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>
VARIABLE LIFE INSURANCE POLICY
ISSUED BY: PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
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 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, within a range, the
Target Face Amount. Under limited circumstances, the Policyowner may choose to
pay additional premiums. Because the Policyowner may pay additional premiums
only under certain limited circumstances, Policy loans, surrenders or decreases
in death benefits may have certain tax consequences. UNDER MOST CIRCUMSTANCES,
THE POLICY WILL BE CONSIDERED TO BE A "MODIFIED ENDOWMENT CONTRACT";
ACCORDINGLY, LOANS AND FULL AND PARTIAL SURRENDERS RECEIVED UNDER THE POLICY MAY
BE SUBJECT TO TAX AND/OR PENALTIES WITH RESPECT TO INCOME EARNED IN EXCESS OF
PREMIUMS PAID. SEE "FEDERAL TAX CONSIDERATIONS." Generally, the minimum Issue
Premium Phoenix will accept is $10,000. Phoenix may in some cases accept
less than that amount.
The Issue Premium is 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. Each Sub-account of the VUL Account invests in a
corresponding series of The Phoenix Edge Series Fund or Wanger Advisors Trust
(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 Cash Value for a Policy except for that
portion of Cash Value invested in the GIA, which has a 4% minimum interest rate
guarantee. The Cash Value of a Policy not invested in GIA will vary to reflect
the investment experience of the
Sub-accounts 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 Surrender Value is sufficient to pay certain monthly charges
imposed in connection with the Policy.
During the first Policy Month, the death benefit under the Policy equals the
Target Face Amount designated by the applicant. Thereafter, the death benefit
may vary up or down based upon Cash Value and other factors.
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......................................... 4
SUMMARY .............................................. 4
PHOENIX AND THE VARIABLE ACCOUNT ..................... 7
Phoenix................................................ 7
The VUL Account ....................................... 7
The GIA ............................................... 7
THE POLICY ............................................... 8
Introduction .......................................... 8
Eligible Purchasers ................................... 8
Premium Payment ....................................... 8
Allocation of Issue Premium............................ 8
Right to Cancel Period................................. 9
Temporary Insurance Coverage........................... 9
Transfer of Policy Value............................... 9
Determination of Sub-account Values.................... 9
Death Benefit.......................................... 10
Minimum Face Amount Rider.............................. 11
Surrenders............................................. 11
Policy Loans........................................... 11
Lapse.................................................. 12
INVESTMENTS OF THE VUL ACCOUNT............................ 12
Participating Mutual Funds............................. 12
Investment Advisers to the Phoenix Edge Series Fund.... 13
Investment Adviser to the Wanger Advisors Trust....... 13
Reinvestment and Redemption............................ 13
Substitution of Investments............................ 13
Performance History.................................... 14
CHARGES AND DEDUCTIONS.................................... 15
Monthly Deduction...................................... 15
Cost of Insurance...................................... 16
Mortality and Expense Risk Charge...................... 16
Investment Management Charge........................... 16
Other Charges.......................................... 16
GENERAL PROVISIONS........................................ 16
Postponement of Payments............................... 16
The Contract........................................... 17
Suicide................................................ 17
Incontestability....................................... 17
Change of Owner or Beneficiary......................... 17
Assignment............................................. 17
Misstatement of Age or Sex............................. 17
Surplus................................................ 17
PAYMENT OF PROCEEDS....................................... 17
Surrender and Death Benefit Proceeds................... 17
Payment Options........................................ 17
FEDERAL TAX CONSIDERATIONS................................ 18
Introduction........................................... 18
Phoenix's Tax Status................................... 18
Policy Benefits........................................ 18
Business-Owned Policies................................ 19
Material Change Rules.................................. 19
Limitations on Unreasonable Mortality and
Expense Charges...................................... 19
Qualified Plans........................................ 20
Diversification Standards.............................. 20
Change of Ownership or Insured or Assignment........... 20
Other Taxes........................................ 20
VOTING RIGHTS............................................. 20
The Funds.............................................. 20
Phoenix................................................ 21
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX........... 21
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS .................. 22
SALES OF POLICIES ........................................ 22
STATE REGULATION ......................................... 22
REPORTS .................................................. 22
LEGAL PROCEEDINGS ........................................ 22
LEGAL MATTERS ............................................ 22
REGISTRATION STATEMENT ................................... 22
FINANCIAL STATEMENTS ..................................... 22
APPENDIX A ............................................... 64
APPENDIX B................................................ 65
----------
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.
----------
The Policy is not available in all States.
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>
<CAPTION>
MONEY MARKET SUB-ACCOUNT
-------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value,
beginning of period. $1.515458 $1.466849 $1.433159 $1.390671 $1.318772 $1.225312 $1.127334 $1.054570 $1.000000
Unit value,
end of period....... $1.593676 $1.515458 $1.466849 $1.433159 $1.390671 $1.318772 $1.225312 $1.127334 $1.054570
========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units
outstanding (000) 1,110 415 609 413 2,638 567 676 548 729
</TABLE>
<TABLE>
<CAPTION>
GROWTH SUB-ACCOUNT
-----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value,
beginning of period $2.467899 $2.444383 $2.052568 $1.870245 $1.317081 $1.272374 $0.939413 $0.908632 $1.000000
Unit value,
end of period...... $3.213898 $2.467899 $2.444383 $2.052568 $1.870245 $1.317081 $1.272374 $0.939413 $0.908632
========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units
outstanding (000) 7,658 7,590 7,475 7,691 1,921 1,025 876 803 840
</TABLE>
<TABLE>
<CAPTION>
MULTI-SECTOR SUB-ACCOUNT
(FORMERLY THE "BOND" SUB-ACCOUNT)
-----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value,
beginning of period $1.689832 $1.796321 $1.557550 $1.422219 $1.195462 $1.142149 $1.060739 $0.965132 $1.000000
Unit value,
end of period.... $2.076917 $1.689832 $1.796321 $1.557550 $1.422219 $1.195462 $1.142149 $1.060739 $0.965132
========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units
outstanding (000) 1,370 936 1,103 463 399 439 353 359 23
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN SUB-ACCOUNT
-----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unit value,
beginning of period $1.885207 $1.921620 $1.739683 $1.580099 $1.228305 $1.167301 $0.978741 $0.961150 $1.000000
Unit value,
end of period...... $2.217235 $1.885207 $1.921620 $1.739683 $1.580099 $1.228305 $1.167301 $0.978741 $0.961150
========= ========= ========= ========= ========= ========= ========= ========= =========
Number of units
outstanding (000) 6,612 6,838 7,036 5,565 2,611 2,581 2,872 3,315 2,031
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL SUB-ACCOUNT
-------------------------------------------------------------------------------------------------
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 5/1/90 TO
1995 1994 1993 1992 1991 12/31/90
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Unit value, beginning of period $1.292393 $1.298093 $0.942557 $1.086612 $0.912564 $1.000000
Unit value, end of period...... $1.409264 $1.292393 $1.298093 $0.942557 $1.086612 $0.912564
========= ========= ========= ========= ========= =========
Number of units outstanding (000) 816 1,081 848 384 230 56
</TABLE>
<TABLE>
<CAPTION>
BALANCED SUB-ACCOUNT
---------------------------------------------------------------------------------------------------
FROM
INCEPTION
YEAR ENDED DECEMBER 31, 5/1/92 TO
1995 1994 1993 12/31/92
---- ---- ---- --------
<S> <C> <C> <C> <C>
Unit value, beginning of period $1.132914 $1.171796 $1.084386 $1.000000
Unit value, end of period...... $1.390344 $1.132914 $1.171796 $1.084386
========= ========= ========= =========
Number of units outstanding (000) 254 285 339 240
</TABLE>
REAL ESTATE 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,
FINANCIALS FOR THESE SUB-ACCOUNTS ARE NOT YET AVAILABLE.
ABERDEEN NEW ASIA SUB-ACCOUNT
THIS SUB-ACCOUNT COMMENCED OPERATIONS AS OF SEPTEMBER 15, 1996; ACCORDINGLY,
FINANCIALS FOR THIS SUB-ACCOUNT ARE NOT YET AVAILABLE.
3
<PAGE>
SPECIAL TERMS
- --------------------------------------------------------------------------------
As used in this Prospectus, the following terms have the indicated meanings:
ACQUISITION EXPENSE (ACQUISITION EXPENSE ALLOWANCE): The amount set forth on
the Schedule Pages of a Policy. It equals the aggregate of the sales load, issue
administration charge and premium taxes assessed under the Policy. The
Acquisition Expense (also referred to as Acquisition Expense Allowance) is
deducted from the Issue Premium and recredited to Policy Value. A pro rata
portion of the Acquisition Expense is deducted from Policy Value monthly during
the first 10 Policy Years. Upon Policy lapse or full surrender, any unpaid
Acquisition Expense is paid.
ADDITIONAL NET PREMIUM: Additional premium reduced by the Premium Tax Charge
and, for additional premiums received during a grace period, by the amount
needed to cover any monthly deductions made during the grace period.
BENEFICIARY: The person or persons specified by the Policyowner as entitled to
receive the death benefits under a Policy.
CASH VALUE: The Policy Value less the balance of any unpaid Acquisition Expense
Allowance.
DEATH BENEFIT ADJUSTMENT RATES: Rates used to calculate the variable death
benefit under a Policy as set forth in a table in the Schedule Pages of the
Policy.
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: Condition 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.
LOAN ACCOUNT: An account within the General Account to which amounts are
transferred for Policy loans.
MATURITY DATE: The anniversary of the Policy nearest the Insured's 95th
birthday, if the Insured is living.
MONTHLY CALCULATION DAY: The first Monthly Calculation Day is the same day as
the Policy Date. Subsequent Monthly Calculation Days are the same day of each
month thereafter or, if such day does not fall within a given month, the last
day of that month will be the Monthly Calculation Day.
PAYMENT DATE: The Valuation Date on which a premium payment or loan repayment
is received at Variable and Universal Life Administration 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.
POLICY ANNIVERSARY: Each anniversary of the Policy Date.
POLICY DATE: The Policy Date as shown on the Schedule Page of the Policy.
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 value of each Sub-account plus
the Policy's share in the values of the GIA and the Loan Account.
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 Phoenix's VUL Account to which non-loaned
assets under a Policy are allocated.
SURRENDER VALUE: The Cash Value less any indebtedness under the Policy.
TARGET FACE AMOUNT: The Target Face Amount as shown in the Schedule Pages of a
Policy or as later changed in accordance with the Partial Surrender Provision of
a Policy.
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.
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 in a designated portfolio of
the available Funds. Also, under the
4
<PAGE>
Policy, the amount and duration of the life insurance coverage and its Policy
Value are 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, under certain limited circumstances, to
make additional premium payments and to thereby adjust the variable death
benefit. Thus, 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. Lapse will occur when the 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."
2. IS THERE A GUARANTEED 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, within limits
set by Phoenix, an Issue Premium and amount of the initial Target Face Amount.
During the first Policy Month, the death benefit under the Policy equals the
Target Face Amount. Thereafter, the death benefit is equal to a variable death
benefit.
The variable death benefit in any Policy Month is equal to the Death Benefit
Adjustment Rate for that month, multiplied by the Policy's Cash Value on the
Monthly Calculation Day during that Policy Month (determined without regard to
the monthly deduction on that day). The Death Benefit Adjustment Rates are set
forth in the Schedule Pages of the Policy.
A Minimum Face Amount Rider is optionally available to applicants. It may be
obtained as part of the Policy by electing the rider in the application for the
Policy. The Minimum Face Amount is the amount designated in the application for
a Policy, or as later changed by any partial surrenders. The Minimum Face Amount
may not exceed the Target Face Amount. For Policies that include the rider, the
death benefit during the first Policy Month equals the Target Face Amount.
Thereafter, the death benefit equals the variable death benefit, or the Minimum
Face Amount if higher. See "Death Benefit."
4. MAY A POLICYOWNER PAY ADDITIONAL PREMIUMS?
Yes, if there has been a decrease in the variable death benefit, or if the
Policy would otherwise lapse, and within certain other limits imposed by
Phoenix. Payment of additional premiums generally will have the same effect on
the Policy's variable death benefit as would an increase in Policy Value because
of favorable investment performance in an amount equal to the Additional Net
Premium applied to the Sub-accounts. See "Premium Payment" and "Lapse."
5. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The Policy will lapse only when the 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.
6. WHAT CHARGES ARE THERE IN CONNECTION WITH THE POLICY?
MONTHLY DEDUCTION. Once each month, an amount is deducted from the Policy
Value (excluding the value of the Loan Account) equal to the monthly cost of
insurance charge. Additionally, each month during the first 10 Policy Years, a
deduction is made equal to the monthly pro rata share of the balance of any
unrepaid Acquisition Expense. The Acquisition Expense is equal to 6.5% of the
Issue Premium plus the percentage necessary to cover the applicable state
premium taxes. See "Charges and Deductions."
OTHER CHARGES. A charge equal to the lesser of $25 or 2% of the partial
surrender amount paid is deducted from the Policy Value for each partial
surrender.
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 and the GIA to pay these taxes.
Phoenix charges each Sub-account of the VUL Account the daily equivalent
of 0.50% 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.
Additional premium amounts 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 Fund's as follows:
5
<PAGE>
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%
Each Series pays a portion or all of its total operating expenses other than
the management fee. The Growth, Multi-Sector, Total Return, Money Market and
Balanced Series will pay up to .15%; the International will pay up to .40%; the
Real Estate, Strategic Theme and Asia Series will pay up to .25%; 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 total net assets.
These Fund charges and other expenses are described more fully in the
accompanying Fund prospectuses.
See "Charges and Deductions--Other Charges."
7. IS THERE A RIGHT TO CANCEL PERIOD?
Yes. The Policyowner may cancel the Policy within 10 days 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.
8. HOW ARE PREMIUMS ALLOCATED?
If the applicant elects the Temporary Money Market Allocation Amendment in
the application, Phoenix will allocate the entire Issue Premium 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
allocated on the Policy Date according to the instruction in the application
without first having the premium placed in the Money Market Sub-account. The
Policy Value may be allocated among the Sub-accounts of the VUL Account or to
the GIA.
9. 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 GIA. The amount of that transfer is limited to the higher of
$1,000 or 25% of the value of the Policy in the GIA. While Phoenix reserves
the right to limit the number of transfers permitted in any Policy Year, the
Policyowner always will be permitted at least six transfers per Policy Year.
Also, Phoenix reserves the right to set a minimum transfer amount, not to
exceed $500, for each transfer. A transfer is effective as of the day
appropriate written request for such transfer is received at Variable and
Universal Life Administration. A systematic transfer program also is
available. See "Transfer of Policy Value."
10. MAY THE POLICY BE SURRENDERED?
Yes. A Policyowner may totally surrender the Policy at any time and receive
the 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 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." In addition, there
will, in most instances, be certain tax consequences as the result of surrenders
because the Policy generally will be considered to be a "modified endowment
contract." A policy is 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."
11. WHAT IS THE POLICY'S LOAN PRIVILEGE?
During the first three Policy Years, a Policyowner may obtain Policy loans
in an amount up to 75% of the Cash Value. Thereafter, loans may be obtained up
to 90% of the Cash Value. The interest rate on a loan is at an effective annual
rate of 8.00%, compounded daily and payable on each Policy Anniversary in
arrears. The requested loan amount is transferred from the VUL Account or the
GIA to a Loan Account within Phoenix's General Account and is credited with
interest at an effective annual rate of 7.25% per year compounded daily. Phoenix
may impose a minimum loan amount, not to exceed $500. However, any such
minimum loan amount will not apply to loans, the proceeds of which are used 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
because the Policy generally will be considered to be a modified endowment
contract as discussed above. See "Federal Tax Considerations."
6
<PAGE>
12. WHAT OPTIONAL INSURANCE BENEFITS ARE THERE UNDER THE
POLICY?
Optional insurance benefits offered under the Policy include a Minimum Face
Amount Rider. See "Minimum Face Amount Rider."
13. 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
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 currently has eleven Sub-accounts 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 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 Adviser's current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately as a return figure the equity or bond portion of a
Series' portfolio; or compare a Series' equity or bond return figure to
well-known indices of market performance, including, but not limited to the
S&P 500 Index, Dow Jones Industrial Average, First Boston High Yield Index and
Solomon Brothers Corporate and Government Bond Indices.
The Funds 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., Morningstar, Inc. and
Tillinghast. 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, 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 1941-43. The S&P 500 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 500 represents about
80% of the market value of all issues 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 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. Interest on 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 premium
or transferred 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
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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 the new rate is applied. For more complete information concerning the GIA,
see Appendix A.
THE POLICY
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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 in 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 Fund. The Policy's death benefit and Cash
Value vary reflecting the investment performance of the Series to which the
Policy Value has been allocated.
ELIGIBLE PURCHASERS
Any person up to the age of 75 is eligible to be insured under a newly
purchased Policy after providing 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 $10,000. After the first Policy
Year, the Policyowner may pay, within certain limits, additional premiums if the
variable death benefit on the first day of the Policy Year is less than the
highest variable death benefit during the previous Policy Year and less than the
current Target Face Amount. Additional premiums may be paid only during the
first sixty days of a Policy Year.
The maximum amount of an additional premium payment (when permitted) is the
lesser of (i) A minus B or (ii) C, where:
A = The premium payment which would have increased the variable death
benefit at the beginning of the current Policy Year to the highest
variable death benefit during the previous Policy Year.
B = The amount of any reduction in Cash Value due to partial surrenders made
during the previous Policy Year.
C = The premium payment which would have increased the variable death
benefit at the beginning of the current Policy Year to the current
Target Face Amount.
Example: Assume that a male age 45, nonsmoker, pays an initial
premium of $10,000 and has a Target Face Amount of $28,236.
Assume also a net investment rate of return of 9% for the first Policy
Year and a net investment rate of return of 0% for the second and third
Policy Years. At the beginning of the third Policy Year, this
Policyowner would have a variable death benefit of $28,952. This
variable death benefit is less than the highest death benefit in the
previous year, which would have been $29,772. However, since $28,952 is
higher than the initial Target Face Amount of $28,236, this Policyowner
would not be permitted to pay an additional premium.
At the beginning of the fourth Policy Year, the Policyowner would have
a variable death benefit of $27,940. This variable death benefit is
less than the highest death benefit in the previous year, which would
have been $28,952. This death benefit also is less than the initial
Target Face Amount of $28,236, and therefore this Policyowner would be
permitted to pay an additional premium. The premium necessary to
increase the death benefit to $28,236 (the initial Target Face Amount)
is $105.66 for this Policyowner. Phoenix also may agree to allow this
Policyowner to pay a higher premium amount.
The Policyowner may wish to pay this additional premium to maintain his
originally targeted level of death benefit protection despite adverse
market experience. In addition, some Policyowners may view depressed
market values as an opportunity to buy additional units at the
depressed value in anticipation of future market improvement.
Additional premium payments are reduced by any applicable state premium tax
based on the Policyowner's last known address on record at Variable and
Universal Life Administration. See "Monthly Deduction--Acquisition Expense."
Also, a further deduction is made from additional premiums when paid during a
grace period. See "Lapse."
The additional premiums less applicable deductions are called Additional Net
Premium and are applied to Policy Value based on the then current premium
allocation schedule.
The payment of additional premiums will have an effect on the
Policy's variable death benefit. See "Death Benefit--Additional
Premiums and Partial Surrenders: Effect on Death Benefit."
ALLOCATION OF ISSUE PREMIUM
Within seven business days after the later of receipt of the Issue Premium
and Phoenix's approval of a completed application for processing, Phoenix
allocates the Issue Premium to the VUL Sub-accounts or the GIA. Generally, the
Issue Premium is directly allocated 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 (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; 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
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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 ("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
A Policyowner may transfer all or a portion of Policy Value among
Sub-accounts or the GIA by Written Request or by telephone request. However, for
Policies issued with the Temporary Money Market Allocation Amendment, transfers
may not be made until termination of the Right to Cancel Period.
A Policyowner may request transfers among available Sub-accounts or the GIA
in writing or by calling 1-800-892-4885, between the hours of 8:30 a.m. and
4:00 p.m. Eastern Time. Unless the Policyowner elects in writing not to
authorize telephone transfers, telephone transfer orders 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
address verification, identical account registrations and will record telephone
instructions on tape. All telephone exchanges will be confirmed in writing to
the Policyowners. 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. The telephone transfer privilege may be modified or
terminated at any time, and during times of extreme market volatility, it may be
difficult to exercise. In such cases, the Policyowner should submit a written
request.
A Policyowner also may elect to transfer funds automatically among the
Sub-accounts or 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 from which funds will be transferred, 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 rather than on the
basis of the respective values next determined after 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.
Unless Phoenix agrees otherwise or the Systematic Transfer Program has
been elected, a Policyowner may make only one transfer per Policy Year from the
GIA. Transfers will be effectuated on the date the transfer request was received
at Variable and Universal Life Administration, unless made pursuant to the
Systematic Transfer Program as noted above. For non-systematic transfers, the
amount that may be transferred from the GIA at any one time cannot exceed the
greater of $1,000 or 25% of the Policy Value in the GIA at the time of
transfer. THERE ARE ADDITIONAL RESTRICTIONS ON TRANSFERS FROM THE GIA AS
DESCRIBED ABOVE AND IN APPENDIX A.
Phoenix reserves the right to limit the number of transfers made during a
Policy Year. However, Policyowners will be permitted at least six transfers per
Policy Year. Also, Phoenix reserves the right to set a minimum transfer amount
not to exceed $500. A non-systematic transfer will take effect on the date the
request is received at 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.
DETERMINATION OF SUB-ACCOUNT VALUES
On each Valuation Date, the Policy's share in the value of each Sub-account
is determined separately, but the valuation method used is the same for each
Sub-account. A Policy's share in the value of a Sub-account on any Valuation
Date equals:
(a) The Policy's share in the value of that Sub-account as of the
immediately preceding Valuation Date multiplied by the "Net Investment
Factor" of that Sub-account for the current Valuation Period; plus
(b) All amounts transferred, to the Policy's share in the value of that
Sub-account from another Sub-account or from the Loan Account during
the current Valuation Period; plus
(c) All Additional Net Premiums allocated to that Sub-account during the
current Valuation Period; minus
(d) All amounts transferred from the Policy's share in the value of that
Sub-account to another Sub-account or to the Loan Account during the
current Valuation Period; minus
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(e) Any portion of the monthly deduction allocated to the Policy's share
in the value of that Sub-account during the current Valuation Period;
minus
(f) All reductions in the Policy Value allocated to the Policy's share in
the value of that Sub-account due to any partial surrenders made
during the current Valuation Period.
The Net Investment Factor for each Sub-account for any Valuation Period is
determined by dividing (a) by (b), and subtracting (c) from the result where:
(a) is the result of:
(i) the asset value of the Fund shares held by that Sub-account
determined as of the end of the current Valuation Period
(exclusive of the net value of any transactions during the
current valuation period); plus
(ii) the amount of any dividend (or, if applicable, any capital gain
distribution) made by the Fund on shares held by that Sub-account
if the "ex dividend" date occurs during the current Valuation
Period; plus/minus
(iii)the charge or credit for any taxes incurred by or provided for in
that Sub-account for the current Valuation Period.
(b) the net asset value of the Fund shares held by that Sub-account
determined as of the end of the immediately preceding Valuation
Period.
(c) is a factor, equal to the sum of 0.50% on an annual basis held by that
Sub-account, representing the Mortality and Expense Risk Charge
deducted from that Sub-account during the Valuation Period.
The Net Investment Factor may be greater than, less than, or equal to one.
Therefore, the Policy Value may increase, decrease, or remain unchanged.
DEATH BENEFIT
GENERAL
In the application for insurance, an applicant designates an amount as the
Policy's initial Target Face Amount. During the first Policy Month, the death
benefit equals this Target Face Amount. After the first Policy Month the death
benefit is equal to the variable death benefit.
During any Policy Month after the first, the variable death benefit under
the Policy is equal to:
(i) the Cash Value on the last preceding Monthly Calculation Day,
multiplied by
(ii) the applicable Death Benefit Adjustment Rate (as defined below) on the
last preceding Monthly Calculation Day.
The Death Benefit Adjustment Rates assume an interest rate ranging from
4.0% to 5.0%. The assumed interest rate used to calculate the Death Benefit
Adjustment Rates under a particular Policy depends on the Policy's Initial
Premium and its Target Face Amount. In the event the net investment rate of
return (gross investment return net of mortality and expense risk charge and
investment management fee) applied to the Policy Value exceeds the assumed
interest rate used to calculate the Death Benefit Adjustment Rates, the variable
death benefit under the Policy will be greater than its Target Face Amount.
Conversely, if the net investment rate of return applied to the Policy Value is
less than the assumed interest rate, then the variable death benefit will be
less than the Target Face Amount. Finally, if the net investment rate of return
applied to the Policy Value equals the assumed interest rate, then the variable
death benefit will approximately equal the Target Face Amount.
EXAMPLE: Death Benefit Adjustment Rates which assume a 4% interest rate
apply to a male age 45 nonsmoker who pays an initial premium of $25,000 and has
a Target Face Amount of $70,591. Five years after the Issue Date of this Policy,
the following variable death benefits would apply for the specified net rates of
return:
--assuming a 5% net investment rate of return: $75,144
--assuming a 4% net investment rate of return: $71,514
--and assuming a 3% net investment rate of return: $68,019
EXAMPLE: A male age 45, nonsmoker, pays an initial premium of $10,000. For
this initial premium, this Policyowner can choose an initial Target Face
Amount ranging from $28,236 to $35,980. This range of Target Face Amount
represents Death Benefit Adjustment Rates which assume interest rates
ranging from 4.0% to 5.0% and a 2% state premium tax. Generally, selection
of the highest Target Face Amount available for a given premium will result
in the highest death benefit adjustment rate, variable death benefit and
resulting cost of insurance charges. Conversely, selection of the lower
Target Face Amount available for a given premium will result in the lowest
death benefit adjustment rate, variable death benefit and resulting cost of
insurance charges.
Assuming that this Policyowner selects an initial Target Face Amount of
$35,980, and that the net rate of return achieved is 5% per year, this
Policyowner will have a variable death benefit of $36,826 and cash value of
$36,826 when he reaches age 95. The variable death benefit and cash value
are slightly larger than the initial Target Face Amount due to the fact that
the Acquisition Expense is deducted and then re-credited to the Policyowner
and taken out in monthly installments over the first ten Policy Years. While
a portion of this Acquisition Expense Allowance remains in the Policy Value,
it also is earning a net rate of return.
ADDITIONAL PREMIUMS AND PARTIAL SURRENDERS: EFFECT ON DEATH BENEFIT
Additional premium payments are permitted under certain circumstances. See
"The Policy--Premium Payment." Such a payment does not result in an immediate
increase in the variable death benefit. However, on the next Monthly Calculation
Day the variable death benefit will be larger as a consequence of the larger
cash value.
A partial surrender decreases the Target Face Amount and the Minimum Face
Amount (if provided by appropriate rider). The Target Face Amount and Minimum
Face Amount are reduced by a fraction equal to the result of dividing the
partial surrender amount paid plus the partial surrender fee by the Cash Value
(determined without regard to the partial surrender). Moreover, the death
benefit under a Policy is reduced on the next Monthly Calculation Day due to the
reduced Cash
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Value. A partial surrender or decrease in the death benefit may have certain tax
consequences. See "Federal Tax Considerations."
In addition, if the Insured dies during any Policy Month in which additional
premium had been paid, the death proceeds paid will equal the death benefit for
that month plus the additional premium paid, minus any premium paid during a
grace period necessary to keep the Policy in effect.
MINIMUM FACE AMOUNT RIDER
An applicant in the application for a Policy may elect to have a Minimum
Face Amount Rider issued in connection with the Policy. If this Rider is
elected, the applicant designates in the application an amount to be the Minimum
Face Amount. The amount designated as the Minimum Face Amount cannot exceed the
Policy's Target Face Amount.
The death benefit under a Policy issued with the Minimum Face Amount Rider
equals the Target Face Amount during the first Policy Month. Thereafter, the
Policy's death benefit equals the higher of (i) the variable death benefit or
(ii) the Minimum Face Amount.
Under the Minimum Face Amount Rider, when the death benefit is calculated
with reference to the Minimum Face Amount, the death benefit under the Policy
may be greater than it otherwise would have been if the Rider had not been
issued. Accordingly, when the Minimum Face Amount is used to calculate the death
benefit, there is a greater "net amount at risk" under the Policy and,
therefore, a larger amount is deducted from Policy Value to pay for cost of
insurance than would be deducted under an identical Policy without the Rider.
SURRENDERS
GENERAL
At any time during the lifetime of the Insured and while the Policy is in
force, 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 Value at the end of the
Valuation Period during which the surrender request is received at Variable and
Universal Life Administration less any indebtedness.
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
"Payment Options."
PARTIAL SURRENDERS
For a partial surrender, the amount paid plus the partial surrender fee will
be deducted from the Policy Value at the end of the Valuation Period during
which the request is received. The Policy Value will be reduced by the partial
surrender amount paid, the partial surrender fee (see "Charges and
Deductions--Other Charges"), and a portion of any unrepaid Acquisition Expense.
The portion of any unrepaid Acquisition Expense paid in connection with a
partial surrender is equal to the result of dividing the partial surrender
amount paid plus the partial surrender fee by the Cash Value (determined without
regard to the partial surrender). The reduction in Policy Value caused by
partial surrenders is deducted from the Sub-accounts of the VUL Account based on
the allocation schedule for monthly deductions, unless the Policyowner directs
otherwise. Cash Value is reduced to equal the resulting Policy Value less the
balance of any remaining unpaid Acquisition Expense Allowance.
Partial surrenders will decrease the Target Face Amount and the Minimum Face
Amount (if provided by rider), as well as the variable death benefit. See "Death
Benefit--Additional Premiums and Partial Surrenders: Effect on Death Benefit"
and "Federal Tax Considerations."
In the future, Phoenix may set a minimum partial surrender amount not to
exceed $500. Also, partial surrenders will be permitted only if the death
benefit under the Policy after the requested partial surrender would equal or
exceed the minimum death benefit amount set by Phoenix from time to time.
Furthermore, partial surrenders will not be allowed if the Surrender Value of
the Policy after the requested partial surrender would equal zero or less.
POLICY LOANS
During the first three Policy Years, the Policyowner may borrow under the
Policy an amount up to 75% of the Cash Value. Thereafter, Policyowners may
borrow an amount not exceeding 90% of the Cash Value. The requested loan amount
is transferred to the Loan Account from the Sub-accounts of the VUL Account or
the GIA based on the allocation schedule for monthly deductions, unless the
Policyowner requests a different allocation in the loan request. The debt under
the Policy and the balance of the Loan Account is increased by the amount of the
Policy loan.
The proceeds of a Policy loan may be subject to federal income tax.
See "Federal Tax Considerations."
In the future, Phoenix may not allow Policy loans of less than $500,
unless such loan is used to pay a premium on another Phoenix Policy.
The loan debt will bear interest at an effective annual rate of 8.00%,
compounded daily and payable in arrears. The Loan Account Value is credited with
interest at an effective annual rate of 7.25%, compounded daily and payable in
arrears. At the end of each Policy Year, the difference between any unpaid
interest on the debt and the interest earned on the Loan Account Value will be
offset by a transfer from the Policyowner's Sub-account or GIA values to the
value of the Policyowner's Loan Account.
A Policy loan, whether or not repaid, has a permanent effect on the Cash
Value because the investment results of the Sub-accounts or the GIA will apply
only to the amount remaining in the Sub-accounts or 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 GIA earn more than 7.25%
per annum, which is the annual interest rate for funds held in the Loan Account,
Cash Value does not increase as rapidly as it would have had no loan been made.
If the
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Sub-accounts or the GIA earn less than 7.25% per annum, Cash 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 variable death benefit due to any
resulting differences in Cash Value. While the loan is outstanding, any payment
on the loan will be treated as a repayment (not subject to the premium tax).
The Policyowner may repay part or all of the debt at any time. If the value
of the Loan Account on the Payment Date of the debt repayment is greater than
the reduced remaining debt, then the value of the Loan Account will be reduced
to equal the remaining debt. On the Payment Date, the share of Policy Value in
the Sub-accounts or the GIA is increased based on the allocation requested upon
repayment. The amount of the increase equals the amount of reduction in value of
the Loan Account. If no allocation request is made, the allocation will be based
on the then current premium allocation schedule.
LAPSE
Unlike conventional fixed benefit life insurance policies, the payment of
the Issue Premium, no matter how large, or the payment of additional premiums
will not necessarily continue the Policy in force to its Maturity Date. Lapse
will only occur where the Surrender Value is insufficient to cover the monthly
deduction, and a grace period expires without payment of the additional amount
required. If the Surrender Value is insufficient to cover the monthly deduction,
the Policyowner must pay during the grace period the amount needed to increase
the Surrender Value to equal three times the required monthly deduction. See
"Charges and Deductions."
If on any Monthly Calculation Day the Surrender Value is insufficient to
cover the monthly deduction, Phoenix will notify the Policyowner of the
additional payment required. The Policyowner will then have a grace period of 61
days, measured from the date notice is sent to the Policyowner, to pay the
additional amount. Failure to pay the additional amount within the grace period
will result in lapse of the Policy. If a premium payment for the additional
amount is received by Phoenix during the grace period, any Additional Net
Premium will be allocated among the Sub-accounts of the VUL Account or the GIA
in accordance with the then current premium allocation schedule. In determining
the Additional Net 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.
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 available
Series and their fundamental objectives are as follows:
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 SERIES: (Multi-Sector Series, formerly the "Bond"
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).
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' investments are made based on combined considerations of risk,
income, capital enhancement and protection of capital value.
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.
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 through investing in
securities of companies that the adviser believes are particularly well
positioned to benefit from cultural, demographic, regulatory, social or
technological changes worldwide.
ABERDEEN NEW ASIA SERIES ("ASIA SERIES"): The investment objective of the
Asia Series is to seek long-term capital appreciation. The New 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:
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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.
Shares of the Funds may be sold to other separate accounts of Phoenix or
its affiliates or of other insurance companies funding variable annuity or
variable life insurance contracts. 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 Funds simultaneously. Although
neither Phoenix nor the Funds currently foresee any such disadvantages either
to variable life insurance Policyowners or to variable annuity Contract
Owners, the Funds' Trustees intend to monitor events in order to identify any
material conflicts between variable life insurance Policyowners and variable
annuity Contract Owners and to determine what action, if any, should be taken
in response 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 Funds, 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") (the "Advisers"), which
are located at 56 and 38 Prospect Street, respectively, Hartford, Connecticut
06115.
PIC was originally organized in 1932 as John P. Chase, Inc. In addition to
the Fund, it 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 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 ADVISER 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 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 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 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.
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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 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.
Assumptions:
Value of hypothetical pre-existing account with
exactly one unit at the beginning of the period: 1.592102
Value of the same account (excluding capital
changes) at the end of the seven-day period: 1.593676
Calculation:
Ending account value.......................... 1.593676
Less beginning account value.................. 1.592102
Net change in account value................... 0.001574
Base period return:
(adjusted change/beginning account value)..... 0.000989
Current yield = return x (365/7) =............... 5.15%
Effective yield = [(1 + return)365/7] -1 =....... 5.29%
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 all applicable Policy
charges except for cost of insurance (which varies 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
-----------------------------
COMMENCE- LIFE OF
SUB-ACCOUNT MENT DATE 1 YEAR 5 YEARS 10 YEARS FUND
- ----------- --------- ------ ------- -------- ----
Multi-Sector.... 1/01/83 14.92% 10.19% 9.16% 9.78%
Balanced........ 5/01/92 14.75% N/A N/A 7.40%
Total Return.... 9/17/84 9.97% 11.04% 10.78% 11.63%
Growth.......... 1/01/83 21.76% 17.94% 15.49% 17.60%
International... 5/01/90 1.96% 7.62% N/A 4.98%
Money Market.... 10/10/82 (1.67)% 2.47% 4.73% 5.53%
ANNUAL TOTAL RETURNS*
---------------------
TOTAL
YEAR MULTI-SECTOR BALANCED RETURN GROWTH
- ---- ------------ -------- ------ ------
1983......... 5.47% N/A N/A 32.22%
1984......... 10.78% N/A (1.21)% 10.11%
1985......... 20.00% N/A 26.69% 34.24%
1986......... 18.69% N/A 15.10% 19.86%
1987......... 0.60% N/A 12.16% 6.48%
1988......... 9.89% N/A 1.83% 3.39%
1989......... 7.70% N/A 19.27% 35.39%
1990......... 4.67% N/A 5.22% 3.55%
1991......... 18.97% N/A 28.64% 42.00%
1992......... 9.52% 8.44% 10.10% 9.75%
1993......... 15.33% 8.06% 10.46% 19.09%
1994......... (5.93)% (3.32)% (1.89)% 0.96%
1995......... 22.91% 22.72% 17.61% 30.23%
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MONEY
YEAR INTERNATIONAL MARKET
- ---- ------------- ------
1983........... N/A 7.79%
1984........... N/A 9.67%
1985........... N/A 7.49%
1986........... N/A 5.98%
1987........... N/A 5.97%
1988........... N/A 6.90%
1989........... N/A 8.65%
1990........... (8.74)% 7.67%
1991........... 19.07% 5.45%
1992........... (13.26)% 3.06%
1993........... 37.72% 2.35%
1994........... (0.44)% 3.31%
1995........... 9.04% 5.16%
*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."
A Sub-account's performance may be compared to that of the Consumer Price
Index or various unmanaged equity or bond indices such as the Dow Jones
Industrial Average, the Standard & Poor's 500 Stock Index, and the Europe
Australia Far East Index, and also may be compared to the performance of other
variable life accounts as reported by services such as Lipper Analytical
Services, Inc. ("Lipper"), CDA Investment Technologies, Inc. ("CDA") and
Morningstar, Inc. or in other various publications. Lipper and CDA are widely
recognized independent rating/ranking services. A Sub-account's performance also
may be compared to that of other investment or savings vehicles.
The Fund's Annual Report, available upon request and without charge,
contains 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 combined amount of items (1), (2), and (3) is referred to
as the Acquisition Expense (or the Acquisition Expense Allowance). The nature
and amount of these charges are described more fully below.
MONTHLY DEDUCTION
GENERAL
A charge is deducted monthly from the Policy Value under a Policy ("monthly
deduction") during the first ten Policy Years, to repay the Acquisition Expense
Allowance (as described below). A charge also is deducted monthly to
compensate Phoenix for the cost of insurance. The monthly deduction is
deducted on each Monthly Calculation Day. It is allocated among the
Sub-accounts of the VUL Account and the GIA based on the allocation schedule
for monthly deductions specified by the applicant in the application for a
Policy or as later changed by the Policyowner. Because portions of the monthly
deduction, such as the cost of insurance, can vary from month to month, the
monthly deduction itself may vary in amount from month to month.
ACQUISITION EXPENSE (ACQUISITION EXPENSE ALLOWANCE)
The Acquisition Expense Allowance equals the sales load, issue
administration charge and premium taxes deducted from the Issue Premium and
recredited by Phoenix as part of the allocation of the Issue Premium to the
Policy Value on the Date of Issue. A monthly pro rata share of the allowance is
repaid to Phoenix as part of the monthly deduction during the first 10 Policy
Years. Any unpaid balance is fully repaid to Phoenix upon Policy lapse or full
surrender.
The Acquisition Expense Allowance consists of the following elements:
1. SALES CHARGE. A sales charge of 5.5% of the Issue Premium paid is
assessed to compensate Phoenix for distribution expenses incurred in connection
with the Policy. These expenses include agent sales commissions, the cost of
printing prospectuses and sales literature, and any advertising costs. The sales
charge in any Policy is not necessarily related to actual distribution expenses
incurred in the year the Policy is issued.
2. ISSUE ADMINISTRATION CHARGE. A cost-based issue administration charge of
1.0% of the Issue Premium paid is assessed to compensate Phoenix for
underwriting and start-up expenses in connection with issuing a Policy.
3. 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 based on the state where the
Policyowner resides according to Phoenix's records at the time of the payment.
The assessment represents an amount Phoenix considers necessary to pay all
premium taxes imposed by such states and any subdivisions thereof. 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.
By deducting these charges in monthly installments instead of deducting
them all at once from the Issue Premium, more funds are available for investment
during the first ten Policy Years. As a result, if the net investment factor is
positive, the Policyowner will enjoy greater increases in Cash Value, but if the
net investment factor is negative, the Policyowner will experience greater
decreases in Cash Value.
Additional premiums are not subject to an Acquisition Expense Allowance (a
sales or issue administration charge). However, prior to allocation of
Additional Net Premiums among the Sub-accounts of the VUL Account or the GIA,
additional premiums paid will be reduced by the premium tax charge and, for
additional premiums paid during a grace period, by the amount needed to cover
any monthly deductions made during the grace period.
Phoenix may reduce the sales charge or issue administration charge
component of the Acquisition Expense Allowance for Policies issued under group
or sponsored arrangements. Generally, sales and administrative costs per Policy
vary with the size of the group or sponsored arrangement, its stability as
indicated by its term of existence and certain characteristics of its members,
the purposes for
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which the Policies are purchased and other factors. The amounts of any
reductions will be considered on a case-by-case basis and will reflect the
reduced sales or administration costs expected as a result of sales to a
particular group or sponsored arrangement.
COST OF INSURANCE
Because the cost of insurance depends upon a number of variables, this
charge can vary from month to month. The cost of insurance charge is equal to
the applicable cost of insurance rate divided by 1,000 multiplied by the "net
amount at risk" for each Policy Month. The net amount at risk for a Policy Month
is (a) the death benefit on the Monthly Calculation Day, less (b) the Cash Value
on such day.
Cost of insurance rates are based on the sex (in most states), attained age
and risk class of the Insured. The actual monthly cost of insurance rates are
based on Phoenix's expectations of future experience. They will not, however, be
greater than the guaranteed cost of insurance rates set forth in the Policy.
These guaranteed rates are based on the 1980 Commissioners Standard Ordinary
Mortality Table with appropriate adjustment for the Insured's risk
classification. Any change in the cost of insurance rates will apply to all
persons of the same insurance age, sex and risk class whose Policies have been
in force for the same length of time.
The risk class of an Insured may affect the cost of insurance rate. Phoenix
currently places Insureds into a standard risk class or risk classes involving
a higher mortality risk. In an otherwise identical Policy, Insureds in the
standard risk class will have a lower cost of insurance than those in the risk
class with the higher mortality risk. The standard risk class also is divided
into two categories: smokers and non-smokers. Non-smoking Insureds will
generally incur a lower cost of insurance than similarly situated Insureds who
smoke.
MORTALITY AND EXPENSE RISK CHARGE
Phoenix will deduct a daily charge from the VUL Account at an annual rate
of 0.50% 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, 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 it designed 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.
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 table below:
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%
Each Series pays a portion or all of its total operating expenses other than
the management fee. The Growth, Multi-Sector, Total Return, Money Market and
Balanced Series will pay up to .15%; the International Series will pay up to
.40%; the Real Estate, Strategic Theme and Asia Series will pay up to .25%;
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 total net assets.
OTHER CHARGES
PARTIAL SURRENDER FEE
A fee equal to the lesser of $25 or 2% of the partial surrender amount paid
is deducted from the Policy Value upon a partial surrender of the Policy. A
fraction of the balance of any unpaid Acquisition Expense also is deducted
from the Policy Value upon a partial surrender. The fraction is equal to the
result of dividing the partial surrender amount paid plus the partial surrender
fee by the Cash Value (determined without regard to the partial surrender).
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 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
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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 Cash Value, plus the Acquisition Expense,
plus any mortality and expense risk charges, monthly deductions and investment
management charges, less any outstanding indebtedness.
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 its effective
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 may be changed by Written
Request, satisfactory to Phoenix, and the beneficiary may be changed by
written notice. 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 because
Policyowners will be participating directly in investment results.
PAYMENT OF PROCEEDS
- --------------------------------------------------------------------------------
SURRENDER AND DEATH BENEFIT PROCEEDS
Proceeds of full or partial surrenders and the death proceeds usually will
be paid in one lump sum within seven days after Phoenix receives the request
for surrender and due proof of death, unless another payment option has been
elected. Payment of the death proceeds, however, may be delayed if the claim for
payment of the death proceeds needs to be investigated; e.g., to ensure payment
of the proper amount to the proper payee. Any such delay will not be beyond that
reasonably necessary to investigate such claims consistent with insurance
practices customary in the life insurance industry.
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 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 (except for Option 7 which is
not available for death proceeds), or such other payment options 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. Upon death of the payee, payment of the principal
amount along with any accrued and unpaid interest.
OPTION 3--PAYMENT FOR A SPECIFIC PERIOD. Equal income installments are paid
for a specified period of years. The first payment will be on the date of
settlement. The assumed interest rate on the unpaid balance is guaranteed not to
be less than 3% per year. Upon death of the named payee, the remaining
payments will continue to the
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<PAGE>
contingent beneficiary as designated in the written form electing the options.
OPTION 4--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN. Equal installments are
paid until the later of: (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.
OPTION 5--LIFE ANNUITY. Equal installments are paid only during the lifetime
of the payee. The first payment will be on the date of settlement. Under this
option, the payee may receive only one payment, if the payee dies before the due
date for the second payment; only two payments, if the payee dies before the due
date for the third payment, etc.
OPTION 6--PAYMENTS OF A SPECIFIED AMOUNT. Equal installments of a specified
amount, out of the principal sum and interest on that sum, are paid until the
principal sum remaining is less than the amount of the installment. When that
happens, the principal sum remaining with accrued interest will be paid as a
final payment. The first payment will be on the date of settlement. The payments
will include interest on the principal sum remaining at a rate guaranteed to at
least equal 3% per year. If the amount of interest credited at the end of the
year exceeds the income payments made in the last 12 months, that excess will be
paid in one sum on the date credited.
OPTION 7--JOINT SURVIVORSHIP ANNUITY WITH 10 YEAR PERIOD CERTAIN. This
payment option is not available for death proceeds. This option is available
only if the Policy is surrendered within 6 months of the Policy anniversary
nearest the Insured's 55th, 60th or 65th birthday. The first payment will be on
the date of settlement. Equal 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.
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 policy for federal income tax purposes.
PHOENIX'S TAX STATUS
Phoenix is taxed as a life insurance company under the Internal Revenue
Code of 1986, as amended (the "Code"). For federal income tax purposes,
neither the VUL Account nor the GIA is a separate entity from Phoenix and its
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 Cash 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
The Policy, which is essentially a single premium policy, is a "modified
endowment contract" within the meaning of the Code.
GENERAL
Pursuant to Code Section 72(e), loans and other amounts received under
"modified endowment contracts" will, in general, be taxed to the extent of
accumulated income (generally, the excess of Cash Value over premiums paid).
Policies are "modified endowment contracts" if they meet the definition of life
insurance, but fail the "7-pay test." This test essentially provides that the
cumulative amount paid under the Policy at any time during the Policy's first
seven years cannot exceed the sum of the net level premiums that would have been
paid on or before that time had the Policy provided for paid-up future benefits
after the payment of seven level annual premiums.
In addition, a modified endowment contract includes any life insurance
contract that is received in exchange for a modified endowment contract.
Premiums paid during a Policy Year that are returned by Phoenix (with interest)
within 60 days after the end of the Policy Year will not cause the Policy to
fail the 7-pay test.
Classification of the Policy as a modified endowment contract does not
affect the exclusion of death benefit proceeds under the Policy from the gross
income of the beneficiary under Code Section 101(a)(1) and also does not cause
the Policyowner to be deemed to be in constructive receipt of the Cash Value,
including increments or "inside bulid-up" thereon. As such, the death benefit
proceeds thereunder should be excludable from the gross income of the
beneficiary under Code Section 101(a)(1). Also, the Policyowner
should not be deemed to be in constructive receipt of the Cash Value,
18
<PAGE>
including increments thereon. See, however, the sections below on possible
taxation of amounts actually received under the Policy, via full surrender,
partial surrender or loan.
REDUCTION IN BENEFITS DURING THE FIRST 7 YEARS
If there is a reduction in benefits during the first seven Policy Years,
the premiums are redetermined for purposes of the 7-pay test as if the Policy
had originally been issued at the reduced death benefit level and the new
limitation is applied to the cumulative amount paid for each of the first
seven Policy Years.
DISTRIBUTION AFFECTED
If a Policy fails to meet the 7-pay test, it is considered a modified
endowment contract only as to distributions in the year in which the death
benefit reduction takes effect and all subsequent Policy Years. However,
distributions made in anticipation of such failure (there is a presumption that
distributions made within two years prior to such failure were "made in
anticipation") also are considered distributions under a modified endowment
contract. If the Policy satisfies the "7-pay test," for seven years,
distributions and loans will generally not be subject to the modified endowment
contract rules.
FULL SURRENDER
Upon full surrender of a Policy for its Cash Value, the excess, if any, of
the Cash Value (unreduced by any outstanding indebtedness) over the premiums
paid will be treated as ordinary income for federal income tax purposes. The
full surrender of a Policy may result in the imposition of an additional 10%
tax on any income received.
PARTIAL SURRENDERS
Since the Policy is a "modified endowment contract" under Section 7702A of
the Code, partial surrenders will be fully taxable to the extent of income in
the Policy and will possibly be subject to an additional 10% tax. Phoenix
suggests that you consult with your tax adviser in advance of a partial
surrender concerning the tax implications of a partial surrender to you.
LOANS
Phoenix believes that any loan received under a Policy will be treated as
indebtedness of the Policyowner. Since the Policy is a "modified endowment
contract," however, loans are fully taxable to the extent of income in the
Policy and possibly will be subject to an additional 10% tax.
Under the "personal" interest limitation provisions of the Code, interest on
Policy loans used for personal purposes is not tax deductible. However, other
rules will 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 a tax upon the inside build-up of
corporate-owned life insurance policies through the corporate alternative
minimum tax.
PENALTY TAX
Any amounts taxable under the modified endowment contract rule will be
subject to an additional 10% excise tax, with certain exceptions. This
additional tax will not apply in the case of distributions: (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 7 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 policy 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.
19
<PAGE>
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 these 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 Series 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 Series 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 pronouncements. 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 life insurance policies 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 one or more of these 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 Fund shares held by the Sub-accounts of the VUL
Account at any regular and special meetings of shareholders of the Fund, 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 Fund 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.
Fund shares held in a Sub-account for which no timely instructions are
received, and Fund 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 Fund.
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 Series 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 Fund if Phoenix
reasonably disapproves 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
20
<PAGE>
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
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
21
<PAGE>
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
Senior Vice President, Real Estate
Scott C. Noble
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 is an indirect wholly-owned subsidiary of Phoenix. PEPCO is an
indirect, majority owned subsidiary of Phoenix Home Life Mutual Insurance
Company. W.S. Griffith and PEPCO are registered as broker-dealers with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 and
are members of the National Association of Securities Dealers, Inc. 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 commissions will be
paid to registered representatives on purchase payments received by Phoenix
under these Policies. Total sales commission of a maximum of six percent of
premiums will be made 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 short fall 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 Account. It does
not include, however, any supervision over the investment policies of the
Account.
REPORTS
- --------------------------------------------------------------------------------
All Policyowners will be furnished with those reports required by the
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 hereby 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.
22
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 and 1994
23
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Report of Independent Accountants........................................25
Consolidated Balance Sheet...............................................26
Consolidated Statement of Operations and Surplus.........................27
Consolidated Statement of Cash Flows.....................................28
Notes to Consolidated Financial Statements............................29-53
24
<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
25
<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.
26
<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.
27
<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.
28
<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.
29
<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.
30
<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.
31
<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.
32
<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
========== ==========
33
<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.
34
<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.
35
<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.
36
<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.
37
<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.
38
<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.
39
<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
========= ==========
40
<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
========== ==========
41
<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.
42
<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.
43
<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.
44
<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.
45
<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.
46
<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.
47
<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
========= ========= ========
48
<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.
49
<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.
50
<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
=========
51
<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
=========== =========== ===========
52
<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.
53
<PAGE>
PHOENIX HOME LIFE VARIABLE
UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1995
54
<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 $1,769,260 $20,181,953 $2,698,794
============ ============ ==============
Investment in The Phoenix Edge
Series Fund, at market $1,769,260 $24,620,542 $2,846,871
------------ ------------ --------------
Total assets 1,769,260 24,620,542 2,846,871
Liabilities
Accrued expenses to related party 163 9,651 1,150
------------ ------------ --------------
Net assets $1,769,097 $24,610,891 $2,845,721
============ ============ ==============
Accumulation units outstanding 1,110,073 7,657,646 1,370,166
============ ============ ==============
Unit value $1.593676 $3.213898 $2.076917
============ ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
------------ -------------- ----------------
<S> <C> <C> <C>
Assets
Investments at cost $13,757,873 $ 930,322 $301,762
========== ============ ==============
Investment in The Phoenix Edge Series
Fund, at market $14,665,486 $1,150,047 $353,926
---------- ------------ --------------
Total assets 14,665,486 1,150,047 353,926
Liabilities
Accrued expenses to related party 5,776 458 139
---------- ------------ --------------
Net assets $14,659,710 $1,149,589 $353,787
========== ============ ==============
Accumulation units outstanding 6,611,709 815,737 254,460
========== ============ ==============
Unit value $2.217235 $1.409264 $1.390344
========== ============ ==============
</TABLE>
See Notes to Financial Statements
55
<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 $36,626 $ 240,206 $197,941
Expenses
Mortality and expense risk charges 3,264 108,605 11,737
------------ ------------ --------------
Net investment income 33,362 131,601 186,204
------------ ------------ --------------
Net realized gain from share transactions -- 3,968 1,620
Net realized gain distribution from Fund -- 2,615,843 --
Net unrealized appreciation on investment -- 2,956,232 301,487
------------ ------------ --------------
Net gain on investments -- 5,576,043 303,107
------------ ------------ --------------
Net increase in net assets resulting from operations $33,362 $5,707,644 $489,311
============ ============ ==============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- -------------- ----------------
<S> <C> <C> <C>
Investment income
Distributions $ 447,305 $ 3,996 $11,566
Expenses
Mortality and expense risk charges 68,665 6,038 1,655
------------ ------------ --------------
Net investment income (loss) 378,640 (2,042) 9,911
------------ ------------ --------------
Net realized gain (loss) from share transactions 9,694 (22,922) 151
Net realized gain distribution from Fund 889,028 23,045 7,021
Net unrealized appreciation on investment 935,547 97,577 50,815
------------ ------------ --------------
Net gain on investments 1,834,269 97,700 57,987
------------ ------------ --------------
Net increase in net assets resulting from operations $2,212,909 $ 95,658 $67,898
============ ============ ==============
</TABLE>
See Notes to Financial Statements
56
<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 $ 33,362 $ 131,601 $ 186,204
Net realized gain -- 2,619,811 1,620
Net unrealized appreciation -- 2,956,232 301,487
---------- ---------- ------------
Net increase in net assets resulting from operations 33,362 5,707,644 489,311
---------- ---------- ------------
From accumulation unit transactions
Participant deposits 2,512,707 201,627 14,324
Participant transfers (1,044,988) 545,333 836,912
Participant withdrawals (360,811) (575,241) (76,771)
---------- ---------- ------------
Net increase in net assets resulting from
participant transactions 1,106,908 171,719 774,465
---------- ---------- ------------
Net increase in net assets 1,140,270 5,879,363 1,263,776
Net assets
Beginning of period 628,827 18,731,528 1,581,945
---------- ---------- ------------
End of period $ 1,769,097 $24,610,891 $2,845,721
========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
------------ ------------ --------------
<S> <C> <C> <C>
From operations
Net investment income (loss) $ 378,640 $ (2,042) $ 9,911
Net realized gain (loss) 898,722 123 7,172
Net unrealized appreciation 935,547 97,577 50,815
---------- ---------- ------------
Net increase in net assets resulting from operations 2,212,909 95,658 67,898
---------- ---------- ------------
From accumulation unit transactions
Participant deposits 176,526 25,671 82
Participant transfers (140,439) (274,219) (19,445)
Participant withdrawals (479,778) (94,246) (17,165)
---------- ---------- ------------
Net decrease in net assets resulting from
participant transactions (443,691) (342,794) (36,528)
---------- ---------- ------------
Net increase (decrease) in net assets 1,769,218 (247,136) 31,370
Net assets
Beginning of period 12,890,492 1,396,725 322,417
---------- ---------- ------------
End of period $14,659,710 $1,149,589 $353,787
========== ========== ============
</TABLE>
See Notes to Financial Statements
57
<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 $ 19,190 $ 160,089 $ 120,299
Net realized gain (loss) -- 1,031,142 (16,902)
Net unrealized depreciation -- (1,022,095) (217,226)
---------- ---------- ------------
Net increase (decrease) in net assets resulting from
operations 19,190 169,136 (113,829)
---------- ---------- ------------
From accumulation unit transactions
Participant deposits 466,709 573,221 6,350
Participant transfers (537,395) 476,706 (200,637)
Participant withdrawals (213,336) (758,521) (90,992)
---------- ---------- ------------
Net increase (decrease) in net assets resulting from
participant transactions (284,022) 291,406 (285,279)
---------- ---------- ------------
Net increase (decrease) in net assets (264,832) 460,542 (399,108)
Net assets
Beginning of period 893,659 18,270,986 1,981,053
---------- ---------- ------------
End of period $ 628,827 $18,731,528 $1,581,945
========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
------------ ------------ --------------
<S> <C> <C> <C>
From operations
Net investment income (loss) $ 297,574 $ (3,581) $ 9,737
Net realized gain 437,303 27,307 1,192
Net unrealized depreciation (984,229) (52,837) (23,465)
---------- ---------- ------------
Net decrease in net assets resulting from operations (249,352) (29,111) (12,536)
---------- ---------- ------------
From accumulation unit transactions
Participant deposits 202,349 80,593 1,891
Participant transfers (169,326) 360,650 (5,925)
Participant withdrawals (413,557) (116,037) (58,530)
---------- ---------- ------------
Net increase (decrease) in net assets resulting from
participant transactions (380,534) 325,206 (62,564)
---------- ---------- ------------
Net increase (decrease) in net assets (629,886) 296,095 (75,100)
Net assets
Beginning of period 13,520,378 1,100,630 397,517
---------- ---------- ------------
End of period $12,890,492 $1,396,725 $322,417
========== ========== ============
</TABLE>
See Notes to Financial Statements
58
<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 $1.515458 $1.466849 $2.467899 $2.444383
Income from investment operations
Net investment income 0.078218 0.048609 0.017200 0.022258
Net realized and unrealized gain
(loss) -- -- 0.728799 0.001258
-------- -------- -------- ----------
Total from investment operations 0.078218 0.048609 0.745999 0.023516
-------- -------- -------- ----------
Unit value, end of period $1.593676 $1.515458 $3.213898 $2.467899
======== ======== ======== ==========
Total return 5.16% 3.31% 30.23% 0.96%
Net assets, end of period (000) $1,769 $629 $24,611 $18,732
</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 $1.689832 $ 1.796321 $1.885207 $ 1.921620
Income from investment operations
Net investment income 0.147303 0.112542 0.056812 0.043455
Net realized and unrealized gain
(loss) 0.239782 (0.219031) 0.275216 (0.079868)
--------- --------- --------- -----------
Total from investment
operations 0.387085 (0.106489) 0.332028 (0.036413)
--------- --------- --------- -----------
Unit value, end of period $2.076917 $ 1.689832 $2.217235 $ 1.885207
========= ========= ========= ===========
Total return 22.91% (5.93)% 17.61% (1.89%)
Net assets, end of period (000) $2,846 $1,582 $14,660 $12,890
</TABLE>
<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 $ 1.292393 $ 1.298093 $1.132914 $ 1.171796
Income from investment operations
Net investment income (loss) (0.002495) (0.000700) 0.037577 0.030201
Net realized and unrealized gain
(loss) 0.119366 (0.005000) 0.219853 (0.069083)
--------- --------- --------- -----------
Total from investment operations 0.116871 (0.005700) 0.257430 (0.038882)
--------- --------- --------- -----------
Unit value, end of period $ 1.409264 $ 1.292393 $1.390344 $ 1.132914
========= ========= ========= ===========
Total return 9.04% (0.44)% 22.72% (3.32)%
Net assets, end of period (000) $1,150 $1,397 $354 $322
</TABLE>
See Notes to Financial Statements
59
<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 registered as a unit investment trust
under the Investment Company Act of 1940, as amended. Policies offered by the
Account have a death benefit, cash surrender value and loan privileges. The
account was established January 1, 1987 and currently consists of six
Sub-accounts. The assets of each Sub-account are invested in shares of six of
the available portfolios of The Phoenix Edge Series Fund (the Fund). The Real
Estate Series is currently not available to the Account. Additionally,
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 through participant transfers.
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 an internationally diversified portfolio of
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 senior
securities.
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:
Sub-Account Purchases Sales
------------------------------------------ ----------- -------------
Money Market $3,162,398 $2,018,768
Growth 3,925,790 1,020,900
Bond 1,053,005 93,186
Total Return 1,600,853 786,910
International 89,360 412,552
Balanced 38,816 58,680
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>
Participant deposits 1,603,235 66,778 7,169 84,600 18,918 70
Participant transfers (674,605) 200,335 468,210 (79,253) (211,140) (16,382)
Participant withdrawals (233,499) (199,539) (41,368) (231,343) (72,769) (13,819)
</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 75%
of a policy's cash value during the first three policy years and up to 90% of
cash value thereafter, with interest of 8% due and payable on each policy
anniversary. At the time a loan is granted an amount equivalent to the amount
of the loan is transferred from the Account to Phoenix 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 7.25%. 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 $353,092 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 fraction of the balance of
any unrepaid acquisition expense allowance is deducted from the policy value
and paid to Phoenix Home Life. No partial surrender fees were paid during the
year ended December 31, 1995.
Phoenix Equity Planning Corporation is the principal underwriter and
distributor for the Account. Phoenix Equity Planning Corporation is
reimbursed for its distribution and underwriting expenses by Phoenix Home
Life.
60
<PAGE>
An acquisition expense allowance is paid to Phoenix Home Life over a ten
year period from contract inception by a withdrawal of units. The acquisition
expense allowance consists of a sales load of 5.5% of the issue premium to
compensate Phoenix Home Life for distribution expenses incurred, an issue
administration charge of 1.0% of the issue premium to compensate Phoenix Home
Life for underwriting and start-up expenses and premium taxes which currently
range from .75% to 4% of premiums paid based on the state where the contract
holder resides. In the event of a surrender before ten years, the unpaid
balance of the acquisition expenses is deducted and paid to Phoenix Home
Life. Deductions related to these charges amounted to $199,710 during the
year ended December 31, 1995.
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
0.50% of the average daily net assets of the Account for mortality and
expense risks assumed.
Note 7--Diversification Requirements:
Under the provisions of Section 817(h) of the Internal Revenue Code (the
Code), a variable universal life contract, other than a contract issued in
connection with certain types of employee benefit plans, will not be treated
as a universal life contract for federal tax purposes for any period for
which the investments of the segregated asset account on which the contract
is based are not adequately diversified. The Code provides that the
"adequately diversified" requirement may be met if the underlying investments
satisfy either a statutory safe harbor test or diversification requirements
set forth in regulations issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h)
of the Code. Phoenix 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.
61
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[Price Waterhouse LLP Logo] [Price Waterhouse 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
62
<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
63
<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 GIA. Phoenix may credit interest at a
rate in excess of 4% per year; however, it is not obligated to credit any
interest in excess of 4% per year.
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 to the GIA at that time. 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 POLICYOWNER 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.
64
<PAGE>
APPENDIX B
ILLUSTRATIONS OF DEATH BENEFITS, ACCUMULATION VALUES,
CASH VALUES, AND ACCUMULATED PREMIUMS.
The tables illustrate how a Policy's death benefits, accumulation values
and cash values may vary over time assuming hypothetical gross (after tax)
investment return rates of 0% and 12%, i.e., the investment income and capital
gains and losses, realized or unrealized of the Fund is equivalent to the
assumed hypothetical gross annual investment return rates of 0% and 12%. The
tables are based on current or guaranteed mortality charges as indicated, and on
a single premium of $10,000.
1. The illustration on page 67 is for a policy issued to a male nonsmoker
age 35 with the maximum amount of insurance under the contract.
2. The illustration on page 68 is for a policy issued to a female nonsmoker
age 35 with the maximum amount of insurance under the contract.
3. The illustration on page 69 is for a policy issued to a male nonsmoker
age 35 with the minimum amount of insurance under the contract.
4. The illustration on page 70 is for a policy issued to a female nonsmoker
age 35 with the minimum amount of insurance under the contract.
The death benefits, accumulation values, and cash values would be different from
those shown if the actual gross investment return averaged 0% or 12%, but
fluctuated above or below the averaged rate at various points in time. These
benefits and values also would change if the assumptions underlying the
illustrations (for example age of the Insured, Insured's smoking status,
premium amount paid or Target Face Amount selected) were different.
The death benefit, accumulation value, and cash value amounts reflect the
following current or guaranteed maximum charges:
1. Acquisition Expense Charge (see "Charges and Deductions--Acquisition
Expense").
2. Cost of Insurance Charge (see "Charges and Deductions--Cost of Insurance").
3. Mortality and Expense Risk Charge, which is equal to .50%, on an annual
basis, of the net asset value of the VUL Account (see "Charges and
Deductions--Mortality and Expense Risk Charge").
These illustrations also assume an average investment advisory fee of .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 expenses, are assumed
by the Advisers 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 (or expected to be) 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 -1.46% and 10.48%, respectively.
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the VUL Account in the future. If such Tax Charges
are imposed in the future, then in order to produce after tax returns equal to
those illustrated for 0% and 12%, a sufficiently higher amount in excess of the
hypothetical interest rates would have to be earned. (See "Charges and
Deduction--Other Charges--Taxes.")
The second column of each table shows the amount that would accumulate if an
amount equal to the Single Premium were invested to earn interest, after taxes,
at 5% compounded annually.
A comparable illustration based on a proposed Insured's age and sex and a
proposed Death Benefit and single premium is available upon request. In states
where cost of insurance rates are not based on the insured's sex, the tables
designated "male" apply to all standard risk insureds who are nonsmokers.
65
<PAGE>
<TABLE>
PREMIUM: $10,000
TARGET FACE AMOUNT: $53,666
MALE 35 NONSMOKER MINIMUM FACE AMOUNT RIDER: $0
THE PHOENIX EDGE -- A VARIABLE UNIVERSAL LIFE POLICY
<CAPTION>
ASSUMING
------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
---------------------------------- ----------------------------------
PREMIUM ACCOUNT CASH DEATH ACCOUNT CASH DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ---------- --------- ---------- -------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,914 10,127 57,043 9,694 8,907 50,706
2 11,025 11,920 11,220 60,682 9,395 8,695 47,521
3 11,576 13,026 12,414 64,464 9,101 8,489 44,541
4 12,155 14,242 13,717 68,401 8,812 8,288 41,754
5 12,763 15,578 15,140 72,510 8,528 8,091 39,146
6 13,401 17,032 16,682 76,743 8,249 7,899 36,705
7 14,071 18,627 18,365 81,165 7,974 7,711 34,422
8 14,775 20,342 20,167 85,655 7,703 7,528 32,287
9 15,513 22,219 22,131 90,337 7,436 7,348 30,288
10 16,289 24,274 24,274 95,240 7,173 7,173 28,418
11 17,103 26,567 26,567 100,230 7,001 7,001 26,666
12 17,959 29,070 29,070 105,466 6,831 6,831 25,022
13 18,857 31,801 31,801 110,977 6,664 6,664 23,480
14 19,799 34,781 34,781 116,777 6,500 6,500 22,033
15 20,789 38,031 38,031 122,882 6,338 6,338 20,674
16 21,829 41,574 41,574 129,308 6,178 6,178 19,400
17 22,920 45,435 45,435 136,074 6,020 6,020 18,204
18 24,066 49,637 49,637 143,202 5,865 5,865 17,082
19 25,270 54,208 54,208 150,709 5,710 5,710 16,029
20 26,533 59,174 59,174 158,621 5,557 5,557 15,040
@ 65 43,219 138,799 138,799 266,131 4,112 4,112 7,960
</TABLE>
Death Benefit, Accumulation Value, and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of
1.47% (includes average fund operating expenses of 0.97% and mortality and
expense risk charge of 0.5%). Hypothetical gross percentage rates are
illustrative only and do not in any way represent actual results or suggest that
such results will be achieved in the future. Actual values will differ from
those shown whenever actual investment results differ from hypothetical rates
illustrated.
Assumes premium tax of 2.25%.
66
<PAGE>
<TABLE>
PREMIUM: $10,000
TARGET FACE AMOUNT: $61,376
MINIMUM FACE AMOUNT RIDER: $0
FEMALE 35 NONSMOKER 1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
THE PHOENIX EDGE -- A VARIABLE UNIVERSAL LIFE POLICY
<CAPTION>
ASSUMING
------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
----------------------------------- ----------------------------------
PREMIUM ACCOUNT CASH DEATH ACCOUNT CASH DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- ------- --------- --------- --------- ------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,914 10,126 65,244 9,693 8,906 57,992
2 11,025 11,918 11,218 69,417 9,391 8,691 54,349
3 11,576 13,021 12,409 73,757 9,094 8,482 50,942
4 12,155 14,233 13,708 78,280 8,802 8,277 47,753
5 12,763 15,564 15,126 83,005 8,513 8,076 44,771
6 13,401 17,010 16,660 87,876 8,229 7,879 41,980
7 14,071 18,595 18,332 92,968 7,948 7,686 39,369
8 14,775 20,293 20,118 98,129 7,672 7,497 36,926
9 15,513 22,149 22,062 103,512 7,399 7,311 34,641
10 16,289 24,179 24,179 109,145 7,131 7,131 32,502
11 17,103 26,438 26,438 114,847 6,954 6,954 30,499
12 17,959 28,903 28,903 120,827 6,781 6,781 28,619
13 18,857 31,592 31,592 127,117 6,611 6,611 26,855
14 19,799 34,524 34,524 133,736 6,444 6,444 25,199
15 20,789 37,723 37,723 140,699 6,280 6,280 23,646
16 21,829 41,212 41,212 148,035 6,119 6,119 22,188
17 22,920 45,019 45,019 155,769 5,960 5,960 20,821
18 24,066 49,171 49,171 163,931 5,804 5,804 19,537
19 25,270 53,701 53,701 172,560 5,651 5,651 18,333
20 26,533 58,640 58,640 181,673 5,500 5,500 17,203
@ 65 43,219 139,091 139,091 302,478 4,147 4,147 9,105
</TABLE>
Death Benefit, Accumulation Value, and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of
1.47% (includes average fund operating expenses of 0.97% and mortality and
expense risk charge of 0.5%). Hypothetical gross percentage rates are
illustrative only and do not in any way represent actual results or suggest that
such results will be achieved in the future. Actual values will differ from
those shown whenever actual investment results differ from hypothetical rates
illustrated.
Assumes premium tax of 2.25%.
67
<PAGE>
<TABLE>
PREMIUM: $10,000
TARGET FACE AMOUNT: $39,283
MINIMUM FACE AMOUNT RIDER: $0
MALE 35 NONSMOKER 1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
THE PHOENIX EDGE -- A VARIABLE UNIVERSAL LIFE POLICY
<CAPTION>
ASSUMING
-------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
----------------------------------- -----------------------------------
PREMIUM ACCOUNT CASH DEATH ACCOUNT CASH DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- ------- --------- --------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,927 10,140 42,072 9,718 8,930 37,443
2 11,025 11,949 11,249 45,128 9,440 8,740 35,429
3 11,576 13,074 12,461 48,339 9,167 8,555 33,527
4 12,155 14,312 13,787 51,717 8,898 8,374 31,731
5 12,763 15,674 15,237 55,278 8,634 8,196 30,036
6 13,401 17,164 16,814 59,005 8,373 8,023 28,435
7 14,071 18,802 18,539 62,939 8,115 7,853 26,923
8 14,775 20,577 20,402 67,020 7,861 7,686 25,496
9 15,513 22,524 22,437 71,325 7,611 7,523 24,148
10 16,289 24,662 24,662 75,878 7,364 7,364 22,875
11 17,103 27,064 27,064 80,614 7,207 7,207 21,671
12 17,959 29,694 29,694 85,637 7,051 7,051 20,531
13 18,857 32,574 32,574 90,974 6,898 6,898 19,451
14 19,799 35,726 35,726 96,645 6,747 6,747 18,427
15 20,789 39,175 39,175 102,670 6,598 6,598 17,458
16 21,829 42,947 42,947 109,072 6,450 6,450 16,539
17 22,920 47,072 47,072 115,876 6,305 6,305 15,669
18 24,066 51,578 51,578 123,109 6,160 6,160 14,844
19 25,270 56,497 56,497 130,798 6,017 6,017 14,063
20 26,533 61,864 61,864 138,974 5,874 5,874 13,323
@ 65 43,219 150,258 150,258 255,985 4,511 4,511 7,760
</TABLE>
Death Benefit, Accumulation Value, and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of
1.47% (includes average fund operating expenses of 0.97% and mortality and
expense risk charge of 0.5%). Hypothetical gross percentage rates are
illustrative only and do not in any way represent actual results or suggest that
such results will be achieved in the future. Actual values will differ from
those shown whenever actual investment results differ from hypothetical rates
illustrated.
Assumes premium tax of 2.25%.
68
<PAGE>
<TABLE>
PREMIUM: $10,000
TARGET FACE AMOUNT: $43,999
MINIMUM FACE AMOUNT RIDER: $0
FEMALE 35 NONSMOKER 1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
THE PHOENIX EDGE -- A VARIABLE UNIVERSAL LIFE POLICY
<CAPTION>
ASSUMING
-----------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
----------------------------------- ---------------------------------
PREMIUM ACCOUNT CASH DEATH ACCOUNT CASH DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- ------- --------- -------- ---------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 10,500 10,927 10,140 47,124 9,717 8,930 41,939
2 11,025 11,948 11,248 50,550 9,439 8,739 39,683
3 11,576 13,072 12,459 54,151 9,164 8,552 37,553
4 12,155 14,308 13,783 57,943 8,894 8,369 35,542
5 12,763 15,668 15,231 61,942 8,627 8,189 33,643
6 13,401 17,153 16,804 66,128 8,363 8,013 31,849
7 14,071 18,785 18,523 70,549 8,102 7,840 30,156
8 14,775 20,550 20,375 75,132 7,844 7,670 28,558
9 15,513 22,486 22,398 79,967 7,590 7,503 27,048
10 16,289 24,609 24,609 85,078 7,340 7,340 25,623
11 17,103 26,990 26,990 90,379 7,180 7,180 24,275
12 17,959 29,598 29,598 96,000 7,023 7,023 22,997
13 18,857 32,453 32,453 101,970 6,868 6,868 21,787
14 19,799 35,577 35,577 108,311 6,716 6,716 20,641
15 20,789 38,996 38,996 115,047 6,566 6,566 19,555
16 21,829 42,738 42,738 122,208 6,417 6,417 18,526
17 22,920 46,833 46,833 129,824 6,272 6,272 17,552
18 24,066 51,315 51,315 137,929 6,128 6,128 16,628
19 25,270 56,219 56,219 146,564 5,985 5,985 15,753
20 26,533 61,584 61,584 155,759 5,845 5,845 14,924
@ 65 43,219 151,109 151,109 285,224 4,562 4,562 8,693
</TABLE>
Death Benefit, Accumulation Value, and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of
1.47% (includes average fund operating expenses of 0.97% and mortality and
expense risk charge of 0.5%). Hypothetical gross percentage rates are
illustrative only and do not in any way represent actual results or suggest that
such results will be achieved in the future. Actual values will differ from
those shown whenever actual investment results differ from hypothetical rates
illustrated.
Assumes premium tax of 2.25%.
69
