PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
HOME OFFICE: PHOENIX VARIABLE PRODUCTS
One American Row MAIL OPERATIONS ("VPMO"):
Hartford, Connecticut PO Box 8027
Boston, MA 02266-8027
VARIABLE LIFE INSURANCE POLICY
PROSPECTUS
May 1, 1998
As Supplemented November 2, 1998
This Prospectus describes a Variable Life Insurance Policy (the "Policy"),
offered by Phoenix Home Life Mutual Insurance Company ("Phoenix"). An applicant
chooses the amount of Issue Premium desired and, within a range, the Target Face
Amount. Under limited circumstances, the Policyowner may choose to pay
additional premiums. Because the Policyowner may pay additional premiums only
under certain limited circumstances, Policy loans, surrenders or decreases in
death benefits may have certain tax consequences. UNDER MOST CIRCUMSTANCES, THE
POLICY WILL BE CONSIDERED TO BE A MODIFIED ENDOWMENT CONTRACT; ACCORDINGLY,
LOANS AND FULL AND PARTIAL SURRENDERS RECEIVED UNDER THE POLICY MAY BE SUBJECT
TO TAX AND/OR PENALTIES WITH RESPECT TO INCOME EARNED IN EXCESS OF PREMIUMS
PAID. SEE "FEDERAL TAX CONSIDERATIONS." Generally, the minimum Issue Premium
Phoenix will accept is $10,000. Phoenix may, in some cases, accept less than
that amount.
The Issue Premium is allocated to one or more of the Subaccounts of the
Phoenix Home Life Variable Universal Life Account (the "VUL Account") or to the
Guaranteed Interest Account ("GIA"), as specified in the applicant's application
for insurance. Each Subaccount of the VUL Account invests in a corresponding
series of The Phoenix Edge Series Fund, Wanger Advisors Trust or Templeton
Variable Products Series Fund (each the "Fund" or collectively, the "Funds").
For certain Policyowners, the Issue Premium is first allocated to the Money
Market Subaccount before being allocated according to the instructions in the
application.
There is no guaranteed minimum Cash Value for a Policy except for that
portion of Cash Value invested in the GIA, which has a 4% minimum interest rate
guarantee. The Cash Value of a Policy not invested in the GIA will vary to
reflect the investment experience of the Subaccounts to which premiums have been
allocated. A Policyowner bears the investment risk for all amounts so allocated.
The Policy will remain in effect so long as the Surrender Value is sufficient to
pay certain monthly charges imposed in connection with the Policy.
During the first Policy Month, the death benefit under the Policy equals the
Target Face Amount designated by the applicant. Thereafter, the death benefit
may vary up or down based upon Cash Value and other factors.
A Policyowner may cancel the Policy within 10 days (or longer in some
states) after the Policyowner receives it, or 10 days after Phoenix mails or
delivers a written notice of withdrawal right to the Policyowner, or within 45
days of completing the application, whichever is latest.
It may not be advantageous to purchase a Policy as a replacement for an
existing life insurance policy or annuity contract. You should recognize that a
policy that has been in existence for a period of time might have certain
advantages to you over a new policy. On the other hand, the proposed Policy may
offer new features which are more important to you.
It is in your best interest to have adequate information before a decision
to replace your present life insurance coverage becomes final so that you may
understand the basic features of both the proposed Policy and your existing
coverage.
If you are replacing an annuity contract, it is important for you to
understand the fundamental differences between annuities and life insurance and
how they are treated differently under the tax laws.
In all cases it is important to know if the replacement will result in
current tax liability.
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.
THE POLICIES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY FINANCIAL INSTITUTION OR CREDIT UNION AND ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER AGENCY.
INVESTMENTS IN THE POLICIES ARE SUBJECT TO INVESTMENT RISK INCLUDING THE
FLUCTUATION OF POLICY VALUES AND THE POSSIBLE LOSS OF PRINCIPAL.
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
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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 ............................................... 8
Introduction ............................................ 8
Eligible Purchasers ..................................... 8
Premium Payment ......................................... 8
Allocation of Issue Premium.............................. 8
Right to Cancel Period................................... 8
Temporary Insurance Coverage............................. 9
Transfer of Policy Value................................. 9
Determination of Subaccount Values....................... 10
Death Benefit............................................ 10
Surrenders............................................... 11
Policy Loans............................................. 12
Lapse.................................................... 12
INVESTMENTS OF THE VUL ACCOUNT............................ 12
Participating Investment Funds........................... 12
Investment Advisers...................................... 14
Services of the Advisers................................. 14
Reinvestment and Redemption.............................. 14
Substitution of Investments.............................. 15
CHARGES AND DEDUCTIONS.................................... 15
Monthly Deduction........................................ 15
Cost of Insurance........................................ 16
Mortality and Expense Risk Charge........................ 16
Investment Management Charge............................. 16
Other Charges............................................ 16
GENERAL PROVISIONS........................................ 16
Postponement of Payments................................. 16
The Contract............................................. 16
Suicide.................................................. 16
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
Penalty Tax.............................................. 19
Material Change Rules.................................... 19
Serial Purchase of Modified Endowment Contracts.......... 19
Limitations on Unreasonable Mortality and
Expense Charges..................................... 19
Qualified Plans.......................................... 19
Diversification Standards................................ 19
Change of Ownership or Insured or Assignment............. 20
Other Taxes.............................................. 20
VOTING RIGHTS............................................. 20
The Funds................................................ 20
Phoenix.................................................. 20
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX........... 21
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS................... 22
SALES OF POLICIES ........................................ 22
STATE REGULATION ......................................... 22
REPORTS .................................................. 22
LEGAL PROCEEDINGS ........................................ 22
LEGAL MATTERS ............................................ 22
REGISTRATION STATEMENT ................................... 22
YEAR 2000 ISSUE .......................................... 22
FINANCIAL STATEMENTS ..................................... 23
APPENDIX A ............................................... 68
APPENDIX B................................................ 69
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESPERSON OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
------------------------
The Policy is not available in all States.
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SPECIAL TERMS
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As used in this Prospectus, the following terms have the indicated meanings:
ACQUISITION EXPENSE (ACQUISITION EXPENSE ALLOWANCE): The amount set forth on the
Schedule Pages of a Policy. It equals the aggregate of the sales load, issue
administration charge and premium taxes assessed under the Policy. The
Acquisition Expense (also referred to as Acquisition Expense Allowance) is
deducted from the Issue Premium and recredited to Policy Value. A pro rata
portion of the Acquisition Expense is deducted from Policy Value monthly during
the first 10 Policy Years. Upon Policy lapse or full surrender, any unpaid
Acquisition Expense is paid.
ADDITIONAL NET PREMIUM: Additional premium reduced by the Premium Tax Charge
and, for additional premiums received during a grace period, by the amount
needed to cover any monthly deductions made during the grace period.
BENEFICIARY: The person or persons specified by the Policyowner as entitled to
receive the death benefits under a Policy.
CASH VALUE: The Policy Value less the balance of any unpaid Acquisition Expense
Allowance.
DEATH BENEFIT ADJUSTMENT RATES: Rates used to calculate the variable death
benefit under a Policy as set forth in a table in the Schedule Pages of the
Policy.
FUND(S): The Phoenix Edge Series Fund, Wanger Advisors Trust and Templeton
Variable Products Series Fund.
GENERAL ACCOUNT: The general asset account of Phoenix.
GIA: An allocation option under which amounts deposited are guaranteed to earn a
fixed rate of interest. Excess interest also may be credited, in the sole
discretion of Phoenix.
IN FORCE: Condition under which the coverage under a Policy is in effect and the
Insured's life remains insured.
INSURED: The person upon whose life the Policy is issued.
IN WRITING (WRITTEN REQUEST): In a written form satisfactory to Phoenix and
delivered to VPMO.
ISSUE PREMIUM: The premium payment made in connection with the issue of the
Policy.
LOAN ACCOUNT: An account within the General Account to which amounts are
transferred for Policy loans.
MATURITY DATE: The anniversary of the Policy nearest the Insured's 95th
birthday, if the Insured is living.
MONTHLY CALCULATION DAY: The first Monthly Calculation Day is the same day as
the Policy Date. Subsequent Monthly Calculation Days are the same day of each
month thereafter or, if such day does not fall within a given month, the last
day of that month will be the Monthly Calculation Day.
PAYMENT DATE: The Valuation Date on which a premium payment or loan repayment is
received at VPMO unless it is received after the close of the New York Stock
Exchange ("NYSE"), in which case it will be the next Valuation Date.
PHOENIX: Phoenix Home Life Mutual Insurance Company, Hartford, Connecticut.
POLICY ANNIVERSARY: Each anniversary of the Policy Date.
POLICY DATE: The Policy Date as shown on the Schedule Page of the Policy.
POLICY MONTH: The period from one Monthly Calculation Day up to but not
including the next Monthly Calculation Day.
POLICYOWNER (OWNER): The Owner of a Policy.
POLICY VALUE: The sum of a Policy's share in the value of each Subaccount plus
the Policy's share in the values of the GIA and the Loan Account.
POLICY YEAR: The first Policy Year is the one-year period from the Policy Date
up to, but not including, the first Policy Anniversary. Each succeeding Policy
Year is the one-year period from the Policy Anniversary up to but not including
the next Policy Anniversary.
PROPORTIONATE: Amounts allocated to Subaccounts on a proportionate basis are
allocated by increasing (or decreasing) a Policy's share in the value of the
affected Subaccounts so that such shares maintain the same ratio to each other
before and after the allocation.
SERIES: A separate investment portfolio of the Fund.
SUBACCOUNTS: Accounts within Phoenix's VUL Account to which nonloaned assets
under a Policy are allocated.
SURRENDER VALUE: The Cash Value less any indebtedness under the Policy.
TARGET FACE AMOUNT: The Target Face Amount as shown in the Schedule Pages of a
Policy or as later changed in accordance with the Partial Surrender Provision of
a Policy.
UNIT: A standard of measurement used in determining the value of a Policy. The
value of a Unit for each Subaccount will reflect the investment performance of
that Subaccount and will vary in dollar amount.
VALUATION DATE: For any Subaccount, each date on which the net asset value of
the Fund is determined.
VALUATION PERIOD: For any Subaccount, the period in days from the end of one
Valuation Date through the next.
VPMO: The Variable Products Mail Operation Division of Phoenix that receives and
processes incoming mail for Variable Products
Operations.
VULA: Variable and Universal Life Administration Division of Phoenix.
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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 Subaccounts of the VUL
Account or to the GIA. Each Subaccount invests in a designated portfolio of the
available Funds. Also, under the Policy, the amount and duration of the life
insurance coverage and its Policy Value are not guaranteed and may increase or
decrease depending upon the investment experience of the Subaccounts of the VUL
Account. Accordingly, the Policyowner bears the investment risk of any
depreciation in value of the underlying assets but reaps the benefits of any
appreciation in value. See "Policy Value."
In addition, unlike conventional fixed benefit life insurance, a Policyowner
has the flexibility, under certain limited circumstances, to make additional
premium payments and to thereby adjust the variable death benefit. Thus, unlike
conventional fixed benefit life insurance, the Policy does not require a
Policyowner to adhere to a fixed premium payment schedule. Moreover, after the
payment of the Issue Premium, the failure to make additional premium payments
will not in itself cause the Policy to lapse. Conversely, the payment of
additional premiums will not guarantee that the Policy will remain In Force.
Lapse will occur when the Surrender Value is insufficient to pay certain charges
deducted on the Monthly Calculation Day, and a grace period expires without
payment of the additional amount required. See "Lapse."
2. IS THERE A GUARANTEED OPTION?
Yes. A Policyowner may elect to have premium payments allocated to the GIA.
Amounts allocated to the GIA earn a fixed rate of interest and Phoenix also may,
in its sole discretion, credit excess interest. See Appendix A.
3. WHAT IS THE DEATH BENEFIT UNDER THE POLICY?
The Policy provides for the payment of benefits upon the death of the
Insured. Upon application for a Policy, an applicant designates, within limits
set by Phoenix, an Issue Premium and amount of the initial Target Face Amount.
During the first Policy Month, the death benefit under the Policy equals the
Target Face Amount. Thereafter, the death benefit is equal to a variable death
benefit.
The variable death benefit in any Policy Month is equal to the Death Benefit
Adjustment Rate for that month, multiplied by the Policy's Cash Value on the
Monthly Calculation Day during that Policy Month (determined without regard to
the monthly deduction on that day). The Death Benefit Adjustment Rates are set
forth in the Schedule Pages of the Policy.
A Minimum Face Amount Rider is optionally available to applicants. It may be
obtained as part of the Policy by electing the rider in the application for the
Policy. The Minimum Face Amount is the amount designated in the application for
a Policy, or as later changed by any partial surrenders. The Minimum Face Amount
may not exceed the Target Face Amount. For Policies that include the rider, the
death benefit during the first Policy Month equals the Target Face Amount.
Thereafter, the death benefit equals the variable death benefit, or the Minimum
Face Amount if higher. See "Death Benefit."
4. MAY A POLICYOWNER PAY ADDITIONAL PREMIUMS?
Yes, if there has been a decrease in the variable death benefit, or if the
Policy would otherwise lapse, and within certain other limits imposed by
Phoenix. Payment of additional premiums generally will have the same effect on
the Policy's variable death benefit as would an increase in Policy Value because
of favorable investment performance in an amount equal to the Additional Net
Premium applied to the Subaccounts. See "Premium Payment" and "Lapse."
5. HOW LONG WILL THE POLICY REMAIN IN FORCE?
The Policy will lapse only when the Surrender Value is insufficient to pay
the monthly deduction (see "Charges and Deductions-- Monthly Deductions"), and a
grace period expires without payment of the additional amount required. In this
respect, the Policy differs in two important respects from a conventional life
insurance policy. First, the failure to pay additional premiums will not
automatically cause the Policy to lapse. Second, the payment of premiums of any
pre-specified amount does not guarantee that the Policy will remain In Force
until the Maturity Date.
6. WHAT CHARGES ARE THERE IN CONNECTION WITH THE POLICY?
MONTHLY DEDUCTION. Once each month, an amount is deducted from the Policy
Value (excluding the value of the Loan Account) equal to the monthly cost of
insurance charge. Additionally, each month during the first 10 Policy Years, a
deduction is made equal to the monthly pro rata share of the balance of any
unrepaid Acquisition Expense. The Acquisition Expense is equal to 6.5% of the
Issue Premium plus the percentage necessary to cover the applicable state
premium taxes. See "Charges and Deductions."
OTHER CHARGES. A charge equal to the lesser of $25 or 2% of the partial
surrender amount paid is deducted from the Policy Value for each partial
surrender.
No charges are currently made from the VUL Account or the GIA for federal or
state income taxes. If Phoenix determines that such taxes may be imposed, it may
make deductions from the VUL Account and the GIA to pay these taxes.
Phoenix charges each Subaccount of the VUL Account the daily equivalent of
0.50% on an annual basis of the current value of the Subaccount's net assets for
its assumption of certain mortality and expense risks incurred in connection
with the Policy.
Additional premium amounts are reduced by any applicable state premium tax
based on the Policyowner's last known address on record with VULA and, for
payments made during a grace period, by the amount needed to cover any monthly
deductions made during the grace period.
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In addition, certain charges are deducted from the assets of the Funds. For
investment advisory services, each Series of a Fund pays the adviser a separate
monthly fee calculated on the basis of its average daily net assets during the
year. See "Charges and Deductions--Other Charges."
7. IS THERE A RIGHT TO CANCEL PERIOD?
Yes. The Policyowner may cancel the Policy within 10 days after the
Policyowner receives it, or 10 days after Phoenix mails or delivers a written
notice of withdrawal right to the Policyowner, or within 45 days of completing
the application, whichever is latest.
8. HOW ARE PREMIUMS ALLOCATED?
If the applicant elects the Temporary Money Market Allocation Amendment in
the application, Phoenix will allocate the entire Issue Premium to the Money
Market Subaccount of the VUL Account. Phoenix requires this election for all
applicants in certain states and for applicants in certain states who indicate
on their application that they intend the Policy to replace existing insurance.
At the expiration of the Right to Cancel Period for such Policyowners, the
Policy Value will be allocated among the Subaccounts of the VUL Account or to
the GIA in accordance with the Policyowner's allocation instructions in the
application for insurance. All other Policyowners will have their Issue Premium
allocated on the Policy Date according to the instruction in the application
without first having the premium placed in the Money Market Subaccount. The
Policy Value may be allocated among the Subaccounts of the VUL Account or to the
GIA.
9. AFTER THE INITIAL ALLOCATION, MAY I CHANGE THE ALLOCATION OF POLICY VALUE?
Yes. A Policyowner may transfer amounts among the Subaccounts of the VUL
Account or the GIA. Only one transfer per Policy Year is permitted from the GIA.
The amount of that transfer is limited to the higher of $1,000 or 25% of the
value of the Policy in the GIA. While Phoenix reserves the right to limit the
number of transfers permitted in any Policy Year, the Policyowner always will be
permitted at least six transfers per Policy Year. Also, Phoenix reserves the
right to set a minimum transfer amount, not to exceed $500, for each transfer. A
transfer is effective as of the day appropriate Written Request for such
transfer is received at VPMO. A systematic transfer program also is available.
See "Transfer of Policy Value."
10. MAY THE POLICY BE SURRENDERED?
Yes. A Policyowner may totally surrender the Policy at any time and receive
the Surrender Value. Subject to certain limitations, the Policyowner also may
partially surrender the Policy at any time prior to the Maturity Date. In the
future, Phoenix may set a minimum surrender amount, not to exceed $500. See
"Surrenders--Partial Surrenders." A partial surrender will result in a decrease
in the death benefit under the Policy. See "Death Benefit." In addition, there
will, in most instances, be certain tax consequences as the result of surrenders
because the Policy generally will be considered to be a modified endowment
contract. A Policy is a modified endowment contract if the amount of premium
paid during the first seven Policy Years is more than the amount that would have
been paid if the Policy had provided for paid-up benefits after the payment of
seven level annual premiums. Distributions such as loans and full or partial
surrenders under a modified endowment contract may be taxable income to the
extent they exceed the premiums paid. If such income is distributed before the
Policyowner attains age 59 1/2, a 10% penalty tax may be imposed. See "Federal
Tax Considerations."
11. WHAT IS THE POLICY'S LOAN PRIVILEGE?
During the first three Policy Years, a Policyowner may obtain Policy loans
in an amount up to 75% of the Cash Value. Thereafter, loans may be obtained up
to 90% of the Cash Value. The interest rate on a loan is at an effective annual
rate of 8.00%, compounded daily and payable on each Policy Anniversary in
arrears. The requested loan amount is transferred from the VUL Account or the
GIA to a Loan Account within Phoenix's General Account and is credited with
interest at an effective annual rate of 7.25% per year compounded daily. Phoenix
may impose a minimum loan amount, not to exceed $500. However, any such minimum
loan amount will not apply to loans, the proceeds of which are used to pay
premiums on another Policy issued by Phoenix. See "The Policy--Policy Loans."
The proceeds of Policy loans may be subject to federal income tax because the
Policy generally will be considered to be a modified endowment contract as
discussed above. See "Federal Tax Considerations."
12. WHAT OPTIONAL INSURANCE BENEFITS ARE THERE UNDER THE POLICY?
Optional insurance benefits offered under the Policy include a Minimum Face
Amount Rider. See "Minimum Face Amount Rider."
13. HOW ARE INSURANCE BENEFITS PAID?
Surrender and death benefits under the Policy may be paid in a lump sum or
under one of the payment options set forth in the Policy. See "Payment Options."
PERFORMANCE HISTORY
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From time to time, the VUL Account may include the performance history of
any or all Subaccounts, in advertisements, sales literature or reports.
Performance information about each Subaccount is based on past performance only
and is not an indication of future performance. THESE RATES OF RETURN ARE NOT AN
ESTIMATE OR GUARANTEE OF FUTURE PERFORMANCE. THEY DO NOT ILLUSTRATE HOW ACTUAL
PERFORMANCE WILL AFFECT THE BENEFITS UNDER A POLICY BECAUSE THEY DO NOT REFLECT
COST OF INSURANCE, PREMIUM TAX CHARGES AND SURRENDER CHARGES, IF APPLICABLE. FOR
THIS INFORMATION SEE APPENDIX B "ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES
AND CASH SURRENDER VALUES." Performance information may be expressed as yield
and effective yield of the Money Market Subaccount, as yield of the Multi-Sector
Subaccount and as total return of any Subaccount. Current yield for the Money
Market Subaccount will be based on the income earned by the Subaccount over a
given 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 Mortality and
Expense Risk charge on the Account level.
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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 7-day period, which
period will end on the date of the most recent financial statements. The yield
for the Subaccount during this 7-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
7-day period ending December 31, 1997.
Assumptions:
Value of hypothetical pre-existing account with
exactly one Unit at the beginning of the period:............. 1.741679
Value of the same account (excluding capital
changes) at the end of the 7-day period:..................... 1.742998
Calculation:
Ending account value......................................... 1.742998
Less beginning account value................................. 1.741679
Net change in account value.................................. 0.001320
Base period return:
(adjusted change/beginning account value).................... 0.000758
Current yield = return x (365/7) =.............................. 3.95%
Effective yield = [(1 + return)(365/7)] -1 =.................... 4.03%
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 the Mortality and Expense Risk, Issue Expense and Monthly
Administrative charges.
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 for all Subaccounts with at least one year of results. POLICY CHARGES
(INCLUDING COST OF INSURANCE, PREMIUM TAX CHARGES, PREMIUM SALES CHARGES AND
SURRENDER CHARGES) ARE NOT REFLECTED.
AVERAGE ANNUAL TOTAL RETURN
FOR THE PERIOD ENDED 12/31/97
-----------------------------
COMMENCE- LIFE OF
SUBACCOUNT MENT DATE 1 YEAR 5 YEARS 10 YEARS FUND
- ---------- --------- ------ ------- -------- ----
Multi-Sector...... 1/1/83 3.35% 9.04% 9.54% 9.97%
Balanced.......... 5/1/92 9.72% 9.13% N/A 9.71%
Allocation........ 9/17/84 12.33% 9.21% 10.89% 12.06%
Growth............ 1/1/83 12.65% 14.59% 16.14% 17.40%
International..... 5/1/90 4.24% 12.97% N/A 7.48%
Money Market......10/10/82 (2.14%) 2.60% 4.45% 5.41%
Real Estate....... 5/1/95 13.56% N/A N/A 23.80%
Theme............. 1/29/96 9.01% N/A N/A 9.84%
Asia.............. 9/17/96 (37.10%) N/A N/A (30.25%)
Enhanced Index.... 7/15/97 N/A N/A N/A (1.26%)*
U.S. Small Cap.... 5/1/95 20.41% N/A N/A 30.73%
Int'l. Small Cap.. 5/1/95 (8.32%) N/A N/A 19.76%
ANNUAL TOTAL RETURN**
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MULTI- ALLO- INTER- MONEY
YEAR SECTOR BALANCED CATION GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983.... 5.47% N/A N/A 32.22% N/A 7.79%
1984.... 10.78% N/A (1.21%) 10.11% N/A 9.67%
1985.... 20.00% N/A 26.69% 34.24% N/A 7.49%
1986.... 18.69% N/A 15.10% 19.86% N/A 5.98%
1987.... 0.60% N/A 12.16% 6.48% N/A 5.97%
1988.... 9.89% N/A 1.83% 3.39% N/A 6.90%
1989.... 7.70% N/A 19.27% 35.39% N/A 8.65%
1990.... 4.67% N/A 5.22% 3.55% (8.74%) 7.67%
1991.... 18.97% N/A 28.64% 42.00% 19.07% 5.45%
1992.... 9.52% 8.44% 10.10% 9.75% (13.26%) 3.06%
1993.... 15.33% 8.06% 10.46% 19.09% 37.72% 2.35%
1994.... (5.93%) (3.32%) (1.89%) 0.96% (0.44%) 3.31%
1995.... 22.91% 22.72% 17.61% 30.23% 9.04% 5.16%
1996.... 11.86% 10.01% 8.50% 12.02% 18.06% 4.50%
1997.... 10.53% 17.35% 20.13% 20.48% 11.49% 4.66%
REAL ENHANCED U.S. INT'L.
YEAR ESTATE THEME ASIA INDEX SMALL CAP SMALL CAP
- ---- ------ ----- ---- ----- --------- ---------
1995.... 17.42% N/A N/A N/A 16.24% 34.23%
1996.... 32.60% 9.89% 0.01% N/A 46.08% 31.54%
1997.... 21.45% 16.59% (32.73%) 5.61%* 28.78% (1.95%)
*From inception.
**Sales Charges have not been deducted from the Annual Total Return.
A Subaccount's performance may be compared to that of the Consumer Price
Index or various unmanaged equity or bond indices such as the Dow Jones
Industrial Average, the Standard & Poor's 500 Composite Stock Price Index ("S&P
500") and the Europe Australia Far East Index ("EAFE"), and also may be compared
to the performance of other variable life accounts as reported by services such
as Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies,
Inc. ("CDA") and Morningstar, Inc., or in other various publications. Lipper and
CDA are widely recognized independent rating/ranking services. A Subaccount's
performance also may be compared to that of other investment or savings
vehicles.
Advertisements, sales literature and other communications may contain
information about any Series' or Adviser's current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Series may
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separate their cumulative and average annual returns into income results and
capital gains or losses; or cite separately as a return figure the equity or
bond portion of a Series' portfolio; or compare a Series' equity or bond return
figure to well-known indices of market performance, including, but not limited
to the S&P 500, Dow Jones Industrial Average, First Boston High Yield Index and
Solomon Brothers Corporate and Government Bond Indices.
The Funds may, from time to time, include in advertisements containing total
return the ranking of those performance figures relative to such figures for
groups of Subaccounts having similar investment objectives as categorized by
ranking services such as Lipper, CDA, Weisenberger Financial Services, Inc.,
Morningstar, Inc. and Tillinghast. Additionally, the Funds may compare a Series'
performance results to other investment or savings vehicles (such as
certificates of deposit) and may refer to results published in various
publications such as Changing Times, Forbes, Fortune, Money, Barron's, Business
Week, Investor's Business 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, EAFE, Consumer Price Index, Shearson Lehman Corporate Index
and Shearson Lehman T-Bond Index. The S&P 500 is a commonly quoted market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 common stocks relative to the base period 1941-43. The S&P 500 is
composed almost entirely of common stocks of companies listed on the NYSE,
although the common stocks of a few companies listed on the American Stock
Exchange or traded over the counter are included. The 500 companies represented
include 400 industrial, 60 transportation and 40 financial services concerns.
The S&P 500 represents about 70-80% of the market value of all issues on the
NYSE.
The Fund's Annual Report, available upon request and without charge,
contains a discussion of the performance of the Funds and a comparison of that
performance to a securities market index.
PHOENIX AND THE VUL ACCOUNT
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PHOENIX
Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851 and redomiciled to New York in 1992. Its executive office is
at One American Row, Hartford, Connecticut 06115 and its main administrative
office is at 100 Bright Meadow Boulevard, Enfield, Connecticut 06083-1900. Its
New York principal office is at 10 Krey Boulevard, East Greenbush, New York
12144. Phoenix is the nation's 9th largest mutual life insurance company and has
consolidated assets of approximately $18.5 billion. Phoenix sells insurance
policies and annuity contracts through its own field force of full time agents
and through brokers. Its operations are conducted in all 50 states, the District
of Columbia, Canada and Puerto Rico.
THE VUL ACCOUNT
The VUL Account is a separate account of Phoenix formed on June 17, 1985 and
governed under the laws of New York. It is registered as a unit investment trust
under the Investment Company Act of 1940 ("1940 Act"), as amended, and it meets
the definition of a "separate account" under that Act. Such registration does
not involve supervision of the management of the VUL Account or Phoenix by the
Securities and Exchange Commission ("SEC").
The VUL Account currently has 17 Subaccounts available for allocation of
Policy Value. In the future, if 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 Series, each having the specified
investment objective set forth under "Investments of the VUL
Account--Participating Investment Funds."
Phoenix does not guarantee the investment performance of the VUL Account or
any of its Subaccounts. The Policy Value depends on the investment performance
of the Fund. Thus, the Policyowner bears the full investment risk for all monies
invested in the VUL Account.
The VUL Account is administered and accounted for as part of the general
business of Phoenix, but the income, gains or losses of the VUL Account are
credited to or charged against the assets held in the VUL Account, without
regard to other income, gains or losses of any other business Phoenix may
conduct. Under New York law, the assets of the VUL Account are not chargeable
with liabilities arising out of any other business Phoenix may conduct.
Nevertheless, all obligations arising under the Policy are general corporate
obligations of Phoenix.
THE GIA
The GIA is not part of the VUL Account. It is accounted for as part of the
General Account. Phoenix reserves the right to limit cumulative deposits,
including transfers, to the GIA to no more than $250,000 during any one-week
period. Phoenix will credit interest daily on the amounts allocated under the
Policy to the GIA. Interest on the GIA will be credited at an effective annual
rate of not less than 4%.
Biweekly, Phoenix sets the interest rate that will apply to any premium or
transferred amounts deposited to the GIA. That rate will remain in effect for
such deposits for an initial guarantee period of one full year from the date of
deposit. Upon expiration of the initial one-year guarantee period (and each
subsequent one-year guarantee period thereafter), the rate to be applied to any
deposits whose guarantee period has just ended shall be the same rate as is
applied to new deposits allocated to the GIA at the time that the guarantee
period expired. This rate will likewise remain in effect for a guarantee period
of one full year from the date the new rate is applied. For more complete
information concerning the GIA, see Appendix A.
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THE POLICY
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INTRODUCTION
The Policy is a variable life insurance policy. The Policy has a death
benefit, Cash Surrender Value and loan privilege such as is associated with a
traditional fixed benefit whole life policy. The Policy differs from a fixed
benefit whole life policy, however, because the Policyowner specifies in which
of several Subaccounts of the VUL Account or the GIA net premium is to be
allocated. Each Subaccount of the VUL Account, in turn, invests its assets
exclusively in a portfolio of the Fund. The Policy's death benefit and Cash
Value vary reflecting the investment performance of the Series to which the
Policy Value has been allocated.
ELIGIBLE PURCHASERS
Any person up to the age of 75 is eligible to be insured under a newly
purchased Policy after providing acceptable evidence of insurability. A person
can purchase a Policy to insure the life of another person provided that the
Policyowner has an insurable interest in the life of the Insured and the Insured
consents.
PREMIUM PAYMENT
The minimum Issue Premium for a Policy is $10,000. After the first Policy
Year, the Policyowner may pay, within certain limits, additional premiums if the
variable death benefit on the first day of the Policy Year is less than the
highest variable death benefit during the previous Policy Year and less than the
current Target Face Amount. Additional premiums may be paid only during the
first 60 days of a Policy Year.
The maximum amount of an additional premium payment (when permitted) is the
lesser of (i) A minus B or (ii) C, where:
A = The premium payment which would have increased the variable death
benefit at the beginning of the current Policy Year to the highest
variable death benefit during the previous Policy Year.
B = The amount of any reduction in Cash Value due to partial surrenders
made during the previous Policy Year.
C = The premium payment which would have increased the variable death
benefit at the beginning of the current Policy Year to the current
Target Face Amount.
Example: Assume that a male age 45, nonsmoker, pays an initial premium of
$10,000 and has a Target Face Amount of $28,236. Assume also a net
investment rate of return of 9% for the first Policy Year and a net
investment rate of return of 0% for the second and third Policy Years. At
the beginning of the third Policy Year, this Policyowner would have a
variable death benefit of $28,952. This variable death benefit is less than
the highest death benefit in the previous year, which would have been
$29,772. However, since $28,952 is higher than the initial Target Face
Amount of $28,236, this Policyowner would not be permitted to pay an
additional premium.
At the beginning of the fourth Policy Year, the Policyowner would have a
variable death benefit of $27,940. This variable death benefit is less than
the highest death benefit in the previous year, which would have been
$28,952. This death benefit also is less than the initial Target Face
Amount of $28,236 and, therefore, this Policyowner would be permitted to
pay an additional premium. The premium necessary to increase the death
benefit to $28,236 (the initial Target Face Amount) is $105.66 for this
Policyowner. Phoenix also may agree to allow this Policyowner to pay a
higher premium amount.
The Policyowner may wish to pay this additional premium to maintain his
originally targeted level of death benefit protection despite adverse
market experience. In addition, some Policyowners may view depressed market
values as an opportunity to buy additional Units at the depressed value in
anticipation of future market improvement.
Additional premium payments are reduced by any applicable state premium tax
based on the Policyowner's last known address on record at VULA. See "Monthly
Deduction--Acquisition Expense." Also, a further deduction is made from
additional premiums when paid during a grace period. See "Lapse."
The additional premiums less applicable deductions are called Additional Net
Premium and are applied to Policy Value based on the then current premium
allocation schedule.
The payment of additional premiums will have an effect on the Policy's
variable death benefit. See "Death Benefit--Additional Premiums and Partial
Surrenders: Effect on Death Benefit."
ALLOCATION OF ISSUE PREMIUM
Within seven business days after the later of receipt of the Issue Premium
and Phoenix's approval of a completed application for processing, Phoenix
allocates the Issue Premium to the VUL Subaccounts or the GIA. Generally, the
Issue Premium is directly allocated in accordance with the allocation
instructions in the application for a Policy. However, Policies issued in
certain states, and Policies issued in certain states pursuant to applications
which state the Policy is intended to replace existing insurance, are issued
with a Temporary Money Market Allocation Amendment. Under this Amendment,
Phoenix temporarily allocates the entire Issue Premium paid (along with any
other premiums paid during the Right to Cancel Period) to the Money Market
Subaccount of the VUL Account, and, at the expiration of the Right to Cancel
Period, the Policy Value of the Money Market Subaccount is allocated among the
Subaccounts of the VUL Account or to the GIA in accordance with the applicant's
allocation instructions in the application for insurance.
RIGHT TO CANCEL PERIOD
A Policy may be returned by mailing or delivering it to Phoenix within 10
days after the Policyowner receives it; within 10 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:
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(i) the then current Policy Value less any unpaid loans and loan interest; plus
(ii) any monthly deductions, partial surrender fees and other charges made under
the Policy, including investment advisory fees, or any Fund expenses deducted.
The amount returned for Policies issued with the Amendment will equal any
premiums paid less any unrepaid loans and loan interest, and less any partial
surrender amounts paid.
Phoenix reserves the right to disapprove an application for processing
within seven days of receipt at Phoenix of the completed application for
insurance, in which event Phoenix will return the premium paid. Even after
approval of the application for processing, Phoenix reserves the right to
decline issuance of the Policy, in which event Phoenix will refund the applicant
the same amount as would have been refunded under the Policy had it been issued
but returned for refund during the Right to Cancel Period.
TEMPORARY INSURANCE COVERAGE
On the date the application for a Policy is signed and submitted with the
Issue Premium, Phoenix issues a Temporary Insurance Receipt in connection with
the application. Under the Temporary Insurance Receipt ("Receipt"), the
insurance protection applied for (subject to the limits of liability and in
accordance with the terms set forth in the Policy and in the Receipt) takes
effect on the date of the application.
TRANSFER OF POLICY VALUE
A Policyowner may transfer all or a portion of Policy Value among
Subaccounts or the GIA by Written Request or by telephone request. However, for
Policies issued with the Temporary Money Market Allocation Amendment, transfers
may not be made until the Right to Cancel Period expires.
A Policyowner may request transfers among available Subaccounts or the GIA
In Writing or by calling (800) 892-4885, between the hours of 8:30 a.m. and 4:00
p.m. Eastern Time. Unless the Policyowner elects In Writing not to authorize
telephone transfers, telephone transfer orders also will be accepted on behalf
of the Policyowner from his or her registered representative. Phoenix and
Phoenix Equity Planning Corporation ("PEPCO") will employ reasonable procedures
to confirm that telephone instructions are genuine. They will require address
verification, identical account registrations and will record telephone
instructions on tape. All telephone exchanges will be confirmed In Writing to
the Policyowners. To the extent that procedures reasonably designed to prevent
unauthorized transfers are not followed, Phoenix and PEPCO may be liable for
following telephone instructions for transfers that prove to be fraudulent.
However, the Policyowner would bear the risk of loss resulting from instructions
entered by an unauthorized third party that Phoenix and PEPCO reasonably believe
to be genuine. The telephone transfer privilege may be modified or terminated at
any time, and during times of extreme market volatility, it may be difficult to
exercise. In such cases, the Policyowner should submit a Written Request.
A Policyowner also may elect to transfer funds automatically among the
Subaccounts or the GIA on a monthly, quarterly, semi-annual or annual basis
under the Systematic Transfer Program for Dollar Cost Averaging ("Systematic
Transfer Program"). Under this Systematic Transfer Program, the minimum initial
and subsequent transfer amounts are $25 monthly, $75 quarterly, $150
semi-annually or $300 annually. A Policyowner must have an initial value of
$1,000 in the GIA or the Subaccount from which funds will be transferred
("Sending Subaccount"), and if the value in that Subaccount or the GIA drops
below the elected transfer amount, the entire remaining balance will be
transferred and no more systematic transfers will be processed. Funds may be
transferred from only one Sending Subaccount or the GIA, but may be allocated to
multiple Subaccounts ("Receiving Subaccounts"). Under the Systematic Transfer
Program, Policyowners may make more than one transfer per Policy Year from the
GIA in approximately equal amounts over a minimum 18-month period.
Only one Systematic Transfer Program can be active per Policy. After the
completion of the program, you can call VULA at (800) 892-4885 to begin a new
Systematic Transfer Program.
All transfers under the Systematic Transfer Program will be executed on the
basis of the respective value of each Subaccount as of the first of the month
rather than on the basis of the respective values next determined after receipt
of the transfer request. If the first of the month falls on a holiday or
weekend, then the transfer will be processed on the next succeeding business
day.
Unless Phoenix agrees otherwise or the Systematic Transfer Program has been
elected, a Policyowner may make only one transfer per Policy Year from the GIA.
Transfers will be effectuated on the date the transfer request was received at
VPMO, unless made pursuant to the Systematic Transfer Program, as noted above.
For nonsystematic transfers, the amount that may be transferred from the GIA at
any one time cannot exceed the greater of $1,000 or 25% of the Policy Value in
the GIA at the time of transfer. THERE ARE ADDITIONAL RESTRICTIONS ON TRANSFERS
FROM THE GIA AS DESCRIBED ABOVE AND IN APPENDIX A.
Phoenix reserves the right to limit the number of transfers made during a
Policy Year. However, Policyowners will be permitted at least six transfers per
Policy Year. Also, Phoenix reserves the right to set a minimum transfer amount
not to exceed $500. A nonsystematic transfer will take effect on the date the
request is received at VPMO.
Because excessive trading can hurt Fund performance and harm Policyowners,
Phoenix reserves the right to temporarily or permanently terminate exchange
privileges or reject any specific order from anyone whose transactions seem to
follow a timing pattern, including those who request more than one exchange out
of a Subaccount within any 30-day period. Phoenix will not accept batch transfer
instructions from registered representatives (acting under powers of attorney
for multiple Policyowners), unless the registered representative's broker-dealer
firm and Phoenix have entered into a third party transfer service agreement.
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
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federal and/or state regulation, including tax, securities and insurance law.
DETERMINATION OF SUBACCOUNT VALUES
On each Valuation Date, the Policy's share in the value of each Subaccount
is determined separately, but the valuation method used is the same for each
Subaccount. A Policy's share in the value of a Subaccount on any Valuation Date
equals:
(a) The Policy's share in the value of that Subaccount as of the immediately
preceding Valuation Date multiplied by the "Net Investment Factor" of
that Subaccount for the current Valuation Period; plus
(b) All amounts transferred to the Policy's share in the value of that
Subaccount from another Subaccount or from the Loan Account during the
current Valuation Period; plus
(c) All Additional Net Premiums allocated to that Subaccount during the
current Valuation Period; minus
(d) All amounts transferred from the Policy's share in the value of that
Subaccount to another Subaccount or to the Loan Account during the
current Valuation Period; minus
(e) Any portion of the monthly deduction allocated to the Policy's share in
the value of that Subaccount during the current Valuation Period; minus
(f) All reductions in the Policy Value allocated to the Policy's share in
the value of that Subaccount due to any partial surrenders made during
the current Valuation Period.
The Net Investment Factor for each Subaccount for any Valuation Period is
determined by dividing (a) by (b), and subtracting (c) from the result where:
(a) is the result of:
(i) the asset value of the Fund shares held by that Subaccount
determined as of the end of the current Valuation Period (exclusive
of the net value of any transactions during the current Valuation
Period); plus
(ii) the amount of any dividend (or, if applicable, any capital gain
distribution) made by the Fund on shares held by that Subaccount if
the "ex-dividend" date occurs during the current Valuation Period;
plus/minus
(iii)the charge or credit for any taxes incurred by, or provided for,
in that Subaccount for the current Valuation Period.
(b) the net asset value of the Fund shares held by that Subaccount
determined as of the end of the immediately preceding Valuation Period;
(c) is a factor, equal to the sum of 0.50% on an annual basis held by that
Subaccount, representing the Mortality and Expense Risk Charge deducted
from that Subaccount during the Valuation Period.
The Net Investment Factor may be greater than, less than, or equal to one.
Therefore, the Policy Value may increase, decrease or remain unchanged.
DEATH BENEFIT
GENERAL
In the application for insurance, an applicant designates an amount as the
Policy's initial Target Face Amount. During the first Policy Month, the death
benefit equals this Target Face Amount. After the first Policy Month the death
benefit is equal to the variable death benefit.
During any Policy Month after the first, the variable death benefit under
the Policy is equal to:
(i) the Cash Value on the last preceding Monthly Calculation Day,
multiplied by
(ii) the applicable Death Benefit Adjustment Rate (as defined below) on the
last preceding Monthly Calculation Day.
The Death Benefit Adjustment Rates assume an interest rate ranging from 4%
to 5%. The assumed interest rate used to calculate the Death Benefit Adjustment
Rates under a particular Policy depends on the Policy's Initial Premium and its
Target Face Amount. In the event the net investment rate of return (gross
investment return net of mortality and expense risk charge and investment
management fee) applied to the Policy Value exceeds the assumed interest rate
used to calculate the Death Benefit Adjustment Rates, the variable death benefit
under the Policy will be greater than its Target Face Amount. Conversely, if the
net investment rate of return applied to the Policy Value is less than the
assumed interest rate, then the variable death benefit will be less than the
Target Face Amount. Finally, if the net investment rate of return applied to the
Policy Value equals the assumed interest rate, then the variable death benefit
will approximately equal the Target Face Amount.
EXAMPLE: Death Benefit Adjustment Rates which assume a 4% interest rate
apply to a male age 45 nonsmoker who pays an initial premium of $25,000 and
has a Target Face Amount of $70,591. Five years after the Issue Date of this
Policy, the following variable death benefits would apply for the specified
net rates of return:
--assuming a 5% net investment rate of return: $75,144
--assuming a 4% net investment rate of return: $71,514
--and assuming a 3% net investment rate of return: $68,019
EXAMPLE: A male age 45, nonsmoker, pays an initial premium of $10,000. For
this initial premium, this Policyowner can choose an initial Target Face
Amount ranging from $28,236 to $35,980. This range of Target Face Amount
represents Death Benefit Adjustment Rates which assume interest rates
ranging from 4% to 5% and a 2% state premium tax. Generally, selection of
the highest Target Face Amount available for a given premium will result in
the highest death benefit adjustment rate, variable death benefit and
resulting cost of insurance charges. Conversely, selection of the lower
Target Face Amount available for a given
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premium will result in the lowest death benefit adjustment rate, variable
death benefit and resulting cost of insurance charges.
Assuming that this Policyowner selects an initial Target Face Amount of
$35,980, and that the net rate of return achieved is 5% per year, this
Policyowner will have a variable death benefit of $36,826 and Cash Value of
$36,826 when he reaches age 95. The variable death benefit and Cash Value
are slightly larger than the initial Target Face Amount due to the fact that
the Acquisition Expense is deducted and then re-credited to the Policyowner
and taken out in monthly installments over the first 10 Policy Years. While
a portion of this Acquisition Expense Allowance remains in the Policy Value,
it also is earning a net rate of return.
ADDITIONAL PREMIUMS AND PARTIAL SURRENDERS: EFFECT ON DEATH BENEFIT
Additional premium payments are permitted under certain circumstances. See
"The Policy--Premium Payment." Such a payment does not result in an immediate
increase in the variable death benefit. However, on the next Monthly Calculation
Day the variable death benefit will be larger as a consequence of the larger
Cash Value.
A partial surrender decreases the Target Face Amount and the Minimum Face
Amount (if provided by appropriate rider). The Target Face Amount and Minimum
Face Amount are reduced by a fraction equal to the result of dividing the
partial surrender amount paid plus the partial surrender fee by the Cash Value
(determined without regard to the partial surrender). Moreover, the death
benefit under a Policy is reduced on the next Monthly Calculation Day due to the
reduced Cash Value. A partial surrender or decrease in the death benefit may
have certain tax consequences. See "Federal Tax Considerations."
In addition, if the Insured dies during any Policy Month in which additional
premium had been paid, the death proceeds paid will equal the death benefit for
that month plus the additional premium paid, minus any premium paid during a
grace period necessary to keep the Policy in effect.
MINIMUM FACE AMOUNT RIDER
An applicant in the application for a Policy may elect to have a Minimum
Face Amount Rider issued in connection with the Policy. If this Rider is
elected, the applicant designates in the application an amount to be the Minimum
Face Amount. The amount designated as the Minimum Face Amount cannot exceed the
Policy's Target Face Amount.
The death benefit under a Policy issued with the Minimum Face Amount Rider
equals the Target Face Amount during the first Policy Month. Thereafter, the
Policy's death benefit equals the higher of (i) the variable death benefit or
(ii) the Minimum Face Amount.
Under the Minimum Face Amount Rider, when the death benefit is calculated
with reference to the Minimum Face Amount, the death benefit under the Policy
may be greater than it otherwise would have been had the Rider not been issued.
Accordingly, when the Minimum Face Amount is used to calculate the death
benefit, there is a greater "net amount at risk" under the Policy and,
therefore, a larger amount is deducted from Policy Value to pay for cost of
insurance than would be deducted under an identical Policy without the Rider.
SURRENDERS
GENERAL
At any time during the lifetime of the Insured and while the Policy is In
Force, the Policyowner may partially or fully surrender the Policy by sending a
written release and surrender in a form satisfactory to Phoenix to VPMO, along
with the Policy if Phoenix so requires. The amount available for surrender is
the Cash Value at the end of the Valuation Period during which the surrender
request is received at VPMO less any indebtedness.
Upon partial or full surrender, Phoenix generally will pay the amount
surrendered to the Policyowner within seven days after Phoenix receives the
Written Request for the surrender. Under certain circumstances, the surrender
payment may be postponed. See "General Provisions--Postponement of Payments."
For the federal tax effects of partial and full surrenders, see "Federal Tax
Considerations."
FULL SURRENDERS
If the Policy is being fully surrendered, the Policy itself must be returned
to VPMO, along with the written release and surrender of all claims in a form
satisfactory to Phoenix. A Policyowner may elect to have the amount paid in a
lump sum or under a payment option. See "Payment Options."
PARTIAL SURRENDERS
For a partial surrender, the amount paid plus the partial surrender fee will
be deducted from the Policy Value at the end of the Valuation Period during
which the request is received. The Policy Value will be reduced by the partial
surrender amount paid, the partial surrender fee (see "Charges and
Deductions--Other Charges"), and a portion of any unrepaid Acquisition Expense.
The portion of any unrepaid Acquisition Expense paid in connection with a
partial surrender is equal to the result of dividing the partial surrender
amount paid plus the partial surrender fee by the Cash Value (determined without
regard to the partial surrender). The reduction in Policy Value caused by
partial surrenders is deducted from the Subaccounts of the VUL Account based on
the allocation schedule for monthly deductions, unless the Policyowner directs
otherwise. Cash Value is reduced to equal the resulting Policy Value less the
balance of any remaining unpaid Acquisition Expense Allowance.
Partial surrenders will decrease the Target Face Amount and the Minimum Face
Amount (if provided by rider), as well as the variable death benefit. See "Death
Benefit--Additional Premiums and Partial Surrenders: Effect on Death Benefit"
and "Federal Tax Considerations."
In the future, Phoenix may set a minimum partial surrender amount not to
exceed $500. Also, partial surrenders will be permitted only if the death
benefit under the Policy after the requested partial surrender would equal or
exceed the minimum death benefit amount set by Phoenix from time to time.
Furthermore,
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partial surrenders will not be allowed if the Surrender Value of the Policy
after the requested partial surrender would equal zero or less.
POLICY LOANS
During the first three Policy Years, the Policyowner may borrow under the
Policy an amount up to 75% of the Cash Value. Thereafter, Policyowners may
borrow an amount not exceeding 90% of the Cash Value. The requested loan amount
is transferred to the Loan Account from the Subaccounts of the VUL Account or
the GIA based on the allocation schedule for monthly deductions, unless the
Policyowner requests a different allocation in the loan request. The debt under
the Policy and the balance of the Loan Account is increased by the amount of the
Policy loan.
The proceeds of a Policy loan may be subject to federal income tax. See
"Federal Tax Considerations."
In the future, Phoenix may not allow Policy loans of less than $500, unless
such loan is used to pay a premium on another Phoenix Policy.
The loan debt will bear interest at an effective annual rate of 8.00%,
compounded daily and payable in arrears. The Loan Account Value is credited with
interest at an effective annual rate of 7.25%, compounded daily and payable in
arrears. At the end of each Policy Year, the difference between any unpaid
interest on the debt and the interest earned on the Loan Account Value will be
offset by a transfer from the Policyowner's Subaccount or GIA values to the
value of the Policyowner's Loan Account.
A Policy loan, whether or not repaid, has a permanent effect on the Cash
Value because the investment results of the Subaccounts or the GIA will apply
only to the amount remaining in the Subaccounts or the GIA. The longer a loan is
outstanding, the greater the effect is likely to be. The effect could be
favorable or unfavorable. If the Subaccounts or the GIA earn more than 7.25% per
annum, which is the annual interest rate for funds held in the Loan Account,
Cash Value does not increase as rapidly as it would have had no loan been made.
If the Subaccounts or the GIA earn less than 7.25% per annum, Cash Value is
greater than it would have been had no loan been made. A Policy loan, whether or
not repaid, also has an effect on the Policy's variable death benefit due to any
resulting differences in Cash Value. While the loan is outstanding, any payment
on the loan will be treated as a repayment (not subject to the premium tax).
The Policyowner may repay part or all of the debt at any time. If the value
of the Loan Account on the Payment Date of the debt repayment is greater than
the reduced remaining debt, then the value of the Loan Account will be reduced
to equal the remaining debt. On the Payment Date, the share of Policy Value in
the Subaccounts or the GIA is increased based on the allocation requested upon
repayment. The amount of the increase equals the amount of reduction in value of
the Loan Account. If no allocation request is made, the allocation will be based
on the then current premium allocation schedule.
LAPSE
Unlike conventional fixed benefit life insurance policies, the payment of
the Issue Premium, no matter how large, or the payment of additional premiums
will not necessarily continue the Policy In Force to its Maturity Date. Lapse
will only occur where the Surrender Value is insufficient to cover the monthly
deduction and a grace period expires without payment of the additional amount
required. If the Surrender Value is insufficient to cover the monthly deduction,
the Policyowner must pay, during the grace period, the amount needed to increase
the Surrender Value to equal three times the required monthly deduction. See
"Charges and Deductions."
If on any Monthly Calculation Day the Surrender Value is insufficient to
cover the monthly deduction, Phoenix will notify the Policyowner of the
additional payment required. The Policyowner will then have a grace period of 61
days, measured from the date notice is sent to the Policyowner, to pay the
additional amount. Failure to pay the additional amount within the grace period
will result in lapse of the Policy. If a premium payment for the additional
amount is received by Phoenix during the grace period, any Additional Net
Premium will be allocated among the Subaccounts of the VUL Account or the GIA in
accordance with the then current premium allocation schedule. In determining the
Additional Net Premium to be applied to the Subaccounts or the GIA, Phoenix will
deduct the premium tax and the amount needed to cover any monthly deductions
made during the grace period. If the Insured dies during the grace period, the
death benefit will equal the amount of the death benefit immediately prior to
the commencement of the grace period.
INVESTMENTS OF THE VUL ACCOUNT
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PARTICIPATING INVESTMENT 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. The Money Market Series invests exclusively in high quality money
market instruments.
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. The Growth Series invests principally in common stocks of
corporations believed by management to offer growth potential.
MULTI-SECTOR FIXED INCOME ("MULTI-SECTOR") SERIES: The investment objective
of the Multi-Sector Series is to seek long-term total return. The Multi-Sector
Series seeks to achieve its investment objective by investing in a diversified
portfolio of high yield and high quality fixed income securities.
STRATEGIC ALLOCATION ("ALLOCATION") SERIES: The investment objective of the
Allocation Series is to realize as high a level of total return over an extended
period of time as is considered consistent with prudent investment risk. The
Allocation Series invests in stocks,
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bonds and money market instruments in accordance with the Investment Adviser's
appraisal of investments most likely to achieve the highest total return.
INTERNATIONAL SERIES: The investment objective of the International Series
is to seek a high total return consistent with reasonable risk. The
International Series invests 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 invests 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. Under normal circumstances, it invests in
marketable securities of publicly traded real estate investment trusts (REITs)
and companies that operate, develop, manage and/or invest in real estate located
primarily in the United States.
STRATEGIC THEME ("THEME") SERIES: The investment objective of the 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
Theme Series invests primarily in common stocks believed to have substantial
potential for capital growth.
ABERDEEN NEW ASIA ("ASIA") SERIES: The investment objective of the Asia
Series is to seek long-term capital appreciation. The Asia Series invests
primarily in a diversified portfolio of equity securities of issuers organized
and principally operating in Asia, excluding Japan.
RESEARCH ENHANCED INDEX ("ENHANCED INDEX") SERIES: The investment objective
of the Enhanced Index Series is to seek high total return by investing in a
broadly diversified portfolio of equity securities of large and medium
capitalization companies within market sectors reflected in the S&P 500. The
Enhanced Index Series invests in a portfolio of undervalued common stocks and
other equity securities which appear to offer growth potential and an overall
volatility of return similar to that of the S&P 500.
ENGEMANN NIFTY FIFTY ("NIFTY FIFTY") SERIES: The investment objective of the
Nifty Fifty Series is to seek long-term capital appreciation by investing in
approximately 50 different securities which offer the best potential for
long-term growth of capital. At least 75% of the Series' assets will be invested
in common stocks of high quality growth companies. The remaining portion will be
invested in common stocks of small corporations with rapidly growing earnings
per share or common stocks believed to be undervalued.
SENECA MID-CAP GROWTH ("SENECA MID-CAP") SERIES: The investment objective of
the Seneca Mid-Cap Series is to seek capital appreciation primarily through
investments in equity securities of companies that have the potential for above
average market appreciation. The Series seeks to outperform the Standard &
Poor's Mid-Cap 400 Index.
PHOENIX GROWTH AND INCOME ("GROWTH & INCOME") SERIES: The investment
objective of the Growth & Income Series is to seek dividend growth, current
income and capital appreciation by investing in common stocks. The Growth &
Income Series seeks to achieve its objective by selecting securities primarily
from equity securities of the 1,000 largest companies traded in the United
States, ranked by market capitalization.
PHOENIX VALUE EQUITY ("VALUE") SERIES: The primary investment objective of
the Value Series is long-term capital appreciation, with a secondary investment
objective of current income. The Value Series seeks to achieve its objective by
investing in a diversified portfolio of common stocks that meet certain
quantitative standards that indicate above average financial soundness and
intrinsic value relative to price.
SCHAFER MID-CAP VALUE ("SCHAFER MID-CAP") SERIES: The primary investment
objective of the Schafer Mid-Cap Series is to seek long-term capital
appreciation, with current income as the secondary investment objective. The
Schafer Mid-Cap Series will invest in common stocks of established companies
having a strong financial position and a low stock market valuation at the time
of purchase which are believed to offer the possibility of increase in value.
WANGER ADVISORS TRUST
Certain Subaccounts of the VUL Account invest in corresponding Series of the
Wanger Advisors Trust. The following Series are currently available through the
Policies:
WANGER U.S. SMALL CAP ("U.S. SMALL CAP") SERIES: The investment objective of
the U.S. Small Cap Series is to provide long-term growth. The U.S. Small Cap
Series invests primarily in securities of U.S. companies with total common stock
market capitalization of less than $1 billion.
WANGER INTERNATIONAL SMALL CAP ("INTERNATIONAL SMALL CAP") SERIES: The
investment objective of the International Small Cap Series is to provide
long-term growth. The International Small Cap Series invests primarily in
securities of non-U.S. companies with total common stock market capitalization
of less than $1 billion.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
Certain Subaccounts of the VUL Account invest in corresponding Series of the
Templeton Variable Products Series Fund. The following Series are currently
available through the Policies:
TEMPLETON STOCK ("STOCK") SERIES: The investment objective of the Stock
Series is to provide capital growth. The Stock Series invests primarily in
common stocks issued by companies, large and small, in various nations
throughout the world.
TEMPLETON ASSET ALLOCATION ("TPT ALLOCATION") SERIES: The investment
objective of the TPT Allocation Series is to seek a high level of total return
through a flexible investment policy. The TPT
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Allocation Series invests in stocks of companies of any nation, debt securities
of companies and governments of any nation and in money market instruments.
Changes in the asset mix will be made in an attempt to capitalize on total
return potential produced by changing economic conditions throughout the world.
TEMPLETON INTERNATIONAL ("TPT INTERNATIONAL") SERIES: The investment
objective of the TPT International Series is to seek long-term capital growth
through a flexible policy of investing. The TPT International Series invests in
stocks and debt obligations of companies and governments outside the United
States. Any income realized will be incidental. Although the Series generally
invests in common stock, it also may invest in preferred stocks and certain debt
securities such as convertible bonds which are rated in any category by S&P or
Moody's or which are unrated by any rating agency.
TEMPLETON DEVELOPING MARKETS ("DEVELOPING MARKETS") SERIES: The investment
objective of the Developing Markets Series is to seek long-term capital
appreciation. The Developing Markets Series invests primarily in equity
securities of issuers in countries having developing markets.
MUTUAL SHARES INVESTMENTS ("SHARES") SERIES: The primary investment
objective of the Shares Series is to seek capital appreciation with income as a
secondary objective. The Shares Series invests in domestic equity securities and
domestic debt obligations.
Each Series will be subject to market fluctuations and risks inherent in the
ownership of any security and there can be no assurance that the stated
investment objective of any Series will be realized.
In addition to being sold to the VUL Account, shares of the Funds also are
sold to the Phoenix Variable Accumulation Account, a separate account used by
Phoenix to receive and invest premiums paid under certain variable annuity
contracts issued by Phoenix. Shares of the Funds 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
simultaneously invest in the Fund(s). 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 conflicts including, if necessary, segregating the assets underlying
the variable life insurance policies and the variable annuity contracts and
establishing a new registered investment company.
INVESTMENT ADVISERS
Phoenix Investment Counsel, Inc. ("PIC") is the investment adviser to all
Series in The Phoenix Edge Series Fund except the Real Estate and Asia Series.
Based on subadvisory agreements with the Fund, PIC delegates certain investment
decisions and research functions to subadvisers for the following Series:
Enhanced Index Series J.P. Morgan Investment Management, Inc.
Nifty Fifty Series Roger Engemann & Associates, Inc. ("Engemann")
Seneca Mid-Cap Series Seneca Capital Management, LLC ("Seneca")
Schafer Mid-Cap Series Schafer Capital Management, Inc.
The investment adviser to the Real Estate Series is Duff & Phelps Investment
Management Co. ("DPIM").
The investment adviser to the Asia Series is Phoenix-Aberdeen International
Advisors LLC ("PAIA"). Pursuant to subadvisory agreements with the Fund, PAIA
delegates certain investment decisions and research functions with respect to
the Asia Series to PIC and Aberdeen Fund Managers, Inc.
PIC, DPIM, Engemann and Seneca are indirect, less than wholly-owned
subsidiaries of Phoenix. PAIA is jointly owned and managed by PM Holdings, Inc.,
a subsidiary of Phoenix, and Aberdeen Fund Managers, Inc.
The investment adviser to the Wanger Advisors Trust is Wanger Asset
Management, L.P.
The investment adviser for the Stock, TPT Asset Allocation and TPT
International Series is Templeton Investment Counsel, Inc.
Templeton Asset Management, Ltd. is the investment adviser for the
Developing Markets Series.
Franklin Mutual Advisers, Inc. is the investment adviser for the Shares
Series.
SERVICES OF THE ADVISERS
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 detailed
discussion of the investment advisers and subadvisers, and the investment
advisory and subadvisory agreements, is contained in the accompanying prospectus
for the Funds.
REINVESTMENT AND REDEMPTION
All dividend distributions of the Funds are automatically reinvested in
shares of the Funds at their net asset value on the date of distribution; all
capital gains distributions of the Funds, if any, are likewise reinvested at the
net asset value on the record date. Phoenix
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redeems Fund shares at their net asset value to the extent necessary to make
payments under the Policy.
SUBSTITUTION OF INVESTMENTS
Phoenix reserves the right, subject to compliance with the law as currently
applicable or subsequently changed, to make additions to, deletions from, or
substitutions for the investments held by the VUL Account. In the future,
Phoenix may establish additional Subaccounts within the VUL Account, each of
which will invest in shares of a designated portfolio of the Funds with a
specified investment objective. These portfolios will be established if, and
when, in the sole discretion of Phoenix, marketing needs and investment
conditions warrant, and will be made available under existing Policies to the
extent and on a basis to be determined by Phoenix.
If shares of any of the portfolios of the Funds should no longer be
available for investment, or if in the judgment of Phoenix's management further
investment in shares of any of the portfolios should become inappropriate in
view of the objectives of the Policy, then Phoenix may substitute shares of
another mutual fund for shares already purchased, or to be purchased in the
future, under the Policy. No substitution of mutual fund shares held by the VUL
Account may take place without prior approval of the SEC, and prior notice to
the Policyowner. In the event of a substitution, the Policyowner will be given
the option of transferring the Policy Value of the Subaccount in which the
substitution is to occur to another Subaccount.
CHARGES AND DEDUCTIONS
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Charges are deducted in connection with the Policy to compensate Phoenix
for: (1) incurring expenses in distributing the Policy; (2) issuing the Policy;
(3) premium taxes incurred on premiums received; (4) providing the insurance
benefits set forth in the Policy; and (5) assuming certain risks in connection
with the Policy. The combined amount of items (1), (2) and (3) is referred to as
the Acquisition Expense (or the Acquisition Expense Allowance). The nature and
amount of these charges are described more fully below.
MONTHLY DEDUCTION
GENERAL
A charge is deducted monthly from the Policy Value under a Policy ("monthly
deduction") during the first 10 Policy Years, to repay the Acquisition Expense
Allowance (as described below). A charge also is deducted monthly to compensate
Phoenix for the cost of insurance. The monthly deduction is deducted on each
Monthly Calculation Day. It is allocated among the Subaccounts of the VUL
Account and the GIA based on the allocation schedule for monthly deductions
specified by the applicant in the application for a Policy or as later changed
by the Policyowner. Because portions of the monthly deduction, such as the cost
of insurance, can vary from month to month, the monthly deduction itself may
vary in amount from month to month.
ACQUISITION EXPENSE (ACQUISITION EXPENSE ALLOWANCE)
The Acquisition Expense Allowance equals the sales charge, issue
administration charge and premium taxes deducted from the Issue Premium and
recredited by Phoenix as part of the allocation of the Issue Premium to the
Policy Value on the Date of Issue. A monthly pro rata share of the allowance is
repaid to Phoenix as part of the monthly deduction during the first 10 Policy
Years. Any unpaid balance is fully repaid to Phoenix upon Policy lapse or full
surrender.
The Acquisition Expense Allowance consists of the following elements:
1. SALES CHARGE. A sales charge of 5.5% of the Issue Premium paid is
assessed to compensate Phoenix for distribution expenses incurred in connection
with the Policy. These expenses include agent sales commissions, the cost of
printing prospectuses and sales literature, and any advertising costs. The sales
charge in any Policy is not necessarily related to actual distribution expenses
incurred in the year the Policy is issued.
2. ISSUE ADMINISTRATION CHARGE. A cost-based issue administration charge of
1% of the Issue Premium paid is assessed to compensate Phoenix for underwriting
and start-up expenses in connection with issuing a Policy.
3. PREMIUM TAXES. Various states and subdivisions impose a tax on premiums
received by insurance companies. Premium taxes vary from state to state. The
assessment made for each premium paid is based on the state where the
Policyowner resides according to Phoenix's records at the time of the payment.
The assessment represents an amount Phoenix considers necessary to pay all
premium taxes imposed by such states and any subdivisions thereof. Currently,
the taxes imposed by states on premiums range from 0.75% to 4% of premiums paid.
Moreover, certain municipalities in Louisiana, Kentucky and South Carolina also
impose taxes on premiums paid, in addition to the state taxes imposed by these
states.
By deducting these charges in monthly installments instead of deducting them
all at once from the Issue Premium, more funds are available for investment
during the first ten Policy Years. As a result, if the Net Investment Factor is
positive, the Policyowner will enjoy greater increases in Cash Value, but if the
Net Investment Factor is negative, the Policyowner will experience greater
decreases in Cash Value.
Additional premiums are not subject to an Acquisition Expense Allowance (a
sales or issue administration charge). However, prior to allocation of
Additional Net Premiums among the Subaccounts of the VUL Account or the GIA,
additional premiums paid will be reduced by the premium tax charge and, for
additional premiums paid during a grace period, by the amount needed to cover
any monthly deductions made during the grace period.
Phoenix may reduce the sales charge or issue administration charge component
of the Acquisition Expense Allowance for Policies issued under group or
sponsored arrangements. Generally, sales and administrative costs per Policy
vary with the size of the group or sponsored arrangement, its stability as
indicated by its term of existence and certain characteristics of its members,
the purposes for which the Policies are purchased and other factors. The
amounts of any reductions will be considered on a case-by-case basis and will
reflect the reduced sales or administration costs expected as a result of sales
to a particular group or sponsored arrangement.
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COST OF INSURANCE
Because the cost of insurance depends upon a number of variables, this
charge can vary from month to month. The cost of insurance charge is equal to
the applicable cost of insurance rate divided by 1,000 multiplied by the "net
amount at risk" for each Policy Month. The net amount at risk for a Policy
Month is (a) the death benefit on the Monthly Calculation Day, less (b) the
Cash Value on such day.
Cost of insurance rates are based on the sex (in most states), attained age
and risk class of the Insured. The actual monthly cost of insurance rates are
based on Phoenix's expectations of future experience. They will not, however, be
greater than the guaranteed cost of insurance rates set forth in the Policy.
These guaranteed rates are based on the 1980 Commissioners Standard Ordinary
Mortality Table with appropriate adjustment for the Insured's risk
classification. Any change in the cost of insurance rates will apply to all
persons of the same insurance age, sex and risk class whose Policies have been
In Force for the same length of time.
The risk class of an Insured may affect the cost of insurance rate. Phoenix
currently places Insureds into a standard risk class or risk classes involving a
higher mortality risk. In an otherwise identical Policy, Insureds in the
standard risk class will have a lower cost of insurance than those in the risk
class with the higher mortality risk. The standard risk class also is divided
into two categories: smokers and nonsmokers. Nonsmoking Insureds will generally
incur a lower cost of insurance than similarly situated Insureds who smoke.
MORTALITY AND EXPENSE RISK CHARGE
Phoenix will deduct a daily charge from the VUL Account at an annual rate of
0.50% of the average daily net assets of the VUL Account to compensate for
certain risks assumed in connection with the Policy. This charge is not deducted
from the GIA.
The mortality risk assumed by Phoenix is that Insureds may live for a
shorter time than projected because of inaccuracies in that projecting process
and, accordingly, that an aggregate amount of death benefits greater than that
projected will be payable.
The expense risk assumed is that expenses incurred in issuing the Policies
may exceed the limits on administrative charges set in the Policies. If the
expenses do not increase to an amount in excess of the limits, Phoenix may
profit from this charge. Phoenix also assumes risks with respect to other
contingencies including the incidence of Policy loans, which may cause Phoenix
to incur greater costs than anticipated when it designed the Policies. To the
extent Phoenix profits from this charge, it may use those profits for any proper
purpose, including the payment of sales expenses or any other expenses that may
exceed income in a given year.
INVESTMENT MANAGEMENT CHARGE
As compensation for investment management services to the Funds, the
Advisers are entitled to fees, payable monthly and based on an annual
percentage of the average aggregate daily net asset values of each Series.
These Fund charges and other expenses are described more fully in the
accompanying Fund prospectuses.
OTHER CHARGES
PARTIAL SURRENDER FEE
A fee equal to the lesser of $25 or 2% of the partial surrender amount paid
is deducted from the Policy Value upon a partial surrender of the Policy. A
fraction of the balance of any unpaid Acquisition Expense also is deducted from
the Policy Value upon a partial surrender. The fraction is equal to the result
of dividing the partial surrender amount paid plus the partial surrender fee by
the Cash Value (determined without regard to the partial surrender).
TAXES
Currently no charge is made to the VUL Account for federal income taxes that
may be attributable to the VUL Account. Phoenix may, however, make such a charge
in the future. Charges for other taxes, if any, attributable to the VUL Account
also may be made.
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 or maturity may be postponed: (i) for up to six months
from the date of the request, for any transactions dependent upon the value of
the GIA; (ii) whenever the NYSE is closed other than for customary weekend and
holiday closings, or trading on the NYSE is restricted as determined by the SEC;
or (iii) whenever an emergency exists, as determined by the Commission, as a
result of which disposal of securities is not reasonably practicable or it is
not reasonably practicable to determine the value of the VUL Account's net
assets. Transfers also may be postponed under these circumstances.
PAYMENT BY CHECK
Payments under the Policy of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared the Policyowner's bank.
THE CONTRACT
The Policy and attached copy of the application are the entire contract.
Only statements in the application can be used to void the Policy. The
statements are considered representations and not warranties. Only an executive
officer of Phoenix can agree to change or waive any provisions of the Policy.
SUICIDE
If the Insured commits suicide within two years after the Policy's Date of
Issue, Phoenix will pay only the Cash Value, plus the Acquisition Expense, plus
any mortality and expense risk charges, monthly deductions and investment
management charges, less any outstanding indebtedness.
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INCONTESTABILITY
Phoenix cannot contest this Policy or any attached rider after it has been
In Force during the lifetime of the Insured for two years from its effective
date.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently changed,
will receive the Policy benefits at the Insured's death. If the named
Beneficiary dies before the Insured, the contingent Beneficiary, if named,
becomes the Beneficiary. If no Beneficiary survives the Policyowner, the
benefits payable at the Insured's death will be paid to the Policyowner's
estate.
As long as the Policy is In Force, the Policyowner may be changed by Written
Request, satisfactory to Phoenix, and the Beneficiary may be changed by written
notice. A change in Beneficiary will take effect as of the date the notice is
signed, whether or not the Insured is living when the notice is received by
Phoenix. Phoenix will not, however, be liable for any payment made or action
taken before receipt of the notice.
ASSIGNMENT
The Policy may be assigned. Phoenix will not be bound by the assignment
until a written copy has been received and will not be liable with respect to
any payment made prior to receipt. Phoenix assumes no responsibility for
determining whether an assignment is valid.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the death benefit will
be adjusted based on what the cost of insurance charge for the most recent
monthly deduction would have purchased based on the correct age and sex.
SURPLUS
Policyowners may share in divisible surplus of Phoenix to the extent
determined annually by the Phoenix Board of Directors. However, it is not
currently anticipated that the Board will authorize these payments because
Policyowners will be participating directly in investment results.
PAYMENT OF PROCEEDS
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SURRENDER AND DEATH BENEFIT PROCEEDS
Proceeds of full or partial surrenders and the death benefit proceeds
usually will be paid in one lump sum within seven days after Phoenix receives
the request for surrender and due proof of death, unless another payment option
has been elected. Payment of the death benefit proceeds, however, may be delayed
if the claim for payment of the death benefit proceeds needs to be investigated;
e.g., to ensure payment of the proper amount to the proper payee. Any such delay
will not be beyond that reasonably necessary to investigate such claims
consistent with insurance practices customary in the life insurance industry.
While the Insured is living, the Policyowner may elect a payment option for
payment of the death benefit proceeds to the Beneficiary. The Policyowner may
revoke or change a prior election, unless such right has been waived. The
Beneficiary may make or change an election prior to payment of the death benefit
proceeds, unless the Policyowner has made an election which does not permit such
further election or changes by the Beneficiary.
A written form satisfactory to Phoenix is required to elect, change or
revoke a payment option.
The minimum amount of surrender or death benefit proceeds that may be
applied under any option is $1,000.
If the Policy is assigned as collateral security, Phoenix will pay any
amount due the assignee in one lump sum. Any remaining proceeds will remain
under the option elected.
PAYMENT OPTIONS
All or part of the surrender or death benefit proceeds of a Policy may be
applied under one or more of the following payment options (except for Option 7
which is not available for death benefit proceeds), or such other payment
options as Phoenix may choose to make available in the future.
OPTION 1--LUMP SUM. Payment in one lump sum.
OPTION 2--LEFT TO EARN INTEREST. A payment of interest during the payee's
lifetime on the amount payable as a principal sum. Interest rates are guaranteed
to be at least 3% per year. Upon death of the payee, payment of the principal
amount along with any accrued and unpaid interest.
OPTION 3--PAYMENT FOR A SPECIFIC PERIOD. Equal income installments are paid
for a specified period of years. The first payment will be on the date of
settlement. The assumed interest rate on the unpaid balance is guaranteed not to
be less than 3% per year. Upon death of the named payee, the remaining payments
will continue to the contingent Beneficiary as designated in the written form
electing the options.
OPTION 4--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN. Equal installments are
paid until the later of: (A) the death of the payee; (B) the end of the period
certain. The first payment will be on the date of settlement. The period certain
must be chosen at the time this option is elected. The periods certain that may
be chosen are as follows: (A) 10 years; (B) 20 years; (C) until the installments
paid refund the amount applied under this option; and if the payee is not living
when the final payment falls due, that payment will be limited to the amount
which needs to be added to the payments already made to equal the amount applied
under this option. If, for the age of the payee, a period certain is chosen that
is shorter than another period certain paying the same installment amount,
Phoenix will deem the longer period certain as having been elected.
OPTION 5--LIFE ANNUITY. Equal installments are paid only during the lifetime
of the payee. The first payment will be on the date of settlement. Under this
option, the payee may receive only one payment, if the payee dies before the due
date for the second payment; only two payments, if the payee dies before the due
date for the third payment, etc.
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OPTION 6--PAYMENTS OF A SPECIFIED AMOUNT. Equal installments of a specified
amount, out of the principal sum and interest on that sum, are paid until the
principal sum remaining is less than the amount of the installment. When that
happens, the principal sum remaining with accrued interest will be paid as a
final payment. The first payment will be on the date of settlement. The payments
will include interest on the principal sum remaining at a rate guaranteed to be
at least equal 3% per year. If the amount of interest credited at the end of the
year exceeds the income payments made in the last 12 months, that excess will be
paid in one sum on the date credited.
OPTION 7--JOINT SURVIVORSHIP ANNUITY WITH 10 YEAR PERIOD CERTAIN. This
payment option is not available for death proceeds. This option is available
only if the Policy is surrendered within six months of the Policy anniversary
nearest the Insured's 55th, 60th or 65th birthday. The first payment will be on
the date of settlement. Equal income installments are paid until the latest of:
(A) the end of the 10-year period certain; (B) the death of the Insured; (C) the
death of the other named annuitant. The other annuitant must be named at the
time this option is elected and cannot later be changed. The other annuitant
must have an attained age of at least 40.
For additional information concerning the above payment options, see the
Policy.
FEDERAL TAX CONSIDERATIONS
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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 (the "Service"). Phoenix
reserves the right to make changes to the Policy in order to assure that it will
continue to qualify as a life insurance policy for federal income tax purposes.
PHOENIX'S TAX STATUS
Phoenix is taxed as a life insurance company under the Internal Revenue Code
of 1986 (the "Code"), as amended. For federal income tax purposes, neither the
VUL Account nor the GIA is a separate entity from Phoenix and its operations
form a part of Phoenix.
Investment income and realized capital gains on the assets of the VUL
Account are reinvested and taken into account in determining the Cash Value of
the VUL Account. Investment income of the VUL Account, including realized net
capital gains, is not taxed to Phoenix. Due to Phoenix's tax status under
current provisions of the Code, no charge currently will be made to the VUL
Account for Phoenix's federal income taxes which may be attributable to the VUL
Account. Phoenix reserves the right to make a deduction for taxes if the federal
tax treatment of Phoenix is determined to be other than what Phoenix currently
believes it to be, if changes are made affecting the tax treatment to Phoenix of
variable life insurance contracts, or if changes occur in Phoenix's tax status.
If imposed, such charge would be equal to the federal income taxes attributable
to the investment results of the VUL Account.
POLICY BENEFITS
The Policy, which is essentially a single premium policy, is a modified
endowment contract within the meaning of the Code.
GENERAL
Pursuant to Code Section 72(e), loans and other amounts received under
modified endowment contracts will, in general, be
17
<PAGE>
taxed to the extent of accumulated income (generally, the excess of Cash Value
over premiums paid). Policies are modified endowment contracts if they meet the
definition of life insurance, but fail the 7-pay test. This test essentially
provides that the cumulative amount paid under the Policy at any time during the
Policy's first seven years cannot exceed the sum of the net level premiums that
would have been paid on or before that time had the Policy provided for paid-up
future benefits after the payment of seven level annual premiums.
In addition, a modified endowment contract includes any life insurance
contract that is received in exchange for a modified endowment contract.
Premiums paid during a Policy Year that are returned by Phoenix (with interest)
within 60 days after the end of the Policy Year will not cause the Policy to
fail the 7-pay test.
Classification of the Policy as a modified endowment contract does not
affect the exclusion of death benefit proceeds under the Policy from the gross
income of the Beneficiary under Code Section 101(a)(1) and also does not cause
the Policyowner to be deemed to be in constructive receipt of the Cash Value,
including increments or "inside buildup" thereon. As such, the death benefit
proceeds thereunder should be excludable from the gross income of the
Beneficiary under Code Section 101(a)(1). Also, the Policyowner should not be
deemed to be in constructive receipt of the Cash Value, including increments
thereon. See, however, the sections below on possible taxation of amounts
actually received under the Policy, via full surrender, partial surrender or
loan.
REDUCTION IN BENEFITS DURING THE FIRST SEVEN YEARS
If there is a reduction in benefits during the first seven Policy Years, the
premiums are redetermined for purposes of the 7-pay test as if the Policy had
originally been issued at the reduced death benefit level and the new limitation
is applied to the cumulative amount paid for each of the first seven Policy
Years.
DISTRIBUTION AFFECTED
If a Policy fails to meet the 7-pay test, it is considered a modified
endowment contract only as to distributions in the year in which the death
benefit reduction takes effect and all subsequent Policy Years. However,
distributions made in anticipation of such failure (there is a presumption that
distributions made within two years prior to such failure were "made in
anticipation") also are considered distributions under a modified endowment
contract. If the Policy satisfies the
18
<PAGE>
"7-pay test," for seven years, distributions and loans will generally not be
subject to the modified endowment contract rules.
FULL SURRENDER
Upon full surrender of a Policy for its Cash Value, the excess, if any, of
the Cash Value (unreduced by any outstanding indebtedness) over the premiums
paid will be treated as ordinary income for federal income tax purposes. The
full surrender of a Policy may result in the imposition of an additional 10% tax
on any income received.
PARTIAL SURRENDERS
Since the Policy is a modified endowment contract under Section 7702A of the
Code, partial surrenders will be fully taxable to the extent of income in the
Policy and will possibly be subject to an additional 10% tax. Phoenix suggests
that you consult with your tax adviser in advance of a partial surrender
concerning the tax implications of a partial surrender to you.
LOANS
Phoenix believes that any loan received under a Policy will be treated as
indebtedness of the Policyowner. Since the Policy is a modified endowment
contract, however, loans are fully taxable to the extent of income in the Policy
and possibly will be subject to an additional 10% tax.
Under the "personal" interest limitation provisions of the Code, interest on
Policy loans used for personal purposes is not tax deductible. However, other
rules will apply to allow all or part of the interest expense as a deduction if
the loan proceeds are used for "trade or business" or "investment" purposes. See
your tax adviser for further guidance.
BUSINESS-OWNED POLICIES
If the Policy is owned by a business or a corporation, the Code may impose
additional restrictions. The Code limits the interest deduction on
business-owned Policy loans and may impose a tax upon the inside build-up of
corporate-owned life insurance policies through the corporate alternative
minimum tax.
PENALTY TAX
Any amounts taxable under the modified endowment contract rule will be
subject to an additional 10% excise tax, with certain exceptions. This
additional tax will not apply in the case of distributions: (i) made on or after
the taxpayer attains age 59 1/2; (ii) which are attributable to the taxpayer's
disability (within the meaning of Code Section 72(m)(7)); or (iii) which are
part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the taxpayer or the
joint lives (or life expectancies) of the taxpayer and his Beneficiary.
MATERIAL CHANGE RULES
Any determination of whether the Policy meets the 7-pay test will begin
again any time the Policy undergoes a "material change," which includes any
increase in death benefits or any increase in or addition of a qualified
additional benefit, with the following two exceptions. First, if an increase is
attributable to premiums paid "necessary to fund" the lowest death benefit and
qualified additional benefits payable in the first 7 Policy Years or to the
crediting of interest or dividends with respect to these premiums, the
"increase" does not constitute a material change. Second, to the extent provided
in regulations, if the death benefit or qualified additional benefit increases
as a result of a cost-of-living adjustment based on an established broad-based
index specified in the Policy, this does not constitute a material change if (1)
the cost-of-living determination period does not exceed the remaining premium
payment period under the Policy, and (2) the cost-of-living increase is funded
ratably over the remaining premium payment period of the Policy. A reduction in
death benefits is not considered a material change unless accompanied by a
reduction in premium payments.
A material change may occur at any time during the life of the Policy
(within the first seven years or thereafter), and future taxation of
distributions or loans would depend upon whether the Policy satisfied the
applicable 7-pay test from the time of the material change. An exchange of
policies is considered to be a material change for all purposes.
SERIAL PURCHASE OF MODIFIED ENDOWMENT CONTRACTS
All modified endowment contracts issued by the same insurer (or affiliated
companies of the insurer) to the same Policyowner within the same calendar year
will be treated as one modified endowment contract in determining the taxable
portion of any loans or distributions made to the Policyowner. The Treasury has
been given specific legislative authority to issue regulations to prevent the
avoidance of the new distribution rules for modified endowment contracts. A
qualified tax adviser should be consulted about the tax consequences of the
purchase of more than one modified endowment contract within any calendar year.
LIMITATIONS ON UNREASONABLE MORTALITY AND EXPENSE CHARGES
The Code imposes limitations on unreasonable mortality and expense charges
for purposes of ensuring that a Policy qualifies as a life insurance policy for
federal income tax purposes. The mortality charges taken into account to
calculate permissible premium levels may not exceed those charges required to be
used in determining the federal income tax reserve for the Policy, unless
Treasury regulations prescribe a higher level of charge.
In addition, the expense charges taken into account under the guideline
premium test are required to be reasonable, as defined by the Treasury
Regulations. Phoenix intends to comply with these limitations in calculating the
premium it is permitted to receive from the Policyowner.
QUALIFIED PLANS
A Policy may be used in conjunction with certain qualified plans. Since the
rules governing such use are complex, a purchaser should not use the Policy in
conjunction with a qualified plan until he has consulted a competent pension
consultant or tax adviser.
DIVERSIFICATION STANDARDS
To comply with the Diversification Regulations under Code Section 817(h)
("Diversification Regulations"), each Series of the Funds is required to
diversify its investments. The Diversification
19
<PAGE>
Regulations generally require that on the last day of each quarter of a
calendar year no more than 55% of the value of the Funds' assets is represented
by any one investment, no more than 70% is represented by any two investments,
no more than 80% is represented by any three investments, and no more than 90%
is represented by any four investments. A "look through" rule applies to treat a
pro rata portion of each asset of the Funds as an asset of the VUL Account;
therefore, each Series of the Funds will be tested for compliance with the
percentage limitations. For purposes of these diversification rules, all
securities of the same issuer are treated as a single investment, but each
United States Government agency or instrumentality is treated as a separate
issuer.
The general diversification requirements are modified if any of the assets
of the VUL Account are direct obligations of the Treasury. In this case, there
is no limit on the investment that may be made in Treasury securities, and for
purposes of determining whether assets other than Treasury securities are
adequately diversified, the generally applicable percentage limitations are
increased based on the value of the VUL Account's investment in Treasury
securities. Notwithstanding this modification of the general diversification
requirements, the portfolios of the Funds will be structured to comply with the
general diversification standards because they serve as an investment vehicle
for certain variable annuity contracts which must comply with these standards.
In connection with the issuance of the Diversification Regulations, the
Treasury announced that such regulations do not provide guidance concerning the
extent to which Policyowners may direct their investments to particular
divisions of a separate account. It is possible that a revenue ruling or other
form of administrative pronouncement in this regard may be issued in the near
future. It is not clear, at this time, what such a revenue ruling or other
pronouncement will provide. It is possible that the Policy may need to be
modified to comply with such future Treasury pronouncements. For these reasons,
Phoenix reserves the right to modify the Policy, as necessary, to prevent the
Policyowner from being considered the Owner of the assets of the VUL Account.
Phoenix intends to comply with the Diversification Regulations, to assure
that the Policies continue to qualify as life insurance policies for federal
income tax purposes.
CHANGE OF OWNERSHIP OR INSURED OR ASSIGNMENT
Changing the Policyowner or the Insured or an exchange or assignment of the
Policy may have tax consequences depending on the circumstances. Code Section
1035 provides that a life insurance policy can be exchanged for another life
insurance contract, without recognition of gain or loss, assuming that no money
or other property is received in the exchange, and that the policies relate to
the same Insured. If the surrendered Policy is subject to a Policy loan, this
may be treated as the receipt of money on the exchange. Phoenix recommends that
any person contemplating one or more of these actions seek the advice of a
qualified tax consultant.
OTHER TAXES
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership, or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary. Phoenix does not make any
representations or guarantees regarding the tax consequences of any Policy with
respect to these types of taxes.
VOTING RIGHTS
- --------------------------------------------------------------------------------
THE FUNDS
Phoenix will vote the Fund shares held by the Subaccounts of the VUL Account
at any regular and special meetings of shareholders of the Funds. To the extent
required by law, such voting will be in accordance with instructions received
from the Policyowner. However, if the 1940 Act or any regulation thereunder
should be amended or if the present interpretation thereof should change, and
as a result Phoenix determines that it is permitted to vote the Fund shares
at its own discretion, it may elect to do so.
The number of votes that a Policyowner has the right to cast will be
determined by applying the Policyowner's percentage interest in a Subaccount to
the total number of votes attributable to the Subaccount. In determining the
number of votes, fractional shares will be recognized.
Funds' shares held in a Subaccount for which no timely instructions are
received, and Fund shares which are not otherwise attributable to Policyowners,
will be voted by Phoenix in proportion to the voting instructions that are
received with respect to all Policies participating in that Subaccount. Voting
instructions to abstain on any item to be voted upon will be applied to reduce
the votes eligible to be cast by Phoenix.
Each Policyowner will receive proxy materials, reports, and other materials
relating to the 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 Series of the Funds or to approve or disapprove an
investment advisory contract for the Funds. In addition, Phoenix itself may
disregard voting instructions in favor of changes initiated by a Policyowner in
the investment policies or the investment adviser of the Fund if Phoenix
reasonably disapproves such changes. A change would be disapproved only if the
proposed change is contrary to state law or prohibited by state regulatory
authorities or Phoenix determined that the change would have an adverse effect
on the General Account because the proposed investment policy for a portfolio
may result in overly speculative or unsound investments. In the event Phoenix
does disregard voting instructions, a summary of that action and the reasons for
such action will be included in the next periodic report to Policyowners.
PHOENIX
A Policyowner (or the payee entitled to payment under a payment option if a
different person) will have the right to vote at annual meetings of all Phoenix
Policyholders for the election of members of the Board of Directors of Phoenix
and on other corporate matters, if any, where a Policyholder's vote is taken. At
20
<PAGE>
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
Richard H. Booth Executive Vice President, Strategic
Development; formerly President,
Travelers Insurance Company
Peter C. Browning President and Chief Operating
Officer, Sunoco Products Company
Hartsville, South Carolina
Arthur P. Byrne Chairman, President and Chief
Executive Officer, The Wiremold
Company
West Hartford, Connecticut
Richard N. Cooper Professor of International
Economics, Harvard University;
formerly Chairman, National
Intelligence Council, Central
Intelligence Agency
McLean, Virginia
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
Robert F. Vizza President and Chief Executive
Officer, St. Francis Hospital
Roslyn, New York
Robert G. Wilson Chief Executive Officer, CreditSource
USA, Inc., Charlotte, North Carolina;
formerly Chairman and President,
Ziani International Capital, Inc.,
Miami, Florida, Vice Chairman,
Carter Kaplan & Company,
Richmond, Virginia and Chairman
and Chief Executive Officer, Ecologic
Waste Services, Inc., Miami, Florida
Dona D. Young Executive Vice President, Individual
Insurance and General Counsel
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
Carl T. Chadburn Executive Vice President
Philip R. McLoughlin Executive Vice President and Chief
Investment Officer
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,
Distribution Planning
Robert G. Chipkin Senior Vice President and
Corporate Actuary
Martin J. Gavin Senior Vice President, Trust
Operations
Randall C. Giangiulio Senior Vice President, Group Life
and Health
Edward P. Hourihan Senior Vice President, Information
Systems
Joseph E. Kelleher Senior Vice President,
Underwriting and Operations
Robert G. Lautensack, Jr. Senior Vice President, Individual
Financial
Maura L. Melley Senior Vice President, Public Affairs
21
<PAGE>
Scott C. Noble Senior Vice President
David R. Pepin Senior Vice President
Robert E. Primmer Senior Vice President, Individual
Distribution
Frederick W. Sawyer, III Senior Vice President
Richard C. Shaw Senior Vice President
Simon Y. Tan Senior Vice President, Market and
Product Development
Anthony J. Zeppetella Senior Vice President, Corporate
Portfolio Management
Walter H. Zultowski Senior Vice President, Marketing
and Market Research; formerly
Senior Vice President, LIMRA
International,
Hartford, Connecticut
The above positions reflect the last held position in the organization.
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS
- --------------------------------------------------------------------------------
The assets of the VUL Account are held by Phoenix. The assets of the VUL
Account are kept physically segregated and held separate and apart from the
General Account of Phoenix. Phoenix maintains records of all purchases and
redemptions of shares of the Fund.
SALES OF POLICIES
- --------------------------------------------------------------------------------
Policies may be purchased from registered representatives of W.S. Griffith &
Co., Inc. ("W. S. Griffith") a corporation formed under the laws of the state of
New York on August 7, 1970, licensed to sell Phoenix insurance policies as well
as policies, annuity contracts and funds of companies affiliated with Phoenix.
W. S. Griffith, an indirect subsidiary of Phoenix, is registered as a
broker-dealer with the SEC under the Securities Exchange Act of 1934 ("1934
Act") and are members of the National Association of Securities Dealers, Inc.
PEPCO serves as national distributor of the policies. PEPCO is an indirect
subsidiary of Phoenix Duff & Phelps ("PD&P"). Phoenix owns a majority interest
in PD&P. Policies also may be purchased from other broker-dealers registered
under the 1934 Act whose representatives are authorized by applicable law to
sell Policies under terms of agreement provided by PEPCO. Sales commissions will
be paid to registered representatives on purchase payments received by Phoenix
under these Policies. Total sales commission of a maximum of six percent of
premiums will be made by Phoenix to PEPCO. To the extent that the sales charge
under the Policies is less than the sales commissions paid with respect to the
Policies, Phoenix will pay the short fall from its General Account assets, which
will include any profits it may derive under the Policies.
Phoenix through PEPCO will sponsor sales contests, training and educational
meetings and provide to all qualifying dealers, from its own profits and
resources, additional compensation in the form of trips, merchandise or expense
reimbursement. Brokers and dealers other than PEPCO also may make customary
additional charges for their services in effecting purchases, if they notify the
Funds of their intention to do so.
STATE REGULATION
- --------------------------------------------------------------------------------
Phoenix is subject to the provisions of the New York insurance laws
applicable to mutual life insurance companies and to regulation and supervision
by the New York Superintendent of Insurance. Phoenix also is subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of Phoenix includes certain limitations on the investments
which it may make, including investments for the Account. It does not include,
however, any supervision over the investment policies of the Account.
REPORTS
- --------------------------------------------------------------------------------
All Policyowners will be furnished with those reports required by the 1940
Act and regulations promulgated thereunder, or under any other applicable law or
regulation.
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The VUL Account is not engaged in any litigation. Phoenix is not involved in
any litigation that would have a material adverse effect on the ability of
Phoenix to meet its obligations under the Policies.
LEGAL MATTERS
- --------------------------------------------------------------------------------
The organization of Phoenix, its authority to issue variable life insurance
Policies, and the validity of the Policy have been passed upon by Edwin L. Kerr,
Counsel, Phoenix. Legal matters relating to the federal securities and income
tax laws have been passed upon for Phoenix by Jorden Burt Boros Cicchetti
Berenson & Johnson LLP.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
A Registration Statement has been filed with the SEC, under the Securities
Act of 1933 ("1933 Act") as amended, with respect to the securities offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and amendments thereto and exhibits filed as a part
thereof, to all of which reference is hereby made for further information
concerning the VUL Account, Phoenix and the Policy. Statements contained in this
Prospectus as to the content of the Policy and other legal instruments are
summaries. For a complete statement of the terms thereof, reference is made to
such instruments as filed.
YEAR 2000 ISSUE
- --------------------------------------------------------------------------------
Many existing computer programs use only two digits to identify the year in
a date field. Commonly referred to as the "Year 2000 Issue," companies must
consider the impact of the upcoming change in the century on their computer
systems. The Year 2000 Issue, if not adequately addressed, could result in
computer system failures or miscalculations causing disruptions of operations
and the possible inability of companies to process transactions. Phoenix
believes that the Year 2000 Issue is an important business priority requiring
careful analysis of every business system in order to be assured that all
information systems applications are century compliant.
22
<PAGE>
Phoenix has been addressing the Year 2000 Issue in earnest since 1995 when,
with consultants, a comprehensive inventory and assessment of all business
systems, including those of its subsidiaries, was conducted. Phoenix has
identified and is now actively pursuing a number of strategies to address the
issue, including:
-- upgrading systems with compliant versions;
-- developing or acquiring new systems to replace those that are obsolete;
-- and remediating existing systems by converting code or hardware.
Based on current assessments, Phoenix expects to have its computer systems
compliant by the end of 1998, with testing to continue through 1999. In
addition, Phoenix is examining the status of its third-party vendors, obtaining
assurances that their software and hardware products will be century compliant
by 1999.
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, 1997.
23
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
24
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants ............................................26
Consolidated Balance Sheet at December 31, 1997 and 1996 .....................27
Consolidated Statement of Income and Equity for the Years Ended
December 31, 1997, 1996 and 1995 ...........................................28
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 ............................................29
Notes to Consolidated Financial Statements ................................30-56
25
<PAGE>
One Financial Plaza Telephone 860 240 2000
Hartford, CT 06103
[LOGO] PRICE WATERHOUSE LLP [LOGO]
REPORT OF INDEPENDENT ACCOUNTANTS
February 11, 1998
To the Board of Directors
and Policyholders of
Phoenix Home Life Mutual Insurance Company
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, 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
26
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments:
Held-to-maturity debt securities, at amortized cost $ 1,554,905 $ 1,555,685
Available-for-sale debt securities, at fair value 5,659,061 4,895,393
Equity securities, at fair value 373,388 235,351
Mortgage loans 927,501 947,076
Real estate 321,757 410,945
Policy loans 1,986,728 1,667,784
Other invested assets 262,675 218,119
Short-term investments 1,078,276 164,967
------------------ -----------------
Total investments 12,164,291 10,095,320
Cash and cash equivalents 159,307 172,895
Accrued investment income 149,566 135,475
Deferred policy acquisition costs 1,038,407 926,274
Premiums, accounts and notes receivable 99,468 79,354
Reinsurance recoverables 66,649 46,251
Property and equipment, net 156,190 137,231
Goodwill and other intangible assets, net 541,499 313,507
Other assets 61,087 134,589
Separate account assets 4,082,255 3,412,152
------------------ -----------------
Total assets $ 18,518,719 $ 15,453,048
================== =================
LIABILITIES
Policy liabilities and accruals $ 11,334,014 $ 9,462,039
Securities sold subject to repurchase agreements 137,473
Other indebtedness 471,085 490,430
Deferred income taxes 143,821 61,934
Other liabilities 585,467 499,940
Separate account liabilities 4,082,255 3,412,152
------------------ -----------------
Total liabilities 16,754,115 13,926,495
Contingent liabilities (Note 17)
MINORITY INTEREST IN NET ASSETS OF CONSOLIDATED SUBSIDIARIES 136,514 129,084
POLICYHOLDERS' EQUITY 1,628,090 1,397,469
------------------ -----------------
Total liabilities and policyholders' equity $ 18,518,719 $ 15,453,048
================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF INCOME AND EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Premiums $ 1,640,606 $ 1,518,822 $ 1,456,875
Insurance and investment product fees 468,030 421,058 324,459
Net investment income 736,874 689,890 662,468
Net realized investment gains 142,770 95,265 74,738
--------------- --------------- --------------
Total revenues 2,988,280 2,725,035 2,518,540
--------------- --------------- --------------
BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss
adjustment expenses 1,633,633 1,529,573 1,471,030
Policyholder dividends 343,725 311,739 289,469
Policy acquisition expenses 248,726 242,363 221,339
Other operating expenses 531,597 452,399 419,231
--------------- --------------- --------------
Total benefits, losses and expenses 2,757,681 2,536,074 2,401,069
--------------- --------------- --------------
OPERATING INCOME 230,599 188,961 117,471
NON-OPERATING INCOME
Gain on merger transactions 40,580
--------------- --------------- --------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 230,599 188,961 158,051
Income taxes 57,069 79,331 43,352
--------------- --------------- --------------
INCOME BEFORE MINORITY INTEREST 173,530 109,630 114,699
Minority interest in net income of consolidated subsidiaries 8,882 8,902 950
--------------- --------------- --------------
NET INCOME 164,648 100,728 113,749
Change in net unrealized investment gains, net of income taxes 65,973 15,154 99,518
--------------- --------------- --------------
INCREASE IN POLICYHOLDERS' EQUITY 230,621 115,882 213,267
POLICYHOLDERS' EQUITY, BEGINNING OF YEAR 1,397,469 1,281,587 1,068,320
--------------- --------------- --------------
POLICYHOLDERS' EQUITY, END OF YEAR $ 1,628,090 $ 1,397,469 $ 1,281,587
=============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income $ 164,648 $ 100,728 $ 113,749
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATIONS
Net realized investment gains (142,770) (95,265) (74,738)
Net gain on mergers (40,580)
Amortization and depreciation 90,565 64,870 58,912
Deferred income taxes (benefit) 2,555 14,774 (16,236)
(Increase) decrease in receivables (49,172) 5,955 (30,130)
Increase in deferred policy acquisition costs (48,860) (61,985) (26,370)
Increase in policy liabilities and accruals 512,476 559,724 537,919
Increase (decrease) in other assets/other liabilities, net 44,269 (66,337) 95,880
Other, net 5,832 (652) 4,203
-------------- ----------------- --------------
Net cash provided by operating activities 579,543 521,812 622,609
-------------- ----------------- --------------
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from maturities or repayments of
available-for-sale debt securities 1,187,943 1,348,809 1,145,146
Proceeds from maturities or repayments of
held-to-maturity debt securities 217,302 118,596 143,773
Proceeds from disposals of equity securities 51,373 382,359 329,104
Proceeds from mortgage loan maturities or repayments 164,213 151,760 186,172
Proceeds from sale of other invested assets 218,874 127,440 148,546
Purchase of available-for-sale debt securities (1,689,479) (1,909,086) (1,614,387)
Purchase of held-to-maturity debt securities (225,722) (385,321) (247,354)
Purchase of equity securities (88,573) (215,104) (282,488)
Purchase of subsidiaries (246,400)
Purchase of mortgage loans (140,831) (200,683) (93,097)
Purchase of other invested assets (90,593) (157,077) (73,482)
Change in short term investments, net 58,384 110,503 (166,445)
Increase in policy loans (59,699) (49,912) (32,387)
Capital expenditures (41,504) (3,543) (18,449)
Other investing activities, net (1,750) (5,898) (12,704)
-------------- ----------------- --------------
Net cash used for investing activities (686,462) (687,157) (588,052)
-------------- ----------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES
Withdrawals of contractholder deposit funds,
net of deposits and interest credited (17,902) (6,301) (154,100)
Proceeds from securities sold subject to
repurchase agreements 137,472
Proceeds from borrowings 215,359 226,082 177,922
Repayment of borrowings (234,703) (2,400) (12,726)
Dividends paid to minority shareholders (6,895) (6,245) (31,215)
-------------- ----------------- --------------
Net cash provided by (used for) financing activities 93,331 211,136 (20,119)
-------------- ----------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (13,588) 45,791 14,438
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 172,895 127,104 112,666
-------------- ----------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 159,307 $ 172,895 $ 127,104
============== ================= ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid, net $ 76,167 $ 76,157 $ 33,399
Interest paid on indebtedness $ 32,300 $ 19,214 $ 8,100
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Phoenix Home Life Mutual Insurance Company (Phoenix) 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
Insurance, Group Life and Health Insurance, 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
significant subsidiaries. Less than majority-owned entities in which
Phoenix has at least a 20% interest or those where Phoenix 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, income taxes, contingencies and valuation allowances for
investment assets are discussed throughout the Notes to Consolidated
Financial Statements. Significant intercompany accounts and transactions
have been eliminated. Certain reclassifications have been made to the 1996
and 1995 amounts to conform with the 1997 presentation.
VALUATION OF INVESTMENTS
Investments in debt securities include bonds, asset-backed securities
including collateralized mortgage obligations and redeemable preferred
stocks. Phoenix classifies its debt securities as either held-to-maturity
or available-for-sale investments. Debt securities held-to-maturity consist
of private placement bonds reported at amortized cost, net of impairments,
that management intends and has the ability to hold until maturity. Debt
securities available-for-sale are reported at fair value with unrealized
gains or losses included in policyholders' equity and consist of public
bonds and preferred stocks that management may not hold until maturity.
Debt securities are considered impaired when a decline in value is
considered to be other than temporary.
Equity securities are reported at fair value based principally on their
quoted market prices with unrealized gains or losses included in
policyholders' equity. Equity securities are considered impaired when a
decline in value is considered to be other than temporary.
Mortgage loans on real estate are stated at unpaid principal balances, net
of valuation reserves on impaired mortgages. A mortgage loan is considered
to be impaired if management believes it is probable that Phoenix 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.
30
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Real estate, all of which is held for sale, is 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:
property valuation techniques utilizing discounted cash flows at the time
of stabilization including capital expenditures and stabilization costs;
sales of comparable properties; geographic location of the property and
related market conditions; and disposition costs.
Policy loans are generally carried at their unpaid principal balances and
are collateralized by the cash values of the related policies.
Short-term investments are carried at amortized cost, which approximates
fair value.
Other invested assets (primarily partnership interests) are carried at cost
adjusted for Phoenix'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 Phoenix does not bear the investment risk, are
determined by the specific identification method and reported as a
component of revenue. A realized investment loss is recorded when an
investment valuation reserve is determined. Valuation reserves are netted
against the asset categories to which they apply and changes in the
valuation reserves are included in realized investment gains and losses.
Unrealized investment gains and losses on debt securities and equity
securities classified as available-for-sale are included as a separate
component of policyholders' equity, net of deferred income taxes and
deferred policy acquisition costs.
FINANCIAL INSTRUMENTS
In the normal course of business, Phoenix enters into transactions
involving various types of financial instruments, including debt,
investments such as debt securities, 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.
31
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
GOODWILL AND OTHER 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. Other
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 other 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 Phoenix. 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.
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.
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.
32
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
POLICYHOLDERS' DIVIDENDS
Certain life insurance policies contain dividend payment provisions that
enable the policyholder to participate in the earnings of Phoenix. The
amount of policyholders' dividends to be paid is determined annually by
Phoenix's board of directors. The aggregate amount of policyholders'
dividends is related to the actual interest, mortality, morbidity and
expense experience for the year and Phoenix's judgment as to the
appropriate level of statutory surplus to be retained. At the end of the
reporting period, Phoenix establishes a dividend liability for the pro-rata
portion of the dividends payable on the next anniversary of each policy.
Phoenix also establishes a liability for termination dividends.
INCOME TAXES
Phoenix and its eligible affiliated companies have elected to file a
life/nonlife consolidated federal income tax return for the years ended
December 31, 1997, 1996 and 1995. 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.
As a mutual life insurance company, Phoenix is required to reduce its
income tax deduction for policyholder dividends by the differential
earnings amount, defined as the difference between the earnings rates of
stock and mutual companies applied against an adjusted base of
policyholders' surplus.
3. SIGNIFICANT TRANSACTIONS
CONFEDERATION LIFE
On December 31, 1997, Phoenix acquired the individual life and
single-premium deferred annuity business of the former Confederation Life
Insurance Company. Confederation Life, a Canadian mutual life insurer, was
placed in liquidation during August of 1994. The blocks of business
acquired were part of Confederation Life's U.S. branch operations and were
covered under the rehabilitation plan approved by a Michigan circuit court.
Approximately 40,000 policies with annualized premium of $122.8 million
were included in the acquisition under an assumption reinsurance contract.
Pursuant to initiation of the contract and the closing on December 31,
1997, Phoenix recorded all balances reinsured using the purchase accounting
method. The value of reserves and liabilities acquired totaled $1.4 billion
and exceeded the assets received, principally cash and short-term
investments. The difference of $141.3 million was recorded as deferred
acquisition costs.
PHOENIX DUFF & PHELPS CORPORATION
On September 3, 1997, Phoenix Duff & Phelps acquired Pasadena Capital
Corporation, the parent company of Roger Engemann & Associates, Inc.
Pasadena Capital manages $6.3 billion in assets, primarily individual
accounts.
33
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
On July 17, 1997, Phoenix Duff & Phelps acquired a majority interest in
GMG/Seneca Capital Management LLC, renamed Seneca Capital Management.
Seneca Capital Management manages $4.2 billion in assets.
Effective January 1, 1995, the money management businesses of Phoenix were
completely transferred to Phoenix Securities Group, Inc. 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.,
merged Phoenix Securities Group into Duff & Phelps Corporation, forming
Phoenix Duff & Phelps Corporation. The transaction was accounted for as a
reverse merger with the purchase accounting method applied to Duff &
Phelps' assets and liabilities. The purchase price was $190.7 million and
Phoenix Duff & Phelps 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 Phoenix Duff & Phelps common stock. In
addition, PM Holdings owns 45% of Phoenix Duff & Phelps' 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
Statement of Income and Equity.
SURPLUS NOTES
On November 25, 1996, Phoenix 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 debt in
the Consolidated Balance Sheet.
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 ASSET MANAGEMENT PLC
On March 25, 1996, Phoenix purchased common shares of Aberdeen Asset
Management PLC, a Scottish asset management firm for $26.4 million. Phoenix
transferred these shares to PM Holding in 1996. As of December 31, 1997, PM
Holdings owned 10% of Aberdeen Asset Management's outstanding common stock.
The investment is reported on the equity basis and classified as other
invested assets in the Consolidated Balance Sheet.
In addition, on April 15, 1996, Phoenix purchased a 7% convertible
subordinated note issued by Aberdeen Asset Management for $37.5 million.
The note, which matures on March 29, 2003, may be converted into shares
which would be equivalent to approximately 11% of Aberdeen Asset
Management's then outstanding common stock. The note is classified as
equity securities in the Consolidated Balance Sheet.
In the spring of 1996, Phoenix and Aberdeen Asset Management joined
together to form Phoenix-Aberdeen International Advisors, LLC, an SEC
registered investment advisor that, in conjunction with Phoenix Duff &
Phelps and Aberdeen Asset Management, develops and markets investment
products in the United States and the United Kingdom.
34
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. INVESTMENTS
Information pertaining to Phoenix's investments, net investment income and
realized and unrealized investment gains and losses follows:
DEBT AND EQUITY SECURITIES
The amortized cost and fair value of investments in debt and equity
securities as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DEBT SECURITIES
HELD-TO-MATURITY:
State and political subdivision bonds $ 11,041 $ 569 $ (8) $ 11,602
Foreign government bonds 3,032 15 (115) 2,932
Corporate securities 1,521,033 103,267 (2,042) 1,622,258
Mortgage-backed securities 19,799 949 20,748
---------------- --------------- --------------- ----------------
Total 1,554,905 104,800 (2,165) 1,657,540
---------------- --------------- --------------- ----------------
AVAILABLE-FOR-SALE:
U.S. government and agency bonds 501,190 25,020 (636) 525,574
State and political subdivision bonds 474,123 32,896 (3,477) 503,542
Foreign government bonds 248,831 26,303 (5,992) 269,142
Corporate securities 1,384,503 97,943 (4,403) 1,478,043
Mortgage-backed securities 2,786,278 99,785 (3,303) 2,882,760
---------------- --------------- --------------- ----------------
Total 5,394,925 281,947 (17,811) 5,659,061
---------------- --------------- --------------- ----------------
TOTAL DEBT SECURITIES $ 6,949,830 $ 386,747 $ (19,976) $ 7,316,601
================ =============== =============== ================
EQUITY SECURITIES $ 195,717 $ 190,669 $ (12,998) $ 373,388
================ =============== =============== ================
</TABLE>
35
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of investments in debt 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>
DEBT SECURITIES
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 DEBT SECURITIES $ 6,299,074 $ 252,729 $ (51,786) $ 6,500,017
================= ================= ================= =================
EQUITY SECURITIES $ 137,907 $ 100,258 $ (2,814) $ 235,351
================= ================= ================= =================
</TABLE>
36
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The amortized cost and fair value of debt securities, by contractual
maturity, as of December 31, 1997 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
Phoenix 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 $ 113,850 $ 116,684 $ 78,768 $ 79,054
Due after one year through five years 477,101 499,155 329,529 347,240
Due after five years through ten years 625,518 670,597 651,878 683,747
Due after ten years 318,637 350,357 1,548,472 1,666,260
Mortgage-backed securities 19,799 20,747 2,786,278 2,882,760
---------------- ---------------- ---------------- ----------------
Total $ 1,554,905 $ 1,657,540 $ 5,394,925 $ 5,659,061
================ ================ ================ ================
</TABLE>
Carrying values for investments in mortgage-backed securities, excluding
U.S. government guaranteed investments, were as follows:
DECEMBER 31,
1997 1996
(IN THOUSANDS)
Planned amortization class $ 554,425 $ 618,953
Asset-backed 594,128 490,018
Mezzanine 328,539 322,812
Commercial 556,155 413,571
Sequential pay 680,397 552,512
Pass through 132,522 105,282
Other 56,393 58,604
-------------- --------------
Total mortgage-backed securities $ 2,902,559 $ 2,561,752
============== ==============
Phoenix had 30% and 37% at December 31, 1997 and 1996, respectively, in
planned amortization class and mezzanine mortgage-backed securities which
have reasonably predictable cash flows and a relatively high degree of
prepayment protection.
37
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MORTGAGE LOANS AND REAL ESTATE
Phoenix's mortgage loans and real estate are diversified by property type
and location and, for mortgage loans, by borrower. Mortgage loans are
collateralized by the related properties and are generally 75% of the
properties' value at the time the original loan is made.
Mortgage loans and real estate investments comprise the following property
types and geographic regions:
<TABLE>
<CAPTION>
MORTGAGE LOANS REAL ESTATE
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
PROPERTY TYPE:
Office buildings $ 246,500 $ 251,526 $ 180,743 $ 246,644
Retail 231,886 257,721 108,907 121,813
Apartment buildings 303,990 241,286 20,560 26,286
Industrial buildings 162,008 197,013 39,810 56,134
Other 18,917 47,929 238 7,577
Valuation allowances (35,800) (48,399) (28,501) (47,509)
--------------- -------------- ---------------- -------------
Total $ 927,501 $ 947,076 $ 321,757 $ 410,945
=============== ============== ================ =============
GEOGRAPHIC REGION:
Northeast $ 222,975 $ 260,146 $ 92,513 $ 103,761
Southeast 257,376 261,957 85,781 110,746
North central 189,163 158,902 63,751 86,070
South central 79,092 57,507 58,954 85,532
West 214,695 256,963 49,259 72,345
Valuation allowances (35,800) (48,399) (28,501) (47,509)
--------------- -------------- ---------------- -------------
Total $ 927,501 $ 947,076 $ 321,757 $ 410,945
=============== ============== ================ =============
</TABLE>
At December 31, 1997, scheduled mortgage loan maturities were as follows:
1998 - $151 million; 1999 - $88 million; 2000 - $97 million; 2001 - $92
million; 2002 - $41 million; and $494 million thereafter. Actual maturities
will differ from contractual maturities because borrowers may have the
right to prepay obligations with or without prepayment penalties and loans
may be refinanced. Phoenix refinanced $8.6 million and $28.9 million of its
mortgage loans during 1997 and 1996, respectively, based on terms which
differed from those granted to new borrowers.
38
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INVESTMENT VALUATION ALLOWANCES
Investment valuation allowances which have been deducted in arriving at
investment carrying values as presented in the Consolidated Balance Sheet
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>
1997
Mortgage loans $ 48,399 $ 6,731 $ (19,330) $ 35,800
Real estate 47,509 4,201 (23,209) 28,501
-------------- -------------------- --------------- --------------------
Total $ 95,908 $ 10,932 $ (42,539) $ 64,301
============== ==================== =============== ====================
1996
Mortgage loans $ 65,807 $ 7,640 $ (25,048) $ 48,399
Real estate 83,755 2,526 (38,772) 47,509
-------------- -------------------- --------------- --------------------
Total $ 149,562 $ 10,166 $ (63,820) $ 95,908
============== ==================== =============== ====================
</TABLE>
NON-INCOME PRODUCING MORTGAGE LOANS AND BONDS
The net carrying values of non-income producing mortgage loans were $7.0
million and $4.5 million at December 31, 1997 and 1996, respectively. There
were no non-income producing bonds at December 31, 1997 or 1996.
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 $272.9 million and $73.1 million
at December 31, 1997 and 1996, respectively. Average received and average
paid rates were 7.00% and 6.63% for 1997.
These agreements do not require the exchange of underlying principal
amounts, and accordingly Phoenix's maximum exposure to credit risk is the
difference in interest payments exchanged. Management of Phoenix considers
the likelihood of any material loss on interest rate swaps to be remote.
39
<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 affiliates, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Venture capital equity partnerships $ 88,228 $ 66,284
Transportation and equipment leases 59,111 46,950
Investment in Aberdeen Asset Management 32,817 29,980
Investment in Beutel, Goodman & Co. Ltd. 31,214 34,541
Seed money in separate accounts 41,297 35,747
Other 10,008 4,617
------------- ------------
Total other invested assets $ 262,675 $ 218,119
============= ============
</TABLE>
NET INVESTMENT INCOME
The components of net investment income for the year ended December 31,
were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Debt securities $ 509,702 $ 469,713 $ 437,521
Equity securities 4,277 4,689 1,787
Mortgage loans 85,662 84,318 92,283
Policy loans 122,562 117,742 115,055
Real estate 18,939 21,799 20,910
Other invested assets (415) 332 871
Short-term investments 18,768 18,688 21,974
------------ ------------ -------------
Sub-total 759,495 717,281 690,401
Less investment expenses 22,621 27,391 27,933
------------ ------------ -------------
Net investment income $ 736,874 $ 689,890 $ 662,468
============ ============ =============
</TABLE>
Investment income of $.7 million was not accrued on certain delinquent
mortgage loans and defaulted bonds at December 31, 1997. Phoenix 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 $51.3 million and $61.5 million at December 31,
1997 and 1996, respectively. Interest income on restructured mortgage loans
that would have been recorded in accordance with the original terms of such
loans amounted to $5.3 million, $3.1 million and $6.6 million in 1997, 1996
and 1995, respectively. Actual interest income on these loans included in
net investment income was $3.8 million, $5.2 million and $6.4 million in
1997, 1996 and 1995, respectively.
40
<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>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ 112,194 $ (70,986) $ 476,352
Equity securities 74,547 40,803 24,527
Deferred policy acquisition costs (77,985) 51,528 (341,836)
Deferred income taxes 38,064 7,432 55,692
Other (Note 9) (4,719) 1,241 (3,833)
-------------- ------------------ ---------------
Net unrealized investment gains $ 65,973 $ 15,154 $ 99,518
============== ================== ===============
</TABLE>
Realized investment gains and losses for the year ended December 31, were
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Debt securities $ 19,315 $ (10,476) $ 8,080
Equity securities 26,290 59,794 29,276
Mortgage loans 3,805 2,628 (262)
Real estate 44,668 24,711 20,535
Other invested assets 48,692 18,608 17,109
-------------- ------------------ ---------------
142,770 95,265 74,738
Income taxes 49,970 33,343 26,158
-------------- ------------------ ---------------
Net realized investment gains after taxes $ 92,800 $ 61,922 $ 48,580
============== ================== ===============
</TABLE>
The proceeds from sales of available-for-sale debt securities and the gross
realized gains and gross realized losses on those sales for the year ended
December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from disposals $ 1,206,744 $ 1,348,809 $ 1,145,146
Gross gains on sales $ 48,100 $ 17,429 $ 27,980
Gross losses on sales $ 28,785 $ 27,905 $ 19,900
</TABLE>
41
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets were as follows:
DECEMBER 31,
1997 1996
(IN THOUSANDS)
Goodwill $ 387,517 $ 231,135
Investment management contracts 167,788 56,700
Client listings 45,441 41,410
Non-compete covenants 5,000 5,000
Intangible asset related to
pension plan benefits 18,032 19,835
Other 1,499 1,220
------------ ------------
625,277 355,300
Accumulated amortization (83,778) (41,793)
------------ ------------
Total $ 541,499 $ 313,507
============ ============
Phoenix Duff & Phelps' amounts included above were as follows:
DECEMBER 31,
1997 1996
(IN THOUSANDS)
Goodwill $ 321,932 $ 179,406
Investment management contracts 167,788 56,700
Non-compete covenants 5,000 5,000
Other 1,220 1,220
------------ ------------
495,940 242,326
Accumulated amortization (27,579) (13,198)
------------ ------------
Total $ 468,361 $ 229,128
============ ============
In 1997, American Phoenix Corporation wrote down the carrying value of its
goodwill and other intangible assets by $18.8 million. This impairment loss
is included in other operating expenses in the Consolidated Statement of
Income and Equity.
42
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS
Other than debt securities being held-to-maturity, financial instruments
that are subject to fair value disclosure requirements (insurance contracts
are excluded) are carried in the 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.
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.
DEBT SECURITIES
Fair values are based on quoted market prices, where available, or quoted
market prices of comparable instruments. Fair values of private placement
debt securities are estimated using discounted cash flows that 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 the Treasury rate comparable for the remaining loan
duration, plus 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.
43
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INVESTMENT CONTRACTS
In determining the fair value of guaranteed interest contracts, a discount
rate equal to the appropriate Treasury rate, plus 150 basis points, was
assumed to determine the present value of projected contractual liability
payments through final maturity.
The fair value of deferred annuities and supplementary contracts without
life contingencies with an interest guarantee of one year or less is valued
at the amount of the policy reserve. In determining the fair value of
deferred annuities and supplementary contracts without life contingencies
with interest guarantees greater than one year, a discount rate equal to
the appropriate Treasury rate, plus 150 basis points, was used to determine
the present value of the projected account value of the policy at the end
of the current guarantee period.
Deposit type funds, including pension deposit administration contracts,
dividend accumulations, and other funds left on deposit not involving life
contingencies, have interest guarantees of less than one year for which
interest credited is closely tied to rates earned on owned assets. For such
liabilities, fair value is assumed to be equal to the stated liability
balances.
DEBT
The carrying value of 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>
1997 1996
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 159,307 $ 159,307 $ 172,895 $ 172,895
Short-term investments 1,078,276 1,078,276 164,967 164,967
Debt securities 7,213,966 7,316,601 6,451,078 6,500,017
Equity securities 373,388 373,388 235,351 235,351
Mortgage loans 927,501 956,041 947,076 986,900
Policy loans 1,986,728 2,104,704 1,667,784 1,645,899
--------------- ---------------- -------------- --------------
Total financial assets $ 11,739,166 $ 11,988,317 $ 9,639,151 $ 9,706,029
=============== ================ ============== ==============
Financial liabilities:
Policy liabilities $ 902,200 $ 902,200 $ 875,200 $ 875,100
Securities sold subject to repurchase
agreements 137,473 137,473
Other indebtedness 471,085 471,085 490,430 490,430
--------------- ---------------- -------------- --------------
Total financial liabilities $ 1,510,758 $ 1,510,758 $ 1,365,630 $ 1,365,530
=============== ================ ============== ==============
</TABLE>
44
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. OTHER INDEBTEDNESS
DECEMBER 31,
1997 1996
(IN THOUSANDS)
Short-term debt $ 15,539 $ 12,455
Bank borrowings 263,732 280,845
Notes payable 14,632 19,522
Surplus notes 175,000 175,000
Secured debt 2,182 2,608
------------ ------------
Total other indebtedness $ 471,085 $ 490,430
============ ============
Phoenix has various lines of credit established with major commercial
banks. As of December 31, 1997, Phoenix had outstanding balances totaling
$264.5 million. The total unused credit was $145.3 million. Interest rates
ranged from 5.42% to 6.63% in 1997.
On November 25, 1996, Phoenix issued $175 million of surplus notes (See
Note 3).
Maturities of other indebtedness are as follows: 1998 - $15.5 million; 1999
- $55 million; 2000 - $4 million; 2001 - $29 million; 2002 - $192 million;
2003 and thereafter - $175.5 million.
Interest expense was $32.5 million, $18.0 million and $7.7 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
8. INCOME TAXES
A summary of income taxes (benefits) in the Consolidated Statement of
Income and Equity for the year ended December 31, was as follows:
1997 1996 1995
(IN THOUSANDS)
Income taxes
Current $ 54,514 $ 59,673 $ 59,590
Deferred 2,555 19,658 (16,238)
----------- ---------- ------------
Total $ 57,069 $ 79,331 $ 43,352
=========== ========== ============
45
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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>
1997 1996 1995
% % %
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at statutory rate $ 80,710 35 $ 66,136 35 $ 55,318 35
Non-taxable gain on Phoenix Duff &
Phelps merger (14,203) (9)
Dividend received deduction and
tax-exempt interest (2,513) (1) (2,107) (1) (623)
Other, net (8,017) (4) 2,736 1 2,860 1
------------ ----- ------------ ----- ------------ -----
70,180 30 66,765 35 43,352 27
Differential earnings (equity tax) (13,111) (5) 12,566 7
------------ ----- ------------ ----- ------------ -----
Income taxes $ 57,069 25 $ 79,331 42 $ 43,352 27
============ ===== ============ ===== ============ =====
</TABLE>
46
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The deferred income tax liability (asset) represents the tax effects of
temporary differences attributable to the consolidated tax return group.
The components were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Deferred policy acquisition costs $ 303,500 $ 220,135
Unearned premium/deferred revenue (139,817) (131,513)
Impairment reserves (26,102) (43,331)
Pension and other postretirement benefits (56,643) (58,230)
Investments 77,202 50,219
Future policyholder benefits (140,980) (37,904)
Other 45,053 15,633
------------- -------------
62,213 15,009
Net unrealized investment gains 84,134 48,320
Minimum pension liability (2,526) (1,395)
Foreign tax credit (1,109)
------------- -------------
Deferred income tax liability, net
before valuation allowance 143,821 60,825
Valuation allowance 1,109
------------- -------------
Deferred income tax liability, net $ 143,821 $ 61,934
============= =============
</TABLE>
Gross deferred income tax assets totaled $366 million and $274 million at
December 31, 1997 and 1996, respectively. Gross deferred income tax
liabilities totaled $510 million and $336 million at December 31, 1997 and
1996, respectively. It is management's assessment, based on Phoenix's
earnings and projected future taxable income, that it is more likely than
not that deferred income tax assets at December 31, 1997 and 1996, with the
exception of the foreign tax credit, will be realized.
The Internal Revenue Service is currently examining Phoenix's tax returns
for 1995 and 1996. Management does not believe that there will be a
material adverse effect on the financial statements as a result of pending
tax matters.
47
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. PENSION AND OTHER POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
PENSION PLANS
Phoenix has a multi-employer, non-contributory, defined benefit pension
plan covering substantially all of its employees. Retirement benefits are a
function of both years of service and level of compensation. Phoenix also
sponsors a non-qualified supplemental defined benefit plan to provide
benefits in excess of amounts allowed pursuant to Internal Revenue Code.
Phoenix's funding policy is to contribute annually an amount equal to at
least the minimum required contribution in accordance with minimum funding
standards established by the Employee Retirement Income Security Act of
1974. 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>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 10,278 $ 10,076 $ 9,599
Interest accrued on projected benefit obligation 22,650 22,660 19,880
Actual return on assets (53,093) (38,788) (62,567)
Net amortization and deferral 30,488 17,318 45,807
------------ ------------- ------------
Net periodic pension cost $ 10,323 $ 11,266 $ 12,719
============ ============= ============
</TABLE>
In 1996, Phoenix offered an early retirement program which granted an
additional benefit of five years of age and service. As a result of the
early retirement program, Phoenix recorded an additional pension expense of
$8.7 million for the year ended December 31, 1996.
48
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The funded status of the plan for which assets exceeded accumulated benefit
obligations was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of vested benefit obligation $ 236,443 $ 213,148
Actuarial present value of non-vested benefit obligation 16,312 14,828
------------- ------------
Accumulated benefit obligation 252,755 227,976
Present value effect of future salary increases 32,316 33,910
------------- ------------
Projected benefit obligation $ 285,071 $ 261,886
============= ============
Plan assets at fair value $ 321,555 $ 292,070
============= ============
Plan assets in excess of projected benefit obligation $ (36,484) $ (30,184)
Unrecognized net gain from past experience 60,759 52,312
Unrecognized prior service benefit 52 240
Unamortized transition asset 16,586 19,745
------------- ------------
Net pension liability (included in other liabilities) $ 40,913 $ 42,113
============= ============
</TABLE>
At December 31, 1997 and 1996, the non-qualified plan was unfunded and had
projected benefit obligations of $50.4 million and $50.0 million,
respectively. The accumulated benefit obligations as of December 31, 1997
and 1996 related to this plan were $42.8 million and $37.4 million,
respectively, and are included in other liabilities.
Phoenix recorded, as a reduction of policyholders' equity, an additional
minimum pension liability of $4.7 million and $2.8 million, net of income
taxes, at December 31, 1997 and 1996, respectively, representing the excess
of accumulated benefit obligations over the fair value of plan assets and
accrued pension liabilities for the non-qualified plan. Phoenix has also
recorded an intangible asset of $18.0 million and $19.8 million as of
December 31, 1997 and 1996 related to the non-qualified plan.
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit
obligation were 7.0% and 4.0%, for 1997 and 7.5% and 4.5% for 1996. The
discount rate assumption for 1997 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%.
The pension plan's assets include corporate and government debt securities,
equity securities, real estate, venture capital funds, and shares of mutual
funds.
Phoenix 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. Phoenix 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, 1997, 1996 and 1995 were $3.8 million, $4.2
million and $4.2 million, respectively.
49
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
OTHER POSTRETIREMENT BENEFIT PLANS
In addition to Phoenix's pension plans, Phoenix currently provides certain
health care and life insurance benefits to retired employees, spouses and
other eligible dependents through various plans sponsored by Phoenix. A
substantial portion of Phoenix's employees may become eligible for these
benefits upon retirement. The health care plans have varying 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 Phoenix's
Consolidated Balance Sheet, was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees $ 35,900 $ 30,576
Fully eligible active plan participants 6,889 11,466
Other active plan participants 23,829 21,614
------------ -----------
Total accumulated postretirement benefit obligation 66,618 63,656
Unrecognized net gain from past experience 28,037 29,173
------------ -----------
Accrued postretirement benefit liability $ 94,655 $ 92,829
============ ===========
</TABLE>
The components of net periodic postretirement benefit cost for the year
ended December 31, were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost - benefits earned during year $ 3,136 $ 2,765 $ 3,366
Interest cost accrued on benefit obligation 4,441 4,547 5,275
Net amortization (1,527) (1,577) (458)
---------- ---------- ---------
Net periodic postretirement benefit cost $ 6,050 $ 5,735 $ 8,183
========== ========== =========
</TABLE>
50
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In addition to the net periodic postretirement benefit cost, Phoenix
expensed an additional $3.0 million for postretirement benefits related to
the early retirement program for the year ended December 31, 1996.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.0% at December 31, 1997 and 7.5% at December 31,
1996.
For purposes of measuring the accumulated postretirement benefit obligation
at December 31, 1997, 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, 1996, health
care costs were assumed to increase 9.5% 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 $5.3
million and the annual service and interest cost by $.8 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
Phoenix 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 $.4 million for 1997, $.4 million for 1996 and $.5
million for 1995.
51
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. SEGMENT INFORMATION
Phoenix operates principally in seven segments: Individual Insurance, Group
Life and Health Insurance, 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 include equity securities.
Summarized below is financial information with respect to the business
segments:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Individual Insurance $ 2,028,230 $ 1,796,572 $ 1,752,338
Group Life and Health Insurance 459,405 462,551 421,771
Life Reinsurance 162,843 143,314 128,813
General Lines Brokerage 64,093 61,809 40,977
Securities Management 177,894 164,966 112,206
Real Estate Management 15,319 13,550 13,562
Other Operations 80,496 82,273 48,873
----------------- ----------------- -----------------
Total $ 2,988,280 $ 2,725,035 $ 2,518,540
================= ================= =================
OPERATING INCOME
Individual Insurance $ 132,308 $ 63,013 $ 43,094
Group Life and Health Insurance 31,276 11,220 19,921
Life Reinsurance 10,592 8,078 17,656
General Lines Brokerage (21,652) (2,935) (1,887)
Securities Management 38,813 44,440 23,667
Real Estate Management (2,433) (3,783) (184)
Other Operations 41,695 68,928 15,204
----------------- ----------------- -----------------
Total $ 230,599 $ 188,961 $ 117,471
================= ================= =================
IDENTIFIABLE ASSETS
Individual Insurance $ 15,679,598 $ 12,961,648
Group Life and Health Insurance 655,800 596,800
Life Reinsurance 313,500 304,300
General Lines Brokerage 111,900 117,300
Securities Management 615,112 376,000
Real Estate Management 278,500 319,400
Other Operations 864,309 777,600
----------------- -----------------
Total $ 18,518,719 $ 15,453,048
================= =================
</TABLE>
52
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to
buildings, amounted to $14.9 million, $14.8 million and $14.6 million in
1997, 1996, and 1995, respectively. Future minimum rental payments under
non-cancelable operating leases were approximately $51.0 million as of
December 31, 1997, payable as follows: 1998 - $15.7 million; 1999 - $12.9
million; 2000 - $10.1 million; 2001 - $5.6 million; 2002 - $3.6 million;
and $3.1 million thereafter.
12. PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements, consisting primarily of
office buildings occupied by Phoenix, are stated at depreciated cost. Real
estate occupied by Phoenix was $109.0 million and $97.2 million,
respectively, at December 31, 1997 and 1996. Phoenix 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 $164.4 million and
$144.1 million at December 31, 1997 and 1996, respectively.
13. 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 Phoenix on any one life is
$8 million for single life and joint first-to-die policies and $10 million
for joint last-to-die policies, with excess amounts ceded to reinsurers.
For reinsurance ceded, Phoenix 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>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Direct premiums $ 1,592,800 $ 1,473,869 $ 1,455,459
Reinsurance assumed 329,927 276,630 271,498
Reinsurance ceded (282,121) (231,677) (270,082)
----------------- -------------------- -----------------
Net premiums $ 1,640,606 $ 1,518,822 $ 1,456,875
================= ==================== =================
Direct policy and contract claims incurred $ 626,834 $ 575,824 $ 605,545
Reinsurance assumed 410,704 170,058 256,529
Reinsurance ceded (373,127) (160,646) (292,357)
----------------- -------------------- -----------------
Net policy and contract claims incurred $ 664,411 $ 585,236 $ 569,717
================= ==================== =================
Direct life insurance in force $ 120,394,664 $ 108,816,856 $ 102,606,749
Reinsurance assumed 84,806,585 61,109,836 36,724,852
Reinsurance ceded (74,764,639) (51,525,976) (34,093,090)
----------------- -------------------- -----------------
Net insurance in force $ 130,436,610 $ 118,400,716 $ 105,238,511
================= ==================== =================
</TABLE>
53
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Irrevocable letters of credit aggregating $134.8 million at December 31,
1997 have been arranged with United States commercial banks in favor of
Phoenix to collateralize the ceded reserves.
14. PARTICIPATING LIFE INSURANCE
Participating life insurance in force was 79.6% and 80.0% of the face value
of total individual life insurance in force at December 31, 1997 and 1996,
respectively. The premiums on participating life insurance policies were
83.5%, 84.1% and 84.7% of total individual life insurance premiums in 1997,
1996 and 1995, respectively.
15. DEFERRED POLICY ACQUISITION COSTS
The following reflects the amount of policy acquisition costs deferred and
amortized for the years ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $ 926,274 $ 816,128 $ 1,128,227
Acquisition cost deferred 295,189 153,873 143,519
Amortized to expense during the year (105,071) (95,255) (113,788)
Adjustment to equity during the year (77,985) 51,528 (341,830)
----------------- -------------- ----------------
Balance at end of year $ 1,038,407 $ 926,274 $ 816,128
================= ============== ================
</TABLE>
16. MINORITY INTEREST
Phoenix's interests in Phoenix Duff & Phelps Corporation and American
Phoenix Corporation, through its wholly-owned subsidiary PM Holdings are
represented by ownership of approximately 60% and 92%, respectively, of the
outstanding shares of common stock at December 31, 1997. Earnings and
policyholders' equity attributable to minority shareholders are included in
minority interest in the consolidated financial statements along with
Phoenix Duff & Phelps' preferred stock.
17. CONTINGENCIES
FINANCIAL GUARANTEES
Phoenix 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 Phoenix's maximum exposure to credit loss in the event
of nonperformance. The principal amount of bonds guaranteed by Phoenix at
December 31, 1997 and 1996 was $88.7 million and $88.8 million,
respectively. Management believes that any loss contingencies which may
arise from Phoenix's financial guarantees would not have a material adverse
effect on Phoenix's liquidity or financial condition.
54
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
LITIGATION
In 1996, Phoenix 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. Phoenix estimates the cost of settlement to be $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 Phoenix's consolidated financial position.
Phoenix 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 Phoenix's consolidated financial position.
18. 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, 1997, 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, surplus notes are not included in
policyholders' equity, 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 Phoenix as reported to
regulatory authorities to the net income as reported in these financial
statements for the year ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory net income $ 60,702 $ 72,961 $ 64,198
Deferred policy acquisition costs, net 48,821 58,618 29,766
Future policy benefits (9,145) (16,793) (15,763)
Pension and postretirement expenses (7,955) (23,275) (12,691)
Investment valuation allowances 88,813 76,631 56,745
Interest maintenance reserve 17,544 (5,158) 5,829
Deferred income taxes (36,250) (67,064) (10,021)
Other, net 2,118 4,808 (4,314)
------------ ------------- ------------
Net income, as reported $ 164,648 $ 100,728 $ 113,749
============ ============= ============
</TABLE>
55
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following reconciles the statutory surplus and asset valuation reserve
(AVR) of Phoenix as reported to regulatory authorities to policyholders'
equity as reported in these financial statements:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Statutory surplus, surplus notes and AVR $ 1,152,820 $ 1,102,200
Deferred policy acquisition costs, net 1,227,782 1,037,664
Future policy benefits (395,436) (379,820)
Pension and postretirement expenses (169,383) (152,112)
Investment valuation allowances (40,032) (139,562)
Interest maintenance reserve 33,794 6,897
Deferred income taxes (12,051) 82,069
Surplus notes (157,500) (157,500)
Other, net (11,904) (2,367)
-------------- --------------
Policyholders' equity, as reported $ 1,628,090 $ 1,397,469
============== ==============
</TABLE>
The 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.
56
<PAGE>
PHOENIX HOME LIFE VARIABLE
UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1997
57
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
---------------- ---------------- ---------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $ 508,173 $ 27,329,082 $ 3,527,899
============ ============ ===========
Investment in The Phoenix Edge Series Fund, at market ......... $ 508,173 $ 33,208,994 $ 3,722,616
------------ ------------ -----------
Total assets ................................................. 508,173 33,208,994 3,722,616
Liabilities
Accrued expenses to related party ............................. 216 13,843 1,570
------------ ------------ -----------
Net assets ..................................................... $ 507,957 $ 33,195,151 $ 3,721,046
============ ============ ===========
Accumulation units outstanding ................................. 291,427 7,653,211 1,451,093
============ ============ ===========
Unit value ..................................................... $ 1.742998 $ 4.337415 $ 2.564306
============ ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Strategic Allocation International Balanced
Sub-Account Sub-Account Sub-Account
---------------------- --------------- --------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $ 16,061,647 $ 862,272 $ 161,730
============ ============ ==========
Investment in The Phoenix Edge Series Fund, at market ......... $ 17,509,418 $ 1,206,463 $ 192,540
------------ ------------ ----------
Total assets ................................................. 17,509,418 1,206,463 192,540
Liabilities
Accrued expenses to related party ............................. 7,334 502 81
------------ ------------ ----------
Net assets ..................................................... $ 17,502,084 $ 1,205,961 $ 192,459
============ ============ ==========
Accumulation units outstanding ................................. 6,055,691 650,153 107,226
============ ============ ==========
Unit value ..................................................... $ 2.890188 $ 1.854890 $ 1.794889
============ ============ ==========
</TABLE>
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account
------------- ----------------- --------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $ 101,004 $ 440,974 $ 30,585
========== ========== ==========
Investment in The Phoenix Edge Series Fund, at market ......... $ 113,104 $ 427,183 $ 20,015
---------- ---------- ----------
Total assets ................................................. 113,104 427,183 20,015
Liabilities
Accrued expenses to related party ............................. 47 179 8
---------- ---------- ----------
Net assets ..................................................... $ 113,057 $ 427,004 $ 20,007
========== ========== ==========
Accumulation units outstanding ................................. 71,147 365,357 29,593
========== ========== ==========
Unit value ..................................................... $ 1.589050 $ 1.168732 $ 0.676069
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Wanger Wanger
Enhanced International U.S.
Index Small Cap Small Cap
Sub-Account Sub-Account Sub-Account
------------ --------------- ------------
Assets
Investments at cost ........................................... $ 58,399 $ 155,309 $ 445,184
============ ========= =========
Investment in The Phoenix Edge Series Fund, at market ......... $ 58,674 -- --
Investment in Wanger Advisors Trust, at market ................ -- $ 146,440 $ 506,408
------------ --------- ---------
Total assets ................................................. 58,674 146,440 506,408
Liabilities
Accrued expenses to related party ............................. 25 63 212
------------ --------- ---------
Net assets ..................................................... $ 58,649 $ 146,377 $ 506,196
============ ========= =========
Accumulation units outstanding ................................. 57,784 145,518 384,787
============ ========= =========
Unit value ..................................................... $ 1.014977 $ 1.005906 $ 1.315522
============ ========== ==========
</TABLE>
See Notes to Financial Statements
58
<PAGE>
STATEMENT OF OPERATIONS
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
-------------- ------------- -------------
<S> <C> <C> <C>
Investment income
Distributions ............................................... $36,354 $ 194,665 $253,825
Expenses
Mortality and expense risk charges .......................... 3,606 154,848 17,447
------- ---------- --------
Net investment income ........................................ 32,748 39,817 236,378
------- ---------- --------
Net realized gain from share transactions .................... -- 25,845 1,533
Net realized gain distribution from Fund ..................... -- 5,232,320 94,635
Net unrealized appreciation on investment .................... -- 406,199 13,298
------- ---------- --------
Net gain on investments ...................................... -- 5,664,364 109,466
------- ---------- --------
Net increase in net assets resulting from operations ......... $32,748 $5,704,181 $345,844
======= ========== ========
</TABLE>
<TABLE>
<CAPTION>
Strategic
Allocation International Balanced
Sub-Account Sub-Account Sub-Account
------------- --------------- ------------
<S> <C> <C> <C>
Investment income
Distributions ................................................... $ 361,833 $ 20,726 $ 7,594
Expenses
Mortality and expense risk charges .............................. 82,631 6,980 1,259
---------- --------- ---------
Net investment income ............................................ 279,202 13,746 6,335
---------- --------- ---------
Net realized gain from share transactions ........................ 34,932 51,837 13,692
Net realized gain distribution from Fund ......................... 2,162,711 122,100 21,954
Net unrealized appreciation (depreciation) on investment ......... 531,049 (41,169) (10,412)
---------- --------- ---------
Net gain on investments .......................................... 2,728,692 132,768 25,234
---------- --------- ---------
Net increase in net assets resulting from operations ............. $3,007,894 $ 146,514 $ 31,569
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account(1)
------------- ----------------- ---------------
<S> <C> <C> <C>
Investment income
Distributions .......................................................... $ 2,974 $ 1,291 $ 902
Expenses
Mortality and expense risk charges ..................................... 416 1,494 159
------- --------- ---------
Net investment income (loss) ............................................ 2,558 (203) 743
------- --------- ---------
Net realized gain (loss) from share transactions ........................ (107) 2,884 (715)
Net realized gain distribution from Fund ................................ 3,817 49,324 20
Net unrealized appreciation (depreciation) on investment ................ 9,852 (15,711) (10,570)
------- --------- ---------
Net gain (loss) on investments .......................................... 13,562 36,497 (11,265)
------- --------- ---------
Net increase (decrease) in net assets resulting from operations ......... $16,120 $ 36,294 $ (10,522)
======= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Wanger Wanger
Enhanced International U.S.
Index Small Cap Small Cap
Sub-Account(2) Sub-Account Sub-Account
---------------- --------------- ------------
<S> <C> <C> <C>
Investment income
Distributions .......................................................... $283 $ 2,612 $ 5,514
Expenses
Mortality and expense risk charges ..................................... 76 649 1,534
---- -------- -------
Net investment income ................................................... 207 1,963 3,980
---- -------- -------
Net realized gain (loss) from share transactions ........................ (8) (68) 814
Net realized gain distribution from Fund ................................ 266 -- --
Net unrealized appreciation (depreciation) on investment ................ 275 (9,128) 60,894
----- -------- -------
Net gain (loss) on investments .......................................... 533 (9,196) 61,708
----- -------- -------
Net increase (decrease) in net assets resulting from operations ......... $740 $ (7,233) 65,688
===== ======== =======
</TABLE>
(1) From inception January 6, 1997 to December 31, 1997
(2) From inception September 22, 1997 to December 31, 1997
See Notes to Financial Statements
59
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Multi-Sector
Money Market Growth Fixed Income
Sub-Account Sub-Account Sub-Account
-------------- --------------- -------------
<S> <C> <C> <C>
From operations
Net investment income .......................................... $ 32,748 $ 39,817 $ 236,378
Net realized gain .............................................. -- 5,258,165 96,168
Net unrealized appreciation .................................... -- 406,199 13,298
----------- ----------- ----------
Net increase in net assets resulting from operations ........... 32,748 5,704,181 345,844
----------- ----------- ----------
From accumulation unit transactions
Participant deposits ........................................... 20,734 31,261 1,248
Participant transfers .......................................... (485,415) (14,615) 102,450
Participant withdrawals ........................................ (38,213) (863,532) (58,294)
----------- ----------- ----------
Net increase (decrease) in net assets resulting from participant
transactions .................................................. (502,894) (846,886) 45,404
----------- ----------- ----------
Net increase (decrease) in net assets .......................... (470,146) 4,857,295 391,248
Net assets
Beginning of period ............................................ 978,103 28,337,856 3,329,798
----------- ----------- ----------
End of period .................................................. $ 507,957 $33,195,151 $3,721,046
=========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Strategic
Allocation International Balanced
Sub-Account Sub-Account Sub-Account
--------------- --------------- --------------
<S> <C> <C> <C>
From operations
Net investment income ................................................... $ 279,202 $ 13,746 $ 6,335
Net realized gain ....................................................... 2,197,643 173,937 35,646
Net unrealized appreciation (depreciation) .............................. 531,049 (41,169) (10,412)
----------- ----------- ----------
Net increase in net assets resulting from operations .................... 3,007,894 146,514 31,569
----------- ----------- ----------
From accumulation unit transactions
Participant deposits .................................................... 109,277 7,986 1,666
Participant transfers ................................................... (317,620) (241,204) (30,741)
Participant withdrawals ................................................. (557,654) (74,579) (176,265)
----------- ----------- ----------
Net decrease in net assets resulting from participant transactions ...... (765,997) (307,797) (205,340)
----------- ----------- ----------
Net increase (decrease) in net assets ................................... 2,241,897 (161,283) (173,771)
Net assets
Beginning of period ..................................................... 15,260,187 1,367,244 366,230
----------- ----------- ----------
End of period ........................................................... $17,502,084 $ 1,205,961 $ 192,459
=========== =========== ==========
</TABLE>
See Notes to Financial Statements
60
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Aberdeen
Real Estate Strategic Theme New Asia
Sub-Account Sub-Account Sub-Account(1)
------------- ----------------- ---------------
<S> <C> <C> <C>
From operations
Net investment income (loss) ............................................ $ 2,558 $ (203) $ 743
Net realized gain (loss) ................................................ 3,710 52,208 (695)
Net unrealized appreciation (depreciation) .............................. 9,852 (15,711) (10,570)
-------- --------- ---------
Net increase (decrease) in net assets resulting from operations ......... 16,120 36,294 (10,522)
-------- --------- ---------
From accumulation unit transactions
Participant deposits .................................................... 1,571 12,472 --
Participant transfers ................................................... 85,333 212,505 30,856
Participant withdrawals ................................................. (2,416) (43,070) (327)
-------- --------- ---------
Net increase in net assets resulting from participant transactions ...... 84,488 181,907 30,529
-------- --------- ---------
Net increase in net assets .............................................. 100,608 218,201 20,007
Net assets
Beginning of period ..................................................... 12,449 208,803 --
-------- --------- ---------
End of period ........................................................... $113,057 $ 427,004 $ 20,007
======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Wanger Wanger
Enhanced International U.S.
Index Small Cap Small Cap
Sub-Account(2) Sub-Account Sub-Account
---------------- --------------- ------------
<S> <C> <C> <C>
From operations
Net investment income ................................................... $ 207 $ 1,963 $ 3,980
Net realized gain (loss) ................................................ 258 (68) 814
Net unrealized appreciation (depreciation) .............................. 275 (9,128) 60,894
------- -------- ---------
Net increase (decrease) in net assets resulting from operations ......... 740 (7,233) 65,688
------- -------- ---------
From accumulation unit transactions
Participant deposits .................................................... -- 1,559 2,102
Participant transfers ................................................... 58,145 149,460 450,846
Participant withdrawals ................................................. (236) (7,607) (27,955)
------- -------- ---------
Net increase in net assets resulting from participant transactions ...... 57,909 143,412 424,993
------- -------- ---------
Net increase in net assets .............................................. 58,649 136,179 490,681
Net assets
Beginning of period ..................................................... -- 10,198 15,515
------- -------- ---------
End of period ........................................................... $58,649 $146,377 $ 506,196
======= ======== =========
</TABLE>
(1) From inception January 6, 1997 to December 31, 1997
(2) From inception September 22, 1997 to December 31, 1997
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 .......................................... $ 36,421 $ 123,897 $ 219,969
Net realized gain .............................................. -- 1,905,888 96,636
Net unrealized appreciation .................................... -- 1,035,122 33,342
------------ ----------- ----------
Net increase in net assets resulting from operations ........... 36,421 3,064,907 349,947
------------ ----------- ----------
From accumulation unit transactions
Participant deposits ........................................... 634,438 452,681 14,305
Participant transfers .......................................... (1,421,417) 969,934 199,755
Participant withdrawals ........................................ (40,436) (760,557) (79,930)
------------ ----------- ----------
Net increase (decrease) in net assets resulting from participant
transactions .................................................. (827,415) 662,058 134,130
------------ ----------- ----------
Net increase (decrease) in net assets .......................... (790,994) 3,726,965 484,077
Net assets
Beginning of period ............................................ 1,769,097 24,610,891 2,845,721
------------ ----------- ----------
End of period .................................................. $ 978,103 $28,337,856 $3,329,798
============ =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Strategic
Allocation International Balanced
Sub-Account Sub-Account Sub-Account
--------------- --------------- ------------
<S> <C> <C> <C>
From operations
Net investment income .......................................... $ 249,585 $ 13,019 $ 7,825
Net realized gain .............................................. 956,839 35,973 34,619
Net unrealized appreciation (depreciation) ..................... 9,110 165,636 (10,943)
----------- ---------- ---------
Net increase in net assets resulting from operations ........... 1,215,534 214,628 31,501
----------- ---------- ---------
From accumulation unit transactions
Participant deposits ........................................... 86,027 10,839 3,413
Participant transfers .......................................... (186,193) 183,042 (1,861)
Participant withdrawals ........................................ (514,891) (190,854) (20,610)
----------- ---------- ---------
Net increase (decrease) in net assets resulting from participant
transactions .................................................. (615,057) 3,027 (19,058)
----------- ---------- ---------
Net increase in net assets ..................................... 600,477 217,655 12,443
Net assets
Beginning of period ............................................ 14,659,710 1,149,589 353,787
----------- ---------- ---------
End of period .................................................. $15,260,187 $1,367,244 $ 366,230
=========== ========== =========
</TABLE>
See Notes to Financial Statements
62
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1996
(Continued)
<TABLE>
<CAPTION>
Real Estate Strategic Theme
Sub-Account(1) Sub-Account(1)
---------------- ----------------
<S> <C> <C>
From operations
Net investment income ................................................... $ 137 $ 307
Net realized gain ....................................................... 135 1,731
Net unrealized appreciation ............................................. 2,248 1,918
------- ---------
Net increase in net assets resulting from operations .................... 2,520 3,956
------- ---------
From accumulation unit transactions
Participant deposits .................................................... 7,496 14,491
Participant transfers ................................................... 2,604 231,488
Participant withdrawals ................................................. (171) (41,132)
------- ---------
Net increase in net assets resulting from participant transactions ...... 9,929 204,847
------- ---------
Net increase in net assets .............................................. 12,449 208,803
Net assets
Beginning of period ..................................................... -- --
------- ---------
End of period ........................................................... $12,449 $ 208,803
======= =========
</TABLE>
<TABLE>
<CAPTION>
Wanger Wanger
International U.S.
Small Cap Small Cap
Sub-Account(2) Sub-Account(2)
---------------- ---------------
<S> <C> <C>
From operations
Net investment loss ..................................................... $ (2) $ (2)
Net unrealized appreciation ............................................. 259 329
------- -------
Net increase in net assets resulting from operations .................... 257 327
------- -------
From accumulation unit transactions
Participant deposits .................................................... -- --
Participant transfers ................................................... 9,941 15,188
Participant withdrawals ................................................. -- --
------- -------
Net increase in net assets resulting from participant transactions ...... 9,941 15,188
------- -------
Net increase in net assets .............................................. 10,198 15,515
Net assets
Beginning of period ..................................................... -- --
------- -------
End of period ........................................................... $10,198 $15,515
======= =======
</TABLE>
(1) From inception May 1, 1996 to December 31, 1996
(2) From inception December 19, 1996 to December 31, 1996
See Notes to Financial Statements
63
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
Note 1--Organization
Phoenix Home Life Variable Universal Life Account (the "Account") is a
separate investment account of Phoenix Home Life Mutual Insurance Company
(Phoenix). The Account is registered as a unit investment trust under the
Investment Company Act of 1940, as amended. Policies offered by the Account
have a death benefit, cash surrender value and loan privileges. The Account was
established January 1, 1987 and currently consists of twelve Sub-Accounts, that
invest in a corresponding series of The Phoenix Edge Series Fund and Wanger
Advisors Trust ("the Funds").
Each series has distinct investment objectives. The Money Market Series is
a short-term investment fund. The Growth Series is a growth common stock fund.
The Multi-Sector Fixed Income Series is a long-term debt fund. The Strategic
Allocation Series (formerly Total Return) invests in equity securities and long
and short-term debt. The International Series invests primarily in an
internationally diversified portfolio of equity securities. 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 Research Enhanced Index ("Enhanced
Index") Series invests in a broadly diversified portfolio of equity securities
of large and medium capitalization companies within market sectors reflected in
the S&P 500. The Wanger International Small Cap Series invests in securities of
non-U.S. companies with a stock market capitalization of less than $1 billion
and the Wanger U.S. Small Cap Series invests in growth common stock of U.S.
companies with stock market capitalization of less than $1 billion.
Additionally, policyowners may also direct the allocation of their investments
between the Account and the Guaranteed Interest Account of the general account
of Phoenix.
Note 2--Significant Accounting Policies
A. Valuation of investments: Investments are made exclusively in the Funds
and are valued at the net asset values per share of the respective Series.
B. Investment transactions and related income: Realized gains and losses
include capital gain distributions from the Funds as well as gains and losses
on sales of shares in the Funds determined on the LIFO (last in, first out)
basis.
C. Income taxes: The Account is not a separate entity from Phoenix and,
under current federal income tax law, income arising from the Account is not
taxed since reserves are established equivalent to such income. Therefore, no
provision for related federal taxes is required.
D. Distributions: Distributions are recorded 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, 1997 aggregated the following:
<TABLE>
<CAPTION>
Sub-Account Purchases Sales
- ------------------------------------ ------------ ------------
<S> <C> <C>
The Phoenix Edge Series Fund:
Money Market ...................... $ 372,630 $ 842,975
Growth............................. 5,848,413 1,421,499
Multi-Sector Fixed Income ......... 474,590 98,013
Strategic Allocation .............. 2,573,981 897,260
International ..................... 311,662 483,680
Balanced .......................... 47,827 224,952
Real Estate ....................... 94,768 3,862
Strategic Theme ................... 284,941 53,825
Aberdeen New Asia ................. 41,159 9,859
Enhanced Index .................... 58,694 287
Wanger Advisors Trust:
International Small Cap ........... 168,151 22,715
U.S. Small Cap .................... 458,822 29,640
</TABLE>
Note 4--Participant Accumulation Unit Transactions (in units)
<TABLE>
<CAPTION>
Sub-Account
-----------------------------------------------------------------------------------
Money Multi-Sector Strategic
Market Growth Fixed Income Allocation International Balanced
------------- --------------------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of period ......... 587,306 7,871,230 1,433,300 6,343,059 821,781 239,440
Participant deposits ........................... 12,139 7,908 497 41,721 4,471 943
Participant transfers .......................... (285,566) (9,603) 41,253 (123,714) (133,765) (18,183)
Participant withdrawals ........................ (22,452) (216,324) (23,957) (205,375) (42,334) (114,974)
-------- --------- --------- --------- -------- --------
Units outstanding, end of period ............... 291,427 7,653,211 1,451,093 6,055,691 650,153 107,226
======== ========= ========= ========= ======== ========
</TABLE>
64
<PAGE>
PHOENIX HOME LIFE VARIABLE UNIVERSAL LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
Note 4--Participant Accumulation Unit Transactions (in units) (continued)
<TABLE>
<CAPTION>
Sub-Account
--------------------------------------------------------------------------
Wanger
Real Strategic Aberdeen Enhanced International Wanger U.S.
Estate Theme New Asia Index Small Cap Small Cap
----------- ----------- ---------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding, beginning of period ......... 9,514 208,296 -- -- 9,941 15,188
Participant deposits ........................... 1,011 10,927 -- -- 1,469 1,554
Participant transfers .......................... 62,289 184,545 29,947 58,025 141,238 392,405
Participant withdrawals ........................ (1,667) (38,411) (354) (241) (7,130) (24,360)
------ ------- ------ ------ ------- -------
Units outstanding, end of period ............... 71,147 365,357 29,593 57,784 145,518 384,787
====== ======= ====== ====== ======= =======
</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 75% of a policy's
cash value during the first three policy years and up to 90% of cash value
thereafter, with interest of 8% due and payable on each policy anniversary. At
the time a loan is granted, an amount equivalent to the amount of the loan is
transferred from the Account to Phoenix's general account as collateral for the
outstanding loan. These transfers are included in participant withdrawals in
the accompanying financial statements. Amounts in the general account are
credited with interest at 7.25%. Loan repayments result in a transfer of
collateral back to the Account.
Note 6--Investment Advisory Fees and Related Party Transactions
Phoenix and its indirect, majority owned subsidiary, Phoenix Equity
Planning Corporation, a registered broker/dealer in securities, provide all
services to the Account.
The cost of insurance is charged to each policy on a monthly basis by a
withdrawal of participant units prorated among the elected Sub-accounts. The
amount charged to each policy depends on a number of variables including sex,
age and risk class as well as the death benefit and cash value of the policy.
Such costs aggregated $535,760 during the period ended December 31, 1997.
Upon partial surrender of a policy, a surrender fee of the lesser of $25
or 2% of the partial surrender amount paid and a fraction of the balance of any
unpaid acquisition expense allowance is deducted from the policy value and paid
to Phoenix.
Phoenix Equity Planning Corporation is the principal underwriter and
distributor for the Account. Phoenix Equity Planning Corporation is reimbursed
for its distribution and underwriting expenses by Phoenix.
An acquisition expense allowance is paid to Phoenix over a ten year period
from contract inception by a withdrawal of units. The acquisition expense
allowance consists of a sales load of 5.5% of the issue premium to compensate
Phoenix for distribution expenses incurred, an issue administration charge of
1.0% of the issue premium to compensate Phoenix for underwriting and start-up
expenses and premium taxes which currently range from 0.75% to 4% of premiums
paid based on the state where the policyowner resides. In the event of a
surrender before ten years, the unpaid balance of the acquisition expense
allowance is deducted and paid to Phoenix.
Phoenix assumes the mortality risk that insureds may live for a shorter
time than projected because of inaccuracies in the projecting process and,
accordingly, that an aggregate amount of death benefits greater than projected
will be payable. The expense risk assumed is that expenses incurred in issuing
the policies may exceed the limits on administrative charges set in the
policies. In return for the assumption of these mortality and expense risks,
Phoenix charges the Account an annual rate of 0.50% of the average daily net
assets of the Account for mortality and expense risks assumed.
Note 7--Diversification Requirements
Under the provisions of Section 817(h) of the Internal Revenue Code (the
"Code"), a variable universal life contract, other than a contract issued in
connection with certain types of employee benefit plans, will not be treated as
a universal life contract for federal tax purposes for any period for which the
investments of the segregated asset account on which the contract is based are
not adequately diversified. The Code provides that the "adequately diversified"
requirement may be met if the underlying investments satisfy either a statutory
safe harbor test or diversification requirements set forth in regulations
issued by the Secretary of Treasury.
The Internal Revenue Service has issued regulations under Section 817(h)
of the Code. Phoenix believes that the Account satisfies the current
requirements of the regulations, and it intends that the Account will continue
to meet such requirements.
65
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
[Price Waterhouse LLP logotype] [LOGO]
To the Board of Directors of Phoenix Home Life Mutual Insurance Company and
Participants of Phoenix Home Life Variable Universal Life Account
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of the Money Market
Sub-Account, Growth Sub-Account, Multi-Sector Fixed Income Sub-Account,
Strategic Allocation Sub-Account, International Sub-Account, Balanced
Sub-Account, Real Estate Sub-Account, Strategic Theme Sub-Account, Aberdeen New
Asia Sub-Account, Enhanced Index 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, 1997 and the results of each of their operations and
the changes in each of their net assets for each of the periods indicated, in
conformity with 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, 1997 by correspondence with the Funds' custodians, provide a
reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Hartford, Connecticut
February 19, 1998
<PAGE>
PHOENIX HOME LIFE
VARIABLE UNIVERSAL LIFE ACCOUNT
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
Underwriter
Phoenix Equity Planning Corporation
P.O. Box 2200
100 Bright Meadow Boulevard
Enfield, Connecticut 06083-2200
Custodians
The Chase Manhattan Bank, N.A.
1 Chase Manhattan Plaza
Floor 3B
New York, New York 10081
Brown Brothers Harriman & Co.
(International Series)
40 Water Street
Boston, Massachusetts 02109
State Street Bank and Trust
(Real Estate Series, Enhanced Index Series)
P.O. Box 351
Boston, Massachusetts 02101
Independent Accountants
Price Waterhouse LLP
One Financial Plaza
Hartford, Connecticut 06103
66
<PAGE>
APPENDIX A
THE GUARANTEED INTEREST ACCOUNT
Contributions to the GIA under the Policy and transfers to the GIA become
part of the Phoenix General Account, which supports insurance and annuity
obligations. Because of exemptive and exclusionary provisions, interest in the
General Account has not been registered under the 1933 Act nor is the General
Account registered as an investment company under the 1940 Act. Accordingly,
neither the General Account nor any interest therein is specifically subject to
the provisions of the 1933 or 1940 Acts and the staff of the SEC has not
reviewed the disclosures in this Prospectus concerning the GIA. Disclosures
regarding the GIA and the General Account, however, may be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
The General Account is made up of all of the general assets of Phoenix other
than those allocated to any separate account. Premium payments will be allocated
to the GIA and, therefore, the General Account, as elected by the Policyowner at
the time of purchase or as subsequently changed. Phoenix will invest the assets
of the General Account in assets chosen by it and allowed by applicable law.
Investment income from General Account assets is allocated between Phoenix and
the contracts participating in the General Account, in accordance with the terms
of such contracts.
Investment income from the General Account allocated to Phoenix includes
compensation for mortality and expense risks borne by it in connection with
General Account contracts.
The amount of investment income allocated to the Policies will vary from
year to year in the sole discretion of Phoenix. However, Phoenix guarantees that
it will credit interest at a rate of not less than 4% per year, compounded
annually, to amounts allocated to the GIA. Phoenix may credit interest at a rate
in excess of 4% per year; however, it is not obligated to credit any interest in
excess of 4% per year.
Biweekly, Phoenix will set the excess interest rate, if any, that will apply
to amounts deposited to the GIA. That rate will remain in effect for such
deposits for an initial guarantee period of one full year from the date of
deposit. Upon expiration of the initial one-year guarantee period (and each
subsequent one-year guarantee period thereafter), the rate to be applied to any
deposits whose guaranteed period has just ended will be the same rate as is
applied to new deposits allocated to the GIA at that time. This rate will
likewise remain in effect for a guarantee period of one full year from the date
the new rate is applied.
Excess interest, if any, will be determined by Phoenix based on information
as to expected investment yields. Some of the factors that Phoenix may consider
in determining whether to credit interest to amounts allocated to the GIA and
the amount thereof, are general economic trends, rates of return currently
available and anticipated on investments, regulatory and tax requirements and
competitive factors. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE GIA IN
EXCESS OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF PHOENIX AND
WITHOUT REGARD TO ANY SPECIFIC FORMULA. THE POLICYOWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO GIA ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 4%
FOR ANY GIVEN YEAR.
Phoenix is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in Phoenix's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
policyholders and Contract Owners.
Excess interest, if any, will be credited on the GIA Policy Value. Phoenix
guarantees that, at any time, the GIA Policy Value will not be less than the
amount of premium payments allocated to the GIA, plus interest at the rate of 4%
per year, compounded annually, plus any additional interest which Phoenix may,
in its discretion, credit to the GIA, less the sum of all annual administrative
or surrender charges, any applicable premium taxes, and less any amounts
surrendered or loaned. If the Policyowner surrenders the Policy, the amount
available from the GIA will be reduced by any applicable surrender charge and
annual administration charge. See "Deductions and Charges."
IN GENERAL, ONE TRANSFER PER CONTRACT YEAR IS ALLOWED FROM THE GIA. THE AMOUNT
WHICH CAN BE TRANSFERRED IS LIMITED TO THE GREATER OF $1,000 OR 25% OF THE
CONTRACT VALUE IN THE GIA AT THE TIME OF THE TRANSFER. UNDER THE SYSTEMATIC
TRANSFER PROGRAM, TRANSFERS OF APPROXIMATELY EQUAL AMOUNTS MAY BE MADE OVER A
MINIMUM 18-MONTH PERIOD. NON-SYSTEMATIC TRANSFERS FROM THE GIA WILL BE
EFFECTUATED ON THE DATE OF RECEIPT BY VPMO, UNLESS OTHERWISE REQUESTED BY THE
CONTRACT OWNER.
68
<PAGE>
APPENDIX B
ILLUSTRATIONS OF DEATH BENEFITS, ACCUMULATION VALUES,
CASH VALUES AND ACCUMULATED PREMIUMS.
The tables illustrate how a Policy's death benefits, accumulation values and
cash values may vary over time assuming hypothetical gross (after tax)
investment return rates of 0%, 6% and 12%, i.e., the investment income and
capital gains and losses, realized or unrealized of the Fund is equivalent to
the assumed hypothetical gross annual investment return rates of 0%, 6% and 12%.
The tables are based on current or guaranteed mortality charges as indicated,
and on a single premium of $10,000.
1. The illustration on pages 70 and 71 is for a policy issued to a male
nonsmoker age 35 with the maximum amount of insurance under the contract.
2. The illustration on pages 72 and 73 is for a policy issued to a female
nonsmoker age 35 with the maximum amount of insurance under the contract.
3. The illustration on pages 74 and 75 is for a policy issued to a male
nonsmoker age 35 with the minimum amount of insurance under the contract.
4. The illustration on pages 76 and 77 is for a policy issued to a female
nonsmoker age 35 with the minimum amount of insurance under the contract.
The death benefits, accumulation values and cash values would be different
from those shown if the actual gross investment return averaged 0%, 6% or 12%,
but fluctuated above or below the averaged rate at various points in time. These
benefits and values also would change if the assumptions underlying the
illustrations (for example age of the Insured, Insured's smoking status, premium
amount paid or Target Face Amount selected) were different.
The death benefit, accumulation value and cash value amounts reflect the
following current or guaranteed maximum charges:
1. Acquisition Expense Charge (see "Charges and Deductions--Acquisition
Expense").
2. Cost of Insurance Charge (see "Charges and Deductions--Cost of Insurance").
3. Mortality and Expense Risk Charge, which is equal to .50%, on an annual
basis, of the net asset value of the VUL Account (see "Charges and
Deductions--Mortality and Expense Risk Charge").
These illustrations also assume an average investment advisory fee of .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 .26%. All other Fund expenses, except capital expenses, are assumed
by the Advisers or by Phoenix. Management may decide to limit the amount of
expense reimbursement in the future. If expense reimbursement had not been in
place for the fiscal year ended December 31, 1997, average total operating
expenses for the Series would have been approximately 1.01% of the average net
assets.
Taking into account the Mortality and Expense Risk Charge and the investment
advisory fees and expenses, the gross annual investment return rates of 0%, 6%
and 12% on the Funds' assets are equivalent to net annual investment return
rates of approximately -1.50%, 4.47% and 10.44%, respectively.
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the VUL Account in the future. If such Tax Charges
are imposed in the future, then in order to produce after tax returns equal to
those illustrated for 0%, 6% and 12%, a sufficiently higher amount in excess of
the hypothetical interest rates would have to be earned. (See "Charges and
Deduction--Other Charges--Taxes.")
The second column of each table shows the amount that would accumulate if an
amount equal to the Single Premium were invested to earn interest, after taxes,
at 5% compounded annually.
A comparable illustration based on a proposed Insured's age and sex and a
proposed Death Benefit and single premium is available upon request. In states
where cost of insurance rates are not based on the insured's sex, the tables
designated "male" apply to all standard risk insureds who are nonsmokers.
69
<PAGE>
<TABLE>
<CAPTION>
PAGE 1 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $53,815
MINIMUM FACE AMOUNT RIDER: $0
MALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING CURRENT CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,730 8,975 50,883 10,322 9,567 53,953 10,914 10,159 57,008
2 11,025 9,465 8,794 47,867 10,657 9,986 54,071 11,920 11,249 60,610
3 11,576 9,205 8,617 45,037 11,005 10,418 54,164 13,025 12,437 64,353
4 12,155 8,948 8,445 42,381 11,366 10,863 54,235 14,239 13,736 68,253
5 12,763 8,696 8,276 39,890 11,740 11,321 54,286 15,573 15,154 72,323
6 13,401 8,440 8,105 37,524 12,119 11,783 54,278 17,025 16,689 76,517
7 14,071 8,189 7,937 35,304 12,510 12,258 54,251 18,617 18,365 80,900
8 14,775 7,927 7,759 33,168 12,892 12,724 54,121 20,328 20,160 85,349
9 15,513 7,669 7,585 31,163 13,286 13,202 53,969 22,199 22,115 89,990
10 16,289 7,416 7,416 29,287 13,692 13,692 53,807 24,248 24,248 94,851
11 17,103 7,237 7,237 27,482 14,171 14,171 53,552 26,530 26,530 99,796
12 17,959 7,060 7,060 25,785 14,663 14,663 53,291 29,020 29,020 104,985
13 18,857 6,886 6,886 24,193 15,168 15,168 53,031 31,737 31,737 110,444
14 19,799 6,715 6,715 22,700 15,688 15,688 52,774 34,699 34,699 116,189
15 20,789 6,546 6,546 21,299 16,221 16,221 52,518 37,930 37,930 122,234
16 21,829 6,381 6,381 19,985 16,769 16,769 52,265 41,451 41,451 128,597
17 22,920 6,217 6,217 18,753 17,330 17,330 52,014 45,285 45,285 135,293
18 24,066 6,056 6,056 17,597 17,903 17,903 51,767 49,458 49,458 142,347
19 25,270 5,897 5,897 16,513 18,489 18,489 51,524 53,995 53,995 149,774
20 26,533 5,739 5,739 15,497 19,086 19,086 51,285 58,923 58,923 157,598
@ 65 43,219 4,139 4,139 7,766 26,297 26,297 49,098 149,617 149,617 278,050
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.51%
(includes average fund operating expenses of 1.01% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
Assumes premium tax of 2.25%.
70
<PAGE>
<TABLE>
<CAPTION>
PAGE 2 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $53,815
MINIMUM FACE AMOUNT RIDER: $0
MALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING GUARANTEED CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,694 8,939 50,695 10,284 9,529 53,754 10,874 10,119 56,799
2 11,025 9,395 8,724 47,499 10,577 9,906 53,656 11,830 11,159 60,147
3 11,576 9,101 8,514 44,509 10,880 10,293 53,532 12,876 12,289 63,607
4 12,155 8,812 8,309 41,712 11,192 10,689 53,385 14,020 13,517 67,188
5 12,763 8,528 8,109 39,096 11,513 11,094 53,215 15,271 14,851 70,903
6 13,401 8,249 7,914 36,650 11,843 11,508 53,025 16,637 16,301 74,760
7 14,071 7,975 7,723 34,361 12,182 11,931 52,816 18,129 17,877 78,771
8 14,775 7,704 7,536 32,220 12,530 12,363 52,590 19,757 19,590 82,947
9 15,513 7,438 7,354 30,218 12,887 12,803 52,348 21,535 21,451 87,300
10 16,289 7,176 7,176 28,344 13,254 13,254 52,092 23,476 23,476 91,842
11 17,103 7,001 7,001 26,590 13,715 13,715 51,829 25,681 25,681 96,601
12 17,959 6,829 6,829 24,944 14,188 14,188 51,567 28,086 28,086 101,606
13 18,857 6,660 6,660 23,399 14,675 14,675 51,307 30,709 30,709 106,871
14 19,799 6,493 6,493 21,951 15,175 15,175 51,048 33,570 33,570 112,408
15 20,789 6,329 6,329 20,592 15,687 15,687 50,791 36,687 36,687 118,232
16 21,829 6,167 6,167 19,317 16,213 16,213 50,535 40,084 40,084 124,359
17 22,920 6,008 6,008 18,121 16,751 16,751 50,280 43,781 43,781 130,802
18 24,066 5,850 5,850 17,000 17,301 17,301 50,026 47,800 47,800 137,579
19 25,270 5,694 5,694 15,947 17,860 17,860 49,773 52,167 52,167 144,707
20 26,533 5,540 5,540 14,960 18,429 18,429 49,522 54,904 56,904 152,205
@ 65 43,219 3,947 3,947 7,407 25,084 25,084 46,841 142,736 142,736 265,308
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.51%
(includes average fund operating expenses of 1.01% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
71
<PAGE>
<TABLE>
<CAPTION>
PAGE 1 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $61,546
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
FEMALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING CURRENT CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,729 8,974 58,194 10,321 9,566 61,704 10,913 10,158 65,199
2 11,025 9,463 8,792 54,752 10,655 9,984 61,848 11,917 11,246 69,327
3 11,576 9,201 8,614 51,524 11,001 10,414 61,966 13,019 12,432 73,623
4 12,155 8,943 8,439 48,497 11,359 10,856 62,061 14,230 13,727 78,102
5 12,763 8,688 8,269 45,659 11,730 11,311 62,137 15,559 15,140 82,782
6 13,401 8,430 8,094 42,962 12,103 11,768 62,144 17,003 16,667 87,607
7 14,071 8,175 7,923 40,432 12,488 12,237 62,132 18,585 18,333 92,652
8 14,775 7,908 7,740 37,993 12,861 12,693 61,995 20,278 20,111 97,766
9 15,513 7,645 7,561 35,703 13,244 13,160 61,832 22,130 22,046 103,100
10 16,289 7,387 7,387 33,557 13,639 13,639 61,653 24,154 24,154 108,683
11 17,103 7,201 7,201 31,485 14,102 14,102 61,352 26,402 26,402 114,333
12 17,959 7,019 7,019 29,536 14,579 14,579 61,043 28,854 28,854 120,257
13 18,857 6,841 6,841 27,707 15,069 15,069 60,735 31,529 31,529 126,489
14 19,799 6,665 6,665 25,992 15,573 15,573 60,428 34,445 34,445 133,042
15 20,789 6,494 6,494 24,383 16,091 16,091 60,123 37,625 37,625 139,936
16 21,829 6,325 6,325 22,875 16,623 16,623 59,824 41,091 41,091 147,197
17 22,920 6,160 6,160 21,463 17,171 17,171 59,532 44,872 44,872 154,849
18 24,066 5,999 5,999 20,140 17,736 17,736 59,250 48,996 48,996 162,924
19 25,270 5,842 5,842 18,904 18,317 18,317 58,983 53,492 53,492 171,458
20 26,533 5,687 5,687 17,746 18,914 18,914 58,727 58,394 58,394 180,469
@ 65 43,219 4,153 4,153 8,806 26,386 26,386 55,672 150,125 150,125 315,281
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.51%
(includes average fund operating expenses of 1.01% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
72
<PAGE>
<TABLE>
<CAPTION>
PAGE 2 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $61,546
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
FEMALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING GUARANTEED CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,693 8,938 57,974 10,282 9,527 61,472 10,872 10,117 64,954
2 11,025 9,391 8,720 54,318 10,573 9,902 61,360 11,825 11,154 68,783
3 11,576 9,094 8,506 50,899 10,872 10,284 61,219 12,866 12,279 72,740
4 12,155 8,801 8,298 47,701 11,178 10,675 61,050 14,003 13,500 76,836
5 12,763 8,513 8,094 44,709 11,493 11,073 60,856 15,243 14,824 81,084
6 13,401 8,229 7,894 41,911 11,815 11,479 60,639 16,597 16,261 85,496
7 14,071 7,949 7,698 39,294 12,143 11,892 60,400 18,071 17,819 90,083
8 14,775 7,673 7,505 36,846 12,479 12,312 60,141 19,677 19,510 94,859
9 15,513 7,401 7,317 34,556 12,824 12,740 59,865 21,429 21,345 99,838
10 16,289 7,134 7,134 32,414 13,176 13,176 59,572 23,339 23,339 105,033
11 17,103 6,955 6,955 30,407 13,624 13,624 59,271 25,511 25,511 110,475
12 17,959 6,779 6,779 28,525 14,084 14,084 58,972 27,881 27,881 116,199
13 18,857 6,607 6,607 26,759 14,558 14,558 58,675 30,465 30,465 122,220
14 19,799 6,437 6,437 25,102 15,044 15,044 58,379 33,283 33,283 128,553
15 20,789 6,271 6,271 23,548 15,545 15,545 58,084 36,355 36,355 135,213
16 21,829 6,108 6,108 22,090 16,058 16,058 57,791 39,702 39,702 142,219
17 22,920 5,948 5,948 20,723 16,585 16,585 57,499 43,347 43,347 149,588
18 24,066 5,790 5,790 19,440 17,124 17,124 57,209 47,315 47,315 157,339
19 25,270 5,635 5,635 18,237 17,675 17,675 56,920 51,628 51,628 165,491
20 26,533 5,482 5,482 17,108 18,239 18,239 56,633 56,319 56,319 174,066
@ 65 43,219 3,995 3,995 8,470 25,389 25,389 53,567 144,476 144,476 303,417
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.51%
(includes average fund operating expenses of 1.01% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
73
<PAGE>
<TABLE>
<CAPTION>
PAGE 1 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $39,392
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
MALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING CURRENT CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,742 8,987 37,573 10,335 9,580 39,840 10,927 10,172 42,095
2 11,025 9,488 8,817 35,639 10,683 10,012 40,257 11,948 11,277 45,125
3 11,576 9,238 8,651 33,810 11,045 10,458 40,661 13,072 12,485 48,309
4 12,155 8,992 8,488 32,080 11,421 10,918 41,051 14,309 13,805 51,660
5 12,763 8,749 8,330 30,445 11,813 11,393 41,430 15,669 15,250 55,193
6 13,401 8,505 8,170 28,883 12,212 11,877 41,777 17,156 16,821 58,891
7 14,071 8,265 8,013 27,406 12,626 12,375 42,111 18,790 18,539 62,794
8 14,775 8,018 7,850 25,980 13,040 12,872 42,389 20,561 20,393 66,843
9 15,513 7,774 7,691 24,630 13,467 13,384 42,652 22,503 22,419 71,114
10 16,289 7,535 7,535 23,356 13,910 13,910 42,907 24,633 24,633 75,631
11 17,103 7,372 7,372 22,125 14,435 14,435 43,108 27,024 27,024 80,330
12 17,959 7,212 7,212 20,957 14,977 14,977 43,307 29,640 29,640 85,312
13 18,857 7,053 7,053 19,850 15,536 15,536 43,507 32,503 32,503 90,603
14 19,799 6,897 6,897 18,802 16,112 16,112 43,708 35,636 35,636 96,224
15 20,789 6,743 6,743 17,810 16,707 16,707 43,911 39,063 39,063 102,194
16 21,829 6,591 6,591 16,870 17,320 17,320 44,114 42,811 42,811 108,536
17 22,920 6,441 6,441 15,980 17,951 17,951 44,320 46,906 46,906 115,274
18 24,066 6,292 6,292 15,138 18,600 18,600 44,529 51,379 51,379 122,435
19 25,270 6,145 6,145 14,340 19,266 19,266 44,740 56,260 56,260 130,046
20 26,533 5,999 5,999 13,586 19,949 19,949 44,954 61,584 61,584 138,136
@ 65 43,219 4,497 4,497 7,539 28,566 28,566 47,658 162,519 162,519 269,877
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.51%
(includes average fund operating expenses of 1.01% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
74
<PAGE>
<TABLE>
<CAPTION>
PAGE 2 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $39,392
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
MALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING GUARANTEED CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,717 8,962 37,478 10,308 9,553 39,740 10,900 10,145 41,990
2 11,025 9,440 8,769 35,452 10,628 9,957 40,047 11,887 11,216 44,890
3 11,576 9,166 8,579 33,539 10,959 10,372 40,336 12,970 12,383 47,925
4 12,155 8,898 8,394 31,733 11,301 10,798 40,609 14,158 13,655 51,107
5 12,763 8,633 8,214 30,028 11,655 11,236 40,867 15,460 15,040 54,447
6 13,401 8,372 8,037 28,418 12,020 11,685 41,110 16,886 16,551 57,957
7 14,071 8,115 7,863 26,899 12,397 12,146 41,340 18,449 18,197 61,649
8 14,775 7,862 7,694 25,465 12,786 12,618 41,557 20,161 19,993 65,538
9 15,513 7,612 7,528 24,111 13,187 13,103 41,761 22,035 21,951 69,637
10 16,289 7,365 7,365 22,833 13,600 13,600 41,955 24,087 24,087 73,962
11 17,103 7,206 7,206 21,625 14,111 14,111 42,143 26,421 26,421 78,539
12 17,959 7,048 7,048 20,480 14,639 14,639 42,332 28,975 28,975 83,400
13 18,857 6,892 6,892 19,397 15,184 15,184 42,521 31,770 31,770 88,561
14 19,799 6,739 6,739 18,370 15,745 15,745 42,712 34,828 34,828 94,042
15 20,789 6,587 6,587 17,398 16,324 16,324 42,904 38,171 38,171 99,862
16 21,829 6,437 6,437 16,477 16,920 16,920 43,096 41,826 41,826 106,042
17 22,920 6,289 6,289 15,605 17,533 17,533 43,289 45,819 45,819 112,605
18 24,066 6,143 6,143 14,779 18,162 18,162 43,483 50,177 50,177 119,573
19 25,270 5,998 5,998 13,997 18,808 18,808 43,678 54,930 54,930 126,973
20 26,533 5,854 5,854 13,257 19,469 19,469 43,874 60,109 60,109 134,831
@ 65 43,219 4,347 4,347 7,289 27,621 27,621 46,086 157,155 157,155 261,005
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.51%
(includes average fund operating expenses of 1.01% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
75
<PAGE>
<TABLE>
<CAPTION>
PAGE 1 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $44,121
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
FEMALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING CURRENT CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,742 8,987 42,084 10,334 9,579 44,623 10,927 10,172 47,150
2 11,025 9,487 8,816 39,920 10,682 10,011 45,093 11,947 11,276 50,546
3 11,576 9,236 8,649 37,875 11,043 10,456 45,549 13,070 12,483 54,117
4 12,155 8,989 8,486 35,941 11,418 10,915 45,992 14,305 13,802 57,878
5 12,763 8,745 8,326 34,114 11,808 11,388 46,423 15,663 15,243 61,845
6 13,401 8,500 8,164 32,369 12,204 11,869 46,818 17,145 16,810 65,998
7 14,071 8,257 8,006 30,719 12,615 12,363 47,201 18,774 18,522 70,384
8 14,775 8,008 7,840 29,123 13,023 12,855 47,517 20,534 20,366 74,931
9 15,513 7,761 7,677 27,613 13,444 13,361 47,817 22,464 22,380 79,727
10 16,289 7,519 7,519 26,186 13,880 13,880 48,106 24,580 24,580 84,797
11 17,103 7,352 7,352 24,804 14,396 14,396 48,327 26,950 26,950 90,055
12 17,959 7,188 7,188 23,491 14,928 14,928 48,544 29,544 29,544 95,629
13 18,857 7,027 7,027 22,248 15,478 15,478 48,762 32,383 32,383 101,547
14 19,799 6,868 6,868 21,070 16,045 16,045 48,980 35,488 35,488 107,831
15 20,789 6,712 6,712 19,955 16,631 16,631 49,200 38,886 38,886 114,505
16 21,829 6,559 6,559 18,900 17,236 17,236 49,423 42,602 42,602 121,597
17 22,920 6,408 6,408 17,902 17,860 17,860 49,651 46,669 46,669 129,138
18 24,066 6,260 6,260 16,958 18,505 18,505 49,884 51,117 51,117 137,161
19 25,270 6,115 6,115 16,067 19,171 19,171 50,128 55,984 55,984 145,707
20 26,533 5,972 5,972 15,225 19,859 19,859 50,378 61,306 61,306 154,804
@ 65 43,219 4,527 4,527 8,385 28,761 28,761 53,006 163,624 163,624 300,164
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.51%
(includes average fund operating expenses of 1.01% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
76
<PAGE>
<TABLE>
<CAPTION>
PAGE 2 OF 2
PREMIUM: $10,000
TARGET FACE AMOUNT: $44,121
MINIMUM FACE AMOUNT RIDER: $0
1035 EXCHANGE FUND APPLIED (INCL. IN PREM.): $0
FEMALE 35 NONSMOKER
THE PHOENIX EDGE--A VARIABLE UNIVERSAL LIFE POLICY
ASSUMING GUARANTEED CHARGES
CASH CASH CASH
PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR @ 5% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- ---------- --------- --------- ----------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,717 8,962 41,978 10,308 9,553 44,510 10,899 10,144 47,031
2 11,025 9,438 8,767 39,708 10,627 9,956 44,854 11,885 11,214 50,279
3 11,576 9,164 8,576 37,565 10,956 10,369 45,179 12,966 12,379 53,679
4 12,155 8,893 8,390 35,542 11,295 10,792 45,485 14,150 13,647 57,243
5 12,763 8,626 8,207 33,633 11,645 11,226 45,773 15,447 15,027 60,984
6 13,401 8,362 8,027 31,830 12,006 11,671 46,046 16,866 16,531 64,915
7 14,071 8,102 7,850 30,129 12,377 12,125 46,303 18,419 18,167 69,051
8 14,775 7,845 7,677 28,522 12,759 12,591 46,546 20,118 19,950 73,407
9 15,513 7,592 7,508 27,006 13,152 13,068 46,775 21,977 21,893 77,999
10 16,289 7,342 7,342 25,574 13,557 13,557 46,992 24,011 24,011 82,843
11 17,103 7,180 7,180 24,221 14,061 14,061 47,203 26,326 26,326 87,970
12 17,959 7,020 7,020 22,939 14,581 14,581 47,414 28,860 29,860 93,414
13 18,857 6,862 6,862 21,725 15,118 15,118 47,627 31,633 31,633 99,195
14 19,799 6,707 6,707 20,575 15,672 15,672 47,840 34,666 34,666 105,334
15 20,789 6,555 6,555 19,487 16,244 16,244 48,055 37,985 37,985 111,853
16 21,829 6,404 6,404 18,455 16,833 16,833 48,270 41,613 41,613 118,775
17 22,920 6,256 6,256 17,479 17,441 17,441 48,486 45,580 45,580 126,126
18 24,066 6,110 6,110 16,554 18,067 18,067 48,704 49,913 49,913 133,931
19 25,270 5,966 5,966 15,678 18,709 18,709 48,922 54,642 54,642 142,220
20 26,533 5,824 5,824 14,848 19,370 19,370 49,141 59,805 59,805 151,021
@ 65 43,219 4,408 4,408 8,164 28,008 28,008 51,620 159,364 159,364 292,349
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
Death benefit, accumulation value and Cash Value are based on the hypothetical
gross percentage rates shown, assume current and guaranteed mortality charges,
no policy loans or withdrawals have been made, and are calculated at the end of
the Policy Year. Values shown reflect an effective annual asset charge of 1.51%
(includes average fund operating expenses of 1.01% and mortality and expense
risk charge of 0.5%). Hypothetical gross percentage rates are illustrative only
and do not in any way represent actual results or suggest that such results will
be achieved in the future. Actual values will differ from those shown whenever
actual investment results differ from hypothetical rates illustrated.
Assumes premium tax of 2.25%.
77
