PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS (VPMO):
Hartford, CT 06115 PO Box 8027
Boston, MA 02266-8027
VARIABLE LIFE INSURANCE POLICY
PROSPECTUS
July 15, 1997
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 Subaccounts 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 Subaccount of the VUL Account invests in a corresponding
series of The Phoenix Edge Series Fund or Wanger Advisors Trust (each the "Fund"
or collectively, the "Funds"). For certain Policyowners, the Issue Premium is
first allocated to the Money Market Subaccount 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 Subaccounts 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.
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TABLE OF CONTENTS
Heading Page
- --------------------------------------------------------------
VARIABLE LIFE INSURANCE POLICY............................ 1
TABLE OF CONTENTS......................................... 2
SPECIAL TERMS............................................. 3
SUMMARY .................................................. 3
PERFORMANCE HISTORY....................................... 5
PHOENIX AND THE VUL ACCOUNT .............................. 7
Phoenix................................................ 7
The VUL Account ....................................... 7
The GIA ............................................... 7
THE POLICY ............................................... 7
Introduction .......................................... 7
Eligible Purchasers ................................... 7
Premium Payment ....................................... 7
Allocation of Issue Premium............................ 8
Right to Cancel Period................................. 8
Temporary Insurance Coverage........................... 8
Transfer of Policy Value............................... 8
Determination of Subaccount Values..................... 9
Death Benefit.......................................... 10
Surrenders............................................. 11
Policy Loans........................................... 11
Lapse.................................................. 11
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
Services of the Advisers............................... 13
Reinvestment and Redemption............................ 13
Substitution of Investments............................ 13
CHARGES AND DEDUCTIONS.................................... 14
Monthly Deduction...................................... 14
Cost of Insurance...................................... 14
Mortality and Expense Risk Charge...................... 15
Investment Management Charge........................... 15
Other Charges.......................................... 15
GENERAL PROVISIONS........................................ 15
Postponement of Payments............................... 15
The Contract........................................... 16
Suicide................................................ 16
Incontestability....................................... 16
Change of Owner or Beneficiary......................... 16
Assignment............................................. 16
Misstatement of Age or Sex............................. 16
Surplus................................................ 16
PAYMENT OF PROCEEDS....................................... 16
Surrender and Death Benefit Proceeds................... 16
Payment Options........................................ 16
FEDERAL TAX CONSIDERATIONS................................ 17
Introduction........................................... 17
Phoenix's Tax Status................................... 17
Policy Benefits........................................ 17
Business-Owned Policies................................ 18
Penalty Tax............................................ 18
Material Change Rules.................................. 18
Serial Purchase of Modified Endowment Contracts........ 18
Limitations on Unreasonable Mortality and
Expense Charges...................................... 18
Qualified Plans........................................ 18
Diversification Standards.............................. 18
Change of Ownership or Insured or Assignment........... 19
Other Taxes............................................ 19
VOTING RIGHTS............................................. 19
The Funds.............................................. 19
Phoenix................................................ 19
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX 20
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS .................. 21
SALES OF POLICIES ........................................ 21
STATE REGULATION ......................................... 21
REPORTS .................................................. 21
LEGAL PROCEEDINGS ........................................ 21
LEGAL MATTERS ............................................ 21
REGISTRATION STATEMENT ................................... 21
FINANCIAL STATEMENTS ..................................... 21
APPENDIX A ............................................... 67
APPENDIX B................................................ 68
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALES PERSON 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.
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SPECIAL TERMS
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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.
FUND(S): The Phoenix Edge Series Fund and Wanger Advisors Trust.
GENERAL ACCOUNT: The general asset account of Phoenix.
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 VPMO.
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 VPMO unless it is received after the close of the New York Stock
Exchange ("NYSE"), in which case it will be the next Valuation Date.
PHOENIX: 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 Subaccount 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 Subaccounts on a proportionate basis are
allocated by increasing (or decreasing) a Policy's share in the value of the
affected Subaccounts so that such shares maintain the same ratio to each other
before and after the allocation.
SERIES: A separate investment portfolio of the Fund.
SUBACCOUNTS: Accounts within 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 Subaccount will reflect the investment performance of
that Subaccount and will vary in dollar amount.
VALUATION DATE: For any Subaccount, each date on which the net asset value of
the Fund is determined.
VALUATION PERIOD: For any Subaccount, the period in days from the end of one
Valuation Date through the next.
VPMO: The Phoenix Variable Products Mail Operation Division of Phoenix that
receives and processes incoming mail for Variable Products Operations.
VULA: Variable and Universal Life Administration Division of Phoenix.
SUMMARY
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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.
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The Policy differs from conventional fixed-benefit life insurance by
allowing Policyowners to allocate premiums to one or more Subaccounts of the VUL
Account or to the GIA. Each Subaccount invests in a designated portfolio of the
available Funds. Also, under the 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 Subaccounts 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 Subaccounts. 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 Subaccount of the VUL Account the daily equivalent of
0.50% on an annual basis of the current value of the Subaccount'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 VULA and, for
payments made during a grace period, by the amount needed to cover any monthly
deductions made during the grace period.
In addition, certain charges are deducted from the assets of the Funds. For
investment advisory services, each Series of a Fund pays the adviser a separate
monthly fee calculated on the basis of its average daily net assets during the
year. 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
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Premium to the Money Market Subaccount 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 Subaccounts 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
Subaccount. The Policy Value may be allocated among the Subaccounts 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 Subaccounts 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 VPMO. 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."
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."
PERFORMANCE HISTORY
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From time to time, the VUL Account may include the performance history of
any or all Subaccounts, in advertisements, sales literature or reports.
Performance information about each Subaccount is based on past performance only
and is not an indication of future performance. THESE RATES OF RETURN ARE NOT AN
ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE. THEY DO NOT ILLUSTRATE HOW ACTUAL
PERFORMANCE WILL AFFECT THE BENEFITS UNDER A POLICY BECAUSE THEY DO NOT REFLECT
COST OF INSURANCE, PREMIUM TAX CHARGES AND SURRENDER CHARGES, IF APPLICABLE. FOR
THIS INFORMATION SEE APPENDIX B "ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES
AND CASH SURRENDER VALUES." Performance information may be expressed as yield
and effective yield of the Money Market Subaccount, as yield of the Multi-Sector
Subaccount and as total return of any Subaccount. Current yield for the Money
Market Subaccount will be based on the income earned by the Subaccount over a
given seven-day period (less a hypothetical charge reflecting deductions for
expenses taken during the period) and then annualized, i.e., the income earned
in the period is assumed to be earned every seven days over a 52-week period and
is stated in terms of an annual percentage return on the investment. Effective
yield is calculated similarly but reflects the compounding effect of earnings on
reinvested dividends. Yield and effective yield reflect the recurring charges on
the Account level including the monthly administrative charge.
Yield calculations of the Money Market Subaccount used for illustration
purposes are based on the consideration of a hypothetical participant's account
having a balance of exactly one Unit at the beginning of a seven-day period,
which period will end on the date of the most recent financial statements. The
yield for the Subaccount 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 Subaccount based on
a seven-day period ending December 31, 1996.
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Assumptions:
Value of hypothetical pre-existing account with exactly one
Unit at the beginning of the period:........... 1.663983
Value of the same account (excluding capital changes) at the
end of the seven-day period:................... 1.665406
Calculation:
Ending account value........................... 1.665406
Less beginning account value................... 1.663983
Net change in account value.................... 0.001423
Base period return:
(adjusted change/beginning account value)...... 0.000855
Current yield = return x (365/7) =................ 4.46%
Effective yield = [(1 + return)365/7] -1 =........ 4.56%
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 Subaccount, quotations of yield will be based on all
investment income per Unit earned during a given 30-day period (including
dividends and interest), less expenses accrued during the period ("net
investment income"), and are computed by dividing net investment income by the
maximum offering price per Unit on the last day of the period.
When a Subaccount advertises its total return, it usually will be calculated
for one year, five years and ten years or since inception if the Subaccount has
not been in existence for at least ten years. Total return is measured by
comparing the value of a hypothetical $10,000 investment in the Subaccount at
the beginning of the relevant period to the value of the investment at the end
of the period, assuming the reinvestment of all distributions at net asset value
and the deduction of all applicable Policy charges except for the cost of
insurance (which varies by Insured) and premium taxes (which vary by state) at
the beginning of the relevant period.
For those Subaccounts 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 Subaccount 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 12/31/96
-----------------------------
COMMENCE- 10 LIFE OF
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS YEARS FUND
- ---------- --------- ------ ------- ----- ----
Multi-Sector..... 1/1/83 4.59% 8.84% 8.51% 9.93%
Balanced......... 5/1/92 2.86% N/A N/A 8.13%
Allocation...... 9/17/84 1.45% 7.32% 10.13% 11.43%
Growth........... 1/1/83 4.74% 12.47% 14.71% 17.20%
International.... 5/1/90 10.38% 7.44% N/A 6.89%
Money Market..... 10/10/82 (2.29%) 2.29% 4.58% 5.46%
Real Estate...... 5/1/95 23.98% N/A N/A 25.19%
Theme............ 1/29/96 N/A N/A N/A 2.74%
Asia............. 9/17/96 N/A N/A N/A (6.49%)
U.S. Small Cap... 5/1/95 36.58% N/A N/A 31.87%
Int'l. Small Cap. 5/1/95 22.99% N/A N/A 34.98%
ANNUAL TOTAL RETURN*
--------------------
MULTI- ALLO- INTER- MONEY
YEAR SECTOR BALANCED CATION GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983.... 5.47% N/A N/A 32.22% N/A 7.79%
1984.... 10.78% N/A (1.21%) 10.11% N/A 9.67%
1985.... 20.00% N/A 26.69% 34.24% N/A 7.49%
1986.... 18.69% N/A 15.10% 19.86% N/A 5.98%
1987.... 0.60% N/A 12.16% 6.48% N/A 5.97%
1988.... 9.89% N/A 1.83% 3.39% N/A 6.90%
1989.... 7.70% N/A 19.27% 35.39% N/A 8.65%
1990.... 4.67% N/A 5.22% 3.55% (8.74%) 7.67%
1991.... 18.97% N/A 28.64% 42.00% 19.07% 5.45%
1992.... 9.52% 8.44% 10.10% 9.75% (13.26%) 3.06%
1993.... 15.33% 8.06% 10.46% 19.09% 37.72% 2.35%
1994.... (5.93%) (3.32%) (1.89%) 0.96% (0.44%) 3.31%
1995.... 22.91% 22.72% 17.61% 30.23% 9.04% 5.16%
1996.... 11.86% 10.01% 8.50% 12.02% 18.06% 4.50%
REAL U.S. INT'L.
YEAR ESTATE THEME ASIA SMALL CAP SMALL CAP
- ---- ------ ----- ---- --------- ---------
1995.... 17.42% N/A N/A 16.24% 34.23%
1996.... 32.60% 9.89% 0.01% 46.08% 31.54%
*Sales Charges have not been deducted from the Annual Total Return.
A Subaccount'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 Composite Stock Price Index ("S&P
500") and the Europe Australia Far East Index ("EAFE"), 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 Subaccount's
performance also may be compared to that of other investment or savings
vehicles.
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, 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 Subaccounts having similar investment objectives as categorized by
ranking services such as Lipper, CDA, 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
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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 S&P 500, Dow Jones Industrial Average, EAFE, Consumer 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 NYSE, although the common stocks of a few companies listed on the
American Stock Exchange or traded over the counter are included. The 500
companies represented include 400 industrial, 60 transportation and 40 financial
services concerns. The S&P 500 represents about 70-80% of the market value of
all issues on the NYSE.
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.
PHOENIX AND THE VUL ACCOUNT
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PHOENIX
Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851 and redomiciled to New York in 1992. 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 14th largest mutual life insurance company and has
admitted assets of approximately $15.5 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 formed on June 17, 1985 and
governed under the laws of New York. It is registered as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"), 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 ("SEC").
The VUL Account currently has twelve Subaccounts available for allocation of
Policy Value. If in the future Phoenix determines that marketing needs and
investment conditions warrant, Phoenix may establish additional Subaccounts,
which will be made available to existing Policyowners to the extent and on a
basis determined by Phoenix. Each Subaccount 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 Subaccounts. 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.
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 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 Subaccounts of the VUL Account or the GIA net premium is to be
allocated. Each Subaccount 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
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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 VULA. 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 Subaccounts 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
Subaccount of the VUL Account, and, at the expiration of the Right to Cancel
Period, the Policy Value of the Money Market Subaccount is allocated among the
Subaccounts of the VUL Account or to the GIA in accordance with the applicant's
allocation instructions in the application for insurance.
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 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
Subaccounts 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 the Right to Cancel Period expires.
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A Policyowner may request transfers among available Subaccounts or the GIA
In Writing or by calling (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
Subaccounts 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 Subaccount that funds will be transferred from
("Sending Subaccount"), and if the value in that Subaccount 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 Sending Subaccount or the GIA, but may be allocated to
multiple Subaccounts ("Receiving Subaccounts"). 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.
Only one Systematic Transfer Program can be active per Policy. After the
completion of the program, you can call VULA at (800) 892-4885 to begin a new
Systematic Transfer Program.
All transfers under the Systematic Transfer Program will be executed on the
basis of the respective value of each Subaccount 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
VPMO, 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 VPMO.
Phoenix reserves the right to limit the number of Subaccounts 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 Subaccounts are offered.
DETERMINATION OF SUBACCOUNT VALUES
On each Valuation Date, the Policy's share in the value of each Subaccount
is determined separately, but the valuation method used is the same for each
Subaccount. A Policy's share in the value of a Subaccount on any Valuation Date
equals:
(a) The Policy's share in the value of that Subaccount as of the
immediately preceding Valuation Date multiplied by the "Net Investment
Factor" of that Subaccount for the current Valuation Period; plus
(b) All amounts transferred, to the Policy's share in the value of that
Subaccount from another Subaccount or from the Loan Account during the
current Valuation Period; plus
(c) All Additional Net Premiums allocated to that Subaccount
during the current Valuation Period; minus
(d) All amounts transferred from the Policy's share in the value of that
Subaccount to another Subaccount or to the Loan Account during the
current Valuation Period; minus
(e) Any portion of the monthly deduction allocated to the Policy's share
in the value of that Subaccount during the current Valuation Period;
minus
(f) All reductions in the Policy Value allocated to the Policy's share in
the value of that Subaccount due to any partial surrenders made during
the current Valuation Period.
The Net Investment Factor for each Subaccount for any Valuation Period is
determined by dividing (a) by (b), and subtracting (c) from the result where:
(a) is the result of:
(i) the asset value of the Fund shares held by that Subaccount
determined as of the end of the current Valuation Period
(exclusive of the net value of any transactions during the
current Valuation Period); plus
(ii) the amount of any dividend (or, if applicable, any capital gain
distribution) made by the Fund on shares held by that Subaccount
if the "ex-dividend" date occurs during the current Valuation
Period; plus/minus
(iii)the charge or credit for any taxes incurred by or provided for in
that Subaccount for the current Valuation Period.
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(b) the net asset value of the Fund shares held by that Subaccount
determined as of the end of the immediately preceding Valuation
Period.
(c) is a factor, equal to the sum of 0.50% on an annual basis held by that
Subaccount, representing the Mortality and Expense Risk Charge
deducted from that Subaccount during the Valuation Period.
The Net Investment Factor may be greater than, less than, or equal to one.
Therefore, the Policy Value may increase, decrease or remain unchanged.
DEATH BENEFIT
GENERAL
In the application for insurance, an applicant designates an amount as the
Policy's initial Target Face Amount. During the first Policy Month, the death
benefit equals this Target Face Amount. After the first Policy Month the death
benefit is equal to the variable death benefit.
During any Policy Month after the first, the variable death benefit under
the Policy is equal to:
(i) the Cash Value on the last preceding Monthly Calculation
Day, multiplied by
(ii) the applicable Death Benefit Adjustment Rate (as defined below) on the
last preceding Monthly Calculation Day.
The Death Benefit Adjustment Rates assume an interest rate ranging from 4%
to 5%. The assumed interest rate used to calculate the Death Benefit
Adjustment Rates under a particular Policy depends on the Policy's Initial
Premium and its Target Face Amount. In the event the net investment rate of
return (gross investment return net of mortality and expense risk charge and
investment management fee) applied to the Policy Value exceeds the assumed
interest rate used to calculate the Death Benefit Adjustment Rates, the variable
death benefit under the Policy will be greater than its Target Face Amount.
Conversely, if the net investment rate of return applied to the Policy Value is
less than the assumed interest rate, then the variable death benefit will be
less than the Target Face Amount. Finally, if the net investment rate of return
applied to the Policy Value equals the assumed interest rate, then the variable
death benefit will approximately equal the Target Face Amount.
EXAMPLE: Death Benefit Adjustment Rates which assume a 4% interest rate
apply to a male age 45 nonsmoker who pays an initial premium of $25,000 and
has a Target Face Amount of $70,591. Five years after the Issue Date of this
Policy, the following variable death benefits would apply for the specified
net rates of return:
--assuming a 5% net investment rate of return: $75,144
--assuming a 4% net investment rate of return: $71,514
--and assuming a 3% net investment rate of return: $68,019
EXAMPLE: A male age 45, nonsmoker, pays an initial premium of $10,000. For
this initial premium, this 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% to 5% and a 2% state premium tax. Generally, selection of
the highest Target Face Amount available for a given premium will result in
the highest death benefit adjustment rate, variable death benefit and
resulting cost of insurance charges. Conversely, selection of the lower
Target Face Amount available for a given premium will result in the lowest
death benefit adjustment rate, variable death benefit and resulting cost of
insurance charges.
Assuming that this 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 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 had the Rider not been issued.
Accordingly, when the Minimum Face Amount is used to calculate the death
benefit, there is a greater "net amount at risk" under the Policy and,
therefore, a larger amount
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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 VPMO, 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 VPMO 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 VPMO, 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 Subaccounts 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 Subaccounts 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 Subaccount 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 Subaccounts or the GIA will apply
only to the amount remaining in the Subaccounts 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 Subaccounts 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 Subaccounts 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 Subaccounts 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."
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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 Subaccounts 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 Subaccounts 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 Subaccounts 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 ("MULTI-SECTOR") SERIES: The investment
objective of the Multi-Sector Series is to seek long-term total return by
investing in a diversified portfolio of high yield (high risk) and high
quality fixed income securities. For a discussion of the risks associated
with investing in high yield bonds, please see the accompanying Fund
prospectus.
STRATEGIC ALLOCATION ("ALLOCATION") SERIES (FORMERLY THE "TOTAL RETURN"
SERIES): The investment objective of the Allocation 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 SECURITIES ("REAL ESTATE") SERIES: The investment objective
of the Real Estate 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 ("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 ("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.
RESEARCH ENHANCED INDEX ("ENHANCED INDEX") SERIES: The investment
objective of the Enhanced Index Series is to seek high total return by
investing in a broadly diversified portfolio of equity securities of large
and medium capitalization companies within market sectors reflected in the
S&P 500. It is intended that the Series will invest in a portfolio of
undervalued common stocks and other equity securities which appear to offer
growth potential and an overall volatility of return similar to that of the
S&P 500.
WANGER ADVISORS TRUST
Certain Subaccounts of the VUL Account invest in corresponding Series of the
Wanger Advisors Trust. The available Series and their fundamental objectives are
as follows:
WANGER U.S. SMALL CAP ("U.S. SMALL CAP") SERIES: The investment
objective of the U.S. Small Cap Series is to provide long-term growth. The
U.S. Small Cap Series 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 Series 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
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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
Strategic Allocation Fund, Inc., Phoenix Strategic Equity Series Fund (all
Series other than Equity Opportunities Series), Phoenix Duff & Phelps
Institutional Mutual Funds (all portfolios other than the Real Estate Equity
Securities Portfolio) and Phoenix Multi-Portfolio Fund and as subadviser to
Phoenix Strategic Equity Series Fund (all Series other than Equity Opportunities
Series), and as subadviser to Chubb America Fund, Inc. and Sun America Series
Trust. PIC also serves as subadviser to the Asia Series.
All of the outstanding stock of PIC is owned by PEPCO, a subsidiary of
Phoenix Duff & Phelps Corporation ("PD&P"). Phoenix owns a controlling interest
in PD&P. PEPCO also performs bookkeeping, 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,
the executive offices of PD&P are located at 56 Prospect Street, Hartford,
Connecticut 06115 and the principal offices of PEPCO are located at 100 Bright
Meadow Boulevard, P.O. Box 2200, Enfield, Connecticut 06083-2200.
J.P. Morgan Investment Management, Inc. ("J.P. Morgan") a wholly-owned
subsidiary of J.P. Morgan & Co., Incorporated, serves as subadviser to the
Enhanced Index Series. J.P. Morgan's principal place of business is located at
522 Fifth Avenue, New York, New York 10036. J.P. Morgan presently serves as an
investment manager for corporate, public and union employee benefit funds,
foundation, endowments, insurance companies, government agencies and the
accounts of other institutional investors. J.P. Morgan was founded in 1984 and
as of March 31, 1997 had approximately $184 billion in assets under management.
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, the Real Estate Equity Securities Portfolio of The
Phoenix Duff & Phelps Institutional Mutual Funds and to the American Phoenix
Investment Portfolio. As of December 31, 1996, PRS had $1.4 billion in assets
under management.
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 Asset Management 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 PAIA have extensive experience as investment
professionals, due to its recent formation, PAIA has no prior operating history.
Aberdeen Fund Managers also serves as subadviser to the Asia Series.
Aberdeen Asset Management 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 February 28, 1997, Aberdeen Asset Management, and its advisory
subsidiaries, had approximately $4.8 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.
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.
SERVICES OF THE ADVISERS
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 Funds.
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 Subaccounts 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
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<PAGE>
warrant, and will be made available under existing Policies to the extent and
on a basis to be determined by Phoenix.
If shares of any of the portfolios of the Funds should no longer be
available for investment, or if in the judgment of Phoenix's management further
investment in shares of any of the portfolios should become inappropriate in
view of the objectives of the Policy, then Phoenix may substitute shares of
another mutual fund for shares already purchased, or to be purchased in the
future, under the Policy. No substitution of mutual fund shares held by the VUL
Account may take place without prior approval of the SEC, 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 Subaccount in which the
substitution is to occur to another Subaccount.
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 Subaccounts 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 charge, 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% 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 Subaccounts 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 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
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<PAGE>
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 nonsmokers. Nonsmoking 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%
Allocation ......... .60% .55% .50%
Growth ............. .70% .65% .60%
International ...... .75% .70% .65%
Theme .............. .75% .70% .65%
Enhanced Index...... .45% .45% .45%
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia ............... 1.00%
PHOENIX REALTY SECURITIES, INC.
-------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate ........ .75% .70% .65%
WANGER ASSET MANAGEMENT, L.P.
-----------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $100,000,000 $150,000,000 $250,000,000
- ------ ------------ ------------ ------------
U.S. Small Cap...... 1.00% .95% .90%
International Small
Cap................. 1.30% 1.20% 1.10%
In addition, each Series pays a portion or all of its operating expenses
other than the management fees: the Enhanced Index Series will pay up to .10%;
the Growth, Multi-Sector, Allocation, Money Market and Balanced Series will pay
up to .15%; the Real Estate, Theme and Asia Series will pay up to .25%; the
International Series will pay up to .40%; the U.S. Small Cap Series will pay up
to .50%; and the International Small Cap Series will pay up to .60% of its
average net assets annually. Any amounts in excess are reimbursed by the Adviser
for the Series or Phoenix. The total operating expenses as a percentage of the
average net assets of each of the foregoing Series (excluding the Enhanced Index
Series), as of December 31, 1996, would have been: .72%, .65%, .70%, .55%, .68%,
1.00%, 1.00%, 1.25%, 1.04%, 1.21% and 1.79%, respectively. Absent expense
reimbursement, total fund operating expenses were .67%, 1.43%, 1.28% and 2.87%
for Multi-Sector, Real Estate, Theme and Asia Series, respectively. Management
may decide to limit the amount of expense reimbursement in the future.
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 NYSE is closed other than for customary weekend and
holiday closings, or trading on the NYSE is restricted as determined by the
SEC; 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.
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<PAGE>
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 benefit 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 benefit proceeds, however, may be delayed
if the claim for payment of the death benefit 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 benefit 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 benefit
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 benefit 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 benefit 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 benefit 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 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
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<PAGE>
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 be
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 (the "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 (the "Code"), as amended. 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 build-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, 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 SEVEN YEARS
If there is a reduction in benefits during the first seven Policy Years, the
premiums are redetermined for purposes of the 7-pay test as if the Policy 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.
17
<PAGE>
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.
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 Funds is
18
<PAGE>
required to diversify its investments. The Diversification Regulations
generally require that on the last day of each quarter of a calendar year no
more than 55% of the value of the Funds' assets is represented by any one
investment, no more than 70% is represented by any two investments, no more than
80% is represented by any three investments, and no more than 90% is represented
by any four investments. A "look through" rule applies to treat a pro rata
portion of each asset of the Funds as an asset of the VUL Account; therefore,
each Series of the Funds will be tested for compliance with the percentage
limitations. For purposes of these diversification rules, all securities of the
same issuer are treated as a single investment, but each United States
Government agency or instrumentality is treated as a separate issuer.
The general diversification requirements are modified if any of the assets
of the VUL Account are direct obligations of the Treasury. In this case, there
is no limit on the investment that may be made in Treasury securities, and for
purposes of determining whether assets other than Treasury securities are
adequately diversified, the generally applicable percentage limitations are
increased based on the value of the VUL Account's investment in Treasury
securities. Notwithstanding this modification of the general diversification
requirements, the portfolios of the Funds will be structured to comply with
the general diversification standards because they serve as an investment
vehicle for certain variable annuity contracts 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 policy 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 Subaccounts 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 1940 Act 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 Subaccount to
the total number of votes attributable to the Subaccount. In determining the
number of votes, fractional shares will be recognized.
Funds' shares held in a Subaccount for which no timely instructions are
received, and 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 Subaccount. 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 subclassification 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 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.
19
<PAGE>
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 President and Chief Operating
Officer, Sunoco Products Company
Hartsville, South Carolina; formerly
Chairman, President and Chief
Executive Officer, Aancor Holland,
Inc. and National Gypsum Company
Arthur P. Byrne Group Executive, Danaher
Corporation
West Hartford, Connecticut
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 Limited Managing Director, Lazard
Freres & Company
New York, New York
Philip R. McLoughlin Executive Vice President and Chief
Investment Officer, Phoenix Home
Life Mutual Insurance Company
Hartford, Connecticut
Indra K. Nooyi Senior Vice President,
PepsiCo, Inc.
Purchase, New York
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
Robert G. Wilson Chairman and President, Ziani
International Capital, Inc., Miami,
Florida; formerly Vice Chairman,
Carter Kaplan & Company,
Richmond, Virginia and Chairman
and Chief Executive Officer, Ecologic
Waste Services, Inc., Miami, Florida
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
Martin J. Gavin Senior Vice President
Randall C. Giangiulio Senior Vice President, Group Sales
Joan E. Herman Senior Vice President
20
<PAGE>
Edward P. Hourihan Senior Vice President, Information
Systems
Joseph E. Kelleher Senior Vice President
Robert G. Lautensack, Jr. Senior Vice President
Scott C. Noble Senior Vice President, Real Estate
Robert E. Primmer Senior Vice President, Brokerage
and PPGA Distribution
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") a corporation formed under the laws of the state of
New York on August 7, 1970, licensed to sell Phoenix insurance policies as well
as policies, annuity contracts and funds of companies affiliated with Phoenix.
W. S. Griffith, an indirect subsidiary of Phoenix, is registered as a
broker-dealer with the SEC under the Securities Exchange Act of 1934 ("1934
Act") and are members of the National Association of Securities Dealers, Inc.
PEPCO serves as national distributor of the policies. PEPCO is an indirect
subsidiary of PD&P. Phoenix owns a majority interest in PD&P. Policies also
may be purchased from other broker-dealers registered under the 1934 Act whose
representatives are authorized by applicable law to sell Policies under terms of
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 1940
Act 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 SEC, under the Securities
Act of 1933 ("1933 Act") 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 Subaccounts available as of the period ended December 31, 1996.
21
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
22
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants .........................................24
Consolidated Balance Sheets at December 31, 1996 and 1995 ..................25
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 .........................................26
Consolidated Statements of Equity for the Years Ended
December 31, 1996, 1995 and 1994 .........................................27
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 ..........................................28
Notes to Consolidated Financial Statements ..............................29-56
23
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
[logo] Price Waterhouse LLP [logo]
REPORT OF INDEPENDENT ACCOUNTANTS
February 12, 1997
To the Board of Directors
and Policyholders of
Phoenix Home Life Mutual Insurance Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of equity and of cash flows present fairly,
in all material respects, the financial position of Phoenix Home Life Mutual
Insurance Company and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, 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
<PAGE>
THIS NEW YORK STATE INSURANCE DEPARTMENT RECOGNIZES ONLY STATUTORY
ACCOUNTING PRACTICES FOR DETERMINING AND REPORTING THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF AN INSURANCE COMPANY, FOR DETERMINING ITS
SOLVENCY UNDER NEW YORK INSURANCE LAW, AND FOR DETERMINING WHETHER ITS
FINANCIAL CONDITION WARRANTS THE PAYMENT OF A DIVIDEND TO ITS
POLICYHOLDERS. NO CONSIDERATION IS GIVEN BY THE DEPARTMENT TO FINANCIAL
STATEMENTS PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN MAKING SUCH DETERMINATIONS.
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
DECEMBER 31,
1996 1995
(IN THOUSANDS)
ASSETS
Investments:
Fixed maturities:
Held-to-maturity, at amortized cost $ 1,555,685 $ 1,334,447
Available-for-sale, at fair value 4,895,393 4,425,678
Equity securities, at fair value 235,351 254,278
Mortgage loans 947,076 897,192
Real estate 410,945 418,328
Policy loans 1,667,784 1,617,872
Other invested assets 182,372 144,778
Short-term investments 164,967 275,517
---------------- ----------------
Total investments 10,059,573 9,368,090
Cash and cash equivalents 172,895 127,104
Accrued investment income 135,475 128,139
Deferred policy acquisition costs 926,274 816,128
Premiums, accounts and notes receivable 79,354 64,880
Reinsurance recoverables 46,251 48,490
Property and equipment, net 137,231 134,880
Other assets 134,589 130,627
Goodwill and intangibles, net 313,507 313,069
Separate account assets 3,447,899 3,306,070
---------------- ----------------
Total assets $ 15,453,048 $ 14,437,477
================ ================
LIABILITIES
Policy liabilities and accruals $ 9,462,039 $ 8,974,885
Other liabilities 470,595 445,577
Long-term debt 490,430 268,337
Current income taxes 29,345 42,033
Deferred income taxes 61,934 34,176
Separate account liabilities 3,412,152 3,273,056
---------------- ----------------
Total liabilities 13,926,495 13,038,064
---------------- ----------------
Contingent liabilities (Note 15)
Minority interest 129,084 117,826
---------------- ----------------
EQUITY
Unrealized investment gains, net 89,791 75,878
Retained earnings 1,307,678 1,205,709
---------------- ----------------
Total equity 1,397,469 1,281,587
---------------- ----------------
Total liabilities and equity $ 15,453,048 $ 14,437,477
================ ================
The accompanying notes are an integral part of these statements.
25
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premiums $ 1,518,822 $ 1,456,875 $ 1,396,002
Insurance and investment product fees 421,058 324,459 286,174
Net investment income 689,890 662,468 622,717
Net realized investment gains (losses) 95,265 74,738 (166)
---------------- ---------------- ----------------
Total revenues 2,725,035 2,518,540 2,304,727
---------------- ---------------- ----------------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses 1,529,573 1,471,030 1,412,686
Policyholder dividends 311,739 289,469 264,456
Policy acquisition expenses 242,363 221,339 237,768
Other operating expenses 452,399 419,231 319,090
---------------- ---------------- ----------------
Total benefits, losses and expenses 2,536,074 2,401,069 2,234,000
---------------- ---------------- ----------------
OPERATING INCOME 188,961 117,471 70,727
Non-operating income
Gain on merger transactions 40,580
---------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST 188,961 158,051 70,727
Income taxes 79,331 43,352 40,062
---------------- ---------------- ----------------
INCOME BEFORE MINORITY INTEREST 109,630 114,699 30,665
Minority interest (8,902) (950) 13
---------------- ---------------- ----------------
NET INCOME $ 100,728 $ 113,749 $ 30,678
================ =============== ================
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
- --------------------------------------------------------------------------------
NET UNREALIZED
RETAINED INVESTMENT
EARNINGS GAINS (LOSSES) TOTAL
(IN THOUSANDS)
Balance at December 31, 1993 $ 1,065,115 $ 48,288 $ 1,113,403
Net income 30,678 30,678
Net unrealized loss (75,761) (75,761)
------------ ------------- -------------
Balance at December 31, 1994 1,095,793 (27,473) 1,068,320
Net income 113,749 113,749
Net unrealized gain 103,351 103,351
Minimum pension liability (3,833) (3,833)
------------ ------------- -------------
Balance at December 31, 1995 1,205,709 75,878 1,281,587
Net income 100,728 100,728
Net unrealized gain 13,913 13,913
Minimum pension liability 1,241 1,241
------------ ------------- -------------
Balance at December 31, 1996 $ 1,307,678 $ 89,791 $ 1,397,469
============ ============= =============
The accompanying notes are an integral part of these statements.
27
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 100,728 $ 113,749 $ 30,678
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATIONS
Net realized investment gains (95,265) (74,738) (166)
Net gain on merger (40,580)
Amortization and depreciation 64,870 58,912 51,894
Deferred income taxes (benefit) 14,774 (16,236) 68,936
(Increase) decrease in receivables (111,886) (30,130) 2,830
Increase in deferred policy acquisition costs (61,985) (26,370) (2,975)
Increase in policy liabilities and accruals 559,724 537,919 446,850
Increase (decrease) in other assets/other liabilities, net 39,594 95,880 (51,171)
Other, net 11,258 4,203 8,046
------------- ------------- -----------
Net cash provided by operating activities 521,812 622,609 554,922
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from disposals of fixed maturities:
Available-for-sale 1,348,809 1,145,146 985,858
Held-to-maturity 118,596 143,773 209,757
Proceeds from disposals of equity securities 382,359 329,104 347,884
Proceeds from mortgage loan maturities or repayments 151,760 186,172 160,882
Proceeds from sale of other invested assets 127,440 148,546 209,316
Purchase of fixed maturities:
Available-for-sale (1,909,086) (1,614,387) (1,396,902)
Held-to-maturity (385,321) (247,354) (383,207)
Purchase of equity securities (215,104) (282,488) (310,751)
Purchase of mortgage loans (200,683) (93,097) (31,214)
Purchase of other invested assets (157,077) (73,482) (173,988)
Change in short term investments, net 110,503 (166,445) 265,328
Increase in policy loans (49,912) (32,387) (55,143)
Capital expenditures (3,543) (18,449) (12,663)
Other investing activities, net (5,898) (12,704) (11,392)
------------- ------------- -----------
Net cash used for investing activities (687,157) (588,052) (196,235)
CASH FLOW FROM FINANCING ACTIVITIES
Withdrawals of contractholder deposit (6,301) (154,100) (314,100)
funds, net of deposits and interest credited
Proceeds from borrowings 226,082 177,922 3,417
Repayment of borrowings (2,400) (12,726) (19,742)
Dividends paid to minority shareholders (6,245) (31,215)
------------- ------------- -----------
Net cash provided by (used for) financing activities 211,136 (20,119) (330,425)
NET INCREASE IN CASH AND CASH EQUIVALENTS 45,791 14,438 28,262
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 127,104 112,666 84,404
------------- ------------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 172,895 $ 127,104 $ 112,666
============= ============= ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid (refunded), net $ 76,157 $ 33,399 $ (32,245)
Interest paid on debt $ 19,214 $ 8,100 $ 8,191
</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 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, primarily based in the United
States. These products and services are distributed among seven segments:
Individual, Group Life and Health, Life Reinsurance, General Lines
Brokerage, Securities Management, Real Estate Management and Other
Operations. See Note 10 for segment information.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Phoenix and
all significant subsidiaries (collectively, the Company). Less than
majority-owned entities in which the Company has at least a 20% interest or
those where the Company has significant influence are reported on the
equity basis.
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates used in
determining insurance and contractholder liabilities, related reinsurance
recoverables, taxes, contingencies and valuation allowances for investment
assets are discussed throughout the Notes to Consolidated Financial
Statements. All significant intercompany accounts and transactions have
been eliminated. Certain reclassifications have been made to the 1995 and
1994 amounts to conform with the 1996 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
As a result of the issuance of the Statement of Financial Accounting
Standard (SFAS) No. 120, "Accounting and Reporting by Mutual Life Insurance
Enterprises and Insurance Enterprises for Certain Long-Duration
Participating Contracts," and Financial Accounting Standards Board
Interpretation (FIN) No. 40, "Applicability of Generally Accepted
Accounting Principles to Mutual Life Insurance and Other Enterprises,"
financial statements of mutual life insurance companies beginning after
December 15, 1995, prepared on the basis of statutory accounting are no
longer characterized as in conformity with GAAP. The Company applied the
pronouncements of the Financial Accounting Standards Board (FASB) to its
financial statements in 1995, and, in accordance with SFAS No. 120 and FIN
No. 40, all prior periods presented were restated.
29
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
VALUATION OF INVESTMENTS
Investments in fixed maturities include bonds, asset-backed securities
including collateralized mortgage obligations (CMOs) and preferred stocks.
The Company classifies all its fixed maturities as either held-to-maturity
or available-for-sale investments. Fixed maturities held-to-maturity
consist of private placement bonds presented at amortized cost, net of
impairments, that management intends and has the ability to hold until
maturity. Fixed maturities available-for-sale are presented at fair value
with unrealized gains or losses included in equity and consist of public
bonds and preferred stocks that management may not hold until maturity.
Fixed maturities are considered impaired when a decline in value is
considered to be other than temporary.
Equity securities are classified as available-for-sale securities. These
securities are reported at fair value based principally on their quoted
market prices. Equity securities are considered impaired when a decline in
value is considered to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances, net
of valuation reserves on impaired mortgages. A mortgage loan is considered
to be impaired if management believes it is probable that the Company will
be unable to collect all amounts of contractual interest and principal as
scheduled in the loan agreement. An impaired mortgage loan's fair value is
measured based on the present value of future cash flows discounted at the
loan's observable market price or at the fair value of the collateral. If
the fair value of a mortgage loan is less than the recorded investment in
the loan, the difference is recorded as a valuation reserve.
Real estate held for sale is carried at the lower of cost or current fair
value less costs to sell. Foreclosed real estate is carried at appraised
value at the time of foreclosure. Subsequent to foreclosure, these
investments are carried at the lower of cost or current fair value less
costs to sell. Fair value for real estate is determined taking into
consideration one or more of the following factors: (i) property valuation
techniques utilizing discounted cash flows at the time of stabilization
including capital expenditures and stabilization costs; (ii) sales of
comparable properties; (iii) geographic location of the property and
related market conditions; and (iv) disposition costs.
Policy loans are generally carried at their unpaid principal balances and
are collateralized by the cash values of the related policies.
Short-term investments are carried at amortized cost, which approximates
fair value.
Other invested assets (primarily partnerships) are carried at cost adjusted
for the Company's equity in undistributed earnings or losses since
acquisition, less allowances for other than temporary declines in value.
Realized investment gains and losses, other than those related to separate
accounts for which the Company does not bear the investment risk, are
determined by the specific identification method and reported as a
component of revenue. A realized investment loss is recorded when an
investment valuation reserve is determined. Valuation reserves are netted
against the asset categories to which they apply and changes in the
valuation reserves are included in realized investment gains and losses.
Unrealized investment gains and losses on fixed maturities and equity
securities classified as available-for-sale are included as a separate
component of equity, net of deferred income taxes and deferred policy
acquisition costs.
30
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into transactions
involving various types of financial instruments, including debt,
investments such as fixed maturities, mortgage loans and equity securities,
and off-balance-sheet financial instruments such as investment and loan
commitments, financial guarantees, and interest rate swaps. These
instruments have credit risk and also may be subject to risk of loss due to
interest rate and market fluctuations.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash on hand and money market
instruments.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally commissions, underwriting,
distribution and policy issue expenses, all of which vary with and are
primarily related to the production of revenues, are deferred. Deferred
policy acquisition costs are subject to recoverability testing at the time
of policy issue and loss recognition at the end of each accounting period.
For individual participating life insurance business, deferred policy
acquisition costs are amortized in proportion to historical and anticipated
gross margins. Deviations from expected experience are reflected in
earnings in the period such deviations occur.
For universal life, limited pay and investment type contracts, deferred
policy acquisition costs are amortized in proportion to total estimated
gross profits over the expected average life of the contracts using
estimated gross margins arising principally from investment, mortality and
expense margins and surrender charges based on historical and anticipated
experience, updated at the end of each accounting period.
PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements, consisting primarily of
office buildings occupied by the Company, are stated at depreciated cost,
less a reserve for impairments in value. Real estate occupied by the
Company was $97.2 million and $95.0 million, respectively, at December 31,
1996 and 1995. The Company provides for depreciation using straight line
and accelerated methods over the estimated useful lives of the related
assets which generally range from five to forty years. Accumulated
depreciation and amortization was $144.1 million and $129.6 million at
December 31, 1996 and 1995, respectively.
OTHER ASSETS
Other assets consist of prepaid expenses and accounts receivable,
principally investment management fees receivable less allowances for
estimated uncollectible amounts.
31
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of the cost of businesses acquired over the
fair value of their net assets. These costs are amortized on a
straight-line basis over periods, not exceeding 40 years, that correspond
with the benefits expected to be derived from the acquisitions. Intangible
assets are amortized on a straight-line basis over the estimated lives of
such assets. Management periodically reevaluates the propriety of the
carrying value of goodwill and intangible assets by comparing estimates of
future undiscounted cash flows to the carrying value of assets. Assets are
considered impaired if the carrying value exceeds the expected future
undiscounted cash flows.
SEPARATE ACCOUNTS
Separate account assets and liabilities are funds maintained in accounts to
meet specific investment objectives of contractholders who bear the
investment risk. Investment income and investment gains and losses accrue
directly to such contractholders. The assets of each account are legally
segregated and are not subject to claims that arise out of any other
business of the Company. The assets and liabilities are carried at market
value. Deposits, net investment income and realized investment gains and
losses for these accounts are excluded from revenues, and the related
liability increases are excluded from benefits and expenses. Amounts
assessed to the contractholders for management services are included in
revenues.
On March 1, 1996, the pooled separate accounts of Phoenix, excluding the
real estate separate accounts, were terminated and the assets of these
separate accounts were transferred to Phoenix Duff & Phelps' institutional
mutual funds.
POLICY LIABILITIES AND ACCRUALS
Future policy benefits are liabilities for life, health and annuity
products. Such liabilities are established in amounts adequate to meet the
estimated future obligations of policies in force. Policy liabilities for
traditional life insurance are computed using the net level premium method
on the basis of actuarial assumptions as to assumed rates of interest,
mortality, morbidity and withdrawals. Liabilities for universal life
include deposits received from customers and investment earnings on their
fund balances, less administrative charges. Universal life fund balances
are also assessed mortality charges.
Liabilities for outstanding claims, losses and loss adjustment expenses are
amounts estimated to cover incurred losses. These liabilities are based on
individual case estimates for reported losses and estimates of unreported
losses based on past experience.
Unearned premiums relate primarily to individual participating life
insurance as well as group life, accident and health insurance premiums.
The premiums are reported as earned on a pro-rata basis over the contract
period. The unexpired portion of these premiums is recorded as unearned
premiums.
Contractholder deposit funds and other policy liabilities include
investment-related products such as guaranteed investment contracts,
deposit administration funds and immediate participation guarantee funds.
These funds consist of deposits received from customers and investment
earnings on their fund balances.
32
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PREMIUM AND FEE REVENUE AND RELATED EXPENSES
Life insurance premiums, other than premiums for universal life and certain
annuity contracts, are recorded as premium revenue on a pro-rata basis over
each policy year. Benefits, losses and related expenses are matched with
premiums over the related contract periods. Revenues for investment-related
products consist of net investment income and contract charges assessed
against the fund values. Related benefit expenses primarily consist of net
investment income credited to the fund values after deduction for
investment and risk charges. Revenues for universal life products consist
of net investment income and mortality, administration and surrender
charges assessed against the fund values during the period. Related benefit
expenses include universal life benefit claims in excess of fund values and
net investment income credited to universal life fund values.
POLICYHOLDERS' DIVIDENDS
Certain life insurance policies contain dividend payment provisions that
enable the policyholder to participate in the earnings of the Company. The
amount of policyholders' dividends to be paid is determined annually by the
Company's board of directors. The aggregate amount of policyholders'
dividends is related to the actual interest, mortality, morbidity and
expense experience for the year and the Company's judgment as to the
appropriate level of statutory surplus to be retained. The participating
life insurance in force was 80.0% and 80.5% of the face value of total
individual life insurance in force at December 31, 1996 and 1995,
respectively. The premiums on participating life insurance policies were
84.1%, 84.7% and 84.5% of total individual life insurance premiums in 1996,
1995 and 1994, respectively. Total policyholders' dividends were $312
million, $289 million and $264 million in 1996, 1995 and 1994,
respectively.
INCOME TAXES
Phoenix and its eligible affiliated companies have elected to file a
life/nonlife consolidated federal income tax return for the tax years ended
December 31, 1996, 1995 and 1994. Entities included within the consolidated
group are segregated into either a life insurance or non-life insurance
company subgroup. The consolidation of these subgroups is subject to
certain statutory restrictions in the percentage of eligible non-life tax
losses that can be applied to offset life company taxable income.
Deferred income taxes result from temporary differences between the tax
basis of assets and liabilities and their recorded amounts for financial
reporting purposes. These differences result primarily from policy
liabilities and accruals, policy acquisition expenses, investment
impairment reserves, reserves for postretirement benefits and unrealized
gains or losses on investments.
33
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. SIGNIFICANT TRANSACTIONS
PHOENIX DUFF & PHELPS CORPORATION
Effective January 1, 1995, the money management businesses of Phoenix 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. On November 1, 1995, Phoenix, through its
subsidiary, PM Holdings, Inc. (PM Holdings), merged Phoenix Securities
Group into Duff & Phelps Corporation (D&P), forming Phoenix Duff & Phelps
Corporation (PDP). The transaction was accounted for as a reverse merger
with the purchase accounting method applied to D&P's assets and
liabilities. The purchase price was $190.7 million and PDP recorded $93.1
million of goodwill, which is being amortized over forty years using the
straight-line method. PM Holdings owns approximately 60% of the outstanding
PDP common stock. In addition, PM Holdings owns 1.4 million shares (45%) of
PDP's series A convertible exchangeable preferred stock. PM Holdings
recognized a non-operating, non-cash, tax free gain on this transaction of
$36.9 million resulting from the realization of the appreciation of the
stock exchanged which is included in the gain on merger transactions in the
consolidated statements of income.
SURPLUS NOTES
On November 25, 1996, the Company issued $175 million of surplus notes with
a 6.95% interest rate scheduled to mature on December 1, 2006. There are no
sinking fund provisions in the notes. The notes are classified as long-term
debt in the Consolidated Balance Sheet at December 31, 1996.
The notes were issued in accordance with Section 1307 of the New York
Insurance Law and, accordingly, interest and principal payments cannot be
made without the approval of the New York Insurance Department.
The notes were issued pursuant to Rule 144A under the Securities Act of
1933 underwritten by Bear, Stearns & Co. Inc., Chase Securities Inc. and
Merrill Lynch & Co. and are administered by Bank of New York as
registrar/paying agent.
ABERDEEN TRUST PLC
On March 25, 1996, the Company purchased 12.2 million shares of Aberdeen
Trust PLC (Aberdeen), a Scottish asset management firm. As of December 31,
1996, the Company owned 13.1 million shares representing 12.5% of
Aberdeen's outstanding common stock. The total cost of these transactions
was $26.4 million. The investment is recorded at cost adjusted for the
Company's equity in undistributed earnings less dividends received.
In addition, on April 15, 1996, the Company purchased a 7% convertible
subordinated note issued by Aberdeen for $37.5 million. The note, which
matures on March 29, 2003, may be converted at a price of $2.15 per share,
which would be equivalent to approximately 14% of Aberdeen's outstanding
common stock.
34
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In the spring of 1996, the Company and Aberdeen joined together to form
Phoenix-Aberdeen International Advisors, LLC, an SEC registered investment
advisor that, in conjunction with PDP and Aberdeen, will develop and market
investment products in the United States and the United Kingdom.
4. INVESTMENTS
Information pertaining to Phoenix's investments, net investment income and
realized and unrealized investment gains and losses follows:
FIXED MATURITIES AND EQUITY SECURITIES
The amortized cost and fair value of investments in fixed maturities and
equity securities as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FIXED MATURITIES:
HELD-TO-MATURITY:
State and political subdivision bonds $ 11,685 $ 5 $ (375) $ 11,315
Corporate securities 1,525,999 61,692 (13,405) 1,574,286
Mortgage-backed securities 18,001 1,037 (15) 19,023
----------------- ------------------ ---------------- ---------------
Total 1,555,685 62,734 (13,795) 1,604,624
----------------- ------------------ ---------------- ---------------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 561,017 13,970 (1,610) 573,377
State and political subdivision bonds 406,679 13,831 (1,154) 419,356
Foreign government bonds 174,298 31,441 (1,457) 204,282
Corporate securities 1,092,163 70,432 (7,968) 1,154,627
Mortgage-backed securities 2,509,232 60,321 (25,802) 2,543,751
----------------- ------------------ ---------------- ---------------
Total 4,743,389 189,995 (37,991) 4,895,393
----------------- ------------------ ---------------- ---------------
Total fixed maturities $ 6,299,074 $ 252,729 $ (51,786) $ 6,500,017
================= ================== ================ ===============
Equity securities available-for-sale $ 137,907 $ 100,258 $ (2,814) $ 235,351
================= ================== ================ ===============
</TABLE>
35
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of investments in fixed maturities and
equity securities as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FIXED MATURITIES:
HELD-TO-MATURITY:
State and political subdivision bonds $ 20,915 $ 779 $ (142) $ 21,552
Corporate securities 1,297,049 125,055 (1,114) 1,420,990
Mortgage-backed securities 16,483 2,057 (37) 18,503
----------------- ---------------- -------------- -------------
Total 1,334,447 127,891 (1,293) 1,461,045
----------------- ---------------- -------------- -------------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 572,304 29,684 (1,029) 600,959
State and political subdivision bonds 314,407 26,072 (1) 340,478
Foreign government bonds 59,149 6,436 (1,804) 63,781
Corporate securities 987,210 91,741 (3,950) 1,075,001
Mortgage-backed securities 2,269,618 95,176 (19,335) 2,345,459
----------------- ---------------- -------------- -------------
Total 4,202,688 249,109 (26,119) 4,425,678
----------------- ---------------- -------------- -------------
Total fixed maturities $ 5,537,135 $ 377,000 $ (27,412) $ 5,886,723
================= ================ ============== =============
Equity securities available-for-sale $ 197,526 $ 62,658 $ (5,906) $ 254,278
================= ================ ============== =============
</TABLE>
36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of fixed maturities, by contractual
maturity, as of December 31, 1996 are shown below. Actual maturities may
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties, or
the Company may have the right to put or sell the obligations back to the
issuers.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Due in one year or less $ 34,496 $ 35,001 $ 50,888 $ 51,214
Due after one year through five years 339,989 350,702 360,543 374,212
Due after five years through ten years 616,197 643,166 712,255 738,950
Due after ten years 547,002 556,732 1,110,471 1,187,266
Mortgage-backed securities 18,001 19,023 2,509,232 2,543,751
----------------- --------------- ---------------- ---------------
Total $ 1,555,685 $ 1,604,624 $ 4,743,389 $ 4,895,393
================= =============== ================ ===============
</TABLE>
Carrying values for investments in mortgage-backed securities, excluding
U.S. government guaranteed investments, were as follows:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
MORTGAGE-BACKED SECURITIES
Planned amortization class $ 618,953 $ 787,840
Asset-backed 490,018 436,734
Mezzanine 322,812 365,034
Commercial 413,571 230,083
Sequential pay 552,512 397,950
Pass through 105,282 85,017
Other 58,604 59,284
----------------- -----------------
Total mortgage-backed securities $ 2,561,752 $ 2,361,942
================= =================
Phoenix had 37% and 49% at December 31, 1996 and 1995, 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 has limited exposure in the more volatile
residential derivative market such as interest-only, principal-only or
inverse float instruments.
37
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MORTGAGE LOANS AND REAL ESTATE
The Company's mortgage loans and real estate are diversified by property
type and location and, for mortgage loans, by borrower. Mortgage loans are
collateralized by the related properties and are generally 75% of the
properties' value at the time the original loan is made.
The carrying values of mortgage loans and real estate investments, net of
applicable reserves, were as follows:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Mortgage loans $ 947,076 $ 897,192
Real estate held for sale 410,945 418,328
------------------ -------------------
Total $ 1,358,021 $ 1,315,520
================== ===================
During 1996 and 1995, non-cash investing activities included real estate
acquired through foreclosure of mortgage loans and purchase money
mortgages, which had a fair value of $1.5 million and $35 million,
respectively.
38
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Mortgage loans and real estate investments are comprised of the following
property types and geographic regions:
MORTGAGE LOANS
DECEMBER 31,
1996 1995
(IN THOUSANDS)
PROPERTY TYPE:
Office buildings $ 251,526 $ 191,672
Retail 257,721 250,172
Apartment buildings 241,286 244,589
Industrial buildings 197,013 222,120
Other 47,928 54,446
Valuation allowances (48,398) (65,807)
----------------------- ---------------------
Total $ 947,076 $ 897,192
======================= =====================
GEOGRAPHIC REGION:
Northeast $ 260,146 $ 233,670
Southeast 261,956 250,019
North central 158,902 171,434
South central 57,507 50,819
West 256,963 257,057
Valuation allowances (48,398) (65,807)
----------------------- ---------------------
Total $ 947,076 $ 897,192
======================= =====================
REAL ESTATE
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Property type:
Office buildings $ 246,644 $ 267,505
Retail 121,813 127,500
Apartment buildings 26,286 36,644
Industrial buildings 56,134 61,667
Other 7,577 8,767
Valuation allowances (47,509) (83,755)
----------------------- ----------------------
Total $ 410,945 $ 418,328
======================= =====================
GEOGRAPHIC REGION:
Northeast $ 103,761 $ 102,249
Southeast 110,746 130,944
North central 86,070 85,470
South central 85,532 91,670
West 72,345 91,750
Valuation allowances (47,509) (83,755)
----------------------- ----------------------
Total $ 410,945 $ 418,328
======================= =====================
39
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 1996, scheduled mortgage loan maturities were as follows:
1997 - $176 million; 1998 - $138 million; 1999 - $99 million; 2000 - $106
million; 2001 - $98 million; and $378 million thereafter. Actual maturities
could differ from contractual maturities because borrowers may have the
right to prepay obligations with or without prepayment penalties and loans
may be refinanced. The Company refinanced $28.9 million and $100.4 million
of its mortgage loans during 1996 and 1995, respectively, based on terms
which differed from those granted to new borrowers.
INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the consolidated balance sheets
and changes thereto were as follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
JANUARY 1, ADDITIONS DEDUCTIONS DECEMBER 31,
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1996
Mortgage loans $ 65,807 $ 7,640 $ (25,049) $ 48,398
Real estate 83,755 2,526 (38,772) 47,509
------------------ ------------------ --------------------- -------------------
Total $ 149,562 $ 10,166 $ (63,821) $ 95,907
================== ================== ===================== ===================
1995
Mortgage loans $ 118,970 $ (53,163) $ 65,807
Real estate 108,652 $ 8,604 (33,501) 83,755
------------------ ------------------ --------------------- -------------------
Total $ 227,622 $ 8,604 $ (86,664) $ 149,562
================== ================== ===================== ===================
</TABLE>
NON-INCOME PRODUCING MORTGAGES LOANS AND BONDS
The net carrying values of non-income producing mortgage loans were $4.5
million and $3.8 million at December 31, 1996 and 1995, respectively.
There were no non-income producing bonds at December 31, 1996 and 1995.
INTEREST RATE SWAPS
Phoenix enters into interest rate swap agreements, generally having
maturities of seven years or less, to hedge certain variable rate
investment income streams matched against fixed rate liability streams. The
notional amounts of these investments were $60.1 million and $18 million at
December 31, 1996 and 1995, respectively. Average received and average paid
rates were 8.04% and 5.65% for 1996.
The Company has also guaranteed an interest rate swap that has the effect
of the Company paying a fixed interest rate on a notional amount of $184.7
million of the Company'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
considers the likelihood of any material loss on these guarantees or
interest rate swaps to be remote.
40
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
OTHER INVESTED ASSETS
Other invested assets, consisting primarily of partnership interests and
equity in unconsolidated subsidiaries, were as follows:
DECEMBER 31,
1996 1995
(in thousands)
Venture capital equity partnerships $ 66,284 $ 50,919
Transportation and equipment leases 46,950 47,810
Investment in Aberdeen Trust, PLC 29,980
Investment in Beutel, Goodman & Co. LTD 34,541 39,730
Other 4,617 6,319
------------- ---------------
Total other invested assets $ 182,372 $ 144,778
============= ===============
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31,
were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Fixed maturities $ 469,713 $ 437,521 $ 395,192
Equity securities 4,689 1,787 3,312
Mortgage loans 84,318 92,283 111,122
Policy loans 117,742 115,055 105,678
Real estate 21,799 20,910 17,087
Other invested assets 332 871 1,212
Short-term investments 18,688 21,974 11,673
----------------- ----------------- ----------------
Sub-total 717,281 690,401 645,276
Less investment expenses 27,391 27,933 22,559
----------------- ----------------- ----------------
Net investment income $ 689,890 $ 662,468 $ 622,717
================= ================= ================
</TABLE>
Investment income of $.4 million was not accrued on certain delinquent
mortgage loans and defaulted bonds at December 31, 1996. The Company does
not accrue interest income on impaired mortgage loans and impaired bonds
when the likelihood of collection is doubtful.
The payment terms of mortgage loans may from time to time be restructured
or modified. The investment in restructured mortgage loans, based on
amortized cost, amounted to $61.5 million and $76 million at December 31,
1996 and 1995, respectively. Interest income on restructured mortgage loans
that would have been recorded in accordance with the original terms of such
loans amounted to $3.1 million, $6.6 million and $10.1 million in 1996,
1995 and 1994, respectively. Actual interest income on these loans included
in net investment income aggregated $5.2 million, $6.4 million and $11.3
million in 1996, 1995 and 1994, respectively.
41
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INVESTMENT GAINS AND LOSSES
Unrealized gains and losses on investments carried at fair value for the
year ended December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized investment gains (losses)
Fixed maturities $ (70,986) $ 476,352 $ (411,694)
Equity securities 40,803 24,527 2,706
------------------ ------------------ -------------------
(30,183) 500,879 (408,988)
Deferred policy acquisition costs 51,528 (341,836) 292,423
Deferred income taxes (benefits) 7,432 55,692 (40,804)
------------------ ------------------ -------------------
Net unrealized investment gains (losses) $ 13,913 $ 103,351 $ (75,761)
==================== ================== =====================
</TABLE>
Realized investment gains and losses for the year ended December 31, were
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities $ (10,476) $ 8,080 $ (20,554)
Equity securities 59,794 29,276 (8,950)
Mortgage loans 2,628 (262) 485
Real estate 24,711 20,535 16,063
Other invested assets 18,608 17,109 12,790
-------------------- ------------------ ---------------------
95,265 74,738 (166)
Income taxes (benefits) 33,343 26,158 (58)
-------------------- ------------------ ---------------------
Net realized investment gains (losses) $ 61,922 $ 48,580 $ (108)
==================== ================== =====================
</TABLE>
The proceeds from sales of available-for-sale fixed maturities and the
gross realized gains and gross realized losses on those sales for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales $ 1,525,011 $ 1,201,700 $ 733,800
Gross gains on sales $ 15,966 $ 30,300 $ 16,500
Gross losses on sales $ (27,905) $ (19,900) $ (45,500)
</TABLE>
42
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets were as follows:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Goodwill $ 231,135 $ 211,084
Investment management contracts 56,700 60,700
Client listings 41,410 31,437
Non-compete covenants 5,000 9,314
Intangible asset related to
pension plan benefits 19,835 22,540
Other 1,220 4,066
----------------- -------------------
355,300 339,141
Accumulated amortization (41,793) (26,072)
----------------- -------------------
Total $ 313,507 $ 313,069
================= ===================
PDP's amounts included above were as follows:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Goodwill $ 179,406 $ 167,014
Investment management contracts 56,700 60,700
Non-compete covenants 5,000 5,000
Other 1,220 4,066
----------------- ------------------
242,326 236,780
Accumulated amortization (13,198) (6,211)
----------------- ------------------
Total $ 229,128 $ 230,569
================= ==================
6. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Financial instruments that are subject to fair value disclosure
requirements (insurance contracts are excluded) are carried in the
financial statements at amounts that approximate fair value. The fair
values presented for certain financial instruments are estimates which, in
many cases, may differ significantly from the amounts which could be
realized upon immediate liquidation. In cases where market prices are not
available, estimates of fair value are based on discounted cash flow
analyses which utilize current interest rates for similar financial
instruments which have comparable terms and credit quality.
43
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term investments, the carrying amount approximates fair
value.
FIXED MATURITIES
Fair values are based on quoted market prices, where available, or quoted
market prices of comparable instruments. Fair values of private placement
fixed maturities are estimated using discounted cash flows that apply
interest rates currently being offered with similar terms to borrowers of
similar credit quality.
EQUITY SECURITIES
Fair values are based on quoted market prices, where available. If a quoted
market price is not available, fair values are estimated using independent
pricing sources or internally developed pricing models.
MORTGAGE LOANS
Fair values are calculated as the present value of scheduled payments, with
the discount based upon (1) the Treasury rate comparable for the remaining
loan duration, plus (2) a spread of between 175 and 450 basis points,
depending on the internal quality rating of the loan. For loans in
foreclosure or default, values were determined assuming principal recovery
was the lower of the loan balance or the estimated value of the underlying
property.
POLICY LOANS
Fair values are estimated as the present value of loan interest and policy
loan repayments discounted at the ten year Treasury rate. Loan repayments
were assumed only to occur as a result of anticipated policy lapses, and it
was assumed that annual policy loan interest payments were made at the
guaranteed loan rate less 17.5 basis points. Discounting was at the ten
year Treasury rate, except for policy loans with a variable policy loan
rate. Variable policy loans have an interest rate that is reset annually
based upon market rates and therefore, book value is a reasonable
approximation of fair value.
INVESTMENT CONTRACTS
In determining the fair value of guaranteed interest contracts, a discount
rate equal to the appropriate Treasury rate, plus 150 basis points, was
assumed to determine the present value of projected contractual liability
payments through final maturity.
The fair value of deferred annuities and supplementary contracts without
life contingencies with an interest guarantee of one year or less is valued
at the amount of the policy reserve. In determining the fair value of
deferred annuities and supplementary contracts without life contingencies
with interest guarantees greater than one year, a discount rate equal to
the appropriate Treasury rate, plus 150 basis points, was used to determine
the present value of the projected account value of the policy at the end
of the current guarantee period.
44
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Deposit type funds, including pension deposit administration contracts,
dividend accumulations, and other funds left on deposit not involving life
contingencies, have interest guarantees of less than one year for which
interest credited is closely tied to rates earned on owned assets. For such
liabilities, fair value is assumed to be equal to the stated liability
balances.
DEBT
The carrying value of long-term debt reported on the balance sheet
approximates fair value.
The estimated fair values of the financial instruments as of December 31,
were as follows:
<TABLE>
<CAPTION>
1996 1995
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash $ 172,895 $ 172,895 $ 127,104 $ 127,104
equivalents
Short-term investments 164,967 164,967 275,517 275,517
Fixed maturities 6,451,078 6,500,017 5,760,125 5,886,723
Equity securities 235,351 235,351 254,278 254,278
Mortgage loans 947,076 986,900 897,192 955,800
Policy loans 1,667,784 1,645,899 1,617,872 1,658,000
--------------- ----------------- -------------------- ------------------
Total financial assets $ 9,639,151 $ 9,706,029 $ 8,932,088 $ 9,157,422
=============== ================= ==================== ==================
Financial liabilities:
Policy liabilities $ 875,200 $ 875,100 $ 955,600 $ 955,800
Long-term debt 492,020 492,020 268,337 268,337
--------------- ----------------- -------------------- ------------------
Total financial liabilities $ 1,367,220 $ 1,367,120 $ 1,223,937 $ 1,224,137
=============== ================= ==================== ==================
</TABLE>
7. DEBT
Long-term debt was as follows:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Unsecured debt
Bank borrowings $ 287,365 $ 241,157
Notes payable 25,457 23,995
Other 58
------------------ ----------------
Total unsecured debt 312,822 265,210
Surplus notes 175,000
Secured debt 2,608 3,127
------------------ ----------------
Total long-term debt $ 490,430 $ 268,337
================== ================
45
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has various lines of credit established with major commercial
banks. As of December 31, 1996, the Company had outstanding balances
totaling $287.4 million. The total unused credit was $120.9 million. The
Company records commitment fees as a component of interest expense.
Interest rates range from 5.73% to 8.25% in 1996.
On November 25, 1996, the Company issued $175 million of surplus notes (See
Note 3).
Maturities of long-term debt are as follows: 1997 - $17 million; 1998 - $90
million; 1999 - $7 million; 2000 - $177 million; 2001 - $24 million; 2002
and thereafter - $175 million.
Interest expense on long-term debt was $18.0 million, $7.7 million and $9.0
million for the years ended December 31, 1996, 1995 and 1994, respectively.
8. INCOME TAXES
A summary of income taxes (benefits) in the consolidated statements of
income for the year ended December 31, was as follows:
1996 1995 1994
(in thousands)
Income taxes
Current $ $ $
59,673 59,590 (28,874)
Deferred
19,658 (16,238) 68,936
---------------- --------------- ---------------
Total $ $ $
79,331 43,352 40,062
================ =============== ===============
The income taxes attributable to the consolidated results of operations are
different than the amounts determined by multiplying income before taxes by
the statutory income tax rate. The sources of the difference and the tax
effects of each for the year ended December 31, were as follows (in
thousands, aside from the percentages):
<TABLE>
<CAPTION>
1996 1995 1994
% % %
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory rate $ 66,136 35 $ 55,318 35 $ 24,754 35
Non-taxable gain on PDP merger (14,203) (9)
Dividend received deduction &
tax-exempt interest (2,107) (1) (623) (1,177) (2)
Other, net 2,736 1 2,860 1 (4,082) (5)
-------------- -------- ------------- -------- ------------- ----------
66,765 35 43,352 27 19,495 28
Differential earnings (equity tax) 12,566 7 20,567 29
-------------- -------- ------------- -------- ------------- ----------
Income taxes $ 79,331 42 $ 43,352 27 $ 40,062 57
============== ======== ============= ======== ============= ==========
</TABLE>
46
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The deferred income tax liability (asset) represents the tax effects of
temporary differences attributable to the consolidated tax return group.
The components were as follows:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Deferred policy acquisition costs $ 220,135 $ 221,034
Unearned premium/deferred revenue (131,513) (127,699)
Impairment reserves (43,331) (58,314)
Pension and other postretirement benefits (58,230) (51,985)
Investments 50,219 50,542
Future policyholder benefits (37,904) (47,800)
Other 15,633 (13,716)
----------------- --------------
15,009 (27,938)
Net unrealized investment gains 48,320 40,888
PDP purchase accounting adjustment 23,290
Minimum pension liability (1,395) (2,064)
Foreign tax credit (1,109) (1,057)
------------------ --------------
Deferred tax liability, net
before valuation allowance 60,825 33,119
Valuation allowance 1,109 1,057
------------------ --------------
Deferred tax liability, net $ 61,934 $ 34,176
================== ==============
It is management's assessment, based on the Company's earnings and
projected future taxable income, that it is more likely than not that the
deferred tax assets at December 31, 1996 and 1995, with the exception of
the foreign tax credit, will be realized.
Gross deferred income tax assets totaled $274 million and $301 million at
December 31, 1996 and 1995, respectively. Gross deferred income tax
liabilities totaled $336 million and $335 million at December 31, 1996 and
1995, respectively.
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.
47
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
PENSION PLANS
The Company has a non-contributory, defined benefit pension plan covering
substantially all of its employees. Retirement benefits are a function of
both years of service and level of compensation. The Company also sponsors
a non-qualified supplemental defined benefit plan to provide benefits in
excess of amounts allowed pursuant to Internal Revenue Code Section
401(a)(17). Phoenix's funding policy is to contribute annually an amount
equal to at least the minimum required contribution in accordance with
minimum funding standards established by the Employee Retirement Income
Security Act of 1974. Contributions are intended to provide not only for
benefits attributable to service to date, but also for service expected to
be earned in the future.
Components of net periodic pension cost for the year ended December 31,
were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 10,076 $ 9,599 $ 10,181
Interest accrued on projected benefit obligation 22,660 19,880 19,181
Actual return on assets (38,788) (62,567) (18,073)
Net amortization and deferral 17,318 45,807 (613)
--------------- ---------------- ---------------
Net periodic pension cost $ 11,266 $ 12,719 $ 10,676
=============== ================ ===============
</TABLE>
In 1996, the Company offered an early retirement window which granted an
additional benefit of five years of age and service. As a result of the
early retirement window, the Company recorded an additional pension expense
of $8.7 million for the year ended December 31, 1996.
48
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The funded status of the plan for which assets exceeded accumulated
benefit obligations was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 213,148 $ 171,077
Non-vested benefit obligation 14,828 16,248
-------------------- ---------------------
Accumulated benefit obligation $ 227,976 $ 187,325
==================== =====================
Pension liability included in other liabilities:
Projected benefit obligation $ 261,886 $ 227,585
Plan assets at fair value 292,070 267,013
-------------------- ---------------------
Plan assets in excess of
projected benefit obligation 30,184 39,428
Unrecognized net gain from past experience (52,312) (46,960)
Unrecognized prior service benefit (240) (273)
Unamortized transition asset (19,745) (22,214)
-------------------- ---------------------
Net pension liability $ (42,113) $ (30,019)
==================== =====================
</TABLE>
At December 31, 1996 and 1995, the non-qualified plan was unfunded and had
projected benefit obligations of $50.0 million and $43.4 million,
respectively. The accumulated benefit obligations as of December 31, 1996
and 1995 related to this plan were $37.4 million and $36.2 million,
respectively, and are included in other liabilities.
The Company recorded, as a reduction of policyholders' equity, an
additional minimum pension liability of $2.8 million and $3.8 million, net
of Federal income taxes, at December 31, 1996 and 1995, respectively,
representing the excess of accumulated benefit obligations over the fair
value of plan assets and accrued pension liabilities for the non-qualified
plan. The Company has also recorded an intangible asset of $19.8 million
and $22.5 million as of December 31, 1996 and 1995 related to pension plan
benefits.
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit
obligation were 7.5% and 4.5%, for 1996 and 8.0% and 5.0% for 1995. The
discount rate assumption for 1996 was determined based on a study that
matched available high quality investment securities with the expected
timing of pension liability payments. The expected long-term rate of return
on retirement plan assets was 8.0%.
49
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The pension plan's assets include corporate and government debt
securities, equity securities, real estate, venture capital funds, and
shares of mutual funds.
The Company also sponsors savings plans for its employees and agents which
are qualified under Internal Revenue Code Section 401(k). Employees and
agents may contribute a portion of their annual salary, subject to
limitation, to the plans. The Company contributes an additional amount,
subject to limitation, based on the voluntary contribution of the employee
or agent. Company contributions charged to expense with respect to these
plans during the years ended December 31, 1996, 1995 and 1994 were $4.2
million, $4.2 million and $4.0 million, respectively.
OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's pension plans, the Company currently provides
certain health care and life insurance benefits to retired employees,
spouses and other eligible dependents through various plans sponsored by
Phoenix. A substantial portion of Phoenix's employees may become eligible
for these benefits upon retirement. The health care plans have varying
copayments and deductibles, depending on the plan. These plans are
unfunded.
Phoenix recognizes the costs and obligations of postretirement benefits
other than pensions over the employees' service period ending with the date
an employee is fully eligible to receive benefits.
The plan's funded status reconciled with amounts recognized in the
Company's consolidated balance sheet, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 30,576 $ 37,900
Fully eligible active plan participants 11,466 10,500
Other active plan participants 21,614 24,856
----------------- -----------------
63,656 73,256
Unrecognized net gain
from past experience 29,173 14,102
----------------- -----------------
Accrued postretirement benefit liability $ 92,829 $ 87,358
================= =================
</TABLE>
50
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The components of net periodic postretirement benefit cost for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(in thousands)
<S> <C> <C> <C>
Service cost - benefits earned during year $ 2,765 $ 3,366 $ 2,942
Interest cost accrued on benefit obligation 4,547 5,275 5,179
Net amortization (1,577) (458)
--------------- --------------- ---------------
Net periodic postretirement benefit cost $ 5,735 $ 8,183 $ 8,121
=============== =============== ===============
</TABLE>
In addition to the net periodic postretirement benefit cost, the Company
expensed an additional $3.0 million for postretirement benefits related to
the early retirement window.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5% at December 31, 1996 and 8.0% at December 31,
1995.
For purposes of measuring the accumulated postretirement benefit obligation
at December 31, 1996, health care costs were assumed to increase 9.5% in
1997, declining thereafter until the ultimate rate of 5.5% is reached in
2002 and remains at that level thereafter. For purposes of measuring the
accumulated postretirement benefit obligation at December 31, 1995, health
care costs were assumed to increase 11% in 1996, declining thereafter until
the ultimate rate of 5.5% is reached in 2002 and remained at that level
thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. For example, increasing the assumed health
care cost trend rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation by $3.9 million and the
annual service and interest cost by $.6 million, before taxes. Gains and
losses that occur because actual experience differs from the estimates are
amortized over the average future service period of employees.
OTHER POSTEMPLOYMENT BENEFITS
The Company recognizes the costs and obligations of severance, disability
and related life insurance and health care benefits to be paid to inactive
or former employees after employment but before retirement. Postemployment
benefit expense was $.6 million for 1996, $.5 million for 1995 and $(1.9)
million for 1994.
51
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. SEGMENT INFORMATION
Phoenix operates principally in seven segments: Individual,
Group Life and Health, Life Reinsurance, General Lines
Brokerage, Securities Management, Real Estate Management and
Other Operations.
Other Operations includes unallocated investment income,
expenses and realized investment gains related to capital in excess of
segment requirements; assets primarily consist of equity securities.
Summarized below is financial information with respect to the business
segments:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Individual $ 1,796,572 $ 1,752,338 $ 1,643,074
Group Life and Health 462,551 421,771 409,883
Life Reinsurance 143,314 128,813 102,120
General Lines Brokerage 61,809 40,977 22,382
Securities Management 164,966 112,206 104,429
Real Estate Management 13,550 13,562 12,439
Other Operations 82,273 48,873 10,400
--------------------- ------------------ -----------------
Total $ 2,725,035 $ 2,518,540 $ 2,304,727
===================== ================== =================
DECEMBER 31,
1996 1995 1994
(IN THOUSANDS)
OPERATING INCOME
Individual $ 65,226 $ 45,858 $ 23,306
Group Life and Health 9,092 17,422 14,584
Life Reinsurance 7,993 17,391 11,492
General Lines Brokerage (2,935) (1,887) (521)
Securities Management 27,506 23,667 27,285
Real Estate Management (3,783) (184) 727
Other Operations 85,862 15,204 (6,146)
--------------------- ------------------ -----------------
Total $ 188,961 $ 117,471 $ 70,727
===================== ================== =================
</TABLE>
DECEMBER 31,
1996 1995
(IN THOUSANDS)
IDENTIFIABLE ASSETS
Individual $ 13,547,132 $ 12,104,989
Group Life and Health 590,545 542,139
Life Reinsurance 294,441 273,036
General Lines Brokerage 117,340 115,558
Securities Management 294,803 811,438
Real Estate Management 319,406 297,166
Other Operations 289,381 293,151
--------------------- ------------------
Total $ 15,453,048 $ 14,437,477
===================== ==================
52
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to
buildings, amounted to $14.8 million, $14.6 million and $13.8 million in
1996, 1995, and 1994, respectively. Future minimum rental payments under
non-cancelable operating leases were approximately $41.9 million as of
December 31, 1996, payable as follows: 1997 - $15.8 million; 1998 - $11.6
million; 1999 - $7.5 million; 2000 - $4.7 million; 2001 - $1.8 million;
and $.5 million thereafter.
12. DIRECT BUSINESS WRITTEN AND REINSURANCE
As is customary practice in the insurance industry, Phoenix assumes and
cedes reinsurance as a means of diversifying underwriting risk. The
maximum amount of individual life insurance retained by the Company on any
one life is $8,000,000 for single life and joint first-to-die policies and
$10,000,000 for joint last-to-die policies, 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.
Amounts recoverable from reinsurers are estimated in a manner consistent
with the claim liability associated with the reinsured policy.
Additional information on direct business written and reinsurance assumed
and ceded for the years ended December 31, was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $ 1,473,869 $ 1,455,459 $ 1,455,467
Reinsurance assumed 276,630 271,498 205,387
Reinsurance ceded (231,677) (270,082) (264,852)
-------------------- ------------------- --------------------
Net premiums $ 1,518,822 $ 1,456,875 $ 1,396,002
==================== =================== ====================
Direct policy and contract claims incurred $ 575,824 $ 605,545 $ 610,004
Reinsurance assumed 170,058 256,529 167,276
Reinsurance ceded (160,646) (292,357) ( 217,911)
-------------------- ------------------- --------------------
Net policy and contract claims incurred $ 585,236 $ 569,717 $ 559,369
==================== =================== ====================
Direct life insurance in force $ 108,816,856 $ 102,606,749 $ 95,717,768
Reinsurance assumed 61,109,836 36,724,852 27,428,529
Reinsurance ceded (51,525,976) (34,093,090) (24,372,415)
-------------------- ------------------- --------------------
Net insurance in force $ 118,400,716 $ 105,238,511 $ 98,773,882
==================== =================== ====================
</TABLE>
Irrevocable letters of credit aggregating $5.2 million at December 31,
1996 have been arranged with United States commercial banks in favor of
Phoenix to collateralize the ceded reserves.
53
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred
and amortized for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 816,128 $ 1,128,227 $ 832,839
Acquisition expense deferred 153,873 143,519 150,326
Amortized to expense during the year (95,255) (113,788) (147,361)
Adjustment to equity during the year 51,528 (341,830) 292,423
------------------ ------------------ ------------------
Balance at end of year $ 926,274 $ 816,128 $ 1,128,227
================== ================== ==================
</TABLE>
14. MINORITY INTEREST
The Company's interests in Phoenix Duff and Phelps Corporation and
American Phoenix Corporation, through its wholly-owned subsidiary PM
Holdings is represented by ownership of approximately 60% and 92%,
respectively, of the outstanding shares of common stock at December 31,
1996. Earnings and stockholders' equity attributable to minority
shareholders are included in minority interest in the consolidated
financial statements along with PDP's preferred stock.
15. CONTINGENCIES
FINANCIAL GUARANTEES
The Company is contingently liable for financial guarantees provided in
the ordinary course of business on the repayment of principal and
interest on certain industrial revenue bonds. The contractual amounts of
financial guarantees reflect the Company's maximum exposure to credit
loss in the event of nonperformance. The principal amount of bonds
guaranteed by the Company at December 31, 1996 and 1995 was $88.8 million
and $87.6 million, respectively. Management believes that any loss
contingencies which may arise from the Company's financial guarantees
would not have a material adverse effect on the Company's liquidity or
financial condition.
LITIGATION
In 1996, the Company announced the settlement of a class action suit which
was approved by a New York State Supreme Court judge on January 3, 1997.
The suit related to the sale of individual participating life insurance and
universal life insurance policies from 1980 to 1995. An after tax provision
of $25 million was recorded in 1995. In addition, $7 million after-tax was
expensed in 1996. The Company estimates the cost of settlement to be
between $35 million and $40 million after tax. Management believes, after
consideration of the provisions made in these financial statements, this
suit will not have a material effect on the Company's financial position.
54
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company is a defendant in various legal proceedings arising in the
normal course of business. In the opinion of management, based on the
advice of legal counsel after consideration of the provisions made in
these financial statements, the ultimate resolution of these proceedings
will not have a material effect on the Company's consolidated financial
position.
16. STATUTORY FINANCIAL INFORMATION
The insurance subsidiaries are required to file annual statements with
state regulatory authorities prepared on an accounting basis prescribed
or permitted by such authorities. As of December 31, 1996, there were no
material practices not prescribed by the Insurance Department of the
State of New York. Statutory surplus differs from policyholders' equity
reported in accordance with GAAP for life insurance companies primarily
because policy acquisition costs are expensed when incurred, investment
reserves are based on different assumptions, postretirement benefit costs
are based on different assumptions and reflect a different method of
adoption, life insurance reserves are based on different assumptions and
income tax expense reflects only taxes paid or currently payable.
The following reconciles the statutory net income of the Company as
reported to regulatory authorities to the net income as reported in these
financial statements for the year ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income $ 72,961 $ 64,198 $ 4,152
Deferred policy acquisition costs, net 58,618 29,766 2,965
Future policy benefits (16,793) (15,763) (3,443)
Pension and postretirement expenses (23,275) (12,691) (8,350)
Investment valuation allowances 76,631 56,745 60,747
Interest maintenance reserve (5,158) 5,829 (19,545)
Deferred income taxes (67,064) (10,021) (11,626)
Other, net 4,808 (4,314) 5,778
----------------- ---------------- --------------
Net income, as reported $ 100,728 $ 113,749 $ 30,678
================= ================ ==============
</TABLE>
55
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following reconciles the statutory surplus and asset valuation
reserve (AVR) of the Company as reported to regulatory authorities to
equity as reported in these financial statements:
DECEMBER 31,
1996 1995
(IN THOUSANDS)
Statutory surplus and AVR $ 1,102,200 $ 875,322
Deferred policy acquisition costs, net 897,096 864,505
Future policy benefits (239,252) (249,141)
Pension and postretirement expenses (152,112) (133,452)
Investment valuation allowances (139,562) (171,889)
Interest maintenance reserve 6,897 11,872
Deferred income taxes 82,069 87,418
Surplus notes (157,500)
Other, net (2,367) (3,048)
----------------- --------------
Equity, as reported $ 1,397,469 $ 1,281,587
================= ==============
56
<PAGE>
PHOENIX HOME LIFE VARIABLE
UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 3 , 1996
57
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
-------------- -------------- --------------
<S> <C> <C> <C>
Assets
Investments at cost $ 978,519 $22,876,322 $3,149,790
========= ========= =========
Investment in The Phoenix Edge Series Fund, at market $ 978,519 $28,350,034 $3,331,209
--------- --------- ---------
Total assets 978,519 28,350,034 3,331,209
Liabilities
Accrued expenses to related party 416 12,178 1,411
--------- --------- ---------
Net assets $ 978,103 $28,337,856 $3,329,798
========= ========= =========
Accumulation units outstanding 587,306 7,871,230 1,433,300
========= ========= =========
Unit value $1.665406 $ 3.600181 $ 2.323169
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- --------------- --------------
<S> <C> <C> <C>
Assets
Investments at cost $14,349,994 $ 982,452 $ 325,164
========= ========= =========
Investment in The Phoenix Edge Series Fund, at market $15,266,717 $1,367,812 $ 366,385
--------- --------- ---------
Total assets 15,266,717 1,367,812 366,385
Liabilities
Accrued expenses to related party 6,530 568 155
--------- --------- ---------
Net assets $15,260,187 $1,367,244 $ 366,230
========= ========= =========
Accumulation units outstanding 6,343,059 821,781 239,440
========= ========= =========
Unit value $ 2.405809 $ 1.663758 $1.529526
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Real Estate Strategic Theme
Sub-Account Sub-Account
-------------- ---------------
<S> <C> <C>
Assets
Investments at cost $ 10,206 $ 206,975
========= =========
Investment in The Phoenix Edge Series Fund, at market $ 12,454 $ 208,893
--------- ---------
Total assets 12,454 208,893
Liabilities
Accrued expenses to related party 5 90
--------- ---------
Net assets $ 12,449 $ 208,803
========= =========
Accumulation units outstanding 9,514 208,296
========= =========
Unit value $1.308395 $1.002434
========= =========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Wanger Wanger
International U.S.
Small Cap Small Cap
Sub-Account Sub-Account
--------------- ---------------
Assets
Investments at cost $ 9,941 $ 15,188
========= =========
Investment in Wanger Advisors Trust, at market $ 10,200 $ 15,517
--------- ---------
Total assets 10,200 15,517
Liabilities
Accrued expenses to related party 2 2
--------- ---------
Net assets $ 10,198 $ 15,515
========= =========
Accumulation units outstanding 9,941 15,188
========= =========
Unit value $1.025920 $1.021523
========= =========
</TABLE>
See Notes to Financial Statements
58
<PAGE>
STATEMENT OF OPERATIONS
For the period ended December 31, 1996
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
-------------- -------------- --------------
<S> <C> <C> <C>
Investment income
Distributions $40,562 $ 258,317 $235,922
Expenses
Mortality and expense risk charges 4,141 134,420 15,953
-------- -------- --------
Net investment income 36,421 123,897 219,969
-------- -------- --------
Net realized gain (loss) from share transactions -- 9,313 (1,910)
Net realized gain distribution from Fund -- 1,896,575 98,546
Net unrealized appreciation on investment -- 1,035,122 33,342
-------- -------- --------
Net gain on investments -- 2,941,010 129,978
-------- -------- --------
Net increase in net assets resulting from operations $36,421 $3,064,907 $349,947
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- --------------- --------------
<S> <C> <C> <C>
Investment income $
Distributions 324,203 $ 19,608 $ 9,521
Expenses
Mortality and expense risk charges 74,618 6,589 1,696
-------- -------- --------
Net investment income 249,585 13,019 7,825
-------- -------- --------
Net realized gain from share transactions 8,732 5,574 2,781
Net realized gain distribution from Fund 948,107 30,399 31,838
Net unrealized appreciation (depreciation) on
investment 9,110 165,636 (10,943)
-------- -------- --------
Net gain on investments 965,949 201,609 23,676
-------- -------- --------
Net increase in net assets resulting from operations $1,215,534 $214,628 $ 31,501
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Real Estate Strategic Theme
Sub-Account(1) Sub-Account(1)
--------------- ---------------
<S> <C> <C>
Investment income
Distributions $ 161 $ 866
Expenses
Mortality and expense risk charges 24 559
-------- --------
Net investment income 137 307
-------- --------
Net realized gain from share transactions 3 1,731
Net realized gain distribution from Fund 132 --
Net unrealized appreciation on investment 2,248 1,918
-------- --------
Net gain on investments 2,383 3,649
-------- --------
Net increase in net assets resulting from operations $2,520 $3,956
======== ========
</TABLE>
<TABLE>
<CAPTION>
Wanger Wanger
International U.S.
Small Cap Small Cap
Sub-Account(2) Sub-Account(2)
--------------- ---------------
<S> <C> <C>
Investment income
Distributions $ -- $ --
Expenses
Mortality and expense risk charges 2 2
------ ------
Net investment loss (2) (2)
------ ------
Net unrealized appreciation on investment 259 329
------ ------
Net gain on investments 259 329
------ ------
Net increase in net assets resulting from operations $257 $327
====== ======
</TABLE>
(1) From inception May 1, 1996 to December 31, 1996
(2) From inception December 19, 1996 to December 31, 1996
See Notes to Financial Statements
59
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
-------------- -------------- --------------
<S> <C> <C> <C>
From operations
Net investment income $ 36,421 $ 123,897 $ 219,969
Net realized gain -- 1,905,888 96,636
Net unrealized appreciation -- 1,035,122 33,342
----------- ----------- -----------
Net increase in net assets resulting from
operations 36,421 3,064,907 349,947
----------- ----------- -----------
From accumulation unit transactions
Participant deposits 634,438 452,681 14,305
Participant transfers (1,421,417) 969,934 199,755
Participant withdrawals (40,436) (760,557) (79,930)
----------- ----------- -----------
Net increase (decrease) in net assets resulting
from participant transactions (827,415) 662,058 134,130
----------- ----------- -----------
Net increase (decrease) in net assets (790,994) 3,726,965 484,077
Net assets
Beginning of period 1,769,097 24,610,891 2,845,721
----------- ----------- -----------
End of period $ 978,103 $28,337,856 $3,329,798
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- --------------- --------------
<S> <C> <C> <C>
From operations
Net investment income $ 249,585 $ 13,019 $ 7,825
Net realized gain 956,839 35,973 34,619
Net unrealized appreciation (depreciation) 9,110 165,636 (10,943)
----------- ----------- -----------
Net increase in net assets resulting from
operations 1,215,534 214,628 31,501
----------- ----------- -----------
From accumulation unit transactions
Participant deposits 86,027 10,839 3,413
Participant transfers (186,193) 183,042 (1,861)
Participant withdrawals (514,891) (190,854) (20,610)
----------- ----------- -----------
Net increase (decrease) in net assets resulting
from participant transactions (615,057) 3,027 (19,058)
----------- ----------- -----------
Net increase in net assets 600,477 217,655 12,443
Net assets
Beginning of period 14,659,710 1,149,589 353,787
----------- ----------- -----------
End of period $15,260,187 $1,367,244 $366,230
=========== =========== ===========
</TABLE>
See Notes to Financial Statements
60
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
(Continued)
<TABLE>
<CAPTION>
Real Estate Strategic Theme
Sub-Account(1) Sub-Account(1)
--------------- ---------------
<S> <C> <C>
From operations
Net investment income $ 137 $ 307
Net realized gain 135 1,731
Net unrealized appreciation 2,248 1,918
----------- -----------
Net increase in net assets resulting from
operations 2,520 3,956
----------- -----------
From accumulation unit transactions
Participant deposits 7,496 14,491
Participant transfers 2,604 231,488
Participant withdrawals (171) (41,132)
----------- -----------
Net increase in net assets resulting from
participant transactions 9,929 204,847
----------- -----------
Net increase in net assets 12,449 208,803
Net assets
Beginning of period -- --
----------- -----------
End of period $12,449 $208,803
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Wanger Wanger
International U.S.
Small Cap Small Cap
Sub-Account(2) Sub-Account(2)
--------------- ---------------
<S> <C> <C>
From operations
Net investment loss $ (2) $ (2)
Net unrealized appreciation 259 329
----------- -----------
Net increase in net assets resulting from
operations 257 327
----------- -----------
From accumulation unit transactions
Participant deposits -- --
Participant transfers 9,941 15,188
Participant withdrawals -- --
----------- -----------
Net increase in net assets resulting from
participant transactions 9,941 15,188
----------- -----------
Net increase in net assets 10,198 15,515
Net assets
Beginning of period -- --
----------- -----------
End of period $10,198 $15,515
=========== ===========
</TABLE>
(1) From inception May 1, 1996 to December 31, 1996
(2) From inception December 19, 1996 to December 31, 1996
See Notes to Financial Statements
61
<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 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
62
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
Note 1--Organization
Phoenix Home Life Variable Universal Life Account (the "Account") is a
separate investment account of Phoenix Home Life Mutual Insurance Company
(Phoenix). The Account is registered as a unit investment trust under the
Investment Company Act of 1940, as amended. Policies offered by the Account
have a death benefit, cash surrender value and loan privileges. The account
was established January 1, 1987 and currently consists of ten Sub-Accounts,
each of which invest in a corresponding series of The Phoenix Edge Series
Fund and Wanger Advisors Trust ("the Funds").
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 Multi-Sector Fixed Income (formerly 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. The Real Estate Series invests
in marketable securities of publicly traded real estate investment trusts
("REITs") and companies that are principally engaged in the real estate
industry, the Strategic Theme Series invests in securities of companies
believed to benefit from specific trends, the Wanger International Small Cap
Series invests in securities of non-U.S. companies with a stock market
capitalization of less than $1 billion and the Wanger U.S. Small Cap series
invests in growth common stock of U.S. companies with stock market
capitalization of less than $1 billion. Additionally, policyowners may also
direct the allocation of their investments between the Account and the
Guaranteed Interest Account of the general account of Phoenix.
Note 2--Significant Accounting Policies
A. Valuation of Investments: Investments are made exclusively in the Funds
and are valued at the net asset values per share of the respective Series.
B. Investment transactions and related income: Realized gains and losses
include capital gain distributions from the Funds as well as gains and losses
on sales of shares in the Funds determined on the LIFO (last in, first out)
basis.
C. Income taxes: The Account is not a separate entity from Phoenix and under
current federal income tax law, income arising from the Account is not taxed
since reserves are established equivalent to such income. Therefore, no
provision for related federal 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 Funds
Purchases and sales of shares of the Funds for the period ended December 31,
1996 aggregated the following:
<TABLE>
<CAPTION>
Sub-Account Purchases Sales
------------------------------- ------------ -------------
<S> <C> <C>
The Phoenix Edge Series Fund:
Money Market $ 887,185 $1,677,926
Growth 3,766,336 1,081,280
Multi-Sector Fixed Income 715,251 262,345
Total Return 1,287,385 703,996
International 270,695 224,139
Balanced 83,970 63,349
Real Estate 10,383 180
Strategic Theme 240,043 34,799
Wanger Advisors Trust:
International Small Cap 9,941 --
U.S. Small Cap 15,188 --
</TABLE>
Note 4--Participant Accumulation Unit Transactions (in units)
<TABLE>
<CAPTION>
Sub-Account
-----------------------------------------------------------------------
Money Multi-Sector Total
Market Growth Fixed Income Return International
----------- ----------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Units outstanding, beginning of
period 1,110,073 7,657,646 1,370,166 6,611,709 815,737
Participant deposits 389,078 135,971 6,619 37,637 6,899
Participant transfers (886,759) 302,948 93,835 (82,219) 120,652
Participant withdrawals (25,086) (225,335) (37,320) (224,068) (121,507)
----------- ----------- ----------- ----------- -----------
Units outstanding, end of period 587,306 7,871,230 1,433,300 6,343,059 821,781
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Sub-Account
--------------------------------------------------------------------
Real Strategic Wanger International Wanger U.S.
Balanced Estate Theme Small Cap Small Cap
----------- -------- ----------- -------------------- -------------
<S> <C> <C> <C> <C> <C>
Units outstanding, beginning of
period 254,460 -- -- -- --
Participant deposits 2,386 7,241 14,840 -- --
Participant transfers (2,953) 2,434 235,391 9,941 15,188
Participant withdrawals (14,453) (161) (41,935) -- --
------- ----- ------- ----- ------
Units outstanding, end of period 239,440 9,514 208,296 9,941 15,188
======= ===== ======= ===== ======
</TABLE>
63
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
Note 5--Policy Loans
Transfers are made to Phoenix's general account as a result of policy loans.
Policy provisions allow policyowners to borrow up to 75% of a policy's cash
value during the first three policy years and up to 90% of cash value
thereafter, with interest of 8% due and payable on each policy anniversary.
At the time a loan is granted, an amount equivalent to the amount of the loan
is transferred from the Account to Phoenix's general account as collateral
for the outstanding loan. These transfers are included in participant
withdrawals in the accompanying financial statements. Amounts in the general
account are credited with interest at 7.25%. Loan repayments result in a
transfer of collateral back to the Account.
Note 6--Investment Advisory Fees and Related Party Transactions
Phoenix and its indirect, majority owned subsidiary, Phoenix Equity Planning
Corporation, a registered broker/dealer in securities, provide all services
to the Account.
The cost of insurance is charged to each policy on a monthly basis by a
withdrawal of participant units prorated among the elected 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 $434,754 during the period ended December 31, 1996.
Upon partial surrender of a policy, a surrender fee of the lesser of $25 or
2% of the partial surrender amount paid and a fraction of the balance of any
unpaid acquisition expense allowance is deducted from the policy value and
paid to Phoenix.
Phoenix Equity Planning Corporation is the principal underwriter and
distributor for the Account. Phoenix Equity Planning Corporation is
reimbursed for its distribution and underwriting expenses by Phoenix.
An acquisition expense allowance is paid to Phoenix over a ten year period
from contract inception by a withdrawal of units. The acquisition expense
allowance consists of a sales load of 5.5% of the issue premium to compensate
Phoenix for distribution expenses incurred, an issue administration charge of
1.0% of the issue premium to compensate Phoenix for underwriting and start-up
expenses and premium taxes which currently range from 0.75% to 4% of premiums
paid based on the state where the policyowner resides. In the event of a
surrender before ten years, the unpaid balance of the acquisition expense
allowance is deducted and paid to Phoenix.
Phoenix assumes the mortality risk that insureds may live for a shorter time
than projected because of inaccuracies in the projecting process and,
accordingly, that an aggregate amount of death benefits greater than
projected will be payable. The expense risk assumed is that expenses incurred
in issuing the policies may exceed the limits on administrative charges set
in the policies. In return for the assumption of these mortality and expense
risks, Phoenix charges the Account an annual rate of 0.50% of the average
daily net assets of the Account for mortality and expense risks assumed.
Note 7--Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue Code (the
Code), a variable universal life contract, other than a contract issued in
connection with certain types of employee benefit plans, will not be treated
as a universal life contract for federal tax purposes for any period for
which the investments of the segregated asset account on which the contract
is based are not adequately diversified. The Code provides that the
"adequately diversified" requirement may be met if the underlying investments
satisfy either a statutory safe harbor test or diversification requirements
set forth in regulations issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h) of
the Code. Phoenix believes that the Account satisfies the current
requirements of the regulations, and it intends that the Account will
continue to meet such requirements.
64
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[LOGOTYPE] Price Waterhouse LLP [LOGO]
To the Board of Directors of Phoenix Home Life Mutual Insurance Company and
Participants of Phoenix Home Life Variable Universal Life Account
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Money Market
Sub-Account, Growth Sub- Account, Multi-Sector Fixed Income Sub-Account
(formerly the Bond Sub-Account), Total Return Sub-Account, International
Sub-Account, Balanced Sub-Account, Real Estate Sub-Account, Strategic Theme
Sub-Account, Wanger International Small Cap Sub-Account and Wanger U.S. Small
Cap Sub-Account (constituting the Phoenix Home Life Variable Universal Life
Account, hereafter referred to as the "Account") at December 31, 1996, the
results of each of their operations for the periods 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 which included
confirmation of investments at December 31, 1996 by correspondence with the
Funds, provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Hartford, Connecticut
February 12, 1997
65
<PAGE>
PHOENIX HOME LIFE
VARIABLE UNIVERSAL LIFE ACCOUNT
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
Underwriter
Phoenix Equity Planning Corporation
P.O. Box 2200
100 Bright Meadow Boulevard
Enfield, Connecticut 06083-2200
Custodians
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
Brown Brothers Harriman & Co.
(International Series)
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust
(Real Estate Series)
P.O. Box 351
Boston, Massachusetts 02101
Independent Accountants
Price Waterhouse LLP
One Financial Plaza
Hartford, Connecticut 06103
66
<PAGE>
APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the GIA under the Policy and transfers to the GIA become
part of the Phoenix 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 1933 Act nor is the General
Account registered as an investment company under the 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 SEC has not
reviewed the disclosures in this Prospectus concerning the GIA. Disclosures
regarding the GIA and the General Account, however, may be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
The General Account is made up of all of the general assets of Phoenix other
than those allocated to any separate account. Premium payments will be allocated
to the GIA and, therefore, the General Account, as elected by the Policyowner at
the time of purchase or as subsequently changed. Phoenix will invest the assets
of the General Account in assets chosen by it and allowed by applicable law.
Investment income from General Account assets is allocated between Phoenix and
the contracts participating in the General Account, in accordance with the terms
of such contracts.
Investment income from the General Account allocated to Phoenix includes
compensation for mortality and expense risks borne by it in connection with
General Account contracts.
The amount of investment income allocated to the Policies will vary from
year to year in the sole discretion of Phoenix. However, Phoenix guarantees that
it will credit interest at a rate of not less than 4% per year, compounded
annually, to amounts allocated to the 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 GIA. THE AMOUNT
WHICH CAN BE TRANSFERRED IS LIMITED TO THE GREATER OF $1,000 OR 25% OF THE
CONTRACT VALUE IN THE GIA AT THE TIME OF THE TRANSFER. UNDER THE SYSTEMATIC
TRANSFER PROGRAM, TRANSFERS OF APPROXIMATELY EQUAL AMOUNTS MAY BE MADE OVER A
MINIMUM 18-MONTH PERIOD. NON-SYSTEMATIC TRANSFERS FROM THE GIA WILL BE
EFFECTUATED ON THE DATE OF RECEIPT BY VPMO, UNLESS OTHERWISE REQUESTED BY THE
CONTRACT OWNER.
67
<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%, 6% 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%, 6% 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 69 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 71 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 73 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 75 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%, 6% 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 .72%
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 .21%. 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 expense reimbursement had not been in
place for the fiscal year ended December 31, 1996, total operating expenses for
the Growth, Multi-Sector, Allocation, Money Market, Balanced, Real Estate,
Theme, Asia, International, U.S. Small Cap and International Small Cap Series
would have been approximately .72%, .67%, .70%, .55%, .68%, 1.43%, 1.28%, 2.87%,
1.04%, 1.21% and 1.79%, 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%, 6%
and 12% on the Funds' assets are equivalent to net annual investment return
rates of approximately -1.42%, 4.55% and 10.52%, 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%, 6% 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.
68
<PAGE>
<TABLE>
<CAPTION>
PAGE 1 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $53,813
MINIMUM FACE AMOUNT RIDER: $0
MALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING CURRENT CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,734 8,947 50,914 10,326 9,539 53,995 10,918 10,131 57,061
2 11,025 9,473 8,774 47,931 10,666 9,966 54,159 11,929 11,229 60,725
3 11,576 9,217 8,604 45,129 11,019 10,406 54,298 13,040 12,428 64,534
4 12,155 8,964 8,439 42,498 11,385 10,860 54,412 14,263 13,738 68,501
5 12,763 8,714 8,277 40,029 11,766 11,328 54,506 15,606 15,169 72,642
6 13,401 8,462 8,112 37,681 12,150 11,800 54,538 17,069 16,720 76,911
7 14,071 8,213 7,950 35,477 12,548 12,286 54,550 18,675 18,413 81,373
8 14,775 7,953 7,778 33,354 12,938 12,763 54,457 20,402 20,227 85,905
9 15,513 7,697 7,610 31,359 13,339 13,252 54,341 22,293 22,205 90,633
10 16,289 7,446 7,446 29,492 13,754 13,754 54,213 24,364 24,364 95,588
11 17,103 7,271 7,271 27,693 14,245 14,245 53,990 26,675 26,675 100,632
12 17,959 7,099 7,099 26,001 14,751 14,751 53,762 29,198 29,198 105,928
13 18,857 6,929 6,929 24,413 15,270 15,270 53,534 31,953 31,953 111,503
14 19,799 6,762 6,762 22,921 15,805 15,805 53,308 34,960 34,960 117,373
15 20,789 6,598 6,598 21,522 16,354 16,354 53,084 38,240 38,240 123,554
16 21,829 6,436 6,436 20,208 16,918 16,918 52,861 41,819 41,819 130,062
17 22,920 6,276 6,276 18,974 17,496 17,496 52,641 45,718 45,718 136,916
18 24,066 6,118 6,118 17,817 18,089 18,089 52,425 49,965 49,965 144,141
19 25,270 5,961 5,961 16,731 18,694 18,694 52,212 54,585 54,585 151,753
20 26,533 5,806 5,806 15,713 19,311 19,311 52,003 59,607 59,607 159,776
@ 65 43,219 4,357 4,357 8,433 26,088 26,088 50,252 140,320 140,320 269,040
</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 1.43%
(includes average fund operating expenses of 0.93% 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
<PAGE>
<TABLE>
<CAPTION>
PAGE 2 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $53,813
MINIMUM FACE AMOUNT RIDER: $0
MALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING GUARANTEED CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,698 8,911 50,725 10,288 9,501 53,795 10,878 10,090 56,850
2 11,025 9,403 8,703 47,560 10,586 9,886 53,742 11,839 11,139 60,259
3 11,576 9,112 8,500 44,597 10,894 10,281 53,662 12,891 12,279 63,781
4 12,155 8,827 8,302 41,824 11,211 10,686 53,555 14,043 13,518 67,428
5 12,763 8,546 8,109 39,228 11,537 11,100 53,425 15,302 14,865 71,209
6 13,401 8,270 7,920 36,799 11,873 11,523 53,273 16,679 16,329 75,137
7 14,071 7,997 7,735 34,525 12,219 11,956 53,100 18,184 17,921 79,222
8 14,775 7,729 7,554 32,396 12,573 12,398 52,909 19,828 19,653 83,477
9 15,513 7,464 7,377 30,403 12,938 12,850 52,701 21,623 21,535 87,912
10 16,289 7,204 7,204 28,538 13,312 13,312 52,477 23,584 23,584 92,543
11 17,103 7,034 7,034 26,790 13,785 13,785 52,245 25,817 25,817 97,396
12 17,959 6,866 6,866 25,148 14,271 14,271 52,015 28,254 28,254 102,503
13 18,857 6,701 6,701 23,607 14,771 14,771 51,785 30,914 30,914 107,878
14 19,799 6,538 6,538 22,161 15,285 15,285 51,557 33,816 33,816 113,536
15 20,789 6,378 6,378 20,803 15,813 15,813 51,329 36,982 36,982 119,489
16 21,829 6,219 6,219 19,529 16,355 16,355 51,103 40,433 40,433 125,755
17 22,920 6,063 6,063 18,332 16,910 16,910 50,877 44,192 44,192 132,350
18 24,066 5,909 5,909 17,209 17,477 17,477 50,653 48,282 48,282 139,290
19 25,270 5,756 5,756 16,155 18,055 18,055 50,429 52,728 52,728 146,594
20 26,533 5,604 5,604 15,165 18,643 18,643 50,207 57,555 57,555 154,282
@ 65 43,219 4,162 4,162 8,059 24,933 24,933 48,034 134,128 134,128 257,209
</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 1.43%
(includes average fund operating expenses of 0.93% 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%.
70
<PAGE>
<TABLE>
<CAPTION>
PAGE 1 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $61,544
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
FEMALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING CURRENT CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,734 8,946 58,234 10,326 9,538 61,757 10,917 10,130 65,264
2 11,025 9,472 8,772 54,829 10,664 9,964 61,954 11,926 11,226 69,465
3 11,576 9,213 8,601 51,634 11,014 10,402 62,124 13,035 12,423 73,836
4 12,155 8,958 8,433 48,635 11,378 10,853 62,270 14,254 13,729 78,393
5 12,763 8,707 8,269 45,822 11,755 11,318 62,395 15,592 15,155 83,156
6 13,401 8,451 8,101 43,146 12,135 11,785 62,449 17,048 16,698 88,067
7 14,071 8,198 7,936 40,634 12,527 12,264 62,481 18,643 18,380 93,205
8 14,775 7,934 7,759 38,210 12,907 12,732 62,387 20,353 20,178 98,415
9 15,513 7,673 7,586 35,932 13,298 13,210 62,265 22,223 22,135 103,851
10 16,289 7,417 7,417 33,796 13,700 13,700 62,127 24,269 24,269 109,543
11 17,103 7,236 7,236 31,731 14,176 14,176 61,863 26,545 26,545 115,307
12 17,959 7,058 7,058 29,787 14,666 14,666 61,591 29,030 29,030 121,355
13 18,857 6,884 6,884 27,963 15,170 15,170 61,319 31,743 31,743 127,719
14 19,799 6,713 6,713 26,250 15,688 15,688 61,049 34,702 34,702 134,418
15 20,789 6,544 6,544 24,641 16,221 16,221 60,780 37,931 37,931 141,467
16 21,829 6,380 6,380 23,134 16,771 16,771 60,516 41,454 41,454 148,898
17 22,920 6,218 6,218 21,720 17,336 17,336 60,260 45,299 45,299 156,733
18 24,066 6,060 6,060 20,396 17,919 17,919 60,013 49,496 49,496 165,005
19 25,270 5,905 5,905 19,157 18,519 18,519 59,781 54,074 54,074 173,753
20 26,533 5,754 5,754 17,996 19,137 19,137 59,560 59,069 59,069 182,995
@ 65 43,219 4,366 4,366 9,585 26,143 26,143 57,114 140,616 140,616 305,783
</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 1.43%
(includes average fund operating expenses of 0.93% 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%.
71
<PAGE>
<TABLE>
<CAPTION>
PAGE 2 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $61,544
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
FEMALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING GUARANTEED CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,697 8,909 58,013 10,286 9,499 61,524 10,876 10,089 65,018
2 11,025 9,399 8,699 54,393 10,581 9,882 61,464 11,834 11,134 68,917
3 11,576 9,105 8,493 51,005 10,885 10,273 61,372 12,881 12,269 72,946
4 12,155 8,816 8,291 47,833 11,197 10,672 61,521 14,026 13,501 77,117
5 12,763 8,531 8,094 44,865 11,517 11,079 61,102 15,275 14,838 81,443
6 13,401 8,250 7,900 42,087 11,845 11,495 60,929 16,639 16,289 85,936
7 14,071 7,972 7,709 39,486 12,180 11,917 60,732 18,125 17,863 90,609
8 14,775 7,697 7,522 37,051 12,522 12,347 60,514 19,747 19,572 95,476
9 15,513 7,427 7,340 34,773 12,873 12,786 60,276 21,516 21,428 100,551
10 16,289 7,161 7,161 32,639 13,234 13,234 60,020 23,446 23,446 105,847
11 17,103 6,987 6,987 30,640 13,693 13,693 59,756 25,645 25,645 111,398
12 17,959 6,815 6,815 28,763 14,166 14,166 59,492 28,046 28,046 117,241
13 18,857 6,647 6,647 27,001 14,653 14,653 59,230 30,667 30,667 123,389
14 19,799 6,482 6,482 25,347 15,154 15,154 58,969 33,526 33,526 129,861
15 20,789 6,319 6,319 23,794 15,669 15,669 58,709 36,645 36,645 136,671
16 21,829 6,160 6,160 22,336 16,198 16,198 58,450 40,046 40,046 143,840
17 22,920 6,003 6,003 20,968 16,741 16,741 58,193 43,753 43,753 151,383
18 24,066 5,848 5,848 19,683 17,298 17,298 57,936 47,790 47,790 159,323
19 25,270 5,696 5,696 18,477 17,867 17,867 57,681 52,182 52,182 167,678
20 26,533 5,546 5,546 17,346 18,450 18,450 57,427 56,961 56,961 176,473
@ 65 43,219 4,199 4,199 9,218 25,150 25,150 54,945 135,300 135,300 294,223
</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 1.43%
(includes average fund operating expenses of 0.93% 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%.
72
<PAGE>
<TABLE>
<CAPTION>
PAGE 1 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $39,392
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
MALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING CURRENT CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,746 8,959 37,553 10,339 9,551 39,826 10,931 10,144 42,087
2 11,025 9,496 8,796 35,647 10,692 9,992 40,279 11,958 11,258 45,161
3 11,576 9,250 8,638 33,843 11,059 10,446 40,717 13,088 12,476 48,392
4 12,155 9,007 8,482 32,135 11,441 10,916 41,142 14,333 13,808 51,794
5 12,763 8,768 8,331 30,520 11,838 11,401 41,555 15,703 15,266 55,381
6 13,401 8,527 8,177 28,976 12,244 11,894 41,935 17,202 16,852 59,136
7 14,071 8,289 8,027 27,514 12,666 12,403 42,303 18,850 18,588 63,102
8 14,775 8,045 7,870 26,102 13,087 12,912 42,613 20,638 20,463 67,218
9 15,513 7,804 7,716 24,764 13,523 13,435 42,907 22,599 22,512 71,561
10 16,289 7,566 7,566 23,500 13,974 13,974 43,194 24,753 24,753 76,156
11 17,103 7,408 7,408 22,278 14,512 14,512 43,427 27,174 27,174 80,939
12 17,959 7,253 7,253 21,117 15,068 15,068 43,657 29,826 29,826 86,014
13 18,857 7,099 7,099 20,016 15,642 15,642 43,888 32,730 32,730 91,407
14 19,799 6,947 6,947 18,973 16,235 16,235 44,121 35,910 35,910 97,140
15 20,789 6,797 6,797 17,985 16,846 16,846 44,355 39,390 39,390 103,233
16 21,829 6,649 6,649 17,048 17,477 17,477 44,592 43,199 43,199 109,710
17 22,920 6,503 6,503 16,161 18,127 18,127 44,830 47,365 47,365 116,595
18 24,066 6,358 6,358 15,320 18,796 18,796 45,072 51,917 51,917 123,918
19 25,270 6,214 6,214 14,524 19,484 19,484 45,316 56,890 56,890 131,705
20 26,533 6,071 6,071 13,769 20,190 20,190 45,564 62,316 62,316 139,987
@ 65 43,219 4,717 4,717 8,113 28,243 28,243 48,338 151,903 151,903 258,781
</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 1.43%
(includes average fund operating expenses of 0.93% 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%.
73
<PAGE>
<TABLE>
<CAPTION>
PAGE 2 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $39,392
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
MALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING GUARANTEED CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,721 8,934 37,459 10,313 9,525 39,725 10,904 10,116 41,981
2 11,025 9,448 8,748 35,459 10,637 9,937 40,068 11,896 11,197 44,925
3 11,576 9,178 8,566 33,570 10,973 10,361 40,392 12,986 12,373 48,007
4 12,155 8,913 8,388 31,786 11,321 10,796 40,699 14,181 13,656 51,238
5 12,763 8,651 8,214 30,100 11,680 11,243 40,989 15,493 15,055 54,630
6 13,401 8,393 8,044 28,508 12,052 11,702 41,265 16,931 16,581 58,196
7 14,071 8,139 7,876 27,004 12,435 12,173 41,526 18,507 18,244 61,948
8 14,775 7,888 7,713 25,583 12,832 12,657 41,774 20,235 20,060 65,901
9 15,513 7,640 7,552 24,240 13,240 13,153 42,009 22,128 22,040 70,070
10 16,289 7,395 7,395 22,972 13,662 13,662 42,233 24,202 24,202 74,470
11 17,103 7,240 7,240 21,772 14,186 14,186 42,451 26,566 26,566 79,129
12 17,959 7,087 7,087 20,635 14,728 14,728 42,671 29,155 29,155 84,080
13 18,857 6,936 6,936 19,557 15,287 15,287 42,891 31,989 31,989 89,340
14 19,799 6,787 6,787 18,535 15,864 15,864 43,112 35,092 35,092 94,930
15 20,789 6,639 6,639 17,567 16,459 16,459 43,335 38,488 38,488 100,867
16 21,829 6,494 6,494 16,650 17,072 17,072 43,559 42,203 42,203 107,180
17 22,920 6,349 6,349 15,780 17,704 17,704 43,784 46,263 46,263 113,886
18 24,066 6,206 6,206 14,956 18,353 18,353 44,010 50,698 50,698 121,011
19 25,270 6,064 6,064 14,174 19,020 19,020 44,237 55,540 55,540 128,582
20 26,533 5,923 5,923 13,434 19,702 19,702 44,466 60,818 60,818 136,626
@ 65 43,219 4,567 4,567 7,856 27,351 27,351 46,816 147,119 147,119 250,660
</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 1.43%
(includes average fund operating expenses of 0.93% 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%.
74
<PAGE>
<TABLE>
<CAPTION>
PAGE 1 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $44,121
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
FEMALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING CURRENT CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,746 8,959 42,062 10,339 9,551 44,607 10,931 10,144 47,140
2 11,025 9,496 8,796 39,929 10,691 9,991 45,118 11,957 11,257 50,587
3 11,576 9,249 8,636 37,912 11,057 10,445 45,613 13,086 12,474 54,211
4 12,155 9,005 8,480 36,004 11,438 10,913 46,095 14,329 13,804 58,029
5 12,763 8,764 8,327 34,199 11,833 11,396 46,565 15,697 15,259 62,057
6 13,401 8,522 8,172 32,474 12,237 11,887 46,998 17,191 16,841 66,275
7 14,071 8,282 8,020 30,841 12,655 12,392 47,419 18,834 18,571 70,732
8 14,775 8,035 7,860 29,261 13,070 12,895 47,771 20,611 20,436 75,354
9 15,513 7,790 7,703 27,765 13,500 13,413 48,107 22,561 22,473 80,232
10 16,289 7,550 7,550 26,350 13,945 13,945 48,432 24,700 24,700 85,391
11 17,103 7,388 7,388 24,976 14,473 14,473 48,688 27,100 27,100 90,744
12 17,959 7,229 7,229 23,672 15,020 15,020 48,940 29,729 29,729 96,422
13 18,857 7,073 7,073 22,435 15,584 15,584 49,193 32,608 32,608 102,456
14 19,799 6,918 6,918 21,264 16,167 16,167 49,447 35,760 35,760 108,866
15 20,789 6,766 6,766 20,153 16,770 16,770 49,703 39,211 39,211 115,678
16 21,829 6,617 6,617 19,101 17,392 17,392 49,963 42,989 42,989 122,923
17 22,920 6,470 6,470 18,106 18,036 18,036 50,227 47,125 47,125 130,630
18 24,066 6,325 6,325 17,164 18,701 18,701 50,498 51,653 51,653 138,836
19 25,270 6,183 6,183 16,274 19,388 19,388 50,779 56,610 56,610 147,581
20 26,533 6,044 6,044 15,432 20,099 20,099 51,068 62,035 62,035 156,896
@ 65 43,219 4,744 4,744 9,040 28,403 28,403 53,860 152,764 152,764 288,342
</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 1.43%
(includes average fund operating expenses of 0.93% 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%.
75
<PAGE>
<TABLE>
<CAPTION>
PAGE 2 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $44,121
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
FEMALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING GUARANTEED CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,721 8,934 41,956 10,312 9,525 44,494 10,903 10,116 47,021
2 11,025 9,447 8,747 39,716 10,635 9,936 44,878 11,895 11,195 50,319
3 11,576 9,176 8,563 37,601 10,970 10,357 45,241 12,982 12,369 53,771
4 12,155 8,908 8,384 35,602 11,315 10,790 45,585 14,174 13,649 57,390
5 12,763 8,644 8,207 33,715 11,671 11,233 45,911 15,480 15,042 61,190
6 13,401 8,384 8,034 31,931 12,038 11,688 46,220 16,911 16,561 65,184
7 14,071 8,126 7,863 30,247 12,415 12,153 46,513 18,477 18,214 69,388
8 14,775 7,871 7,696 28,655 12,804 12,629 46,791 20,192 20,017 73,817
9 15,513 7,619 7,532 27,152 13,205 13,118 47,055 22,069 21,982 78,487
10 16,289 7,371 7,371 25,731 13,619 13,619 47,306 24,126 24,126 83,415
11 17,103 7,214 7,214 24,387 14,135 14,135 47,550 26,470 26,470 88,635
12 17,959 7,059 7,059 23,114 14,669 14,669 47,796 29,038 29,038 94,181
13 18,857 6,906 6,906 21,906 15,220 15,220 48,044 31,850 31,850 100,074
14 19,799 6,755 6,755 20,762 15,790 15,790 48,292 34,929 34,929 106,336
15 20,789 6,607 6,607 19,678 16,378 16,378 48,542 38,300 38,300 112,989
16 21,829 6,460 6,460 18,650 16,985 16,985 48,793 41,987 41,987 120,059
17 22,920 6,316 6,316 17,676 17,611 17,611 49,045 46,021 46,021 127,571
18 24,066 6,174 6,174 16,753 18,256 18,256 49,299 50,431 50,431 135,554
19 25,270 6,033 6,033 15,878 18,920 18,920 49,554 55,248 55,248 144,036
20 26,533 5,893 5,893 15,048 19,603 19,603 49,810 60,511 60,511 153,048
@ 65 43,219 4,618 4,618 8,801 27,658 27,658 52,447 148,772 148,772 280,807
</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 1.43%
(includes average fund operating expenses of 0.93% 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%.
76
