As filed with the Securities and Exchange Commission on April 29, 1997
REGISTRATION NO. 33-23251
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 14
TO
FORM S-6
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FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
(EXACT NAME OF TRUST)
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
(NAME OF DEPOSITOR)
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ONE AMERICAN ROW
HARTFORD, CONNECTICUT 06115
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DONA D. YOUNG, ESQUIRE
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
ONE AMERICAN ROW
HARTFORD, CONNECTICUT 06115
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
---------------
COPIES TO:
MICHAEL BERENSON, ESQ. RICHARD J. WIRTH, ESQ.
JORDEN BURT BERENSON & JOHNSON LLP COUNSEL
1025 THOMAS JEFFERSON ST. N.W. PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
SUITE 400 EAST ONE AMERICAN ROW
WASHINGTON, D.C. 20007-0805 HARTFORD, CONNECTICUT 06115
It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b);
[X] on May 1, 1997 pursuant to paragraph (b);
[ ] 60 days after filing pursuant to paragraph (a)(1); or
[ ] on pursuant to paragraph (a)(1) of Rule 485.
[ ] this Post-Effective Amendment designates a new effective date
for a previously filed post-effective amendment.
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Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has chosen to register an indefinite amount of securities being offered. On
February 21, 1997, the Registrant filed its Rule 24f-2 Notice for the
Registrant's 1995 fiscal year.
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CROSS REFERENCE TO ITEMS REQUIRED
BY FORM N-8B-2
N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
1 The VUL Account
2 Phoenix Home Life Mutual Insurance Company
3 Not Applicable
4 Sales of Policies
5 The VUL Account
6 The VUL Account
7 Not Applicable
8 Not Applicable
9 Legal Proceedings
10 The Policy
11 Investments of the VUL Account
12 Investments of the VUL Account
13 Charges and Deductions; Investments of the VUL Account
14 Premium Payment; Allocation of Issue Premium; Right to
Cancel Period
15 Allocation of Issue Premium; Transfer of Policy Value
16 Investments of the VUL Account
17 Surrenders
18 Allocation of Issue Premium; Transfer of Policy Value;
Reinvestment and Redemption
19 Voting Rights; Reports
20 Not Applicable
21 Policy Loans
22 Not Applicable
23 Safekeeping of the VUL Account's Assets
24 Not Applicable
25 Phoenix Home Life Mutual Insurance Company
26 Charges and Other Deductions; Investments of the VUL Account
27 Phoenix Home Life Mutual Insurance Company
28 Phoenix Home Life Mutual Insurance Company; The Directors
and Executive Officers of Phoenix Home Life
29 Not Applicable
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Phoenix Home Life Mutual Insurance Company
36 Not Applicable
37 Not Applicable
38 Sales of Policies
39 Sales of Policies
40 Not Applicable
41 Sales of Policies
42 Not Applicable
43 Not Applicable
44 Determination of Subaccount Values
45 Not Applicable
46 Determination of Subaccount Values
47 Allocation of Issue Premium; Determination of Subaccount
Values
48 Not Applicable
49 Not Applicable
50 Not Applicable
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N-8B-2 ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
51 Phoenix Home Life Mutual Insurance Company; The Policy;
Charges and Deductions
52 Investments of the VUL Account
53 Federal Tax Considerations
54 Not Applicable
55 Not Applicable
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Not Applicable
<PAGE>
VERSION A
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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
May 1, 1997
This prospectus describes Flexible Premium Variable Life Insurance Policies
(the "Policies"), offered by Phoenix Home Life Mutual Insurance Company
("Phoenix"). An applicant chooses the amount of Issue Premium desired and it is
then shown in the Policy. Generally, the minimum Issue Premium Phoenix will
accept is 1/6 of the Planned Annual Premium. Phoenix may, in some cases, accept
less than that amount. The amount and payment frequency of planned premiums are
as shown in the Policy. If too much is paid in premium in the early Policy
Years, the Policy could become a "modified endowment contract." This would cause
loans and other amounts received under the Policy to be subject to tax and/or
penalties. Currently, Phoenix notifies a Policyowner when a Policy becomes a
modified endowment contract.
Premium payments are allocated to one or more of the Sub-accounts of the
Phoenix Home Life Variable Universal Life Account (the "VUL Account") or to the
Guaranteed Interest Account ("GIA"), as specified in the applicant's application
for insurance. The VUL Account is divided into Subaccounts, each of which
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 Policy Value except for that portion of
Policy Value invested in the GIA, which has a 4% minimum interest rate
guarantee. The Policy Value not invested in the GIA will vary to reflect the
investment experience of the Subaccounts of the VUL Account to which premiums
have been allocated. A Policyowner bears the investment risk for all amounts so
allocated. The Policy will remain in effect so long as the Policy Value or Cash
Surrender Value is sufficient to pay certain monthly charges imposed in
connection with the Policy.
The death benefit under the Policy equals the Policy's face amount on the
date of the Insured's death or, if greater, the Policy Value on the date of
death increased by the applicable percentage set forth in the Policy. Other
death benefit options also are available.
A Policyowner may cancel the Policy within 10 days (or longer in some
states), after the Policyowner receives it or 10 days after Phoenix mails or
delivers a written notice of withdrawal right to the Policyowner, or within 45
days of completing the application, whichever is latest.
It may not be advantageous to purchase a Policy as a replacement for your
current life insurance or to supplement an existing life insurance policy.
This prospectus is valid only if accompanied by or preceded by current
prospectuses for the Funds. This prospectus and the prospectuses for the Funds
should be read and retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
1
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TABLE OF CONTENTS
Heading Page
VARIABLE LIFE INSURANCE POLICY ........................... 1
TABLE OF CONTENTS ........................................ 2
SPECIAL TERMS ............................................ 3
SUMMARY .................................................. 4
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 .............................. 9
Determination of Subaccount Values .................... 9
Death Benefit ......................................... 10
Surrenders ............................................ 10
Policy Loans .......................................... 11
Lapse ................................................. 12
Payment of Premiums During Period of Disability ....... 12
Additional Insurance Options .......................... 12
Additional Rider Benefits ............................. 12
INVESTMENTS OF THE VUL ACCOUNT ........................... 13
Participating Mutual Funds ............................ 13
Investment Advisers to The Phoenix Edge Series Fund.... 14
Investment Adviser to the Wanger Advisors Trust........ 15
Reinvestment and Redemption ........................... 15
Substitution of Investments ........................... 15
CHARGES AND DEDUCTIONS ................................... 15
Monthly Deduction ..................................... 15
Premium Taxes ......................................... 16
Federal Tax Charge..................................... 16
Mortality and Expense Risk Charge ..................... 16
Investment Management Charge .......................... 16
Other Charges ......................................... 16
GENERAL PROVISIONS ....................................... 18
Postponement of Payments .............................. 18
Payment by Check ...................................... 18
The Contract .......................................... 18
Suicide ............................................... 18
Incontestability ...................................... 18
Change of Owner or Beneficiary ........................ 18
Assignment ............................................ 18
Misstatement of Age or Sex ............................ 18
Surplus ............................................... 18
PAYMENT OF PROCEEDS ...................................... 18
Surrender and Death Benefit Proceeds .................. 18
Payment Options ....................................... 19
FEDERAL TAX CONSIDERATIONS ............................... 19
Introduction .......................................... 19
Phoenix's Tax Status .................................. 19
Policy Benefits ....................................... 19
Business-Owned Policies................................ 20
Modified Endowment Contracts .......................... 20
Limitations on Unreasonable Mortality
and Expense Charges ................................ 21
Qualified Plans ....................................... 21
Diversification Standards ............................. 21
Change of Ownership or Insured or Assignment .......... 21
Other Taxes ........................................... 21
VOTING RIGHTS ............................................ 21
The Funds ............................................. 21
Phoenix ............................................... 22
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX........... 22
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS .................. 23
SALES OF POLICIES ........................................ 23
STATE REGULATION ......................................... 23
REPORTS .................................................. 23
LEGAL PROCEEDINGS ........................................ 24
LEGAL MATTERS ............................................ 24
REGISTRATION STATEMENT ................................... 24
FINANCIAL STATEMENTS ..................................... 24
APPENDIX A ............................................... 70
APPENDIX B ............................................... 71
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESPERSON, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
2
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SPECIAL TERMS
- --------------------------------------------------------------------------------
As used in this Prospectus, the following terms have the indicated meanings:
ATTAINED AGE: The age of the Insured on the birthday nearest the most recent
Policy Anniversary.
BENEFICIARY: The person or persons specified by the Policyowner as entitled to
receive the death benefits under a Policy.
CASH SURRENDER VALUE: The Policy Value less any surrender charge that would
apply on the date of surrender and less any Debt.
DEATH BENEFIT GUARANTEE: An additional benefit rider available with the Policy
that guarantees a death benefit equal to the initial face amount or the face
amount as later increased or decreased, provided that Minimum Required Premiums
are paid. See "Additional Rider Benefits."
DEBT: Outstanding loans against a Policy, plus accrued interest.
FUND(S): The Phoenix Edge Series Fund and Wanger Advisors Trust.
GENERAL ACCOUNT: The general asset account of Phoenix.
GUARANTEED INTEREST ACCOUNT (GIA): An allocation option under which amounts
deposited are guaranteed to earn a fixed rate of interest. Excess interest also
may be credited, in the sole discretion of Phoenix.
IN FORCE: Conditions under which the coverage under a Policy is in effect and
the Insured's life remains insured.
INSURED: The person upon whose life the Policy is issued.
IN WRITING (WRITTEN REQUEST): In a written form satisfactory to Phoenix and
delivered to VPMO.
ISSUE PREMIUM: The premium payment made in connection with the issue of the
Policy.
MINIMUM REQUIRED PREMIUM: The required premium as specified in the Policy. An
increase or decrease in the face amount of the policy will change the Minimum
Required Premium amount.
MONTHLY CALCULATION DAY: The first Monthly Calculation Day is the same day as
the Policy Date. Subsequent Monthly Calculation Days are the same day of each
month thereafter or, if such day does not fall within a given month, the last
day of that month will be the Monthly Calculation Day.
MULTIPLE LIFE POLICY: A Policy under which the number of Insureds is greater
than one (1) but no more than five (5), and under which the death benefit is
paid upon the death of the first insured to die.
PAYMENT DATE: The Valuation Date on which a premium payment or loan repayment is
received at Phoenix, unless it is received after the close of the New York Stock
Exchange, in which case it will be the next Valuation Date. PHOENIX: Phoenix
Home Life Mutual Insurance Company, Hartford, Connecticut.
PLANNED ANNUAL PREMIUM: The premium amount that the Policyowner agrees to pay
each Policy Year. It must be at least equal to the minimum required premium
for the face amount of insurance selected and must be no greater than the
maximum premium allowed for the face amount selected.
POLICY ANNIVERSARY: Each anniversary of the Policy Date.
POLICY DATE: The Policy Date as shown on the Schedule Page of the Policy. It is
the date from which Policy Years and Policy Anniversaries are measured.
POLICY MONTH: The period from one Monthly Calculation Day up to but not
including the next Monthly Calculation Day.
POLICYOWNER (OWNER): The owner of a Policy.
POLICY VALUE: The sum of a Policy's share in the values of each Sub-account of
the VUL Account plus the Policy's share in the values of the GIA.
POLICY YEAR: The first Policy Year is the one-year period from the Policy Date
up to, but not including, the first Policy Anniversary. Each succeeding Policy
Year is the one-year period from the Policy Anniversary up to but not including
the next Policy Anniversary.
PROPORTIONATE: Amounts allocated to Sub-accounts on a proportionate basis are
allocated by increasing (or decreasing) a Policy's share in the value of the
affected Sub-accounts so that such shares maintain the same ratio to each other
before and after the allocation.
SERIES: An investment portfolio that is part of the Fund.
SINGLE LIFE POLICY: A Policy that covers the life of one (1) Insured.
SUB-ACCOUNTS: Accounts within the VUL Account to which non-loaned assets under
a Policy are allocated.
UNIT: A standard of measurement used in determining the value of a Policy. The
value of a Unit for each Sub-account will reflect the investment performance of
that Sub-account and will vary in dollar amount.
VALUATION DATE: For any Sub-account, each date on which the net asset value of
the Fund is determined.
VALUATION PERIOD: For any Sub-account, the period in days from the end of one
Valuation Date through the next.
VPMO: The Phoenix Variable Products Mail Operation division of Phoenix that
receives and processes incoming mail for Variable Products Operations.
VUL ACCOUNT: Phoenix Home Life Variable Universal Life Account.
VULA: Variable and Universal Life Administration Division of Phoenix.
3
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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.
The Policy differs from conventional fixed benefit life insurance by
allowing Policyowners to allocate premiums to one or more Sub-accounts of the
VUL Account or to the GIA. Each Sub-account invests exclusively in a designated
portfolio of the Funds. Also, under the Policy, the Policy Value invested in
the VUL Account is not guaranteed and may increase or decrease depending upon
the investment experience of the Sub-accounts of the VUL Account. Accordingly,
the Policyowner bears the investment risk of any depreciation in value of the
underlying assets but reaps the benefits of any appreciation in value. See
"Policy Value."
In addition, unlike conventional fixed benefit life insurance, a Policyowner
also has the flexibility to make additional premium payments and to thereby
adjust the Policy Value. However, unlike conventional fixed benefit life
insurance, the Policy does not require a Policyowner to adhere to a fixed
premium payment schedule. Moreover, after the payment of the Issue Premium, the
failure to make additional premium payments will not in itself cause the Policy
to lapse. Conversely, the payment of additional premiums will not guarantee that
the Policy will remain In Force. Generally, lapse will occur when the Cash
Surrender Value is insufficient to pay certain charges deducted on the Monthly
Calculation Day, and a grace period expires without payment of the additional
amount required. See "Lapse."
If a Whole Life Exchange Option Rider is attached to the Policy, the
Policy may be exchanged for a fixed benefit whole life policy. (See
"Additional Rider Benefits.")
2. IS THERE A GUARANTEED ACCOUNT OPTION?
Yes. A Policyowner may elect to have premium payments allocated to the GIA.
Amounts allocated to the GIA earn a fixed rate of interest and Phoenix also may,
in its sole discretion, credit excess interest. (See Appendix A.)
3. WHAT IS THE DEATH BENEFIT UNDER THE POLICY?
The Policy provides for the payment of benefits upon the death of
the Insured. Upon application for a Policy, an applicant designates an Issue
Premium. The Policy indicates the face amount of insurance. The death benefit
will equal the face amount on the date of the Insured's death or, if greater,
the Policy Value on the date of the Insured's death increased by the applicable
percentage set forth in the Policy. If the increased death benefit option is
selected, the death benefit will equal the face amount on the date of the
Insured's death plus the Policy Value or, if greater, the Policy Value on the
date of the Insured's death increased by the applicable percentage set forth in
the Policy. Guaranteed death benefit and living benefits riders are also
available. See "Death Benefit."
4. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The Policy will lapse only when the Cash Surrender Value is insufficient to
pay the monthly deduction (see "Charges and Deductions--Monthly Deductions"),
and a grace period expires without payment of the additional amount required. In
this respect, the Policy differs in two important respects from a conventional
life insurance Policy. First, the failure to pay additional premiums will not
automatically cause the Policy to lapse. Second, the payment of premiums of any
prespecified amount does not guarantee that the Policy will remain In Force. A
rider is available to ensure that premium payments will continue during a period
of disability.
5. WHAT CHARGES ARE THERE IN CONNECTION WITH THE POLICY?
MONTHLY DEDUCTION: A deduction is made each Policy Month from the Policy
Value (excluding the value of the loaned portion of the GIA) to pay the cost of
insurance provided under the Policy; the cost of any rider benefits provided;
any unpaid balance of the Issue Expense Charge; and an administrative charge as
shown on the schedule page of the Policy. The administrative charge may vary but
in no event will it exceed $10 per month. Currently, the administrative charge
is $5 per month.See "Charges and Deductions."
OTHER CHARGES: A fee equal to the lesser of $25 or 2% of the partial
surrender amount paid is deducted from the Policy Value for each partial
surrender. A partial surrender charge equal to a pro rata portion of the
applicable surrender charge that would apply to a full surrender, determined by
applying a formula, also is assessed against the VUL Account Sub-accounts or the
GIA when a partial surrender is made.
No charges are currently made from the VUL Account or the GIA for federal or
state income taxes. If Phoenix determines that such taxes may be imposed, it may
make deductions from the VUL Account to pay these taxes.
Phoenix charges each Sub-account of the VUL Account the daily equivalent of
0.80% for the first 15 years and then 0.25% on an annual basis of the current
value of the Sub-account's net assets for its assumption of certain mortality
and expense risks incurred in connection with Single Life Policies and 0.80% on
an annual basis for Multiple Life Policies.
Premium amounts also are reduced by any applicable premium tax, a Federal
Tax Charge of 1.50% on Single Life Policies and, for payments made during a
grace period, by the amount needed to cover any monthly deductions made during
the grace period.
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."
6. IS THERE A RIGHT TO CANCEL PERIOD?
Yes. The Policyowner may cancel the Policy within 10 days after the
Policyowner receives it (or longer in some states), or 10 days after Phoenix
mails or delivers a written notice of withdrawal right to the Policyowner, or
within 45 days of completing the application, whichever is latest.
4
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7. HOW ARE PREMIUMS ALLOCATED?
If the applicant elects the Temporary Money Market Allocation Amendment in
the application, Phoenix will allocate the entire Issue Premium, less applicable
charges, to the Money Market 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 less applicable charges allocated according to the
instructions in the application on the date it is received without first having
the premium placed in the Money Market Subaccount. The Policy Value may be
allocated among the available Subaccounts of the VUL Account, each of which
invests in shares of a designated portfolio of the Funds, or to the GIA.
8. AFTER THE INITIAL ALLOCATION, MAY I CHANGE THE ALLOCATION OF
POLICY VALUE?
Yes. A Policyowner may transfer amounts among the Sub-accounts of the VUL
Account or the GIA. Only one transfer per Policy Year is permitted from the
unloaned portion of the GIA. The amount of that transfer is limited to the
higher of $1,000 or 25% of the value of the Policy in the unloaned portion of
the GIA. Also, Phoenix reserves the right to require that transfers be made by
written request. Phoenix further reserves the right to permit transfers of less
than $500 only if the entire balance in the Subaccount of the VUL Account or
the GIA is transferred. A systematic transfer program also is available. See
"Transfer of Policy Value."
9. MAY THE POLICY BE SURRENDERED?
Yes. A Policyowner may totally surrender the Policy at any time and receive
the Cash Surrender Value. Subject to certain limitations, the Policyowner also
may partially surrender the Policy at any time prior to the Maturity Date. In
the future, Phoenix may set a minimum partial surrender amount, not to exceed
$500. See "Surrenders--Partial Surrenders." A partial surrender will result in a
decrease in the death benefit under the Policy. See "Death Benefit." If the
Policy is totally or partially surrendered during the first ten Policy Years, a
Surrender Charge will apply. See "Surrender Charge." In addition, there may be
certain tax consequences as the result of a surrender. For example, a Policy may
be a "modified endowment contract" if the amount of premium paid during the
first seven Policy Years is more than the amount that would have been paid if
the Policy had provided for paid-up benefits after the payment of seven level
annual premiums. Distributions such as loans and full or partial surrenders
under a modified endowment contract may be taxable income to the extent they
exceed the premiums paid. If such income is distributed before the Policyowner
attains age 59 1/2, a 10% penalty tax may be imposed. See "Federal Tax
Considerations."
10. WHAT IS THE POLICY'S LOAN PRIVILEGE?
A Policyowner may obtain Policy loans in an amount up to 90% of the result
of subtracting the remaining surrender charge from the Policy Value. The
interest rate on a loan is at an effective annual rate as stated in the Policy,
compounded daily and payable on each Policy Anniversary in arrears. The
requested loan amount is transferred from the VUL Account to the loaned portion
of the GIA and is credited with interest at an effective annual rate as stated
in the Policy. Phoenix reserves the right not to allow loans of less than $500
unless the loans are to pay premiums on another policy issued by Phoenix. See
"The Policy--Policy Loans."
The proceeds of Policy loans may be subject to federal income tax
under certain circumstances. See "Federal Tax Considerations."
11. HOW ARE INSURANCE BENEFITS PAID?
Surrender and death benefits under the Policy may be paid in a lump sum or
under one of the payment options set forth in the Policy.
See "Payment Options."
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 and 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.
5
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Example:
Assumptions:
Value of hypothetical pre-existing account with exactly
one unit at the beginning of the period:................ 1.379843
Value of the same account (excluding capital changes)
at the end of the seven-day period:..................... 1.380945
Calculation:
Ending account value .................................... 1.380945
Less beginning account value ............................ 1.379843
Net change in account value ............................. 0.001102
Base period return:
(adjusted change/beginning account value) ............... 0.000799
Current yield = return x (365/7) = ........................ 4.16%
Effective yield = [(1 + return)365/7] - 1 = ............... 4.25%
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 applicable Policy charges except for the cost of insurance
and any surrender charges and premium taxes (which vary by Insured and state).
For those Subaccounts within the VUL Account that have not been available
for one of the quoted periods, the average annual total return quotations will
show the investment performance such Subaccount would have achieved (reduced by
the applicable charges) had it been available to invest in shares of the Fund
for the period quoted.
Below are quotations of average annual total return of Series of the Phoenix
Edge Series Fund. POLICY CHARGES ARE NOT REFLECTED.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED 12/31/96
-----------------------------
COMMENCE- 10 LIFE OF
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS YEARS FUND
- ---------- --------- ------ ------- ----- ----
Multi-Sector..... 1/1/83 9.21% 9.12% 8.26% 9.63%
Balanced......... 5/1/92 7.40% N/A N/A 8.47%
Strategic Allocation 9/17/84 5.94% 7.57% 9.93% 11.19%
Growth........... 1/1/83 9.37% 12.78% 14.54% 16.99%
International.... 5/1/90 15.30% 7.66% N/A 6.85%
Money Market..... 10/10/82 2.02% 2.47% 4.31% 5.11%
Real Estate...... 5/1/95 29.43% N/A N/A 27.83%
Theme............ 1/29/96 N/A N/A N/A 7.29%
Asia............. 9/17/96 N/A N/A N/A (1.76%)
U.S. Small Cap... 5/1/95 42.77% N/A N/A 35.01%
Int'l. Small Cap. 5/1/95 28.54% N/A N/A 38.25%
ANNUAL TOTAL RETURN*
--------------------
MULTI- ALLO- INTER- MONEY
YEAR SECTOR BALANCED CATION GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983.... 5.16% N/A N/A 31.84% N/A 7.51%
1984.... 10.45% N/A (1.31%) 9.79% N/A 9.34%
1985.... 19.65% N/A 26.33% 33.85% N/A 7.17%
1986.... 18.34% N/A 14.77% 19.51% N/A 5.66%
1987.... 0.28% N/A 11.66% 6.08% N/A 5.67%
1988.... 9.61% N/A 1.53% 3.09% N/A 6.60%
1989.... 6.92% N/A 18.53% 34.53% N/A 8.03%
1990.... 4.54% N/A 5.15% 3.32% (8.59%) 7.51%
1991.... 18.66% N/A 28.27% 41.60% 18.79% 5.14%
1992.... 9.23% 9.06% 9.79% 9.41% (13.52%) 2.75%
1993.... 14.99% 7.75% 10.12% 18.75% 37.33% 2.06%
1994.... (6.21%) (3.61%) (2.19%) 0.66% (0.73%) 3.01%
1995.... 22.56% 22.37% 17.27% 29.85% 8.72% 4.86%
1996.... 11.52% 9.68% 8.18% 11.69% 17.71% 4.19%
REAL U.S. INT'L.
YEAR ESTATE THEME ASIA SMALL CAP SMALL CAP
- ---- ------ ----- ---- --------- ---------
1995.... 17.19% N/A N/A 16.01% 33.96%
1996.... 32.06% 9.55% (0.06%) 45.64% 31.15%
*Sales Charges have not been deducted from the Annual Total Return.
Advertisements, sales literature and other communications may contain
information about any Series' or Advisers' current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
iIlustrate 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, Standard
& Poor's 500 Stock Index (the "S&P 500"), Dow Jones Industrial Average, First
Boston High Yield Index, and Solomon Brothers Corporate and Government Bond
Indices.
The VUL Account may from time to time include in advertisements containing
total returns, 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 Analytical Services, Inc., CDA Investment
Technologies, Inc., Weisenberger Financial Services, Inc. and Morningstar, Inc.
Additionally, the Funds may compare a Series performance results to other
investment or savings vehicles (such as certificates of deposit) and may refer
to results published in various publications such as Changing Times, Forbes,
Fortune, Money, Barrons, Business Week, Investor's Daily, The Stanger Register,
Stanger's Investment Adviser, The Wall Street Journal, The New York Times,
Consumer Reports, Registered Representative, Financial Planning, Financial
Services Weekly, Financial World, U.S. News and World Report, Standard & Poor's,
The Outlook, and Personal Investor. The Funds may from time to time illustrate
the benefits of tax deferral by comparing taxable investments to investments
made through tax-deferred retirement plans. The total return also may be used to
compare the performance of a Series against certain widely acknowledged outside
standards or indices for stock and bond market performance, such as the S&P 500,
Dow Jones Industrial Average, Europe Australia Far East Index (EAFE), Consumer's
Price Index, Shearson Lehman Corporate Index and Shearson Lehman T-Bond Index.
The S&P 500 is a commonly quoted
6
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market value-weighted and unmanaged index showing the changes in the aggregate
market value of 500 common stocks relative to the base period 1940-43. The S&P
is composed almost entirely of common stocks of companies listed on the New York
Stock Exchange, although the common stocks of a few companies listed on the
American Stock Exchange or traded over the counter are included. The 500
companies represented include 400 industrial, 60 transportation and 40 financial
services concerns. The S&P represents about 70-80% of the market value of all
issues traded on the New York Stock Exchange.
The Funds' Annual Reports, available upon request and without charge,
contain a discussion of the performance of the Funds and a comparison of that
performance to a securities market index.
PHOENIX AND THE VUL ACCOUNT
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PHOENIX
Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851. Its executive office is at One American Row, Hartford,
Connecticut 06115 and its main administrative office is at 100 Bright Meadow
Boulevard, Enfield, Connecticut 06083-1900. Its New York principal office is at
99 Troy Road, East Greenbush, New York 12061. Phoenix is the nation's 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 registered as a unit
investment trust under the Investment Company Act of 1940, as amended, and it
meets the definition of a "separate account" under that Act. Such registration
does not involve supervision of the management of the VUL Account or Phoenix by
the Securities and Exchange Commission.
The VUL Account is divided into Subaccounts, each of which is available
for allocation of Policy Value. If in the future Phoenix determines that
marketing needs and investment conditions warrant, Phoenix may establish
additional 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 allocated to the VUL Account depends
on the investment performance of the Fund. Thus, the Policyowner bears the full
investment risk for all monies invested in the VUL Account.
The VUL Account is administered and accounted for as part of the general
business of Phoenix, but the income, gains, or losses of the VUL Account are
credited to or charged against the assets held in the VUL Account, without
regard to other income, gains, or losses of any other business Phoenix may
conduct. Under New York law, the assets of the VUL Account are not chargeable
with liabilities arising out of any other business Phoenix may conduct.
Nevertheless all obligations arising under the Policy are general corporate
obligations of Phoenix.
THE GIA
The GIA is not part of the VUL Account. It is accounted for as part of the
General Account. Phoenix reserves the right to limit cumulative deposits,
including transfers, to the unloaned portion of the GIA to no more than $250,000
during any one-week period. Phoenix will credit interest daily on the amounts
allocated under the Policy to the GIA. The credited rate will be uniform by
class. The loaned portion of the GIA will be credited interest at an effective
annual fixed rate of 2% for Single Life Policies (4% on Single Life Policies in
New York), and 6% for Multiple Life Policies. Interest on the unloaned portion
of the GIA will be credited at an effective annual rate of not less than 4%.
Bi-weekly, Phoenix sets the interest rate that will apply to any net premium
or transferred amounts deposited to the unloaned portion of the GIA. That rate
will remain in effect for such deposits for an initial guarantee period of one
full year from the date of deposit. Upon expiration of the initial one-year
guarantee period (and each subsequent one-year guarantee period thereafter), the
rate to be applied to any deposits whose guarantee period has just ended shall
be the same rate as is applied to new deposits allocated to the GIA at the time
that the guarantee period expired. This rate will likewise remain in effect for
a guarantee period of one full year from the date the new rate is applied. For
more complete information concerning the GIA, see Appendix A.
THE POLICY
- --------------------------------------------------------------------------------
INTRODUCTION
The Policy is a variable life insurance policy. The Policy has a death
benefit, Cash Surrender Value, and loan privilege such as is associated with a
traditional fixed benefit whole life policy. The Policy differs from a fixed
benefit whole life policy, however, because the Policyowner specifies into which
of several 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 Funds. The Policy Value varies according to
the investment performance of the Series to which Policy Value has been
allocated.
ELIGIBLE PURCHASERS
Any person up to the age of 75 is eligible to be insured under a newly
purchased Policy after providing acceptable evidence of insurability. A person
can purchase a Policy to insure the life of another person provided that the
Policyowner has an insurable interest in the life of the Insured, and the
Insured consents. A policy also can be purchased to cover from two to five lives
under one Policy, for any person up to the age of 80. Under such a Multiple Life
Policy, the death benefit is paid upon the first death under the Policy; the
Policy then terminates. Such a Policy could be purchased on the lives of
spouses, family members, business partners or other related groups.
PREMIUM PAYMENT
The minimum Issue Premium for a Policy is generally 1/6 of the
Planned Annual Premium. The Issue Premium is due on the Policy
Date. The Insured must be alive when the Issue Premium is paid.
Thereafter, the amount and payment frequency of planned premiums
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<PAGE>
are as shown on the schedule page of the Policy. All premiums are payable at
VULA, except that the Issue Premium may be paid to an authorized agent of
Phoenix for forwarding to the Underwriting Department of Phoenix.
Any premium payments will be reduced by the applicable premium tax and
Single Life Policies also will be reduced by a Federal Tax Charge of 1.50%. The
Issue Premium also will be reduced by the Issue Expense Charge on a pro rata
basis in equal monthly installments over a 12-month period. Any unpaid balance
of the Issue Expense Charge will be paid to Phoenix upon Policy Lapse or
termination.
Premium payments received during a grace period also will be reduced by the
amount needed to cover any monthly deductions during the grace period. The
remainder will be applied on the Payment Date to the various Subaccounts of
the VUL Account or to the GIA, based on the premium allocation schedule elected
in the application for the Policy or as later changed. The allocation schedule
for premium payments may be changed by calling or writing to VPMO. Allocations
to the VUL Account Subaccounts or to the GIA must be expressed in terms of
whole percentages.
The number of units credited to a Subaccount of the VUL Account will be
determined by dividing the portion of the net premium applied to that
Subaccount by the unit value of the Subaccount on the Payment Date.
A Policyowner may increase or decrease the planned premium amount or payment
frequency at any time by written notice to VPMO. Phoenix reserves the right to
limit increases to such maximums as may be established from time to time.
Additional premium payments may be made at any time. Each premium payment must
at least equal $25 or, if made during a grace period, the payment must equal the
amount needed to prevent lapse of the Policy.
A Policyholder may also elect a Waiver of Premium Rider. This rider provides
for the waiver of certain premium payments under the Policy under certain
conditions during a period of total disability of the Insured. Under its terms,
the specified premium will be waived upon Phoenix's receipt of proof that the
Insured is totally disabled and that the disability occurred while the rider was
In Force.
The Policy contains a total premium limit as shown on the Schedule Page.
This limit is applied to the sum of all premiums paid under the Policy. If the
total premium limit is exceeded, the Policyowner will receive the excess, with
interest at an annual rate of not less than 4%, not later than 60 days after the
end of the Policy Year in which the limit was exceeded. The Policy Value then
will be adjusted to reflect the refund. The amount to be taken from each
Subaccount or the GIA will be allocated in the same manner as provided for
monthly deductions unless the Policyowner requests otherwise in writing. The
total premium limit may be exceeded if additional premium is needed to prevent
lapse or if Phoenix determines that additional premium would be permitted by
federal laws or regulations.
A Policyowner may authorize his bank to draw $25 or more from his personal
checking account monthly to purchase Units in any available Subaccount. The
amount the Policyowner designates will be automatically invested in the
Subaccount of his choice on the date the bank draws on his account.
Policies sold to officers, directors and employees of Phoenix (and their
spouses and children) will be credited with an amount equal to the first-year
commission that would apply on the amount of premium contributed. This option
also is available to career agents of Phoenix (and their spouses and children).
ALLOCATION OF ISSUE PREMIUM
Phoenix will generally allocate the Issue Premium less applicable charges to
the VUL Account or to the GIA upon receipt of a completed application, in
accordance with the allocation instructions in the application for a Policy.
However, Policies issued in certain states, and Policies issued in certain
states pursuant to applications which state the Policy is intended to replace
existing insurance, are issued with a Temporary Money Market Allocation
Amendment. Under this Amendment, Phoenix temporarily allocates the entire Issue
Premium paid less applicable charges (along with any other premiums paid during
the Right to Cancel Period) to the Money Market 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 (or longer in some states); within ten
days after Phoenix mails or delivers a written notice of withdrawal right to the
Policyowner; or within 45 days after the applicant signs the application for
insurance, whichever occurs latest (the "Right to Cancel Period"). The returned
Policy is treated as if Phoenix never issued the Policy and, except for Policies
issued with a Temporary Money Market Allocation Amendment, Phoenix will return
the sum of the following as of the date Phoenix receives the returned Policy:
(i) the then current Policy Value less any unpaid loans and loan interest; plus
(ii) any monthly deductions, partial surrender fees, and other charges made
under the Policy, including investment advisory fees, or any Fund expenses
deducted. The amount returned for Policies issued with the Amendment will equal
any premiums paid less any unrepaid loans and loan interest, and less any
partial surrender amounts paid.
Phoenix reserves the right to disapprove an application for processing
within 7 days of receipt at Phoenix of the completed application for insurance,
in which event Phoenix will return the premium paid. Even after approval of the
application for processing, Phoenix reserves the right to decline issuance of
the Policy, in which event Phoenix will refund the applicant the same amount as
would have been refunded under the Policy had it been issued but returned for
refund during the Right to Cancel Period.
TEMPORARY INSURANCE COVERAGE
On the date the application for a Policy is signed and submitted with the
Issue Premium, Phoenix issues a Temporary Insurance Receipt in connection with
the application. Under the Temporary Insurance Receipt, the insurance protection
applied for (subject to the limits of liability and in accordance with the terms
set forth in the Policy and in the Receipt) takes effect on the date of the
application.
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TRANSFER OF POLICY VALUE
SYSTEMATIC TRANSFER PROGRAM
A Policyowner may elect to transfer funds automatically among the
Subaccounts or the unloaned portion of the GIA on a monthly, quarterly,
semi-annual or annual basis under the Systematic Transfer Program for Dollar
Cost Averaging ("Systematic Transfer Program"). Under this Systematic Transfer
Program, the minimum initial and subsequent transfer amounts are $25 monthly,
$75 quarterly, $150 semi-annually, or $300 annually. A Policyowner must have an
initial value of $1,000 in the GIA or the Subaccount that funds will be
transferred from 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 Subaccount or the GIA, but may be allocated to multiple
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. All transfers under the Systematic Transfer
Program will be executed on the basis of the respective values as of the first
of the month following receipt of the transfer request. If the first of the
month falls on a holiday or weekend, then the transfer will be processed on the
next succeeding business day.
NON-SYSTEMATIC TRANSFERS
Transfers among available Subaccounts or the GIA and changes in premium
payment allocations may be requested in writing or by calling 1-800-892-4885,
between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time and will be executed
on the date the request is received at VPMO, except as noted below. Unless the
Policyowner elects in writing not to authorize telephone transfers or allocation
changes, telephone transfer orders and allocation changes also will be accepted
on behalf of the Policyowner from his or her registered representative. Phoenix
and Phoenix Equity Planning Corporation ("PEPCO") will employ reasonable
procedures to confirm that telephone instructions are genuine. They will require
verification of account information and will record telephone instructions on
tape. All telephone transfers will be confirmed in writing to the Policyowner.
To the extent that procedures reasonably designed to prevent unauthorized
transfers are not followed, Phoenix and PEPCO may be liable for following
telephone instructions for transfers that prove to be fraudulent. However, the
Policyowner would bear the risk of loss resulting from instructions entered by
an unauthorized third party that Phoenix and PEPCO reasonably believe to be
genuine. These telephone privileges may be modified or terminated at any time
and during times of extreme market volatility, may be difficult to exercise. In
such cases, the Policyowner should submit a Written Request.
Phoenix reserves the right to permit transfers of less than $500 only if the
entire balance in the Subaccount or the GIA is transferred or if the
Systematic Transfer Program has been elected.
Phoenix reserves the right to prohibit a transfer to any Subaccount of the
VUL Account where the resultant value of the Policy's share in that Subaccount
immediately after the transfer would be less than $500. It further reserves the
right to require that the entire balance of a Subaccount or the GIA be
transferred if the share of the Policy in the value of that Subaccount would,
immediately after the transfer, be less than $500.
Unless Phoenix agrees otherwise or the Systematic Transfer Program has been
elected, a Policyowner may make only one transfer per Policy Year from the
unloaned portion of the GIA and the amount that may be transferred cannot exceed
the greater of $1,000 or 25% of the value of the Policy in the unloaned portion
of the GIA at the time of the transfer. Non-systematic transfers from the
unloaned portion of the GIA will be effectuated on the date of receipt by
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.
For policies issued with the Temporary Money Market Allocation Amendment,
transfers may not be made until termination of the Right to Cancel Period.
DETERMINATION OF SUBACCOUNT VALUES
The unit value of each Subaccount of the VUL Account was set by Phoenix on
the first valuation date of each such Subaccount. The unit value of a
Subaccount of the VUL Account on any other Valuation Date is determined by
multiplying the unit value of that Subaccount on the just prior Valuation Date
by the Net Investment Factor for that Subaccount for the then current
Valuation Period. The unit value of each Subaccount of the VUL Account on a
day other than a Valuation Date is the unit value on the next Valuation Date.
Unit values are carried to 6 decimal places. The unit value of each Subaccount
of the VUL Account on a Valuation Date is determined at the end of that day.
The Net Investment Factor for each Subaccount of the VUL Account is
determined by the investment performance of the assets held by the Subaccount
during the Valuation Period. Each valuation will follow applicable law and
accepted procedures. The Net Investment Factor is equal to item (D) below
subtracted from the result of dividing the sum of items (A) and (B) by item (C).
(A) The value of the assets in the Subaccount on the current Valuation
Date, including accrued net investment income and realized and
unrealized capital gains and losses, but excluding the net value of any
transactions during the current Valuation Period.
(B) The amount of any dividend (or, if applicable, any capital gain
distribution) received by the Subaccount if the "ex-dividend" date
for shares of the Fund occurs during the current Valuation Period.
(C) The value of the assets in the Subaccount as of the just prior
Valuation Date, including accrued net investment income and realized and
unrealized capital gains and losses, and including the net value of all
transactions during the Valuation Period ending on that date.
(D) The sum of the following daily charges multiplied by the number of days
in the current Valuation Period:
1. the mortality and expense risk charge; and
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2. the charge, if any, for taxes and reserves for taxes on investment
income, and realized and unrealized capital gains.
DEATH BENEFIT
GENERAL
The death benefit (under Option 1) equals the Policy's face amount on the
date of the Insured's death or, if greater, the minimum death benefit on the
date of death. On Single Life Policies, under Option 2, the death benefit equals
the Policy's face amount on the date of the Insured's death plus the Policy
Value. On Multiple Life Policies, under Option 2, the death benefit equals the
Policy's face amount on the date of the first insured's death plus the Policy
Value to the later of the tenth policy anniversary or policy anniversary nearest
the oldest insured's 65th birthday. Under either Option, the minimum death
benefit is the Policy Value on the date of death of the Insured increased by the
applicable percentage from the table contained in the Policy, based on the
Insured's attained age at the beginning of the Policy Year in which the death
occurs. If no option is elected, Option 1 will apply.
GUARANTEED DEATH BENEFIT OPTION
For Policies with a face amount of at least $50,000, a guaranteed death
benefit rider may be purchased. Under this Policy rider, if a Policyowner pays
the required premium each year as specified in the rider, the death benefit
selected will be guaranteed for a certain specified number of years, regardless
of the investment performance of the Policy, and will equal either the initial
face amount or the face amount as later changed by increases or decreases. In
order to keep this guaranteed death benefit In Force, there may be limitations
on the amount of partial surrenders or decreases in face amount permitted.
LIVING BENEFITS OPTION
In the event of a terminal illness of the Insured, an accelerated payment of
up to 75% of the Policy's death benefit (up to a maximum of $250,000) is
available if a Living Benefits Rider has been purchased. The minimum face amount
of the Policy after any such accelerated benefit payment is $10,000.
REQUESTS FOR INCREASE IN FACE AMOUNT
Any time after the first Policy Anniversary, a Policyowner may request an
increase in the face amount of insurance provided under the Policy. Requests for
face amount increases must be made in writing, and Phoenix requires additional
evidence of insurability. The effective date of the increase generally will be
the Policy Anniversary following approval of the increase. The increase may not
be less than $25,000 and no increase will be permitted after the Insured's age
75. The charge for the increase is $1.50 per thousand of face amount increase
requested subject to a maximum of $600. No additional monthly administration
charge will be assessed for face amount increases. Phoenix will deduct any
charges associated with the increase (the increases in cost of insurance
charges), from the Policy Value, whether or not the Policyowner pays an
additional premium in connection with the increase. The surrender charge
applicable to the Policy also will increase. At the time of the increase, the
Cash Surrender Value must be sufficient to pay the monthly deduction on that
date, or additional premiums will be required to be paid on or before the
effective date. Also, a new Right to Cancel period (see "The Policy--Right to
Cancel Period") will be established for the amount of the increase. For a
discussion of possible implications of a material change in the Policy resulting
from the increase, see "Material Change Rules."
PARTIAL SURRENDER AND DECREASES IN FACE AMOUNT: EFFECT ON DEATH BENEFIT
A partial surrender or a decrease in face amount generally
decreases the death benefit. Upon a decrease in face amount or partial
surrender, a partial surrender charge will be deducted from Policy Value based
on the amount of the decrease or partial surrender. With a decrease in face
amount, the death benefit under a Policy would be reduced on the next Monthly
Calculation Day. With a partial surrender, the death benefit under a Policy
would be reduced immediately. A decrease in the death benefit may have certain
tax consequences. See "Federal Tax Considerations."
REQUESTS FOR DECREASE IN FACE AMOUNT
A Policyowner may request a decrease in face amount at any time after the
first Policy Year. Unless Phoenix agrees otherwise, the decrease must at least
equal $10,000 and the face amount remaining after the decrease must at least
equal $25,000. All face amount decrease requests must be in writing and will be
effective on the first Monthly Calculation Day following the date Phoenix
approves the request. A partial surrender charge will be deducted from the
Policy Value based on the amount of the decrease. The charge will equal the
applicable surrender charge that would apply to a full surrender multiplied by a
fraction (the decrease in face amount divided by the face amount of the Policy
before the decrease).
SURRENDERS
GENERAL
At any time during the lifetime of the Insured(s) and while the Policy is In
Force, the Policyowner may partially or fully surrender the Policy by sending a
written release and surrender in a form satisfactory to Phoenix to VPMO, along
with the Policy if Phoenix so requires. The amount available for surrender is
the Cash Surrender Value at the end of the Valuation Period during which the
surrender request is received at VPMO.
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 "Surrender Charge" and "Payment
Options."
PARTIAL SURRENDERS
A Policyowner may obtain a partial surrender of the Policy by requesting
that part of the Policy's Cash Surrender Value be paid. The Policyowner may do
this at any time during the lifetime of the Insured while the Policy is In Force
with a Written Request to VPMO. Phoenix reserves the right to require that the
Policy be returned before payment is made. A partial surrender will be effective
on the date the Written Request is received or, if required, the date the Policy
is received. Surrender proceeds may be applied under any of the
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payment options described under "Payment of Proceeds--Payment Options."
Phoenix reserves the right not to allow partial surrenders of less than
$500. In addition, if the share of the Policy Value in any Subaccount or in
the GIA that would be reduced as a result of a partial surrender would,
immediately after the partial surrender, be less than $500, Phoenix reserves the
right to require that as part of any partial surrender, the entire remaining
balance in that Subaccount or the GIA be surrendered.
Upon a partial surrender the Policy Value will be reduced by the sum of the
following:
(i) The Partial Surrender Amount Paid. This amount comes from a reduction in
the Policy's share in the value of each Subaccount or the GIA based on
the allocation requested at the time of the partial surrender. If no
allocation request is made, the assessment to each Subaccount will be
made in the same manner as that provided for monthly deductions.
(ii) The Partial Surrender Fee. This fee is the lesser of $25 or 2% of the
partial surrender amount paid. The assessment to each Subaccount or
the GIA will be made in the same manner as provided for the partial
surrender amount paid.
(iii) A Partial Surrender Charge. This charge is equal to a pro rata
portion of the applicable surrender charge that would apply to
a full surrender, determined by multiplying the applicable
surrender charge by a fraction (equal to the partial surrender
amount payable divided by the result of subtracting the
applicable surrender charge from the Policy Value). This
amount is assessed against the Subaccount or the GIA in
the same manner as provided for the partial surrender
amount paid.
The Cash Surrender Value will be reduced by the partial surrender amount
paid plus the partial surrender fee. The face amount of the Policy also will be
reduced by the same amount as the Policy Value is reduced as described above.
POLICY LOANS
While the Policy is In Force, a loan may be obtained against the Policy up
to the available loan value. The loan value on any day is 90% of the result of
subtracting the then remaining surrender charge from the Policy Value. The
available loan value is the loan value on the current day less any outstanding
Debt.
The amount of any loan will be added to the loaned portion of the GIA and
subtracted from the Policy's share of the Subaccounts or the unloaned portion
of the GIA, based on the allocation requested at the time of the loan. The total
reduction will equal the amount added to the loaned portion of the GIA.
Allocations generally must be expressed in terms of whole percentages. If no
allocation request is made, the amount subtracted from the share of each
Subaccount or the unloaned portion of the GIA will be determined in the same
manner as provided for monthly deductions. Interest will be credited and the
loaned portion of the GIA will increase at an effective annual rate of 2.00% on
Single Life Policies and 6% on Multiple Life Policies, compounded daily and
payable in arrears. At the end of each Policy Year and at the time of any Debt
repayment, interest credited to the loaned portion of the GIA will be
transferred to the unloaned portion of the GIA.
Debt may be repaid at any time during the lifetime of the Insured while the
Policy is In Force. Any Debt repayment received by Phoenix during a grace period
will be reduced to cover any overdue monthly deductions and only the balance
will be applied to reduce the Debt. Such balance, in excess of any outstanding
accrued loan interest, will be applied to reduce the loaned portion of the GIA
and will be transferred to the unloaned portion of the GIA to the extent that
loaned amounts taken from such Account have not been previously repaid.
Otherwise, such balance will be transferred among the Subaccounts as the
Policyowner requests upon repayment and, if no allocation request is made,
according to the most recent premium allocation schedule on file.
While there is outstanding Debt on the Policy, any payments received by
Phoenix for the Policy will be applied directly to reduce the Debt unless
specified as a premium payment by the Policyowner. Until the Debt is fully
repaid, additional Debt repayments may be made at any time during the lifetime
of the Insured while the Policy is In Force.
Failure to repay a policy loan or to pay loan interest will not terminate
the Policy except as otherwise provided under the terms of the Policy concerning
the grace period and lapse.
The proceeds of Policy loans may be subject to federal income tax
under certain circumstances. See "Federal Tax Considerations."
In the future, Phoenix may not allow Policy loans of less than $500, unless
such loan is used to pay a premium on another Phoenix policy.
The Policyowner will pay interest on the loan at an effective annual rate,
compounded daily and payable in arrears. The loan interest rates in effect are
as follows:
SINGLE LIFE POLICIES
--------------------
4% for Policy Years 1 through 10 (or the Insured's age 65 if earlier) 3% through
Policy Year 15 2 1/2% for Policy Years 16 and thereafter
SINGLE LIFE POLICIES--NEW YORK ONLY
-----------------------------------
6% for Policy Years 1 through 10 (or the Insured's age 65 if earlier) 5% through
Policy Year 15 4 1/2% for Policy Years 16 and thereafter
MULTIPLE LIFE POLICIES
----------------------
8% for Policy Years 1 through 10
7% for Policy Years 11 and thereafter
At the end of each Policy Year, any interest due on the Debt will be treated
as a loan and will be offset by a transfer from the Policyowner's values to the
value of the loaned portion of the GIA.
A Policy loan, whether or not repaid, has a permanent effect on the Policy
Value because the investment results of the Subaccounts or unloaned portion of
the GIA will apply only to the amount remaining in the Subaccounts or the
unloaned portion of the GIA. The longer a loan is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If the
Subaccounts or the unloaned portion of the GIA earn more than the annual
interest rate for funds
11
<PAGE>
held in the loaned portion of the GIA, Policy Value does not increase as
rapidly as it would have had no loan been made. If the Subaccounts or the GIA
earn less than the annual interest rate for funds held in the loaned portion of
the GIA, Policy Value is greater than it would have been had no loan been made.
A Policy loan, whether or not repaid, also has an effect on the Policy's Death
Benefit due to any resulting differences in Cash Surrender Value.
LAPSE
Unlike conventional life insurance policies, the payment of the Issue
Premium, no matter how large, or the payment of additional premiums will not
necessarily continue the Policy In Force to its Maturity Date.
If on any Monthly Calculation Day during the first two Policy Years, the
Policy Value is insufficient to cover the monthly deduction, a grace period of
61 days will be allowed for the payment of an amount equal to three times the
required monthly deduction. If on any Monthly Calculation Day during any
subsequent Policy Year, the Cash Surrender Value (which has become positive) is
less than the required monthly deduction, a grace period of 61 days will be
allowed for the payment of an amount equal to three times the required monthly
deduction. However, until the Cash Surrender Value becomes positive for the
first time, the Policy will not lapse as long as all premiums planned at issue
have been paid.
The Policy will continue In Force during any such grace period although,
Subaccount transfers, loans, partial or full surrenders will not be permitted.
Failure to pay the additional amount within the grace period will result in
lapse of the Policy, but not before 30 days have elapsed since Phoenix mailed
written notice to the Policyowner. If a premium payment for the additional
amount is received by Phoenix during the grace period, any amount of premium
over what is required to prevent lapse will be allocated among the Subaccounts
of the VUL Account or to the GIA in accordance with the then current premium
allocation schedule. In determining the amount of "excess" premium to be applied
to the 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.
PAYMENT OF PREMIUMS DURING PERIOD OF DISABILITY
A Policyholder may also elect a Waiver of Premium Rider. This rider provides
for the waiver of certain premium payments under the Policy under certain
conditions during a period of total disability of the Insured. Under its terms,
the specified premium will be waived upon Phoenix's receipt of proof that the
Insured is totally disabled and that the disability occurred while the rider was
In Force. The terms of this rider may vary by state.
ADDITIONAL INSURANCE OPTIONS
While the Policy is In Force and the Policyowner is insurable, the
Policyowner will have the option to purchase additional insurance on the same
Insured with the same guaranteed rates as the Policy without being assessed an
Issue Expense Charge. Phoenix will require evidence of insurability and charges
will be adjusted for the Insured's new attained age and any change in risk
classification. However, if elected on the application, the Policyowners may, at
predetermined future dates, purchase additional insurance protection on the same
Insured without evidence of insurability. (See "Purchase Protection Plan
Riders.")
In addition, once each Policy Year, for Single Life Policies only, a
Policyowner may request an increase in face amount. This request should be made
within 90 days prior to the Policy Anniversary and is subject to an issue
expense charge of $1.50 per $1,000 of increase in face amount, up to a maximum
of $600, and to Phoenix's receipt of adequate evidence of insurability. A Right
to Cancel Period as described in "The Policy" section of this Prospectus applies
to each increase in face amount.
ADDITIONAL RIDER BENEFITS
A Policyowner may purchase additional benefits under a Policy. These
benefits are cancellable by the Policyowner at any time. A charge will be
deducted monthly from the Policy Value for each additional rider benefit chosen
except where noted below. More details will be included in the form of a rider
to the Policy if any of these benefits is chosen. The following benefits are
currently available; however, additional riders may be available as described in
the Policy.
SINGLE LIFE POLICIES:
o DISABILITY WAIVER OF SPECIFIED PREMIUM RIDER
Phoenix waives the specified premium if the Insured becomes
totally disabled and the disability continues for at least six months.
Premiums will be waived to the Policy Anniversary nearest the Insured's 65th
birthday (provided that the disability continues), unless premiums have been
waived continuously during the entire five years prior to such date in which
case the waiver will continue beyond that date. The premium will be waived
upon Phoenix's receipt of notice that the Insured is totally disabled and
that the disability occurred while the rider was In Force. The terms vary in
New York.
o ACCIDENTAL DEATH BENEFIT RIDER
An additional death benefit will be paid if the Insured dies from bodily
injury that results from an accident; if the Insured dies no later than 90
days after injury; and before the Policy Anniversary nearest the Insured's
75th birthday.
o DEATH BENEFIT PROTECTION RIDER
The purchase of this rider provides that the death benefit will be
guaranteed. The amount of the guaranteed death benefit is equal to the
initial face amount, or the face amount that later may be increased or
decreased by the Policyholder provided that certain minimum premiums are
paid. Unless Phoenix agrees otherwise, the initial face amount and the face
amount remaining after any decrease must at least equal $50,000 and the
minimum issue age of the Insured is 20. Three (3) death benefit guarantee
periods are available in all states except New York. The minimum premium
required to maintain the guaranteed death benefit is based on the length of
the guarantee period as elected on the application. The three available
guarantee periods are:
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<PAGE>
Level: Expiry Date of Death Benefit Guaranteed, the later of:
1 The Policy Anniversary nearest the Insured's 70th
birthday or the 7th Policy Year
2 The Policy Anniversary nearest the Insured's 80th
birthday or the 10th Policy Year
3 The Policy Anniversary nearest the Insured's 95th
birthday.
Level 1 or 2 guarantees may be extended provided that the Policy's Cash
Surrender Value is sufficient and the Policyowner pays the new Minimum Required
Premium.
For Policies issued in New York, two guarantee periods are available:
1 The Policy Anniversary nearest the Insured's 75th birthday
or the 10th Policy Year
2 The Policy Anniversary nearest the Insured's 95th birthday.
o WHOLE LIFE EXCHANGE OPTION RIDER
This rider permits the Policyowner to exchange his Policy for a fixed
benefit whole life policy at the later of age 65 or Policy Year 15. There is
no charge for this rider.
o PURCHASE PROTECTION PLAN RIDER
Under this rider a Policyowner may, at predetermined future dates,
purchase additional insurance protection without evidence of insurability.
o LIVING BENEFITS RIDER
Under certain conditions, in the event of the terminal illness of the
Insured, an accelerated payment of up to 75% of the Policy's death benefit
(up to a maximum of $250,000) is available. The minimum face amount of the
Policy after any such accelerated benefit payment is $10,000. There is no
charge for this rider.
o CASH VALUE ACCUMULATION RIDER
This rider generally permits a Policyowner to pay more in premium than
otherwise would be permitted. This rider must be elected before the Policy
is issued. There is no charge for this rider.
MULTIPLE LIFE POLICIES:
o DISABILITY BENEFIT RIDER
In the case of disability of the Insured, a specified monthly amount may
be credited to the Policy and the monthly deductions will be waived. A
Disability Benefit Rider may be provided on any or all eligible Insureds.
The specified amount selected must be the same for all who elect coverage.
o SURVIVOR PURCHASE OPTION RIDER
The survivor(s) may purchase a new Multiple Life Policy for a face
amount equal to that of the original Policy upon the first death. The new
Policy will be based upon attained age rates.
o TERM INSURANCE RIDER
The Term Insurance Rider enables the face amount of coverage on each
life to be individually specified. A rider is available for each Insured and
the face amount of coverage under the rider may differ for each Insured.
Based upon the Policyowner's election at issue, the rider will provide
coverage for all Insureds to either age 70 or maturity of the Policy. The
termination age specified must be the same for all Insureds.
o POLICY EXCHANGE OPTION RIDER
The Multiple Life Policy may be exchanged for Single Life Policies where
the total face amount under the Policies is no greater than that under the
original Policy. There is no charge for this rider.
INVESTMENTS OF THE VUL ACCOUNT
- --------------------------------------------------------------------------------
PARTICIPATING MUTUAL FUNDS
THE PHOENIX EDGE SERIES FUND
Certain Subaccounts of the VUL Account invest in corresponding Series of
The Phoenix Edge Series Fund. The Fund currently has the following Series
available through the Policies:
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).
INTERNATIONAL SERIES: The investment objective of the International Series
is to seek a high total return consistent with reasonable risk. The
International Series intends to invest primarily in an internationally
diversified portfolio of equity securities. It intends to reduce its risk by
engaging in hedging transactions involving options, futures contracts and
foreign currency transactions. The International Series provides a means for
investors to invest a portion of their assets outside the United States.
BALANCED SERIES: The investment objective of the Balanced Series is to seek
reasonable income, long-term capital growth and conservation of capital. The
Balanced Series intends to invest based on combined considerations of risk,
income, capital enhancement and protection of capital value.
REAL ESTATE 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.
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<PAGE>
STRATEGIC THEME SERIES: The investment objective of the Strategic Theme
Series is to seek long-term appreciation of capital by identifying securities
benefiting from long-term trends present in the United States and abroad. The
Strategic Theme Series intends to invest primarily in common stocks believed to
have substantial potential for capital growth.
ASIA SERIES: The investment objective of the Asia Series is to seek
long-term capital appreciation. The Asia Series will invest primarily in a
diversified portfolio of equity securities of issuers organized and principally
operating in Asia, excluding Japan.
WANGER ADVISORS TRUST
Certain 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 will invest primarily in securities of
U.S. companies with total common stock market capitalization of less
than $1 billion.
WANGER INTERNATIONAL SMALL CAP ("INTERNATIONAL SMALL CAP") SERIES: The
investment objective of the International Small Cap Series is to provide
long-term growth. The International Small Cap will invest primarily in
securities of non-U.S. companies with total common stock market capitalization
of less than $1 billion.
Each Series will be subject to the market fluctuations and risks inherent in
the ownership of any security and there can be no assurance that any Series'
stated investment objective will be realized.
In addition to being sold to the VUL Account, shares of the Funds also are
sold to the Phoenix Home Life Variable Accumulation Account, a separate account
utilized by Phoenix to receive and invest premiums paid under certain variable
annuity contracts issued by Phoenix. Shares of the Fund also may be sold to
other separate accounts of Phoenix or its affiliates or of other insurance
companies.
It is conceivable that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the Fund(s) simultaneously. Although neither Phoenix nor the Fund(s)
currently foresees 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 Fund(s), 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. and Phoenix Multi-Portfolio Fund and as
subadviser to Phoenix Strategic Equity Series Fund (all Series other than
Equity Opportunities Series), 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, an indirect
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.
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 and to the American Phoenix Investment Portfolio.
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 September 30, 1996, Aberdeen Asset Management, and its
advisory subsidiaries, had approximately $4 billion in assets under management.
ABKB/LaSalle Securities Limited Partnership ("ABKB"), a subsidiary of
LaSalle Partners, serves as subadviser to the Real Estate Series. ABKB's
principal place of business is located at 100 East Pratt Street, Baltimore,
Maryland 21202. ABKB has been a registered investment adviser since 1979.
14
<PAGE>
INVESTMENT ADVISER TO THE WANGER ADVISORS TRUST
The investment adviser to the Wanger Advisors Trust is Wanger Asset
Management, L.P. Wanger's principal place of business is located at 227 West
Monroe Street, Suite 3000, Chicago, Illinois 60606.
The Adviser 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 Adviser and the Investment Advisory Agreements is contained
in the accompanying prospectus for the Fund.
REINVESTMENT AND REDEMPTION
All dividend distributions of the Fund are automatically reinvested in
shares of the Fund at their net asset value on the date of distribution; all
capital gains distributions of the Fund, if any, are likewise reinvested at the
net asset value on the record date. Phoenix redeems Fund shares at their net
asset value to the extent necessary to make payments under the Policy.
SUBSTITUTION OF INVESTMENTS
Phoenix reserves the right, subject to compliance with the law as currently
applicable or subsequently changed, to make additions to, deletions from, or
substitutions for the investments held by the VUL Account. In the future Phoenix
may establish additional Subaccounts within the VUL Account, each of which
will invest in shares of a designated portfolio of the Fund with a specified
investment objective. These portfolios will be established if, and when, in the
sole discretion of Phoenix, marketing needs and investment conditions warrant,
and will be made available under existing Policies to the extent and on a basis
to be determined by Phoenix.
If shares of any of the portfolios of the Fund should no longer be available
for investment, or if in the judgment of Phoenix's management further investment
in shares of any of the portfolios should become inappropriate in view of the
objectives of the Policy, then Phoenix may substitute shares of another mutual
fund for shares already purchased, or to be purchased in the future, under the
Policy. No substitution of mutual fund shares held by the VUL Account may take
place without prior approval of the Securities and Exchange Commission and prior
notice to the Policyowner. In the event of a substitution, the Policyowner will
be given the option of transferring the Policy Value of the 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 and federal taxes incurred on premiums received; (4) providing the
insurance benefits set forth in the Policy; and (5) assuming certain risks in
connection with the Policy. The nature and amount of these charges are described
more fully below.
1. MONTHLY DEDUCTION
A charge is deducted monthly from the Policy Value under a Policy ("monthly
deduction") to pay: the cost of insurance provided under the Policy, the cost of
any rider benefits provided, any unpaid balance of the issue expense charge, and
an administrative charge. This administrative charge is currently set at $5 per
month but it is guaranteed not to exceed $10 per month. The monthly deduction is
deducted on each Monthly Calculation Day. It is allocated among the
Subaccounts of the VUL Account and the unloaned portion of the GIA based on the
allocation schedule for monthly deductions specified by the applicant in the
application for a Policy or as later changed by the Policyowner. In the event
that the Policy's share in the value of the Subaccounts or the unloaned
portion of the GIA is insufficient to permit the withdrawal of the full monthly
deduction, the remainder will be taken on a proportionate basis from the
Policy's share of each of the other Subaccounts and the unloaned portion of
the GIA. The number of units deducted will be determined by dividing the portion
of the monthly deduction allocated to each Subaccount or to the unloaned
portion of the GIA by the unit value on the Monthly Calculation Day. Because
portions of the monthly deduction, such as the cost of insurance, can vary from
month to month, the monthly deduction itself may vary in amount from month to
month.
(A) ISSUE EXPENSE CHARGE. A cost-based issue administration
charge is assessed on a pro rata basis in equal monthly
installments over a 12-month period to compensate Phoenix
for underwriting and start-up expenses in connection with
issuing a Policy. For Multiple Life Policies, the issue
administrative charge is $150. For Single Life Policies, the
issue administrative charge is $1.50 per $1,000 of face
amount, up to a maximum charge of $600. Phoenix may
reduce or eliminate the Issue Expense Charge for Policies
issued under group or sponsored arrangements. Generally,
administrative costs per Policy vary with the size of the group
or sponsored arrangement, its stability as indicated by its
term of existence and certain characteristics of its members,
the purposes for which the Policies are purchased and other
factors. The amounts of any reductions will be considered on
a case-by-case basis and will reflect the reduced
administration costs expected as a result of sales to a
particular group or sponsored arrangement.
(B) COST OF INSURANCE. In order to calculate the cost of insurance
charge, Phoenix multiplies the applicable cost of insurance
rate by the difference between the death benefit selected
(death benefit Option 1 if no selection is made) and the Policy
Value. Generally, cost of insurance rates for Single Life
Policies are based on the sex, issue age, duration and risk
class; and for Multiple Life Policies the cost of insurance
rates are based on the sex, attained age and risk class of the
Insured(s). However, in certain states and for policies issued
in conjunction with certain qualified plans, cost of insurance
rates are not based on sex. The actual monthly cost of
insurance rates are based on Phoenix's expectations of future
mortality experience. They will not, however, be greater than
the guaranteed cost of insurance rates set forth in the Policy.
These guaranteed maximum rates are equal to 100% of the
1980 Commissioners Standard Ordinary ("CSO") Mortality
Table, with appropriate adjustment for the Insured's risk
classification. Any change in the cost of insurance rates will
apply to all persons of the same sex, insurance age and risk
class whose Policies have been In Force for the same length
of time. The risk class of an Insured may affect the cost of
15
<PAGE>
insurance rate. Phoenix currently places Insureds into a preferred or
standard risk class or a risk class involving a higher mortality risk,
depending upon the health of the Insured as determined by medical
information that Phoenix requests. In an otherwise identical Policy,
Insureds in the preferred or standard risk class will have a lower cost
of insurance than those in the risk class with the higher mortality
risk. The standard risk class also is divided into categories: smokers,
nonsmokers and those who have never smoked. Non-smokers will generally
incur a lower cost of insurance than similarly situated Insureds who
smoke. A blended cost of insurance rate is applied under Multiple Life
Policies.
2. PREMIUM TAXES
Various states and subdivisions impose a tax on premiums received by
insurance companies. Premium taxes vary from state to state. Currently, the
taxes imposed by states on premiums range from 0.75% to 4% of premiums paid.
Moreover, certain municipalities in Louisiana, Kentucky and South Carolina also
impose taxes on premiums paid, in addition to the state taxes imposed. The
premium tax charge represents an amount Phoenix considers necessary to pay all
premium taxes imposed by such states and any subdivisions thereof, and Phoenix
does not expect to derive a profit from this charge. Multiple Life Policies will
be assessed at the tax rate charged by the state in which the Policy is issued
and Single Life Policies will be assessed a charge equal to 2.25% of the
premiums paid. These taxes are deducted from the Issue Premium, and from each
subsequent premium payment.
3. FEDERAL TAX CHARGE
On Single Life Policies, a charge equal to 1.50% of each premium will be
deducted from each premium payment to cover the estimated cost to Phoenix of the
federal income tax treatment of deferred acquisition costs.
4. MORTALITY AND EXPENSE RISK CHARGE
Phoenix will deduct a daily charge from the VUL Account at an annual rate of
0.80% of the average daily net assets of the VUL Account to compensate for
certain risks assumed in connection with the Policy. For Single Life Policies, a
reduced annual rate of .25% will apply after the 15th Policy Year. This charge
is not deducted from the GIA.
The mortality risk assumed by Phoenix is that Insureds may live for a
shorter time than projected because of inaccuracies in that projecting process
and, accordingly, that an aggregate amount of death benefits greater than that
projected will be payable. The expense risk assumed is that expenses incurred in
issuing the Policies may exceed the limits on administrative charges set in the
Policies. If the expenses do not increase to an amount in excess of the limits,
or if the mortality projecting process proves to be accurate, Phoenix may profit
from this charge. Phoenix also assumes risks with respect to other contingencies
including the incidence of Policy loans, which may cause Phoenix to incur
greater costs than anticipated when designing the Policies. To the extent
Phoenix profits from this charge, it may use those profits for any proper
purpose, including the payment of sales expenses or any other expenses that may
exceed income in a given year.
5. INVESTMENT MANAGEMENT CHARGE
As compensation for investment management services to the Funds, the
Advisers are entitled to fees, payable monthly and based on an annual percentage
of the average aggregate daily net asset values of each Series as summarized in
the following tables:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market........ .40% .35% .30%
Multi-Sector........ .50% .45% .40%
Balanced............ .55% .50% .45%
Strategic Allocation .60% .55% .50%
Growth.............. .70% .65% .60%
International....... .75% .70% .65%
Strategic Theme..... .75% .70% .65%
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia................ 1.00%
PHOENIX REALTY SECURITIES, INC.
-------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate......... 0.75% .70% .65%
WANGER ASSET MANAGEMENT, L.P.
-----------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $100,000,000 $150,000,000 $250,000,000
- ------ ------------ ------------ ------------
U.S. Small Cap...... 1.00% .95% .90%
International
Small Cap........... 1.30% 1.20% 1.10%
In addition, each Series pays a portion or all of its other annual
operating expenses other than the management fees; the Growth, Multi-Sector,
Strategic Allocation, Money Market and Balanced Series will pay up to .15%; the
Real Estate, Strategic Theme and Asia Series will pay up to .25%; the
International Series will pay up to .40%; the Wanger U.S. Small Cap Series will
pay up to .50%; and the Wanger International Small Cap Series will pay up to
.60% of its average net assets annually. See "Charges and Deductions."
6. OTHER CHARGES
SURRENDER CHARGE
During the first ten Policy Years, there is a difference between the amount
of Policy Value and the amount of Cash Surrender Value of the Policy. This
difference is the surrender charge, consisting of a contingent deferred sales
charge designed to recover expenses for the distribution of Policies that are
terminated by surrender before distribution expenses have been recouped, and a
contingent deferred issue charge designed to recover expenses for the
administration of Policies that are terminated by surrender before
administrative expenses have been recouped. These are contingent charges because
they are paid only if the Policy is surrendered (or the face amount is reduced
or the Policy lapses) during this period. They are deferred charges because they
are not deducted from premiums.
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During the first ten Policy Years, the full Surrender Charge as described
below will apply if the Policyowner either surrenders the Policy for its Cash
Surrender Value or lets the Policy lapse. The applicable Surrender Charge in any
Policy Month is the full Surrender Charge minus any surrender charges that have
been previously paid. There is no Surrender Charge after the 10th Policy Year.
During the first two Policy Years on Single Life Policies and during the first
ten Policy Years on Multiple Life Policies, the maximum Surrender Charge that a
Policyowner could pay while he or she owns the Policy is equal to either A plus
B (as defined below) or the amount shown in the Policies Surrender Charge
Schedule, whichever is less. After the first two Policy Years on Single Life
Policies, the maximum Surrender Charge that a Policyowner could pay is based on
the amount shown in the Policy's Surrender Charge Schedule.
A (the contingent deferred sales charge) is equal to:
1) 28.5% of all premiums paid (up to and including the amount
stated in the Policy's Surrender Charge Schedule, which is
calculated according to a formula contained in a Securities and
Exchange Commission rule); plus
2) 8.5% of all premiums paid in excess of this amount but not
greater than twice this amount; plus
3) 7.5% of all premiums paid in excess of twice this amount.
B (the contingent deferred issue charge) is equal to:
$5 per $1,000 of initial face amount.
As an example, the following illustrates the maximum Surrender Charge on a
$100,000 Single Life Policy for a male age 35 who has never smoked, who has paid
$3,000 in premium payments, and who surrenders the Policy in the 70th Policy
Month. The Policy's Surrender Charge Schedule would show that the maximum
Surrender Charge to be paid would be equal to either A plus B (shown below) or
the amount shown in the chart in the Policy (also shown below), whichever is
less:
Example: If this Policyowner surrenders his policy in the 70th Policy
month his surrender charge will be $1,186.78, as given in the table.
Example: If this Policyowner surrenders his Policy in the first two years he
may be eligible to receive a refund of a portion of the surrender charge,
depending on the amount of premium paid, or in other words his surrender charge
may be reduced. The surrender charge in the first 2 years would be equal to the
lesser of the amount in the surrender charge table and the sum of the following:
1) 28.5% of premiums paid up to $1,076.72, plus
2) 8.5% of premiums paid in excess of $1,076.72 but not greater
than $2,153.43, plus
3) 7.5% of premiums paid in excess of $2,153.43, plus $500
If this Policyowner surrendered his Policy in the 2nd year after paying
$2,000 of premiums his surrender charge would be the lesser of $1,307.54 from
the table, and $385.34, thus equaling $385.34. Thus, in this case, the
Policyowner would pay less surrender charge if he surrenders his Policy in the
first 2 Policy Years.
SURRENDER CHARGE TABLE
----------------------
POLICY SURRENDER POLICY SURRENDER POLICY SURRENDER
MONTH CHARGE MONTH CHARGE MONTH CHARGE
----- ------ ----- ------ ----- ------
1-60 $1307.54 80 $1066.03 100 $727.09
61 1295.46 81 1053.95 101 690.65
62 1283.39 82 1041.88 102 654.22
63 1271.31 83 1029.80 103 617.78
64 1259.24 84 1017.73 104 581.35
65 1247.16 85 1005.65 105 544.91
66 1235.08 86 993.58 106 508.48
67 1223.01 87 981.50 107 472.05
68 1210.93 88 969.43 108 435.61
69 1198.86 89 957.35 109 399.18
70 1186.78 90 945.28 110 362.74
71 1174.71 91 933.20 111 326.31
72 1162.63 92 921.13 112 289.97
73 1150.56 93 909.05 113 253.44
74 1138.48 94 896.97 114 217.01
75 1126.41 95 884.90 115 180.57
76 1114.33 96 872.82 116 144.14
77 1102.26 97 836.39 117 107.70
78 1090.18 98 799.95 118 71.27
79 1078.10 99 763.52 119 34.83
120 .00
Phoenix may reduce the Surrender Charge for Policies issued under group or
sponsored arrangements. The amount of reduction will be considered on a
case-by-case basis and will reflect the reduced costs to Phoenix expected as a
result of sales to a particular group or sponsored arrangement.
PARTIAL SURRENDER FEE
A fee equal to the lesser of $25 or 2% of the amount withdrawn from the
Policy is deducted from the Policy Value upon a partial surrender of the Policy
to recover the actual costs of processing the partial surrender request. The
assessment to each Subaccount or to the GIA will be made in the same manner as
provided for the partial surrender amount paid. That is, that the Policy's share
in the value of each Subaccount or the GIA will be reduced based on the
allocation made at the time of the partial surrender. If no allocation request
is made, the assessment to each Subaccount and to the GIA will be made in the
same manner as provided for monthly deductions.
PARTIAL SURRENDER CHARGE
A charge as described below is deducted from the Policy Value upon a partial
surrender of the Policy. The charge is equal to a pro rata portion of the
applicable surrender charge that would apply to a full surrender, determined by
multiplying the applicable surrender charge by a fraction (equal to the partial
surrender amount payable divided by the result of subtracting the applicable
surrender charge from the Policy Value). This amount is assessed against the
Subaccounts or the GIA in the same manner as provided for with respect to the
partial surrender amount paid.
A partial surrender charge also is deducted from Policy Value upon a
decrease in face amount. The charge is equal to the applicable surrender charge
multiplied by a fraction (equal to the decrease in face amount divided by the
face amount of the Policy prior to the decrease).
TAXES
Currently no charge is made to the VUL Account for federal income taxes that
may be attributable to the VUL Account. Phoenix may, however, make such a charge
in the future. Charges for other
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taxes, if any, attributable to the VUL Account also may be made. See
"Charges and Deductions--Other Charges."
GENERAL PROVISIONS
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POSTPONEMENT OF PAYMENTS
GENERAL
Payment of any amount upon complete or partial surrender, Policy loan, or
benefits payable at death (in excess of the initial face amount) or maturity may
be postponed: (i) for up to six months from the date of the request, for any
transactions dependent upon the value of the GIA; (ii) whenever the New York
Stock Exchange is closed other than for customary weekend and holiday closings,
or trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission; or (iii) whenever an emergency exists, as
determined by the Commission as a result of which disposal of securities is not
reasonably practicable or it is not reasonably practicable to determine the
value of the VUL Account's net assets. Transfers also may be postponed under
these circumstances.
PAYMENT BY CHECK
Payments under the Policy of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared the Policyowner's bank.
THE CONTRACT
The Policy and attached copy of the application are the entire contract.
Only statements in the application can be used to void the Policy. The
statements are considered representations and not warranties. Only an executive
officer of Phoenix can agree to change or waive any provisions of the Policy.
SUICIDE
If the Insured commits suicide within two years after the Policy's Date of
Issue, Phoenix will pay only the Policy Value adjusted by the addition of any
monthly deductions and other fees and charges made under the Policy and the
subtraction of any Debt owed to Phoenix under the Policy.
INCONTESTABILITY
Phoenix cannot contest this Policy or any attached rider after it has been
In Force during the lifetime of the Insured for two years from the Policy Date.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently changed,
will receive the Policy benefits at the Insured's death. If the named
Beneficiary dies before the Insured, the contingent Beneficiary, if named,
becomes the Beneficiary. If no Beneficiary survives the Policyowner, the
benefits payable at the Insured's death will be paid to the Policyowner's
estate.
As long as the Policy is In Force, the Policyowner and the
Beneficiary may be changed by Written Request, satisfactory to
Phoenix. A change in Beneficiary will take effect as of the date the
notice is signed, whether or not the Insured is living when the notice
is received by Phoenix. Phoenix will not, however, be liable for any
payment made or action taken before receipt of the notice.
ASSIGNMENT
The Policy may be assigned. Phoenix will not be bound by the assignment
until a written copy has been received and will not be liable with respect to
any payment made prior to receipt. Phoenix assumes no responsibility for
determining whether an assignment is valid.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the death benefit will
be adjusted based on what the cost of insurance charge for the most recent
monthly deduction would have purchased based on the correct age and sex.
SURPLUS
Policyowners may share in divisible surplus of Phoenix to the extent
determined annually by the Phoenix Board of Directors. However, it is not
currently anticipated that the Board will authorize these payments since
Policyowners will be participating directly in investment results.
PAYMENT OF PROCEEDS
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SURRENDER AND DEATH BENEFIT PROCEEDS
Death benefit proceeds and the proceeds of full or partial surrenders will
be processed at unit values next computed after Phoenix receives the request for
surrender or due proof of death, provided such request is complete and in good
order. Payment of surrender or death proceeds usually will be made in one lump
sum within seven days, unless another payment option has been elected. Payment
of the death proceeds, however, may be delayed if the claim for payment of the
death proceeds needs to be investigated; e.g., to ensure payment of the proper
amount to the proper payee. Any such delay will not be beyond that reasonably
necessary to investigate such claims consistent with insurance practices
customary in the life insurance industry. Under a Policy covering multiple
lives, the death proceeds will be paid upon the first death under the Policy. In
addition, under certain conditions, in the event of the terminal illness of the
Insured, an accelerated payment of up to 75% of the Policy's Death Benefit (up
to maximum of $250,000), is available under the Living Benefits Rider. The
minimum face amount remaining after any such accelerated benefit payment is
$10,000.
While the Insured is living, the Policyowner may elect a payment option for
payment of the death proceeds to the Beneficiary. The Policyowner may revoke or
change a prior election, unless such right has been waived. The Beneficiary may
make or change an election prior to payment of the death proceeds, unless the
Policyowner has made an election which does not permit such further election or
changes by the Beneficiary.
A written form satisfactory to Phoenix is required to elect, change, or
revoke a payment option.
The minimum amount of surrender or death proceeds that may be applied under
any income option is $1,000.
If the Policy is assigned as collateral security, Phoenix will pay any
amount due the assignee in one lump sum. Any remaining proceeds will remain
under the option elected.
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<PAGE>
PAYMENT OPTIONS
All or part of the surrender or death proceeds of a Policy may be applied
under one or more of the following payment options or such other payment options
or alternative versions of the options listed as Phoenix may choose to make
available in the future.
OPTION 1--LUMP SUM.
Payment in one lump sum.
OPTION 2--LEFT TO EARN INTEREST.
A payment of interest during the payee's lifetime on the amount payable as a
principal sum. Interest rates are guaranteed to be at least 3% per year.
OPTION 3--PAYMENT FOR A SPECIFIC PERIOD.
Equal income installments are paid for a specified period of years whether
the payee lives or dies. The first payment will be on the date of settlement.
The assumed interest rate on the unpaid balance is guaranteed not to be less
than 3% per year.
OPTION 4--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN.
Equal installments are paid until the later of: (A) The death of the
payee; (B) The end of the period certain. The first payment will be on the date
of settlement. The period certain must be chosen at the time this option is
elected. The periods certain that may be chosen are as follows: (A) Ten years;
(B) Twenty years; (C) Until the installments paid refund the amount applied
under this option; and if the payee is not living when the final payment falls
due, that payment will be limited to the amount which needs to be added to the
payments already made to equal the amount applied under this option. If, for the
age of the payee, a period certain is chosen that is shorter than another period
certain paying the same installment amount, Phoenix will deem the longer period
certain as having been elected. Any life annuity provided under Option 4 is
calculated using an interest rate guaranteed to be no less than 3 3/8% per year,
except that any life annuity providing a period certain of 20 years or more is
calculated using an interest rate guaranteed to be no less than 3 1/4% per year.
OPTION 5--LIFE ANNUITY.
Equal installments are paid only during the lifetime of the payee. The first
payment will be on the date of settlement. Any life annuity as may be provided
under Option 5 is calculated using an interest rate guaranteed to be no less
than 3 1/2% per year.
OPTION 6--PAYMENTS OF A SPECIFIED AMOUNT.
Equal installments of a specified amount, out of the principal sum and
interest on that sum, are paid until the principal sum remaining is less than
the amount of the installment. When that happens, the principal sum remaining
with accrued interest will be paid as a final payment. The first payment will be
on the date of settlement. The payments will include interest on the principal
sum remaining at a rate guaranteed to be at least equal 3% per year. This
interest will be credited at the end of each year. If the amount of interest
credited at the end of the year exceeds the income payments made in the last 12
months, that excess will be paid in one sum on the date credited.
OPTION 7--JOINT SURVIVORSHIP ANNUITY WITH 10 YEAR PERIOD CERTAIN.
The first payment will be on the date of settlement. Equal income
installments are paid until the latest of: (A) the end of the 10-year period
certain; (B) the death of the Insured; (C) the death of the other named
annuitant. The other annuitant must be named at the time this option is elected
and cannot later be changed. The other annuitant must have an attained age of at
least 40. Any joint survivorship annuity as may be provided under this option is
calculated using an interest rate guaranteed to be no less than 3 3/8% per year.
For additional information concerning the above payment options,
see the Policy.
FEDERAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
INTRODUCTION
The ultimate effect of federal income taxes on values under the VUL Account
and on the economic benefit to the Policyowner or Beneficiary depends on
Phoenix's tax status and upon the tax status of the individual concerned. The
discussion contained herein is general in nature and is not intended as tax
advice. For complete information on federal and state tax considerations, a
qualified tax adviser should be consulted. No attempt is made to consider any
estate and inheritance taxes, or any state, local or other tax laws. Because the
discussion herein is based upon Phoenix's understanding of federal income tax
laws as they are currently interpreted, Phoenix cannot guarantee the tax status
of any Policy. No representation is made regarding the likelihood of
continuation of current federal income tax laws, Treasury regulations, or of the
current interpretations by the Internal Revenue Service. Phoenix reserves the
right to make changes to the Policy in order to assure that it will continue to
qualify as a life insurance contract for federal income tax purposes.
PHOENIX'S TAX STATUS
Phoenix is taxed as a life insurance company under the Internal Revenue Code
of 1986, as amended (the "Code"). For federal income tax purposes, neither the
VUL Account nor the GIA is a separate entity from Phoenix and their operations
form a part of Phoenix.
Investment income and realized capital gains on the assets of the VUL
Account are reinvested and taken into account in determining the value of the
VUL Account. Investment income of the VUL Account, including realized net
capital gains, is not taxed to Phoenix. Due to Phoenix's tax status under
current provisions of the Code, no charge currently will be made to the VUL
Account for Phoenix's federal income taxes which may be attributable to the VUL
Account. Phoenix reserves the right to make a deduction for taxes if the federal
tax treatment of Phoenix is determined to be other than what Phoenix currently
believes it to be, if changes are made affecting the tax treatment to Phoenix of
variable life insurance contracts, or if changes occur in Phoenix's tax status.
If imposed, such charge would be equal to the federal income taxes attributable
to the investment results of the VUL Account.
POLICY BENEFITS
DEATH BENEFIT PROCEEDS. The Policy, whether or not it is a "modified
endowment contract" (see the discussion on modified endowment contracts below),
should be treated as meeting the definition of a life insurance contract for
federal income tax purposes, under Section 7702 of the Code. As such, the death
benefit proceeds thereunder should be excludable from the gross income of the
Beneficiary under Code Section 101(a)(1). Also, the Policyowner should not be
deemed to be in constructive receipt of the Cash Value, including increments
thereon. See, however, the sections below on possible taxation of amounts
received under the Policy, via full
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<PAGE>
surrender, partial surrender or loan. In addition, a benefit paid under a Living
Benefit Rider may be taxable as income in the year of receipt.
Code Section 7702 imposes certain conditions with respect to premiums
received under a Policy. Phoenix intends to monitor the premiums to assure
compliance with such conditions. However, in the event that the premium
limitation is exceeded during the year, Phoenix may return the excess premium,
with interest, to the Policyowner within 60 days after the end of the Policy
Year, and maintain the qualification of the Policy as life insurance for federal
income tax purposes.
FULL SURRENDER. Upon full surrender of a Policy for its Cash Value, the
excess, if any, of the Cash Value (unreduced by any outstanding indebtedness)
over the premiums paid will be treated as ordinary income for federal income tax
purposes. The full surrender of a Policy which is a "modified endowment
contract" may result in the imposition of an additional 10% tax on any income
received.
PARTIAL SURRENDER. If the Policy is a "modified endowment contract," partial
surrenders are fully taxable to the extent of income in the Policy and are
possibly subject to an additional 10% tax. See the discussion on "modified
endowment contracts" below. If the Policy is not a "modified endowment
contract," partial surrenders still may be taxable, as follows. Code Section
7702(f)(7) provides that where a reduction in death benefits occurs during the
first 15 years after a Policy is issued and there is a cash distribution
associated with that reduction, the Policyowner may be taxed on all or a part of
the amount distributed. A reduction in death benefits may result from a partial
surrender. After 15 years, the proceeds will not be subject to tax, except to
the extent such proceeds exceed the total amount of premiums paid but not
previously recovered. Phoenix suggests you consult with your tax adviser in
advance of a proposed decrease in death benefits or a partial surrender as to
the portion, if any, which would be subject to tax, and in addition as to the
impact such partial surrender might have under the new rules affecting "modified
endowment contracts." The benefit payment under the Living Benefits Rider is not
considered a partial surrender.
LOANS. Phoenix believes that any loan received under a Policy will be
treated as indebtedness of the Policyowner. If the Policy is a "modified
endowment contract," loans are fully taxable to the extent of income in the
Policy and are possibly subject to an additional 10% tax. See the discussion on
"modified endowment contracts" below. If the Policy is not a "modified endowment
contract," Phoenix believes that no part of any loan under a Policy will
constitute income to the Policyowner.
The deductibility by the Policyowner of loan interest under a Policy may be
limited under Code Section 264, depending on the circumstances. Any Policyowner
intending to fund premium payments through borrowing should consult a tax
adviser with respect to the tax consequences thereof. Under the "personal"
interest limitation provisions of the Code, interest on Policy loans used for
personal purposes is not tax deductible. Other rules may apply to allow all or
part of the interest expense as a deduction if the loan proceeds are used for
"trade or business" or "investment" purposes. See your tax adviser for further
guidance.
BUSINESS-OWNED POLICIES
If the Policy is owned by a business or a corporation, the Code may impose
additional restrictions. The Code limits the interest deduction on
business-owned Policy loans and may impose tax upon the inside build-up of
corporate-owned life insurance policies through the corporate alternative
minimum tax.
MODIFIED ENDOWMENT CONTRACTS
GENERAL. Pursuant to Code Section 72(e), loans and other amounts received
under "modified endowment contracts" will, in general, be taxed to the extent of
accumulated income (generally, the excess of Cash Value over premiums paid).
Policies are "modified endowment contracts" if they meet the definition of life
insurance, but fail the "7-pay test." This test essentially provides that the
cumulative premiums paid under the Policy at any time during the Policy's first
seven years cannot exceed the sum of the net level premiums that would have been
paid on or before that time had the Policy provided for paid-up future benefits
after the payment of seven level annual premiums. In addition, a modified
endowment contract includes any life insurance contract that is received in
exchange for a modified endowment contract. Premiums paid during a Policy Year
that are returned by Phoenix (with interest) within 60 days after the end of the
Policy Year will not cause the Policy to fail the 7-pay test.
REDUCTION IN BENEFITS DURING THE FIRST SEVEN YEARS. If there is a reduction
in benefits during the first seven Policy Years, the premiums are redetermined
for purposes of the 7-pay test as if the Policy originally had been issued at
the reduced death benefit level and the new limitation is applied to the
cumulative amount paid for each of the first seven Policy Years.
DISTRIBUTIONS AFFECTED. If a Policy fails to meet the 7-pay test, it is
considered a modified endowment contract only as to distributions in the year in
which the death benefit reduction takes effect and all subsequent Policy Years.
However, distributions made in anticipation of such failure (there is a
presumption that distributions made within two years prior to such failure were
"made in anticipation") also are considered distributions under a modified
endowment contract. If the Policy satisfies the "7-pay test" for seven years,
distributions and loans generally will not be subject to the modified endowment
contract rules.
PENALTY TAX. Any amounts taxable under the modified endowment contract rule
will be subject to an additional 10% excise tax, with certain exceptions. This
additional tax will not apply in the case of distributions: (i) made on or after
the taxpayer attains age 59 1/2; (ii) which are attributable to the taxpayer's
disability (within the meaning of Code Section 72(m)(7)); or (iii) which are
part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the taxpayer or the
joint lives (or life expectancies) of the taxpayer and his Beneficiary.
MATERIAL CHANGE RULES. Any determination of whether the Policy meets the
"7-pay test" will begin again any time the Policy undergoes a "material change,"
which includes any increase in death benefits or any increase in or addition of
a qualified additional benefit, with the following two exceptions. First, if an
increase is attributable to premiums paid "necessary to fund" the lowest death
benefit and qualified additional benefits payable in the first seven Policy
Years or to the crediting of interest or dividends with respect to these
premiums, the "increase" does not constitute a material change. Second, to the
extent provided in regulations, if the death benefit or qualified additional
benefit increases as a result of a cost-of-living adjustment based on an
established broad-based index specified in
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<PAGE>
the Policy, this does not constitute a material change if (1) the cost-of-living
determination period does not exceed the remaining premium payment period under
the Policy, and (2) the cost-of-living increase is funded ratably over the
remaining premium payment period of the Policy. A reduction in death benefits is
not considered a material change unless accompanied by a reduction in premium
payments.
A material change may occur at any time during the life of the Policy
(within the first seven years or thereafter), and future taxation of
distributions or loans would depend upon whether the Policy satisfied the
applicable "7-pay test" from the time of the material change. An exchange of
policies is considered to be a material change for all purposes.
SERIAL PURCHASE OF MODIFIED ENDOWMENT CONTRACTS. All modified endowment
contracts issued by the same insurer (or affiliated companies of the insurer) to
the same Policyowner within the same calendar year will be treated as one
modified endowment contract in determining the taxable portion of any loans or
distributions made to the Policyowner. The Treasury has been given specific
legislative authority to issue regulations to prevent the avoidance of the new
distribution rules for modified endowment contracts. A qualified tax adviser
should be consulted about the tax consequences of the purchase of more than one
modified endowment contract within any calendar year.
LIMITATIONS ON UNREASONABLE MORTALITY AND EXPENSE CHARGES
The Code imposes limitations on unreasonable mortality and
expense charges for purposes of ensuring that a Policy qualifies as a life
insurance contract for federal income tax purposes. The mortality charges taken
into account to calculate permissible premium levels may not exceed those
charges required to be used in determining the federal income tax reserve for
the Policy, unless Treasury regulations prescribe a higher level of charge. In
addition, the expense charges taken into account under the guideline premium
test are required to be reasonable, as defined by the Treasury regulations.
Phoenix intends to comply with the limitations in calculating the premium it is
permitted to receive from the Policyowner.
QUALIFIED PLANS
A Policy may be used in conjunction with certain qualified plans. Since the
rules governing such use are complex, a purchaser should not use the Policy in
conjunction with a qualified plan until he has consulted a competent pension
consultant or tax adviser.
DIVERSIFICATION STANDARDS
To comply with the diversification regulations under Code Section 817(h),
("Diversification Regulations") each Series of the Fund is required to
diversify its investments. The Diversification Regulations generally require
that on the last day of each quarter of a calendar year no more than 55% of the
value of the Funds' assets is represented by any one investment, no more than
70% is represented by any two investments, no more than 80% is represented by
any three investments, and no more than 90% is represented by any four
investments. A "look-through" rule applies to treat a pro rata portion of each
asset of the Funds as an asset of the VUL Account; therefore, each Series of
the Funds will be tested for compliance with the percentage limitations. For
purposes of these diversification rules, all securities of the same issuer are
treated as a single investment, but each United States Government agency or
instrumentality is treated as a separate issuer.
The general diversification requirements are modified if any of the assets
of the VUL Account are direct obligations of the United States Treasury. In this
case, there is no limit on the investment that may be made in United States
Treasury securities, and for purposes of determining whether assets other than
United States Treasury securities are adequately diversified, the generally
applicable percentage limitations are increased based on the value of the VUL
Account's investment in United States Treasury securities. Notwithstanding this
modification of the general diversification requirements, the portfolios of the
Fund will be structured to comply with the general diversification standards
because they serve as an investment vehicle for certain variable annuity
contracts which must comply with these standards.
In connection with the issuance of the Diversification Regulations, the
Treasury announced that such regulations do not provide guidance concerning the
extent to which policyowners may direct their investments to particular
divisions of a separate account. It is possible that a revenue ruling or other
form of administrative pronouncement in this regard may be issued in the near
future. It is not clear, at this time, what such a revenue ruling or other
pronouncement will provide. It is possible that the Policy may need to be
modified to comply with such future Treasury announcements. For these reasons,
Phoenix reserves the right to modify the Policy, as necessary, to prevent the
Policyowner from being considered the owner of the assets of the VUL Account.
Phoenix intends to comply with the Diversification Regulations to assure
that the Policies continue to qualify as a life insurance contract for federal
income tax purposes.
CHANGE OF OWNERSHIP OR INSURED OR ASSIGNMENT
Changing the Policyowner or the Insured or an exchange or
assignment of the Policy may have tax consequences depending on the
circumstances. Code Section 1035 provides that a life insurance contract can be
exchanged for another life insurance contract, without recognition of gain or
loss, assuming that no money or other property is received in the exchange, and
that the policies relate to the same Insured. If the surrendered policy is
subject to a policy loan, this may be treated as the receipt of money on the
exchange. Phoenix recommends that any person contemplating such actions seek the
advice of a qualified tax consultant.
OTHER TAXES
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership, or receipt of Policy proceeds depend on
the circumstances of each Policyowner or Beneficiary. Phoenix does
not make any representations or guarantees regarding the tax
consequences of any Policy with respect to these types of taxes.
VOTING RIGHTS
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THE FUNDS
Phoenix will vote the Funds' shares held by the Sub-accounts of
the VUL Account at any regular and special meetings of shareholders
of the Funds. To the extent required by law, such voting will be in
accordance with instructions received from the Policyowner. However,
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<PAGE>
if the Investment Company Act of 1940 or any regulation thereunder should be
amended or if the present interpretation thereof should change, and as a result
Phoenix determines that it is permitted to vote the Funds' shares at its own
discretion, it may elect to do so.
The number of votes that a Policyowner has the right to cast will be
determined by applying the Policyowner's percentage interest in a Subaccount
to the total number of votes attributable to the Subaccount. In determining
the number of votes, fractional shares will be recognized.
Funds shares held in a Subaccount for which no timely instructions are
received, and Funds shares which are not otherwise attributable to Policyowners,
will be voted by Phoenix in proportion to the voting instructions that are
received with respect to all Policies participating in that Subaccount. Voting
instructions to abstain on any item to be voted upon will be applied to reduce
the votes eligible to be cast by Phoenix.
Each Policyowner will receive proxy materials, reports, and other materials
relating to the Funds.
Phoenix may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the sub-classification or investment objective
of one or more of the portfolios of the Funds or to approve or disapprove an
investment advisory contract for the Funds. In addition, Phoenix itself may
disregard voting instructions in favor of changes initiated by a Policyowner in
the investment policies or the Investment Adviser of the Funds if Phoenix
reasonably disapproves of such changes. A change would be disapproved only if
the proposed change is contrary to state law or prohibited by state regulatory
authorities or Phoenix determined that the change would have an adverse effect
on the General Account because the proposed investment policy for a portfolio
may result in overly speculative or unsound investments. In the event Phoenix
does disregard voting instructions, a summary of that action and the reasons for
such action will be included in the next periodic report to Policyowners.
PHOENIX
A Policyowner (or the payee entitled to payment under a payment option if a
different person) will have the right to vote at annual meetings of all Phoenix
Policyholders for the election of members of the Board of Directors of Phoenix
and on other corporate matters, if any, where a Policyholder's vote is taken. At
meetings of all of the Phoenix Policyholders, a Policyholder (or payee) may cast
only one vote as the holder of a Policy, irrespective of Policy Value or the
number of the Policies held.
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX
- --------------------------------------------------------------------------------
Phoenix is managed by its Board of Directors, the members of which are
elected by its Policyholders, including Owners of the Policies. See "Voting
Rights."
The following are the Directors and Executive Officers of Phoenix:
DIRECTORS PRINCIPAL OCCUPATION
Sal H. Alfiero Chairman and Chief Executive
Officer, Mark IV Industries, Inc.
Amherst, New York
J. Carter Bacot Chairman and Chief Executive
Officer, The Bank of New York
New York, New York
Carol H. Baldi President, Carol H. Baldi, Inc.
New York, New York
Peter C. Browning 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
22
<PAGE>
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
Randall C. Giangiulio Senior Vice President, Group Sales
Joan E. Herman Senior Vice President
Edward P. Hourihan Senior Vice President, Information
Systems
Joseph E. Kelleher Senior Vice President
Robert G. Lautensack, Jr. Senior Vice President
Scott C. Noble Senior Vice President, Real Estate
Robert E. Primmer Senior Vice President, Brokerage
and PPGA
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 Securities and Exchange Commission under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. PEPCO serves as national distributor of the Policies. PEPCO is an
indirect subsidiary of Phoenix Duff & Phelps Corporation. Phoenix owns a
majority interest in Phoenix Duff & Phelps Corporation. Policies also may be
purchased from other broker-dealers registered under the Securities Exchange Act
of 1934 whose representatives are authorized by applicable law to sell Policies
under terms of agreements provided by PEPCO. Sales commissions will be paid to
registered representatives on purchase payments received by Phoenix under these
Policies. Total sales commission of a maximum of 50% of premiums will be paid by
Phoenix to PEPCO. To the extent that the sales charge under the Policies is less
than the sales commissions paid with respect to the Policies, Phoenix will pay
the shortfall from its general account assets, which will include any profits it
may derive under the Policies.
Phoenix through PEPCO will sponsor sales contests, training and educational
meetings and provide to all qualifying dealers, from its own profits and
resources, additional compensation in the form of trips, merchandise or expense
reimbursement. Brokers and dealers other than PEPCO also may make customary
additional charges for their services in effecting purchases, if they notify the
Fund of their intention to do so.
STATE REGULATION
- --------------------------------------------------------------------------------
Phoenix is subject to the provisions of the New York insurance laws
applicable to mutual life insurance companies and to regulation and supervision
by the New York Superintendent of Insurance. Phoenix also is subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of Phoenix includes certain limitations on the
investments which it may make, including investments for the VUL
Account and the GIA. It does not include, however, any supervision
over the investment policies of the VUL Account.
REPORTS
- --------------------------------------------------------------------------------
All Policyowners will be furnished with those reports required by the
Investment Company Act of 1940 and regulations promulgated thereunder, or under
any other applicable law or regulation.
23
<PAGE>
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The VUL Account is not engaged in any litigation. Phoenix is not
involved in any litigation that would have a material adverse effect on
the ability of Phoenix to meet its obligations under the Policies.
LEGAL MATTERS
- --------------------------------------------------------------------------------
The organization of Phoenix, its authority to issue variable life insurance
Policies, and the validity of the Policy have been passed upon by Richard J.
Wirth, Counsel, Phoenix. Legal matters relating to the federal securities and
income tax laws have been passed upon for Phoenix by Jorden Burt Berenson &
Johnson, LLP.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is made for further
information concerning the VUL Account, Phoenix and the Policy. Statements
contained in this Prospectus as to the content of the Policy and other legal
instruments are summaries. For a complete statement of the terms thereof,
reference is made to such instruments as filed.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Phoenix contained herein should be
considered only as bearing upon Phoenix's ability to meet its obligations under
the Policy, and they should not be considered as bearing on the investment
performance of the VUL Account. The financial statements of the VUL Account are
for the Subaccounts available as of the period ended December 31, 1996.
24
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
25
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants .........................................27
Consolidated Balance Sheets at December 31, 1996 and 1995 ..................28
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 .........................................29
Consolidated Statements of Equity for the Years Ended
December 31, 1996, 1995 and 1994 .........................................30
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 ..........................................31
Notes to Consolidated Financial Statements ..............................32-59
26
<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.
28
<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.
29
<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.
30
<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.
31
<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.
32
<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.
33
<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.
34
<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.
35
<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.
36
<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.
37
<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>
38
<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>
39
<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.
40
<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.
41
<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
======================= =====================
42
<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.
43
<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.
44
<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>
45
<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.
46
<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.
47
<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
================== ================
48
<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>
49
<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.
50
<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.
51
<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%.
52
<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>
53
<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.
54
<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
===================== ==================
55
<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.
56
<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.
57
<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>
58
<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
================= ==============
59
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1966
60
<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 $15,544,730 $160,303,827 $10,844,154
============ ============= ============
Investment in The Phoenix Edge Series Fund, at market $15,544,730 $172,867,410 $11,235,197
------------ ------------- ------------
Total assets 15,544,730 172,867,410 11,235,197
Liabilities
Accrued expenses to related party 10,037 117,203 7,117
------------ ------------- ------------
Net assets $15,534,693 $172,750,207 $11,228,080
============ ============= ============
Accumulation units outstanding 11,249,319 49,375,885 5,378,886
============ ============= ============
Unit value $ 1.380945 $ 3.498676 $ 2.087436
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- --------------- --------------
<S> <C> <C> <C>
Assets
Investments at cost $26,014,458 $29,445,731 $15,234,036
============ ============= ============
Investment in The Phoenix Edge Series Fund, at market $26,284,915 $34,077,443 $16,229,448
------------ ------------- ------------
Total assets 26,284,915 34,077,443 16,229,448
Liabilities
Accrued expenses to related party 17,792 22,074 10,955
------------ ------------- ------------
Net assets $26,267,123 $34,055,369 $16,218,493
============ ============= ============
Accumulation units outstanding 11,308,615 20,903,950 10,696,397
============ ============= ============
Unit value $ 2.322753 $ 1.629136 $ 1.516258
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account
-------------- --------------- --------------
<S> <C> <C> <C>
Assets
Investments at cost $ 776,588 $ 1,798,845 $ 1,949,771
============ ============= ============
Investment in The Phoenix Edge Series Fund, at market 888,425 $ 1,807,108 $ 1,942,818
------------ ------------- ------------
Total assets 888,425 1,807,108 1,942,818
Liabilities
Accrued expenses to related party 532 1,164 1,267
------------ ------------- ------------
Net assets $ 887,893 $1,805,944 $ 1,941,551
============ ============= ============
Accumulation units outstanding 680,458 1,805,464 1,943,140
============ ============= ============
Unit value $ 1.304846 $ 1.000266 $ 0.999182
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Wanger
International Wanger U.S.
Small Cap Small Cap
Sub-Account Sub-Account
--------------- --------------
<S> <C> <C>
Assets
Investments at cost $ 292,575 $ 457,996
============= ============
Investment in Wanger Advisors Trust, at market $ 296,436 $ 467,062
------------- ------------
Total assets 296,436 467,062
Liabilities
Accrued expenses to related party 30 65
------------- ------------
Net assets 296,406 $ 466,997
============= ============
Accumulation units outstanding 288,603 449,762
============= ============
Unit value $ 1.027036 $ 1.038320
============= ============
</TABLE>
See Notes to Financial Statements
61
<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 $655,710 $ 1,444,275 $661,909
Expenses
Mortality and expense risk charges 107,332 1,163,001 68,413
------------ ------------ ------------
Net investment income 548,378 281,274 593,496
------------ ------------ ------------
Net realized gain (loss) from share transactions -- 8,095 (969)
Net realized gain distribution from Fund -- 11,412,411 327,845
Net unrealized appreciation on investment -- 4,791,630 43,393
------------ ------------ ------------
Net gain (loss) on investments -- 16,212,136 370,269
------------ ------------ ------------
Net increase in net assets resulting from operations $548,378 $16,493,410 $963,765
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- --------------- --------------
<S> <C> <C> <C>
Investment income
Distributions $ 510,723 $ 464,006 $ 413,757
Expenses
Mortality and expense risk charges 186,170 218,684 117,681
------------ ------------- ------------
Net investment income 324,553 245,322 296,076
------------ ------------- ------------
Net realized gain (loss) from share transactions 4,963 (444) (2,312)
Net realized gain distribution from Fund 1,617,750 747,938 1,396,484
Net unrealized appreciation (depreciation) on investment (91,227) 3,401,467 (304,864)
------------ ------------- ------------
Net gain on investments 1,531,486 4,148,961 1,089,308
------------ ------------- ------------
Net increase in net assets resulting from operations $1,856,039 $4,394,283 $1,385,384
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account(1) Sub-Account(1) Sub-Account(2)
--------------- --------------- ---------------
<S> <C> <C> <C>
Investment income
Distributions $ 10,511 $ 5,636 $10,080
Expenses
Mortality and expense risk charges 2,005 4,726 2,998
------------- ------------- --------------
Net investment income 8,506 910 7,082
------------- ------------- --------------
Net realized gain from share transactions 13,393 1,002 919
Net realized gain distribution from Fund 9,253 -- --
Net unrealized appreciation (depreciation) on investment 111,837 8,263 (6,953)
------------- ------------- --------------
Net gain (loss) on investments 134,483 9,265 (6,034)
------------- ------------- --------------
Net increase in net assets resulting from operations $142,989 $10,175 $ 1,048
============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Wanger Wanger
International U.S.
Small Cap Small Cap
Sub-Account(3) Sub-Account(3)
----------------- -----------------
<S> <C> <C>
Investment income
Distributions $ -- $ --
Expenses
Mortality and expense risk charges 30 65
----------------- -----------------
Net investment loss (30) (65)
----------------- -----------------
Net realized gain from share transactions -- 29
Net realized gain distribution from Fund -- --
Net unrealized appreciation on investment 3,861 9,066
----------------- -----------------
Net gain on investments 3,861 9,095
----------------- -----------------
Net increase in net assets resulting from operations $3,831 $9,030
================= =================
(1) From inception May 1, 1996 to December 31, 1996
(2) From inception September 18, 1996 to December 31, 1996
(3) From inception December 18, 1996 to December 31, 1996
</TABLE>
See Notes to Financial Statements
62
<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 $ 548,378 $ 281,274 $ 593,496
Net realized gain (loss) -- 11,420,506 326,876
Net unrealized appreciation -- 4,791,630 43,393
------------- ------------- ------------
Net increase in net assets resulting from operations 548,378 16,493,410 963,765
------------- ------------- ------------
From accumulation unit transactions
Participant deposits 26,004,635 47,202,324 2,811,259
Participant transfers (21,268,222) 10,438,285 1,823,625
Participant withdrawals (3,701,639) (19,333,192) (1,071,344)
------------- ------------- ------------
Net increase in net assets resulting from participant
transactions 1,034,774 38,307,417 3,563,540
------------- ------------- ------------
Net increase in net assets 1,583,152 54,800,827 4,527,305
Net assets
Beginning of period 13,951,541 117,949,380 6,700,775
------------- ------------- ------------
End of period $ 15,534,693 $172,750,207 $11,228,080
============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- --------------- --------------
<S> <C> <C> <C>
From operations
Net investment income $ 324,553 $ 245,322 $ 296,076
Net realized gain 1,622,713 747,494 1,394,172
Net unrealized appreciation (depreciation) (91,227) 3,401,467 (304,864)
------------ ------------- ------------
Net increase in net assets resulting from operations 1,856,039 4,394,283 1,385,384
------------ ------------- ------------
From accumulation unit transactions
Participant deposits 6,031,095 8,480,853 3,636,746
Participant transfers 1,002,380 3,847,285 (651,439)
Participant withdrawals (2,871,670) (3,414,225) (1,868,673)
------------ ------------- ------------
Net increase in net assets resulting from participant
transactions 4,161,805 8,913,913 1,116,634
------------ ------------- ------------
Net increase in net assets 6,017,844 13,308,196 2,502,018
Net assets
Beginning of period 20,249,279 20,747,173 13,716,475
------------ ------------- ------------
End of period $26,267,123 $34,055,369 $16,218,493
============ ============= ============
</TABLE>
See Notes to Financial Statements
63
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
(Continued)
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account(1) Sub-Account(1) Sub-Account(2)
--------------- --------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income $ 8,506 $ 910 $ 7,082
Net realized gain 22,646 1,002 919
Net unrealized appreciation (depreciation) 111,837 8,263 (6,953)
------------- ------------- --------------
Net increase in net assets resulting from operations 142,989 10,175 1,048
------------- ------------- --------------
From accumulation unit transactions
Participant deposits 114,179 507,159 137,347
Participant transfers 648,017 1,412,288 1,825,934
Participant withdrawals (17,292) (123,678) (22,778)
------------- ------------- --------------
Net increase in net assets resulting from participant
transactions 744,904 1,795,769 1,940,503
------------- ------------- --------------
Net increase in net assets 887,893 1,805,944 1,941,551
Net assets
Beginning of period 0 0 0
------------- ------------- --------------
End of period $887,893 $1,805,944 $1,941,551
============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Wanger
International Wanger U.S.
Small Cap Small Cap
Sub-Account(3) Sub-Account(3)
--------------- --------------- --
<S> <C> <C>
From operations
Net investment loss $ (30) $ (65)
Net realized gain -- 29
Net unrealized appreciation 3,861 9,066
------------- -------------
Net increase in net assets resulting from operations 3,831 9,030
------------- -------------
From accumulation unit transactions
Participant deposits 8,061 11,399
Participant transfers 284,998 447,242
Participant withdrawals (484) (674)
------------- -------------
Net increase in net assets resulting from participant
transactions 292,575 457,967
------------- -------------
Net increase in net assets 296,406 466,997
Net assets
Beginning of period 0 0
------------- -------------
End of period $296,406 $466,997
============= =============
(1) From inception May 1, 1996 to December 31, 1996
(2) From inception September 18, 1996 to December 31, 1996
(3) From inception December 18, 1996 to December 31, 1996
</TABLE>
See Notes to Financial Statements
64
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
--------------- --------------- --------------
<S> <C> <C> <C>
From operations
Net investment income $ 562,387 $ 274,566 $ 414,322
Net realized gain -- 12,518,357 1,800
Net unrealized appreciation -- 9,293,459 651,393
------------- ------------- ------------
Net increase in net assets resulting from operations 562,387 22,086,382 1,067,515
------------- ------------- ------------
From accumulation unit transactions
Participant deposits 23,196,295 34,460,166 1,851,602
Participant transfers (19,227,932) 15,470,116 884,223
Participant withdrawals (2,331,740) (12,409,600) (772,642)
------------- ------------- ------------
Net increase in net assets resulting from participant
transactions 1,636,623 37,520,682 1,963,183
------------- ------------- ------------
Net increase in net assets 2,199,010 59,607,064 3,030,698
Net assets
Beginning of period 11,752,531 58,342,316 3,670,077
------------- ------------- ------------
End of period $ 13,951,541 $117,949,380 $6,700,775
============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- --------------- --------------
<S> <C> <C> <C>
From operations
Net investment income (loss) $ 424,519 $ (75,181) $ 306,309
Net realized gain 1,222,367 363,543 272,699
Net unrealized appreciation 873,761 1,259,164 1,647,649
------------ ------------- ------------
Net increase in net assets resulting from operations 2,520,647 1,547,526 2,226,657
------------ ------------- ------------
From accumulation unit transactions
Participant deposits 5,457,071 7,548,871 3,800,064
Participant transfers 2,208,588 (399,608) 581,841
Participant withdrawals (2,158,665) (2,474,965) (1,761,880)
------------ ------------- ------------
Net increase in net assets resulting from participant
transactions 5,506,994 4,674,298 2,620,025
------------ ------------- ------------
Net increase in net assets 8,027,641 6,221,824 4,846,682
Net assets
Beginning of period 12,221,638 14,525,349 8,869,793
------------ ------------- ------------
End of period $20,249,279 $20,747,173 $13,716,475
============ ============= ============
</TABLE>
See Notes to Financial Statements
65
<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 offered as Flex Edge and Flex Edge Success for
individual variable life insurance and as Joint Edge for variable
first-to-die joint life insurance. The account is registered as a unit
investment trust under the Investment Company Act of 1940, as amended, and
currently consists of eleven Sub-Accounts, each of which invest in a
corresponding series of The Phoenix Edge Series Fund or 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 Series (formerly Bond) is a long-term debt
fund, the Total Return Series invests in equity securities and long and
short-term debt, the International Series invests primarily in
internationally diversified equity securities and the Balanced Series is a
balanced fund which invests in growth stocks and at least 25% of its assets
in fixed income 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 Aberdeen New Asia Series
invests primarily in diversified equity securities of issuers organized and
principally operating in Asia, excluding Japan, 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. 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 $18,557,803 $16,972,533
Growth 56,049,073 6,003,452
Multi-Sector Fixed Income 5,675,187 1,187,536
Total Return 7,809,511 1,700,229
International 11,522,658 1,606,132
Balanced 5,120,212 2,308,604
Real Estate 1,376,041 612,846
Strategic Theme 1,866,050 68,207
Aberdeen New Asia 2,202,975 254,123
Wanger Advisors Trust:
Wanger International Small Cap 292,575 --
Wanger U.S. Small Cap 470,063 12,096
</TABLE>
Note 4--Participant Accumulation Unit Transactions (in units)
<TABLE>
<CAPTION>
Sub-Account
--------------------------------------------------------------------------------------
Money Multi-Sector Total
Market Growth Fixed Income Return International Balanced
------------- ------------- ------------- ------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Flex Edge and Flex Edge Success:
Units outstanding,
beginning of period 10,229,951 36,538,624 3,484,452 9,236,346 14,435,212 9,521,556
Participant deposits 17,873,987 13,545,570 1,376,399 2,585,188 5,260,656 2,413,913
Participant transfers (15,057,257) 3,033,843 898,080 410,847 2,428,536 (483,561)
Participant withdrawals (2,322,249) (5,630,014) (525,893) (1,239,077) (2,111,668) (1,251,126)
------------ ------------ ------------ ------------ ------------ ------------
Units outstanding, end
of period 10,724,432 47,488,023 5,233,038 10,993,304 20,012,736 10,200,782
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Wanger
Strategic Aberdeen International Wanger U.S.
Real Estate Theme New Asia Small Cap Small Cap
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Units outstanding,
beginning of period 0 0 0 0 0
Participant deposits 97,107 440,485 132,572 7,185 11,020
Participant transfers 577,902 1,331,993 1,794,742 270,302 422,226
Participant withdrawals (13,748) (110,343) (19,089) (600) (1,152)
------------ ------------ ------------ ------------ ------------
Units outstanding, end
of period 661,261 1,662,135 1,908,225 276,887 432,094
============ ============ ============ ============ ============
</TABLE>
66
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Money Multi-Sector Total
Market Growth Fixed Income Return International Balanced
------------- ------------- ------------- ------------- ---------------------------
Joint Edge:
<S> <C> <C> <C> <C> <C> <C>
Units outstanding,
beginning of period 296,269 1,113,293 95,464 194,742 555,114 400,572
Participant deposits 1,669,894 861,329 50,903 130,539 363,107 141,144
Participant transfers (1,246,393) 303,113 22,644 54,934 131,390 24,694
Participant withdrawals (194,883) (389,873) (23,163) (64,904) (158,397) (70,795)
------------ ------------ ------------ ------------ ------------ ------------
Units outstanding, end
of period 524,887 1,887,862 145,848 315,311 891,214 495,615
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Wanger
Strategic Aberdeen International Wanger U.S.
Real Estate Theme New Asia Small Cap Small Cap
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Units outstanding,
beginning of period 0 0 0 0 0
Participant deposits 3,231 54,473 5,953 842 175
Participant transfers 17,724 103,930 32,722 10,988 17,550
Participant withdrawals (1,758) (15,074) (3,760) (114) (57)
------------ ------------ ------------ ------------ ------------
Units outstanding, end
of period 19,197 143,329 34,915 11,716 17,668
============ ============ ============ ============ ============
</TABLE>
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 90% of a policy's cash
value with an interest rate set in accordance with the contract due and
payable on each policy anniversary. At the time a loan is granted, an amount
equivalent to the amount of the loan is transferred from the Account to
Phoenix'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 2% for Flex Edge success policies, and 6% for Joint Edge and Flex
Edge policies. 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 $19,666,478 during the year 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 partial surrender charge equal
to a pro rata portion of the applicable surrender charge is deducted from the
policy value and paid to Phoenix.
Phoenix Equity Planning Corporation is the principal underwriter and
distributor of the Account. Phoenix Equity Planning Corporation is reimbursed
for its distribution and underwriting expenses by Phoenix.
Policies which are surrendered during the first ten policy years will incur
a surrender charge, consisting of a contingent deferred sales charge designed
to recover expenses for the distribution of Policies that are terminated by
surrender before distribution expenses have been recouped, and a contingent
deferred issue charge designed to recover expenses for the administration of
Policies that are terminated by surrender before administrative expenses have
been recouped. These are contingent charges paid only if the Policy is
surrendered (or a partial withdrawal is taken or the Face Amount is reduced
or the Policy lapses) during the first ten policy years. The charges are
deferred (i.e. not deducted from premiums).
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 0.80% of the average
daily net assets of the Account for mortality and expense risks assumed for
Flex Edge and Joint Edge. For Flex Edge Success, the Account is charged an
annual rate of 0.80% for the first fifteen years and 0.25% thereafter.
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.
67
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
[Price Waterhouse 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 statement 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, Aberdeen New Asia 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
68
<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, Aberdeen New Asia 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
69
<PAGE>
APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the Guaranteed Interest Account ("GIA") under the Policy
and transfers to the GIA become part of the Phoenix General Account (the
"General Account"), which supports insurance and annuity obligations. Because of
exemptive and exclusionary provisions, interest in the General Account has not
been registered under the Securities Act of 1933 ("1933 Act") nor is the General
Account registered as an investment company under the Investment Company Act of
1940 ("1940 Act"). Accordingly, neither the General Account nor any interest
therein is specifically subject to the provisions of the 1933 or 1940 Acts and
the staff of the Securities and Exchange Commission has not reviewed the
disclosures in this Prospectus concerning the GIA. Disclosures regarding the GIA
and the General Account, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
The General Account is made up of all of the general assets of Phoenix other
than those allocated to any separate account. Premium payments will be allocated
to the GIA and, therefore, the General Account, as elected by the Policyowner at
the time of purchase or as subsequently changed. Phoenix will invest the assets
of the General Account in assets chosen by it and allowed by applicable law.
Investment income from General Account assets is allocated between Phoenix and
the contracts participating in the General Account, in accordance with the terms
of such contracts.
Investment income from the General Account allocated to Phoenix includes
compensation for mortality and expense risks borne by it in connection with
General Account contracts.
The amount of investment income allocated to the Policies will vary from
year to year in the sole discretion of Phoenix. However, Phoenix guarantees that
it will credit interest at a rate of not less than 4% per year, compounded
annually, to amounts allocated to the unloaned portion of the GIA. The loaned
portion of the GIA will be credited interest at an effective annual rate of 2%
on Single Life Policies (4% on Single Life Policies in New York), and 6% for
Multiple Life Policies. Phoenix may credit interest at a rate in excess of 4%
per year; however, it is not obligated to credit any interest in excess of 4%
per year.
Bi-weekly, Phoenix will set the excess interest rate, if any, that will
apply to amounts deposited to the GIA. That rate will remain in effect for such
deposits for an initial guarantee period of one full year from the date of
deposit. Upon expiration of the initial one-year guarantee period (and each
subsequent one-year guarantee period thereafter), the rate to be applied to any
deposits whose guaranteed period has just ended will be the same rate as is
applied to new deposits allocated at that time to the GIA. This rate will
likewise remain in effect for a guarantee period of one full year from the date
the new rate is applied.
Excess interest, if any, will be determined by Phoenix based on information
as to expected investment yields. Some of the factors that Phoenix may consider
in determining whether to credit interest to amounts allocated to the GIA and
the amount thereof, are general economic trends, rates of return currently
available and anticipated on investments, regulatory and tax requirements and
competitive factors. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE GIA IN
EXCESS OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF PHOENIX AND
WITHOUT REGARD TO ANY SPECIFIC FORMULA. THE CONTRACT OWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO GIA ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 4%
FOR ANY GIVEN YEAR.
Phoenix is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in Phoenix's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders and Contract Owners.
Excess interest, if any, will be credited on the GIA Policy Value. Phoenix
guarantees that, at any time, the GIA Policy Value will not be less than the
amount of premium payments allocated to the GIA, plus interest at the rate of 4%
per year, compounded annually, plus any additional interest which Phoenix may,
in its discretion, credit to the GIA, less the sum of all annual administrative
or surrender charges, any applicable premium taxes, and less any amounts
surrendered or loaned. If the Policyowner surrenders the Policy, the amount
available from the GIA will be reduced by any applicable surrender charge and
annual administration charge (see "Deductions and Charges").
IN GENERAL, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE 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 VPO, UNLESS OTHERWISE REQUESTED
BY THE CONTRACT OWNER.
70
<PAGE>
APPENDIX B
ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES ("ACCOUNT VALUES"),
AND CASH SURRENDER VALUES.
The tables on the following pages illustrate how a Policy's Death Benefits,
Account Values and Cash Surrender Value could vary over time assuming constant
hypothetical gross (after tax) annual investment returns of 0% and 12%. The
Policy benefits will differ from those shown in the tables if the annual
investment returns are not absolutely constant. That is, the figures will be
different if the returns averaged 0% or 12% over a period of years but went
above or below those figures in individual Policy Years. The Policy benefits
also will differ, depending on your premium allocations to each Subaccount of
the VUL Account, if the overall actual rates of return averaged 0% or 12%, but
went above or below those figures for the individual Subaccounts. The tables
are for standard risk males and females who have never smoked. In states where
cost of insurance rates are not based on the insured's sex, the tables
designated "male" apply to all standard risk insureds who have never smoked.
Account Values and Cash Surrender Values may be lower for smokers or former
smokers or for risk classes involving higher mortality risk. Planned premium
payments are assumed to be paid at the beginning of each Policy Year. The
difference between the Policy Value and the Cash Surrender Value in the first
ten years is the Surrender Charge. Tables are included for death benefit Option
1 and Option 2. Tables also are included to reflect the blended cost of
insurance charge applied under a multiple life Policy.
The Death Benefit, Account Value, and Cash Surrender Value amounts reflect
the following current charges:
1. Issue Charge of $150.
2. Monthly Administrative Charge of $5 per month ($10 per month guaranteed
maximum).
3. Premium Tax Charge of 2.25% (will vary from state to state on Multiple Life
Policies).
4. A Federal Tax Charge of 1.5% (for Single Life Policies only).
5. Cost of Insurance Charge. The tables illustrate cost of insurance at both
the current rates and at the maximum rates guaranteed in the Policies. (See
"Charges and Deductions--Cost of Insurance.")
6. Mortality and Expense Risk Charge, which is a daily charge equivalent to
.80% on an annual basis (or for Single Life Policies, .25% on an annual
basis after the 15th Policy Year), against the VUL Account for mortality and
expense risks. (See "Charges and Deductions--Mortality and Expense Risk
Charge.")
These illustrations also assume an average investment advisory fee of .75%
on an annual basis, of the average daily net asset value of each of the Series
of the Funds. These illustrations also assume other ongoing average Fund
expenses of .21%. All other Fund expenses, except capital items such as
brokerage commissions, are assumed by the Adviser or Phoenix. Management may
decide to limit the amount of expense reimbursement in the future. If expense
reimbursement had not been in place for the fiscal year ended December 31,
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% and
12% on the Funds' assets are equivalent to net annual investment return rates of
approximately -1.75% and 10.16%, respectively (applicable for the first 15
Policy Years for Single Life Policies and -1.21% and 10.76% respectively
after the 15th Policy Year for Single Life Policies). For individual
illustrations, interest rates ranging between 0% and 12% may be selected in
place of the 12% rate.
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the VUL Account in the future. If such Tax Charges
are imposed in the future, then in order to produce after tax returns equal to
those illustrated for 0% and 12%, a sufficiently higher amount in excess of the
hypothetical interest rates would have to be earned. (See "Charges and
Deductions--Other Charges--Taxes.")
The second column of each table shows the amount that would accumulate if an
amount equal to the premiums paid were invested to earn interest, after taxes,
at 5% compounded annually. These tables show that if a Policy is returned in its
very early years for payment of its Cash Surrender Value, that Cash Surrender
Value may be low in comparison to the amount of the premiums accumulated with
interest. Thus, the cost of owning a Policy for a relatively short time may be
high.
On request, we will furnish the Policyowner with a comparable illustration
based on the age and sex of the proposed insured person(s), standard risk
assumptions and the initial face amount and planned premium chosen.
71
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS -- A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
<CAPTION>
ASSUMING
-------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
---------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- -------- -------- --------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 666 0 100,000 512 0 100,000
2 1,000 2,153 1,550 665 100,000 1,157 271 100,000
3 1,000 3,310 2,515 1,208 100,000 1,780 473 100,000
4 1,000 4,526 3,568 2,261 100,000 2,383 1,076 100,000
5 1,000 5,802 4,715 3,408 100,000 2,962 1,655 100,000
6 1,000 7,142 5,968 4,806 100,000 3,519 2,356 100,000
7 1,000 8,549 7,333 6,316 100,000 4,049 3,032 100,000
8 1,000 10,027 8,824 7,951 100,000 4,555 3,682 100,000
9 1,000 11,578 10,450 10,015 100,000 5,033 4,598 100,000
10 1,000 13,207 12,228 12,228 100,000 5,485 5,485 100,000
11 1,000 14,917 14,176 14,176 100,000 5,906 5,906 100,000
12 1,000 16,713 16,314 16,314 100,000 6,297 6,297 100,000
13 1,000 18,599 18,662 18,662 100,000 6,655 6,655 100,000
14 1,000 20,579 21,242 21,242 100,000 6,980 6,980 100,000
15 1,000 22,657 24,078 24,078 100,000 7,269 7,269 100,000
16 1,000 24,840 27,350 27,350 100,000 7,563 7,563 100,000
17 1,000 27,132 30,972 30,972 100,000 7,814 7,814 100,000
18 1,000 29,539 34,981 34,981 100,000 8,017 8,017 100,000
19 1,000 32,066 39,423 39,423 100,000 8,167 8,167 100,000
20 1,000 34,719 44,346 44,346 100,000 8,256 8,256 100,000
@ 65 30,000 69,761 135,252 135,252 165,008 4,071 4,071 100,000
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
34.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.76%
(includes mortality and expense risk charge of 0.8% for fifteen years, then
0.25% and average fund operating expenses of 0.96% applicable to the
investment Subaccounts of the VUL Separate Account). Hypothetical gross
interest rates are presented for illustrative purposes only to illustrate funds
allocated entirely to the investment Subaccounts of the VUL Separate Account
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical gross interest rates
illustrated. A Guaranteed Interest Account providing interest at a minimum
guaranteed rate of 4% also is available under this product through the General
Account.
This illustration assumes a premium tax of 2.25%.
72
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
FEMALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
<CAPTION>
ASSUMING
-------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
---------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- -------- -------- --------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 694 0 100,000 534 0 100,000
2 1,000 2,153 1,610 756 100,000 1,199 345 100,000
3 1,000 3,310 2,609 1,413 100,000 1,842 647 100,000
4 1,000 4,526 3,699 2,504 100,000 2,464 1,268 100,000
5 1,000 5,802 4,889 3,694 100,000 3,062 1,867 100,000
6 1,000 7,142 6,189 5,125 100,000 3,637 2,573 100,000
7 1,000 8,549 7,606 6,673 100,000 4,186 3,253 100,000
8 1,000 10,027 9,154 8,353 100,000 4,709 3,908 100,000
9 1,000 11,578 10,847 10,447 100,000 5,208 4,808 100,000
10 1,000 13,207 12,701 12,701 100,000 5,682 5,682 100,000
11 1,000 14,917 14,738 14,738 100,000 6,131 6,131 100,000
12 1,000 16,713 16,979 16,979 100,000 6,556 6,556 100,000
13 1,000 18,599 19,444 19,444 100,000 6,954 6,954 100,000
14 1,000 20,579 22,158 22,158 100,000 7,324 7,324 100,000
15 1,000 22,657 25,146 25,146 100,000 7,667 7,667 100,000
16 1,000 24,840 28,595 28,595 100,000 8,023 8,023 100,000
17 1,000 27,132 32,417 32,417 100,000 8,349 8,349 100,000
18 1,000 29,539 36,655 36,655 100,000 8,640 8,640 100,000
19 1,000 32,066 41,354 41,354 100,000 8,893 8,893 100,000
20 1,000 34,719 46,567 46,567 100,000 9,105 9,105 100,000
@ 65 30,000 69,761 142,897 142,897 174,335 8,564 8,564 100,000
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
34.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.76%
(includes mortality and expense risk charge of 0.8% for fifteen years, then
0.25% and average fund operating expenses of 0.96% applicable to the
investment Subaccounts of the VUL Separate Account). Hypothetical gross
interest rates are presented for illustrative purposes only to illustrate funds
allocated entirely to the investment Subaccounts of the VUL Separate Account
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical gross interest rates
illustrated. A Guaranteed Interest Account providing interest at a minimum
guaranteed rate of 4% also is available under this product through the General
Account.
This illustration assumes a premium tax of 2.25%.
73
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
<CAPTION>
ASSUMING
-------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
---------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- -------- -------- --------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 664 0 100,665 511 0 100,511
2 1,000 2,153 1,546 660 101,546 1,153 268 101,154
3 1,000 3,310 2,505 1,198 102,506 1,773 466 101,774
4 1,000 4,526 3,550 2,243 103,550 2,371 1,064 102,371
5 1,000 5,802 4,686 3,379 104,686 2,944 1,637 102,944
6 1,000 7,142 5,921 4,759 105,922 3,492 2,330 103,493
7 1,000 8,549 7,264 6,247 107,264 4,013 2,996 104,013
8 1,000 10,027 8,724 7,852 108,725 4,507 3,634 104,507
9 1,000 11,578 10,311 9,875 110,311 4,971 4,535 104,971
10 1,000 13,207 12,037 12,037 112,037 5,406 5,406 105,407
11 1,000 14,917 13,920 13,920 113,921 5,809 5,809 105,809
12 1,000 16,713 15,977 15,977 115,978 6,178 6,178 106,178
13 1,000 18,599 18,225 18,225 118,225 6,512 6,512 106,512
14 1,000 20,579 20,681 20,681 120,682 6,809 6,809 106,809
15 1,000 22,657 23,366 23,366 123,366 7,066 7,066 107,067
16 1,000 24,840 26,449 26,449 126,450 7,324 7,324 107,325
17 1,000 27,132 29,839 29,839 129,839 7,535 7,535 107,536
18 1,000 29,539 33,565 33,565 133,565 7,693 7,693 107,694
19 1,000 32,066 37,661 37,661 137,661 7,793 7,793 107,793
20 1,000 34,719 42,163 42,163 142,163 7,825 7,825 107,826
@ 65 30,000 69,761 120,450 120,450 220,450 2,834 2,834 102,834
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
34.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.76%
(includes mortality and expense risk charge of 0.8% for fifteen years, then
0.25% and average fund operating expenses of 0.96% applicable to the
investment Subaccounts of the VUL Separate Account). Hypothetical gross
interest rates are presented for illustrative purposes only to illustrate funds
allocated entirely to the investment Subaccounts of the VUL Separate Account
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical gross interest rates
illustrated. A Guaranteed Interest Account providing interest at a minimum
guaranteed rate of 4% also is available under this product through the General
Account.
This illustration assumes a premium tax of 2.25%.
74
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMUNT: $100,000
INITIAL ANNUAL PEMIUM: $1,000
FEMALE 35 NEVERSMOKE
THE FLEX EDGE SUCCESS--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
<CAPTION>
ASSUMING
-------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
---------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- -------- -------- --------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 693 0 100,694 533 0 100,533
2 1,000 2,153 1,606 752 101,606 1,195 341 101,196
3 1,000 3,310 2,600 1,405 102,601 1,836 640 101,836
4 1,000 4,526 3,683 2,488 103,684 2,453 1,258 102,453
5 1,000 5,802 4,863 3,668 104,863 3,045 1,850 103,046
6 1,000 7,142 6,147 5,083 106,148 3,612 2,549 103,613
7 1,000 8,549 7,544 6,611 107,544 4,152 3,219 104,152
8 1,000 10,027 9,064 8,263 109,065 4,664 3,863 104,664
9 1,000 11,578 10,721 10,322 110,722 5,149 4,749 105,150
10 1,000 13,207 12,529 12,529 112,529 5,608 5,608 105,609
11 1,000 14,917 14,508 14,508 114,508 6,040 6,040 106,040
12 1,000 16,713 16,676 16,676 116,677 6,445 6,445 106,445
13 1,000 18,599 19,053 19,053 119,053 6,820 6,820 106,821
14 1,000 20,579 21,657 21,657 121,658 7,165 7,165 107,166
15 1,000 22,657 24,514 24,514 124,514 7,480 7,480 107,480
16 1,000 24,840 27,799 27,799 127,799 7,804 7,804 107,805
17 1,000 27,132 31,422 31,422 131,422 8,094 8,094 108,094
18 1,000 29,539 35,418 35,418 135,419 8,345 8,345 108,346
19 1,000 32,066 39,825 39,825 139,825 8,553 8,553 108,553
20 1,000 34,719 44,687 44,687 144,688 8,716 8,716 108,717
@ 65 30,000 69,761 131,817 131,817 231,817 7,426 7,426 107,427
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
34.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.76%
(includes mortality and expense risk charge of 0.8% for fifteen years, then
0.25% and average fund operating expenses of 0.96% applicable to the
investment Subaccounts of the VUL Separate Account). Hypothetical gross
interest rates are presented for illustrative purposes only to illustrate funds
allocated entirely to the investment Subaccounts of the VUL Separate Account
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical gross interest rates
illustrated. A Guaranteed Interest Account providing interest at a minimum
guaranteed rate of 4% also is available under this product through the General
Account.
This illustration assumes a premium tax of 2.25%.
75
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
FEMALE 35 NEVERSMOKE
JOINT EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
<CAPTION>
ASSUMING
-------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
---------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- -------- -------- --------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 597 0 100,000 382 0 100,000
2 1,000 2,153 1,402 419 100,000 891 0 100,000
3 1,000 3,310 2,279 1,197 100,000 1,371 289 100,000
4 1,000 4,526 3,233 2,061 100,000 1,821 649 100,000
5 1,000 5,802 4,272 3,063 100,000 2,238 1,029 100,000
6 1,000 7,142 5,403 4,339 100,000 2,620 1,556 100,000
7 1,000 8,549 6,634 5,715 100,000 2,963 2,044 100,000
8 1,000 10,027 7,975 7,277 100,000 3,267 2,569 100,000
9 1,000 11,578 9,439 8,961 100,000 3,530 3,052 100,000
10 1,000 13,207 11,034 11,034 100,000 3,752 3,752 100,000
11 1,000 14,917 12,775 12,775 100,000 3,931 3,931 100,000
12 1,000 16,713 14,667 14,667 100,000 4,063 4,063 100,000
13 1,000 18,599 16,727 16,727 100,000 4,145 4,145 100,000
14 1,000 20,579 18,971 18,971 100,000 4,174 4,174 100,000
15 1,000 22,657 21,418 21,418 100,000 4,146 4,146 100,000
16 1,000 24,840 24,089 24,089 100,000 4,057 4,057 100,000
17 1,000 27,132 27,011 27,011 100,000 3,896 3,896 100,000
18 1,000 29,539 30,211 30,211 100,000 3,656 3,656 100,000
19 1,000 32,066 33,719 33,719 100,000 3,324 3,324 100,000
20 1,000 34,719 37,568 37,568 100,000 2,891 2,891 100,000
@ 65 30,000 69,761 106,298 106,298 129,684 0 0 0
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
24.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.76%
(includes mortality and expense risk charge of 0.8% and average fund operating
expenses of 0.96% applicable to the investment Subaccounts of the VUL
Separate Account). Hypothetical gross interest rates are presented for
illustrative purposes only to illustrate funds allocated entirely to the
investment Subaccounts of the VUL Separate Account and do not in any way
represent actual results or suggest that such results will be achieved in the
future. Actual values will differ from those shown whenever actual investment
results differ from hypothetical gross interest rates illustrated. A Guaranteed
Interest Account providing interest at a minimum guaranteed rate of 4% also is
available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
76
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
FEMALE 35 NEVERSMOKE
JOINT EDGE--A FLEXIBLE PREMIUM JOINT UNIVERSAL LIFE INSURANCE POLICY OPTION 2
<CAPTION>
ASSUMING
-------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
---------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0%
- ------- -------- -------- --------- --------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 595 0 100,596 380 0 100,381
2 1,000 2,153 1,396 413 101,397 885 0 100,886
3 1,000 3,310 2,266 1,184 102,266 1,360 278 101,360
4 1,000 4,526 3,209 2,037 103,209 1,802 631 101,803
5 1,000 5,802 4,232 3,023 104,232 2,210 1,001 102,210
6 1,000 7,142 5,341 4,277 105,341 2,580 1,516 102,580
7 1,000 8,549 6,543 5,624 106,544 2,908 1,989 102,908
8 1,000 10,027 7,845 7,147 107,846 3,195 2,497 103,195
9 1,000 11,578 9,260 8,782 109,261 3,438 2,960 103,439
10 1,000 13,207 10,793 10,793 110,793 3,639 3,639 103,639
11 1,000 14,917 12,454 12,454 112,454 3,792 3,792 103,792
12 1,000 16,713 14,245 14,245 114,246 3,896 3,896 103,897
13 1,000 18,599 16,178 16,178 116,178 3,949 3,949 103,949
14 1,000 20,579 18,262 18,262 118,262 3,946 3,946 103,946
15 1,000 22,657 20,509 20,509 120,510 3,883 3,883 103,884
16 1,000 24,840 22,933 22,933 122,934 3,757 3,757 103,758
17 1,000 27,132 25,552 25,552 125,552 3,560 3,560 103,560
18 1,000 29,539 28,378 28,378 128,378 3,281 3,281 103,281
19 1,000 32,066 31,428 31,428 131,428 2,910 2,910 102,910
20 1,000 34,719 34,716 34,716 134,716 2,439 2,439 102,440
@ 65 30,000 69,761 129,008 129,008 184,495 0 0 0
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
24.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.76%
(includes mortality and expense risk charge of 0.8% and average fund operating
expenses of 0.96% applicable to the investment Subaccounts of the VUL
Separate Account). Hypothetical gross interest rates are presented for
illustrative purposes only to illustrate funds allocated entirely to the
investment Subaccounts of the VUL Separate Account and do not in any way
represent actual results or suggest that such results will be achieved in the
future. Actual values will differ from those shown whenever actual investment
results differ from hypothetical gross interest rates illustrated. A Guaranteed
Interest Account providing interest at a minimum guaranteed rate of 4% also is
available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
77
<PAGE>
VERSION B
---------
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS (VPMO):
Hartford, CT PO Box 8027
Boston, MA 02266-8027
VARIABLE LIFE INSURANCE POLICY
PROSPECTUS
May 1, 1997
This prospectus describes a Flexible Premium Variable Life Insurance Policy
(the "Policy"), offered by Phoenix Home Life Mutual Insurance Company
("Phoenix"). An applicant chooses the amount of Issue Premium desired and it is
then shown in the Policy. Generally, the minimum Issue Premium Phoenix will
accept is 1/6 of the Planned Annual Premium. Phoenix may, in some cases, accept
less than that amount. The amount and payment frequency of planned premiums are
as shown in the Policy. If too much is paid in premium in the early Policy
Years, the Policy could become a "modified endowment contract." This would cause
loans and other amounts received under the Policy to be subject to tax and/or
penalties. Currently, Phoenix notifies a Policyowner when a Policy becomes a
modified endowment contract.
Premium payments are allocated to one or more of the 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. The VUL Account is divided into Subaccounts, each of which
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 Policy Value except for that portion of
Policy Value invested in the GIA, which has a 4% minimum interest rate
guarantee. The Policy Value not invested in the GIA will vary to reflect the
investment experience of the Subaccounts of the VUL Account to which premiums
have been allocated. A Policyowner bears the investment risk for all amounts so
allocated. The Policy will remain in effect so long as the Policy Value or Cash
Surrender Value is sufficient to pay certain monthly charges imposed in
connection with the Policy.
The death benefit under the Policy equals the Policy's face amount on the
date of the Insured's death or, if greater, the Policy Value on the date of
death increased by the applicable percentage set forth in the Policy. Other
death benefit options also are available.
A Policyowner may cancel the Policy within 10 days (or longer in some
states), after the Policyowner receives it or 10 days after Phoenix mails or
delivers a written notice of withdrawal right to the Policyowner, or within 45
days of completing the application, whichever is latest.
It may not be advantageous to purchase a Policy as a replacement for your
current life insurance or to supplement an existing life insurance policy.
This prospectus is valid only if accompanied by or preceded by current
prospectuses for the Funds. This prospectus and the prospectuses for the Funds
should be read and retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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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 ............................. 6
Phoenix............................................... 6
The VUL Account ...................................... 7
The Guaranteed Interest Account ...................... 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 ........................................ 9
Surrenders ........................................... 10
Policy Loans ......................................... 10
Lapse ................................................ 11
Payment of Premiums During Period of Disability ...... 11
Additional Insurance Options ......................... 11
Additional Rider Benefits ............................ 11
INVESTMENTS OF THE VUL ACCOUNT .......................... 12
Participating Mutual Funds ........................... 12
Investment Adviser to The Phoenix Edge Series Fund.... 13
Investment Adviser to the Wanger Advisors Trust....... 14
Reinvestment and Redemption .......................... 14
Substitution of Investments .......................... 14
CHARGES AND DEDUCTIONS .................................. 14
Monthly Deduction .................................... 14
Premium Taxes ........................................ 15
Mortality and Expense Risk Charge .................... 15
Investment Management Charge ......................... 15
Other Charges ........................................ 15
GENERAL PROVISIONS ...................................... 16
Postponement of Payments ............................. 16
Payment by Check ..................................... 17
The Contract ......................................... 17
Suicide .............................................. 17
Incontestability ..................................... 17
Change of Owner or Beneficiary ....................... 17
Assignment ........................................... 17
Misstatement of Age or Sex ........................... 17
Surplus .............................................. 17
PAYMENT OF PROCEEDS ..................................... 17
Surrender and Death Benefit Proceeds ................. 17
Payment Options ...................................... 17
FEDERAL TAX CONSIDERATIONS .............................. 18
Introduction ......................................... 18
Phoenix's Tax Status ................................. 18
Policy Benefits ...................................... 18
Business-Owned Policies............................... 19
Modified Endowment Contracts ......................... 19
Limitations on Unreasonable Mortality
and Expense Charges ............................... 20
Qualified Plans ...................................... 20
Diversification Standards ............................ 20
Change of Ownership or Insured or Assignment ......... 20
Other Taxes .......................................... 20
VOTING RIGHTS ........................................... 20
The Funds ............................................ 20
Phoenix .............................................. 21
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX.......... 21
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS ................. 22
SALES OF POLICIES ....................................... 22
STATE REGULATION ........................................ 22
REPORTS ................................................. 23
LEGAL PROCEEDINGS ....................................... 23
LEGAL MATTERS ........................................... 23
REGISTRATION STATEMENT .................................. 23
FINANCIAL STATEMENTS .................................... 23
APPENDIX A .............................................. 69
APPENDIX B .............................................. 70
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESPERSON, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
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SPECIAL TERMS
- --------------------------------------------------------------------------------
As used in this Prospectus, the following terms have the indicated meanings:
ATTAINED AGE: The age of the Insured on the birthday nearest the most recent
Policy Anniversary.
BENEFICIARY: The person or persons specified by the Policyowner as entitled to
receive the death benefits under a Policy.
CASH SURRENDER VALUE: The Policy Value less any surrender charge that would
apply on the date of surrender and less any Debt.
DEATH BENEFIT GUARANTEE: An additional benefit rider available with the Policy
that guarantees a death benefit equal to the initial face amount or the face
amount as later increased or decreased, provided that Minimum Required Premiums
are paid. See "Additional Rider Benefits."
DEBT: Outstanding loans against a Policy, plus accrued interest.
FUND(S): The Phoenix Edge Series Fund and Wanger Advisors Trust.
GENERAL ACCOUNT: The general asset account of Phoenix.
GUARANTEED INTEREST ACCOUNT (GIA): An allocation option under which amounts
deposited are guaranteed to earn a fixed rate of interest. Excess interest
also may be credited, in the sole discretion of Phoenix.
IN FORCE: Conditions under which the coverage under a Policy is in effect and
the Insured's life remains insured.
INSURED: The person upon whose life the Policy is issued.
IN WRITING (WRITTEN REQUEST): In a written form satisfactory to Phoenix and
delivered to VPMO.
ISSUE PREMIUM: The premium payment made in connection with the issue of the
Policy.
MATURITY DATE: The latest date that the Policy will terminate.
MINIMUM REQUIRED PREMIUM: The required premium as specified in the Policy. An
increase or decrease in the face amount of the policy will change the Minimum
Required Premium amount.
MONTHLY CALCULATION DAY: The first Monthly Calculation Day is the same day as
the Policy Date. Subsequent Monthly Calculation Days are the same day of each
month thereafter or, if such day does not fall within a given month, the last
day of that month will be the Monthly Calculation Day.
PAYMENT DATE: The Valuation Date on which a premium payment or loan repayment
is received at Phoenix, unless it is received after the close of the New York
Stock Exchange, in which case it will be the next Valuation Date.
PHOENIX: Phoenix Home Life Mutual Insurance Company, Hartford, Connecticut.
PLANNED ANNUAL PREMIUM: The premium amount that the Policyowner agrees to pay
each Policy Year. It must be at least equal to the minimum premium required for
the face amount of insurance selected and must be no greater than the maximum
premium allowed for the face amount selected. POLICY ANNIVERSARY: Each
anniversary of the Policy Date.
POLICY DATE: The Policy Date as shown on the Schedule Page of the Policy. It is
the date from which Policy Years and Policy Anniversaries are measured.
POLICY MONTH: The period from one Monthly Calculation Day up to but not
including the next Monthly Calculation Day.
POLICYOWNER (OWNER): The owner of a Policy.
POLICY VALUE: The sum of a Policy's share in the values of each Subaccount of
the VUL Account plus the Policy's share in the values of the GIA.
POLICY YEAR: The first Policy Year is the one-year period from the Policy Date
up to, but not including, the first Policy Anniversary. Each succeeding Policy
Year is the one-year period from the Policy anniversary up to but not including
the next Policy Anniversary.
PROPORTIONATE: Amounts allocated to 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: An investment portfolio that is part of the Fund.
SUBACCOUNTS: Accounts within the VUL Account to which non-loaned assets under
a Policy are allocated.
UNIT: A standard of measurement used in determining the value of a Policy. The
value of a Unit for each 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.
VUL ACCOUNT: Phoenix Home Life Variable Universal Life Account.
VULA: Variable and Universal Life Administration Division of Phoenix.
SUMMARY
- --------------------------------------------------------------------------------
1. WHAT IS THE DIFFERENCE BETWEEN THE POLICY AND A
CONVENTIONAL FIXED BENEFIT LIFE INSURANCE POLICY?
Like conventional fixed benefit life insurance, so long as the Policy
remains In Force, the Policy will provide for: (1) the payment of a death
benefit to a Beneficiary upon the Insured's death; (2) the accumulation of cash
value; and (3) surrender rights and Policy loan privileges.
The Policy differs from conventional fixed benefit life insurance by
allowing Policyowners to allocate premiums to one or more Subaccounts of the
VUL Account or to the GIA. Each Subaccount invests exclusively in a designated
portfolio of the Fund. Also, under the Policy, the Policy Value invested in the
VUL Account is not guaranteed and may increase or decrease depending upon the
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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 to make additional premium payments and to
thereby adjust the Policy Value. However, unlike conventional fixed benefit
life insurance, the Policy does not require a Policyowner to adhere to a fixed
premium payment schedule. Moreover, after the payment of the Issue Premium, the
failure to make additional premium payments will not in itself cause the Policy
to lapse. Conversely, the payment of additional premiums will not guarantee that
the Policy will remain In Force. Generally, lapse will occur when the Cash
Surrender Value is insufficient to pay certain charges deducted on the Monthly
Calculation Day, and a grace period expires without payment of the additional
amount required. See "Lapse."
If a Whole Life Exchange Option Rider is attached to the Policy, the
Policy may be exchanged for a fixed benefit whole life policy. (See
"Additional Rider Benefits.")
2. IS THERE A GUARANTEED ACCOUNT OPTION?
Yes. A Policyowner may elect to have premium payments allocated to the GIA.
Amounts allocated to the GIA earn a fixed rate of interest and Phoenix also may,
in its sole discretion, credit excess interest. (See Appendix A.)
3. WHAT IS THE DEATH BENEFIT UNDER THE POLICY?
The Policy provides for the payment of benefits upon the death of
the Insured. Upon application for a Policy, an applicant designates an Issue
Premium. The Policy indicates the face amount of insurance. The death benefit
will equal the face amount on the date of the Insured's death or, if greater,
the Policy Value on the date of the Insured's death increased by the applicable
percentage set forth in the Policy. If the enhanced death benefit option is
selected, the death benefit will equal the face amount on the date of the
Insured's death plus the Policy Value or, if greater, the Policy Value on the
date of the Insured's death increased by the applicable percentage set forth in
the Policy. Guaranteed death benefit and living benefits riders also are
available. See "Death Benefit."
4. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The Policy will lapse only when the Cash Surrender Value is
insufficient to pay the monthly deduction (see "Charges and Deductions--Monthly
Deductions"), and a grace period expires without payment of the additional
amount required. In this respect, the Policy differs in two important respects
from a conventional life insurance Policy. First, the failure to pay additional
premiums will not automatically cause the Policy to lapse. Second, the payment
of premiums of any pre-specified amount does not guarantee that the Policy will
remain In Force until the Maturity Date. A rider is available to ensure that
premium payments will continue during a period of disability.
5. WHAT CHARGES ARE THERE IN CONNECTION WITH THE POLICY?
MONTHLY DEDUCTION: A deduction is made each Policy Month from
the Policy Value (excluding the value of the loaned portion of the GIA) to pay
the cost of insurance provided under the Policy; the cost of any rider benefits
provided; any unpaid balance of the $150 Issue Expense Charge; and an
administrative charge as shown on the schedule page of the Policy. The
administrative charge may vary but in no event will it exceed $10 per month.
Currently, the administrative charge is $5 per month. See "Charges and
Deductions."
OTHER CHARGES: A fee equal to the lesser of $25 or 2% of the partial
surrender amount paid is deducted from the Policy Value for each partial
surrender. A partial surrender charge equal to a pro rata portion of the
applicable surrender charge that would apply to a full surrender, determined by
applying a formula, also is assessed against the VUL Account Subaccounts or
the GIA when a partial surrender is made.
No charges are currently made from the VUL Account or the GIA for federal
or state income taxes. If Phoenix determines that such taxes may be imposed,
it may make deductions from the VUL Account to pay these taxes.
Phoenix charges each Subaccount of the VUL Account the daily equivalent
of 0.80% 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.
Premium amounts also 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."
In addition, each Series pays a portion or all of its other operating
expenses other than the management fees: the Growth, Multi-Sector, Strategic
Allocation, Money Market and Balanced Series will pay up to .15%; the Real
Estate, Strategic Theme and Asia Series will pay up to .25%; the International
Series will pay up to .40%; the Wanger U.S. Small Cap Series will pay up to
.50%; and the Wanger International Small Cap Series will pay up to .60% of its
average net assets annually. See "Charges and Deductions."
6. IS THERE A RIGHT TO CANCEL PERIOD?
Yes. The Policyowner may cancel the Policy within 10 days after the
Policyowner receives it (or longer in some states), or 10 days after Phoenix
mails or delivers a written notice of withdrawal right to the Policyowner, or
within 45 days of completing the application, whichever is latest.
7. HOW ARE PREMIUMS ALLOCATED?
If the applicant elects the Temporary Money Market Allocation Amendment in
the application, Phoenix will allocate the entire Issue Premium less any
applicable charges to the Money Market 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
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Policyowner's allocation instructions in the application for insurance. All
other Policyowners will have their Issue Premium less any applicable charges
allocated according to the instructions in the application on the date it is
received without first having the premium placed in the Money Market
Subaccount. The Policy Value may be allocated among the available Subaccounts
of the VUL Account, each of which invests in shares of a designated portfolio of
the Funds, or to the GIA.
8. AFTER THE INITIAL ALLOCATION, MAY I CHANGE THE ALLOCATION OF POLICY VALUE?
Yes. A Policyowner may transfer amounts among the Subaccounts of the VUL
Account or the GIA. Only one transfer per Policy Year is permitted from the
unloaned portion of the GIA. The amount of that transfer is limited to the
higher of $1,000 or 25% of the value of the Policy in the unloaned portion of
the GIA. Also, Phoenix reserves the right to require that transfers be made
by written request. Phoenix further reserves the right to permit transfers of
less than $500 only if the entire balance in the Subaccount of the VUL Account
or the GIA is transferred. A systematic transfer program also is available.
See "Transfer of Policy Value."
9. MAY THE POLICY BE SURRENDERED?
Yes. A Policyowner may totally surrender the Policy at any time and receive
the Cash Surrender Value. Subject to certain limitations, the Policyowner also
may partially surrender the Policy at any time prior to the Maturity Date. In
the future, Phoenix may set a minimum partial surrender amount, not to exceed
$500. See "Surrenders--Partial Surrenders." A partial surrender will result in a
decrease in the death benefit under the Policy. See "Death Benefit." If the
Policy is totally or partially surrendered during the first ten Policy Years, a
Surrender Charge will apply. See "Surrender Charge." In addition, there may be
certain tax consequences as the result of a surrender. For example, a Policy may
be a "modified endowment contract" if the amount of premium paid during the
first seven Policy Years is more than the amount that would have been paid if
the Policy had provided for paid-up benefits after the payment of seven level
annual premiums. Distributions such as loans and full or partial surrenders
under a modified endowment contract may be taxable income to the extent they
exceed the premiums paid. If such income is distributed before the Policyowner
attains age 59 1/2, a 10% penalty tax may be imposed. See "Federal Tax
Considerations."
10. WHAT IS THE POLICY'S LOAN PRIVILEGE?
A Policyowner may obtain Policy loans in an amount up to 90%
of the result of subtracting the remaining surrender charge from the Policy
Value. The interest rate on a loan is at an effective annual rate as stated in
the Policy, compounded daily and payable on each Policy Anniversary in arrears.
The requested loan amount is transferred from the VUL Account to the loaned
portion of the GIA and is credited with interest at an effective annual rate
as stated in the Policy. Phoenix reserves the right not to allow loans of less
than $500 unless the loans are to pay premiums on another policy issued by
Phoenix. See "The Policy--Policy Loans."
The proceeds of Policy loans may be subject to federal income tax under
certain circumstances. See "Federal Tax Considerations."
11. HOW ARE INSURANCE BENEFITS PAID?
Surrender and death benefits under the Policy may be paid in a lump sum or
under one of the payment options set forth in the Policy.
See "Payment Options."
PERFORMANCE HISTORY
- --------------------------------------------------------------------------------
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 7-day period (less a hypothetical charge reflecting deductions for
expenses taken during the period) and then annualized, i.e., the income earned
in the period is assumed to be earned every seven days over a 52-week period and
is stated in terms of an annual percentage return on the investment. Effective
yield is calculated similarly but reflects the compounding effect of earnings on
reinvested dividends. Yield and effective yield reflect the recurring charges on
the Account level including the monthly administrative charge.
Yield calculations of the Money Market 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.
Example:
Assumptions:
Value of hypothetical pre-existing account with exactly one unit
at the beginning of the period:................. 1.379843
Value of the same account (excluding capital changes) at the
end of the seven-day period:.................... 1.380945
Calculation:
Ending account value ........................... 1.380945
Less beginning account value .................. 1.379843
Net change in account value ................... 0.001102
Base period return:
(adjusted change/beginning account value) ...... 0.000799
Current yield = return x (365/7) = ............... 4.16%
Effective yield = [(1 + return)365/7] - 1 = ...... 4.25%
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.
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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 an applicable Policy charges except for cost of insurance
and surrender charges (which vary by Insured) and premium taxes (which vary by
state) at the beginning of the relevant period.
For those Subaccounts within the VUL Account that have not been available
for one of the quoted periods, the average annual total return quotations will
show the investment performance such Subaccount would have achieved (reduced by
the applicable charges) had it been available to invest in shares of the Fund
for the period quoted.
Below are quotations of 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 9.21% 9.09% 8.20% 9.55%
Balanced......... 5/1/92 7.40% N/A N/A 8.41%
Strategic Allocation 9/17/84 5.94% 7.55% 9.86% 11.06%
Growth........... 1/1/83 9.37% 12.76% 14.47% 16.91%
International.... 5/1/90 15.30% 7.63% N/A 6.76%
Money Market..... 10/10/82 2.02% 2.45% 4.24% 5.03%
Real Estate...... 5/1/95 29.34% N/A N/A 27.83%
Theme............ 1/29/96 N/A N/A N/A 7.29%
Asia............. 9/17/96 N/A N/A N/A (1.76%)
U.S. Small Cap... 5/1/95 42.77% N/A N/A 35.01%
Int'l. Small Cap. 5/1/95 28.54% N/A N/A 38.25%
ANNUAL TOTAL RETURN*
--------------------
MULTI- ALLO- INTER- MONEY
YEAR SECTOR BALANCED CATION GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983.... 5.06% N/A N/A 31.71% N/A 7.36%
1984.... 10.34% N/A (1.33%) 9.67% N/A 9.23%
1985.... 19.53% N/A 26.20% 33.71% N/A 7.06%
1986.... 18.22% N/A 14.65% 19.39% N/A 5.56%
1987.... 0.18% N/A 11.55% 5.97% N/A 5.55%
1988.... 9.50% N/A 1.42% 2.98% N/A 6.49%
1989.... 6.85% N/A 18.37% 34.43% N/A 7.93%
1990.... 4.43% N/A 5.05% 3.21% (8.91%) 7.41%
1991.... 18.54% N/A 28.14% 41.46% 18.67% 5.03%
1992.... 9.12% 8.77% 9.68% 9.30% (13.61%) 2.65%
1993.... 14.99% 7.75% 10.12% 18.75% 37.33% 2.06%
1994.... (6.21%) (3.61%) (2.19%) 0.66% (0.73%) 3.01%
1995.... 22.56% 22.37% 17.27% 29.85% 8.72% 4.86%
1996.... 11.52% 9.68% 8.18% 11.69% 17.71% 4.19%
REAL U.S. INT'L.
YEAR ESTATE THEME ASIA SMALL CAP SMALL CAP
- ---- ------ ----- ---- --------- ---------
1995.... 17.19% N/A N/A 16.01% 33.96%
1996.... 32.06% 9.55% (0.06%) 45.64% 31.15%
*Sales Charges have not been deducted from the Annual Total Return.
Advertisements, sales literature and other communications may contain
information about any Series' or Advisers' current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately as a return figure the equity or bond portion of a
Series' portfolio; or compare a Series' equity or bond return figure to
well-known indices of market performanceincludingbut not limited to the
Standard & Poor's 500 Stock Index (the "S&P 500"), Dow Jones Industrial Average,
First Boston High Yield Index, and Solomon Brothers Corporate and Government
Bond Indices.
The VUL Account may from time to time include in advertisements containing
total returns, 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 Analytical Services, Inc., CDA
Investment Technologies, Inc., Weisenberger Financial Services, Inc. and
Morningstar, Inc. Additionally, the Funds may compare a Series' performance
results to other investment or savings vehicles (such as certificates of
deposit) and may refer to results published in various publications such as
Changing Times, Forbes, Fortune, Money, Barron's, Business Week, Investor's
Daily, The Stanger Register, Stanger's Investment Adviser, The Wall Street
Journal, The New York Times, Consumer Reports, Registered Representative,
Financial Planning, Financial Services Weekly, Financial World, U.S. News and
World Report, Standard & Poor's, The Outlook, and Personal Investor. The Funds
may from time to time illustrate the benefits of tax deferral by comparing
taxable investments to investments made through tax-deferred retirement plans.
The total return also may be used to compare the performance of a Series
against certain widely acknowledged outside standards or indices for stock and
bond market performance, such as the S&P 500, Dow Jones Industrial Average,
Europe Australia Far East Index (EAFE), Consumer's Price Index, Shearson Lehman
Corporate Index and Shearson Lehman T-Bond Index. The S&P 500 is a commonly
quoted market value-weighted and unmanaged index showing the changes in the
aggregate market value of 500 common stocks relative to the base period 1940-43.
The S&P is composed almost entirely of common stocks of companies listed on the
New York Stock Exchange, although the common stocks of a few companies listed on
the American Stock Exchange or traded over the counter are included. The 500
companies represented include 400 industrial, 60 transportation and 40 financial
services concerns. The S&P represents about 70-80% of the market value of all
issues traded on the New York Stock Exchange.
The Funds' Annual Reports, available upon request and without charge,
contain a discussion of the performance of the Funds and a comparison of that
performance to a securities market index.
PHOENIX AND THE VUL ACCOUNT
- --------------------------------------------------------------------------------
PHOENIX
Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851. Its executive office is at One American Row, Hartford,
Connecticut 06115 and its main administrative office is at 100 Bright Meadow
Boulevard, Enfield, Connecticut 06083-1900. Its New York principal office is at
99 Troy Road, East Greenbush, New
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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 registered as a unit
investment trust under the Investment Company Act of 1940, as amended, and it
meets the definition of a "separate account" under that Act. Such registration
does not involve supervision of the management of the VUL Account or Phoenix by
the Securities and Exchange Commission.
The VUL Account is divided into Subaccounts, each of which is available for
allocation of Policy Value. If in the future Phoenix determines that marketing
needs and investment conditions warrant, Phoenix may establish additional
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 allocated to the VUL Account depends on
the investment performance of the Funds. Thus, the Policyowner bears the full
investment risk for all monies invested in the VUL Account.
The VUL Account is administered and accounted for as part of the general
business of Phoenix, but the income, gains, or losses of the VUL Account are
credited to or charged against the assets held in the VUL Account, without
regard to other income, gains, or losses of any other business Phoenix may
conduct. Under New York law, the assets of the VUL Account are not chargeable
with liabilities arising out of any other business Phoenix may conduct.
Nevertheless all obligations arising under the Policy are general corporate
obligations of Phoenix.
THE GIA
The GIA is not part of the VUL Account. It is accounted for as part of the
General Account. Phoenix reserves the right to limit cumulative deposits,
including transfers, to the unloaned portion of the GIA to no more than
$250,000 during any one-week period. Phoenix will credit interest daily on the
amounts allocated under the Policy to the GIA. The credited rate will be
uniform by class. The loaned portion of the GIA will be credited interest at
an effective annual fixed rate of 6%. Interest on the unloaned portion of the
GIA will be credited at an effective annual rate of not less than 4%.
Bi-weekly, Phoenix sets the interest rate that will apply to any net
premium or transferred amounts deposited to the unloaned portion of the GIA.
That rate will remain in effect for such deposits for an initial guarantee
period of one full year from the date of deposit. Upon expiration of the initial
one-year guarantee period (and each subsequent one-year guarantee period
thereafter), the rate to be applied to any deposits whose guarantee period has
just ended shall be the same rate as is applied to new deposits allocated to the
GIA at the time that the guarantee period expired. This rate, likewise, will
remain in effect for a guarantee period of one full year from the date the new
rate is applied. For more complete information concerning the GIA, see
Appendix A.
THE POLICY
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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 into 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 Funds. The Policy Value varies according to
the investment performance of the Series to which Policy Value has been
allocated.
ELIGIBLE PURCHASERS
Any person up to the age of 75 is eligible to be insured under a newly
purchased Policy after providing acceptable evidence of insurability. A person
can purchase a Policy to insure the life of another person provided that the
Policyowner has an insurable interest in the life of the Insured, and the
Insured consents.
PREMIUM PAYMENT
The minimum Issue Premium for a Policy is generally 1/6 of the Planned
Annual Premium. The Issue Premium is due on the Policy Date. The Insured must be
alive when the Issue Premium is paid. Thereafter, the amount and payment
frequency of planned premiums are as shown on the schedule page of the Policy.
All premiums are payable in advance to VPMO, except that the Issue Premium may
be paid to an authorized agent of Phoenix for forwarding to the Underwriting
Department of Phoenix.
Any premium payments will be reduced by the premium tax charge applicable in
the state of the Policyowner's last known address on record with VULA. The
Issue Premium also will be reduced by the Issue Expense Charge of $150 on a
pro rata basis in equal monthly installments over a 12-month period. Any unpaid
balance of the Issue Expense Charge will be paid to Phoenix upon Policy Lapse
or termination.
Premium payments received during a grace period also will be reduced by
the amount needed to cover any monthly deductions during the grace period. The
remainder will be applied on the Payment Date to the various Subaccounts of
the VUL Account or to the GIA, based on the premium allocation schedule
elected in the application for the Policy or as later changed. The allocation
schedule for premium payments may be changed by calling or writing to VPMO.
Allocations to the VUL Account Subaccounts or to the GIA must be expressed
in terms of whole percentages.
The number of units credited to a Subaccount of the VUL Account will be
determined by dividing the portion of the net premium applied to that
Subaccount by the unit value of the Subaccount on the Payment Date.
A Policyowner may increase or decrease the planned premium amount or payment
frequency at any time by written notice to VPMO. Phoenix reserves the right to
limit increases to such maximums as may be established from time to time.
Additional premium payments may be made at any time. Each premium payment must
at least equal
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$25 or, if made during a grace period, the payment must equal the amount needed
to prevent lapse of the Policy.
A Policyholder also may elect a Waiver of Premium Rider. This rider
provides for the waiver of certain premium payments under the Policy under
certain conditions during a period of total disability of the Insured. Under its
terms, the specified premium will be waived upon Phoenix's receipt of proof
that the Insured is totally disabled and that the disability occurred while the
rider was In Force.
The Policy contains a total premium limit as shown on the Schedule Page.
This limit is applied to the sum of all premiums paid under the Policy. If the
total premium limit is exceeded, the Policyowner will receive the excess, with
interest at an annual rate of not less than 4%, not later than 60 days after the
end of the Policy Year in which the limit was exceeded. The Policy Value will
then be adjusted to reflect the refund. The amount to be taken from each
Subaccount or the GIA will be allocated in the same manner as provided for
monthly deductions unless the Policyowner requests otherwise in writing. The
total premium limit may be exceeded if additional premium is needed to prevent
lapse or if Phoenix determines that additional premium would be permitted by
federal laws or regulations.
A Policyowner may authorize his bank to draw $25 or more from his personal
checking account monthly to purchase Units in any available Subaccount. The
amount the Policyowner designates will be automatically invested in the
Subaccount of his choice on the date the bank draws on his account.
Policies sold to officers, directors and employees of Phoenix (and their
spouses and children) will be credited with an amount equal to the first-year
commission that would apply on the amount of premium contributed. This option
also is available to career agents of Phoenix (and their spouses and children).
ALLOCATION OF ISSUE PREMIUM
Phoenix will generally allocate the Issue Premium less applicable charges
to the VUL Account or to the GIA upon receipt of a completed application, in
accordance with the allocation instructions in the application for a Policy.
However, Policies issued in certain states, and Policies issued in certain
states pursuant to applications which state the Policy is intended to replace
existing insurance, are issued with a Temporary Money Market Allocation
Amendment. Under this Amendment, Phoenix temporarily allocates the entire
Issue Premium paid less applicable charges (along with any other premiums paid
during the Right to Cancel Period) to the Money Market 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 (or longer in some states); within ten
days after Phoenix mails or delivers a written notice of withdrawal right to
the Policyowner; or within 45 days after the applicant signs the application for
insurance, whichever occurs latest (the "Right to Cancel Period"). The returned
Policy is treated as if Phoenix never issued the Policy and, except for
Policies issued with a Temporary Money Market Allocation Amendment, Phoenix
will return the sum of the following as of the date Phoenix receives the
returned Policy: (i) the then current Policy Value less any unpaid loans and
loan interest; plus (ii) any monthly deductions, partial surrender fees, and
other charges made under the Policy, including investment advisory fees, or any
Fund expenses deducted. The amount returned for Policies issued with the
Amendment will equal any premiums paid less any unrepaid loans and loan
interest, and less any partial surrender amounts paid.
Phoenix reserves the right to disapprove an application for processing
within seven days of receipt at Phoenix of the completed application for
insurance, in which event Phoenix will return the premium paid. Even after
approval of the application for processing, Phoenix reserves the right to
decline issuance of the Policy, in which event Phoenix will refund the
applicant the same amount as would have been refunded under the Policy had it
been issued but returned for refund during the Right to Cancel Period.
TEMPORARY INSURANCE COVERAGE
On the date the application for a Policy is signed and submitted with the
Issue Premium, Phoenix issues a Temporary Insurance Receipt in connection with
the application. Under the Temporary Insurance Receipt, the insurance protection
applied for (subject to the limits of liability and in accordance with the terms
set forth in the Policy and in the Receipt) takes effect on the date of the
application.
TRANSFER OF POLICY VALUE
SYSTEMATIC TRANSFER PROGRAM
A Policyowner may elect to automatically transfer funds among the
Subaccounts or the unloaned portion of the GIA on a monthly, quarterly,
semi-annual or annual basis under the Systematic Transfer Program for Dollar
Cost Averaging ("Systematic Transfer Program"). Under this Systematic Transfer
Program, the minimum initial and subsequent transfer amounts are $25 monthly,
$75 quarterly, $150 semi-annually, or $300 annually. A Policyowner must have an
initial value of $1,000 in the GIA or the Subaccount that funds will be
transferred from 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 Subaccount or the GIA, but may be allocated to multiple
Subaccounts. Under the Systematic Transfer Program, Policyowners may make more
than one transfer per Policy Year from the GIA, in approximate equal amounts
over a minimum 18-month period. All transfers under the Systematic Transfer
Program will be executed on the basis of the respective values as of the first
of the month following receipt of the transfer request. If the first of the
month falls on a holiday or weekend, then the transfer will be processed on the
next succeeding business day.
NON-SYSTEMATIC TRANSFERS
Transfers among available Subaccounts or the GIA and changes in premium
payment allocations may be requested in writing or by calling 1-800-892-4885,
between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time and will be
executed on the date the request is received at VPMO, except as noted below.
Unless the Policyowner elects in writing not to authorize telephone transfers or
allocation changes, telephone transfer orders and allocation changes also will
be accepted on behalf of the Policyowner from his or her registered
representative. Phoenix and Phoenix Equity Planning Corporation
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("PEPCO") will employ reasonable procedures to confirm that telephone
instructions are genuine. They will require verification of account information
and will record telephone instructions on tape. All telephone transfers will be
confirmed in writing to the Policyowner. To the extent that procedures
reasonably designed to prevent unauthorized transfers are not followed, Phoenix
and PEPCO may be liable for following telephone instructions for transfers that
prove to be fraudulent. However, the Policyowner would bear the risk of loss
resulting from instructions entered by an unauthorized third party that Phoenix
and PEPCO reasonably believe to be genuine. These telephone privileges may be
modified or terminated at any time and during times of extreme market
volatility, may be difficult to exercise. In such cases, the Policyowner should
submit a Written Request.
Phoenix reserves the right to permit transfers of less than $500 only if
the entire balance in the Subaccount or the GIA is transferred or if the
Systematic Transfer Program has been elected.
Phoenix reserves the right to prohibit a transfer to any Subaccount of
the VUL Account where the resultant value of the Policy's share in that
Subaccount immediately after the transfer would be less than $500. It further
reserves the right to require that the entire balance of a Subaccount or the
GIA be transferred if the share of the Policy in the value of that Subaccount
would, immediately after the transfer, be less than $500.
Unless Phoenix agrees otherwise or the Systematic Transfer Program has
been elected, a Policyowner may make only one transfer per Policy Year from the
unloaned portion of the GIA and the amount that may be transferred cannot exceed
the greater of $1,000 or 25% of the value of the Policy in the unloaned portion
of the GIA at the time of the transfer. Non-systematic transfers from the
unloaned portion of the GIA will be effectuated on the date of receipt by
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.
For policies issued with the Temporary Money Market Allocation Amendment,
transfers may not be made until termination of the Right to Cancel Period.
DETERMINATION OF SUBACCOUNT VALUES
The unit value of each Subaccount of the VUL Account was set by Phoenix
on the first valuation date of each such Subaccount. The unit value of a
Subaccount of the VUL Account on any other Valuation Date is determined by
multiplying the unit value of that Subaccount on the just prior Valuation Date
by the Net Investment Factor for that Subaccount for the then current
Valuation Period. The unit value of each Subaccount of the VUL Account on a
day other than a Valuation Date is the unit value on the next Valuation Date.
Unit values are carried to six decimal places. The unit value of each
Subaccount of the VUL Account on a Valuation Date is determined at the end of
that day.
The Net Investment Factor for each Subaccount of the VUL Account is
determined by the investment performance of the assets held by the Subaccount
during the Valuation Period. Each valuation will follow applicable law and
accepted procedures. The Net Investment Factor is equal to item (D) below
subtracted from the result of dividing the sum of items (A) and (B) by item (C).
(A) The value of the assets in the Subaccount on the current Valuation
Date, including accrued net investment income and realized and
unrealized capital gains and losses, but excluding the net value of any
transactions during the current Valuation Period.
(B) The amount of any dividend (or, if applicable, any capital gain
distribution) received by the Subaccount if the "ex-dividend" date
for shares of the Fund occurs during the current Valuation Period.
(C) The value of the assets in the Subaccount as of the just prior
Valuation Date, including accrued net investment income and realized
and unrealized capital gains and losses, and including the net value of
all transactions during the Valuation Period ending on that date.
(D) The sum of the following daily charges multiplied by the number of days
in the current Valuation Period:
1. the mortality and expense risk charge; and
2. the charge, if any, for taxes and reserves for taxes on
investment income, and realized and unrealized capital
gains.
DEATH BENEFIT
GENERAL
The death benefit (under Option 1) equals the Policy's face amount on the
date of the Insured's death or, if greater, the minimum death benefit on the
date of death. Under Option 2, the death benefit equals the Policy's face amount
on the date of the Insured's death plus the Policy Value. Under either Option,
the minimum death benefit is the Policy Value on the date of death of the
Insured increased by the applicable percentage from the table contained in the
Policy, based on the Insured's attained age at the beginning of the Policy Year
in which the death occurs. If no option is elected, Option 1 will apply.
GUARANTEED DEATH BENEFIT OPTION
For Policies with a face amount of at least $50,000, a guaranteed death
benefit rider may be purchased. Under this Policy rider, if a Policyowner pays
the required premium each year as specified in the rider, the death benefit
selected will be guaranteed for a certain specified number of years, regardless
of the investment performance of the Policy, and will equal either the initial
face amount or the face amount as later changed by increases or decreases. In
order to keep this guaranteed death benefit In Force, there may be limitations
on the amount of partial surrenders or decreases in face amount permitted.
LIVING BENEFITS OPTION
In the event of a terminal illness of the Insured, an accelerated payment of
up to 75% of the Policy's death benefit (up to a maximum of $250,000) is
available. The minimum face amount of the Policy after any such accelerated
benefit payment is $10,000.
PARTIAL SURRENDER AND DECREASES IN FACE AMOUNT: EFFECT ON
DEATH BENEFIT
A partial surrender or a decrease in face amount generally
decreases the death benefit. Upon a decrease in face amount or partial
surrender, a partial surrender charge will be deducted from Policy
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Value based on the amount of the decrease or partial surrender. With a decrease
in face amount, the death benefit under a Policy would be reduced on the next
Monthly Calculation Day. With a partial surrender, the death benefit under a
Policy would be reduced immediately. A decrease in the death benefit may have
certain tax consequences. See "Federal Tax Considerations."
REQUESTS FOR DECREASE IN FACE AMOUNT
A Policyowner may request a decrease in face amount at any time after the
first Policy Year. Unless Phoenix agrees otherwise, the decrease must at least
equal $10,000 and the face amount remaining after the decrease must at least
equal $25,000. All face amount decrease requests must be in writing and will be
effective on the first Monthly Calculation Day following the date Phoenix
approves the request. A partial surrender charge will be deducted from the
Policy Value based on the amount of the decrease, upon a decrease in face
amount. The charge will equal the applicable surrender charge that would apply
to a full surrender multiplied by a fraction (the decrease in face amount
divided by the face amount of the Policy before the decrease).
SURRENDERS
GENERAL
At any time during the lifetime of the Insured and while the Policy is In
Force, the Policyowner may partially or fully surrender the Policy by sending a
written release and surrender in a form satisfactory to VPMO, along with the
Policy if Phoenix so requires. The amount available for surrender is the Cash
Surrender Value at the end of the Valuation Period during which the surrender
request is received at VPMO.
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 "Surrender Charge" and "Payment
Options."
PARTIAL SURRENDERS
A Policyowner may obtain a partial surrender of the Policy by requesting
that part of the Policy's Cash Surrender Value be paid. The Policyowner may do
this at any time during the lifetime of the Insured while the Policy is In Force
with a Written Request to VPMO. Phoenix reserves the right to require that the
Policy be returned before payment is made. A partial surrender will be effective
on the date the Written Request is received or, if required, the date the Policy
is received. Surrender proceeds may be applied under any of the payment options
described under "Payment of Proceeds--Payment Options."
Phoenix reserves the right not to allow partial surrenders of less than
$500. In addition, if the share of the Policy Value in any Subaccount or in
the GIA that would be reduced as a result of a partial surrender would,
immediately after the partial surrender, be less than $500, Phoenix reserves
the right to require that as part of any partial surrender, the entire remaining
balance in that Subaccount or the GIA be surrendered.
Upon a partial surrender the Policy Value will be reduced by the sum of the
following:
(i) The Partial Surrender Amount Paid. This amount comes from a reduction
in the Policy's share in the value of each Subaccount or the GIA
based on the allocation requested at the time of the partial surrender.
If no allocation request is made, the assessment to each Subaccount
will be made in the same manner as that provided for monthly
deductions.
(ii) The Partial Surrender Fee. This fee is the lesser of $25 or 2% of the
partial surrender amount paid. The assessment to each Subaccount or
the GIA will be made in the same manner as provided for the partial
surrender amount paid.
(iii) A Partial Surrender Charge. This charge is equal to a pro rata
portion of the applicable surrender charge that would apply to a full
surrender, determined by multiplying the applicable surrender charge by
a fraction (equal to the partial surrender amount payable divided by
the result of subtracting the applicable surrender charge from the
Policy Value). This amount is assessed against the Subaccount or the
GIA in the same manner as provided for the partial surrender amount
paid.
The Cash Surrender Value will be reduced by the partial surrender amount
paid plus the partial surrender fee. The face amount of the Policy also will
be reduced by the same amount as the Policy Value is reduced as described above.
POLICY LOANS
While the Policy is In Force, a loan may be obtained against the Policy up
to the available loan value. The loan value on any day is 90% of the result of
subtracting the then remaining surrender charge from the Policy Value. The
available loan value is the loan value on the current day less any outstanding
Debt.
The amount of any loan will be added to the loaned portion of the GIA and
subtracted from the Policy's share of the Subaccounts or the unloaned portion of
the GIA, based on the allocation requested at the time of the loan. The total
reduction will equal the amount added to the loaned portion of the GIA.
Allocations generally must be expressed in terms of whole percentages. If no
allocation request is made, the amount subtracted from the share of each
Subaccount or the unloaned portion of the GIA will be determined in the same
manner as provided for monthly deductions. Interest will be credited and the
loaned portion of the GIA will increase at an effective annual rate of 6.00%,
compounded daily and payable in arrears. At the end of each Policy Year and at
the time of any Debt repayment, interest credited to the loaned portion of the
GIA will be transferred to the unloaned portion of the GIA.
Debt may be repaid at any time during the lifetime of the Insured while the
Policy is In Force. Any Debt repayment received by Phoenix during a grace
period will be reduced to cover any overdue monthly deductions and only the
balance will be applied to reduce the Debt. Such balance, in excess of any
outstanding accrued loan interest, will be applied to reduce the loaned portion
of the GIA and will be
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transferred to the unloaned portion of the GIA to the extent that loaned amounts
taken from such Account have not previously been repaid. Otherwise, such balance
will be transferred among the Subaccounts as the Policyowner requests upon
repayment and, if no allocation request is made, according to the most recent
premium allocation schedule on file.
While there is outstanding Debt on the Policy, any payments received by
Phoenix for the Policy will be applied directly to reduce the Debt unless
specified as a premium payment by the Policyowner. Until the Debt is fully
repaid, additional Debt repayments may be made at any time during the lifetime
of the Insured while the Policy is In Force.
Failure to repay a policy loan or to pay loan interest will not terminate
the Policy except as otherwise provided under the terms of the Policy concerning
the grace period and lapse.
The proceeds of Policy loans may be subject to federal income tax under
certain circumstances. See "Federal Tax Considerations."
In the future, Phoenix may not allow Policy loans of less than $500,
unless such loan is used to pay a premium on another Phoenix policy.
The Policyowner will pay interest on the loan at an effective annual rate,
compounded daily and payable in arrears. For the first ten Policy Years or until
the Policyowner reaches age 65, whichever occurs first, the rate will be 8.00%
and thereafter the rate will be 7.00%. At the end of each Policy Year, any
interest due on the Debt will be treated as a loan and will be offset by a
transfer from the Policyowner's values to the value of the loaned portion of the
GIA.
A Policy loan, whether or not repaid, has a permanent effect on the Policy
Value because the investment results of the Subaccounts or unloaned portion of
the GIA will apply only to the amount remaining in the Subaccounts or the
unloaned portion of the GIA. The longer a loan is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If the
Subaccounts or the unloaned portion of the GIA earn more than 6.00% per annum,
which is the annual interest rate for funds held in the loaned portion of the
GIA, Policy Value does not increase as rapidly as it would have had no loan been
made. If the Subaccounts or the GIA earn less than 6.00% per annum, Policy
Value is greater than it would have been had no loan been made. A Policy loan,
whether or not repaid, also has an effect on the Policy's Death Benefit due to
any resulting differences in Cash Surrender Value.
LAPSE
Unlike conventional life insurance policies, the payment of the Issue
Premium, no matter how large, or the payment of additional premiums will not
necessarily continue the Policy In Force to its Maturity Date.
If on any Monthly Calculation Day during the first two Policy Years, the
Policy Value is insufficient to cover the monthly deduction, a grace period of
61 days will be allowed for the payment of an amount equal to three times the
required monthly deduction. If on any Monthly Calculation Day during any
subsequent Policy Year, the Cash Surrender Value (which has become positive) is
less than the required monthly deduction, a grace period of 61 days will be
allowed for the payment of an amount equal to three times the required monthly
deduction. However, until the Cash Surrender Value becomes positive for the
first time, the Policy will not lapse as long as all premiums planned at issue
have been paid.
The Policy will continue In Force during any such grace period although,
Subaccount transfers, loans, partial or full surrenders will not be permitted.
Failure to pay the additional amount within the grace period will result in
lapse of the Policy, but not before 30 days have elapsed since Phoenix mailed
written notice to the Policyowner. If a premium payment for the additional
amount is received by Phoenix during the grace period, any amount of premium
over what is required to prevent lapse will be allocated among the Subaccounts
of the VUL Account or to the GIA in accordance with the then current premium
allocation schedule. In determining the amount of "excess" premium to be applied
to the 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.
PAYMENT OF PREMIUMS DURING PERIOD OF DISABILITY
A Policyholder also may elect a Waiver of Premium Rider. This rider provides
for the waiver of certain premium payments under the Policy under certain
conditions during a period of total disability of the Insured. Under its terms,
the specified premium will be waived upon Phoenix's receipt of proof that the
insured is totally disabled and that the disability occurred while the rider was
In Force. The terms of this rider may vary by state.
ADDITIONAL INSURANCE OPTIONS
While the Policy is In Force and the Policyowner is insurable, the
Policyowner will have the option to purchase additional insurance on the same
Insured with the same guaranteed rates as the Policy without being assessed an
Issue Expense Charge. Phoenix will require evidence of insurability and
charges will be adjusted for the Insured's new attained age and any change in
risk classification. However, if elected on the application, the Policyowners
may, at predetermined future dates, purchase additional insurance protection on
the same Insured without evidence of insurability. (See "Purchase Protection
Plan Riders.")
In addition, once each Policy Year, a Policyowner may request an increase in
face amount. This request should be made within 90 days prior to the Policy
Anniversary and is subject to an issue expense charge of $3 per $1,000 of
increase in face amount, up to a maximum of $150, and to Phoenix's receipt of
adequate evidence of insurability. A Right to Cancel Period as described in "The
Policy" section of this Prospectus applies to each increase in face amount.
ADDITIONAL RIDER BENEFITS
A Policyowner may purchase additional benefits under a Policy. These
benefits are cancellable by the Policyowner at any time. A charge will be
deducted monthly from your Policy Value for each additional rider benefit chosen
except where noted below. Riders listed below that specify "no charge" are
automatically included in your Policy. More details will be included in the form
of a Policy rider if any of these benefits is chosen. The following benefits are
currently available; however, additional riders may be available as described in
the Policy.
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o DISABILITY WAIVER OF SPECIFIED PREMIUM RIDER
Phoenix waives the specified premium if the Insured
becomes totally disabled and the disability continues for at
least six months. Premiums will be waived to the Policy
Anniversary nearest the Insured's 65th birthday (provided that
the disability continues), unless premiums have been waived
continuously during the entire five years prior to such date in
which case the waiver will continue beyond that date. The
premium will be waived upon Phoenix's receipt of notice that
the Insured is totally disabled and that the disability occurred
while the rider was In Force. The terms may vary by State.
o ACCIDENTAL DEATH BENEFIT RIDER
An additional death benefit will be paid if the Insured dies from bodily
injury that results from an accident if the Insured dies no later than
90 days after injury; and before the Policy Anniversary nearest the
Insured's 75th birthday.
o DEATH BENEFIT PROTECTION RIDER
The purchase of this rider provides that the death benefit will be
guaranteed. The amount of the guaranteed death benefit is equal to the
initial face amount, or the face amount that later may be increased or
decreased by the Policyholder provided that certain minimum premiums are
paid. Unless Phoenix agrees otherwise, the initial face amount and the
face amount remaining after any decrease must at least equal $50,000 and
the minimum issue age of the Insured is 20. Three (3) death benefit
guarantee periods are available in all states except New York. The
minimum premium required to maintain the guaranteed death benefit is
based on the length of the guarantee period as elected on the
application. The three available guarantee periods are:
Level: Expiry Date of Death Benefit Guaranteed, the later of:
1 The policy anniversary nearest the Insured's 70th birthday
or the 7th Policy Year
2 The policy anniversary nearest the Insured's 80th birthday
or the 10th Policy Year
3 The policy anniversary nearest the Insured's 95th birthday.
Level 1 or 2 guarantees may be extended provided that the Policy's Cash
Surrender Value is sufficient and the Policyowner pays the new Minimum Required
Premium.
For Policies issued in New York, two guarantee periods are available:
1 The policy anniversary nearest the Insured's 75th birthday or the
10th Policy Year
2 The policy anniversary nearest the Insured's 95th birthday.
o FACE AMOUNT OF INSURANCE INCREASE RIDER
Under the terms of this rider, any time after the first Policy
Anniversary, a Policyholder may request an increase in the face amount
of insurance provided under the Policy. Requests for face amount
increases must be made in writing, and Phoenix requires additional
evidence of insurability. The effective date of the increase will
generally be the Policy Anniversary following approval of the increase.
The increase may not be less than $25,000 and no increase will be
permitted after the Insured's age 75. The charge for the increase is $3
per thousand of face amount increase requested subject to a maximum of
$150. No additional monthly administration charge will be assessed for
face amount increases. Phoenix will deduct any charges associated with
the increase (the increases in cost of insurance charges), from the
Policy Value, whether or not the Policyowner pays an additional premium
in connection with the increase. The surrender charge applicable to the
Policy also will increase. At the time of the increase, the Cash
Surrender Value must be sufficient to pay the monthly deduction on that
date, or additional premiums will be required to be paid on or before
the effective date. Also, a new Right to Cancel period (see "The
Policy--Right to Cancel Period") will be established for the amount of
the increase. For a discussion of possible implications of a material
change in the Policy resulting from the increase, see "Material Change
Rules." There is no charge for this rider.
o WHOLE LIFE EXCHANGE OPTION RIDER
This rider permits the Policyowner to exchange his Policy for a fixed
benefit whole life policy at the later of age 65 or Policy Year 15.
There is no charge for this rider.
o PURCHASE PROTECTION PLAN RIDER
Under this rider a Policyowner may, at predetermined future dates,
purchase additional insurance protection without evidence of
insurability.
o LIVING BENEFITS RIDER
Under certain conditions, in the event of the terminal illness of the
Insured, an accelerated payment of up to 75% of the Policy's death
benefit (up to a maximum of $250,000) is available. The minimum face
amount of the Policy after any such accelerated benefit payment is
$10,000. There is no charge for this rider.
INVESTMENTS OF THE VUL ACCOUNT
- --------------------------------------------------------------------------------
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 Fund currently
has the following Series available through the Policies:
MONEY MARKET SERIES: The investment objective of the Money Market Series is
to provide maximum current income consistent with capital preservation and
liquidity.
GROWTH SERIES: The investment objective of the Growth Series is
to achieve intermediate and long-term growth of capital, with income
as a secondary consideration.
MULTI-SECTOR FIXED INCOME ("MULTI-SECTOR") SERIES: The investment objective
of the Multi-Sector Series is to seek long-term total return by investing in a
diversified portfolio of high yield (high risk) and high quality fixed income
securities. For a discussion of the risks associated with investing in high
yield bonds, please see the accompanying Fund prospectus.
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<PAGE>
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).
INTERNATIONAL SERIES: The investment objective of the International Series
is to seek a high total return consistent with reasonable risk. The
International Series intends to invest primarily in an internationally
diversified portfolio of equity securities. It intends to reduce its risk by
engaging in hedging transactions involving options, futures contracts and
foreign currency transactions. The International Series provides a means for
investors to invest a portion of their assets outside the United States.
BALANCED SERIES: The investment objective of the Balanced Series is to seek
reasonable income, long-term capital growth and conservation of capital. The
Balanced Series intends to invest based on combined considerations of risk,
income, capital enhancement and protection of capital value.
REAL ESTATE 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 SERIES: The investment objective of the Strategic Theme
Series is to seek long-term appreciation of capital by identifying securities
benefiting from long-term trends present in the United States and abroad. The
Strategic Theme Series intends to invest primarily in common stocks believed to
have substantial potential for capital growth.
ASIA SERIES: The investment objective of the Asia Series is to seek
long-term capital appreciation. The Asia Series will invest primarily in a
diversified portfolio of equity securities of issuers organized and principally
operating in Asia, excluding Japan.
WANGER ADVISORS TRUST
Certain 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
will invest primarily in securities of U.S. companies with total common stock
market capitalization of less than $1 billion.
WANGER INTERNATIONAL SMALL CAP ("INTERNATIONAL SMALL CAP") SERIES: The
investment objective of the International Small Cap Series is to provide
long-term growth. The International Small Cap will invest primarily in
securities of non-U.S. companies with total common stock market capitalization
of less than $1 billion.
Each Series will be subject to the market fluctuations and risks inherent in
the ownership of any security and there can be no assurance that any Series'
stated investment objective will be realized.
In addition to being sold to the VUL Account, shares of the Fund also are
sold to the Phoenix Home Life Variable Accumulation Account, a separate account
utilized by Phoenix to receive and invest premiums paid under certain variable
annuity contracts issued by Phoenix. Shares of the Fund also may be sold to
other separate accounts of Phoenix or its affiliates or of other insurance
companies.
It is conceivable that in the future it may be disadvantageous for variable
life insurance separate accounts and variable annuity separate accounts to
invest in the Fund simultaneously. Although neither Phoenix nor the Fund
currently foresees any such disadvantages either to variable life insurance
Policyowners or to variable annuity Contract Owners, the Fund's Trustees
intend to monitor events in order to identify any material conflicts between
variable life insurance Policyowners and variable annuity Contract Owners and
to determine what action, if any, should be taken in response thereto. Material
conflicts could result from, for example, (1) changes in state insurance laws,
(2) changes in federal income tax laws, (3) changes in the investment
management of any portfolio of the Fund, or (4) differences in voting
instructions between those given by variable life insurance Policyowners and
those given by variable annuity Contract Owners. Phoenix will, at its own
expense, remedy such material conflict including, if necessary, segregating the
assets underlying the variable life insurance policies and the variable annuity
contracts and establishing a new registered investment company.
INVESTMENT ADVISERS TO THE PHOENIX EDGE SERIES FUND
The Phoenix Edge Series Fund's investment advisers are Phoenix Investment
Counsel, Inc. ("PIC") and Phoenix Realty Securities, Inc. ("PRS") and
Phoenix-Aberdeen International Advisors LLC, ("PAIA") (collectively, the
"Advisers"), which are located at 56 and 38 Prospect Street and One American
Row, respectively, Hartford, Connecticut 06115. PIC was originally organized in
1932 as John P. Chase, Inc. In addition to the Fund, it also serves as
investment adviser to the Phoenix Series Fund, Phoenix Strategic Allocation
Fund, Inc. and Phoenix Multi-Portfolio Fund and as subadviser to American
Skandia, Chubb America Fund, Inc., Sun America Series Trust and JNL Series
Trust. PIC also serves as subadviser to the Asia Series.
PRS was formed in 1994 as an indirect subsidiary of Phoenix. In addition
to the Fund, it also serves as investment adviser to the Real Estate Portfolio
of the Phoenix Multi-Portfolio Fund.
PAIA, a Delaware limited liability company formed in 1996 and jointly owned
and managed by PM Holdings, Inc., is a direct subsidiary of Phoenix and Aberdeen
Fund Managers, Inc., a wholly-owned subsidiary of Aberdeen Trust plc. Aberdeen
Fund Managers, Inc. has its principal offices located at 1 Financial Plaza,
Suite 2210, NationsBank Tower, Fort Lauderdale, Florida 33394. While many of the
officers and directors of the Adviser have extensive experience as investment
professionals, due to its recent formation, the Adviser has no prior operating
history. Aberdeen Fund Managers also serves as subadviser to the Asia Series.
Aberdeen Trust was founded in 1983 and through subsidiaries operating from
offices in Aberdeen, Scotland; London, England; Singapore; and Fort Lauderdale,
Florida, provides investment management services to unit and investment trusts,
segregated pension funds and other institutional and private portfolios. As of
September 30, 1995, Aberdeen Trust, and its advisory subsidiaries, had
approximately $4 billion in assets under management.
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<PAGE>
ABKB/LaSalle Securities Limited Partnership (ABKB), a subsidiary of LaSalle
Partners, serves as subadviser to the Real Estate Series. ABKB's principal
place of business is located at 100 East Pratt Street, Baltimore, Maryland
21202. ABKB has been a registered investment adviser since 1979.
All of the outstanding stock of PIC is owned by PEPCO, an indirect
subsidiary of Phoenix. PEPCO also performs bookkeeping and pricing and
administrative services for the Fund. PEPCO is registered as a broker-dealer in
50 states. The executive offices of Phoenix are located at One American Row,
Hartford, Connecticut 06115 and the principal offices of PEPCO are located at
100 Bright Meadow Boulevard, P.O. Box 2200, Enfield, Connecticut 06083-2200.
INVESTMENT ADVISER TO THE WANGER ADVISORS TRUST
The investment adviser to the Wanger Advisors Trust is Wanger
Asset Management, L.P. Wanger's principal place of business is located at 227
West Monroe Street, Suite 3000, Chicago, Illinois 60606.
The Advisers continuously furnish an investment program for each Series
and manage the investment and reinvestment of the assets of each Series subject
at all times to the authority and supervision of the Trustees. A more detailed
discussion of the Advisers and the Investment Advisory Agreements is contained
in the accompanying prospectus for the Fund.
REINVESTMENT AND REDEMPTION
All dividend distributions of the Funds are automatically reinvested in
shares of the Funds at their net asset value on the date of distribution; all
capital gains distributions of the Funds, if any, are likewise reinvested at the
net asset value on the record date. Phoenix redeems Funds shares at their net
asset value to the extent necessary to make payments under the Policy.
SUBSTITUTION OF INVESTMENTS
Phoenix reserves the right, subject to compliance with the law as
currently applicable or subsequently changed, to make additions to, deletions
from, or substitutions for the investments held by the VUL Account. In the
future Phoenix may establish additional Subaccounts within the VUL Account,
each of which will invest solely in shares of a designated portfolio of the
Funds with a specified investment objective. These portfolios will be
established if, and when, in the sole discretion of Phoenix, marketing needs
and investment conditions warrant, and will be made available under existing
Policies to the extent and on a basis to be determined by Phoenix.
If shares of any of the portfolios of the Funds should no longer be
available for investment, or if in the judgment of Phoenix's management
further investment in shares of any of the portfolios should become
inappropriate in view of the objectives of the Policy, then Phoenix may
substitute shares of another mutual fund for shares already purchased, or to be
purchased in the future, under the Policy. No substitution of mutual fund shares
held by the VUL Account may take place without prior approval of the Securities
and Exchange Commission, and prior notice to the Policyowner. In the event of a
substitution, the Policyowner will be given the option of transferring the
Policy Value of the 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 nature and amount of these charges are described more fully
below.
1. MONTHLY DEDUCTION
A charge is deducted monthly from the Policy Value under a Policy ("monthly
deduction") to pay: the cost of insurance provided under the Policy, the cost of
any rider benefits provided, any unpaid balance of the issue expense charge, and
an administrative charge. This administrative charge is currently set at $5
per month but it is guaranteed not to exceed $10 per month. The monthly
deduction is deducted on each Monthly Calculation Day. It is allocated among the
Subaccounts of the VUL Account and the unloaned portion of the GIA based on
the allocation schedule for monthly deductions specified by the applicant in the
application for a Policy or as later changed by the Policyowner. In the event
that the Policy's share in the value of the Subaccounts or the unloaned
portion of the GIA is insufficient to permit the withdrawal of the full
monthly deduction, the remainder will be taken on a proportionate basis from the
Policy's share of each of the other Subaccounts and the unloaned portion of
the GIA. The number of units deducted will be determined by dividing the
portion of the monthly deduction allocated to each Subaccount or to the
unloaned portion of the GIA by the unit value on the Monthly Calculation Day.
Because portions of the monthly deduction, such as the cost of insurance, can
vary from month to month, the monthly deduction itself may vary in amount from
month to month.
(A) ISSUE EXPENSE CHARGE. A cost-based issue administration charge of
$150 is assessed on a pro rata basis in equal monthly installments
over a 12-month period to compensate Phoenix for underwriting and
start-up expenses in connection with issuing a Policy. Phoenix may
reduce or eliminate the Issue Expense Charge for Policies issued
under group or sponsored arrangements. Generally, administrative
costs per Policy vary with the size of the group or sponsored
arrangement, its stability as indicated by its term of existence and
certain characteristics of its members, the purposes for which the
Policies are purchased and other factors. The amounts of any
reductions will be considered on a case-by-case basis and will
reflect the reduced administration costs expected as a result of
sales to a particular group or sponsored arrangement.
(B) COST OF INSURANCE. In order to calculate the cost of insurance
charge, Phoenix multiplies the applicable cost of insurance rate by
the difference between the death benefit selected (death benefit
Option 1 if no selection is made) and the Policy Value. Generally,
cost of insurance rates are based on the sex, attained age and risk
class of the Insured. However, in certain states and for policies
issued in conjunction with certain qualified plans, cost of insurance
rates are not based on sex. The actual monthly cost of insurance
rates are based on Phoenix's expectations of future mortality
experience. They will not, however, be greater than the guaranteed
cost of insurance rates set forth in the Policy. These guaranteed
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<PAGE>
maximum rates are equal to 100% of the 1980 Commissioners Standard
Ordinary ("CSO") Mortality Table, with appropriate adjustment for the
Insured's risk classification. Any change in the cost of insurance
rates will apply to all persons of the same sex, insurance age and
risk class whose Policies have been In Force for the same length of
time. The risk class of an Insured may affect the cost of insurance
rate. Phoenix currently places Insureds into a standard risk class or
a risk class involving a higher mortality risk, depending upon the
health of the Insured as determined by medical information that
Phoenix requests. In an otherwise identical Policy, Insureds in the
standard risk class will have a lower cost of insurance than those in
the risk class with the higher mortality risk. The standard risk
class also is divided into three categories: smokers and nonsmokers
and those who have never smoked. Non-smokers generally will incur a
lower cost of insurance than similarly situated Insureds who smoke.
2. PREMIUM TAXES.
Various states and subdivisions impose a tax on premiums received by
insurance companies. Premium taxes vary from state to state. The assessment made
for each premium paid is equal to the tax assessed by the state in which the
Policyowner resides according to Phoenix's records at the time of the payment.
Currently, the taxes imposed by states on premiums range from 0.75% to 4% of
premiums paid. Moreover, certain municipalities in Louisiana, Kentucky and South
Carolina also impose taxes on premiums paid, in addition to the state taxes
imposed by these states. The premium tax charge represents an amount Phoenix
considers necessary to pay all premium taxes imposed by such states and any
subdivisions thereof, and Phoenix does not expect to derive a profit from this
charge. These taxes are deducted from the Issue Premium, and from each
subsequent premium payment.
3. MORTALITY AND EXPENSE RISK CHARGE
Phoenix will deduct a daily charge from the VUL Account at an annual rate
of 0.80% of the average daily net assets of the VUL Account to compensate for
certain risks assumed in connection with the Policy. This charge is not deducted
from the GIA.
The mortality risk assumed by Phoenix is that Insureds may live for a
shorter time than projected because of inaccuracies in that projecting process
and, accordingly, that an aggregate amount of death benefits greater than that
projected will be payable. The expense risk assumed is that expenses incurred in
issuing the Policies may exceed the limits on administrative charges set in the
Policies. If the expenses do not increase to an amount in excess of the limits,
or if the mortality projecting process proves to be accurate, Phoenix may
profit from this charge. Phoenix also assumes risks with respect to other
contingencies including the incidence of Policy loans, which may cause Phoenix
to incur greater costs than anticipated when designing the Policies. To the
extent Phoenix profits from this charge, it may use those profits for any
proper purpose, including the payment of sales expenses or any other expenses
that may exceed income in a given year.
4. INVESTMENT MANAGEMENT CHARGE
As compensation for their investment management services to the Fund, the
Advisers are entitled to fees, payable monthly and based on an annual percentage
of the average aggregate daily net asset values of each Series as summarized in
the following tables:
PHOENIX INVESTMENT COUNSEL, INC.
--------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $250,000,000 $250,000,000 $500,000,000
- ------ ------------ ------------ ------------
Money Market........ .40% .35% .30%
Multi-Sector...... .50% .45% .40%
Balanced............ .55% .50% .45%
Strategic Allocation .60% .55% .50%
Growth.............. .70% .65% .60%
International....... .75% .70% .65%
Strategic Theme..... .75% .70% .65%
PHOENIX-ABERDEEN INTERNATIONAL ADVISORS, LLC
--------------------------------------------
SERIES
- ------
Asia Series.......... 1.00%
PHOENIX REALTY SECURITIES, INC.
-------------------------------
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $1,000,000,000 $1,000,000,000 $2,000,000,000
- ------ -------------- -------------- --------------
Real Estate......... .75% .70% .65%
WANGER ASSET MANAGEMENT, L.P.
RATE FOR
RATE FOR FIRST RATE FOR NEXT EXCESS OVER
SERIES $100,000,000 $150,000,000 $250,000,000
- ------ ------------ ------------ ------------
U.S. Small Cap...... 1.00% .95% .90%
International
Small Cap........... 1.30% 1.20% 1.10%
In addition, each series pays a portion or all of its other annual operating
expenses other than the management fees; the Growth, Multi-Sector, Strategic
Allocation, Money Market and Balanced series will pay up to .15%; the Real
Estate, Strategic Theme and Asia Series will pay up to .25%; the International
Series will pay up to .40%; the Wanger I.S. Small Cap Series will pay up to
.50%; and the Wanger International Small Cap Series will pay up to .60% of its
average net assets annually.
5. OTHER CHARGES
SURRENDER CHARGE
During the first 10 Policy Years, there is a difference between the amount
of Policy Value and the amount of Cash Surrender Value of the Policy. This
difference is the surrender charge, consisting of a contingent deferred sales
charge designed to recover expenses for the distribution of Policies that are
terminated by surrender before distribution expenses have been recouped, and a
contingent deferred issue charge designed to recover expenses for the
administration of Policies that are terminated by surrender before
administrative expenses have been recouped. These are contingent charges because
they are paid only if the Policy is surrendered (or the face amount is reduced
or the Policy lapses) during the first 10 Policy Years. They are deferred
charges because they are not deducted from premiums.
In Policy Years one through ten the full Surrender Charge as described below
will apply if the Policyowner either surrenders the Policy for its Cash
Surrender Value or lets the Policy lapse. The applicable Surrender Charge in any
Policy Month is the full Surrender Charge minus any surrender charges that have
been previously paid. There is no Surrender Charge after the 10th Policy Year.
The maximum Surrender Charge that a Policyowner could pay while he or she owns
the Policy is equal to either A plus B (as defined below) or
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the amount shown in the table on Schedule Page 4 of the Policy, whichever is
less.
A (the contingent deferred sales charge) is equal to:
1) 30% of all premiums paid (up to and including the amount
stated on Schedule Page 4 of the Policy, which is calculated
according to a formula contained in a Securities and
Exchange Commission rule); plus
2) 10% of all premiums paid in excess of this amount but not
greater than twice this amount; plus
3) 9% of all premiums paid in excess of twice this amount.
B (the contingent deferred issue charge) is equal to:
$5 per $1,000 of initial face amount.
As an example, the following illustrates the maximum Surrender Charge on a
$100,000 Policy for a male age 35 who has never smoked who has paid $3,000 in
premium payments, and who surrenders the Policy in the 70th Policy Month.
Schedule Page 4 of the Policy would show that the maximum Surrender Charge to be
paid would be equal to either A plus B (shown below) or the amount shown in the
chart in the Policy (also shown below), whichever is less:
A is equal to:
1) 30% of all premiums paid, up to $1,058.45 (equals
$317.54); plus
2) 10% of all premiums paid in excess of $1,058.45 but not
greater than $2,116.90 (equals $105.83); plus
3) 9% of all premiums paid in excess of $2,116.90 (equals
$79.48); plus
B which is equal to $500.
Therefore A plus B is equal to $1,002.87.
The chart that would be shown in the Policy is reproduced below:
MAXIMUM SURRENDER CHARGE TABLE
------------------------------
POLICY SURRENDER POLICY SURRENDER POLICY SURRENDER
MONTH CHARGE MONTH CHARGE MONTH CHARGE
----- ------ ----- ------ ----- ------
1-60 $1029.22 80 $823.38 100 $531.90
61 1018.93 81 813.09 101 516.26
62 1008.64 82 802.80 102 500.61
63 998.35 83 792.50 103 484.97
64 988.06 84 782.21 104 469.33
65 977.76 85 766.57 105 453.68
66 967.47 86 750.92 106 438.04
67 957.18 87 735.28 107 422.39
68 946.89 88 719.63 108 406.75
69 936.59 89 703.99 109 372.85
70 926.30 90 688.35 110 338.96
71 916.01 91 672.70 111 305.06
72 905.72 92 657.06 112 271.17
73 895.43 93 641.41 113 237.27
74 885.13 94 625.77 114 203.37
75 874.84 95 610.12 115 169.48
76 864.55 96 594.48 116 135.58
77 854.26 97 578.84 117 101.69
78 843.96 98 563.19 118 67.79
79 833.67 99 547.55 119 33.90
120 .00
If the Surrender occurred in Policy Month 70, the Policyowner would pay the
lesser of $1002.87 (as computed above) or $926.30 (amount in table above). This
Policyowner would pay a Surrender Charge of $926.30. Phoenix may reduce the
surrender charge for Policies issued under group or sponsored arrangements. The
amounts of reductions will be considered on a case-by-case basis and will
reflect the reduced costs to Phoenix expected as a result of sales to a
particular group or sponsored arrangement.
PARTIAL SURRENDER FEE
A fee equal to the lesser of $25 or 2% of the amount withdrawn from the
Policy is deducted from the Policy Value upon a partial surrender of the Policy
to recover the actual costs of processing the partial surrender request. The
assessment to each Subaccount or to the GIA will be made in the same manner
as provided for the partial surrender amount paid. That is, that the Policy's
share in the value of each Subaccount or the GIA will be reduced based on
the allocation made at the time of the partial surrender. If no allocation
request is made, the assessment to each Subaccount and to the GIA will be
made in the same manner as provided for monthly deductions.
PARTIAL SURRENDER CHARGE
A charge as described below is deducted from the Policy Value upon a partial
surrender of the Policy. The charge is equal to a pro rata portion of the
applicable surrender charge that would apply to a full surrender, determined by
multiplying the applicable surrender charge by a fraction (equal to the partial
surrender amount payable divided by the result of subtracting the applicable
surrender charge from the Policy Value). This amount is assessed against the
Subaccounts or the GIA in the same manner as provided for with respect to the
partial surrender amount paid.
A partial surrender charge also is deducted from Policy Value upon a
decrease in face amount. The charge is equal to the applicable surrender
charge multiplied by a fraction (equal to the decrease in face amount divided
by the face amount of the Policy prior to the decrease).
TAXES
Currently no charge is made to the VUL Account for federal income taxes
that may be attributable to the VUL Account. Phoenix may, however, make such a
charge in the future. Charges for other taxes, if any, attributable to the VUL
Account also may be made. See "Charges and Deductions--Other Charges."
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
GENERAL
Payment of any amount upon complete or partial surrender, Policy loan, or
benefits payable at death (in excess of the initial face amount) or maturity may
be postponed: (i) for up to six months from the date of the request, for any
transactions dependent upon the value of the GIA; (ii) whenever the New York
Stock Exchange is closed other than for customary weekend and holiday closings,
or trading on the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission; or (iii) whenever an emergency exists, as
determined by the Commission as a result of which disposal of securities is not
reasonably practicable or it is not reasonably practicable to determine the
value of the VUL Account's net assets. Transfers also may be postponed under
these circumstances.
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PAYMENT BY CHECK
Payments under the Policy of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared the Policyowner's bank.
THE CONTRACT
The Policy and attached copy of the application are the entire contract.
Only statements in the application can be used to void the Policy. The
statements are considered representations and not warranties. Only an executive
officer of Phoenix can agree to change or waive any provisions of the Policy.
SUICIDE
If the Insured commits suicide within two years after the Policy's Date of
Issue, Phoenix will pay only the Policy Value adjusted by the addition of any
monthly deductions and other fees and charges made under the Policy and the
subtraction of any Debt owed to Phoenix under the Policy.
INCONTESTABILITY
Phoenix cannot contest this Policy or any attached rider after it has been
In Force during the lifetime of the Insured for two years from the Policy Date.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently changed,
will receive the Policy benefits at the Insured's death. If the named
Beneficiary dies before the Insured, the contingent Beneficiary, if named,
becomes the Beneficiary. If no Beneficiary survives the Policyowner, the
benefits payable at the Insured's death will be paid to the Policyowner's
estate.
As long as the Policy is In Force, the Policyowner and the Beneficiary may
be changed by Written Request, satisfactory to Phoenix. A change in
Beneficiary will take effect as of the date the notice is signed, whether or not
the Insured is living when the notice is received by Phoenix. Phoenix will
not, however, be liable for any payment made or action taken before receipt of
the notice.
ASSIGNMENT
The Policy may be assigned. Phoenix will not be bound by the assignment
until a written copy has been received and will not be liable with respect to
any payment made prior to receipt. Phoenix assumes no responsibility for
determining whether an assignment is valid.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the death benefit will
be adjusted based on what the cost of insurance charge for the most recent
monthly deduction would have purchased based on the correct age and sex.
SURPLUS
Policyowners may share in divisible surplus of Phoenix to the extent
determined annually by the Phoenix Board of Directors. However, it is not
currently anticipated that the Board will authorize these payments since
Policyowners will be participating directly in investment results.
PAYMENT OF PROCEEDS
- --------------------------------------------------------------------------------
SURRENDER AND DEATH BENEFIT PROCEEDS
Death benefit proceeds and the proceeds of full or partial surrenders will
be processed at unit values next computed after Phoenix receives the request
for surrender or due proof of death, provided such request is complete and in
good order. Payment of surrender or death proceeds usually will be made in one
lump-sum within seven days, unless another payment option has been elected.
Payment of the death proceeds, however, may be delayed if the claim for payment
of the death proceeds needs to be investigated; e.g., to ensure payment of the
proper amount to the proper payee. Any such delay will not be beyond that
reasonably necessary to investigate such claims consistent with insurance
practices customary in the life insurance industry. In addition, under certain
conditions, in the event of the terminal illness of the Insured, an accelerated
payment of up to 75% of the Policy's Death Benefit (up to a maximum of
$250,000), is available under the Living Benefits Rider. The minimum face amount
remaining after any such accelerated benefit payment is $10,000.
While the Insured is living, the Policyowner may elect a payment option for
payment of the death proceeds to the Beneficiary. The Policyowner may revoke or
change a prior election, unless such right has been waived. The Beneficiary may
make or change an election prior to payment of the death proceeds, unless the
Policyowner has made an election which does not permit such further election or
changes by the Beneficiary.
A written form satisfactory to Phoenix is required to elect, change, or
revoke a payment option.
The minimum amount of surrender or death proceeds that may be applied under
any income option is $1,000.
If the Policy is assigned as collateral security, Phoenix will pay any
amount due the assignee in one lump sum. Any remaining proceeds will remain
under the option elected.
PAYMENT OPTIONS
All or part of the surrender or death proceeds of a Policy may be applied
under one or more of the following payment options or such other payment options
or alternative versions of the options listed as Phoenix may choose to make
available in the future.
OPTION 1--LUMP SUM.
Payment in one lump sum.
OPTION 2--LEFT TO EARN INTEREST.
A payment of interest during the payee's lifetime on the amount payable as a
principal sum. Interest rates are guaranteed to be at least 3% per year.
OPTION 3--PAYMENT FOR A SPECIFIC PERIOD.
Equal income installments are paid for a specified period of years whether
the payee lives or dies. The first payment will be on the date of settlement.
The assumed interest rate on the unpaid balance is guaranteed not to be less
than 3% per year.
OPTION 4--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN.
Equal installments are paid until the later of: (A) The death of the
payee; (B) The end of the period certain. The first payment will be on the date
of settlement. The period certain must be chosen at the time
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this option is elected. The periods certain that may be chosen are as follows:
(A) Ten years; (B) Twenty years; (C) Until the installments paid refund the
amount applied under this option; and if the payee is not living when the final
payment falls due, that payment will be limited to the amount which needs to be
added to the payments already made to equal the amount applied under this
option. If, for the age of the payee, a period certain is chosen that is shorter
than another period certain paying the same installment amount, Phoenix will
deem the longer period certain as having been elected. Any life annuity provided
under Option 4 is calculated using an interest rate guaranteed to be no less
than 3 3/8% per year, except that any life annuity providing a period certain of
20 years or more is calculated using an interest rate guaranteed to be no less
than 3 1/4% per year.
OPTION 5--LIFE ANNUITY.
Equal installments are paid only during the lifetime of the payee. The first
payment will be on the date of settlement. Any life annuity as may be provided
under Option 5 is calculated using an interest rate guaranteed to be no less
than 3 1/2% per year.
OPTION 6--PAYMENTS OF A SPECIFIED AMOUNT.
Equal installments of a specified amount, out of the principal sum and
interest on that sum, are paid until the principal sum remaining is less than
the amount of the installment. When that happens, the principal sum remaining
with accrued interest will be paid as a final payment. The first payment will be
on the date of settlement. The payments will include interest on the principal
sum remaining at a rate guaranteed to be at least equal 3% per year. This
interest will be credited at the end of each year. If the amount of interest
credited at the end of the year exceeds the income payments made in the last 12
months, that excess will be paid in one sum on the date credited.
OPTION 7--JOINT SURVIVORSHIP ANNUITY WITH 10-YEAR PERIOD
CERTAIN.
The first payment will be on the date of settlement. Equal income
installments are paid until the latest of: (A) the end of the 10-year period
certain; (B) the death of the Insured; (C) the death of the other named
annuitant. The other annuitant must be named at the time this option is elected
and cannot later be changed. The other annuitant must have an attained age of at
least 40. Any joint survivorship annuity as may be provided under this option is
calculated using an interest rate guaranteed to be no less than 3 3/8% per year.
For additional information concerning the above payment options, see the
Policy.
FEDERAL TAX CONSIDERATIONS
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INTRODUCTION
The ultimate effect of federal income taxes on values under the VUL
Account and on the economic benefit to the Policyowner or Beneficiary depends on
Phoenix's tax status and upon the tax status of the individual concerned. The
discussion contained herein is general in nature and is not intended as tax
advice. For complete information on federal and state tax considerations, a
qualified tax adviser should be consulted. No attempt is made to consider any
estate and inheritance taxes, or any state, local or other tax laws. Because the
discussion herein is based upon Phoenix's understanding of federal income
tax laws as they are currently interpreted, Phoenix cannot guarantee the tax
status of any Policy. No representation is made regarding the likelihood of
continuation of current federal income tax laws, Treasury regulations, or of
the current interpretations by the Internal Revenue Service. Phoenix reserves
the right to make changes to the Policy in order to assure that it will continue
to qualify as a life insurance contract for federal income tax purposes.
PHOENIX'S TAX STATUS
Phoenix is taxed as a life insurance company under the Internal Revenue
Code of 1986, as amended (the "Code"). For federal income tax purposes,
neither the VUL Account nor the GIA is a separate entity from Phoenix and
their operations form a part of Phoenix.
Investment income and realized capital gains on the assets of the VUL
Account are reinvested and taken into account in determining the value of the
VUL Account. Investment income of the VUL Account, including realized net
capital gains, is not taxed to Phoenix. Due to Phoenix's tax status under
current provisions of the Code, no charge currently will be made to the VUL
Account for Phoenix's federal income taxes which may be attributable to the
VUL Account. Phoenix reserves the right to make a deduction for taxes if the
federal tax treatment of Phoenix is determined to be other than what Phoenix
currently believes it to be, if changes are made affecting the tax treatment to
Phoenix of variable life insurance contracts, or if changes occur in
Phoenix's tax status. If imposed, such charge would be equal to the federal
income taxes attributable to the investment results of the VUL Account.
POLICY BENEFITS
DEATH BENEFIT PROCEEDS. The Policy, whether or not it is a "modified
endowment contract" (see the discussion on modified endowment contracts below),
should be treated as meeting the definition of a life insurance contract for
federal income tax purposes, under Section 7702 of the Code. As such, the death
benefit proceeds thereunder should be excludable from the gross income of the
Beneficiary under Code Section 101(a)(1). Also, the Policyowner should not be
deemed to be in constructive receipt of the Cash Value, including increments
thereon. See, however, the sections below on possible taxation of amounts
received under the Policy, via full surrender, partial surrender or loan. In
addition, a benefit paid under a Living Benefit Rider may be taxable as income
in the year of receipt.
Code Section 7702 imposes certain conditions with respect to premiums
received under a Policy. Phoenix intends to monitor the premiums to assure
compliance with such conditions. However, in the event that the premium
limitation is exceeded during the year, Phoenix may return the excess premium,
with interest, to the Policyowner within 60 days after the end of the Policy
Year, and maintain the qualification of the Policy as life insurance for
federal income tax purposes.
FULL SURRENDER. Upon full surrender of a Policy for its Cash Value, the
excess, if any, of the Cash Value (unreduced by any outstanding indebtedness)
over the premiums paid will be treated as ordinary income for federal income
tax purposes. The full surrender of a Policy which is a "modified endowment
contract" may result in the imposition of an additional 10% tax on any income
received.
PARTIAL SURRENDER. If the Policy is a "modified endowment contract," partial
surrenders are fully taxable to the extent of income in the Policy and are
possibly subject to an additional 10% tax. See the
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discussion on "modified endowment contracts" below. If the Policy is not a
"modified endowment contract," partial surrenders still may be taxable, as
follows. Code Section 7702(f)(7) provides that where a reduction in death
benefits occurs during the first 15 years after a Policy is issued and there is
a cash distribution associated with that reduction, the Policyowner may be taxed
on all or a part of the amount distributed. A reduction in death benefits may
result from a partial surrender. After 15 years, the proceeds will not be
subject to tax, except to the extent such proceeds exceed the total amount of
premiums paid but not previously recovered. Phoenix suggests you consult with
your tax adviser in advance of a proposed decrease in death benefits or a
partial surrender as to the portion, if any, which would be subject to tax, and
in addition as to the impact such partial surrender might have under the rules
affecting "modified endowment contracts."
LOANS. Phoenix believes that any loan received under a Policy will be
treated as indebtedness of the Policyowner. If the Policy is a "modified
endowment contract," loans are fully taxable to the extent of income in the
Policy and are possibly subject to an additional 10% tax. See the discussion
on "modified endowment contracts" below. If the Policy is not a "modified
endowment contract," Phoenix believes that no part of any loan under a Policy
will constitute income to the Policyowner.
The deductibility by the Policyowner of loan interest under a Policy may be
limited under Code Section 264, depending on the circumstances. Any Policyowner
intending to fund premium payments through borrowing should consult a tax
adviser with respect to the tax consequences thereof. Under the "personal"
interest limitation provisions of the Code, interest on Policy loans used for
personal purposes is not tax deductible. Other rules may apply to allow all or
part of the interest expense as a deduction if the loan proceeds are used for
"trade or business" or "investment" purposes. See your tax adviser for further
guidance.
BUSINESS-OWNED POLICIES
If the Policy is owned by a business or a corporation, the Code may impose
additional restrictions. The Code limits the interest deduction on
business-owned Policy loans and may impose tax upon the inside build-up of
corporate-owned life insurance policies through the corporate alternative
minimum tax.
MODIFIED ENDOWMENT CONTRACTS
GENERAL. Pursuant to Code Section 72(e), loans and other amounts received
under "modified endowment contracts" will in general be taxed to the extent of
accumulated income (generally, the excess of Cash Value over premiums paid).
Policies are "modified endowment contracts" if they meet the definition of life
insurance, but fail the "7-pay test." This test essentially provides that the
cumulative premiums paid under the Policy at any time during the Policy's first
seven years cannot exceed the sum of the net level premiums that would have
been paid on or before that time had the Policy provided for paid-up future
benefits after the payment of seven level annual premiums. In addition, a
modified endowment contract includes any life insurance contract that is
received in exchange for a modified endowment contract. Premiums paid during a
Policy Year that are returned by Phoenix (with interest) within 60 days after
the end of the Policy Year will not cause the Policy to fail the 7-pay test.
REDUCTION IN BENEFITS DURING THE FIRST SEVEN YEARS. If there is a
reduction in benefits during the first seven Policy Years, the premiums are
redetermined for purposes of the 7-pay test as if the Policy originally had
been issued at the reduced death benefit level and the new limitation is applied
to the cumulative amount paid for each of the first seven Policy Years.
DISTRIBUTIONS AFFECTED. If a Policy fails to meet the 7-pay test, it is
considered a modified endowment contract only as to distributions in the year in
which the death benefit reduction takes effect and all subsequent Policy Years.
However, distributions made in anticipation of such failure (there is a
presumption that distributions made within two years prior to such failure were
"made in anticipation") also are considered distributions under a modified
endowment contract. If the Policy satisfies the "7-pay test" for seven years,
distributions and loans will generally not be subject to the modified endowment
contract tax rules.
PENALTY TAX. Any amounts taxable under the modified endowment contract rule
will be subject to an additional 10% excise tax, with certain exceptions. This
additional tax will not apply in the case of distributions: (i) made on or after
the taxpayer attains age 59 1/2; (ii) which are attributable to the taxpayer's
disability (within the meaning of Code Section 72(m)(7)); or (iii) which are
part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the taxpayer or the
joint lives (or life expectancies) of the taxpayer and his Beneficiary.
MATERIAL CHANGE RULES. Any determination of whether the Policy meets the
"7-pay test" will begin again any time the Policy undergoes a "material change,"
which includes any increase in death benefits or any increase in or addition of
a qualified additional benefit, with the following two exceptions. First, if an
increase is attributable to premiums paid "necessary to fund" the lowest death
benefit and qualified additional benefits payable in the first seven Policy
Years or to the crediting of interest or dividends with respect to these
premiums, the "increase" does not constitute a material change. Second, to the
extent provided in regulations, if the death benefit or qualified additional
benefit increases as a result of a cost-of-living adjustment based on an
established broad-based index specified in the Policy, this does not constitute
a material change if (1) the cost-of-living determination period does not exceed
the remaining premium payment period under the Policy, and (2) the
cost-of-living increase is funded ratably over the remaining premium payment
period of the Policy. A reduction in death benefits is not considered a material
change unless accompanied by a reduction in premium payments.
A material change may occur at any time during the life of the Policy
(within the first seven years or thereafter), and future taxation of
distributions or loans would depend upon whether the Policy satisfied the
applicable "7-pay test" from the time of the material change. An exchange of
policies is considered to be a material change for all purposes.
SERIAL PURCHASE OF MODIFIED ENDOWMENT CONTRACTS. All modified endowment
contracts issued by the same insurer (or affiliated companies of the insurer) to
the same Policyowner within the same calendar year will be treated as one
modified endowment contract in determining the taxable portion of any loans or
distributions made to the Policyowner. The Treasury has been given specific
legislative
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authority to issue regulations to prevent the avoidance of the new
distribution rules for modified endowment contracts. A qualified tax adviser
should be consulted about the tax consequences of the purchase of more than one
modified endowment contract within any calendar year.
LIMITATIONS ON UNREASONABLE MORTALITY AND EXPENSE CHARGES
The Code imposes limitations on unreasonable mortality and
expense charges for purposes of ensuring that a Policy qualifies as life
insurance. The mortality charges taken into account to calculate permissible
premium levels may not exceed those charges required to be used in determining
the federal income tax reserve for the Policy, unless Treasury regulations
prescribe a higher level of charge. In addition, the expense charges taken into
account under the guideline premium test are required to be reasonable, as
defined by the Treasury regulations. Phoenix intends to comply with the
limitations in calculating the premium it is permitted to receive from the
Policyowner.
QUALIFIED PLANS
A Policy may be used in conjunction with certain qualified plans. Since the
rules governing such use are complex, a purchaser should not use the Policy in
conjunction with a qualified plan until he has consulted a competent pension
consultant or tax adviser.
DIVERSIFICATION STANDARDS
To comply with the diversification regulations under Code Section 817(h),
("Diversification Regulations") each Series of the Funds is required to
diversify its investments. The Diversification Regulations generally require
that on the last day of each quarter of a calendar year no more than 55% of
the value of the Funds' assets is represented by any one investment, no more
than 70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is represented by
any four investments. A "look-through" rule applies to treat a pro rata
portion of each asset of the Funds as an asset of the VUL Account; therefore,
each Series of the Funds will be tested for compliance with the percentage
limitations. For purposes of these diversification rules, all securities of the
same issuer are treated as a single investment, but each United States
Government agency or instrumentality is treated as a separate issuer.
The general diversification requirements are modified if any of the assets
of the VUL Account are direct obligations of the United States Treasury. In this
case, there is no limit on the investment that may be made in United States
Treasury securities, and for purposes of determining whether assets other than
United States Treasury securities are adequately diversified, the generally
applicable percentage limitations are increased based on the value of the VUL
Account's investment in United States Treasury securities. Notwithstanding this
modification of the general diversification requirements, the portfolios of the
Funds will be structured to comply with the general diversification standards
because they serve as an investment vehicle for certain variable annuity
contracts which must comply with these standards.
In connection with the issuance of the Diversification Regulations, the
Treasury announced that such regulations do not provide guidance concerning the
extent to which policyowners may direct their investments to particular
divisions of a separate account. It is possible that a revenue ruling or other
form of administrative pronouncement in this regard may be issued in the near
future. It is not clear, at this time, what such a revenue ruling or other
pronouncement will provide. It is possible that the Policy may need to be
modified to comply with such future Treasury announcements. For these reasons,
Phoenix reserves the right to modify the Policy, as necessary, to prevent the
Policyowner from being considered the owner of the assets of the VUL Account.
Phoenix intends to comply with the Diversification Regulations to assure
that the Policies continue to qualify as a life insurance contract for federal
income tax purposes.
CHANGE OF OWNERSHIP OR INSURED OR ASSIGNMENT
Changing the Policyowner or the Insured or an exchange or assignment of the
Policy may have tax consequences depending on the circumstances. Code Section
1035 provides that a life insurance contract can be exchanged for another life
insurance contract, without recognition of gain or loss, assuming that no money
or other property is received in the exchange, and that the policies relate to
the same Insured. If the surrendered policy is subject to a policy loan, this
may be treated as the receipt of money on the exchange. Phoenix recommends that
any person contemplating such actions seek the advice of a qualified tax
consultant.
OTHER TAXES
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership, or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary. Phoenix does not make any
representations or guarantees regarding the tax consequences of any Policy with
respect to these types of taxes.
VOTING RIGHTS
- --------------------------------------------------------------------------------
THE FUNDS
Phoenix will vote the Funds' shares held by the Subaccounts of the VUL
Account at any regular and special meetings of shareholders of the Funds, a
Massachusetts business trust. To the extent required by law, such voting will be
in accordance with instructions received from the Policyowner. However, if the
Investment Company Act of 1940 or any regulation thereunder should be amended or
if the present interpretation thereof should change, and as a result Phoenix
determines that it is permitted to vote the Funds' shares at its own
discretion, it may elect to do so.
The number of votes that a Policyowner has the right to cast will be
determined by applying the Policyowner's percentage interest in a Subaccount
to the total number of votes attributable to the Subaccount. In determining
the number of votes, fractional shares will be recognized.
Funds' shares held in a Subaccount for which no timely instructions are
received, and Funds' shares which are not otherwise attributable to
Policyowners, will be voted by Phoenix in proportion to the voting
instructions that are received with respect to all Policies participating in
that Subaccount. Voting instructions to abstain on any item to be voted upon
will be applied to reduce the votes eligible to be cast by Phoenix.
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Each Policyowner will receive proxy materials, reports, and other materials
relating to the Funds.
Phoenix may, when required by state insurance regulatory authorities,
disregard voting instructions if the instructions require that the shares be
voted so as to cause a change in the subclassification or investment objective
of one or more of the portfolios of the Funds or to approve or disapprove an
investment advisory contract for the Funds. In addition, Phoenix itself may
disregard voting instructions in favor of changes initiated by a Policyowner in
the investment policies or the Investment Advisers of the Funds if Phoenix
reasonably disapproves of such changes. A change would be disapproved only if
the proposed change is contrary to state law or prohibited by state regulatory
authorities or Phoenix determined that the change would have an adverse effect
on the General Account because the proposed investment policy for a portfolio
may result in overly speculative or unsound investments. In the event Phoenix
does disregard voting instructions, a summary of that action and the reasons for
such action will be included in the next periodic report to Policyowners.
PHOENIX
A Policyowner (or the payee entitled to payment under a payment option if a
different person) will have the right to vote at annual meetings of all Phoenix
Policyholders for the election of members of the Board of Directors of Phoenix
and on other corporate matters, if any, where a Policyholder's vote is taken.
At meetings of all of the Phoenix Policyholders, a Policyholder (or payee) may
cast only one vote as the holder of a Policy, irrespective of Policy Value or
the number of the Policies held.
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX
- --------------------------------------------------------------------------------
Phoenix is managed by its Board of Directors, the members of
which are elected by its Policyholders, including Owners of the
Policies. See "Voting Rights."
The following are the Directors and Executive Officers of Phoenix:
DIRECTORS PRINCIPAL OCCUPATION
Sal H. Alfiero Chairman and Chief Executive Officer,
Mark IV Industries, Inc.
Amherst, New York
J. Carter Bacot Chairman and Chief Executive Officer,
The Bank of New York
New York, New York
Carol H. Baldi President, Carol H. Baldi, Inc.
New York, New York
Peter C. Browning 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
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EXECUTIVE OFFICERS PRINCIPAL OCCUPATION
Robert W. Fiondella Chairman of the Board, President
and Chief Executive Officer
Richard H. Booth Executive Vice President, Strategic
Development; formerly President,
Traveler's Insurance Company
Philip R. McLoughlin Executive Vice President and Chief
Investment Officer
Charles J. Paydos Executive Vice President
David W. Searfoss Executive Vice President and Chief
Financial Officer
Dona D. Young Executive Vice President, Individual
Insurance and General Counsel
Kelly J. Carlson Senior Vice President, Career
Organization
Carl T. Chadburn Senior Vice President
Robert G. Chipkin Senior Vice President and Corporate
Actuary
Randall C. Giangiulio Senior Vice President, Group Sales
Joan E. Herman Senior Vice President
Edward P. Hourihan Senior Vice President, Information
Systems
Joseph E. Kelleher Senior Vice President
Robert G. Lautensack, Jr. Senior Vice President
Scott C. Noble Senior Vice President, Real Estate
Robert E. Primmer Senior Vice President, Brokerage and
PPGA
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 Securities and Exchange Commission under the Securities
Exchange Act of 1934 and is a member of the National Association of Securities
Dealers, Inc. PEPCO serves as national distributor of the Policies. PEPCO is
an indirect subsidiary of Phoenix Duff & Phelps Corporation. Phoenix owns a
majority interest in Phoenix Duff & Phelps Corporation. Policies also may be
purchased from other broker-dealers registered under the Securities Exchange Act
of 1934 whose representatives are authorized by applicable law to sell Policies
under terms of 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 50% of premiums will be
paid by Phoenix to PEPCO. To the extent that the sales charge under the
Policies is less than the sales commissions paid with respect to the Policies,
Phoenix will pay the shortfall from its general account assets, which will
include any profits it may derive under the Policies.
Phoenix through PEPCO will sponsor sales contests, training and
educational meetings and provide to all qualifying dealers, from its own profits
and resources, additional compensation in the form of trips, merchandise or
expense reimbursement. Brokers and dealers other than PEPCO also may make
customary additional charges for their services in effecting purchases, if they
notify the Funds of their intention to do so.
STATE REGULATION
- --------------------------------------------------------------------------------
Phoenix is subject to the provisions of the New York insurance laws
applicable to mutual life insurance companies and to regulation and supervision
by the New York Superintendent of Insurance. Phoenix also is subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of Phoenix includes certain limitations on the
investments which it may make, including investments for the VUL Account and the
GIA. It does not include, however, any supervision over the investment
policies of the VUL Account.
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REPORTS
- --------------------------------------------------------------------------------
All Policyowners will be furnished with those reports required by the
Investment Company Act of 1940 and regulations promulgated thereunder, or under
any other applicable law or regulation.
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The VUL Account is not engaged in any litigation. Phoenix is not
involved in any litigation that would have a material adverse effect on
the ability of Phoenix to meet its obligations under the Policies.
LEGAL MATTERS
- --------------------------------------------------------------------------------
The organization of Phoenix, its authority to issue variable life
insurance Policies, and the validity of the Policy have been passed upon by
Richard J. Wirth, Counsel, Phoenix. Legal matters relating to the federal
securities and income tax laws have been passed upon for Phoenix by Jorden
Burt Berenson & Johnson LLP.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
securities offered hereby. This Prospectus does not contain all the information
set forth in the Registration Statement and amendments thereto and exhibits
filed as a part thereof, to all of which reference is made for further
information concerning the VUL Account, Phoenix and the Policy. Statements
contained in this Prospectus as to the content of the Policy and other legal
instruments are summaries. For a complete statement of the terms thereof,
reference is made to such instruments as filed.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The consolidated financial statements of Phoenix as contained herein
should be considered only as bearing upon Phoenix's ability to meet its
obligations under the Policy, and they should not be considered as bearing on
the investment performance of the VUL Account. The financial statements of the
VUL Account are for the Subaccounts available as of the period ended December
31, 1996.
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PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
24
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants .........................................26
Consolidated Balance Sheets at December 31, 1996 and 1995 ..................27
Consolidated Statements of Income for the Years Ende8
December 31, 1996, 1995 and 1994 .........................................28
Consolidated Statements of Equity for the Years Ended
December 31, 1996, 1995 and 1994 .........................................29
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 ..........................................30
Notes to Consolidated Financial Statements ..............................31-58
25
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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.
27
<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.
28
<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.
29
<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.
30
<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.
31
<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.
32
<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.
33
<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.
34
<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.
35
<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.
36
<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>
37
<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>
38
<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.
39
<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.
40
<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
======================= =====================
41
<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.
42
<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.
43
<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>
44
<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.
45
<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.
46
<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
================== ================
47
<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>
48
<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.
49
<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.
50
<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%.
51
<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>
52
<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.
53
<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
===================== ==================
54
<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.
55
<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.
56
<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>
57
<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
================= ==============
58
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1966
59
<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 $15,544,730 $160,303,827 $10,844,154
============ ============= ============
Investment in The Phoenix Edge Series Fund, at market $15,544,730 $172,867,410 $11,235,197
------------ ------------- ------------
Total assets 15,544,730 172,867,410 11,235,197
Liabilities
Accrued expenses to related party 10,037 117,203 7,117
------------ ------------- ------------
Net assets $15,534,693 $172,750,207 $11,228,080
============ ============= ============
Accumulation units outstanding 11,249,319 49,375,885 5,378,886
============ ============= ============
Unit value $ 1.380945 $ 3.498676 $ 2.087436
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- --------------- --------------
<S> <C> <C> <C>
Assets
Investments at cost $26,014,458 $29,445,731 $15,234,036
============ ============= ============
Investment in The Phoenix Edge Series Fund, at market $26,284,915 $34,077,443 $16,229,448
------------ ------------- ------------
Total assets 26,284,915 34,077,443 16,229,448
Liabilities
Accrued expenses to related party 17,792 22,074 10,955
------------ ------------- ------------
Net assets $26,267,123 $34,055,369 $16,218,493
============ ============= ============
Accumulation units outstanding 11,308,615 20,903,950 10,696,397
============ ============= ============
Unit value $ 2.322753 $ 1.629136 $ 1.516258
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account
-------------- --------------- --------------
<S> <C> <C> <C>
Assets
Investments at cost $ 776,588 $ 1,798,845 $ 1,949,771
============ ============= ============
Investment in The Phoenix Edge Series Fund, at market 888,425 $ 1,807,108 $ 1,942,818
------------ ------------- ------------
Total assets 888,425 1,807,108 1,942,818
Liabilities
Accrued expenses to related party 532 1,164 1,267
------------ ------------- ------------
Net assets $ 887,893 $1,805,944 $ 1,941,551
============ ============= ============
Accumulation units outstanding 680,458 1,805,464 1,943,140
============ ============= ============
Unit value $ 1.304846 $ 1.000266 $ 0.999182
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Wanger
International Wanger U.S.
Small Cap Small Cap
Sub-Account Sub-Account
--------------- --------------
<S> <C> <C>
Assets
Investments at cost $ 292,575 $ 457,996
============= ============
Investment in Wanger Advisors Trust, at market $ 296,436 $ 467,062
------------- ------------
Total assets 296,436 467,062
Liabilities
Accrued expenses to related party 30 65
------------- ------------
Net assets 296,406 $ 466,997
============= ============
Accumulation units outstanding 288,603 449,762
============= ============
Unit value $ 1.027036 $ 1.038320
============= ============
</TABLE>
See Notes to Financial Statements
60
<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 $655,710 $ 1,444,275 $661,909
Expenses
Mortality and expense risk charges 107,332 1,163,001 68,413
------------ ------------ ------------
Net investment income 548,378 281,274 593,496
------------ ------------ ------------
Net realized gain (loss) from share transactions -- 8,095 (969)
Net realized gain distribution from Fund -- 11,412,411 327,845
Net unrealized appreciation on investment -- 4,791,630 43,393
------------ ------------ ------------
Net gain (loss) on investments -- 16,212,136 370,269
------------ ------------ ------------
Net increase in net assets resulting from operations $548,378 $16,493,410 $963,765
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- --------------- --------------
<S> <C> <C> <C>
Investment income
Distributions $ 510,723 $ 464,006 $ 413,757
Expenses
Mortality and expense risk charges 186,170 218,684 117,681
------------ ------------- ------------
Net investment income 324,553 245,322 296,076
------------ ------------- ------------
Net realized gain (loss) from share transactions 4,963 (444) (2,312)
Net realized gain distribution from Fund 1,617,750 747,938 1,396,484
Net unrealized appreciation (depreciation) on investment (91,227) 3,401,467 (304,864)
------------ ------------- ------------
Net gain on investments 1,531,486 4,148,961 1,089,308
------------ ------------- ------------
Net increase in net assets resulting from operations $1,856,039 $4,394,283 $1,385,384
============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account(1) Sub-Account(1) Sub-Account(2)
--------------- --------------- ---------------
<S> <C> <C> <C>
Investment income
Distributions $ 10,511 $ 5,636 $10,080
Expenses
Mortality and expense risk charges 2,005 4,726 2,998
------------- ------------- --------------
Net investment income 8,506 910 7,082
------------- ------------- --------------
Net realized gain from share transactions 13,393 1,002 919
Net realized gain distribution from Fund 9,253 -- --
Net unrealized appreciation (depreciation) on investment 111,837 8,263 (6,953)
------------- ------------- --------------
Net gain (loss) on investments 134,483 9,265 (6,034)
------------- ------------- --------------
Net increase in net assets resulting from operations $142,989 $10,175 $ 1,048
============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Wanger Wanger
International U.S.
Small Cap Small Cap
Sub-Account(3) Sub-Account(3)
----------------- -----------------
<S> <C> <C>
Investment income
Distributions $ -- $ --
Expenses
Mortality and expense risk charges 30 65
----------------- -----------------
Net investment loss (30) (65)
----------------- -----------------
Net realized gain from share transactions -- 29
Net realized gain distribution from Fund -- --
Net unrealized appreciation on investment 3,861 9,066
----------------- -----------------
Net gain on investments 3,861 9,095
----------------- -----------------
Net increase in net assets resulting from operations $3,831 $9,030
================= =================
(1) From inception May 1, 1996 to December 31, 1996
(2) From inception September 18, 1996 to December 31, 1996
(3) From inception December 18, 1996 to December 31, 1996
</TABLE>
See Notes to Financial Statements
61
<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 $ 548,378 $ 281,274 $ 593,496
Net realized gain (loss) -- 11,420,506 326,876
Net unrealized appreciation -- 4,791,630 43,393
------------- ------------- ------------
Net increase in net assets resulting from operations 548,378 16,493,410 963,765
------------- ------------- ------------
From accumulation unit transactions
Participant deposits 26,004,635 47,202,324 2,811,259
Participant transfers (21,268,222) 10,438,285 1,823,625
Participant withdrawals (3,701,639) (19,333,192) (1,071,344)
------------- ------------- ------------
Net increase in net assets resulting from participant
transactions 1,034,774 38,307,417 3,563,540
------------- ------------- ------------
Net increase in net assets 1,583,152 54,800,827 4,527,305
Net assets
Beginning of period 13,951,541 117,949,380 6,700,775
------------- ------------- ------------
End of period $ 15,534,693 $172,750,207 $11,228,080
============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- --------------- --------------
<S> <C> <C> <C>
From operations
Net investment income $ 324,553 $ 245,322 $ 296,076
Net realized gain 1,622,713 747,494 1,394,172
Net unrealized appreciation (depreciation) (91,227) 3,401,467 (304,864)
------------ ------------- ------------
Net increase in net assets resulting from operations 1,856,039 4,394,283 1,385,384
------------ ------------- ------------
From accumulation unit transactions
Participant deposits 6,031,095 8,480,853 3,636,746
Participant transfers 1,002,380 3,847,285 (651,439)
Participant withdrawals (2,871,670) (3,414,225) (1,868,673)
------------ ------------- ------------
Net increase in net assets resulting from participant
transactions 4,161,805 8,913,913 1,116,634
------------ ------------- ------------
Net increase in net assets 6,017,844 13,308,196 2,502,018
Net assets
Beginning of period 20,249,279 20,747,173 13,716,475
------------ ------------- ------------
End of period $26,267,123 $34,055,369 $16,218,493
============ ============= ============
</TABLE>
See Notes to Financial Statements
62
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
(Continued)
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account(1) Sub-Account(1) Sub-Account(2)
--------------- --------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income $ 8,506 $ 910 $ 7,082
Net realized gain 22,646 1,002 919
Net unrealized appreciation (depreciation) 111,837 8,263 (6,953)
------------- ------------- --------------
Net increase in net assets resulting from operations 142,989 10,175 1,048
------------- ------------- --------------
From accumulation unit transactions
Participant deposits 114,179 507,159 137,347
Participant transfers 648,017 1,412,288 1,825,934
Participant withdrawals (17,292) (123,678) (22,778)
------------- ------------- --------------
Net increase in net assets resulting from participant
transactions 744,904 1,795,769 1,940,503
------------- ------------- --------------
Net increase in net assets 887,893 1,805,944 1,941,551
Net assets
Beginning of period 0 0 0
------------- ------------- --------------
End of period $887,893 $1,805,944 $1,941,551
============= ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Wanger
International Wanger U.S.
Small Cap Small Cap
Sub-Account(3) Sub-Account(3)
--------------- --------------- --
<S> <C> <C>
From operations
Net investment loss $ (30) $ (65)
Net realized gain -- 29
Net unrealized appreciation 3,861 9,066
------------- -------------
Net increase in net assets resulting from operations 3,831 9,030
------------- -------------
From accumulation unit transactions
Participant deposits 8,061 11,399
Participant transfers 284,998 447,242
Participant withdrawals (484) (674)
------------- -------------
Net increase in net assets resulting from participant
transactions 292,575 457,967
------------- -------------
Net increase in net assets 296,406 466,997
Net assets
Beginning of period 0 0
------------- -------------
End of period $296,406 $466,997
============= =============
(1) From inception May 1, 1996 to December 31, 1996
(2) From inception September 18, 1996 to December 31, 1996
(3) From inception December 18, 1996 to December 31, 1996
</TABLE>
See Notes to Financial Statements
63
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
--------------- --------------- --------------
<S> <C> <C> <C>
From operations
Net investment income $ 562,387 $ 274,566 $ 414,322
Net realized gain -- 12,518,357 1,800
Net unrealized appreciation -- 9,293,459 651,393
------------- ------------- ------------
Net increase in net assets resulting from operations 562,387 22,086,382 1,067,515
------------- ------------- ------------
From accumulation unit transactions
Participant deposits 23,196,295 34,460,166 1,851,602
Participant transfers (19,227,932) 15,470,116 884,223
Participant withdrawals (2,331,740) (12,409,600) (772,642)
------------- ------------- ------------
Net increase in net assets resulting from participant
transactions 1,636,623 37,520,682 1,963,183
------------- ------------- ------------
Net increase in net assets 2,199,010 59,607,064 3,030,698
Net assets
Beginning of period 11,752,531 58,342,316 3,670,077
------------- ------------- ------------
End of period $ 13,951,541 $117,949,380 $6,700,775
============= ============= ============
</TABLE>
<TABLE>
<CAPTION>
Total Return International Balanced
Sub-Account Sub-Account Sub-Account
-------------- --------------- --------------
<S> <C> <C> <C>
From operations
Net investment income (loss) $ 424,519 $ (75,181) $ 306,309
Net realized gain 1,222,367 363,543 272,699
Net unrealized appreciation 873,761 1,259,164 1,647,649
------------ ------------- ------------
Net increase in net assets resulting from operations 2,520,647 1,547,526 2,226,657
------------ ------------- ------------
From accumulation unit transactions
Participant deposits 5,457,071 7,548,871 3,800,064
Participant transfers 2,208,588 (399,608) 581,841
Participant withdrawals (2,158,665) (2,474,965) (1,761,880)
------------ ------------- ------------
Net increase in net assets resulting from participant
transactions 5,506,994 4,674,298 2,620,025
------------ ------------- ------------
Net increase in net assets 8,027,641 6,221,824 4,846,682
Net assets
Beginning of period 12,221,638 14,525,349 8,869,793
------------ ------------- ------------
End of period $20,249,279 $20,747,173 $13,716,475
============ ============= ============
</TABLE>
See Notes to Financial Statements
64
<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 offered as Flex Edge and Flex Edge Success for
individual variable life insurance and as Joint Edge for variable
first-to-die joint life insurance. The account is registered as a unit
investment trust under the Investment Company Act of 1940, as amended, and
currently consists of eleven Sub-Accounts, each of which invest in a
corresponding series of The Phoenix Edge Series Fund or 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 Series (formerly Bond) is a long-term debt
fund, the Total Return Series invests in equity securities and long and
short-term debt, the International Series invests primarily in
internationally diversified equity securities and the Balanced Series is a
balanced fund which invests in growth stocks and at least 25% of its assets
in fixed income 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 Aberdeen New Asia Series
invests primarily in diversified equity securities of issuers organized and
principally operating in Asia, excluding Japan, 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. 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 $18,557,803 $16,972,533
Growth 56,049,073 6,003,452
Multi-Sector Fixed Income 5,675,187 1,187,536
Total Return 7,809,511 1,700,229
International 11,522,658 1,606,132
Balanced 5,120,212 2,308,604
Real Estate 1,376,041 612,846
Strategic Theme 1,866,050 68,207
Aberdeen New Asia 2,202,975 254,123
Wanger Advisors Trust:
Wanger International Small Cap 292,575 --
Wanger U.S. Small Cap 470,063 12,096
</TABLE>
Note 4--Participant Accumulation Unit Transactions (in units)
<TABLE>
<CAPTION>
Sub-Account
--------------------------------------------------------------------------------------
Money Multi-Sector Total
Market Growth Fixed Income Return International Balanced
------------- ------------- ------------- ------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Flex Edge and Flex Edge Success:
Units outstanding,
beginning of period 10,229,951 36,538,624 3,484,452 9,236,346 14,435,212 9,521,556
Participant deposits 17,873,987 13,545,570 1,376,399 2,585,188 5,260,656 2,413,913
Participant transfers (15,057,257) 3,033,843 898,080 410,847 2,428,536 (483,561)
Participant withdrawals (2,322,249) (5,630,014) (525,893) (1,239,077) (2,111,668) (1,251,126)
------------ ------------ ------------ ------------ ------------ ------------
Units outstanding, end
of period 10,724,432 47,488,023 5,233,038 10,993,304 20,012,736 10,200,782
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Wanger
Strategic Aberdeen International Wanger U.S.
Real Estate Theme New Asia Small Cap Small Cap
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Units outstanding,
beginning of period 0 0 0 0 0
Participant deposits 97,107 440,485 132,572 7,185 11,020
Participant transfers 577,902 1,331,993 1,794,742 270,302 422,226
Participant withdrawals (13,748) (110,343) (19,089) (600) (1,152)
------------ ------------ ------------ ------------ ------------
Units outstanding, end
of period 661,261 1,662,135 1,908,225 276,887 432,094
============ ============ ============ ============ ============
</TABLE>
65
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Money Multi-Sector Total
Market Growth Fixed Income Return International Balanced
------------- ------------- ------------- ------------- ---------------------------
Joint Edge:
<S> <C> <C> <C> <C> <C> <C>
Units outstanding,
beginning of period 296,269 1,113,293 95,464 194,742 555,114 400,572
Participant deposits 1,669,894 861,329 50,903 130,539 363,107 141,144
Participant transfers (1,246,393) 303,113 22,644 54,934 131,390 24,694
Participant withdrawals (194,883) (389,873) (23,163) (64,904) (158,397) (70,795)
------------ ------------ ------------ ------------ ------------ ------------
Units outstanding, end
of period 524,887 1,887,862 145,848 315,311 891,214 495,615
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Wanger
Strategic Aberdeen International Wanger U.S.
Real Estate Theme New Asia Small Cap Small Cap
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Units outstanding,
beginning of period 0 0 0 0 0
Participant deposits 3,231 54,473 5,953 842 175
Participant transfers 17,724 103,930 32,722 10,988 17,550
Participant withdrawals (1,758) (15,074) (3,760) (114) (57)
------------ ------------ ------------ ------------ ------------
Units outstanding, end
of period 19,197 143,329 34,915 11,716 17,668
============ ============ ============ ============ ============
</TABLE>
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 90% of a policy's cash
value with an interest rate set in accordance with the contract due and
payable on each policy anniversary. At the time a loan is granted, an amount
equivalent to the amount of the loan is transferred from the Account to
Phoenix'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 2% for Flex Edge success policies, and 6% for Joint Edge and Flex
Edge policies. 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 $19,666,478 during the year 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 partial surrender charge equal
to a pro rata portion of the applicable surrender charge is deducted from the
policy value and paid to Phoenix.
Phoenix Equity Planning Corporation is the principal underwriter and
distributor of the Account. Phoenix Equity Planning Corporation is reimbursed
for its distribution and underwriting expenses by Phoenix.
Policies which are surrendered during the first ten policy years will incur
a surrender charge, consisting of a contingent deferred sales charge designed
to recover expenses for the distribution of Policies that are terminated by
surrender before distribution expenses have been recouped, and a contingent
deferred issue charge designed to recover expenses for the administration of
Policies that are terminated by surrender before administrative expenses have
been recouped. These are contingent charges paid only if the Policy is
surrendered (or a partial withdrawal is taken or the Face Amount is reduced
or the Policy lapses) during the first ten policy years. The charges are
deferred (i.e. not deducted from premiums).
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 0.80% of the average
daily net assets of the Account for mortality and expense risks assumed for
Flex Edge and Joint Edge. For Flex Edge Success, the Account is charged an
annual rate of 0.80% for the first fifteen years and 0.25% thereafter.
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.
66
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
[Price Waterhouse 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 statement 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, Aberdeen New Asia 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
67
<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, Aberdeen New Asia 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
68
<PAGE>
APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the Guaranteed Interest Account ("GIA") under the Policy
and transfers to the GIA become part of the Phoenix General Account (the
"General Account"), which supports insurance and annuity obligations. Because of
exemptive and exclusionary provisions, interest in the General Account has not
been registered under the Securities Act of 1933 ("1933 Act") nor is the General
Account registered as an investment company under the Investment Company Act of
1940 ("1940 Act"). Accordingly, neither the General Account nor any interest
therein is specifically subject to the provisions of the 1933 or 1940 Acts and
the staff of the Securities and Exchange Commission has not reviewed the
disclosures in this Prospectus concerning the GIA. Disclosures regarding the GIA
and the General Account, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
The General Account is made up of all of the general assets of Phoenix
other than those allocated to any separate account. Premium payments will be
allocated to the GIA and, therefore, the General Account, as elected by the
Policyowner at the time of purchase or as subsequently changed. Phoenix will
invest the assets of the General Account in assets chosen by it and allowed by
applicable law. Investment income from General Account assets is allocated
between Phoenix and the contracts participating in the General Account, in
accordance with the terms of such contracts.
Investment income from the General Account allocated to Phoenix includes
compensation for mortality and expense risks borne by it in connection with
General Account contracts.
The amount of investment income allocated to the Policies will vary from
year to year in the sole discretion of Phoenix. However, Phoenix guarantees
that it will credit interest at a rate of not less than 4% per year, compounded
annually, to amounts allocated to the unloaned portion of the GIA. The loaned
portion of the GIA will be credited interest at an effective annual rate of 6%.
Phoenix may credit interest at a rate in excess of 4% per year; however, it is
not obligated to credit any interest in excess of 4% per year.
Bi-weekly, Phoenix will set the excess interest rate, if any, that will
apply to amounts deposited to the GIA. That rate will remain in effect for such
deposits for an initial guarantee period of one full year from the date of
deposit. Upon expiration of the initial one-year guarantee period (and each
subsequent one-year guarantee period thereafter), the rate to be applied to any
deposits whose guaranteed period has just ended will be the same rate as is
applied to new deposits allocated at that time to the GIA. This rate will
likewise remain in effect for a guarantee period of one full year from the date
the new rate is applied.
Excess interest, if any, will be determined by Phoenix based on
information as to expected investment yields. Some of the factors that Phoenix
may consider in determining whether to credit interest to amounts allocated to
the GIA and the amount thereof, are general economic trends, rates of return
currently available and anticipated on investments, regulatory and tax
requirements and competitive factors. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED
TO THE GIA IN EXCESS OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF
PHOENIX AND WITHOUT REGARD TO ANY SPECIFIC FORMULA. THE CONTRACT OWNER ASSUMES
THE RISK THAT INTEREST CREDITED TO GIA ALLOCATIONS MAY NOT EXCEED THE MINIMUM
GUARANTEE OF 4% FOR ANY GIVEN YEAR.
Phoenix is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in Phoenix's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders and Contract Owners.
Excess interest, if any, will be credited on the GIA Policy Value. Phoenix
guarantees that, at any time, the GIA Policy Value will not be less than the
amount of premium payments allocated to the GIA, plus interest at the rate of 4%
per year, compounded annually, plus any additional interest which Phoenix may,
in its discretion, credit to the GIA, less the sum of all annual administrative
or surrender charges, any applicable premium taxes, and less any amounts
surrendered or loaned. If the Policyowner surrenders the Policy, the amount
available from the GIA will be reduced by any applicable surrender charge and
annual administration charge (see "Deductions and Charges").
IN GENERAL, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE 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 VARIABLE PRODUCTS OPERATIONS, UNLESS
OTHERWISE REQUESTED BY THE CONTRACT OWNER.
69
<PAGE>
APPENDIX B
ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES ("ACCOUNT VALUES"),
AND CASH SURRENDER VALUES.
The tables on the following pages illustrate how a Policy's Death Benefits,
Account Values and Cash Surrender Value could vary over time assuming constant
hypothetical gross (after tax) annual investment returns of 0% and 12%. The
Policy benefits will differ from those shown in the tables if the annual
investment returns are not absolutely constant. That is, the figures will be
different if the returns averaged 0% or 12% over a period of years but went
above or below those figures in individual Policy Years. The Policy benefits
also will differ, depending on your premium allocations to each Subaccount
of the VUL Account, if the overall actual rates of return averaged 0% or 12%,
but went above or below those figures for the individual Subaccounts. The
tables are for standard risk males and females who have never smoked. In states
where cost of insurance rates are not based on the insured's sex, the tables
designated "male" apply to all standard risk insureds who have never smoked.
Account Values and Cash Surrender Values may be lower for smokers or former
smokers or for risk classes involving higher mortality risk. Planned premium
payments are assumed to be paid at the beginning of each Policy Year. The
difference between the Policy Value and the Cash Surrender Value in the first
ten years is the Surrender Charge. Illustrated tables are included for death
benefit Option 1 and Option 2. Tables also are included to reflect the blended
cost of insurance charge applied under multiple lives Policies.
The Death Benefit, Account Value, and Cash Surrender Value amounts reflect
the following current charges:
1. Issue Charge of $150.
2. Monthly Administrative Charge of $5 per month ($10 per month guaranteed
maximum).
3. Premium Tax Charge of 2.25% (will vary from state to state).
4. Cost of Insurance Charge. The tables illustrate cost of insurance at both
the current rates and at the maximum rates guaranteed in the Policies.
(See "Charges and Deductions--Cost of Insurance.")
5. Mortality and Expense Risk Charge, which is a daily charge equivalent to
.80% on an annual basis against the VUL Account for mortality and expense
risks. (See "Charges and Deductions--Mortality and Expense Risk Charge.")
These illustrations also assume an average investment advisory fee of .75% on
an annual basis, of the average daily net asset value of each of the Series of
the Funds. These illustrations also assume other ongoing average Fund expenses
of .21%. All other Fund expenses, except capital items such as brokerage
commissions, are assumed by the Adviser or by Phoenix. Management may decide
to limit the amount of expense reimbursement in the future. If 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% and
12% on the Funds' assets are equivalent to net annual investment return rates of
approximately -1.75% and 10.16%, respectively. For individual illustrations,
interest rates ranging between 0% and 12% may be selected in place of the 12%
rate.
The hypothetical returns shown in the tables are without any tax charges that
may be attributable to the VUL Account in the future. If such Tax Charges are
imposed in the future, then in order to produce after tax returns equal to those
illustrated for 0% and 12%, a sufficiently higher amount in excess of the
hypothetical interest rates would have to be earned. (See "Charges and
Deductions--Other Charges--Taxes.")
The second column of each table shows the amount that would accumulate if an
amount equal to the premiums paid were invested to earn interest, after taxes,
at 5% compounded annually. These tables show that if a Policy is returned in its
very early years for payment of its Cash Surrender Value, that Cash Surrender
Value may be low in comparison to the amount of the premiums accumulated with
interest. Thus, the cost of owning a Policy for a relatively short time may be
high.
On request, we will furnish the Policyowner with a comparable illustration based
on the age and sex of the proposed insured person(s), standard risk assumptions
and the initial face amount and planned premium chosen.
70
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
<CAPTION>
ASSUMING
-----------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
--------------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0% @ 0.0%
- -------- -------- -------- -------- --------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 704 0 100,000 527 0 100,000
2 1,000 2,153 1,632 720 100,000 1,186 274 100,000
3 1,000 3,310 2,650 1,646 100,000 1,824 821 100,000
4 1,000 4,526 3,765 2,734 100,000 2,440 1,410 100,000
5 1,000 5,802 4,986 3,956 100,000 3,034 2,003 100,000
6 1,000 7,142 6,325 5,418 100,000 3,604 2,697 100,000
7 1,000 8,549 7,790 7,007 100,000 4,148 3,365 100,000
8 1,000 10,027 9,394 8,798 100,000 4,667 4,072 100,000
9 1,000 11,578 11,150 10,743 100,000 5,158 4,751 100,000
10 1,000 13,207 13,075 13,075 100,000 5,623 5,623 100,000
11 1,000 14,917 15,186 15,186 100,000 6,057 6,057 100,000
12 1,000 16,713 17,497 17,497 100,000 6,461 6,461 100,000
13 1,000 18,599 20,027 20,027 100,000 6,832 6,832 100,000
14 1,000 20,579 22,800 22,800 100,000 7,169 7,169 100,000
15 1,000 22,657 25,840 25,840 100,000 7,470 7,470 100,000
16 1,000 24,840 29,176 29,176 100,000 7,733 7,733 100,000
17 1,000 27,132 32,839 32,839 100,000 7,952 7,952 100,000
18 1,000 29,539 36,865 36,865 100,000 8,123 8,123 100,000
19 1,000 32,066 41,292 41,292 100,000 8,240 8,240 100,000
20 1,000 34,719 46,164 46,164 100,000 8,295 8,295 100,000
@ 65 30,000 69,761 132,635 132,635 161,815 3,848 3,848 100,000
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
33.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% and average fund operating
expenses of 0.97% applicable to the investment Subaccounts of the VUL Separate
Account). Hypothetical gross interest rates are presented for illustrative
purposes only to illustrate funds allocated entirely to the investment
Subaccounts of the VUL Separate Account and do not in any way represent actual
results or suggest that such results will be achieved in the future. Actual
values will differ from those shown whenever actual investment results differ
from hypothetical gross interest rates illustrated. A Guaranteed Interest
Account providing interest at a minimum guaranteed rate of 4% also is available
under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
71
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
FEMALE 35 NEVERSMOKE
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 1
<CAPTION>
ASSUMING
-----------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
--------------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0% @ 0.0%
- -------- -------- -------- -------- --------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 720 0 100,000 548 0 100,000
2 1,000 2,153 1,665 784 100,000 1,228 347 100,000
3 1,000 3,310 2,700 1,743 100,000 1,886 928 100,000
4 1,000 4,526 3,834 2,876 100,000 2,521 1,564 100,000
5 1,000 5,802 5,075 4,118 100,000 3,134 2,176 100,000
6 1,000 7,142 6,436 5,593 100,000 3,722 2,879 100,000
7 1,000 8,549 7,929 7,201 100,000 4,284 3,557 100,000
8 1,000 10,027 9,568 9,015 100,000 4,821 4,268 100,000
9 1,000 11,578 11,370 10,992 100,000 5,333 4,954 100,000
10 1,000 13,207 13,349 13,349 100,000 5,820 5,820 100,000
11 1,000 14,917 15,521 15,521 100,000 6,282 6,282 100,000
12 1,000 16,713 17,904 17,904 100,000 6,719 6,719 100,000
13 1,000 18,599 20,520 20,520 100,000 7,130 7,130 100,000
14 1,000 20,579 23,392 23,392 100,000 7,512 7,512 100,000
15 1,000 22,657 26,549 26,549 100,000 7,867 7,867 100,000
16 1,000 24,840 30,019 30,019 100,000 8,190 8,190 100,000
17 1,000 27,132 33,839 33,839 100,000 8,481 8,481 100,000
18 1,000 29,539 38,047 38,047 100,000 8,737 8,737 100,000
19 1,000 32,066 42,683 42,683 100,000 8,952 8,952 100,000
20 1,000 34,719 47,795 47,795 100,000 9,127 9,127 100,000
@ 65 30,000 69,761 138,465 138,465 168,927 8,211 8,211 100,000
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
38.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% and average fund operating
expenses of 0.97% applicable to the investment Subaccounts of the VUL Separate
Account). Hypothetical gross interest rates are presented for illustrative
purposes only to illustrate funds allocated entirely to the investment
Subaccounts of the VUL Separate Account and do not in any way represent actual
results or suggest that such results will be achieved in the future. Actual
values will differ from those shown whenever actual investment results differ
from hypothetical gross interest rates illustrated. A Guaranteed Interest
Account providing interest at a minimum guaranteed rate of 4% also is available
under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
72
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
MALE 35 NEVERSMOKE
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
<CAPTION>
ASSUMING
-----------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
--------------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0% @ 0.0%
- -------- -------- -------- -------- --------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 702 0 100,703 526 0 100,526
2 1,000 2,153 1,628 716 101,629 1,182 270 101,183
3 1,000 3,310 2,641 1,638 102,641 1,817 813 101,817
4 1,000 4,526 3,749 2,718 103,749 2,428 1,398 102,429
5 1,000 5,802 4,960 3,929 104,960 3,015 1,985 103,016
6 1,000 7,142 6,284 5,377 106,284 3,577 2,670 103,577
7 1,000 8,549 7,730 6,946 107,730 4,111 3,328 104,111
8 1,000 10,027 9,307 8,712 109,308 4,617 4,022 104,618
9 1,000 11,578 11,030 10,622 111,030 5,094 4,687 105,095
10 1,000 13,207 12,911 12,911 112,912 5,542 5,542 105,543
11 1,000 14,917 14,967 14,967 114,967 5,957 5,957 105,958
12 1,000 16,713 17,206 17,206 117,206 6,339 6,339 106,339
13 1,000 18,599 19,645 19,645 119,646 6,684 6,684 106,685
14 1,000 20,579 22,304 22,304 122,305 6,993 6,993 106,994
15 1,000 22,657 25,200 25,200 125,201 7,262 7,262 107,263
16 1,000 24,840 28,355 28,355 128,356 7,489 7,489 107,490
17 1,000 27,132 31,794 31,794 131,795 7,669 7,669 107,670
18 1,000 29,539 35,541 35,541 135,542 7,796 7,796 107,796
19 1,000 32,066 39,622 39,622 139,623 7,863 7,863 107,864
20 1,000 34,719 44,064 44,064 144,065 7,864 7,864 107,865
@ 65 30,000 69,761 116,956 116,956 216,956 2,667 2,667 102,668
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
32.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% and average fund operating
expenses of 0.97% applicable to the investment Subaccounts of the VUL Separate
Account). Hypothetical gross interest rates are presented for illustrative
purposes only to illustrate funds allocated entirely to the investment
Subaccounts of the VUL Separate Account and do not in any way represent actual
results or suggest that such results will be achieved in the future. Actual
values will differ from those shown whenever actual investment results differ
from hypothetical gross interest rates illustrated. A Guaranteed Interest
Account providing interest at a minimum guaranteed rate of 4% also is available
under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
73
<PAGE>
<TABLE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 1
STATUTORY HOME OFFICE: EAST GREENBUSH, NEW YORK
FACE AMOUNT: $100,000
INITIAL ANNUAL PREMIUM: $1,000
FEMALE 35 NEVERSMOKE
THE FLEX EDGE--A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY OPTION 2
<CAPTION>
ASSUMING
-----------------------------------------------------------------------------
CURRENT CHARGES GUARANTEED CHARGES
--------------------------------------- -----------------------------------
ASSUMED CASH CASH
ANNUAL PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 12.00% @ 12.00% @ 0.0% @ 0.0% @ 0.0% @ 0.0%
- -------- -------- -------- -------- --------- ---------- ------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,000 1,050 719 0 100,719 547 0 100,548
2 1,000 2,153 1,662 780 101,662 1,225 343 101,225
3 1,000 3,310 2,692 1,735 102,693 1,879 922 101,880
4 1,000 4,526 3,819 2,861 103,819 2,510 1,553 102,511
5 1,000 5,802 5,051 4,093 105,051 3,116 2,159 103,117
6 1,000 7,142 6,398 5,555 106,398 3,697 2,854 103,698
7 1,000 8,549 7,873 7,145 107,873 4,250 3,522 104,250
8 1,000 10,027 9,488 8,935 109,488 4,775 4,222 104,775
9 1,000 11,578 11,260 10,881 111,260 5,273 4,894 105,273
10 1,000 13,207 13,199 13,199 113,200 5,744 5,744 105,745
11 1,000 14,917 15,322 15,322 115,322 6,189 6,189 106,189
12 1,000 16,713 17,643 17,643 117,643 6,605 6,605 106,606
13 1,000 18,599 20,180 20,180 120,180 6,993 6,993 106,993
14 1,000 20,579 22,954 22,954 122,955 7,350 7,350 107,350
15 1,000 22,657 25,988 25,988 125,989 7,676 7,676 107,676
16 1,000 24,840 29,307 29,307 129,307 7,967 7,967 107,968
17 1,000 27,132 32,941 32,941 132,941 8,223 8,223 108,223
18 1,000 29,539 36,921 36,921 136,921 8,439 8,439 108,440
19 1,000 32,066 41,280 41,280 141,281 8,611 8,611 108,612
20 1,000 34,719 46,056 46,056 146,056 8,739 8,739 108,739
@ 65 30,000 69,761 126,783 126,783 226,783 7,126 7,126 107,127
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in year
37.
Death Benefit, Account Value, and Cash Surrender Value are based on hypothetical
gross interest rates shown, assume current and guaranteed charges and no policy
loans or withdrawals, and are calculated at the end of the Policy Year. Assumed
Premium Payments shown are assumed paid in full at the beginning of the Policy
Year. Payment of premiums shown other than in full at the beginning of the
Policy Year would reduce values and benefits below the hypothetical illustrated
amounts shown. Values shown reflect an effective annual asset charge of 1.77%
(includes mortality and expense risk charge of 0.8% and average fund operating
expenses of 0.97% applicable to the investment Subaccounts of the VUL Separate
Account). Hypothetical gross interest rates are presented for illustrative
purposes only to illustrate funds allocated entirely to the investment
Subaccounts of the VUL Separate Account and do not in any way represent actual
results or suggest that such results will be achieved in the future. Actual
values will differ from those shown whenever actual investment results differ
from hypothetical gross interest rates illustrated. A Guaranteed Interest
Account providing interest at a minimum guaranteed rate of 4% also is available
under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
74
<PAGE>
PART II. OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the securities and exchange commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Section 723 of the New York Business Corporation Law, as made applicable to
insurance companies by Section 108 of the New York Insurance Law, provides that
a corporation may indemnify any director or officer of the corporation made, or
threatened to be made, a party to an action or proceeding other than one by or
in the right of the corporation to procure a judgment in its favor, whether
civil or criminal, including an action by or in the right of any other
corporation of any type or kind, by reason of the fact that he, his testator or
intestate, served such other corporation in any capacity at the request of the
indemnifying corporation.
Article VI Section 6.1 of the By-Laws of Phoenix Home Life provides that:
"To the full extent permitted by the laws of the State of New York, the Company
shall indemnify any person made or threatened to be made a party to any action,
proceeding or investigation, whether civil or criminal, by reason of the fact
that such person . . . is or was a Director or Officer of the Company; or . . .
serves or served another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity at the request of the
Company, and also is or was a Director or Officer of the Company . . . The
Company shall also indemnify any [such] person . . . by reason of the fact that
such person or such person's testator or intestate is or was an employee or
agent of the Company . . . ."
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
REPRESENTATION PURSUANT TO SECTION 26(E)(2)(4) UNDER THE INVESTMENT COMPANY
ACT OF 1940.
Pursuant to Section 26(e)(2)(A) of the Investment Company Act of 1940, as
amended, Phoenix Home Life Mutual Insurance Company represents that the fees and
charges deducted under the Policies, in the aggregate, are reasonable in
relation to the expenses expected to be incurred and the risks to be assumed
thereunder by Phoenix Home Life Mutual Insurance Company.
II-1
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The cross-reference sheet to Form N-8B-2.
The Prospectus describing Phoenix Home Life Mutual Insurance Company Policy
Form 2667 and riders thereto (Flex Edge), consisting of 74 pages.
The Prospectus describing Phoenix Home Life Mutual Insurance Company Policy
Forms V601 and V603 and riders thereto (Joint Edge and Flex Edge
Success), consisting of 77 pages.
The undertaking to file reports.
The Rule 484 undertaking.
Representations, Description and Undertaking Pursuant to Paragraph
(b)(13)(iii)(F) of Rule 6e-3(T) under the Investment Company Act of 1940.
The signature page.
The Powers of Attorney were filed via Edgar with registrant's Post-Effective
Amendment No. 13 on April 26, 1996 and are incorporated herein by reference.
Written consents of the following persons:
(a) Richard J. Wirth*
(b) Jorden Burt Berenson & Johnson, LLP*
(c) Price Waterhouse LLP*
(d) M. Spencer Hamilton, F.S.A.*
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of the Board of Directors of Phoenix Mutual
establishing the VUL Account filed with registrant's Registration
Statement on July 21, 1988 and is incorporated herein by
reference.
(2) Not Applicable.
(3) Distribution of Policies:
(a) Master Service and Distribution Compliance Agreement between
Depositor and Phoenix Equity Planning Corporation filed with
registrant's Post-Effective Amendment No. 2 on May 1, 1990
and is incorporated herein by reference.
(b) Form of Agreement between Phoenix Equity Planning
Corporation and Independent Brokers with respect to the sale
of Policies filed with registrant's Pre-Effective Amendment
No. 1 on October 21, 1988 and is incorporated herein by
reference.
(c) Not Applicable.
(4) Not Applicable.
(5) Specimen Policies with optional riders.
(a) Flex Edge--Flexible Premium Variable Universal Life
Insurance Policy Form Number 2667 of Depositor, together
with Amendment Permitting Face Amount Increases VR01, Death
Benefit Protection Rider VR02, Variable Life Policy Exchange
Option Rider VR08, Death Benefit Option - Policy Amendment
VR23, Temporary Money Market Allocation Amendment VR130,
Accidental Death Benefit Rider VR147, Disability Payment of
Specified Annual Premium Amount Rider VR148, Death Benefit
Options - Policy Amendment VR149, Additional Purchase Option
Rider VR150, and Accelerated Living Benefit Rider VR162
filed via Edgar with registrant's Post-Effective Amendment
No. 12 on February 13, 1996, is incorporated herein by
reference.
(b) Joint Edge--Flexible Premium Joint Variable Universal Life
Policy Form Number V601 of Depositor, together with
Temporary Money Market Allocation Amendment VR130, Survivor
Insurance Purchase Option Rider VR03, Variable Joint Life
Policy Exchange Option Rider VR04, Disability Benefit to Age
65 Rider VR05, and Term Insurance Rider VR06 filed via Edgar
with registrant's Post-Effective Amendment No. 12 on
February 13, 1996, is incorporated herein by reference.
(c) Flex Edge Success--Flexible Premium Variable Universal Life
Insurance Policy Form Number V603 of Depositor, together
with Temporary Money Market Allocation Amendment VR130,
Accidental Death Benefit Rider VR147, Disability Payment of
II-2
<PAGE>
Specified Annual Premium Amount Rider VR148, Purchase
Protector Rider VR150, Living Benefit Rider VR162, Whole
Life Exchange Option Rider VR08, Cash Value Accumulation
Test Rider VR11 and Death Benefit Protection Rider VR14
filed via Edgar with registrant's Post-Effective Amendment
No. 12 on February 13, 1996, is incorporated herein by
reference.
(6) (a) Charter of Phoenix Home Life filed via Edgar with
registrant's Post-Effective Amendment No. 12 on February
13, 1996, is incorporated herein by reference.
(b) By-Laws of Phoenix Home Life filed via Edgar with
registrant's Post-Effective Amendment No. 12 on February 13,
1996, is incorporated herein by reference.
(7) Not Applicable.
(8) Not Applicable.
(9) Not Applicable.
(10) Forms of Application for each of Flex Edge, Joint Edge and
Flex Edge Success filed via Edgar with registrant's
Post-Effective Amendment No. 13 on April 26, 1996, are
incorporated herein by reference.
(11) Memorandum describing transfer and redemption procedures and
method of computing adjustments in payments and cash values upon
conversion to fixed benefit policies filed via Edgar with
registrant's Post-Effective Amendment No. 1 on October 21, 1988
and is incorporated herein by reference.
2. See Exhibit 1.A(5).
3. Opinion of Richard J. Wirth, Esq., Counsel of Depositor, as to the
legality of the securities being registered. (See Exhibit 9 below.)
4. Opinion of M. Spencer Hamilton, Actuary, as to Illustrations. (See
Exhibit 10 below.)
5. Not Applicable. No financial statement will be omitted from the
Prospectus pursuant to Instruction 1(b) or (c) of Part I.
6. Not Applicable.
7. Consent of Jorden Burt Berenson & Johnson, LLP.*
8. Consent of Independent Accounts.*
9. Opinion and Consent of Richard J. Wirth.*
10. Opinion and Consent of M. Spencer Hamilton, F.S.A.*
- --------------
*Filed herewith.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Phoenix Home Life Variable Universal Life Account certifies that it meets all of
the requirements for effectiveness of this registration statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
No. 12 to the Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Hartford, State of
Connecticut on the 29th day of April, 1997.
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
-------------------------------------------------
(Registrant)
By: PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
---------------------------------------------
(Depositor)
By: /s/ Dona D. Young
---------------------------------------------
*Dona D. Young, Executive Vice President,
Individual Insurance and General Counsel
ATTEST: /s/ Keith D. Robbins
----------------------------------
Keith D. Robbins, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director April 29, 1997
- ---------------------------------------
*Sal H. Alfiero
Director April 29, 1997
- ---------------------------------------
*J. Carter Bacot
Director April 29, 1997
- ---------------------------------------
*Carol H. Baldi
Director April 29, 1997
- ---------------------------------------
*Peter C. Browning
Director April 29, 1997
- ---------------------------------------
Arthur P. Byrne
Director April 29, 1997
- ---------------------------------------
*Richard N. Cooper
Director April 29, 1997
- ---------------------------------------
*Gordon J. Davis
Chairman of the Board, President and Chief April 29, 1997
- ---------------------------------------
*Robert W. Fiondella Executive Officer (Principal Executive Officer)
Director April 29, 1997
- ---------------------------------------
*Jerry J. Jasinowski
Director April 29, 1997
- ---------------------------------------
*Marilyn E. LaMarche
</TABLE>
S-1(c)
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director April 29, 1997
- ---------------------------------------
*Philip R. McLoughlin
Director April 29, 1997
- ---------------------------------------
Indra K. Nooyi
Director April 29, 1997
- ---------------------------------------
*Charles J. Paydos
Director April 29, 1997
- ---------------------------------------
*Herbert Roth, Jr.
Director April 29, 1997
- ---------------------------------------
*Robert F. Vizza
Director April 29, 1997
- ---------------------------------------
*Wilson Wilde
Director April 29, 1997
- ---------------------------------------
*Robert G. Wilson
Executive Vice President and Chief Financial April 29, 1997
- ---------------------------------------
*David W. Searfoss Officer (Principal Accounting and Financial Officer)
</TABLE>
By: /s/ Dona D. Young
---------------------------------
* Dona D. Young as Attorney in Fact pursuant to Powers of Attorney, copies of
which were filed previously.
S-2(c)
EXHIBIT 7
CONSENT OF JORDEN BURT BERENSON & JOHNSON LLP
<PAGE>
April 24, 1997
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
Ladies and Gentlemen:
We hereby consent to the use of our name under the caption "Legal Matters" in
the Prospectus contained in Post-Effective Amendment No. 14 to the Registration
Statement on Form S-6 (Registration No. 33-23251) filed by Phoenix Home Life
Mutual Insurance Company and Phoenix Home Life Variable Universal Life Account
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended.
Very truly yours,
/s/ Jorden Burt Berenson & Johnson LLP
Jorden Burt Berenson & Johnson LLP
EXHIBIT 8
CONSENT OF INDEPENDENT ACCOUNTANTS
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this Post-
Effective Amendment No. 14 to the registration statement on Form S-6 of our
reports dated February 12, 1997, relating to the financial statements of
Phoenix Home Life Variable Universal Life Account and the consolidated financial
statements of Phoenix Home Life Mutual Insurance Company which appear in such
Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Hartford, Connecticut
April 25, 1997
EXHIBIT 9
CONSENT OF RICHARD J. WIRTH
<PAGE>
April 29, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: REGISTRATION STATEMENT NO. 33-23251
Dear Sirs:
As Counsel to the depositor, we are familiar with the flexible premium
variable life insurance policies (the "Policies") which are the subject of the
above-captioned Registration Statement on Form S-6.
In connection with this opinion, we have reviewed the Policies, the
Registration Statement, the Charter and By-Laws of the Company, relevant
proceedings of the Board of Directors, and the provisions of New York insurance
law relevant to the issuance of the Policies.
Based upon this review, we are of the opinion that each of the
Policies, when issued, will have been validly issued, and will constitute a
legal and binding obligation of Phoenix Home Life Mutual Insurance Company.
We further consent to the use of this opinion as an exhibit to the
above-captioned Registration Statement and to my being named under "Legal
Matters" therein.
Very truly yours,
/s/Richard J. Wirth
Richard J. Wirth, Counsel
Phoenix Home Life
Mutual Insurance Company
EXHIBIT 10
CONSENT OF M. SPENCER HAMILTON
<PAGE>
April 29, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
This opinion is furnished in connection with the registration of
flexible premium variable life insurance policies ("Policies") under the
Securities Act of 1933. The prospectuses included in the Registration Statement
on Form S-6 (SEC File No. 33- 23251) describes the Policies. The forms of
Policies were prepared under my direction, and I am familiar with the
Registration Statement and Exhibits thereto.
In my opinion, the illustrations of death benefits and cash values
included in the sections entitled "Illustrations of Death Benefits, Policy
Values ("Account Values"), and Cash Surrender Values" in Appendix B of the
prospectuses, based on the assumptions stated in the illustrations, are
consistent with the provisions of the respective forms of the Policies.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/M. Spencer Hamilton
M. Spencer Hamilton
Associate Actuary
<PAGE>
