Single Life Policies and the features available under these Policies may not
yet be available in your state. Please contact your Registered Representative.
<PAGE>
THE WANGER ADVISORS TRUST
AND THE TWO
WANGER SUB-ACCOUNTS:
U.S. SMALL CAP AND INTERNATIONAL SMALL CAP,
MENTIONED HEREIN ARE NOT CURRENTLY AVAILABLE FOR
INVESTMENT. WE WILL NOTIFY POLICYHOLDERS
BY MAIL AS SOON AS THEY BECOME AVAILABLE.
P-1
<PAGE>
VERSION A
VARIABLE LIFE INSURANCE POLICY
ISSUED BY: PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
101 MUNSON STREET
P.O. BOX 942
GREENFIELD, MASSACHUSETTS 01302-0942
TELEPHONE: (800) 892-4885
PROSPECTUS
MAY 1, 1996
AS SUPPLEMENTED SEPTEMBER 15, 1996
This prospectus describes Flexible Premium Variable Life Insurance Policies
(the "Policies"), offered by Phoenix Home Life Mutual Insurance Company
("Phoenix"). An applicant chooses the amount of Issue Premium desired and it is
then shown in the Policy. Generally, the minimum Issue Premium Phoenix will
accept is 1/6 of the Planned Annual Premium. Phoenix may, in some cases, accept
less than that amount. The amount and payment frequency of planned premiums are
as shown in the Policy. If too much is paid in premium in the early Policy
Years, the Policy could become a "modified endowment contract." This would cause
loans and other amounts received under the Policy to be subject to tax and/or
penalties. Currently, Phoenix notifies a Policyowner when a Policy becomes a
modified endowment contract.
Premium payments are allocated to one or more of the Sub-accounts of the
Phoenix Home Life Variable Universal Life Account (the "VUL Account") or to the
Guaranteed Interest Account ("GIA"), as specified in the applicant's application
for insurance. The VUL Account is divided into Sub-accounts, each of which
invests in a corresponding series of The Phoenix Edge Series Fund or Wanger
Advisors Trust (collectively, the "Funds"). For certain Policyowners, the Issue
Premium is first allocated to the Money Market Sub-account before being
allocated according to the instructions in the application.
There is no guaranteed minimum Policy Value except for that portion of
Policy Value invested in the GIA, which has a 4% minimum interest rate
guarantee. The Policy Value not invested in the GIA will vary to reflect the
investment experience of the Sub-accounts of the VUL Account to which premiums
have been allocated. A Policyowner bears the investment risk for all amounts so
allocated. The Policy will remain in effect so long as the Policy Value or Cash
Surrender Value is sufficient to pay certain monthly charges imposed in
connection with the Policy.
The death benefit under the Policy equals the Policy's face amount on the
date of the Insured's death or, if greater, the Policy Value on the date of
death increased by the applicable percentage set forth in the Policy. Other
death benefit options also are available.
A Policyowner may cancel the Policy within 10 days (or longer in some
states), after the Policyowner receives it or 10 days after Phoenix mails or
delivers a written notice of withdrawal right to the Policyowner, or within 45
days of completing the application, whichever is latest.
It may not be advantageous to purchase a Policy as a replacement for your
current life insurance or to supplement an existing life insurance policy.
This prospectus is valid only if accompanied by or preceded by current
prospectuses for the Funds. This prospectus and the prospectuses for the Funds
should be read and retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
Heading Page
- --------------------------------------------------------------------------------
VARIABLE LIFE INSURANCE POLICY ........................... 1
TABLE OF CONTENTS ........................................ 2
FINANCIAL HIGHLIGHTS ..................................... 3
SPECIAL TERMS ............................................ 5
SUMMARY .................................................. 6
PHOENIX AND THE VARIABLE ACCOUNT ......................... 8
Phoenix ............................................... 8
The VUL Account ....................................... 8
The GIA................................................ 8
THE POLICY ............................................... 9
Introduction .......................................... 9
Eligible Purchasers ................................... 9
Premium Payment ....................................... 9
Allocation of Issue Premium ........................... 9
Right to Cancel Period ................................ 10
Temporary Insurance Coverage .......................... 10
Transfer of Policy Value .............................. 10
Determination of Sub-account Values ................... 10
Death Benefit ......................................... 11
Surrenders ............................................ 12
Policy Loans .......................................... 12
Lapse ................................................. 13
Payment of Premiums During Period of Disability ....... 13
Additional Insurance Options .......................... 13
Additional Rider Benefits ............................. 13
INVESTMENTS OF THE VUL ACCOUNT ........................... 14
Participating Mutual Funds ............................ 14
Investment Advisers to the Phoenix Edge Series Fund.... 15
Investment Advisers to the Wanger Advisors Trust....... 16
Reinvestment and Redemption ........................... 16
Substitution of Investments ........................... 16
Performance History ................................... 16
CHARGES AND DEDUCTIONS ................................... 17
Monthly Deduction ..................................... 17
Premium Taxes ......................................... 18
Federal Tax Charge..................................... 18
Mortality and Expense Risk Charge ..................... 18
Investment Management Charge .......................... 18
Other Charges ......................................... 19
GENERAL PROVISIONS ....................................... 20
Postponement of Payments .............................. 20
Payment by Check ...................................... 20
The Contract .......................................... 20
Suicide ............................................... 20
Incontestability ...................................... 20
Change of Owner or Beneficiary ........................ 20
Assignment ............................................ 20
Misstatement of Age or Sex ............................ 20
Surplus ............................................... 20
PAYMENT OF PROCEEDS ...................................... 20
Surrender and Death Benefit Proceeds .................. 20
Payment Options ....................................... 21
FEDERAL TAX CONSIDERATIONS ............................... 21
Introduction .......................................... 21
Phoenix's Tax Status .................................. 22
Policy Benefits ....................................... 22
Business-Owned Policies................................ 22
Modified Endowment Contracts .......................... 22
Limitations on Unreasonable Mortality
and Expense Charges ................................ 23
Qualified Plans ....................................... 23
Diversification Standards ............................. 23
Change of Ownership or Insured or Assignment .......... 24
Other Taxes ........................................... 24
VOTING RIGHTS ............................................ 24
The Funds ............................................. 24
Phoenix ............................................... 24
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX........... 24
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS .................. 25
SALES OF POLICIES ........................................ 25
STATE REGULATION ......................................... 26
REPORTS .................................................. 26
LEGAL PROCEEDINGS ........................................ 26
LEGAL MATTERS ............................................ 26
REGISTRATION STATEMENT ................................... 26
FINANCIAL STATEMENTS ..................................... 26
APPENDIX A ............................................... 68
APPENDIX B ............................................... 69
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESPERSON, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
2
<PAGE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
Following are the unaudited Financial Highlights for the periods indicated.
<TABLE>
MONEY MARKET SUB-ACCOUNT
------------------------------------------------------------------------------
<CAPTION>
FROM
YEAR ENDED DECEMBER 31, INCEPTION
------------------------- 6/20/89 TO
1995 1994 1993 1992 1991 1990 12/31/89
---- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period. $1.263974 $1.226981 $1.202239 $1.171195 $1.115052 $1.038647 $1.000000
Unit value, end of period....... $1.325408 $1.263974 $1.226981 $1.202239 $1.171195 $1.115052 $1.038647
========= ========= ========= ========= ========= ========= =========
Number of units outstanding:
Flex Edge (000) 10,230 9,143 5,488 2,834 1,547 341 11
Joint Edge (000) 296 155 155 -- -- -- --
GROWTH SUB-ACCOUNT
----------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
------------------------- 2/9/89 TO
1995 1994 1993 1992 1991 1990 12/31/89
---- ---- ---- ---- ---- ---- ---------
Unit value, beginning of period $2.412541 $2.396670 $2.018313 $1.846577 $1.305400 $1.264680 $1.000000
Unit value, end of period...... $3.132626 $2.412541 $2.396670 $2.018313 $1.846577 $1.305400 $1.264680
========= ========= ========= ========= ========= ========= =========
Number of units outstanding:
Flex Edge (000) 36,539 23,650 13,483 5,452 1,514 217 42
Joint Edge (000) 1,113 533 37 -- -- -- --
MULTI-SECTOR SUB-ACCOUNT
(FORMERLY THE "BOND" SUB-ACCOUNT)
------------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 2/9/89 TO
1995 1994 1993 1992 1991 1990 12/31/89
---- ---- ---- ---- ---- ---- ---------
Unit value, beginning of period $1.527250 $1.628351 $1.416138 $1.297743 $1.094831 $1.048255 $1.000000
Unit value, end of period...... $1.871769 $1.527250 $1.628351 $1.416138 $1.297743 $1.094831 $1.048255
========= ========= ========= ========= ========= ========= =========
Number of units outstanding:
Flex Edge (000) 3,484 2,355 1,524 775 106 20 18
Joint Edge (000) 95 48 2 -- -- -- --
TOTAL RETURN SUB-ACCOUNT
----------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 2/9/89 TO
1995 1994 1993 1992 1991 1990 12/31/89
---- ---- ---- ---- ---- ---- ---------
Unit value, beginning of period $1.830914 $1.871886 $1.699829 $1.549846 $1.209456 $1.151223 $1.000000
Unit value, end of period...... $2.147078 $1.830914 $1.871886 $1.699829 $1.549846 $1.209456 $1.151223
========= ========= ========= ========= ========= ========= =========
Number of units outstanding:
Flex Edge (000) 9,236 6,582 4,089 2,219 647 89 19
Joint Edge (000) 195 93 12 -- -- -- --
</TABLE>
3
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
INTERNATIONAL SUB-ACCOUNT
-----------------------------------------------------------------
<CAPTION>
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 5/1/90 TO
1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.273020 $1.282423 $0.933826 $1.080888 $0.910823 $1.000000
Unit value, end of period...... $1.384037 $1.273020 $1.282423 $0.933826 $1.080888 $0.910823
========= ========= ========= ========= ========= =========
Number of units outstanding:
Flex Edge (000) 14,435 11,096 3,971 692 244 38
Joint Edge (000) 555 314 18 -- -- --
BALANCED SUB-ACCOUNT
------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 5/1/92 TO
1995 1994 1993 12/31/92
---- ---- ---- ---------
Unit value, beginning of period $1.129669 $1.171933 $1.087688 $1.000000
Unit value, end of period...... $1.382412 $1.129669 $1.171933 $1.087688
========= ========= ========= =========
Number of units outstanding:
Flex Edge (000) 9,522 7,513 5,339 1,772
Joint Edge (000) 401 338 18 --
</TABLE>
REAL ESTATE SECURITIES SUB-ACCOUNT
STRATEGIC THEME SUB-ACCOUNT
WANGER U.S. SMALL CAP SUB-ACCOUNT
WANGER INTERNATIONAL SMALL CAP SUB-ACCOUNT
THESE SUB-ACCOUNTS COMMENCED OPERATIONS AS MAY 1, 1996;
ACCORDINGLY, FINANCIAL HIGHLIGHTS FOR THESE SUB-ACCOUNTS ARE NOT YET AVAILABLE.
ABERDEEN NEW ASIA SUB-ACCOUNT
THIS SUB-ACCOUNT COMMENCED OPERATIONS AS OF SEPTEMBER 15, 1996;
ACCORDINGLY, FINANCIAL HIGHLIGHTS FOR THIS SUB-ACCOUNT ARE NOT YET AVAILABLE.
4
<PAGE>
SPECIAL TERMS
- --------------------------------------------------------------------------------
As used in this Prospectus, the following terms have the indicated meanings:
ATTAINED AGE: The age of the Insured on the birthday nearest the most recent
Policy Anniversary.
BENEFICIARY: The person or persons specified by the Policyowner as entitled to
receive the death benefits under a Policy.
CASH SURRENDER VALUE: The Policy Value less any surrender charge that would
apply on the date of surrender and less any Debt.
DEATH BENEFIT GUARANTEE: An additional benefit rider available with the Policy
that guarantees a death benefit equal to the initial face amount or the face
amount as later increased or decreased, provided that Minimum Required Premiums
are paid. See "Additional Rider Benefits."
DEBT: Outstanding loans against a Policy, plus accrued interest.
GENERAL ACCOUNT: The general asset account of Phoenix.
GUARANTEED INTEREST ACCOUNT (GIA): An allocation option under which amounts
deposited are guaranteed to earn a fixed rate of interest. Excess interest also
may be credited, in the sole discretion of Phoenix.
IN FORCE: Conditions under which the coverage under a Policy is in effect and
the 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 Variable and Universal Life Administration.
ISSUE PREMIUM: The premium payment made in connection with the issue of the
Policy.
MINIMUM REQUIRED PREMIUM: The required premium as specified in the Policy. An
increase or decrease in the face amount of the policy will change the Minimum
Required Premium amount.
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.
MULTIPLE LIFE POLICY: A Policy under which the number of Insureds is greater
than one (1) but no more than five (5), and under which the death benefit is
paid upon the death of the first insured to die.
PAYMENT DATE: The Valuation Date on which a premium payment or loan repayment
is received at Phoenix, unless it is received after the close of the New York
Stock Exchange, in which case it will be the next Valuation Date.
PHOENIX: Phoenix Home Life Mutual Insurance Company, Hartford, Connecticut.
PLANNED ANNUAL PREMIUM: The premium amount that the Policyowner agrees to pay
each Policy Year. It must be at least equal to the minimum premium required for
the face amount of insurance selected and must be no greater than the maximum
premium allowed for the face amount selected.
POLICY ANNIVERSARY: Each anniversary of the Policy Date.
POLICY DATE: The Policy Date as shown on the Schedule Page of the Policy. It is
the date from which Policy Years and Policy Anniversaries are measured.
POLICY MONTH: The period from one Monthly Calculation Day up to but not
including the next Monthly Calculation Day.
POLICYOWNER (OWNER): The owner of a Policy.
POLICY VALUE: The sum of a Policy's share in the values of each Sub-account of
the VUL Account plus the Policy's share in the values of the GIA.
POLICY YEAR: The first Policy Year is the one-year period from the Policy Date
up to, but not including, the first Policy Anniversary. Each succeeding Policy
Year is the one-year period from the Policy Anniversary up to but not
including the next Policy Anniversary.
PROPORTIONATE: Amounts allocated to Sub-accounts on a proportionate basis are
allocated by increasing (or decreasing) a Policy's share in the value of the
affected Sub-accounts so that such shares maintain the same ratio to each other
before and after the allocation.
SINGLE LIFE POLICY: A Policy that covers the life of one (1) Insured.
SUB-ACCOUNTS: Accounts within the VUL Account to which non-loaned assets under a
Policy are allocated.
UNIT: A standard of measurement used in determining the value of a Policy. The
value of a Unit for each Sub-account will reflect the investment performance of
that Sub-account and will vary in dollar amount.
VALUATION DATE: For any Sub-account, each date on which the net asset value of
the Fund is determined.
VALUATION PERIOD: For any Sub-account, the period in days from the end of one
Valuation Date through the next.
VARIABLE AND UNIVERSAL LIFE ADMINISTRATION: Variable and Universal Life
Administration Division of Phoenix.
VUL ACCOUNT: Phoenix Home Life Variable Universal Life Account.
5
<PAGE>
SUMMARY
- --------------------------------------------------------------------------------
1. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A
CONVENTIONAL FIXED BENEFIT LIFE INSURANCE POLICY?
Like conventional fixed benefit life insurance, so long as the Policy
remains In Force, the Policy will provide for: (1) the payment of a death
benefit to a Beneficiary upon the Insured's death; (2) the accumulation of cash
value; and (3) surrender rights and Policy loan privileges.
The Policy differs from conventional fixed benefit life insurance by
allowing Policyowners to allocate premiums to one or more Sub-accounts of the
VUL Account or to the GIA. Each Sub-account invests exclusively in a
designated portfolio of the Fund. Also, under the Policy, the Policy Value
invested in the VUL Account is not guaranteed and may increase or decrease
depending upon the investment experience of the Sub-accounts of the VUL Account.
Accordingly, the Policyowner bears the investment risk of any depreciation in
value of the underlying assets but reaps the benefits of any appreciation in
value. See "Policy Value."
In addition, unlike conventional fixed benefit life insurance, a Policyowner
also has the flexibility to make additional premium payments and to thereby
adjust the Policy Value. However, unlike conventional fixed benefit life
insurance, the Policy does not require a Policyowner to adhere to a fixed
premium payment schedule. Moreover, after the payment of the Issue Premium, the
failure to make additional premium payments will not in itself cause the Policy
to lapse. Conversely, the payment of additional premiums will not guarantee that
the Policy will remain In Force. Generally, lapse will occur when the Cash
Surrender Value is insufficient to pay certain charges deducted on the Monthly
Calculation Day, and a grace period expires without payment of the additional
amount required. See "Lapse."
If a Whole Life Exchange Option Rider is attached to the Policy, the Policy
may be exchanged for a fixed benefit whole life policy. (See "Additional Rider
Benefits.")
2. IS THERE A GUARANTEED ACCOUNT OPTION?
Yes. A Policyowner may elect to have premium payments allocated to the GIA.
Amounts allocated to the GIA earn a fixed rate of interest and Phoenix also may,
in its sole discretion, credit excess interest. (See Appendix A.)
3. WHAT IS THE DEATH BENEFIT UNDER THE POLICY?
The Policy provides for the payment of benefits upon the death of
the Insured. Upon application for a Policy, an applicant designates an Issue
Premium. The Policy indicates the face amount of insurance. The death benefit
will equal the face amount on the date of the Insured's death or, if greater,
the Policy Value on the date of the Insured's death increased by the applicable
percentage set forth in the Policy. If the increased death benefit option is
selected, the death benefit will equal the face amount on the date of the
Insured's death plus the Policy Value or, if greater, the Policy Value on the
date of the Insured's death increased by the applicable percentage set forth in
the Policy. Guaranteed death benefit and living benefits riders are also
available. See "Death Benefit."
4. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The Policy will lapse only when the Cash Surrender Value is insufficient to
pay the monthly deduction (see "Charges and Deductions--Monthly Deductions"),
and a grace period expires without payment of the additional amount required. In
this respect, the Policy differs in two important respects from a conventional
life insurance Policy. First, the failure to pay additional premiums will not
automatically cause the Policy to lapse. Second, the payment of premiums of any
pre-specified amount does not guarantee that the Policy will remain In Force. A
rider is available to ensure that premium payments will continue during a period
of disability.
5. WHAT CHARGES ARE THERE IN CONNECTION WITH THE POLICY?
MONTHLY DEDUCTION: A deduction is made each Policy Month from the Policy
Value (excluding the value of the loaned portion of the GIA) to pay the cost of
insurance provided under the Policy; the cost of any rider benefits provided;
any unpaid balance of the Issue Expense Charge; and an administrative charge as
shown on the schedule page of the Policy. The administrative charge may vary but
in no event will it exceed $10 per month. Currently, the administrative charge
is $5 per month. The administrative charge is set at a level designed to recover
actual costs and is not designed to result in any profit to Phoenix. See
"Charges and Deductions."
OTHER CHARGES: A fee equal to the lesser of $25 or 2% of the partial
surrender amount paid is deducted from the Policy Value for each partial
surrender. A partial surrender charge equal to a pro rata portion of the
applicable surrender charge that would apply to a full surrender, determined by
applying a formula, also is assessed against the VUL Account Sub-accounts or
the GIA when a partial surrender is made.
No charges are currently made from the VUL Account or the GIA for federal
or state income taxes. If Phoenix determines that such taxes may be imposed,
it may make deductions from the VUL Account to pay these taxes.
Phoenix charges each Sub-account of the VUL Account the daily equivalent
of 0.80% for the first 15 years and then 0.25% on an annual basis of the current
value of the Sub-account's net assets for its assumption of certain mortality
and expense risks incurred in connection with Single Life Policies and 0.80% on
an annual basis for Multiple Life Policies.
Premium amounts also are reduced by any applicable premium tax, a Federal
Tax Charge of 1.50% on Single Life Policies and, for payments made during a
grace period, by the amount needed to cover any monthly deductions made during
the grace period.
Investment advisory charges are imposed on an annual basis based on the
average daily net assets of the Series of the Fund as follows:
6
<PAGE>
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
RATE FOR
Rate for First RATE FOR EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market....... .40% .35% .30%
Multi-Sector....... .50% .45% .40%
Balanced........... .55% .50% .45%
Total Return....... .60% .55% .50%
Growth............. .70% .65% .60%
International...... .75% .70% .65%
Strategic Theme.... .75% .70% .65%
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia............... 1.00%
PHOENIX REALTY SECURITIES, INC.
-------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate........ .75% .70% .65%
WANGER ASSET MANAGEMENT, L.P.
-----------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $100,000,000 $150,000,000 $250,000,000
- ------ -------------- ------------- ------------
U.S. Small Cap..... 1.00% .95% .90%
International
Small Cap.......... 1.30% 1.20% 1.10%
In addition, each Series pays a portion or all of its other operating
expenses other than the management fees; the Growth, Multi-Sector, Total Return,
Money Market and Balanced Series will pay up to .15%; the Real Estate,
Strategic Theme and Asia Series will pay up to .25%; the International Series
will pay up to .40%; the Wanger U.S. Small Cap Series will pay up to .50%; and
the Wanger International Small Cap Series will pay up to .60% of its average net
assets annually. See "Charges and Deductions."
6. IS THERE A RIGHT TO CANCEL PERIOD?
Yes. The Policyowner may cancel the Policy within 10 days after the
Policyowner receives it (or longer in some states), or 10 days after Phoenix
mails or delivers a written notice of withdrawal right to the Policyowner, or
within 45 days of completing the application, whichever is latest.
7. HOW ARE PREMIUMS ALLOCATED?
If the applicant elects the Temporary Money Market Allocation Amendment in
the application, Phoenix will allocate the entire Issue Premium, less
applicable charges, to the Money Market Sub-account of the VUL Account. Phoenix
requires this election for all applicants in certain states and for applicants
in certain states who indicate on their application that they intend the Policy
to replace existing insurance. At the expiration of the Right to Cancel Period
for such Policyowners, the Policy Value will be allocated among the Sub-accounts
of the VUL Account or to the GIA in accordance with the Policyowner's
allocation instructions in the application for insurance. All other Policyowners
will have their Issue Premium less applicable charges allocated according to the
instructions in the application on the date it is received without first having
the premium placed in the Money Market Sub-account. The Policy Value may be
allocated among the available Sub-accounts of the VUL Account, each of which
invests in shares of a designated portfolio of the Funds, or to the GIA.
8. AFTER THE INITIAL ALLOCATION, MAY I CHANGE THE ALLOCATION OF
POLICY VALUE?
Yes. A Policyowner may transfer amounts among the Sub-accounts of the VUL
Account or the GIA. Only one transfer per Policy Year is permitted from the
unloaned portion of the GIA. The amount of that transfer is limited to the
higher of $1,000 or 25% of the value of the Policy in the unloaned portion of
the GIA. Also, Phoenix reserves the right to require that transfers be made by
written request. Phoenix further reserves the right to permit transfers of less
than $500 only if the entire balance in the Sub-account of the VUL Account or
the GIA is transferred. A systematic transfer program also is available. See
"Transfer of Policy Value."
9. MAY THE POLICY BE SURRENDERED?
Yes. A Policyowner may totally surrender the Policy at any time and receive
the Cash Surrender Value. Subject to certain limitations, the Policyowner also
may partially surrender the Policy at any time prior to the Maturity Date. In
the future, Phoenix may set a minimum partial surrender amount, not to exceed
$500. See "Surrenders--Partial Surrenders." A partial surrender will result in a
decrease in the death benefit under the Policy. See "Death Benefit." If the
Policy is totally or partially surrendered during the first ten Policy Years, a
Surrender Charge will apply. See "Surrender Charge." In addition, there may be
certain tax consequences as the result of a surrender. For example, a Policy may
be a "modified endowment contract" if the amount of premium paid during the
first seven Policy Years is more than the amount that would have been paid if
the Policy had provided for paid-up benefits after the payment of seven level
annual premiums. Distributions such as loans and full or partial surrenders
under a modified endowment contract may be taxable income to the extent they
exceed the premiums paid. If such income is distributed before the Policyowner
attains age 59 1/2, a 10% penalty tax may be imposed. See "Federal Tax
Considerations."
10. WHAT IS THE POLICY'S LOAN PRIVILEGE?
A Policyowner may obtain Policy loans in an amount up to 90% of the result
of subtracting the remaining surrender charge from the Policy Value. The
interest rate on a loan is at an effective annual rate as stated in the Policy,
compounded daily and payable on each Policy Anniversary in arrears. The
requested loan amount is transferred from the VUL Account to the loaned portion
of the GIA and is credited with interest at an effective annual rate as stated
in the Policy. Phoenix reserves the right not to allow loans of less than $500
unless the loans are to pay premiums on another policy issued by Phoenix. See
"The Policy--Policy Loans."
The proceeds of Policy loans may be subject to federal income
tax under certain circumstances. See "Federal Tax Considerations."
11. HOW ARE INSURANCE BENEFITS PAID?
Surrender and death benefits under the Policy may be paid in a lump sum or
under one of the payment options set forth in the Policy.
See "Payment Options."
7
<PAGE>
PHOENIX AND THE VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
PHOENIX
The Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851. Its executive office is at One American Row, Hartford,
Connecticut 06115 and its main administrative office is at 100 Bright Meadow
Boulevard, Enfield, Connecticut 06083-1900. Its New York principal office is at
99 Troy Road, East Greenbush, New York 12061. Phoenix is the nation's 13th
largest mutual life insurance company and has admitted assets of approximately
$13.2 billion. Phoenix sells insurance policies and annuity contracts through
its own field force of full time agents and through brokers. Its operations are
conducted in all 50 states, the District of Columbia, Canada and Puerto Rico.
THE VUL ACCOUNT
The VUL Account is a separate account of Phoenix registered as a unit
investment trust under the Investment Company Act of 1940, as amended, and it
meets the definition of a "separate account" under that Act. Such registration
does not involve supervision of the management of the VUL Account or Phoenix by
the Securities and Exchange Commission.
The VUL Account is divided into Sub-accounts, each of which is available
for allocation of Policy Value. If in the future Phoenix determines that
marketing needs and investment conditions warrant, Phoenix may establish
additional Sub-accounts, which will be made available to existing Policyowners
to the extent and on a basis determined by Phoenix. Each Sub-account will
invest solely in shares of the Funds allocable to one of the available
portfolios, each having the specified investment objective set forth under
"Investments of the VUL Account--Participating Mutual Funds."
Phoenix does not guarantee the investment performance of the VUL Account
or any of its Sub-accounts. The Policy Value allocated to the VUL Account
depends on the investment performance of the Fund. Thus, the Policyowner bears
the full investment risk for all monies invested in the VUL Account.
Advertisements, sales literature and other communications may contain
information about any Series' or Advisers' current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
Illustrate components of overall performance, the Series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately as a return figure the equity or bond portion of a
Series' portfolio; or compare a Series' equity or bond return figure to
well-known indices of market performance including but not limited to the S&P
500 Index, Dow Jones Industrial Average, First Boston High Yield Index, and
Solomon Brothers Corporate and Government Bond Indices.
The VUL Account may from time to time include in advertisements containing
total return the ranking of those performance figures relative to such figures
for groups of Sub-accounts having similar investment objectives as categorized
by ranking services such as Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Weisenberger Financial Services, Inc. and Morningstar, Inc.
Additionally, the Funds may compare a Series performance results to other
investment or savings vehicles (such as certificates of deposit) and may refer
to results published in various publications such as Changing Times, Forbes,
Fortune, Money, Barrons, Business Week, Investor's Daily, The Stanger Register,
Stanger's Investment Adviser, The Wall Street Journal, The New York Times,
Consumer Reports, Registered Representative, Financial Planning, Financial
Services Weekly, Financial World, U.S. News and World Report, Standard & Poor's,
The Outlook, and Personal Investor. The Funds may from time to time illustrate
the benefits of tax deferral by comparing taxable investments to investments
made through tax-deferred retirement plans. The total return also may be used
to compare the performance of a Series against certain widely acknowledged
outside standards or indices for stock and bond market performance, such as the
Standard & Poor's 500 Stock Index (the "S&P 500"), Dow Jones Industrial Average,
Europe Australia Far East Index (EAFE), Consumer's Price Index, Shearson Lehman
Corporate Index and Shearson Lehman T-Bond Index. The S&P 500 is a commonly
quoted market value-weighted and unmanaged index showing the changes in the
aggregate market value of 500 common stocks relative to the base period 1940-43.
The S&P is composed almost entirely of common stocks of companies listed on the
New York Stock Exchange, although the common stocks of a few companies listed on
the American Stock Exchange or traded over the counter are included. The 500
companies represented include 400 industrial, 60 transportation and 40 financial
services concerns. The S&P represents about 80% of the market value of all
issues traded on the New York Stock Exchange.
The VUL Account is administered and accounted for as part of the general
business of Phoenix, but the income, gains, or losses of the VUL Account are
credited to or charged against the assets held in the VUL Account, without
regard to other income, gains, or losses of any other business Phoenix may
conduct. Under New York law, the assets of the VUL Account are not chargeable
with liabilities arising out of any other business Phoenix may conduct.
Nevertheless all obligations arising under the Policy are general corporate
obligations of Phoenix.
THE GIA
The GIA is not part of the VUL Account. It is accounted for as part of the
General Account. Phoenix reserves the right to limit cumulative deposits,
including transfers, to the unloaned portion of the GIA to no more than
$250,000 during any one-week period. Phoenix will credit interest daily on the
amounts allocated under the Policy to the GIA. The credited rate will be
uniform by class. The loaned portion of the GIA will be credited interest at
an effective annual fixed rate of 2% for Single Life Policies (4% on Single Life
Policies in New York), and 6% for Multiple Life Policies. Interest on the
unloaned portion of the GIA will be credited at an effective annual rate of
not less than 4%.
Bi-weekly, Phoenix sets the interest rate that will apply to any net
premium or transferred amounts deposited to the unloaned portion of the GIA.
That rate will remain in effect for such deposits for an initial guarantee
period of one full year from the date of deposit. Upon expiration of the initial
one-year guarantee period (and each subsequent one-year guarantee period
thereafter), the rate to be applied to any deposits whose guarantee period has
just ended shall be the same rate as is applied to new deposits allocated to the
GIA at the time that the guarantee period expired. This rate will likewise
remain in effect for a guarantee period of one full year from the date
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the new rate is applied. For more complete information concerning the GIA, see
Appendix A.
THE POLICY
- --------------------------------------------------------------------------------
INTRODUCTION
The Policy is a variable life insurance policy. The Policy has a death
benefit, Cash Surrender Value, and loan privilege such as is associated with a
traditional fixed benefit whole life policy. The Policy differs from a fixed
benefit whole life policy, however, because the Policyowner specifies into which
of several Sub-accounts of the VUL Account or the GIA net premium is to be
allocated. Each Sub-account of the VUL Account, in turn, invests its assets
exclusively in a portfolio of the Funds. The Policy Value varies according to
the investment performance of the Series to which 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 acceptable evidence of insurability. A person
can purchase a Policy to insure the life of another person provided that the
Policyowner has an insurable interest in the life of the Insured, and the
Insured consents. A policy also can be purchased to cover from two to five
lives under one Policy, for any person up to the age of 80. Under such a
Multiple Life Policy, the death benefit is paid upon the first death under the
Policy; the Policy then terminates. Such a Policy could be purchased on the
lives of spouses, family members, business partners or other related groups.
PREMIUM PAYMENT
The minimum Issue Premium for a Policy is generally 1/6 of the Planned
Annual Premium. The Issue Premium is due on the Policy Date. The Insured must be
alive when the Issue Premium is paid. Thereafter, the amount and payment
frequency of planned premiums are as shown on the schedule page of the Policy.
All premiums are payable at Variable and Universal Life Administration, except
that the Issue Premium may be paid to an authorized agent of Phoenix for
forwarding to the Underwriting Department of Phoenix.
Any premium payments will be reduced by the applicable premium tax and
Single Life Policies also will be reduced by a Federal Tax Charge of 1.50%. The
Issue Premium also will be reduced by the Issue Expense Charge on a pro rata
basis in equal monthly installments over a 12-month period. Any unpaid balance
of the Issue Expense Charge will be paid to Phoenix upon Policy Lapse or
termination.
Premium payments received during a grace period also will be reduced by
the amount needed to cover any monthly deductions during the grace period. The
remainder will be applied on the Payment Date to the various Sub-accounts of the
VUL Account or to the GIA, based on the premium allocation schedule elected in
the application for the Policy or as later changed. The allocation schedule for
premium payments may be changed by calling or writing to Variable and Universal
Life Administration. Allocations to the VUL Account Sub-accounts or to the GIA
must be expressed in terms of whole percentages.
The number of units credited to a Sub-account of the VUL Account will be
determined by dividing the portion of the net premium applied to that
Sub-account by the unit value of the Sub-account on the Payment Date.
A Policyowner may increase or decrease the planned premium amount or payment
frequency at any time by written notice to Variable and Universal Life
Administration. Phoenix reserves the right to limit increases to such maximums
as may be established from time to time. Additional premium payments may be made
at any time. Each premium payment must at least equal $25 or, if made during a
grace period, the payment must equal the amount needed to prevent lapse of the
Policy.
A Policyholder may also elect a Waiver of Premium Rider. This rider provides
for the waiver of certain premium payments under the Policy under certain
conditions during a period of total disability of the Insured. Under its terms,
the specified premium will be waived upon Phoenix's receipt of proof that the
Insured is totally disabled and that the disability occurred while the rider was
In Force.
The Policy contains a total premium limit as shown on the Schedule Page.
This limit is applied to the sum of all premiums paid under the Policy. If the
total premium limit is exceeded, the Policyowner will receive the excess, with
interest at an annual rate of not less than 4%, not later than 60 days after the
end of the Policy Year in which the limit was exceeded. The Policy Value then
will be adjusted to reflect the refund. The amount to be taken from each Sub-
account or the GIA will be allocated in the same manner as provided for monthly
deductions unless the Policyowner requests otherwise in writing. The total
premium limit may be exceeded if additional premium is needed to prevent lapse
or if Phoenix determines that additional premium would be permitted by federal
laws or regulations.
A Policyowner may authorize his bank to draw $25 or more from his personal
checking account monthly to purchase Units in any available Sub-account. The
amount the Policyowner designates will be automatically invested in the
Sub-account of his choice on the date the bank draws on his account.
Policies sold to officers, directors and employees of Phoenix (and their
spouses and children) will be credited with an amount equal to the first-year
commission that would apply on the amount of premium contributed. This option
also is available to career agents of Phoenix (and their spouses and children).
ALLOCATION OF ISSUE PREMIUM
Phoenix will generally allocate the Issue Premium less applicable charges
to the VUL Account or to the GIA upon receipt of a completed application, in
accordance with the allocation instructions in the application for a Policy.
However, Policies issued in certain states, and Policies issued in certain
states pursuant to applications which state the Policy is intended to replace
existing insurance, are issued with a Temporary Money Market Allocation
Amendment. Under this Amendment, Phoenix temporarily allocates the entire
Issue Premium paid less applicable charges (along with any other premiums paid
during the Right to Cancel Period) to the Money Market Sub-account of the VUL
Account, and, at the expiration of the Right to Cancel Period, the Policy Value
of the Money Market Sub-account is allocated among the Sub-accounts of the VUL
Account or to the GIA in accordance with the applicant's allocation
instructions in the application for insurance.
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RIGHT TO CANCEL PERIOD
A Policy may be returned by mailing or delivering it to Phoenix within ten
days after the Policyowner receives it (or longer in some states); within ten
days after Phoenix mails or delivers a written notice of withdrawal right to the
Policyowner; or within 45 days after the applicant signs the application for
insurance, whichever occurs latest (the "Right to Cancel Period"). The returned
Policy is treated as if Phoenix never issued the Policy and, except for Policies
issued with a Temporary Money Market Allocation Amendment, Phoenix will return
the sum of the following as of the date Phoenix receives the returned Policy:
(i) the then current Policy Value less any unpaid loans and loan interest; plus
(ii) any monthly deductions, partial surrender fees, and other charges made
under the Policy, including investment advisory fees, or any Fund expenses
deducted. The amount returned for Policies issued with the Amendment will equal
any premiums paid less any unrepaid loans and loan interest, and less any
partial surrender amounts paid.
Phoenix reserves the right to disapprove an application for processing
within 7 days of receipt at Phoenix of the completed application for
insurance, in which event Phoenix will return the premium paid. Even after
approval of the application for processing, Phoenix reserves the right to
decline issuance of the Policy, in which event Phoenix will refund the
applicant the same amount as would have been refunded under the Policy had it
been issued but returned for refund during the Right to Cancel Period.
TEMPORARY INSURANCE COVERAGE
On the date the application for a Policy is signed and submitted with the
Issue Premium, Phoenix issues a Temporary Insurance Receipt in connection with
the application. Under the Temporary Insurance Receipt, the insurance protection
applied for (subject to the limits of liability and in accordance with 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
A Policyowner may elect to transfer funds automatically among the
Sub-accounts or the unloaned portion of the GIA on a monthly, quarterly,
semi-annual or annual basis under the Systematic Transfer Program for Dollar
Cost Averaging ("Systematic Transfer Program"). Under this Systematic Transfer
Program, the minimum initial and subsequent transfer amounts are $25 monthly,
$75 quarterly, $150 semi-annually, or $300 annually. A Policyowner must have an
initial value of $1,000 in the GIA or the Sub-account that funds will be
transferred from and if the value in that Sub-account or the GIA drops below the
elected transfer amount, the entire remaining balance will be transferred and no
more systematic transfers will be processed. Funds may be transferred from only
one Sub-account or the GIA, but may be allocated to multiple Sub-accounts. Under
the Systematic Transfer Program, Policyowners may make more than one transfer
per Policy Year from the GIA, in approximately equal amounts over a minimum
18-month period. All transfers under the Systematic Transfer Program will be
executed on the basis of the respective values as of the first of the month
following receipt of the transfer request. If the first of the month falls on a
holiday or weekend, then the transfer will be processed on the next succeeding
business day.
NON-SYSTEMATIC TRANSFERS
Transfers among available Sub-accounts or the GIA and changes in premium
payment allocations may be requested in writing or by calling 1-800-892-4885,
between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time and will be executed
on the date the request is received at Variable and Universal Life
Administration, except as noted below. Unless the Policyowner elects in writing
not to authorize telephone transfers or allocation changes, telephone transfer
orders and allocation changes also will be accepted on behalf of the Policyowner
from his or her registered representative. Phoenix and Phoenix Equity Planning
Corporation ("PEPCO") 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 the Policyowner. To the extent that
procedures reasonably designed to prevent unauthorized transfers are not
followed, Phoenix and PEPCO may be liable for following telephone instructions
for transfers that prove to be fraudulent. However, the Policyowner would bear
the risk of loss resulting from instructions entered by an unauthorized third
party that Phoenix and PEPCO reasonably believe to be genuine. These telephone
privileges may be modified or terminated at any time and during times of extreme
market volatility, may be difficult to exercise. In such cases, the Policyowner
should submit a written request.
Phoenix reserves the right to permit transfers of less than $500 only if
the entire balance in the Sub-account or the GIA is transferred or if the
Systematic Transfer Program has been elected.
Phoenix reserves the right to prohibit a transfer to any Sub-account of
the VUL Account where the resultant value of the Policy's share in that
Sub-account immediately after the transfer would be less than $500. It further
reserves the right to require that the entire balance of a Sub-account or the
GIA be transferred if the share of the Policy in the value of that Sub-account
would, immediately after the transfer, be less than $500.
Unless Phoenix agrees otherwise or the Systematic Transfer Program has
been elected, a Policyowner may make only one transfer per Policy Year from the
unloaned portion of the GIA and the amount that may be transferred cannot exceed
the greater of $1,000 or 25% of the value of the Policy in the unloaned portion
of the GIA at the time of the transfer. Non-systematic transfers from the
unloaned portion of the GIA will be effectuated on the date of receipt by
Variable and Universal Life Administration.
Phoenix reserves the right to limit the number of Sub-accounts you may elect
to a total of 18 at any one time and/or over the life of the Policy unless
required to be less to comply with changes in federal and/or state regulation,
including tax, securities and insurance law. As of the date of this Prospectus,
this limitation has no effect because fewer Sub-accounts are offered.
For policies issued with the Temporary Money Market Allocation Amendment,
transfers may not be made until termination of the Right to Cancel Period.
DETERMINATION OF SUB-ACCOUNT VALUES
The unit value of each Sub-account of the VUL Account was set by Phoenix on
the first valuation date of each such Sub-account. The unit
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value of a Sub-account of the VUL Account on any other Valuation Date is
determined by multiplying the unit value of that Sub-account on the just prior
Valuation Date by the Net Investment Factor for that Sub-account for the then
current Valuation Period. The unit value of each Sub-account of the VUL Account
on a day other than a Valuation Date is the unit value on the next Valuation
Date. Unit values are carried to 6 decimal places. The unit value of each
Sub-account of the VUL Account on a Valuation Date is determined at the end of
that day.
The Net Investment Factor for each Sub-account of the VUL Account is
determined by the investment performance of the assets held by the Sub-account
during the Valuation Period. Each valuation will follow applicable law and
accepted procedures. The Net Investment Factor is equal to item (D) below
subtracted from the result of dividing the sum of items (A) and (B) by item (C).
(A) The value of the assets in the Sub-account on the current Valuation
Date, including accrued net investment income and realized and
unrealized capital gains and losses, but excluding the net value of any
transactions during the current Valuation Period.
(B) The amount of any dividend (or, if applicable, any capital gain
distribution) received by the Sub-account if the "ex-dividend" date for
shares of the Fund occurs during the current Valuation Period.
(C) The value of the assets in the Sub-account as of the just prior
Valuation Date, including accrued net investment income and realized and
unrealized capital gains and losses, and including the net value of all
transactions during the Valuation Period ending on that date.
(D) The sum of the following daily charges multiplied by the number of days
in the current Valuation Period:
1. the mortality and expense risk charge; and
2. the charge, if any, for taxes and reserves for taxes on
investment income, and realized and unrealized capital
gains.
DEATH BENEFIT
GENERAL
The death benefit (under Option 1) equals the Policy's face amount on the
date of the Insured's death or, if greater, the minimum death benefit on the
date of death. On Single Life Policies, under Option 2, the death benefit equals
the Policy's face amount on the date of the Insured's death plus the Policy
Value. On Multiple Life Policies, under Option 2, the death benefit equals the
Policy's face amount on the date of the first insured's death plus the Policy
Value to the later of the tenth policy anniversary or policy anniversary nearest
the oldest insured's 65th birthday. Under either Option, the minimum death
benefit is the Policy Value on the date of death of the Insured increased by the
applicable percentage from the table contained in the Policy, based on the
Insured's attained age at the beginning of the Policy Year in which the death
occurs. If no option is elected, Option 1 will apply.
GUARANTEED DEATH BENEFIT OPTION
For Policies with a face amount of at least $50,000, a guaranteed death
benefit rider may be purchased. Under this Policy rider, if a Policyowner pays
the required premium each year as specified in the rider, the death benefit
selected will be guaranteed for a certain specified number of years, regardless
of the investment performance of the Policy, and will equal either the initial
face amount or the face amount as later changed by increases or decreases. In
order to keep this guaranteed death benefit In Force, there may be limitations
on the amount of partial surrenders or decreases in face amount permitted.
LIVING BENEFITS OPTION
In the event of a 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 Rider has been purchased. The minimum face amount
of the Policy after any such accelerated benefit payment is $10,000.
REQUESTS FOR INCREASE IN FACE AMOUNT
Any time after the first Policy Anniversary, a Policyowner may request an
increase in the face amount of insurance provided under the Policy. Requests for
face amount increases must be made in writing, and Phoenix requires additional
evidence of insurability. The effective date of the increase generally will be
the Policy Anniversary following approval of the increase. The increase may not
be less than $25,000 and no increase will be permitted after the Insured's age
75. The charge for the increase is $1.50 per thousand of face amount increase
requested subject to a maximum of $600. No additional monthly administration
charge will be assessed for face amount increases. Phoenix will deduct any
charges associated with the increase (the increases in cost of insurance
charges), from the Policy Value, whether or not the Policyowner pays an
additional premium in connection with the increase. The surrender charge
applicable to the Policy also will increase. At the time of the increase, the
Cash Surrender Value must be sufficient to pay the monthly deduction on that
date, or additional premiums will be required to be paid on or before the
effective date. Also, a new Right to Cancel period (see "The Policy--Right to
Cancel Period") will be established for the amount of the increase. For a
discussion of possible implications of a material change in the Policy resulting
from the increase, see "Material Change Rules."
PARTIAL SURRENDER AND DECREASES IN FACE AMOUNT: EFFECT ON
DEATH BENEFIT
A partial surrender or a decrease in face amount generally decreases the
death benefit. Upon a decrease in face amount or partial surrender, a partial
surrender charge will be deducted from Policy Value based on the amount of the
decrease or partial surrender. With a decrease in face amount, the death benefit
under a Policy would be reduced on the next Monthly Calculation Day. With a
partial surrender, the death benefit under a Policy would be reduced
immediately. A decrease in the death benefit may have certain tax consequences.
See "Federal Tax Considerations."
REQUESTS FOR DECREASE IN FACE AMOUNT
A Policyowner may request a decrease in face amount at any time after the
first Policy Year. Unless Phoenix agrees otherwise, the decrease must at least
equal $10,000 and the face amount remaining after the decrease must at least
equal $25,000. All face amount decrease requests must be in writing and will be
effective on the first Monthly Calculation Day following the date Phoenix
approves the
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request. A partial surrender charge will be deducted from the Policy Value
based on the amount of the decrease. The charge will equal the applicable
surrender charge that would apply to a full surrender multiplied by a fraction
(the decrease in face amount divided by the face amount of the Policy before the
decrease).
SURRENDERS
GENERAL
At any time during the lifetime of the Insured(s) and while the Policy is In
Force, the Policyowner may partially or fully surrender the Policy by sending a
written release and surrender in a form satisfactory to Phoenix to Variable
and Universal Life Administration, along with the Policy if Phoenix so
requires. 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
Variable and Universal Life Administration.
Upon partial or full surrender, Phoenix generally will pay the amount
surrendered to the Policyowner within seven days after Phoenix receives the
Written Request for the surrender. Under certain circumstances, the surrender
payment may be postponed. See "General Provisions--Postponement of Payments."
For the federal tax effects of partial and full surrenders, see "Federal Tax
Considerations."
FULL SURRENDERS
If the Policy is being fully surrendered, the Policy itself must be returned
to Variable and Universal Life Administration, along with the written release
and surrender of all claims in a form satisfactory to Phoenix. A Policyowner
may elect to have the amount paid in a lump sum or under a payment option. See
"Surrender Charge" and "Payment Options."
PARTIAL SURRENDERS
A Policyowner may obtain a partial surrender of the Policy by requesting
that part of the Policy's Cash Surrender Value be paid. The Policyowner may do
this at any time during the lifetime of the Insured while the Policy is In Force
with a Written Request to Variable and Universal Life Administration. Phoenix
reserves the right to require that the Policy be returned before payment is
made. A partial surrender will be effective on the date the Written Request is
received or, if required, the date the Policy is received. Surrender proceeds
may be applied under any of the payment options described under "Payment of
Proceeds--Payment Options."
Phoenix reserves the right not to allow partial surrenders of less than
$500. In addition, if the share of the Policy Value in any Sub-account or in
the GIA that would be reduced as a result of a partial surrender would,
immediately after the partial surrender, be less than $500, Phoenix reserves
the right to require that as part of any partial surrender, the entire remaining
balance in that Sub-account or the GIA be surrendered.
Upon a partial surrender the Policy Value will be reduced by the sum of the
following:
(i) The Partial Surrender Amount Paid. This amount comes from a reduction in
the Policy's share in the value of each Sub-account or the GIA based
on the allocation requested at the time of the partial surrender. If no
allocation request is made, the assessment to each Sub-account will be
made in the same manner as that provided for monthly deductions.
(ii) The Partial Surrender Fee. This fee is the lesser of $25 or 2% of the
partial surrender amount paid. The assessment to each Sub-account or the
GIA will be made in the same manner as provided for the partial
surrender amount paid.
(iii) A Partial Surrender Charge. This charge is equal to a pro rata
portion of the applicable surrender charge that would apply to a full
surrender, determined by multiplying the applicable surrender charge by
a fraction (equal to the partial surrender amount payable divided by the
result of subtracting the applicable surrender charge from the Policy
Value). This amount is assessed against the Sub-account or the GIA in
the same manner as provided for the partial surrender amount paid.
The Cash Surrender Value will be reduced by the partial surrender amount
paid plus the partial surrender fee. The face amount of the Policy also will be
reduced by the same amount as the Policy Value is reduced as described above.
POLICY LOANS
While the Policy is In Force, a loan may be obtained against the Policy up
to the available loan value. The loan value on any day is 90% of the result of
subtracting the then remaining surrender charge from the Policy Value. The
available loan value is the loan value on the current day less any outstanding
Debt.
The amount of any loan will be added to the loaned portion of the GIA and
subtracted from the Policy's share of the Sub-accounts or the unloaned portion
of the GIA, based on the allocation requested at the time of the loan. The
total reduction will equal the amount added to the loaned portion of the GIA.
Allocations generally must be expressed in terms of whole percentages. If no
allocation request is made, the amount subtracted from the share of each
Sub-account or the unloaned portion of the GIA will be determined in the same
manner as provided for monthly deductions. Interest will be credited and the
loaned portion of the GIA will increase at an effective annual rate of 2.00% on
Single Life Policies and 6% on Multiple Life Policies, compounded daily and
payable in arrears. At the end of each Policy Year and at the time of any Debt
repayment, interest credited to the loaned portion of the GIA will be
transferred to the unloaned portion of the GIA.
Debt may be repaid at any time during the lifetime of the Insured while the
Policy is In Force. Any Debt repayment received by Phoenix during a grace period
will be reduced to cover any overdue monthly deductions and only the balance
will be applied to reduce the Debt. Such balance, in excess of any outstanding
accrued loan interest, will be applied to reduce the loaned portion of the GIA
and will be transferred to the unloaned portion of the GIA to the extent that
loaned amounts taken from such Account have not been previously repaid.
Otherwise, such balance will be transferred among the Sub-accounts as the
Policyowner requests upon repayment and, if no allocation request is made,
according to the most recent premium allocation schedule on file.
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While there is outstanding Debt on the Policy, any payments received by
Phoenix for the Policy will be applied directly to reduce the Debt unless
specified as a premium payment by the Policyowner. 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 except as otherwise provided under the terms of the Policy concerning
the grace period and lapse.
The proceeds of Policy loans may be subject to federal income
tax under certain circumstances. See "Federal Tax Considerations."
In the future, Phoenix may not allow Policy loans of less than $500,
unless such loan is used to pay a premium on another Phoenix policy.
The Policyowner will pay interest on the loan at an effective annual rate,
compounded daily and payable in arrears. The loan interest rates in effect are
as follows:
SINGLE LIFE POLICIES
--------------------
4% for Policy Years 1 through 10 (or the Insured's age 65 if earlier)
3% through Policy Year 15
2 1/2% for Policy Years 16 and thereafter
SINGLE LIFE POLICIES--NEW YORK ONLY
-----------------------------------
6% for Policy Years 1 through 10 (or the Insured's age 65 if earlier)
5% through Policy Year 15
4 1/2% for Policy Years 16 and thereafter
MULTIPLE LIFE POLICIES
----------------------
8% for Policy Years 1 through 10
4% for Policy Years 11 and thereafter
At the end of each Policy Year, any interest due on the Debt will be treated
as a loan and will be offset by a transfer from the Policyowner's values to the
value of the loaned portion of the GIA.
A Policy loan, whether or not repaid, has a permanent effect on the Policy
Value because the investment results of the Sub-accounts or unloaned portion of
the GIA will apply only to the amount remaining in the Sub-accounts or the
unloaned portion of the GIA. The longer a loan is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If the
Sub-accounts or the unloaned portion of the GIA earn more than the annual
interest rate for funds held in the loaned portion of the GIA, Policy Value
does not increase as rapidly as it would have had no loan been made. If the
Sub-accounts or the GIA earn less than the annual interest rate for funds held
in the loaned portion of the GIA, Policy Value is greater than it would have
been had no loan been made. A Policy loan, whether or not repaid, also has an
effect on the Policy's Death Benefit due to any resulting differences in Cash
Surrender Value.
LAPSE
Unlike conventional life insurance policies, the payment of the Issue
Premium, no matter how large, or the payment of additional premiums will not
necessarily continue the Policy In Force to its Maturity Date.
If on any Monthly Calculation Day during the first two Policy Years, the
Policy Value is insufficient to cover the monthly deduction, a grace period of
61 days will be allowed for the payment of an amount equal to three times the
required monthly deduction. If on any Monthly Calculation Day during any
subsequent Policy Year, the Cash Surrender Value (which has become positive) is
less than the required monthly deduction, a grace period of 61 days will be
allowed for the payment of an amount equal to three times the required monthly
deduction. However, until the Cash Surrender Value becomes positive for the
first time, the Policy will not lapse as long as all premiums planned at issue
have been paid.
The Policy will continue In Force during any such grace period although,
Sub-account 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 have elapsed since Phoenix mailed
written notice to the Policyowner. If a premium payment for the additional
amount is received by Phoenix during the grace period, any amount of premium
over what is required to prevent lapse will be allocated among the Sub-accounts
of the VUL Account or to the GIA in accordance with the then current premium
allocation schedule. In determining the amount of "excess" premium to be applied
to the Sub-accounts or the GIA, Phoenix 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.
PAYMENT OF PREMIUMS DURING PERIOD OF DISABILITY
A Policyholder may also elect a Waiver of Premium Rider. This rider provides
for the waiver of certain premium payments under the Policy under certain
conditions during a period of total disability of the Insured. Under its terms,
the specified premium will be waived upon Phoenix's receipt of proof that the
Insured is totally disabled and that the disability occurred while the rider was
In Force. The terms of this rider may vary by state.
ADDITIONAL INSURANCE OPTIONS
While the Policy is In Force and the Policyowner is insurable, the
Policyowner will have the option to purchase additional insurance on the same
Insured with the same guaranteed rates as the Policy without being assessed an
Issue Expense Charge. Phoenix will require evidence of insurability and
charges will be adjusted for the Insured's new attained age and any change in
risk classification. However, if elected on the application, the Policyowners
may, at predetermined future dates, purchase additional insurance protection on
the same Insured without evidence of insurability. (See "Purchase Protection
Plan Riders.")
In addition, once each Policy Year, for Single Life Policies only, a
Policyowner may request an increase in face amount. This request should be made
within 90 days prior to the Policy Anniversary and is subject to an issue
expense charge of $1.50 per $1,000 of increase in face amount, up to a maximum
of $600, and to Phoenix's receipt of adequate evidence of insurability. A
Right to Cancel Period as described in "The Policy" section of this Prospectus
applies to each increase in face amount.
ADDITIONAL RIDER BENEFITS
A Policyowner may purchase additional benefits under a Policy. These
benefits are cancellable by the Policyowner at any time. A
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charge will be deducted monthly from the Policy Value for each additional
rider benefit chosen except where noted below. More details will be included in
the form of a rider to the Policy if any of these benefits is chosen. The
following benefits are currently available; however, additional riders may be
available as described in the Policy.
SINGLE LIFE POLICIES:
O DISABILITY WAIVER OF SPECIFIED PREMIUM RIDER
Phoenix waives the specified premium if the Insured becomes totally
disabled and the disability continues for at least six months. Premiums will
be waived to the Policy Anniversary nearest the Insured's 65th birthday
(provided that the disability continues), unless premiums have been waived
continuously during the entire five years prior to such date in which case
the waiver will continue beyond that date. The premium will be waived upon
Phoenix's receipt that the Insured is totally disabled and that the
disability occurred while the rider was In Force. The terms vary in New
York.
O ACCIDENTAL DEATH BENEFIT RIDER
An additional death benefit will be paid if the Insured dies from bodily
injury that results from an accident; if the Insured dies no later than 90
days after injury; and before the Policy Anniversary nearest the Insured's
75th birthday.
O DEATH BENEFIT PROTECTION RIDER
The purchase of this rider provides that the death benefit will be
guaranteed. The amount of the guaranteed death benefit is equal to the
initial face amount, or the face amount that later may be increased or
decreased by the Policyholder provided that certain minimum premiums are
paid. Unless Phoenix agrees otherwise, the initial face amount and the
face amount remaining after any decrease must at least equal $50,000 and the
minimum issue age of the Insured is 20. Three (3) death benefit guarantee
periods are available in all states except New York. The minimum premium
required to maintain the guaranteed death benefit is based on the length of
the guarantee period as elected on the application. The three available
guarantee periods are:
Level: Expiry Date of Death Benefit Guaranteed, the later of:
1 The Policy Anniversary nearest the Insured's 70th
birthday or the 7th Policy Year
2 The Policy Anniversary nearest the Insured's 80th
birthday or the 10th Policy Year
3 The Policy Anniversary nearest the Insured's 95th
birthday.
Level 1 or 2 guarantees may be extended provided that the Policy's Cash
Surrender Value is sufficient and the Policyowner pays the new Minimum Required
Premium.
For Policies issued in New York, two guarantee periods are available:
1 The Policy Anniversary nearest the Insured's 75th birthday or the
10th Policy Year
2 The Policy Anniversary nearest the Insured's 95th birthday.
O WHOLE LIFE EXCHANGE OPTION RIDER
This rider permits the Policyowner to exchange his Policy for a fixed
benefit whole life policy at the later of age 65 or Policy Year 15. There is
no charge for this rider.
O PURCHASE PROTECTION PLAN RIDER
Under this rider a Policyowner may, at predetermined future dates,
purchase additional insurance protection without evidence of insurability.
O LIVING BENEFITS RIDER
Under certain conditions, in the event of the 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. The minimum face amount of the
Policy after any such accelerated benefit payment is $10,000. There is no
charge for this rider.
O CASH VALUE ACCUMULATION RIDER
This rider generally permits a Policyowner to pay more in premium than
otherwise would be permitted. This rider must be elected before the Policy
is issued. There is no charge for this rider.
MULTIPLE LIFE POLICIES:
O DISABILITY BENEFIT RIDER
In the case of disability of the Insured, a specified monthly amount may
be credited to the Policy and the monthly deductions will be waived. A
Disability Benefit Rider may be provided on any or all eligible Insureds.
The specified amount selected must be the same for all who elect coverage.
O SURVIVOR PURCHASE OPTION RIDER
The survivor(s) may purchase a new Multiple Life Policy for a face
amount equal to that of the original Policy upon the first death. The new
Policy will be based upon attained age rates.
O TERM INSURANCE RIDER
The Term Insurance Rider enables the face amount of coverage on each
life to be individually specified. A rider is available for each Insured and
the face amount of coverage under the rider may differ for each Insured.
Based upon the Policyowner's election at issue, the rider will provide
coverage for all Insureds to either age 70 or maturity of the Policy. The
termination age specified must be the same for all Insureds.
O POLICY EXCHANGE OPTION RIDER
The Multiple Life Policy may be exchanged for Single Life Policies where
the total face amount under the Policies is no greater than that under the
original Policy. There is no charge for this rider.
INVESTMENTS OF THE VUL ACCOUNT
- -------------------------------------------------------------------------------
PARTICIPATING MUTUAL FUNDS
THE PHOENIX EDGE SERIES FUND
Certain Sub-accounts of the VUL Account invest in corresponding Series of
The Phoenix Edge Series Fund. The Fund currently has the following Series
available through the Policies:
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MONEY MARKET SERIES: The investment objective of the Money Market Series is
to provide maximum current income consistent with capital preservation and
liquidity.
GROWTH SERIES: The investment objective of the Growth Series is to achieve
intermediate and long-term growth of capital, with income as a secondary
consideration.
MULTI-SECTOR FIXED INCOME ("MULTI-SECTOR") SERIES: The investment objective
of the Multi-Sector Series is to seek long-term total return by investing in a
diversified portfolio of high yield (high risk) and high quality fixed income
securities. For a discussion of the risks associated with investing in high
yield bonds, please see the accompanying Fund prospectus.
TOTAL RETURN SERIES: The investment objective of the Total Return Series is
to realize as high a level of total rate of return over an extended period of
time as is considered consistent with prudent investment risk (total rate of
return consists of capital appreciation, current income, including dividends and
interest, possible premiums and short-term gains from purchasing and selling
options and financial futures).
INTERNATIONAL SERIES: The investment objective of the International Series
is to seek a high total return consistent with reasonable risk. The
International Series intends to invest primarily in an internationally
diversified portfolio of equity securities. It intends to reduce its risk by
engaging in hedging transactions involving options, futures contracts and
foreign currency transactions. The International Series provides a means for
investors to invest a portion of their assets outside the United States.
BALANCED SERIES: The investment objective of the Balanced Series is to seek
reasonable income, long-term capital growth and conservation of capital. The
Balanced Series intends to invest based on combined considerations of risk,
income, capital enhancement and protection of capital value.
REAL ESTATE SERIES: The investment objective of the Real Estate Securities
Series is to seek capital appreciation and income with approximately equal
emphasis. It intends under normal circumstances to invest in marketable
securities of publicly traded real estate investment trusts (REITs) and
companies that operate, develop, manage and/or invest in real estate located
primarily in the United States.
STRATEGIC THEME SERIES: The investment objective of the Strategic Theme
Series is to seek long-term appreciation of capital by identifying securities
benefiting from long-term trends present in the United States and abroad. The
Strategic Theme Series intends to invest primarily in common stocks believed to
have substantial potential for capital growth.
ASIA SERIES: The investment objective of the Asia Series is to seek
long-term capital appreciation. The Asia Series will invest primarily in a
diversified portfolio of equity securities of issuers organized and principally
operating in Asia, excluding Japan.
WANGER ADVISORS TRUST
Certain Sub-accounts of the VUL Account invest in corresponding Series of
the Wanger Advisors Trust. The available Series and their fundamental objectives
are as follows:
WANGER U.S. SMALL CAP ("U.S. SMALL CAP") SERIES: The investment objective of
the U.S. Small Cap Series is to provide long-term growth. The U.S. Small Cap
will invest primarily in securities of U.S. companies with total common stock
market capitalization of less than $1 billion.
WANGER INTERNATIONAL SMALL CAP ("INTERNATIONAL SMALL CAP") SERIES: The
investment objective of the International Small Cap Series is to provide
long-term growth. The International Small Cap will invest primarily in
securities of non-U.S. companies with total common stock market capitalization
of less than $1 billion.
Each Series will be subject to the market fluctuations and risks inherent in
the ownership of any security and there can be no assurance that any Series'
stated investment objective will be realized.
In addition to being sold to the VUL Account, shares of the Funds also are
sold to the Phoenix Home Life Variable Accumulation Account, a separate account
utilized by Phoenix to receive and invest premiums paid under certain variable
annuity contracts issued by Phoenix. Shares of the Fund also may be sold to
other separate accounts of Phoenix or its affiliates or of other insurance
companies.
It is conceivable that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the Fund simultaneously. Although neither Phoenix nor the Fund
currently foresees any such disadvantages either to variable life insurance
Policyowners or to variable annuity Contract Owners, the Fund's 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 thereto. Material
conflicts could result from, for example, (1) changes in state insurance laws,
(2) changes in federal income tax laws, (3) changes in the investment
management of any portfolio of the Fund, or (4) differences in voting
instructions between those given by variable life insurance Policyowners and
those given by variable annuity Contract Owners. Phoenix will, at its own
expense, remedy such material conflict including, if necessary, segregating the
assets underlying the variable life insurance policies and the variable annuity
contracts and establishing a new registered investment company.
INVESTMENT ADVISERS TO THE PHOENIX EDGE SERIES FUND
The Phoenix Edge Series Fund's investment advisers are Phoenix Investment
Counsel, Inc. ("PIC"), Phoenix Realty Securities, Inc. ("PRS") and
Phoenix-Aberdeen International Advisors LLC, ("PAIA") (collectively, the
"Advisers"), which are located at 56 and 38 Prospect Street and One American
Row, respectively, Hartford, Connecticut 06115. PIC was originally organized in
1932 as John P. Chase, Inc. In addition to the Fund, it also serves as
investment adviser to the Phoenix Series Fund, Phoenix Total Return Fund, Inc.
and Phoenix Multi-Portfolio Fund and as subadviser to American Skandia, Chubb
America Fund, Inc., Sun America Series Trust and JNL Series Trust. PIC also
serves as subadviser to the Asia Series.
PRS was formed in 1994 as an indirect subsidiary of Phoenix. In addition
to the Fund, it also serves as investment adviser to the Real Estate Portfolio
of the Phoenix Multi Portfolio Fund.
PAIA, a Delaware limited liability company formed in 1996 and jointly owned
and managed by PM Holdings, Inc., is a direct
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subsidiary of Phoenix and Aberdeen Fund Managers, Inc., a wholly-owned
subsidiary of Aberdeen Trust plc. Aberdeen Fund Managers, Inc. Has its principal
offices located at 1 Financial Plaza, Suite 2210, NationsBank Tower, Fort
Lauderdale, Florida 33394. While many of the officers and directors of the
Adviser have extensive experience as investment professionals, due to its recent
formation, the Adviser has no prior operating history. Aberdeen Fund Managers
also serves as subadviser to the Asia Series.
Aberdeen Trust was founded in 1983 and through subsidiaries operating from
offices in Aberdeen, Scotland; London, England; Singapore; and Fort Lauderdale,
Flordia, provides investment management services to unit and investment trusts,
segregated pension funds and other institutional and private portfolios. As of
September 30, 1995, Aberdeen Trust, and its advisory subsidiaries, had
approximately $4 billion in assets under management.
ABKB/LaSalle Securities Limited Partnership (ABKB), a subsidiary of LaSalle
Partners, serves as subadviser to the Real Estate Series. ABKB's principal
place of business is located at 100 East Pratt Street, Baltimore, Maryland
21202. ABKB has been a registered investment adviser since 1979.
All of the outstanding stock of PIC is owned by PEPCO, an indirect
subsidiary of Phoenix. PEPCO also performs bookkeeping and pricing and
administrative services for the Fund. PEPCO is registered as a broker-dealer in
fifty states. The executive offices of Phoenix are located at One American
Row, Hartford, Connecticut 06115 and the principal offices of PEPCO are located
at 100 Bright Meadow Boulevard, P.O. Box 2200, Enfield, Connecticut 06083-2200.
INVESTMENT ADVISERS TO THE WANGER ADVISORS TRUST
The investment adviser to the Wanger Advisors Trust is Wanger Asset
Management, L.P. Wanger's principal place of business is located at 227 West
Monroe Street, Suite 3000, Chicago, Illinois 60606.
The Advisers furnish continuously 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 more detailed
discussion of the Advisers and the Investment Advisory Agreements is contained
in the accompanying prospectus for the Fund.
REINVESTMENT AND REDEMPTION
All dividend distributions of the Fund are automatically reinvested in
shares of the Fund at their net asset value on the date of distribution; all
capital gains distributions of the Fund, if any, are likewise reinvested at the
net asset value on the record date. Phoenix redeems Fund shares at their net
asset value to the extent necessary to make payments under the Policy.
SUBSTITUTION OF INVESTMENTS
Phoenix reserves the right, subject to compliance with the law as
currently applicable or subsequently changed, to make additions to, deletions
from, or substitutions for the investments held by the VUL Account. In the
future Phoenix may establish additional Sub-accounts within the VUL Account,
each of which will invest in shares of a designated portfolio of the Fund with a
specified investment objective. These portfolios will be established if, and
when, in the sole discretion of Phoenix, marketing needs and investment
conditions warrant, and will be made available under existing Policies to the
extent and on a basis to be determined by Phoenix.
If shares of any of the portfolios of the Fund should no longer be available
for investment, or if in the judgment of Phoenix's management further
investment in shares of any of the portfolios should become inappropriate in
view of the objectives of the Policy, then Phoenix may substitute shares of
another mutual fund for shares already purchased, or to be purchased in the
future, under the Policy. No substitution of mutual fund shares held by the VUL
Account may take place without prior approval of the Securities and Exchange
Commission and prior notice to the Policyowner. In the event of a substitution,
the Policyowner will be given the option of transferring the Policy Value of the
Sub-account in which the substitution is to occur to another Sub-account.
PERFORMANCE HISTORY
From time to time the VUL Account may include the performance history of any
or all Sub-accounts, in advertisements, sales literature or reports. PERFORMANCE
INFORMATION ABOUT EACH SUB-ACCOUNT IS BASED ON PAST PERFORMANCE ONLY AND IS NOT
AN INDICATION OF FUTURE PERFORMANCE. Performance information may be expressed as
yield and effective yield of the Money Market Sub-account, as yield of the Bond
Sub-account and as total return of any Sub-account. Current yield for the Money
Market Sub-account will be based on the income earned by the Sub-account over a
given seven-day period (less a hypothetical charge reflecting deductions for
expenses taken during the period) and then annualized, i.e., the income earned
in the period is assumed to be earned every seven days over a 52-week period and
is stated in terms of an annual percentage return on the investment. Effective
yield is calculated similarly but reflects the compounding effect of earnings on
reinvested dividends. Yield and effective yield reflect the recurring charges on
the Account level including the monthly administrative charge.
Yield calculations of the Money Market Sub-account used for illustration
purposes are based on the consideration of a hypothetical participant's account
having a balance of exactly one Unit at the beginning of a seven-day period,
which period will end on the date of the most recent financial statements. The
yield for the Sub-account during this seven-day period will be the change in the
value of the hypothetical participant's account's original Unit. The following
is an example of this yield calculation for the Money Market Sub-account based
on a seven-day period ending December 31, 1995.
Example:
Assumptions:
Value of hypothetical pre-existing account with
exactly one unit at the beginning of the period:................ 1.324187
Value of the same account (excluding capital changes)
at the end of the seven-day period:............................. 1.325408
Calculation:
Ending account value ............................................ 1.325408
Less beginning account value .................................... 1.324187
Net change in account value ..................................... 0.001221
Base period return:
(adjusted change/beginning account value) ....................... 0.000922
Current yield = return x (365/7) = ................................ 4.81%
Effective yield = [(1 + return)365/7] - 1 = ....................... 4.92%
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The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time, or other investment companies, due to charges which
will be deducted on the Account level.
For the Multi-Sector Sub-account, quotations of yield will be based on all
investment income per unit earned during a given 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and are computed by dividing net investment income by the
maximum offering price per unit on the last day of the period.
When a Sub-account advertises its total return, it usually will be
calculated for one year, five years, and ten years or since inception if the
Sub-account has not been in existence for at least ten years. Total return is
measured by comparing the value of a hypothetical $10,000 investment in the
Sub-account at the beginning of the relevant period to the value of the
investment at the end of the period, assuming the reinvestment of all
distributions at net asset value and the deduction of applicable Policy charges
except for the cost of insurance and any surrender charges and premium taxes
(which vary by Insured and state).
For those Sub-accounts within the VUL Account that have not been available
for one of the quoted periods, the standardized average annual total return
quotations will show the investment performance such Sub-account would have
achieved (reduced by the applicable charges) had it been available to invest in
shares of the Fund for the period quoted.
Below are quotations of standardized average annual total return of Series
of the Phoenix Edge Series Fund. POLICY CHARGES ARE NOT REFLECTED.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED 12/31/95
-----------------------------
COMMENCEMENT LIFE OF
SERIES DATE 1 YEAR 5 YEARS 10 YEARS FUND
- ------ ---- ------ ------- -------- ----
Multi-Sector...... 1/1/83 20.06% 10.47% 8.87% 9.41%
Balanced.......... 5/1/92 19.88% N/A N/A 8.17%
Total Return...... 9/17/84 14.87% 11.34% 10.51% 11.33%
Growth............ 1/1/83 27.23% 18.32% 15.25% 17.33%
International..... 5/1/90 6.46% 7.86% N/A 5.02%
Money Market...... 1/1/83 2.67% 2.62% 4.38% 5.12%
ANNUAL TOTAL RETURNS*
---------------------
MULTI- TOTAL INTER- MONEY
YEAR SECTOR BALANCED RETURN GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983......... 05.1% N/A N/A 31.7% N/A 7.4%
1984......... 10.3% N/A (1.4%) 9.7% N/A 9.2%
1985......... 19.5% N/A 26.2% 33.7% N/A 7.1%
1986......... 18.2% N/A 14.7% 19.4% N/A 5.6%
1987......... 0.2% N/A 11.6% 6.0% N/A 5.6%
1988......... 9.5% N/A 1.4% 3.0% N/A 6.5%
1989......... 6.9% N/A 18.4% 34.4% N/A 7.9%
1990......... 4.4% N/A 5.1% 3.2% (8.9%) 7.4%
1991......... 18.5% N/A 28.1% 41.5% 18.7% 5.0%
1992......... 9.1% 8.8% 9.7% 9.3% (13.6%) 2.7%
1993......... 15.0% 7.8% 10.1% 18.8% 37.3% 2.1%
1994......... (6.2%) (3.6%) (2.2%) 0.7% (0.7%) 3.0%
1995......... 22.6% 22.4% 17.3% 29.9% 8.7% 4.9%
*Sales charges have not been deducted from the Annual Total Returns
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE.
THEY DO NOT ILLUSTRATE HOW ACTUAL PERFORMANCE WILL AFFECT THE BENEFITS UNDER A
POLICY; FOR THIS INFORMATION SEE APPENDIX B "ILLUSTRATIONS OF DEATH BENEFITS,
POLICY VALUES AND CASH SURRENDER VALUES."
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.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
Charges are deducted in connection with the Policy to compensate Phoenix
for: (1) incurring expenses in distributing the Policy; (2) issuing the Policy;
(3) premium and federal taxes incurred on premiums received; (4) providing the
insurance benefits set forth in the Policy; and (5) assuming certain risks in
connection with the Policy. The nature and amount of these charges are described
more fully below.
1. MONTHLY DEDUCTION
A charge is deducted monthly from the Policy Value under a Policy ("monthly
deduction") to pay: the cost of insurance provided under the Policy, the cost of
any rider benefits provided, any unpaid balance of the issue expense charge, and
an administrative charge. This administrative charge is currently set at $5
per month but it is guaranteed not to exceed $10 per month. The monthly
deduction is deducted on each Monthly Calculation Day. It is allocated among the
Sub-accounts of the VUL Account and the unloaned portion of the GIA based on
the allocation schedule for monthly deductions specified by the applicant in the
application for a Policy or as later changed by the Policyowner. In the event
that the Policy's share in the value of the Sub-accounts or the unloaned portion
of the GIA is insufficient to permit the withdrawal of the full monthly
deduction, the remainder will be taken on a proportionate basis from the
Policy's share of each of the other Sub-accounts and the unloaned portion of the
GIA. The number of units deducted will be determined by dividing the portion
of the monthly deduction allocated to each Sub-account or to the unloaned
portion of the GIA by the unit value on the Monthly Calculation Day. 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.
(A) ISSUE EXPENSE CHARGE. A cost-based issue administration charge is
assessed on a pro rata basis in equal monthly installments over a
12-month period to compensate Phoenix for underwriting and start-up
expenses in connection with issuing a Policy. For Multiple Life
Policies, the issue administrative charge is $150. For Single Life
Policies, the issue administrative charge is $1.50 per $1,000 of face
amount, up to a maximum charge of $600. Phoenix may reduce or eliminate
the Issue Expense Charge for Policies issued under group or sponsored
arrangements. Generally, 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
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a case-by-case basis and will reflect the reduced administration costs
expected as a result of sales to a particular group or sponsored
arrangement.
(B) COST OF INSURANCE. In order to calculate the cost of insurance charge,
Phoenix multiplies the applicable cost of insurance rate by the
difference between the death benefit selected (death benefit Option 1
if no selection is made) and the Policy Value. Generally, cost of
insurance rates for Single Life Policies are based on the sex, issue
age, duration and risk class; and for Multiple Life Policies the cost
of insurance rates are based on the sex, attained age and risk class of
the Insured(s). However, in certain states and for policies issued in
conjunction with certain qualified plans, cost of insurance rates are
not based on sex. The actual monthly cost of insurance rates are based
on Phoenix's expectations of future mortality experience. They will
not, however, be greater than the guaranteed cost of insurance rates
set forth in the Policy. These guaranteed maximum rates are equal to
100% of the 1980 Commissioners Standard Ordinary ("CSO") Mortality
Table, with appropriate adjustment for the Insured's risk
classification. Any change in the cost of insurance rates will apply to
all persons of the same sex, insurance age and risk class whose
Policies have been In Force for the same length of time. The risk class
of an Insured may affect the cost of insurance rate. Phoenix currently
places Insureds into a preferred or standard risk class or a risk class
involving a higher mortality risk, depending upon the health of the
Insured as determined by medical information that Phoenix requests. In
an otherwise identical Policy, Insureds in the preferred or standard
risk class will have a lower cost of insurance than those in the risk
class with the higher mortality risk. The standard risk class also is
divided into categories: smokers, nonsmokers and those who have never
smoked. Non-smokers will generally incur a lower cost of insurance than
similarly situated Insureds who smoke. A blended cost of insurance rate
is applied under Multiple Life Policies.
2. PREMIUM TAXES
Various states and subdivisions impose a tax on premiums received by
insurance companies. Premium taxes vary from state to state. Currently, the
taxes imposed by states on premiums range from 0.75% to 4% of premiums paid.
Moreover, certain municipalities in Louisiana, Kentucky and South Carolina also
impose taxes on premiums paid, in addition to the state taxes imposed. The
premium tax charge represents an amount Phoenix considers necessary to pay all
premium taxes imposed by such states and any subdivisions thereof, and Phoenix
does not expect to derive a profit from this charge. Multiple Life Policies will
be assessed at the tax rate charged by the state in which the Policy is issued
and Single Life Policies will be assessed a charge equal to 2.25% of the
premiums paid. These taxes are deducted from the Issue Premium, and from each
subsequent premium payment.
3. FEDERAL TAX CHARGE
On Single Life Policies, a charge equal to 1.50% of each premium will be
deducted from each premium payment to cover the estimated cost to Phoenix of
the federal income tax treatment of deferred acquisition costs. The SEC
maximum sales load has been reduced to reflect this charge.
4. MORTALITY AND EXPENSE RISK CHARGE
Phoenix will deduct a daily charge from the VUL Account at an annual rate of
0.80% of the average daily net assets of the VUL Account to compensate for
certain risks assumed in connection with the Policy. For Single Life Policies, a
reduced annual rate of .25% will apply after the 15th Policy Year. This charge
is not deducted from the GIA.
The mortality risk assumed by Phoenix is that Insureds may live for a
shorter time than projected because of inaccuracies in that projecting process
and, accordingly, that an aggregate amount of death benefits greater than that
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. If the expenses do not increase to an amount in excess of the limits,
or if the mortality projecting process proves to be accurate, Phoenix may profit
from this charge. Phoenix also assumes risks with respect to other contingencies
including the incidence of Policy loans, which may cause Phoenix to incur
greater costs than anticipated when designing the Policies. To the extent
Phoenix profits from this charge, it may use those profits for any proper
purpose, including the payment of sales expenses or any other expenses that may
exceed income in a given year.
5. INVESTMENT MANAGEMENT CHARGE
As compensation for investment management services to the Funds, the
Advisers are entitled to fees, payable monthly and based on an annual percentage
of the average aggregate daily net asset values of each Series as summarized in
the following tables:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market........ .40% .35% .30%
Multi-Sector........ .50% .45% .40%
Balanced............ .55% .50% .45%
Total Return........ .60% .55% .50%
Growth.............. .70% .65% .60%
International....... .75% .70% .65%
Strategic Theme..... .75% .70% .65%
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia................ 1.00%
PHOENIX REALTY SECURITIES, INC.
-------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate......... .75% .70% .65%
WANGER ASSET MANAGEMENT, L.P.
-----------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $100,000,000 $150,000,000 $250,000,000
- ------ ------------ ------------ ------------
U.S. Small Cap...... 1.00% .95% .90%
International
Small Cap........... 1.30% 1.20% 1.10%
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In addition, each Series pays a portion or all of its other annual operating
expenses other than the management fees; the Growth, Multi-Sector, Total Return,
Money Market and Balanced Series will pay up to .15%; the Real Estate,
Strategic Theme and Asia Series will pay up to .25%; the International Series
will pay up to .40%; the Wanger U.S. Small Cap Series will pay up to .50%; and
the Wanger International Small Cap Series will pay up to .60% of its average net
assets annually. See "Charges and Deductions."
6. OTHER CHARGES
SURRENDER CHARGE
During the first ten Policy Years, there is a difference between the amount
of Policy Value and the amount of Cash Surrender Value of the Policy. This
difference is the surrender charge, consisting of a contingent deferred sales
charge designed to recover expenses for the distribution of Policies that are
terminated by surrender before distribution expenses have been recouped, and a
contingent deferred issue charge designed to recover expenses for the
administration of Policies that are terminated by surrender before
administrative expenses have been recouped. These are contingent charges because
they are paid only if the Policy is surrendered (or the face amount is reduced
or the Policy lapses) during this period. They are deferred charges because they
are not deducted from premiums. The contingent deferred issue charge is set at a
level designed to recover actual costs and is not designed to result in any
profit to Phoenix.
During the first ten Policy Years, the full Surrender Charge as described
below will apply if the Policyowner either surrenders the Policy for its Cash
Surrender Value or lets the Policy lapse. The applicable Surrender Charge in any
Policy Month is the full Surrender Charge minus any surrender charges that have
been previously paid. There is no Surrender Charge after the 10th Policy Year.
During the first two Policy Years on Single Life Policies and during the first
ten Policy Years on Multiple Life Policies, the maximum Surrender Charge that a
Policyowner could pay while he or she owns the Policy is equal to either A plus
B (as defined below) or the amount shown in the Policies Surrender Charge
Schedule, whichever is less. After the first two Policy Years on Single Life
Policies, the maximum Surrender Charge that a Policyowner could pay is based on
the amount shown in the Policy's Surrender Charge Schedule.
A (the contingent deferred sales charge) is equal to:
1) 28.5% of all premiums paid (up to and including the amount
stated in the Policy's Surrender Charge Schedule, which is
calculated according to a formula contained in a Securities and
Exchange Commission rule); plus
2) 8.5% of all premiums paid in excess of this amount but not
greater than twice this amount; plus
3) 7.5% of all premiums paid in excess of twice this amount.
B (the contingent deferred issue charge) is equal to:
$5 per $1,000 of initial face amount.
As an example, the following illustrates the maximum Surrender Charge on a
$100,000 Single Life Policy for a male age 35 who has never smoked, who has paid
$3,000 in premium payments, and who surrenders the Policy in the 70th Policy
Month. The Policy's Surrender Charge Schedule would show that the maximum
Surrender Charge to be paid would be equal to either A plus B (shown below) or
the amount shown in the chart in the Policy (also shown below), whichever is
less:
Example: If this Policyowner surrenders his policy in the 70th Policy
month his surrender charge will be $1,186.78, as given in the table.
Example: If this Policyowner surrenders his Policy in the first two
years he may be eligible to receive a refund of a portion of the surrender
charge, depending on the amount of premium paid, or in other words his surrender
charge may be reduced. The surrender charge in the first 2 years would be equal
to the lesser of the amount in the surrender charge table and the sum of the
following:
1) 28.5% of premiums paid up to $1,076.72, plus
2) 8.5% of premiums paid in excess of $1,076.72 but not greater
than $2,153.43, plus
3) 7.5% of premiums paid in excess of $2,153.43, plus $500
If this Policyowner surrendered his Policy in the 2nd year after paying
$2,000 of premiums his surrender charge would be the lesser of $1,307.54 from
the table, and $385.34, thus equaling $385.34. Thus, in this case, the
Policyowner would pay less surrender charge if he surrenders his Policy in the
first 2 Policy Years.
SURRENDER CHARGE TABLE
----------------------
POLICY SURRENDER POLICY SURRENDER POLICY SURRENDER
MONTH CHARGE MONTH CHARGE MONTH CHARGE
----- ------ ----- ------ ----- ------
1-60 $1307.54 80 $1066.03 100 $727.09
61 1295.46 81 1053.95 101 690.65
62 1283.39 82 1041.88 102 654.22
63 1271.31 83 1029.80 103 617.78
64 1259.24 84 1017.73 104 581.35
65 1247.16 85 1005.65 105 544.91
66 1235.08 86 993.58 106 508.48
67 1223.01 87 981.50 107 472.05
68 1210.93 88 969.43 108 435.61
69 1198.86 89 957.35 109 399.18
70 1186.78 90 945.28 110 362.74
71 1174.71 91 933.20 111 326.31
72 1162.63 92 921.13 112 289.97
73 1150.56 93 909.05 113 253.44
74 1138.48 94 896.97 114 217.01
75 1126.41 95 884.90 115 180.57
76 1114.33 96 872.82 116 144.14
77 1102.26 97 836.39 117 107.70
78 1090.18 98 799.95 118 71.27
79 1078.10 99 763.52 119 34.83
120 .00
Phoenix may reduce the Surrender Charge for Policies issued under group or
sponsored arrangements. The amount of reduction will be considered on a
case-by-case basis and will reflect the reduced costs to Phoenix expected as a
result of sales to a particular group or sponsored arrangement.
PARTIAL SURRENDER FEE
A fee equal to the lesser of $25 or 2% of the amount withdrawn from the
Policy is deducted from the Policy Value upon a partial surrender of the Policy
to recover the actual costs of processing the partial surrender request. The
assessment to each Sub-account or to the GIA will be made in the same manner
as provided for the partial surrender amount paid. That is, that the Policy's
share in the value of each Sub-account or the GIA will be reduced based on the
allocation
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made at the time of the partial surrender. If no allocation request is made, the
assessment to each Sub-account and to the GIA will be made in the same manner
as provided for monthly deductions.
PARTIAL SURRENDER CHARGE
A charge as described below is deducted from the Policy Value upon a partial
surrender of the Policy. The charge is equal to a pro rata portion of the
applicable surrender charge that would apply to a full surrender, determined by
multiplying the applicable surrender charge by a fraction (equal to the partial
surrender amount payable divided by the result of subtracting the applicable
surrender charge from the Policy Value). This amount is assessed against the
Sub-accounts or the GIA in the same manner as provided for with respect to
the partial surrender amount paid.
A partial surrender charge also is deducted from Policy Value upon a
decrease in face amount. The charge is equal to the applicable surrender
charge multiplied by a fraction (equal to the decrease in face amount divided
by the face amount of the Policy prior to the decrease).
TAXES
Currently no charge is made to the VUL Account for federal income taxes
that may be attributable to the VUL Account. Phoenix may, however, make such a
charge in the future. Charges for other taxes, if any, attributable to the VUL
Account also may be made. See "Charges and Deductions--Other Charges."
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
GENERAL
Payment of any amount upon complete or partial surrender, Policy loan, or
benefits payable at death (in excess of the initial face amount) or maturity may
be postponed: (i) for up to six months from the date of the request, for any
transactions dependent upon the value of the GIA; (ii) 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
Securities and Exchange Commission; or (iii) whenever an emergency exists, as
determined by the Commission as a result of which disposal of securities is not
reasonably practicable or it is not reasonably practicable to determine the
value of the VUL Account's net assets. Transfers also may be postponed under
these circumstances.
PAYMENT BY CHECK
Payments under the Policy of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared the Policyowner's bank.
THE CONTRACT
The Policy and attached copy of the application are the entire contract.
Only statements in the application can be used to void the Policy. The
statements are considered representations and not warranties. Only an executive
officer of Phoenix can agree to change or waive any provisions of the Policy.
SUICIDE
If the Insured commits suicide within two years after the Policy's Date of
Issue, Phoenix will pay only the Policy Value adjusted by the addition of any
monthly deductions and other fees and charges made under the Policy and the
subtraction of any Debt owed to Phoenix under the Policy.
INCONTESTABILITY
Phoenix cannot contest this Policy or any attached rider after it has been
In Force during the lifetime of the Insured for two years from the Policy Date.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently changed,
will receive the Policy benefits at the Insured's death. If the named
Beneficiary dies before the Insured, the contingent Beneficiary, if named,
becomes the Beneficiary. If no Beneficiary survives the Policyowner, the
benefits payable at the Insured's death will be paid to the Policyowner's
estate.
As long as the Policy is In Force, the Policyowner and the Beneficiary may
be changed by Written Request, satisfactory to Phoenix. A change in
Beneficiary will take effect as of the date the notice is signed, whether or not
the Insured is living when the notice is received by Phoenix. Phoenix will
not, however, be liable for any payment made or action taken before receipt of
the notice.
ASSIGNMENT
The Policy may be assigned. Phoenix will not be bound by the assignment
until a written copy has been received and will not be liable with respect to
any payment made prior to receipt. Phoenix assumes 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
Policyowners may share in divisible surplus of Phoenix to the extent
determined annually by the Phoenix Board of Directors. However, it is not
currently anticipated that the Board will authorize these payments since
Policyowners will be participating directly in 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 Phoenix receives the request
for surrender or due proof of death, provided such request is complete and in
good order. Payment of surrender or death proceeds usually will be made in one
lump sum within seven days, unless another payment option has been elected.
Payment of the death proceeds, however, may be delayed if the claim
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<PAGE>
for payment of the death proceeds needs to be investigated; e.g., to ensure
payment of the proper amount to the proper payee. Any such delay will not
be beyond that reasonably necessary to investigate such claims consistent with
insurance practices customary in the life insurance industry. Under a Policy
covering multiple lives, the death proceeds will be paid upon the first death
under the Policy. In addition, under certain conditions, in the event of the
terminal illness of the Insured, an accelerated payment of up to 75% of the
Policy's Death Benefit (up to maximum of $250,000), is available under the
Living Benefits Rider. The minimum face amount remaining after any such
accelerated benefit payment is $10,000.
While the Insured is living, the Policyowner may elect a payment option for
payment of the death proceeds to the Beneficiary. The Policyowner may revoke or
change a prior election, unless such right has been waived. The Beneficiary may
make or change an election prior to payment of the death proceeds, unless the
Policyowner has made an election which does not permit such further election or
changes by the Beneficiary.
A written form satisfactory to Phoenix is required to elect, change, or
revoke a payment option.
The minimum amount of surrender or death proceeds that may be applied under
any income option is $1,000.
If the Policy is assigned as collateral security, Phoenix 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 Phoenix may choose to make
available in the future.
OPTION 1--LUMP SUM.
Payment in one lump sum.
OPTION 2--LEFT TO EARN INTEREST.
A payment of interest during the payee's lifetime on the amount payable as a
principal sum. Interest rates are guaranteed to be at least 3% per year.
OPTION 3--PAYMENT FOR A SPECIFIC PERIOD.
Equal income 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: (A) The death of the
payee; (B) 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 may be chosen are as follows: (A) Ten years;
(B) Twenty years; (C) Until the installments paid refund the amount applied
under this option; and 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, Phoenix will deem the longer
period certain as having been elected. Any life annuity provided under Option 4
is calculated using an interest rate guaranteed to be no less than 3 3/8% per
year, except that any life annuity providing a period certain of 20 years or
more is calculated 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 calculated 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 principal
sum remaining at a rate guaranteed to at least equal 3% per year. This
interest will be credited at the end of each year. If the amount of interest
credited at the end of the year exceeds the income payments made in the last 12
months, that excess will be paid in one sum on the date credited.
OPTION 7--JOINT SURVIVORSHIP ANNUITY WITH 10 YEAR PERIOD
CERTAIN.
The first payment will be on the date of settlement. Equal income
installments are paid until the latest of: (A) The end of the 10-year period
certain; (B) The death of the Insured; (C) The death of the other named
annuitant. The other annuitant must be named at the time this option is elected
and cannot later be changed. The other annuitant must have an attained age of at
least 40. Any joint survivorship annuity as may be provided under this option is
calculated using an interest rate guaranteed to be no less than 3 3/8% per year.
For additional information concerning the above payment options, see the
Policy.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
INTRODUCTION
The ultimate effect of federal income taxes on values under the VUL
Account and on the economic benefit to the Policyowner or Beneficiary depends on
Phoenix's tax status and upon the tax status of the individual concerned. The
discussion contained herein is general in nature and is not intended as tax
advice. For complete information on federal and state tax considerations, a
qualified tax adviser should be consulted. No attempt is made to consider any
estate and inheritance taxes, or any state, local or other tax laws. Because the
discussion herein is based upon Phoenix's understanding of federal income
tax laws as they are currently interpreted, Phoenix cannot guarantee the tax
status of any Policy. No representation is made regarding the likelihood of
continuation of current federal income tax laws, Treasury regulations, or of
the current interpretations by the Internal Revenue Service. Phoenix reserves
the right to make changes to the Policy in order to assure that it will continue
to qualify as a life insurance contract for federal income tax purposes.
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<PAGE>
PHOENIX'S TAX STATUS
Phoenix is taxed as a life insurance company under the Internal Revenue
Code of 1986, as amended (the "Code"). For federal income tax purposes,
neither the VUL Account nor the GIA is a separate entity from Phoenix and
their operations form a part of Phoenix.
Investment income and realized capital gains on the assets of the VUL
Account are reinvested and taken into account in determining the value of the
VUL Account. Investment income of the VUL Account, including realized net
capital gains, is not taxed to Phoenix. Due to Phoenix's tax status under
current provisions of the Code, no charge currently will be made to the VUL
Account for Phoenix's federal income taxes which may be attributable to the VUL
Account. Phoenix reserves the right to make a deduction for taxes if the federal
tax treatment of Phoenix is determined to be other than what Phoenix currently
believes it to be, if changes are made affecting the tax treatment to Phoenix of
variable life insurance contracts, or if changes occur in Phoenix's tax status.
If imposed, such charge would be equal to the federal income taxes attributable
to the investment results of the VUL Account.
POLICY BENEFITS
DEATH BENEFIT PROCEEDS. The Policy, whether or not it is a "modified
endowment contract" (see the discussion on modified endowment contracts below),
should be treated as meeting the definition of a life insurance contract for
federal income tax purposes, under Section 7702 of the Code. As such, the death
benefit proceeds thereunder should be excludable from the gross income of the
Beneficiary under Code Section 101(a)(1). Also, the Policyowner should not be
deemed to be in constructive receipt of the Cash Value, including increments
thereon. See, however, the sections below on possible taxation of amounts
received under the Policy, via full surrender, partial surrender or loan. In
addition, a benefit paid under a Living Benefit Rider may be taxable as income
in the year of receipt.
Code Section 7702 imposes certain conditions with respect to premiums
received under a Policy. Phoenix intends to monitor the premiums to assure
compliance with such conditions. However, in the event that the premium
limitation is exceeded during the year, Phoenix may return the excess premium,
with interest, to the Policyowner within 60 days after the end of the Policy
Year, and maintain the qualification of the Policy as life insurance for federal
income tax purposes.
FULL SURRENDER. Upon full surrender of a Policy for its Cash Value, the
excess, if any, of the Cash Value (unreduced by any outstanding indebtedness)
over the premiums paid will be treated as ordinary income for federal income
tax purposes. The full surrender of a Policy which is a "modified endowment
contract" may result in the imposition of an additional 10% tax on any income
received.
PARTIAL SURRENDER. If the Policy is a "modified endowment contract," partial
surrenders are fully taxable to the extent of income in the Policy and are
possibly subject to an additional 10% tax. See the discussion on "modified
endowment contracts" below. If the Policy is not a "modified endowment
contract," partial surrenders still may be taxable, as follows. Code Section
7702(f)(7) provides that where a reduction in death benefits occurs during the
first 15 years after a Policy is issued and there is a cash distribution
associated with that reduction, the Policyowner may be taxed on all or a part of
the amount distributed. A reduction in death benefits may result from a partial
surrender. After 15 years, the proceeds will not be subject to tax, except to
the extent such proceeds exceed the total amount of premiums paid but not
previously recovered. Phoenix suggests you consult with your tax adviser in
advance of a proposed decrease in death benefits or a partial surrender as to
the portion, if any, which would be subject to tax, and in addition as to the
impact such partial surrender might have under the new rules affecting "modified
endowment contracts." The benefit payment under the Living Benefits Rider is not
considered a partial surrender.
LOANS. Phoenix believes that any loan received under a Policy will be
treated as indebtedness of the Policyowner. If the Policy is a "modified
endowment contract," loans are fully taxable to the extent of income in the
Policy and are possibly subject to an additional 10% tax. See the discussion
on "modified endowment contracts" below. If the Policy is not a "modified
endowment contract," Phoenix believes that no part of any loan under a Policy
will constitute income to the Policyowner.
The deductibility by the Policyowner of loan interest under a Policy may be
limited under Code Section 264, depending on the circumstances. Any Policyowner
intending to fund premium payments through borrowing should consult a tax
adviser with respect to the tax consequences thereof. Under the "personal"
interest limitation provisions of the Code, interest on Policy loans used for
personal purposes is not tax deductible. Other rules may apply to allow all or
part of the interest expense as a deduction if the loan proceeds are used for
"trade or business" or "investment" purposes. See your tax adviser for further
guidance.
BUSINESS-OWNED POLICIES
If the Policy is owned by a business or a corporation, 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).
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 premiums 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.
REDUCTION IN BENEFITS DURING THE FIRST SEVEN YEARS. If there is a reduction
in benefits during the first seven Policy Years, the premiums are redetermined
for purposes of the 7-pay test as if the Policy originally had been issued at
the reduced death benefit level and the
22
<PAGE>
new limitation is applied to the cumulative amount paid for each of the first
seven Policy Years.
DISTRIBUTIONS AFFECTED. If a Policy fails to meet the 7-pay test, it is
considered a modified endowment contract only as to distributions in the year in
which the 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 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: (i) made on or after
the taxpayer attains age 59 1/2; (ii) which are attributable to the taxpayer's
disability (within the meaning of Code Section 72(m)(7)); or (iii) which are
part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the taxpayer or the
joint lives (or life expectancies) of the taxpayer and his Beneficiary.
MATERIAL CHANGE RULES. Any determination of whether the Policy meets the
"7-pay test" will begin again any time the Policy undergoes a "material change,"
which includes any increase in death benefits or any increase in or addition of
a qualified additional benefit, with the following two exceptions. First, if an
increase is attributable to premiums paid "necessary to fund" the lowest death
benefit and qualified additional benefits payable in the first seven Policy
Years or to the crediting of interest or dividends with respect to these
premiums, the "increase" does not constitute a material change. 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 (1) the cost-of-living determination period does not exceed
the remaining premium payment period under the Policy, and (2) the
cost-of-living increase is funded ratably over the remaining premium payment
period of the Policy. A reduction in death benefits is not considered a material
change unless accompanied by a reduction in premium payments.
A material change may occur at any time during the life of the Policy
(within the first seven years or thereafter), and future taxation of
distributions or loans would depend upon whether the Policy satisfied the
applicable "7-pay test" from the time of the material change. An exchange of
policies is considered to be a material change for all purposes.
SERIAL PURCHASE OF MODIFIED ENDOWMENT CONTRACTS. All modified endowment
contracts issued by the same insurer (or affiliated companies of the insurer) to
the same Policyowner within the same calendar year will be treated as one
modified endowment contract in determining the taxable portion of any loans or
distributions made to the Policyowner. The Treasury has been given specific
legislative authority to issue regulations to prevent the avoidance of the new
distribution rules for modified endowment contracts. A qualified tax adviser
should be consulted about the tax consequences of the purchase of more than one
modified endowment contract within any calendar year.
LIMITATIONS ON UNREASONABLE MORTALITY AND EXPENSE CHARGES
The Code imposes limitations on unreasonable mortality and expense charges
for purposes of ensuring that a Policy qualifies as a life insurance contract
for federal income tax purposes. The mortality charges taken into account to
calculate permissible premium levels may not exceed those charges required to be
used in determining the federal income tax reserve for the Policy, unless
Treasury regulations prescribe a higher level of charge. In addition, the
expense charges taken into account under the guideline premium test are required
to be reasonable, as defined by the Treasury regulations. Phoenix intends to
comply with the limitations in calculating the premium it is permitted to
receive from the Policyowner.
QUALIFIED PLANS
A Policy may be used in conjunction with certain qualified plans. Since the
rules governing such use are complex, a purchaser should not use the Policy in
conjunction with a qualified plan until he has consulted a competent pension
consultant or tax adviser.
DIVERSIFICATION STANDARDS
To comply with the diversification regulations under Code Section 817(h),
("Diversification Regulations") each Portfolio of the Fund is required to
diversify its investments. The Diversification Regulations generally require
that on the last day of each quarter of a calendar year no more than 55% of
the value of the Fund's assets is represented by any one investment, no more
than 70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is represented by
any four investments. A "look-through" rule applies to treat a pro rata
portion of each asset of the Fund as an asset of the VUL Account; therefore,
each Series of the Fund will be tested for compliance with the percentage
limitations. For purposes of these diversification rules, all securities of the
same issuer are treated as a single investment, but each United States
Government agency or instrumentality is treated as a separate issuer.
The general diversification requirements are modified if any of the assets
of the VUL Account are direct obligations of the United States Treasury. In this
case, there is no limit on the investment that may be made in United States
Treasury securities, and for purposes of determining whether assets other than
United States Treasury securities are adequately diversified, the generally
applicable percentage limitations are increased based on the value of the VUL
Account's investment in United States Treasury securities. Notwithstanding this
modification of the general diversification requirements, the portfolios of the
Fund will be structured to comply with the general diversification standards
because they serve as an investment vehicle for certain variable annuity
contracts which must comply with these standards.
In connection with the issuance of the Diversification Regulations, the
Treasury announced that such regulations do not provide guidance concerning the
extent to which policyowners may direct their investments to particular
divisions of a separate account. It is possible that a revenue ruling or other
form of administrative pronouncement in this regard may be issued in the near
future. It is not clear, at this time, what such a revenue ruling or other
pronouncement will provide. It is possible that the Policy may need to be
modified to comply with such future Treasury announcements. For these reasons,
Phoenix reserves the right to modify the Policy, as necessary, to prevent the
23
<PAGE>
Policyowner from being considered the owner of the assets of the VUL Account.
Phoenix intends to comply with the Diversification Regulations to assure
that the Policies continue to qualify as a life insurance contract for federal
income tax purposes.
CHANGE OF OWNERSHIP OR INSURED OR ASSIGNMENT
Changing the Policyowner or 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. Phoenix recommends that
any person contemplating such actions seek the advice of a qualified tax
consultant.
OTHER TAXES
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership, or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary. Phoenix does not make any
representations or guarantees regarding the tax consequences of any Policy with
respect to these types of taxes.
VOTING RIGHTS
- --------------------------------------------------------------------------------
THE FUNDS
Phoenix will vote the Funds' shares held by the Sub-accounts of the VUL
Account at any regular and special meetings of shareholders of the Funds. To the
extent required by law, such voting will be in accordance with instructions
received from the Policyowner. However, if the Investment Company Act of 1940 or
any regulation thereunder should be amended or if the present interpretation
thereof should change, and as a result Phoenix determines that it is permitted
to vote the Funds' shares at its own discretion, it may elect to do so.
The number of votes that a Policyowner has the right to cast will be
determined by applying the Policyowner's percentage interest in a Sub-account to
the total number of votes attributable to the Sub-account. In determining the
number of votes, fractional shares will be recognized.
Funds shares held in a Sub-account 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 Sub-account. Voting
instructions to abstain on any item to be voted upon will be applied to reduce
the votes eligible to be cast by Phoenix.
Each Policyowner will receive proxy materials, reports, and other materials
relating to the Funds.
Phoenix 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 sub-classification or investment objective
of one or more of the portfolios of the Funds or to approve or disapprove an
investment advisory contract for the Funds. In addition, Phoenix itself may
disregard voting instructions in favor of changes initiated by a Policyowner in
the investment policies or the Investment Adviser of the Funds if Phoenix
reasonably disapproves of such changes. A change would be disapproved only if
the proposed change is contrary to state law or prohibited by state regulatory
authorities or Phoenix determined that the change would have an adverse effect
on the General Account because the proposed investment policy for a portfolio
may result in overly speculative or unsound investments. In the event Phoenix
does disregard voting instructions, a summary of that action and the reasons for
such action will be included in the next periodic report to Policyowners.
PHOENIX
A Policyowner (or the payee entitled to payment under a payment option if a
different person) will have the right to vote at annual meetings of all Phoenix
Policyholders for the election of members of the Board of Directors of Phoenix
and on other corporate matters, if any, where a Policyholder's vote is taken. At
meetings of all of the Phoenix Policyholders, a Policyholder (or payee) may cast
only one vote as the holder of a Policy, irrespective of Policy Value or the
number of the Policies held.
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX
- --------------------------------------------------------------------------------
Phoenix is managed by its Board of Directors, the members of
which are elected by its Policyholders, including Owners of the
Policies. See "Voting Rights."
The following are the Directors and Executive Officers of Phoenix:
DIRECTORS PRINCIPAL OCCUPATION
Sal H. Alfiero Chairman and Chief Executive
Officer, Mark IV Industries, Inc.
Amherst, New York
J. Carter Bacot Chairman and Chief Executive
Officer, The Bank of New York
New York, New York
Carol H. Baldi President, Carol H. Baldi, Inc.
New York, New York
Peter C. Browning Executive Vice President, Sunoco
Products Company
Hartsville, South Carolina
Richard N. Cooper Chairman, National Intelligence
Council, Central Intelligence Agency
McLean, Virginia; formerly
Professor of International
Economics, Harvard University
Gordon J. Davis, Esq. Partner, LeBoeuf, Lamb, Greene &
MacRae; formerly Partner, Lord Day
& Lord, Barret Smith
New York, New York
Robert W. Fiondella Chairman of the Board, President
and Chief Executive Officer, Phoenix
Home Life Mutual Insurance
Company
Hartford, Connecticut
24
<PAGE>
Jerry J. Jasinowski President, National Association of
Manufacturers
Washington, D.C.
John W. Johnstone Chairman, President and Chief
Executive Officer, Olin Corporation
Norwalk, Connecticut
Marilyn E. LaMarche General Partner, Lazard Freres &
Company
New York, New York
Philip R. McLoughlin Executive Vice President and Chief
Investment Officer, Phoenix Home
Life Mutual Insurance Company
Hartford, Connecticut
Charles J. Paydos Executive Vice President, Phoenix
Home Life Mutual Insurance
Company
Hartford, Connecticut
Herbert Roth, Jr. Former Chairman, LFE Corporation
Clinton, Massachusetts
Robert F. Vizza President and Chief Executive
Officer, St. Francis Hospital
Roslyn, New York
Wilson Wilde Chairman, Executive Committee,
Hartford Steam Boiler Inspection
and Insurance Company
Hartford, Connecticut
Robert G. Wilson Former General Partner, Goldman
Sachs
New York, New York
EXECUTIVE OFFICERS PRINCIPAL OCCUPATION
Robert W. Fiondella Chairman of the Board, President
and Chief Executive Officer
Richard H. Booth Executive Vice President, Strategic
Development; formerly President,
Traveler's Insurance Company
Philip R. McLoughlin Executive Vice President and Chief
Investment Officer
Charles J. Paydos Executive Vice President
David W. Searfoss Executive Vice President and Chief
Financial Officer
Dona D. Young Executive Vice President, Individual
Insurance and General Counsel
Kelly J. Carlson Senior Vice President, Career
Organization
Carl T. Chadburn Senior Vice President
Robert G. Chipkin Senior Vice President and Corporate
Actuary
Randall C. Giangiulio Senior Vice President, Group Sales
Joan E. Herman Senior Vice President
Edward P. Hourihan Senior Vice President, Information
Systems
Joseph E. Kelleher Senior Vice President
Gary J. Laughinghouse Senior Vice President; formerly
Senior Vice President, Home Life
Insurance Company of New York
Robert G. Lautensack, Jr. Senior Vice President
Scott C. Noble Senior Vice President, Real Estate
Frederick W. Sawyer, III Senior Vice President
Richard C. Shaw Senior Vice President, International
and Corporate Development
Simon Y. Tan Senior Vice President, Individual
Market Development
Anthony J. Zeppetella Senior Vice President
The above positions reflect the last held position in the organization
during the past five years.
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS
- --------------------------------------------------------------------------------
The assets of the VUL Account are held by Phoenix. The assets of the VUL
Account are kept physically segregated and held separate and apart from the
general account of Phoenix. Phoenix maintains records of all purchases and
redemptions of shares of the Fund.
SALES OF POLICIES
- --------------------------------------------------------------------------------
Policies may be purchased from registered representatives of W.S. Griffith &
Co., Inc. ("W. S. Griffith") licensed to sell Phoenix insurance policies. W.
S. Griffith, an indirect subsidiary of Phoenix, is registered as a
broker-dealer with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. PEPCO serves as national distributor of the Policies. PEPCO is
an indirect subsidiary of Phoenix Duff & Phelps Corporation. Phoenix owns a
majority interest in Phoenix Duff & Phelps Corporation. Policies also may be
purchased from other broker-dealers registered under the Securities Exchange Act
of 1934 whose representatives are authorized by applicable law to sell Policies
under terms of agreements provided by PEPCO. Sales commissions will be paid to
registered representatives on purchase payments received by Phoenix under
these Policies. Total sales commission of a maximum of 50% of premiums will be
paid by Phoenix to PEPCO. To the extent that the sales charge under the
Policies is less than the sales commissions paid with respect to the Policies,
Phoenix will pay the shortfall from its general account assets, which will
include any profits it may derive under the Policies.
Phoenix through PEPCO will sponsor sales contests, training and educational
meetings and provide to all qualifying dealers, from its own profits and
resources, additional compensation in the form of trips, merchandise or expense
reimbursement. Brokers and dealers other than PEPCO also may make customary
additional charges for their services in effecting purchases, if they notify the
Fund of their intention to do so.
25
<PAGE>
STATE REGULATION
- --------------------------------------------------------------------------------
Phoenix is subject to the provisions of the New York insurance laws
applicable to mutual life insurance companies and to regulation and supervision
by the New York Superintendent of Insurance. Phoenix also is subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of Phoenix includes certain limitations on the investments
which it may make, including investments for the VUL Account and the GIA. It
does not include, however, any supervision over the investment policies of the
VUL Account.
REPORTS
- --------------------------------------------------------------------------------
All Policyowners will be furnished with those reports required by the
Investment Company Act of 1940 and regulations promulgated thereunder, or under
any other applicable law or regulation.
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The VUL Account is not engaged in any litigation. Phoenix is not involved
in any litigation that would have a material adverse effect on the ability of
Phoenix to meet its obligations under the Policies.
LEGAL MATTERS
- --------------------------------------------------------------------------------
The organization of Phoenix, its authority to issue variable life
insurance Policies, and the validity of the Policy have been passed upon by
Richard J. Wirth, Counsel, Phoenix. Legal matters relating to the federal
securities and income tax laws have been passed upon for Phoenix by Jorden
Burt Berenson & Johnson, LLP.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is made for further
information concerning the VUL Account, Phoenix and the Policy. Statements
contained in this Prospectus as to the content of the Policy and other legal
instruments are summaries. For a complete statement of the terms thereof,
reference is made to such instruments as filed.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Phoenix contained herein should
be considered only as bearing upon Phoenix's ability to meet its obligations
under the Policy, and they should not be considered as bearing on the investment
performance of the VUL Account. The financial statements of the VUL Account are
for the Sub-accounts available as of the period ended December 31, 1995.
26
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 and 1994
27
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Report of Independent Accountants........................................29
Consolidated Balance Sheet...............................................30
Consolidated Statement of Operations and Surplus.........................31
Consolidated Statement of Cash Flows.....................................32
Notes to Consolidated Financial Statements............................33-57
28
<PAGE>
[logo: Price Waterhouse LLP] [logo: Price Waterhouse circle logo]
REPORT OF INDEPENDENT ACCOUNTANTS
February 14, 1996
To the Board of Directors
and Policyholders of
Phoenix Home Life Mutual Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and surplus and of cash flows present
fairly, in all material respects, the financial position of Phoenix Home Life
Mutual Insurance Company and its life insurance subsidiaries at December 31,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
29
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------
DECEMBER 31,
1995 1994
(IN THOUSANDS)
ASSETS
Bonds, at amortized cost $ 5,463,867 $ 4,976,248
First mortgage loans 963,092 1,130,882
Policy loans 1,617,872 1,585,485
Real estate, at depreciated cost 560,580 644,085
Investments in affiliates 82,945 59,569
Common stocks, at market value 247,424 161,772
Preferred stocks, at cost 73,299 75,352
Cash and short-term investments,
at amortized cost 360,874 182,404
Other invested assets 105,018 104,177
------------ ------------
Total cash and invested assets 9,474,971 8,919,974
Deferred and uncollected premiums 174,938 173,382
Due and accrued investment income 128,790 121,491
Other assets 106,691 136,800
Separate account assets 3,306,070 2,658,382
------------ ------------
Total assets $ 13,191,460 $ 12,010,029
============ ============
LIABILITIES, AVR AND SURPLUS
Reserves for future policy benefits $ 7,133,557 $ 6,748,851
Policyholders' funds at interest 611,000 649,853
Dividends to policyholders 308,636 281,227
Policy benefits in course of settlement 122,798 105,072
Accrued expenses and general liabilities 162,928 121,593
Reinsurance funds withheld liability 692,291 698,261
Interest maintenance reserve 11,872 6,043
Separate account liabilities 3,273,056 2,626,729
------------ ------------
Total liabilities 12,316,138 11,237,629
------------ ------------
Asset valuation reserve (AVR) 199,656 174,142
Policyholders' surplus 675,666 598,258
------------ ------------
Total AVR and surplus 875,322 772,400
------------ ------------
Total liabilities, AVR and surplus $ 13,191,460 $ 12,010,029
============ ============
The accompanying notes are an integral part of these statements.
30
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS AND SURPLUS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME
Premium income and annuity considerations $ 1,679,717 $ 1,594,756 $ 1,677,640
Net investment income 670,699 631,668 648,234
----------- ----------- -----------
Total income 2,350,416 2,226,424 2,325,874
----------- ----------- -----------
CURRENT AND FUTURE BENEFITS
Death benefits 271,723 268,192 264,636
Disability and health benefits 248,996 239,135 305,204
Annuity benefits and matured endowments 27,320 33,067 43,499
Surrender benefits 413,580 402,540 364,772
Interest on policy or contract funds 79,241 82,621 122,626
Settlement option payments 34,637 37,166 38,331
Increase in reserves for future policy benefits
and policyholders' funds 459,693 405,071 369,504
----------- ----------- -----------
Total current and future benefits 1,535,190 1,467,792 1,508,572
----------- ----------- -----------
OPERATING EXPENSES
Commissions and expense allowances 119,147 117,148 143,046
Premium, payroll and miscellaneous taxes 44,285 35,312 52,351
Other operating expenses 269,838 261,015 276,714
Federal income tax expense (benefit) 33,329 28,436 (2,249)
----------- ----------- -----------
Total operating expenses 466,599 441,911 469,862
----------- ----------- -----------
OPERATING GAIN BEFORE DIVIDENDS AND
REALIZED CAPITAL GAINS (LOSSES) 348,627 316,721 347,440
Dividends to policyholders (297,999) (269,357) (251,647)
----------- ----------- -----------
OPERATING GAIN AFTER DIVIDENDS AND
BEFORE REALIZED CAPITAL GAINS (LOSSES) 50,628 47,364 95,793
Realized capital gains (losses), net of income
taxes and interest maintenance reserves 9,270 (46,712) (65,835)
----------- ----------- -----------
NET INCOME 59,898 652 29,958
Unrealized capital gains, net 37,412 50,354 40,583
Other surplus changes, net 5,612 1,378 (775)
----------- ----------- -----------
NET INCREASE IN AVR AND SURPLUS 102,922 52,384 69,766
AVR AND SURPLUS, beginning of year 772,400 720,016 650,250
----------- ----------- -----------
AVR AND SURPLUS, end of year $ 875,322 $ 772,400 $ 720,016
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
(IN THOUSANDS)
<S> <C> <C> <C>
CASH AND SHORT-TERM INVESTMENT SOURCES
Operations:
Premiums collected $ 1,601,408 $ 1,523,021 $ 1,620,128
Initial consideration received on
reinsurance assumed 99,851
Investment and other income received 773,021 751,074 754,049
----------- ----------- -----------
Total received 2,374,429 2,274,095 2,474,028
----------- ----------- -----------
Claims and benefits paid 1,091,725 1,304,238 1,577,792
Commissions and other expenses paid 549,155 486,766 530,075
Dividends to policyholders paid 270,749 249,701 242,192
Increase in policy loans 32,387 55,143 21,438
Federal income taxes paid (received) 9,319 (37,266) 26,720
----------- ----------- -----------
Total paid 1,953,335 2,058,582 2,398,217
----------- ----------- -----------
Cash proceeds from operations 421,094 215,513 75,811
Proceeds from sales, maturities and
scheduled repayments of investments:
Bonds 1,381,080 1,198,131 1,451,279
Stocks 329,104 347,884 767,540
First mortgage loans 186,172 160,882 731,877
Real estate and other invested assets 148,546 209,316 322,284
Non-operating increase in
policyholders' funds 47,340 52,694 75,123
----------- ----------- -----------
Total sources 2,513,336 2,184,420 3,423,914
----------- ----------- -----------
CASH AND SHORT-TERM INVESTMENT USES
Acquisitions of investments:
Bonds 1,842,467 1,756,955 2,144,981
Stocks 282,488 310,751 650,187
First mortgage loans 93,097 31,214 93,480
Real estate and other invested assets 73,482 173,988 255,255
Other uses 43,332 155,780 254,095
----------- ----------- -----------
Total uses 2,334,866 2,428,688 3,397,998
----------- ----------- -----------
NET CHANGE IN CASH AND SHORT-TERM INVESTMENTS 178,470 (244,268) 25,916
CASH AND SHORT-TERM INVESTMENTS, beginning of year 182,404 426,672 400,756
----------- ----------- -----------
CASH AND SHORT-TERM INVESTMENTS, end of year $ 360,874 $ 182,404 $ 426,672
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Phoenix Home Life Mutual Insurance Company (Phoenix Home Life or the
Company) and its subsidiaries market a wide range of insurance and
investment products and services including individual participating life
insurance, variable life insurance, group life and health insurance, life
and health reinsurance, annuities, investment advisory and mutual fund
distribution services, insurance agency and brokerage operations. These
products and services are distributed among six primary segments which
include: Individual, Group Life and Health, Life Reinsurance, General Lines
Brokerage, Securities Management and Real Estate Management. See Note 9 for
segment information.
Effective June 30, 1993, Phoenix Home Life sold Home Life Financial
Assurance Corporation (HLFAC), a group life and health insurance
subsidiary. Accordingly, these financial statements include the results of
operations of this business for the six months ended June 30, 1993. See
Note 8 for additional information.
Effective January 1, 1995, the money management businesses of Phoenix Home
Life were completely transferred to Phoenix Securities Group, Inc. (Phoenix
Securities Group), an indirect wholly-owned subsidiary. Phoenix Securities
Group entered into contracts to manage the investments of the general and
separate accounts of Phoenix Home Life. On November 1, 1995, Phoenix Home
Life, through its subsidiary, PM Holdings, Inc. (PM Holdings), merged
Phoenix Securities Group into Duff & Phelps Corporation, forming Phoenix
Duff & Phelps Corporation (PDP). PM Holdings owns approximately 60% of the
outstanding PDP common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Phoenix Home Life include the
domestic life insurance subsidiaries, Phoenix American Life Insurance
Company, American Phoenix Life and Reassurance Company, Phoenix Life
Insurance Company, PHL Variable Insurance Company and HLFAC, with
intercompany transactions eliminated. The non-insurance subsidiaries are
not consolidated in these financial statements. The significant accounting
policies which are used by Phoenix Home Life and its consolidated life
insurance subsidiaries in the preparation of the consolidated financial
statements are described below. Certain reclassifications have been made to
the 1994 and 1993 amounts to conform with the 1995 presentation.
BASIS OF PRESENTATION
Phoenix Home Life's policy is to prepare its financial statements on the
basis of accounting practices prescribed or permitted by the Insurance
Department of the State of New York. These practices are predominately
promulgated by the National Association of Insurance Commissioners (NAIC).
These practices currently are considered generally accepted accounting
principles (GAAP) for mutual life insurance companies. There were no
material practices not prescribed by the Insurance Department of the State
of New York.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1993, the Financial Accounting Standards Board issued
Interpretation No. 40, Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises, which
establishes a different definition of GAAP for mutual life insurance
companies. Under the Interpretation, financial statements of mutual life
insurance companies for periods beginning after December 15, 1995 which are
prepared on the basis of statutory accounting will no longer be
characterized as in conformity with GAAP.
33
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Management of the Company has not finalized the effect on its December 31,
1995 financial statements of applying the Interpretation. The Company
intends to adopt the accounting changes required to present its financial
statements in conformity with GAAP in its 1996 financial statements. The
effect of the changes will be reported retroactively through restatement of
all previously issued financial statements. The cumulative effect of
adopting these changes will be included in the earliest year restated.
Effective January 1, 1995, the Company adopted the provisions of Statement
of Position 94-6 (SOP 94-6), Disclosure of Certain Significant Risks and
Uncertainties. SOP 94-6 requires disclosure about the nature of a reporting
entity's operations and the use of estimates in the preparation of
financial statements.
PREMIUM REVENUE AND RELATED EXPENSES
Generally, premium income and annuity considerations are recognized as
income over the premium paying periods of the policies or the annuity
contracts, respectively. Related underwriting expenses, commissions and
other costs of acquiring the policies and contracts are charged to
operations as incurred.
INSURANCE LIABILITIES
Benefit and loss reserves, included in reserves for future policy benefits,
are established in amounts adequate to meet estimated future obligations on
policies in force. Benefits to policyholders are charged to operations as
incurred.
Reserves for future policy benefits are determined using assumed rates of
interest, mortality and morbidity consistent with statutory requirements.
Most life insurance reserves for which the 1958 CSO and 1980 CSO mortality
tables are used as the mortality basis are determined using a modified
preliminary term reserve method. The net level premium method is used in
determining life insurance reserves based on earlier mortality tables.
Claim and loss liabilities, included in reserves for future policy
benefits, are established in 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. Claim
and loss liabilities, net of ceded reinsurance, are not material.
As is customary practice in the insurance industry, Phoenix Home Life
assumes and cedes reinsurance as a means of diversifying underwriting risk.
The maximum amount of individual life insurance retained by the company on
any one life was increased from $5,000,000 to $8,000,000 for single life
and joint first-to-die policies and to $10,000,000 for joint last-to-die
policies on July 31, 1995, with excess amounts ceded to reinsurers. For
reinsurance ceded, the company remains liable in the event that assuming
reinsurers are unable to meet the contractual obligations.
INVESTMENTS
Investments are valued in accordance with methods prescribed by the NAIC.
Investments in bonds are generally carried at amortized cost and preferred
stocks, generally at cost.
Common stocks are carried at market value. Ownership interests in real
estate, venture capital, equity and oil and gas partnerships and joint
ventures are carried at equity in the underlying net assets. Mortgage loans
in good standing are valued at their unpaid principal balance. Prepayment
penalties are reported in investment income when received. Origination fees
and related expenses are recognized at the time of mortgage closings.
Policy loans are reported at their unpaid balances and are fully
collateralized by the cash values of the related policies.
Short-term investments are carried at amortized cost, which approximates
market value. The company considers highly liquid investments purchased
with a maturity of one year or less to be short-term investments.
34
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
The investments in affiliates represent both direct and indirect ownership
in the common and preferred stock of non-insurance subsidiaries. The common
stock of PDP is valued at the market value of shares owned less a discount
(15%), as determined by the NAIC Securities Valuation Office. The preferred
stock of PDP is valued at cost. The common stock of other unconsolidated
subsidiaries is valued at the equity in underlying net assets, determined
in accordance with GAAP. The Company's equity in the earnings of
affiliates, including PDP, is reflected in net investment income. Any
remaining adjustments such as those necessary to reflect changes in the
market value of PDP are recorded in unrealized capital gains, net.
Investment and Home Office real estate is generally valued at depreciated
cost less mortgage encumbrances. Foreclosed real estate is generally valued
at current market value at the date of foreclosure. Depreciation of real
estate is calculated using the straight line method over the estimated
lives of the assets (generally 45 years).
Realized capital gains and losses on investments are determined using the
specific identification method. Those realized capital gains and losses
resulting from interest rate changes are deferred and amortized to income
over the stated maturity of the disposed investment utilizing the Interest
Maintenance Reserve Group Method. Unrealized capital gains and losses,
resulting from changes in the difference between cost and the carrying
value of investments, are reflected in policyholders' surplus.
DERIVATIVES
Phoenix Home Life enters into interest rate swap agreements to hedge
certain variable rate investment income streams matched against fixed rate
liability streams. Such contracts generally have maturities of 7 years or
less and the counterparties are major international financial institutions.
The differential to be received on interest rate swap agreements is
recognized in investment income over the life of the agreements.
NON-ADMITTED ASSETS
In accordance with regulatory requirements, certain assets, including
unsecured loans or receivables, prepaid expenses and furniture and
equipment are not allowable and must be charged against surplus. Changes in
the write-off of these asset balances are reported in the consolidated
statement of operations and surplus in other surplus changes, net.
SEPARATE ACCOUNTS
Separate account assets are funds of separate account contractholders and
the company segregated into accounts with specific investment objectives.
The assets are generally carried at market value. An offsetting liability
is maintained to the extent of contractholders' interests in the assets.
Appreciation or depreciation of Phoenix Home Life's interest in the
separate accounts, including undistributed net investment income, is
reflected in policyholders' surplus. Contractholders' interests in net
investment income and realized and unrealized capital gains and losses on
separate account assets are not reflected in operations.
FEDERAL INCOME TAXES
Phoenix Home Life's statutory federal income tax liability is based on
estimates of federal income tax due. There are no provisions for deferred
taxes.
Phoenix Home Life and its eligible affiliated companies have elected to
file a life/nonlife consolidated federal income tax return for the tax
years ended December 31, 1995, 1994 and 1993.
35
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICYHOLDERS' DIVIDENDS
Dividends on all individual coverages are provided on the basis of
estimated amounts payable in the following calendar year. Dividends on all
other coverages are provided on the basis of amounts incurred for the
current year.
APPROPRIATED SURPLUS
Phoenix Home Life's policyholders' surplus includes amounts available for
contingencies, some of which are required by state regulatory authorities.
The amounts as of December 31, 1995 and 1994 were approximately $44.5
million and $41.4 million, respectively.
EMPLOYEE BENEFIT PLANS
Phoenix Home Life sponsors pension and savings plans (the Plans) for its
employees and agents and those of its subsidiaries. Effective November 1,
1995, the Plans were reclassified from single-employer plans to
multi-employer plans in conjunction with the merger of Phoenix Securities
Group and Duff & Phelps Corporation. Former employees of Phoenix Securities
Group, who were participants of the Plans prior to the merger, have
remained as participants of the Plans. The qualified plans comply with
requirements established by the Employee Retirement Income Security Act of
1974 (ERISA) and excess benefit plans provide for that portion of pension
obligations which is in excess of amounts permitted by ERISA. Phoenix Home
Life also provides certain health care and life insurance benefits for
active and retired employees. In addition, Phoenix Home Life maintains
several deferred compensation incentive plans for its officers.
36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. INSURANCE LIABILITIES
RESERVES FOR FUTURE POLICY BENEFITS
The basis of assumptions for Phoenix Home Life's major categories of
reserves for future policy benefits and claims and settlements at December
31, are summarized below.
1995 1994
(IN THOUSANDS)
Life insurance:
American Experience, 2.5% to 4% $ 54,515 $ 59,657
1941 CSO, 2.25% to 4% 476,736 499,593
1958 CSO, 2% to 6% 2,679,897 2,867,403
1980 CSO, 5% to 6% 2,254,892 1,944,126
1980 CSO Select, 4.5% 8,522 6,932
1980 CSO, 3.5% to 4.5% 1,581,897 1,194,601
Various 71,941 64,504
---------- ----------
Total life insurance 7,128,400 6,636,816
---------- ----------
Annuities 646,171 706,038
---------- ----------
Claim and loss liabilities:
Disability 218,381 208,547
Accident and health 575,987 545,918
---------- ----------
Total claim and loss liabilities 794,368 754,465
---------- ----------
Supplementary contracts with
life contingencies 45,757 45,947
---------- ----------
All other 23,971 23,850
---------- ----------
Total before reinsurance ceded 8,638,667 8,167,116
Less - reinsurance ceded 1,505,110 1,418,265
---------- ----------
Reserves for future policy benefits $7,133,557 $6,748,851
========== ==========
37
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. INSURANCE LIABILITIES (CONTINUED)
WITHDRAWAL CHARACTERISTICS
Withdrawal characteristics of annuity actuarial reserves and deposit
liabilities as of December 31, (in thousands aside from percentages) are as
follows:
<TABLE>
<CAPTION>
1995 1994
% OF TOTAL % OF TOTAL
-------------------------- ------------------------
<S> <C> <C> <C> <C>
SUBJECT TO DISCRETIONARY WITHDRAWAL -
WITH ADJUSTMENT
- with market value adjustment $ 38,067 1.0 $ 90,178 3.0
- at book value less
surrender charge 145,871 4.0 296,295 8.0
- at market value 2,918,544 74.0 2,390,895 68.0
------------- ------ ---------- -----
Subtotal 3,102,482 79.0 2,777,368 79.0
SUBJECT TO DISCRETIONARY WITHDRAWAL -
WITHOUT ADJUSTMENT
- at book value (minimal or no
charge or adjustment) 594,839 15.0 428,986 12.0
Not subject to discretionary
withdrawal provision 264,454 6.0 332,454 9.0
------------- ------ ---------- -----
Total Annuity actuarial reserves
and deposit liabilities 3,961,775 100.0 3,538,808 100.0
------ -----
Less-reinsurance ceded 61,728 15,881
------------- ----------
Annuity actuarial reserves
and deposit liabilities $ 3,900,047 $3,522,927
============= ==========
</TABLE>
POLICYHOLDERS' FUNDS AT INTEREST
Phoenix Home Life's policyholders' funds at interest, principally group
pension reserves for guaranteed interest contracts and deposit
administration and immediate participation guarantee funds, are at a
weighted average interest rate of approximately 8.9% and 8.1% at December
31, 1995 and 1994, respectively.
At December 31, 1995, Phoenix Home Life had guaranteed interest contracts
which totaled $54.6 million. These were scheduled to mature as follows:
1996 - $19.8 million; 1997 - $16.5 million; 1998 - $3.0 million; 1999 -
$11.7 million; 2000 and beyond - $3.6 million.
In determining the fair market value of guaranteed interest contracts, a
discount rate equal to the appropriate treasury rate, plus 150 basis
points, was used to determine the present value of projected contractual
liability payments through final maturity. At December 31, 1995, the book
value of guaranteed interest contracts approximated fair value. The book
value and fair value of guaranteed interest contracts as of December 31,
1994 were $142.8 million and $140.3 million respectively.
38
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. INSURANCE LIABILITIES (CONTINUED)
POLICYHOLDERS' FUNDS AT INTEREST (CONTINUED)
The fair market 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
market 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. The book value, which
approximates fair market value, of deferred annuities is $625.9 million and
$660.9 million at December 31, 1995 and 1994, respectively. The fair market
value and book value of supplementary contracts without life contingencies
as of December 31, 1995 are $49.6 million and $49.4 million, respectively.
The fair market value and book value of supplementary contracts without
life contingencies as of December 31, 1994 were $45.7 million and $45.9
million, respectively.
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 market value of liabilities is assumed to be equal to the
stated statutory liability balances.
REINSURANCE FUNDS WITHHELD LIABILITY
During 1993, a universal life reinsurance contract with an unaffiliated
reinsurer was amended to include certain American Experience and 1941 CSO
traditional life reserves on a 90% coinsurance basis. A reinsurance funds
withheld liability of $680.5 million and $669.0 million was held by Phoenix
Home Life at December 31, 1995 and 1994, respectively.
As described in Note 8, HLFAC was sold to an unaffiliated company during
1993. At December 31, 1995 and 1994, a reinsurance funds withheld liability
due HLFAC, as an unauthorized reinsurer, for group life and health reserves
ceded was $11.8 million and $29.2 million, respectively.
39
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. INSURANCE LIABILITIES (CONTINUED)
DIRECT BUSINESS WRITTEN AND REINSURANCE
Additional information on direct business written and reinsurance assumed
and ceded for the years ended December 31, is set forth below.
1995 1994 1993
(IN THOUSANDS)
Direct premiums $ 1,704,381 $ 1,693,494 $ 1,761,660
Reinsurance assumed 271,498 205,387 204,711
Reinsurance ceded (296,162) (304,125) (288,731)
------------ ------------ ------------
Net premiums $ 1,679,717 $ 1,594,756 $ 1,677,640
============ ============ ============
Direct commissions and
expense allowance $ 119,265 $ 133,138 $ 134,987
Reinsurance assumed 55,971 57,104 49,772
Reinsurance ceded (56,089) (73,094) (41,713)
------------ ------------ ------------
Net commissions and
expense allowance $ 119,147 $ 117,148 $ 143,046
============ ============ ============
Direct policy and contract
claims incurred $ 583,867 $ 591,029 $ 668,980
Reinsurance assumed 256,529 167,276 157,718
Reinsurance ceded (292,357) (217,911) (213,359)
------------ ------------ ------------
Net policy and contract
claims incurred $ 548,039 $ 540,394 $ 613,339
============ ============ ============
Direct policy and contract
claims payable $ 75,466 $ 72,037 $ 75,140
Reinsurance assumed 218,045 130,823 81,690
Reinsurance ceded (170,713) (97,788) (54,859)
------------ ------------ ------------
Net policy and contract
claims payable $ 122,798 $ 105,072 $ 101,971
============ ============ ============
Direct life insurance
in force $102,606,749 $ 95,717,768 $ 87,539,515
Reinsurance assumed 36,724,852 27,428,529 24,612,071
Reinsurance ceded (34,093,090) (24,372,415) (26,619,136)
------------ ------------ ------------
Net insurance in
force $105,238,511 $ 98,773,882 $ 85,532,450
============ ============ ============
Phoenix Home Life retroceded certain insurance coverages approximating $1.4
billion, $1.7 billion and $2.0 billion of life insurance in force at
December 31, 1995, 1994 and 1993 respectively, to an off-shore subsidiary.
Irrevocable letters of credit aggregating $7.0 million at December 31, 1995
have been arranged with United States commercial banks in favor of Phoenix
Home Life to collateralize the ceded reserves.
40
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
4. INVESTMENTS
Information pertaining to Phoenix Home Life's investments, net investment
income and capital gains and losses on investments follows:
BONDS, COMMON STOCKS AND PREFERRED STOCKS
Carrying values and alternate values at December 31, for investments in
bonds, preferred stocks and common stocks are set forth below. Bonds are
generally carried at amortized cost, common stocks, at market value and
preferred stocks, generally at cost. The alternate value for bonds and
preferred stocks is fair market value and for common stocks, cost.
<TABLE>
<CAPTION>
1995 1994
CARRYING ALTERNATE CARRYING ALTERNATE
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BONDS
US Treasury bonds
and obligations of
US government
corporations and
agencies $ 572,305 $ 600,959 $ 391,801 $ 376,383
Obligations of states
and political
subdivisions:
- taxable 240,279 258,872 66,815 63,143
- non-taxable 95,043 103,157 67,688 66,666
Bonds issued by
foreign governments 59,149 63,781 45,688 39,154
Corporate bonds 2,210,972 2,404,592 2,187,444 2,112,494
Mortgage-backed
securities 2,286,119 2,363,252 2,216,812 2,030,265
----------- ----------- ----------- ------------
TOTAL BONDS $ 5,463,867 $ 5,794,613 $ 4,976,248 $ 4,688,105
=========== =========== =========== ============
COMMON STOCKS $ 247,424 $ 203,495 $ 161,772 $ 142,128
=========== =========== =========== ============
PREFERRED STOCKS $ 73,299 $ 91,400 $ 75,352 $ 75,731
=========== =========== =========== ============
</TABLE>
The fair market value on bonds include amounts for publicly traded bonds
that are based on quoted market prices, where available, or quoted market
prices of comparable instruments. Fair values of private placement bonds
are estimated using discounted cash flows that apply interest rates
currently being offered with similar terms to borrowers of similar credit
quality.
41
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
BONDS, COMMON STOCKS AND PREFERRED STOCKS (CONTINUED)
Fair values for defaulted bonds and preferred stocks are those values as
provided by the NAIC.
The carrying value and alternate value of bonds at December 31, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
CARRYING ALTERNATE
VALUE VALUE
(IN THOUSANDS)
Due in one year or less $ 35,979 $ 36,635
Due after one year through five years 562,144 590,095
Due after five years through ten years 1,266,895 1,367,640
Due after ten years 1,312,730 1,436,991
Mortgage-backed securities 2,286,119 2,363,252
------------ ------------
Total bonds $ 5,463,867 $ 5,794,613
============ ============
The carrying value of Phoenix Home Life's defaulted bonds is $7.0 million
and is net of reserves of $3.0 million.
Carrying values at December 31, for investments in mortgage-backed
securities, excluding U.S. government guaranteed investments, are set forth
below.
CARRYING VALUE
(IN THOUSANDS)
1995 1994
Planned Amortization Class $ 759,239 $ 750,533
Asset Backed 421,076 407,296
Mezzanine 354,497 398,064
Commercial 240,860 303,684
Sequential Pay 372,169 217,322
Pass Through 84,706 88,228
Other 53,572 51,685
------------ ------------
$ 2,286,119 $ 2,216,812
============ ============
Phoenix Home Life has 49% and 52% at December 31, 1995 and 1994,
respectively, in Planned Amortization Class and Mezzanine mortgage backed
securities which have reasonably predictable cash flows and a relatively
high degree of prepayment protection. Phoenix Home Life has limited
exposure in the more volatile residential derivative market such as
interest only, principal only or inverse float instruments.
42
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
REAL ESTATE AND MORTGAGE LOANS
Real estate at December 31, carried net of accumulated depreciation and
encumbrances, is summarized below:
1995 1994
(IN THOUSANDS)
Investment real estate, less accumulated
depreciation of $64,279 and $59,256,
encumbrances of $2,362 and $2,380
and impairments of $23,699 and $44,249 $ 313,680 $ 389,050
Foreclosed properties, less accumulated
depreciation of $22,217 and $17,580 and
impairments of $29,571 and
$26,849 97,491 89,117
Real estate partnerships and ventures 54,378 84,831
Property used in Phoenix Home Life's
operations less accumulated depreciation
of $43,943 and $38,490 95,031 81,087
----------- -----------
Total real estate 560,580 644,085
Mortgage loans 963,092 1,130,882
----------- -----------
Total real estate and mortgage loans $ 1,523,672 $ 1,774,967
=========== ===========
The carrying value of mortgage loans includes impairment reserves for
mortgage loans in the process of foreclosure of $4.5 million and $0.6
million at December 31, 1995 and 1994, respectively.
Mortgage loans and real estate investments are diversified by property
type, location and issuer. Mortgage loans are collateralized by the related
properties and such collateral is generally 75% of the property's value at
the time the loan is made.
43
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
REAL ESTATE AND MORTGAGE LOANS (CONTINUED)
Mortgage loans and real estate investments at December 31, are comprised of
the following property types and geographic regions:
MORTGAGE LOANS REAL ESTATE
1995 1994 1995 1994
(IN THOUSANDS) (IN THOUSANDS)
PROPERTY TYPE:
Home office $ 95,031 $ 81,087
Office buildings $ 191,672 $ 276,973 230,972 263,467
Retail 250,264 306,251 127,500 122,439
Apartment buildings 244,589 220,325 36,644 93,803
Industrial buildings 222,120 266,305 61,667 70,962
Other 54,447 61,028 8,766 12,327
--------- ---------- --------- ---------
Total $ 963,092 $1,130,882 $ 560,580 $ 644,085
========= ========== ========= =========
GEOGRAPHIC REGION:
Home office $ 95,031 $ 81,087
Northeast $ 233,670 $ 271,088 102,249 106,550
Southeast 250,019 233,571 94,410 101,293
North central 171,434 238,514 85,470 128,043
South central 50,819 67,303 91,670 116,191
West 257,150 320,406 91,750 110,921
--------- ---------- --------- ---------
Total $ 963,092 $1,130,882 $560,580 $ 644,085
========= ========== ======== =========
At December 31, scheduled mortgage loan maturities are as follows:
1995 1994
(IN THOUSANDS)
1995 $ 314,324
1996 $ 198,507 151,956
1997 144,030 138,914
1998 150,412 180,856
1999 102,517 116,743
Thereafter 367,626 228,089
--------- ----------
Total $ 963,092 $1,130,882
========= ==========
44
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
REAL ESTATE AND MORTGAGE LOANS (CONTINUED)
The carrying value of delinquent and in process of foreclosure mortgage
loans at December 31, 1995 and 1994 is $9.4 million and $32.9 million,
respectively, and is net of impairment reserves of $4.5 million and $0.6
million, respectively.
Fair market values for mortgage loans in good standing are calculated as
the present value of scheduled payments, with the discount based upon (1)
the Treasury rate comparable for the remaining loan duration, plus (2) a
spread of between 175 and 450 basis points, depending upon 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. The fair market
value of mortgage loans as of December 31, 1995 and 1994 is $955.8 million
and $1,081.0 million.
The maximum and minimum lending rates for mortgage loans during 1995 were
8.15% and 7.26%, respectively.
OTHER INVESTED ASSETS
Other invested assets at December 31, are summarized below.
1995 1994
(IN THOUSANDS)
Venture capital equity partnerships $ 50,919 $ 44,404
Stock income funds 763
Transportation and equipment leases 47,810 48,318
Oil and gas partnerships 4,305 8,575
Miscellaneous 1,984 2,117
---------- ----------
Total other invested assets $ 105,018 $ 104,177
========== ==========
45
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
INVESTMENT GUARANTEES, INTEREST RATE SWAPS, LINES OF CREDIT AND COMMITMENTS
Phoenix Home Life has various investment guarantees with regard to certain
subsidiary and partnership activities which totalled $310.9 million and
$242.8 million at December 31, 1995 and 1994, respectively.
Phoenix Home Life adopted the disclosure requirements of FAS 119 Disclosure
About Derivative Financial Instruments and Fair Value of Financial
Instruments. The definition of derivative financial instrument excludes all
on-balance sheet receivables and payables, including those that derived
their value or contractually required cash flows from the price of some
other security or index, such as mortgage-backed securities.
Phoenix Home Life enters into interest rate swap agreements, generally
having maturities of 7 years or less, to hedge certain variable rate
investment income streams matched against fixed rate liability streams. The
notional amounts of these instruments were $18.0 million and $34.0 million
at December 31, 1995 and 1994, respectively. Average received and average
pay rates were 9.01% and 5.92%, for 1995.
The increase in net investment income related to interest rate swap
contracts was $1.2 million, $3.1 million and $3.5 million for the years
ended December 31, 1995, 1994 and 1993, respectively. The fair value of
these interest rate swap agreements as of December 31, 1995 and 1994 was
not material.
The company has also guaranteed an interest rate swap agreement entered
into by a subsidiary. This agreement has the effect of the subsidiary
paying a fixed interest rate on a notional amount of $175 million of the
subsidiary's debt.
These agreements do not require the exchange of underlying principal
amounts, and accordingly the company's maximum exposure to credit risk is
the difference in interest payments exchanged. Management of Phoenix Home
Life considers the likelihood of any material loss on these guarantees or
interest rate swaps to be remote.
Phoenix Home Life has unused lines of credit with commercial banks totaling
$176.9 million at December 31, 1995.
At December 31, 1995, the company has leases covering certain facilities,
property and equipment which in no year exceeded $16.7 million and which
approximate $45.4 million in total. Such commitments extend through the
year 2000.
46
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
NON-INCOME PRODUCING MORTGAGE LOANS AND BONDS
The net carrying values of first mortgage loans and bonds which were
non-income producing for the preceding 12 months as of December 31, are as
follows:
1995 1994
(IN THOUSANDS)
First mortgage loans $ 3,805 $ 18,371
Bonds 322
---------- -----------
Total non-income producing mortgage loans
and bonds $ 3,805 $ 18,693
========== ===========
SEPARATE ACCOUNTS
Phoenix Home Life's investments in its separate accounts at December 31,
are summarized below.
<TABLE>
<CAPTION>
1995 1994
CARRYING CARRYING
VALUE COST VALUE COST
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Pooled separate accounts $ 22,575 $ 4,646 $ 26,030 $ 6,125
Closed end real estate account 4,597 4,460 5,623 6,314
Variable accumulation account 5,842 5,000
--------- -------- --------- --------
Total investments in
separate accounts $ 33,014 $ 14,106 $ 31,653 $ 12,439
========= ======== ========= ========
</TABLE>
Phoenix Home Life's investments at December 31, 1995 in the pooled separate
accounts represent seed money which was necessary to commence their
operations. Phoenix Home Life has a 10% investment in a separate account
which invests primarily in real estate properties and mortgage loans, a
100% investment in a separate account which invests in guaranteed interest
contracts with non-affiliates and a .4% investment in the real estate
sub-fund of a variable accumulation account.
POLICY LOANS
Fair market value of policy loans, $1,658 million and $1,474 million at
December 31, 1995 and 1994, respectively, was 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 at December 31, 1995 and 1994, respectively. 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 market value.
47
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
NET INVESTMENT INCOME
The principal components of net investment income for the years ended
December 31, are set forth below.
<TABLE>
<CAPTION>
1995 1994 1993
(IN THOUSANDS)
<S> <C> <C> <C>
Interest on bonds $ 419,859 $ 380,345 $ 322,378
Interest on first mortgage loans 92,283 109,457 176,687
Interest on policy loans 115,055 105,678 104,002
Interest on short-term investments 21,974 11,673 14,213
Income on real estate, net of expenses
of $79,565, $82,085 and $59,918 20,243 16,478 14,470
Equity in income of affiliates 17,850 17,050 30,368
Dividends on common stocks 1,787 3,312 2,303
Dividends on preferred stocks 6,886 7,378 8,848
Net loss from other invested
assets (1,239) (1,046) (835)
Miscellaneous income 2,110 2,258 1,243
Amortization of the interest
maintenance reserve 1,824 1,644 2,425
Less:
Interest expenses 164 161 313
Investment expenses 27,769 22,398 27,555
---------- ---------- ----------
Net investment income $ 670,699 $ 631,668 $ 648,234
========== ========== ==========
</TABLE>
Income on real estate includes $18.3 million for Phoenix Home Life's
occupancy of its own properties for 1995. An offsetting amount is included
in investment and operating expenses.
Interest income of $1.0 million was not accrued on certain delinquent first
mortgage loans and defaulted bonds at December 31, 1995.
48
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
CAPITAL GAINS AND LOSSES
The principal components of capital gains and (losses) on investments
reflected in surplus for the years December 31, are set forth below.
<TABLE>
<CAPTION>
REALIZED UNREALIZED
1995 1994 1993 1995 1994 1993
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Bonds $ 9,865 $ (30,299) $ 15,923 $ (8,560) $ 6,967 $ 11,968
First mortgage loans (43,377) (7,149) (84,441) (1,548) (4,292) 9,674
Real estate (62,685) (29,612) (50,889) 49,923 35,856 9,067
Common stock of
consolidated subsidiaries 50,496
Investments in affiliates 122,452 (28,808) 6,000 (7,002)
Common stocks 27,828 (8,877) 20,178 23,552 2,427 7,434
Preferred stocks 515 1,302 (2,287) 153 5,963
Other invested assets 5,344 3,400 4,686 1,865 (165) 4,263
Foreign exchange (1,948) 1,096 1,432 (784)
Miscellaneous 6,066 (8,405) 88 (108) 1,976
--------- --------- ---------- ---------- --------- ---------
66,008 (81,588) (46,246) 37,412 50,354 40,583
Transfer to interest
maintenance reserve (7,276) 19,338 (11,051)
Income tax (expense) benefits (49,462) 15,538 (8,538)
--------- --------- ---------- --------- --------- ---------
Net capital gains (losses) $ 9,270 (46,712) $ (65,835) $ 37,412 $ 50,354 $ 40,583
========= ========= ========== ========= ========= =========
</TABLE>
Proceeds from sales of Phoenix Home Life's investments in bonds were $1.4
billion, $1.2 billion and $1.3 billion during 1995, 1994 and 1993. Gross
gains of $29.6 million, $15.2 million and $42.1 million and gross losses of
$19.7 million, $45.5 million and $26.2 million were realized on these sales
during 1995, 1994 and 1993.
49
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
CAPITAL GAINS AND LOSSES (CONTINUED)
Gross unrealized gains and losses on bonds at December 31, not reflected in
surplus, are as follows:
<TABLE>
<CAPTION>
UNREALIZED GAINS UNREALIZED LOSSES
1995 1994 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C> <C>
US Treasury bonds and
obligations of US
government corporations
and agencies $ 29,682 $ 928 $ (1,028) $ (16,346)
Obligations of states and
political subdivisions:
- taxable 18,593 1 (3,673)
- non-taxable 8,257 619 (143) (1,641)
Bonds issued by foreign
governments 6,436 (1,804) (6,534)
Corporate bonds 198,684 34,216 (5,064) (109,166)
Mortgage-backed
securities 96,506 13,686 (19,373) (200,233)
---------- --------- --------- ----------
Total $ 358,158 $ 49,450 $ (27,412) $ (337,593)
========== ========= ========= ==========
</TABLE>
5. INVESTMENTS IN AFFILIATES
PM Holdings is a wholly-owned subsidiary organized to hold investments in
companies primarily engaged in the businesses of life insurance, mortgage
loan financing, investment advisory and mutual fund distribution services,
real estate and insurance agency and brokerage operations. As previously
disclosed, the life insurance subsidiaries of PM Holdings, which are
included on a consolidated basis in these financial statements, include the
following: Phoenix American Life Insurance Company, American Phoenix Life
and Reassurance Company, Phoenix Life Insurance Company and PHL Variable
Insurance Company. PM Holding's major non-life subsidiaries include:
Phoenix Realty Group, Inc., American Phoenix Corporation, Phoenix Founders,
Inc., W.S. Griffith & Company and Financial Administrative Services, Inc.
In addition, PM Holdings owns approximately 60% of the outstanding Phoenix
Duff & Phelps Corporation common stock.
50
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
5. INVESTMENTS IN AFFILIATES (CONTINUED)
Prior to July 1, 1993, HLFAC was a wholly-owned subsidiary of Phoenix Home
Life. As described in Note 8, effective June 30, 1993, HLFAC was sold to an
unaffiliated company, Community Mutual Insurance Company.
American Phoenix Life and Reassurance Company (formerly Phoenix Life and
Reassurance Company), previously a wholly-owned subsidiary of Phoenix Home
Life, organized for the purpose of holding and administering
non-participating reinsurance business, became a wholly-owned subsidiary of
PM Holdings on February 28, 1994.
Phoenix Life Insurance Company, formerly a wholly-owned subsidiary of
Phoenix Home Life, incorporated on June 3, 1992, became a wholly-owned
subsidiary of PM Holdings on February 28, 1994. On December 30, 1994, the
Company obtained licensing in the State of Connecticut and plans to market
interest sensitive products in the future.
PHL Variable Insurance Company was incorporated under the laws of
Connecticut on June 1, 1994 and has obtained licensing in several states
and began offering variable insurance products directly to the public in
1995.
During 1992 through 1994, Phoenix Mutual Mortgage Funding Corporation
(PMMFC), a former non-life subsidiary of PM Holdings, exercised its option
to double its sinking fund payments on existing debt. On September 12,
1994, PMMFC retired this debt and was liquidated.
On November 1, 1995, Phoenix Securities Group, Inc. (formerly PHL Mutual
Funds Holdings, Inc.), a wholly-owned subsidiary of PM Holdings merged with
Duff & Phelps Corporation. The merged company was named Phoenix Duff &
Phelps Corporation (PDP). PM Holdings owns approximately 60% of the
outstanding common stock of the new PDP. The investment in PDP common stock
is recorded at the market value of shares owned less a discount (15%), as
determined by the NAIC Securities Valuation Office.
PM Holding's consolidated entities invest primarily in bonds, first
mortgage loans and real estate. These investments are recorded using the
same accounting practices as the parent.
51
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
5. INVESTMENTS IN AFFILIATES (CONTINUED)
Summarized financial information of the non-insurance indirect subsidiaries
of Phoenix Home Life at December 31, and for the years ended is as follows:
1995 1994
(IN THOUSANDS)
BALANCE SHEET
Assets:
Common stock in affiliate $ 154,275
Preferred stock in affiliate 35,000
Other investments 67,010 $ 83,160
Other assets 138,374 142,684
--------- ---------
Total assets $ 394,659 $ 225,844
========= =========
Liabilities:
Notes and bonds payable $ 250,631 $ 98,066
Other liabilities 61,083 67,209
--------- ---------
Total liabilities 311,714 165,275
Stockholder's equity 82,945 60,569
--------- ---------
Total liabilities and
stockholder's equity $ 394,659 $ 225,844
========= =========
SUMMARY OF OPERATIONS 1995 1994 1993
(IN THOUSANDS)
Revenue:
Commissions and fees $ 137,492 $ 95,419 $110,576
Net investment and other income 49,155 37,740 27,166
--------- --------- --------
Total revenue 186,647 133,159 137,742
--------- --------- --------
Expenses:
Commission expenses 37,195 14,298 33,159
Interest and other expenses 132,485 100,424 81,810
Federal income tax expense 5,654 8,519 5,455
--------- --------- --------
Total expenses 175,334 123,241 120,424
--------- --------- --------
OPERATING INCOME BEFORE REALIZED
CAPITAL GAIN (LOSS) AND
MINORITY INTEREST 11,313 9,918 17,318
Realized capital gain (loss),
net of income taxes 126,852 (1,400) 11,263
Minority interest (271) 15 273
--------- --------- --------
Net income $ 137,894 $ 8,533 $ 28,854
Capital (returned to) contributed
by parent, net (59,335) 1,134 (15,067)
Other surplus changes (56,183) 28
Stockholder's equity,
beginning of year 60,569 50,874 37,087
--------- --------- --------
Stockholder's equity, end of year $ 82,945 $ 60,569 $ 50,874
========= ========= ========
52
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
6. FEDERAL INCOME TAXES
The federal income tax provision for 1995, 1994 and 1993 totalled $82.8
million, $12.9 million and $6.3 million, respectively, which included tax
expense or (benefits) applicable to realized capital gains or losses of
$49.5 million, $(15.5) million and $8.5 million. Significant adjustments to
book net income before federal income taxes were made for the differential
earnings rate, reduction in the policyholder dividends deduction and to
reflect the tax bases for investments, life insurance reserves, dividend
received deduction and deferred policy acquisition costs. Phoenix Home Life
had a net current federal income tax payable of $56.7 million and $20.3
million at December 31, 1995 and 1994, respectively. The federal income tax
payable is included in accrued expenses and general liabilities at December
31, 1995 and 1994.
The Internal Revenue Service (IRS) is currently examining the Company's tax
returns for 1991-1994. Management does not believe that there will be a
material adverse effect on the financial statements as a result of pending
tax matters.
7. EMPLOYEE AND OTHER POSTEMPLOYMENT BENEFITS
The company recognizes the costs of postretirement benefits other than
pensions for current retirees and fully eligible or vested employees at
transition. This liability is measured by discounting the projected future
costs of health benefits based on an estimate of health care cost trend
rates. Prior to the adoption of this standard, the company recognized such
costs as an expense when paid. The company has elected the deferred
recognition method of adoption where the postretirement benefit obligation
will be amortized as a component of net periodic cost over a period of 20
years.
Phoenix Home Life provides certain health care and life insurance benefits
for retired employees. A substantial portion of the company's employees may
become eligible for these benefits upon retirement. The health care and
life insurance plans generally require retiree contributions. These
contributions are based on years of service with the company.
The expense related to the company's postretirement benefit plans is $7.4
million and $6.8 million for the years ended December 31, 1995 and 1994,
respectively.
53
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
7. EMPLOYEE AND OTHER POSTEMPLOYMENT BENEFITS (CONTINUED)
The following table shows the plan's funded status at December 31, 1995
(in thousands):
Accumulated postretirement benefit obligation
other than pensions (APBO):
Retirees $ 37,900
Fully eligible active plan participants 10,500
---------
Total APBO 48,400
Unrecognized net gain 6,600
Unrecognized transition obligation (40,200)
---------
Accrued postretirement benefit liability $ 14,800
=========
The accrued postretirement benefit liability is included in accrued
expenses and general liabilities. The estimated accumulated APBO for
non-vested employees at December 31, 1995 was $25.0 million. The net 1995
periodic postretirement benefit cost is included in other operating
expenses and consisted of the following components (in thousands):
Estimated eligibility cost - 1995 $ 1,400
Interest cost on APBO 3,700
Amortization of transition obligation over 20 years 2,400
Other (100)
---------
Net periodic postretirement benefit cost $ 7,400
=========
Determination of the accumulated postretirement benefit obligation was
based on an assumed discount rate of 8% and a long-term compensation
increase of 5%. The assumed rate of future increases in per capita cost of
health benefits (the health care cost trend) was 11% in 1996 grading to an
ultimate rate of 5.5% in 2002. The assumed health care cost trend reflects
the company's current claim experience and management's expectation that
future rates of growth will decline. Increasing the health care cost trend
by one percentage point for each future year would increase the accumulated
other postretirement benefit obligation by $2.3 million and the annual
service and interest cost by $0.3 million before taxes. Gains and losses
that occur because actual experience differs from that assumed are
reflected in unrealized gain and amortized over the average future service
period of employees.
As of January 1, 1995, Phoenix Home Life's defined benefit plan, the
Phoenix Home Life Mutual Insurance Company Employee Pension Plan (Employee
Pension Plan), was overfunded by approximately $2.2 million as measured
using the plan's then projected benefit obligation.
54
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
7. EMPLOYEE AND OTHER POSTEMPLOYMENT BENEFITS (CONTINUED)
The Company recognizes the costs and obligations of severance, disability,
life insurance and health care benefits when paid to inactive or former
employees.
Phoenix Home Life's charge to expense for retirement benefit plans for the
year ended December 31, 1995 and 1994 was approximately $6.0 million and
$8.2 million, respectively. Certain pension costs incurred by Phoenix Home
Life are allocated to its subsidiaries.
The estimated funded status of the Employee Pension Plan as of January 1,
1995 is summarized as follows (in thousands):
Actuarial present value of benefit obligations:
Vested benefit obligation $ 160,592
Present value of non-vested benefits 15,251
---------
Accumulated benefit obligation 175,843
Present value of future salary increases 37,793
---------
Projected benefit obligation $ 213,636
=========
Plan assets at fair value at January 1 $ 215,858
=========
Plan assets at fair value in excess of
projected benefit obligation $ 2,222
=========
For the Employee Pension Plan, the present value of accumulated plan
benefits was determined based on the actual salary and service history of
the covered employees as of the date of the computation. The actuarial
present value of the plan liabilities, which considers future estimated
salary increases and other factors, is approximately $213.6 million at
January 1, 1995, the date of the most recent actuarial valuation. Actuarial
amounts were determined using 8% assumed rates of return for the qualified
employees' plan.
The assets of the company's pension and savings plans at December 31, 1994,
were invested as follows (in thousands):
Separate accounts of Phoenix Home Life $ 49,142
Phoenix Series Fund sponsored by
Phoenix Home Life 113,654
Phoenix Multi-Sector Fixed Income Fund
sponsored by Phoenix Home Life 8,683
Phoenix Worldwide Opportunities Fund
sponsored by Phoenix Home Life 6,735
Phoenix Asset Reserve
sponsored by Phoenix Home Life 700
Pension Plan Trust Account 165,664
Cash Management Account 1,052
---------
Total invested assets of pension savings plans $ 345,630
=========
55
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
8. DISPOSITION OF HLFAC
Effective June 30, 1993, HLFAC was sold to an unaffiliated company,
Community Mutual Insurance Company, resulting in a pre-tax realized capital
gain of $50.5 million. Results on a divisional basis for the period from
January 1, 1993 through June 30, 1993, which are included in the
consolidated statement of operations, are as follows (in thousands):
1993
Net premiums $ 171,822
Net investment income 6,437
-----------
Total income 178,259
-----------
Policy benefits 105,024
Expenses 56,000
-----------
Total benefits and expenses 161,024
-----------
Gain from operations before federal income taxes $ 17,235
===========
9. SEGMENT INFORMATION
Phoenix Home Life operates principally in six segments: Individual, Group
Life and Health, Life Reinsurance, General Lines Brokerage, Securities
Management and Real Estate Management.
Summarized financial information with respect to the business segments for
the years ended December 31, was as follows (in thousands):
1995 1994 1993
REVENUES
Individual $ 1,680,641 $ 1,595,725 $ 1,542,755
Group Life and Health 411,076 405,564 377,432
Life Reinsurance 125,657 93,346 97,177
General Lines Brokerage 23,796 21,949 14,687
Securities Management
(including PDP operations) 95,684 97,401 101,853
Real Estate Management 13,562 12,439 13,711
Other operations (HLFAC) 178,259
----------- ----------- -----------
Total revenues $ 2,350,416 $ 2,226,424 $ 2,325,874
=========== =========== ===========
56
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
9. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
INCOME BEFORE REALIZED CAPITAL GAINS
(LOSSES), DIVIDENDS AND INCOME TAXES
Individual $ 333,524 $ 294,987 $ 260,645
Group Life and Health 17,401 17,451 28,974
Life Reinsurance 8,829 7,355 4,028
General Lines Brokerage 2,633 2,306 755
Securities Management
(including PDP operations) 19,753 22,431 33,816
Real Estate Management (184) 627 (262)
Other operations (HLFAC) 17,235
Total income before realized capital gains
(losses), dividends and income taxes $ 381,956 $ 345,157 $ 345,191
=========== =========== ===========
1995 1994
IDENTIFIABLE ASSETS
Individual $11,519,751 $10,501,598
Group Life and Health 506,712 461,540
Life Reinsurance 176,520 174,337
General Lines Brokerage 112,348 33,534
Securities Management 621,150 604,968
Real Estate Management 254,979 234,052
Total identifiable assets $ 13,191,460 $12,010,029
============ ===========
</TABLE>
10. CONTINGENCIES
The Company is a defendant in various legal actions arising from the normal
conduct of business. Management believes that, after consideration of
provisions made in the Company's financial statements, none of the actions
will have a material effect on the Company's financial position.
57
<PAGE>
PHOENIX HOME LIFE VARIABLE
UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1995
58
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
Money Market Growth Bond
Sub-Account Sub-Account Sub-Account
-------------- ----------- ------------
<S> <C> <C> <C>
Assets
Investments at cost $13,959,460 $110,250,111 $ 6,357,472
============ ========= ==========
Investment in The Phoenix Edge Series Fund, at market 13,959,460 118,022,065 6,705,121
------------ --------- ----------
Total assets 13,959,460 118,022,065 6,705,121
Liabilities
Accrued expenses to related party 7,919 72,685 4,346
------------ --------- ----------
Net assets $13,951,541 $117,949,380 $6,700,775
============ ========= ==========
Accumulation units outstanding--Flex Edge 10,229,951 36,538,624 3,484,452
============ ========= ==========
Accumulation units outstanding--Joint Edge 296,269 1,113,293 95,464
============ ========= ==========
Unit value $ 1.325408 $ 3.132626 $ 1.871769
============ ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- ----------- ------------
<S> <C> <C> <C>
Assets
Investments at cost $19,900,213 $19,529,649 $ 12,424,740
============ ========= ==========
Investment in The Phoenix Edge Series Fund, at market 20,261,898 20,759,895 13,725,016
------------ --------- ----------
Total assets 20,261,898 20,759,895 13,725,016
Liabilities
Accrued expenses to related party 12,619 12,722 8,541
------------ --------- ----------
Net assets $20,249,279 $20,747,173 $13,716,475
============ ========= ==========
Accumulation units outstanding--Flex Edge 9,236,346 14,435,212 9,521,556
============ ========= ==========
Accumulation units outstanding--Joint Edge 194,742 555,114 400,572
============ ========= ==========
Unit value $ 2.147078 $ 1.384037 $ 1.382412
============ ========= ==========
</TABLE>
See notes to Financial Statements
59
<PAGE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Money Market Growth Bond
Sub-Account Sub-Account Sub-Account
-------------- ---------- ------------
<S> <C> <C> <C>
Investment income
Distributions $656,913 $ 963,473 $ 456,389
Expenses
Mortality and expense risk charges 94,526 688,907 42,067
------------ -------- ----------
Net investment income 562,387 274,566 414,322
------------ -------- ----------
Net realized gain from share transactions -- 4,178 1,800
Net realized gain distribution from Fund -- 12,514,179 --
Net unrealized appreciation on investment -- 9,293,459 651,393
------------ -------- ----------
Net gain on investments -- 21,811,816 653,193
------------ -------- ----------
Net increase in net assets resulting from operations $562,387 $22,086,382 $1,067,515
============ ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- ----------- ------------
<S> <C> <C> <C>
Investment income
Distributions $ 554,634 $ 65,980 $ 394,319
Expenses
Mortality and expense risk charges 130,115 141,161 88,010
------------ --------- ----------
Net investment income (loss) 424,519 (75,181) 306,309
------------ --------- ----------
Net realized gain (loss) from share transactions 1,051 (16,995) 527
Net realized gain distribution from Fund 1,221,316 380,538 272,172
Net unrealized appreciation on investment 873,761 1,259,164 1,647,649
------------ --------- ----------
Net gain on investments 2,096,128 1,622,707 1,920,348
------------ --------- ----------
Net increase in net assets resulting from operations $2,520,647 $ 1,547,526 $2,226,657
============ ========= ==========
</TABLE>
See notes to Financial Statements
60
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Money Market Growth Bond
Sub-Account Sub-Account Sub-Account
--------------- ----------- ------------
<S> <C> <C> <C>
From operations
Net investment income $ 562,387 $ 274,566 $ 414,322
Net realized gain -- 12,518,357 1,800
Net unrealized appreciation -- 9,293,459 651,393
------------- --------- ----------
Net increase in net assets resulting from operations 562,387 22,086,382 1,067,515
------------- --------- ----------
From accumulation unit transactions
Participant deposits 23,196,295 34,460,166 1,851,602
Participant transfers (19,227,932) 15,470,116 884,223
Participant withdrawals (2,331,740) (12,409,600) (772,642)
------------- --------- ----------
Net increase in net assets resulting from participant
transactions 1,636,623 37,520,682 1,963,183
------------- --------- ----------
Net increase in net assets 2,199,010 59,607,064 3,030,698
Net assets
Beginning of period 11,752,531 58,342,316 3,670,077
------------- --------- ----------
End of period $ 13,951,541 $117,949,380 $6,700,775
============= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- ----------- ------------
<S> <C> <C> <C>
From operations
Net investment income (loss) $ 424,519 $ (75,181) $ 306,309
Net realized gain (loss) 1,222,367 363,543 272,699
Net unrealized appreciation 873,761 1,259,164 1,647,649
------------ --------- ----------
Net increase in net assets resulting from operations 2,520,647 1,547,526 2,226,657
------------ --------- ----------
From accumulation unit transactions
Participant deposits 5,457,071 7,548,871 3,800,064
Participant transfers 2,208,588 (399,608) 581,841
Participant withdrawals (2,158,665) (2,474,965) (1,761,880)
------------ --------- ----------
Net increase in net assets resulting from participant
transactions 5,506,994 4,674,298 2,620,025
------------ --------- ----------
Net increase in net assets 8,027,641 6,221,824 4,846,682
Net assets
Beginning of period 12,221,638 14,525,349 8,869,793
------------ --------- ----------
End of period $20,249,279 $20,747,173 $13,716,475
============ ========= ==========
</TABLE>
See notes to Financial Statements
61
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1994
<TABLE>
<CAPTION>
Money Market Growth Bond
Sub-Account Sub-Account Sub-Account
--------------- ---------- ------------
<S> <C> <C> <C>
From operations
Net investment income $ 269,315 $ 294,375 $ 218,172
Net realized gain (loss) -- 3,213,016 (3,967)
Net unrealized depreciation -- (3,486,259) (392,992)
------------- -------- ----------
Net increase (decrease) in net assets resulting from
operations 269,315 21,132 (178,787)
------------- -------- ----------
From accumulation unit transactions
Participant deposits 21,682,948 26,040,831 1,844,201
Participant transfers (14,299,239) 7,532,883 23,923
Participant withdrawals (2,824,234) (7,655,667) (503,930)
------------- -------- ----------
Net increase in net assets resulting from participant
transactions 4,559,475 25,918,047 1,364,194
------------- -------- ----------
Net increase in net assets 4,828,790 25,939,179 1,185,407
Net assets
Beginning of period 6,923,741 32,403,137 2,484,670
------------- -------- ----------
End of period $ 11,752,531 $58,342,316 $3,670,077
============= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- ----------- ------------
<S> <C> <C> <C>
From operations
Net investment income (loss) $ 227,212 $ (56,510) $ 212,403
Net realized gain 343,918 305,474 61,943
Net unrealized depreciation (771,056) (732,849) (556,387)
------------ --------- ----------
Net decrease in net assets resulting from operations (199,926) (483,885) (282,041)
------------ --------- ----------
From accumulation unit transactions
Participant deposits 5,110,267 6,568,479 3,993,661
Participant transfers 1,128,647 4,843,273 149,204
Participant withdrawals (1,493,881) (1,519,024) (1,268,580)
------------ --------- ----------
Net increase in net assets resulting from participant
transactions 4,745,033 9,892,728 2,874,285
------------ --------- ----------
Net increase in net assets 4,545,107 9,408,843 2,592,244
Net assets
Beginning of period 7,676,531 5,116,506 6,277,549
------------ --------- ----------
End of period $12,221,638 $14,525,349 $ 8,869,793
============ ========= ==========
</TABLE>
See notes to Financial Statements
62
<PAGE>
FINANCIAL HIGHLIGHTS
(Selected data for a unit outstanding throughout the indicated period)
(Unaudited)
<TABLE>
<CAPTION>
Money Market Sub-Account Growth Sub-Account
----------------------------- --------------------------------
Year Ended December 31, Year Ended December 31,
1995 1994 1995 1994
------------ -------------- ------------ ----------------
<S> <C> <C> <C> <C>
Unit value, beginning of period $ 1.263974 $ 1.226981 $2.412541 $ 2.396670
Income from investment operations
Net investment income 0.061434 0.036993 0.008952 0.221088
Net realized and unrealized gain
(loss) -- -- 0.711133 (0.205217 )
Total from investment operations 0.061434 0.036993 0.720085 0.015871
---------- ------------ ---------- ---------------
Unit value, end of period $ 1.325408 $ 1.263974 $3.132626 $ 2.412541
========== ============ ========== ===============
Total return 4.86% 3.01% 29.85% 0.66%
Net assets, end of period (000) $13,952 $11,753 $117,949 $58,342
</TABLE>
<TABLE>
<CAPTION>
Bond Sub-Account Total Return Sub-Account
------------------------- ------------------------------
Year Ended December 31, Year Ended December 31,
1995 1994 1995 1994
-------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Unit value, beginning of period $1.527250 $ 1.628351 $1.830914 $ 1.871886
Income from investment operations
Net investment income 0.133714 0.123373 0.053247 0.046564
Net realized and unrealized gain (loss) 0.210805 (0.224474) 0.262917 (0.087536 )
------ ----------- ---------- -------------
Total from investment operations 0.344519 (0.101101) 0.316164 (0.040972 )
------ ----------- ---------- -------------
Unit value, end of period $1.871769 $ 1.527250 $2.147078 $ 1.830914
====== =========== ========== =============
Total return 22.56% (6.21)% 17.27% (2.19)%
Net assets, end of period (000) $6,701 $3,670 $20,249 $12,222
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a unit outstanding throughout the indicated period)
<TABLE>
<CAPTION>
International Sub-Account Balanced Sub-Account
--------------------------------- -----------------------------
Year Ended December 31, Year Ended December 31,
1995 1994 1995 1994
------------- ----------------- ------------ --------------
<S> <C> <C> <C> <C>
Unit value, beginning of period $ 1.273020 $ 1.282423 $1.129669 $ 1.171933
Income from investment operations
Net investment income (loss) (0.005393 ) (0.001098 ) 0.034768 0.031829
Net realized and unrealized gain (loss) 0.116410 (0.008305 ) 0.217975 (0.074093 )
----------- --------------- ---------- ------------
Total from investment operations 0.111017 (0.009403 ) 0.252743 (0.042264 )
----------- --------------- ---------- ------------
Unit value, end of period $ 1.384037 $ 1.273020 $1.382412 $ 1.129669
=========== =============== ========== ============
Total return 8.72% (0.73)% 22.37% (3.61)%
Net assets, end of period (000) $20,747 $14,525 $13,716 $8,870
</TABLE>
See notes to Financial Statements
63
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
Note 1--Organization:
Phoenix Home Life Variable Universal Life Account (the Account) is a
separate investment account of Phoenix Home Life Mutual Insurance Company
(Phoenix Home Life). The Account is offered as Flex Edge for individual
variable life insurance and as Joint Edge for variable first-to-die joint
life insurance. The account is organized as a unit investment trust under the
Investment Company Act of 1940, as amended, and currently consists of six
Sub-accounts, which invest in six of the available portfolios of The Phoenix
Edge Series Fund (the Fund). The Real Estate Series is currently not
available to the Account.
Each series has distinct investment objectives. The Money Market Series is
a short-term investment fund, the Growth Series is a growth common stock
fund, the Bond Series is a long-term debt fund, the Total Return Series
invests in equity securities and long and short-term debt, the International
Series invests primarily in internationally diversified equity securities and
the Balanced Series is a balanced fund which invests in growth stocks and at
least 25% of its assets in fixed income securities. Contract holders may also
direct the allocation of their investments between the account and the
Guaranteed Interest Account of the general account of Phoenix Home Life.
Note 2--Significant Accounting Policies:
Certain reclassifications have been made to prior year's amounts to conform
with the 1995 presentation.
A. Valuation of Investments: Investments are made exclusively in the Fund and
are valued at the net asset values per share of the respective Series.
B. Investment transactions and related income: Realized gains and losses
include capital gain distributions from the Fund as well as gains and losses
on sales of shares in the fund determined on the LIFO (last in, first out)
basis.
C. Income taxes: The Account is not a separate entity from Phoenix Home Life
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 or state income taxes is
required.
D. Distributions: Distributions are recorded as investment income on the
ex-dividend date.
Note 3--Purchases and Sales of Shares of The Phoenix Edge Series Fund:
Purchases and sales of shares of the Fund for the year ended December 31,
1995 aggregated the following:
<TABLE>
<CAPTION>
Sub-Account Purchases Sales
- ------------- ---------- ------------
<S> <C> <C>
Money Market $15,358,015 $13,127,029
Growth 52,656,500 2,386,549
Bond 3,150,173 775,101
Total Return 7,932,811 790,863
International 7,725,084 2,760,274
Balanced 4,832,165 1,642,462
</TABLE>
Note 4--Participant Accumulation Unit Transactions (in units):
<TABLE>
<CAPTION>
Sub-Account
-----------------------------------------------------------------------------------
Money Total
Market Growth Bond Return International Balanced
----------- ---------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Flex Edge:
Participant deposits 16,530,006 11,865,242 1,056,465 2,618,013 5,503,623 2,914,431
Participant transfers (13,776,782) 5,246,964 514,311 1,064,109 (387,514) 438,017
Participant withdrawals (1,666,716) (4,223,772) (441,021) (1,027,984) (1,776,981) (1,344,173)
Joint Edge:
Participant deposits 1,348,536 507,471 38,054 100,104 269,791 129,152
Participant transfers (1,073,563) 295,473 21,958 48,759 87,491 11,893
Participant withdrawals (133,344) (222,390) (12,913) (47,069) (116,238) (78,868)
</TABLE>
Note 5--Policy Loans:
Transfers are made to Phoenix Home Life's general account as a result of
policy loans. Contract provisions allow contract owners to borrow up to 90%
of a policy's cash value with an interest rate set in accordance with the
contract due and payable on each policy anniversary. At the time a loan is
granted, an amount equivalent to the amount of the loan is transferred from
the Account to Phoenix Home Life's general account as collateral for the
outstanding loan. These transfers are included in participant withdrawals in
the accompanying financial statements. Amounts in the general account are
credited with interest at 6%. Loan repayments result in a transfer of
collateral back to the Account.
Note 6--Investment Advisory Fees and Related Party Transactions:
Phoenix Home Life and its indirect, less than wholly owned subsidiary,
Phoenix Equity Planning Corporation, a registered broker/dealer in
securities, provide all services to the Account.
The cost of insurance is charged to each policy on a monthly basis by a
withdrawal of participant units prorated among the elected Sub- accounts. 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 $14,392,712 during the year ended December 31, 1995.
Upon partial surrender of a policy a surrender fee of the lesser of $25 or
2% of the partial surrender amount paid and a partial surrender charge equal
to a pro rata portion of the applicable surrender charge is deducted from the
policy value and paid to Phoenix Home Life. Partial surrender fees paid
during the year ended December 31, 1995 were $853,600.
64
<PAGE>
Phoenix Equity Planning Corporation is the principal underwriter and
distributor of the Account. Phoenix Equity Planning Corporation is reimbursed
for its distribution and underwriting expenses by Phoenix Home Life.
Policies which are surrendered during the first ten policy years will
incur a surrender charge, consisting of a contingent deferred sales charge
designed to recover expenses for the distribution of Policies that are
terminated by surrender before distribution expenses have been recouped, and
a contingent deferred issue charge designed to recover expenses for the
administration of Policies that are terminated by surrender before
administrative expenses have been recouped. These are contingent charges
because they are paid only if the Policy is surrendered (or a partial
withdrawal is taken or the Face Amount is reduced or the Policy lapses)
during the first ten policy years. They are deferred charges because they are
not deducted from premiums.
Phoenix Home Life assumes the 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 and that its expenses may be higher than its
deductions for such expenses. In return for the assumption of these mortality
and expense risks, Phoenix Home Life charges the Account an annual rate of
0.80% of the average daily net assets of the Account for mortality and
expense risks assumed.
Note 7--Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue Code (the
Code), a variable universal life contract, other than a contract issued in
connection with certain types of employee benefit plans, will not be treated
as a universal life contract for federal tax purposes for any period for
which the investments of the segregated asset account on which the contract
is based are not adequately diversified. The Code provides that the
"adequately diversified" requirement may be met if the underlying investments
satisfy either a statutory safe harbor test or diversification requirements
set forth in regulations issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h)
of the Code. Phoenix Home Life believes that the Account satisfies the
current requirements of the regulations, and it intends that the Account will
continue to meet such requirements.
65
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP [logo]
To the Participants of
Phoenix Home Life Variable
Universal Life Account
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Money Market
Sub-Account, Growth Sub-Account, Bond Sub-Account, Total Return Sub-Account,
International Sub-Account and Balanced Sub- Account (constituting the Phoenix
Home Life Variable Universal Life Account, hereafter referred to as the
"Account") at December 31, 1995, the results of each of their operations for
the year then ended and the changes in each of their net assets for each of
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Account's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
[Price Waterhouse LLP signature]
Hartford, CT 06103
February 13, 1996
66
<PAGE>
PHOENIX HOME LIFE
VARIABLE UNIVERSAL LIFE ACCOUNT
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
UNDERWRITER
Phoenix Equity Planning Corporation
P.O. Box 2200
100 Bright Meadow Boulevard
Enfield, Connecticut 06083-2200
CUSTODIAN
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
INTERNATIONAL SERIES CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
One Financial Plaza
Hartford, Connecticut 06103
67
<PAGE>
APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the Guaranteed Interest Account ("GIA") under the Policy
and transfers to the GIA become part of the Phoenix General Account (the
"General Account"), which supports insurance and annuity obligations. Because of
exemptive and exclusionary provisions, interest in the General Account has not
been registered under the Securities Act of 1933 ("1933 Act") nor is the General
Account registered as an investment company under the Investment Company Act of
1940 ("1940 Act"). Accordingly, neither the General Account nor any interest
therein is specifically subject to the provisions of the 1933 or 1940 Acts and
the staff of the Securities and Exchange Commission has not reviewed the
disclosures in this Prospectus concerning the GIA. Disclosures regarding the GIA
and the General Account, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
The General Account is made up of all of the general assets of Phoenix other
than those allocated to any separate account. Premium payments will be allocated
to the GIA and, therefore, the General Account, as elected by the Policyowner at
the time of purchase or as subsequently changed. Phoenix will invest the assets
of the General Account in assets chosen by it and allowed by applicable law.
Investment income from General Account assets is allocated between Phoenix and
the contracts participating in the General Account, in accordance with the terms
of such contracts.
Investment income from the General Account allocated to Phoenix includes
compensation for mortality and expense risks borne by it in connection with
General Account contracts.
The amount of investment income allocated to the Policies will vary from
year to year in the sole discretion of Phoenix. However, Phoenix guarantees that
it will credit interest at a rate of not less than 4% per year, compounded
annually, to amounts allocated to the unloaned portion of the GIA. The loaned
portion of the GIA will be credited interest at an effective annual rate of 2%
on Single Life Policies (4% on Single Life Policies in New York), and 6% for
Multiple Life Policies. Phoenix may credit interest at a rate in excess of 4%
per year; however, it is not obligated to credit any interest in excess of 4%
per year.
Bi-weekly, Phoenix will set the excess interest rate, if any, that will
apply to amounts deposited to the GIA. That rate will remain in effect for such
deposits for an initial guarantee period of one full year from the date of
deposit. Upon expiration of the initial one-year guarantee period (and each
subsequent one-year guarantee period thereafter), the rate to be applied to any
deposits whose guaranteed period has just ended will be the same rate as is
applied to new deposits allocated at that time to the GIA. This rate will
likewise remain in effect for a guarantee period of one full year from the date
the new rate is applied.
Excess interest, if any, will be determined by Phoenix based on information
as to expected investment yields. Some of the factors that Phoenix may consider
in determining whether to credit interest to amounts allocated to the GIA and
the amount thereof, are general economic trends, rates of return currently
available and anticipated on investments, regulatory and tax requirements and
competitive factors. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE GIA IN
EXCESS OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF PHOENIX AND
WITHOUT REGARD TO ANY SPECIFIC FORMULA. THE CONTRACT OWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO GIA ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 4%
FOR ANY GIVEN YEAR.
Phoenix is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in Phoenix's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders and Contract Owners.
Excess interest, if any, will be credited on the GIA Policy Value. Phoenix
guarantees that, at any time, the GIA Policy Value will not be less than the
amount of premium payments allocated to the GIA, plus interest at the rate of 4%
per year, compounded annually, plus any additional interest which Phoenix may,
in its discretion, credit to the GIA, less the sum of all annual administrative
or surrender charges, any applicable premium taxes, and less any amounts
surrendered or loaned. If the Policyowner surrenders the Policy, the amount
available from the GIA will be reduced by any applicable surrender charge and
annual administration charge (see "Deductions and Charges").
IN GENERAL, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE GUARANTEED
INTEREST ACCOUNT. THE AMOUNT WHICH CAN BE TRANSFERRED IS LIMITED TO THE GREATER
OF $1,000 OR 25% OF THE CONTRACT VALUE IN THE GUARANTEED INTEREST ACCOUNT AS OF
THE LAST CONTRACT ANNIVERSARY. UNDER THE SYSTEMATIC TRANSFER PROGRAM, TRANSFERS
OF APPROXIMATELY EQUAL AMOUNTS MAY BE MADE OVER A MINIMUM 18-MONTH PERIOD.
NON-SYSTEMATIC TRANSFERS FROM THE GUARANTEED INTEREST ACCOUNT WILL BE
EFFECTUATED ON THE DATE OF RECEIPT BY VARIABLE PRODUCTS OPERATIONS, UNLESS
OTHERWISE REQUESTED BY THE CONTRACT OWNER.
68
<PAGE>
APPENDIX B
ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES ("ACCOUNT VALUES"),
AND CASH SURRENDER VALUES.
The tables on the following pages illustrate how a Policy's Death Benefits,
Account Values and Cash Surrender Value could vary over time assuming constant
hypothetical gross (after tax) annual investment returns of 0% and 12%. The
Policy benefits will differ from those shown in the tables if the annual
investment returns are not absolutely constant. That is, the figures will be
different if the returns averaged 0% or 12% over a period of years but went
above or below those figures in individual Policy Years. The Policy benefits
also will differ, depending on your premium allocations to each Sub-account of
the VUL Account, if the overall actual rates of return averaged 0% or 12%, but
went above or below those figures for the individual Sub-accounts. The tables
are for standard risk males and females who have never smoked. In states where
cost of insurance rates are not based on the insured's sex, the tables
designated "male" apply to all standard risk insureds who have never smoked.
Account Values and Cash Surrender Values may be lower for smokers or former
smokers or for risk classes involving higher mortality risk. Planned premium
payments are assumed to be paid at the beginning of each Policy Year. The
difference between the Policy Value and the Cash Surrender Value in the first
ten years is the Surrender Charge. Tables are included for death benefit Option
1 and Option 2. Tables also are included to reflect the blended cost of
insurance charge applied under a multiple life Policy.
The Death Benefit, Account Value, and Cash Surrender Value amounts reflect
the following current charges:
1. Issue Charge of $150.
2. Monthly Administrative Charge of $5 per month ($10 per month guaranteed
maximum).
3. Premium Tax Charge of 2.25% (will vary from state to state on Multiple Life
Policies).
4. A Federal Tax Charge of 1.5% (for Single Life Policies only).
5. Cost of Insurance Charge. The tables illustrate cost of insurance at both
the current rates and at the maximum rates guaranteed in the Policies.
(See "Charges and Deductions--Cost of Insurance.")
6. Mortality and Expense Risk Charge, which is a daily charge equivalent to
.80% on an annual basis (or for Single Life Policies, .25% on an annual
basis after the 15th Policy Year), against the VUL Account for mortality and
expense risks. (See "Charges and Deductions--Mortality and Expense Risk
Charge.")
These illustrations also assume an average investment advisory fee of .75%
on an annual basis, of the average daily net asset value of each of the Series
of the Funds. These illustrations also assume other ongoing average Fund
expenses of .22%. Management may decide to limit the amount of expense
reimbursement in the future. If expense reimbursement had not been in place for
the fiscal year ended December 31, 1995, total operating expenses for the
Multi-Sector, Real Estate, Strategic Theme, Asia, U.S. Small Cap and
International Small Cap Series would have been approximately 0.73%, 1.98%,
1.33%, 2.40%, 2.35% and 4.20%, respectively, of the average net assets of the
Series. (See "Charges and Deductions--Investment Management Charge.")
Taking into account the Mortality and Expense Risk Charge and the investment
advisory fees and expenses, the gross annual investment return rates of 0% and
12% on the Funds' assets are equivalent to net annual investment return rates of
approximately - 1.76% and 10.15%, respectively (applicable for the first 15
Policy Years for Single Life Policies and -1.22% and 10.75% respectively after
the 15th Policy Year for Single Life Policies). For individual illustrations,
interest rates ranging between 0% and 12% may be selected in place of the 12%
rate.
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the VUL Account in the future. If such Tax Charges
are imposed in the future, then in order to produce after tax returns equal to
those illustrated for 0% and 12%, a sufficiently higher amount in excess of the
hypothetical interest rates would have to be earned. (See "Charges and
Deductions--Other Charges--Taxes.")
The second column of each table shows the amount that would accumulate if an
amount equal to the premiums paid were invested to earn interest, after taxes,
at 5% compounded annually. These tables show that if a Policy is returned in its
very early years for payment of its Cash Surrender Value, that Cash Surrender
Value may be low in comparison to the amount of the premiums accumulated with
interest. Thus, the cost of owning a Policy for a relatively short time may be
high.
On request, we will furnish the Policyowner with a comparable illustration
based on the age and sex of the proposed insured person(s), standard risk
assumptions and the initial face amount and planned premium chosen.
69
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS -- A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
<CAPTION>
ASSUMING
-------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
---------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- -------- -------- --------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 666 0 100,000 512 0 100,000
2 1,000 2,153 1,550 665 100,000 1,157 271 100,000
3 1,000 3,310 2,515 1,208 100,000 1,780 473 100,000
4 1,000 4,526 3,568 2,261 100,000 2,383 1,076 100,000
5 1,000 5,802 4,715 3,408 100,000 2,962 1,655 100,000
6 1,000 7,142 5,968 4,806 100,000 3,519 2,356 100,000
7 1,000 8,549 7,333 6,316 100,000 4,049 3,032 100,000
8 1,000 10,027 8,824 7,951 100,000 4,555 3,682 100,000
9 1,000 11,578 10,450 10,015 100,000 5,033 4,598 100,000
10 1,000 13,207 12,228 12,228 100,000 5,485 5,485 100,000
11 1,000 14,917 14,176 14,176 100,000 5,906 5,906 100,000
12 1,000 16,713 16,314 16,314 100,000 6,297 6,297 100,000
13 1,000 18,599 18,662 18,662 100,000 6,655 6,655 100,000
14 1,000 20,579 21,242 21,242 100,000 6,980 6,980 100,000
15 1,000 22,657 24,078 24,078 100,000 7,269 7,269 100,000
16 1,000 24,840 27,350 27,350 100,000 7,563 7,563 100,000
17 1,000 27,132 30,972 30,972 100,000 7,814 7,814 100,000
18 1,000 29,539 34,981 34,981 100,000 8,017 8,017 100,000
19 1,000 32,066 39,423 39,423 100,000 8,167 8,167 100,000
20 1,000 34,719 44,346 44,346 100,000 8,256 8,256 100,000
@ 65 30,000 69,761 135,252 135,252 165,008 4,071 4,071 100,000
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
34.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% for fifteen years, then
0.25% and average fund operating expenses of 0.97% applicable to the investment
Sub-accounts of the VUL Separate Account). Hypothetical gross interest rates are
presented for illustrative purposes only to illustrate funds allocated entirely
to the investment Sub-accounts of the VUL Separate Account and do not in any way
represent actual results or suggest that such results will be achieved in the
future. Actual values will differ from those shown whenever actual investment
results differ from hypothetical gross interest rates illustrated. A Guaranteed
Interest Account providing interest at a minimum guaranteed rate of 4% also is
available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
70
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
FEMALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
<CAPTION>
ASSUMING
-------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
---------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- -------- -------- --------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 694 0 100,000 534 0 100,000
2 1,000 2,153 1,610 756 100,000 1,199 345 100,000
3 1,000 3,310 2,609 1,413 100,000 1,842 647 100,000
4 1,000 4,526 3,699 2,504 100,000 2,464 1,268 100,000
5 1,000 5,802 4,889 3,694 100,000 3,062 1,867 100,000
6 1,000 7,142 6,189 5,125 100,000 3,637 2,573 100,000
7 1,000 8,549 7,606 6,673 100,000 4,186 3,253 100,000
8 1,000 10,027 9,154 8,353 100,000 4,709 3,908 100,000
9 1,000 11,578 10,847 10,447 100,000 5,208 4,808 100,000
10 1,000 13,207 12,701 12,701 100,000 5,682 5,682 100,000
11 1,000 14,917 14,738 14,738 100,000 6,131 6,131 100,000
12 1,000 16,713 16,979 16,979 100,000 6,556 6,556 100,000
13 1,000 18,599 19,444 19,444 100,000 6,954 6,954 100,000
14 1,000 20,579 22,158 22,158 100,000 7,324 7,324 100,000
15 1,000 22,657 25,146 25,146 100,000 7,667 7,667 100,000
16 1,000 24,840 28,595 28,595 100,000 8,023 8,023 100,000
17 1,000 27,132 32,417 32,417 100,000 8,349 8,349 100,000
18 1,000 29,539 36,655 36,655 100,000 8,640 8,640 100,000
19 1,000 32,066 41,354 41,354 100,000 8,893 8,893 100,000
20 1,000 34,719 46,567 46,567 100,000 9,105 9,105 100,000
@ 65 30,000 69,761 142,897 142,897 174,335 8,564 8,564 100,000
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
39.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% for fifteen years, then
0.25% and average fund operating expenses of 0.97 applicable to the investment
Sub-accounts of the VUL Separate Account). Hypothetical gross interest rates are
presented for illustrative purposes only to illustrate funds allocated entirely
to the investment Sub-accounts of the VUL Separate Account and do not in any way
represent actual results or suggest that such results will be achieved in the
future. Actual values will differ from those shown whenever actual investment
results differ from hypothetical gross interest rates illustrated. A Guaranteed
Interest Account providing interest at a minimum guaranteed rate of 4% also is
available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
71
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
<CAPTION>
ASSUMING
-------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
---------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- -------- -------- --------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 664 0 100,665 511 0 100,511
2 1,000 2,153 1,546 660 101,546 1,153 268 101,154
3 1,000 3,310 2,505 1,198 102,506 1,773 466 101,774
4 1,000 4,526 3,550 2,243 103,550 2,371 1,064 102,371
5 1,000 5,802 4,686 3,379 104,686 2,944 1,637 102,944
6 1,000 7,142 5,921 4,759 105,922 3,492 2,330 103,493
7 1,000 8,549 7,264 6,247 107,264 4,013 2,996 104,013
8 1,000 10,027 8,724 7,852 108,725 4,507 3,634 104,507
9 1,000 11,578 10,311 9,875 110,311 4,971 4,535 104,971
10 1,000 13,207 12,037 12,037 112,037 5,406 5,406 105,407
11 1,000 14,917 13,920 13,920 113,921 5,809 5,809 105,809
12 1,000 16,713 15,977 15,977 115,978 6,178 6,178 106,178
13 1,000 18,599 18,225 18,225 118,225 6,512 6,512 106,512
14 1,000 20,579 20,681 20,681 120,682 6,809 6,809 106,809
15 1,000 22,657 23,366 23,366 123,366 7,066 7,066 107,067
16 1,000 24,840 26,449 26,449 126,450 7,324 7,324 107,325
17 1,000 27,132 29,839 29,839 129,839 7,535 7,535 107,536
18 1,000 29,539 33,565 33,565 133,565 7,693 7,693 107,694
19 1,000 32,066 37,661 37,661 137,661 7,793 7,793 107,793
20 1,000 34,719 42,163 42,163 142,163 7,825 7,825 107,826
@ 65 30,000 69,761 120,450 120,450 220,450 2,834 2,834 102,834
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
33.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% for fifteen years, then
0.25% and average fund operating expenses of 0.97% applicable to the investment
Sub-accounts of the VUL Separate Account). Hypothetical gross interest rates are
presented for illustrative purposes only to illustrate funds allocated entirely
to the investment Sub-accounts of the VUL Separate Account and do not in any way
represent actual results or suggest that such results will be achieved in the
future. Actual values will differ from those shown whenever actual investment
results differ from hypothetical gross interest rates illustrated. A Guaranteed
Interest Account providing interest at a minimum guaranteed rate of 4% also is
available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
72
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMUNT: $100,000
INITIAL ANNUAL PEMIUM: $1,000
FEMALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
<CAPTION>
ASSUMING
-------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
---------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- -------- -------- --------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 693 0 100,694 533 0 100,533
2 1,000 2,153 1,606 752 101,606 1,195 341 101,196
3 1,000 3,310 2,600 1,405 102,601 1,836 640 101,836
4 1,000 4,526 3,683 2,488 103,684 2,453 1,258 102,453
5 1,000 5,802 4,863 3,668 104,863 3,045 1,850 103,046
6 1,000 7,142 6,147 5,083 106,148 3,612 2,549 103,613
7 1,000 8,549 7,544 6,611 107,544 4,152 3,219 104,152
8 1,000 10,027 9,064 8,263 109,065 4,664 3,863 104,664
9 1,000 11,578 10,721 10,322 110,722 5,149 4,749 105,150
10 1,000 13,207 12,529 12,529 112,529 5,608 5,608 105,609
11 1,000 14,917 14,508 14,508 114,508 6,040 6,040 106,040
12 1,000 16,713 16,676 16,676 116,677 6,445 6,445 106,445
13 1,000 18,599 19,053 19,053 119,053 6,820 6,820 106,821
14 1,000 20,579 21,657 21,657 121,658 7,165 7,165 107,166
15 1,000 22,657 24,514 24,514 124,514 7,480 7,480 107,480
16 1,000 24,840 27,799 27,799 127,799 7,804 7,804 107,805
17 1,000 27,132 31,422 31,422 131,422 8,094 8,094 108,094
18 1,000 29,539 35,418 35,418 135,419 8,345 8,345 108,346
19 1,000 32,066 39,825 39,825 139,825 8,553 8,553 108,553
20 1,000 34,719 44,687 44,687 144,688 8,716 8,716 108,717
@ 65 30,000 69,761 131,817 131,817 231,817 7,426 7,426 107,427
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
38.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% for fifteen years, then
0.25% and average fund operating expenses of 0.97% applicable to the investment
Sub-accounts of the VUL Separate Account). Hypothetical gross interest rates are
presented for illustrative purposes only to illustrate funds allocated entirely
to the investment Sub-accounts of the VUL Separate Account and do not in any way
represent actual results or suggest that such results will be achieved in the
future. Actual values will differ from those shown whenever actual investment
results differ from hypothetical gross interest rates illustrated. A Guaranteed
Interest Account providing interest at a minimum guaranteed rate of 4% also is
available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
73
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
FEMALE 35 NEVERSMOKE
JOINT EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
<CAPTION>
ASSUMING
-------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
---------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- -------- -------- --------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 597 0 100,000 382 0 100,000
2 1,000 2,153 1,402 419 100,000 891 0 100,000
3 1,000 3,310 2,279 1,197 100,000 1,371 289 100,000
4 1,000 4,526 3,233 2,061 100,000 1,821 649 100,000
5 1,000 5,802 4,272 3,063 100,000 2,238 1,029 100,000
6 1,000 7,142 5,403 4,339 100,000 2,620 1,556 100,000
7 1,000 8,549 6,634 5,715 100,000 2,963 2,044 100,000
8 1,000 10,027 7,975 7,277 100,000 3,267 2,569 100,000
9 1,000 11,578 9,439 8,961 100,000 3,530 3,052 100,000
10 1,000 13,207 11,034 11,034 100,000 3,752 3,752 100,000
11 1,000 14,917 12,775 12,775 100,000 3,931 3,931 100,000
12 1,000 16,713 14,667 14,667 100,000 4,063 4,063 100,000
13 1,000 18,599 16,727 16,727 100,000 4,145 4,145 100,000
14 1,000 20,579 18,971 18,971 100,000 4,174 4,174 100,000
15 1,000 22,657 21,418 21,418 100,000 4,146 4,146 100,000
16 1,000 24,840 24,089 24,089 100,000 4,057 4,057 100,000
17 1,000 27,132 27,011 27,011 100,000 3,896 3,896 100,000
18 1,000 29,539 30,211 30,211 100,000 3,656 3,656 100,000
19 1,000 32,066 33,719 33,719 100,000 3,324 3,324 100,000
20 1,000 34,719 37,568 37,568 100,000 2,891 2,891 100,000
@ 65 30,000 69,761 106,298 106,298 129,684 0 0 0
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
24.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% and average fund operating
expenses of 0.97% applicable to the investment Sub-accounts of the VUL Separate
Account). Hypothetical gross interest rates are presented for illustrative
purposes only to illustrate funds allocated entirely to the investment
Sub-accounts of the VUL Separate Account and do not in any way represent actual
results or suggest that such results will be achieved in the future. Actual
values will differ from those shown whenever actual investment results differ
from hypothetical gross interest rates illustrated. A Guaranteed Interest
Account providing interest at a minimum guaranteed rate of 4% also is available
under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
74
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
FEMALE 35 NEVERSMOKE
JOINT EDGE--A FLEXIBLE PREMIUM JOINT UNIVERSAL LIFE INSURANCE POLICY OPTION 2
<CAPTION>
ASSUMING
-------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
---------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- -------- -------- --------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 595 0 100,596 380 0 100,381
2 1,000 2,153 1,396 413 101,397 885 0 100,886
3 1,000 3,310 2,266 1,184 102,266 1,360 278 101,360
4 1,000 4,526 3,209 2,037 103,209 1,802 631 101,803
5 1,000 5,802 4,232 3,023 104,232 2,210 1,001 102,210
6 1,000 7,142 5,341 4,277 105,341 2,580 1,516 102,580
7 1,000 8,549 6,543 5,624 106,544 2,908 1,989 102,908
8 1,000 10,027 7,845 7,147 107,846 3,195 2,497 103,195
9 1,000 11,578 9,260 8,782 109,261 3,438 2,960 103,439
10 1,000 13,207 10,793 10,793 110,793 3,639 3,639 103,639
11 1,000 14,917 12,454 12,454 112,454 3,792 3,792 103,792
12 1,000 16,713 14,245 14,245 114,246 3,896 3,896 103,897
13 1,000 18,599 16,178 16,178 116,178 3,949 3,949 103,949
14 1,000 20,579 18,262 18,262 118,262 3,946 3,946 103,946
15 1,000 22,657 20,509 20,509 120,510 3,883 3,883 103,884
16 1,000 24,840 22,933 22,933 122,934 3,757 3,757 103,758
17 1,000 27,132 25,552 25,552 125,552 3,560 3,560 103,560
18 1,000 29,539 28,378 28,378 128,378 3,281 3,281 103,281
19 1,000 32,066 31,428 31,428 131,428 2,910 2,910 102,910
20 1,000 34,719 34,716 34,716 134,716 2,439 2,439 102,440
@ 65 30,000 69,761 129,008 129,008 184,495 0 0 0
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
24.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% and average fund operating
expenses of 0.97% applicable to the investment Sub-accounts of the VUL Separate
Account). Hypothetical gross interest rates are presented for illustrative
purposes only to illustrate funds allocated entirely to the investment
Sub-accounts of the VUL Separate Account and do not in any way represent actual
results or suggest that such results will be achieved in the future. Actual
values will differ from those shown whenever actual investment results differ
from hypothetical gross interest rates illustrated. A Guaranteed Interest
Account providing interest at a minimum guaranteed rate of 4% also is available
under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
75
<PAGE>
THE WANGER ADVISORS TRUST
AND THE TWO
WANGER SUB-ACCOUNTS:
U.S. SMALL CAP AND INTERNATIONAL SMALL CAP,
MENTIONED HEREIN ARE NOT CURRENTLY AVAILABLE FOR
INVESTMENT. WE WILL NOTIFY POLICYHOLDERS
BY MAIL AS SOON AS THEY BECOME AVAILABLE.
P-1
<PAGE>
VERSION B
---------
VARIABLE LIFE INSURANCE POLICY
ISSUED BY: PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
101 MUNSON STREET
P.O. BOX 942
GREENFIELD, MASSACHUSETTS 01302-0942
TELEPHONE: (800) 892-4885
PROSPECTUS
MAY 1, 1996
AS SUPPLEMENTED SEPTEMBER 15, 1996
This prospectus describes a Flexible Premium Variable Life Insurance Policy
(the "Policy"), offered by Phoenix Home Life Mutual Insurance Company
("Phoenix"). An applicant chooses the amount of Issue Premium desired and it is
then shown in the Policy. Generally, the minimum Issue Premium Phoenix will
accept is 1/6 of the Planned Annual Premium. Phoenix may, in some cases, accept
less than that amount. The amount and payment frequency of planned premiums are
as shown in the Policy. If too much is paid in premium in the early Policy
Years, the Policy could become a "modified endowment contract." This would cause
loans and other amounts received under the Policy to be subject to tax and/or
penalties. Currently, Phoenix notifies a Policyowner when a Policy becomes a
modified endowment contract.
Premium payments are allocated to one or more of the Sub-accounts of the
Phoenix Home Life Variable Universal Life Account (the "VUL Account") or to the
Guaranteed Interest Account ("GIA"), as specified in the applicant's application
for insurance. The VUL Account is divided into Sub-accounts, each of which
invests in a corresponding series of the Phoenix Edge Series Fund or Wanger
Advisors Trust (collectively, the "Funds"). For certain Policyowners, the Issue
Premium is first allocated to the Money Market Sub-account before being
allocated according to the instructions in the application.
There is no guaranteed minimum Policy Value except for that portion of
Policy Value invested in the GIA, which has a 4% minimum interest rate
guarantee. The Policy Value not invested in the GIA will
vary to reflect the investment experience of the Sub-accounts of the VUL Account
to which premiums have been allocated. A Policyowner bears the investment risk
for all amounts so allocated. The Policy will remain in effect so long as the
Policy Value or Cash Surrender Value is sufficient to pay certain monthly
charges imposed in connection with the Policy.
The death benefit under the Policy equals the Policy's face amount on the
date of the Insured's death or, if greater, the Policy Value on the date of
death increased by the applicable percentage set forth in the Policy. Other
death benefit options also are available.
A Policyowner may cancel the Policy within 10 days (or longer in some
states), after the Policyowner receives it or 10 days after Phoenix mails or
delivers a written notice of withdrawal right to the Policyowner, or within 45
days of completing the application, whichever is latest.
It may not be advantageous to purchase a Policy as a replacement for your
current life insurance or to supplement an existing life insurance policy.
This prospectus is valid only if accompanied by or preceded by current
prospectuses for the Funds. This prospectus and the prospectuses for the Funds
should be read and retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
Heading Page
- --------------------------------------------------------------------------------
VARIABLE LIFE INSURANCE POLICY .......................... 1
TABLE OF CONTENTS ....................................... 2
FINANCIAL HIGHLIGHTS .................................... 3
SPECIAL TERMS ........................................... 5
SUMMARY ................................................. 5
PHOENIX AND THE VARIABLE ACCOUNT ........................ 7
Phoenix............................................... 7
The VUL Account ...................................... 7
The Guaranteed Interest Account ...................... 8
THE POLICY .............................................. 8
Introduction ......................................... 8
Eligible Purchasers .................................. 8
Premium Payment ...................................... 8
Allocation of Issue Premium .......................... 9
Right to Cancel Period ............................... 9
Temporary Insurance Coverage ......................... 9
Transfer of Policy Value ............................. 10
Determination of Sub-account Values .................. 10
Death Benefit ........................................ 11
Surrenders ........................................... 11
Policy Loans ......................................... 12
Lapse ................................................ 12
Payment of Premiums During Period of Disability ...... 13
Additional Insurance Options ......................... 13
Additional Rider Benefits ............................ 13
INVESTMENTS OF THE VUL ACCOUNT .......................... 14
Participating Mutual Funds ........................... 14
Investment Adviser to the Phoenix Edge Series Fund.... 15
Investment Adviser to the Wanger Advisors Trust....... 15
Reinvestment and Redemption .......................... 15
Substitution of Investments .......................... 15
Performance History .................................. 15
CHARGES AND DEDUCTIONS .................................. 16
Monthly Deduction .................................... 16
Premium Taxes ........................................ 17
Mortality and Expense Risk Charge .................... 17
Investment Management Charge ......................... 17
Other Charges ........................................ 18
GENERAL 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 ...................................... 19
Surrender and Death Benefit Proceeds .................. 19
Payment Options ....................................... 20
FEDERAL TAX CONSIDERATIONS ............................... 20
Introduction .......................................... 20
Phoenix's Tax Status .................................. 20
Policy Benefits ....................................... 21
Business-Owned Policies................................ 21
Modified Endowment Contracts .......................... 21
Limitations on Unreasonable Mortality
and Expense Charges ................................ 22
Qualified Plans ....................................... 22
Diversification Standards ............................. 22
Change of Ownership or Insured or Assignment .......... 23
Other Taxes ........................................... 23
VOTING RIGHTS ............................................ 23
The Funds ............................................. 23
Phoenix ............................................... 23
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX........... 23
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS .................. 24
SALES OF POLICIES ........................................ 24
STATE REGULATION ......................................... 25
REPORTS .................................................. 25
LEGAL PROCEEDINGS ........................................ 25
LEGAL MATTERS ............................................ 25
REGISTRATION STATEMENT ................................... 25
FINANCIAL STATEMENTS ..................................... 25
APPENDIX A ............................................... 67
APPENDIX B ............................................... 68
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESPERSON, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
2
<PAGE>
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A UNIT OUTSTANDING THROUGHOUT THE INDICATED PERIOD)
Following are the unaudited Financial Highlights for the periods indicated.
<TABLE>
MONEY MARKET SUB-ACCOUNT
-----------------------------------------------------------------------------
<CAPTION>
FROM
YEAR ENDED DECEMBER 31, INCEPTION
------------------------- 6/20/89 TO
1995 1994 1993 1992 1991 1990 12/31/89
---- ---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Unit Value, beginning of period. $1.263974 $1.226981 $1.202239 $1.171195 $1.115052 $1.038647 $1.000000
Unit value, end of period....... $1.325408 $1.263974 $1.226981 $1.202239 $1.171195 $1.115052 $1.038647
========= ========= ========= ========= ========= ========= =========
Number of units outstanding:
Flex Edge (000) 10,230 9,143 5,488 2,834 1,547 341 11
Joint Edge (000) 296 155 155 -- -- -- --
GROWTH SUB-ACCOUNT
----------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
------------------------- 2/9/89 TO
1995 1994 1993 1992 1991 1990 12/31/89
---- ---- ---- ---- ---- ---- --------
Unit value, beginning of period $2.412541 $2.396670 $2.018313 $1.846577 $1.305400 $1.264680 $1.000000
Unit value, end of period...... $3.132626 $2.412541 $2.396670 $2.018313 $1.846577 $1.305400 $1.264680
========= ========= ========= ========= ========= ========= =========
Number of units outstanding:
Flex Edge (000) 36,539 23,650 13,483 5,452 1,514 217 42
Joint Edge (000) 1,113 533 37 -- -- -- --
MULTI-SECTOR SUB-ACCOUNT
(FORMERLY THE "BOND" SUB-ACCOUNT)
-----------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 2/9/89 TO
1995 1994 1993 1992 1991 1990 12/31/89
---- ---- ---- ---- ---- ---- ---------
Unit value, beginning of period $1.527250 $1.628351 $1.416138 $1.297743 $1.094831 $1.048255 $1.000000
Unit value, end of period...... $1.871769 $1.527250 $1.628351 $1.416138 $1.297743 $1.094831 $1.048255
========= ========= ========= ========= ========= ========= =========
Number of units outstanding:
Flex Edge (000) 3,484 2,355 1,524 775 106 20 18
Joint Edge (000) 95 48 2 -- -- -- --
TOTAL RETURN SUB-ACCOUNT
----------------------------------------------------------------------------
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 2/9/89 TO
1995 1994 1993 1992 1991 1990 12/31/89
---- ---- ---- ---- ---- ---- --------
Unit value, beginning of period $1.830914 $1.871886 $1.699829 $1.549846 $1.209456 $1.151223 $1.000000
Unit value, end of period...... $2.147078 $1.830914 $1.871886 $1.699829 $1.549846 $1.209456 $1.151223
========= ========= ========= ========= ========= ========= =========
Number of units outstanding:
Flex Edge (000) 9,236 6,582 4,089 2,219 647 89 19
Joint Edge (000) 1,956 93 12 -- -- -- --
</TABLE>
3
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
INTERNATIONAL SUB-ACCOUNT
---------------------------------------------------------------------
<CAPTION>
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 5/1/90 TO
1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.273020 $1.282423 $0.933826 $1.080888 $0.910823 $1.000000
Unit value, end of period...... $1.384037 $1.273020 $1.282423 $0.933826 $1.080888 $0.910823
========= ========= ========= ========= ========= =========
Number of units outstanding:
Flex Edge (000) 14,435 11,096 3,971 692 244 38
Joint Edge (000) 555 314 18 -- -- --
</TABLE>
<TABLE>
BALANCED SUB-ACCOUNT
------------------------------------------
<CAPTION>
FROM
YEAR ENDED DECEMBER 31, INCEPTION
----------------------- 5/1/92 TO
1995 1994 1993 12/31/92
---- ---- ---- ---------
<S> <C> <C> <C> <C>
Unit value, beginning of period $1.129669 $1.171933 $1.087688 $1.000000
Unit value, end of period...... $1.382412 $1.129669 $1.171933 $1.087688
========= ========= ========= =========
Number of units outstanding:
Flex Edge (000) 9,522 7,513 5,339 1,772
Joint Edge (000) 401 338 18 --
</TABLE>
REAL ESTATE SECURITIES SUB-ACCOUNT
STRATEGIC THEME SUB-ACCOUNT
WANGER U.S. SMALL CAP SUB-ACCOUNT
WANGER INTERNATIONAL SMALL CAP SUB-ACCOUNT
THESE SUB-ACCOUNTS COMMENCED OPERATIONS AS OF MAY 1, 1996;
ACCORDINGLY, FINANCIAL HIGHLIGHTS FOR THESE SUB-ACCOUNTS ARE NOT YET AVAILABLE.
ABERDEEN NEW ASIA SUB-ACCOUNT
THIS SUB-ACCOUNT COMMENCED OPERATIONS AS OF SEPTEMBER 15, 1996;
ACCORDINGLY, FINANCIAL HIGHLIGHTS FOR THIS SUB-ACCOUNT ARE NOT YET AVAILABLE.
4
<PAGE>
SPECIAL TERMS
- --------------------------------------------------------------------------------
As used in this Prospectus, the following terms have the indicated meanings:
ATTAINED AGE: The age of the Insured on the birthday nearest the most recent
Policy Anniversary.
BENEFICIARY: The person or persons specified by the Policyowner as entitled to
receive the death benefits under a Policy.
CASH SURRENDER VALUE: The Policy Value less any surrender charge that would
apply on the date of surrender and less any Debt.
DEATH BENEFIT GUARANTEE: An additional benefit rider available with the Policy
that guarantees a death benefit equal to the initial face amount or the face
amount as later increased or decreased, provided that Minimum Required Premiums
are paid. See "Additional Rider Benefits."
DEBT: Outstanding loans against a Policy, plus accrued interest.
GENERAL ACCOUNT: The general asset account of Phoenix.
GUARANTEED INTEREST ACCOUNT (GIA): An allocation option under which amounts
deposited are guaranteed to earn a fixed rate of interest. Excess interest also
may be credited, in the sole discretion of Phoenix.
IN FORCE: Conditions under which the coverage under a Policy is in effect and
the 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 Variable and Universal Life Administration.
ISSUE PREMIUM: The premium payment made in connection with the issue of the
Policy.
MATURITY DATE: The latest date that the Policy will terminate.
MINIMUM REQUIRED PREMIUM: The required premium as specified in the Policy. An
increase or decrease in the face amount of the policy will change the Minimum
Required Premium amount.
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.
PAYMENT DATE: The Valuation Date on which a premium payment or loan repayment is
received at Phoenix, unless it is received after the close of the New York Stock
Exchange, in which case it will be the next Valuation Date.
PHOENIX: Phoenix Home Life Mutual Insurance Company, Hartford, Connecticut.
PLANNED ANNUAL PREMIUM: The premium amount that the Policyowner agrees to pay
each Policy Year. It must be at least equal to the minimum premium required for
the face amount of insurance selected and must be no greater than the maximum
premium allowed for the face amount selected.
POLICY ANNIVERSARY: Each anniversary of the Policy Date.
POLICY DATE: The Policy Date as shown on the Schedule Page of the Policy. It is
the date from which Policy Years and Policy Anniversaries are measured.
POLICY MONTH: The period from one Monthly Calculation Day up to but not
including the next Monthly Calculation Day.
POLICYOWNER (OWNER): The owner of a Policy.
POLICY VALUE: The sum of a Policy's share in the values of each Sub-account of
the VUL Account plus the Policy's share in the values of the GIA.
POLICY YEAR: The first Policy Year is the one-year period from the Policy Date
up to, but not including, the first Policy Anniversary. Each succeeding Policy
Year is the one-year period from the Policy anniversary up to but not including
the next Policy Anniversary.
PROPORTIONATE: Amounts allocated to Sub-accounts on a proportionate basis are
allocated by increasing (or decreasing) a Policy's share in the value of the
affected Sub-accounts so that such shares maintain the same ratio to each other
before and after the allocation.
SUB-ACCOUNTS: Accounts within the VUL Account to which non-loaned assets under a
Policy are allocated.
UNIT: A standard of measurement used in determining the value of a Policy. The
value of a Unit for each Sub-account will reflect the investment performance of
that Sub-account and will vary in dollar amount.
VALUATION DATE: For any Sub-account, each date on which the net asset value of
the Fund is determined.
VALUATION PERIOD: For any Sub-account, the period in days from the end of one
Valuation Date through the next.
VARIABLE AND UNIVERSAL LIFE ADMINISTRATION: Variable and Universal Life
Administration Division of Phoenix.
VUL ACCOUNT: Phoenix Home Life Variable Universal Life Account.
SUMMARY
- --------------------------------------------------------------------------------
1. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A
CONVENTIONAL FIXED BENEFIT LIFE INSURANCE POLICY?
Like conventional fixed benefit life insurance, so long as the Policy
remains In Force, the Policy will provide for: (1) the payment of a death
benefit to a Beneficiary upon the Insured's death; (2) the accumulation of cash
value; and (3) surrender rights and Policy loan privileges.
The Policy differs from conventional fixed benefit life insurance by
allowing Policyowners to allocate premiums to one or more Sub-accounts of the
VUL Account or to the GIA. Each Sub-account invests exclusively in a designated
portfolio of the Fund. Also, under the Policy, the Policy Value invested in the
VUL Account is not guaranteed and may increase or decrease depending upon the
investment experience of the Sub-accounts of the VUL Account. Accordingly, the
Policyowner bears the investment risk of any depreciation in value of the
underlying assets but reaps the benefits of any appreciation in value. See
"Policy Value."
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In addition, unlike conventional fixed benefit life insurance, a Policyowner
also has the flexibility to make additional premium payments and to thereby
adjust the Policy Value. However, unlike conventional fixed benefit life
insurance, the Policy does not require a Policyowner to adhere to a fixed
premium payment schedule. Moreover, after the payment of the Issue Premium, the
failure to make additional premium payments will not in itself cause the Policy
to lapse. Conversely, the payment of additional premiums will not guarantee that
the Policy will remain In Force. Generally, lapse will occur when the Cash
Surrender Value is insufficient to pay certain charges deducted on the Monthly
Calculation Day, and a grace period expires without payment of the additional
amount required. See "Lapse."
If a Whole Life Exchange Option Rider is attached to the Policy, the
Policy may be exchanged for a fixed benefit whole life policy. (See
"Additional Rider Benefits.")
2. IS THERE A GUARANTEED ACCOUNT OPTION?
Yes. A Policyowner may elect to have premium payments allocated to the GIA.
Amounts allocated to the GIA earn a fixed rate of interest and Phoenix also may,
in its sole discretion, credit excess interest. (See Appendix A.)
3. WHAT IS THE DEATH BENEFIT UNDER THE POLICY?
The Policy provides for the payment of benefits upon the death of the
Insured. Upon application for a Policy, an applicant designates an Issue
Premium. The Policy indicates the face amount of insurance. The death benefit
will equal the face amount on the date of the Insured's death or, if greater,
the Policy Value on the date of the Insured's death increased by the applicable
percentage set forth in the Policy. If the enhanced death benefit option is
selected, the death benefit will equal the face amount on the date of the
Insured's death plus the Policy Value or, if greater, the Policy Value on the
date of the Insured's death increased by the applicable percentage set forth in
the Policy. Guaranteed death benefit and living benefits riders also are
available. See "Death Benefit."
4. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The Policy will lapse only when the Cash Surrender Value is insufficient to
pay the monthly deduction (see "Charges and Deductions--Monthly Deductions"),
and a grace period expires without payment of the additional amount required. In
this respect, the Policy differs in two important respects from a conventional
life insurance Policy. First, the failure to pay additional premiums will not
automatically cause the Policy to lapse. Second, the payment of premiums of any
pre-specified amount does not guarantee that the Policy will remain In Force
until the Maturity Date. A rider is available to ensure that premium payments
will continue during a period of disability.
5. WHAT CHARGES ARE THERE IN CONNECTION WITH THE POLICY?
MONTHLY DEDUCTION: A deduction is made each Policy Month from the Policy
Value (excluding the value of the loaned portion of the GIA) to pay the cost
of insurance provided under the Policy; the cost of any rider benefits provided;
any unpaid balance of the $150 Issue Expense Charge; and an administrative
charge as shown on the schedule page of the Policy. The administrative charge
may vary but in no event will it exceed $10 per month. Currently, the
administrative charge is $5 per month. The administrative charge is set at a
level designed to recover actual costs and is not designed to result in any
profit to Phoenix. See "Charges and Deductions."
OTHER CHARGES: A fee equal to the lesser of $25 or 2% of the partial
surrender amount paid is deducted from the Policy Value for each partial
surrender. A partial surrender charge equal to a pro rata portion of the
applicable surrender charge that would apply to a full surrender, determined by
applying a formula, also is assessed against the VUL Account Sub-accounts or
the GIA when a partial surrender is made.
No charges are currently made from the VUL Account or the GIA for federal
or state income taxes. If Phoenix determines that such taxes may be imposed,
it may make deductions from the VUL Account to pay these taxes.
Phoenix charges each Sub-account of the VUL Account the daily equivalent
of 0.80% on an annual basis of the current value of the Sub-account's net assets
for its assumption of certain mortality and expense risks incurred in connection
with the Policy.
Premium amounts also are reduced by any applicable state premium tax based
on the Policyowner's last known address on record with Variable and Universal
Life Administration and, for payments made during a grace period, by the amount
needed to cover any monthly deductions made during the grace period.
Investment advisory charges are imposed on an annual basis based on the
average daily net assets of the Series of the Funds as follows:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market........ .40% .35% .30%
Multi-Sector........ .50% .45% .40%
Balanced............ .55% .50% .45%
Total Return........ .60% .55% .50%
Growth.............. .70% .65% .60%
International....... .75% .70% .65%
Strategic Theme..... .75% .70% .65%
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia Series.......... 1.00%
PHOENIX REALTY SECURITIES, INC.
-------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate......... .75% .70% .65%
WANGER ASSET MANAGEMENT, L.P.
-----------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $100,000,000 $150,000,000 $250,000,000
- ------ ------------ ------------ ------------
U.S. Small Cap...... 1.00% .95% .90%
International
Small Cap........... 1.30% 1.20% 1.10%
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In addition, each Series pays a portion or all of its other operating
expenses other than the management fees: the Growth, Multi-Sector, Total Return,
Money Market and Balanced Series will pay up to .15%; the Real Estate,
Strategic Theme and Asia Series will pay up to .25%; the International Series
will pay up to .40%; the Wanger U.S. Small Cap Series will pay up to .50%; and
the Wanger International Small Cap Series will pay up to .60% of its average net
assets annually. See "Charges and Deductions."
6. IS THERE A RIGHT TO CANCEL PERIOD?
Yes. The Policyowner may cancel the Policy within 10 days after the
Policyowner receives it (or longer in some states), or 10 days after Phoenix
mails or delivers a written notice of withdrawal right to the Policyowner, or
within 45 days of completing the application, whichever is latest.
7. HOW ARE PREMIUMS ALLOCATED?
If the applicant elects the Temporary Money Market Allocation Amendment in
the application, Phoenix will allocate the entire Issue Premium less any
applicable charges to the Money Market Sub-account of the VUL Account. Phoenix
requires this election for all applicants in certain states and for applicants
in certain states who indicate on their application that they intend the Policy
to replace existing insurance. At the expiration of the Right to Cancel Period
for such Policyowners, the Policy Value will be allocated among the Sub-accounts
of the VUL Account or to the GIA in accordance with the Policyowner's
allocation instructions in the application for insurance. All other Policyowners
will have their Issue Premium less any applicable charges allocated according to
the instructions in the application on the date it is received without first
having the premium placed in the Money Market Sub-account. The Policy Value may
be allocated among the available Sub-accounts of the VUL Account, each of which
invests in shares of a designated portfolio of the Funds, or to the GIA.
8. AFTER THE INITIAL ALLOCATION, MAY I CHANGE THE ALLOCATION OF
POLICY VALUE?
Yes. A Policyowner may transfer amounts among the Sub-accounts of the VUL
Account or the GIA. Only one transfer per Policy Year is permitted from the
unloaned portion of the GIA. The amount of that transfer is limited to the
higher of $1,000 or 25% of the value of the Policy in the unloaned portion of
the GIA. Also, Phoenix reserves the right to require that transfers be made
by written request. Phoenix further reserves the right to permit transfers of
less than $500 only if the entire balance in the Sub-account of the VUL Account
or the GIA is transferred. A systematic transfer program also is available.
See "Transfer of Policy Value."
9. MAY THE POLICY BE SURRENDERED?
Yes. A Policyowner may totally surrender the Policy at any time and receive
the Cash Surrender Value. Subject to certain limitations, the Policyowner also
may partially surrender the Policy at any time prior to the Maturity Date. In
the future, Phoenix may set a minimum partial surrender amount, not to exceed
$500. See "Surrenders--Partial Surrenders." A partial surrender will result in a
decrease in the death benefit under the Policy. See "Death Benefit." If the
Policy is totally or partially surrendered during the first ten Policy Years, a
Surrender Charge will apply. See "Surrender Charge." In addition, there may be
certain tax consequences as the result of a surrender. For example, a Policy may
be a "modified endowment contract" if the amount of premium paid during the
first seven Policy Years is more than the amount that would have been paid if
the Policy had provided for paid-up benefits after the payment of seven level
annual premiums. Distributions such as loans and full or partial surrenders
under a modified endowment contract may be taxable income to the extent they
exceed the premiums paid. If such income is distributed before the Policyowner
attains age 59 1/2, a 10% penalty tax may be imposed. See "Federal Tax
Considerations."
10. WHAT IS THE POLICY'S LOAN PRIVILEGE?
A Policyowner may obtain Policy loans in an amount up to 90% of the result
of subtracting the remaining surrender charge from the Policy Value. The
interest rate on a loan is at an effective annual rate as stated in the Policy,
compounded daily and payable on each Policy Anniversary in arrears. The
requested loan amount is transferred from the VUL Account to the loaned portion
of the GIA and is credited with interest at an effective annual rate as stated
in the Policy. Phoenix reserves the right not to allow loans of less than $500
unless the loans are to pay premiums on another policy issued by Phoenix. See
"The Policy--Policy Loans."
The proceeds of Policy loans may be subject to federal income tax under
certain circumstances. See "Federal Tax Considerations."
11. HOW ARE INSURANCE BENEFITS PAID?
Surrender and death benefits under the Policy may be paid in a lump sum or
under one of the payment options set forth in the Policy. See "Payment Options."
PHOENIX AND THE VARIABLE ACCOUNT
- --------------------------------------------------------------------------------
PHOENIX
The Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851. Its executive office is at One American Row, Hartford,
Connecticut 06115 and its main administrative office is at 100 Bright Meadow
Boulevard, Enfield, Connecticut 06083-1900. Its New York principal office is at
99 Troy Road, East Greenbush, New York 12061. Phoenix is the nation's 13th
largest mutual life insurance company and has admitted assets of approximately
$13.2 billion. Phoenix sells insurance policies and annuity contracts through
its own field force of full time agents and through brokers. Its operations are
conducted in all 50 states, the District of Columbia, Canada and Puerto Rico.
THE VUL ACCOUNT
The VUL Account is a separate account of Phoenix registered as a unit
investment trust under the Investment Company Act of 1940, as amended, and it
meets the definition of a "separate account" under that Act. Such registration
does not involve supervision of the management of the VUL Account or Phoenix
by the Securities and Exchange Commission.
The VUL Account is divided into Sub-accounts, each of which is available for
allocation of Policy Value. If in the future Phoenix determines that marketing
needs and investment conditions warrant, Phoenix may establish additional
Sub-accounts, which will be made available to existing Policyowners to the
extent and on a basis determined by Phoenix. Each Sub-account will invest solely
in shares
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of the Funds allocable to one of the available portfolios, each having the
specified investment objective set forth under "Investments of the VUL
Account--Participating Mutual Funds."
Phoenix does not guarantee the investment performance of the VUL Account
or any of its Sub-accounts. The Policy Value allocated to the VUL Account
depends on the investment performance of the Funds. Thus, the Policyowner bears
the full investment risk for all monies invested in the VUL Account.
Advertisements, sales literature and other communications may contain
information about any Series' or Advisers' current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately as a return figure the equity or bond portion of a
Series' portfolio; or compare a Series' equity or bond return figure to
well-known indices of market performance including but not limited to the S&P
500 Index, Dow Jones Industrial Average, First Boston High Yield Index, and
Solomon Brothers Corporate and Government Bond Indices.
The VUL Account may from time to time include in advertisements containing
total return the ranking of those performance figures relative to such figures
for groups of Sub-accounts having similar investment objectives as categorized
by ranking services such as Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Weisenberger Financial Services, Inc. and Morningstar, Inc.
Additionally, the Funds may compare a Series' performance results to other
investment or savings vehicles (such as certificates of deposit) and may refer
to results published in various publications such as Changing Times, Forbes,
Fortune, Money, Barron's, Business Week, Investor's Daily, The Stanger Register,
Stanger's Investment Adviser, The Wall Street Journal, The New York Times,
Consumer Reports, Registered Representative, Financial Planning, Financial
Services Weekly, Financial World, U.S. News and World Report, Standard & Poor's,
The Outlook, and Personal Investor. The Funds may from time to time illustrate
the benefits of tax deferral by comparing taxable investments to investments
made through tax-deferred retirement plans. The total return also may be used to
compare the performance of a Series against certain widely acknowledged outside
standards or indices for stock and bond market performance, such as the Standard
& Poor's 500 Stock Index (the "S&P 500"), Dow Jones Industrial Average, Europe
Australia Far East Index (EAFE), Consumer's Price Index, Shearson Lehman
Corporate Index and Shearson Lehman T-Bond Index. The S&P 500 is a commonly
quoted market value-weighted and unmanaged index showing the changes in the
aggregate market value of 500 common stocks relative to the base period 1940-
43. The S&P is composed almost entirely of common stocks of companies listed on
the New York Stock Exchange, although the common stocks of a few companies
listed on the American Stock Exchange or traded over the counter are included.
The 500 companies represented include 400 industrial, 60 transportation and 40
financial services concerns. The S&P represents about 80% of the market value of
all issues traded on the New York Stock Exchange.
The VUL Account is administered and accounted for as part of the
general business of Phoenix, but the income, gains, or losses of the VUL
Account are credited to or charged against the assets held in the VUL Account,
without regard to other income, gains, or losses of any other business Phoenix
may conduct. Under New York law, the assets of the VUL Account are not
chargeable with liabilities arising out of any other business Phoenix may
conduct. Nevertheless all obligations arising under the Policy are general
corporate obligations of Phoenix.
THE GIA
The GIA is not part of the VUL Account. It is accounted for as part of the
General Account. Phoenix reserves the right to limit cumulative deposits,
including transfers, to the unloaned portion of the GIA to no more than
$250,000 during any one-week period. Phoenix will credit interest daily on the
amounts allocated under the Policy to the GIA. The credited rate will be
uniform by class. The loaned portion of the GIA will be credited interest at
an effective annual fixed rate of 6%. Interest on the unloaned portion of the
GIA will be credited at an effective annual rate of not less than 4%.
Bi-weekly, Phoenix sets the interest rate that will apply to any net
premium or transferred amounts deposited to the unloaned portion of the GIA.
That rate will remain in effect for such deposits for an initial guarantee
period of one full year from the date of deposit. Upon expiration of the initial
one-year guarantee period (and each subsequent one-year guarantee period
thereafter), the rate to be applied to any deposits whose guarantee period has
just ended shall be the same rate as is applied to new deposits allocated to the
GIA at the time that the guarantee period expired. This rate, likewise, will
remain in effect for a guarantee period of one full year from the date the new
rate is applied. For more complete information concerning the GIA, see
Appendix A.
THE POLICY
- --------------------------------------------------------------------------------
INTRODUCTION
The Policy is a variable life insurance policy. The Policy has a death
benefit, Cash Surrender Value, and loan privilege such as is associated with a
traditional fixed benefit whole life policy. The Policy differs from a fixed
benefit whole life policy, however, because the Policyowner specifies into which
of several Sub-accounts of the VUL Account or the GIA net premium is to be
allocated. Each Sub-account of the VUL Account, in turn, invests its assets
exclusively in a portfolio of the Funds. The Policy Value varies according to
the investment performance of the Series to which 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 acceptable evidence of insurability. A person
can purchase a Policy to insure the life of another person provided that the
Policyowner has an insurable interest in the life of the Insured, and the
Insured consents.
PREMIUM PAYMENT
The minimum Issue Premium for a Policy is generally 1/6 of the Planned
Annual Premium. The Issue Premium is due on the Policy Date. The Insured must be
alive when the Issue Premium is paid. Thereafter, the amount and payment
frequency of planned premiums are as shown on the schedule page of the Policy.
All premiums are payable in advance at Variable and Universal Life
Administration,
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except that the Issue Premium may be paid to an authorized agent of Phoenix
for forwarding to the Underwriting Department of Phoenix.
Any premium payments will be reduced by the premium tax charge applicable in
the state of the Policyowner's last known address on record with Variable and
Universal Life Administration. The Issue Premium also will be reduced by the
Issue Expense Charge of $150 on a pro rata basis in equal monthly installments
over a 12-month period. Any unpaid balance of the Issue Expense Charge will be
paid to Phoenix upon Policy Lapse or termination.
Premium payments received during a grace period also will be reduced by
the amount needed to cover any monthly deductions during the grace period. The
remainder will be applied on the Payment Date to the various Sub-accounts of the
VUL Account or to the GIA, based on the premium allocation schedule elected in
the application for the Policy or as later changed. The allocation schedule for
premium payments may be changed by calling or writing to Variable and Universal
Life Administration. Allocations to the VUL Account Sub-accounts or to the GIA
must be expressed in terms of whole percentages.
The number of units credited to a Sub-account of the VUL Account will be
determined by dividing the portion of the net premium applied to that
Sub-account by the unit value of the Sub-account on the Payment Date.
A Policyowner may increase or decrease the planned premium amount or payment
frequency at any time by written notice to Variable and Universal Life
Administration. Phoenix reserves the right to limit increases to such maximums
as may be established from time to time. Additional premium payments may be made
at any time. Each premium payment must at least equal $25 or, if made during a
grace period, the payment must equal the amount needed to prevent lapse of the
Policy.
A Policyholder also may elect a Waiver of Premium Rider. This rider
provides for the waiver of certain premium payments under the Policy under
certain conditions during a period of total disability of the Insured. Under its
terms, the specified premium will be waived upon Phoenix's receipt of proof
that the Insured is totally disabled and that the disability occurred while the
rider was In Force.
The Policy contains a total premium limit as shown on the Schedule Page.
This limit is applied to the sum of all premiums paid under the Policy. If the
total premium limit is exceeded, the Policyowner will receive the excess, with
interest at an annual rate of not less than 4%, not later than 60 days after the
end of the Policy Year in which the limit was exceeded. The Policy Value will
then be adjusted to reflect the refund. The amount to be taken from each
Sub-account or the GIA will be allocated in the same manner as provided for
monthly deductions unless the Policyowner requests otherwise in writing. The
total premium limit may be exceeded if additional premium is needed to prevent
lapse or if Phoenix determines that additional premium would be permitted by
federal laws or regulations.
A Policyowner may authorize his bank to draw $25 or more from his personal
checking account monthly to purchase Units in any available Sub-account. The
amount the Policyowner designates will be automatically invested in the
Sub-account of his choice on the date the bank draws on his account.
Policies sold to officers, directors and employees of Phoenix (and their
spouses and children) will be credited with an amount equal to the first-year
commission that would apply on the amount of premium contributed. This option
also is available to career agents of Phoenix (and their spouses and children).
ALLOCATION OF ISSUE PREMIUM
Phoenix will generally allocate the Issue Premium less applicable charges
to the VUL Account or to the GIA upon receipt of a completed application, in
accordance with the allocation instructions in the application for a Policy.
However, Policies issued in certain states, and Policies issued in certain
states pursuant to applications which state the Policy is intended to replace
existing insurance, are issued with a Temporary Money Market Allocation
Amendment. Under this Amendment, Phoenix temporarily allocates the entire
Issue Premium paid less applicable charges (along with any other premiums paid
during the Right to Cancel Period) to the Money Market Sub-account of the VUL
Account, and, at the expiration of the Right to Cancel Period, the Policy Value
of the Money Market Sub-account is allocated among the Sub-accounts of the VUL
Account or to the GIA in accordance with the applicant's allocation
instructions in the application for insurance.
RIGHT TO CANCEL PERIOD
A Policy may be returned by mailing or delivering it to Phoenix within ten
days after the Policyowner receives it (or longer in some states); within ten
days after Phoenix mails or delivers a written notice of withdrawal right to
the Policyowner; or within 45 days after the applicant signs the application for
insurance, whichever occurs latest (the "Right to Cancel Period"). The returned
Policy is treated as if Phoenix never issued the Policy and, except for
Policies issued with a Temporary Money Market Allocation Amendment, Phoenix
will return the sum of the following as of the date Phoenix receives the
returned Policy: (i) the then current Policy Value less any unpaid loans and
loan interest; plus (ii) any monthly deductions, partial surrender fees, and
other charges made under the Policy, including investment advisory fees, or any
Fund expenses deducted. The amount returned for Policies issued with the
Amendment will equal any premiums paid less any unrepaid loans and loan
interest, and less any partial surrender amounts paid.
Phoenix reserves the right to disapprove an application for processing
within seven days of receipt at Phoenix of the completed application for
insurance, in which event Phoenix will return the premium paid. Even after
approval of the application for processing, Phoenix reserves the right to
decline issuance of the Policy, in which event Phoenix will refund the
applicant the same amount as would have been refunded under the Policy had it
been issued but returned for refund during the Right to Cancel Period.
TEMPORARY INSURANCE COVERAGE
On the date the application for a Policy is signed and submitted with the
Issue Premium, Phoenix issues a Temporary Insurance Receipt in connection with
the application. Under the Temporary Insurance Receipt, the insurance protection
applied for (subject to the limits of liability and in accordance with the terms
set forth in the Policy and in the Receipt) takes effect on the date of the
application.
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TRANSFER OF POLICY VALUE
SYSTEMATIC TRANSFER PROGRAM
A Policyowner may elect to automatically transfer funds among the
Sub-accounts or the unloaned portion of the GIA on a monthly, quarterly,
semi-annual or annual basis under the Systematic Transfer Program for Dollar
Cost Averaging ("Systematic Transfer Program"). Under this Systematic Transfer
Program, the minimum initial and subsequent transfer amounts are $25 monthly,
$75 quarterly, $150 semi-annually, or $300 annually. A Policyowner must have an
initial value of $1,000 in the GIA or the Sub-account that funds will be
transferred from and if the value in that Sub-account or the GIA drops below the
elected transfer amount, the entire remaining balance will be transferred and no
more systematic transfers will be processed. Funds may be transferred from only
one Sub-account or the GIA, but may be allocated to multiple Sub-accounts. Under
the Systematic Transfer Program, Policyowners may make more than one transfer
per Policy Year from the GIA, in approximate equal amounts over a minimum 18-
month period. All transfers under the Systematic Transfer Program will be
executed on the basis of the respective values as of the first of the month
following receipt of the transfer request. If the first of the month falls on a
holiday or weekend, then the transfer will be processed on the next succeeding
business day.
NON-SYSTEMATIC TRANSFERS
Transfers among available Sub-accounts or the GIA and changes in premium
payment allocations may be requested in writing or by calling 1-800-892-4885,
between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time and will be
executed on the date the request is received at Variable and Universal Life
Administration, except as noted below. Unless the Policyowner elects in writing
not to authorize telephone transfers or allocation changes, telephone transfer
orders and allocation changes also will be accepted on behalf of the
Policyowner from his or her registered representative. Phoenix and Phoenix
Equity Planning Corporation ("PEPCO") 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 the Policyowner.
To the extent that procedures reasonably designed to prevent unauthorized
transfers are not followed, Phoenix and PEPCO may be liable for following
telephone instructions for transfers that prove to be fraudulent. However, the
Policyowner would bear the risk of loss resulting from instructions entered by
an unauthorized third party that Phoenix and PEPCO reasonably believe to be
genuine. These telephone privileges may be modified or terminated at any time
and during times of extreme market volatility, may be difficult to exercise. In
such cases, the Policyowner should submit a Written Request.
Phoenix reserves the right to permit transfers of less than $500 only if
the entire balance in the Sub-account or the GIA is transferred or if the
Systematic Transfer Program has been elected.
Phoenix reserves the right to prohibit a transfer to any Sub-account of
the VUL Account where the resultant value of the Policy's share in that
Sub-account immediately after the transfer would be less than $500. It further
reserves the right to require that the entire balance of a Sub-account or the
GIA be transferred if the share of the Policy in the value of that Sub-account
would, immediately after the transfer, be less than $500.
Unless Phoenix agrees otherwise or the Systematic Transfer Program has
been elected, a Policyowner may make only one transfer per Policy Year from the
unloaned portion of the GIA and the amount that may be transferred cannot exceed
the greater of $1,000 or 25% of the value of the Policy in the unloaned portion
of the GIA at the time of the transfer. Non-systematic transfers from the
unloaned portion of the GIA will be effectuated on the date of receipt by
Variable and Universal Life Administration.
Phoenix reserves the right to limit the number of Sub-accounts you may elect
to a total of 18 at any one time and/or over the life of the Policy unless
required to be less to comply with changes in federal and/or state regulation,
including tax, securities and insurance law. As of the date of this Prospectus,
this limitation has no effect because fewer Sub-accounts are offered.
For policies issued with the Temporary Money Market Allocation Amendment,
transfers may not be made until termination of the Right to Cancel Period.
DETERMINATION OF SUB-ACCOUNT VALUES
The unit value of each Sub-account of the VUL Account was set by Phoenix
on the first valuation date of each such Sub-account. The unit value of a
Sub-account of the VUL Account on any other Valuation Date is determined by
multiplying the unit value of that Sub-account on the just prior Valuation Date
by the Net Investment Factor for that Sub-account for the then current Valuation
Period. The unit value of each Sub-account of the VUL Account on a day other
than a Valuation Date is the unit value on the next Valuation Date. Unit values
are carried to six decimal places. The unit value of each Sub-account of the
VUL Account on a Valuation Date is determined at the end of that day.
The Net Investment Factor for each Sub-account of the VUL Account is
determined by the investment performance of the assets held by the Sub-account
during the Valuation Period. Each valuation will follow applicable law and
accepted procedures. The Net Investment Factor is equal to item (D) below
subtracted from the result of dividing the sum of items (A) and (B) by item (C).
(A) The value of the assets in the Sub-account on the current Valuation
Date, including accrued net investment income and realized and
unrealized capital gains and losses, but excluding the net value of any
transactions during the current Valuation Period.
(B) The amount of any dividend (or, if applicable, any capital gain
distribution) received by the Sub-account if the "ex-dividend" date for
shares of the Fund occurs during the current Valuation Period.
(C) The value of the assets in the Sub-account as of the just prior
Valuation Date, including accrued net investment income and realized
and unrealized capital gains and losses, and including the net value of
all transactions during the Valuation Period ending on that date.
(D) The sum of the following daily charges multiplied by the number of days
in the current Valuation Period:
1. the mortality and expense risk charge; and
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2. the charge, if any, for taxes and reserves for taxes on investment
income, and realized and unrealized capital gains.
DEATH BENEFIT
GENERAL
The death benefit (under Option 1) equals the Policy's face amount on the
date of the Insured's death or, if greater, the minimum death benefit on the
date of death. Under Option 2, the death benefit equals the Policy's face amount
on the date of the Insured's death plus the Policy Value. Under either Option,
the minimum death benefit is the Policy Value on the date of death of the
Insured increased by the applicable percentage from the table contained in the
Policy, based on the Insured's attained age at the beginning of the Policy Year
in which the death occurs. If no option is elected, Option 1 will apply.
GUARANTEED DEATH BENEFIT OPTION
For Policies with a face amount of at least $50,000, a guaranteed death
benefit rider may be purchased. Under this Policy rider, if a Policyowner pays
the required premium each year as specified in the rider, the death benefit
selected will be guaranteed for a certain specified number of years, regardless
of the investment performance of the Policy, and will equal either the initial
face amount or the face amount as later changed by increases or decreases. In
order to keep this guaranteed death benefit In Force, there may be limitations
on the amount of partial surrenders or decreases in face amount permitted.
LIVING BENEFITS OPTION
In the event of a 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. The minimum face amount of the Policy after any such accelerated
benefit payment is $10,000.
PARTIAL SURRENDER AND DECREASES IN FACE AMOUNT: EFFECT ON DEATH BENEFIT
A partial surrender or a decrease in face amount generally decreases the
death benefit. Upon a decrease in face amount or partial surrender, a partial
surrender charge will be deducted from Policy Value based on the amount of the
decrease or partial surrender. With a decrease in face amount, the death benefit
under a Policy would be reduced on the next Monthly Calculation Day. With a
partial surrender, the death benefit under a Policy would be reduced
immediately. A decrease in the death benefit may have certain tax consequences.
See "Federal Tax Considerations."
REQUESTS FOR DECREASE IN FACE AMOUNT
A Policyowner may request a decrease in face amount at any time after the
first Policy Year. Unless Phoenix agrees otherwise, the decrease must at least
equal $10,000 and the face amount remaining after the decrease must at least
equal $25,000. All face amount decrease requests must be in writing and will be
effective on the first Monthly Calculation Day following the date Phoenix
approves the request. A partial surrender charge will be deducted from the
Policy Value based on the amount of the decrease, upon a decrease in face
amount. The charge will equal the applicable surrender charge that would apply
to a full surrender multiplied by a fraction (the decrease in face amount
divided by the face amount of the Policy before the decrease).
SURRENDERS
GENERAL
At any time during the lifetime of the Insured and while the Policy is In
Force, the Policyowner may partially or fully surrender the Policy by sending a
written release and surrender in a form satisfactory to Phoenix to Variable
and Universal Life Administration, along with the Policy if Phoenix so
requires. 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
Variable and Universal Life Administration.
Upon partial or full surrender, Phoenix generally will pay the amount
surrendered to the Policyowner within seven days after Phoenix receives the
Written Request for the surrender. Under certain circumstances, the surrender
payment may be postponed. See "General Provisions--Postponement of Payments."
For the federal tax effects of partial and full surrenders, see "Federal Tax
Considerations."
FULL SURRENDERS
If the Policy is being fully surrendered, the Policy itself must be returned
to Variable and Universal Life Administration, along with the written release
and surrender of all claims in a form satisfactory to Phoenix. A Policyowner
may elect to have the amount paid in a lump sum or under a payment option. See
"Surrender Charge" and "Payment Options."
PARTIAL SURRENDERS
A Policyowner may obtain a partial surrender of the Policy by requesting
that part of the Policy's Cash Surrender Value be paid. The Policyowner may do
this at any time during the lifetime of the Insured while the Policy is In Force
with a Written Request to Variable and Universal Life Administration. Phoenix
reserves the right to require that the Policy be returned before payment is
made. A partial surrender will be effective on the date the Written Request is
received or, if required, the date the Policy is received. Surrender proceeds
may be applied under any of the payment options described under "Payment of
Proceeds--Payment Options."
Phoenix reserves the right not to allow partial surrenders of less than
$500. In addition, if the share of the Policy Value in any Sub-account or in the
GIA that would be reduced as a result of a partial surrender would, immediately
after the partial surrender, be less than $500, Phoenix reserves the right to
require that as part of any partial surrender, the entire remaining balance in
that Sub-account or the GIA be surrendered.
Upon a partial surrender the Policy Value will be reduced by the sum of the
following:
(i) The Partial Surrender Amount Paid. This amount comes from a reduction
in the Policy's share in the value of each Sub-account or the GIA
based on the allocation requested at the time of the partial surrender.
If no allocation request is made, the assessment to each Sub-account
will be made in the same manner as that provided for monthly
deductions.
(ii) The Partial Surrender Fee. This fee is the lesser of $25 or 2% of the
partial surrender amount paid. The assessment to each Sub-account or
the GIA will be made in the same manner as provided for the partial
surrender amount paid.
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(iii) A Partial Surrender Charge. This charge is equal to a pro rata
portion of the applicable surrender charge that would apply to a full
surrender, determined by multiplying the applicable surrender charge by
a fraction (equal to the partial surrender amount payable divided by
the result of subtracting the applicable surrender charge from the
Policy Value). This amount is assessed against the Sub-account or the
GIA in the same manner as provided for the partial surrender amount
paid.
The Cash Surrender Value will be reduced by the partial surrender amount
paid plus the partial surrender fee. The face amount of the Policy also will
be reduced by the same amount as the Policy Value is reduced as described above.
POLICY LOANS
While the Policy is In Force, a loan may be obtained against the Policy up
to the available loan value. The loan value on any day is 90% of the result of
subtracting the then remaining surrender charge from the Policy Value. The
available loan value is the loan value on the current day less any outstanding
Debt.
The amount of any loan will be added to the loaned portion of the GIA and
subtracted from the Policy's share of the Sub-accounts or the unloaned portion
of the GIA, based on the allocation requested at the time of the loan. The
total reduction will equal the amount added to the loaned portion of the GIA.
Allocations generally must be expressed in terms of whole percentages. If no
allocation request is made, the amount subtracted from the share of each
Sub-account or the unloaned portion of the GIA will be determined in the same
manner as provided for monthly deductions. Interest will be credited and the
loaned portion of the GIA will increase at an effective annual rate of 6.00%,
compounded daily and payable in arrears. At the end of each Policy Year and at
the time of any Debt repayment, interest credited to the loaned portion of the
GIA will be transferred to the unloaned portion of the GIA.
Debt may be repaid at any time during the lifetime of the Insured while the
Policy is In Force. Any Debt repayment received by Phoenix during a grace
period will be reduced to cover any overdue monthly deductions and only the
balance will be applied to reduce the Debt. Such balance, in excess of any
outstanding accrued loan interest, will be applied to reduce the loaned portion
of the GIA and will be transferred to the unloaned portion of the GIA to the
extent that loaned amounts taken from such Account have not previously been
repaid. Otherwise, such balance will be transferred among the Sub-accounts as
the Policyowner requests upon repayment and, if no allocation request is made,
according to the most recent premium allocation schedule on file.
While there is outstanding Debt on the Policy, any payments received by
Phoenix for the Policy will be applied directly to reduce the Debt unless
specified as a premium payment by the Policyowner. 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 except as otherwise provided under the terms of the Policy concerning
the grace period and lapse.
The proceeds of Policy loans may be subject to federal income tax
under certain circumstances. See "Federal Tax Considerations."
In the future, Phoenix may not allow Policy loans of less than $500,
unless such loan is used to pay a premium on another Phoenix policy.
The Policyowner will pay interest on the loan at an effective annual rate,
compounded daily and payable in arrears. For the first ten Policy Years or until
the Policyowner reaches age 65, whichever occurs first, the rate will be 8.00%
and thereafter the rate will be 7.00%. At the end of each Policy Year, any
interest due on the Debt will be treated as a loan and will be offset by a
transfer from the Policyowner's values to the value of the loaned portion of the
GIA.
A Policy loan, whether or not repaid, has a permanent effect on the Policy
Value because the investment results of the Sub-accounts or unloaned portion of
the GIA will apply only to the amount remaining in the Sub-accounts or the
unloaned portion of the GIA. The longer a loan is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If the
Sub-accounts or the unloaned portion of the GIA earn more than 6.00% per
annum, which is the annual interest rate for funds held in the loaned portion of
the GIA, Policy Value does not increase as rapidly as it would have had no
loan been made. If the Sub-accounts or the GIA earn less than 6.00% per annum,
Policy Value is greater than it would have been had no loan been made. A Policy
loan, whether or not repaid, also has an effect on the Policy's Death Benefit
due to any resulting differences in Cash Surrender Value.
LAPSE
Unlike conventional life insurance policies, the payment of the Issue
Premium, no matter how large, or the payment of additional premiums will not
necessarily continue the Policy In Force to its Maturity Date.
If on any Monthly Calculation Day during the first two Policy Years, the
Policy Value is insufficient to cover the monthly deduction, a grace period of
61 days will be allowed for the payment of an amount equal to three times the
required monthly deduction. If on any Monthly Calculation Day during any
subsequent Policy Year, the Cash Surrender Value (which has become positive) is
less than the required monthly deduction, a grace period of 61 days will be
allowed for the payment of an amount equal to three times the required monthly
deduction. However, until the Cash Surrender Value becomes positive for the
first time, the Policy will not lapse as long as all premiums planned at issue
have been paid.
The Policy will continue In Force during any such grace period although,
Sub-account 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 have elapsed since Phoenix mailed
written notice to the Policyowner. If a premium payment for the additional
amount is received by Phoenix during the grace period, any amount of premium
over what is required to prevent lapse will be allocated among the Sub-accounts
of the VUL Account or to the GIA in accordance with the then current premium
allocation schedule. In determining the amount of "excess" premium to be applied
to the Sub-accounts or the GIA, Phoenix 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.
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PAYMENT OF PREMIUMS DURING PERIOD OF DISABILITY
A Policyholder also may elect a Waiver of Premium Rider. This rider
provides for the waiver of certain premium payments under the Policy under
certain conditions during a period of total disability of the Insured. Under its
terms, the specified premium will be waived upon Phoenix's receipt of proof
that the insured is totally disabled and that the disability occurred while the
rider was In Force. The terms of this rider may vary by state.
ADDITIONAL INSURANCE OPTIONS
While the Policy is In Force and the Policyowner is insurable, the
Policyowner will have the option to purchase additional insurance on the same
Insured with the same guaranteed rates as the Policy without being assessed an
Issue Expense Charge. Phoenix will require evidence of insurability and
charges will be adjusted for the Insured's new attained age and any change in
risk classification. However, if elected on the application, the Policyowners
may, at predetermined future dates, purchase additional insurance protection on
the same Insured without evidence of insurability. (See "Purchase Protection
Plan Riders.")
In addition, once each Policy Year, a Policyowner may request an increase in
face amount. This request should be made within 90 days prior to the Policy
Anniversary and is subject to an issue expense charge of $3 per $1,000 of
increase in face amount, up to a maximum of $150, and to Phoenix's receipt of
adequate evidence of insurability. A Right to Cancel Period as described in "The
Policy" section of this Prospectus applies to each increase in face amount.
ADDITIONAL RIDER BENEFITS
A Policyowner may purchase additional benefits under a Policy. These
benefits are cancellable by the Policyowner at any time. A charge will be
deducted monthly from your Policy Value for each additional rider benefit chosen
except where noted below. Riders listed below that specify "no charge" are
automatically included in your Policy. More details will be included in the form
of a Policy rider if any of these benefits is chosen. The following benefits are
currently available; however, additional riders may be available as described in
the Policy.
O DISABILITY WAIVER OF SPECIFIED PREMIUM RIDER
Phoenix waives the specified premium if the Insured becomes totally
disabled and the disability continues for at least six months. Premiums
will be waived to the Policy Anniversary nearest the Insured's 65th
birthday (provided that the disability continues), unless premiums have
been waived continuously during the entire five years prior to such date
in which case the waiver will continue beyond that date. The premium
will be waived upon Phoenix's receipt that the Insured is totally
disabled and that the disability occurred while the rider was In Force.
The terms may vary by State.
O ACCIDENTAL DEATH BENEFIT RIDER
An additional death benefit will be paid if the Insured dies from bodily
injury that results from an accident if the Insured dies no later than
90 days after injury; and before the Policy Anniversary nearest the
Insured's 75th birthday.
O DEATH BENEFIT PROTECTION RIDER
The purchase of this rider provides that the death benefit will be
guaranteed. The amount of the guaranteed death benefit is equal to the
initial face amount, or the face amount that later may be increased or
decreased by the Policyholder provided that certain minimum premiums are
paid. Unless Phoenix agrees otherwise, the initial face amount and the
face amount remaining after any decrease must at least equal $50,000 and
the minimum issue age of the Insured is 20. Three (3) death benefit
guarantee periods are available in all states except New York. The
minimum premium required to maintain the guaranteed death benefit is
based on the length of the guarantee period as elected on the
application. The three available guarantee periods are:
Level: Expiry Date of Death Benefit Guaranteed, the later of:
1 The policy anniversary nearest the Insured's 70th birthday or the
7th Policy Year
2 The policy anniversary nearest the Insured's 80th birthday
or the 10th Policy Year
3 The policy anniversary nearest the Insured's 95th birthday.
Level 1 or 2 guarantees may be extended provided that the Policy's Cash
Surrender Value is sufficient and the Policyowner pays the new Minimum Required
Premium.
For Policies issued in New York, two guarantee periods are available:
1 The policy anniversary nearest the Insured's 75th birthday
or the 10th Policy Year
2 The policy anniversary nearest the Insured's 95th birthday.
O FACE AMOUNT OF INSURANCE INCREASE RIDER
Under the terms of this rider, any time after the first Policy
Anniversary, a Policyholder may request an increase in the face amount
of insurance provided under the Policy. Requests for face amount
increases must be made in writing, and Phoenix requires additional
evidence of insurability. The effective date of the increase will
generally be the Policy Anniversary following approval of the increase.
The increase may not be less than $25,000 and no increase will be
permitted after the Insured's age 75. The charge for the increase is $3
per thousand of face amount increase requested subject to a maximum of
$150. No additional monthly administration charge will be assessed for
face amount increases. Phoenix will deduct any charges associated with
the increase (the increases in cost of insurance charges), from the
Policy Value, whether or not the Policyowner pays an additional premium
in connection with the increase. The surrender charge applicable to the
Policy also will increase. At the time of the increase, the Cash
Surrender Value must be sufficient to pay the monthly deduction on that
date, or additional premiums will be required to be paid on or before
the effective date. Also, a new Right to Cancel period (see "The
Policy--Right to Cancel Period") will be established for the amount of
the increase. For a discussion
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of possible implications of a material change in the Policy resulting
from the increase, see "Material Change Rules." There is no charge for
this rider.
O WHOLE LIFE EXCHANGE OPTION RIDER
This rider permits the Policyowner to exchange his Policy for a fixed
benefit whole life policy at the later of age 65 or Policy Year 15.
There is no charge for this rider.
O PURCHASE PROTECTION PLAN RIDER
Under this rider a Policyowner may, at predetermined future dates,
purchase additional insurance protection without evidence of
insurability.
O LIVING BENEFITS RIDER
Under certain conditions, in the event of the 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. The minimum face
amount of the Policy after any such accelerated benefit payment is
$10,000. There is no charge for this rider.
INVESTMENTS OF THE VUL ACCOUNT
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PARTICIPATING MUTUAL FUNDS
THE PHOENIX EDGE SERIES FUND
Certain Sub-accounts of the VUL Account invest in corresponding Series of
The Phoenix Edge Series Fund, a Massachusetts business trust. The Fund currently
has the following Series available through the Policies:
MONEY MARKET SERIES: The investment objective of the Money Market Series is
to provide maximum current income consistent with capital preservation and
liquidity.
GROWTH SERIES: The investment objective of the Growth Series is to achieve
intermediate and long-term growth of capital, with income as a secondary
consideration.
MULTI-SECTOR FIXED INCOME ("MULTI-SECTOR") SERIES: The investment objective
of the Multi-Sector Series is to seek long-term total return by investing in a
diversified portfolio of high yield (high risk) and high quality fixed income
securities. For a discussion of the risks associated with investing in high
yield bonds, please see the accompanying Fund prospectus.
TOTAL RETURN SERIES: The investment objective of the Total Return Series is
to realize as high a level of total rate of return over an extended period of
time as is considered consistent with prudent investment risk (total rate of
return consists of capital appreciation, current income, including dividends and
interest, possible premiums and short-term gains from purchasing and selling
options and financial futures).
INTERNATIONAL SERIES: The investment objective of the International Series
is to seek a high total return consistent with reasonable risk. The
International Series intends to invest primarily in an internationally
diversified portfolio of equity securities. It intends to reduce its risk by
engaging in hedging transactions involving options, futures contracts and
foreign currency transactions. The International Series provides a means for
investors to invest a portion of their assets outside the United States.
BALANCED SERIES: The investment objective of the Balanced Series is to seek
reasonable income, long-term capital growth and conservation of capital. The
Balanced Series intends to invest based on combined considerations of risk,
income, capital enhancement and protection of capital value.
REAL ESTATE SERIES: The investment objective of the Real Estate Securities
Series is to seek capital appreciation and income with approximately equal
emphasis. It intends under normal circumstances to invest in marketable
securities of publicly traded real estate investment trusts (REITs) and
companies that operate, develop, manage and/or invest in real estate located
primarily in the United States.
STRATEGIC THEME SERIES: The investment objective of the Strategic Theme
Series is to seek long-term appreciation of capital by identifying securities
benefiting from long-term trends present in the United States and abroad. The
Strategic Theme Series intends to invest primarily in common stocks believed to
have substantial potential for capital growth.
ASIA SERIES: The investment objective of the Asia Series is to seek
long-term capital appreciation. The Asia Series will invest primarily in a
diversified portfolio of equity securities of issuers organized and principally
operating in Asia, excluding Japan.
WANGER ADVISORS TRUST
Certain Sub-accounts of the VUL Account invest in corresponding Series of
the Wanger Advisors Trust. The available Series and their fundamental objectives
are as follows:
WANGER U.S. SMALL CAP ("U.S. SMALL CAP") SERIES: The investment objective of
the U.S. Small Cap Series is to provide long- term growth. The U.S. Small Cap
will invest primarily in securities of U.S. companies with total common stock
market capitalization of less than $1 billion.
WANGER INTERNATIONAL SMALL CAP ("INTERNATIONAL SMALL CAP") SERIES: The
investment objective of the International Small Cap Series is to provide
long-term growth. The International Small Cap will invest primarily in
securities of non-U.S. companies with total common stock market capitalization
of less than $1 billion.
Each Series will be subject to the market fluctuations and risks inherent in
the ownership of any security and there can be no assurance that any Series'
stated investment objective will be realized.
In addition to being sold to the VUL Account, shares of the Fund also are
sold to the Phoenix Home Life Variable Accumulation Account, a separate account
utilized by Phoenix to receive and invest premiums paid under certain variable
annuity contracts issued by Phoenix. Shares of the Fund also may be sold to
other separate accounts of Phoenix or its affiliates or of other insurance
companies.
It is conceivable that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the Fund simultaneously. Although neither Phoenix nor the Fund
currently foresees any such disadvantages either to variable life insurance
Policyowners or to variable annuity Contract Owners, the Fund's Trustees intend
to monitor events in
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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 thereto. Material conflicts could result
from, for example, (1) changes in state insurance laws, (2) changes in federal
income tax laws, (3) changes in the investment management of any portfolio of
the Fund, or (4) differences in voting instructions between those given by
variable life insurance Policyowners and those given by variable annuity
Contract Owners. Phoenix will, at its own expense, remedy such material conflict
including, if necessary, segregating the assets underlying the variable life
insurance policies and the variable annuity contracts and establishing a new
registered investment company.
INVESTMENT ADVISERS TO THE PHOENIX EDGE SERIES FUND
The Phoenix Edge Series Fund's investment advisers are Phoenix Investment
Counsel, Inc. ("PIC") and Phoenix Realty Securities, Inc. ("PRS") and
Phoenix-Aberdeen International Advisors LLC, ("PAIA") (collectively, the
"Advisers"), which are located at 56 and 38 Prospect Street and One American
Row, respectively, Hartford, Connecticut 06115. PIC was originally organized in
1932 as John P. Chase, Inc. In addition to the Fund, it also serves as
investment adviser to the Phoenix Series Fund, Phoenix Total Return Fund, Inc.
and Phoenix Multi-Portfolio Fund and as subadviser to American Skandia, Chubb
America Fund, Inc., Sun America Series Trust and JNL Series Trust. PIC also
serves as subadviser to the Asia Series.
PRS was formed in 1994 as an indirect subsidiary of Phoenix. In addition
to the Fund, it also serves as investment adviser to the Real Estate Portfolio
of the Phoenix Multi-Portfolio Fund.
PAIA, a Delaware limited liability company formed in 1996 and jointly owned
and managed by PM Holdings, Inc., is a direct subsidiary of Phoenix and Aberdeen
Fund Managers, Inc., a wholly-owned subsidiary of Aberdeen Trust plc. Aberdeen
Fund Managers, Inc. has its principal offices located at 1 Financial Plaza,
Suite 2210, NationsBank Tower, Fort Lauderdale, Florida 33394. While many of the
officers and directors of the Adviser have extensive experience as investment
professionals, due to its recent formation, the Adviser has no prior operating
history. Aberdeen Fund Managers also serves as subadviser to the Asia Series.
Aberdeen Trust was founded in 1983 and through subsidiaries operating from
offices in Aberdeen, Scotland; London, England; Singapore; and Fort Lauderdale,
Florida, provides investment management services to unit and investment trusts,
segregated pension funds and other institutional and private portfolios. As of
September 30, 1995, Aberdeen Trust, and its advisory subsidiaries, had
approximately $4 billion in assets under management.
ABKB/LaSalle Securities Limited Partnership (ABKB), a subsidiary of LaSalle
Partners, serves as subadviser to the Real Estate Series. ABKB's principal
place of business is located at 100 East Pratt Street, Baltimore, Maryland
21202. ABKB has been a registered investment adviser since 1979.
All of the outstanding stock of PIC is owned by PEPCO, an indirect
subsidiary of Phoenix. PEPCO also performs bookkeeping and pricing and
administrative services for the Fund. PEPCO is registered as a broker-dealer in
50 states. The executive offices of Phoenix are located at One American Row,
Hartford, Connecticut 06115 and the principal offices of PEPCO are located at
100 Bright Meadow Boulevard, P.O. Box 2200, Enfield, Connecticut 06083-2200.
INVESTMENT ADVISERS TO THE WANGER ADVISORS TRUST
The investment adviser to the Wanger Advisors Trust is Wanger Asset
Management, L.P. Wanger's principal place of business is located at 227 West
Monroe Street, Suite 3000, Chicago, Illinois 60606.
The Advisers continuously furnish an investment program for each Series
and manage the investment and reinvestment of the assets of each Series subject
at all times to the authority and supervision of the Trustees. A more detailed
discussion of the Advisers and the Investment Advisory Agreements is contained
in the accompanying prospectus for the Fund.
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; all
capital gains distributions of the Funds, if any, are likewise reinvested at the
net asset value on the record date. Phoenix redeems Funds shares at their net
asset value to the extent necessary to make payments under the Policy.
SUBSTITUTION OF INVESTMENTS
Phoenix reserves the right, subject to compliance with the law as
currently applicable or subsequently changed, to make additions to, deletions
from, or substitutions for the investments held by the VUL Account. In the
future Phoenix may establish additional Sub-accounts within the VUL Account,
each of which will invest solely in shares of a designated portfolio of the
Funds with a specified investment objective. These portfolios will be
established if, and when, in the sole discretion of Phoenix, marketing needs
and investment conditions warrant, and will be made available under existing
Policies to the extent and on a basis to be determined by Phoenix.
If shares of any of the portfolios of the Funds should no longer be
available for investment, or if in the judgment of Phoenix's management
further investment in shares of any of the portfolios should become
inappropriate in view of the objectives of the Policy, then Phoenix may
substitute shares of another mutual fund for shares already purchased, or to be
purchased in the future, under the Policy. No substitution of mutual fund shares
held by the VUL Account may take place without prior approval of the Securities
and Exchange Commission, and prior notice to the Policyowner. In the event of a
substitution, the Policyowner will be given the option of transferring the
Policy Value of the Sub-account in which the substitution is to occur to another
Sub-account.
PERFORMANCE HISTORY
From time to time the VUL Account may include the performance history of any
or all Sub-accounts, in advertisements, sales literature or reports. PERFORMANCE
INFORMATION ABOUT EACH SUB-ACCOUNT IS BASED ON PAST PERFORMANCE ONLY AND IS NOT
AN INDICATION OF FUTURE PERFORMANCE. Performance information may be expressed as
yield and effective yield of the Money Market Sub-account, as yield of the
Multi-Sector Sub-account and as total return of any Sub-account. Current yield
for the Money Market Sub-account will be based on the income earned by the
Sub-account over a given 7-day period (less a hypothetical charge reflecting
deductions for expenses taken during
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the period) and then annualized, i.e., the income earned in the period is
assumed to be earned every seven days over a 52-week period and is stated in
terms of an annual percentage return on the investment. Effective yield is
calculated similarly but reflects the compounding effect of earnings on
reinvested dividends. Yield and effective yield reflect the recurring charges on
the Account level including the monthly administrative charge.
Yield calculations of the Money Market Sub-account used for illustration
purposes are based on the consideration of a hypothetical participant's account
having a balance of exactly one Unit at the beginning of a seven-day period,
which period will end on the date of the most recent financial statements. The
yield for the Sub-account during this seven-day period will be the change in the
value of the hypothetical participant's account's original Unit. The following
is an example of this yield calculation for the Money Market Sub-account based
on a seven-day period ending December 31, 1995.
Example:
Assumptions:
Value of hypothetical pre-existing account with exact one unit
at the beginning of the period:.............................. 1.324187
Value of the same account (excluding capital changes) at the
end of the seven-day period:................................. 1.325408
Calculation:
Ending account value ....................................... 1.325408
Less beginning account value .............................. 1.324187
Net change in account value ............................... 0.001221
Base period return:
(adjusted change/beginning account value) .................. 0.000922
Current yield = return x (365/7) = ........................... 4.81%
Effective yield = [(1 + return)365/7] - 1 = .................. 4.92%
The current yield and effective yield information will fluctuate, and
publication of yield information may not provide a basis for comparison with
bank deposits, other investments which are insured and/or pay a fixed yield for
a stated period of time, or other investment companies, due to charges which
will be deducted on the Account level.
For the Multi-Sector Sub-account, quotations of yield will be based on all
investment income per unit earned during a given 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and are computed by dividing net investment income by the
maximum offering price per unit on the last day of the period.
When a Sub-account advertises its total return, it usually will be
calculated for one year, five years, and ten years or since inception if the
Sub-account has not been in existence for at least ten years. Total return is
measured by comparing the value of a hypothetical $10,000 investment in the
Sub-account at the beginning of the relevant period to the value of the
investment at the end of the period, assuming the reinvestment of all
distributions at net asset value and the deduction of an applicable Policy
charges except for cost of insurance and surrender charges (which vary by
Insured) and premium taxes (which vary by state) at the beginning of the
relevant period.
For those Sub-accounts within the VUL Account that have not been available
for one of the quoted periods, the standardized average annual total return
quotations will show the investment performance such Sub-account would have
achieved (reduced by the applicable charges) had it been available to invest in
shares of the Fund for the period quoted.
Below are quotations of standardized average annual total return calculated
as described above.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED 12/31/95
-----------------------------
COMMENCEMENT LIFE OF
SERIES DATE 1 YEAR 5 YEARS 10 YEARS FUND
- ------ ---- ------ ------- -------- ----
Multi-Sector...... 1/1/83 20.06% 10.47% 8.87% 9.41%
Balanced.......... 5/1/92 19.88% N/A N/A 8.17%
Total Return...... 9/17/84 14.87% 11.34% 10.51% 11.33%
Growth............ 1/1/83 27.23% 18.32% 15.25% 17.33%
International..... 5/1/90 6.46% 7.86% N/A 5.02%
Money Market...... 1/1/83 2.67% 2.62% 4.38% 5.12%
ANNUAL TOTAL RETURNS*
---------------------
MULTI- TOTAL INTER- MONEY
YEAR SECTOR BALANCED RETURN GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983......... 5.1% N/A N/A 31.7% N/A 7.4%
1984......... 10.3% N/A (1.4%) 9.7% N/A 9.2%
1985......... 19.5% N/A 26.2% 33.7% N/A 7.1%
1986......... 18.2% N/A 14.7% 19.4% N/A 5.6%
1987......... 0.2% N/A 11.6% 6.0% N/A 5.6%
1988......... 9.5% N/A 1.4% 3.0% N/A 6.5%
1989......... 6.9% N/A 18.4% 34.4% N/A 7.9%
1990......... 4.4% N/A 5.1% 3.2% (8.9%) 7.4%
1991......... 18.5% N/A 28.1% 41.5% 18.7% 5.0%
1992......... 9.1% 8.8% 9.7% 9.3% (13.6%) 2.7%
1993......... 15.0% 7.8% 10.1% 18.8% 37.3% 2.1%
1994......... (6.2%) (3.6%) (2.2%) 0.7% (0.7%) 3.0%
1995......... 22.6% 22.4% 17.3% 29.9% 8.7% 4.9%
*Sales charges have not been deducted from the Annual Total Returns
THESE RATES OF RETURN ARE NOT AN ESTIMATE OR GUARANTEE OF FUTURE
PERFORMANCE. THEY DO NOT ILLUSTRATE HOW ACTUAL PERFORMANCE WILL AFFECT THE
BENEFITS UNDER A POLICY; FOR THIS INFORMATION SEE APPENDIX B "ILLUSTRATIONS OF
DEATH BENEFITS, POLICY VALUES AND CASH SURRENDER VALUES."
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.
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
Charges are deducted in connection with the Policy to compensate Phoenix
for: (1) incurring expenses in distributing the Policy; (2) issuing the Policy;
(3) premium taxes incurred on premiums received; (4) providing the insurance
benefits set forth in the Policy; and (5) assuming certain risks in connection
with the Policy. The nature and amount of these charges are described more fully
below.
1. MONTHLY DEDUCTION
A charge is deducted monthly from the Policy Value under a Policy ("monthly
deduction") to pay: the cost of insurance provided under the Policy, the cost of
any rider benefits provided, any unpaid balance of the issue expense charge, and
an administrative charge. This administrative charge is currently set at $5
per month but it is guaranteed not to exceed $10 per month. The monthly
deduction is deducted on each Monthly Calculation Day. It is allocated among the
Sub-accounts of the VUL Account and the unloaned portion of the GIA
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based on the allocation schedule for monthly deductions specified by the
applicant in the application for a Policy or as later changed by the
Policyowner. In the event that the Policy's share in the value of the
Sub-accounts or the unloaned portion of the GIA is insufficient to permit the
withdrawal of the full monthly deduction, the remainder will be taken on a
proportionate basis from the Policy's share of each of the other Sub-accounts
and the unloaned portion of the GIA. The number of units deducted will be
determined by dividing the portion of the monthly deduction allocated to each
Sub-account or to the unloaned portion of the GIA by the unit value on the
Monthly Calculation Day. 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.
(A) ISSUE EXPENSE CHARGE. A cost-based issue administration charge of $150
is assessed on a pro rata basis in equal monthly installments over a
12-month period to compensate Phoenix for underwriting and start-up
expenses in connection with issuing a Policy. Phoenix may reduce or
eliminate the Issue Expense Charge for Policies issued under group or
sponsored arrangements. Generally, 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 administration costs
expected as a result of sales to a particular group or sponsored
arrangement.
(B) COST OF INSURANCE. In order to calculate the cost of insurance charge,
Phoenix multiplies the applicable cost of insurance rate by the
difference between the death benefit selected (death benefit Option 1 if
no selection is made) and the Policy Value. Generally, cost of insurance
rates are based on the sex, attained age and risk class of the Insured.
However, in certain states and for policies issued in conjunction with
certain qualified plans, cost of insurance rates are not based on sex.
The actual monthly cost of insurance rates are based on Phoenix's
expectations of future mortality experience. They will not, however, be
greater than the guaranteed cost of insurance rates set forth in the
Policy. These guaranteed maximum rates are equal to 100% of the 1980
Commissioners Standard Ordinary ("CSO") Mortality Table, with
appropriate adjustment for the Insured's risk classification. Any change
in the cost of insurance rates will apply to all persons of the same
sex, insurance age and risk class whose Policies have been In Force for
the same length of time. The risk class of an Insured may affect the
cost of insurance rate. Phoenix currently places Insureds into a
standard risk class or a risk class involving a higher mortality risk,
depending upon the health of the Insured as determined by medical
information that Phoenix requests. 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 three categories: smokers and
nonsmokers and those who have never smoked. Non-smokers generally will
incur a lower cost of insurance than similarly situated Insureds who
smoke.
2. PREMIUM TAXES.
Various states and subdivisions impose a tax on premiums received by
insurance companies. Premium taxes vary from state to state. The assessment made
for each premium paid is equal to the tax assessed by the state in which the
Policyowner resides according to Phoenix's records at the time of the payment.
Currently, the taxes imposed by states on premiums range from 0.75% to 4% of
premiums paid. Moreover, certain municipalities in Louisiana, Kentucky and South
Carolina also impose taxes on premiums paid, in addition to the state taxes
imposed by these states. The premium tax charge represents an amount Phoenix
considers necessary to pay all premium taxes imposed by such states and any
subdivisions thereof, and Phoenix does not expect to derive a profit from this
charge. These taxes are deducted from the Issue Premium, and from each
subsequent premium payment.
3. MORTALITY AND EXPENSE RISK CHARGE
Phoenix will deduct a daily charge from the VUL Account at an annual rate
of 0.80% of the average daily net assets of the VUL Account to compensate for
certain risks assumed in connection with the Policy. This charge is not deducted
from the GIA.
The mortality risk assumed by Phoenix is that Insureds may live for a
shorter time than projected because of inaccuracies in that projecting process
and, accordingly, that an aggregate amount of death benefits greater than that
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. If the expenses do not increase to an amount in excess of the limits,
or if the mortality projecting process proves to be accurate, Phoenix may
profit from this charge. Phoenix also assumes risks with respect to other
contingencies including the incidence of Policy loans, which may cause Phoenix
to incur greater costs than anticipated when designing the Policies. To the
extent Phoenix profits from this charge, it may use those profits for any
proper purpose, including the payment of sales expenses or any other expenses
that may exceed income in a given year.
4. INVESTMENT MANAGEMENT CHARGE
As compensation for their investment management services to the Fund, the
Advisers are entitled to fees, payable monthly and based on an annual percentage
of the average aggregate daily net asset values of each Series as summarized in
the following tables:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market........ .40% .35% .30%
Multi-Sector........ .50% .45% .40%
Balanced............ .55% .50% .45%
Total Return........ .60% .55% .50%
Growth.............. .70% .65% .60%
International....... .75% .70% .65%
Strategic Theme..... .75% .70% .65%
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia Series.......... 1.00%
17
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PHOENIX REALTY SECURITIES, INC.
-------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate......... .75% .70% .65%
WANGER ASSET MANAGEMENT, L.P.
-----------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $100,000,000 $150,000,000 $250,000,000
- ------ ------------ ------------ ------------
U.S. Small Cap...... 1.00% .95% .90%
INTERNATIONAL
SMALL CAP........... 1.30% 1.20% 1.10%
In addition, each Series pays a portion or all of its other annual operating
expenses other than the management fees; the Growth, Multi-Sector, Total Return,
Money Market and Balanced Series will pay up to .15%; the Real Estate, Strategic
Theme and Asia Series will pay up to .25%; the International Series will pay up
to .40%; the Wanger U.S. Small Cap Series will pay up to .50%; and the Wanger
International Small Cap Series will pay up to .60% of its average net assets
annually.
5. OTHER CHARGES
SURRENDER CHARGE
During the first 10 Policy Years, there is a difference between the amount
of Policy Value and the amount of Cash Surrender Value of the Policy. This
difference is the surrender charge, consisting of a contingent deferred sales
charge designed to recover expenses for the distribution of Policies that are
terminated by surrender before distribution expenses have been recouped, and a
contingent deferred issue charge designed to recover expenses for the
administration of Policies that are terminated by surrender before
administrative expenses have been recouped. These are contingent charges because
they are paid only if the Policy is surrendered (or the face amount is reduced
or the Policy lapses) during the first 10 Policy Years. They are deferred
charges because they are not deducted from premiums. The contingent deferred
issue charge is set at a level designed to recover actual costs and is not
designed to result in any profit to Phoenix.
In Policy Years one through ten the full Surrender Charge as described below
will apply if the Policyowner either surrenders the Policy for its Cash
Surrender Value or lets the Policy lapse. The applicable Surrender Charge in any
Policy Month is the full Surrender Charge minus any surrender charges that have
been previously paid. There is no Surrender Charge after the 10th Policy Year.
The maximum Surrender Charge that a Policyowner could pay while he or she owns
the Policy is equal to either A plus B (as defined below) or the amount shown in
the table on Schedule Page 4 of the Policy, whichever is less.
A (the contingent deferred sales charge) is equal to:
1) 30% of all premiums paid (up to and including the amount stated on
Schedule Page 4 of the Policy, which is calculated according to a
formula contained in a Securities and Exchange Commission rule); plus
2) 10% of all premiums paid in excess of this amount but not greater
than twice this amount; plus
3) 9% of all premiums paid in excess of twice this amount.
B (the contingent deferred issue charge) is equal to:
$5 per $1,000 of initial face amount.
As an example, the following illustrates the maximum Surrender Charge on a
$100,000 Policy for a male age 35 who has never smoked who has paid $3,000 in
premium payments, and who surrenders the Policy in the 70th Policy Month.
Schedule Page 4 of the Policy would show that the maximum Surrender Charge to be
paid would be equal to either A plus B (shown below) or the amount shown in the
chart in the Policy (also shown below), whichever is less:
A is equal to:
1) 30% of all premiums paid, up to $1,058.45 (equals $317.54); plus
2) 10% of all premiums paid in excess of $1,058.45 but not greater than
$2,116.90 (equals $105.83); plus
3) 9% of all premiums paid in excess of $2,116.90 (equals $79.48); plus
B which is equal to $500.
Therefore A plus B is equal to $1,002.87.
The chart that would be shown in the Policy is reproduced below:
MAXIMUM SURRENDER CHARGE TABLE
------------------------------
POLICY SURRENDER POLICY SURRENDER POLICY SURRENDER
MONTH CHARGE MONTH CHARGE MONTH CHARGE
----- ------ ----- ------ ----- ------
1-60 $1029.22 80 $823.38 100 $531.90
61 1018.93 81 813.09 101 516.26
62 1008.64 82 802.80 102 500.61
63 998.35 83 792.50 103 484.97
64 988.06 84 782.21 104 469.33
65 977.76 85 766.57 105 453.68
66 967.47 86 750.92 106 438.04
67 957.18 87 735.28 107 422.39
68 946.89 88 719.63 108 406.75
69 936.59 89 703.99 109 372.85
70 926.30 90 688.35 110 338.96
71 916.01 91 672.70 111 305.06
72 905.72 92 657.06 112 271.17
73 895.43 93 641.41 113 237.27
74 885.13 94 625.77 114 203.37
75 874.84 95 610.12 115 169.48
76 864.55 96 594.48 116 135.58
77 854.26 97 578.84 117 101.69
78 843.96 98 563.19 118 67.79
79 833.67 99 547.55 119 33.90
120 .00
If the Surrender occurred in Policy Month 70, the Policyowner would pay the
lesser of $1002.87 (as computed above) or $926.30 (amount in table above). This
Policyowner would pay a Surrender Charge of $926.30. Phoenix may reduce the
surrender charge for Policies issued under group or sponsored arrangements. The
amounts of reductions will be considered on a case-by-case basis and will
reflect the reduced costs to Phoenix expected as a result of sales to a
particular group or sponsored arrangement.
PARTIAL SURRENDER FEE
A fee equal to the lesser of $25 or 2% of the amount withdrawn from the
Policy is deducted from the Policy Value upon a partial surrender of the Policy
to recover the actual costs of processing the partial surrender request. The
assessment to each Sub-account or to
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<PAGE>
the GIA will be made in the same manner as provided for the partial surrender
amount paid. That is, that the Policy's share in the value of each Sub-account
or the GIA will be reduced based on the allocation made at the time of the
partial surrender. If no allocation request is made, the assessment to each
Sub-account and to the GIA will be made in the same manner as provided for
monthly deductions.
PARTIAL SURRENDER CHARGE
A charge as described below is deducted from the Policy Value upon a partial
surrender of the Policy. The charge is equal to a pro rata portion of the
applicable surrender charge that would apply to a full surrender, determined by
multiplying the applicable surrender charge by a fraction (equal to the partial
surrender amount payable divided by the result of subtracting the applicable
surrender charge from the Policy Value). This amount is assessed against the
Sub-accounts or the GIA in the same manner as provided for with respect to the
partial surrender amount paid.
A partial surrender charge also is deducted from Policy Value upon a
decrease in face amount. The charge is equal to the applicable surrender
charge multiplied by a fraction (equal to the decrease in face amount divided
by the face amount of the Policy prior to the decrease).
TAXES
Currently no charge is made to the VUL Account for federal income taxes
that may be attributable to the VUL Account. Phoenix may, however, make such a
charge in the future. Charges for other taxes, if any, attributable to the VUL
Account also may be made. See "Charges and Deductions--Other Charges."
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
GENERAL
Payment of any amount upon complete or partial surrender, Policy loan, or
benefits payable at death (in excess of the initial face amount) or maturity may
be postponed: (i) for up to six months from the date of the request, for any
transactions dependent upon the value of the GIA; (ii) 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
Securities and Exchange Commission; or (iii) whenever an emergency exists, as
determined by the Commission as a result of which disposal of securities is not
reasonably practicable or it is not reasonably practicable to determine the
value of the VUL Account's net assets. Transfers also may be postponed under
these circumstances.
PAYMENT BY CHECK
Payments under the Policy of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared the Policyowner's bank.
THE CONTRACT
The Policy and attached copy of the application are the entire contract.
Only statements in the application can be used to void the Policy. The
statements are considered representations and not warranties. Only an executive
officer of Phoenix can agree to change or waive any provisions of the Policy.
SUICIDE
If the Insured commits suicide within two years after the Policy's Date of
Issue, Phoenix will pay only the Policy Value adjusted by the addition of any
monthly deductions and other fees and charges made under the Policy and the
subtraction of any Debt owed to Phoenix under the Policy.
INCONTESTABILITY
Phoenix cannot contest this Policy or any attached rider after it has been
In Force during the lifetime of the Insured for two years from the Policy Date.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently changed,
will receive the Policy benefits at the Insured's death. If the named
Beneficiary dies before the Insured, the contingent Beneficiary, if named,
becomes the Beneficiary. If no Beneficiary survives the Policyowner, the
benefits payable at the Insured's death will be paid to the Policyowner's
estate.
As long as the Policy is In Force, the Policyowner and the Beneficiary may
be changed by Written Request, satisfactory to Phoenix. A change in
Beneficiary will take effect as of the date the notice is signed, whether or not
the Insured is living when the notice is received by Phoenix. Phoenix will
not, however, be liable for any payment made or action taken before receipt of
the notice.
ASSIGNMENT
The Policy may be assigned. Phoenix will not be bound by the assignment
until a written copy has been received and will not be liable with respect to
any payment made prior to receipt. Phoenix assumes 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
Policyowners may share in divisible surplus of Phoenix to the extent
determined annually by the Phoenix Board of Directors. However, it is not
currently anticipated that the Board will authorize these payments since
Policyowners will be participating directly in 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 Phoenix receives the request
for surrender or due proof of death, provided such request is complete and in
good order. Payment of surrender or death proceeds usually will be made in one
lump-sum within seven days, unless another payment option has been elected.
Payment of the death proceeds, however, may be delayed if the claim for payment
of the death proceeds needs to be investigated; e.g., to ensure payment of the
proper amount to the proper payee. Any such
19
<PAGE>
delay will not be beyond that reasonably necessary to investigate such
claims consistent with insurance practices customary in the life insurance
industry. In addition, under certain conditions, in the event of the 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 under the Living
Benefits Rider. The minimum face amount remaining after any such accelerated
benefit payment is $10,000.
While the Insured is living, the Policyowner may elect a payment option for
payment of the death proceeds to the Beneficiary. The Policyowner may revoke or
change a prior election, unless such right has been waived. The Beneficiary may
make or change an election prior to payment of the death proceeds, unless the
Policyowner has made an election which does not permit such further election or
changes by the Beneficiary.
A written form satisfactory to Phoenix is required to elect, change, or
revoke a payment option.
The minimum amount of surrender or death proceeds that may be applied under
any income option is $1,000.
If the Policy is assigned as collateral security, Phoenix 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 Phoenix may choose to make
available in the future.
OPTION 1--LUMP SUM.
Payment in one lump sum.
OPTION 2--LEFT TO EARN INTEREST.
A payment of interest during the payee's lifetime on the amount payable as a
principal sum. Interest rates are guaranteed to be at least 3% per year.
OPTION 3--PAYMENT FOR A SPECIFIC PERIOD.
Equal income 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: (A) The death of the payee;
(B) 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 may be chosen are as follows: (A) Ten years;
(B) Twenty years; (C) Until the installments paid refund the amount applied
under this option; and 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, Phoenix will deem the longer
period certain as having been elected. Any life annuity provided under Option 4
is calculated using an interest rate guaranteed to be no less than 3 3/8% per
year, except that any life annuity providing a period certain of 20 years or
more is calculated 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 calculated 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 principal
sum remaining at a rate guaranteed to at least equal 3% per year. This
interest will be credited at the end of each year. If the amount of interest
credited at the end of the year exceeds the income payments made in the last 12
months, that excess will be paid in one sum on the date credited.
OPTION 7--JOINT SURVIVORSHIP ANNUITY WITH 10-YEAR PERIOD CERTAIN.
The first payment will be on the date of settlement. Equal income
installments are paid until the latest of: (A) The end of the 10-year period
certain; (B) The death of the Insured; (C) The death of the other named
annuitant. The other annuitant must be named at the time this option is elected
and cannot later be changed. The other annuitant must have an attained age of at
least 40. Any joint survivorship annuity as may be provided under this option is
calculated using an interest rate guaranteed to be no less than 3 3/8% per year.
For additional information concerning the above payment options, see the
Policy.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
INTRODUCTION
The ultimate effect of federal income taxes on values under the VUL Account
and on the economic benefit to the Policyowner or Beneficiary depends on
Phoenix's tax status and upon the tax status of the individual concerned. The
discussion contained herein is general in nature and is not intended as tax
advice. For complete information on federal and state tax considerations, a
qualified tax adviser should be consulted. No attempt is made to consider any
estate and inheritance taxes, or any state, local or other tax laws. Because the
discussion herein is based upon Phoenix's understanding of federal income tax
laws as they are currently interpreted, Phoenix cannot guarantee the tax status
of any Policy. No representation is made regarding the likelihood of
continuation of current federal income tax laws, Treasury regulations, or of the
current interpretations by the Internal Revenue Service. Phoenix reserves the
right to make changes to the Policy in order to assure that it will continue to
qualify as a life insurance contract for federal income tax purposes.
PHOENIX'S TAX STATUS
Phoenix is taxed as a life insurance company under the Internal Revenue
Code of 1986, as amended (the "Code"). For federal income
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<PAGE>
tax purposes, neither the VUL Account nor the GIA is a separate entity from
Phoenix and their operations form a part of Phoenix.
Investment income and realized capital gains on the assets of the VUL
Account are reinvested and taken into account in determining the value of the
VUL Account. Investment income of the VUL Account, including realized net
capital gains, is not taxed to Phoenix. Due to Phoenix's tax status under
current provisions of the Code, no charge currently will be made to the VUL
Account for Phoenix's federal income taxes which may be attributable to the
VUL Account. Phoenix reserves the right to make a deduction for taxes if the
federal tax treatment of Phoenix is determined to be other than what Phoenix
currently believes it to be, if changes are made affecting the tax treatment to
Phoenix of variable life insurance contracts, or if changes occur in
Phoenix's tax status. If imposed, such charge would be equal to the federal
income taxes attributable to the investment results of the VUL Account.
POLICY BENEFITS
DEATH BENEFIT PROCEEDS. The Policy, whether or not it is a "modified
endowment contract" (see the discussion on modified endowment contracts below),
should be treated as meeting the definition of a life insurance contract for
federal income tax purposes, under Section 7702 of the Code. As such, the death
benefit proceeds thereunder should be excludable from the gross income of the
Beneficiary under Code Section 101(a)(1). Also, the Policyowner should not be
deemed to be in constructive receipt of the Cash Value, including increments
thereon. See, however, the sections below on possible taxation of amounts
received under the Policy, via full surrender, partial surrender or loan. In
addition, a benefit paid under a Living Benefit Rider may be taxable as income
in the year of receipt.
Code Section 7702 imposes certain conditions with respect to premiums
received under a Policy. Phoenix intends to monitor the premiums to assure
compliance with such conditions. However, in the event that the premium
limitation is exceeded during the year, Phoenix may return the excess premium,
with interest, to the Policyowner within 60 days after the end of the Policy
Year, and maintain the qualification of the Policy as life insurance for
federal income tax purposes.
FULL SURRENDER. Upon full surrender of a Policy for its Cash Value, the
excess, if any, of the Cash Value (unreduced by any outstanding indebtedness)
over the premiums paid will be treated as ordinary income for federal income
tax purposes. The full surrender of a Policy which is a "modified endowment
contract" may result in the imposition of an additional 10% tax on any income
received.
PARTIAL SURRENDER. If the Policy is a "modified endowment contract," partial
surrenders are fully taxable to the extent of income in the Policy and are
possibly subject to an additional 10% tax. See the discussion on "modified
endowment contracts" below. If the Policy is not a "modified endowment
contract," partial surrenders still may be taxable, as follows. Code Section
7702(f)(7) provides that where a reduction in death benefits occurs during the
first 15 years after a Policy is issued and there is a cash distribution
associated with that reduction, the Policyowner may be taxed on all or a part of
the amount distributed. A reduction in death benefits may result from a partial
surrender. After 15 years, the proceeds will not be subject to tax, except to
the extent such proceeds exceed the total amount of premiums paid but not
previously recovered. Phoenix suggests you consult with your tax adviser in
advance of a proposed decrease in death benefits or a partial surrender as to
the portion, if any, which would be subject to tax, and in addition as to the
impact such partial surrender might have under the rules affecting "modified
endowment contracts."
LOANS. Phoenix believes that any loan received under a Policy will be
treated as indebtedness of the Policyowner. If the Policy is a "modified
endowment contract," loans are fully taxable to the extent of income in the
Policy and are possibly subject to an additional 10% tax. See the discussion
on "modified endowment contracts" below. If the Policy is not a "modified
endowment contract," Phoenix believes that no part of any loan under a Policy
will constitute income to the Policyowner.
The deductibility by the Policyowner of loan interest under a Policy may be
limited under Code Section 264, depending on the circumstances. Any Policyowner
intending to fund premium payments through borrowing should consult a tax
adviser with respect to the tax consequences thereof. Under the "personal"
interest limitation provisions of the Code, interest on Policy loans used for
personal purposes is not tax deductible. Other rules may apply to allow all or
part of the interest expense as a deduction if the loan proceeds are used for
"trade or business" or "investment" purposes. See your tax adviser for further
guidance.
BUSINESS-OWNED POLICIES
If the Policy is owned by a business or a corporation, 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).
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 premiums 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.
REDUCTION IN BENEFITS DURING THE FIRST SEVEN YEARS. If there is a
reduction in benefits during the first seven Policy Years, the premiums are
redetermined for purposes of the 7-pay test as if the Policy originally had
been issued at the reduced death benefit level and the new limitation is applied
to the cumulative amount paid for each of the first seven Policy Years.
DISTRIBUTIONS AFFECTED. If a Policy fails to meet the 7-pay test, it is
considered a modified endowment contract only as to distributions in
21
<PAGE>
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 tax 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: (i) made on or after
the taxpayer attains age 59 1/2; (ii) which are attributable to the taxpayer's
disability (within the meaning of Code Section 72(m)(7)); or (iii) which are
part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the taxpayer or the
joint lives (or life expectancies) of the taxpayer and his Beneficiary.
MATERIAL CHANGE RULES. Any determination of whether the Policy meets the
"7-pay test" will begin again any time the Policy undergoes a "material change,"
which includes any increase in death benefits or any increase in or addition of
a qualified additional benefit, with the following two exceptions. First, if an
increase is attributable to premiums paid "necessary to fund" the lowest death
benefit and qualified additional benefits payable in the first seven Policy
Years or to the crediting of interest or dividends with respect to these
premiums, the "increase" does not constitute a material change. 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 (1) the cost-of-living determination period does not exceed
the remaining premium payment period under the Policy, and (2) the
cost-of-living increase is funded ratably over the remaining premium payment
period of the Policy. A reduction in death benefits is not considered a material
change unless accompanied by a reduction in premium payments.
A material change may occur at any time during the life of the Policy
(within the first seven years or thereafter), and future taxation of
distributions or loans would depend upon whether the Policy satisfied the
applicable "7-pay test" from the time of the material change. An exchange of
policies is considered to be a material change for all purposes.
SERIAL PURCHASE OF MODIFIED ENDOWMENT CONTRACTS. All modified endowment
contracts issued by the same insurer (or affiliated companies of the insurer) to
the same Policyowner within the same calendar year will be treated as one
modified endowment contract in determining the taxable portion of any loans or
distributions made to the Policyowner. The Treasury has been given specific
legislative authority to issue regulations to prevent the avoidance of the new
distribution rules for modified endowment contracts. A qualified tax adviser
should be consulted about the tax consequences of the purchase of more than one
modified endowment contract within any calendar year.
LIMITATIONS ON UNREASONABLE MORTALITY AND EXPENSE CHARGES
The Code imposes limitations on unreasonable mortality and expense charges
for purposes of ensuring that a Policy qualifies as life insurance. The
mortality charges taken into account to calculate permissible premium levels may
not exceed those charges required to be used in determining the federal income
tax reserve for the Policy, unless Treasury regulations prescribe a higher level
of charge. In addition, the expense charges taken into account under the
guideline premium test are required to be reasonable, as defined by the Treasury
regulations. Phoenix intends to comply with the limitations in calculating the
premium it is permitted to receive from the Policyowner.
QUALIFIED PLANS
A Policy may be used in conjunction with certain qualified plans. Since the
rules governing such use are complex, a purchaser should not use the Policy in
conjunction with a qualified plan until he has consulted a competent pension
consultant or tax adviser.
DIVERSIFICATION STANDARDS
To comply with the diversification regulations under Code Section 817(h),
("Diversification Regulations") each Portfolio of the Funds is required to
diversify its investments. The Diversification Regulations generally require
that on the last day of each quarter of a calendar year no more than 55% of the
value of the Funds assets is represented by any one investment, no more than 70%
is represented by any two investments, no more than 80% is represented by any
three investments, and no more than 90% is represented by any four investments.
A "look-through" rule applies to treat a pro rata portion of each asset of the
Funds as an asset of the VUL Account; therefore, each Series of the Funds will
be tested for compliance with the percentage limitations. For purposes of these
diversification rules, all securities of the same issuer are treated as a single
investment, but each United States Government agency or instrumentality is
treated as a separate issuer.
The general diversification requirements are modified if any of the assets
of the VUL Account are direct obligations of the United States Treasury. In this
case, there is no limit on the investment that may be made in United States
Treasury securities, and for purposes of determining whether assets other than
United States Treasury securities are adequately diversified, the generally
applicable percentage limitations are increased based on the value of the VUL
Account's investment in United States 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 which must comply with these standards.
In connection with the issuance of the Diversification Regulations, the
Treasury announced that such regulations do not provide guidance concerning the
extent to which policyowners may direct their 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
22
<PAGE>
such future Treasury announcements. For these reasons, Phoenix reserves the
right to modify the Policy, as necessary, to prevent the Policyowner from being
considered the owner of the assets of the VUL Account.
Phoenix intends to comply with the Diversification Regulations to assure
that the Policies continue to qualify as a life insurance contract for federal
income tax purposes.
CHANGE OF OWNERSHIP OR INSURED OR ASSIGNMENT
Changing the Policyowner or the Insured or an exchange or assignment of the
Policy may have tax consequences depending on September 6, 1996 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. Phoenix recommends that any person contemplating such actions seek the
advice of a qualified tax consultant.
OTHER TAXES
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership, or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary. Phoenix does not make any
representations or guarantees regarding the tax consequences of any Policy with
respect to these types of taxes.
VOTING RIGHTS
- --------------------------------------------------------------------------------
THE FUNDS
Phoenix will vote the Funds' shares held by the Sub-accounts of the VUL
Account at any regular and special meetings of shareholders of the Funds, a
Massachusetts business trust. To the extent required by law, such voting will be
in accordance with instructions received from the Policyowner. However, if the
Investment Company Act of 1940 or any regulation thereunder should be amended or
if the present interpretation thereof should change, and as a result Phoenix
determines that it is permitted to vote the Funds' shares at its own
discretion, it may elect to do so.
The number of votes that a Policyowner has the right to cast will be
determined by applying the Policyowner's percentage interest in a Sub-account to
the total number of votes attributable to the Sub-account. In determining the
number of votes, fractional shares will be recognized.
Funds' shares held in a Sub-account 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 Sub-account. Voting instructions to abstain on any item to be voted upon
will be applied to reduce the votes eligible to be cast by Phoenix.
Each Policyowner will receive proxy materials, reports, and other materials
relating to the Funds.
Phoenix 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 sub-classification 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 Advisers 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 Phoenix determined that the change would have an adverse effect
on the General Account because the proposed investment policy for a portfolio
may result in overly speculative or unsound investments. In the event Phoenix
does disregard voting instructions, a summary of that action and the reasons for
such action will be included in the next periodic report to Policyowners.
PHOENIX
A Policyowner (or the payee entitled to payment under a payment option if a
different person) will have the right to vote at annual meetings of all Phoenix
Policyholders for the election of members of the Board of Directors of Phoenix
and on other corporate matters, if any, where a Policyholder's vote is taken. At
meetings of all of the Phoenix Policyholders, a Policyholder (or payee) may cast
only one vote as the holder of a Policy, irrespective of Policy Value or the
number of the Policies held.
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX
- --------------------------------------------------------------------------------
Phoenix is managed by its Board of Directors, the members of which are
elected by its Policyholders, including Owners of the Policies. See "Voting
Rights."
The following are the Directors and Executive Officers of Phoenix:
DIRECTORS PRINCIPAL OCCUPATION
Sal H. Alfiero Chairman and Chief Executive Officer,
Mark IV Industries, Inc.
Amherst, New York
J. Carter Bacot Chairman and Chief Executive Officer,
The Bank of New York
New York, New York
Carol H. Baldi President, Carol H. Baldi, Inc.
New York, New York
Peter C. Browning Executive Vice President, Sunoco
Products Company
Hartsville, South Carolina
Richard N. Cooper Chairman, National Intelligence
Council, Central Intelligence Agency
McLean, Virginia; formerly Professor of
International Economics, Harvard University
23
<PAGE>
Gordon J. Davis, Esq. Partner, LeBoeuf, Lamb, Greene &
MacRae; formerly Partner, Lord Day
& Lord, Barret Smith
New York, New York
Robert W. Fiondella Chairman of the Board, President
and Chief Executive Officer, Phoenix
Home Life Mutual Insurance
Company
Hartford, Connecticut
Jerry J. Jasinowski President, National Association of
Manufacturers
Washington, D.C.
John W. Johnstone Chairman, President and Chief
Executive Officer, Olin Corporation
Norwalk, Connecticut
Marilyn E. LaMarche General Partner, Lazard Freres &
Company
New York, New York
Philip R. McLoughlin Executive Vice President and Chief
Investment Officer, Phoenix Home
Life Mutual Insurance Company
Hartford, Connecticut
Charles J. Paydos Executive Vice President, Phoenix
Home Life Mutual Insurance
Company
Hartford, Connecticut
Herbert Roth, Jr. Former Chairman, LFE Corporation
Clinton, Massachusetts
Robert F. Vizza President and Chief Executive
Officer, St. Francis Hospital
Roslyn, New York
Wilson Wilde Chairman, Executive Committee,
Hartford Steam Boiler Inspection and
Insurance Company
Hartford, Connecticut
Robert G. Wilson Former General Partner, Goldman
Sachs
New York, New York
EXECUTIVE OFFICERS PRINCIPAL OCCUPATION
Robert W. Fiondella Chairman of the Board, President
and Chief Executive Officer
Richard H. Booth Executive Vice President, Strategic
Development; formerly President,
Traveler's Insurance Company
Philip R. McLoughlin Executive Vice President and Chief
Investment Officer
Charles J. Paydos Executive Vice President
David W. Searfoss Executive Vice President and Chief
Financial Officer
Dona D. Young Executive Vice President, Individual
Insurance and General Counsel
Kelly J. Carlson Senior Vice President, Career
Organization
Carl T. Chadburn Senior Vice President
Robert G. Chipkin Senior Vice President and Corporate
Actuary
Randall C. Giangiulio Senior Vice President, Group Sales
Joan E. Herman Senior Vice President
Edward P. Hourihan Senior Vice President, Information
Systems
Joseph E. Kelleher Senior Vice President
Gary J. Laughinghouse Senior Vice President; formerly
Senior Vice President, Home Life
Insurance Company of New York
Robert G. Lautensack, Jr. Senior Vice President
Scott C. Noble Senior Vice President, Real Estate
Frederick W. Sawyer, III Senior Vice President
Richard C. Shaw Senior Vice President, International
and Corporate Development
Simon Y. Tan Senior Vice President, Individual
Market Development
The above positions reflect the last held position in the organization
during the past five years.
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS
- --------------------------------------------------------------------------------
The assets of the VUL Account are held by Phoenix. The assets of the VUL
Account are kept physically segregated and held separate and apart from the
general account of Phoenix. Phoenix maintains records of all purchases and
redemptions of shares of the Fund.
SALES OF POLICIES
- --------------------------------------------------------------------------------
Policies may be purchased from registered representatives of W.S. Griffith &
Co., Inc. ("W. S. Griffith") licensed to sell Phoenix insurance policies. W. S.
Griffith, an indirect subsidiary of Phoenix, is registered as a broker-dealer
with the Securities and Exchange Commission under the Securities Exchange Act of
1934 and is a member of the National Association of Securities Dealers, Inc.
PEPCO serves as national distributor of the Policies. PEPCO is an indirect
subsidiary of Phoenix Duff & Phelps Corporation. Phoenix owns a majority
interest in Phoenix Duff & Phelps Corporation. Policies may be purchased from
other broker-dealers registered under the Securities Exchange Act of 1934 whose
representatives are authorized by applicable law to sell Policies under terms of
agreement provided by PEPCO. Sales
24
<PAGE>
commissions will be paid to registered representatives on purchase payments
received by Phoenix under these Policies. Total sales commission of a maximum of
50% of premiums will be paid by Phoenix to PEPCO. To the extent that the sales
charge under the Policies is less than the sales commissions paid with respect
to the Policies, Phoenix will pay the shortfall from its general account assets,
which will include any profits it may derive under the Policies.
Phoenix through PEPCO will sponsor sales contests, training and
educational meetings and provide to all qualifying dealers, from its own profits
and resources, additional compensation in the form of trips, merchandise or
expense reimbursement. Brokers and dealers other than PEPCO also may make
customary additional charges for their services in effecting purchases, if they
notify the Funds of their intention to do so.
STATE REGULATION
- --------------------------------------------------------------------------------
Phoenix is subject to the provisions of the New York insurance laws
applicable to mutual life insurance companies and to regulation and supervision
by the New York Superintendent of Insurance. Phoenix also is subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of Phoenix includes certain limitations on the
investments which it may make, including investments for the VUL Account and the
GIA. It does not include, however, any supervision over the investment
policies of the VUL Account.
REPORTS
- --------------------------------------------------------------------------------
All Policyowners will be furnished with those reports required by the
Investment Company Act of 1940 and regulations promulgated thereunder, or under
any other applicable law or regulation.
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The VUL Account is not engaged in any litigation. Phoenix is not involved
in any litigation that would have a material adverse effect on the ability of
Phoenix to meet its obligations under the Policies.
LEGAL MATTERS
- --------------------------------------------------------------------------------
The organization of Phoenix, its authority to issue variable life
insurance Policies, and the validity of the Policy have been passed upon by
Richard J. Wirth, Counsel, Phoenix. Legal matters relating to the federal
securities and income tax laws have been passed upon for Phoenix by Jorden
Burt Berenson & Johnson LLP.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is made for further
information concerning the VUL Account, Phoenix and the Policy. Statements
contained in this Prospectus as to the content of the Policy and other legal
instruments are summaries. For a complete statement of the terms thereof,
reference is made to such instruments as filed.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Phoenix as contained herein
should be considered only as bearing upon Phoenix's ability to meet its
obligations under the Policy, and they should not be considered as bearing on
the investment performance of the VUL Account. The financial statements of the
VUL Account are for the Sub-accounts available as of the period ended December
31, 1995.
25
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 and 1994
26
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Report of Independent Accountants........................................28
Consolidated Balance Sheet...............................................29
Consolidated Statement of Operations and Surplus.........................30
Consolidated Statement of Cash Flows.....................................31
Notes to Consolidated Financial Statements............................32-56
27
<PAGE>
[logo: Price Waterhouse LLP] [logo: Price Waterhouse circle logo]
REPORT OF INDEPENDENT ACCOUNTANTS
February 14, 1996
To the Board of Directors
and Policyholders of
Phoenix Home Life Mutual Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and surplus and of cash flows present
fairly, in all material respects, the financial position of Phoenix Home Life
Mutual Insurance Company and its life insurance subsidiaries at December 31,
1995 and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
28
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
- ------------------------------------------------------------------------------
DECEMBER 31,
1995 1994
(IN THOUSANDS)
ASSETS
Bonds, at amortized cost $ 5,463,867 $ 4,976,248
First mortgage loans 963,092 1,130,882
Policy loans 1,617,872 1,585,485
Real estate, at depreciated cost 560,580 644,085
Investments in affiliates 82,945 59,569
Common stocks, at market value 247,424 161,772
Preferred stocks, at cost 73,299 75,352
Cash and short-term investments,
at amortized cost 360,874 182,404
Other invested assets 105,018 104,177
------------ ------------
Total cash and invested assets 9,474,971 8,919,974
Deferred and uncollected premiums 174,938 173,382
Due and accrued investment income 128,790 121,491
Other assets 106,691 136,800
Separate account assets 3,306,070 2,658,382
------------ ------------
Total assets $ 13,191,460 $ 12,010,029
============ ============
LIABILITIES, AVR AND SURPLUS
Reserves for future policy benefits $ 7,133,557 $ 6,748,851
Policyholders' funds at interest 611,000 649,853
Dividends to policyholders 308,636 281,227
Policy benefits in course of settlement 122,798 105,072
Accrued expenses and general liabilities 162,928 121,593
Reinsurance funds withheld liability 692,291 698,261
Interest maintenance reserve 11,872 6,043
Separate account liabilities 3,273,056 2,626,729
------------ ------------
Total liabilities 12,316,138 11,237,629
------------ ------------
Asset valuation reserve (AVR) 199,656 174,142
Policyholders' surplus 675,666 598,258
------------ ------------
Total AVR and surplus 875,322 772,400
------------ ------------
Total liabilities, AVR and surplus $ 13,191,460 $ 12,010,029
============ ============
The accompanying notes are an integral part of these statements.
29
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS AND SURPLUS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
(IN THOUSANDS)
<S> <C> <C> <C>
INCOME
Premium income and annuity considerations $ 1,679,717 $ 1,594,756 $ 1,677,640
Net investment income 670,699 631,668 648,234
----------- ----------- -----------
Total income 2,350,416 2,226,424 2,325,874
----------- ----------- -----------
CURRENT AND FUTURE BENEFITS
Death benefits 271,723 268,192 264,636
Disability and health benefits 248,996 239,135 305,204
Annuity benefits and matured endowments 27,320 33,067 43,499
Surrender benefits 413,580 402,540 364,772
Interest on policy or contract funds 79,241 82,621 122,626
Settlement option payments 34,637 37,166 38,331
Increase in reserves for future policy benefits
and policyholders' funds 459,693 405,071 369,504
----------- ----------- -----------
Total current and future benefits 1,535,190 1,467,792 1,508,572
----------- ----------- -----------
OPERATING EXPENSES
Commissions and expense allowances 119,147 117,148 143,046
Premium, payroll and miscellaneous taxes 44,285 35,312 52,351
Other operating expenses 269,838 261,015 276,714
Federal income tax expense (benefit) 33,329 28,436 (2,249)
----------- ----------- -----------
Total operating expenses 466,599 441,911 469,862
----------- ----------- -----------
OPERATING GAIN BEFORE DIVIDENDS AND
REALIZED CAPITAL GAINS (LOSSES) 348,627 316,721 347,440
Dividends to policyholders (297,999) (269,357) (251,647)
----------- ----------- -----------
OPERATING GAIN AFTER DIVIDENDS AND
BEFORE REALIZED CAPITAL GAINS (LOSSES) 50,628 47,364 95,793
Realized capital gains (losses), net of income
taxes and interest maintenance reserves 9,270 (46,712) (65,835)
----------- ----------- -----------
NET INCOME 59,898 652 29,958
Unrealized capital gains, net 37,412 50,354 40,583
Other surplus changes, net 5,612 1,378 (775)
----------- ----------- -----------
NET INCREASE IN AVR AND SURPLUS 102,922 52,384 69,766
AVR AND SURPLUS, beginning of year 772,400 720,016 650,250
----------- ----------- -----------
AVR AND SURPLUS, end of year $ 875,322 $ 772,400 $ 720,016
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
(IN THOUSANDS)
<S> <C> <C> <C>
CASH AND SHORT-TERM INVESTMENT SOURCES
Operations:
Premiums collected $ 1,601,408 $ 1,523,021 $ 1,620,128
Initial consideration received on
reinsurance assumed 99,851
Investment and other income received 773,021 751,074 754,049
----------- ----------- -----------
Total received 2,374,429 2,274,095 2,474,028
----------- ----------- -----------
Claims and benefits paid 1,091,725 1,304,238 1,577,792
Commissions and other expenses paid 549,155 486,766 530,075
Dividends to policyholders paid 270,749 249,701 242,192
Increase in policy loans 32,387 55,143 21,438
Federal income taxes paid (received) 9,319 (37,266) 26,720
----------- ----------- -----------
Total paid 1,953,335 2,058,582 2,398,217
----------- ----------- -----------
Cash proceeds from operations 421,094 215,513 75,811
Proceeds from sales, maturities and
scheduled repayments of investments:
Bonds 1,381,080 1,198,131 1,451,279
Stocks 329,104 347,884 767,540
First mortgage loans 186,172 160,882 731,877
Real estate and other invested assets 148,546 209,316 322,284
Non-operating increase in
policyholders' funds 47,340 52,694 75,123
----------- ----------- -----------
Total sources 2,513,336 2,184,420 3,423,914
----------- ----------- -----------
CASH AND SHORT-TERM INVESTMENT USES
Acquisitions of investments:
Bonds 1,842,467 1,756,955 2,144,981
Stocks 282,488 310,751 650,187
First mortgage loans 93,097 31,214 93,480
Real estate and other invested assets 73,482 173,988 255,255
Other uses 43,332 155,780 254,095
----------- ----------- -----------
Total uses 2,334,866 2,428,688 3,397,998
----------- ----------- -----------
NET CHANGE IN CASH AND SHORT-TERM INVESTMENTS 178,470 (244,268) 25,916
CASH AND SHORT-TERM INVESTMENTS, beginning of year 182,404 426,672 400,756
----------- ----------- -----------
CASH AND SHORT-TERM INVESTMENTS, end of year $ 360,874 $ 182,404 $ 426,672
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Phoenix Home Life Mutual Insurance Company (Phoenix Home Life or the
Company) and its subsidiaries market a wide range of insurance and
investment products and services including individual participating life
insurance, variable life insurance, group life and health insurance, life
and health reinsurance, annuities, investment advisory and mutual fund
distribution services, insurance agency and brokerage operations. These
products and services are distributed among six primary segments which
include: Individual, Group Life and Health, Life Reinsurance, General Lines
Brokerage, Securities Management and Real Estate Management. See Note 9 for
segment information.
Effective June 30, 1993, Phoenix Home Life sold Home Life Financial
Assurance Corporation (HLFAC), a group life and health insurance
subsidiary. Accordingly, these financial statements include the results of
operations of this business for the six months ended June 30, 1993. See
Note 8 for additional information.
Effective January 1, 1995, the money management businesses of Phoenix Home
Life were completely transferred to Phoenix Securities Group, Inc. (Phoenix
Securities Group), an indirect wholly-owned subsidiary. Phoenix Securities
Group entered into contracts to manage the investments of the general and
separate accounts of Phoenix Home Life. On November 1, 1995, Phoenix Home
Life, through its subsidiary, PM Holdings, Inc. (PM Holdings), merged
Phoenix Securities Group into Duff & Phelps Corporation, forming Phoenix
Duff & Phelps Corporation (PDP). PM Holdings owns approximately 60% of the
outstanding PDP common stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Phoenix Home Life include the
domestic life insurance subsidiaries, Phoenix American Life Insurance
Company, American Phoenix Life and Reassurance Company, Phoenix Life
Insurance Company, PHL Variable Insurance Company and HLFAC, with
intercompany transactions eliminated. The non-insurance subsidiaries are
not consolidated in these financial statements. The significant accounting
policies which are used by Phoenix Home Life and its consolidated life
insurance subsidiaries in the preparation of the consolidated financial
statements are described below. Certain reclassifications have been made to
the 1994 and 1993 amounts to conform with the 1995 presentation.
BASIS OF PRESENTATION
Phoenix Home Life's policy is to prepare its financial statements on the
basis of accounting practices prescribed or permitted by the Insurance
Department of the State of New York. These practices are predominately
promulgated by the National Association of Insurance Commissioners (NAIC).
These practices currently are considered generally accepted accounting
principles (GAAP) for mutual life insurance companies. There were no
material practices not prescribed by the Insurance Department of the State
of New York.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In April 1993, the Financial Accounting Standards Board issued
Interpretation No. 40, Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises, which
establishes a different definition of GAAP for mutual life insurance
companies. Under the Interpretation, financial statements of mutual life
insurance companies for periods beginning after December 15, 1995 which are
prepared on the basis of statutory accounting will no longer be
characterized as in conformity with GAAP.
32
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Management of the Company has not finalized the effect on its December 31,
1995 financial statements of applying the Interpretation. The Company
intends to adopt the accounting changes required to present its financial
statements in conformity with GAAP in its 1996 financial statements. The
effect of the changes will be reported retroactively through restatement of
all previously issued financial statements. The cumulative effect of
adopting these changes will be included in the earliest year restated.
Effective January 1, 1995, the Company adopted the provisions of Statement
of Position 94-6 (SOP 94-6), Disclosure of Certain Significant Risks and
Uncertainties. SOP 94-6 requires disclosure about the nature of a reporting
entity's operations and the use of estimates in the preparation of
financial statements.
PREMIUM REVENUE AND RELATED EXPENSES
Generally, premium income and annuity considerations are recognized as
income over the premium paying periods of the policies or the annuity
contracts, respectively. Related underwriting expenses, commissions and
other costs of acquiring the policies and contracts are charged to
operations as incurred.
INSURANCE LIABILITIES
Benefit and loss reserves, included in reserves for future policy benefits,
are established in amounts adequate to meet estimated future obligations on
policies in force. Benefits to policyholders are charged to operations as
incurred.
Reserves for future policy benefits are determined using assumed rates of
interest, mortality and morbidity consistent with statutory requirements.
Most life insurance reserves for which the 1958 CSO and 1980 CSO mortality
tables are used as the mortality basis are determined using a modified
preliminary term reserve method. The net level premium method is used in
determining life insurance reserves based on earlier mortality tables.
Claim and loss liabilities, included in reserves for future policy
benefits, are established in 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. Claim
and loss liabilities, net of ceded reinsurance, are not material.
As is customary practice in the insurance industry, Phoenix Home Life
assumes and cedes reinsurance as a means of diversifying underwriting risk.
The maximum amount of individual life insurance retained by the company on
any one life was increased from $5,000,000 to $8,000,000 for single life
and joint first-to-die policies and to $10,000,000 for joint last-to-die
policies on July 31, 1995, with excess amounts ceded to reinsurers. For
reinsurance ceded, the company remains liable in the event that assuming
reinsurers are unable to meet the contractual obligations.
INVESTMENTS
Investments are valued in accordance with methods prescribed by the NAIC.
Investments in bonds are generally carried at amortized cost and preferred
stocks, generally at cost.
Common stocks are carried at market value. Ownership interests in real
estate, venture capital, equity and oil and gas partnerships and joint
ventures are carried at equity in the underlying net assets. Mortgage loans
in good standing are valued at their unpaid principal balance. Prepayment
penalties are reported in investment income when received. Origination fees
and related expenses are recognized at the time of mortgage closings.
Policy loans are reported at their unpaid balances and are fully
collateralized by the cash values of the related policies.
Short-term investments are carried at amortized cost, which approximates
market value. The company considers highly liquid investments purchased
with a maturity of one year or less to be short-term investments.
33
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
The investments in affiliates represent both direct and indirect ownership
in the common and preferred stock of non-insurance subsidiaries. The common
stock of PDP is valued at the market value of shares owned less a discount
(15%), as determined by the NAIC Securities Valuation Office. The preferred
stock of PDP is valued at cost. The common stock of other unconsolidated
subsidiaries is valued at the equity in underlying net assets, determined
in accordance with GAAP. The Company's equity in the earnings of
affiliates, including PDP, is reflected in net investment income. Any
remaining adjustments such as those necessary to reflect changes in the
market value of PDP are recorded in unrealized capital gains, net.
Investment and Home Office real estate is generally valued at depreciated
cost less mortgage encumbrances. Foreclosed real estate is generally valued
at current market value at the date of foreclosure. Depreciation of real
estate is calculated using the straight line method over the estimated
lives of the assets (generally 45 years).
Realized capital gains and losses on investments are determined using the
specific identification method. Those realized capital gains and losses
resulting from interest rate changes are deferred and amortized to income
over the stated maturity of the disposed investment utilizing the Interest
Maintenance Reserve Group Method. Unrealized capital gains and losses,
resulting from changes in the difference between cost and the carrying
value of investments, are reflected in policyholders' surplus.
DERIVATIVES
Phoenix Home Life enters into interest rate swap agreements to hedge
certain variable rate investment income streams matched against fixed rate
liability streams. Such contracts generally have maturities of 7 years or
less and the counterparties are major international financial institutions.
The differential to be received on interest rate swap agreements is
recognized in investment income over the life of the agreements.
NON-ADMITTED ASSETS
In accordance with regulatory requirements, certain assets, including
unsecured loans or receivables, prepaid expenses and furniture and
equipment are not allowable and must be charged against surplus. Changes in
the write-off of these asset balances are reported in the consolidated
statement of operations and surplus in other surplus changes, net.
SEPARATE ACCOUNTS
Separate account assets are funds of separate account contractholders and
the company segregated into accounts with specific investment objectives.
The assets are generally carried at market value. An offsetting liability
is maintained to the extent of contractholders' interests in the assets.
Appreciation or depreciation of Phoenix Home Life's interest in the
separate accounts, including undistributed net investment income, is
reflected in policyholders' surplus. Contractholders' interests in net
investment income and realized and unrealized capital gains and losses on
separate account assets are not reflected in operations.
FEDERAL INCOME TAXES
Phoenix Home Life's statutory federal income tax liability is based on
estimates of federal income tax due. There are no provisions for deferred
taxes.
Phoenix Home Life and its eligible affiliated companies have elected to
file a life/nonlife consolidated federal income tax return for the tax
years ended December 31, 1995, 1994 and 1993.
34
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICYHOLDERS' DIVIDENDS
Dividends on all individual coverages are provided on the basis of
estimated amounts payable in the following calendar year. Dividends on all
other coverages are provided on the basis of amounts incurred for the
current year.
APPROPRIATED SURPLUS
Phoenix Home Life's policyholders' surplus includes amounts available for
contingencies, some of which are required by state regulatory authorities.
The amounts as of December 31, 1995 and 1994 were approximately $44.5
million and $41.4 million, respectively.
EMPLOYEE BENEFIT PLANS
Phoenix Home Life sponsors pension and savings plans (the Plans) for its
employees and agents and those of its subsidiaries. Effective November 1,
1995, the Plans were reclassified from single-employer plans to
multi-employer plans in conjunction with the merger of Phoenix Securities
Group and Duff & Phelps Corporation. Former employees of Phoenix Securities
Group, who were participants of the Plans prior to the merger, have
remained as participants of the Plans. The qualified plans comply with
requirements established by the Employee Retirement Income Security Act of
1974 (ERISA) and excess benefit plans provide for that portion of pension
obligations which is in excess of amounts permitted by ERISA. Phoenix Home
Life also provides certain health care and life insurance benefits for
active and retired employees. In addition, Phoenix Home Life maintains
several deferred compensation incentive plans for its officers.
35
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. INSURANCE LIABILITIES
RESERVES FOR FUTURE POLICY BENEFITS
The basis of assumptions for Phoenix Home Life's major categories of
reserves for future policy benefits and claims and settlements at December
31, are summarized below.
1995 1994
(IN THOUSANDS)
Life insurance:
American Experience, 2.5% to 4% $ 54,515 $ 59,657
1941 CSO, 2.25% to 4% 476,736 499,593
1958 CSO, 2% to 6% 2,679,897 2,867,403
1980 CSO, 5% to 6% 2,254,892 1,944,126
1980 CSO Select, 4.5% 8,522 6,932
1980 CSO, 3.5% to 4.5% 1,581,897 1,194,601
Various 71,941 64,504
---------- ----------
Total life insurance 7,128,400 6,636,816
---------- ----------
Annuities 646,171 706,038
---------- ----------
Claim and loss liabilities:
Disability 218,381 208,547
Accident and health 575,987 545,918
---------- ----------
Total claim and loss liabilities 794,368 754,465
---------- ----------
Supplementary contracts with
life contingencies 45,757 45,947
---------- ----------
All other 23,971 23,850
---------- ----------
Total before reinsurance ceded 8,638,667 8,167,116
Less - reinsurance ceded 1,505,110 1,418,265
---------- ----------
Reserves for future policy benefits $7,133,557 $6,748,851
========== ==========
36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. INSURANCE LIABILITIES (CONTINUED)
WITHDRAWAL CHARACTERISTICS
Withdrawal characteristics of annuity actuarial reserves and deposit
liabilities as of December 31, (in thousands aside from percentages) are as
follows:
<TABLE>
<CAPTION>
1995 1994
% OF TOTAL % OF TOTAL
-------------------------- ------------------------
<S> <C> <C> <C> <C>
SUBJECT TO DISCRETIONARY WITHDRAWAL -
WITH ADJUSTMENT
- with market value adjustment $ 38,067 1.0 $ 90,178 3.0
- at book value less
surrender charge 145,871 4.0 296,295 8.0
- at market value 2,918,544 74.0 2,390,895 68.0
------------- ------ ---------- -----
Subtotal 3,102,482 79.0 2,777,368 79.0
SUBJECT TO DISCRETIONARY WITHDRAWAL -
WITHOUT ADJUSTMENT
- at book value (minimal or no
charge or adjustment) 594,839 15.0 428,986 12.0
Not subject to discretionary
withdrawal provision 264,454 6.0 332,454 9.0
------------- ------ ---------- -----
Total Annuity actuarial reserves
and deposit liabilities 3,961,775 100.0 3,538,808 100.0
------ -----
Less-reinsurance ceded 61,728 15,881
------------- ----------
Annuity actuarial reserves
and deposit liabilities $ 3,900,047 $3,522,927
============= ==========
</TABLE>
POLICYHOLDERS' FUNDS AT INTEREST
Phoenix Home Life's policyholders' funds at interest, principally group
pension reserves for guaranteed interest contracts and deposit
administration and immediate participation guarantee funds, are at a
weighted average interest rate of approximately 8.9% and 8.1% at December
31, 1995 and 1994, respectively.
At December 31, 1995, Phoenix Home Life had guaranteed interest contracts
which totaled $54.6 million. These were scheduled to mature as follows:
1996 - $19.8 million; 1997 - $16.5 million; 1998 - $3.0 million; 1999 -
$11.7 million; 2000 and beyond - $3.6 million.
In determining the fair market value of guaranteed interest contracts, a
discount rate equal to the appropriate treasury rate, plus 150 basis
points, was used to determine the present value of projected contractual
liability payments through final maturity. At December 31, 1995, the book
value of guaranteed interest contracts approximated fair value. The book
value and fair value of guaranteed interest contracts as of December 31,
1994 were $142.8 million and $140.3 million respectively.
37
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. INSURANCE LIABILITIES (CONTINUED)
POLICYHOLDERS' FUNDS AT INTEREST (CONTINUED)
The fair market 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
market 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. The book value, which
approximates fair market value, of deferred annuities is $625.9 million and
$660.9 million at December 31, 1995 and 1994, respectively. The fair market
value and book value of supplementary contracts without life contingencies
as of December 31, 1995 are $49.6 million and $49.4 million, respectively.
The fair market value and book value of supplementary contracts without
life contingencies as of December 31, 1994 were $45.7 million and $45.9
million, respectively.
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 market value of liabilities is assumed to be equal to the
stated statutory liability balances.
REINSURANCE FUNDS WITHHELD LIABILITY
During 1993, a universal life reinsurance contract with an unaffiliated
reinsurer was amended to include certain American Experience and 1941 CSO
traditional life reserves on a 90% coinsurance basis. A reinsurance funds
withheld liability of $680.5 million and $669.0 million was held by Phoenix
Home Life at December 31, 1995 and 1994, respectively.
As described in Note 8, HLFAC was sold to an unaffiliated company during
1993. At December 31, 1995 and 1994, a reinsurance funds withheld liability
due HLFAC, as an unauthorized reinsurer, for group life and health reserves
ceded was $11.8 million and $29.2 million, respectively.
38
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
3. INSURANCE LIABILITIES (CONTINUED)
DIRECT BUSINESS WRITTEN AND REINSURANCE
Additional information on direct business written and reinsurance assumed
and ceded for the years ended December 31, is set forth below.
1995 1994 1993
(IN THOUSANDS)
Direct premiums $ 1,704,381 $ 1,693,494 $ 1,761,660
Reinsurance assumed 271,498 205,387 204,711
Reinsurance ceded (296,162) (304,125) (288,731)
------------ ------------ ------------
Net premiums $ 1,679,717 $ 1,594,756 $ 1,677,640
============ ============ ============
Direct commissions and
expense allowance $ 119,265 $ 133,138 $ 134,987
Reinsurance assumed 55,971 57,104 49,772
Reinsurance ceded (56,089) (73,094) (41,713)
------------ ------------ ------------
Net commissions and
expense allowance $ 119,147 $ 117,148 $ 143,046
============ ============ ============
Direct policy and contract
claims incurred $ 583,867 $ 591,029 $ 668,980
Reinsurance assumed 256,529 167,276 157,718
Reinsurance ceded (292,357) (217,911) (213,359)
------------ ------------ ------------
Net policy and contract
claims incurred $ 548,039 $ 540,394 $ 613,339
============ ============ ============
Direct policy and contract
claims payable $ 75,466 $ 72,037 $ 75,140
Reinsurance assumed 218,045 130,823 81,690
Reinsurance ceded (170,713) (97,788) (54,859)
------------ ------------ ------------
Net policy and contract
claims payable $ 122,798 $ 105,072 $ 101,971
============ ============ ============
Direct life insurance
in force $102,606,749 $ 95,717,768 $ 87,539,515
Reinsurance assumed 36,724,852 27,428,529 24,612,071
Reinsurance ceded (34,093,090) (24,372,415) (26,619,136)
------------ ------------ ------------
Net insurance in
force $105,238,511 $ 98,773,882 $ 85,532,450
============ ============ ============
Phoenix Home Life retroceded certain insurance coverages approximating $1.4
billion, $1.7 billion and $2.0 billion of life insurance in force at
December 31, 1995, 1994 and 1993 respectively, to an off-shore subsidiary.
Irrevocable letters of credit aggregating $7.0 million at December 31, 1995
have been arranged with United States commercial banks in favor of Phoenix
Home Life to collateralize the ceded reserves.
39
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
4. INVESTMENTS
Information pertaining to Phoenix Home Life's investments, net investment
income and capital gains and losses on investments follows:
BONDS, COMMON STOCKS AND PREFERRED STOCKS
Carrying values and alternate values at December 31, for investments in
bonds, preferred stocks and common stocks are set forth below. Bonds are
generally carried at amortized cost, common stocks, at market value and
preferred stocks, generally at cost. The alternate value for bonds and
preferred stocks is fair market value and for common stocks, cost.
<TABLE>
<CAPTION>
1995 1994
CARRYING ALTERNATE CARRYING ALTERNATE
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BONDS
US Treasury bonds
and obligations of
US government
corporations and
agencies $ 572,305 $ 600,959 $ 391,801 $ 376,383
Obligations of states
and political
subdivisions:
- taxable 240,279 258,872 66,815 63,143
- non-taxable 95,043 103,157 67,688 66,666
Bonds issued by
foreign governments 59,149 63,781 45,688 39,154
Corporate bonds 2,210,972 2,404,592 2,187,444 2,112,494
Mortgage-backed
securities 2,286,119 2,363,252 2,216,812 2,030,265
----------- ----------- ----------- ------------
TOTAL BONDS $ 5,463,867 $ 5,794,613 $ 4,976,248 $ 4,688,105
=========== =========== =========== ============
COMMON STOCKS $ 247,424 $ 203,495 $ 161,772 $ 142,128
=========== =========== =========== ============
PREFERRED STOCKS $ 73,299 $ 91,400 $ 75,352 $ 75,731
=========== =========== =========== ============
</TABLE>
The fair market value on bonds include amounts for publicly traded bonds
that are based on quoted market prices, where available, or quoted market
prices of comparable instruments. Fair values of private placement bonds
are estimated using discounted cash flows that apply interest rates
currently being offered with similar terms to borrowers of similar credit
quality.
40
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
BONDS, COMMON STOCKS AND PREFERRED STOCKS (CONTINUED)
Fair values for defaulted bonds and preferred stocks are those values as
provided by the NAIC.
The carrying value and alternate value of bonds at December 31, 1995, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
CARRYING ALTERNATE
VALUE VALUE
(IN THOUSANDS)
Due in one year or less $ 35,979 $ 36,635
Due after one year through five years 562,144 590,095
Due after five years through ten years 1,266,895 1,367,640
Due after ten years 1,312,730 1,436,991
Mortgage-backed securities 2,286,119 2,363,252
------------ ------------
Total bonds $ 5,463,867 $ 5,794,613
============ ============
The carrying value of Phoenix Home Life's defaulted bonds is $7.0 million
and is net of reserves of $3.0 million.
Carrying values at December 31, for investments in mortgage-backed
securities, excluding U.S. government guaranteed investments, are set forth
below.
CARRYING VALUE
(IN THOUSANDS)
1995 1994
Planned Amortization Class $ 759,239 $ 750,533
Asset Backed 421,076 407,296
Mezzanine 354,497 398,064
Commercial 240,860 303,684
Sequential Pay 372,169 217,322
Pass Through 84,706 88,228
Other 53,572 51,685
------------ ------------
$ 2,286,119 $ 2,216,812
============ ============
Phoenix Home Life has 49% and 52% at December 31, 1995 and 1994,
respectively, in Planned Amortization Class and Mezzanine mortgage backed
securities which have reasonably predictable cash flows and a relatively
high degree of prepayment protection. Phoenix Home Life has limited
exposure in the more volatile residential derivative market such as
interest only, principal only or inverse float instruments.
41
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
REAL ESTATE AND MORTGAGE LOANS
Real estate at December 31, carried net of accumulated depreciation and
encumbrances, is summarized below:
1995 1994
(IN THOUSANDS)
Investment real estate, less accumulated
depreciation of $64,279 and $59,256,
encumbrances of $2,362 and $2,380
and impairments of $23,699 and $44,249 $ 313,680 $ 389,050
Foreclosed properties, less accumulated
depreciation of $22,217 and $17,580 and
impairments of $29,571 and
$26,849 97,491 89,117
Real estate partnerships and ventures 54,378 84,831
Property used in Phoenix Home Life's
operations less accumulated depreciation
of $43,943 and $38,490 95,031 81,087
----------- -----------
Total real estate 560,580 644,085
Mortgage loans 963,092 1,130,882
----------- -----------
Total real estate and mortgage loans $ 1,523,672 $ 1,774,967
=========== ===========
The carrying value of mortgage loans includes impairment reserves for
mortgage loans in the process of foreclosure of $4.5 million and $0.6
million at December 31, 1995 and 1994, respectively.
Mortgage loans and real estate investments are diversified by property
type, location and issuer. Mortgage loans are collateralized by the related
properties and such collateral is generally 75% of the property's value at
the time the loan is made.
42
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
REAL ESTATE AND MORTGAGE LOANS (CONTINUED)
Mortgage loans and real estate investments at December 31, are comprised of
the following property types and geographic regions:
MORTGAGE LOANS REAL ESTATE
1995 1994 1995 1994
(IN THOUSANDS) (IN THOUSANDS)
PROPERTY TYPE:
Home office $ 95,031 $ 81,087
Office buildings $ 191,672 $ 276,973 230,972 263,467
Retail 250,264 306,251 127,500 122,439
Apartment buildings 244,589 220,325 36,644 93,803
Industrial buildings 222,120 266,305 61,667 70,962
Other 54,447 61,028 8,766 12,327
--------- ---------- --------- ---------
Total $ 963,092 $1,130,882 $ 560,580 $ 644,085
========= ========== ========= =========
GEOGRAPHIC REGION:
Home office $ 95,031 $ 81,087
Northeast $ 233,670 $ 271,088 102,249 106,550
Southeast 250,019 233,571 94,410 101,293
North central 171,434 238,514 85,470 128,043
South central 50,819 67,303 91,670 116,191
West 257,150 320,406 91,750 110,921
--------- ---------- --------- ---------
Total $ 963,092 $1,130,882 $560,580 $ 644,085
========= ========== ======== =========
At December 31, scheduled mortgage loan maturities are as follows:
1995 1994
(IN THOUSANDS)
1995 $ 314,324
1996 $ 198,507 151,956
1997 144,030 138,914
1998 150,412 180,856
1999 102,517 116,743
Thereafter 367,626 228,089
--------- ----------
Total $ 963,092 $1,130,882
========= ==========
43
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
REAL ESTATE AND MORTGAGE LOANS (CONTINUED)
The carrying value of delinquent and in process of foreclosure mortgage
loans at December 31, 1995 and 1994 is $9.4 million and $32.9 million,
respectively, and is net of impairment reserves of $4.5 million and $0.6
million, respectively.
Fair market values for mortgage loans in good standing are calculated as
the present value of scheduled payments, with the discount based upon (1)
the Treasury rate comparable for the remaining loan duration, plus (2) a
spread of between 175 and 450 basis points, depending upon 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. The fair market
value of mortgage loans as of December 31, 1995 and 1994 is $955.8 million
and $1,081.0 million.
The maximum and minimum lending rates for mortgage loans during 1995 were
8.15% and 7.26%, respectively.
OTHER INVESTED ASSETS
Other invested assets at December 31, are summarized below.
1995 1994
(IN THOUSANDS)
Venture capital equity partnerships $ 50,919 $ 44,404
Stock income funds 763
Transportation and equipment leases 47,810 48,318
Oil and gas partnerships 4,305 8,575
Miscellaneous 1,984 2,117
---------- ----------
Total other invested assets $ 105,018 $ 104,177
========== ==========
44
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
INVESTMENT GUARANTEES, INTEREST RATE SWAPS, LINES OF CREDIT AND COMMITMENTS
Phoenix Home Life has various investment guarantees with regard to certain
subsidiary and partnership activities which totalled $310.9 million and
$242.8 million at December 31, 1995 and 1994, respectively.
Phoenix Home Life adopted the disclosure requirements of FAS 119 Disclosure
About Derivative Financial Instruments and Fair Value of Financial
Instruments. The definition of derivative financial instrument excludes all
on-balance sheet receivables and payables, including those that derived
their value or contractually required cash flows from the price of some
other security or index, such as mortgage-backed securities.
Phoenix Home Life enters into interest rate swap agreements, generally
having maturities of 7 years or less, to hedge certain variable rate
investment income streams matched against fixed rate liability streams. The
notional amounts of these instruments were $18.0 million and $34.0 million
at December 31, 1995 and 1994, respectively. Average received and average
pay rates were 9.01% and 5.92%, for 1995.
The increase in net investment income related to interest rate swap
contracts was $1.2 million, $3.1 million and $3.5 million for the years
ended December 31, 1995, 1994 and 1993, respectively. The fair value of
these interest rate swap agreements as of December 31, 1995 and 1994 was
not material.
The company has also guaranteed an interest rate swap agreement entered
into by a subsidiary. This agreement has the effect of the subsidiary
paying a fixed interest rate on a notional amount of $175 million of the
subsidiary's debt.
These agreements do not require the exchange of underlying principal
amounts, and accordingly the company's maximum exposure to credit risk is
the difference in interest payments exchanged. Management of Phoenix Home
Life considers the likelihood of any material loss on these guarantees or
interest rate swaps to be remote.
Phoenix Home Life has unused lines of credit with commercial banks totaling
$176.9 million at December 31, 1995.
At December 31, 1995, the company has leases covering certain facilities,
property and equipment which in no year exceeded $16.7 million and which
approximate $45.4 million in total. Such commitments extend through the
year 2000.
45
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
NON-INCOME PRODUCING MORTGAGE LOANS AND BONDS
The net carrying values of first mortgage loans and bonds which were
non-income producing for the preceding 12 months as of December 31, are as
follows:
1995 1994
(IN THOUSANDS)
First mortgage loans $ 3,805 $ 18,371
Bonds 322
---------- -----------
Total non-income producing mortgage loans
and bonds $ 3,805 $ 18,693
========== ===========
SEPARATE ACCOUNTS
Phoenix Home Life's investments in its separate accounts at December 31,
are summarized below.
<TABLE>
<CAPTION>
1995 1994
CARRYING CARRYING
VALUE COST VALUE COST
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Pooled separate accounts $ 22,575 $ 4,646 $ 26,030 $ 6,125
Closed end real estate account 4,597 4,460 5,623 6,314
Variable accumulation account 5,842 5,000
--------- -------- --------- --------
Total investments in
separate accounts $ 33,014 $ 14,106 $ 31,653 $ 12,439
========= ======== ========= ========
</TABLE>
Phoenix Home Life's investments at December 31, 1995 in the pooled separate
accounts represent seed money which was necessary to commence their
operations. Phoenix Home Life has a 10% investment in a separate account
which invests primarily in real estate properties and mortgage loans, a
100% investment in a separate account which invests in guaranteed interest
contracts with non-affiliates and a .4% investment in the real estate
sub-fund of a variable accumulation account.
POLICY LOANS
Fair market value of policy loans, $1,658 million and $1,474 million at
December 31, 1995 and 1994, respectively, was 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 at December 31, 1995 and 1994, respectively. 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 market value.
46
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
NET INVESTMENT INCOME
The principal components of net investment income for the years ended
December 31, are set forth below.
<TABLE>
<CAPTION>
1995 1994 1993
(IN THOUSANDS)
<S> <C> <C> <C>
Interest on bonds $ 419,859 $ 380,345 $ 322,378
Interest on first mortgage loans 92,283 109,457 176,687
Interest on policy loans 115,055 105,678 104,002
Interest on short-term investments 21,974 11,673 14,213
Income on real estate, net of expenses
of $79,565, $82,085 and $59,918 20,243 16,478 14,470
Equity in income of affiliates 17,850 17,050 30,368
Dividends on common stocks 1,787 3,312 2,303
Dividends on preferred stocks 6,886 7,378 8,848
Net loss from other invested
assets (1,239) (1,046) (835)
Miscellaneous income 2,110 2,258 1,243
Amortization of the interest
maintenance reserve 1,824 1,644 2,425
Less:
Interest expenses 164 161 313
Investment expenses 27,769 22,398 27,555
---------- ---------- ----------
Net investment income $ 670,699 $ 631,668 $ 648,234
========== ========== ==========
</TABLE>
Income on real estate includes $18.3 million for Phoenix Home Life's
occupancy of its own properties for 1995. An offsetting amount is included
in investment and operating expenses.
Interest income of $1.0 million was not accrued on certain delinquent first
mortgage loans and defaulted bonds at December 31, 1995.
47
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
CAPITAL GAINS AND LOSSES
The principal components of capital gains and (losses) on investments
reflected in surplus for the years December 31, are set forth below.
<TABLE>
<CAPTION>
REALIZED UNREALIZED
1995 1994 1993 1995 1994 1993
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Bonds $ 9,865 $ (30,299) $ 15,923 $ (8,560) $ 6,967 $ 11,968
First mortgage loans (43,377) (7,149) (84,441) (1,548) (4,292) 9,674
Real estate (62,685) (29,612) (50,889) 49,923 35,856 9,067
Common stock of
consolidated subsidiaries 50,496
Investments in affiliates 122,452 (28,808) 6,000 (7,002)
Common stocks 27,828 (8,877) 20,178 23,552 2,427 7,434
Preferred stocks 515 1,302 (2,287) 153 5,963
Other invested assets 5,344 3,400 4,686 1,865 (165) 4,263
Foreign exchange (1,948) 1,096 1,432 (784)
Miscellaneous 6,066 (8,405) 88 (108) 1,976
--------- --------- ---------- ---------- --------- ---------
66,008 (81,588) (46,246) 37,412 50,354 40,583
Transfer to interest
maintenance reserve (7,276) 19,338 (11,051)
Income tax (expense) benefits (49,462) 15,538 (8,538)
--------- --------- ---------- --------- --------- ---------
Net capital gains (losses) $ 9,270 (46,712) $ (65,835) $ 37,412 $ 50,354 $ 40,583
========= ========= ========== ========= ========= =========
</TABLE>
Proceeds from sales of Phoenix Home Life's investments in bonds were $1.4
billion, $1.2 billion and $1.3 billion during 1995, 1994 and 1993. Gross
gains of $29.6 million, $15.2 million and $42.1 million and gross losses of
$19.7 million, $45.5 million and $26.2 million were realized on these sales
during 1995, 1994 and 1993.
48
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
4. INVESTMENTS (CONTINUED)
CAPITAL GAINS AND LOSSES (CONTINUED)
Gross unrealized gains and losses on bonds at December 31, not reflected in
surplus, are as follows:
<TABLE>
<CAPTION>
UNREALIZED GAINS UNREALIZED LOSSES
1995 1994 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C> <C>
US Treasury bonds and
obligations of US
government corporations
and agencies $ 29,682 $ 928 $ (1,028) $ (16,346)
Obligations of states and
political subdivisions:
- taxable 18,593 1 (3,673)
- non-taxable 8,257 619 (143) (1,641)
Bonds issued by foreign
governments 6,436 (1,804) (6,534)
Corporate bonds 198,684 34,216 (5,064) (109,166)
Mortgage-backed
securities 96,506 13,686 (19,373) (200,233)
---------- --------- --------- ----------
Total $ 358,158 $ 49,450 $ (27,412) $ (337,593)
========== ========= ========= ==========
</TABLE>
5. INVESTMENTS IN AFFILIATES
PM Holdings is a wholly-owned subsidiary organized to hold investments in
companies primarily engaged in the businesses of life insurance, mortgage
loan financing, investment advisory and mutual fund distribution services,
real estate and insurance agency and brokerage operations. As previously
disclosed, the life insurance subsidiaries of PM Holdings, which are
included on a consolidated basis in these financial statements, include the
following: Phoenix American Life Insurance Company, American Phoenix Life
and Reassurance Company, Phoenix Life Insurance Company and PHL Variable
Insurance Company. PM Holding's major non-life subsidiaries include:
Phoenix Realty Group, Inc., American Phoenix Corporation, Phoenix Founders,
Inc., W.S. Griffith & Company and Financial Administrative Services, Inc.
In addition, PM Holdings owns approximately 60% of the outstanding Phoenix
Duff & Phelps Corporation common stock.
49
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
5. INVESTMENTS IN AFFILIATES (CONTINUED)
Prior to July 1, 1993, HLFAC was a wholly-owned subsidiary of Phoenix Home
Life. As described in Note 8, effective June 30, 1993, HLFAC was sold to an
unaffiliated company, Community Mutual Insurance Company.
American Phoenix Life and Reassurance Company (formerly Phoenix Life and
Reassurance Company), previously a wholly-owned subsidiary of Phoenix Home
Life, organized for the purpose of holding and administering
non-participating reinsurance business, became a wholly-owned subsidiary of
PM Holdings on February 28, 1994.
Phoenix Life Insurance Company, formerly a wholly-owned subsidiary of
Phoenix Home Life, incorporated on June 3, 1992, became a wholly-owned
subsidiary of PM Holdings on February 28, 1994. On December 30, 1994, the
Company obtained licensing in the State of Connecticut and plans to market
interest sensitive products in the future.
PHL Variable Insurance Company was incorporated under the laws of
Connecticut on June 1, 1994 and has obtained licensing in several states
and began offering variable insurance products directly to the public in
1995.
During 1992 through 1994, Phoenix Mutual Mortgage Funding Corporation
(PMMFC), a former non-life subsidiary of PM Holdings, exercised its option
to double its sinking fund payments on existing debt. On September 12,
1994, PMMFC retired this debt and was liquidated.
On November 1, 1995, Phoenix Securities Group, Inc. (formerly PHL Mutual
Funds Holdings, Inc.), a wholly-owned subsidiary of PM Holdings merged with
Duff & Phelps Corporation. The merged company was named Phoenix Duff &
Phelps Corporation (PDP). PM Holdings owns approximately 60% of the
outstanding common stock of the new PDP. The investment in PDP common stock
is recorded at the market value of shares owned less a discount (15%), as
determined by the NAIC Securities Valuation Office.
PM Holding's consolidated entities invest primarily in bonds, first
mortgage loans and real estate. These investments are recorded using the
same accounting practices as the parent.
50
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
5. INVESTMENTS IN AFFILIATES (CONTINUED)
Summarized financial information of the non-insurance indirect subsidiaries
of Phoenix Home Life at December 31, and for the years ended is as follows:
1995 1994
(IN THOUSANDS)
BALANCE SHEET
Assets:
Common stock in affiliate $ 154,275
Preferred stock in affiliate 35,000
Other investments 67,010 $ 83,160
Other assets 138,374 142,684
--------- ---------
Total assets $ 394,659 $ 225,844
========= =========
Liabilities:
Notes and bonds payable $ 250,631 $ 98,066
Other liabilities 61,083 67,209
--------- ---------
Total liabilities 311,714 165,275
Stockholder's equity 82,945 60,569
--------- ---------
Total liabilities and
stockholder's equity $ 394,659 $ 225,844
========= =========
SUMMARY OF OPERATIONS 1995 1994 1993
(IN THOUSANDS)
Revenue:
Commissions and fees $ 137,492 $ 95,419 $110,576
Net investment and other income 49,155 37,740 27,166
--------- --------- --------
Total revenue 186,647 133,159 137,742
--------- --------- --------
Expenses:
Commission expenses 37,195 14,298 33,159
Interest and other expenses 132,485 100,424 81,810
Federal income tax expense 5,654 8,519 5,455
--------- --------- --------
Total expenses 175,334 123,241 120,424
--------- --------- --------
OPERATING INCOME BEFORE REALIZED
CAPITAL GAIN (LOSS) AND
MINORITY INTEREST 11,313 9,918 17,318
Realized capital gain (loss),
net of income taxes 126,852 (1,400) 11,263
Minority interest (271) 15 273
--------- --------- --------
Net income $ 137,894 $ 8,533 $ 28,854
Capital (returned to) contributed
by parent, net (59,335) 1,134 (15,067)
Other surplus changes (56,183) 28
Stockholder's equity,
beginning of year 60,569 50,874 37,087
--------- --------- --------
Stockholder's equity, end of year $ 82,945 $ 60,569 $ 50,874
========= ========= ========
51
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
6. FEDERAL INCOME TAXES
The federal income tax provision for 1995, 1994 and 1993 totalled $82.8
million, $12.9 million and $6.3 million, respectively, which included tax
expense or (benefits) applicable to realized capital gains or losses of
$49.5 million, $(15.5) million and $8.5 million. Significant adjustments to
book net income before federal income taxes were made for the differential
earnings rate, reduction in the policyholder dividends deduction and to
reflect the tax bases for investments, life insurance reserves, dividend
received deduction and deferred policy acquisition costs. Phoenix Home Life
had a net current federal income tax payable of $56.7 million and $20.3
million at December 31, 1995 and 1994, respectively. The federal income tax
payable is included in accrued expenses and general liabilities at December
31, 1995 and 1994.
The Internal Revenue Service (IRS) is currently examining the Company's tax
returns for 1991-1994. Management does not believe that there will be a
material adverse effect on the financial statements as a result of pending
tax matters.
7. EMPLOYEE AND OTHER POSTEMPLOYMENT BENEFITS
The company recognizes the costs of postretirement benefits other than
pensions for current retirees and fully eligible or vested employees at
transition. This liability is measured by discounting the projected future
costs of health benefits based on an estimate of health care cost trend
rates. Prior to the adoption of this standard, the company recognized such
costs as an expense when paid. The company has elected the deferred
recognition method of adoption where the postretirement benefit obligation
will be amortized as a component of net periodic cost over a period of 20
years.
Phoenix Home Life provides certain health care and life insurance benefits
for retired employees. A substantial portion of the company's employees may
become eligible for these benefits upon retirement. The health care and
life insurance plans generally require retiree contributions. These
contributions are based on years of service with the company.
The expense related to the company's postretirement benefit plans is $7.4
million and $6.8 million for the years ended December 31, 1995 and 1994,
respectively.
52
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
7. EMPLOYEE AND OTHER POSTEMPLOYMENT BENEFITS (CONTINUED)
The following table shows the plan's funded status at December 31, 1995
(in thousands):
Accumulated postretirement benefit obligation
other than pensions (APBO):
Retirees $ 37,900
Fully eligible active plan participants 10,500
---------
Total APBO 48,400
Unrecognized net gain 6,600
Unrecognized transition obligation (40,200)
---------
Accrued postretirement benefit liability $ 14,800
=========
The accrued postretirement benefit liability is included in accrued
expenses and general liabilities. The estimated accumulated APBO for
non-vested employees at December 31, 1995 was $25.0 million. The net 1995
periodic postretirement benefit cost is included in other operating
expenses and consisted of the following components (in thousands):
Estimated eligibility cost - 1995 $ 1,400
Interest cost on APBO 3,700
Amortization of transition obligation over 20 years 2,400
Other (100)
---------
Net periodic postretirement benefit cost $ 7,400
=========
Determination of the accumulated postretirement benefit obligation was
based on an assumed discount rate of 8% and a long-term compensation
increase of 5%. The assumed rate of future increases in per capita cost of
health benefits (the health care cost trend) was 11% in 1996 grading to an
ultimate rate of 5.5% in 2002. The assumed health care cost trend reflects
the company's current claim experience and management's expectation that
future rates of growth will decline. Increasing the health care cost trend
by one percentage point for each future year would increase the accumulated
other postretirement benefit obligation by $2.3 million and the annual
service and interest cost by $0.3 million before taxes. Gains and losses
that occur because actual experience differs from that assumed are
reflected in unrealized gain and amortized over the average future service
period of employees.
As of January 1, 1995, Phoenix Home Life's defined benefit plan, the
Phoenix Home Life Mutual Insurance Company Employee Pension Plan (Employee
Pension Plan), was overfunded by approximately $2.2 million as measured
using the plan's then projected benefit obligation.
53
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
7. EMPLOYEE AND OTHER POSTEMPLOYMENT BENEFITS (CONTINUED)
The Company recognizes the costs and obligations of severance, disability,
life insurance and health care benefits when paid to inactive or former
employees.
Phoenix Home Life's charge to expense for retirement benefit plans for the
year ended December 31, 1995 and 1994 was approximately $6.0 million and
$8.2 million, respectively. Certain pension costs incurred by Phoenix Home
Life are allocated to its subsidiaries.
The estimated funded status of the Employee Pension Plan as of January 1,
1995 is summarized as follows (in thousands):
Actuarial present value of benefit obligations:
Vested benefit obligation $ 160,592
Present value of non-vested benefits 15,251
---------
Accumulated benefit obligation 175,843
Present value of future salary increases 37,793
---------
Projected benefit obligation $ 213,636
=========
Plan assets at fair value at January 1 $ 215,858
=========
Plan assets at fair value in excess of
projected benefit obligation $ 2,222
=========
For the Employee Pension Plan, the present value of accumulated plan
benefits was determined based on the actual salary and service history of
the covered employees as of the date of the computation. The actuarial
present value of the plan liabilities, which considers future estimated
salary increases and other factors, is approximately $213.6 million at
January 1, 1995, the date of the most recent actuarial valuation. Actuarial
amounts were determined using 8% assumed rates of return for the qualified
employees' plan.
The assets of the company's pension and savings plans at December 31, 1994,
were invested as follows (in thousands):
Separate accounts of Phoenix Home Life $ 49,142
Phoenix Series Fund sponsored by
Phoenix Home Life 113,654
Phoenix Multi-Sector Fixed Income Fund
sponsored by Phoenix Home Life 8,683
Phoenix Worldwide Opportunities Fund
sponsored by Phoenix Home Life 6,735
Phoenix Asset Reserve
sponsored by Phoenix Home Life 700
Pension Plan Trust Account 165,664
Cash Management Account 1,052
---------
Total invested assets of pension savings plans $ 345,630
=========
54
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
8. DISPOSITION OF HLFAC
Effective June 30, 1993, HLFAC was sold to an unaffiliated company,
Community Mutual Insurance Company, resulting in a pre-tax realized capital
gain of $50.5 million. Results on a divisional basis for the period from
January 1, 1993 through June 30, 1993, which are included in the
consolidated statement of operations, are as follows (in thousands):
1993
Net premiums $ 171,822
Net investment income 6,437
-----------
Total income 178,259
-----------
Policy benefits 105,024
Expenses 56,000
-----------
Total benefits and expenses 161,024
-----------
Gain from operations before federal income taxes $ 17,235
===========
9. SEGMENT INFORMATION
Phoenix Home Life operates principally in six segments: Individual, Group
Life and Health, Life Reinsurance, General Lines Brokerage, Securities
Management and Real Estate Management.
Summarized financial information with respect to the business segments for
the years ended December 31, was as follows (in thousands):
1995 1994 1993
REVENUES
Individual $ 1,680,641 $ 1,595,725 $ 1,542,755
Group Life and Health 411,076 405,564 377,432
Life Reinsurance 125,657 93,346 97,177
General Lines Brokerage 23,796 21,949 14,687
Securities Management
(including PDP operations) 95,684 97,401 101,853
Real Estate Management 13,562 12,439 13,711
Other operations (HLFAC) 178,259
----------- ----------- -----------
Total revenues $ 2,350,416 $ 2,226,424 $ 2,325,874
=========== =========== ===========
55
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
9. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
INCOME BEFORE REALIZED CAPITAL GAINS
(LOSSES), DIVIDENDS AND INCOME TAXES
Individual $ 333,524 $ 294,987 $ 260,645
Group Life and Health 17,401 17,451 28,974
Life Reinsurance 8,829 7,355 4,028
General Lines Brokerage 2,633 2,306 755
Securities Management
(including PDP operations) 19,753 22,431 33,816
Real Estate Management (184) 627 (262)
Other operations (HLFAC) 17,235
Total income before realized capital gains
(losses), dividends and income taxes $ 381,956 $ 345,157 $ 345,191
=========== =========== ===========
1995 1994
IDENTIFIABLE ASSETS
Individual $11,519,751 $10,501,598
Group Life and Health 506,712 461,540
Life Reinsurance 176,520 174,337
General Lines Brokerage 112,348 33,534
Securities Management 621,150 604,968
Real Estate Management 254,979 234,052
Total identifiable assets $ 13,191,460 $12,010,029
============ ===========
</TABLE>
10. CONTINGENCIES
The Company is a defendant in various legal actions arising from the normal
conduct of business. Management believes that, after consideration of
provisions made in the Company's financial statements, none of the actions
will have a material effect on the Company's financial position.
56
<PAGE>
PHOENIX HOME LIFE VARIABLE
UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1995
57
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<TABLE>
<CAPTION>
Money Market Growth Bond
Sub-Account Sub-Account Sub-Account
-------------- ----------- ------------
<S> <C> <C> <C>
Assets
Investments at cost $13,959,460 $110,250,111 $ 6,357,472
============ ========= ==========
Investment in The Phoenix Edge Series Fund, at market 13,959,460 118,022,065 6,705,121
------------ --------- ----------
Total assets 13,959,460 118,022,065 6,705,121
Liabilities
Accrued expenses to related party 7,919 72,685 4,346
------------ --------- ----------
Net assets $13,951,541 $117,949,380 $6,700,775
============ ========= ==========
Accumulation units outstanding--Flex Edge 10,229,951 36,538,624 3,484,452
============ ========= ==========
Accumulation units outstanding--Joint Edge 296,269 1,113,293 95,464
============ ========= ==========
Unit value $ 1.325408 $ 3.132626 $ 1.871769
============ ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- ----------- ------------
<S> <C> <C> <C>
Assets
Investments at cost $19,900,213 $19,529,649 $ 12,424,740
============ ========= ==========
Investment in The Phoenix Edge Series Fund, at market 20,261,898 20,759,895 13,725,016
------------ --------- ----------
Total assets 20,261,898 20,759,895 13,725,016
Liabilities
Accrued expenses to related party 12,619 12,722 8,541
------------ --------- ----------
Net assets $20,249,279 $20,747,173 $13,716,475
============ ========= ==========
Accumulation units outstanding--Flex Edge 9,236,346 14,435,212 9,521,556
============ ========= ==========
Accumulation units outstanding--Joint Edge 194,742 555,114 400,572
============ ========= ==========
Unit value $ 2.147078 $ 1.384037 $ 1.382412
============ ========= ==========
</TABLE>
See Notes to Financial Statements
58
<PAGE>
STATEMENT OF OPERATIONS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Money Market Growth Bond
Sub-Account Sub-Account Sub-Account
-------------- ---------- ------------
<S> <C> <C> <C>
Investment income
Distributions $656,913 $ 963,473 $ 456,389
Expenses
Mortality and expense risk charges 94,526 688,907 42,067
------------ -------- ----------
Net investment income 562,387 274,566 414,322
------------ -------- ----------
Net realized gain from share transactions -- 4,178 1,800
Net realized gain distribution from Fund -- 12,514,179 --
Net unrealized appreciation on investment -- 9,293,459 651,393
------------ -------- ----------
Net gain on investments -- 21,811,816 653,193
------------ -------- ----------
Net increase in net assets resulting from operations $562,387 $22,086,382 $1,067,515
============ ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- ----------- ------------
<S> <C> <C> <C>
Investment income
Distributions $ 554,634 $ 65,980 $ 394,319
Expenses
Mortality and expense risk charges 130,115 141,161 88,010
------------ --------- ----------
Net investment income (loss) 424,519 (75,181) 306,309
------------ --------- ----------
Net realized gain (loss) from share transactions 1,051 (16,995) 527
Net realized gain distribution from Fund 1,221,316 380,538 272,172
Net unrealized appreciation on investment 873,761 1,259,164 1,647,649
------------ --------- ----------
Net gain on investments 2,096,128 1,622,707 1,920,348
------------ --------- ----------
Net increase in net assets resulting from operations $2,520,647 $ 1,547,526 $2,226,657
============ ========= ==========
</TABLE>
See Notes to Financial Statements
59
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Money Market Growth Bond
Sub-Account Sub-Account Sub-Account
--------------- ----------- ------------
<S> <C> <C> <C>
From operations
Net investment income $ 562,387 $ 274,566 $ 414,322
Net realized gain -- 12,518,357 1,800
Net unrealized appreciation -- 9,293,459 651,393
------------- --------- ----------
Net increase in net assets resulting from operations 562,387 22,086,382 1,067,515
------------- --------- ----------
From accumulation unit transactions
Participant deposits 23,196,295 34,460,166 1,851,602
Participant transfers (19,227,932) 15,470,116 884,223
Participant withdrawals (2,331,740) (12,409,600) (772,642)
------------- --------- ----------
Net increase in net assets resulting from participant
transactions 1,636,623 37,520,682 1,963,183
------------- --------- ----------
Net increase in net assets 2,199,010 59,607,064 3,030,698
Net assets
Beginning of period 11,752,531 58,342,316 3,670,077
------------- --------- ----------
End of period $ 13,951,541 $117,949,380 $6,700,775
============= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- ----------- ------------
<S> <C> <C> <C>
From operations
Net investment income (loss) $ 424,519 $ (75,181) $ 306,309
Net realized gain (loss) 1,222,367 363,543 272,699
Net unrealized appreciation 873,761 1,259,164 1,647,649
------------ --------- ----------
Net increase in net assets resulting from operations 2,520,647 1,547,526 2,226,657
------------ --------- ----------
From accumulation unit transactions
Participant deposits 5,457,071 7,548,871 3,800,064
Participant transfers 2,208,588 (399,608) 581,841
Participant withdrawals (2,158,665) (2,474,965) (1,761,880)
------------ --------- ----------
Net increase in net assets resulting from participant
transactions 5,506,994 4,674,298 2,620,025
------------ --------- ----------
Net increase in net assets 8,027,641 6,221,824 4,846,682
Net assets
Beginning of period 12,221,638 14,525,349 8,869,793
------------ --------- ----------
End of period $20,249,279 $20,747,173 $13,716,475
============ ========= ==========
</TABLE>
See Notes to Financial Statements
60
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1994
<TABLE>
<CAPTION>
Money Market Growth Bond
Sub-Account Sub-Account Sub-Account
--------------- ---------- ------------
<S> <C> <C> <C>
From operations
Net investment income $ 269,315 $ 294,375 $ 218,172
Net realized gain (loss) -- 3,213,016 (3,967)
Net unrealized depreciation -- (3,486,259) (392,992)
------------- -------- ----------
Net increase (decrease) in net assets resulting from
operations 269,315 21,132 (178,787)
------------- -------- ----------
From accumulation unit transactions
Participant deposits 21,682,948 26,040,831 1,844,201
Participant transfers (14,299,239) 7,532,883 23,923
Participant withdrawals (2,824,234) (7,655,667) (503,930)
------------- -------- ----------
Net increase in net assets resulting from participant
transactions 4,559,475 25,918,047 1,364,194
------------- -------- ----------
Net increase in net assets 4,828,790 25,939,179 1,185,407
Net assets
Beginning of period 6,923,741 32,403,137 2,484,670
------------- -------- ----------
End of period $ 11,752,531 $58,342,316 $3,670,077
============= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- ----------- ------------
<S> <C> <C> <C>
From operations
Net investment income (loss) $ 227,212 $ (56,510) $ 212,403
Net realized gain 343,918 305,474 61,943
Net unrealized depreciation (771,056) (732,849) (556,387)
------------ --------- ----------
Net decrease in net assets resulting from operations (199,926) (483,885) (282,041)
------------ --------- ----------
From accumulation unit transactions
Participant deposits 5,110,267 6,568,479 3,993,661
Participant transfers 1,128,647 4,843,273 149,204
Participant withdrawals (1,493,881) (1,519,024) (1,268,580)
------------ --------- ----------
Net increase in net assets resulting from participant
transactions 4,745,033 9,892,728 2,874,285
------------ --------- ----------
Net increase in net assets 4,545,107 9,408,843 2,592,244
Net assets
Beginning of period 7,676,531 5,116,506 6,277,549
------------ --------- ----------
End of period $12,221,638 $14,525,349 $ 8,869,793
============ ========= ==========
</TABLE>
See Notes to Financial Statements
61
<PAGE>
FINANCIAL HIGHLIGHTS
(Selected data for a unit outstanding throughout the indicated period)
(Unaudited)
<TABLE>
<CAPTION>
Money Market Sub-Account Growth Sub-Account
----------------------------- --------------------------------
Year Ended December 31, Year Ended December 31,
1995 1994 1995 1994
------------ -------------- ------------ ----------------
<S> <C> <C> <C> <C>
Unit value, beginning of period $ 1.263974 $ 1.226981 $2.412541 $ 2.396670
Income from investment operations
Net investment income 0.061434 0.036993 0.008952 0.221088
Net realized and unrealized gain
(loss) -- -- 0.711133 (0.205217 )
Total from investment operations 0.061434 0.036993 0.720085 0.015871
---------- ------------ ---------- ---------------
Unit value, end of period $ 1.325408 $ 1.263974 $3.132626 $ 2.412541
========== ============ ========== ===============
Total return 4.86% 3.01% 29.85% 0.66%
Net assets, end of period (000) $13,952 $11,753 $117,949 $58,342
</TABLE>
<TABLE>
<CAPTION>
Bond Sub-Account Total Return Sub-Account
------------------------- ------------------------------
Year Ended December 31, Year Ended December 31,
1995 1994 1995 1994
-------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Unit value, beginning of period $1.527250 $ 1.628351 $1.830914 $ 1.871886
Income from investment operations
Net investment income 0.133714 0.123373 0.053247 0.046564
Net realized and unrealized gain (loss) 0.210805 (0.224474) 0.262917 (0.087536 )
------ ----------- ---------- -------------
Total from investment operations 0.344519 (0.101101) 0.316164 (0.040972 )
------ ----------- ---------- -------------
Unit value, end of period $1.871769 $ 1.527250 $2.147078 $ 1.830914
====== =========== ========== =============
Total return 22.56% (6.21)% 17.27% (2.19)%
Net assets, end of period (000) $6,701 $3,670 $20,249 $12,222
</TABLE>
FINANCIAL HIGHLIGHTS
(Selected data for a unit outstanding throughout the indicated period)
<TABLE>
<CAPTION>
International Sub-Account Balanced Sub-Account
--------------------------------- -----------------------------
Year Ended December 31, Year Ended December 31,
1995 1994 1995 1994
------------- ----------------- ------------ --------------
<S> <C> <C> <C> <C>
Unit value, beginning of period $ 1.273020 $ 1.282423 $1.129669 $ 1.171933
Income from investment operations
Net investment income (loss) (0.005393 ) (0.001098 ) 0.034768 0.031829
Net realized and unrealized gain (loss) 0.116410 (0.008305 ) 0.217975 (0.074093 )
----------- --------------- ---------- ------------
Total from investment operations 0.111017 (0.009403 ) 0.252743 (0.042264 )
----------- --------------- ---------- ------------
Unit value, end of period $ 1.384037 $ 1.273020 $1.382412 $ 1.129669
=========== =============== ========== ============
Total return 8.72% (0.73)% 22.37% (3.61)%
Net assets, end of period (000) $20,747 $14,525 $13,716 $8,870
</TABLE>
See Notes to Financial Statements
62
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
Note 1--Organization:
Phoenix Home Life Variable Universal Life Account (the Account) is a
separate investment account of Phoenix Home Life Mutual Insurance Company
(Phoenix Home Life). The Account is offered as Flex Edge for individual
variable life insurance and as Joint Edge for variable first-to-die joint
life insurance. The account is organized as a unit investment trust under the
Investment Company Act of 1940, as amended, and currently consists of six
Sub-accounts, which invest in six of the available portfolios of The Phoenix
Edge Series Fund (the Fund). The Real Estate Series is currently not
available to the Account.
Each series has distinct investment objectives. The Money Market Series is
a short-term investment fund, the Growth Series is a growth common stock
fund, the Bond Series is a long-term debt fund, the Total Return Series
invests in equity securities and long and short-term debt, the International
Series invests primarily in internationally diversified equity securities and
the Balanced Series is a balanced fund which invests in growth stocks and at
least 25% of its assets in fixed income securities. Contract holders may also
direct the allocation of their investments between the account and the
Guaranteed Interest Account of the general account of Phoenix Home Life.
Note 2--Significant Accounting Policies:
Certain reclassifications have been made to prior year's amounts to conform
with the 1995 presentation.
A. Valuation of Investments: Investments are made exclusively in the Fund and
are valued at the net asset values per share of the respective Series.
B. Investment transactions and related income: Realized gains and losses
include capital gain distributions from the Fund as well as gains and losses
on sales of shares in the fund determined on the LIFO (last in, first out)
basis.
C. Income taxes: The Account is not a separate entity from Phoenix Home Life
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 or state income taxes is
required.
D. Distributions: Distributions are recorded as investment income on the
ex-dividend date.
Note 3--Purchases and Sales of Shares of The Phoenix Edge Series Fund:
Purchases and sales of shares of the Fund for the year ended December 31,
1995 aggregated the following:
<TABLE>
<CAPTION>
Sub-Account Purchases Sales
- ------------- ---------- ------------
<S> <C> <C>
Money Market $15,358,015 $13,127,029
Growth 52,656,500 2,386,549
Bond 3,150,173 775,101
Total Return 7,932,811 790,863
International 7,725,084 2,760,274
Balanced 4,832,165 1,642,462
</TABLE>
Note 4--Participant Accumulation Unit Transactions (in units):
<TABLE>
<CAPTION>
Sub-Account
-----------------------------------------------------------------------------------
Money Total
Market Growth Bond Return International Balanced
----------- ---------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Flex Edge:
Participant deposits 16,530,006 11,865,242 1,056,465 2,618,013 5,503,623 2,914,431
Participant transfers (13,776,782) 5,246,964 514,311 1,064,109 (387,514) 438,017
Participant withdrawals (1,666,716) (4,223,772) (441,021) (1,027,984) (1,776,981) (1,344,173)
Joint Edge:
Participant deposits 1,348,536 507,471 38,054 100,104 269,791 129,152
Participant transfers (1,073,563) 295,473 21,958 48,759 87,491 11,893
Participant withdrawals (133,344) (222,390) (12,913) (47,069) (116,238) (78,868)
</TABLE>
Note 5--Policy Loans:
Transfers are made to Phoenix Home Life's general account as a result of
policy loans. Contract provisions allow contract owners to borrow up to 90%
of a policy's cash value with an interest rate set in accordance with the
contract due and payable on each policy anniversary. At the time a loan is
granted, an amount equivalent to the amount of the loan is transferred from
the Account to Phoenix Home Life's general account as collateral for the
outstanding loan. These transfers are included in participant withdrawals in
the accompanying financial statements. Amounts in the general account are
credited with interest at 6%. Loan repayments result in a transfer of
collateral back to the Account.
Note 6--Investment Advisory Fees and Related Party Transactions:
Phoenix Home Life and its indirect, less than wholly owned subsidiary,
Phoenix Equity Planning Corporation, a registered broker/dealer in
securities, provide all services to the Account.
The cost of insurance is charged to each policy on a monthly basis by a
withdrawal of participant units prorated among the elected Sub- accounts. 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 $14,392,712 during the year ended December 31, 1995.
Upon partial surrender of a policy a surrender fee of the lesser of $25 or
2% of the partial surrender amount paid and a partial surrender charge equal
to a pro rata portion of the applicable surrender charge is deducted from the
policy value and paid to Phoenix Home Life. Partial surrender fees paid
during the year ended December 31, 1995 were $853,600.
63
<PAGE>
Phoenix Equity Planning Corporation is the principal underwriter and
distributor of the Account. Phoenix Equity Planning Corporation is reimbursed
for its distribution and underwriting expenses by Phoenix Home Life.
Policies which are surrendered during the first ten policy years will
incur a surrender charge, consisting of a contingent deferred sales charge
designed to recover expenses for the distribution of Policies that are
terminated by surrender before distribution expenses have been recouped, and
a contingent deferred issue charge designed to recover expenses for the
administration of Policies that are terminated by surrender before
administrative expenses have been recouped. These are contingent charges
because they are paid only if the Policy is surrendered (or a partial
withdrawal is taken or the Face Amount is reduced or the Policy lapses)
during the first ten policy years. They are deferred charges because they are
not deducted from premiums.
Phoenix Home Life assumes the 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 and that its expenses may be higher than its
deductions for such expenses. In return for the assumption of these mortality
and expense risks, Phoenix Home Life charges the Account an annual rate of
0.80% of the average daily net assets of the Account for mortality and
expense risks assumed.
Note 7--Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue Code (the
Code), a variable universal life contract, other than a contract issued in
connection with certain types of employee benefit plans, will not be treated
as a universal life contract for federal tax purposes for any period for
which the investments of the segregated asset account on which the contract
is based are not adequately diversified. The Code provides that the
"adequately diversified" requirement may be met if the underlying investments
satisfy either a statutory safe harbor test or diversification requirements
set forth in regulations issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h)
of the Code. Phoenix Home Life believes that the Account satisfies the
current requirements of the regulations, and it intends that the Account will
continue to meet such requirements.
64
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP [logo]
To the Participants of
Phoenix Home Life Variable
Universal Life Account
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Money Market
Sub-Account, Growth Sub-Account, Bond Sub-Account, Total Return Sub-Account,
International Sub-Account and Balanced Sub- Account (constituting the Phoenix
Home Life Variable Universal Life Account, hereafter referred to as the
"Account") at December 31, 1995, the results of each of their operations for
the year then ended and the changes in each of their net assets for each of
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Account's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
[Price Waterhouse LLP signature]
Hartford, CT 06103
February 13, 1996
65
<PAGE>
PHOENIX HOME LIFE
VARIABLE UNIVERSAL LIFE ACCOUNT
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
UNDERWRITER
Phoenix Equity Planning Corporation
P.O. Box 2200
100 Bright Meadow Boulevard
Enfield, Connecticut 06083-2200
CUSTODIAN
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
INTERNATIONAL SERIES CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
One Financial Plaza
Hartford, Connecticut 06103
66
<PAGE>
APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the Guaranteed Interest Account ("GIA") under the Policy
and transfers to the GIA become part of the Phoenix General Account (the
"General Account"), which supports insurance and annuity obligations. Because of
exemptive and exclusionary provisions, interest in the General Account has not
been registered under the Securities Act of 1933 ("1933 Act") nor is the General
Account registered as an investment company under the Investment Company Act of
1940 ("1940 Act"). Accordingly, neither the General Account nor any interest
therein is specifically subject to the provisions of the 1933 or 1940 Acts and
the staff of the Securities and Exchange Commission has not reviewed the
disclosures in this Prospectus concerning the GIA. Disclosures regarding the GIA
and the General Account, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
The General Account is made up of all of the general assets of Phoenix
other than those allocated to any separate account. Premium payments will be
allocated to the GIA and, therefore, the General Account, as elected by the
Policyowner at the time of purchase or as subsequently changed. Phoenix will
invest the assets of the General Account in assets chosen by it and allowed by
applicable law. Investment income from General Account assets is allocated
between Phoenix and the contracts participating in the General Account, in
accordance with the terms of such contracts.
Investment income from the General Account allocated to Phoenix includes
compensation for mortality and expense risks borne by it in connection with
General Account contracts.
The amount of investment income allocated to the Policies will vary from
year to year in the sole discretion of Phoenix. However, Phoenix guarantees
that it will credit interest at a rate of not less than 4% per year, compounded
annually, to amounts allocated to the unloaned portion of the GIA. The loaned
portion of the GIA will be credited interest at an effective annual rate of 6%.
Phoenix may credit interest at a rate in excess of 4% per year; however, it is
not obligated to credit any interest in excess of 4% per year.
Bi-weekly, Phoenix will set the excess interest rate, if any, that will
apply to amounts deposited to the GIA. That rate will remain in effect for such
deposits for an initial guarantee period of one full year from the date of
deposit. Upon expiration of the initial one-year guarantee period (and each
subsequent one-year guarantee period thereafter), the rate to be applied to any
deposits whose guaranteed period has just ended will be the same rate as is
applied to new deposits allocated at that time to the GIA. This rate will
likewise remain in effect for a guarantee period of one full year from the date
the new rate is applied.
Excess interest, if any, will be determined by Phoenix based on
information as to expected investment yields. Some of the factors that Phoenix
may consider in determining whether to credit interest to amounts allocated to
the GIA and the amount thereof, are general economic trends, rates of return
currently available and anticipated on investments, regulatory and tax
requirements and competitive factors. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED
TO THE GIA IN EXCESS OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF
PHOENIX AND WITHOUT REGARD TO ANY SPECIFIC FORMULA. THE CONTRACT OWNER ASSUMES
THE RISK THAT INTEREST CREDITED TO GIA ALLOCATIONS MAY NOT EXCEED THE MINIMUM
GUARANTEE OF 4% FOR ANY GIVEN YEAR.
Phoenix is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in Phoenix's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders and Contract Owners.
Excess interest, if any, will be credited on the GIA Policy Value. Phoenix
guarantees that, at any time, the GIA Policy Value will not be less than the
amount of premium payments allocated to the GIA, plus interest at the rate of 4%
per year, compounded annually, plus any additional interest which Phoenix may,
in its discretion, credit to the GIA, less the sum of all annual administrative
or surrender charges, any applicable premium taxes, and less any amounts
surrendered or loaned. If the Policyowner surrenders the Policy, the amount
available from the GIA will be reduced by any applicable surrender charge and
annual administration charge (see "Deductions and Charges").
IN GENERAL, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE GUARANTEED
INTEREST ACCOUNT. THE AMOUNT WHICH CAN BE TRANSFERRED IS LIMITED TO THE GREATER
OF $1,000 OR 25% OF THE CONTRACT VALUE IN THE GUARANTEED INTEREST ACCOUNT AS OF
THE LAST CONTRACT ANNIVERSARY. UNDER THE SYSTEMATIC TRANSFER PROGRAM, TRANSFERS
OF APPROXIMATELY EQUAL AMOUNTS MAY BE MADE OVER A MINIMUM 18-MONTH PERIOD.
NON-SYSTEMATIC TRANSFERS FROM THE GUARANTEED INTEREST ACCOUNT WILL BE
EFFECTUATED ON THE DATE OF RECEIPT BY VARIABLE PRODUCTS OPERATIONS, UNLESS
OTHERWISE REQUESTED BY THE CONTRACT OWNER.
67
<PAGE>
APPENDIX B
ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES ("ACCOUNT VALUES"),
AND CASH SURRENDER VALUES.
The tables on the following pages illustrate how a Policy's Death Benefits,
Account Values and Cash Surrender Value could vary over time assuming constant
hypothetical gross (after tax) annual investment returns of 0% and 12%. The
Policy benefits will differ from those shown in the tables if the annual
investment returns are not absolutely constant. That is, the figures will be
different if the returns averaged 0% or 12% over a period of years but went
above or below those figures in individual Policy Years. The Policy benefits
also will differ, depending on your premium allocations to each Sub-account of
the VUL Account, if the overall actual rates of return averaged 0% or 12%, but
went above or below those figures for the individual Sub-accounts. The tables
are for standard risk males and females who have never smoked. In states where
cost of insurance rates are not based on the insured's sex, the tables
designated "male" apply to all standard risk insureds who have never smoked.
Account Values and Cash Surrender Values may be lower for smokers or former
smokers or for risk classes involving higher mortality risk. Planned premium
payments are assumed to be paid at the beginning of each Policy Year. The
difference between the Policy Value and the Cash Surrender Value in the first
ten years is the Surrender Charge. Illustrated tables are included for death
benefit Option 1 and Option 2. Tables also are included to reflect the blended
cost of insurance charge applied under multiple lives Policies.
The Death Benefit, Account Value, and Cash Surrender Value amounts reflect
the following current charges:
1. Issue Charge of $150.
2. Monthly Administrative Charge of $5 per month ($10 per month guaranteed
maximum).
3. Premium Tax Charge of 2.25% (will vary from state to state).
4. Cost of Insurance Charge. The tables illustrate cost of insurance at both
the current rates and at the maximum rates guaranteed in the Policies.
(See "Charges and Deductions--Cost of Insurance.")
5. Mortality and Expense Risk Charge, which is a daily charge equivalent to
.80% on an annual basis against the VUL Account for mortality and expense
risks. (See "Charges and Deductions--Mortality and Expense Risk Charge.")
These illustrations also assume an average investment advisory fee of .75% on
an annual basis, of the average daily net asset value of each of the Series of
the Funds. These illustrations also assume other ongoing average Fund expenses
of .22%. All other Fund expenses, except capital items such as brokerage
commissions, are assumed by the Adviser or by Phoenix. Management may decide
to limit the amount of expense reimbursement in the future. If this
reimbursement had not been in place for the fiscal year ended December 31, 1995,
total operating expenses for the Multi-Sector, Real Estate, Strategic Theme,
Asia, U.S. Small Cap and International Small Cap Series would have been
approximately 0.73%, 1.98% 1.33%, 2.40%, 2.35% and 4.20%, respectively, of the
average net assets of the Series. (See "Charges and Deductions--Investment
Management Charge.")
Taking into account the Mortality and Expense Risk Charge and the investment
advisory fees and expenses, the gross annual investment return rates of 0% and
12% on the Funds' assets are equivalent to net annual investment return rates of
approximately -1.76% and 10.15%, respectively. For individual illustrations,
interest rates ranging between 0% and 12% may be selected in place of the 12%
rate.
The hypothetical returns shown in the tables are without any tax charges that
may be attributable to the VUL Account in the future. If such Tax Charges are
imposed in the future, then in order to produce after tax returns equal to those
illustrated for 0% and 12%, a sufficiently higher amount in excess of the
hypothetical interest rates would have to be earned. (See "Charges and
Deductions--Other Charges--Taxes.")
The second column of each table shows the amount that would accumulate if an
amount equal to the premiums paid were invested to earn interest, after taxes,
at 5% compounded annually. These tables show that if a Policy is returned in its
very early years for payment of its Cash Surrender Value, that Cash Surrender
Value may be low in comparison to the amount of the premiums accumulated with
interest. Thus, the cost of owning a Policy for a relatively short time may be
high.
On request, we will furnish the Policyowner with a comparable illustration based
on the age and sex of the proposed insured person(s), standard risk assumptions
and the initial face amount and planned premium chosen.
68
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
<CAPTION>
ASSUMING
-----------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
--------------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0% @ 0.0%
- -------- -------- -------- -------- --------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 704 0 100,000 527 0 100,000
2 1,000 2,153 1,632 720 100,000 1,186 274 100,000
3 1,000 3,310 2,650 1,646 100,000 1,824 821 100,000
4 1,000 4,526 3,765 2,734 100,000 2,440 1,410 100,000
5 1,000 5,802 4,986 3,956 100,000 3,034 2,003 100,000
6 1,000 7,142 6,325 5,418 100,000 3,604 2,697 100,000
7 1,000 8,549 7,790 7,007 100,000 4,148 3,365 100,000
8 1,000 10,027 9,394 8,798 100,000 4,667 4,072 100,000
9 1,000 11,578 11,150 10,743 100,000 5,158 4,751 100,000
10 1,000 13,207 13,075 13,075 100,000 5,623 5,623 100,000
11 1,000 14,917 15,186 15,186 100,000 6,057 6,057 100,000
12 1,000 16,713 17,497 17,497 100,000 6,461 6,461 100,000
13 1,000 18,599 20,027 20,027 100,000 6,832 6,832 100,000
14 1,000 20,579 22,800 22,800 100,000 7,169 7,169 100,000
15 1,000 22,657 25,840 25,840 100,000 7,470 7,470 100,000
16 1,000 24,840 29,176 29,176 100,000 7,733 7,733 100,000
17 1,000 27,132 32,839 32,839 100,000 7,952 7,952 100,000
18 1,000 29,539 36,865 36,865 100,000 8,123 8,123 100,000
19 1,000 32,066 41,292 41,292 100,000 8,240 8,240 100,000
20 1,000 34,719 46,164 46,164 100,000 8,295 8,295 100,000
@ 65 30,000 69,761 132,635 132,635 161,815 3,848 3,848 100,000
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
33.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% and average fund operating
expenses of 0.97% applicable to the investment Sub-accounts of the VUL Separate
Account). Hypothetical gross interest rates are presented for illustrative
purposes only to illustrate funds allocated entirely to the investment
Sub-accounts of the VUL Separate Account and do not in any way represent actual
results or suggest that such results will be achieved in the future. Actual
values will differ from those shown whenever actual investment results differ
from hypothetical gross interest rates illustrated. A Guaranteed Interest
Account providing interest at a minimum guaranteed rate of 4% also is available
under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
69
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
FEMALE 35 NEVERSMOKE
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
<CAPTION>
ASSUMING
-----------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
--------------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0% @ 0.0%
- -------- -------- -------- -------- --------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 720 0 100,000 548 0 100,000
2 1,000 2,153 1,665 784 100,000 1,228 347 100,000
3 1,000 3,310 2,700 1,743 100,000 1,886 928 100,000
4 1,000 4,526 3,834 2,876 100,000 2,521 1,564 100,000
5 1,000 5,802 5,075 4,118 100,000 3,134 2,176 100,000
6 1,000 7,142 6,436 5,593 100,000 3,722 2,879 100,000
7 1,000 8,549 7,929 7,201 100,000 4,284 3,557 100,000
8 1,000 10,027 9,568 9,015 100,000 4,821 4,268 100,000
9 1,000 11,578 11,370 10,992 100,000 5,333 4,954 100,000
10 1,000 13,207 13,349 13,349 100,000 5,820 5,820 100,000
11 1,000 14,917 15,521 15,521 100,000 6,282 6,282 100,000
12 1,000 16,713 17,904 17,904 100,000 6,719 6,719 100,000
13 1,000 18,599 20,520 20,520 100,000 7,130 7,130 100,000
14 1,000 20,579 23,392 23,392 100,000 7,512 7,512 100,000
15 1,000 22,657 26,549 26,549 100,000 7,867 7,867 100,000
16 1,000 24,840 30,019 30,019 100,000 8,190 8,190 100,000
17 1,000 27,132 33,839 33,839 100,000 8,481 8,481 100,000
18 1,000 29,539 38,047 38,047 100,000 8,737 8,737 100,000
19 1,000 32,066 42,683 42,683 100,000 8,952 8,952 100,000
20 1,000 34,719 47,795 47,795 100,000 9,127 9,127 100,000
@ 65 30,000 69,761 138,465 138,465 168,927 8,211 8,211 100,000
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
38.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% and average fund operating
expenses of 0.97% applicable to the investment Sub-accounts of the VUL Separate
Account). Hypothetical gross interest rates are presented for illustrative
purposes only to illustrate funds allocated entirely to the investment
Sub-accounts of the VUL Separate Account and do not in any way represent actual
results or suggest that such results will be achieved in the future. Actual
values will differ from those shown whenever actual investment results differ
from hypothetical gross interest rates illustrated. A Guaranteed Interest
Account providing interest at a minimum guaranteed rate of 4% also is available
under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
70
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
<CAPTION>
ASSUMING
-----------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
--------------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0% @ 0.0%
- -------- -------- -------- -------- --------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 702 0 100,703 526 0 100,526
2 1,000 2,153 1,628 716 101,629 1,182 270 101,183
3 1,000 3,310 2,641 1,638 102,641 1,817 813 101,817
4 1,000 4,526 3,749 2,718 103,749 2,428 1,398 102,429
5 1,000 5,802 4,960 3,929 104,960 3,015 1,985 103,016
6 1,000 7,142 6,284 5,377 106,284 3,577 2,670 103,577
7 1,000 8,549 7,730 6,946 107,730 4,111 3,328 104,111
8 1,000 10,027 9,307 8,712 109,308 4,617 4,022 104,618
9 1,000 11,578 11,030 10,622 111,030 5,094 4,687 105,095
10 1,000 13,207 12,911 12,911 112,912 5,542 5,542 105,543
11 1,000 14,917 14,967 14,967 114,967 5,957 5,957 105,958
12 1,000 16,713 17,206 17,206 117,206 6,339 6,339 106,339
13 1,000 18,599 19,645 19,645 119,646 6,684 6,684 106,685
14 1,000 20,579 22,304 22,304 122,305 6,993 6,993 106,994
15 1,000 22,657 25,200 25,200 125,201 7,262 7,262 107,263
16 1,000 24,840 28,355 28,355 128,356 7,489 7,489 107,490
17 1,000 27,132 31,794 31,794 131,795 7,669 7,669 107,670
18 1,000 29,539 35,541 35,541 135,542 7,796 7,796 107,796
19 1,000 32,066 39,622 39,622 139,623 7,863 7,863 107,864
20 1,000 34,719 44,064 44,064 144,065 7,864 7,864 107,865
@ 65 30,000 69,761 116,956 116,956 216,956 2,667 2,667 102,668
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
32.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% and average fund operating
expenses of 0.97% applicable to the investment Sub-accounts of the VUL Separate
Account). Hypothetical gross interest rates are presented for illustrative
purposes only to illustrate funds allocated entirely to the investment
Sub-accounts of the VUL Separate Account and do not in any way represent actual
results or suggest that such results will be achieved in the future. Actual
values will differ from those shown whenever actual investment results differ
from hypothetical gross interest rates illustrated. A Guaranteed Interest
Account providing interest at a minimum guaranteed rate of 4% also is available
under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
71
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
FEMALE 35 NEVERSMOKE
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
<CAPTION>
ASSUMING
-----------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
--------------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0% @ 0.0%
- -------- -------- -------- -------- --------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 719 0 100,719 547 0 100,548
2 1,000 2,153 1,662 780 101,662 1,225 343 101,225
3 1,000 3,310 2,692 1,735 102,693 1,879 922 101,880
4 1,000 4,526 3,819 2,861 103,819 2,510 1,553 102,511
5 1,000 5,802 5,051 4,093 105,051 3,116 2,159 103,117
6 1,000 7,142 6,398 5,555 106,398 3,697 2,854 103,698
7 1,000 8,549 7,873 7,145 107,873 4,250 3,522 104,250
8 1,000 10,027 9,488 8,935 109,488 4,775 4,222 104,775
9 1,000 11,578 11,260 10,881 111,260 5,273 4,894 105,273
10 1,000 13,207 13,199 13,199 113,200 5,744 5,744 105,745
11 1,000 14,917 15,322 15,322 115,322 6,189 6,189 106,189
12 1,000 16,713 17,643 17,643 117,643 6,605 6,605 106,606
13 1,000 18,599 20,180 20,180 120,180 6,993 6,993 106,993
14 1,000 20,579 22,954 22,954 122,955 7,350 7,350 107,350
15 1,000 22,657 25,988 25,988 125,989 7,676 7,676 107,676
16 1,000 24,840 29,307 29,307 129,307 7,967 7,967 107,968
17 1,000 27,132 32,941 32,941 132,941 8,223 8,223 108,223
18 1,000 29,539 36,921 36,921 136,921 8,439 8,439 108,440
19 1,000 32,066 41,280 41,280 141,281 8,611 8,611 108,612
20 1,000 34,719 46,056 46,056 146,056 8,739 8,739 108,739
@ 65 30,000 69,761 126,783 126,783 226,783 7,126 7,126 107,127
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
37.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% and average fund operating
expenses of 0.97% applicable to the investment Sub-accounts of the VUL Separate
Account). Hypothetical gross interest rates are presented for illustrative
purposes only to illustrate funds allocated entirely to the investment
Sub-accounts of the VUL Separate Account and do not in any way represent actual
results or suggest that such results will be achieved in the future. Actual
values will differ from those shown whenever actual investment results differ
from hypothetical gross interest rates illustrated. A Guaranteed Interest
Account providing interest at a minimum guaranteed rate of 4% also is available
under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
72
