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 and February 1, 1999
This Prospectus describes a last survivor flexible premium variable life
insurance policy (the "Policy" or "Policies"), offered by Phoenix Home Life
Mutual Insurance Company ("Phoenix"). The Policy provides lifetime insurance
protection on the lives of two Insureds, with a death benefit payable when the
last surviving insured person dies. You may select either a fixed benefit equal
to the Face Amount of the Policy or a variable benefit which is equal to the
Face Amount plus the Policy Value. Within limits, you may reduce the Face Amount
and change the death benefit option. The Policy also may provide a Cash
Surrender Value if the Policy is surrendered during the lifetime of either
Insured.
You decide the amount and timing of premiums within limits. There are no
required premiums other than the Issue Premium. You may allocate premium
payments and Policy Value to the Guaranteed Interest Account ("GIA") and or one
or more of the Subaccounts of the Phoenix Home Life Variable Universal Life
Account (the "VUL Account"). The assets of the Subaccounts are used to purchase,
at Net Asset Value, shares of a designated underlying mutual fund (collectively,
the "Funds") in the following series of underlying VUL Account Fund options:
<TABLE>
<CAPTION>
==============================================================================================================
SERIES ADVISER
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THE PHOENIX EDGE SERIES FUND
<S> <C> <C>
[bullet] Aberdeen New Asia [square] Phoenix-Aberdeen International
Advisors, LLC
[bullet] Balanced [square] Phoenix Investment Counsel, Inc.
[bullet] Engemann Nifty Fifty [square] Phoenix Investment Counsel, Inc.
[bullet] Growth [square] Phoenix Investment Counsel, Inc.
[bullet] International [square] Phoenix Investment Counsel, Inc.
[bullet] Money Market [square] Phoenix Investment Counsel, Inc.
[bullet] Multi-Sector Fixed Income [square] Phoenix Investment Counsel, Inc.
[bullet] Phoenix Growth & Income [square] Phoenix Investment Counsel, Inc.
[bullet] Phoenix Value Equity [square] Phoenix Investment Counsel, Inc.
[bullet] Real Estate Securities [square] Duff & Phelps Investment Management Co.
[bullet] Research Enhanced Index [square] Phoenix Investment Counsel, Inc.
[bullet] Schafer Mid-Cap Value [square] Phoenix Investment Counsel, Inc.
[bullet] Seneca Mid-Cap Growth [square] Phoenix Investment Counsel, Inc.
[bullet] Strategic Allocation [square] Phoenix Investment Counsel, Inc.
[bullet] Strategic Theme [square] Phoenix Investment Counsel, Inc.
TEMPLETON VARIABLE PRODUCTS SERIES FUND
[bullet] Mutual Shares Investments [square] Franklin Mutual Advisers, Inc.
[bullet] Templeton Asset Allocation [square] Templeton Investment Counsel, Inc.
[bullet] Templeton Developing Markets [square] Templeton Asset Management, Ltd.
[bullet] Templeton International [square] Templeton Investment Counsel, Inc.
[bullet] Templeton Stock [square] Templeton Investment Counsel, Inc.
WANGER ADVISORS TRUST
[bullet] Wanger Foreign Forty [square] Wanger Asset Management, L.P.
[bullet] Wanger International Small Cap [square] Wanger Asset Management, L.P.
[bullet] Wanger Twenty [square] Wanger Asset Management, L.P.
[bullet] Wanger U.S. Small Cap [square] Wanger Asset Management, L.P.
==============================================================================================================
</TABLE>
The Policy Value allocated to the VUL Account is not guaranteed and will
vary with the investment performance of the underlying Fund. The Policy Value
allocated to the GIA will accumulate at rates we determine. The guaranteed rate
credited to the Policy Value in the GIA will, in no
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event, be less than 4%. The Policy will remain in effect so long as the Policy
Value or Cash Surrender Value is sufficient to pay certain monthly charges
imposed in connection with the Policy.
The Policy has a free look period during which you may return the Policy if
you are not satisfied for any reason. (See "Right to Cancel Period.")
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 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 INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
Heading Page
- ---------------------------------------------------------------
VARIABLE LIFE INSURANCE POLICY ........................... 1
TABLE OF CONTENTS ........................................ 3
SPECIAL TERMS ............................................ 4
SUMMARY................................................... 5
PERFORMANCE HISTORY....................................... 6
PHOENIX AND THE VUL ACCOUNT .............................. 7
Phoenix ............................................... 7
The VUL Account ....................................... 8
The GIA................................................ 8
THE POLICY ............................................... 8
Introduction .......................................... 8
Eligible Purchasers ................................... 8
Flexible Premiums ..................................... 8
Allocation of Premium and Policy Value ................ 9
Right to Cancel Period ................................ 9
Temporary Insurance Coverage .......................... 9
Transfer of Policy Value .............................. 9
Determination of Subaccount Values .................... 10
Death Benefit ......................................... 11
Surrenders ............................................ 11
Policy Loans .......................................... 12
Lapse ................................................. 12
Additional Insurance Options .......................... 13
Additional Rider Benefits ............................. 13
INVESTMENTS OF THE VUL ACCOUNT ........................... 14
Participating Investment Funds ........................ 14
Investment Advisers.................................... 15
Services of the Advisers............................... 16
Reinvestment and Redemption ........................... 16
Substitution of Investments ........................... 16
CHARGES AND DEDUCTIONS ................................... 16
Premium Sales Charge................................... 16
Monthly Deduction ..................................... 16
Premium Taxes ......................................... 17
Federal Tax Charge..................................... 17
Mortality and Expense Risk Charge ..................... 17
Investment Management Charge .......................... 17
Other Charges ......................................... 18
GENERAL PROVISIONS ....................................... 18
Postponement of Payments .............................. 18
The Contract .......................................... 18
Suicide ............................................... 18
Incontestability ...................................... 19
Change of Owner or Beneficiary ........................ 19
Assignment ............................................ 19
Misstatement of Age or Sex ............................ 19
Surplus ............................................... 19
PAYMENT OF PROCEEDS ...................................... 19
Surrender and Death Benefit Proceeds .................. 19
Payment Options ....................................... 19
FEDERAL TAX CONSIDERATIONS ............................... 20
Introduction .......................................... 20
Phoenix's Tax Status .................................. 20
Policy Benefits ....................................... 20
Business-Owned Policies................................ 21
Modified Endowment Contracts .......................... 21
Limitations on Unreasonable Mortality
and Expense Charges ................................ 21
Qualified Plans ....................................... 22
Diversification Standards ............................. 22
Change of Ownership or Insured or Assignment .......... 22
Other Taxes ........................................... 22
VOTING RIGHTS ............................................ 22
The Funds ............................................. 22
Phoenix ............................................... 22
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX .......... 23
SAFEKEEPING OF THE VUL ACCOUNT'S ASSETS .................. 23
SALES OF POLICIES ........................................ 24
STATE REGULATION ......................................... 24
REPORTS .................................................. 24
LEGAL PROCEEDINGS ........................................ 24
LEGAL MATTERS ............................................ 24
REGISTRATION STATEMENT ................................... 24
YEAR 2000 ISSUE........................................... 24
FINANCIAL STATEMENTS ..................................... 25
APPENDIX A ............................................... 68
APPENDIX B ............................................... 69
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESPERSON OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
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SPECIAL TERMS
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As used in this Prospectus, the following terms have the indicated meanings:
ATTAINED AGE: The age of the Insured on the birthday nearest the most recent
Policy Anniversary.
BENEFICIARY: The person or persons specified by the Policyowner as entitled to
receive the death benefits under a Policy.
CASH SURRENDER VALUE: The Policy Value less any surrender charge that would
apply on the date of surrender and less any Debt.
DEATH BENEFIT GUARANTEE: An additional benefit rider available with the Policy
that guarantees a death benefit equal to the initial Face Amount or the Face
Amount as later increased or decreased, provided that Minimum Required Premiums
are paid. See "Additional Rider Benefits."
DEBT: Outstanding loans against a Policy, plus accrued interest on any
outstanding loans.
FACE AMOUNT: The initial amount of insurance coverage.
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 (GUARANTEED INTEREST ACCOUNT): An allocation option under which amounts
deposited are guaranteed to earn a fixed rate of interest. Excess interest also
may be credited, in the sole discretion of Phoenix.
IN FORCE: Conditions under which the coverage under a Policy is in effect and
the Insureds' lives remain insured.
INSUREDS: The two persons on whose lives the Policy is issued.
ISSUE PREMIUM: The premium payment made in connection with the issue of the
Policy.
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.
NET ASSET VALUE: The worth of one share of a Series of a Fund at the end of a
valuation period. Net Asset Value is computed by adding the value of all a
Series' holdings plus other assets, minus liabilities and then dividing the
result by the number of shares outstanding.
NON-TRANSFERABLE GENERAL ACCOUNT ("NTGA"): A part of the General Account. The
cash value in the NTGA cannot decrease due to investment performance, but may
decrease due to deductions for policy charges. Interest is credited to the NTGA
at rates declared by Phoenix, but not less than 4%.
OWNER (POLICYOWNER, YOU, YOUR): The person(s) who purchase(s) a Policy.
PAYMENT DATE: The Valuation Date on which a premium payment or loan repayment is
received at Phoenix, unless it is received after the close of the New York Stock
Exchange ("NYSE"), in which case it will be the next Valuation Date.
PLANNED ANNUAL PREMIUM: The premium amount that the Policyowner agrees to pay
each Policy Year. It must be at least equal to the minimum premium required for
the Face Amount of insurance selected and must be no greater than the maximum
premium allowed for the Face Amount selected.
POLICY ANNIVERSARY: Each anniversary of the Policy Date.
POLICY DATE: The Policy Date as shown on the Schedule Page of the Policy. It is
the date from which Policy Years and Policy Anniversaries are measured.
POLICY MONTH: The period from one Monthly Calculation Day up to, but not
including, the next Monthly Calculation Day.
POLICY VALUE: The sum of a Policy's share in the values of each Subaccount of
the VUL Account plus the Policy's share in the values of the GIA.
POLICY YEAR: The first Policy Year is the one-year period from the Policy Date
up to, but not including, the first Policy Anniversary. Each succeeding Policy
Year is the one-year period from the Policy Anniversary up to, but not
including, the next Policy Anniversary.
PROPORTIONATE (PRO RATA): Amounts allocated to Subaccounts on a pro rata basis
are allocated by increasing (or decreasing) a Policy's share in the value of the
affected Subaccounts and GIA 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 the VUL Account to which non-loaned assets under a
Policy are allocated.
UNIT: A standard of measurement used in determining the value of a Policy. The
value of a Unit for each Subaccount will reflect the investment performance of
that Subaccount and will vary in dollar amount.
VALUATION DATE: For any Subaccount, each date on which the net asset value of
the Fund is determined.
VALUATION PERIOD: For any Subaccount, the period in days from the end of one
Valuation Date through the next.
VPMO: The Variable Products Mail Operations division of Phoenix that receives
and processes incoming mail for Variable Products Operations.
VPO: Variable Products Operations.
VUL ACCOUNT (ACCOUNT): Phoenix Home Life Variable Universal Life Account.
WE (OUR, US, COMPANY, PHOENIX): Phoenix Home Life Mutual Insurance Company,
Hartford, Connecticut.
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SUMMARY
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The following summary of Prospectus information of the Policy should be read
in conjunction with the detailed information appearing elsewhere in this
Prospectus. (See "Table of Contents" and "Special Terms.")
INVESTMENT FEATURES
FLEXIBLE PREMIUMS
You select a payment plan but are not required to pay premiums according to
the plan. You can vary the amount and frequency of your premium payments, within
limits. Other than the Issue Premium, there are no scheduled or required premium
payments. (However, under certain conditions, additional premiums may be
required to keep a Policy In Force.) See "Flexible Premiums."
ALLOCATION OF PREMIUMS AND POLICY VALUE
After certain charges are deducted from your premium payment, the balance
will be invested in one or more of the Subaccounts of the VUL Account and/or the
GIA. The assets of the Subaccounts are used to purchase, at Net Asset Value,
shares of a designated Fund. You also may change your allocation to the various
investment options by changing your allocation percentages or by making
transfers among the Subaccounts of the VUL Account and the GIA.
IN GENERAL, YOU CAN MAKE ONLY ONE TRANSFER PER YEAR FROM THE GIA. THE AMOUNT
THAT CAN BE TRANSFERRED OUT IS LIMITED TO THE GREATER OF $1,000 OR 25% OF THE
POLICY VALUE IN THE GIA AS OF THE DATE OF THE TRANSFER. IF YOU ELECT THE
SYSTEMATIC TRANSFER PROGRAM, APPROXIMATELY EQUAL AMOUNTS MAY BE TRANSFERRED OUT
OF THE GIA. ALSO, THE TOTAL POLICY VALUE ALLOCATED TO THE GIA MAY BE TRANSFERRED
OUT OF THE GIA TO ONE OR MORE OF THE SUBACCOUNTS OF THE VUL ACCOUNT OVER A
CONSECUTIVE FOUR-YEAR PERIOD ACCORDING TO THE FOLLOWING SCHEDULE:
YEAR ONE: 25% YEAR TWO: 33%
YEAR THREE: 50% YEAR FOUR: 100%
Transfers into the GIA and among the Subaccounts of the VUL Account may be
made at any time. Transfers from the GIA are subject to the rules discussed in
"Appendix A" and under "Transfer of Policy Value."
The Policy Value allocated to the VUL Account is not guaranteed and will
vary with the investment performance of the underlying Fund. The Policy Value
allocated to the GIA will depend on deductions taken from the GIA and accumulate
at rates we determine (4% minimum).
REDEMPTIONS
o Generally, loans may be taken against 90% of the Policy's Cash Surrender
Value subject to certain conditions, at a net interest rate of 2%,
declining to 1% after the first 10 Policy Years and .50% after Policy Year
15. Loan interest accrues daily at a rate determined annually and is
payable in arrears. See "Policy Loans."
o Partial surrenders may be taken at any time, provided there is sufficient
Cash Surrender Value remaining. An administrative transaction charge of
the lesser of $25 or 2% of the partial surrender amount will apply.
o You may fully surrender this Policy at any time for its Cash Surrender
Value (Policy Value less any applicable surrender charge and any loan and
accrued interest). See "Surrenders."
INSURANCE PROTECTION FEATURES
DEATH BENEFITS
o Both a fixed and variable benefit is available under the Policy. The fixed
benefit is equal to the Policy's Face Amount (Option A), and the variable
benefit equals the Face Amount plus the Policy Value (Option B).
o After the first year, you may reduce the Face Amount, within limits.
Generally, the minimum Face Amount is $250,000.
o The death benefit is payable when the last surviving insured person dies
while the Policy is in effect. See "Death Benefit."
DEATH BENEFIT GUARANTEE
You may elect a guaranteed death benefit. The amount of the guaranteed death
benefit is equal to the initial Face Amount provided that certain minimum
payments are paid. The Death Benefit Guarantee may not be available in some
jurisdictions. You should check with your registered representative to determine
if the minimum guaranteed death benefit is available in your state.
DEATH BENEFIT AT ENDOWMENT
After age 100 of the younger Insured, the death benefit equals the Policy
Value, and no further monthly deductions will be made. This allows you to keep
the Policy In Force until the second death (if desired).
ADDITIONAL BENEFITS
The following additional benefits are available by rider: Disability
Benefit, Four Year Survivorship Term, Conditional Exchange Option and Policy
Split Option. Rider availability is subject to state approval.
DEDUCTIONS AND CHARGES
FROM PREMIUM PAYMENTS
o A 2.25% charge will be imposed on premiums for state premium taxes and
1.50% assessed against premiums for federal taxes. See "Premium Taxes."
o Premium sales charge in the first Policy Year is equal to 20% of premiums
paid up to one target annual premium ("TAP") and 5% of premiums paid in
excess of the TAP. The premium sales charge in Policy Years 2 through 10
is equal to 5% of premiums, declining to 0% after the 10th Policy Year.
See "Deductions and Charges" for a detailed discussion, including an
explanation of TAP.
FROM POLICY VALUE
o An issue expense charge of $600 is assessed in the first Policy Year only,
payable in monthly installments of $50.
o In Policy Years 1 through 10 only, a monthly administrative charge of $20
per month for policies with Face Amounts of less than or equal to
$400,000; $0.50 per $1,000 for Face Amounts of $400,001 up to $1,600,000
and $80 per month for Face Amounts greater than $1,600,000.
o A monthly cost of insurance charge will be assessed and, where applicable,
a monthly charge for any additional rider benefits.
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o A transaction charge may be imposed for partial withdrawals and certain
transfers.
o A surrender charge will apply if the Policy is surrendered within the
first 10 Policy Years. See "Surrender Charge."
o After the first 10 Policy Years there will be a monthly guaranteed minimum
death benefit charge equal to $0.01 per $1,000 of Face Amount for Policies
issued with a Guaranteed Death Benefit Rider.
FROM THE VUL ACCOUNT
A charge for certain mortality and expense risks of .80% annually for Policy
Years 1 through 15 declining to .25% in Policy Year 16 and thereafter.
FROM THE FUND
The assets of the VUL Account are used to purchase, at Net Asset Value,
shares of a designated underlying Fund. This Net Asset Value reflects investment
management fees and other direct expenses. See "Investment Management Charge."
VARIATIONS
Phoenix is subject to laws and regulations in every state in which the
Policy is sold. As a result, the terms of the Policy may vary from state to
state.
ADDITIONAL INFORMATION
CANCELLATION RIGHT
You have the right to examine the Policy. If you are not satisfied with it,
you may cancel the Policy within 10 days (or longer in some states), after you
receive the Policy, or 10 days after we mail or deliver a written notice telling
you about your right to cancel or within 45 days of completing the application,
whichever is latest. See "Right to Cancel Period."
LAPSE
The Policy will remain in effect so long as the Policy Value or Cash
Surrender Value is sufficient to pay certain monthly charges imposed in
connection with the Policy. You will be notified of an impending lapse situation
and be given the opportunity to maintain the Policy In Force by paying the
amount specified in the notice.
TAX EFFECTS
Generally, under current federal income tax law, death benefits are not
subject to income tax and Policy Value earnings are not subject to income tax
until there is a distribution from the Policy. Loans, partial surrenders or
Policy termination may result in recognition of income for tax purposes.
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, PREMIUM SALES CHARGES AND SURRENDER
CHARGES, IF APPLICABLE. FOR THIS INFORMATION SEE APPENDIX B "ILLUSTRATIONS OF
DEATH BENEFITS, POLICY VALUES AND CASH SURRENDER VALUES." Performance
information may be expressed as yield and effective yield of the Money Market
Subaccount, as yield of the Multi-Sector Subaccount and as total return of any
Subaccount. Current yield for the Money Market Subaccount will be based on the
income earned by the Subaccount over a given seven-day period (less a
hypothetical charge reflecting deductions for expenses taken during the period)
and then annualized, i.e., the income earned in the period is assumed to be
earned every seven days over a 52-week period and is stated in terms of an
annual percentage return on the investment. Effective yield is calculated
similarly but reflects the compounding effect of earnings on reinvested
dividends. Yield and effective yield reflect the Mortality and Expense Risk
charge on the VUL Account level.
Yield calculations of the Money Market Subaccount used for illustration
purposes are based on the consideration of a hypothetical participant's account
having a balance of exactly one Unit at the beginning of a seven-day period,
which period will end on the date of the most recent financial statements. The
yield for the Subaccount during this seven-day period will be the change in the
value of the hypothetical participant's account's original Unit. The following
is an example of this yield calculation for the Money Market Subaccount based on
a seven-day period ending December 31, 1997.
Example:
Assumptions:
Value of hypothetical pre-existing account with exactly one unit
at the beginning of the period:................................... 1.434924
Value of the same account (excluding capital changes) at the
end of the seven-day period:....................................... 1.435943
Calculation:
Ending account value .............................................. 1.435943
Less beginning account value ...................................... 1.434924
Net change in account value ....................................... 0.001019
Base period return:
(adjusted change/beginning account value) ......................... 0.000710
Current yield = return x (365/7) = .................................. 3.70%
Effective yield = [(1 + return)(365/7)] - 1 = ....................... 3.77%
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 VUL 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.
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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
---------------------------------------------------------
COMMENCEMENT SINCE
SUBACCOUNT DATE 1 YEAR 5 YEARS 10 YEARS INCEPTION
- ---------- ---- ------ ------- -------- ---------
Multi-Sector..... 1/1/83 9.98% 10.11% 9.88% 10.09%
Balanced......... 5/1/92 16.78% 10.19% N/A 10.61%
Allocation....... 9/17/84 19.55% 10.27% 11.24% 12.23%
Growth........... 1/1/83 19.83% 15.70% 16.48% 17.53%
International.... 5/1/90 10.99% 14.12% N/A 8.08%
Money Market..... 10/10/82 3.77% 3.53% 4.73% 5.49%
Real Estate...... 5/1/95 20.89% N/A N/A 26.41%
Theme............ 1/29/96 15.87% N/A N/A 13.17%
Asia............. 9/17/96 (33.10%) N/A N/A (26.83%)
Enhanced Index... 7/15/97 N/A N/A N/A 5.37%
U.S. Small Cap... 5/1/95 28.10% N/A N/A 33.50%
Int'l. Small Cap. 5/1/95 (2.48%) N/A N/A 22.32%
ANNUAL TOTAL RETURN*
--------------------
MULTI- ALLO- INTER- MONEY
YEAR SECTOR BALANCED CATION GROWTH NATIONAL MARKET
- ---- ------ -------- ------ ------ -------- ------
1983.... 5.16% N/A N/A 31.84% N/A 7.51%
1984.... 10.45% N/A (1.31%) 9.79% N/A 9.34%
1985.... 19.65% N/A 26.33% 33.85% N/A 7.17%
1986.... 18.34% N/A 14.77% 19.51% N/A 5.66%
1987.... 0.28% N/A 11.66% 6.08% N/A 5.67%
1988.... 9.61% N/A 1.53% 3.09% N/A 6.60%
1989.... 6.92% N/A 18.53% 34.53% N/A 8.03%
1990.... 4.54% N/A 5.15% 3.32% (8.59%) 7.51%
1991.... 18.66% N/A 28.27% 41.60% 18.79% 5.14%
1992.... 9.23% 9.06% 9.79% 9.41% (13.52%) 2.75%
1993.... 14.99% 7.75% 10.12% 18.75% 37.33% 2.06%
1994.... (6.21%) (3.61%) (2.19%) 0.66% (0.73%) 3.01%
1995.... 22.56% 22.37% 17.27% 29.85% 8.72% 4.86%
1996.... 11.52% 9.68% 8.18% 11.69% 17.71% 4.19%
1997.... 10.21% 17.00% 19.78% 20.06% 11.16% 3.98%
REAL U.S. INT'L. ENHANCED
YEAR ESTATE THEME ASIA SMALL CAP SMALL CAP INDEX
- ---- ------ ----- ---- --------- --------- -----
1995.... 17.19%** N/A N/A 16.01%** 33.96%** N/A
1996.... 32.06% 9.55%** (0.06%)** 45.64% 31.15% N/A
1997.... 21.12% 16.10% (32.94%) 28.34% (2.28%) 5.37%**
* Sales Charges have not been deducted from the Annual Total Return.
** From Inception.
Advertisements, sales literature and other communications may contain
information about any Series' or Adviser's current investment strategies and
management style. Current strategies and style may change to respond to a
changing market and economic conditions. From time to time, the Series may
discuss specific portfolio holdings or industries in such communications. To
illustrate components of overall performance, the Series may separate their
cumulative and average annual returns into income results and capital gains or
losses; or cite separately, as a return figure, the equity or bond portion of a
Series' portfolio; or compare a Series' equity or bond return figure to
well-known indices of market performance including, but not limited to, the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500"), Dow Jones
Industrial Average, First Boston High Yield Index and Salomon Brothers Corporate
and Government Bond Indices.
The VUL Account may, from time to time, include in advertisements containing
total return the ranking of those performance figures relative to such figures
for groups of Subaccounts having similar investment objectives as categorized by
ranking services such as Lipper Analytical Services, Inc., CDA Investment
Technologies, Inc., Weisenberger Financial Services, Inc. and Morningstar, Inc.
Additionally, the Funds may compare a Series' performance results to other
investment or savings vehicles (such as certificates of deposit) and may refer
to results published in various publications such as Changing Times, Forbes,
Fortune, Money, Barrons, Business Week, Investor's 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, Europe Australia Far East
Index (EAFE), Consumers Price Index, Shearson Lehman Corporate Index and
Shearson Lehman T-Bond Index. The S&P 500 is a commonly quoted market
value-weighted and unmanaged index showing the changes in the aggregate market
value of 500 common stocks relative to the base period 1940-43. The S&P 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 traded on
the NYSE.
The Funds' Annual Reports, available upon request and without charge,
contain a discussion of the performance of the Funds and a comparison of that
performance to a securities market index.
PHOENIX AND THE VUL ACCOUNT
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PHOENIX
Phoenix is a mutual life insurance company originally chartered in
Connecticut in 1851. It was redomiciled to New York in 1992. Its executive
office is located at One American Row, Hartford, Connecticut 06102, and its main
administrative office is located at 100 Bright
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Meadow Boulevard, Enfield, Connecticut 06083-1900. Its New York principal
office is located 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 $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 the 1940 Act. Such registration
does not involve supervision of the management of the VUL Account or Phoenix by
the SEC.
The VUL Account is divided into Subaccounts, each of which is available for
allocation of Policy Value. If in the future Phoenix determines that marketing
needs and investment conditions warrant, Phoenix may establish additional
Subaccounts, which will be made available to existing Policyowners to the extent
and on a basis determined by Phoenix. Each Subaccount will invest solely in
shares of a corresponding series of a mutual fund, each Series 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 allocated to the VUL Account depends on
the investment performance of the chosen Fund. Thus, the Policyowner bears the
full investment risk for all monies invested in the VUL Account.
The VUL Account is administered and accounted for as part of the general
business of Phoenix, but the income, gains or losses of the VUL Account are
credited to or charged against the assets held in the VUL Account, without
regard to other income, gains or losses of any other business Phoenix may
conduct. Under New York law, the assets of the VUL Account are not chargeable
with liabilities arising out of any other business Phoenix may conduct.
Nevertheless, all obligations arising under the Policy are general corporate
obligations of Phoenix.
THE GIA
The GIA is not part of the VUL Account. It is accounted for as part of the
General Account. Phoenix reserves the right to limit cumulative deposits,
including transfers, to the unloaned portion of the GIA to no more than $250,000
during any one-week period. Phoenix will credit interest daily on the amounts
allocated under the Policy to the GIA. The credited rate will be uniform by
class. The loaned portion of the GIA will be credited interest at an effective
annual fixed rate of 2% (4% in New York). Interest on the unloaned portion of
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 net premium
or transferred amounts deposited to the unloaned portion of the GIA. That rate
will remain in effect for such deposits for an initial guarantee period of one
full year from the date of deposit. Upon expiration of the initial one-year
guarantee period (and each subsequent one-year guarantee period thereafter), the
rate to be applied to any deposits whose guarantee period has just ended shall
be the same rate as is applied to new deposits allocated to the GIA at the time
that the guarantee period expired. This rate will likewise remain in effect for
a guaranteed period of one full year from the date the new rate is applied.
In general, you can make only one transfer per year from the GIA. The amount
that can be transferred out is limited to the greater of $1,000 or 25% of the
Policy Value in the GIA as of the date of the transfer. If you elect the
Systematic Transfer Program, approximately equal amounts may be transferred out
of the GIA. Also, the total Policy Value allocated to the GIA may be transferred
out of the GIA to one or more of the Subaccounts of the VUL Account over a
consecutive four-year period according to the following schedule:
Year One: 25% Year Two: 33%
Year Three: 50% Year Four: 100%
Transfers into the GIA and among the Subaccounts of the VUL Account may be
made at any time. Transfers from the GIA are subject to the rules discussed in
"Appendix A" and "Transfer of Policy Value."
THE POLICY
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INTRODUCTION
The Policy is a flexible premium variable life insurance policy issued on
the lives of two Insureds. The Policy has a death benefit, Cash Surrender Value
and loan privilege such as is associated with a traditional fixed benefit whole
life policy. The Policy differs from a fixed benefit whole life policy, however,
because the Policyowner specifies into which of several Subaccounts of the VUL
Account or the GIA net premium is to be allocated. Each Subaccount of the VUL
Account, in turn, invests its assets exclusively in a Series of the Funds. The
Policy Value varies according to the investment performance of the Series to
which Policy Value has been allocated.
ELIGIBLE PURCHASERS
Any person between the ages of 18 and 85 is eligible to be insured under a
newly purchased Policy after providing acceptable evidence of insurability. You
can purchase a Policy to insure the lives of two other individuals, provided
that you have an insurable interest in their lives, and the Insureds' consents.
Such a Policy could be purchased on the lives of spouses, family members,
business partners or other related groups.
FLEXIBLE PREMIUMS
The Issue Premium required depends on a number of factors, such as the ages,
sexes and rate class of the proposed Insureds, the desired Face Amount, any
supplemental benefits and the planned premiums you propose to make. The minimum
Issue Premium generally must be at least 1/6 of the Planned Annual Premium. Both
Insureds must be alive when the Issue Premium is paid, and it is due on the
Policy Date. After the Issue Premium is paid, although premiums are flexible,
the amount and frequency of Planned Annual Premiums are as shown on the Schedule
Page of the Policy. You
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determine the Planned Annual Premium (within limits set by us) when you apply
for the Policy. The Issue Premium should be paid to your registered
representative for forwarding to our Underwriting Department. Additional
payments should be sent to VPMO.
Any premium payments will be reduced by a 2.25% charge for state premium tax
and also reduced by a federal tax charge of 1.50%. The Issue Premium also will
be reduced by the issue expense charge on a pro rata basis in equal monthly
installments over a 12-month period. Any unpaid balance of the issue expense
charge will be paid to Phoenix upon Policy Lapse or termination.
Premium payments received during a grace period also will be reduced by the
amount needed to cover any monthly deductions during the grace period. The
remainder will be applied on the Payment Date to the various Subaccounts of the
VUL Account or to the GIA, based on the premium allocation schedule elected in
the application for the Policy or as later changed. See "Non-Systematic
Transfers and Changes in Payment Allocations."
The number of units credited to a Subaccount of the VUL Account will be
determined by dividing the portion of the net premium applied to that Subaccount
by the unit value of the Subaccount on the Payment Date.
You may increase or decrease the Planned Annual Premium amount (within
limits) or payment frequency at any time by written notice to VPMO. We reserve
the right to limit increases to such maximums as may be established from time to
time. Additional premium payments may be made at any time. Each premium payment
must at least equal $25 or, if made during a grace period, the payment must
equal the amount needed to prevent lapse of the Policy.
The Policy contains a total premium limit as shown on the Schedule Page.
This limit is applied to the sum of all premiums paid under the Policy. If the
total premium limit is exceeded, the Policyowner will receive the excess, with
interest at an annual rate of not less than 4%, not later than 60 days after the
end of the Policy Year in which the limit was exceeded. The Policy Value then
will be adjusted to reflect the refund. The amount to be taken from each
Subaccount or the GIA will be allocated in the same manner as provided for
monthly deductions unless you request otherwise in writing. The total premium
limit may be exceeded if additional premium is needed to prevent lapse or if we
determine that additional premium would be permitted by federal laws or
regulations.
You may authorize your bank to draw $25 or more monthly from your personal
checking account to be allocated among the available Subaccounts or the GIA. The
amount you choose will be automatically invested in accordance with your most
recent allocation schedule on file at VPO.
Policies sold to officers, directors and employees of Phoenix (and their
spouses and children) will be credited with an amount equal to the first-year
commission that would apply on the amount of premium contributed. This option
also is available to career agents of Phoenix (and their spouses and children).
ALLOCATION OF PREMIUM AND POLICY VALUE
We will generally allocate the Issue Premium less applicable charges to the
VUL Account or to the GIA upon receipt of a completed application, in accordance
with the allocation instructions in the application for the Policy. However,
Policies issued in certain states, and Policies issued which are intended to
replace existing insurance, are issued with a Temporary Money Market Allocation
Amendment. Under this Amendment, we temporarily allocate the entire Issue
Premium paid less applicable charges (along with any other premiums paid during
the Right to Cancel Period) to the Money Market Subaccount of the VUL Account,
and, at the expiration of the Right to Cancel Period, the Policy Value of the
Money Market Subaccount is allocated among the Subaccounts of the VUL Account or
to the GIA in accordance with your allocation instructions in the application
for insurance.
RIGHT TO CANCEL PERIOD
You may return a Policy by mailing or delivering it to us within 10 days
after you receive it (or longer in some states); within 10 days after we mail or
deliver a written notice of withdrawal right to you; or within 45 days after you
sign the application for insurance, whichever occurs latest (the "Right to
Cancel Period"). The returned Policy is treated as if we never issued the Policy
and, except for Policies issued without a Temporary Money Market Allocation
Amendment, we will return the sum of the following as of the date we receive the
returned Policy: (i) the then current Policy Value less any unpaid loans and
loan interest; plus (ii) any monthly deductions, partial surrender fees and
other charges made under the Policy, including investment advisory fees or any
Fund expenses deducted. The amount returned for Policies issued with the
Amendment will equal any premiums paid less any unrepaid loans and loan
interest, and less any partial surrender amounts paid.
We reserve the right to disapprove an application for processing within
seven days of our receipt of the completed application for insurance, in which
event we will return the premium paid. Even after approval of the application
for processing, we reserve the right to decline issuance of the Policy, in which
event we will refund to you 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, we issue a Temporary Insurance Receipt in connection with the
application. Under the Temporary Insurance Receipt, the insurance protection
applied for (subject to the limits of liability and in accordance with the terms
set forth in the Policy and in the Receipt) takes effect on the date of the
application.
TRANSFER OF POLICY VALUE
SYSTEMATIC TRANSFER PROGRAM
You may elect to transfer funds automatically among the Subaccounts or the
unloaned portion of the GIA on a monthly, quarterly, semiannual 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
semiannually or $300 annually. You 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
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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, you 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 Systematic Transfer Program, you can call VPO at
1-800-541-0171 to begin a new Systematic Transfer Program.
All transfers under the Systematic Transfer Program will be executed on the
basis of the respective values as of the first of the month following receipt of
the transfer request. If the first of the month falls on a holiday or weekend,
then the transfer will be processed on the next succeeding business day.
NON-SYSTEMATIC TRANSFERS AND CHANGES IN PAYMENT ALLOCATIONS
Transfers among available Subaccounts or the GIA and changes in premium
payment allocations may be requested in writing or by calling 1-800-541-0171,
between the hours of 8:30 a.m. and 4:00 p.m. Eastern Time. Written requests for
transfers will be executed on the date the request is received at VPMO.
Telephone transfers will be effective on the date the request is made except as
noted below. Unless you elect in writing not to authorize telephone transfers or
allocation changes, telephone transfer orders and allocation changes also will
be accepted on your behalf from your registered representative. Phoenix and
Phoenix Equity Planning Corporation ("PEPCO"), the national distributor for
Phoenix, will employ reasonable procedures to confirm that telephone
instructions are genuine. They will require verification of account information
and will record telephone instructions on tape. All telephone transfers will be
confirmed in writing to you. 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, you will bear the risk of loss resulting from instructions
entered by an unauthorized third party that Phoenix and PEPCO reasonably believe
to be genuine. These telephone transfer and allocation change privileges may be
modified or terminated at any time and during times of extreme market
volatility, may be difficult to exercise. In such cases, the Policyowner should
submit a written request.
Although currently there is no charge for transfers, in the future, we may
charge a fee of $10 for each transfer after the first two transfers in a Policy
Year.
We reserve the right to permit transfers of less than $500 only if the
entire balance in the Subaccount or the GIA is transferred or if the Systematic
Transfer Program has been elected.
We also reserve the right to prohibit a transfer to any Subaccount of the
VUL Account where the resultant value of the Policy's share in that Subaccount
immediately after the transfer would be less than $500. We further reserve the
right to require that the entire balance of a Subaccount or the GIA be
transferred if the share of the Policy in the value of that Subaccount would,
immediately after the transfer, be less than $500.
Unless we agree otherwise or the Systematic Transfer Program has been
elected, you may make only one transfer per Policy Year from the unloaned
portion of the GIA. The amount you may transfer cannot exceed the greater of
$1,000 or 25% of the value of the Policy in the unloaned portion of the GIA at
the time of the transfer. Also, the total Policy Value allocated to the unloaned
portion of the GIA may be transferred out of the GIA to one or more of the
Subaccounts over a consecutive four-year period according to the following
schedule:
Year One: 25% Year Two: 33%
Year Three: 50% Year Four: 100%
Non-systematic transfers from the unloaned portion of the GIA will be
processed on the date of receipt by VPMO.
Transfers into the GIA and among the Subaccounts of the VUL Account may be
made at any time. We reserve the right to limit the number of Subaccounts you
may elect to a total of 18 at any one time and/or over the life of the Policy
unless required to be less to comply with changes in federal and/or state
regulation, including tax, securities and insurance law. As of the date of this
Prospectus, this limitation has no effect because fewer than 18 Subaccounts are
offered.
Because excessive trading can hurt Fund performance, 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 batched transfer instructions from
registered representatives (acting under powers of attorney for multiple Policy
Owners), unless the registered representative's broker-dealer firm and Phoenix
have entered into a third party transfer service agreement.
For policies issued with the Temporary Money Market Allocation Amendment,
transfers may not be made until termination of the Right to Cancel Period.
DETERMINATION OF SUBACCOUNT VALUES
The unit value of each Subaccount of the VUL Account was set by Phoenix on
the first Valuation Date of each such Subaccount. The unit value of a Subaccount
of the VUL Account on any other Valuation Date is determined by multiplying the
unit value of that Subaccount on the just prior Valuation Date by the Net
Investment Factor for that Subaccount for the then current Valuation Period. The
unit value of each Subaccount of the VUL Account on a day other than a Valuation
Date is the unit value on the next Valuation Date. Unit values are carried to
six decimal places. The unit value of each Subaccount of the VUL Account on a
Valuation Date is determined at the end of that day.
The Net Investment Factor for each Subaccount of the VUL Account is
determined by the investment performance of the assets held by the Subaccount
during the Valuation Period. Each valuation will follow applicable law and
accepted procedures. The Net Investment Factor is equal to item (D) below
subtracted from the result of dividing the sum of items (A) and (B) by item (C).
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(A) The value of the assets in the Subaccount on the current Valuation
Date, including accrued net investment income and realized and
unrealized capital gains and losses, but excluding the net value of any
transactions during the current Valuation Period.
(B) The amount of any dividend (or, if applicable, any capital gain
distribution) received by the Subaccount if the "ex-dividend"
date for shares of the Fund occurs during the current Valuation Period.
(C) The value of the assets in the Subaccount as of the just prior
Valuation Date, including accrued net investment income and realized
and unrealized capital gains and losses, and including the net value of
all transactions during the Valuation Period ending on that date.
(D) The sum of the following daily charges multiplied by the number of days
in the current Valuation Period:
1. the mortality and expense risk charge; and
2. the charge, if any, for taxes and reserves for taxes on investment
income, and realized and unrealized capital gains.
DEATH BENEFIT
GENERAL
The death benefit under Option A equals the Policy's Face Amount on the date
of the last surviving Insured's death or, if greater, the minimum death benefit
on their date of death. Under Option B, the death benefit equals the Policy's
Face Amount on the date of the last surviving Insured's death plus the Policy
Value. Under either Option, the minimum death benefit is the Policy Value on the
date of death of the last surviving Insured increased by the applicable
percentage from the table contained in the Policy, based on the Insured's
attained age at the beginning of the Policy Year in which the death occurs. If
no option is elected, Option A will apply.
GUARANTEED DEATH BENEFIT OPTION
A Guaranteed Death Benefit Rider is available. Under this Policy rider, if
you pay the required premium each year as specified in the rider, the death
benefit selected will be guaranteed for a certain specified number of years,
regardless of the investment performance of the Policy, and will equal either
the initial Face Amount or the Face Amount as later changed by decreases. In
order to keep this guaranteed death benefit In Force, there may be limitations
on the amount of partial surrenders or decreases in Face Amount permitted.
After the first 10 Policy Years, there will be a monthly guaranteed minimum
death benefit charge equal to $0.01 per $1,000 of Face Amount for policies
issued with a Guaranteed Death Benefit Rider.
PARTIAL SURRENDER AND DECREASES IN FACE AMOUNT: EFFECT ON DEATH BENEFIT
A partial surrender or a decrease in Face Amount generally decreases the
death benefit. Upon a decrease in Face Amount or partial surrender, a partial
surrender charge will be deducted from Policy Value based on the amount of the
decrease or partial surrender. With a decrease in Face Amount, the death benefit
under a Policy would be reduced on the next Monthly Calculation Day. With a
partial surrender, the death benefit under a Policy would be reduced
immediately. A decrease in the death benefit may have certain tax consequences.
See "Federal Tax Considerations."
REQUESTS FOR DECREASE IN FACE AMOUNT
You may request a decrease in Face Amount at any time after the first Policy
Year. Unless we agree otherwise, the decrease must at least equal $25,000 and
the Face Amount remaining after the decrease must at least equal $250,000. All
Face Amount decrease requests must be in writing and will be effective on the
first Monthly Calculation Day following the date we approve the request. A
partial surrender charge will be deducted from the Policy Value based on the
amount of the decrease. The charge will equal the applicable surrender charge
that would apply to a full surrender multiplied by a fraction (the decrease in
Face Amount divided by the Face Amount of the Policy before the decrease).
SURRENDERS
GENERAL
At any time during the lifetime of the Insureds and while the Policy is In
Force, you may partially or fully surrender the Policy by sending a written
release and surrender in a form satisfactory to us to VPMO, along with the
Policy if we so require. The amount available for surrender is the Cash
Surrender Value at the end of the Valuation Period during which the surrender
request is received at VPMO.
Upon partial or full surrender, we generally will pay the amount surrendered
to you 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 us at VPMO, along with the written release and surrender of all claims in a
form satisfactory to us. You may elect to have the amount paid in a lump sum or
under a payment option. See "Surrender Charge" and "Payment Options."
PARTIAL SURRENDERS
You may obtain a partial surrender of the Policy by requesting that part of
the Policy's Cash Surrender Value be paid. You may do this at any time during
the lifetime of the Insureds while the Policy is In Force with a written request
to VPMO. We reserve the right to require that the Policy be returned before
payment is made. A partial surrender will be effective on the date the written
request is received or, if required, the date the Policy is received. Surrender
proceeds may be applied under any of the payment options described under
"Payment of Proceeds--Payment Options."
Phoenix reserves the right not to allow partial surrenders of less than
$500. In addition, if the share of the Policy Value in any Subaccount or in the
GIA that would be reduced as a result of a partial surrender would, immediately
after the partial surrender, be less than $500, we reserve the right to require
that as part of any partial surrender, the entire remaining balance in that
Subaccount or the GIA be surrendered.
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Upon a partial surrender, the Policy Value will be reduced by the sum of the
following:
(i) The Partial Surrender Amount Paid. This amount comes from a reduction in
the Policy's share in the value of each Subaccount or the GIA based on
the allocation requested at the time of the partial surrender. If no
allocation request is made, the assessment to each Subaccount will be
made in the same manner as that provided for monthly deductions.
(ii) The Partial Surrender Fee. This fee is the lesser of $25 or 2% of the
partial surrender amount paid. The assessment to each Subaccount or the
GIA will be made in the same manner as provided for the partial
surrender amount paid.
(iii) A Partial Surrender Charge. This charge is equal to a pro rata portion
of the applicable surrender charge that would apply to a full surrender,
determined by multiplying the applicable surrender charge by a fraction
(equal to the partial surrender amount payable divided by the result of
subtracting the applicable surrender charge from the Policy Value). This
amount is assessed against the Subaccount or the GIA in the same manner
as provided for the partial surrender amount paid.
The Cash Surrender Value will be reduced by the partial surrender amount
paid plus the partial surrender fee. The Face Amount of the Policy also will be
reduced by the same amount as the Policy Value is reduced as described above.
POLICY LOANS
Generally, while the Policy is In Force, a loan may be obtained against the
Policy up to the available loan value. The loan value on any day is 90% of the
result of subtracting the then remaining surrender charge from the Policy Value.
The available loan value is the loan value on the current day less any
outstanding Debt.
The amount of any loan will be added to the loaned portion of the GIA and
subtracted from the Policy's share of the Subaccounts or the unloaned portion of
the GIA, based on the allocation requested at the time of the loan. The total
reduction will equal the amount added to the loaned portion of the GIA.
Allocations generally must be expressed in terms of whole percentages. If no
allocation request is made, the amount subtracted from the share of each
Subaccount or the unloaned portion of the GIA will be determined in the same
manner as provided for monthly deductions. Interest will be credited and the
loaned portion of the GIA will increase at an effective annual rate of 2% (4% in
New York only), compounded daily and payable in arrears. At the end of each
Policy Year and at the time of any Debt repayment, interest credited to the
loaned portion of the GIA will be transferred to the unloaned portion of the
GIA.
Debt may be repaid at any time during the lifetime of the Insureds while the
Policy is In Force. Any Debt repayment received by us during a grace period will
be reduced to cover any overdue monthly deductions and only the balance will be
applied to reduce the Debt. Such balance, in excess of any outstanding accrued
loan interest, will be applied to reduce the loaned portion of the GIA and will
be transferred to the unloaned portion of the GIA to the extent that loaned
amounts taken from the GIA have not been previously repaid. Otherwise, such
balance will be allocated among the Subaccounts as you request upon repayment
and, if no allocation request is made, according to the most recent premium
allocation schedule on file.
WHILE THERE IS OUTSTANDING DEBT ON THE POLICY, ANY PAYMENTS RECEIVED BY US
FOR THE POLICY WILL BE APPLIED DIRECTLY TO REDUCE THE DEBT UNLESS SPECIFIED AS A
PREMIUM PAYMENT BY YOU. Until the Debt is fully repaid, additional Debt
repayments may be made at any time during the lifetime of the Insureds while the
Policy is In Force.
Failure to repay a policy loan or to pay loan interest will not terminate
the Policy except as otherwise provided under the terms of the Policy concerning
the grace period and lapse.
The proceeds of Policy loans may be subject to federal income tax under
certain circumstances. See "Federal Tax Considerations."
In the future, Phoenix may not allow Policy loans of less than $500, unless
such loan is used to pay a premium on another Phoenix policy.
You will pay interest on the loan at an effective annual rate, compounded
daily and payable in arrears. The loan interest rates in effect are as follows:
FOR POLICIES ISSUED IN ALL STATES EXCEPT NEW YORK
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Policy Years 1-10: 4%
Policy Years 11-15: 3%
Policy Years 16 and thereafter: 2 1/2%
FOR POLICIES ISSUED IN NEW YORK ONLY
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Policy Years 1-10: 6%
Policy Years 11-15: 5%
Policy Years 16 and thereafter: 4 1/2%
At the end of each Policy Year, any interest due on the Debt will be treated
as a loan and will be offset by a transfer from your values to the value of the
loaned portion of the GIA.
A Policy loan, whether or not repaid, has a permanent effect on the Policy
Value because the investment results of the Subaccounts or unloaned portion of
the GIA will apply only to the amount remaining in the Subaccounts or the
unloaned portion of the GIA. The longer a loan is outstanding, the greater the
effect is likely to be. The effect could be favorable or unfavorable. If the
Subaccounts or the unloaned portion of the GIA earn more than the annual
interest rate for funds held in the loaned portion of the GIA, Policy Value does
not increase as rapidly as it would have had no loan been made. If the
Subaccounts or the GIA earn less than the annual interest rate for funds held in
the loaned portion of the GIA, Policy Value is greater than it would have been
had no loan been made. A Policy loan, whether or not repaid, also has an effect
on the Policy's Death Benefit due to any resulting differences in Cash Surrender
Value.
LAPSE
Unlike conventional life insurance policies, the payment of the Issue
Premium, no matter how large, or the payment of additional premiums will not
necessarily continue the Policy In Force to its Maturity Date.
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If on any Monthly Calculation Day during the first three Policy Years, the
Policy Value is insufficient to cover the monthly deduction, a grace period of
61 days will be allowed for the payment of an amount equal to three times the
monthly deduction. If on any Monthly Calculation Day during any subsequent
Policy Year, the Cash Surrender Value (which has become positive) is less than
the required monthly deduction, a grace period of 61 days will be allowed for
the payment of an amount equal to three times the required monthly deduction.
However, during the first five Policy Years or until the Cash Surrender Value
becomes positive for the first time, the Policy will not lapse as long as all
premiums planned at issue have been paid.
The Policy will continue In Force during any such grace period although
Subaccount transfers, loans, partial or full surrenders will not be permitted.
Failure to pay the additional amount within the grace period will result in
lapse of the Policy, but not before 30 days have elapsed since we mailed written
notice to you. If a premium payment for the additional amount is received by us
during the grace period, any amount of premium over what is required to prevent
lapse will be allocated among the Subaccounts of the VUL Account or to the GIA
in accordance with the then current premium allocation schedule. In determining
the amount of "excess" premium to be applied to the Subaccounts or the GIA, we
will deduct the premium tax and the amount needed to cover any monthly
deductions made during the grace period. If the last surviving 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.
ADDITIONAL INSURANCE OPTIONS
While the Policy is In Force, you will have the option to purchase
additional insurance on the same Insureds with the same guaranteed rates as the
Policy without being assessed an issue expense charge. We will require evidence
of insurability and charges will be adjusted for the Insured's new attained age
and any change in risk classification.
ADDITIONAL RIDER BENEFITS
A Policyowner may elect additional benefits under a Policy. These benefits
are cancelable by the Policyowner at any time. A charge may be deducted monthly
from the Policy Value for each additional rider benefit chosen. More details
will be included in the form of a rider to the Policy if any of these benefits
is chosen. The following benefits are currently available (if approved in your
state). Additional riders may be available as described in the Policy.
o DISABILITY BENEFIT RIDER
This rider is available for one or both Insureds. On disability of a covered
insured before age 65, monthly deductions will be waived and an additional
Specified Amount (if any) will be credited, as long as he/she remains disabled
(but not more than the longer of one year or to age 65, if disability commenced
after age 60).
The rider terminates at the Insured's attained age 65. However, benefits
will continue to be paid for the covered Insured's lifetime if he or she has
been continuously disabled under the terms of the rider from attained age 60 to
age 65.
o FOUR-YEAR SURVIVORSHIP TERM
This rider provides a level death benefit on the second death within four
years of policy issue. This rider is not convertible.
The rider face amount will be 125% (subject to retention and reinsurance
limits) of the base policy's initial face amount.
o POLICY SPLIT OPTION RIDER
This rider provides for the exchange of the policy into two single life
policies with satisfactory evidence of insurability. At the time of the
exchange, the Policy can be split by any percentage subject to minimum
requirements of the single life policies. There is no charge for this rider.
o CONDITIONAL EXCHANGE OPTION RIDER
This rider provides for the exchange of the Policy for two new single
policies, without evidence of insurability, for either of the following events:
1. the divorce of the Insureds, or
2. major change in the federal estate tax law.
Both Insureds must be alive on the date of exchange and there must be
insurable interest.
o GUARANTEED DEATH BENEFIT RIDER
This rider guarantees the face amount of coverage even if the Policy Value
is insufficient to cover the monthly deduction.
For the first 10 policy years, the monthly guarantee premium is 1/12 of the
Target Annual Premium. For Policy year 11 and thereafter, the monthly guarantee
premium is 1/12 of the Guideline Level Premium (as defined in Internal Revenue
Code Section 7702).
The rider will remain in effect if one of three conditions is met monthly.
Otherwise, the rider will lapse and the underlying Policy will continue without
the rider benefits or charges. The three conditions are:
1. Total Cumulative Premium Test - the total premium paid less the sum of
all surrender amounts is not less than the cumulative sum of all
monthly guarantee premiums since policy issue.
2. Tabular Account Value Test - the Policy's Cash Surrender Value is not
less than the Policy's Tabular Account Value (as listed on Policy's
schedule pages) on the Policy Anniversary on or immediately preceding
the Monthly Calculation Day.
3. Annual Premium Test - the total premium paid during the Policy Year,
less surrenders, is not less than the sum of all monthly guarantee
premiums applicable each month since the Policy Year began.
o CONVERSION TO UNIVERSAL LIFE RIDER
This rider permits the Policyowner to covert from a variable universal life
policy to a fixed universal life policy by transferring all cash value to the
Non-Transferable General Account ("NTGA"). The Policyowner may make this
election on or after the 15th Policy Anniversary. There is no charge for this
rider.
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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, 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.
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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.
WANGER TWENTY (TWENTY) SERIES: The investment objective of the Twenty Series
is to seek long-term capital growth. The Twenty Series invests primarily in the
stocks of U.S. companies with market capitalizations of $1 billion to $10
billion and ordinarily focuses its investments in 20 to 25 U.S. companies.
WANGER FOREIGN FORTY (FOREIGN) SERIES: The investment objective of the
Foreign Series is to seek long-term capital growth. The Foreign Series invests
primarily in equity securities of foreign companies with market capitalizations
of $1 billion to $10 billion and focuses its investments in 40 to 60 companies
in the developed markets.
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 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.
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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 Fund are automatically reinvested in
shares of the Fund at their net asset value on the date of distribution; all
capital gains distributions of the Fund, if any, are likewise reinvested at the
net asset value on the record date. Phoenix redeems Fund shares at their net
asset value to the extent necessary to make payments under the Policy.
SUBSTITUTION OF INVESTMENTS
Phoenix reserves the right, subject to compliance with the law as currently
applicable or subsequently changed, to make additions to, deletions from or
substitutions for the investments held by the VUL Account. In the future,
Phoenix may establish additional Subaccounts within the VUL Account, each of
which will invest in shares of a designated portfolio of the Fund with a
specified investment objective. These portfolios will be established if, and
when, in the sole discretion of Phoenix, marketing needs and investment
conditions warrant, and will be made available under existing Policies to the
extent and on a basis to be determined by Phoenix.
If shares of any of the portfolios of the Fund should no longer be available
for investment, or if in the judgment of Phoenix's management further investment
in shares of any of the portfolios should become inappropriate in view of the
objectives of the Policy, then Phoenix may substitute shares of another mutual
fund for shares already purchased, or to be purchased in the future, under the
Policy. No substitution of mutual fund shares held by the VUL Account may take
place without prior approval of the 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 and federal taxes incurred on premiums received; (4) providing the
insurance benefits set forth in the Policy; and (5) assuming certain risks in
connection with the Policy. The nature and amount of these charges are described
more fully below.
We may reduce or eliminate the following charges for Policies issued under
group or sponsored arrangements: sales charge, issue expense charge,
administrative charge and surrender charge. Generally, 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 amount of
reduction will be considered on a case-by-case basis and will reflect the
reduced costs to Phoenix expected as a result of sales to a particular group or
sponsored arrangement.
1. PREMIUM SALES CHARGE
A charge is made to compensate Phoenix for the cost of selling the Policy.
This cost includes registered representative's commissions, commission
overrides, advertising, the printing of the Policy Prospectus and sales
literature. The amount of the charge in any Policy Year cannot be specifically
tied to sales expenses for that year. We expect to recover our total sales
expenses over the period the Policy is In Force. To the extent that sales
charges are insufficient to cover total sales expenses, these expenses may be
recovered from other sources, including gains from the charge for mortality and
expense risks and other gains with respect to the Policies, or from our general
assets.
The sales charge is assessed according to the following schedule:
Policy Year One: 20% of premiums paid up to the first TAP
5% of premiums in excess of the TAP
Policy Years Two-Ten: 5% of premium
Policy Years Eleven and over: 0% of premium
The TAP is established at issue and is the greater of: (a) the level premium
required to mature the Policy, calculated at an interest rate of 6.5% assuming
current mortality and expenses; and (b) $1,200.
2. MONTHLY DEDUCTION
A charge is deducted monthly from the Policy Value under a Policy ("monthly
deduction") to pay: the cost of insurance provided under the Policy, the cost of
any rider benefits provided, the issue
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expense charge and an administrative charge. The monthly deduction is deducted
on each Monthly Calculation Day. It is allocated among Subaccounts of the
VUL Account and the unloaned portion of the GIA based on the allocation
schedule for monthly deductions specified by the applicant in the application
for a Policy or as later changed by the Policyowner. In the event that the
Policy's share in the value of a Subaccount or the unloaned portion of the GIA
is insufficient to permit the withdrawal of the full monthly deduction, the
remainder will be taken on a proportionate basis from the Policy's share of each
of the other Subaccounts and the unloaned portion of the GIA. The number of
units deducted will be determined by dividing the portion of the monthly
deduction allocated to each Subaccount or to the unloaned portion of the GIA by
the unit value on the Monthly Calculation Day. Because portions of the monthly
deduction, such as the cost of insurance, can vary from month to month, the
monthly deduction itself may vary in amount from month to month.
(A) ISSUE EXPENSE CHARGE. An issue charge is assessed on a pro rata basis
in equal monthly installments of $50 over a 12-month period to
compensate Phoenix for underwriting and start-up expenses in connection
with issuing a Policy. The issue expense charge is $600.
(B) ADMINISTRATIVE CHARGE. A charge also is assessed to cover our variable
administrative costs such as the preparation of billings, statements
and mailings to Policyholders. The administrative charge is only
assessed in Policy Years one through ten and varies by the Face Amount
of the Policy as follows:
$20 per month for Policies with Face Amounts of less than or equal to
$400,000;
$0.05 per $1,000 for Policies with Face Amounts of $400,001 up to
$1,600,000; and
$80 per month for Policies with Face Amounts of greater than $1,600,000
(C) COST OF INSURANCE. In order to calculate the cost of insurance charge,
Phoenix multiplies the applicable cost of insurance rate by the
difference between the death benefit selected (death benefit Option A
if no selection is made) and the Policy Value. Generally, cost of
insurance rates are based on the sex, Attained Age and risk class of
the Insureds. However, in certain states and for policies issued in
conjunction with certain qualified plans, cost of insurance rates are
not based on sex. The actual monthly cost of insurance rates are based
on our expectations of future mortality experience. They will not,
however, be greater than the guaranteed cost of insurance rates set
forth in the Policy. These guaranteed maximum rates are equal to 100%
of the 1980 Commissioners Standard Ordinary ("CSO") Mortality Table,
with appropriate adjustment for the Insureds' risk classification. Any
change in the cost of insurance rates will apply to all persons of the
same sex, insurance age and risk class whose Policies have been In
Force for the same length of time. The risk class of an Insured may
affect the cost of insurance rate. Phoenix currently places Insureds
into a standard risk class or a risk class involving a higher mortality
risk, depending upon the health of the Insureds as determined by
medical information that Phoenix requests. In an otherwise identical
Policy, Insureds in the standard risk class will have a lower cost of
insurance than those in the risk class with the higher mortality risk.
The standard risk class also is divided into categories: smokers,
nonsmokers and those who have never smoked. Nonsmokers will generally
incur a lower cost of insurance than similarly situated Insureds who
smoke.
3. PREMIUM TAXES
Various states and subdivisions impose a tax on premiums received by
insurance companies. Premium taxes vary from state to state. Currently, the
taxes imposed by states on premiums range from 0.75% to 4% of premiums paid.
Moreover, certain municipalities in Louisiana, Kentucky and South Carolina also
impose taxes on premiums paid, in addition to the state taxes imposed. The
premium tax charge represents an amount we consider necessary to pay all premium
taxes imposed by such states and any subdivisions thereof, and we do not expect
to derive a profit from this charge. Policies will be assessed a tax charge
equal to 2.25% of the premiums paid. These charges are deducted from the Issue
Premium, and from each subsequent premium payment.
4. FEDERAL TAX CHARGE
A charge equal to 1.50% of each premium will be deducted from each premium
payment to cover the estimated cost to Phoenix of the federal income tax
treatment of deferred acquisition costs.
5. MORTALITY AND EXPENSE RISK CHARGE
We will deduct a daily charge from the VUL Account at an annual rate of
0.80% of the average daily net assets of the VUL Account to compensate for
certain risks assumed in connection with the Policy. After the 15th Policy Year,
a reduced annual rate of .25% will apply. This charge is not deducted from the
GIA.
The mortality risk assumed by Phoenix is that the Insureds may live for a
shorter time than projected because of inaccuracies in that projecting process
and, accordingly, that an aggregate amount of death benefits greater than that
projected will be payable. The expense risk assumed is that expenses incurred in
issuing the Policies may exceed the limits on administrative charges set in the
Policies. If the expenses do not increase to an amount in excess of the limits,
or if the mortality projecting process proves to be accurate, we may profit from
this charge. We also assume risks with respect to other contingencies including
the incidence of Policy loans, which may cause us to incur greater costs than
anticipated when designing the Policies. To the extent we profit from this
charge, we 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.
6. 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.
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These Fund charges and other expenses are described more fully in the
accompanying Fund prospectuses.
7. OTHER CHARGES
SURRENDER CHARGE
During the first 10 Policy Years, there is a difference between the amount
of Policy Value and the amount of Cash Surrender Value of the Policy. This
difference is the surrender charge, consisting of a contingent deferred sales
charge designed to recover expenses for the distribution of Policies that are
terminated by surrender before distribution expenses have been recouped. These
are contingent charges because they are paid only if the Policy is surrendered
(or the Face Amount is reduced or the Policy lapses) during this period. They
are deferred charges because they are not deducted from premiums.
During the first 10 Policy Years, the full surrender charge as described
below will apply if you either surrender the Policy for its Cash Surrender Value
or let the Policy lapse. The applicable surrender charge in any Policy Month is
the full surrender charge minus any surrender charges that have been previously
paid as a result of a partial surrender or a decrease in Face Amount. There is
no surrender charge after the 10th Policy Year. During the first 10 Policy
Years, the maximum surrender charge that you can pay while you own the Policy is
equal to the percentage amount shown in the Surrender Charge Table below.
SURRENDER CHARGE TABLE
----------------------
SURRENDER SURRENDER SURRENDER
POLICY CHARGE POLICY CHARGE POLICY CHARGE
MONTH % OF TAP MONTH % OF TAP MONTH % OF TAP
----- -------- ----- -------- ----- --------
1-70 100% 87 66% 104 32%
71 98% 88 64% 105 30%
72 96% 89 62% 106 28%
73 94% 90 60% 107 26%
74 92% 91 58% 108 24%
75 90% 92 56% 109 22%
76 88% 93 54% 110 20%
77 86% 94 52% 111 18%
78 84% 95 50% 112 16%
79 82% 96 48% 113 14%
80 80% 97 46% 114 12%
81 78% 98 44% 115 10%
82 76% 99 42% 116 8%
83 74% 100 40% 117 6%
84 72% 101 38% 118 4%
85 70% 102 36% 119 2%
86 68% 103 34% 120 0%
PARTIAL SURRENDER FEE
A fee equal to the lesser of $25 or 2% of the amount withdrawn from the
Policy is deducted from the Policy Value upon a partial surrender of the Policy
to recover the actual costs of processing the partial surrender request. The
assessment to each Subaccount or to the GIA will be made in the same manner as
provided for the partial surrender amount paid. That is, that the Policy's share
in the value of each Subaccount or the GIA will be reduced based on the
allocation made at the time of the partial surrender. If no allocation request
is made, the assessment to each Subaccount and to the GIA will be made in the
same manner as provided for monthly deductions.
PARTIAL SURRENDER CHARGE
A charge as described below is deducted from the Policy Value upon a partial
surrender of the Policy. The charge is equal to a pro rata portion of the
applicable surrender charge that would apply to a full surrender, determined by
multiplying the applicable surrender charge by a fraction (equal to the partial
surrender amount payable divided by the result of subtracting the applicable
surrender charge from the Policy Value). This amount is assessed against the
Subaccounts or the GIA in the same manner as provided for with respect to the
partial surrender amount paid.
A partial surrender charge also is deducted from Policy Value upon a
decrease in Face Amount. The charge is equal to the applicable surrender charge
multiplied by a fraction (equal to the decrease in Face Amount divided by the
Face Amount of the Policy prior to the decrease).
TAXES
Currently no charge is made to the VUL Account for federal income taxes that
may be attributable to the VUL Account. We 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 (in excess of the initial Face Amount) or maturity may
be postponed: (i) for up to six months from the date of the request, for any
transactions dependent upon the value of the GIA; (ii) whenever the 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 SEC 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 either of the Insureds commits suicide within two years after the
Policy's Date of Issue, the Policy will cease and become void. We will pay you
the Policy Value adjusted by the addition of any monthly deductions and other
fees and charges, minus any Debt owed to us under the Policy.
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INCONTESTABILITY
We cannot contest this Policy or any attached rider after it has been In
Force during the Insureds' lifetimes for two years from the Policy Date.
CHANGE OF OWNER OR BENEFICIARY
The Beneficiary, as named in the Policy application or subsequently changed,
will receive the Policy benefits at the death of the last surviving Insured. If
the named Beneficiary dies before the death of the last surviving Insured, the
contingent Beneficiary, if named, becomes the Beneficiary. If no Beneficiary
survives the last surviving Insured, the death benefit payable under the Policy
will be paid to you or your estate.
As long as the Policy is In Force, the Policyowner and the Beneficiary may
be changed by written request, satisfactory to us. A change in Beneficiary will
take effect as of the date the notice is signed, whether or not the last
surviving Insured is living when the notice is received by us. We will not,
however, be liable for any payment made or action taken before receipt of the
notice.
ASSIGNMENT
The Policy may be assigned. We 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. We assume no responsibility for determining
whether an assignment is valid.
MISSTATEMENT OF AGE OR SEX
If the age or sex of either of the Insureds 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
of the Insureds.
SURPLUS
You may share in divisible surplus of Phoenix to the extent determined
annually by the Phoenix Board of Directors. However, it is not currently
anticipated that the Board will authorize these payments since Policyowners will
be participating directly in investment results.
PAYMENT OF PROCEEDS
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SURRENDER AND DEATH BENEFIT PROCEEDS
Death benefit proceeds and the proceeds of full or partial surrenders will
be processed at unit values next computed after we receive the request for
surrender or due proof of death, provided such request is complete and in good
order. Payment of surrender or death proceeds usually will be made in one lump
sum within seven days, unless another payment option has been elected. Payment
of the death proceeds, however, may be delayed if the claim for payment of the
death proceeds needs to be investigated; e.g., to ensure payment of the proper
amount to the proper payee. Any such delay will not be beyond that reasonably
necessary to investigate such claims consistent with insurance practices
customary in the life insurance industry. Under this Policy, the death proceeds
will be paid upon the death of the last surviving Insured.
You may elect a payment option for payment of the death proceeds to the
Beneficiary. You may do this only before the second death. You may revoke or
change a prior election, unless such right has been waived. The Beneficiary may
make or change an election prior to payment of the death proceeds, unless you
have made an election which does not permit such further election or changes by
the Beneficiary.
A written request in a form satisfactory to us is required to elect, change
or revoke a payment option.
The minimum amount of surrender or death proceeds that may be applied under
any payment option is $1,000.
If the Policy is assigned as collateral security, we will pay any amount due
the assignee in one lump sum. Any remaining proceeds will remain under the
option elected.
PAYMENT OPTIONS
All or part of the surrender or death proceeds of a Policy may be applied
under one or more of the following payment options or such other payment options
or alternative versions of the options listed as we may choose to make available
in the future.
OPTION 1--LUMP SUM.
Payment in one lump sum.
OPTION 2--LEFT TO EARN INTEREST.
A payment of interest during the payee's lifetime on the amount payable as a
principal sum. Interest rates are guaranteed to be at least 3% per year.
OPTION 3--PAYMENT FOR A SPECIFIC PERIOD.
Equal installments are paid for a specified period of years whether the
payee lives or dies. The first payment will be on the date of settlement. The
assumed interest rate on the unpaid balance is guaranteed not to be less than 3%
per year.
OPTION 4--LIFE ANNUITY WITH SPECIFIED PERIOD CERTAIN.
Equal installments are paid until the later of: (A) The death of the payee;
(B) The end of the period certain. The first payment will be on the date of
settlement. The period certain must be chosen at the time this option is
elected. The periods certain that may be chosen are as follows: (A) Ten years;
(B) Twenty years; (C) Until the installments paid refund the amount applied
under this option; and if the payee is not living when the final payment falls
due, that payment will be limited to the amount which needs to be added to the
payments already made to equal the amount applied under this option. If, for the
age of the payee, a period certain is chosen that is shorter than another period
certain paying the same installment amount, Phoenix will deem the longer period
certain as having been elected. Any life annuity provided under Option 4 is
calculated using an interest rate guaranteed to be no less than 3 3/8% per year,
except that any life annuity providing a period certain of 20 years or more is
calculated using an interest rate guaranteed to be no less than 3 1/4% per year.
OPTION 5--LIFE ANNUITY.
Equal installments are paid only during the lifetime of the payee. The first
payment will be on the date of settlement. Any life annuity as may be provided
under Option 5 is calculated using an interest rate guaranteed to be no less
than 3 1/2% per year.
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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 remaining
principal at a guaranteed rate of at least 3% per year. This interest will be
credited at the end of each year. If the amount of interest credited at the end
of the year exceeds the income payments made in the last 12 months, that excess
will be paid in one sum on the date credited.
OPTION 7--JOINT SURVIVORSHIP ANNUITY WITH 10-YEAR PERIOD CERTAIN.
The first payment will be on the date of settlement. Equal installments are
paid until the latest of: (A) The end of the 10-year period certain; (B) The
death of the Insured; (C) The death of the other named annuitant. The other
annuitant must be named at the time this option is elected and cannot later be
changed. The other annuitant must have an attained age of at least 40. Any joint
survivorship annuity as may be provided under this option is calculated using an
interest rate guaranteed to be no less than 3 3/8% per year.
For additional information concerning the above payment options, see the
Policy.
FEDERAL TAX CONSIDERATIONS
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INTRODUCTION
The ultimate effect of federal income taxes on values under the VUL Account
and on the economic benefit to you or your 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 our understanding of federal income tax laws as they are
currently interpreted, we 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 "IRS"). We reserve the right to make
changes to the Policy in order to assure that it will continue to qualify as a
life insurance contract for federal income tax purposes.
PHOENIX'S TAX STATUS
Phoenix is taxed as a life insurance company under the Internal Revenue Code
of 1986, as amended (the "Code"). For federal income tax purposes, neither the
VUL Account nor the GIA is a separate entity from Phoenix and their operations
form a part of Phoenix.
Investment income and realized capital gains on the assets of the VUL
Account are reinvested and taken into account in determining the value of the
VUL Account. Investment income of the VUL Account, including realized net
capital gains, is not taxed to Phoenix. Due to Phoenix's tax status under
current provisions of the Code, no charge currently will be made to the VUL
Account for Phoenix's federal income taxes which may be attributable to the VUL
Account. Phoenix reserves the right to make a deduction for taxes if the federal
tax treatment of Phoenix is determined to be other than what Phoenix currently
believes it to be, if changes are made affecting the tax treatment to Phoenix of
variable life insurance contracts, or if changes occur in Phoenix's tax status.
If imposed, such charge would be equal to the federal income taxes attributable
to the investment results of the VUL Account.
POLICY BENEFITS
DEATH BENEFIT PROCEEDS. The Policy, whether or not it is a modified
endowment contract (see the discussion on modified endowment contracts below),
should be treated as meeting the definition of a life insurance contract for
federal income tax purposes, under Section 7702 of the Code. As such, the death
benefit proceeds thereunder should be excludable from the gross income of the
Beneficiary under Code Section 101(a)(1). Also, the Policyowner should not be
deemed to be in constructive receipt of the cash value, including increments
thereon. See, however, the sections below on possible taxation of amounts
received under the Policy, via full surrender, partial surrender or loan.
Code Section 7702 imposes certain conditions with respect to premiums
received under a Policy. Phoenix intends to monitor the premiums to assure
compliance with such conditions. However, in the event that the premium
limitation is exceeded during the year, Phoenix may return the excess premium,
with interest, to the Policyowner within 60 days after the end of the Policy
Year, and maintain the qualification of the Policy as life insurance for federal
income tax purposes.
FULL SURRENDER. Upon full surrender of a Policy for its cash value, the
excess, if any, of the cash value (unreduced by any outstanding indebtedness)
over the premiums paid will be treated as ordinary income for federal income tax
purposes. The full surrender of a Policy which is a modified endowment contract
may result in the imposition of an additional 10% tax on any income received.
PARTIAL SURRENDER. If the Policy is a modified endowment contract, partial
surrenders are fully taxable to the extent of income in the Policy and are
possibly subject to an additional 10% tax. See the discussion on modified
endowment contracts below. If the Policy is not a modified endowment contract,
partial surrenders still may be taxable, as follows. Code Section 7702(f)(7)
provides that where a reduction in death benefits occurs during the first 15
years after a Policy is issued and there is a cash distribution associated with
that reduction, the Policyowner may be taxed on all or a part of the amount
distributed. A reduction in death benefits may result from a partial surrender.
After 15 years, the proceeds will not be subject to tax, except to the extent
such proceeds exceed the total amount of premiums paid but not previously
recovered. Phoenix suggests you consult with your tax adviser in advance of a
proposed decrease in death benefits or a partial surrender as to the portion, if
any, which would be subject to tax, and in addition as to the impact such
partial surrender might have under the new rules affecting modified endowment
contracts.
LOANS. Phoenix believes that any loan received under a Policy will be
treated as indebtedness of the Policyowner. If the Policy is a modified
endowment contract, loans are fully taxable to the extent of
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income in the Policy and are possibly subject to an additional 10% tax. See the
discussion on modified endowment contracts below. If the Policy is not a
modified endowment contract, Phoenix believes that no part of any loan under a
Policy will constitute income to the Policyowner.
The deductibility by the Policyowner of loan interest under a Policy may be
limited under Code Section 264, depending on the circumstances. Any Policyowner
intending to fund premium payments through borrowing should consult a tax
adviser with respect to the tax consequences thereof. Under the "personal"
interest limitation provisions of the Code, interest on Policy loans used for
personal purposes is not tax deductible. Other rules may apply to allow all or
part of the interest expense as a deduction if the loan proceeds are used for
"trade or business" or "investment" purposes. See your tax adviser for further
guidance.
BUSINESS-OWNED POLICIES
If the Policy is owned by a business or a corporation, the Code may impose
additional restrictions. The Code limits the interest deduction on
business-owned Policy loans and may impose tax upon the inside build-up of
corporate-owned life insurance policies through the corporate alternative
minimum tax.
MODIFIED ENDOWMENT CONTRACTS
GENERAL. Pursuant to Code Section 72(e), loans and other amounts received
under modified endowment contracts will, in general, be taxed to the extent of
accumulated income (generally, the excess of cash value over premiums paid).
Policies are modified endowment contracts if they meet the definition of life
insurance, but fail the 7-pay test. This test essentially provides that the
cumulative premiums paid under the Policy at any time during the Policy's first
seven years cannot exceed the sum of the net level premiums that would have been
paid on or before that time had the Policy provided for paid-up future benefits
after the payment of seven level annual premiums. In addition, a modified
endowment contract includes any life insurance contract that is received in
exchange for a modified endowment contract. Premiums paid during a Policy Year
that are returned by Phoenix (with interest) within 60 days after the end of the
Policy Year will not cause the Policy to fail the 7-pay test.
REDUCTION IN BENEFITS DURING THE FIRST SEVEN YEARS. If there is a reduction
in benefits during the first seven Policy Years, the premiums are redetermined
for purposes of the 7-pay test as if the Policy originally had been issued at
the reduced death benefit level and the new limitation is applied to the
cumulative amount paid for each of the first seven Policy Years.
DISTRIBUTIONS AFFECTED. If a Policy fails to meet the 7-pay test, it is
considered a modified endowment contract only as to distributions in the year in
which the death benefit reduction takes effect and all subsequent Policy Years.
However, distributions made in anticipation of such failure (there is a
presumption that distributions made within two years prior to such failure were
"made in anticipation") also are considered distributions under a modified
endowment contract. If the Policy satisfies the 7-pay test for seven years,
distributions and loans generally will not be subject to the modified endowment
contract rules.
PENALTY TAX. Any amounts taxable under the modified endowment contract rule
will be subject to an additional 10% excise tax, with certain exceptions. This
additional tax will not apply in the case of distributions: (i) made on or after
the taxpayer attains age 59 1/2; (ii) which are attributable to the taxpayer's
disability (within the meaning of Code Section 72(m)(7)); or (iii) which are
part of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the taxpayer or the
joint lives (or life expectancies) of the taxpayer and his Beneficiary.
MATERIAL CHANGE RULES. Any determination of whether the Policy meets the
7-pay test will begin again any time the Policy undergoes a "material change,"
which includes any increase in death benefits or any increase in or addition of
a qualified additional benefit, with the following two exceptions. First, if an
increase is attributable to premiums paid "necessary to fund" the lowest death
benefit and qualified additional benefits payable in the first seven Policy
Years or to the crediting of interest or dividends with respect to these
premiums, the "increase" does not constitute a material change. Second, to the
extent provided in regulations, if the death benefit or qualified additional
benefit increases as a result of a cost-of-living adjustment based on an
established broad-based index specified in the Policy, this does not constitute
a material change if (1) the cost-of-living determination period does not exceed
the remaining premium payment period under the Policy, and (2) the
cost-of-living increase is funded ratably over the remaining premium payment
period of the Policy. A reduction in death benefits is not considered a material
change unless accompanied by a reduction in premium payments.
A material change may occur at any time during the life of the Policy
(within the first seven years or thereafter), and future taxation of
distributions or loans would depend upon whether the Policy satisfied the
applicable 7-pay test from the time of the material change. An exchange of
policies is considered to be a material change for all purposes.
SERIAL PURCHASE OF MODIFIED ENDOWMENT CONTRACTS. All modified endowment
contracts issued by the same insurer (or affiliated companies of the insurer) to
the same Policyowner within the same calendar year will be treated as one
modified endowment contract in determining the taxable portion of any loans or
distributions made to the Policyowner. The Treasury has been given specific
legislative authority to issue regulations to prevent the avoidance of the new
distribution rules for modified endowment contracts. A qualified tax adviser
should be consulted about the tax consequences of the purchase of more than one
modified endowment contract within any calendar year.
LIMITATIONS ON UNREASONABLE MORTALITY AND EXPENSE CHARGES
The Code imposes limitations on unreasonable mortality and expense charges
for purposes of ensuring that a Policy qualifies as a life insurance contract
for federal income tax purposes. The mortality charges taken into account to
calculate permissible premium levels may not exceed those charges required to be
used in determining the federal income tax reserve for the Policy, unless
Treasury regulations prescribe a higher level of charge. In addition, the
expense charges taken into account under the guideline premium test are required
to be reasonable, as defined by the Treasury regulations. Phoenix intends to
comply with the limitations in calculating the premium it is permitted to
receive from you.
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QUALIFIED PLANS
A Policy may be used in conjunction with certain qualified plans. Since the
rules governing such use are complex, you should not use the Policy in
conjunction with a qualified plan until you have consulted a competent pension
consultant or tax adviser.
DIVERSIFICATION STANDARDS
To comply with the Diversification Regulations under Code Section 817(h),
("Diversification Regulations") each Series of the Funds is required to
diversify its investments. The Diversification Regulations generally require
that on the last day of each quarter of a calendar year no more than 55% of the
value of a Series' 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 a
Series as an asset of the VUL Account; therefore, each Series of the Fund will
be tested for compliance with the percentage limitations. For purposes of these
diversification rules, all securities of the same issuer are treated as a single
investment, but each United States government agency or instrumentality is
treated as a separate issuer.
The general diversification requirements are modified if any of the assets
of the VUL Account are direct obligations of the United States Treasury. In this
case, there is no limit on the investment that may be made in 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 you may direct your investments to particular divisions of a
separate account. It is possible that a revenue ruling or other form of
administrative pronouncement in this regard may be issued in the near future. It
is not clear, at this time, what such a revenue ruling or other pronouncement
will provide. It is possible that the Policy may need to be modified to comply
with such future Treasury announcements. For these reasons, Phoenix reserves the
right to modify the Policy, as necessary, to prevent you from being considered
the owner of the assets of the VUL Account.
Phoenix intends to comply with the Diversification Regulations to assure
that the Policies continue to qualify as a life insurance contract for federal
income tax purposes.
CHANGE OF OWNERSHIP OR INSURED OR ASSIGNMENT
Changing the Policyowner, or one or both of the Insureds or an exchange or
assignment of the Policy may have tax consequences depending on the
circumstances. Code Section 1035 provides that a life insurance contract can be
exchanged for another life insurance contract, without recognition of gain or
loss, assuming that no money or other property is received in the exchange, and
that the Policies relate to the same Insureds. If the surrendered Policy is
subject to a policy loan, this may be treated as the receipt of money on the
exchange. Phoenix recommends that any person contemplating such actions seek the
advice of a qualified tax consultant.
OTHER TAXES
Federal estate tax, state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary. We do not make any
representations or guarantees regarding the tax consequences of any Policy with
respect to these types of taxes.
VOTING RIGHTS
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THE FUNDS
We will vote the Funds' 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 you. However, if the 1940 Act or any regulation thereunder should be
amended or if the present interpretation thereof should change, and as a result
we determine that we are permitted to vote the Funds' shares at our own
discretion, we may elect to do so.
The number of votes that you have the right to cast will be determined by
applying your percentage interest in a Subaccount to the total number of votes
attributable to the Subaccount. In determining the number of votes, fractional
shares will be recognized.
Funds' shares held in a Subaccount for which no timely instructions are
received, and Funds' shares which are not otherwise attributable to
Policyowners, will be voted by Phoenix in proportion to the voting instructions
that are received with respect to all Policies participating in that Subaccount.
Voting instructions to abstain on any item to be voted upon will be applied to
reduce the votes eligible to be cast by Phoenix.
You will receive proxy materials, reports and other materials related to
the Funds.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that the shares be voted so as
to cause a change in the subclassification or investment objective of one or
more of the portfolios of the Funds or to approve or disapprove an investment
advisory contract for the Funds. In addition, Phoenix itself may disregard
voting instructions in favor of changes initiated by a Policyowner in the
investment policies or the Investment Adviser of the Funds if Phoenix reasonably
disapproves of such changes. A change would be disapproved only if the proposed
change is contrary to state law or prohibited by state regulatory authorities or
we determine that the change would have an adverse effect on the General Account
because the proposed investment policy for a Series 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
You (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
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Phoenix policyholders for the election of members of the Board of Directors
of Phoenix and on other corporate matters, if any, where a policyholder's vote
is taken. At meetings of all of the Phoenix policyholders, you (or payee) may
cast only one vote as the holder of a Policy, irrespective of Policy Value or
the number of the Policies you hold.
THE DIRECTORS AND EXECUTIVE OFFICERS OF PHOENIX
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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, Phoenix
Home Life Mutual Insurance
Company, Hartford, Connecticut;
formerly President, Travelers
Insurance Company
Peter C. Browning President and Chief Operating
Officer, Sonoco 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 Chairman and Chief Financial
Officer, Lending Tree, Inc.,
Charlotte, North Carolina;
Chairman and President,
Ziani International Capital, Inc.,
Miami, Florida; formerly General
Partner, Goldman Sachs & Company,
New York, New York; 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
Phoenix Home Life Mutual Insurance
Company, Hartford, Connecticut
EXECUTIVE OFFICERS PRINCIPAL OCCUPATION
Robert W. Fiondella Chairman of the Board, President
and Chief Executive Officer
Richard H. Booth Executive Vice President,
Strategic Development
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, Business
Practices
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 Line Financial
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Maura L. Melley Senior Vice President, Public Affairs
Scott C. Noble Senior Vice President
David R. Pepin Senior Vice President
Robert E. Primmer Senior Vice President,
Distribution and Sales
Frederick W. Sawyer, III 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
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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
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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 is a member of the National Association of Securities Dealers, Inc.
PEPCO serves as national distributor of the Policies. PEPCO is an indirect
subsidiary of Phoenix Duff & Phelps Corporation ("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 agreements provided
by PEPCO. Sales commissions will be paid to registered representatives on
purchase payments received by Phoenix under these Policies. Total sales
commission of a maximum of 50% of premiums will be paid by Phoenix to PEPCO. To
the extent that the sales charge under the Policies is less than the sales
commissions paid with respect to the Policies, Phoenix will pay the shortfall
from its General Account assets, which will include any profits it may derive
under the Policies.
STATE REGULATION
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Phoenix is subject to the provisions of the New York insurance laws
applicable to mutual life insurance companies and to regulation and supervision
by the New York Superintendent of Insurance. Phoenix also is subject to the
applicable insurance laws of all the other states and jurisdictions in which it
does an insurance business.
State regulation of Phoenix includes certain limitations on the investments
which it may make, including investments for the VUL Account and the GIA. It
does not include, however, any supervision over the investment policies of the
VUL Account.
REPORTS
- --------------------------------------------------------------------------------
All Policyowners will be furnished with those reports required by the 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 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.
Phoenix has been addressing the Year 2000 Issue in earnest since 1995 when,
with consultants, a comprehensive inventory
24
<PAGE>
and assessment of all business systems, including those of its subsidiaries,
was conducted. Phoenix hasidentified 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 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.
25
<PAGE>
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
26
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Report of Independent Accountants ............................................28
Consolidated Balance Sheet at December 31, 1997 and 1996 .....................29
Consolidated Statement of Income and Equity for the Years Ended
December 31, 1997, 1996 and 1995 ...........................................30
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 ............................................31
Notes to Consolidated Financial Statements ................................32-58
27
<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
28
<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.
29
<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.
30
<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.
31
<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.
32
<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.
33
<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.
34
<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.
35
<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.
36
<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>
37
<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>
38
<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.
39
<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.
40
<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.
41
<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.
42
<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>
43
<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.
44
<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.
45
<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>
46
<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
=========== ========== ============
47
<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>
48
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The deferred income tax liability (asset) represents the tax effects of
temporary differences attributable to the consolidated tax return group.
The components were as follows:
<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.
49
<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.
50
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The funded status of the plan for which assets exceeded accumulated benefit
obligations was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
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.
51
<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>
52
<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.
53
<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>
54
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. LEASES AND RENTALS
Rental expenses for operating leases, principally with respect to
buildings, amounted to $14.9 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>
55
<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.
56
<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>
57
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following reconciles the statutory surplus and asset valuation reserve
(AVR) of 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.
58
<PAGE>
PHOENIX HOME LIFE
VARIABLE UNIVERSAL LIFE ACCOUNT
FINANCIAL STATEMENTS
DECEMBER 31, 1997
59
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
Strategic
Money Market Growth Allocation
Sub-Account Sub-Account Sub-Account
-------------- ------------- --------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $ 379,893 $ 113,391 $ 2,674
========== ========== ==========
Investment in The Phoenix Edge Series Fund, at market ......... $ 379,893 $ 105,118 $ 2,354
---------- ---------- ----------
Total assets ................................................. 379,893 105,118 2,354
Liabilities
Accrued expenses to related party ............................. 379 41 2
---------- ---------- ----------
Net assets ..................................................... $ 379,514 $ 105,077 $ 2,352
========== ========== ==========
Accumulation units outstanding ................................. 264,296 25,015 845
========== ========== ==========
Unit value ..................................................... $ 1.435943 $ 4.200538 $ 2.782239
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
International Balanced Real Estate
Sub-Account Sub-Account Sub-Account
--------------- ------------- --------------
<S> <C> <C> <C>
Assets
Investments at cost ........................................... $ 25,799 $ 2,352 $ 29,225
========== ========== ==========
Investment in The Phoenix Edge Series Fund, at market ......... $ 24,189 $ 2,352 $ 28,603
---------- ---------- ----------
Total assets ................................................. 24,189 2,352 28,603
Liabilities
Accrued expenses to related party ............................. 2 -- --
---------- ---------- ----------
Net assets ..................................................... $ 24,187 $ 2,352 $ 28,603
========== ========== ==========
Accumulation units outstanding ................................. 13,356 1,326 18,097
========== ========== ==========
Unit value ..................................................... $ 1.810998 $ 1.774067 $ 1.580492
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Strategic Enhanced
Theme Index
Sub-Account Sub-Account
------------- --------------
<S> <C> <C>
Assets
Investments at cost ........................................... $ 615 $ 23,603
========== ==========
Investment in The Phoenix Edge Series Fund, at market ......... $ 551 $ 23,803
---------- ----------
Total assets ................................................. 551 23,803
Liabilities
Accrued expenses to related party ............................. 1 1
---------- ----------
Net assets ..................................................... $ 550 $ 23,802
========== ==========
Accumulation units outstanding ................................. 474 22,332
========== ==========
Unit value ..................................................... $ 1.161310 $ 1.065806
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Wanger Wanger
International U.S.
Small Cap Small Cap
Sub-Account Sub-Account
-------------- -----------
<S> <C> <C>
Assets
Investments at cost .................................... $ 4,828 $ 34,224
========= =========
Investment in Wanger Advisors Trust, at market ......... $ 4,764 $ 34,979
--------- ---------
Total assets .......................................... 4,764 34,979
Liabilities
Accrued expenses to related party ...................... 2 4
--------- ---------
Net assets .............................................. $ 4,762 $ 34,975
========= =========
Accumulation units outstanding .......................... 4,745 26,246
========= =========
Unit value .............................................. $1.003596 $1.332605
========= =========
</TABLE>
See Notes to Financial Statements
60
<PAGE>
STATEMENT OF OPERATIONS
For the period ended December 31, 1997
<TABLE>
<CAPTION>
Strategic
Money Market Growth Allocation
Sub-Account Sub-Account Sub-Account
-------------- ------------- ------------
<S> <C> <C> <C>
Investment income
Distributions .......................................................... $ 788 $ -- $ 14
Expenses
Mortality and expense risk charges ..................................... 167 44 2
------ -------- ------
Net investment income (loss) ............................................ 621 (44) 12
------ -------- ------
Net realized loss from share transactions ............................... -- -- (71)
Net realized gain (loss) distribution from Fund ......................... -- 10,696 369
Net unrealized depreciation on investment ............................... -- (8,273) (320)
------ -------- ------
Net gain (loss) on investments .......................................... -- 2,423 (22)
------ -------- ------
Net increase (decrease) in net assets resulting from operations ......... $ 621 $ 2,379 $ (10)
====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
International Balanced Real Estate
Sub-Account Sub-Account Sub-Account
--------------- ------------- ------------
<S> <C> <C> <C>
Investment income
Distributions ............................................... $ -- $ -- $ 228
Expenses
Mortality and expense risk charges .......................... 1 -- --
-------- ------- ------
Net investment income (loss) ................................. (1) -- 228
-------- ------- ------
Net realized gain distribution from Fund ..................... 1,690 -- 821
Net unrealized depreciation on investment .................... (1,611) -- (622)
-------- ------- ------
Net gain on investments ...................................... 79 -- 199
-------- ------- ------
Net increase in net assets resulting from operations ......... $ 78 $ -- $ 427
======== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Strategic Enhanced
Theme Index
Sub-Account Sub-Account(1)
--------------- ---------------
<S> <C> <C>
Investment income
Distributions .......................................................... $ 1 $ 115
Expenses
Mortality and expense risk charges ..................................... 1 1
-------- ------
Net investment income ................................................... -- 114
-------- ------
Net realized loss from share transactions ............................... (1) --
Net realized gain distribution from Fund ................................ 64 108
Net unrealized appreciation (depreciation) on investment ................ (64) 200
-------- ------
Net gain (loss) on investments .......................................... (1) 308
-------- ------
Net increase (decrease) in net assets resulting from operations ......... $ (1) $ 422
======== ======
</TABLE>
<TABLE>
<CAPTION>
Wanger Wanger
International U.S.
Small Cap Small Cap
Sub-Account Sub-Account
--------------- -------------
<S> <C> <C>
Investment income
Distributions .......................................................... $ -- $ --
Expenses
Mortality and expense risk charges ..................................... 2 6
--------- --------
Net investment loss ..................................................... (2) (6)
--------- --------
Net realized loss from share transactions ............................... (1) --
Net unrealized appreciation (depreciation) on investment ................ (64) 755
--------- --------
Net gain (loss) on investments .......................................... (65) 755
--------- --------
Net increase (decrease) in net assets resulting from operations ......... $ (67) $ 749
========= ========
</TABLE>
(1) 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, 1997
<TABLE>
<CAPTION>
Strategic
Money Market Growth Allocation
Sub-Account Sub-Account Sub-Account
-------------- ------------- ------------
<S> <C> <C> <C>
From operations
Net investment income (loss) ............................................ $ 621 $ (44) $ 12
Net realized gain ....................................................... -- 10,696 298
Net unrealized depreciation ............................................. -- (8,273) (320)
--------- ---------- --------
Net increase (decrease) in net assets resulting from operations ......... 621 2,379 (10)
--------- ---------- --------
From accumulation unit transactions
Participant deposits .................................................... 484,008 101,112 10
Participant transfers ................................................... (99,972) 2,352 2,352
Participant withdrawals ................................................. (5,143) (766) --
--------- ---------- --------
Net increase in net assets resulting from participant transactions ...... 378,893 102,698 2,362
--------- ---------- --------
Net increase in net assets .............................................. 379,514 105,077 2,352
Net assets
Beginning of period ..................................................... -- -- --
--------- ---------- --------
End of period ........................................................... $ 379,514 $ 105,007 $ 2,352
========= ========== ========
</TABLE>
<TABLE>
<CAPTION>
International Balanced Real Estate
Sub-Account Sub-Account Sub-Account
--------------- ------------- ------------
<S> <C> <C> <C>
From operations
Net investment income (loss) ............................................ $ (1) $ -- $ 228
Net realized gain ....................................................... 1,690 -- 821
Net unrealized depreciation ............................................. (1,611) -- (622)
-------- -------- --------
Net increase in net assets resulting from operations .................... 78 -- 427
-------- -------- --------
From accumulation unit transactions
Participant deposits .................................................... 2,067 -- 3,791
Participant transfers ................................................... 22,053 2,352 24,405
Participant withdrawals ................................................. (11) -- (20)
-------- -------- --------
Net increase in net assets resulting from participant transactions ...... 24,109 2,352 28,176
-------- -------- --------
Net increase in net assets .............................................. 24,187 2,352 28,603
Net assets
Beginning of period ..................................................... -- -- --
-------- -------- --------
End of period ........................................................... $ 24,187 $ 2,352 $ 28,603
======== ======== ========
</TABLE>
See Notes to Financial Statements
62
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period ended December 31, 1997
(Continued)
<TABLE>
<CAPTION>
Strategic Enhanced
Theme Index
Sub-Account Sub-Account(1)
------------- ----------------
<S> <C> <C>
From operations
Net investment income ................................................... $ -- $ 114
Net realized gain ....................................................... 63 108
Net unrealized appreciation (depreciation) .............................. (64) 200
------- -------
Net increase (decrease) in net assets resulting from operations ......... (1) 422
------- -------
From accumulation unit transactions
Participant deposits .................................................... 565 1,339
Participant transfers ................................................... -- 22,053
Participant withdrawals ................................................. (14) (12)
------- -------
Net increase in net assets resulting from participant transactions ...... 551 23,380
------- -------
Net increase in net assets .............................................. 550 23,802
Net assets
Beginning of period ..................................................... -- --
------- -------
End of period ........................................................... $ 550 $23,802
======= =======
</TABLE>
<TABLE>
<CAPTION>
Wanger Wanger
International U.S.
Small Cap Small Cap
Sub-Account Sub-Account
--------------- -------------
<S> <C> <C>
From operations
Net investment loss ..................................................... $ (2) $ (6)
Net realized loss ....................................................... (1) --
Net unrealized appreciation (depreciation) .............................. (64) 755
-------- -------
Net increase (decrease) in net assets resulting from operations ......... (67) 749
-------- -------
From accumulation unit transactions
Participant deposits .................................................... 4,877 9,994
Participant transfers ................................................... -- 24,405
Participant withdrawals ................................................. (48) (173)
-------- -------
Net increase in net assets resulting from participant transactions ...... 4,829 34,226
-------- -------
Net increase in net assets .............................................. 4,762 34,975
Net assets
Beginning of period ..................................................... -- --
-------- -------
End of period ........................................................... $4,762 $34,975
======== =======
</TABLE>
(1) From inception September 22, 1997 to December 31, 1997
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"). At December 31, 1997, there were no investments
in the Multi-Sector Fixed Income and the Aberdeen New Asia Sub-Accounts.
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 .................... $453,999 $74,107
Growth........................... 113,409 18
Strategic Allocation ............ 3,672 927
International ................... 25,810 11
Balanced ........................ 2,352 --
Real Estate ..................... 29,225 --
Strategic Theme ................. 629 14
Enhanced Index .................. 23,615 12
Wanger Advisors Trust:
International Small Cap ......... 4,857 29
U.S. Small Cap .................. 34,224 65
</TABLE>
Note 4--Participant Accumulation Unit Transactions (in units)
<TABLE>
<CAPTION>
Sub-Account
----------------------------------------------------------------------
Money Strategic
Market Growth Allocation International Balanced
------------ ---------- ------------ --------------- ---------
<S> <C> <C> <C> <C> <C>
Units outstanding, beginning of period ......... -- -- -- -- --
Participant deposits ........................... 337,515 24,642 (4) 1,166 --
Participant transfers .......................... (69,634) 560 845 12,196 1,326
Participant withdrawals ........................ (3,585) (187) 4 (6) --
-------- ------- ---- ------- -----
Units outstanding, end of period ............... 264,296 25,015 845 13,356 1,326
======== ======= ==== ======= =====
</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 Enhanced International Wanger U.S.
Estate Theme Index Small Cap Small Cap
---------- ----------- ---------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Units outstanding, beginning of period ......... -- -- -- -- --
Participant deposits ........................... 2,464 487 1,287 4,793 7,636
Participant transfers .......................... 15,646 -- 21,057 -- 18,741
Participant withdrawals ........................ (13) (13) (12) (48) (131)
------- ---- ------- ------ -------
Units outstanding, end of period ............... 18,097 474 22,332 4,745 26,246
======= ==== ======= ====== =======
</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 $2,122 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 [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, Strategic Allocation Sub-Account,
International Sub-Account, Balanced Sub-Account, Real Estate Sub-Account,
Strategic Theme 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
66
<PAGE>
PHOENIX HOME LIFE
VARIABLE UNIVERSAL LIFE ACCOUNT
Phoenix Home Life Mutual Insurance Company
One American Row
Hartford, Connecticut 06115
Underwriter
Phoenix Equity Planning Corporation
P.O. Box 2200
100 Bright Meadow Boulevard
Enfield, Connecticut 06083-2200
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
<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 (the "General Account"), which supports
insurance and annuity obligations. Because of exemptive and exclusionary
provisions, interest in the General Account has not been registered under the
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 unloaned portion of the GIA. The loaned
portion of the GIA will be credited interest at an effective annual rate of 2%
(4% on Policies issued in New York). 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 at that time to the GIA. This rate will
likewise remain in effect for a guarantee period of one full year from the date
the new rate is applied.
Excess interest, if any, will be determined by Phoenix based on information
as to expected investment yields. Some of the factors that Phoenix may consider
in determining whether to credit interest to amounts allocated to the GIA and
the amount thereof, are general economic trends, rates of return currently
available and anticipated on investments, regulatory and tax requirements and
competitive factors. ANY INTEREST CREDITED TO AMOUNTS ALLOCATED TO THE GIA IN
EXCESS OF 4% PER YEAR WILL BE DETERMINED IN THE SOLE DISCRETION OF PHOENIX AND
WITHOUT REGARD TO ANY SPECIFIC FORMULA. THE CONTRACT OWNER ASSUMES THE RISK THAT
INTEREST CREDITED TO GIA ALLOCATIONS MAY NOT EXCEED THE MINIMUM GUARANTEE OF 4%
FOR ANY GIVEN YEAR.
Phoenix is aware of no statutory limitations on the maximum amount of
interest it may credit, and the Board of Directors has set no limitations.
However, inherent in Phoenix's exercise of discretion in this regard is the
equitable allocation of distributable earnings and surplus among its various
Policyholders and Contract Owners.
Excess interest, if any, will be credited on the GIA Policy Value. Phoenix
guarantees that, at any time, the GIA Policy Value will not be less than the
amount of premium payments allocated to the GIA, plus interest at the rate of 4%
per year, compounded annually, plus any additional interest which Phoenix may,
in its discretion, credit to the GIA, less the sum of all annual administrative
or surrender charges, any applicable premium taxes, and less any amounts
surrendered or loaned. If the Policyowner surrenders the Policy, the amount
available from the GIA will be reduced by any applicable surrender charge and
annual administration charge. See "Deductions and Charges."
IN GENERAL, YOU CAN MAKE ONLY ONE TRANSFER PER YEAR FROM THE GIA. THE AMOUNT
THAT CAN BE TRANSFERRED OUT IS LIMITED TO THE GREATER OF $1,000 OR 25% OF THE
POLICY VALUE IN THE GIA AS OF THE DATE OF THE TRANSFER. IF YOU ELECT THE
SYSTEMATIC TRANSFER PROGRAM, APPROXIMATELY EQUAL AMOUNTS MAY BE TRANSFERRED OUT
OF THE GIA. ALSO, THE TOTAL POLICY VALUE ALLOCATED TO THE GIA MAY BE TRANSFERRED
OUT OF THE GIA TO ONE OR MORE OF THE SUBACCOUNTS OF THE VUL ACCOUNT OVER A
CONSECUTIVE FOUR-YEAR PERIOD ACCORDING TO THE FOLLOWING SCHEDULE:
YEAR ONE: 25 YEAR TWO: 33%
YEAR THREE: 50% YEAR FOUR: 100%
68
<PAGE>
APPENDIX B
ILLUSTRATIONS OF DEATH BENEFITS, POLICY VALUES ("ACCOUNT VALUES")
AND CASH SURRENDER VALUES
The tables on the following pages illustrate how a Policy's death benefits,
account values and Cash Surrender Value could vary over time assuming constant
hypothetical gross (after tax) annual investment returns of 0%, 6% and 12%. The
Policy benefits will differ from those shown in the tables if the annual
investment returns are not absolutely constant. That is, the figures will be
different if the returns averaged 0% to 12% over a period of years but went
above or below those figures in individual Policy Years. The Policy benefits
also will differ, depending on your premium allocations to each Subaccount of
the VUL Account, if the overall actual rates of return averaged 0% to 12% but
went above or below those figures for the individual Subaccounts. The tables are
for standard risk males and females who have never smoked. In states where cost
of insurance rates are not based on the Insured's sex, the tables designated
"male" apply to all standard risk Insureds who have never smoked. Account values
and Cash Surrender Values may be lower for smokers or former smokers or for risk
classes involving higher mortality risk. Planned premium payments are assumed to
be paid at the beginning of each Policy Year. The difference between the Policy
Value and the Cash Surrender Value in the first 10 years is the surrender
charge. Tables are included for death benefit Option 1 and Option 2. Tables also
are included to reflect the blended cost of insurance charge applied under a
Multiple Life Policy.
The death benefit, account value and Cash Surrender Value amounts reflect
the following current charges:
1. Issue charge of $600.
2. Monthly administrative charge of $20 per month. ($20 per month for Face
Amounts of less than or equal to $400,000; $0.05 per thousand for Face
Amounts of $400,001 up to $1,600,000; and $80 per month for Face Amounts
over $1,600,000.)
3. Premium tax charge of 2.25%.
4. A federal tax charge of 1.5%.
5. Cost of insurance charge. The tables illustrate cost of insurance at both
the current rates and at the maximum rates guaranteed in the Policies. (See
"Charges and Deductions--Cost of Insurance.")
6. Mortality and expense risk charge, which is a daily charge equivalent to
.80% on an annual basis (.25% on an annual basis after the 15th Policy
Year), against the VUL Account for mortality and expense risks. (See
"Charges and Deductions--Mortality and Expense Risk Charge.")
These illustrations also assume an average investment advisory fee of .76%
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 .28%. Management may decide to limit the amount of expense
reimbursement in the future. If this reimbursement had not been in place for the
fiscal year ended December 31, 1997, average total operating expenses for the
Series would have been approximately 1.01% of the average net assets. (See
"Charges and Deductions--Investment Management Charge.")
Taking into account the mortality and expense risk charge and the investment
advisory fees and expenses, the gross annual investment return rates of 0%, 6%
and 12% on the Funds' assets are equivalent to net annual investment return
rates of approximately -1.83%, 4.12% and 10.08%, respectively (applicable for
the first 15 Policy Years for Single Life Policies and -1.29%, 4.70% and 10.68%,
respectively, after the 15th Policy Year for Single Life Policies). For
individual illustrations, interest rates ranging between 0% and 12% may be
selected in place of the 6% rate.
The hypothetical returns shown in the tables are without any tax charges
that may be attributable to the VUL Account in the future. If such tax charges
are imposed in the future, then in order to produce after tax returns equal to
those illustrated for 0%, 6% and 12%, a sufficiently higher amount in excess of
the hypothetical interest rates would have to be earned. (See "Charges and
Deductions--Other Charges--Taxes.")
The second column of each table shows the amount that would accumulate if an
amount equal to the premiums paid were invested to earn interest, after taxes,
at 5% compounded annually. These tables show that if a Policy is returned in its
very early years for payment of its Cash Surrender Value, that Cash Surrender
Value may be low in comparison to the amount of the premiums accumulated with
interest. Thus, the cost of owning a Policy for a relatively short time may be
high.
On request, we will furnish the Policyowner with a comparable illustration
based on the age and sex of the proposed insured person(s), standard risk
assumptions and the initial face amount and planned premium chosen.
69
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
MALE 35 NEVERSMOKE FACE AMOUNT: $250,000
FEMALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,200
<TABLE>
ESTATE EDGE -- A FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING CURRENT CHARGES
<CAPTION>
CASH CASH CASH
ASSUMED PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,200 1,260 67 0 250,000 94 0 250,000 122 0 250,000
2 1,200 2,583 903 0 250,000 993 0 250,000 1,087 0 250,000
3 1,200 3,972 1,723 523 250,000 1,928 728 250,000 2,148 948 250,000
4 1,200 5,431 2,528 1,328 250,000 2,902 1,702 250,000 3,316 2,116 250,000
5 1,200 6,962 3,319 2,119 250,000 3,916 2,716 250,000 4,602 3,402 250,000
6 1,200 8,570 4,095 2,943 250,000 4,971 3,819 250,000 6,018 4,866 250,000
7 1,200 10,259 4,856 3,992 250,000 6,070 5,206 250,000 7,575 6,711 250,000
8 1,200 12,032 5,603 5,027 250,000 7,213 6,637 250,000 9,289 8,713 250,000
9 1,200 13,893 6,336 6,048 250,000 8,403 8,115 250,000 11,175 10,887 250,000
10 1,200 15,848 7,054 7,054 250,000 9,642 9,642 250,000 13,251 13,251 250,000
11 1,200 17,901 8,056 8,056 250,000 11,238 11,238 250,000 15,854 15,854 250,000
12 1,200 20,056 9,038 9,038 250,000 12,900 12,900 250,000 18,718 18,718 250,000
13 1,200 22,318 10,000 10,000 250,000 14,628 14,628 250,000 21,869 21,869 250,000
14 1,200 24,694 10,944 10,944 250,000 16,427 16,427 250,000 25,337 25,337 250,000
15 1,200 27,189 11,869 11,869 250,000 18,297 18,297 250,000 29,152 29,152 250,000
16 1,200 29,808 12,845 12,845 250,000 20,355 20,355 250,000 33,534 33,534 250,000
17 1,200 32,559 13,805 13,805 250,000 22,506 22,506 250,000 38,382 38,382 250,000
18 1,200 35,447 14,750 14,750 250,000 24,755 24,755 250,000 43,744 43,744 250,000
19 1,200 38,479 15,677 15,677 250,000 27,106 27,106 250,000 49,676 49,676 250,000
20 1,200 41,663 16,588 16,588 250,000 29,561 29,561 250,000 56,236 56,236 250,000
@ 65 1,200 83,713 24,919 24,919 250,000 64,554 64,554 250,000 195,305 195,305 250,000
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in
year 33.
Death benefit, account value, and Cash Surrender Value are based on
hypothetical gross interest rates shown, assume current and guaranteed charges
and no policy loans or withdrawals, and are calculated at the end of the Policy
Year. Assumed premium payments shown are assumed paid in full at the beginning
of the Policy Year. Payment of premiums shown other than in full at the
beginning of the Policy Year would reduce values and benefits below the
hypothetical illustrated amounts shown. Values shown reflect an effective annual
asset charge of 1.84% for 15 years, 1.29% thereafter (includes mortality and
expense risk charge of 0.8% for fifteen years, then 0.25% and average fund
operating expenses of 1.04% applicable to the investment Subaccounts of the VUL
Separate Account). Hypothetical gross interest rates are presented for
illustrative purposes only to illustrate funds allocated entirely to the
investment Subaccounts of the VUL Separate Account and do not in any way
represent actual results or suggest that such results will be achieved in the
future. Actual values will differ from those shown whenever actual investment
results differ from hypothetical gross interest rates illustrated. A Guaranteed
Interest Account providing interest at a minimum guaranteed rate of 4% also is
available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
70
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
MALE 35 NEVERSMOKE FACE AMOUNT: $250,000
FEMALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,200
<TABLE>
ESTATE EDGE -- A FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE INSURANCE POLICY OPTION 1
ASSUMING GUARANTEED CHARGES
<CAPTION>
CASH CASH CASH
ASSUMED PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,200 1,260 66 0 250,000 93 0 250,000 121 0 250,000
2 1,200 2,583 900 0 250,000 990 0 250,000 1,084 0 250,000
3 1,200 3,972 1,718 518 250,000 1,922 722 250,000 2,142 942 250,000
4 1,200 5,431 2,518 1,318 250,000 2,890 1,690 250,000 3,304 2,104 250,000
5 1,200 6,962 3,301 2,101 250,000 3,896 2,696 250,000 4,581 3,381 250,000
6 1,200 8,570 4,068 2,916 250,000 4,941 3,789 250,000 5,984 4,832 250,000
7 1,200 10,259 4,817 3,953 250,000 6,025 5,161 250,000 7,525 6,661 250,000
8 1,200 12,032 5,548 4,972 250,000 7,151 6,575 250,000 9,217 8,641 250,000
9 1,200 13,893 6,262 5,974 250,000 8,317 8,029 250,000 11,074 10,786 250,000
10 1,200 15,848 6,957 6,957 250,000 9,527 9,527 250,000 13,114 13,114 250,000
11 1,200 17,901 7,930 7,930 250,000 11,088 11,088 250,000 15,672 15,672 250,000
12 1,200 20,056 8,878 8,878 250,000 12,706 12,706 250,000 18,480 18,480 250,000
13 1,200 22,318 9,799 9,799 250,000 14,382 14,382 250,000 21,563 21,563 250,000
14 1,200 24,694 10,694 10,694 250,000 16,117 16,117 250,000 24,947 24,947 250,000
15 1,200 27,189 11,561 11,561 250,000 17,913 17,913 250,000 28,661 28,661 250,000
16 1,200 29,808 12,468 12,468 250,000 19,878 19,878 250,000 32,919 32,919 250,000
17 1,200 32,559 13,346 13,346 250,000 21,921 21,921 250,000 37,616 37,616 250,000
18 1,200 35,447 14,194 14,194 250,000 24,040 24,040 250,000 42,800 42,800 250,000
19 1,200 38,479 15,007 15,007 250,000 26,237 26,237 250,000 48,517 48,517 250,000
20 1,200 41,663 15,782 15,782 250,000 28,510 28,510 250,000 54,825 54,825 250,000
@ 65 1,200 83,713 19,797 19,797 250,000 57,793 57,793 250,000 186,677 186,677 250,000
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in
year 39.
Death benefit, account value, and Cash Surrender Value are based on
hypothetical gross interest rates shown, assume current and guaranteed charges
and no policy loans or withdrawals, and are calculated at the end of the Policy
Year. Assumed premium payments shown are assumed paid in full at the beginning
of the Policy Year. Payment of premiums shown other than in full at the
beginning of the Policy Year would reduce values and benefits below the
hypothetical illustrated amounts shown. Values shown reflect an effective annual
asset charge of 1.84% for 15 years, 1.29% thereafter (includes mortality and
expense risk charge of 0.8% for fifteen years, then 0.25% and average fund
operating expenses of 1.04% applicable to the investment Subaccounts of the VUL
Separate Account). Hypothetical gross interest rates are presented for
illustrative purposes only to illustrate funds allocated entirely to the
investment Subaccounts of the VUL Separate Account and do not in any way
represent actual results or suggest that such results will be achieved in the
future. Actual values will differ from those shown whenever actual investment
results differ from hypothetical gross interest rates illustrated. A Guaranteed
Interest Account providing interest at a minimum guaranteed rate of 4% also is
available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
71
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 1 OF 2
MALE 35 NEVERSMOKE FACE AMOUNT: $250,000
FEMALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,200
<TABLE>
ESTATE EDGE -- A FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING CURRENT CHARGES
<CAPTION>
CASH CASH CASH
ASSUMED PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,200 1,260 67 0 250,067 94 0 250,095 122 0 250,123
2 1,200 2,583 902 0 250,903 992 0 250,993 1,086 0 251,087
3 1,200 3,972 1,723 523 251,723 1,928 728 251,928 2,148 948 252,148
4 1,200 5,431 2,528 1,328 252,529 2,902 1,702 252,902 3,316 2,116 253,317
5 1,200 6,962 3,319 2,119 253,319 3,915 2,715 253,916 4,602 3,402 254,603
6 1,200 8,570 4,095 2,943 254,095 4,971 3,819 254,971 6,017 4,865 256,018
7 1,200 10,259 4,856 3,992 254,856 6,069 5,205 256,070 7,575 6,711 257,575
8 1,200 12,032 5,603 5,027 255,603 7,213 6,637 257,213 9,289 8,713 259,289
9 1,200 13,893 6,335 6,047 256,336 8,403 8,115 258,403 11,175 10,887 261,175
10 1,200 15,848 7,054 7,054 257,054 9,641 9,641 259,641 13,250 13,250 263,250
11 1,200 17,901 8,055 8,055 258,055 11,237 11,237 261,238 15,852 15,852 265,853
12 1,200 20,056 9,037 9,037 259,037 12,898 12,898 262,899 18,716 18,716 268,716
13 1,200 22,318 9,999 9,999 260,000 14,627 14,627 264,627 21,867 21,867 271,867
14 1,200 24,694 10,943 10,943 260,943 16,424 16,424 266,425 25,333 25,333 275,334
15 1,200 27,189 11,867 11,867 261,867 18,294 18,294 268,295 29,147 29,147 279,147
16 1,200 29,808 12,842 12,842 262,842 20,351 20,251 270,351 33,527 33,527 283,527
17 1,200 32,559 13,802 13,802 263,802 22,500 22,500 272,501 38,371 38,371 288,371
18 1,200 35,447 14,745 14,745 264,745 24,747 24,747 274,748 43,729 43,729 293,729
19 1,200 38,479 15,671 15,671 265,672 27,094 27,094 277,095 49,653 49,653 299,654
20 1,200 41,663 16,579 16,579 266,580 29,546 29,546 279,546 56,205 56,205 306,205
@ 65 1,200 83,713 24,786 24,786 274,786 64,181 64,181 314,181 194,122 194,122 444,123
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in
year 33.
Death benefit, account value, and Cash Surrender Value are based on
hypothetical gross interest rates shown, assume current and guaranteed charges
and no policy loans or withdrawals, and are calculated at the end of the Policy
Year. Assumed premium payments shown are assumed paid in full at the beginning
of the Policy Year. Payment of premiums shown other than in full at the
beginning of the Policy Year would reduce values and benefits below the
hypothetical illustrated amounts shown. Values shown reflect an effective annual
asset charge of 1.84% for 15 years, 1.29% thereafter (includes mortality and
expense risk charge of 0.8% for fifteen years, then 0.25% and average fund
operating expenses of 1.04% applicable to the investment Subaccounts of the VUL
Separate Account). Hypothetical gross interest rates are presented for
illustrative purposes only to illustrate funds allocated entirely to the
investment Subaccounts of the VUL Separate Account and do not in any way
represent actual results or suggest that such results will be achieved in the
future. Actual values will differ from those shown whenever actual investment
results differ from hypothetical gross interest rates illustrated. A Guaranteed
Interest Account providing interest at a minimum guaranteed rate of 4% also is
available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
72
<PAGE>
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY PAGE 2 OF 2
MALE 35 NEVERSMOKE FACE AMOUNT: $250,000
FEMALE 35 NEVERSMOKE INITIAL ANNUAL PREMIUM: $1,200
<TABLE>
ESTATE EDGE -- A FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE INSURANCE POLICY OPTION 2
ASSUMING GUARANTEED CHARGES
<CAPTION>
CASH CASH CASH
ASSUMED PREMIUM ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
PREMIUM ACCUM. VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
YEAR PAYMENTS @ 5.0% @ 0% @ 0% @ 0% @ 6% @ 6% @ 6% @ 12% @ 12% @ 12%
- -------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,200 1,260 66 0 250,067 93 0 250,094 121 0 250,122
2 1,200 2,583 900 0 250,901 990 0 250,990 1,084 0 251,084
3 1,200 3,972 1,717 517 251,718 1,922 722 251,922 2,142 942 252,142
4 1,200 5,431 2,518 1,318 252,518 2,890 1,690 252,891 3,304 2,104 253,304
5 1,200 6,962 3,301 2,101 253,301 3,896 2,696 253,896 4,581 3,381 254,581
6 1,200 8,570 4,067 2,915 254,068 4,940 3,788 254,941 5,983 4,831 255,984
7 1,200 10,259 4,816 3,952 254,817 6,024 5,160 256,025 7,523 6,659 257,524
8 1,200 12,032 5,547 4,971 255,548 7,149 6,573 257,149 9,215 8,639 259,215
9 1,200 13,893 6,260 5,972 256,260 8,314 8,026 258,315 11,071 10,783 261,071
10 1,200 15,848 6,954 6,954 256,955 9,523 9,523 259,523 13,109 13,109 263,109
11 1,200 17,901 7,926 7,926 257,927 11,082 11,082 261,083 15,664 15,664 265,664
12 1,200 20,056 8,872 8,872 258,873 12,698 12,698 262,698 18,468 18,468 268,468
13 1,200 22,318 9,792 9,792 259,793 14,370 14,370 264,371 21,545 21,545 271,545
14 1,200 24,694 10,685 10,685 260,685 16,101 16,101 266,102 24,921 24,921 274,921
15 1,200 27,189 11,548 11,548 261,549 17,891 17,891 267,891 28,624 28,624 278,624
16 1,200 29,808 12,450 12,450 262,451 19,848 19,848 269,849 32,865 32,865 282,866
17 1,200 32,559 13,323 13,323 263,324 21,879 21,879 271,880 37,541 37,541 287,542
18 1,200 35,447 14,164 14,164 264,164 23,984 23,984 273,985 42,694 42,694 292,694
19 1,200 38,479 14,968 14,968 264,968 26,162 26,162 276,162 48,370 48,370 298,371
20 1,200 41,663 15,731 15,731 265,732 28,411 28,411 278,411 54,621 54,621 304,622
@ 65 1,200 83,713 19,265 19,265 269,265 56,180 56,180 306,181 181,332 181,332 431,333
</TABLE>
Based on 0% interest rate and guaranteed charges, the policy will lapse in
year 38.
Death benefit, account value, and Cash Surrender Value are based on
hypothetical gross interest rates shown, assume current and guaranteed charges
and no policy loans or withdrawals, and are calculated at the end of the Policy
Year. Assumed premium payments shown are assumed paid in full at the beginning
of the Policy Year. Payment of premiums shown other than in full at the
beginning of the Policy Year would reduce values and benefits below the
hypothetical illustrated amounts shown. Values shown reflect an effective annual
asset charge of 1.84% for 15 years, 1.29% thereafter (includes mortality and
expense risk charge of 0.8% for fifteen years, then 0.25% and average fund
operating expenses of 1.04% applicable to the investment Subaccounts of the VUL
Separate Account). Hypothetical gross interest rates are presented for
illustrative purposes only to illustrate funds allocated entirely to the
investment Subaccounts of the VUL Separate Account and do not in any way
represent actual results or suggest that such results will be achieved in the
future. Actual values will differ from those shown whenever actual investment
results differ from hypothetical gross interest rates illustrated. A Guaranteed
Interest Account providing interest at a minimum guaranteed rate of 4% also is
available under this product through the General Account.
This illustration assumes a premium tax of 2.25%.
73
