As filed with the Securities and Exchange Commission on March 10, 2000
Registration Nos. 333-86921
811-4721
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2 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
(Address of depositor's principal executive offices)
Dona D. Young, Esq.
Phoenix Home Life Mutual Insurance Company
One American Row, PO Box 5056
Hartford, CT 06102-5056
(Name and complete address of agent for service)
Copy to:
Edwin L. Kerr, Esq.
Phoenix Home Life Mutual Insurance Company
One American Row, PO Box 5056
Hartford, CT 06102-5056
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485;
[ ] on (____) pursuant to paragraph (b) of Rule 485;
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485; 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.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Title of securities being registered: Flexible premium variable universal
life policies.
Approximate date of proposed public offering: As soon as practicable after
the effective date of this Registration Statement.
================================================================================
<PAGE>
[VERSION A]
PHOENIX
CORPORATE EDGE
VARIABLE UNIVERSAL LIFE
INSURANCE POLICY
Issued by
PHOENIX HOME LIFE
MUTUAL INSURANCE COMPANY
IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT US AT:
[envelope] ANDESA TPA, INC.
1605 N CEDAR CREST BLVD, SUITE 502
ALLENTOWN, PA 18104
[phone] 610/439-5256
PROSPECTUS MARCH __, 2000
This prospectus describes an individual flexible premium variable universal
life insurance policy. The policy provides lifetime insurance protection for as
long as it remains in force.
You may allocate net premiums and cash value to one or more of the
subaccounts of the VUL Account and the Guaranteed Interest Account ("GIA"). The
assets of each subaccount will be used to purchase, at net asset value, shares
of a series in the following designated underlying funds.
THE PHOENIX EDGE SERIES FUND
- ----------------------------
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
[diamond] Phoenix-Aberdeen International Series
[diamond] Phoenix-Engemann Capital Growth Series
[diamond] Phoenix-Engemann Nifty Fifty Series
[diamond] Phoenix-Goodwin Money Market Series
[diamond] Phoenix-Goodwin Multi-Sector Fixed Income Series
[diamond] Phoenix-Hollister Value Equity Series
[diamond] Phoenix-Oakhurst Balanced Series
[diamond] Phoenix-Oakhurst Growth and Income Series
[diamond] Phoenix-Oakhurst Strategic Allocation Series
[diamond] Phoenix-Seneca Mid-Cap Growth Series
[diamond] Phoenix-Seneca Strategic Theme Series
MANAGED BY PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
[diamond] Phoenix-Aberdeen New Asia Series
MANAGED BY DUFF & PHELPS INVESTMENT MANAGEMENT CO.
[diamond] Phoenix-Duff & Phelps Real Estate Securities Series
MANAGED BY PHOENIX VARIABLE ADVISORS, INC.
[diamond] Phoenix Research Enhanced Index Series
[diamond] Phoenix-Bankers Trust Dow 30 Series
[diamond] Phoenix-Federated U.S. Government Bond Series
[diamond] Phoenix-Janus Equity Income Series
[diamond] Phoenix-Janus Flexible Income Series
[diamond] Phoenix-Janus Growth Series
[diamond] Phoenix-Morgan Stanley Focus Equity Series
[diamond] Phoenix-Schafer Mid-Cap Value Series
BT INSURANCE FUNDS TRUST
- ------------------------
MANAGED BY BANKERS TRUST COMPANY
[diamond] EAFE(R) Equity Index Fund
FEDERATED INSURANCE SERIES
- --------------------------
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
[diamond] Federated Fund for U.S. Government Securities II
[diamond] Federated High Income Bond Fund II
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
- ------------------------------------------------
MANAGED BY MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
[diamond] Technology Portfolio
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- ---------------------------------------
MANAGED BY TEMPLETON INVESTMENT COUNSEL, INC.
[diamond] Templeton Asset Allocation Fund -- Class 2
[diamond] Templeton International Fund -- Class 2
[diamond] Templeton Stock Fund -- Class 2
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
[diamond] Templeton Developing Markets Fund -- Class 2
MANAGED BY FRANKLIN MUTUAL ADVISERS, LLC
[diamond] Mutual Shares Investments Fund -- Class 2
WANGER ADVISORS TRUST
- ---------------------
MANAGED BY WANGER ASSET MANAGEMENT, L.P.
[diamond] Wanger Foreign Forty
[diamond] Wanger International Small Cap
[diamond] Wanger Twenty
[diamond] Wanger U.S. Small Cap
1
<PAGE>
It may not be in your best interest to purchase a 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.
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.
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.
2
<PAGE>
TABLE OF CONTENTS
Heading Page
- --------------------------------------------------------------
PART I--GENERAL POLICY PROVISIONS........................ 5
SUMMARY ........................................... 5
Availability.................................... 5
Underwriting.................................... 5
Charges Under the Policy........................ 5
Deductions From Premiums........................ 7
Sales Charge................................ 7
State Premium Tax Charge.................... 7
Deferred Acquisition Cost ("DAC") Tax
Charge..................................... 7
Policy Value Charges............................ 7
Administrative Charge....................... 7
Cost of Insurance........................... 7
Mortality and Expense Risk Fee.............. 7
Rider Charge................................ 7
Charges for Federal Income Taxes............ 7
Fund Charges................................ 7
Other Charges................................... 9
Partial Surrender Fee....................... 9
Loan Interest Rate Expense Charge........... 9
Reduction in Charges............................ 9
PHOENIX HOME LIFE MUTUAL INSURANCE
COMPANY AND THE VUL ACCOUNT........................ 9
Phoenix......................................... 9
The VUL Account................................. 9
PERFORMANCE HISTORY................................. 9
INVESTMENTS OF THE VUL ACCOUNT...................... 9
Participating Investment Funds.................. 9
The Phoenix Edge Series Fund................ 9
BT Insurance Funds Trust.................... 11
Federated Insurance Series.................. 11
Morgan Stanley Dean Witter Universal
Funds, Inc................................. 11
Templeton Variable Products Series Fund..... 11
Wanger Advisors Trust....................... 11
Investment Advisors............................. 12
Services of the Advisors........................ 13
Reinvestment and Redemption..................... 13
Substitution of Investments..................... 13
The GIA......................................... 13
PREMIUMS............................................ 14
Minimum Premiums................................ 14
Allocation of Issue Premium..................... 14
Free Look Period................................ 14
Account Value................................... 14
Transfer of Policy Value.................... 14
Systematic Transfers for Dollar Cost
Averaging.................................. 15
Automatic Asset Re-Balancing.................... 15
Determination of Subaccount Values.............. 15
Death Benefit Under the Policy.................. 16
Minimum Face Amount......................... 16
Death Benefit Options....................... 16
Changes in Face Amount of Insurance............. 16
Requests for Increase in Face Amount........ 16
Decreases in Face Amount and Partial
Surrenders: Effect on Death Benefit............ 17
Requests for Decrease in Face Amount........ 17
Surrenders...................................... 17
General..................................... 17
Full Surrenders............................. 17
Partial Surrenders.......................... 17
Policy Loans.................................... 17
Source of Loan.............................. 17
Interest.................................... 18
Interest Credited on Loaned Value........... 18
Repayment................................... 18
Effect of Loan.............................. 18
Lapse........................................... 18
Additional Insurance Option..................... 18
Additional Rider Benefits....................... 18
PART II--ADDITIONAL POLICY PROVISIONS................... 19
Postponement of Payments........................ 19
Payment by Check................................ 19
The Contract.................................... 19
Suicide......................................... 19
Incontestability................................ 19
Change of Owner or Beneficiary.................. 19
Assignment...................................... 19
Misstatement of Age or Sex...................... 20
Surplus......................................... 20
PAYMENT OF PROCEEDS................................. 20
Surrender and Death Benefit Proceeds............ 20
Payment Options................................. 20
Option 1--Lump sum.......................... 20
Option 2--Left to earn interest............. 20
Option 3--Payment for a specific period..... 20
Option 4--Life annuity with specified
period certain............................. 20
Option 5--Life annuity...................... 20
Option 6--Payments of a specified amount.... 20
Option 7--Joint survivorship annuity with
10-year period certain..................... 21
PART III--OTHER IMPORTANT INFORMATION................... 21
FEDERAL TAX CONSIDERATIONS.......................... 21
Introduction.................................... 21
Phoenix's Tax Status............................ 21
Policy Benefits................................. 21
Death Benefit Proceeds...................... 21
Full Surrender.............................. 21
Partial Surrender........................... 22
Loans....................................... 22
Business-Owned Policies......................... 22
Modified Endowment Contracts.................... 22
General..................................... 22
3
<PAGE>
Reduction in Benefits During the
First Seven Years.......................... 22
Distributions Affected...................... 22
Penalty Tax................................. 22
Material Change Rules....................... 22
Serial Purchase of Modified
Endowment Contracts........................ 23
Limitations on Unreasonable Mortality and
Expense Charges................................ 23
Diversification Standards....................... 23
Change of Ownership or Insured or
Assignment..................................... 24
Other Taxes..................................... 24
VOTING RIGHTS ...................................... 24
THE DIRECTORS AND EXECUTIVE OFFICERS OF
PHOENIX............................................ 24
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS ............ 26
SALES OF POLICIES .................................. 26
STATE REGULATION ................................... 26
REPORTS ............................................ 26
LEGAL PROCEEDINGS .................................. 26
LEGAL MATTERS ...................................... 26
REGISTRATION STATEMENT ............................. 26
FINANCIAL STATEMENTS ............................... 26
APPENDIX A--GLOSSARY OF SPECIAL TERMS............... 71
APPENDIX B--PERFORMANCE HISTORY..................... 72
APPENDIX C--ILLUSTRATIONS OF DEATH BENEFITS,
POLICY VALUES ("ACCOUNT VALUES") AND
CASH SURRENDER VALUES.............................. 76
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESPERSON, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
4
<PAGE>
PART I--GENERAL POLICY PROVISIONS
- -------------------------------------------------------------------------------
SUMMARY
- -------------------------------------------------------------------------------
This is a summary that describes the general provisions of the policy.
Certain provisions of the policy described in this prospectus may differ in
a particular state because of specific state requirements.
Throughout the prospectus, Phoenix Home Life Mutual Insurance Company is
referred to as Phoenix, we, us, or our and the policyholder is referred to as
you or your.
We define the following terms in the Glossary of Appendix A:
ATTAINED AGE POLICY ANNIVERSARY
BENEFICIARY POLICY DATE
DEBT POLICY VALUE
FUNDS POLICY YEAR
GENERAL ACCOUNT SERIES
ISSUE PREMIUM SUBACCOUNTS
MONTHLY CALCULATION DATE TARGET PREMIUM
NET ASSET VALUE VALUATION DATE
PAYMENT DATE VALUATION PERIOD
PLANNED ANNUAL PREMIUM VUL ACCOUNT (ACCOUNT)
If there is ever a difference between the provisions within this prospectus
and the provisions of the policy, the policy provisions will control.
AVAILABILITY
The policy is available on a "case" basis. We may consider one person as a
case. All policies within a case are aggregated for purposes of determining
policy dates, loan rates and underwriting requirements. If an individual owns
the policy as part of a case, he or she may exercise all rights under the policy
through their employer or sponsoring organization. After termination of
employment or other such relationship, the individual may exercise such rights
directly with us.
For fully underwritten policies, the age of the insured at the time of issue
generally must be between ages 18 through 85 as of his or her birthday nearest
the policy anniversary.
For policies that are underwritten using simplified or guaranteed issue
programs, generally the maximum age of the insured at the time of issue is age
70 for simplified and 64 for guaranteed issue.
The minimum face amount of insurance per policy issued is $50,000.
You can purchase a policy to insure the life of another person provided that
you have an insurable interest in that life and the prospective Insured
consents.
UNDERWRITING
Currently, we offer three types of underwriting:
[diamond] Fully underwritten;
[diamond] Simplified issue underwriting; and
[diamond] Guaranteed issue underwriting.
Your cost of insurance charges will vary based on the type of underwriting
we use.
CHARGES UNDER THE POLICY
We deduct certain charges from your policy to compensate us for:
1. our expenses in selling the policy;
2. underwriting and issuing the policy;
3. premium and federal taxes incurred on premiums received;
4. providing insurance benefits under your policy; and
5. assuming certain risks in connection with the policy.
These charges are summarized below. These charges are described more fully
following this chart.
5
<PAGE>
<TABLE>
<CAPTION>
CHARGES UNDER THE POLICY
- --------------------------------------------------------------------------------------------------------------------------------
CHARGES CURRENT RATE GUARANTEED RATE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEDUCTIONS FROM SALES CHARGE Policy years 1 - 7: 7.0% of premiums up Policy years 1 - 7: 9.0% of premiums.
PREMIUMS to the Target Premium and 0% on amounts Policy year 8+: 3.0% of all premiums.
in excess of the Target Premium.
Policy year 8+: 0% of all premiums.
----------------------------------------------------------------------------------------------------------
STATE PREMIUM 0.75% to 4.0% of each premium depending This charge will always equal the
TAX on your state's applicable rate. applicable state rate.
----------------------------------------------------------------------------------------------------------
DEFERRED ACQUISITION 1.5% of each premium. 1.5% of each premium.
COST TAX CHARGE
(FEDERAL DAC TAX)
- ---------------------------------------------------------------------------------------------------------------------------------
POLICY VALUE CHARGES ADMINISTRATIVE CHARGE $5 per month ($60 annually) $10 per month ($120 annually) except
New York, $7.50 per month ($90
annually)
- ---------------------------------------------------------------------------------------------------------------------------------
COST OF INSURANCE A per thousand rate multiplied by the The maximum monthly cost of insurance
CHARGE amount at risk each month. This charge charge for each $1,000 of insurance is
varies by the Insured's issue age, shown on your policy's schedule pages.
policy duration, gender and
underwriting class.
----------------------------------------------------------------------------------------------------------
MORTALITY AND EXPENSE 0.50% annually in policy years 1-10 0.90% annually in all policy years
RISK CHARGE 0.25% annually in policy years 11+
----------------------------------------------------------------------------------------------------------
FUND CHARGES SEE FUND CHARGE TABLE SEE FUND CHARGE TABLE
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER CHARGES PARTIAL SURRENDER FEE None 2.0% of the amount withdrawn, but not
greater than $25.
- ---------------------------------------------------------------------------------------------------------------------------------
TRANSFERS BETWEEN None $10 per transfer after the first 2
SUBACCOUNTS transfers in any given policy year,
(after 12 transfers in New York).
----------------------------------------------------------------------------------------------------------
LOAN INTEREST RATE The rates in effect before the 16th The Guaranteed rates before the Insured
CHARGED policy year and before the Insured reaches 65 for all states are:
reaches age 65 in all states except Policy year 1 - 10: 4.75%
New York and New Jersey are: Policy year 11 - 15: 4.50%
Policy year 1 - 10: 2.75% Policy year 16+: 4.25%
Policy year 11 - 15: 2.50%
Policy year 16+: 2.25%
The rates in effect before the 16th
policy year and before the Insured
reaches age 65 in New York and
New Jersey are:
Policy year 1 - 10: 4.75%
Policy year 11 - 15: 4.50%
Policy year 16+: 4.25%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
DEDUCTIONS FROM PREMIUMS
Before we allocate your premium to the subaccounts or the GIA we deduct a
sales charge, a state premium tax and a federal tax to cover the estimated cost
to us for deferred acquisition costs.
SALES CHARGE
We deduct a sales charge from your premium for the costs we incur in the
sales and distribution of the policies.
STATE PREMIUM TAX CHARGE
States assess premium taxes at various rates. We deduct the applicable state
rate from each premium to cover the cost of the premium taxes assessed against
us by the state.
We may increase or decrease this charge if there is a change in the tax or
change of residence.
DEFERRED ACQUISITION COST ("DAC") TAX CHARGE
This tax is associated with our federal tax liability under Internal Revenue
Code Section 848.
POLICY VALUE CHARGES
On each monthly calculation day, we deduct from your policy value the
following charges:
1. Administrative Charge
2. Cost of Insurance Charge
3. Mortality and Expense Risk Fee
4. A charge for the cost of riders if applicable
The amount deducted is allocated among the subaccounts and the unloaned
portion of the GIA based on an allocation schedule specified by you. You
initially choose this schedule in your application.
1. ADMINISTRATIVE CHARGE
We assess a monthly charge for the expenses we incur in administering the
policy. This charge reimburses us for the cost of daily administration for
services such as billing and collections, monthly processing, updating daily
values and communicating with policyholders.
2. COST OF INSURANCE
We deduct a charge to cover the cost of insurance coverage on each monthly
calculation date. This charge is based on:
[diamond] Insured's gender;
[diamond] Insured's age at issue;
[diamond] Policy year in which we make the deduction;
[diamond] Insured's tobacco use classification;
[diamond] Rating class of the policy; and
[diamond] Underwriting classification of the case.
To determine the monthly cost of insurance, we multiply the appropriate cost
of insurance rate by the difference between your policy's death benefit and the
policy value. 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.
3. MORTALITY AND EXPENSE RISK FEE
We charge the subaccounts for the mortality and expense risks we assume.
This charge is deducted from the value of each subaccount's assets attributable
to the policies.
The mortality risk we assume is that the group of lives we insure under our
policies may, on average, live for a shorter period of time than we estimated.
The expense risk we assume is that our cost of issuing and administering the
policies may be more than we estimated.
If all the money we collect from this charge is not required to cover the
cost of death benefits and other expenses, it will be a gain to us. If the money
we collect is not enough to cover our costs, we will still provide for death
benefits and expenses.
4. RIDER CHARGE
We will deduct any applicable monthly rider charges for the additional
benefit provided to you by the rider.
CHARGES FOR FEDERAL INCOME TAXES
We currently do not charge the VUL Account for federal income taxes
attributable to it. In the future, we may charge to cover these or any other tax
liability of the VUL Account.
FUND CHARGES
Please refer to the following chart for a listing of fund charges.
7
<PAGE>
FUND ANNUAL EXPENSES
(For the year ending December 31, 1999)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES TOTAL EXPENSES TOTAL EXPENSES
SERIES MANAGEMENT RULE 12B-1 BEFORE BEFORE AFTER
FEES FEES REIMBURSEMENT(1) REIMBURSEMENT REIMBURSEMENT(2)
- -------------------------------------------------------------------------------------------------------------------------------
THE PHOENIX EDGE SERIES FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index .45% N/A .30% .75% .55%
Phoenix-Aberdeen International .75% N/A .26% 1.01% 1.01%
Phoenix-Aberdeen New Asia 1.00% N/A 1.39% 2.39% 1.25%
Phoenix-Bankers Trust Dow 30 .35% N/A 7.46% 7.81% .50%
Phoenix-Duff & Phelps Real Estate Securities .75% N/A .56% 1.31% 1.00%
Phoenix-Engemann Capital Growth .62% N/A .06% .68% .68%
Phoenix-Engemann Nifty Fifty .90% N/A .53% 1.43% 1.05%
Phoenix-Federated U.S. Government Bond .60% N/A 7.61% 8.21% .75%
Phoenix-Goodwin Money Market .40% N/A .17% .57% .55%
Phoenix-Goodwin Multi-Sector Fixed Income .50% N/A .21% .71% .65%
Phoenix-Hollister Value Equity .70% N/A 1.33% 2.03% .85%
Phoenix-Janus Equity Income .85% N/A 17.96% 18.81% 1.00%
Phoenix-Janus Flexible Income .80% N/A 7.38% 8.18% .95%
Phoenix-Janus Growth .85% N/A 16.44% 17.29% 1.00%
Phoenix-Morgan Stanley Focus Equity .85% N/A 7.26% 8.11% 1.00%
Phoenix-Oakhurst Balanced .54% N/A .16% .70% .70%
Phoenix-Oakhurst Growth and Income .70% N/A .31% 1.01% .85%
Phoenix-Oakhurst Strategic Allocation .58% N/A .12% .70% .70%
Phoenix-Schafer Mid-Cap Value 1.05% N/A 1.53% 2.58% 1.20%
Phoenix-Seneca Mid-Cap Growth .80% N/A 1.24% 2.04% 1.05%
Phoenix-Seneca Strategic Theme .75% N/A .22% .97% .97%
BT INSURANCE FUNDS TRUST
- -------------------------------------------------------------------------------------------------------------------------------
EAFE(R) Equity Index Fund .45% N/A .69% 1.15% .65%
FEDERATED INSURANCE SERIES
- -------------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government Securities II .60% N/A .43% 1.03% .78%
Federated High Income Bond Fund II .60% N/A .44% 1.04% .79%
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
- -------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio .79% N/A 11.78% 12.57% 1.15%
TEMPLETON VARIABLE PRODUCTS SERIES FUND(3)
- -------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments Fund-- Class 2(4) .60% .25% 1.00% 1.91% 1.25%
Templeton Asset Allocation Fund-- Class 2 .60% .25% .14% .99% .99%
Templeton Developing Markets Fund-- Class 2 1.25% .25% .25% 1.75% 1.75%
Templeton International Fund-- Class 2 .69% .25% .16% 1.10% 1.10%
Templeton Stock Fund-- Class 2 .70% .25% .05% 1.00% 1.00%
WANGER ADVISORS TRUST
- -------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty 1.00% N/A 2.45% 3.45% 1.45%
Wanger International Small Cap 1.25% N/A .24% 1.49% 1.49%
Wanger Twenty .95% N/A 1.17% 2.12% 1.35%
Wanger U.S. Small Cap .95% N/A .07% 1.02% 1.02%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Each series pays a portion or all of its expenses other than the management
fee. The Phoenix Research Enhanced Index Series will pay up to .10%; the
Phoenix-Engemann Capital Growth, Phoenix-Goodwin Multi-Sector Fixed Income,
Phoenix-Oakhurst Strategic Allocation, Phoenix-Goodwin Money Market,
Phoenix-Oakhurst Balanced, Phoenix-Engemann Nifty Fifty, Phoenix-Oakhurst
Growth and Income, Phoenix-Hollister Value Equity and Phoenix-Schafer Mid-Cap
Value, Phoenix-Bankers Trust Dow 30, Phoenix-Federated U.S. Government Bond,
Phoenix-Janus Equity Income, Phoenix-Janus Flexible Income, Phoenix-Janus
Growth and Phoenix-Morgan Stanley Focus Equity Series will pay up to .15%;
the Phoenix-Duff & Phelps Real Estate Securities, Phoenix-Seneca Strategic
Theme, Phoenix-Aberdeen New Asia, and Phoenix-Seneca Mid-Cap Growth Series
will pay up to .25%; and the Phoenix-Aberdeen International Series will pay
up to .40%. The Wanger Foreign Forty will pay up to .45%, the Wanger U.S.
Small Cap Series will pay up to .50%, the Wanger International Small Cap will
pay up to .60%, and the Wanger Twenty will pay up to .40%.
2 Reflects the effect of any management fee waivers and reimbursement of
expenses.
3 The fund's class 2 distribution plan or "rule 12b-1 plan" is described in the
fund's prospectus. On 2/8/00, the fund's shareholders approved a merger and
reorganization that will, on or about 5/1/00, combine the fund with a similar
fund of the Franklin Templeton Variable Insurance Products Trust ("FTVIPT").
As of 5/1/00, the expenses of the fund will be based on the combined assets
of both funds. Based on pro-forma financial statements for the combined funds
as of 12/31/99, which used expense rates of the surviving FTVIPT fund as of
that date, the fund's management fees, other expenses and total operating
expenses after 5/1/00 are estimated to be:
<TABLE>
<CAPTION>
Management Other Total
Estimated Annual Expenses from 5/1/00 Fees Expenses Operating Expenses
<S> <C> <C> <C>
Mutual Shares Investments Fund -- Class 2 0.60% 0.19% 1.04%
Asset Allocation Fund -- Class 2 0.65% 0.17% 1.07%
Developing Markets Fund -- Class 2 1.25% 0.14% 1.64%
International Fund -- Class 2 0.85% 0.07% 1.17%
Stock Fund -- Class 2 0.80% 0.05% 1.10%
</TABLE>
4 The manager and administrator agreed in advance to waive or limit their
respective fees, and the manager to assume as its own expense certain
expenses otherwise payable by the fund. With this reduction, management
fees after reimbursement were 0.00% and total operating expenses were 1.25%.
After 12/31/00, the manager and administrator may end this arrangement at
any time.
8
<PAGE>
OTHER CHARGES
PARTIAL SURRENDER FEE
We reserve the right to deduct a charge from each withdrawal.
LOAN INTEREST RATE EXPENSE CHARGE
We deduct a charge from the loan interest rate. This charge reimburses us
for expenses we incur in administering your loan. This rate varies by policy
year.
REDUCTION IN CHARGES
The policy is available for purchase by individuals, corporations and other
groups. For group or sponsored arrangements (including our employees and their
family members) and for special exchange programs that we may make available, we
reserve the right to reduce or eliminate the sales load, mortality and expense
risk charge, monthly administrative charge, monthly cost of insurance charges or
other charges normally assessed on certain multiple life cases where it is
expected that the size or nature of such cases will result in savings of sales,
underwriting, administrative or other costs.
Eligibility for the amount of these reductions will be determined by a
number of factors, including the number of Insureds, the total premium expected
to be paid, the total assets under management for the policyowner, the nature of
the relationship among individual Insureds, the purpose for which the policies
are being purchased, the expected persistency of individual policies, and other
circumstances which in our opinion are rationally related to the expected
reduction in expenses. Any variations in the charge structure will be determined
in a uniform manner reflecting differences in costs of services and not unfairly
discriminatory to policyholders.
PHOENIX HOME LIFE MUTUAL INSURANCE
COMPANY AND THE VUL ACCOUNT
- -------------------------------------------------------------------------------
PHOENIX
We are a mutual life insurance company originally chartered in Connecticut
in 1851 and redomiciled to New York in 1992. Our executive office is at One
American Row, Hartford, Connecticut 06102-5056 and our main administrative
office is at 100 Bright Meadow Boulevard, Enfield, Connecticut 06083-1900. Our
New York principal office is 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, established 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"), as
amended, and meets the definition of a "separate account" under that Act. This
registration does not involve supervision of the management of the VUL Account
or Phoenix by the SEC.
The VUL Account is divided into subaccounts each of which is available for
allocation of policy value. Each subaccount will invest solely in shares of a
specific series of a mutual fund. In the future, we may establish additional
subaccounts which will be made available to existing policyowners to the extent
and on a basis decided by us. See "Investments of the VUL Account--Participating
Investment Funds."
We do not guarantee the investment performance of the VUL Account or any of
its subaccounts. Contributions to the overall policy value allocated to the VUL
Account depend on the chosen fund's investment performance. Thus, you bear the
full investment risk for all monies invested in the VUL Account.
The VUL Account is part of the general business of Phoenix, but the gains or
losses of the VUL Account belong solely to the VUL Account. The gains or losses
of any other business we may conduct do 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 are general corporate obligations of Phoenix.
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 B" for more information.
INVESTMENTS OF THE VUL ACCOUNT
- -------------------------------------------------------------------------------
PARTICIPATING INVESTMENT FUNDS
THE PHOENIX EDGE SERIES FUND
Certain subaccounts invest in corresponding series of The Phoenix Edge
Series Fund. The following series are currently available:
PHOENIX 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.
9
<PAGE>
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-BANKERS TRUST DOW 30 SERIES: The series seeks to track the total
return of the Dow Jones Industrial Average (the "DJIA(SM)") before fund
expenses.
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES: The investment
objective of the series is to seek capital appreciation and income with
approximately equal emphasis. Under normal circumstances, it invests in
marketable securities of publicly traded real estate investment trusts (REITs)
and companies that operate, develop, manage and/or invest in real estate located
primarily in the United States.
PHOENIX-ENGEMANN CAPITAL GROWTH SERIES: The investment objective of the
series is to achieve intermediate and long-term growth of capital, with income
as a secondary consideration. The Phoenix-Engemann Capital Growth Series invests
principally in common stocks of corporations believed by management to offer
growth potential.
PHOENIX-ENGEMANN NIFTY FIFTY SERIES: The investment objective of the series
is to seek long-term capital appreciation by investing in approximately 50
different securities which offer the best potential for long-term growth of
capital. At least 75% of the series' assets will be invested in common stocks of
high quality growth companies. The remaining portion will be invested in common
stocks of small corporations with rapidly growing earnings per share or common
stocks believed to be undervalued.
PHOENIX-FEDERATED U.S. GOVERNMENT BOND SERIES: The investment objective of
the series is to maximize total return by investing primarily in debt
obligations of the U.S. Government, its agencies and instrumentalities.
PHOENIX-GOODWIN MONEY MARKET SERIES: The investment objective of the series
is to provide maximum current income consistent with capital preservation and
liquidity. The Phoenix-Goodwin Money Market Series invests exclusively in high
quality money market instruments.
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES: The investment objective
of the series is to seek long-term total return. The Phoenix-Goodwin
Multi-Sector Fixed Income Series seeks to achieve its investment objective by
investing in a diversified portfolio of high yield and high quality fixed income
securities.
PHOENIX-HOLLISTER VALUE EQUITY SERIES: The primary investment objective of
the series is long-term capital appreciation, with a secondary investment
objective of current income. The Phoenix-Hollister Value Equity Series seeks to
achieve its objective by investing in a diversified portfolio of common stocks
that meet certain quantitative standards that indicate above average financial
soundness and intrinsic value relative to price.
PHOENIX-JANUS EQUITY INCOME SERIES: The investment objective of the series
is to seek current income and long-term growth of capital.
PHOENIX-JANUS FLEXIBLE INCOME SERIES: The investment objective of the series
is to seek to obtain maximum total return, consistent with preservation of
capital.
PHOENIX-JANUS GROWTH SERIES: The investment objective of the series is to
seek long-term growth of capital, in a manner consistent with the preservation
of capital.
PHOENIX-MORGAN STANLEY FOCUS EQUITY SERIES: The investment objective of the
series is to seek capital appreciation by investing primarily in equity
securities.
PHOENIX-OAKHURST BALANCED SERIES: The investment objective of the series is
to seek reasonable income, long-term capital growth and conservation of capital.
The Phoenix-Oakhurst Balanced Series invests based on combined considerations of
risk, income, capital enhancement and protection of capital value.
PHOENIX-OAKHURST GROWTH AND INCOME SERIES: The investment objective of the
series is to seek dividend growth, current income and capital appreciation by
investing in common stocks. The Phoenix-Oakhurst Growth and Income Series seeks
to achieve its objective by selecting securities primarily from equity
securities of the 1,000 largest companies traded in the United States, ranked by
market capitalization.
PHOENIX-OAKHURST STRATEGIC ALLOCATION SERIES: The investment objective of
the series is to realize as high a level of total return over an extended period
of time as is considered consistent with prudent investment risk. The
Phoenix-Oakhurst Strategic Allocation Series invests in stocks, bonds and money
market instruments in accordance with the Investment Advisor's appraisal of
investments most likely to achieve the highest total return.
PHOENIX-SCHAFER MID-CAP VALUE SERIES: The primary investment objective of
the series is to seek long-term capital appreciation, with current income as the
secondary investment objective. The Phoenix-Schafer Mid-Cap Value Series will
invest in common stocks of established
10
<PAGE>
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.
PHOENIX-SENECA STRATEGIC THEME SERIES: The investment objective of the
series is to seek long-term appreciation of capital by identifying securities
benefiting from long-term trends present in the United States and abroad. The
Phoenix-Seneca Strategic Theme Series invests primarily in common stocks
believed to have substantial potential for capital growth.
BT INSURANCE FUNDS TRUST
A certain subaccount invests in a corresponding series of the BT Insurance
Funds Trust. The following series is currently available:
EAFE(R) EQUITY INDEX FUND: The series seeks to match the performance of the
Morgan Stanley Capital International EAFE(R) Index ("EAFE(R) Index"), which
emphasizes major market stock performance of companies in Europe, Australia and
the Far East. The series invests in a statistically selected sample of the
securities found in the EAFE(R) Index.
FEDERATED INSURANCE SERIES
Certain subaccounts invest in corresponding series of the Federated
Insurance Series. The following series are currently available:
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II: The investment objective
of the series is to seek current income by investing primarily in U.S.
government securities, including mortgage-backed securities issued by U.S.
government agencies.
FEDERATED HIGH INCOME BOND FUND II: The investment objective of the series
is to seek high current income by investing primarily in a diversified portfolio
of high-yield, lower-rated corporate bonds.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
A certain subaccount invests in a corresponding series of the Morgan Stanley
Dean Witter Universal Funds, Inc. The following series is currently available:
TECHNOLOGY PORTFOLIO: The investment objective of the series is to seek
long-term capital appreciation by investing primarily in equity securities of
companies that the investment advisor expects to benefit from their involvement
in technology and technology-related industries.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Certain subaccounts invest in Class 2 Shares of a corresponding fund of the
Templeton Variable Products Series Fund. The following funds are currently
available:
MUTUAL SHARES INVESTMENTS FUND: The primary investment objective of the fund
is capital appreciation with income as a secondary objective. The Mutual Shares
Investments Fund invests in domestic equity securities that the manager believes
are significantly undervalued.
TEMPLETON ASSET ALLOCATION FUND: The investment objective of the fund is a
high level of total return. The Templeton Asset Allocation Fund invests in
stocks of companies of any nation, bonds of companies and governments of any
nation and in money market instruments. Changes in the asset mix will be made in
an attempt to capitalize on total return potential produced by changing economic
conditions throughout the world.
TEMPLETON DEVELOPING MARKETS FUND: The investment objective of the fund is
long-term capital growth. The Templeton Developing Markets Fund invests
primarily in emerging market equity securities.
TEMPLETON INTERNATIONAL FUND: The investment objective of the fund is
long-term capital growth. The Templeton International Fund invests primarily in
stocks of companies located outside the United States, including emerging
markets.
TEMPLETON STOCK FUND: The investment objective of the fund is long-term
capital growth. The Templeton Stock Fund invests primarily in common stocks
issued by companies in various nations throughout the world, including the U.S.
and emerging markets.
WANGER ADVISORS TRUST
Certain subaccounts invest in corresponding series of the Wanger Advisors
Trust. The following series are currently available:
WANGER FOREIGN FORTY: The investment objective of the series is to seek
long-term capital growth. The Wanger Foreign Forty 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: The investment objective of the series is to
seek long-term capital 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: 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.
11
<PAGE>
WANGER U.S. SMALL CAP: The investment objective of the series is to seek
long-term capital growth. The Wanger U.S. Small Cap 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 all of the funds also
may be sold to other separate accounts of Phoenix or its affiliates and shares
of certain funds also may be sold to the separate accounts of other insurance
companies.
It is possible that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the fund(s) simultaneously. Although neither Phoenix nor the fund(s)
trustees currently foresee any such disadvantages either to variable life
insurance policyowners or to variable annuity contractowners, the funds'
trustees intend to monitor events in order to identify any material conflicts
between variable life insurance policyowners and variable annuity contractowners
and to determine what action, if any, should be taken in response to such
conflicts. Material conflicts could, for example, result from:
[diamond] changes in state insurance laws;
[diamond] changes in federal income tax laws;
[diamond] changes in the investment management of any portfolio of the
fund(s); or
[diamond] differences in voting instructions between those given by
variable life insurance policyowners and those given by
variable annuity contractowners.
We will, at our expense, remedy such material conflicts including, if
necessary, segregating the assets underlying the variable life insurance
policies and the variable annuity contracts and establishing a new registered
investment company.
INVESTMENT ADVISORS
Phoenix Investment Counsel, Inc. ("PIC") is the investment advisor to the
following series in The Phoenix Edge Series Fund:
o Phoenix-Goodwin Money Market Series
o Phoenix-Goodwin Multi-Sector Fixed Income Series
o Phoenix-Hollister Value Equity Series
o Phoenix-Oakhurst Balanced Series
o Phoenix-Oakhurst Growth and Income Series
o Phoenix-Oakhurst Strategic Allocation Series.
Based on subadvisory agreements with the fund, PIC as the investment advisor
delegates certain investment decisions and research functions to subadvisors for
the following series:
[diamond] Phoenix-Aberdeen International Advisors, LLC ("PAIA")
o Phoenix-Aberdeen International Series
[diamond] Roger Engemann & Associates, Inc. ("Engemann")
o Phoenix-Engemann Capital Growth Series
o Phoenix-Engemann Nifty Fifty Series
[diamond] Schafer Capital Management, Inc.
o Phoenix-Schafer Mid-Cap Value Series
[diamond] Seneca Capital Management, LLC ("Seneca")
o Phoenix-Seneca Mid-Cap Growth Series
o Phoenix-Seneca Strategic Theme Series
Phoenix Variable Advisors, Inc. ("PVA") is also an investment advisor to The
Phoenix Edge Series Fund. Based on subadvisory agreements with the fund, PVA
delegates certain investment decisions and research functions to the following
subadvisors for the series listed:
[diamond] Bankers Trust Company
o Phoenix-Bankers Trust Dow 30 Series
[diamond] Federated Investment Management Company
o Phoenix-Federated U.S. Government Bond Series
[diamond] J.P. Morgan Investment Management, Inc.
o Phoenix Research Enhanced Index Series
[diamond] Janus Capital Corporation
o Phoenix-Janus Equity Income Series
o Phoenix-Janus Flexible Income Series
o Phoenix-Janus Growth Series
[diamond] Morgan Stanley Investment Management Inc.
o Phoenix-Morgan Stanley Focus Equity Series
The investment advisor to the Phoenix-Duff & Phelps Real Estate Securities
Series is Duff & Phelps Investment Management Co. ("DPIM").
The investment advisor to the Phoenix-Aberdeen New Asia Series is PAIA.
Pursuant to subadvisory agreements with the fund, PAIA delegates certain
investment decisions and research functions with respect to the Phoenix-Aberdeen
New Asia Series to PIC and Aberdeen Fund Managers, Inc.
PIC, DPIM, Engemann and Seneca are indirect less than wholly owned
subsidiaries of Phoenix. PAIA is jointly owned and managed by PM Holdings, Inc.,
a subsidiary of Phoenix, and by Aberdeen Fund Managers, Inc.
The other investment advisors and their respective funds are:
[diamond] Bankers Trust Company
o EAFE(R) Equity Index Fund
[diamond] Federated Investment Management Company
o Federated Fund for U.S. Government Securities II
o Federated High Income Bond Fund II
[diamond] Franklin Mutual Advisers, LLC
o Mutual Shares Investments Fund
12
<PAGE>
[diamond] Morgan Stanley Dean Witter Investment
Management Inc.
o Technology Portfolio
[diamond] Templeton Asset Management, Ltd.
o Templeton Developing Markets Fund
[diamond] Templeton Investment Counsel, Inc.
o Templeton Asset Allocation Fund
o Templeton International Fund
o Templeton Stock Fund
[diamond] Wanger Asset Management, L.P.
o Wanger Foreign Forty
o Wanger International Small Cap
o Wanger Twenty
o Wanger U.S. Small Cap
SERVICES OF THE ADVISORS
The Advisors continually furnish an investment program for each series and
manage the investment and reinvestment of the assets of each series subject at
all times to the authority and supervision of the Trustees of each fund. A
detailed discussion of the investment advisors and subadvisors, and the
investment advisory and subadvisory agreements, is contained in the accompanying
prospectus for the funds.
REINVESTMENT AND REDEMPTION
All dividend distributions of the fund are automatically reinvested in
shares of the fund at their net asset value on the date of distribution.
Likewise, all capital gains distributions of the fund, if any, are reinvested at
the net asset value on the record date. We redeem fund shares at their net asset
value to the extent necessary to make payments under the policy.
SUBSTITUTION OF INVESTMENTS
We reserve the right to make additions to, deletions from, or substitutions
for the investments held by the VUL Account, subject to compliance with the law
as currently applicable or as subsequently changed. In the future, we may
establish additional subaccounts within the VUL Account, each of which will
invest in shares of a designated portfolio of the fund with a specified
investment objective. If and when marketing needs and investment conditions
warrant, and at our discretion, we may establish additional portfolios. These
will be made available under existing Policies to the extent and on a basis
determined by us.
If shares of any of the portfolios of the fund should be no longer available
for investment or, if in the judgment of our management, further investment in
shares of any of the portfolios become inappropriate due to policy objectives,
we may then substitute shares of another mutual fund for shares already
purchased, or to be purchased in the future. No substitution of mutual fund
shares held by the VUL Account may take place without prior approval of the
Securities and Exchange Commission and prior notice to you. In the event of a
change, you will be given the option of transferring the policy value of the
subaccount in which the substitution is to occur to another subaccount.
THE GUARANTEED INTEREST ACCOUNT
In addition to the VUL Account, you may allocate premium or transfer policy
value to the GIA. Amounts you allocate or transfer to the GIA become part of
Phoenix's general account assets. You do not share in the investment experience
of those assets. Rather, we guarantee a 3% rate of return on your allocated
amount. For amounts transferred to the GIA due to a policy loan, the guaranteed
rate is 2% in all states except New York and New Jersey. In New York and New
Jersey the rate credited to the GIA due to a policy loan is 4%. Although we are
not obligated to credit interest at a higher rate than the minimum, we will
credit excess interest, if any, as determined by us based on information as to
expected investment yields.
Because of exemptive and exclusionary provisions, we have not registered
interests in our general account under the Securities Act of 1933. Also, we have
not registered our general account as an investment company under the Investment
Company Act of 1940, as amended. Therefore, neither the general account nor any
of its interests are subject to these Acts, and the Securities and Exchange
Commission has not reviewed the general account disclosures. These disclosures
may, however, be subject to certain provisions of the federal securities law as
to the accuracy and completeness of statements made in this prospectus.
We reserve the right to limit total deposits, including transfers, to the
GIA to no more than $250,000 during any one-week period per policy.
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 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 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 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 C" and "Transfer of Policy Value" and "Systematic Transfers for Dollar
Cost Averaging."
13
<PAGE>
PREMIUMS
- -------------------------------------------------------------------------------
MINIMUM PREMIUMS
The minimum premium is determined by case size as follows:
[diamond] 5 or more lives: $100,000 annually for the first five policy years
[diamond] Fewer than 5 lives: $250,000 annually for the first five policy years
The issue premium is due on the policy date. The Insured must be alive when
the Issue Premium is paid. After that, premiums may be paid at any time while
the policy is in force. There is no direct relationship between the "Plan
Minimum Premium" and the "Policy Target Premium." The plan minimum premium is a
case-level requirement for the plan to be issued. The target premium is used to
determine the amount of commissions paid to the producer for a given policy.
Each premium payment must be at least $100. Additional payments should be sent
to the:
VUL COLI UNIT
PO BOX 22012
ALBANY, NY 12201-2012
The number of units credited to a subaccount of the VUL Account will be
determined by dividing the portion of the net premium applied to that subaccount
by the unit value of the subaccount on the payment date.
Regardless of whether you choose the Guideline Premium Test or the Cash
Value Accumulation Test (see "Minimum Face Amount"), we reserve the right to
refund a premium paid in any year if it will exceed the maximum premium limit.
The maximum limit is established by law to qualify the policy contract as life
insurance. This limit is applied to the sum of all premiums paid under the
policy. If the total premium limit is exceeded, the policyowner 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. 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.
ALLOCATION OF ISSUE PREMIUM
We will generally allocate the issue premium less applicable charges to the
VUL Account or to the GIA upon receipt of a completed application, in accordance
with the allocation instructions in the application for a policy. However,
policies issued in certain states, and policies issued in certain states
pursuant to applications which state the policy is intended to replace existing
insurance, are issued with a Temporary Money Market Allocation Amendment. Under
this Amendment, we temporarily allocate the entire issue premium paid less
applicable charges (along with any other premiums paid during the Free Look
period) to the Phoenix-Goodwin Money Market Subaccount, and, at the expiration
of the Free Look period, the policy value of the Phoenix-Goodwin Money Market
Subaccount is allocated among the subaccounts of the VUL Account or to the GIA
in accordance with the applicant's allocation instructions in the application
for insurance.
FREE LOOK 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);
[diamond] within 10 days after we mail or deliver a written notice telling
you about your free look period; or
[diamond] within 45 days after completing the application,
whichever occurs latest (the "Free Look 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 Free Look Period.
ACCOUNT VALUE
TRANSFER OF POLICY VALUE
Transfers among available subaccounts or the GIA and changes in premium
payment allocations may be requested in writing. Requests for transfers will be
executed on the date the request is received at Andesa, TPA, Inc.
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 (after twelve transfers in New York).
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 Dollar Cost Averaging
Program, or (2) we agree to make an exception to this rule. Unless you have
elected a Dollar Cost Averaging Program, 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
14
<PAGE>
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
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 at any
one time or over the life of the policy, 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 Free Look Period.
SYSTEMATIC TRANSFERS FOR DOLLAR COST AVERAGING
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 Transfers for Dollar Cost Averaging Program ("Dollar Cost
Averaging Program"). Under the Dollar Cost Averaging Program, the minimum
transfer amounts are $25 monthly, $75 quarterly, $150 semiannually or $300
annually. You must have an initial value of $1,000 in the GIA or the subaccount
from which funds will be transferred ("sending subaccount"), and if the value in
that subaccount or the GIA drops below the amount to be transferred, the entire
remaining balance will be transferred and all systematic transfers stop. Funds
may be transferred from only one Sending subaccount or the GIA, but may be
allocated to more than one subaccount ("receiving subaccounts"). Under the
Dollar Cost Averaging Program, policyowners may make more than one transfer per
policy year from the GIA. These transfers must be in approximately equal amounts
and made over a minimum 18-month period.
Only one Dollar Cost Averaging Program can be active at any time. All
transfers under the Dollar Cost Averaging Program will be made on the basis of
the GIA and subaccount on the first day of the month following our receipt of
the transfer request. If the first day of the month falls on a holiday or
weekend, then the transfer will be processed on the next business day.
AUTOMATIC ASSET REBALANCING
Automated account rebalancing permits you to maintain a specified whole
number percentage of your account value in any combination of subaccounts and
the GIA. We must receive a written request in order to begin your automated
asset rebalancing program ("Asset Rebalancing"). Then, we will make transfers
at least quarterly to and from the subaccounts and the Guaranteed Interest
Account to readjust your account value to your specified percentage. Asset
Rebalancing allows you to maintain a specific fund allocation. Quarterly
rebalancing is based on your policy year. We will rebalance your account value
only on a monthly calculation date.
The effective date of the first Asset Rebalancing will be the first monthly
calculation date after we receive your request at Andesa TPA, Inc. If we receive
your request before the end of the free look period, your first rebalancing
will occur at the end of the free look period.
You may not participate in both the Dollar Cost Averaging Program and the
Asset Rebalancing at the same time.
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 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
15
<PAGE>
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 value amount of any
deposits and withdrawals made during the valuation period ending on that
date.
(D) The charge, if any, for taxes and reserves for taxes on investment income,
and realized and unrealized capital gains.
DEATH BENEFIT UNDER THE POLICY
The death benefit is the amount we pay to the designated beneficiary(ies)
when the insured dies. Upon receiving due proof of death, we pay the beneficiary
the death benefit amount determined as of the date the Insured dies. The
beneficiary may direct us to pay all or part of the benefit in cash or to apply
it under one or more of our payment options.
MINIMUM FACE AMOUNT
To qualify as life insurance under current federal tax laws, the policy has
a minimum face amount of insurance. The minimum face is determined using one of
two allowable definitions of life insurance: (1) the Cash Value Accumulation
Test or (2) the Guideline Premium Test. You chose which test to use on the
application prior to the issuance of your policy. You cannot change the way we
determine your minimum face amount after your policy is issued.
The Cash Value Accumulation Test determines the minimum face amount by
multiplying the account value plus the refund of sales load, if applicable, by
the minimum face amount percentage. The percentages depend upon the Insured's
age, gender and underwriting classification.
Under the Guideline Premium Test, the minimum face amount is also equal to
an applicable percentage of the account value plus refund of sales load, if
applicable, but the percentage varies only by age of insured.
DEATH BENEFIT OPTIONS
In your application you choose a face amount of insurance coverage and the
death benefit option. We offer three death benefit options:
[diamond] Option 1: the death benefit is the greater of the policy's face
amount on the date of death, or the minimum face amount in effect
on the date of death.
[diamond] Option 2: the death benefit is the greater of: (a) the policy's face
amount on the date of death plus the policy value on the date of
death, or (b) the minimum face amount in effect on the date of death.
[diamond] Option 3: the death benefit is the greater of: (a) the policy's face
amount on the date of death plus the sum of all premiums paid, less
withdrawals, or (b) the policy's face amount on the date of death,
or (c) the minimum face amount in effect on the date of death.
If the insured dies while the policy is in force, we will pay the death
benefit based on the option in effect on the date of death, with the following
adjustments:
[diamond] Add back in any charges taken against the account value for the
period beyond the date of death;
[diamond] Deduct any policy debt outstanding on the date of death; and
[diamond] Deduct any charges accrued against the account value unpaid as of
the date of death.
You may change the death benefit option from Option 1 to Option 2 or from
Option 2 to Option 1. You may not make a change either to or from Option 3.
Under death benefit Options 1 and 3, the death benefit is not affected by
your policy's investment experience. Under death benefit Option 2, the death
benefit amount may increase or decrease by the investment experience.
We pay interest on the death benefit from the date of death to the date the
death benefit is paid or a payment option becomes effective.
CHANGES IN FACE AMOUNT OF INSURANCE
REQUESTS FOR INCREASE IN FACE AMOUNT
Any time while this policy is in force, you may request an increase in the
face amount of insurance provided under the policy. Requests for face amount
increases must be made in writing, and we require additional evidence of
insurability. The effective date of the increase generally will be the policy
anniversary following approval of the increase. The increase may not be less
than $25,000. We will deduct any charges associated with the increase (the
increases in cost of insurance charges), from the policy value, whether or not
you pay an additional premium in connection with the increase. Also, a new Free
Look Period (see "Premiums--Free Look Period") will be established for the
amount of the increase. For a discussion of possible implications of a material
change in the policy resulting from the increase, see "Material Change Rules."
DECREASES IN FACE AMOUNT AND PARTIAL SURRENDERS: EFFECT ON DEATH BENEFIT
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 equal to $10,000
and the face amount remaining after the decrease must be at least $25,000. 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.
16
<PAGE>
A partial surrender or a decrease in face amount generally decreases the
death benefit. 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").
SURRENDERS
GENERAL
At any time during the lifetime of the Insured and while the policy is in
force, you may partially or fully surrender the policy by sending a written
request to Andesa TPA, Inc. 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
valuation period during which the surrender request is received at Andesa TPA,
Inc.
The cash surrender value is:
o policy value; less
o Any outstanding debt.
There is no surrender charge.
FULL SURRENDERS
If the policy is being fully surrendered, the policy itself must be returned
to Andesa TPA, Inc., 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 "Payment Options").
PARTIAL SURRENDERS
You may obtain a partial surrender of the policy by requesting payment of
the policy's cash surrender value. It is possible to do this at any time during
the lifetime of the Insured, while the policy is in force, with a written
request to Andesa TPA, Inc. We may require the return of the policy before
payment is made. A partial surrender will be effective on the date the written
request is received or, if required, the date the policy is received by us.
Surrender proceeds may be applied under any of the payment options described
under "Payment of Proceeds--Payment Options."
We reserve the right to deny partial surrenders of less than $500. In
addition, if the share of the policy value in any subaccount or in the GIA is
reduced as a result of a partial surrender and is less than $500, we reserve the
right to require surrender of the entire remaining balance in that subaccount or
the GIA.
Upon a partial surrender, the policy value will be reduced by the sum of the
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.
The cash surrender value will be reduced by the partial surrender amount
paid. The face amount of the policy will be reduced by the same amount as the
policy value is reduced as described above.
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 "Additional Policy Provisions--Postponement of Payments." For the federal
tax effects of partial and full surrenders, see "Federal Tax Considerations."
POLICY LOANS
You can take a loan against your policy any time while the policy is in
force. The maximum loan is:
o 90% of your policy value at the time the loan is taken; less
o any outstanding policy debt before the loan is taken; less
o interest on the loan being made and on any outstanding policy debt to
the next policy anniversary date.
Your policy must be assigned to us as collateral for the loan.
SOURCE OF LOAN
We deduct your requested loan amount from the subaccounts and the GIA, based
on the allocation requested at the time of the loan. We liquidate shares taken
from the subaccounts and transfer the resulting dollars to the GIA. These
dollars become part of the loaned portion of the GIA.
INTEREST
You will pay interest on the loan at the following noted effective annual
rates, compounded daily and payable in arrears:
In all states except New York and New Jersey, the loan interest rate in
effect following the policy anniversary nearest the insured's 65th birthday will
be 2.25%. The rates in effect before the Insured reaches age 65 follow:
[diamond] Policy years 1-10: 2.75%
[diamond] Policy years 11-15: 2.50%
[diamond] Policy years 16 and thereafter: 2.25%
In New York and New Jersey only, the loan interest rate in effect following
the policy anniversary nearest the insured's 65th birthday will be 4.25%. The
rates in effect before the Insured reaches age 65 follow:
[diamond] Policy years 1-10: 4.75%
[diamond] Policy years 11-15: 4.50%
17
<PAGE>
[diamond] Policy years 16 and thereafter: 4.25%
Interest accrues daily, becoming part of the policy debt. Interest is due
and payable on the policy anniversary. If you do not pay the interest when due,
we will add it to your loan. We treat any interest which has been capitalized
the same as if it were a new loan. We deduct this capitalized interest from the
subaccounts and the GIA in proportion to the nonloaned account value in each.
INTEREST CREDITED ON LOANED VALUE
The amount equal to any policy loan is held in the GIA. This amount is
credited with interest at a rate of 2% (4% in New York and New Jersey).
REPAYMENT
You may repay all or part of your policy debt at anytime while the policy is
in force.
If you do not repay the loan, we deduct the loan amount due from the cash
surrender value or the death benefit.
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.
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.
EFFECT OF LOAN
Your policy loan reduces the death benefit and cash surrender value under
the policy by the amount of the loan. Your repayment of the loan increases the
death benefit and cash surrender value by the amount of the repayment.
As long as a loan is outstanding, a portion of your policy value equal to
the loan held in the GIA. The subaccount's investment performance does not
affect this amount. Also, you may be subject to tax consequences if you
surrender your policy while there is outstanding debt.
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, the policy value 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.
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 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
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 OPTION
While the policy is in force and the Insured is insurable, the policyowner
will have the option to purchase additional insurance on the same insured with
the same guaranteed rates as the policy. 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, and you may cancel these
benefits at any time. A charge will be deducted monthly from the policy value
for each additional rider benefit chosen except where noted below. More details
will be included in the form of a rider to the policy if any of these benefits
are chosen. The following benefits are currently available and additional riders
may be available as described in the policy (if approved in your state).
[diamond] FLEXIBLE TERM INSURANCE RIDER--This rider provides annually renewable
term insurance coverage to age 100 for the Insured under the base
policy. The initial rider death benefit cannot exceed 10 times the
initial base policy. There is no charge for this rider.
[diamond] EXCHANGE OF INSURED RIDER--This rider allows the policyowner to
exchange the insured on a given contract. There is no charge for
this rider.
Future charges against the policy will be based on the life of the
substitute insured.
The incontestability and suicide exclusion periods, as they apply to
the substitute insured, run from the date of the exchange. Any
assignments will continue to apply.
The exchange is subject to the following adjustments:
1. If the policy value of the original policy is insufficient to
produce a positive cash surrender value for the new policy, the
owner must pay an exchange adjustment in an amount that, when
18
<PAGE>
applied as premium, will make the policy value of the new policy
greater than zero.
2. In some cases, the amount of policy value which may be applied
to the new policy may result in a death benefit which exceeds
the limit for the new policy. In that event, we will apply such
excess policy value to reduce any loan against the policy, and
the residual amount will be returned to you in cash.
3. The exchange will also be subject to our receipt of repayment of
the amount of any policy debt under the exchange policy in
excess of the loan value of the new policy on the date of
exchange.
The Internal Revenue Service has ruled that an exchange of Insureds
does not qualify for tax deferral under Code Section 1035.
Therefore, you must include in current gross income all
previously unrecognized gain in the policy upon an exchange of
the Insured.
PART II--ADDITIONAL POLICY PROVISIONS
- -------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
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 determined
by the SEC; or
[diamond] whenever an emergency exists, as decided by the SEC as a result of
which disposal of securities is not reasonably practicable or it is
not reasonably practicable to determine the value of the VUL Account's
net assets.
Transfers also may be postponed under these circumstances.
PAYMENT BY CHECK
Payments under the policy of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared your bank.
THE CONTRACT
The policy and attached copy of the application are the entire contract.
Only statements in the application can be used to void the policy. The
statements are considered representations and not warranties. Only an executive
officer of Phoenix can agree to change or waive any provisions of the policy.
SUICIDE
If the Insured commits suicide within two years after the policy's issue
date, 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 insured's lifetime or for two years from the policy date.
CHANGE OF OWNER OR BENEFICIARY
The beneficiary, as named in the policy application or subsequently changed,
will receive the policy benefits at the insured's death. If the named
beneficiary dies before the insured, the contingent beneficiary, if named,
becomes the beneficiary. If no beneficiary survives the insured, the death
benefit payable under the policy will be paid to your estate.
As long as the policy is in force, the policyowner and the beneficiary may
be changed in writing, satisfactory to us. A change in beneficiary will take
effect as of the date the notice is signed, whether or not the insured is living
when we receive the notice. We will not, however, be liable for any payment made
or action taken before receipt of the notice.
ASSIGNMENT
The policy may be assigned. We will not be bound by the assignment until a
written copy has been received and we will not be liable with respect to any
payment made prior to receipt. We assume no responsibility for determining
whether an assignment is valid.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the insured has been misstated, the death benefit will
be adjusted based on what the cost of insurance charge for the most recent
monthly deduction would have purchased based on the correct age and sex.
SURPLUS
This policy is non-participating and does not pay dividends. Your policy
will not share in Phoenix's profits or surplus earnings.
19
<PAGE>
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.
You may elect a payment option for payment of the death proceeds to the
beneficiary. You may revoke or change a prior election, unless such right has
been waived. The beneficiary may make or change an election before payment of
the death proceeds, unless you have made an election that does not permit such
further election or changes by the beneficiary.
A written request in a form satisfactory to us is required to elect, change
or revoke a payment option.
The minimum amount of surrender or death benefit proceeds that may be
applied under any payment option is $1,000.
If the policy is assigned as collateral security, we will pay any amount due
the assignee in one lump sum. Any remaining proceeds will remain under the
option elected.
PAYMENT OPTIONS
All or part of the surrender or death proceeds of a policy may be applied
under one or more of the following payment options or such other payment options
or alternative versions of the options listed as we may choose to make available
in the future.
OPTION 1--LUMP SUM.
Payment in one lump sum.
OPTION 2--LEFT TO EARN INTEREST.
A payment of interest during the payee's lifetime on the amount payable as a
principal sum. Interest rates are guaranteed to be at least 3% per year.
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.
OPTION 4--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN.
Equal installments are paid until the later of:
[diamond] the death of the payee; or
[diamond] the end of the period certain.
The first payment will be on the date of settlement.
The period certain must be chosen at the time this option is elected. The
periods certain that you may choose from are as follows:
[diamond] ten years;
[diamond] twenty years; or
[diamond] until the installments paid refund the amount applied under this
option.
If the payee is not living when the final payment falls due, that payment
will be limited to the amount which needs to be added to the payments already
made to equal the amount applied under this option.
If, for the age of the payee, a period certain is chosen that is shorter
than another period certain paying the same installment amount, we will consider
the longer period certain as having been elected.
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.
20
<PAGE>
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; or
[diamond] the death of the other named annuitant.
The other annuitant must have attained age 40, must be named at the time
this option is elected and cannot later be changed. 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.
PART III--OTHER IMPORTANT INFORMATION
- -------------------------------------------------------------------------------
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 our tax status
and upon the tax status of the individual concerned. The discussion contained
herein is general in nature and is not intended as tax advice. For complete
information on federal and state tax considerations, a qualified tax advisor
should be consulted. No attempt is made to consider any estate and inheritance
taxes, or any state, local or other tax laws. Because the discussion herein is
based upon our understanding of federal income tax laws as they are currently
interpreted, we cannot guarantee the tax status of any policy. The Internal
Revenue Service (the "IRS") makes no representation regarding the likelihood of
continuation of current federal income tax laws, Treasury regulations or of the
current interpretations. We reserve the right to make changes to the policy to
assure that it will continue to qualify as a life insurance contract for federal
income tax purposes.
PHOENIX'S TAX STATUS
We are taxed as a life insurance company under the Internal Revenue Code of
1986, as amended (the "Code"). For federal income tax purposes, neither the VUL
Account nor the GIA is a separate entity from Phoenix and their operations form
a part of Phoenix.
Investment income and realized capital gains on the assets of the VUL
Account are reinvested and taken into account in determining the value of the
VUL Account. Investment income of the VUL Account, including realized net
capital gains, is not taxed to us. Due to our tax status under current
provisions of the Code, no charge currently will be made to the VUL Account for
our federal income taxes which may be attributable to the VUL Account. We
reserve the right to make a deduction for taxes if our federal tax treatment is
determined to be other than what we currently believe it to be, if changes are
made affecting the tax treatment to our variable life insurance contracts, or if
changes occur in our tax status. If imposed, such charge would be equal to the
federal income taxes attributable to the investment results of the VUL Account.
POLICY BENEFITS
DEATH BENEFIT PROCEEDS
The policy, whether or not it is a "modified endowment contract" (see
"Modified Endowment Contracts"), 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. We monitor the premiums to assure compliance with such
conditions. However, if the premium limitation is exceeded during the year, we
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
21
<PAGE>
benefits occurs during the first 15 years after a policy is issued and
there is a cash distribution associated with that reduction, the 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. We suggest you consult
with your tax advisor 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
We believe that any loan received under a policy will be treated as your
indebtedness. 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. If the
policy is not a modified endowment contract, we believe that no part of any loan
under a policy will constitute income to you.
The deductibility by a policyowner of loan interest under a policy may be
limited under Code Section 264, depending on the circumstances. A policyowner
intending to fund premium payments through borrowing should consult a tax
advisor 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 advisor 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 us 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
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 amounts taxable under the modified endowment contract rule will be
subject to an additional 10% excise tax, with certain exceptions. This
additional tax will not apply in the case of distributions that are:
[diamond] made on or after the taxpayer attains age 59 1/2;
[diamond] attributable to the taxpayer's disability (within the meaning of
Code Section 72(m)(7)); or
[diamond] part of a series of substantially equal periodic payments (not less
often than annually) made for the life (or life expectancy) of the
taxpayer or the joint lives (or life expectancies) of the taxpayer
and his beneficiary.
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.
22
<PAGE>
[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:
o the cost-of-living determination period does not exceed the
remaining premium payment period under the policy; and
o 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 advisor should be consulted about the tax consequences of the
purchase of more than one modified endowment contract within any calendar year.
LIMITATIONS ON UNREASONABLE MORTALITY AND EXPENSE CHARGES
The Code imposes limitations on unreasonable mortality and expense charges
for purposes of ensuring that a policy qualifies as a life insurance contract
for federal income tax purposes. The mortality charges taken into account to
compute permissible premium levels may not exceed those charges required to be
used in determining the federal income tax reserve for the policy, unless
Treasury regulations prescribe a higher level of charge. In addition, the
expense charges taken into account under the guideline premium test are required
to be reasonable, as defined by the Treasury regulations. We will comply with
the limitations for calculating the premium we are permitted to receive from
you.
DIVERSIFICATION STANDARDS
To comply with the Diversification Regulations under Code Section 817(h),
("Diversification Regulations") each series of the fund is required to diversify
its investments. The Diversification Regulations generally require that on the
last day of each calendar quarter the series assets be invested in no more than:
[diamond] 55% in any 1 investment
[diamond] 70% in any 2 investments
[diamond] 80% in any 3 investments
[diamond] 90% in any 4 investments
A "look-through" rule applies to treat a pro rata portion of each asset of a
series as an asset of the VUL Account; therefore, each series of the fund will
be tested for compliance with the percentage limitations. For purposes of these
diversification rules, all securities of the same issuer are treated as a single
investment, but each United States government agency or instrumentality is
treated as a separate issuer.
The general diversification requirements are modified if any of the assets
of the VUL Account are direct obligations of the United States Treasury. In this
case, there is no limit on the investment that may be made in Treasury
securities, and for purposes of determining whether assets other than Treasury
securities are adequately diversified, the generally applicable percentage
limitations are increased based on the value of the VUL Account's investment in
Treasury securities. Notwithstanding this modification of the general
diversification requirements, the portfolios of the funds will be structured to
comply with the general diversification standards because they serve as an
investment vehicle for certain variable annuity contracts that must comply with
these standards.
In connection with the issuance of the Diversification Regulations, the
Treasury announced that such regulations do not provide guidance concerning the
extent to which 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
would provide. It is possible that the policy may need to be modified to comply
with such future Treasury announcements. For these reasons, we reserve the right
to modify the policy, as necessary, to prevent you from being considered the
owner of the assets of the VUL Account.
We intend to comply with the Diversification Regulations to assure that the
policies continue to qualify as a life insurance contract for federal income tax
purposes.
CHANGE OF OWNERSHIP OR INSURED OR ASSIGNMENT
Changing the policyowner or the Insured or an exchange or assignment of the
policy may have tax consequences depending on the circumstances. Code Section
1035 provides that a life insurance contract can be exchanged for another life
insurance contract, without recognition of gain or loss, assuming that no money
or
23
<PAGE>
other property is received in the exchange, and that the policies relate to
the same Insured. If the surrendered policy is subject to a policy loan, this
may be treated as the receipt of money on the exchange. We recommend that any
person contemplating such actions seek the advice of a qualified tax consultant.
OTHER TAXES
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership or receipt of policy proceeds depend on the
circumstances of each policyowner or beneficiary. We do not make any
representations or guarantees regarding the tax consequences of any policy with
respect to these types of taxes.
VOTING RIGHTS
- -------------------------------------------------------------------------------
We will vote the funds' shares held by the subaccounts at any regular and
special meetings of shareholders of the funds. To the extent required by law,
such voting will be pursuant to instructions received from you. However, if the
1940 Act or any regulation thereunder should be amended or if the present
interpretation thereof should change, and as a result, we decide that we are
permitted to vote the funds' shares at our own discretion, we may elect to do
so.
The number of votes that you have the right to cast will be determined by
applying your percentage interest in a subaccount to the total number of votes
attributable to the subaccount. In determining the number of votes, fractional
shares will be recognized.
Funds' shares held in a subaccount for which no timely instructions are
received, and funds' shares which are not otherwise attributable to
policyowners, will be voted by Phoenix in proportion to the voting instructions
that are received with respect to all policies participating in that subaccount.
Instructions to abstain on any item to be voted upon will be applied to reduce
the votes eligible to be cast by Phoenix.
You will receive proxy materials, reports and other materials related to the
funds.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
to cause a change in the subclassification or investment objective of one or
more of the portfolios of the funds or to approve or disapprove an investment
advisory contract for the funds. In addition, Phoenix itself may disregard
voting instructions in favor of changes initiated by a policyowner in the
investment policies or the Investment Advisor 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.
You (or the payee entitled to payment under a payment option if a different
person) will have the right to vote at annual meetings of all Phoenix
policyholders for the election of members of the Board of Directors of Phoenix
and on other corporate matters, if any, where a policyholder's vote is taken. At
meetings of all the Phoenix policyholders, you (or payee) may cast only one vote
as the holder of a policy, irrespective of policy value or the number of the
policies you hold.
THE DIRECTORS AND
EXECUTIVE OFFICERS OF PHOENIX
- --------------------------------------------------------------------------------
Phoenix is managed by its Board of Directors. The following are the
Directors and Executive Officers of Phoenix:
DIRECTORS PRINCIPAL OCCUPATION
Sal H. Alfiero Chairman and Chief Executive
Officer, Mark IV Industries, Inc.
Amherst, New York
John C. Bacot Chairman and Chief Executive
Officer, The Bank of New York
New York, New York
Arthur P. Byrne Chairman, President and Chief
Executive Officer, The Wiremold
Company
West Hartford, Connecticut
Richard N. Cooper Professor, Center for
International Affairs, Harvard
University, Cambridge,
Massachusetts; 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
and Chief Executive Officer,
Phoenix Home Life Mutual
Insurance Company
Hartford, Connecticut
John E. Haire President,
The Fortune Group
New York, New York
24
<PAGE>
DIRECTORS PRINCIPAL OCCUPATION
Jerry J. Jasinowski President, National Association
of Manufacturers
Washington, D.C.
John W. Johnstone Chairman, Governance & Nominating
Committees, Arch Chemicals, Inc.,
Westport, Connecticut; formerly
Chairman, President and
Chief Executive Officer,
Olin Corporation
Norwalk, Connecticut
Marilyn E. LaMarche Limited Managing Director, Lazard
Freres & Company, L.L.C.
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, The DeMatteis Center of
St. Francis Hospital
Roslyn, New York
Robert G. Wilson Retired, formerly Chairman
and Chief Executive Officer,
Ecologic Waste Services, Inc.
Miami, Florida
Dona D. Young President, Phoenix Home Life
Mutual Insurance Company
Hartford, Connecticut
EXECUTIVE OFFICERS PRINCIPAL OCCUPATION
Robert W. Fiondella Chairman of the Board
and Chief Executive Officer
Philip R. McLoughlin Executive Vice President,
Investments
Carl T. Chadburn Executive Vice President
David W. Searfoss Executive Vice President,
Chief Financial Officer
Dona D. Young President
Nathaniel C. Brinn Senior Vice President,
Strategic Development
Martin J. Gavin Senior Vice President,
Trust Operations
Randall C. Giangiulio Senior Vice President,
Group Life and Health
Michael J. Gilotti Senior Vice President
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 Financial
Maura L. Melley Senior Vice President,
Public Affairs
Charles L. Olson Senior Vice President,
Trust Sales and Marketing
David R. Pepin Senior Vice President
Robert E. Primmer Senior Vice President,
Individual Distribution
Tracy L. Rich Senior Vice President and General
Counsel
Joel D. Sanders Senior Vice President,
Group Sales and Marketing
Frederick W. Sawyer, III Senior Vice President
John F. Solan, Jr. Senior Vice President,
Strategic Development
Simon Y. Tan Senior Vice President,
Individual 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 Phoenix during the
last five years.
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS
- -------------------------------------------------------------------------------
We hold the assets of the VUL Account. The assets of the VUL Account are
kept physically segregated and held separate and apart from our General Account.
We maintain records of all purchases and redemptions of shares of the funds.
SALES OF POLICIES
- -------------------------------------------------------------------------------
Policies may be purchased from registered representatives of W.S. Griffith &
Co., Inc. ("WSG"), a
25
<PAGE>
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, wholly-owned 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. Phoenix Equity Planning Corporation ("PEPCO") serves as national
distributor of the Policies. PEPCO is an indirect, wholly-owned subsidiary of
Phoenix Investment Partners, Ltd. ("PXP"), in which Phoenix owns a majority
interest.
Policies also may be purchased from other broker-dealers registered under
the 1934 Act whose representatives are authorized by applicable law to sell
Policies under terms of agreements provided by PEPCO. Sales commissions will be
paid to registered representatives on purchase payments we receive under these
Policies. Phoenix will pay a maximum total sales commission of 19% of premiums
to PEPCO. Additionally, agents or selling brokers may receive asset-based
compensation. The maximum asset-based compensation is 0.90% of the policy value.
To the extent that the sales charge under the Policies is less than the sales
commissions paid with respect to the Policies, we will pay the shortfall from
our General Account assets, which will include any profits we may derive under
the policies.
STATE REGULATION
- -------------------------------------------------------------------------------
We are subject to the provisions of the New York insurance laws applicable
to stock life insurance companies and to regulation and supervision by the New
York Superintendent of Insurance. We also are subject to the applicable
insurance laws of all the other states and jurisdictions in which we do
insurance business.
State regulation of Phoenix includes certain limitations on the investments
which we may make, including investments for the VUL Account and the GIA. This
regulation does not include, however, any supervision over the investment
policies of the VUL Account.
REPORTS
- -------------------------------------------------------------------------------
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 our ability to meet
our obligations under the policies.
LEGAL MATTERS
- -------------------------------------------------------------------------------
Edwin L. Kerr, Counsel of Phoenix Home Life Mutual Insurance Company, has
passed upon the organization of Phoenix, its authority to issue variable life
insurance Policies and the validity of the policy, and upon legal matters
relating to the federal securities and income tax laws for Phoenix.
REGISTRATION STATEMENT
- -------------------------------------------------------------------------------
A Registration Statement has been filed with the SEC, under the Securities
Act of 1933 ("1933 Act") with respect to the securities offered. This prospectus
is a summary of the contents of the policy and other legal documents and does
not contain all the information set forth in the Registration Statement and its
exhibits. We refer you to the registration statement and its exhibits for
further information concerning the VUL Account, Phoenix and the policy.
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The 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.
There are no financial statements of the VUL Account subaccounts for the
period ended December 31, 1999 and no sales occurred during this period.
26
<PAGE>
PHOENIX HOME LIFE
MUTUAL INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
27
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants............................................ 29
Consolidated Balance Sheet at December 31, 1999 and 1998..................... 30
Consolidated Statement of Income, Comprehensive Income and Equity
for the Years Ended December 31, 1999, 1998 and 1997 ....................... 31
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 ........................................... 32
Notes to Consolidated Financial Statements ............................... 33-69
28
<PAGE>
[LOGO] PRICEWATERHOUSECOOPERS
- --------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
100 Pearl Street
Hartford CT 06103-4508
Telephone (860) 241 7000
Facsimile (860) 241 7590
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Policyholders of
Phoenix Home Life Mutual Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, comprehensive income and equity and of cash
flows present fairly, in all material respects, the financial position of
Phoenix Home Life Mutual Insurance Company and its subsidiaries at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As indicated in Note 20, the Company has revised its accounting for venture
capital partnerships.
/s/ PriceWaterhouseCoopers LLP
February 15, 2000
29
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Held-to-maturity debt securities, at amortized cost $ 1,990,169 $ 1,725,439
Available-for-sale debt securities, at fair value 5,506,779 5,987,426
Equity securities, at fair value 461,613 301,649
Mortgage loans 716,831 797,343
Real estate 92,027 91,975
Policy loans 2,042,557 2,008,259
Venture capital partnerships 338,122 191,162
Other invested assets 300,474 232,131
Short-term investments 133,367 185,983
------------------ -----------------
Total investments 11,581,939 11,521,367
Cash and cash equivalents 187,610 115,187
Accrued investment income 174,894 164,812
Deferred policy acquisition costs 1,306,728 1,049,934
Premiums, accounts and notes receivable 119,231 61,489
Reinsurance recoverables 18,772 18,908
Property and equipment, net 137,758 142,153
Goodwill and other intangible assets, net 593,267 477,895
Net assets of discontinued operations (Note 11) 187,595 283,793
Other assets 51,434 36,940
Separate account assets 5,923,888 4,798,949
------------------ -----------------
Total assets $ 20,283,116 $ 18,671,427
================== =================
LIABILITIES
Policy liabilities and accruals $ 11,438,032 $ 11,110,280
Notes payable 499,392 386,575
Deferred income taxes 86,262 116,104
Other liabilities 474,179 430,956
Separate account liabilities 5,923,888 4,798,949
------------------ -----------------
Total liabilities 18,421,753 16,842,864
------------------ -----------------
Contingent liabilities (Note 18)
MINORITY INTEREST IN NET ASSETS
OF CONSOLIDATED SUBSIDIARIES 100,112 92,008
------------------ -----------------
EQUITY
Retained earnings 1,731,146 1,642,264
Accumulated other comprehensive income 30,105 94,291
------------------ -----------------
Total equity 1,761,251 1,736,555
------------------ -----------------
Total liabilities and equity $ 20,283,116 $ 18,671,427
================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME, COMPREHENSIVE INCOME AND EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premiums $ 1,134,207 $ 1,154,730 $ 1,076,157
Insurance and investment product fees 591,786 493,415 367,540
Net investment income 950,344 851,603 714,367
Net realized investment gains 35,675 58,202 111,043
------------- -------------- -------------
Total revenues 2,712,012 2,557,950 2,269,107
------------- -------------- -------------
BENEFITS AND EXPENSES
Policy benefits and increase in policy liabilities 1,352,419 1,403,166 1,201,929
Policyholder dividends 360,509 351,653 343,611
Amortization of deferred policy acquisition costs 146,603 137,663 102,617
Amortization of goodwill and other intangible assets 37,963 23,126 9,366
Interest expense 32,659 25,911 24,300
Other operating expenses 520,603 428,756 367,016
------------- -------------- -------------
Total benefits and expenses 2,450,756 2,370,275 2,048,839
------------- -------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 261,256 187,675 220,268
Income taxes 107,881 65,046 47,241
------------- -------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST 153,375 122,629 173,027
Minority interest in net income of consolidated subsidiaries 10,064 10,512 10,623
------------- -------------- -------------
NET INCOME FROM CONTINUING OPERATIONS 143,311 112,117 162,404
DISCONTINUED OPERATIONS (NOTE 11)
Gain from operations, net of income taxes 17,555 25,012 7,248
Loss on disposal, net of income taxes (71,984)
------------- -------------- -------------
NET INCOME 88,882 137,129 169,652
------------- -------------- -------------
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF INCOME TAXES
Unrealized (losses) gains on securities (61,246) (46,967) 98,287
Reclassification adjustment for net realized gains
included in net income (1,452) (12,980) (30,213)
Minimum pension liability adjustment (1,488) (1,526) (2,101)
------------- -------------- -------------
Total other comprehensive (loss) income (64,186) (61,473) 65,973
------------- -------------- -------------
COMPREHENSIVE INCOME 24,696 75,656 235,625
------------- -------------- -------------
EQUITY, BEGINNING OF YEAR - RESTATED (NOTE 20) 1,736,555 1,660,899 1,425,274
------------- -------------- -------------
EQUITY, END OF YEAR $ 1,761,251 $ 1,736,555 $ 1,660,899
============= ============== =============
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM CONTINUING OPERATIONS ACTIVITIES
Net income from continuing operations $ 143,311 $ 112,117 $ 162,404
Net (loss) income from discontinued operations (54,429) 25,012 7,248
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY CONTINUING OPERATIONS:
Net realized investment gains (35,675) (58,202) (111,465)
Amortization and depreciation 69,367 51,076 61,876
Equity in undistributed earnings of affiliates and partnerships (138,215) (44,119) (38,588)
Deferred income taxes (benefit) (14,102) 398 25,298
(Increase) in receivables (67,688) (23,846) (46,178)
Increase (decrease) in deferred policy acquisition costs 3,493 (26,945) (44,406)
Increase in policy liabilities and accruals 329,660 368,528 494,462
Increase in other assets/other liabilities, net 53,901 58,795 54,230
Other, net 2,752 1,660 7,752
------------ ------------- -------------
Net cash provided by operating activities of continuing operations 346,804 439,462 565,385
Net cash (used for) provided by operating activities of
discontinued operations (105,537) 104,512 88,907
------------ ------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Proceeds from sales, maturities or repayments
of available-for-sale debt securities 1,702,889 1,322,381 1,082,132
Proceeds from maturities or repayments of held-to-maturity debt
securities 186,710 267,746 200,946
Proceeds from disposals of equity securities 163,530 45,204 51,373
Proceeds from mortgage loan maturities or repayments 124,864 200,419 164,213
Proceeds from sale of real estate and other invested assets 37,952 439,917 213,224
Proceeds from distributions of venture capital partnerships 26,730 18,550 5,650
Proceeds from sale of subsidiaries and affiliates 15,000 16,300
Purchase of available-for-sale debt securities (1,672,705) (2,400,058) (1,547,855)
Purchase of held-to-maturity debt securities (427,472) (585,370) (183,371)
Purchase of equity securities (162,391) (85,002) (88,573)
Purchase of subsidiaries (187,621) (6,647) (246,400)
Purchase of mortgage loans (25,268) (75,974) (140,831)
Purchase of real estate and other invested assets (71,407) (134,224) (50,599)
Purchase of venture capital partnerships (108,461) (67,200) (39,994)
Change in short term investments, net 52,616 855,117 23,135
Increase in policy loans (34,298) (21,532) (59,699)
Capital expenditures (20,505) (25,052) (44,380)
Other investing activities, net 1,697 (6,540) (1,750)
------------ ------------- -------------
Net cash used for investing activities of continuing operations (398,140) (241,965) (662,779)
Net cash provided by (used for) investing activities of
discontinued operations 157,267 (101,532) (93,239)
------------ ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Withdrawals of contractholder deposit funds,
net of deposits and interest credited (1,908) (11,124) (17,902)
Proceeds from repayment of securities sold
subject to repurchase agreements 28,398 (137,473) 137,473
Proceeds from borrowings 124,500 136 215,359
Repayment of borrowings (11,683) (55,589) (243,293)
Dividends paid to minority shareholders in consolidated
subsidiaries (4,240) (4,938) (6,895)
Other financing activities (361) (5,664) (1,250)
------------ ------------- -------------
Net cash provided by (used for) financing activities of
continuing operations 134,706 (214,652) 83,492
Net cash (used for) provided by financing activities of
discontinued operations (62,677) (7,739) 4,489
------------ ------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS 83,370 (17,155) (13,902)
NET CHANGE IN CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS (10,947) (4,759) 157
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 115,187 137,101 150,846
------------ ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 187,610 $ 115,187 $ 137,101
============ ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net $ 106,372 $ 44,508 $ 76,167
Interest paid on indebtedness $ 34,791 $ 32,834 $ 32,300
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Phoenix Home Life Mutual Insurance Company and its subsidiaries (Phoenix)
market a wide range of insurance and investment products and services
including individual participating life insurance, term, universal and
variable life insurance, annuities, and investment advisory and mutual fund
distribution services. These products and services are distributed among
three reportable segments: Individual, Investment Management and Corporate &
Other. See Note 10 - "Segment Information."
Additionally, in 1999, Phoenix discontinued the operations of four of its
business units: the Reinsurance Operations, the Property and Casualty
Brokerage Operations, the Real Estate Management Operations and the Group
Insurance Operations. See Note 11 - "Discontinued Operations."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Phoenix and
significant subsidiaries. Less than majority-owned entities in which Phoenix
has significant influence over operating and financial policies, and
generally at least a 20% ownership interest, are reported on the equity
basis.
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (GAAP).
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant
estimates used in determining insurance and contractholder liabilities,
related reinsurance recoverables, income taxes, contingencies and valuation
allowances for investment assets are discussed throughout the Notes to
Consolidated Financial Statements. Significant inter-company accounts and
transactions have been eliminated. Amounts for 1998 and 1997 have been
retroactively restated to account for income from venture capital
partnership investments and leveraged lease investments. See Note 20 -
"Prior Period Adjustments" for venture capital investment and leveraged
lease investment information. Certain reclassifications have been made to
the 1998 and 1997 amounts to conform with the 1999 presentation.
VALUATION OF INVESTMENTS
Investments in debt securities include bonds, mortgage-backed and
asset-backed securities. Phoenix classifies its debt securities as either
held-to-maturity or available-for-sale investments. Debt securities
held-to-maturity consist of private placement bonds reported at amortized
cost, net of impairments, that management intends and has the ability to
hold until maturity. Debt securities available-for-sale are reported at fair
value with unrealized gains or losses included in equity and consist of
public bonds and preferred stocks that management may not hold until
maturity. Debt securities are considered impaired when a decline in value is
considered to be other than temporary.
33
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For the mortgage-backed and asset-backed bond portion of the debt security
portfolio, Phoenix recognizes income using a constant effective yield based
on anticipated prepayments and the estimated economic life of the
securities. When actual prepayments differ significantly from anticipated
prepayments, the effective yield is recalculated to reflect actual payments
to date, and anticipated future payments and any resulting adjustment is
included in net investment income.
Equity securities are classified as available-for-sale and are reported at
fair value, based principally on their quoted market prices, with unrealized
gains or losses included in equity. Equity securities are considered
impaired when a decline in value is considered to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances, net
of valuation reserves on impaired mortgages. A mortgage loan is considered
to be impaired if management believes it is probable that Phoenix will be
unable to collect all amounts of contractual interest and principal as
scheduled in the loan agreement. An impaired mortgage loan's fair value is
measured based on the present value of future cash flows discounted at the
loan's observable market price or at the fair value of the collateral. If
the fair value of a mortgage loan is less than the recorded investment in
the loan, the difference is recorded as a valuation reserve.
Real estate, all of which is held for sale, is carried at the lower of cost
or current fair value less costs to sell. Fair value for real estate is
determined taking into consideration one or more of the following factors:
property valuation techniques utilizing discounted cash flows at the time of
stabilization including capital expenditures and stabilization costs; sales
of comparable properties; geographic location of the property and related
market conditions; and disposition costs.
Policy loans are generally carried at their unpaid principal balances and
are collateralized by the cash values of the related policies.
Short-term investments are carried at amortized cost, which approximates
fair value.
Venture capital partnership and other partnership interests are carried at
cost adjusted for Phoenix's equity in undistributed earnings or losses since
acquisition, less allowances for other than temporary declines in value.
These earnings or losses are included in investment income. Venture capital
partnerships generally account for the underlying investments held in the
partnerships at fair value. These investments can include public and private
common and preferred stock, notes, warrants and other investments.
Investments that are publicly traded are generally valued at closing market
prices. Investments that are not publicly traded, which are usually subject
to restrictions on resale, are generally valued at cost or at estimated fair
value, as determined in good faith by the general partner after giving
consideration to operating results, financial conditions, recent sales
prices of issuers' securities and other pertinent information. Some general
partners will discount the fair value of private investments held to reflect
these restrictions. These valuations subject the earnings to volatility.
Beginning in 1999, Phoenix includes equity in undistributed unrealized
capital gains and losses on investments held in the venture capital
partnerships in net investment income. Prior to 1999, these amounts were not
recorded. Prior years have been restated to reflect this change. See Note 20
- "Prior Period Adjustments" for additional information on venture capital
partnership investments.
34
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Other invested assets include leveraged lease investments. These investments
represent the net of the estimated residual value of the lease assets,
rental receivables, and unearned and deferred income to be allocated over
the lease term. Investment income is calculated using the interest method
and is recognized only in periods in which the net investment is positive.
Realized investment gains and losses, other than those related to separate
accounts for which Phoenix does not bear the investment risk, are determined
by the specific identification method and reported as a component of
revenue. A realized investment loss is recorded when an investment valuation
reserve is determined. Valuation reserves are netted against the asset
categories to which they apply and changes in the valuation reserves are
included in realized investment gains and losses. Unrealized investment
gains and losses on debt securities and equity securities classified as
available-for-sale are included as a component of equity, net of deferred
income taxes and deferred policy acquisition costs.
FINANCIAL INSTRUMENTS
In the normal course of business, Phoenix enters into transactions involving
various types of financial instruments including debt, investments such as
debt securities, mortgage loans and equity securities, off-balance sheet
financial instruments such as investment and loan commitments, financial
guarantees, interest rate swaps, interest rate caps, interest rate floors
and swaptions. These instruments have credit risk and also may be subject to
risk of loss due to interest rate and market fluctuations.
Phoenix enters into interest rate swap agreements to reduce market risks
from changes in interest rates. Phoenix does not enter into interest rate
swap agreements for trading purposes. Under interest rate swap agreements,
Phoenix exchanges cashflows with another party, at specified intervals, for
a set length of time based on a specified notional principal amount.
Typically, one of the cash flow streams is based on a fixed interest rate
set at the inception of the contract, and the other is a variable rate that
periodically resets. Generally, no premium is paid to enter into the
contract and no payment of principal is made by either party. The amounts to
be received or paid on these swap agreements are accrued and recognized in
net investment income.
Phoenix enters into interest rate floor, interest rate cap and swaption
contracts as a hedge for its assets and liabilities against substantial
changes in interest rates. Phoenix does not enter into interest rate floor,
interest rate cap and swaption contracts for trading purposes. Interest rate
floor and interest rate cap agreements are contracts with a counterparty
which require the payment of a premium and give Phoenix the right to receive
over the maturity of the contract, the difference between the floor or cap
interest rate and a market interest rate on specified future dates based on
an underlying notional principal. Swaption contracts are options to enter
into an interest rate swap transaction on a specified future date and at a
specified price. Upon the exercise of a swaption, Phoenix would either
receive a swap agreement at the pre-specified terms or cash for the market
value of the swap. Phoenix pays the premium for these instruments on a
quarterly basis over the maturity of the contract, and recognizes these
payments in net investment income.
Phoenix enters into foreign currency swap agreements to hedge against
fluctuations in foreign currency exposure. Under these agreements, Phoenix
agrees to exchange with another party, principal and periodic interest
payments denominated in foreign currency for payments denominated in U.S.
dollars. The amounts to be received or paid on these foreign currency swap
agreements is recognized in net investment income. To reduce counterparty
credit risks and
35
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
diversify counterparty exposure, Phoenix only enters into derivative
contracts with highly rated financial institutions.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and money market
instruments.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, underwriting,
distribution and policy issue expenses, all of which vary with and are
primarily related to the production of new business, are deferred. Deferred
policy acquisition costs (DAC) are subject to recoverability testing at the
time of policy issue and loss recognition at the end of each accounting
period. For individual participating life insurance policies, deferred
policy acquisition costs are amortized in proportion to historical and
anticipated gross margins. Deviations from expected experience are reflected
in earnings in the period such deviations occur.
For universal life insurance policies, limited pay and investment type
contracts, deferred policy acquisition costs are amortized in proportion to
total estimated gross profits over the expected average life of the
contracts using estimated gross margins arising principally from investment,
mortality and expense margins and surrender charges based on historical and
anticipated experience, updated at the end of each accounting period.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the cost of businesses acquired over the
fair value of their net assets. These costs are amortized on a straight-line
basis over periods, not exceeding 40 years, that correspond with the
benefits expected to be derived from the acquisitions. Other intangible
assets are amortized on a straight-line basis over their estimated lives.
Management periodically reevaluates the propriety of the carrying value of
goodwill and other intangible assets by comparing estimates of future
undiscounted cash flows to the carrying value of assets. Assets are
considered impaired if the carrying value exceeds the expected future
undiscounted cash flows.
SEPARATE ACCOUNTS
Separate account assets and liabilities are funds maintained in accounts to
meet specific investment objectives of contractholders who bear the
investment risk. Investment income and investment gains and losses accrue
directly to such contractholders. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of Phoenix. The assets and liabilities are carried at market value.
Deposits, net investment income and realized investment gains and losses for
these accounts are excluded from revenues, and the related liability
increases are excluded from benefits and expenses. Amounts assessed to the
contractholders for management services are included in revenues.
POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity
products. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. Policy liabilities for
traditional life insurance are computed using the net level premium method
on the basis of actuarial assumptions as to assumed rates of interest,
mortality, morbidity and withdrawals. Liabilities for universal life include
deposits received from customers and
36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
investment earnings on their fund balances, less administrative charges.
Universal life fund balances are also assessed mortality charges.
Liabilities for outstanding claims, losses and loss adjustment expenses are
amounts estimated to cover incurred losses. These liabilities are based on
individual case estimates for reported losses and estimates of unreported
losses based on past experience.
Unearned premiums relate primarily to individual participating life
insurance as well as group life, accident and health insurance premiums. The
premiums are reported as earned on a pro-rata basis over the contract
period. The unexpired portion of these premiums is recorded as unearned
premiums.
PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Life insurance premiums, other than premiums for universal life and certain
annuity contracts, are recorded as premium revenue on a pro-rata basis over
each policy year. Benefits, losses and related expenses are matched with
premiums over the related contract periods. Revenues for investment-related
products consist of net investment income and contract charges assessed
against the fund values. Related benefit expenses primarily consist of net
investment income credited to the fund values after deduction for investment
and risk charges. Revenues for universal life products consist of net
investment income and mortality, administration and surrender charges
assessed against the fund values during the period. Related benefit expenses
include universal life benefit claims in excess of fund values and net
investment income credited to universal life fund values.
POLICYHOLDERS' DIVIDENDS
Certain life insurance policies contain dividend payment provisions that
enable the policyholder to participate in the earnings of Phoenix. The
amount of policyholders' dividends to be paid is determined annually by
Phoenix's board of directors. The aggregate amount of policyholders'
dividends is related to the actual interest, mortality, morbidity and
expense experience for the year and Phoenix's judgment as to the appropriate
level of statutory surplus to be retained. At the end of the reporting
period, Phoenix establishes a dividend liability for the pro-rata portion of
the dividends payable on the next anniversary date of each policy. Phoenix
also establishes a liability for termination dividends.
INCOME TAXES
Phoenix and its eligible affiliated companies have elected to file a
life/nonlife consolidated federal income tax return for 1999 and prior
years. Entities included within the consolidated group are segregated into
either a life insurance or non-life insurance company subgroup. The
consolidation of these subgroups is subject to certain statutory
restrictions in the percentage of eligible non-life tax losses that can be
applied to offset life company taxable income.
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities and their recorded amounts for financial
reporting purposes. These differences result primarily from policy
liabilities and accruals, policy acquisition expenses, investment impairment
reserves, reserves for postretirement benefits and unrealized gains or
losses on investments.
37
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
As a mutual life insurance company, Phoenix is required to reduce its income
tax deduction for policyholder dividends by the differential earnings
amount, defined as the difference between the earnings rates of stock and
mutual companies applied against an adjusted base of policyholders' surplus.
RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1999, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS
No. 133". Because of the complexities associated with transactions involving
derivative instruments and their prevalent use as hedging instruments and,
because of the difficulties associated with the implementation of Statement
133, the effective date of SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" was delayed until fiscal years beginning
after June 15, 2000. SFAS No. 133, initially issued on June 15, 1998,
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it
is, the type of hedge transaction. For fair-value hedge transactions in
which Phoenix is hedging changes in an asset's, liability's or firm
commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in
the hedged item's fair value. For cash-flow hedge transactions, in which
Phoenix is hedging the variability of cashflows related to a variable-rate
asset, liability, or a forecasted transaction, changes in the fair value of
the derivative instrument will be reported in other comprehensive income.
The gains and losses on the derivative instrument that are reported in other
comprehensive income will be reclassified as earnings in the period in which
earnings are impacted by the variability of the cash flows of the hedged
item. The ineffective portion of all hedges will be recognized in current
period earnings.
Phoenix has not yet determined the impact that the adoption of SFAS 133 will
have on its earnings or statement of financial position.
Phoenix adopted SFAS No. 130, "Reporting Comprehensive Income," as of
January 1, 1998. This statement establishes standards for the reporting and
display of comprehensive income and its components in a full set of
financial statements. This statement defines the components of comprehensive
income as those items that were previously reported only as components of
equity and were excluded from net income.
In 1998, Phoenix adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the "
industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of
Phoenix's reportable segments. The adoption of this statement did not affect
the results of operations or financial position but did affect the
disclosure of segment information.
In 1998, Phoenix adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which amends SFAS No. 87, "
Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions". The new statement revises and
standardizes
38
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
employers' disclosures about pension and other postretirement benefit plans.
Adoption of this statement did not affect the results of operations or
financial position of Phoenix.
On January 1, 1999, Phoenix adopted Statement of Position (SOP) 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments." SOP 97-3 provides guidance for assessments related to
insurance activities. The adoption of SOP 97-3 did not have a material
impact on Phoenix's results from operations or financial position.
On January 1, 1999, Phoenix adopted SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance for determining when an entity should capitalize or expense
external and internal costs of computer software developed or obtained for
internal use. The adoption of SOP 98-1 did not have a material impact on
Phoenix's results from operations or financial position.
On January 1, 1999, Phoenix adopted SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that start-up costs capitalized
prior to January 1, 1999 should be written off and any future start-up costs
be expenses as incurred. The adoption of SOP 98-5 did not have a material
impact on Phoenix's results from operations or financial position.
3. SIGNIFICANT TRANSACTIONS
DISCONTINUED OPERATIONS
During 1999, Phoenix discontinued the operations of four of its business
units; the Reinsurance Operations, the Property and Casualty Brokerage
Operations, the Real Estate Management Operation and the Group Insurance
Operations. Disclosures concerning the financial impact of these
transactions are contained in Note 11 - "Discontinued Operations."
PFG HOLDINGS, INC.
On October 29, 1999, PM Holdings, a wholly-owned subsidiary of Phoenix,
purchased 100% of PFG Holdings, Inc. 8% cumulative preferred stock
convertible into a 67% interest in common stock for $5 million in cash. In
addition Phoenix has an option to purchase all the outstanding common stock
during year six at a value to 80% of the appraised value of the common stock
at that time. As of the statement date this option had not been executed.
Since the investment represents a majority interest Phoenix has consolidated
this entity for GAAP as if the preferred stock had been converted and
established a minority interest for outside shareholders. The transaction
resulted in goodwill of $3.8 million to be amortized over 10 years.
PFG Holdings was formed to purchase three of The Guarantee Life Companies'
operating subsidiaries: AGL Life Assurance Company, PFG Distribution Company
and Philadelphia Financial Group. These subsidiaries develop, market and
underwrite specialized private placement variable life and annuity products.
AGL Life Assurance Company must maintain at least $10 million of capital and
surplus to satisfy certain regulatory minimum capital requirements. PM
Holdings provided financing at the purchase date of $11 million to PFG
Holdings in order for AGL Life Assurance to meet this minimum requirement.
The debt is an 8.34% senior secured note maturing in 2009.
39
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EMPRENDIMIENTO COMPARTIDO, S.A., (EMCO)
At January 1, 1999 PM Holdings held 9.1 million shares of EMCO, representing
a 35% ownership interest the Argentine financial services company that
provides pension management, annuities and life insurance products. On June
23, 1999, PM Holdings became the majority owner of EMCO when it purchased
13.9 million shares of common stock from the Banco del Suquia, S.A. for
$29.5 million, plus $10.0 million for a five year covenant not-to-compete.
Payment for the stock will be made in three installments: $10.0 million, 180
days from closing; $10.0 million, 360 days from closing; and $9.5 million,
540 days from closing, all subject to interest of 7.06%. The covenant was
paid at the time of closing.
In addition, EMCO purchased, for its treasury, 3.0 million shares of its
outstanding common stock held by two banks. This, in combination with the
purchase described above, increased PM Holdings ownership interest from 35%
to 100% of the then outstanding stock.
On November 12, 1999, PM Holdings sold 11.5 million shares (50% interest) of
EMCO common stock for $40.0 million generating a pre-tax gain of $11.3
million. PM Holdings received $15.0 million in cash plus a $9.0 million
two-year 8% interest bearing note, and a $16.0 million five-year 8% interest
bearing note. PM Holdings uses the equity method of accounting to account
for its remaining 50% interest in EMCO.
After the sale, the remaining excess of the purchase price over the fair
value of the acquired net tangible assets totaled $17.0 million. That
consisted of a covenant not-to-compete of $5.0 million which is being
amortized over five years and goodwill of $12.0 million which is being
amortized over ten years.
PHOENIX NEW ENGLAND TRUST
On October 29, 1999, PM Holdings indirectly acquired 100% of the common
stock of New London Trust, a banking subsidiary of Sun Life of Canada, for
$30.0 million in cash. New London Trust, renamed Phoenix New England Trust,
is a New Hampshire based federal savings bank that operates a trust division
with assets under management of approximately $1 billion. Immediately
following this acquisition, on November 1, 1999, PM Holdings sold the New
London Trust's New Hampshire retail banking operations to Lake Sunapee Bank
and Mascoma Savings Bank in New Hampshire and the Connecticut branches to
Westbank Corporation, for a total of $25.2 million in cash. No gain or loss
was recognized on this sale. PM Holdings retained the trust business and
four trust offices of New London Trust, located in New Hampshire and
Vermont.
LOMBARD INTERNATIONAL ASSURANCE, S.A.
On November 5, 1999, PM Holdings purchased 12% of the common stock of
Lombard International Assurance, S.A., a Pan-European financial services
company, for $29.1 million in cash. Lombard provides investment-linked
insurance products to high-net-worth individuals in eight European
countries. This investment is classified as equity securities in the
Consolidated Balance Sheet.
40
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PHOENIX INVESTMENT PARTNERS, LTD.
On March 1, 1999, Phoenix Investment Partners completed its acquisition of
the retail mutual fund and closed-end fund business of the New York City
based Zweig Group. Under the terms of the agreement, Phoenix Investment
Partners paid $135.0 million at closing and will pay up to an additional
$29.0 million over the next three years based on revenue growth of the Zweig
funds. The Zweig Group managed approximately $3.3 billion of assets as of
December 31,1999.
On December 3, 1998, Phoenix Investment Partners completed the sale of its
49% interest in Canadian investment firm Beutel, Goodman & Company, Ltd. for
$47.0 million. Phoenix Investment Partners received $37.0 million in cash
and a $10.0 million three-year interest bearing note. The transaction
resulted in a before-tax gain of approximately $17.5 million. Phoenix's
interest represents an after-tax realized gain of approximately $6.8
million.
Phoenix owns approximately 60% of the outstanding Phoenix Investment
Partners' common stock. In addition, Phoenix owns 45% of Phoenix Investment
Partners' convertible subordinated debentures.
ABERDEEN ASSET MANAGEMENT PLC
On February 18, 1999, PM Holdings purchased an additional 15.1 million
shares of the common stock of Aberdeen Asset Management for $29.4 million.
As of December 31, 1999, PM Holdings owned 21% of the outstanding common
stock of Aberdeen Asset Management, a Scottish asset management firm. The
investment is reported on the equity basis and classified as other invested
assets in the Consolidated Balance Sheet.
DIVIDEND SCALE REDUCTION
In consideration of the decline of interest rates in the financial markets,
Phoenix's Board of Directors voted in October of 1998 to adopt a reduced
dividend scale, effective for dividends payable on or after January 1, 1999.
Dividends for individual participating policies were reduced 60 basis points
in most cases, an average reduction of approximately 8%. The effect was a
decrease of approximately $15.7 million in the policyholder dividends
expense in 1998. In October 1999, Phoenix's Board of Directors voted to
maintain the dividend scale for dividends payable on or after January 1,
2000.
REAL ESTATE SALES
On December 15, 1998, Phoenix sold 47 commercial real estate properties with
a carrying value of $269.8 million, and 4 joint venture real estate
partnerships with a carrying value of $10.5 million, for approximately $309
million in cash. This transaction, along with the sale of 18 other
properties and partnerships during 1998, which had a carrying value of $36.7
million, resulted in pre-tax gains of approximately $67.5 million. As of
December 31, 1999, Phoenix had 3 commercial real estate properties remaining
with a carrying value of $42.9 million and 5 joint venture real estate
partnerships with a carrying value of $49.1 million.
41
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS
Information pertaining to Phoenix's investments, net investment income and
realized and unrealized investment gains and losses follows:
DEBT AND EQUITY SECURITIES
The amortized cost and fair value of investments in debt and equity
securities as of December 31, 1999 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DEBT SECURITIES
HELD-TO-MATURITY:
State and political subdivision bonds $ 27,595 $ 416 $ (1,033) $ 26,978
Foreign government bonds 3,032 (796) 2,236
Corporate securities 1,776,174 12,945 (95,707) 1,693,412
Mortgage-backed and asset-backed
securities 285,387 1,361 (19,166) 267,582
-------------- ------------- ------------- -------------
Total held-to-maturity securities 2,092,188 14,722 (116,702) 1,990,208
Less: held-to-maturity securities of
discontinued operations 102,019 736 (5,835) 96,920
-------------- ------------- ------------- -------------
Total held-to-maturity securities of
continuing operations 1,990,169 13,986 (110,867) 1,893,288
-------------- ------------- ------------- -------------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 283,697 1,955 (6,537) 279,115
State and political subdivision bonds 495,860 4,765 (21,751) 478,874
Foreign government bonds 273,868 23,700 (3,990) 293,578
Corporate securities 2,353,228 18,578 (102,773) 2,269,033
Mortgage-backed and asset-backed
securities 2,977,136 17,916 (103,264) 2,891,788
-------------- ------------- ------------- -------------
Total available-for-sale securities 6,383,789 66,914 (238,315) 6,212,388
Less: available-for-sale securities of
discontinued operations 725,077 7,600 (27,068) 705,609
-------------- ------------- ------------- -------------
Total available-for-sale securities of
continuing operations 5,658,712 59,314 (211,247) 5,506,779
-------------- ------------- ------------- -------------
TOTAL DEBT SECURITIES OF CONTINUING
OPERATIONS $ 7,648,881 $ 73,300 $ (322,114) $ 7,400,067
============== ============== ============= =============
EQUITY SECURITIES $ 311,100 $ 176,593 $ (24,211) $ 463,482
Less: equity securities of discontinued
operations 1,869 1,869
-------------- ------------- ------------- -------------
TOTAL EQUITY SECURITIES OF CONTINUING
OPERATIONS $ 309,231 $ 176,593 $ (24,211) $ 461,613
============== ============ ============= =============
</TABLE>
42
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of investments in debt and equity
securities as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<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 and asset-backed
securities 172,300 6,201 (12) 178,489
-------------- ------------- ------------- -------------
Total held-to-maturity securities 1,881,687 105,740 (14,656) 1,972,771
Less: held-to-maturity securities of
discontinued operations 156,248 8,776 (1,216) 163,808
-------------- ------------- ------------- -------------
Total held-to-maturity securities of
continuing operations 1,725,439 96,964 (13,440) 1,808,963
-------------- ------------- ------------- -------------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 497,089 34,454 (422) 531,121
State and political subdivision bonds 529,977 43,622 (104) 573,495
Foreign government bonds 293,968 28,814 (18,691) 304,091
Corporate securities 1,993,720 110,525 (36,656) 2,067,589
Mortgage-backed and asset-backed
securities 3,121,690 110,172 (14,618) 3,217,244
-------------- ------------- ------------- -------------
Total available-for-sale securities 6,436,444 327,587 (70,491) 6,693,540
Less: available-for-sale securities of
discontinued operations 678,992 34,558 (7,436) 706,114
-------------- ------------- ------------- -------------
Total available-for-sale securities of
continuing operations 5,757,452 293,029 (63,055) 5,987,426
-------------- ------------- ------------- -------------
TOTAL DEBT SECURITIES OF CONTINUING
OPERATIONS $ 7,482,891 $ 389,993 $ (76,495) $ 7,796,389
============== ============= ============= =============
EQUITY SECURITIES $ 223,915 $ 102,018 $ (21,388) $ 304,545
Less: equity securities of discontinued
operations 2,896 2,896
-------------- ------------- ------------- -------------
TOTAL EQUITY SECURITIES OF CONTINUING
OPERATIONS $ 221,019 $ 102,018 $ (21,388) $ 301,649
============== ============ ============= =============
</TABLE>
43
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The sale of fixed maturities held-to-maturity relate to certain securities,
with amortized cost of $3.9 million, $19.6 million and $59.1 million, for
the years ended December 31, 1999, 1998 and 1997, respectively, which were
sold specifically due to a significant decline in the issuers' credit
quality. The related realized losses, net of the sales, were $0.2 million,
$0.8 million and $10.1 million in 1999, 1998 and 1997, respectively.
The amortized cost and fair value of debt securities, by contractual sinking
fund payment and maturity, as of December 31, 1999 are shown below. Actual
maturity may differ from contractual maturity because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties, or Phoenix may have the right to put or sell the obligations back
to the issuers.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ 118,171 $ 116,992 $ 43,180 $ 43,483
Due after one year through five years 583,115 564,215 534,417 532,676
Due after five years through ten years 587,568 566,505 1,146,805 1,104,661
Due after ten years 517,946 474,913 1,682,250 1,639,771
Mortgage-backed and
asset-backed securities 285,388 267,583 2,977,137 2,891,797
-------------- -------------- --------------- -------------
Total $ 2,092,188 $ 1,990,208 $ 6,383,789 $ 6,212,388
Less: securities of discontinued
operations 102,019 96,920 725,077 705,609
-------------- -------------- --------------- -------------
Total securities of continuing
operations $ 1,990,169 $ 1,893,288 $ 5,658,712 $ 5,506,779
============== ============== =============== =============
</TABLE>
Carrying values for investments in mortgage-backed and asset-backed
securities, excluding U.S. government guaranteed investments, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Planned amortization class $ 168,027 $ 433,668
Asset-backed 956,892 910,594
Mezzanine 194,849 280,162
Commercial 735,238 641,485
Sequential pay 1,039,001 982,576
Pass through 77,154 119,065
Other 6,014 21,994
-------------- --------------------
Total mortgage-backed and asset-backed securities $ 3,177,175 $ 3,389,544
============== ====================
</TABLE>
44
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MORTGAGE LOANS AND REAL ESTATE
Phoenix's mortgage loans and real estate are diversified by property type
and location and, for mortgage loans, by borrower. Mortgage loans are
collateralized by the related properties and are generally 75% of the
properties' value at the time the original loan is made.
Mortgage loans and real estate investments comprise the following property
types and geographic regions:
<TABLE>
<CAPTION>
MORTGAGE LOANS REAL ESTATE
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
PROPERTY TYPE:
Office buildings $ 183,912 $ 221,244 $ 30,545 $ 38,343
Retail 208,606 203,927 14,111 36,858
Apartment buildings 252,947 261,894 41,744 21,553
Industrial buildings 82,699 121,789 1,600
Other 2,950 19,089 8,859 32
Valuation allowances (14,283) (30,600) (3,232) (6,411)
----------------- ----------------- ----------------- ----------------
Total $ 716,831 $ 797,343 $ 92,027 $ 91,975
================= ================= = ================ ================
GEOGRAPHIC REGION:
Northeast $ 149,336 $ 169,368 $ 59,582 $ 47,709
Southeast 198,604 213,916 32 32
North central 164,150 176,683 744 11,453
South central 105,062 98,956 21,232 22,649
West 113,962 169,020 13,669 16,543
Valuation allowances (14,283) (30,600) (3,232) (6,411)
----------------- ------------------ ---------------- ----------------
Total $ 716,831 $ 797,343 $ 92,027 $ 91,975
================= ================== ================ ================
</TABLE>
At December 31, 1999, scheduled mortgage loan maturities were as follows:
2000 - $92 million; 2001 - $87 million; 2002 - $32 million; 2003 - $109
million; 2004 - $38 million; 2005 - $35 million, and $338 million
thereafter. Actual maturities will differ from contractual maturities
because borrowers may have the right to prepay obligations with or without
prepayment penalties and loans may be refinanced. Phoenix refinanced $6.7
million and $2.3 million of its mortgage loans during 1999 and 1998,
respectively, on terms which differed from those granted to new borrowers.
The carrying value of delinquent and in process of foreclosure mortgage
loans at December 31, 1999 and 1998 is $6.0 million and $17.2 million,
respectively. There are valuation allowances of $5.4 million and $14.7
million, respectively, on these mortgages.
45
<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>
1999
Mortgage loans $ 30,600 $ 9,697 $ (26,014) $ 14,283
Real estate 6,411 183 (3,362) 3,232
----------------- ----------------- ------------------ ------------------
Total $ 37,011 $ 9,880 $ (29,376) $ 17,515
================= ================= ================== ==================
1998
Mortgage loans $ 35,800 $ 50,603 $ (55,803) $ 30,600
Real estate 28,501 5,108 (27,198) 6,411
----------------- ----------------- ------------------ ------------------
Total $ 64,301 $ 55,711 $ (83,001) $ 37,011
================= ================= ================== ==================
1997
Mortgage loans $ 48,399 $ 6,731 $ (19,330) $ 35,800
Real estate 47,509 4,201 (23,209) 28,501
----------------- ----------------- ------------------ ------------------
Total $ 95,908 $ 10,932 $ (42,539) $ 64,301
================= ================= ================== ==================
</TABLE>
NON-INCOME PRODUCING MORTGAGE LOANS AND BONDS
The net carrying values of non-income producing mortgage loans were $0.0
million and $15.6 million at December 31, 1999 and 1998, respectively. The
net carrying value of non-income producing bonds were $0.0 million and $22.3
at December 31, 1999 and 1998, respectively.
46
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DERIVATIVE INSTRUMENTS
Derivative instruments at December 31, are summarized below:
<TABLE>
<CAPTION>
1999 1998
($ IN THOUSANDS)
<S> <C> <C>
Swaptions:
Notional amount $ 1,600,000
Weighted average strike rate 5.02%
Index rate (1) 10 Yr. CMS
Fair value $ (8,200)
Interest rate floors:
Notional amount $ 1,210,000 $ 570,000
Weighted average strike rate 4.57% 4.59%
Index rate (1) 2-10 Yr. CMT/CMS 5-10 Yr. CMT
Fair value $ (7,542) $ 1,423
Interest rate swaps:
Notional amount $ 474,037 $ 424,573
Weighted average received rate 6.33% 6.27%
Weighted average paid rate 6.09% 5.82%
Fair value $ 1,476 $ 10,989
Foreign currency swaps:
Notional amount $ 8,074
Weighted average received rate 12.04%
Weighted average paid rate 10.00%
Fair value $ 213
Interest rate caps:
Notional amount $ 50,000 $ 50,000
Weighted average strike rate 7.95% 7.95%
Index rate (1) 10 Yr. CMT 10 Yr. CMT
Fair value $ 842 $ (96)
</TABLE>
(1) Constant maturity treasury yields (CMT) and constant maturity swap
yields (CMS).
The increase in net investment income related to interest rate swap
contracts was $1.0 million and $2.1 million for the years ended December 31,
1999 and 1998, respectively. The decrease in net investment income related
to interest rate floor, interest rate cap and swaption contracts was $2.3
million and $0.2 million for the years ended December 31, 1999 and 1998,
respectively, representing quarterly premium payments on these instruments
which are being paid over the life of the contracts. The estimated fair
value of these instruments represent what Phoenix would have to pay or
receive if the contracts were terminated.
47
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Phoenix is exposed to credit risk in the event of nonperformance by
counterparties to these financial instruments, but management of the Phoenix
does not expect counterparties to fail to meet their financial obligations,
given their high credit ratings. The credit exposure of these instruments is
the positive fair value at the reporting date.
Management of Phoenix considers the likelihood of any material loss on these
instruments to be remote.
VENTURE CAPITAL PARTNERSHIPS
Phoenix invests in venture capital limited partnerships. These partnerships
focus on early-stage ventures, primarily in the information technology and
life science industries, as well as direct equity investments in leveraged
buyouts and corporate acquisitions.
Phoenix records its equity in the earnings of the partnerships in net
investment income.
The components of net investment income due to venture capital partnerships
for the year ended December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Operating losses $ (8,921) $ (2,746) $ (2,131)
Realized gains on cash and stock distributions 84,725 23,360 31,336
Unrealized gains on investments held in the partnerships 64,091 19,009 4,531
---------- ----------- ----------
Total venture capital partnership net investment income $ 139,895 $ 39,623 $ 33,736
========== =========== ==========
</TABLE>
OTHER INVESTED ASSETS
Other invested assets, consisting primarily of partnership interests and
equity in unconsolidated affiliates, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Transportation and equipment leases $ 82,063 $ 80,953
Affordable housing partnerships 22,247 10,854
Investment in Aberdeen Asset Management 99,074 72,257
Investment in EMCO of Argentina 13,423 10,681
Investment in other affiliates 12,389 12,706
Seed money in separate accounts 33,279 26,587
Other partnership interests 41,953 22,697
------------------ ------------------
Total other invested assets $ 304,428 $ 236,735
Less: other invested assets of discontinued operations 3,954 4,604
------------------ ------------------
Total other invested assets of continuing operations $ 300,474 $ 232,131
================== =================
</TABLE>
48
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31,
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ 641,076 $ 598,892 $ 509,702
Equity securities 8,272 6,469 4,277
Mortgage loans 66,285 83,101 85,662
Policy loans 148,998 146,477 122,562
Real estate 9,716 38,338 18,939
Leveraged leases 2,202 2,746 2,692
Venture capital partnerships 139,895 39,623 33,736
Other invested assets 2,544 1,750 2,160
Short-term investments 22,543 23,825 18,768
------------ ----------- ------------
Sub-total 1,041,531 941,221 798,498
Less investment expenses 23,505 23,328 22,621
------------ ----------- ------------
Net investment income $ 1,018,026 $ 917,893 $ 775,877
Less: net investment income of discontinued operations 67,682 66,290 61,510
------------ ----------- ------------
Total net investment income of continuing operations $ 950,344 $ 851,603 $ 714,367
============ =========== ============
</TABLE>
Investment income of $2.7 million was not accrued on certain delinquent
mortgage loans and defaulted bonds at December 31, 1999. Phoenix does not
accrue interest income on impaired mortgage loans and impaired bonds when
the likelihood of collection is doubtful.
The payment terms of mortgage loans may, from time to time, be restructured
or modified. The investment in restructured mortgage loans, based on
amortized cost, amounted to $36.5 million and $40.8 million at December 31,
1999 and 1998, respectively. Interest income on restructured mortgage loans
that would have been recorded in accordance with the original terms of such
loans amounted to $4.1 million, $4.9 million and $5.3 million in 1999, 1998
and 1997, respectively. Actual interest income on these loans included in
net investment income was $3.5 million, $4.0 million and $3.8 million in
1999, 1998 and 1997, respectively.
49
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INVESTMENT GAINS AND LOSSES
Net unrealized gains and (losses) on securities available-for-sale and
carried at fair value for the year ended December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ (428,497) $ (7,040) $ 112,194
Equity securities 71,752 (91,880) 74,547
Deferred policy acquisition costs 260,287 6,694 (80,603)
Deferred income taxes (33,760) (32,279) 38,064
----------------- ---------------- ----------------
Net unrealized investment (losses) gains
on securities available-for-sale $ (62,698) $ (59,947) $ 68,074
================= ================ ================
</TABLE>
Realized investment gains and losses for the year ended December 31, were
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ (20,416 ) $ (4,295) $ 19,315
Equity securities 16,648 11,939 26,290
Mortgage loans 18,534 (6,895) 3,805
Real estate 2,915 67,522 44,668
Other invested assets 18,432 (4,709) 17,387
----------- ----------- -----------
Net realized investment gains 36,113 63,562 111,465
Less realized from discontinued operations 438 5,360 422
----------- ----------- -----------
Net realized investment gains from continuing
operations $ 35,675 $ 58,202 $ 111,043
============ ============ ===========
</TABLE>
The proceeds from sales of available-for-sale debt securities and the gross
realized gains and gross realized losses on those sales for the year ended
December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from disposals $ 1,106,929 $ 912,696 $ 821,339
Gross gains on sales $ 21,808 $ 17,442 $ 27,954
Gross losses on sales $ 39,122 $ 33,641 $ 5,309
</TABLE>
50
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Phoenix Investment Partners gross amounts:
Goodwill $ 384,576 $ 321,793
Investment management contracts 235,976 169,006
Non-compete covenant 5,000 5,000
Other 10,894 472
------------- -------------
Totals 636,446 496,271
------------- -------------
Other gross amounts:
Goodwill 32,554 16,631
Intangible asset related to pension plan benefits 11,739 16,229
Other 1,206 693
------------- -------------
Totals 45,499 33,553
------------- -------------
Total gross goodwill and other intangible assets 681,945 529,824
Accumulated amortization - Phoenix Investment Partners (79,912) (49,615)
Accumulated amortization - other (8,766) (2,314)
------------- -------------
Total net goodwill and other intangible assets $ 593,267 $ 477,895
============= =============
</TABLE>
6. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Short-term debt $ 21,598 $ 1,938
Bank borrowings 260,284 168,278
Notes payable 1,146
Subordinated debentures 41,364 41,359
Surplus notes 175,000 175,000
---------------- ----------------
Total notes payable $ 499,392 $ 386,575
================ ================
</TABLE>
Phoenix has various lines of credit established with major commercial banks.
As of December 31, 1999, Phoenix had outstanding balances totaling $436.7
million. The total unused credit was $369.0 million. Interest rates ranged
from 5.26% to 7.48% in 1999.
Maturities of other indebtedness are as follows: 2000 - $21.6 million; 2001
- $26.0 million; 2002 $200.0 million; 2003 - $0.0 million; 2004 - $35.0
million; 2005 and thereafter - $216.8 million. Interest expense was $32.7
million, $25.9 million and $24.3 million for the years ended December 31,
1999, 1998 and 1997, respectively.
51
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. INCOME TAXES
A summary of income taxes (benefits) applicable to income before income
taxes and minority interest for the year ended December 31, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes
Current $ 121,448 $ 61,889 $ 39,583
Deferred (13,567) 3,157 7,658
----------------- ---------------- ----------------
Total $ 107,881 $ 65,046 $ 47,241
================= ================ ================
</TABLE>
The income taxes attributable to the consolidated results of operations are
different than the amounts determined by multiplying income before taxes by
the statutory income tax rate. The sources of the difference and the tax
effects of each for the year ended December 31, were as follows (in
thousands, aside from the percentages):
<TABLE>
<CAPTION>
1999 1998 1997
% % %
<S> <C> <C> <C>
Income tax expense at statutory 91,440 65,685 77,095
rate $ 35 $ 35 $ 35
Dividend received deduction and
tax-exempt interest (3,034) (1) (3,273) (2) (1,684) (1)
Other, net 7,922 3 2,634 2 (15,059) (7)
------------ ------- ------------ ------- ------------ -------
96,328 37 65,046 35 60,352 27
Differential earnings (equity tax) 11,553 4 (13,111) (6)
------------ ------- ------------ ------- ------------ -------
Income taxes $ 107,881 41 $ 65,046 35 $ 47,241 21
============ ======= ============ ======= ============ =======
</TABLE>
52
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The deferred income tax liability (asset) represents the tax effects of
temporary differences attributable to the consolidated tax return group. The
components were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Deferred policy acquisition costs $ 282,725 $ 294,917
Unearned premium/deferred revenue (135,124) (139,346)
Impairment reserves (15,556) (23,111)
Pension and other postretirement benefits (68,902) (57,720)
Investments 177,204 122,032
Future policyholder benefits (181,205) (151,168)
Other 4,683 31,595
-------------- ------------
63,825 77,199
Net unrealized investment gains 26,587 42,254
Minimum pension liability (4,150) (3,349)
-------------- ------------
Deferred income tax liability, net $ 86,262 $ 116,104
============== ============
</TABLE>
Gross deferred income tax assets totaled $405 million and $375 million at
December 31, 1999 and 1998, respectively. Gross deferred income tax
liabilities totaled $491 million and $491 million at December 31, 1999 and
1998, respectively. It is management's assessment, based on Phoenix's
earnings and projected future taxable income, that it is more likely than
not that deferred income tax assets at December 31, 1999 and 1998 will be
realized.
8. PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
PENSION PLANS
Phoenix has a multi-employer, non-contributory, defined benefit pension plan
covering substantially all of its employees. Retirement benefits are a
function of both years of service and level of compensation. Phoenix also
sponsors a non-qualified supplemental defined benefit plan to provide
benefits in excess of amounts allowed pursuant to the Internal Revenue Code.
Phoenix's funding policy is to contribute annually an amount equal to at
least the minimum required contribution in accordance with minimum funding
standards established by the Employee Retirement Income Security Act of
1974. Contributions are intended to provide not only for benefits
attributable to service to date, but also for service expected to be earned
in the future.
Components of net periodic pension cost for the years ended December 31,
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 11,887 $ 11,046 $ 10,278
Interest cost 24,716 22,958 22,650
Curtailments 21,604
Expected return on plan assets (28,544) (25,083) (22,055)
Amortization of net transition asset (2,369) (2,369) (2,369)
Amortization of prior service cost 1,795 1,795 1,795
Amortization of net (gain) loss (2,709) (1,247) 25
--------------- -------------- --------------
Net periodic benefit cost $ 26,380 $ 7,100 $ 10,324
=============== ============== ==============
</TABLE>
53
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In 1999, Phoenix offered a special retirement program under which qualified
participants' benefits under the employee pension plan were enhanced by
adding five years to age and five years to pension plan service. Of the 320
eligible employees, 146 accepted the special retirement program. As a result
of the special retirement program, Phoenix recorded an additional pension
expense of $21.6 million for the year ended December 31, 1999.
The aggregate change in projected benefit obligation, change in plan assets,
and funded status of the plan were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation at beginning of year $ 353,462 $ 335,436
Service cost 11,887 11,046
Interest cost 24,716 22,958
Plan amendments 23,871
Curtailments (6,380)
Actuarial loss (4,887) 1,958
Benefit payments (19,841) (17,936)
-------------- ---------------
Benefit obligation at end of year $ 382,828 $ 353,462
-------------- ---------------
Change in plan assets
Fair value of plan assets at beginning of year $ 364,819 $ 321,555
Actual return on plan assets 78,951 58,225
Employer contributions 3,883 2,975
Benefit payments (19,841) (17,936)
-------------- ---------------
Fair value of plan assets at end of year $ 427,812 $ 364,819
-------------- ---------------
Funded status of the plan $ 44,984 $ 11,357
Unrecognized net transition asset (11,847) (14,217)
Unrecognized prior service cost 11,705 16,185
Unrecognized net gain (129,936) (75,921)
-------------- ---------------
Net amount recognized $ (85,094) $ (62,596)
============== ===============
Amounts recognized in the Consolidated Balance
Sheet consist of:
Accrued benefit liability $ (108,690) $ (88,391)
Intangible asset 11,739 16,229
Accumulated other comprehensive income 11,857 9,566
-------------- ---------------
$ (85,094) $ (62,596)
============== ===============
</TABLE>
At December 31, 1999 and 1998, the non-qualified plan was not funded and had
projected benefit obligations of $72.3 million and $57.2 million,
respectively. The accumulated benefit obligations as of December 31, 1999
and 1998 related to this plan were $60.1 million and $48.4 million,
respectively, and are included in other liabilities.
Phoenix recorded, as a reduction of equity, an additional minimum pension
liability of $7.7 million and $6.2 million, net of income taxes, at December
31, 1999 and 1998, respectively, representing the excess of accumulated
benefit obligations over the fair value of plan assets and accrued pension
liabilities for the non-qualified plan. Phoenix has also recorded an
intangible asset of $11.7 million and $16.2 million as of December 31, 1999
and 1998 related to the non-qualified plan.
54
<PAGE>
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% and 7.0% for 1999 and 1998,
respectively. The discount rate assumption for 1999 was determined based on
a study that matched available high quality investment securities with the
expected timing of pension liability payments. The rate of increase in
future compensation levels used in determining the actuarial present value
of the projected benefit obligation was 4.5% and 4.0% for 1999 and 1998,
respectively. The expected long-term rate of return on retirement plan
assets was 8.0% in 1999 and 1998.
The assets within the pension plan include corporate and government debt
securities, equity securities, real estate, venture capital partnerships,
and shares of mutual funds.
Phoenix also sponsors savings plans for its employees and agents that are
qualified under Internal Revenue Code Section 401(k). Employees and agents
may contribute a portion of their annual salary, subject to certain
limitations, to the plans. Phoenix contributes an additional amount, subject
to limitation, based on the voluntary contribution of the employee or agent.
Company contributions charged to expense with respect to these plans during
the years ended December 31, 1999, 1998 and 1997 were $4.0 million, $4.1
million and $3.8 million, respectively.
OTHER POSTRETIREMENT BENEFIT PLANS
In addition to Phoenix's pension plans, Phoenix currently provides certain
health care and life insurance benefits to retired employees, spouses and
other eligible dependents through various plans sponsored by Phoenix. A
substantial portion of Phoenix's employees may become eligible for these
benefits upon retirement. The health care plans have varying copayments and
deductibles, depending on the plan. These plans are unfunded.
Phoenix recognizes the costs and obligations of postretirement benefits
other than pensions over the employees' service period ending with the date
an employee is fully eligible to receive benefits.
The components of net periodic postretirement benefit cost for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 3,313 $ 3,436 $ 3,136
Interest cost 4,559 4,572 4,441
Curtailments 5,456
Amortization of net gain (1,493) (1,232) (1,527)
------------- ------------ ------------
Net periodic benefit cost $ 11,835 $ 6,776 $ 6,050
============= ============ ============
</TABLE>
As a result of the special retirement program, Phoenix recorded an
additional postretirement benefit expense of $5.5 million for the year ended
December 31, 1999.
55
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The plan's change in projected benefit obligation, change in plan assets,
and funded status were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Change in projected postretirement benefit obligation
Projected benefit obligation at beginning of year $ 70,943 $ 66,618
Service cost 3,313 3,436
Interest cost 4,559 4,572
Plan Amendments 5,785
Curtailments (328)
Actuarial (gain) loss (8,622) 397
Benefit payments (4,459) (4,080)
--------------- ---------------
Projected benefit obligation at end of year 71,191 70,943
--------------- ---------------
Change in plan assets
Employer contributions 4,459 4,080
Benefit payments (4,459) (4,080)
--------------- ---------------
Fair value of plan assets at end of year
--------------- ---------------
Funded status of the plan (71,191) (70,943)
Unrecognized net gain (33,538) (26,408)
--------------- ---------------
Accrued benefit liability $ (104,729) $ (97,351)
=============== ===============
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% and 7.0% at December 31, 1999 and 1998, respectively.
For purposes of measuring the accumulated postretirement benefit obligation
the health care costs were assumed to increase 7.5% and 8.5% in 1999 and
1998, respectively, declining thereafter until the ultimate rate of 5.5% is
reached in 2002 and remains at that level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation by $4.3 million and the annual service and
interest cost by $0.6 million, before income taxes. Decreasing the assumed
health care cost trend rates by one percentage point in each year would
decrease the accumulated postretirement benefit obligation by $4.1 million
and the annual service and interest cost by $0.5 million, before income
taxes. Gains and losses that occur because actual experience differs from
the estimates are amortized over the average future service period of
employees.
OTHER POSTEMPLOYMENT BENEFITS
Phoenix recognizes the costs and obligations of severance, disability and
related life insurance and health care benefits to be paid to inactive or
former employees after employment but before retirement. Other
postemployment benefit expenses were $0.5 million for 1999, ($0.5) million
for 1998 and $0.4 million for 1997.
56
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. COMPREHENSIVE INCOME
The components of, and related income tax effects for, other comprehensive
income for the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Before-tax amount $ (94,224) $ (72,255) $ 151,210
Income tax (benefit) expense (32,978) (25,288) 52,923
-------------- -------------- --------------
Totals (61,246) (46,967) 98,287
-------------- -------------- --------------
RECLASSIFICATION ADJUSTMENT FOR NET GAINS
REALIZED IN NET INCOME:
Before-tax amount (2,234) (19,970) (46,481)
Income tax (benefit) (782) (6,990) (16,268)
-------------- -------------- --------------
Totals (1,452) (12,980) (30,213)
-------------- -------------- --------------
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Before-tax amount (96,458) (92,225) 104,729
Income tax (benefit) expense (33,760) (32,278) 36,655
-------------- -------------- --------------
Totals $ (62,698) $ (59,947) $ 68,074
============== ============== ==============
MINIMUM PENSION LIABILITY ADJUSTMENT:
Before-tax amount $ (2,289) $ (2,347) $ (3,232)
Income tax (benefit) (801) (821) (1,131)
-------------- -------------- --------------
Totals $ (1,488) $ (1,526) $ (2,101)
============== ============== ==============
</TABLE>
The following table summarizes accumulated other comprehensive income for
the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Balance, beginning of year $ 100,510 $ 160,457 $ 92,383
Change during period (62,698) (59,947) 68,074
-------------- -------------- --------------
Balance, end of year 37,812 100,510 160,457
-------------- -------------- --------------
MINIMUM PENSION LIABILITY ADJUSTMENT:
Balance, beginning of year (6,219) (4,693) (2,592)
Change during period (1,488) (1,526) (2,101)
-------------- -------------- --------------
Balance, end of year (7,707) (6,219) (4,693)
-------------- -------------- --------------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance, beginning of year 94,291 155,764 89,791
Change during period (64,186) (61,473) 65,973
-------------- -------------- --------------
Balance, end of year $ 30,105 $ 94,291 $ 155,764
============== ============== ==============
</TABLE>
57
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. SEGMENT INFORMATION
Phoenix offers a wide range of financial products and services. These
businesses have been grouped into three reportable segments.
The Individual segment includes the individual life insurance and annuity
products including participating whole life, universal life, variable life,
term life and variable annuities.
The Investment Management segment includes retail and institutional mutual
fund management and distribution including open-end funds, closed-end funds
and wrap accounts.
Corporate and Other contains several smaller subsidiaries and investment
activities which do not meet the thresholds of reportable segments as
defined in SFAS No. 131. They include venture capital investments,
international operations, trust operations and other investments.
The majority of Phoenix's revenue is derived in the United States. Revenue
derived from outside the United States is not material and revenue derived
from any single customer does not exceed ten percent of total consolidated
revenues.
The accounting policies of the segments are the same as those described in
Note 2 - "Summary of Significant Accounting Policies." Phoenix evaluates the
performance of each operating segment based on profit or loss from
operations before income taxes and nonrecurring items. Phoenix does not
include certain nonrecurring items to the segments. They are reported as
unallocated items and include expenses associated with various lawsuits and
legal disputes, postretirement medical expenses associated with an early
retirement program and realized gains associated with the sales of
subsidiaries. See Note 8 - " Pension and Other Postretirement and
Postemployment Benefit Plans."
Included in the following tables is certain information with respect to
Phoenix's operating segments as of and for each of the years ended December
31, 1999, 1998 and 1997, as well as amounts not allocated to the segments
which was described previously.
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998 1997
(IN MILLIONS)
<S> <C> <C> <C>
TOTAL ASSETS
Individual $ 17,990.3 $ 16,919.5 $ 15,709.8
Investment Management 747.4 591.9 647.9
Corporate & Other 1,357.8 876.2 1,124.4
Discontinued operations 187.6 283.8 250.9
-------------- -------------- -------------
Total 20,283.1 18,671.4 17,733.0
============== ============== =============
DEFERRED POLICY ACQUISITION COSTS
Individual $ 1,306.7 $ 1,049.9 $ 1,016.3
============== ============== =============
</TABLE>
58
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS)
<S> <C> <C> <C>
PREMIUMS, INSURANCE AND INVESTMENT PRODUCT FEES
Individual $ 1,361.4 $ 1,416.7 $ 1,259.2
Investment Management 293.9 231.0 140.7
Corporate & Other 115.2 41.1 84.1
Less: intersegment revenues (44.5) (40.7) (40.3)
--------------- --------------- --------------
Total 1,726.0 1,648.1 1,443.7
--------------- --------------- --------------
INVESTMENT INCOME
Individual 768.2 768.5 640.3
Investment Management 6.0 2.7 3.0
Corporate & Other 176.1 80.4 71.1
--------------- --------------- --------------
Total 950.3 851.6 714.4
--------------- --------------- --------------
NET REALIZED INVESTMENT GAINS
Individual 15.9 (17.8) 65.7
Corporate & Other 3.9 10.5 45.3
Gains on sale of subsidiaries 16.0 65.5
--------------- --------------- --------------
Total 35.8 58.2 111.0
--------------- --------------- --------------
POLICY BENEFITS AND DIVIDENDS
Individual 1,611.3 1,718.2 1,499.7
Corporate & Other 101.6 36.6 45.8
--------------- --------------- --------------
Total 1,712.9 1,754.8 1,545.5
--------------- --------------- --------------
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS
Individual 146.6 137.7 102.6
--------------- --------------- --------------
Total 146.6 137.7 102.6
--------------- --------------- --------------
AMORTIZATION OF GOODWILL AND INTANGIBLES
Individual 4.2 0.3 0.5
Investment Management 30.3 22.0 9.1
Corporate & Other 3.5 0.8 (0.2)
--------------- --------------- --------------
Total 38.0 23.1 9.4
--------------- --------------- --------------
INTEREST EXPENSE
Investment Management 18.9 14.7 3.6
Corporate & Other 13.8 11.2 20.7
--------------- --------------- --------------
Total 32.7 25.9 24.3
--------------- --------------- --------------
OTHER OPERATING EXPENSES
Individual 289.4 268.1 234.6
Investment Management 203.5 156.1 101.9
Corporate & Other 65.0 40.7 69.2
Unallocated amounts 7.2 4.5 1.7
Less: intersegment expenses (44.5) (40.7) (40.4)
--------------- --------------- --------------
Total 520.6 428.7 367.0
--------------- --------------- --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST
Individual 94.0 43.2 127.9
Investment Management 47.2 40.8 29.2
Corporate & Other 111.3 42.7 64.9
Unallocated amounts & intersegment eliminations 8.8 61.0 (1.7)
--------------- --------------- --------------
Total $ 261.3 $ 187.7 $ 220.3
=============== =============== ==============
</TABLE>
59
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. DISCONTINUED OPERATIONS
During 1999, Phoenix discontinued the operations of four of its business
units which in prior years had been reflected as reportable business
segments: the Reinsurance Operations, the Property and Casualty Brokerage
Operations, the Real Estate Management Operation and the Group Insurance
Operations. The discontinuation of these business units resulted from the
sale of several operations, a signed agreement to sell one of the operations
and the implementation of plans to withdraw from the remaining businesses.
REINSURANCE OPERATIONS
During 1999, Phoenix completed a comprehensive strategic review of its life
reinsurance segment and decided to exit these operations through a
combination of sale, reinsurance and placement of certain components into
run-off. Accordingly, Phoenix estimated sales proceeds, reinsurance premiums
and net claims run-off, resulting in the recognition of a $173 million
pre-tax loss ($113 million after-tax loss) on the disposal of life
reinsurance discontinued operations. The life reinsurance segment consisted
primarily of individual life reinsurance operations as well as group
personal accident and group health reinsurance business. The significant
components of the loss on the disposal of life reinsurance discontinued
operations in 1999 were as follows:
On August 1, 1999, Phoenix sold its individual life reinsurance operations
and certain group health reinsurance business to Employers Reinsurance
Corporation for $130 million. The transaction was structured as a
reinsurance and asset sale transaction, resulting in a pre-tax gain of $113
million. The pre-tax income from operations for the seven months prior to
disposal was $19 million.
On June 30, 1999, PM Holdings sold 100% of the common stock of Financial
Administrative Services, Inc. (FAS), its third-party administration
subsidiary, to CYBERTEK, a wholly-owned subsidiary of Policy Management
Systems Corporation. Proceeds from the sale were $8.0 million for the common
stock plus $1.0 million for a covenant not-to-compete, resulting in an
after-tax gain of $2.0 million.
Phoenix retained ownership of the preferred stock of FAS, which under the
terms of the agreement, CYBERTEK will purchase in six equal annual
installments commencing March 31, 2001 through March 31, 2006. The purchase
price will be determined annually based upon earnings, but in total, will
range from a minimum of $4.0 million to a maximum of $16.0 million.
During 1999, Phoenix placed the remaining group personal accident and group
health reinsurance operations into run-off. Management has adopted a formal
plan to terminate the related treaties as early as contractually permitted
and is not entering into any new contracts. Based upon the most recent
information available, Phoenix reviewed the run-off block and estimated the
amount and timing of future net premiums, claims and expenses. Consequently,
Phoenix increased reserve estimates on the run-off block by $180 million. In
addition, as part of the exit strategy, Phoenix purchased finite aggregate
excess of loss reinsurance to further protect Phoenix from unfavorable
results in the run-off block. The finite reinsurance is subject to an
aggregate retention of $100 million on the run-off block. Phoenix may
commute the agreement at any time after September 30, 2004, subject to
automatic commutation effective September 30, 2019. Phoenix paid an initial
premium of $130 million.
The additional estimated reserves and finite reinsurance coverage are
expected to cover the run-off of the business; however, the nature of the
underlying risks is such that the claims may take years to reach the
reinsurers involved. Therefore, Phoenix expects to pay claims out of
existing estimated reserves over a number of years as the level of business
diminishes.
60
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Additionally, certain group personal accident reinsurance business has
become the subject of disputes concerning the placement of the business with
reinsurers and the recovery of the reinsurance. This business primarily
concerns certain occupational accident reinsurance "facilities" and a
reinsurance pool (the Unicover Pool) underwritten and managed by Unicover
Managers, Inc. (Unicover). Phoenix participated as a reinsurer in the
Unicover Pool. The Unicover Pool and "facilities" were reinsured in large
part by a reinsurance facility underwritten and managed by Centaur
Underwriting Limited (Centaur) in which Phoenix also participated. Phoenix
terminated its participation in the Centaur facility effective October 1,
1998 and in the Unicover Pool effective March 1, 1999. However, claims
arising from business underwritten while Phoenix was a participant continue
to run off. On September 21, 1999, Phoenix initiated arbitration proceedings
seeking to rescind certain contracts arising from its participation in the
Centaur facility with respect to reinsurance of the Unicover business. In
January 2000, Phoenix settled two Unicover-related matters (see Note 21 -
"Subsequent Events"). A substantial portion of the risk associated with the
Unicover Pool and "facilities" and the Centaur program was further
retroceded by Phoenix to other unaffiliated insurance entities, providing
Phoenix with significant security. Certain of these retrocessionaires have
given notice that they challenge their obligations under their contracts and
are in arbitration or litigation with Phoenix.
Additionally, certain group personal accident excess of loss reinsurance
contracts created in the London market during 1994 - 1997 have become the
subject of disputes concerning the placement of the business with reinsurers
and the recovery of reinsurance. Several arbitration proceedings are
currently pending.
Given the uncertainty associated with litigation and other dispute
resolution proceedings, and the expected long term development of net claims
payments, the estimated amount of the loss on disposal of life reinsurance
discontinued operations may differ from actual results. However, it is
management's opinion, after consideration of the provisions made in these
financial statements, as described above, that future developments will not
have a material effect on Phoenix's consolidated financial position.
PROPERTY AND CASUALTY BROKERAGE OPERATIONS
On July 1, 1999, PM Holdings sold its property and casualty brokerage
business to Hilb, Rogal and Hamilton Company (HRH) for $48.1 million
including $0.2 million for a covenant not-to-compete. Total proceeds
consisted of $32.0 million in convertible debentures, $15.9 million for
865,042 shares of HRH common stock, valued at $18.38 per share on the sale
date, and $0.2 million in cash. The pre-tax gain realized on the sale was
$40.1 million. The HRH common stock is classified as common stock and the
convertible debentures are classified as bonds in the Consolidated Balance
Sheet. As of December 31, 1999 Phoenix owns 7% of the outstanding HRH common
stock, 15% on a diluted basis.
REAL ESTATE MANAGEMENT OPERATIONS
On March 31, 1999, Phoenix sold its real estate management subsidiary,
Phoenix Realty Advisors, to Henderson Investors International Holdings, B.V.
for $7.9 million in cash. The pre-tax gain realized on this transaction was
$7.1 million.
61
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
GROUP INSURANCE OPERATIONS
On December 9, 1999, Phoenix signed a definitive agreement to sell its Group
Life and Health business, including five companies, Phoenix American Life,
Phoenix Dental Services, Phoenix Group Services, California Benefits and
Clinical Disability Management, to GE Financial Assurance Holdings, Inc.
Proceeds from the sale are estimated to be $285 million, including cash of
$240 million and 3.1% of the common stock of GE Life and Annuity Assurance
Company. Phoenix expects the transaction to be completed in the second
quarter of 2000, subject to regulatory approval.
The assets and liabilities of the discontinued operations have been excluded
from the assets and liabilities of continuing operations and separately
identified on the Consolidated Balance Sheet. Net assets of the discontinued
operations totaled $187.6 million and $283.8 million as of December 31, 1999
and 1998, respectively. Asset and liability balances of the continuing
operation as of December 31, 1998, have been restated to conform with the
current year presentation. Likewise, the Consolidated Statement of Income,
Comprehensive Income and Equity has been restated for 1998 and 1997 to
exclude the operating results of discontinued operations from continuing
operations. The operating results of discontinued operations and the gain or
loss on disposal are presented below.
<TABLE>
<CAPTION>
GAIN (LOSS) FROM OPERATIONS OF YEAR ENDED DECEMBER 31,
DISCONTINUED OPERATIONS 1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Reinsurance Operations $ 306,671 $ 163,503
Group Insurance Operations $ 453,813 503,825 483,956
Property and Casualty Brokerage Operations 25,968 72,579 64,093
Real Estate Management 1,189 12,707 15,319
-------------- ------------- --------------
Total revenues 480,970 895,782 726,871
-------------- ------------- --------------
Gain (loss) from operations:
Reinsurance Operations 14,081 10,611
Group Insurance Operations 28,672 29,212 31,686
Property and Casualty Brokerage Operations 1,534 2,515 (19,911)
Real Estate Management (2,645) (4,037) (2,616)
-------------- ------------- --------------
Gain from discontinued operations before income
taxes 27,561 41,771 19,770
Income taxes 10,006 16,759 12,522
-------------- ------------- --------------
Gain from discontinued operations, net of taxes $ 17,555 $ 25,012 $ 7,248
-------------- ------------- --------------
</TABLE>
62
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS DECEMBER 31, 1999
(IN THOUSANDS)
<S> <C>
(Loss) gain on disposal:
Reinsurance Operations $ (173,061)
Property and Casualty Brokerage Operations 40,131
Real Estate Management 5,870
-------------
Loss on disposal of discontinued operations before
income taxes (127,060)
Income taxes (55,076)
-------------
Loss on disposal of discontinued operations, net of
income taxes $ (71,984)
-------------
</TABLE>
12. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements, consisting primarily of
office buildings occupied by Phoenix, are stated at depreciated cost. Real
estate occupied by Phoenix was $101.7 million and $106.7 million at December
31, 1999 and 1998, respectively. Phoenix provides for depreciation using
straight-line and accelerated methods over the estimated useful lives of the
related assets which generally range from five to forty years. Accumulated
depreciation and amortization was $182.3 million and $161.2 million at
December 31, 1999 and 1998, respectively.
Rental expenses for operating leases, principally with respect to buildings,
amounted to $16.3 million, $16.9 million and $16.9 million in 1999, 1998,
and 1997, respectively, for continuing operations. Future minimum rental
payments under non-cancelable operating leases for continuing operations
were approximately $40.2 million as of December 31, 1999, payable as
follows: 2000 - $13.5 million; 2001 - $10.5 million; 2002 - $7.3 million;
2003 - $5.1 million; 2004 - $2.8 million; and $1.0 million thereafter.
13. DIRECT BUSINESS WRITTEN AND REINSURANCE
As is customary practice in the insurance industry, Phoenix assumes and
cedes reinsurance as a means of diversifying underwriting risk. For direct
issues, the maximum of individual life insurance retained by Phoenix on any
one life is $8 million for single life and joint first-to-die policies and
to $10 million for joint last-to-die policies, with excess amounts ceded to
reinsurers. Phoenix reinsures 80% of the mortality risk on the inforce block
of the Confederation Life business acquired on December 31, 1997, and 90% of
the mortality risk on certain new issues of term and universal life
products. In addition, Phoenix entered into a separate reinsurance agreement
on October 1, 1998 to reinsure 80% of the mortality risk on a substantial
portion of its otherwise retained individual life insurance business. In
1999, Phoenix reinsured the mortality risk on the remaining 20% of this
business. Amounts recoverable from reinsurers are estimated in a manner
consistent with the claim liability associated with the reinsured policy.
63
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Additional information on direct business written and reinsurance assumed
and ceded for the years ended December 31, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $ 1,762,359 $ 1,719,393 $ 1,592,800
Reinsurance assumed 416,194 505,262 329,927
Reinsurance ceded (537,847) (371,854) (282,121)
-------------- --------------- --------------
Net premiums 1,640,706 1,852,801 1,640,606
Less net premiums of discontinued operations (506,499) (698,071) (564,449)
-------------- --------------- --------------
Net premiums of continuing operations $ 1,134,207 $ 1,154,730 $ 1,076,157
============== =============== ==============
Direct policy and contract claims incurred $ 707,105 $ 728,062 $ 629,112
Reinsurance assumed 563,807 433,242 410,704
Reinsurance ceded (500,282) (407,780) (373,127)
-------------- --------------- --------------
Net policy and contract claims incurred 770,630 753,524 666,689
Less net incurred claims of discontinued operations (552,423) (471,688) (422,373)
-------------- --------------- --------------
Net policy and contract claims incurred
of continuing operations $ 218,207 $ 281,836 $ 244,316
============== =============== ==============
Direct life insurance in force $ 31,052,050 $ 121,442,041 $ 20,394,664
Reinsurance assumed 139,649,850 110,632,110 84,806,585
Reinsurance ceded (207,192,046) (135,817,986) (74,764,639)
-------------- --------------- --------------
Net insurance in force 63,509,854 96,256,165 30,436,610
Less insurance in force of discontinued operations (1,619,452) (24,330,166) (13,811,408)
-------------- --------------- --------------
Net insurance in force of continuing operations $ 61,890,402 $ 71,925,999 $ 16,625,202
============== =============== ==============
</TABLE>
Irrevocable letters of credit aggregating $36.2 million at December 31, 1999
have been arranged with United States commercial banks in favor of Phoenix
to collateralize the ceded reserves.
14. PARTICIPATING LIFE INSURANCE
Participating life insurance in force was 66.9% and 72.3% of the face value
of total individual life insurance in force at December 31, 1999 and 1998,
respectively. The premiums on participating life insurance policies were
76.8%, 79.4% and 83.5% of total individual life insurance premiums in 1999,
1998, and 1997, respectively.
64
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred and
amortized for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 1,049,934 $ 1,016,295 $ 908,616
Acquisition cost deferred 143,110 164,608 288,281
Amortized to expense during the year (146,603) (137,663) (102,617)
Adjustment to net unrealized investment
gains (losses) included in other
comprehensive income 260,287 6,694 (77,985)
----------------- ---------------- -----------------
Balance at end of year $ 1,306,728 $ 1,049,934 $ 1,016,295
================= ================ =================
</TABLE>
Amortized to expense during the year for 1999 includes a $6.3 million
adjustment due to worse than expected persistency in one of the variable
annuity product lines and a $6.9 million adjustment to traditional life due
to an adjustment to death claims used in determining DAC amortization.
16. MINORITY INTEREST
Phoenix's interests in Phoenix Investment Partners and PFG Holdings, through
its wholly-owned subsidiary PM Holdings, are represented by ownership of
approximately 60% and 67%, respectively, of the outstanding shares of common
stock at December 31, 1999. Earnings and equity attributable to minority
shareholders are included in minority interest in the consolidated financial
statements.
17. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Other than debt securities being held-to-maturity, financial instruments
that are subject to fair value disclosure requirements (insurance contracts
are excluded) are carried in the consolidated financial statements at
amounts that approximate fair value. The fair values presented for certain
financial instruments are estimates which, in many cases, may differ
significantly from the amounts which could be realized upon immediate
liquidation. In cases where market prices are not available, estimates of
fair value are based on discounted cash flow analysis which utilize current
interest rates for similar financial instruments which have comparable terms
and credit quality.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair
value.
65
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES
Fair values are based on quoted market prices, where available, or quoted
market prices of comparable instruments. Fair values of private placement
debt securities are estimated using discounted cash flows that apply
interest rates currently being offered with similar terms to borrowers of
similar credit quality.
DERIVATIVE INSTRUMENTS
Phoenix's derivative instruments include interest rate swap, cap and floor
agreements, swaptions and foreign currency swap agreements. Fair values for
these contracts are based on current settlement values. These values are
based on brokerage quotes that utilize pricing models or formulas based upon
current assumptions for the respective agreements.
EQUITY SECURITIES
Fair values are based on quoted market prices, where available. If a quoted
market price is not available, fair values are estimated using independent
pricing sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are calculated as the present value of scheduled payments, with
the discount based upon the Treasury rate comparable for the remaining loan
duration, plus a spread of between 130 and 800 basis points, depending on
the internal quality rating of the loan. For loans in foreclosure or
default, values were determined assuming principal recovery was the lower of
the loan balance or the estimated value of the underlying property.
POLICY LOANS
Fair values are estimated as the present value of loan interest and policy
loan repayments discounted at the ten year Treasury rate. Loan repayments
were assumed only to occur as a result of anticipated policy lapses, and it
was assumed that annual policy loan interest payments were made at the
guaranteed loan rate less 17.5 basis points. Discounting was at the ten year
Treasury rate, except for policy loans with a variable policy loan rate.
Variable policy loans have an interest rate that is reset annually based
upon market rates and therefore, book value is a reasonable approximation of
fair value.
INVESTMENT CONTRACTS
In determining the fair value of guaranteed interest contracts, a discount
rate equal to the appropriate Treasury rate, plus 150 basis points, was
assumed to determine the present value of projected contractual liability
payments through final maturity.
The fair value of deferred annuities and supplementary contracts without
life contingencies with an interest guarantee of one year or less is valued
at the amount of the policy reserve. In determining the fair value of
deferred annuities and supplementary contracts without life contingencies
with interest guarantees greater than one year, a discount rate equal to the
appropriate Treasury rate, plus 150 basis points, was used to determine the
present value of the projected account value of the policy at the end of the
current guarantee period.
Deposit type funds, including pension deposit administration contracts,
dividend accumulations, and other funds left on deposit not involving life
contingencies, have interest guarantees of less than one year for which
interest credited is closely tied to rates earned on owned assets. For such
liabilities, fair value is assumed to be equal to the stated liability
balances.
66
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTES PAYABLE
The fair value of notes payable is determined based on contractual cash
flows discounted at market rates.
FAIR VALUE SUMMARY
The estimated fair values of the financial instruments as of December 31,
were as follows:
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 187,610 $ 187,610 $ 115,187 $ 115,187
Short-term investments 133,367 133,367 185,983 185,983
Debt securities 7,496,948 7,400,067 7,712,865 7,796,389
Equity securities 461,613 461,613 301,649 301,649
Mortgage loans 716,831 680,569 797,343 831,919
Derivative instruments (13,211) 12,316
Policy loans 2,042,558 2,040,497 2,008,260 2,122,389
---------------- --------------- --------------- ----------------
Total financial assets $ 11,038,927 $ 10,890,512 $ 11,121,287 $ 11,365,832
================ =============== =============== ================
Financial liabilities:
Policy liabilities $ 709,696 $ 709,357 $ 783,400 $ 783,400
Notes payable 499,392 490,831 386,575 395,744
---------------- ---------------- ---------------- ----------------
Total financial liabilities $ 1,209,088 $ 1,200,188 $ 1,169,975 $ 1,179,144
================ =============== =============== ===============
</TABLE>
18. CONTINGENCIES
LITIGATION
Certain group personal accident reinsurance business has become the subject
of disputes concerning the placement of the business with reinsurers and the
recovery of the reinsurance (see Note 11 - "Discontinued Operations" and
Note 21 - "Subsequent Events")
19. STATUTORY FINANCIAL INFORMATION
The insurance subsidiaries are required to file annual statements with state
regulatory authorities prepared on an accounting basis prescribed or
permitted by such authorities. Except for the accounting policy involving
federal income taxes described next, there were no material practices not
prescribed by the State of New York Insurance Department (the Insurance
Department), as of December 31, 1999, 1998 and 1997. Phoenix's statutory
federal income tax liability is principally based on estimates of federal
income tax due. A deferred income tax liability has also been established
for estimated taxes on unrealized gains for common stock and venture capital
equity partnerships. Current New York law does not allow the recording of
deferred income taxes. Phoenix has received approval from the Insurance
Department for this practice.
67
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statutory surplus differs from equity reported in accordance with GAAP for
life insurance companies primarily because policy acquisition costs are
expensed when incurred, investment reserves are based on different
assumptions, surplus notes are not included in equity, postretirement
benefit costs are based on different assumptions and reflect a different
method of adoption, life insurance reserves are based on different
assumptions and income tax expense reflects only taxes paid or currently
payable.
The following reconciles the statutory net income of Phoenix as reported to
regulatory authorities to the net income as reported in these financial
statements for the year ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income $ 131,286 $ 108,652 $ 66,599
Deferred policy acquisition costs, net (28,099) 18,538 48,821
Future policy benefits (23,686) (53,847) (9,145)
Pension and postretirement expenses (8,638) (17,334) (7,955)
Investment valuation allowances 15,141 107,229 87,920
Interest maintenance reserve (7,232) 1,415 17,544
Deferred income taxes 3,919 (39,983) (36,250)
Other, net 6,191 12,459 2,118
-------------- -------------- --------------
Net income, as reported $ 88,882 $ 137,129 $ 169,652
============== ============== ==============
</TABLE>
The following reconciles the statutory surplus and asset valuation reserve
(AVR) of Phoenix as reported to regulatory authorities to equity as reported
in these financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Statutory surplus, surplus notes and AVR $ 1,427,333 $ 1,205,635
Deferred policy acquisition costs, net 1,231,217 1,259,316
Future policy benefits (478,184) (465,268)
Pension and postretirement expenses (193,007) (174,273)
Investment valuation allowances (206,531) 34,873
Interest maintenance reserve 24,767 35,303
Deferred income taxes 65,595 (25,593)
Surplus notes (159,444) (157,500)
Other, net 49,505 24,062
------------------ ------------------
Equity, as reported $ 1,761,251 $ 1,736,555
================== ==================
</TABLE>
The Insurance Department recognizes only statutory accounting practices for
determining and reporting the financial condition and results of operations
of an insurance company, for determining its solvency under New York
Insurance Law, and for determining whether its financial condition warrants
the payment of a dividend to its policyholders. No consideration is given by
the Insurance Department to financial statements prepared in accordance with
generally accepted accounting principles in making such determinations.
68
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
20. PRIOR PERIOD ADJUSTMENTS
In 1999, Phoenix revised the accounting for venture capital partnerships to
include unrealized capital gains and losses on investments held in the
partnerships. These gains and losses are recorded in investment income.
Opening retained earnings at December 31, 1996 has been increased by $17.6
million. The consolidated balance sheet as of December 31, 1998 was revised
by increasing the following balances: other invested assets by $50.6
million, deferred income taxes by $17.7 million and retained earnings by
$32.9 million. The effect on the Consolidated Statement of Income,
Comprehensive Income and Equity was an increase in net income of $12.4
million and $2.9 million for the years ended 1998 and 1997, respectively.
In 1998, Phoenix revised the accounting for partnerships involved in
leveraged lease arrangements for 1997 and 1996. Opening retained earnings at
December 31, 1995 has been increased by $7.7 million. The Consolidated
Balance Sheet as of December 31, 1997 was revised by increasing the
following balances: other invested assets by $18.9 million, deferred income
taxes by $6.6 million and retained earnings by $12.3 million. The effect on
the Consolidated Statement of Income, Comprehensive Income and Equity was an
increase in net income of $2.1 million and $2.5 million for the years ended
1997 and 1996, respectively.
21. SUBSEQUENT EVENTS
OCCUPATIONAL ACCIDENT REINSURANCE
On January 21, 2000, Phoenix, in connection with its participation in the
Centaur facility, and two other companies completed a settlement agreement
with Reliance Insurance Company (Reliance) with respect to certain
reinsurance contracts covering occupational accident business reinsured by
Reliance as a Unicover-managed "facility." The Reliance business was the
largest portion of occupational accident reinsurance business underwritten
by Unicover. Under the terms of the settlement agreement, Phoenix ended the
contracts for a total payment of $115.0 million.
On January 13, 2000, Phoenix and four other companies, in connection with
their participation in the Unicover Pool, completed a settlement agreement
with EBI Indemnity Company and other affiliates of the Orion Group (EBI)
with respect to certain reinsurance contracts covering occupational accident
business which EBI ceded to the Unicover Pool. These contracts represented
the largest source of premium to the Unicover Pool. Under the terms of the
settlement agreement, the Unicover Pool members ended the contracts for a
total payment of $43.0 million, of which Phoenix's share was approximately
$10.0 million.
Phoenix included the cost of these settlements, net of reinsurance, in its
estimate of the loss on discontinued life reinsurance operations. See Note
11 - "Discontinued Operations."
69
<PAGE>
PHOENIX HOME LIFE
VARIABLE UNIVERSAL LIFE ACCOUNT
As of March __, 2000, there had been no sales of the product described in this
prospectus and, therefore, no deposits were made to Phoenix Home Life Variable
Universal Life Account. Accordingly, no financial statements are available for
the VUL Account.
70
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
GLOSSARY OF 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.
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, provided that minimum required premiums
are paid. See "Additional Rider Benefits."
DEBT: Outstanding loans against a policy, plus accrued interest.
FUNDS: The Phoenix Edge Series Fund, BT Insurance Funds Trust, Federated
Insurance Series, Morgan Stanley Dean Witter Universal Funds, Inc., Templeton
Variable Products Series Fund and Wanger Advisors Trust.
GENERAL ACCOUNT: The general asset account of Phoenix.
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 thereafter or, if such day does not fall within a given month, the last
day of that month will be the monthly calculation day.
NET ASSET VALUE: The worth of one share of a series of a fund at the end of a
valuation period. Net asset value is computed by adding the value of a series'
holdings plus other assets, minus liabilities and then dividing the result by
the number of shares outstanding.
PAYMENT DATE: The valuation date on which we receive a premium payment or loan
repayment, unless it is received after the close of the New York Stock Exchange
("NYSE"), in which case it will be the next valuation date.
PLANNED ANNUAL PREMIUM: The premium amount that the policyowner agrees to pay
each policy year. It must be at least equal to the minimum required premium 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 VALUE: The sum of a policy's share in the values of each subaccount of
the VUL Account plus the policy's share in the values of the GIA.
POLICY YEAR: The first policy year is the 1-year period from the policy date up
to, but not including, the first policy anniversary. Each succeeding policy year
is the 1-year period from the policy anniversary up to, but not including, the
next policy anniversary.
SERIES: A separate investment portfolio of the fund.
SUBACCOUNTS: Accounts within the VUL Account to which nonloaned assets under a
policy are allocated.
TARGET PREMIUM: The level annual premium at which the sales load is reduced on a
current basis.
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.
VUL ACCOUNT (ACCOUNT): Phoenix Home Life Variable Universal Life Account, a
separate account of the company.
71
<PAGE>
APPENDIX B
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
("ACCOUNT 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 Fixed Income 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, 1999.
Example:
Assumptions:
Value of hypothetical pre-existing account with exactly one
unit at the beginning of the period:................ 1.000000
Value of the same account (excluding capital changes) at the
end of the 7-day period:............................ 1.001003
Calculation:
Ending account value ............................... 1.001003
Less beginning account value ....................... 1.000000
Net change in account value ........................ 0.001003
Base period return:
(adjusted change/beginning account value) .......... 0.001003
Current yield = return x (365/7) = ................... 5.23%
Effective yield = [(1 + return)(365/7)] - 1 = .......... 5.37%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time, or other investment companies, due to charges which
will be deducted on the VUL Account level.
For the Phoenix-Goodwin Multi-Sector Fixed Income Subaccount, quotations of
yield will be based on all investment income per unit earned during a given
30-day period (including dividends and interest), less expenses accrued during
the period ("net investment income"), and are computed by dividing 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 advisors. The performance figures shown should be
considered in light of the investment objectives and policies, characteristics
and quality of the subaccounts and market conditions during the periods of time
quoted. The performance figures should not be considered as estimates or
predictions of future performance. Investment return of the subaccounts are not
guaranteed and will fluctuate. Below are quotations of average annual total
return calculated as described above for all subaccounts with at least one year
of results. POLICY CHARGES (INCLUDING COST OF INSURANCE, PREMIUM TAX CHARGES,
PREMIUM SALES CHARGES AND SURRENDER CHARGES) ARE NOT REFLECTED.
72
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1999(1,3)
- -----------------------------------------------------------------------------------------------------------------------------------
SERIES INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index Series..................... 7/15/97 17.59% N/A N/A 21.45%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International Series...................... 5/1/90 28.14% 18.15% N/A 11.73%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia Series........................... 9/17/96 49.49% N/A N/A -2.01%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Bankers Trust Dow 30 Series........................ 12/15/99 N/A N/A N/A 2.45%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities Series........ 5/1/95 3.64% N/A N/A 9.26%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Capital Growth Series..................... 1/1/83 28.31% 23.46% 18.60% 19.29%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty Series........................ 3/2/98 30.80% N/A N/A 30.93%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Federated U.S. Government Securities Series........ 12/15/99 N/A N/A N/A -1.54%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market Series........................ 10/10/82 3.68% 4.08% 3.99% 5.50%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income Series........... 1/1/83 4.31% 8.19% 8.00% 9.13%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity Series...................... 3/2/98 23.00% N/A N/A 17.76%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Equity Income Series......................... 12/15/99 N/A N/A N/A 5.79%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Flexible Income Series....................... 12/15/99 N/A N/A N/A -0.05%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Growth Series................................ 12/15/99 N/A N/A N/A 5.93%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Morgan Stanley Focus Equity Series................. 12/15/99 N/A N/A N/A 6.24%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Balanced Series........................... 5/1/92 10.37% 15.30% N/A 11.47%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income Series.................. 3/2/98 15.78% N/A N/A 19.30%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Strategic Allocation Series............... 9/17/84 10.07% 14.78% 12.24% 12.95%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value Series....................... 3/2/98 -11.32% N/A N/A -12.91%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth Series....................... 3/2/98 44.08% N/A N/A 35.20%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Strategic Theme Series...................... 1/29/96 53.45% N/A N/A 29.90%
- -----------------------------------------------------------------------------------------------------------------------------------
EAFE(R) Equity Index Fund.................................. 8/22/97 26.26% N/A N/A 15.79%
- -----------------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government Securities II........... 3/1/94 -1.69% 4.58% N/A 4.28%
- -----------------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II......................... 3/28/94 1.21% 9.45% N/A 7.17%
- -----------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio....................................... 11/30/99 N/A N/A N/A 23.70%
- -----------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments Fund-- Class 2(2)................ 5/1/98 8.14% N/A N/A 9.18%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation Fund-- Class 2(2)............... 11/28/88 21.27% 15.73% 11.81% 12.04%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Fund-- Class 2(2)............. 9/15/96 51.78% N/A N/A -5.63%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton International Fund-- Class 2(2).................. 5/1/92 21.95% 15.63% N/A 13.80%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Stock Fund-- Class 2(2).......................... 11/4/88 27.45% 16.19% 12.29% 12.40%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty....................................... 2/1/99 N/A N/A N/A 82.28%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap............................. 5/1/95 124.32% N/A N/A 37.51%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Twenty.............................................. 2/1/99 N/A N/A N/A 32.92%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger U.S. Small Cap...................................... 5/1/95 23.75% N/A N/A 25.36%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 The average annual total return is the annual compound return that results
from holding an initial investment of $10,000 for the time period indicated.
Returns are net of $150 Issue Expense Charge, $5 Monthly Administrative Fee,
Investment Management Fees and Mortality and Expense Risk Charges.
2 Because Class 2 shares were not offered until May 1, 1997 (November 10, 1998
for Mutual Shares Investments), performance shown for periods prior to that
date represent the historical results of Class 1 shares. Performance since
that date reflect Class 2's high annual fees and expenses resulting from its
Rule 12b-1 plan. Maximum annual plan expenses are 0.25%.
3 Performance data quoted represents the investment return of the appropriate
series adjusted for the Phoenix Corporate Edge charges had the subaccount
started on the inception date of the appropriate series.
73
<PAGE>
Advertisements, sales literature and other communications may contain
information about any series' or Advisor'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.
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 Advisor 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.
74
<PAGE>
ANNUAL TOTAL RETURN(1,3)
<TABLE>
<CAPTION>
- -------------------------------------------- ------ ------- ------- ------- ------ ------- ------- ------- ------ ------- -------
Series 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
- -------------------------------------------- ------ ------- ------- ------- ------ ------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <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 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International N/A N/A N/A N/A N/A N/A N/A N/A 19.74% -12.83% 38.46%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Bankers Trust Dow 30 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Securities
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Capital Growth 32.89% 10.67% 34.92% 20.47% 6.93% 3.92% 36.19% 4.05% 42.75% 10.30% 19.71%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Federated U.S. Government N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Securities
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 8.37% 10.23% 8.03% 6.51% 6.51% 7.45% 9.20% 8.22% 5.98% 3.58% 2.88%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 6.00% 11.35% 20.61% 19.29% 1.08% 10.49% 8.24% 5.22% 19.59% 10.08% 15.92%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Equity Income N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Flexible Income N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Growth N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Morgan Stanley Focus Equity N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Balanced N/A N/A N/A N/A N/A N/A N/A N/A N/A 9.63% 8.61%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Strategic Allocation N/A N/A 27.34% 15.69% 12.56% 2.34% 19.90% 5.77% 29.32% 10.66% 11.01%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value N/A N/A N/A 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 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Strategic Theme N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
EAFE(R) Equity Index Fund N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Securities II
- ---------------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments Fund-- Class 2(2) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation Fund--Class 2(2) N/A N/A N/A N/A N/A N/A 13.03% -8.21% 27.44% 7.83% 25.87%
- ---------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Fund-- Class N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
2(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Templeton International Fund-- Class 2(2) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 46.47%
- ---------------------------------------------------------------------------------------------------------------------------------
Templeton Stock Fund-- Class 2(2) N/A N/A N/A N/A N/A N/A 14.39% -11.28% 27.23% 6.87% 33.74%
- ---------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A 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 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A 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 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------- ------- ------ ------- ------- ------ -------
Series 1994 1995 1996 1997 1998 1999
- -------------------------------------------- ------- ------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index N/A N/A N/A N/A 31.69% 18.83%
- ------------------------------------------------------------------------------------------
Phoenix-Aberdeen International 0.06% 9.59% 18.66% 12.05% 27.94% 29.51%
- ------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia N/A N/A N/A -32.41% -4.45% 50.98%
- ------------------------------------------------------------------------------------------
Phoenix-Bankers Trust Dow 30 N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate N/A N/A 33.13% 22.07%-21.20% 4.78%
Securities
- ------------------------------------------------------------------------------------------
Phoenix-Engemann Capital Growth 1.46% 30.89% 12.59% 21.09% 30.02% 29.68%
- ------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty N/A N/A N/A N/A N/A 32.16%
- ------------------------------------------------------------------------------------------
Phoenix-Federated U.S. Government N/A N/A N/A N/A N/A N/A
Securities
- ------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 3.84% 5.70% 5.03% 5.19% 5.10% 4.82%
- ------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income -5.49% 23.54% 12.43% 11.09% -4.15% 5.46%
- ------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity N/A N/A N/A N/A N/A 24.34%
- ------------------------------------------------------------------------------------------
Phoenix-Janus Equity Income N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------
Phoenix-Janus Flexible Income N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------
Phoenix-Janus Growth N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------
Phoenix-Morgan Stanley Focus Equity N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------
Phoenix-Oakhurst Balanced -2.84% 23.35% 10.57% 17.94% 19.02% 11.58%
- ------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income N/A N/A N/A N/A N/A 17.02%
- ------------------------------------------------------------------------------------------
Phoenix-Oakhurst Strategic Allocation -1.41% 18.20% 9.06% 20.74% 20.80% 11.27%
- ------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value N/A N/A N/A N/A N/A -10.29%
- ------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth N/A N/A N/A N/A N/A 45.65%
- ------------------------------------------------------------------------------------------
Phoenix-Seneca Strategic Theme N/A N/A N/A 17.17% 44.72% 55.01%
- ------------------------------------------------------------------------------------------
EAFE(R) Equity Index Fund N/A N/A N/A N/A 21.60% 27.61%
- ------------------------------------------------------------------------------------------
Federated Fund for U.S. Government N/A 8.77% 4.20% 8.58% 7.66% -0.59%
Securities II
- ------------------------------------------------------------------------------------------
Federated High Income Bond Fund II N/A 20.38% 14.31% 13.83% 2.70% 2.32%
- ------------------------------------------------------------------------------------------
Technology Portfolio N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------
Mutual Shares Investments Fund-- Class 2(2) N/A N/A N/A N/A N/A 9.30%
- ------------------------------------------------------------------------------------------
Templeton Asset Allocation Fund--Class 2(2) -3.23% 22.26% 18.59% 15.27% 6.10% 22.55%
- ------------------------------------------------------------------------------------------
Templeton Developing Markets Fund-- Class N/A N/A N/A -29.39% -21.04% 53.30%
2(2)
- ------------------------------------------------------------------------------------------
Templeton International Fund-- Class 2(2) -2.86% 15.05% 23.30% 13.51% 9.08% 23.25%
- ------------------------------------------------------------------------------------------
Templeton Stock Fund-- Class 2(2) -2.47% 24.96% 22.15% 11.60% 0.98% 28.80%
- ------------------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------
Wanger International Small Cap N/A N/A 32.04% -1.46% 16.34% 126.50%
- ------------------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------
Wanger US Small Cap N/A N/A 46.63% 29.43% 8.69% 25.08%
- ------------------------------------------------------------------------------------------
</TABLE>
1 Returns are net of the investment management fees of the Phoenix Corporate
Edge subaccounts. Percent change does not include the effect of the monthly
administrative fees, or mortality and expense risk fees.
2 Because Class 2 shares were not offered until May 1, 1997 (November 10, 1998
for Mutual Shares Investments), performance shown for periods prior to that
date represent the historical results of Class 1 shares. Performance since
that date reflect Class 2's high annual fees and expenses resulting from its
Rule 12b-1 plan. Maximum annual plan expenses are 0.25%.
3 Performance data quoted represents the investment return of the appropriate
series adjusted for the Phoenix Corporate Edge charges had the subaccount
started on the inception date of the appropriate series.
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
75
<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%, 6% or 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%, 6% or 12%,
but went above or below those figures for the individual subaccounts. The tables
are for standard risk males and females who are nonsmokers. In states where cost
of insurance rates are not based on the insured's sex, the tables designated
"male" apply to all standard risk insureds who are nonsmokers. Account values
and cash surrender values may be lower for risk classes involving higher
mortality risk. Planned premium payments are assumed to be paid at the beginning
of each policy year.
The death benefit, account value and cash surrender value amounts reflect
the following current and guaranteed charges:
1. A current sales charge of 7.0% of premiums up to the target premium
and 0% on amounts in excess of the target premium in policy years 1-7
and 0% of all premiums in policy years 8+. A guaranteed sales charge
of 9.0% of premiums in policy years 1-7 and 3.0% of all premiums in
years 8+. See "Charges under the Policy" table.
2. Monthly administrative charge of $5 per month ($10 per month
guaranteed maximum in all states except New York. In New York
guaranteed maximum is $7.50 per month). See "Charges under the
Policy" table.
3. An average 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 under the Policy" table.
6. Mortality and expense risk charge, which is a monthly charge
equivalent to .50% on an annual basis (or .25% on an annual basis
after the 10th policy year) of your policy value. Guaranteed maximum
mortality and expenses risk charge is .90% annually in all policy
years. See "Charges under the Policy" table.
These illustrations also assume an average investment advisory fee of .70%
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 .30%. All other fund expenses, except capital items such as
brokerage commissions, are paid by the Advisor or Phoenix. Management may decide
to limit the amount of expense reimbursement in the future. If expense
reimbursement had not been in place for the fiscal year ended December 31, 1999,
average total operating expenses for the series would have been approximately
.97% of the average net assets.
Taking into account the Mortality and Expense Risk Charge and the investment
advisory fees and expenses, the gross annual investment return rates of 0%, 6%
and 12% on the funds' assets are equivalent to net annual investment return
rates of approximately -1.00%, 5.00% and 11.00%, respectively. For individual
illustrations, interest rates ranging between 0% and 12% may be selected in
place of the 0%, 6% and 12% rates.
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.
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.
76
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
FACE AMOUNT: $100,000
MALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX CORPORATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING CURRENT CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 739 739 100,000 788 788 100,000 837 837 100,000
2 1,000 2,153 1,464 1,464 100,000 1,608 1,608 100,000 1,758 1,758 100,000
3 1,000 3,310 2,175 2,175 100,000 2,461 2,461 100,000 2,772 2,772 100,000
4 1,000 4,526 2,871 2,871 100,000 3,348 3,348 100,000 3,887 3,887 100,000
5 1,000 5,802 3,550 3,550 100,000 4,269 4,269 100,000 5,113 5,113 100,000
6 1,000 7,142 4,213 4,213 100,000 5,226 5,226 100,000 6,461 6,461 100,000
7 1,000 8,549 4,858 4,858 100,000 6,216 6,216 100,000 7,943 7,943 100,000
8 1,000 10,027 5,551 5,551 100,000 7,314 7,314 100,000 9,647 9,647 100,000
9 1,000 11,578 6,222 6,222 100,000 8,449 8,449 100,000 11,518 11,518 100,000
10 1,000 13,207 6,869 6,869 100,000 9,622 9,622 100,000 13,572 13,572 100,000
11 1,000 14,917 7,544 7,544 100,000 10,894 10,894 100,000 15,902 15,902 100,000
12 1,000 16,713 8,196 8,196 100,000 12,213 12,213 100,000 18,471 18,471 100,000
13 1,000 18,599 8,823 8,823 100,000 13,580 13,580 100,000 21,303 21,303 100,000
14 1,000 20,579 9,426 9,426 100,000 14,996 14,996 100,000 24,429 24,429 100,000
15 1,000 22,657 10,002 10,002 100,000 16,463 16,463 100,000 27,879 27,879 100,000
16 1,000 24,840 10,551 10,551 100,000 17,983 17,983 100,000 31,689 31,689 100,000
17 1,000 27,132 11,072 11,072 100,000 19,557 19,557 100,000 35,901 35,901 100,000
18 1,000 29,539 11,562 11,562 100,000 21,187 21,187 100,000 40,558 40,558 100,000
19 1,000 32,066 12,021 12,021 100,000 22,875 22,875 100,000 45,710 45,710 103,761
20 1,000 34,719 12,447 12,447 100,000 24,623 24,623 100,000 51,386 51,386 113,564
@ 65 1,000 69,761 13,933 13,933 100,000 48,311 48,311 100,000 166,339 166,339 276,123
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
29.
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 1.00%
(includes average fund operating expenses of 0.30% 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 GIA
providing interest at a minimum guaranteed rate of 3% also is available under
this product through the General Account.
This illustration assumes a premium tax of 2.25%.
77
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
FACE AMOUNT: $100,000
MALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX CORPORATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING GUARANTEED CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 533 533 100,000 574 574 100,000 616 616 100,000
2 1,000 2,153 1,045 1,045 100,000 1,162 1,162 100,000 1,284 1,284 100,000
3 1,000 3,310 1,536 1,536 100,000 1,761 1,761 100,000 2,007 2,007 100,000
4 1,000 4,526 2,003 2,003 100,000 2,371 2,371 100,000 2,788 2,788 100,000
5 1,000 5,802 2,444 2,444 100,000 2,989 2,989 100,000 3,632 3,632 100,000
6 1,000 7,142 2,858 2,858 100,000 3,613 3,613 100,000 4,544 4,544 100,000
7 1,000 8,549 3,240 3,240 100,000 4,241 4,241 100,000 5,527 5,527 100,000
8 1,000 10,027 3,652 3,652 100,000 4,936 4,936 100,000 6,656 6,656 100,000
9 1,000 11,578 4,029 4,029 100,000 5,635 5,635 100,000 7,877 7,877 100,000
10 1,000 13,207 4,372 4,372 100,000 6,336 6,336 100,000 9,201 9,201 100,000
11 1,000 14,917 4,690 4,690 100,000 7,057 7,057 100,000 10,661 10,661 100,000
12 1,000 16,713 4,970 4,970 100,000 7,780 7,780 100,000 12,252 12,252 100,000
13 1,000 18,599 5,210 5,210 100,000 8,503 8,503 100,000 13,984 13,984 100,000
14 1,000 20,579 5,410 5,410 100,000 9,225 9,225 100,000 15,875 15,875 100,000
15 1,000 22,657 5,563 5,563 100,000 9,943 9,943 100,000 17,940 17,940 100,000
16 1,000 24,840 5,670 5,670 100,000 10,653 10,653 100,000 20,197 20,197 100,000
17 1,000 27,132 5,720 5,720 100,000 11,348 11,348 100,000 22,664 22,664 100,000
18 1,000 29,539 5,708 5,708 100,000 12,022 12,022 100,000 25,363 25,363 100,000
19 1,000 32,066 5,626 5,626 100,000 12,665 12,665 100,000 28,317 28,317 100,000
20 1,000 34,719 5,464 5,464 100,000 13,270 13,270 100,000 31,554 31,554 100,000
@ 65 1,000 69,761 -- -- -- 14,385 14,385 100,000 96,379 96,379 159,990
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
29.
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 1.00%
(includes average fund operating expenses of 0.30% 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 GIA
providing interest at a minimum guaranteed rate of 3% also is available under
this product through the General Account.
This illustration assumes a premium tax of 2.25%.
78
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
FACE AMOUNT: $100,000
FEMALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX CORPORATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING CURRENT CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 767 767 100,000 816 816 100,000 866 866 100,000
2 1,000 2,153 1,517 1,517 100,000 1,665 1,665 100,000 1,818 1,818 100,000
3 1,000 3,310 2,251 2,251 100,000 2,545 2,545 100,000 2,863 2,863 100,000
4 1,000 4,526 2,968 2,968 100,000 3,459 3,459 100,000 4,012 4,012 100,000
5 1,000 5,802 3,666 3,666 100,000 4,406 4,406 100,000 5,272 5,272 100,000
6 1,000 7,142 4,346 4,346 100,000 5,386 5,386 100,000 6,656 6,656 100,000
7 1,000 8,549 5,005 5,005 100,000 6,401 6,401 100,000 8,175 8,175 100,000
8 1,000 10,027 5,713 5,713 100,000 7,524 7,524 100,000 9,920 9,920 100,000
9 1,000 11,578 6,400 6,400 100,000 8,687 8,687 100,000 11,839 11,839 100,000
10 1,000 13,207 7,066 7,066 100,000 9,894 9,894 100,000 13,949 13,949 100,000
11 1,000 14,917 7,761 7,761 100,000 11,201 11,201 100,000 16,342 16,342 100,000
12 1,000 16,713 8,439 8,439 100,000 12,563 12,563 100,000 18,986 18,986 100,000
13 1,000 18,599 9,100 9,100 100,000 13,983 13,983 100,000 21,908 21,908 100,000
14 1,000 20,579 9,743 9,743 100,000 15,461 15,461 100,000 25,139 25,139 100,000
15 1,000 22,657 10,369 10,369 100,000 17,003 17,003 100,000 28,713 28,713 100,000
16 1,000 24,840 10,977 10,977 100,000 18,609 18,609 100,000 32,667 32,667 100,000
17 1,000 27,132 11,566 11,566 100,000 20,282 20,282 100,000 37,042 37,042 100,000
18 1,000 29,539 12,135 12,135 100,000 22,025 22,025 100,000 41,886 41,886 100,000
19 1,000 32,066 12,682 12,682 100,000 23,841 23,841 100,000 47,245 47,245 107,247
20 1,000 34,719 13,206 13,206 100,000 25,731 25,731 100,000 53,157 53,157 117,479
@ 65 1,000 69,761 17,096 17,096 100,000 52,587 52,587 100,000 175,593 175,593 291,484
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
36.
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 1.00%
(includes average fund operating expenses of 0.30% 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 GIA
providing interest at a minimum guaranteed rate of 3% also is available under
this product through the General Account.
This illustration assumes a premium tax of 2.25%.
79
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
FACE AMOUNT: $100,000
FEMALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX CORPORATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING GUARANTEED CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 578 578 100,000 621 621 100,000 664 664 100,000
2 1,000 2,153 1,137 1,137 100,000 1,259 1,259 100,000 1,387 1,387 100,000
3 1,000 3,310 1,677 1,677 100,000 1,915 1,915 100,000 2,174 2,174 100,000
4 1,000 4,526 2,194 2,194 100,000 2,586 2,586 100,000 3,029 3,029 100,000
5 1,000 5,802 2,688 2,688 100,000 3,270 3,270 100,000 3,957 3,957 100,000
6 1,000 7,142 3,156 3,156 100,00 3,967 3,967 100,000 4,964 4,964 100,000
7 1,000 8,549 3,598 3,598 100,000 4,676 4,676 100,000 6,057 6,057 100,000
8 1,000 10,027 4,071 4,071 100,000 5,459 5,459 100,000 7,311 7,311 100,000
9 1,000 11,578 4,517 4,517 100,000 6,258 6,258 100,000 8,680 8,680 100,000
10 1,000 13,207 4,937 4,937 100,000 7,073 7,073 100,000 10,173 10,173 100,000
11 1,000 14,917 5,343 5,343 100,000 7,926 7,926 100,000 11,836 11,836 100,000
12 1,000 16,713 5,723 5,723 100,000 8,800 8,800 100,000 13,662 13,662 100,000
13 1,000 18,599 6,077 6,077 100,000 9,695 9,695 100,000 15,669 15,669 100,000
14 1,000 20,579 6,401 6,401 100,000 10,611 10,611 100,000 17,875 17,875 100,000
15 1,000 22,657 6,695 6,695 100,000 11,547 11,547 100,000 20,303 20,303 100,000
16 1,000 24,840 6,957 6,957 100,000 12,502 12,502 100,000 22,976 22,976 100,000
17 1,000 27,132 7,184 7,184 100,000 13,476 13,476 100,000 25,923 25,923 100,000
18 1,000 29,539 7,373 7,373 100,000 14,468 14,468 100,000 29,173 29,173 100,000
19 1,000 32,066 7,520 7,520 100,000 15,473 15,473 100,000 32,760 32,760 100,000
20 1,000 34,719 7,624 7,624 100,000 16,493 16,493 100,000 36,724 36,724 100,000
@ 65 1,000 69,761 5,283 5,283 100,000 28,664 28,664 100,000 118,365 118,365 196,486
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
36.
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 1.00%
(includes average fund operating expenses of 0.30% 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 GIA
providing interest at a minimum guaranteed rate of 3% also is available under
this product through the General Account.
This illustration assumes a premium tax of 2.25%.
80
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
FACE AMOUNT: $100,000
MALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX CORPORATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING CURRENT CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 738 738 100,739 787 787 100,788 836 836 100,836
2 1,000 2,153 1,462 1,462 101,463 1,606 1,606 101,606 1,755 1,755 101,756
3 1,000 3,310 2,171 2,171 102,172 2,457 2,457 102,457 2,766 2,766 102,767
4 1,000 4,526 2,864 2,864 102,864 3,340 3,340 103,341 3,877 3,877 103,878
5 1,000 5,802 3,540 3,540 103,540 4,257 4,257 104,257 5,097 5,097 105,098
6 1,000 7,142 4,198 4,198 104,199 5,207 5,207 105,207 6,437 6,437 106,437
7 1,000 8,549 4,837 4,837 104,838 6,189 6,189 106,189 7,906 7,906 107,906
8 1,000 10,027 5,524 5,524 105,524 7,276 7,276 107,276 9,593 9,593 109,594
9 1,000 11,578 6,186 6,186 106,186 8,397 8,397 108,397 11,442 11,442 111,443
10 1,000 13,207 6,821 6,821 106,822 9,551 9,551 109,552 13,466 13,466 113,467
11 1,000 14,917 7,486 7,486 107,487 10,805 10,805 110,805 15,762 15,762 115,763
12 1,000 16,713 8,126 8,126 108,126 12,100 12,100 112,101 18,287 18,287 118,287
13 1,000 18,599 8,738 8,738 108,739 13,437 13,437 113,438 21,061 21,061 121,062
14 1,000 20,579 9,323 9,323 109,323 14,817 14,817 114,817 24,112 24,112 124,112
15 1,000 22,657 9,878 9,878 109,878 16,238 16,238 116,239 27,466 27,466 127,466
16 1,000 24,840 10,402 10,402 110,403 17,703 17,703 117,704 31,154 31,154 131,155
17 1,000 27,132 10,895 10,895 110,895 19,211 19,211 119,212 35,211 35,211 135,212
18 1,000 29,539 11,353 11,353 111,353 20,761 20,761 120,761 39,673 39,673 139,673
19 1,000 32,066 11,774 11,774 111,775 22,353 22,353 122,353 44,580 44,580 144,581
20 1,000 34,719 12,157 12,157 112,157 23,985 23,985 123,986 49,978 49,978 149,979
@ 65 1,000 69,761 12,653 12,653 112,653 43,733 43,733 143,734 159,872 159,872 265,388
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
28.
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 1.00%
(includes average fund operating expenses of 0.30% 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 GIA
providing interest at a minimum guaranteed rate of 3% also is available under
this product through the General Account.
This illustration assumes a premium tax of 2.25%.
81
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
FACE AMOUNT: $100,000
MALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX CORPORATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING GUARANTEED CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 531 531 100,532 573 573 100,573 614 614 100,615
2 1,000 2,153 1,041 1,041 101,042 1,157 1,157 101,158 1,279 1,279 101,279
3 1,000 3,310 1,528 1,528 101,529 1,752 1,752 101,752 1,996 1,996 101,996
4 1,000 4,526 1,990 1,990 101,990 2,355 2,355 102,355 2,769 2,769 102,769
5 1,000 5,802 2,423 2,423 102,424 2,963 2,963 102,963 3,600 3,600 103,601
6 1,000 7,142 2,828 2,828 102,829 3,575 3,575 103,575 4,494 4,494 104,495
7 1,000 8,549 3,200 3,200 103,200 4,186 4,186 104,187 5,453 5,453 105,454
8 1,000 10,027 3,598 3,598 103,599 4,860 4,860 104,861 6,550 6,550 106,550
9 1,000 11,578 3,960 3,960 103,960 5,533 5,533 105,533 7,729 7,729 107,729
10 1,000 13,207 4,284 4,284 104,285 6,202 6,202 106,203 8,997 8,997 108,997
11 1,000 14,917 4,581 4,581 104,581 6,883 6,883 106,883 10,386 10,386 110,386
12 1,000 16,713 4,836 4,836 104,837 7,558 7,558 107,559 11,885 11,885 111,885
13 1,000 18,599 5,049 5,049 105,050 8,224 8,224 108,225 13,502 13,502 113,503
14 1,000 20,579 5,218 5,218 105,218 8,879 8,879 108,879 15,249 15,249 115,249
15 1,000 22,657 5,338 5,338 105,338 9,516 9,516 109,517 17,133 17,133 117,134
16 1,000 24,840 5,406 5,406 105,407 10,132 10,132 110,133 19,166 19,166 119,167
17 1,000 27,132 5,415 5,415 105,416 10,717 10,717 110,718 21,355 21,355 121,356
18 1,000 29,539 5,359 5,359 105,359 11,262 11,262 111,263 23,709 23,709 123,710
19 1,000 32,066 5,228 5,228 105,229 11,756 11,756 111,757 26,236 26,236 126,237
20 1,000 34,719 5,015 5,015 105,015 12,186 12,186 112,187 28,944 28,944 128,945
@ 65 1,000 69,761 -- -- -- 9,000 9,000 109,000 74,813 74,813 174,814
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
28.
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 1.00%
(includes average fund operating expenses of 0.30% 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 GIA
providing interest at a minimum guaranteed rate of 3% also is available under
this product through the General Account.
This illustration assumes a premium tax of 2.25%.
82
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
FACE AMOUNT: $100,000
FEMALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX CORPORATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING CURRENT CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 766 766 100,767 816 816 100,816 865 865 100,866
2 1,000 2,153 1,516 1,516 101,517 1,663 1,663 101,664 1,816 1,816 101,817
3 1,000 3,310 2,248 2,248 102,249 2,542 2,542 102,542 2,859 2,859 102,860
4 1,000 4,526 2,963 2,963 102,963 3,453 3,453 103,453 4,004 4,004 104,005
5 1,000 5,802 3,658 3,658 103,659 4,396 4,396 104,396 5,260 5,260 105,260
6 1,000 7,142 4,334 4,334 104,334 5,371 5,371 105,371 6,636 6,636 106,637
7 1,000 8,549 4,988 4,988 104,988 6,378 6,378 106,379 8,145 8,145 108,145
8 1,000 10,027 5,689 5,689 105,690 7,492 7,492 107,492 9,876 9,876 109,876
9 1,000 11,578 6,369 6,369 106,369 8,643 8,643 108,643 11,775 11,775 111,775
10 1,000 13,207 7,026 7,026 107,027 9,833 9,833 109,834 13,859 13,859 113,860
11 1,000 14,917 7,712 7,712 107,713 11,125 11,125 111,126 16,223 16,223 116,224
12 1,000 16,713 8,380 8,380 108,380 12,467 12,467 112,468 18,830 18,830 118,830
13 1,000 18,599 9,029 9,029 109,029 13,862 13,862 113,863 21,704 21,704 121,705
14 1,000 20,579 9,658 9,658 109,659 15,312 15,312 115,313 24,876 24,876 124,876
15 1,000 22,657 10,269 10,269 110,269 16,819 16,819 116,820 28,375 28,375 128,376
16 1,000 24,840 10,858 10,858 110,859 18,384 18,384 118,384 32,236 32,236 132,236
17 1,000 27,132 11,426 11,426 111,427 20,008 20,008 120,008 36,495 36,495 136,496
18 1,000 29,539 11,972 11,972 111,972 21,693 21,693 121,694 41,195 41,195 141,195
19 1,000 32,066 12,493 12,493 112,493 23,439 23,439 123,440 46,380 46,380 146,380
20 1,000 34,719 12,987 12,987 112,988 25,248 25,248 125,249 52,099 52,099 152,100
@ 65 1,000 69,761 16,202 16,202 116,203 49,514 49,514 149,514 171,193 171,193 284,180
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
36.
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 1.00%
(includes average fund operating expenses of 0.30% 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 GIA
providing interest at a minimum guaranteed rate of 3% also is available under
this product through the General Account.
This illustration assumes a premium tax of 2.25%.
83
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
FACE AMOUNT: $100,000
FEMALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX CORPORATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING GUARANTEED CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 577 577 100,577 620 620 100,620 663 663 100,663
2 1,000 2,153 1,134 1,134 101,134 1,256 1,256 101,256 1,383 1,383 101,383
3 1,000 3,310 1,670 1,670 101,670 1,907 1,907 101,907 2,165 2,165 102,165
4 1,000 4,526 2,183 2,183 102,183 2,572 2,572 102,572 3,012 3,012 103,013
5 1,000 5,802 2,670 2,670 102,671 3,248 3,248 103,249 3,930 3,930 103,930
6 1,000 7,142 3,131 3,131 103,131 3,934 3,934 103,935 4,921 4,921 104,922
7 1,000 8,549 3,562 3,562 103,563 4,629 4,629 104,629 5,994 5,994 105,994
8 1,000 10,027 4,024 4,024 104,024 5,393 5,393 105,394 7,220 7,220 107,220
9 1,000 11,578 4,457 4,457 104,457 6,169 6,169 106,170 8,551 8,551 108,551
10 1,000 13,207 4,860 4,860 104,861 6,957 6,957 106,957 9,997 9,997 109,997
11 1,000 14,917 5,248 5,248 105,248 7,775 7,775 107,775 11,598 11,598 111,598
12 1,000 16,713 5,606 5,606 105,607 8,607 8,607 108,607 13,345 13,345 113,346
13 1,000 18,599 5,936 5,936 105,936 9,453 9,453 109,453 15,253 15,253 115,254
14 1,000 20,579 6,233 6,233 106,234 10,310 10,310 110,311 17,337 17,337 117,337
15 1,000 22,657 6,497 6,497 106,498 11,178 11,178 111,178 19,612 19,612 119,612
16 1,000 24,840 6,725 6,725 106,726 12,052 12,052 112,053 22,096 22,096 122,096
17 1,000 27,132 6,915 6,915 106,916 12,932 12,932 112,932 24,809 24,809 124,810
18 1,000 29,539 7,065 7,065 107,065 13,814 13,814 113,814 27,773 27,773 127,773
19 1,000 32,066 7,167 7,167 107,168 14,691 14,691 114,691 31,006 31,006 131,007
20 1,000 34,719 7,223 7,223 107,223 15,563 15,563 115,563 34,538 34,538 134,538
@ 65 1,000 69,761 4,168 4,168 104,169 23,882 23,882 123,882 104,286 104,286 204,286
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
36.
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 1.00%
(includes average fund operating expenses of 0.30% 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 GIA
providing interest at a minimum guaranteed rate of 3% also is available under
this product through the General Account.
This illustration assumes a premium tax of 2.25%.
84
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
FACE AMOUNT: $100,000
MALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX CORPORATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 3
ASSUMING CURRENT CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 738 738 101,000 787 787 101,000 836 836 101,000
2 1,000 2,153 1,462 1,462 102,000 1,605 1,605 102,000 1,755 1,755 102,000
3 1,000 3,310 2,170 2,170 103,000 2,456 2,456 103,000 2,766 2,766 103,000
4 1,000 4,526 2,862 2,862 104,000 3,339 3,339 104,000 3,877 3,877 104,000
5 1,000 5,802 3,537 3,537 105,000 4,255 4,255 105,000 5,097 5,097 105,000
6 1,000 7,142 4,194 4,194 106,000 5,203 5,203 106,000 6,436 6,436 106,000
7 1,000 8,549 4,830 4,830 107,000 6,184 6,184 107,000 7,906 7,906 107,000
8 1,000 10,027 5,514 5,514 108,000 7,270 7,270 108,000 9,595 9,595 108,000
9 1,000 11,578 6,172 6,172 109,000 8,390 8,390 109,000 11,447 11,447 109,000
10 1,000 13,207 6,804 6,804 110,000 9,544 9,544 110,000 13,477 13,477 110,000
11 1,000 14,917 7,464 7,464 111,000 10,796 10,796 111,000 15,781 15,781 111,000
12 1,000 16,713 8,098 8,098 112,000 12,091 12,091 112,000 18,316 18,316 112,000
13 1,000 18,599 8,704 8,704 113,000 13,429 13,429 113,000 21,108 21,108 113,000
14 1,000 20,579 9,280 9,280 114,000 14,809 14,809 114,000 24,182 24,182 114,000
15 1,000 22,657 9,825 9,825 115,000 16,233 16,233 115,000 27,570 27,570 115,000
16 1,000 24,840 10,337 10,337 116,000 17,701 17,701 116,000 31,306 31,306 116,000
17 1,000 27,132 10,814 10,814 117,000 19,214 19,214 117,000 35,426 35,426 117,000
18 1,000 29,539 11,254 11,254 118,000 20,772 20,772 118,000 39,975 39,975 118,000
19 1,000 32,066 11,654 11,654 119,000 22,375 22,375 119,000 44,997 44,997 119,000
20 1,000 34,719 12,011 12,011 120,000 24,022 24,022 120,000 50,548 50,548 120,000
@ 65 1,000 69,761 11,529 11,529 131,000 44,643 44,643 131,000 163,874 163,874 272,032
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
26.
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 1.00%
(includes average fund operating expenses of 0.30% 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 GIA
providing interest at a minimum guaranteed rate of 3% also is available under
this product through the General Account.
This illustration assumes a premium tax of 2.25%.
85
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
FACE AMOUNT: $100,000
MALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX CORPORATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 3
ASSUMING GUARANTEED CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 531 531 101,000 572 572 101,000 614 614 101,000
2 1,000 2,153 1,039 1,039 102,000 1,155 1,155 102,000 1,277 1,277 102,000
3 1,000 3,310 1,523 1,523 103,000 1,747 1,747 103,000 1,992 1,992 103,000
4 1,000 4,526 1,981 1,981 104,000 2,346 2,346 104,000 2,761 2,761 104,000
5 1,000 5,802 2,408 2,408 105,000 2,949 2,949 105,000 3,588 3,588 105,000
6 1,000 7,142 2,804 2,804 106,000 3,553 3,553 106,000 4,476 4,476 106,000
7 1,000 8,549 3,165 3,165 107,000 4,155 4,155 107,000 5,428 5,428 107,000
8 1,000 10,027 3,550 3,550 108,000 4,817 4,817 108,000 6,517 6,517 108,000
9 1,000 11,578 3,894 3,894 109,000 5,474 5,474 109,000 7,686 7,686 109,000
10 1,000 13,207 4,197 4,197 110,000 6,126 6,126 110,000 8,945 8,945 110,000
11 1,000 14,917 4,467 4,467 111,000 6,784 6,784 111,000 10,324 10,324 111,000
12 1,000 16,713 4,691 4,691 112,000 7,433 7,433 112,000 11,814 11,814 112,000
13 1,000 18,599 4,865 4,865 113,000 8,067 8,067 113,000 13,425 13,425 113,000
14 1,000 20,579 4,987 4,987 114,000 8,684 8,684 114,000 15,168 15,168 114,000
15 1,000 22,657 5,052 5,052 115,000 9,278 9,278 115,000 17,054 17,054 115,000
16 1,000 24,840 5,055 5,055 116,000 9,842 9,842 116,000 19,097 19,097 116,000
17 1,000 27,132 4,985 4,985 117,000 10,366 10,366 117,000 21,307 21,307 117,000
18 1,000 29,539 4,835 4,835 118,000 10,839 10,839 118,000 23,697 23,697 118,000
19 1,000 32,066 4,593 4,593 119,000 11,246 11,246 119,000 26,282 26,282 119,000
20 1,000 34,719 4,245 4,245 120,000 11,573 11,573 120,000 29,077 29,077 120,000
@ 65 1,000 69,761 -- -- -- 4,293 4,293 131,000 83,148 83,148 138,027
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
26.
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 1.00%
(includes average fund operating expenses of 0.30% 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 GIA
providing interest at a minimum guaranteed rate of 3% also is available under
this product through the General Account.
This illustration assumes a premium tax of 2.25%.
86
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
FACE AMOUNT: $100,000
FEMALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX CORPORATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 3
ASSUMING CURRENT CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 766 766 101,000 816 816 101,000 865 865 101,000
2 1,000 2,153 1,516 1,516 102,000 1,663 1,663 102,000 1,816 1,816 102,000
3 1,000 3,310 2,248 2,248 103,000 2,541 2,541 103,000 2,859 2,859 103,000
4 1,000 4,526 2,962 2,962 104,000 3,452 3,452 104,000 4,004 4,004 104,000
5 1,000 5,802 3,656 3,656 105,000 4,394 4,394 105,000 5,260 5,260 105,000
6 1,000 7,142 4,330 4,330 106,000 5,369 5,369 106,000 6,637 6,637 106,000
7 1,000 8,549 4,983 4,983 107,000 6,376 6,376 107,000 8,146 8,146 107,000
8 1,000 10,027 5,682 5,682 108,000 7,489 7,489 108,000 9,879 9,879 108,000
9 1,000 11,578 6,358 6,358 109,000 8,639 8,639 109,000 11,781 11,781 109,000
10 1,000 13,207 7,012 7,012 110,000 9,829 9,829 110,000 13,871 13,871 110,000
11 1,000 14,917 7,695 7,695 111,000 11,121 11,121 111,000 16,242 16,242 111,000
12 1,000 16,713 8,358 8,358 112,000 12,463 12,463 112,000 18,859 18,859 112,000
13 1,000 18,599 9,002 9,002 113,000 13,859 13,859 113,000 21,748 21,748 113,000
14 1,000 20,579 9,626 9,626 114,000 15,310 15,310 114,000 24,940 24,940 114,000
15 1,000 22,657 10,229 10,229 115,000 16,820 16,820 115,000 28,466 28,466 115,000
16 1,000 24,840 10,811 10,811 116,000 18,388 18,388 116,000 32,364 32,364 116,000
17 1,000 27,132 11,370 11,370 117,000 20,018 20,018 117,000 36,673 36,673 117,000
18 1,000 29,539 11,904 11,904 118,000 21,710 21,710 118,000 41,438 41,438 118,000
19 1,000 32,066 12,412 12,412 119,000 23,467 23,467 119,000 46,708 46,708 119,000
20 1,000 34,719 12,892 12,892 120,000 25,289 25,289 120,000 52,539 52,539 120,000
@ 65 1,000 69,761 15,626 15,626 131,000 50,269 50,269 131,000 173,758 173,758 288,440
</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 1.00%
(includes average fund operating expenses of 0.30% 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 GIA
providing interest at a minimum guaranteed rate of 3% also is available under
this product through the General Account.
This illustration assumes a premium tax of 2.25%.
87
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
FACE AMOUNT: $100,000
FEMALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX CORPORATE EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 3
ASSUMING GUARANTEED CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 576 576 101,000 619 619 101,000 662 662 101,000
2 1,000 2,153 1,132 1,132 102,000 1,254 1,254 102,000 1,382 1,382 102,000
3 1,000 3,310 1,666 1,666 103,000 1,904 1,904 103,000 2,162 2,162 103,000
4 1,000 4,526 2,176 2,176 104,000 2,566 2,566 104,000 3,008 3,008 104,000
5 1,000 5,802 2,659 2,659 105,000 3,239 3,239 105,000 3,922 3,922 105,000
6 1,000 7,142 3,114 3,114 106,000 3,920 3,920 106,000 4,910 4,910 106,000
7 1,000 8,549 3,537 3,537 107,000 4,607 4,607 107,000 5,978 5,978 107,000
8 1,000 10,027 3,989 3,989 108,000 5,364 5,364 108,000 7,200 7,200 108,000
9 1,000 11,578 4,409 4,409 109,000 6,130 6,130 109,000 8,527 8,527 109,000
10 1,000 13,207 4,798 4,798 110,000 6,906 6,906 110,000 9,970 9,970 110,000
11 1,000 14,917 5,166 5,166 111,000 7,710 7,710 111,000 11,569 11,569 111,000
12 1,000 16,713 5,503 5,503 112,000 8,526 8,526 112,000 13,317 13,317 112,000
13 1,000 18,599 5,807 5,807 113,000 9,353 9,353 113,000 15,230 15,230 113,000
14 1,000 20,579 6,073 6,073 114,000 10,190 10,190 114,000 17,323 17,323 114,000
15 1,000 22,657 6,301 6,301 115,000 11,033 11,033 115,000 19,616 19,616 115,000
16 1,000 24,840 6,487 6,487 116,000 11,880 11,880 116,000 22,128 22,128 116,000
17 1,000 27,132 6,628 6,628 117,000 12,729 12,729 117,000 24,884 24,884 117,000
18 1,000 29,539 6,720 6,720 118,000 13,576 13,576 118,000 27,909 27,909 118,000
19 1,000 32,066 6,756 6,756 119,000 14,414 14,414 119,000 31,228 31,228 119,000
20 1,000 34,719 6,733 6,733 120,000 15,241 15,241 120,000 34,877 34,877 120,000
@ 65 1,000 69,761 1,497 1,497 131,000 22,481 22,481 131,000 110,980 110,980 184,228
</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 1.00%
(includes average fund operating expenses of 0.30% 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 GIA
providing interest at a minimum guaranteed rate of 3% also is available under
this product through the General Account.
This illustration assumes a premium tax of 2.25%.
88
<PAGE>
[VERSION B]
PHOENIX
EXECUTIVE BENEFIT
DEVELOPED FOR CLARK BARDES
VARIABLE UNIVERSAL LIFE
INSURANCE POLICY
Issued by
PHOENIX HOME LIFE
MUTUAL INSURANCE COMPANY
IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT US AT:
[envelope] ANDESA TPA, INC.
1605 N CEDAR CREST BLVD, SUITE 502
ALLENTOWN, PA 18104
[phone] 610/439-5256
PROSPECTUS MARCH __, 2000
This prospectus describes an individual flexible premium variable universal life
insurance policy. The policy provides lifetime insurance protection for as long
as it remains in force.
You may allocate net premiums and cash value to one or more of the subaccounts
of the VUL Account and the GIA ("GIA"). The assets of each subaccount will be
used to purchase, at net asset value, shares of a series in the following
designated underlying funds.
THE PHOENIX EDGE SERIES FUND
- ----------------------------
MANAGED BY PHOENIX INVESTMENT COUNSEL, INC.
[diamond] Phoenix-Aberdeen International Series
[diamond] Phoenix-Engemann Capital Growth Series
[diamond] Phoenix-Engemann Nifty Fifty Series
[diamond] Phoenix-Goodwin Money Market Series
[diamond] Phoenix-Goodwin Multi-Sector Fixed Income Series
[diamond] Phoenix-Hollister Value Equity Series
[diamond] Phoenix-Oakhurst Balanced Series
[diamond] Phoenix-Oakhurst Growth and Income Series
[diamond] Phoenix-Oakhurst Strategic Allocation Series
[diamond] Phoenix-Seneca Mid-Cap Growth Series
[diamond] Phoenix-Seneca Strategic Theme Series
MANAGED BY PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
[diamond] Phoenix-Aberdeen New Asia Series
MANAGED BY DUFF & PHELPS INVESTMENT MANAGEMENT CO.
[diamond] Phoenix-Duff & Phelps Real Estate Securities Series
MANAGED BY PHOENIX VARIABLE ADVISORS, INC.
[diamond] Phoenix Research Enhanced Index Series
[diamond] Phoenix-Bankers Trust Dow 30 Series
[diamond] Phoenix-Federated U.S. Government Bond Series
[diamond] Phoenix-Janus Equity Income Series
[diamond] Phoenix-Janus Flexible Income Series
[diamond] Phoenix-Janus Growth Series
[diamond] Phoenix-Morgan Stanley Focus Equity Series
[diamond] Phoenix-Schafer Mid-Cap Value Series
BT INSURANCE FUNDS TRUST
- ------------------------
MANAGED BY BANKERS TRUST COMPANY
[diamond] EAFE(R) Equity Index Fund
FEDERATED INSURANCE SERIES
- --------------------------
MANAGED BY FEDERATED INVESTMENT MANAGEMENT COMPANY
[diamond] Federated Fund for U.S. Government Securities II
[diamond] Federated High Income Bond Fund II
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
- ------------------------------------------------
MANAGED BY MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
[diamond] Technology Portfolio
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- ---------------------------------------
MANAGED BY TEMPLETON INVESTMENT COUNSEL, INC.
[diamond] Templeton Asset Allocation Fund -- Class 2
[diamond] Templeton International Fund -- Class 2
[diamond] Templeton Stock Fund -- Class 2
MANAGED BY TEMPLETON ASSET MANAGEMENT, LTD.
[diamond] Templeton Developing Markets Fund -- Class 2
MANAGED BY FRANKLIN MUTUAL ADVISERS, LLC
[diamond] Mutual Shares Investments Fund -- Class 2
WANGER ADVISORS TRUST
- ---------------------
MANAGED BY WANGER ASSET MANAGEMENT, L.P.
[diamond] Wanger Foreign Forty
[diamond] Wanger International Small Cap
[diamond] Wanger Twenty
[diamond] Wanger U.S. Small Cap
1
<PAGE>
It may not be in your best interest to purchase a 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.
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 nor disapproved
these securities, nor passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
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.
2
<PAGE>
TABLE OF CONTENTS
Heading Page
- -------------------------------------------------------------------
PART I--GENERAL POLICY PROVISIONS....................... 5
SUMMARY ............................................ 5
Availability.................................... 5
Underwriting.................................... 5
Charges Under the Policy........................ 5
Deductions From Premiums........................ 7
Sales Charge................................ 7
State Premium Tax Charge.................... 7
Deferred Acquisition Cost ("DAC") Tax
Charge..................................... 7
Policy Value Charges............................ 7
Administrative Charge....................... 7
Cost of Insurance........................... 7
Mortality and Expense Risk Fee.............. 7
Rider Charge................................ 7
Charges for Federal Income Taxes............ 7
Fund Charges................................ 7
Other Charges................................... 9
Partial Surrender Fee....................... 9
Loan Interest Rate Expense Charge........... 9
Reduction in Charges............................ 9
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
AND THE VUL ACCOUNT................................ 10
Phoenix......................................... 10
The VUL Account................................. 10
PERFORMANCE HISTORY................................. 10
INVESTMENTS OF THE VUL ACCOUNT...................... 10
Participating Investment Funds.................. 10
The Phoenix Edge Series Fund................ 10
BT Insurance Funds Trust.................... 11
Federated Insurance Series.................. 11
Morgan Stanley Dean Witter Universal
Funds, Inc................................. 12
Templeton Variable Products Series Fund..... 12
Wanger Advisors Trust....................... 12
Investment Advisors............................. 13
Services of the Advisors........................ 13
Reinvestment and Redemption..................... 13
Substitution of Investments..................... 14
The GIA......................................... 14
PREMIUMS............................................ 14
Minimum Premiums................................ 14
Allocation of Issue Premium..................... 15
Free Look Period................................ 15
Account Value................................... 15
Transfer of Policy Value.................... 15
Systematic Transfers for Dollar Cost
Averaging.................................. 16
Automatic Asset Re-Balancing.................... 16
Determination of Subaccount Values.............. 16
Death Benefit Under the Policy.................. 16
Minimum Face Amount......................... 17
Death Benefit Options....................... 17
Changes in Face Amount of Insurance............. 17
Requests for Increase in Face Amount........ 17
Decreases in Face Amount and Partial
Surrenders: Effect on Death Benefit............ 17
Requests for Decrease in Face Amount........ 17
Surrenders...................................... 17
General..................................... 17
Full Surrenders............................. 18
Partial Surrenders.......................... 18
Policy Loans.................................... 18
Source of Loan.............................. 18
Interest.................................... 18
Interest Credited on Loaned Value........... 19
Repayment................................... 19
Effect of Loan.............................. 19
Lapse........................................... 19
Additional Insurance Option..................... 19
Additional Rider Benefits....................... 19
PART II--ADDITIONAL POLICY PROVISIONS................... 20
Postponement of Payments........................ 20
Payment by Check................................ 20
The Contract.................................... 20
Suicide......................................... 20
Incontestability................................ 20
Change of Owner or Beneficiary.................. 20
Assignment...................................... 20
Misstatement of Age or Sex...................... 20
Surplus......................................... 20
PAYMENT OF PROCEEDS................................. 20
Surrender and Death Benefit Proceeds............ 20
Payment Options................................. 21
Option 1--Lump sum.......................... 21
Option 2--Left to earn interest............. 21
Option 3--Payment for a specific period..... 21
Option 4--Life annuity with specified
period certain............................. 21
Option 5--Life annuity...................... 21
Option 6--Payments of a specified amount.... 21
Option 7--Joint survivorship annuity with
10-year period certain..................... 21
PART III--OTHER IMPORTANT INFORMATION................... 22
FEDERAL TAX CONSIDERATIONS.......................... 22
Introduction.................................... 22
Phoenix's Tax Status............................ 22
Policy Benefits................................. 22
Death Benefit Proceeds...................... 22
Full Surrender.............................. 22
Partial Surrender........................... 22
Loans....................................... 22
Business-Owned Policies......................... 23
Modified Endowment Contracts.................... 23
General..................................... 23
Reduction in Benefits During the First
Seven Years................................ 23
Distributions Affected...................... 23
3
<PAGE>
Penalty Tax................................. 23
Material Change Rules....................... 23
Serial Purchase of Modified Endowment
Contracts.................................. 24
Limitations on Unreasonable Mortality and
Expense Charges................................ 24
Diversification Standards....................... 24
Change of Ownership or Insured or
Assignment..................................... 24
Other Taxes..................................... 24
VOTING RIGHTS ...................................... 24
THE DIRECTORS AND EXECUTIVE OFFICERS OF
PHOENIX............................................ 25
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS ............ 26
SALES OF POLICIES .................................. 26
STATE REGULATION ................................... 27
REPORTS ............................................ 27
LEGAL PROCEEDINGS .................................. 27
LEGAL MATTERS ...................................... 27
REGISTRATION STATEMENT ............................. 27
FINANCIAL STATEMENTS ............................... 27
APPENDIX A--GLOSSARY OF SPECIAL TERMS............... 72
APPENDIX B--PERFORMANCE HISTORY..................... 73
APPENDIX C--ILLUSTRATIONS OF DEATH BENEFITS,
POLICY VALUES ("ACCOUNT VALUES") AND
CASH SURRENDER VALUES.............................. 77
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESPERSON, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
4
<PAGE>
PART I--GENERAL POLICY PROVISIONS
- -------------------------------------------------------------------------------
SUMMARY
- -------------------------------------------------------------------------------
This is a summary that describes the general provisions of the policy.
Certain provisions of the policy described in this prospectus may differ in
a particular state because of specific state requirements.
Throughout the prospectus, Phoenix Home Life Mutual Insurance Company is
referred to as Phoenix, we, us, or our and the policyholder is referred to as
you or your.
We define the following terms in the Glossary of Appendix A:
ATTAINED AGE POLICY ANNIVERSARY
BENEFICIARY POLICY DATE
DEBT POLICY VALUE
FUNDS POLICY YEAR
GENERAL ACCOUNT SERIES
ISSUE PREMIUM SUBACCOUNTS
MONTHLY CALCULATION DATE TARGET PREMIUM
NET ASSET VALUE VALUATION DATE
PAYMENT DATE VALUATION PERIOD
PLANNED ANNUAL PREMIUM VUL ACCOUNT (ACCOUNT)
If there is ever a difference between the provisions within this prospectus
and the provisions of the policy, the policy provisions will control.
AVAILABILITY
The policy is available on a "case" basis. We may consider one person as a
case. All policies within a case are aggregated for purposes of determining
policy dates, loan rates and underwriting requirements. If an individual owns
the policy as part of a case, he or she may exercise all rights under the policy
through their employer or sponsoring organization. After termination of
employment or other such relationship, the individual may exercise such rights
directly with us.
For fully underwritten policies, the age of the insured at the time of issue
generally must be between ages 18 through 85 as of his or her birthday nearest
the policy anniversary.
For policies that are underwritten using simplified or guaranteed issue
programs, generally the maximum age of the insured at the time of issue is age
70 for simplified and 64 for guaranteed issue.
The minimum face amount of insurance per policy issued is $50,000.
You can purchase a policy to insure the life of another person provided that
you have an insurable interest in that life and the prospective Insured
consents.
UNDERWRITING
Currently, we offer 3 types of underwriting:
[diamond] fully underwritten;
[diamond] simplified issue underwriting; and
[diamond] guaranteed issue underwriting.
Your cost of insurance charges will vary based on the type of underwriting
we use.
CHARGES UNDER THE POLICY
We deduct certain charges from your policy to compensate us for:
1. our expenses in selling the policy;
2. underwriting and issuing the policy;
3. premium and federal taxes incurred on premiums received;
4. providing insurance benefits under your policy; and
5. assuming certain risks in connection with the policy.
These charges are summarized below. These charges are described more fully
following this chart.
5
<PAGE>
<TABLE>
<CAPTION>
CHARGES UNDER THE POLICY
- ---------------------------------------------------------------------------------------------------------------------------------
CHARGES CURRENT RATE GUARANTEED RATE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEDUCTIONS FROM SALES CHARGE Policy years 1 - 7: 5.0% of premiums up Policy years 1 - 7: 5.0% of premiums up
PREMIUMS to the target premium and 0% on amounts to the target premium and 3.0% on
in excess of the target premium. amounts in excess of the target premium.
Policy year 8+: 0% of all premiums. Policy year 8+: 2.0% of all premiums.
----------------------------------------------------------------------------------------------------------
STATE PREMIUM 0.75% to 4.0% of each premium up to the This charge will always equal the
TAX Target Premium depending on your applicable state rate.
state's applicable rate.
----------------------------------------------------------------------------------------------------------
DEFERRED ACQUISITION 1.5% of each premium up to the Target 1.5% of each premium up to the Target
COST TAX CHARGE Premium. Premium.
(FEDERAL DAC TAX)
- ---------------------------------------------------------------------------------------------------------------------------------
POLICY VALUE CHARGES ADMINISTRATIVE CHARGE $5 per month ($60 annually) $10 per month ($120 annually) except
New York, $7.50 per month ($90
annually)
----------------------------------------------------------------------------------------------------------
COST OF INSURANCE A per thousand rate multiplied by the The maximum monthly cost of insurance
CHARGE amount at risk each month. This charge charge for each $1,000 of insurance is
varies by the Insured's issue age, shown on your policy's schedule pages.
policy duration, gender and
underwriting class.
----------------------------------------------------------------------------------------------------------
MORTALITY AND EXPENSE 0.40% annually in policy years 1-10 0.90% annually in all policy years
RISK CHARGE 0.25% annually in policy years 11+
----------------------------------------------------------------------------------------------------------
FUND CHARGES SEE FUND CHARGE TABLE SEE FUND CHARGE TABLE
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER CHARGES PARTIAL SURRENDER FEE None 2.0% of the amount withdrawn, but not
greater than $25.
- ---------------------------------------------------------------------------------------------------------------------------------
TRANSFERS BETWEEN None $10 per transfer after the first 2
SUBACCOUNTS transfers in any given policy year,
(after 12 transfers in New York).
----------------------------------------------------------------------------------------------------------
LOAN INTEREST RATE The rates in effect before the 16th The Guaranteed rates before the Insured
CHARGED policy year and before the Insured reaches 65 for all states are:
reaches age 65 in all states except Policy year 1 - 10: 4.75%
New York and New Jersey are: Policy year 11 - 15: 4.50%
Policy year 1 - 10: 2.75% Policy year 16+: 4.25%
Policy year 11 - 15: 2.50%
Policy year 16+: 2.25%
The rates in effect before the 16th
policy year and before the Insured
reaches age 65 in New York and
New Jersey are:
Policy year 1 - 10: 4.75%
Policy year 11 - 15: 4.50%
Policy year 16+: 4.25%
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
DEDUCTIONS FROM PREMIUMS
Before we allocate your premium to the subaccounts or the GIA we deduct a
sales charge, a state premium tax and a federal tax to cover the estimated cost
to us for deferred acquisition costs.
SALES CHARGE
We deduct a sales charge from your premium for the costs we incur in the
sales and distribution of the policies. We will refund a portion of the sales
charge to you as part of the cash surrender value if you surrender your policy
within the first 3 policy years according to the following schedule:
Policy Year 1: 100.00%
Policy Year 2: 66.67%
Policy Year 3: 33.33%
STATE PREMIUM TAX CHARGE
States assess premium taxes at various rates. We deduct the applicable state
rate from each premium to cover the cost of the premium taxes assessed against
us by the state.
We may increase or decrease this charge if there is a change in the tax or
change of residence.
DEFERRED ACQUISITION COST ("DAC") TAX CHARGE
This tax is associated with our federal tax liability under Internal Revenue
Code Section 848.
POLICY VALUE CHARGES
On each monthly calculation day, we deduct from your policy value the
following charges:
1. Administrative Charge
2. Cost of Insurance Charge
3. Mortality and Expense Risk Fee
4. A charge for the cost of riders if applicable
The amount deducted is allocated among the subaccounts and the unloaned
portion of the GIA based on an allocation schedule specified by you. You
initially choose this schedule in your application.
1. ADMINISTRATIVE CHARGE
We assess a monthly charge for the expenses we incur in administering the
policy. This charge reimburses us for the cost of daily administration for
services such as billing and collections, monthly processing, updating daily
values and communicating with policyholders.
2. COST OF INSURANCE
We deduct a charge to cover the cost of insurance coverage on each monthly
calculation date. This charge is based on:
[diamond] Insured's gender;
[diamond] Insured's age at issue;
[diamond] Policy year in which we make the deduction;
[diamond] Insured's tobacco use classification;
[diamond] Rating class of the policy; and
[diamond] Underwriting classification of the case.
To determine the monthly cost of insurance, we multiply the appropriate cost
of insurance rate by the difference between your policy's death benefit and the
policy value. 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.
3. MORTALITY AND EXPENSE RISK FEE
We charge the subaccounts for the mortality and expense risks we assume.
This charge is deducted from the value of each subaccount's assets attributable
to the policies.
The mortality risk we assume is that the group of lives we insure under our
policies may, on average, live for a shorter period of time than we estimated.
The expense risk we assume is that our cost of issuing and administering the
policies may be more than we estimated.
If all the money we collect from this charge is not required to cover the
cost of death benefits and other expenses, it will be a gain to us. If the money
we collect is not enough to cover our costs, we will still provide for death
benefits and expenses.
4. RIDER CHARGE
We will deduct any applicable monthly rider charges for the additional
benefit provided to you by the rider.
CHARGES FOR FEDERAL INCOME TAXES
We currently do not charge the VUL Account for federal income taxes
attributable to it. In the future, we may charge to cover these or any other tax
liability of the VUL Account.
FUND CHARGES
Please refer to the following chart for a listing of fund charges.
7
<PAGE>
<TABLE>
<CAPTION>
FUND ANNUAL EXPENSES
(For the year ending December 31, 1999)
- -------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES TOTAL EXPENSES TOTAL EXPENSES
SERIES MANAGEMENT RULE 12B-1 BEFORE BEFORE AFTER
FEES FEES REIMBURSEMENT(1) REIMBURSEMENT REIMBURSEMENT(2)
- -------------------------------------------------------------------------------------------------------------------------------
THE PHOENIX EDGE SERIES FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index .45% N/A .30% .75% .55%
Phoenix-Aberdeen International .75% N/A .26% 1.01% 1.01%
Phoenix-Aberdeen New Asia 1.00% N/A 1.39% 2.39% 1.25%
Phoenix-Bankers Trust Dow 30 .35% N/A 7.46% 7.81% .50%
Phoenix-Duff & Phelps Real Estate Securities .75% N/A .56% 1.31% 1.00%
Phoenix-Engemann Capital Growth .62% N/A .06% .68% .68%
Phoenix-Engemann Nifty Fifty .90% N/A .53% 1.43% 1.05%
Phoenix-Federated U.S. Government Bond .60% N/A 7.61% 8.21% .75%
Phoenix-Goodwin Money Market .40% N/A .17% .57% .55%
Phoenix-Goodwin Multi-Sector Fixed Income .50% N/A .21% .71% .65%
Phoenix-Hollister Value Equity .70% N/A 1.33% 2.03% .85%
Phoenix-Janus Equity Income .85% N/A 17.96% 18.81% 1.00%
Phoenix-Janus Flexible Income .80% N/A 7.38% 8.18% .95%
Phoenix-Janus Growth .85% N/A 16.44% 17.29% 1.00%
Phoenix-Morgan Stanley Focus Equity .85% N/A 7.26% 8.11% 1.00%
Phoenix-Oakhurst Balanced .54% N/A .16% .70% .70%
Phoenix-Oakhurst Growth and Income .70% N/A .31% 1.01% .85%
Phoenix-Oakhurst Strategic Allocation .58% N/A .12% .70% .70%
Phoenix-Schafer Mid-Cap Value 1.05% N/A 1.53% 2.58% 1.20%
Phoenix-Seneca Mid-Cap Growth .80% N/A 1.24% 2.04% 1.05%
Phoenix-Seneca Strategic Theme .75% N/A .22% .97% .97%
BT INSURANCE FUNDS TRUST
- -------------------------------------------------------------------------------------------------------------------------------
EAFE(R) Equity Index Fund .45% N/A .69% 1.15% .65%
FEDERATED INSURANCE SERIES
- -------------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government Securities II .60% N/A .43% 1.03% .78%
Federated High Income Bond Fund II .60% N/A .44% 1.04% .79%
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
- -------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio .79% N/A 11.78% 12.57% 1.15%
TEMPLETON VARIABLE PRODUCTS SERIES FUND(3)
- -------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments Fund-- Class 2(4) .60% .25% 1.00% 1.91% 1.25%
Templeton Asset Allocation Fund-- Class 2 .60% .25% .14% .99% .99%
Templeton Developing Markets Fund-- Class 2 1.25% .25% .25% 1.75% 1.75%
Templeton International Fund-- Class 2 .69% .25% .16% 1.10% 1.10%
Templeton Stock Fund-- Class 2 .70% .25% .05% 1.00% 1.00%
WANGER ADVISORS TRUST
- -------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty 1.00% N/A 2.45% 3.45% 1.45%
Wanger International Small Cap 1.25% N/A .24% 1.49% 1.49%
Wanger Twenty .95% N/A 1.17% 2.12% 1.35%
Wanger U.S. Small Cap .95% N/A .07% 1.02% 1.02%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Each series pays a portion or all of its expenses other than the management
fee. The Phoenix Research Enhanced Index Series will pay up to .10%; the
Phoenix-Engemann Capital Growth, Phoenix-Goodwin Multi-Sector Fixed Income,
Phoenix-Oakhurst Strategic Allocation, Phoenix-Goodwin Money Market,
Phoenix-Oakhurst Balanced, Phoenix-Engemann Nifty Fifty, Phoenix-Oakhurst
Growth and Income, Phoenix-Hollister Value Equity and Phoenix-Schafer Mid-Cap
Value, Phoenix-Bankers Trust Dow 30, Phoenix-Federated U.S. Government Bond,
Phoenix-Janus Equity Income, Phoenix-Janus Flexible Income, Phoenix-Janus
Growth and Phoenix-Morgan Stanley Focus Equity Series will pay up to .15%;
the Phoenix-Duff & Phelps Real Estate Securities, Phoenix-Seneca Strategic
Theme, Phoenix-Aberdeen New Asia, and Phoenix-Seneca Mid-Cap Growth Series
will pay up to .25%; and the Phoenix-Aberdeen International Series will pay
up to .40%. The Wanger Foreign Forty will pay up to .45%, the Wanger U.S.
Small Cap Series will pay up to .50%, the Wanger International Small Cap will
pay up to .60%, and the Wanger Twenty will pay up to .40%.
2 Reflects the effect of any management fee waivers and reimbursement of
expenses.
3 The fund's class 2 distribution plan or "rule 12b-1 plan" is described in the
fund's prospectus. On 2/8/00, the fund's shareholders approved a merger and
reorganization that will, on or about 5/1/00, combine the fund with a similar
fund of the Franklin Templeton Variable Insurance Products Trust ("FTVIPT").
As of 5/1/00, the expenses of the fund will be based on the combined assets
of both funds. Based on pro-forma financial statements for the combined funds
as of 12/31/99, which used expense rates of the surviving FTVIPT fund as of
that date, the fund's management fees, other expenses and total operating
expenses after 5/1/00 are estimated to be:
<TABLE>
<CAPTION>
Management Other Total
Estimated Annual Expenses from 5/1/00 Fees Expenses Operating Expenses
<S> <C> <C> <C>
Mutual Shares Investments Fund -- Class 2 0.60% 0.19% 1.04%
Asset Allocation Fund -- Class 2 0.65% 0.17% 1.07%
Developing Markets Fund -- Class 2 1.25% 0.14% 1.64%
International Fund -- Class 2 0.85% 0.07% 1.17%
Stock Fund -- Class 2 0.80% 0.05% 1.10%
</TABLE>
4 The manager and administrator agreed in advance to waive or limit their
respective fees, and the manager to assume as its own expense certain
expenses otherwise payable by the fund. With this reduction, management
fees after reimbursement were 0.00% and total operating expenses were 1.25%.
After 12/31/00, the manager and administrator may end this arrangement at
any time.
8
<PAGE>
OTHER CHARGES
PARTIAL SURRENDER FEE
We reserve the right to deduct a charge from each withdrawal.
LOAN INTEREST RATE EXPENSE CHARGE
We deduct a charge from the loan interest rate. This charge reimburses us
for expenses we incur in administering your loan. This rate varies by policy
year.
REDUCTION IN CHARGES
The policy is available for purchase by individuals, corporations and other
groups. For group or sponsored arrangements (including our employees and their
family members) and for special exchange programs that we may make available, we
reserve the right to reduce or eliminate the sales load, mortality and expense
risk charge, monthly administrative charge, monthly cost of insurance charges
or other charges normally assessed on certain multiple life cases where it is
expected that the size or nature of such cases will result in savings of sales,
underwriting, administrative or other costs.
Eligibility for the amount of these reductions will be determined by a
number of factors, including the number of Insureds, the total premium expected
to be paid, the total assets under management for the policyowner, the nature of
the relationship among individual insureds, the purpose for which the policies
are being purchased, the expected persistency of individual policies, and other
circumstances which in our opinion are rationally related to the expected
reduction in expenses. Any variations in the charge structure will be determined
in a uniform manner reflecting differences in costs of services and not unfairly
discriminatory to policyholders.
9
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY AND THE VUL ACCOUNT
- -------------------------------------------------------------------------------
PHOENIX
We are a mutual life insurance company originally chartered in Connecticut
in 1851 and redomiciled to New York in 1992. Our executive office is at One
American Row, Hartford, Connecticut 06102-5056 and our main administrative
office is at 100 Bright Meadow Boulevard, Enfield, Connecticut 06083-1900. Our
New York principal office is 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, established 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"), as
amended, and meets the definition of a "separate account" under that Act. This
registration does not involve supervision of the management of the VUL Account
or Phoenix by the SEC.
The VUL Account is divided into subaccounts each of which is available for
allocation of policy value. Each subaccount will invest solely in shares of a
specific series of a mutual fund. In the future, we may establish additional
subaccounts which will be made available to existing policyowners to the extent
and on a basis decided by us. See "Investments of the VUL Account--Participating
Investment Funds."
We do not guarantee the investment performance of the VUL Account or any of
its subaccounts. Contributions to the overall policy value allocated to the VUL
Account depend on the chosen fund's investment performance. Thus, you bear the
full investment risk for all monies invested in the VUL Account.
The VUL Account is part of the general business of Phoenix, but the gains or
losses of the VUL Account belong solely to the VUL Account. The gains or losses
of any other business we may conduct do 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 are general corporate obligations of Phoenix.
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 B" for more information.
INVESTMENTS OF THE VUL ACCOUNT
- -------------------------------------------------------------------------------
PARTICIPATING INVESTMENT FUNDS
THE PHOENIX EDGE SERIES FUND
Certain subaccounts invest in corresponding series of The Phoenix Edge
Series Fund. The following series are currently available:
PHOENIX 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-BANKERS TRUST DOW 30 SERIES: The series seeks to track the total
return of the Dow Jones Industrial Average(SM) (the "DJIA(SM)") before fund
expenses.
PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES: The investment
objective of the series is to seek capital appreciation and income with
approximately equal emphasis. Under normal circumstances, it invests in
marketable securities of publicly traded real estate investment trusts (REITs)
and companies that operate, develop, manage and/or invest in real estate located
primarily in the United States.
PHOENIX-ENGEMANN CAPITAL GROWTH SERIES: The investment objective of the
series is to achieve intermediate and long-term growth of capital, with income
as a secondary consideration. The Phoenix-Engemann Capital Growth Series invests
principally in common stocks of corporations believed by management to offer
growth potential.
PHOENIX-ENGEMANN NIFTY FIFTY SERIES: The investment objective of the series
is to seek long-term
10
<PAGE>
capital appreciation by investing in approximately 50 different securities which
offer the best potential for long-term growth of capital. At least 75% of the
series' assets will be invested in common stocks of high quality growth
companies. The remaining portion will be invested in common stocks of small
corporations with rapidly growing earnings per share or common stocks believed
to be undervalued.
PHOENIX-FEDERATED U.S. GOVERNMENT BOND SERIES: The investment objective of
the series is to maximize total return by investing primarily in debt
obligations of the U.S. Government, its agencies and instrumentalities.
PHOENIX-GOODWIN MONEY MARKET SERIES: The investment objective of the series
is to provide maximum current income consistent with capital preservation and
liquidity. The Phoenix-Goodwin Money Market Series invests exclusively in high
quality money market instruments.
PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES: The investment objective
of the series is to seek long-term total return. The Phoenix-Goodwin
Multi-Sector Fixed Income Series seeks to achieve its investment objective by
investing in a diversified portfolio of high yield and high quality fixed income
securities.
PHOENIX-HOLLISTER VALUE EQUITY SERIES: The primary investment objective of
the series is long-term capital appreciation, with a secondary investment
objective of current income. The Phoenix-Hollister Value Equity Series seeks to
achieve its objective by investing in a diversified portfolio of common stocks
that meet certain quantitative standards that indicate above average financial
soundness and intrinsic value relative to price.
PHOENIX-JANUS EQUITY INCOME SERIES: The investment objective of the series
is to seek current income and long-term growth of capital.
PHOENIX-JANUS FLEXIBLE INCOME SERIES: The investment objective of the series
is to seek to obtain maximum total return, consistent with preservation of
capital.
PHOENIX-JANUS GROWTH SERIES: The investment objective of the series is to
seek long-term growth of capital, in a manner consistent with the preservation
of capital.
PHOENIX-MORGAN STANLEY FOCUS EQUITY SERIES: The investment objective of the
series is to seek capital appreciation by investing primarily in equity
securities.
PHOENIX-OAKHURST BALANCED SERIES: The investment objective of the series is
to seek reasonable income, long-term capital growth and conservation of capital.
The Phoenix-Oakhurst Balanced Series invests based on combined considerations of
risk, income, capital enhancement and protection of capital value.
PHOENIX-OAKHURST GROWTH AND INCOME SERIES: The investment objective of the
series is to seek dividend growth, current income and capital appreciation by
investing in common stocks. The Phoenix-Oakhurst Growth and Income Series seeks
to achieve its objective by selecting securities primarily from equity
securities of the 1,000 largest companies traded in the United States, ranked by
market capitalization.
PHOENIX-OAKHURST STRATEGIC ALLOCATION SERIES: The investment objective of
the series is to realize as high a level of total return over an extended period
of time as is considered consistent with prudent investment risk. The
Phoenix-Oakhurst Strategic Allocation Series invests in stocks, bonds and money
market instruments in accordance with the Investment Advisor's appraisal of
investments most likely to achieve the highest total return.
PHOENIX-SCHAFER MID-CAP VALUE SERIES: The primary investment objective of
the series is to seek long-term capital appreciation, with current income as the
secondary investment objective. The Phoenix-Schafer Mid-Cap Value Series will
invest in common stocks of established companies having a strong financial
position and a low stock market valuation at the time of purchase which are
believed to offer the possibility of increase in value.
PHOENIX-SENECA MID-CAP GROWTH SERIES: The investment objective of the series
is to seek capital appreciation primarily through investments in equity
securities of companies that have the potential for above average market
appreciation. The series seeks to outperform the Standard & Poor's Mid-Cap 400
Index.
PHOENIX-SENECA STRATEGIC THEME SERIES: The investment objective of the
series is to seek long-term appreciation of capital by identifying securities
benefiting from long-term trends present in the United States and abroad. The
Phoenix-Seneca Strategic Theme Series invests primarily in common stocks
believed to have substantial potential for capital growth.
BT INSURANCE FUNDS TRUST
A certain subaccount invests in a corresponding series of the BT Insurance
Funds Trust. The following series is currently available:
EAFE(R) EQUITY INDEX FUND: The series seeks to match the performance of the
Morgan Stanley Capital International EAFE(R) Index ("EAFE(R) Index"), which
emphasizes major market stock performance of companies in Europe, Australia and
the Far East. The series invests in a statistically selected sample of the
securities found in the EAFE(R) Index.
FEDERATED INSURANCE SERIES
Certain subaccounts invest in corresponding series of the Federated
Insurance Series. The following series are currently available:
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II: The investment objective
of the series is to seek current income by investing primarily in U.S.
government
11
<PAGE>
securities, including mortgage-backed securities issued by U.S. government
agencies.
FEDERATED HIGH INCOME BOND FUND II: The investment objective of the series
is to seek high current income by investing primarily in a diversified portfolio
of high-yield, lower-rated corporate bonds.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
A certain subaccount invests in a corresponding series of the Morgan Stanley
Dean Witter Universal Funds, Inc. The following series is currently available:
TECHNOLOGY PORTFOLIO: The investment objective of the series is to seek
long-term capital appreciation by investing primarily in equity securities of
companies that the investment advisor expects to benefit from their involvement
in technology and technology-related industries.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Certain subaccounts invest in Class 2 Shares of a corresponding fund of the
Templeton Variable Products Series Fund. The following funds are currently
available:
MUTUAL SHARES INVESTMENTS FUND: The primary investment objective of the fund
is capital appreciation with income as a secondary objective. The Mutual Shares
Investments Fund invests in domestic equity securities that the manager believes
are significantly undervalued.
TEMPLETON ASSET ALLOCATION FUND: The investment objective of the fund is a
high level of total return. The Templeton Asset Allocation Fund invests in
stocks of companies of any nation, bonds of companies and governments of any
nation and in money market instruments. Changes in the asset mix will be made in
an attempt to capitalize on total return potential produced by changing economic
conditions throughout the world.
TEMPLETON DEVELOPING MARKETS FUND: The investment objective of the fund is
long-term capital appreciation. The Templeton Developing Markets Fund invests
primarily in emerging market equity securities.
TEMPLETON INTERNATIONAL FUND: The investment objective of the fund is
long-term capital growth. The Templeton International Fund invests primarily in
stocks of companies located outside the United States, including emerging
markets.
TEMPLETON STOCK FUND: The investment objective of the fund is long-term
capital growth. The Templeton Stock Fund invests primarily in common stocks
issued by companies in various nations throughout the world, including the U.S.
and emerging markets.
WANGER ADVISORS TRUST
Certain subaccounts invest in corresponding series of the Wanger Advisors
Trust. The following series are currently available:
WANGER FOREIGN FORTY: The investment objective of the series is to seek
long-term capital growth. The Wanger Foreign Forty invests primarily in equity
securities of foreign companies with market capitalization of $1 billion to $10
billion and focuses its investments in 40 to 60 companies in the developed
markets.
WANGER INTERNATIONAL SMALL CAP: The investment objective of the series is to
seek long-term capital growth. The Wanger International Small Cap invests
primarily in securities of non-U.S. companies with total common stock market
capitalization of less than $1 billion.
WANGER TWENTY: The investment objective of the series is to seek long-term
capital growth. The Wanger Twenty invests primarily in the stocks of U.S.
companies with market capitalization of $1 billion to $10 billion and ordinarily
focuses its investments in 20 to 25 U.S. companies.
WANGER U.S. SMALL CAP: The investment objective of the series is to seek
long-term capital growth. The Wanger U.S. Small Cap invests primarily in
securities of U.S. companies with total common stock market capitalization of
less than $1 billion.
Each series will be subject to market fluctuations and the risks that come
with the ownership of any security, and there can be no assurance that any
series will achieve its stated investment objective.
In addition to being sold to the Account, shares of all of the funds also
may be sold to other separate accounts of Phoenix or its affiliates and shares
of certain funds also may be sold to the separate accounts of other insurance
companies.
It is possible that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the fund(s) simultaneously. Although neither Phoenix nor the fund(s)
trustees currently foresee any such disadvantages either to variable life
insurance policyowners or to variable annuity Contractowners, the funds'
trustees intend to monitor events in order to identify any material conflicts
between variable life insurance policyowners and variable annuity Contractowners
and to determine what action, if any, should be taken in response to such
conflicts. Material conflicts could, for example, result from:
[diamond] changes in state insurance laws;
[diamond] changes in federal income tax laws;
[diamond] changes in the investment management of any portfolio of the fund(s);
or
[diamond] differences in voting instructions between those given by variable
life insurance policyowners and those given by variable annuity
Contractowners.
We will, at our expense, remedy such material conflicts including, if
necessary, segregating the assets underlying
12
<PAGE>
the variable life insurance policies and the variable annuity contracts and
establishing a new registered investment company.
INVESTMENT ADVISORS
Phoenix Investment Counsel, Inc. ("PIC") is an investment advisor to the
following series in The Phoenix Edge Series Fund:
o Phoenix-Goodwin Money Market Series
o Phoenix-Goodwin Multi-Sector Fixed Income Series
o Phoenix-Hollister Value Equity Series
o Phoenix-Oakhurst Balanced Series
o Phoenix-Oakhurst Growth and Income Series
o Phoenix-Oakhurst Strategic Allocation Series
Based on subadvisory agreements with the fund, PIC as an investment advisor
delegates certain investment decisions and research functions to subadvisors for
the following series:
[diamond] Phoenix-Aberdeen International Advisors, LLC ("PAIA")
o Phoenix-Aberdeen International Series
[diamond] Roger Engemann & Associates, Inc. ("Engemann")
o Phoenix-Engemann Capital Growth Series
o Phoenix-Engemann Nifty Fifty Series
[diamond] Seneca Capital Management, LLC ("Seneca")
o Phoenix-Seneca Mid-Cap Growth Series
o Phoenix-Seneca Strategic Theme Series
Phoenix Variable Advisors, Inc. ("PVA") is also an investment advisor to The
Phoenix Edge Series Fund. Based on subadvisory agreements with the fund, PVA
delegates certain investment decisions and research functions to the following
subadvisors for the series listed:
[diamond] Bankers Trust Company
o Phoenix-Bankers Trust Dow 30 Series
[diamond] Federated Investment Management Company
o Phoenix-Federated U.S. Government Bond Series
[diamond] J.P. Morgan Investment Management, Inc.
o Phoenix Research Enhanced Index Series
[diamond] Janus Capital Corporation
o Phoenix-Janus Equity Income Series
o Phoenix-Janus Flexible Income Series
o Phoenix-Janus Growth Series
[diamond] Morgan Stanley Asset Management Inc.
o Phoenix-Morgan Stanley Focus Equity Series
[diamond] Schafer Capital Management, Inc.
o Phoenix-Schafer Mid-Cap Value Series
The investment advisor to the Phoenix-Duff & Phelps Real Estate Securities
Series is Duff & Phelps Investment Management Co. ("DPIM").
The investment advisor to the Phoenix-Aberdeen New Asia Series is PAIA.
Pursuant to subadvisory agreements with the fund, PAIA delegates certain
investment decisions and research functions with respect to the Phoenix-Aberdeen
New Asia Series to PIC and Aberdeen Fund Managers, Inc.
PIC, DPIM, Engemann and Seneca are indirect less than wholly owned
subsidiaries of Phoenix. PAIA is jointly owned and managed by PM Holdings, Inc.,
a subsidiary of Phoenix, and by Aberdeen Fund Managers, Inc. PVA is a wholly
owned subsidiary of PM Holdings, Inc.
The other investment advisors and their respective funds are:
[diamond] Bankers Trust Company
o EAFE(R) Equity Index Fund
[diamond] Federated Investment Management Company
o Federated Fund for U.S. Government Securities II
o Federated High Income Bond Fund II
[diamond] Franklin Mutual Advisers, LLC
o Mutual Shares Investments Fund
[diamond] Morgan Stanley Dean Witter Investment
Management Inc.
o Technology Portfolio
[diamond] Templeton Asset Management, Ltd.
o Templeton Developing Markets Fund
[diamond] Templeton Investment Counsel, Inc.
o Templeton Asset Allocation Fund
o Templeton International Fund
o Templeton Stock Fund
[diamond] Wanger Asset Management, L.P.
o Wanger Foreign Forty
o Wanger International Small Cap
o Wanger Twenty
o Wanger U.S. Small Cap
SERVICES OF THE ADVISORS
The Advisors continually furnish an investment program for each series and
manage the investment and reinvestment of the assets of each series subject at
all times to the authority and supervision of the Trustees of each fund. A
detailed discussion of the investment advisors and subadvisors, and the
investment advisory and subadvisory agreements, is contained in the accompanying
prospectus for the funds.
REINVESTMENT AND REDEMPTION
All dividend distributions of the fund are automatically reinvested in
shares of the fund at their net asset value on the date of distribution.
Likewise, all capital gains distributions of the fund, if any, are reinvested at
the net asset value on the record date. We redeem fund shares at their net asset
value to the extent necessary to make payments under the policy.
13
<PAGE>
SUBSTITUTION OF INVESTMENTS
We reserve the right to make additions to, deletions from, or substitutions
for the investments held by the VUL Account, subject to compliance with the law
as currently applicable or as subsequently changed. In the future, we may
establish additional subaccounts within the VUL Account, each of which will
invest in shares of a designated portfolio of the fund with a specified
investment objective. If and when marketing needs and investment conditions
warrant, and at our discretion, we may establish additional portfolios. These
will be made available under existing Policies to the extent and on a basis
determined by us.
If shares of any of the portfolios of the fund should be no longer available
for investment or, if in the judgment of our management, further investment in
shares of any of the portfolios become inappropriate due to policy objectives,
we may then substitute shares of another mutual fund for shares already
purchased, or to be purchased in the future. No substitution of mutual fund
shares held by the VUL Account may take place without prior approval of the
Securities and Exchange Commission and prior notice to you. In the event of a
change, you will be given the option of transferring the policy value of the
subaccount in which the substitution is to occur to another subaccount.
THE GUARANTEED INTEREST ACCOUNT
In addition to the VUL Account, you may allocate premium or transfer policy
value to the GIA. Amounts you allocate or transfer to the GIA become part of
Phoenix's general account assets. You do not share in the investment experience
of those assets. Rather, we guarantee a 3% rate of return on your allocated
amount. For amounts transferred to the GIA due to a policy loan, the guaranteed
rate is 2% in all states except New York and New Jersey. In New York and New
Jersey the rate credited to the GIA due to a policy loan is 4%. Although we are
not obligated to credit interest at a higher rate than the minimum, we will
credit excess interest, if any, as determined by us based on information as to
expected investment yields.
Because of exemptive and exclusionary provisions, we have not registered
interests in our general account under the Securities Act of 1933. Also, we have
not registered our general account as an investment company under the Investment
Company Act of 1940, as amended. Therefore, neither the general account nor any
of its interests are subject to these Acts, and the Securities and Exchange
Commission has not reviewed the general account disclosures. These disclosures
may, however, be subject to certain provisions of the federal securities law as
to the accuracy and completeness of statements made in this prospectus.
We reserve the right to limit total deposits, including transfers, to the
GIA to no more than $250,000 during any one-week period per policy.
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 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 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 4-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 C," "Transfer of policy value" and "Systematic Transfer Program."
PREMIUMS
- -------------------------------------------------------------------------------
MINIMUM PREMIUMS
The minimum premium is determined by case size as follows:
[diamond] 5 or more lives: $100,000 annually for the first 5 policy years
[diamond] Fewer than 5 lives: $250,000 annually for the first 5 policy years
The issue premium is due on the policy date. The Insured must be alive when
the Issue Premium is paid. After that, premiums may be paid at any time while
the policy is in force. There is no direct relationship between the "Plan
Minimum Premium" and the "Policy Target Premium." The plan minimum premium is a
case-level requirement for the plan to be issued. The target premium is used to
determine the amount of commissions paid to the producer for a given policy.
Each premium payment must be at least $100. Additional payments should be sent
to the:
VUL COLI UNIT
PO BOX 22012
ALBANY, NY 12201-2012
The number of units credited to a subaccount of the VUL Account will be
determined by dividing the portion of the net premium applied to that subaccount
by the unit value of the subaccount on the payment date.
Regardless of whether you choose the Guideline Premium Test or the Cash
value Accumulation Test (see "Minimum Face Amount"), we reserve the right to
refund a premium paid in any year if it will exceed the maximum premium limit.
The maximum limit is established by law to
14
<PAGE>
qualify the policy contract as life insurance. This limit is applied to the sum
of all premiums paid under the policy. If the total premium limit is exceeded,
the policyowner 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. 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.
ALLOCATION OF ISSUE PREMIUM
We will generally allocate the issue premium less applicable charges to the
VUL Account or to the GIA upon receipt of a completed application, in accordance
with the allocation instructions in the application for a policy. However,
policies issued in certain states, and policies issued in certain states
pursuant to applications which state the policy is intended to replace existing
insurance, are issued with a Temporary Money Market Allocation Amendment. Under
this Amendment, we temporarily allocate the entire issue premium paid less
applicable charges (along with any other premiums paid during the Free Look
period) to the Phoenix-Goodwin Money Market Subaccount of the VUL Account, and,
at the expiration of the Free Look period, the policy value of the Phoenix-
Goodwin Money Market Subaccount is allocated among the subaccounts of the VUL
Account or to the GIA in accordance with the applicant's allocation instructions
in the application for insurance.
FREE LOOK 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);
[diamond] within 10 days after we mail or deliver a written notice telling you
about your free look period; or
[diamond] within 45 days after completing the application, whichever occurs
latest (the "Free Look 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 7 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 Free Look Period.
ACCOUNT VALUE
TRANSFER OF POLICY VALUE
Transfers among available subaccounts or the GIA and changes in premium
payment allocations may be requested in writing. Requests for transfers will be
executed on the date the request is received at Andesa, TPA, Inc.
Although currently there is no charge for transfers, in the future, we may
charge a fee of $10 for each transfer after the first 2 transfers in a policy
year (after twelve transfers in New York).
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 Dollar Cost Averaging
Program, or (2) we agree to make an exception to this rule. Unless you have
elected a Dollar Cost Averaging Program, 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 4-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
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 at any
one time or over the life of the policy, 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.
15
<PAGE>
If a policy has been issued with a Temporary Money Market Allocation
Amendment, no transfers may be made until the end of the Free Look Period.
SYSTEMATIC TRANSFERS FOR DOLLAR COST AVERAGING
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 Transfers for Dollar Cost Averaging Program ("Dollar Cost
Averaging Program"). Under the Dollar Cost Averaging Program, the minimum
transfer amounts are $25 monthly, $75 quarterly, $150 semiannually or $300
annually. You must have an initial value of $1,000 in the GIA or the subaccount
from which funds will be transferred ("Sending Subaccount"), and if the value in
that subaccount or the GIA drops below the amount to be transferred, the entire
remaining balance will be transferred and all systematic transfers stop. funds
may be transferred from only one Sending Subaccount or the GIA, but may be
allocated to more than one subaccount ("Receiving Subaccounts"). Under the
Dollar Cost Averaging Program, policyowners may make more than one transfer per
policy year from the GIA. These transfers must be in approximately equal amounts
and made over a minimum 18-month period.
Only one Dollar Cost Averaging Program can be active at any time. All
transfers under the Dollar Cost Averaging Program will be made on the basis of
the GIA and subaccount on the first day of the month following our receipt of
the transfer request. If the first day of the month falls on a holiday or
weekend, then the transfer will be processed on the next business day.
AUTOMATIC ASSET REBALANCING
Automated account rebalancing permits you to maintain a specified whole
number percentage of your account value in any combination of subaccounts and
the GIA. We must receive a written request in order to begin your automated
asset rebalancing program ("Asset Rebalancing"). Then, we will make transfers
at least quarterly to and from the subaccounts and the GIA to readjust your
account value to your specified percentage. Asset Rebalancing allows you to
maintain a specific fund allocation. Quarterly rebalancing is based on your
policy year. We will rebalance your account value only on a monthly calculation
date.
The effective date of the first Asset Rebalancing will be the first monthly
calculation date after we receive your request at Andesa TPA, Inc. If we receive
your request before the end of the Free Look Period, your first rebalancing
will occur at the end of the Free Look Period.
You may not participate in both the Dollar Cost Averaging Program and the
Asset Rebalancing at the same time.
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 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 6 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 value amount of any
deposits and withdrawals made during the valuation period ending on that
date.
(D) The charge, if any, for taxes and reserves for taxes on investment income,
and realized and unrealized capital gains.
DEATH BENEFIT UNDER THE POLICY
The death benefit is the amount we pay to the designated beneficiary(ies)
when the insured dies. Upon receiving due proof of death, we pay the beneficiary
the death benefit amount determined as of the date the insured dies. The
beneficiary may direct us to pay all or part of the benefit in cash or to apply
it under one or more of our payment options.
MINIMUM FACE AMOUNT
To qualify as life insurance under current federal tax laws, the policy has
a minimum face amount of insurance. The minimum face is determined using 1 of 2
allowable definitions of life insurance: (1) the Cash value Accumulation Test or
(2) the Guideline Premium Test.
16
<PAGE>
You chose which test to use on the application prior to the issuance of your
policy. You cannot change the way we determine your minimum face amount after
your policy is issued.
The Cash value Accumulation Test determines the minimum face amount by
multiplying the account value plus the refund of sales load, if applicable, by
the minimum face amount percentage. The percentages depend upon the insured's
age, gender and underwriting classification.
Under the Guideline Premium Test, the minimum face amount is also equal to
an applicable percentage of the account value plus refund of sales load, if
applicable, but the percentage varies only by age of insured.
DEATH BENEFIT OPTIONS
In your application you choose a face amount of insurance coverage and the
death benefit option. We offer 3 death benefit options:
[diamond] Option 1: the death benefit is the greater of the policy's face
amount on the date of death, or the minimum face amount in effect on
the date of death.
[diamond] Option 2: the death benefit is the greater of: (a) the policy's face
amount on the date of death plus the policy value on the date of
death, or (b) the minimum face amount in effect on the date of
death.
[diamond] Option 3: the death benefit is the greater of: (a) the policy's face
amount on the date of death plus the sum of all premiums paid, less
withdrawals, or (b) the policy's face amount on the date of death,
or (c) the minimum face amount in effect on the date of death.
If the insured dies while the policy is in force, we will pay the death
benefit based on the option in effect on the date of death, with the following
adjustments:
[diamond] Add back in any charges taken against the account value for the
period beyond the date of death;
[diamond] Deduct any policy debt outstanding on the date of death; and
[diamond] Deduct any charges accrued against the account value unpaid as of
the date of death.
You may change the death benefit option from Option 1 to Option 2 or from
Option 2 to Option 1. You may not make a change either to or from Option 3.
Under death benefit Options 1 and 3, the death benefit is not affected by
your policy's investment experience. Under death benefit Option 2, the death
benefit amount may increase or decrease by the investment experience.
We pay interest on the death benefit from the date of death to the date the
death benefit is paid or a payment option becomes effective.
CHANGES IN FACE AMOUNT OF INSURANCE
REQUESTS FOR INCREASE IN FACE AMOUNT
Any time while this policy is in force, you may request an increase in the
face amount of insurance provided under the policy. Requests for face amount
increases must be made in writing, and we require additional evidence of
insurability. The effective date of the increase generally will be the policy
anniversary following approval of the increase. The increase may not be less
than $25,000. We will deduct any charges associated with the increase (the
increases in cost of insurance charges), from the policy value, whether or not
you pay an additional premium in connection with the increase. Also, a new Free
Look Period (see "Premiums--Free Look Period") will be established for the
amount of the increase. For a discussion of possible implications of a material
change in the policy resulting from the increase, see "Material Change Rules."
DECREASES IN FACE AMOUNT AND PARTIAL SURRENDERS: EFFECT ON DEATH BENEFIT
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 equal to $10,000
and the face amount remaining after the decrease must be at least $25,000. 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 or a decrease in face amount generally decreases the
death benefit. 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."
SURRENDERS
GENERAL
At any time during the lifetime of the insured and while the policy is in
force, you may partially or fully surrender the policy by sending a written
request to Andesa TPA, Inc. 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
valuation period during which the surrender request is received at Andesa TPA,
Inc.
The cash surrender value is:
o policy value; less
o any outstanding debt; plus
o the refund of sales charge, if applicable.
There is no surrender charge.
If the policy is surrendered within the first 3 policy years, you will
receive a refund of sales charge as part of your cash surrender value. A portion
of the first year sales
17
<PAGE>
charge will be returned to you according to the following schedule:
[diamond] Full surrender in policy year 1: 100.00%
[diamond] Full surrender in policy year 2: 66.67%
[diamond] Full surrender in policy year 3: 33.33%
FULL SURRENDERS
If the policy is being fully surrendered, the policy itself must be returned
to Andesa TPA, Inc., 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 "Payment Options."
PARTIAL SURRENDERS
You may obtain a partial surrender of the policy by requesting payment of
the policy's cash surrender value. It is possible to do this at any time during
the lifetime of the Insured, while the policy is in force, with a written
request to Andesa TPA, Inc. We may require the return of the policy before
payment is made. A partial surrender will be effective on the date the written
request is received or, if required, the date the policy is received by us.
Surrender proceeds may be applied under any of the payment options described
under "Payment Options."
We reserve the right to deny partial surrenders of less than $500. In
addition, if the share of the policy value in any subaccount or in the GIA is
reduced as a result of a partial surrender and is less than $500, we reserve the
right to require surrender of the entire remaining balance in that subaccount or
the GIA.
Upon a partial surrender, the policy value will be reduced by the sum of the
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.
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.
Upon partial or full surrender, we generally will pay to you the amount
surrendered within 7 days after we receive the written request for the
surrender. Under certain circumstances, the surrender payment may be postponed.
See "Additional Policy Provisions--Postponement of Payments." For the federal
tax effects of partial and full surrenders, see "Federal Tax Considerations."
POLICY LOANS
You can take a loan against your policy any time while the policy is in
force. The maximum loan is:
o 90% of your policy value at the time the loan is taken; less
o any outstanding policy debt before the loan is taken; less
o interest on the loan being made and on any outstanding policy debt to the
next policy anniversary date.
Your policy must be assigned to us as collateral for the loan.
SOURCE OF LOAN
We deduct your requested loan amount from the subaccounts and the GIA, based
on the allocation requested at the time of the loan. We liquidate shares taken
from the subaccounts and transfer the resulting dollars to the GIA. These
dollars become part of the loaned portion of the GIA.
INTEREST
You will pay interest on the loan at the following noted effective annual
rates, compounded daily and payable in arrears:
In all states except New York and New Jersey, the loan interest rate in
effect following the policy anniversary nearest the insured's 65th birthday will
be 2.25%. The rates in effect before the Insured reaches age 65 follow:
[diamond] Policy years 1-10: 2.75%
[diamond] Policy years 11-15: 2.50%
[diamond] Policy years 16 and thereafter: 2.25%
In New York and New Jersey only, the loan interest rate in effect following
the policy anniversary nearest the insured's 65th birthday will be 4.25%. The
rates in effect before the Insured reaches age 65 follow:
[diamond] Policy years 1-10: 4.75%
[diamond] Policy years 11-15: 4.50%
[diamond] Policy years 16 and thereafter: 4.25%
Interest accrues daily, becoming part of the policy debt. Interest is due
and payable on the policy anniversary. If you do not pay the interest when due,
we will add it to your loan. We treat any interest which has been capitalized
the same as if it were a new loan. We deduct this capitalized interest from the
subaccounts and the GIA in proportion to the nonloaned account value in each.
INTEREST CREDITED ON LOANED VALUE
The amount equal to any policy loan is held in the GIA. This amount is
credited with interest at a rate of 2% (4% in New York and New Jersey).
REPAYMENT
You may repay all or part of your policy debt at anytime while the policy is
in force.
18
<PAGE>
If you do not repay the loan, we deduct the loan amount due from the cash
surrender value or the death benefit.
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.
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.
EFFECT OF LOAN
Your policy loan reduces the death benefit and cash surrender value under
the policy by the amount of the loan. Your repayment of the loan increases the
death benefit and cash surrender value by the amount of the repayment.
As long as a loan is outstanding, a portion of your policy value equal to
the loan is held in the GIA. The subaccount's investment performance does not
affect this amount. Also, you may be subject to tax consequences if you
surrender your policy while there is outstanding debt.
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 3 policy years, the
policy value plus the refund of any applicable sales charge is insufficient to
cover the monthly deduction, a grace period of 61 days will be allowed for the
payment of an amount equal to 3 times the required monthly deduction. If on any
monthly calculation day during any subsequent policy year, the policy value is
less than the required monthly deduction, a grace period of 61 days will be
allowed for the payment of an amount equal to 3 times the required monthly
deduction.
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 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
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 OPTION
While the policy is in force and the Insured is insurable, the policyowner
will have the option to purchase additional insurance on the same insured with
the same guaranteed rates as the policy. 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, and you may cancel these
benefits at any time. A charge will be deducted monthly from the policy value
for each additional rider benefit chosen except where noted below. More details
will be included in the form of a rider to the policy if any of these benefits
are chosen. The following benefits are currently available and additional riders
may be available as described in the policy (if approved in your state).
[diamond] FLEXIBLE TERM INSURANCE RIDER--This rider provides annually
renewable term insurance coverage to age 100 for the insured under
the base policy. The initial rider death benefit cannot exceed 10
times the initial base policy. There is no charge for this rider.
[diamond] EXCHANGE OF INSURED RIDER--This rider allows the policyowner to
exchange the insured on a given contract. There is no charge for
this rider.
Future charges against the policy will be based on the life of the
substitute insured.
The incontestability and suicide exclusion periods, as they apply to
the substitute insured, run from the date of the exchange. Any
assignments will continue to apply.
The exchange is subject to the following adjustments:
1. If the policy value of the original policy is insufficient to
produce a positive cash surrender value for the new policy, the
owner must pay an exchange adjustment in an amount that, when
applied as premium, will make the policy value of the new policy
greater than zero.
2. In some cases, the amount of policy value which may be applied to
the new policy may result in a death benefit which exceeds the
limit for the new policy. In that event, we will apply such
excess policy value to reduce any loan against the policy, and
the residual amount will be returned to you in cash.
3. The exchange will also be subject to our receipt of repayment of
the amount of any policy debt under the exchange policy in excess
of the loan value of the new policy on the date of exchange.
19
<PAGE>
The Internal Revenue Service has ruled that an exchange of
insureds does not qualify for tax deferral under Code Section
1035. Therefore, you must include in current gross income all
previously unrecognized gain in the policy upon an exchange of
the insured.
PART II--ADDITIONAL POLICY PROVISIONS
- -------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
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 6 months from the date of the request, for any
transactions dependent upon the value of the GIA;
[diamond] whenever the NYSE is closed other than for customary weekend and
holiday closings or trading on the NYSE is restricted as determined
by the SEC; or
[diamond] whenever an emergency exists, as decided by the SEC as a result of
which disposal of securities is not reasonably practicable or it is
not reasonably practicable to determine the value of the VUL
Account's net assets.
Transfers also may be postponed under these circumstances.
PAYMENT BY CHECK
Payments under the policy of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared your bank.
THE CONTRACT
The policy and attached copy of the application are the entire contract.
Only statements in the application can be used to void the policy. The
statements are considered representations and not warranties. Only an executive
officer of Phoenix can agree to change or waive any provisions of the policy.
SUICIDE
If the insured commits suicide within 2 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 Insured's lifetime or for 2 years from the policy date.
CHANGE OF OWNER OR BENEFICIARY
The beneficiary, as named in the policy application or subsequently changed,
will receive the policy benefits at the insured's death. If the named
beneficiary dies before the insured, the contingent beneficiary, if named,
becomes the beneficiary. If no beneficiary survives the insured, the death
benefit payable under the policy will be paid to your estate.
As long as the policy is in force, the policyowner and the beneficiary may
be changed in writing, satisfactory to us. A change in beneficiary will take
effect as of the date the notice is signed, whether or not the insured is living
when we receive the notice. We will not, however, be liable for any payment made
or action taken before receipt of the notice.
ASSIGNMENT
The policy may be assigned. We will not be bound by the assignment until a
written copy has been received and we will not be liable with respect to any
payment made prior to receipt. We assume no responsibility for determining
whether an assignment is valid.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the insured has been misstated, the death benefit will
be adjusted based on what the cost of insurance charge for the most recent
monthly deduction would have purchased based on the correct age and sex.
SURPLUS
This policy is nonparticipating and does not pay dividends. Your policy will
not share in Phoenix's profits or surplus earnings.
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 7 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.
20
<PAGE>
You may elect a payment option for payment of the death proceeds to the
beneficiary. You may revoke or change a prior election, unless such right has
been waived. The beneficiary may make or change an election before payment of
the death proceeds, unless you have made an election that does not permit such
further election or changes by the beneficiary.
A written request in a form satisfactory to us is required to elect, change
or revoke a payment option.
The minimum amount of surrender or death benefit proceeds that may be
applied under any payment option is $1,000.
If the policy is assigned as collateral security, we will pay any amount due
the assignee in one lump sum. Any remaining proceeds will remain under the
option elected.
PAYMENT OPTIONS
All or part of the surrender or death proceeds of a policy may be applied
under one or more of the following payment options or such other payment options
or alternative versions of the options listed as we may choose to make available
in the future.
OPTION 1--LUMP SUM.
Payment in one lump sum.
OPTION 2--LEFT TO EARN INTEREST.
A payment of interest during the payee's lifetime on the amount payable as a
principal sum. Interest rates are guaranteed to be at least 3% per year.
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.
OPTION 4--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN.
Equal installments are paid until the later of:
[diamond] the death of the payee; or
[diamond] the end of the period certain.
The first payment will be on the date of settlement.
The period certain must be chosen at the time this option is elected. The
periods certain that you may choose from are as follows:
[diamond] 10 years;
[diamond] twenty years; or
[diamond] until the installments paid refund the amount applied under this
option.
If the payee is not living when the final payment falls due, that payment
will be limited to the amount which needs to be added to the payments already
made to equal the amount applied under this option.
If, for the age of the payee, a period certain is chosen that is shorter
than another period certain paying the same installment amount, we will consider
the longer period certain as having been elected.
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; or
[diamond] the death of the other named annuitant.
The other annuitant must have attained age 40, must be named at the time
this option is elected and cannot later be changed. 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.
21
<PAGE>
PART III--OTHER IMPORTANT INFORMATION
- -------------------------------------------------------------------------------
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 our tax status
and upon the tax status of the individual concerned. The discussion contained
herein is general in nature and is not intended as tax advice. For complete
information on federal and state tax considerations, a qualified tax advisor
should be consulted. No attempt is made to consider any estate and inheritance
taxes, or any state, local or other tax laws. Because the discussion herein is
based upon our understanding of federal income tax laws as they are currently
interpreted, we cannot guarantee the tax status of any policy. The Internal
Revenue Service (the "IRS") makes no representation regarding the likelihood of
continuation of current federal income tax laws, Treasury regulations or of the
current interpretations. We reserve the right to make changes to the policy to
assure that it will continue to qualify as a life insurance contract for federal
income tax purposes.
PHOENIX'S TAX STATUS
We are taxed as a life insurance company under the Internal Revenue Code of
1986, as amended (the "Code"). For federal income tax purposes, neither the VUL
Account nor the GIA is a separate entity from Phoenix and their operations form
a part of Phoenix.
Investment income and realized capital gains on the assets of the VUL
Account are reinvested and taken into account in determining the value of the
VUL Account. Investment income of the VUL Account, including realized net
capital gains, is not taxed to us. Due to our tax status under current
provisions of the Code, no charge currently will be made to the VUL Account for
our federal income taxes which may be attributable to the VUL Account. We
reserve the right to make a deduction for taxes if our federal tax treatment is
determined to be other than what we currently believe it to be, if changes are
made affecting the tax treatment to our variable life insurance contracts, or if
changes occur in our tax status. If imposed, such charge would be equal to the
federal income taxes attributable to the investment results of the VUL Account.
POLICY BENEFITS
DEATH BENEFIT PROCEEDS
The policy, whether or not it is a "modified endowment contract" (see
"Modified Endowment Contracts"), 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. We monitor the premiums to assure compliance with such
conditions. However, if the premium limitation is exceeded during the year, we
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, the 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. We suggest you consult
with your tax advisor 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
We believe that any loan received under a policy will be treated as your
indebtedness. 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
22
<PAGE>
endowment contracts. If the policy is not a modified endowment contract, we
believe that no part of any loan under a policy will constitute income to you.
The deductibility by a policyowner of loan interest under a policy may be
limited under Code Section 264, depending on the circumstances. A policyowner
intending to fund premium payments through borrowing should consult a tax
advisor 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 advisor 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 7th 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 7
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 us 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 7 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
limitation is applied to the cumulative amount paid for each of the first 7
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 2 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 7 years, distributions and loans generally will not
be subject to the modified endowment contract rules.
PENALTY TAX
Any amounts taxable under the modified endowment contract rule will be
subject to an additional 10% excise tax, with certain exceptions. This
additional tax will not apply in the case of distributions that are:
[diamond] made on or after the taxpayer attains age 59 1/2;
[diamond] attributable to the taxpayer's disability (within the meaning of
Code Section 72(m)(7)); or
[diamond] part of a series of substantially equal periodic payments (not less
often than annually) made for the life (or life expectancy) of the
taxpayer or the joint lives (or life expectancies) of the taxpayer
and his Beneficiary.
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 2
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 7 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:
o the cost-of-living determination period does not exceed the
remaining premium payment period under the policy; and
o 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 7 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.
23
<PAGE>
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 advisor should be consulted about the tax consequences of the
purchase of more than one modified endowment contract within any calendar year.
LIMITATIONS ON UNREASONABLE MORTALITY AND EXPENSE CHARGES
The Code imposes limitations on unreasonable mortality and expense charges
for purposes of ensuring that a policy qualifies as a life insurance contract
for federal income tax purposes. The mortality charges taken into account to
compute permissible premium levels may not exceed those charges required to be
used in determining the federal income tax reserve for the policy, unless
Treasury regulations prescribe a higher level of charge. In addition, the
expense charges taken into account under the guideline premium test are required
to be reasonable, as defined by the Treasury regulations. We will comply with
the limitations for calculating the premium we are permitted to receive from
you.
DIVERSIFICATION STANDARDS
To comply with the Diversification Regulations under Code Section 817(h),
("Diversification Regulations") each series of the fund is required to diversify
its investments. The Diversification Regulations generally require that on the
last day of each calendar quarter the series assets be invested in no more than:
[diamond] 55% in any 1 investment
[diamond] 70% in any 2 investments
[diamond] 80% in any 3 investments
[diamond] 90% in any 4 investments
A "look-through" rule applies to treat a pro rata portion of each asset of a
series as an asset of the VUL Account; therefore, each series of the fund will
be tested for compliance with the percentage limitations. For purposes of these
diversification rules, all securities of the same issuer are treated as a single
investment, but each United States government agency or instrumentality is
treated as a separate issuer.
The general diversification requirements are modified if any of the assets
of the VUL Account are direct obligations of the United States Treasury. In this
case, there is no limit on the investment that may be made in Treasury
securities, and for purposes of determining whether assets other than Treasury
securities are adequately diversified, the generally applicable percentage
limitations are increased based on the value of the VUL Account's investment in
Treasury securities. Notwithstanding this modification of the general
diversification requirements, the portfolios of the funds will be structured to
comply with the general diversification standards because they serve as an
investment vehicle for certain variable annuity contracts that must comply with
these standards.
In connection with the issuance of the Diversification Regulations, the
Treasury announced that such regulations do not provide guidance concerning the
extent to which 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
would provide. It is possible that the policy may need to be modified to comply
with such future Treasury announcements. For these reasons, we reserve the right
to modify the policy, as necessary, to prevent you from being considered the
owner of the assets of the VUL Account.
We intend to comply with the Diversification Regulations to assure that the
Policies continue to qualify as a life insurance contract for federal income tax
purposes.
CHANGE OF OWNERSHIP OR INSURED OR ASSIGNMENT
Changing the policyowner or the Insured or an exchange or assignment of the
policy may have tax consequences depending on the circumstances. Code Section
1035 provides that a life insurance contract can be exchanged for another life
insurance contract, without recognition of gain or loss, assuming that no money
or other property is received in the exchange, and that the policies relate to
the same Insured. If the surrendered policy is subject to a policy loan, this
may be treated as the receipt of money on the exchange. We recommend that any
person contemplating such actions seek the advice of a qualified tax consultant.
OTHER TAXES
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership or receipt of policy proceeds depend on the
circumstances of each policyowner or Beneficiary. We do not make any
representations or guarantees regarding the tax consequences of any policy with
respect to these types of taxes.
VOTING RIGHTS
- -------------------------------------------------------------------------------
We will vote the funds' shares held by the subaccounts at any regular and
special meetings of shareholders of the funds. To the extent required by law,
such voting will be pursuant to instructions received from you. However, if the
1940 Act or any regulation thereunder should be amended
24
<PAGE>
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 Advisor 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.
You (or the payee entitled to payment under a payment option if a different
person) will have the right to vote at annual meetings of all Phoenix
policyholders for the election of members of the Board of Directors of Phoenix
and on other corporate matters, if any, where a policyholder's vote is taken. At
meetings of all the Phoenix policyholders, you (or payee) may cast only one vote
as the holder of a policy, irrespective of policy value or the number of the
policies you hold.
THE DIRECTORS AND
EXECUTIVE OFFICERS OF PHOENIX
- ------------------------------------------------------------------------------
Phoenix is managed by its Board of Directors. The following are the
Directors and Executive Officers of Phoenix:
DIRECTORS PRINCIPAL OCCUPATION
Sal H. Alfiero Chairman and Chief Executive
Officer, Mark IV Industries, Inc.
Amherst, New York
John C. Bacot Chairman and Chief Executive
Officer, The Bank of New York
New York, New York
Arthur P. Byrne Chairman, President and Chief
Executive Officer, The Wiremold
Company
West Hartford, Connecticut
Richard N. Cooper Professor, Center for
International Affairs, Harvard
University, Cambridge,
Massachusetts; 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
and Chief Executive Officer,
Phoenix Home Life Mutual
Insurance Company
Hartford, Connecticut
John E. Haire President,
The Fortune Group
New York, New York
Jerry J. Jasinowski President, National Association
of Manufacturers
Washington, D.C.
John W. Johnstone Chairman, Governance & Nominating
Committees, Arch Chemicals, Inc.,
Westport, Connecticut; formerly
Chairman, President and
Chief Executive Officer,
Olin Corporation
Norwalk, Connecticut
Marilyn E. LaMarche Limited Managing Director, Lazard
Freres & Company, L.L.C.
New York, New York
Philip R. McLoughlin Executive Vice President and
Chief Investment Officer, Phoenix
Home Life Mutual Insurance
Company
Hartford, Connecticut
25
<PAGE>
DIRECTORS PRINCIPAL OCCUPATION
Indra K. Nooyi Senior Vice President,
PepsiCo, Inc.
Purchase, New York
Robert F. Vizza President and Chief Executive
Officer, The DeMatteis Center of
St. Francis Hospital
Roslyn, New York
Robert G. Wilson Retired, formerly Chairman
and Chief Executive Officer,
Ecologic Waste Services, Inc.
Miami, Florida
Dona D. Young President, Phoenix Home Life
Mutual Insurance Company
Hartford, Connecticut
EXECUTIVE OFFICERS PRINCIPAL OCCUPATION
Robert W. Fiondella Chairman of the Board
and Chief Executive Officer
Philip R. McLoughlin Executive Vice President,
Investments
Carl T. Chadburn Executive Vice President
David W. Searfoss Executive Vice President,
Chief Financial Officer
Dona D. Young President
Nathaniel C. Brinn Senior Vice President,
Strategic Development
Martin J. Gavin Senior Vice President,
Trust Operations
Randall C. Giangiulio Senior Vice President,
Group Life and Health
Michael J. Gilotti Senior Vice President
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 Financial
Maura L. Melley Senior Vice President,
Public Affairs
Charles L. Olson Senior Vice President,
Trust Sales and Marketing
David R. Pepin Senior Vice President
Robert E. Primmer Senior Vice President,
Individual Distribution
Tracy L. Rich Senior Vice President and General
Counsel
Joel D. Sanders Senior Vice President,
Group Sales and Marketing
Frederick W. Sawyer, III Senior Vice President
John F. Solan, Jr. Senior Vice President,
Strategic Development
Simon Y. Tan Senior Vice President,
Individual 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 Phoenix during the
last 5 years.
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS
- -------------------------------------------------------------------------------
We hold the assets of the VUL Account. The assets of the VUL Account are
kept physically segregated and held separate and apart from our General Account.
We maintain records of all purchases and redemptions of shares of the funds.
SALES OF POLICIES
- -------------------------------------------------------------------------------
Policies may be purchased from registered representatives of W.S. Griffith &
Co., Inc. ("WSG"), a New York corporation incorporated on August 7, 1970,
licensed to sell Phoenix insurance policies as well as policies, annuity
contracts and funds of companies affiliated with Phoenix. WSG, an indirect,
wholly-owned 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. Phoenix Equity Planning
Corporation ("PEPCO") serves as national distributor of the Policies. PEPCO is
an indirect, wholly-owned subsidiary of Phoenix Investment Partners, Ltd.
("PXP"), in which Phoenix owns a majority interest.
Policies also may be purchased from other broker-dealers registered under
the 1934 Act whose representatives are authorized by applicable law to sell
policies under terms of agreements provided by PEPCO. Sales commissions will be
paid to registered representatives on purchase payments we receive under these
policies.
26
<PAGE>
Phoenix will pay a maximum total sales commission of 15% of premiums to PEPCO.
Additionally, agents or selling brokers may receive asset-based compensation.
The maximum asset-based compensation is 0.90% of the policy value. To the extent
that the sales charge under the policies is less than the sales commissions paid
with respect to the policies, we will pay the shortfall from our General Account
assets, which will include any profits we may derive under the policies.
STATE REGULATION
- -------------------------------------------------------------------------------
We are subject to the provisions of the New York insurance laws applicable
to stock life insurance companies and to regulation and supervision by the New
York Superintendent of Insurance. We also are subject to the applicable
insurance laws of all the other states and jurisdictions in which we do
insurance business.
State regulation of Phoenix includes certain limitations on the investments
which we may make, including investments for the VUL Account and the GIA. This
regulation does not include, however, any supervision over the investment
policies of the VUL Account.
REPORTS
- -------------------------------------------------------------------------------
All policyowners will be furnished with those reports required by the 1940
Act and related regulations or by any other applicable law or regulation.
LEGAL PROCEEDINGS
- -------------------------------------------------------------------------------
The VUL Account is not engaged in any litigation. Phoenix is not involved in
any litigation that would have a material adverse effect on our ability to meet
our obligations under the policies.
LEGAL MATTERS
- -------------------------------------------------------------------------------
Edwin L. Kerr, Counsel of Phoenix Home Life Mutual Insurance Company, has
passed upon the organization of Phoenix, its authority to issue variable life
insurance Policies and the validity of the policy, and upon legal matters
relating to the federal securities and income tax laws for Phoenix.
REGISTRATION STATEMENT
- -------------------------------------------------------------------------------
A Registration Statement has been filed with the SEC, under the Securities
Act of 1933 ("1933 Act") with respect to the securities offered. This prospectus
is a summary of the contents of the policy and other legal documents and does
not contain all the information set forth in the Registration Statement and its
exhibits.
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The 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 Phoenix Home Life Mutual Insurance
Company are available for the period ended December 31, 1999.
There are no financial statements of the VUL Account subaccounts for the
period ended December 31, 1999 and no sales occurred during this period.
27
<PAGE>
PHOENIX HOME LIFE
MUTUAL INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
28
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants............................................ 30
Consolidated Balance Sheet at December 31, 1999 and 1998..................... 31
Consolidated Statement of Income, Comprehensive Income and Equity
for the Years Ended December 31, 1999, 1998 and 1997 ....................... 32
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 ........................................... 33
Notes to Consolidated Financial Statements ............................... 34-70
29
<PAGE>
[LOGO] PRICEWATERHOUSECOOPERS
- --------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
100 Pearl Street
Hartford CT 06103-4508
Telephone (860) 241 7000
Facsimile (860) 241 7590
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Policyholders of
Phoenix Home Life Mutual Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, comprehensive income and equity and of cash
flows present fairly, in all material respects, the financial position of
Phoenix Home Life Mutual Insurance Company and its subsidiaries at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As indicated in Note 20, the Company has revised its accounting for venture
capital partnerships.
/s/ PriceWaterhouseCoopers LLP
February 15, 2000
30
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Held-to-maturity debt securities, at amortized cost $ 1,990,169 $ 1,725,439
Available-for-sale debt securities, at fair value 5,506,779 5,987,426
Equity securities, at fair value 461,613 301,649
Mortgage loans 716,831 797,343
Real estate 92,027 91,975
Policy loans 2,042,557 2,008,259
Venture capital partnerships 338,122 191,162
Other invested assets 300,474 232,131
Short-term investments 133,367 185,983
------------------ -----------------
Total investments 11,581,939 11,521,367
Cash and cash equivalents 187,610 115,187
Accrued investment income 174,894 164,812
Deferred policy acquisition costs 1,306,728 1,049,934
Premiums, accounts and notes receivable 119,231 61,489
Reinsurance recoverables 18,772 18,908
Property and equipment, net 137,758 142,153
Goodwill and other intangible assets, net 593,267 477,895
Net assets of discontinued operations (Note 11) 187,595 283,793
Other assets 51,434 36,940
Separate account assets 5,923,888 4,798,949
------------------ -----------------
Total assets $ 20,283,116 $ 18,671,427
================== =================
LIABILITIES
Policy liabilities and accruals $ 11,438,032 $ 11,110,280
Notes payable 499,392 386,575
Deferred income taxes 86,262 116,104
Other liabilities 474,179 430,956
Separate account liabilities 5,923,888 4,798,949
------------------ -----------------
Total liabilities 18,421,753 16,842,864
------------------ -----------------
Contingent liabilities (Note 18)
MINORITY INTEREST IN NET ASSETS
OF CONSOLIDATED SUBSIDIARIES 100,112 92,008
------------------ -----------------
EQUITY
Retained earnings 1,731,146 1,642,264
Accumulated other comprehensive income 30,105 94,291
------------------ -----------------
Total equity 1,761,251 1,736,555
------------------ -----------------
Total liabilities and equity $ 20,283,116 $ 18,671,427
================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME, COMPREHENSIVE INCOME AND EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premiums $ 1,134,207 $ 1,154,730 $ 1,076,157
Insurance and investment product fees 591,786 493,415 367,540
Net investment income 950,344 851,603 714,367
Net realized investment gains 35,675 58,202 111,043
------------- -------------- -------------
Total revenues 2,712,012 2,557,950 2,269,107
------------- -------------- -------------
BENEFITS AND EXPENSES
Policy benefits and increase in policy liabilities 1,352,419 1,403,166 1,201,929
Policyholder dividends 360,509 351,653 343,611
Amortization of deferred policy acquisition costs 146,603 137,663 102,617
Amortization of goodwill and other intangible assets 37,963 23,126 9,366
Interest expense 32,659 25,911 24,300
Other operating expenses 520,603 428,756 367,016
------------- -------------- -------------
Total benefits and expenses 2,450,756 2,370,275 2,048,839
------------- -------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST 261,256 187,675 220,268
Income taxes 107,881 65,046 47,241
------------- -------------- -------------
INCOME FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST 153,375 122,629 173,027
Minority interest in net income of consolidated subsidiaries 10,064 10,512 10,623
------------- -------------- -------------
NET INCOME FROM CONTINUING OPERATIONS 143,311 112,117 162,404
DISCONTINUED OPERATIONS (NOTE 11)
Gain from operations, net of income taxes 17,555 25,012 7,248
Loss on disposal, net of income taxes (71,984)
------------- -------------- -------------
NET INCOME 88,882 137,129 169,652
------------- -------------- -------------
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF INCOME TAXES
Unrealized (losses) gains on securities (61,246) (46,967) 98,287
Reclassification adjustment for net realized gains
included in net income (1,452) (12,980) (30,213)
Minimum pension liability adjustment (1,488) (1,526) (2,101)
------------- -------------- -------------
Total other comprehensive (loss) income (64,186) (61,473) 65,973
------------- -------------- -------------
COMPREHENSIVE INCOME 24,696 75,656 235,625
------------- -------------- -------------
EQUITY, BEGINNING OF YEAR - RESTATED (NOTE 20) 1,736,555 1,660,899 1,425,274
------------- -------------- -------------
EQUITY, END OF YEAR $ 1,761,251 $ 1,736,555 $ 1,660,899
============= ============== =============
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM CONTINUING OPERATIONS ACTIVITIES
Net income from continuing operations $ 143,311 $ 112,117 $ 162,404
Net (loss) income from discontinued operations (54,429) 25,012 7,248
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY CONTINUING OPERATIONS:
Net realized investment gains (35,675) (58,202) (111,465)
Amortization and depreciation 69,367 51,076 61,876
Equity in undistributed earnings of affiliates and partnerships (138,215) (44,119) (38,588)
Deferred income taxes (benefit) (14,102) 398 25,298
(Increase) in receivables (67,688) (23,846) (46,178)
Increase (decrease) in deferred policy acquisition costs 3,493 (26,945) (44,406)
Increase in policy liabilities and accruals 329,660 368,528 494,462
Increase in other assets/other liabilities, net 53,901 58,795 54,230
Other, net 2,752 1,660 7,752
------------ ------------- -------------
Net cash provided by operating activities of continuing operations 346,804 439,462 565,385
Net cash (used for) provided by operating activities of
discontinued operations (105,537) 104,512 88,907
------------ ------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES OF CONTINUING OPERATIONS
Proceeds from sales, maturities or repayments
of available-for-sale debt securities 1,702,889 1,322,381 1,082,132
Proceeds from maturities or repayments of held-to-maturity debt
securities 186,710 267,746 200,946
Proceeds from disposals of equity securities 163,530 45,204 51,373
Proceeds from mortgage loan maturities or repayments 124,864 200,419 164,213
Proceeds from sale of real estate and other invested assets 37,952 439,917 213,224
Proceeds from distributions of venture capital partnerships 26,730 18,550 5,650
Proceeds from sale of subsidiaries and affiliates 15,000 16,300
Purchase of available-for-sale debt securities (1,672,705) (2,400,058) (1,547,855)
Purchase of held-to-maturity debt securities (427,472) (585,370) (183,371)
Purchase of equity securities (162,391) (85,002) (88,573)
Purchase of subsidiaries (187,621) (6,647) (246,400)
Purchase of mortgage loans (25,268) (75,974) (140,831)
Purchase of real estate and other invested assets (71,407) (134,224) (50,599)
Purchase of venture capital partnerships (108,461) (67,200) (39,994)
Change in short term investments, net 52,616 855,117 23,135
Increase in policy loans (34,298) (21,532) (59,699)
Capital expenditures (20,505) (25,052) (44,380)
Other investing activities, net 1,697 (6,540) (1,750)
------------ ------------- -------------
Net cash used for investing activities of continuing operations (398,140) (241,965) (662,779)
Net cash provided by (used for) investing activities of
discontinued operations 157,267 (101,532) (93,239)
------------ ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES OF CONTINUING OPERATIONS
Withdrawals of contractholder deposit funds,
net of deposits and interest credited (1,908) (11,124) (17,902)
Proceeds from repayment of securities sold
subject to repurchase agreements 28,398 (137,473) 137,473
Proceeds from borrowings 124,500 136 215,359
Repayment of borrowings (11,683) (55,589) (243,293)
Dividends paid to minority shareholders in consolidated
subsidiaries (4,240) (4,938) (6,895)
Other financing activities (361) (5,664) (1,250)
------------ ------------- -------------
Net cash provided by (used for) financing activities of
continuing operations 134,706 (214,652) 83,492
Net cash (used for) provided by financing activities of
discontinued operations (62,677) (7,739) 4,489
------------ ------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS 83,370 (17,155) (13,902)
NET CHANGE IN CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS (10,947) (4,759) 157
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 115,187 137,101 150,846
------------ ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 187,610 $ 115,187 $ 137,101
============ ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net $ 106,372 $ 44,508 $ 76,167
Interest paid on indebtedness $ 34,791 $ 32,834 $ 32,300
</TABLE>
The accompanying notes are an integral part of these statements.
33
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Phoenix Home Life Mutual Insurance Company and its subsidiaries (Phoenix)
market a wide range of insurance and investment products and services
including individual participating life insurance, term, universal and
variable life insurance, annuities, and investment advisory and mutual fund
distribution services. These products and services are distributed among
three reportable segments: Individual, Investment Management and Corporate &
Other. See Note 10 - "Segment Information."
Additionally, in 1999, Phoenix discontinued the operations of four of its
business units: the Reinsurance Operations, the Property and Casualty
Brokerage Operations, the Real Estate Management Operations and the Group
Insurance Operations. See Note 11 - "Discontinued Operations."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Phoenix and
significant subsidiaries. Less than majority-owned entities in which Phoenix
has significant influence over operating and financial policies, and
generally at least a 20% ownership interest, are reported on the equity
basis.
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (GAAP).
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Significant
estimates used in determining insurance and contractholder liabilities,
related reinsurance recoverables, income taxes, contingencies and valuation
allowances for investment assets are discussed throughout the Notes to
Consolidated Financial Statements. Significant inter-company accounts and
transactions have been eliminated. Amounts for 1998 and 1997 have been
retroactively restated to account for income from venture capital
partnership investments and leveraged lease investments. See Note 20 -
"Prior Period Adjustments" for venture capital investment and leveraged
lease investment information. Certain reclassifications have been made to
the 1998 and 1997 amounts to conform with the 1999 presentation.
VALUATION OF INVESTMENTS
Investments in debt securities include bonds, mortgage-backed and
asset-backed securities. Phoenix classifies its debt securities as either
held-to-maturity or available-for-sale investments. Debt securities
held-to-maturity consist of private placement bonds reported at amortized
cost, net of impairments, that management intends and has the ability to
hold until maturity. Debt securities available-for-sale are reported at fair
value with unrealized gains or losses included in equity and consist of
public bonds and preferred stocks that management may not hold until
maturity. Debt securities are considered impaired when a decline in value is
considered to be other than temporary.
34
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For the mortgage-backed and asset-backed bond portion of the debt security
portfolio, Phoenix recognizes income using a constant effective yield based
on anticipated prepayments and the estimated economic life of the
securities. When actual prepayments differ significantly from anticipated
prepayments, the effective yield is recalculated to reflect actual payments
to date, and anticipated future payments and any resulting adjustment is
included in net investment income.
Equity securities are classified as available-for-sale and are reported at
fair value, based principally on their quoted market prices, with unrealized
gains or losses included in equity. Equity securities are considered
impaired when a decline in value is considered to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances, net
of valuation reserves on impaired mortgages. A mortgage loan is considered
to be impaired if management believes it is probable that Phoenix will be
unable to collect all amounts of contractual interest and principal as
scheduled in the loan agreement. An impaired mortgage loan's fair value is
measured based on the present value of future cash flows discounted at the
loan's observable market price or at the fair value of the collateral. If
the fair value of a mortgage loan is less than the recorded investment in
the loan, the difference is recorded as a valuation reserve.
Real estate, all of which is held for sale, is carried at the lower of cost
or current fair value less costs to sell. Fair value for real estate is
determined taking into consideration one or more of the following factors:
property valuation techniques utilizing discounted cash flows at the time of
stabilization including capital expenditures and stabilization costs; sales
of comparable properties; geographic location of the property and related
market conditions; and disposition costs.
Policy loans are generally carried at their unpaid principal balances and
are collateralized by the cash values of the related policies.
Short-term investments are carried at amortized cost, which approximates
fair value.
Venture capital partnership and other partnership interests are carried at
cost adjusted for Phoenix's equity in undistributed earnings or losses since
acquisition, less allowances for other than temporary declines in value.
These earnings or losses are included in investment income. Venture capital
partnerships generally account for the underlying investments held in the
partnerships at fair value. These investments can include public and private
common and preferred stock, notes, warrants and other investments.
Investments that are publicly traded are generally valued at closing market
prices. Investments that are not publicly traded, which are usually subject
to restrictions on resale, are generally valued at cost or at estimated fair
value, as determined in good faith by the general partner after giving
consideration to operating results, financial conditions, recent sales
prices of issuers' securities and other pertinent information. Some general
partners will discount the fair value of private investments held to reflect
these restrictions. These valuations subject the earnings to volatility.
Beginning in 1999, Phoenix includes equity in undistributed unrealized
capital gains and losses on investments held in the venture capital
partnerships in net investment income. Prior to 1999, these amounts were not
recorded. Prior years have been restated to reflect this change. See Note 20
- "Prior Period Adjustments" for additional information on venture capital
partnership investments.
35
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Other invested assets include leveraged lease investments. These investments
represent the net of the estimated residual value of the lease assets,
rental receivables, and unearned and deferred income to be allocated over
the lease term. Investment income is calculated using the interest method
and is recognized only in periods in which the net investment is positive.
Realized investment gains and losses, other than those related to separate
accounts for which Phoenix does not bear the investment risk, are determined
by the specific identification method and reported as a component of
revenue. A realized investment loss is recorded when an investment valuation
reserve is determined. Valuation reserves are netted against the asset
categories to which they apply and changes in the valuation reserves are
included in realized investment gains and losses. Unrealized investment
gains and losses on debt securities and equity securities classified as
available-for-sale are included as a component of equity, net of deferred
income taxes and deferred policy acquisition costs.
FINANCIAL INSTRUMENTS
In the normal course of business, Phoenix enters into transactions involving
various types of financial instruments including debt, investments such as
debt securities, mortgage loans and equity securities, off-balance sheet
financial instruments such as investment and loan commitments, financial
guarantees, interest rate swaps, interest rate caps, interest rate floors
and swaptions. These instruments have credit risk and also may be subject to
risk of loss due to interest rate and market fluctuations.
Phoenix enters into interest rate swap agreements to reduce market risks
from changes in interest rates. Phoenix does not enter into interest rate
swap agreements for trading purposes. Under interest rate swap agreements,
Phoenix exchanges cashflows with another party, at specified intervals, for
a set length of time based on a specified notional principal amount.
Typically, one of the cash flow streams is based on a fixed interest rate
set at the inception of the contract, and the other is a variable rate that
periodically resets. Generally, no premium is paid to enter into the
contract and no payment of principal is made by either party. The amounts to
be received or paid on these swap agreements are accrued and recognized in
net investment income.
Phoenix enters into interest rate floor, interest rate cap and swaption
contracts as a hedge for its assets and liabilities against substantial
changes in interest rates. Phoenix does not enter into interest rate floor,
interest rate cap and swaption contracts for trading purposes. Interest rate
floor and interest rate cap agreements are contracts with a counterparty
which require the payment of a premium and give Phoenix the right to receive
over the maturity of the contract, the difference between the floor or cap
interest rate and a market interest rate on specified future dates based on
an underlying notional principal. Swaption contracts are options to enter
into an interest rate swap transaction on a specified future date and at a
specified price. Upon the exercise of a swaption, Phoenix would either
receive a swap agreement at the pre-specified terms or cash for the market
value of the swap. Phoenix pays the premium for these instruments on a
quarterly basis over the maturity of the contract, and recognizes these
payments in net investment income.
Phoenix enters into foreign currency swap agreements to hedge against
fluctuations in foreign currency exposure. Under these agreements, Phoenix
agrees to exchange with another party, principal and periodic interest
payments denominated in foreign currency for payments denominated in U.S.
dollars. The amounts to be received or paid on these foreign currency swap
agreements is recognized in net investment income. To reduce counterparty
credit risks and
36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
diversify counterparty exposure, Phoenix only enters into derivative
contracts with highly rated financial institutions.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and money market
instruments.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, underwriting,
distribution and policy issue expenses, all of which vary with and are
primarily related to the production of new business, are deferred. Deferred
policy acquisition costs (DAC) are subject to recoverability testing at the
time of policy issue and loss recognition at the end of each accounting
period. For individual participating life insurance policies, deferred
policy acquisition costs are amortized in proportion to historical and
anticipated gross margins. Deviations from expected experience are reflected
in earnings in the period such deviations occur.
For universal life insurance policies, limited pay and investment type
contracts, deferred policy acquisition costs are amortized in proportion to
total estimated gross profits over the expected average life of the
contracts using estimated gross margins arising principally from investment,
mortality and expense margins and surrender charges based on historical and
anticipated experience, updated at the end of each accounting period.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of the cost of businesses acquired over the
fair value of their net assets. These costs are amortized on a straight-line
basis over periods, not exceeding 40 years, that correspond with the
benefits expected to be derived from the acquisitions. Other intangible
assets are amortized on a straight-line basis over their estimated lives.
Management periodically reevaluates the propriety of the carrying value of
goodwill and other intangible assets by comparing estimates of future
undiscounted cash flows to the carrying value of assets. Assets are
considered impaired if the carrying value exceeds the expected future
undiscounted cash flows.
SEPARATE ACCOUNTS
Separate account assets and liabilities are funds maintained in accounts to
meet specific investment objectives of contractholders who bear the
investment risk. Investment income and investment gains and losses accrue
directly to such contractholders. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of Phoenix. The assets and liabilities are carried at market value.
Deposits, net investment income and realized investment gains and losses for
these accounts are excluded from revenues, and the related liability
increases are excluded from benefits and expenses. Amounts assessed to the
contractholders for management services are included in revenues.
POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity
products. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. Policy liabilities for
traditional life insurance are computed using the net level premium method
on the basis of actuarial assumptions as to assumed rates of interest,
mortality, morbidity and withdrawals. Liabilities for universal life include
deposits received from customers and
37
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
investment earnings on their fund balances, less administrative charges.
Universal life fund balances are also assessed mortality charges.
Liabilities for outstanding claims, losses and loss adjustment expenses are
amounts estimated to cover incurred losses. These liabilities are based on
individual case estimates for reported losses and estimates of unreported
losses based on past experience.
Unearned premiums relate primarily to individual participating life
insurance as well as group life, accident and health insurance premiums. The
premiums are reported as earned on a pro-rata basis over the contract
period. The unexpired portion of these premiums is recorded as unearned
premiums.
PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Life insurance premiums, other than premiums for universal life and certain
annuity contracts, are recorded as premium revenue on a pro-rata basis over
each policy year. Benefits, losses and related expenses are matched with
premiums over the related contract periods. Revenues for investment-related
products consist of net investment income and contract charges assessed
against the fund values. Related benefit expenses primarily consist of net
investment income credited to the fund values after deduction for investment
and risk charges. Revenues for universal life products consist of net
investment income and mortality, administration and surrender charges
assessed against the fund values during the period. Related benefit expenses
include universal life benefit claims in excess of fund values and net
investment income credited to universal life fund values.
POLICYHOLDERS' DIVIDENDS
Certain life insurance policies contain dividend payment provisions that
enable the policyholder to participate in the earnings of Phoenix. The
amount of policyholders' dividends to be paid is determined annually by
Phoenix's board of directors. The aggregate amount of policyholders'
dividends is related to the actual interest, mortality, morbidity and
expense experience for the year and Phoenix's judgment as to the appropriate
level of statutory surplus to be retained. At the end of the reporting
period, Phoenix establishes a dividend liability for the pro-rata portion of
the dividends payable on the next anniversary date of each policy. Phoenix
also establishes a liability for termination dividends.
INCOME TAXES
Phoenix and its eligible affiliated companies have elected to file a
life/nonlife consolidated federal income tax return for 1999 and prior
years. Entities included within the consolidated group are segregated into
either a life insurance or non-life insurance company subgroup. The
consolidation of these subgroups is subject to certain statutory
restrictions in the percentage of eligible non-life tax losses that can be
applied to offset life company taxable income.
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities and their recorded amounts for financial
reporting purposes. These differences result primarily from policy
liabilities and accruals, policy acquisition expenses, investment impairment
reserves, reserves for postretirement benefits and unrealized gains or
losses on investments.
38
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
As a mutual life insurance company, Phoenix is required to reduce its income
tax deduction for policyholder dividends by the differential earnings
amount, defined as the difference between the earnings rates of stock and
mutual companies applied against an adjusted base of policyholders' surplus.
RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1999, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS
No. 133". Because of the complexities associated with transactions involving
derivative instruments and their prevalent use as hedging instruments and,
because of the difficulties associated with the implementation of Statement
133, the effective date of SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" was delayed until fiscal years beginning
after June 15, 2000. SFAS No. 133, initially issued on June 15, 1998,
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction and, if it
is, the type of hedge transaction. For fair-value hedge transactions in
which Phoenix is hedging changes in an asset's, liability's or firm
commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in
the hedged item's fair value. For cash-flow hedge transactions, in which
Phoenix is hedging the variability of cashflows related to a variable-rate
asset, liability, or a forecasted transaction, changes in the fair value of
the derivative instrument will be reported in other comprehensive income.
The gains and losses on the derivative instrument that are reported in other
comprehensive income will be reclassified as earnings in the period in which
earnings are impacted by the variability of the cash flows of the hedged
item. The ineffective portion of all hedges will be recognized in current
period earnings.
Phoenix has not yet determined the impact that the adoption of SFAS 133 will
have on its earnings or statement of financial position.
Phoenix adopted SFAS No. 130, "Reporting Comprehensive Income," as of
January 1, 1998. This statement establishes standards for the reporting and
display of comprehensive income and its components in a full set of
financial statements. This statement defines the components of comprehensive
income as those items that were previously reported only as components of
equity and were excluded from net income.
In 1998, Phoenix adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the "
industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of
Phoenix's reportable segments. The adoption of this statement did not affect
the results of operations or financial position but did affect the
disclosure of segment information.
In 1998, Phoenix adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which amends SFAS No. 87, "
Employers' Accounting for Pensions," SFAS No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions". The new statement revises and
standardizes
39
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
employers' disclosures about pension and other postretirement benefit plans.
Adoption of this statement did not affect the results of operations or
financial position of Phoenix.
On January 1, 1999, Phoenix adopted Statement of Position (SOP) 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments." SOP 97-3 provides guidance for assessments related to
insurance activities. The adoption of SOP 97-3 did not have a material
impact on Phoenix's results from operations or financial position.
On January 1, 1999, Phoenix adopted SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance for determining when an entity should capitalize or expense
external and internal costs of computer software developed or obtained for
internal use. The adoption of SOP 98-1 did not have a material impact on
Phoenix's results from operations or financial position.
On January 1, 1999, Phoenix adopted SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that start-up costs capitalized
prior to January 1, 1999 should be written off and any future start-up costs
be expenses as incurred. The adoption of SOP 98-5 did not have a material
impact on Phoenix's results from operations or financial position.
3. SIGNIFICANT TRANSACTIONS
DISCONTINUED OPERATIONS
During 1999, Phoenix discontinued the operations of four of its business
units; the Reinsurance Operations, the Property and Casualty Brokerage
Operations, the Real Estate Management Operation and the Group Insurance
Operations. Disclosures concerning the financial impact of these
transactions are contained in Note 11 - "Discontinued Operations."
PFG HOLDINGS, INC.
On October 29, 1999, PM Holdings, a wholly-owned subsidiary of Phoenix,
purchased 100% of PFG Holdings, Inc. 8% cumulative preferred stock
convertible into a 67% interest in common stock for $5 million in cash. In
addition Phoenix has an option to purchase all the outstanding common stock
during year six at a value to 80% of the appraised value of the common stock
at that time. As of the statement date this option had not been executed.
Since the investment represents a majority interest Phoenix has consolidated
this entity for GAAP as if the preferred stock had been converted and
established a minority interest for outside shareholders. The transaction
resulted in goodwill of $3.8 million to be amortized over 10 years.
PFG Holdings was formed to purchase three of The Guarantee Life Companies'
operating subsidiaries: AGL Life Assurance Company, PFG Distribution Company
and Philadelphia Financial Group. These subsidiaries develop, market and
underwrite specialized private placement variable life and annuity products.
AGL Life Assurance Company must maintain at least $10 million of capital and
surplus to satisfy certain regulatory minimum capital requirements. PM
Holdings provided financing at the purchase date of $11 million to PFG
Holdings in order for AGL Life Assurance to meet this minimum requirement.
The debt is an 8.34% senior secured note maturing in 2009.
40
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EMPRENDIMIENTO COMPARTIDO, S.A., (EMCO)
At January 1, 1999 PM Holdings held 9.1 million shares of EMCO, representing
a 35% ownership interest the Argentine financial services company that
provides pension management, annuities and life insurance products. On June
23, 1999, PM Holdings became the majority owner of EMCO when it purchased
13.9 million shares of common stock from the Banco del Suquia, S.A. for
$29.5 million, plus $10.0 million for a five year covenant not-to-compete.
Payment for the stock will be made in three installments: $10.0 million, 180
days from closing; $10.0 million, 360 days from closing; and $9.5 million,
540 days from closing, all subject to interest of 7.06%. The covenant was
paid at the time of closing.
In addition, EMCO purchased, for its treasury, 3.0 million shares of its
outstanding common stock held by two banks. This, in combination with the
purchase described above, increased PM Holdings ownership interest from 35%
to 100% of the then outstanding stock.
On November 12, 1999, PM Holdings sold 11.5 million shares (50% interest) of
EMCO common stock for $40.0 million generating a pre-tax gain of $11.3
million. PM Holdings received $15.0 million in cash plus a $9.0 million
two-year 8% interest bearing note, and a $16.0 million five-year 8% interest
bearing note. PM Holdings uses the equity method of accounting to account
for its remaining 50% interest in EMCO.
After the sale, the remaining excess of the purchase price over the fair
value of the acquired net tangible assets totaled $17.0 million. That
consisted of a covenant not-to-compete of $5.0 million which is being
amortized over five years and goodwill of $12.0 million which is being
amortized over ten years.
PHOENIX NEW ENGLAND TRUST
On October 29, 1999, PM Holdings indirectly acquired 100% of the common
stock of New London Trust, a banking subsidiary of Sun Life of Canada, for
$30.0 million in cash. New London Trust, renamed Phoenix New England Trust,
is a New Hampshire based federal savings bank that operates a trust division
with assets under management of approximately $1 billion. Immediately
following this acquisition, on November 1, 1999, PM Holdings sold the New
London Trust's New Hampshire retail banking operations to Lake Sunapee Bank
and Mascoma Savings Bank in New Hampshire and the Connecticut branches to
Westbank Corporation, for a total of $25.2 million in cash. No gain or loss
was recognized on this sale. PM Holdings retained the trust business and
four trust offices of New London Trust, located in New Hampshire and
Vermont.
LOMBARD INTERNATIONAL ASSURANCE, S.A.
On November 5, 1999, PM Holdings purchased 12% of the common stock of
Lombard International Assurance, S.A., a Pan-European financial services
company, for $29.1 million in cash. Lombard provides investment-linked
insurance products to high-net-worth individuals in eight European
countries. This investment is classified as equity securities in the
Consolidated Balance Sheet.
41
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PHOENIX INVESTMENT PARTNERS, LTD.
On March 1, 1999, Phoenix Investment Partners completed its acquisition of
the retail mutual fund and closed-end fund business of the New York City
based Zweig Group. Under the terms of the agreement, Phoenix Investment
Partners paid $135.0 million at closing and will pay up to an additional
$29.0 million over the next three years based on revenue growth of the Zweig
funds. The Zweig Group managed approximately $3.3 billion of assets as of
December 31,1999.
On December 3, 1998, Phoenix Investment Partners completed the sale of its
49% interest in Canadian investment firm Beutel, Goodman & Company, Ltd. for
$47.0 million. Phoenix Investment Partners received $37.0 million in cash
and a $10.0 million three-year interest bearing note. The transaction
resulted in a before-tax gain of approximately $17.5 million. Phoenix's
interest represents an after-tax realized gain of approximately $6.8
million.
Phoenix owns approximately 60% of the outstanding Phoenix Investment
Partners' common stock. In addition, Phoenix owns 45% of Phoenix Investment
Partners' convertible subordinated debentures.
ABERDEEN ASSET MANAGEMENT PLC
On February 18, 1999, PM Holdings purchased an additional 15.1 million
shares of the common stock of Aberdeen Asset Management for $29.4 million.
As of December 31, 1999, PM Holdings owned 21% of the outstanding common
stock of Aberdeen Asset Management, a Scottish asset management firm. The
investment is reported on the equity basis and classified as other invested
assets in the Consolidated Balance Sheet.
DIVIDEND SCALE REDUCTION
In consideration of the decline of interest rates in the financial markets,
Phoenix's Board of Directors voted in October of 1998 to adopt a reduced
dividend scale, effective for dividends payable on or after January 1, 1999.
Dividends for individual participating policies were reduced 60 basis points
in most cases, an average reduction of approximately 8%. The effect was a
decrease of approximately $15.7 million in the policyholder dividends
expense in 1998. In October 1999, Phoenix's Board of Directors voted to
maintain the dividend scale for dividends payable on or after January 1,
2000.
REAL ESTATE SALES
On December 15, 1998, Phoenix sold 47 commercial real estate properties with
a carrying value of $269.8 million, and 4 joint venture real estate
partnerships with a carrying value of $10.5 million, for approximately $309
million in cash. This transaction, along with the sale of 18 other
properties and partnerships during 1998, which had a carrying value of $36.7
million, resulted in pre-tax gains of approximately $67.5 million. As of
December 31, 1999, Phoenix had 3 commercial real estate properties remaining
with a carrying value of $42.9 million and 5 joint venture real estate
partnerships with a carrying value of $49.1 million.
42
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS
Information pertaining to Phoenix's investments, net investment income and
realized and unrealized investment gains and losses follows:
DEBT AND EQUITY SECURITIES
The amortized cost and fair value of investments in debt and equity
securities as of December 31, 1999 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DEBT SECURITIES
HELD-TO-MATURITY:
State and political subdivision bonds $ 27,595 $ 416 $ (1,033) $ 26,978
Foreign government bonds 3,032 (796) 2,236
Corporate securities 1,776,174 12,945 (95,707) 1,693,412
Mortgage-backed and asset-backed
securities 285,387 1,361 (19,166) 267,582
-------------- ------------- ------------- -------------
Total held-to-maturity securities 2,092,188 14,722 (116,702) 1,990,208
Less: held-to-maturity securities of
discontinued operations 102,019 736 (5,835) 96,920
-------------- ------------- ------------- -------------
Total held-to-maturity securities of
continuing operations 1,990,169 13,986 (110,867) 1,893,288
-------------- ------------- ------------- -------------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 283,697 1,955 (6,537) 279,115
State and political subdivision bonds 495,860 4,765 (21,751) 478,874
Foreign government bonds 273,868 23,700 (3,990) 293,578
Corporate securities 2,353,228 18,578 (102,773) 2,269,033
Mortgage-backed and asset-backed
securities 2,977,136 17,916 (103,264) 2,891,788
-------------- ------------- ------------- -------------
Total available-for-sale securities 6,383,789 66,914 (238,315) 6,212,388
Less: available-for-sale securities of
discontinued operations 725,077 7,600 (27,068) 705,609
-------------- ------------- ------------- -------------
Total available-for-sale securities of
continuing operations 5,658,712 59,314 (211,247) 5,506,779
-------------- ------------- ------------- -------------
TOTAL DEBT SECURITIES OF CONTINUING
OPERATIONS $ 7,648,881 $ 73,300 $ (322,114) $ 7,400,067
============== ============== ============= =============
EQUITY SECURITIES $ 311,100 $ 176,593 $ (24,211) $ 463,482
Less: equity securities of discontinued
operations 1,869 1,869
-------------- ------------- ------------- -------------
TOTAL EQUITY SECURITIES OF CONTINUING
OPERATIONS $ 309,231 $ 176,593 $ (24,211) $ 461,613
============== ============ ============= =============
</TABLE>
43
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of investments in debt and equity
securities as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<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 and asset-backed
securities 172,300 6,201 (12) 178,489
-------------- ------------- ------------- -------------
Total held-to-maturity securities 1,881,687 105,740 (14,656) 1,972,771
Less: held-to-maturity securities of
discontinued operations 156,248 8,776 (1,216) 163,808
-------------- ------------- ------------- -------------
Total held-to-maturity securities of
continuing operations 1,725,439 96,964 (13,440) 1,808,963
-------------- ------------- ------------- -------------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 497,089 34,454 (422) 531,121
State and political subdivision bonds 529,977 43,622 (104) 573,495
Foreign government bonds 293,968 28,814 (18,691) 304,091
Corporate securities 1,993,720 110,525 (36,656) 2,067,589
Mortgage-backed and asset-backed
securities 3,121,690 110,172 (14,618) 3,217,244
-------------- ------------- ------------- -------------
Total available-for-sale securities 6,436,444 327,587 (70,491) 6,693,540
Less: available-for-sale securities of
discontinued operations 678,992 34,558 (7,436) 706,114
-------------- ------------- ------------- -------------
Total available-for-sale securities of
continuing operations 5,757,452 293,029 (63,055) 5,987,426
-------------- ------------- ------------- -------------
TOTAL DEBT SECURITIES OF CONTINUING
OPERATIONS $ 7,482,891 $ 389,993 $ (76,495) $ 7,796,389
============== ============= ============= =============
EQUITY SECURITIES $ 223,915 $ 102,018 $ (21,388) $ 304,545
Less: equity securities of discontinued
operations 2,896 2,896
-------------- ------------- ------------- -------------
TOTAL EQUITY SECURITIES OF CONTINUING
OPERATIONS $ 221,019 $ 102,018 $ (21,388) $ 301,649
============== ============ ============= =============
</TABLE>
44
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The sale of fixed maturities held-to-maturity relate to certain securities,
with amortized cost of $3.9 million, $19.6 million and $59.1 million, for
the years ended December 31, 1999, 1998 and 1997, respectively, which were
sold specifically due to a significant decline in the issuers' credit
quality. The related realized losses, net of the sales, were $0.2 million,
$0.8 million and $10.1 million in 1999, 1998 and 1997, respectively.
The amortized cost and fair value of debt securities, by contractual sinking
fund payment and maturity, as of December 31, 1999 are shown below. Actual
maturity may differ from contractual maturity because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties, or Phoenix may have the right to put or sell the obligations back
to the issuers.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ 118,171 $ 116,992 $ 43,180 $ 43,483
Due after one year through five years 583,115 564,215 534,417 532,676
Due after five years through ten years 587,568 566,505 1,146,805 1,104,661
Due after ten years 517,946 474,913 1,682,250 1,639,771
Mortgage-backed and
asset-backed securities 285,388 267,583 2,977,137 2,891,797
-------------- -------------- --------------- -------------
Total $ 2,092,188 $ 1,990,208 $ 6,383,789 $ 6,212,388
Less: securities of discontinued
operations 102,019 96,920 725,077 705,609
-------------- -------------- --------------- -------------
Total securities of continuing
operations $ 1,990,169 $ 1,893,288 $ 5,658,712 $ 5,506,779
============== ============== =============== =============
</TABLE>
Carrying values for investments in mortgage-backed and asset-backed
securities, excluding U.S. government guaranteed investments, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Planned amortization class $ 168,027 $ 433,668
Asset-backed 956,892 910,594
Mezzanine 194,849 280,162
Commercial 735,238 641,485
Sequential pay 1,039,001 982,576
Pass through 77,154 119,065
Other 6,014 21,994
-------------- --------------------
Total mortgage-backed and asset-backed securities $ 3,177,175 $ 3,389,544
============== ====================
</TABLE>
45
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MORTGAGE LOANS AND REAL ESTATE
Phoenix's mortgage loans and real estate are diversified by property type
and location and, for mortgage loans, by borrower. Mortgage loans are
collateralized by the related properties and are generally 75% of the
properties' value at the time the original loan is made.
Mortgage loans and real estate investments comprise the following property
types and geographic regions:
<TABLE>
<CAPTION>
MORTGAGE LOANS REAL ESTATE
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
PROPERTY TYPE:
Office buildings $ 183,912 $ 221,244 $ 30,545 $ 38,343
Retail 208,606 203,927 14,111 36,858
Apartment buildings 252,947 261,894 41,744 21,553
Industrial buildings 82,699 121,789 1,600
Other 2,950 19,089 8,859 32
Valuation allowances (14,283) (30,600) (3,232) (6,411)
----------------- ----------------- ----------------- ----------------
Total $ 716,831 $ 797,343 $ 92,027 $ 91,975
================= ================= = ================ ================
GEOGRAPHIC REGION:
Northeast $ 149,336 $ 169,368 $ 59,582 $ 47,709
Southeast 198,604 213,916 32 32
North central 164,150 176,683 744 11,453
South central 105,062 98,956 21,232 22,649
West 113,962 169,020 13,669 16,543
Valuation allowances (14,283) (30,600) (3,232) (6,411)
----------------- ------------------ ---------------- ----------------
Total $ 716,831 $ 797,343 $ 92,027 $ 91,975
================= ================== ================ ================
</TABLE>
At December 31, 1999, scheduled mortgage loan maturities were as follows:
2000 - $92 million; 2001 - $87 million; 2002 - $32 million; 2003 - $109
million; 2004 - $38 million; 2005 - $35 million, and $338 million
thereafter. Actual maturities will differ from contractual maturities
because borrowers may have the right to prepay obligations with or without
prepayment penalties and loans may be refinanced. Phoenix refinanced $6.7
million and $2.3 million of its mortgage loans during 1999 and 1998,
respectively, on terms which differed from those granted to new borrowers.
The carrying value of delinquent and in process of foreclosure mortgage
loans at December 31, 1999 and 1998 is $6.0 million and $17.2 million,
respectively. There are valuation allowances of $5.4 million and $14.7
million, respectively, on these mortgages.
46
<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>
1999
Mortgage loans $ 30,600 $ 9,697 $ (26,014) $ 14,283
Real estate 6,411 183 (3,362) 3,232
----------------- ----------------- ------------------ ------------------
Total $ 37,011 $ 9,880 $ (29,376) $ 17,515
================= ================= ================== ==================
1998
Mortgage loans $ 35,800 $ 50,603 $ (55,803) $ 30,600
Real estate 28,501 5,108 (27,198) 6,411
----------------- ----------------- ------------------ ------------------
Total $ 64,301 $ 55,711 $ (83,001) $ 37,011
================= ================= ================== ==================
1997
Mortgage loans $ 48,399 $ 6,731 $ (19,330) $ 35,800
Real estate 47,509 4,201 (23,209) 28,501
----------------- ----------------- ------------------ ------------------
Total $ 95,908 $ 10,932 $ (42,539) $ 64,301
================= ================= ================== ==================
</TABLE>
NON-INCOME PRODUCING MORTGAGE LOANS AND BONDS
The net carrying values of non-income producing mortgage loans were $0.0
million and $15.6 million at December 31, 1999 and 1998, respectively. The
net carrying value of non-income producing bonds were $0.0 million and $22.3
at December 31, 1999 and 1998, respectively.
47
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DERIVATIVE INSTRUMENTS
Derivative instruments at December 31, are summarized below:
<TABLE>
<CAPTION>
1999 1998
($ IN THOUSANDS)
<S> <C> <C>
Swaptions:
Notional amount $ 1,600,000
Weighted average strike rate 5.02%
Index rate (1) 10 Yr. CMS
Fair value $ (8,200)
Interest rate floors:
Notional amount $ 1,210,000 $ 570,000
Weighted average strike rate 4.57% 4.59%
Index rate (1) 2-10 Yr. CMT/CMS 5-10 Yr. CMT
Fair value $ (7,542) $ 1,423
Interest rate swaps:
Notional amount $ 474,037 $ 424,573
Weighted average received rate 6.33% 6.27%
Weighted average paid rate 6.09% 5.82%
Fair value $ 1,476 $ 10,989
Foreign currency swaps:
Notional amount $ 8,074
Weighted average received rate 12.04%
Weighted average paid rate 10.00%
Fair value $ 213
Interest rate caps:
Notional amount $ 50,000 $ 50,000
Weighted average strike rate 7.95% 7.95%
Index rate (1) 10 Yr. CMT 10 Yr. CMT
Fair value $ 842 $ (96)
</TABLE>
(1) Constant maturity treasury yields (CMT) and constant maturity swap
yields (CMS).
The increase in net investment income related to interest rate swap
contracts was $1.0 million and $2.1 million for the years ended December 31,
1999 and 1998, respectively. The decrease in net investment income related
to interest rate floor, interest rate cap and swaption contracts was $2.3
million and $0.2 million for the years ended December 31, 1999 and 1998,
respectively, representing quarterly premium payments on these instruments
which are being paid over the life of the contracts. The estimated fair
value of these instruments represent what Phoenix would have to pay or
receive if the contracts were terminated.
48
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Phoenix is exposed to credit risk in the event of nonperformance by
counterparties to these financial instruments, but management of the Phoenix
does not expect counterparties to fail to meet their financial obligations,
given their high credit ratings. The credit exposure of these instruments is
the positive fair value at the reporting date.
Management of Phoenix considers the likelihood of any material loss on these
instruments to be remote.
VENTURE CAPITAL PARTNERSHIPS
Phoenix invests in venture capital limited partnerships. These partnerships
focus on early-stage ventures, primarily in the information technology and
life science industries, as well as direct equity investments in leveraged
buyouts and corporate acquisitions.
Phoenix records its equity in the earnings of the partnerships in net
investment income.
The components of net investment income due to venture capital partnerships
for the year ended December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Operating losses $ (8,921) $ (2,746) $ (2,131)
Realized gains on cash and stock distributions 84,725 23,360 31,336
Unrealized gains on investments held in the partnerships 64,091 19,009 4,531
---------- ----------- ----------
Total venture capital partnership net investment income $ 139,895 $ 39,623 $ 33,736
========== =========== ==========
</TABLE>
OTHER INVESTED ASSETS
Other invested assets, consisting primarily of partnership interests and
equity in unconsolidated affiliates, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Transportation and equipment leases $ 82,063 $ 80,953
Affordable housing partnerships 22,247 10,854
Investment in Aberdeen Asset Management 99,074 72,257
Investment in EMCO of Argentina 13,423 10,681
Investment in other affiliates 12,389 12,706
Seed money in separate accounts 33,279 26,587
Other partnership interests 41,953 22,697
------------------ ------------------
Total other invested assets $ 304,428 $ 236,735
Less: other invested assets of discontinued operations 3,954 4,604
------------------ ------------------
Total other invested assets of continuing operations $ 300,474 $ 232,131
================== =================
</TABLE>
49
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31,
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ 641,076 $ 598,892 $ 509,702
Equity securities 8,272 6,469 4,277
Mortgage loans 66,285 83,101 85,662
Policy loans 148,998 146,477 122,562
Real estate 9,716 38,338 18,939
Leveraged leases 2,202 2,746 2,692
Venture capital partnerships 139,895 39,623 33,736
Other invested assets 2,544 1,750 2,160
Short-term investments 22,543 23,825 18,768
------------ ----------- ------------
Sub-total 1,041,531 941,221 798,498
Less investment expenses 23,505 23,328 22,621
------------ ----------- ------------
Net investment income $ 1,018,026 $ 917,893 $ 775,877
Less: net investment income of discontinued operations 67,682 66,290 61,510
------------ ----------- ------------
Total net investment income of continuing operations $ 950,344 $ 851,603 $ 714,367
============ =========== ============
</TABLE>
Investment income of $2.7 million was not accrued on certain delinquent
mortgage loans and defaulted bonds at December 31, 1999. Phoenix does not
accrue interest income on impaired mortgage loans and impaired bonds when
the likelihood of collection is doubtful.
The payment terms of mortgage loans may, from time to time, be restructured
or modified. The investment in restructured mortgage loans, based on
amortized cost, amounted to $36.5 million and $40.8 million at December 31,
1999 and 1998, respectively. Interest income on restructured mortgage loans
that would have been recorded in accordance with the original terms of such
loans amounted to $4.1 million, $4.9 million and $5.3 million in 1999, 1998
and 1997, respectively. Actual interest income on these loans included in
net investment income was $3.5 million, $4.0 million and $3.8 million in
1999, 1998 and 1997, respectively.
50
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INVESTMENT GAINS AND LOSSES
Net unrealized gains and (losses) on securities available-for-sale and
carried at fair value for the year ended December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ (428,497) $ (7,040) $ 112,194
Equity securities 71,752 (91,880) 74,547
Deferred policy acquisition costs 260,287 6,694 (80,603)
Deferred income taxes (33,760) (32,279) 38,064
----------------- ---------------- ----------------
Net unrealized investment (losses) gains
on securities available-for-sale $ (62,698) $ (59,947) $ 68,074
================= ================ ================
</TABLE>
Realized investment gains and losses for the year ended December 31, were
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ (20,416 ) $ (4,295) $ 19,315
Equity securities 16,648 11,939 26,290
Mortgage loans 18,534 (6,895) 3,805
Real estate 2,915 67,522 44,668
Other invested assets 18,432 (4,709) 17,387
----------- ----------- -----------
Net realized investment gains 36,113 63,562 111,465
Less realized from discontinued operations 438 5,360 422
----------- ----------- -----------
Net realized investment gains from continuing
operations $ 35,675 $ 58,202 $ 111,043
============ ============ ===========
</TABLE>
The proceeds from sales of available-for-sale debt securities and the gross
realized gains and gross realized losses on those sales for the year ended
December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from disposals $ 1,106,929 $ 912,696 $ 821,339
Gross gains on sales $ 21,808 $ 17,442 $ 27,954
Gross losses on sales $ 39,122 $ 33,641 $ 5,309
</TABLE>
51
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Phoenix Investment Partners gross amounts:
Goodwill $ 384,576 $ 321,793
Investment management contracts 235,976 169,006
Non-compete covenant 5,000 5,000
Other 10,894 472
------------- -------------
Totals 636,446 496,271
------------- -------------
Other gross amounts:
Goodwill 32,554 16,631
Intangible asset related to pension plan benefits 11,739 16,229
Other 1,206 693
------------- -------------
Totals 45,499 33,553
------------- -------------
Total gross goodwill and other intangible assets 681,945 529,824
Accumulated amortization - Phoenix Investment Partners (79,912) (49,615)
Accumulated amortization - other (8,766) (2,314)
------------- -------------
Total net goodwill and other intangible assets $ 593,267 $ 477,895
============= =============
</TABLE>
6. NOTES PAYABLE
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Short-term debt $ 21,598 $ 1,938
Bank borrowings 260,284 168,278
Notes payable 1,146
Subordinated debentures 41,364 41,359
Surplus notes 175,000 175,000
---------------- ----------------
Total notes payable $ 499,392 $ 386,575
================ ================
</TABLE>
Phoenix has various lines of credit established with major commercial banks.
As of December 31, 1999, Phoenix had outstanding balances totaling $436.7
million. The total unused credit was $369.0 million. Interest rates ranged
from 5.26% to 7.48% in 1999.
Maturities of other indebtedness are as follows: 2000 - $21.6 million; 2001
- $26.0 million; 2002 $200.0 million; 2003 - $0.0 million; 2004 - $35.0
million; 2005 and thereafter - $216.8 million. Interest expense was $32.7
million, $25.9 million and $24.3 million for the years ended December 31,
1999, 1998 and 1997, respectively.
52
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. INCOME TAXES
A summary of income taxes (benefits) applicable to income before income
taxes and minority interest for the year ended December 31, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes
Current $ 121,448 $ 61,889 $ 39,583
Deferred (13,567) 3,157 7,658
----------------- ---------------- ----------------
Total $ 107,881 $ 65,046 $ 47,241
================= ================ ================
</TABLE>
The income taxes attributable to the consolidated results of operations are
different than the amounts determined by multiplying income before taxes by
the statutory income tax rate. The sources of the difference and the tax
effects of each for the year ended December 31, were as follows (in
thousands, aside from the percentages):
<TABLE>
<CAPTION>
1999 1998 1997
% % %
<S> <C> <C> <C>
Income tax expense at statutory 91,440 65,685 77,095
rate $ 35 $ 35 $ 35
Dividend received deduction and
tax-exempt interest (3,034) (1) (3,273) (2) (1,684) (1)
Other, net 7,922 3 2,634 2 (15,059) (7)
------------ ------- ------------ ------- ------------ -------
96,328 37 65,046 35 60,352 27
Differential earnings (equity tax) 11,553 4 (13,111) (6)
------------ ------- ------------ ------- ------------ -------
Income taxes $ 107,881 41 $ 65,046 35 $ 47,241 21
============ ======= ============ ======= ============ =======
</TABLE>
53
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The deferred income tax liability (asset) represents the tax effects of
temporary differences attributable to the consolidated tax return group. The
components were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Deferred policy acquisition costs $ 282,725 $ 294,917
Unearned premium/deferred revenue (135,124) (139,346)
Impairment reserves (15,556) (23,111)
Pension and other postretirement benefits (68,902) (57,720)
Investments 177,204 122,032
Future policyholder benefits (181,205) (151,168)
Other 4,683 31,595
-------------- ------------
63,825 77,199
Net unrealized investment gains 26,587 42,254
Minimum pension liability (4,150) (3,349)
-------------- ------------
Deferred income tax liability, net $ 86,262 $ 116,104
============== ============
</TABLE>
Gross deferred income tax assets totaled $405 million and $375 million at
December 31, 1999 and 1998, respectively. Gross deferred income tax
liabilities totaled $491 million and $491 million at December 31, 1999 and
1998, respectively. It is management's assessment, based on Phoenix's
earnings and projected future taxable income, that it is more likely than
not that deferred income tax assets at December 31, 1999 and 1998 will be
realized.
8. PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
PENSION PLANS
Phoenix has a multi-employer, non-contributory, defined benefit pension plan
covering substantially all of its employees. Retirement benefits are a
function of both years of service and level of compensation. Phoenix also
sponsors a non-qualified supplemental defined benefit plan to provide
benefits in excess of amounts allowed pursuant to the Internal Revenue Code.
Phoenix's funding policy is to contribute annually an amount equal to at
least the minimum required contribution in accordance with minimum funding
standards established by the Employee Retirement Income Security Act of
1974. Contributions are intended to provide not only for benefits
attributable to service to date, but also for service expected to be earned
in the future.
Components of net periodic pension cost for the years ended December 31,
were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 11,887 $ 11,046 $ 10,278
Interest cost 24,716 22,958 22,650
Curtailments 21,604
Expected return on plan assets (28,544) (25,083) (22,055)
Amortization of net transition asset (2,369) (2,369) (2,369)
Amortization of prior service cost 1,795 1,795 1,795
Amortization of net (gain) loss (2,709) (1,247) 25
--------------- -------------- --------------
Net periodic benefit cost $ 26,380 $ 7,100 $ 10,324
=============== ============== ==============
</TABLE>
54
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In 1999, Phoenix offered a special retirement program under which qualified
participants' benefits under the employee pension plan were enhanced by
adding five years to age and five years to pension plan service. Of the 320
eligible employees, 146 accepted the special retirement program. As a result
of the special retirement program, Phoenix recorded an additional pension
expense of $21.6 million for the year ended December 31, 1999.
The aggregate change in projected benefit obligation, change in plan assets,
and funded status of the plan were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Change in projected benefit obligation
Projected benefit obligation at beginning of year $ 353,462 $ 335,436
Service cost 11,887 11,046
Interest cost 24,716 22,958
Plan amendments 23,871
Curtailments (6,380)
Actuarial loss (4,887) 1,958
Benefit payments (19,841) (17,936)
-------------- ---------------
Benefit obligation at end of year $ 382,828 $ 353,462
-------------- ---------------
Change in plan assets
Fair value of plan assets at beginning of year $ 364,819 $ 321,555
Actual return on plan assets 78,951 58,225
Employer contributions 3,883 2,975
Benefit payments (19,841) (17,936)
-------------- ---------------
Fair value of plan assets at end of year $ 427,812 $ 364,819
-------------- ---------------
Funded status of the plan $ 44,984 $ 11,357
Unrecognized net transition asset (11,847) (14,217)
Unrecognized prior service cost 11,705 16,185
Unrecognized net gain (129,936) (75,921)
-------------- ---------------
Net amount recognized $ (85,094) $ (62,596)
============== ===============
Amounts recognized in the Consolidated Balance
Sheet consist of:
Accrued benefit liability $ (108,690) $ (88,391)
Intangible asset 11,739 16,229
Accumulated other comprehensive income 11,857 9,566
-------------- ---------------
$ (85,094) $ (62,596)
============== ===============
</TABLE>
At December 31, 1999 and 1998, the non-qualified plan was not funded and had
projected benefit obligations of $72.3 million and $57.2 million,
respectively. The accumulated benefit obligations as of December 31, 1999
and 1998 related to this plan were $60.1 million and $48.4 million,
respectively, and are included in other liabilities.
Phoenix recorded, as a reduction of equity, an additional minimum pension
liability of $7.7 million and $6.2 million, net of income taxes, at December
31, 1999 and 1998, respectively, representing the excess of accumulated
benefit obligations over the fair value of plan assets and accrued pension
liabilities for the non-qualified plan. Phoenix has also recorded an
intangible asset of $11.7 million and $16.2 million as of December 31, 1999
and 1998 related to the non-qualified plan.
55
<PAGE>
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7.5% and 7.0% for 1999 and 1998,
respectively. The discount rate assumption for 1999 was determined based on
a study that matched available high quality investment securities with the
expected timing of pension liability payments. The rate of increase in
future compensation levels used in determining the actuarial present value
of the projected benefit obligation was 4.5% and 4.0% for 1999 and 1998,
respectively. The expected long-term rate of return on retirement plan
assets was 8.0% in 1999 and 1998.
The assets within the pension plan include corporate and government debt
securities, equity securities, real estate, venture capital partnerships,
and shares of mutual funds.
Phoenix also sponsors savings plans for its employees and agents that are
qualified under Internal Revenue Code Section 401(k). Employees and agents
may contribute a portion of their annual salary, subject to certain
limitations, to the plans. Phoenix contributes an additional amount, subject
to limitation, based on the voluntary contribution of the employee or agent.
Company contributions charged to expense with respect to these plans during
the years ended December 31, 1999, 1998 and 1997 were $4.0 million, $4.1
million and $3.8 million, respectively.
OTHER POSTRETIREMENT BENEFIT PLANS
In addition to Phoenix's pension plans, Phoenix currently provides certain
health care and life insurance benefits to retired employees, spouses and
other eligible dependents through various plans sponsored by Phoenix. A
substantial portion of Phoenix's employees may become eligible for these
benefits upon retirement. The health care plans have varying copayments and
deductibles, depending on the plan. These plans are unfunded.
Phoenix recognizes the costs and obligations of postretirement benefits
other than pensions over the employees' service period ending with the date
an employee is fully eligible to receive benefits.
The components of net periodic postretirement benefit cost for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 3,313 $ 3,436 $ 3,136
Interest cost 4,559 4,572 4,441
Curtailments 5,456
Amortization of net gain (1,493) (1,232) (1,527)
------------- ------------ ------------
Net periodic benefit cost $ 11,835 $ 6,776 $ 6,050
============= ============ ============
</TABLE>
As a result of the special retirement program, Phoenix recorded an
additional postretirement benefit expense of $5.5 million for the year ended
December 31, 1999.
56
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The plan's change in projected benefit obligation, change in plan assets,
and funded status were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Change in projected postretirement benefit obligation
Projected benefit obligation at beginning of year $ 70,943 $ 66,618
Service cost 3,313 3,436
Interest cost 4,559 4,572
Plan Amendments 5,785
Curtailments (328)
Actuarial (gain) loss (8,622) 397
Benefit payments (4,459) (4,080)
--------------- ---------------
Projected benefit obligation at end of year 71,191 70,943
--------------- ---------------
Change in plan assets
Employer contributions 4,459 4,080
Benefit payments (4,459) (4,080)
--------------- ---------------
Fair value of plan assets at end of year
--------------- ---------------
Funded status of the plan (71,191) (70,943)
Unrecognized net gain (33,538) (26,408)
--------------- ---------------
Accrued benefit liability $ (104,729) $ (97,351)
=============== ===============
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5% and 7.0% at December 31, 1999 and 1998, respectively.
For purposes of measuring the accumulated postretirement benefit obligation
the health care costs were assumed to increase 7.5% and 8.5% in 1999 and
1998, respectively, declining thereafter until the ultimate rate of 5.5% is
reached in 2002 and remains at that level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation by $4.3 million and the annual service and
interest cost by $0.6 million, before income taxes. Decreasing the assumed
health care cost trend rates by one percentage point in each year would
decrease the accumulated postretirement benefit obligation by $4.1 million
and the annual service and interest cost by $0.5 million, before income
taxes. Gains and losses that occur because actual experience differs from
the estimates are amortized over the average future service period of
employees.
OTHER POSTEMPLOYMENT BENEFITS
Phoenix recognizes the costs and obligations of severance, disability and
related life insurance and health care benefits to be paid to inactive or
former employees after employment but before retirement. Other
postemployment benefit expenses were $0.5 million for 1999, ($0.5) million
for 1998 and $0.4 million for 1997.
57
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. COMPREHENSIVE INCOME
The components of, and related income tax effects for, other comprehensive
income for the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Before-tax amount $ (94,224) $ (72,255) $ 151,210
Income tax (benefit) expense (32,978) (25,288) 52,923
-------------- -------------- --------------
Totals (61,246) (46,967) 98,287
-------------- -------------- --------------
RECLASSIFICATION ADJUSTMENT FOR NET GAINS
REALIZED IN NET INCOME:
Before-tax amount (2,234) (19,970) (46,481)
Income tax (benefit) (782) (6,990) (16,268)
-------------- -------------- --------------
Totals (1,452) (12,980) (30,213)
-------------- -------------- --------------
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Before-tax amount (96,458) (92,225) 104,729
Income tax (benefit) expense (33,760) (32,278) 36,655
-------------- -------------- --------------
Totals $ (62,698) $ (59,947) $ 68,074
============== ============== ==============
MINIMUM PENSION LIABILITY ADJUSTMENT:
Before-tax amount $ (2,289) $ (2,347) $ (3,232)
Income tax (benefit) (801) (821) (1,131)
-------------- -------------- --------------
Totals $ (1,488) $ (1,526) $ (2,101)
============== ============== ==============
</TABLE>
The following table summarizes accumulated other comprehensive income for
the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
NET UNREALIZED (LOSSES) GAINS ON SECURITIES
AVAILABLE-FOR-SALE:
Balance, beginning of year $ 100,510 $ 160,457 $ 92,383
Change during period (62,698) (59,947) 68,074
-------------- -------------- --------------
Balance, end of year 37,812 100,510 160,457
-------------- -------------- --------------
MINIMUM PENSION LIABILITY ADJUSTMENT:
Balance, beginning of year (6,219) (4,693) (2,592)
Change during period (1,488) (1,526) (2,101)
-------------- -------------- --------------
Balance, end of year (7,707) (6,219) (4,693)
-------------- -------------- --------------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
Balance, beginning of year 94,291 155,764 89,791
Change during period (64,186) (61,473) 65,973
-------------- -------------- --------------
Balance, end of year $ 30,105 $ 94,291 $ 155,764
============== ============== ==============
</TABLE>
58
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. SEGMENT INFORMATION
Phoenix offers a wide range of financial products and services. These
businesses have been grouped into three reportable segments.
The Individual segment includes the individual life insurance and annuity
products including participating whole life, universal life, variable life,
term life and variable annuities.
The Investment Management segment includes retail and institutional mutual
fund management and distribution including open-end funds, closed-end funds
and wrap accounts.
Corporate and Other contains several smaller subsidiaries and investment
activities which do not meet the thresholds of reportable segments as
defined in SFAS No. 131. They include venture capital investments,
international operations, trust operations and other investments.
The majority of Phoenix's revenue is derived in the United States. Revenue
derived from outside the United States is not material and revenue derived
from any single customer does not exceed ten percent of total consolidated
revenues.
The accounting policies of the segments are the same as those described in
Note 2 - "Summary of Significant Accounting Policies." Phoenix evaluates the
performance of each operating segment based on profit or loss from
operations before income taxes and nonrecurring items. Phoenix does not
include certain nonrecurring items to the segments. They are reported as
unallocated items and include expenses associated with various lawsuits and
legal disputes, postretirement medical expenses associated with an early
retirement program and realized gains associated with the sales of
subsidiaries. See Note 8 - " Pension and Other Postretirement and
Postemployment Benefit Plans."
Included in the following tables is certain information with respect to
Phoenix's operating segments as of and for each of the years ended December
31, 1999, 1998 and 1997, as well as amounts not allocated to the segments
which was described previously.
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998 1997
(IN MILLIONS)
<S> <C> <C> <C>
TOTAL ASSETS
Individual $ 17,990.3 $ 16,919.5 $ 15,709.8
Investment Management 747.4 591.9 647.9
Corporate & Other 1,357.8 876.2 1,124.4
Discontinued operations 187.6 283.8 250.9
-------------- -------------- -------------
Total 20,283.1 18,671.4 17,733.0
============== ============== =============
DEFERRED POLICY ACQUISITION COSTS
Individual $ 1,306.7 $ 1,049.9 $ 1,016.3
============== ============== =============
</TABLE>
59
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998 1997
(IN MILLIONS)
<S> <C> <C> <C>
PREMIUMS, INSURANCE AND INVESTMENT PRODUCT FEES
Individual $ 1,361.4 $ 1,416.7 $ 1,259.2
Investment Management 293.9 231.0 140.7
Corporate & Other 115.2 41.1 84.1
Less: intersegment revenues (44.5) (40.7) (40.3)
--------------- --------------- --------------
Total 1,726.0 1,648.1 1,443.7
--------------- --------------- --------------
INVESTMENT INCOME
Individual 768.2 768.5 640.3
Investment Management 6.0 2.7 3.0
Corporate & Other 176.1 80.4 71.1
--------------- --------------- --------------
Total 950.3 851.6 714.4
--------------- --------------- --------------
NET REALIZED INVESTMENT GAINS
Individual 15.9 (17.8) 65.7
Corporate & Other 3.9 10.5 45.3
Gains on sale of subsidiaries 16.0 65.5
--------------- --------------- --------------
Total 35.8 58.2 111.0
--------------- --------------- --------------
POLICY BENEFITS AND DIVIDENDS
Individual 1,611.3 1,718.2 1,499.7
Corporate & Other 101.6 36.6 45.8
--------------- --------------- --------------
Total 1,712.9 1,754.8 1,545.5
--------------- --------------- --------------
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS
Individual 146.6 137.7 102.6
--------------- --------------- --------------
Total 146.6 137.7 102.6
--------------- --------------- --------------
AMORTIZATION OF GOODWILL AND INTANGIBLES
Individual 4.2 0.3 0.5
Investment Management 30.3 22.0 9.1
Corporate & Other 3.5 0.8 (0.2)
--------------- --------------- --------------
Total 38.0 23.1 9.4
--------------- --------------- --------------
INTEREST EXPENSE
Investment Management 18.9 14.7 3.6
Corporate & Other 13.8 11.2 20.7
--------------- --------------- --------------
Total 32.7 25.9 24.3
--------------- --------------- --------------
OTHER OPERATING EXPENSES
Individual 289.4 268.1 234.6
Investment Management 203.5 156.1 101.9
Corporate & Other 65.0 40.7 69.2
Unallocated amounts 7.2 4.5 1.7
Less: intersegment expenses (44.5) (40.7) (40.4)
--------------- --------------- --------------
Total 520.6 428.7 367.0
--------------- --------------- --------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTEREST
Individual 94.0 43.2 127.9
Investment Management 47.2 40.8 29.2
Corporate & Other 111.3 42.7 64.9
Unallocated amounts & intersegment eliminations 8.8 61.0 (1.7)
--------------- --------------- --------------
Total $ 261.3 $ 187.7 $ 220.3
=============== =============== ==============
</TABLE>
60
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. DISCONTINUED OPERATIONS
During 1999, Phoenix discontinued the operations of four of its business
units which in prior years had been reflected as reportable business
segments: the Reinsurance Operations, the Property and Casualty Brokerage
Operations, the Real Estate Management Operation and the Group Insurance
Operations. The discontinuation of these business units resulted from the
sale of several operations, a signed agreement to sell one of the operations
and the implementation of plans to withdraw from the remaining businesses.
REINSURANCE OPERATIONS
During 1999, Phoenix completed a comprehensive strategic review of its life
reinsurance segment and decided to exit these operations through a
combination of sale, reinsurance and placement of certain components into
run-off. Accordingly, Phoenix estimated sales proceeds, reinsurance premiums
and net claims run-off, resulting in the recognition of a $173 million
pre-tax loss ($113 million after-tax loss) on the disposal of life
reinsurance discontinued operations. The life reinsurance segment consisted
primarily of individual life reinsurance operations as well as group
personal accident and group health reinsurance business. The significant
components of the loss on the disposal of life reinsurance discontinued
operations in 1999 were as follows:
On August 1, 1999, Phoenix sold its individual life reinsurance operations
and certain group health reinsurance business to Employers Reinsurance
Corporation for $130 million. The transaction was structured as a
reinsurance and asset sale transaction, resulting in a pre-tax gain of $113
million. The pre-tax income from operations for the seven months prior to
disposal was $19 million.
On June 30, 1999, PM Holdings sold 100% of the common stock of Financial
Administrative Services, Inc. (FAS), its third-party administration
subsidiary, to CYBERTEK, a wholly-owned subsidiary of Policy Management
Systems Corporation. Proceeds from the sale were $8.0 million for the common
stock plus $1.0 million for a covenant not-to-compete, resulting in an
after-tax gain of $2.0 million.
Phoenix retained ownership of the preferred stock of FAS, which under the
terms of the agreement, CYBERTEK will purchase in six equal annual
installments commencing March 31, 2001 through March 31, 2006. The purchase
price will be determined annually based upon earnings, but in total, will
range from a minimum of $4.0 million to a maximum of $16.0 million.
During 1999, Phoenix placed the remaining group personal accident and group
health reinsurance operations into run-off. Management has adopted a formal
plan to terminate the related treaties as early as contractually permitted
and is not entering into any new contracts. Based upon the most recent
information available, Phoenix reviewed the run-off block and estimated the
amount and timing of future net premiums, claims and expenses. Consequently,
Phoenix increased reserve estimates on the run-off block by $180 million. In
addition, as part of the exit strategy, Phoenix purchased finite aggregate
excess of loss reinsurance to further protect Phoenix from unfavorable
results in the run-off block. The finite reinsurance is subject to an
aggregate retention of $100 million on the run-off block. Phoenix may
commute the agreement at any time after September 30, 2004, subject to
automatic commutation effective September 30, 2019. Phoenix paid an initial
premium of $130 million.
The additional estimated reserves and finite reinsurance coverage are
expected to cover the run-off of the business; however, the nature of the
underlying risks is such that the claims may take years to reach the
reinsurers involved. Therefore, Phoenix expects to pay claims out of
existing estimated reserves over a number of years as the level of business
diminishes.
61
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Additionally, certain group personal accident reinsurance business has
become the subject of disputes concerning the placement of the business with
reinsurers and the recovery of the reinsurance. This business primarily
concerns certain occupational accident reinsurance "facilities" and a
reinsurance pool (the Unicover Pool) underwritten and managed by Unicover
Managers, Inc. (Unicover). Phoenix participated as a reinsurer in the
Unicover Pool. The Unicover Pool and "facilities" were reinsured in large
part by a reinsurance facility underwritten and managed by Centaur
Underwriting Limited (Centaur) in which Phoenix also participated. Phoenix
terminated its participation in the Centaur facility effective October 1,
1998 and in the Unicover Pool effective March 1, 1999. However, claims
arising from business underwritten while Phoenix was a participant continue
to run off. On September 21, 1999, Phoenix initiated arbitration proceedings
seeking to rescind certain contracts arising from its participation in the
Centaur facility with respect to reinsurance of the Unicover business. In
January 2000, Phoenix settled two Unicover-related matters (see Note 21 -
"Subsequent Events"). A substantial portion of the risk associated with the
Unicover Pool and "facilities" and the Centaur program was further
retroceded by Phoenix to other unaffiliated insurance entities, providing
Phoenix with significant security. Certain of these retrocessionaires have
given notice that they challenge their obligations under their contracts and
are in arbitration or litigation with Phoenix.
Additionally, certain group personal accident excess of loss reinsurance
contracts created in the London market during 1994 - 1997 have become the
subject of disputes concerning the placement of the business with reinsurers
and the recovery of reinsurance. Several arbitration proceedings are
currently pending.
Given the uncertainty associated with litigation and other dispute
resolution proceedings, and the expected long term development of net claims
payments, the estimated amount of the loss on disposal of life reinsurance
discontinued operations may differ from actual results. However, it is
management's opinion, after consideration of the provisions made in these
financial statements, as described above, that future developments will not
have a material effect on Phoenix's consolidated financial position.
PROPERTY AND CASUALTY BROKERAGE OPERATIONS
On July 1, 1999, PM Holdings sold its property and casualty brokerage
business to Hilb, Rogal and Hamilton Company (HRH) for $48.1 million
including $0.2 million for a covenant not-to-compete. Total proceeds
consisted of $32.0 million in convertible debentures, $15.9 million for
865,042 shares of HRH common stock, valued at $18.38 per share on the sale
date, and $0.2 million in cash. The pre-tax gain realized on the sale was
$40.1 million. The HRH common stock is classified as common stock and the
convertible debentures are classified as bonds in the Consolidated Balance
Sheet. As of December 31, 1999 Phoenix owns 7% of the outstanding HRH common
stock, 15% on a diluted basis.
REAL ESTATE MANAGEMENT OPERATIONS
On March 31, 1999, Phoenix sold its real estate management subsidiary,
Phoenix Realty Advisors, to Henderson Investors International Holdings, B.V.
for $7.9 million in cash. The pre-tax gain realized on this transaction was
$7.1 million.
62
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
GROUP INSURANCE OPERATIONS
On December 9, 1999, Phoenix signed a definitive agreement to sell its Group
Life and Health business, including five companies, Phoenix American Life,
Phoenix Dental Services, Phoenix Group Services, California Benefits and
Clinical Disability Management, to GE Financial Assurance Holdings, Inc.
Proceeds from the sale are estimated to be $285 million, including cash of
$240 million and 3.1% of the common stock of GE Life and Annuity Assurance
Company. Phoenix expects the transaction to be completed in the second
quarter of 2000, subject to regulatory approval.
The assets and liabilities of the discontinued operations have been excluded
from the assets and liabilities of continuing operations and separately
identified on the Consolidated Balance Sheet. Net assets of the discontinued
operations totaled $187.6 million and $283.8 million as of December 31, 1999
and 1998, respectively. Asset and liability balances of the continuing
operation as of December 31, 1998, have been restated to conform with the
current year presentation. Likewise, the Consolidated Statement of Income,
Comprehensive Income and Equity has been restated for 1998 and 1997 to
exclude the operating results of discontinued operations from continuing
operations. The operating results of discontinued operations and the gain or
loss on disposal are presented below.
<TABLE>
<CAPTION>
GAIN (LOSS) FROM OPERATIONS OF YEAR ENDED DECEMBER 31,
DISCONTINUED OPERATIONS 1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Reinsurance Operations $ 306,671 $ 163,503
Group Insurance Operations $ 453,813 503,825 483,956
Property and Casualty Brokerage Operations 25,968 72,579 64,093
Real Estate Management 1,189 12,707 15,319
-------------- ------------- --------------
Total revenues 480,970 895,782 726,871
-------------- ------------- --------------
Gain (loss) from operations:
Reinsurance Operations 14,081 10,611
Group Insurance Operations 28,672 29,212 31,686
Property and Casualty Brokerage Operations 1,534 2,515 (19,911)
Real Estate Management (2,645) (4,037) (2,616)
-------------- ------------- --------------
Gain from discontinued operations before income
taxes 27,561 41,771 19,770
Income taxes 10,006 16,759 12,522
-------------- ------------- --------------
Gain from discontinued operations, net of taxes $ 17,555 $ 25,012 $ 7,248
-------------- ------------- --------------
</TABLE>
63
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS DECEMBER 31, 1999
(IN THOUSANDS)
<S> <C>
(Loss) gain on disposal:
Reinsurance Operations $ (173,061)
Property and Casualty Brokerage Operations 40,131
Real Estate Management 5,870
-------------
Loss on disposal of discontinued operations before
income taxes (127,060)
Income taxes (55,076)
-------------
Loss on disposal of discontinued operations, net of
income taxes $ (71,984)
-------------
</TABLE>
12. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements, consisting primarily of
office buildings occupied by Phoenix, are stated at depreciated cost. Real
estate occupied by Phoenix was $101.7 million and $106.7 million at December
31, 1999 and 1998, respectively. Phoenix provides for depreciation using
straight-line and accelerated methods over the estimated useful lives of the
related assets which generally range from five to forty years. Accumulated
depreciation and amortization was $182.3 million and $161.2 million at
December 31, 1999 and 1998, respectively.
Rental expenses for operating leases, principally with respect to buildings,
amounted to $16.3 million, $16.9 million and $16.9 million in 1999, 1998,
and 1997, respectively, for continuing operations. Future minimum rental
payments under non-cancelable operating leases for continuing operations
were approximately $40.2 million as of December 31, 1999, payable as
follows: 2000 - $13.5 million; 2001 - $10.5 million; 2002 - $7.3 million;
2003 - $5.1 million; 2004 - $2.8 million; and $1.0 million thereafter.
13. DIRECT BUSINESS WRITTEN AND REINSURANCE
As is customary practice in the insurance industry, Phoenix assumes and
cedes reinsurance as a means of diversifying underwriting risk. For direct
issues, the maximum of individual life insurance retained by Phoenix on any
one life is $8 million for single life and joint first-to-die policies and
to $10 million for joint last-to-die policies, with excess amounts ceded to
reinsurers. Phoenix reinsures 80% of the mortality risk on the inforce block
of the Confederation Life business acquired on December 31, 1997, and 90% of
the mortality risk on certain new issues of term and universal life
products. In addition, Phoenix entered into a separate reinsurance agreement
on October 1, 1998 to reinsure 80% of the mortality risk on a substantial
portion of its otherwise retained individual life insurance business. In
1999, Phoenix reinsured the mortality risk on the remaining 20% of this
business. Amounts recoverable from reinsurers are estimated in a manner
consistent with the claim liability associated with the reinsured policy.
64
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Additional information on direct business written and reinsurance assumed
and ceded for the years ended December 31, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $ 1,762,359 $ 1,719,393 $ 1,592,800
Reinsurance assumed 416,194 505,262 329,927
Reinsurance ceded (537,847) (371,854) (282,121)
-------------- --------------- --------------
Net premiums 1,640,706 1,852,801 1,640,606
Less net premiums of discontinued operations (506,499) (698,071) (564,449)
-------------- --------------- --------------
Net premiums of continuing operations $ 1,134,207 $ 1,154,730 $ 1,076,157
============== =============== ==============
Direct policy and contract claims incurred $ 707,105 $ 728,062 $ 629,112
Reinsurance assumed 563,807 433,242 410,704
Reinsurance ceded (500,282) (407,780) (373,127)
-------------- --------------- --------------
Net policy and contract claims incurred 770,630 753,524 666,689
Less net incurred claims of discontinued operations (552,423) (471,688) (422,373)
-------------- --------------- --------------
Net policy and contract claims incurred
of continuing operations $ 218,207 $ 281,836 $ 244,316
============== =============== ==============
Direct life insurance in force $ 31,052,050 $ 121,442,041 $ 20,394,664
Reinsurance assumed 139,649,850 110,632,110 84,806,585
Reinsurance ceded (207,192,046) (135,817,986) (74,764,639)
-------------- --------------- --------------
Net insurance in force 63,509,854 96,256,165 30,436,610
Less insurance in force of discontinued operations (1,619,452) (24,330,166) (13,811,408)
-------------- --------------- --------------
Net insurance in force of continuing operations $ 61,890,402 $ 71,925,999 $ 16,625,202
============== =============== ==============
</TABLE>
Irrevocable letters of credit aggregating $36.2 million at December 31, 1999
have been arranged with United States commercial banks in favor of Phoenix
to collateralize the ceded reserves.
14. PARTICIPATING LIFE INSURANCE
Participating life insurance in force was 66.9% and 72.3% of the face value
of total individual life insurance in force at December 31, 1999 and 1998,
respectively. The premiums on participating life insurance policies were
76.8%, 79.4% and 83.5% of total individual life insurance premiums in 1999,
1998, and 1997, respectively.
65
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
15. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred and
amortized for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 1,049,934 $ 1,016,295 $ 908,616
Acquisition cost deferred 143,110 164,608 288,281
Amortized to expense during the year (146,603) (137,663) (102,617)
Adjustment to net unrealized investment
gains (losses) included in other
comprehensive income 260,287 6,694 (77,985)
----------------- ---------------- -----------------
Balance at end of year $ 1,306,728 $ 1,049,934 $ 1,016,295
================= ================ =================
</TABLE>
Amortized to expense during the year for 1999 includes a $6.3 million
adjustment due to worse than expected persistency in one of the variable
annuity product lines and a $6.9 million adjustment to traditional life due
to an adjustment to death claims used in determining DAC amortization.
16. MINORITY INTEREST
Phoenix's interests in Phoenix Investment Partners and PFG Holdings, through
its wholly-owned subsidiary PM Holdings, are represented by ownership of
approximately 60% and 67%, respectively, of the outstanding shares of common
stock at December 31, 1999. Earnings and equity attributable to minority
shareholders are included in minority interest in the consolidated financial
statements.
17. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Other than debt securities being held-to-maturity, financial instruments
that are subject to fair value disclosure requirements (insurance contracts
are excluded) are carried in the consolidated financial statements at
amounts that approximate fair value. The fair values presented for certain
financial instruments are estimates which, in many cases, may differ
significantly from the amounts which could be realized upon immediate
liquidation. In cases where market prices are not available, estimates of
fair value are based on discounted cash flow analysis which utilize current
interest rates for similar financial instruments which have comparable terms
and credit quality.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair
value.
66
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
DEBT SECURITIES
Fair values are based on quoted market prices, where available, or quoted
market prices of comparable instruments. Fair values of private placement
debt securities are estimated using discounted cash flows that apply
interest rates currently being offered with similar terms to borrowers of
similar credit quality.
DERIVATIVE INSTRUMENTS
Phoenix's derivative instruments include interest rate swap, cap and floor
agreements, swaptions and foreign currency swap agreements. Fair values for
these contracts are based on current settlement values. These values are
based on brokerage quotes that utilize pricing models or formulas based upon
current assumptions for the respective agreements.
EQUITY SECURITIES
Fair values are based on quoted market prices, where available. If a quoted
market price is not available, fair values are estimated using independent
pricing sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are calculated as the present value of scheduled payments, with
the discount based upon the Treasury rate comparable for the remaining loan
duration, plus a spread of between 130 and 800 basis points, depending on
the internal quality rating of the loan. For loans in foreclosure or
default, values were determined assuming principal recovery was the lower of
the loan balance or the estimated value of the underlying property.
POLICY LOANS
Fair values are estimated as the present value of loan interest and policy
loan repayments discounted at the ten year Treasury rate. Loan repayments
were assumed only to occur as a result of anticipated policy lapses, and it
was assumed that annual policy loan interest payments were made at the
guaranteed loan rate less 17.5 basis points. Discounting was at the ten year
Treasury rate, except for policy loans with a variable policy loan rate.
Variable policy loans have an interest rate that is reset annually based
upon market rates and therefore, book value is a reasonable approximation of
fair value.
INVESTMENT CONTRACTS
In determining the fair value of guaranteed interest contracts, a discount
rate equal to the appropriate Treasury rate, plus 150 basis points, was
assumed to determine the present value of projected contractual liability
payments through final maturity.
The fair value of deferred annuities and supplementary contracts without
life contingencies with an interest guarantee of one year or less is valued
at the amount of the policy reserve. In determining the fair value of
deferred annuities and supplementary contracts without life contingencies
with interest guarantees greater than one year, a discount rate equal to the
appropriate Treasury rate, plus 150 basis points, was used to determine the
present value of the projected account value of the policy at the end of the
current guarantee period.
Deposit type funds, including pension deposit administration contracts,
dividend accumulations, and other funds left on deposit not involving life
contingencies, have interest guarantees of less than one year for which
interest credited is closely tied to rates earned on owned assets. For such
liabilities, fair value is assumed to be equal to the stated liability
balances.
67
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTES PAYABLE
The fair value of notes payable is determined based on contractual cash
flows discounted at market rates.
FAIR VALUE SUMMARY
The estimated fair values of the financial instruments as of December 31,
were as follows:
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 187,610 $ 187,610 $ 115,187 $ 115,187
Short-term investments 133,367 133,367 185,983 185,983
Debt securities 7,496,948 7,400,067 7,712,865 7,796,389
Equity securities 461,613 461,613 301,649 301,649
Mortgage loans 716,831 680,569 797,343 831,919
Derivative instruments (13,211) 12,316
Policy loans 2,042,558 2,040,497 2,008,260 2,122,389
---------------- --------------- --------------- ----------------
Total financial assets $ 11,038,927 $ 10,890,512 $ 11,121,287 $ 11,365,832
================ =============== =============== ================
Financial liabilities:
Policy liabilities $ 709,696 $ 709,357 $ 783,400 $ 783,400
Notes payable 499,392 490,831 386,575 395,744
---------------- ---------------- ---------------- ----------------
Total financial liabilities $ 1,209,088 $ 1,200,188 $ 1,169,975 $ 1,179,144
================ =============== =============== ===============
</TABLE>
18. CONTINGENCIES
LITIGATION
Certain group personal accident reinsurance business has become the subject
of disputes concerning the placement of the business with reinsurers and the
recovery of the reinsurance (see Note 11 - "Discontinued Operations" and
Note 21 - "Subsequent Events")
19. STATUTORY FINANCIAL INFORMATION
The insurance subsidiaries are required to file annual statements with state
regulatory authorities prepared on an accounting basis prescribed or
permitted by such authorities. Except for the accounting policy involving
federal income taxes described next, there were no material practices not
prescribed by the State of New York Insurance Department (the Insurance
Department), as of December 31, 1999, 1998 and 1997. Phoenix's statutory
federal income tax liability is principally based on estimates of federal
income tax due. A deferred income tax liability has also been established
for estimated taxes on unrealized gains for common stock and venture capital
equity partnerships. Current New York law does not allow the recording of
deferred income taxes. Phoenix has received approval from the Insurance
Department for this practice.
68
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Statutory surplus differs from equity reported in accordance with GAAP for
life insurance companies primarily because policy acquisition costs are
expensed when incurred, investment reserves are based on different
assumptions, surplus notes are not included in equity, postretirement
benefit costs are based on different assumptions and reflect a different
method of adoption, life insurance reserves are based on different
assumptions and income tax expense reflects only taxes paid or currently
payable.
The following reconciles the statutory net income of Phoenix as reported to
regulatory authorities to the net income as reported in these financial
statements for the year ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income $ 131,286 $ 108,652 $ 66,599
Deferred policy acquisition costs, net (28,099) 18,538 48,821
Future policy benefits (23,686) (53,847) (9,145)
Pension and postretirement expenses (8,638) (17,334) (7,955)
Investment valuation allowances 15,141 107,229 87,920
Interest maintenance reserve (7,232) 1,415 17,544
Deferred income taxes 3,919 (39,983) (36,250)
Other, net 6,191 12,459 2,118
-------------- -------------- --------------
Net income, as reported $ 88,882 $ 137,129 $ 169,652
============== ============== ==============
</TABLE>
The following reconciles the statutory surplus and asset valuation reserve
(AVR) of Phoenix as reported to regulatory authorities to equity as reported
in these financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
(IN THOUSANDS)
<S> <C> <C>
Statutory surplus, surplus notes and AVR $ 1,427,333 $ 1,205,635
Deferred policy acquisition costs, net 1,231,217 1,259,316
Future policy benefits (478,184) (465,268)
Pension and postretirement expenses (193,007) (174,273)
Investment valuation allowances (206,531) 34,873
Interest maintenance reserve 24,767 35,303
Deferred income taxes 65,595 (25,593)
Surplus notes (159,444) (157,500)
Other, net 49,505 24,062
------------------ ------------------
Equity, as reported $ 1,761,251 $ 1,736,555
================== ==================
</TABLE>
The Insurance Department recognizes only statutory accounting practices for
determining and reporting the financial condition and results of operations
of an insurance company, for determining its solvency under New York
Insurance Law, and for determining whether its financial condition warrants
the payment of a dividend to its policyholders. No consideration is given by
the Insurance Department to financial statements prepared in accordance with
generally accepted accounting principles in making such determinations.
69
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
20. PRIOR PERIOD ADJUSTMENTS
In 1999, Phoenix revised the accounting for venture capital partnerships to
include unrealized capital gains and losses on investments held in the
partnerships. These gains and losses are recorded in investment income.
Opening retained earnings at December 31, 1996 has been increased by $17.6
million. The consolidated balance sheet as of December 31, 1998 was revised
by increasing the following balances: other invested assets by $50.6
million, deferred income taxes by $17.7 million and retained earnings by
$32.9 million. The effect on the Consolidated Statement of Income,
Comprehensive Income and Equity was an increase in net income of $12.4
million and $2.9 million for the years ended 1998 and 1997, respectively.
In 1998, Phoenix revised the accounting for partnerships involved in
leveraged lease arrangements for 1997 and 1996. Opening retained earnings at
December 31, 1995 has been increased by $7.7 million. The Consolidated
Balance Sheet as of December 31, 1997 was revised by increasing the
following balances: other invested assets by $18.9 million, deferred income
taxes by $6.6 million and retained earnings by $12.3 million. The effect on
the Consolidated Statement of Income, Comprehensive Income and Equity was an
increase in net income of $2.1 million and $2.5 million for the years ended
1997 and 1996, respectively.
21. SUBSEQUENT EVENTS
OCCUPATIONAL ACCIDENT REINSURANCE
On January 21, 2000, Phoenix, in connection with its participation in the
Centaur facility, and two other companies completed a settlement agreement
with Reliance Insurance Company (Reliance) with respect to certain
reinsurance contracts covering occupational accident business reinsured by
Reliance as a Unicover-managed "facility." The Reliance business was the
largest portion of occupational accident reinsurance business underwritten
by Unicover. Under the terms of the settlement agreement, Phoenix ended the
contracts for a total payment of $115.0 million.
On January 13, 2000, Phoenix and four other companies, in connection with
their participation in the Unicover Pool, completed a settlement agreement
with EBI Indemnity Company and other affiliates of the Orion Group (EBI)
with respect to certain reinsurance contracts covering occupational accident
business which EBI ceded to the Unicover Pool. These contracts represented
the largest source of premium to the Unicover Pool. Under the terms of the
settlement agreement, the Unicover Pool members ended the contracts for a
total payment of $43.0 million, of which Phoenix's share was approximately
$10.0 million.
Phoenix included the cost of these settlements, net of reinsurance, in its
estimate of the loss on discontinued life reinsurance operations. See Note
11 - "Discontinued Operations."
70
<PAGE>
PHOENIX HOME LIFE
VARIABLE UNIVERSAL LIFE ACCOUNT
As of March __, 2000, there had been no sales of the product described in this
prospectus and, therefore, no deposits were made to Phoenix Home Life Variable
Universal Life Account. Accordingly, no financial statements are available for
the VUL Account.
71
<PAGE>
APPENDIX A
GLOSSARY OF 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.
DEBT: Outstanding loans against a policy, plus accrued interest.
FUNDS: The Phoenix Edge Series Fund, BT Insurance Funds Trust, Federated
Insurance Series, Morgan Stanley Dean Witter Universal Funds, Inc., Templeton
Variable Products Series Fund and Wanger Advisors Trust.
GENERAL ACCOUNT: The general asset account of Phoenix.
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 thereafter or, if such day does not fall within a given month, the last
day of that month will be the monthly calculation day.
NET ASSET VALUE: The worth of one share of a series of a fund at the end of a
valuation period. Net Asset value is computed by adding the value of a series'
holdings plus other assets, minus liabilities and then dividing the result by
the number of shares outstanding.
PAYMENT DATE: The valuation date on which we receive a premium payment or loan
repayment, unless it is received after the close of the New York Stock Exchange
("NYSE"), in which case it will be the next valuation date.
PLANNED ANNUAL PREMIUM: The premium amount that the policyowner agrees to pay
each policy year. It must be at least equal to the minimum required premium 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 VALUE: The sum of a policy's share in the values of each subaccount of
the VUL Account plus the policy's share in the values of the GIA.
POLICY YEAR: The first policy year is the 1-year period from the policy date up
to, but not including, the first policy anniversary. Each succeeding policy year
is the 1-year period from the policy anniversary up to, but not including, the
next policy anniversary.
SERIES: A separate investment portfolio of the fund.
SUBACCOUNTS: Accounts within the VUL Account to which nonloaned assets under a
policy are allocated.
TARGET PREMIUM: The level annual premium at which the sales load is reduced on a
current basis.
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.
VUL ACCOUNT (ACCOUNT): Phoenix Home Life Variable Universal Life Account, a
separate account of the company.
72
<PAGE>
APPENDIX B
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
("ACCOUNT 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 Fixed Income 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 7 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, 1999.
Example:
Assumptions:
Value of hypothetical pre-existing account with exactly one
unit at the beginning of the period:................ 1.000000
Value of the same account (excluding capital changes) at the
end of the 7-day period:............................ 1.001003
Calculation:
Ending account value ............................... 1.001003
Less beginning account value ....................... 1.000000
Net change in account value ........................ 0.001003
Base period return:
(adjusted change/beginning account value) .......... 0.001003
Current yield = return x (365/7) = ................... 5.23%
Effective yield = [(1 + return)(365/7)] - 1 = ........ 5.37%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time, or other investment companies, due to charges which
will be deducted on the VUL Account level.
For the Phoenix-Goodwin Multi-Sector Fixed Income Subaccount, quotations of
yield will be based on all investment income per unit earned during a given
30-day period (including dividends and interest), less expenses accrued during
the period ("net investment income"), and are computed by dividing 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, 5 years, and 10 years or since inception if the subaccount has not
been in existence for at least 10 years. Total return is measured by comparing
the value of a hypothetical $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 advisors. The performance figures shown should be
considered in light of the investment objectives and policies, characteristics
and quality of the subaccounts and market conditions during the periods of time
quoted. The performance figures should not be considered as estimates or
predictions of future performance. Investment return of the subaccounts are not
guaranteed and will fluctuate. Below are quotations of average annual total
return calculated as described above for all subaccounts with at least one year
of results. POLICY CHARGES (INCLUDING COST OF INSURANCE, PREMIUM TAX CHARGES,
PREMIUM SALES CHARGES AND SURRENDER CHARGES) ARE NOT REFLECTED.
73
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 1999(1,3)
- -----------------------------------------------------------------------------------------------------------------------------------
SERIES INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index Series..................... 7/15/97 17.71% N/A N/A 21.57%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International Series...................... 5/1/90 28.27% 18.27% N/A 11.84%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia Series........................... 9/17/96 49.64% N/A N/A -1.91%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Bankers Trust Dow 30 Series........................ 12/15/99 N/A N/A N/A 2.45%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate Securities Series........ 5/1/95 3.74% N/A N/A 9.37%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Capital Growth Series..................... 1/1/83 28.44% 23.58% 18.72% 19.29%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty Series........................ 3/2/98 30.93% N/A N/A 31.06%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Federated U.S. Government Bond Series.............. 12/15/99 N/A N/A N/A -1.54%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market Series........................ 10/10/82 3.79% 4.18% 4.09% 5.51%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income Series........... 1/1/83 4.42% 8.30% 8.11% 9.13%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity Series...................... 3/2/98 23.13% N/A N/A 17.87%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Equity Income Series......................... 12/15/99 N/A N/A N/A 5.79%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Flexible Income Series....................... 12/15/99 N/A N/A N/A -0.04%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Growth Series................................ 12/15/99 N/A N/A N/A 5.93%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Morgan Stanley Focus Equity Series................. 12/15/99 N/A N/A N/A 6.24%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Balanced Series........................... 5/1/92 10.49% 15.42% N/A 11.58%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income Series.................. 3/2/98 15.89% N/A N/A 19.42%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Strategic Allocation Series............... 9/17/84 10.18% 14.89% 12.36% 12.95%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value Series....................... 3/2/98 -11.24% N/A N/A -12.82%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth Series....................... 3/2/98 44.23% N/A N/A 35.34%
- -----------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Strategic Theme Series...................... 1/29/96 53.61% N/A N/A 30.03%
- -----------------------------------------------------------------------------------------------------------------------------------
EAFE(R) Equity Index Fund.................................. 8/22/97 26.39% N/A N/A 15.91%
- -----------------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government Securities II........... 3/28/94 -1.59% 4.69% N/A 4.39%
- -----------------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II......................... 3/1/94 1.31% 9.56% N/A 7.27%
- -----------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio....................................... 11/30/99 N/A N/A N/A 23.71%
- -----------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments Fund-- Class 2(2)................ 5/1/98 8.25% N/A N/A 9.29%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation Fund-- Class 2(2)............... 11/28/88 21.39% 15.85% 11.92% 12.04%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Fund-- Class 2(2)............. 9/15/96 51.94% N/A N/A -5.53%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton International Fund-- Class 2(2).................. 5/1/92 22.07% 15.74% N/A 13.92%
- -----------------------------------------------------------------------------------------------------------------------------------
Templeton Stock Fund-- Class 2(2).......................... 11/4/88 27.58% 16.30% 12.41% 12.40%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty....................................... 2/1/99 N/A N/A N/A 82.45%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger International Small Cap............................. 5/1/95 124.55% N/A N/A 37.64%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger Twenty.............................................. 2/1/99 N/A N/A N/A 33.04%
- -----------------------------------------------------------------------------------------------------------------------------------
Wanger U.S. Small Cap...................................... 5/1/95 23.88% N/A N/A 25.48%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Performance data quoted represents the investment return of the appropriate
series adjusted for Phoenix Executive Benefit charges had the subaccount
started on the inception date of the appropriate series.
2 Because Class 2 shares were not offered until May 1, 1997 (November 10, 1998
for Mutual Shares Investments), performance shown for periods prior to that
date represent the historical results of Class 1 shares. Performance since
that date reflect Class 2's high annual fees and expenses resulting from its
Rule 12b-1 plan. Maximum annual plan expenses are 0.25%.
3 Average annual total return is the annualized compounded return that results
from holding an initial investment of $10,000 for the time period indicated.
Returns are net of investment management fees, monthly administrative fees,
and the mortality and expense risk fees. The investment return and principal
value of the variable contract will fluctuate so that the accumulated value,
when redeemed, may be worth more or less than the original cost.
74
<PAGE>
Advertisements, sales literature and other communications may contain
information about any series' or Advisor'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.
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 Advisor 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.
75
<PAGE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN(1,3)
- -------------------------------------------- ------- ------- ------ ------- ------- ------- ------ ------- ------- ------- ------
Series 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
- -------------------------------------------- ------- ------- ------ ------- ------- ------- ------ ------- ------- ------- ------
<S> <C> <C> <C> <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 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen International N/A N/A N/A N/A N/A N/A N/A N/A 19.74% -12.83% 38.46%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Bankers Trust Dow 30 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Securities
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Capital Growth 32.89% 10.67% 34.92% 20.47% 6.93% 3.92% 36.19% 4.05% 42.75% 10.30% 19.71%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty Series N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Federated U.S. Government Bond N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 8.37% 10.23% 8.03% 6.51% 6.51% 7.45% 9.20% 8.22% 5.98% 3.58% 2.88%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income 6.00% 11.35% 20.61% 19.29% 1.08% 10.49% 8.24% 5.22% 19.59% 10.08% 15.92%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Equity Income N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Flexible Income N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Janus Growth N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Morgan Stanley Focus Equity N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Balanced N/A N/A N/A N/A N/A N/A N/A N/A N/A 9.63% 8.61%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Oakhurst Strategic Allocation N/A N/A 27.34% 15.69% 12.56% 2.34% 19.90% 5.77% 29.32% 10.66% 11.01%
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value N/A N/A N/A 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 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Phoenix-Seneca Strategic Theme N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
EAFE(R) Equity Index Fund N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Federated Fund for U.S. Government N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Securities II
- ---------------------------------------------------------------------------------------------------------------------------------
Federated High Income Bond Fund II N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Investments Fund-- Class 2(2) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Templeton Asset Allocation Fund-- Class 2(2) N/A N/A N/A N/A N/A N/A 13.03% -8.21% 27.44% 7.83% 25.87%
- ---------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Fund-- Class N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
2(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Templeton International Fund-- Class 2(2) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 46.47%
- ---------------------------------------------------------------------------------------------------------------------------------
Templeton Stock Fund-- Class 2(2) N/A N/A N/A N/A N/A N/A 14.39% -11.28% 27.23% 6.87% 33.74%
- ---------------------------------------------------------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A 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 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A 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 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN(1,3)
- -------------------------------------------- - ------- ------- ------- ------ ------- -------
Series 1994 1995 1996 1997 1998 1999
- -------------------------------------------- - ------- ------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Phoenix Research Enhanced Index N/A N/A N/A N/A 31.69% 18.83%
- ---------------------------------------------------------------------------------------------
Phoenix-Aberdeen International 0.06% 9.59% 18.66% 12.05% 27.94% 29.51%
- ---------------------------------------------------------------------------------------------
Phoenix-Aberdeen New Asia N/A N/A N/A -32.41% -4.45% 50.98%
- ---------------------------------------------------------------------------------------------
Phoenix-Bankers Trust Dow 30 N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Phoenix-Duff & Phelps Real Estate N/A N/A 33.13% 22.07% -21.20% 4.78%
Securities
- ---------------------------------------------------------------------------------------------
Phoenix-Engemann Capital Growth 1.46% 30.89% 12.59% 21.09% 30.02% 29.68%
- ---------------------------------------------------------------------------------------------
Phoenix-Engemann Nifty Fifty Series N/A N/A N/A N/A N/A 32.16%
- ---------------------------------------------------------------------------------------------
Phoenix-Federated U.S. Government Bond N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Phoenix-Goodwin Money Market 3.84% 5.70% 5.03% 5.19% 5.10% 4.82%
- ---------------------------------------------------------------------------------------------
Phoenix-Goodwin Multi-Sector Fixed Income -5.49% 23.54% 12.43% 11.09% -4.15% 5.46%
- ---------------------------------------------------------------------------------------------
Phoenix-Hollister Value Equity N/A N/A N/A N/A N/A 24.34%
- ---------------------------------------------------------------------------------------------
Phoenix-Janus Equity Income N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Phoenix-Janus Flexible Income N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Phoenix-Janus Growth N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Phoenix-Morgan Stanley Focus Equity N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Phoenix-Oakhurst Balanced -2.84% 23.35% 10.57% 17.94% 19.02% 11.58%
- ---------------------------------------------------------------------------------------------
Phoenix-Oakhurst Growth and Income N/A N/A N/A N/A N/A 17.02%
- ---------------------------------------------------------------------------------------------
Phoenix-Oakhurst Strategic Allocation -1.41% 18.20% 9.06% 20.74% 20.80% 11.27%
- ---------------------------------------------------------------------------------------------
Phoenix-Schafer Mid-Cap Value N/A N/A N/A N/A N/A -10.29%
- ---------------------------------------------------------------------------------------------
Phoenix-Seneca Mid-Cap Growth N/A N/A N/A N/A N/A 45.65%
- ---------------------------------------------------------------------------------------------
Phoenix-Seneca Strategic Theme N/A N/A N/A 17.17% 44.72% 55.01%
- ---------------------------------------------------------------------------------------------
EAFE(R) Equity Index Fund N/A N/A N/A N/A 21.60% 27.61%
- ---------------------------------------------------------------------------------------------
Federated Fund for U.S. Government N/A 20.38% 14.31% 13.83% 2.70% 2.32%
Securities II
- ---------------------------------------------------------------------------------------------
Federated High Income Bond Fund II N/A 8.77% 4.20% 8.58% 7.66% -0.59%
- ---------------------------------------------------------------------------------------------
Technology Portfolio N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Mutual Shares Investments Fund-- Class 2(2) N/A N/A N/A N/A N/A 9.30%
- ---------------------------------------------------------------------------------------------
Templeton Asset Allocation Fund-- Class 2(2) -3.23% 22.26% 18.59% 15.27% 6.10% 22.55%
- ---------------------------------------------------------------------------------------------
Templeton Developing Markets Fund-- Class N/A N/A N/A -29.39%-21.04% 53.30%
2(2)
- ---------------------------------------------------------------------------------------------
Templeton International Fund-- Class 2(2) -2.86% 15.05% 23.30% 13.51% 9.08% 23.25%
- ---------------------------------------------------------------------------------------------
Templeton Stock Fund-- Class 2(2) -2.47% 24.96% 22.15% 11.60% 0.98% 28.80%
- ---------------------------------------------------------------------------------------------
Wanger Foreign Forty N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Wanger International Small Cap N/A N/A 32.04% -1.46% 16.34% 126.50%
- ---------------------------------------------------------------------------------------------
Wanger Twenty N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------
Wanger US Small Cap N/A N/A 46.63% 29.43% 8.69% 25.08%
- ---------------------------------------------------------------------------------------------
</TABLE>
1 Returns are net of the investment management fees of the Phoenix Executive
Benefit subaccounts. Percent change does not include the effect of the
monthly administrative fees, or mortality and expense risk fees.
2 Because Class 2 shares were not offered until May 1, 1997 (November 10, 1998
for Mutual Shares Investments), performance shown for periods prior to that
date represent the historical results of Class 1 shares. Performance since
that date reflect Class 2's high annual fees and expenses resulting from its
Rule 12b-1 plan. Maximum annual plan expenses are 0.25%.
3 Performance data quoted represents the investment return of the appropriate
series adjusted for Phoenix Executive Benefit charges had the subaccount
started on the inception date of the appropriate series.
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
76
<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%, 6% or 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%, 6% or 12%,
but went above or below those figures for the individual subaccounts. The tables
are for standard risk males and females who are nonsmokers. In states where cost
of insurance rates are not based on the Insured's sex, the tables designated
"male" apply to all standard risk insureds who are nonsmokers. Account values
and cash surrender values may be lower for risk classes involving higher
mortality risk. Planned premium payments are assumed to be paid at the beginning
of each policy year.
The death benefit, account value and cash surrender value amounts reflect
the following current and guaranteed charges:
1. A current sales charge of 5.0% of premiums up to the target premium
and 0% on amounts in excess of the target premium in policy years 1-7
and 0% of all premiums in policy years 8+. A guaranteed sales charge
of 5.0% of premiums in policy years 1-7 and 2.0% of all premiums in
years 8+. See "Charges under the Policy" table.
2. Monthly administrative charge of $5 per month ($10 per month
guaranteed maximum in all states except New York. In New York
guaranteed maximum is $7.50 per month). See "Charges under the
Policy" table.
3. An average 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 under the Policy" table.
6. Mortality and expense risk charge, which is a monthly charge
equivalent to .40% on an annual basis (or .25% on an annual basis
after the 10th policy year) of your policy value. Guaranteed maximum
mortality and expenses risk charge is .90% annually in all policy
years. See "Charges under the Policy" table.
These illustrations also assume an average investment advisory fee of .70%
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 .30%. All other fund expenses, except capital items such as
brokerage commissions, are paid by the Advisor or Phoenix. Management may decide
to limit the amount of expense reimbursement in the future. If expense
reimbursement had not been in place for the fiscal year ended December 31, 1999,
average total operating expenses for the series would have been approximately
.97% of the average net assets.
Taking into account the Mortality and Expense Risk Charge and the investment
advisory fees and expenses, the gross annual investment return rates of 0%, 6%
and 12% on the funds' assets are equivalent to net annual investment return
rates of approximately -1.00%, 5.00% and 11.00%, respectively. For individual
illustrations, interest rates ranging between 0% and 12% may be selected in
place of the 0%, 6% and 12% rates.
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.
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.
77
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
FACE AMOUNT: $100,000
MALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX EXECUTIVE BENEFIT--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING CURRENT CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 760 810 100,000 810 860 100,000 860 910 100,000
2 1,000 2,153 1,506 1,539 100,000 1,653 1,687 100,000 1,807 1,840 100,000
3 1,000 3,310 2,238 2,255 100,000 2,532 2,549 100,000 2,851 2,868 100,000
4 1,000 4,526 2,955 2,955 100,000 3,447 3,447 100,000 4,001 4,001 100,000
5 1,000 5,802 3,657 3,657 100,000 4,398 4,398 100,000 5,267 5,267 100,000
6 1,000 7,142 4,343 4,343 100,000 5,387 5,387 100,000 6,661 6,661 100,000
7 1,000 8,549 5,011 5,011 100,000 6,412 6,412 100,000 8,193 8,193 100,000
8 1,000 10,027 5,708 5,708 100,000 7,526 7,526 100,000 9,934 9,934 100,000
9 1,000 11,578 6,383 6,383 100,000 8,680 8,680 100,000 11,847 11,847 100,000
10 1,000 13,207 7,034 7,034 100,000 9,873 9,873 100,000 13,950 13,950 100,000
11 1,000 14,917 7,708 7,708 100,000 11,158 11,158 100,000 16,322 16,322 100,000
12 1,000 16,713 8,358 8,358 100,000 12,490 12,490 100,000 18,936 18,936 100,000
13 1,000 18,599 8,984 8,984 100,000 13,871 13,871 100,000 21,820 21,820 100,000
14 1,000 20,579 9,585 9,585 100,000 15,301 15,301 100,000 25,002 25,002 100,000
15 1,000 22,657 10,159 10,159 100,000 16,783 16,783 100,000 28,514 28,514 100,000
16 1,000 24,840 10,706 10,706 100,000 18,319 18,319 100,000 32,395 32,395 100,000
17 1,000 27,132 11,226 11,226 100,000 19,910 19,910 100,000 36,684 36,684 100,000
18 1,000 29,539 11,715 11,715 100,000 21,558 21,558 100,000 41,428 41,428 100,000
19 1,000 32,066 12,173 12,173 100,000 23,265 23,265 100,000 46,673 46,673 105,948
20 1,000 34,719 12,597 12,597 100,000 25,033 25,033 100,000 52,448 52,448 115,911
@ 65 1,000 69,761 14,074 14,074 100,000 49,047 49,047 100,000 169,394 169,394 281,194
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
29.
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 1.00%
(includes average fund operating expenses of 0.30% applicable to the investment
subaccounts of the VUL Account). Hypothetical gross interest rates are presented
for illustrative purposes only to illustrate funds allocated entirely to the
investment subaccounts of the VUL 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 GIA providing interest at
a minimum guaranteed rate of 3% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
78
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
FACE AMOUNT: $100,000
MALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX EXECUTIVE BENEFIT--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING GUARANTEED CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 573 623 100,000 617 667 100,000 661 711 100,000
2 1,000 2,153 1,126 1,159 100,000 1,250 1,283 100,000 1,379 1,413 100,000
3 1,000 3,310 1,657 1,674 100,000 1,897 1,914 100,000 2,159 2,176 100,000
4 1,000 4,526 2,165 2,165 100,000 2,558 2,558 100,000 3,005 3,005 100,000
5 1,000 5,802 2,646 2,646 100,000 3,230 3,230 100,000 3,921 3,921 100,000
6 1,000 7,142 3,100 3,100 100,000 3,912 3,912 100,000 4,913 4,913 100,000
7 1,000 8,549 3,523 3,523 100,000 4,602 4,602 100,000 5,986 5,986 100,000
8 1,000 10,027 3,935 3,935 100,000 5,320 5,320 100,000 7,173 7,173 100,000
9 1,000 11,578 4,314 4,314 100,000 6,043 6,043 100,000 8,459 8,459 100,000
10 1,000 13,207 4,659 4,659 100,000 6,772 6,772 100,000 9,855 9,855 100,000
11 1,000 14,917 4,974 4,974 100,000 7,515 7,515 100,000 11,390 11,390 100,000
12 1,000 16,713 5,252 5,252 100,000 8,262 8,262 100,000 13,062 13,062 100,000
13 1,000 18,599 5,491 5,491 100,000 9,011 9,011 100,000 14,886 14,886 100,000
14 1,000 20,579 5,688 5,688 100,000 9,761 9,761 100,000 16,880 16,880 100,000
15 1,000 22,657 5,840 5,840 100,000 10,507 10,507 100,000 19,059 19,059 100,000
16 1,000 24,840 5,945 5,945 100,000 11,248 11,248 100,000 21,445 21,445 100,000
17 1,000 27,132 5,993 5,993 100,000 11,976 11,976 100,000 24,056 24,056 100,000
18 1,000 29,539 5,980 5,980 100,000 12,684 12,684 100,000 26,916 26,916 100,000
19 1,000 32,066 5,897 5,897 100,000 13,365 13,365 100,000 30,052 30,052 100,000
20 1,000 34,719 5,735 5,735 100,000 14,010 14,010 100,000 33,493 33,493 100,000
@ 65 1,000 69,761 -- -- -- 15,866 15,866 100,000 92,905 92,905 157,939
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
29.
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 1.00%
(includes average fund operating expenses of 0.30% applicable to the investment
subaccounts of the VUL Account). Hypothetical gross interest rates are presented
for illustrative purposes only to illustrate funds allocated entirely to the
investment subaccounts of the VUL 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 GIA providing interest at
a minimum guaranteed rate of 3% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
79
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
FACE AMOUNT: $100,000
FEMALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX EXECUTIVE BENEFIT--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING CURRENT CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 787 837 100,000 838 888 100,000 889 939 100,000
2 1,000 2,153 1,559 1,592 100,000 1,710 1,743 100,000 1,867 1,901 100,000
3 1,000 3,310 2,314 2,331 100,000 2,616 2,633 100,000 2,943 2,960 100,000
4 1,000 4,526 3,053 3,053 100,000 3,558 3,558 100,000 4,126 4,126 100,000
5 1,000 5,802 3,774 3,774 100,000 4,534 4,534 100,000 5,426 5,426 100,000
6 1,000 7,142 4,476 4,476 100,000 5,547 5,547 100,000 6,855 6,855 100,000
7 1,000 8,549 5,158 5,158 100,000 6,597 6,597 100,000 8,426 8,426 100,000
8 1,000 10,027 5,870 5,870 100,000 7,737 7,737 100,000 10,208 10,208 100,000
9 1,000 11,578 6,561 6,561 100,000 8,919 8,919 100,000 12,169 12,169 100,000
10 1,000 13,207 7,233 7,233 100,000 10,147 10,147 100,000 14,330 14,330 100,000
11 1,000 14,917 7,926 7,926 100,000 11,467 11,467 100,000 16,764 16,764 100,000
12 1,000 16,713 8,602 8,602 100,000 12,842 12,842 100,000 19,453 19,453 100,000
13 1,000 18,599 9,261 9,261 100,000 14,274 14,274 100,000 22,426 22,426 100,000
14 1,000 20,579 9,903 9,903 100,000 15,767 15,767 100,000 25,713 25,713 100,000
15 1,000 22,657 10,527 10,527 100,000 17,324 17,324 100,000 29,350 29,350 100,000
16 1,000 24,840 11,133 11,133 100,000 18,946 18,946 100,000 33,373 33,373 100,000
17 1,000 27,132 11,720 11,720 100,000 20,635 20,635 100,000 37,826 37,826 100,000
18 1,000 29,539 12,287 12,287 100,000 22,396 22,396 100,000 42,756 42,756 100,050
19 1,000 32,066 12,833 12,833 100,000 24,230 24,230 100,000 48,207 48,207 109,430
20 1,000 34,719 13,356 13,356 100,000 26,140 26,140 100,000 54,219 54,219 119,824
@ 65 1,000 69,761 17,232 17,232 100,000 53,230 53,230 100,000 178,723 178,723 296,681
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
36.
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 1.00%
(includes average fund operating expenses of 0.30% applicable to the investment
subaccounts of the VUL Account). Hypothetical gross interest rates are presented
for illustrative purposes only to illustrate funds allocated entirely to the
investment subaccounts of the VUL 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 GIA providing interest at
a minimum guaranteed rate of 3% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
80
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
FACE AMOUNT: $100,000
FEMALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX EXECUTIVE BENEFIT--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING GUARANTEED CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 618 668 100,000 664 714 100,000 709 759 100,000
2 1,000 2,153 1,218 1,251 100,000 1,347 1,381 100,000 1,483 1,516 100,000
3 1,000 3,310 1,798 1,814 100,000 2,051 2,068 100,000 2,327 2,343 100,000
4 1,000 4,526 2,356 2,356 100,000 2,773 2,773 100,000 3,246 3,246 100,000
5 1,000 5,802 2,890 2,890 100,000 3,512 3,512 100,000 4,246 4,246 100,000
6 1,000 7,142 3,399 3,399 100,000 4,267 4,267 100,000 5,333 5,333 100,000
7 1,000 8,549 3,881 3,881 100,000 5,037 5,037 100,000 6,517 6,517 100,000
8 1,000 10,027 4,355 4,355 100,000 5,843 5,843 100,000 7,829 7,829 100,000
9 1,000 11,578 4,803 4,803 100,000 6,667 6,667 100,000 9,263 9,263 100,000
10 1,000 13,207 5,225 5,225 100,000 7,510 7,510 100,000 10,830 10,830 100,000
11 1,000 14,917 5,629 5,629 100,000 8,385 8,385 100,000 12,566 12,566 100,000
12 1,000 16,713 6,006 6,006 100,000 9,283 9,283 100,000 14,474 14,474 100,000
13 1,000 18,599 6,357 6,357 100,000 10,203 10,203 100,000 16,571 16,571 100,000
14 1,000 20,579 6,680 6,680 100,000 11,145 11,145 100,000 18,878 18,878 100,000
15 1,000 22,657 6,971 6,971 100,000 12,109 12,109 100,000 21,419 21,419 100,000
16 1,000 24,840 7,231 7,231 100,000 13,094 13,094 100,000 24,218 24,218 100,000
17 1,000 27,132 7,456 7,456 100,000 14,099 14,099 100,000 27,305 27,305 100,000
18 1,000 29,539 7,643 7,643 100,000 15,124 15,124 100,000 30,713 30,713 100,000
19 1,000 32,066 7,789 7,789 100,000 16,165 16,165 100,000 34,475 34,475 100,000
20 1,000 34,719 7,891 7,891 100,000 17,222 17,222 100,000 38,635 38,635 100,000
@ 65 1,000 69,761 5,543 5,543 100,000 30,019 30,019 100,000 123,983 123,983 205,663
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
36.
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 1.00%
(includes average fund operating expenses of 0.30% applicable to the investment
subaccounts of the VUL Account). Hypothetical gross interest rates are presented
for illustrative purposes only to illustrate funds allocated entirely to the
investment subaccounts of the VUL 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 GIA providing interest at
a minimum guaranteed rate of 3% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
81
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
FACE AMOUNT: $100,000
MALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX EXECUTIVE BENEFIT--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING CURRENT CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 759 809 100,760 809 859 100,810 859 909 100,860
2 1,000 2,153 1,504 1,537 101,505 1,651 1,684 101,652 1,805 1,838 101,806
3 1,000 3,310 2,234 2,251 102,235 2,528 2,544 102,528 2,846 2,863 102,847
4 1,000 4,526 2,949 2,949 102,949 3,439 3,439 103,440 3,991 3,991 103,992
5 1,000 5,802 3,647 3,647 103,648 4,385 4,385 104,386 5,251 5,251 105,252
6 1,000 7,142 4,328 4,328 104,329 5,367 5,367 105,368 6,635 6,635 106,636
7 1,000 8,549 4,989 4,989 104,990 6,384 6,384 106,384 8,155 8,155 108,156
8 1,000 10,027 5,679 5,679 105,680 7,487 7,487 107,488 9,879 9,879 109,879
9 1,000 11,578 6,346 6,346 106,347 8,626 8,626 108,627 11,769 11,769 111,770
10 1,000 13,207 6,986 6,986 106,987 9,801 9,801 109,802 13,841 13,841 113,842
11 1,000 14,917 7,649 7,649 107,650 11,066 11,066 111,068 16,178 16,178 116,179
12 1,000 16,713 8,286 8,286 108,287 12,374 12,374 112,374 18,747 18,747 118,748
13 1,000 18,599 8,897 8,897 108,898 13,724 13,724 113,725 21,571 21,571 121,571
14 1,000 20,579 9,480 9,480 109,481 15,117 15,117 115,118 24,676 24,676 124,677
15 1,000 22,657 10,033 10,033 110,034 16,553 16,553 116,554 28,090 28,090 128,091
16 1,000 24,840 10,555 10,555 110,556 18,033 18,033 118,033 31,846 31,846 131,847
17 1,000 27,132 11,046 11,046 111,047 19,556 19,556 119,557 35,977 35,977 135,977
18 1,000 29,539 11,502 11,502 111,503 21,122 21,122 121,123 40,520 40,520 140,521
19 1,000 32,066 11,921 11,921 111,922 22,731 22,731 122,732 45,519 45,519 145,519
20 1,000 34,719 12,302 12,302 112,303 24,382 24,382 124,383 51,017 51,017 151,018
@ 65 1,000 69,761 12,779 12,779 112,780 44,393 44,393 144,394 163,040 163,040 270,647
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
28.
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 1.00%
(includes average fund operating expenses of 0.30% applicable to the investment
subaccounts of the VUL Account). Hypothetical gross interest rates are presented
for illustrative purposes only to illustrate funds allocated entirely to the
investment subaccounts of the VUL 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 GIA providing interest at
a minimum guaranteed rate of 3% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
82
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
FACE AMOUNT: $100,000
MALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX EXECUTIVE BENEFIT--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING GUARANTEED CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 571 621 100,572 615 665 100,616 659 709 100,661
2 1,000 2,153 1,122 1,155 101,123 1,245 1,278 101,246 1,374 1,407 101,375
3 1,000 3,310 1,648 1,665 101,649 1,887 1,904 101,888 2,148 2,164 102,149
4 1,000 4,526 2,150 2,150 102,151 2,541 2,541 102,541 2,984 2,984 102,985
5 1,000 5,802 2,624 2,624 102,625 3,202 3,202 103,203 3,886 3,886 103,887
6 1,000 7,142 3,068 3,068 103,069 3,871 3,871 103,872 4,859 4,859 104,860
7 1,000 8,549 3,479 3,479 103,480 4,542 4,542 104,544 5,907 5,907 105,907
8 1,000 10,027 3,877 3,877 103,879 5,238 5,238 105,239 7,058 7,058 107,059
9 1,000 11,578 4,240 4,240 104,241 5,933 5,933 105,934 8,299 8,299 108,299
10 1,000 13,207 4,565 4,565 104,566 6,628 6,628 106,628 9,636 9,636 109,637
11 1,000 14,917 4,857 4,857 104,859 7,329 7,329 107,329 11,094 11,094 111,095
12 1,000 16,713 5,110 5,110 105,111 8,025 8,025 108,026 12,669 12,669 112,669
13 1,000 18,599 5,319 5,319 105,321 8,713 8,713 108,715 14,370 14,370 114,372
14 1,000 20,579 5,484 5,484 105,485 9,391 9,391 109,392 16,210 16,210 116,211
15 1,000 22,657 5,601 5,601 105,602 10,052 10,052 110,054 18,197 18,197 118,198
16 1,000 24,840 5,666 5,666 105,667 10,694 10,694 110,695 20,344 20,344 120,346
17 1,000 27,132 5,672 5,672 105,673 11,306 11,306 111,307 22,660 22,660 122,661
18 1,000 29,539 5,612 5,612 105,613 11,878 11,878 111,879 25,153 25,153 125,154
19 1,000 32,066 5,478 5,478 105,479 12,402 12,402 112,402 27,835 27,835 127,836
20 1,000 34,719 5,262 5,262 105,263 12,862 12,862 112,863 30,715 30,715 130,716
@ 65 1,000 69,761 -- -- -- 10,125 10,125 110,126 80,243 80,243 180,244
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
28.
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 1.00%
(includes average fund operating expenses of 0.30% applicable to the investment
subaccounts of the VUL Account). Hypothetical gross interest rates are presented
for illustrative purposes only to illustrate funds allocated entirely to the
investment subaccounts of the VUL 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 GIA providing interest at
a minimum guaranteed rate of 3% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
83
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
FACE AMOUNT: $100,000
FEMALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX EXECUTIVE BENEFIT--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING CURRENT CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 787 837 100,787 838 888 100,838 889 939 100,890
2 1,000 2,153 1,558 1,591 101,558 1,709 1,742 101,710 1,866 1,899 101,867
3 1,000 3,310 2,311 2,328 102,312 2,613 2,629 102,614 2,939 2,956 102,941
4 1,000 4,526 3,048 3,048 103,049 3,551 3,551 103,553 4,119 4,119 104,120
5 1,000 5,802 3,766 3,766 103,767 4,524 4,524 104,525 5,414 5,414 105,415
6 1,000 7,142 4,464 4,464 104,464 5,532 5,532 105,532 6,835 6,835 106,836
7 1,000 8,549 5,141 5,141 105,142 6,574 6,574 106,575 8,395 8,395 108,396
8 1,000 10,027 5,846 5,846 105,847 7,704 7,704 107,705 10,162 10,162 110,163
9 1,000 11,578 6,530 6,530 106,531 8,874 8,874 108,875 12,103 12,103 112,105
10 1,000 13,207 7,192 7,192 107,193 10,085 10,085 110,086 14,237 14,237 114,238
11 1,000 14,917 7,876 7,876 107,877 11,388 11,388 111,389 16,641 16,641 116,643
12 1,000 16,713 8,541 8,541 108,543 12,743 12,743 112,744 19,293 19,293 119,294
13 1,000 18,599 9,188 9,188 109,189 14,151 14,151 114,152 22,217 22,217 122,218
14 1,000 20,579 9,816 9,816 109,817 15,615 15,615 115,615 25,443 25,443 125,444
15 1,000 22,657 10,424 10,424 110,425 17,136 17,136 117,137 29,003 29,003 129,004
16 1,000 24,840 11,012 11,012 111,013 18,715 18,715 118,716 32,931 32,931 132,932
17 1,000 27,132 11,578 11,578 111,579 20,355 20,355 120,356 37,265 37,265 137,266
18 1,000 29,539 12,122 12,122 112,122 22,057 22,057 122,058 42,048 42,048 142,049
19 1,000 32,066 12,641 12,641 112,641 23,820 23,820 123,822 47,324 47,324 147,325
20 1,000 34,719 13,134 13,134 113,134 25,647 25,647 125,648 53,145 53,145 153,146
@ 65 1,000 69,761 16,330 16,330 116,330 50,178 50,178 150,179 174,371 174,371 289,457
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
36.
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 1.00%
(includes average fund operating expenses of 0.30% applicable to the investment
subaccounts of the VUL Account). Hypothetical gross interest rates are presented
for illustrative purposes only to illustrate funds allocated entirely to the
investment subaccounts of the VUL 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 GIA providing interest at
a minimum guaranteed rate of 3% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
84
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
FACE AMOUNT: $100,000
FEMALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX EXECUTIVE BENEFIT--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING GUARANTEED CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 617 667 100,618 662 712 100,663 708 758 100,709
2 1,000 2,153 1,214 1,248 101,215 1,343 1,377 101,344 1,478 1,512 101,480
3 1,000 3,310 1,790 1,807 101,791 2,043 2,059 102,044 2,317 2,334 102,318
4 1,000 4,526 2,343 2,343 102,345 2,758 2,758 102,760 3,228 3,228 103,229
5 1,000 5,802 2,871 2,871 102,872 3,489 3,489 103,489 4,216 4,216 104,218
6 1,000 7,142 3,371 3,371 103,373 4,232 4,232 104,232 5,288 5,288 105,289
7 1,000 8,549 3,843 3,843 103,844 4,986 4,986 104,988 6,449 6,449 106,450
8 1,000 10,027 4,305 4,305 104,306 5,773 5,773 105,774 7,731 7,731 107,732
9 1,000 11,578 4,738 4,738 104,740 6,573 6,573 106,573 9,125 9,125 109,126
10 1,000 13,207 5,143 5,143 105,144 7,386 7,386 107,387 10,641 10,641 110,642
11 1,000 14,917 5,527 5,527 105,528 8,224 8,224 108,225 12,311 12,311 112,312
12 1,000 16,713 5,882 5,882 105,883 9,077 9,077 109,079 14,135 14,135 114,136
13 1,000 18,599 6,208 6,208 106,209 9,946 9,946 109,947 16,128 16,128 116,129
14 1,000 20,579 6,502 6,502 106,503 10,827 10,827 110,827 18,306 18,306 118,307
15 1,000 22,657 6,763 6,763 106,764 11,718 11,718 111,719 20,685 20,685 120,686
16 1,000 24,840 6,987 6,987 106,988 12,618 12,618 112,619 23,284 23,284 123,285
17 1,000 27,132 7,175 7,175 107,175 13,525 13,525 113,526 26,125 26,125 126,125
18 1,000 29,539 7,320 7,320 107,322 14,435 14,435 114,436 29,229 29,229 129,230
19 1,000 32,066 7,420 7,420 107,421 15,342 15,342 115,342 32,618 32,618 132,620
20 1,000 34,719 7,472 7,472 107,473 16,244 16,244 116,245 36,323 36,323 136,324
@ 65 1,000 69,761 4,385 4,385 104,386 25,015 25,015 125,016 109,760 109,760 209,761
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
36.
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 1.00%
(includes average fund operating expenses of 0.30% applicable to the investment
subaccounts of the VUL Account). Hypothetical gross interest rates are presented
for illustrative purposes only to illustrate funds allocated entirely to the
investment subaccounts of the VUL 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 GIA providing interest at
a minimum guaranteed rate of 3% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
85
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
FACE AMOUNT: $100,000
MALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX EXECUTIVE BENEFIT--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 3
ASSUMING CURRENT CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 759 809 101,000 809 859 101,000 859 909 101,000
2 1,000 2,153 1,503 1,537 102,000 1,651 1,684 102,000 1,804 1,838 102,000
3 1,000 3,310 2,233 2,250 103,000 2,527 2,544 103,000 2,846 2,862 103,000
4 1,000 4,526 2,947 2,947 104,000 3,438 3,438 104,000 3,991 3,991 104,000
5 1,000 5,802 3,644 3,644 105,000 4,383 4,383 105,000 5,250 5,250 105,000
6 1,000 7,142 4,323 4,323 106,000 5,364 5,364 106,000 6,635 6,635 106,000
7 1,000 8,549 4,983 4,983 107,000 6,380 6,380 107,000 8,157 8,157 107,000
8 1,000 10,027 5,670 5,670 108,000 7,483 7,483 108,000 9,882 9,882 108,000
9 1,000 11,578 6,333 6,333 109,000 8,622 8,622 109,000 11,777 11,777 109,000
10 1,000 13,207 6,969 6,969 110,000 9,795 9,795 110,000 13,855 13,855 110,000
11 1,000 14,917 7,628 7,628 111,000 11,060 11,060 111,000 16,200 16,200 111,000
12 1,000 16,713 8,260 8,260 112,000 12,368 12,368 112,000 18,781 18,781 112,000
13 1,000 18,599 8,864 8,864 113,000 13,719 13,719 113,000 21,623 21,623 113,000
14 1,000 20,579 9,439 9,439 114,000 15,114 15,114 114,000 24,754 24,754 114,000
15 1,000 22,657 9,982 9,982 115,000 16,553 16,553 115,000 28,205 28,205 115,000
16 1,000 24,840 10,493 10,493 116,000 18,037 18,037 116,000 32,010 32,010 116,000
17 1,000 27,132 10,968 10,968 117,000 19,567 19,567 117,000 36,209 36,209 117,000
18 1,000 29,539 11,407 11,407 118,000 21,143 21,143 118,000 40,844 40,844 118,000
19 1,000 32,066 11,805 11,805 119,000 22,764 22,764 119,000 45,963 45,963 119,000
20 1,000 34,719 12,161 12,161 120,000 24,432 24,432 120,000 51,621 51,621 120,000
@ 65 1,000 69,761 11,670 11,670 131,000 45,378 45,378 131,000 166,984 166,984 277,195
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
26.
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 1.00%
(includes average fund operating expenses of 0.30% applicable to the investment
subaccounts of the VUL Account). Hypothetical gross interest rates are presented
for illustrative purposes only to illustrate funds allocated entirely to the
investment subaccounts of the VUL 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 GIA providing interest at
a minimum guaranteed rate of 3% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
86
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
FACE AMOUNT: $100,000
MALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX EXECUTIVE BENEFIT--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 3
ASSUMING GUARANTEED CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 571 621 101,000 615 665 101,000 659 709 101,000
2 1,000 2,153 1,120 1,153 102,000 1,243 1,277 102,000 1,373 1,406 102,000
3 1,000 3,310 1,644 1,661 103,000 1,884 1,900 103,000 2,144 2,161 103,000
4 1,000 4,526 2,142 2,142 104,000 2,533 2,533 104,000 2,978 2,978 104,000
5 1,000 5,802 2,610 2,610 105,000 3,190 3,190 105,000 3,876 3,876 105,000
6 1,000 7,142 3,046 3,046 106,000 3,852 3,852 106,000 4,845 4,845 106,000
7 1,000 8,549 3,447 3,447 107,000 4,515 4,515 107,000 5,887 5,887 107,000
8 1,000 10,027 3,833 3,833 108,000 5,200 5,200 108,000 7,033 7,033 108,000
9 1,000 11,578 4,179 4,179 109,000 5,882 5,882 109,000 8,267 8,267 109,000
10 1,000 13,207 4,483 4,483 110,000 6,561 6,561 110,000 9,599 9,599 110,000
11 1,000 14,917 4,751 4,751 111,000 7,242 7,242 111,000 11,052 11,052 111,000
12 1,000 16,713 4,972 4,972 112,000 7,914 7,914 112,000 12,624 12,624 112,000
13 1,000 18,599 5,145 5,145 113,000 8,574 8,574 113,000 14,326 14,326 113,000
14 1,000 20,579 5,265 5,265 114,000 9,219 9,219 114,000 16,172 16,172 114,000
15 1,000 22,657 5,328 5,328 115,000 9,841 9,841 115,000 18,172 18,172 115,000
16 1,000 24,840 5,329 5,329 116,000 10,436 10,436 116,000 20,343 20,343 116,000
17 1,000 27,132 5,258 5,258 117,000 10,992 10,992 117,000 22,697 22,697 117,000
18 1,000 29,539 5,107 5,107 118,000 11,500 11,500 118,000 25,249 25,249 118,000
19 1,000 32,066 4,864 4,864 119,000 11,945 11,945 119,000 28,015 28,015 119,000
20 1,000 34,719 4,515 4,515 120,000 12,312 12,312 120,000 31,014 31,014 120,000
@ 65 1,000 69,761 -- -- -- 5,772 5,772 131,000 89,942 89,942 149,304
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
26.
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 1.00%
(includes average fund operating expenses of 0.30% applicable to the investment
subaccounts of the VUL Account). Hypothetical gross interest rates are presented
for illustrative purposes only to illustrate funds allocated entirely to the
investment subaccounts of the VUL 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 GIA providing interest at
a minimum guaranteed rate of 3% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
87
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
FACE AMOUNT: $100,000
FEMALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX EXECUTIVE BENEFIT--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 3
ASSUMING CURRENT CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 787 837 101,000 838 888 101,000 889 939 101,000
2 1,000 2,153 1,557 1,591 102,000 1,708 1,742 102,000 1,866 1,899 102,000
3 1,000 3,310 2,311 2,328 103,000 2,613 2,629 103,000 2,939 2,956 103,000
4 1,000 4,526 3,047 3,047 104,000 3,551 3,551 104,000 4,119 4,119 104,000
5 1,000 5,802 3,764 3,764 105,000 4,523 4,523 105,000 5,414 5,414 105,000
6 1,000 7,142 4,460 4,460 106,000 5,530 5,530 106,000 6,836 6,836 106,000
7 1,000 8,549 5,136 5,136 107,000 6,572 6,572 107,000 8,397 8,397 107,000
8 1,000 10,027 5,839 5,839 108,000 7,702 7,702 108,000 10,167 10,167 108,000
9 1,000 11,578 6,520 6,520 109,000 8,871 8,871 109,000 12,112 12,112 109,000
10 1,000 13,207 7,179 7,179 110,000 10,082 10,082 110,000 14,252 14,252 110,000
11 1,000 14,917 7,860 7,860 111,000 11,386 11,386 111,000 16,664 16,664 111,000
12 1,000 16,713 8,521 8,521 112,000 12,741 12,741 112,000 19,326 19,326 112,000
13 1,000 18,599 9,163 9,163 113,000 14,150 14,150 113,000 22,266 22,266 113,000
14 1,000 20,579 9,785 9,785 114,000 15,616 15,616 114,000 25,514 25,514 114,000
15 1,000 22,657 10,387 10,387 115,000 17,140 17,140 115,000 29,103 29,103 115,000
16 1,000 24,840 10,967 10,967 116,000 18,725 18,725 116,000 33,071 33,071 116,000
17 1,000 27,132 11,524 11,524 117,000 20,371 20,371 117,000 37,457 37,457 117,000
18 1,000 29,539 12,057 12,057 118,000 22,081 22,081 118,000 42,308 42,308 118,000
19 1,000 32,066 12,563 12,563 119,000 23,856 23,856 119,000 47,673 47,673 119,000
20 1,000 34,719 13,041 13,041 120,000 25,698 25,698 120,000 53,611 53,611 120,000
@ 65 1,000 69,761 15,762 15,762 131,000 50,981 50,981 131,000 176,926 176,926 293,698
</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 1.00%
(includes average fund operating expenses of 0.30% applicable to the investment
subaccounts of the VUL Account). Hypothetical gross interest rates are presented
for illustrative purposes only to illustrate funds allocated entirely to the
investment subaccounts of the VUL 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 GIA providing interest at
a minimum guaranteed rate of 3% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
88
<PAGE>
<TABLE>
<CAPTION>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
FACE AMOUNT: $100,000
FEMALE 35 ADVANTAGE SELECT INITIAL ANNUAL PREMIUM: $1,000
PHOENIX EXECUTIVE BENEFIT--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 3
ASSUMING GUARANTEED CHARGES
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%
-------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 617 667 101,000 662 712 101,000 708 758 101,000
2 1,000 2,153 1,213 1,246 102,000 1,342 1,376 102,000 1,478 1,511 102,000
3 1,000 3,310 1,787 1,804 103,000 2,040 2,057 103,000 2,315 2,332 103,000
4 1,000 4,526 2,338 2,338 104,000 2,754 2,754 104,000 3,224 3,224 104,000
5 1,000 5,802 2,861 2,861 105,000 3,480 3,480 105,000 4,210 4,210 105,000
6 1,000 7,142 3,356 3,356 106,000 4,219 4,219 106,000 5,279 5,279 106,000
7 1,000 8,549 3,820 3,820 107,000 4,968 4,968 107,000 6,438 6,438 107,000
8 1,000 10,027 4,273 4,273 108,000 5,748 5,748 108,000 7,717 7,717 108,000
9 1,000 11,578 4,695 4,695 109,000 6,539 6,539 109,000 9,110 9,110 109,000
10 1,000 13,207 5,085 5,085 110,000 7,342 7,342 110,000 10,626 10,626 110,000
11 1,000 14,917 5,451 5,451 111,000 8,169 8,169 111,000 12,298 12,298 111,000
12 1,000 16,713 5,786 5,786 112,000 9,008 9,008 112,000 14,128 14,128 112,000
13 1,000 18,599 6,087 6,087 113,000 9,861 9,861 113,000 16,131 16,131 113,000
14 1,000 20,579 6,351 6,351 114,000 10,723 10,723 114,000 18,326 18,326 114,000
15 1,000 22,657 6,577 6,577 115,000 11,595 11,595 115,000 20,731 20,731 115,000
16 1,000 24,840 6,761 6,761 116,000 12,471 12,471 116,000 23,369 23,369 116,000
17 1,000 27,132 6,900 6,900 117,000 13,352 13,352 117,000 26,265 26,265 117,000
18 1,000 29,539 6,990 6,990 118,000 14,232 14,232 118,000 29,447 29,447 118,000
19 1,000 32,066 7,024 7,024 119,000 15,105 15,105 119,000 32,941 32,941 119,000
20 1,000 34,719 7,000 7,000 120,000 15,970 15,970 120,000 36,786 36,786 120,000
@ 65 1,000 69,761 1,756 1,756 131,000 23,835 23,835 131,000 116,859 116,859 193,986
</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 1.00%
(includes average fund operating expenses of 0.30% applicable to the investment
subaccounts of the VUL Account). Hypothetical gross interest rates are presented
for illustrative purposes only to illustrate funds allocated entirely to the
investment subaccounts of the VUL 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 GIA providing interest at
a minimum guaranteed rate of 3% also is available under this product through the
General Account.
This illustration assumes a premium tax of 2.25%.
89
<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 5.9 of the Connecticut Corporation Law & Practice, 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 V of the Bylaws of the Company provides that: "Each person who is or
was a director or officer of the Company (including the heirs, executors,
administrators or estate of such person) shall be indemnified by the Company as
of right to full extent permitted or authorized by the laws of the State of
Connecticut against any liability, cost or expense asserted against him and
incurred by him by reason of his capacity as a director or officer, or arising
out of his status as a director or officer."
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.
CONTENTS OF REGISTRATION STATEMENT
This Form S-6 Registration Statement comprises the following papers and
documents:
The facing sheet.
The Prospectus describing Phoenix Home Life Mutual Insurance Company Policy
Form V609 (Phoenix Corporate Edge) consisting of 88 pages.
The Prospectus describing Phoenix Home Life Mutual Insurance Company Policy
Form V607 and riders thereto (Phoenix Executive Benefit), consisting of 89
pages.
The undertaking to file reports.
The Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A) under the Investment Company
Act of 1940.
The signature page.
The powers of attorney.
Written consents of the following persons:
(a) Edwin L. Kerr, Esq., filed herewith.
(c) PricewaterhouseCoopers, LLP, filed herewith.
(d) Paul M. Fischer, FSA, CLU, ChFC, was filed with Registrant's
Pre-Effective Amendment No. 1 to its Registration Statement
on Form S-6, and is incorporated herein by reference.
II-1
<PAGE>
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 of Phoenix
Home Life Mutual Insurance Company establishing the VUL Account
filed with Registrant's Registration Statement on July 21, 1988
and filed via Edgar, is incorporated herein by reference.
(2) Not Applicable.
(3) Distribution of Policies:
(a) Master Service and Distribution Compliance Agreement between
Depositor and Phoenix Equity Planning Corporation, dated
December 31, 1996, filed via Edgar with Post-Effective
Amendment No. 15 to its Form S-6 Registration Statement
(Registration No. 33-23251) on April 30, 1998, is
incorporated herein by reference.
(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 Post-Effective Amendment No. 15 to its Form S-6
Registration Statement (Registration No. 33-23251) on April
30, 1998, is incorporated herein by reference.
(c) Not Applicable.
(4) Not Applicable.
(5) Specimen Policies with optional riders.
(a) Phoenix Corporate Edge - Flexible Premium Variable Universal
Life Insurance Policy Form Number V609 of Depositor, filed
via Edgar with Registrant's Initial Registration Statement
on form S-6 on September 10, 1999, is incorporated herein
by reference.
(b) Phoenix Executive Benefit - Flexible Premium Variable
Universal Life Insurance Policy Form Number V607 of
Depositor, together with Variable Policy Exchange Option
Rider VR35 and Flexible Term Insurance Rider Form VR37 of
Depositor, filed via Edgar with Registrant's Initial
Registration Statement on form S-6 on September 10, 1999, is
incorporated herein by reference.
(6) (a) Charter of Phoenix Home Life Mutual Insurance Company,
filed via Edgar with Post-Effective Amendment No. 12 to its
Form S-6 Registration Statement (Registration No. 33-23251)
and is incorporated herein by reference.
(b) By-Laws of Phoenix Home Life Mutual Insurance Company
filed via Edgar with Post-Effective Amendment No. 12 to its
Form S-6 Registration Statement (Registration No. 33-23251)
and is incorporated herein by reference.
(7) Not Applicable.
(8) (a) Participation Agreement(s) between Phoenix Home Life
Mutual Insurance Company and Wanger Advisors Trust, filed
herewith.
(b) Participation Agreement between Phoenix Home Life Mutual
Insurance Company and Franklin Templeton Distributors, Inc.,
filed herewith.
(c) Participation Agreement between Phoenix Home Life Mutual
Insurance Company and Federated Securities Corp., filed
herewith.
(d) Participation Agreement between Phoenix Home Life Mutual
Insurance Company and Bankers Trust Company, filed herewith.
(e) Participation Agreement between Phoenix Home Life Mutual
Insurance Company and Morgan Stanley Dean Witter Universal
Funds, Inc., filed herewith.
(9) Not Applicable.
(10) Forms of application for Phoenix Corporate Edge and Phoenix
Executive Benefit filed via Edgar with Initial Registration
Statement on form S-6 on September 10, 1999, and is
incorporated herein by reference.
(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 (Registration No. 333-23171)
on Form S-6 filed on March 12, 1997, and is incorporated herein by
reference.
2. Opinion and Consent of Edwin L. Kerr, Esq., Counsel of Depositor, as to the
legality of the securities being registered, filed herewith.
3. Not Applicable. No financial statement will be omitted from the Prospectus
pursuant to Instruction 1(b) or (c) of Part I.
II-2
<PAGE>
4. Not Applicable.
5. Not Applicable.
6. Not Applicable.
7. Consent of PricewaterhouseCoopers, LLP, filed herewith, see Exhibit 1.
8. Consent of Edwin L. Kerr, Esq., filed herewith, see Exhibit 2.
9. Consent of Paul M. Fischer, FSA, CLU, ChFC, was filed with Registrant's
Pre-Effective Amendment No. 1 to its Registration Statement on Form S-6, and
is incorporated herein by reference.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Phoenix Home Life Variable Universal Life Account 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 10th day
of March, 2000.
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
-------------------------------------------------
(Registrant)
By: PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
------------------------------------------
(Depositor)
By: /s/ Dona D. Young
----------------------------------
*Dona D. Young, President
ATTEST: /s/ John H. Beers
-------------------------
John H. Beers, 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 10th day of March, 2000.
SIGNATURE TITLE
--------- -----
Director
- ----------------------------------------
*Sal H. Alfiero
Director
- ----------------------------------------
*John C. Bacot
Director
- ----------------------------------------
*Richard N. Cooper
Director
- ----------------------------------------
*Gordon J. Davis
Director
- ---------------------------------------- Chairman of the Board,
*Robert W. Fiondella Chief Executive Officer
Director
- ----------------------------------------
*John E. Haire
Director
- ----------------------------------------
*Jerry J. Jasinowski
Director
- ----------------------------------------
*John W. Johnstone
Director
- ----------------------------------------
*Marilyn E. LaMarche
Director
- ----------------------------------------
*Philip R. McLoughlin
S-1
<PAGE>
SIGNATURE TITLE
--------- -----
Director
- ----------------------------------------
*Indra K. Nooyi
Director
- ----------------------------------------
*Robert F. Vizza
Director, President
- ----------------------------------------
Dona D. Young
Executive Vice President and
- ---------------------------------------- Chief Financial Officer
*David W. Searfoss
By: /s/ Dona D. Young
--------------------------
* Dona D. Young as Attorney-in-Fact pursuant to Powers of Attorney, copies of
which were previous filed.
S-2
EXHIBIT 1
CONSENT OF PRICEWATERHOUSECOOPER, LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Pre-Effective Amendment No. 2 to the Registration Statement on Form S-6 of our
report dated February 15, 2000 relating to the consolidated financial statements
of Phoenix Home Life Mutual Insurance Company, which appear in such Prospectus.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Hartford, Connecticut
March 10, 2000
EXHIBIT 2
OPINION AND CONSENT OF EDWIN L. KERR, ESQ., COUNSEL OF DEPOSITOR
<PAGE>
March 10, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Phoenix Home Life Variable Universal Life Account
Phoenix Home Life Mutual Insurance Company
Pre-Effective Amendment No. 1 to Form S-6
Registration Nos. 333-86921 and 811-4721
Dear Sirs:
As Counsel to the depositor, I have participated in the development of and
am familiar with the variable life insurance policies, Phoenix Executive Benefit
and Phoenix Corporate Edge ("Policies"), which are the subject of the
above-captioned Registration Statement on Form S-6.
In connection with this opinion, I have reviewed the Policies, the
Registration Statement, the Charter and By-Laws of the company, relevant
proceedings of the Board of Directors, and the provisions of New York insurance
law relevant to the issuance of the Policies.
Based upon this review, I am of the opinion that the Policies, when issued,
will be validly issued, and will constitute a legal and binding obligation of
Phoenix Home Life Mutual Insurance Company.
My opinion is rendered solely in connection with the Registration Statement
and may not be relied upon for any other purposes without my written consent. I
hereby consent to the use of this opinion as an exhibit to such Registration
Statement, and to my being named under "Legal Matters" therein.
Very truly yours,
/s/ Edwin L. Kerr
---------------------------
Edwin L. Kerr, Counsel
Phoenix Home Life Mutual Insurance Company
AMENDMENT NO.1 TO THE PARTICIPATION AGREEMENT
THIS AMENDMENT NO.1 TO THE PARTICIPATION AGREEMENT ("AMENDMENT NO. 1"),
made and entered into as of this 16th day of December, 1996, supplementing and
amending the Participation Agreement made and entered into the 18th day of
April, 1995 (the "Original Participation Agreement," and together with this
Amendment No. 1, the "Agreement") by and between WANGER ADVISORS TRUST, an
unincorporated business trust formed under the laws of Massachusetts (the
"Trust"), and PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, a New York life
insurance company (the "Company"), on its own behalf and on behalf of each
separate account of the Company identified in the Agreement.
WHEREAS, the Trust currently serves as an investment vehicle for certain
accounts of the Company pursuant to the Original Participation Agreement; and
WHEREAS, the Trust has applied for an order from the Securities and
Exchange Commission (the "SEC") (File No, 812-10198), granting Participating
Insurance Companies (as defined in the Original Participation Agreement) and
variable annuity and variable life separate accounts exemptions from the
provisions of Section 9(a), 13(a), 15(a) and 15(b) of the 1940 Act (as defined
in the Original Participation Agreement) and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Trust
and each Series thereof to be sold to and held by variable annuity and variable
life insurance separate accounts of life insurance companies that may or may not
be affiliated with one another and qualified pension and retirement plans
outside of the separate account context (the "Exemptive Order"); and
WHEREAS, the Company and the Trust have agreed to hereby supplement and
amend the Original Participation Agreement in order to reflect the conditions
and undertakings that are expected to be imposed on the Company and the Trust by
virtue of such Exemptive Order;
NOW, THEREFORE, in consideration of their mutual promises, the Trust and
the Company agree as follows:
SECTION 1. DEFINITIONS
For all purposes of this Amendment No. 1, except as otherwise expressly
provided or unless the context otherwise requires:
(1) All references in this Amendment No. 1. and the Original Participation
Agreement to designated "Articles" and other subdivisions are to the designated
Articles and other subdivisions of the Original Participation Agreement. The
words "herein," "hereof," "hereto," "hereby" and "hereunder" and other words of
similar import refer to this Amendment No. 1 as a whole and not to any
particular "Section" or other subdivision.
<PAGE>
(2) All terms used herein and not otherwise defined shall have the same
meanings as those given to such terms in the Original Participation Agreement,
and include the plural as well as the singular, and the Original Participation
Agreement is hereby amended to included any terms defined herein.
(3) Any references to the "Agreement" in the Original Participation
Agreement are hereby amended to include, collectively, the Original
Participation Agreement and this Amendment No. 1.
SECTION 2. AMENDMENT TO ARTICLE VII
Article VII of the Original Participation Agreement is hereby amended to
read as follows:
"ARTICLE VII. Potential Conflicts and Compliance With
Exemptive Order
7.1 The Trust Board will monitor the Trust for the existence of
any material irreconcilable conflict between the interests of the Contract
Owners of all Participation Accounts and of Qualified Participants investing in
the Trust and each Series thereof. A material irreconcilable conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) and administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Series are managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; (f) a
decision by a Participating Insurance Company to disregard the voting
instructions of contract owners; or (g) if applicable, a decision by a Qualified
Entity to disregard the voting instructions of Qualified Participants. The Trust
Board shall promptly inform the Company in writing if it determines that a
material irreconcilable conflict exists and implications thereof.
7.2 The Company shall report any potential or existing conflicts
to the Trust Board. The Company will responsible for assisting the Trust Board
in carrying out its responsibilities by providing the Trust Board with all
information reasonably necessary for the Trust Board to consider any issues
raised. This responsibility includes, but is not limited to, an obligation by
the Company to inform the Trust Board whenever it has determined to disregard
Contract Owner voting instructions. Such responsibilities shall be carried out
by the Participants with a view only to the interests of Contract Owners.
7.3 If it is determined by a majority of the Trust Board, or
majority of the members of the Trust Board who are not interested persons of the
Trust, the Investment Adviser or any sub-adviser to any of the Series (the
"Independent Trustees"), that a material irreconcilable conflict exists between
the interests of
2
<PAGE>
the Contract Owners of the Company's Participating Accounts and of other
Participating Accounts and Qualified Participants investing in the Trust and
each Series thereof, the Company shall, at its expense and to the extent
reasonably practicable (as determined by a majority of the Independent
Trustees), take whatever steps are necessary to remedy or eliminate the material
irreconcilable conflict. Such measures may include: (a) withdrawing, without
charge or penalty to the Company, the assets allocable to some or all of the
separate accounts from the Trust or any Series and reinvesting such assets in a
different investment medium, which may include another Series of the Trust, or
submitting the question of whether such segregation should be implemented to a
vote of all affected Contract Owners and, as appropriate, segregating the assets
of any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) the votes in favor of such segregation, or offering to the affected
Contract Owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract Owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Trust's election, to withdraw the Account's
investment in the Trust and terminate this Agreement and no charge or penalty
will be imposed as a result of such withdrawal. Any such withdrawal and
termination must take place within six (6) months after the Trust gives written
notice that this provision is being implemented, and until the end of that six
month period the Investment Adviser and the Trust shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Trust.
7.5 If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the Account's investment in the Trust and terminate this Agreement
within six months after the Trust Board informs the Company in writing that it
has determined that such decision has created a material irreconcilable
conflict, and that said conflict cannot be remedied by any other means. Until
the end of the foregoing six month period, the Investment Adviser and the Trust
shall continue to accept and implement orders by the Company for the purchase
(and redemption) of shares of the Trust.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Trustees shall determine whether any proposed action
adequately remedies any material irreconcilable conflict, but in no event will
the Trust or the Investment Adviser be required to establish a new funding
medium for the Contracts. The Company shall not be required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do so had been
declined by
3
<PAGE>
vote of a majority of Contract Owners materially adversely affected by the
material irreconcilable conflict. In the event that the Trust Board determines
that any proposed action does not adequately remedy any material irreconcilable
conflict, then the Company will withdraw the Account's investment in the Trust
and terminate this Agreement within six(6) months after the Trust Board informs
the Company in writing of the foregoing determination, without charge or penalty
to the company.
7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the 1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Exemptive Order) on terms and conditions
materially different from those contained in the Exemptive Order, the (a) the
Trust and/or the Company, as appropriate, shall take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as
adopted, to the extent such rules are applicable; and (b) Article V and Section
7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to
the extent that terms and conditions substantially identical to such Sections
are contained in such Rule(s) as so amended or adopted.
7.8 The Company shall at least annually submit to the Trust Board
such reports, materials or data as the Trust Board may reasonably request so
that the Trust Board may fully carry out its obligations under the Exemptive
Order; provided, however, that the Board may require the submission of such
reports on data on a more frequent basis if it so deems appropriate.
7.9 The Company, or any affiliate, will maintain at its home
office, available to the SEC, (a) a list of its officers, directors and
employees who participate directly in the management of administration of any
Account and/or (b) a list of its agents who, as registered representatives,
offer and sell Contracts."
SECTION 3. SCHEDULES
Schedules 1, 2 and 3 to the Original Participation Agreement are
hereby amended to read as Schedules 1, 2 and 3 to this Amendment No. 1,
respectively.
SECTION 4. MISCELLANEOUS
4.1 The captions in this Amendment No. 1 are included for
convenience of reference only and in no way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
4.2 This Amendment No. 1 may be executed simultaneously in two or
more counterparts, each of which together shall constitute one and the same
instrument.
4
<PAGE>
4.3 If any provision of this Amendment No. 1 shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment No. 1 to be executed in its name and behalf by its duly authorized
office on the date specified below.
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
(COMPANY)
Date: 12/16/96 By:/s/ Dona D. Young
-----------------------------
Name: Dona D. Young
Title:Executive Vice President, Individual
Insurance and General Counsel
WANGER ADVISORS TRUST
(TRUST)
Date: By:/s/Charles P. Michaud
--------------------------- ----------------------------
Name:
Title:
6
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 18th day of April, 1995 by and
between WANGER ADVISORS TRUST, an unincorporated business trust formed under the
laws of Massachusetts (the "Trust"), and PHOENIX HOME LIFE MUTUAL INSURANCE
COMPANY, a New York life insurance company (the "Company"), on its own behalf
and on behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one ore more separate
series ("Series") of shares ("Series shares"), each such series representing an
interest in a particular managed portfolio of securities and other assets; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for (i) separate accounts supporting variable annuity
contracts and variable life insurance policies to be offered by insurance
companies, and (ii) certain pension and retirement plans receiving favorable tax
treatment under the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Company desires that the Trust serve as an investment vehicle
for certain separate accounts of the Company;
NOW, THEREFORE, in consideration of their mutual promises, the Trust and
the Company agree as follows:
ARTICLE I. ADDITIONAL DEFINITIONS
1.1. "Account" -- each separate account of the Company described more
specifically in Schedule 1 to this Agreement.
1.2. "Business Day" -- each day that the Trust is open for business as
provided in the Trust Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended.
1.4 "Contracts" -- the class or classes of variable annuity contracts or
variable life insurance contracts issued by the Company and described more
specifically on Schedule 2 to this Agreement.
1
<PAGE>
1.5 "Contract Owners" -- the owners of the Contracts, as distinguished from
all Product Owners.
1.6 "Investment Adviser" -- the investment manager of the Trust.
1.7 "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.8 "Participating Insurance Company" -- any insurance company investing in
the Trust on its behalf or on behalf of a Participating Account, including the
Company.
1.9 "Product" -- variable annuity contracts and variable life insurance
policies supported by Participating Accounts investing assets attributable
thereto in the Trust, including the Contracts.
1.10 "Product Owners" -- owner of Products.
1.11 "Prospectus" -- with respect to a class of Contracts, each
version of the definitive prospectus or supplement thereto filed with the SEC
pursuant to Rule 497 under the 1933 Act ("Contracts Prospectus"). With respect
to Trust shares, each version of the definitive prospectus or supplement thereto
filed with the SEC pursuant to Rule 497 under the 1933 Act with respect to a
series of the Trust listed on Schedule 3 to this Agreement ("Trust Prospectus").
With respect to any provision of this Agreement requiring a party to take action
in accordance with a Prospectus, such reference thereto shall be deemed to be
to the version last filed prior to the taking of such action. For purposes of
Article VIII, the term "Prospectus" shall include any statement of additional
information incorporated therein.
1.12 "Qualified Entity" -- A person or plan, including a pension or
retirement plan receiving favorable tax treatment under the Code, that qualifies
to purchase shares of the Trust under Section 817(h) of the Code. A natural
person having an indirect interest in the Trust by virtue of such natural
person's participation in a Qualified Entity is a "Qualified Participant."
1.13 "Registration Statement" -- with respect to the Trust Shares
("Trust Registration Statement") or a class of Contracts ("Contracts
Registration Statement"), the registration
2
<PAGE>
statement filed with the SEC to register the securities issued thereby under the
1933 Act, or the most recently filed amendment thereto, in either case in the
form in which it was declared or became effective. The Contracts Registration
Statement is described more specifically on Schedule 2 to this Agreement. The
Trust Registration Statement was filed on Form N-1A (File No. 33-83548).
1.14. "1940 Act Registration Statement" -- with respect to the Trust
or the Account, the registration statement filed with the SEC to register such
entity as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account 1940 Act Registration Statement is described more
specifically on Schedule 2 to this Agreement. The Trust 1940 Act Registration
Statement was filed on Form N-1A (File No. 811-8748).
1.15 "Statement of Additional Information" -- with respect to the
Trust or a class of Contracts, each version of the definitive statement of
additional information or supplement thereto filed with the SEC pursuant to Rule
497 under the 1933 Act.
1.16 "SEC" -- the Securities and Exchange Commission.
1.17 "1933 Act" -- the Securities Act of 1933, as amended.
1.18 "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II. SALE OF TRUST SHARES
2.1 The Trust shall make shares of those Series listed on Schedule 3 to
this Agreement available for purchase by the Company on behalf of the Account,
such purchases to be effected at net asset value in accordance with Section 2.3
of this Agreement. Notwithstanding the foregoing, (i) Trust Series in existence
now or that may be established in the future and not listed on Schedule 3 will
be made available to the Company only as the Trust and Company may agree
pursuant to Article XI hereof, and (ii) the Board of Trustees of the Trust (the
"Trust Board") may suspend or terminate the offering of Trust shares of any
Series in any jurisdiction, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Trust Board
acting in good faith and in
3
<PAGE>
light of its fiduciary duties under Federal and any applicable state laws,
suspension or termination is necessary or in the best interests of the
shareholders of any Series (it being understood that "shareholders" for this
purpose shall mean Product Owners and Qualified Participants).
2.2. The Trust shall redeem, at the Company's request, any full or
fractional shares of the Trust held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem Trust shares attributable to Contract Owners except in the circumstances
permitted in Section 2.7 of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series to the extent permitted by the 1940
Act, any rules, regulations or orders thereunder, or as described in the Trust
Prospectus.
2.3.
(a) The Trust hereby appoints the Company as its designee for the
limited purpose of receiving purchase allocations of net amounts to the Account
or subaccounts thereof under the Contracts and other transactions relating to
the Contracts or the Account. Purchase and redemption requests shall be
processed by the Trust at the net asset value per share next calculated after
the Trust receives and accepts such request. The Trust shall calculate its net
asset value per share at the Trust's close of business on each Business Day (as
defined from time to time in the Trust Prospectus, and which as of the date of
execution of this Agreement is the time of the close of regular session trading
on the New York Stock Exchange, which is generally 4:00 p.m. Eastern Time.
Receipt of any such request on any Business Day by the Company as designee of
the Trust prior to the Trust's close of business shall constitute receipt by the
Trust on that same Business Day, provided that the Trust receives notice of such
request by 10 a.m. Eastern Time on the next following Business Day.
(b) The Company shall pay for shares of each Series on the same day
that it notifies the Trust of a purchase request for such shares. Payment for
Series shares shall be made in Federal funds transmitted to
4
<PAGE>
the Trust by wire to be received by the Trust by 12:00p.m. Eastern Time on the
day the Trust is notified of the purchase request for Series shares (unless the
Trust determines and so advises the Company that sufficient proceeds are
available from redemption of shares of other Series effected pursuant to
redemption requests tendered by the Company on behalf of the Account). If
payment in Federal funds for any purchase is not received, or is received by the
Trust after 3 p.m. Eastern Time on such Business Day, the Company shall
promptly, upon the Trust's request, reimburse the Trust for any charges, costs,
fees, interest or other expenses incurred by the Trust in connection with any
advances to, or borrowings or overdrafts by, the Trust, or any similar expenses
incurred by the Trust, as a result of non-payment or late payment.
(c) Payment for Series shares redeemed by the Account or the Company
shall be made in Federal funds transmitted by wire to the Company or any other
designated person by 3 p.m. Eastern Time on the next Business Day after the
Trust is properly notified of the redemption order of Series shares (unless
redemption proceeds are to be applied to the purchase of Trust share of other
Series in accordance with Section 2.3 (b) of this Agreement), except that (i) if
payment of the redemption proceeds would require the Trust to dispose of
portfolio securities or otherwise incur additional costs, proceeds shall be
wired to the Company within seven days and the Trust shall notify the Company of
such delay by 3 p.m. Eastern Time on such Business Day; and (ii) the Trust
reserves the right to delay payment of redemption proceeds to the extent
permitted under Section 22(e) of the 1940 Act; and (iii) the Trust reserves the
right to effect payment of redemptions in kind, but only to the extent described
in the Trust Prospectus. The Trust shall not bear any responsibility whatsoever
for the proper disbursement for crediting of redemption proceeds by the Company;
the Company alone shall be responsible for such action.
2.4. The Trust shall use reasonable efforts to make the net asset value per
share for each Series available to the Company by 7 p.m. Eastern Time each
Business Day, and in any event, as soon
5
<PAGE>
as reasonably practicable after the net asset value per share for such Series is
calculated, and shall calculate such net asset value in accordance with the
Trust Prospectus. Neither the Trust, any Series, the Investment Adviser, nor any
of their affiliates shall be liable for any information provided to the Company
pursuant to this Agreement which information is based on incorrect information
supplied by the Company or any other Participation Company to the Trust or the
Investment Adviser.
2.5. The Trust shall furnish notice to the Company as soon as reasonably
practicable of any income dividends or capital gain distributions payable on any
Series shares. The Trust shall notify the Company promptly of the number of
Series shares so issued as payment of such dividends and distributions. The
Company, on its behalf and on behalf of the Account, hereby elects to receive
all such dividends and distributions as are payable on any Series shares in the
form of additional shares of that Series. The Company reserves the right, on its
behalf and on behalf of the Account, to revoke this election and to receive all
such dividends in cash.
2.6. Issuance and transfer of Trust shares shall be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Trust shares shall be recorded in an appropriate
ledger for the Account or the appropriate subaccount of the Account.
2.7.
(a) The Company shall invest amounts available for investment under
the Contracts in the Series of the Trust specified in Schedule 3 in accordance
with allocation instructions received from Contract Owners, it being understood
that no changes shall be made to Schedule 3 without the prior written consent of
the Trust and the Investment Adviser. The Company may withdraw the Account's
investment in the Trust or a Series of the Trust only: (i) as necessary to
facilitate Contract Owner requests; (ii) upon a determination by a majority of
the Trust Board, or a majority of disinterested Trust Board members, that an
irreconcilable material conflict exists among the interests of (x) some or all
Product Owners or (y) the interests of some or all of the Participating
Insurance Companies and/or Qualified Entities investing in the
6
<PAGE>
Trust; or (iii) in the event that the shares of another investment company are
substituted for series shares in accordance with the terms of Contracts upon the
(x) requisite vote of the Contract Owners having an interest in the affected
Series and the written consent of the Trust (unless otherwise required by
applicable law); (y) upon issuance of an SEC exemptive order pursuant to Section
26(b) of the 1940 Act permitting such substitution; or (z) as may otherwise be
permitted under applicable law.
(b) The Company shall not, without the prior written consent of the
Trust (unless otherwise required by applicable law), take any action to operate
the Account as a management investment company under the 1940 Act.
(c) The Trust shall not, without the prior written consent of the
Company (unless otherwise required by applicable law), take any action to
operate the Trust as a unit investment trust under the 1940 Act.
(d) The Company shall not, without the prior written consent of the
Trust (unless otherwise required by applicable law), solicit, induce or
encourage Contract Owners to change or modify the Trust or change the Trust's
investment adviser.
(e) The Company and the Trust acknowledge that the arrangement
contemplated by this Agreement is not exclusive; Trust shares may be sold to
other insurance companies; and the cash value of the Contracts may be invested
in other investment companies, provided, however, that (a) such other investment
company, or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of the
Trust; or (b) the Company gives the Trust 45 days written notice of its
intention to make such other investment company available as a funding vehicle
for the Contracts; or (c) such other investment company was available as a
funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Trust prior to the execution of this Agreement; or (d)
the
7
<PAGE>
Trust consents to the use of such other investment company, such consent not to
be unreasonably withheld.
2.8 The Trust shall sell Trust shares only to Participating Insurance
Companies and their separate accounts and to Qualified Entities. The Trust shall
not sell Trust shares to any insurance company or separate account unless an
agreement complying with Article VII of this Agreement is in effect to govern
such sales.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that: (i) the Company is an
insurance company duly organized and in good standing under applicable law; (ii)
the Account is a validly existing separate account, duly established and
maintained in accordance with applicable law; (iii) the Account 1940 Act
Registration Statement has been filed with the SEC in accordance with the
provisions of the 1940 Act and the Account is duly registered as a unit
investment trust thereunder; (iv) the Contracts Registration Statement has been
declared effective by the SEC; (v) the Contracts will be issued in compliance in
all material respects with all applicable Federal and state laws; and (vi) the
Contracts currently are and at the time of issuance will be treated as annuity
contracts under applicable provisions of the Code.
3.2 The Trust represents and warrants that; (i) the Trust is an
unincorporated business trust duly formed under Massachusetts law; (ii) the
Trust 1940 Act Registration Statement has been filed with the SEC in accordance
with the provisions of the 1940 Act as the Trust is duly registered as an
open-end management investment company thereunder; (iii) the Trust Registration
Statement has been declared effective by the SEC; (iv) Trust shares sold
pursuant to this Agreement have been duly authorized for issuance in accordance
with applicable law; (v) the Trust believes that it (x) currently qualifies as a
"regulated investment company" under Subchapter M of the Code and (y) currently
complies with Section 817(h) of the Code and regulations thereunder; and (vi)
the Trust's investment policies are in material compliance with any investment
restrictions set forth on Schedule 4 to this Agreement. The Trust, however,
makes no representation as to whether any aspect of its operations (including,
but not limited to, fees and expenses and investment policies) otherwise
complies with the insurance laws or regulations of any state.
8
<PAGE>
3.3 Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and, when so executed and delivered, this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
ARTICLE IV. FILINGS, INFORMATION AND EXPENSES
4.1 The Trust shall amend the Trust Registration Statement and the Trust
1940 Act Registration Statement from time to time as required in order to effect
the continuous offering of Trust shares and to maintain the Trust's registration
under the 1940 Act for so long as Trust shares are sold.
4.2 The Company shall amend the Contracts Registration Statement and the
Account 1940 Act Registration Statement from time to time as required in order
to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law. The Company shall maintain a current effective
Contracts Registration Statement and the Account's registration under the 1940
Act for so long as the Contracts are outstanding, unless (a) a no-action letter
from the SEC has been obtained by the Company to the effect that such
registration statement need no longer be maintained; or (b) the Company has
supplied the Trust with an opinion of counsel to the effect that maintaining
such registration statement is no longer required; or (c) the Company has
notified the Trust in writing that, with respect to such registration statement,
the Company meets the terms and conditions of, and is relying on, Great West
Life & Annuity Insurance Company (pub. avail. Oct. 23, 1990), and any subsequent
no-action letter released by the staff of the SEC addressing the same subject
matter. The Company shall file, register, qualify and obtain approval of the
Contracts for sale to the extent required by applicable insurance and securities
laws of the various states.
4.3 The Trust shall provide the Company with as many copies of the Trust
Prospectus as the Company may reasonably request. If requested by the Company in
lieu thereof, the Trust shall provide such documentation (including a final copy
of the Trust Prospectus as set in type at the Trust's expense) and other
assistance as is reasonably necessary in order for the Company once each year
(or more frequently if the Trust Prospectus is
9
<PAGE>
more frequently amended) to have the Contracts Prospectus and Trust Prospectus
printed together in one document.
4.4 The Company shall deliver Contracts, Contracts and Trust Prospectuses,
Contracts and Trust Statements of Additional Information, and all amendments or
supplements to any of the foregoing to Contract Owners and prospective Contract
Owners, as required by applicable federal securities laws.
4.5 The Company shall:
(a) inform the Trust of any state in which the Trust is required
under such state's securities laws to register the offering of its shares
pursuant to this participation agreement; and
(b) inform the Trust of any investment restrictions imposed by state
insurance law that may become applicable to the Trust from time to time as
a result of the Account's investment therein (including, but not limited
to, restrictions with respect to fees and expenses and investment
policies), other than those set forth on Schedule 4 to this Agreement.
4.6 Upon receipt of information from the Company pursuant to Section 4.5(b)
(b), the Trust shall determine whether it is in the best interests of
shareholders (it being understood that "shareholders" for this purpose shall
mean Product Owners and Qualified Participants) to comply with any such
restrictions. If the Trust determines that it is not in the best interests of
shareholders, the Trust shall so inform the Company, and the Trust and the
Company shall discuss alternative accommodations in the circumstances. If the
Trust determines that it is in the best interests of shareholders to comply with
such restrictions, the Trust and the Company shall amend Schedule 4 to this
Agreement to reflect such restrictions.
4.7 All expenses incident to each party's performance under this Agreement
(including expenses expressly assumed by such party pursuant to this Agreement)
shall be paid by the such party to the extent permitted by law.
(a) Expenses assumed by the Trust include, but are not limited to,
the costs of: registration and qualification of the Trust shares under the
federal securities laws; preparation and filing with the SEC of
10
<PAGE>
the Trust Prospectus, Trust Registration Statement, Trust proxy materials
and shareholder reports; the printing and mailing of all proxy statements
and periodic reports; the preparation of camera-ready copy of Trust
Prospectuses and Statements of Additional Information required to be
provided by the Trust to its then-current shareholders; preparation of all
statements and notices required by any Federal or state securities law; all
taxes on the issuance or transfer of Trust shares; and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act. The Trust shall pay no fee or other
compensation to the Company under this Agreement, and shall not be charged
for the costs of printing and mailing to prospective Contract Owners copies
of the Trust Prospectus, Trust Statement of Additional Information,
notices, proxy statements, periodic reports, or other printed materials.
(b) Expenses assumed by the Company include, but are not limited to,
the cost of: registration and qualification of the Contracts under the
federal securities laws; preparation and filing with the SEC of the
Contracts Prospectus, Contracts Registration Statement, and Contract Owner
reports; and the printing and mailing of all periodic reports, Contracts
Prospectuses, Statements of Additional Information, and notices to current
and prospective Contract Owners required by any Federal or state insurance
law other than those paid for by the Trust.
4.8. No piece of advertising or sales literature or other promotional
material in which the Trust is named shall be used, except with the prior
written consent of the Trust. Any such piece shall be furnished to the Trust for
such consent prior to its use. The Trust shall respond to any request for
written consent on a prompt and timely basis, but failure to respond shall not
relieve the Company of the obligation to obtain the prior written consent of the
Trust. The Trust may at any time in its sole discretion revoke such written
consent, and upon notification of such revocation, the Company shall no longer
use the material subject to such revocation. The Trust may delegate its rights
and responsibilities under this provision to the Investment Adviser.
11
<PAGE>
4.9. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
other than the information or representations contained in the Trust
Registration Statement or Trust Prospectus or in reports or proxy statements for
the Trust which are in the public domain or approved in writing by the Trust for
distribution to Contract Owners, or in sales literature or other promotional
material approved in accordance with Section 4.8 of this Agreement, except with
the prior written consent of the Trust.
4.10. The Trust shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account
or the Contracts other than the information or representations contained in the
Contracts Registration Statement or Contracts Prospectus or in reports of the
Account which are in the public domain or approved in writing by the Company for
distribution to Contract Owners, or in sales literature or other promotional
material approved in writing by the Company, except with the prior written
consent of the Company.
4.11. Each party shall provide to the other at least one complete copy
of all Registration Statements, Prospectuses, Statements of Additional
Information, periodic and other shareholder or Contract Owner reports, proxy
statements, solicitations of voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, that relate to
the Trust, the Contracts or the Account, as the case may be, promptly after the
filing by or on behalf of such party of such document with the SEC or other
regulatory authorities.
4.12. Each party shall provide to the other upon request copies of
draft versions of any Registration Statements, Prospectuses, Statements of
Additional Information, periodic and other shareholder or Contract Owner
reports, proxy statements, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, to the extent that the other party reasonably needs such information for
purposes of preparing a report or other filing to be filed with or submitted to
a regulatory agency. If a party requests any such information before it has been
filed,
12
<PAGE>
the other party will provide the requested information if then available and in
the version then available at the time of such request.
4.13. Each party hereto shall cooperate with the other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. However, such access shall not extend to attorney-client
privileged information.
4.14 For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any material
constituting sales literature or advertising under the NASD rules, the 1940 Act
or the 1933 Act.
ARTICLE V. VOTING OF TRUST SHARES
With respect to any matter put to vote by the holders of Trust shares or
Series shares ("Voting Shares"), the Company shall:
(a) solicit voting instructions from Contract Owners to which Voting
Shares are attributable;
(b) vote Voting Shares of each Series attributable to Contract
Owners in accordance with instructions or proxies timely received from such
Contract Owners;
(c) unless permitted under applicable law, vote Voting Shares of
each Series attributable to Contract Owners for which no instructions have
been received in the same proportion as Voting Shares of such Series for
which instructions have been timely received; and
(d) unless permitted under applicable law, vote Voting Shares of
each Series held by the Company on its own behalf or on behalf of the
Account that are not attributable to Contract Owners in the same
proportion as Voting Shares of such Series for which instructions have been
timely receive.
13
<PAGE>
The Company shall be responsible for assuring that voting privileges for
the Account are calculated in a manner consistent with the provisions set forth
above.
ARTICLE VI. COMPLIANCE WITH CODE
6.1. The Trust undertakes to comply with Section 817(h) of the Code, and
all regulations issued thereunder.
6.2. The Trust undertakes to maintain its qualification as a registered
investment company (under Subchapter M or any successor or similar provision),
and undertakes to notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
6.3 The Company undertakes to maintain the treatment of the Contracts as
annuity contracts or life insurance policies, whichever is appropriate, under
applicable provisions of the Code and shall notify the Trust immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
ARTICLE VII. POTENTIAL CONFLICTS
The parties to this Agreement acknowledge that the Trust may file an
application with the SEC to request an order granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary to
permit Trust shares to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies, as well as by Qualified Entities. Any conditions or
undertakings that may be imposed on the Company and the Trust by virtue of such
order shall be incorporated herein by this reference, as of the date such order
is granted, as though set forth herein in full, and the parties to this
Agreement shall comply with such conditions and undertakings to the extent
applicable to each such party. The Trust will not enter into a participation
agreement with any other Participating Insurance Company unless it imposes the
same conditions and undertakings imposed by virtue of such order and
incorporated by reference herein on the parties to such agreement.
14
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. The Company shall indemnify and hold harmless the Trust and each
person who controls or is associated with the Trust within the meaning of such
terms under the federal securities laws (but not any Participating Insurance
Companies or Qualified Entities) and any officer, trustee, director, employee or
agent of the foregoing, against any and all losses, claims, damages or
liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Contracts
Registration Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts themselves (or any
amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were
made; provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing to the Company by the Trust for use in the Contracts Registration
Statement, Contracts Prospectus or in the Contracts or sales literature or
promotional material for the Contracts (or any amendment or supplement to
any of the foregoing) or otherwise for use in connection with the sale of
the Contracts or Trust shares; or
(b) arise out of the untrue statement or alleged untrue statement of
a material fact contained in the Trust Registration Statement, Trust
Prospectus or sales literature or other promotional material of the Trust
(or any amendment or supplement to any of the foregoing), or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
15
<PAGE>
misleading in light of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Trust by or on behalf of the
Company; or
(c) arise out of or are based upon any wrongful conduct of the
Company or persons under its control (or subject to its authorization or
supervision) with respect to the sale or distribution of the Contracts or
Trust shares; or
(d) arise as a result of any failure by the Company to perform its
obligations under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the undertaking
specified in Article VI of this Agreement, unless such failure is a result
of the Trust's material breach of this Agreement); or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a request
for redemption or purchase of Trust shares on a timely basis in accordance
with the procedures set forth in Article II.
This indemnification will be in addition to any liability that the Company
may otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.1 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.2 The Trust shall indemnify and hold harmless the Company and each
person who controls or is associated with the Company within the meaning of such
terms under the federal securities laws and any officer, director, employee or
agent of the foregoing, against any and all losses, claims, damages or
liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they or any of them may become subject under any statute or regulation, at
common law or
16
<PAGE>
otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust Registration
Statement, Trust Prospectus or sales literature or other promotional
material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation to
indemnify shall not apply if such statement or omission was made in
reliance upon and in conformity with information furnished in writing by
the Company to the Trust for use in the Trust Registration Statement, Trust
Prospectus or sales literature or promotional material for the Trust (or
any amendment or supplement to any of the foregoing); or
(b) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the Contracts Registration Statement,
Contracts Prospectus or sales literature or other promotional material for
the Contracts (or any amendment or supplement to any of the foregoing), or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made, if such
statement or omission was made in reliance upon information furnished in
writing by the Trust to the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust
with respect to the sale of Trust shares; or
(d) arise as a result of any failure by the Trust to perform its
obligations under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the
undertakings specified in Article VI of this Agreement,
17
<PAGE>
unless such failure is a result of the Company's material breach of this
Agreement); or
(e) arise out of any material breach by the Trust of this Agreement.
This indemnification will be in addition to any liability that the Trust
may otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.2 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the
willful misfeasance, bad faith, gross negligence or reckless disregard of duty
by the person seeking indemnification.
8.3. After receipt by a party entitled to indemnification ("indemnified
party") under this Article VIII of notice of the commencement of any action, if
a claim in respect thereof is to be made by the indemnified party against any
person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that failure to so notify the indemnifying party will not relieve the
indemnifying party from any liability under this Article VIII, except to the
extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
the failure to give such notice. The indemnifying party, upon the request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent, or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the
18
<PAGE>
indemnified party from and against any loss or liability by reason on such
settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of the Agreement.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts, without giving effect to the principles of conflicts of laws.
9.2 This Agreement shall be subject to the provisions of the 1933 Act,
1940 Act and Securities Exchange Act of 1934, as amended, and the rules and
regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant, and the terms hereof shall
be limited, interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1 This Agreement shall not terminate until the Trust is dissolved,
liquidated, or merged into another entity, or, as to any Series of the Trust, an
Account no longer invests in that Series. However, certain obligations of, or
restrictions on, the parties to this Agreement may terminate as provided in
Sections 10.2 and 10.3.
10.2 The obligation of the Trust to sell shares to the Company pursuant to
Article II of this Agreement shall terminate at the option of the
Trust upon 30 days notice to the Company:
(a) Upon institution of formal proceedings against the Company by
the NASD, the SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of the Account, the
administration of the Contracts or the purchase of Trust shares, or an
expected or anticipated ruling, judgment or outcome which would, in the
Trust's reasonable judgment, materially impair the Company's ability to
meet and perform the Company's obligations and duties hereunder;
19
<PAGE>
(b) in the event any of the Contracts are not registered, issued or
sold in accordance with applicable Federal and/or state law; (c) if the
Contracts cease to qualify as annuity contracts under the Code, or if the
Trust reasonable believes that the Contracts may fail to so qualify;
(c) if the Contracts cease to qualify as annuity contracts under the
Code, or if the Trust reasonably believes that the Contracts may fail to so
qualify;
(d) if the Trust shall determine, in its sole judgment exercised in
good faith, that either (1) the Company shall have suffered a material
adverse change in its business or financial condition or (2) the Company
shall have been the subject of material adverse publicity which is likely
to have a material adverse impact upon the business and operations of the
Trust;
(e) upon the Company's assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the Account to another
insurance company pursuant to an assumption reinsurance agreement) unless
the Trust consents thereto; or
(f) upon termination pursuant to Section 10.1 or notice from the
Company pursuant to Section 10.3.
In exercising its option to terminate its obligation to sell Shares to the
Company, the Trust shall continue to make its shares available to the extent
required by applicable law and may elect to continue to make Trust shares
available to the extent necessary to permit owners of Contracts in effect on the
effective date of such termination (hereinafter referred to as "Existing
Contracts") to reallocate investments in the Trust, redeem investments in the
Trust and/or invest in the Trust upon the making of additional purchase payments
under the Existing Contracts. The Trust shall promptly notify the Company
whether the Trust is electing to make Trust shares so available after
termination.
10.3 The restrictions of the Company under Section 2.7 of this Agreement
shall terminate at the option of the Company upon 30 days notice to the Trust:
(a) if shares of any Series are not reasonable available to meet the
requirements of the Contacts as determined by the Company, and the Trust,
after receiving written notice from the Company of such non-
20
<PAGE>
availability, fails to make available a sufficient number of Trust shares
to meet the requirements of the Contracts within 5 days after receipt
thereof;
(b) upon institution of formal proceedings against the Trust by the
NASD, the SEC or any state securities or insurance commission or any other
regulatory body;
(c) if the Trust ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code, or under any successor or similar
provision, or if the Company reasonably believes based on an opinion of
counsel satisfactory to the Trust that the Trust may fail to so qualify,
and the Trust, upon written request, fails to provide reasonable assurance
that it will take action to cure or correct such failure;
(d) if the Trust fails to meet the diversification requirements
specified in Section 817(h) of the Code and any regulations thereunder and
the Trust, upon written request, fails to provide reasonable assurance that
it will take action to cure or correct such failure; or
(e) if the Trust informs the Company pursuant to Section 4.6 that the
Trust will not comply with investment restrictions as requested by the
Company and the Trust and the Company are unable to agree upon any
reasonable alternative accommodations.
10.4 This Article X shall not apply to any termination made pursuant to
Article VII or any conditions or undertakings incorporated by reference in
Article VII or any conditions or undertakings incorporated by reference in
Article VII, and the effect of such Article VII termination shall be governed by
the provisions set forth or incorporated by reference therein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect, as appropriate, changes in or relating to the
Contracts or Series, or additions of new classes of Contracts to be issued by
the Company through separate accounts investing in the Trust. The provisions of
this Agreement shall be equally applicable to each such class of Contracts,
Series and Accounts, effective as of the date of
21
<PAGE>
amendment of such Schedule, unless the context otherwise requires.
ARTICLE XII. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS
Any obligation of the Trust hereunder shall be binding only upon the assets
of the Trust (or applicable Series thereof) and shall not be binding upon any
trustee, officer, employee, agent or shareholder of the Trust. Neither the
authorization of any action by the Trust Board or shareholders of the Trust,
shall impose any liability upon any trustee, officer, or shareholder of the
Trust.
ARTICLE XIII. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
Name: Charles P. McQuaid
Title: Senior Vice President
Wanger Advisors Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
If to the Company:
Name: Simon Tan
Title: Senior Vice President
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
ARTICLE XIV. MISCELLANEOUS
14.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
22
<PAGE>
14.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
14.3 If any provision of this Agreement shall be held or made invalid by a
court decision of this Agreement shall be held or mad invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement shall not
be affected thereby.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its fully authorized officer on the date
specified below.
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
(Company)
Date: 4/21/95 By: /s/ Dona D. Young
----------- ------------------------------
Name: Dona D. Young
Title: Executive Vice President
WANGER ADVISORS TRUST
(Trust)
Date: 4/18/95 By: /s/ Charles P. McQuaid
----------- ------------------------------
Name: Charles P. McQuaid
Title: Senior Vice President
23
<PAGE>
SCHEDULE I
----------
Accounts of the Company
Investing in the Trust
Effective as of the date of the Agreement was executed, the following separate
accounts are subject to the Agreement:
- --------------------------------------------------------------------------------
Name of Account Date Established by SEC 1940 Act Type of Product
and Subaccounts Board of Directors of Registration Number Supported by
the Company Account
- --------------------------------------------------------------------------------
Phoenix Home Life June 21, 1982 811-3488 Variable Annuity
Variable
Accumulation
Account
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Effective as of December 18, 1996, the following separate accounts are hereby
added to this Schedule 1 and made subject to the Agreement:
- --------------------------------------------------------------------------------
Name of Account Date Established by SEC 1940 Act Type of Product
and Subaccounts Board of Directors of Registration Number Supported by
the Company Account
- --------------------------------------------------------------------------------
Phoenix Home Life July 21, 1988 811-4721 Variable
Variable Universal Universal Life
Life Account
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 1 in
accordance with Article XI of the Agreement.
/s/ Charles P. McQuaid /s/ Dona D. Young
- ------------------------------ ---------------------------------
Wanger Advisors Trust Phoenix Home Life Mutual
Insurance Company
24
<PAGE>
SCHEDULE 2
----------
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date of the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
- --------------------------------------------------------------------------------
SEC 1993 Act Name of Supporting
Contract Marketing Name Registration Number Account
- --------------------------------------------------------------------------------
Big Edge 2-78020 Phoenix Home Life Variable
Accumulation Account
- --------------------------------------------------------------------------------
Big Edge Plus 2-78020 Phoenix Home Life Variable
Accumulation Account
- --------------------------------------------------------------------------------
Effective as of January 1, 1996, the following classes of Contracts are hereby
added to this Schedule 2 and made subject to the Agreement:
- --------------------------------------------------------------------------------
SEC 1993 Act Name of Supporting
Contract Marketing Name Registration Number Account
- --------------------------------------------------------------------------------
Group Strategic Edge 2-78020 Phoenix Home Life Variable
Accumulation Account
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Continued on following page. *
25
<PAGE>
Effective as of December 18, 1996, the following classes of Contracts are hereby
added to this Schedule 2 and made subject to the Agreement:
- --------------------------------------------------------------------------------
SEC 1993 Act Name of Supporting
Contract Marketing Name Registration Number Account
- --------------------------------------------------------------------------------
Flex Edge 33-23251 Phoenix Home Life Variable
Universal Life Account
- --------------------------------------------------------------------------------
Flex Edge Success 33-23251 Phoenix Home Life Variable
Universal Life Account
- --------------------------------------------------------------------------------
Joint Edge 33-23251 Phoenix Home Life Variable
Universal Life Account
- --------------------------------------------------------------------------------
Phoenix Edge 33-6793 Phoenix Home Life Variable
Universal Life Account
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 2 in
accordance with Article XI of the Agreement.
/s/ Charles P. McQuaid /s/ Dona D. Young
- ------------------------------ ---------------------------------
Wanger Advisors Trust Phoenix Home Life Mutual
Insurance Company
26
<PAGE>
SCHEDULE 3
----------
Trust Series Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Series
are available under the Contracts:
- --------------------------------------------------------------------------------
Contracts Marketing Name Trust Series
- --------------------------------------------------------------------------------
Big Edge o Wanger U.S. Small Cap Advisor
o Wanger International Small Cap Advisor
- --------------------------------------------------------------------------------
Big Edge Plus o Wanger U.S. Small Cap Advisor
o Wanger International Small Cap Advisor
- --------------------------------------------------------------------------------
Effective as of January 1, 1996 this Schedule 3 is hereby amended to reflect the
following changes in Trust Series or Contracts:
- --------------------------------------------------------------------------------
Contracts Marketing Name Trust Series
- --------------------------------------------------------------------------------
Group Strategic Edge o Wanger U.S. Small Cap Advisor
o Wanger International Small Cap Advisor
- --------------------------------------------------------------------------------
* Continued on following page. *
27
<PAGE>
Effective as of December 18, 1996 this Schedule 3 is hereby amended to reflect
the following changes in Trust Series or Contracts:
- --------------------------------------------------------------------------------
Contracts Marketing Name Trust Series
- --------------------------------------------------------------------------------
Flex Edge o Wanger U.S. Small Cap Advisor
o Wanger International Small Cap Advisor
- --------------------------------------------------------------------------------
Flex Edge Success o Wanger U.S. Small Cap Advisor
o Wanger International Small Cap Advisor
- --------------------------------------------------------------------------------
Joint Edge o Wanger U.S. Small Cap Advisor
o Wanger International Small Cap Advisor
- --------------------------------------------------------------------------------
Phoenix Edge o Wanger U.S. Small Cap Advisor
o Wanger International Small Cap Advisor
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 3 in
accordance with Article XI of the Agreement.
/s/ Charles P. McQuaid /s/ Dona D. Young
- ------------------------------ ---------------------------------
Wanger Advisors Trust Phoenix Home Life Mutual
Insurance Company
28
PARTICIPATION AGREEMENT
AMONG TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS, INC. AND
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
THIS AGREEMENT made as of May 1, 1997, among Templeton Variable Products
Series Fund (the "Trust"), an open-end management investment company organized
as a business trust under Massachusetts law, Franklin Templeton Distributors,
Inc., a California corporation, the Trust's principal underwriter
("Underwriter"), and Phoenix Home Life Mutual Insurance Company, a mutual life
insurance company domiciled under New York law (the "Company"), on its own
behalf and on behalf of each segregated asset account of the Company set forth
in Schedule A, as may be amended from time to time (the "Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "Commission") as an open-end management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares (sometimes collectively referred to as "Trust shares")
under the Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, the Trust and the Underwriter desire that Trust shares be used as
an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets, and certain of those series, named in
Schedule B, (the "Portfolios") are to be made available for purchase by the
Company for the Accounts; and
WHEREAS, the Trust has received an order from the Commission, dated
November 16, 1993 (File No. 812-8546), granting Participating Insurance
Companies and their separate accounts exemptions from the provisions of Sections
9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2 (b) (15) and 6e-3
(T) (b) (15) thereunder, to the extent necessary to permit shares of the Trust
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies and
certain qualified pension and retirement plans (the "Shared Funding Exemptive
Order");
1
<PAGE>
WHEREAS, the Company has registered or will register under the 1933 Act
certain variable annuity contracts and variable life insurance policies with the
form number(s) which are listed on Schedule C attached hereto and incorporated
herein by this reference, as such Schedule C may be amended from time to time
hereafter by mutual written agreement of all parties hereto, under which the
Portfolios are to be made available as investment vehicles (the "Contracts");
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act unless an exemption from registration under
the 1940 Act is available and the Trust has been so advised;
WHEREAS, each Account is duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company, on
the date shown for such account on Schedule A hereto, to set aside and invest
assets attributable to one or more Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, each investment adviser listed on Schedule B (each, an "Adviser")
is duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended ("Advisers Act") and any applicable state securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Contracts and the Underwriter
is authorized to sell such shares to unit investment trusts such as each Account
at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties agree
as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
1.1 For purposes of this Article I, the Company shall be the Trust's agent
for receipt of purchase orders and requests for redemption relating to each
Portfolio from each Account, provided that the Company notifies the Trust of
such purchase orders and requests for redemption by 10:00 a.m. Eastern time on
the next following Business Day, as defined in Section 1.3.
1.2 The Trust agrees to make shares of the Portfolios available to the
Accounts for purchase at the net asset value per share next computed after
receipt of a purchase order by the Trust (or its agent), as established in
accordance with the provisions of the
2
<PAGE>
then current prospectus of the Trust describing Portfolio purchase procedures on
those days on which the Trust calculates its net asset value pursuant to rules
of the Commission, and the Trust shall use its best efforts to calculate such
net asset value on each day on which the New York Stock Exchange ("NYSE") is
open for trading. The Company will transmit orders from time to time to the
Trust for the purchase of shares of the Portfolios. The Trustees of the Trust
(the "Trustees") may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or if, in the
sole discretion of the Trustees acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, such action is
deemed in the best interests of the shareholders of such Portfolio.
1.3 The Company shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account no later than the close of the Federal Reserve
Bank, which is 6:00 p.m. Eastern time, on the next Business Day after the Trust
receives the purchase order. If payment in federal funds for any purchase is not
received by the Trust or its designated custodian or is received after such
time, the Company shall promptly upon the Trust's written request, reimburse the
Trust for any reasonable charges, costs, fees, interest, or other expenses
incurred by the Trust in connection with any advances to, or borrowings or
overdrafts by, the Trust, or any similar expenses incurred by the Trust as a
result of transactions effected by the Trust based upon such purchase order.
Payment shall be made in federal funds transmitted by wire to the Trust. Upon
receipt by the Trust of the federal funds so wired, such funds shall cease to be
the responsibility of the Company and shall become the responsibility of the
Trust for this purpose. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the Commission.
1.4 The Trust will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust describing Portfolio redemption procedures.
The Trust shall make payment for such shares in the manner established from time
to time by the Trust. Redemption with respect to a Portfolio will normally be
paid to the Company for an Account in federal funds transmitted by wire to the
Company before the close of the Federal Reserve Bank, which is 6:00 p.m. Eastern
time on the next Business Day after the receipt of the request for redemption.
If payment in federal funds for any redemption request is received by the
Company after such time, the Trust shall promptly upon the Company's written
request, reimburse the Company for any reasonable charges, costs, fees,
interest, or other expenses incurred by the Company as a result of such failure
to provide redemption proceeds within the specified time. Notwithstanding the
foregoing, such payment may be delayed if, for example, the Portfolio's cash
position so requires or if extraordinary market conditions exist, but in no
event shall payment be delayed for a greater period than is permitted by the
1940 Act.
3
<PAGE>
1.5 Payments for the purchase of shares of the Trust's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Trust's Portfolios under Section 1.4 may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer on
that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be by book
entry only. Stock certificates will not be issued to the Company or the Account.
Portfolio Shares purchased from the Trust will be recorded in the appropriate
title for each Account or the appropriate subaccount of each Account.
1.7 The Trust shall furnish, on or before the ex-dividend date, notice to
the Company of any income dividends or capital gain distributions payable on the
shares of any Portfolio of the Trust. The Company hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.8 The Trust shall calculate the net asset value of each Portfolio on each
Business Day, as defined in Section 1.3. The Trust shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonable practical after the net asset value
per share is calculated (normally by 6:30 p.m. Eastern time) and shall use
reasonable efforts to make such net asset value per share available by 7:00 p.m.
Eastern time each Business Day.
1.9 The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Funding Exemptive Order. The Trust will periodically furnish to the Company on
request the names of the Participating Insurance Companies who offer variable
life insurance policies and variable annuity contracts registered under the 1933
Act which use Trust shares as underlying investments. No shares of any Portfolio
will be sold directly to the general public. The Company agrees that it will use
Trust shares only for the purposes of funding the Contracts through the Accounts
listed in Schedule A, as amended from time to time.
1.10 The Company agrees that all net amounts available under the Contracts
shall be invested in the Trust, in such other Funds advised by an Adviser or its
affiliates as may be mutually agreed to in writing by the parties hereto, or in
the Company's general account, provided that such amounts may also be invested
in an investment company other than the Trust if: (a) such other investment
company, or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of the
Portfolios; or (b) the Company gives the Trust and the Underwriter 45 days
written notice of its intention to make such other investment company available
as a funding vehicle for the Contracts; or (c) such other investment company is
available as a funding vehicle for the Contracts at the date of this Agreement
and the Company so informs the Trust and the Underwriter prior to their signing
this
4
<PAGE>
Agreement (a list of such investment companies appearing on Schedule D to this
Agreement); or (d) the Trust or Underwriter consents to the use of such other
investment company.
1.11 The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.10 and Article IV of
this Agreement.
ARTICLE II.
OBLIGATIONS OF THE PARTIES; FEES AND EXPENSES
2.1 The Trust shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of additional
information of the Trust. The Trust shall bear the costs of registration and
qualification of its share of the Portfolios, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is subject
on the issuance and transfer of its shares.
2.2 At the option of the Company, the Trust or the Underwriter shall either
(a) provide the Company with as many copies of portions of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
pertaining specifically to the Portfolios as the Company shall reasonably
request; or (b) provide the Company with a camera ready copy of such documents
in a form suitable for printing and from which information relating to series of
the Trust other than the Portfolios has been deleted to the extent practicable.
The Trust or the Underwriter shall provide the Company with a copy of its
current statement of additional information, including any amendments or
supplements, in a form suitable for duplication by the Company. Expenses of
furnishing such documents for marketing purposes shall be borne by the Company
and expenses of furnishing such documents for current contract owners invested
in the Trust shall be borne by the Trust or the Underwriter.
2.3 The Trust (at its expense) shall provide the Company with copies of any
Trust-sponsored proxy materials in such quantity as the Company shall reasonably
require for distribution to Contract owners. The Company shall bear the costs of
distributing proxy materials (or similar materials such as voting solicitation
instructions), prospectuses and statements of additional information to Contract
owners. The Company assumes sole responsibility for ensuring that such materials
are delivered to Contract owners in accordance with applicable federal and state
securities laws.
2.4 If and to the extend required by law, the Company shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii) vote
Trust shares for which no
5
<PAGE>
instructions have been received in the same proportion as Trust shares of such
Portfolio for which instructions have been received; so long as and to the
extent that the Commission continues to interpret the 1940 Act to require
pass-through voting privileges for variable contract owners. The Company
reserves the right to vote Trust shares held in any segregated asset account in
its own right, to the extent permitted by law.
2.5 Except as provided in section 2.6, the Company shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Templeton" without prior written consent, and upon termination of this
Agreement for any reason, the Company shall cease all use of any such name or
mark as soon as reasonably practicable.
2.6 The Company shall furnish, or cause to be furnished to the Trust or its
designee, at least one complete copy of each registration statement, prospectus,
statement of additional information, report, solicitation for voting
instructions, sales literature and other promotional materials, and all
amendments to any of the above that relate to the Contracts or the Accounts
prior to its first use. The Company shall furnish, or shall cause to be
furnished, to the Trust or its designee each piece of sales literature or other
promotional material in which the Trust or an Adviser is named, at least 15
Business Days prior to its use. No such material shall be used if the Trust or
its designee objects to such use within ten (10) Business Days after receipt of
such material. For purposes of this paragraph, "sales literature or other
promotional material" includes, but is not limited to, portions of the following
that refer to the Trust or affiliates of the Trust: advertisements (such as
material published or designed for use in a newspaper, magazine or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures or electronic communication or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, reprints or
excerpts or any other advertisement, sales literature or published article or
electronic communication), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, and registration statements, prospectuses, statements of additional
information, reports and proxy materials.
2.7 The Company and its agents shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust,
the Underwriter or an Adviser in connection with the sale of the Contracts other
than information or representations contained in and accurately derived from the
registration statement or prospectus for the Trust shares (as such registration
statement and prospectus may be amended or supplemented from time to time),
annual and semi-annual reports of the Trust, Trust-sponsored proxy statements,
or in sales literature or other promotional material approved by the Trust or
its designee, except as required by legal process or regulatory authorities or
with the written permission of the Trust or its designee.
6
<PAGE>
2.8 The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and each
Adviser, in such form as the Company may reasonably require, as the Company
shall reasonably request in connection with the preparation of registration
statements, prospectuses and annual and semi-annual reports pertaining to the
Contracts.
2.9 The Trust shall not give any information or make any representations or
statements on behalf of the Company or concerning the Company, the Accounts or
the Contracts other than information or representations contained in and
accurately derived from the registration statement or prospectus for the
Contracts (as such registration statement and prospectus may be amended or
supplemented from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials, except
as required by legal process or regulatory authorities or with the written
permission of the Company.
2.10 So long as, and to the extent that, the Commission interprets the 1940
Act to require pass-through voting privileges for Contract owners, the Company
will provide pass-through voting privileges to Contract owners whose Contract
values are invested, through the registered Accounts, in shares of one or more
Portfolios of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each registered Account,
the Company will vote shares of each Portfolio of the Trust held by a registered
Account and for which no timely voting instructions from Contract owners are
received in the same proportion as those shares held by that registered Account
for which voting instructions are received. The Company and its agents will in
no way recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contracts without the prior written consent of
the Trust, which consent may be withheld in the Trust's sole discretion.
2.11 The Trust and Underwriter shall pay no fee or other compensation to
the Company under this Agreement except as provided on Schedule E, if attached.
Nevertheless, the Trust or the Underwriter or an affiliate may make payments
(other than pursuant to a Rule 12b-1 Plan) to the Company or its affiliates or
to the Contracts' underwriter in amounts agreed to by the Underwriter in writing
and such payments may be made out of fees otherwise payable to the Underwriter
or its affiliates, profits or the Underwriter or its affiliates, or other
resources available to the Underwriter or its affiliates.
7
<PAGE>
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of New York and
that it has legally and validly established each Account as a segregated asset
account under such law as of the date set forth in Schedule A.
3.2 The Company represents and warrants that it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated asset account for the Contracts, unless an exemption from
registration is available.
3.3 The Company represents and warrants that the Contracts will be
registered under the 1933 Act unless an exemption from registration is available
prior to any issuance or sale of the Contracts; and the Contracts will be issued
and sold in compliance in all material respects with all applicable federal and
state laws.
3.4 The Trust represents and warrants that it is duly organized and validly
existing as a business trust under the laws of the Commonwealth of Massachusetts
and that it does and will comply in all material respects with the 1940 Act and
the rules and regulations thereunder.
3.5 The Trust represents and warrants that the Portfolio share offered and
sold pursuant to this Agreement will be registered under the 1933 Act and the
Trust shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust or the
Underwriter.
3.6 The Trust represents and warrants that the investments of each
Portfolio does and will comply with the diversification requirements for
variable annuity, endowment or life insurance contracts set forth in Section
817(h) of the Internal Revenue Code of 1986, as amended ("Code"), and the rules
and regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
in that event immediately take all reasonable steps to adequately diversify the
Portfolio to achieve compliance within the grace period afforded by Regulation
1.817-5.
8
<PAGE>
3.7 The Trust represents and warrants that it is currently qualified as a
"regulated investment company" under Subchapter M of the Code, that it will make
every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
3.8 [Omitted.]
3.9 The Trust represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less that the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.10 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Trust are and shall be at all
times covered by a blanket fidelity bond or similar coverage which covers losses
to the Trust, in an amount not less than $5 million. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
agrees to notify the Trust and the Underwriter in the event that such coverage
no longer applies.
3.11 The Underwriter represents that each Adviser is duly organized and
validly existing and in good standing under applicable corporate law and that
each Adviser is registered and will during the term of this Agreement remain
registered as an investment adviser under the Advisers Act.
3.12 The Trust currently intends for one or more Classes to make payments
to finance its distribution expenses, including service fees, pursuant to a Plan
adopted under Rule 12b-1 under the 1940 Act ("Rule 12b-1"), although it may
determine to discontinue such practice in the future. To the extent that any
Class of the Trust finances its distribution expenses pursuant to a Plan adopted
under Rule 12b-1, the Trust undertakes to comply with any then current SEC and
SEC staff interpretations concerning Rule 12b-1 or any successor provisions.
3.13 The Trust represents that its Board of Trustees has regularly
monitored the Trust for the existence of any material irreconcilable conflict
between the interests of the contract owners of all Participating Insurance
Companies (as defined in section 4.1, below), and that to date the Board has
made no finding that any such conflict exists.
9
<PAGE>
ARTICLE IV.
POTENTIAL CONFLICTS
4.1 The parties acknowledge that a Portfolio's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interest of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trust shall promptly inform the Company of any determination by the Trustees
that an irreconcilable material conflict exists and of the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard Contract
owner voting instructions. All communications from the Company to the Trustees
may be made in care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a majority of the
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its own expense and to the extent reasonably practicable (as determined by
the Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any Portfolio
and reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Trust, or submitting the question of
whether or not such withdrawal should be implemented to a vote of all affected
Contract owners and, as appropriate, withdrawal of the assets of any appropriate
group (i.e., annuity contract owners, life insurance policy owners, or variable
contract owners of one or more Participating Insurance Companies) that votes in
favor of such withdrawal, or offering to the affected Contract owners the option
of making such a change; and (b) establishing a new registered management
investment company or managed separate account.
10
<PAGE>
4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with a
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Trust be required to establish a new funding medium for the Contracts. In
the event that the Trustees determine that any proposed action does not
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Trust and terminate this Agreement
within six (6) months after the Trustees inform the Company in writing of the
foregoing determination; provided, however, that such withdrawal and termination
shall be limited to the extent required by an such material irreconcilable
conflict as determinated by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Funding
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if reasonably deemed appropriate by the Trustees.
4.8 If and to the extend that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those
11
<PAGE>
contained in the Shared Funding Exemptive Order, then the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable.
ARTICLE V.
INDEMNIFICATION
5.1 Indemnification By the Company
(a) The Company agrees to indemnify and hold harmless the Trust and
each of its Trustees, officers, employees and agents and each person, if
any, who controls the Trust within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" and individually the
"Indemnified Party" for purposes of this Article V) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Company, which consent shall not be
unreasonably withheld) or expenses (including the reasonable costs of
investigating or defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become
subject under any statute or regulation, or at common law, insofar as such
Losses are related to the sale or acquisition of Trust Shares or the
Contracts and
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a
registration statement or prospectus for the Contracts or in the
Contracts themselves or in sales literature generated or approved by
the Company on behalf of the Contracts or Accounts (or any amendment
or supplement to any of the foregoing) (collectively, "Company
Documents" for the purposes of this Article V), or arise out of or are
based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this indemnity shall
not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to the Company
by or on behalf of the Trust for use in Company Documents or otherwise
for use in connection with the sale of the Contracts or Trust shares;
or
(ii) arise out of or result from statements or representations
(other than statements or representations contained in and accurately
derived from Trust Documents as defined in Section 5.2 (a)(i)) or
12
<PAGE>
wrong conduct (including without limitation any failure to comply
in all material respects with state insurance suitability
requirements) of the Company or persons under its control with respect
to the sale or acquisition of the Contracts or Trust shares; or
(iii) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust Documents as
defined in Section 5.2(a)(i) or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately derived
from written information furnished to the Trust by or on behalf of the
Company; or
(iv) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company.
(b) The Company shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Trust or Underwriter, whichever is applicable. The Company shall also not
be liable under this indemnification provision with respect to any claim
made against an Indemnified Party unless such Indemnified Party shall have
notified the Company in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim
shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Company shall be entitled to
participate, at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the
Company to such party of the Company's election to assume the defense
thereof, the Indemnified Party
13
<PAGE>
shall bear the fees and expenses of any additional counsel retained by it,
and the Company will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
(c) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Trust shares or the Contracts or the
operation of the Trust.
5.2 Indemnification By The Underwriter
(a) The Underwriter agrees to indemnify and hold harmless the Company,
the underwriter of the Contracts and each of its directors and officers and
each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually an "Indemnified Party" for purposes of this Section 5.2)
against any and all losses, claims, damages, liabilities (including amount
paid in settlement with the written consent of the Underwriter, which
consent shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim,
damage, liability or expense and reasonable legal counsel fees incurred in
connection therewith) (collectively, "Losses") to which the Indemnified
Parties may become subject under any statute, at common law, insofar as
such Losses are related to the sale of acquisition of the Trust's Shares or
the Contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement, prospectus or sales literature of the Trust
(or any amendment or supplement to any of the foregoing)
(collectively, the "Trust Documents") or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission of such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Underwriter
or Trust by or on behalf of the Company for use in the Registration
Statement or prospectus for the Trust or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Trust share; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Trust,
14
<PAGE>
Adviser or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Trust shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Trust; or
(iv) arise as a result of any failure by the Trust to provide the
services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the qualification representation specified
in Section 3.7 of this Agreement and the diversification requirements
specified in Section 3.6 of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Underwriter; as limited by and in accordance
with the provisions of Sections 5.2(b) and 5.2(c) hereof.
(b) The Underwriter shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason or such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
(c) The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall
have received notice of such service on any designated agent), but failure
to notify the Underwriter of any such claim shall not relieve the
Underwriter from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Underwriter will be entitled to participate, at
its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with
15
<PAGE>
counsel satisfactory to the party named in the action. After notice from
the Underwriter to such party of the Underwriter's election to assume the
defense thereof, the Indemnified Party shall bear the expenses of any
additional counsel retained by it, and the Underwriter will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
(d) The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with the issuance or sale of the
Contracts or the operation of each Account.
5.3 Indemnification By The Trust
(a) The Trust agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" and individually an "Indemnified Party" for
purposes of this Section 5.3) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent
of the Trust, which consent shall not be unreasonably withheld) or
litigation (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law, insofar as
such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements result from the gross negligence, bad faith
or willful misconduct of the Board or any member thereof, are related to
the operations of the Trust, and arise out of or result from any material
breach of any representation and/or warranty made by the Trust in the
Agreement or arise out of or from any other material breach of this
Agreement by the Trust; as limited by and in accordance with the provisions
of Section 5.3(b) and 5.3(c) hereof. It is understood and expressly
stipulated that neither the holders of shares of the Trust nor any Trustee,
officer, agent or employee of the Trust shall be personally liable
hereunder, nor shall any resort to be had to other private property for the
satisfaction of any claim or obligation hereunder, but the Trust only shall
be liable.
(b) The Trust shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against any Indemnified Party as such may arise from
such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company, the Trust, the Underwriter
or each Account, whichever is applicable.
(c) The Trust shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified
16
<PAGE>
Party shall have notified the Trust in writing within a reasonable
time after the summons or other first legal process giving information of
the nature of the claims shall have been served upon such Indemnified Party
(or after such Indemnified Party shall have received notice of such service
on any designated agent), but failure to notify the Trust of any such claim
shall not relieve the Trust from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Trust will be entitled to
participate, at its own expense, in the defense thereof. The Trust also
shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Trust to such
party of the Trust's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional
counsel retained by it, and the Trust will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof other
than reasonable costs of investigation.
(d) The Company and the Underwriter agree promptly to notify the Trust
of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
the Account, or the sale or acquisition of share of the Trust.
ARTICLE VI.
TERMINATION
-----------
6.1 This Agreement may be terminated by any party in its entirety or with
respect to one, some or all Portfolios or any reason by sixty (60) days advance
written notice delivered to the other parties, and shall terminate immediately
in the event of its assignment, as that term is used in the 1940 Act.
6.2 This Agreement may be terminated immediately by either the Trust or
the Underwriter following consultation with the Trustees upon written notice to
the Company if:
(a) either one or both the Trust or the Underwriter respectively,
shall determine, in their sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(b) if the Company gives the Trust and the Underwriter the written
notice specified in Section 1.10 hereof and at the same time such notice
was given there was no notice of termination outstanding under any other
17
<PAGE>
provision of this Agreement; provided, however, that any termination under this
Section 6.4(b) shall be effective forty-five (45) days after the notice
specified in Section 1.10 was given.
6.3 This Agreement may be terminated immediately by the Company upon
written notice to the Trust and the Underwriter, if the Company shall determine,
in its sole judgment exercised in good faith, that either the Trust or the
Underwriter has suffered a material adverse change in its business, operations,
financial conditions or prospects since the date of this Agreement or is the
subject of material adverse publicity.
6.4 If this Agreement is terminated for any reason, except under Article IV
(Potential Conflicts) above, the Trust shall, at the option of the Company,
continue to make available additional shares of any Portfolio and redeem shares
of any Portfolio pursuant to all of the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this
Agreement. If this Agreement is terminated pursuant to Article IV, the
provisions of Article IV shall govern.
6.5 The provisions of Articles II (Representations and Warranties) and V
(Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 6.4, except that the Trust and the Underwriter shall
have no further obligation to sell Trust shares with respect to Contracts issued
after termination.
6.6 The Company shall not redeem Trust shares attributable to the Contracts
(as opposed to Trust shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the Commission pursuant to Section 26(b) of the 1940
Act. Upon request, the Company will furnish to the Trust and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Trust and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Trust or
the Underwriter 90 days notice of its intention to do so.
18
<PAGE>
ARTICLE VII.
NOTICES.
--------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust or the Underwriter:
Templeton Variable Products Series Fund or
Franklin Templeton Distributors, Inc.
500 E. Broward Boulevard
Fort Lauderdale, FL 33394-3091
Attention: Barbara J. Green, Trust Secretary
WITH A COPY TO
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
Attention: Karen L. Skidmore, Senior Corporate Counsel
If to the Company:
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, CN 06115
Attention: Jeanie Grasso Gagnon, Assistant Vice President
ARTICLE VIII.
MISCELLANEOUS
-------------
8.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their contsruction or effect.
8.2 This Agreement may be executive simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
19
<PAGE>
8.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Connecticut. It shall also
be subject to the provisions of the federal securities laws and the rules and
regulations thereunder and to any orders of the Commission granting exemptive
relief therefrom and the conditions of such orders. Copies of any such orders
shall be promptly forwarded by the Trust to the Company.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Commission, the
National Association of Securities Dealers, Inc. and state insurance regulators)
and shall permit such authorities reasonable access to its books and records in
connection with any investigation or injury relating to this Agreement or the
transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect, except as provided in Section 1.10.
20
<PAGE>
8.9 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other
party except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
The Company:
Phoenix Home Life Mutual Insurance Company
------------------------------------------
By its authorized officer
By:/s/Paul M. Fischer
-------------------------
Name: Paul M. Fischer
Title: Vice President
The Trust:
Templeton Variable Products Series Fund
---------------------------------------
By its authorized officer
By:/s/Karen L. Skidmore
-----------------------------
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant Secretary
The Underwriter:
Franklin Templeton Distributors, Inc.
-------------------------------------
By its authorized officer
By:/s/Deborah R. Gatzek
--------------------------------
Name: Deborah R. Gatzek
Title: Senior Vice President, Assistant Secretary
21
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS OF PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
---------------------------------------------------------------
Phoenix Home Life Variable Accumulation Account (est. June 1, 1982)
22
<PAGE>
SCHEDULE B
TRUST PORTFOLIOS AND CLASSES AVAILABLE
--------------------------------------
Portfolio: Templeton Asset Allocation Fund
Class: Class 2
Investment Advisor: Templeton Investment Counsel, Inc.
Portfolio: Templeton Developing Markets Fund
Class: Class 2
Investment Advisor: Templeton Asset Management Ltd.
Portfolio: Templeton International Fund
Class: Class 2
Investment Advisor: Templeton Investment Counsel, Inc.
Portfolio: Templeton Stock Fund
Class: Class 2
Investment Advisor: Templeton Investment Counsel, Inc.
23
<PAGE>
SCHEDULE C
VARIABLE ANNUITY AND VARIABLE LIFE CONTRACTS
ISSUED BY PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
----------------------------------------------------
Contract Name Representative Form Number
- ------------- --------------------------
The Big Edge Form 2545
The Big Edge Form 2645
The Big Edge Plus Form 2646
The Group Strategic Edge - Unallocated Form GD603
The Group Strategic Edge - Allocated Form GD601
The Big Edge Choice in New York Form D 602
24
<PAGE>
SCHEDULE D
PORTFOLIOS AVAILABLE IN PHOENIX CONTRACTS
-----------------------------------------
1. Investment Company: The Phoenix Edge Series Fund
Portfolios: Phoenix Multi-Sector Fixed Income Series
Phoenix Money Market Series
Phoenix Growth Series
Phoenix Strategic Allocation Series
Phoenix International Series
Phoenix Balanced Series
Phoenix Strategic Theme Series
Phoenix Real Estate Securities Series
Phoenix Aberdeen New Asia Series
2. Investment Company: Wanger Advisors Trust
Portfolios: Wanger U.S. Small Cap Series
Wanger International Small Cap Series
25
<PAGE>
SCHEDULE E
RULE 12B-1 PLANS
COMPENSATION SCHEDULE
---------------------
Schedule E
Page 1 of 2
Each Portfolio names below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
Portfolio Name Maximum Annual Payment Rate
- -------------- ---------------------------
TEMPLETON ASSET ALLOCATION FUND 0.25%
TEMPLETON DEVELOPING MARKETS FUND 0.25%
TEMPLETON INTERNATIONAL FUND 0.25%
TEMPLETON STOCK FUND 0.25%
Agreement Provisions
--------------------
If the Company, on behalf of any Account, purchases Trust Portfolio shares
("Eligible Shares") which are subject to a Rule 12b-1 Plan adopted under the
1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the company or its affiliates, agents or designees
(collectively "you") provide administrative and other services which assist in
the promotion and distribution of Eligible Shares or Variable Contracts offering
Eligible Shares, the Underwriter, the Trust or their affiliates (collectively,
"we") may pay you a Rule 12b-1 fee. "Administrative and other services" may
include, but are not limited to, furnishing personal services to owners of
Contracts which may invest in Eligible Shares ("Contract Owners"), answering
routine inquires regarding a portfolio, coordinating responses to Contract Owner
inquires regarding the Portfolios, maintaining such accounts or providing such
other enhanced services as a Trust Portfolio or Contract may require,
maintaining customer accounts and records, or providing other services eligible
for service fees as defined under NASD rules. Your acceptance of such
compensation is your acknowledgment that eligible services have been rendered.
All Rule 12b-1 fees, shall be based on the value of Eligible Shares owned by the
Company on behalf of its Accounts, and shall be calculated on the basis and at
the rates set forth in the Compensation Schedule stated above. The aggregate
annual fees paid pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in the Portfolio's prospectus, unless an increase is
approved by shareholders as provided in the Plan. These maximums shall be a
specified percent of the value of a Portfolio's net assets attributable to
Eligible Shares owned by the Company on behalf of its Accounts (determined in
the same manner as the Portfolio uses to compute its net assets as set forth in
its effective Prospectus).
26
<PAGE>
SCHEDULE E
RULE 12B-1PLANS
COMPENSATION SCHEDULE
---------------------
Schedule E
Page 2 of 2
You shall furnish us with such information as shall reasonable be requested
by the Trust's Boards of Trustees ("Trustees") with respect to the fees paid to
you pursuant to the Plans. We shall furnish to the Trustees, for their review on
a quarterly basis, a written report of the amounts expended under the Plans and
the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Trustees, including the Trustees who are not
interested persons of the Trust and who have no financial interest in the Plans
or any related agreement ("Disinterested Trustees"). Each Plan may be terminated
at any time by the vote of a majority of the Disinterested Trustees, or by a
vote of a majority of the outstanding shares as provided in the Plan, on sixty
(60) days' written notice, without payment of any penalty. The Plans may also be
terminated by any act that terminates the Underwriting Agreement between the
Underwriter and the Trust, and/or the management or administration agreement
between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and the Trust. Continuation of the Plans is also conditioned on
Disinterested Trustees being ultimately responsible for selecting and nominating
any new Disinterested Trustees. Under Rule 12b-1, the Trustees have a duty to
request and evaluate, and persons who are party to any agreement related to a
Plan have a duty to furnish, such information as may reasonably be necessary to
an informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the Trust is permitted to implement
or continue Plans or the provisions of any agreement relating to such Plan from
year-to-year only if, based on certain legal considerations, the Trustees are
able to conclude that the Plans will benefit each affected Trust Portfolio and
class. Absent such yearly determination, the Plans must be terminated as set
forth above. In the event of the termination of the Plans for any reason, the
provisions of this Schedule E relating to the Plans will also terminate.
Any obligation assumed by the Trust pursuant to this Agreement shall be
limited in all cased to the assets of the Trust and no person shall seek
satisfaction thereof from shareholders of the Trust. You agree to waive payment
of any amounts payable to you by Underwriter under a Plan until such time as the
Underwriter has received such fee from the Fund.
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule E, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable
statutes, rules and regulations of all rule 12b-1 fees received from us in the
prospectus of the contracts.
27
<PAGE>
AMENDMENT TO
FUND PARTICIPATION AGREEMENT
AMONG TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS, INC. AND
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
THIS AMENDMENT made effective as of this 2nd day of September, 1998, amends that
certain Participation Agreement dated May 1, 1997 by and among the following
parties (the "Agreement") as hereinbelow provided.
W I T N E S S E T H:
WHEREAS, the parties hereto wish to amend certain Schedules of the
Agreement to include additional Accounts, Portfolios and Contracts and to update
certain other information contained therin:
NOW, THEREFORE, in consideration of the foregoing premise, Schedule A,
Schedule B, Schedule C, Schedule D and Schedule E are hereby replaced with
Schedule A, Schedule B, Schedule C, Schedule D and Schedule E attached hereto
and made a part herof. Except as herinabove provided, the Agreement shall be and
remain unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their duly authorized officers.
The Company:
Phoenix Home Life Mutual Insurance Company
------------------------------------------
By its authorized officer
By:/s/Paul M. Fischer
-------------------------
Name: Paul M. Fischer
Title: Vice President
The Trust:
Templeton Variable Products Series Fund
---------------------------------------
By its authorized officer
By:/s/Karen L. Skidmore
-----------------------------
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant Secretary
The Underwriter:
Franklin Templeton Distributors, Inc.
-------------------------------------
By its authorized officer
By:/s/Deborah R. Gatzek
--------------------------------
Name: Deborah R. Gatzek
Title: Senior Vice President, Assistant Secretary
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS OF PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
---------------------------------------------------------------
Phoenix Home Life Variable Accumulation Account (est. June 1, 1982)
Phoenix Home Life Variable Universal Life Account(est. June 17, 1985)
<PAGE>
SCHEDULE B
TRUST PORTFOLIOS AND CLASSES AVAILABLE
--------------------------------------
Portfolio: Templeton Asset Allocation Fund
Class: Class 2
Investment Advisor: Templeton Investment Counsel, Inc.
Portfolio: Templeton Developing Markets Fund
Class: Class 2
Investment Advisor: Templeton Asset Management Ltd.
Portfolio: Templeton International Fund
Class: Class 2
Investment Advisor: Templeton Investment Counsel, Inc.
Portfolio: Templeton Stock Fund
Class: Class 2
Investment Advisor: Templeton Investment Counsel, Inc.
Portfolio: Mutual Discovery Investments Fund
Class: Class 2
Investment Advisor: Franklin Mutual Advisers, Inc.
Portfolio: Mutual Shares Investments Fund
Class: Class 2
Investment Adviser: Franklin Mutual Advisers, Inc.
<PAGE>
SCHEDULE C
VARIABLE ANNUITY AND VARIABLE LIFE CONTRACTS
ISSUED BY PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
----------------------------------------------------
Contract Name Representative Form Number
- ------------- --------------------------
Variable Annuity
- ----------------
The Big Edge Form 2545
The Big Edge Form 2645
The Big Edge Plus Form 2646
The Group Strategic Edge - Unallocated Form GD603
The Group Strategic Edge - Allocated Form GD601
The Big Edge Choice in New York Form D 602
(includes all Portfolios listed on Schedule B)
Variable Life
- -------------
Phoenix Edge Form 5000
Flex Edge Form 2667
Flex Edge Success Form V603
Joint Edge Form V601
Estate Edge Form V604
Variable Insurance Additions Rider Form TR10
(includes all Portfolios listed on Schedule B)
<PAGE>
SCHEDULE D
PORTFOLIOS AVAILABLE IN PHOENIX CONTRACTS
-----------------------------------------
1. Investment Company: The Phoenix Edge Series Fund
Portfolios: Phoenix Multi-Sector Fixed Income Series
Phoenix Money Market Series
Phoenix Growth Series
Phoenix Strategic Allocation Series
Phoenix International Series
Phoenix Balanced Series
Phoenix Strategic Theme Series
Phoenix Real Estate Securities Series
Phoenix Aberdeen New Asia Series
Phoenix Research Enhanced Index Series
Engemann Nifty Fifty Series
Seneca Mid-Cap Growth Series
Phoenix Growth and Income Series
Phoenix Value Equity Series
Schafer Mid-Cap Value Series
2. Investment Company: Wanger Advisors Trust
Portfolios: Wanger U.S. Small Cap Series
Wanger International Small Cap Series
<PAGE>
SCHEDULE E
RULE 12B-1 PLANS
COMPENSATION SCHEDULE
---------------------
Schedule E
Page 1 of 2
Each Portfolio names below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
Portfolio Name Maximum Annual Payment Rate
- -------------- ---------------------------
TEMPLETON ASSET ALLOCATION FUND 0.25%
TEMPLETON DEVELOPING MARKETS FUND 0.25%
TEMPLETON INTERNATIONAL FUND 0.25%
TEMPLETON STOCK FUND 0.25%
MUTUAL DISCOVERY INVESTMENTS FUND 0.25%
MUTUAL SHARES INVESTMENTS FUND 0.25%
Agreement Provisions
--------------------
If the Company, on behalf of any Account, purchases Trust Portfolio shares
("Eligible Shares") which are subject to a Rule 12b-1 Plan adopted under the
1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the company or its affiliates, agents or designees
(collectively "you") provide administrative and other services which assist in
the promotion and distribution of Eligible Shares or Variable Contracts offering
Eligible Shares, the Underwriter, the Trust or their affiliates (collectively,
"we") may pay you a Rule 12b-1 fee. "Administrative and other services" may
include, but are not limited to, furnishing personal services to owners of
Contracts which may invest in Eligible Shares ("Contract Owners"), answering
routine inquires regarding a Portfolio, coordinating responses to Contract Owner
inquires regarding the Portfolios, maintaining such accounts or providing such
other enhanced services as a Trust Portfolio or Contract may require,
maintaining customer accounts and records, or providing other services eligible
for service fees as defined under NASD rules. Your acceptance of such
compensation is your acknowledgment that eligible services have been rendered.
All Rule 12b-1 fees, shall be based on the value of Eligible shares owned by the
Company on behalf of its Accounts, and shall be calculated on the basis and at
the rates set forth in the Compensation Schedule stated above. The aggregate
annual fees paid pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in the Portfolio's prospectus, unless an increase is
approved by shareholders as provided in the Plan. These maximums shall be a
specified percent of the value of a Portfolio's net assets attributable to
Eligible Shares owned by the Company on behalf of its Accounts (determined in
the same manner as the Portfolio uses to compute its net assets as set forth in
its effective Prospectus).
<PAGE>
SCHEDULE E
RULE 12B-1 PLANS
COMPENSATION SCHEDULE
---------------------
Schedule E
Page 2 of 2
You shall furnish us with such information as shall reasonable be requested
by the Trust's Boards of Trustees ("Trustees") with respect to the fees paid to
you pursuant to the Plans. We shall furnish to the Trustees, for their review on
a quarterly basis, a written report of the amounts expended under the Plans and
the purposes for which such expenditures were made.
The Plans and provisions of any agreement relating to such Plans must be
approved annually by a vote of the Trustees, including the Trustees who are not
interested persons of the Trust and who have no financial interest in the Plans
or any related agreement ("Disinterested Trustees"). Each Plan may be terminated
at any time by the vote of a majority of the Disinterested Trustees, or by a
vote of a majority of the outstanding shares as provided in the Plan, on sixty
(60) days' written notice, without payment of any penalty. The Plans may also be
terminated by any act that terminates the Underwriting Agreement between the
Underwriter and the Trust, and/or the management or administration agreement
between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and the Trust. Continuation of the Plans is also conditioned on
Disinterested Trustees being ultimately responsible for selecting and nominating
any new Disinterested Trustees. Under Rule 12b-1, the Trustees have a duty to
request and evaluate, and persons who are party to any agreement related to a
Plan have a duty to furnish, such information as may reasonably be necessary to
an informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the trust is permitted to implement
or continue Plans or the provisions of any agreement relating to such Plans from
year-to-year only if, based on certain legal considerations, the Trustees are
able to conclude that the Plans will benefit each affected Trust Portfolio and
class. Absent such yearly determination, the Plans must be terminated as set
forth above. In the event of the termination of the Plans for any reason, the
provisions of this Schedule E relating to the Plans will also terminate.
Any obligation assumed by the Trust pursuant to this Agreement shall be
limited in all cases to the assets of the Trust and no person shall seek
satisfaction thereof from shareholders of the Trust. You agree to waive payment
of any amounts payable to you by Underwriter under a Plan until such time as the
Underwriter has received such fee from the Fund.
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule E, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable
statutes, rules and regulations of all Rule 12b-1 fees received from us in the
prospectus of the contracts.
FUND PARTICIPATION AGREEMENT
----------------------------
This AGREEMENT is made this 15th day of July, 1999, by and between PHOENIX
HOME LIFE MUTUAL INSURANCE COMPANY (the "Insurer"), a life insurance company
domiciled in New York, on its behalf and on behalf of the segregated asset
accounts of the Insurer listed on Exhibit A to this Agreement (the "Separate
Accounts"); INSURANCE SERIES (the "Fund"), a Massachusetts business trust; and
FEDERATED SECURITIES CORP. (the "Distributor"), a Pennsylvania corporation.
W I T N E S S E T H
-------------------
WHEREAS, the Fund is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended ("1940 Act") and the Fund is authorized to issue
separate classes of shares of beneficial interest ("shares"), each representing
an interest in a separate portfolio of assets known as a "portfolio" and each
portfolio has its own investment objective, policies, and limitations; and
WHEREAS, the Fund is available to offer shares of one or more of its
portfolios to separate accounts of insurance companies that fund variable
annuity contracts ("Variable Contracts") and to serve as an investment medium
for Variable Contracts offered by insurance companies that have entered into
participation agreements substantially similar to this agreement ("Participating
Insurance Companies"), and the Fund will be made available in the future to
offer shares of one or more of its portfolios to separate accounts of insurance
companies that fund variable life insurance policies (at which time such
policies would also be "Variable Contracts" hereunder), and
1
<PAGE>
WHEREAS, the Fund is currently comprised of eight separate portfolios, and
other portfolios may be established in the future; and
WHEREAS, the Fund has obtained an order from the SEC dated December 29,
1993 (File No. 812-8620), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions from
the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and
Rules 63-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of life insurance companies that may
or may not be affiliated with one another (hereinafter the "Mixed and Shared
Funding Exemptive Order"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurer wishes to purchase shares of one or more of the Fund's
portfolios on behalf of its Separate Accounts to serve as an investment medium
for Variable Contracts funded by the Separate Accounts, and the Distributor is
authorized to sell shares of the Fund's portfolios;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants hereinafter set forth, the parties hereby agree as follows:
2
<PAGE>
ARTICLE I. Sale of Fund Shares
1.1 The Distributor agrees to sell to the Insurer those shares of the
portfolios offered and made available by the Fund and identified on Exhibit B
("Portfolios") that the Insurer orders on behalf of its Separate Accounts, and
agrees to execute such orders on each day on which the Fund calculates its net
asset value pursuant to rules of the SEC ("business day") at the net asset value
next computed after receipt and acceptance by the Fund or its agent of the order
for the shares of the Fund.
1.2 The Fund agrees to make available on each business day shares of the
Portfolios for purchase at the applicable net asset value per share by the
Insurer on behalf of its Separate Accounts; provided, however, that the Board of
Trustees of the Fund may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of shares of any Portfolio, if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, acting in good faith and in light of the
Trustees' fiduciary duties under applicable law, necessary in the best interests
of the shareholders of any Portfolio.
1.3 The Fund and the Distributor agree that shares of the Portfolios of
the Fund will be sold only to Participating Insurance Companies, their separate
accounts, and other persons consistent with each Portfolio being adequately
diversified pursuant to Section 817(h) of the Internal Revenue Code of 1986, as
amended ("Code"), and the regulations thereunder. No shares of any Portfolio
3
<PAGE>
will be sold directly to the general public to the extent not permitted by
applicable tax law.
1.4 The Fund and the Distributor will not sell shares of the Portfolios to
any insurance company or separate account unless an agreement containing
provisions substantially the same as the provisions in Article IV of this
Agreement is in effect to govern such sales.
1.5 Upon receipt of a request for redemption in proper form from the
Insurer, the Fund agrees to redeem any full or fractional shares of the
Portfolios held by the Insurer, ordinarily executing such requests on each
business day at the net asset value next computed after receipt and acceptance
by the Fund or its agent of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemption shall be paid
consistent with applicable rules of the SEC and procedures and policies of the
Fund as described in the current prospectus.
1.6 For purposes of Sections 1.2 and 1.5, the Insurer shall be the agent
of the Fund for the limited purpose of receiving and accepting purchase and
redemption orders from each Separate Account and receipt of such orders by 4:00
p.m. Eastern time by the Insurer shall be deemed to be receipt by the Fund for
purposes of Rule 22c-1 of the 1940 Act; provided that the Fund receives notice
of such orders on the next following business day prior to 4:00 p.m. Eastern
time on such day, although the Insurer will use its best efforts to provide such
notice by 9:00 a.m. Eastern time.
4
<PAGE>
1.7 The Insurer agrees to purchase and redeem the shares of each Portfolio
in accordance with the provisions of the current prospectus for the Fund.
1.8 The Insurer shall pay for shares of the Portfolio on the next business
day after it places an order to purchase shares of the Portfolio. Payment shall
be in federal funds transmitted by wire.
1.9 Issuance and transfer of shares of the Portfolios will be by book
entry only unless otherwise agreed by the Fund. Stock certificates will not be
issued to the Insurer or the Separate Accounts unless otherwise agreed by the
Fund. Shares ordered from the Fund will be recorded in an appropriate title for
the Separate Accounts or the appropriate subaccounts of the Separate Accounts.
1.10 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Insurer of any income dividends or capital gain
distributions payable on the shares of the Portfolios. The Insurer hereby elects
to reinvest in the Portfolio all such dividends and distributions as are payable
on a Portfolio's shares and to receive such dividends and distributions in
additional shares of that Portfolio. The Insurer reserves the right to revoke
this election in writing and to receive all such dividends and distributions in
cash. The Fund shall notify the Insurer of the number of shares so issued as
payment of such dividends and distributions.
1.11 The fund shall instruct its recordkeeping agent to advise the Insurer
on each business day of the net asset value per share for each Portfolio as soon
as reasonably practical after the net asset value per share is calculated and
5
<PAGE>
shall use its best efforts to make such net asset value per share available by
7:00 p.m. Eastern time.
ARTICLE II. Representations and Warranties
2.1 The Insurer represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that it is taxed as
an insurance company under Subchapter L of the Code.
2.2 The Insurer represents and warrants that it has legally and validly
established each of the Separate Accounts as a segregated asset account under
the ____________________ Insurance Code, and that each of the Separate Accounts
is a validly existing segregated asset account under applicable federal and
state law.
2.3 The Insurer represents and warrants that the Variable Contracts issued
by the Insurer or interests in the Separate Accounts under such Variable
Contracts (1) are or, prior to issuance, will be registered as securities under
the Securities Act of 1933 ("1933 Act") or, alternatively, (2) are not
registered because they are properly exempt from registration under the 1933 Act
or will be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act.
2.4 The Insurer represents and warrants that each of the Separate Accounts
(1) has been registered or, prior to any issuance or sale of the Variable
Contracts, the Insurer will register each Separate Account as a unit investment
trust in accordance with the provisions of the 1940 Act or, alternatively, (2)
has
6
<PAGE>
not been registered in proper reliance upon an exclusion from registration under
the 1940 Act.
2.5 The Insurer represents that it believes, in good faith, that the
Variable Contracts issued by the Insurer are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6 The Fund represents and warrants that it is duly organized as a
business trust under the laws of the Commonwealth of Massachusetts, and is in
good standing under applicable law.
2.7 The Fund represents and warrants that the shares of the Portfolios are
duly authorized for issuance in accordance with applicable law and that the Fund
is registered as an open-end management investment company under the 1940 Act.
2.8 The Fund represents that it believes, in good faith, that the
Portfolios currently comply with the diversification provisions of Section
817(h) of the Code and the regulations issued thereunder relating to the
diversification requirements for variable life insurance policies and variable
annuity contracts.
2.9 The Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
7
<PAGE>
ARTICLE III. General Duties
3.1 The Fund shall take all such actions as are necessary to permit the
sale of the shares of each Portfolio to the Separate Accounts, including
maintaining its registration as an investment company under the 1940 Act, and
registered the shares of the Portfolios sold to the Separate Accounts under the
1933 Act for so long as required by applicable law. The Fund shall amend its
Registration Statement filed with the SEC under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of the
shares of the Portfolios. The Fund shall register and qualify the shares for
sale in accordance with the laws of the various states to the extent deemed
necessary by the Fund or the Distributor.
3.2 The Fund shall make every effort to maintain qualification of each
Portfolio as a Regulated Investment Company under Subchapter M of the Code (or
any successor or similar provision) and shall notify the Insurer immediately
upon having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future.
3.3 The Fund shall make every effort to enable each Portfolio to comply
with the diversification provisions of Section 817(h) of the Code and the
regulations issued thereunder relating to the diversification requirements for
variable life insurance policies and variable annuity contracts and any
prospective amendments or other modifications to Section 817 or regulations
thereunder, and shall notify the Insurer immediately upon having a reasonable
basis for believing that any Portfolio has ceased to comply.
8
<PAGE>
3.4 The Insurer shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Insurer, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all necessary
approvals to offer the Variable Contracts from state insurance commissioners.
Nothing herein shall be deemed to require the Insurer to continue to sell any
Variable Contract.
3.5 The Insurer shall make every effort to maintain the treatment of the
Variable Contracts issued by the Insurer as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code, and
shall notify the Fund and the Distributor immediately upon having a reasonable
basis for believing that such Variable Contracts have ceased to be so treated or
that they might not be so treated in the future.
3.6 The Insurer shall offer and sell the Variable Contracts issued by the
Insurer in accordance with applicable provisions of the 1933 Act, the 1934 Act,
the 1940 Act, and the NASD Rules of Fair Practice, and state law respecting the
offering of variable life insurance policies and variable annuity contracts.
3.7 The Distributor shall sell and distribute the shares of the Portfolios
of the Fund in accordance with the applicable provisions of the 1933 Act, the
1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law.
9
<PAGE>
3.8 During such time as the Fund engages in Mixed Funding or Shared
Funding, a majority of the Board of Trustees of the Fund shall consist of
persons who are not "interested persons" of the Fund ("disinterested Trustees"),
as defined by Section 2(a)(19) of the 1940 Act and the rules thereunder, and as
modified by any applicable orders of the SEC, except that if this provision of
this Section 3.8 is not met by reason of the death, disqualification, or bona
fide resignation of any Trustee or Trustees, then the operation of this
provision shall be suspended (a) for a period of 45 days if the vacancy or
vacancies may be filled by the Fund's Board; (b) for a period of 60 days if a
vote of shareholders is required to fill the vacancy or vacancies; or (d) for
such longer period as the SEC may prescribe by order upon application.
3.9 The Insurer and its agents will not in any way recommend any proposal
or oppose or interfere with any proposal submitted by the Fund at a meeting of
owners of Variable Contracts or shareholders of the Fund, and will in no way
recommend, oppose, or interfere with the solicitation of proxies for Fund shares
held by Contract Owners, without the prior written consent of the fund, which
consent may be withheld in the Fund's sole discretion.
3.10 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
10
<PAGE>
ARTICLE IV. Potential Conflicts
4.1 During such time as the Fund engages in Mixed Funding or Shared
Funding, the parties hereto shall comply with the conditions of this Article IV.
4.2 The Fund's Board of Trustees shall monitor the Fund for the existence
of any material irreconcilable conflict (1) between the interests of owners of
variable annuity contracts and variable life insurance policies, and (2) between
the interests of owners of Variable Contracts ("Variable Contract Owners")
issued by different Participating Life Insurance Companies that invest in the
Fund. A material irreconcilable conflict may arise for a variety or reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio of
the Fund are being managed; (e) a difference in voting instructions given by
variable annuity and variable life insurance contract owners; or (f) a decision
by a Participating Insurance Company to disregard the voting instructions of
Variable Contract Owners.
4.3 The Insurer agrees that it shall report any potential or existing
conflicts of which it is aware to the Fund's Board of Trustees. The Insurer will
be responsible for assisting the Board of Trustees of the Fund in carrying out
its responsibilities under the Mixed and Shared Funding Exemptive Order, or, if
the Fund is engaged in Mixed Funding or Shared Funding in reliance on Rule 6e-2,
63-3(T), or any other regulation under the 1940 Act, the Insurer will be
11
<PAGE>
responsible for assisting the Board of Trustees of the Fund in carrying out its
responsibilities under such regulation, by providing the Board with all
information reasonably necessary for the Board to consider any issues raised.
This includes, but is not limited to, an obligation by the Insurer to inform the
Board whenever Variable Contract Owner voting instructions are disregarded. The
Insurer shall carry out its responsibility under this Section 4.3 with a view
only to the interests of the Variable Contract Owners.
4.4 The Insurer agrees that in the event that it is determined by a
majority of the Board of Trustees of the Fund or a majority of the Fund's
disinterested Trustees that a material irreconcilable conflict exists, the
Insurer shall, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested Trustees of the Board of the
Fund), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the Separate Accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another portfolio of the Fund, or submitting the question as to
whether such segregation should be implemented to a vote of all affected
Variable Contract Owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners or life insurance contract
owners of contracts issued by one or more Participating Insurance Companies),
that votes in favor of such segregation, or offering to the affected Variable
Contract Owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. If a
material irreconcilable conflict arises because of the Insurer's decision to
disregard Variable Contract Owners' voting instructions and that decision
represents a minority position or would preclude a majority vote,
12
<PAGE>
the Insurer shall be required, at the Fund's election, to withdraw the Separate
Accounts' investment in the Fund, provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees, and no charge or penalty will be imposed as a result of such
withdrawal. These responsibilities shall be carried out with a view only to the
interests of the Variable Contract Owners. A majority of the disinterested
Trustees of the Fund shall determine whether or not any proposed action
adequately remedies any material irreconcilable conflict, but in no event will
the Fund or its investment adviser or the Distributor be required to establish a
new funding medium for any Variable Contract. The Insurer shall not be required
by this Section 4.4 to establish a new funding medium for any Variable Contract
if any offer to do so has been declined by vote or a majority of Variable
Contract Owners materially adversely affected by the material irreconcilable
conflict.
4.5 The Insurer, at least annually, shall submit to the Fund's Board of
Trustees such reports, materials, or data as the Board reasonably may request so
that the Trustees of the Fund may fully carry out the obligations imposed upon
the Board by the conditions contained in the application for the Mixed and
Shared Funding Exemptive Order and said reports, materials, and data shall be
submitted more frequently if deemed appropriate the Board.
4.6 All reports of potential or existing conflicts received by the Fund's
Board of Trustees, and all Board action with regard to determining the existence
of a conflict, notifying Participating Insurance Companies of a conflict, and
determining whether any proposed action adequately remedies a conflict, shall
be properly recorded in the minutes of the Board of Trustees of the Fund or
other
13
<PAGE>
appropriate records, and such minutes or other records shall be made available
to the SEC upon request.
4.7 The Board of Trustees of the Fund shall promptly notify the Insurer in
writing of its determination of the existence of an irreconcilable material
conflict and its implications.
ARTICLE V. Prospectuses and Proxy Statements; Voting
5.1 The Insurer shall distribute such prospectuses, proxy statements and
periodic reports of the Fund to the owners of Variable Contracts issued by the
Insurer as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
5.2 The Distributor shall provide the Insurer with as many copies of the
current prospectus of the Fund as the Insurer may reasonably request. If
requested by the Insurer in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type or
in camera-ready or diskette format) and other assistance as is reasonably
necessary in order for the Insurer to either print a stand-alone document or
print together in one document the current prospectus for the Variable Contracts
issued by the Insurer and the current prospectus for the Fund, or a document
combining the Fund prospectus with prospectuses of other funds in which the
Variable Contracts may be invested. The Fund shall bear the expense of printing
copies of its current prospectus, or its proportional share of the expense of
printing combined prospectuses, that will be distributed to existing Variable
Contract Owners, and the Insurer shall bear the expense of printing copies of
the
14
<PAGE>
Fund's prospectus that are used in connection with offering the Variable
Contracts issued by the Insurer.
5.3 The Fund and the Distributor shall provide, at the Fund's expense,
such copies of the Fund's current Statement of Additional Information ("SAI") as
may reasonably be requested, to the Insurer and to any owner of a Variable
Contract issued by the Insurer who requests such SAI.
5.4 The Fund, at its expense, shall provide the Insurer with copies of its
proxy materials, periodic reports to shareholders, and other communications to
shareholders in such quantity as the Insurer shall reasonably require for
purposes of distributing to owners of Variable Contracts issued by the Insurer.
The Fund, at the Insurer's expense, shall provide the Insurer with copies of its
periodic reports to shareholders and other communications to shareholders in
such quantity as the Insurer shall reasonably request for use in connection
with offering the Variable Contracts issued by the Insurer. If requested by the
Insurer in lieu thereof, the Fund shall provide such documentation (including a
final copy of the Fund's proxy materials, periodic reports to shareholders, and
other communications to shareholders, as set in type or in camera-readyor
diskette format) and other assistance as reasonably necessary in order for the
Insurer to print such shareholder communications for distribution to owners of
Variable Contracts issued by the Insurer.
5.5 For so long as the SEC interprets the 1940 Act to require pass-through
voting by Participating Insurance Companies whose Separate Accounts are
registered as investment companies under the 1940 Act, the Insurer shall vote
shares of each Portfolio of the Fund held in a Separate Account or a subaccount
15
<PAGE>
thereof, whether or not registered under the 1940 Act, at regular and special
meetings of the Fund in accordance with instructions timely received by the
Insurer (or its designated agent) from owners of Variable Contracts funded by
such Separate Account or subaccount thereof having a voting interest in the
Portfolio. The Insurer shall vote shares of a Portfolio of the Fund held in a
Separate Account or a subaccount thereof that are attributable to the Variable
Contracts as to which no timely instructions are received, as well as shares
held in such Separate Account or subaccount thereof that are not attributable to
the Variable Contracts and owned beneficially by the Insurer (resulting from
charges against the Variable Contracts or otherwise), in the same proportion as
the votes cast by owners of the Variable Contracts funded by that Separate
Account or subaccount thereof having a voting interest in the Portfolio from
whom instructions have been timely received. The Insurer shall vote shares of
each Portfolio of the Fund held in its general account, if any, in the same
proportion as the votes cast with respect to shares of the Portfolio held in all
Separate Accounts of the Insurer or subaccounts thereof, in the aggregate.
5.6 During such time as the fund engages in Mixed Funding or Shares
Funding, the Fund shall disclose in its prospectus that (1) the Fund is intended
to be a funding vehicle for variable annuity and variable life insurance
contracts offered by various insurance companies, (2) material irreconcilable
conflicts possibly may arise, and (3) the Board of Trustees of the Fund will
monitor events in order to identify the existence of any material irreconcilable
conflicts and to determine what action, if any, should be taken in response to
any such conflict. The Fund hereby notifies the Insurer that prospectus
disclosure may be appropriate regarding potential risks of offering shares of
the Fund to separate accounts funding both variable annuity contracts and
variable life insurance
16
<PAGE>
policies and to separate accounts funding Variable Contracts of unaffiliated
life insurance companies.
ARTICLE VI. Sales Material and Information
6.1 The Insurer shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund (or any Portfolio thereof) or its investment adviser or the
Distributor is named at least 15 days prior to the anticipated use of such
material, and no such sales literature or other promotional material shall be
used unless the Fund and the Distributor or the designee of either approve the
material or do not respond with comments on the material within 10 days from
receipt of the material.
The Insurer need not obtain the prior approval as set forth above if the
proposed sales material or promotional literature contains only language about
the Fund (or any Portfolio thereof) or its investment adviser or the Distributor
which has been so approved. The Insurer need not obtain the prior approval as
set forth above with respect to performance numbers of any Portfolio, provided
such performance calculation includes the imposition of contract charges and
fees.
6.2 The Insurer agrees that neither it nor any of its affiliates or agents
shall give any information or make any representations or statements on behalf
of the Fund or concerning the Fund other than the information or representations
contained in the Registration Statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee
17
<PAGE>
and by the Distributor or its designee, except with the permission of the fund
or its designee and the Distributor or its designee.
6.3 The Fund or the Distributor or the designee of either shall furnish to
the Insurer or its designee, each piece of sales literature or other promotional
material in which the Insurer or its Separate Accounts are named at least 15
days prior to the anticipated use of such material, and no such material shall
be used unless the Insurer or its designee approves the material or does not
respond with comments on the material within 10 days from receipt of the
material.
6.4 The Fund and the Distributor agree that each and the affiliates and
agents of each shall not give any information or make any representations on
behalf of the Insurer or concerning the Insurer, the Separate Accounts, or the
Variable Contracts issued by the Insurer, other that the information or
representations contained in a registration statement or prospectus for such
Variable Contracts, as such registration statement and prospectus may be amended
or supplemented from time to time, or in reports for the Separate Accounts or
prepared for distribution to owners of such Variable Contracts, or in sales
literature or other promotional material approved by the Insurer or its
designee, except with the permission of the Insurer.
6.5 The Fund will provide to the Insurer at least one complete copy of the
Mixed and Shared Funding Exemptive Application and any amendments thereto, all
prospectuses, Statements of Additional Information, reports, proxy statements
and other voting solicitation materials, and all amendments and supplements to
any of the above, that relate to the Fund or its shares, promptly after the
filing of such document with the SEC or other regulator authorities.
18
<PAGE>
6.6 The Insurer will provide to the Fund all prospectuses (which shall
include an offering memorandum if the Variable Contracts issued by the Insurer
or interests therein are not registered under the 1933 Act), Statements of
Additional Information, reports, solicitations for voting instructions relating
to the Fund, and all amendments or supplements to any of the above that relate
to the Variable Contracts issued by the Insurer or the Separate Accounts which
utilize the Fund as an underlying investment medium, promptly after the filing
of such document with the SEC or other regulatory authority.
6.7 For purposes of this Article VI, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use, in a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, computerized media, or other public
media), sales literature (i.e., any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees.
ARTICLE VII. Indemnification
7.1 Indemnification by the Insurer
7.1(a) The Insurer agrees to indemnify and hold harmless the Fund,
each of its Trustees and officers, any affiliated person of the Fund within
19
<PAGE>
the meaning of Section 2(a)(3) of the 1940 Act, and the Distributor
(collectively, the "Indemnified Parties" for purposes of this Section 7.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Insurer) or litigation expenses
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or litigation expenses are
related to the sale or acquisition of the Fund's shares or the Variable
Contracts issued by the Insurer and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus (which shall include an offering
memorandum) for the Variable Contracts issued by the Insurer or sales
literature for such Variable Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Insurer by or
on behalf of the Fund for use in the registration statement or
prospectus for the Variable Contracts issued by the Insurer or sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of such Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations contained in
the registration statement, prospectus or sales literature of the Fund
not supplied by the Insurer or persons under its control) or wrongful
conduct of the Insurer or any of its affiliates, employees or agents
with respect to the sale or distribution of the Variable Contracts
issued by the Insurer or the Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment
20
<PAGE>
thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information furnished
to the Fund by or on behalf of the Insurer; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Insurer in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Insurer;
except to the extent provided in Sections 7.1(b) and 7.1(c) hereof.
7.1(b) The Insurer shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Indemnified Party's duties or by reason of the Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Fund.
7.1(c) The Insurer shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Insurer in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Party shall have received notice of such service on any designated agent), but
failure to notify the Insurer of any such claim shall not relieve the Insurer
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, the Insurer
shall be entitled to participate, at its own expense, in the defense of such
action.
21
<PAGE>
The Insurer also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Insurer to
such party of the Insurer's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Insurer will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.1(d) The Indemnified Parties shall promptly notify the Insurer of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Variable Contracts issued by
the Insurer or the operation of the Fund.
7.2 Indemnification By the Distributor
7.2(a) The Distributor agrees to indemnify and hold harmless the
Insurer, its affiliated principal underwriter of the Variable Contracts, and
each of their directors and officers and any affiliated person of the Insurer
within the meaning of Section 2(a)(3) of the 1940 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Distributor) or litigation expenses (including legal
and other expenses) to which the Indemnified Parties may become subject under
any statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or litigation expenses are related to the sale or
acquisition of the Fund's shares or the Variable Contracts issued by the Insurer
and:
22
<PAGE>
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Fund
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Distributor or the Fund or the designee of either by or on behalf
of the Insurer for use in the registration statement or prospectus for
the Fund or in sales literature (or any amendment or supplement) or
otherwise for use in the registration statement or prospectus for the
Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Variable
Contracts issued by the Insurer or Fund shares; or
(ii) arise out of or as a result of any statement or
representations (other that statements or representations contained in
the registration statement, prospectus or sales literature for the
Variable Contracts not supplied by the Distributor or any employees or
agents thereof) or wrongful conduct of the Fund or Distributor, or the
affiliates, employees, or agents of the Fund or the Distributor with
respect to the sale or distribution of the Variable Contracts issued
by the Insurer or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Variable Contracts issued
by the Insurer, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Insurer by or on behalf of
the Fund; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor in this
Agreement or arise out of or result from any other material breach of
this Agreement by the Distributor;
except to the extent provided in Sections 7.2(b) and 7.2(c) hereof.
23
<PAGE>
7.2(b) The Distributor shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation expenses to which an Indemnified Party would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of the Indemnified Party's duties or by reason of
the Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Insurer or the Separate Accounts.
7.2(c) The Distributor shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Party shall have notified the Distributor in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Party shall have received notice of such
service on any designated agent), but failure to notify the Distributor of any
such claim shall not relieve the Distributor from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Distributor will be entitled to
participate, at is own expense, in the defense thereof. The Distributor also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Distributor to such party
of the Distributor's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Distributor will not be liable to such party under this Agreement for
any legal or other expense subsequently incurred by such
24
<PAGE>
party independently in connection with the defense thereof other than reasonable
costs of investigation.
7.2(d) The Insurer shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Variable Contracts
issued by the Insurer or the operation of the Separate Accounts.
7.3 Indemnification by the Fund
7.3(a) The Fund agrees to indemnify and hold harmless the Insurer,
its affiliated principal underwriter of the Variable Contracts, and each of
their directors and officers and any affiliated person of the Insurer within the
meaning of Section 2(a)(3) of the 1940 Act (collectively, the "Indemnified
Parties" for purposes of this Section 7.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Fund) or litigation expenses (including legal and other expenses)
to which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or litigation expenses are related to the sale or acquisition of
the Fund's shares or the Variable Contracts issued by the Insurer and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Fund
(or any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in
25
<PAGE>
conformity with information furnished to the Distributor or the Fund
or the designee of either by or on behalf of the Insurer for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts issued by the
Insurer or Fund shares; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations contained in
the registration statement, prospectus or sales literature for the
Variable Contracts not supplied by the Distributor or any employees or
agents thereof) or wrongful conduct of the Fund, or the affiliates,
employees, or agents of the Fund, with respect to the sale or
distribution of the Variable Contracts issued by the Insurer or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus or sales literature covering the Variable Contracts issued
by the Insurer, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Insurer by or on behalf of
the Fund; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Fund; or
(v) arise as a result of (1) a failure by a Portfolio
invested in by a Separate Account to comply with the diversification
requirements of Section 817(h) of the Code, or (2) a failure by a
Portfolio invested in a by a Separate Account to qualify as a
"regulated investment company" under Subchapter M of the Code;
except to the extent provided in Sections 7.3(b) and 7.3(c) hereof.
7.3(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities to litigation
26
<PAGE>
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Indemnified Party's duties or by reason of the Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Insurer or the
Separate Accounts.
7.3(c) The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such party shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Party shall have received notice of such service on any designated agent), but
failure to notify the Fund of any such claim shall not relieve the Fund from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own expense, in the defense thereof. The Fund
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Fund to such party of
the Fund's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Fund will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.3(d) The Insurer shall promptly notify the Fund of the
commencement of any litigation or proceedings against it or any of its officers
or
27
<PAGE>
directors in connection with the issuance or sale of the Variable Contracts
issued by the Insurer or the sale of the Fund's shares.
ARTICLE VIII. Applicable Law
8.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Pennsylvania.
8.2 This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Mixed and Shared Funding Exemptive Order),
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE IX. Termination
9.1 This Agreement shall terminate:
(a) at the option of any party upon 180 days advance notice to the
other parties; or
(b) at the option of the Insurer if shares of the Portfolios are not
reasonably available to meet the requirements of the Variable Contracts issued
by the Insurer, as determined by the Insurer, and upon prompt notice by the
Insurer to the other parties; or
28
<PAGE>
(c) at the option of the Fund or the Distributor upon institution of
format proceedings against the Insurer or its agent by the NASD, the SEC, or any
state securities or insurance department or any other regulator body regarding
the Insurer's duties under this Agreement or related to the sale of the Variable
Contracts issued by the Insurer, the operation of the Separate Accounts, or the
purchase of the Fund shares; or
(d) at the option of the Insurer upon institution of formal
proceedings against the Fund or the Distributor by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body; or
(e) upon requisite vote of the Variable Contract Owners having an
interest in the Separate Accounts (or any subaccounts thereof) to substitute the
shares of another investment company for the corresponding shares of the Fund or
a Portfolio in accordance with the terms of the Variable Contracts for which
those shares had been selected or serve as the underlying investment media; or
(f) in the event any of the shares of a Portfolio are not registered,
issued or sold in accordance with applicable state and/or federal law, or such
law precludes the use of such shares as the underlying investment media of the
Variable Contracts issued or to be issued by the Insurer; or
(g) by any party to the Agreement upon a determination by a majroity
of the Trustees of the Fund, or a majority of its disinterested Trustees, that
an irreconcilable conflict, as described in Article IV hereof, exists; or
29
<PAGE>
(h) at the option of the Insurer if the Fund or a Portfolio fails to
meet the requirements under Subchapter M of the Code for qualification as a
Regulated Investment Company specified in Section 3.2 hereof or the
diversification requirements specified in Section 3.3 hereof.
9.2 Each party to this Agreement shall promptly notify the other parties
to the Agreement of the institution against such party of any such formal
proceedings as described in Sections 9.1(c) and (d) hereof. The Insurer shall
give 60 days prior written notice to the Fund of the date of any proposed vote
of Variable Contract Owners to replace the Fund's shares as described in Section
9.1(e) hereof.
9.3 Except as necessary to implement Variable Contract Owner initiated
transactions, or as required by state insurance laws or regulations, the Insurer
shall not redeem Fund shares attributable to the Variable Contracts issued by
the Insurer (as opposed to Fund shares attributable to the Insurer's assets held
in the Separate Accounts), and the Insurer shall not prevent Variable Contract
Owners from allocating payments to a Portfolio, until 45 days after the Insurer
shall have notified the Fund or Distributor of its intention to do so.
9.4 Notwithstanding any termination of this Agreement, the Fund and the
Distributor shall at the option of the Insurer continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Variable Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, based upon instructions from the owners of the
Existing Contracts, the Separate Accounts shall be permitted to reallocate
30
<PAGE>
investments in the Portfolios of the Fund and redeem investments in the
Portfolios, and shall be permitted to invest in the Portfolios in the event that
owners of the Existing Contracts make additional purchase payments under the
Existing Contracts. If this Agreement terminates, the parties agree that
Sections 3.10, 7.1, 7.2, 7.3, 8.1, and 8.2, and, to the extent that all or a
portion of the assets of the Separate Accounts continue to be invested in the
Fund or any Portfolio of the Fund, Articles I, II, and IV and Sections 5.5 and
5.6 will remain in effect after termination.
ARTICLE X. Notice
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Insurance Series
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
If to the Distributor:
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
31
<PAGE>
If to the Insurer:
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, CT 06102
Attn.: Simon Tan
ARTICLE XI: Miscellaneous
11.1 The Fund and the Insurer agree that if and to the extent Rule 6e-2 or
Rule 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in final
form, to the extent applicable, the Fund and the Insurer shall each take such
steps as may be necessary to comply with the Rule as amended or adopted in final
form.
11.2 A copy of the Fund's Agreement and Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that any agreements that are executed on behalf of the Fund by any Trustee
or officer of the Fund are executed in his or her capacity as Trustee or officer
and not individually. The obligations of this Agreement shall only be binding
upon the assets and property of the Fund and shall not be binding upon any
Trustee, officer or shareholder of the Fund individually.
11.3 Nothing in this Agreement shall impede the Fund's Trustees or
shareholders of the shares of the Fund's Portfolios from exercising any of the
rights provided to such Trustees or shareholders in the Fund's Agreement and
Declaration of Trust, as amended, a copy of which will be provided to the
Insurer upon request.
32
<PAGE>
11.4 Administrative services to Variable Contract Owners shall be the
responsibility of Insurer. Insurer, on behalf of its separate accounts will be
the sole shareholder of record of Fund shares. Fund and Distributor recognize
that they will derive a substantial savings in administrative expense by virtue
of having a sole shareholder rather than multiple shareholders. In consideration
of the administrative savings resulting from having a sole shareholder rather
than multiple shareholders, Distributor agrees to pay to Insurer an amount
computed at an annual rate of .25 of 1% of the average daily net asset value of
shares held in subaccounts for which Insurer provided administrative services.
Distributor's payments to Insurer are for administrative services only and do
not constitute payment in any manner for investment advisory services.
11.5 It is understood that the name "Federated" or any derivative thereof
or logo associated with that name is the valuable property of the Distributor
and its affiliates, and that the Insurer has the right to use such name (or
derivative or logo) only so long as this Agreement is in effect or shares are
made available under Section 9.4 hereof. Upon termination of this Agreement the
Insurer shall forthwith cease to use such name (or derivative or logo) unless
shares are being made available under Section 9.4 hereof.
11.6 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
33
<PAGE>
11.7 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.8 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
11.9 This Agreement may not be assigned by any party to the Agreement
except with the written consent of the other parties to this Agreement.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
INSURANCE SERIES
ATTEST: /s/ A. J. Reed BY: /s/ J. W. McGonigle
---------------------------- -------------------------------
Name: Amanda J. Reed Name: John W. McGonigle
---------------------------- ------------------------
Title: Staff Attorney Title: Executive Vice President
---------------------------- ------------------------
FEDERATED SECURITIES CORP.
ATTEST: /s/ A. J. Reed BY: /s/ John B. Fisher
---------------------------- -------------------------------
Name: Amanda J. Reed Name: John b. Fisher
---------------------------- ------------------------
Title: Staff Attorney Title: President
---------------------------- ------------------------
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
ATTEST: /s/ John H. Beers BY: /s/ Robert G. Lautensack Jr.
---------------------------- -------------------------------
Name: John H. Beers Name: Robert G. Lautensack Jr.
---------------------------- ------------------------
Title: Secretary Title: Sr. Vice President
---------------------------- ------------------------
35
<PAGE>
EXHIBIT A
Separate Accounts
Phoenix Home Life Mutual Insurance Company
Phoenix Home Life Variable Accumulation Account
Phoenix Home Life Variable Universal Life Account
<PAGE>
EXHIBIT B
Federated Funds in Phoenix Variable Insurance Products
Federated Fund for U.S. Government Securities II
Federated High Income Bond Fund II
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 19th day of July, 1999 by and among BT
Insurance Funds Trust ("TRUST"), a Massachusetts business trust, Bankers Trust
Company ("ADVISOR"), a New York banking corporation, and Phoenix Home Life
Mutual Insurance Company ("LIFE COMPANY"), a life insurance company organized
under the laws of the State of New York.
WHEREAS, TRUST is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "40 Act"), as
an open-end, diversified management investment company; and
WHEREAS, TRUST is comprised of several series funds (each a "Portfolio"),
with those Portfolios currently available being listed on Appendix A hereto; and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies through separate accounts ("Separate
Accounts") of such life insurance companies ("Participating Insurance
Companies"); and
WHEREAS, TRUST may also offer its shares to certain qualified pension and
retirement pans ("Qualified Plans"); and
WHEREAS, TRUST has received an order from the SEC, granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and Rules 6e-2(b)(15)
and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the
Portfolios of the TRUST to be sold to and held by Variable Contract Separate
Accounts of both affiliated and unaffiliated Participating Insurance Companies
and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more Separate
Accounts to offer Variable Contracts and is desirous of having TRUST as one of
the underlying funding vehicles for such Variable Contracts; and
WHEREAS, ADVISER is a "bank" as defined in the Investment Advisers Act of
1940, as amended (the "Advisers Act") and as such is excluded from the
definition of "Investment Adviser" and is not required to register as an
investment adviser pursuant to the Advisers act; and
WHEREAS, ADVISER serves as the TRUST'S investment adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of TRUST to fund the
aforementioned Variable Contracts and TRUST is authorized to sell such shares to
LIFE COMPANY at such shares' net asset value;
1
<PAGE>
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST, and ADVISER agree as follows:
Article I. SALE OF TRUST SHARES
1.1 TRUST agrees to make available to the Separate Accounts of LIFE COMPANY
shares of the selected Portfolios as listed on Appendix B for investment of
purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in TRUST's Registration Statement.
1.2 TRUST agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of TRUST which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by TRUST or its
designee of the order for the shares of TRUST. For purposes of this Section 1.2,
LIFE COMPANY shall be the designee of TRUST for receipt of such orders from the
designated Separate Account and receipt by such designee shall constitute
receipt by TRUST; provided that LIFE COMPANY receives the order by 4:00 p.m. New
York time and TRUST receives notice from LIFE COMPANY by telephone or facsimile
(or by such other means as TRUST and LIFE COMPANY may agree in writing) of such
order by 8:00 a.m. New York time on the next Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which TRUST calculates its net asset value pursuant to the rules of the SEC.
1.3 TRUST agrees to redeem on LIFE COMPANY's request, any full or fractional
shares of TRUST held by LIFE COMPANY, executing such requests on a daily basis
at the net asset value next computed after receipt by TRUST or its designee of
the request for redemption, in accordance with the provisions of this Agreement
and TRUST's Registration Statement. (In the event of a conflict between the
provisions of this Agreement and the TRUST's Registration Statement, the
provisions of the Registration Statement shall govern.) For purposes of this
Section 1.3, LIFE COMPANY shall be the designee of TRUST for receipt of requests
for redemption from the designated Separate Account and receipt by such designee
shall constitute receipt by TRUST; provided that LIFE COMPANY receives the
request for redemption by 4:00 p.m. New York time and TRUST receives notice from
LIFE COMPANY by telephone or facsimile (or by such other means as TRUST and LIFE
COMPANY may agree in writing) of such request for redemption by 9:00 a.m. New
York time on the next Business Day.
1.4 TRUST shall furnish, on or before each ex-dividend date, notice to LIFE
COMPANY of any income dividends or capital gain distributions payable on the
shares of any Portfolio of TRUST. LIFE COMPANY hereby elects to receive all such
income dividends and capital gain distributions as are payable on a Portfolio's
shares in additional shares of the Portfolio. TRUST shall notify LIFE COMPANY or
its designee of the number of shares so issued as payment of such dividends and
distributions.
1.5 TRUST shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:30
2
<PAGE>
p.m. New York time. If TRUST provides LIFE COMPANY with materially incorrect
share net asset value information through no fault of LIFE COMPANY, LIFE COMPANY
on behalf of the Separate Accounts, shall be entitled to an adjustment to the
number of shares purchased or redeemed to reflect the correct share net asset
value. Any material error in the calculation of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to LIFE COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the information
described in Section 1.5 to calculate Separate Account unit values for the day.
Using these unit values, LIFE COMPANY shall process each such Business Day's
Separate Account transactions based on requests and premiums received by it by
the close of trading on the floor of the New York Stock Exchange (currently 4:00
p.m. New York Time) to determine the net dollar amount of TRUST shares which
shall be purchased or redeemed at that day's closing net asset value per share.
The net purchase or redemption orders so determined shall be transmitted to
TRUST by LIFE COMPANY by 8:00 a.m. New York Time on the Business Day next
following LIFE COMPANY's receipt of such requests and premiums in accordance
with the terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of TRUST shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to TRUST or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. IF LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall use its best efforts
to wire the redemption proceeds to LIFE COMPANY by the next Business Day, unless
doing so would require TRUST to dispose of Portfolio securities or otherwise
incur additional costs. In any event, proceeds shall be wired to LIFE COMPANY
within the time period permitted by the '40 Act or the rules, orders or
regulations thereunder, and TRUST shall notify the person designated in writing
by LIFE COMPANY as the recipient for such notice of such delay by 3:00 p.m. New
York Time on the same Business Day that LIFE COMPANY transmits the redemption
order to TRUST. IF LIFE COMPANY's order requests the application of redemption
proceeds from the redemption of shares to the purchase of shares of another Fund
advised by ADVISER, TRUST shall so apply such proceeds on the same Business Day
that LIFE COMPANY transmits such order to TRUST.
1.8 TRUST agrees that all shares of the Portfolios of TRUST will be sold
only to Participating Insurance Companies which have agreed to participate in
TRUST to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h)(4) of the Internal Revenue
Code of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of the
TRUST's Portfolios will not be sold directly to the general public. The Trust
will not sell shares of the Portfolios to any insurance company or separate
account unless an agreement containing provisions substantially the same as the
provisions in Article V of this Agreement is in effect to govern such sales.
1.9 TRUST may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of or liquidate any Portfolio of
TRUST if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of
3
<PAGE>
Trustees of the TRUST (the "Board"), acting in good faith and in light of its
duties under federal and any applicable state laws, deemed necessary, desirable
or appropriate and in the best interests of the shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry only.
Stock certificates will not be issued to LIFE COMPANY or Separate Accounts.
Shares ordered from Portfolio will be recorded in appropriate book entry titles
for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of New York and that it has
legally and validly established each Separate Account as a segregated asset
account under such laws, and that Phoenix Equity Planning Corporation, the
principal underwriter for the Variable Contracts, is registered as
broker-dealer under the Securities Exchange Act of 1934 (the "'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or, prior to
any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the '40 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts will be
registered under the Securities Act of 1933 (the "'33 Act") unless an exemption
from registration is available prior to any issuance or sale of the Variable
Contracts, and that the Variable Contracts will be issued and sold in compliance
in all material respects with all applicable federal and state laws (including
all applicable blue sky laws) and further that the sale of the Variable
Contracts shall comply in all material respects with applicable state insurance
law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify TRUST immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 TRUST represents and warrants that the Fund shares offered and sold
pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal laws, and TRUST shall be registered under
the '40 Act prior to and at the time of any issuance or sale of such shares.
TRUST, subject to Section 1.9 above, shall amend its registration statement
under the '33 Act and the '40 Act from time to time as required in order to
effect the continuous offering of its shares. TRUST shall register and qualify
its shares for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by TRUST.
2.6 TRUST represents and warrants that each Portfolio will comply with the
diversification requirements set forth in Section 817(h) of the Code, and the
rules and regulations thereunder,
4
<PAGE>
including without limitation Treasury Regulation 1.817-5, and will notify LIFE
COMPANY immediately upon having a reasonable basis for believing any Portfolio
has ceased to comply and will immediately take all reasonable steps to
adequately diversify the Portfolio to achieve compliance.
2.7 TRUST represents and warrants that each Portfolio invested in by the
Separate Account will be treated as a "regulated investment company" under
Subchapter M of the Code, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8 ADVISER represents and warrants that it shall perform its obligations
hereunder in compliance in all material respects with any applicable state and
federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 TRUST shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of TRUST.
TRUST shall bear the cost of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 TRUST or its designee shall provide LIFE COMPANY, free of charge, with
as many copies of the current prospectus (or prospectuses), statements of
additional information, annual and semi-annual reports and proxy statements for
the shares of the Portfolios as LIFE COMPANY may reasonably request for
distribution to existing Variable Contract owners whose Variable Contracts are
funded by such shares. TRUST or its designee shall provide LIFE COMPANY, at LIFE
COMPANY's expense, with as many copies of the current prospectus (or
prospectuses) for the shares as LIFE COMPANY may reasonably request for
distribution to prospective purchasers of Variable contracts. If requested by
LIFE COMPANY, TRUST or its designee shall provide such documentation (including
a "camera ready" copy of the current prospectus (or prospectuses) as set in type
or, at the request of LIFE COMPANY, as a diskette in the form sent to the
financial printer) and other assistance as is reasonably necessary in order for
the parties hereto once a year (or more frequently if the prospectus (or
prospectuses) for the shares is supplemented or amended) to have the prospectus
for the Variable Contracts and the prospectus (or prospectuses) for the TRUST
shares printed together in one document. The expenses of such printing will be
apportioned between LIFE COMPANY and TRUST in proportion to the number of pages
of the Variable Contract and TRUST prospectus, taking account of other relevant
factors affecting the expense of printing, such as covers, columns, graphs and
charts; TRUST shall bear the cost of printing the TRUST prospectus portion of
such document for distribution only to owners of existing Variable Contracts
funded by the TRUST shares and LIFE COMPANY shall bear the expense of printing
the portion of such documents relating to the Separate Account; provided,
however, LIFE COMPANY shall bear all printing expenses of such combined
documents where used for distribution to prospective purchasers or to owners of
existing Variable Contracts not funded by the shares. In the event that LIFE
5
<PAGE>
COMPANY requests that TRUST or its designee provide TRUST's prospectus in a
"camera ready" or diskette format, TRUST shall be responsible for providing the
prospectus (or prospectuses) in the format in which it is accustomed to
formatting prospectuses and shall bear the expense of providing the prospectus
(or prospectuses) in such format (e.g. typesetting expenses), and LIFE COMPANY
shall bear the expense of adjusting or changing the format to conform with any
of its prospectuses.
3.3 TRUST will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide TRUST with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account promptly after the filing of each
such document with the SEC or other regulatory authority.
Article IV. SALES MATERIAL
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to TRUST and
ADVISER, each piece of sales literature or other promotional material in which
TRUST or ADVISER is named, at least fifteen (15) Business Days prior to its
intended use. No such material will be used if TRUST or ADVISER objects to its
use in writing within ten (10) Business Days after receipt of such material.
4.2 TRUST and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature or other promotional material in which
LIFE COMPANY, or its Separate Accounts are named, at least fifteen (15) Business
Days prior to its intended use. No such material will be used if LIFE COMPANY
objects to its use in writing within ten (10) Business Days after receipt of
such material.
4.3 TRUST and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY,
the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other
than the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by LIFE COMPANY or its designee, except with the written permission of
LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of TRUST or concerning TRUST
other than the information or representations contained in a registration
statement or prospectus for TRUST, as such registration statement and prospectus
may be amended or supplemented from time to time, or in
6
<PAGE>
sales literature or other promotional material approved by TRUST or its
designee, except with the written permission of TRUST.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media),
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information, shareholder
reports and proxy materials, and any other material constituting sales
literature or advertising under National Association of Securities Dealers, Inc.
("NASD") rules, the '40 Act, the '33 Act or rules thereunder.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that TRUST has received an order from the SEC
granting relief from various provisions of the '40 Act and the rules thereunder
to the extent necessary to permit TRUST shares to be sold to and held by
Variable Contract separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and Qualified Plans. The Exemptive Order
requires TRUST and each participating Insurance Company to comply with
conditions and undertakings substantially as provided in this Section 5. The
TRUST will not enter into a participation agreement with any other Participating
Insurance Company unless it imposes the same conditions and undertakings as are
imposed on LIFE COMPANY hereby.
5.2 The Board will monitor TRUST for the existence of any material
irreconcilable conflict between the interests of Variable Contract owners of all
separate accounts and with participants of Qualified Plans investing in TRUST.
An irreconcilable material conflict may arise for a variety of reasons, which
may include: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling or any similar action by
insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of TRUST are being managed; (e) a difference in voting instructions
given by Variable Contract owners; (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Variable Contract owners and (g)
if applicable, a decision by a Qualified Plan to disregard the voting
instructions of plan participants.
5.3 LIFE COMPANY will report any potential or existing conflicts of which
it becomes aware to the Board. LIFE COMPANY will be responsible for assisting
the Board in carrying out its duties in this regard by providing the Board with
all information reasonably necessary for the Board to consider any issues
raised. The responsibility includes, but is not limited to, an obligation by the
LIFE COMPANY to inform the Board whenever it has determined to disregard
7
<PAGE>
Variable Contract owner voting instructions. These responsibilities of LIFE
COMPANY will be carried out with a view only to the interest of the Variable
Contract owners.
5.4 If a majority of the Board or majority of its disinterested Trustees,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested Trustees), will take
any steps necessary to remedy or eliminate the irreconcilable material conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from TRUST or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another Portfolio of TRUST, or
another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Variable Contract
owners and as appropriate, segregating the assets of any appropriate group
(i.e., variable annuity or variable life insurance Contract owners of one or
more Participating Insurance Companies) that votes in favor of such segregation,
or offering to the affected Variable Contract owners the option of making such a
change; and (c) establishing a new registered management investment company (or
series thereof) or managed separate account. If a material irreconcilable
conflict arises because of LIFE COMPANY's decision to disregard Variable
Contract owner voting instructions, and that decision represents minority
position or would perclude a majority vote, LIFE COMPANY may be required, at the
election of TRUST, to withdraw the Separate Account's investment in TRUST, and
no charge or penalty will be imposed as a result of such withdrawal. The
responsibility to take such remedial action shall be carried out with a view
only to the interests of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
TRUST or ADVISER (or any other investment adviser of TRUST) be required to
establish a new funding medium for any Variable Contact. Further, LIFE COMPANY
shall not be required by this Section 5.4 to establish a new funding medium for
any Variable Contracts if any offer to do so has been declined by a vote of a
majority of Variable Contract owners materially and adversely affected by the
irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable material
conflict and its implications shall be made known promptly and in writing to
LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all Variable
Contract owners so long as the SEC continues to interpret the '40 Act as
requiring pass-through voting privileges for Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will
8
<PAGE>
vote shares of the Portfolio held in its Separate Accounts in a manner
consistent with voting instructions timely received from its Variable Contract
owners. LIFE COMPANY will be responsible for assuring that each of its Separate
Accounts that participates in TRUST calculates voting privileges in a manner
consistent with other Participating Insurance Companies. LIFE COMPANY will vote
shares for which it has not received timely voting instructions, as well as
shares it owns, in the same proportion as its votes those shares for which it
has received voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if Rule
6e-3 is adopted, to provide exemptive relief from any provision of the '40 Act
or the rules thereunder with respect to mixed and shared funding on terms and
conditions materially different from any exemptions granted in the Exemptive
Order, then TRUST, and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-2 and Rule
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules are
applicable.
Article VII. INDEMNIFICATION
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to indemnify and
hold harmless TRUST, ADVISER and each of their Trustees, directors, principals,
officers, employees and agents and each person, if any, who controls TRUST or
ADVISER within the meaning of Section 15 of the '33 Act (collectively, the
"Indemnified Parties") against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of LIFE COMPANY,
which consent shall not be unreasonably withheld) or litigation or threatened
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of TRUST's shares or the Variable contracts and:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement or prospectus for the Variable Contracts or contained in the
Variable Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished in writing to
LIFE COMPANY by or on behalf of TRUST for use in the registration statement
or prospectus for the Variable Contracts or in the Variable Contracts or
sales literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or TRUST shares; or
(b) arise out of or result from (i) statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of TRUST not supplied by LIFE
COMPANY, or persons under its control) OR (ii) wrongful
9
<PAGE>
conduct of LIFE COMPANY or persons under its control, with respect to
the sale or distribution of the Variable Contracts or TRUST shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature of TRUST or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information
furnished in writing to TRUST by or on behalf of LIFE COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to provide
substantially the services and furnish the materials under the terms of
this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in this Agreement or
arise out of or result from any other material breach of this Agreement by
LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party to the extent that such losses, claims,
damages, liabilities or litigation are attributable to such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from LIFE COMPANY to such party of LIFE
COMPANY's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and LIFE
COMPANY will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.4 Indemnification by TRUST. TRUST agrees to indemnify and hold harmless
LIFE COMPANY and each of its directors, officers, employees, and agents and
each person, if any, who controls LIFE COMPANY within the meaning of Section 15
of the '33 Act (collectively,
10
<PAGE>
the "Indemnified Parties") against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
TRUST which consent shall not be unreasonably withheld) or litigation or
threatened litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of TRUST's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of TRUST (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, providing that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished in writing to ADVISER or TRUST by or on behalf of
LIFE COMPANY for use in the registration statement or prospectus for TRUST
or in sales literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Variable Contracts or TRUST shares;
or
(b) arise out of or result from (i) statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Variable Contracts not
supplied by ADVISER or TRUST or persons under its control) or (ii) gross
negligence or wrongful conduct or willful misfeasance of TRUST or persons
under its control, with respect to the sale or distribution of the Variable
Contracts or TRUST shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, or sales
literature covering the Variable Contracts, or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement or omission or such
alleged statement or omission was made in reliance upon and in conformity
with information furnished in writing to LIFE COMPANY for inclusion therein
by or on behalf of TRUST; or
(d) arise as a result of (i) a failure by TRUST to provide
substantially the services and furnish the materials under the terms of
this Agreement; or (ii) a failure by a Portfolio(s) invested in by the
Separate Account to comply with the diversification requirements of Section
817(h) of the Code; or (iii) a failure by a Portfolio(s) invested in by the
Separate Account to qualify as a "regulated investment company" under
Subchapter M of the Code; or
11
<PAGE>
(e) arise out of or result from any material breach of any
representation and/or warranty made by TRUST in this Agreement or arise out
of or result from any other material breach of this Agreement by TRUST.
7.5 TRUST shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party to the extent that such losses, claims,
damages, liabilities or litigation are attributable to such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
7.6 TRUST shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified TRUST in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified party shall have received notice of such service on any designated
agent), but failure to notify TRUST of any such claim shall not relieve TRUST
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, TRUST shall
be entitled to participate at its own expense in the defense thereof. TRUST also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from TRUST to such party of TRUST's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and TRUST will not
be liable to such party independently in connection with the defense thereof
other than reasonable costs of investigation.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY or TRUST at any time from the date
hereof upon 180 days' notice, unless a shorter time is agreed to by the
parties;
(b) At the option of LIFE COMPANY, if TRUST shares are not reasonably
available to meet the requirements of the Variable Contracts as determined
by LIFE COMPANY. Prompt notice of election to terminate shall be furnished
by LIFE COMPANY, said termination to be effective ten days after receipt of
notice unless TRUST makes available a sufficient number of shares to
reasonably meet the requirements of the Variable Contracts within said
ten-day period;
12
<PAGE>
(c) At the option of LIFE COMPANY, upon the institution of formal
proceedings against TRUST by the SEC, the NASD, or any other regulatory
body, the expected or anticipated ruling, judgment or outcome of which
would, in LIFE COMPANY's reasonable judgment, materially impair TRUST's
ability to meet and perform TRUST's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by LIFE COMPANY with said
termination to be effective upon receipt of notice;
(d) At the option of TRUST, upon the institution of formal proceedings
against LIFE COMPANY and/or its broker-dealer affiliates by the SEC, the
NASD, or any other regulatory body, the expected or anticipated ruling,
judgment or outcome of which would, in TRUST's reasonable judgment,
materially impair LIFE COMPANY's ability to meet and perform its obligations
and duties hereunder. Prompt notice of election to terminate shall be
furnished by TRUST with said termination to be effective upon receipt of
notice;
(e) In the event TRUST's shares are not registered, issued or sold in
accordance with applicable state or federal law, or such law, or such law
precludes the use of such shares as the underlying investment medium of
Variable Contracts issued or to be issues by LIFE COMPANY. Termination shall
be effective upon such occurrence without notice;
(f) At the option of TRUST if the Variable Contracts cease to qualify as
annuity contracts or life insurance contracts, as applicable, under the
Code, or if TRUST reasonably believes that the Variable Contracts may fail
to so qualify. Termination shall be effective upon receipt of notice by LIFE
COMPANY;
(g) At the option of LIFE COMPANY, upon TRUST's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of LIFE COMPANY within ten days after written notice of such
breach is delivered to TRUST;
(h) At the option of TRUST, upon LIFE COMPANY's breach of any material
provision of this Agreement, which breach has not been cured to the
satisfaction of TRUST within ten days after written notice of such breach is
delivered to LIFE COMPANY;
(i) At the option of TRUST, if the Variable Contracts are not
registered, issued or sold in accordance with applicable federal and/or
state law. Termination shall be effective immediately upon such occurrence
without notice;
In the event this Agreement is assigned without the prior written
consent of LIFE COMPANY, TRUST, and ADVISER, termination shall be effective
immediately upon such occurrence without notice.
13
<PAGE>
8.3 Notwithstanding any termination of this Agreement pursuant to Section
8.2 hereof, TRUST at its option may elect to continue to make available
additional TRUST shares, as provided below, for so long as TRUST desired
pursuant to the terms and conditions of this Agreement, for all Variable
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if TRUST so elects to make additional TRUST shares available, the
owners of the Existing Contracts or LIFE COMPANY, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in TRUST,
redeem investments in TRUST and/or invest in TRUST upon the payment of
additional premiums under the Existing Contracts. In the event of a termination
of this Agreement pursuant to Section 8.2 hereof, TRUST and ADVISER, as promptly
as is practicable under the circumstances, shall notify LIFE COMPANY whether
TRUST elects to continue to make TRUST shares available after such termination.
If TRUST shares continue to be made available after such termination, the
provisions of this Agreement shall remain in effect and thereafter either TRUST
or LIFE COMPANY may terminate the Agreement, as so continued pursuant to this
Section 8.3, upon sixty (60) days' prior written notice to the other party.
8.4 Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the shares attributable to the Variable Contracts (as
opposed to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until thirty (30) days after the LIFE COMPANY shall have
notified TRUST of its intention to do so.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to TRUST:
BT Insurance Funds Trust
c/o First Data Investor Services Group, Inc.
One Exchange Place
53 State Street, Mail Stop BOS 865
Boston, MA 02109
Attn: Elizabeth Russell, Legal Dep't
and
c/o BT Alex. Brown
One South Street, Mail Stop 1-18-6
Baltimore, MD 21202
Attn: Mutual Fund Services
14
<PAGE>
If to ADVISER:
Bankers Trust Company
130 Liberty Street, MS 2355
New York, NY 10006
Attn.: Mutual Fund Marketing
If to LIFE COMPANY:
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, CT 06102-5056
Attn: Jeanie Gagnon, Mail Stop HG
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 the captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York. It shall also be
subject to the provisions of the federal securities laws and the rules and
regulations thereunder and to any orders of the SEC granting exemptive relief
therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any portfolio nor the Trustees or officers of TRUST or
any Portfolio shall be personally liable hereunder. No Portfolio shall be liable
for the liabilities of any other Portfolio. All persons dealing with TRUST or a
Portfolio must look solely to the property of TRUST or that Portfolio,
respectively, for enforcement of any claims against TRUST or that Portfolio. It
is also understood that each of the Portfolios shall be deemed to be entering
into a separate Agreement with LIFE COMPANY so that it is as if each of the
Portfolios had signed a separate Agreement with LIFE COMPANY and that a single
document is being signed simple to facilitate the execution and administration
of the Agreement.
15
<PAGE>
10.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.8 If the Agreement terminates, the parties agree that Article 7 and
Sections 10.5, 10.6 and 10.7 shall remain in effect after termination.
10.9 No provision of this Agreement may be amended or modified in any manner
except by a written agreement properly authorized and executed by TRUST, ADVISER
and the LIFE COMPANY.
10.10 No failure or delay by a party in exercising any right or remedy under
this Agreement will operate as a waiver thereof and no single or partial
exercise of rights shall preclude a further or subsequent exercise. The rights
or remedies provided in this Agreement are cumulative and not exclusive of any
rights or remedies provided by law.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Fund Participation Agreement as of the date and year first above
written.
BT INSURANCE FUNDS TRUST
By: /s/ Graig J. Holland
-------------------------
Name: Graig J. Holland
Title: President
BANKERS TRUST COMPANY
By: /s/ Irene S. Greenberg
-------------------------
Name: Irene S. Greenberg
Title: Vice President
Phoenix Home Life Mutual Insurance Company
By: /s/ Simon Y. Tan
-------------------------
Name: Simon Y. Tan
Title: Senior Vice President
16
<PAGE>
APPENDIX A
To Participation Agreement by and among BT Insurance Funds Trust, Bankers Trust
Company and Phoenix Home Life Mutual Insurance Company
List of portfolios:
EAFE Equity Index Fund
<PAGE>
APPENDIX B
To Participation Agreement by and among BT Insurance Funds Trust, Bankers Trust
Company and Phoenix Home Life Mutual Insurance Company
List of variable separate accounts:
Phoenix Home Life Variable Accumulation Account
Phoenix Home Life Variable Universal Life Account
PARTICIPATION AGREEMENT
Among
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.,
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
MILLER ANDERSON & SHERRERD, LLP
and
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
Dated as of
December 17, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. Purchase of Fund Shares 2
ARTICLE II Representations and Warranties 4
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 5
ARTICLE IV. Sales Material and Information 7
ARTICLE V Fees and Expenses 8
ARTICLE VI. Diversification 9
ARTICLE VII. Potential Conflicts 9
ARTICLE VIII. Indemnification 11
ARTICLE IX. Applicable Law 16
ARTICLE X. Termination 16
ARTICLE XI. Notices 18
ARTICLE XII. Miscellaneous 18
SCHEDULE A Separate Accounts and Associated Contracts A-1
SCHEDULE B Portfolios of Morgan Stanley Dean
Witter Universal Funds, Inc. Available
Under this Agreement B-1
SCHEDULE C Proxy Voting Procedures C-1
<PAGE>
THIS AGREEMENT, made and entered into as of the 17th day of December, 1999
by and among PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY (hereinafter the
"Company"), a New York corporation, on its own behalf and on behalf of each
separate account of the Company set forth on Schedule A hereto as may be amended
from time to time (each such account hereinafter referred to as the "Account"),
and MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. (hereinafter the "Fund"), a
Maryland corporation, and MORGAN STANLEY DEAN WITTER INVESTMENT MANAGEMENT INC.
and MILLER ANDERSON & SHERRERD, LLP (hereinafter collectively the "Advisers" and
individually the "Adviser"), a Delaware corporation and a Pennsylvania limited
liability partnership, respectively.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or
pay-out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products enter into participation
agreements with the Fund and the Advisers (the "Participating Insurance
Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available under this
Agreement; and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule B hereto (each such series hereinafter referred to as a "Portfolio"),
as may be amended from time to time by mutual agreement of the parties hereto,
to the Account(s) of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 19, 1996 (File No. 812-10118), granting
Participating Insurance Companies and Variable Insurance Product separate
accounts exemptions from the provisions of Sections 9(a), 13)(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended (hereinafter the "1940
Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(l5) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by Variable
Insurance Product separate accounts of both affiliated and unaffiliated life
insurance companies and Qualified Plans (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, each Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
<PAGE>
WHEREAS, each Adviser manages certain Portfolios of the Fund; and
WHEREAS, Morgan Stanley & Co. Incorporated (the "Underwriter") is
registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves
as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register under the 1933 Act
the Variable Insurance Products identified on Schedule A hereto (the
"Contracts"), as such Schedule may be amended from time to time by mutual
written agreement of the parties hereto; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution or under authority of the Board of
Directors of the Company, on the date shown for such Account on Schedule A
hereto, to set aside and invest assets attributable to the Contracts; and
WHEREAS, the Company has registered or will register each Account as a unit
trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios on behalf
of each Account to fund the Contracts and the Underwriter is authorized to sell
such shares to each such Account at net asset value.
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Advisers agree as follows:
ARTICLE 1. PURCHASE OF FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios and shall execute orders placed for each Account on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of such order. For purposes of this Section 1.1, the Company shall be
the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order by 10:00 a.m. Eastern time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund, so long as this Agreement is in effect, agrees to make its
shares available indefinitely for purchase at the applicable net asset value per
share by the Company and its Accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the Securities and Exchange Commission
and the Fund shall use reasonable efforts to calculate such net asset value on
each day which the New York Stock Exchange is open for trading.
2
<PAGE>
Notwithstanding the foregoing, the Board of Directors of the Fund (hereinafter
the "Board") may refuse to permit the Fund to sell shares of any Portfolio to
any person, or suspend or terminate the offering of shares of any Portfolio if
such action is required by law or by regulatory authorities having jurisdiction
or is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts and to certain
Qualified Plans. No shares of any Portfolio will be sold to the general public.
1.4. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.4,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption by 10:00 a.m. Eastern time on the next following Business Day.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Company will give the Fund and the
Advisers 30 days written notice of its intention to make available in the
future, as a funding vehicle under the Contracts, any other investment company.
1.6. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purposes of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
1.7. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.8. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Portfolio's shares. The Company hereby elects to
receive all such income dividends and capital gain distributions as are payable
on the Portfolio shares in additional shares of that Portfolio. The Company
reserves the right to revoke this election and to receive all such income
dividends and capital gain distributions in cash. The Fund shall notify the
Company of the number of shares so issued as payment of such dividends and
distributions.
3
<PAGE>
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws;
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that: (i) it is an insurance company duly organized and in good
standing under applicable law, (ii) it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under applicable laws and regulations, and (iii) it has registered or, prior to
any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Maryland and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify.
2.4. The Company represents that the Contracts are currently treated as
life insurance policies or annuity contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
4
<PAGE>
2.6 The Fund makes no representations as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Portfolios' investment policies, fees
and expenses are and shall at all times remain in compliance with the laws of
the State of Maryland and that the Portfolios' operations are and shall at all
times remain in material compliance with the laws of the State of Maryland to
the extent required to perform this Agreement.
2.7. The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
2.8. Each Adviser represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
compliance in all material respects with the laws of its state of domicile and
any applicable state and federal securities laws.
2.9. The Fund represents and warrants that its directors, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule 17g-(1)
of the 1940 Act or related provisions as may be promulgated from time to time.
The aforesaid blanket fidelity bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount not less than $5 million. The aforesaid
includes coverage for larceny and embezzlement and shall be issued by a
reputable bonding company. The Company agrees to make all reasonable efforts to
see that this bond or another bond containing these provisions is always in
effect, and agrees to notify the Fund and the Advisers in the event that such
coverage no longer applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1. The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus and statement of additional
information as the Company may reasonably request. If requested by the Company,
in lieu of providing printed copies the Fund shall provide camera-ready film or
computer diskettes containing the Fund's prospectus and statement of additional
information, and such other assistance as is reasonably necessary in order for
the Company once each year (or more frequently if the prospectus and/or
statement of additional information for the Fund is amended during the year) to
have the prospectus for the Contracts and the Fund's prospectus printed together
in one document, and to have the statement of additional information for the
Fund and the statement of additional information for the
5
<PAGE>
Contracts printed together in one document. Alternatively, the Company may print
the Fund's prospectus and/or its statement of additional information in
combination with other fund companies' prospectuses and statements of additional
information.
3.2. Except as provided in this Section 3.2, all expenses of preparing,
setting in type, printing and distributing Fund prospectuses and statements of
additional information shall be the expense of the Company. For prospectuses and
statements of additional information provided by the Company to its Contract
owners who currently own shares of one or more Portfolios ("Existing Contract
Owners"), in order to update disclosure as required by the 1933 Act and/or the
1940 Act, the cost of printing shall be borne by the Fund. If the Company
chooses to receive camera-ready film or computer diskettes in lieu of receiving
printed copies of the Fund's prospectus, the Fund shall bear the cost of
typesetting to provide the Fund's prospectus to the Company in the format in
which the Fund is accustomed to formatting prospectuses, and the Company shall
bear the expense of adjusting or changing the format to conform with any of its
prospectuses. In such event, the Fund will reimburse the Company in an amount
equal to the product of x and y where x is the number of such prospectuses
distributed to Existing Contract Owners, and y is the Fund's per unit cost of
typesetting and printing the Fund's prospectus. The same procedures shall be
followed with respect to the Fund's statement of additional information. The
Company agrees to provide the Fund or its designee with such information as may
be reasonably requested by the Fund to assure that the Fund's expenses do not
include the cost of printing, typesetting or distributing any prospectuses or
statements of additional information other than those actually distributed to
Existing Contract Owners.
3.3 The Fund's statement of additional information shall be obtainable from
the Fund, the Company or such other person as the Fund may designate, as agreed
upon by the parties.
3.4. The Fund, at its expense, shall provide the Company with copies of its
proxy statements, reports to shareholders, and other communications (except for
prospectuses and statements of additional information, which are covered in
section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.5 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Portfolio for
which instructions have been received;
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own
6
<PAGE>
right, to the extent permitted by law. The Fund and the Company shall follow the
procedures, and shall have the corresponding responsibilities, for the handling
of proxy and voting instruction solicitations, as set forth in Schedule C
attached hereto and incorporated herein by reference. Participating Insurance
Companies shall be responsible for ensuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with the standards set forth on Schedule C, which standards will also be
provided to the other Participating Insurance Companies.
3.6. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
3.7. The Fund shall use reasonable efforts to provide Fund prospectuses,
reports to shareholders, proxy materials and other Fund communications (or
camera-ready equivalents) to the Company sufficiently in advance of the
Company's mailing dates to enable the Company to complete, at reasonable cost,
the printing, assembling and/or distribution of the communications in accordance
with applicable laws and regulations.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or an Adviser is named, at least ten Business Days prior to its
use. No such material shall be used without the prior approval of the Fund or
its designee. The Fund shall use its reasonable best efforts to review any such
material as soon as practicable after receipt and no later than ten Business
Days after receipt of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee,
except with the permission of the Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its Account(s) is named
at least ten Business Days prior to its use. No such material shall be used if
the Company or its designee reasonably objects to such use within ten Business
Days after receipt of such material.
7
<PAGE>
4.4. The Fund and the Advisers shall not give any information or make any
representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares and are relevant to
the Company or the Contracts.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in the Fund under the Contracts.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following that
refer to the Fund or any affiliate of the Fund: advertisements (such as material
published, or designed for use in, a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape display, signs or
billboards, motion pictures, or other public media), sales literature (i.e., any
written communication distributed or made generally available to customers or
the public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, and registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy materials.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund shall pay no fee or other compensation to the Company under
this Agreement, except that if the Fund or any Portfolio adopts and implements a
plan pursuant to Rule 12b-1 to finance distribution expenses, then the
Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for
8
<PAGE>
issuance in accordance with applicable federal law and, if and to the extent
deemed advisable by the Fund, in accordance with applicable state laws prior to
their sale. Except as otherwise set forth in Section 3.2 of this Agreement, the
Fund shall bear the expenses for the cost of registration and qualification of
the Fund's shares, preparation and filing of the Fund's prospectus and
registration statement, proxy materials and reports, setting the prospectus in
type, setting in type and printing the proxy materials and reports to
shareholders, the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. DIVERSIFICATION
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Regulation
817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by Contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of Contract owners. The Board shall promptly
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an
9
<PAGE>
obligation by the Company to inform the Board whenever contract owner voting
instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.5 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict.
10
<PAGE>
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification by the Company
8. 1(a). The Company agrees to indemnify and hold harmless the Fund and
each member of the Board and officers, and each Adviser and each director and
officer of each Adviser, and each person, if any, who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation (including reasonable legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Fund not supplied by the Company, or
11
<PAGE>
persons under its control and other than statements or
representations authorized by the Fund or an Adviser) or unlawful
conduct of the Company or persons under its control, with respect
to the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Fund by
or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company.
Each of paragraphs (i) through (v) above is limited by and in accordance with
the provisions of Sections 8.1(b) and 8.1(c) below.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
12
<PAGE>
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Advisers
8.2(a). Each Adviser agrees, with respect to each Portfolio that it
manages, to indemnify and hold harmless the Company and each of its directors
and officers and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
and individually, "Indemnified Party," for purposes of this Section 8.2) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation (including
reasonable legal and other expenses) to which the Indemnified Parties may become
subject under any statute, regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of shares of the
Portfolio that it manages or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Fund by or
on behalf of the Company for use in the registration statement
or prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by the Fund or persons under its
control and other than statements or representations authorized
by the Company) or unlawful conduct of the Fund, Adviser(s) or
Underwriter or persons under their control, with respect to the
sale or distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statement or
13
<PAGE>
statements therein not misleading, if such statement or omission
was made in reliance upon information furnished to the Company
by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Adviser to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Adviser.
Each of paragraphs (i) through (v) above is limited by and in accordance with
the provisions of Sections 8.2(b) and 8.2(c) below.
8.2(b). An Adviser shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
8.2(c). An Adviser shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Adviser in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Adviser of any such claim shall not
relieve the Adviser from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Adviser will be entitled to participate, at its own
expense, in the defense thereof. The Adviser also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Adviser to such party of the Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Adviser will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification by the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (hereinafter
collectively, the "Indemnified Parties" and individually,
14
<PAGE>
"Indemnified Party," for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including reasonable legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith or willful misconduct of the Board
or any member thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement; or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund.
Each of paragraphs (i) and (ii) above is limited by and in accordance with the
provisions of Sections 8.3(b) and 8.3(c) below.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company agrees promptly to notify the Fund of the commencement
of any litigation or proceedings against it or any of its respective officers or
directors in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of either Account, or the sale or
acquisition of shares of the Fund.
15
<PAGE>
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Fund
may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Adviser with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by the Fund or an Adviser by written notice to the
Company if the Fund or the Adviser shall determine, in its sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in
its business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material adverse
publicity; or
16
<PAGE>
(g) termination by the Company by written notice to the Fund and the
Adviser, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Adviser has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the
written notice specified in Section 1.5 hereof and at the time
such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however, any termination under this Section 10.1(h)
shall be effective forty five (45) days after the notice
specified in Section 1.5 was given; or
(i) termination by the Fund, an Adviser or the Company upon another
party's material breach of any provision of this Agreement.
10.2. Notwithstanding any termination of this Agreement, the Fund shall at
the option of the Company, continue to make available additional shares of the
Portfolios pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as the "Existing Contracts"). Specifically, without
limitation, the owners of the Existing Contracts shall be permitted to direct
reallocation of investments in the Fund, redemption of investments in the Fund
and/or investment in the Fund upon the making of additional purchase payments
under the Existing Contracts. The parties agree that this Section 10.2 shall not
apply to any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the Securities and Exchange Commission pursuant to
Section 26(b) of the 1940 Act. Upon request, the Company will promptly furnish
to the Fund the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund) to the effect that any redemption pursuant
to clause (ii) above is a Legally Required Redemption. Furthermore, except in
cases where permitted under the terms of the Contracts, the Company shall not
prevent Contract Owners from allocating payments to a Portfolio that was
otherwise available under the Contracts without first giving the Fund 90 days
prior written notice of its intention to do so.
17
<PAGE>
ARTICLE XI. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Morgan Stanley Dean Witter Universal Funds, Inc.
c/o Morgan Stanley Dean Witter
Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
If to the Advisers:
Morgan Stanley Dean Witter Investment Management Inc.
1221 Avenue of the Americas
New York, New York 10020
Attention: Harold J. Schaaff, Jr., Esq.
and
Miller Anderson & Sherrerd, LLP
One Tower Bridge
West Conshohocken, Pennsylvania 19428
Attention: Lorraine Truten
If to the Company:
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06102
Attention: Doreen Bonner
ARTICLE XII. MISCELLANEOUS
12. 1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all
18
<PAGE>
information reasonably identified as confidential in writing by any other party
hereto and, except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information until such time as it may come into the public domain without the
express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including, without limitation the
Securities and Exchange Commission, the National Association of Securities
Dealers and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish State insurance regulators with any information or reports in
connection with services provided under this Agreement which such regulators may
request in order to ascertain whether the insurance operations of the Company
are being conducted in a manner consistent with applicable law or regulations.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that an Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the end
of each fiscal year;
19
<PAGE>
(b) the Company's quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days after
the end of each quarterly period;
(c) any financial statement, proxy statement, notice or report of
the Company sent to stockholders and/or policyholders, as soon
as practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as
practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
20
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified above.
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
By: /s/ Simon Y. Tan
------------------------------------
Name: Simon Y. Tan
Title: Senior Vice President
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
By: /s/ Michael F. Klein
------------------------------------
Name: Michael F. Klein
Title: President
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
By: /s/ Marna C. Whittington
------------------------------------
Name: Marna C. Whittington
Title: Managing Director
MILLER ANDERSON & SHERRERD, LLP
By: /s/ Marna C. Whittington
------------------------------------
Name: Marna C. Whittington
Title: Authorized Signatory
21
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified above.
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
By: /s/ Simon Y. Tan
------------------------------------
Name: Simon Y. Tan
Title: Senior Vice President
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
By: /s/ Michael F. Klein
------------------------------------
Name: Michael F. Klein
Title: President
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
By: /s/ Marna C. Whittington
------------------------------------
Name: Marna C. Whittington
Title: Managing Director
MILLER ANDERSON & SHERRERD, LLP
By: /s/ Marna C. Whittington
------------------------------------
Name: Marna C. Whittington
Title: Authorized Signatory
21
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified above.
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
By: /s/ Simon Y. Tan
------------------------------------
Name: Simon Y. Tan
Title: Senior Vice President
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
By: /s/ Michael F. Klein
------------------------------------
Name: Michael F. Klein
Title: President
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
By: /s/ Marna C. Whittington
------------------------------------
Name: Marna C. Whittington
Title: Managing Director
MILLER ANDERSON & SHERRERD, LLP
By: /s/ Marna C. Whittington
------------------------------------
Name: Marna C. Whittington
Title: Authorized Signatory
21
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified above.
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
By: /s/ Simon Y. Tan
------------------------------------
Name: Simon Y. Tan
Title: Senior Vice President
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
By: /s/ Michael F. Klein
------------------------------------
Name: Michael F. Klein
Title: President
MORGAN STANLEY DEAN WITTER
INVESTMENT MANAGEMENT INC.
By: /s/ Marna C. Whittington
------------------------------------
Name: Marna C. Whittington
Title: Managing Director
MILLER ANDERSON & SHERRERD, LLP
By: /s/ Marna C. Whittington
------------------------------------
Name: Marna C. Whittington
Title: Authorized Signatory
21
<PAGE>
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
------------------------------------------
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT AND FORM NUMBER AND NAME OF
DATE ESTABLISHED BY BOARD OF DIRECTORS CONTRACT FUNDED BY SEPARATE ACCOUNT
- -------------------------------------- -----------------------------------
<S> <C>
Phoenix Home Life Variable Accumulation - The Big Edge (# 2545)
Account - The Big Edge Plus (# 2645, # 2646)
(Established June 21, 1982) - The Big Edge Choice NY (# D601 NY)
- Phoenix Edge - VA for NY (# D602 NY)
- Group Strategic Edge (# GD601 -
Allocated, # GD603 - Unallocated)
Phoenix Home Life Variable Universal Life - The Phoenix Edge (# 5000)
Account - Flex Edge Success / Joint Edge
(Established June 17, 1985) (# V603, #V601)
- Flex Edge (# 2667)
- Phoenix Individual Edge "PIE"
(# V603 PIE)
- Estate Edge (# V602)
- Phoenix Corporate Edge "PHOENIX
COLI" (# V609)
- Phoenix Executive Benefit "PHOENIX
CLARK BARDES" (# V607)
</TABLE>
A-1
<PAGE>
SCHEDULE B
PORTFOLIOS OF MORGAN STANLEY DEAN WITTER
UNIVERSAL FUNDS, INC. AVAILABLE UNDER THIS AGREEMENT
----------------------------------------------------
Technology Portfolio
B-1
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
-----------------------
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
o The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
o Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each Contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call in
the number of Customers to the Fund, as soon as possible, but no later than
two weeks after the Record Date.
o The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of voting,
instruction solicitation material. The Fund will provide the last Annual
Report to the Company pursuant to the terms of Section 3.3 of the
Agreement to which this Schedule relates.
o The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
- name (legal name as found on account registration)
- address
- fund or account number
C-1
<PAGE>
- coding to state number of units
- individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
o During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
- Voting Instruction Card(s)
- One proxy notice and statement (one document)
- Return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
- "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
- cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
o The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
o Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation time
is calculated as calendar days from (but not including,) the meeting,
counting backwards.
o Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not
been required by the Fund
C-2
<PAGE>
in the past.
o Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
o If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
o There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
o The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
o Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The Fund
may request an earlier deadline if reasonable and if required to calculate
the vote in time for the meeting.
o A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
o The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
o All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
C-3
