-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QWSbzrIUuloK/Of8xK1L5j5vwBl9lz9AkkkytpKwKQPPAgOkh7eQnEclk283TI4B 4WRJif6DdfPWF9Wrxu936w== 0000949377-02-000234.txt : 20020430 0000949377-02-000234.hdr.sgml : 20020430 ACCESSION NUMBER: 0000949377-02-000234 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 20020429 EFFECTIVENESS DATE: 20020429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT CENTRAL INDEX KEY: 0000796154 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-06793 FILM NUMBER: 02625398 BUSINESS ADDRESS: STREET 1: ONE AMERICAN ROW CITY: HARTFORD STATE: CT ZIP: 06115 BUSINESS PHONE: 8004474312 MAIL ADDRESS: STREET 1: ONE AMERICAN ROW STREET 2: PO BOX 5056 CITY: HARTFORD STATE: CT ZIP: 06102-5056 FORMER COMPANY: FORMER CONFORMED NAME: PHOENIX MUTUAL VARIABLE UNIVERSAL LIFE ACCOUNT DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT /CT/ DATE OF NAME CHANGE: 19950501 485BPOS 1 spvul53893-485b.txt REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on April 29, 2002 - -------------------------------------------------------------------------------- Registration No. 033-06793 811-4721 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- POST-EFFECTIVE AMENDMENT NUMBER 21 TO FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 ---------- PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT (FORMERLY PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT) (EXACT NAME OF TRUST) PHOENIX LIFE INSURANCE COMPANY (FORMERLY PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY) (NAME OF DEPOSITOR) ---------- ONE AMERICAN ROW HARTFORD, CONNECTICUT 06102-5056 (COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) TRACY L. RICH, ESQ. PHOENIX LIFE INSURANCE COMPANY ONE AMERICAN ROW PO BOX 5056 HARTFORD, CONNECTICUT 06102-5056 (NAME AND ADDRESS OF AGENT FOR SERVICE) ---------- Copy to: Richard J. Wirth, Esq. Phoenix Life Insurance Company One American Row PO Box 5053 Hartford, Connecticut 06102-5056 ---------- It is proposed that this filing will become effective: [ ] immediately upon filing pursuant to paragraph (b) of Rule 485. |X| on May 1, 2002 pursuant to paragraph (b) of Rule 485. [ ] 60 days after filing pursuant to paragraph (a) (1) of Rule 485. [ ] 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. [VERSION A] THE PHOENIX EDGE(R) PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT ISSUED BY: PHOENIX LIFE INSURANCE COMPANY PROSPECTUS MAY 1, 2002 This prospectus describes a variable life insurance policy which provides lifetime insurance protection. You may allocate premiums and policy value to the Guaranteed Interest Account and/or one or more of the subaccounts of the Phoenix Life Variable Universal Life Account (the "Account"). The subaccounts purchase, at net asset value, shares of the following funds: THE PHOENIX EDGE SERIES FUND - ---------------------------- [diamond] Phoenix-Aberdeen International Series [diamond] Phoenix-Aberdeen New Asia Series [diamond] Phoenix-AIM Mid-Cap Equity Series [diamond] Phoenix-Alliance/Bernstein Growth + Value Series [diamond] Phoenix-Deutsche Dow 30 Series [diamond] Phoenix-Deutsche Nasdaq-100 Index(R) Series [diamond] Phoenix-Duff & Phelps Real Estate Securities Series [diamond] Phoenix-Engemann Capital Growth Series [diamond] Phoenix-Engemann Small & Mid-Cap Growth Series [diamond] Phoenix-Federated U.S. Government Bond Series 1 [diamond] Phoenix-Goodwin Money Market Series [diamond] Phoenix-Goodwin Multi-Sector Fixed Income Series [diamond] Phoenix-Hollister Value Equity Series [diamond] Phoenix-J.P. Morgan Research Enhanced Index Series [diamond] Phoenix-Janus Flexible Income Series [diamond] Phoenix-Janus Growth Series [diamond] Phoenix-MFS Investors Growth Stock Series [diamond] Phoenix-MFS Investors Trust Series [diamond] Phoenix-MFS Value Series [diamond] Phoenix-Oakhurst Growth and Income Series [diamond] Phoenix-Oakhurst Strategic Allocation Series [diamond] Phoenix-Sanford Bernstein Global Value Series [diamond] Phoenix-Sanford Bernstein Mid-Cap Value Series [diamond] Phoenix-Sanford Bernstein Small-Cap Value Series [diamond] Phoenix-Seneca Mid-Cap Growth Series [diamond] Phoenix-Seneca Strategic Theme Series [diamond] Phoenix-Van Kampen Focus Equity Series (formerly, Phoenix-Morgan Stanley Focus Equity Series) AIM VARIABLE INSURANCE FUNDS - ---------------------------- [diamond] AIM V.I. Capital Appreciation Fund [diamond] AIM V.I. Premier Equity Fund (formerly, AIM V.I. Value Fund) THE ALGER AMERICAN FUND - ----------------------- [diamond] Alger American Leveraged AllCap Portfolio FEDERATED INSURANCE SERIES - -------------------------- [diamond] Federated Fund for U.S. Government Securities II [diamond] Federated High Income Bond Fund II FIDELITY(R) VARIABLE INSURANCE PRODUCTS - --------------------------------------- [diamond] VIP Contrafund(R) Portfolio [diamond] VIP Growth Opportunities Portfolio [diamond] VIP Growth Portfolio FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST - CLASS 2 - -------------------------------------------------------------- [diamond] Mutual Shares Securities Fund [diamond] Templeton Developing Markets Securities (1) [diamond] Templeton Foreign Securities Fund (formerly, Templeton International Securities Fund) [diamond] Templeton Global Asset Allocation Fund (formerly, Templeton Asset Strategy Fund) (1) [diamond] Templeton Growth Securities Fund SCUDDER VIT FUNDS - ----------------- [diamond] Scudder VIT EAFE(R) Equity Index Fund (formerly, Deutsche VIT EAFE(R) Equity Index Fund) [diamond] Scudder VIT Equity 500 Index Fund (formerly, Deutsche VIT Equity 500 Index Fund) THE UNIVERSAL INSTITUTIONAL FUNDS, INC. - --------------------------------------- [diamond] Technology Portfolio WANGER ADVISORS TRUST - --------------------- [diamond] Wanger Foreign Forty [diamond] Wanger International Small Cap [diamond] Wanger Twenty [diamond] Wanger U.S. Smaller Companies (formerly, Wanger U.S. Small Cap) (1) Not available for new investors IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT US AT:[envelope] PHOENIX VARIABLE PRODUCTS MAIL Operations ("VPMO") PO Box 8027 Boston, MA 02266-8027 [telephone] VARIABLE AND UNIVERSAL LIFE Administration ("VULA") 800/541-0171 1 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 income taxes. The policy is not a deposit nor an 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 ("SEC") has not approved or disapproved these securities, nor passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. Read and keep this prospectus for future reference. 2 TABLE OF CONTENTS Heading Page - --------------------------------------------------------------- SUMMARY ............................................... 4 PERFORMANCE HISTORY.................................... 5 PHOENIX AND THE ACCOUNT................................ 5 Phoenix ............................................ 5 The Account ........................................ 5 The Guaranteed Interest Account .................... 5 THE POLICY ............................................ 6 Introduction ....................................... 6 Eligible Purchasers ................................ 6 Premium Payment..................................... 6 Allocation of Issue Premium ........................ 6 Free Look Period ................................... 7 Temporary Insurance Coverage ....................... 7 Transfer of Policy Value ........................... 7 Systematic Transfer Program....................... 7 Nonsystematic Transfers .......................... 7 Determination of Subaccount Values ................. 8 Death Benefit ...................................... 9 Additional Premiums and Partial Surrenders: Effect on Death Benefit........................... 9 Minimum Face Amount Rider........................... 10 Surrenders ......................................... 10 Policy Loans ....................................... 10 Lapse .............................................. 11 INVESTMENTS OF THE ACCOUNT ............................ 12 Participating Investment Funds...................... 12 Investment Advisors................................. 14 Services of the Advisors ........................... 15 Reinvestment and Redemption ........................ 15 Substitution of Investments ........................ 15 CHARGES AND DEDUCTIONS ................................ 15 General............................................. 15 Acquisition Expense (Acquisition Expense Allowance) ....................................... 16 Periodic Charges.................................... 16 Conditional Charges................................. 17 Investment Management Charge........................ 17 Other Taxes ........................................ 17 GENERAL PROVISIONS .................................... 17 Postponement of Payments ........................... 17 Payment by Check ................................... 17 The Contract ....................................... 17 Suicide ............................................ 17 Incontestability ................................... 17 Change of Owner or Beneficiary ..................... 17 Assignment ......................................... 17 Misstatement of Age or Sex ......................... 18 Surplus............................................. 18 PAYMENT OF PROCEEDS ................................... 18 Surrender and Death Benefit Proceeds ............... 18 Payment Options .................................... 18 FEDERAL INCOME TAX CONSIDERATIONS ..................... 19 Introduction ....................................... 19 Phoenix's Income Tax Status ........................ 19 Policy Benefits .................................... 19 Business-Owned Policies............................. 20 Penalty Tax......................................... 20 Material Change Rules............................... 20 Serial Purchase of Modified Endowment Contracts......................................... 21 Limitations on Unreasonable Mortality and Expense Charges .............................. 21 Qualified Plans .................................... 21 Diversification Standards .......................... 21 Change of Ownership or Insured or Assignment ....... 21 Other Taxes ........................................ 21 VOTING RIGHTS ......................................... 22 THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX ............................................ 22 SAFEKEEPING OF THE ACCOUNT'S ASSETS ................... 24 SALES OF POLICIES ..................................... 24 STATE REGULATION ...................................... 24 REPORTS ............................................... 24 LEGAL PROCEEDINGS ..................................... 24 LEGAL MATTERS ......................................... 24 REGISTRATION STATEMENT ................................ 24 FINANCIAL STATEMENTS .................................. 24 PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT, FINANCIAL STATEMENTS, DECEMBER 31, 2001 .................................. SA-1 PHOENIX LIFE INSURANCE COMPANY, FINANCIAL STATEMENTS, DECEMBER 31, 2001................................... F-1 GLOSSARY OF SPECIAL TERMS.............................. G-1 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. 3 SUMMARY - -------------------------------------------------------------------------------- This is a summary of the policy and does not contain all of the detailed information that may be important to you. You should carefully read the entire prospectus before making any decision. We define certain terms, as used in this prospectus, in Appendix B--Glossary of Special Terms. INVESTMENT FEATURES PREMIUM PAYMENT The only premium you have to pay is the issue premium (and any payments required to prevent policy lapse). See "Premium Payment" and "Lapse." ALLOCATION OF PREMIUMS AND POLICY VALUE After we deduct certain charges from your premium payment, we will invest the balance in one or more of the subaccounts of the Account and/or the Guaranteed Interest Account as you instruct. You may make transfers into the Guaranteed Interest Account and among the subaccounts at anytime. Transfers from the Guaranteed Interest Account are subject to the rules discussed in "The Guaranteed Interest Account" and under "Transfer of Policy Value." The policy value varies with the investment performance of the funds and is not guaranteed. The policy value allocated to the Guaranteed Interest Account will depend on deductions taken from the Guaranteed Interest Account to pay expenses and will accumulate interest at rates we periodically establish, but never less than 4%. LOANS AND SURRENDERS [diamond] Generally, you may take loans against 75%-90% of the policy's cash value subject to certain conditions. See "Policy Loans." [diamond] You may partially surrender any part of the policy anytime. A partial surrender charge of the lesser of $25 or 2% of the partial surrender amount will apply. A separate surrender charge also may be imposed. See "Surrenders." [diamond] You may fully surrender this policy anytime for its surrender value. A surrender charge may be imposed. See "Surrenders." INSURANCE PROTECTION FEATURES DEATH BENEFITS [diamond] Both a fixed and variable benefit are available under the policy. o During the first policy month, the fixed benefit is equal to the target face amount. o After the first policy month, the variable benefit equals the cash value on the last preceding monthly calculation day multiplied by the applicable death benefit adjustment rate. [diamond] The death benefit is payable when the insured dies. See "Death Benefit." CHARGES AND DEDUCTIONS FROM PREMIUM PAYMENTS [diamond] Taxes o Premium Taxes--2.25% of premiums paid. See "Charges and Deductions" for a detailed discussion. FROM POLICY VALUE [diamond] Issue Administration Charge--1% of the issue premium paid. [diamond] Sales Charge--5.5% of the issue premium paid. [diamond] Cost of Insurance--Amount deducted monthly. The rates vary and are based on certain personal factors such as sex, attained age and risk class of the insured. [diamond] Partial Surrender Charge--may be deducted for partial surrenders. FROM THE ACCOUNT [diamond] Mortality and Expense Risk Charge--.50% annually. FROM THE FUND The assets of the Account are used to purchase, at net asset value, shares of the underlying funds you select. The net asset value reflects investment management fees and other direct expenses of the fund. See "Investment Management Charge." See "Charges and Deductions" for a more detailed description of how each is applied. ADDITIONAL INFORMATION CANCELLATION RIGHT You have the right to review the policy. If you are not satisfied with it, you may cancel the policy: [diamond] within 10 days after you receive the Policy, or [diamond] within 10 days after we mail or deliver a written notice telling you about your right to cancel, or [diamond] within 45 days of completing the application; whichever is latest. See "Free Look Period." RISK OF LAPSE The policy will remain in force as long as the surrender value is enough to pay the necessary monthly charges incurred under the policy. When the surrender value is no longer enough, the policy lapses, or ends. We will let you know of an impending lapse situation. We will give you the opportunity to keep the policy in force by paying a specified amount. See "Lapse" for more detail. 4 TAX EFFECTS Generally, under current federal income tax law, death benefits are not subject to income tax. Earnings on the premiums invested in the Account and the Guaranteed Interest Account are not subject to income tax until there is a distribution from the policy. Loans, partial surrenders or policy termination may result in recognition of income for tax purposes. VARIATIONS The policy is subject to laws and regulations in every state where the policy is sold. Therefore, the terms of the policy may vary from state to state. PERFORMANCE HISTORY - -------------------------------------------------------------------------------- We may include the performance history of the Account's subaccounts in advertisements, sales literature or reports. Performance information about each subaccount is based on past performance only and is not an indication of future performance. See "Appendix A--Performance History" for more information. PHOENIX AND THE ACCOUNT - -------------------------------------------------------------------------------- PHOENIX On June 25, 2001, Phoenix Home Life Mutual Insurance Company (a New York mutual life insurance company, originally chartered in Connecticut in 1851 and redomiciled to New York in 1992) converted to a stock life insurance company by "demutualizing" pursuant to a plan of reorganization approved by the New York Superintendent of Insurance and changed its name to Phoenix Life Insurance Company ("Phoenix"). As part of the demutualization, Phoenix became a wholly-owned subsidiary of The Phoenix Companies, Inc., a newly-formed, publicly-traded Delaware corporation. 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 life insurance policies and annuity contracts through producers of affiliated distribution companies and through brokers. THE ACCOUNT The 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 ("1940 Act"), as amended, and meets the definition of a "separate account" under the 1940 Act. This registration does not involve supervision of the management of the Account or Phoenix by the SEC. The 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 may be made available to existing policyowners as we decide. See "Investments of the Account--Participating Investment Funds." We do not guarantee the investment performance of the Account or any of the subaccounts. Contributions to the overall policy value allocated to the Account depend on the underlying fund's investment performance. Thus, you bear the full investment risk for all monies invested in the Account. The Account is part of the general business of Phoenix, but the gains or losses of the Account belong solely to the Account. The gains or losses of any other business we may conduct does not affect the Account. Under New York law, the assets of the Account may not be taken to pay liabilities arising out of any other business we may conduct. Nevertheless, all obligations arising under the policy (such as paying death benefits) are general corporate obligations of Phoenix. THE GUARANTEED INTEREST ACCOUNT In addition to the Account, you may allocate premiums or transfer values to the Guaranteed Interest Account ("GIA"). Amounts you allocate or transfer to the GIA become part of our general account assets. You do not share in the investment experience of those assets. Rather, we guarantee a minimum rate of return on the allocated amount, as provided under the terms of your product. Although we are not obligated to credit interest at a higher rate than the minimum, we will credit any excess interest as determined by us based on expected investment yield information. We reserve the right to limit total deposits to the GIA, including transfers, to no more than $250,000 during any one-week period per policy. You may make transfers into the GIA at any time. In general, you may 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. Also, the total value allocated to the GIA may be transferred out 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 remaining value [diamond] Year Three: 50% of remaining value [diamond] Year Four: 100% of remaining value Transfers from the GIA may also be subject to other rules as described throughout this prospectus. 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 5 general account as an investment company under the Investment Company Act of 1940, as amended. Therefore, neither the general account nor any of its interests are subject to these Acts, and the Securities and Exchange Commission has not reviewed the general account disclosures. These disclosures may, however, be subject to certain provisions of the federal securities law regarding accuracy and completeness of statements made in this prospectus. THE POLICY - -------------------------------------------------------------------------------- INTRODUCTION The policy is a variable life insurance policy issued on the life of the insured. The policy has a death benefit, surrender value and loan privilege as does a traditional fixed benefit whole life policy. It differs from a fixed benefit whole life policy, however, because you can allocate your premium into one or more of the subaccounts of the Account or the Guaranteed Interest Account. Each subaccount, in turn, invests exclusively in a portfolio of one of the funds. The policy death benefit and cash value vary according to the investment performance of the series to which the policy value has been allocated. ELIGIBLE PURCHASERS Any person up to the age of 75 is eligible to be insured under a newly purchased policy after providing suitable evidence of insurability. You may purchase a policy to insure another person's life provided that you have that person's consent and a legally-recognized insurable interest. A policy could, for example, be purchased on the life of a spouse, family member or a business partner. PREMIUM PAYMENT The minimum issue premium for a policy is $10,000. After the first policy year, you may pay, within certain limits, additional premiums if the variable death benefit on the first day of the policy year is less than the highest variable death benefit during the previous policy year and less than the current target face amount. Additional premiums may be paid only during the first 60 days of a policy year. The maximum amount of an additional premium payment (when permitted) is the lesser of (i) A minus B or (ii) C, where: A = the premium payment which would have increased the variable death benefit at the beginning of the current policy year to the highest variable death benefit during the previous policy year B = the amount of any reduction in cash value due to partial surrenders made during the previous policy year C = the premium payment which would have increased the variable death benefit at the beginning of the current policy year to the current target face amount Example: Assume that a male age 45, nonsmoker, pays an initial premium of $10,000 and has a target face amount of $28,236. Assume also a net investment rate of return of 9% for the first policy year and a net investment rate of return of 0% for the second and third policy years. At the beginning of the third policy year, this individual would have a variable death benefit of $28,952. This variable death benefit is less than the highest death benefit in the previous year, which would have been $29,772. However, since $28,952 is higher than the initial target face amount of $28,236, this individual would not be permitted to pay an additional premium. At the beginning of the fourth policy year, this individual would have a variable death benefit of $27,940. The variable death benefit is less than the highest death benefit in the previous year, which would have been $28,952. Also, this death benefit is less than the initial target face amount of $28,236; therefore, this individual would be permitted to pay an additional premium. The premium necessary to increase the death benefit to $28,236 (the initial target face amount) is $105.66 for this individual. Phoenix also may agree to allow payment of a higher premium amount. The individual in this example may wish to pay this additional premium to maintain his originally targeted level of death benefit protection despite adverse market experience. In addition, some policyowners may view depressed market values as an opportunity to buy additional units at the depressed value in anticipation of future market improvement. Additional premium payments are reduced by any applicable state premium tax based on your address on record at VULA. See "Charges and Deductions--Acquisition Expense." Also, a further deduction is made from additional premiums when payment is made during a grace period. See "The Policy--Lapse." The additional premiums less applicable deductions are called additional net premium. They are applied to policy value based on the then current premium allocation schedule. The payment of additional premiums will have an effect on the policy's variable death benefit. See "The Policy--Death Benefit." ALLOCATION OF ISSUE PREMIUM We will generally allocate the issue premium, less applicable charges, to the Account and/or the Guaranteed Interest Account upon receipt of a completed application, in accordance with the allocation instructions on your application. 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 6 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. At the end of the Free Look Period, the policy value of the Phoenix-Goodwin Money Market subaccount is allocated among the subaccounts and/or to the Guaranteed Interest Account in accordance with the instructions on your application. 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); or [diamond] within 10 days after we mail or deliver a written notice telling you about your right to cancel; or [diamond] within 45 days after completing the application, whichever occurs latest (the "Free Look Period"). We treat a returned policy as if we never issued it and, except for policies issued without a Temporary Money Market Allocation Amendment, we will return the sum of the following as of the date we receive the returned policy: (1) the then current policy value less any unpaid loans and loan interest; plus (2) any monthly deductions, partial surrender fees and other charges made under the policy. For policies issued with the Temporary Money Market Amendment the amount returned will equal any premiums paid less any unrepaid loans and loan interest and less any partial surrender amounts paid. We retain the right to decline to process an application within 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. TEMPORARY INSURANCE COVERAGE On the date the application for a policy is signed and submitted with the issue premium, we issue a Temporary Insurance Receipt to you. Under the Temporary Insurance Receipt, the insurance protection applied for (subject to the limits of liability and subject to the terms set forth in the Policy and in the Receipt) takes effect on the date of the application. TRANSFER OF POLICY VALUE SYSTEMATIC TRANSFER PROGRAM You may elect to transfer funds automatically among the subaccounts or the unloaned portion of the Guaranteed Interest Account on a monthly, quarterly, semiannual or annual basis under the Systematic Transfer Program for Dollar Cost Averaging ("Systematic Transfer Program"). Under this Systematic Transfer Program, the minimum transfer amounts are [diamond] $25 monthly, [diamond] $75 quarterly, [diamond] $150 semiannually, or [diamond] $300 annually. You must have an initial value of $1,000 in the Guaranteed Interest Account or the subaccount from which funds will be transferred ("sending subaccount") and if the value in that subaccount or the Guaranteed Interest Account 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 Guaranteed Interest Account, but may be allocated to more than one subaccount ("receiving subaccounts"). Under the Systematic Transfer Program, you may make more than one transfer per policy year from the Guaranteed Interest Account. These transfers must be in approximately equal amounts and made over a minimum 18-month period. Only one Systematic Transfer Program can be active at any time. After the completion of the Systematic Transfer Program, you can call VULA at 800.541.0171 to begin a new Systematic Transfer Program. All transfers under the Systematic Transfer Program will be made on the basis of the Guaranteed Interest Account and subaccount on the first day of the month following our receipt of the transfer request. If the first day of the month falls on a holiday or weekend, then the transfer will be processed on the next business day. NONSYSTEMATIC TRANSFERS Transfers among available subaccounts or the Guaranteed Interest Account may be requested in writing or by calling 800.541.0171, between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time. Written requests for transfers will be executed on the date the request is received at VPMO. Telephone transfers will be effective on the date the request is made except as noted below. Unless you elect in writing not to authorize telephone transfers or premium allocation changes, telephone transfer orders and premium allocation changes also will be accepted on your behalf from your registered representative. Phoenix and Phoenix Equity Planning Corporation ("PEPCO"), the national distributor for Phoenix, will employ reasonable procedures to confirm that telephone instructions are genuine. They will require verification of account information and will record telephone instructions on tape. All telephone transfers will be confirmed in writing to you. To the extent that Phoenix and PEPCO fail to follow procedures reasonably designed to prevent unauthorized transfers, Phoenix and PEPCO may be liable for following telephone instructions for transfers that prove to be fraudulent. However, you will bear the risk of loss resulting from instructions entered by an unauthorized third party that 7 Phoenix and PEPCO reasonably believe to be genuine. The telephone transfer and allocation change privileges may be modified or terminated at any time. During times of extreme market volatility, these privileges may be difficult to exercise. In such cases, you should submit a written request. Although currently there is no charge for transfers, in the future, we may charge a fee of $10 for each transfer after the first two transfers in a policy year. We reserve the right to refuse to transfer amounts less than $500 unless: [diamond] the entire balance in the subaccount or the Guaranteed Interest Account is being transferred; or [diamond] the transfer is part of the Systematic Transfer Program. We also reserve the right to prohibit a transfer to any subaccount if the resulting value of your investment in that subaccount would be less than $500. We further reserve the right to require that the entire balance of a subaccount or the Guaranteed Interest Account be transferred if the value of your investment therein would, immediately after the transfer, be less than $500. You may make only one transfer per policy year from the unloaned portion of the Guaranteed Interest Account unless [diamond] the transfer(s) are made as part of a Systematic Transfer Program, or [diamond] we agree to make an exception to this rule. The amount you may transfer cannot exceed the greater of $1,000 or 25% of the value of the unloaned portion of the Guaranteed Interest Account at the time of the transfer. A nonsystematic transfer from the unloaned portion of the Guaranteed Interest Account will be processed on the day such request is received by VPMO. Transfers into the Guaranteed Interest Account and among the subaccounts may be made anytime. We reserve the right to limit the number of subaccounts you may invest in to a total of 18 at any one time or over the life of the policy. We may limit you to fewer than 18 if we are required to do so by law. Because excessive exchanges between subaccounts may adversely affect 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. DETERMINATION OF SUBACCOUNT VALUES On each valuation date, the policy's share in the value of each subaccount is determined separately, but the valuation method used is the same for each subaccount. A policy's share in the value of a subaccount on any valuation date equals: (a) the policy's share in the value of that subaccount as of the immediately preceding valuation date multiplied by the "Net Investment Factor" of that subaccount for the current valuation period; plus (b) all amounts transferred to the policy's share in the value of that subaccount from another subaccount or from the loan account during the current valuation period; plus (c) all additional net premiums allocated to that subaccount during the current valuation period; minus (d) all amounts transferred from the policy's share in the value of that subaccount to another subaccount or to the loan account during the current valuation period; minus (e) any portion of the monthly deduction allocated to the policy's share in the value of that subaccount during the current valuation period; minus (f) all reductions in the policy value allocated to the policy's share in the value of that subaccount due to any partial surrenders made during the current valuation period. The net investment factor for each subaccount for any valuation period is determined by dividing (a) by (b), and subtracting (c) from the result where: (a) is the result of: (i) the asset value of the fund shares held by that subaccount determined as of the end of the current valuation period (exclusive of the net value of any transactions during the current valuation period); plus (ii) the amount of any dividend (or, if applicable, any capital gain distribution) made by the fund on shares held by that subaccount if the "ex-dividend" date occurs during the current valuation period; plus/minus (iii) the charge or credit for any taxes incurred by, or provided for, in that subaccount for the current valuation period. 8 (b) the net asset value of the Fund shares held by that subaccount determined as of the end of the immediately preceding valuation period (c) is a factor, equal to the sum of 0.50% on an annual basis held by that subaccount, representing the mortality and expense risk charge deducted from that subaccount during the valuation period The net investment factor may be greater than, less than, or equal to one. Therefore, the policy value may increase, decrease or remain unchanged. DEATH BENEFIT GENERAL In the application for insurance, an applicant designates an amount as the policy's initial target face amount. During the first policy month, the death benefit equals this target face amount. After the first policy month the death benefit is equal to the variable death benefit. During any policy month after the first, the variable death benefit under the policy is equal to: (i) the cash value on the last preceding monthly calculation day, multiplied by (ii) the applicable death benefit adjustment rate (as defined below) on the last preceding monthly calculation day. The death benefit adjustment rates assume an interest rate ranging from 4% to 5%. The assumed interest rate used to calculate the death benefit adjustment rates under a particular policy depends on the policy's initial premium and its target face amount. In the event the net investment rate of return (gross investment return net of mortality and expense risk charge and investment management fee) applied to the policy value exceeds the assumed interest rate used to calculate the death benefit adjustment rates, the variable death benefit under the policy will be greater than its target face amount. Conversely, if the net investment rate of return applied to the policy value is less than the assumed interest rate, then the variable death benefit will be less than the target face amount. Finally, if the net investment rate of return applied to the policy value equals the assumed interest rate, then the variable death benefit will approximately equal the target face amount. Example: Death benefit adjustment rates which assume a 4% interest rate apply to a male age 45, nonsmoker, who pays an initial premium of $25,000 and has a target face amount of $70,591. Five years after the issue date of this policy, the following variable death benefits would apply for the specified net rates of return: -assuming a 5% net investment rate of return: $75,144 -assuming a 4% net investment rate of return: $71,514 -and assuming a 3% net investment rate of return: $68,019 Example: A male age 45, nonsmoker, pays an initial premium of $10,000. For this initial premium, this individual can choose an initial target face amount ranging from $28,236 to $35,980. This range of target face amount represents death benefit adjustment rates which assume interest rates ranging from 4% to 5% and a 2% state premium tax. Generally, selection of the highest target face amount available for a given premium will result in the highest death benefit adjustment rate, variable death benefit and resulting cost of insurance charges. Conversely, selection of the lower target face amount available for a given premium will result in the lowest death benefit adjustment rate, variable death benefit and resulting cost of insurance charges. Assuming that this individual selects an initial target face amount of $35,980, and that the net rate of return achieved is 5% per year, the variable death benefit will be $36,826 and cash value will be $36,826 at age 95. The variable death benefit and cash value are slightly larger than the initial target face amount due to the fact that the acquisition expense is deducted and then recredited to the individual in this example and taken out in monthly installments over the first 10 policy years. While a portion of this acquisition expense allowance remains in the policy value, it also is earning a net rate of return. ADDITIONAL PREMIUMS AND PARTIAL SURRENDERS: EFFECT ON DEATH BENEFIT Additional premium payments are permitted under certain circumstances. See "The Policy--Premium Payment." Such a payment does not result in an immediate increase in the variable death benefit. However, on the next monthly calculation day the variable death benefit will be larger as a consequence of the larger cash value. A partial surrender decreases the target face amount and the minimum face amount (if provided by appropriate rider). The target face amount and minimum face amount are reduced by a fraction equal to the result of dividing the partial surrender amount paid plus the partial surrender fee by the cash value (determined without regard to the partial surrender). Moreover, the death benefit under a policy is reduced on the next monthly calculation day due to the reduced cash value. A partial surrender or decrease in the death benefit may have certain tax consequences. See "Federal Income Tax Considerations." In addition, if the insured dies during any policy month in which additional premium had been paid, the death proceeds paid will equal the death benefit for that month plus the additional premium paid, minus any premium paid during a grace period necessary to keep the policy in effect. 9 MINIMUM FACE AMOUNT RIDER You may elect to have a Minimum Face Amount Rider issued in connection with the policy. If this rider is elected, you will designate an amount in the application as the minimum face amount. The amount designated as the minimum face amount cannot exceed the policy's target face amount. The death benefit under a policy issued with the Minimum Face Amount Rider equals the target face amount during the first policy month. Thereafter, the policy's death benefit equals the higher of: [diamond] the variable death benefit, or [diamond] the minimum face amount. Under the Minimum Face Amount Rider, when the death benefit is calculated with reference to the minimum face amount, it may be greater than it otherwise would have been had the rider not been issued. Accordingly, when the minimum face amount is used to calculate the death benefit, there is a greater "net amount at risk" under the policy. Therefore, a larger amount is deducted from policy value to pay for cost of insurance than would be deducted under an identical policy without the rider. SURRENDERS GENERAL At any time during the lifetime of the insured and while the policy is in force, you may partially or fully surrender the policy by sending to VPMO a written release and surrender in a form satisfactory to us. We may also require you to send the policy to us. The amount available for surrender is the surrender value at the end of the valuation period during which the surrender request is received at VPMO. Upon partial or full surrender, we generally will pay to you the amount surrendered within 7 days after we receive the written request for the surrender. Under certain circumstances, the surrender payment may be postponed. See "General Provisions--Postponement of Payments." For a discussion of possible federal income tax effects of partial and full surrenders, see "Federal Income Tax Considerations." FULL SURRENDERS If the policy is being fully surrendered, the policy itself must be returned to VPMO, along with the written release and surrender of all claims in a form satisfactory to us. You may elect to have the amount paid in a lump sum or under a payment option. See "Charges and Deductions--Conditional Charges" and "Payment of Proceeds--Payment Options." PARTIAL SURRENDERS You may obtain a partial surrender of the policy by requesting payment of the policy's cash surrender value. It is possible to do this at any time during the lifetime of the insured, while the policy is in force, with a written request to VPMO. We may require the return of the policy before payment is made. A partial surrender will be effective on the date the written request is received or, if required, the date the policy is received by us. Surrender proceeds may be applied under any of the payment options described under "Payment of Proceeds--Payment Options." We reserve the right not to allow partial surrenders of less than $500. In addition, if the share of the policy value in any subaccount or in the Guaranteed Interest Account 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 Guaranteed Interest Account. Upon a partial surrender, the policy value will be reduced by the sum of the following: (1) The Partial Surrender Amount Paid. This amount comes from a reduction in the policy's share in the value of each subaccount or the Guaranteed Interest Account based on the allocation requested at the time of the partial surrender. If no allocation request is made, the withdrawals from each subaccount will be made in the same manner as that provided for monthly deductions. (2) The Partial Surrender Fee. This fee is the lesser of $25 or 2% of the partial surrender amount paid. The assessment to each subaccount or the Guaranteed Interest Account will be made in the same manner as provided for the partial surrender amount paid. (3) Any Unrepaid Acquisition Expense. The portion of any unrepaid acquisition expense paid in connection with a partial surrender is equal to the result of dividing the partial surrender amount paid plus the partial surrender fee by the cash value (determined without regard to the partial surrender). The reduction in policy value caused by partial surrenders is deducted from the subaccounts based on the allocation schedule for monthly deductions, unless you direct otherwise. Cash value is reduced to equal the resulting policy value less the balance of any remaining unpaid acquisition expense allowance. Partial surrenders will decrease the target face amount and the minimum face amount (if provided by rider), as well as the variable death benefit. See "Death Benefit--Additional Premiums and Partial Surrenders: Effect on Death Benefit" and "Federal Income Tax Considerations." POLICY LOANS During the first 3 policy years, you may borrow an amount up to 75% of the cash value under the policy. Thereafter, you may borrow an amount not exceeding 90% of the cash value. The available loan value is the loan value on the current day less any outstanding debt. The amount of any loan will be added to the loaned portion of the Guaranteed Interest Account and subtracted 10 from the policy's share of the subaccounts or the unloaned portion of the Guaranteed Interest Account, based on the allocation requested at the time of the loan. The total reduction will equal the amount added to the loaned portion of the Guaranteed Interest Account. Allocations generally must be expressed in terms of whole percentages. If no allocation request is made, the amount subtracted from the share of each subaccount or the unloaned portion of the Guaranteed Interest Account will be determined in the same manner as provided for monthly deductions. Interest will be credited and the loaned portion of the Guaranteed Interest Account will increase at an effective annual rate of 7.25%, compounded daily and payable in arrears. At the end of each policy year and at the time of any debt repayment, interest credited to the loaned portion of the Guaranteed Interest Account will be transferred to the unloaned portion of the Guaranteed Interest Account. Debt may be repaid at any time during the lifetime of the insured while the policy is in force. Any debt repayment received by us during a grace period will be reduced to pay any overdue monthly deductions and only the balance will be applied to reduce the debt. Such balance will first be used to pay any outstanding accrued loan interest, and then will be applied to reduce the loaned portion of the Guaranteed Interest Account. The unloaned portion of the Guaranteed Interest Account will be increased by the same amount the loaned portion is decreased. If the amount of a loan repayment exceeds the remaining loan balance and accrued interest, the excess will be allocated among the subaccounts as you may request at the time of the repayment and, if no allocation request is made, according to the most recent premium allocation schedule on file. Payments received by us for the policy will be applied directly to reduce outstanding debt unless specified as a premium payment by you. Until the debt is fully repaid, additional debt repayments may be made at any time during the lifetime of the insured while the policy is in force. Failure to repay a policy loan or to pay loan interest will not terminate the policy unless the policy value becomes insufficient to maintain the policy in force. The proceeds of policy loans may be subject to federal income tax. See "Federal Income Tax Considerations." Phoenix reserves the right to not allow policy loans of less than $500, unless such loan is used to pay a premium on another Phoenix policy. The loan debt will bear interest at an effective annual rate of 8.00%, compounded daily and payable in arrears. The loan account value is credited with interest at an effective annual rate of 7.25%, compounded daily and payable in arrears. At the end of each policy year, any interest due on the debt will be treated as a new loan and will be offset by a transfer from your subaccounts and the unloaned portion of the Guaranteed Interest Account to the loaned portion. A policy loan, whether or not repaid, has a permanent effect on the policy value because the investment results of the subaccounts or unloaned portion of the Guaranteed Interest Account will apply only to the amount remaining in the subaccounts or the unloaned portion of the Guaranteed Interest Account. The longer a loan is outstanding, the greater the effect is likely to be. The effect could be favorable or unfavorable. If the subaccounts or the unloaned portion of the Guaranteed Interest Account earn more than the annual interest rate for funds held in the loaned portion of the Guaranteed Interest Account, the policy value does not increase as rapidly as it would have had no loan been made. If the subaccounts or the Guaranteed Interest Account earn less than the annual interest rate for funds held in the loaned portion of the Guaranteed Interest Account, the policy value is greater than it would have been had no loan been made. A policy loan, whether or not repaid, also has a similar effect on the policy's death benefit due to any resulting differences in surrender value. LAPSE Unlike conventional fixed benefit life insurance policies, the payment of the issue premium, no matter how large, or the payment of additional premiums will not necessarily continue the policy in force to its maturity date. Lapse will only occur if the surrender value is insufficient to cover the monthly deduction and a grace period expires without payment of the additional required amount. If the surrender value is insufficient to cover the monthly deduction, you must pay the amount needed to increase the surrender value to equal 3 times the required monthly deduction during the grace period. See "Charges and Deductions." If on any monthly calculation day the surrender value is insufficient to cover the monthly deduction, we will notify you about the additional required payment. You will then have a grace period of 61 days, measured from the date notice is sent to you, to pay the additional amount. Failure to pay the additional amount within the grace period will result in lapse of the Policy. If we receive a premium payment for the additional amount during the grace period, any additional net premium will be allocated among the subaccounts or the Guaranteed Interest Account in accordance with the current premium allocation schedule. To determine the additional net premium to be applied to the subaccounts or the Guaranteed Interest Account, 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. 11 INVESTMENTS OF THE ACCOUNT - -------------------------------------------------------------------------------- PARTICIPATING INVESTMENT FUNDS THE PHOENIX EDGE SERIES FUND The following subaccounts invest in corresponding series of The Phoenix Edge Series Fund: PHOENIX-ABERDEEN INTERNATIONAL SERIES: The investment objective of the series is to seek a high total return consistent with reasonable risk. PHOENIX-ABERDEEN NEW ASIA SERIES: The series seeks long-term capital appreciation. PHOENIX-AIM MID-CAP EQUITY SERIES: The investment objective of the series is to seek long-term growth of capital. PHOENIX-ALLIANCE/BERNSTEIN GROWTH + VALUE SERIES: The investment objective of the series is long-term capital growth. PHOENIX-DEUTSCHE DOW 30 SERIES: The series seeks to track the total return of the Dow Jones Industrial Average(SM) before fund expenses. PHOENIX-DEUTSCHE NASDAQ-100 INDEX(R) SERIES: This non-diversified series seeks to track the total return of the Nasdaq-100 Index(R) 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. 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. PHOENIX-ENGEMANN SMALL & MID-CAP GROWTH SERIES: The series seeks to achieve its objective of long-term growth of capital. PHOENIX-FEDERATED U.S. GOVERNMENT BOND SERIES: The series seeks to maximize total return. As of February 16, 2001, this series is closed to new investors. Existing investors may continue to allocate payments to this series or any other series offered. PHOENIX-GOODWIN MONEY MARKET SERIES: The investment objective of the series is to provide maximum current income consistent with capital preservation and liquidity. PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES: The series seeks long-term total return. PHOENIX-HOLLISTER VALUE EQUITY SERIES: The primary investment objective of the series is long-term capital appreciation and a secondary investment objective of current income. PHOENIX-J.P. MORGAN RESEARCH ENHANCED INDEX SERIES: The investment objective of the series is to seek high total return. 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-MFS INVESTORS GROWTH STOCK SERIES: The series seeks long-term growth of capital and future income rather than current income. PHOENIX-MFS INVESTORS TRUST SERIES: The series seeks long-term growth of capital and secondarily to provide reasonable current income. PHOENIX-MFS VALUE SERIES: The series seeks capital appreciation and reasonable income. PHOENIX-OAKHURST GROWTH AND INCOME SERIES: The investment objective of the series is to seek dividend growth, current income and capital appreciation. 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. PHOENIX-SANFORD BERNSTEIN GLOBAL VALUE SERIES: The series seeks long-term capital appreciation. PHOENIX-SANFORD BERNSTEIN MID-CAP VALUE SERIES: The primary investment objective of the series is to seek long-term capital appreciation, with current income as the secondary investment objective. PHOENIX-SANFORD BERNSTEIN SMALL-CAP VALUE SERIES: The series seeks long-term capital appreciation. PHOENIX-SENECA MID-CAP GROWTH SERIES: The investment objective of the series is to seek capital appreciation. PHOENIX-SENECA STRATEGIC THEME SERIES: The investment objective of the series is to seek long-term appreciation of capital. PHOENIX-VAN KAMPEN FOCUS EQUITY SERIES: The investment objective of the series is to seek capital appreciation. AIM VARIABLE INSURANCE FUNDS The following subaccounts invest in a corresponding fund of the AIM Variable Insurance Funds: AIM V.I. CAPITAL APPRECIATION FUND: The investment objective of the fund is growth of capital. AIM V.I. PREMIER EQUITY FUND: The investment objective is to achieve long-term growth of capital with income as a secondary investment objective. 12 THE ALGER AMERICAN FUND The following subaccount invests in the corresponding portfolio of The Alger American Fund: ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO: The investment objective of the portfolio is long-term capital appreciation. FEDERATED INSURANCE SERIES The following subaccounts invest in a corresponding fund of the Federated Insurance Series: FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II: The investment objective of the fund is to seek current income. FEDERATED HIGH INCOME BOND FUND II: The investment objective of the fund is to seek high current income. FIDELITY(R) VARIABLE INSURANCE PRODUCTS The following subaccounts invest in corresponding portfolios of the Fidelity(R) Variable Insurance Products: VIP CONTRAFUND(R) PORTFOLIO: The investment objective of the portfolio is to seek long-term capital appreciation. VIP GROWTH OPPORTUNITIES PORTFOLIO: The investment objective of the portfolio is to seek to provide capital growth. VIP GROWTH PORTFOLIO: The investment objective of the portfolio is to seek to achieve long-term capital appreciation. FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST The following subaccounts invest in Class 2 shares of the corresponding funds of the Franklin Templeton Variable Insurance Products Trust: MUTUAL SHARES SECURITIES FUND: The primary investment objective of the fund is capital appreciation with income as a secondary objective. TEMPLETON DEVELOPING MARKETS SECURITIES FUND: The investment objective of the fund is long-term capital appreciation. As of October 29, 2001, this fund is closed to new investors. Existing investors may continue to allocate payments to this fund or to any other funds offered. TEMPLETON FOREIGN SECURITIES FUND: The investment objective of the fund is long-term capital growth. TEMPLETON GLOBAL ASSET ALLOCATION FUND: The investment objective of the fund is a high level of total return. As of October 29, 2001, this fund is closed to new investors. Existing investors may continue to allocate payments to this fund or to any other funds offered. TEMPLETON GROWTH SECURITIES FUND: The investment objective of the fund is long-term capital growth. SCUDDER VIT FUNDS The following subaccounts invest in a corresponding fund of Scudder VIT Funds: SCUDDER VIT EAFE(R) EQUITY INDEX FUND: The fund seeks to match the performance of the Morgan Stanley Capital International EAFE(R) Index. SCUDDER VIT EQUITY 500 INDEX FUND: The fund seeks to replicate as closely as possible, the performance of the Standard & Poor's 500 Composite Stock Price Index. THE UNIVERSAL INSTITUTIONAL FUNDS, INC. The following subaccount invests in a corresponding portfolio of The Universal Institutional Funds, Inc.: TECHNOLOGY PORTFOLIO: The investment objective of the portfolio is to seek long-term capital appreciation. WANGER ADVISORS TRUST The following subaccounts invest in corresponding series of the Wanger Advisors Trust: WANGER FOREIGN FORTY: The investment objective of the series is to seek long-term capital growth. WANGER INTERNATIONAL SMALL CAP: The investment objective of the series is to seek long-term capital growth. WANGER TWENTY: The investment objective of the series is to seek long-term capital growth. WANGER U.S. SMALLER COMPANIES: The investment objective of the series is to seek long-term capital growth. 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. Each fund's prospectus contains important additional information, which you should read carefully before investing. Contact VULA at the address and telephone number on page 1 to obtain copies of the funds' prospectuses. In addition to being sold to the Account, shares of the funds also may be sold to other separate accounts of Phoenix or its affiliates or to the separate accounts of other insurance companies. It is possible that in the future it may be disadvantageous for variable life insurance separate accounts and variable annuity separate accounts to invest in the fund(s) simultaneously. Although neither we nor the fund(s) trustees currently foresee any such disadvantages either to variable life insurance policyowners or to variable annuity contract owners, the funds' trustees intend to monitor events in order to identify any irreconcilable material conflicts between variable life insurance policyowners and variable annuity contract owners and to determine what action, if any, should be taken in response to such conflicts. Material conflicts could, for example, result from (1) changes in state insurance laws, (2) changes in federal income tax laws, (3) an administrative or judicial decision, (4) changes in the investment management of any portfolio of the fund(s), (5) differences in voting instructions between those given by variable life insurance 13 policyowners and those given by variable annuity contract owners, or (6) a Phoenix decision to disregard policy holders' or contract owners' voting instructions. We will, at our own expense, remedy such material conflicts, including, if necessary, segregating the assets underlying the variable life insurance policies and the variable annuity contracts and establishing a new registered investment company. INVESTMENT ADVISORS The following are the investment advisors and subadvisors for the variable investment options: - ------------------------------------------------------------------ PHOENIX INVESTMENT COUNSEL, INC. ("PIC") - ------------------------------------------------------------------ Phoenix-Aberdeen International Series Phoenix-Engemann Capital Growth Series Phoenix-Engemann Small & Mid-Cap Growth Series Phoenix-Goodwin Money Market Series Phoenix-Goodwin Multi-Sector Fixed Income Series Phoenix-Hollister Value Equity Series Phoenix-Oakhurst Growth and Income Series Phoenix-Oakhurst Strategic Allocation Series Phoenix-Seneca Mid-Cap Growth Series Phoenix-Seneca Strategic Theme Series - ------------------------------------------------------------------ - ------------------------------------------------------------------ PIC SUBADVISORS - ------------------------------------------------------------------ Roger Engemann & Associates, Inc. ("Engemann") o Phoenix-Engemann Capital Growth Series o Phoenix-Engemann Small & Mid-Cap Growth Series Seneca Capital Management, LLC ("Seneca") o Phoenix-Seneca Mid-Cap Growth Series o Phoenix-Seneca Strategic Theme Series - ------------------------------------------------------------------ - ------------------------------------------------------------------ PHOENIX VARIABLE ADVISORS, INC. ("PVA") - ------------------------------------------------------------------ Phoenix-AIM Mid-Cap Equity Series Phoenix-Alliance/Bernstein Growth + Value Series Phoenix-Deutsche Dow 30 Series Phoenix-Deutsche Nasdaq-100 Index(R) Series Phoenix-Federated U.S. Government Bond Series Phoenix-J.P. Morgan Research Enhanced Index Series Phoenix-Janus Flexible Income Series Phoenix-Janus Growth Series Phoenix-MFS Investors Growth Stock Series Phoenix-MFS Investors Trust Series Phoenix-MFS Value Series Phoenix-Sanford Bernstein Global Value Series Phoenix-Sanford Bernstein Mid-Cap Value Series Phoenix-Sanford Bernstein Small-Cap Value Series Phoenix-Van Kampen Focus Equity Series - ------------------------------------------------------------------ - ------------------------------------------------------------------ PVA SUBADVISORS - ------------------------------------------------------------------ AIM Capital Management, Inc. o Phoenix-AIM Mid-Cap Equity Series Alliance Capital Management, L.P. o Phoenix-Alliance/Bernstein Growth + Value Series o Phoenix-Sanford Bernstein Global Value Series o Phoenix-Sanford Bernstein Mid-Cap Value Series o Phoenix-Sanford Bernstein Small-Cap Value Series Deutsche Asset Management o Phoenix-Deutsche Dow 30 Series o Phoenix-Deutsche Nasdaq-100 Index(R) Series Federated Investment Management Company o Phoenix-Federated U.S. Government Bond Series J.P. Morgan Investment Management, Inc. o Phoenix-J.P. Morgan Research Enhanced Index Series Janus Capital Corporation o Phoenix-Janus Flexible Income Series o Phoenix-Janus Growth Series MFS Investment Management o Phoenix-MFS Investors Growth Stock Series o Phoenix-MFS Investors Trust Series o Phoenix-MFS Value Series Morgan Stanley Asset Management o Phoenix-Van Kampen Focus Equity Series - ------------------------------------------------------------------ - ------------------------------------------------------------------ DUFF & PHELPS INVESTMENT MANAGEMENT CO. ("DPIM") - ------------------------------------------------------------------ Phoenix-Duff & Phelps Real Estate Securities Series - ------------------------------------------------------------------ - ------------------------------------------------------------------ PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC ("PAIA") - ------------------------------------------------------------------ Phoenix-Aberdeen New Asia Series - ------------------------------------------------------------------ - ----------------------------------------------------------------- PAIA SUBADVISORS - ----------------------------------------------------------------- PIC Aberdeen Fund Managers, Inc. o Phoenix-Aberdeen New Asia Series - ----------------------------------------------------------------- Based on subadvisory agreements with the fund, PIC and PVA as investment advisors delegate certain investment decisions and research functions to subadvisors. PIC, DPIM and Engemann are indirect, wholly-owned subsidiaries of Phoenix Investment Partners, Ltd. ("PXP"). Seneca is a partially-owned subsidiary of PXP. PXP is an indirect, wholly-owned subsidiary of The Phoenix Companies, Inc., and is an affiliate of Phoenix and PHL Variable. PAIA is jointly owned and managed by PM Holdings, Inc., a wholly-owned subsidiary of Phoenix, and by Aberdeen Fund Managers, Inc. PVA is a wholly-owned subsidiary of PM Holdings, Inc. - ------------------------------------------------------------------ OTHER ADVISORS - ------------------------------------------------------------------ AIM Advisors, Inc. o AIM V.I. Capital Appreciation Fund o AIM V.I. Premier Equity Fund - ------------------------------------------------------------------ 14 - ------------------------------------------------------------------ OTHER ADVISORS - ------------------------------------------------------------------ Fred Alger Management, Inc. o Alger American Leveraged AllCap Portfolio Deutsche Asset Management o Scudder VIT EAFE(R) Equity Index Fund o Scudder VIT Equity 500 Index Fund Federated Investment Management Company o Federated Fund for U.S. Government Securities II o Federated High Income Bond Fund II Fidelity Management and Research Company o VIP Contrafund(R) Portfolio o VIP Growth Opportunities Portfolio o VIP Growth Portfolio Franklin Mutual Advisers, LLC o Mutual Shares Securities Fund Morgan Stanley Asset Management o Technology Portfolio Templeton Asset Management, Ltd. o Templeton Developing Markets Securities Fund Templeton Global Advisors Limited o Templeton Growth Securities Fund Templeton Investment Counsel, Inc. o Templeton Foreign Securities Fund o Templeton Global Asset Allocation Fund Wanger Asset Management, L.P. o Wanger Foreign Forty o Wanger International Small Cap o Wanger Twenty o Wanger U.S. Smaller Companies - ------------------------------------------------------------------ SERVICES OF THE ADVISORS The advisors continually furnish an investment program for each series and manage the investment and reinvestment of the assets of each series subject at all times to the authority and supervision of the Trustees. A detailed discussion of the investment advisors and subadvisors, and the investment advisory and subadvisory agreements, is contained in the funds' prospectuses. REINVESTMENT AND REDEMPTION All dividend distributions of the fund are automatically reinvested in shares of the fund at their net asset value on the date of distribution. 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 Account, subject to compliance with the law as currently applicable or as subsequently changed. In the future, we may establish additional subaccounts within the Account, each of which will invest in shares of a designated portfolio of a fund with a specified investment objective. If and when marketing needs and investment conditions warrant, and at our discretion, we may establish additional portfolios. These will be made available under existing policies to the extent and on a basis determined by us. If shares of any of the portfolios of the fund should no longer be available for investment or, if in the judgment of our management, further investment in shares of any of the portfolios become inappropriate due to policy objectives, we may then substitute shares of another mutual fund for shares already purchased, or to be purchased in the future. No substitution of mutual fund shares held by the Account may take place without prior approval of the Securities and Exchange Commission and prior notice to you. In the event of a change, you will be given the option of transferring the policy value of the subaccount in which the substitution is to occur to another subaccount. CHARGES AND DEDUCTIONS - -------------------------------------------------------------------------------- GENERAL Charges are deducted in connection with the policy to compensate us for: [diamond] our expenses in selling the policy; [diamond] underwriting and issuing the policy; [diamond] premium taxes incurred on the premium received; [diamond] providing the insurance benefits set forth in the policy; and [diamond] assuming certain risks in connection with the policy. The nature and amount of these charges are more fully described in sections below. We may reduce the sales charge or issue administration charge component of the acquisition expense allowance for policies issued under group or sponsored arrangements. Generally, sales and administrative costs per policy vary with the size of the group or sponsored arrangement, its stability as indicated by its term of existence and certain characteristics of its members, the purposes for which the policies are purchased, and other factors. The amounts of any reductions will be considered on a case-by-case basis and will reflect the reduced sales or administration costs expected as a result of sales to a particular group or sponsored arrangement. Certain charges are deducted only once, others are deducted periodically, while certain others are deducted only if certain events occur. A charge is deducted monthly from the policy value under a policy ("monthly deduction") during the first 10 policy years, to repay the acquisition expense allowance (as described below). A charge also is deducted monthly to compensate for the cost of insurance. The monthly deduction is deducted on each monthly calculation day. It is allocated among the subaccounts and the Guaranteed Interest Account based on the allocation schedule for monthly deductions specified by the applicant in the application for a policy or as later changed by the 15 policyowner. Because portions of the monthly deduction, such as the cost of insurance, can vary from month to month, the monthly deduction itself may vary in amount from month to month. ACQUISITION EXPENSE (ACQUISITION EXPENSE ALLOWANCE) The acquisition expense allowance consists of: [diamond] the sales charge; [diamond] issue administration charge; and [diamond] premium taxes. Charges are deducted from the issue premium and recredited by us as part of the allocation of the issue premium to the policy value on the date of issue. A monthly pro rata share of the allowance is repaid to us as part of the monthly deduction during the first 10 policy years. Any unpaid balance is fully repaid to us upon policy lapse or full surrender. By deducting these charges in monthly installments instead of deducting them all at once from the issue premium, more funds are available for investment during the first 10 policy years. As a result, if the net investment factor is positive, the policyowner will enjoy greater increases in cash value, but if the net investment factor is negative, the policyowner will experience greater decreases in cash value. Additional premiums are not subject to the acquisition expense allowance, or a sales or issue administration charge. However, prior to allocation of additional net premiums among the subaccounts of the Account or the Guaranteed Interest Account, additional premiums paid will be reduced by the premium tax charge and, for additional premiums paid during a grace period, by the amount needed to cover any monthly deductions made during the grace period. PERIODIC CHARGES MONTHLY [diamond] SALES CHARGE. A sales charge of 5.5% of the issue premium paid is assessed to compensate Phoenix for distribution expenses incurred in connection with the policy. These expenses include agent sales commissions, the cost of printing prospectuses and sales literature, and any advertising costs. The sales charge in any policy is not necessarily related to actual distribution expenses incurred in the year the policy is issued. PREMIUM TAX CHARGE. Various states (and counties and cities) impose a tax on premiums received by insurance companies. Premium taxes vary from state to state. Currently, these taxes range from 0.75% to 4% of premiums paid. Moreover, certain municipalities and states also impose taxes on premiums paid, in addition to the state taxes imposed. The premium tax charge represents an amount we consider necessary to pay all premium taxes imposed by these authorities, and we do not expect to derive a profit from this charge. Policies will be assessed a tax charge equal to 2.25% of the premiums paid. These charges are deducted from each premium payment. [diamond] Issue Administration Charge. The issue administration charge is 1% of the issue premium paid and is to compensate us for underwriting and start-up expenses in connection with issuing a policy. Rather than deduct the full amount at once, the issue expense charge is deducted in equal monthly installments. [diamond] Cost of Insurance. Because the cost of insurance depends upon a number of variables, this charge can vary from month to month. The cost of insurance charge is equal to the applicable cost of insurance rate divided by 1,000 multiplied by the "net amount at risk" for each policy month. The net amount at risk for a policy month is o the death benefit on the monthly calculation day, less o the cash value on such day. Cost of insurance rates are based on the sex (in most states), attained age and risk class of the insured. The actual monthly cost of insurance rates are based on our expectations of future experience. They will not, however, be greater than the guaranteed cost of insurance rates set forth in the policy. These guaranteed rates are based on the 1980 Commissioners Standard Ordinary Mortality Table with appropriate adjustment for the insured's risk classification. Any change in the cost of insurance rates will apply to all persons of the same insurance age, sex and risk class whose policies have been in force for the same length of time. The risk class of an insured may affect the cost of insurance rate. We currently place insureds into a standard risk class or risk classes involving a higher mortality risk. In an otherwise identical policy, insureds in the standard risk class will have a lower cost of insurance than those in the risk class with the higher mortality risk. The standard risk class also is divided into two categories: smokers and nonsmokers. Nonsmoking insureds will generally incur a lower cost of insurance than similarly situated insureds who smoke. DAILY [diamond] MORTALITY AND EXPENSE RISK CHARGE. A charge at an annual rate of .50% is deducted daily from the Account. No portion of this charge is deducted from the Guaranteed Interest Account. The mortality risk assumed by us is that collectively our insureds may live for a shorter time than projected because of inaccuracies in the projecting process and, therefore, the total amount of death benefits that will be paid out are greater than we expected. The expense risk assumed is that expenses incurred in issuing and maintaining the policies may exceed the limits on 16 administrative charges set in the policies. If the expenses do not increase to an amount in excess of the limits, or if the mortality projecting process proves to be accurate, we may profit from this charge. We also assume risks with respect to other contingencies including the incidence of policy loans, which may cause us to incur greater costs than expected when we designed the policies. To the extent we profit from this charge, we may use such profits for any proper purpose, including the payment of sales expenses or any other expenses that may exceed income in a given year. CONDITIONAL CHARGES These are other charges that are imposed only if certain events occur. [diamond] PARTIAL SURRENDER FEE. In the case of a partial surrender, an additional fee is imposed. This fee is equal to 2% of the amount withdrawn but not more than $25. It is intended to recover the actual costs of processing the partial surrender request and will be deducted from each subaccount and the Guaranteed Interest Account in the same proportion as the withdrawal is allocated. If no allocation is made at the time of the request for the partial surrender, withdrawal allocation will be made in the same manner as monthly deductions. INVESTMENT MANAGEMENT CHARGE As compensation for investment management services to the funds, the advisors are entitled to fees, payable monthly and based on an annual percentage of the average aggregate daily net asset values of each series. These fund charges and other expenses are described more fully in the funds' prospectuses. OTHER TAXES Currently no charge is made to the Account for federal income taxes that may be attributable to the Account. We may, however, make such a charge in the future for these or any other taxes attributable to the Account. GENERAL PROVISIONS - -------------------------------------------------------------------------------- POSTPONEMENT OF PAYMENTS Payment of any amount may be postponed upon complete or partial surrender, policy loan, or benefits payable at death (in excess of the initial face amount) or maturity: [diamond] for up to 6 months from the date of the request, for any transactions dependent upon the value of the Guaranteed Interest Account; [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 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, we will only pay you the cash value plus the acquisition expense, 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, in a form 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. 17 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 Policies issued on or after the date of Phoenix's demutualization, June 25, 2001, will not be eligible to share in Phoenix's profits or surplus earnings. The demutualization will not change any eligibility, described in the next paragraph, of a policy owned prior to the date of demutualization. You may share in divisible surplus of Phoenix to the extent decided annually by the Phoenix Board of Directors. However, it is not currently expected that the Board will authorize these payments since you will be participating directly in the subaccount's investment results. PAYMENT OF PROCEEDS - -------------------------------------------------------------------------------- SURRENDER AND DEATH BENEFIT PROCEEDS Death benefit proceeds and the proceeds of full or partial surrenders will be processed at unit values next computed after we receive the request for surrender or due proof of death, provided such request is complete and in good order. Payment of surrender or death proceeds usually will be made in one lump sum within 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. You may elect a payment option for payment of the death proceeds to the beneficiary. You may revoke or change a prior election, unless such right has been waived. The beneficiary may make or change an election before payment of the death proceeds, unless you have made an election that does not permit such further election or changes by the beneficiary. A written request in a form satisfactory to us is required to elect, change or revoke a payment option. The minimum amount of surrender or death benefit proceeds that may be applied under any payment option is $1,000. If the policy is assigned as collateral security, we will pay any amount due the assignee in one lump sum. Any remaining proceeds will remain under the option elected. PAYMENT OPTIONS All or part of the surrender or death proceeds of a policy may be applied under one or more of the following payment options or such other payment options or alternative versions of the options listed as we may choose to make available in the future. OPTION 1--LUMP SUM Payment in one lump sum. OPTION 2--LEFT TO EARN INTEREST A payment of interest during the payee's lifetime on the amount payable as a principal sum. Interest rates are guaranteed to be at least 3% per year. Upon death of the payee, payment of the principal amount along with any accrued and unpaid interest will be made to the contingent beneficiary. OPTION 3--PAYMENT FOR A SPECIFIC PERIOD Equal installments are paid for a specified period of years whether the payee lives or dies. The first payment will be on the date of settlement. The assumed interest rate on the unpaid balance is guaranteed not to be less than 3% per year. Upon the death of the named payee, the remaining payments will continue to the contingent beneficiary as designated in the written form electing the options. OPTION 4--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN Equal installments are paid until the later of: [diamond] the death of the payee; or [diamond] the end of the period certain. 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] 20 years; or [diamond] until the installments paid refund the amount applied under this option. If the payee is not living when the final payment falls due, that payment will be limited to the amount which needs to be added to the payments already made to equal the amount applied under this option. If, for the age of the payee, a period certain is chosen that is shorter than another period certain paying the same installment amount, we will consider the longer period certain as having been elected. OPTION 5--LIFE ANNUITY Equal installments are paid only during the lifetime of the payee. The first payment will be on the date of settlement. Under this option, the payee may receive only one payment, if the payee dies before the due date for the second payment; only two payments, if the payee dies before the due date for the third payment, etc. OPTION 6--PAYMENTS OF A SPECIFIED AMOUNT Equal installments of a specified amount, out of the principal sum and interest on that sum, are paid until the 18 principal sum remaining is less than the amount of the installment. When that happens, the principal sum remaining with accrued interest will be paid as a final payment. The first payment will be on the date of settlement. The payments will include interest on the remaining principal at a guaranteed rate of at least 3% per year. This interest will be credited at the end of each year. If the amount of interest credited at the end of the year exceeds the income payments made in the last 12 months, that excess will be paid in one sum on the date credited. OPTION 7--JOINT SURVIVORSHIP ANNUITY WITH 10-YEAR PERIOD CERTAIN This payment option is not available for death proceeds. This option is available only if the policy is surrendered within six months of the policy anniversary nearest the Insured's 55th, 60th or 65th birthday. The first payment will be on the date of settlement. Equal installments are paid until the latest of: [diamond] the end of the 10-year period certain; [diamond] the death of the insured; or [diamond] the death of the other named annuitant. The other annuitant must have attained age 40, must be named at the time this option is elected and cannot later be changed. For additional information concerning the above payment options, see your Policy. FEDERAL INCOME TAX CONSIDERATIONS - -------------------------------------------------------------------------------- INTRODUCTION The ultimate effect of federal income taxes on values under the Account and on the economic benefit to you or your beneficiary depends on our income tax status and upon the tax status of the individual concerned. This discussion is general in nature and is not intended as income tax advice. For complete information on federal and state income tax considerations, a qualified income tax advisor should be consulted. No attempt is made to consider any estate and inheritance taxes, or any state, local or other income tax laws. Because this discussion 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 ("IRS") makes no representation regarding the likelihood of continuation of current federal income tax laws, U.S. 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 INCOME TAX STATUS We are taxed as a life insurance company under the Internal Revenue Code of 1986, as amended ("Code"). For federal income tax purposes, neither the Account nor the Guaranteed Interest Account 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 Account are reinvested and taken into account in determining the value of the Account. Investment income of the Account, including realized net capital gains, is not taxed to us. Due to our income tax status under current provisions of the Code, no charge currently will be made to the Account for our federal income taxes which may be attributable to the Account. We reserve the right to make a deduction for taxes if our federal income tax treatment is determined to be other than what we currently believe it to be, if changes are made affecting the income tax treatment to our variable life insurance contracts, or if changes occur in our income tax status. If imposed, such charge would be equal to the federal income taxes attributable to the investment results of the Account. POLICY BENEFITS DEATH BENEFIT PROCEEDS The policy, which is essentially a single premium policy, is a life insurance contract that is also a modified endowment contract within the meaning of the Code. Classification of the policy as a modified endowment contract does not affect the exclusion of death benefit proceeds under the policy from the gross income of the beneficiary under Code Section 101(a)(1) and also does not cause the policyowner to be deemed to be in constructive receipt of the cash value, including increments or "inside buildup" thereon. 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). Policies are modified endowment contracts if they meet the definition of life insurance, but fail the 7-pay test. This test essentially provides that the cumulative amount paid under the policy at any time during the policy's first seven years cannot exceed the sum of the net level premiums that would have been paid on or before that time had the policy provided for paid-up future benefits after the payment of seven level annual premiums. In addition, a modified endowment contract includes any life insurance contract that is received in exchange for a modified endowment contract. Premiums paid during a policy year that are returned by Phoenix (with interest) within 60 days after the end of the policy year will not cause the policy to fail the 7-pay test. Refer to the sections below on possible taxation of amounts actually received under the policy, from full surrender, partial surrender or loan. 19 REDUCTION IN BENEFITS DURING THE FIRST SEVEN YEARS If there is a reduction in death benefits or reduction or elimination of any Additional Rider Benefit previously elected during the first seven policy years, the premiums are redetermined for purposes of the 7-pay test as if the policy had originally been issued at the reduced death benefit level and the new limitation is applied to the cumulative amount paid for each of the first seven policy years. DISTRIBUTION AFFECTED If a policy fails to meet the 7-pay test, it is considered a modified endowment contract only as to distributions in the year in which the death benefit reduction takes effect and all subsequent policy years. However, distributions made in anticipation of such failure (there is a presumption that distributions made within two years prior to such failure were "made in anticipation") also are considered distributions under a modified endowment contract. If the policy satisfies the "7-pay test," for seven years, distributions and loans will generally not be subject to the modified endowment contract rules. FULL SURRENDER Upon full surrender of a policy for its cash value, the excess, if any, of the cash value (unreduced by any outstanding indebtedness) over the premiums paid will be treated as ordinary income for federal income tax purposes. The full surrender of a policy that is a modified endowment contract may result in the imposition of an additional 10% tax on any income received. PARTIAL SURRENDER Since the policy is a modified endowment contract, partial surrenders are fully taxable to the extent of income in the policy and are possibly subject to an additional 10% tax. We suggest you consult with your income tax advisor in advance of a partial surrender as to the portion, if any, which would be subject to tax, and in addition as to the impact such partial surrender might have under the rules affecting modified endowment contracts. LOANS We believe that any loan received under a policy will be treated as your indebtedness. Since the policy is a modified endowment contract, loans are fully taxable to the extent of income in the policy and possibly will be subject to an additional 10% tax. The deductibility by a policyowner of loan interest under a policy may be limited under Code Section 264, depending on the circumstances. A policyowner intending to fund premium payments through borrowing should consult a tax 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. 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 or any increase in or addition of any rider benefit available as an Additional Rider Benefit (described above), 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 20 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 U.S. 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 U.S. 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 U.S. Treasury regulations. We will comply with the limitations for calculating the premium we are permitted to receive from you. QUALIFIED PLANS A policy may be used in conjunction with certain qualified plans. Since the rules governing such use are complex, you should not use the Policy in conjunction with a qualified plan until you have consulted a competent pension consultant or tax advisor. 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 Account; therefore, each series of every 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 Account are direct obligations of the U.S. Treasury. In this case, there is no limit on the investment that may be made in U.S. Treasury securities, and for purposes of determining whether assets other than U.S. Treasury securities are adequately diversified, the generally applicable percentage limitations are increased based on the value of the Account's investment in U.S. 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 U.S. Treasury announced that such regulations do not provide guidance concerning the extent to which you may direct your investments to particular divisions of a separate account. It is possible that a revenue ruling or other form of administrative pronouncement in this regard may be issued in the near future. It is not clear, at this time, what such a revenue ruling or other pronouncement will provide. It is possible that the policy may need to be modified to comply with such future U.S. 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 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 consult an income tax advisor. 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. 21 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. 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: NAME PRINCIPAL OCCUPATION ---- -------------------- DIRECTORS Sal H. Alfiero Chairman and Chief Executive Officer Protective Industries LLC Buffalo, NY Various positions with Mark IV Industries J. Carter Bacot Director (retired Chairman and Chief Executive Officer) The Bank of New York New York, NY Peter C. Browning Dean McColl School of Business Charlotte, NC Chairman of the Board NUCOR Charlotte, NC Various positions with Sunoco Products Company Arthur P. Byrne President, Chief Executive Officer and Chairman The Wiremold Company West Hartford, CT Various positions with The Wiremold Company Sanford Cloud, Jr. President and Chief Executive Officer, The National Conference for Community and Justice New York, NY Richard N. Cooper Mauritus C. Boas Professor Center for International Affairs Harvard University Cambridge, MA Formerly Chairman of Central Intelligence Agency; Professor, Harvard University Gordon J. Davis, Esq. Partner LeBoeuf, Lamb, Greene & MacRae New York, NY Formerly President Lincoln Center for Performing Arts New York, NY Formerly Partner of LeBoeuf, Lamb, Greene & MacRae Robert W. Fiondella Chairman of the Board and Chief Executive Officer The Phoenix Companies, Inc. Hartford, CT Various positions with Phoenix Life Insurance Company and its various subsidiaries 22 NAME PRINCIPAL OCCUPATION ---- -------------------- DIRECTORS Ann Maynard Gray Director of The Phoenix Companies, Inc. Director of Duke Energy Corporation and Elan Corporation PLC and a trustee for J.P. Morgan Funds. Formerly President of the Diversified Publishing Group of Capital Cities/ABC, Inc. from 1991 to 1999. John E. Haire Executive Vice President Time, Inc. New York, NY Formerly Publisher, Time Magazine Jerry J. Jasinowski President National Association of Manufacturers Washington, D.C. Various positions with National Association of Manufacturers Thomas S. Johnson Chairman and Chief Executive Officer Greenpoint Financial Corporation New York, NY John W. Johnstone Retired. Formerly Chairman and Chief Executive Officer, Olin Corporation Marilyn E. LaMarche Limited Managing Director, Lazard Freres & Company, L.L.C. New York, New York Various positions with Lazard Freres & Co. LLC Philip R. McLoughlin Executive Vice President and Chief Investment Officer, The Phoenix Companies, Inc. Hartford, CT Various positions with Phoenix Life Insurance Company and its various subsidiaries Robert F. Vizza President Dolan Foundations Woodbury, NY Formerly President, Lustgarten Pancreatic Cancer Research Foundation and the Dolan Foundations; President and Chief Executive Officer, St. Francis Hospital Robert G. Wilson Retired. Consultant for thePit.com; Consultant for Logistics.com and LendingTree.com Dona D. Young President and Chief Operating Officer, The Phoenix Companies, Inc. Hartford, CT Various positions with Phoenix Life Insurance Company and its various subsidiaries EXECUTIVE OFFICERS Carl T. Chadburn Executive Vice President Executive Vice President, The Phoenix Companies, Inc. Various positions with Phoenix Life Insurance Company and its various subsidiaries Coleman D. Ross Executive Vice President Executive Vice President and Chief Financial Officer, The Phoenix Companies, Inc. Formerly Executive Vice President and Chief Financial Officer of Trenwick Group Ltd.; Formerly a partner with PricewaterhouseCoopers Robert W. Fiondella Chairman of the Board and Chief Executive Officer Chairman of the Board and Chief Executive Officer, The Phoenix Companies, Inc. Various positions with Phoenix Life Insurance Company and its various subsidiaries Philip R. McLoughlin Executive Vice President Executive Vice President and Chief Investment Officer, The Phoenix Companies, Inc. Various positions with Phoenix Life Insurance Company and its various subsidiaries David W. Searfoss Executive Vice President Executive Vice President, The Phoenix Companies, Inc. Various positions with Phoenix Life Insurance Company and its various subsidiaries Simon Y. Tan Executive Vice President Executive Vice President, The Phoenix Companies, Inc. Various positions with Phoenix Life Insurance Company and its various subsidiaries 23 EXECUTIVE OFFICERS Dona D. Young President and Chief Operating Officer President and Chief Operating Officer The Phoenix Companies, Inc. Various positions with Phoenix Life Insurance Company and its various subsidiaries The above listing reflects positions held during the last 5 years. SAFEKEEPING OF THE ACCOUNT'S ASSETS - -------------------------------------------------------------------------------- We hold the assets of the Account. The assets of the Account are 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 WS Griffith Securities, Inc. (formerly known as 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 is an indirect, wholly-owned subsidiary of The Phoenix Companies, Inc., and is an affiliate of Phoenix. WSG 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 located at 56 Prospect Street, Hartford, Connecticut. PEPCO is also an indirect, wholly-owned subsidiary of The Phoenix Companies, Inc. and is an affiliate of Phoenix. Policies may also be purchased through other broker-dealers or entities registered under or exempt under the Securities Exchange Act of 1934, whose representatives are authorized by applicable law to sell contracts under terms of agreement provided by PEPCO. Sales commissions will be paid to registered representatives on purchase payments we receive under these policies. Phoenix will pay a maximum total sales commission of 50% of premiums to PEPCO. To the extent that the sales charge under the policies is less than the sales commissions paid with respect to the policies, we will pay the shortfall from our General Account assets, which will include any profits we may derive under the policies. STATE REGULATION - -------------------------------------------------------------------------------- We are subject to the provisions of New York insurance laws applicable to 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 Account and the Guaranteed Interest Account. This regulation does not include, however, any supervision over the investment policies of the 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 Account is not engaged in any litigation. We are not involved in any litigation that would have a material adverse effect on our ability to meet our obligations under the policies. LEGAL MATTERS - -------------------------------------------------------------------------------- Richard J. Wirth, Counsel and Brian A. Giantonio, Counsel of Phoenix Life Insurance Company, have 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 Account, Phoenix and the policy. FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The financial statements of Phoenix Life Variable Universal Life Account (The Phoenix Edge(R)) as of December 31, 2001, and the results of its operations and its changes in net assets for the periods indicated and the consolidated financial statements of Phoenix Life Insurance Company as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 appear in the pages that follow. The consolidated financial statements of Phoenix Life 24 Insurance Company included herein should be considered only as bearing upon the ability of Phoenix Life Insurance Company to meet its obligations under the policies. You should not consider them as bearing on the investment performance of the assets held in the Account or on the Guaranteed Interest Account that we credit during a guarantee period. 25 - -------------------------------------------------------------------------------- ANNUAL REPORT - -------------------------------------------------------------------------------- The Phoenix Edge(R) Phoenix Life Variable Universal Life Account December 31, 2001 [LOGO] PHOENIX WEALTH MANAGEMENT(R) STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2001
PHOENIX- PHOENIX-DUFF & PHOENIX- ABERDEEN PHOENIX- PHELPS REAL ENGEMANN PHOENIX- INTERNATIONAL DEUTSCHE DOW 30 ESTATE SECURITIES CAPITAL GROWTH ENGEMANN NIFTY SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT FIFTY SUBACCOUNT -------------- --------------- ---------------- ----------------- ---------------- ASSETS Investments at cost $ 584,556 $ 24,098 $ 174,371 $ 28,145,693 $ 121,376 ============== =============== ================= ================== ================= Investments at market $ 580,447 $ 21,798 $ 186,627 $ 25,011,253 $ 91,203 -------------- --------------- ----------------- ------------------ ----------------- Total assets 580,447 21,798 186,627 25,011,253 91,203 LIABILITIES Accrued expenses to related party 239 9 83 10,687 38 -------------- --------------- ----------------- ------------------ ----------------- NET ASSETS $ 580,208 $ 21,789 $ 186,544 $ 25,000,566 $ 91,165 ============== =============== ================= ================== ================= Accumulation units outstanding 301,226 22,860 104,025 6,484,023 110,740 ============== =============== ================= ================== ================= Unit value $ 1.926161 $ 0.953126 $ 1.793249 $ 3.855685 $ 0.823221 ============== =============== ================= ================== ================= PHOENIX- PHOENIX- GOODWIN MULTI- PHOENIX-J.P. GOODWIN MONEY SECTOR FIXED PHOENIX-HOLLISTER MORGAN RESEARCH PHOENIX-JANUS MARKET INCOME VALUE EQUITY ENHANCED INDEX CORE EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- ----------------- ------------------ ----------------- ASSETS Investments at cost $ 566,850 $ 4,025,268 $ 175,752 $ 226,883 $ 13,429 ============== =============== ================= ================== ================= Investments at market $ 566,850 $ 3,541,601 $ 161,143 $ 214,804 $ 11,735 -------------- --------------- ----------------- ------------------ ----------------- Total assets 566,850 3,541,601 161,143 214,804 11,735 LIABILITIES Accrued expenses to related party 245 1,587 67 91 5 -------------- --------------- ----------------- ------------------ ----------------- NET ASSETS $ 566,605 $ 3,540,014 $ 161,076 $ 214,713 $ 11,730 ============== =============== ================= ================== ================= Accumulation units outstanding 273,462 1,231,790 117,565 176,872 13,412 ============== =============== ================= ================== ================= Unit value $ 2.071972 $ 2.873877 $ 1.370105 $ 1.213946 $ 0.874599 ============== =============== ================= ================== ================= PHOENIX-MORGAN PHOENIX- PHOENIX- PHOENIX-JANUS PHOENIX-JANUS STANLEY FOCUS OAKHURST OAKHURST GROWTH FLEXIBLE INCOME GROWTH EQUITY BALANCED AND INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- ----------------- ------------------ ----------------- ASSETS Investments at cost $ 19,945 $ 252,206 $ 3,097 $ 91,473 $ 98,209 ============== =============== ================= ================== ================= Investments at market $ 19,993 $ 198,092 $ 2,583 $ 108,981 $ 101,111 -------------- --------------- ----------------- ------------------ ----------------- Total assets 19,993 198,092 2,583 108,981 101,111 LIABILITIES Accrued expenses to related party 9 86 1 48 45 -------------- --------------- ----------------- ------------------ ----------------- NET ASSETS $ 19,984 $ 198,006 $ 2,582 $ 108,933 $ 101,066 ============== =============== ================= ================== ================= Accumulation units outstanding 18,960 293,673 3,111 45,216 92,260 ============== =============== ================= ================== ================= Unit value $ 1.053978 $ 0.674239 $ 0.829819 $ 2.409148 $ 1.095450 ============== =============== ================= ================== ================= PHOENIX- OAKHURST PHOENIX-SANFORD ALGER AMERICAN STRATEGIC BERNSTEIN MID- PHOENIX-SENECA PHOENIX-SENECA LEVERAGED ALLOCATION CAP VALUE MID-CAP GROWTH STRATEGIC THEME ALLCAP PORTFOLIO SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- ----------------- ------------------ ----------------- ASSETS Investments at cost $ 18,724,139 $ 116,578 $ 158,185 $ 425,089 $ 71,602 ============== =============== ================= ================== ================= Investments at market $ 19,685,363 $ 134,082 $ 104,438 $ 354,271 $ 46,525 -------------- --------------- ----------------- ------------------ ----------------- Total assets 19,685,363 134,082 104,438 354,271 46,525 LIABILITIES Accrued expenses to related party 8,306 60 39 135 21 -------------- --------------- ----------------- ------------------ ----------------- NET ASSETS $ 19,677,057 $ 134,022 $ 104,399 $ 354,136 $ 46,504 ============== =============== ================= ================== ================= Accumulation units outstanding 5,043,810 108,816 79,645 214,336 71,414 ============== =============== ================= ================== ================= Unit value $ 3.901229 $ 1.231636 $ 1.310813 $ 1.652245 $ 0.651191 ============== =============== ================= ================== ================= FEDERATED FUND FOR U.S. FEDERATED HIGH VIP GROWTH GOVERNMENT INCOME BOND VIP CONTRAFUND(R) OPPORTUNITIES SECURITIES II FUND II PORTFOLIO PORTFOLIO SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- ----------------- ------------------ ASSETS Investments at cost $ 34,588 $ 29,606 $ 13,791 $ 3,090 ============== =============== ================= ================== Investments at market $ 36,270 $ 24,588 $ 12,364 $ 2,631 -------------- --------------- ----------------- ------------------ Total assets 36,270 24,588 12,364 2,631 LIABILITIES Accrued expenses to related party 15 11 6 1 -------------- --------------- ----------------- ------------------ NET ASSETS $ 36,255 $ 24,577 $ 12,358 $ 2,630 ============== =============== ================= ================== Accumulation units outstanding 34,689 26,691 13,510 3,096 ============== =============== ================= ================== Unit value $ 1.045109 $ 0.920760 $ 0.914728 $ 0.849594 ============== =============== ================= ==================
See Notes to Financial Statements SA-1 STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2001 (CONTINUED)
TEMPLETON DEVELOPING TEMPLETON VIP GROWTH MUTUAL SHARES TEMPLETON ASSET MARKETS INTERNATIONAL PORTFOLIO SECURITIES STRATEGY SECURITIES SECURITIES SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- ----------------- ------------------ ----------------- ASSETS Investments at cost $ 14,228 $ 43,057 $ 5,553 $ 7,811 $ 102,681 ============== =============== ================= ================== ================= Investments at market $ 10,888 $ 45,992 $ 4,847 $ 7,406 $ 66,502 -------------- --------------- ----------------- ------------------ ----------------- Total assets 10,888 45,992 4,847 7,406 66,502 LIABILITIES Accrued expenses to related party 5 21 2 (18) 64 -------------- --------------- ----------------- ------------------ ----------------- NET ASSETS $ 10,883 $ 45,971 $ 4,845 $ 7,424 $ 66,438 ============== =============== ================= ================== ================= Accumulation units outstanding 13,270 39,687 5,033 7,724 66,082 ============== =============== ================= ================== ================= Unit value $ 0.820149 $ 1.158352 $ 0.962563 $ 0.961249 $ 1.005374 ============== =============== ================= ================== ================= WANGER TECHNOLOGY INTERNATIONAL WANGER U.S. PORTFOLIO WANGER FOREIGN SMALL CAP SMALL CAP SUBACCOUNT FORTY SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- ----------------- ------------------ ASSETS Investments at cost $ 528,255 $ 6,808 $ 386,039 $ 490,514 ============== =============== ================= ================== Investments at market $ 192,918 $ 3,633 $ 233,575 $ 561,615 -------------- --------------- ----------------- ------------------ Total assets 192,918 3,633 233,575 561,615 LIABILITIES Accrued expenses to related party 75 1 94 255 -------------- --------------- ----------------- ------------------ NET ASSETS $ 192,843 $ 3,632 $ 233,481 $ 561,360 ============== =============== ================= ================== Accumulation units outstanding 482,147 6,226 158,243 313,060 ============== =============== ================= ================== Unit value $ 0.399967 $ 0.583428 $ 1.475462 $ 1.793133 ============== =============== ================= ==================
See Notes to Financial Statements SA-2 STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2001
PHOENIX- PHOENIX-DUFF & PHOENIX- ABERDEEN PHOENIX- PHELPS REAL ENGEMANN PHOENIX- INTERNATIONAL DEUTSCHE DOW 30 ESTATE SECURITIES CAPITAL GROWTH ENGEMANN NIFTY SUBACCOUNT SUBACCOUNT(2) SUBACCOUNT SUBACCOUNT FIFTY SUBACCOUNT -------------- --------------- ----------------- ------------------ ----------------- Investment income Distributions $ - $ 239 $ 5,527 $ 17,526 $ - Expenses Mortality, expense risk and administrative charges 3,509 77 640 145,396 535 -------------- --------------- ----------------- ------------------ ----------------- Net investment income (loss) (3,509) 162 4,887 (127,870) (535) -------------- --------------- ----------------- ------------------ ----------------- Net realized gain (loss) from share transactions 4,239 (21) 1,279 (333,050) (2,790) Net realized gain distribution from Fund 18,524 345 - 606,858 - Net unrealized appreciation (depreciation) on investment (232,156) (2,300) 4,148 (13,918,412) (49,457) -------------- --------------- ----------------- ------------------ ----------------- Net gain (loss) on investment (209,393) (1,976) 5,427 (13,644,604) (52,247) Net increase (decrease) in net assets resulting from operations $ (212,902) $ (1,814) $ 10,314 $ (13,772,474) $ (52,782) ============== =============== ================= ================== ================= PHOENIX- PHOENIX- GOODWIN MULTI- PHOENIX-J.P. GOODWIN MONEY SECTOR FIXED PHOENIX-HOLLISTER MORGAN RESEARCH PHOENIX-JANUS MARKET INCOME VALUE EQUITY ENHANCED INDEX CORE EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- ----------------- ------------------ ----------------- Investment income Distributions $ 22,955 $ 286,385 $ 1,166 $ 1,541 $ 78 Expenses Mortality, expense risk and administrative charges 3,005 18,042 726 1,083 59 -------------- --------------- ----------------- ------------------ ----------------- Net investment income (loss) 19,950 268,343 440 458 19 -------------- --------------- ----------------- ------------------ ----------------- Net realized gain (loss) from share transactions - 4,026 (768) (2,555) (26) Net realized gain distribution from Fund - - 913 1,420 - Net unrealized appreciation (depreciation) on investment - (76,777) (29,441) (28,535) (1,694) -------------- --------------- ----------------- ------------------ ----------------- Net gain (loss) on investment - (72,751) (29,296) (29,670) (1,720) Net increase (decrease) in net assets resulting from operations $ 19,950 $ 195,592 $ (28,856) $ (29,212) $ (1,701) ============== =============== ================= ================== ================= PHOENIX-MORGAN PHOENIX- PHOENIX- PHOENIX-JANUS PHOENIX-JANUS STANLEY FOCUS OAKHURST OAKHURST GROWTH FLEXIBLE INCOME GROWTH EQUITY BALANCED AND INCOME SUBACCOUNT(3) SUBACCOUNT SUBACCOUNT(2) SUBACCOUNT SUBACCOUNT -------------- --------------- ----------------- ------------------ ----------------- Investment income Distributions $ 921 $ - $ - $ 2,889 $ 513 Expenses Mortality, expense risk and administrative charges 87 724 13 547 520 -------------- --------------- ----------------- ------------------ ----------------- Net investment income (loss) 834 (724) (13) 2,342 (7) -------------- --------------- ----------------- ------------------ ----------------- Net realized gain (loss) from share transactions 4 (1,126) (19) (22) (162) Net realized gain distribution from Fund 147 - - 2,164 242 Net unrealized appreciation (depreciation) on investment 48 (32,955) (514) (2,306) (9,746) -------------- --------------- ----------------- ------------------ ----------------- Net gain (loss) on investment 199 (34,081) (533) (164) (9,666) Net increase (decrease) in net assets resulting from operations $ 1,033 $ (34,805) $ (546) $ 2,178 $ (9,673) ============== =============== ================= ================== ================= PHOENIX- OAKHURST PHOENIX-SANFORD ALGER AMERICAN STRATEGIC BERNSTEIN MID- PHOENIX-SENECA PHOENIX-SENECA LEVERAGED ALLOCATION CAP VALUE MID-CAP GROWTH STRATEGIC THEME ALLCAP PORTFOLIO SUBACCOUNT SUBACCOUNT(1) SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- ----------------- ------------------ ----------------- Investment income Distributions $ 494,609 $ 1,045 $ - $ - $ - Expenses Mortality, expense risk and administrative charges 98,375 180 732 2,193 241 -------------- --------------- ----------------- ------------------ ----------------- Net investment income (loss) 396,234 865 (732) (2,193) (241) -------------- --------------- ----------------- ------------------ ----------------- Net realized gain (loss) from share transactions 9,895 75 (17,540) (32,860) (414) Net realized gain distribution from Fund 320,310 566 - 12,366 1,711 Net unrealized appreciation (depreciation) on investment (466,471) 17,504 (34,081) (133,754) (10,184) -------------- --------------- ----------------- ------------------ ----------------- Net gain (loss) on investment (136,266) 18,145 (51,621) (154,248) (8,887) Net increase (decrease) in net assets resulting from operations $ 259,968 $ 19,010 $ (52,353) $ (156,441) $ (9,128) ============== =============== ================= ================== ================= FEDERATED FUND FOR U.S. FEDERATED HIGH VIP GROWTH GOVERNMENT INCOME BOND VIP CONTRAFUND(R) OPPORTUNITIES VIP GROWTH SECURITIES II FUND II PORTFOLIO PORTFOLIO PORTFOLIO SUBACCOUNT(5) SUBACCOUNT SUBACCOUNT(2) SUBACCOUNT(2) SUBACCOUNT -------------- --------------- ----------------- ------------------ ----------------- Investment income Distributions $ - $ 2,611 $ 91 $ 7 $ - Expenses Mortality, expense risk and administrative charges 121 117 60 13 54 -------------- --------------- ----------------- ------------------ ----------------- Net investment income (loss) (121) 2,494 31 (6) (54) -------------- --------------- ----------------- ------------------ ----------------- Net realized gain (loss) from share transactions 12 (17) (30) (19) (53) Net realized gain distribution from Fund - - 365 - 874 Net unrealized appreciation (depreciation) on investment 1,682 (3,619) (1,427) (459) (3,340) -------------- --------------- ----------------- ------------------ ----------------- Net gain (loss) on investment 1,694 (3,636) (1,092) (478) (2,519) Net increase (decrease) in net assets resulting from operations $ 1,573 $ (1,142) $ (1,061) $ (484) $ (2,573) ============== =============== ================= ================== =================
See Notes to Financial Statements SA-3 STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2001 (CONTINUED)
TEMPLETON DEVELOPING TEMPLETON MUTUAL SHARES TEMPLETON ASSET MARKETS INTERNATIONAL TECHNOLOGY SECURITIES STRATEGY SECURITIES SECURITIES PORTFOLIO SUBACCOUNT SUBACCOUNT(4) SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- ----------------- ------------------ ----------------- Investment income Distributions $ 840 $ 66 $ 119 $ 2,098 $ - Expenses Mortality, expense risk and administrative charges 230 19 88 391 1,158 -------------- --------------- ----------------- ------------------ ----------------- Net investment income (loss) 610 47 31 1,707 (1,158) -------------- --------------- ----------------- ------------------ ----------------- Net realized gain (loss) from share transactions 71 - (4,958) (154) (2,949) Net realized gain distribution from Fund 2,823 471 - 16,498 - Net unrealized appreciation (depreciation) on investment (661) (706) 3,484 (31,318) (184,965) -------------- --------------- ----------------- ------------------ ----------------- Net gain (loss) on investment 2,233 (235) (1,474) (14,974) (187,914) Net increase (decrease) in net assets resulting from operations $ 2,843 $ (188) $ (1,443) $ (13,267) $ (189,072) ============== =============== ================= ================== ================= WANGER INTERNATIONAL WANGER U.S. WANGER FOREIGN SMALL CAP WANGER TWENTY SMALL CAP FORTY SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- ----------------- ------------------ Investment income Distributions $ 5 $ - $ - $ 372 Expenses Mortality, expense risk and administrative charges 21 1,356 4 2,774 -------------- --------------- ----------------- ------------------ Net investment income (loss) (16) (1,356) (4) (2,402) -------------- --------------- ----------------- ------------------ Net realized gain (loss) from share transactions (1,835) (15,210) 3,127 (12,032) Net realized gain distribution from Fund 331 88,845 - - Net unrealized appreciation (depreciation) on investment 64 (139,113) (3,530) 73,423 -------------- --------------- ----------------- ------------------ Net gain (loss) on investment (1,440) (65,478) (403) 61,391 Net increase (decrease) in net assets resulting from operations $ (1,456) $ (66,834) $ (407) $ 58,989 ============== =============== ================= ==================
Footnotes for Statement of Operations For the period ended December 31, 2001 (1) From inception January 8, 2001 to December 31, 2001 (2) From inception January 18, 2001 to December 31, 2001 (3) From inception February 20, 2001 to December 31, 2001 (4) From inception April 2, 2001 to December 31, 2001 (5) From inception May 1, 2001 to December 31, 2001 See Notes to Financial Statements SA-4 STATEMENT OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2000
GOODWIN MULTI- ENGEMANN SECTOR FIXED OAKHURST STRATEGIC GOODWIN MONEY CAPITAL GROWTH INCOME ALLOCATION MARKET SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------- ----------------- ------------------ ------------------ Investment income Distributions $ 36,116 $ 3,459 $ 291,752 $ 542,408 Expenses Mortality, expense risk and administrative charges 3,105 243,073 17,751 101,609 ----------------- ----------------- ------------------ ------------------ Net investment income (loss) 33,011 (239,614) 274,001 440,799 ----------------- ----------------- ------------------ ------------------ Net realized gain (loss) from share transactions - (53,484) 96 (1,718) Net realized gain distribution from Fund - 2,028,863 - 2,030,604 Net unrealized appreciation (depreciation) on investment - (10,658,846) (67,863) (2,449,891) ----------------- ----------------- ------------------ ------------------ Net gain (loss) on investment - (8,683,467) (67,767) (421,005) ----------------- ----------------- ------------------ ------------------ Net increase (decrease) in net assets resulting from operations $ 33,011 $ (8,923,081) $ 206,234 $ 19,794 ================= ================= ================== ================== DUFF & PHELPS ABERDEEN OAKHURST REAL ESTATE SENECA STRATEGIC INTERNATIONAL BALANCED SECURITIES THEME SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------- ----------------- ------------------ ------------------ Investment income Distributions $ 7,665 $ 3,205 $ 3,679 $ - Expenses Mortality, expense risk and administrative charges 6,375 578 433 3,845 ----------------- ----------------- ------------------ ------------------ Net investment income (loss) 1,290 2,627 3,246 (3,845) ----------------- ----------------- ------------------ ------------------ Net realized gain (loss) from share transactions 40,137 1 2,439 (6,353) Net realized gain distribution from Fund 80,161 12,051 - 82,376 Net unrealized appreciation (depreciation) on investment (345,514) (14,580) 18,330 (164,500) ----------------- ----------------- ------------------ ------------------ Net gain (loss) on investment (225,216) (2,528) 20,769 (88,477) ----------------- ----------------- ------------------ ------------------ Net increase (decrease) in net assets resulting from operations $ (223,926) $ 99 $ 24,015 $ (92,322) ================= ================= ================== ================== J.P. MORGAN RESEARCH SENECA MID-CAP ABERDEEN NEW ASIA ENHANCED INDEX ENGEMANN NIFTY GROWTH SUBACCOUNT SUBACCOUNT FIFTY SUBACCOUNT SUBACCOUNT ----------------- ----------------- ------------------ ------------------ Investment income Distributions $ - $ 2,605 $ - $ - Expenses Mortality, expense risk and administrative charges 207 1,958 1,161 658 ----------------- ----------------- ------------------ ------------------ Net investment income (loss) (207) 647 (1,161) (658) ----------------- ----------------- ------------------ ------------------ Net realized gain (loss) from share transactions 20,126 (5,511) 20,494 (10) Net realized gain distribution from Fund - 10,103 - 14,904 Net unrealized appreciation (depreciation) on investment (24,312) (43,162) (46,465) (22,228) ----------------- ----------------- ------------------ ------------------ Net gain (loss) on investment (4,186) (38,570) (25,971) (7,334) ----------------- ----------------- ------------------ ------------------ Net increase (decrease) in net assets resulting from operations $ (4,393) $ (37,923) $ (27,132) $ (7,992) ================= ================= ================== ================== OAKHURST GROWTH AND INCOME SUBACCOUNT ----------------- Investment income Distributions $ 595 Expenses Mortality, expense risk and administrative charges 706 ----------------- Net investment income (loss) (111) ----------------- Net realized gain (loss) from share transactions 5,453 Net realized gain distribution from Fund 428 Net unrealized appreciation (depreciation) on investment (20,068) ----------------- Net gain (loss) on investment (14,187) ----------------- Net increase (decrease) in net assets resulting from operations $ (14,298) =================
See Notes to Financial Statements SA-5 STATEMENT OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2000 (CONTINUED)
WANGER WANGER U.S. INTERNATIONAL TEMPLETON HOLLISTER VALUE SMALL CAP SMALL CAP INTERNATIONAL EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ------------------- ----------------- ------------------ -------------------- Investment income Distributions $ 580 $ 861 $ - $ 1,246 Expenses Mortality, expense risk and administrative charges 385 3,039 2,593 386 ------------------- ----------------- ------------------ -------------------- Net investment income (loss) 195 (2,178) (2,593) 860 ------------------- ----------------- ------------------ -------------------- Net realized gain (loss) from share transactions 93 (15,052) (71,300) (1,961) Net realized gain distribution from Fund 10,726 88,676 81,913 8,178 Net unrealized appreciation (depreciation) on investment 12,156 (139,578) (179,570) (11,582) ------------------- ----------------- ------------------ -------------------- Net gain (loss) on investment 22,975 (65,954) (168,957) (5,365) ------------------- ----------------- ------------------ -------------------- Net increase (decrease) in net assets resulting from operations $ 23,170 $ (68,132) $ (171,550) $ (4,505) =================== ================= ================== ==================== TEMPLETON MUTUAL SHARES DEVELOPING MARKETS INVESTMENT WANGER TWENTY WANGER FOREIGN SUBACCOUNT SUBACCOUNT(4) SUBACCOUNT FORTY SUBACCOUNT(1) ------------------- ----------------- ------------------ -------------------- Investment income Distributions $ 635 $ - $ - $ - Expenses Mortality, expense risk and administrative charges 280 112 73 56 ------------------- ----------------- ------------------ -------------------- Net investment income (loss) 355 (112) (73) (56) ------------------- ----------------- ------------------ -------------------- Net realized gain (loss) from share transactions (4,972) 14 13,935 (17) Net realized gain distribution from Fund - - 476 270 Net unrealized appreciation (depreciation) on investment (22,006) 3,596 (13,805) (3,239) ------------------- ----------------- ------------------ -------------------- Net gain (loss) on investment (26,978) 3,610 606 (2,986) ------------------- ----------------- ------------------ -------------------- Net increase (decrease) in net assets resulting from operations $ (26,623) $ 3,498 $ 533 $ (3,042) =================== ================= ================== ==================== FEDERATED MORGAN STANLEY ALGER AMERICAN HIGH INCOME BOND TECHNOLOGY LEVERAGED FUND II JANUS GROWTH PORTFOLIO ALL-CAP SUBACCOUNT(2) SUBACCOUNT(3) SUBACCOUNT(3) SUBACCOUNT(4) ------------------- ----------------- ------------------ -------------------- Investment income Distributions $ 737 $ 138 $ - $ - Expenses Mortality, expense risk and administrative charges 35 534 2,205 177 ------------------- ----------------- ------------------ -------------------- Net investment income (loss) 702 (396) (2,205) (177) ------------------- ----------------- ------------------ -------------------- Net realized gain (loss) from share transactions (3) 4,681 452 (26) Net realized gain distribution from Fund - - 111 - Net unrealized appreciation (depreciation) on investment (1,399) (21,159) (150,372) (14,893) ------------------- ----------------- ------------------ -------------------- Net gain (loss) on investment (1,402) (16,478) (149,809) (14,919) ------------------- ----------------- ------------------ -------------------- Net increase (decrease) in net assets resulting from operations $ (700) $ (16,874) $ (152,014) $ (15,096) =================== ================= ================== ====================
Footnotes for Statement of Operations For the period ended December 31, 2000 1 From inception March 10, 2000 to December 31, 2000 2 From inception February 4, 2000 to December 31, 2000 3 From inception January 13, 2000 to December 31, 2000 4 From inception June 15, 2000 to December 31, 2000 See Notes to Financial Statements SA-6 STATEMENT OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 1999
GOODWIN ENGEMANN GOODWIN OAKHURST MONEY CAPITAL MULTI-SECTOR STRATEGIC MARKET GROWTH FIXED INCOME ALLOCATION SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------- -------------- --------------- ------------- Investment income Distributions............................................ $ 47,787 $ 101,431 $ 279,403 $ 435,445 Expenses Mortality, expense risk and administrative charges....... 5,042 211,059 17,100 96,921 --------------- -------------- --------------- ------------- Net investment income (loss)................................... 42,745 (109,628) 262,303 338,524 --------------- -------------- --------------- ------------- Net realized gain (loss) from share transactions............... - 142,567 (13,091) 13,025 Net realized gain distribution from Fund....................... - 3,818,535 - 1,006,144 Net unrealized appreciation (depreciation) on investment....... - 7,618,173 (79,576) 648,276 --------------- -------------- --------------- ------------- Net gain (loss) on investment.................................. - 11,579,275 (92,667) 1,667,445 --------------- -------------- --------------- ------------- Net increase (decrease) in net assets resulting from operations $ 42,745 $ 11,469,647 $ 169,636 $ 2,005,969 =============== ============== =============== ============= DUFF & PHELPS SENECA ABERDEEN OAKHURST REAL ESTATE STRATEGIC INTERNATIONAL BALANCED SECURITIES THEME SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------- -------------- --------------- ------------- Investment income Distributions............................................ $ 38,957 $ 2,771 $ 3,202 $ - Expenses Mortality, expense risk and administrative charges....... 8,009 569 322 2,265 --------------- -------------- --------------- ------------- Net investment income (loss)................................... 30,948 2,202 2,880 (2,265) --------------- -------------- --------------- ------------- Net realized gain (loss) from share transactions............... 7,005 1,742 (1,764) 27,036 Net realized gain distribution from Fund....................... 222,523 4,067 - 79,203 Net unrealized appreciation (depreciation) on investment....... 165,847 3,947 1,081 125,434 --------------- -------------- --------------- ------------- Net gain (loss) on investment.................................. 395,375 9,756 (683) 231,673 --------------- -------------- --------------- ------------- Net increase (decrease) in net assets resulting from operations $ 426,323 $ 11,958 $ 2,197 $ 229,408 =============== ============== =============== ============= RESEARCH ABERDEEN ENHANCED ENGEMANN SENECA MID- NEW ASIA INDEX NIFTY FIFTY CAP GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------- -------------- --------------- ------------- Investment income Distributions............................................ $ 1,322 $ 3,212 $ - $ - Expenses Mortality, expense risk and administrative charges....... 452 1,575 717 75 --------------- -------------- --------------- ------------- Net investment income (loss)................................... 870 1,637 (717) (75) --------------- -------------- --------------- ------------- Net realized gain (loss) from share transactions............... (12,803) 15,360 386 4,095 Net realized gain distribution from Fund....................... - 22,408 - 172 Net unrealized appreciation (depreciation) on investment....... 42,949 18,458 51,855 679 --------------- -------------- --------------- ------------- Net gain (loss) on investment.................................. 30,146 56,226 52,241 4,946 --------------- -------------- --------------- ------------- Net increase (decrease) in net assets resulting from operations $ 31,016 $ 57,863 $ 51,524 $ 4,871 =============== ============== =============== =============
See Notes to Financial Statements SA-7 STATEMENT OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 1999 (CONTINUED)
OAKHURST GROWTH AND HOLLISTER SCHAFER MID- WANGER U.S. INCOME VALUE EQUITY CAP VALUE SMALL CAP SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------- -------------- --------------- ------------- Investment income Distributions............................................ $ 1,276 $ 70 $ 8 $ - Expenses Mortality, expense risk and administrative charges....... 1,080 120 29 2,716 --------------- -------------- --------------- ------------- Net investment income (loss).................................. 196 (50) (21) (2,716) --------------- -------------- --------------- ------------- Net realized gain (loss) from share transactions.............. 608 1,877 (1,793) 10,805 Net realized gain distribution from Fund...................... 2,869 1,055 - 51,242 Net unrealized appreciation (depreciation) on investment...... 28,536 2,318 1,156 57,889 --------------- -------------- --------------- ------------- Net gain (loss) on investment................................. 32,013 5,250 (637) 119,936 --------------- -------------- --------------- ------------- Net increase (decrease) in net assets resulting from operations $ 32,209 $ 5,200 $ (658) $ 117,220 =============== ============== =============== ============= WANGER TEMPLETON INTERNATIONAL TEMPLETON DEVELOPING WANGER SMALL CAP INTERNATIONAL MARKETS TWENTY SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT(1) --------------- -------------- --------------- ------------- Investment income Distributions............................................. $ 1,717 $ 1,511 $ 131 $ - Expenses Mortality, expense risk and administrative charges........ 801 312 240 256 --------------- -------------- --------------- ------------- Net investment income (loss)................................... 916 1,199 (109) (256) --------------- -------------- --------------- ------------- Net realized gain (loss) from share transactions............... 4,949 163 (154) 105 Net realized gain distribution from Fund....................... - 5,622 - - Net unrealized appreciation (depreciation) on investment....... 154,358 6,124 17,919 17,335 --------------- -------------- --------------- ------------- Net gain (loss) on investment.................................. 159,307 11,909 17,765 17,440 --------------- -------------- --------------- ------------- Net increase (decrease) in net assets resulting from operations $ 160,223 $ 13,108 $ 17,654 $ 17,184 =============== ============== =============== =============
Footnotes for Statement of Operations For the period ended December 31, 1999 (1)From inception February 23, 1999 to December 31, 1999 See Notes to Financial Statements SA-8 STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 2001
PHOENIX- PHOENIX- PHOENIX-DUFF & PHOENIX- ABERDEEN DEUTSCHE PHELPS REAL ENGEMANN PHOENIX- INTERNATIONAL DOW 30 ESTATE SECURITIES CAPITAL GROWTH ENGEMANN NIFTY SUBACCOUNT SUBACCOUNT(2) SUBACCOUNT SUBACCOUNT FIFTY SUBACCOUNT ----------------- ----------------- ------------------- ----------------- ------------------ FROM OPERATIONS Net investment income (loss) $ (3,509) $ 162 $ 4,887 $ (127,870) $ (535) Net realized gain (loss) 22,763 324 1,279 273,808 (2,790) Net unrealized appreciation (depreciation) (232,156) (2,300) 4,148 (13,918,412) (49,457) ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) resulting from operations (212,902) (1,814) 10,314 (13,772,474) (52,782) ----------------- ----------------- ------------------- ----------------- ------------------ FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits - - - 37,406 - Participant transfers (22,244) 26,097 71,218 (357,177) (19,787) Participant withdrawals (154,745) (2,494) (16,952) (740,285) (2,830) ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) in net assets resulting from participant transactions (176,989) 23,603 54,266 (1,060,056) (22,617) ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) in net assets (389,891) 21,789 64,580 (14,832,530) (75,399) NET ASSETS Beginning of period 970,099 - 121,964 39,833,096 166,564 ----------------- ----------------- ------------------- ----------------- ------------------ End of period $ 580,208 $ 21,789 $ 186,544 $ 25,000,566 $ 91,165 ================= ================= =================== ================= ================== PHOENIX- PHOENIX-J.P. PHOENIX- GOODWIN MULTI- MORGAN GOODWIN MONEY SECTOR FIXED PHOENIX-HOLLISTER RESEARCH PHOENIX-JANUS MARKET INCOME VALUE EQUITY ENHANCED INDEX CORE EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT(2) ----------------- ----------------- ------------------- ----------------- ------------------ FROM OPERATIONS Net investment income (loss) $ 19,950 $ 268,343 $ 440 $ 458 $ 19 Net realized gain (loss) - 4,026 145 (1,135) (26) Net unrealized appreciation (depreciation) - (76,777) (29,441) (28,535) (1,694) ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) resulting from operations 19,950 195,592 (28,856) (29,212) (1,701) ----------------- ----------------- ------------------- ----------------- ------------------ FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 547 - 8,240 - - Participant transfers 33,820 (13,869) 84,429 9,826 13,621 Participant withdrawals (54,132) (245,941) (24,908) (4,323) (190) ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) in net assets resulting from participant transactions (19,765) (259,810) 67,761 5,503 13,431 ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) in net assets 185 (64,218) 38,905 (23,709) 11,730 NET ASSETS Beginning of period 566,420 3,604,232 122,171 238,422 - ----------------- ----------------- ------------------- ----------------- ------------------ End of period $ 566,605 $ 3,540,014 $ 161,076 $ 214,713 $ 11,730 ================= ================= =================== ================= ================== PHOENIX-MORGAN PHOENIX- PHOENIX- PHOENIX-JANUS PHOENIX-JANUS STANLEY FOCUS OAKHURST OAKHURST GROWTH FLEXIBLE INCOME GROWTH EQUITY BALANCED AND INCOME SUBACCOUNT(3) SUBACCOUNT SUBACCOUNT(2) SUBACCOUNT SUBACCOUNT ----------------- ----------------- ------------------- ----------------- ------------------ FROM OPERATIONS Net investment income (loss) $ 834 $ (724) $ (13) $ 2,342 $ (7) Net realized gain (loss) 151 (1,126) (19) 2,142 80 Net unrealized appreciation (depreciation) 48 (32,955) (514) (2,306) (9,746) ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) resulting from operations 1,033 (34,805) (546) 2,178 (9,673) ----------------- ----------------- ------------------- ----------------- ------------------ FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits - - - - 2,060 Participant transfers 19,224 121,743 3,221 - 1,743 Participant withdrawals (273) (4,766) (93) (4,366) (2,160) ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) in net assets resulting from participant transactions 18,951 116,977 3,128 (4,366) 1,643 ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) in net assets 19,984 82,172 2,582 (2,188) (8,030) NET ASSETS Beginning of period - 115,834 - 111,121 109,096 ----------------- ----------------- ------------------- ----------------- ------------------ End of period $ 19,984 $ 198,006 $ 2,582 $ 108,933 $ 101,066 ================= ================= =================== ================= ================== PHOENIX- OAKHURST PHOENIX-SANFORD ALGER AMERICAN STRATEGIC BERNSTEIN MID- PHOENIX-SENECA PHOENIX-SENECA LEVERAGED ALLOCATION CAP VALUE MID-CAP GROWTH STRATEGIC THEME ALLCAP PORTFOLIO SUBACCOUNT SUBACCOUNT(1) SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------- ----------------- ------------------- ----------------- ------------------ FROM OPERATIONS Net investment income (loss) $ 396,234 $ 865 $ (732) $ (2,193) $ (241) Net realized gain (loss) 330,205 641 (17,540) (20,494) 1,297 Net unrealized appreciation (depreciation) (466,471) 17,504 (34,081) (133,754) (10,184) ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) resulting from operations 259,968 19,010 (52,353) (156,441) (9,128) ----------------- ----------------- ------------------- ----------------- ------------------ FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 38,117 8,240 2,060 - - Participant transfers (95,781) 107,780 1,448 (55,340) 3,221 Participant withdrawals (443,949) (1,008) (3,019) (42,780) (578) ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) in net assets resulting from participant transactions (501,613) 115,012 489 (98,120) 2,643 ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) in net assets (241,645) 134,022 (51,864) (254,561) (6,485) NET ASSETS Beginning of period 19,918,702 - 156,263 608,697 52,989 ----------------- ----------------- ------------------- ----------------- ------------------ End of period $ 19,677,057 $ 134,022 $ 104,399 $ 354,136 $ 46,504 ================= ================= =================== ================= ==================
See Notes to Financial Statements SA-9 STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 2001 (CONTINUED)
FEDERATED FUND FOR U.S. FEDERATED HIGH VIP GROWTH GOVERNMENT INCOME BOND VIP CONTRAFUND(R) OPPORTUNITIES VIP GROWTH SECURITIES II FUND II PORTFOLIO PORTFOLIO PORTFOLIO SUBACCOUNT(5) SUBACCOUNT SUBACCOUNT(2) SUBACCOUNT(2) SUBACCOUNT(2) ----------------- ----------------- ------------------- ----------------- ------------------ FROM OPERATIONS Net investment income (loss) $ (121) $ 2,494 $ 31 $ (6) $ (54) Net realized gain (loss) 12 (17) 335 (19) 821 Net unrealized appreciation (depreciation) 1,682 (3,619) (1,427) (459) (3,340) ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) resulting from operations 1,573 (1,142) (1,061) (484) (2,573) ----------------- ----------------- ------------------- ----------------- ------------------ FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits - - - - - Participant transfers 34,923 18,819 13,621 3,221 13,621 Participant withdrawals (241) (400) (202) (107) (165) ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) in net assets resulting from participant transactions 34,682 18,419 13,419 3,114 13,456 ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) in net assets 36,255 17,277 12,358 2,630 10,883 NET ASSETS Beginning of period - 7,300 - - - ----------------- ----------------- ------------------- ----------------- ------------------ End of period $ 36,255 $ 24,577 $ 12,358 $ 2,630 $ 10,883 ================= ================= =================== ================= ================== TEMPLETON DEVELOPING TEMPLETON MUTUAL SHARES TEMPLETON ASSET MARKETS INTERNATIONAL TECHNOLOGY SECURITIES STRATEGY SECURITIES SECURITIES PORTFOLIO SUBACCOUNT SUBACCOUNT(4) SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------- ----------------- ------------------- ----------------- ------------------ FROM OPERATIONS Net investment income (loss) $ 610 $ 47 $ 31 $ 1,707 $ (1,158) Net realized gain (loss) 2,894 471 (4,958) 16,344 (2,949) Net unrealized appreciation (depreciation) (661) (706) 3,484 (31,318) (184,965) ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) resulting from operations 2,843 (188) (1,443) (13,267) (189,072) ----------------- ----------------- ------------------- ----------------- ------------------ FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits - - - - - Participant transfers 2,387 5,033 (12,494) - 24,021 Participant withdrawals (2,573) - (16,994) (1,449) (2,723) ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) in net assets resulting from participant transactions (186) 5,033 (29,488) (1,449) 21,298 ----------------- ----------------- ------------------- ----------------- ------------------ Net increase (decrease) in net assets 2,657 4,845 (30,931) (14,716) (167,774) NET ASSETS Beginning of period 43,314 - 38,355 81,154 360,617 ----------------- ----------------- ------------------- ----------------- ------------------ End of period $ 45,971 $ 4,845 $ 7,424 $ 66,438 $ 192,843 ================= ================= =================== ================= ================== WANGER WANGER FOREIGN INTERNATIONAL WANGER U.S. FORTY SMALL CAP WANGER TWENTY SMALL CAP SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT ----------------- ----------------- ------------------- ----------------- FROM OPERATIONS Net investment income (loss) $ (16) $ (1,356) $ (4) $ (2,402) Net realized gain (loss) (1,504) 73,635 3,127 (12,032) Net unrealized appreciation (depreciation) 64 (139,113) (3,530) 73,423 ----------------- ----------------- ------------------- ----------------- Net increase (decrease) resulting from operations (1,456) (66,834) (407) 58,989 ----------------- ----------------- ------------------- ----------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits - - - - Participant transfers (5,715) (19,218) (12,875) (7,016) Participant withdrawals (5,890) (27,180) (30) (54,769) Net increase (decrease) in net assets resulting from participant transactions (11,605) (46,398) (12,905) (61,785) ----------------- ----------------- ------------------- ----------------- Net increase (decrease) in net assets (13,061) (113,232) (13,312) (2,796) NET ASSETS Beginning of period 16,693 346,713 13,312 564,156 ----------------- ----------------- ------------------- ----------------- End of period $ 3,632 $ 233,481 $ - $ 561,360 ================= ================= =================== =================
Footnotes for Statements of Changes in Net Assets For the period ended December 31, 2001 (1) From inception January 8, 2001 to December 31, 2001 (2) From inception January 18, 2001 to December 31, 2001 (3) From inception February 20, 2001 to December 31, 2001 (4) From inception April 2, 2001 to December 31, 2001 (5) From inception May 1, 2001 to December 31, 2001 See Notes to Financial Statements SA-10 STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 2000
GOODWIN MONEY ENGEMANN CAPITAL GOODWIN MULTI-SECTOR MARKET GROWTH FIXED INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------- ------------------ ------------------- FROM OPERATIONS Net investment income (loss) $ 33,011 $ (239,614) $ 274,001 Net realized gain (loss) - 1,975,379 96 Net unrealized appreciation (depreciation) - (10,658,846) (67,863) ---------------- ------------------ ------------------- Net increase (decrease) resulting from operations 33,011 (8,923,081) 206,234 ---------------- ------------------ ------------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 765 11,696 24,116 Participant transfers (473,263) (55,031) 120,314 Participant withdrawals (211,248) (1,766,013) (193,936) ---------------- ------------------ ------------------- Net increase (decrease) in net assets resulting from participant transactions (683,746) (1,809,348) (49,506) ---------------- ------------------ ------------------- Net increase (decrease) in net assets (650,735) (10,732,429) 156,728 NET ASSETS Beginning of period 1,217,155 50,565,525 3,447,504 ---------------- ------------------ ------------------- End of period $ 566,420 $ 39,833,096 $ 3,604,232 ================ ================== =================== OAKHURST STRATEGIC ABERDEEN ALLOCATION INTERNATIONAL OAKHURST BALANCED SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------- ------------------ ------------------- FROM OPERATIONS Net investment income (loss) $ 440,799 $ 1,290 $ 2,627 Net realized gain (loss) 2,028,886 120,298 12,052 Net unrealized appreciation (depreciation) (2,449,891) (345,514) (14,580) ---------------- ------------------ ------------------- Net increase (decrease) resulting from operations 19,794 (223,926) 99 ---------------- ------------------ ------------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 11,853 - - Participant transfers (49,633) (579,636) - Participant withdrawals (644,907) (106,636) (5,877) ---------------- ------------------ ------------------- Net increase (decrease) in net assets resulting from participant transactions (682,687) (686,272) (5,877) ---------------- ------------------ ------------------- Net increase (decrease) in net assets (662,893) (910,198) (5,778) NET ASSETS Beginning of period 20,581,595 1,880,297 116,899 ---------------- ------------------ ------------------- End of period $ 19,918,702 $ 970,099 $ 111,121 ================ ================== =================== DUFF & PHELPS REAL ESTATE SENECA STRATEGIC SECURITIES THEME ABERDEEN NEW SUBACCOUNT SUBACCOUNT ASIA SUBACCOUNT ---------------- ------------------ ------------------- FROM OPERATIONS Net investment income (loss) $ 3,246 $ (3,845) $ (207) Net realized gain (loss) 2,439 76,023 20,126 Net unrealized appreciation (depreciation) 18,330 (164,500) (24,312) ---------------- ------------------ ------------------- Net increase (decrease) resulting from operations 24,015 (92,322) (4,393) ---------------- ------------------ ------------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits - 7,028 - Participant transfers 36,748 72,396 (185,843) Participant withdrawals (1,775) (41,015) (554) ---------------- ------------------ ------------------- Net increase (decrease) in net assets resulting from participant transactions 34,973 38,409 (186,397) ---------------- ------------------ ------------------- Net increase (decrease) in net assets 58,988 (53,913) (190,790) NET ASSETS Beginning of period 62,976 662,610 190,790 ---------------- ------------------ ------------------- End of period $ 121,964 $ 608,697 $ - ================ ================== ===================
See Notes to Financial Statements SA-11 STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 2000 (CONTINUED)
J.P. MORGAN RESEARCH SENECA MID-CAP ENHANCED INDEX ENGEMANN NIFTY GROWTH SUBACCOUNT FIFTY SUBACCOUNT SUBACCOUNT ---------------- ------------------ ------------------- FROM OPERATIONS Net investment income (loss) $ 647 $ (1,161) $ (658) Net realized gain (loss) 4,592 20,494 14,894 Net unrealized appreciation (depreciation) (43,162) (46,465) (22,228) ---------------- ------------------ ------------------- Net increase (decrease) resulting from operations (37,923) (27,132) (7,992) ---------------- ------------------ ------------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits - - - Participant transfers (106,020) 11,014 159,452 Participant withdrawals (76,388) (105,291) (2,366) ---------------- ------------------ ------------------- Net increase (decrease) in net assets resulting from participant transactions (182,408) (94,277) 157,086 ---------------- ------------------ ------------------- Net increase (decrease) in net assets (220,331) (121,409) 149,094 NET ASSETS Beginning of period 458,753 287,973 7,169 ---------------- ------------------ ------------------- End of period $ 238,422 $ 166,564 $ 156,263 ================ ================== =================== OAKHURST GROWTH AND HOLLISTER VALUE INCOME EQUITY WANGER U.S. SMALL SUBACCOUNT SUBACCOUNT CAP SUBACCOUNT ---------------- ------------------ ------------------- FROM OPERATIONS Net investment income (loss) $ (111) $ 195 $ (2,178) Net realized gain (loss) 5,881 10,819 73,624 Net unrealized appreciation (depreciation) (20,068) 12,156 (139,578) ---------------- ------------------ ------------------- Net increase (decrease) resulting from operations (14,298) 23,170 (68,132) ---------------- ------------------ ------------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits - - 9,371 Participant transfers (103,243) 81,250 155,641 Participant withdrawals (16,882) (1,439) (91,234) ---------------- ------------------ ------------------- Net increase (decrease) in net assets resulting from participant transactions (120,125) 79,811 73,778 ---------------- ------------------ ------------------- Net increase (decrease) in net assets (134,423) 102,981 5,646 NET ASSETS Beginning of period 243,519 19,190 558,510 ---------------- ------------------ ------------------- End of period $ 109,096 $ 122,171 $ 564,156 ================ ================== =================== WANGER TEMPLETON INTERNATIONAL TEMPLETON DEVELOPING SMALL CAP INTERNATIONAL MARKETS SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------- ------------------ ------------------- FROM OPERATIONS Net investment income (loss) $ (2,593) $ 860 $ 355 Net realized gain (loss) 10,613 6,217 (4,972) Net unrealized appreciation (depreciation) (179,570) (11,582) (22,006) ---------------- ------------------ ------------------- Net increase (decrease) resulting from operations (171,550) (4,505) (26,623) ---------------- ------------------ ------------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits - - 5,075 Participant transfers 200,786 16,475 (25,371) Participant withdrawals (22,329) (1,444) (820) ---------------- ------------------ ------------------- Net increase (decrease) in net assets resulting from participant transactions 178,457 15,031 (21,116) ---------------- ------------------ ------------------- Net increase (decrease) in net assets 6,907 10,526 (47,739) NET ASSETS Beginning of period 339,806 70,628 86,094 ---------------- ------------------ ------------------- End of period $ 346,713 $ 81,154 $ 38,355 ================ ================== ===================
See Notes to Financial Statements SA-12 STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 2000 (CONTINUED)
MUTUAL SHARES INVESTMENT WANGER FUND WANGER TWENTY FOREIGN FORTY FROM OPERATIONS SUBACCOUNT(4) SUBACCOUNT SUBACCOUNT(1) ---------------- ---------------- ---------------- Net investment income (loss) $ (112) $ (73) $ (56) Net realized gain (loss) 14 14,411 253 Net unrealized appreciation (depreciation) 3,596 (13,805) (3,239) ---------------- ---------------- ---------------- Net increase (decrease) resulting from operations 3,498 533 (3,042) ---------------- ---------------- ---------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits - - 1,953 Participant transfers 39,816 7,696 19,663 Participant withdrawals - (72,624) (1,881) ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from participant transactions 39,816 (64,928) 19,735 ---------------- ---------------- ---------------- Net increase (decrease) in net assets 43,314 (64,395) 16,693 NET ASSETS Beginning of period - 77,707 - ---------------- ---------------- ---------------- End of period $ 43,314 $ 13,312 $ 16,693 ================ ================ ================ FEDERATED MORGAN STANLEY HIGH INCOME TECHNOLOGY BOND FUND LL JANUS GROWTH PORTFOLIO FROM OPERATIONS SUBACCOUNT(2) SUBACCOUNT(3) SUBACCOUNT(3) ---------------- ---------------- ---------------- Net investment income (loss) $ 702 $ (396) $ (2,205) Net realized gain (loss) (3) 4,681 563 Net unrealized appreciation (depreciation) (1,399) (21,159) (150,372) ---------------- ---------------- ---------------- Net increase (decrease) resulting from operations (700) (16,874) (152,014) ---------------- ---------------- ---------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 5,156 5,158 - Participant transfers 51,275 426,522 512,631 Participant withdrawals (48,431) (298,972) - ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from participant transactions 8,000 132,708 512,631 ---------------- ---------------- ---------------- Net increase (decrease) in net assets 7,300 115,834 360,617 NET ASSETS Beginning of period - - - ---------------- ---------------- ---------------- End of period $ 7,300 $ 115,834 $ 360,617 ================ ================ ================ ALGER AMERICAN LEVERAGED ALL-CAP FROM OPERATIONS SUBACCOUNT(4) ---------------- Net investment income (loss) $ (177) Net realized gain (loss) (26) Net unrealized appreciation (depreciation) (14,893) ---------------- Net increase (decrease) resulting from operations (15,096) ---------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits - Participant transfers 68,485 Participant withdrawals (400) ---------------- Net increase (decrease) in net assets resulting from participant transactions 68,085 ---------------- Net increase (decrease) in net assets 52,989 NET ASSETS Beginning of period ---------------- End of period $ 52,989 ================
Footnotes for Statements of Changes in Net Assets For the period ended December 31, 2000 1 From inception March 10, 2000 to December 31, 2000 2 From inception February 4, 2000 to December 31, 2000 3 From inception January 13, 2000 to December 31, 2000 4 From inception June 15, 2000 to December 31, 2000 See Notes to Financial Statements SA-13 STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 1999
GOODWIN GOODWIN ENGEMANN MULTI-SECTOR MONEY MARKET CAPITAL GROWTH FIXED INCOME SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------- ---------------- ---------------- FROM OPERATIONS Net investment income (loss) ....................... $ 42,745 $ (109,628) $ 262,303 Net realized gain (loss) ........................... - 3,961,102 (13,091) Net unrealized appreciation (depreciation).......... - 7,618,173 (79,576) ---------------- ---------------- ---------------- Net increase (decrease) resulting from operations .. 42,745 11,469,647 169,636 ---------------- ---------------- ---------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits................................ 486,060 10,423 35,713 Participant transfers............................... 61,006 (363,154) (140,491) Participant withdrawals ............................ (173,778) (1,159,655) (173,638) ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from participant transactions .................. 373,288 (1,512,386) (278,416) ---------------- ---------------- ---------------- Net increase (decrease) in net assets .............. 416,033 9,957,261 (108,780) NET ASSETS Beginning of period................................. 801,122 40,608,264 3,556,284 ---------------- ---------------- ---------------- End of period ...................................... $ 1,217,155 $ 50,565,525 $ 3,447,504 ================ ================ ================ OAKHURST STRATEGIC ABERDEEN OAKHURST ALLOCATION INTERNATIONAL BALANCED SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------- ---------------- ---------------- FROM OPERATIONS Net investment income (loss) ....................... $ 338,524 $ 30,948 $ 2,202 Net realized gain (loss) ........................... 1,019,169 229,528 5,809 Net unrealized appreciation (depreciation) ......... 648,276 165,847 3,947 ---------------- ---------------- ---------------- Net increase (decrease) resulting from operations .. 2,005,969 426,323 11,958 ---------------- ---------------- ---------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits ............................... 274 - - Participant transfers............................... (156,475) (36,837) - Participant withdrawals ............................ (442,572) (45,710) (8,730) ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from participant transactions .................. (598,773) (82,547) (8,730) ---------------- ---------------- ---------------- Net increase (decrease) in net assets .............. 1,407,196 343,776 3,228 NET ASSETS Beginning of period................................. 19,174,399 1,536,521 113,671 ---------------- ---------------- ---------------- End of period ...................................... $ 20,581,595 $ 1,880,297 $ 116,899 ================ ================ ================ DUFF & PHELPS SENECA REAL ESTATE STRATEGIC ABERDEEN SECURITIES THEME NEW ASIA SUBACCOUNT SUBACCOUNT SUBACCOUNT ---------------- ---------------- ---------------- FROM OPERATIONS Net investment income (loss) ....................... $ 2,880 $ (2,265) $ 870 Net realized gain (loss)............................ (1,764) 106,239 (12,803) Net unrealized appreciation (depreciation).......... 1,081 125,434 42,949 ---------------- ---------------- ---------------- Net increase (decrease) resulting from operations .. 2,197 229,408 31,016 ---------------- ---------------- ---------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits ............................... - - - Participant transfers............................... (7,385) 123,557 132,907 Participant withdrawals ............................ (903) (101,462) (862) ---------------- ---------------- ---------------- Net increase (decrease) in net assets resulting from participant transactions .................. (8,288) 22,095 132,045 ---------------- ---------------- ---------------- Net increase (decrease) in net assets .............. (6,091) 251,503 163,061 NET ASSETS Beginning of period................................. 69,067 411,107 27,729 ---------------- ---------------- ---------------- End of period ...................................... $ 62,976 $ 662,610 $ 190,790 ================ ================ ================
See Notes to Financial Statements SA-14 STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 1999 (CONTINUED)
RESEARCH ENHANCED ENGEMANN SENECA MID- INDEX NIFTY FIFTY CAP GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------- --------------- --------------- FROM OPERATIONS Net investment income (loss) ....................... $ 1,637 $ (717) $ (75) Net realized gain (loss) ........................... 37,768 386 4,267 Net unrealized appreciation (depreciation).......... 18,458 51,855 679 --------------- --------------- --------------- Net increase (decrease) resulting from operations .. 57,863 51,524 4,871 --------------- --------------- --------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits ............................... - - - Participant transfers............................... 35,494 162,034 (13,864) Participant withdrawals ............................ (6,018) (10,187) (124) --------------- --------------- --------------- Net increase (decrease) in net assets resulting from participant transactions ................. 29,476 151,847 (13,988) --------------- --------------- --------------- Net increase (decrease) in net assets .............. 87,339 203,371 (9,117) NET ASSETS Beginning of period................................. 371,414 84,602 16,286 --------------- --------------- --------------- End of period ...................................... $ 458,753 $ 287,973 $ 7,169 =============== =============== =============== OAKHURST GROWTH AND HOLLISTER SCHAFER MID- INCOME VALUE EQUITY CAP VALUE SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------- --------------- --------------- FROM OPERATIONS Net investment income (loss) ....................... $ 196 $ (50) $ (21) Net realized gain (loss) ........................... 3,477 2,932 (1,793) Net unrealized appreciation (depreciation) ......... 28,536 2,318 1,156 --------------- --------------- --------------- Net increase (decrease) resulting from operations .. 32,209 5,200 (658) --------------- --------------- --------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits ............................... - - - Participant transfers............................... 160,466 4,123 (6,563) Participant withdrawals ............................ (2,695) (171) (44) --------------- --------------- --------------- Net increase (decrease) in net assets resulting from participant transactions .................. 157,771 3,952 (6,607) Net increase (decrease) in net assets .............. 189,980 9,152 (7,265) NET ASSETS Beginning of period................................. 53,539 10,038 7,265 --------------- --------------- --------------- End of period ...................................... $ 243,519 $ 19,190 $ 0 =============== =============== =============== WANGER WANGER U.S. INTERNATIONAL TEMPLETON SMALL CAP SMALL CAP INTERNATIONAL SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------- --------------- --------------- FROM OPERATIONS Net investment income (loss) ....................... $ (2,716) $ 916 $ 1,199 Net realized gain (loss) ........................... 62,047 4,949 5,785 Net unrealized appreciation (depreciation) ......... 57,889 154,358 6,124 --------------- --------------- --------------- Net increase (decrease) resulting from operations .. 117,220 160,223 13,108 --------------- --------------- --------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits ............................... - - - Participant transfers............................... (121,766) 49,732 - Participant withdrawals ............................ (9,011) (2,431) (1,111) --------------- --------------- --------------- Net increase (decrease) in net assets resulting from participant transactions................... (130,777) 47,301 (1,111) --------------- --------------- --------------- Net increase (decrease) in net assets .............. (13,557) 207,524 11,997 NET ASSETS Beginning of period................................. 572,067 132,282 58,631 --------------- --------------- --------------- End of period ...................................... $ 558,510 $ 339,806 $ 70,628 =============== =============== ===============
See Notes to Financial Statements SA-15 STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 1999 (CONTINUED)
TEMPLETON DEVELOPING WANGER MARKETS TWENTY SUBACCOUNT SUBACCOUNT(1) --------------- --------------- FROM OPERATIONS Net investment income (loss) ....................... $ (111) $ (256) Net realized gain (loss) ........................... (154) 105 Net unrealized appreciation (depreciation) ......... 17,919 17,335 --------------- --------------- Net increase (decrease) resulting from operations 17,654 17,184 --------------- --------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits ............................... - - Participant transfers............................... 58,912 61,018 Participant withdrawals ............................ (629) (495) --------------- --------------- Net increase (decrease) in net assets resulting from participant transactions .................. 58,283 60,523 --------------- --------------- Net increase (decrease) in net assets .............. 75,937 77,707 NET ASSETS Beginning of period................................. 10,157 - --------------- --------------- End of period ...................................... $ 86,094 $ 77,707 =============== ===============
Footnotes for Statements of Changes in Net Assets For the period ended December 31, 1999 (1) From inception February 23, 1999 to December 31, 1999 See Notes to Financial Statements SA-16 THE PHOENIX EDGE(R) PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 1--ORGANIZATION Phoenix Life Variable Universal Life Account (The Phoenix Edge(R)) (the "Account"), formerly Phoenix Home Life Variable Universal Life Account, is a separate investment account of Phoenix Life Insurance Company ("Phoenix") (See Note 10), formerly Phoenix Home Life Mutual Insurance Company. Phoenix is a wholly-owned subsidiary of The Phoenix Companies, Inc. The Account is registered as a unit investment trust under the Investment Company Act of 1940, as amended, and was established June 17, 1985. The Account currently consists of 50 subaccounts, that invest in shares of a specific series of a mutual fund. The mutual funds include The Phoenix Edge Series Fund, AIM Variable Insurance Funds, The Alger American Fund, Deutsche Asset Management VIT Funds, Federated Insurance Series, Fidelity(R) Variable Insurance Products, Franklin Templeton Variable Insurance Products Trust -- Class 2, The Universal Institutional Funds, Inc. and Wanger Advisors Trust (the "Funds"). As of December 31, 2001, all subaccounts were available for investment. Each series has distinct investment objectives as outlined below. Additionally, contract owners also may direct the allocation of their investments between the Account and the Guaranteed Interest Account of the general account of Phoenix.
- ----------------------------------------------------------------------------------------------------------------------------------- SERIES NAME INVESTMENT OBJECTIVE - ----------- --------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Aberdeen International Series High total return consistent with reasonable risk. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Aberdeen New Asia Series Long-term capital appreciation. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-AIM Mid-Cap Equity Series Long-term growth of capital. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Alliance/Bernstein Growth + Value Series Long-term capital growth. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Deutsche Dow 30 Series (formerly, Phoenix-Bankers Track the total return of the Dow Jones Industrial Average(SM) Trust Dow 30 Series) before fund expenses. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Deutsche Nasdaq-100 Index(R) Series (formerly, Phoenix- Track the total return of the Nasdaq-100 Index(R) before fund Bankers Trust Nasdaq-100(R) Series) expenses. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Duff & Phelps Real Estate Securities Series Capital appreciation and income with approximately equal emphasis. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Engemann Capital Growth Series (see Note 11) Intermediate and long-term growth of capital, with income as a secondary consideration. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Engemann Nifty Fifty Series (see Note 11) Long-term capital appreciation. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Engemann Small & Mid-Cap Growth Series Long-term growth of capital. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Federated U.S. Government Bond Series (see Note 11) High total return. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Goodwin Money Market Series High level of current income consistent with capital preservation and liquidity. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Goodwin Multi-Sector Fixed Income Series Long-term total return. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Hollister Value Equity Series Long-term capital appreciation and a secondary investment objective of current income. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-J.P. Morgan Research Enhanced Index Series High total return. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Janus Core Equity Series (formerly, Phoenix-Janus Long-term growth of capital. Equity Income Series) (see Note 11) - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Janus Flexible Income Series Maximum total return consistent with the preservation of capital. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Janus Growth Series (see Note 11) Long-term capital growth in a manner consistent with the preservation of capital. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-MFS Investors Growth Stock Series Long-term growth of capital and future income rather than current income. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-MFS Investors Trust Series Long-term growth of capital and secondarily to provide reasonable current income. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-MFS Value Series Capital appreciation and reasonable income. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Morgan Stanley Focus Equity Series Capital appreciation. - -----------------------------------------------------------------------------------------------------------------------------------
SA-17 THE PHOENIX EDGE(R) PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 1--ORGANIZATION (CONTINUED) - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Oakhurst Balanced Series (see Note 11) Reasonable income, long-term capital growth and conservation of capital. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Oakhurst Growth and Income Series Dividend growth, current income and capital. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Oakhurst Strategic Allocation Series (see Note 11) High total return over an extended period of time consistent with prudent investment risk. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Sanford Bernstein Global Value Series Long-term capital appreciation. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Sanford Bernstein Mid-Cap Value Series Long-term capital appreciation with current income as the secondary investment objective. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Sanford Bernstein Small-Cap Value Series Long-term capital appreciation. Current income is a secondary investment objective. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Seneca Mid-Cap Growth Series Capital appreciation. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Seneca Strategic Theme Series Long-term appreciation of capital. - ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund Growth of capital. - ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund Long-term growth of capital. - ----------------------------------------------------------------------------------------------------------------------------------- Alger American Leveraged AllCap Portfolio Long-term capital appreciation. - ----------------------------------------------------------------------------------------------------------------------------------- Deutsche VIT EAFE(R) Equity Index Fund Replicate, before expenses, the performance of the Morgan Stanley Capital International EAFE(R) Index. - ----------------------------------------------------------------------------------------------------------------------------------- Deutsche VIT Equity 500 Index Fund Replicate, before expenses, the performance of the Standard & Poor's 500 Composite Stock Price Index. - ----------------------------------------------------------------------------------------------------------------------------------- Federated Fund for U.S. Government Securities II (see Note 11) Current income. - ----------------------------------------------------------------------------------------------------------------------------------- Federated High Income Bond Fund II High current income. - ----------------------------------------------------------------------------------------------------------------------------------- VIP Contrafund(R) Portfolio Long-term capital appreciation. - ----------------------------------------------------------------------------------------------------------------------------------- VIP Growth Opportunities Portfolio Capital appreciation. - ----------------------------------------------------------------------------------------------------------------------------------- VIP Growth Portfolio Capital growth. - ----------------------------------------------------------------------------------------------------------------------------------- Mutual Shares Securities Fund Capital appreciation with income as a secondary objective. - ----------------------------------------------------------------------------------------------------------------------------------- Templeton Asset Strategy Fund High level of total return. - ----------------------------------------------------------------------------------------------------------------------------------- Templeton Developing Markets Securities Fund Long-term capital appreciation. - ----------------------------------------------------------------------------------------------------------------------------------- Templeton Growth Securities Fund Long-term capital growth. - ----------------------------------------------------------------------------------------------------------------------------------- Templeton International Securities Fund Long-term capital growth. - ----------------------------------------------------------------------------------------------------------------------------------- Technology Portfolio Long-term capital appreciation. - ----------------------------------------------------------------------------------------------------------------------------------- Wanger Foreign Forty Long-term capital growth. - ----------------------------------------------------------------------------------------------------------------------------------- Wanger International Small Cap Long-term capital growth. - ----------------------------------------------------------------------------------------------------------------------------------- Wanger Twenty Long-term capital growth. - ----------------------------------------------------------------------------------------------------------------------------------- Wanger U.S. Small Cap Long-term capital growth. - -----------------------------------------------------------------------------------------------------------------------------------
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES A. VALUATION OF INVESTMENTS: Investments are made exclusively in the Funds and are valued at the net asset values per share of the respective Series. B. INVESTMENT TRANSACTIONS AND RELATED INCOME: Investment transactions are recorded on the trade date. Realized gains and losses include capital gain distributions from the Funds as well as gains and losses on sales of shares in the Funds determined on the LIFO (last in, first out) basis. SA-18 THE PHOENIX EDGE(R) PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. INCOME TAXES: The Account is not a separate entity from Phoenix and under current federal income tax law, income arising from the Account is not taxed since reserves are established equivalent to such income. Therefore, no provision for related federal taxes is required. D. DISTRIBUTIONS: Distributions from the Funds are recorded on the ex-dividend date. E. USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. SA-19 THE PHOENIX EDGE(R) PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 3--PURCHASES AND SALES OF SHARES OF THE FUNDS Purchases and sales of shares of the Funds for the period ended December 31, 2001 aggregated the following:
SUBACCOUNT PURCHASES SALES - ---------- ----------- ------- The Phoenix Edge Series Fund Phoenix-Aberdeen International Series $ 41,013 $ 203,151 Phoenix-Deutsche Dow 30 Series(2) 26,682 2,563 Phoenix-Duff & Phelps Real Estate Securities Series 77,507 18,320 Phoenix-Engemann Capital Growth Series 842,468 1,430,049 Phoenix-Engemann Nifty Fifty Series 3,218 26,406 Phoenix-Goodwin Money Market Series 238,129 237,937 Phoenix-Goodwin Multi-Sector Fixed Income Series 284,285 275,670 Phoenix-Hollister Value Equity Series 97,934 28,802 Phoenix-J.P. Morgan Research Enhanced Index Series 32,847 25,477 Phoenix-Janus Core Equity Series 13,699 244 Phoenix-Janus Flexible Income Series(3) 20,292 351 Phoenix-Janus Growth Series 125,113 8,825 Phoenix-Morgan Stanley Focus Equity Series(2) 3,221 104 Phoenix-Oakhurst Balanced Series 5,567 5,427 Phoenix-Oakhurst Growth and Income Series 4,764 2,888 Phoenix-Oakhurst Strategic Allocation Series 883,145 668,339 Phoenix-Sanford Bernstein Mid-Cap Value Series(1) 117,652 1,150 Phoenix-Seneca Mid-Cap Growth Series 57,387 57,656 Phoenix-Seneca Strategic Theme Series 12,366 100,443 The Alger American Fund Alger American Leveraged All Cap Portfolio 4,888 777 Federated Insurance Series Federated Fund for U.S. Government Securities II Subaccount(5) 34,923 347 Federated High Income Bond Fund II Subaccount 23,278 2,357 Fidelity(R) Variable Insurance Products VIP Contrafund(R) Portfolio(2) 14,077 256 VIP Growth Opportunities Portfolio(2) 3,229 120 VIP Growth Portfolio 14,495 214 Franklin Templeton Variable Insurance Products Trust -- Class 2 Mutual Shares Securities Fund 7,487 4,237 Templeton Asset Strategy Fund 5,570 17 Templeton Developing Markets Securities Fund 1,571 31,062 Templeton International Series Fund 18,673 1,889 The Universal Institutional Funds, Inc. Technology Portfolio 23,880 3,829 Wanger Advisors Trust Wanger Foreign Forty 336 11,633 Wanger International Small Cap 92,408 51,371 Wanger Twenty - 12,915 Wanger U.S. Small Cap 4,444 68,605
(1) From inception January 8, 2001 to December 31, 2001 (2) From inception January 18, 2001 to December 31, 2001 (3) From inception February 20, 2001 to December 31, 2001 (4) From inception April 2, 2001 to December 31, 2001 (5) From inception May 1, 2001 to December 31, 2001 SA-20 THE PHOENIX EDGE(R) PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 4--FINANCIAL HIGHLIGHTS A summary of Financial Highlights of the Account for the period ended December 31, 2001 follows:
PERIOD ENDED 12/31/01 ------------- THE PHOENIX EDGE SERIES: PHOENIX-ABERDEEN INTERNATIONAL SERIES Units 301,226 Unit Value, end of period $1.926161 Net assets, end of period (thousands) $580 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets (0.50%) Total return (24.42%) PHOENIX-DEUTSCHE DOW 30 SERIES(2) Units 22,860 Unit Value, end of period $0.953126 Net assets, end of period (thousands) $22 Expenses as a % of average net assets 0.50% (6) Net investment income as a % of average net assets 1.05% (6) Total return (4.69%) PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES Units 104,025 Unit Value, end of period $1.793249 Net assets, end of period (thousands) $187 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets 3.85% Total return 6.08% PHOENIX-ENGEMANN CAPITAL GROWTH SERIES Units 6,484,023 Unit Value, end of period $3.855685 Net assets, end of period (thousands) $25,001 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets (0.44%) Total return (34.91%) PHOENIX-ENGEMANN NIFTY FIFTY SERIES Units 110,740 Unit Value, end of period $0.823221 Net assets, end of period (thousands) $91 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets (0.50%) Total return (35.63%) PHOENIX-GOODWIN MONEY MARKET SERIES Units 273,462 Unit Value, end of period $2.071972 Net assets, end of period (thousands) $567 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets 3.33% Total return 3.30% PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES Units 1,231,790 Unit Value, end of period $2.873877 Net assets, end of period (thousands) $3,540 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets 7.47% Total return 5.56%
See Notes to Financial Statements SA-21 THE PHOENIX EDGE(R) PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 4--FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED 12/31/01 -------------- PHOENIX-HOLLISTER VALUE EQUITY SERIES Units 117,565 Unit Value, end of period $1.370105 Net assets, end of period (thousands) $161 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets 0.30% Total return (18.37%) PHOENIX-J.P. MORGAN RESEARCH ENHANCED INDEX SERIES Units 176,872 Unit Value, end of period $1.213946 Net assets, end of period (thousands) $215 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets 0.21% Total return (12.34%) PHOENIX-JANUS CORE EQUITY SERIES Units 13,512 Unit Value, end of period $0.874599 Net assets, end of period (thousands) $12 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets 0.16% Total return (12.54%) PHOENIX-JANUS FLEXIBLE INCOME SERIES(3) Units 18,960 Unit Value, end of period $1.053978 Net assets, end of period (thousands) $20 Expenses as a % of average net assets 0.50% (6) Net investment income as a % of average net assets 4.91% (6) Total return 5.40% PHOENIX-JANUS GROWTH SERIES Units 293,673 Unit Value, end of period $0.674239 Net assets, end of period (thousands) $198 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets (0.50%) Total return (24.23%) PHOENIX-MORGAN STANLEY FOCUS EQUITY SERIES(2) Units 3,111 Unit Value, end of period $0.829819 Net assets, end of period (thousands) $3 Expenses as a % of average net assets 0.50% (6) Net investment income as a % of average net assets (0.51%) (6) Total return (17.02%) PHOENIX-OAKHURST BALANCED SERIES Units 45,217 Unit Value, end of period $2.409148 Net assets, end of period (thousands) $109 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets 2.15% Total return 2.08%
See Notes to Financial Statements SA-22 THE PHOENIX EDGE(R) PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 4--FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED 12/31/01 -------------- PHOENIX-OAKHURST GROWTH AND INCOME SERIES Units 92,260 Unit Value, end of period $1.095450 Net assets, end of period (thousands) $101 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets (0.01%) Total return (8.63%) PHOENIX-OAKHURST STRATEGIC ALLOCATION SERIES Units 5,043,810 Unit Value, end of period $3.901229 Net assets, end of period (thousands) $19,677 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets 2.03% Total return 1.36% PHOENIX-SANFORD BERNSTEIN MID-CAP VALUE SERIES(1) Units 108,816 Unit Value, end of period $1.231636 Net assets, end of period (thousands) $134 Expenses as a % of average net assets 0.50% (6) Net investment income as a % of average net assets 2.46% (6) Total return 23.16% PHOENIX-SENECA MID-CAP GROWTH SERIES Units 79,645 Unit Value, end of period $1.310813 Net assets, end of period (thousands) $104 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets (0.50%) Total return (25.66%) PHOENIX-SENECA STRATEGIC THEME SERIES Units 214,336 Unit Value, end of period $1.652245 Net assets, end of period (thousands) $354 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets (0.05%) Total return (27.72%) THE ALGER AMERICAN FUND: ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO Units 71,414 Unit Value, end of period $0.651191 Net assets, end of period (thousands) $47 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets (0.50%) Total return (16.35%) FEDERATED INSURANCE SERIES: FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II(5) Units 34,689 Unit Value, end of period $1.045109 Net assets, end of period (thousands) $36 Expenses as a % of average net assets 0.50% (6) Net investment income as a % of average net assets (0.50%) (6) Total return 4.51%
See Notes to Financial Statements SA-23 THE PHOENIX EDGE(R) PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 4--FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED 12/31/01 -------------- FEDERATED HIGH INCOME BOND FUND II Units 26,691 Unit Value, end of period $0.920760 Net assets, end of period (thousands) $25 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets 10.71% Total return 0.87% FIDELITY(R) VARIABLE INSURANCE PRODUCTS: VIP CONTRAFUND(R) PORTFOLIO(2) Units 13,510 Unit Value, end of period $0.914728 Net assets, end of period (thousands) $12 Expenses as a % of average net assets 0.50% (6) Net investment income as a % of average net assets 0.26% (6) Total return (8.53%) VIP GROWTH OPPORTUNITIES PORTFOLIO(2) Units 3,096 Unit Value, end of period $0.849594 Net assets, end of period (thousands) $3 Expenses as a % of average net assets 0.50% (6) Net investment income as a % of average net assets (0.23%) (6) Total return (15.04%) VIP GROWTH PORTFOLIO Units 13,270 Unit Value, end of period $0.820149 Net assets, end of period (thousands) $11 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets (0.50%) Total return (17.99%) FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- CLASS 2: MUTUAL SHARES SECURITIES FUND Units 39,687 Unit Value, end of period $1.158352 Net assets, end of period (thousands) $46 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets 1.33% Total return 6.51% TEMPLETON ASSET STRATEGY FUND Units 5,033 Unit Value, end of period $0.962563 Net assets, end of period (thousands) $5 Expenses as a % of average net assets 0.50% (6) Net investment income as a % of average net assets 1.28% (6) Total return (3.74%) TEMPLETON DEVELOPING MARKETS SECURITIES FUND Units 7,724 Unit Value, end of period $0.961249 Net assets, end of period (thousands) $7 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets 0.14% Total return (8.54%)
See Notes to Financial Statements SA-24 THE PHOENIX EDGE(R) PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 4--FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED 12/31/01 ------------- TEMPLETON INTERNATIONAL SECURITIES FUND Units 66,082 Unit Value, end of period $1.005374 Net assets, end of period (thousands) $66 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets 2.39% Total return (16.42%) THE UNIVERSAL INSTITUTIONAL FUNDS, INC.: TECHNOLOGY PORTFOLIO Units 482,147 Unit Value, end of period $0.399967 Net assets, end of period (thousands) $193 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets (0.50%) Total return (4.910%) WANGER ADVISORS TRUST: WANGER FOREIGN FORTY Units 6,226 Unit Value, end of period $0.583428 Net assets, end of period (thousands) $4 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets (0.38%) Total return (26.98%) Wanger International Small Cap Units 158,243 Unit Value, end of period $1.475462 Net assets, end of period (thousands) $233 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets (0.50%) Total return (21.67%) WANGER U.S. SMALL CAP Units 313,060 Unit Value, end of period $1.793133 Net assets, end of period (thousands) $561 Expenses as a % of average net assets 0.50% Net investment income as a % of average net assets (0.44%) Total return 10.83%
(1) From inception January 8, 2001 to December 31, 2001 (2) From inception January 18, 2001 to December 31, 2001 (3) From inception February 20, 2001 to December 31, 2001 (4) From inception April 2, 2001 to December 31, 2001 (5) From inception May 1, 2001 to December 31, 2001 (6) Annualized See Notes to Financial Statements SA-25 THE PHOENIX EDGE(R) PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 5--PARTICIPANT ACCUMULATION UNIT TRANSACTIONS FOR THE PERIOD ENDED DECEMBER 31, 2001 (IN UNITS)
SUBACCOUNT -------------------------------------------------------------------------------- PHOENIX- PHOENIX-DUFF & PHOENIX- ABERDEEN PHOENIX- PHELPS REAL ENGEMANN INTERNATIONAL DEUTSCHE DOW 30 ESTATE SECURITIES CAPITAL GROWTH SERIES SERIES(2) SERIES SERIES ---------------- ----------------- ------------------- ---------------- Units outstanding, beginning of period 380,667 - 72,152 6,724,919 Participant deposits - - - 8,711 Participant transfers (11,418) 23,213 41,375 (77,523) Participant withdrawals (68,023) (353) (9,502) (172,084) -------------------------------------------------------------------------------- Units outstanding, end of period 301,226 22,860 104,025 6,484,023 ================================================================================ -------------------------------------------------------------- PHOENIX- PHOENIX- PHOENIX-GOODWIN ENGEMANN NIFTY GOODWIN MONEY MULTI-SECTOR FIXED FIFTY SERIES MARKET SERIES INCOME SERIES ---------------- ----------------- -------------------- Units outstanding, beginning of period 130,236 282,406 1,323,848 Participant deposits - 284 - Participant transfers (16,362) 17,212 (4,841) Participant withdrawals (3,134) (26,440) (87,217) -------------------------------------------------------------- Units outstanding, end of period 110,740 273,462 1,231,790 ==============================================================
PHOENIX-J.P. PHOENIX-HOLLISTER MORGAN RESEARCH PHOENIX-JANUS VALUE EQUITY ENHANCED INDEX PHOENIX-JANUS FLEXIBLE INCOME SERIES SERIES CORE EQUITY SERIES SERIES(3) ---------------- ----------------- ------------------- ---------------- Units outstanding, beginning of period 72,787 172,131 - - Participant deposits 5,280 - - - Participant transfers 55,962 8,189 13,624 19,224 Participant withdrawals (16,464) (3,448) (212) (264) -------------------------------------------------------------------------------- Units outstanding, end of period 117,565 176,872 13,412 18,960 ================================================================================ PHOENIX-MORGAN PHOENIX-JANUS STANLEY FOCUS PHOENIX-OAKHURST GROWTH SERIES EQUITY SERIES(2) BALANCED SERIES ---------------- ----------------- -------------------- Units outstanding, beginning of period 130,181 - 47,086 Participant deposits - - - Participant transfers 170,221 3,222 - Participant withdrawals (6,729) (111) (1,870) ------------------------------------------------------------- Units outstanding, end of period 293,673 3,111 45,216 =============================================================
PHOENIX- PHOENIX- OAKHURST GROWTH OAKHURST PHOENIX-SANFORD PHOENIX-SENECA AND INCOME STRATEGIC BERNSTEIN MID-CAP MID-CAP GROWTH SERIES ALLOCATION SERIES VALUE SERIES(1) SERIES ---------------- ------------------ ------------------- ---------------- Units outstanding, beginning of period 91,000 5,175,185 - 88,622 Participant deposits 1,731 9,788 7,376 1,258 Participant transfers 1,474 (25,169) 102,343 (8,168) Participant withdrawals (1,945) (115,994) (903) (2,067) -------------------------------------------------------------------------------- Units outstanding, end of period 92,260 5,043,810 108,816 79,645 ================================================================================ FEDERATED FUND FOR U.S. PHOENIX-SENECA ALGER AMERICAN GOVERNMENT STRATEGIC THEME LEVERAGED ALL SECURITIES II SERIES CAP PORTFOLIO SUBACCOUNT(5) ---------------- ----------------- -------------------- Units outstanding, beginning of period 266,274 68,067 - Participant deposits - - - Participant transfers (30,726) 4,220 34,924 Participant withdrawals (21,212) (873) (235) ------------------------------------------------------------- Units outstanding, end of period 214,336 71,414 34,689 =============================================================
FEDERATED HIGH INCOME BOND VIP GROWTH FUND II VIP CONTRAFUND(R) OPPORTUNITIES VIP GROWTH SUBACCOUNT PORTFOLIO(2) PORTFOLIO(2) PORTFOLIO ---------------- ------------------ ------------------- ---------------- Units outstanding, beginning of period 7,998 - - - Participant deposits - - - - Participant transfers 19,121 13,729 3,221 13,463 Participant withdrawals (428) (219) (125) (193) -------------------------------------------------------------------------------- Units outstanding, end of period 26,691 13,510 3,096 13,270 ================================================================================ TEMPLETON DEVELOPING MUTUAL SHARES TEMPLETON ASSET MARKETS SECURITIES SECURITIES FUND STRATEGY FUND(4) FUND ---------------- ----------------- -------------------- Units outstanding, beginning of period 39,827 - 36,493 Participant deposits - - - Participant transfers 2,161 5,033 (12,575) Participant withdrawals (2,301) - (16,194) --------------------------------------------------------------- Units outstanding, end of period 39,687 5,033 7,724 ===============================================================
TEMPLETON WANGER INTERNATIONAL TECHNOLOGY WANGER FOREIGN INTERNATIONAL SERIES FUND PORTFOLIO FORTY SMALL CAP ---------------- ------------------ ------------------- ---------------- Units outstanding, beginning of period 67,472 458,892 20,891 184,339 Participant deposits - - - - Participant transfers - 29,014 (7,202) (9,719) Participant withdrawals (1,390) (5,759) (7,463) (16,377) -------------------------------------------------------------------------------- Units outstanding, end of period 66,082 482,147 6,226 158,243 ================================================================================ WANGER U.S. WANGER TWENTY SMALL CAP ---------------- ----------------- Units outstanding, beginning of period 9,168 348,693 Participant deposits - - Participant transfers (9,146) (4,541) Participant withdrawals (22) (31,092) --------------------------------------- Units outstanding, end of period - 313,060 =======================================
(1) From inception January 8, 2001 to December 31, 2001 (2) From inception January 18, 2001 to December 31, 2001 (3) From inception February 20, 2001 to December 31, 2001 (4) From inception April 2, 2001 to December 31, 2001 (5) From inception May 1, 2001 to December 31, 2001 SA-26 THE PHOENIX EDGE(R) PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 6--POLICY LOANS Policy provisions allow policyowners to borrow up to 75% of a policy's cash value during the first three policy years and up to 90% of cash value thereafter, with interest of 8% due and payable on each policy anniversary. At the time the loan is granted, an amount equivalent to the amount of the loan is transferred from the Account and the non-loaned portion of the Guaranteed Interest Account to the loaned portion of the Guaranteed Interest Account, part of Phoenix's general account as collateral for the outstanding loan. Transfers from the Account are included as participant withdrawals in the accompanying financial statements. Amounts in the loaned portion of the Guaranteed Interest Account are credited with interest at 7.25%. Loan repayments result in a transfer of collateral back to the Account and the non-loaned portion of the Guaranteed Interest Account. NOTE 7--INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS Phoenix and its affiliate, Phoenix Equity Planning Corporation ("PEPCO"), a registered broker/dealer in securities, provide all services to the Account. The cost of insurance is charged to each policy on a monthly basis by a withdrawal of participant units prorated among the elected Subaccounts. The amount charged to each policy depends on a number of variables including sex, age and risk class as well as the death benefit and cash value of the policy. Such costs aggregated $750,126, $971,148, and $821,704 during the periods ended December 31, 2001, 2000, and 1999 respectively. Upon partial surrender of a policy, a surrender fee of the lesser of $25 or 2.0% of the partial surrender amount paid and a fraction of the balance of any unpaid acquisition expense allowance is deducted from the policy value and paid to Phoenix. Such costs aggregated $233,739, $240,863 and $265,297 for the periods ended December 31, 2001, 2000, and 1999, respectively. PEPCO is the principal underwriter and distributor for the Account. PEPCO is reimbursed for its distribution and underwriting expenses by Phoenix. An acquisition expense allowance is paid to Phoenix over a ten-year period from contract inception by a withdrawal of units. The acquisition expense allowance consists of a sales load of 5.50% of the issue premium to compensate Phoenix for distribution expenses incurred, an issue administration charge of 1.0% of the issue premium to compensate Phoenix for underwriting and start-up expenses and premium taxes which currently range from 0.75% to 4.0% of premiums paid based on the state where the policyowner resides. In the event of a surrender before ten years, the unpaid balance of the acquisition expense allowance is deducted and paid to Phoenix. Phoenix assumes the mortality risk that insureds may live for a shorter time than projected because of inaccuracies in the projecting process and, accordingly, that an aggregate amount of death benefits greater than projected will be payable. The expense risk assumed is that expenses incurred in issuing the policies may exceed the limits on administrative charges set in the policies. In return for the assumption of these mortality and expense risks, Phoenix charges the Account an annual rate of 0.50% of the average daily net assets of the Account for mortality and expense risks assumed. NOTE 8--DISTRIBUTION OF NET INCOME The Account does not expect to declare dividends to participants from accumulated net income. The accumulated net income is distributed to participants as part of withdrawals of amounts in the form of surrenders, death benefits, transfers or annuity payments in excess of net purchase payments. NOTE 9--DIVERSIFICATION REQUIREMENTS Under the provisions of Section 817(h) of the Internal Revenue Code of 1986 (the "Code"), as amended, a variable contract, other than a contract issued in connection with certain types of employee benefit plans, will not be treated as a variable contract for federal tax purposes for any period for which the investments of the segregated asset account on which the contract is based are not adequately diversified. Each Subaccount is required to satisfy the requirements of Section 817(h). The Code provides that the "adequately diversified" requirement may be met if the underlying investments satisfy either the statutory safe harbor test or diversification requirements set forth in regulations issued by the Secretary of the Treasury. The Secretary of the Treasury has issued regulations under Section 817(h) of the Code. Phoenix intends that each of the Subaccounts shall comply with the diversification requirements and, in the event of any failure to comply, will take immediate corrective action to assure compliance. NOTE 10--REORGANIZATION AND INITIAL PUBLIC OFFERING On December 18, 2000, the board of directors of Phoenix Home Life Mutual Insurance Company unanimously adopted a plan of reorganization, which was amended and restated on January 26, 2001. On June 25, 2001, the effective date of the demutualization, Phoenix Home Life Mutual Insurance Company converted from a mutual life insurance company to a stock life insurance company, became a wholly owned subsidiary of The Phoenix Companies, Inc. ("PNX") and changed its name to Phoenix Life Insurance Company. At the same time, Phoenix Investment Partners, Ltd. ("PXP") became an indirect wholly owned subsidiary of PNX. SA-27 THE PHOENIX EDGE(R) PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 11--PROPOSED FUND CHANGES On November 13, 2001, The Board of Trustees of The Phoenix Edge Series Fund approved a Plan of Reorganization to merge three Series of The Phoenix Edge Series Fund into other existing series. Each Merging Series will be merged into a corresponding Surviving Series as follows:
Merging Series Surviving Series --------------- ---------------- Phoenix-Engemann Nifty Fifty Series Phoenix-Engemann Capital Growth Series Phoenix-Janus Core Equity Series Phoenix-Janus Growth Series Phoenix-Oakhurst Balanced Series Phoenix-Oakhurst Strategic Allocation Series
If the shareholders approve the Plan of Reorganization each Merging Series will transfer all or substantially all of its assets and its liabilities to the corresponding Surviving Series. In exchange, shareholders of the Merging Series will receive a proportional number of shares in the Surviving Series. The shareholders of each Merging Series must approve the Plan of Reorganization before any transaction can take place. The next meeting of The Phoenix Edge Series Fund's shareholders will be held in the Spring of 2002, at which time, these matters will be submitted for a shareholder vote. The Board of Trustees of the fund voted at their August 28, 2001 meeting that shares of the Phoenix-Federated U.S. Government Bond Series will no longer be available for sale except to contract/policy owners who already had account value allocated to the subaccounts investing in the series as of February 16, 2001. On September 18, 2001, Phoenix Life Variable Accumulation Account, Phoenix Life Variable Universal Life Account, PHL Variable Accumulation Account, PHLVIC Variable Universal Life Account and Phoenix Life And Annuity Variable Universal Life Account asked the Securities and Exchange Commission ("SEC") to approve a proposal to substitute shares of Federated Fund for U.S. Government Securities II for shares of Phoenix-Federated U.S. Government Bond Series. Subject to SEC approval, the substitution is expected to be completed later this year. It will affect contract/policy owners who have amounts invested in the Phoenix-Federated U.S. Government Bond Series at that time. Affected Contract owners will be notified when the substitution is complete. NOTE 12--MANAGER OF MANAGERS The Adviser of Phoenix-AIM Mid-Cap Equity Series, Phoenix-Alliance/Bernstein Growth + Value Series, Phoenix-Deutsche Dow 30 Series, Phoenix-Deutsche Nasdaq-100 Index(R) Series, Phoenix-Federated U.S. Government Bond Series, Phoenix-J.P. Morgan Research Enhanced Index Series, Phoenix-Janus Core Equity Series, Phoenix-Janus Flexible Income Series, Phoenix-Janus Growth Series, Phoenix-MFS Investors Growth Stock Series, Phoenix-MFS Investors Trust Series, Phoenix-MFS Value Series, Phoenix- Morgan Stanley Focus Equity Series, Phoenix-Sanford Bernstein Global Value Series, Phoenix-Sanford Bernstein Mid-Cap Value Series, Phoenix-Sanford Bernstein Small Cap Value Series ("PVA Funds") is Phoenix Variable Advisers, Inc. ("PVA"). The PVA Funds and PVA have filed an application for an order of the SEC granting exemptions from certain provisions of the Investment Company Act of 1940, as amended, to permit the PVA Funds to be managed under a "manager of managers" structure. If the SEC grants the requested exemptive order, PVA will, subject to supervision and approval of the PVA Funds' Board of Trustees, be permitted to enter into and materially amend subadvisory agreements without such agreements being approved by the shareholders of the applicable series of the PVA Funds. The order would, therefore, permit the PVA Funds and PVA to hire, terminate, or replace subadvisors without shareholder approval, including, without limitation, the placement or reinstatement of any subadvisor with respect to which a subadvisory agreement has automatically terminated as a result of an assignment. The PVA Funds and PVA believe that without such exemption, PVA may be impeded in the prompt and efficient employment of a subadvisor best suited to the needs of a particular series, and a series may be subjected to additional expenses of proxy solicitations and shareholder meetings when subadvisors are employed or replaced. PVA will continue to have the ultimate responsibility to oversee the subadvisors and recommend their hiring, termination, and replacement. There is no guarantee the PVA Funds will obtain this order from the SEC. SA-28 REPORT OF INDEPENDENT ACCOUNTANTS [LOGO OF PRICEWATERHOUSECOOPERS] To the Board of Directors of Phoenix Life Insurance Company and Participants of Phoenix Life Variable Universal Life Account (The Phoenix Edge(R)): In our opinion, the accompanying statements of assets and liabilities and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of each of the Subaccounts constituting the Phoenix Life Variable Universal Life Account (The Phoenix Edge(R)) at December 31, 2001, and the results of each of their operations and the changes in each of their net assets for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Phoenix Life Insurance Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments at December 31, 2001 by correspondence with the mutual funds, provide a reasonable basis for our opinion. /s/ Pricewaterhousecoopers LLP Hartford Connecticut March 22, 2002 SA-29 PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT Phoenix Life Insurance Company One American Row Hartford, Connecticut 06115 UNDERWRITER Phoenix Equity Planning Corporation 56 Prospect Street Hartford, Connecticut 06115-0480 CUSTODIANS JP Morgan Chase Bank 1 Chase Manhattan Plaza Floor 3B New York, New York 10081 Brown Brothers Harriman & Co. 40 Water Street Boston, Massachusetts 02109 State Street Bank and Trust P.O. Box 351 Boston, Massachusetts 02101 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 100 Pearl Street Hartford, Connecticut 06103 __________________________________ SA-30 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 F-1 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE Report of Independent Accountants ..........................................F-3 Consolidated Balance Sheets ................................................F-4 Consolidated Statements of Income ..........................................F-5 Consolidated Statements of Cash Flows.................................F-6 - F-7 Consolidated Statements of Changes in Stockholder's Equity and Comprehensive Income ...............................................F-8 Notes to Consolidated Financial Statements ..........................F-9 - F-45 F-2 PRICEWATERHOUSECOOPERS [Logo] - -------------------------------------------------------------------------------- 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 Stockholder of Phoenix Life Insurance Company In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, cash flows, and changes in stockholder's equity and comprehensive income present fairly, in all material respects, the financial position of Phoenix Life Insurance Company (formerly Phoenix Home Life Mutual Insurance Company) and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in the accompanying notes to consolidated financial statements, the Company changed its method of accounting for venture capital partnerships (Note 5), securitized financial instruments (Note 3), and derivative financial instruments (Note 3) in 2001. /s/ PricewaterhouseCoopers LLP February 5, 2002 F-3 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
AS OF DECEMBER 31, --------------------------------------- 2000 2001 ------------------ ------------------- ASSETS (IN MILLIONS, EXCEPT SHARE DATA) Investments: Available-for-sale debt securities, at fair value................ $ 5,949.0 $ 9,599.2 Held-to-maturity debt securities, at amortized cost.............. 2,109.6 -- Equity securities, at fair value................................. 335.5 286.0 Mortgage loans, at unpaid principal, net......................... 593.4 535.8 Real estate, at lower of cost or fair value less costs to sell , net 77.9 83.1 Policy loans, at unpaid principal................................ 2,105.2 2,172.2 Venture capital partnerships..................................... 467.3 291.7 Other invested assets............................................ 235.7 281.2 Short-term investments, at amortized cost........................ 3.8 8.5 ------------------ ------------------- Total investments............................................. 11,877.4 13,257.7 Cash and cash equivalents............................................ 720.0 547.9 Accrued investment income............................................ 194.5 203.1 Deferred policy acquisition costs.................................... 1,019.0 1,123.7 Premiums, accounts and notes receivable.............................. 155.8 175.1 Reinsurance recoverables............................................. 16.6 21.4 Property, equipment and leasehold improvements, net.................. 122.2 102.2 Goodwill and other intangible assets, net............................ 582.6 22.6 Investments in unconsolidated affiliates............................. 173.2 330.6 Deferred income taxes, net........................................... -- 22.9 Net assets of discontinued operations (note 13)...................... 25.5 20.8 Other assets......................................................... 49.8 32.7 Separate account assets and investment trusts........................ 5,376.6 5,570.0 ------------------ ------------------- Total assets..................................................... $ 20,313.2 $ 21,430.7 ================== =================== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: - ------------ Policy liabilities and accruals................................. $ 11,372.6 $ 11,993.4 Policyholder deposit funds...................................... 678.4 1,368.2 Long-term debt (note 10)........................................ 425.1 175.0 Deferred income taxes, net...................................... 9.4 -- Other liabilities............................................... 473.3 496.0 Separate account liabilities and investment trusts.............. 5,376.6 5,564.9 ------------------ ------------------- Total liabilities.......................................... 18,335.4 19,597.5 ------------------ ------------------- Commitments and contingencies (note 22)............................. Minority interest in net assets of consolidated subsidiaries........ 136.9 1.1 ------------------ ------------------- Stockholder's equity: - --------------------- Common stock ($1,000 par value, 10,000 shares authorized; 0 and 10,000 shares issued and outstanding at December 31, 2000 and 2001, respectively................................... -- 10.0 Additional paid-in capital....................................... -- 1,712.0 Retained earnings................................................ 1,820.7 29.0 Accumulated other comprehensive income........................... 20.2 81.1 ------------------ ------------------- Total stockholder's equity................................... 1,840.9 1,832.1 ------------------ ------------------- Total liabilities and stockholder's equity................... $ 20,313.2 $ 21,430.7 ================== =================== The accompanying notes are an integral part of these consolidated financial statements.
F-4 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------- 1999 2000 2001 -------------- -------------- -------------- Revenues: (IN MILLIONS) - --------- Premiums....................................................... $1,175.7 $ 1,147.4 $ 1,112.7 Insurance and investment product fees.......................... 574.6 631.0 430.3 Net investment income.......................................... 953.1 1,129.6 830.2 Net realized investment gains ................................. 75.8 89.2 150.1 -------------- -------------- -------------- Total revenues......................................... 2,779.2 2,997.2 2,523.3 -------------- -------------- -------------- Benefits and expenses: Policy benefits and increase in policy liabilities...... 1,373.1 1,409.8 1,406.7 Policyholder dividends.................................. 360.5 378.0 400.1 Amortization of deferred policy acquisition costs 147.9 356.0 133.0 Amortization of goodwill and other intangible assets 40.1 36.9 24.7 Interest expense........................................ 34.0 32.7 20.0 Demutualization expenses................................ -- 21.8 25.9 Other operating expenses................................ 557.9 604.5 470.6 -------------- -------------- -------------- Total benefits and expenses........................ 2,513.5 2,839.7 2,481.0 -------------- -------------- -------------- Income from continuing operations before income taxes, minority interest and equity in earnings of and interest earned from investments in unconsolidated affiliates.............................................. 265.7 157.5 42.3 Income tax expense (benefit)................................... 99.0 56.2 (19.8) -------------- -------------- -------------- Income from continuing operations before minority Interest, equity in earnings of and interest earned From investments in unconsolidated affiliates........... 166.7 101.3 62.1 Minority interest in net income of consolidated Subsidiaries............................................ (10.1) (14.1) (3.7) Equity in earnings of and interest earned from Investments in unconsolidated affiliates................ 5.5 7.6 8.1 -------------- -------------- -------------- Income from continuing operations.............................. 162.1 94.8 66.5 Discontinued operations (note 13): - ---------------------------------- Income from discontinued operations, net of income taxes.............................................. 36.1 9.4 -- Loss on disposal, net of income taxes................... (109.0) (20.9) -- -------------- -------------- -------------- Income before cumulative effect of accounting changes................................................. 89.2 83.3 66.5 -------------- -------------- -------------- Cumulative effect of accounting changes for: - -------------------------------------------- Venture capital partnerships, net of income taxes (note 5)............................................. -- -- (48.8) Securitized financial instruments, net of income taxes (note 3)....................................... -- -- (20.5) Derivative financial instruments, net of income taxes (note 3)............................................. -- -- 3.9 -------------- -------------- -------------- Net income .................................................... $ 89.2 $ 83.3 $ 1.1 ============== ============== ============== The accompanying notes are an integral part of these consolidated financial statements.
F-5 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, --------------------------------------------- 1999 2000 2001 ------------ ------------ ------------ Cash flows from operating activities: (IN MILLIONS) - ------------------------------------- Net income ........................................ $ 89.2 $ 83.3 $ 1.1 Adjustments to reconcile net income to net cash provided by operating activities: Net loss from discontinued operations.................. 72.9 11.5 -- Net realized investment gains.......................... (75.8) (89.2) (150.1) Amortization and depreciation.......................... 72.0 56.8 43.2 Investment income...................................... (138.2) (297.7) 97.4 Securitized financial instruments and derivatives...... -- -- 16.6 Deferred income tax benefit............................ (13.9) (37.0) (60.4) Increase in receivables................................ (62.9) (54.0) (76.9) (Increase) decrease in deferred policy acquisition costs (.3) 183.2 (76.2) Increase in policy liabilities and accruals............ 321.2 472.8 469.0 Change in other assets/other liabilities, net.......... 53.8 45.4 145.3 ------------ ------------ ------------ Net cash provided by continuing operations............. 318.0 375.1 409.0 Net cash used for discontinued operations.............. (76.7) (264.6) (75.1) ------------ ------------ ------------ Net cash provided by operating activities.............. 241.3 110.5 333.9 ------------ ------------ ------------ Cash flows from investing activities: - ------------------------------------- Proceeds from the sale of debt securities: Available-for-sale................................. 1,192.2 912.1 1,202.0 Held-to-maturity................................... 18.0 9.8 17.5 Proceeds from the maturity of debt securities: Available-for-sale................................. 49.7 38.7 96.7 Held-to-maturity................................... 6.5 25.9 35.5 Proceeds from the repayment of debt securities: Available-for-sale................................. 461.0 286.1 534.0 Held-to-maturity................................... 162.2 173.8 158.5 Proceeds from sale of equity securities................ 163.5 515.4 114.6 Proceeds from the maturity of mortgage loans........... 18.9 17.3 16.4 Proceeds from the repayment of mortgage loans.......... 106.0 110.3 42.3 Proceeds from distributions of venture capital partnerships 26.7 37.9 30.7 Proceeds from sale of real estate and other invested assets 38.0 26.6 36.8 Proceeds from sale of property and equipment........... -- 20.6 -- Proceeds from sale of subsidiaries and affiliates...... 46.4 14.1 659.8 Purchase of available-for-sale debt securities......... (1,672.6) (1,418.4) (3,132.7) Purchase of held-to-maturity debt securities........... (395.5) (356.0) (393.8) Purchase of equity securities.......................... (162.4) (130.5) (72.8) Purchase of subsidiaries............................... (187.6) (59.3) (10.0) Purchase of mortgage loans............................. (25.3) (1.0) -- Purchase of investments in unconsolidated affiliates and other invested assets............................. (103.4) (46.5) (104.2) Purchase of minority interest in subsidiary............ -- -- (358.1) Purchase of interests in venture capital partnerships.. (108.5) (95.1) (47.0) Change in short-term investments, net.................. (.6) .5 (4.8) Increase in policy loans............................... (34.3) (62.7) (67.0) Capital expenditures................................... (20.5) (21.5) (13.7) Other investing activities, net........................ 1.7 -- -- ------------ ------------ ------------ Net cash used for continuing operations....................... (419.9) (1.9) (1,259.3) Net cash provided by discontinued operations.................. 105.6 259.5 77.5 ------------ ------------ ------------ Net cash (used for) provided by investing activities.......... $ (314.3) $ 257.6 $(1,181.8) ------------ ------------ ------------ The accompanying notes are an integral part of these consolidated financial statements.
F-6 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------- 1999 2000 2001 -------------- -------------- ------------- Cash flows from financing activities: (IN MILLIONS) - ------------------------------------- Net deposits of policyholder deposit funds, net of interest credited............................... $ 6.5 $ 140.2 $ 689.8 Proceeds (repayments) from securities sold subject to repurchase agreements.................................. 28.4 (28.4) -- Issuance of common stock................................... -- -- 10.0 Capital contributions from parent.......................... -- -- 78.6 Dividends paid to parent .................................. -- -- (132.3) Proceeds from borrowings................................... 175.1 50.0 180.0 Repayment of borrowings.................................... (125.0) (124.0) (125.1) Distributions to minority stockholders..................... (4.2) (5.8) (5.8) Debenture principal payments............................... -- -- (19.4) Other financing activities, net............................ (.4) 3.2 -- -------------- -------------- ------------- Net cash provided by financing activities................. 80.4 35.2 675.8 -------------- -------------- ------------- Net change in cash and cash equivalents.................... 7.4 403.3 (172.1) Cash and cash equivalents, beginning of year............... 309.3 316.7 720.0 -------------- -------------- ------------- Cash and cash equivalents, end of year..................... $316.7 $ 720.0 $547.9 ============== ============== ============= Supplemental cash flow information: - ----------------------------------- Income taxes paid (received), net.......................... $106.4 $ 135.8 $ (47.0) Interest paid on indebtedness.............................. $ 34.8 $ 34.1 $ 23.8 The accompanying notes are an integral part of these consolidated financial statements.
RETAINED ACCUMULATED ADDITIONAL EARNINGS OTHER TOTAL COMMON PAID-IN (ACCUMULATED COMPREHENSIVE STOCKHOLDER'S STOCK CAPITAL DEFICIT) INCOME (LOSS) EQUITY ----------- -------------- --------------- ---------------- -------------- (IN MILLIONS) Balance at January 1, 1999 $ -- $ -- $ 1,642.3 $ 94.3 $ 1,736.6 - -------------------------- Net income........................... 89.2 89.2 Other comprehensive loss, net of income taxes: Unrealized loss on securities.. (66.8) (66.8) Reclassification adjustment for net realized gains included in net income (1.5) (1.5) Minimum pension liability adjustment (1.5) (1.5) -------------- Total other comprehensive loss.... (69.8) Comprehensive income................. 19.4 ----------- -------------- --------------- ---------------- -------------- Balance at December 31, 1999......... $ -- $ -- $ 1,731.5 $ 24.5 $ 1,756.0 - ---------------------------- =========== ============== =============== ================ ============== Balance at January 1, 2000 $ -- $ -- $ 1,731.5 $ 24.5 $ 1,756.0 - -------------------------- Comprehensive income: Net income........................ 83.3 83.3 Other comprehensive income, net of income taxes: Unrealized gains on securities. 53.0 53.0 Reclassification adjustment for net Realized gains included in (58.9) (58.9) net income Minimum pension liability 1.6 1.6 adjustment -------------- Total other comprehensive income.. (4.3) Comprehensive income................. 79.0 Other equity adjustments............. 5.9 5.9 ----------- -------------- --------------- ---------------- -------------- Balance at December 31, 2000......... $ -- $ -- $ 1,820.7 $ 20.2 $ 1,840.9 - ---------------------------- =========== ============== =============== ================ ============== Balance at January 1, 2001........... $ -- $ -- $ 1,820.7 $ 20.2 $ 1,840.9 - -------------------------- Demutualization transaction.......... 10.0 1,712.0 (1,765.7) (43.7) Equity adjustment for policyholder dividend obligation............... (30.3) (30.3) Other equity adjustments............. 3.2 3.2 Comprehensive income: Net income........................ 1.1 1.1 Other comprehensive income, net of income taxes: Unrealized gain on security transfer from held-to-maturity to available-for-sale........ 83.9 83.9 Unrealized loss on securities.. (.9) (.9) Unrealized gains on derivatives 3.9 3.9 Equity adjustment for policyholder dividend obligation......... (8.8) (8.8) Reclassification adjustment for net realized gains included in (10.0) (10.0) net income Cumulative effect of accounting change for derivatives....... 1.1 1.1 Minimum pension liability (8.3) (8.3) adjustment -------------- Total other comprehensive income.. 60.9 Comprehensive income................. 62.0 ----------- -------------- --------------- ---------------- -------------- Balance at December 31, 2001......... $ 10.0 $ 1,712.0 $ 29.0 $ 81.1 $ 1,832.1 - ---------------------------- =========== ============== =============== ================ ============== The accompanying notes are an integral part of these consolidated financial statements.
F-8 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS Phoenix Life Insurance Company ("Phoenix Life") and its subsidiaries offer a broad range of life insurance and annuity products in the United States of America. Phoenix Life is a wholly-owned subsidiary of The Phoenix Companies, Inc., a publicly traded company ("Phoenix"). See note 2--"Reorganization and Initial Public Offering." 2. REORGANIZATION AND INITIAL PUBLIC OFFERING On December 18, 2000, the Board of Directors of Phoenix Home Life Mutual Insurance Company ("Phoenix Mutual") unanimously adopted a plan of reorganization which was amended and restated on January 26, 2001. On June 25, 2001, the effective date of the demutualization, Phoenix Mutual converted from a mutual life insurance company to a stock life insurance company, became a wholly-owned subsidiary of Phoenix and changed its name to Phoenix Life Insurance Company. At the same time, Phoenix Investment Partners, Ltd. ("PXP") became an indirect wholly-owned subsidiary of Phoenix. All policyholder membership interests in the mutual company were extinguished on the effective date and eligible policyholders of the mutual company received 56.2 million shares of common stock, $28.8 million of cash and $12.7 million of policy credits as compensation. The demutualization was accounted for as a reorganization. Accordingly, Phoenix's retained earnings immediately following the demutualization and the closing of the Initial Public Offering ("IPO") on June 25, 2001 (net of the cash payments and policy credits that were charged directly to retained earnings) were reclassified to common stock and additional paid-in capital. In addition, Phoenix Life established a closed block for the benefit of holders of certain individual life insurance policies of Phoenix Life. The purpose of the closed block is to protect, after demutualization, the policy dividend expectations of the holders of the policies included in the closed block. The closed block will continue in effect until such date as none of such policies are in force. See note 14 --"Closed Block." On June 25, 2001, Phoenix closed its IPO in which 48.8 million shares of common stock were issued at a price of $17.50 per share. Net proceeds from the IPO of $807.9 million were contributed to Phoenix Life. On July 24, 2001, Morgan Stanley Dean Witter exercised its right to purchase 1,395,900 shares of the common stock of Phoenix at the IPO price of $17.50 per share less underwriter's discount. Net proceeds of $23.2 million were contributed to Phoenix Life. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation and basis of presentation The consolidated financial statements include the accounts of Phoenix Life. Less than majority-owned entities, in which Phoenix Life has significant influence over operating and financial policies and generally at least a 20% ownership interest, are reported on the equity method of accounting. In January of 2001, Phoenix Life purchased the minority interest in PXP See Note 4--"Significant Transactions." This increased Phoenix Life's ownership from approximately 60% to 100%. On June 25, 2001 Phoenix Life sold PXP and certain other subsidiaries to Phoenix. See Note 9--"Related Party Transactions." Consequently, Phoenix Life's 1999 and 2000 consolidated results include 60% of PXP's results and 100% of certain other subsidiaries, while Phoenix Life's 2001 results include 100% of the results of PXP and certain other subsidiaries through June 25, 2001. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("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 consolidated 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 F-9 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- throughout the Notes to Consolidated Financial Statements. Significant inter-company accounts and transactions have been eliminated. Certain reclassifications have been made to the 1999 and 2000 amounts to conform with the 2001 presentation. Valuation of investments Investments in debt securities include bonds, mortgage-backed and asset-backed securities. Phoenix Life classified its debt securities as either held-to-maturity or available-for-sale investments. Prior to 2001, debt securities held-to-maturity consisted of private placement bonds reported at amortized cost, net of impairments, that management intended and had 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, preferred stocks and private placement bonds that management may not hold until maturity. Debt securities are considered impaired when a decline in value is considered to be other than temporary. In 2001, management decided, as part of Phoenix Life's conversion to a public company, that held-to-maturity debt securities should be reclassified to available-for-sale debt securities. See note 5 - "Investments." For mortgage-backed and asset-backed investments in the debt security portfolio, Phoenix Life 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 any resulting adjustment is included in net investment income. For certain asset-backed securities, changes in the estimated yield are recorded on a prospective basis and specific valuation methods are applied to these securities to determine if there has been an other-than-temporary decline in value. 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 Life will be unable to collect all amounts of contractual interest and principal as scheduled in the loan agreement. An impaired mortgage loan's fair value is measured based on either the present value of future cash flows discounted at the loan's observable market price or at the fair value of the collateral if collection is collateral-dependent. If the fair value of a mortgage loan is less than the recorded investment in the loan, the difference is recorded as a valuation reserve. Real estate, all of which is held for sale, is carried at the lower of cost or fair value less costs to sell. Fair value for real estate is determined by 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. Venture capital partnerships are recorded in accordance with the equity method of accounting. Phoenix Life records its share of the net equity in earnings of the venture capital partnerships in accordance with Accounting Principle Board Opinion No. 18, using the most recent financial information received from the partnerships. Historically, this information had been provided to Phoenix Life on a one-quarter lag. In the first quarter of 2001, Phoenix Life changed its method of applying the equity method of accounting to eliminate such quarterly lag. See note 5 - "Investments." Other invested assets primarily include leveraged lease investments, derivatives and other partnership and joint venture interests. Leverage lease investments represent the net of the estimated residual value of the lease assets, rental receivables, and unearned and deferred income to be allocated over the lease term. Investment F-10 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- income is calculated using the interest method and is recognized only in periods in which the net investment is positive. Other partnership and joint venture interests in which Phoenix Life does not have control or a majority ownership interest are recorded using the equity method of accounting. These investments include affordable housing, mezzanine and other partnership interests. Derivatives are valued in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133. See recent accounting pronouncements within note 3. Short-term investments are carried at amortized cost which approximates fair value. Short-term investments consist of interest bearing securities that mature between 91 days and twelve months from date of purchase. Realized investment gains and losses, other than those related to separate accounts for which Phoenix Life does not bear the investment risk, are determined by the specific identification method and reported as a component of revenue. A realized investment loss is recorded when an investment valuation reserve is determined. Valuation reserves are netted against the asset categories to which they apply and changes in the valuation reserves are included in realized investment gains and losses. Unrealized investment gains and losses on debt securities and equity securities classified as available-for-sale are included as a component of equity, net of deferred income taxes and the assumed impact of net unrealized investment gains and losses on the amortization of deferred policy acquisition costs related to investment contracts. In the normal course of business, Phoenix Life enters into transactions involving various types of financial instruments including debt investments such as debt securities, equity securities, and off-balance sheet commitments, primarily, related to venture capital partnerships. These instruments have credit risk and also may be subject to risk of loss due to interest rate and market fluctuations. Cash and cash equivalents Cash and cash equivalents include cash on hand and all highly liquid investments with a maturity of 90 days or less when purchased. Certain short-term investments relating to 1999 and 2000 have been reclassified to conform with the 2001 presentation. 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 production of new business, are deferred. In conjunction with the 1997 acquisition of the Confederation Life business, Phoenix recognized an asset for the present value of future profits ("PVFP") representing the present value of estimated net cash flows embedded in the existing contracts acquired. This asset is included in deferred policy acquisition costs ("DAC"). The method used to amortize DAC and PVFP depends on how the policy was classified. For individual participating life insurance policies, DAC and PVFP are amortized in proportion to estimated gross margins. For universal life, variable universal life and accumulation annuities, DAC and PVFP are amortized in proportion to estimated gross profits. The amortization process requires the use of various assumptions, estimates and judgements about the future. The primary assumptions are expenses, investment performance, mortality and contract cancellations (i.e., lapses, withdrawals and surrenders). These assumptions are reviewed on a regular basis and are generally based on Phoenix's past experience, industry studies, regulatory requirements and judgments about the future. Finally, analyses are performed periodically to assess whether there are sufficient gross margins or gross profits to amortize the remaining DAC balances. Internal replacements are defined as an exchange of an existing Phoenix Life insurance or annuity policy for a different Phoenix Life insurance or annuity policy. The DAC balance associated with the replaced policy is treated in the same manner as policies that are surrendered. In the case of policies that are surrendered, in which owners cancel existing life or annuity contracts, the amortization of DAC is adjusted to reflect these surrenders. F-11 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Goodwill and other intangible assets In 1999 and 2000, goodwill is amortized on a straight-line basis over periods ranging from ten to forty years, corresponding with the benefits expected to be derived from the related business acquisitions. The weighted-average life of goodwill is approximately thirty-eight years. Other intangible assets, primarily associated with investment management contracts and employee contracts, are amortized over their estimated useful lives using a straight-line basis. The average estimated useful life of the other intangible assets ranges from five to sixteen years for investment management contracts and three to seven years for employee contracts. The weighted-average life of other intangible assets is approximately thirteen years. Goodwill and other intangible assets' carrying values are periodically evaluated in accordance with SFAS No. 121, Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be Disposed Of, by comparing estimates of future undiscounted cash flows to the carrying values of the assets. Assets are considered impaired if the carrying value exceeds the expected future undiscounted cash flows. Analyses are performed at least annually or more frequently if warranted by events and circumstances affecting Phoenix Life's business. See SFAS No. 142 under "Recent accounting pronouncements" in note 3 for change in accounting policy effective January 1, 2002. In 2001, remaining goodwill was amortized on a straight-line basis over a ten year period. Investments in unconsolidated affiliates Investments in unconsolidated affiliates represents investments in operating entities in which Phoenix Life owns more than 20% but less than a majority of the outstanding common stock and those operating entities for which Phoenix Life owns less than 20% if Phoenix Life exercises significant influence over the operating and financial policies of the company. Phoenix Life uses the equity method of accounting for its investments in the common stock of these entities. Investments in unconsolidated affiliates also includes, where applicable, Phoenix Life's investments in senior securities of these entities. Separate account assets and liabilities and investment trusts 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 Life. The assets and liabilities are primarily 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. Investment trusts are assets held for the benefit of institutional clients who have investments in structured finance products offered by PXP. Structured finance products include collateralized debt and bond obligations backed by portfolios of public high yield bonds, emerging market bonds, commercial mortgage-backed and asset-backed securities and bank loans. Investment trusts, for which PXP is the sponsor and actively manages the assets, and for which there is not a substantive amount of outside third party equity investment in the trust, are consolidated in the financial statements. Phoenix Life's financial exposure is limited to its share of equity and bond investments in these vehicles and there is no financial guarantees from, or recourse to, Phoenix Life for these investment trusts. Asset valuation changes are directly offset by changes in the corresponding liabilities. Fees are recorded when management services provided to the trusts are earned and are included in revenues. Policy liabilities and accruals Future policy benefits are liabilities for life and annuity products. Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in force. Future policy benefits for traditional life insurance are computed using the net level premium method on the basis of actuarial assumptions as to F-12 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- contractual guaranteed rates of interest, mortality rates guaranteed in calculating the cash surrender values described in such contracts and morbidity. The guaranteed interest rates range from 2.25% to 6.00% in 2001. Policyholder deposit funds are primarily for universal life products and include deposits received from customers and investment earnings on their fund balances which range from 4.00% to 7.15% in 2001, less administrative and mortality charges. Liabilities for outstanding claims, losses and loss adjustment expenses are amounts estimated to cover incurred losses. These liabilities are based on individual case estimates for reported losses and estimates of unreported losses based on past experience. Policyholder deposit funds Policyholder deposit funds primarily consist of annuity deposits received from customers, dividend accumulations and investment earnings on their fund balances, which range from 2.1% to 12.3%, less administrative charges. 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 pro-rata over the related contract periods. Benefits, losses and related expenses are matched with premiums over the related contract periods. Revenues for investment-related products, included in insurance and investment product fees, 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. Investment management fees Investment management fees included in insurance and investment product fees in the accompanying Consolidated Statements of Income are recorded as income pro-rata during the period in which services are performed. Investment management fees are generally computed and earned based upon a percentage of assets under management. Investment management fees are paid pursuant to the terms of the respective investment management contracts, which generally require monthly or quarterly payment. Reinsurance Phoenix Life uses reinsurance agreements to provide for greater diversification of business, allow management to control exposure to potential losses arising from large risks and provide additional capacity for growth. Assets and liabilities related to reinsurance ceded contracts are reported on a gross basis. The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies. Policyholder dividends Certain life insurance policies contain dividend payment provisions that enable the policyholder to participate in the earnings of Phoenix Life. The amount of policyholder dividends to be paid is determined annually by Phoenix Life'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 Life's judgment as to the appropriate level of statutory surplus to be retained. At the end of the reporting period, Phoenix Life establishes a dividend liability for the pro-rata portion of the dividends payable on the next anniversary date of each policy. Phoenix Life also establishes a liability for termination dividends. See note 14 --"Closed Block" for information on the policyholder dividend obligation. F-13 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Income taxes Phoenix and its eligible affiliated companies have elected to file a life/non-life consolidated federal income tax return for 2001. For 2000 and prior years, Phoenix Life was the parent company of the group of eligible affiliated companies that had elected to file life/non-life consolidated federal income tax returns. 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 income tax losses that can be applied to offset life insurance 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 costs, investment impairment reserves, reserves for post-retirement benefits and unrealized gains or losses on investments. Employee benefit plans Phoenix has a 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 ("ERISA"). 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. Phoenix sponsors pension and savings plans for its employees and agents, and those of its subsidiaries. The qualified plans comply with requirements established by ERISA and excess benefit plans provide for that portion of pension obligations which is in excess of amounts permitted by ERISA. Phoenix also provides certain health care and life insurance benefits for active and retired employees. Phoenix Life incurs applicable employee benefit expenses through the process of cost allocation by Phoenix. 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 co-payments and deductibles, depending on the plan. These plans are unfunded. Applicable information regarding the actuarial present value of vested and non-vested accumulated plan benefits, and the net assets of the plans available for benefits is omitted, as the information is not separately calculated for Phoenix Life's participation in the plans. With respect to the pension plan, the total assets of the plan exceeded the actuarial present value of vested benefits at January 1, 2001, the date of the most recent actuarial valuation. The other postretirement benefit plans were unfunded as of December 31, 2001, and in accordance with the SFAS No. 106, "Employers' Accounting for Postretirement Benefits," Phoenix, the plan sponsor, established an accrued liability and amounts attributable to Phoenix Life have been allocated. Recent accounting pronouncements Securitized Financial Instruments. Effective April 1, 2001, Phoenix Life adopted Emerging Issues Task Force Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets ("EITF 99-20"). This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to apply specific valuation methods to these securities to determine of there has been an other-than-temporary decline in value. Upon adoption of EITF 99-20, Phoenix recorded a $20.5 million charge in net income as a cumulative effect of accounting change, net of income taxes. F-14 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Derivative Financial Instruments. Effective January 1, 2001, Phoenix Life adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities ("SFAS 138"). As amended, SFAS 133 requires all derivatives to be recognized on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through earnings. Phoenix Life maintains an overall interest rate risk-management strategy that incorporates the use of derivative financial instruments to manage exposure to fluctuations in interest rates. Phoenix Life's exposure to interest rate changes primarily results from its commitments to fund interest-sensitive insurance liabilities, as well as from significant holdings of fixed rate investments. Derivative instruments that are used as part of Phoenix Life's interest rate risk-management strategy include interest rate swap agreements, interest rate caps, interest rate floors, interest rate swaptions and foreign currency swap agreements. To reduce counterparty credit risks and diversify counterparty exposure, Phoenix Life enters into derivative contracts only with a number of highly rated financial institutions. Phoenix Life enters into interest rate swap agreements to reduce market risks from changes in interest rates. Phoenix Life does not enter into interest rate swap agreements for trading purposes. Under interest rate swap agreements, Phoenix Life exchanges cash flows 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 neither party makes a payment of principal. The amounts to be received or paid on these swap agreements are accrued and recognized in net investment income. Phoenix Life 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 Life 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 Life 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 Life would either receive a swap agreement at the pre-specified terms or cash for the market value of the swap. Phoenix Life 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 Life enters into foreign currency swap agreements to hedge against fluctuations in foreign currency exposure. Under these agreements, Phoenix Life 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 are recognized in net investment income. To reduce counterparty credit risks and diversify counterparty exposure, Phoenix Life only enters into derivative contracts with highly rated financial institutions. On January 1, 2001, in accordance with the transition provisions of SFAS 133, Phoenix Life recorded a net-of-tax cumulative effect adjustment of $1.3 million (gain) in earnings to recognize at fair value all derivatives that are designated as fair-value hedging instruments. Phoenix Life also recorded an offsetting net-of-tax cumulative effect adjustment of $1.3 million (loss) in earnings to recognize the difference attributable to the hedged risks between the carrying values and fair values of the related hedged assets and liabilities. Phoenix Life also recorded a net-of-tax cumulative effect adjustment of $1.1 million in accumulated other comprehensive income to recognize, at fair value, all derivatives that are designated as cash-flow hedging instruments. For derivative instruments that were not designated as hedges, upon implementation of SFAS 133, Phoenix Life recorded a net-of-tax cumulative effect adjustment of $3.9 million in earnings to recognize these instruments at fair value. Gains and losses on derivatives that were previously deferred as adjustments to the F-15 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- carrying amount of hedged items were not included in the cumulative effect adjustment. There were no gains or losses on derivative instruments that were reported independently as deferred assets or liabilities that required de-recognition from the balance sheet. Phoenix Life recognized an after-tax gain of $0.9 million for the year ended December 31, 2001 (reported as other comprehensive income in the Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income), which represented the change in fair value of interest rate swaps which have been designated as cash flow hedges, using the shortcut method, assuming no ineffectiveness. These interest rate swaps hedge floating-rate exposure on asset cash flows that back insurance liabilities by swapping floating rate bonds to fixed. For changes in the fair value of derivatives that are designated, qualify, and are highly effective as cash flow hedges, and for which the critical terms of the hedging instrument and the assets match, Phoenix Life recognizes the change in fair value of the derivative in other comprehensive income. Phoenix Life expects that there will be no ineffectiveness to recognize in earnings during the term of the hedges, and Phoenix Life does not expect to reclassify into earnings amounts reported in accumulated other comprehensive income over the next twelve months. Phoenix Life also recognized an after-tax gain of $3.0 million for the year ended December 31, 2001 (reported as other comprehensive income in the Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income), which represented the change in fair value of interest rate forward swaps which have been designated as cash flow hedges of the forecasted purchase of assets. For changes in the fair value of derivatives that are designated as cash flow hedges of a forecasted transaction, Phoenix Life recognizes the change in fair value of the derivative in other comprehensive income. Amounts related to cash flow hedges that are accumulated in other comprehensive income are reclassified as earnings in the same period or periods during which the hedged forecasted transaction (the acquired asset) affects earnings. As of December 31, 2001, $0.3 million of the deferred net after-tax gains on these derivative instruments is expected to be reclassified into earnings over the next twelve months. For the year ended December 31, 2001, Phoenix Life also recognized an after-tax gain of $0.3 million (reported as net realized investment gains in the Consolidated Statements of Income), which resulted from the termination of interest rate swap contracts designated as hedges of a forecasted transaction. The interest rate swap contracts were determined to no longer be effective hedges. Phoenix Life also recognized an after-tax loss of $0.4 million for the year ended December 31, 2001 (reported as net investment income in the Consolidated Statements of Income), which represented the change in fair value of derivative instruments which were not designated as hedges upon implementation of SFAS 133. These instruments primarily include: interest rate floors which hedge spread deficiency risk between assets and deferred annuity product liabilities; interest rate caps which hedge disintermediation risk associated with universal life insurance liabilities; and interest rate swaps which were hedges of an anticipated purchase of assets associated with an acquisition of a block of insurance liabilities for which offsetting swap positions were taken to lock in a stream of income to supplement the income on the assets purchased. For changes in fair value of derivatives that are not designated and did not qualify as highly effective hedges upon implementation of SFAS 133, Phoenix Life recognizes the entire change in fair value of the derivatives in current-period earnings. For the year ended December 31, 2001, Phoenix Life also recognized an after-tax gain of $0.9 million (reported as net realized investment gains in the Consolidated Statements of Income), which resulted from the termination prior to maturity of interest rate swaps which were not designated as hedges upon implementation of SFAS 133. Phoenix Life also holds foreign currency swaps as hedges against available-for-sale securities that back U.S. dollar denominated liabilities. For changes in the fair value of derivatives that are designated, qualify, and are highly effective as fair value hedges, Phoenix Life recognizes the change in fair value of the derivative, along with the change in value of the hedged asset or liability attributable to the hedged risk, in current-period earnings. Phoenix Life recognized an after-tax gain of $0.8 million for the year ended December 31, 2001. In certain instances, derivative contracts are terminated prior to maturity. These contracts include, but are not limited to, interest rate and foreign currency swaps, cap and floor contracts, and payor and receiver swaptions. F-16 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- To the extent that derivative contracts determined to be effective hedges are terminated, realized gains and losses are deferred and amortized. Derivatives associated with hedged items that either no longer exist or are no longer expected to occur are accounted for as of the relevant change in status of the hedged items, with gains or losses on such contracts recognized immediately in net income. Similarly, for derivatives otherwise determined to no longer be effective hedges, gains or losses as of termination are recognized immediately in net income. Accounting for Demutualizations. Effective June 30, 2001, Phoenix Life adopted Statement of Position No. 00-3, Accounting by Insurance Enterprises for Demutualizations and Formations of Mutual Insurance Holding Companies and For Certain Long-Duration Participating Contracts ("SOP 00-3"). The provisions of SOP 00-3 provide guidance on accounting by insurance enterprises for demutualizations and the formation of mutual holding companies, including the emergence of earnings from and the financial statement presentation of the closed block established in connection with the demutualization. SOP 00-3 specifies that closed block assets, liabilities, revenues and expenses should be displayed with all other assets, liabilities, revenues and expenses of the insurance enterprise based on the nature of the particular item, with appropriate disclosures relating to the closed block. Pursuant to the adoption of SOP 00-3, Phoenix Life recorded a charge of $30.3 million to equity in the second quarter of 2001 representing the establishment of the policyholder dividend obligation along with the corresponding impact on deferred policy acquisition costs and deferred income taxes. See note 14 - --"Closed Block" for additional information. Business Combinations/Goodwill and Other Intangible Assets. In June 2001, SFAS No. 141, Business Combinations ("SFAS 141"), and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), were issued. SFAS 141 and SFAS 142 are effective July 1, 2001 and January 1, 2002, respectively. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and separate recognition of intangible assets apart from goodwill if such intangible assets meet certain criteria. SFAS 141 also requires that upon adoption of SFAS 142 a company reclassify the carrying amounts of certain intangible assets into or out of goodwill, based on certain criteria. SFAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their initial recognition. Under SFAS 142, amortization of goodwill, including goodwill and other intangible assets with indefinite lives recorded in past business combinations, will discontinue upon adoption of this standard, and reporting units must be identified for the purpose of assessing potential future impairments of goodwill. Phoenix Life recognized $7.1 million in goodwill amortization during 2001. As of June 26, 2001, PXP's net goodwill and intangible assets are no longer consolidated due to the sale of PXP to Phoenix. See note 9--"Related Party Transactions". Goodwill amortization will not be recognized after 2001 in accordance with SFAS 142. In addition, goodwill recorded as a result of business combinations completed during the six-month period ended December 31, 2001 will not be amortized. The provisions of SFAS 141 and SFAS 142 also apply to equity-method investments made both before and after June 30, 2001. SFAS 142 prohibits amortization of the excess of cost over the underlying equity in the net assets of an equity-method investee that is recognized as goodwill. SFAS 142 requires that goodwill be tested at least annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. However, a company has six months from the date of adoption to complete the first step. The second step of the goodwill impairment test measures the amount of the impairment loss (measured as of the beginning of the year of adoption), if any, and must be completed by the end of a company's fiscal year. Intangible assets deemed to have an indefinite life would be tested for impairment using a one-step process, which compares the fair value to the carrying amount of the asset as of the beginning of the fiscal year in the year of adoption. Phoenix Life has prepared a preliminary analysis of the adoption of SFAS 142, and does not expect to have a material impairment charge in 2002. F-17 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Impairment of Long-Lived Assets. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"), effective January 1, 2002. Under SFAS 144, long-lived assets to be sold within one year must be separately identified and carried at the lower of carrying value or fair value less costs to sell. Long-lived assets expected to be held longer than one year are subject to depreciation and must be written down to fair value upon impairment. Long-lived assets no longer expected to be sold within one year, such as some foreclosed real estate, must be written down to the lower of current fair value or fair value at the date of foreclosure adjusted to reflect depreciation since acquisition. Phoenix Life is currently reviewing the provisions of SFAS 144 and assessing the impact of adoption. 4. SIGNIFICANT TRANSACTIONS Purchase of Phoenix Investment Partners, Ltd. minority interest On September 10, 2000, Phoenix Life, one of its subsidiaries and PXP entered into an agreement and plan of merger pursuant to which such subsidiary agreed to purchase the outstanding common stock shares of PXP owned by third parties for a price of $15.75 per share. In connection with this merger, Phoenix Life's subsidiary paid, from available cash and short-term investments, $339.3 million to those third parties on January 11, 2001. As a result, PXP became an indirect wholly-owned subsidiary of Phoenix Life and PXP's shares of common stock were de-listed from the New York Stock Exchange. In addition, PXP accrued compensation expenses of $57.0 million to cash out stock options, $5.5 million of related compensation costs, $5.2 million in retention costs and $3.9 million in transaction costs at March 31, 2001. After the merger, some third party holders of PXP's convertible subordinated debentures converted their debentures and PXP redeemed all remaining outstanding debentures held by third parties by the end of March 2001. PXP made cash payments totaling $38.2 million in connection with these conversions and redemptions from funds borrowed from its then existing credit facility. The excess of purchase price over the minority interest in the net assets of PXP totaled $224.1 million. Of this excess purchase price, $179.1 million has been allocated to investment management contracts, which are being amortized over their estimated useful lives using the straight-line method. The weighted-average useful life of the investment management contracts is 13.4 years. The remaining excess purchase price, net of deferred taxes, of $118.4 million has been classified as goodwill and is being amortized over 40 years using the straight-line method. Related amortization of goodwill and investment management contracts of $2.9 million and $13.9 million, respectively, has been expensed for the year ended December 31, 2001. The following table summarizes the calculation and allocation of the purchase price (in millions).
Purchase price: -------------- Purchase price for 21.5 million outstanding shares at $15.75/share............ $ 339.3 Premium paid related to third party convertible debt redemption/conversion.... 18.8 Transaction related costs..................................................... 3.2 -------- Total purchase price..................................................... $ 361.3 ======== Purchase price allocation: ------------------------- Fair value of acquired net assets............................................. $ 137.2 Investment management contracts............................................... 179.1 Deferred taxes................................................................ (73.4) Goodwill...................................................................... 118.4 -------- Total purchase price allocation.......................................... $ 361.3 ========
Prior to this transaction, PXP had a $1.2 million liability related to options held by certain employees. As a result of this transaction, all outstanding options were settled and, consistent with previous accounting treatment, the remaining liability was reversed and recorded as an adjustment to equity. F-18 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Additionally, prior to the transaction, PXP had outstanding restricted stock which had been issued to certain employees pursuant to PXP's Restricted Stock Plan. For book purposes, the fair market value of the restricted stock at the date of the grant was recorded as unearned compensation, a separate component of stockholders' equity, and amortized over the restriction period. For tax purposes, PXP could deduct compensation expense equal to the fair market value of the stock on the date the restrictions lapse. The tax benefit of the deduction in excess of the compensation expense was recorded as an adjustment to additional paid-in capital. At the time of this transaction, all restrictions lapsed and PXP recorded a $2.0 million tax receivable for the deduction and a corresponding adjustment to equity. Master credit facility In June 2001, Phoenix, Phoenix Life, and PXP entered into a $375 million unsecured revolving credit facility that matures on June 10, 2005. Phoenix Life's and PXP's existing credit agreements were terminated at that time. Phoenix unconditionally guarantees loans to Phoenix Life and PXP. Base rate loans bear interest at the greater of the Bank of Montreal's prime commercial rate or the effective federal funds rate plus 0.5%. Eurodollar rate loans bear interest at LIBOR plus an applicable margin. The credit agreement includes customary financial and operating covenants that include, among other provisions, requirements that Phoenix maintain a minimum stockholders' equity and a maximum debt to capitalization ratio; that Phoenix Life maintain a minimum risk based capital ratio, and that PXP maintain a maximum debt to capitalization ratio and a minimum stockholders' equity. See note 10 - "Long-Term Debt" for additional information on credit facilities. Early retirement program On January 29, 2001, Phoenix offered a special retirement program under which qualified participants will receive enhanced retirement benefits by the addition of five years to age and pension plan service under the Employee Pension Plan. Employees of Phoenix Life and PXP who decided to participate will retire by May 31, 2002. Of the 318 participants eligible, 182 accepted the special retirement incentive program. As a result of this program, Phoenix Life was allocated an additional pension expense for the year ended December 31, 2001. Aberdeen Asset Management PLC On February 18, 1999, PM Holdings, a wholly-owned subsidiary of Phoenix Life, purchased 15,050,000 shares of the common stock of Aberdeen Asset Management PLC ("Aberdeen"), a Scottish asset management firm, for $29.4 million. PM Holdings owned 31,600,000 shares and 38,100,000 share as of December 31, 2000 and 2001, respectively. On April 15, 1996, Phoenix Life purchased 7% convertible subordinated notes issued by Aberdeen for $37.5 million. The notes, which mature on March 29, 2003, are convertible into 17,441,860 shares of Aberdeen common stock. In May 2001, Phoenix Life purchased additional shares of common stock of Aberdeen for a cash purchase price of $46.8 million, bringing its ownership to approximately 22.0% (26.95% when the convertible subordinated note is included) of the common stock of Aberdeen at December 31, 2001. The investment in Aberdeen common stock is reported on the equity method. The notes and common stock are classified as investments in unconsolidated affiliates in the Consolidated Balance Sheets. The investment in Aberdeen's convertible note at December 31, 2001 is reported at fair value with unrealized gains or losses included in equity. For the years ended prior to 2001, the investment in the note was reported at amortized cost. Aberdeen's convertible note was included in the transfer of securities from held-to-maturity to available-for-sale in 2001 and resulted in a pre-tax unrealized gain of $63.7 million. See note 5-- "Investments." The fair value of Phoenix Life's investments in Aberdeen, based on the closing market price, was $455.8 million and $322.3 million as of December 31, 2000 and 2001, respectively. F-19 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Dividend scale In November 2000, Phoenix Mutual's Board of Directors voted to maintain the dividend scale for dividends payable on or after January 1, 2001. In October 1999, Phoenix Mutual's Board of Directors voted to maintain the dividend scale for dividends payable on or after January 1, 2000. Emprendimiento Compartido, S.A. ("EMCO") At January 1, 1999, PM Holdings held 9.1 million shares of EMCO, representing a 35% ownership interest in this 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. 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 (a 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. PFG Holdings, Inc. On October 29, 1999, PM Holdings, a wholly-owned subsidiary of Phoenix Life, purchased 100% of PFG Holdings, Inc. 8% cumulative preferred stock, which is convertible into a 67% interest in common stock for $5 million in cash. In addition, Phoenix Life has an option to purchase all the outstanding common stock during the sixth year subsequent to the acquisition at a value equal to 80% of the appraised value of the common stock at that time. As of December 31, 2001, this option had not been executed. Since Phoenix Life holds voting control, the entity has been consolidated and a minority interest has been established for outside stockholders' interests. The transaction resulted in goodwill of $3.8 million, which is being amortized on a straight-line basis over forty years. AGL Life Assurance Company, an operating subsidiary of PFG Holdings, must maintain at least $10.0 million of capital and surplus to satisfy certain regulatory minimum capital requirements. PM Holdings provided financing of $11.0 million at the purchase date 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. PM Holdings provided additional financing to PFG Holdings in 2001 in the form of a convertible subordinated note. The interest rate on the note is 8%, and the note will mature on November 1, 2006. The note allows for up to $8 million in financing and is convertible into common stock at any time at a variable conversion price. Property and casualty distribution operations On May 3, 1999, PM Holdings sold its property and casualty distribution business to Hilb, Rogal and Hamilton Company ("HRH") for $48.1 million including $10.2 million for a covenant not-to-compete. Total proceeds consisted of $32.0 million in 5.25% convertible subordinated debentures, $15.9 million for 865,042 shares of HRH common stock, valued at $18.38 per share on the sale date, and $0.2 million in cash. Phoenix also has contractual rights to designate two nominees for election to HRH's Board of Directors. As of December 31, 2001, two Phoenix designees were serving as HRH directors. The pre-tax gain realized on the sale was $40.1 million. F-20 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The convertible debentures mature on May 3, 2014 and are callable by HRH on or after May 3, 2009. The debentures are convertible into 1,406,593 shares of HRH common stock. The investment in HRH debentures at December 31, 2001 is reported at fair value with unrealized gains or losses included in equity. For the years ended prior to 2001, the investment in HRH was reported at amortized cost. HRH debentures were included in the transfer of securities from held-to-maturity to available-for-sale in 2001 and resulted in a pre-tax unrealized gain of $46.8 million. See note 5 - "Investments." The investment in HRH common stock is reported on the equity method. The debentures and common stock are classified as investments in unconsolidated affiliates in the Consolidated Balance Sheets. As of December 31, 2001, Phoenix Life owns 6.4% of the outstanding HRH common stock, 14.8% on a diluted basis. The fair value of Phoenix Life's investments in HRH, based on the closing market price, was $90.6 million and $78.8 million as of December 31, 2000 and 2001, respectively. Discontinued operations During 1999, Phoenix Life discontinued its reinsurance operations, real estate management operations and group life & health operations. Disclosures concerning the financial effect of these transactions are contained in note 13-- "Discontinued Operations." 5. INVESTMENTS Information pertaining to Phoenix Life'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, 2001 were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------ ------------ ------------ ----------- Debt securities (IN MILLIONS) - --------------- AVAILABLE-FOR-SALE: U.S. government and agency bonds.............. $ 256.0 $ 13.3 $ (0.1) $ 269.2 State and political subdivision bonds......... 508.6 24.7 (1.7) 531.6 Foreign government bonds...................... 293.7 34.1 (1.1) 326.7 Corporate securities.......................... 4,316.6 145.5 (103.7) 4,358.4 Mortgage-backed and asset-backed securities.................................... 4,125.0 107.4 (84.3) 4,148.1 ------------ ------------ ------------ ----------- Total available-for-sale securities....... 9,499.9 325.0 (190.9) 9,634.0 Less: available-for-sale securities of discontinued operations............ 34.8 -- -- 34.8 ------------ ------------ ------------ ----------- Total available-for-sale debt securities of continuing operations....................... $ 9,465.1 $ 325.0 $ (190.9) $ 9,599.2 ============ ============ ============ =========== Equity securities................................. $ 275.7 $ 52.4 $ (40.6) $ 287.5 - ----------------- Less: equity securities of discontinued operations........................ 1.5 -- -- 1.5 ------------ ------------ ------------ ------------ Total equity securities of continuing operations.............................. $ 274.2 $ 52.4 $ (40.6) $ 286.0 ============ ============ ============ ===========
F-21 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The amortized cost and fair value of investments in debt and equity securities as of December 31, 2000 were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED COST GAINS LOSSES FAIR VALUE ----------- ----------- ----------- ----------- Debt securities (IN MILLIONS) - --------------- HELD-TO-MATURITY: State and political subdivision bonds............ $ 30.6 $ .3 $ (.9) $ 30.0 Foreign government bonds......................... 2.4 -- (.7) 1.7 Corporate securities............................. 1,781.2 48.0 (39.0) 1,790.2 Mortgage-backed and asset-backed securities...... 295.4 15.4 (3.8) 307.0 ----------- ----------- ----------- ----------- Total held-to-maturity securities........... 2,109.6 63.7 (44.4) 2,128.9 ----------- ----------- ----------- ----------- AVAILABLE-FOR-SALE: U.S. government and agency bonds................. 262.5 13.8 (.3) 276.0 State and political subdivision bonds............ 459.9 16.9 (1.9) 474.9 Foreign government bonds......................... 246.0 26.7 (5.8) 266.9 Corporate securities............................. 2,222.1 37.7 (83.1) 2,176.7 Mortgage-backed and asset-backed securities...... 2,830.5 63.5 (25.2) 2,868.8 ----------- ----------- ----------- ----------- Total available-for-sale securities......... 6,021.0 158.6 (116.3) 6,063.3 Less: available-for-sale securities of discontinued operations......................... 114.3 -- -- 114.3 ----------- ----------- ----------- ----------- Total available-for-sale securities of continuing operations......................... 5,906.7 158.6 (116.3) 5,949.0 ----------- ----------- ----------- ----------- Total debt securities of continuing operations.. $ 8,016.3 $ 222.3 $(160.7) $ 8,077.9 =========== =========== =========== =========== =========== =========== =========== =========== Equity securities.................................... $ 297.3 $ 77.9 $ (39.7) $ 335.5 - ----------------- =========== =========== =========== ===========
The sale of debt securities held-to-maturity relate to certain securities, with amortized cost of $3.9 million, $3.9 million and $9.1 million, for the years ended December 31, 1999, 2000 and 2001, respectively, which were sold specifically due to a significant decline in the issuers' credit quality. Net realized (losses) gains were $(0.2) million, $(3.9) million and $1.5 million in 1999, 2000 and 2001, respectively. The amortized cost and fair value of debt securities, by contractual sinking fund payment and maturity, as of December 31, 2001 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 Life may have the right to put or sell the obligations back to the issuers.
AVAILABLE-FOR-SALE ------------------------------ AMORTIZED FAIR COST VALUE ------------- ------------ (IN MILLIONS) Due in one year or less........................................ $ 121.2 $ 121.9 Due after one year through five years.......................... 1,276.7 1,260.0 Due after five years through ten years......................... 1,772.9 1,820.3 Due after ten years............................................ 2,204.1 2,283.7 Mortgage-backed and asset-backed securities.................... 4,125.0 4,148.1 ------------- ------------ Total..................................................... 9,499.9 9,634.0 Less: securities of discontinued operations.................... 34.8 34.8 ------------- ------------ Total securities of continuing operations................. $ 9,465.1 $ 9,599.2 ============= ============
F-22 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Carrying values for investments in mortgage-backed and asset-backed securities, excluding U.S. government guaranteed investments, were as follows:
DECEMBER 31, ------------------------------ 2000 2001 ------------- ------------ (IN MILLIONS) Planned amortization class......................................... $ 117.4 $ 133.9 Asset-backed....................................................... 1,082.3 1,607.9 Mezzanine.......................................................... 166.5 359.1 Commercial......................................................... 796.5 633.6 Sequential pay..................................................... 937.7 1,268.7 Pass through....................................................... 59.3 75.5 Other.............................................................. 4.5 69.4 ------------- ------------ Total mortgage-backed and asset-backed securities $ 3,164.2 $ 4,148.1 ============= ============
Mortgage loans and real estate Phoenix Life'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:
MORTGAGE LOANS REAL ESTATE DECEMBER 31, DECEMBER 31, ------------------------- ----------------------- 2000 2001 2000 2001 ----------- ---------- ---------- ---------- Property type: (IN MILLIONS) Office buildings.................. $ 171.3 $ 155.4 $ 34.4 $ 25.2 Retail............................ 183.5 170.4 6.9 7.5 Apartment buildings............... 180.7 171.0 45.9 50.4 Industrial buildings.............. 64.8 52.0 -- -- Other............................. 2.2 2.0 -- -- Valuation allowances.............. (9.1) (15.0) (9.3) -- ----------- ---------- ---------- ---------- Total........................ $ 593.4 $ 535.8 $ 77.9 $ 83.1 =========== ========== ========== ========== Geographic region: (IN MILLIONS) Northeast......................... $ 124.5 $ 116.5 $ 49.8 $ 54.4 Southeast......................... 147.6 130.5 -- -- North central..................... 147.4 134.8 .5 .4 South central..................... 103.7 101.7 22.3 13.0 West.............................. 79.3 67.3 14.6 15.3 Valuation allowances.............. (9.1) (15.0) (9.3) -- ----------- ---------- ---------- ---------- Total........................ $ 593.4 $ 535.8 $ 77.9 $ 83.1 =========== ========== ========== ==========
At December 31, 2001, scheduled mortgage loan maturities were as follows: 2002 - -- $51.4 million; 2003 -- $82.0 million; 2004 -- $34.7 million; 2005 -- $32.3 million; 2006 -- $94.7 million, and $240.7 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 Life did not refinance any of its mortgage loans during 2000 and 2001. The carrying value of delinquent and in process of foreclosure mortgage loans at December 31, 2000 and 2001 is $11.4 million and $5.6 million, respectively. There are valuation allowances of $9.1 million and $15.0 million, respectively, on these mortgages. F-23 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) 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 Sheets and changes thereto, were as follows:
BALANCE AT BALANCE AT JANUARY 1, ADDITIONS DEDUCTIONS DECEMBER 31, ---------------- ------------ -------------- ----------------- 2001: (IN MILLIONS) Mortgage loans............. $ 9.1 $ 6.1 $ (.2) $ 15.0 Real estate................ 9.3 -- (9.3) -- ----------- -------- ---------- --------- Total................. $18.4 $ 6.1 $ (9.5) $ 15.0 =========== ======== ========== ========= 2000: Mortgage loans............. $14.3 $ 1.8 $ (7.0) $ 9.1 Real estate................ 3.2 6.1 -- 9.3 ----------- -------- ---------- --------- Total................. $17.5 $ 7.9 $ (7.0) $ 18.4 =========== ======== ========== ========= 1999: Mortgage loans............. $30.6 $ 9.7 $(26.0) $ 14.3 Real estate................ 6.4 .2 (3.4) 3.2 ----------- -------- ---------- --------- Total................. $37.0 $ 9.9 $(29.4) $ 17.5 =========== ======== ========== =========
Non-income producing mortgage loans and debt securities The net carrying value of non-income producing mortgage loans was $6.0 million at December 31, 2000; there were no non-income producing mortgage loans during 2001. The amount of interest foregone by non-income producing mortgage loans was $0.5 million for the year ended December 31, 2000. There were no non-income producing debt securities at December 31, 2000 and 2001. Venture capital partnerships Phoenix Life invests as a limited partner in venture capital limited partnerships. These partnerships focus on early-stage ventures, primarily in the information technology and life science industries and leveraged buyout funds, as well as direct equity investments in leveraged buyouts and corporate acquisitions. As of December 31, 2001, total unfunded capital commitments were $166.8 million. Phoenix Life records its equity in the earnings of these partnerships in net investment income. In the first quarter of 2001, Phoenix Life recorded a charge of $48.8 million (net of income taxes of $26.3 million) representing the cumulative effect of this accounting change on the fourth quarter of 2000. The cumulative effect was based on the actual fourth quarter 2000 financial results as reported by the partnerships. In the first quarter of 2001, Phoenix Life removed the lag in reporting by estimating the change in Phoenix Life's share of the net equity in earnings of the venture capital partnerships for the period from December 31, 2000, the date of the most recent financial information provided by the partnerships, to Phoenix Life's then current reporting date of March 31, 2001. To estimate the net equity in earnings of the venture capital partnerships for each quarter, Phoenix Life developed a methodology to estimate the change in value of the underlying investee companies in the venture capital partnerships. For public investee companies, Phoenix Life used quoted market prices at the end of each quarter, applying liquidity discounts to these prices in instances where such discounts were applied in the underlying partnerships' financial statements. For private investee companies, Phoenix Life applied a public industry sector index to roll the value forward each quarter. Phoenix Life applies this methodology consistently each quarter with subsequent adjustments to reflect market events reported by the partnerships (e.g., new rounds of financing, initial public offerings and writedowns by the general partners). In addition, Phoenix Life will annually revise the valuations it has assigned to the investee companies to reflect the valuations in the audited financial statements received from the venture capital partnerships. Phoenix Life's venture capital earnings remain subject to variability. F-24 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The components of net investment income related to venture capital partnerships for the year ended December 31, were as follows:
1999 2000 2001 ---------- ----------- ------------ (IN MILLIONS) Operating losses.................................................. $ (8.9) $ (7.7) $ (6.4) Realized gains on cash and stock distributions.................... 84.7 223.3 17.8 Net unrealized gains (losses) on investments held in the 64.1 61.7 (95.9) partnerships................................................... ---------- --------- --------- Total venture capital partnership net investment income (loss).... $139.9 $277.3 $(84.5) ========== ========= =========
Other invested assets Other invested assets were as follows:
DECEMBER 31, ------------------------- 2000 2001 ----------- ---------- (IN MILLIONS) Transportation and equipment leases...................... $ 83.2 $ 85.0 Affordable housing partnerships.......................... 29.1 28.2 Investment in other affiliates........................... 7.5 9.6 Seed money in separate accounts.......................... 41.2 54.6 Mezzanine partnerships................................... 30.4 37.1 Derivatives.............................................. -- 10.9 Other partnership interests.............................. 44.3 55.8 ----------- ---------- Total other invested assets............................ $235.7 $281.2 =========== ==========
Separate account assets and investment trusts Separate account assets and investment trusts assets as of December 31, were as follows:
2000 2001 --------------- --------------- (IN MILLIONS) Separate accounts ..................................... $ 5,376.6 $ 5,025.2 --------------- --------------- Investment trusts: Phoenix CDO I ..................................... -- 160.1 Phoenix CDO II .................................... -- 384.7 --------------- --------------- Total investment trusts ...................... -- 544.8 --------------- --------------- Total separate account assets and investment trusts.... $ 5,376.6 $ 5,570.0 =============== ===============
In 2001, Phoenix Life determined that the investment trusts did not have a substantive amount of outside equity and, as a result, concluded consolidation was required. F-25 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Net investment income The components of net investment income (loss) for the year ended December 31, were as follows:
1999 2000 2001 ---------- ----------- ----------- (IN MILLIONS) Debt securities............................................. $ 637.4 $ 622.2 $ 680.4 Equity securities........................................... 7.9 13.3 4.4 Mortgage loans.............................................. 66.3 54.6 45.0 Policy loans................................................ 149.0 157.4 168.6 Real estate................................................. 9.7 9.2 16.1 Venture capital partnerships................................ 139.9 277.3 (84.5) Other invested assets....................................... .7 3.4 7.1 Cash, cash equivalents and short-term investments........... 22.6 27.5 13.7 ---------- ----------- ----------- Sub-total.............................................. 1,033.5 1,164.9 850.8 Less: investment expenses................................... 13.0 14.3 14.1 ---------- ----------- ----------- Net investment income....................................... 1,020.5 1,150.6 836.7 Less: net investment income of discontinued operations 67.4 21.0 6.5 ---------- ----------- ----------- Total net investment income of continuing operations $ 953.1 $1,129.6 $ 830.2 ========== =========== ===========
Investment income of $4.0 million was not accrued on certain delinquent mortgage loans and defaulted debt securities at December 31, 2001. Phoenix Life does not accrue interest income on impaired mortgage loans and impaired debt securities when the likelihood of collection is doubtful. See note 3--"Summary of Significant Accounting Policies--Valuation of investments" for further information on mortgage loan and debt security impairment. The payment terms of mortgage loans may, from time to time, be restructured or modified. The investment in restructured mortgage loans, based on amortized cost, amounted to $34.9 million and $31.1 million at December 31, 2000 and 2001, 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, $3.9 million and $3.6 million in 1999, 2000 and 2001, respectively. Actual interest income on these loans included in net investment income was $3.5 million, $3.1 million and $2.4 million in 1999, 2000 and 2001, respectively. Investment gains and losses Net unrealized investment (losses) gains on securities available-for-sale and carried at fair value for the year ended December 31, were as follows:
1999 2000 2001 ----------- ----------- ----------- (IN MILLIONS) Debt securities................................ $ (428.5) $ 213.8 $ 91.3 Equity securities.............................. 63.2 (105.7) (26.4) DAC............................................ 260.3 (117.2) (62.2) Deferred income tax (benefits) expense......... (36.7) (3.2) .9 ----------- ----------- ----------- Net unrealized investment (losses) gain on securities available-for-sale............. $ (68.3) $ (5.9) $ 1.8 =========== =========== ===========
The amortized cost of debt securities transferred from held-to-maturity to available-for-sale in 2001 was $2,333.8 million, which resulted in an unrealized gain of $83.9 million, after-tax. F-26 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Net realized investment (losses) gains for the year ended December 31, were as follows:
1999 2000 2001 ---------- ----------- ----------- (IN MILLIONS) Debt securities...................................................... $(20.4) $(54.2) $(50.9) Equity securities.................................................... 16.6 146.8 (8.8) Mortgage loans....................................................... 18.5 3.0 1.0 Real estate.......................................................... 2.9 (4.3) (2.5) Sale of subsidiary (Note 9).......................................... 40.1 (.8) 222.6 Other invested assets................................................ 18.5 (1.1) (11.3) ---------- ----------- ----------- Net realized investment gains........................................ 76.2 89.4 150.1 Less: net realized investment gains from discontinued operations..... .4 .2 -- ---------- ----------- ----------- Net realized investment gains from continuing operations............. $ 75.8 $ 89.2 $150.1 ========== =========== ===========
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:
1999 2000 2001 ----------- ----------- ------------ (IN MILLIONS) Proceeds from disposals....................... $ 1,106.9 $898.5 $1,289.8 Gross realized gains on sales................. $ 21.8 $ 8.7 $ 38.1 Gross realized losses on sales................ $ 39.1 $ 53.2 $ 27.6
6. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets were as follows:
DECEMBER 31, -------------------------- 2000 2001 ------------- ---------- (IN MILLIONS) PXP gross amounts: Goodwill......................................... $ 425.7 -- Investment management contracts.................. 244.0 -- Non-compete covenant............................. 5.0 -- Other............................................ 4.5 -- ------------- ---------- Totals ............................................ 679.2 -- ------------- ---------- Other gross amounts: Goodwill......................................... 11.9 $ 4.8 Intangible asset related to pension plan benefits 8.3 18.8 Other............................................ 1.0 1.0 ------------- ---------- Totals ............................................ 21.2 24.6 ------------- ---------- Total gross goodwill and other intangible assets 700.4 24.6 ------------- ---------- Accumulated amortization -PXP...................... (112.4) Accumulated amortization -other.................... (5.4) (2.0) ------------- ---------- Total goodwill and other intangible assets, net $ 582.6 $ 22.6 ============= ==========
As of June 26, 2001, PXP's net goodwill and intangible assets are no longer consolidated due to the sale of PXP to Phoenix. See note 9--"Related Party Transactions." In 2000, $1.9 million of goodwill associated with the acquisition of PractiCare, Inc. in 1997 was written off. F-27 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 7. INVESTMENTS IN UNCONSOLIDATED AFFILIATES Investments in unconsolidated affiliates were as follows:
DECEMBER 31, --------------------------- 2000 2001 ----------- ------------ (IN MILLIONS) EMCO investment....................................... $ 28.1 $ 28.0 Aberdeen common stock................................. 58.7 103.9 Aberdeen 7% convertible subordinated notes............ 37.5 101.2 HRH common stock...................................... 16.9 18.7 HRH 5.25% convertible subordinated notes.............. 32.0 78.8 ----------- ------------ Total investments in unconsolidated affiliates... $ 173.2 $ 330.6 =========== ============
The reclassification of Aberdeen and HRH convertible subordinated notes from held-to-maturity to available-for-sale in 2001 resulted in an unrealized gain of $71.9 million, after-tax. The components of equity in earnings of and interest earned from investments in unconsolidated affiliates for the year ended December 31, were as follows:
1999 2000 2001 --------- -------- -------- (IN MILLIONS) EMCO investment......................................... $ 1.1 $ (0.8) $(0.1) Aberdeen common stock................................... 2.9 7.0 5.8 Aberdeen 7% convertible subordinated notes.............. 2.6 2.6 2.6 HRH common stock........................................ .7 1.2 2.5 HRH 5.25% convertible subordinated notes................ 1.1 1.7 1.7 --------- -------- -------- Total equity in earnings of and interest earned from investments in unconsolidated affiliates before income taxes......................................... 8.4 11.7 12.5 Income tax expense...................................... 2.9 4.1 4.4 --------- -------- -------- Total equity in earnings of and interest earned from investments in unconsolidated affiliates............. $ 5.5 $ 7.6 $ 8.1 ========= ======== ========
8. DERIVATIVE INSTRUMENTS Derivative instruments as of December 31, are summarized below:
2000 2001 --------------------- --------------------- (DOLLARS IN MILLIONS) ASSET HEDGES ------------ Foreign currency swaps: Notional amount.................. $ 24.3 $ 16.4 Weighted average received rate 12.11% 11.91% Weighted average paid rate....... 10.61% 10.68% Fair value....................... $ 2.0 $ 2.9 Interest rate swaps: Notional amount.................. $ 43.0 $ 80.0 Weighted average received rate 7.51% 6.22% Weighted average paid rate....... 6.78% 2.08% Fair value....................... $ 1.9 $ 2.6
F-28 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
LIABILITY HEDGES ---------------- Interest rate floors: Notional amount.................. $ 110.0 $ 110.0 Weighted average strike rate 4.79% 4.79% Index rate(1).................... 2-5 Yr. 2-5 Yr. CMT/CMS CMT/CMS Fair value....................... $ (.1) $ .4 Interest rate swaps: Notional amount.................. $ 410.0 $ 360.0 Weighted average received rate 6.66% 4.84% Weighted average paid rate....... 6.50% 4.59% Fair value....................... $ 6.1 $ 4.6 Interest rate caps: Notional amount.................. $ 50.0 $ 50.0 Weighted average strike rate 7.95% 7.95% Index rate(1).................... 10 Yr. CMT 10 Yr. CMT Fair value....................... $ -- $ .4 - ----------
(1) Constant maturity treasury yields (CMT) and constant maturity swap yields (CMS). The increase in net investment income related to contractual cash flows on interest rate swap contracts was $1.0 million, $1.4 million and $2.0 million for the years ended December 31, 1999, 2000 and 2001, respectively. The decrease in net investment income related to contractual cash flows on interest rate floor, interest rate cap and swaption contracts was $2.3 million, $2.3 million and $0.1 million for the years ended December 31, 1999, 2000 and 2001, respectively. The estimated fair value of these instruments represent what Phoenix Life would have to pay or receive if the contracts were terminated. Phoenix Life is exposed to credit risk in the event of nonperformance by counterparties to these financial instruments, but management of Phoenix Life does not expect counterparties will 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 Life considers the likelihood of any material loss on these instruments to be remote. 9. RELATED PARTY TRANSACTIONS As of June 25, 2001, the following indirect wholly-owned subsidiaries of Phoenix Life were transferred to Phoenix, or one of its subsidiaries; PXP, Phoenix Charter Oak Trust Company, WS Griffith Securities, Inc., WS Griffith Associates, Inc. and Main Street Management Company. Proceeds from the transfer were $659.8 million. The transfer of these entities resulted in a pre-tax gain of $222.6 million ($146.1 million, net of tax). PXP, an indirect wholly-owned subsidiary of Phoenix, through its affiliated registered investment advisors, provides investment advisory services (e.g. general account and variable separate account products) to Phoenix Life for a fee. Investment advisory fees incurred by Phoenix Life were $3.7 million for the six months ended December 31, 2001. Amounts payable to the affiliated investment advisors were $546 thousand, as of December 31, 2001. Variable product separate account fees, net of reimbursement were $3.1 million for the six months ended December 31, 2001. On February 26, 2001, Phoenix Life entered into a $69.0 million subordinated loan agreement with PXP, due March 1, 2006, in exchange for the debentures held by Phoenix Life. Interest is payable quarterly in arrears at an annual rate based on LIBOR plus 2%. For the year ended December 31, 2001, the average blended interest rate was approximately 5%. The loan agreement requires no principal repayment prior to maturity. F-29 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Phoenix Equity Planning Corporation (PEPCO), a wholly-owned subsidiary of PXP, is the principal underwriter of Phoenix Life's annuity and variable life contracts. Contracts may be purchased through registered representatives of a Phoenix affiliate, W.S. Griffith & Co., Inc., as well as other outside broker dealers who are licensed to sell Phoenix Life annuity contracts. As of June 30, 2001 PXP was no longer a subsidiary of Phoenix Life due to the transfer to Phoenix. Phoenix Life incurred commissions for contracts underwritten by PEPCO of $26.5 million for the six months ended December 31, 2001. Amounts payable to PEPCO were $4.7 million, as of December 31, 2001. Phoenix reimbursed Phoenix Life $42.6 million for expenses incurred in conjunction with the demutualization and $41.5 million for policy credits and payments to eligible policyholders in lieu of stock. 10. LONG-TERM DEBT
DECEMBER 31, --------------------- 2000 2001 -------- --------- (IN MILLIONS) Bank borrowings, blended rate 6.9% due in varying amounts to 2004 $230.0 $ -- Subordinated debentures, 6.0% due 2015.................................. 20.1 -- Surplus notes, 6.95%, due 2006 ......................................... 175.0 175.0 -------- --------- Total long-term debt............................................... $425.1 $ 175.0 ======== =========
As of June 26, 2001, PXP's long term debt is no longer consolidated due to the sale of PXP to Phoenix. See note 9 - "Related Party Transactions". Phoenix Life maintained two separate $100 million revolving credit facilities as of June 2001, which were terminated in light of the new master credit facility described below. In June 2001, Phoenix, Phoenix Life and PXP entered into a $375 million revolving credit facility which matures on June 10, 2005 and terminated Phoenix Life's and PXP's prior credit facilities. Bank of Montreal is the administrative agent for this credit facility. Each company has direct borrowing rights under this credit facility. Phoenix unconditionally guarantees loans to Phoenix Life and PXP. Base rate loans bear interest at the greater of the Bank of Montreal's prime commercial rate or the effective federal funds rate plus 0.5%. Eurodollar rate loans bear interest at LIBOR plus an applicable margin. The credit agreement includes customary financial and operating covenants that include, among other provisions, requirements that Phoenix maintain a minimum stockholders' equity and a maximum debt to capitalization ratio; that Phoenix Life maintain a minimum RBC ratio; and that PXP maintain a maximum debt to capitalization ratio and a minimum stockholders' equity. As of December 31, 2001, Phoenix Life had $249.9 million available, with no credit outstanding for this credit facility. In November 1996, Phoenix Life issued $175.0 million principal amount of 6.95% surplus notes due December 1, 2006. Each payment of interest on principal of the notes requires the prior approval of the Superintendent of Insurance of the State of New York (the "Superintendent"), and may be made only out of surplus funds which the Superintendent determines to be available for such payment under the New York Insurance Law. The notes contain neither financial covenants nor early redemption provisions, and are to rank pari passu with any subsequently issued surplus, capital or contribution notes or similar obligations of Phoenix Life. Section 1307 of the New York Insurance Law provides that the notes are not part of the legal liabilities of Phoenix Life and are not a basis of any set-off against the company. As of December 31, 2001, Phoenix Life had $175.0 million in surplus notes outstanding. Interest expense was $34.0 million, $32.7 million and $20.0 million for the years ended December 31, 1999, 2000 and 2001, respectively. At December 31, 2001, aggregate maturities of long-term debt based on required principal payments are $175.0 million in 2006. F-30 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 11. INCOME TAXES A summary of income tax expenses (benefits) applicable to income before income taxes, minority interest, and equity in earnings of and interest earned from investments in unconsolidated affiliates, for the year ended December 31, was as follows:
1999 2000 2001 --------- -------- ---------- (IN MILLIONS) Income taxes: Current ............. $ 114.0 $123.2 $ (43.3) Deferred............. (15.0) (67.0) 23.5 --------- -------- ---------- Total ................... $ 99.0 $ 56.2 $ (19.8) ========= ======== ==========
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 income tax effects of each for the years ended December 31, were as follows:
1999 2000 2001 ---------------------- ----------------------- ------------------------ AMOUNT % AMOUNT % AMOUNT % ----------- -------- ------------ -------- ------------ --------- (DOLLARS IN MILLIONS) Income tax expense at statutory rate........ $ 93.1 35% $ 55.1 35% $ 14.8 35% Dividend received deduction and tax- exempt interest....... (3.0) (1)% (6.7) (4)% (7.2) (17)% Other, net.............. (2.7) (1)% (2.5) (2)% (6.4) (15)% ----------- -------- ------------ -------- ------------ --------- 87.4 33% 45.9 29% 1.2 3% Differential earnings (equity tax).......... 11.6 4% 10.3 7% (21.0) (50)% ----------- -------- ------------ -------- ------------ --------- Income taxes............ $ 99.0 37% $ 56.2 36% $(19.8) (47)% =========== ======== ============ ======== ============ =========
The net deferred income tax liability (asset) represents the income tax effects of temporary differences attributable to the consolidated income tax return group. The components were as follows:
DECEMBER 31, ------------------------- 2000 2001 ----------- ---------- (IN MILLIONS) DAC................................................. $ 217.9 $ 234.1 Unearned premium/deferred revenue................... (139.0) (133.6) Impairment reserves................................. (16.8) (31.3) Pension and other post-retirement benefits.......... . (65.1) (69.2) Investments......................................... 177.0 101.8 Future policyholder benefits........................ (186.4) (204.1) Investment management contracts..................... 37.5 -- Deferred intercompany gain.......................... -- 76.4 Other............................................... (29.2) (43.8) ----------- ---------- (4.1) (69.7) Net unrealized investment gains..................... 11.9 50.2 Minimum pension liability........................... (3.3) (7.7) Equity in earnings of unconsolidated affiliates 4.9 4.3 ----------- ---------- Deferred income tax liability (asset), net.......... $ 9.4 $ (22.9) =========== ==========
F-31 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Gross deferred income tax assets totaled $439.8 million and $489.7 million at December 31, 2000 and 2001, respectively. Gross deferred income tax liabilities totaled $466.8 million and $449.2 million at December 31, 2000 and 2001, 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, 2000 and 2001 will be realized. 12. COMPREHENSIVE INCOME The components of, and related income tax effects for, other comprehensive income for the years ended December 31, were as follows:
1999 2000 2001 ------------ ------------ ------------ (IN MILLIONS) Unrealized (losses) gains on securities available-for-sale: Before-tax amount....................... $ (102.8) $ 81.5 $ (1.4) Income tax (benefit) expense............ (36.0) 28.5 (.5) ------------ ------------ ------------ Totals............................. (66.8) 53.0 (.9) ------------ ------------ ------------ Reclassification adjustment for net gains realized in net income: Before-tax amount....................... (2.2) (90.6) (15.4) Income tax benefit...................... (.7) (31.7) (5.4) ------------ ------------ ------------ Totals............................. (1.5) (58.9) (10.0) ------------ ------------ ------------ Net unrealized losses on securities available-for-sale: Before-tax amount....................... (105.0) (9.1) (16.8) Income tax benefit..................... (36.7) (3.2) (5.9) ------------ ------------ ------------ Totals............................. $ (68.3) $ (5.9) $(10.9) ============ ============ ============ Minimum pension liability adjustment: Before-tax amount....................... $ (2.3) $ 2.4 $(12.8) Income tax (benefit) expense............ (.8) .8 (4.5) ------------ ------------ ------------ Totals............................. $ (1.5) $ 1.6 $ (8.3) ============ ============ ============ Unrealized gain on security transfer from held-to-maturity to available-for-sale: Before-tax amount....................... $ -- $ -- $129.1 Income tax benefit...................... -- -- 45.2 ------------ ------------ ------------ Totals............................. $ -- $ -- $ 83.9 ============ ============ ============ Unrealized gains on derivatives: Before-tax amount....................... $ -- $ -- $ 6.0 Income tax expense...................... -- -- 2.1 ------------ ------------ ------------ Totals............................. $ -- $ -- $ 3.9 ============ ============ ============ Equity adjustment for policyholder dividend obligation: Before-tax amount....................... $ -- $ -- $(13.5) Income tax benefit...................... -- -- (4.7) ------------ ------------ ------------ Totals............................. $ -- $ -- $ (8.8) ============ ============ ============ Cumulative effect of accounting change for derivatives:
F-32 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
Before-tax amount...................... $ -- $ -- $ 1.7 Income tax expense..................... -- -- .6 ------------ ------------ ------------ Totals............................. $ -- $ -- $ 1.1 ============ ============ ============
The following table summarizes accumulated other comprehensive income for the years ended December 31:
1999 2000 2001 ---------- ----------- ---------- (IN MILLIONS) Net unrealized gains (losses) on securities available-for-sale: Balance, beginning of year.................. $ 100.5 $ 32.2 $ 26.3 Change during period........................ (68.3) (5.9) (10.9) ---------- ----------- ---------- Balance, end of year........................ 32.2 26.3 15.4 ---------- ----------- ---------- Minimum pension liability adjustment: Balance, beginning of year.................. (6.2) (7.7) (6.1) Change during period........................ (1.5) 1.6 (8.3) ---------- ----------- ---------- Balance, end of year........................ (7.7) (6.1) (14.4) ---------- ----------- ---------- Net unrealized gain on security transfer from held-to-maturity to available-for-sale: Balance, beginning of year.................. -- -- -- Change during period........................ -- -- 83.9 ---------- ----------- ---------- Balance, end of year........................ -- -- 83.9 ---------- ----------- ---------- Unrealized gains on derivatives: Balance, beginning of year.................. -- -- -- Change during period........................ -- -- 3.9 ---------- ----------- ---------- Balance, end of year........................ -- -- 3.9 ---------- ----------- ---------- Equity adjustment for policyholder dividend obligation: Balance, beginning of year.................. -- -- -- Change during period........................ -- -- (8.8) ---------- ----------- ---------- Balance, end of year........................ -- -- (8.8) ---------- ----------- ---------- Cumulative effect of accounting change for derivatives: Balance, beginning of year.................. -- -- -- Change during period........................ -- -- 1.1 ---------- ----------- ---------- Balance, end of year........................ -- -- 1.1 ---------- ----------- ---------- Accumulated other comprehensive income: Balance, beginning of year.................. 94.3 24.5 20.2 Change during period........................ (69.8) (4.3) 60.9 ---------- ----------- ---------- Balance, end of year........................ $ 24.5 $ 20.2 $ 81.1 ========== =========== ==========
13. DISCONTINUED OPERATIONS During 1999, Phoenix Life discontinued its reinsurance, real estate management and group life and health operations. The discontinuation of these operations 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. The operating results of discontinued operations and the gain or loss on disposal are shown in the summary section below. F-33 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Reinsurance Operations In 1999, Phoenix Life exited its reinsurance operations through a combination of sale, reinsurance and placement of certain components into run-off. The reinsurance operations consisted primarily of individual life reinsurance as well as group accident and health reinsurance business. Accordingly, Phoenix Life estimated sales proceeds, net premiums, net claims payments and expenses of winding-down the business. As a result, in 1999 Phoenix Life recognized a $173.1 million pre-tax loss on the disposal of reinsurance operations. The significant components of the loss on the disposal of reinsurance operations were as follows: On August 1, 1999, Phoenix Life sold its individual life reinsurance operations and certain group health reinsurance business to Employers Reassurance Corporation for $130 million. The transaction was structured as a reinsurance and asset sale transaction (assumption reinsurance), resulting in a pre-tax gain of $113 million. The pre-tax income from operations for the seven months prior to disposal was $19 million. During the third quarter of 2000, Phoenix Life recorded a pre-tax charge of $6 million to reflect an adjustment to estimated individual life reinsurance reserves in accordance with the sales agreement. During 1999, Phoenix Life placed the retained group accident and health reinsurance business into run-off. Phoenix Life adopted a formal plan to stop writing new contracts covering these risks and end the existing contracts as soon as those contracts would permit. However, Phoenix Life remained liable for claims under those contracts. In 1999, Phoenix Life reviewed the run-off block and estimated the amount and timing of future net premiums, claims and expenses. Consequently, Phoenix Life increased reserve estimates on the run-off block by $180 million (pre-tax). In addition, as part of the exit strategy, Phoenix Life purchased aggregate excess of loss reinsurance to further protect Phoenix Life from unfavorable results from this discontinued business. This reinsurance is subject to an aggregate retention of $100 million on the discontinued business. Phoenix Life may commute the agreement at any time after September 30, 2004, subject to automatic commutation effective September 30, 2019. Phoenix Life incurred an initial expense of $130 million on the acquisition of this reinsurance. During 2000, Phoenix Life updated its estimates of future losses related to the group accident and health reinsurance business as well as future expenses associated with managing the run-off. Based on the most recent information available, Phoenix Life increased reserve estimates on the run-off block by $97 million (pre-tax). Phoenix Life determined that the increase to reserves was needed based on revised actuarial assumptions to reflect current and expected deteriorating trends in claim experience and higher than anticipated expenses. During 2001, Phoenix Life reviewed its estimates of future losses related to the group accident and health reinsurance business as well as future expenses associated with managing the run-off. Based on the most recent information available, Phoenix Life did not recognize any additional reserve provisions. The additional reserves and aggregate excess of loss 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 Life expects to pay claims out of existing estimated reserves for up to ten years as the level of business diminishes. A significant portion of the claims arising from the discontinued group accident and health reinsurance business arises from the activities of Unicover Managers, Inc. ("Unicover"). Unicover organized and managed a group, or pool, of insurance companies ("Unicover pool") and certain other facilities, which reinsured the life and health insurance components of workers' compensation insurance policies issued by various property and casualty insurance companies. Phoenix Life was a member of the Unicover pool. Phoenix Life terminated its participation in the Unicover pool effective March 1, 1999. Phoenix Life is involved in disputes relating to the activities of Unicover. Under Unicover's underwriting authority, the Unicover pool and Unicover facilities wrote a dollar amount of reinsurance coverage that was many times greater than originally estimated. As a member of the Unicover pool, Phoenix Life is involved in F-34 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- several proceedings in which the pool members assert that they can deny coverage to certain insurers which claim that they purchased reinsurance coverage from the pool. Further, Phoenix Life was, along with Sun Life Assurance of Canada ("Sun Life") and Cologne Life Reinsurance Company ("Cologne Life"), a retrocessionaire (meaning a reinsurer of other reinsurers) of the Unicover pool and two other Unicover facilities, providing the pool and facility members with reinsurance of the risks that the pool and facility members had assumed. In September 1999, Phoenix Life joined an arbitration proceeding that Sun Life had begun against the members of the Unicover pool and the Unicover facilities. In this arbitration, Phoenix and Sun Life sought to cancel their retrocession agreement on the grounds that material misstatements and nondisclosures were made to them about, among other things, the amount of risks they would be reinsuring. The arbitration proceedings are ongoing only with respect to the Unicover pool, because Phoenix Life, Sun Life and Cologne Life reached settlement with the two Unicover facilities in the first quarter of 2000 (see discussion below). In its capacity as a retrocessionaire of the Unicover business, Phoenix Life had an extensive program of its own reinsurance in place to protect it from financial exposure to the risks it had assumed. Currently, Phoenix Life is involved in separate arbitration proceedings with three of its own retrocessionaires which are seeking on various grounds to avoid paying any amounts to Phoenix Life. Most of these proceedings remain in their preliminary phases. Because the same retrocession program that covers Phoenix Life's Unicover business covers a significant portion of its other remaining group accident and health reinsurance business, Phoenix Life could have additional material losses if one or more of its retrocesssionaires successfully avoids its obligations. During 2000, Phoenix Life reached settlements with several of the companies involved in Unicover. On January 13, 2000, Phoenix Life and the other member companies of the Unicover pool settled with EBI Indemnity Company and affiliates of the Orion Group ("EBI/Orion"), by which all pool members were released from their obligations as reinsurers of EBI/Orion. On January 21, 2000, Phoenix Life settled with Reliance Insurance Company ("Reliance") and its parent Reliance Group Holdings, Inc. and was released from its obligations as a reinsurer of the so-called Reliance facility. On March 27, 2000, Phoenix Life settled with Reliance, Lincoln National Life Insurance Company and Lincoln National Health and Casualty Company, releasing Phoenix Life from its obligations as a reinsurer of the so-called Lincoln facility. On May 28, 2000, Phoenix Life reached an agreement with one of its retrocessionaires, and recovered a substantial portion of its settlement cost on the Reliance settlement. Financial terms of these settlements were consistent with the provisions established by Phoenix Life in 1999. There was no effect on net income resulting from these settlements for the year ended December 31, 2000. A second set of disputes involves personal accident business that was reinsured in the London reinsurance market in the mid-1990s in which Phoenix Life participated. The disputes involve multiple layers of reinsurance, and allegations that the reinsurance program created by the brokers involved in placing those layers was interrelated and devised to disproportionately pass losses to a top layer of reinsurers. Many companies who participated in this business are involved in arbitrations in which those top layer companies are attempting to avoid their obligations on the basis of misrepresentation. Because of the complexity of the disputes and the reinsurance arrangements, many of these companies are currently participating in negotiations of the disputes for certain contract years, and Phoenix Life believes that similar discussions will follow for the remaining years. Although Phoenix Life is vigorously defending its contractual rights, Phoenix Life is actively involved in the attempt to reach negotiated business solutions. 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 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 Life's consolidated financial position. F-35 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The other component of the loss on the disposal of reinsurance discontinued operations in 1999 was as follows: On June 30, 1999, PM Holdings sold Financial Administrative Services, Inc. ("FAS"), its third party administration subsidiary affiliated with individual life reinsurance, 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 a pre-tax gain of $3.8 million. In addition to the $9.0 million sale price, Phoenix Life will receive additional proceeds contingent on certain revenue targets. Phoenix Life recorded a note receivable for $4.0 million which, under the terms of the agreement, CYBERTEK will repay in six annual installments commencing March 31, 2001 through March 31, 2006. The contingent proceeds will be determined annually but in total, will range from a minimum of $4.0 million to a maximum of $16.0 million. Phoenix received $1.9 million from Computer Sciences Corporation, the successor to CYBERTEK, in 2001. Real Estate Management Operations On March 31, 1999, Phoenix Life 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. On May 25, 2000, Phoenix Life sold its investment in 50% of the outstanding common stock of Pinnacle Realty Management Company, Inc., a real estate property management firm, for $6.0 million. This sale represented Phoenix Life's entire interest in Pinnacle Realty Management Company, Inc. and Phoenix Life now has no other real estate management business. The transaction resulted in a pre-tax loss of $0.6 million. Group Life and Health Operations On April 1, 2000, Phoenix Life sold its group life and health business to GE Financial Assurance Holdings, Inc. ("GEFA") except for Phoenix Dental Services, Inc. and California Benefits Dental Plan. Specifically, Phoenix Group Holdings and PM Holdings sold 97% of the common stock of Phoenix American Life Insurance Company and 100% of the common stock of Phoenix Group Services, Inc. and Clinical Disability Management, Inc. for $283.9 million. This amount is comprised of $238.9 million in cash and $45.0 million in common stock of GE Life and Annuity Assurance Company, an affiliate of GEFA. The common stock represents a 3.1% interest in GE Life and Annuity Assurance Company. Phoenix Life retains ownership of 3% of the common stock of Phoenix American Life Insurance Company. Phoenix Life has a right to put these shares back to GEFA beginning in 2005 and ending in 2007. These investments are reported as equity securities on the Consolidated Balance Sheets. The pre-tax gain on the sale was $72.1 million and is reported in discontinued operations gain on disposal, net of income taxes. The sale to GEFA of 100% of the common stock of Phoenix Dental Services, Inc. and California Benefits Dental Plan closed on October 31, 2000. The sales proceeds for these entities were $2.0 million, which resulted in a pre-tax loss of $0.4 million. Summary 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 Sheets. Net assets of the discontinued operations totaled $25.5 million and $20.8 million as of December 31, 2000 and 2001, respectively. The operating results of discontinued operations and the gain or loss on disposal are presented below. There were no operating results for the year ended December 31, 2001 because the operations were discontinued prior to January 1, 2001. F-36 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, ---------------------------- 1999 2000 ------------ ------------ INCOME FROM DISCONTINUED OPERATIONS (IN MILLIONS) Revenues: Reinsurance Operations..................................... $ -- $ -- Group Life and Health Operations........................... 453.8 117.6 Real Estate Management Operations.......................... 1.2 .4 ------------ ------------ Total revenues............................................... $ 455.0 $ 118.0 ============ ============ Income from discontinued operations: Reinsurance Operations..................................... $ -- $ -- Group Life and Health Operations........................... 56.8 14.8 Real Estate Management Operations.......................... (1.6) (.3) ------------ ------------ Income from discontinued operations before income taxes 55.2 14.5 Income taxes................................................. 19.1 5.1 ------------ ------------ Income from discontinued operations, net of income taxes $ 36.1 $ 9.4 ============ ============ LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS (Loss) gain on disposal: Reinsurance Operations..................................... $ (173.1) $ (103.0) Real Estate Management Operations.......................... 5.9 (.6) Group Life and Health Operations........................... -- 71.7 ------------ ------------- Loss on disposal of discontinued operations before income taxes..................................................... (167.2) (31.9) Income taxes................................................. (58.2) (11.0) ------------ ------------- Loss on disposal of discontinued operations, net of income taxes..................................................... $ (109.0) $ (20.9) ============ =============
14. CLOSED BLOCK On the date of demutualization, Phoenix Life established a closed block for the benefit of holders of certain individual participating life insurance policies and annuities of Phoenix Life for which Phoenix Life had a dividend scale payable in 2000. Assets have been allocated to the closed block in an amount that has been determined to produce cash flows which, together with anticipated revenues from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of policyholder dividend scales in effect for 2000, if the experience underlying such dividend scales continues, and for appropriate adjustments in such scales if such experience changes. The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of the policies in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed block was established, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect for 2000 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to stockholders. If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside of the closed block. The closed block will continue in effect as long as any policy in the closed block remains in force. Other than the provisions of SOP 00-3, Phoenix Life uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the date of demutualization. In particular, F-37 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- deferred policy acquisition costs are amortized in proportion to estimated gross margins and the liability for future benefits and services is calculated using the net level premium method. SOP 00-3 requires the establishment of a policyholder dividend obligation for earnings that inure to benefit policyholders. The excess of closed block liabilities over closed block assets at the effective date of the demutualization (adjusted to eliminate the impact of related amounts in accumulated other comprehensive income) represents the estimated maximum future earnings from the closed block expected to result from operations attributed to the closed block after income taxes. Earnings of the closed block are recognized in income over the period the policies and contracts in the closed block remain inforce. Management believes that over time the actual cumulative earnings of the closed block will approximately equal the expected cumulative earnings of the closed block due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative earnings of the closed block are greater than the expected cumulative earnings of the closed block, Phoenix Life will pay the excess of the actual cumulative earnings of the closed block over the expected cumulative earnings to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block and, accordingly, will recognize only the expected cumulative earnings in income with the excess recorded as a policyholder dividend obligation. If over such period, the actual cumulative earnings of the closed block are less than the expected cumulative earnings of the closed block, Phoenix Life will recognize only the actual earnings in income. However, Phoenix Life may change policyholder dividend scales in the future which would be intended to increase future actual earnings until the actual cumulative earnings equal the expected cumulative earnings. In addition to the closed block assets, we hold assets outside the closed block in support of closed block liabilities. Investment earnings on these assets less allocated expenses and the amortization of deferred acquisition costs provide an additional source of earnings to our shareholders. In addition, the amortization of deferred acquisition costs requires the use of various assumptions. To the extent that actual experience is more or less favorable than assumed, shareholder earnings will be impacted. The principal cash flow items that affect the amount of closed block assets and liabilities are premiums, net investment income, purchases and sales of investments, policyholders' benefits, policyholder dividends, premium taxes and income taxes. The principal income and expense items excluded from the closed block are management and maintenance expenses, commissions, and investment income and realized investment gains and losses of investment assets outside the closed block that support the closed block business, all of which enter into the determination of total gross margins of closed block policies for the purpose of the amortization of deferred acquisition costs. The amounts shown in the table below for assets and liabilities are those that enter into the determination of amounts to be paid to policyholders. As specified in the plan of reorganization, the allocation of assets for the closed block was made as of December 31, 1999. Consequently, cumulative earnings on the closed block assets and liabilities for the period January 1, 2000 to December 31, 2001 in excess of expected cumulative earnings do not inure to stockholders and have been used to establish a policyholder dividend obligation as of December 31, 2001. The initial policyholder dividend obligation of $115.5 million consists of $45.2 million of earnings for the period January 1, 2000 to June 30, 2001 and unrealized gains on assets in the closed block as of June 30, 2001 of $70.3 million. The increase in the policyholder dividend obligation of $51.7 million pre-tax, consists of $13.2 million of pre-tax earnings for the period July 1, 2001 to December 31, 2001 and the change in unrealized gains on assets in the closed block for the period July 1, 2001 to December 31, 2001 of $38.5 million, pre-tax. The following sets forth certain summarized financial information relating to the closed block as of the dates indicated: F-38 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31, 2001 2001 -------------- ----------------- (IN MILLIONS) Closed block liabilities: ------------------------- Policy liabilities and accruals and policyholder deposit funds..... $ 8,937.8 $ 9,150.2 Policyholder dividends payable..................................... 364.2 357.3 Policyholder dividend obligation................................... 115.5 167.2 Other closed block liabilities..................................... 56.1 57.0 -------------- ----------------- Total closed block liabilities............................... 9,473.6 9,731.7 -------------- ----------------- Closed block assets: -------------------- Held-to-maturity debt securities at amortized cost................. 1,594.5 -- Available-for-sale debt securities at fair value................... 3,922.7 5,734.2 Mortgage loans..................................................... 390.6 386.5 Policy loans....................................................... 1,412.5 1,407.1 Deferred income taxes.............................................. 384.8 392.6 Investment income due and accrued.................................. 125.1 125.3 Net due and deferred premiums...................................... 39.4 41.1 Cash and cash equivalents.......................................... 186.1 239.7 Other closed block assets.......................................... 2.6 14.8 -------------- ----------------- Total closed block assets.................................... 8,058.3 8,341.3 -------------- ----------------- Excess of reported closed block liabilities over closed block assets $ 1,415.3 $ 1,390.4 ============== ================= Maximum future earnings to be recognized from closed block assets and liabilities.................................................... $ 1,415.3 $ 1,390.4 ============== ================= Change in policyholder dividend obligation: ------------------------------------------- Balance at beginning of period..................................... $ -- $ 115.5 Change during the period........................................... 115.5 51.7 -------------- ----------------- Balance at end of period........................................... $ 115.5 $ 167.2 ============== =================
The following sets forth certain summarized financial information relating to the closed block for the six months ended December 31, 2001 (in millions):
Closed block revenues: ---------------------- Premiums.................................................................... $ 565.7 Net investment income....................................................... 281.1 Realized investment losses, net............................................. (18.4) -------------- Total revenues......................................................... 828.4 -------------- Closed block benefits and expenses: ----------------------------------- Benefits to policyholders and increase in liabilities ...................... 580.0 Other operating costs and expenses.......................................... 6.1 Change in policyholder dividend obligation.................................. 13.2 Dividends to policyholders.................................................. 190.8 -------------- Total benefits and expenses............................................ 790.1 -------------- Contribution from the closed block, before income taxes................ 38.3 Income tax expense.................................................... 13.4 -------------- Contributions from closed block, after income taxes.................... $ 24.9 ==============
15. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements, consisting primarily of office buildings occupied by Phoenix Life, are stated at depreciated cost. Real estate occupied by Phoenix Life was $83.9 million and $79.1 million at December 31, 2000 and 2001, respectively. Phoenix Life provides for depreciation using straight-line and accelerated methods over the estimated useful lives of the related assets which generally range from F-39 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- five to forty years. Accumulated depreciation and amortization was $204.0 million and $190.4 million at December 31, 2000 and 2001, respectively. Rental expenses for operating leases, principally with respect to buildings, amounted to $16.3 million, $14.1 million and $13.4 million in 1999, 2000 and 2001, respectively, for continuing operations. Future minimum rental payments under non-cancelable operating leases for continuing operations were approximately $27.0 million as of December 31, 2001, payable as follows: 2002 -- $10.4 million; 2003 -- $7.1 million; 2004 -- $4.7 million; 2005 -- $3.0 million; 2006 -- $1.2 million; and $0.6 million thereafter. 16. DIRECT BUSINESS WRITTEN AND REINSURANCE Phoenix Life cedes reinsurance as a means of diversifying underwriting risk. To the extent that reinsuring companies may not be able to meet their obligations under reinsurance agreements in effect, Phoenix Life remains liable. Failure of the reinsurers to honor their obligations could result in losses to the company; consequently, estimates are established for amounts deemed or estimated to be uncollectible. To minimize its exposure to significant losses from reinsurance insolvencies, Phoenix Life evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers. For direct issues, the maximum of individual life insurance retained by Phoenix Life on any one life is $8 million for single life and joint first-to-die policies and $10 million for joint last-to-die policies, with excess amounts ceded to reinsurers. Phoenix reinsures 80% of the mortality risk on the in force block of the Confederation Life business acquired on December 31, 1997. In addition, Phoenix entered into two separate reinsurance agreements on October 1, 1998 and July 1, 1999 to reinsure 80% of the mortality risk on a substantial portion of its otherwise retained individual life insurance business. Also, Phoenix reinsures 80% to 90% of the mortality risk on certain new issues of term, universal life, variable universal life and whole life products. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. In addition, Phoenix assumes and cedes business related to the group accident and health block in run-off. While Phoenix is not writing any new contracts, Phoenix is contractually obligated to assume and cede premiums related to existing contracts. Additional information on direct business written and reinsurance assumed and ceded for the years ended December 31, was as follows:
1999 2000 2001 ---------------- --------------- --------------- (IN MILLIONS) Direct premiums.......................................... $ 1,677.5 $ 1,399.2 $ 1,292.5 Reinsurance assumed...................................... 416.2 202.4 72.9 Reinsurance ceded........................................ (323.0) (280.9) (221.5) ---------------- --------------- --------------- Net premiums............................................. 1,770.7 1,320.7 1,143.9 Less net premiums of discontinued operations............. (595.0) (173.3) (31.2) ---------------- --------------- --------------- Net premiums of continuing operations.................... $ 1,175.7 $ 1,147.4 1,112.7 ================ =============== =============== Percentage of amount assumed to net premiums............. 24% 15% 6% ================ =============== =============== Direct policy and contract claims incurred............... $ 622.3 $ 545.0 $ 475.2 Reinsurance assumed...................................... 563.8 257.8 116.2 Reinsurance ceded........................................ (285.4) (216.2) (226.1) ---------------- --------------- --------------- Net policy and contract claims incurred.................. 900.7 586.6 365.3 Less net incurred claims of discontinued operations...... (661.7) (234.6) (13.9) ---------------- --------------- --------------- Net policy and contract claims incurred of continuing operations............................... $ 239.0 $ 352.0 $ 351.4 ================ =============== =============== Direct life insurance in force........................... $131,052.1 $107,600.7 $111,743.1 Reinsurance assumed...................................... 139,649.9 1,736.4 464.4 Reinsurance ceded........................................ (207,192.0) (72,042.4) (75,787.5) ---------------- --------------- --------------- Net insurance in force................................... 63,510.0 37,294.7 36,420.0 Less insurance in force of discontinued operations....... (1,619.5) -- (1.0) ---------------- --------------- --------------- Net insurance in force of continuing operations.......... $ 61,890.5 $ 37,294.7 $ 36,419.0 ================ =============== =============== Percentage of amount assumed to net insurance in force..................................... 220% 5% 1% ================ =============== ===============
F-40 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Irrevocable letters of credit aggregating $17.5 million at December 31, 2001 have been arranged with United States of America commercial banks in favor of Phoenix to collateralize the ceded reserves. Additional collateral of $73.8 million was in the form of trust agreements for unauthorized reinsurers. 17. PARTICIPATING LIFE INSURANCE Participating life insurance in force was 60.0% and 50.4% of the face value of total individual life insurance in force at December 31, 2000 and 2001, respectively. The premiums on participating life insurance policies were 76.8%, 73.1% and 65.3% of total individual life insurance premiums in 1999, 2000, and 2001, respectively. 18. DEFERRED POLICY ACQUISITION COSTS The following reflects the amount of policy acquisition costs deferred and amortized for the years ended December 31:
1999 2000 2001 ----------- ------------ ----------- (IN MILLIONS) Balance at beginning of year.............................. $ 1,058.2 $ 1,318.8 $1,019.0 Acquisition cost deferred................................. 148.2 172.8 206.1 Amortized to expense during the year...................... (147.9) (356.0) (133.0) Equity adjustment for policyholder dividend obligation -- -- 3.1 Adjustment to net unrealized investment gains (losses) included in other comprehensive income.................... 260.3 (116.6) 28.5 ----------- ------------ ----------- Balance at end of year.................................... $ 1,318.8 $ 1,019.0 $1,123.7 =========== ============ ===========
In conjunction with the December 31, 1997 acquisition of the Confederation Life business, PVFP of $141.2 million is reflected as an element of deferred acquisition costs. The estimated amount to be amortized for the years ending December 31, 2002, 2003, 2004, 2005 and 2006 is $10.3 million, $9.2 million, $7.9 million, $6.1 million and $4.8 million, respectively. The following is an analysis of PVFP for the years ended December 31:
1999 2000 2001 ---------- ---------- ---------- (IN MILLIONS) Balance at beginning of year..... $ 136.8 $ 112.7 $ 96.9 Amortization..................... (24.1) (15.8) (16.3) ---------- ---------- ---------- Balance at end of year........... $ 112.7 $ 96.9 $80.6 ========== ========== ==========
Interest accrued on the unamortized PVFP balance for the years ended December 31, 1999, 2000 and 2001 was $8.9 million, $7.3 million and $5.8 million, respectively. Interest is accrued at 7.25% on the whole life business and 5.85% on the universal life business. In the fourth quarter of 2000, Phoenix's Board of Directors approved management's recommendation to reallocate assets supporting Phoenix's participating life policies. This asset reallocation resulted from (1) the execution of Phoenix's wealth management strategy and the resulting significant change in the composition of new life insurance annualized premiums and (2) a review of assets appropriate for the closed block that would be established if Phoenix reorganized from a mutual life insurance company to a stock life insurance company in 2001. This reallocation impacted the estimated future gross margins used to determine the amortization of DAC for participating policies. Accordingly, the revisions to estimated future gross margins resulted in a $218.2 million charge to earnings ($141.8 million, net of tax). F-41 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 19. MINORITY INTEREST Phoenix Life's interests in PFG Holdings are represented by ownership of approximately 67% of the outstanding shares of common stock at December 31, 2001. Earnings and equity attributable to minority stockholders are included in minority interest in the Consolidated Financial Statements. 20. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS Other than debt securities being held-to-maturity, financial instruments that are subject to fair value disclosure requirements (insurance contracts are excluded) are carried in the Consolidated Financial Statements at amounts that approximate fair value. The fair values presented for certain financial instruments are estimates which, in many cases, may differ significantly from the amounts which could be realized upon immediate liquidation. In cases where market prices are not available, estimates of fair value are based on discounted cash flow analyses that utilize current interest rates for similar financial instruments that 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 The carrying amount of cash and cash equivalents approximates fair value. Short-term investments The carrying amount of short-term investments approximates fair value. Debt securities Fair values are based on quoted market prices where available or quoted market prices of comparable instruments. Fair values of private placement debt securities are estimated using discounted cash flows that reflect 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. F-42 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Policy loans Fair values are estimated as the present value of loan interest and policy loan repayments discounted at the ten year Treasury rate. Loan repayments were assumed only to occur as a result of anticipated policy lapses and it was assumed that annual policy loan interest payments were made at the guaranteed loan rate less 17.5 basis points. Discounting was at the ten year Treasury rate, except for policy loans with a variable policy loan rate. Variable policy loans have an interest rate that is reset annually based upon market rates and therefore, book value is a reasonable approximation of fair value. Venture capital partnerships Fair value of venture capital partnerships is based on the fair value of these partnerships' underlying investments. At December 31, 2000, the fair values of the underlying investments were calculated as the closing market prices for investments that were publicly traded. For investments that were not publicly traded, fair value was based on estimated fair value as determined by the general partner after giving consideration to operating results, financial conditions, recent sales prices of issuers' securities and other pertinent information. At December 31, 2001, for underlying investments that were publicly traded, fair values were calculated using quoted market prices, applying liquidity discounts to these prices in instances where such discounts were applied in the underlying partnerships' financial statements. For investments that were not publicly traded, fair value was based on applying a public industry sector index to roll the value forward each quarter. Fair value also incorporated adjustments to reflect market events reported by the partnerships (e.g., new rounds of financing, initial public offerings and writedowns by the general partners). 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. Long-term debt The fair value of surplus notes is determined based on contractual cash flows discounted at market rates. F-43 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Fair value summary The estimated fair values of the financial instruments as of December 31 were as follows:
2000 2001 ---------------------------- ------------------------------ CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ------------ ------------ ------------- ------------- (IN MILLIONS) FINANCIAL ASSETS: Cash and cash equivalents..... $ 720.0 $ 720.0 $ 547.9 $ 547.9 Short-term investments........ 3.8 3.8 8.5 8.5 Debt securities............... 8,058.6 8,077.9 9,599.2 9,599.2 Equity securities............. 335.5 335.5 286.0 286.0 Mortgage loans................ 593.4 573.8 535.8 554.1 Derivative instruments........ -- 9.9 10.9 10.9 Policy loans.................. 2,105.2 2,182.7 2,172.2 2,252.9 Venture capital partnerships 467.3 467.3 291.7 291.7 ------------ ------------ ------------- ------------- Total financial assets........ $ 12,283.8 $12,370.9 $13,452.2 $13,551.2 ============ ============ ============= ============= FINANCIAL LIABILITIES: Investment contracts.......... $ 759.0 $ 758.9 $ 1,413.0 $ 1,419.7 Long-term debt................ 425.1 428.2 175.0 175.0 ------------ ------------ ------------- ------------- Total financial liabilities... $ 1,184.1 $ 1,187.1 $ 1,588.0 $ 1,594.7 ============ ============ ============= =============
21. SEPTEMBER 11, 2001 For the year ended December 31, 2001, Phoenix Life received life insurance claims relating to the September 11, 2001 terrorist attacks totaling $11.7 million. Claim costs were $3.7 million, net of reinsurance, of which $2.1 million reduced net income and $1.6 million were funded by the closed block. 22. COMMITMENTS AND CONTINGENCIES Litigation. Certain group accident and health reinsurance business has become the subject of disputes concerning the placement of the business with reinsurers and the recovery of the reinsurance. See note 13-- "Discontinued Operations." Phoenix makes off-balance sheet commitments related to venture capital partnerships. As of December 31, 2001, total unfunded capital commitments were $166.8 million. 23. STATUTORY FINANCIAL INFORMATION Phoenix Life's 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 Insurance Department of the State of New York ("Insurance Department"), as of December 31, 2000 and 2001. Phoenix Life's statutory federal income tax liability is principally based on estimates of federal income tax due. A deferred income tax liability has also been established for estimated taxes on unrealized gains for common stock and venture capital equity partnerships. Current New York Insurance Law does not allow the recording of deferred income taxes. Phoenix Life has received approval from the Insurance Department for this practice. Statutory surplus differs from equity reported in accordance with GAAP for life insurance companies primarily because policy acquisition costs are expensed when incurred, investment reserves are based on different assumptions, surplus notes are included in surplus rather than debt, post-retirement benefit costs are based on different assumptions and reflect a different method of adoption, life insurance reserves are based on different assumptions and income tax expense reflects only taxes paid or currently payable. F-44 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The following reconciles the statutory net income of Phoenix Life as reported to regulatory authorities to the net income reported in these financial statements for the year ended:
DECEMBER 31, ---------------------------------------- 1999 2000 2001 ----------- ---------- ----------- (IN MILLIONS) Statutory net income....................... $ 131.3 $ 266.1 $ (13.4) DAC, net .................................. (24.3) (181.2) 69.7 Future policy benefits .................... (27.5) (2.5) (18.5) Pension and postretirement expenses........ (8.6) 13.2 29.3 Investment valuation allowances............ 15.4 (45.9) (138.4) Interest maintenance reserve............... (7.2) (26.1) 13.4 Deferred income taxes...................... 3.9 61.3 52.9 Other, net................................. 6.2 (1.6) 6.1 ----------- ---------- ----------- Net income, as reported.................... $ 89.2 $ 83.3 $ 1.1 =========== ========== ===========
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:
DECEMBER 31, -------------------------------- 2000 2001 (IN MILLIONS) -------------------------------- Statutory surplus, surplus notes and AVR...... $ 1,883.2 $ 1,373.2 DAC, net...................................... 1,062.2 1,225.5 Future policy benefits........................ (536.0) (701.9) Pension and postretirement expenses........... (173.3) (166.1) Investment valuation allowance................ (405.9) 66.7 Interest maintenance reserve.................. .5 12.4 Deferred income taxes......................... 108.5 122.0 Surplus notes................................. (161.4) (163.3) Other, net.................................... 63.1 63.6 -------------- -------------- Equity, as reported........................... $ 1,840.9 $ 1,832.1 ============== ==============
In 1998, the National Association of Insurance Commissioners (NAIC) adopted the Codification of Statutory Accounting Principles guidance, which replaces the current accounting practices and procedures manual as the NAIC's primary guidance on statutory accounting as of January 1, 2001. The codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in some areas, e.g. deferred income taxes are recorded. The State of Connecticut Insurance Department has adopted the Codification guidance, effective January 1, 2001. The effect of adoption decreased Phoenix Life's statutory surplus by $67.2 million, primarily as a result of impairment of investments and non-admitting investment income in excess of 90 days and non-admitting of certain assets of its subsidiaries. F-45 GLOSSARY OF SPECIAL TERMS - -------------------------------------------------------------------------------- The following is a list of terms and their meanings when used in this prospectus. ACCOUNT: Phoenix Life Variable Universal Life Account, a separate account of the Company. ACQUISITION EXPENSE (ACQUISITION EXPENSE ALLOWANCE): The amount set forth on the schedule pages of the policy. It equals the aggregate of the sales load, issue administration charge and premium taxes assessed under the policy. The acquisition expense is deducted from the issue premium and recredited to policy value. A pro rata portion of the acquisition expense is deducted from policy value monthly during the first 10 policy years. Upon Policy lapse or full surrender, any unpaid acquisition expense is paid. ADDITIONAL NET PREMIUM: Additional premium reduced by the premium tax charge and, for additional premiums received during a grace period, by the amount needed to cover any monthly deductions made during the grace period. BENEFICIARY: The person or persons specified by the policyowner as entitled to receive the death benefits under a policy. CASH VALUE: The policy value less the balance of any unpaid acquisition expense allowance. DEATH BENEFIT ADJUSTMENT RATES: Rates used to calculate the variable death benefit under a policy as set forth in a table in the schedule pages of the policy. GENERAL ACCOUNT: The general asset account of Phoenix. GUARANTEED INTEREST ACCOUNT (GIA): An investment option under which amounts deposited are guaranteed to earn a fixed rate of interest. We may credit excess interest at our sole discretion. IN FORCE: Conditions under which the coverage under a policy is in effect and the insured's life remains insured. INSURED: The person upon whose life the policy is issued. IN WRITING (WRITTEN REQUEST): In a written form satisfactory to Phoenix and delivered to VPMO. ISSUE PREMIUM: The premium payment made in connection with issuing the policy. LOAN ACCOUNT: An account within the General Account to which amounts are transferred for policy loans. MATURITY DATE: The anniversary of the policy nearest the insured's 95th birthday, if the insured is living. MONTHLY CALCULATION DAY: The first monthly calculation day is the same day as the policy date. Subsequent monthly calculation days are the same day of each month thereafter or, if such day does not fall within a given month, the last day of that month will be the monthly calculation day. NET ASSET VALUE: The worth of one share of a series of a fund at the end of a valuation period. Net Asset Value is computed by adding the value of a series' holdings plus other assets, minus liabilities and then dividing the result by the number of shares outstanding. NYSE: The New York Stock Exchange. 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, in which case it will be the next valuation date. PHOENIX (COMPANY, OUR, US, WE): Phoenix Life Insurance Company. POLICY ANNIVERSARY: Each anniversary of the policy date. POLICY DATE: The policy date as shown on the schedule page of the policy. It is the date from which we measure policy years and policy anniversaries. POLICY MONTH: The period from one monthly calculation day up to, but not including, the next monthly calculation day. POLICYOWNER (OWNER, YOU, YOUR): The person(s) who purchase(s) a policy. POLICY VALUE: The sum of a policy's share in the values of each subaccount of the Account plus the policy's share in the values of the Guaranteed Interest Account. G-1 POLICY YEAR: The first policy year is the 1-year period from the policy date up to, but not including, the first policy anniversary. Each succeeding policy year is the 1-year period from the policy anniversary up to, but not including, the next policy anniversary. PROPORTIONATE (PRO RATA): Amounts allocated to subaccounts on a pro rata basis are allocated by increasing or decreasing a policy's share in the value of the affected subaccounts and the Guaranteed Interest Account so that such shares maintain the same ratio to each other before and after the allocation. SERIES: A separate investment portfolio of a fund. SUBACCOUNTS: Accounts within the Account to which nonloaned assets under a policy are allocated. SURRENDER VALUE: The cash value less any indebtedness under the policy. TARGET FACE AMOUNT: The target face amount as shown in the schedule pages of the policy or as later changed in accordance with the partial surrender provision. UNIT: A standard of measurement used to set the value of a policy. The value of a unit for each subaccount will reflect the investment performance of that subaccount and will vary in dollar amount. VALUATION DATE: For any subaccount, each date on which we calculate the net asset value of the fund is determined. VALUATION PERIOD: For any subaccount, the period in days from the end of one valuation date through the next. VPMO: The Variable Products Mail Operation Division of Phoenix that receives and processes incoming mail for Variable Universal and Life Administration. VULA: Variable and Universal Life Administration. G-2 [VERSION B] THE PHOENIX EDGE(R)-SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT ISSUED BY: PHOENIX LIFE INSURANCE COMPANY PROSPECTUS MAY 1, 2002 This prospectus describes a modified single premium variable life insurance policy. The policy provides lifetime insurance protection for as long as it remains in force. You may allocate premiums and policy value to the Guaranteed Interest Account and/or one or more of the subaccounts of the Phoenix Life Variable Universal Life Account (the "Account"). The subaccounts purchase, at net asset value, shares of the following funds: THE PHOENIX EDGE SERIES FUND - ---------------------------- [diamond] Phoenix-Aberdeen International Series [diamond] Phoenix-Aberdeen New Asia Series [diamond] Phoenix-AIM Mid-Cap Equity Series [diamond] Phoenix-Alliance/Bernstein Growth + Value Series [diamond] Phoenix-Deutsche Dow 30 Series [diamond] Phoenix-Deutsche Nasdaq-100 Index(R) Series [diamond] Phoenix-Duff & Phelps Real Estate Securities Series [diamond] Phoenix-Engemann Capital Growth Series [diamond] Phoenix-Engemann Small & Mid-Cap Growth Series [diamond] Phoenix-Federated U.S. Government Bond Series(1) [diamond] Phoenix-Goodwin Money Market Series [diamond] Phoenix-Goodwin Multi-Sector Fixed Income Series [diamond] Phoenix-Hollister Value Equity Series [diamond] Phoenix-J.P. Morgan Research Enhanced Index Series [diamond] Phoenix-Janus Flexible Income Series [diamond] Phoenix-Janus Growth Series [diamond] Phoenix-MFS Investors Growth Stock Series [diamond] Phoenix-MFS Investors Trust Series [diamond] Phoenix-MFS Value Series [diamond] Phoenix-Oakhurst Growth and Income Series [diamond] Phoenix-Oakhurst Strategic Allocation Series [diamond] Phoenix-Sanford Bernstein Global Value Series [diamond] Phoenix-Sanford Bernstein Mid-Cap Value Series [diamond] Phoenix-Sanford Bernstein Small-Cap Value Series [diamond] Phoenix-Seneca Mid-Cap Growth Series [diamond] Phoenix-Seneca Strategic Theme Series [diamond] Phoenix-Van Kampen Focus Equity Series (formerly, Phoenix-Morgan Stanley Focus Equity Series) AIM VARIABLE INSURANCE FUNDS - ---------------------------- [diamond] AIM V.I. Capital Appreciation Fund [diamond] AIM V.I. Premier Equity Fund (formerly, AIM V.I. Value Fund) THE ALGER AMERICAN FUND - ---------------------- [diamond] Alger American Leveraged AllCap Portfolio FEDERATED INSURANCE SERIES - -------------------------- [diamond] Federated Fund for U.S. Government Securities II [diamond] Federated High Income Bond Fund II FIDELITY(R) VARIABLE INSURANCE PRODUCTS - --------------------------------------- [diamond] VIP Contrafund(R) Portfolio [diamond] VIP Growth Opportunities Portfolio [diamond] VIP Growth Portfolio FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST - CLASS 2 - -------------------------------------------------------------- [diamond] Mutual Shares Securities Fund [diamond] Templeton Developing Markets Securities (1) [diamond] Templeton Foreign Securities Fund (formerly, Templeton International Securities Fund) [diamond] Templeton Global Asset Allocation Fund (formerly, Templeton Asset Strategy Fund) (1) [diamond] Templeton Growth Securities Fund SCUDDER VIT FUNDS - ----------------- [diamond] Scudder VIT EAFE(R) Equity Index Fund (formerly, Deutsche VIT EAFE(R) Equity Index Fund) [diamond] Scudder VIT Equity 500 Index Fund (formerly, Deutsche VIT Equity 500 Index Fund) THE UNIVERSAL INSTITUTIONAL FUNDS, INC. - --------------------------------------- [diamond] Technology Portfolio WANGER ADVISORS TRUST - --------------------- [diamond] Wanger Foreign Forty [diamond] Wanger International Small Cap [diamond] Wanger Twenty [diamond] Wanger U.S. Smaller Companies (formerly, Wanger U.S. Small Cap) (1) Not available for new investors IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT US AT:[envelope] PHOENIX VARIABLE PRODUCTS MAIL OPERATIONS ("VPMO") PO Box 8027 Boston, MA 02266-8027 [telephone] Variable and Universal Life Administration ("VULA") 800/541-0171 1 This policy will usually be a modified endowment contract. Any loan, surrender or withdrawal may be subject to income tax and a 10% penalty. 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 may result in any income taxes. The policy is not a deposit nor an 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 ("SEC") has not approved or disapproved these securities, nor passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. Read and keep this prospectus for future reference. 2 TABLE OF CONTENTS Heading Page - ------------------------------------------------------------- PART I--GENERAL POLICY PROVISIONS....................... 5 SUMMARY ........................................... 5 Overview....................................... 5 Underwriting................................... 5 Charges Under the Policy....................... 5 Policy Value Charges........................... 5 Administrative Charge...................... 6 Cost of Insurance Charge................... 6 Tax Charge................................. 6 Mortality and Expense Risk Charge.......... 6 Rider Charge............................... 6 Surrender Charges.......................... 6 Other Charges.................................. 6 Loan Interest Rate Charged................. 6 Charges for Federal Income Taxes........... 6 Fund Charges............................... 6 Reduction in Charges....................... 10 PHOENIX AND THE ACCOUNT............................ 10 Phoenix........................................ 10 The Account.................................... 10 PERFORMANCE HISTORY................................ 10 INVESTMENTS OF THE ACCOUNT......................... 10 Participating Investment Funds................. 10 Investment Advisors............................ 13 Services of the Advisors....................... 14 Reinvestment and Redemption.................... 14 Substitution of Investments.................... 14 The Guaranteed Interest Account................ 14 PREMIUMS........................................... 15 Minimum Premiums............................... 15 Allocation of Issue Premium.................... 15 Free Look Period............................... 15 Transfers...................................... 15 Optional Programs and Additional Benefits...... 16 Dollar Cost Averaging Program.............. 16 Automatic Asset Rebalancing.................... 16 Additional Rider Benefits...................... 16 Living Benefits............................ 16 Account Valuation Procedures................... 16 Valuation Date............................. 16 Valuation Period........................... 16 Determination of Unit Values............... 16 Net Investment Factor...................... 17 Death Benefit.................................. 17 General.................................... 17 Surrenders..................................... 17 General.................................... 17 Free Withdrawals........................... 17 Full Surrenders............................ 17 Partial Surrenders......................... 17 Partial Surrender: Effect on Death Benefit............................. 18 Policy Loans................................... 18 Source of Loan............................. 18 Interest Charged on Loans.................. 18 Interest Credited to the Loan Account and Preferred Loans....................... 18 Repayment.................................. 18 Effect of Loan............................. 18 Lapse.......................................... 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..................... 19 Surplus........................................ 19 PAYMENT OF PROCEEDS................................ 20 Surrender and Death Benefit Proceeds........... 20 Payment Options................................ 20 PART III--OTHER IMPORTANT INFORMATION................... 21 FEDERAL INCOME TAX CONSIDERATIONS.................. 21 Introduction................................... 21 Phoenix's Income Tax Status.................... 21 Policy Benefits................................ 21 Death Benefit Proceeds..................... 21 Full Surrender............................. 21 Partial Surrender.......................... 21 Loans...................................... 22 Business-Owned Policies........................ 22 Modified Endowment Contracts................... 22 General.................................... 22 Reduction in Benefits During the First 7 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 ACCOUNT'S ASSETS ............... 26 SALES OF POLICIES ................................. 26 STATE REGULATION .................................. 26 3 REPORTS ........................................... 27 LEGAL PROCEEDINGS ................................. 27 LEGAL MATTERS ..................................... 27 REGISTRATION STATEMENT ............................ 27 FINANCIAL STATEMENTS .............................. 27 PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT FINANCIAL STATEMENTS, DECEMBER 31, 2001 ............................. SA-1 PHOENIX LIFE INSURANCE COMPANY, FINANCIAL STATEMENTS, DECEMBER 31, 2001............................. F-1 APPENDIX A - PERFORMANCE HISTORY .................. A-1 APPENDIX B - GLOSSARY OF SPECIAL TERMS ............ B-1 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 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 Life 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 Appendix B--Glossary of Special Terms: ACCOUNT PAYMENT DATE ATTAINED AGE POLICY ANNIVERSARY BENEFICIARY POLICY DATE CODE POLICY VALUE COMPANY POLICY YEAR DEBT SERIES GENERAL ACCOUNT SUBACCOUNTS ISSUE PREMIUM VALUATION DATE LOAN ACCOUNT VALUATION PERIOD MONTHLY CALCULATION DAY VPMO NET ASSET VALUE VULA If there is ever a difference between the provisions within this prospectus and the provisions of the policy, the policy provisions will prevail. OVERVIEW The policy is available on an individual basis and provides a death benefit that is generally free of federal income tax. Growth in your policy value is tax deferred. Purchase of a policy may be appropriate if you want to provide for a death benefit or to help meet long-term financial needs. If you plan to withdraw money from the policy on a short-term basis it may not be a suitable purchase for you. As a modified single premium variable life insurance policy, you will have limited ability to make additional premium payments beyond the initial payment. Also, for federal tax income purposes most modified single premium life insurance policies are considered modified endowment contracts meaning that any surrender, withdrawal, loan, pledge or assignment is treated as a distribution, and may be subject to income tax and a 10% penalty. As a variable contract, your policy value is not guaranteed, but is contingent upon the performance of the investment options you select and, as life insurance, offers a death benefit to the beneficiary you select. Policies are issued as either Standard (smoker) or Advantage (nonsmoker) classification. The insured at the time of issue generally must be between the ages of 30 and 85 as of his or her last birthday. The minimum premium is $10,000. You can purchase a policy to insure the life of another person provided that you have an insurable interest in that person's life and the prospective insured consents. UNDERWRITING Underwriting is generally on a simplified basis, meaning that if you answer a series of questions favorably, and if your age and single premium fall within limits, then the policy will be issued. No additional medical information or tests will be necessary. In some instances, depending on how you answer these questions, you may be subject to additional underwriting. 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 in Chart 1 in this section. POLICY VALUE CHARGES On each monthly calculation day, we deduct the following charges from your policy value: 1. administrative charge 2. cost of insurance charge 3. tax charge 4. mortality and expense risk charge 5. a charge for the cost of riders if applicable Unless otherwise noted, the amount deducted is allocated among the subaccounts, the Guaranteed Interest Account and the Loan Account, based on an allocation schedule specified by you. You initially select this schedule in your application. 5 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 of services such as billing and collections, monthly processing, updating daily values and communicating with policyholders. This charge is not assessed against assets held in the Loan Account. 2. COST OF INSURANCE CHARGE We deduct a charge to cover the cost of insurance coverage on each monthly calculation day. The maximum 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. To determine the maximum monthly cost of insurance, we multiply the appropriate cost of insurance rate as shown in your policy, 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. TAX CHARGE States assess premium taxes at various rates, ranging from 0% to 3.5%. The deferred acquisition cost ("DAC" tax) is associated with our federal tax liability under Internal Revenue Code Section 848. We pay the cost up front and recoup the cost over the first 10 policy years. 4. MORTALITY AND EXPENSE RISK CHARGE We charge the subaccounts and the Guaranteed Interest Account 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. This charge is not assessed against assets held in the Loan Account. 5. RIDER CHARGE We will deduct any applicable monthly rider charges for any additional benefit provided to you by rider. SURRENDER CHARGES A deduction for surrender charges for this policy may be taken from proceeds of partial withdrawals from, or complete surrender of the policy. The amount of a surrender charge (if any) depends on whether your payment was held under the policy for a certain period of time. The surrender charge schedule is shown in the chart below. Once each policy year, you may withdraw an amount equal to the greater of your penalty free earnings on the policy and 10% of the single premium without the imposition of a surrender charge. (See "Surrenders--Free Withdrawals" for more detail.) The deduction for surrender charges is expressed as a percentage of the single premium in excess of the free allowable amount, is as follows: - -------------------------------------------------------------- Percentage 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% - -------------------------------------------------------------- Policy Year 1 2 3 4 5 6 7 8 9 10+ - -------------------------------------------------------------- If surrender charges received by Phoenix do not fully reimburse the Company for distribution expenses, profit from other sources, including the mortality and expense risk charge, may be used to cover the shortfall. OTHER CHARGES LOAN INTEREST RATE CHARGED This charge reimburses us for expenses we incur in administering your loan. This rate varies by policy year. CHARGES FOR FEDERAL INCOME TAXES We currently do not charge the Account for federal income taxes attributable to it. In the future, we may charge to cover these taxes or any other tax liability of the Account. FUND CHARGES As compensation for investment management services, the advisors are entitled to a fee, payable monthly and based on an annual percentage of the average daily net asset values of each fund series. Please refer to Chart 2 for a listing of fund charges including the investment management fee. 6 CHARGES UNDER THE POLICY (CHART 1)
- --------------------------------------------------------------------------------------------------------------------------------- CHARGES CURRENT AMOUNT OF DEDUCTION WHEN CHARGE IS DEDUCTED - --------------------------------------------------------------------------------------------------------------------------------- DEDUCTIONS None Not applicable FROM PREMIUMS - ----------------------- ------------------------- --------------------------------------- --------------------------------------- CHARGES AGAINST ADMINISTRATIVE CHARGE* Policies with policy value of Monthly POLICY VALUE $100,000 or less: Greater of $60 or 0.30% of unloaned policy value annually Policies with unloaned policy value exceeding $100,000: 0.15% of unloaned policy value ------------------------- --------------------------------------- --------------------------------------- MAXIMUM COST OF A per thousand rate multiplied by the Monthly INSURANCE CHARGE amount at risk each month. This charge varies by the Insured's issue age, policy duration, gender and underwriting class. ------------------------- --------------------------------------- --------------------------------------- TAX CHARGE 0.40% of policy value annually in Monthly policy years 1-10 0.00% of policy value annually in policy years 11+ ------------------------- --------------------------------------- --------------------------------------- SURRENDER CHARGES The surrender charge is equal to the Upon full or partial surrender of the following percentages of the single policy. premium paid: Year 1 2 3 4 5 6 7 8 9 10+ % 9 8 7 6 5 4 3 2 1 0 ------------------------- --------------------------------------- --------------------------------------- MORTALITY AND EXPENSE 0.80% of policy value annually in Monthly RISK CHARGE* unloaned policy years 1-10 0.50% of policy value annually in unloaned policy years 11+ - ----------------------- ------------------------- --------------------------------------- --------------------------------------- OTHER CHARGES FUND CHARGES See fund charge table See fund prospectus ------------------------- --------------------------------------- --------------------------------------- TRANSFERS BETWEEN In the future, we may charge $10 per In the future, we may charge $10 per SUBACCOUNTS transfer for more than 2 transfers transfer for more than 2 per policy year. transfers per policy year. ------------------------- --------------------------------------- --------------------------------------- LOAN INTEREST RATE 6.00% annually in policy year 1 On policy anniversary date or on CHARGED surrender of the policy. 8.00% annually in policy years 2 + - ---------------------------------------------------------------------------------------------------------------------------------
- ----------------------------- * Charge applies to all accounts (subaccounts and Guaranteed Interest Account) with the exception of the Loan Account. 7
ANNUAL FUND EXPENSES (AS A PERCENTAGE OF FUND AVERAGE NET ASSETS FOR THE YEAR ENDED 12/31/01) - ----------------------------------------------------------------------------------------------------------------------------------- OTHER OTHER OPERATING TOTAL ANNUAL OPERATING TOTAL ANNUAL INVESTMENT RULE EXPENSES FUND EXPENSES EXPENSES FUND EXPENSES MANAGEMENT 12B-1 BEFORE BEFORE AFTER AFTER SERIES FEE FEES REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT - ----------------------------------------------------------------------------------------------------------------------------------- THE PHOENIX EDGE SERIES FUND - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Aberdeen International (5) 0.75% N/A 0.27% 1.02% 0.27% 1.02% Phoenix-Aberdeen New Asia (4) 1.00% N/A 1.41% 2.41% 0.25% 1.25% Phoenix-AIM Mid-Cap Equity (2, 7) 0.85% N/A 6.28% 7.13% 0.20% 1.05% Phoenix-Alliance/Bernstein Growth + Value (2, 7) 0.85% N/A 7.08% 7.93% 0.20% 1.05% Phoenix-Deutsche Dow 30 (2, 6) 0.35% N/A 0.77% 1.12% 0.15% 0.50% Phoenix-Deutsche Nasdaq-100 Index(R) (2, 6) 0.35% N/A 2.00% 2.35% 0.15% 0.50% Phoenix-Duff & Phelps Real Estate Securities (4, 6) 0.75% N/A 0.41% 1.16% 0.25% 1.00% Phoenix-Engemann Capital Growth (2, 6) 0.63% N/A 0.09% 0.72% 0.09% 0.72% Phoenix-Engemann Small & Mid-Cap Growth (4, 6) 0.90% N/A 1.23% 2.13% 0.25% 1.15% Phoenix-Federated U.S. Government Bond (3, 8) 0.60% N/A 0.86% 1.46% 0.24% 0.84% Phoenix-Goodwin Money Market (2, 6) 0.40% N/A 0.20% 0.60% 0.15% 0.55% Phoenix-Goodwin Multi-Sector Fixed Income (2, 6) 0.50% N/A 0.21% 0.71% 0.15% 0.65% Phoenix-Hollister Value Equity (2, 6) 0.70% N/A 0.30% 1.00% 0.15% 0.85% Phoenix-J.P. Morgan Research Enhanced Index (1, 6) 0.45% N/A 0.25% 0.70% 0.10% 0.55% Phoenix-Janus Flexible Income (2, 6) 0.80% N/A 0.71% 1.51% 0.15% 0.95% Phoenix-Janus Growth (2, 6) 0.85% N/A 0.34% 1.19% 0.15% 1.00% Phoenix-MFS Investors Growth Stock (2, 6, 7) 0.75% N/A 6.13% 6.88% 0.20% 0.95% Phoenix-MFS Investors Trust (2, 6, 7) 0.75% N/A 6.59% 7.34% 0.20% 0.95% Phoenix-MFS Value (2, 6, 7) 0.75% N/A 5.68% 6.43% 0.20% 0.95% Phoenix-Oakhurst Growth & Income (2, 6) 0.70% N/A 0.23% 0.93% 0.15% 0.85% Phoenix-Oakhurst Strategic Allocation (2, 6) 0.58% N/A 0.13% 0.71% 0.13% 0.71% Phoenix-Sanford Bernstein Global Value (2) 0.90% N/A 1.90% 2.80% 0.15% 1.05% Phoenix-Sanford Bernstein Mid-Cap Value (2, 6) 1.05% N/A 0.49% 1.54% 0.15% 1.20% Phoenix-Sanford Bernstein Small-Cap Value (2, 6) 1.05% N/A 1.28% 2.33% 0.15% 1.20% Phoenix-Seneca Mid-Cap Growth (4, 6) 0.80% N/A 0.30% 1.10% 0.25% 1.05% Phoenix-Seneca Strategic Theme (4, 6) 0.75% N/A 0.21% 0.96% 0.21% 0.96% Phoenix-Van Kampen Focus Equity (2, 6) 0.85% N/A 2.33% 3.18% 0.15% 1.00% - ----------------------------------------------------------------------------------------------------------------------------------- (1) The advisor has voluntarily agreed to reimburse the series' expenses other than the management fees to the extent such expenses exceed .20% of the series' average net assets. (2) The advisor has voluntarily agreed to reimburse the series' expenses other than the management fees to the extent such expenses exceed .25% of the series' average net assets. (3) The advisor has voluntarily agreed to reimburse the series' expenses other than the management fees to the extent such expenses exceed .30% of the series' average net assets. (4) The advisor has voluntarily agreed to reimburse the series' expenses other than the management fees to the extent such expenses exceed .35% of the series' average net assets. (5) The advisor has voluntarily agreed to reimburse the series' expenses other than the management fees to the extent such expenses exceed .40% of the series' average net assets. (6) Total annual fund expenses (after reimbursement) excludes offsets for custodian fees. If the offsets were included, total annual fund expenses would not change significantly. (7) This series has been in existence for less than 1 year; therefore, the expense number has been annualized and may include start-up expenses. (8) Actual total annual fund expenses (after reimbursement and offsets for custodian fees) were 0.82% for the year ended December 31, 2001. Note: each or all of the expense caps noted above may be altered or eliminated at any time without notice.
8
ANNUAL FUND EXPENSES (AS A PERCENTAGE OF FUND AVERAGE NET ASSETS FOR THE YEAR ENDED 12/31/01) - ------------------------------------------------------------------------------------------------------------------------------------ OTHER OTHER OPERATING TOTAL ANNUAL OPERATING TOTAL ANNUAL INVESTMENT RULE EXPENSES FUND EXPENSES EXPENSES FUND EXPENSES MANAGEMENT 12B-1 BEFORE BEFORE AFTER AFTER SERIES FEE FEES(5) REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT REIMBURSEMENT - ----------------------------------------------------------------------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS - SERIES I SHARES - ----------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 0.61% N/A 0.24% 0.85% 0.24% 0.85% AIM V.I. Premier Equity Fund 0.60% N/A 0.25% 0.85% 0.25% 0.85% THE ALGER AMERICAN FUND - ------------------------------------------------------------------------------------------------------------------------------------ Alger American Leveraged AllCap Portfolio 0.85% N/A 0.07% 0.92% 0.07% 0.92% FEDERATED INSURANCE SERIES - ------------------------------------------------------------------------------------------------------------------------------------ Federated Fund for U.S. Government Securities II 0.60% N/A 0.14% 0.74% 0.14% 0.74% Federated High Income Bond Fund II 0.60% N/A 0.16% 0.76% 0.16% 0.76% FIDELITY(R) VARIABLE INSURANCE PRODUCTS -- SERVICE CLASS - ------------------------------------------------------------------------------------------------------------------------------------ VIP Contrafund(R) Portfolio (6) 0.58% 0.10% 0.10% 0.78% 0.10% 0.78% VIP Growth Opportunities Portfolio (6) 0.58% 0.10% 0.11% 0.79% 0.11% 0.79% VIP Growth Portfolio (6) 0.58% 0.10% 0.10% 0.78% 0.10% 0.78% FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- CLASS 2 - ------------------------------------------------------------------------------------------------------------------------------------ Mutual Shares Securities Fund 0.60% 0.25% 0.19% 1.04% 0.19% 1.04% Templeton Developing Markets Securities Fund 1.25% 0.25% 0.32% 1.82% 0.32% 1.82% Templeton Foreign Securities Fund (8) 0.69% 0.25% 0.22% 1.16% 0.22% 1.15% Templeton Global Asset Allocation Fund 0.61% 0.25% 0.20% 1.06% 0.20% 1.06% Templeton Growth Securities Fund (1) 0.80% 0.25% 0.05% 1.10% 0.05% 1.10% SCUDDER VIT FUNDS - ------------------------------------------------------------------------------------------------------------------------------------ Scudder VIT EAF(R) Equity Index Fund (9) 0.45% N/A 0.36% 0.81% 0.20% 0.65% Scudder VIT Equity 500 Index Fund (9) 0.20% N/A 0.11% 0.31% 0.10% 0.30% THE UNIVERSAL INSTITUTIONAL FUNDS, INC. - ------------------------------------------------------------------------------------------------------------------------------------ Technology Portfolio (7) 0.80% N/A 0.51% 1.31% 0.35% 1.15% WANGER ADVISORS TRUST - ------------------------------------------------------------------------------------------------------------------------------------ Wanger Foreign Forty (2) 1.00% N/A 0.45% 1.45% 0.45% 1.45% Wanger International Small Cap (3) 1.20% N/A 0.23% 1.43% 0.23% 1.43% Wanger Twenty (1) 0.95% N/A 0.38% 1.33% 0.38% 1.33% Wanger U.S. Smaller Companies (4) 0.95% N/A 0.04% 0.99% 0.04% 0.99% - ------------------------------------------------------------------------------------------------------------------------------------ (1) This fund pays a portion or all of its expenses other than the management fee up to 0.40%. (2) This fund pays a portion or all of its expenses other than the management fee up to 0.45%. (3) This fund pays a portion or all of its expenses other than the management fee up to 0.60%. (4) This fund pays a portion or all of its expenses other than the management fee up to 1.00%. (5) The fund's Rule 12b-1 Plan, if applicable, is described in the fund's prospectus. (6) Actual annual class operating expenses were lower because a portion of the brokerage commissions that the fund paid was used to reduce the fund's expenses. In addition, through arrangements with the fund's custodian, credits realized as a result of uninvested cash balances are used to reduce a portion of the fund's custodian expenses. These offsets may be discontinued at any time. (7) The advisor has voluntarily agreed to reduce the investment management fee if the total operating expenses should exceed 1.15%. (8) The advisor had agreed make an estimated reduction of 0.01% of its fee to reflect reduced services resulting from the fund's investment in a Franklin Templeton money fund. This reduction is required by the fund's Board of Trustees and an order of the SEC. For the year ended December 31, 2001, the investment management fee was reduced to 0.68%. (9) The advisor has voluntarily agreed to waive a portion of its management fee and reimburse certain expenses. These waivers and reimbursements may be discontinued at any time. (10) The fund administration fee is paid indirectly through the management fee.
9 REDUCTION IN CHARGES The policy is available for purchase by individuals and groups. We may reduce or eliminate the mortality and expense risk charge, monthly administrative charge, monthly cost of insurance charges, surrender charges or other charges normally assessed where it is expected that the size or nature of such policy or policies 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: [diamond] the number of insureds; [diamond] the total premium expected to be paid; [diamond] the total assets under management for the policyowner; [diamond] the nature of the relationship among individual insureds; [diamond] the purpose for which the policies are being purchased; [diamond] whether there is a preexisting relationship with us, such as being an employee of Phoenix or its affiliates and their spouses; or to employees or agents who retire from Phoenix or its affiliates or Phoenix Equity Planning Corporation ("PEPCO"), or its affiliates or to registered representatives of the principal underwriter and registered representatives of broker dealers with whom PEPCO has selling agreements; [diamond] internal transfers from other policies or contracts issued by the Company or an affiliate, or making transfers of amounts held under qualified plans sponsored by the Company or an affiliate; and [diamond] 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 AND THE ACCOUNT - -------------------------------------------------------------------------------- PHOENIX On June 25, 2001, Phoenix Home Life Mutual Insurance Company (a New York mutual life insurance company, originally chartered in Connecticut in 1851 and redomiciled to New York in 1992) converted to a stock life insurance company by "demutualizing" pursuant to a plan of reorganization approved by the New York Superintendent of Insurance and changed its name to Phoenix Life Insurance Company ("Phoenix"). As part of the demutualization, Phoenix became a wholly-owned subsidiary of The Phoenix Companies, Inc., a newly-formed, publicly-traded Delaware corporation. 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 life insurance policies and annuity contracts through producers of affiliated distribution companies and through brokers. THE ACCOUNT The 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 Account or Phoenix by the SEC. The 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 Account--Participating Investment Funds." We do not guarantee the investment performance of the Account or any of its subaccounts. Contributions to the overall policy value allocated to the Account depend on the chosen series' investment performance. Thus, you bear the full investment risk for all monies invested in the Account. The Account is part of the general business of Phoenix, but the gains or losses of the Account belong solely to the Account. The gains or losses of any other business we may conduct do not affect the Account. Under New York law, the assets of the 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 subaccounts in advertisements, sales literature or reports. Performance information about each subaccount is based on past performance only and is not an indication of future performance. See "Appendix A--Performance History" for more information. INVESTMENTS OF THE ACCOUNT - -------------------------------------------------------------------------------- PARTICIPATING INVESTMENT FUNDS THE PHOENIX EDGE SERIES FUND The following subaccounts invest in corresponding series of The Phoenix Edge Series Fund: PHOENIX-ABERDEEN INTERNATIONAL SERIES: The investment objective of the series is to seek a high total return consistent with reasonable risk. 10 PHOENIX-ABERDEEN NEW ASIA SERIES: The series seeks long-term capital appreciation. PHOENIX-AIM MID-CAP EQUITY SERIES: The investment objective of the series is to seek long-term growth of capital. PHOENIX-ALLIANCE/BERNSTEIN GROWTH + VALUE SERIES: The investment objective of the series is long-term capital growth. PHOENIX-DEUTSCHE DOW 30 SERIES: The series seeks to track the total return of the Dow Jones Industrial Average(SM) before fund expenses. PHOENIX-DEUTSCHE NASDAQ-100 INDEX(R) SERIES: This non-diversified series seeks to track the total return of the Nasdaq-100 Index(R) 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. 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. PHOENIX-ENGEMANN SMALL & MID-CAP GROWTH SERIES: The series seeks to achieve its objective of long-term growth of capital. PHOENIX-FEDERATED U.S. GOVERNMENT BOND SERIES: The series seeks to maximize total return. As of February 16, 2001, this series is closed to new investors. Existing investors may continue to allocate payments to this series or any other series offered. PHOENIX-GOODWIN MONEY MARKET SERIES: The investment objective of the series is to provide maximum current income consistent with capital preservation and liquidity. PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES: The series seeks long-term total return. PHOENIX-HOLLISTER VALUE EQUITY SERIES: The primary investment objective of the series is long-term capital appreciation and a secondary investment objective of current income. PHOENIX-J.P. MORGAN RESEARCH ENHANCED INDEX SERIES: The investment objective of the series is to seek high total return. 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-MFS INVESTORS GROWTH STOCK SERIES: The series seeks long-term growth of capital and future income rather than current income. PHOENIX-MFS INVESTORS TRUST SERIES: The series seeks long-term growth of capital and secondarily to provide reasonable current income. PHOENIX-MFS VALUE SERIES: The series seeks capital appreciation and reasonable income. PHOENIX-OAKHURST GROWTH AND INCOME SERIES: The investment objective of the series is to seek dividend growth, current income and capital appreciation. 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. PHOENIX-SANFORD BERNSTEIN GLOBAL VALUE SERIES: The series seeks long-term capital appreciation. PHOENIX-SANFORD BERNSTEIN MID-CAP VALUE SERIES: The primary investment objective of the series is to seek long-term capital appreciation, with current income as the secondary investment objective. PHOENIX-SANFORD BERNSTEIN SMALL-CAP VALUE SERIES: The series seeks long-term capital appreciation. PHOENIX-SENECA MID-CAP GROWTH SERIES: The investment objective of the series is to seek capital appreciation. PHOENIX-SENECA STRATEGIC THEME SERIES: The investment objective of the series is to seek long-term appreciation of capital. PHOENIX-VAN KAMPEN FOCUS EQUITY SERIES: The investment objective of the series is to seek capital appreciation. AIM VARIABLE INSURANCE FUNDS The following subaccounts invest in a corresponding fund of the AIM Variable Insurance Funds: AIM V.I. CAPITAL APPRECIATION FUND: The investment objective of the fund is growth of capital. AIM V.I. PREMIER EQUITY FUND: The investment objective is to achieve long-term growth of capital with income as a secondary investment objective. THE ALGER AMERICAN FUND The following subaccount invests in the corresponding portfolio of The Alger American Fund: ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO: The investment objective of the portfolio is long-term capital appreciation. FEDERATED INSURANCE SERIES The following subaccounts invest in a corresponding fund of the Federated Insurance Series: 11 FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II: The investment objective of the fund is to seek current income. FEDERATED HIGH INCOME BOND FUND II: The investment objective of the fund is to seek high current income. FIDELITY(R) VARIABLE INSURANCE PRODUCTS The following subaccounts invest in corresponding portfolios of the Fidelity(R) Variable Insurance Products: VIP CONTRAFUND(R) PORTFOLIO: The investment objective of the portfolio is to seek long-term capital appreciation. VIP GROWTH OPPORTUNITIES PORTFOLIO: The investment objective of the portfolio is to seek to provide capital growth. VIP GROWTH PORTFOLIO: The investment objective of the portfolio is to seek to achieve long-term capital appreciation. FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST The following subaccounts invest in Class 2 shares of the corresponding funds of the Franklin Templeton Variable Insurance Products Trust: MUTUAL SHARES SECURITIES FUND: The primary investment objective of the fund is capital appreciation with income as a secondary objective. TEMPLETON DEVELOPING MARKETS SECURITIES FUND: The investment objective of the fund is long-term capital appreciation. As of October 29, 2001, this fund is closed to new investors. Existing investors may continue to allocate payments to this fund or to any other funds offered. TEMPLETON FOREIGN SECURITIES FUND: The investment objective of the fund is long-term capital growth. TEMPLETON GLOBAL ASSET ALLOCATION FUND: The investment objective of the fund is a high level of total return. As of October 29, 2001, this fund is closed to new investors. Existing investors may continue to allocate payments to this fund or to any other funds offered. TEMPLETON GROWTH SECURITIES FUND: The investment objective of the fund is long-term capital growth. SCUDDER VIT FUNDS The following subaccounts invest in a corresponding fund of Scudder VIT Funds: SCUDDER VIT EAFE(R) EQUITY INDEX FUND: The fund seeks to match the performance of the Morgan Stanley Capital International EAFE(R) Index. SCUDDER VIT EQUITY 500 INDEX FUND: The fund seeks to replicate as closely as possible, the performance of the Standard & Poor's 500 Composite Stock Price Index. THE UNIVERSAL INSTITUTIONAL FUNDS, INC. The following subaccount invests in a corresponding portfolio of The Universal Institutional Funds, Inc.: TECHNOLOGY PORTFOLIO: The investment objective of the portfolio is to seek long-term capital appreciation. WANGER ADVISORS TRUST The following subaccounts invest in corresponding series of the Wanger Advisors Trust: WANGER FOREIGN FORTY: The investment objective of the series is to seek long-term capital growth. WANGER INTERNATIONAL SMALL CAP: The investment objective of the series is to seek long-term capital growth. WANGER TWENTY: The investment objective of the series is to seek long-term capital growth. WANGER U.S. SMALLER COMPANIES: The investment objective of the series is to seek long-term capital growth. 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. Each fund's prospectus contains important additional information, which you should read carefully before investing. Contact VULA at the address and telephone number on page 1 to obtain copies of the funds' prospectuses. In addition to being sold to the Account, shares of the funds also may be sold to other separate accounts of Phoenix or its affiliates or to the separate accounts of other insurance companies. It is possible that in the future it may be disadvantageous for variable life insurance separate accounts and variable annuity separate accounts to invest in the fund(s) simultaneously. Although neither we nor the fund(s) trustees currently foresee any such disadvantages either to variable life insurance policyowners or to variable annuity contract owners, the funds' trustees intend to monitor events in order to identify any material conflicts between variable life insurance policyowners and variable annuity contract owners and to determine what action, if any, should be taken in response to such conflicts. Material conflicts could, for example, result from (1) changes in state insurance laws, (2) changes in federal income tax laws, (3) an administrative or judicial decision, (4) changes in the investment management of any portfolio of the fund(s), (5) differences in voting instructions between those given by variable life insurance policyowners and those given by variable annuity contract owners or (6) a Phoenix decision to disregard policy holders' or contract owners' voting instructions. We will, at our own expense, remedy such material conflicts, including, if necessary, segregating the assets underlying the variable life insurance policies and the variable annuity contracts and establishing a new registered investment company. 12 INVESTMENT ADVISORS The following are the investment advisors and subadvisors for the variable investment options: - ------------------------------------------------------------------ PHOENIX INVESTMENT COUNSEL, INC. ("PIC") - ------------------------------------------------------------------ Phoenix-Aberdeen International Series Phoenix-Engemann Capital Growth Series Phoenix-Engemann Small & Mid-Cap Growth Series Phoenix-Goodwin Money Market Series Phoenix-Goodwin Multi-Sector Fixed Income Series Phoenix-Hollister Value Equity Series Phoenix-Oakhurst Growth and Income Series Phoenix-Oakhurst Strategic Allocation Series Phoenix-Seneca Mid-Cap Growth Series Phoenix-Seneca Strategic Theme Series - ------------------------------------------------------------------ - ------------------------------------------------------------------ PIC SUBADVISORS - ------------------------------------------------------------------ Roger Engemann & Associates, Inc. ("Engemann") o Phoenix-Engemann Capital Growth Series o Phoenix-Engemann Small & Mid-Cap Growth Series Seneca Capital Management, LLC ("Seneca") o Phoenix-Seneca Mid-Cap Growth Series o Phoenix-Seneca Strategic Theme Series - ------------------------------------------------------------------ - ------------------------------------------------------------------ PHOENIX VARIABLE ADVISORS, INC. ("PVA") - ------------------------------------------------------------------ Phoenix-AIM Mid-Cap Equity Series Phoenix-Alliance/Bernstein Growth + Value Series Phoenix-Deutsche Dow 30 Series Phoenix-Deutsche Nasdaq-100 Index(R) Series Phoenix-Federated U.S. Government Bond Series Phoenix-J.P. Morgan Research Enhanced Index Series Phoenix-Janus Flexible Income Series Phoenix-Janus Growth Series Phoenix-MFS Investors Growth Stock Series Phoenix-MFS Investors Trust Series Phoenix-MFS Value Series Phoenix-Sanford Bernstein Global Value Series Phoenix-Sanford Bernstein Mid-Cap Value Series Phoenix-Sanford Bernstein Small-Cap Value Series Phoenix-Van Kampen Focus Equity Series - ------------------------------------------------------------------ - ------------------------------------------------------------------ PVA SUBADVISORS - ------------------------------------------------------------------ AIM Capital Management, Inc. o Phoenix-AIM Mid-Cap Equity Series Alliance Capital Management, L.P. o Phoenix-Alliance/Bernstein Growth + Value Series o Phoenix-Sanford Bernstein Global Value Series o Phoenix-Sanford Bernstein Mid-Cap Value Series o Phoenix-Sanford Bernstein Small-Cap Value Series Deutsche Asset Management o Phoenix-Deutsche Dow 30 Series o Phoenix-Deutsche Nasdaq-100 Index(R) Series Federated Investment Management Company o Phoenix-Federated U.S. Government Bond Series J.P. Morgan Investment Management, Inc. o Phoenix-J.P. Morgan Research Enhanced Index Series Janus Capital Corporation o Phoenix-Janus Flexible Income Series o Phoenix-Janus Growth Series MFS Investment Management o Phoenix-MFS Investors Growth Stock Series o Phoenix-MFS Investors Trust Series o Phoenix-MFS Value Series Morgan Stanley Asset Management o Phoenix-Van Kampen Focus Equity Series - ------------------------------------------------------------------ - ------------------------------------------------------------------ DUFF & PHELPS INVESTMENT MANAGEMENT CO. ("DPIM") - ------------------------------------------------------------------ Phoenix-Duff & Phelps Real Estate Securities Series - ------------------------------------------------------------------ - ------------------------------------------------------------------ PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC ("PAIA") - ------------------------------------------------------------------ Phoenix-Aberdeen New Asia Series - ------------------------------------------------------------------ - ----------------------------------------------------------------- PAIA SUBADVISORS - ----------------------------------------------------------------- PIC Aberdeen Fund Managers, Inc. o Phoenix-Aberdeen New Asia Series - ----------------------------------------------------------------- Based on subadvisory agreements with the fund, PIC and PVA as investment advisors delegate certain investment decisions and research functions to subadvisors. PIC, DPIM and Engemann are indirect, wholly-owned subsidiaries of Phoenix Investment Partners, Ltd. ("PXP"). Seneca is a partially-owned subsidiary of PXP. PXP is an indirect, wholly-owned subsidiary of The Phoenix Companies, Inc., and is an affiliate of Phoenix and PHL Variable. PAIA is jointly owned and managed by PM Holdings, Inc., a wholly-owned subsidiary of Phoenix, and by Aberdeen Fund Managers, Inc. PVA is a wholly-owned subsidiary of PM Holdings, Inc. - ------------------------------------------------------------------ OTHER ADVISORS - ------------------------------------------------------------------ AIM Advisors, Inc. o AIM V.I. Capital Appreciation Fund o AIM V.I. Premier Equity Fund - ------------------------------------------------------------------ 13 - ------------------------------------------------------------------ OTHER ADVISORS - ------------------------------------------------------------------ Fred Alger Management, Inc. o Alger American Leveraged AllCap Portfolio - ------------------------------------------------------------------ Deutsche Asset Management o Scudder VIT EAFE(R) Equity Index Fund o Scudder VIT Equity 500 Index Fund - ------------------------------------------------------------------ Federated Investment Management Company o Federated Fund for U.S. Government Securities II o Federated High Income Bond Fund II - ------------------------------------------------------------------ Fidelity Management and Research Company o VIP Contrafund(R) Portfolio o VIP Growth Opportunities Portfolio o VIP Growth Portfolio - ------------------------------------------------------------------ Franklin Mutual Advisers, LLC o Mutual Shares Securities Fund - ------------------------------------------------------------------ Morgan Stanley Asset Management o Technology Portfolio - ------------------------------------------------------------------ Templeton Asset Management, Ltd. o Templeton Developing Markets Securities Fund - ------------------------------------------------------------------ Templeton Global Advisors Limited o Templeton Growth Securities Fund - ------------------------------------------------------------------ Templeton Investment Counsel, Inc. o Templeton Foreign Securities Fund o Templeton Global Asset Allocation Fund - ------------------------------------------------------------------ Wanger Asset Management, L.P. o Wanger Foreign Forty o Wanger International Small Cap o Wanger Twenty o Wanger U.S. Smaller Companies - ------------------------------------------------------------------ SERVICES OF THE ADVISORS The advisors continually furnish an investment program for each series and manage the investment and reinvestment of the assets of each series subject at all times to the authority and supervision of the Trustees. A detailed discussion of the investment advisors and subadvisors, and the investment advisory and subadvisory agreements, is contained in the fund prospectuses. REINVESTMENT AND REDEMPTION All dividend distributions of the funds are automatically reinvested in shares of the funds at their net asset value on the date of distribution. Likewise, any capital gains distributions of the funds 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 Account, subject to compliance with the law as currently applicable or as subsequently changed. We may establish additional subaccounts within the Account, each of which would invest in shares of a designated portfolio of a 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 a fund should no longer be available for investment or, if in the judgment of our management, further investment in shares of any of the portfolios become inappropriate due to policy objectives, we may then substitute shares of another mutual fund for shares already purchased, or to be purchased in the future. No substitution of mutual fund shares held by the 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 Account, you may allocate premiums or transfer values to the Guaranteed Interest Account ("GIA"). Amounts you allocate or transfer to the GIA become part of our general account assets. You do not share in the investment experience of those assets. Rather, we guarantee a minimum rate of return on the allocated amount, as provided under the terms of your product. Although we are not obligated to credit interest at a higher rate than the minimum, we will credit any excess interest as determined by us based on expected investment yield information. We reserve the right to limit total deposits to the GIA, including transfers, to no more than $250,000 during any one-week period per policy. You may make transfers into the GIA at any time. In general, you may 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. Also, the total value allocated to the GIA may be transferred out 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 remaining value [diamond] Year Three: 50% of remaining value [diamond] Year Four: 100% of remaining value Transfers from the GIA may also be subject to other rules as described throughout this prospectus. 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 14 disclosures. These disclosures may, however, be subject to certain provisions of the federal securities law regarding accuracy and completeness of statements made in this prospectus. PREMIUMS - -------------------------------------------------------------------------------- MINIMUM PREMIUMS The minimum premium is $10,000. The issue premium is due on the policy date. The insured must be alive when the issue premium is paid. After that, you have limited ability to make additional premium payments and each additional premium payment, if permitted, must be at least $100. Additional payments should be sent to: PHOENIX VARIABLE PRODUCTS MAIL OPERATIONS P O BOX 8027 BOSTON, MA 02266-8027 The number of units credited to a subaccount will be determined by dividing the portion of the premium applied to that subaccount by the unit value of the subaccount on the payment date. The payment date is the day we receive the premium payment, provided that the New York Stock Exchange is open, otherwise it will be the next valuation date. ALLOCATION OF ISSUE PREMIUM We will allocate the issue premium to the Account and/or the Guaranteed Interest Account in accordance with allocation instructions in the application upon our receipt of the completed application. FREE LOOK PERIOD You have the right to review the policy. If you are not satisfied with it, you may cancel the policy by mailing it to us: [diamond] 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. We treat a returned policy as if we never issued it and 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 debt; plus (2) any monthly deductions, and other charges made under the policy. 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 the same amount to you as would have been refunded under the policy had it been issued but returned for refund during the Free Look Period. TRANSFERS Transfers among available subaccounts or the Guaranteed Interest Account and changes in premium payment allocations may be requested in writing or by calling 800.541.0171, between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time. Written requests for transfers will be executed on the date we receive the request. Telephone transfers will be effective on the date the request is made except as noted below. Unless you elect in writing not to authorize telephone transfers or premium allocation changes, telephone transfer orders and premium allocation changes will be accepted on your behalf from your registered representative. Phoenix and PEPCO, the national distributor for Phoenix, will employ reasonable procedures to confirm that telephone instructions are genuine. They will require verification of account information and will record telephone instructions on tape. All telephone transfers will be confirmed in writing to you. To the extent that Phoenix and PEPCO fail to follow procedures reasonably designed to prevent unauthorized transfers, Phoenix and PEPCO may be liable for following telephone instructions for transfers that prove to be fraudulent. However, you will bear the risk of loss resulting from instructions entered by an unauthorized third party that Phoenix and PEPCO reasonably believe to be genuine. The telephone transfer and allocation change privileges may be modified or terminated at any time. During times of extreme market volatility, these privileges may be difficult to exercise. In such cases, you should submit a written request. Although currently there is no charge for transfers, in the future, we may charge a fee of $10 for each transfer after the first two transfers in a policy year. You may make only one transfer per policy year from the Guaranteed Interest Account 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 Guaranteed Interest Account at the time of the transfer. See "The Guaranteed Interest Account" for more detail. Because excessive exchanges between subaccounts can deteriorate 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 contact the policyholder prior to invoking any 15 restriction to discuss the situation. 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 a third-party transfer service agreement. OPTIONAL PROGRAMS AND ADDITIONAL BENEFITS DOLLAR COST AVERAGING PROGRAM You may elect to transfer funds automatically among the subaccounts or the Guaranteed Interest Account 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: [diamond] $25 monthly, [diamond] $75 quarterly, [diamond] $150 semiannually, or [diamond] $300 annually. You must have an initial value of $2,000 in the Guaranteed Interest Account or the subaccount from which funds will be transferred ("sending subaccount"). If the value in that subaccount or the Guaranteed Interest Account 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 Guaranteed Interest Account, but may be allocated to more than one subaccount ("receiving subaccounts"). Under the Dollar Cost Averaging Program, you may transfer approximately equal amounts from the Guaranteed Interest Account over a period of 6 months or longer. Transfers under the Dollar Cost Averaging Program are not subject to the general restrictions on transfers from the Guaranteed Interest Account and do not count against any limit on transfers per year. There is no charge for this program. Upon completion of the Dollar Cost Averaging Program, you must notify VULA at 800.541.0171 or in writing to VPMO to start another Dollar Cost Averaging Program. Only one Dollar Cost Averaging Program can be active at any time. All transfers under this program will be made on the basis of the Guaranteed Interest Account 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. The Dollar Cost Averaging Program does not ensure a profit nor guarantee against a loss in a declining market. AUTOMATIC ASSET REBALANCING Automated asset rebalancing permits you to maintain a specified whole number percentage of your account value in any combination of subaccounts and the Guaranteed Interest Account. We must receive a written request in order to begin your automated asset rebalancing program ("asset rebalancing"). Then, we will make transfers annually on your policy anniversary to readjust your account value to your specified percentages. Asset rebalancing allows you to maintain a specific fund allocation. We will rebalance your policy value only on the policy anniversary. Transfers under this program do not count against any limit on transfers per year and there is no charge for this program. The effective date of the first asset rebalancing will be the first policy anniversary after we receive your request at VPMO. You may not participate in both the Dollar Cost Averaging Program and asset rebalancing at the same time. ADDITIONAL RIDER BENEFITS You may elect additional benefits under your policy. These benefits are cancelable by you at any time. A charge may be deducted from your policy value for each additional rider benefit chosen. More details will be included in the form of a rider to your policy contract if any of these benefits is chosen. The following benefits are currently available (if approved in your state). Additional riders also may be available as described in your policy. LIVING BENEFITS In the event of terminal illness of the insured, an accelerated payment of up to 75% of the policy's death benefit (up to a maximum of $250,000) is available if a Living Benefits Option has been exercised. The minimum face amount of the policy after such accelerated benefit payment is $10,000. There is no charge for this additional benefit. ACCOUNT VALUATION PROCEDURES VALUATION DATE A Valuation Date is every day the New York Stock Exchange is open for trading and we are open for business. On each Valuation Date, the value of the Account is determined at the close of the New York Stock Exchange (currently 4:00 p.m. Eastern Time). VALUATION PERIOD A valuation period is that period of time from the beginning of the day following a valuation date to the end of the next following valuation date. DETERMINATION OF UNIT VALUES We establish the unit value of each subaccount on the first valuation date of that subaccount. The value of one unit was set at $1.0000 on the date that assets were first allocated to 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 16 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. The unit value of each subaccount on a valuation date is determined at the end of that day. NET INVESTMENT FACTOR The net investment factor for any valuation period is equal to 1.000000 plus the applicable net investment rate for such valuation period. A net investment factor may be more or less than 1.000000 depending on whether the assets gained or lost value that day. To determine the net investment rate for any valuation period for each subaccount, the following steps are taken: (a) the aggregate accrued investment income and capital gains and losses, whether realized or unrealized, excluding any transactions, of the subaccount for such valuation period is computed, (b) the result from (a) is then adjusted by the sum of the charges and credits for any applicable income taxes, and (c) the result from (b) is divided by the aggregate unit values in the subaccount at the beginning of the valuation period. DEATH BENEFIT GENERAL The policy provides a level death benefit. The death benefit equals the policy's face amount on the date of the death of the insured or, if greater, the minimum death benefit on the date of death. The minimum death benefit is the policy value on the date of death of the insured multiplied by a percentage determined from a table contained in the policy. This percentage will be based on the insured's attained age at the beginning of the policy year in which the death occurs. We pay the death benefit to the designated beneficiary 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. The policy is intended to qualify as a life insurance contract under the Internal Revenue Code for Federal tax purposes, and the death benefit to qualify for exclusion from tax. To qualify as life insurance under current federal tax laws, the policy has a minimum face amount of insurance (as shown on the schedule page of the policy contract ). The minimum face amount under this policy is determined using the Guideline Premium Test. Under the Guideline Premium Test, the minimum face amount of insurance is determined by multiplying the policy value by a minimum face amount factor which varies by the age of the insured. Face amount increases or decreases are not allowed. SURRENDERS GENERAL At any time during the lifetime of the insured(s) and while the policy is in force, you may partially or fully surrender the policy by sending to VPMO a written release and surrender in a form satisfactory to us. We may also require you to send the policy to us. The amount available for surrender is the cash surrender value at the end of the valuation period during which the surrender request is received at VPMO. FREE WITHDRAWALS Your policy allows for a free withdrawal once each year. The free withdrawal amount is the amount of your policy value we permit you to withdraw each year without being charged a surrender penalty. Once each policy year, you may withdraw an amount equal to the greater of your penalty free earnings on the policy and 10% of the single premium (free allowable amount) without the imposition of a surrender charge. The penalty free earnings portion of your policy is equal to your policy value less the amount of the single premium. The single premium amount will be reduced by portions of prior withdrawals you have made. The portion of previous partial surrenders that reduce the amount of your single premium are withdrawals that you made that were in excess of your free allowable amount, including surrender charges on those withdrawals. The free allowable amount will automatically be calculated and processed when full or partial surrenders are requested. FULL SURRENDERS If the policy is being fully surrendered, the policy itself must be returned to VPMO, along with the written release and surrender of all claims in a form satisfactory to us. You may elect to have the amount paid in a lump sum or under a payment option. See "Conditional Charges--Surrender Charge" and "Payment Options." PARTIAL SURRENDERS You may obtain a partial surrender of the policy by requesting a portion of the policy's cash surrender value. It is possible to do this with a written request to VPMO at any time during the lifetime of the insured, while the policy is in force. We may require the return of the Policy before payment is made. A partial surrender will be effective on the date the written request is received or, if required, the date the policy is received by us. Surrender proceeds may be applied under any of the payment options described under "Payment of Proceeds--Payment Options." We reserve the right not to allow partial surrenders of less than $500. In addition, if the share of the policy value in any subaccount or in the Guaranteed Interest Account is reduced as a result of a partial surrender and is less than 17 $500, we reserve the right to require surrender of the entire remaining balance in that subaccount or the Guaranteed Interest Account. Upon partial or full surrender, we generally will pay to you the amount surrendered within seven days after we receive the written request for the surrender. Under certain circumstances, the surrender payment may be postponed. See "General Provisions--Postponement of Payments." For a discussion of the federal tax effects of partial and full surrenders, see "Federal Tax Considerations." Cash payment will be made in a single sum, ordinarily within seven days after receipt of such notice. However, redemption and payment may be delayed under certain circumstances. See "Deferment of Payment." There may be adverse tax consequences to certain surrenders and partial withdrawals. Any request for a withdrawal from, or complete surrender of, a policy should be mailed to: PHOENIX VARIABLE PRODUCTS MAIL OPERATIONS PO BOX 8027 BOSTON, MASSACHUSETTS 02266-8027 PARTIAL SURRENDER: EFFECT ON DEATH BENEFIT A partial surrender will generally decrease the death benefit. Your death benefit will be reduced on a pro rata basis. For example, a $10,000 partial surrender from a policy with a $100,000 policy value will result in a 10% reduction in the death benefit. A decrease in the death benefit may have certain tax consequences. See "Federal Income Tax Considerations." POLICY LOANS You can take a loan against your policy any time while the policy is in force. The maximum loan is: [diamond] 90% of your policy value at the time the loan is taken; less [diamond] any applicable surrender charges; less [diamond] any outstanding policy debt before the loan is taken. Your policy must be assigned to us as collateral for the loan. At the time you take a loan, we establish a Loan Account on your policy. The Loan Account is an account that holds policy value which is used to secure your loan. SOURCE OF LOAN We deduct your requested loan amount from the subaccounts and the Guaranteed Interest Account, 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 Loan Account. INTEREST CHARGED ON LOANS You will pay interest on the loan at the following noted effective annual rates, compounded daily and payable in arrears: o 6% in policy year 1 o 8% in policy years 2+ Interest accrues daily and is due and payable on the policy anniversary. If you do not pay the interest when due, it will be added to your outstanding debt. 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 Guaranteed Interest Account in proportion to the account value in each. INTEREST CREDITED TO THE LOAN ACCOUNT AND PREFERRED LOANS We will pay interest on the Loan Account at the annual rate of 6%. The initial policy loan plus any additional loans which do not exceed the penalty free earnings amount on the policy will be considered "preferred loans". We will charge preferred loans interest at a rate of 6%. Interest Charged Interest Credited Net - ---------------- ----------------- --- 6%-policy year 1 6% 0% 8%-policy years 2+ 6% 2% 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 policy issued by Phoenix or its affiliates. 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 Loan Account. The subaccount's investment performance does not affect this amount. Also, you may be subject to tax consequences if your policy is considered a modified endowment contract and you take a loan against the policy. 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 3 times the required monthly deduction. 18 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 Guaranteed Interest Account according to the current premium allocation schedule. In determining the amount of "excess" premium to be applied to the subaccounts or the Guaranteed Interest Account, we will deduct 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. 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 Guaranteed Interest Account; [diamond] whenever the New York Stock Exchange is closed other than for customary weekend and holiday closings or trading on the New York Stock Exchange is restricted as determined by the SEC; or [diamond] whenever an emergency exists per the SEC, as a result of which o disposal of securities is not reasonably practicable or o it is not reasonably practicable to determine the value of the Account's net assets. Transfers may also 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 the Company 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 as 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 Policies issued on or after the date of Phoenix's demutualization, June 25, 2001, will not be eligible to share in Phoenix's profits or surplus earnings. The demutualization will not change any eligibility, described in the next paragraph, of a policy owned prior to the date of demutualization. 19 You may share in divisible surplus of Phoenix to the extent decided annually by the Phoenix Board of Directors. However, it is not currently expected that the Board will authorize these payments since you will be participating directly in the subaccount's investment results. PAYMENT OF PROCEEDS - -------------------------------------------------------------------------------- SURRENDER AND DEATH BENEFIT PROCEEDS Death benefit proceeds and the proceeds of full or partial surrenders will be processed at unit values next computed after we receive the request for surrender or due proof of death, provided such request is complete and in good order. Payment of surrender or death proceeds usually will be made in one lump sum within 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. 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. 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. The minimum amount of surrender or death benefit proceeds that may be applied under any payment option is $1,000. OPTION 1--LUMP SUM Payment is paid in one lump sum. OPTION 2--LEFT TO EARN INTEREST A payment of interest is paid 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] 20 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 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 INCOME TAX CONSIDERATIONS - -------------------------------------------------------------------------------- INTRODUCTION The ultimate effect of federal income taxes on values under the Account and on the economic benefit to you or your beneficiary depends on our income tax status and upon the income tax status of the individual concerned. This discussion is general in nature and is not intended as income tax advice. For complete information on federal and state income tax considerations, a qualified income tax advisor should be consulted. No attempt is made to consider any estate and inheritance taxes, or any state, local or other income tax laws. Because this discussion is based upon our understanding of federal income tax laws as they are currently interpreted, we cannot guarantee the income tax status of any policy. The Internal Revenue Service ("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 INCOME 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 Account nor the Guaranteed Interest Account 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 Account are reinvested and taken into account in determining the value of the Account. Investment income of the Account, including realized net capital gains, is not taxed to us. Due to our income tax status under current provisions of the Code, no charge currently will be made to the Account for our federal income taxes which may be attributable to the Account. We reserve the right to make a deduction for taxes if our federal income tax treatment is determined to be other than what we currently believe it to be, if changes are made affecting the income tax treatment to our variable life insurance contracts, or if changes occur in our income tax status. If imposed, such charge would be equal to the federal income taxes attributable to the investment results of the 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 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. 21 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. Consult with your income 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. Please see the discussion on modified endowment contracts and note that it is more likely than not that these policies will become 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 tax consequences. 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." This test compares your policy to a hypothetical life insurance policy of equal face amount which requires 7 equal annual premiums to be "fully paid-up," providing a level death benefit with no 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 7 YEARS If there is a reduction in death benefits or any increase in or addition of any rider benefit available as an Additional Rider Benefit (described above) 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 or reduction or elimination of any 22 Additional Rider Benefit previously elected, 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 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. 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 U.S. 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 income tax advisor should be consulted about the income 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 U.S. 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 U.S. 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), 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 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 Account are direct obligations of the U.S. Treasury. In this case, there is no limit on the investment that may be made in U.S. Treasury securities. For purposes of determining whether assets other than U.S. Treasury securities are adequately diversified, the generally applicable percentage limitations are increased based on the value of the Account's investment in U.S. 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 U.S. 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 U.S. 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 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. 23 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 consult an income tax advisor. 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 may disregard voting instructions in favor of changes initiated by a policyowner in the investment policies or the investment advisor of the funds if the proposed change is contrary to state law or prohibited by state regulatory authorities or the change would have an adverse effect on the General Account or create liability on the part of Phoenix because the proposed investment policy for a series may result in overly speculative or unsound investments contrary to state law. In the event Phoenix does disregard voting instructions, a summary of that action and the reasons for such action would be promptly reported to policyowners. 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: NAME PRINCIPAL OCCUPATION - ---- -------------------- DIRECTORS Sal H. Alfiero Chairman and Chief Executive Officer Protective Industries LLC Buffalo, NY Various positions with Mark IV Industries J. Carter Bacot Director (retired Chairman and Chief Executive Officer) The Bank of New York New York, NY Peter C. Browning Dean McColl School of Business Charlotte, NC Chairman of the Board NUCOR Charlotte, NC Various positions with Sunoco Products Company Arthur P. Byrne President, Chief Executive Officer and Chairman The Wiremold Company West Hartford, CT Various positions with The Wiremold Company 24 NAME PRINCIPAL OCCUPATION - ---- -------------------- DIRECTORS Sanford Cloud, Jr. President and Chief Executive Officer, The National Conference for Community and Justice New York, NY Richard N. Cooper Mauritus C. Boas Professor Center for International Affairs Harvard University Cambridge, MA Formerly Chairman of Central Intelligence Agency; Professor, Harvard University Gordon J. Davis, Esq. Partner LeBoeuf, Lamb, Greene, MacRae New York, NY Formerly President Lincoln Center for Performing Arts New York, NY Formerly Partner of LeBoeuf, Lamb, Greene & MacRae Robert W. Fiondella Chairman of the Board and Chief Executive Officer The Phoenix Companies, Inc. Hartford, CT Various positions with Phoenix Life Insurance Company and its various subsidiaries Ann Maynard Gray Director of The Phoenix Companies, Inc. Director of Duke Energy Corporation and Elan Corporation PLC and a trustee for J.P. Morgan Funds. Formerly President of the Diversified Publishing Group of Capital Cities/ABC, Inc. from 1991 to 1999. John E. Haire Executive Vice President Time, Inc. New York, NY Formerly Publisher, Time Magazine Jerry J. Jasinowski President National Association of Manufacturers Washington, D.C. Various positions with National Association of Manufacturers Thomas S. Johnson Chairman and Chief Executive Officer Greenpoint Financial Corporation New York, NY John W. Johnstone Retired. Formerly Chairman and Chief Executive Officer, Olin Corporation Marilyn E. LaMarche Limited Managing Director Lazard Freres & Co. LLC New York, NY Various positions with Lazard Freres & Co. LLC Philip R. McLoughlin Executive Vice President and Chief Investment Officer The Phoenix Companies, Inc. Hartford, CT Various positions with Phoenix Life Insurance Company and its various subsidiaries Robert F. Vizza President Dolan Foundations Woodbury, NY Formerly President, Lustgarten Pancreatic Cancer Research Foundation and the Dolan Foundations, President and CEO, St. Francis Hospital Robert G. Wilson Retired. Consultant for thePit.com; Consultant for Logistics.com and LendingTree.com Dona D. Young President and Chief Operating Officer The Phoenix Companies, Inc. Hartford, CT Various positions with Phoenix Life Insurance Company and its various subsidiaries 25 NAME PRINCIPAL OCCUPATION - ---- -------------------- EXECUTIVE OFFICERS Carl T. Chadburn Executive Vice President Executive Vice President, The Phoenix Companies, Inc. Various positions with Phoenix Life Insurance Company and its various subsidiaries Robert W. Fiondella Chairman of the Board and Chief Executive Officer Chairman of the Board and Chief Executive Officer, The Phoenix Companies, Inc. Various positions with Phoenix Life Insurance Company and its various subsidiaries Philip R. McLoughlin Executive Vice President Executive Vice President and Chief Investment Officer, The Phoenix Companies, Inc. Various positions with Phoenix Life Insurance Company and its various subsidiaries Coleman D. Ross Executive Vice President and Chief Financial Officer, The Phoenix Companies, Inc. Formerly Executive Vice President and Chief Financial Officer of Trenwick Group Ltd.; Formerly a partner with PricewaterhouseCoopers. David W. Searfoss Executive Vice President Executive Vice President, The Phoenix Companies, Inc. Various positions with Phoenix Life Insurance Company and its various subsidiaries Simon Y. Tan Executive Vice President Executive Vice President, The Phoenix Companies, Inc. Various positions with Phoenix Life Insurance Company and its various subsidiaries Dona D. Young President and Chief Operating Officer President and Chief Operating Officer, The Phoenix Companies, Inc. Various positions with Phoenix Life Insurance Company and its various subsidiaries The above listing reflects positions held during the last 5 years. SAFEKEEPING OF THE ACCOUNT'S ASSETS - -------------------------------------------------------------------------------- We hold the assets of the Account 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 WS Griffith Securities, Inc. (formerly known as 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 is an indirect, wholly-owned subsidiary of The Phoenix Companies, Inc., and is an affiliate of Phoenix. WSG 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 located at 56 Prospect Street, Hartford, Connecticut. PEPCO is also an indirect, wholly-owned subsidiary of The Phoenix Companies and is an affiliate of Phoenix. Policies may also be purchased through other broker-dealers or entities registered under or exempt under the Securities Exchange Act of 1934, whose representatives are authorized by applicable law to sell contracts under terms of agreement provided by PEPCO. In addition to reimbursing PEPCO for its expenses, we pay PEPCO an amount equal to up to 7.25% of the payments made under the policy. PEPCO pays any qualified distribution organization an amount which may not exceed 7.25% of the payments under the policy. Any such amount paid with respect to policies sold through other broker-dealers will be paid by us to or through PEPCO. The amounts paid are not deducted from the payments. Deductions for surrender charges (as described under "Surrender Charges") may be used as reimbursement for commission payments. STATE REGULATION - -------------------------------------------------------------------------------- Phoenix is subject to the provisions of the New York insurance law applicable to life insurance companies and to regulation and supervision by the New York Superintendent of Insurance. Phoenix also is subject to the applicable insurance laws of all the other states and jurisdictions in which it does an insurance business. 26 State regulation of Phoenix includes certain limitations on the investments which we may make, including investments for the Account and the Guaranteed Interest Account. This regulation does not include, however, any supervision over the investment policies of the 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 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 - -------------------------------------------------------------------------------- Richard J. Wirth, Counsel and Brian A. Giantonio, Counsel of Phoenix Life Insurance Company, have passed upon the organization of Phoenix, our 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 the Company. 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 Account, the Company and the policy. FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The financial statements of Phoenix Life Variable Universal Life Account (Phoenix Edge(R)-SPVL) as of December 31, 2001, and the results of its operations and its changes in net assets for the periods indicated and the consolidated financial statements of Phoenix Life Insurance Company as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 appear in the pages that follow. The consolidated financial statements of Phoenix Life Insurance Company included herein should be considered only as bearing upon the ability of Phoenix to meet its obligations under the policies. You should not consider them as bearing on the investment performance of the assets held in the Account or on the Guaranteed Interest Account that we credit during a guarantee period. 27 - ------------------------------------------------------------------------------- ANNUAL REPORT - ------------------------------------------------------------------------------- Phoenix Edge(R)-SPVL Phoenix Life Variable Universal Life Account December 31, 2001 [LOGO] PHOENIX WEALTH MANAGEMENT(R) STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2001
PHOENIX- PHOENIX- PHOENIX-ALLIANCE/ DEUTSCHE ABERDEEN PHOENIX- BERNSTEIN PHOENIX-DEUTSCHE NASDAQ-100 INTERNATIONAL ABERDEEN NEW GROWTH + VALUE DOW 30 INDEX(R) SUBACCOUNT ASIA SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- -------------- -------------- ------------- ASSETS Investments at cost $ 40,977 $ 9,042 $ 2,759 $ 131,004 $ 50,647 ============== =============== ============== ============== ============= Investments at market $ 34,442 $ 9,768 $ 2,815 $ 130,065 $ 53,478 -------------- --------------- -------------- -------------- ------------- Total assets 34,442 9,768 2,815 130,065 53,478 LIABILITIES Accrued expenses to related party - - - - - -------------- --------------- -------------- -------------- ------------- NET ASSETS $ 34,442 $ 9,768 $ 2,815 $ 130,065 $ 53,478 ============== =============== ============== ============== ============= Accumulation units outstanding 45,732 9,491 2,630 139,907 56,763 ============== =============== ============== ============== ============= Unit value $ 0.753120 $ 1.029226 $ 1.070307 $ 0.929658 $ 0.942132 ============== =============== ============== ============== ============= PHOENIX- PHOENIX-DUFF & PHOENIX- PHOENIX- FEDERATED U.S. PHELPS REAL ENGEMANN PHOENIX- ENGEMANN SMALL GOVERNMENT ESTATE SECURITIES CAPITAL GROWTH ENGEMANN NIFTY & MID-CAP GROWTH BOND SUBACCOUNT SUBACCOUNT FIFTY SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------- --------------- -------------- -------------- ------------- ASSETS Investments at cost $ 69,663 $ 316,295 $ 11,918 $ 7,641 $ 87,593 ============== =============== ============== ============== ============= Investments at market $ 71,736 $ 314,944 $ 11,214 $ 7,325 $ 85,522 -------------- --------------- -------------- -------------- ------------- Total assets 71,736 314,944 11,214 7,325 85,522 LIABILITIES Accrued expenses to related party - - - - - -------------- --------------- -------------- -------------- ------------- NET ASSETS $ 71,736 $ 314,944 $ 11,214 $ 7,325 $ 85,522 ============== =============== ============== ============== ============= Accumulation units outstanding 65,483 526,026 12,881 8,201 81,108 ============== =============== ============== ============== ============= Unit value $ 1.095485 $ 0.598716 $ 0.870651 $ 0.893189 $ 1.054423 ============== =============== ============== ============== ============= PHOENIX- PHOENIX- GOODWIN MULTI- PHOENIX-J.P. GOODWIN MONEY SECTOR FIXED PHOENIX-HOLLISTER MORGAN RESEARCH PHOENIX-JANUS MARKET INCOME VALUE EQUITY ENHANCED INDEX CORE EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- -------------- -------------- ------------- ASSETS Investments at cost $ 1,114,606 $ 181,638 $ 399,856 $ 191,700 $ 50,879 ============== =============== ============== ============== ============= Investments at market $ 1,114,606 $ 176,047 $ 372,624 $ 180,795 $ 50,007 -------------- --------------- -------------- -------------- ------------- Total assets 1,114,606 176,047 372,624 180,795 50,007 LIABILITIES Accrued expenses to related party - - (2) - - -------------- --------------- -------------- -------------- ------------- NET ASSETS $ 1,114,606 $ 176,047 $ 372,626 $ 180,795 $ 50,007 ============== =============== ============== ============== ============= Accumulation units outstanding 1,067,642 164,110 437,538 198,133 55,347 ============== =============== ============== ============== ============= Unit value $ 1.043989 $ 1.072737 $ 0.851643 $ 0.912495 $ 0.903519 ============== =============== ============== ============== ============= PHOENIX-MORGAN PHOENIX- PHOENIX-JANUS PHOENIX-JANUS PHOENIX-MFS STANLEY FOCUS OAKHURST FLEXIBLE INCOME GROWTH VALUE EQUITY BALANCED SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- -------------- -------------- ------------- ASSETS Investments at cost $ 75,246 $ 366,971 $ 20,588 $ 5,614 $ 54,897 ============== =============== ============== ============== ============= Investments at market $ 74,609 $ 318,077 $ 21,094 $ 5,654 $ 55,198 -------------- --------------- -------------- -------------- ------------- Total assets 74,609 318,077 21,094 5,654 55,198 LIABILITIES Accrued expenses to related party - - - - - -------------- --------------- -------------- -------------- ------------- NET ASSETS $ 74,609 $ 318,077 $ 21,094 $ 5,654 $ 55,198 ============== =============== ============== ============== ============= Accumulation units outstanding 71,527 445,567 19,951 5,830 54,132 ============== =============== ============== ============== ============= Unit value $ 1.043081 $ 0.713872 $ 1.057281 $ 0.969701 $ 1.019691 ============== =============== ============== ============== ============= PHOENIX- PHOENIX- OAKHURST PHOENIX-SANFORD PHOENIX-SANFORD OAKHURST GROWTH STRATEGIC BERNSTEIN MID- BERNSTEIN SMALL- PHOENIX-SENECA AND INCOME ALLOCATION CAP VALUE CAP VALUE MID-CAP GROWTH SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT --------------- --------------- -------------- --------------- -------------- ASSETS Investments at cost $ 130,497 $ 180,950 $ 252,597 $ 16,575 $ 184,837 ============== =============== ============== ============== ============== Investments at market $ 131,238 $ 177,993 $ 283,524 $ 17,431 $ 167,453 -------------- --------------- -------------- -------------- -------------- Total assets 131,238 177,993 283,524 17,431 167,453 LIABILITIES Accrued expenses to related party - - - - - -------------- --------------- -------------- -------------- -------------- NET ASSETS $ 131,238 $ 177,993 $ 283,524 $ 17,431 $ 167,453 ============== =============== ============== ============== ============== Accumulation units outstanding 124,312 174,980 209,944 16,370 217,344 ============== =============== ============== ============== ============== Unit value $ 1.055722 $ 1.017224 $ 1.350480 $ 1.064806 $ 0.770451 ============== =============== ============== ============== ==============
See Notes to Financial Statements SA-1 STATEMENTS OF ASSETS AND LIABILITIES DECEMBER 31, 2001 (CONTINUED)
ALGER AMERICAN DEUTSCHE PHOENIX-SENECA LEVERAGED DEUTSCHE VIT VIT EQUITY STRATEGIC THEME AIM V.I. VALUE ALLCAP PORTFOLIO EAFE(R) EQUITY 500 INDEX SUBACCOUNT SUBACCOUNT SUBACCOUNT INDEX SUBACCOUNT SUBACCOUNT --------------- -------------- --------------- --------------- ------------- ASSETS Investments at cost $ 106,077 $ 6,974 $ 154,379 $ 171,304 $ 2,286 ============== =============== ============== ============== ============= Investments at market $ 91,819 $ 7,196 $ 153,002 $ 157,090 $ 2,303 -------------- --------------- -------------- -------------- ------------- Total assets 91,819 7,196 153,002 157,090 2,303 LIABILITIES Accrued expenses to related party - - 1 - - -------------- --------------- -------------- -------------- ------------- NET ASSETS $ 91,819 $ 7,196 $ 153,001 $ 157,090 $ 2,303 ============== =============== ============== ============== ============= Accumulation units outstanding 130,303 7,615 183,164 174,316 2,180 ============== =============== ============== ============== ============= Unit value $ 0.704659 $ 0.944961 $ 0.835329 $ 0.901184 $ 1.056437 ============== =============== ============== ============== ============= FEDERATED FUND FOR U.S. FEDERATED HIGH VIP GROWTH GOVERNMENT INCOME BOND VIP CONTRAFUND(R) OPPORTUNITIES VIP GROWTH SECURITIES II FUND II PORTFOLIO PORTFOLIO PORTFOLIO SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- -------------- -------------- ------------- ASSETS Investments at cost $ 186,334 $ 78,664 $ 10,623 $ 7,976 $ 133,720 ============== =============== ============== ============== ============= Investments at market $ 188,786 $ 74,959 $ 11,416 $ 8,080 $ 125,792 -------------- --------------- -------------- -------------- ------------- Total assets 188,786 74,959 11,416 8,080 125,792 LIABILITIES Accrued expenses to related party - - - - - -------------- --------------- -------------- -------------- ------------- NET ASSETS $ 188,786 $ 74,959 $ 11,416 $ 8,080 $ 125,792 ============== =============== ============== ============== ============= Accumulation units outstanding 177,972 79,444 11,741 8,492 157,601 ============== =============== ============== ============== ============= Unit value $ 1.060761 $ 0.943542 $ 0.972371 $ 0.951516 $ 0.798161 ============== =============== ============== ============== ============= TEMPLETON DEVELOPING TEMPLETON MUTUAL SHARES TEMPLETON ASSET MARKETS TEMPLETON GROWTH INTERNATIONAL SECURITIES STRATEGY SECURITIES SECURITIES SECURITIES SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- -------------- -------------- ------------- ASSETS Investments at cost $ 76,809 $ 10,471 $ 4,975 $ 24,348 $ 56,606 ============== =============== ============== ============== ============= Investments at market $ 80,373 $ 8,588 $ 4,933 $ 25,427 $ 48,761 -------------- --------------- -------------- -------------- ------------- Total assets 80,373 8,588 4,933 25,427 48,761 LIABILITIES Accrued expenses to related party - - - - - -------------- --------------- -------------- -------------- ------------- NET ASSETS $ 80,373 $ 8,588 $ 4,933 $ 25,427 $ 48,761 ============== =============== ============== ============== ============= Accumulation units outstanding 79,151 9,506 5,276 25,821 55,215 ============== =============== ============== ============== ============= Unit value $ 1.015447 $ 0.903379 $ 0.935164 $ 0.984733 $ 0.883099 ============== =============== ============== ============== ============= WANGER TECHNOLOGY WANGER FOREIGN INTERNATIONAL WANGER U.S. PORTFOLIO FORTY SMALL CAP WANGER TWENTY SMALL CAP SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT -------------- --------------- -------------- -------------- ------------- ASSETS Investments at cost $ 39,893 $ 68,863 $ 315,115 $ 19,325 $ 417,491 ============== =============== ============== ============== ============= Investments at market $ 32,070 $ 51,299 $ 308,200 $ 21,609 $ 447,458 -------------- --------------- -------------- -------------- ------------- Total assets 32,070 51,299 308,200 21,609 447,458 LIABILITIES Accrued expenses to related party - - 1 - - -------------- --------------- -------------- -------------- ------------- NET ASSETS $ 32,070 $ 51,299 $ 308,199 $ 21,609 $ 447,458 ============== =============== ============== ============== ============= Accumulation units outstanding 67,975 67,514 396,109 19,822 380,414 ============== =============== ============== ============== ============= Unit value $ 0.471792 $ 0.759827 $ 0.778068 $ 1.090134 $ 1.176238 ============== =============== ============== ============== =============
See Notes to Financial Statements SA-2 STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2001
PHOENIX- PHOENIX- PHOENIX- PHOENIX-ALLIANCE/ DEUTSCHE ABERDEEN ABERDEEN BERNSTEIN PHOENIX-DEUTSCHE NASDAQ-100 INTERNATIONAL NEW ASIA GROWTH + VALUE DOW 30 INDEX(R) SUBACCOUNT(3) SUBACCOUNT(14) SUBACCOUNT(16) SUBACCOUNT(8) SUBACCOUNT(11) ------------------ -------------- ------------- ---------------- --------------- Investment income Distributions $ - $ 144 $ 3 $ 1,174 $ - Expenses Mortality, expense risk and administrative charges - - - - 1 ------------------ -------------- ------------- ---------------- --------------- Net investment income (loss) - 144 3 1,174 (1) ------------------ -------------- ------------- ---------------- --------------- Net realized gain (loss) from share transactions 556 1,780 - (3,898) (523) Net realized gain distribution from Fund 639 - - 546 - Net unrealized appreciation (depreciation) on investment (6,535) 726 56 (939) 2,831 ------------------ -------------- ------------- ---------------- --------------- Net gain (loss) on investment (5,340) 2,506 56 (4,291) 2,308 Net increase (decrease) in net assets resulting from operations $ (5,340) $ 2,650 $ 59 $ (3,117) $ 2,307 ================== ============== ============= ================ =============== PHOENIX- PHOENIX-DUFF & PHOENIX- PHOENIX- FEDERATED U.S. PHELPS REAL ENGEMANN PHOENIX- ENGEMANN SMALL GOVERNMENT ESTATE SECURITIES CAPITAL GROWTH ENGEMANN NIFTY & MID-CAP GROWTH BOND SUBACCOUNT(4) SUBACCOUNT FIFTY SUBACCOUNT SUBACCOUNT(12) SUBACCOUNT(1) ------------------ -------------- --------------- --------------- --------------- Investment income Distributions $ 1,507 $ 24 $ - $ - $ 4,073 Expenses Mortality, expense risk and administrative charges - - - - 1 ------------------ -------------- ------------- ---------------- --------------- Net investment income (loss) 1,507 24 - - 4,072 ------------------ -------------- ------------- ---------------- --------------- Net realized gain (loss) from share transactions (585) 13,655 (1,979) (6) 58 Net realized gain distribution from Fund - 920 - - 2,355 Net unrealized appreciation (depreciation) on investment 2,073 1,024 (708) (316) (2,071) ------------------ -------------- ------------- ---------------- --------------- Net gain (loss) on investment 1,488 15,599 (2,687) (322) 342 Net increase (decrease) in net assets resulting from operations $ 2,995 $ 15,623 $ (2,687) $ (322) $ 4,414 ================== ============== ============= ================ =============== PHOENIX- PHOENIX- GOODWIN MULTI- PHOENIX- PHOENIX-J.P GOODWIN MONEY SECTOR FIXED HOLLISTER MORGAN RESEARCH PHOENIX-JANUS MARKET INCOME VALUE EQUITY ENHANCED INDEX CORE EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT(3) SUBACCOUNT(10) SUBACCOUNT ------------------ -------------- ------------- ---------------- --------------- Investment income Distributions $ 28,469 $ 10,060 $ 2,495 $ 876 $ 328 Expenses Mortality, expense risk and administrative charges 1,686 1 (2) - - ------------------ -------------- ------------- ---------------- --------------- Net investment income (loss) 26,783 10,059 2,497 876 328 ------------------ -------------- ------------- ---------------- --------------- Net realized gain (loss) from share transactions - 15 (9,665) (109) (692) Net realized gain distribution from Fund - - 1,274 685 - Net unrealized appreciation (depreciation) on investment - (5,570) (27,232) (10,905) (1,032) ------------------ -------------- ------------- ---------------- --------------- Net gain (loss) on investment - (5,555) (35,623) (10,329) (1,724) Net increase (decrease) in net assets resulting from operations $ 26,783 $ 4,504 $ (33,126) $ (9,453) $ (1,396) ================== ============== ============= ================ =============== PHOENIX-MORGAN PHOENIX- PHOENIX-JANUS PHOENIX-JANUS PHOENIX-MFS STANLEY FOCUS OAKHURST FLEXIBLE INCOME GROWTH VALUE EQUITY BALANCED SUBACCOUNT(6) SUBACCOUNT(3) SUBACCOUNT(16) SUBACCOUNT(17) SUBACCOUNT(5) ------------------ -------------- ------------- ---------------- --------------- Investment income Distributions $ 2,423 $ - $ 38 $ - $ 454 Expenses Mortality, expense risk and administrative charges - - - - - ------------------ -------------- ------------- ---------------- --------------- Net investment income (loss) 2,423 - 38 - 454 ------------------ -------------- ------------- ---------------- --------------- Net realized gain (loss) from share transactions 8 (566) - (72) 2 Net realized gain distribution from Fund 545 - - - 170 Net unrealized appreciation (depreciation) on investment (637) (48,894) 506 40 301 ------------------ -------------- ------------- ---------------- --------------- Net gain (loss) on investment (84) (49,460) 506 (32) 473 Net increase (decrease) in net assets resulting from operations $ 2,339 $ (49,460) $ 544 $ (32) $ 927 ================== ============== ============= ================ =============== PHOENIX- PHOENIX- OAKHURST PHOENIX-SANFORD PHOENIX-SANFORD OAKHURST GROWTH STRATEGIC BERNSTEIN MID- BERNSTEIN SMALL- PHOENIX-SENECA AND INCOME ALLOCATION CAP VALUE CAP VALUE MID-CAP GROWTH SUBACCOUNT(7) SUBACCOUNT(1) SUBACCOUNT SUBACCOUNT(15) SUBACCOUNT(1) ------------------ -------------- ------------- ---------------- --------------- Investment income Distributions $ 478 $ 2,325 $ 2,710 $ 102 $ - Expenses Mortality, expense risk and administrative charges 1 1 - - - ------------------ -------------- ------------- ---------------- --------------- Net investment income (loss) 477 2,324 2,710 102 - ------------------ -------------- ------------- ---------------- --------------- Net realized gain (loss) from share transactions (3) (1,330) (2,486) 302 (2,689) Net realized gain distribution from Fund 32 1,752 1,198 191 - Net unrealized appreciation (depreciation) on investment 741 (2,957) 29,785 856 (17,384) ------------------ -------------- ------------- ---------------- --------------- Net gain (loss) on investment 770 (2,535) 28,497 1,349 (20,073) Net increase (decrease) in net assets resulting from operations $ 1,247 $ (211) $ 31,207 $ 1,451 $ (20,073) ================== ============== ============= ================ ===============
See Notes to Financial Statements SA-3 STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2001 (CONTINUED)
ALGER AMERICAN DEUTSCHE VIT PHOENIX-SENECA LEVERAGED EAFE(R) EQUITY DEUTSCHE VIT STRATEGIC THEME AIM V.I. VALUE ALLCAP PORTFOLIO INDEX EQUITY 500 INDEX SUBACCOUNT SUBACCOUNT(18) SUBACCOUNT SUBACCOUNT(7) SUBACCOUNT(16) --------------- ---------------- ---------------- ---------------- ----------------- Investment income Distributions $ - $ - $ - $ - $ - Expenses Mortality, expense risk and administrative charges - - 2 - - --------------- ---------------- ---------------- ---------------- ----------------- Net investment income (loss) - - (2) - - --------------- ---------------- ---------------- ---------------- ----------------- Net realized gain (loss) from share transactions (889) - (1,055) 592 - Net realized gain distribution from Fund 1,126 - 1,466 - - Net unrealized appreciation (depreciation) on investment (13,914) 222 (1,338) (14,214) 17 --------------- ---------------- ---------------- ---------------- ----------------- Net gain (loss) on investment (13,677) 222 (927) (13,622) 17 Net increase (decrease) in net assets resulting from operations $ (13,677) $ 222 $ (929) $ (13,622) $ 17 =============== ================ ================ ================ =================
FEDERATED FUND FOR U.S. FEDERATED HIGH VIP GROWTH GOVERNMENT INCOME BOND VIP CONTRAFUND(R) OPPORTUNITIES VIP GROWTH SECURITIES II FUND II PORTFOLIO PORTFOLIO PORTFOLIO SUBACCOUNT(3) SUBACCOUNT(4) SUBACCOUNT(13) SUBACCOUNT(12) SUBACCOUNT(2) --------------- ---------------- ---------------- --------------- ---------------- Investment income Distributions $ 977 $ 1,393 $ - $ - $ - Expenses Mortality, expense risk and administrative charges - - - - - --------------- ---------------- ---------------- ---------------- ----------------- Net investment income (loss) 977 1,393 - - - --------------- ---------------- ---------------- ---------------- ----------------- Net realized gain (loss) from share transactions 171 (12) 3 2 (157) Net realized gain distribution from Fund - - - - 1,883 Net unrealized appreciation (depreciation) on investment 2,452 (3,705) 793 104 (7,928) --------------- ---------------- ---------------- ---------------- ----------------- Net gain (loss) on investment 2,623 (3,717) 796 106 (6,202) Net increase (decrease) in net assets resulting from operations $ 3,600 $ (2,324) $ 796 $ 106 $ (6,202) =============== ================ ================ ================ =================
TEMPLETON DEVELOPING TEMPLETON MUTUAL SHARES TEMPLETON ASSET MARKETS TEMPLETON GROWTH INTERNATIONAL SECURITIES STRATEGY SECURITIES SECURITIES SECURITIES SUBACCOUNT(5) SUBACCOUNT(6) SUBACCOUNT(11) SUBACCOUNT(9) SUBACCOUNT --------------- ---------------- ---------------- ---------------- ---------------- Investment income Distributions $ 221 $ 118 $ - $ 373 $ 676 Expenses Mortality, expense risk and administrative charges - 1 - 1 - --------------- ---------------- ---------------- ---------------- ----------------- Net investment income (loss) 221 117 - 372 676 --------------- ---------------- ---------------- ---------------- ----------------- Net realized gain (loss) from share transactions (3,743) 78 (3) 31 (38) Net realized gain distribution from Fund 743 842 - 42 5,315 Net unrealized appreciation (depreciation) on investment 3,564 (1,883) (42) 1,079 (8,483) --------------- ---------------- ---------------- ---------------- ----------------- Net gain (loss) on investment 564 (963) (45) 1,152 (3,206) Net increase (decrease) in net assets resulting from operations $ 785 $ (846) $ (45) $ 1,524 $ (2,530) =============== ================ ================ ================ =================
WANGER TECHNOLOGY WANGER FOREIGN INTERNATIONAL WANGER U.S. PORTFOLIO FORTY SMALL CAP WANGER TWENTY SMALL CAP SUBACCOUNT(3) SUBACCOUNT SUBACCOUNT SUBACCOUNT(6) SUBACCOUNT --------------- ---------------- ---------------- --------------- ---------------- Investment income Distributions $ - $ 61 $ - $ - $ 9 Expenses Mortality, expense risk and administrative charges 1 1 2 - - Net investment income (loss) (1) 60 (2) - 9 --------------- ---------------- ---------------- --------------- ---------------- Net realized gain (loss) from share transactions (501) 4,408 4,851 1 (4,641) Net realized gain distribution from Fund - 3,882 4,687 - - Net unrealized appreciation (depreciation) on investment (7,823) (17,779) (6,894) 2,284 29,878 --------------- ---------------- ---------------- --------------- ---------------- Net gain (loss) on investment (8,324) (9,489) 2,644 2,285 25,237 Net increase (decrease) in net assets resulting from operations $ (8,325) $ (9,429) $ 2,642 $ 2,285 $ 25,246 =============== ================ ================ =============== ================
Footnotes for Statements of Operations For the period ended December 31, 2001 (1) From inception January 12, 2001 to December 31, 2001 (2) From inception January 31, 2001 to December 31, 2001 (3) From inception February 1, 2001 to December 31, 2001 (4) From inception February 8, 2001 to December 31, 2001 (5) From inception February 20, 2001 to December 31, 2001 (6) From inception March 9, 2001 to December 31, 2001 (7) From inception April 4, 2001 to December 31, 2001 (8) From inception May 10, 2001 to December 31, 2001 (9) From inception May 15, 2001 to December 31, 2001 (10) From inception June 4, 2001 to December 31, 2001 (11) From inception July 31, 2001 to December 31, 2001 (12) From inception August 1, 2001 to December 31, 2001 (13) From inception September 7, 2001 to December 31, 2001 (14) From inception September 20, 2001 to December 31, 2001 (15) From inception November 13, 2001 to December 31, 2001 (16) From inception December 4, 2001 to December 31, 2001 (17) From inception December 12, 2001 to December 31, 2001 (18) From inception December 14, 2001 to December 31, 2001 See Notes to Financial Statements SA-4 STATEMENT OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 2000
ENGEMANN ENGEMANN SENECA STRATEGIC NIFTY FIFTY SANFORD BERNSTEIN CAPITAL GROWTH THEME SUBACCOUNT(3) MID-CAP SUBACCOUNT(1) SUBACCOUNT(1) SUBACCOUNT(4) -------------- ---------------------- -------------- ----------------- Investment income Distributions $ - $ 80 $ - $ - Expenses Mortality, expense risk and administrative charges - - - - -------------- ---------------------- -------------- ----------------- Net investment income (loss) - 80 - - -------------- ---------------------- -------------- ----------------- Net realized gain (loss) from share transactions - - (5) - Net realized gain distribution from Fund - - 224 280 Net unrealized appreciation (depreciation) on investment 4 1,142 (2,375) (344) -------------- ---------------------- -------------- ----------------- Net gain (loss) on investment 4 1,142 (2,156) (64) -------------- ---------------------- -------------- ----------------- Net increase (decrease) in net assets resulting from operations $ 4 $ 1,222 $ (2,156) $ (64) ============== ====================== ============== ================= GOODWIN WANGER SMALL WANGER MONEY MARKET GOODWIN MULTI-SECTOR CAP INTERNATIONAL SUBACCOUNT(2) FIXED SUBACCOUNT(4) SUBACCOUNT(4) SUBACCOUNT(4) -------------- ---------------------- -------------- ----------------- Investment income Distributions $ 106 $ 50 $ - $ - Expenses Mortality, expense risk and administrative charges - - - - -------------- ---------------------- -------------- ----------------- Net investment income (loss) 106 50 - - -------------- ---------------------- -------------- ----------------- Net realized gain (loss) from share transactions - - - - Net realized gain distribution from Fund - - - - Net unrealized appreciation (depreciation) on investment - (21) 89 (21) -------------- ---------------------- -------------- ----------------- Net gain (loss) on investment - (21) 89 (21) -------------- ---------------------- -------------- ----------------- Net increase (decrease) in net assets resulting from operations $ 106 $ 29 $ 89 $ (21) ============== ====================== ============== ================= WANGER JANUS EQUITY ALGER AMERICAN FOREIGN FORTY TEMPLETON INTERNATIONAL INCOME LEVERAGED ALLCAP SUBACCOUNT(3) FUND SUBACCOUNT(1) SUBACCOUNT(3) SUBACCOUNT(3) -------------- ---------------------- -------------- ----------------- Investment income Distributions $ - $ - $ 46 $ - Expenses Mortality, expense risk and administrative charges - - - - -------------- ---------------------- -------------- ----------------- Net investment income (loss) - - 46 - -------------- ---------------------- -------------- ----------------- Net realized gain (loss) from share transactions - - - - Net realized gain distribution from Fund - - - - Net unrealized appreciation (depreciation) on investment 215 638 160 (39) -------------- ---------------------- -------------- ----------------- Net gain (loss) on investment 215 638 160 (39) -------------- ---------------------- -------------- ----------------- Net increase (decrease) in net assets resulting from operations $ 215 638 $ 206 $ (39) ============== ====================== ============== =================
Footnotes for Statements of Operations For the period ended December 31, 2000 (1) From inception October 31, 2000 to December 31, 2000 (2) From inception November 29, 2000 to December 31, 2000 (3) From inception December 5, 2000 to December 31, 2000 (4) From inception December 18, 2000 to December 31, 2000 See Notes to Financial Statements SA-5 STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 2001
PHOENIX- PHOENIX- PHOENIX- PHOENIX-ALLIANCE/ DEUTSCHE ABERDEEN ABERDEEN NEW BERNSTEIN PHOENIX-DEUTSCHE NASDAQ-100 INTERNATIONAL ASIA GROWTH + VALUE DOW 30 INDEX(R) SUBACCOUNT(3) SUBACCOUNT(14) SUBACCOUNT(16) SUBACCOUNT(8) SUBACCOUNT(11) ---------------- -------------- ---------------- ---------------- --------------- FROM OPERATIONS Net investment income (loss) $ - $ 144 $ 3 $ 1,174 $ (1) Net realized gain (loss) 1,195 1,780 - (3,352) (523) Net unrealized appreciation (depreciation) (6,535) 726 56 (939) 2,831 ---------------- -------------- ---------------- ---------------- --------------- Net increase (decrease) resulting from operations (5,340) 2,650 59 (3,117) 2,307 ---------------- -------------- ---------------- ---------------- --------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 51,248 7,118 - 134,770 52,355 Participant transfers (10,864) - 2,761 (217) - Participant withdrawals (602) - (5) (1,371) (1,184) ---------------- -------------- ---------------- ---------------- --------------- Net increase (decrease) in net assets resulting from participant transactions 39,782 7,118 2,756 133,182 51,171 ---------------- -------------- ---------------- ---------------- --------------- Net increase (decrease) in net assets 34,442 9,768 2,815 130,065 53,478 NET ASSETS Beginning of period - - - - - ---------------- -------------- ---------------- ---------------- --------------- End of period $ 34,442 $ 9,768 $ 2,815 $ 130,065 $ 53,478 ================ ============== ================ ================ ===============
PHOENIX- PHOENIX-DUFF & PHOENIX- PHOENIX- FEDERATED U.S. PHELPS REAL ENGEMANN PHOENIX- ENGEMANN SMALL GOVERNMENT ESTATE SECURITIES CAPITAL GROWTH ENGEMANN NIFTY & MID-CAP GROWTH BOND SUBACCOUNT(4) SUBACCOUNT FIFTY SUBACCOUNT SUBACCOUNT(12) SUBACCOUNT(1) ---------------- -------------- ---------------- ---------------- --------------- FROM OPERATIONS Net investment income (loss) $ 1,507 $ 24 $ - $ - $ 4,072 Net realized gain (loss) (585) 14,575 (1,979) (6) 2,413 Net unrealized appreciation (depreciation) 2,073 1,024 (708) (316) (2,071) ---------------- -------------- ---------------- ---------------- --------------- Net increase (decrease) resulting from operations 2,995 15,623 (2,687) (322) 4,414 ---------------- -------------- ---------------- ---------------- --------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 62,515 81,033 4,754 6,718 99,273 Participant transfers 6,572 193,744 - 987 - Participant withdrawals (346) (852) - (58) (18,165) ---------------- -------------- ---------------- ---------------- --------------- Net increase (decrease) in net assets resulting from participant transactions 68,741 273,925 4,754 7,647 81,108 ---------------- -------------- ---------------- ---------------- --------------- Net increase (decrease) in net assets 71,736 289,548 2,067 7,325 85,522 NET ASSETS Beginning of period - 25,396 9,147 - - ---------------- -------------- ---------------- ---------------- --------------- End of period $ 71,736 $ 314,944 $ 11,214 $ 7,325 $ 85,522 ================ ============== ================ ================ ===============
PHOENIX- PHOENIX- GOODWIN MULTI- PHOENIX-J.P. GOODWIN MONEY SECTOR FIXED PHOENIX-HOLLISTER MORGAN RESEARCH PHOENIX-JANUS MARKET INCOME VALUE EQUITY ENHANCED INDEX CORE EQUITY SUBACCOUNT SUBACCOUNT SUBACCOUNT(3) SUBACCOUNT(10) SUBACCOUNT ---------------- -------------- ---------------- ---------------- --------------- FROM OPERATIONS Net investment income (loss) $ 26,783 $ 10,059 $ 2,497 $ 876 $ 328 Net realized gain (loss) - 15 (8,391) 576 (692) Net unrealized appreciation (depreciation) - (5,570) (27,232) (10,905) (1,032) ---------------- -------------- ---------------- ---------------- --------------- Net increase (decrease) resulting from operations 26,783 4,504 (33,126) (9,453) (1,396) ---------------- -------------- ---------------- ---------------- --------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 4,560,124 170,984 385,863 56,285 32,535 Participant transfers (1,312,459) - 22,761 135,715 10,606 Participant withdrawals (2,178,969) (2,132) (2,872) (1,752) (1,087) ---------------- -------------- ---------------- ---------------- --------------- Net increase (decrease) in net assets resulting from participant transactions 1,068,696 168,852 405,752 190,248 42,054 ---------------- -------------- ---------------- ---------------- --------------- Net increase (decrease) in net assets 1,095,479 173,356 372,626 180,795 40,658 NET ASSETS Beginning of period 19,127 2,691 - - 9,349 ---------------- -------------- ---------------- ---------------- --------------- End of period $ 1,114,606 $ 176,047 $ 372,626 $ 180,795 $ 50,007 =============== ============== ================ ================ ===============
PHOENIX-MORGAN PHOENIX- PHOENIX-JANUS PHOENIX-JANUS PHOENIX-MFS STANLEY FOCUS OAKHURST FLEXIBLE INCOME GROWTH VALUE EQUITY BALANCED SUBACCOUNT(6) SUBACCOUNT(3) SUBACCOUNT(16) SUBACCOUNT(17) SUBACCOUNT(5) ---------------- -------------- ---------------- ---------------- --------------- FROM OPERATIONS Net investment income (loss) $ 2,423 $ - $ 38 $ - $ 454 Net realized gain (loss) 553 (566) - (72) 172 Net unrealized appreciation (depreciation) (637) (48,894) 506 40 301 ---------------- -------------- ---------------- ---------------- --------------- Net increase (decrease) resulting from operations 2,339 (49,460) 544 (32) 927 ---------------- -------------- ---------------- ---------------- --------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 63,403 287,441 - 5,686 53,758 Participant transfers 9,682 85,248 20,586 - 1,376 Participant withdrawals (815) (5,152) (36) - (863) ---------------- -------------- ---------------- ---------------- --------------- Net increase (decrease) in net assets resulting from participant transactions 72,270 367,537 20,550 5,686 54,271 ---------------- -------------- ---------------- ---------------- --------------- Net increase (decrease) in net assets 74,609 318,077 21,094 5,654 55,198 NET ASSETS Beginning of period - - - - - ---------------- -------------- ---------------- ---------------- --------------- End of period $ 74,609 $ 318,077 $ 21,094 $ 5,654 $ 55,198 ================ ============== ================ ================ ===============
See Notes to Financial Statements SA-6 STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 2001 (CONTINUED)
PHOENIX- PHOENIX- OAKHURST PHOENIX-SANFORD PHOENIX-SANFORD OAKHURST GROWTH STRATEGIC BERNSTEIN MID- BERNSTEIN SMALL- PHOENIX-SENECA AND INCOME ALLOCATION CAP VALUE CAP VALUE MID-CAP GROWTH SUBACCOUNT(7) SUBACCOUNT(1) SUBACCOUNT SUBACCOUNT(15) SUBACCOUNT(1) ---------------- ---------------- ------------------ ----------------- ----------------- FROM OPERATIONS Net investment income (loss) $ 477 $ 2,324 $ 2,710 $ 102 $ - Net realized gain (loss) 29 422 (1,288) 493 (2,689) Net unrealized appreciation (depreciation) 741 (2,957) 29,785 856 (17,384) ---------------- ---------------- ------------------ ----------------- ----------------- Net increase (decrease) resulting from operations 1,247 (211) 31,207 1,451 (20,073) ---------------- ---------------- ------------------ ----------------- ----------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 130,888 234,427 128,493 27,338 205,981 Participant transfers (370) (37,328) 114,587 (11,299) 1,807 Participant withdrawals (527) (18,895) (4,439) (59) (20,262) ---------------- ---------------- ------------------ ----------------- ----------------- Net increase (decrease) in net assets resulting from participant transactions 129,991 178,204 238,641 15,980 187,526 ---------------- ---------------- ------------------ ----------------- ----------------- Net increase (decrease) in net assets 131,238 177,993 269,848 17,431 167,453 NET ASSETS Beginning of period - - 13,676 - - ---------------- ---------------- ------------------ ----------------- ----------------- End of period $ 131,238 $ 177,993 $ 283,524 $ 17,431 $ 167,453 ================ ================ ================== ================= ================= ALGER AMERICAN DEUTSCHE VIT PHOENIX-SENECA LEVERAGED EAFE(R) EQUITY DEUTSCHE VIT STRATEGIC THEME AIM V.I. VALUE ALLCAP PORTFOLIO INDEX EQUITY 500 INDEX SUBACCOUNT SUBACCOUNT(18) SUBACCOUNT SUBACCOUNT(7) SUBACCOUNT(16) ---------------- ---------------- ------------------ ----------------- ----------------- FROM OPERATIONS Net investment income (loss) $ - $ - $ (2) $ - $ - Net realized gain (loss) 237 - 411 592 - Net unrealized appreciation (depreciation) (13,914) 222 (1,338) (14,214) 17 ---------------- ---------------- ------------------ ----------------- ----------------- Net increase (decrease) resulting from operations (13,677) 222 (929) (13,622) 17 ---------------- ---------------- ------------------ ----------------- ----------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 124,417 6,987 155,717 75,480 - Participant transfers (19,651) - 10,688 96,713 2,290 Participant withdrawals (1,335) (13) (18,532) (1,481) (4) ---------------- ---------------- ------------------ ----------------- ----------------- Net increase (decrease) in net assets resulting from participant transactions 103,431 6,974 147,873 170,712 2,286 ---------------- ---------------- ------------------ ----------------- ----------------- Net increase (decrease) in net assets 89,754 7,196 146,944 157,090 2,303 NET ASSETS Beginning of period 2,065 - 6,057 - - ---------------- ---------------- ------------------ ----------------- ----------------- End of period $ 91,819 $ 7,196 $ 153,001 $ 157,090 $ 2,303 ================ ================ ================== ================= ================= FEDERATED FUND FOR U.S. FEDERATED HIGH VIP GROWTH GOVERNMENT INCOME BOND VIP CONTRAFUND(R) OPPORTUNITIES VIP GROWTH SECURITIES II FUND II PORTFOLIO PORTFOLIO PORTFOLIO SUBACCOUNT(3) SUBACCOUNT(4) SUBACCOUNT(13) SUBACCOUNT(12) SUBACCOUNT(2) ---------------- ---------------- ------------------ ----------------- ----------------- FROM OPERATIONS Net investment income (loss) $ 977 $ 1,393 $ - $ - $ - Net realized gain (loss) 171 (12) 3 2 1,726 Net unrealized appreciation (depreciation) 2,452 (3,705) 793 104 (7,928) ---------------- ---------------- ------------------ ----------------- ----------------- Net increase (decrease) resulting from operations 3,600 (2,324) 796 106 (6,202) ---------------- ---------------- ------------------ ----------------- ----------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 130,678 57,300 - 8,087 104,522 Participant transfers 56,529 20,894 10,620 (77) 29,179 Participant withdrawals (2,021) (911) - (36) (1,707) ---------------- ---------------- ------------------ ----------------- ----------------- Net increase (decrease) in net assets resulting from participant transactions 185,186 77,283 10,620 7,974 131,994 ---------------- ---------------- ------------------ ----------------- ----------------- Net increase (decrease) in net assets 188,786 74,959 11,416 8,080 125,792 NET ASSETS Beginning of period - - - - - ---------------- ---------------- ------------------ ----------------- ----------------- End of period $ 188,786 $ 74,959 $ 11,416 $ 8,080 $ 125,792 ================ ================ ================== ================= ================= TEMPLETON DEVELOPING TEMPLETON MUTUAL SHARES TEMPLETON ASSET MARKETS TEMPLETON GROWTH INTERNATIONAL SECURITIES STRATEGY SECURITIES SECURITIES SECURITIES SUBACCOUNT(5) SUBACCOUNT(6) SUBACCOUNT(11) SUBACCOUNT(9) SUBACCOUNT ---------------- ---------------- ------------------ ----------------- ----------------- FROM OPERATIONS Net investment income (loss) $ 221 $ 117 $ - $ 372 $ 676 Net realized gain (loss) (3,000) 920 (3) 73 5,277 Net unrealized appreciation (depreciation) 3,564 (1,883) (42) 1,079 (8,483) ---------------- ---------------- ------------------ ----------------- ----------------- Net increase (decrease) resulting from operations 785 (846) (45) 1,524 (2,530) ---------------- ---------------- ------------------ ----------------- ----------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 81,382 7,929 5,030 19,896 18,075 Participant transfers - 1,812 - 4,314 20,577 Participant withdrawals (1,794) (307) (52) (307) (453) ---------------- ---------------- ------------------ ----------------- ----------------- Net increase (decrease) in net assets resulting from participant transactions 79,588 9,434 4,978 23,903 38,199 ---------------- ---------------- ------------------ ----------------- ----------------- Net increase (decrease) in net assets 80,373 8,588 4,933 25,427 35,669 NET ASSETS Beginning of period - - - - 13,092 ---------------- ---------------- ------------------ ----------------- ----------------- End of period $ 80,373 $ 8,588 $ 4,933 $ 25,427 $ 48,761 ================ ================ ================== ================== =================
See Notes to Financial Statements SA-7 STATEMENTS OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 2001 (CONTINUED)
WANGER TECHNOLOGY WANGER FOREIGN INTERNATIONAL WANGER U.S. PORTFOLIO FORTY SMALL CAP WANGER TWENTY SMALL CAP SUBACCOUNT(3) SUBACCOUNT SUBACCOUNT SUBACCOUNT(6) SUBACCOUNT ------------- -------------- --------------- --------------- ------------ FROM OPERATIONS Net investment income (loss) $ (1) $ 60 $ (2) $ - $ 9 Net realized gain (loss) (501) 8,290 9,538 1 (4,641) Net unrealized appreciation (depreciation) (7,823) (17,779) (6,894) 2,284 29,878 ------------- -------------- --------------- --------------- ------------ Net increase (decrease) resulting from operations (8,325) (9,429) 2,642 2,285 25,246 ------------- -------------- --------------- --------------- ------------ FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 35,838 70,654 59,294 14,755 154,457 Participant transfers 5,541 (324) 257,868 4,842 266,069 Participant withdrawals (984) (15,913) (13,181) (273) - ------------- -------------- --------------- --------------- ------------ Net increase (decrease) in net assets resulting from participant transactions 40,395 54,417 303,981 19,324 420,526 ------------- -------------- --------------- --------------- ------------ Net increase (decrease) in net assets 32,070 44,988 306,623 21,609 445,772 NET ASSETS Beginning of period - 6,311 1,576 - 1,686 ------------- -------------- --------------- --------------- ------------ End of period $ 32,070 $ 51,299 $ 308,199 $ 21,609 $ 447,458 ============= ============== =============== =============== ============
Footnotes For Statements of Changes in Net Assets For the period ended December 31, 2001 (1) From inception January 12, 2001 to December 31, 2001 (2) From inception January 31, 2001 to December 31, 2001 (3) From inception February 1, 2001 to December 31, 2001 (4) From inception February 8, 2001 to December 31, 2001 (5) From inception February 20, 2001 to December 31, 2001 (6) From inception March 9, 2001 to December 31, 2001 (7) From inception April 4, 2001 to December 31, 2001 (8) From inception May 10, 2001 to December 31, 2001 (9) From inception May 15, 2001 to December 31, 2001 (10)From inception June 4, 2001 to December 31, 2001 (11)From inception July 31, 2001 to December 31, 2001 (12)From inception August 1, 2001 to December 31, 2001 (13)From inception September 7, 2001 to December 31, 2001 (14)From inception September 20, 2001 to December 31, 2001 (15)From inception November 13, 2001 to December 31, 2001 (16)From inception December 4, 2001 to December 31, 2001 (17)From inception December 12, 2001 to December 31, 2001 (18)From inception December 14, 2001 to December 31, 2001 See Notes to Financial Statements SA-8 STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 2000
SANFORD BERNSTEIN MID- ENGEMANN CAPITAL ENGEMANN NIFTY FIFTY CAP GROWTH SUBACCOUNT(3) SUBACCOUNT(1) SUBACCOUNT(1) --------------------- ---------------- ------------------ FROM OPERATIONS Net investment income (loss) $ - $ 80 $ - Net realized gain (loss) - - 219 Net unrealized appreciation (depreciation) 4 1,142 (2,375) --------------------- ---------------- ------------------ Net increase (decrease) resulting from operations 4 1,222 (2,156) --------------------- ---------------- ------------------ FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 9,162 12,500 27,667 Participant transfers - - - Participant withdrawals (19) (46) (115) --------------------- ---------------- ------------------ Net increase (decrease) in net assets resulting from participant transactions 9,143 12,454 27,552 --------------------- ---------------- ------------------ Net increase (decrease) in net assets 9,147 13,676 25,396 NET ASSETS Beginning of period - - - --------------------- ---------------- ------------------ End of period $ 9,147 $ 13,676 $ 25,396 ===================== ================ ================== GOODWIN MONEY GOODWIN MULTI- SENECA STRATEGIC MARKET SECTOR FIXED THEME SUBACCOUNT(4) SUBACCOUNT(2) SUBACCOUNT(4) --------------------- ---------------- ------------------ FROM OPERATIONS Net investment income (loss) $ - $ 106 $ 50 Net realized gain (loss) 280 - - Net unrealized appreciation (depreciation) (344) - (21) --------------------- ---------------- ------------------ Net increase (decrease) resulting from operations (64) 106 29 --------------------- ---------------- ------------------ FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 2,134 19,092 2,667 Participant transfers - (71) - Participant withdrawals (5) - (5) --------------------- ---------------- ------------------ Net increase (decrease) in net assets resulting from participant transactions 2,129 19,021 2,662 --------------------- ---------------- ------------------ Net increase (decrease) in net assets 2,065 19,127 2,691 NET ASSETS Beginning of period - - - --------------------- ---------------- ------------------ End of period $ 2,065 $ 19,127 $ 2,691 ===================== ================ ================== WANGER WANGER FOREIGN WANGER SMALL CAP INTERNNATIONAL FORTY SUBACCOUNT(4) SUBACCOUNT(4) SUBACCOUNT(3) --------------------- ---------------- ------------------ FROM OPERATIONS Net investment income (loss) $ - $ - $ - Net realized gain (loss) - - - Net unrealized appreciation (depreciation) 89 (21) 215 --------------------- ---------------- ------------------ Net increase (decrease) resulting from operations 89 (21) 215 --------------------- ---------------- ------------------ FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 1,600 1,600 6,108 Participant transfers - - - Participant withdrawals (3) (3) (12) --------------------- ---------------- ------------------ Net increase (decrease) in net assets resulting from participant transactions 1,597 1,597 6,096 --------------------- ---------------- ------------------ Net increase (decrease) in net assets 1,686 1,576 6,311 NET ASSETS Beginning of period - - - --------------------- ---------------- ------------------ End of period $ 1,686 $ 1,576 $ 6,311 ===================== ================ ==================
See Notes to Financial Statements SA-9 STATEMENT OF CHANGES IN NET ASSETS FOR THE PERIOD ENDED DECEMBER 31, 2000 (CONTINUED)
JANUS EQUITY ALGER AMERICAN TEMPLETON INTERNATIONAL INCOME LEVERAGED ALLCAP FUND SUBACCOUNT(1) SUBACCOUNT(3) SUBACCOUNT(3) -------------------------- ---------------- ----------------- FROM OPERATIONS Net investment income (loss) $ - $ 46 $ - Net realized gain (loss) - - - Net unrealized appreciation (depreciation) 638 160 (39) -------------------------- ---------------- ----------------- Net increase (decrease) resulting from operations 638 206 (39) -------------------------- ---------------- ----------------- FROM ACCUMULATION UNIT TRANSACTIONS Participant deposits 12,500 9,162 6,108 Participant transfers - - - Participant withdrawals (46) (19) (12) -------------------------- ---------------- ----------------- Net increase (decrease) in net asset resulting from participant transactions 12,454 9,143 6,096 -------------------------- ---------------- ----------------- Net increase (decrease) in net assets 13,092 9,349 6,057 NET ASSETS Beginning of period - - - -------------------------- ---------------- ----------------- End of period $ 13,092 $ 9,349 $ 6,057 ========================== ================ =================
Footnotes for Statements of Changes in Net Assets For the period ended December 31, 2000 (1) From inception October 31, 2000 to December 31, 2000 (2) From inception November 29, 2000 to December 31, 2000 (3) From inception December 5, 2000 to December 31, 2000 (4) From inception December 18, 2000 to December 31, 2000 See Notes to Financial Statements SA-10 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 1--ORGANIZATION Phoenix Life Variable Universal Life Account (Phoenix Edge(R) -- SPVL) (the "Account"), formerly Phoenix Home Life Variable Universal Life Account, is a separate investment account of Phoenix Life Insurance Company ("Phoenix") (See Note 10), formerly Phoenix Home Life Mutual Insurance Company. Phoenix is a wholly-owned subsidiary of The Phoenix Companies, Inc. The Account is registered as a unit investment trust under the Investment Company Act of 1940, as amended, and was established June 17, 1985. The Account currently consists of 50 subaccounts, that invest in shares of a specific series of a mutual fund. The mutual funds include The Phoenix Edge Series Fund, AIM Variable Insurance Funds, The Alger American Fund, Deutsche Asset Management VIT Funds, Federated Insurance Series, Fidelity(R) Variable Insurance Products, Franklin Templeton Variable Insurance Products Trust -- Class 2, The Universal Institutional Funds, Inc. and Wanger Advisors Trust (the "Funds"). As of December 31, 2001, all subaccounts were available for investment. Each series has distinct investment objectives as outlined below. Additionally, contract owners also may direct the allocation of their investments between the Account and the Guaranteed Interest Account of the general account of Phoenix.
- ----------------------------------------------------------------------------------------------------------------------------------- SERIES NAME INVESTMENT OBJECTIVE - ----------- -------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Aberdeen International Series High total return consistent with reasonable risk. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Aberdeen New Asia Series Long-term capital appreciation. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-AIM Mid-Cap Equity Series Long-term growth of capital. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Alliance/Bernstein Growth + Value Series Long-term capital growth. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Deutsche Dow 30 Series (formerly, Phoenix-Bankers Track the total return of the Dow Jones Industrial Average(SM) Trust Dow 30 Series) before fund expenses. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Deutsche Nasdaq-100 Index(R) Series (formerly, Phoenix- Track the total return of the Nasdaq-100 Index(R) before fund Bankers Trust Nasdaq-100(R) Series) expenses. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Duff & Phelps Real Estate Securities Series Capital appreciation and income with approximately equal emphasis. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Engemann Capital Growth Series (see Note 11) Intermediate and long-term growth of capital, with income as a secondary consideration. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Engemann Nifty Fifty Series (see Note 11) Long-term capital appreciation. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Engemann Small & Mid-Cap Growth Series Long-term growth of capital. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Federated U.S. Government Bond Series (see Note 11) High total return. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Goodwin Money Market Series High level of current income consistent with capital preservation and liquidity. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Goodwin Multi-Sector Fixed Income Series Long-term total return. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Hollister Value Equity Series Long-term capital appreciation and a secondary investment objective of current income. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-J.P. Morgan Research Enhanced Index Series High total return. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Janus Core Equity Series (formerly, Phoenix-Janus Long-term growth of capital. Equity Income Series) (see Note 11) - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Janus Flexible Income Series Maximum total return consistent with the preservation of capital. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Janus Growth Series (see Note 11) Long-term capital growth in a manner consistent with the preservation of capital. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-MFS Investors Growth Stock Series Long-term growth of capital and future income rather than current income. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-MFS Investors Trust Series Long-term growth of capital and secondarily to provide reasonable current income. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-MFS Value Series Capital appreciation and reasonable income. - ----------------------------------------------------------------------------------------------------------------------------------- Phoenix-Morgan Stanley Focus Equity Series Capital appreciation. - -----------------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements SA-11 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 1--ORGANIZATION (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------- SERIES NAME INVESTMENT OBJECTIVE - ----------- -------------------- - -------------------------------------------------------------------------------------------------------------------------------- Phoenix-Oakhurst Balanced Series (see Note 11) Reasonable income, long-term capital growth and conservation of capital. - -------------------------------------------------------------------------------------------------------------------------------- Phoenix-Oakhurst Growth and Income Series Dividend growth, current income and capital. - -------------------------------------------------------------------------------------------------------------------------------- Phoenix-Oakhurst Strategic Allocation Series (see Note 11) High total return over an extended period of time consistent with prudent investment risk. - -------------------------------------------------------------------------------------------------------------------------------- Phoenix-Sanford Bernstein Global Value Series Long-term capital appreciation. - -------------------------------------------------------------------------------------------------------------------------------- Phoenix-Sanford Bernstein Mid-Cap Value Series Long-term capital appreciation with current income as the secondary investment objective. - -------------------------------------------------------------------------------------------------------------------------------- Phoenix-Sanford Bernstein Small-Cap Value Series Long-term capital appreciation. Current income is a secondary investment objective. - -------------------------------------------------------------------------------------------------------------------------------- Phoenix-Seneca Mid-Cap Growth Series Capital appreciation. - -------------------------------------------------------------------------------------------------------------------------------- Phoenix-Seneca Strategic Theme Series Long-term appreciation of capital. - -------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund Growth of capital. - -------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Value Fund Long-term growth of capital. - -------------------------------------------------------------------------------------------------------------------------------- Alger American Leveraged AllCap Portfolio Long-term capital appreciation. - -------------------------------------------------------------------------------------------------------------------------------- Deutsche VIT EAFE(R) Equity Index Fund Replicate, before expenses, the performance of the Morgan Stanley Capital International EAFE(R) Index. - -------------------------------------------------------------------------------------------------------------------------------- Deutsche VIT Equity 500 Index Fund Replicate, before expenses, the performance of the Standard & Poor's 500 Composite Stock Price Index. - -------------------------------------------------------------------------------------------------------------------------------- Federated Fund for U.S. Government Securities II (see Note 11) Current income. - -------------------------------------------------------------------------------------------------------------------------------- Federated High Income Bond Fund II High current income. - -------------------------------------------------------------------------------------------------------------------------------- VIP Contrafund(R) Portfolio Long-term capital appreciation. - -------------------------------------------------------------------------------------------------------------------------------- VIP Growth Opportunities Portfolio Capital appreciation. - -------------------------------------------------------------------------------------------------------------------------------- VIP Growth Portfolio Capital growth. - -------------------------------------------------------------------------------------------------------------------------------- Mutual Shares Securities Fund Capital appreciation with income as a secondary objective. - -------------------------------------------------------------------------------------------------------------------------------- Templeton Asset Strategy Fund High level of total return. - -------------------------------------------------------------------------------------------------------------------------------- Templeton Developing Markets Securities Fund Long-term capital appreciation. - -------------------------------------------------------------------------------------------------------------------------------- Templeton Growth Securities Fund Long-term capital growth. - -------------------------------------------------------------------------------------------------------------------------------- Templeton International Securities Fund Long-term capital growth. - -------------------------------------------------------------------------------------------------------------------------------- Technology Portfolio Long-term capital appreciation. - -------------------------------------------------------------------------------------------------------------------------------- Wanger Foreign Forty Long-term capital growth. - -------------------------------------------------------------------------------------------------------------------------------- Wanger International Small Cap Long-term capital growth. - -------------------------------------------------------------------------------------------------------------------------------- Wanger Twenty Long-term capital growth. - -------------------------------------------------------------------------------------------------------------------------------- Wanger U.S. Small Cap Long-term capital growth. - --------------------------------------------------------------------------------------------------------------------------------
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES A. VALUATION OF INVESTMENTS: Investments are made exclusively in the Funds and are valued at the net asset values per share of the respective Series. B. INVESTMENT TRANSACTIONS AND RELATED INCOME: Investment transactions are recorded on the trade date. Realized gains and losses include capital gain distributions from the Funds as well as gains and losses on sales of shares in the Funds determined on the LIFO (last in, first out) basis. SA-12 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 2--SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) C. INCOME TAXES: The Account is not a separate entity from Phoenix and under current federal income tax law, income arising from the Account is not taxed since reserves are established equivalent to such income. Therefore, no provision for related federal taxes is required. D. DISTRIBUTIONS: Distributions from the Funds are recorded on the ex-dividend date. E. USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. SA-13 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 3--PURCHASES AND SALES OF SHARES OF THE FUNDS Purchases and sales of shares of the Funds for the period ended December 31, 2001 aggregated the following:
SUBACCOUNT PURCHASES SALES - ---------- --------- ----- The Phoenix Edge Series Fund Phoenix-Aberdeen International Series(3) $ 51,795 $ 11,375 Phoenix-Aberdeen New Asia Series(14) 192,615 185,353 Phoenix-Alliance/Bernstein Growth + Value Series(16) 2,759 - Phoenix-Deutsche Dow 30 Series(8) 199,838 64,936 Phoenix-Deutsche Nasdaq-100 Index(R) Series(11) 89,871 38,701 Phoenix-Duff & Phelps Real Estate Securities Series(4) 96,748 26,500 Phoenix-Engemann Capital Growth Series 490,128 215,259 Phoenix-Engemann Nifty Fifty Series 21,187 16,434 Phoenix-Engemann Small & Mid-Cap Growth Series(12) 7,692 45 Phoenix-Federated U.S. Government Bond Series(1) 112,340 24,805 Phoenix-Goodwin Money Market Series 10,541,181 9,445,702 Phoenix-Goodwin Multi-Sector Fixed Income Series 186,430 7,519 Phoenix-Hollister Value Equity Series(3) 531,466 121,945 Phoenix-J.P. Morgan Research Enhanced Index Series(10) 231,755 39,946 Phoenix-Janus Core Equity Series 66,202 23,820 Phoenix-Janus Flexible Income Series(6) 75,984 746 Phoenix-Janus Growth Series(3) 387,646 20,109 Phoenix-MFS Value Series(16) 20,625 37 Phoenix-Morgan Stanley Focus Equity Series(17) 11,210 5,523 Phoenix-Oakhurst Balanced Series(5) 58,674 3,779 Phoenix-Oakhurst Growth and Income Series(7) 131,223 722 Phoenix-Oakhurst Strategic Allocation Series(1) 244,697 62,417 Phoenix-Sanford Bernstein Global Value Series 37,877 21,604 Phoenix-Sanford Bernstein Mid-Cap Value Series 290,936 48,388 Phoenix-Sanford Bernstein Small-Cap Value Series(15) 37,877 21,604 Phoenix-Seneca Mid-Cap Growth Series(1) 278,207 90,681 Phoenix-Seneca Strategic Theme Series 167,075 62,518 AIM Variable Insurance Funds AIM V.I. Value Fund(18) 6,974 - The Alger American Fund Alger American Leveraged All Cap Portfolio 220,727 71,389 Deutsche Asset Management VIT Funds Deutsche VIT EAFE(R) Equity Index Fund(7) 210,548 39,835 Deutsche VIT Equity 500 Index Fund(16) 2,286 - Federated Insurance Series Federated Fund for U.S. Government Securities II(3) 206,831 20,668 Federated High Income Bond Fund II(4) 79,530 854 Fidelity(R) Variable Insurance Products VIP Contrafund(R) Portfolio(13) 10,689 69 VIP Growth Opportunities Portfolio(12) 8,073 99 VIP Growth Portfolio(2) 173,323 39,446 Franklin Templeton Variable Insurance Products Trust -- Class 2 Mutual Shares Securities Fund(5) 126,324 45,772 Templeton Asset Strategy Fund(6) 19,327 8,934 Templeton Developing Markets Securities Fund(11) 5,020 42 Templeton Growth Securities Fund(9) 28,953 4,636 Templeton International Securities Fund 44,620 430 The Universal Institutional Funds, Inc. Technology Portfolio(3) 63,923 23,528
SA-14 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 3--PURCHASES AND SALES OF SHARES OF THE FUNDS (CONTINUED)
SUBACCOUNT PURCHASES SALES - ---------- --------- ----- Wanger Advisors Trust Wanger Foreign Forty $ 272,959 $ 214,600 Wanger International Small Cap 530,891 222,223 Wanger Twenty(6) 19,584 260 Wanger U.S. Small Cap 680,569 260,034
(1) From inception January 12, 2001 to December 31, 2001 (2) From inception January 31, 2001 to December 31, 2001 (3) From inception February 1, 2001 to December 31, 2001 (4) From inception February 8, 2001 to December 31, 2001 (5) From inception February 20, 2001 to December 31, 2001 (6) From inception March 9, 2001 to December 31, 2001 (7) From inception April 4, 2001 to December 31, 2001 (8) From inception May 10, 2001 to December 31, 2001 (9) From inception May 15, 2001 to December 31, 2001 (10) From inception June 4, 2001 to December 31, 2001 (11) From inception July 31, 2001 to December 31, 2001 (12) From inception August 1, 2001 to December 31, 2001 (13) From inception September 7, 2001 to December 31, 2001 (14) From inception September 20, 2001 to December 31, 2001 (15) From inception November 13, 2001 to December 31, 2001 (16) From inception December 4, 2001 to December 31, 2001 (17) From inception December 12, 2001 to December 31, 2001 (18) From inception December 14, 2001 to December 31, 2001 SA-15 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 4--FINANCIAL HIGHLIGHTS A summary of Financial Highlights of the Account for the period ended December 31, 2001 follows:
PERIOD ENDED 12/31/01 -------------- THE PHOENIX EDGE SERIES: PHOENIX-ABERDEEN INTERNATIONAL SERIES(3) Units 45,732 Unit Value, end of period $0.753120 Net assets, end of period (thousands) $34 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return (24.69%) PHOENIX-ABERDEEN NEW ASIA SERIES(14) Units 9,491 Unit Value, end of period $1.029226 Net assets, end of period (thousands) $10 Expenses as a % of average net assets - Net investment income as a % of average net assets 1.41% (19) Total return 10.38% PHOENIX-ALLIANCE/BERNSTEIN GROWTH + VALUE SERIES(16) Units 2,630 Unit Value, end of period $1.070307 Net assets, end of period (thousands) $3 Expenses as a % of average net assets - Net investment income as a % of average net assets 1.50% (19) Total return 2.18% PHOENIX-DEUTSCHE DOW 30 SERIES(8) Units 139,907 Unit Value, end of period $0.929658 Net assets, end of period (thousands) $130 Expenses as a % of average net assets - Net investment income as a % of average net assets 2.82% (19) Total return (7.03%) PHOENIX-DEUTSCHE NASDAQ-100 INDEX(R) SERIES(11) Units 56,763 Unit Value, end of period $0.942132 Net assets, end of period (thousands) $53 Expenses as a % of average net assets - Net investment income as a % of average net assets (0.01%) (19) Total return (5.85%) PHOENIX-DUFF & PHELPS REAL ESTATE SECURITIES SERIES(4) Units 65,483 Unit Value, end of period $1.095485 Net assets, end of period (thousands) $72 Expenses as a % of average net assets - Net investment income as a % of average net assets 4.81% (19) Total return 9.55% PHOENIX-ENGEMANN CAPITAL GROWTH SERIES Units 526,026 Unit Value, end of period $0.598716 Net assets, end of period (thousands) $315 Expenses as a % of average net assets - Net investment income as a % of average net assets 0.02% Total return (34.57%)
SA-16 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 4--FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED 12/31/01 -------------- PHOENIX-ENGEMANN NIFTY FIFTY SERIES Units 12,881 Unit Value, end of period $0.870651 Net assets, end of period (thousands) $11 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return (12.93%) PHOENIX-ENGEMANN SMALL & MID-CAP GROWTH SERIES(12) Units 8,201 Unit Value, end of period $0.893189 Net assets, end of period (thousands) $7 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return (5.87%) PHOENIX-FEDERATED U.S. GOVERNMENT BOND SERIES(1) Units 81,108 Unit Value, end of period $1.054423 Net assets, end of period (thousands) $86 Expenses as a % of average net assets - Net investment income as a % of average net assets 5.18% (19) Total return 5.44% PHOENIX-GOODWIN MONEY MARKET SERIES Units 1,067,642 Unit Value, end of period $1.043989 Net assets, end of period (thousands) $1,115 Expenses as a % of average net assets - Net investment income as a % of average net assets 2.97% Total return 3.82% PHOENIX-GOODWIN MULTI-SECTOR FIXED INCOME SERIES Units 164,110 Unit Value, end of period $1.072737 Net assets, end of period (thousands) $176 Expenses as a % of average net assets - Net investment income as a % of average net assets 9.94% Total return 6.09% PHOENIX-HOLLISTER VALUE EQUITY SERIES(3) Units 437,538 Unit Value, end of period $0.851643 Net assets, end of period (thousands) $373 Expenses as a % of average net assets - Net investment income as a % of average net assets 1.25% (19) Total return (14.84%) PHOENIX-J.P. MORGAN RESEARCH ENHANCED INDEX SERIES(10) Units 198,133 Unit Value, end of period $0.912495 Net assets, end of period (thousands) $181 Expenses as a % of average net assets - Net investment income as a % of average net assets 1.11% (19) Total return (8.75%)
SA-17 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 4--FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED 12/31/01 -------------- PHOENIX-JANUS CORE EQUITY SERIES Units 55,347 Unit Value, end of period $0.903519 Net assets, end of period (thousands) $50 Expenses as a % of average net assets - Net investment income as a % of average net assets 1.22% Total return (11.63%) PHOENIX-JANUS FLEXIBLE INCOME SERIES(6) Units 71,527 Unit Value, end of period $1.043081 Net assets, end of period (thousands) $75 Expenses as a % of average net assets - Net investment income as a % of average net assets 6.27% (19) Total return 4.31% PHOENIX-JANUS GROWTH SERIES(3) Units 445,567 Unit Value, end of period $0.713872 Net assets, end of period (thousands) $318 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return (28.61%) PHOENIX-MFS VALUE SERIES(16) Units 19,951 Unit Value, end of period $1.057281 Net assets, end of period (thousands) $21 Expenses as a % of average net assets - Net investment income as a % of average net assets 2.46% (19) Total return 2.64% PHOENIX-MORGAN STANLEY FOCUS EQUITY SERIES(17) Units 5,830 Unit Value, end of period $0.969701 Net assets, end of period (thousands) $6 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return 0.71% PHOENIX-OAKHURST BALANCED SERIES(5) Units 54,132 Unit Value, end of period $1.019691 Net assets, end of period (thousands) $55 Expenses as a % of average net assets - Net investment income as a % of average net assets 3.49% (19) Total return 1.97% PHOENIX-OAKHURST GROWTH AND INCOME SERIES(7) Units 124,312 Unit Value, end of period $1.055722 Net assets, end of period (thousands) $131 Expenses as a % of average net assets - Net investment income as a % of average net assets 2.32% (19) Total return 5.57%
SA-18 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 4--FINANCIAL HIGHLIGHTS (CONTINUED) PERIOD ENDED 12/31/01 -------------- PHOENIX-OAKHURST STRATEGIC ALLOCATION SERIES(1) Units 174,980 Unit Value, end of period $1.017224 Net assets, end of period (thousands) $178 Expenses as a % of average net assets - Net investment income as a % of average net assets 2.66% (19) Total return 1.72% PHOENIX-SANFORD BERNSTEIN MID-CAP VALUE SERIES Units 209,944 Unit Value, end of period $1.350480 Net assets, end of period (thousands) $284 Expenses as a % of average net assets - Net investment income as a % of average net assets 1.80% Total return 22.98% PHOENIX-SANFORD BERNSTEIN SMALL-CAP VALUE SERIES(15) Units 16,370 Unit Value, end of period $1.064806 Net assets, end of period (thousands) $17 Expenses as a % of average net assets - Net investment income as a % of average net assets 4.12% (19) Total return 7.82% PHOENIX-SENECA MID-CAP GROWTH SERIES(1) Units 217,344 Unit Value, end of period $0.770451 Net assets, end of period (thousands) $167 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return (22.95%) PHOENIX-SENECA STRATEGIC THEME SERIES Units 130,303 Unit Value, end of period $0.704659 Net assets, end of period (thousands) $92 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return (27.36%) AIM VARIABLE INSURANCE FUNDS: AIM V.I. VALUE FUND(18) Units 7,615 Unit Value, end of period $0.944977 Net assets, end of period (thousands) $7 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return 3.18% THE ALGER AMERICAN FUND: ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO Units 183,164 Unit Value, end of period $0.835329 Net assets, end of period (thousands) $153 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return (15.93%) SA-19 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 4--FINANCIAL HIGHLIGHTS (CONTINUED) PERIOD ENDED 12/31/01 -------------- DEUTSCHE ASSET MANAGEMENT VIT FUNDS: DEUTSCHE VIT EAFE(R) EQUITY INDEX FUND(7) Units 174,316 Unit Value, end of period $0.901184 Net assets, end of period (thousands) $157 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return (9.88%) DEUTSCHE VIT EQUITY 500 INDEX FUND(16) Units 2,180 Unit Value, end of period $1.056437 Net assets, end of period (thousands) $2 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return 0.76% FEDERATED INSURANCE SERIES: FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II(3) Units 177,972 Unit Value, end of period $1.060761 Net assets, end of period (thousands) $189 Expenses as a % of average net assets - Net investment income as a % of average net assets 1.22% (19) Total return 6.08% FEDERATED HIGH INCOME BOND FUND II(4) Units 79,444 Unit Value, end of period $0.943542 Net assets, end of period (thousands) $75 Expenses as a % of average net assets - Net investment income as a % of average net assets 3.23% (19) Total return (5.65%) FIDELITY(R) VARIABLE INSURANCE PRODUCTS: VIP CONTRAFUND(R) PORTFOLIO(13) Units 11,741 Unit Value, end of period $0.972371 Net assets, end of period (thousands) $11 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return 1.67% VIP GROWTH OPPORTUNITIES PORTFOLIO(12) Units 8,492 Unit Value, end of period $0.951516 Net assets, end of period (thousands) $8 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return (4.31%) VIP GROWTH PORTFOLIO(2) Units 157,601 Unit Value, end of period $0.798161 Net assets, end of period (thousands) $126 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return (20.18%) SA-20 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 4--FINANCIAL HIGHLIGHTS (CONTINUED)
PERIOD ENDED 12/31/01 -------------- FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST -- CLASS 2: MUTUAL SHARES SECURITIES FUND(5) Units 79,151 Unit Value, end of period $1.015447 Net assets, end of period (thousands) $80 Expenses as a % of average net assets - Net investment income as a % of average net assets 0.72% (19) Total return 1.54% TEMPLETON ASSET STRATEGY FUND(6) Units 9,506 Unit Value, end of period $0.903379 Net assets, end of period (thousands) $9 Expenses as a % of average net assets - Net investment income as a % of average net assets 1.43% (19) Total return (9.66%) TEMPLETON DEVELOPING MARKETS SECURITIES FUND(11) Units 5,275 Unit Value, end of period $0.935164 Net assets, end of period (thousands) $5 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return (0.83%) TEMPLETON GROWTH SECURITIES FUND(9) Units 25,821 Unit Value, end of period $0.984733 Net assets, end of period (thousands) $25 Expenses as a % of average net assets - Net investment income as a % of average net assets 6.01% (19) Total return (1.53%) TEMPLETON INTERNATIONAL SECURITIES FUND Units 55,215 Unit Value, end of period $0.833099 Net assets, end of period (thousands) $49 Expenses as a % of average net assets - Net investment income as a % of average net assets 3.38% Total return (15.99%) THE UNIVERSAL INSTITUTIONAL FUNDS, INC.: TECHNOLOGY PORTFOLIO(3) Units 67,975 Unit Value, end of period $0.471792 Net assets, end of period (thousands) $32 Expenses as a % of average net assets - Net investment income as a % of average net assets (0.01%) (19) Total return (52.82%) WANGER ADVISORS TRUST: WANGER FOREIGN FORTY Units 67,514 Unit Value, end of period $0.759827 Net assets, end of period (thousands) $51 Expenses as a % of average net assets - Net investment income as a % of average net assets 0.10% Total return (26.61%)
SA-21 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 4--FINANCIAL HIGHLIGHTS (CONTINUED) PERIOD ENDED 12/31/01 -------------- WANGER INTERNATIONAL SMALL CAP Units 396,109 Unit Value, end of period $0.778068 Net assets, end of period (thousands) $308 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return (21.27%) WANGER TWENTY(6) Units 19,822 Unit Value, end of period $1.090134 Net assets, end of period (thousands) $22 Expenses as a % of average net assets - Net investment income as a % of average net assets - Total return 9.01% WANGER U.S. SMALL CAP Units 380,414 Unit Value, end of period $1.176238 Net assets, end of period (thousands) $447 Expenses as a % of average net assets - Net investment income as a % of average net assets 0.01% Total return 11.39% (1) From inception January 12, 2001 to December 31, 2001 (2) From inception January 31, 2001 to December 31, 2001 (3) From inception February 1, 2001 to December 31, 2001 (4) From inception February 8, 2001 to December 31, 2001 (5) From inception February 20, 2001 to December 31, 2001 (6) From inception March 9, 2001 to December 31, 2001 (7) From inception April 12, 2001 to December 31, 2001 (8) From inception May 10, 2001 to December 31, 2001 (9) From inception May 15, 2001 to December 31, 2001 (10) From inception June 4, 2001 to December 31, 2001 (11) From inception July 31, 2001 to December 31, 2001 (12) From inception August 1, 2001 to December 31, 2001 (13) From inception September 7, 2001 to December 31, 2001 (14) From inception September 20, 2001 to December 31, 2001 (15) From inception November 13, 2001 to December 31, 2001 (16) From inception December 4, 2001 to December 31, 2001 (17) From inception December 12, 2001 to December 31, 2001 (18) From inception December 14, 2001 to December 31, 2001 (19) Annualized SA-22 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 5--PARTICIPANT ACCUMULATION UNIT TRANSACTIONS FOR THE PERIOD ENDED DECEMBER 31, 2001 (IN UNITS)
SUBACCOUNT ------------------------------------------------------------------------------------------- PHOENIX- PHOENIX- ABERDEEN PHOENIX- PHOENIX-ALLIANCE/ PHOENIX- DEUTSCHE INTERNATIONAL ABERDEEN NEW BERNSTEIN GROWTH DEUTSCHE DOW 30 NASDAQ-100 SERIES(3) ASIA SERIES(14) + VALUE SERIES(16) SERIES(8) INDEX(R) SERIES(11) ------------- ---------------- ------------------- --------------- --------------------- Units outstanding, beginning of period - - - - - Participant deposits 61,270 9,491 2,635 141,521 57,225 Participant transfers (14,780) - (5) (238) - Participant withdrawals (758) - - (1,376) (462) ------------------------------------------------------------------------------------------- Units outstanding, end of period 45,732 9,491 2,630 139,907 56,763 =========================================================================================== --------------------------------------- PHOENIX-DUFF & PHOENIX PHELPS REAL ENGEMANN ESTATE SECURITIES CAPITAL GROWTH SERIES(4) SERIES ----------------- -------------- Units outstanding, beginning of period - 27,752 Participant deposits 60,209 124,792 Participant transfers 6,188 381,034 Participant withdrawals (914) (7,552) --------------------------------------- Units outstanding, end of period 65,483 526,026 =======================================
PHOENIX- PHOENIX- PHOENIX- PHOENIX- ENGEMANN SMALL FEDERATED U.S. PHOENIX- GOODWIN MULTI- ENGEMANN NIFTY & MID-CAP GOVERNMENT GOODWIN MONEY SECTOR FIXED FIFTY SERIES GROWTH SERIES(12) BOND SERIES(1) MARKET SERIES INCOME SERIES --------------- ----------------- ---------------- --------------- --------------- Units outstanding, beginning of period 9,143 - - 19,021 2,662 Participant deposits 3,738 7,096 99,172 4,431,611 163,490 Participant transfers - 1,174 - (1,272,576) - Participant withdrawals - (69) (18,064) (2,110,414) (2,042) ------------------------------------------------------------------------------------------- Units outstanding, end of period 12,881 8,201 81,108 1,067,642 164,110 =========================================================================================== PHOENIX-J.P. PHOENIX-HOLLISTER MORGAN RESEARCH VALUE EQUITY ENHANCED INDEX SERIES(3) SERIES(10) ----------------- ----------------- Units outstanding, beginning of period - - Participant deposits 419,248 61,942 Participant transfers 24,421 138,059 Participant withdrawals (6,131) (1,868) ------------------------------------ Units outstanding, end of period 437,538 198,133 ====================================
PHOENIX-JANUS PHOENIX-JANUS PHOENIX-MORGAN CORE EQUITY FLEXIBLE INCOME PHOENIX-JANUS PHOENIX-MFS STANLEY FOCUS SERIES SERIES(6) GROWTH SERIES(3) VALUE SERIES(16) EQUITY SERIES(17) -------------- ----------------- ------------------ ----------------- ----------------- Units outstanding, beginning of period 9,143 - - - - Participant deposits 34,163 62,637 356,338 - 5,830 Participant transfers 13,009 9,682 95,997 19,987 - Participant withdrawals (968) (792) (6,768) (36) - ------------------------------------------------------------------------------------------- Units outstanding, end of period 55,347 71,527 445,567 19,951 5,830 =========================================================================================== PHOENIX- PHOENIX- OAKHURST OAKHURST GROWTH BALANCED AND INCOME SERIES(5) SERIES(7) ------------ ------------------ Units outstanding, beginning of period - - Participant deposits 53,507 125,234 Participant transfers 1,393 (354) Participant withdrawals (768) (568) --------------------------------- Units outstanding, end of period 54,132 124,312 =================================
PHOENIX- OAKHURST PHOENIX-SANFORD STRATEGIC PHOENIX-SANFORD BERNSTEIN SMALL- PHOENIX-SENECA PHOENIX-SENECA ALLOCATION BERNSTEIN MID- CAP VALUE MID-CAP GROWTH STRATEGIC THEME SERIES(1) CAP VALUE SERIES SERIES(15) SERIES(1) SERIES ------------- ------------------ ---------------- -------------- ----------------- Units outstanding, beginning of period - 12,454 - - 2,129 Participant deposits 231,075 106,688 27,338 233,903 158,487 Participant transfers (37,189) 93,917 (10,909) 3,038 (28,706) Participant withdrawals (18,906) (3,115) (59) (19,597) (1,607) ----------------------------------------------------------------------------------------- Units outstanding, end of period 174,980 209,944 16,370 217,344 130,303 ========================================================================================= ALGER AMERICA AIM V.I. VALUE LEVERAGED ALL FUND(18) CAP PORTFOLIO ---------------- ------------- - 6,096 Units outstanding, beginning of period 7,628 183,649 Participant deposits - 12,154 Participant transfers (13) (18,735) Participant withdrawals -------------------------------------- Units outstanding, end of period 7,615 183,164 ======================================
FEDERATED FUND FOR U.S. FEDERATED HIGH DEUTSCHE VIT DEUTSCHE VIT GOVERNMENT INCOME BOND EAFE(R) EQUITY EQUITY 500 INDEX SECURITIES II FUND II INDEX FUND(7) FUND(16) SUBACCOUNT(3) SUBACCOUNT(4) ----------------- ----------------- ----------------- -------------- Units outstanding, beginning of period - - - - Participant deposits 81,798 - 124,223 58,932 Participant transfers 94,111 2,184 55,461 21,472 Participant withdrawals (1,593) (4) (1,712) (960) ------------------------------------------------------------------------ Units outstanding, end of period 174,316 2,180 177,972 79,444 ======================================================================== VIP GROWTH VIP CONTRAFUND(R) OPPORTUNITIES VIP GROWTH PORTFOLIO(13) PORTFOLIO(12) PORTFOLIO(2) ---------------------- --------------- ---------------- - - - Units outstanding, beginning of period - 8,611 119,759 Participant deposits 11,741 (81) 39,549 Participant transfers - (38) (1,707) Participant withdrawals ------------------------------------------------------------- 11,741 8,492 157,601 Units outstanding, end of period =============================================================
TEMPLETON DEVELOPING TEMPLETON TEMPLETON MUTUAL SHARES TEMPLETON ASSET MARKETS GROWTH INTERNATIONAL SECURITIES STRATEGY SECURITIES SECURITIES SECURITIES FUND(5) FUND(6) FUND(11) FUND(9) FUND --------------- ----------------- -------------- ------------ ------------ Units outstanding, beginning of period - - - - 12,454 Participant deposits 80,513 8,989 5,334 20,999 19,491 Participant transfers - 727 - 5,249 23,786 Participant withdrawals (1,362) (210) (58) (427) (516) ---------------------------------------------------------------------------------- Units outstanding, end of period 79,151 9,506 5,276 25,821 55,215 ================================================================================== TECHNOLOGY WANGER FOREIGN PORTFOLIO(3) FORTY ----------------- ---------------- Units outstanding, beginning of period - 6,096 Participant deposits 62,916 74,446 Participant transfers 5,927 (3,638) Participant withdrawals (868) (9,390) ------------------------------------- Units outstanding, end of period 67,975 67,514 =====================================
SA-23 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 5--PARTICIPANT ACCUMULATION UNIT TRANSACTIONS FOR THE PERIOD ENDED DECEMBER 31, 2001 (IN UNITS)(CONTINUED)
SUBACCOUNT ------------------------------------------------------------------------------------- WANGER INTERNATIONAL WANGER U.S. SMALL CAP WANGER TWENTY(6) SMALL CAP --------------- ----------------- ----------- Units outstanding, beginning of period 1,597 - 1,597 Participant deposits 67,247 15,254 134,550 Participant transfers 341,137 4,841 244,267 Participant withdrawals (13,872) (273) - ---------------------------------------------------- Units outstanding, end of period 396,109 19,822 380,414 ====================================================
(1) From inception January 12, 2001 to December 31, 2001 (2) From inception January 31, 2001 to December 31, 2001 (3) From inception February 1, 2001 to December 31, 2001 (4) From inception February 8, 2001 to December 31, 2001 (5) From inception February 20, 2001 to December 31, 2001 (6) From inception March 9, 2001 to December 31, 2001 (7) From inception April 12, 2001 to December 31, 2001 (8) From inception May 10, 2001 to December 31, 2001 (9) From inception May 15, 2001 to December 31, 2001 (10) From inception June 4, 2001 to December 31, 2001 (11) From inception July 31, 2001 to December 31, 2001 (12) From inception August 1, 2001 to December 31, 2001 (13) From inception September 7, 2001 to December 31, 2001 (14) From inception September 20, 2001 to December 31, 2001 (15) From inception November 13, 2001 to December 31, 2001 (16) From inception December 4, 2001 to December 31, 2001 (17) From inception December 12, 2001 to December 31, 2001 (18) From inception December 14, 2001 to December 31, 2001 SA-24 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 6--POLICY LOANS Policy provisions allow policyowners to borrow up to 90% of policy value, with interest of 6% in policy year 1 and 8% in policy years 2 and thereafter, payable on each policy anniversary. At the time a loan is granted, an amount equivalent to the amount of the loan is transferred from the Account and the non-loaned portion of the Guaranteed Interest Account to the loaned portion of the Guaranteed Interest Account, a part of Phoenix's general account as collateral for the outstanding loan. Transfers from the account are included in participant withdrawals in the accompanying financial statements. Amounts in the loaned portion of the Guaranteed Interest Account are credited with interest of 6%. Loan repayments result in a transfer of collateral back to the Account and the non-loaned portion of the Guaranteed Interest Account. NOTE 7--INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS Phoenix and its affiliate, Phoenix Equity Planning Corporation ("PEPCO"), a registered broker/dealer in securities, provide all services to the Account. The cost of insurance is charged to each policy on a monthly basis by a withdrawal of participant units prorated among the elected Subaccounts. The amount charged to each policy depends on a number of variables including sex, age and risk class as well as the death benefit and cash value of the policy. Such costs aggregated $71,216 and $275 during the years ended December 31, 2001 and 2000, respectively. As compensation for administrative services provided to the Account, Phoenix receives an additional amount annually, equal to the greater of $60 or 0.30% of the unloaned policy value or if the policy value is greater than $100,000, 0.15% of the unloaned policy value, per contract, by a withdrawal of participant units prorated among the elected Subaccounts. Upon full or partial surrender of a policy, a surrender fee ranging from 0% to 9% of contract premiums depending on the inception of the contract period is deducted to compensate Phoenix for distribution expenses incurred. Surrender fees deducted and paid to Phoenix aggregated $17,895 and $58 for the years ended December 31, 2001 and 2000, respectively. PEPCO is the principal underwriter and distributor for the Account. PEPCO is reimbursed for its distribution and underwriting expenses by Phoenix. Phoenix assumes the mortality risk that insureds may live for a shorter time than projected because of inaccuracies in the projecting process and, accordingly, that an aggregate amount of death benefits greater than projected will be payable. The expense risk assumed is that expenses incurred in issuing the policies may exceed the limits on administrative charges set in the policies. In return for the assumption of these mortality and expense risks, Phoenix charges each policy up to .80% of the average daily net assets of the Account, on an annual basis by a withdrawal of participant units prorated among the elected Subaccounts during the first ten policy years. The mortality and expense risk change drops to .50% beginning in policy year eleven. Unit value is not affected by mortality and expense charges. NOTE 8--DISTRIBUTION OF NET INCOME The Account does not expect to declare dividends to participants from accumulated net income. The accumulated net income is distributed to participants as part of withdrawals of amounts in the form of surrenders, death benefits, transfers or annuity payments in excess of net purchase payments. NOTE 9--DIVERSIFICATION REQUIREMENTS Under the provisions of Section 817(h) of the Internal Revenue Code of 1986 (the "Code"), as amended, a variable contract, other than a contract issued in connection with certain types of employee benefit plans, will not be treated as a variable contract for federal tax purposes for any period for which the investments of the segregated asset account on which the contract is based are not adequately diversified. Each Subaccount is required to satisfy the requirements of Section 817(h). The Code provides that the "adequately diversified" requirement may be met if the underlying investments satisfy either the statutory safe harbor test or diversification requirements set forth in regulations issued by the Secretary of the Treasury. The Secretary of the Treasury has issued regulations under Section 817(h) of the Code. Phoenix intends that each of the Subaccounts shall comply with the diversification requirements and, in the event of any failure to comply, will take immediate corrective action to assure compliance. NOTE 10--REORGANIZATION AND INITIAL PUBLIC OFFERING On December 18, 2000, the board of directors of Phoenix Home Life Mutual Insurance Company unanimously adopted a plan of reorganization, which was amended and restated on January 26, 2001. On June 25, 2001, the effective date of the demutualization, Phoenix Home Life Mutual Insurance Company converted from a mutual life insurance company to a stock Life Insurance Company, became a wholly owned subsidiary of The Phoenix Companies, Inc. ("PNX") and changed its name to Phoenix Life Insurance Company. At the same time, Phoenix Investment Partners, Ltd. ("PXP") became an indirect wholly owned subsidiary of PNX. SA-25 PHOENIX EDGE(R) -- SPVL PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT NOTES TO FINANCIAL STATEMENTS NOTE 11--PROPOSED FUND CHANGES On November 13, 2001, The Board of Trustees of The Phoenix Edge Series Fund approved a Plan of Reorganization to merge three Series of The Phoenix Edge Series into other existing series of the Fund. Each Merging Series will be merged into a corresponding Surviving Series as follows:
Merging Series Surviving Series - -------------- ---------------- Phoenix-Engemann Nifty Fifty Series Phoenix-Engemann Capital Growth Series Phoenix-Janus Core Equity Series Phoenix-Janus Growth Series Phoenix-Oakhurst Balanced Series Phoenix-Oakhurst Strategic Allocation Series
If the shareholders approve the Plan of Reorganization each Merging Series will transfer all or substantially all of its assets and its liabilities to the corresponding Surviving Series. In exchange, shareholders of the Merging Series will receive a proportional number of shares in the Surviving Series. The shareholders of each Merging Series must approve the Plan of Reorganization before any transaction can take place. The next meeting of The Phoenix Edge Series Fund's shareholders will be held in the Spring of 2002, at which time, these matters will be submitted for a shareholder vote. The Board of Trustees of the fund voted at their August 28, 2001 meeting that shares of the Phoenix-Federated U.S. Government Bond Series will no longer be available for sale except to contract/policy owners who already had account value allocated to the subaccounts investing in the series as of February 16, 2001. On September 18, 2001, Phoenix Life Variable Accumulation Account, Phoenix Life Variable Universal Life Account, PHL Variable Accumulation Account, PHLVIC Variable Universal Life Account and Phoenix Life And Annuity Variable Universal Life Account asked the Securities and Exchange Commission ("SEC") to approve a proposal to substitute shares of Federated Fund for U.S. Government Securities II for shares of Phoenix-Federated U.S. Government Bond Series. Subject to SEC approval, the substitution is expected to be completed in 2002. It will affect contract/policy owners who have amounts invested in the Phoenix-Federated U.S. Government Bond Series at that time. Affected Contract owners will be notified when the substitution is complete. NOTE 12--MANAGER OF MANAGERS The Adviser of Phoenix-AIM Mid-Cap Equity Series, Phoenix-Alliance/Bernstein Growth + Value Series, Phoenix-Deutsche Dow 30 Series, Phoenix-Deutsche Nasdaq-100 Index(R) Series, Phoenix-Federated U.S. Government Bond Series, Phoenix-J.P. Morgan Research Enhanced Index Series, Phoenix-Janus Core Equity Series, Phoenix-Janus Flexible Income Series, Phoenix-Janus Growth Series, Phoenix-MFS Investors Growth Stock Series, Phoenix-MFS Investors Trust Series, Phoenix-MFS Value Series, Phoenix-Morgan Stanley Focus Equity Series, Phoenix-Sanford Bernstein Global Value Series, Phoenix-Sanford Bernstein Mid-Cap Value Series, Phoenix-Sanford Bernstein Small Cap Value Series ("PVA Funds") is Phoenix Variable Advisers, Inc. ("PVA"). The PVA Funds and PVA have filed an application for an order of the SEC granting exemptions from certain provisions of the Investment Company Act of 1940, as amended, to permit the PVA Funds to be managed under a "manager of managers" structure. If the SEC grants the requested exemptive order, PVA will, subject to supervision and approval of the PVA Funds' Board of Trustees, be permitted to enter into and materially amend subadvisory agreements without such agreements being approved by the shareholders of the applicable series of the PVA Funds. The order would, therefore, permit the PVA Funds and PVA to hire, terminate, or replace subadvisors without shareholder approval, including, without limitation, the placement or reinstatement of any subadvisor with respect to which a subadvisory agreement has automatically terminated as a result of an assignment. The PVA Funds and PVA believe that without such exemption, PVA may be impeded in the prompt and efficient employment of a subadvisor best suited to the needs of a particular series, and a series may be subjected to additional expenses of proxy solicitations and shareholder meetings when subadvisors are employed or replaced. PVA will continue to have the ultimate responsibility to oversee the subadvisors and recommend their hiring, termination, and replacement. There is no guarantee the PVA Funds will obtain this order from the SEC. SA-26 REPORT OF INDEPENDENT ACCOUNTANTS [LOGO OF PRICEWATERHOUSECOOPERS] To the Board of Directors of Phoenix Life Insurance Company and Participants of Phoenix Life Variable Universal Life Account (Phoenix Edge(R) - SPVL): In our opinion, the accompanying statements of assets and liabilities and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of each of the Subaccounts constituting the Phoenix Life Variable Universal Life Account (Phoenix Edge(R)-SPVL) at December 31, 2001, and the results of each of their operations and the changes in each of their net assets for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Phoenix Life Insurance Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of investments at December 31, 2001 by correspondence with the mutual funds, provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Hartford, Connecticut March 22, 2002 SA-27 PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT Phoenix Life Insurance Company One American Row Hartford, Connecticut 06115 UNDERWRITER Phoenix Equity Planning Corporation 56 Prospect Street Hartford, Connecticut 06115-0480 CUSTODIANS JP Morgan Chase Bank 1 Chase Manhattan Plaza Floor 13B New York, New York 10081 Brown Brothers Harriman & Co. 40 Water Street Boston, Massachusetts 02109 State Street Bank and Trust Company 1 Heritage Drive, P2N North Quincy, Massachusetts 02171 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 100 Pearl Street Hartford, Connecticut 06103 _________________________________ SA-28 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 AND 2000 F-1 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE Report of Independent Accountants ..........................................F-3 Consolidated Balance Sheets ................................................F-4 Consolidated Statements of Income ..........................................F-5 Consolidated Statements of Cash Flows.................................F-6 - F-7 Consolidated Statements of Changes in Stockholder's Equity and Comprehensive Income ...............................................F-8 Notes to Consolidated Financial Statements ..........................F-9 - F-45 F-2 PRICEWATERHOUSECOOPERS [Logo] - -------------------------------------------------------------------------------- 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 Stockholder of Phoenix Life Insurance Company In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, cash flows, and changes in stockholder's equity and comprehensive income present fairly, in all material respects, the financial position of Phoenix Life Insurance Company (formerly Phoenix Home Life Mutual Insurance Company) and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in the accompanying notes to consolidated financial statements, the Company changed its method of accounting for venture capital partnerships (Note 5), securitized financial instruments (Note 3), and derivative financial instruments (Note 3) in 2001. /s/ PricewaterhouseCoopers LLP February 5, 2002 F-3 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
AS OF DECEMBER 31, --------------------------------------- 2000 2001 ------------------ ------------------- ASSETS (IN MILLIONS, EXCEPT SHARE DATA) Investments: Available-for-sale debt securities, at fair value................ $ 5,949.0 $ 9,599.2 Held-to-maturity debt securities, at amortized cost.............. 2,109.6 -- Equity securities, at fair value................................. 335.5 286.0 Mortgage loans, at unpaid principal, net......................... 593.4 535.8 Real estate, at lower of cost or fair value less costs to sell , net 77.9 83.1 Policy loans, at unpaid principal................................ 2,105.2 2,172.2 Venture capital partnerships..................................... 467.3 291.7 Other invested assets............................................ 235.7 281.2 Short-term investments, at amortized cost........................ 3.8 8.5 ------------------ ------------------- Total investments............................................. 11,877.4 13,257.7 Cash and cash equivalents............................................ 720.0 547.9 Accrued investment income............................................ 194.5 203.1 Deferred policy acquisition costs.................................... 1,019.0 1,123.7 Premiums, accounts and notes receivable.............................. 155.8 175.1 Reinsurance recoverables............................................. 16.6 21.4 Property, equipment and leasehold improvements, net.................. 122.2 102.2 Goodwill and other intangible assets, net............................ 582.6 22.6 Investments in unconsolidated affiliates............................. 173.2 330.6 Deferred income taxes, net........................................... -- 22.9 Net assets of discontinued operations (note 13)...................... 25.5 20.8 Other assets......................................................... 49.8 32.7 Separate account assets and investment trusts........................ 5,376.6 5,570.0 ------------------ ------------------- Total assets..................................................... $ 20,313.2 $ 21,430.7 ================== =================== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: - ------------ Policy liabilities and accruals................................. $ 11,372.6 $ 11,993.4 Policyholder deposit funds...................................... 678.4 1,368.2 Long-term debt (note 10)........................................ 425.1 175.0 Deferred income taxes, net...................................... 9.4 -- Other liabilities............................................... 473.3 496.0 Separate account liabilities and investment trusts.............. 5,376.6 5,564.9 ------------------ ------------------- Total liabilities.......................................... 18,335.4 19,597.5 ------------------ ------------------- Commitments and contingencies (note 22)............................. Minority interest in net assets of consolidated subsidiaries........ 136.9 1.1 ------------------ ------------------- Stockholder's equity: - --------------------- Common stock ($1,000 par value, 10,000 shares authorized; 0 and 10,000 shares issued and outstanding at December 31, 2000 and 2001, respectively................................... -- 10.0 Additional paid-in capital....................................... -- 1,712.0 Retained earnings................................................ 1,820.7 29.0 Accumulated other comprehensive income........................... 20.2 81.1 ------------------ ------------------- Total stockholder's equity................................... 1,840.9 1,832.1 ------------------ ------------------- Total liabilities and stockholder's equity................... $ 20,313.2 $ 21,430.7 ================== =================== The accompanying notes are an integral part of these consolidated financial statements.
F-4 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------- 1999 2000 2001 -------------- -------------- -------------- Revenues: (IN MILLIONS) - --------- Premiums....................................................... $1,175.7 $ 1,147.4 $ 1,112.7 Insurance and investment product fees.......................... 574.6 631.0 430.3 Net investment income.......................................... 953.1 1,129.6 830.2 Net realized investment gains ................................. 75.8 89.2 150.1 -------------- -------------- -------------- Total revenues......................................... 2,779.2 2,997.2 2,523.3 -------------- -------------- -------------- Benefits and expenses: Policy benefits and increase in policy liabilities...... 1,373.1 1,409.8 1,406.7 Policyholder dividends.................................. 360.5 378.0 400.1 Amortization of deferred policy acquisition costs 147.9 356.0 133.0 Amortization of goodwill and other intangible assets 40.1 36.9 24.7 Interest expense........................................ 34.0 32.7 20.0 Demutualization expenses................................ -- 21.8 25.9 Other operating expenses................................ 557.9 604.5 470.6 -------------- -------------- -------------- Total benefits and expenses........................ 2,513.5 2,839.7 2,481.0 -------------- -------------- -------------- Income from continuing operations before income taxes, minority interest and equity in earnings of and interest earned from investments in unconsolidated affiliates.............................................. 265.7 157.5 42.3 Income tax expense (benefit)................................... 99.0 56.2 (19.8) -------------- -------------- -------------- Income from continuing operations before minority Interest, equity in earnings of and interest earned From investments in unconsolidated affiliates........... 166.7 101.3 62.1 Minority interest in net income of consolidated Subsidiaries............................................ (10.1) (14.1) (3.7) Equity in earnings of and interest earned from Investments in unconsolidated affiliates................ 5.5 7.6 8.1 -------------- -------------- -------------- Income from continuing operations.............................. 162.1 94.8 66.5 Discontinued operations (note 13): - ---------------------------------- Income from discontinued operations, net of income taxes.............................................. 36.1 9.4 -- Loss on disposal, net of income taxes................... (109.0) (20.9) -- -------------- -------------- -------------- Income before cumulative effect of accounting changes................................................. 89.2 83.3 66.5 -------------- -------------- -------------- Cumulative effect of accounting changes for: - -------------------------------------------- Venture capital partnerships, net of income taxes (note 5)............................................. -- -- (48.8) Securitized financial instruments, net of income taxes (note 3)....................................... -- -- (20.5) Derivative financial instruments, net of income taxes (note 3)............................................. -- -- 3.9 -------------- -------------- -------------- Net income .................................................... $ 89.2 $ 83.3 $ 1.1 ============== ============== ============== The accompanying notes are an integral part of these consolidated financial statements.
F-5 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, --------------------------------------------- 1999 2000 2001 ------------ ------------ ------------ Cash flows from operating activities: (IN MILLIONS) - ------------------------------------- Net income ........................................ $ 89.2 $ 83.3 $ 1.1 Adjustments to reconcile net income to net cash provided by operating activities: Net loss from discontinued operations.................. 72.9 11.5 -- Net realized investment gains.......................... (75.8) (89.2) (150.1) Amortization and depreciation.......................... 72.0 56.8 43.2 Investment income...................................... (138.2) (297.7) 97.4 Securitized financial instruments and derivatives...... -- -- 16.6 Deferred income tax benefit............................ (13.9) (37.0) (60.4) Increase in receivables................................ (62.9) (54.0) (76.9) (Increase) decrease in deferred policy acquisition costs (.3) 183.2 (76.2) Increase in policy liabilities and accruals............ 321.2 472.8 469.0 Change in other assets/other liabilities, net.......... 53.8 45.4 145.3 ------------ ------------ ------------ Net cash provided by continuing operations............. 318.0 375.1 409.0 Net cash used for discontinued operations.............. (76.7) (264.6) (75.1) ------------ ------------ ------------ Net cash provided by operating activities.............. 241.3 110.5 333.9 ------------ ------------ ------------ Cash flows from investing activities: - ------------------------------------- Proceeds from the sale of debt securities: Available-for-sale................................. 1,192.2 912.1 1,202.0 Held-to-maturity................................... 18.0 9.8 17.5 Proceeds from the maturity of debt securities: Available-for-sale................................. 49.7 38.7 96.7 Held-to-maturity................................... 6.5 25.9 35.5 Proceeds from the repayment of debt securities: Available-for-sale................................. 461.0 286.1 534.0 Held-to-maturity................................... 162.2 173.8 158.5 Proceeds from sale of equity securities................ 163.5 515.4 114.6 Proceeds from the maturity of mortgage loans........... 18.9 17.3 16.4 Proceeds from the repayment of mortgage loans.......... 106.0 110.3 42.3 Proceeds from distributions of venture capital partnerships 26.7 37.9 30.7 Proceeds from sale of real estate and other invested assets 38.0 26.6 36.8 Proceeds from sale of property and equipment........... -- 20.6 -- Proceeds from sale of subsidiaries and affiliates...... 46.4 14.1 659.8 Purchase of available-for-sale debt securities......... (1,672.6) (1,418.4) (3,132.7) Purchase of held-to-maturity debt securities........... (395.5) (356.0) (393.8) Purchase of equity securities.......................... (162.4) (130.5) (72.8) Purchase of subsidiaries............................... (187.6) (59.3) (10.0) Purchase of mortgage loans............................. (25.3) (1.0) -- Purchase of investments in unconsolidated affiliates and other invested assets............................. (103.4) (46.5) (104.2) Purchase of minority interest in subsidiary............ -- -- (358.1) Purchase of interests in venture capital partnerships.. (108.5) (95.1) (47.0) Change in short-term investments, net.................. (.6) .5 (4.8) Increase in policy loans............................... (34.3) (62.7) (67.0) Capital expenditures................................... (20.5) (21.5) (13.7) Other investing activities, net........................ 1.7 -- -- ------------ ------------ ------------ Net cash used for continuing operations....................... (419.9) (1.9) (1,259.3) Net cash provided by discontinued operations.................. 105.6 259.5 77.5 ------------ ------------ ------------ Net cash (used for) provided by investing activities.......... $ (314.3) $ 257.6 $(1,181.8) ------------ ------------ ------------ The accompanying notes are an integral part of these consolidated financial statements.
F-6 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, -------------------------------------------------- 1999 2000 2001 -------------- -------------- ------------- Cash flows from financing activities: (IN MILLIONS) - ------------------------------------- Net deposits of policyholder deposit funds, net of interest credited............................... $ 6.5 $ 140.2 $ 689.8 Proceeds (repayments) from securities sold subject to repurchase agreements.................................. 28.4 (28.4) -- Issuance of common stock................................... -- -- 10.0 Capital contributions from parent.......................... -- -- 78.6 Dividends paid to parent .................................. -- -- (132.3) Proceeds from borrowings................................... 175.1 50.0 180.0 Repayment of borrowings.................................... (125.0) (124.0) (125.1) Distributions to minority stockholders..................... (4.2) (5.8) (5.8) Debenture principal payments............................... -- -- (19.4) Other financing activities, net............................ (.4) 3.2 -- -------------- -------------- ------------- Net cash provided by financing activities................. 80.4 35.2 675.8 -------------- -------------- ------------- Net change in cash and cash equivalents.................... 7.4 403.3 (172.1) Cash and cash equivalents, beginning of year............... 309.3 316.7 720.0 -------------- -------------- ------------- Cash and cash equivalents, end of year..................... $316.7 $ 720.0 $547.9 ============== ============== ============= Supplemental cash flow information: - ----------------------------------- Income taxes paid (received), net.......................... $106.4 $ 135.8 $ (47.0) Interest paid on indebtedness.............................. $ 34.8 $ 34.1 $ 23.8 The accompanying notes are an integral part of these consolidated financial statements.
RETAINED ACCUMULATED ADDITIONAL EARNINGS OTHER TOTAL COMMON PAID-IN (ACCUMULATED COMPREHENSIVE STOCKHOLDER'S STOCK CAPITAL DEFICIT) INCOME (LOSS) EQUITY ----------- -------------- --------------- ---------------- -------------- (IN MILLIONS) Balance at January 1, 1999 $ -- $ -- $ 1,642.3 $ 94.3 $ 1,736.6 - -------------------------- Net income........................... 89.2 89.2 Other comprehensive loss, net of income taxes: Unrealized loss on securities.. (66.8) (66.8) Reclassification adjustment for net realized gains included in net income (1.5) (1.5) Minimum pension liability adjustment (1.5) (1.5) -------------- Total other comprehensive loss.... (69.8) Comprehensive income................. 19.4 ----------- -------------- --------------- ---------------- -------------- Balance at December 31, 1999......... $ -- $ -- $ 1,731.5 $ 24.5 $ 1,756.0 - ---------------------------- =========== ============== =============== ================ ============== Balance at January 1, 2000 $ -- $ -- $ 1,731.5 $ 24.5 $ 1,756.0 - -------------------------- Comprehensive income: Net income........................ 83.3 83.3 Other comprehensive income, net of income taxes: Unrealized gains on securities. 53.0 53.0 Reclassification adjustment for net Realized gains included in (58.9) (58.9) net income Minimum pension liability 1.6 1.6 adjustment -------------- Total other comprehensive income.. (4.3) Comprehensive income................. 79.0 Other equity adjustments............. 5.9 5.9 ----------- -------------- --------------- ---------------- -------------- Balance at December 31, 2000......... $ -- $ -- $ 1,820.7 $ 20.2 $ 1,840.9 - ---------------------------- =========== ============== =============== ================ ============== Balance at January 1, 2001........... $ -- $ -- $ 1,820.7 $ 20.2 $ 1,840.9 - -------------------------- Demutualization transaction.......... 10.0 1,712.0 (1,765.7) (43.7) Equity adjustment for policyholder dividend obligation............... (30.3) (30.3) Other equity adjustments............. 3.2 3.2 Comprehensive income: Net income........................ 1.1 1.1 Other comprehensive income, net of income taxes: Unrealized gain on security transfer from held-to-maturity to available-for-sale........ 83.9 83.9 Unrealized loss on securities.. (.9) (.9) Unrealized gains on derivatives 3.9 3.9 Equity adjustment for policyholder dividend obligation......... (8.8) (8.8) Reclassification adjustment for net realized gains included in (10.0) (10.0) net income Cumulative effect of accounting change for derivatives....... 1.1 1.1 Minimum pension liability (8.3) (8.3) adjustment -------------- Total other comprehensive income.. 60.9 Comprehensive income................. 62.0 ----------- -------------- --------------- ---------------- -------------- Balance at December 31, 2001......... $ 10.0 $ 1,712.0 $ 29.0 $ 81.1 $ 1,832.1 - ---------------------------- =========== ============== =============== ================ ============== The accompanying notes are an integral part of these consolidated financial statements.
F-8 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS Phoenix Life Insurance Company ("Phoenix Life") and its subsidiaries offer a broad range of life insurance and annuity products in the United States of America. Phoenix Life is a wholly-owned subsidiary of The Phoenix Companies, Inc., a publicly traded company ("Phoenix"). See note 2--"Reorganization and Initial Public Offering." 2. REORGANIZATION AND INITIAL PUBLIC OFFERING On December 18, 2000, the Board of Directors of Phoenix Home Life Mutual Insurance Company ("Phoenix Mutual") unanimously adopted a plan of reorganization which was amended and restated on January 26, 2001. On June 25, 2001, the effective date of the demutualization, Phoenix Mutual converted from a mutual life insurance company to a stock life insurance company, became a wholly-owned subsidiary of Phoenix and changed its name to Phoenix Life Insurance Company. At the same time, Phoenix Investment Partners, Ltd. ("PXP") became an indirect wholly-owned subsidiary of Phoenix. All policyholder membership interests in the mutual company were extinguished on the effective date and eligible policyholders of the mutual company received 56.2 million shares of common stock, $28.8 million of cash and $12.7 million of policy credits as compensation. The demutualization was accounted for as a reorganization. Accordingly, Phoenix's retained earnings immediately following the demutualization and the closing of the Initial Public Offering ("IPO") on June 25, 2001 (net of the cash payments and policy credits that were charged directly to retained earnings) were reclassified to common stock and additional paid-in capital. In addition, Phoenix Life established a closed block for the benefit of holders of certain individual life insurance policies of Phoenix Life. The purpose of the closed block is to protect, after demutualization, the policy dividend expectations of the holders of the policies included in the closed block. The closed block will continue in effect until such date as none of such policies are in force. See note 14 --"Closed Block." On June 25, 2001, Phoenix closed its IPO in which 48.8 million shares of common stock were issued at a price of $17.50 per share. Net proceeds from the IPO of $807.9 million were contributed to Phoenix Life. On July 24, 2001, Morgan Stanley Dean Witter exercised its right to purchase 1,395,900 shares of the common stock of Phoenix at the IPO price of $17.50 per share less underwriter's discount. Net proceeds of $23.2 million were contributed to Phoenix Life. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation and basis of presentation The consolidated financial statements include the accounts of Phoenix Life. Less than majority-owned entities, in which Phoenix Life has significant influence over operating and financial policies and generally at least a 20% ownership interest, are reported on the equity method of accounting. In January of 2001, Phoenix Life purchased the minority interest in PXP See Note 4--"Significant Transactions." This increased Phoenix Life's ownership from approximately 60% to 100%. On June 25, 2001 Phoenix Life sold PXP and certain other subsidiaries to Phoenix. See Note 9--"Related Party Transactions." Consequently, Phoenix Life's 1999 and 2000 consolidated results include 60% of PXP's results and 100% of certain other subsidiaries, while Phoenix Life's 2001 results include 100% of the results of PXP and certain other subsidiaries through June 25, 2001. These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("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 consolidated 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 F-9 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- throughout the Notes to Consolidated Financial Statements. Significant inter-company accounts and transactions have been eliminated. Certain reclassifications have been made to the 1999 and 2000 amounts to conform with the 2001 presentation. Valuation of investments Investments in debt securities include bonds, mortgage-backed and asset-backed securities. Phoenix Life classified its debt securities as either held-to-maturity or available-for-sale investments. Prior to 2001, debt securities held-to-maturity consisted of private placement bonds reported at amortized cost, net of impairments, that management intended and had 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, preferred stocks and private placement bonds that management may not hold until maturity. Debt securities are considered impaired when a decline in value is considered to be other than temporary. In 2001, management decided, as part of Phoenix Life's conversion to a public company, that held-to-maturity debt securities should be reclassified to available-for-sale debt securities. See note 5 - "Investments." For mortgage-backed and asset-backed investments in the debt security portfolio, Phoenix Life 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 any resulting adjustment is included in net investment income. For certain asset-backed securities, changes in the estimated yield are recorded on a prospective basis and specific valuation methods are applied to these securities to determine if there has been an other-than-temporary decline in value. 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 Life will be unable to collect all amounts of contractual interest and principal as scheduled in the loan agreement. An impaired mortgage loan's fair value is measured based on either the present value of future cash flows discounted at the loan's observable market price or at the fair value of the collateral if collection is collateral-dependent. If the fair value of a mortgage loan is less than the recorded investment in the loan, the difference is recorded as a valuation reserve. Real estate, all of which is held for sale, is carried at the lower of cost or fair value less costs to sell. Fair value for real estate is determined by 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. Venture capital partnerships are recorded in accordance with the equity method of accounting. Phoenix Life records its share of the net equity in earnings of the venture capital partnerships in accordance with Accounting Principle Board Opinion No. 18, using the most recent financial information received from the partnerships. Historically, this information had been provided to Phoenix Life on a one-quarter lag. In the first quarter of 2001, Phoenix Life changed its method of applying the equity method of accounting to eliminate such quarterly lag. See note 5 - "Investments." Other invested assets primarily include leveraged lease investments, derivatives and other partnership and joint venture interests. Leverage lease investments represent the net of the estimated residual value of the lease assets, rental receivables, and unearned and deferred income to be allocated over the lease term. Investment F-10 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- income is calculated using the interest method and is recognized only in periods in which the net investment is positive. Other partnership and joint venture interests in which Phoenix Life does not have control or a majority ownership interest are recorded using the equity method of accounting. These investments include affordable housing, mezzanine and other partnership interests. Derivatives are valued in accordance with Statement of Financial Accounting Standards ("SFAS") No. 133. See recent accounting pronouncements within note 3. Short-term investments are carried at amortized cost which approximates fair value. Short-term investments consist of interest bearing securities that mature between 91 days and twelve months from date of purchase. Realized investment gains and losses, other than those related to separate accounts for which Phoenix Life does not bear the investment risk, are determined by the specific identification method and reported as a component of revenue. A realized investment loss is recorded when an investment valuation reserve is determined. Valuation reserves are netted against the asset categories to which they apply and changes in the valuation reserves are included in realized investment gains and losses. Unrealized investment gains and losses on debt securities and equity securities classified as available-for-sale are included as a component of equity, net of deferred income taxes and the assumed impact of net unrealized investment gains and losses on the amortization of deferred policy acquisition costs related to investment contracts. In the normal course of business, Phoenix Life enters into transactions involving various types of financial instruments including debt investments such as debt securities, equity securities, and off-balance sheet commitments, primarily, related to venture capital partnerships. These instruments have credit risk and also may be subject to risk of loss due to interest rate and market fluctuations. Cash and cash equivalents Cash and cash equivalents include cash on hand and all highly liquid investments with a maturity of 90 days or less when purchased. Certain short-term investments relating to 1999 and 2000 have been reclassified to conform with the 2001 presentation. 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 production of new business, are deferred. In conjunction with the 1997 acquisition of the Confederation Life business, Phoenix recognized an asset for the present value of future profits ("PVFP") representing the present value of estimated net cash flows embedded in the existing contracts acquired. This asset is included in deferred policy acquisition costs ("DAC"). The method used to amortize DAC and PVFP depends on how the policy was classified. For individual participating life insurance policies, DAC and PVFP are amortized in proportion to estimated gross margins. For universal life, variable universal life and accumulation annuities, DAC and PVFP are amortized in proportion to estimated gross profits. The amortization process requires the use of various assumptions, estimates and judgements about the future. The primary assumptions are expenses, investment performance, mortality and contract cancellations (i.e., lapses, withdrawals and surrenders). These assumptions are reviewed on a regular basis and are generally based on Phoenix's past experience, industry studies, regulatory requirements and judgments about the future. Finally, analyses are performed periodically to assess whether there are sufficient gross margins or gross profits to amortize the remaining DAC balances. Internal replacements are defined as an exchange of an existing Phoenix Life insurance or annuity policy for a different Phoenix Life insurance or annuity policy. The DAC balance associated with the replaced policy is treated in the same manner as policies that are surrendered. In the case of policies that are surrendered, in which owners cancel existing life or annuity contracts, the amortization of DAC is adjusted to reflect these surrenders. F-11 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Goodwill and other intangible assets In 1999 and 2000, goodwill is amortized on a straight-line basis over periods ranging from ten to forty years, corresponding with the benefits expected to be derived from the related business acquisitions. The weighted-average life of goodwill is approximately thirty-eight years. Other intangible assets, primarily associated with investment management contracts and employee contracts, are amortized over their estimated useful lives using a straight-line basis. The average estimated useful life of the other intangible assets ranges from five to sixteen years for investment management contracts and three to seven years for employee contracts. The weighted-average life of other intangible assets is approximately thirteen years. Goodwill and other intangible assets' carrying values are periodically evaluated in accordance with SFAS No. 121, Accounting for the Impairment of Long-lived Assets and Long-lived Assets to be Disposed Of, by comparing estimates of future undiscounted cash flows to the carrying values of the assets. Assets are considered impaired if the carrying value exceeds the expected future undiscounted cash flows. Analyses are performed at least annually or more frequently if warranted by events and circumstances affecting Phoenix Life's business. See SFAS No. 142 under "Recent accounting pronouncements" in note 3 for change in accounting policy effective January 1, 2002. In 2001, remaining goodwill was amortized on a straight-line basis over a ten year period. Investments in unconsolidated affiliates Investments in unconsolidated affiliates represents investments in operating entities in which Phoenix Life owns more than 20% but less than a majority of the outstanding common stock and those operating entities for which Phoenix Life owns less than 20% if Phoenix Life exercises significant influence over the operating and financial policies of the company. Phoenix Life uses the equity method of accounting for its investments in the common stock of these entities. Investments in unconsolidated affiliates also includes, where applicable, Phoenix Life's investments in senior securities of these entities. Separate account assets and liabilities and investment trusts 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 Life. The assets and liabilities are primarily 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. Investment trusts are assets held for the benefit of institutional clients who have investments in structured finance products offered by PXP. Structured finance products include collateralized debt and bond obligations backed by portfolios of public high yield bonds, emerging market bonds, commercial mortgage-backed and asset-backed securities and bank loans. Investment trusts, for which PXP is the sponsor and actively manages the assets, and for which there is not a substantive amount of outside third party equity investment in the trust, are consolidated in the financial statements. Phoenix Life's financial exposure is limited to its share of equity and bond investments in these vehicles and there is no financial guarantees from, or recourse to, Phoenix Life for these investment trusts. Asset valuation changes are directly offset by changes in the corresponding liabilities. Fees are recorded when management services provided to the trusts are earned and are included in revenues. Policy liabilities and accruals Future policy benefits are liabilities for life and annuity products. Such liabilities are established in amounts adequate to meet the estimated future obligations of policies in force. Future policy benefits for traditional life insurance are computed using the net level premium method on the basis of actuarial assumptions as to F-12 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- contractual guaranteed rates of interest, mortality rates guaranteed in calculating the cash surrender values described in such contracts and morbidity. The guaranteed interest rates range from 2.25% to 6.00% in 2001. Policyholder deposit funds are primarily for universal life products and include deposits received from customers and investment earnings on their fund balances which range from 4.00% to 7.15% in 2001, less administrative and mortality charges. Liabilities for outstanding claims, losses and loss adjustment expenses are amounts estimated to cover incurred losses. These liabilities are based on individual case estimates for reported losses and estimates of unreported losses based on past experience. Policyholder deposit funds Policyholder deposit funds primarily consist of annuity deposits received from customers, dividend accumulations and investment earnings on their fund balances, which range from 2.1% to 12.3%, less administrative charges. 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 pro-rata over the related contract periods. Benefits, losses and related expenses are matched with premiums over the related contract periods. Revenues for investment-related products, included in insurance and investment product fees, 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. Investment management fees Investment management fees included in insurance and investment product fees in the accompanying Consolidated Statements of Income are recorded as income pro-rata during the period in which services are performed. Investment management fees are generally computed and earned based upon a percentage of assets under management. Investment management fees are paid pursuant to the terms of the respective investment management contracts, which generally require monthly or quarterly payment. Reinsurance Phoenix Life uses reinsurance agreements to provide for greater diversification of business, allow management to control exposure to potential losses arising from large risks and provide additional capacity for growth. Assets and liabilities related to reinsurance ceded contracts are reported on a gross basis. The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies. Policyholder dividends Certain life insurance policies contain dividend payment provisions that enable the policyholder to participate in the earnings of Phoenix Life. The amount of policyholder dividends to be paid is determined annually by Phoenix Life'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 Life's judgment as to the appropriate level of statutory surplus to be retained. At the end of the reporting period, Phoenix Life establishes a dividend liability for the pro-rata portion of the dividends payable on the next anniversary date of each policy. Phoenix Life also establishes a liability for termination dividends. See note 14 --"Closed Block" for information on the policyholder dividend obligation. F-13 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Income taxes Phoenix and its eligible affiliated companies have elected to file a life/non-life consolidated federal income tax return for 2001. For 2000 and prior years, Phoenix Life was the parent company of the group of eligible affiliated companies that had elected to file life/non-life consolidated federal income tax returns. 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 income tax losses that can be applied to offset life insurance 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 costs, investment impairment reserves, reserves for post-retirement benefits and unrealized gains or losses on investments. Employee benefit plans Phoenix has a 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 ("ERISA"). 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. Phoenix sponsors pension and savings plans for its employees and agents, and those of its subsidiaries. The qualified plans comply with requirements established by ERISA and excess benefit plans provide for that portion of pension obligations which is in excess of amounts permitted by ERISA. Phoenix also provides certain health care and life insurance benefits for active and retired employees. Phoenix Life incurs applicable employee benefit expenses through the process of cost allocation by Phoenix. 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 co-payments and deductibles, depending on the plan. These plans are unfunded. Applicable information regarding the actuarial present value of vested and non-vested accumulated plan benefits, and the net assets of the plans available for benefits is omitted, as the information is not separately calculated for Phoenix Life's participation in the plans. With respect to the pension plan, the total assets of the plan exceeded the actuarial present value of vested benefits at January 1, 2001, the date of the most recent actuarial valuation. The other postretirement benefit plans were unfunded as of December 31, 2001, and in accordance with the SFAS No. 106, "Employers' Accounting for Postretirement Benefits," Phoenix, the plan sponsor, established an accrued liability and amounts attributable to Phoenix Life have been allocated. Recent accounting pronouncements Securitized Financial Instruments. Effective April 1, 2001, Phoenix Life adopted Emerging Issues Task Force Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets ("EITF 99-20"). This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to apply specific valuation methods to these securities to determine of there has been an other-than-temporary decline in value. Upon adoption of EITF 99-20, Phoenix recorded a $20.5 million charge in net income as a cumulative effect of accounting change, net of income taxes. F-14 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Derivative Financial Instruments. Effective January 1, 2001, Phoenix Life adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), as amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities ("SFAS 138"). As amended, SFAS 133 requires all derivatives to be recognized on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through earnings. Phoenix Life maintains an overall interest rate risk-management strategy that incorporates the use of derivative financial instruments to manage exposure to fluctuations in interest rates. Phoenix Life's exposure to interest rate changes primarily results from its commitments to fund interest-sensitive insurance liabilities, as well as from significant holdings of fixed rate investments. Derivative instruments that are used as part of Phoenix Life's interest rate risk-management strategy include interest rate swap agreements, interest rate caps, interest rate floors, interest rate swaptions and foreign currency swap agreements. To reduce counterparty credit risks and diversify counterparty exposure, Phoenix Life enters into derivative contracts only with a number of highly rated financial institutions. Phoenix Life enters into interest rate swap agreements to reduce market risks from changes in interest rates. Phoenix Life does not enter into interest rate swap agreements for trading purposes. Under interest rate swap agreements, Phoenix Life exchanges cash flows 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 neither party makes a payment of principal. The amounts to be received or paid on these swap agreements are accrued and recognized in net investment income. Phoenix Life 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 Life 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 Life 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 Life would either receive a swap agreement at the pre-specified terms or cash for the market value of the swap. Phoenix Life 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 Life enters into foreign currency swap agreements to hedge against fluctuations in foreign currency exposure. Under these agreements, Phoenix Life 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 are recognized in net investment income. To reduce counterparty credit risks and diversify counterparty exposure, Phoenix Life only enters into derivative contracts with highly rated financial institutions. On January 1, 2001, in accordance with the transition provisions of SFAS 133, Phoenix Life recorded a net-of-tax cumulative effect adjustment of $1.3 million (gain) in earnings to recognize at fair value all derivatives that are designated as fair-value hedging instruments. Phoenix Life also recorded an offsetting net-of-tax cumulative effect adjustment of $1.3 million (loss) in earnings to recognize the difference attributable to the hedged risks between the carrying values and fair values of the related hedged assets and liabilities. Phoenix Life also recorded a net-of-tax cumulative effect adjustment of $1.1 million in accumulated other comprehensive income to recognize, at fair value, all derivatives that are designated as cash-flow hedging instruments. For derivative instruments that were not designated as hedges, upon implementation of SFAS 133, Phoenix Life recorded a net-of-tax cumulative effect adjustment of $3.9 million in earnings to recognize these instruments at fair value. Gains and losses on derivatives that were previously deferred as adjustments to the F-15 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- carrying amount of hedged items were not included in the cumulative effect adjustment. There were no gains or losses on derivative instruments that were reported independently as deferred assets or liabilities that required de-recognition from the balance sheet. Phoenix Life recognized an after-tax gain of $0.9 million for the year ended December 31, 2001 (reported as other comprehensive income in the Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income), which represented the change in fair value of interest rate swaps which have been designated as cash flow hedges, using the shortcut method, assuming no ineffectiveness. These interest rate swaps hedge floating-rate exposure on asset cash flows that back insurance liabilities by swapping floating rate bonds to fixed. For changes in the fair value of derivatives that are designated, qualify, and are highly effective as cash flow hedges, and for which the critical terms of the hedging instrument and the assets match, Phoenix Life recognizes the change in fair value of the derivative in other comprehensive income. Phoenix Life expects that there will be no ineffectiveness to recognize in earnings during the term of the hedges, and Phoenix Life does not expect to reclassify into earnings amounts reported in accumulated other comprehensive income over the next twelve months. Phoenix Life also recognized an after-tax gain of $3.0 million for the year ended December 31, 2001 (reported as other comprehensive income in the Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income), which represented the change in fair value of interest rate forward swaps which have been designated as cash flow hedges of the forecasted purchase of assets. For changes in the fair value of derivatives that are designated as cash flow hedges of a forecasted transaction, Phoenix Life recognizes the change in fair value of the derivative in other comprehensive income. Amounts related to cash flow hedges that are accumulated in other comprehensive income are reclassified as earnings in the same period or periods during which the hedged forecasted transaction (the acquired asset) affects earnings. As of December 31, 2001, $0.3 million of the deferred net after-tax gains on these derivative instruments is expected to be reclassified into earnings over the next twelve months. For the year ended December 31, 2001, Phoenix Life also recognized an after-tax gain of $0.3 million (reported as net realized investment gains in the Consolidated Statements of Income), which resulted from the termination of interest rate swap contracts designated as hedges of a forecasted transaction. The interest rate swap contracts were determined to no longer be effective hedges. Phoenix Life also recognized an after-tax loss of $0.4 million for the year ended December 31, 2001 (reported as net investment income in the Consolidated Statements of Income), which represented the change in fair value of derivative instruments which were not designated as hedges upon implementation of SFAS 133. These instruments primarily include: interest rate floors which hedge spread deficiency risk between assets and deferred annuity product liabilities; interest rate caps which hedge disintermediation risk associated with universal life insurance liabilities; and interest rate swaps which were hedges of an anticipated purchase of assets associated with an acquisition of a block of insurance liabilities for which offsetting swap positions were taken to lock in a stream of income to supplement the income on the assets purchased. For changes in fair value of derivatives that are not designated and did not qualify as highly effective hedges upon implementation of SFAS 133, Phoenix Life recognizes the entire change in fair value of the derivatives in current-period earnings. For the year ended December 31, 2001, Phoenix Life also recognized an after-tax gain of $0.9 million (reported as net realized investment gains in the Consolidated Statements of Income), which resulted from the termination prior to maturity of interest rate swaps which were not designated as hedges upon implementation of SFAS 133. Phoenix Life also holds foreign currency swaps as hedges against available-for-sale securities that back U.S. dollar denominated liabilities. For changes in the fair value of derivatives that are designated, qualify, and are highly effective as fair value hedges, Phoenix Life recognizes the change in fair value of the derivative, along with the change in value of the hedged asset or liability attributable to the hedged risk, in current-period earnings. Phoenix Life recognized an after-tax gain of $0.8 million for the year ended December 31, 2001. In certain instances, derivative contracts are terminated prior to maturity. These contracts include, but are not limited to, interest rate and foreign currency swaps, cap and floor contracts, and payor and receiver swaptions. F-16 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- To the extent that derivative contracts determined to be effective hedges are terminated, realized gains and losses are deferred and amortized. Derivatives associated with hedged items that either no longer exist or are no longer expected to occur are accounted for as of the relevant change in status of the hedged items, with gains or losses on such contracts recognized immediately in net income. Similarly, for derivatives otherwise determined to no longer be effective hedges, gains or losses as of termination are recognized immediately in net income. Accounting for Demutualizations. Effective June 30, 2001, Phoenix Life adopted Statement of Position No. 00-3, Accounting by Insurance Enterprises for Demutualizations and Formations of Mutual Insurance Holding Companies and For Certain Long-Duration Participating Contracts ("SOP 00-3"). The provisions of SOP 00-3 provide guidance on accounting by insurance enterprises for demutualizations and the formation of mutual holding companies, including the emergence of earnings from and the financial statement presentation of the closed block established in connection with the demutualization. SOP 00-3 specifies that closed block assets, liabilities, revenues and expenses should be displayed with all other assets, liabilities, revenues and expenses of the insurance enterprise based on the nature of the particular item, with appropriate disclosures relating to the closed block. Pursuant to the adoption of SOP 00-3, Phoenix Life recorded a charge of $30.3 million to equity in the second quarter of 2001 representing the establishment of the policyholder dividend obligation along with the corresponding impact on deferred policy acquisition costs and deferred income taxes. See note 14 - --"Closed Block" for additional information. Business Combinations/Goodwill and Other Intangible Assets. In June 2001, SFAS No. 141, Business Combinations ("SFAS 141"), and SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"), were issued. SFAS 141 and SFAS 142 are effective July 1, 2001 and January 1, 2002, respectively. SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and separate recognition of intangible assets apart from goodwill if such intangible assets meet certain criteria. SFAS 141 also requires that upon adoption of SFAS 142 a company reclassify the carrying amounts of certain intangible assets into or out of goodwill, based on certain criteria. SFAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their initial recognition. Under SFAS 142, amortization of goodwill, including goodwill and other intangible assets with indefinite lives recorded in past business combinations, will discontinue upon adoption of this standard, and reporting units must be identified for the purpose of assessing potential future impairments of goodwill. Phoenix Life recognized $7.1 million in goodwill amortization during 2001. As of June 26, 2001, PXP's net goodwill and intangible assets are no longer consolidated due to the sale of PXP to Phoenix. See note 9--"Related Party Transactions". Goodwill amortization will not be recognized after 2001 in accordance with SFAS 142. In addition, goodwill recorded as a result of business combinations completed during the six-month period ended December 31, 2001 will not be amortized. The provisions of SFAS 141 and SFAS 142 also apply to equity-method investments made both before and after June 30, 2001. SFAS 142 prohibits amortization of the excess of cost over the underlying equity in the net assets of an equity-method investee that is recognized as goodwill. SFAS 142 requires that goodwill be tested at least annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. However, a company has six months from the date of adoption to complete the first step. The second step of the goodwill impairment test measures the amount of the impairment loss (measured as of the beginning of the year of adoption), if any, and must be completed by the end of a company's fiscal year. Intangible assets deemed to have an indefinite life would be tested for impairment using a one-step process, which compares the fair value to the carrying amount of the asset as of the beginning of the fiscal year in the year of adoption. Phoenix Life has prepared a preliminary analysis of the adoption of SFAS 142, and does not expect to have a material impairment charge in 2002. F-17 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Impairment of Long-Lived Assets. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"), effective January 1, 2002. Under SFAS 144, long-lived assets to be sold within one year must be separately identified and carried at the lower of carrying value or fair value less costs to sell. Long-lived assets expected to be held longer than one year are subject to depreciation and must be written down to fair value upon impairment. Long-lived assets no longer expected to be sold within one year, such as some foreclosed real estate, must be written down to the lower of current fair value or fair value at the date of foreclosure adjusted to reflect depreciation since acquisition. Phoenix Life is currently reviewing the provisions of SFAS 144 and assessing the impact of adoption. 4. SIGNIFICANT TRANSACTIONS Purchase of Phoenix Investment Partners, Ltd. minority interest On September 10, 2000, Phoenix Life, one of its subsidiaries and PXP entered into an agreement and plan of merger pursuant to which such subsidiary agreed to purchase the outstanding common stock shares of PXP owned by third parties for a price of $15.75 per share. In connection with this merger, Phoenix Life's subsidiary paid, from available cash and short-term investments, $339.3 million to those third parties on January 11, 2001. As a result, PXP became an indirect wholly-owned subsidiary of Phoenix Life and PXP's shares of common stock were de-listed from the New York Stock Exchange. In addition, PXP accrued compensation expenses of $57.0 million to cash out stock options, $5.5 million of related compensation costs, $5.2 million in retention costs and $3.9 million in transaction costs at March 31, 2001. After the merger, some third party holders of PXP's convertible subordinated debentures converted their debentures and PXP redeemed all remaining outstanding debentures held by third parties by the end of March 2001. PXP made cash payments totaling $38.2 million in connection with these conversions and redemptions from funds borrowed from its then existing credit facility. The excess of purchase price over the minority interest in the net assets of PXP totaled $224.1 million. Of this excess purchase price, $179.1 million has been allocated to investment management contracts, which are being amortized over their estimated useful lives using the straight-line method. The weighted-average useful life of the investment management contracts is 13.4 years. The remaining excess purchase price, net of deferred taxes, of $118.4 million has been classified as goodwill and is being amortized over 40 years using the straight-line method. Related amortization of goodwill and investment management contracts of $2.9 million and $13.9 million, respectively, has been expensed for the year ended December 31, 2001. The following table summarizes the calculation and allocation of the purchase price (in millions).
Purchase price: -------------- Purchase price for 21.5 million outstanding shares at $15.75/share............ $ 339.3 Premium paid related to third party convertible debt redemption/conversion.... 18.8 Transaction related costs..................................................... 3.2 -------- Total purchase price..................................................... $ 361.3 ======== Purchase price allocation: ------------------------- Fair value of acquired net assets............................................. $ 137.2 Investment management contracts............................................... 179.1 Deferred taxes................................................................ (73.4) Goodwill...................................................................... 118.4 -------- Total purchase price allocation.......................................... $ 361.3 ========
Prior to this transaction, PXP had a $1.2 million liability related to options held by certain employees. As a result of this transaction, all outstanding options were settled and, consistent with previous accounting treatment, the remaining liability was reversed and recorded as an adjustment to equity. F-18 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Additionally, prior to the transaction, PXP had outstanding restricted stock which had been issued to certain employees pursuant to PXP's Restricted Stock Plan. For book purposes, the fair market value of the restricted stock at the date of the grant was recorded as unearned compensation, a separate component of stockholders' equity, and amortized over the restriction period. For tax purposes, PXP could deduct compensation expense equal to the fair market value of the stock on the date the restrictions lapse. The tax benefit of the deduction in excess of the compensation expense was recorded as an adjustment to additional paid-in capital. At the time of this transaction, all restrictions lapsed and PXP recorded a $2.0 million tax receivable for the deduction and a corresponding adjustment to equity. Master credit facility In June 2001, Phoenix, Phoenix Life, and PXP entered into a $375 million unsecured revolving credit facility that matures on June 10, 2005. Phoenix Life's and PXP's existing credit agreements were terminated at that time. Phoenix unconditionally guarantees loans to Phoenix Life and PXP. Base rate loans bear interest at the greater of the Bank of Montreal's prime commercial rate or the effective federal funds rate plus 0.5%. Eurodollar rate loans bear interest at LIBOR plus an applicable margin. The credit agreement includes customary financial and operating covenants that include, among other provisions, requirements that Phoenix maintain a minimum stockholders' equity and a maximum debt to capitalization ratio; that Phoenix Life maintain a minimum risk based capital ratio, and that PXP maintain a maximum debt to capitalization ratio and a minimum stockholders' equity. See note 10 - "Long-Term Debt" for additional information on credit facilities. Early retirement program On January 29, 2001, Phoenix offered a special retirement program under which qualified participants will receive enhanced retirement benefits by the addition of five years to age and pension plan service under the Employee Pension Plan. Employees of Phoenix Life and PXP who decided to participate will retire by May 31, 2002. Of the 318 participants eligible, 182 accepted the special retirement incentive program. As a result of this program, Phoenix Life was allocated an additional pension expense for the year ended December 31, 2001. Aberdeen Asset Management PLC On February 18, 1999, PM Holdings, a wholly-owned subsidiary of Phoenix Life, purchased 15,050,000 shares of the common stock of Aberdeen Asset Management PLC ("Aberdeen"), a Scottish asset management firm, for $29.4 million. PM Holdings owned 31,600,000 shares and 38,100,000 share as of December 31, 2000 and 2001, respectively. On April 15, 1996, Phoenix Life purchased 7% convertible subordinated notes issued by Aberdeen for $37.5 million. The notes, which mature on March 29, 2003, are convertible into 17,441,860 shares of Aberdeen common stock. In May 2001, Phoenix Life purchased additional shares of common stock of Aberdeen for a cash purchase price of $46.8 million, bringing its ownership to approximately 22.0% (26.95% when the convertible subordinated note is included) of the common stock of Aberdeen at December 31, 2001. The investment in Aberdeen common stock is reported on the equity method. The notes and common stock are classified as investments in unconsolidated affiliates in the Consolidated Balance Sheets. The investment in Aberdeen's convertible note at December 31, 2001 is reported at fair value with unrealized gains or losses included in equity. For the years ended prior to 2001, the investment in the note was reported at amortized cost. Aberdeen's convertible note was included in the transfer of securities from held-to-maturity to available-for-sale in 2001 and resulted in a pre-tax unrealized gain of $63.7 million. See note 5-- "Investments." The fair value of Phoenix Life's investments in Aberdeen, based on the closing market price, was $455.8 million and $322.3 million as of December 31, 2000 and 2001, respectively. F-19 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Dividend scale In November 2000, Phoenix Mutual's Board of Directors voted to maintain the dividend scale for dividends payable on or after January 1, 2001. In October 1999, Phoenix Mutual's Board of Directors voted to maintain the dividend scale for dividends payable on or after January 1, 2000. Emprendimiento Compartido, S.A. ("EMCO") At January 1, 1999, PM Holdings held 9.1 million shares of EMCO, representing a 35% ownership interest in this 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. 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 (a 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. PFG Holdings, Inc. On October 29, 1999, PM Holdings, a wholly-owned subsidiary of Phoenix Life, purchased 100% of PFG Holdings, Inc. 8% cumulative preferred stock, which is convertible into a 67% interest in common stock for $5 million in cash. In addition, Phoenix Life has an option to purchase all the outstanding common stock during the sixth year subsequent to the acquisition at a value equal to 80% of the appraised value of the common stock at that time. As of December 31, 2001, this option had not been executed. Since Phoenix Life holds voting control, the entity has been consolidated and a minority interest has been established for outside stockholders' interests. The transaction resulted in goodwill of $3.8 million, which is being amortized on a straight-line basis over forty years. AGL Life Assurance Company, an operating subsidiary of PFG Holdings, must maintain at least $10.0 million of capital and surplus to satisfy certain regulatory minimum capital requirements. PM Holdings provided financing of $11.0 million at the purchase date 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. PM Holdings provided additional financing to PFG Holdings in 2001 in the form of a convertible subordinated note. The interest rate on the note is 8%, and the note will mature on November 1, 2006. The note allows for up to $8 million in financing and is convertible into common stock at any time at a variable conversion price. Property and casualty distribution operations On May 3, 1999, PM Holdings sold its property and casualty distribution business to Hilb, Rogal and Hamilton Company ("HRH") for $48.1 million including $10.2 million for a covenant not-to-compete. Total proceeds consisted of $32.0 million in 5.25% convertible subordinated debentures, $15.9 million for 865,042 shares of HRH common stock, valued at $18.38 per share on the sale date, and $0.2 million in cash. Phoenix also has contractual rights to designate two nominees for election to HRH's Board of Directors. As of December 31, 2001, two Phoenix designees were serving as HRH directors. The pre-tax gain realized on the sale was $40.1 million. F-20 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The convertible debentures mature on May 3, 2014 and are callable by HRH on or after May 3, 2009. The debentures are convertible into 1,406,593 shares of HRH common stock. The investment in HRH debentures at December 31, 2001 is reported at fair value with unrealized gains or losses included in equity. For the years ended prior to 2001, the investment in HRH was reported at amortized cost. HRH debentures were included in the transfer of securities from held-to-maturity to available-for-sale in 2001 and resulted in a pre-tax unrealized gain of $46.8 million. See note 5 - "Investments." The investment in HRH common stock is reported on the equity method. The debentures and common stock are classified as investments in unconsolidated affiliates in the Consolidated Balance Sheets. As of December 31, 2001, Phoenix Life owns 6.4% of the outstanding HRH common stock, 14.8% on a diluted basis. The fair value of Phoenix Life's investments in HRH, based on the closing market price, was $90.6 million and $78.8 million as of December 31, 2000 and 2001, respectively. Discontinued operations During 1999, Phoenix Life discontinued its reinsurance operations, real estate management operations and group life & health operations. Disclosures concerning the financial effect of these transactions are contained in note 13-- "Discontinued Operations." 5. INVESTMENTS Information pertaining to Phoenix Life'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, 2001 were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------------ ------------ ------------ ----------- Debt securities (IN MILLIONS) - --------------- AVAILABLE-FOR-SALE: U.S. government and agency bonds.............. $ 256.0 $ 13.3 $ (0.1) $ 269.2 State and political subdivision bonds......... 508.6 24.7 (1.7) 531.6 Foreign government bonds...................... 293.7 34.1 (1.1) 326.7 Corporate securities.......................... 4,316.6 145.5 (103.7) 4,358.4 Mortgage-backed and asset-backed securities.................................... 4,125.0 107.4 (84.3) 4,148.1 ------------ ------------ ------------ ----------- Total available-for-sale securities....... 9,499.9 325.0 (190.9) 9,634.0 Less: available-for-sale securities of discontinued operations............ 34.8 -- -- 34.8 ------------ ------------ ------------ ----------- Total available-for-sale debt securities of continuing operations....................... $ 9,465.1 $ 325.0 $ (190.9) $ 9,599.2 ============ ============ ============ =========== Equity securities................................. $ 275.7 $ 52.4 $ (40.6) $ 287.5 - ----------------- Less: equity securities of discontinued operations........................ 1.5 -- -- 1.5 ------------ ------------ ------------ ------------ Total equity securities of continuing operations.............................. $ 274.2 $ 52.4 $ (40.6) $ 286.0 ============ ============ ============ ===========
F-21 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The amortized cost and fair value of investments in debt and equity securities as of December 31, 2000 were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED COST GAINS LOSSES FAIR VALUE ----------- ----------- ----------- ----------- Debt securities (IN MILLIONS) - --------------- HELD-TO-MATURITY: State and political subdivision bonds............ $ 30.6 $ .3 $ (.9) $ 30.0 Foreign government bonds......................... 2.4 -- (.7) 1.7 Corporate securities............................. 1,781.2 48.0 (39.0) 1,790.2 Mortgage-backed and asset-backed securities...... 295.4 15.4 (3.8) 307.0 ----------- ----------- ----------- ----------- Total held-to-maturity securities........... 2,109.6 63.7 (44.4) 2,128.9 ----------- ----------- ----------- ----------- AVAILABLE-FOR-SALE: U.S. government and agency bonds................. 262.5 13.8 (.3) 276.0 State and political subdivision bonds............ 459.9 16.9 (1.9) 474.9 Foreign government bonds......................... 246.0 26.7 (5.8) 266.9 Corporate securities............................. 2,222.1 37.7 (83.1) 2,176.7 Mortgage-backed and asset-backed securities...... 2,830.5 63.5 (25.2) 2,868.8 ----------- ----------- ----------- ----------- Total available-for-sale securities......... 6,021.0 158.6 (116.3) 6,063.3 Less: available-for-sale securities of discontinued operations......................... 114.3 -- -- 114.3 ----------- ----------- ----------- ----------- Total available-for-sale securities of continuing operations......................... 5,906.7 158.6 (116.3) 5,949.0 ----------- ----------- ----------- ----------- Total debt securities of continuing operations.. $ 8,016.3 $ 222.3 $(160.7) $ 8,077.9 =========== =========== =========== =========== =========== =========== =========== =========== Equity securities.................................... $ 297.3 $ 77.9 $ (39.7) $ 335.5 - ----------------- =========== =========== =========== ===========
The sale of debt securities held-to-maturity relate to certain securities, with amortized cost of $3.9 million, $3.9 million and $9.1 million, for the years ended December 31, 1999, 2000 and 2001, respectively, which were sold specifically due to a significant decline in the issuers' credit quality. Net realized (losses) gains were $(0.2) million, $(3.9) million and $1.5 million in 1999, 2000 and 2001, respectively. The amortized cost and fair value of debt securities, by contractual sinking fund payment and maturity, as of December 31, 2001 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 Life may have the right to put or sell the obligations back to the issuers.
AVAILABLE-FOR-SALE ------------------------------ AMORTIZED FAIR COST VALUE ------------- ------------ (IN MILLIONS) Due in one year or less........................................ $ 121.2 $ 121.9 Due after one year through five years.......................... 1,276.7 1,260.0 Due after five years through ten years......................... 1,772.9 1,820.3 Due after ten years............................................ 2,204.1 2,283.7 Mortgage-backed and asset-backed securities.................... 4,125.0 4,148.1 ------------- ------------ Total..................................................... 9,499.9 9,634.0 Less: securities of discontinued operations.................... 34.8 34.8 ------------- ------------ Total securities of continuing operations................. $ 9,465.1 $ 9,599.2 ============= ============
F-22 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Carrying values for investments in mortgage-backed and asset-backed securities, excluding U.S. government guaranteed investments, were as follows:
DECEMBER 31, ------------------------------ 2000 2001 ------------- ------------ (IN MILLIONS) Planned amortization class......................................... $ 117.4 $ 133.9 Asset-backed....................................................... 1,082.3 1,607.9 Mezzanine.......................................................... 166.5 359.1 Commercial......................................................... 796.5 633.6 Sequential pay..................................................... 937.7 1,268.7 Pass through....................................................... 59.3 75.5 Other.............................................................. 4.5 69.4 ------------- ------------ Total mortgage-backed and asset-backed securities $ 3,164.2 $ 4,148.1 ============= ============
Mortgage loans and real estate Phoenix Life'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:
MORTGAGE LOANS REAL ESTATE DECEMBER 31, DECEMBER 31, ------------------------- ----------------------- 2000 2001 2000 2001 ----------- ---------- ---------- ---------- Property type: (IN MILLIONS) Office buildings.................. $ 171.3 $ 155.4 $ 34.4 $ 25.2 Retail............................ 183.5 170.4 6.9 7.5 Apartment buildings............... 180.7 171.0 45.9 50.4 Industrial buildings.............. 64.8 52.0 -- -- Other............................. 2.2 2.0 -- -- Valuation allowances.............. (9.1) (15.0) (9.3) -- ----------- ---------- ---------- ---------- Total........................ $ 593.4 $ 535.8 $ 77.9 $ 83.1 =========== ========== ========== ========== Geographic region: (IN MILLIONS) Northeast......................... $ 124.5 $ 116.5 $ 49.8 $ 54.4 Southeast......................... 147.6 130.5 -- -- North central..................... 147.4 134.8 .5 .4 South central..................... 103.7 101.7 22.3 13.0 West.............................. 79.3 67.3 14.6 15.3 Valuation allowances.............. (9.1) (15.0) (9.3) -- ----------- ---------- ---------- ---------- Total........................ $ 593.4 $ 535.8 $ 77.9 $ 83.1 =========== ========== ========== ==========
At December 31, 2001, scheduled mortgage loan maturities were as follows: 2002 - -- $51.4 million; 2003 -- $82.0 million; 2004 -- $34.7 million; 2005 -- $32.3 million; 2006 -- $94.7 million, and $240.7 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 Life did not refinance any of its mortgage loans during 2000 and 2001. The carrying value of delinquent and in process of foreclosure mortgage loans at December 31, 2000 and 2001 is $11.4 million and $5.6 million, respectively. There are valuation allowances of $9.1 million and $15.0 million, respectively, on these mortgages. F-23 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) 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 Sheets and changes thereto, were as follows:
BALANCE AT BALANCE AT JANUARY 1, ADDITIONS DEDUCTIONS DECEMBER 31, ---------------- ------------ -------------- ----------------- 2001: (IN MILLIONS) Mortgage loans............. $ 9.1 $ 6.1 $ (.2) $ 15.0 Real estate................ 9.3 -- (9.3) -- ----------- -------- ---------- --------- Total................. $18.4 $ 6.1 $ (9.5) $ 15.0 =========== ======== ========== ========= 2000: Mortgage loans............. $14.3 $ 1.8 $ (7.0) $ 9.1 Real estate................ 3.2 6.1 -- 9.3 ----------- -------- ---------- --------- Total................. $17.5 $ 7.9 $ (7.0) $ 18.4 =========== ======== ========== ========= 1999: Mortgage loans............. $30.6 $ 9.7 $(26.0) $ 14.3 Real estate................ 6.4 .2 (3.4) 3.2 ----------- -------- ---------- --------- Total................. $37.0 $ 9.9 $(29.4) $ 17.5 =========== ======== ========== =========
Non-income producing mortgage loans and debt securities The net carrying value of non-income producing mortgage loans was $6.0 million at December 31, 2000; there were no non-income producing mortgage loans during 2001. The amount of interest foregone by non-income producing mortgage loans was $0.5 million for the year ended December 31, 2000. There were no non-income producing debt securities at December 31, 2000 and 2001. Venture capital partnerships Phoenix Life invests as a limited partner in venture capital limited partnerships. These partnerships focus on early-stage ventures, primarily in the information technology and life science industries and leveraged buyout funds, as well as direct equity investments in leveraged buyouts and corporate acquisitions. As of December 31, 2001, total unfunded capital commitments were $166.8 million. Phoenix Life records its equity in the earnings of these partnerships in net investment income. In the first quarter of 2001, Phoenix Life recorded a charge of $48.8 million (net of income taxes of $26.3 million) representing the cumulative effect of this accounting change on the fourth quarter of 2000. The cumulative effect was based on the actual fourth quarter 2000 financial results as reported by the partnerships. In the first quarter of 2001, Phoenix Life removed the lag in reporting by estimating the change in Phoenix Life's share of the net equity in earnings of the venture capital partnerships for the period from December 31, 2000, the date of the most recent financial information provided by the partnerships, to Phoenix Life's then current reporting date of March 31, 2001. To estimate the net equity in earnings of the venture capital partnerships for each quarter, Phoenix Life developed a methodology to estimate the change in value of the underlying investee companies in the venture capital partnerships. For public investee companies, Phoenix Life used quoted market prices at the end of each quarter, applying liquidity discounts to these prices in instances where such discounts were applied in the underlying partnerships' financial statements. For private investee companies, Phoenix Life applied a public industry sector index to roll the value forward each quarter. Phoenix Life applies this methodology consistently each quarter with subsequent adjustments to reflect market events reported by the partnerships (e.g., new rounds of financing, initial public offerings and writedowns by the general partners). In addition, Phoenix Life will annually revise the valuations it has assigned to the investee companies to reflect the valuations in the audited financial statements received from the venture capital partnerships. Phoenix Life's venture capital earnings remain subject to variability. F-24 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The components of net investment income related to venture capital partnerships for the year ended December 31, were as follows:
1999 2000 2001 ---------- ----------- ------------ (IN MILLIONS) Operating losses.................................................. $ (8.9) $ (7.7) $ (6.4) Realized gains on cash and stock distributions.................... 84.7 223.3 17.8 Net unrealized gains (losses) on investments held in the 64.1 61.7 (95.9) partnerships................................................... ---------- --------- --------- Total venture capital partnership net investment income (loss).... $139.9 $277.3 $(84.5) ========== ========= =========
Other invested assets Other invested assets were as follows:
DECEMBER 31, ------------------------- 2000 2001 ----------- ---------- (IN MILLIONS) Transportation and equipment leases...................... $ 83.2 $ 85.0 Affordable housing partnerships.......................... 29.1 28.2 Investment in other affiliates........................... 7.5 9.6 Seed money in separate accounts.......................... 41.2 54.6 Mezzanine partnerships................................... 30.4 37.1 Derivatives.............................................. -- 10.9 Other partnership interests.............................. 44.3 55.8 ----------- ---------- Total other invested assets............................ $235.7 $281.2 =========== ==========
Separate account assets and investment trusts Separate account assets and investment trusts assets as of December 31, were as follows:
2000 2001 --------------- --------------- (IN MILLIONS) Separate accounts ..................................... $ 5,376.6 $ 5,025.2 --------------- --------------- Investment trusts: Phoenix CDO I ..................................... -- 160.1 Phoenix CDO II .................................... -- 384.7 --------------- --------------- Total investment trusts ...................... -- 544.8 --------------- --------------- Total separate account assets and investment trusts.... $ 5,376.6 $ 5,570.0 =============== ===============
In 2001, Phoenix Life determined that the investment trusts did not have a substantive amount of outside equity and, as a result, concluded consolidation was required. F-25 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Net investment income The components of net investment income (loss) for the year ended December 31, were as follows:
1999 2000 2001 ---------- ----------- ----------- (IN MILLIONS) Debt securities............................................. $ 637.4 $ 622.2 $ 680.4 Equity securities........................................... 7.9 13.3 4.4 Mortgage loans.............................................. 66.3 54.6 45.0 Policy loans................................................ 149.0 157.4 168.6 Real estate................................................. 9.7 9.2 16.1 Venture capital partnerships................................ 139.9 277.3 (84.5) Other invested assets....................................... .7 3.4 7.1 Cash, cash equivalents and short-term investments........... 22.6 27.5 13.7 ---------- ----------- ----------- Sub-total.............................................. 1,033.5 1,164.9 850.8 Less: investment expenses................................... 13.0 14.3 14.1 ---------- ----------- ----------- Net investment income....................................... 1,020.5 1,150.6 836.7 Less: net investment income of discontinued operations 67.4 21.0 6.5 ---------- ----------- ----------- Total net investment income of continuing operations $ 953.1 $1,129.6 $ 830.2 ========== =========== ===========
Investment income of $4.0 million was not accrued on certain delinquent mortgage loans and defaulted debt securities at December 31, 2001. Phoenix Life does not accrue interest income on impaired mortgage loans and impaired debt securities when the likelihood of collection is doubtful. See note 3--"Summary of Significant Accounting Policies--Valuation of investments" for further information on mortgage loan and debt security impairment. The payment terms of mortgage loans may, from time to time, be restructured or modified. The investment in restructured mortgage loans, based on amortized cost, amounted to $34.9 million and $31.1 million at December 31, 2000 and 2001, 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, $3.9 million and $3.6 million in 1999, 2000 and 2001, respectively. Actual interest income on these loans included in net investment income was $3.5 million, $3.1 million and $2.4 million in 1999, 2000 and 2001, respectively. Investment gains and losses Net unrealized investment (losses) gains on securities available-for-sale and carried at fair value for the year ended December 31, were as follows:
1999 2000 2001 ----------- ----------- ----------- (IN MILLIONS) Debt securities................................ $ (428.5) $ 213.8 $ 91.3 Equity securities.............................. 63.2 (105.7) (26.4) DAC............................................ 260.3 (117.2) (62.2) Deferred income tax (benefits) expense......... (36.7) (3.2) .9 ----------- ----------- ----------- Net unrealized investment (losses) gain on securities available-for-sale............. $ (68.3) $ (5.9) $ 1.8 =========== =========== ===========
The amortized cost of debt securities transferred from held-to-maturity to available-for-sale in 2001 was $2,333.8 million, which resulted in an unrealized gain of $83.9 million, after-tax. F-26 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Net realized investment (losses) gains for the year ended December 31, were as follows:
1999 2000 2001 ---------- ----------- ----------- (IN MILLIONS) Debt securities...................................................... $(20.4) $(54.2) $(50.9) Equity securities.................................................... 16.6 146.8 (8.8) Mortgage loans....................................................... 18.5 3.0 1.0 Real estate.......................................................... 2.9 (4.3) (2.5) Sale of subsidiary (Note 9).......................................... 40.1 (.8) 222.6 Other invested assets................................................ 18.5 (1.1) (11.3) ---------- ----------- ----------- Net realized investment gains........................................ 76.2 89.4 150.1 Less: net realized investment gains from discontinued operations..... .4 .2 -- ---------- ----------- ----------- Net realized investment gains from continuing operations............. $ 75.8 $ 89.2 $150.1 ========== =========== ===========
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:
1999 2000 2001 ----------- ----------- ------------ (IN MILLIONS) Proceeds from disposals....................... $ 1,106.9 $898.5 $1,289.8 Gross realized gains on sales................. $ 21.8 $ 8.7 $ 38.1 Gross realized losses on sales................ $ 39.1 $ 53.2 $ 27.6
6. GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets were as follows:
DECEMBER 31, -------------------------- 2000 2001 ------------- ---------- (IN MILLIONS) PXP gross amounts: Goodwill......................................... $ 425.7 -- Investment management contracts.................. 244.0 -- Non-compete covenant............................. 5.0 -- Other............................................ 4.5 -- ------------- ---------- Totals ............................................ 679.2 -- ------------- ---------- Other gross amounts: Goodwill......................................... 11.9 $ 4.8 Intangible asset related to pension plan benefits 8.3 18.8 Other............................................ 1.0 1.0 ------------- ---------- Totals ............................................ 21.2 24.6 ------------- ---------- Total gross goodwill and other intangible assets 700.4 24.6 ------------- ---------- Accumulated amortization -PXP...................... (112.4) Accumulated amortization -other.................... (5.4) (2.0) ------------- ---------- Total goodwill and other intangible assets, net $ 582.6 $ 22.6 ============= ==========
As of June 26, 2001, PXP's net goodwill and intangible assets are no longer consolidated due to the sale of PXP to Phoenix. See note 9--"Related Party Transactions." In 2000, $1.9 million of goodwill associated with the acquisition of PractiCare, Inc. in 1997 was written off. F-27 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 7. INVESTMENTS IN UNCONSOLIDATED AFFILIATES Investments in unconsolidated affiliates were as follows:
DECEMBER 31, --------------------------- 2000 2001 ----------- ------------ (IN MILLIONS) EMCO investment....................................... $ 28.1 $ 28.0 Aberdeen common stock................................. 58.7 103.9 Aberdeen 7% convertible subordinated notes............ 37.5 101.2 HRH common stock...................................... 16.9 18.7 HRH 5.25% convertible subordinated notes.............. 32.0 78.8 ----------- ------------ Total investments in unconsolidated affiliates... $ 173.2 $ 330.6 =========== ============
The reclassification of Aberdeen and HRH convertible subordinated notes from held-to-maturity to available-for-sale in 2001 resulted in an unrealized gain of $71.9 million, after-tax. The components of equity in earnings of and interest earned from investments in unconsolidated affiliates for the year ended December 31, were as follows:
1999 2000 2001 --------- -------- -------- (IN MILLIONS) EMCO investment......................................... $ 1.1 $ (0.8) $(0.1) Aberdeen common stock................................... 2.9 7.0 5.8 Aberdeen 7% convertible subordinated notes.............. 2.6 2.6 2.6 HRH common stock........................................ .7 1.2 2.5 HRH 5.25% convertible subordinated notes................ 1.1 1.7 1.7 --------- -------- -------- Total equity in earnings of and interest earned from investments in unconsolidated affiliates before income taxes......................................... 8.4 11.7 12.5 Income tax expense...................................... 2.9 4.1 4.4 --------- -------- -------- Total equity in earnings of and interest earned from investments in unconsolidated affiliates............. $ 5.5 $ 7.6 $ 8.1 ========= ======== ========
8. DERIVATIVE INSTRUMENTS Derivative instruments as of December 31, are summarized below:
2000 2001 --------------------- --------------------- (DOLLARS IN MILLIONS) ASSET HEDGES ------------ Foreign currency swaps: Notional amount.................. $ 24.3 $ 16.4 Weighted average received rate 12.11% 11.91% Weighted average paid rate....... 10.61% 10.68% Fair value....................... $ 2.0 $ 2.9 Interest rate swaps: Notional amount.................. $ 43.0 $ 80.0 Weighted average received rate 7.51% 6.22% Weighted average paid rate....... 6.78% 2.08% Fair value....................... $ 1.9 $ 2.6
F-28 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
LIABILITY HEDGES ---------------- Interest rate floors: Notional amount.................. $ 110.0 $ 110.0 Weighted average strike rate 4.79% 4.79% Index rate(1).................... 2-5 Yr. 2-5 Yr. CMT/CMS CMT/CMS Fair value....................... $ (.1) $ .4 Interest rate swaps: Notional amount.................. $ 410.0 $ 360.0 Weighted average received rate 6.66% 4.84% Weighted average paid rate....... 6.50% 4.59% Fair value....................... $ 6.1 $ 4.6 Interest rate caps: Notional amount.................. $ 50.0 $ 50.0 Weighted average strike rate 7.95% 7.95% Index rate(1).................... 10 Yr. CMT 10 Yr. CMT Fair value....................... $ -- $ .4 - ----------
(1) Constant maturity treasury yields (CMT) and constant maturity swap yields (CMS). The increase in net investment income related to contractual cash flows on interest rate swap contracts was $1.0 million, $1.4 million and $2.0 million for the years ended December 31, 1999, 2000 and 2001, respectively. The decrease in net investment income related to contractual cash flows on interest rate floor, interest rate cap and swaption contracts was $2.3 million, $2.3 million and $0.1 million for the years ended December 31, 1999, 2000 and 2001, respectively. The estimated fair value of these instruments represent what Phoenix Life would have to pay or receive if the contracts were terminated. Phoenix Life is exposed to credit risk in the event of nonperformance by counterparties to these financial instruments, but management of Phoenix Life does not expect counterparties will 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 Life considers the likelihood of any material loss on these instruments to be remote. 9. RELATED PARTY TRANSACTIONS As of June 25, 2001, the following indirect wholly-owned subsidiaries of Phoenix Life were transferred to Phoenix, or one of its subsidiaries; PXP, Phoenix Charter Oak Trust Company, WS Griffith Securities, Inc., WS Griffith Associates, Inc. and Main Street Management Company. Proceeds from the transfer were $659.8 million. The transfer of these entities resulted in a pre-tax gain of $222.6 million ($146.1 million, net of tax). PXP, an indirect wholly-owned subsidiary of Phoenix, through its affiliated registered investment advisors, provides investment advisory services (e.g. general account and variable separate account products) to Phoenix Life for a fee. Investment advisory fees incurred by Phoenix Life were $3.7 million for the six months ended December 31, 2001. Amounts payable to the affiliated investment advisors were $546 thousand, as of December 31, 2001. Variable product separate account fees, net of reimbursement were $3.1 million for the six months ended December 31, 2001. On February 26, 2001, Phoenix Life entered into a $69.0 million subordinated loan agreement with PXP, due March 1, 2006, in exchange for the debentures held by Phoenix Life. Interest is payable quarterly in arrears at an annual rate based on LIBOR plus 2%. For the year ended December 31, 2001, the average blended interest rate was approximately 5%. The loan agreement requires no principal repayment prior to maturity. F-29 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Phoenix Equity Planning Corporation (PEPCO), a wholly-owned subsidiary of PXP, is the principal underwriter of Phoenix Life's annuity and variable life contracts. Contracts may be purchased through registered representatives of a Phoenix affiliate, W.S. Griffith & Co., Inc., as well as other outside broker dealers who are licensed to sell Phoenix Life annuity contracts. As of June 30, 2001 PXP was no longer a subsidiary of Phoenix Life due to the transfer to Phoenix. Phoenix Life incurred commissions for contracts underwritten by PEPCO of $26.5 million for the six months ended December 31, 2001. Amounts payable to PEPCO were $4.7 million, as of December 31, 2001. Phoenix reimbursed Phoenix Life $42.6 million for expenses incurred in conjunction with the demutualization and $41.5 million for policy credits and payments to eligible policyholders in lieu of stock. 10. LONG-TERM DEBT
DECEMBER 31, --------------------- 2000 2001 -------- --------- (IN MILLIONS) Bank borrowings, blended rate 6.9% due in varying amounts to 2004 $230.0 $ -- Subordinated debentures, 6.0% due 2015.................................. 20.1 -- Surplus notes, 6.95%, due 2006 ......................................... 175.0 175.0 -------- --------- Total long-term debt............................................... $425.1 $ 175.0 ======== =========
As of June 26, 2001, PXP's long term debt is no longer consolidated due to the sale of PXP to Phoenix. See note 9 - "Related Party Transactions". Phoenix Life maintained two separate $100 million revolving credit facilities as of June 2001, which were terminated in light of the new master credit facility described below. In June 2001, Phoenix, Phoenix Life and PXP entered into a $375 million revolving credit facility which matures on June 10, 2005 and terminated Phoenix Life's and PXP's prior credit facilities. Bank of Montreal is the administrative agent for this credit facility. Each company has direct borrowing rights under this credit facility. Phoenix unconditionally guarantees loans to Phoenix Life and PXP. Base rate loans bear interest at the greater of the Bank of Montreal's prime commercial rate or the effective federal funds rate plus 0.5%. Eurodollar rate loans bear interest at LIBOR plus an applicable margin. The credit agreement includes customary financial and operating covenants that include, among other provisions, requirements that Phoenix maintain a minimum stockholders' equity and a maximum debt to capitalization ratio; that Phoenix Life maintain a minimum RBC ratio; and that PXP maintain a maximum debt to capitalization ratio and a minimum stockholders' equity. As of December 31, 2001, Phoenix Life had $249.9 million available, with no credit outstanding for this credit facility. In November 1996, Phoenix Life issued $175.0 million principal amount of 6.95% surplus notes due December 1, 2006. Each payment of interest on principal of the notes requires the prior approval of the Superintendent of Insurance of the State of New York (the "Superintendent"), and may be made only out of surplus funds which the Superintendent determines to be available for such payment under the New York Insurance Law. The notes contain neither financial covenants nor early redemption provisions, and are to rank pari passu with any subsequently issued surplus, capital or contribution notes or similar obligations of Phoenix Life. Section 1307 of the New York Insurance Law provides that the notes are not part of the legal liabilities of Phoenix Life and are not a basis of any set-off against the company. As of December 31, 2001, Phoenix Life had $175.0 million in surplus notes outstanding. Interest expense was $34.0 million, $32.7 million and $20.0 million for the years ended December 31, 1999, 2000 and 2001, respectively. At December 31, 2001, aggregate maturities of long-term debt based on required principal payments are $175.0 million in 2006. F-30 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 11. INCOME TAXES A summary of income tax expenses (benefits) applicable to income before income taxes, minority interest, and equity in earnings of and interest earned from investments in unconsolidated affiliates, for the year ended December 31, was as follows:
1999 2000 2001 --------- -------- ---------- (IN MILLIONS) Income taxes: Current ............. $ 114.0 $123.2 $ (43.3) Deferred............. (15.0) (67.0) 23.5 --------- -------- ---------- Total ................... $ 99.0 $ 56.2 $ (19.8) ========= ======== ==========
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 income tax effects of each for the years ended December 31, were as follows:
1999 2000 2001 ---------------------- ----------------------- ------------------------ AMOUNT % AMOUNT % AMOUNT % ----------- -------- ------------ -------- ------------ --------- (DOLLARS IN MILLIONS) Income tax expense at statutory rate........ $ 93.1 35% $ 55.1 35% $ 14.8 35% Dividend received deduction and tax- exempt interest....... (3.0) (1)% (6.7) (4)% (7.2) (17)% Other, net.............. (2.7) (1)% (2.5) (2)% (6.4) (15)% ----------- -------- ------------ -------- ------------ --------- 87.4 33% 45.9 29% 1.2 3% Differential earnings (equity tax).......... 11.6 4% 10.3 7% (21.0) (50)% ----------- -------- ------------ -------- ------------ --------- Income taxes............ $ 99.0 37% $ 56.2 36% $(19.8) (47)% =========== ======== ============ ======== ============ =========
The net deferred income tax liability (asset) represents the income tax effects of temporary differences attributable to the consolidated income tax return group. The components were as follows:
DECEMBER 31, ------------------------- 2000 2001 ----------- ---------- (IN MILLIONS) DAC................................................. $ 217.9 $ 234.1 Unearned premium/deferred revenue................... (139.0) (133.6) Impairment reserves................................. (16.8) (31.3) Pension and other post-retirement benefits.......... . (65.1) (69.2) Investments......................................... 177.0 101.8 Future policyholder benefits........................ (186.4) (204.1) Investment management contracts..................... 37.5 -- Deferred intercompany gain.......................... -- 76.4 Other............................................... (29.2) (43.8) ----------- ---------- (4.1) (69.7) Net unrealized investment gains..................... 11.9 50.2 Minimum pension liability........................... (3.3) (7.7) Equity in earnings of unconsolidated affiliates 4.9 4.3 ----------- ---------- Deferred income tax liability (asset), net.......... $ 9.4 $ (22.9) =========== ==========
F-31 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Gross deferred income tax assets totaled $439.8 million and $489.7 million at December 31, 2000 and 2001, respectively. Gross deferred income tax liabilities totaled $466.8 million and $449.2 million at December 31, 2000 and 2001, 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, 2000 and 2001 will be realized. 12. COMPREHENSIVE INCOME The components of, and related income tax effects for, other comprehensive income for the years ended December 31, were as follows:
1999 2000 2001 ------------ ------------ ------------ (IN MILLIONS) Unrealized (losses) gains on securities available-for-sale: Before-tax amount....................... $ (102.8) $ 81.5 $ (1.4) Income tax (benefit) expense............ (36.0) 28.5 (.5) ------------ ------------ ------------ Totals............................. (66.8) 53.0 (.9) ------------ ------------ ------------ Reclassification adjustment for net gains realized in net income: Before-tax amount....................... (2.2) (90.6) (15.4) Income tax benefit...................... (.7) (31.7) (5.4) ------------ ------------ ------------ Totals............................. (1.5) (58.9) (10.0) ------------ ------------ ------------ Net unrealized losses on securities available-for-sale: Before-tax amount....................... (105.0) (9.1) (16.8) Income tax benefit..................... (36.7) (3.2) (5.9) ------------ ------------ ------------ Totals............................. $ (68.3) $ (5.9) $(10.9) ============ ============ ============ Minimum pension liability adjustment: Before-tax amount....................... $ (2.3) $ 2.4 $(12.8) Income tax (benefit) expense............ (.8) .8 (4.5) ------------ ------------ ------------ Totals............................. $ (1.5) $ 1.6 $ (8.3) ============ ============ ============ Unrealized gain on security transfer from held-to-maturity to available-for-sale: Before-tax amount....................... $ -- $ -- $129.1 Income tax benefit...................... -- -- 45.2 ------------ ------------ ------------ Totals............................. $ -- $ -- $ 83.9 ============ ============ ============ Unrealized gains on derivatives: Before-tax amount....................... $ -- $ -- $ 6.0 Income tax expense...................... -- -- 2.1 ------------ ------------ ------------ Totals............................. $ -- $ -- $ 3.9 ============ ============ ============ Equity adjustment for policyholder dividend obligation: Before-tax amount....................... $ -- $ -- $(13.5) Income tax benefit...................... -- -- (4.7) ------------ ------------ ------------ Totals............................. $ -- $ -- $ (8.8) ============ ============ ============ Cumulative effect of accounting change for derivatives:
F-32 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
Before-tax amount...................... $ -- $ -- $ 1.7 Income tax expense..................... -- -- .6 ------------ ------------ ------------ Totals............................. $ -- $ -- $ 1.1 ============ ============ ============
The following table summarizes accumulated other comprehensive income for the years ended December 31:
1999 2000 2001 ---------- ----------- ---------- (IN MILLIONS) Net unrealized gains (losses) on securities available-for-sale: Balance, beginning of year.................. $ 100.5 $ 32.2 $ 26.3 Change during period........................ (68.3) (5.9) (10.9) ---------- ----------- ---------- Balance, end of year........................ 32.2 26.3 15.4 ---------- ----------- ---------- Minimum pension liability adjustment: Balance, beginning of year.................. (6.2) (7.7) (6.1) Change during period........................ (1.5) 1.6 (8.3) ---------- ----------- ---------- Balance, end of year........................ (7.7) (6.1) (14.4) ---------- ----------- ---------- Net unrealized gain on security transfer from held-to-maturity to available-for-sale: Balance, beginning of year.................. -- -- -- Change during period........................ -- -- 83.9 ---------- ----------- ---------- Balance, end of year........................ -- -- 83.9 ---------- ----------- ---------- Unrealized gains on derivatives: Balance, beginning of year.................. -- -- -- Change during period........................ -- -- 3.9 ---------- ----------- ---------- Balance, end of year........................ -- -- 3.9 ---------- ----------- ---------- Equity adjustment for policyholder dividend obligation: Balance, beginning of year.................. -- -- -- Change during period........................ -- -- (8.8) ---------- ----------- ---------- Balance, end of year........................ -- -- (8.8) ---------- ----------- ---------- Cumulative effect of accounting change for derivatives: Balance, beginning of year.................. -- -- -- Change during period........................ -- -- 1.1 ---------- ----------- ---------- Balance, end of year........................ -- -- 1.1 ---------- ----------- ---------- Accumulated other comprehensive income: Balance, beginning of year.................. 94.3 24.5 20.2 Change during period........................ (69.8) (4.3) 60.9 ---------- ----------- ---------- Balance, end of year........................ $ 24.5 $ 20.2 $ 81.1 ========== =========== ==========
13. DISCONTINUED OPERATIONS During 1999, Phoenix Life discontinued its reinsurance, real estate management and group life and health operations. The discontinuation of these operations 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. The operating results of discontinued operations and the gain or loss on disposal are shown in the summary section below. F-33 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Reinsurance Operations In 1999, Phoenix Life exited its reinsurance operations through a combination of sale, reinsurance and placement of certain components into run-off. The reinsurance operations consisted primarily of individual life reinsurance as well as group accident and health reinsurance business. Accordingly, Phoenix Life estimated sales proceeds, net premiums, net claims payments and expenses of winding-down the business. As a result, in 1999 Phoenix Life recognized a $173.1 million pre-tax loss on the disposal of reinsurance operations. The significant components of the loss on the disposal of reinsurance operations were as follows: On August 1, 1999, Phoenix Life sold its individual life reinsurance operations and certain group health reinsurance business to Employers Reassurance Corporation for $130 million. The transaction was structured as a reinsurance and asset sale transaction (assumption reinsurance), resulting in a pre-tax gain of $113 million. The pre-tax income from operations for the seven months prior to disposal was $19 million. During the third quarter of 2000, Phoenix Life recorded a pre-tax charge of $6 million to reflect an adjustment to estimated individual life reinsurance reserves in accordance with the sales agreement. During 1999, Phoenix Life placed the retained group accident and health reinsurance business into run-off. Phoenix Life adopted a formal plan to stop writing new contracts covering these risks and end the existing contracts as soon as those contracts would permit. However, Phoenix Life remained liable for claims under those contracts. In 1999, Phoenix Life reviewed the run-off block and estimated the amount and timing of future net premiums, claims and expenses. Consequently, Phoenix Life increased reserve estimates on the run-off block by $180 million (pre-tax). In addition, as part of the exit strategy, Phoenix Life purchased aggregate excess of loss reinsurance to further protect Phoenix Life from unfavorable results from this discontinued business. This reinsurance is subject to an aggregate retention of $100 million on the discontinued business. Phoenix Life may commute the agreement at any time after September 30, 2004, subject to automatic commutation effective September 30, 2019. Phoenix Life incurred an initial expense of $130 million on the acquisition of this reinsurance. During 2000, Phoenix Life updated its estimates of future losses related to the group accident and health reinsurance business as well as future expenses associated with managing the run-off. Based on the most recent information available, Phoenix Life increased reserve estimates on the run-off block by $97 million (pre-tax). Phoenix Life determined that the increase to reserves was needed based on revised actuarial assumptions to reflect current and expected deteriorating trends in claim experience and higher than anticipated expenses. During 2001, Phoenix Life reviewed its estimates of future losses related to the group accident and health reinsurance business as well as future expenses associated with managing the run-off. Based on the most recent information available, Phoenix Life did not recognize any additional reserve provisions. The additional reserves and aggregate excess of loss 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 Life expects to pay claims out of existing estimated reserves for up to ten years as the level of business diminishes. A significant portion of the claims arising from the discontinued group accident and health reinsurance business arises from the activities of Unicover Managers, Inc. ("Unicover"). Unicover organized and managed a group, or pool, of insurance companies ("Unicover pool") and certain other facilities, which reinsured the life and health insurance components of workers' compensation insurance policies issued by various property and casualty insurance companies. Phoenix Life was a member of the Unicover pool. Phoenix Life terminated its participation in the Unicover pool effective March 1, 1999. Phoenix Life is involved in disputes relating to the activities of Unicover. Under Unicover's underwriting authority, the Unicover pool and Unicover facilities wrote a dollar amount of reinsurance coverage that was many times greater than originally estimated. As a member of the Unicover pool, Phoenix Life is involved in F-34 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- several proceedings in which the pool members assert that they can deny coverage to certain insurers which claim that they purchased reinsurance coverage from the pool. Further, Phoenix Life was, along with Sun Life Assurance of Canada ("Sun Life") and Cologne Life Reinsurance Company ("Cologne Life"), a retrocessionaire (meaning a reinsurer of other reinsurers) of the Unicover pool and two other Unicover facilities, providing the pool and facility members with reinsurance of the risks that the pool and facility members had assumed. In September 1999, Phoenix Life joined an arbitration proceeding that Sun Life had begun against the members of the Unicover pool and the Unicover facilities. In this arbitration, Phoenix and Sun Life sought to cancel their retrocession agreement on the grounds that material misstatements and nondisclosures were made to them about, among other things, the amount of risks they would be reinsuring. The arbitration proceedings are ongoing only with respect to the Unicover pool, because Phoenix Life, Sun Life and Cologne Life reached settlement with the two Unicover facilities in the first quarter of 2000 (see discussion below). In its capacity as a retrocessionaire of the Unicover business, Phoenix Life had an extensive program of its own reinsurance in place to protect it from financial exposure to the risks it had assumed. Currently, Phoenix Life is involved in separate arbitration proceedings with three of its own retrocessionaires which are seeking on various grounds to avoid paying any amounts to Phoenix Life. Most of these proceedings remain in their preliminary phases. Because the same retrocession program that covers Phoenix Life's Unicover business covers a significant portion of its other remaining group accident and health reinsurance business, Phoenix Life could have additional material losses if one or more of its retrocesssionaires successfully avoids its obligations. During 2000, Phoenix Life reached settlements with several of the companies involved in Unicover. On January 13, 2000, Phoenix Life and the other member companies of the Unicover pool settled with EBI Indemnity Company and affiliates of the Orion Group ("EBI/Orion"), by which all pool members were released from their obligations as reinsurers of EBI/Orion. On January 21, 2000, Phoenix Life settled with Reliance Insurance Company ("Reliance") and its parent Reliance Group Holdings, Inc. and was released from its obligations as a reinsurer of the so-called Reliance facility. On March 27, 2000, Phoenix Life settled with Reliance, Lincoln National Life Insurance Company and Lincoln National Health and Casualty Company, releasing Phoenix Life from its obligations as a reinsurer of the so-called Lincoln facility. On May 28, 2000, Phoenix Life reached an agreement with one of its retrocessionaires, and recovered a substantial portion of its settlement cost on the Reliance settlement. Financial terms of these settlements were consistent with the provisions established by Phoenix Life in 1999. There was no effect on net income resulting from these settlements for the year ended December 31, 2000. A second set of disputes involves personal accident business that was reinsured in the London reinsurance market in the mid-1990s in which Phoenix Life participated. The disputes involve multiple layers of reinsurance, and allegations that the reinsurance program created by the brokers involved in placing those layers was interrelated and devised to disproportionately pass losses to a top layer of reinsurers. Many companies who participated in this business are involved in arbitrations in which those top layer companies are attempting to avoid their obligations on the basis of misrepresentation. Because of the complexity of the disputes and the reinsurance arrangements, many of these companies are currently participating in negotiations of the disputes for certain contract years, and Phoenix Life believes that similar discussions will follow for the remaining years. Although Phoenix Life is vigorously defending its contractual rights, Phoenix Life is actively involved in the attempt to reach negotiated business solutions. 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 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 Life's consolidated financial position. F-35 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The other component of the loss on the disposal of reinsurance discontinued operations in 1999 was as follows: On June 30, 1999, PM Holdings sold Financial Administrative Services, Inc. ("FAS"), its third party administration subsidiary affiliated with individual life reinsurance, 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 a pre-tax gain of $3.8 million. In addition to the $9.0 million sale price, Phoenix Life will receive additional proceeds contingent on certain revenue targets. Phoenix Life recorded a note receivable for $4.0 million which, under the terms of the agreement, CYBERTEK will repay in six annual installments commencing March 31, 2001 through March 31, 2006. The contingent proceeds will be determined annually but in total, will range from a minimum of $4.0 million to a maximum of $16.0 million. Phoenix received $1.9 million from Computer Sciences Corporation, the successor to CYBERTEK, in 2001. Real Estate Management Operations On March 31, 1999, Phoenix Life 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. On May 25, 2000, Phoenix Life sold its investment in 50% of the outstanding common stock of Pinnacle Realty Management Company, Inc., a real estate property management firm, for $6.0 million. This sale represented Phoenix Life's entire interest in Pinnacle Realty Management Company, Inc. and Phoenix Life now has no other real estate management business. The transaction resulted in a pre-tax loss of $0.6 million. Group Life and Health Operations On April 1, 2000, Phoenix Life sold its group life and health business to GE Financial Assurance Holdings, Inc. ("GEFA") except for Phoenix Dental Services, Inc. and California Benefits Dental Plan. Specifically, Phoenix Group Holdings and PM Holdings sold 97% of the common stock of Phoenix American Life Insurance Company and 100% of the common stock of Phoenix Group Services, Inc. and Clinical Disability Management, Inc. for $283.9 million. This amount is comprised of $238.9 million in cash and $45.0 million in common stock of GE Life and Annuity Assurance Company, an affiliate of GEFA. The common stock represents a 3.1% interest in GE Life and Annuity Assurance Company. Phoenix Life retains ownership of 3% of the common stock of Phoenix American Life Insurance Company. Phoenix Life has a right to put these shares back to GEFA beginning in 2005 and ending in 2007. These investments are reported as equity securities on the Consolidated Balance Sheets. The pre-tax gain on the sale was $72.1 million and is reported in discontinued operations gain on disposal, net of income taxes. The sale to GEFA of 100% of the common stock of Phoenix Dental Services, Inc. and California Benefits Dental Plan closed on October 31, 2000. The sales proceeds for these entities were $2.0 million, which resulted in a pre-tax loss of $0.4 million. Summary 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 Sheets. Net assets of the discontinued operations totaled $25.5 million and $20.8 million as of December 31, 2000 and 2001, respectively. The operating results of discontinued operations and the gain or loss on disposal are presented below. There were no operating results for the year ended December 31, 2001 because the operations were discontinued prior to January 1, 2001. F-36 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, ---------------------------- 1999 2000 ------------ ------------ INCOME FROM DISCONTINUED OPERATIONS (IN MILLIONS) Revenues: Reinsurance Operations..................................... $ -- $ -- Group Life and Health Operations........................... 453.8 117.6 Real Estate Management Operations.......................... 1.2 .4 ------------ ------------ Total revenues............................................... $ 455.0 $ 118.0 ============ ============ Income from discontinued operations: Reinsurance Operations..................................... $ -- $ -- Group Life and Health Operations........................... 56.8 14.8 Real Estate Management Operations.......................... (1.6) (.3) ------------ ------------ Income from discontinued operations before income taxes 55.2 14.5 Income taxes................................................. 19.1 5.1 ------------ ------------ Income from discontinued operations, net of income taxes $ 36.1 $ 9.4 ============ ============ LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS (Loss) gain on disposal: Reinsurance Operations..................................... $ (173.1) $ (103.0) Real Estate Management Operations.......................... 5.9 (.6) Group Life and Health Operations........................... -- 71.7 ------------ ------------- Loss on disposal of discontinued operations before income taxes..................................................... (167.2) (31.9) Income taxes................................................. (58.2) (11.0) ------------ ------------- Loss on disposal of discontinued operations, net of income taxes..................................................... $ (109.0) $ (20.9) ============ =============
14. CLOSED BLOCK On the date of demutualization, Phoenix Life established a closed block for the benefit of holders of certain individual participating life insurance policies and annuities of Phoenix Life for which Phoenix Life had a dividend scale payable in 2000. Assets have been allocated to the closed block in an amount that has been determined to produce cash flows which, together with anticipated revenues from the policies included in the closed block, are reasonably expected to be sufficient to support obligations and liabilities relating to these policies, including, but not limited to, provisions for the payment of claims and certain expenses and taxes, and to provide for the continuation of policyholder dividend scales in effect for 2000, if the experience underlying such dividend scales continues, and for appropriate adjustments in such scales if such experience changes. The closed block assets, the cash flows generated by the closed block assets and the anticipated revenues from the policies in the closed block will benefit only the holders of the policies in the closed block. To the extent that, over time, cash flows from the assets allocated to the closed block and claims and other experience related to the closed block are, in the aggregate, more or less favorable than what was assumed when the closed block was established, total dividends paid to closed block policyholders in the future may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect for 2000 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to closed block policyholders and will not be available to stockholders. If the closed block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside of the closed block. The closed block will continue in effect as long as any policy in the closed block remains in force. Other than the provisions of SOP 00-3, Phoenix Life uses the same accounting principles to account for the participating policies included in the closed block as it used prior to the date of demutualization. In particular, F-37 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- deferred policy acquisition costs are amortized in proportion to estimated gross margins and the liability for future benefits and services is calculated using the net level premium method. SOP 00-3 requires the establishment of a policyholder dividend obligation for earnings that inure to benefit policyholders. The excess of closed block liabilities over closed block assets at the effective date of the demutualization (adjusted to eliminate the impact of related amounts in accumulated other comprehensive income) represents the estimated maximum future earnings from the closed block expected to result from operations attributed to the closed block after income taxes. Earnings of the closed block are recognized in income over the period the policies and contracts in the closed block remain inforce. Management believes that over time the actual cumulative earnings of the closed block will approximately equal the expected cumulative earnings of the closed block due to the effect of dividend changes. If, over the period the closed block remains in existence, the actual cumulative earnings of the closed block are greater than the expected cumulative earnings of the closed block, Phoenix Life will pay the excess of the actual cumulative earnings of the closed block over the expected cumulative earnings to closed block policyholders as additional policyholder dividends unless offset by future unfavorable experience of the closed block and, accordingly, will recognize only the expected cumulative earnings in income with the excess recorded as a policyholder dividend obligation. If over such period, the actual cumulative earnings of the closed block are less than the expected cumulative earnings of the closed block, Phoenix Life will recognize only the actual earnings in income. However, Phoenix Life may change policyholder dividend scales in the future which would be intended to increase future actual earnings until the actual cumulative earnings equal the expected cumulative earnings. In addition to the closed block assets, we hold assets outside the closed block in support of closed block liabilities. Investment earnings on these assets less allocated expenses and the amortization of deferred acquisition costs provide an additional source of earnings to our shareholders. In addition, the amortization of deferred acquisition costs requires the use of various assumptions. To the extent that actual experience is more or less favorable than assumed, shareholder earnings will be impacted. The principal cash flow items that affect the amount of closed block assets and liabilities are premiums, net investment income, purchases and sales of investments, policyholders' benefits, policyholder dividends, premium taxes and income taxes. The principal income and expense items excluded from the closed block are management and maintenance expenses, commissions, and investment income and realized investment gains and losses of investment assets outside the closed block that support the closed block business, all of which enter into the determination of total gross margins of closed block policies for the purpose of the amortization of deferred acquisition costs. The amounts shown in the table below for assets and liabilities are those that enter into the determination of amounts to be paid to policyholders. As specified in the plan of reorganization, the allocation of assets for the closed block was made as of December 31, 1999. Consequently, cumulative earnings on the closed block assets and liabilities for the period January 1, 2000 to December 31, 2001 in excess of expected cumulative earnings do not inure to stockholders and have been used to establish a policyholder dividend obligation as of December 31, 2001. The initial policyholder dividend obligation of $115.5 million consists of $45.2 million of earnings for the period January 1, 2000 to June 30, 2001 and unrealized gains on assets in the closed block as of June 30, 2001 of $70.3 million. The increase in the policyholder dividend obligation of $51.7 million pre-tax, consists of $13.2 million of pre-tax earnings for the period July 1, 2001 to December 31, 2001 and the change in unrealized gains on assets in the closed block for the period July 1, 2001 to December 31, 2001 of $38.5 million, pre-tax. The following sets forth certain summarized financial information relating to the closed block as of the dates indicated: F-38 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
JUNE 30, DECEMBER 31, 2001 2001 -------------- ----------------- (IN MILLIONS) Closed block liabilities: ------------------------- Policy liabilities and accruals and policyholder deposit funds..... $ 8,937.8 $ 9,150.2 Policyholder dividends payable..................................... 364.2 357.3 Policyholder dividend obligation................................... 115.5 167.2 Other closed block liabilities..................................... 56.1 57.0 -------------- ----------------- Total closed block liabilities............................... 9,473.6 9,731.7 -------------- ----------------- Closed block assets: -------------------- Held-to-maturity debt securities at amortized cost................. 1,594.5 -- Available-for-sale debt securities at fair value................... 3,922.7 5,734.2 Mortgage loans..................................................... 390.6 386.5 Policy loans....................................................... 1,412.5 1,407.1 Deferred income taxes.............................................. 384.8 392.6 Investment income due and accrued.................................. 125.1 125.3 Net due and deferred premiums...................................... 39.4 41.1 Cash and cash equivalents.......................................... 186.1 239.7 Other closed block assets.......................................... 2.6 14.8 -------------- ----------------- Total closed block assets.................................... 8,058.3 8,341.3 -------------- ----------------- Excess of reported closed block liabilities over closed block assets $ 1,415.3 $ 1,390.4 ============== ================= Maximum future earnings to be recognized from closed block assets and liabilities.................................................... $ 1,415.3 $ 1,390.4 ============== ================= Change in policyholder dividend obligation: ------------------------------------------- Balance at beginning of period..................................... $ -- $ 115.5 Change during the period........................................... 115.5 51.7 -------------- ----------------- Balance at end of period........................................... $ 115.5 $ 167.2 ============== =================
The following sets forth certain summarized financial information relating to the closed block for the six months ended December 31, 2001 (in millions):
Closed block revenues: ---------------------- Premiums.................................................................... $ 565.7 Net investment income....................................................... 281.1 Realized investment losses, net............................................. (18.4) -------------- Total revenues......................................................... 828.4 -------------- Closed block benefits and expenses: ----------------------------------- Benefits to policyholders and increase in liabilities ...................... 580.0 Other operating costs and expenses.......................................... 6.1 Change in policyholder dividend obligation.................................. 13.2 Dividends to policyholders.................................................. 190.8 -------------- Total benefits and expenses............................................ 790.1 -------------- Contribution from the closed block, before income taxes................ 38.3 Income tax expense.................................................... 13.4 -------------- Contributions from closed block, after income taxes.................... $ 24.9 ==============
15. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements, consisting primarily of office buildings occupied by Phoenix Life, are stated at depreciated cost. Real estate occupied by Phoenix Life was $83.9 million and $79.1 million at December 31, 2000 and 2001, respectively. Phoenix Life provides for depreciation using straight-line and accelerated methods over the estimated useful lives of the related assets which generally range from F-39 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- five to forty years. Accumulated depreciation and amortization was $204.0 million and $190.4 million at December 31, 2000 and 2001, respectively. Rental expenses for operating leases, principally with respect to buildings, amounted to $16.3 million, $14.1 million and $13.4 million in 1999, 2000 and 2001, respectively, for continuing operations. Future minimum rental payments under non-cancelable operating leases for continuing operations were approximately $27.0 million as of December 31, 2001, payable as follows: 2002 -- $10.4 million; 2003 -- $7.1 million; 2004 -- $4.7 million; 2005 -- $3.0 million; 2006 -- $1.2 million; and $0.6 million thereafter. 16. DIRECT BUSINESS WRITTEN AND REINSURANCE Phoenix Life cedes reinsurance as a means of diversifying underwriting risk. To the extent that reinsuring companies may not be able to meet their obligations under reinsurance agreements in effect, Phoenix Life remains liable. Failure of the reinsurers to honor their obligations could result in losses to the company; consequently, estimates are established for amounts deemed or estimated to be uncollectible. To minimize its exposure to significant losses from reinsurance insolvencies, Phoenix Life evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers. For direct issues, the maximum of individual life insurance retained by Phoenix Life on any one life is $8 million for single life and joint first-to-die policies and $10 million for joint last-to-die policies, with excess amounts ceded to reinsurers. Phoenix reinsures 80% of the mortality risk on the in force block of the Confederation Life business acquired on December 31, 1997. In addition, Phoenix entered into two separate reinsurance agreements on October 1, 1998 and July 1, 1999 to reinsure 80% of the mortality risk on a substantial portion of its otherwise retained individual life insurance business. Also, Phoenix reinsures 80% to 90% of the mortality risk on certain new issues of term, universal life, variable universal life and whole life products. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. In addition, Phoenix assumes and cedes business related to the group accident and health block in run-off. While Phoenix is not writing any new contracts, Phoenix is contractually obligated to assume and cede premiums related to existing contracts. Additional information on direct business written and reinsurance assumed and ceded for the years ended December 31, was as follows:
1999 2000 2001 ---------------- --------------- --------------- (IN MILLIONS) Direct premiums.......................................... $ 1,677.5 $ 1,399.2 $ 1,292.5 Reinsurance assumed...................................... 416.2 202.4 72.9 Reinsurance ceded........................................ (323.0) (280.9) (221.5) ---------------- --------------- --------------- Net premiums............................................. 1,770.7 1,320.7 1,143.9 Less net premiums of discontinued operations............. (595.0) (173.3) (31.2) ---------------- --------------- --------------- Net premiums of continuing operations.................... $ 1,175.7 $ 1,147.4 1,112.7 ================ =============== =============== Percentage of amount assumed to net premiums............. 24% 15% 6% ================ =============== =============== Direct policy and contract claims incurred............... $ 622.3 $ 545.0 $ 475.2 Reinsurance assumed...................................... 563.8 257.8 116.2 Reinsurance ceded........................................ (285.4) (216.2) (226.1) ---------------- --------------- --------------- Net policy and contract claims incurred.................. 900.7 586.6 365.3 Less net incurred claims of discontinued operations...... (661.7) (234.6) (13.9) ---------------- --------------- --------------- Net policy and contract claims incurred of continuing operations............................... $ 239.0 $ 352.0 $ 351.4 ================ =============== =============== Direct life insurance in force........................... $131,052.1 $107,600.7 $111,743.1 Reinsurance assumed...................................... 139,649.9 1,736.4 464.4 Reinsurance ceded........................................ (207,192.0) (72,042.4) (75,787.5) ---------------- --------------- --------------- Net insurance in force................................... 63,510.0 37,294.7 36,420.0 Less insurance in force of discontinued operations....... (1,619.5) -- (1.0) ---------------- --------------- --------------- Net insurance in force of continuing operations.......... $ 61,890.5 $ 37,294.7 $ 36,419.0 ================ =============== =============== Percentage of amount assumed to net insurance in force..................................... 220% 5% 1% ================ =============== ===============
F-40 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Irrevocable letters of credit aggregating $17.5 million at December 31, 2001 have been arranged with United States of America commercial banks in favor of Phoenix to collateralize the ceded reserves. Additional collateral of $73.8 million was in the form of trust agreements for unauthorized reinsurers. 17. PARTICIPATING LIFE INSURANCE Participating life insurance in force was 60.0% and 50.4% of the face value of total individual life insurance in force at December 31, 2000 and 2001, respectively. The premiums on participating life insurance policies were 76.8%, 73.1% and 65.3% of total individual life insurance premiums in 1999, 2000, and 2001, respectively. 18. DEFERRED POLICY ACQUISITION COSTS The following reflects the amount of policy acquisition costs deferred and amortized for the years ended December 31:
1999 2000 2001 ----------- ------------ ----------- (IN MILLIONS) Balance at beginning of year.............................. $ 1,058.2 $ 1,318.8 $1,019.0 Acquisition cost deferred................................. 148.2 172.8 206.1 Amortized to expense during the year...................... (147.9) (356.0) (133.0) Equity adjustment for policyholder dividend obligation -- -- 3.1 Adjustment to net unrealized investment gains (losses) included in other comprehensive income.................... 260.3 (116.6) 28.5 ----------- ------------ ----------- Balance at end of year.................................... $ 1,318.8 $ 1,019.0 $1,123.7 =========== ============ ===========
In conjunction with the December 31, 1997 acquisition of the Confederation Life business, PVFP of $141.2 million is reflected as an element of deferred acquisition costs. The estimated amount to be amortized for the years ending December 31, 2002, 2003, 2004, 2005 and 2006 is $10.3 million, $9.2 million, $7.9 million, $6.1 million and $4.8 million, respectively. The following is an analysis of PVFP for the years ended December 31:
1999 2000 2001 ---------- ---------- ---------- (IN MILLIONS) Balance at beginning of year..... $ 136.8 $ 112.7 $ 96.9 Amortization..................... (24.1) (15.8) (16.3) ---------- ---------- ---------- Balance at end of year........... $ 112.7 $ 96.9 $80.6 ========== ========== ==========
Interest accrued on the unamortized PVFP balance for the years ended December 31, 1999, 2000 and 2001 was $8.9 million, $7.3 million and $5.8 million, respectively. Interest is accrued at 7.25% on the whole life business and 5.85% on the universal life business. In the fourth quarter of 2000, Phoenix's Board of Directors approved management's recommendation to reallocate assets supporting Phoenix's participating life policies. This asset reallocation resulted from (1) the execution of Phoenix's wealth management strategy and the resulting significant change in the composition of new life insurance annualized premiums and (2) a review of assets appropriate for the closed block that would be established if Phoenix reorganized from a mutual life insurance company to a stock life insurance company in 2001. This reallocation impacted the estimated future gross margins used to determine the amortization of DAC for participating policies. Accordingly, the revisions to estimated future gross margins resulted in a $218.2 million charge to earnings ($141.8 million, net of tax). F-41 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 19. MINORITY INTEREST Phoenix Life's interests in PFG Holdings are represented by ownership of approximately 67% of the outstanding shares of common stock at December 31, 2001. Earnings and equity attributable to minority stockholders are included in minority interest in the Consolidated Financial Statements. 20. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS Other than debt securities being held-to-maturity, financial instruments that are subject to fair value disclosure requirements (insurance contracts are excluded) are carried in the Consolidated Financial Statements at amounts that approximate fair value. The fair values presented for certain financial instruments are estimates which, in many cases, may differ significantly from the amounts which could be realized upon immediate liquidation. In cases where market prices are not available, estimates of fair value are based on discounted cash flow analyses that utilize current interest rates for similar financial instruments that 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 The carrying amount of cash and cash equivalents approximates fair value. Short-term investments The carrying amount of short-term investments approximates fair value. Debt securities Fair values are based on quoted market prices where available or quoted market prices of comparable instruments. Fair values of private placement debt securities are estimated using discounted cash flows that reflect 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. F-42 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Policy loans Fair values are estimated as the present value of loan interest and policy loan repayments discounted at the ten year Treasury rate. Loan repayments were assumed only to occur as a result of anticipated policy lapses and it was assumed that annual policy loan interest payments were made at the guaranteed loan rate less 17.5 basis points. Discounting was at the ten year Treasury rate, except for policy loans with a variable policy loan rate. Variable policy loans have an interest rate that is reset annually based upon market rates and therefore, book value is a reasonable approximation of fair value. Venture capital partnerships Fair value of venture capital partnerships is based on the fair value of these partnerships' underlying investments. At December 31, 2000, the fair values of the underlying investments were calculated as the closing market prices for investments that were publicly traded. For investments that were not publicly traded, fair value was based on estimated fair value as determined by the general partner after giving consideration to operating results, financial conditions, recent sales prices of issuers' securities and other pertinent information. At December 31, 2001, for underlying investments that were publicly traded, fair values were calculated using quoted market prices, applying liquidity discounts to these prices in instances where such discounts were applied in the underlying partnerships' financial statements. For investments that were not publicly traded, fair value was based on applying a public industry sector index to roll the value forward each quarter. Fair value also incorporated adjustments to reflect market events reported by the partnerships (e.g., new rounds of financing, initial public offerings and writedowns by the general partners). 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. Long-term debt The fair value of surplus notes is determined based on contractual cash flows discounted at market rates. F-43 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Fair value summary The estimated fair values of the financial instruments as of December 31 were as follows:
2000 2001 ---------------------------- ------------------------------ CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ------------ ------------ ------------- ------------- (IN MILLIONS) FINANCIAL ASSETS: Cash and cash equivalents..... $ 720.0 $ 720.0 $ 547.9 $ 547.9 Short-term investments........ 3.8 3.8 8.5 8.5 Debt securities............... 8,058.6 8,077.9 9,599.2 9,599.2 Equity securities............. 335.5 335.5 286.0 286.0 Mortgage loans................ 593.4 573.8 535.8 554.1 Derivative instruments........ -- 9.9 10.9 10.9 Policy loans.................. 2,105.2 2,182.7 2,172.2 2,252.9 Venture capital partnerships 467.3 467.3 291.7 291.7 ------------ ------------ ------------- ------------- Total financial assets........ $ 12,283.8 $12,370.9 $13,452.2 $13,551.2 ============ ============ ============= ============= FINANCIAL LIABILITIES: Investment contracts.......... $ 759.0 $ 758.9 $ 1,413.0 $ 1,419.7 Long-term debt................ 425.1 428.2 175.0 175.0 ------------ ------------ ------------- ------------- Total financial liabilities... $ 1,184.1 $ 1,187.1 $ 1,588.0 $ 1,594.7 ============ ============ ============= =============
21. SEPTEMBER 11, 2001 For the year ended December 31, 2001, Phoenix Life received life insurance claims relating to the September 11, 2001 terrorist attacks totaling $11.7 million. Claim costs were $3.7 million, net of reinsurance, of which $2.1 million reduced net income and $1.6 million were funded by the closed block. 22. COMMITMENTS AND CONTINGENCIES Litigation. Certain group accident and health reinsurance business has become the subject of disputes concerning the placement of the business with reinsurers and the recovery of the reinsurance. See note 13-- "Discontinued Operations." Phoenix makes off-balance sheet commitments related to venture capital partnerships. As of December 31, 2001, total unfunded capital commitments were $166.8 million. 23. STATUTORY FINANCIAL INFORMATION Phoenix Life's 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 Insurance Department of the State of New York ("Insurance Department"), as of December 31, 2000 and 2001. Phoenix Life's statutory federal income tax liability is principally based on estimates of federal income tax due. A deferred income tax liability has also been established for estimated taxes on unrealized gains for common stock and venture capital equity partnerships. Current New York Insurance Law does not allow the recording of deferred income taxes. Phoenix Life has received approval from the Insurance Department for this practice. Statutory surplus differs from equity reported in accordance with GAAP for life insurance companies primarily because policy acquisition costs are expensed when incurred, investment reserves are based on different assumptions, surplus notes are included in surplus rather than debt, post-retirement benefit costs are based on different assumptions and reflect a different method of adoption, life insurance reserves are based on different assumptions and income tax expense reflects only taxes paid or currently payable. F-44 PHOENIX LIFE INSURANCE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF THE PHOENIX COMPANIES, INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The following reconciles the statutory net income of Phoenix Life as reported to regulatory authorities to the net income reported in these financial statements for the year ended:
DECEMBER 31, ---------------------------------------- 1999 2000 2001 ----------- ---------- ----------- (IN MILLIONS) Statutory net income....................... $ 131.3 $ 266.1 $ (13.4) DAC, net .................................. (24.3) (181.2) 69.7 Future policy benefits .................... (27.5) (2.5) (18.5) Pension and postretirement expenses........ (8.6) 13.2 29.3 Investment valuation allowances............ 15.4 (45.9) (138.4) Interest maintenance reserve............... (7.2) (26.1) 13.4 Deferred income taxes...................... 3.9 61.3 52.9 Other, net................................. 6.2 (1.6) 6.1 ----------- ---------- ----------- Net income, as reported.................... $ 89.2 $ 83.3 $ 1.1 =========== ========== ===========
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:
DECEMBER 31, -------------------------------- 2000 2001 (IN MILLIONS) -------------------------------- Statutory surplus, surplus notes and AVR...... $ 1,883.2 $ 1,373.2 DAC, net...................................... 1,062.2 1,225.5 Future policy benefits........................ (536.0) (701.9) Pension and postretirement expenses........... (173.3) (166.1) Investment valuation allowance................ (405.9) 66.7 Interest maintenance reserve.................. .5 12.4 Deferred income taxes......................... 108.5 122.0 Surplus notes................................. (161.4) (163.3) Other, net.................................... 63.1 63.6 -------------- -------------- Equity, as reported........................... $ 1,840.9 $ 1,832.1 ============== ==============
In 1998, the National Association of Insurance Commissioners (NAIC) adopted the Codification of Statutory Accounting Principles guidance, which replaces the current accounting practices and procedures manual as the NAIC's primary guidance on statutory accounting as of January 1, 2001. The codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in some areas, e.g. deferred income taxes are recorded. The State of Connecticut Insurance Department has adopted the Codification guidance, effective January 1, 2001. The effect of adoption decreased Phoenix Life's statutory surplus by $67.2 million, primarily as a result of impairment of investments and non-admitting investment income in excess of 90 days and non-admitting of certain assets of its subsidiaries. F-45 APPENDIX A PERFORMANCE HISTORY - -------------------------------------------------------------------------------- THESE RATES OF RETURN SHOWN ARE NOT AN ESTIMATE NOR A GUARANTEE OF FUTURE PERFORMANCE. THE PERFORMANCE HISTORY SHOWN IS SOLELY FOR THE UNDERLYING INVESTMENT PORTFOLIOS. THEY DO NOT ILLUSTRATE HOW ACTUAL PERFORMANCE WILL AFFECT THE BENEFITS UNDER YOUR POLICY BECAUSE THEY DO NOT ACCOUNT FOR ANY OF THE CHARGES AND DEDUCTIONS THAT APPLY TO YOUR POLICY VALUE. (SEE "CHARGES AND DEDUCTIONS"). Yield of the Phoenix-Goodwin Money Market Series. We calculate the yield of the Phoenix-Goodwin Money Market Series for a 7-day "base period" by determining the "net change in value" of a hypothetical pre-existing account. We assume the hypothetical account had an initial balance of one share of the series at the beginning of the base period. We then determine what the value of the hypothetical account would have been at the end of the 7-day base period. We assume no policy charges were deducted from the hypothetical account. The end value minus the initial value gives us the net change in value for the hypothetical account. The net change in value can then be divided by the initial value giving us the base period return (one week's return). To find the equivalent annual return we multiply the base period return by 365/7. The equivalent effective annual yield differs from the annual return because we assume all returns are reinvested in the subaccount. We carry results to the nearest hundredth of one percent. Example Calculation: The following example of a return/yield calculation for the Phoenix-Goodwin Money Market Series is based on the 7-day period ending December 31, 2001 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:..................... 1.000337 Calculation: Ending account value ............................... 1.000337 Less beginning account value ....................... 1.000000 Net change in account value ........................ 0.000337 Base period return: (adjusted change/beginning account value) .......... 0.000337 Current annual yield = return x (365/7) = ............ 1.76% Effective annual yield = [(1 + return)365/7] - 1 = ... 1.77% The current yield and effective yield information will fluctuate. Yield and return information may not provide a suitable basis for comparison with bank deposits or other investments which are insured and/or pay a fixed yield for a stated period of time, or other investment companies, due to charges which will be deducted on the Account level. We will usually advertise the average annual total return for a subaccount calculated for one year, three years, five years, ten years and since the inception date of the underlying portfolio. We assume the reinvestment of all distributions at net asset value but do not account for the deduction of any of the daily or monthly charges made under the policy. A-1 Performance is the compounded return for the time period indicated, net of all fund level fees. Returns for the periods greater than one year are annualized. Performance does not include the effects of product charges, including any or all of the following: issue, sales and tax charges; mortality and expense risk fees; cost of insurance charges; administrative and transfer fees; and surrender charges. IF THESE CHARGES WERE REFLECTED IN THESE RETURNS, PERFORMANCE WOULD BE SIGNIFICANTLY LOWER THAN SHOWN. Please obtain a personalized illustration by contacting your registered representative. The illustration will show all applicable product charges deducted, including the cost of insurance. Since subaccount performance fluctuates, the policy value, when redeemed, may be worth more or less than the original cost. Withdrawals will affect the policy value and death benefit. You may obtain a copy of the most up-to-date performance numbers for the previous month from your registered representative.
- --------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN FOR THE PERIOD ENDED DECEMBER 31, 2001 - --------------------------------------------------------------------------------------------------------------------------------- SERIES INCEPTION DATE 1 YEAR 3 YEARS 5 YEARS 10 YEARS SINCE INCEPTION - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Aberdeen International Series 05/01/90 -24.04% -6.09% 3.49% 6.43% 6.35% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Aberdeen New Asia Series 09/17/96 1.02% 8.63% -3.71% N/A -3.48% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-AIM Mid-Cap Equity Series 10/29/01 N/A N/A N/A N/A 6.55% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Alliance/Bernstein Growth + Value Series 10/29/01 N/A N/A N/A N/A 7.03% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Deutsche Dow 30 Series 12/15/99 -5.98% N/A N/A N/A -4.49% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Deutsche Nasdaq-100 Index(R) Series 08/15/00 -33.06% N/A N/A N/A -46.43% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Duff & Phelps Real Estate Securities Series 05/01/95 6.62% 13.48% 7.04% N/A 12.57% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Engemann Capital Growth Series 12/31/82 -34.57% -11.31% 1.89% 8.05% 13.79% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Engemann Small & Mid-Cap Growth Series 08/15/00 -26.73% N/A N/A N/A -29.20% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Federated U.S. Government Bond Series 12/15/99 5.01% N/A N/A N/A 10.59% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Goodwin Money Market Series 10/08/82 3.82% 4.89% 4.99% 4.60% 6.11% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Goodwin Multi-Sector Fixed Income Series 12/31/82 6.09% 6.01% 4.87% 7.83% 9.37% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Hollister Value Equity Series 03/02/98 -17.96% 10.48% N/A N/A 11.03% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-J.P. Morgan Research Enhanced Index Series 07/14/97 -11.90% -2.50% N/A N/A 5.89% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Janus Flexible Income Series 12/15/99 7.24% N/A N/A N/A 6.69% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Janus Growth Series 12/15/99 -23.83% N/A N/A N/A -14.99% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-MFS Investors Growth Stock Series 10/29/01 N/A N/A N/A N/A 6.89% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-MFS Investors Trust Series 10/29/01 N/A N/A N/A N/A 4.25% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-MFS Value Series 10/29/01 N/A N/A N/A N/A 5.73% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Oakhurst Growth & Income Series 03/02/98 -8.17% 0.12% N/A N/A 5.07% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Oakhurst Strategic Allocation Series 09/17/84 1.87% 4.47% 10.71% 10.01% 12.04% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Sanford Bernstein Global Value Series 11/20/00 -6.84% N/A N/A N/A -2.51% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Sanford Bernstein Mid-Cap Value Series 03/02/98 22.98% 8.85% N/A N/A 3.55% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Sanford Bernstein Small-Cap Value Series 11/20/00 15.76% N/A N/A N/A 20.65% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Seneca Mid-Cap Growth Series 03/02/98 -25.28% 7.37% N/A N/A 11.29% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Seneca Strategic Theme Series 01/29/96 -27.36% -0.10% 11.07% N/A 11.09% - --------------------------------------------------------------------------------------------------------------------------------- Phoenix-Van Kampen Focus Equity Series 12/15/99 -15.09% N/A N/A N/A -11.22% - --------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund 05/05/93 -23.28% -0.39% 6.01% N/A 11.74% - --------------------------------------------------------------------------------------------------------------------------------- AIM V.I. Premier Equity Fund 05/05/93 -12.56% -1.03% 9.69% N/A 13.40% - --------------------------------------------------------------------------------------------------------------------------------- Alger American Leveraged AllCap Portfolio 01/25/95 -15.93% 4.01% 16.27% N/A 22.77% - --------------------------------------------------------------------------------------------------------------------------------- Federated Fund For U.S. Government Securities II 03/28/94 7.03% 5.70% 6.66% N/A 6.28% - --------------------------------------------------------------------------------------------------------------------------------- Federated High Income Bond Fund II 03/01/94 1.38% -1.91% 1.98% N/A 4.97% - --------------------------------------------------------------------------------------------------------------------------------- VIP Contrafund(R) Portfolio 11/03/97 -12.37% 0.49% N/A N/A 6.80% - --------------------------------------------------------------------------------------------------------------------------------- VIP Growth Opportunities Portfolio 11/03/97 -14.44% -9.62% N/A N/A -1.04% - --------------------------------------------------------------------------------------------------------------------------------- VIP Growth Portfolio 11/03/97 -17.72% 0.15% N/A N/A 8.54% - --------------------------------------------------------------------------------------------------------------------------------- Mutual Shares Securities Fund-- Class 2 11/08/96 7.04% 11.25% 10.05% N/A 10.47% - --------------------------------------------------------------------------------------------------------------------------------- Templeton Developing Markets Securities Fund-- 09/27/96 -8.09% -1.44% -11.80% N/A -11.03% Class 2 - --------------------------------------------------------------------------------------------------------------------------------- Templeton Foreign Securities Fund-- Class 2 05/11/92 -15.99% 0.36% 4.61% N/A 9.52% - --------------------------------------------------------------------------------------------------------------------------------- Templeton Global Asset Allocation Fund-- Class 2 11/28/88 -9.95% 3.36% 6.20% 9.91% 9.82% - --------------------------------------------------------------------------------------------------------------------------------- Templeton Growth Securities Fund-- Class 2 03/15/94 -1.30% 6.57% 8.30% N/A 9.88% - --------------------------------------------------------------------------------------------------------------------------------- Scudder VIT EAFE(R) Equity Index Fund 08/22/97 -24.69% -7.12% N/A N/A -2.14% - --------------------------------------------------------------------------------------------------------------------------------- Scudder VIT Equity 500 Index Fund 10/01/97 -13.00% -1.67% N/A N/A 5.32% - --------------------------------------------------------------------------------------------------------------------------------- Technology Portfolio 11/30/99 -48.83% N/A N/A N/A -29.36% - --------------------------------------------------------------------------------------------------------------------------------- Wanger Foreign Forty 02/01/99 -26.61% N/A N/A N/A 10.24% - --------------------------------------------------------------------------------------------------------------------------------- Wanger International Small Cap 05/01/95 -21.27% 8.76% 8.08% N/A 15.53% - --------------------------------------------------------------------------------------------------------------------------------- Wanger Twenty 02/01/99 9.09% N/A N/A N/A 17.60% - --------------------------------------------------------------------------------------------------------------------------------- Wanger U.S. Smaller Companies 05/01/95 11.39% 8.56% 12.47% N/A 18.34% - ---------------------------------------------------------------------------------------------------------------------------------
A-2 We may include information about series' or advisor's investment strategies and management style in advertisements, sales literature and other communications. An advisor may alter investment strategies and style in response to changing market and economic conditions. A fund may advertise all or part of a series' portfolio holdings, including holdings in specific industries. A fund may also separately illustrate the income and capital gains portions of a series' total return. A fund may also advertise performance by dividing returns into equity and debt components. A series may compare its equity or bond returns to any of a number of well-known benchmarks of market performance; including, but not limited to:
The Dow Jones Industrial Average(SM) Salomon Brothers Corporate Index The Standard & Poor's 500 Index (S&P 500) First Boston High Yield Index Salomon Brothers Government Bond Index
Each subaccount may include its yield and total return in advertisements or communications with current or prospective contract owners. Each subaccount may also include in such advertisements, its ranking or comparison to similar mutual funds by such organizations as:
Lipper Analytical Services Morningstar, Inc. Thomson Financial
A fund may also compare a series' performance to other investment or savings vehicles (such as certificates of deposit) and may refer to results published in such publications as:
Barrons Consumer Reports The New York Times Business Week Investor's Business Daily Personal Investor Changing Times Financial Planning Registered Representative Forbes Financial Services Weekly U.S. News and World Report Fortune Money The Wall Street Journal
The total return and yield may be used to compare the performance of the subaccounts with certain commonly used standards for stock and bond market performance. Such indexes include, but are not limited to:
The Dow Jones Industrial Average(SM) Salomon Brothers Corporate Index The S&P 500 First Boston High Yield Index Salomon Brothers Government Bond Index
The Dow Jones Industrial Average(SM) (DJIA(SM)) is an unweighted index of 30 industrial "blue chip" U.S. stocks. It is the oldest continuing U.S. market index. The 30 stocks now in the DJIASM are both widely-held and a major influence in their respective industries. The average is computed in such a way as to preserve its historical continuity and account for such factors as stock splits and periodic changes in the components of the index. The editors of The Wall Street Journal select the component stocks of the DJIA(SM). The S&P 500 is a market-value weighted index composed of 500 stocks chosen for market size, liquidity, and industry group representation. It is one of the most widely used indicators of U.S. Stock Market performance. The composition of the S&P 500 changes from time to time. Standard & Poor's Index Committee makes all decisions about the S&P 500. Weighted and unweighted indexes: A market-value, or capitalization, weighted index uses relative market value (share price multiplied by the number of shares outstanding) to "weight" the influence of a stock's price on the index. Simply put, larger companies' stock prices influence the index more than smaller companies' stock prices. An unweighted index (such as the Dow Jones Industrial Average(SM) uses stock price alone to determine the index value. A company's relative size has no bearing on its impact on the index. 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. You may obtain an Annual Report by contacting VULA at the address and telephone number on the first page of this prospectus. A-3 APPENDIX B GLOSSARY OF SPECIAL TERMS - -------------------------------------------------------------------------------- The following is a list of terms and their meanings when used in this prospectus. ACCOUNT: Phoenix Life Variable Universal Life Account, a separate account of the company. ATTAINED AGE: The age of the insured on his or her last birthday. BENEFICIARY: The person or persons specified by the policyowner as entitled to receive the death benefits under a policy. CODE: The Internal Revenue Code of 1986, as amended. COMPANY (PHOENIX, WE, OUR, US): Phoenix Life Insurance Company. DEBT: Outstanding loans against a policy, plus accrued interest. GENERAL ACCOUNT: The general asset account of Phoenix. ISSUE PREMIUM: The premium payment made in connection with issuing the policy. LOAN ACCOUNT: An account that holds policy value to secure policy loans. 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 NYSE, in which case it will be the next valuation date. 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 Account plus the policy's share in the values of the Guaranteed Interest Account plus the Loan Account. 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 a fund. SUBACCOUNTS: Accounts within the Account to which nonloaned assets under a policy are allocated. VALUATION DATE: For any subaccount, each date on which we calculate the net asset value of a fund. VALUATION PERIOD: For any subaccount, the period in days from the end of one valuation date through the next. VPMO: Variable Products Mail Operations division of Phoenix that processes incoming mail for VULA. VULA: Variable and Universal Life Administration. B-1 PART II. OTHER INFORMATION UNDERTAKING TO FILE REPORTS Subject to the terms and conditions of Section 15(d) of the Securities Exchange Act of 1934, the undersigned registrant hereby undertakes to file with the Securities and Exchange Commission such supplementary and periodic information, documents, and reports as may be prescribed by any rule or regulation of the Commission heretofore or hereafter duly adopted pursuant to authority conferred in that Section. RULE 484 UNDERTAKING Section 723 of the New York Business Corporation Law, as made applicable to insurance companies by Section 108 of the New York Insurance Law, provides that a corporation may indemnify any director or officer of the corporation made, or threatened to be made, a party to an action or proceeding other than one by or in the right of the corporation to procure a judgment in its favor, whether civil or criminal, including an action by or in the right of any other corporation of any type or kind, by reason of the fact that he, his testator or intestate, served such other corporation in any capacity at the request of the indemnifying corporation. Article VI Section 6.1 of the By-laws of the Company provides that "To the full extent permitted by the laws of the State of New York, the Company shall indemnify any person made or threatened to be made a party to any action, proceeding or investigation, whether civil or criminal, by reason of the fact that such person, or such person's testator or intestate: (1) is or was a Director, Officer or employees of the Company; or (2) serves or served another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity at the request of the Company, and at the time of such services, was a Director, officer or employee of the Company. against judgments, fines, amounts paid in settlement and reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with or as a result of such action, proceeding or investigation, or any appeal therein." Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A) OF THE INVESTMENT COMPANY ACT OF 1940. Pursuant to Section 26(e)(2)(A) of the Investment Company Act of 1940, as amended, Phoenix Life 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 Life Insurance Company. II-I CONTENTS OF REGISTRATION STATEMENT This registration statement comprises the following papers and documents: Facing sheet. Prospectus; version A, "The Phoenix Edge." Prospectus; version B, "The Phoenix Edge-SPVL." The undertaking to file reports. The Rule 484 undertaking. Representation pursuant to Section 26(e)(2)(A) under the Investment Company Act of 1940. Signatures. Written consent of the following: (a) Richard J. Wirth, Esq. (b) PricewaterhouseCoopers LLP (c) Paul M. Fischer, FSA, CLU, ChFC (d) Brian A. Giantonio, Esq., CPA The following exhibits: 1. The following exhibits correspond to those required by paragraph A to the instructions as to exhibits in Form N-8B-2: A. (1) Resolution of the Board of Directors of Phoenix Mutual establishing the Separate Account filed with registrant's Registration Statement on June 26, 1986 and filed via Edgar with Post-Effective Amendment No. 14 on April 29, 1998, incorporated by reference. (2) Not Applicable. (3) Distribution of Policies: (a) Master Service and Distribution Compliance Agreement between Depositor and Phoenix Equity Planning Corporation dated December 31, 1996 filed via Edgar with Post-Effective Amendment No. 14 on April 29, 1998, incorporated by reference. (b) Form of Agreement between Phoenix Equity Planning Corporation and Independent Brokers with respect to the sale of Policies filed via Edgar with Post-Effective Amendment No. 14 on April 29, 1998, incorporated by reference. (c) Not Applicable. (4) Not Applicable. (5) Specimen policies with optional riders: (a) The Phoenix Edge - Variable Life Insurance Policy Form Number 5000 (The Phoenix Edge) with optional rider (VR101) filed via Edgar on April 30, 1999, incorporated by reference. (b) The Phoenix Edge SPVL - Specimen Variable Life Insurance Policy Form filed via Edgar with Post Effective Amendment No. 17 on May 1, 2000 and incorporated by reference. (6) (a) Charter of Phoenix Home Life filed with registrant's Post- Effective Amendment No. 7 on June 22, 1992 and filed via Edgar with Post-Effective Amendment No. 14 on April 29, 1998, is incorporated by reference. (b) By-laws of Phoenix Home Life filed with registrant's Post- Effective Amendment No. 7 on June 22, 1992 and filed via Edgar with Post-Effective Amendment No. 14 on April 29, 1998, is incorporated by reference. (7) Not Applicable. (8) Not Applicable. II-2 (9) (a) The Phoenix Edge Form of Application for a Variable Life Insurance Policy is incorporated by reference to Registrant's Post-Effective Amendment No. 14 filed via Edgar on April 29, 1998. [Accession Number 0000949377-98-000063] (b) The Phoenix Edge - SPVL Form of Application for a Variable Life Insurance Policy is incorporated by reference to Registrant's Post-Effective Amendment No. 17 filed via Edgar on April 29, 1998. [Accession Number 0000949377-00-000260] (c) Participation Agreements: (1) Participation Agreement between Phoenix Home Life Mutual Insurance Company and Franklin Templeton Distributors, Inc. (2) Participation Agreement(s) between Phoenix Home Life Mutual Insurance Company and Wanger Advisors Trust (3) Participation agreement between Phoenix Home Life Mutual Insurance Company, Insurance Series, and Federated Securities Corp. (4) Participation agreement between Phoenix Home Life Mutual Insurance Company, Deutsche Asset Management VIT Funds and Deutsche Asset Management, Inc. (5) Participation agreement between Phoenix Home Life Mutual Insurance Company, Morgan Stanley Dean Witter Universal Funds, Inc., Miller Anderson & Sherrerd, LLP and Morgan Stanley Dean Witter Investment Management, Inc. (6) Participation agreement between Phoenix Home Life Mutual Insurance Company, The Alger American Fund and Fred Alger & Company, Incorporated. (7) Participation agreement between Phoenix Home Life Mutual Insurance Company, Variable Insurance Products Fund and Fidelity Distributors Corporation. (8) Participation agreement between Phoenix Home Life Mutual Insurance Company, AIM Variable Insurance Funds, Phoenix Equity Planning Corporation and AIM Distributors, Inc. (10) Not Applicable (11) Codes of Ethics: (a) Amended and Restated Code of Ethics: Phoenix Funds, Phoenix - Duff & Phelps Institutional Mutual Funds, Phoenix-Aberdeen Series Fund, Phoenix - Engemann Funds, Phoenix-Seneca Funds, Phoenix-Zweig Funds, dated May 31, 2001 (b) Amended and Restated Code of Ethics: The Phoenix Edge Series Fund, Phoenix Variable Advisors, Inc., Phoenix-Aberdeen International Advisors, LLC (c) Principles of Ethical Market Conduct. (d) Code of Ethics for Subsidiary Relationships and Transactions (12) Memorandum describing transfer and redemption procedures and method of computing adjustments in payments and cash values upon conversion to herein fixed benefit policies filed via Edgar with Post-Effective Amendment No. 14 on April 29, 1998, and incorporated by reference. (13) Illustrations of death benefits, policy values and cash surrender values are incorporated by reference to Registrant's Post-Effective Amendment No. 19 filed via Edgar on March 30, 2001 [Accession number 0000949377-01-000202]. 2. Opinion of Counsel as to the legality of the securities being registered, see Exhibits 6 and 8. 3. No financial statement will be omitted from the Prospectus pursuant to Instruction 1(b) or (c) of Part I. 4. Not Applicable. 5. Consent of PricewaterhouseCoopers LLP. 6. Opinion and Consent of Richard J. Wirth, Esq. 7. Opinion of Paul M. Fischer, FSA, CLU, ChFC as to the consistency of illustrations is incorporated by reference to Registrant's Post- Effective Amendment No. 19 filed via Edgar on March 30, 2001 [Accession number 0000949377-01-000202]. 8. Opinion and Consent of Brian A. Giantonio, Esq., CPA II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant, Phoenix Life Variable Universal Life Account certifies that it meets all the requirements for effectiveness of this Registration Statement under Rule 485(b) of the Securities Act and has duly caused this Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Hartford, State of Connecticut on the 29th day of April, 2002. PHOENIX LIFE VARIABLE UNIVERSAL LIFE ACCOUNT ------------------------------------------------ (Registrant) By: PHOENIX LIFE INSURANCE COMPANY ------------------------------------------------ (Depositor) By: ------------------------------------------------ *Dona D. Young, President and Chief Operating Officer ATTEST: /s/John H. Beers ------------------------------------------- John H. Beers, Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities indicated on the 29th day of April, 2002. SIGNATURE TITLE --------- ----- Director --------------------------------------- *Sal H. Alfiero Director - --------------------------------------- *J. Carter Bacot Director - --------------------------------------- *Peter C. Browning Director - --------------------------------------- *Arthur P. Byrne Director - --------------------------------------- Sanford Cloud, Jr. Director - --------------------------------------- *Richard N. Cooper Director - --------------------------------------- *Gordon J. Davis - --------------------------------------- Chairman of the Board, Chief *Robert W. Fiondella Executive Officer S-1 SIGNATURE TITLE --------- ----- Director - --------------------------------------- Ann Maynard Gray Director - --------------------------------------- *John E. Haire Director - --------------------------------------- *Jerry J. Jasinowski Director - --------------------------------------- *Thomas S. Johnson Director - --------------------------------------- *John W. Johnstone Director - --------------------------------------- *Marilyn E. LaMarche Director, Executive Vice President - --------------------------------------- and ChiefInvestment Officer *Philip R. McLoughlin - --------------------------------------- Executive Vice President and Chief *David W. Searfoss Financial Officer, Assistant Secretary Executive Vice President - --------------------------------------- *Simon Y. Tan Director - --------------------------------------- *Robert F. Vizza Director --------------------------------------- *Robert G. Wilson Director, President and Chief --------------------------------------- Operating Officer *Dona D. Young By: /s/ Dona D. Young - -------------------------------------------------- *DONA D. YOUNG AS ATTORNEY-IN-FACT PURSUANT TO POWERS OF ATTORNEY, PREVIOUSLY FILED. S-2 EX-99.1(A)(9)(C)(1) 4 plictempletonannual.txt PART. AGREE. W/FRANKLIN TEMPLETON Exhibit 1.(A)(9)(c)(1) Participation Agreement between Phoenix Home Life Mutual Insurance Company and Franklin Templeton Distributors, Inc. AMENDMENT TO PARTICIPATION AGREEMENT Franklin Templeton Variable Insurance Products Trust Franklin Templeton Distributors, Inc. Phoenix Home Life Mutual Insurance Company PHL Variable Insurance Company The participation agreement, dated as of May 1, 2000, by and among Franklin Templeton Variable Insurance Products Trust, Franklin Templeton Distributors, Inc., Phoenix Home Life Mutual Insurance Company, and PHL Variable Insurance Company (the "Agreement") is hereby amended as follows: Section 4.4 of the Agreement is deleted in its entirety and replaced with the following provision: 4.4 At your option, we shall provide you, at our expense, with either: (i) for each Contract owner who is invested through the Account in a subaccount corresponding to a Portfolio ("designated subaccount"), one copy of each of the following documents on each occasion that such document is required by law or regulation to be delivered to such Contract owner who is invested in a designated subaccount: 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 ("Designated Portfolio Documents"); or (ii) a camera ready copy of such Designated Portfolio 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. In connection with clause (ii) of this paragraph, we will pay for proportional printing costs for such Designated Portfolio Documents in order to provide one copy for each Contract owner who is invested in a designated subaccount on each occasion that such document is required by law or regulation to be delivered to such Contract owner, and provided the appropriate documentation is provided and approved by us. We shall provide you with a copy of the Trust's current statement of additional information, including any amendments or supplements, in a form suitable for you to duplicate. The expenses of furnishing, including mailing, to Contract owners the documents referred to in this paragraph shall be borne by you. For each of the documents provided to you in accordance with clause (i) of this paragraph 4.4, we shall provide you, upon your request and at your expense, additional copies. In no event shall we be responsible for the costs of printing or delivery of Designated Portfolio Documents to potential or new Contract owners or the delivery of Designated Portfolio Documents to existing contract owners. All other terms and provisions of the Agreement not amended herein shall remain in full force and effect. Effective Date as of May 1, 2000.
Franklin Templeton Variable Insurance Products Trust Franklin Templeton Distributors, Inc. - ---------------------------------------------------- ------------------------------------- By: /s/ Karen L. Skidmore By: /s/ Phil Kearns --------------------------------------- ---------------------------------- Name: Karen L. Skidmore Name: Phil Kearns Title: Assistant Vice President Title: Vice President Phoenix Home Life Mutual Insurance Company PHL Variable Insurance Company - ------------------------------------------ ------------------------------------- By: /s/ Simon Y. Tan By: /s/ Simon Y. Tan -------------------------------------- --------------------------------- Name: Simon Y. Tan Name: Simon Y. Tan Title: Executive Vice President Title: President
PARTICIPATION AGREEMENT as of May 1, 2000 Franklin Templeton Variable Insurance Products Trust Franklin Templeton Distributors, Inc. Phoenix Home Life Mutual Insurance Company PHL Variable Insurance Company CONTENTS Section Subject Matter - ------- -------------- 1. Parties and Purpose 2. Representations and Warranties 3. Purchase and Redemption of Trust Portfolio Shares 4. Fees, Expenses, Prospectuses, Proxy Materials and Reports 5. Voting 6. Sales Material, Information and Trademarks 7. Indemnification 8. Notices 9. Termination 10. Miscellaneous SCHEDULES TO THIS AGREEMENT A. The Company B. Accounts of the Company C. Available Portfolios and Classes of Shares of the Trust; Investment Advisers D. Contracts of the Company E. Other Portfolios Available under the Contracts F. Rule 12b-l Plans of the Trust G. Addresses for Notices H. Shared Funding Order 1. PARTIES AND PURPOSE ------------------- This agreement (the "Agreement") is between certain portfolios, specified below and in Schedule C, of Franklin Templeton Variable Insurance Products Trust, an open-end management investment company organized as a business trust under Massachusetts law (the "Trust"), Franklin Templeton Distributors, Inc., a California corporation which is the principal underwriter for the Trust (the "Underwriter," and together with the Trust, "we" or "us") and the insurance company identified on Schedule A ("you"), on your own behalf and on behalf of each segregated asset account maintained by you that is listed on Schedule B, as that schedule may be amended from time to time ("Account" or "Accounts"). The purpose of this Agreement is to entitle you, on behalf of the Accounts, to purchase the shares, and classes of shares, of portfolios of the Trust ("Portfolios") that are identified on Schedule C, solely for the purpose of funding benefits of your variable life insurance policies or variable annuity contracts ("Contracts") that are identified on Schedule D. This Agreement does not authorize any other purchases or redemptions of shares of the Trust. 2. REPRESENTATIONS AND WARRANTIES ------------------------------ 2.1 REPRESENTATIONS AND WARRANTIES BY YOU You represent and warrant that: 2.1.1 You are an insurance company duly organized and in good standing under the laws of your state of incorporation. 2.1.2 All of your directors, officers, employees, 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 for the benefit of the Trust, in an amount not less than $5 million. Such bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. You agree to make all reasonable efforts to see that this bond or another bond containing such provisions is always in effect, and you agree to notify us in the event that such coverage no longer applies. 2.1.3 Each Account is a duly organized, validly existing segregated asset account under applicable insurance law and interests in each Account are offered exclusively through the purchase of or transfer into a "variable contract" within the meaning of such terms under Section 817 of the Internal Revenue Code of 1986, as amended ("Code") and the regulations thereunder. You will use your best efforts to continue to meet such definitional requirements, and will notify us immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. 2.1.4 Each Account either: (i) has been registered or, prior to any issuance or sale of the Contracts, will be registered as a unit investment trust under the Investment Company Act of 1940 ("1940 Act"); or (ii) has not been so registered in proper reliance upon an exemption from registration under Section 3(c) of the 1940 Act; if the Account is exempt from registration as an investment company under Section 3(c) of the 1940 Act, you will use your best efforts to maintain such exemption and will notify us immediately upon having a reasonable basis for believing that such exemption no longer applies or might not apply in the future. 2.1.5 The Contracts or interests in the Accounts: (i) are or, prior to any issuance or sale will be, registered as securities under the Securities Act of 1933, as amended (the "1933 Act"); or (ii) are not registered because they are properly exempt from registration under Section 3(a)(2) of the 1933 Act or will be offered exclusively in transactions that are properly exempt from registration 2 under Section 4(2) or Regulation D of the 1933 Act, in which case you will make every effort to maintain such exemption and will notify us immediately upon having a reasonable basis for believing that such exemption no longer applies or might not apply in the future. 2.1.6 The Contracts: (i) will be sold by broker-dealers, or their registered representatives, who are registered with the Securities and Exchange Commission ("SEC") under the Securities and Exchange Act of 1934, as amended (the "1934 Act") and who are members in good standing of the National Association of Securities Dealers, Inc. (the "NASD"); (ii) will be issued and sold in compliance in all material respects with all applicable federal and state laws; and (iii) will be sold in compliance in all material respects with state insurance suitability requirements and NASD suitability guidelines. 2.1.7 The Contracts currently are and will be treated as annuity contracts or life insurance contracts under applicable provisions of the Code and you will use your best efforts to maintain such treatment; you will notify us immediately upon having a reasonable basis for believing that any of the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.1.8 The fees and charges deducted under each Contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by you. 2.1.9 You will use shares of the Trust only for the purpose of funding benefits of the Contracts through the Accounts. 2.1.10 Contracts will not be sold outside of the United States. 2.1.11 With respect to any Accounts which are exempt from registration under the 1940 Act in reliance on 3(c)(l) or Section 3(c)(7) thereof: 2.1.11.1 the principal underwriter for each such Account and any subaccounts thereof is a registered broker-dealer with the SEC under the 1934 Act; 2.1.11.2 the shares of the Portfolios of the Trust are and will continue to be the only investment securities held by the corresponding subaccounts; and 2.1.11.3 with regard to each Portfolio, you, on behalf of the corresponding subaccount, will: (a) vote such shares held by it in the same proportion as the vote of all other holders of such shares; and (b) refrain from substituting shares of another security for such shares unless the SEC has approved such 3 substitution in the manner provided in Section 26 of the 1940 Act. 2.2 REPRESENTATIONS AND WARRANTIES BY THE TRUST The Trust represents and warrants that: 2.2.1 It is duly organized and in good standing under the laws of the State of Massachusetts. 2.2.2 All of its directors, officers, employees and others dealing with the money and/or securities of a Portfolio are and shall be at all times 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. 2.2.3 It is registered as an open-end management investment company under the 1940 Act. 2.2.4 Each class of shares of the Portfolios of the Trust is registered under the 1933 Act. 2.2.5 It will 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. 2.2.6 It will comply, in all material respects, with the 1933 and 1940 Acts and the rules and regulations thereunder. 2.2.7 It is currently qualified as a "regulated investment company" under Subchapter M of the Code, it will make every effort to maintain such qualification, and will notify you 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. 2.2.8 The Trust will use its best efforts to comply with the diversification requirements for variable annuity, endowment or life insurance contracts set forth in Section 817(h) of the Code, and the rules and regulations thereunder, including without limitation Treasury Regulation 1.817-5. Upon having a reasonable basis for believing any Portfolio has ceased to comply and will not be able to comply within the grace period afforded by Regulation 1.817-5, the Trust will notify you immediately and will take all reasonable steps to adequately diversify the Portfolio to achieve compliance. 2.2.9 It currently intends for one or more classes of shares (each, a "Class") to make payments to finance its distribution expenses, including service fees, pursuant to a plan ("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 interpretations concerning rule 12b-1 or any successor provisions. 4 2.3 REPRESENTATIONS AND WARRANTIES BY THE UNDERWRITER The Underwriter represents and warrants that: 2.3.1 It is registered as a broker dealer with the SEC under the 1934 Act, and is a member in good standing of the NASD. 2.3.2 Each investment adviser listed on Schedule C (each, an "Adviser") is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended, and any applicable state securities law. 2.4 WARRANTY AND AGREEMENT BY BOTH YOU AND US We received an order from the SEC dated November 16, 1993 (file no. 812-8546), which was amended by a notice and an order we received on September 17, 1999 and October 13, 1999, respectively (file no. 812-11698) (collectively, the "Shared Funding Order," attached to this Agreement as Schedule H). The Shared Funding Order grants exemptions from certain provisions of the 1940 Act and the regulations 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 qualified pension and retirement plans outside the separate account context. You and we both warrant and agree that both you and we will comply with the "Applicants' Conditions" prescribed in the Shared Funding Order as though such conditions were set forth verbatim in this Agreement, including, without limitation, the provisions regarding potential conflicts of interest between the separate accounts which invest in the Trust and regarding contract owner voting privileges. In order for the Trust's Board of Trustees to perform its duty to monitor for conflicts of interest, you agree to inform us of the occurrence of any of the events specified in condition 2 of the Shared Funding Order to the extent that such event may or does result in a material conflict of interest as defined in that order. 3. PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES ------------------------------------------------- 3.1 We will make shares of the Portfolios available to the Accounts for the benefit of the Contracts. The shares will be available for purchase at the net asset value per share next computed after we (or our agent) receive a purchase order, as established in accordance with the provisions of the then current prospectus of the Trust. Notwithstanding the foregoing, the Trust's Board of Trustees ("Trustees") may refuse to sell shares of any Portfolio to any person, or may 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, they deem such action to be in the best interests of the shareholders of such Portfolio. Without limiting the foregoing, the Trustees have determined that there is a significant risk that the Trust and its shareholders may be adversely affected by investors whose purchase and redemption activity follows a market timing pattern, and have authorized the Trust, the Underwriter and the Trust's transfer agent to adopt procedures and take other action (including, without limitation, rejecting specific purchase orders) as they deem necessary to reduce, discourage or eliminate market timing activity. You agree to cooperate with us to assist us in implementing the Trust's restrictions on purchase and redemption activity that follows a market timing pattern. 5 3.2 We agree that shares of the Trust will be sold only to life insurance companies which have entered into fund participation agreements with the Trust ("Participating Insurance Companies") and their separate accounts or to qualified pension and retirement plans in accordance with the terms of the Shared Funding Order. No shares of any Portfolio will be sold to the general public. 3.3 You agree that all net amounts available under the Contracts shall be invested in the Trust or in your general account. Net amounts available under the Contracts may also be invested in an investment company other than the Trust if: (i) 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 (ii) you give us forty-five (45) days written notice of your intention to make such other investment company available as a funding vehicle for the Contracts; or (iii) such other investment company is available as a funding vehicle for the Contracts at the date of this Agreement and you so inform us prior to our signing this Agreement (a list of such investment companies appears on Schedule E to this Agreement); or (iv) we consent in writing to the use of such other investment company. 3.4 You shall be the designee for us for receipt of purchase orders and requests for redemption resulting from investment in and payments under the Contracts ("Instructions"). The Business Day on which such instructions are received in proper form by you and time stamped by the close of trading will be the date as of which Portfolio shares shall be deemed purchased, exchanged, or redeemed as a result of such Instructions. Instructions received in proper form by you and time stamped after the close of trading on any given Business Day shall be treated as if received on the next following Business Day. You warrant that all orders, Instructions and confirmations received by you which will be transmitted to us for processing on a Business Day will have been received and time stamped prior to the Close of Trading on that Business Day. Instructions we receive after 9 a.m. Eastern Time shall be processed 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 the Trust calculates its net asset value pursuant to the rules of the SEC and its current prospectus. 3.5 We shall calculate the net asset value per share of each Portfolio on each Business Day, and shall communicate these net asset values to you or your designated agent on a daily basis as soon as reasonably practical after the calculation is completed (normally by 6:30 p.m. Eastern time). 3.6 You shall submit payment for the purchase of shares of a Portfolio on behalf of an Account no later than the close of business on the next Business Day after we receive the purchase order. Payment shall be made in federal funds transmitted by wire to the Trust or to its designated custodian. 3.7 We will redeem any full or fractional shares of any Portfolio, when requested by you on behalf of an Account, at the net asset value next computed after receipt by us (or our agent) of the request for redemption, as established in accordance with the provisions of the then current prospectus of the Trust. We shall make payment for such shares in the manner we establish from time to time, but in no event shall payment be delayed for a greater period than is permitted by the 1940 Act. Payments for the purchase or redemption of shares by you may be netted against one 6 another on any Business Day for the purpose of determining the amount of any wire transfer on that Business Day. 3.8 Issuance and transfer of the Portfolio shares will be by book entry only. Stock certificates will not be issued to you or the Accounts. Portfolio shares purchased from the Trust will be recorded in the appropriate title for each Account or the appropriate subaccount of each Account. 3.9 We shall furnish, on or before the ex-dividend date, notice to you of any income dividends or capital gain distributions payable on the shares of any Portfolio. You hereby elect to receive all such income dividends and capital gain distributions as are payable on shares of a Portfolio in additional shares of that Portfolio, and you reserve the right to change this election in the future. We will notify you of the number of shares so issued as payment of such dividends and distributions. 4. FEES, EXPENSES, PROSPECTUSES, PROXY MATERIALS AND REPORTS 4.1 We shall pay no fee or other compensation to you under this Agreement except as provided on Schedule F, if attached. 4.2 We 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 the Trust. We shall bear the costs of preparation and filing of the documents listed in the preceding sentence, registration and qualification of the Trust's shares of the Portfolios. 4.3 We shall use reasonable efforts to provide you, on a timely basis, with such information about the Trust, the Portfolios and each Adviser, in such form as you may reasonably require, as you shall reasonably request in connection with the preparation of disclosure documents and annual and semi-annual reports pertaining to the Contracts. 4.4 At your request, we shall provide you with camera ready copy, in a form suitable for printing, of a copy 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. We shall delete information relating to series of the Trust other than the Portfolios to the extent practicable. We shall provide you with a copy of the Trust's current statement of additional information, including any amendments or supplements, in a form suitable for you to duplicate. You shall bear the costs of furnishing these documents (including printing and mailing) to Contract owners or others. 4.5 We shall provide you, at our expense, with copies of any Trust-sponsored proxy materials in such quantity as you shall reasonably require for distribution to Contract owners who are invested in a designated subaccount. You shall bear the costs of distributing proxy materials (or similar materials such as voting solicitation instructions) to Contract owners. 4.6 You assume sole responsibility for ensuring that the Trust's prospectuses, shareholder reports and communications, and proxy materials are delivered to Contract owners in accordance with applicable federal and state securities laws. 7 5. VOTING 5.1 All Participating Insurance Companies shall have the obligations and responsibilities regarding pass-through voting and conflicts of interest corresponding to those contained in the Shared Funding Order. 5.2 If and to the extent required by law, you 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 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 SEC continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. You reserve the right to vote Trust shares held in any Account in your own right, to the extent permitted by law. 5.3 So long as, and to the extent that, the SEC interprets the 1940 Act to require pass-through voting privileges for Contract owners, you shall provide pass-through voting privileges to Contract owners whose Contract values are invested, through the Accounts, in shares of one or more Portfolios of the Trust. We shall require all Participating Insurance Companies to calculate voting privileges in the same manner and you shall be responsible for assuring that the Accounts calculate voting privileges in the manner established by us. With respect to each Account, you will vote shares of each Portfolio of the Trust held by an Account and for which no timely voting instructions from Contract owners are received in the same proportion as those shares held by that Account for which voting instructions are received. You and your agents will in no way recommend or oppose or interfere with the solicitation of proxies for Portfolio shares held to fund the Contracts without our prior written consent, which consent may be withheld in our sole discretion. 6. SALES MATERIAL, INFORMATION AND TRADEMARKS ------------------------------------------ 6.1 For purposes of this Section 6, "Sales literature or other Promotional material" includes, but is not limited to, portions of the following that use any logo or other trademark related to the Trust or Underwriter or 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, 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 in any media, and disclosure documents, shareholder reports and proxy materials. 6.2 You shall furnish, or cause to be furnished to us or our designee, at least one complete copy of each registration statement, prospectus, statement of additional information, private placement memorandum, retirement plan disclosure information or other disclosure documents or similar information, as applicable (collectively "disclosure documents"), as well as any report, solicitation for voting instructions, Sales literature or other Promotional materials, and all amendments to any of the above that relate to the Contracts or the Accounts prior to its first use. 8 You shall furnish, or shall cause to be furnished, to us or our designee each piece of Sales literature or other Promotional material in which the Trust or an Adviser is named, at least fifteen (15) Business Days prior to its proposed use. No such material shall be used unless we or our designee approve such material and its proposed use. 6.3 You and your 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, 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. 6.4 We shall not give any information or make any representations or statements on behalf of you or concerning you, the Accounts or the Contracts other than information or representations contained in and accurately derived from disclosure documents for the Contracts (as such disclosure documents may be amended or supplemented from time to time), or in materials approved by you for distribution, including Sales literature or other Promotional materials, except as required by legal process or regulatory authorities or with your written permission. We may use the names of you, the Accounts and the Contracts in our sales literature and disclosure documents. 6.5 Except as provided in Section 6.2, you shall not use any designation comprised in whole or part of the names or marks "Franklin" or "Templeton" or any logo or other trademark relating to the Trust or the Underwriter without prior written consent, and upon termination of this Agreement for any reason, you shall cease all use of any such name or mark as soon as reasonably practicable. 7. INDEMNIFICATION --------------- 7.1 INDEMNIFICATION BY YOU 7.1.1 You agree to indemnify and hold harmless the Underwriter, 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 Section 7) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with your written consent, 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 or otherwise, insofar as such Losses are related to the sale or acquisition of shares of the Trust or the Contracts and 7.1. 1.1 arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in a disclosure document for the Contracts or in the Contracts themselves or in sales literature generated or approved by you on behalf of the 9 Contracts or Accounts (or any amendment or supplement to any of the foregoing) (collectively, "Company Documents" for the purposes of this Section 7), 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 you 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 7.1.1.2 arise out of or result from statements or representations (other than statements or representations contained in and accurately derived from Trust Documents as defined below in Section 7.2) or wrongful conduct of you or persons under your control, with respect to the sale or acquisition of the Contracts or Trust shares; or 7.1.1.3 arise out of or result from any untrue statement or alleged untrue statement of a material fact contained in Trust Documents as defined below in Section 7.2 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 you; or 7.1.1.4 arise out of or result from any failure by you to provide the services or furnish the materials required under the terms of this Agreement (including a failure, whether unintentional or in good faith or otherwise, to comply with the requirements specified above in Sections 2.1.3 and 2.1.7); 7.1.1.5 arise out of or result from any material breach of any representation and/or warranty made by you in this Agreement or arise out of or result from any other material breach of this Agreement by you; or 7.1.1.6 arise out of or result from a Contract failing to be considered a life insurance policy or an annuity Contract, whichever is appropriate, under applicable provisions of the Code thereby depriving the Trust of its compliance with Section 817(h) of the Code. 7.1.2 You 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. You 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 you 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 you of any such claim shall not relieve 10 you 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, you shall be entitled to participate, at your own expense, in the defense of such action. Unless the Indemnified Party releases you from any further obligations under this Section 7.1, you also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from you to such party of the your election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and you 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. 7.1.3 The Indemnified Parties will promptly notify you 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. 7.2 INDEMNIFICATION BY THE UNDERWRITER 7.2.1 The Underwriter agrees to indemnify and hold harmless you, and each of your directors and officers and each person, if any, who controls you within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and individually an "Indemnified Party" 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 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 or otherwise, insofar as such Losses are related to the sale or acquisition of the shares of the Trust or the Contracts and: 7.2.1.1 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 us by or on behalf of you 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 shares; or 7.2.1.2 arise out of or as a result of statements or representations (other than statements or representations contained in the disclosure documents or sales literature for the Contracts not supplied by the Underwriter or persons under its control) or wrongful conduct of the Trust, Adviser or Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Trust shares; or 11 7.2.1.3 arise out of any untrue statement or alleged untrue statement of a material fact contained in a disclosure document 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 you by or on behalf of the Trust; or 7.2.1.4 arise as a result of any failure by us 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 above in Section 2.2.7 and the diversification requirements specified above in Section 2.2.8; or 7.2.1.5 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 7.2.2 and 7.2.3 hereof. 7.2.2 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 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 you or the Accounts, whichever is applicable. 7.2.3 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. Unless the Indemnified Party releases the Underwriter from any further obligations under this Section 7.2, the Underwriter also shall be entitled to assume the defense thereof, with 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. 7.2.4 You agree promptly to notify the Underwriter of the commencement of any litigation or proceedings against you or the Indemnified Parties in connection with the issuance or sale of the Contracts or the operation of each Account. 7.3 INDEMNIFICATION BY THE TRUST 12 7.3.1 The Trust agrees to indemnify and hold harmless you, and each of your directors and officers and each person, if any, who controls you within the meaning of Section 15 of the 1933 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 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 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 Trust, and arise out of or result from any material breach of any representation and/or warranty made by the Trust in this Agreement or arise out of or result from any other material breach of this Agreement by the Trust; as limited by and in accordance with the provisions of Sections 7.3.2 and 7.3.3 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 be had to other private property for the satisfaction of any claim or obligation hereunder, but the Trust only shall be liable. 7.3.2 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 you, the Trust, the Underwriter or each Account, whichever is applicable. 7.3.3 The 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 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. Unless the Indemnified Party releases the Trust from any further obligations under this Section 7.3, 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. 7.3.4 You agree promptly to notify the Trust of the commencement of any litigation or proceedings against you or the Indemnified Parties in connection with this Agreement, the issuance or sale of the Contracts, with respect to the operation of the Account, or the sale or acquisition of shares of the Trust. 13 8. 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 in Schedule G below or at such other address as such party may from time to time specify in writing to the other party. 9. TERMINATION ----------- 9.1 This Agreement may be terminated by any party in its entirety or with respect to one, some or all Portfolios for 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. 9.2 This Agreement may be terminated immediately by us upon written notice to you if: 9.2.1 you notify the Trust or the Underwriter that the exemption from registration under Section 3(c) of the 1940 Act no longer applies, or might not apply in the future, to the unregistered Accounts, or that the exemption from registration under Section 4(2) or Regulation D promulgated under the 1933 Act no longer applies or might not apply in the future, to interests under the unregistered Contracts; or 9.2.2 either one or both of the Trust or the Underwriter respectively, shall determine, in their sole judgment exercised in good faith, that you have suffered a material adverse change in your business, operations, financial condition or prospects since the date of this Agreement or are the subject of material adverse publicity; or 9.2.3 you give us the written notice specified above in Section 3.3 and at the same time you give us such notice there was no notice of termination outstanding under any other provision of this Agreement; provided, however, that any termination under this Section 9.2.3 shall be effective forty-five (45) days after the notice specified in Section 3.3 was given; or 9.2.4 upon your assignment of this Agreement without our prior written approval. 9.3 If this Agreement is terminated for any reason, except as required by the Shared Funding Order or pursuant to Section 9.2.1, above, we shall, at your option, 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 as required by the Shared Funding Order, its provisions shall govern. 9.4 The provisions of Sections 2 (Representations and Warranties) and 7 (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 9.3, except that we shall have no further obligation to sell Trust shares with respect to Contracts issued after termination. 14 9.5 You shall not redeem Trust shares attributable to the Contracts (as opposed to Trust shares attributable to your 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 SEC pursuant to Section 26(b) of the 1940 Act. Upon request, you shall promptly furnish to us the opinion of your counsel (which counsel shall be reasonably satisfactory to us) 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, you shall not prevent Contract owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first giving us ninety (90) days notice of your intention to do so. 10. 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 of this Agreement or otherwise affect their construction or effect. 10.2 This Agreement may be executed simultaneously in two or more counterparts, all 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 its provisions interpreted under and in accordance with the laws of the State of California. It shall also be subject to the provisions of the federal securities laws and the rules and regulations thereunder, to any orders of the SEC on behalf of the Trust granting it exemptive relief, and to the conditions of such orders. We shall promptly forward copies of any such orders to you. 10.5 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. 10.6 The parties to this Agreement agree that the assets and liabilities of each Portfolio of the Trust are separate and distinct from the assets and liabilities of each other Portfolio. No Portfolio shall be liable or shall be charged for any debt, obligation or liability of any other Portfolio. 10.7 Each party to this Agreement 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. 15 10.8 Each party to this Agreement shall treat as confidential all information reasonably identified as confidential in writing by any other party to this Agreement, and, except as permitted by this Agreement or as required by legal process or regulatory authorities, shall not disclose, disseminate, or use such names and addresses and other confidential information until such time as they may come into the public domain, without the express written consent of the affected party. Without limiting the foregoing, no party to this Agreement shall disclose any information that such party has been advised is proprietary, except such information that such party is required to disclose by any appropriate governmental authority (including, without limitation, the SEC, the NASD, and state securities and insurance regulators). 10.9 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 to this Agreement are entitled to under state and federal laws. 10.10 The parties to this Agreement acknowledge and agree that this Agreement shall not be exclusive in any respect, except as provided above in Section 3.3. 10.11 Neither this Agreement nor any rights or obligations created by it may be assigned by any party without the prior written approval of the other parties. 10.12 No provisions of this Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by both parties. 16 IN WITNESS WHEREOF, each of the parties have caused their duly authorized officers to execute this Agreement. The Company: Phoenix Home Life Mutual Insurance Company ------------------------------------------ By: /s/ Simon Y. Tan -------------------------------------------------- Name: Simon Y. Tan ------------------------------------------------ Title: Executive Vice President ----------------------------------------------- PHL Variable Insurance Company ------------------------------ By: /s/ Simon Y. Tan -------------------------------------------------- Name: Simon Y. Tan ------------------------------------------------ Title: President ----------------------------------------------- The Trust: Franklin Templeton Variable Insurance Products Trust ONLY ON BEHALF OF EACH ----------------------------------------------------- PORTFOLIO LISTED ON SCHEDULE C HEREOF. By: /s/ Karen L. Skidmore -------------------------------------------------- Name: Karen L. Skidmore ------------------------------------------------ Title: Assistant Vice President, Assistant Secretary ---------------------------------------------- The Underwriter: Franklin Templeton Distributors, Inc. ------------------------------------- By: /s/ Philip J. Kearns ------------------------------------------------- Name: Philip J. Kearns Title: Vice President 17 SCHEDULE A THE COMPANY THE COMPANY Phoenix Home Life Mutual Insurance Company One American Row Hartford, CT 06115 A mutual life insurance company domiciled under New York law. PHL Variable Insurance Company One American Row Hartford, CT 06115 A life insurance company organized under Connecticut law. 18 SCHEDULE B ACCOUNTS OF THE COMPANY 1. Name: Phoenix Home Life Variable Accumulation Account Date Established: June 1, 1982 SEC Registration Number: 811-_____ 2. Name: Phoenix Home Life Variable Universal Life Account Date Established: June 17, 1985 SEC Registration Number: 811-_____ 3. Name: PHL Variable Accumulation Account Date Established: December 7, 1994 SEC Registration Number: 811-8914 4. Name: PHL Variable Universal Life Account Date Established: September 10, 1998 SEC Registration Number: 811-9065 19 SCHEDULE C AVAILABLE PORTFOLIOS AND CLASSES OF SHARES OF THE TRUST; INVESTMENT ADVISERS
Franklin Templeton Variable Insurance Products Trust Investment Adviser - ---------------------------------------------------- ------------------ Templeton Asset Strategy Fund Class 2 Templeton Investment Counsel, Inc. Templeton Developing Markets Securities Fund Class 2 Templeton Asset Management Ltd. Templeton International Securities Fund Class 2 Templeton Investment Counsel, Inc. Templeton Growth Securities Fund Class 2 Templeton Global Advisors Limited Mutual Shares Securities Fund Class 2 Franklin Mutual Advisers, LLC
20 SCHEDULE D CONTRACTS OF THE COMPANY
- ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT 1 CONTRACT 2 CONTRACT 3 - ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT/PRODUCT Big Edge Choice Flex Edge Success Big Edge Choice II NAME Individual Deferred VA Variable Life - ------------------------------ ------------------------- ------------------------ --------------------------- REGISTERED (Y/N) Yes Yes Yes - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION 33-87376 333-65823 33-87376 NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- REPRESENTATIVE FORM D601 V605 D602 NUMBERS - ------------------------------ ------------------------- ------------------------ --------------------------- SEPARATE ACCOUNT PHL Variable Accumulation PHL Variable Universal PHL Variable Accumulation NAME/DATE Account (est. December 7, Life Account Account (est. December 7, ESTABLISHED 1994) (September 10, 1998) 1994) - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION 811-8914 811-9065 811-8914 NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- PORTFOLIOS AND Templeton Asset Templeton Asset Templeton Asset CLASSES Strategy Fund Class 2 Strategy Fund Class 2 Strategy Fund Class 2 Templeton Developing Templeton Developing Templeton Developing Markets Securities Fund Markets Securities Fund Markets Securities Fund Class 2 Class 2 Class 2 Templeton International Templeton International Templeton International Securities Fund Class 2 Securities Fund Class 2 Securities Fund Class 2 Templeton Growth Templeton Growth Templeton Growth Securities Fund Securities Fund Securities Fund Class 2 Class 2 Class 2 Mutual Shares Mutual Shares Mutual Shares Securities Fund Securities Fund Securities Fund Class 2 Class 2 Class 2 - ------------------------------ ------------------------- ------------------------ ---------------------------
21 SCHEDULE D CONT. CONTRACTS OF THE COMPANY
- ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT 4 CONTRACT 5 CONTRACT 6 - ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT/PRODUCT Retirement Planners Edge Corporate Edge VUL Executive Benefits VUL NAME Individual Deferred VA - ------------------------------ ------------------------- ------------------------ --------------------------- REGISTERED (Y/N) Yes - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION 33-78761 NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- REPRESENTATIVE FORM D603 NUMBERS - ------------------------------ ------------------------- ------------------------ --------------------------- SEPARATE ACCOUNT PHL Variable Accumulation NAME/DATE Account (est. December 7, ESTABLISHED 1994) - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION 911-8914 NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- PORTFOLIOS AND Templeton Asset Templeton Asset Templeton Asset CLASSES Strategy Fund Class 2 Strategy Fund Class 2 Strategy Fund Class 2 Templeton Developing Templeton Developing Templeton Developing Markets Securities Fund Markets Securities Fund Markets Securities Fund Class 2 Class 2 Class 2 Templeton International Templeton International Templeton International Securities Fund Class 2 Securities Fund Class 2 Securities Fund Class 2 Templeton Growth Templeton Growth Templeton Growth Securities Fund Securities Fund Securities Fund Class 2 Class 2 Class 2 Mutual Shares Mutual Shares Mutual Shares Securities Fund Securities Fund Securities Fund Class 2 Class 2 Class 2 - ------------------------------ ------------------------- ------------------------ ---------------------------
22 SCHEDULE D CONT. CONTRACTS OF THE COMPANY
- ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT 7 CONTRACT 8 CONTRACT 9 - ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT/PRODUCT The Big Edge The Big Edge The Big Edge Plus NAME - ------------------------------ ------------------------- ------------------------ --------------------------- REGISTERED (Y/N) Yes Yes Yes - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- REPRESENTATIVE FORM Form 2545 Form 2645 Form 2646 NUMBERS - ------------------------------ ------------------------- ------------------------ --------------------------- SEPARATE ACCOUNT Phoenix Home Life Phoenix Home Life Phoenix Home Life NAME/DATE Variable Accumulation Variable Accumulation Variable Accumulation ESTABLISHED Account (June 1, 1982) Account (June 1, 1982) Account (June 1, 1982) - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- PORTFOLIOS AND Templeton Asset Templeton Asset Templeton Asset CLASSES Strategy Fund Class 2 Strategy Fund Class 2 Strategy Fund Class 2 Templeton Developing Templeton Developing Templeton Developing Markets Securities Fund Markets Securities Fund Markets Securities Fund Class 2 Class 2 Class 2 Templeton International Templeton International Templeton International Securities Fund Class 2 Securities Fund Class 2 Securities Fund Class 2 Templeton Growth Templeton Growth Templeton Growth Securities Fund Securities Fund Securities Fund Class 2 Class 2 Class 2 Mutual Shares Mutual Shares Mutual Shares Securities Fund Securities Fund Securities Fund Class 2 Class 2 Class 2 - ------------------------------ ------------------------- ------------------------ ---------------------------
23 SCHEDULE D CONT. CONTRACTS OF THE COMPANY
- ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT 10 CONTRACT 11 CONTRACT 12 - ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT/PRODUCT NAME The Group Strategic Edge The Group Strategic Edge The Big Edge Choice in - Unallocated - Allocated New York - ------------------------------ ------------------------- ------------------------ --------------------------- REGISTERED (Y/N) Yes Yes Yes - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- REPRESENTATIVE FORM GD603 GD601 Form D 602 NUMBERS - ------------------------------ ------------------------- ------------------------ --------------------------- SEPARATE ACCOUNT Phoenix Home Life Phoenix Home Life Phoenix Home Life NAME/DATE Variable Accumulation Variable Accumulation Variable Accumulation ESTABLISHED Account (June 1, 1982) Account (June 1, 1982) Account (June 1, 1982) - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- PORTFOLIOS AND Templeton Asset Templeton Asset Templeton Asset CLASSES Strategy Fund Class 2 Strategy Fund Class 2 Strategy Fund Class 2 Templeton Developing Templeton Developing Templeton Developing Markets Securities Fund Markets Securities Fund Markets Securities Fund Class 2 Class 2 Class 2 Templeton International Templeton International Templeton International Securities Fund Class 2 Securities Fund Class Securities Fund Class 2 Templeton Growth Templeton Growth Templeton Growth Securities Fund Securities Fund Securities Fund Class 2 Class 2 Class 2 Mutual Shares Mutual Shares Mutual Shares Securities Fund Securities Fund Securities Fund Class 2 Class 2 Class 2 - ------------------------------ ------------------------- ------------------------ ---------------------------
24 SCHEDULE D CONT. CONTRACTS OF THE COMPANY
- ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT 13 CONTRACT 14 CONTRACT 15 - ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT/PRODUCT NAME Phoenix Edge Flex Edge Flex Edge Success - ------------------------------ ------------------------- ------------------------ --------------------------- REGISTERED (Y/N) Yes Yes Yes - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- REPRESENTATIVE FORM Form 5000 Form 2667 Form V603 NUMBERS - ------------------------------ ------------------------- ------------------------ --------------------------- SEPARATE ACCOUNT Phoenix Home Life Phoenix Home Life Phoenix Home Life NAME/DATE Variable Universal Life Variable Universal Life Variable Universal Life ESTABLISHED Account (June 17, 1985) Account (June 17, 1985) Account (June 17, 1985) - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- PORTFOLIOS AND Templeton Asset Templeton Asset Templeton Asset CLASSES Strategy Fund Class 2 Strategy Fund Class 2 Strategy Fund Class 2 Templeton Developing Templeton Developing Templeton Developing Markets Securities Fund Markets Securities Fund Markets Securities Fund Class 2 Class 2 Class 2 Templeton International Templeton International Templeton International Securities Fund Class Securities Fund Class 2 Securities Fund Class Templeton Growth Templeton Growth Templeton Growth Securities Fund Securities Fund Securities Fund Class 2 Class 2 Class 2 Mutual Shares Mutual Shares Mutual Shares Securities Fund Securities Fund Securities Fund Class 2 Class 2 Class 2 - ------------------------------ ------------------------- ------------------------ ---------------------------
25 SCHEDULE D CONT. CONTRACTS OF THE COMPANY
- ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT 16 CONTRACT 17 CONTRACT 18 - ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT/PRODUCT NAME Joint Edge Estate Edge Variable Insurance Additions Rider - ------------------------------ ------------------------- ------------------------ --------------------------- REGISTERED (Y/N) Yes Yes Yes - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- REPRESENTATIVE FORM Form V601 Form V604 Form TR10 NUMBERS - ------------------------------ ------------------------- ------------------------ --------------------------- SEPARATE ACCOUNT Phoenix Home Life Phoenix Home Life Phoenix Home Life NAME/DATE Variable Universal Life Variable Universal Life Variable Universal Life ESTABLISHED Account (June 17, 1985) Account (June 17, 1985) Account (June 17, 1985) - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- PORTFOLIOS AND Templeton Asset Templeton Asset Templeton Asset CLASSES Strategy Fund Class Strategy Fund Class Strategy Fund Class 2 Templeton Developing Templeton Developing Templeton Developing Markets Securities Fund Markets Securities Fund Markets Securities Fund Class 2 Class 2 Class 2 Templeton International Templeton International Templeton International Securities Fund Class 2 Securities Fund Class 2 Securities Fund Class 2 Templeton Growth Templeton Growth Templeton Growth Securities Fund Securities Fund Securities Fund Class 2 Class 2 Class 2 Mutual Shares Mutual Shares Mutual Shares Securities Fund Securities Fund Securities Fund Class 2 Class 2 Class 2 - ------------------------------ ------------------------- ------------------------ ---------------------------
26 SCHEDULE D CONT. CONTRACTS OF THE COMPANY
- ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT 19 CONTRACT 20 CONTRACT 21 - ------------------------------ ------------------------- ------------------------ --------------------------- CONTRACT/PRODUCT NAME Templeton Investment Plus - ------------------------------ ------------------------- ------------------------ --------------------------- REGISTERED (Y/N) Yes - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- REPRESENTATIVE FORM NUMBERS - ------------------------------ ------------------------- ------------------------ --------------------------- SEPARATE ACCOUNT NAME/DATE ESTABLISHED - ------------------------------ ------------------------- ------------------------ --------------------------- SEC REGISTRATION 811-3488 NUMBER - ------------------------------ ------------------------- ------------------------ --------------------------- PORTFOLIOS AND Templeton Asset CLASSES Strategy Fund Class 1 Templeton Developing Markets Securities Fund Class 1 Templeton Global Income Securities Fund Class 1 Templeton Growth Securities Fund Class 1 - ------------------------------ ------------------------- ------------------------ ---------------------------
27 SCHEDULE E OTHER PORTFOLIOS AVAILABLE UNDER THE 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 Wagner Foreign Forty Wagner Twenty 3. Investment Company: BT Insurance Funds Portfolio: EAFE(R) Equtiy Index Fund 4. Investment Company: Federated Insurance Series Portfolios: Federated Fund for U.S. Government Securities II Federated High Income Bond Fund II 28 SCHEDULE F RULE 12B-1 PLANS COMPENSATION SCHEDULE - --------------------- Each Portfolio named 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 Strategy Fund 0.25% Templeton Developing Markets Securities Fund 0.25% Templeton International Securities Fund 0.25% Templeton Growth Securities Fund 0.25% Mutual Shares Securities 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 any activity or service which is primarily intended to assist in the promotion, distribution or account servicing of Eligible Shares ("Rule 12b-1 Services") or variable contracts offering Eligible Shares, the Underwriter, the Trust or their affiliates (collectively, "we") may pay you a Rule 12b-1 fee. "Rule 12b-1 Services" may include, but are not limited to, printing of prospectuses and reports used for sales purposes, preparing and distributing sales literature and related expenses, advertisements, education of dealers and their representatives, and similar distribution-related expenses, furnishing personal services to owners of Contracts which may invest in Eligible Shares ("Contract Owners"), education of Contract Owners, answering routine inquiries regarding a Portfolio, coordinating responses to Contract Owner inquiries regarding the Portfolios, maintaining such accounts or providing such other enhanced services as a Trust Portfolio or Contract may require, 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 29 effective Prospectus). The Rule 12b-1 fee will be paid to you within thirty (30) days after the end of the three-month periods ending in January, April, July and October. You shall furnish us with such information as shall reasonably be requested by the Trust's Boards of Trustees ("Trustees") with respect to the Rule 12b-1 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. and its 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 F relating to the Plans will also terminate. You agree that your selling agreements with persons or entities through whom you intend to distribute Contracts will provide that compensation paid to such persons or entities may be reduced if a Portfolio's Plan is no longer effective or is no longer applicable to such Portfolio or class of shares available under the Contracts. 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 Trust. The provisions of the Plans shall control over the provisions of the Participation Agreement, including this Schedule F, 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. 30 SCHEDULE G ADDRESSES FOR NOTICES To the Company: Phoenix Home Life Mutual Insurance Company PHL Variable Insurance Company One American Row Hartford, CT 06115 Attention: Jeanie Grasso Gagnon, Assistant Vice President To the Trust: Franklin Templeton Variable Insurance Products Trust 777 Mariners Island Boulevard San Mateo, California 94404 Attention: Karen L. Skidmore Assistant Vice President, Assistant Secretary To the Underwriter: Franklin Templeton Distributors, Inc. 777 Mariners Island Boulevard San Mateo, California 94404 Attention: Philip J. Kearns, Vice President 31 SCHEDULE H SHARED FUNDING ORDER Templeton Variable Products Series Fund, et al. File No. 812-11698 SECURITIES AND EXCHANGE COMMISSION Release No. IC-24018 1999 SEC LEXIS 1887 September 17, 1999 ACTION: Notice of application for an amended order of exemption pursuant to Section 6(c) of the Investment Company Act of 1940 (the "1940 Act") 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. TEXT: Summary of Application: Templeton Variable Products Series Fund (the "Templeton Trust"), Franklin Templeton Variable Insurance Products Trust (formerly Franklin Valuemark Funds) (the "VIP Trust," and together with the Templeton Trust, the "Funds"), Templeton Funds Annuity Company ("TFAC") or any successor to TFAC, and any future open-end investment company for which TFAC or any affiliate is the administrator, sub-administrator, investment manager, adviser, principal underwriter, or sponsor ("Future Funds") seek an amended order of the Commission to (1) add as parties to that order the VIP Trust and any Future Funds and (2) permit shares of the Funds and Future Funds to be issued to and held by qualified pension and retirement plans outside the separate account context. Applicants: Templeton Variable Products Series Fund, Franklin Templeton Variable Insurance Products Trust, Templeton Funds Annuity Company or any successor to TFAC, and any future open-end investment company for which TFAC or any affiliate is the administrator, sub-administrator, investment manager, adviser, principal underwriter, or sponsor (collectively, the "Applicants"). Filing Date: The application was filed on July 14, 1999, and amended and restated on September 17, 1999. Hearing or Notification of Hearing: An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Secretary of the Commission and serving Applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m., on October 12, 1999, and should be accompanied by proof of service on the Applicants in the form of an affidavit or, for lawyers, a 32 certificate of service. Hearing requests should state the nature of the writer's interest, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Secretary of the Commission. Addresses: Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, D.C. 20549-0609. Applicants: Templeton Variable Products Series Fund and Franklin Templeton Variable Insurance Products Trust, 777 Mariners Island Boulevard, San Mateo, California 94404, Attn: Karen L. Skidmore, Esq. For Further Information Contact: Kevin P. McEnery, Senior Counsel, or Susan M. Olson, Branch Chief, Office of Insurance Products, Division of Investment Management, at (202) 942-0670. Supplementary Information: The following is a summary of the application. The complete application is available for a fee from the SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 20549-0102 (tel. (202) 942-8090). Applicants' Representations: 1. Each of the Funds is registered under the 1940 Act as an open-end management investment company and was organized as a Massachusetts business trust. The Templeton Trust currently consists of eight separate series, and the VIP Trust consists of twenty-five separate series. Each Fund's Declaration of Trust permits the Trustees to create additional series of shares at any time. The Funds currently serve as the underlying investment medium for variable annuity contracts and variable life insurance policies issued by various insurance companies. The Funds have entered into investment management agreements with certain investment managers ("Investment Managers") directly or indirectly owned by Franklin Resources, Inc. ("Resources"), a publicly owned company engaged in the financial services industry through its subsidiaries. 2. TFAC is an indirect, wholly owned subsidiary of Resources. TFAC is the sole insurance company in the Franklin Templeton organization, and specializes in the writing of variable annuity contracts. The Templeton Trust has entered into a Fund Administration Agreement with Franklin Templeton Services, Inc. ("FT Services"), which replaced TFAC in 1998 as administrator, and FT Services subcontracts certain services to TFAC. FT Services also serves as administrator to all series of the VIP Trust. TFAC and FT Services provide certain administrative facilities and services for the VIP and Templeton Trusts. 3. On November 16, 1993, the Commission issued an order granting exemptive relief to permit shares of the Templeton Trust to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies (Investment Company Act Release No. 19879, File No. 812-8546) (the "Original Order"). Applicants incorporate by reference into the application the Application for the Original Order and each amendment thereto, the Notice of Application for the Original Order, and the Original Order, to the extent necessary, to supplement the representations made in the application in support of the requested relief. Applicants 33 represent that all of the facts asserted in the Application for the Original Order and any amendments thereto remain true and accurate in all material respects to the extent that such facts are relevant to any relief on which Applicants continue to rely. The Original Order allows the Templeton Trust to offer its shares to insurance companies as the investment vehicle for their separate accounts supporting variable annuity contracts and variable life insurance contracts (collectively, the "Variable Contracts"). Applicants state that the Original Order does not (i) include the VIP Trust or Future Funds as parties, nor (ii) expressly address the sale of shares of the Funds or any Future Funds to qualified pension and retirement plans outside the separate account context including, without limitation, those trusts, plans, accounts, contracts or annuities described in Sections 401(a), 403(a), 403(b), 408(b), 408(k), 414(d), 457(b), 501(c)(18) of the Internal Revenue Code of 1986, as amended (the "Code"), and any other trust, plan, contract, account or annuity that is determined to be within the scope of Treasury Regulation 1.817.5(f)(3)(iii) ("Qualified Plans"). 4. Separate accounts owning shares of the Funds and their insurance company depositors are referred to in the application as "Participating Separate Accounts" and "Participating Insurance Companies," respectively. The use of a common management investment company as the underlying investment medium for both variable annuity and variable life insurance separate accounts of a single insurance company (or of two or more affiliated insurance companies) is referred to as "mixed funding." The use of a common management investment company as the underlying investment medium for variable annuity and/or variable life insurance separate accounts of unaffiliated insurance companies is referred to as "shared funding." Applicants' Legal Analysis: 1. Applicants request that the Commission issue an amended order pursuant to Section 6(c) of the 1940 Act, adding the VIP Trust and Future Funds to the Original Order and exempting scheduled premium variable life insurance separate accounts and flexible premium variable life insurance separate accounts of Participating Insurance Companies (and, to the extent necessary, any principal underwriter and depositor of such an account) and the Applicants from 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) (and any comparable rule) thereunder, respectively, to the extent necessary to permit shares of the Funds and any Future Funds to be sold to and held by Qualified Plans. Applicants submit that the exemptions requested are appropriate in the public interest, consistent with the protection of investors, and consistent with the purposes fairly intended by the policy and provisions of the 1940 Act. 2. The Original Order does not include the VIP Trust or Future Funds as parties nor expressly address the sale of shares of the Funds or any Future Funds to Qualified Plans. Applicants propose that the VIP Trust and Future Funds be added as parties to the Original Order and the Funds and any Future Funds be permitted to offer and sell their shares to Qualified Plans. 3. Section 6(c) of the 1940 Act provides, in part, that the Commission, by order upon application, may conditionally or unconditionally exempt any person, security or transaction, or any class or classes of persons, securities or transactions from any provisions of the 1940 Act or the rules or regulations thereunder, if and to the extent that such exemption is necessary or appropriate in the 34 public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the 1940 Act. 4. In connection with the funding of scheduled premium variable life insurance contracts issued through a separate account registered under the 1940 Act as a unit investment trust ("UIT"), Rule 6e-2(b)(15) provides partial exemptions from various provisions of the 1940 Act, including the following: (1) Section 9(a), which makes it unlawful for certain individuals to act in the capacity of employee, officer, or director for a UIT, by limiting the application of the eligibility restrictions in Section 9(a) to affiliated persons directly participating in the management of a registered management investment company; and (2) Sections 13(a), 15(a) and 15(b) of the 1940 Act to the extent that those sections might be deemed to require "pass-through" voting with respect to an underlying fund's shares, by allowing an insurance company to disregard the voting instructions of contractowners in certain circumstances. 5. These exemptions are available, however, only where the management investment company underlying the separate account (the "underlying fund") offers its shares "exclusively to variable 1ife insurance separate accounts of the life insurer, or of any affiliated life insurance company. "Therefore, Rule 6e-2 does not permit either mixed funding or shared funding because the relief granted by Rule 6e-2(b)(15) is not available with respect to a scheduled premium variable life insurance separate account that owns shares of an underlying fund that also offers its shares to a variable annuity or a flexible premium variable life insurance separate account of the same company or of any affiliated life insurance company. Rule 6e-2(b)(15) also does not permit the sale of shares of the underlying fund to Qualified Plans. 6. In connection with flexible premium variable life insurance contracts issued through a separate account registered under the 1940 Act as a UIT, Rule 6e-3(T)(b)(15) also provides partial exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act. These exemptions, however, are available only where the separate account's underlying fund offers its shares "exclusively to separate accounts of the life insurer, or of any affiliated life insurance company, offering either scheduled contracts or flexible contracts, or both; or which also offer their shares to variable annuity separate accounts of the life insurer or of an affiliated life insurance company." Therefore, Rule 6e-3(T) permits mixed funding but does not permit shared funding and also does not permit the sale of shares of the underlying fund to Qualified Plans. As noted above, the Original Order granted the Templeton Trust exemptive relief to permit mixed and shared funding, but did not expressly address the sale of its shares to Qualified Plans. 7. Applicants note that if the Funds were to sell their shares only to Qualified Plans, exemptive relief under Rule 6e-2 and Rule 6e-3(T) would not be necessary. Applicants state that the relief provided for under Rule 6e-2(b)(15) and Rule 6e-3(T)(b)(15) does not relate to qualified pension and retirement plans or to a registered investment company's ability to sell its shares to such plans. 8. Applicants state that changes in the federal tax law have created the opportunity for each of the Funds to increase its asset base through the sale of its shares to Qualified Plans. Applicants state that Section 817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), imposes certain diversification standards on the assets underlying Variable Contracts. Treasury Regulations generally 35 require that, to meet the diversification requirements, all of the beneficial interests in the underlying investment company must be held by the segregated asset accounts of one or more life insurance companies. Notwithstanding this, Applicants note that the Treasury Regulations also contain an exception to this requirement that permits trustees of a Qualified Plan to hold shares of an investment company, the shares of which are also held by insurance company segregated asset accounts, without adversely affecting the status of the investment company as an adequately diversified underlying investment of Variable Contracts issued through such segregated asset accounts (Treas. Reg. 1.817-5(f)(3)(iii)). 9. Applicants state that the promulgation of Rules 6e-2(b)(15) and 6e-3(T)(b)(15) under the 1940 Act preceded the issuance of these Treasury Regulations. Thus, Applicants assert that the sale of shares of the same investment company to both separate accounts and Qualified Plans was not contemplated at the time of the adoption of Rules 6e-2(b)(15) and 6e-3(T)(b)(15). 10. Section 9(a) provides that it is unlawful for any company to serve as investment adviser or principal underwriter of any registered open-end investment company if an affiliated person of that company is subject to a disqualification enumerated in Section 9(a)(l) or (2). Rules 6e-2(b)(15) and 6e-3(T)(b)(15) provide exemptions from Section 9(a) under certain circumstances, subject to the limitations on mixed and shared funding. These exemptions limit the application of the eligibility restrictions to affiliated individuals or companies that directly participate in the management of the underlying portfolio investment company. 11. Applicants state that the relief granted in Rule 6e-2(b)(15) and 6e-3(T)(b)(15) from the requirements of Section 9 limits, in effect, the amount of monitoring of an insurer's personnel that would otherwise be necessary to ensure compliance with Section 9 to that which is appropriate in light of the policy and purposes of Section 9. Applicants submit that those Rules recognize that it is not necessary for the protection of investors or the purposes fairly intended by the policy and provisions of the 1940 Act to apply the provisions of Section 9(a) to the many individuals involved in an insurance company complex, most of whom typically will have no involvement in matters pertaining to investment companies funding the separate accounts. 12. Applicants to the Original Order previously requested and received relief from Section 9(a) and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) to the extent necessary to permit mixed and shared funding. Applicants maintain that the relief previously granted from Section 9(a) will in no way be affected by the proposed sale of shares of the Funds to Qualified Plans. Those individuals who participate in the management or administration of the Funds will remain the same regardless of which Qualified Plans use such Funds. Applicants maintain that more broadly applying the requirements of Section 9(a) because of investment by Qualified Plans would not serve any regulatory purpose. Moreover, Qualified Plans, unlike separate accounts, are not themselves investment companies and therefore are not subject to Section 9 of the 1940 Act. 13. Applicants state that Rules 6e-2(b)(15)(iii) and 6e-3(T)(b)(15)(iii) provide exemptions from the pass-through voting requirement with respect to several significant matters, assuming the limitations on mixed and shared funding are observed. Rules 6e-2(b)(15)(iii)(A) and 6e-3(T)(b)(15)(iii)(A) provide that the insurance company may disregard the voting instructions of its contractowners with 36 respect to the investments of an underlying fund or any contract between a find and its investment adviser, when required to do so by an insurance regulatory authority (subject to the provisions of paragraphs (b)(5)(i) and (b)(7)(ii)(A) of the Rules). Rules 6e-2(b)(15)(iii)(B) and 6e-3(T)(b)(15)(iii)(A)(2) provide that the insurance company may disregard contractowners' voting instructions if the contractowners initiate any change in such company's investment policies, principal underwriter, or any investment adviser (provided that disregarding such voting instructions is reasonable and subject to the other provisions of paragraphs (b)(5)(ii) and (b)(7)(ii)(B) and (C) of the Rules). 14. Applicants assert that Qualified Plans, which are not registered as investment companies under the 1940 Act, have no requirement to pass-through the voting rights to plan participants. Applicants state that applicable law expressly reserves voting rights to certain specified persons. Under Section 403(a) of the Employment Retirement Income Security Act ("ERISA"), shares of a fund sold to a Qualified Plan must be held by the trustees of the Qualified Plan. Section 403(a) also provides that the trustee(s) must have exclusive authority and discretion to manage and control the Qualified Plan with two exceptions: (1) when the Qualified Plan expressly provides that the trustee(s) are subject to the direction of a named fiduciary who is not a trustee, in which case the trustees are subject to proper directions made in accordance with the terms of the Qualified Plan and not contrary to ERISA; and (2) when the authority to manage, acquire or dispose of assets of the Qualified Plan is delegated to one or more investment managers pursuant to Section 402(c)(3) of ERISA. Unless one of the two above exceptions stated in Section 403(a) applies, Qualified Plan trustees have the exclusive authority and responsibility for voting proxies. Where a named fiduciary to a Qualified Plan appoints an investment manager, the investment manager has the responsibility to vote the shares held unless the right to vote such shares is reserved to the trustees or the named fiduciary. Where a Qualified Plan does not provide participants with the right to give voting instructions, Applicants do not see any potential for material irreconcilable conflicts of interest between or among variable contract holders and Qualified Plan investors with respect to voting of the respective Fund's shares. Accordingly, Applicants state that, unlike the case with insurance company separate accounts, the issue of the resolution of material irreconcilable conflicts with respect to voting is not present with respect to such Qualified Plans since the Qualified Plans are not entitled to pass-through voting privileges. 15. Even if a Qualified Plan were to hold a controlling interest in one of the Funds, Applicants believe that such control would not disadvantage other investors in such Fund to any greater extent than is the case when any institutional shareholder holds a majority of the voting securities of any open-end management investment company. In this regard, Applicants submit that investment in a Fund by a Qualified Plan will not create any of the voting complications occasioned by mixed funding or shared funding. Unlike mixed or shared funding, Qualified Plan investor voting rights cannot be frustrated by veto rights of insurers or state regulators. 16. Applicants state that some of the Qualified Plans, however, may provide for the trustee(s), an investment adviser (or advisers), or another named fiduciary to exercise voting rights in accordance with instructions from participants. Where a Qualified Plan provides participants with the right to give voting instructions, Applicants see no reason to believe that participants in Qualified Plans generally or those in a particular Qualified Plan, either as a single group or in combination with 37 participants in other Qualified Plans, would vote in a manner that would disadvantage Variable Contract holders. In sum, Applicants maintain that the purchase of shares of the Funds by Qualified Plans that provide voting rights does not present any complications not otherwise occasioned by mixed or shared funding. 17. Applicants do not believe that the sale of the shares of the Funds to Qualified Plans will increase the potential for material irreconcilable conflicts of interest between or among different types of investors. In particular, Applicants see very little potential for such conflicts beyond that which would otherwise exist between variable annuity and variable life insurance contractowners. 18. As noted above, Section 817(h) of the Code imposes certain diversification standards on the underlying assets of variable contracts held in an underlying mutual fund. The Code provides that a variable contract shall not be treated as an annuity contract or life insurance, as applicable, for any period (and any subsequent period) for which the investments are not, in accordance with regulations prescribed by the Treasury Department, adequately diversified. 19. Treasury Department Regulations issued under Section 817(h) provide that, in order to meet the statutory diversification requirements, all of the beneficial interests in the investment company must be held by the segregated asset accounts of one or more insurance companies. However, the Regulations contain certain exceptions to this requirement, one of which allows shares in an underlying mutual fund to be held by the trustees of a qualified pension or retirement plan without adversely affecting the ability of shares in the underlying fund also to be held by separate accounts of insurance companies in connection with their variable contracts (Treas. Reg. 1.817-5(f)(3)(iii)). Thus, Applicants believe that the Treasury Regulations specifically permit "qualified pension or retirement plans" and separate accounts to invest in the same underlying fund. For this reason, Applicants have concluded that neither the Code nor the Treasury Regulations or revenue rulings thereunder presents any inherent conflict of interest. 20. Applicants note that while there are differences in the manner in which distributions from Variable Contracts and Qualified Plans are taxed, these differences will have no impact on the Funds. When distributions are to be made, and a Separate Account or Qualified Plan is unable to net purchase payments to make the distributions, the Separate Account and Qualified Plan will redeem shares of the Funds at their respective net asset value in conformity with Rule 22c-1 under the 1940 Act (without the imposition of any sales charge) to provide proceeds to meet distribution needs. A Qualified Plan will make distributions in accordance with the terms of the Qualified Plan. 21. Applicants maintain that it is possible to provide an equitable means of giving voting rights to Participating Separate Account contractowners and to Qualified Plans. In connection with any meeting of shareholders, the Funds will inform each shareholder, including each Participating Insurance Company and Qualified Plan, of information necessary for the meeting, including their respective share of ownership in the relevant Fund. Each Participating Insurance Company will then solicit voting instructions in accordance with Rules 6e-2 and 6e-3(T), as applicable, and its participation agreement with the relevant Fund. Shares held by Qualified Plans will be voted in accordance with applicable law. The voting rights provided to Qualified Plans with respect to shares 38 of the Funds would be no different from the voting rights that are provided to Qualified Plans with respect to shares of funds sold to the general public. 22. Applicants have concluded that even if there should arise issues with respect to a state insurance commissioner's veto powers over investment objectives where the interests of contractowners and the interests of Qualified Plans are in conflict, the issues can be almost immediately resolved since the trustees of (or participants in) the Qualified Plans can, on their own, redeem the shares out of the Funds. Applicants note that state insurance commissioners have been given the veto power in recognition of the fact that insurance companies usually cannot simply redeem their separate accounts out of one fund and invest in another. Generally, time-consuming, complex transactions must be undertaken to accomplish such redemptions and transfers. Conversely, the trustees of Qualified Plans or the participants in participant-directed Qualified Plans can make the decision quickly and redeem their interest in the Funds and reinvest in another funding vehicle without the same regulatory impediments faced by separate accounts or, as is the case with most Qualified Plans, even hold cash pending suitable investment. 23. Applicants also state that they do not see any greater potential for material irreconcilable conflicts arising between the interests of participants under Qualified Plans and contractowners of Participating Separate Accounts from possible future changes in the federal tax laws than that which already exist between variable annuity contractowners and variable life insurance contractowners. 24. Applicants state that the sale of shares of the Funds to Qualified Plans in addition to separate accounts of Participating Insurance Companies will result in an increased amount of assets available for investment by the Funds. This may benefit variable contractowners by promoting economies of scale, by permitting increased safety of investments through greater diversification, and by making the addition of new portfolios more feasible. 25. Applicants assert that, regardless of the type of shareholders in each Fund, each Fund's Investment Manager is or would be contractually and otherwise obligated to manage the Fund solely and exclusively in accordance with that Fund's investment objectives, policies and restrictions as well as any guidelines established by the Board of Trustees of such Fund (the "Board"). The Investment Manager works with a pool of money and (except in a few instances where this may be required in order to comply with state insurance laws) does not take into account the identity of the shareholders. Thus, each Fund will be managed in the same manner as any other mutual fund. Applicants therefore see no significant legal impediment to permitting the sale of shares of the Funds to Qualified Plans. 26. Applicants state that the Commission has permitted the amendment of a substantially similar original order for the purpose of adding a party to the original order and has permitted open-end management investment companies to offer their shares directly to Qualified Plan in addition to separate accounts of affiliated or unaffiliated insurance companies which issue either or both variable annuity contracts or variable life insurance contracts. Applicants state that the amended order sought in the application is identical to precedent with respect to the conditions Applicants propose should be imposed on Qualified Plans in connection with investment in the Funds. 39 Applicants' Conditions: If the requested amended order is granted, Applicants consent to the following conditions: 1. A majority of the Board of each Fund shall consist of persons who are not "interested persons" thereof, as defined by Section 2(a)(19) of the 1940 Act, and the rules thereunder and as modified by any applicable orders of the Commission, except that if this condition is not met by reason of the death, disqualification or bona fide resignation of any Board Member or Members, then the operation of this condition shall be suspended: (a) for a period of 45 days if the vacancy or vacancies may be filled by the remaining Board Members; (b) for a period of 60 days if a vote of shareholders is required to fill the vacancy or vacancies; or (c) for such longer period as the Commission may prescribe by order upon application. 2. The Board will monitor their respective Fund for the existence of any material irreconcilable conflict among the interests of the Variable Contract owners of all Separate Accounts investing in the Funds and of the Qualified Plan participants investing in the Funds. The Board will determine what action, if any, shall be taken in response to such conflicts. 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 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 the Funds are being managed; (e) a difference in voting instructions, given by variable annuity contract owners, variable life insurance contract owners, and trustees of Qualified Plans; (f) a decision by an insurer to disregard the voting instructions of Variable Contract owners; or (g) if applicable, a decision by a Qualified Plan to disregard the voting instructions of Qualified Plan participants. 3. Participating Insurance Companies, the Investment Managers, and any Qualified Plan that executes a fund participation agreement upon becoming an owner of 10 percent or more of the assets of an Fund (a "Participating Qualified Plan"), will report any potential or existing conflicts of which it becomes aware to the Board of any relevant Fund. Participating Insurance Companies, the Investment Managers and the Participating Qualified Plans will be responsible for assisting the Board in carrying out its responsibilities under these conditions by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This responsibility includes, but is not limited to, an obligation by each Participating Insurance Company to inform the Board whenever voting instructions of Contract owners are disregarded and, if pass-through voting is applicable, an obligation by each Participating Qualified Plan to inform the Board whenever it has determined to disregard Qualified Plan participant voting instructions. The responsibility to report such information and conflicts, and to assist the Board, will be contractual obligations of all Participating Insurance Companies investing in the Funds under their agreements governing participation in the Funds, and such agreements shall provide that these responsibilities will be carried out with a view only to the interests of the Variable Contract owners. The responsibility to report such information and conflicts, and to assist the Board, will be contractual obligations of all Participating Qualified Plans under their agreements governing participation in the Funds, and such agreements will provide that their responsibilities will be carried out with a view only to the interests of Qualified Plan participants. 40 4. If it is determined by a majority of the Board of a Fund, or by a majority of the disinterested Board Members, that a material irreconcilable conflict exists, the relevant Participating Insurance Companies and Participating Qualified Plans will, at their own expense and to the extent reasonably practicable as determined by a majority of the disinterested Board Members, take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps could include: (a) in the case of Participating Insurance Companies, withdrawing the assets allocable to some or all of the Separate Account s from the Fund or any portfolio thereof and reinvesting such assets in a different investment medium, including another portfolio of an Fund or another 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., variable annuity contract owners 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; (b) in the case of Participating Qualified Plans, withdrawing the assets allocable to some or all of the Qualified Plans from the Fund and reinvesting such assets in a different investment medium; and (c) establishing a new registered management investment company or managed Separate Account. If a material irreconcilable conflict arises because of a decision by a Participating Insurance Company to disregard Variable Contract owner voting instructions, and that decision represents a minority position or would preclude a majority vote, then the insurer may be required, at the Fund's election, to withdraw the insurer's Separate Account investment in such Fund, and no charge or penalty will be imposed as a result of such withdrawal. If a material irreconcilable conflict arises because of a Participating Qualified Plan's decision to disregard Qualified Plan participant voting instructions, if applicable, and that decision represents minority position or would preclude a majority vote, the Participating Qualified Plan may be required, at the Fund's election, to withdraw its investment in such Fund, and no charge or penalty will be imposed as a result of such withdrawal. The responsibility to take remedial action in the event of a determination by a Board of a material irreconcilable conflict and to bear the cost of such remedial action will be a contractual obligation of all Participating Insurance Companies and Participating Qualified Plans under their agreements governing participation in the Funds, and these responsibilities will be carried out with a view only to the interest of Variable Contract owners and Qualified Plan participants. 5. For purposes of Condition 4, a majority of the disinterested Board Members of the applicable Board will determine whether or not any proposed action adequately remedies any material irreconcilable conflict, but in no event will the relevant Fund or the Investment Managers be required to establish a new funding medium for any Contract. No Participating Insurance Company shall be required by Condition 4 to establish a new funding medium for any Variable Contract if any offer to do so has been declined by vote of a majority of the Variable Contract owners materially and adversely affected by the material irreconcilable conflict. Further, no Participating Qualified Plan shall be required by Condition 4 to establish a new funding medium for any Participating Qualified Plan if (a) a majority of Qualified Plan participants materially and adversely affected by the irreconcilable material conflict vote to decline such offer, or (b) pursuant to governing Qualified Plan documents and applicable law, the Participating Qualified Plan makes such decision without a Qualified Plan participant vote. 41 6. The determination of the Board of the existence of a material irreconcilable conflict and its implications will be made known in writing promptly to all Participating Insurance Companies and Participating Qualified Plans. 7. Participating Insurance Companies will provide pass-through voting privileges to Variable Contract owners who invest in registered Separate Accounts so long as and to the extent that the Commission continues to interpret the 1940 Act as requiring pass-through voting privileges for Variable Contract owners. As to Variable Contracts issued by unregistered Separate Accounts, pass-through voting privileges will be extended to participants to the extent granted by issuing insurance companies. Each Participating Insurance Company will also vote shares of the Funds held in its Separate Accounts for which no voting instructions from Contract owners are timely received, as well as shares of the Funds which the Participating Insurance Company itself owns, in the same proportion as those shares of the Funds for which voting instructions from contract owners are timely received. Participating Insurance Companies will be responsible for assuring that each of their registered Separate Accounts participating in the Funds calculates voting privileges in a manner consistent with other Participating Insurance Companies. The obligation to calculate voting privileges in a manner consistent with all other registered Separate Accounts investing in the Funds will be a contractual obligation of all Participating Insurance Companies under their agreements governing their participation in the Funds. Each Participating Qualified Plan will vote as required by applicable law and governing Qualified Plan documents. 8. All reports of potential or existing conflicts received by the Board of a Fund and all action by such Board with regard to determining the existence of a conflict, notifying Participating Insurance Companies and Participating Qualified Plans of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the meetings of such Board or other appropriate records, and such minutes or other records shall be made available to the Commission upon request. 9. Each Fund will notify all Participating Insurance Companies that separate disclosure in their respective Separate Account prospectuses may be appropriate to advise accounts regarding the potential risks of mixed and shared funding. Each Fund shall disclose in its prospectus that (a) the Fund is intended to be a funding vehicle for variable annuity and variable life insurance contracts offered by various insurance companies and for qualified pension and retirement plans; (b) due to differences of tax treatment and other considerations, the interests of various Contract owners participating in the Fund and/or the interests of Qualified Plans investing in the Fund may at some time be in conflict; and (c) the Board of such 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. 10. Each Fund will comply with all provisions of the 1940 Act requiring voting by shareholders (which, for these purposes, will be the persons having a voting interest in the shares of the Funds), and, in particular, the Funds will either provide for annual shareholder meetings (except insofar as the Commission may interpret Section 16 of the 1940 Act not to require such meetings) or comply with Section 16(c) of the 1940 Act, although the Funds are not the type of trust described in Section 16(c) of the 1940 Act, as well as with Section 16(a) of the 1940 Act and, if and when applicable, 42 Section 16(b) of the 1940 Act. Further, each Fund will act in accordance with the Commission's interpretation of the requirements of Section 16(a) with respect to periodic elections of Board Members and with whatever rules the Commission may promulgate with respect thereto. 11. If and to the extent Rules 6e-2 or 6e-3(T) under the 1940 Act is amended, or proposed Rule 6e-3 under the 1940 Act 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 on terms and conditions materially different from any exemptions granted in the order requested in the application, then the Funds and/or Participating Insurance Companies and Participating Qualified Plans, as appropriate, shall take such steps as may be necessary to comply with such Rules 6e-2 and 6e-3(T), as amended, or proposed Rule 6e-3, as adopted, to the extent that such Rules are applicable. 12. The Participating Insurance Companies and Participating Qualified Plans and/or the Investment Managers, at least annually, will submit to the Board such reports, materials or data as the Board may reasonably request so that the Board may fully carry out obligations imposed upon it by the conditions contained in the application. Such reports, materials and data will be submitted more frequently if deemed appropriate by the Board. The obligations of the Participating Insurance Companies and Participating Qualified Plans to provide these reports, materials and data to the Board, when the Board so reasonably requests, shall be a contractual obligation of all Participating Insurance Companies and Participating Qualified Plans under their agreements governing participation in the Funds. 13. If a Qualified Plan should ever become a holder of ten percent or more of the assets of a Fund, such Qualified Plan will execute a participation agreement with the Fund that includes the conditions set forth herein to the extent applicable. A Qualified Plan will execute an application containing an acknowledgment of this condition upon such Qualified Plan's initial purchase of the shares of any Fund. Conclusion: Applicants assert that, for the reasons summarized above, the requested exemptions are appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the 1940 Act. For the Commission, by the Division of Investment Management, pursuant to delegated authority. 43 Templeton Variable Products Series Fund, et al. File No. 812-11698 SECURITIES AND EXCHANGE COMMISSION Release No. IC-24079 1999 SEC LEXIS 2177 October 13, 1999 ACTION: Order Granting Exemptions TEXT: Templeton Variable Products Series Fund ("Templeton Trust"), Franklin Templeton Variable Insurance Products Trust ("VIP Trust"), Templeton Funds Annuity Company ("TFAC") or any successor to TFAC, and any future open-end investment company for which TFAC or any affiliate is the administrator, sub-administrator, investment manager, adviser, principal underwriter, or sponsor ("Future Funds") filed an application on July 14, 1999, and an amendment on September 17, 1999 seeking an amended order of the Commission pursuant to Section 6(c) of the Investment Company Act of 1940 ("1940 Act") exempting them 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)(l5). The prior order (Rel. No. IC-19879) granted exemptive relief to permit shares of the Templeton Trust to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies. The proposed relief would amend the prior order to add as parties to that order the VIP Trust and any Future Funds and to permit shares of the Templeton Trust, the VIP Trust, and Future Funds to be issued to and held by qualified pension and retirement plans outside the separate account context. A notice of the filing of the application was issued on September 17, 1999 (Rel. No. IC-24018). The notice gave interested persons an opportunity to request a hearing and stated that an order granting the application would be issued unless a hearing should be ordered. No request for a hearing has been filed, and the Commission has not ordered a hearing. The matter has been considered, and it is found that granting the requested exemptions is appropriate in the public interest and consistent with the protection of investors and the purposes intended by the policy and provisions of the 1940 Act. Accordingly, IT IS ORDERED, pursuant to Section 6(c) of the 1940 Act, that the requested exemptions from Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and Rules 6e-2(b)(l 5) and 6e-3(T)(b)(15) thereunder, be, and hereby are, granted, effective forthwith. For the Commission, by the Division of Investment Management, pursuant to delegated authority. 45 EX-99.1(A)(9)(C)(2) 5 plic_wanger-particagree.txt PART. AGREE. W/WANGER Exhibit 1.(A)(9)(c)(2) Participation Agreement between Phoenix Home Life Mutual Insurance Company and Wanger Advisors Trust As of January 1, 2001 Phoenix Home Life Mutual Insurance Company One American Row Hartford, CT 06115 AMENDMENT NO. 2 TO LETTER DATED APRIL 18, 1995 CONCERNING CERTAIN ADMINISTRATION SERVICES Ladies and Gentlemen: This letter amends the agreement between Wanger Asset Management, L.P. (currently known as Liberty Wanger Asset Management, L.P.) (the "Adviser") and Phoenix Home Life Mutual Insurance Company (the "Company"), dated April 18, 1995, concerning certain administration services for the separate accounts of the Company that invest in Wanger Advisors Trust (the "Trust") pursuant to the Participation Agreement dated April 18, 1995, as amended December 16, 1996 (the "Letter Agreement"). Paragraph 1 of the Letter Agreement is hereby amended to read as follows: "2. Administration Expense Payments. In consideration of the anticipated administration expense savings resulting to the Adviser from the arrangements set forth in the Participation Agreement, the Adviser agrees to pay to the Company on a monthly basis, from the bona fide profits of the Adviser, the following amounts: A. From January 1, 2001 through June 30, 2001: o 20 basis points (0.20%) per annum for the aggregate amount invested by the Company under the Participation Agreement as of December 31, 2000 (as set forth in Schedule A thereto) (the "Year-End Amount"); and o 35 basis points (0.35%) per annum for aggregate amounts invested by the Company under the Participation Agreement in excess of the Year-End Amount. B. As of July 1, 2001 through the term of this letter agreement: o 35 basis points (0.35%) per annum of the average aggregate amount invested by the Company under the Participation Agreement. For purposes of computing the payment to the Company contemplated under this Paragraph 2, the average aggregate amount invested by the Company over a one-month period shall be computed by totaling the Company's aggregate investment (share net asset value multiplied by total number of shares held by the Company) on each business day during the month, and dividing by the total number of business days during such month. The payment contemplated by this Paragraph 2 shall be calculated by the Adviser at the end of each calendar month and will be paid to the Company within ten (10) business days thereafter. Payment will be accompanied by a statement showing the calculation of the monthly amount payable by the Adviser and such other supporting data as may be reasonably requested by the Company." If you agree to the above changes, please sign below and return a signed copy of this letter to us. Very truly yours, Liberty Wanger Asset Management, L.P. By its General Partner, WAM Acquisition GP, Inc. By: /s/ Bruce M. Lauer ------------------- Name: Bruce M. Lauer ------------------- Title: COO ------------------- Acknowledged and Agreed: Phoenix Home Life Mutual Insurance Company By: /s/ Michael J. Gilotti ----------------------- Name: Michael J. Gilotti ----------------------- Title: E V.P. ----------------------- Date: ----------------------- SCHEDULE A The Year-End Amount for purposes of Section 2 is $578,946,647.24 (see table below for details) PHOENIX HOME LIFE -----------------
SHARES OUTSTANDING FUND A/C NUMBER 12/31/2000 NAV VALUE - -------------------- --------------- ------------------------ --------- -------------------- Wanger US Small Cap 635-13105019 9,954,151.362 $19.99 $198,983,485.73 Wanger International 636-13105023 4,527,638.409 $28.49 $128,992,418.27 Small Cap Wanger Twenty 297-223735 431,926.084 $14.08 $6,081,519.26 Wanger Foreign Forty 298-223739 443,590.207 $17.29 $7,669,674.68 -------------------- TOTAL VALUE $341,727,097.94 ====================
PHL VARIABLE ------------ INSURANCE ---------
SHARES OUTSTANDING FUND A/C NUMBER 12/31/2000 NAV VALUE - -------------------- --------------- ------------------------ --------- -------------------- Wanger US Small Cap 635-13122255 6,860,784.093 $19.99 $137,147,074.02 Wanger International 636-13122251 3,078,610.520 $28.49 $87,709,613.71 Small Cap Wanger Twenty 297-224181 377,894.989 $14.08 $5,320,761.45 Wanger Foreign Forty 298-224185 407,293.240 $17.29 $7,042,100.12 -------------------- TOTAL VALUE $237,219,549.30 ==================== TOTAL YEAR-END VALUE $578,946,647.24 ====================
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 Sections 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. (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 Participating 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) an 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 the implications thereof. 7.2 The Company shall report any potential or existing conflicts to the Trust Board. The Company will be 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 a 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 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) that 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 has been declined by 3 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, then (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 Sections 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.l, 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 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 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. McQuaid ---------------------------- --------------------------------- Name: Title: 6 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 or 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 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. "Products" -- 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" -- owners 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 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 the 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 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 the Trust by wire to be received by the Trust by 12:00 p.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 shares 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 or 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 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 Participating 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 Trust; or (iii) in the event that the shares of another investment company are substituted for series shares in accordance with the terms of the 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 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 and 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 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 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), 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 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 costs 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 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 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 received. 13 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 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 any 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 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 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 or alleged statement or alleged 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 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 the 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 indemnified party from and against any loss or liability by reason of 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 this 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 (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 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 on 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 reasonably available to meet the requirements of the Contracts as determined by the Company, and the Trust, after receiving written notice from the Company of such non- 20 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, 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 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, nor the execution of this Agreement on behalf 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 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, 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 duly 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 SCHEDULE 1 ---------- Accounts of the Company Investing in the Trust Effective as of the date 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 Universal Life Variable Universal 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 SCHEDULE 2 ---------- Classes of Contracts Supported by Separate Accounts Listed on Schedule 1 Effective as of the date the Agreement was executed, the following classes of Contracts are subject to the Agreement: ============================================================================== SEC 1933 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 1933 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 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 1933 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 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 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 EX-99.1(A)(9)(C)(3) 6 plic53456federated.txt PART. AGREE. W/FEDERATED Exhibit 1.(A)(9)(c)(3) Participation Agreement Between Phoenix Home Life Mutual Insurance Company and Federated Securities Corp. 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 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 6e-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 ("193~1 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 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 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 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 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 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 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 registering 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 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, 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 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 (c) 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 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 in 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 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 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, 6e-3(T), or any other regulation under the 1940 Act, the Insurer will be 11 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 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 of 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 by 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 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 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-ready or 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 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 Shared 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 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 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 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 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 regulatory authorities. 18 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.l(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 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 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.l(b) and 7.l(c) hereof. 7.l(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.l(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 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 (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 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 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 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 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 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 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 or litigation 26 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 d7e 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 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 written 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 (c) at the option of the Fund or the Distributor upon institution of formal proceedings against the Insurer or its agent by the NASD, the SEC, or any state securities or insurance department or any other regulatory 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 majority 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 (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.l(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.l(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 45days 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 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. 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: 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 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 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 provides 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 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 the 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 the Agreement. 34 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/John 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 EXHIBIT A Separate Accounts Phoenix Home Life Mutual Insurance Company Phoenix Home Life Variable Accumulation Account Phoenix Home Life Variable Universal Life Account 36 EXHIBIT B Federated Funds in Phoenix Variable Insurance Products Federated Fund for U.S. Government Securities II Federated High Income Bond Fund II 37 EX-99.1(A)(9)(C)(4) 7 plic-deutsche53456.txt PART. AGREE. W/DEUTSCHE Exhibit 1.(A)(9)(c)(4) Participation Agreement Between Phoenix Home Life Mutual Insurance Company and Deutsche Asset Management, Inc. AMENDMENT NO. 2 --------------- to the FUND PARTICIPATION AGREEMENT AMENDMENT, dated as of October 29, 2001, to the Fund Participation Agreement dated as of the 19th day of July, 1999 as amended (the "Agreement"), by and between Deutsche Asset Management VIT Funds ("Trust"), Deutsche Asset Management, Inc. ("Adviser"), and Phoenix Life Insurance Company (formerly, Phoenix Home Life Mutual Insurance Company) ("Life Company"). WHEREAS, Trust, Life Company and Adviser wish to amend certain language in sections 1.2 and 1.3 of the Agreement and; WHEREAS, Trust, Life Company and Adviser wish to revise Appendices A and B to the Agreement in their entirety; NOW, THEREFORE, in accordance with Section 10.9 of the Agreement, Trust, Life Company and Adviser hereby agree as follows: 1. The following language in section 1.2 of the Agreement "of such order by 8:00 a.m. New York time on the next Business Day." is replaced with "of such order by 8:30 a.m. New York time on the next Business Day." 2. The following language in section 1.3 of the Agreement "of such order by 9:00 a.m. New York time on the next Business Day." is replaced with "of such order by 8:30 a.m. New York time on the next Business Day." 3. Appendix A to the Agreement is hereby amended, and restated in its entirety, by the Appendix A attached to this Amendment. 4. Appendix B to the Agreement is hereby amended, and restated in its entirety, by the Appendix B attached to this Amendment. Except as expressly set forth above, all other terms and provisions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Amendment as of the date and year first above written. DEUTSCHE ASSET MANAGEMENT VIT FUNDS By: /s/ Daniel O. Hirsch ------------------------- Name: Daniel O. Hirsch Title: Secretary PHOENIX LIFE INSURANCE COMPANY By: /s/ Simon Y. Tan ------------------------- Name: Simon Y. Tan Title: Executive Vice President DEUTSCHE ASSET MANAGEMENT, INC. By: /s/ Brian Bader ------------------------- Name: Brian Bader Title: Director APPENDIX A (Revised effective October 29, 2001) To Participation Agreement by and among Deutsche Asset Management VIT Funds, Deutsche Asset Management, Inc. and Phoenix Life Insurance Company List of Portfolios: Deutsche Asset Management VIT Funds - EAFE Equity Index Fund Deutsche Asset Management VIT Funds - Equity 500 Index Fund APPENDIX B (Revised effective October 29, 2001) To Participation Agreement by and among Deutsche Asset Management VIT Funds, Deutsche Asset Management, Inc. and Phoenix Life Insurance Company List of Portfolios: Phoenix Life Variable Accumulation Account Phoenix Life Variable Universal Life Account AMENDMENT NO. 1 --------------- to the FUND PARTICIPATION AGREEMENT AMENDMENT, dated as of April 27, 2001 to the Fund Participation Agreement dated as of the 19th day of July, 1999 (the "Agreement"), by and between Deutsche Asset Management VIT Funds (formerly, BT Insurance Funds Trust) ("Trust"), Bankers Trust Company ("Adviser"), and Phoenix Home Life Mutual Insurance Company ("Life Company"). WHEREAS, effective May 1, 2001 Deutsche Asset Management, Inc. ("DAMI") will replace Adviser as investment adviser to the Trust; WHEREAS, effective May 1, 2001 the Adviser wishes to transfer all of its rights, responsibilities and duties under the Agreement to ("DAMI"); WHEREAS, DAMI is duly registered as an investment adviser under the Investment Advisers Act of 1940, as amended ("Advisers Act"); WHEREAS, Trust, Life Company and Adviser wish to revise Appendices A and B to the Agreement in their entirety; NOW, THEREFORE, in accordance with Section 10.9 of the Agreement, Trust, Life Company, Adviser and DAMI hereby agree as follows: 1. Effective May 1, 2001 DAMI will replace Adviser and assume all of the Adviser's rights, responsibilities and duties under the Agreement. 2. Life Company agrees, to the replacement of Adviser with DAMI. 3. Article IX. NOTICES is hereby amended such that the addresses for Trust and Adviser are replaced in their entirety with the following: If to TRUST: Deutsche Asset Management VIT Funds c/o PFPC Global Fund Services 3200 Horizon Drive King of Prussia, PA 19406-0903 Attn: Tom Calabria, Legal Department and c/o Deutsche Asset Management Mutual Fund Services One South Street, Mail Stop 1-18-6 Baltimore, MD 21202 Attn: Richard Hale If to ADVISER: Deutsche Asset Management, Inc. 130 Liberty Street, Mail Stop 2355 New York, NY 10006 Attn: Mutual Fund Marketing 4. Appendix A to the Agreement is hereby amended, and restated in its entirety, by the Appendix A attached to this Amendment. 5. Appendix B to the Agreement is hereby amended, and restated in its entirety, by the Appendix B attached to this Amendment. Except as expressly set forth above, all other terms and provisions of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Amendment as of the date and year first above written. DEUTSCHE ASSET MANAGEMENT VIT FUNDS By: /s/ Daniel O. Hirsch ------------------------- Name: Daniel O. Hirsch Title: Secretary PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY By: /s/ Simon Y. Tan ------------------------- Name: Simon Tan Title: Executive Vice President BANKERS TRUST COMPANY By: /s/ ------------------------- Name: Title: DEUTSCHE ASSET MANAGEMENT, INC. By: /s/ Marco Veissed ------------------------- Name: Marco Veissed Title: Director APPENDIX A To Participation Agreement by the among Deutsche Asset Management VIT Funds, Deutsche Asset Management, Inc. and Phoenix Home Life Mutual Insurance Company List of Portfolios: Deutsche Asset Management VIT Funds - EAFE Equity Index Fund APPENDIX B To Participation Agreement by and among Deutsche Asset Management VIT Funds, Deutsche Asset Management, Inc. 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 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 ("ADVISER"), 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 plans ("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 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 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 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 the 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 a broker- dealer under the Securities Exchange Act of 1934 (the "'34 ACT"). 2.2 LIFE COMPANY represents and warrants that is 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 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 costs 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 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 MATERIALS --------------- 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 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 Variable Contract owner voting instructions. These responsibilities of LIFE COMPANY will be carried out with a view only to the interests 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 a minority position or would preclude 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 Contract. 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 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 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 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, 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 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 (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 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. 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 (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 precludes the use of such shares as the underlying investment medium of Variable Contracts issued or to be issued 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 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 desires 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 Service 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 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 simply to facilitate the execution and administration of the Agreement. 15 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 and 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/ Gerald J. Holland ------------------------------------- Name: Gerald 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 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 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 EX-99.1.(A)(9)(C)(5) 8 msdw53456ex1a9c5.txt PARTICIPATION AGREEMENT WITH MSDW Exhibit 1.(A)(9)(c)(5) Participation Agreement between Phoenix Home Life Mutual Insurance Company and Morgan Stanley Dean Witter Universal Funds, Inc., Miller Anderson & Sherrerd, LLP and Morgan Stanley Dean Witter Investment Management, Inc. 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 TABLE OF CONTENTS Page ARTICLE I. Purchase of Fund Shares 2 ARTICLE II Representations and Warranties 4 ARTICLE 111. 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 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 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 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 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 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 cov4erage, 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 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 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 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 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 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 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 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 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 (I)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) rise 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 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 "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 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 (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 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 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 (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 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 SCHEDULE A SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS ------------------------------------------
NAME OF SEPARATE ACCOUNT AND FORM NUMBER AND NAME OF DATE ESTABLISHED BY BOARD OF DIRECTORS CONTRACT FUNDED BY SEPARATE ACCOUNT - -------------------------------------- ----------------------------------- 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 (4 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)
A-1 SCHEDULE B PORTFOLIOS OF MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. AVAILABLE UNDER THIS AGREEMENT ---------------------------------------------------- Technology Portfolio B-1 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 - 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 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 EX-99.1(A)(9)(C)(6) 9 plicalger_53456.txt PART. AGREE. W/ALGER Exhibit 1.(A)(9)(c)(6) Participation Agreement Between Phoenix Home Life Mutual Insurance Company and The Alger American Fund and Fred Alger & Company, Incorporated PARTICIPATION AGREEMENT THIS AGREEMENT is made this 1st day of June, 2000, by and among The Alger American Fund (the "Trust"), and open-end management investment company organized as a Massachusetts business trust, Phoenix Home Life Mutual Insurance Company, a life insurance company organized under the laws of the State of New York, (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"), and Fred Alger & Company, Incorporated, a Delaware corporation, the Trust's distributor (the "Distributor"). WHEREAS, the Trust is registered with he 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 under the Securities Act of 1933, as amended (the "1933 Act"); WHEREAS, the Trust and the Distributor 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, shares of beneficial interest in the Trust are divided into the following series which are available for purchase by the Company for the Accounts: Alger American Small Capitalization Portfolio, Alger American Growth Portfolio, Alger American Income and Growth Portfolio, Alger American Balanced Portfolio, Alger American MidCap Growth Portfolio, and Alger American Leverage AllCap Portfolio; WHEREAS, the Trust has received an order from the Commission, dated February 17, 1989 (File No. 8112-7076), granting Participating Insurance Companies and their separate accounts exemptions from the provisions of Sections 9(a), 13(a), 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 Portfolios 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 (the "Shared Funding Exemptive Order"); WHEREAS, the Company has registered or will register under the 1933 Act certain variable life insurance policies and variable annuity contracts to be issued by the Company 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, the Company desires to use shares of the Portfolios indicated on Schedule A 1 as investment vehicles for the Account; 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 the receipt from each account of purchase orders and requests for redemption pursuant to the Contracts relating to each Portfolio, provided that the Company notifies the Trust of such purchase orders and requests for redemption by 9:30 a.m. Eastern time on the next following Business Day, as defined in Section 1.3. 1.2. The Trust shall make shares of the Portfolios available to the Accounts at the net asset value next computed after receipt of a purchase order by the Trust (or its agent), as established in accordance with the provisions of the then current prospectus of the Trust describing Portfolio purchase procedures. The Company will transmit orders from time to time to the Trust for the purchase and redemption 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 pay for the purchase of shares of a Portfolio on behalf of an Account with federal funds to be transmitted by wire to the Trust, with the reasonable expectation of receipt by the Trust by 2:00 p.m. Eastern time on the next Business Day after the Trust (or its agent) receives the purchase order. 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. Proceeds of 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 by order of the Trust with the reasonable expectation of receipt by the Company by 2:00 p.m. Eastern time on the next Business Day after the receipt by the Trust (or its agent) of the request for redemption. 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 2 be delayed for a greater period than is permitted by the 1940 Act. The Trust reserves the right to suspend the right of redemption, consistent with Section 22(e) of the 1940 Act and any rules thereunder. 1.5. Payments for the purchase of shares of the Trust Portfolios by the Company under Section 1.3 and payments for the redemption of shares of the Trust's Portfolios under Section 1.4 on any Business Day may be netted against one another for the purpose of determining the amount of any wire transfer. 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 Accounts. 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 that 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 reasonably practical after the net asset value per share is calculated and shall use its best efforts to make such net asset value per share available to the Company by 6:30 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 segregated asset accounts, to the Fund Sponsor or its affiliates and to such other entities as may be permitted by Section 817(h) of the Code, the regulations hereunder, or judicial or administrative interpretations thereof. 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 Trust agrees that all Participating Insurance Companies shall have the obligations and responsibilities regarding pass-through voting and conflicts of interest corresponding materially to those contained in Section 2.9 and Article IV of this Agreement. ARTICLE II. Obligations of the Parties -------------------------- 2.1. The Trust shall prepare and be responsible for filing with the Commission and any state regulators requiring such filing all shareholders reports, notices, proxy materials (or similar materials such as voting instruction solicitation materials), prospectuses and statements of 3 additional information of the Trust. The Trust shall bear the costs of registration and qualification of shares 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. The Company shall distribute such prospectuses, proxy statements and periodic reports of the Trust to the Contract owners as required to be distribute to such Contract owners under applicable federal or state law. 2.3. The Trust shall provide such documentation (including a final copy of the Trust's prospectus as set in type or in camera-ready copy) and other assistance as is reasonably necessary in order for the Company to print together in one document the current prospectus for the Contracts issued by the Company and the current prospectus for the Trust. The Trust shall bear the expense of printing copies of its current prospectus that will be distributed to existing Contract owners, and the Company shall bear the expense of printing copies of the Trust's prospectus that are use in connection with offering the Contracts issued by the Company. 2.4. The Trust and the Distributor shall provide (1) at the Trust's expense, one copy of the Trust's current Statement of Additional Information ("SAI"), (2) at the Company's expense, such additional copies of the Trust's current SAI as the Company shall reasonably request and that the Company shall require in accordance with applicable law in connection with offering the Contracts issued by the Company. 2.5. The Trust, at its expense, shall provide the Company with copies of its proxy material, periodic reports to shareholders and other communications to shareholders in such quantity as the Company shall reasonably require for purposes of distributing to Contracts owners. The Trust, at the Company's expense, shall provide the company with copies of its periodic reports to shareholders and other communications to shareholders in such quantity as the Company shall reasonably request for use in connection with offering the Contracts issued by the Company. If requested by the Company in lieu thereof, the Trust shall provide such documentation (including a final copy of the Trust's proxy materials, periodic reports to shareholders and other communications to shareholders, as set in type or in camera-ready copy) and other assistance as reasonably necessary in order for the Company to print such shareholder communications for distribution to Contract owners. 2.6. The Company agrees and acknowledges that the Distributor is the sole owner of the name and mark "Alger" and that all use of any designation comprised in whole or part of such name or mark under this Agreement shall inure to the benefit of the distributor. Except as provided in Section 2.5, the Company shall not use any such name or mark on its own behalf or on behalf of the Accounts or Contracts in any registration statement, advertisement, sales literature or other materials relating to the Accounts or Contracts without the prior written consent of the Distributor. 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. 4 2.7. The Company shall furnish, or cause to be furnished, to the Trust or its designee a copy of each Contract prospectus and/or statement of additional information describing the Contracts, each report to Contract owners, proxy statement, application for exemption or request for no-action letter in which the Trust or the Distributor is named contemporaneously with the filing of such document with the Commission. The Company shall furnish, or shall cause to be furnished, to the Trust or the Distributor is named, at least five Business Days prior to its use. No such material shall be used if the Trust or its designee reasonably objects to such use within three Business Days after receipt of such material. 2.8. The Company shall not give any information or make any representations or statement on behalf of the Trust or concerning the Trust of the Distributor in connection with the sale of the Contracts other than information or representations contained in and accurately derived from the registration statement of 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 prior written permission of the Trust, the Distributor or their respective designees. The Trust and the Distributor agree to respond to any request for approval on a prompt and timely basis. The Company shall adopt and implement procedures reasonably designed to ensure that "broker only" materials including information therein about the Trust or the Distributor are not distributed to existing or prospective Contract owners. 2.9. The Trust shall use its best efforts to provide the Company, on a timely basis, with such information about the Trust, the Portfolios and the Distributor, 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. 2.10. The Trust and the Distributor shall not give, and agree that no affiliate of either of them shall 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 prior written permission of the Company. The Company agrees to respond to any request for approval on a prompt and timely basis. 2.11. 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 cash values are invested, through the registered Accounts, in shares of one or more Portfolios of the Trust. The Trust shall require all 5 Participating Insurance Companies to calculate voting rights 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 share 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 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. The Company reserves the right, to the extent permitted by law, to vote shares held in any Account in its sole discretion. 2.12. The Company and the Trust will each provide to the other information about the results of any regulatory examination relating to the Contracts or the Trust, including relevant portions of any "deficiency letter" and any response thereto. 2.13. No compensation shall be paid by the Trust to the Company, or by the Company to the Trust, under this Agreement (except for specified expense reimbursements). However, nothing herein shall prevent the parties hereto from otherwise agreeing to perform, and arranging for appropriate compensation for, other services relating to the Trust, the Accounts or both. 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, and that Phoenix Equity Planning Corporation ("PEPCO"), the principal underwriter for the Contracts, is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member in good standing of the National Association of Securities Dealers, Inc. 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 and cause each Account to remain so registered 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; the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state laws; and the sale of the Contracts shall comply in all material respects with state insurance law suitability requirements. 3.4. The Trust represents and warrants that it is duly organized and validly existing under the laws 6 of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act and the rules regulations thereunder. 3.5. The Trust and the Distributor represent and warrants that the Portfolio shares offered and sold pursuant to this Agreement will be registered under the 1933 Act and sold in accordance with all applicable federal and state laws, 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 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. 3.6. The Trust represents and warrants that the investments of each Portfolio will comply with the diversification requirements for variable annuity, endowment of life insurance contracts set forth in Section 817(h) of the Internal Revenue Code of 1986, as amended (the "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 an Portfolio has ceased to comply or might not so comply and will immediately take all reasonable steps to adequately diversify the Portfolio to achieve compliance within the grace period afforded by Regulation 1.817-5. 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. 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 than the minimum coverage required by Rule 17g-1 or other applicable regulations under the 1940 Act. Such bond shall include coverage for larceny and embezzlement and be issued by a reputable bonding company. 3.9. The Distributor represent that it is duly organized and validly existing under the laws of the State of Delaware and that it is registered, and will remain registered, during the term of this Agreement, as a broker-dealer under the Securities Exchange Act of 1934 and is a member in good standing of the National Association of Securities Dealers, Inc. 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 interests of the contract 7 owners of all Participating Insurance Companies. A material irreconcilable conflict may a rise 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; (f) a decision by an insured to disregard the voting instructions of contract owners. The Trust shall promptly inform the Company of determination by the Trustees that a material irreconcilable conflict exists and of the implications thereof. 4.2. The Company agrees to report promptly 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 and requested by 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 material irreconcilable 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 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) that 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. 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 8 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 the 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 the Trust has determined that such decision has created a material irreconcilable 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 Section 4.3 of this Agreement, a majority of the disinterested Trustees shall determine whether any proposed action adequately remedies any material irreconcilable conflict, but in no event will the Trust be required to establish a new funding medium for any Contract. The Company shall not be required 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 material irreconcilable conflict. In the event that the Trustees determined 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 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 any such material irreconcilable conflict as determined 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 an to the extent that Rule 6e-3(T) is 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 the Trust and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rule 6e-3(T), as amended, or Rule 6e-3, as adopted, to the extent such rules are applicable. ARTICLE V. Indemnification --------------- 5.1. Indemnification By the Company. The Company agrees to indemnify and hold harmless the 9 Distributor, 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" for purposes of this Section 5.1) 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 a common law or otherwise, insofar as such Losses are related to the sale or acquisition of the Contracts or Trust shares and: (a) arise out of or are based upon any untrue statements or alleged 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 (b) 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)) or wrongful conduct of the Company or persons under its control, with respect to the sale or acquisition of the Contracts or Trust shares; or (c) arise our 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) 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 (d) 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 (e) 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; or (f) arise out of or result from the provision by the Company to the Trust of insufficient 10 or incorrect information regarding the purchase or sale of shares of any Portfolio, or the failure of the Company to provide information on a timely basis. 5.2. Indemnification by the Distributor. The Distributor agrees to indemnify and hold harmless the Company and each of its directors, officers, employees, and agents and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for the purposes of this Section 5.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Distributor, 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 stature or regulation, or at common law or otherwise, insofar as such Losses are related to the sale or acquisition of the Contracts or Trust shares 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 Trust (or any amendment or supplement thereto) (collectively, "Trust 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 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 Distributor or the Trust by or on behalf of the Company for use in Trust Documents or otherwise for use in connection with the sale of the Contracts or Trust shares; or (b) arise out of or result from statements or representations (other than statements or representations contained in and accurately derived from Company Documents) or wrongful conduct of the Distributor or persons under its control, with respect to the sale or acquisition of the Contracts or Portfolio shares; or (c) arise out of or result from any untrue statement of a material fact contained in Company Documents 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 omission was made in reliance upon and accurately derived from written information furnished to the Company by or on behalf of the Trust; or (d) arise out of our result from any material breach of any representation and/or warranty made by the Distributor or the Trust in this Agreement or arise out of or result from any other material breach of this Agreement by the Distributor or the Trust. (e) arise out of or result from any material breach of any representation and/or warranty made by the Distributor or the Trust in this Agreement or arise out of or result from any other material breach of this Agreement by the Distributor or the Trust. 11 5.3. None of the Company, the Trust or the Distributor shall be liable under the indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect to any Losses incurred or assessed against an Indemnified Party that arise from such Indemnified Party's willful misfeasance, bad faith or negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's disregard of obligations or duties under this Agreement. 5.4. None of the Company, the Trust or the Distributor shall be liable under the indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect to any claim made against an Indemnified party unless such Indemnified Party shall have notified the other party in writing within a reasonable time after the summons, or other first written notification, giving information of the nature of the claim shall have been served upon or otherwise received by such Indemnified Party (or after such Indemnified Party shall have received notice of service upon or other notification to any designated agent), but failure to notify the party against whom indemnification is sought of any such claim shall not relieve that party from any liability which it may have to the Indemnified Party in the absence of Sections 5.1 and 5.2. 5.5. In case of any such action is brought against an Indemnified party, the indemnifying party shall be entitled to participate, at its own expense, in the defense of such action. the indemnifying party also shall be entitled to assume the defense of such action. The indemnifying party also shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to the party named in the action. After notice from the indemnifying party to the Indemnified Party of an election to assume such defense, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the indemnifying party will not be liable to the Indemnified 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. ARTICLE VI. Termination ----------- 6.1. This Agreement shall terminate: (a) at the option of any party upon 60 days advance written notice to the other parties, unless a shorter time is agreed to by the parties; (b) at the option of the Trust or the Distributor if the Contracts issued by the Company cease to qualify as annuity contracts or life insurance contracts, as applicable, under the Code or if the Contracts are not registered, issued or sold in accordance with applicable state and/or federal law; or (c) at the option of any party upon a determination by a majority of the Trustees of the Trust, or a majority of its disinterested Trustees, that a material irreconcilable conflict exists; or 12 (d) at the option of the Company upon institution of formal proceedings against the Trust or the Distributor by the NASD, the SEC, or any state securities or insurance department or any other regulatory body regarding the Trust's or the Distributor's duties under this Agreement or related to the sale of Trust shares or the operation of the Trust, or (e) at the option of the Company if the Trust or a Portfolio fails to meet the diversification requirements specified in Section 3.6 hereof; or (f) at the option of the Company if shares of the Series are not reasonably available to meet the requirements of the Variable Contacts issued by the Company, as determined by the Company, and upon prompt notice by the Company to the other parties; or (g) at the option of the Company in the event at any of the shares of the 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 Company; or (h) at the option of the Company, if the Portfolio fails to qualify as a Regulated Investment Company under Subchapter M of the Code; or (i) at the option of the Distributor if it 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 prospectus since the date of this Agreement or is the subject of material adverse publicity. 6.2. Notwithstanding any termination of this Agreement, 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 the terms and conditions of this Agreement for all Contracts in effect on the effective date of termination of this Agreement. 6.3. The provisions of Article V shall survive the termination of this Agreement, and the provisions of Article IV and Section 2.9 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 6.2. 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. 13 If to the Trust or its Distributor: Fred Alger Management, Inc. 30 Montgomery Street Jersey City, NJ 07302 Attn: Gregory S. Duch If to the Company: Phoenix Home Life Mutual Insurance Company One American Row Hartford, CT 06102-5056 Attn: Linda Samoncik, Mail Stop HG 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 construction or effect. 8.2. This agreement may be executed in two or more counterparts, each of which taken together shall constitute one and the same instrument. 8.3. If any provisions of this Agreement shall be held or made invalid by a court decision, stature, rule or otherwise, the remained of the Agreement shall not be affected thereby. 8.4. 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 Commission granting exemptive relief therefrom and the conditions of such orders. Copies of any such orders shall be promptly forwarded by the Trust of the Company. 8.5. 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 no Trustee, officer, agent or holder of shares of beneficial interest of the Trust shall be personally liable for any such liabilities. 14 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 inquiry 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. This Agreement shall not be exclusive in any respect. 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. 8.10. No provisions of this Agreement may be amended or modified in any manner except by a written agreement properly authorized and executed by both parties. 8.11. Each party hereto shall, except as required by law or otherwise permitted by this Agreement, treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto, and shall disclose such confidential information without the written consent of the affected party unless such information has become publicly available. 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. Fred Alger & Company, Incorporated By: /s/ Gregory S. Duch -------------------- Name: GREGORY S. DUCH Title: EXECUTIVE VICE PRESIDENT The Alger American Fund By: /s/ Gregory S. Duch ------------------- Name: GREGORY S. DUCH Title: TREASURER 15 Phoenix Home Life Mutual Insurance Company By: /s/ Simon Y. Tan ---------------- Name: Simon Y. Tan Title: Senior Vice President SCHEDULE A ---------- The Alger American Fund: Alger American Leveraged AllCap Portfolio The Accounts: Phoenix Home Life Variable Accumulation Account Phoenix Home Life Variable Universal Life Account 16 EX-99.1(A)(9)(C)(7) 10 plicfidelity53456.txt PART. AGREE. W/FIDELITY Exhibit 1.(A)(9)(c)(7) Participation Agreement between Phoenix Home Life Mutual Insurance Company Variable Insurance Products Fund and Fidelity Distributors Corporation. PARTICIPATION AGREEMENT ----------------------- Among VARIABLE INSURANCE PRODUCTS FUND, -------------------------------- FIDELITY DISTRIBUTORS CORPORATION --------------------------------- and PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY ------------------------------------------ THIS AGREEMENT, made and entered into as of the 1st day of June, 2000 by and among PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, (hereinafter the "Company"), a life insurance company organized under the laws of the State of New York, on its own behalf of each segregated asset 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 the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a Massachusetts corporation. WHEREAS, the Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts (collectively, the "Variable Insurance Products") to be offered by insurance companies which have entered into participation agreements with the Fund and the Underwriter (hereinafter "Participating Insurance Companies"); and WHEREAS, the beneficial interest in the Fund is 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, as may be amended from time to time by mutual agreement of the parties hereto (each such series hereinafter referred to as a "Portfolio"); and WHEREAS, the Fund has obtained an order from the Securities and Exchange Commission, dated October 15, 1985 (File No. 812-6102), 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 Investment Company Act of 1940, as amended, (hereinafter 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 Fund to be sold to and held by variable annuity 1 and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies (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, Fidelity Management & Research Company (the "Adviser") is duly registered as an investment adviser under the federal Investment Advisers Act of 1940 and any applicable state securities law; and WHEREAS, the variable life insurance and/or variable annuity products identified on Schedule A hereto ("Contracts") have been or will be registered by the Company under the 1933 Act, unless such Contracts are exempt from registration thereunder; and WHEREAS, each Account is a 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 the aforesaid Contracts; and WHEREAS, the Company has registered or will register each Account as a unit investment trust under the 1940 Act, unless such Account is exempt from registration thereunder; and WHEREAS, the Underwriter is registered as a broker dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (hereinafter "NASD"); and 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 each Account at net asset value; NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund and the Underwriter agree as follows: ARTICLE I. Sales of Fund Shares -------------------- 1.1. The Underwriter agrees to sell to the company those shares of the Fund which each Account orders, executing such orders on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the order for the shares of the Fund. 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 2 Fund receives notice of such order by 9:00 a.m. Boston time on the next following Business Day. Beginning within three months of the effective date of this Agreement, the Company agrees that all order for the purchase and redemption of Fund shares on behalf of the Accounts will be placed by the Company with the Funds or their transfer agent by electronic transmission. "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 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. Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter the "Board") 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 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 and the Underwriter agree that shares of the Fund will be sold only to Participating Insurance Companies and their separate accounts. No shares of any Portfolio will be sold to the general public. 1.4. The Fund and the Underwriter will not sell Fund shares to any insurance company or separate account unless an agreement containing provisions substantially the same as Articles I, III, V, VII and Section 2.5 of Article II of this Agreement is in effect to govern such sales. 1.5. 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 1.5, 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 on the next following Business Day. 1.6. 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. Upon request by the Fund or Underwriter, the Company will provide such requesting party a listing or other like identification of the investment companies other than the Fund available as funding vehicles for the Contracts. 1.7. 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 purpose of Section 2.10 and 2.11, 3 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. 1.8. 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. 1.9. 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 Fund'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. 1.10. 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. Boston time) and shall use its best efforts to make such net asset value per share available by 7 p.m. Boston 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 or are exempt from registration thereunder; 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 it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established each Account prior to any issuance or sale thereof as a segregated asset account under the New York Insurance Code and 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 New York 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 or the Underwriter. 4 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 or that it might not so qualify in the future. 2.4. The Company represents that the Contracts are currently treated as endowment, life insurance or annuity insurance 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 and the Underwriter 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. (a) With respect to Initial Class shares, the Fund currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it may make such payments in the future. The Fund has adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for distribution expenses. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of trustees, a majority of whom are not interested persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (b) With respect to Service Class shares and Service Class 2 shares, the Fund has adopted Rule 12b-1 Plans under which it makes payments to finance distribution expenses. The Fund represents and warrants that it has a board of trustees, a majority of whom are not interested persons of the Fund, which has formulated and approved each of its Rule 12b-1 Plans to finance distribution expenses of the Fund and that any changes to the Fund's Rule 12b-1 Plans will be approved by a similarly constituted board of trustees. 2.6. The Fund makes no representation 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 Fund's investment policies, fees and expenses are and shall at all times remain in compliance with the laws of the State of New York and the Fund and the Underwriter represent that their respective operations are and shall at all times remain in material compliance with the laws of the State of New York to the extent required to perform this Agreement. 2.7. The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Underwriter further represents that it will sell and distribute the Fund shares in accordance with the laws of the Commonwealth of Massachusetts and all applicable state and federal securities laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. 2.8. The Fund represents that it is lawfully organized and validly existing under the laws of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 5 2.9. The Underwriter represents and warrants that the Adviser is and shall remain duly registered in all material respects under all applicable federal and state securities laws and that the Adviser shall perform its obligations for the Fund in compliance in all material respects with the laws of the Commonwealth of Massachusetts and any applicable state and federal securities laws. 2.10. The Fund and Underwriter represent and warrant that all of their directors, officers, employees, investment advisers, and other individuals/entities dealing with the money and/or securities of the Fund are and shall continue to be at all time 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 Bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.11. 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 for the benefit of the fund, and that said bond is issued by a reputable bonding company, includes coverage for larceny and embezzlement, and is in an amount not less than $5 million. 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 Underwriter in the event that such coverage not longer applies. ARTICLE III. Prospectuses and proxy Statements; Voting ----------------------------------------- 3.1. The Underwriter 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 thereof, the Fund shall provide camera-ready film 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, private offering memorandum or other disclosure document ("Disclosure Document") 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 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. Except as provided in the following three sentences, all expenses of printing and distributing Fund prospectuses and Statements of Additional Information shall be the expense of the Company. for prospectuses and Statement of Additional Information provided by the Company to its existing owners of Contracts in order to update disclosure annually 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 in lieu of receiving printed copies of the Fund's 6 prospectus, the Fund will reimburse the Company in an amount equal to the product of A and B where A is number of such prospectuses distributed to owners of the Contracts, and B 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 provider 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 any prospectuses or Statements of Additional Information other than those actually distributed to existing owners of the Contracts. 3.2. The Fund's prospectus shall state that the Statement of Additional Information for the Fund is available from the Underwriter or the Company (or in the Fund's discretion, the Prospectus shall state that such Statement is available from the Fund). 3.3. 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 Statement of Additional Information, which are covered in Section 3.1) to shareholders in such quantity as the Company shall reasonably require for distributing to the Contract owners. 3.4. 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 a particular separate account in the same proportion as Fund shares of such portfolio for which instructions have been received in that separate account. 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 right, to the extent permitted by law. Participating Insurance Companies shall be responsible for assuring that each of their separate accounts participating in the Fund calculates voting privileges in a manner consistent with the standards set forth on schedule B attached hereto and incorporated herein by this reference, which standards will also be provided to the other Participating Insurance Companies. 3.5 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 the Act) as well as with Section 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 trustees and with whatever rules the Commission may promulgate with respect thereto. 7 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 its investment adviser or the Underwriter is named, at least fifteen Business Days prior to its use. No such material shall used if the Fund or its designee reasonably object to such use within fifteen 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 Funds 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 or by the Underwriter, except with the permission of the Fund or the Underwriter or the designee of either. 4.3. The Fund, Underwriter, 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 separate account(s), is named at least fifteen Business Days prior to its use. No such material shall be used if the Company or its designee reasonably objects to such use within fifteen Business Days after receipt of such material. 4.4. The Fund and the Underwriter 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 Disclosure Document for the Contracts, as such registration statement or Disclosure Document 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 promotion materials, applications for exemptions, request of no-action letters, and all amendments to any of the above, that relate to the fund or its shares, contemporaneously with the filing of such document with the Securities and Exchange Commission or other regulatory authorities. 4.6. The Company will provide to the Fund at least one complete copy of all registration statements, Disclosure Documents, 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 Contracts or each Account, contemoraneously with the filing of such document with the 8 SEC or other regulatory authorities or, if a Contract and its associated Account are exempt from registration, at the time such documents are first published. 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, similar 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, Disclosure Documents, Statements of Additional Information, shareholder reports, and proxy materials. ARTICLE V. Fees and Expenses ----------------- 5.1. The Fund and underwriter 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 and such payments will be made out of existing fees otherwise payable to the underwriter, past profits of the Underwriter or other resources available to the Underwriter. No such payment shall be made directly by the Fund. 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 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. 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 (including the costs of printing a prospectus that constitutes an annual report), 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 and reports to owners of Contracts issued by the Company. The Fund shall bear the costs of soliciting Fund proxies from Contract owners, including the costs of mailing proxy materials and tabulating proxy voting instructions, not to exceed the costs charges by any service provider engaged by the Fund for this purpose. The Fund and the Underwriter shall not be responsible for the costs of any proxy solicitations other than proxies sponsored by the Fund. Nothing in this section 5.3 shall affect the Fund's agreement to pay expenses as provided in Article III. 9 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 Cope 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 1.817-5. 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 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 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 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 trustees, 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 disinterested trustees), 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 10 of any appropriate group (i.e., annuity contract owners, life insurance contract 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; provide, 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. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented, and until the end of that 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. 7.5. 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 7.6 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. In the event that the Board determines that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Board informs 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 determined by a majority of the disinterested members of the Board. 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 Act or the rules promulgated 11 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 trustee of the Board and officers and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" 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 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, or investment in, 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 Disclosure Documents 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 any Disclosure Document relating to 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 persons under its control) or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Fund Shares: or 12 (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 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, as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof. 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 or to the Fund, whichever is applicable. 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, as 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. 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. 13 8.2. Indemnification by the Underwriter ---------------------------------- 8.2(a). The Underwriter 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" 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 Underwriter) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, 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, or investment in, the Fund's shares 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 statement 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 Underwriter or 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 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 for the Contracts not supplied by the Underwriter or persons under its control) or wrongful conduct of the Fund, Adviser or Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a Disclosure Document 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 and in conformity with information furnished to the Company by or on behalf of the Fund; or (iv) arise as a result of any failure by the Fund 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 14 with the diversification requirements specified in Article VI 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 8.2(b) and 8.2(c) hereof. 8.2(b). The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation 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 each Company or the Account, whichever is applicable. 8.2(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 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 fees and 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. 8.2(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. 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 (collectively, the "indemnified Parties" 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 legal and other expenses) to which 15 the Indemnified Parties may become subject under any statute, 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 (including a failure to comply with the diversification requirements specified in Article VI 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; as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3(c) hereof. 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 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 Fund, the Underwriter or each Account, whichever is applicable. 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 and the Underwriter agree 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. 16 ARTICLE IX. Applicable Law -------------- 9.1. This Agreement shall be construed and the provisions hereof under and in accordance with the laws of the Commonwealth of Massachusetts. 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 Underwriter 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 Underwriter with respect to any Portfolio in the event any of the Portfolio's shares me 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 Underwriter 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 Underwriter 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 either the Fund or the Underwriter by written notice to the Company, if either one or both of the Fund or the Underwriter respectively, shall determine, in their sole judgment exercised in good faith, that the Company and/or its affiliated companies has suffered a material adverse 17 change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (g) termination by the Company by written notice to the Fund and the Underwriter, if the Company shall determine, in its sole judgment exercised in good faith, that either the Fund or the Underwriter 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 Underwriter by written notice to the Company, if the Company gives the Fund and the Underwriter the written notice specified in Section 1.6(b) 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 1.6(b) was given. 10.2. Notwithstanding any termination of this Agreement, the Fund and the Underwriter shall at the option of the Company, continue to make available additional shares of the Fund 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 "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate investments in the Fund, redeem investments in the Fund and/or invest 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 provisions of Articles II (Representations and Warranties), VIII (Indemnification), IX (Applicable Law) and XII (Miscellaneous) shall survive termination of this Agreement. In addition, all other applicable provisions of this Agreement shall survive termination as long as shares of the Fund are held on behalf of Contract owners in accordance with section 10.2, except that the Fund and Underwriter shall have no further obligation to make Fund shares available in Contracts issued after termination. 10.4 The company shall not redeem Fund shares attributable to the Contracts (as opposed to 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 SEC pursuant to Section 26(b) of the 1940 Act. For the purposes of clause (i) above, "Contract Owner initiated or approved transactions" shall be deemed to include all redemptions effectuated by the Company necessary for a Contract Owner to repay a loan or loans, or to pay any fee or charge imposed under a Contract. Upon request, the Company will promptly furnish to the Fund and the Underwriter the opinion of counsel for the Company (which counsel shall be reasonably satisfactory to the Fund and the Underwriter) to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. 18 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 or the Underwriter 90 days notice of its intention to do so. ARTICLE XI. 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: 82 Devonshire Street Boston, Massachusetts 02109 Attention: Treasurer If to the Company: Phoenix Home Life Mutual Insurance Company One American Row Hartford, CT 06102-5056 Attention: Linda Samoncik, Mail Stop HG If to the Underwriter: 82 Devonshire Street Boston, Massachusetts 02109 Attention: Treasurer 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 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. 19 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 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. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the California Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the insurance operations of the Company are being conducted in a manner consistent with the California Insurance Regulations and any other 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 the Underwriter may assign this Agreement or any rights or obligations hereunder to any affiliate of or company under common control with the Underwriter, if such assignee is duly licensed and registered to perform the obligations of the Underwriter under this Agreement. The Company shall promptly notify the Fund and the Underwriter of any change in control of the Company. 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; (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; 20 (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. 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. PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY By: /s/ Simon Y. Tan ------------------------ Simon Y. Tan Senior Vice President VARIABLE INSURANCE PRODUCTS FUND By: /s/ Robert C. Pozen ------------------------ Robert C. Pozen Senior Vice President FIDELITY DISTRIBUTORS CORPORATION By: /s/ Kevin J. Kelly ------------------------ Kevin J. Kelly Vice President 21 Schedule A ---------- Separate Accounts and Associated Contracts ------------------------------------------ Name of Separate Account and Policy Form Numbers of Contracts Date Established by Board of Directors Funded By Separate Account - -------------------------------------- -------------------------- Phoenix Home Life Variable Accumulation Account 2646, GD601, GD603 Date established: December 7, 1994 Phoenix Home Life V601, V602, V603, V603(PIE) Variable Universal Life Account V607, V609 Date established: September 10, 1998 22 SCHEDULE B PROXY VOTING PROCEDURE The following is a list of procedures and corresponding responsibilities for the handling of proxies relating to the Fund by the Underwriter, the Fund and the Company. 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 Insurance Company to perform the steps delineated below. 1. The number of proxy proposals is given to the Company by the Underwriter as early as possible before the date set by the Fund for the shareholder meeting to facilitate the establishment of tabulation procedures. At this time the Underwriter will inform the Company of the Record, Mailing and Meeting dates. This will be done verbally approximately two months before meeting. 2. 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 contractowner/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 Step #2. The Company will use its best efforts to call in the number of Customers to Fidelity, as soon as possible, but no later than two weeks after the Record Date. 3. The Fund's Annual Report no longer needs to be sent to each Customer by the Company either before or together with the Customers' receipt of a proxy statement. Underwriter 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. 4. 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 Legal Department of the Underwriter or its affiliate ("Fidelity Legal") 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: a. name (legal name as found on account registration) b. address c. Fund or account number d. coding to state number of units e. 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.) 23 5. During this time, Fidelity Legal will develop, produce, and the Fund will 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 Insurance Company). Contents of envelope sent to Customers by Company will include: a. Voting Instruction Card(s) b. One proxy notice and Statement (one document) c. return envelope (postage pre-paid by Company) addressed to the Company or its tabulation agent d. "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.) e. cover letter - optional, supplied by Company and reviewed and approved in advance by Fidelity Legal. 6. 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 Fidelity Legal. 7. 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. 8. 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 Fidelity in the past. 9. 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 "Bertram C. Jones, Trustee," then that is the exact legal name to be printed on the Card and is the signature needed on the Card. 24 10. 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, 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 "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. 11. 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. 12. 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). Fidelity Legal must review and approve tabulation format. 13. Final tabulation in shares is verbally given by the Company to Fidelity Legal on the morning of the meeting not later than 10:00 a.m. Boston time. Fidelity Legal may request an earlier deadline if required to calculate the vote in time for the meeting. 14. 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. Fidelity Legal will provide a standard form for each Certification. 15. 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, Fidelity Legal will be permitted reasonable access to such Cards. 16. All approvals and "signing-off" may be done orally, but must always be followed up in writing. 25 EX-99.1(A)(9)(C)(8) 11 plic-aim53456.txt PART AGREE. W/AIM Exhibit 1.(A)(9)(c)(8) Participation Agreement Between Phoenix Home Life Mutual Insurance Company and AIM Variable Insurance Funds, Phoenix Equity Planning Corporation and AIM Distributors, Inc. PARTICIPATION AGREEMENT BY AND AMONG AIM VARIABLE INSURANCE FUNDS AND A I M DISTRIBUTORS, INC. AND PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY AND PHOENIX EQUITY PLANNING CORPORATION TABLE OF CONTENTS DESCRIPTION PAGE - ----------- ---- Section 1. Available Funds....................................................2 - ------------------------- 1.1 Availablility..................................................2 ------------- 1.2 Addition, Deletion or Modification of Funds....................2 ------------------------------------------- 1.3 No Sales to the General Public.................................2 ------------------------------ Section 2. Processing Transactions............................................3 - ---------------------------------- 2.1 Timely Pricing and Orders......................................3 ------------------------- 2.2 Timely Payments................................................3 --------------- 2.3 Applicable Price...............................................3 ------------------ 2.4 Dividends and Distributions....................................4 --------------------------- 2.5 Book Entry.....................................................4 ---------- Section 3. Costs and Expenses.................................................4 - ----------------------------- 3.1 General........................................................4 ------- 3.2 Parties To Cooperate...........................................4 -------------------- Section 4. Legal Compliance...................................................5 - ---------------------------- 4.1 Tax Laws.......................................................5 -------- 4.2 Insurance and Certain Other Laws...............................7 -------------------------------- 4.3 Securities Laws................................................7 --------------- 4.4 Notice of Certain Proceedings and Other Circumstances..........9 ----------------------------------------------------- 4.5 Phoenix To Provide Documents; Information About AVIF...........9 ---------------------------------------------------- 4.6 AVIF To Provide Documents; Information About Phoenix..........10 ---------------------------------------------------- 4.7 General.......................................................12 ------- Section 5. Mixed and Shared Funding..........................................12 - ----------------------------------- 5.1 General.......................................................12 ------- 5.2 Disinterested Trustees........................................12 ---------------------- 5.3 Monitoring for Material Irreconcilable Conflicts..............13 ------------------------------------------------ 5.4 Conflict Remedies.............................................13 ----------------- 5.5 Notice to Phoenix.............................................15 ----------------- 5.6 Information Requested by Board of Trustees....................15 5.7 Compliance with SEC Rules.....................................15 ------------------------- 5.8 Other Requirements............................................15 ------------------ Section 6. Termination.......................................................15 - ---------------------- 6.1 Events of Termination.........................................15 --------------------- 6.2 Notice Requirement for Termination............................17 ---------------------------------- 6.3 Funds To Remain Avialable.....................................17 ------------------------- i 6.4 Survival of Warranties and Indemnifications...................18 ------------------------------------------- 6.5 Continuance of Agreement for Certain Purposes.................18 --------------------------------------------- Section 7. Parties To Cooperate Respecting Termination.......................18 - ------------------------------------------------------ Section 8. Assignment........................................................18 - --------------------- Section 9. Notices...........................................................18 - ------------------ Section 10. Voting Procedures................................................19 - ----------------------------- Section 11. Foreign Tax Credits..............................................20 - ------------------------------- Section 12. Indemnification..................................................20 - --------------------------- 12.1 Of AVIF and AIM by Phoenix and UNDERWRITER....................20 ------------------------------------------ 12.2 Of Phoenix and UNDERWRITER by AIM and Advisor.................22 --------------------------------------------- 12.3 Effect of Notice..............................................25 ---------------- 12.4 Successors....................................................25 ---------- Section 13. Applicable Law...................................................25 - -------------------------- Section 14. Execution in Counterparts........................................25 - ------------------------------------- Section 15. Severability.....................................................25 - ------------------------ Section 16. Rights Cumulative................................................25 - ----------------------------- Section 17. Headings.........................................................25 - -------------------- Section 18. Confidentiality..................................................26 - --------------------------- Section 19. Trademarks and Fund Names........................................26 - ------------------------------------- Section 20. Parties to Cooperate.............................................27 - -------------------------------- ii PARTICIPATION AGREEMENT THIS AGREEMENT, made and entered into as of the 29th day of March, 2001 ("Agreement"), by and among AIM Variable Insurance Funds, a Delaware Trust ("AVIF"), A I M Distributors, Inc., a Delaware corporation ("AIM"), Phoenix Home Life Mutual Insurance Company, a New York life insurance company ("Phoenix"), on behalf of itself and each of its segregated assets accounts listed in Schedule A hereto, as the parties hereto may amend from time to time (each, an "Account," and collectively, the "Accounts"), Phoenix Equity Planning Corporation ("PEPCO"), an affiliate of Phoenix and the principal underwriter of the Contracts (collectively, the "Parties"). WITNESSETH THAT: WHEREAS, AVIF 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 (the "1940 Act"); and WHEREAS, AVIF currently consists of sixteen separate series ("Series"), shares ("Shares") each of which is registered under the Securities Act of 1933, as amended (The "1933 Act") and is currently sold to one or more separate accounts of life insurance companies to fund benefits under variable annuity contracts and variable life insurance contracts; and WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the Parties hereto may amend from time to time (each a "Fund"; reference herein to "AVIF" includes reference to each Fund, to the extent the context requires) available for purchase by the Accounts; and WHEREAS, Phoenix will be the issuer of certain variable annuity contracts and variable life insurance contract ("Contracts") as set forth on Schedule A hereto, as the Parties hereto may amend for time to time, which Contracts (hereinafter collectively, the "Contracts"), if required by applicable law, will be registered under the 1933 Act; and WHEREAS, Phoenix will fund the Contracts through the Accounts, each of which may be divided into two or more subaccounts ("Subaccounts"; reference herein to an "Account" includes reference to each Subaccount thereof to the extent the context requires); and WHEREAS, Phoenix will serve as the depositor of the Accounts, each of which is registered as a unit investment trust investment company under the 1940 Act (or exempt therefrom), and the security interests deemed to be issued by the Accounts under the Contracts will be registered as securities under the 1933 Act (or exempt therefrom); and 1 WHEREAS, to the extent permitted by applicable insurance laws and regulations, Phoenix intends to purchase Shares in one or more of the Funds on behalf of the Accounts to fund the Contracts; and WHEREAS, PEPCO is a broker-dealer registered with the SEC under the Securities Exchange Act of 1934 ("1934 Act") and a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); and WHEREAS, AIM is a broker-dealer registered with the SEC under the 1934 Act and a member in good standing of the NASD; NOW, THEREFORE, in consideration of the mutual benefits and promises contained herein, the Parties hereto agree as follows: SECTION 1. AVAILABLE FUNDS -------------------------- 1.1 AVAILABILITY. -------------- AVIF will make Shares of each Fund available to Phoenix for purchase and redemption at net assets value and with no sales charges, subject to the terms and conditions of this Agreement. The Board of Trustees of AVIF may refuse to sell shares of any Fund to any person, or suspend or terminate the offering of Shares of any Fund 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 Fund. 1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS. ------------------------------------------- The Parties hereto may agree, from time to time, to add other Funds to provide additional funding media for the Contracts, or to delete, combine, or modify existing Funds, by amending Schedule A hereto. Upon such amendment to Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall include a reference to any such additional Fund. Schedule A, as amended from time to time, is incorporated herein by reference and is a part hereof. 1.3 NO SALES TO THE GENERAL PUBLIC. ------------------------------ AVIF represents and warrants that no Shares of any Fund have been or will be sold to the general public. 2 SECTION 2. PROCESSING TRANSACTIONS ---------------------------------- 2.1 TIMELY PRICING AND ORDERS. ------------------------- (a) AVIF or its designated agent will use its best efforts to provide Phoenix with the net asset value per Share for each fund by 5:30 p.m. Central Time on each Business Day. As used herein, "Business Day" shall mean any day on which (i) the New York Sock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net asset value, and (iii) Phoenix is open for business. (b) Phoenix will use the data provided by AVIF each business Day pursuant to paragraph (a) immediately above to calculate Account unit values and to process transactions that receive that same Business Day's Account unit values. Phoenix will perform such Account processing the same Business Day, and will place corresponding orders to purchase or redeem Shares with AVIF by 9:00 a.m. Central Time the following Business Day; provided, however, that AVIF shall provide additional time to Phoenix in the event that AVIF is unable to meet the 5:30 p.m. time stated in paragraph (a) immediately above. Such additional time shall be equal to the additional time that AVIF takes to make the net asset values available to Phoenix. (c) With respect to payment of the purchase price by Phoenix and of redemption proceeds by AVIF, Phoenix and AVIF shall net purchase and redemption orders with respect to each Fund and shall transmit one net payment per Fund in accordance with Section 2.2, below. (d) If AVIF provides materially incorrect Share net asset value information (as determined under SEC guidelines), Phoenix shall be entitled to an adjustment to the number of Shares purchased or redeemed to reflect the correct net asset value per Share. Any material error in the calculation or reporting of net asset value per Share, dividend or capital gain information shall be reported promptly upon discovery to Phoenix. Materiality and reprocessing cost reimbursement shall be determined in accordance with standards established by the Parties as provided in Schedule B, attached hereto and incorporated herein. 2.2 TIMELY PAYMENTS. --------------- Phoenix will wire payment for net purchases to a custodial account designated by AVIF by 1:00 p.m. Central Time on the same day as the order for Shares is placed, to the extent practicable. AVIF will wire payment for net redemptions to an account designated by Phoenix by 1:00 p.m. Central Time on the same day as the order is placed, to the extent practicable, but in any event within five (5) calendar days after the date the order is placed in order to enable Phoenix to pay redemption proceeds within the time specified in Section 22(e) of the 1940 Act and any rules thereunder. 2.3 APPLICABLE PRICE. ---------------- (a) Share purchase payments and redemption orders that result from purchase payments, premium payments, surrenders and other transactions under Contracts (collectively, "Contract 3 transaction") and that Phoenix receives prior to the close of regular trading on the New York Stock Exchange on a Business Day will be executed at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the orders. For purposes of this Section 2.3(a), Phoenix shall be the designated agent of AVIF for receipt of orders relating to Contract transactions on each Business Day and receipt by such designated agent shall constitute receipt by AVIF; provided that AVIF receives notice of such orders by 9:00 a.m. Central Time on the next following Business Day or such later time as computed in accordance with Section 2.1(b) hereof. (b) All other Shares purchases and redemptions by Phoenix not involving Contract transactions will be effected at the net asset values of the appropriate Funds next computed after receipt by AVIF or its designated agent of the order therefor, and such orders will be irrevocable. 2.4 DIVIDENDS AND DISTRIBUTIONS. --------------------------- AVIF will furnish notice by wire or telephone (followed by written confirmation) on or prior to the payment date to Phoenix of any income dividends or capital gain distributions payable on the Shares of any Fund. Phoenix hereby elects to reinvest all dividends and capital gains distributions in additional Shares of the corresponding Fund at the ex-dividend date net asset values until Phoenix otherwise notifies AVIF in writing, it being agreed by the Parties that the ex-dividend date and the payment date with respect to any dividend or distribution will be the same Business Day. Phoenix reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. 2.5 BOOK ENTRY. ---------- Issuance and Transfer of AVIF Shares will be book entry only. Stock certificates will not be issued to Phoenix. Shares ordered from AVIF will be recorded in an appropriate title for Phoenix, on behalf of its Account. SECTION 3. COST AND EXPENSES ---------------------------- 3.1 GENERAL. ------- Except as otherwise specifically provided in Schedule C, attached hereto and made a part hereof, or as otherwise agreed to in writing by and among some or all of the Parties, each Party will bear, or arrange for others to bear, all expenses incident to its performance under this Agreement. 3.2 PARTIES TO COOPERATE. -------------------- Each party agrees to cooperate with the others, as applicable, in arranging to print, mail and/or deliver, in a timely manner, combined or coordinated prospectuses or other materials of AVIF and the Accounts. 4 SECTION 4. LEGAL COMPLIANCE --------------------------- 4.1 TAX LAWS. -------- (a) AVIF represents and warrants that each Fund is currently qualified as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and represents that it will make every effort to qualify and to maintain qualification of each Fund as a RIC. AVIF will notify Phoenix immediately upon having a reasonable basis for believing that a Fund has ceased to so qualify or that it might not so qualify in the future. (b) AVIF represents and warrants that each Fund currently complies with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the Code ("diversification requirements") and that it will make every effort to maintain each Fund's compliance with the diversification requirements. AVIF will notify Phoenix immediately upon having a reasonable basis for believing that a Fund has ceased to so comply or that a Fund might not so comply in the future. In the event of a breach of this Section 4.1(b) by AVIF, it will take all reasonable steps to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Section 1.817-5 of the regulations under the Code. (c) Notwithstanding any other provision of the Agreement, Phoenix agrees that if the Internal Revenue Service ("IRS") asserts in writing in connection with any governmental audit or review of Phoenix, or to Phoenix's knowledge, of any Contract owners, annuitants, insureds or participants (as appropriate) under the Contracts (collectively, "Participant"), that any Fund has failed to comply with the diversification requirements of Section 817(h) of the Code or Phoenix otherwise becomes aware of any facts that could give rise to any claim against AVIF or its affiliates as a result of such a failure or alleged failure: (i) Phoenix shall promptly notify AVIF of such assertion or potential claim (subject to the Confidentiality provisions of Section 18 as to any Participant); (ii) Phoenix shall consult with AVIF as to how to minimize any liability that may arise as a result of such failure or alleged failure. (iii) Phoenix shall use its best efforts to minimize any liability of AVIF or its affiliates resulting from such failure, including, without limitation, demonstrating, pursuant to Treasury Regulation Section 1.817-5(a)(2), to the Commissioner of the IRS that such failure was inadvertent; (iv) Phoenix shall permit AVIF, its affiliates and their legal and accounting advisors to participate in any conferences, settlement discussions or other administrative or judicial proceeding or contests (including judicial appeals thereof) with the IRS, any Participant or any other claimant regarding any claims that could give rise to liability to AVIF or its affiliates as a result of 5 such a failure or alleged failure; provided, however, that Phoenix will retain control of the conduct of such conferences discussions, proceedings, contests or appeals; (v) any written materials to be submitted by Phoenix to the IRS, any Participant or any other claimant in connection with any of the foregoing proceedings or contests (including, without limitation, any such materials to be submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)), (a) shall be provided by Phoenix to AVIF (together with any supporting information or analysis); subject to the confidentiality provisions of Section 18, at least ten (10) business days or such shorter period to which the Parties hereto agree prior to the day on which such proposed materials are to be submitted, and (b) shall not be submitted by Phoenix to any such person without the express written consent of AVIF which shall not be unreasonably withheld; (vi) Phoenix shall provide AVIF or it affiliates and their accounting and legal advisors with such cooperation as AVIF shall reasonably request (including, without limitation, by permitting AVIF and it accounting and legal advisors to review the relevant books and records of Phoenix) in order to facilitate review by AVIF or its advisors of any written submissions provided to it pursuant to the preceding clause or its assessment of the validity or amount of any claim against its arising from such a failure or alleged failure; (vii) Phoenix shall not with respect to any claim of the IRS or any Participant that would give rise to a claim against AVIF or its affiliates (a) compromise or settle any claim, (b) accept any adjustment on audit, or (c) forego any allowable administrative or judicial appeals, without the express written consent of AVIF or its affiliates, which shall not be unreasonably withheld; provided that Phoenix shall not be required, after exhausting all administrative remedies, to appeal any adverse judicial decision unless AVIF or its affiliates shall have provided an opinion of independent counsel to the effect that a reasonable basis exists for taking such appeal; and provided further that the costs of any such appeal shall be borne equally by the Parties hereto; and (viii) AVIF and it affiliates shall have no liability as a result of such failure or alleged failure if Phoenix fails to comply with any of the foregoing clauses (i) through (vii), and such failure could be shown to have materially contributed to the liability. Should AVIF or any of its affiliates refuse to give its written consent to any compromise or settlement of any claim or liability hereunder, Phoenix may, in its discretion, authorize AVIF or its affiliates to act in the name of Phoenix in, and to control the conduct of, such conferences, discussions, proceedings, contests or appeals and all administrative or judicial appeals thereof, and in that event AVIF or its affiliates shall bear the fees and expenses associated with the conduct of the 6 proceedings that it is so authorized to control; provided, that in no event shall Phoenix have any liability resulting from AVIF's refusal to accept the proposed settlement or compromise with respect to any failure caused by AVIF. As used in this Agreement, the term "affiliates" shall have the same meaning as "affiliated person" as defined in Section 2(a)(3) of the 1940 Act. (d) Phoenix represents a warrants that the Contracts currently are and will be treated as annuity contracts or life insurance contracts under applicable provisions of the Code and that it will make every effort to maintain such treatment; Phoenix will notify AVIF immediately upon having a reasonable basis for believing that any of the Contracts have ceased to be so treated or that they might not be so treated in the future. (e) Phoenix represents and warrants that Account is a "segregated asset account" and that interests in each Account are offered exclusively through the purchase of or transfer into a "variable contract," within the meaning of such terms under Section 817 of the Code and the regulations thereunder. Phoenix will make every effort to continue to meet such definitional requirements, and it will notify AVIF immediately upon having a reasonable basis for believing that such requirements have ceased to be met or that they might not be met in the future. 4.2 INSURANCE AND CERTAIN OTHER LAWS. -------------------------------- (a) AVIF will use its best efforts to comply with any applicable state insurance laws or regulations, to the extent specifically requested in writing by Phoenix, including, the furnishing of information not otherwise available to Phoenix which is required by state insurance law to enable Phoenix to obtain the authority needed to issue the Contracts in any applicable state. (b) Phoenix represents and warrants that (i) it is an insurance company duly organized, validly existing and in good standing under the laws of the State of New York and has full corporate power, authority and legal right to execute, deliver and perform its duties and comply with its obligations under that Agreement, (ii) it has legally and validly established and maintains each Account as a segregated asset account under such law and the regulations thereunder, and (iii) the Contracts comply in all material respects with all other applicable federal and state laws and regulations. (c) AVIF represents and warrants that it is lawfully organized, validly existing, and in good standing under the laws of the State of Delaware and has full power, authority, and legal right to execute, deliver, and perform it duties and comply with its obligation under this Agreement. 4.3 SECURITIES LAWS. --------------- (a) Phoenix represents and warrants that (i) interests in each Account pursuant to the Contracts will be registered under the 1933 Act to the extent required by the 1993 Act, (ii) the Contracts will be duly authorized for issuance and sold in compliance with all applicable federal and state laws, including, without limitation, the 1993 Act, the 1934 Act, the 1940 Act and the law(s) of Phoenix's state(s) of organization and domicile, (iii) each Account is and will remain registered under the 1940 Act, to the extent required by the 1940 Act, (iv) each Account does and will comply 7 in all material respects with the requirements of the 1940 Act and the rules thereunder, to the extent required, (v) each Account's 1933 Act registration statement relating to the Contracts, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder, (vi) Phoenix will amend the registration statement for its Contracts under the 1933 Act and for its Accounts under the 1940 Act from time to time as required in order to effect the continuous offering of its Contracts or as may otherwise be required by applicable law, and (vii) each Account Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (b) AVIF represents and warrants the (i) Shares sold pursuant to this Agreement will be registered under the 1933 Act to the extent required by the 1933 Act and duly authorized for issuance and sold in compliance with Delaware law, (ii) AVIF is and will remain registered under the 1940 Act to the extent required by the 1940 Act, (iii) AVIF will amend the registration statement for its Shares under the 1933 Act and itself under the 1940 Act from time to time as required in order to effect the continuous offerings of its Shares, (iv) AVIF does and will comply in all materials respects with the requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act registration statement, together with any amendments thereto, will at all times comply in all material respects with the requirements of the 1933 Act and rules thereunder, and (vi) AVIF's Prospectus will at all times comply in all material respects with the requirements of the 1933 Act and the rules thereunder. (c) AVIF will at its expense register and qualify its Shares for sale in accordance with the laws of any state or other jurisdiction if and to the extent reasonably deemed advisable by AVIF. (d) AVIF currently does not intend to make any payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it reserves the right to make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, AVIF undertakes to have its Board of Trustees, a majority of whom are not "interested" persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (e) AVIF represents and warrants that all of its trustees, officers, employees, investment advisers, and other individuals/entities having access to funds and/or securities of the Fund are and 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 bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company. (f) AVIF agree that AVIF and the Funds shall be managed consistent with the investment objectives, policies, and restrictions as described in AVIF's and the Fund's prospectuses and registration statements, as amended or modified from time to time. 8 (g) AVIF and AIM shall sell and distribute the Shares of the Funds in accordance with the applicable provisions of federal law, including the 1933 Act, 1934 Act, and 1940 act; the NASD Conduct Rules; and state law. (h) PEPCO shall sell and distribute the Contracts in accordance with the applicable provisions of federal law, including the 1933 Act, 1934 Act, and 1940 Act; the NASD Conduct Rules; and State law. 4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES. ----------------------------------------------------- (a) AVIF or AIM will immediately notify Phoenix of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to AVIF's registration statement under the 1933 Act or AVIF prospectus, (ii) any request by the SEC for any amendment to such registration statement or AVIF Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for the purpose or for any other purpose relating to the registration or offering of AVIF's Shares, or (iv) any other action or circumstances that may prevent the lawful offer or sale of Shares of any Fund in any state or jurisdiction, including, without limitation, any circumstances in which (a) such Shares are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law, or (b) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by Phoenix. AVIF and AIM will make every reasonable effort to prevent the issuance, with respect to any Fund, of any such stop order, cease and desist order or similar order, and if any such order is issued, to obtain the lifting thereof at the earliest possible time. (b) Phoenix or PEPCO will immediately notify AVIF of (i) the issuance by any court or regulatory body of any stop order, cease and desist order, or other similar order with respect to each Account's registration statement under the 1933 Act relating to the Contracts or each Account Prospectus, (ii) any request by the SEC for any amendment to such registration statement or Account Prospectus that may affect the offering of Shares of AVIF, (iii) the initiation of any proceedings for that purpose or for any other purpose relating to the registration or offering of each Account's interest pursuant to the Contracts, or (i) any other action or circumstances that may prevent the lawful offer or sale of said interests in any state or jurisdiction, including, without limitation, any circumstances in which said interests are not registered and, in all material respects, issued and sold in accordance with applicable state and federal law. Phoenix or PEPCO will make every reasonable effort to prevent the issuance of any such stop order, cease and desist order or similar order and, if any such order is issued, to obtain the lifting thereof at the earliest possible time. 4.5 PHOENIX AND PEPCO TO PROVIDE DOCUMENTS; INFORMATION ABOUT AVIF. -------------------------------------------------------------- (a) Phoenix will provide to AVIF or its designated agent at least one (1) complete copy of all SEC registration statements, Account Prospectuses, reports, any preliminary and final voting instruction solicitation material, applications for exemptions, request for no-action letters, and all amendments to any of the above, that relate to each Account or the Contracts, contemporaneously with the filing of such document with the SEC or other regulatory authorities. 9 (b) Phoenix or PEPCO will provide AVIF or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which AVIF or any of its affiliates is named, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if AVIF or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. AVIF hereby designates AIM as the entity to receive such sales literature, until such time as AVIF appoints another designated agent by giving notice to Phoenix in the manner required by Section 9 hereof. (c) Neither Phoenix, PEPCO, nor any of their respective affiliates, will give any information or make any representations or statements on behalf of or concerning AVIF or its affiliates in connection with the sale of the Contracts other than (i) the information or representations contained in the registration statement, including the AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus contained therein, relating to Shares, as such registration statement and AVIF Prospectus may be amended from time to time; or (ii) in reports or proxy materials for AVIF; or (iii) in published reports for AVIF that are in the public domain and approved by AVIF for distribution; or (iv) in sales literature or other promotional material approved by AVIF, except with express written permission of AVIF. (d) Phoenix shall adopt and implement procedures reasonably designed to ensure that information concerning AVIF and its affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither AVIF nor any of its affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (e) For the purposes of the Section 4.5, 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, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), 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, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 4.6 AVIF AND AIM TO PROVIDE DOCUMENTS; INFORMATION ABOUT PHOENIX. ------------------------------------------------------------ (a) AVIF will provide to Phoenix at lease one (1) complete copy of all SEC registration statements, AVIF Prospectuses, reports, any preliminary and final proxy material, applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate to AVIF or the Shares of a Fund, contemporaneously with the filing of such document with the SEC or other regulatory authorities. 10 (b) AVIF will provide to Phoenix a camera ready copy of all AVIF Prospectuses and printed copies, in an amount specified by Phoenix, of AVIF statements of additional information, proxy materials, periodic reports to shareholders and other materials required by law to be sent to Participants who have allocated any Contract value to a Fund. AVIF will provide such copies to Phoenix in a timely manner so as to enable Phoenix, as the case may be, to print and distribute such materials within the time required by law to be furnished to Participants. (c) AVIF or AIM will provide to Phoenix or its designated agent at least one (1) complete copy of each piece of sales literature or other promotional material in which Phoenix, or any of its respective affiliates is named, or that refers to the Contracts, at least five (5) Business Days prior to its use or such shorter period as the Parties hereto may, from time to time, agree upon. No such material shall be used if Phoenix or its designated agent objects to such use within five (5) Business Days after receipt of such material or such shorter period as the Parties hereto may, from time to time, agree upon. Phoenix shall receive all such sales literature until such time as it appoints a designated agent by giving notice to AVIF in the manner required by Section 9 hereof. (d) Neither AVIF, AIM, nor any of their respective affiliates will give any information or make any representations or statements on behalf of or concerning Phoenix, each Account, or the Contracts other than (i) the information or representations contained in the registration statement, including each Account Prospectus contained therein, relating to the Contracts, as such registration statement and Account Prospectus may be amended from time to time; or (ii) in published reports for the Account or the Contracts that are in the public domain and approved by Phoenix for distribution; or (iii) in sales literature or other promotional material approved by Phoenix or its affiliates, except with the express written permission of Phoenix. (e) AIM shall adopt and implement procedures reasonably designed to ensure that information concerning Phoenix and its respective affiliates that is intended for use only by brokers or agents selling the Contracts (i.e., information that is not intended for distribution to Participants) ("broker only materials") is so used, and neither Phoenix, nor any of its respective affiliates shall be liable for any losses, damages or expenses relating to the improper use of such broker only materials. (f) For purposes of this Section 4.6, 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, or other public media, (e.g., on-line networks such as the Internet or other electronic messages), 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, registration statements, prospectuses, statements of additional information, shareholder reports, and proxy materials and any other material constituting sales literature or advertising under the NASD rules, the 1933 Act or the 1940 Act. 11 4.7 GENERAL. ------- Each of the Parties represent and warrant that they shall perform their obligations hereunder in compliance with any applicable state and federal laws. SECTION 5. MIXED AND SHARED FUNDING ----------------------------------- 5.1 GENERAL. ------- (a) The SEC has granted an order to AVIF exempting it from certain provisions of the 1940 Act and rules thereunder so that AVIF may be available for investment by certain other entities, including, without limitation, separate accounts funding variable annuity contracts or variable life insurance contracts, separate accounts of insurance companies unaffiliated with Phoenix, and trustees of qualified pension and retirement plans (collectively, "Mixed and Shared Funding"). The Parties recognize that the SEC has imposed terms and conditions for such orders that are substantially identical to many of the provisions of this Section 5. Sections 5.2 through 5.8 below shall apply pursuant to such an exemptive order granted to AVIF. (b) AVIF hereby notifies Phoenix that, in the event that AVIF implements Mixed and Shared Funding, it may be appropriate to include in the prospectus pursuant to which a Contract is offered disclosure regarding the potential risks of Mixed and Shared Funding. (c) To the extent applicable, AVIF shall disclose in its Prospectus, in substance, that: (i) Shares of the Funds are offered to affiliated and unaffiliated insurance company separate accounts that fund both annuity and life insurance contracts and are offered to qualified pension and retirement plans; (ii) Mixed and Shared Funding may present certain conflicts of interest; (iii) due to differences in tax treatment or other considerations, the interests of various variable contract owners investing in separate accounts investing in AVIF or a Fund and the interests of qualified pension and retirement plan participants might at some time be in irreconcilable conflict; and (iv) the Board of Trustees of AVIF will monitor for any material irreconcilable conflicts and determine what action, if any, should be taken. 5.2 DISINTERESTED TRUSTEES. ---------------------- AVIF agrees that its Board of Trustees shall at all times consist of trustees a majority of whom are not interested persons of AVIF (the "Disinterested Trustees") within the meaning of 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 condition is not met by reason of the death, disqualification, or bona fide resignation of any director, then the operation of this condition shall be suspended (a) for a period of forty-five (45) days if the vacancy or vacancies may be filled by the Board; (b) for a period of sixty (60) days if a vote of shareholders is required to fill the vacancy or vacancies; or (c) for such longer period as the SEC may prescribe by order upon application. 12 5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS. ------------------------------------------------ AVIF agrees that its Board of Trustees will monitor for the existence of any material irreconcilable conflict between the interests of the Participants in all separate accounts of life insurance companies utilizing AVIF ("Participating Insurance Companies"), including each Account, and participants in all qualified retirement and pension plans investing in AVIF ("Participating Plans"). Phoenix agrees to inform the Board of Trustees of AVIF of the existence of or any potential for any such material irreconcilable conflict of which it is aware. The concept of a "material irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder, but the Parties recognize that such a conflict may arise for a variety of reasons, including, without limitation: (a) an action by any state insurance or other 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 Fund are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract Participants or by Participants of different Participating Insurance Companies; (f) a decision by a Participating Insurance Company to disregard the voting instructions of Participants; or (g) a decision by a Participating Plan to disregard the voting instructions of Plan participants. Consistent with the SEC's requirements in connection with exemptive orders of the type referred to in Section 5.1 hereof, Phoenix will assist the Board of Trustees in carrying out its responsibilities by providing the Board of Trustees with all information reasonably necessary for the Board of Trustees to consider any issue raised, including information as to a decision by Phoenix to disregard voting instructions of Participants. Phoenix's responsibilities in connection with the foregoing shall be carried out with a view only to the interests of Participants. 5.4 CONFLICT REMEDIES. ----------------- (a) It is agreed that if it is determined by a majority of the members of the Board of Trustees or a majority of the Disinterested Trustees that a material irreconcilable conflict exists, Phoenix will, if it is a Participating Insurance Company for which a material irreconcilable conflict is relevant, at its own expense and to the extent reasonable practicable (as determined by 13 a majority of the Disinterested Trustees), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, which steps may include, but are not limited to: (i) withdrawing the assets allocable to some or all of the Accounts from AVIF or any Fund and reinvesting such assets in a different investment medium, including another Fund of AVIF, or submitting the question whether such segregation should be implemented to a vote of all affected Participants and, as appropriate, segregating the assets of any particular group (e.g., annuity Participants, life insurance Participants or all Participants) that votes in favor of such segregation, or offering to the affected Participants the option of making such a change; and (ii) establishing a new registered investment company of the type defined as a "management company" in Section 4(3) of the 1940 Act or a new separate account that is operated as a management company. (b) If the material irreconcilable conflict arises because of Phoenix's decision to disregard Participant voting instructions and that decision represents a minority position or would preclude a majority vote, Phoenix may be required, at AVIF's election, to withdraw each Account's investment in AVIF or any Fund. No charge or penalty will be imposed as a result of such withdrawal. Any such withdrawal must take place within six (6) months after AVIF gives notice to Phoenix that this provision is being implemented, and until such withdrawal AVIF shall continue to accept and implement orders by Phoenix for the purchase and redemption of Shares of AVIF. (c) If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to Phoenix conflicts with the majority of other state regulators, then Phoenix will withdraw each Account's investment in AVIF within six (6) months after AVIF's Board of Trustees informs Phoenix that it has determined that such decision has created a material irreconcilable conflict, and until such withdrawal AVIF shall continue to accept and implement orders by Phoenix for the purchase and redemption of Shares of AVIF. No charge or penalty will be imposed as a result of such withdrawal. (d) Phoenix agrees that any remedial action taken by it in resolving any material irreconcilable conflict will be carried out at its expense and with a view only to the interests of Participants. (e) For purposes hereof, a majority of the Disinterested Trustees will determine whether or not any proposed action adequately remedies any material irreconcilable conflict. In no event, however, will AVIF or any of its affiliates be required to establish a new funding medium for any Contracts. Phoenix will not be required by the terms hereof to establish a new funding medium for any Contracts if an offer to do so has been declined by vote of a majority of Participants materially adversely affected by the material irreconcilable conflict. 14 5.5 NOTICE TO PHOENIX. ----------------- AVIF will promptly make known in writing to Phoenix the Board of Trustees' determination of the existence of a material irreconcilable conflict, a description of the facts that give rise to such conflict and the implications of such conflict. 5.6 INFORMATION REQUESTED BY BOARD OF TRUSTEES. ------------------------------------------ Phoenix and AVIF (or its investment adviser) will at least annually submit to the Board of Trustees of AVIF such reports, materials or data as the Board of Trustees may reasonably request so that the Board of Trustees may fully carry out the obligations imposed upon it by the provisions hereof or any exemptive order granted by the SEC to permit Mixed and Shared Funding, and said reports, materials and data will be submitted at any reasonable time deemed appropriate by the Board of Trustees. All reports received by the Board of Trustees of potential or existing conflicts, and all Board of Trustees actions with regard to determining the existence of a conflict, notifying Participating Insurance Companies and Participating Plans of a conflict, and determining whether any proposed action adequately remedies a conflict, will be properly recorded in the minutes of the Board of Trustees or other appropriate records, and such minutes or other records will be made available to the SEC upon request. 5.7 COMPLIANCE WITH SEC RULES. ------------------------- If, at any time during which AVIF is serving as an investment medium for variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and conditions thereof and that the terms of this Section 5 shall be deemed modified if and only to the extent required to order also to comply with the terms and conditions of such exemptive relief that is afforded by any of said rules that are applicable. 5.8 OTHER REQUIREMENTS. ------------------ AVIF will require that each Participating Insurance Company and Participating Plan enter into an agreement with AVIF that contains in substance the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.1(e), 4.3(a), 4.4(b), 4.5(a), 5, 10 and 12.2(e) of this Agreement, but with respect to Section 12.2(e), only as to agreements with Participating Insurance Companies and Plans that are entered into after the execution of this Agreement. SECTION 6. TERMINATION ---------------------- 6.1 EVENTS OF TERMINATION. --------------------- Subject to Section 6.3 below, this Agreement will terminate as to a Fund: 15 (a) at the option of any Party, upon 90 days advance written notice to the other Parties, unless a shorter time is agreed to by the Parties; or (b) at the option of Phoenix if Shares of the Funds are not reasonably available to meet the requirements of the Contracts issued by Phoenix, as determined by Phoenix, and upon written notice by Phoenix to the other Parties; or (c) at the option of AVIF upon institution of formal proceedings against Phoenix or PEPCO by the NASD, the SEC or any state securities or insurance department or any other regulatory body if AVIF shall determine, in its sole judgment exercised in good faith, that Phoenix or PEPCO 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 (d) at the option of Phoenix or PEPCO upon institution of formal proceedings against AVIF, its principal underwriter, or its investment adviser by the NASD, the SEC, or any state securities or insurance department or any other regulatory body if Phoenix or PEPCO shall determine, in its sole judgment exercised in good faith, that AVIF, its principal underwriter, or its investment 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 (e) at the option of any Party in the event that (i) the Fund's Shares are not registered and, in all material respects, issued and sold in accordance with any applicable federal or state law, or (ii) such law precludes the use of such Shares as an underlying investment medium of the Contracts issued or to be issued by Phoenix; or (f) upon termination of the corresponding Subaccount's investment in the Fund pursuant to Section 5 hereof; or (g) at the option of Phoenix if the Fund ceases to qualify as a RIC under Subchapter M of the Code or under successor or similar provisions, or if Phoenix reasonably believes that the Fund may fail to so qualify; or (h) at the option of Phoenix if the Fund fails to comply with Section 817(h) of the Code or with successor or similar provisions, or if Phoenix reasonably believes that the Fund may fail to so comply; or (i) at the option of AVIF if the Contracts issued by Phoenix cease to qualify as annuity contracts or life insurance contracts under the Code (other than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M of the Code) or if interests in an Account under the Contracts are not registered, where required, and, in all material respects, are not issued or sold in accordance with any applicable federal or state law; or 16 (j) at the option of Phoenix upon any substitution of the shares of another investment company or series thereof for Shares of AVIF or a Fund in accordance with the terms of the Contracts, provided that Phoenix has given at least 30 days prior written notice to AVIF or AIM of the date of the substitution; or (k) upon another Party's material breach of any provision of this Agreement. 6.2 RIGHT TO SUBSTITUTE. ------------------- Under the terms of the Contracts, Phoenix reserves the right, subject to compliance with the law as then in effect, to make substitutions for the securities that are held by an Account under certain circumstances. The Parties acknowledge that Phoenix has the right to substitute other securities for the Shares of AVIF or a Fund already purchased or to be purchased in the future. Phoenix will provide 30 days written notice to AVIF or to AIM prior to effecting any such substitution. 6.3 NOTICE REQUIREMENT FOR TERMINATION. ---------------------------------- No termination of this Agreement will be effective unless and until the Party terminating this Agreement gives prior written notice to the other Party to this Agreement of its intent to terminate, and such notice shall set forth the basis for such termination. Furthermore: (a) in the event that any termination is based upon the provisions of Sections 6.1(a) hereof, such prior written notice shall be given at least ninety (90) days in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto: (b) in the event that any termination is based upon the provisions of Sections 6.1(c) or 6.1(d) hereof, such prior written notice shall be given at least ninety (90) days in advance of the effective date of termination unless a shorter time is agreed to by the Parties hereto; (c) in the event that any termination is based upon the provisions of 6.1(j) hereof, such prior written notice shall be given at least thirty (30) days in advance of the effective date of the substitution unless a shorter time is agreed to by the Parties hereto; (d) in the event that any termination is based upon the provisions of Sections 6.1(b), 6.1(e), 6.1(f), 6.1(g), 6.1(h), 6.1(i), or 6.1(k) hereof, such prior written notice shall be given as soon as possible within twenty-four (24) hours after the terminating Party learns of the event causing termination to be required. 6.4 FUNDS TO REMAIN AVAILABLE. ------------------------- Notwithstanding any termination of this Agreement, AVIF will, at the option of Phoenix, continue to make available additional shares of the Fund 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 "Existing Contracts"). Specifically, without limitation, the owners of the 17 Existing Contracts will be permitted to reallocate investments in the Fund (as in effect on such date), redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 6.5 will not apply to any terminations under Section 5 and the effect of such terminations will be governed by Section 5 of this Agreement. 6.5 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS. ------------------------------------------- All warranties and indemnifications and Section 6.2 will survive the termination of this Agreement. 6.6 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES. --------------------------------------------- If any Party terminates this Agreement with respect to any Fund pursuant to Sections 6.1(a), 6.1(b), 6.1(c), 6.1(d), 6.1(e), 6.1(g), 6.1(h), 6.1(i), 6.1(j), or 6.1(k) hereof, this Agreement shall nevertheless continue in effect as to any Shares of that Fund that are outstanding as of the date of such termination (the "initial Termination Date"). This continuation shall extend to the earlier of the date as of which an Account owns no Shares of the affected Fund or a date (the "Final Termination Date") six (6) months following the Initial Termination Date or such longer time as is necessary for Phoenix to obtain a substitution order from the SEC, the application for which Phoenix will diligently pursue, except that Phoenix may, by written notice, shorten said six (6) month period. SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION ------------------------------------------------------ The Parties hereto agree to cooperate and give reasonable assistance to one another in taking all necessary and appropriate steps for the purpose of ensuring that an Account owns no Shares of a fund after the Final Termination Date with respect thereto, or, in the case of a termination pursuant to Section 6.1(a), the termination date specified in the notice of termination. Such steps may include combining the affected Account with another Account, substituting other mutual fund shares for those of the affected Fund, or otherwise terminating participation by the Contracts in such Fund. SECTION 8. ASSIGNMENT --------------------- This Agreement may not be assigned by any Party, except with the written consent of each other Party; provided that the contemplated demutualization of Phoenix Home Life Mutual Insurance Company will not be considered an assignment within the meaning of this Section 8. SECTION 9. NOTICES ------------------ Notices and communications required or permitted will be given by means mutually acceptable to the Parties concerned. Each other notice or communication required or permitted by 18 this Agreement will be given to the following persons at the following addresses and facsimile numbers, or such other persons, addresses or facsimile numbers as the Party receiving such notices or communications may subsequently direct in writing: AIM VARIABLE INSURANCE FUNDS A I M DISTRIBUTORS, INC. 11 Greenway Plaza, Suite 100 Houston, Texas 77046 Facsimile: (713) 993-9185 Attn: Nancy L. Martin, Esq. PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY One American Row Hartford, Connecticut 06115 Facsimile: (860) 403-5182 Attn: Richard J. Wirth PHOENIX EQUITY PLANNING CORPORATION 38 Prospect Street Hartford, Connecticut 06103 Facsimile: (860) 403-7696 Attn: Nancy Engberg SECTION 10. VOTING PROCEDURES ----------------------------- Subject to the cost allocation procedures set forth in Section 3 hereof, Phoenix will distribute all proxy material furnished by AVIF to Participants to whom pass-through voting privileges are required to be extended and will solicit voting instructions from Participants. Phoenix will vote Shares in accordance with timely instructions received from Participants. Phoenix will vote Shares that are (a) not attributable to Participants to whom pass-through voting privileges are extended, or (b) attributable to Participants, but for which no timely instructions have been received, in the same proportion as Shares for which said instructions have been received from Participants, so long as and to the extent that the SEC continues to interpret the 1940 Act to require pass through voting privileges for Participants. Neither Phoenix nor any of its affiliates will in any way recommend action in connection with or oppose or interfere with the solicitation of proxies for the Shares held for such Participants. Phoenix reserves the right to vote shares held in any Account in its own right, to the extent permitted by law. Phoenix shall be responsible for assuring that each of its Accounts holding Shares calculates voting privileges in a manner consistent with that of other Participating Insurance Companies or in the manner required by the Mixed and Shared Funding exemptive order 19 obtained by AVIF. AVIF will notify Phoenix of any changes of interpretations or amendments to Mixed and Shared Funding exemptive order it has obtained. AVIF will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular, AVIF either will provide for annual meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not to require such meetings) or will comply with Section 16(c) of the 1940 Act (although AVIF 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, AVIF will act in accordance with the SEC's interpretation of the requirements of Section 16(a) with respect to periodic elections of trustees and with whatever rules the SEC may promulgate with respect thereto. SECTION 11. FOREIGN TAX CREDITS ------------------------------- AVIF agrees to consult in advance with Phoenix concerning any decision to elect or not to elect pursuant to Section 853 of the Code to pass through the benefit of any foreign tax credits to its shareholders. SECTION 12. INDEMNIFICATION --------------------------- 12.1 OF AVIF AND AIM BY PHOENIX AND PEPCO. ------------------------------------ (a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below, Phoenix and PEPCO agree to indemnify and hold harmless AVIF, AIM, their affiliates, and each person, if any, who controls AVIF, AIM, or their affiliates within the meaning of Section 15 of the 1933 Act and each of their respective trustees and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Phoenix and PEPCO) or actions in respect thereof (including, to the extent 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 actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statement, any Account Prospectus, the Contracts, or sales literature or advertising 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 Phoenix or PEPCO by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statements, any Account Prospectuses, the Contracts, or sales literature or advertising or otherwise for use in connection with the sale of 20 Contracts or Shares (or any amendment or supplement to any of the foregoing); or (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in AVIF's 1933 Act registration statements, AVIF's Prospectuses, sales literature or advertising of AVIF, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of Phoenix, PEPCO, or their respective affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of Phoenix, PEPCO, or their respective affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member," as that term is defined in paragraph (q) of Article I of the NASD's By-Laws), in connection with the sale or distribution of the Contracts or Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statements, AVIF Prospectuses, sales literature or advertising of AVIF, 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 if such a statement or omission was made in reliance upon and in conformity with information furnished to AVIF, AIM or their affiliates by or on behalf of Phoenix, PEPCO, or their respective affiliates for use in AVIF's 1933 Act registration statements, AVIF's Prospectuses, sales literature of advertising of AVIF, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by Phoenix or PEPCO to perform the obligations, provide the services and furnish the materials required of them under the terms of this Agreement, or any material breach of any representation and/or warranty made by Phoenix or PEPCO in this Agreement or arise out of or result from any other material breach of this Agreement by Phoenix or PEPCO; or (v) arise as a result of failure by the Contracts issued by Phoenix to qualify as annuity contracts or life insurance contracts under the Code, otherwise than by reason of any Fund's failure to comply with Subchapter M or Section 817(h) of the Code. (b) Neither Phoenix nor PEPCO shall be liable under this Section 12.1 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of that Indemnified Party's reckless disregard of obligations or duties (i) under this Agreement, or (ii) to AVIF or AIM. 21 (c) Neither Phoenix nor PEPCO shall be liable under this Section 12.1 with respect to any action against an Indemnified Party unless AVIF or AIM shall have notified Phoenix and PEPCO in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action 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 Phoenix and PEPCO of any such action shall not relieve Phoenix and PEPCO from any liability which they may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.1. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, Phoenix and PEPCO shall be entitled to participate, at their own expense, in the defense of such action and also shall be entitled to assume the defense thereof, with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from Phoenix or PEPCO to such Indemnified Party of Phoenix's or PEPCO's election to assume the defense thereof, the Indemnified Party will cooperate fully with Phoenix and PEPCO and shall bear the fees and expenses of any additional counsel retained by it, and neither Phoenix nor PEPCO will be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. 12.2 OF PHOENIX AND PEPCO BY AVIF AND AIM. ------------------------------------- (a) Except to the extent provided in Sections 12.2(c), 12.2(d), and 12.2(e) below, AVIF and AIM agree to indemnify and hold harmless Phoenix, PEPCO, and their respective affiliates, the Accounts and each person, if any, who controls Phoenix, PEPCO, their respective affiliates, or the Accounts within the meaning of Section 15 of the 1933 Act and each of their respective trustees and officers, (collectively, the "Indemnified Parties" for purposes of this Section 12.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of AVIF and/or AIM) or actions in respect thereof (including, to the extent 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 actions: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in AVIF's 1933 Act registration statements, AVIF's Prospectuses or sales literature or advertising of AVIF (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 AVIF or its affiliates by or on behalf of Phoenix, PEPCO, or their respective affiliates for use in AVIF's 1933 Act registration statements, AVIF Prospectuses, or in sales literature or advertising or otherwise for use in connection with the sale of Contracts or Shares (or any amendment or supplement to any of the foregoing); or 22 (ii) arise out of or as a result of any other statements or representations (other than statements or representations contained in any Account's 1933 Act registration statements, any Account Prospectuses, sales literature or advertising for the Contracts, or any amendment or supplement to any of the foregoing, not supplied for use therein by or on behalf of AVIF, AIM, or their affiliates and on which such persons have reasonably relied) or the negligent, illegal or fraudulent conduct of AVIF, AIM, or their affiliates or persons under their control (including, without limitation, their employees and "persons associated with a member" as the term is defined in Section (q) of Article I of the NASD By-Laws), in connection with the sale or distribution of AVIF Shares; or (iii) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Account's 1933 Act registration statements, any Account Prospectuses, sales literature or advertising covering 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, if such statement or omission was made in reliance upon and in conformity with information furnished to Phoenix, PEPCO or their respective affiliates by or on behalf of AVIF or AIM for use in any Account's 1933 Act registration statements, any Account Prospectuses, sales literature or advertising covering the Contracts, or any amendment or supplement to any of the foregoing; or (iv) arise as a result of any failure by AVIF or AIM to perform the obligations, provide the services and furnish the materials required of it under the terms of this Agreement, or any material breach of any representation and/or warranty made by AVIF or AIM in this Agreement or arise out of or result from any other material breach of this Agreement by AVIF or AIM. (b) Except to the extent provided in Sections 12.2(c), 12.2(d), and 12.2(e) hereof, AVIF and AIM agree to indemnify and hold harmless the Indemnified Parties from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement thereof with, the written consent of AVIF and/or AIM) or actions in respect thereof (including, to the extent reasonable, legal and other expenses) to which the Indemnified Parties may become subject directly or indirectly under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or actions directly or indirectly result from or arise out of the failure of any Fund to operate as a regulated investment company in compliance with (i) Subchapter M of the Code and regulations thereunder, or (ii) Section 817(h) of the Code and regulations thereunder, including, without limitation, any income taxes and related penalties, rescission charges, liability under state law to Participants asserting liability against Phoenix pursuant to the Contracts, the costs of any ruling and closing agreement or other settlement with the IRS, and the cost of any substitution by Phoenix of Shares of another investment company or portfolio for those of any adversely affected Fund as a 23 funding medium for each Account that Phoenix reasonably deems necessary or appropriate as a result of noncompliance. (c) Neither AVIF nor AIM shall be liable under this Section 12.2 with respect to any losses, claims, damages, liabilities or actions to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance by that Indemnified Party of its duties or by reason of such Indemnified Party's reckless disregard of its obligations and duties (i) under this Agreement, or (ii) to Phoenix, PEPCO, each Account, or Participants. (d) Neither AVIF nor AIM shall be liable under this Section 12.2 with respect to any action against an Indemnified Party unless the Indemnified Party shall have notified AVIF and/or AIM in writing within a reasonable time after the summons or other first legal process giving information of the nature of the action 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 AVIF or AIM of any such action shall not relieve AVIF or AIM from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this Section 12.2. Except as otherwise provided herein, in case any such action is brought against an Indemnified Party, AVIF and/or AIM will be entitled to participate, at its own expense, in the defense of such action and also shall be entitled to assume the defense thereof (which shall include, without limitation, the conduct of any ruling request and closing agreement or other settlement proceeding with the IRS), with counsel approved by the Indemnified Party named in the action, which approval shall not be unreasonably withheld. After notice from AVIF and/or AIM to such Indemnified Party of AVIF's or AIM's election to assume the defense thereof, the Indemnified Party will cooperate fully with AVIF and AIM and shall bear the fees and expenses of any additional counsel retained by it, and neither AVIF nor AIM shall be liable to such Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in connection with the defense thereof, other than reasonable costs of investigation. (e) In no event shall AVIF or AIM be liable under the indemnification provisions contained in this Agreement to any individual or entity, including, without limitation, Phoenix, PEPCO or any other Participating Insurance Company or any Participant, with respect to any losses, claims, damages, liabilities or expenses that arise out of or result from (i) a breach of any representation, warranty, and/or covenant made by Phoenix or PEPCO hereunder or by any Participating Insurance Company under an agreement containing substantially similar representations, warranties and covenants; (ii) the failure by Phoenix or any Participating Insurance Company to maintain its segregated asset account (which invests in any Fund) as a legally and validly established segregated asset account under applicable state law and as a duly registered unit investment trust under the provisions of the 1940 Act (unless exempt therefrom); or (iii) the failure by Phoenix or any Participating Insurance Company to maintain its variable annuity or life insurance contracts (with respect to which any Fund serves as an underlying funding vehicle) as annuity contracts or life insurance contracts under applicable provisions of the Code. 24 12.3 EFFECT OF NOTICE. ---------------- Any notice given by the indemnifying Party to an Indemnified Party referred to in Sections 12.1(c) or 12.2(d) above of participation in or control of any action by the indemnifying Party will in no event be deemed to be an admission by the indemnifying Party of liability, culpability or responsibility, and the indemnifying Party will remain free to contest liability with respect to the claim among the Parties or otherwise. 12.4 SUCCESSORS. ---------- A successor by law of any Party shall be entitled to the benefits of the indemnification contained in this Section 12. SECTION 13. APPLICABLE LAW -------------------------- This agreement will be construed and the provisions hereof interpreted under and in accordance with Delaware law, without regard for that state's principles of conflict of laws. SECTION 14. EXECUTION OF COUNTERPARTS ------------------------------------- This Agreement may be executed simultaneously in two or more counterparts, each of which taken together will constitute one and the same instrument. SECTION 15. SEVERABILITY ------------------------ If any provision of this Agreement is held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement will not be affected thereby. SECTION 16. RIGHTS CUMULATIVE ----------------------------- 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, that the Parties are entitled to under federal and state laws. SECTION 17. HEADINGS -------------------- The Table of Contents and headings used in this Agreement are for purposes of reference only and shall not limit or define the meaning of the provisions of this Agreement. 25 SECTION 18. CONFIDENTIALITY --------------------------- AVIF and AIM acknowledge that the identities of the customers of Phoenix or any of its affiliates (collectively, the "Phoenix Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the Phoenix Protected Parties or any of their employees or agents in connection with Phoenix's performance of its duties under this Agreement are the valuable property of the Phoenix Protected Parties. AVIF and AIM agree that if they come into possession of any list or compilation of the identities of or other information about the Phoenix Protected Parties' customers, or any other information or property of the Phoenix Protected Parties, other than such information as may be independently developed or compiled by AVIF or AIM from information supplied to it by the Phoenix Protected Parties' customers who also maintain accounts directly with AVIF, AVIF and AIM will hold such information or property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with Phoenix's prior written consent; or (b) as required by law or judicial process. Phoenix acknowledges that the identities of the customers of AVIF or any of its affiliates (collectively, the "AVIF Protected Parties" for purposes of this Section 18), information maintained regarding those customers, and all computer programs and procedures or other information developed by the AVIF Protected Parties or any of their employees or agents in connection with AVIF's performance of its duties under this Agreement are the valuable property of the AVIF Protected Parties. Phoenix agrees that if it comes into possession of any list or compilation of the identities of or other information about the AVIF Protected Parties' customers or any other information or property of the AVIF Protected Parties, other than such information as may be independently developed or compiled by Phoenix from information supplied to it by the AVIF Protected Parties' customers who also maintain accounts directly with Phoenix, Phoenix will hold such information or other property in confidence and refrain from using, disclosing or distributing any of such information or other property except: (a) with AVIF's prior written consent; or (b) as required by law or judicial process. Each party acknowledges that any breach of the agreements in this Section 18 would result in immediate and irreparable harm to the other parties for which there would be no adequate remedy at law and agree that in the event of such a breach, the other parties will be entitled to equitable relief by way of temporary and permanent injunctions, as well as such other relief as any court of competent jurisdiction deems appropriate. SECTION 19. TRADEMARKS AND FUND NAMES ------------------------------------- (a) Except as may otherwise be provided in a License Agreement among A I M Management Group Inc., Phoenix and PEPCO, neither Phoenix nor PEPCO or any of their respective affiliates shall not use any trademark, trade name, service mark or logo of AVIF, AIM or any of their respective affiliates, or any variation of any such trademark, trade name, service mark or logo, without AVIF's or AIM's prior written consent, the granting of which shall be at AVIF's or AIM's sole option. 26 (b) Except as otherwise expressly provided in this Agreement, neither AVIF, its investment adviser; its principal underwriter, or any affiliates thereof shall use any trademark, trade name, service mark or logo of Phoenix, PEPCO, or any of their affiliates, or any variation of any such trademark, trade name, service mark or logo, without Phoenix's or PEPCO's prior written consent, the granting of which shall be at Phoenix's or PEPCO's sole option. SECTION 20. PARTIES TO COOPERATE -------------------------------- Each Party to this Agreement will cooperate with each other Party and all appropriate governmental authorities (including, without limitation, the SEC, the NASD and state insurance regulators) and will permit each other and such authorities reasonable access to its books and records (including copies thereof) in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. SECTION 21. AMENDMENTS ---------------------- No provision of this Agreement may be amended or modified in any manner except by a written agreement executed by all parties hereto. 27 IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in their names and on their behalf by and through their duly authorized officers signing below. AIM VARIABLE INSURANCE FUNDS Attest: /s/ Nancy L. Martin By: /s/ Robert H. Graham ------------------------- ---------------------------- Name: Nancy L. Martin Name: Robert H. Graham Title Assistant Secretary Title: President A I M DISTRIBUTORS, INC. Attest: /s/ Nancy L. Martin By: /s/ Michael J. Cemo ------------------------- ---------------------------- Name: Nancy L. Martin Name: Michael J. Cemo Title Assistant Secretary Title: President PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, on behalf of itself and its separate accounts Attest: /s/ John H. Beers By: /s/ Paul Fischer ------------------------- ---------------------------- Name: John H. Beers Name: Paul Fischer Title Secretary Title: Vice President PHOENIX EQUITY PLANNING CORPORATION Attest: /s/ Nancy J. Engberg By: /s/ William R. Moyer ------------------------- ---------------------------- Name: Nancy J. Engberg Name: William R. Moyer Title Secretary Title: EVP, CFO, Treasurer 28 SCHEDULE A FUNDS AVAILABLE UNDER THE CONTRACTS - ----------------------------------- AIM VARIABLE INSURANCE FUNDS AIM V.I. Capital Appreciation Fund AIM V.I. Value Fund SEPARATE ACCOUNTS UTILIZING THE FUNDS - ------------------------------------- Phoenix Home Life Variable Accumulation Account Phoenix Home Life Variable Universal Life Account CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS - ----------------------------------------- The Big Edge Plus - Form 2646 The Group Strategic Edge - Form GD603 Retirement Planners Edge for New York - Form D603NY Phoenix Edge - VA for New York - Form D602 NY Flex Edge Success - Form V603 Joint Edge - Form V601 Phoenix Individual Edge - Form V603 Estate Edge - Form V604 Phoenix Corporate Edge - Form V609 Phoenix Edge - SPVL - Form V610 29 SCHEDULE B AIM's PRICING ERROR POLICIES Determination of Materiality - ---------------------------- In the event that AIM discovers an error in the calculation of the Fund's net asset value, the following policies will apply: If the amount of the error is less than $.01 per share, it is considered immaterial and no adjustments are made. If the amount of the error is $.01 per share or more, then the following thresholds are applied: a. If the amount of the difference in the erroneous net asset value and the correct net asset value is less than .5% of the correct net asset value, AIM will reimburse the affected Fund to the extent of any loss resulting from the error. No other adjustments shall be made. b. If the amount of the difference in the erroneous net asset value and the correct net asset value is .5% of the correct net asset value or greater, then AIM will determine the impact of the error to the affected Fund and shall reimburse such Fund (and/or Phoenix, as appropriate, such as in the event that the error was not discovered until after Phoenix processed transactions using the erroneous net asset value) to the extent of any loss resulting from the error. To the extent that an overstatement of net asset value per share is detected quickly and Phoenix has not mailed redemption checks to Participants, Phoenix and AIM agree to examine the extent of the error to determine the feasibility of reprocessing such redemption transaction (for purposes of AIM reimbursing the Fund to the extent of any such overpayment). Reprocessing Cost Reimbursement - ------------------------------- To the extent a reprocessing of Participant transactions is required pursuant to paragraph (b), above, AIM shall reimburse Phoenix for Phoenix's reprocessing costs in an amount not to exceed $1.00 per contract affected by $10 or more. The Pricing Policies described herein may be modified by AVIF as approved by its Board of Trustees. AIM agrees to use its best efforts to notify Phoenix at least five (5) days prior to any such meeting of the Board of Trustees of AVIF to consider such proposed changes. 30 SCHEDULE C EXPENSE ALLOCATIONS ===================================================================================================================
PHOENIX AVIF / AIM - ------------------------------------------------------------------------------------------------------------------- preparing and filing the Account's registration Preparing and filing the Fund's registration statement statement - -------------------------------------------------------- -------------------------------------------------------- text composition for Account prospectuses and test composition for Fund prospectuses and supplements supplements - -------------------------------------------------------- -------------------------------------------------------- text alterations of prospectuses (Account) and text alterations of prospectuses (Fund) and supplements (Account) supplements (Fund) - -------------------------------------------------------- -------------------------------------------------------- printing Account and Fund prospectuses and a camera ready Fund prospectus supplements - -------------------------------------------------------- -------------------------------------------------------- text composition and printing Account SAIs text composition and printing Fund SAIs - -------------------------------------------------------- -------------------------------------------------------- mailing and distributing Account SAIs to policy mailing and distributing Fund SAIs to policy owners upon request by policy owners owners upon request by policy owners - -------------------------------------------------------- -------------------------------------------------------- mailing and distributing prospectuses (Account and Fund) and supplements (Account and Fund) to policy owners of record as required by Federal Securities Laws and to prospective purchasers - -------------------------------------------------------- -------------------------------------------------------- text composition (Account), printing, mailing, text composition of annual and semi-annual and distributing annual and semi-annual reports reports (Fund) for Account (Fund and Account as, applicable) - -------------------------------------------------------- -------------------------------------------------------- text composition, printing, mailing, distributing, text composition, printing, mailing, distributing and tabulation of proxy statements and voting and tabulation of proxy statements and voting instruction solicitation materials to policy owners instruction solicitation materials to policy with respect to proxies related to the Account owners with respect to proxies related to the Fund - -------------------------------------------------------- -------------------------------------------------------- preparation, printing and distributing sales material and advertising relating to the Funds, insofar as such materials relate to the Contracts and filing such materials with and obtaining approval from, the SEC, the NASD, any state insurance regulatory authority, and any other appropriate regulatory authority, to the extent required ===================================================================================================================
31 EX-99.1.(A)(11(A) 12 exh1_11a.txt AMENDED AND RESTATED CODE OF ETHICS Exhibit 99.(A)(11)(a) Amended and Restated Code of Ethics (May 31, 2000) AMENDED AND RESTATED CODE OF ETHICS (May 31, 2000) PHOENIX FUNDS PHOENIX-DUFF & PHELPS INSTITUTIONAL MUTUAL FUNDS PHOENIX-ABERDEEN SERIES FUND PHOENIX - ENGEMANN FUNDS PHOENIX-SENECA FUNDS PHOENIX-ZWEIG FUNDS 1. Statement of Ethical Principles ------------------------------- These principles are applicable to employees of Phoenix Investment Partners, Ltd. and its related advisory and broker-dealer subsidiaries, including Phoenix Investment Counsel, Inc., Duff & Phelps Investment Management Co, National Securities & Research Corporation, Phoenix-Aberdeen International Advisors, LLC, Roger Engemann & Associates, Inc., Seneca Capital Management LLC, Phoenix/Zweig Advisers LLC, Phoenix Equity Planning Corporation, and PXP Securities Corporation. Our subsidiaries may impose further limitations on personal trading subject to notifying Counsel and the Compliance Officer of the Phoenix Investment Partners, Ltd. When Fund Access Persons covered by the terms of this Code of Ethics engage in personal securities transactions, they must adhere to the following general principles as well as to the Code's specific provisions: A. At all times, the interests of Fund shareholders must be paramount; B. Personal transactions must be conducted consistent with this Code of Ethics in a manner that avoids any actual or potential conflict of interest; and C. No inappropriate advantage should be taken of any position of trust and responsibility. 2. Definitions ----------- A. "Fund" means each and every investment company, or series thereof, or other institutional account managed by the Adviser, individually and collectively. B. "Access Person" means any Trustee (other than a Disinterested Trustee who does not obtain information concerning recommendations made to the Fund regarding the purchase or sale of a security), officer, general partner, Portfolio Manager or Advisory Person of the Fund or (i) any temporary or permanent employee of the Fund or of any company in a control relationship to the Fund, who, in connection with his regular functions or duties, makes, participates in or obtains information regarding the purchase or sale of a security by the Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (ii) any natural person in a control relationship to the Fund who obtains information concerning recommendations made to the Fund with regard to the purchase or sale of a security. The Compliance Officer of each Fund shall maintain a list of the Fund's Access Persons. p. 1 C. "Advisory Person" means any Portfolio Manager or other investment person, such as an analyst or trader, who provides information and advice to a Portfolio Manager or assists in the execution of the investment decisions. For purposes of Section 4, "Advisory Person" shall not include Portfolio Managers. D. A security is "being considered for purchase or sale" when a recommendation to purchase or sell a security has been made and communicated and, with respect to the Advisory Person making the recommendation, when such person seriously considers making such a recommendation. E. "Beneficial ownership" shall be interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder, except that the determination of direct or indirect beneficial ownership shall apply to all securities which an Access Person has or acquires. F. "Control" shall have the same meaning as that set forth in Section 2(a)(9) of the Investment Company Act, as amended. G. "Disinterested Trustee" means a Trustee of a Fund who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act, as amended. H. "Initial Public Offering" means a public sale of an issue not previously offered to the public. I. "Managed Fund" shall mean those Funds, individually and collectively, for which the Portfolio Manager makes buy and sell decisions. J. "Portfolio Manager" means the person entrusted to make the buy and sell decisions for a Fund. K. "Private Placement" shall have the same meaning as that set forth in Section 4(2) of the Securities Exchange Act. L. "Purchase or sale of a security" includes inter alia, the writing of an option or the purchase or sale of a security that is exchangeable for or convertible into, a security that is held or to be acquired by a Fund. M. "Security" shall have the meaning set forth in Section 2(a)(36) of the Investment Company Act, as amended, except that it shall not include securities issued by the Government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper and shares of registered open-end investment companies. 3. Exempted Transactions --------------------- The prohibitions of Section 4 of this Code shall not apply to: p. 2 A. Purchases or sales effected in any account over which the Access Person has no direct or indirect influence or control in the reasonable estimation of the Compliance Officer. B. Purchases or sales of securities (1) not eligible for purchase or sale by the Fund; or (2) specified from time to time by the Trustees, subject to such rules, if any, as the Trustees shall specify. C. Purchases or sales which are non-volitional on the part of either the Access Person or the Fund. D. Purchases of shares necessary to establish an automatic dividend reinvestment plan or pursuant to an automatic dividend reinvestment plan, and subsequent sales of such securities. E. Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. F. Purchase or sale of securities issued by Phoenix Investment Partners, Ltd. unless otherwise restricted. 4. Prohibited Activities --------------------- A. IPO Rule: No Access Person, Advisory Person or Portfolio Manager may purchase securities in an Initial Public Offering, except with the prior approval of the Compliance Officer of the Fund. This rule also applies to IPO's offered through the Internet. B. Private Placement Rule: No Access Person, Advisory Person or Portfolio Manager may purchase securities in a Private Placement unless such purchase has been approved by the Compliance Officer of the Fund. Any such approved purchase should be disclosed to the Fund if that issuer's securities are being considered for purchase or sale by the Fund. C. Preclearance Rule: No Access Person, Advisory Person or Portfolio Manager may purchase or sell a security unless such purchase or sale has been precleared by the Compliance Officer of the Fund. Preclearance is required prior to executing a trade through a personal Internet brokerage account. It is also required for trades in securities valued at $5.00 or less, and for option trades, including but not limited to puts, calls and well-known stock indices (e.g. the S&P 500). Preclearance is valid through the business day next following the day preclearance is given. Exceptions: The following securities transactions do not require preclearance: 1. Purchases or sales of up to 500 shares of securities of issuers ranked in the Standard & Poor's 500 Composite Stock Index (S&P 500) at the time of purchase or sale. The Compliance Officer of the Fund shall distribute an updated list of such securities quarterly. A copy of the list will be p. 3 maintained on the Intranet web site for Phoenix Investment Partners, Ltd. and will be updated quarterly. 2. Purchase orders sent directly to the issuer via mail (other than in connection with a Private Placement) or sales of such securities which are redeemed directly by the issuer via mail. NOTE: THE COMPLIANCE OFFICER OF THE FUND MAY DENY APPROVAL OF ANY TRANSACTION REQUIRING PRECLEARANCE UNDER THIS PRECLEARANCE RULE, EVEN IF NOMINALLY PERMITTED UNDER THIS CODE OF ETHICS, IF HE/SHE REASONABLY BELIEVES THAT DENYING PRECLEARANCE IS NECESSARY FOR THE PROTECTION OF A FUND. ANY SUCH DENIAL MAY BE APPEALED TO THE FUND'S COUNSEL. THE DECISION OF COUNSEL SHALL BE FINAL. D. Open Order Rule: No Access Person, Advisory Person or Portfolio Manager may purchase or sell, directly or indirectly, any security in which he has, or by reason of such transaction acquires, any direct or indirect beneficial ownership, when a Fund has a pending "buy" or "sell" order for that security of the same type (i.e. buy or sell) as the proposed personal trade, until the Fund's order is executed or withdrawn. Exceptions: The following securities transactions are exempt from the Open Order Rule: 1. Purchases or sales of up to 500 shares of securities of issuers in the S&P 500 at the time of the transaction. 2. Purchases or sales approved by the Compliance Officer of the Fund in his/her discretion. ANY PROFITS REALIZED ON A PERSONAL TRADE IN VIOLATION OF THIS SECTION 4D MUST BE DISGORGED. E. Blackout Rule: If a Portfolio Manager's Managed Fund holds a security that is the subject of a proposed personal trade by that Portfolio Manager, such personal trade may be permitted only as follows: 1. If the proposed personal trade is on the same side as the last Managed Fund transaction in that security, the personal trade cannot occur within two days of such Managed Fund transaction (i.e. neither at T nor T + 1 calendar day). 2. If the proposed personal trade is on the opposite side of the last Managed Fund transaction in that security, the personal trade cannot occur unless (a) it is more than two days after the Managed Fund transaction (i.e. T + 2 calendar days or later) and (b) the Preclearance Request, if required for such personal transaction (i.e. it is not eligible for the exception of securities listed in the S&P 500 to the Preclearance Rule), sets forth, to the reasonable satisfaction of the Compliance Department, an explanation of the reasons the Managed Fund is not effecting a similar transaction. p. 4 Transactions permitted under the Blackout Rule must also satisfy the Open Order Rule and the Preclearance Rule if and to the extent the transaction is not covered by exceptions to those rules. ANY PROFITS REALIZED BY A PORTFOLIO MANAGER ON A PERSONAL TRADE IN VIOLATION OF THIS SECTION 4E MUST BE DISGORGED. F. Holding Period Rule: Access Persons, Advisory Persons and Portfolio Managers must hold each Security, for a period of not less than sixty (60) days, whether or not the purchase of such Security was an exempt transaction under any other provision of Section 4. ANY PROFITS REALIZED ON TRADING IN CONTRAVENTION OF THIS POLICY MUST BE DISGORGED. G. No Access Person, Advisory Person or portfolio manager shall annually accept any gift or other item of more than $100 in value from any person or entity that does business with or on behalf of the Fund. H. No Advisory Person shall serve on the board of directors of a publicly traded company without prior authorization by the President or the Compliance Officer of the Fund. If board service is authorized, such Advisory Person shall have no role in making investment decisions with respect to the publicly traded company. 5. Compliance Procedures --------------------- A. All Access Persons shall direct their brokers to supply, at the same time that they are sent to the Access Person, a copy of the confirmation for each personal securities trade and a copy of each periodic account statement to the Fund's Compliance Officer. B. Every Access Person shall report to the Fund the information described in Section 5D of this Code with respect to transactions in any security in which such Access Person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership in the security; provided, however, that an Access Person shall not be required to make a report with respect to transactions effected for any account over which such person does not have any direct or indirect influence. C. A Disinterested Trustee of the Fund need only report a transaction in a security if such Trustee, at the time of that transaction knew or, in the ordinary course of fulfilling his official duties as a Trustee of the Fund, should have known that, (1) during the 7-day period immediately preceding or after the date of the transaction by the Trustee, such security was purchased or sold by the Fund or (2) such security was being considered for purchase or sale by the Fund. D. Every report required pursuant to Section 5B above shall be made not later than 10 days after the end of the calendar quarter in which the transaction to which the report relates was effected, and shall contain the following information: (i) The date of the transaction, the title and the number of shares, and the principal amount of each security involved; p. 5 (ii) The nature of the transaction (i.e., purchase, sale, or any other type of acquisition or disposition); (iii) The price at which the transaction was effected; (iv) The name of the broker, dealer or bank with or through whom the transaction was effected; and (v) The date of approval of the transaction and the person who approved it as required by Section 4B or C above. E. Each Access Person shall submit a report listing all personal securities holdings to the Compliance Officer upon the commencement of service and annually thereafter. The annual report shall be as of December 31 and include a certification by the Access Person that he or she has read and understood the Code of Ethics and has complied with the Code's requirements. The annual report and certification will be submitted to the Compliance Officer by January 30. F. Any report made under this Section 5 may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect beneficial ownership in the security to which the report relates. G. The Compliance Officer shall submit an annual report to the Fund's Board of Trustees that summarizes the current Code of Ethics procedures, identifies any violations requiring significant remedial action, and recommends appropriate changes to the Code, if any. H. Any Access Person or Disinterested Trustee shall immediately report any potential violation of this Code of which he or she becomes aware to the Fund's Compliance Officer. 6. Sanctions --------- Upon discovering a violation of this Code, the Board of Trustees of the Fund may impose such sanctions as it deems appropriate, including inter alia, a letter of censure or suspension or termination of employment, or suspension of personal trading privileges for such period as it may deem appropriate. p. 6 EX-99.1.(A)(11)(B) 13 exh1_11b.txt A AND R COE: PHOENIX EDGE SERIES Exhibit 1.(A)(11)(b) Amended and Restated Code of Ethics: The Phoenix Edge Series Fund, Phoenix Variable Advisors, Inc., Phoenix-Aberdeen International Advisors, LLC CODE OF ETHICS AMENDED AND RESTATED PURSUANT TO RULE 17J-1 OF 1940 ACT THE PHOENIX EDGE SERIES FUND PHOENIX VARIABLE ADVISORS, INC. PHOENIX ABERDEEN INTERNATIONAL ADVISORS, LLC This Code of Ethics applies to The Phoenix Edge Series Fund ("PESF" or the "Fund") and to Phoenix Variable Advisors, Inc. ("PVA") and Phoenix Aberdeen International Advisors, LLC ("PAIA") (each an "Adviser"), in their capacity as investment advisers to the Fund and as registered investment advisers (the Fund and the Advisers are referred to as the "Companies," and each, a "Company"), and to their Access Persons as defined below. Access Persons of Phoenix Investment Counsel, Inc., Duff & Phelps Investment Management Company, Roger Engemann & Associates, Inc., and Seneca Capital Management LLC, all of which are investment advisers and subadvisers to the Fund that are affiliated with PVA and PAIA by virtue of their being under common control, are governed by a separate Code of Ethics (the "Phoenix Code") which has been adopted by each of those entities. Access Persons of the investment advisers and subadvisers to the Fund that are not affiliated with PVA or PAIA (the "Unaffiliated Advisers") are governed by the Code of Ethics of the respective Unaffiliated Advisers. NOTWITHSTANDING THE ABOVE, THE PROHIBITIONS IN SECTION 2 BELOW ARE IMPOSED BY RULE 17J-1, AND APPLY TO ALL AFFILIATED PERSONS OF THE FUND AND ITS INVESTMENT ADVISERS AND SUBADVISERS, WHETHER OR NOT THEY ARE GOVERNED BY THIS CODE OF ETHICS. 1. Statement of Ethical Principles ------------------------------- The Companies hold their employees to a high standard of integrity and business practices. In serving their respective shareholders and clients, the Companies strive to avoid conflicts of interest or the appearance of conflicts of interest in connection with the personal trading activities of their employees and the Fund's securities transactions. While affirming their confidence in the integrity and good faith of all of their employees, officers, trustees, and directors, the Companies recognize that the knowledge of present or future portfolio transactions or the power to influence portfolio transactions, if held by such individuals, could place them in a position where their personal interests might conflict with the interests of the Fund, if they were to trade in securities eligible for investment by the Fund. In view of the foregoing and of the provisions of Rule 17j-1 under the Investment Company Act of 1940, as amended (the "1940 Act"), each Company has determined to adopt this Code of Ethics to specify and prohibit certain types of transactions deemed to create conflicts of interest (or at least the potential for or the appearance of such a conflict) and to establish reporting requirements and enforcement procedures. When Access Persons covered by the terms of this Code of Ethics engage in personal securities transactions, they must adhere to the following general principles as well as to the Code's specific provisions: (a) At all times, the interests of Fund shareholders must be paramount; (b) Personal transactions must be conducted consistent with this Code of Ethics in a manner that avoids any actual or potential conflict of interest; and (c) No inappropriate advantage should be taken of any position of trust and responsibility. 2. Unlawful Actions ---------------- It is unlawful for any affiliated person of the Fund or any of its investment advisers, in connection with the purchase or sale, directly or indirectly, by the person of a Security Held or to be Acquired by the Fund: (a) to employ any device, scheme or artifice to defraud the Fund; (b) to make any untrue statement of a material fact to the Fund or omit to state a material fact necessary in order to make the statements made to the Fund, in light of the circumstances under which they are made, not misleading; (c) to engage in any act, practice or course of business that operates or would operate as a fraud or deceit on the Fund; or (d) to engage in any manipulative practice with respect to the Fund. 3. Definitions ----------- (a) "Access Person" means any (i) director, trustee, officer, or general partner of the Fund or an Adviser; (ii) any temporary or permanent employee of the Fund or an Adviser (or of any company in a control relationship to the Fund or an Adviser), who, in connection with his or her regular functions or duties, makes, participates in or obtains information regarding the purchase or sale of Covered Securities by the Fund, or whose functions relate to the making of any recommendations with respect to such purchases or sales; and (iii) any natural person in a control relationship to the Fund or an Adviser who obtains information concerning -2- recommendations made to the Fund with regard to the purchase or sale of Covered Securities by the Fund. The Compliance Officer of the Fund shall maintain a list of the Fund's Access Persons. (b) "Affiliated person" has the same meaning as in Section 2(a)(3) of the 1940 Act. (c) "Beneficial ownership" shall be interpreted in the same manner as it would be under Rule 16a-1(a)(2) in determining whether a person is the beneficial owner of a security for purposes of Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations thereunder. A copy of Rule 16a-1(a)(2) is attached to this Code of Ethics. Generally, beneficial ownership means having or sharing, directly or indirectly through any contract, arrangement, understanding, relationship, or otherwise, a direct or indirect "pecuniary interest" in the security. For the purposes hereof, (i) "Pecuniary interest" means the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the securities. (ii) "Indirect pecuniary interest" includes, but is not limited to: (a) securities held by members of the person's "immediate family" (this means any child, child-in-law, stepchild, grandchild, parent, parent-in-law, stepparent, grandparent, spouse, sibling, or sibling-in-law and includes adoptive relationships) sharing the same household (which ownership interest may be rebutted); (b) a general partner's proportionate interest in portfolio securities held by a general or limited partnership; (c) a person's right to dividends that is separated or separable from the underlying securities (otherwise, a right to dividends alone will not constitute a pecuniary interest in securities); (d) a person's interest in securities held by a trust; (e) a person's right to acquire securities through the exercise or conversion of any derivative security, whether or not presently exercisable; and (f) a performance-related fee, other than an asset based fee, received by any broker, dealer, bank, insurance company, investment company, investment manager, trustee, or person or entity performing a similar function, with certain exceptions (see Rule 16a-1(a)(2)). ---- (d) "Compliance officer" refers to the Fund's Compliance Officer or any person designated by the Fund to perform compliance functions. (e) "Control" shall have the same meaning as that set forth in Section 2(a)(9) of the 1940 Act, as amended. -3- (f) "Covered Security" means all securities except securities that are direct obligations of the Government of the United States, bankers' acceptances, bank certificates of deposit, commercial paper and shares of registered open-end investment companies, and shares issued by open-end mutual funds. (g) "Disinterested Trustee" means a Trustee of a Fund who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the 1940 Act. (h) "Fund" means PESF. It also includes each and every investment company, or series thereof, or other client account managed by PVA or PAIA, individually and collectively. (i) "Initial Public Offering" means an offering of securities registered under the Securities Act of 1933, as amended, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. (j) "Investment Personnel" of the Fund or an Adviser means: (i) any employee of the Fund or Adviser (or of any company in a control relationship to the Fund or Adviser) who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by the Fund; and (ii) any natural person who controls the Fund or an Adviser and who obtains information concerning recommendations made to the Fund regarding the purchase or sale of securities by the Fund. Investment Personnel includes any Portfolio Manager or other investment person, such as an analyst or trader, who provides information and advice to a Portfolio Manager or assists in the execution of the investment decisions. (k) "Limited Offering" means an offering that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6) thereof, or pursuant to Rule 504, Rule 505, or Rule 506 thereunder. (l) "Managed Portfolio" shall mean those Funds, individually and collectively, for which the Portfolio Manager makes buy and sell decisions. For PESF and other registered investment companies operating as series companies, Managed Portfolio shall include only the series for which the Portfolio Manager serves as Portfolio Manager. (m) "Portfolio Manager" means the person entrusted to make or participate in the making of the buy and sell decisions for a Fund, or series thereof. (n) "Purchase or sale of a security" includes, among other things, the writing of an option to purchase or sell a security or the purchase or sale of a security that is exchangeable for or convertible into a security. -4- (o) "Security" shall have the meaning set forth in Section 2(a)(36) of the Investment Company Act, as amended. (p) "Security Held or to be Acquired" by a Fund means: (i) any Covered Security which, within the most recent 15 days: (A) is or has been held by the Fund; or (B) is being or has been considered by the Fund or any of its investment advisers for purchase by the Fund; and (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in paragraph (p)(i) of this Section. A security is "being considered for purchase or sale" when a recommendation to purchase or sell a security has been made and communicated and, with respect to the Investment Personnel making the recommendation, when such person seriously considers making such a recommendation. 4. Exempted Transactions --------------------- The preclearance prohibitions of Section 5 of this Code, except for paragraphs (a) and (b) of Section 5 relating to IPOs and Limited Offerings, shall not apply to: (a) Purchases or sales effected in any account over which the Investment Personnel has no direct or indirect influence or control in the reasonable estimation of the Compliance Officer. (b) Purchases or sales of securities: (i) not eligible for purchase or sale by the Fund; or (ii) specified from time to time by the Trustees, subject to such rules, if any, as the Trustees shall specify. (c) Purchases or sales which are non-volitional on the part of either the Investment Personnel or the Fund. (d) Purchases of shares necessary to establish an automatic dividend reinvestment plan or pursuant to an automatic dividend reinvestment plan, and subsequent sales of such securities. (e) Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer, and sales of such rights so acquired. -5- 5. Prohibited Activities --------------------- (a) IPO Rule: No Investment Personnel may directly or indirectly acquire beneficial ownership in any securities in an Initial Public Offering (including IPOs offered through the Internet), except with the prior written approval of the Compliance Officer of the Fund. (b) Limited Offering Rule: No Investment Personnel may directly or indirectly acquire beneficial ownership in any securities in a Limited Offering except with the prior written approval of the Compliance Officer of the Fund. Any such approved purchase should be disclosed to the Fund if that issuer's securities are being considered for purchase or sale by the Fund, and the Fund's decision to purchase or sell should be subject to independent review by Investment Personnel with no interest in the issuer. (c) The Compliance Officer will make a record of any decision, and the reasons supporting the decision, to grant approval for transactions in IPOs and Limited Offerings, and will maintain these records for at least five years after the end of the fiscal year in which the approval is granted. (d) Preclearance Rule: No Investment Personnel may directly or indirectly acquire or dispose of beneficial ownership in a Covered Security unless such transaction has been precleared by the Compliance Officer of the Fund. Preclearance is valid through the business day next following the day preclearance is given. (e) The Compliance Officer will monitor investment activity by the Investment Personnel involving the precleared transaction. NOTE: THE COMPLIANCE OFFICER OF THE FUND MAY DENY APPROVAL OF ANY TRANSACTION REQUIRING PRECLEARANCE UNDER THIS PRECLEARANCE RULE, EVEN IF THE TRANSACTION IS NOMINALLY PERMITTED UNDER THIS CODE OF ETHICS, IF HE OR SHE REASONABLY BELIEVES THAT DENYING PRECLEARANCE IS NECESSARY FOR THE PROTECTION OF A FUND. ANY SUCH DENIAL MAY BE APPEALED TO THE FUND'S COUNSEL. THE DECISION OF COUNSEL SHALL BE FINAL. (f) Open Order Rule: No Investment Personnel may directly or indirectly acquire or dispose of beneficial ownership in any Covered Security on a day during which a Fund has a pending "buy" or "sell" order for that security of the same type (i.e., buy or sell) as the proposed personal trade, until the Fund's order is executed or withdrawn. Exceptions: The following securities transactions are exempt from the Open Order Rule: 1. Purchases or sales of up to 500 shares of an issuer ranked in the Standard & Poor's 500 Composite Stock Index (S&P 500) at the time of purchase or sale and/or securities with a market capitalization over $10 billion as of -6- the most recent fiscal quarter. The Compliance Officer of the Fund shall make available an updated list of such issuers quarterly. 2. Purchases or sales approved by the Compliance Officer of the Fund in his/her discretion. ANY PROFITS REALIZED ON A PERSONAL TRADE IN VIOLATION OF THIS SECTION 5(F) MUST BE DISGORGED AT THE REQUEST OF THE FUND. (g) Blackout Rule: No Portfolio Manager may directly or indirectly acquire or dispose of beneficial ownership in a Covered Security within seven calendar days before and after a Managed Portfolio trades in that Security. Transactions permitted under the Blackout Rule must also satisfy the Open Order Rule and the Preclearance Rule, if and to the extent the transaction is not covered by exceptions to those rules. ANY PROFITS REALIZED BY A PORTFOLIO MANAGER ON A PERSONAL TRADE IN VIOLATION OF THIS SECTION 5(G) MUST BE DISGORGED AT THE REQUEST OF THE FUND. (h) Ban on Short-term Trading Profits: No Investment Personnel may profit in the purchase and sale, or sale and purchase, any of the same (or equivalent) securities within 60 calendar days. (i) Gifts. No Access Person shall annually accept any gift or other item of more than $100 in value from any person or entity that does business with or on behalf of the Fund. (j) Service as Director. No Investment Personnel shall serve on the board of directors of a publicly traded company without prior authorization by the President or the Compliance Officer of the Fund. If board service is authorized, such Investment Personnel shall have no role in making investment decisions with respect to the publicly traded company. 6. Reporting and Compliance Procedures ----------------------------------- (a) All Access Persons (other than Disinterested Trustees) shall direct their brokers to supply, at the same time that they are sent to the Access Person, a copy of the confirmation for each personal securities trade and a copy of each periodic account statement to the Fund's Compliance Officer. (b) Every Access Person shall report to the Fund the information described in Section 6(c) of this Code with respect to transactions in any Covered Security in which such Access Person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership in the Covered Security, provided that -7- (i) a Disinterested Trustee of the Fund need not report a transaction in a security unless the Trustee knew or, in the ordinary course of fulfilling his or her official duties as a Fund Trustee, should have known that during the 15-day period immediately before or after the Trustee's transaction in a Covered Security, the Fund purchased or sold the Covered Security or the Fund or any of its investment advisers or subadvisers considered purchasing or selling the Covered Security, and (ii) An Access Person need not make a quarterly report under this Section 6(b) if the report would duplicate information contained in broker trade confirmations or account statements received by the Fund's Compliance Officer under Section 6(a) with respect to the Access Person in the time period required by Section 6(c), if all of the information required in Section 6(c) is contained in those confirmations and statements. (c) Every report required pursuant to Section 6(b) above shall be made not later than 10 days after the end of the calendar quarter in which the transaction to which the report relates was effected, and shall contain the following information: (i) with respect to any transaction during the quarter in a Covered Security in which the Access Person had or acquired any direct or indirect beneficial ownership: (A) The date of the transaction, the title and the number of shares, the maturity date, the interest rate and the principal amount of each Covered Security involved; (B) The nature of the transaction (i.e., purchase, sale, or any other type of acquisition or disposition); (C) The price of the Covered Security at which the transaction was effected; (D) The name of the broker, dealer or bank with or through whom the transaction was effected; and (E) The date of approval of the transaction and the person who approved it as required by Section 5(a), (b), or (d) above. (ii) with respect to any amount established by the Access Person in which Securities were held during the quarter for the direct or indirect benefit of the Access Person: (A) The name of the broker, dealer, or bank with whom the Access Person established the account; -8- (B) The date the account was established; and (iii) the date the report is submitted by the Access Person. (d) No later than 10 days after becoming an Access Person, and annually thereafter on or before January 30 of each year, each Access Person (other than Disinterested Trustees) must submit to the Compliance Officer a report of his or her personal securities holdings (the "Initial Holdings Report" and the "Annual Holdings Report", respectively), which must include the following information (the Applicable Date for the Initial Holdings Report is the date the person became an Access Person; the Applicable Date for the Annual Holdings Report must be a date no earlier than December 31 of the prior year): (i) The title, number of shares and principal amount of each Covered Security in which the Access Person had any direct or indirect beneficial ownership as of the Applicable Date. (ii) The name of any broker, dealer or bank with whom the Access Person maintained an account in which securities were held for the direct or indirect benefit of the Access Person as of the Applicable Date. (iii) The date the report is submitted by the Access Person. (e) Each Access Person shall submit annually to the Compliance Officer a certification by the Access Person that he or she has read and understood the Code of Ethics, has complied with the Code's requirements, and has disclosed or reported all personal securities transactions required to be disclosed or reported pursuant to the Code's requirements. The certification will be submitted to the Compliance Officer by January 30 of each year. (f) Any report made under this Section 5 may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect beneficial ownership in the security to which the report relates. (g) (i) The Compliance Officer shall furnish to the Fund's Board of Trustees annually, and the Board will consider, a written report that (A) Summarizes the current procedures under the Code of Ethics; (B) Describes any issues arising from the Code of Ethics or procedures since the last report to the Board, including, but not limited to, information about material violations of the Code or procedures and sanctions imposed in response to the material violations; and -9- (C) Certifies that the Fund or the Adviser, as applicable, has adopted procedures reasonably necessary to prevent Access Persons from violating the Code. (ii) The Compliance Officer shall obtain from each investment adviser and subadviser to the Fund whose Access Persons are governed by its own Code of Ethics, a written report including the information and certification required in (B) and (C) above with respect to that Code. (iii) The Board will consider all of these reports. (h) Any Access Person shall immediately report any potential violation of this Code of which he or she becomes aware to the Fund's Compliance Officer. (i) An Access Person need not make reports under this Section 6 with respect to transactions effected for any account over which such person does not have any direct or indirect influence or control. (j) The Compliance Officer will review all reports and other information submitted under this Section 6. This review will include such comparisons with trading records of the Fund as are necessary or appropriate to determine whether there have been any violations of the Code. (k) The Compliance Officer will maintain a list of all Access Persons who are required to make reports under the Code, and shall inform those Access Persons of their reporting obligations. The Compliance Officer shall promptly notify any Access Person when any report has not been filed on a timely basis. 7. Sanctions --------- Upon discovering a violation of this Code, the Board of Trustees of the Fund may impose such sanctions as it deems appropriate, including inter alia, a letter of censure or suspension or termination of employment, or suspension of personal trading privileges for such period as it may deem appropriate. 8. Exceptions ---------- The Compliance Officer, in consultation with counsel, may grant written exceptions to provisions of the Code based on equitable considerations. The exceptions may be granted to individuals or classes of individuals with respect to particular transactions, classes of transactions or all transactions, and may apply to past as well as future transactions, provided, however, that no exception will be granted where the exceptions would result in a violation of Rule 17j-1. To the extent any such exception relates to an Access Person of a Fund, the exception will be reported to the Fund's Board at its next regularly scheduled meeting. -10- 9. Other Codes of Ethics --------------------- This Code of Ethics does not amend or supercede any other Code(s) of Ethics that may affect the duties and obligations of any person affected hereby. -11- EX-99.1.(A)(11)(C) 14 exh1_11c.txt PRINCIPLES OF ETHICAL MARKET CONDUCT Exhibit 1.(A)(11)(c) Principles of Ethical Market Conduct. PRINCIPLES OF ETHICAL MARKET CONDUCT As a matter of policy, Phoenix has endorsed and committed itself to the following Principles of Ethical Market Conduct developed by the American Council of Life Insurance with respect to the sale of individually sold life and annuity products: 1. to conduct business according to high standards of honesty and fairness and to render that service to its customers which, in the same circumstances, it would apply to or demand for itself; 2. to provide competent and customer-focused sales and service; 3. to engage in active and fair competition; 4. to provide advertising and sales materials that are clear as to purpose and honest and fair as to content; 5. to provide for fair and expeditious handling of customer complaints and disputes; and 6. to maintain a system of supervision and review that is reasonably designed to achieve compliance with these Principles of Ethical Market Conduct. These Principles reaffirm Phoenix's long tradition of professionalism and high ethical standards in providing quality products and services to its clients. EX-99.1.(A)(11)(D) 15 exh1_11d.txt COE FOR SUBSIDIARY RELATIONSHIPS Exhibit 1.(A)(11)(d) Code of Ethics for Subsidiary Relationships and Transactions CODE OF ETHICS FOR SUBSIDIARY RELATIONSHIPS AND TRANSACTIONS Phoenix has adopted the following Code of Ethics to be applicable to all its relationships and transactions involving its subsidiaries. Each of its subsidiaries has also adopted this Code. STANDARDS OF ETHICAL INTEGRITY The business operations, corporate proceedings and fiscal and accounting records of subsidiaries shall be conducted or maintained so as to assure the separate legal and operating identities of Phoenix and any subsidiary. Nothing herein, however, shall preclude arrangements for common management or the cooperative or joint use of personnel, property, or services which are not inconsistent with the insurance law. All transactions between Phoenix and its subsidiaries shall be fair and equitable, charges or fees for services performed shall be reasonable and all expenses incurred and payments received shall be allocated on an equitable basis in conformity with customary insurance accounting practices consistently applied. The books, accounts and records of each party to all such transactions shall be maintained as to disclose clearly and accurately the nature and details of the transactions, including such accounting information as is necessary to support the reasonableness of the charges or fees to the respective parties. PHOENIX LIFE INSURANCE COMPANY CODE OF ETHICS FOR SUBSIDIARY RELATIONSHIPS AND TRANSACTIONS In accordance with 11 NYCRR 81-2.2, Phoenix Life Insurance Company ("Phoenix Life") has adopted the following Code of Ethics to be applicable to all its relationships and transactions involving its subsidiaries. All terms, unless otherwise defined, shall have the meanings ascribed to them in the New York Insurance Law. STANDARDS OF ETHICAL INTEGRITY ------------------------------ The business operations, corporate proceedings and fiscal and accounting records of subsidiaries shall be conducted or maintained so as to assure the separate legal and operating identities of Phoenix Life and any subsidiary. Nothing herein, however, shall preclude arrangements for common management or the cooperative or joint use of personnel, property or services which are not inconsistent with the insurance law. All transactions between Phoenix Life and its subsidiaries shall be fair and equitable, charges or fees for services performed shall be reasonable and all expenses incurred and payments received shall be allocated on an equitable basis in conformity with customary insurance accounting practices consistently applied. The books, accounts and records of each party to all such transactions shall be maintained as to disclose clearly and accurately the nature and details of the transactions, including such accounting information as is necessary to support the reasonableness of the charges or fees to the respective parties. CONFLICT OF INTEREST -------------------- No director or officer of Phoenix Life or any of its subsidiaries may be pecuniarily interested, as principal, co-principal, agent or beneficiary, directly or indirectly, or through any substantial interest in any other corporation or business unit in any transaction involving a subsidiary, except to the extent permitted (i) by the insurance law and (ii) by the provisions of this Code applicable to directors and officers of any subsidiary who are not otherwise affiliated with Phoenix Life ("non-affiliated directors and officers"). Non-affiliated directors and officers may be pecuniarily interested in any transaction that is in the subsidiary's ordinary course of business provided that: (i) such transactions are usual and customary in relations between an institution and its directors or officers; (ii) such transactions do not violate any provisions of the insurance law; and (iii) the nature of the transaction and the pecuniary interest is disclosed to Phoenix Life's board of directors. Whenever a director of Phoenix Life has a financial interest with respect to any transaction involving a subsidiary, or in any institution in which Phoenix Life has or intends to invest in or acquire, directly or indirectly, ten percent or more of the voting securities of such institution or Phoenix Life subsequently invests in or acquires additional increments of ten percent or more of such securities in such institution, the director or officer shall disclose the financial interest to the chief executive officer of Phoenix Life or his designee. PERIODIC REPORTING ------------------ At least one a year, directors and officers of Phoenix Life and its subsidiaries shall report to the chief executive officer of Phoenix Life or his designee in such detail as is deemed necessary by the chief executive officer of Phoenix Life or his designee. The report shall be for the purpose of disclosing information that will promote the goals of this Code of Ethics. EX-99.5 16 spvul53893-ex99_5.txt CONSENT OF PRICEWATERHOUSE COOPERS EXHIBIT 5 CONSENT OF PRICEWATERHOUSECOOPERS LLP CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the use in this Post-Effective Amendment No. 21 to the registration statement on Form S-6 ("Registration Statement") of our reports each dated March 22, 2002 and of our report dated February 5, 2002, relating to the financial statements of Phoenix Life Variable Universal Life Account (The Phoenix Edge(R)) and Phoenix Life Variable Universal Life Account (Phoenix Edge(R) - SPVL) and the consolidated financial statements of Phoenix Life Insurance Company, respectively, which appear in such Registration Statement. /s/ PricewaterhouseCoopers LLP Hartford, Connecticut April 26, 2002 EX-99.6 17 spvul53893-ex99_6.txt OPINION AND CONSENT OF COUNSEL EXHIBIT 6 OPINION AND CONSENT OF COUNSEL Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Phoenix Life Variable Universal Life Account Phoenix Life Insurance Company Post-Effective Amendment No. 21 to Form S-6 Registration Nos. 033-06793 and 811-4721 Dear Sirs: As Counsel to the depositor, I am familiar with the variable life insurance policies, The Phoenix Edge and The Phoenix Edge - SPVL ("Policies"), which are the subject of the above-captioned Registration Statement. 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 Life 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, Dated April 29, 2002 /s/ Richard J. Wirth -------------------------- Richard J. Wirth, Counsel Phoenix Life Insurance Company EX-99.8 18 spvul53893-ex99_8.txt OPINION AND CONSENT OF COUNSEL EXHIBIT 8 OPINION AND CONSENT OF COUNSEL Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Phoenix Life Variable Universal Life Account Phoenix Life Insurance Company Post-Effective Amendment No. 21 to Form S-6 Registration Nos. 033-06793 and 811-4721 Dear Sirs: As Counsel to the depositor, I am familiar with the variable life insurance policies, The Phoenix Edge and The Phoenix Edge - SPVL ("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 and 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 my 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 Life 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. I also hereby consent to the reference to my name under the caption "Legal Matters" in the Prospectus contained in Post-Effective Amendment No. 21 to the Registration Statement on Form S-6 (File No. 033-06793) filed by Phoenix Life Variable Universal Life Account with the Securities and Exchange Commission under the Securities Act of 1933. Very truly yours, Dated: April 29, 2002 /s/ Brian A. Giantonio ----------------------------------- Brian A. Giantonio, Counsel Phoenix Life Insurance Company -----END PRIVACY-ENHANCED MESSAGE-----