
Expenses
Mortality, expense risk and administrative charges............... 869 291 105
----------- ----------- -----------
Net investment gain (loss).......................................... 714 313 6
----------- ----------- -----------
Net realized gain (loss) from share transactions.................... (95) 13 (42)
Net unrealized appreciation (depreciation) on investment............ 42,539 27,937 (1,321)
----------- ----------- -----------
Net gain (loss) on investments...................................... 42,444 27,950 (1,363)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations..... $ 43,158 $ 28,263 $ (1,357)
=========== =========== ===========
WANGER WANGER
U.S. INTERNATIONAL TEMPLETON
SMALL CAP SMALL CAP ASSET ALLOCATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT(6)
---------- ---------- -------------
Investment income
Distributions.................................................... $ 5,894 $ 434 $ 0
Expenses
Mortality, expense risk and administrative charges............... 2,345 499 6
----------- ----------- -----------
Net investment income (loss)........................................ 3,549 (65) (6)
----------- ----------- -----------
Net realized gain (loss) from share transactions.................... (1,009) (452) (2)
Net realized gain distribution from Fund............................ -- -- --
Net unrealized appreciation (depreciation) on investment............ 38,082 5,321 160
----------- ----------- -----------
Net gain (loss) on investments...................................... 37,073 4,869 158
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations..... $ 40,622 $ 4,804 $ 152
=========== =========== ===========
</TABLE>
(4) From inception May 29, 1998 to December 31, 1998
(5) From inception March 20, 1998 to December 31, 1998
(6) 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(1)
---------- ---------- -------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)..................................... $ 66,009 $ (6,594) $ 8,178
Net realized gain (loss)......................................... -- 41,690 36
Net unrealized appreciation (depreciation)....................... -- 413,772 (11,368)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations.. 66,009 448,868 (3,154)
----------- ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 15,815,281 757,589 174,222
Participant transfers............................................ (7,224,775) 2,713,459 135,377
Participant withdrawals.......................................... (651,248) (80,004) (3,084)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 7,939,258 3,391,044 306,515
----------- ----------- -----------
Net increase (decrease) in net assets............................ 8,005,267 3,839,912 303,361
NET ASSETS
Beginning of period.............................................. 379,514 105,077 0
----------- ----------- -----------
End of period.................................................... $ 8,384,781 $ 3,944,989 $ 303,361
=========== =========== ===========
STRATEGIC
ALLOCATION INTERNATIONAL BALANCED
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
FROM OPERATIONS
Net investment income (loss)..................................... $ 3,039 $ (1,965) $ 3,870
Net realized gain (loss)......................................... 23,003 144,901 2,065
Net unrealized appreciation (depreciation)....................... 32,533 (83,267) 40,076
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations.. 58,575 59,669 46,011
----------- ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 260,731 253,492 150,590
Participant transfers............................................ 340,419 584,915 414,602
Participant withdrawals.......................................... (8,538) (10,947) (19,272)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 592,612 827,460 545,920
----------- ----------- -----------
Net increase (decrease) in net assets............................ 651,187 887,129 591,931
NET ASSETS
Beginning of period.............................................. 2,352 24,187 2,352
----------- ----------- -----------
End of period.................................................... $ 653,539 $ 911,316 $ 594,283
=========== =========== ===========
ABERDEEN
REAL ESTATE STRATEGIC THEME NEW ASIA
SUBACCOUNT SUBACCOUNT SUBACCOUNT(2)
---------- ---------- -------------
FROM OPERATIONS
Net investment income (loss)..................................... $ 6,299 $ (114) $ 8
Net realized gain (loss)......................................... 76 2,516 4
Net unrealized appreciation (depreciation)....................... (28,443) 5,767 (205)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from operations.. (22,068) 8,169 (193)
----------- ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 79,353 14,036 3,249
Participant transfers............................................ 136,665 22,460 6,917
Participant withdrawals.......................................... (22,346) (1,683) (465)
----------- ----------- -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 193,672 34,813 9,701
----------- ----------- -----------
Net increase (decrease) in net assets............................ 171,604 42,982 9,508
NET ASSETS
Beginning of period.............................................. 28,603 550 0
----------- ----------- -----------
End of period.................................................... $ 200,207 $ 43,532 $ 9,508
=========== ========== ===========
</TABLE>
(1) From inception January 7, 1998 to December 31, 1998
(2) From inception February 3, 1998 to December 31, 1998
(3) From inception May 19, 1998 to December 31, 1998
(4) From inception May 29, 1998 to December 31, 1998
(5) From inception March 20, 1998 to December 31, 1998
(6) From inception November 9, 1998 to December 31, 1998
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(3) SUBACCOUNT(4)
---------- ------------- -------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)..................................... $ 5,826 $ (470) $ (42)
Net realized gain (loss)......................................... 72,761 16 88
Net unrealized appreciation (depreciation)....................... 130,839 41,669 7,049
---------- ----------- -----------
Net increase (decrease) in net assets resulting from operations.. 209,426 41,215 7,095
---------- ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 164,639 2,606 16,108
Participant transfers............................................ 1,411,265 129,543 19,710
Participant withdrawals.......................................... (20,651) (2,240) (1,947)
---------- ----------- -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 1,555,253 129,909 33,871
---------- ----------- -----------
Net increase (decrease) in net assets............................ 1,764,679 171,124 40,966
NET ASSETS
Beginning of period.............................................. 23,802 0 0
---------- ----------- -----------
End of period.................................................... $1,788,481 $ 171,124 $ 40,966
========== =========== ===========
GROWTH SCHAFER
AND INCOME VALUE EQUITY MID-CAP
SUBACCOUNT(5) SUBACCOUNT(4) SUBACCOUNT(5)
------------- ------------- -------------
FROM OPERATIONS
Net investment income (loss)..................................... $ 714 $ 313 $ 6
Net realized gain (loss)......................................... (95) 13 (42)
Net unrealized appreciation (depreciation)....................... 42,539 27,937 (1,321)
---------- ----------- -----------
Net increase (decrease) in net assets resulting from operations.. 43,158 28,263 (1,357)
---------- ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 56,320 5,470 18,608
Participant transfers............................................ 327,978 128,634 31,807
Participant withdrawals.......................................... (7,204) (1,845) (3,714)
---------- ----------- -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 377,094 132,259 46,701
---------- ----------- -----------
Net increase (decrease) in net assets............................ 420,252 160,522 45,344
NET ASSETS
Beginning of period.............................................. 0 0 0
---------- ----------- -----------
End of period.................................................... $ 420,252 $ 160,522 $ 45,344
========== =========== ===========
WANGER WANGER
U.S. INTERNATIONAL TEMPLETON
SMALL CAP SMALL CAP ASSET ALLOCATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT(6)
---------- ---------- -------------
FROM OPERATIONS
Net investment income (loss)..................................... $ 3,549 $ (65) $ (6)
Net realized gain (loss)......................................... (1,009) (452) (2)
Net unrealized appreciation (depreciation)....................... 38,082 5,321 160
---------- ----------- -----------
Net increase (decrease) in net assets resulting from operations.. 40,622 4,804 152
---------- ----------- -----------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 210,511 58,889 98
Participant transfers............................................ 574,375 83,691 5,319
Participant withdrawals.......................................... (40,774) (6,224) (190)
---------- ----------- -----------
Net increase (decrease) in net assets resulting from participant
transactions.................................................. 744,112 136,356 5,227
---------- ----------- -----------
Net increase (decrease) in net assets............................ 784,734 141,160 5,379
NET ASSETS
Beginning of period.............................................. 34,975 4,762 0
---------- ----------- -----------
End of period.................................................... $ 819,709 $ 145,922 $ 5,379
========== =========== ===========
</TABLE>
(1) From inception January 7, 1998 to December 31, 1998
(2) From inception February 3, 1998 to December 31, 1998
(3) From inception May 19, 1998 to December 31, 1998
(4) From inception May 29, 1998 to December 31, 1998
(5) From inception March 20, 1998 to December 31, 1998
(6) From inception November 9, 1998 to December 31, 1998
See Notes to Financial Statements
70
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
STRATEGIC
MONEY MARKET GROWTH ALLOCATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)..................................... $ 621 $ (44) $ 12
Net realized gain................................................ -- 10,696 298
Net unrealized depreciation...................................... -- (8,273) (320)
--------- -------- -------
Net increase (decrease) in net assets resulting from operations.. 621 2,379 (10)
--------- -------- -------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 484,008 101,112 10
Participant transfers............................................ (99,972) 2,352 2,352
Participant withdrawals.......................................... (5,143) (766) --
--------- -------- -------
Net increase in net assets resulting from participant transactions 378,893 102,698 2,362
--------- -------- -------
Net increase in net assets....................................... 379,514 105,077 2,352
NET ASSETS
Beginning of period.............................................. 0 0 0
--------- -------- -------
End of period.................................................... $ 379,514 $105,077 $ 2,352
========= ======== =======
INTERNATIONAL BALANCED REAL ESTATE
SUBACCOUNT SUBACCOUNT SUBACCOUNT
---------- ---------- ----------
FROM OPERATIONS
Net investment income (loss)..................................... $ (1) $ -- $ 228
Net realized gain................................................ 1,690 -- 821
Net unrealized depreciation...................................... (1,611) -- (622)
--------- -------- -------
Net increase in net assets resulting from operations............. 78 -- 427
--------- -------- -------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 2,067 -- 3,791
Participant transfers............................................ 22,053 2,352 24,405
Participant withdrawals.......................................... (11) -- (20)
--------- -------- -------
Net increase in net assets resulting from participant transactions 24,109 2,352 28,176
--------- -------- -------
Net increase in net assets....................................... 24,187 2,352 28,603
NET ASSETS
Beginning of period.............................................. 0 0 0
--------- -------- -------
End of period.................................................... $ 24,187 $ 2,352 $28,603
========= ======== =======
</TABLE>
See Notes to Financial Statements
71
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED DECEMBER 31, 1997
(CONTINUED)
<TABLE>
<CAPTION>
STRATEGIC ENHANCED
THEME INDEX
SUBACCOUNT SUBACCOUNT(1)
---------- -------------
<S> <C> <C>
FROM OPERATIONS
Net investment income............................................ $ -- $ 114
Net realized gain................................................ 63 108
Net unrealized appreciation (depreciation)....................... (64) 200
------ -------
Net increase (decrease) in net assets resulting from operations.. (1) 422
------ -------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 565 1,339
Participant transfers............................................ -- 22,053
Participant withdrawals.......................................... (14) (12)
------ -------
Net increase in net assets resulting from participant transactions 551 23,380
------ -------
Net increase in net assets....................................... 550 23,802
NET ASSETS
Beginning of period.............................................. 0 0
------ -------
End of period.................................................... $ 550 $23,802
====== =======
WANGER WANGER
INTERNATIONAL U.S.
SMALL CAP SMALL CAP
SUBACCOUNT SUBACCOUNT
---------- ----------
FROM OPERATIONS
Net investment loss.............................................. $ (2) $ (6)
Net realized loss................................................ (1) --
Net unrealized appreciation (depreciation)....................... (64) 755
------ -------
Net increase (decrease) in net assets resulting from operations.. (67) 749
------ -------
FROM ACCUMULATION UNIT TRANSACTIONS
Participant deposits............................................. 4,877 9,994
Participant transfers............................................ -- 24,405
Participant withdrawals.......................................... (48) (173)
------ -------
Net increase in net assets resulting from participant transactions 4,829 34,226
------ -------
Net increase in net assets....................................... 4,762 34,975
NET ASSETS
Beginning of period.............................................. 0 0
------ -------
End of period.................................................... $4,762 $34,975
====== =======
</TABLE>
(1) From inception September 22, 1997 to December 31, 1997
See Notes to Financial Statements
72
<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 18 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 Asset
Allocation Series seeks to provide a high level of total return through a
flexible investment policy. Additionally, policyowners also may direct the
allocation of their investments between the Account and the Guaranteed Interest
Account.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
A. VALUATION OF INVESTMENTS: Investments are made exclusively in the Funds
and are valued at the net asset values per share of the respective Series.
B. INVESTMENT TRANSACTIONS AND RELATED INCOME: Realized gains and losses
include capital gain distributions from the Funds as well as gains and losses on
sales of shares in the Funds determined on the LIFO (last in, first out) basis.
C. INCOME TAXES: The Account is not a separate entity from Phoenix and, under
current federal income tax law, income arising from the Account is not taxed
since reserves are established equivalent to such income. Therefore, no
provision for related federal taxes is required.
D. DISTRIBUTIONS: Distributions are recorded on the ex-dividend date.
73
<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................................................................... $13,468,490 $5,460,529
Growth......................................................................... 3,660,092 223,805
Multi-Sector Fixed Income...................................................... 328,288 13,178
Strategic Allocation........................................................... 677,372 57,933
International.................................................................. 983,435 12,278
Balanced....................................................................... 570,026 17,975
Real Estate.................................................................... 222,910 22,782
Strategic Theme................................................................ 38,634 1,393
Aberdeen New Asia.............................................................. 10,270 555
Enhanced Index................................................................. 1,648,032 12,637
Engemann Nifty Fifty........................................................... 131,674 2,044
Seneca Mid-Cap Growth.......................................................... 38,488 4,635
Growth and Income.............................................................. 384,090 6,030
Value Equity .................................................................. 134,217 1,540
Schafer Mid-Cap................................................................ 50,752 4,027
Wanger Advisors Trust:
U.S. Small Cap................................................................. 768,957 20,815
International Small Cap........................................................ 164,182 27,805
Templeton Variable Products Series Fund:
Asset Allocation............................................................... 5,320 92
</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 264,296 25,015 0 845 13,356 1,326
Participant deposits................. 10,657,870 154,376 44,395 85,800 116,169 78,559
Participant transfers................ (4,879,858) 565,855 96,880 112,169 271,983 213,909
Participant withdrawals.............. (442,264) (17,178) (2,617) (2,827) (5,051) (10,157)
---------- ------- ------- ------- ------- -------
Units outstanding, end of period..... 5,600,044 728,068 138,658 195,987 396,457 283,637
========== ======= ======= ======= ======= =======
SENECA
STRATEGIC ABERDEEN ENHANCED ENGEMANN MID-CAP
REAL ESTATE THEME NEW ASIA INDEX NIFTY FIFTY GROWTH
----------- --------- -------- -------- ----------- -------
Units outstanding, beginning of period 18,097 474 0 22,332 0 0
Participant deposits................. 60,088 10,398 5,305 132,489 2,621 17,030
Participant transfers................ 100,427 16,487 10,439 1,146,212 144,169 20,379
Participant withdrawals.............. (16,577) (1,253) (780) (16,666) (2,259) (2,028)
------- ------- ------- --------- ------- -------
Units outstanding, end of period..... 162,035 26,106 14,964 1,284,367 144,531 35,381
======= ======= ======= ========= ======= =======
WANGER WANGER TEMPLETON
GROWTH VALUE SCHAFER U.S. INTERNATIONAL ASSET
AND INCOME EQUITY MID-CAP SMALL CAP SMALL CAP ALLOCATION
---------- ------- ------- --------- ------------ ----------
Units outstanding, beginning of period 0 0 0 26,246 4,745 0
Participant deposits................. 54,019 5,660 22,057 156,203 53,724 100
Participant transfers................ 320,885 147,098 36,037 417,348 73,142 5,318
Participant withdrawals.............. (6,996) (1,955) (4,536) (29,115) (5,632) (194)
------- ------- ------- ------- ------- -------
Units outstanding, end of period..... 367,908 150,803 53,558 570,682 125,979 5,224
======= ======= ======= ======= ======= =======
</TABLE>
74
<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 $116,673 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 loan 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.
75
<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 and
Templeton Asset Allocation (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
76
<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
77
<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:...................... 1.496327
Value of the same account (excluding capital changes) at the
end of the 7-day period:.................................. 1.497271
Calculation:
Ending account value ..................................... 1.497271
Less beginning account value ............................. 1.496327
Net change in account value .............................. 0.000944
Base period return:
(adjusted change/beginning account value) ................ 0.000631
Current yield = return x (365/7) = ......................... 3.29%
Effective yield = [(1 + return)(365/7)] - 1 = .............. 3.34%
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.
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
78
<PAGE>
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>
===================================================================================================================================
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 199(1)
===================================================================================================================================
<CAPTION>
SUBACCOUNT INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index..................... 7/15/97 30.41% N/A N/A 24.27%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International...................... 5/1/90 26.75% 12.33% N/A 10.10%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia........................... 9/17/96 -5.39% N/A N/A -18.10%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities........ 5/1/95 -22.01% N/A N/A 10.89%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty........................ 3/2/98 N/A N/A N/A 24.77%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Balanced............................ 5/1/92 17.87% 12.23% N/A 11.70%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Growth.............................. 1/1/83 28.74% 17.63% 19.13% 18.22%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market........................ 10/10/82 4.06% 3.97% 4.50% 5.41%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income........... 1/1/83 -5.10% 6.00% 8.33% 9.07%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation................ 9/17/84 19.61% 12.15% 13.11% 12.74%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme..................... 1/29/96 43.32% N/A N/A 22.76%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity...................... 3/2/98 N/A N/A N/A 9.81%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income.................. 3/2/98 N/A N/A N/A 19.46%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value....................... 3/2/98 N/A N/A N/A -12.16%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth....................... 3/2/98 N/A N/A N/A 20.79%
- -----------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments (Templeton)............... 11/2/98 N/A N/A N/A 2.47%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation.......................... 11/28/88 5.05% 10.44% 10.96% 10.87%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets........................ 9/15/96 -21.88% N/A N/A -23.08%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton International............................. 5/1/92 7.96% 10.57% N/A 12.95%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Stock..................................... 11/4/88 -0.02% 9.94% 11.02% 10.72%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty................................ 2/1/99 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap...................... 5/1/95 15.20% N/A N/A 20.39%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Twenty....................................... 2/1/99 N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger U.S. Small Cap............................... 5/1/95 7.57% N/A N/A 25.93%
===================================================================================================================================
</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.
79
<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.
80
<PAGE>
<TABLE>
ANNUAL TOTAL RETURN(1)
===========================================================================================================
<CAPTION>
Series 1983 1984 1985 1986 1987 1988 1989 1990
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index N/A N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International N/A N/A N/A N/A N/A N/A N/A -8.63%
- -----------------------------------------------------------------------------------------------------------
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 31.84% 9.79% 33.85% 19.51% 6.08% 3.09% 34.53% 3.32%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 7.51% 9.34% 7.17% 5.66% 5.67% 6.60% 8.03% 7.51%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 5.16% 10.45% 19.65% 18.34% 0.28% 9.61% 6.92% 4.54%
- -----------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation N/A -1.31% 26.33% 14.77% 11.66% 1.53% 18.53% 5.15%
- -----------------------------------------------------------------------------------------------------------
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 0.21% 12.13% -8.95%
- -----------------------------------------------------------------------------------------------------------
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 -0.99% 13.48% -11.99%
- -----------------------------------------------------------------------------------------------------------
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
===========================================================================================================
</TABLE>
<TABLE>
ANNUAL TOTAL RETURN(1) (continued)
============================================================================================================
<CAPTION>
Series 1991 1992 1993 1994 1995 1996 1997 1998
============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index N/A N/A N/A N/A N/A N/A 5.47% 30.65%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International 18.79% -13.52% 37.33% -0.73% 8.72% 17.71% 11.16% 26.93%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia N/A N/A N/A N/A N/A -0.06% -32.94% -5.17%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities N/A N/A N/A N/A 17.19% 32.10% 21.12% -21.82%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty N/A N/A N/A N/A N/A N/A N/A 25.00%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Balanced N/A 9.06% 7.75% -3.61% 22.53% 9.54% 17.00% 18.10%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Growth 41.60% 9.41% 18.75% 0.66% 29.85% 11.69% 20.06% 28.99%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 5.14% 2.75% 2.06% 3.01% 4.86% 4.19% 3.98% 4.27%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 18.66% 9.23% 14.99% -6.21% 22.56% 11.52% 10.21% -4.90%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Allocation 28.27% 9.79% 10.12% -2.19% 17.27% 8.18% 19.78% 19.85%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Strategic Theme N/A N/A N/A N/A N/A 9.55% 16.10% 43.59%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity N/A N/A N/A N/A N/A N/A N/A 10.03%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income N/A N/A N/A N/A N/A N/A N/A 19.68%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value N/A N/A N/A N/A N/A N/A N/A -11.96%
- ------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth N/A N/A N/A N/A N/A N/A N/A 21.02%
- ------------------------------------------------------------------------------------------------------------
Mutual Shares Investments (Templeton) N/A N/A N/A N/A N/A N/A N/A 2.50%
- ------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation 26.42% 6.97% 24.86% -4.00% 21.29% 17.64% 14.37% 5.26%
- ------------------------------------------------------------------------------------------------------------
Templeton Developing Markets N/A N/A N/A N/A N/A 1.05% -29.95% -21.68%
- ------------------------------------------------------------------------------------------------------------
Templeton International N/A -6.80% 45.85% -3.27% 14.56% 22.77% 12.76% 8.17%
- ------------------------------------------------------------------------------------------------------------
Templeton Stock 26.22% 6.02% 32.68% -3.25% 23.97% 21.17% 10.75% 0.19%
- ------------------------------------------------------------------------------------------------------------
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 33.96% 31.15% -2.28% 15.41%
- ------------------------------------------------------------------------------------------------------------
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 16.01% 45.64% 28.34% 7.79%
============================================================================================================
</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.
81
<PAGE>
APPENDIX B
THE GUARANTEED INTEREST ACCOUNT
- -------------------------------------------------------------------------------
Contributions to the GIA under the Policy and transfers to the GIA become
part of the Phoenix General Account (the "General Account"), which supports
insurance and annuity obligations. Because of exemptions and exclusions set
forth in the federal securities laws, interest in the General Account has not
been registered under the 1933 Act nor is the General Account registered as an
investment company under the 1940 Act. Accordingly, neither the General Account
nor any interest it is specifically subject to the provisions of the 1933 or
1940 Acts and the staff of the SEC has not reviewed the disclosures in this
Prospectus concerning the GIA. Disclosures regarding the GIA and the General
Account, however, may be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
The General Account is made up of all of the general assets of Phoenix other
than those allocated to any separate account. 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. The loaned
portion of the GIA will be credited interest at an effective annual rate of 2%
(4% on Policies issued in New York). Phoenix may credit interest at a rate in
excess of 4% per year; however, it is not obligated to credit interest in
excess of 4% per year.
On the last business day of each calendar week, Phoenix will set the excess
interest rate, if any, that will apply to 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 payments. 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 CONTRACT OWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO GIA ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 4%
FOR ANY GIVEN YEAR.
Phoenix is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in Phoenix's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
Policyholders and Contract Owners.
Excess interest, if any, will be credited on the GIA Policy Value. Phoenix
guarantees that, at all times, 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
credit to the GIA, less the sum of all annual administrative or surrender
charges, any applicable premium taxes deducted from the GIA, 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%
82
<PAGE>
APPENDIX C
ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES ("ACCOUNT VALUES") AND CASH
SURRENDER VALUES
- -------------------------------------------------------------------------------
The tables on the following pages illustrate how a Policy's death benefits,
account values and Cash Surrender Value could vary over time assuming constant
hypothetical gross (after tax) annual investment returns of 0%, 6% and 12%. The
Policy benefits will differ from those shown in the tables if the annual
investment returns are not absolutely constant. That is, the figures will be
different if the returns averaged 0% to 12% over a period of years but went
above or below those figures in individual Policy Years. The Policy benefits
also will differ, depending on your premium allocations to each Subaccount of
the VUL Account, if the overall actual rates of return averaged 0% to 12% but
went above or below those figures for the individual Subaccounts. The tables are
for standard risk males and females who have never smoked. 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 have never smoked. Account values
and Cash Surrender Values may be lower for smokers or former smokers or for risk
classes involving higher mortality risk. Planned premium payments are assumed to
be paid at the beginning of each Policy Year. The difference between the Policy
Value and the Cash Surrender Value in the first 10 years is the surrender
charge. Tables are included for death benefit Option 1 and Option 2. Tables also
are included to reflect the blended cost of insurance charge applied under a
Multiple Life Policy.
The death benefit, account value and Cash Surrender Value amounts reflect
the following current charges:
1. Issue charge of $600.
2. Monthly administrative charge of $20 per month. ($20 per month for Face
Amounts of less than or equal to $400,000; $0.05 per thousand for Face
Amounts of $400,001 up to $1,600,000; and $80 per month for Face Amounts
over $1,600,000.)
3. Premium tax charge of 2.25%.
4. A federal tax charge of 1.5%.
5. Cost of insurance charge. The tables illustrate cost of insurance at both
the current rates and at the maximum rates guaranteed in the Policies. (See
"Charges and Deductions--Cost of Insurance.")
6. Mortality and expense risk charge, which is a daily charge equivalent to
.80% on an annual basis (.25% on an annual basis after the 15th Policy
Year), against the VUL Account for mortality and expense risks. (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%. Management may decide to limit the amount of expense
reimbursement in the future. If this 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. (See
"Charges and Deductions--Investment Management Charge.")
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 -1.83%, 4.12% and 10.08%, respectively (applicable for
the first 15 Policy Years for Single Life Policies and -1.29%, 4.70% and 10.68%,
respectively, after the 15th Policy Year for Single Life Policies). For
individual illustrations, interest rates ranging between 0% and 12% may be
selected in place of the 6% rate.
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
Deductions--Other Charges--Taxes.")
The second column of each table shows the amount that would accumulate if an
amount equal to the premiums paid were invested to earn interest, after taxes,
at 5% compounded annually. These tables show that if a Policy is returned in its
very early years for payment of its Cash Surrender Value, that Cash Surrender
Value may be low in comparison to the amount of the premiums accumulated with
interest. Thus, the cost of owning a Policy for a relatively short time may be
high.
On request, we will furnish the Policyowner with a comparable illustration
based on the age and sex of the proposed insured person(s), standard risk
assumptions and the initial face amount and planned premium chosen.
83
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY Page 1 of 2
MALE 35 NEVERSMOKE FACE AMOUNT:$250,000
FEMALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,200
<TABLE>
<CAPTION>
ESTATE EDGE -- A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING CURRENT CHARGES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH CASH CASH
ASSUMED PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
-------- -------- -------- -------- ---------- --------- -------- --------- -------- --------- ---------- ----------
1 1,200 1,260 67 0 250,000 94 0 250,000 122 0 250,000
2 1,200 2,583 903 0 250,000 993 0 250,000 1,087 0 250,000
3 1,200 3,972 1,723 523 250,000 1,928 728 250,000 2,148 948 250,000
4 1,200 5,431 2,528 1,328 250,000 2,902 1,702 250,000 3,316 2,116 250,000
5 1,200 6,962 3,319 2,119 250,000 3,916 2,716 250,000 4,602 3,402 250,000
6 1,200 8,570 4,095 2,943 250,000 4,971 3,819 250,000 6,018 4,866 250,000
7 1,200 10,259 4,856 3,992 250,000 6,070 5,206 250,000 7,575 6,711 250,000
8 1,200 12,032 5,603 5,027 250,000 7,213 6,637 250,000 9,289 8,713 250,000
9 1,200 13,893 6,336 6,048 250,000 8,403 8,115 250,000 11,175 10,887 250,000
10 1,200 15,848 7,054 7,054 250,000 9,642 9,642 250,000 13,251 13,251 250,000
11 1,200 17,901 8,056 8,056 250,000 11,238 11,238 250,000 15,854 15,854 250,000
12 1,200 20,056 9,038 9,038 250,000 12,900 12,900 250,000 18,718 18,718 250,000
13 1,200 22,318 10,000 10,000 250,000 14,628 14,628 250,000 21,869 21,869 250,000
14 1,200 24,694 10,944 10,944 250,000 16,427 16,427 250,000 25,337 25,337 250,000
15 1,200 27,189 11,869 11,869 250,000 18,297 18,297 250,000 29,152 29,152 250,000
16 1,200 29,808 12,845 12,845 250,000 20,355 20,355 250,000 33,534 33,534 250,000
17 1,200 32,559 13,805 13,805 250,000 22,506 22,506 250,000 38,382 38,382 250,000
18 1,200 35,447 14,750 14,750 250,000 24,755 24,755 250,000 43,744 43,744 250,000
19 1,200 38,479 15,677 15,677 250,000 27,106 27,106 250,000 49,676 49,676 250,000
20 1,200 41,663 16,588 16,588 250,000 29,561 29,561 250,000 56,236 56,236 250,000
@ 65 1,200 83,713 24,919 24,919 250,000 64,554 64,554 250,000 195,305 195,305 250,000
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
33.
Death benefit, account value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
premium payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.84%
for 15 years, 1.29% thereafter (includes mortality and expense risk charge of
0.8% for fifteen years, then 0.25% and average fund operating expenses of 1.04%
applicable to the investment Subaccounts of the VUL Separate Account).
Hypothetical gross interest rates are presented for illustrative purposes only
to illustrate funds allocated entirely to the investment Subaccounts of the VUL
Separate Account 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 gross
interest rates illustrated. A Guaranteed Interest Account providing interest at
a minimum guaranteed rate of 4% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
84
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY Page 2 of 2
MALE 35 NEVERSMOKE FACE AMOUNT:$250,000
FEMALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,200
<TABLE>
<CAPTION>
ESTATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING GUARANTEED CHARGES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH CASH CASH
ASSUMED PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
-------- -------- ------- ------- --------- ------- ------- --------- ------- ------- --------- -------
1 1,200 1,260 66 0 250,000 93 0 250,000 121 0 250,000
2 1,200 2,583 900 0 250,000 990 0 250,000 1,084 0 250,000
3 1,200 3,972 1,718 518 250,000 1,922 722 250,000 2,142 942 250,000
4 1,200 5,431 2,518 1,318 250,000 2,890 1,690 250,000 3,304 2,104 250,000
5 1,200 6,962 3,301 2,101 250,000 3,896 2,696 250,000 4,581 3,381 250,000
6 1,200 8,570 4,068 2,916 250,000 4,941 3,789 250,000 5,984 4,832 250,000
7 1,200 10,259 4,817 3,953 250,000 6,025 5,161 250,000 7,525 6,661 250,000
8 1,200 12,032 5,548 4,972 250,000 7,151 6,575 250,000 9,217 8,641 250,000
9 1,200 13,893 6,262 5,974 250,000 8,317 8,029 250,000 11,074 10,786 250,000
10 1,200 15,848 6,957 6,957 250,000 9,527 9,527 250,000 13,114 13,114 250,000
11 1,200 17,901 7,930 7,930 250,000 11,088 11,088 250,000 15,672 15,672 250,000
12 1,200 20,056 8,878 8,878 250,000 12,706 12,706 250,000 18,480 18,480 250,000
13 1,200 22,318 9,799 9,799 250,000 14,382 14,382 250,000 21,563 21,563 250,000
14 1,200 24,694 10,694 10,694 250,000 16,117 16,117 250,000 24,947 24,947 250,000
15 1,200 27,189 11,561 11,561 250,000 17,913 17,913 250,000 28,661 28,661 250,000
16 1,200 29,808 12,468 12,468 250,000 19,878 19,878 250,000 32,919 32,919 250,000
17 1,200 32,559 13,346 13,346 250,000 21,921 21,921 250,000 37,616 37,616 250,000
18 1,200 35,447 14,194 14,194 250,000 24,040 24,040 250,000 42,800 42,800 250,000
19 1,200 38,479 15,007 15,007 250,000 26,237 26,237 250,000 48,517 48,517 250,000
20 1,200 41,663 15,782 15,782 250,000 28,510 28,510 250,000 54,825 54,825 250,000
@ 65 1,200 83,713 19,797 19,797 250,000 57,793 57,793 250,000 186,677 186,677 250,000
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
39.
Death benefit, account value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
premium payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.84%
for 15 years, 1.29% thereafter (includes mortality and expense risk charge of
0.8% for fifteen years, then 0.25% and average fund operating expenses of 1.04%
applicable to the investment Subaccounts of the VUL Separate Account).
Hypothetical gross interest rates are presented for illustrative purposes only
to illustrate funds allocated entirely to the investment Subaccounts of the VUL
Separate Account 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 gross
interest rates illustrated. A Guaranteed Interest Account providing interest at
a minimum guaranteed rate of 4% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
85
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY Page 1 of 2
MALE 35 NEVERSMOKE FACE AMOUNT:$250,000
FEMALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,200
<TABLE>
<CAPTION>
ESTATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING CURRENT CHARGES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH CASH CASH
ASSUMED PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
-------- -------- ------- ------- --------- ------- ------- --------- ------- ------- --------- -------
1 1,200 1,260 67 0 250,067 94 0 250,095 122 0 250,123
2 1,200 2,583 902 0 250,903 992 0 250,993 1,086 0 251,087
3 1,200 3,972 1,723 523 251,723 1,928 728 251,928 2,148 948 252,148
4 1,200 5,431 2,528 1,328 252,529 2,902 1,702 252,902 3,316 2,116 253,317
5 1,200 6,962 3,319 2,119 253,319 3,915 2,715 253,916 4,602 3,402 254,603
6 1,200 8,570 4,095 2,943 254,095 4,971 3,819 254,971 6,017 4,865 256,018
7 1,200 10,259 4,856 3,992 254,856 6,069 5,205 256,070 7,575 6,711 257,575
8 1,200 12,032 5,603 5,027 255,603 7,213 6,637 257,213 9,289 8,713 259,289
9 1,200 13,893 6,335 6,047 256,336 8,403 8,115 258,403 11,175 10,887 261,175
10 1,200 15,848 7,054 7,054 257,054 9,641 9,641 259,641 13,250 13,250 263,250
11 1,200 17,901 8,055 8,055 258,055 11,237 11,237 261,238 15,852 15,852 265,853
12 1,200 20,056 9,037 9,037 259,037 12,898 12,898 262,899 18,716 18,716 268,716
13 1,200 22,318 9,999 9,999 260,000 14,627 14,627 264,627 21,867 21,867 271,867
14 1,200 24,694 10,943 10,943 260,943 16,424 16,424 266,425 25,333 25,333 275,334
15 1,200 27,189 11,867 11,867 261,867 18,294 18,294 268,295 29,147 29,147 279,147
16 1,200 29,808 12,842 12,842 262,842 20,351 20,251 270,351 33,527 33,527 283,527
17 1,200 32,559 13,802 13,802 263,802 22,500 22,500 272,501 38,371 38,371 288,371
18 1,200 35,447 14,745 14,745 264,745 24,747 24,747 274,748 43,729 43,729 293,729
19 1,200 38,479 15,671 15,671 265,672 27,094 27,094 277,095 49,653 49,653 299,654
20 1,200 41,663 16,579 16,579 266,580 29,546 29,546 279,546 56,205 56,205 306,205
@ 65 1,200 83,713 24,786 24,786 274,786 64,181 64,181 314,181 194,122 194,122 444,123
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
33.
Death benefit, account value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
premium payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.84%
for 15 years, 1.29% thereafter (includes mortality and expense risk charge of
0.8% for fifteen years, then 0.25% and average fund operating expenses of 1.04%
applicable to the investment Subaccounts of the VUL Separate Account).
Hypothetical gross interest rates are presented for illustrative purposes only
to illustrate funds allocated entirely to the investment Subaccounts of the VUL
Separate Account 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 gross
interest rates illustrated. A Guaranteed Interest Account providing interest at
a minimum guaranteed rate of 4% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
86
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY Page 2 of 2
MALE 35 NEVERSMOKE FACE AMOUNT:$250,000
FEMALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,200
<TABLE>
ESTATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING GUARANTEED CHARGES
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CASH CASH CASH
ASSUMED PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
-------- -------- ------- ------- --------- ------- ------- --------- ------- ------- --------- -------
1 1,200 1,260 66 0 250,067 93 0 250,094 121 0 250,122
2 1,200 2,583 900 0 250,901 990 0 250,990 1,084 0 251,084
3 1,200 3,972 1,717 517 251,718 1,922 722 251,922 2,142 942 252,142
4 1,200 5,431 2,518 1,318 252,518 2,890 1,690 252,891 3,304 2,104 253,304
5 1,200 6,962 3,301 2,101 253,301 3,896 2,696 253,896 4,581 3,381 254,581
6 1,200 8,570 4,067 2,915 254,068 4,940 3,788 254,941 5,983 4,831 255,984
7 1,200 10,259 4,816 3,952 254,817 6,024 5,160 256,025 7,523 6,659 257,524
8 1,200 12,032 5,547 4,971 255,548 7,149 6,573 257,149 9,215 8,639 259,215
9 1,200 13,893 6,260 5,972 256,260 8,314 8,026 258,315 11,071 10,783 261,071
10 1,200 15,848 6,954 6,954 256,955 9,523 9,523 259,523 13,109 13,109 263,109
11 1,200 17,901 7,926 7,926 257,927 11,082 11,082 261,083 15,664 15,664 265,664
12 1,200 20,056 8,872 8,872 258,873 12,698 12,698 262,698 18,468 18,468 268,468
13 1,200 22,318 9,792 9,792 259,793 14,370 14,370 264,371 21,545 21,545 271,545
14 1,200 24,694 10,685 10,685 260,685 16,101 16,101 266,102 24,921 24,921 274,921
15 1,200 27,189 11,548 11,548 261,549 17,891 17,891 267,891 28,624 28,624 278,624
16 1,200 29,808 12,450 12,450 262,451 19,848 19,848 269,849 32,865 32,865 282,866
17 1,200 32,559 13,323 13,323 263,324 21,879 21,879 271,880 37,541 37,541 287,542
18 1,200 35,447 14,164 14,164 264,164 23,984 23,984 273,985 42,694 42,694 292,694
19 1,200 38,479 14,968 14,968 264,968 26,162 26,162 276,162 48,370 48,370 298,371
20 1,200 41,663 15,731 15,731 265,732 28,411 28,411 278,411 54,621 54,621 304,622
@ 65 1,200 83,713 19,265 19,265 269,265 56,180 56,180 306,181 181,332 181,332 431,333
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
38.
Death benefit, account value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
premium payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.84%
for 15 years, 1.29% thereafter (includes mortality and expense risk charge of
0.8% for fifteen years, then 0.25% and average fund operating expenses of 1.04%
applicable to the investment Subaccounts of the VUL Separate Account).
Hypothetical gross interest rates are presented for illustrative purposes only
to illustrate funds allocated entirely to the investment Subaccounts of the VUL
Separate Account 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 gross
interest rates illustrated. A Guaranteed Interest Account providing interest at
a minimum guaranteed rate of 4% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
87
<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)
UNDER 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 Form S-6 Registration Statement comprises the following papers and
documents:
The facing sheet.
The cross-reference sheet to Form N-8B-2.
The Prospectus describing Phoenix Home Life Mutual Insurance Company Policy
Form V602 and riders thereto, "Estate Edge," consisting of 87 pages.
The undertaking to file reports.
The Rule 484 undertaking.
Representation Pursuant to Section 26(e)(2)(A) of the Investment Company Act
of 1940.
The signature page.
The powers of attorney were filed via Edgar with registrant's Post-Effective
Amendment No. 1 on February 28, 1998 and are incorporated herein by
reference.
Written consents 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 Depositor establishing the
VUL Account is incorporated herein by reference to Registration
Statement on Form S-6, Registration No. 33-23251, filed on July 21,
1988.
(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 Registrant's
Registration Statement on Form S-6 filed on March 12, 1997.
(b) Form of Broker Dealer Supervisory and Service Agreement
between Phoenix Equity Planning Corporation and Independent
Brokers with respect to the sale of Policies, filed via Edgar
with Pre-Effective Amendment No. 1 on September 10, 1997.
(c) Not Applicable.
(4) Not Applicable.
(5) Specimen Policies with optional riders.
Flexible Premium Variable Universal Life Insurance Policy Form
Number V602 of Depositor, filed via Edgar with Pre-Effective
Amendment No. 1 on September 10, 1997.
(6) (a) Charter of Phoenix Home Life Mutual Insurance Company is
incorporated herein by reference to Post-Effective Amendment
No. 12 to Form S-6, Registration No. 33-23251, filed on
February 13, 1996.
(b) By-laws of Phoenix Home Life Mutual Insurance Company is
incorporated herein by reference to Post- Effective Amendment
No. 12 to Form -6, Registration No. 33-23251, filed on
February 13, 1996.
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) Form of application for Estate Edge, filed via Edgar with
Pre-Effective Amendment No. 1, filed on September 10, 1997.
(11) 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
Registrant's Registration Statement on Form S-6 filed on March 12,
1997.
II-2
<PAGE>
2. Opinion of Edwin L. Kerr, Esq., Counsel of Depositor as to the legality of
the securities being registered, filed via Edgar with Pre-Effective
Amendment No. 2 on September 15, 1997 and incorporated herein by
reference.
3. Not Applicable. No financial statement will be omitted from the Prospectus
pursuant to Instruction 1(b) or (c) of Part I.
4. Not Applicable.
5. Not Applicable.
6. Consent of PricewaterhouseCoopers, LLP.*
7. Consent of Edwin L. Kerr, Esq.*
8. Consent 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
the requirements for effectiveness of this Registration Statement under Rule
485(b) of the Securities Act and has duly caused this Registration Statement to
be signed on its behalf by the undersigned thereunto duly authorized, in the
City of Hartford, State of Connecticut on the 29th day of April, 1999.
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
-------------------------------------------------
(Registrant)
By: PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
--------------------------------------------
(Depositor)
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 indicated on the 29th day of April, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Director
---------------------------------------
*Sal H. Alfiero
Director
---------------------------------------
*J. Carter Bacot
Director
---------------------------------------
*Richard H. Booth
Director
---------------------------------------
*Peter C. Browning
Director
---------------------------------------
*Arthur P. Byrne
Director
---------------------------------------
*Richard N. Cooper
Director
---------------------------------------
*Gordon J. Davis
--------------------------------------- Chairman of the Board, President and Chief
*Robert W. Fiondella Executive Officer (Principal Executive Officer)
Director
---------------------------------------
*Jerry J. Jasinowski
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Director
---------------------------------------
*John W. Johnstone
Director
---------------------------------------
*Marilyn E. LaMarche
Director
---------------------------------------
*Philip R. McLoughlin
Director
---------------------------------------
*Indra Nooyi
--------------------------------------- Executive Vice President and Chief Financial
*David W. Searfoss Officer (Principal Accounting and Financial Officer
Director
---------------------------------------
*Robert F. Vizza
Director
---------------------------------------
*Robert G. Wilson
Director
---------------------------------------
*Dona D. Young
</TABLE>
By: /s/ Dona D. Young
------------------------------------------------
*DONA D. YOUNG AS ATTORNEY-IN-FACT PURSUANT TO POWERS OF ATTORNEY, PREVIOUSLY
FILED.
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. 4 to the Registration Statement on Form S-6 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
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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. 2 to the
Registration Statement on Form N-4 (File No. 333-12989) filed by Phoenix Life
and Annuity Variable Universal 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 Life and Annuity Company
EXHIBIT 8
CONSENT OF PAUL FISCHER, FSA, CLU, CHFC
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April 29, 1999
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. 333-23171) 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
